Wednesday, October 24, 2012
I discussed the US oil rig count the other day. It seems helpful to place this in the context also of gas drilling, so the above graph shows US oil and gas rigs together. You can see that much of the oil rig boom of the last two years is really a transition of pre-existing gas rigs to oil. Gas drilling has collapsed after the gas companies overdid it and tanked the price of natural gas.
It seems to have been this rapid wholesale transition of gas rigs to oil that led to the WTI-Brent price spread of the last few years as the additional oil could not easily be brought to market through an infrastructure that had not yet been optimized for it. Landlocked oil instead had to be discounted to persuade reachable consumers to use more of it.
The total US rig count appears to have been declining in 2012. Gas rigs continue to decline and oil rigs have stopped growing, at least for the time being:
I wonder if this presages the beginning of the end for the WTI-Brent spread?