U.S. energy companies added oil rigs for a sixth week in a row as crude prices continue to soar to multi-year highs after new sanctions on Iran are anticipated to take some supply out of the market, further supporting U.S. drilling and pushing production to record highs.
Drillers added 10 oil rigs in the week to May 11, bringing the total count to 844, the highest level since March 2015, Baker Hughes, a GE company, said in its weekly report. That was the first time energy firms added rigs for six weeks in a row since early March.
More than half the total oil rigs are in Permian Basin in west Texas and eastern New Mexico, the nation’s biggest shale oil field. Active units there increased by five this week to 463, the most since January 2015.
The U.S. government expects oil output in the Permian to rise to a record high near 3.2 million barrels per day (MMbbl/d) in May, about 30% of total U.S. oil production.
The U.S. rig count, an early indicator of future output, is much higher than a year ago when 712 rigs were active as energy companies have been ramping up production in tandem with OPEC’s efforts to cut global output in a bid to take advantage of rising prices.
U.S. crude output has surged since 2010, fueled by output from formations in states including Texas, New Mexico and North Dakota. Amid the recovery in prices and drilling, production this year surpassed a previous long-standing output record.
The U.S Energy Information Administration on May 8 projected average annual U.S. oil output would rise 1.37 MMbbl/d to a record high 10.72 million bpd in 2018 and 11.86 MMbbl/d in 2019.
Texas energy regulators said in a report this week the state issued a third more oil and gas drilling permits in April than a year ago as higher prices continue to spur an increase in activity.
After the United States pulled out of the Iran nuclear deal earlier in this week, U.S. crude futures were trading at about $71 per barrel, their highest since November 2014. That is up sharply from the $50.85 average hit in 2017 and $43.47 in 2016.
Looking ahead, futures were trading at about $70 for the balance of 2018 and $65 for calendar 2019.
In anticipation of higher prices, U.S. financial services firm Cowen & Co. this week said the E&P companies they track have provided guidance indicating a 12% increase this year in planned capital spending.
Cowen said those E&Ps expect to spend a total of $81 billion in 2018, up from an estimated $72.4 billion in 2017.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, this week forecast average total oil and natural gas rig count would rise to 1,020 in 2018 and 1,135 in 2019, up from an earlier projection of 1,015 in 2018 and 1,130 in 2019.
So far this year, the total number of oil and gas rigs active in the United States has averaged 983, up sharply from an average of 876 rigs in 2017 and on track to be the highest since 2014, which averaged 1,862 rigs. Most rigs produce both oil and gas.