Source: RADAR | October 2, 2017

The US active land rig count remained in a hovering pattern at around 900 active rigs during the month of October. Similar to the previous month’s behavior, the rig count fell slightly—by -1.5%, or -13 rigs, sequentially—to average 904 rigs actively drilling throughout October.

However, the catalysts for the flattening in each month’s average count were different. During September it was fewer natural gas rigs drilling, and in October it was fewer oil rigs drilling that resulted in the month-to-month decline in the overall rig count.

The current week’s total count was 912 rigs, down 3 versus the prior week’s figures. Similar to what was happening with the monthly averages, a few rigs in the Permian (an oilier region) were idled, while the Appalachian (host to natural gas drilling) count advanced for the past week. Where the rigs have gone idle of late is interesting because the changes fly in the face of what has happened in the commodities markets.

Front month WTI settled at $54.38/ bbl on October 31. Backwardation is beginning to spread along the oil futures curve over the near term, which is helping clear barrels from the market and is setting up the market for better WTI crude prices heading into 2018.

Natural gas prices were down 3% over the past 7 days, showing a little bit of weakness that contrasts with how oil prices have advanced in recent trading days. Specifically, NYMEX front month gas settled at $2.896/ MMBtu on Tuesday vs. $2.974/MMBtu the same day a week ago.

We suspect these inverse relationships between underlying commodity prices and rig counts are reflecting a lagged reaction to price conditions several weeks back. When the rig counts get back in sync with a typical response to changes in price, then we expect that this will result in the rig count firming up a little.

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