The deepwater floating rig count in the US Gulf of Mexico (GOM) is now currently at 19 rigs. This is a small upward trend that I suspect will remain sustained, especially when the known additional deepwater rigs coming to the market actually arrive. Though the new count only represents a one rig increase this year, it is meaningful for the deepwater US GOM industry. Of course, the biggest concern on the immediate horizon is the possibility of a recession and what impact it may have on oil demand and activity specifically in the US GOM.
It’s hard to know if the US economy is entering or even perhaps already in a recession. There is much discussion and disagreement among economists and policy makers about whether or not a recession is likely or even possible. However, it’s interesting that elevated oil prices, particularly oil prices that have risen quickly, have historically preceded recessions. This was the case in six of the last seven recessions, with the exception being the 2020 COVID-19 lockdowns. Elevated oil prices are not the cause of recessions, but there is an historic correlation between the two.
Assuming we do experience a recession, it can be expected that oil prices will fall—but by how much will be determined by how severe and prolonged the recession may be. A severe recession similar to the Great Recession of 2008 would result in oil demand contraction. On the other hand, a more mild recession like in 2020 would result in a slowdown of demand growth and not a contraction in demand. Also, the current oil market is quite a bit different than what it was in 2008 following the Great Recession. We are currently seeing a constrained oil supply due to the energy transition and resulting drop in oil exploration, particularly in Western Europe and the US. This will likely serve to keep oil prices relatively elevated even in the midst of a recession.