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US oil rig retreat accelerates in biggest drop on record

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The slowdown in US oil drilling abruptly intensified last week as oil companies idled nearly 100 rigs, the biggest drop on record, industry data showed on Friday.

[NEW YORK] The slowdown in US oil drilling abruptly intensified last week as oil companies idled nearly 100 rigs, the biggest drop on record, industry data showed on Friday.

The closely watched Baker Hughes Inc oil rig count fell by 94, shocking traders and helping fuel a more than 8 per cent surge in oil prices while boosting shares of drilling firms and energy companies. It was the largest weekly decline in data going back to 1987.

In an eighth straight week of declines, oil rigs dropped to 1,223, the fewest since 2012, Baker Hughes said. The count is down 24 per cent from its October peak, although many analysts expect further reductions as firms slash spending plans. "A lot of companies that have been looking to cut back their rig count haven't actually been able to release those rigs because they were under contract," said Pavel Molchanov, analyst at Raymond James, an investment services firm. "In many cases it takes three to four months, sometimes even six months before the contracts run out. It's been two months, so it's safe to say that the pace of decline in the rig count is likely to accelerate." Oil rigs fell by between 49 and 61 over the past three weeks as a 7-month slump in oil prices drove US crude to below US$50 a barrel, prompting energy firms to postpone projects and break rig contracts to save cash.

The decline in oil rigs is now running more swiftly than it did for natural gas rigs after prices collapsed in 2008. After Baker Hughes issued the report, oil services firms Newpark Resources Inc and National Oilwell Varco Inc both gained over 3 per cent, while larger rivals including Baker Hughes, Halliburton Co and Schlumberger NV rose over 2 per cent.

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Oil prices have plummeted about 60 per cent since June, to 5-year lows below US$44 a barrel earlier this week, as rocketing US production and tepid global demand led to a supply glut, stunning oil producers.

The pinch is showing, with oil rig numbers falling in 13 of the last 16 weeks since hitting a record high of 1,609 in October.

Texas, the state with the most rigs, again lost the most this week, shedding 58, the biggest decline in data going back to 2000, Baker Hughes said.

Total land rigs in Texas fell to 695, the lowest since 2010.

The shale play with the biggest losses was Permian in West Texas and New Mexico, the nation's biggest and fastest growing shale oil play.

The Permian lost 25 oil rigs, the second biggest weekly decline in data going back to 2011, to 450 rigs, the least since 2013.

The count of horizontal rigs, which are most often used to extract oil from shale rock, fell for a 10th straight week, by 61, the biggest weekly loss in data going back to 1991, to 1,168, the least since January.

REUTERS

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