By:  LJKawa  @davidwethe 

The shale revolution sparked a frenzied rise in U.S. crude production that eventually drove oil prices to their lowest level in more than a decade earlier this year. While prices have since recovered, they've failed to sustainably hold above $50 per barrel — and any advances may continue to be capped if drillers boost activity in the productive Permian Basin.

Rig count data from Baker Hughes shows the number of all types of active rigs in the Permian Basin — which spans from West Texas into a portion of New Mexico — stands at 202 as of Sept. 16, with 416 active oil rigs across the U.S.

 
Source: Bloomberg

Morgan Stanley Commodity Strategist Adam Longson has warned that oil companies have been engaging in "high grading" — expanding activity in their most productive fields — as crude prices rebounded earlier this year.

Adding a rig in the Permian, he warned, results in an outsized boost to U.S. oil production four to six months down the road — meaning headline rig count figures wouldn't necessarily tell the full story on where aggregate production is heading.

At a conference on Wednesday, Sheffield said he sees output in the region "really taking off" in the first half of next year, with aggregate U.S. production beginning to grow again around the end of 2017 or the following year.

The Permian region can grow production by 300,000 barrels per day, per year, according to Sheffield.

 

The decline in rig counts has been the biggest contributor to the weakness in U.S. business investment since crude prices began to collapse in the middle of 2014. During Wednesday's press conference following the Federal Reserve's announcement, Chair Janet Yellen said drilling was "now showing signs of stabilizing."