U.S. energy firms cut oil rigs for a fourth week in a row to the lowest since December 2016 with oil futures down over 50% since the start of the year after Saudi Arabia and Russia cut prices and boosted output in a battle for market share.
That price war came at the same time government steps to slow the spread of coronavirus have reduced global economic growth and energy demand.
Drillers cut 58 oil rigs in the week to April 9, bringing the total count down to 504, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Baker Hughes released its report a day early due to the Good Friday holiday on April 10.
The oil rig count, an early indicator of future output, is down 39% from the same week a year ago when 833 oil rigs were active.
More than half the total U.S. oil rigs are in the Permian basin in West Texas and eastern New Mexico, where active units dropped by 35 this week to 316, the lowest since March 2017, That was the biggest weekly decline since February 2015.
U.S crude production last week fell 600,000 barrels per day to 12.4 million bpd, and is expected to fall by nearly 2 million bpd by next year, according to the government.
Analysts at Raymond James, an investment bank, projected total U.S. oil and natural gas rigs would fall from around 800 at the end of 2019 to a record low of around 400 by the middle of the year and under 400 by the end of 2020.
That compares with the current all-time low of 404 rigs during the week ended May 20, 2016, according to Baker Hughes data going back to 1940.
“The American oil and gas industry is stepping heavily on the brake pedal and is reducing drilling at record speed,” analysts at Rystad Energy said in a release forecasting the U.S. oil rig count could “free-fall to a potential bottom of around 200” with most of that decline expected by the end of April.
In Canada, meanwhile, the total oil and gas rig count fell to 35, the lowest since at least 2000. That compares the current all-time low of 29 rigs during the week ended April 24, 1992, according to Baker Hughes.
U.S. crude futures traded around $25 per barrel on Thursday, as investors waited for details on negotiations between top producers hammering out an agreement for record supply cuts in response to the global fuel demand collapse due to the coronavirus pandemic.
Looking ahead, U.S. crude was trading around $33 a barrel for the balance of 2020 and nearly $37 for calendar 2021 on expectations demand will jump in coming months as the economy snaps back after governments loosen travel and work restrictions once the spread of coronavirus slows. That compares with an average of $57.04 in 2019.
U.S. financial services firm Cowen & Co said 31 of the independent exploration and production (E&P) companies 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 38% year-over-year decline in 2020 capex.
Before the failure of the OPEC+ agreement, Cowen said the independent E&Ps had 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.
Exxon Mobil Corp this week throttled back investment in shale, gas and deep water production, cutting planned capital spending by 30% in 2020 versus 2019.
IHS Markit said overall North American E&Ps plan to reduce spending in 2020 by around 36%, or $24.4 billion, compared to last year.