U.S. oil drillers cut rigs this week for the first time since June, ending a 17-week recovery in the rig count, even as crude prices mostly held over $50 a barrel this month, the key level analysts said should lead to more drilling.
Drillers cut 2 oil rigs in the week to Oct. 28, bringing the total down to 441, compared with 578 rigs a year ago, energy services firm Baker Hughes Inc said on Friday.
That ended the longest streak of not cutting oil rigs since 2011 started after crude briefly climbed over $50 a barrel in May and June and held at that level for most of October. During those 17 weeks, drillers added 113 rigs.
Despite the overall decline, drillers added five oil rigs in the Bakken shale in North Dakota, the biggest weekly increase in the region since August 2014, bringing the total there to 35, the most since February.
The U.S. oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May after crude collapsed from over $107 a barrel in June 2014 to near $26 in February 2016 due to a global oil glut.
U.S. crude futures traded around $50 a barrel for much of this week, but slipped below that level and were set to decline for the first week in six on doubts about whether global producers will agree on an output cut big enough to curb a glut that has weighed on the market for two years. [O/R]
But with oil prices still expected to rise in 2017 and 2018 with a projected tightening of the supply-demand balance, analysts forecast energy firms will follow through on plans to boost spending on new drilling in coming years.
Futures were trading near $52 a barrel for calendar 2017 and near $54 for calendar 2018.
Analysts at U.S. financial services firm Cowen & Co said this week in a note that its capital expenditure tracking showed nine exploration and production (E&P) companies, including Cabot Oil and Gas Corp and Devon Energy Corp, planned to increase spending by an average of 42 percent in 2017 over 2016.
Cowen said that forecast 2017 increase followed an estimated 43 percent decline in 2016 spending below 2015 levels for the 65 E&P companies it tracks.
Since most wells produce both oil and natural gas, Cowen forecast increased spending in 2017 would boost average oil and gas rig counts to 634 in 2017 and 732 in 2018 from 514 in 2016.
That compares with an average of 978 oil and gas rigs active in 2015, according to Baker Hughes data.