U.S. energy firms cut 21 oil rigs this week, the biggest decline since February 2016, even as the United States is expected to reinforce its leadership as the world’s number one crude producer this year.
Drillers cut 21 oil rigs in the week to Jan. 18, bringing the total count down to 852, the lowest since May 2018, Baker Hughes, a GE company (NYSE: BHGE), said in its closely followed report.
Active rigs in the Permian Basin, the country's biggest shale oil formation, in Texas and New Mexico, dropped by seven this week to 481, the lowest since August.
The rest of the decline occurred in smaller oil producing regions scattered across the country.
The U.S. rig count, an early indicator of future output, is still much higher than a year ago when 747 rigs were active after energy companies boosted spending in 2018 to capture higher prices that year.
Crude oil output from the United States last week rose to a peak of 11.9 million barrels per day (MMbbl/d) and is expected to hit a new record of more than 12 MMbbl/d this year and climb to nearly 13 MMbbl/d next year, the U.S. Energy Information Administration said this week.
The United States has become the world’s largest crude producer, boosted by output from shale formations, with production of nearly 11 MMbbl/d in 2018, which broke the country’s annual record set in 1970.
U.S. oil production growth combined with a slowing global economy will put oil prices under pressure in 2019, challenging OPEC’s resolve to support the market with output cuts, the International Energy Agency said on Jan. 18.
“The United States, already the biggest liquids supplier, will reinforce its leadership as the world's number one crude producer. By the middle of the year, U.S. crude output will probably be more than the capacity of either Saudi Arabia or Russia,” the IEA said.
U.S. crude futures were trading above $53.50 per barrel on Jan. 18, putting the front-month on track to rise for a third week in a row after a report from OPEC showed its production fell sharply last month, easing global oversupply concerns.
Looking ahead, crude futures were trading near $55 per barrel for the balance of 2019 and for calendar 2020.
Several producers have said they expect to reduce drilling activity in 2019 after U.S. crude prices fell 25% last year, the first annual decline since 2015.
If they follow through on those cuts, it would be the first annual average rig count decline in three years after they added 138 oil rigs in 2018 and 222 in 2017. They cut 11 rigs in 2016.
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 $88.7 billion in 2018, a 23% increase over the $72.2 billion spent in 2017.
There were 1,050 oil and natural gas rigs active in the United States 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 from 1,032 in 2018 to 999 in 2019 before rising to 1,087 in 2020. That forecast was unchanged from the previous week.
A U.S. appeals court on March 28 supported a lower court’s finding that Italian oil producer Eni SpA breached a contract with offshore drilling contractor Transocean Ltd., but voided a $160 million damages award.
Hurricane Energy’s FPSO vessel has been connected to the group’s North Sea Lancaster oil field on March 19, another milestone for the group as it seeks to extract so-called fractured basement oil in Britain.
Drillers added 10 oil rigs in the week to Jan. 25, bringing the total count to 862, Baker Hughes, a GE company, said in its closely followed report.