U.S. energy companies this week cut oil rigs by the most since March as the rate of growth has slowed over the past month or so with recent declines in crude prices.
U.S. crude prices are on track to fall for a third week in a row this week as escalating U.S.-China trade tensions threatened to hurt oil demand.
Drillers cut five oil rigs in the week to July 20, bringing the total oil rig count down to 858, Baker Hughes, a GE company (NYSE: BHGE), said in its weekly report.
The U.S. rig count, an early indicator of future output, is higher than a year ago when 764 rigs were active as energy companies have been ramping up production in anticipation of higher prices in 2018 than previous years.
So far this year, U.S. oil futures have averaged $66.03 per barrel. That compares with averages of $50.85 in 2017 and $43.47 in 2016.
Looking ahead, crude futures were trading near $67 for the balance of 2018 and over $63 for calendar 2019.
In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co. this week said the E&P companies they track have provided guidance indicating a 13% increase this year in planned capital spending.
Cowen said those E&Ps expect to spend a total of $81.2 billion in 2018, up from an estimated $72.1 billion in 2017.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week forecast the average total oil and natural gas rig count would rise from 876 in 2017 to 1,033 in 2018, 1,092 in 2019 and 1,227 in 2020. Last week, Simmons forecast the count would rise to 1,032 in 2018, 1,092 in 2019 and 1,227 in 2020.
Since 1,046 oil and gas rigs were already in service, drillers would only have to add a handful of rigs during the rest of the year to hit Simmons’ forecast for 2018.
So far this year, the total number of oil and gas rigs active in the United States has averaged 1,008. That keeps the total count for 2018 on track to be the highest since 2014, which averaged 1,862 rigs. Most rigs produce both oil and gas.
The U.S. Energy Information Administration this month projected average annual U.S. production will rise to a record high 10.8 MMbbl/d in 2018 and 11.8 MMbbl/d in 2019 from 9.4 MMbbl/d in 2017.
The current all-time U.S. annual output peak was in 1970 at 9.6 MMbbl/d, according to federal energy data.
Year-to-date, the total number of oil and gas rigs active in the U.S. has averaged 1,025. Most rigs produce both oil and gas.
U.S. oil drillers this week cut the most rigs since the week to Jan. 18 and reduced the number of oil rigs operating for a second week in a row.
Russian oil output was stagnant at 10.97 million barrels per day for a third month in a row in May, again exceeding quotas set under a global deal.