U.S. energy firms this week added oil and natural gas rigs for a second week in a row as demand for energy keeps growing after last year’s coronavirus demand destruction.
The oil and gas rig count, an early indicator of future output, rose three to 579 in the week to Dec. 17, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Even though the rig count has been rising for a record 16 months in a row, analysts noted that oil production was still expected to ease in 2021 as energy firms continue to focus more on returning money to investors rather than boosting output.
“U.S. drilling activity continues to increase but in modest increments,” analysts at Mizuho, a bank, said in a report this week, noting “Rig activity across the five largest U.S. oil plays would need to increase by about 36 weekly through year-end to reach a sustainable plateau to hold current oil volumes in 2022.”
That puts the total rig count up 233 rigs, or 67%, over this time last year, according to Baker Hughes.
U.S. oil rigs rose four to 475 this week, their highest since April 2020, while gas rigs fell one to 104.
U.S. crude futures were trading around $71 per barrel on Friday, putting the contract on track to decline for a seventh time in the past eight weeks.
But with oil prices up about 46% this year, some energy firms said they plan to raise spending in 2021 and 2022 after cutting drilling and completion expenditures in 2019 and 2020.
That spending increase, however, remains small and much of the money was put toward completing wells that were drilled in the past, known in the industry as DUC (drilled but uncompleted) wells.
But analysts have warned that the number of DUCs available was declining fast. There were only 4,855 DUCs left in the seven biggest U.S. shale basins in November, the lowest since June 2014, according to government data.
U.S. oil production is expected to slide from 11.3 million barrels per day (bpd) in 2020 to 11.2 million bpd in 2021 before rising to 11.9 million bpd in 2022, according to government projections. That compares with the all-time annual high of 12.3 million bpd in 2019.