US Oil Rig Count Rises But "Must Drop 150 For Oil Markets To Balance"

Tyler Durden's picture

After falling for the first time this year last week, Baker Hughes reports US oil rig count rose once again (as perhaps Cindy impacted drilling last week) for the 23rd week in the last 24.



This week saw a resurgence in US crude production (as Cindy's effects wear off)...This is the highest Lower 48 production since Aug 2015...

And it is that production spike that poured coled water on the short-lived rally after DOE showed inventories dropping. However, as's Tsvetana Paraskova notes, the rig count needs to drop drastically further if any equilibrium in the global oil market is possible...

Analysts and investors have been growing increasingly concerned that the OPEC-led production cuts would not be enough to bring the oil market back to balance, and now one investment bank, Morgan Stanley, is saying that if the market stands any chance of rebalancing next year, U.S. shale possibly needs to drop around 150 rigs.

“If OPEC doesn’t balance the market, the oil price will have to force it somewhere else, most likely in U.S. shale. For a chance of a balanced market in 2018, the U.S. rig count can no longer grow and possibly needs to contract ~150 rigs. Given current break-evens, this requires WTI between $46-50,” Morgan Stanley analysts said in a research report on Thursday, as quoted by MarketWatch.

According to Morgan Stanley, despite OPEC’s cuts, global inventory levels are currently around the same high as they were last year.

"To support prices in the mid-$50s, OPEC-12 would probably need to lower production by another 200,000-300,000 barrels a day and extend the output agreement to end-2018. We find this unlikely,” the bank’s analysts said.


“The combination of little impact on physical balances, but a strong signal to invest has meant that the OPEC cuts have had a perverse effect: on current trends, the oil market would be oversupplied again in 2018,” Morgan Stanley warned. And they see U.S. rig count in need of dropping between 120 and 180 rigs to keep oil output from flooding the market.

Last week, the number of active oil and gas rigs in the United States fell by a single rig, ending the US shale patch’s impressive run of 23 weeks of steady gains, but oil and gas rigs in the United States are still 509 rigs up from this time last year.

Morgan Stanley not only warned that the glut will be here to stay next year, but it also slashed its oil price forecasts for Q3 and Q4 2017 for both WTI and Brent. The analysts cut their forecast for WTI price for the rest of this year to US$48 per barrel from the previous forecast of US$55. Brent forecast was lowered to US$50.50 from US$57.50.

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realmoney2015's picture

In 1930 a gallon of gas costs silver 2 dimes. In 2017 a gallon of gas costs 2 silver dimes. Problem is our dimes no longer have silver.

Before/when we fix the economy we need to fix our money. And never let government or a private bank cartel control the supply again. 

totenkopf88's picture

Epic battle of defending $44/barrel today

hobbie's picture

If i'd be long on oil i'd try to pay investors attention to Canada data. And declare that it shows the oil prices start to hurt output. And not to put attention to US data cause not everywhere in the world costs are as low as they're in US.

Just trying to predict, what can be used to make Gartman cover his short :)

kavabanga's picture

Yeah oil goes down. But ?robably it's enough for today. Om Monday will retrace a bit and continue the downtrend.

Horse Pizzle's picture

Saudi Arabia budget deficit is $28 Billion/year against reserves of $500 Billion and welfare population of 30 million doubling every 25 years.  The Saudi population exceeds the carrying capacity of the sand. 

Stan Smith's picture

Who believes global markets will actually cut production?   Not me.   Slow down, maybe.    But slowing down from having the spigots on full blast for months is going to do virtually nothing.

Vilfredo Pareto's picture

Slowing down benefits producers.  I want to see consumers benefit.  

Vilfredo Pareto's picture

Yeah, to "balance" at a higher price.


I wanna see gasoline drop below one buck per gallon.


MAGA!  Bitchez

south40_dreams's picture

Supply and demand affect prices? Since when!