Though no one would say oil prices are near the levels operators would find "comforting," there clearly has been some relief as prices have steadily risen over the last few weeks from lows approaching $40 a barrel to what appears to be at least a temporary resting point in the $55-60 a barrel range. These rising prices have correlated with decreased rig activity, fewer new wells being drilled and a cessation of completions on many drilled wells.
The question has always been, though: How long will operators avoid drilling and completions in the face of rising prices?
The answer, at least from early indications, is not too long. On Friday, Enerplus Corp. announced that it was starting to complete and bring on wells it had drilled over the winter in the Bakken. In addition, media reports this morning indicate that for the first time in months, operators ADDED drilling rigs in the Permian Basin. These factors, among others, led analysts at Morgan Stanley to announce its "growing concerns about crude fundamentals in the second half of 2015 and 2016."
In addition, there has been a great deal of discussion recently about the "fracklog" of wells waiting to be fracked, such that more than 4,700 oil wells have not come on line, keeping more than 320,000 barrels a day from hitting the market, or as much oil as is produced daily from OPEC-member Libya.
If we assume supply and demand have a significant impact on prices, and that the supply constraints of the past few months have contributed to the recent price increased, then we have to be concerned that operators are reacting too quickly to the price increases and are going to kill the golden goose that is restrained supply.
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