U.S. and Canadian energy firms cut the number of oil and natural gas rigs operating to a record low even as higher oil prices prompt some producers to start drilling again.
The U.S. oil and gas rig count, an early indicator of future output, fell to a record low for a seventh week in a row, dropping by 13 to 266 in the week to June 19, according to data from energy services firm Baker Hughes Co. going back to 1940.
That was 701 rigs, or 72%, below this time last year.
U.S. oil rigs fell 10 to 189 this week, their lowest since June 2009, while gas rigs dropped by three to 75, their lowest on record according to data going back to 1987.
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 dropped by five this week to 132, tying a record low set in April 2016, according to data going back to 2011.
In Canada, the oil and gas rig count fell four to an all-time low of 17 this week, according to Baker Hughes.
That was 102 rigs, or 86%, below this time last year the prior year.
Even though U.S. crude futures are still down about 35% since the start of the year due to coronavirus demand destruction, they have jumped 133% over the past eight weeks to over $39/bbl on June 19.
U.S. shale producers are expected by the end of June to restore about a quarter of what they shut since the pandemic hammered prices, according to crude buyers and analysts.
While the rebound to around $40 makes some shale profitable again, some analysts said they expect higher oil prices will encourage energy firms to slow rig count reductions and possibly add some units later in the year.
"While weekly declines have slowed a bit versus what we saw in April and May, they are likely to continue at the slower pace into the third quarter with most operators in no rush to pick-up rigs and few others still cutting activity per their plans," analysts at U.S. financial services firm Tudor, Pickering, Holt & Co. said in a note.
Simmons Energy, energy specialists at U.S. investment bank Piper Sandler, forecast the U.S. rig count would fall from an annual average of 943 in 2019 to 431 in 2020 and 326 in 2021 before rising to 583 in 2022. That compares with Simmons earlier forecast averages of 528 in 2020, 215 in 2021 and 221 in 2022.
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