US energy firms cut the most oil rigs in a week in almost a year - mostly in the Permian basin, the country's biggest oilfield - as a meltdown in oil and natural gas prices due to the coronavirus outbreak has forced producers to deepen cuts in spending on new drilling.
Drillers cut 19 oil rigs in the week to March 20, the deepest weekly cut since April 2019, bringing the total count down to 664, the lowest since January, energy services firm Baker Hughes Co said in its closely followed report on Friday.
The oil rig count, an early indicator of future output, is down 19% from the same week a year ago when 824 rigs were active.
More than half the total US oil rigs were in the Permian basin in West Texas and eastern New Mexico, where active units fell by 13 this week to 405, the lowest since January 2020. That was the biggest weekly decline since January 2016.
US crude futures traded below $25 per barrel on Friday, putting the contract on track for its biggest weekly percentage decline since 1991, as the spread of coronavirus slashed demand, while Moscow rejected US intervention in a price war with Saudi Arabia.
Looking ahead, US crude futures were trading below $29 a barrel for the balance of 2020 and above $34 for calendar 2021. That compares with an average of $57.04 in 2019.
Analysts have estimated the US rig count will drop by hundreds of units in coming months.
"The impact of the fall in oil price will start to show up later this month or next," said James Williams of WTRG Economics in Arkansas, noting "Rig activity should start to decline with the typical 3-4 month lag behind oil prices."
With companies planning to slash spending on new drilling, the US Energy Information Administration (EIA) projected US crude output would drop to 12.7 million barrels a day in 2021 from an expected record 13.0 million bpd in 2020.
That decline in 2021 would be the first annual cut in US output since 2016 and compares with EIA's prior forecasts of 13.2 million bpd in 2020 and 13.6 million bpd in 2021.
Even before the oil price collapse, most US exploration and production (E&Ps) companies had already announced plans to reduce capital expenditures on new drilling for a second year in a row in 2020.
Now, however, many North American E&Ps say they plan to slash spending even more this year, by more than 30% on average, data compiled by Reuters showed.
Two of the biggest oil producers in Texas, meanwhile, are asking the state regulator to consider curtailing the amount of oil companies can pump, in a move to stem the dramatic collapse in prices that has not been taken since the 1970s.
US financial services firm Cowen & Co said 25 of the independent E&Ps it tracks have cut their spending plans since the failed OPEC+ oil production cut agreement between Russia and Saudi Arabia on March 6, implying a 36% year-over-year decline in 2020 capex.
Before the failure of the OPEC+ agreement, Cowen said the independent E&Ps were only expected to cut spending by an average of 11% in 2020 from 2019 levels. In 2019, those companies cut spending by around 10% from 2018 levels.