The oil industry in the U.S. and abroad continues to face new challenges. It seems as though when one problem is corrected, a new set of issues arise. The latest rig count data is in from Baker Hughes and it offered an interesting look at the current and potential future state of the U.S. oil industry.
Prices have fallen by more than 8% since last Monday as inventories continue to rise. The U.S. added a total of 12 new rig operations this past week and it’s causing some commotion around the world. U.S. drillers added eight oil rigs last week which now total 717. This is the eighth straight week where the oil rig count inched higher. It’s up 60% year-over-year and up over 95% since it bottomed out last May. The U.S. also added five gas rigs last week and lost one miscellaneous rig. The total count for gas rigs in the U.S. is 151, up 60% year-over-year.
Oil producers struggled over the past couple years as the price of oil plunged to historic lows in February of 2016. A mix between oversupply and lack of demand drove the prices down and had a huge impact on economies all over the world. The Organization of Petroleum Exporting Countries (OPEC) came up with a six-month agreement to help curb the oversupply of oil on the global market. By capping production, the countries included in the agreement would help stabilize supply and demand. It worked for a while, instilling confidence in the market and helping to drive prices back to above $50 a barrel. However, now that the U.S. continues to expand their oil operations and inventories rise once again, the global oil industry is starting to fear that U.S. actions will outweigh OPEC’s production cap.
“There is growing skepticism that the production cut has been enacted long enough to take care of the overhang, – The longs who piled in last year are turning on the market because there seems to be a realization that a six-month agreement isn’t long enough to rebalance the market.” said Gene McGillian, director of market research at Tradition Energy. http://reut.rs/2mDjDAH
OPEC’s production cut will only last until June, so U.S. oil operations must plan for the future. Shale operations in the US have become much more lean and efficient, a necessity to survive in today’s volatile industry. This might be able to help them through the next dip in price as they capitalize on current prices. However, if OPEC refuses to continue their production cut and the U.S. continues to increase the number of rigs and increase inventories, the world may see another dramatic drop in price in the near future.
For more information on how U.S. manufacturing have bolstered their operations, using lean thinking to ride out low prices, take a look here: http://mfgtalkradio.com/new-face-us-oil-industry-thinking-lean/
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