US oil & gas rig count falls 6, but Permian recovery extends
After a two-week uptick, the US oil and gas rig count resumed declines, falling 6 to 288 in the week ended July 29, rig data provider Enverus said.
Oil-focused rigs led the drilling decline, falling four to 202, while the number of active gas-focused rigs dipped two to 86, Enverus said on July 30.
Rig count declines were mostly constrained to smaller basins. Among the major named plays, rig counts were lower only in the Eagle Ford, which shed two rigs for a total 10, and in the Marcellus basin, which dipped one rig to 26.
Notably, the Permian basin rig count extend its run higher for a second week, climbing one to 138. Operators in the Denver-Julesburg play also added a single rig for a total of five.
Counts were flat in most other major basins: Bakken rigs were steady at 12, Haynesville at 33, SCOOP-STACK at 11, and Utica at seven.
The top line decline could be attributed to weekly “noise” as the nationwide rig count bottoms, according to S&P Global Platts Analytics analyst Matt Andre.
“We’re expecting to see some slight up and down movement in the 280-300 rig range until something happens that would entice operators to make a move and significantly increase (or decrease) rig activity,” Andre said. “Looking at year-to-date rig activity, I’d say we’ve reached the ‘bottom range’ so it’ll be important to closely track the major plays to spot an early trend.”
Despite the pull back, the number of active oil rigs was still up 11 from a nadir of 191 during the week ended July 1. Increased drilling activity has coincided with a slight uptick in US crude production in July. Weekly crude output has averaged 11.1 million b/d since the week ended July 17, according to US Energy Information Administration, up from 11 million b/d.
While oil prices have steadily risen in recent weeks, forward structure has weakened, creating a situation where increased production is favored even as downstream demand languishes.
Front-month NYMEX WTI was about 5% stronger in the week ended July 29 compared to the week ended July 1. But the contango between front-month and year-ahead contracts widened to around $1.90/b from $1.30/b over the same period.
US commercial crude stocks fell 10.61 million barrels during the week ended July 24, the largest draw since December according to EIA data, but are still just 2.7% below all-time highs seen in mid-June and remain nearly 18% above the five-year average for this time of year. A widening contango coupled with rising crude output could herald a return to storage builds seen this spring, capping future price gains and holding rig counts range bound in the near term.