Old News From Market Watch Today: Saudi Increasing The Number Of Drilling Rigs -- May 1, 2015

Market Watch has this story today:

Saudi Arabia has been making some big moves lately, most notably in its leadership reshuffle, but the country also has raised the number of rigs it has actively drilling for oil and natural gas by 30% since March 2014.

The most recent data from Baker Hughes show that Saudi Arabia had 125 active oil and gas rigs in March of this year, up from 96 the same time a year earlier. The total represents an all-time high. He said the number of active oil rigs is at a record too.

The rig count has climbed despite the fact that the “world market is still flooded with oil,” Williams said. “This indicates that the Saudis are expanding production capacity,” he noted. That is excess capacity that could be used at any time to “flood the market and crash the [oil] price.”

Also, note this, on April 16, 2015, it was reported:

Saudi Arabia boosted crude production to the highest in three decades in March, with a surge equal to half the daily output of the Bakken formation in North Dakota. 

The kingdom boosted daily crude output by 658,800 barrels in March to an average of 10.294 million.

Don't get too excited by the Market Watch story that came out today. There are other data points to consider.

Saudi Arabia is building two new refineries at home to produce refined products (gasoline, diesel, etc) to sell to Europe. In addition, one-half of Saudi's oil production is used domestically. They need increased production for those two new refineries.

That 658,000-bbl increase represents a 15% increase, but in the big scheme of things, Saudi production has been pretty consistent(ly flat) since 2008.

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The Market Watch story today is old news (see the Rigzone story below). I track the number of rigs in the Bakken because it gives me an idea of the level of activity in home state, but doesn't tell me much else if that data point is reported in a vacuum (i.e., as the only data point).

I consider Rigzone a much, much more reliable source, and this is what Rigzone wrote back on March 21, 2015:

Saudi perspective: Saudi says they will increase sharply the number of drilling rigs. This is a huge story; long-time readers of the blog know my thoughts on this (Saudi Perspective, Peak Oil?)

Reuters/Rigzone is reporting:

As the global energy industry stares transfixed at a spectacular drop in U.S. rigs, Saudi Arabia is ramping up the number of machines drilling for oil and gas despite a sharp fall in the price of crude.

Industry sources and analysts say the OPEC kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply. Riyadh is therefore keen to preserve what is known as its spare capacity - the kingdom's unique ability to raise oil output quickly at any given moment.

But to achieve that, Saudi Arabia has to drill much more than in the past, after boosting output to record levels to compensate for global supply outages in the past four years. "The Saudis are probably worried about everyone else reducing capex as a result of low oil prices and about non-OPEC output falling off a cliff at some point.

We all know that supply disruptions are unpredictable but they are certain," said Gary Ross, executive chairman of New York oil consultancy PIRA. "The increase in Saudi rig numbers is like a signal to the industry - let's be rational. We will need supply growth in the future."