(Reuters) – U.S. energy firms cut number of U.S. oil and natural gas rigs operating to an all-time low for a second week in a row as producers slash spending on new drilling after oil prices collapsed due to a slump in demand caused by global lockdowns to stop the coronavirus pandemic.
The rig count, an early indicator of future output, fell by 35 to a record low of 339 in the week to May 15, according to data from energy services firm Baker Hughes Co going back to 1940.
The prior all-time low was 374 rigs in the week ended May 8.
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 23 this week to 175, the lowest since July 2016.
Global fuel demand is expected to drop roughly 10% in 2020 from 2019, prompting companies to make drastic cuts to spending, lay off thousands of workers and close production to offset the worldwide supply glut.
“The number of rigs running in the United States has fallen 52% since the start of the year. Over 400 rigs have gone offline, which is more than … are still running,” analysts at Enverus DrillingInfo said.
Drillers have cut an average of 50 rigs per week since mid March after crude prices started to plunge due to the coronavirus and a brief oil price war between Saudi Arabia and Russia.
Analysts expect energy firms to keep chopping rigs for the rest of the year and noted drillers will be hesitant to activate new units in 2021 and 2022.
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 528 in 2020, 215 in 2021 and 221 in 2022.
In Canada, drillers cut the rig count by three to a record low of 23 this week, according to Baker Hughes.
U.S. oil rigs fell 34 to 258 this week, their lowest since July 2009, while gas rigs fell by one to 79, a record low according to data going back to 1987.
The U.S. Energy Information Administration (EIA) projected a fall in domestic crude output to 11.7 million barrels per day (bpd) this year from a record 12.2 million bpd in 2019, while global petroleum and other liquid fuels consumption will drop to 92.6 million bpd in 2020 from a record 100.7 million bpd in 2019.
U.S. crude futures were trading around $29 a barrel on Friday, up about 68% over the past three weeks but still down over 50% since the start of the year.
Chesapeake Energy Corp, which helped revolutionize the use of hydraulic fracturing, or fracking, to extract oil and gas from shale formations, is considering a bankruptcy restructuring.
Energy consultant Rystad Energy forecast U.S. fracking activity will hit “rock bottom” in May before starting to recover in the third quarter.