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The number of U.S. oil and natural gas rigs operating fell to an all-time low for a second week in a row as energy firms slashed spending on new drilling after oil prices collapsed due to a slump in demand amid global lockdowns to stop the coronavirus pandemic.
The rig count, an early indicator of future output, fell by 35 to a record low of 339 in the week to May 15, according to data from energy services firm Baker Hughes Co. going back to 1940.
The prior all-time low was 374 rigs in the week ended May 8.
Global fuel demand is expected to drop roughly 10% in 2020 from last year, prompting companies to make drastic cuts to spending, lay off thousands of workers and close production to offset the worldwide supply glut.
“The number of rigs running in the United States has fallen 52% since the start of the year. Over 400 rigs have gone offline, which is more than … are still running,” analysts at Enverus DrillingInfo said.
Drillers have cut an average of 50 rigs per week since mid-March after crude prices started to plunge due to the coronavirus and a brief oil price war between Saudi Arabia and Russia.
Analysts expect energy firms to keep chopping rigs for the rest of the year and that they will be hesitant to activate new units in 2021 and 2022.
Simmons Energy, energy specialists at U.S. investment bank Piper Sandler, forecast the U.S. rig count would fall from an annual average of 943 in 2019 to 528 in 2020, 215 in 2021 and 221 in 2022.
The count in Canada fell three to a record low of 23 rigs this week, according to Baker Hughes.
U.S. oil rigs fell 34 to 258 this week, their lowest since July 2009, while gas rigs fell by one to 79, a record low according to data going back to 1987.
The U.S. Energy Information Administration (EIA) projected a fall in domestic crude output to 11.7 million barrels per day (MMbbl/d) this year from a record 12.2 MMbbl/d in 2019, while global petroleum and other liquid fuels consumption will fall to 92.6 MMbbl/d in 2020 from a record 100.7 MMbbl/d in 2019.
U.S. crude futures were trading around $29 per barrel May 15, up about 68% over the past three weeks but still down over 50% since the start of the year.
Chesapeake Energy Corp., which helped revolutionize the use of hydraulic fracturing, or fracking, to extract oil and gas from U.S. shale formations, said May 11 it was considering a bankruptcy restructuring of its over $9 billion debt if oil prices do not recover.
Energy consultant Rystad Energy forecast U.S. fracking activity will hit “rock bottom” in May before starting to recover in the third quarter.
