We are at the bottom. That was the message of Paal Kibsgaard, ’s chief executive, presenting the last week. The rig count figures bear him out; Baker Hughes’ survey of rigs active in the US has risen from 404 at the end of May to 447. Rising rig numbers are a sign that it is once again profitable to drill for oil and gas. But oil traders keep an eye on them to gauge the potential for new supply.

When US onshore oil production was declining, the US rig count did not matter much. The arrival of shale oil, fracked from onshore fields, has changed that. US oil production nearly doubled in the decade to 2015, driven by the success of onshore drilling. Yet the surge in the rig count that accompanied this production growth blended less productive older rigs with more efficient newer ones.

As the oil price fell two years ago, explorers quickly began to shed less effective equipment. Rig counts fell sharply last year (from 1,800 to 700) partly for this reason: the quickest way to cut costs was to eliminate lesser quality equipment. The result is that productivity, in terms of barrels per rig, from each new well there has doubled in the past couple of years. If this improvement is permanent, then one would expect a sharp pick up in oil output as the rig count increases

Shale wells tend to produce a lot of oil quickly, but decline rapidly thereafter. Production can often halve in the first year before stabilising. One reason that onshore oil production has fallen is this natural decline from “legacy” wells. But that decline rate has stabilised as fewer new wells come on stream; meaning less of a drag on overall production. Another plus for supply, and potential negative for prices. Mr Kibsgaard’s optimism may prove premature.

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