American Consequences - January 2021

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Baker Hughes U.S. Oil and Gas Rotary Rig Count U.S. rig count hits lowest on record

It’s a rather obscure- sounding monthly data point. Specifically, it’s the number of active oil rigs in use. In America, it’s broken out by state. In late 2014, the number of active oil rigs in Texas was more than 900. On August 14, 2020, the number of active oil rigs in Texas fell to just 100.

Source: Bloomberg

1976

1984 1980

2020 2016 2012 2008 2004 2000 1996 1992 1988

To reiterate, Texas went from having more than 900 rigs to exactly 100 rigs, in just six years. It isn’t just Texas, either. The total U.S. rig count – including gas rigs – has seen a similar

Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. Pull quote. When the number of oil and gas rigs hits a multiyear low, oil prices tend to bottom. And instead of falling further, like everyone expects, prices tend to jump ver the next two years. The potential gains aren’t small either, as the table below shows...

decline in recent years. In fact, the measure hit an all-time low earlier last year. Take a look at the chart above... The data goes back to the

These were the last four times that oil and gas rigs hit a multiyear low. As you can see, a record-low oil and gas rig count is a sign that the oil market has probably already hit bottom.

Extreme Date 2-Year Return 4/30/1999 52.5 % 3/29/2002 34.7 % 4/30/2009 122.9 % 4/28/2017 36.5 %

1970s. But levels have never been as low as we saw earlier last year. And we’ve only seen the U.S. oil and gas rig count get close a handful of times. Each instance happened when oil prices were so depressed that companies couldn’t make money... just like today. And in each case, sentiment toward the oil market was fantastically negative... just like today. That’s where things get interesting...

The rig count bottomed earlier in 2020... But lately, it has started rising again. Similarly, oil prices bottomed earlier last year... And now they’ve started to move higher. Take a look at the chart on the following page... History shows that the recent rally in oil prices could just be the beginning. The last four times that the rig count hit bottom all

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