New US Oil Well Permits Collapse 40% In November, Fed Still "Not Worried"?

Houston, we have a problem-er. With a third of S&P 500 capital expenditure due from the imploding energy sector (and with over 20% of the high-yield market dominated by these names), paying attention to any inflection point in the US oil-producers is critical as they have been gung-ho "unequivocally good" expanders even as oil prices began to fall. So, when Reuters reports a drop of almost 40 percent in new well permits issued across the United States in November, even The Fed's Stan Fischer might start to question his lower oil prices are "a phenomenon that’s making everybody better off," may warrant a rethink.


As Reuters reports,

Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October.


The pullback was a "very quick response" to U.S. crude prices, which settled on Tuesday at $66.88 CLc1, said Allen Gilmer, chief executive officer of Drilling Info.


New permits, which indicate what drilling rigs will be doing 60-90 days in the future, showed steep declines for the first time this year across the top three U.S. onshore fields: the Permian Basin and Eagle Ford in Texas and North Dakota's Bakken shale.


Gilmer said last month's pullback in permits was more about holding off on drilling good locations in a low-price environment than breaking even on well economics.


"I think in this case this was just a quick response, saying 'there are enough drill sites in the inventory, let's sit back, take a look and see what happens with prices,'" he said.

The specifics are intriguing given the cost curves...

The Permian Basin in West Texas and New Mexico showed a 38 percent decline in new oil and gas well permits last month, while the Eagle Ford and Bakken permit counts fell 28 percent and 29 percent, respectively, the data showed.


In addition to the Permian, Eagle Ford and Bakken, about 10 other regions tracked in Drilling Info's data showed declines as well. The Niobrara shale in Colorado and Wyoming saw a 32 percent decline in new permits, while the Granite Wash in Oklahoma and Texas and Mississippian Lime in Oklahoma and Kansas retreated 30 percent and 27 percent, respectively.



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This is a precursor to more pain...

Gilmer said the pullback in new permits is a precursor to a decline in rigs. The U.S. land rig count has been largely flat since September, hovering around 1,860 oil and gas rigs, according to Baker Hughes Inc.


"This will show up," he said. "I expect we'll start seeing rig impact in a couple of months."

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Of course, this should all be ignored because - like the NRF's reporting of a double-digit decline in Black Friday sales and slowing Cyber Monday - it would break the narrative for the US economic recovery, lower oil prices are "unequiviocally good" narrative!


Chart: Barclays