The Asymmetric Relationship between Conventional/Shale Rig Counts and WTI Oil Prices

Abstract

This work analyses the asymmetric response of conventional and shale oil rig counts to WTI oil price returns. Our analysis shows that the rig count time series exhibited a structural change after the oil glut of 2014. All series are non-stationary in each sub-period but not cointegrated. Therefore, after controlling for possible confounding factors, a vector auto regressive (VAR) model is set up. Our specification accounts for the possible role of oil production and distinguishes between positive and negative oil price changes. It is shown that shale and conventional rig counts reacted differently in each subperiod to signed changes in oil price. Subsequently, by evaluating the response of rig counts to oil price shocks, their intensity and duration over time, we observe that the shale oil rig count reacts more intensively to positive than to negative oil price changes. On the contrary, the conventional rig count exhibits a modest reaction only to positive price changes. Finally, we robustify our findings by focusing on the data of the Permian basin, on the one hand, and the Anadarko, Bakken, Eagle Ford and Niobrara, on the other hand, which are characterized by different patterns in the number of Drilled but not Completed wells.