U.S. energy firms this week reduced the number of oil rigs operating for the second week in a row, with the rig count at its lowest since March 2018, as some drillers follow through on plans to cut spending.
Despite those cuts, production in the nation’s biggest shale formations was expected to keep rising from record levels.
Drillers cut three oil rigs in the week to May 17, bringing down the total count to 802, below the 844 units operating a year ago, Baker Hughes, a GE company, said in its weekly report.
The rig count, an early indicator of future output, has declined over the past five months as independent E&P companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
Major oil companies, like Exxon Mobil Corp. and Chevron Corp., however, are boosting their presence, particularly in the Permian, the largest U.S. shale oil field.
The U.S. Energy Information Administration (EIA) this week projected U.S. oil output from seven major shale formations would rise to a fresh record high of 8.49 million barrels per day (MMbbl/d) in June.
U.S. crude futures, meanwhile, were trading around $63 per barrel on May 17, putting the contract on track to rise almost 3% for the week as supply cuts and concern over potential further disruption to Middle East shipments.
Looking ahead, crude futures were trading around $63 per barrel for the balance of 2019 and $60 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 1,029. Most rigs produce both oil and gas.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, however, 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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