Commodities are on fire as the economy in the U.S. leads the world in a commodity consuming growth period. Lumber surged to all-time highs and industrial metals are strong as manufacturing and factory growth around the globe is strong. Oil prices are pulling back after a rise in the rig count even though it’s making up for lost time after the big freeze down south.
Baker Hughes Inc .reported that the U.S. oil-rig count increased by 12 rigs in the week ending Jan. 19, bringing the total to 759, the highest since August. While some use the rig count generally as a proxy for activity in the sector, more rigs don’t necessarily tell you exactly how much oil production we may see. Many people believe that there is a linear relationship between the number of rigs and future oil production, yet as we said before that is not the case.
Bloomberg News reports when it comes to rig counts the rig counts no longer are enough to estimate U.S. production. Forecasters look at everything from sand use to hiring stats. U.S. shale drillers who have seen prices climb almost 50 percent in six months, it’s been largely a rig-less recovery, a conundrum for traders seeking to forecast the future. Normally, you’d expect the rigs to return to the field in significant numbers as producer’s flush with added cash looked to boost output. But the weekly Baker Hughes tally has stayed remarkably still. The reason: explorers are doing more with less, forcing traders to use a bigger toolbox of stats, metrics, and gauges to track U.S. production that’s expected to top 10 million barrels a day as the year progresses. That includes everything from producer spending surveys to oilfield hiring reports, and even demand for the tiny grains of sand that prop open oil-bearing cracks.
“A well that comes online in U.S. onshore today is dramatically different than one that came on five or 10 years ago,” Leo Mariani, an analyst who covers explorers and producers at NatAlliance Securities, said in a phone interview. “It’s just a different animal.” For the market, that means the country that’s become the world’s swing producer and a thorn in OPEC’s side is becoming a whole lot harder to read. A must read.
