RigData Insights

New Transparency, Driller-Operator Cooperation Reining Day Rate Volatility

  • Monday, January 29, 2018
  • Posted By Meagan Wildfong

RADAR012918 Source: RADAR | January 4, 2018

 

The ongoing changes in US land rig day rates are mirroring the evolution of drilling activity in this country.

 

Most notably, the recent swings in the US drilling cycle have been echoed in sequential changes in day rates. That may not seem to be a profound revelation by itself, but it appears that the shifts are being communicated to—and acted upon by—the contract drilling community faster than ever.

 

Here’s an analogous trend in oil and gas history: Before crude oil and natural gas deregulation allowed the rise of commodity future contracts in this business, commodity pricing markets were fairly opaque compared with pricing nowadays. In the past, crude oil prices were typically communicated via posted notices to refiners and other buyers; on the bigger stages they were controlled by the Seven Sisters and later OPEC. Stability in oil pricing was both the goal and the result, and changes in oil prices were slow in coming and slow in being communicated to the market.

 

But geopolitical shenanigans undermined that market stability, and oil markets needed new financial instruments for increasing profit as well as hedging risk. The arrival of futures contracts and other derivatives brought a new transparency and immediacy to oil markets—to the point where they became a crucial driver of price changes and market speculation.

 

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