U.S. energy firms this week cut the oil rig count to the lowest since February 2018 as drillers follow through on plans to reduce spending with crude prices collapsing to a four-month low.
Drillers cut 11 oil rigs in the week to June 7, bringing down the total count to 789, Baker Hughes, a GE company, said in its weekly report. That compares with 862 rigs operating during the same week a year ago. The drop was the biggest weekly decline since April.
More than half of the total U.S. oil rigs are in the Permian Basin in West Texas and eastern New Mexico, where active units decreased by six this week to 446, the lowest since April 2018. The Permian is the biggest U.S. shale oil play.
The rig count, an early indicator of future output, declined over the past six months as independent E&P companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
“We continue to see a slowdown in rig activity week to week, reflecting both the continuing limitation of take away capacity, as well as, general global uncertainty from the impact of the U.S. trade disputes impacting world demand,” said Trey Cowan, senior analyst, S&P Global Platts Analytics.
U.S. crude futures fell below $51 per barrel this week, their lowest since January on worries a stalling global economy and an intensifying trade war between the United States and China could cut demand for oil.
Looking ahead, crude futures were trading under $54 per barrel for the balance of 2019 and close to $53 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 $81.9 billion in 2019 versus $86.4 billion in 2018.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 1,023. 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 1,019 in 2019 before rising to 1,097 in 2020.
That is the same as Simmons predictions since early April.
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