The number of operating oil and natural gas rigs fell to an all-time low - reflecting data going back 80 years - as the energy industry slashes output and spending to deal with the coronavirus-led crash in fuel demand.
The rig count, an early indicator of future output, fell by 34 to a record low of 374 in the week to May 8, according to data on Friday from energy services firm Baker Hughes Co. going back to 1940.
The prior all-time low was 404 rigs in May 2016.
Fuel demand has declined about 30% worldwide and companies are making drastic cuts to spending, laying off thousands of workers and closing production to offset a global glut. Consumption has picked up modestly in the last couple of weeks, but the overhang of supply is expected to last for months, if not years.
Drillers have cut an average of 52 rigs per week since mid March after crude prices started to plunge due to the coronavirus and a brief oil price war between Saudi Arabia and Russia.
U.S. oil rigs fell by 33 this week to 292, their lowest since September 2009, while gas rigs fell by one to 80, their lowest on record according to Baker Hughes data going back to 1987.
"The great coronavirus derigging kicked off mid to late in the first quarter, impacting well starts across the major U.S. oil shale plays," analysts at Enverus Rig Analytics said, noting the rig count was down 38% in April and 62% over the last year.
Analysts expect companies will keep pulling rigs for the rest of the year and will be hesitant to activate many new units in 2021 and 2022.
Raymond James projected the oil and gas rig count would collapse from around 800 at the end of 2019 to about 400 by the middle of the year and 200 at the end of 2020. The investment bank expects an average of just 225 operating rigs in 2021.
The count in Canada already fell to a record low of just 26 rigs two weeks ago, according to Baker Hughes.
U.S. crude futures were trading around $24 a barrel on Friday, down about 60% since the start of the year as lockdowns to stop the pandemic cut global economic growth and energy demand.
Cowen & Co. said 37 of the independent exploration and production companies that the financial services firm tracks have cut spending plans since early March when crude prices started to plunge, implying a 45% decline in 2020 capex. Before the price collapse, it forecast a drop of 11%.
Oil prices settled 5% higher on Friday in their second consecutive week of gains as U.S. producers cut production with the number of drilling rigs falling to a record low, and as more states moved ahead with plans to relax lockdowns intended to halt the coronavirus pandemic.
The number of operating oil and natural gas rigs fell by 34 to an all-time low of 374 this week - reflecting data going back 80 years - as the energy industry slashes output and spending to deal with the coronavirus-led crash in fuel demand.
North American oil companies have shut production faster than analysts expected and are on track to withdraw about 1.7 million barrels per day (bpd) of output by the end of June.
Brent crude settled up $1.51, or 5.1%, at $30.97 a barrel. U.S. West Texas Intermediate crude futures (WTI) gained $1.19, or 5%, to $24.74 a barrel.
Both contracts posted a second week of gains, with Brent advancing over 18% this week and WTI up about 33%.
"This advance of the past couple of weeks has been a bit suspect given the fact that coronavirus cases continue to increase and the U.S. crude surplus is maintaining a steep up trend where a record U.S. stock level is likely to be achieved in next week's EIA report," Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.
The U.S. Energy Information Administration's weekly report on Wednesday showed 15 weeks of consecutive rises in crude stocks although the rate of growth in inventories has slowed since a record build of 19 million barrels in early April. The market was now watching for more data that shows that Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia - known as OPEC+ - are complying with a record 9.7 million bpd production cuts that began this month, according to Andrew Lipow, president of Lipow Oil Associates in Houston.
"I expect now prices will pull back to $20 a barrel because skepticism will come into the market about the compliance of OPEC+ on the production cuts," said Lipow.
Iraq has yet to inform its regular oil buyers of cuts to its exports, suggesting it is struggling to fully implement supply cuts.
"All it takes is one or two countries not to comply and it could open the door for others," Lipow said.
Australia on Friday became the latest country to plan an easing of lockdowns, while France, parts of the United States and countries such as Pakistan are also planning to ease restrictions.
Market participants were also watching how the economic crisis unfolding in the United States affects oil demand in the coming months. The world's biggest economy lost a staggering 20.5 million jobs in April, the steepest plunge in payrolls since the Great Depression.
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