Here's why the oil rig count doesn't matter

The US's oil rig count is plummeting.

Baker Hughes data released on Friday showed that the rig count dropped by 33 this week, and is now down to levels not seen since 2011.

But in the short term that doesn't matter much for American oil production. It continues to tick upward.

In a note to clients last week, Damien Courvalin of Goldman Sachs said, "The rig count decline is still not sufficient, in our view, to achieve the slowdown in US production growth required to balance the oil market."

Courvalin added: "The flexibility in cutting non-contracted rigs and associated cost deflation along with the producer hedging that has occurred over the past weeks and the recent wave of equity issuance raise the risk that the US production slowdown will be delayed."

And here's a chart from Capital Economics illustrating this dynamic.