U.S. energy companies this week cut oil rigs for the first week in three even though crude prices hovered near their highest level since the spring of 2015.
Drillers cut five oil rigs in the week to Jan. 5, bringing the total count down to 742, Baker Hughes, a GE company, said in its closely followed report Jan. 5. In the prior two weeks, drillers did not add or remove any rigs. The U.S. rig count, an early indicator of future output, is much higher than a year ago when only 529 rigs were active.
Energy companies boosted spending plans in 2017 as crude prices started recovering from a two-year crash.
The increase in U.S. drilling lasted 14 months before stalling in the second half of last year as some producers trimmed their 2017 spending plans after prices turned softer over the summer.
In 2017, U.S. crude futures averaged $50.85 per barrel, easily topping last year’s $43.47 average. This week, futures traded over $62, their highest since May 2015.
Looking ahead, futures were trading at $60 for the balance of 2018 and $57 for calendar 2019.
In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co. said 21 of the roughly 65 E&Ps they track have already provided capex guidance indicating a 13 percent increase in planned spending over 2017.
Cowen said the E&Ps it tracks would spend about $66.1 billion on drilling and completions in the lower 48 U.S. states in 2017, about 53% more than what they planned to spend in 2016.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, this week slightly reduced their forecast for the total oil and natural gas rig count to an average of 997 in 2018 and 1,126 in 2019. Two weeks ago, it forecast 999 in 2018 and 1,127 in 2019.
There were 924 oil and natural gas rigs active on Jan. 5. On average, there were 876 rigs available for service in 2017, 509 in 2016 and 978 in 2015. Most rigs produce both oil and gas.
Overall, U.S. production is expected to rise to 9.2 million barrels per day (MMbbl/d) in 2017 and an all-time high of 10.0 MMbbl/d in 2018 from 8.9 MMbbl/d in 2016, according to a federal energy projection in December.
U.S. output peaked on an annual basis at 9.6 MMbbl/d in 1970, according to federal energy data.