The number of rigs targeting oil in the U.S. shrank this week by the most since 2012 as crude trades at a seven-month low and drillers redirect equipment to focus on the most profitable plays.
Oil rigs tumbled by 25 this week to 1,564, the lowest level in a month and the largest drop since Dec. 21, 2012, data posted on Baker Hughes Inc.’s website today show. Those targeting gas meanwhile jumped to the highest in five months, the Houston-based field services company said. U.S. benchmark West Texas Intermediate crude declined for a fifth week, the longest losing streak in nine months.
Lower prices threaten to halt a surge in the oil rig count as energy producers use a combination of horizontal drilling and hydraulic fracturing to draw record volumes out of shale formations from North Dakota to Texas. The shale boom has raised domestic production to the highest in 27 years and cut U.S. imports to the lowest seasonal level since 1993. Oil rigs reached a record just last week.
“The primary reason you see changes in the count is scheduling, so operators who have wells throughout different plays are moving rigs as they change targets,” said Evan Turner, energy analyst at the London-based research company GlobalData Ltd. “This is a big move in the count, so it’s likely a combination of that and lower-than-anticipated oil prices. It may be that they target less oil now and go for gas.”
West Texas Intermediate crude for October delivery declined 31 cents, or 0.3 percent, to settle at $93.65 a barrel on the New York Mercantile Exchange, down 11 percent in the past year.
“We’ve got oil prices down 10 percent in the last two months, so it’s about time we started seeing some effect on drilling,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, said by telephone. “We might be back up next week, but there’s going to be downward pressure on oil drilling and most of the pressure is going to be on locations where we’re getting a lower-than-average price for oil.”
Oil production rose 21,000 barrels a day in the week ended Aug. 15 to 8.58 million, Energy Information Administration data show. Output reached the highest level since 1986 in the week of July 11.
U.S. gas stockpiles increased 88 billion cubic feet last week to 2.555 trillion, below the five-year average, according to the EIA.
Natural gas for September delivery fell 4.9 cents, or 1.3 percent, to $3.84 per million British thermal units today on the Nymex, up 8.3 percent in the past year. Oil is trading at 24 times the price of gas, down from almost 28 a month ago.
Total rigs fell by 17 to 1,896, Baker Hughes said. Those drilling for oil made up 82.5 percent of the total count, its smallest share since June 6.
Energy rigs dropped the most in the Permian Basin of Texas and New Mexico, the biggest onshore oil play in the U.S. The count fell by three there to 555. Rigs in Texas’s Eagle Ford formation meanwhile gained one to 200.
“It looks likely that they’re trying to target prospects in the Eagle Ford if they have holdings in each of those plays,” Turner said by telephone from New York. “The Eagle Ford has more potential.”