Thanks in part to the success of companies like Continental, the search for crude is making a quiet comeback in the U.S. Lots of attention has been paid to the surge in natural gas exploration, but more rigs are currently drilling for oil than gas: 1,191, up 402 from a year ago and quadruple the number of rigs in 2007, according to the oil services company Baker Hughes Inc. It's happening in Texas, Wyoming, Oklahoma and Ohio.

Eoin Treacy's view Unconventional oil and gas wells that depend on fracturing are drill intensive. Hydraulic fracturing results in wells with high initial flow rates followed by a swift decline to somewhat less impressive production levels. The fracturing process occurs within relatively close proximity of the well and initial production is massive because so much gas or oil is released from the fractured rock.

However beyond the fractured zone, porosity is still very poor. This generally requires more wells to be drilled, somewhat further away, to make sure that the field continues to produce at favourable rates. To the best of my knowledge this tendency is as true of shale oil wells as it is of shale gas wells. The result is that more rigs are needed because there is a constant requirement for drilling.

Drilling rigs have been migrating towards oil producing regions because of the deterioration in natural gas prices due to oversupply. Although natural gas prices are at uneconomic levels for most unconventional wells, there is little evidence yet that supply is being significantly curtailed. This is at least in part due to the need to drill if leases are to be maintained.

There is a high degree of variability in the performance of oil service and oil field machinery companies, which is driven by their different technological, commodity and geographic focuses. This Chart Library Performance Filter of 47 related companies suggests that while the percentage moves have varied considerable the sector has mostly performed in line with the capital goods sector. Returns over the last 1 and 3 months have been quite impressive. Over the last 6 months, most companies posted negative returns.

UK listed Weir Group is representative of a considerable number of the companies included in the Filter. It has held a progression of higher reaction low since October and is now testing the August peak. Some consolidation in the current area appears likely but a sustained move below the 200-day MA would be required to question medium-term scope for additional upside. FMC Technologies and Oceaneering International are clear outperformers. Seadrill Ltd looks more likely than not to sustain an upward break. Core Laboratories bounced back impressively from the August lows and the upside can continue to be given the benefit of the doubt provided it holds above the 200-day MA. Rowan Cos. stabilised near $30 from October and rallied this week to challenge the almost yearlong downtrend. A sustained move above $35 would suggest a return to medium-term demand dominance.