Rigs targeting oil in the U.S. fell by the most in two months as producers curbed drilling following the biggest price rout since 2012.
Oil rigs tumbled by 19 to 1,590, the lowest in six weeks and the biggest decline since Aug. 22, Baker Hughes Inc. said today. The counts dropped in almost every major U.S. oil play, with the Mississippian in Kansas falling the most, shrinking by seven to 71. Texas’s Eagle Ford formation, where drillers are yielding more crude per rig than any other region, lost five to 197.
U.S. benchmark West Texas Intermediate crude fell more than $14 a barrel in the three months ended Sept. 30, the biggest quarterly drop since June 2012. The slide threatens to slow a drilling boom in U.S. shale formations that has propelled domestic output to the highest level in 29 years, cut retail gasoline prices by more than 50 cents since April and helped the nation meet 84 percent of its energy demand last year.
“Unless there’s a significant reversal in oil prices, we’re going to see continued declines in the rig count, especially those drilling for oil,” James Williams, president of WTRG Economics, said by telephone from London, Arkansas. “We could easily see the oil rig count down 100 by the end of the year, or more.”
West Texas Intermediate crude for November rose 5 cents to settle at $82.75 a barrel on the New York Mercantile Exchange. The contract fell below $80 a barrel yesterday for the first time since 2012.
“There’s a wide range of shale production costs, anywhere from $50 a barrel to $80,” Mike Wittner, head of oil market research at Societe Generale SA in New York, said by phone Oct. 15. Oil prices would have to remain around $80 a barrel for three to six months before companies curb drilling, and it would take “another three to six months before you would see any impact on production,” he said.
WTI will trade between $75 and $90 a barrel over the next three months, UBS AG analysts including Giovanni Staunovo in Zurich said in an e-mailed research note Oct. 15. UBS analyst Angie Sedita upgraded U.S. land drillers to buy from neutral today, saying a recent sell-off in stocks was “overdone.” At $80 oil, “the rig count is flat,” she said in an e-mailed research note today.
The Permian Basin of Texas and New Mexico, the nation’s largest oil field, slumped by two oil rigs to 558 this week.
“You know we’re finally seeing the impact of lower oil prices when even the Permian, which is probably going to show less impact because of its stacked formations, is down,” Williams said.
At $75 oil, U.S. energy producers may start pulling back spending, Martin Craighead, Baker Hughes’s chairman and chief executive officer, said on an earnings conference call yesterday. The company’s third-quarter adjusted profit missed analysts’ estimates.
Drillers in North Dakota, where the Bakken shale formation has pushed the state’s oil production past 1 million barrels a day, have break-even prices of anywhere from $28 to $85, the state’s Department of Mineral Resources said Oct. 15. While extracting oil from shale costs $50 to $100 a barrel, it’s $25 a barrel for conventional supplies from the Middle East and North Africa, according to the International Energy Agency.
U.S. oil production climbed 0.9 percent in the week ended Oct. 10 to 8.95 million, the highest level since June 1985, Energy Information Administration data show. Crude supplies swelled by 8.92 million barrels to 370.6 million.
U.S. gas stockpiles rose 94 billion cubic feet last week to 3.299 trillion, according to the EIA. Supplies were 9.9 percent below the five-year average and 9.4 percent below year-earlier levels.
Gas rigs were up 8 at 328 this week, Baker Hughes said. The Eagle Ford added the most rigs targeting the heating fuel, gaining three to 12.
Natural gas for November delivery fell 3 cents to $3.766 per million British thermal units today on the Nymex, up 0.2 percent in the past year. Oil is trading 22 times higher than gas, down from 26 times three months ago.