The Baker Hughes weekly rig count shows a decrease of two oil rigs, bringing the total number of oil rigs to 422. In contrast, gas rigs saw an increase of nine, totalling 117.
Overall, the total number of rigs increased by seven, reaching a cumulative count of 544 rigs.
Oil Rig Decline
We see the drop in oil rigs, though minor, as a sign of continued producer caution and capital discipline. This slight reduction in future supply capability supports a bullish outlook for crude prices. This trend reinforces the idea that U.S. shale producers are not aggressively chasing higher prices with new drilling.
This decline in drilling activity is happening while the oil rig count hovers near its lowest level since early 2022. It aligns with recent U.S. Energy Information Administration data showing a crude inventory draw of 2.5 million barrels and OPEC+ extending its production cuts. We believe traders should consider strategies that benefit from rising oil prices, such as buying call options on WTI futures.
Conversely, the substantial jump in natural gas rigs suggests producers are moving to capitalize on the recent price rally driven by summer heatwave forecasts. This ramp-up in future supply is a bearish indicator for prices in the medium-term, particularly for contracts later in the year. This is the largest weekly gain in gas rigs in over a year.
Natural Gas Rigs Surge
This increase in drilling comes as gas in underground storage sits more than 20% above the five-year average, according to the latest government figures. The combination of rising drilling activity and already high inventories creates a ceiling for prices once short-term demand fades. Traders could look at buying put options on Henry Hub futures for the winter strip to position for a potential price decline.
The clear divergence between oil and gas drilling activity presents a relative value opportunity. Historically, such splits signal a strategic pivot by energy firms based on their assessment of commodity fundamentals. We feel the market may be underestimating the potential for continued oil market tightness relative to a well-supplied natural gas market.
