US oil, gas rig count sheds four on week to 633 as analysts see resilience in supply, price

The US oil and natural gas rig count fell by four to 633 rigs for the week ended Aug. 21, S&P Global Commodity Insights data showed, as analysts said they are seeing recent evidence of resilience in oil supply and gas prices by year-end.

In each of the eight large unconventional basins, the domestic rig count either did not move much up or down, or was unchanged, although three of the five oil basins gained rigs and two of the three gas basins lost rigs, according to Aug. 29 Commodity Insights data.

Moreover, gas-directed rigs fell prey to the four-rig weekly loss, falling to 95, while oil-oriented rigs remained unchanged at 538, the analysis showed.

The total number of domestic oil and gas rigs has stayed relatively rangebound in the 630s for nearly four months, although the average has dropped a bit so far in the third quarter of 2024 from upstream operator efficiencies in well drilling that resulted in fewer units needed in the field. In addition, M&A transactions have caused some rig pullbacks as operators pause drilling during the pre- and post-transition closing periods to gauge their forward programs, analysts say.

So far, the average Q3 rig count is 633, compared with 641 in Q2 and 662 in Q1.

Even as rigs remain at relatively low levels amid stable crude prices, oil production may surprise to the upside as 2024 winds down, while gas could see a year-end trough and price pick-up into 2025, analysts say.

"Despite a significantly lower rig count and ongoing M&A wave, US tight oil activity appears more resilient than we believe is broadly appreciated," especially in the Permian Basin, Walt Chancellor, energy strategist at global financial services advisory firm Macquarie, said in an Aug. 27 investor note.

'Eventual upside surprise' in oil supply?

"While we had previously seen the potential for increased efficiency and reduced costs functioning as counter-cyclical tailwinds, these forces now appear more prominent in the 2024/2025 shale landscape," Chancellor said. "Although the timing and magnitude remain uncertain, we see these factors driving an eventual upside surprise in US oil supply.

"Further, we feel confident [that] underlying shale fundamentals [are] driving continued, meaningful US oil growth, should crude hold in the current price range," he added.

While acknowledging some persistent uncertainty, Chancellor projects US oil production exiting 2024 at 13.9 million b/d, well above the current forecast of 13.4 million b/d in Q4 by both the US Energy Information Administration and Commodity Insights. Commodity Insights has projected 13.5 million b/d for December alone. Those figures are up from 12.9 million b/d in Q1 and 13.25 million b/d in Q4 2023.

Increases should come from the US Gulf of Mexico and unconventional shale resources, Chancellor said.

EIA has pegged USGC oil output at 1.82 million b/d in Q4 2024, while for Commodity Insights, the respective figure is 1.88 million b/d, up from 1.78 million b/d in Q1 2024.

For shale production, "Q2 earnings from public producers showed strong organic sequential growth, with more visible 2024 growth emerging in company guidance," Chancellor said. "Although public company guidance bridges a portion of the anticipated about 500,000 b/d of exit-exit [Q4 2023 to Q4 2024] Lower 48 land growth we model this year, implicitly our outlook calls for meaningful growth from private companies as well."

Gas-price bottom may be 'pretty close'

While analysts are not nearly so optimistic on the gas front for 2024, a long spell of low gas prices may be "pretty close" at hand, Leo Mariani, an upstream analyst at investment bank Roth MKM, said in an Aug. 28 investor note.

While advising Macquarie is cautious about calling "tops and bottoms" in commodity markets, a near-term bottom is approaching roughly around Q4 for an absolute price, although the September and October shoulder months could still stay soft, Mariani said.

"We see price upside into the winter on the start-up of two new Gulf Coast LNG export facilities in Plaquemines [Parish in Louisiana] and Corpus Christi Stage 3, which should happen in Q4 2024, as well as continued discipline by public producers as we think new gas drilling and completion activity will stay more subdued until Henry Hub prices recover closer to $2.75 to $3/Mcf," he said.

NYMEX natural gas futures settled at $1.93/Mcf on Aug. 28, up 3 cents.

"We are currently forecasting $3.00/Mcf gas prices in 2025, which is still a bit below CMA futures prices of around $3.20/Mcf and we expect a lot of volatility in prices next year, with some likely challenging periods in the shoulder months," he added.

For the week ended Aug. 21, the Permian Basin was up two rigs to 297, while the Williston Basin and SCOOP-STACK play were each up by one, to 37 and 29, respectively, according to Commodity Insights rig data. The DJ Basin lost a rig, leaving 10, while the Eagle Ford Shale stayed at 49 week on week. All five are primarily oil basins.

Among gas basins, the Utica Shale was down two rigs to eight, while the Hayneville Shale was down by a rig to 38—the lowest count that basin has been since 2020, save for the first week of June, when it was 36. Apart from that, the Haynesville has not been 38 or lower since Q4 2020.