The number of rotary rigs drilling for U.S. oil rigs increased by 7 this week, according to Baker Hughes (BHI) , marking the 13th week in 14 that the count has built.
Natural gas rigs were also up 4 to 96, bringing the Houston oilfield services giant's total weekly count up 11 to 522.
Baker Hughes' report follows the first full week since the Organization of Petroleum Exporting Countries, or OPEC, reportedly agreed to limit production in an attempt to stifle a supply glut and prop slumping commodity prices.
And indeed oil prices have risen significantly since news of an agreement broke. West Texas Intermediate crude futures were up about 8% to $48.10. around 1 p.m. Friday from their Sept. 23 close of $44.48.
Yet despite oil's progress, it may take another $5 bump to give operators the confidence to truly invest money and resources in a stronger recovery, according to KeyBanc Capital Markets analysts Robin Shoemaker and Marc Solecitto.
"We have already seen that the $40-$50 oil price range of the past few months stopped the bleeding and even propelled a modest rebound in U.S. drilling and well completion activity," Shoemaker and Solecitto wrote in a Sept. 29 research note. "However, as we highlighted in our recent report on the pace of the North America drilling upturn ... the oilfield service companies have been unimpressed with the strength of the recovery and disappointed that it has not spread beyond a few basins in West Texas and Oklahoma."
That being said, KeyBanc sees average prices between $50 and $55 per barrel as enough to accelerate the drilling uptrun it claims has been underway in North America since early summer.
Indeed, U.S. exploration and production companies have put 107 oil and gas rigs back in operation since late May, after taking about 300 offline in the first half of the year and more than 1,100 in all of 2015, Baker Hughes data shows.
Still, oil and gas E&P companies can tend to be fickle customers, KeyBanc pointed out Thursday.
"Several companies have noted, however, that whenever oil prices approach the upper end of the $40-$50 band-and seem likely to cross the $50 threshold-a stronger demand outlook starts to emerge. The phones start to ring and customer inquiries and bid requests accelerate noticeably," Shoemaker and Solecitto noted. "But just as quickly, interest in drilling and completing new wells fades when oil prices fall back to the mid- to low-$40s/bbl.
"This pattern of customer behavior may be frustrating, but it supports the view that when oil prices finally break above (and stay above) $50/barrel, we can expect a stronger, more widespread recovery in demand for oil services than we have seen thus far," the analysts said.
If oil does manage to come back above $50 per barrel and stay there, KeyBanc sees Halliburton (HAL - Get Report) , Baker Hughes, Superior Energy Services (SPN - Get Report) , Helmerich & Payne (HP - Get Report) , Forum Energy Technologies (FET - Get Report) , U.S. Silica (SLCA - Get Report) and Tesco Corp. (TESO) as the best bets in the oilfield services industry.
"We believe these companies have emerged from the downturn with sufficient capital and human resources to take full advantage of the next upturn," KeyBanc noted. "They are highly leveraged to the North America land drilling and well completion services markets, which is where the recovery began and where it will likely be strongest."
Meanwhile, the offshore oil and gas industry continues to struggle, as Baker Hughes reported Friday the offshore count was up 2 from last week to 22, which is 8 fewer than this time last year.
Overall, Baker Hughes' U.S. rig count is down by 287 from last year's count of 809, with oil rigs down 189, gas rigs down 99, and miscellaneous rigs up 1.
The Canadian rig count was up big this week as well, climbing 24 rigs from last week to 162. Canadian oil rigs were up 7 week-over-week to 84, while gas rigs were rose by 17 to 78.