Responding To High Oil Prices And Low Gas Prices, U.S. Drilling Companies Switch From Gas To Oil

Mark Perry
updated | Author's Website

With crude oil prices above $100 and rising, and a glut of natural gas pushing prices down to record lows, U.S. oil and gas companies have been shifting from drilling for gas to drilling for oil, as the chart above illustrates.  According to weekly data from oilfield service company Baker Hughes, the percentage of rigs drilling for natural gas dropped below 36% in the last week, the lowest level since 1987, as the share of rigs drilling for oil increased to 64%.  As the chart shows, the trend started accelerating in about October of last year.

It’s an example of how the “invisible hand,” profit motive, market forces and market prices work their magic, and bring about natural and automatic self-correcting adjustments to demand and supply.  As the Law of Supply would predict, higher prices for crude oil increase incentives for producers to supply more (the “smell of profits”), and lower prices for natural gas reduce incentives for production, and producers supply less.  And the best part is that it all happens automatically through the miracle of the market, without any oversight or central planning, just by “spontaneous order” and “producer greed.”       

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