Tight formation horizontal rig count remains resilient with aggregate rig employment down just two units since mid-January. One could even argue that rig count has recovered in the Permian with the tally up 10 units year-to-date 2020. This week, declines of one unit each in the Marcellus and Bakken seemed mild compared to a three-rig drop in the Anadarko Basin. But the Permian largely offsets those regional weaknesses.

Yet all this happened before the oil price drop over the weekend. A handful of E&Ps (Diamondback Energy Inc. and Parsley Energy Inc.) have proactively announced they are releasing rigs and frac crews. Expect more news along those lines as the week unfolds. Very few E&Ps make money at mid-$30 oil prices. In fact, $50 has become the unofficial ‘breakeven’ threshold in the U.S. market.  Hedging will sustain some field programs over the next six months, but those programs are generating extra volumes for an oversupplied market that is now pivoting toward a net reduction in 2020 demand.

Make no mistake: sustained sub-$40 oil prices create future havoc for the financially strapped E&P sector. Sustained sub-$45 oil prices are only better by degree but will still create difficult financials as the industry faces $86 billion in debt due before 2023. The next 30 days will tell the story on commodity prices as U.S. shale has drifted into the crosshairs for the Saudis and the Russians in this race to be the last man standing as swing producer in an oversupplied global market. Therefore, the next 30-days will reveal not only the direction in commodity prices but also the toll on further aggregate rig count reductions.

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