U.S. energy companies reduced the number of oil rigs operating this week, leading to a record 11-month decline as producers follow through on plans to cut spending on new drilling.
Drillers cut 17 oil rigs in the week to Oct. 25, bringing the total count down to 696, the lowest since April 2017, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday.
That was the biggest weekly decline since April.
For the month, drillers cut 17 oil rigs, extending declines to a record 11 months in a row.
In the same week a year ago, there were 875 active rigs.
The oil rig count, an early indicator of future output, has declined so far this year as independent exploration and production companies cut spending on new drilling as they focus more on earnings growth instead of increased output.
At least one oil major, however, has been adding rigs in recent weeks.
Exxon Mobil Corp added rigs for three weeks in a row bringing its total up to 72 rigs this week from 64 early in the month, according to U.S. financial services firm Cowen & Co.
Even though the number of rigs drilling new wells has declined since December, oil output has continued to increase in part because productivity of those remaining rigs – the amount of oil new wells produce per rig – has increased to record levels in most U.S. shale basins.
The U.S. Energy Information Administration projected U.S. crude output will rise to 12.3 million barrels per day (bpd) in 2019 from a record 11.0 million bpd in 2018.
U.S. crude futures , meanwhile, traded around $56 per barrel on Friday, putting the contract on track to rise over 4% for the week as support from a surprise draw in U.S. inventories and possible action from OPEC and its allies to extend output cuts outweighed broader economic concerns.
Looking ahead, U.S. crude futures were trading below $55 a barrel in calendar 2020 and $52 in calendar 2021 .
Cowen 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 $80.5 billion in 2019 versus $84.6 billion in 2018.
Cowen said nine of the 47 E&Ps it tracks have reported spending estimates for 2020 with 2 increases and 7 decreases versus 2019.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 972. Most rigs produce both oil and gas.
The number of U.S. gas rigs, meanwhile, fell four to 133, the least since December 2016.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the annual average combined oil and gas rig count will slide from a four-year high of 1,032 in 2018 to 951 in 2019 and 906 in 2020 before rising to 957 in 2021.
That is the same as Simmons forecasts since late September.