U.S. energy firms this week reduced the number of oil rigs operating for a second week in a row as independent producers cut spending as record crude production weighs on the outlook for energy prices.
Drillers cut five oil rigs in the week to Nov. 1, bringing down the total count to 691, the lowest since April 2017, Baker Hughes said in its weekly report. In the same week a year ago, there were 874 active rigs.
The oil rig count, an early indicator of future output, has declined for a record 11 months in a row as independent E&P companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
Even though the number of rigs drilling new wells has declined since the start of the year, oil output has continued to increase in part because productivity of those remaining rigs—the amount of oil that new wells produce per rig—has increased to record levels in most U.S. shale basins.
U.S. crude production soared nearly 600,000 barrels per day in August to a record of 12.4 million barrels per day (MMbbl/d), buoyed by a 30% increase in Gulf of Mexico output, according to government data released on Oct. 31.
The U.S. Energy Information Administration projected U.S. crude output will rise to 12.3 MMbbl/d in 2019 from a record 11.0 MMbbl/d in 2018.
U.S. crude futures, meanwhile, traded around $55 per barrel on Nov. 1, putting the contract on track to fall about 2% for the week as continued economic worries and forecasts for lower prices in the future weigh on futures.
Looking ahead, U.S. crude futures were trading at about $54 per barrel in calendar 2020 and $52 in calendar 2021.
A Reuters survey showed that oil prices were expected to remain under pressure this year and next. Economists and analysts in the poll lowered their forecasts for U.S. crude to average $57.18 a barrel in 2019 and $56.98 next year.
The largest banking lenders to the U.S. oil and gas sector are becoming more cautious, marking down their expectations for oil and gas prices that underpin loans in a move expected to put further financial stress on struggling producers, industry and banking sources said.
U.S. financial services firm Cowen & Co. this week said that projections from E&P companies it tracks, like Antero Resources Corp., CNX Resources Corp., EQT Corp. and Hess Corp., point to a 5% decline in capex for drilling and completions in 2019 versus 2018.
Cowen said independent producers expect to spend about 11% less in 2019, while major oil companies plan to spend about 16% more.
In total, Cowen said all of the E&P companies it tracks that have reported plan to spend about $80.3 billion in 2019 versus $84.6 billion in 2018.
Cowen said 11 of the 47 E&Ps it tracks have reported spending estimates for 2020 with two increases and nine decreases versus 2019.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 968. Most rigs produce both oil and gas.