U.S. energy companies this week added oil rigs for the second time in the last three weeks even as new drilling has largely stalled since June due to pipeline constraints in the country’s biggest oil field.
Drillers added seven oil rigs in the week to Sept. 14, the biggest weekly increase in a month, bringing the total count to 867, Baker Hughes, a GE company, said in its weekly report.
The U.S. rig count, an early indicator of future output, is higher than a year ago when 749 rigs were active as energy companies have been ramping up production in anticipation of higher prices in 2018 than previous years.
But the rig count has held mostly steady around 860 rigs since the start of June as crude prices in the Permian region in western Texas and eastern New Mexico have collapsed due to a lack of pipeline infrastructure needed to transport more fuel out of the region.
More than half the total oil rigs are in the Permian Basin in west Texas and eastern New Mexico, the nation’s biggest shale oil field. Active units there declined by one this week to 483, the least since the start of August.
“The only way to get drillers in the Permian to slow their production growth is a lower oil price. And that is exactly what they have got,” said Bjarne Schieldrop, chief commodities analyst at SEB, a Nordic corporate bank.
A shale boom has helped send U.S. production surging above 10 million barrels per day (MMbbl/d) this year for the first time since the 1970s, with the United States surpassing Russia and Saudi Arabia as the top crude producer, according to the U.S. Energy Information Administration (EIA) this week.
The EIA, however, said in its monthly forecast that U.S. crude oil production in 2019 was expected to grow at a slower rate than previously forecast.
U.S. crude production is expected to rise by 840,000 bbl/d to 11.5 MMbbl/d next year, lower than last month’s forecast growth of 1.02 MMbbl/d to 11.7 million.
U.S. crude prices were trading at about $69 per barrel, on track to increase about 2% this week on talk of U.S. sanctions against Iran that boosted the global benchmark Brent futures to a 3 ½-month high over $80 per barrel earlier this week.
So far this year, U.S. oil futures have averaged $66.53 per barrel. That compares with averages of $50.85 in calendar 2017 and $43.47 in 2016.
Looking ahead, crude futures were trading near $69 for the balance of 2018 and over $67 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 it tracks have provided guidance indicating an 18% increase this year in planned capital spending.
Cowen said the E&Ps it tracks expect to spend a total of $85.3 billion in 2018. That compares with projected spending of $72.2 billion in 2017.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, this week forecast the average combined oil and natural gas rig count would rise from 876 in 2017 to 1,031 in 2018, 1,092 in 2019 and 1,227 in 2020.
Since 1,055 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 1,017. 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.
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.