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Will Crude Oil Prices Outperform in 2H17?

PART:
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Part 5
Will Crude Oil Prices Outperform in 2H17? PART 5 OF 5

Will Rising US Drilling Costs Impact US Production?

US crude oil rig count 

On July 14, 2017, Baker Hughes (BHI) released its weekly US crude oil rig count report. Baker Hughes reported that the US crude oil rig count rose by two to 765 on July 7–14, 2017. The US crude oil rig count rose 0.3% for the week ending July 14, 2017—compared to the previous week. The rig count also rose 114.3% from the same period in 2016.

Will Rising US Drilling Costs Impact US Production?

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US crude oil rig count and production

The US crude oil rig count has risen 142% from the lows in May 2016. US crude oil production has risen 12% in the last 12 months. Crude oil (IEZ) (XES) (USO) prices have fallen ~18% YTD, partially due to the rise in US crude oil production.

So far, the massive rise in rigs could lead to a rise in US crude oil production. It would also weigh on crude oil prices in the coming months.

US drilling costs 

The U.S. Bureau of Labor Statistics estimates that US crude oil drilling costs have risen 8% in June 2017—compared to the lows in November 2017. President Trump’s energy plans could also increase US drilling activity. It would also lead to a rise in drilling costs. It would have a positive impact on oil drillers’ earnings like Rowan Companies (RDC), Transocean (RIG), and Diamond Offshore (DO).

Impact 

A market survey shows that $57 billion has been invested in US shale oil production in the last 18 months. The IEA (International Energy Agency) thinks that investing in US shale oil production will rise in the next few years. It expects a 3% rise in US shale oil and gas exploration investments in 2017. The production cut deal would support crude oil prices and US crude oil production. The IEA expects improving US crude oil production and breakeven costs to support US producers. The rise in drilling activity would boost US crude oil production.

Read Will the Crude Oil Futures Rally Be Short-Lived? and OPEC and Non-OPEC Meeting Could Drive Crude Oil Futures to learn more about crude oil.

For more on crude oil price forecasts, read Analyzing Hedge Funds’ Net Long Position on US Crude Oil.

Read Will Natural Gas Outperform in 2H17? for more on natural gas.

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