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Oil drillers pull rigs out of US fields for 18th week

Oil explorers idled rigs in US fields for an 18th week, deepening an unprecedented retrenchment in drilling and bringing the count to the lowest since December 2010.

[SAN FRANCISCO] Oil explorers idled rigs in US fields for an 18th week, deepening an unprecedented retrenchment in drilling and bringing the count to the lowest since December 2010.

Rigs targeting oil in the US fell by 42 to 760, with Texas's Permian Basin and Eagle Ford shale formation taking the biggest hits, Baker Hughes said on its website on Friday. The 42-rig drop followed more modest slides in the two weeks prior that appeared to show the pace was easing.

Traders are watching the weekly rig counts as they wait for US production to drop and rebalance oil markets. The country has lost more than half its oil rigs since October as a more than US$50-a-barrel collapse in crude prices prompts drillers to scale back spending in shale formations.

"This week's count was a little bit surprising - there's nothing smooth about these drops," James Williams, president of energy consultant WTRG Economics, said by phone on Friday. "What is clear is that US. oil production will, if it hasn't already, peak by next month, and by the second half of this year, we will be seeing measurable declines."

Evercore ISI analysts including James West said in a research note on Thursday that the "impending supply drop" will coincide with increased US refinery runs heading into the peak summer driving season and work to correct "the global supply-demand imbalance."

The US benchmark West Texas Intermediate oil for May delivery rose 50 cents to US$51.29 a barrel at 2:08 p.m. on the New York Mercantile Exchange, down 52 percent from the 52-week high of US$107.73 reached June 20.

The slowdown in drilling has yet to make a real dent in US oil production, which reached a weekly record in March because of bigger and higher-yielding shale wells. Output climbed 18,000 barrels a day last week to 9.4 million, Energy Information Administration data show.

"It takes a while for the production to moderate," Janelle Nelson, a Minneapolis-based portfolio analyst with RBC Wealth Management's portfolio advisory group, said by phone on April 8.

"There may be fewer rigs drilling, but they're drilling the best wells with the best productivity with the best operators."

Goldman Sachs Group said in an April 6 research note that US production is showing signs of nearing a peak.

"The US rebalancing is materializing," Goldman analysts including Damien Courvalin in New York wrote in the report. "We find however that the current US oil rig count points to US crude oil inventories rising again during this coming fall's refinery turnarounds."

Crude stockpiles swelled by another 10.9 million barrels to a record 482.4 million in the week ended April 3, EIA data show.

Contributing to the worldwide glut of oil is output from the Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of the world's oil and has resisted calls to curb production.

OPEC will increase crude exports by 200,000 barrels a day this month, according to tanker tracker Oil Movements.

Crude prices will have to remain low in the coming months to achieve a decline in US production that's steep enough to rebalance global oil markets, Goldman said in its report. "While the decline in the US rig count has been faster than we expected," the bank said, "it remains insufficient."

Gas rigs rose by three to 225 and miscellaneous rigs fell by one to three, bringing the total rig count down by 40 to 988, the lowest level since August 2009.


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