U.S. energy firms cut oil rigs for the first time in three weeks as producers started to reduce their 2019 drilling plans with the collapse in crude prices at the end of last year.
Drillers cut eight oil rigs in the week to Jan. 4, bringing the total count down to 877, Baker Hughes Inc. (NYSE: BHGE), the energy services firm of General Electric Co. (NYSE: GE), said in its closely followed report on Jan. 4.
The U.S. rig count, an early indicator of future output, is still much higher than a year ago when 742 rigs were active after energy companies boosted spending in 2018 to capture higher prices that year.
Some analysts, however, were forecasting the first decline in the rig count in three years in 2019 after drillers added 138 oil rigs in 2018 and 222 in 2017. They cut 11 rigs in 2016.
U.S. shale producers have slammed the brakes on 2019's drilling with crude prices off 40% and mounting fears of oversupply, paring budgets that in some cases were set only weeks earlier.
U.S. crude oil output hit an all-time high of more than 11.5 million barrels per day in October, according to monthly government data released this week.
U.S. oil production broke its 1970 record of 10 million bpd in November 2017, and has set monthly record highs for five straight months since June. The United States has become the world's leading crude producer, surpassing Russia and Saudi Arabia.
U.S. crude futures were trading around $48 a barrel on Jan. 4, putting the front-month on track to gain 5% this week on proposed trade talks between the United States and China eased some fears about a global economic slowdown.
Looking ahead, crude futures were trading around $50 a barrel for the balance of 2019 and $52 for calendar 2020. Spot crude prices at the U.S. West Texas Intermediate (WTI) benchmark averaged $65.23 in 2018.
The U.S. Energy Information Administration projected spot WTI prices would average $54.19 a barrel in 2019.
U.S. financial services firm Cowen & Co. this week said the E&P companies it tracks have provided mixed guidance for 2019 after indicating they would spend about $88.9 billion in 2018, a 23% increase over the $72.2 billion they spent in 2017.
Cowen said the firms it tracks were so far only expecting to add 11 oil and gas rigs this year.
There were 1,075 oil and natural gas rigs active in the U.S. this week, according to Baker Hughes. Most rigs produce both oil and gas.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, this week forecast the average combined oil and gas rig count will fall to 1,001 in 2019 before rising to 1,094 in 2020—a significant decline from mid-December when they forecast 1,092 for 2019 and 1,227 for 2020.
In 2018, the combined rig count averaged 1,032, the most since 2014 when 1,862 rigs were active, according to Baker Hughes.
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