Oil Rig Count Drops, Crude Prices Climb as US Imposes New Sanctions Against Russia

The US oil and gas industry is experiencing a significant decline in drilling activity, with the horizontal oil rig count forecast to fall by about 65% from mid-March levels, reaching a potential bottom of around 200 rigs. This rapid decline, driven by the combined global effect of the Covid-19 pandemic and the ongoing oil price war, is putting the industry on track to reduce drilling at record speed. The rig count, a widely considered indicator of investment appetite by exploration and production (E&P) companies, has already dropped by 19% from the recent peak of about 620 rigs in mid-March 2020.



The decline in US oil rig count has a significant impact on domestic crude oil production in both the short and long term. In the short term, the decrease in the number of new wells being drilled reduces the overall production capacity, leading to lower production levels. According to the EIA's weekly estimates, US crude oil production levels have been rising for the second week in a row, reaching 12.7 million bpd in the week ending August 11, 2023. However, this increase is not enough to offset the decline in production from existing wells due to the decline curve effect. In the long term, the decline in rig count can lead to a decrease in the overall production capacity of the US oil industry, as well as a decrease in the number of new reserves being discovered.

The decline in US oil rig count is also influencing global crude oil prices, particularly in the context of US sanctions against Russia. The US energy sanctions imposed on Russia due to the Russia-Ukraine war have resulted in a significant surge in crude oil prices. On March 7, 2022, the WTI crude oil futures price touched $133.460/barrel, and the Brent crude oil futures price reached $139.130/barrel, the highest price since July 2008. This can be attributed to the disruption in Russian oil exports due to the sanctions.

The study by the American Oil and Gas Journal indicates that in 2021, global oil production stood at 4.423 billion tons, with Russia's oil production accounting for 534 million tons, which amounts to 12% of the worldwide oil production. This makes Russia the second-largest oil producer in the world after the United States. The sanctions on Russian oil exports have led to a significant reduction in global oil supply, contributing to the increase in crude oil prices.

Moreover, the study found that the Russia-Ukraine war resulted in a $37.14 increase in WTI crude oil prices, reaching 52.33%, and a $41.49 increase in Brent crude oil prices, reaching 56.33%. This further emphasizes the impact of US sanctions on Russia's oil exports and global crude oil prices.



In addition, the study highlights that the impact of the Russia-Ukraine war on Brent crude oil prices is more significant than that of WTI crude oil prices, and the price difference between the two has increased. On March 23, 2022, the price difference between Brent and WTI crude oil reached $12.64/barrel. This can be attributed to the different supply and demand dynamics in the global oil market, with Brent crude oil being more sensitive to geopolitical risks and supply disruptions.

Geopolitical tensions between the US and Russia have significantly influenced the dynamics of the global oil market, particularly since the outbreak of the Russia-Ukraine war in February 2022. The conflict has led to several key developments, including energy sanctions on Russia, disruption of Russian oil exports, increased volatility in crude oil prices, and long-term trend changes in oil prices. These developments highlight the significant influence of geopolitical tensions between the US and Russia on the dynamics of the global oil market, particularly through energy sanctions, supply disruptions, and price volatility.



In conclusion, the decline in US oil rig count has a significant impact on domestic crude oil production in both the short and long term, contributing to the overall reduction in global oil supply. The US sanctions on Russia's oil exports have had a significant impact on global crude oil prices, leading to a substantial increase in both WTI and Brent crude oil prices. The disruption in Russian oil exports due to the sanctions has contributed to the reduction in global oil supply, further driving up crude oil prices. The impact on Brent crude oil prices has been more pronounced than that on WTI crude oil prices, with the price difference between the two increasing significantly. Geopolitical tensions between the US and Russia have significantly influenced the dynamics of the global oil market, particularly through energy sanctions, supply disruptions, and price volatility.