Oil services company, Baker Hughes Inc, said last week that energy firms pulled another seven rigs from U.S. oil fields, which is the highest number since May. As oil prices have rebounded, the market has been expecting that the decrease in the number of rigs would stop but refiners still continued to cut the number. Last week was already the 27th consecutive weekly decline ending up with the total of 635 rigs, the lowest number since summer 2010. Only one rig was added last week, in the Granite Wash located in Oklahoma and the Texas Panhandle.
At the same time, the Organization of the Petroleum Exporting Countries (OPEC) kept its production at 30 million barrels per day with Iran and Saudi Arabia producing at their near record levels. The cartel is trying to keep oil prices low to prop up global crude demand growth while retaining their market share by crowding out more expensive refiners, such as American producers. Despite the ongoing criticism, the OPEC policy has been effective as world oil demand is going up while supply is slowing down.
As a result, many American oil companies have been forced to downsize and idle about half of the country’s active rigs since last October when their number peaked at more than 1,600. U.S. crude futures went down by 60 percent from more than $107 a barrel last summer to about $42 in March due to oversupply. However, since oil prices returned to about $60 in May, U.S. producers started producing in some of the country’s biggest fields. According to industry sources, many Texas sites have been experiencing a piecemeal recovery in drilling activity, while the idling of rigs in eastern New Mexico and West Texas is expected to be bottoming out.
Last week, American oil output was more than 9.6 million barrels a day, the highest production since the early 1970s. JBC Energy, the oil and gas market’s independent research centre, commented that “it seems the intense focus on rig counts has slacked off a bit during recent weeks as it is increasingly confirmed the significant decline in U.S. upstream activity is not having a dramatic impact on supply in the short term”.