U.S. Oil Drilling Growth Shows First Signs of Cooling Off

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  • Explorers added fewest number of rigs in nearly two months
  • All four of the biggest U.S. basins started at least 1 new rig

Oil Heads for Biggest Weekly Loss Since March

U.S. oil drillers slowed the pace of a months-long expansion as investors worry that growing shale production will ruin OPEC’s efforts to prop up prices.

Drillers added 5 rigs targeting crude this week, bringing the total to 688, according to Baker Hughes Inc. data reported Friday. While all four of the biggest oil basins boosted activity this week, the handful of rigs added is the smallest amount of growth in nearly two months.

The number of working rigs has more than doubled from a 2016 low of 316 in May, often expanding weekly by double digits, with as many as 29 rigs added during one week in January. Crude dropped below $50 Friday on concerns that surging U.S. production could undermine OPEC’s efforts to reduce global supplies.

"It’s not surprising to see the rig count continue to build from the carryover from recently higher commodity prices," Luke Lemoine, an analyst at Capital One Securities in New Orleans, said Friday in a phone interview. "But the rate of change has slowed over the past several weeks. If commodity prices persist here, we expect the rig count to flatten out fairly soon."

Citigroup Inc. joined Goldman Sachs Group Inc. this week in retaining a strong outlook on commodities, saying oil will probably rally to the mid-$60s by the end of the year. 

Market Recovery

While U.S. shale output came “roaring back” as prices shifted higher earlier this year, the production curbs led by the Organization of Petroleum Exporting Countries should help offset that increase over the next six to nine months, Citi analysts including Ed Morse and Seth Kleinman wrote in an April 17 report. The producers need to extend their deal to cut supplies through the end of the year amid concerns that Russia is lagging behind on its pledged reductions, the bank said.

U.S. crude output may rise by 455,000 barrels a day in the fourth quarter from a year earlier across the Permian, Eagle Ford, Bakken and Niobrara shale plays, assuming the rig count remains at current levels, according to Goldman Sachs.

Production climbed by 17,000 barrels a day to 9.25 million barrels a day last week, the highest since August 2015, according to the Energy Information Administration. U.S. supplies of crude are still near records and more than 100 million barrels higher than the five-year average for this time of the year, data compiled from the EIA show.