U.S. energy firms this week cut oil rigs for a fifth week in the last six, data showed on Wednesday, a sign drillers were still waiting for higher prices before returning to the well pad. Drillers removed three oil rigs in the week ended Dec. 23, bringing the total rig count down to 538, oil services company Baker Hughes Inc said in its closely followed report. That decrease brings the total rig count down to about a third of the 1,499 oil rigs operating in same week a year ago. Since the end of the summer, drillers have cut 134 oil rigs.
Last week, they added 17 rigs, the first increase in five weeks. Baker Hughes issued the report two days early due to the Christmas holiday. Oil prices rose on Wednesday after an unexpected fall in U.S. crude inventories, but remain near multi-year lows. Prices did not budge after the Baker Hughes report. Beyond the front month contract, U.S. crude futures were trading around $40 a barrel for the rest of 2016 and $44 a barrel for 2017.
This could entice some producers to return to drilling later in 2016, traders have said. Higher prices encourage drillers to add rigs. The most recent period 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.
This week drillers removed three oil rigs in the Bakken in North Dakota and Montana and one in the Niobrara in Colorado and Wyoming, while adding five in the Permian in West Texas and eastern New Mexico. The number of rigs in the Eagle Ford in South Texas remained the same. Natural gas rigs fell by six this week. Overall, the U.S. oil and natural gas rig count fell to a 16-year low.
The rig count is one of several indicators traders look to when forecasting whether production will rise or fall in the future. Other indicators include productivity gains and the completion of previously drilled wells. U.S. oil production held at 9.4 million barrels per day in September, the same as August, according to federal energy data. That, however, is still down from the recent peak of 9.6 million bpd seen in April.