Yet Again, Supply Curves Shift

Funny how high prices induce capacity expansion … another in my periodic pointing out that oil and natural gas drilling activity in the US is endogenous, and responds to expectations of future prices. Right now natural gas prices are quite high, and are expected to stay that way for enough time to make it worth while to go drilling for more of it.

US drilling activity continued to climb, with 1,021 rotary rigs working this week, 20 more than the previous week and up from 812 during the same period a year ago, said officials Friday at Baker Hughes Inc.

Land operations added 19 rigs for a total 894 units working this week. Offshore drilling increased by 1 unit to 107 in the Gulf of Mexico and 112 for the US as a whole. Activity in inland waters was unchanged, with 15 units at work.

Canadian drilling continued its seasonal slide with the spring thaw, down 19 rigs with 91 still working. That’s up from the 87 active rigs reported at this time in 2002, however.

In the US, all of the build this week was in natural gas drilling, up 23 rigs to 848. The number of rigs drilling for oil declined by 4 to 170.