After OPEC, led by Saudi Arabia and Russia, arrived at a consensus to contain oil production, I wrote that the real threat for Saudi Arabia was not Iran, but the US shale producers.
Some of my critics said that I suffer from US-phobia and try to portray whatever happens on the earth as part of US conspiracy. Nevertheless, this morning when I read a news article from Reuters about the increasing number of rig counts in the US, it gave me a feeling that I was not mislead by the western media, but right in saying that with the hike in crude oil prices, the rig count in the US would jump dramatically.
According to the Baker Hughes, US energy companies have added oil rigs for an eighth week in a row as crude oil prices rose to a 17-month high. During the week ended December 23, 2016 the total rig count went up by 523, the most since December 2015.
The report also said that by May this past year rig count had plunged to 316, from a record high of 1,609 in October 2014. This decline could be attributed to crude oil prices that plunged to US$26/barrel in February 2016 from US$107/barrel in June 2014.
The report also indicated that oil and gas rigs counts would average above 500 in 2016, around 750 in 2017 and above 900 in 2018. This confirms the news that while other oil producing countries have curtailed fresh investment, US shale producers continued production without filing bankruptcy under Chapter 11.
The Reuters news should be an eye opener for oil producing countries, particularly Saudi Arabia, Iran and Iraq. This should not be the first to cut production and let the crude oil prices rise. If they want to keep US shale producers under pressure, they will have to keep crude oil prices below US$35/barrel. This may be painful, but it is the only option to bring down the number of active rigs in the US. They should also keep an eye on E&P companies filing bankruptcy under Chapter 11.