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Copper Tip Energy Services
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Copper Tip Energy

U.S. oil drillers cut rigs for 1st time in 12 weeks

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(Reuters) – U.S. energy companies this week cut one oil rig, the first reduction in 12 weeks, after drillers started to slow down the rate of additions this month as pipeline constraints put a damper on future production.

The total oil rig count dipped to 862 in the week to June 22, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday.

That put the rig count on track for its smallest monthly gain since declining by two rigs in March with just three rigs added so far in June.

As pipelines out of the Permian basin in West Texas and eastern New Mexico, largest U.S. oil field, reach capacity in the coming months, smaller producers will have to slow or shut-in production, according to oil executives.

Active units in the Permian, where more than half of the country’s oil rigs are located, declined by two this week to 473, their lowest level in five weeks.

The U.S. rig count, an early indicator of future output, is much higher than a year ago when 758 rigs were active as energy companies have been ramping up production in tandem with OPEC’s past efforts to cut global output in a bid to take advantage of rising prices.

On Friday, U.S. crude futures jumped by the most since November 2016 to around $68 per barrel, their highest for the month of June, after OPEC and its allies led by Russia agreed to increase production by about 1 million barrels per day (bpd).

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So far this year, U.S. oil futures have averaged $65.19 per barrel. That compares with averages of $50.85 in 2017 and $43.47 in 2016.

Looking ahead, crude futures were trading near $67 for the balance of 2018 and $63 for calendar 2019.

In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co this week said the exploration and production (E&P) companies they track have provided guidance indicating a 13 percent increase this year in planned capital spending.

Cowen said those E&Ps expect to spend a total of $81.2 billion in 2018, up from an estimated $72.1 billion in 2017.

Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week forecast average total oil and natural gas rig count would rise from 876 in 2017 to 1,038 in 2018, 1,097 in 2019 and 1,232 in 2020, the same as last week.

Since 1,052 oil and gas rigs were currently in service, drillers would only have to add a handful of rigs for 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 1,001. 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.

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