U.S. energy firms this week added oil and natural gas rigs for a sixth week in a row as oil prices soared to their highest since 2014, prompting drillers to return to the wellpad.
The oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.
That puts the total rig count up 261 rigs, or 93%, over this time last year.
U.S. oil rigs rose 12 to 445 this week, their highest since April 2020, while gas rigs fell 1 to 98, their lowest since August. The increase in oil rigs was the biggest weekly build since April 2021.
U.S. crude futures rose to their highest since 2014 this week and were currently trading around $82 a barrel on Friday, on forecasts of a supply deficit over the next few months as rocketing gas and coal prices stoke a switch to oil products.
With oil prices up about 69% so far this year, some energy firms said they plan to boost spending in 2021 after cutting drilling and completion expenditures in 2019 and 2020.
That spending increase, however, remains small as most firms continue to focus on boosting cash flow, reducing debt and increasing shareholder returns rather than adding output.
“As oil prices continue to soar upward, producers are expected to slowly wean off their previous policies of strict capital discipline in the wake of COVID, and tepidly increase drilling activity,” analysts at Gelber and Associates said in a report.
But it will take time for those rig increases to translate into rising oil output.
U.S. oil production is expected to slide from 11.3 million barrels per day (bpd) in 2020 to 11.0 million bpd in 2021 before rising to 11.7 million bpd in 2022, according to government projections. That compares with the all-time annual high of 12.3 million bpd in 2019.
Enverus, which publishes its own rig count data, said drillers added 10 rigs in the week through Oct. 13, with 7 of those in the Permian shale in Texas and New Mexico.
Oddly, an even bigger price increase in natural gas – futures were up 115% so far this year – has not yet encouraged drillers to seek more gas. The oil rig count was up about 67% since the start of the year, while the number of active gas rigs was only up about 19%.
Analysts said there were a lot of reasons drillers were adding more oil rigs than gas, including that U.S. domestic demand for gas has been declining since hitting a record high in 2019 due coronavirus demand destruction in 2020 and as high prices in 2021 caused power generators to burn more coal.
In addition, the United States was already turning all the gas it could into liquefied natural gas for export, so producing more of the fuel would only reduce prices, not meet an increase in demand.