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Faulty drilling indicator belies oil market that's tighter than assumed - WSJ

  • The oil market (NYSEARCA:USO) is far tighter than many observers assume, and oil prices and energy companies could be set for a bounce, Spencer Jakab writes at WSJ's Heard On The Street.
  • The number of oil-specific drilling rigs just hit the lowest level since March 2017, but more than 7K drilled but uncompleted wells remain available to pump crude fairly quickly, which tells most analysts that U.S. producers could respond rapidly to an unexpected surge in oil prices.
  • "Many people look at that and see that huge backlog that's going to flood us [but] the scale is just much lower," says Marshall Adkins, head of energy investment banking at Raymond James.
  • Adkins thinks the changes in drilling methods that have made the industry more efficient also mean that many DUCs should not be counted; a more accurate barometer would be months of supply, on which basis the number of DUCs is slightly lower than average.
  • If he is correct, then the market is drawing false solace from DUCs and, unless something happens to dent demand, the oil market is far tighter than many observers assume.
  • Adkins sees the trend as bullish for crude prices and especially for shares of oilfield service providers such as Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BKR), and for sand mining firms directly tied to shale fracking activity such as U.S. Silica (NYSE:SLCA) and Hi-Crush (NYSE:HCR).
  • ETFs: USO, XLE, OIL, UWT, UCO, XOP, VDE, OIH, DWT, BNO, ERX, GUSH, SCO, BGR, XES, DRIP, DBO, ERY, FENY, DIG, NDP, DTO, OILU, FIF, IYE, USL, DUG, IEO, USOU, OILD, IEZ, WTIU, USOI, CRAK

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SymbolLast Price% Chg
USO--
United States Oil Fund, LP ETF
HAL--
Halliburton Company
BKR--
Baker Hughes Company
SLCA--
U.S. Silica Holdings, Inc.
HCRSQ--
Hi-Crush Inc.