Good morning; here's what the Oilman has for you today:

• Market Punishes Drillers for Lower Rig Count

• Williams CEO: Transition Will Create Higher Demand for Gas Pipelines

• Tweet of the Day

Market Punishes Drillers for Lower Rig Count

The stocks of drilling companies have dropped by close to a third since the start of the year.

Some say it’s because of oil demand doubts.

The industry itself says it’s an overreaction.

Fear-run markets

Rig deployment has been falling over the past few months.

One way to read that is as a reflection of dropping demand.

But there is also another way: the fall could be just as easily a response to lower oil prices.

It’s now the boom-bust cycle works: high prices equal more rigs; low prices equal fewer rigs.

But traders are like horses – they’re easy to spook.

So they’re punishing drillers.

Here’s what the CEO of Patterson-UTI says: “There’s a disconnect between what’s happening with stock prices versus what’s happening in the field.”

“We’ve only gone down from 132 rigs to 126 rigs this year, but our stock has sold off like we’ve gone down to 70.”

Sounds so unfair.

Nobody knows what’s next, but everybody’s trying

For now, most traders seem to think oil demand is weak and will continue weak for the observable.

They continue to think that regardless of any evidence to the contrary: rising refinery runs in China, healthy start to the U.S. driving season, a rebound in retail sales.

Traders are really spooked.

And this is, ironically, what’s driving prices down further.

Prices, in turn, drive rig deployments lower, which would later lead to lower production.

It’s just another cycle, folks, nothing to see here.

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Williams CEO: Transition Will Create Higher Demand for Gas Pipelines

The energy transition will lead to demand for more natural gas pipelines, the chief executive of Williams Companies, Alan Armstrong, has said.

It’s not wishful thinking, either.

It’s anticipating the danger of blackouts as wind and solar deployments surge.

More electricity demand means more gas demand

The energy transition is effectively a transition from oil and gas as fuel to electricity as “fuel”.

This means a surge in demand.

And there is no way wind and solar can handle it.

“Nobody’s ever going to be comfortable saying: ‘Oh, we’re willing to risk that for five days, we don’t have wind or solar and we’re not going to have a back-up’,” Armstrong told the FT in an interview.

It’s similar to what FERC said about the state of the grid: don’t shut down the reliable capacity until you have an equally reliable replacement.

Translated, this means, “If we want to avoid blackouts, we need coal and gas.”

Hypotheticals versus facts

Transition advocates love to use hypothetical scenarios they see as proof they’re right.

Here’s one: Wind and solar can work if combined with hydro, battery storage, and demand management.

That’s according to a study from Stanford, no less.

Hypothetically, they could work.

• If there’s enough water for hydro.

• If panels and turbines are cheap.

• If batteries go down in price.

• If there’s enough space for all that.

• If there are enough people to put up all those transmission lines.

That’s a lot of ifs, isn’t it?

Meanwhile, gas is there and ready to roll.

It’s that or blackouts.

Around the Global Patch

🇧🇷 Brazil expands pre-salt block auctions.
🇨🇳 Chinese yards contribute to Shell's LNG project.
🇷🇺 Russia shrugs off export restrictions.

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