The US energy sector saw significant developments during the week ending January 23, with newly released data showing an increase in the number of oil drilling rigs—a key indicator reflecting the dynamics of US production. In contrast, the number of natural gas drilling rigs remained relatively stable, painting a mixed picture of near-term supply prospects.
Implications of US drilling and production data
These data clearly indicate a likely period of relative stability in US oil and natural gas production levels in the coming period. These figures are particularly significant at present, given the wide fluctuations currently experienced in global hydrocarbon markets. The number of drilling rigs is considered an early and reliable indicator of future production levels; an increase in rigs typically implies expectations of increased supply, which US companies are attempting to capitalize on to strengthen their position in the global market, especially with rising winter demand and the impact of adverse weather conditions on supply chains.
Although the data showed an increase in the number of oil rigs in 8 out of the last 12 weeks, the overall view of the period reveals a net decrease of 3 rigs, and a similar decline in natural gas rigs, reflecting producers' caution in pumping huge new investments despite improved prices.
Geopolitical tensions are fueling price hikes
In the financial markets, drilling data wasn't the sole driver of prices; geopolitical developments played a major role. Oil prices surged to their highest level in over a week at settlement, fueled by escalating tensions in the Middle East. This followed US President Donald Trump's intensification of political and economic pressure on Iran, including the imposition of a new round of sanctions targeting ships transporting Iranian oil, and the announcement of a naval deployment to the region, raising market concerns about the security of energy supplies through vital waterways.
Weekly gains and record highs
These tensions were immediately reflected on trading screens, with Brent crude futures for March delivery posting significant gains of $1.82, or 2.8%, settling at $65.88 a barrel, its highest level since January 14. Similarly, US West Texas Intermediate crude rose by $1.71, or 2.9%, to $61.07 a barrel. These movements culminated in both benchmarks posting weekly gains exceeding 2.5%, underscoring the market's extreme sensitivity to any geopolitical threat to Middle Eastern oil resources, regardless of increased drilling activity in the United States.
