U.S. energy firms cut oil rigs for a third time in the past four weeks as a 14-month drilling recovery stalls with energy firms reducing spending plans in response to recent crude price declines.
Drillers cut three oil rigs in the week to Sept. 8, bringing the total count down to 756, the least since June, Baker Hughes, a GE company (NYSE: BHGE), said in its closely followed report. That compares with 414 active oil rigs during the same week a year ago.
Drillers cut seven rigs in August, the first monthly reduction since May 2016. The rig count is an early indicator of future output.
The declining rig count comes amid a hive of tropical storms, including Hurricane Harvey that hit in late August, curtailing oil drilling activity in the U.S. Gulf and in Texas’ Eagle Ford shale plays.
The recovery in U.S. demand as Gulf Coast refineries restart after Harvey supported U.S. crude prices this week, which were trading up 1.7% on the week at just above $48/bbl. Crude prices were up about 2% so far this month after declining in five of the past six months, including a near 6% drop in August.
U.S. production is expected to rise to 9.4 MMbbl/d in 2017 and a record 9.9 MMbbl/d in 2018 from 8.9 MMbbl/d in 2016, according to federal energy projections.
Those output gains have pressured crude prices lower in recent months, prompting several E&P companies to reduce spending plans for this year, including Bill Barrett Corp. Those companies and others had mapped out ambitious spending programs for 2017 when they expected U.S. oil prices to be higher than the $48 per barrel range where they are currently trading.
Despite recently announced spending cuts, the E&Ps, however, still plan to spend much more this year than last year.
Analysts at U.S. financial services firm Cowen & Co. said in a note this week that its capex tracking showed the 64 E&Ps it tracks planned to increase spending by an average of 49% in 2017 from 2016. That expected 2017 spending increase followed an estimated 48% decline in 2016 and a 34% decline in 2015, Cowen said.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the total oil and gas rig count would rise to an average of 863 in 2017, 932 in 2018 and 1,078 in 2019. Most wells produce both oil and gas. That compares with 855 so far in 2017, 509 in 2016 and 978 in 2015.