Houston: More drilling rigs were parked in US oilfields this week as OPEC’s decision to continue its pace of rising production forced crude markets to take another step down.
Rigs targeting oil in the US fell by 21 to 524, extending a five-year low and adding to the 130 that have been idled since August, Baker Hughes Inc. said on its website Friday. It was the fourth straight week of declines after a brief two-rig uptick last month. Natural gas rigs were trimmed 7 to 185, bringing the total down by 28 to 709.
The Permian Basin in West Texas, home to the largest amount of US oilfield activity, fell the most, dropping 15 rigs and leaving 194 working.
“This is exactly what we thought would occur,” Matt Marietta, an analyst at Stephens Inc. in Houston, said in a phone interview. “A lot of these companies are going to have tough decisions between staying liquid and making their interest payments or trying to grow production.”
The decision last week by the Organisation of Petroleum Exporting Countries to effectively scrap production targets has pushed oil prices to their lowest level since 2008. The global surplus will persist at least until late 2016 as demand growth slows and Opec shows “renewed determination” to maximise production, the International Energy Agency said Friday. The group chose not to curb output at its Dec. 4 meeting.
Market Battle
“The hits keep on coming,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It was bad enough that the Opec meeting ended in disarray with no quota. Now we’re seeing just how aggressively everyone is fighting for market share.”
OPEC’s full-speed-ahead strategy to force higher-cost producers out of the market showed signs of working, as slowing activity among US producers contributed to declines in domestic supplies and production.
US output fell by 38,000 barrels last week to 9.16 million barrels a day, according to weekly Energy Information Administration data. It was the third time in four weeks that US production dropped.
Crude supplies fell 3.57 million barrels last week, the EIA reported Wednesday, as refiners emptied storage tanks to minimise the taxes they pay on end-of-year inventories. Stockpiles along the Gulf Coast tumbled 7.3 million barrels, the biggest decline since December 2012.
Above Average
US crude inventories slipped to 485.9 million barrels in the week ended December 4, still about 120 million above the five- year average, according to the EIA. Stockpiles are the highest level for this time of year since 1930.
America’s oil drillers have idled more than half the country’s rigs in the past year as the world’s largest crude suppliers battle for market share. The crude being pumped out of US shale formations helped create a global glut that’s pushed prices down by more than 50 per cent since June 2014.
