US Oil Rig Count Climbs as Crude Prices Rise

The US oil sector added five active oil rigs last week, according to Baker Hughes data released on May 12, bringing the total to 415. While this marks a recovery from recent lows, it remains 50 rigs below last year’s count. Gas rigs fell by one to 128, which is still 20 above last year's level, while miscellaneous rigs also dropped by one, landing at eight.

This increase in drilling activity aligns with rising crude prices. Brent crude traded at $81.50 per barrel on May 15, up nearly 9% from April’s average, with WTI at $77.80. These prices, bolstered by OPEC+ production cuts and strong Asian demand, have led some US producers to selectively resume operations.

Weekly crude oil production data from the US Energy Information Administration (EIA) supports this cautious expansion. For the week ending May 8, US crude output averaged 13.710 million barrels per day (bpd), just 152,000 bpd shy of the all-time high reached in November 2019. This increase demonstrates operators' capacity to ramp up production quickly when market conditions permit, despite ongoing supply chain and labor challenges.

"There’s a clear signal here," said Kevin Bannister, senior analyst at Enverus. "Producers are responding to price incentives, but they’re also wary of overcommitting capital after the volatility of the past three years. This isn’t 2018 all over again."

This measured pace contrasts sharply with the shale boom era, when similar price conditions would have triggered rapid drilling. Analysts attribute the restrained response to stricter capital discipline among publicly traded producers, increased costs for equipment and labor, and ongoing investor pressure to prioritize shareholder returns.

The rig count also reflects regional variations. The Permian Basin, a key area for US oil production, accounted for most of the increase in oil rigs last week, while other basins saw little change or even declines. In the Permian, breakeven costs remain favorable due to infrastructure advantages and high well productivity. However, operators face rising costs for steel casings, diesel fuel, and skilled labor.

In the gas market, the situation is more complex. While the gas rig count is higher year-on-year, the decline last week suggests a market adjusting after a mild winter and lower-than-expected LNG export demand. Henry Hub natural gas prices hovered around $2.40 per million British thermal units (MMBtu) last week, reflecting ample inventories and subdued consumption in key export markets like Europe.

The relationship between oil and gas markets affects infrastructure investment, especially in dual-commodity regions like the Marcellus Shale. "Operators are increasingly looking for flexibility," noted Sandra Lee, a portfolio manager with Arcadia Energy Partners. "The ability to pivot between oil and gas production depending on relative prices is becoming a strategic priority."

Looking ahead, US rig activity will depend on several factors, including the sustainability of current crude prices, potential regulatory changes, and global economic conditions. While producers seem prepared to increase drilling gradually, signs of a return to pre-pandemic activity levels are limited. The industry appears to be settling into a new equilibrium, marked by cautious optimism and a focus on efficiency.

The five-rig increase serves as a small yet significant indicator of the sector’s resilience and adaptability to market changes.