Plummeting US rig count

 It is law of economics that low prices cure low prices. Many U.S. fracking operations cannot survive with prices under $60 and recent data confirms it.

The U.S. oil rig count has fallen by 24% in just the last five months according to Baker Hughes.

For a more dramatic example, Canada’s rig count is down by over 65% since last year.

The U.S. oil rig Count has fallen by 24% since the highs in October to 1223 rigs.

That trend will continue as long as oil remains below $60 and potentially below $70. This puts a dent into U.S. production capability and will eventually start to choke off new supply of oil, allowing inventories to begin to draw down again. If you need a better example of how low prices cure low prices in a free market economy, look no further.

At the same time, fiscal budgets for the Saudis and their allies rely on oil prices of at least $70 or $80. They can get by at $60, but not at $45. If you need a better example of how low prices cure low prices in a free market economy, look no further.

Thus far, they have been willing to take the short term pain to punish their enemies and pare back their competitors. But they can’t take it forever.

January’s announcement by OPEC Secretary General el-Badri that oil prices will “go back to normal very soon” was more likely aimed at his unhappy OPEC members than anyone else