U.S. energy firms cut the number of oil and natural gas rigs operating for the first time in 10 weeks even as producers return to the wellm pad with crude prices mostly trading over $40 per barrel since mid-June.
The U.S. oil and gas rig count, an early indicator of future output, fell by two to 310 in the week to Nov. 20, according to data from energy services firm Baker Hughes Co.
The total rig count fell to a record low of 244 during the week ended Aug. 14, while oil rigs alone fell to a 15-year low of 172 in the same week, according to Baker Hughes data going back to 1940.
U.S. oil rigs fell five to 231 this week, after rising last week to their highest since May, while gas rigs gained three to 76, their highest since July, according to Baker Hughes data.
“Following the dramatic shutdown of the U.S. oilfield during second quarter, the rig count is slowing rising as (E&P companies) become more comfortable with the (price) environment and seek to stabilize production,” said James West, a senior managing director at Evercore ISI.
U.S. crude traded around $42 per barrel this week on hopes of an effective coronavirus vaccine.
Even though the oil contract was down about 32% since the start of the year, it was still up about 121% over the past seven months on hopes global economies and energy demand will return when governments lift coronavirus lockdowns.
“Relatively higher, stable oil prices have incentivized some drilling activity to return after the historic collapse in the rig count in the late spring and early summer,” said Daniel Myers, market analyst at Gelber & Associates in Houston, noting the past rig count increases have “mainly been driven by the oil side.”
The rosier outlook from energy executives contacted by the Dallas Fed comes as oil prices on June 23 climbed to the highest levels since late 2018 on crude inventory declines, while shares in oil and gas companies traded higher.
SandRidge Energy agreed to the sale of its North Park Basin asset in Colorado, which marks the Oklahoma City-based independent’s transformation into a pure-play Midcontinent E&P company.
The lack of a U.S. shale rebound could make it easier for OPEC and its allies to manage the market, according to OPEC sources.