U.S. energy firms added oil rigs for a fourth time in the last five, keeping the rig count at its highest in over three years even though crude futures were on track to fall for a fifth week in a row to their lowest level since February.
Drillers added 12 oil rigs in the week to Nov. 9, bringing the total count to 886, the highest level since March 2015, General Electric Co.’s Baker Hughes (NYSE: BHGE) energy services firm said in its closely followed report on Nov. 9.
That was the biggest weekly increase since late May when drillers added 15 rigs.
The U.S. rig count, an early indicator of future output, is higher than a year ago when 738 rigs were active because energy companies have ramped up production to capture prices that are higher in 2018 than 2017.
More than half the total U.S. oil rigs are in the Permian Basin, the country’s biggest shale oil formation. Active units there increased by five this week to 492, the most since January 2015.
On Nov. 9, U.S. crude futures were trading around $60 per barrel (bbl), their lowest in over eight months, as global supply increased and investors worried about the impact on fuel demand of lower economic growth and trade disputes.
Looking ahead, crude futures for calendar 2019 and calendar 2020 were both trading around $61/bbl.
U.S. financial services firm Cowen & Co. this week said the exploration and production (E&P) companies it tracks have provided guidance indicating a 24% increase this year in planned capital spending.
Cowen said the E&Ps it tracks expect to spend a total of $89.6 billion in 2018. That compares with projected spending of $72.2 billion in 2017.
Cowen said early 2019 capital spending budgets were mixed, with some companies such as Devon Energy Corp. (NYSE: DVN) and Occidental Petroleum Corp. (NYSE: OXY) expecting to add to capital spending next year, while others like Abraxas Petroleum Corp. expect to reduce spending next year.
Analysts at Simmons & Co., energy specialists at U.S. investment bank Piper Jaffray, this week forecast the average combined oil and natural gas rig count would rise from 876 in 2017 to 1,031 in 2018, 1,092 in 2019 and 1,227 in 2020.
Since 1,081 oil and gas rigs are already in service, drillers do not have to add any rigs for the rest of the year to hit Simmons’ forecast for 2018.
Year-to-date, the total number of oil and gas rigs active in the United States has averaged 1,025. That keeps the total count for 2018 on track to be the highest since 2014, which averaged 1,862 rigs. Most rigs produce both oil and gas.
The U.S. Energy Information Administration this week projected average annual U.S. production will rise to a record high 10.9 MMbbl/d in 2018 and 12.1 MMbbl/d in 2019 from 9.4 MMbbl/d in 2017.
The current all-time U.S. annual output peak was in 1970 at 9.6 MMbbl/d, according to federal energy data.