US drillers cut oil and gas rigs for first time in four weeks, Baker Hughes says

U.S. rig counts fell by 10 to 544 in the week to Nov. 26, with oil rigs down 12 to 407 — the lowest since September 2021 — while gas rigs rose 3 to 130, the highest since July 2023; Texas rigs fell eight to 226. The industry-wide rig count is down about 5% in 2024 (and 20% in 2023) as firms prioritize shareholder returns and debt reduction, even as the EIA projects U.S. crude output to rise to ~13.6 million bpd in 2025 (from 13.2m bpd in 2024) and gas output to 107.7 bcfd amid a projected 58% jump in spot gas prices in 2025.

Analysis

Market structure: The drop of 12 oil rigs to 407 (four-year low) and a +3 gas rig rise to 130 point to a near-term tilt toward gas upside and continued discipline in oil capex. Winners: gas-focused producers, LNG exporters and midstream (higher realised gas prices if EIA’s +58% 2025 projection transpires); losers: oilfield services (BKR, SLB) and highly levered oil-directed E&Ps as future oil supply growth looks muted. This implies modest upward pressure on HH natgas and flattening/oil-supply tightening into H2 2025 if drilling stays constrained.

Risk assessment: Tail risks include an OPEC+ policy shock or major geopolitics sending Brent >$90 (fast upside) or a mild winter/weak demand collapsing natgas >25% (downside). Immediate (days) impact will be sentiment-driven; short-term (weeks–6 months) rig counts alter capex plans; long-term (2025+) persistent capital returns can structurally reduce US supply growth (EIA: 13.2→13.6 mbpd projected, but cuts could underdeliver). Hidden dependencies: DUC inventories, service-cost inflation, and covenant-driven buybacks can flip supply quickly if capital returns reverse.

Trade implications: Tactical: long gas/LNG and midstream, short select oilfield services and oil-focused E&Ps. Use 3–9 month horizons: buy EQT (EQT)/Cheniere (LNG) exposure and short BKR or SLB; consider 3–6 month NG call spreads (target HH $4.50–$6.50) and 3–6 month BKR puts. Rotate 5–10% portfolio weight into gas-heavy names and trim oil weights (XOM/CVX) by 2–4% if Brent < $75 for three consecutive weeks.

Contrarian angles: Consensus trusts EIA output growth; market is underpricing the structural risk that disciplined capital returns + lower rig count lead to a production plateau, making gas and even oil tighter than models expect. Historical parallel: 2016-2018 service stocks lagged then surged when rigs rebounded — BKR/SLB could be mean-reversion candidates if Brent >$85 for 60+ days. Monitor DUC counts and corporate capex/guidance over next two quarters as the make-or-break data points.

Key Decisions for Investors

• Establish a 2–3% long position in Cheniere Energy (LNG) and a 2–3% long position in EQT (EQT) within 2–6 weeks to capture a potential natgas rerating if Henry Hub moves toward $4.50–$5.00 by H1 2025; set stop-loss at -10% and target +12–20% upside.
• Initiate a 1–2% short position in Baker Hughes (BKR) or buy 3–6 month BKR put options (strike ~10–15% OTM) to hedge oilfield services exposure while rig counts trend lower; cover if rig count stabilizes above 560 for 4 consecutive weeks or Brent > $85 for 60 days.
• Implement a 3–5% pair trade: long midstream (ENB/EPD) or LNG exporter (LNG) and short oil-focused E&P (e.g., OXY or PXD) to express gas outperformance vs oil through 2025; rebalance if Henry Hub < $4.00 or Brent < $70 for six weeks.
• Buy a 3–6 month call spread on NYMEX NatGas targeting $4.50–$6.50 (pay premium for lower strike 4.50, sell 6.50) sized to replace 1–2% portfolio exposure; exit if HH closes below $3.75 for three consecutive sessions or after 120 days.
• Reduce broad oil services/equipment exposure by 2–4% and reallocate to gas midstream/LNG; specifically trim SLB/BKR allocations and redeploy into LNG and ENB if Q4 rig counts decline further or corporate capex guidance is cut by >10% in upcoming earnings (next 60 days).