US energy firms this week reduced the number of oil rigs operating for a fourth week in a row, putting the rig count down for an eighth consecutive month as producers follow through on plans to cut spending on new drilling and completions.
Drillers cut three oil rigs in the week to July 26, bringing the total count down to 776, the lowest since February 2018, General Electric Co's Baker Hughes energy services firm said in its closely followed report on Friday. <RIG-OL-USA-BHI>
That compares with 861 rigs operating during the same week a year ago.
More than half the total US oil rigs are in the Permian basin in West Texas and eastern New Mexico, where active units increased by three this week to 443 despite the national rig decline. The Permian is the biggest US shale oil play.
For the month, the rig count dropped by 17, its biggest decline since March. That put the count down for an eighth month in a row, its longest losing streak since May 2016 when the number of active rigs fell for a record nine consecutive months, according to Baker Hughes data going back to 1987.
The rig count, an early indicator of future output, has declined over the past eight months as independent exploration and production companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
Total US crude output, however, is still expected to rise to a record 12.36 million barrels per day (bpd) in 2019, topping the current annual all-time high of 10.96 million bpd in 2018, according to US Energy Information Administration (EIA) projections.
US crude futures traded around $56 per barrel on Friday, putting the contract on track to rise about 1% for the week as geopolitical tensions in the Middle East and concerns over the safety of oil transport in the Persian Gulf countered slowing US economic growth amid a US-China trade war.
Looking ahead, crude futures were trading around $56 a barrel for the balance of 2019 and $55 in calendar 2020.
US financial services firm Cowen & Co this week said that projections from the exploration and production (E&P) companies it tracks point to a 5% decline in capital expenditures for drilling and completions in 2019 versus 2018.
Cowen said independent producers expect to spend about 11% less in 2019, while major oil companies plan to spend about 16% more.
In total, Cowen said all of the E&P companies it tracks that have reported plan to spend about $81.1 billion in 2019 versus $85.4 billion in 2018.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 1,008. Most rigs produce both oil and gas.
Analysts at Simmons & Co, energy specialists at US investment bank Piper Jaffray, forecast the average combined oil and gas rig count will slide from a four-year high of 1,032 in 2018 to 992 in 2019 before rising to 1,011 in 2020 and 1,067 in 2022.
That is the same as Simmons forecast since late June.