The US oil industry may be nearing a turning point as evidence suggests a slowdown in the aggressive rig cuts that have characterized the past year. Last week’s unexpected increase in the oil rig count by five to 482 marks the lowest level in over two years, according to Baker Hughes. While this number is still notably lower than the peak of 511 rigs seen in late January, it signals a potential bottoming out of the downward trend.
This development comes as oil production has remained relatively stable at around 13.3 million barrels per day, indicating that producers have been maximizing output from existing wells rather than relying on new ones. In contrast, the gas rig count declined by two to 101, reflecting the impact of lower gas prices, which hit a three-month low last week.
The overall rig count, encompassing oil, gas, and miscellaneous rigs, stands at 589, a significant drop from 664 a year ago. This decline reflects the industry’s response to lower commodity prices and economic uncertainties.
Crude oil prices experienced a decline last week, with West Texas Intermediate (WTI) falling nearly 2.4% to $76.44 per barrel. Brent crude also faced downward pressure, closing the week at $79.85, a 3.28% decrease. These price drops occurred despite falling US oil inventories, indicating that concerns over weakening Chinese demand are outweighing the impact of tightening supply.
While the increase in oil rigs is a modest one, it could signal a shift in industry sentiment. If oil prices stabilize and improve, it is possible that we could see a more pronounced uptick in rig activity as producers seek to capitalize on higher margins. However, the overall outlook for the oil industry remains clouded by economic uncertainties and geopolitical tensions, which could impact both supply and demand.
It will be crucial to monitor the rig count in the coming weeks and months to determine if this is indeed a turning point or simply a temporary blip in the overall downward trend.