U.S. oil drillers idled the most rigs since 2012 as prices slid below $55 a barrel to the lowest level in five years and a fight for market share with OPEC intensified.
Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, the lowest since April, Baker Hughes Inc. said on its website yesterday, extending the three-week decline to 76. Those drilling for natural gas increased by two to 340, the Houston-based field services company said.
U.S. oil output has surged to the highest in three decades even as the Organization of Petroleum Exporting Countries resists cutting production to defend market share, exacerbating an oversupply that Qatar estimates at 2 million barrels a day. Crude has slumped by almost 50 percent this year, prompting U.S. producers including Continental Resources Inc. and ConocoPhillips to plan spending cuts.
“We should see the rig count going down at least through the end of the first quarter as a reaction to the low oil prices,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas, before the report. “By midyear, we should see measurable impacts on production.”
The total rig count, which includes one miscellaneous rig, dropped 35 to 1,840, an eight-month low.
Brent crude and U.S. West Texas Intermediate crude futures are both trading near five-year lows. WTI was at $53.88 a barrel at 9:43 a.m. on the New York Mercantile Exchange today, while Brent was at $57.87.
“The rig count is falling because oil prices are falling,” Carl Larry, a Houston-based director of oil and gas at Frost & Sullivan, said by phone. “The margins just aren’t there.”
While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.
U.S. producers battling OPEC for market share may increase output further from the highest rate in more than three decades as costs decline almost as fast as oil prices, Goldman Sachs Group Inc. said in a Dec. 15 e-mailed report. The oil price slump is driving producers to move drill rigs to lower-cost fields, according to the report.
Domestic oil output climbed to 9.14 million barrels a day in the week ended Dec. 12, the highest in weekly EIA data going back to 1983, according to government estimates. Production was 9.13 million in the seven days ended Dec. 19.
Oil rigs dropped by five to 527 in the Permian Basin in Texas and New Mexico, by three to 188 in the Eagle Ford of Texas and by two to 178 in the Williston of North Dakota, Baker Hughes said. In basins outside the 14 majors listed by Baker Hughes, oil rigs fell by 27 to 375.