Forbes Piece: How To Explain The Falling U.S. Rig Count Amid Rising Oil Prices

ODESSA, TEXAS - MARCH 13: Drilling rigs sit unused on a company lot located in the Permian Basin area on March 13, 2022 in Odessa, Texas. (Photo by Joe Raedle/Getty Images)

[Note: This story is also published at Forbes.com]

In the past, oil and gas drillers in the United States would invariably activate every dormant drilling rig they could locate and rent whenever commodity prices rose substantially. They would not only activate the rigs, but they would ramp up drilling budgets until they inevitably drilled so many wells that the resulting supply response overwhelmed global demand and crashed prices to lower levels than when the boom began.

One of my good friends had a saying for this highly predictable phenomenon: “You can always rely on the industry to drill itself out of prosperity,” he would say. He retired a few years ago, but if he were still active, he would have to modify his dictum now to conform it to today’s new reality. Because it seems we can’t rely on the industry to do this to itself these days.

Prices Rise, Rig Counts Drop

The U.S. industry’s new reality sees the domestic active rig counts dropping even in the face of some of the strongest commodity prices in history. For the week just past, both Baker Hughes and Enverus reported double-digit drops in their respective counts. The Baker Hughes count published Friday fell by 11, and now stands 149 rigs lower than it stood at the first of the year.

The Enverus weekly count, released Thursday, fell by a full dozen from the previous week, and is now down for the year by over 20%. Both counts are roughly 40% lower than at the end of 2019, despite the fact that crude prices are more than $30/bbl higher today than they were then.