U.S. oil companies this week reduced oil rigs for the first time in 13 consecutive weeks after crude prices dropped for six consecutive weeks from late October to early December.
In the meantime, oil prices have rebounded and are now trading at their highest level since 2014. According to energy analysts, it takes approximately a month for drillers in order to add or subtract rigs after oil prices move.
In its closely watched report Friday, Baker Hughes Co, an energy services firm, stated that the combined U.S. oil-and-gas rig count, which is an indicator of future output, rose three to 604 in a week to Jan. 21. This was the highest level since April 2020.
Baker Hughes stated that this brings the total number of rigs up to 226 rigs (or 60%) over last year.
U.S. oil production fell by 1 to 491 this week. However, gas production rose four to 113, their highest level since January 2020.
U.S. crude oil futures were at their highest level since October 2014. They traded above $87 per barrel this week and are on track for an increase for the fifth week in succession for the first time since October.
Oil prices are up 13% this year, after rising 55% in 2021. A growing number of energy companies said that they intend to increase spending in 2022. This comes after cutting drilling and completion costs in 2019 and 2020.
Baker Hughes’ quarterly profit exceeded analysts’ expectations due to higher oil and gas prices, which fuelled demand for its equipment. The company’s chief executive believes that private energy companies will continue to drive growth while public-traded firms will remain disciplined.
Analysts noted that the rig count rose for 17 consecutive months, but U.S. production fell in 2021 because many energy companies were more focused on making money than increasing output.
A large portion of the increase in spending went towards the completion of wells that were drilled in the past. These wells are known as DUC wells.
Analysts stated that the industry must continue drilling new wells because there was a rapid drop in the available DUCs.
Analysts at Mizuho stated in a report that “rig activity across the five biggest U.S. oil play would have to increase by (about 12 weekly) over the next eight weeks in order to reach a sustainable plateau to maintain current oil volumes in 2022, versus (about three) rig gains over the past four weeks.”
Mizuho stated that the inventory ratio to overall production is already lower than half of 2018-2019 averages.
In a report released this week by the U.S. Energy Information Administration, 635 wells were drilled and 876 completed in the largest shale basins of September. The total number of wells that were drilled and not completed (DUC) fell 241 to 5,385, which is the lowest level since February 2017.
According to the EIA forecast, global crude oil output from major shale formations is expected to rise 105,000 barrels per hour to 8.54 million in February. This will be the highest level since March 2020.
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