{"id":92674,"date":"2016-07-09T17:33:53","date_gmt":"2016-07-09T21:33:53","guid":{"rendered":"http:\/\/countingpips.com\/?p=92674"},"modified":"2016-07-09T17:33:53","modified_gmt":"2016-07-09T21:33:53","slug":"morgan-stanley-warns-that-rising-rig-count-could-undo-the-rally","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/07\/morgan-stanley-warns-that-rising-rig-count-could-undo-the-rally\/","title":{"rendered":"Morgan Stanley Warns That Rising Rig Count Could Undo The Rally"},"content":{"rendered":"
July 9, 2016<\/div>
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By OilPrice.com<\/strong><\/p>\n

In an industry where anything could happen, surprises\u2014often unwelcomed\u2014are hard to come by. Oil is exactly such an industry at the moment. No one is sure where oil is heading, near-tem forecasts range from $20<\/a> to $80<\/a> per barrel by the end of the year, and there are just too many wild cards on the scene.<\/p>\n

So, in a sense, the news<\/a> that shale producers are launching more drilling rigs is not really news at all. It was expected, the companies themselves said they are ready to start ramping-up production as soon as prices reach some more reasonable level. What\u2019s new, perhaps, is Morgan Stanley\u2019s warning that production from the new wells being drilled could prompt a reversal of forecasts that U.S. crude production is falling and will continue to fall.<\/p>\n

Morgan Stanley commodity strategist Adam Longson, who led the team that researched the situation, said that this reversal carries a downside risk for oil prices. According to Longson\u2019s team, \u201cThe rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak.\u201d That\u2019s impressive on its own, but the other thing that\u2019s new is where all these new rigs are concentrated: in high-yield fields. This means that the ramp-up could be pretty significant.<\/p>\n

As Forbes author Art Berman wittily notes<\/a>, rigs don\u2019t produce oil, wells produce oil. What\u2019s more, even a decline in the rig count does not necessarily signal a respective decline in output. On the contrary, as a Baker Hughes figure shows, while rigs have been in steady and sharp decline since 2014, the number of wells continued to climb throughout the period to February 2016.<\/p>\n

Things may have stalled for a bit after prices tanked below $30, but now that they have recovered, shale boomers are eager to start pumping more. And prices, of course, reacted to drop well below that dream price level of $50. It wasn\u2019t just the rig count that drove them down; to be fair, Brexit had a central role, but that doesn\u2019t negate the effect of the higher rig count.<\/p>

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Oil producers in the shale patch are aware that they are walking a very fine line. Yet, they don\u2019t really have a lot of options. Talk about rising drilling efficiency and official data<\/a> that supports it doesn\u2019t pay down debt, and this is what shale boomers have in abundance<\/a>.<\/p>\n

What they don\u2019t have is space for maneuvering as lenders tighten credit<\/a>. Basically, they can\u2019t continue to curb production, but they must be very careful by how much they increase it. It\u2019s a precarious situation. All that shale boomers can do is continue to work on efficiency and hope that the Brexit fallout subsides quickly.<\/p>\n

Link to original article: http:\/\/oilprice.com\/Energy\/Crude-Oil\/Morgan-Stanley-Warns-That-Rising-Rig-Count-Could-Undo-The-Rally.html<\/a><\/p>\n

By Irina Slav for Oilprice.com<\/a><\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By OilPrice.com In an industry where anything could happen, surprises\u2014often unwelcomed\u2014are hard to come by. Oil is exactly such an industry at the moment. No one is sure where oil is heading, near-tem forecasts range from $20 to $80 per barrel by the end of the year, and there are just too many wild cards […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-92674","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=92674"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92674\/revisions"}],"predecessor-version":[{"id":92675,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92674\/revisions\/92675"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=92674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=92674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=92674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}