US rig plunge seen hastening recovery

The plunge in US drilling should help the oil market recover faster than had been expected, says an Oppenheimer analyst.

The plunge in US drilling should help the oil market recover faster than had been expected, says an Oppenheimer analyst.

In a research report on the oil field services industry, James Schumm predicts a bottoming of the US rig count—now in “one of the sharpest activity reductions over the past 30-plus years”—by midyear.

Schumm expects the current cycle, the downturn of which began in December, to follow patterns of the prior two drilling slumps in 2001 and 2008. If it does, the trough will occur in June at about 900 rigs, down 53% from the peak in September.

Earlier, Oppenheimer expected the downturn to last longer because of a high number of land rigs under contract.

“However, many operators chose to pay early termination fees to react more swiftly to lower oil prices,” Schumm writes.

The faster drilling response, in turn, will hasten the market correction.

“We are likely to see a faster production response that should bring world oil markets into balance more quickly,” Schumm says.

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