U.S. energy companies this week added oil rigs for a second week in a row as crude prices traded near their highest levels since the summer of 2015 as major oil-producing countries extended a global deal to limit supply.
Drillers added two oil rigs in the week to Dec. 1, bringing the total count up to 749, the highest since September, Baker Hughes, a GE company, (NYSE: BHGE) said its closely followed report Dec. 1.
U.S. producers applauded the decision Nov. 30 by OPEC and non-OPEC producers led by Russia to extend oil output cuts of about 1.8 million barrels per day (MMbbl/d) beyond March until the end of 2018 as they try to finish clearing a global glut of crude.
Rising U.S. production, however, has been a thorn in OPEC’s side, undermining the impact of its output curbs. U.S. production rose to 9.5 MMbbl/d in September, its highest monthly output since reaching 9.6 MMbbl/d in April 2015, according to federal energy data going back to 2005. On an annual basis, U.S. output peaked at 9.6 MMbbl/d in 1970.
The U.S. rig count, an early indicator of future output, is still much higher than a year ago when only 477 rigs were active after energy companies boosted spending plans for 2017 as crude started recovering from a two-year price crash around the same time OPEC agreed to production cuts a year ago.
The increase in U.S. drilling lasted 14 months before stalling in August, September and October as some producers started trimming their 2017 spending plans after prices turned softer over the summer. Energy firms started adding rigs again in November as crude prices rose.
U.S. crude futures rose 5.5% in November amid talk of extending the OPEC-led deal to cut global supply, and so far in 2017 since the agreement kicked in, have averaged over $50 per barrel, easily topping last year’s $43.47 average. This week, futures climbed over $58 a barrel, near their highest since June 2015. Looking ahead, futures were trading near $57 for calendar 2018 and $54 for calendar 2019.
In anticipation of higher prices than in 2016, E&P companies increased their spending on U.S. drilling and completions in 2017 by about 53% over 2016, according to U.S. financial services firm Cowen & Co. In addition, Cowen said 14 of the 64 E&Ps they track have already provided capex guidance for 2018 indicating a 9% increase in planned spending over 2017.
Cowen, which has its own U.S. rig count, said it expects a gradual decline in rigs in fourth-quarter 2017 and in 2018.
There were 929 oil and natural gas rigs active Dec. 1, up six from a week ago. The average number of rigs in service so far in 2017 was 872. That compares with 509 in 2016 and 978 in 2015. Most rigs produce both oil and gas.