U.S. Rig Count Collapse, but oil production mildly down

[CW2 0]

Can someone please explain to me the disconnect between the fall in oil rigs and the actual amount of oil produced? So accord to the Baker Hughs report released today, there's been a near 70% reduction in oil rig count (down from nearly 797 rigs to just 237 oil rigs), yet according to the EIA, oil production has only fallen by about 12% from it's peak (from 13.1 mbd to 11.5 mbd). How has US oil production not fallen as much as rig count? 

If there's a lag between rig count and oil production... then should we still to see a 70% fall in oil production in the future? 

[Dan Clemmensen + 1,011]

7 hours ago, CW2 said:

Can someone please explain to me the disconnect between the fall in oil rigs and the actual amount of oil produced? So accord to the Baker Hughs report released today, there's been a near 70% reduction in oil rig count (down from nearly 797 rigs to just 237 oil rigs), yet according to the EIA, oil production has only fallen by about 12% from it's peak (from 13.1 mbd to 11.5 mbd). How has US oil production not fallen as much as rig count? 

If there's a lag between rig count and oil production... then should we still to see a 70% fall in oil production in the future? 

Oil rigs are used to create new oil wells. After a well is drilled (and then fracked and bunch of other stuff), it begins producing oil, and depending on the well will continue to produce oil at a declining rate for many years. The actual production rate of a particular well can be adjusted within bounds ("curtailed")  or stopped ("shut in") for a period of time. There are 173,000 active oil wells in Texas. Many of them were curtailed or shut in when storage filled up during the Covid-19 demand crash. As demand began emptying storage, these wells were turned back on.  The oil rigs drill new wells to keep up with demand as the old wells' production declines. Since each well produces for many years, there are a whole lot fewer rigs than active wells. The decision to drill a new well depends on the driller's estimate of the price he will get for the oil once the well is completed. Well completion time varies, but is at least a year(?) in the Permian. The recent production drop was forced by lack of storage and was not a result of reduced drilling.