In its most recent rig count, Baker Hughes indicated that natural gas drilling rigs in the United States had reached their lowest level in its historical record, which dates back to July of 1987. For the report dated February 12, 2016, natural gas rigs are down to only 102 rigs. That’s down from a high of 1,602 recorded on September 12, 2008. With natural gas prices at a little over $2/MCF there is little incentive for energy producers to make the drilling investment required to start up new drilling programs. Natural gas drillers need almost double this amount to make it worth their while.
The same can be said of oil. While not at their lowest levels, drilling rigs have experienced a precipitous decline in the face of record low oil prices. The oil rig count reached 439, down from a record high that was seen on October 10, 2014 of 1,609 rigs. February has seen oil touch the $26 dollar per barrel mark on multiple occasions during the month’s trading sessions. This has caused energy companies everywhere to idle their rigs until a profitable price point can be found in the market. Most experts believe that new drilling programs will not emerge in the United States until oil reaches the $$60/barrel price range. This price was touched in the Summer of 2015, when a noticeable increase in oil field drilling occurred. The “blip” caused OPEC to take notice and deliver even more oil to the market than they had planned. Probably the biggest reason there’s such a glut of oil supply right now.
During it’s most recent reporting period, OPEC was reporting that it had produced over 32 million barrels per day, which is approximately 2 million barrels over their stated production number in 2014. This relentless production which increases every time global production decreases is a perpetual game of cat and mouse. If it continues, investment dollars will be so scarce, that when prices do actually recover, meeting demand will be next to impossible. With respect to natural gas, lets just say it’s almost the “perfect storm.” We had record high temperatures during the cooling season which led to a significant decline in consumption. While production is coming down, it’s not coming down fast enough. The silver lining (though) is the increased use of natural gas for electric power generation and America’s new ability to export liquefied natural gas (LNG.) While it’s terrible for the coal industry, it will eventually be a boon for natural gas producers. Again, with record low rig counts, a spike or two is in the cards for the price of natural gas. Oil will depend almost entirely on OPEC and their ability to strike a deal with other oil producing nations.