U.S. energy firms this week reduced the number of oil rigs operating for a third week in a row as drillers follow through on plans to cut spending with oil prices declining amid a global supply glut.
Drillers cut five oil rigs in the week to July 19, bringing down the total count to 779, the lowest since February 2018, Baker Hughes, a GE company, said in its weekly report. That compares with 858 rigs operating during the same week a year ago.
The rig count, an early indicator of future output, has declined over the past seven months as independent E&P companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
The world’s top oilfield services company Schlumberger NV said on July 19 that spending in onland drilling in North America was tracking expectations of a 10% decline this year.
U.S. oil output from seven major shale formations is expected to rise by about 49,000 barrels per day (bbl/d) in August to a record 8.55 million bbl/d, the U.S. Energy Information Administration (EIA) said in its monthly drilling productivity report on July 15.
For the year, EIA projected total U.S. crude output will rise to 12.36 million bbl/d in 2019, topping the annual record of 10.96 million bbl/d set in 2018.
The International Energy Agency (IEA) said on July 19 it does not expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets.
U.S. crude futures traded at about $55 per barrel on July 19, putting the contract on track to fall this week by about 8%, the steepest decline in seven weeks on concerns slowing economic growth will reduce global oil demand.
Looking ahead, crude futures were trading around $55 per barrel for the balance of 2019 and $54 in calendar 2020.
U.S. financial services firm Cowen & Co. this week said that projections from the E&P companies it tracks 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 will spend about $81.1 billion in 2019 versus $85.4 billion in 2018.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 1,010. Most rigs produce both oil and gas.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, forecast the average combined oil and gas rig count will slide from a four-year high of 1,032 in 2018 to 992 in 2019 before rising to 1,011 in 2020 and 1,067 in 2022. That is the same as Simmons forecast since late June.
U.S. West Texas Intermediate crude oil ended the session down $4.63 at $53.95, or 7.9%—the biggest percentage decline since February 2015.
The report by OPEC also said oil inventories in developed economies rose in June, suggesting a trend that could raise the group's concern over a possible oil glut.
Bargain rates are expected to help oil producers.