U.S. energy firms cut oil rigs for an 11th week in the last 12 this week, data showed on Friday, a sign drillers were still waiting for higher prices before returning to the well pad en masse. Drillers removed 10 oil rigs in the week ended Nov. 20, bringing the total rig count down to 564, oil services company Baker Hughes Inc said in its closely followed report. That is about a third of the 1,574 oil rigs operating in same week a year ago. After cutting 103 oil rigs over the past two months, drillers added two rigs last week.
U.S. oil futures averaged $41 a barrel so far this week, down from $43 last week, as crude inventories rose for the eighth consecutive week and were inching closer to record highs. Crude oil futures on Friday fell below $40 for a third day in a row to the lowest level since August as the pressure of a persistent supply glut limited optimism for a price recovery.
The strength of the U.S. dollar, near seven-month highs, has a negative impact on crude prices, making oil and other commodities more expensive for holders of other currencies, analysts said. Energy traders noted the rate of weekly oil rig reductions since the start of September, about nine on average, was much lower than the 18 rigs cut on average since the number of rigs peaked at 1,609 in October 2014, due in part to expectations of slightly higher prices in the future. U.S. crude futures for next year were trading around $45 a barrel, the same as last week, according to the full year 2016 calendar strip on the New York Mercantile Exchange.
Higher prices encourage drillers to add rigs. The most recent time crude prices were much higher than now was in May and June, when U.S. futures averaged $60 a barrel. In response to those higher prices, drillers added 47 rigs over the summer. The rig count is one of several indicators traders look at to predict whether production will rise or fall in future months. Other factors include how fast energy firms complete previously drilled but unfinished wells and increases in well efficiency and productivity. U.S. oil production eased to 9.3 million barrels per day (bpd) in August from 9.4 million bpd in July, according to the latest U.S.
Energy Information Administration (EIA) 914 production report. On a weekly basis, U.S. oil output remained at 9.2 million bpd for a third week in a row after holding at 9.1 million bpd for eight consecutive weeks since the start of September, according to EIA’s weekly field production report. That, however, is still well below the 9.6 million bpd peak seen in April.