The most recent Baker Hughes rig counts last week showed a week-over-week increase of 19 U.S. rigs and 8 Canadian rigs. However, Morgan Stanley analyst Adam Longston argues that oil investors should take little comfort in rising rig numbers.

Lagging Indicator

According to a new Morgan Stanley report, the recent uptick in rig counts has nothing to do with the current U.S. oil supply and cost structure. Longston points out that rig counts tend to lag oil prices by up to five months, and he believes that the most recent rig count numbers are nothing more than a reflection of the short-lived oil price spike that sent WTI prices above $60/bbl earlier this year.

Productivity Lag

Because the lag between crude prices and production levels is typically at least six months, Longston argues that…

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