I always look forward to the EIA’s monthly release of the Short Term Energy Outlook as an excellent snapshot of what is going on in the world of oil supply/demand… Here is one nugget (my bold):
“U.S. oil rigs and WTI prices: Baker Hughes’ U.S. crude oil rotary rig count, which serves as an indicator of active U.S. crude oil production capacity, reached a low of 172 active rigs on August 14, 2020 (Figure 2). Since then, the number of U.S. oil rigs has more than doubled, increasing by 187 rigs to a total of 359 rigs as of May 28. The pace at which crude oil producers deploy drilling rigs at any price level is an important driver of crude oil production in U.S. tight oil basins.
We expect that the rig count is likely to continue to increase in response to WTI crude oil prices rising from less than $50/b in late 2020 to a monthly average of $65/b in May. Our models show changes in rig counts typically lag behind changes in the WTI price from between three and six months, and production typically comes online about two months after rig deployment. Assuming that other factors remain constant, price increases over the past month will likely continue to drive rig deployments through much of the rest of 2021. However, the recent changes in rig counts indicate operators, notably in the Permian, could be deploying fewer rigs at current oil prices than they have previously deployed when oil prices were at similar levels. In the forecast, we have slightly reduced the responsiveness of rig deployments in the Permian to upward oil price movements.“