U.S. energy firms this week continued to cut the number of rigs drilling for oil to the lowest in nearly six years, data showed on Friday, suggesting drillers were preserving cash as they evaluate spending plans as crude prices hover near 12-year lows. Drillers removed one oil rig in the week ended Jan. 15, bringing the total rig count down to 515, the least since April 2010, oil services company Baker Hughes Inc said in its closely followed report.
That is 851 fewer rigs from the 1,366 oil rigs operating in same week a year ago. It was a slowdown in the pace of reductions as drillers cut on average 18 rigs per week in 2015 for a total of 963 oil rigs for the year. Despite the slowdown, several energy firms were still waiting for higher prices before increasing their drilling activities. “The December year-end holiday period was an exceptionally slow one.
Our customers dramatically slowed their activities as they preserved cash and deferred maintenance work in response to continually weak commodity prices,” Roe Patterson, president and CEO of energy service firm Basic Energy Services Inc, said in a release this week. “It is still too early to get a view of activity for the first quarter as most of our customers are still evaluating their spending plans for 2016,” Patterson said.
U.S. crude futures breached $30 a barrel on Friday as the market braced for increased Iranian oil exports once international sanctions are lifted, possibly within days, and Russia said it was likely to increase production in 2016. U.S. crude fell to its lowest level since 2003 on Friday, putting the front-month down about 20 percent since the start of the year as it heads for a third weekly decline in a row.
Analysts forecast the number of rigs operating will likely continue to decline so long as prices remain low. “Further rig cuts are expected as oil and gas prices remain weak,” analysts at Citigroup, a U.S. bank, said this week in a note. Citi forecast the reduction in rigs would only “modestly impact” production in 2016. The bank expects U.S. oil output in 2016 to fall by about 500,000 to 600,000 barrels per day from 2015.
“If prices rebound sharply on signs of markets rebalancing, producers may add back rigs as their cash flow improves,” Citi said. U.S. crude oil production averaged about 9.4 million bpd in 2015 and was forecast to average 8.7 million bpd in 2016 and 8.5 million bpd in 2017, according to the U.S. Energy Information Administration’s Short-Term Energy Outlook released this week.