U.S. energy firms cut oil rigs for a seventh week in a row as major producers slam the brakes on shale oil production at a time when crude prices and fuel demand have plunged due to global lockdowns to fight the coronavirus pandemic.
Drillers cut 53 oil rigs in the week to May 1, bringing down the total count to 325, the lowest since June 2016, energy services firm Baker Hughes Co. said in its weekly report.
The oil rig count, an early indicator of future output, is down 60% from the same week a year ago when 807 oil rigs were active.
The total number of oil and gas rigs active in the United States was down 57 to 408 this week, just above the all-time low of 404 rigs during the week ended May 20, 2016, according to Baker Hughes data going back to 1940.
Analysts at Raymond James projected total U.S. oil and natural gas rigs would collapse from around 800 at the end of 2019 to a record low of around 400 by the middle of the year and around 200 at the end of 2020. The investment bank forecast the rig count would average a mere 225 rigs in 2021.
Exxon Mobil Corp. and Chevron Corp. on May 1 outlined deep cuts in output and investments in the Permian shale basin, the top U.S. oil field where growth in recent years made America the world's top oil producer and a net exporter for the first time in decades.
ConocoPhillips, the world’s largest independent oil and gas producer, plans to accelerate output cuts by 40,000 barrels per day (bbl/d) in May and bring its reduction in North America by June to 460,000 bbl/d, the largest cut by any producer.
U.S. crude futures traded around $20 per barrel May 1, on track to rise for the first week in four as OPEC and its allies embarked on record output cuts to tackle a supply glut due to the coronavirus crisis.
Looking ahead, U.S. crude was trading higher at around $25 per barrel for the balance of 2020 and $32 for calendar 2021 on expectations demand will jump in coming months as the economy snaps back after governments loosen travel and work restrictions once the spread of coronavirus slows. That compares with an average of $57.04 in 2019.
U.S. financial services firm Cowen & Co. said 34 of the independent E&P companies it tracks have cut their spending plans since the initial failed OPEC+ oil production cut agreement between Russia and Saudi Arabia on March 6, implying a 42% year-over-year decline in 2020 capex.
Before the failure of the OPEC+ agreement, Cowen said the independent E&Ps had expected to cut spending by an average of 11% in 2020 from 2019 levels. In 2019, those companies cut spending by around 10% from 2018 levels.
“I don’t think I’ll see 13 million bbl/d again in my lifetime,” Parsley Energy CEO Matt Gallagher says.
S&P Global Platts on June 26 will introduce American GulfCoast Select, a new benchmark for U.S. crude oil which shale pioneer Harold Hamm helped launch.
Even for the leanest, meanest oil and gas producer sitting on the best assets in the land, fate hinges on the nature of the recovery.