Oil Rig Counts Could Keep Falling In America: Here's Why

According to Walt Chancellor at Macquarie Research, a combination of "resilient supply and continuing productivity gains" will provide headwinds to oil drilling demand. The impact: U.S. oil production may not stabilize until mid-2017, Chancellor said.

Looking into the near-term predictions, Macquarie said that the firm expects oil production to decline by a quarter million barrels per day from Q2 levels through the end of the year. However, Chancellor cautioned that, "a supply reduction of this magnitude will do little to correct larger global imbalances."

Macquarie also pointed to a proprietary survey of 66 exploration and production (E&P) firms, which indicated that they may reduce their rig counts from 1,050 at peak to fewer than 800 rigs in the near future.

Related Link: Barclays Sees Trouble For Offshore Drillers

E&P firms will also have to face headwinds in their services business, the note said. Consensus estimates suggest E&P may cut capital expenditures by 12 percent in Q3; However, Chancellor noted that this may come under further pressure, particularly if oil prices fail to recover.

Into 2016, the "current E&P demand and crude price weakness" could undermine Chancellor's view that drilling demand will see a "modest recovery" by YE 2016. As such, the firm reiterated a "structurally cautious view" on the drilling space, in particular.

This analysis can impact a wide range of oil production and services firms, including Carrizo Oil & Gas, Inc. (NASDAQ: CRZO), Noble Energy, Inc. (NYSE: NBL), Chesapeake Energy Corporation (NYSE: CHK), Pioneer Natural Resources (NYSE: PXD), and Parsley Energy Inc (NYSE: PE). Of these, just Parsley Energy has gained on the year (up 1.8 percent), while Chesapeake Energy (down 59 percent) and Noble Energy (down 25.5 percent) have declined the most.