Companies added three oil rigs in the week to Jan. 24, bringing the total count to 676, energy services firm Baker Hughes Co said in its closely followed report on Friday.
In the same week a year ago, there were 862 active rigs.
The oil rig count, an early indicator of future output, dropped in 2019 after rising in 2018 as independent exploration and production (E&P) companies cut spending on new drilling as shareholders seek better financial returns in a low energy price environment.
The rig count increased for the first time in 12 months in December and two weeks so far in January, prompting some investors to question whether E&Ps were serious about cutting rigs this year.
“Rising rig count should not yet be a cause for concern,” Scott Hanold, analyst at RBC Capital Markets, said in a report, noting, “We see the majority of this related to the return of activity that was tapered in late 2019 to hit budgets.”
Even though the number of rigs drilling new wells fell by more than 200 rigs or by about 25% last year, U.S. oil output continued to increase in part because the productivity of remaining rigs – the amount of oil new wells produce per rig – has increased to record levels in most big shale basins.
The pace of production growth, however, is expected to slow to about 9% in 2020 and 3% in 2021 after rising 18% in 2018 and 11% in 2019.
U.S. oil and gas output in major shale formations is expected to rise by the smallest in a year in February to record highs, the U.S. Energy Information Administration (EIA) said on Tuesday, as producers pull back on new drilling.
U.S. crude futures traded around $54 per barrel on Friday, putting the front-month on track for its lowest close since October on concerns oil demand could fall if the coronavirus in China spreads.
Looking ahead, U.S. crude futures were trading around $53 a barrel for the balance of 2020 and below $51 for calendar 2021 . That compares with an average of $64.90 in 2018 and $57.04 in 2019.
U.S. financial services firm Cowen & Co said 25 of the independent exploration and production (E&P) companies it watches reported spending estimates for 2020, implying a 13% year-over-year decline in 2020.
The number of U.S. gas rigs, meanwhile, fell five to 115, the lowest since November 2016.