U.S. rigs retreat amid sub-$55 oil as OPEC challenge intensifies

U.S. rigs retreat amid sub-$55 oil as OPEC challenge intensifies

By MOMING ZHOU

NEY YORK (Bloomberg) -- U.S. oil drillers idled the most rigs since 2012 as prices slide below $55/bbl to the lowest level in five years and a fight for market share with OPEC intensifies.

Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, the lowest since April, said Baker Hughes, extending the three-week decline to 76. Those drilling for natural gas increased by two to 340, the Houston-based field services company said.

U.S. oil output has surged to the highest in three decades even as the Organization of Petroleum Exporting Countries resists cutting production to defend market share, exacerbating an oversupply that Qatar estimates at 2 MMbpd. Crude has slumped by almost 50% this year prompting U.S. producers including Continental Resources and ConocoPhillips to plan spending cuts.

“We should see the rig count going down at least through the end of the first-quarter as a reaction to the low oil prices,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas, before the report. “By midyear, we should see measurable impacts on production.”

The total rig count, which includes one miscellaneous rig, dropped 35 to 1,840, an eight-month low.

The international benchmark Brent and the U.S. counterpart West Texas Intermediate crude are both trading near their lowest levels since 2009. WTI futures fell 79 cents to $52.82/bbl in electronic trading on the New York Mercantile Exchange on Dec.30. Brent dropped $1.02 to $56.86.

Falling Margins

“The rig count is falling because oil prices are falling,” said Carl Larry, Director of oil and gas at Frost & Sullivan. “The margins just aren’t there.”

While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.

U.S. producers battling OPEC for market share may increase output further from the highest rate in more than three decades as costs decline almost as fast as oil prices, said Goldman Sachs Group in a report. The oil price slump is driving producers to move drill rigs to lower-cost fields, according to the report.

Domestic oil output climbed to 9.14 MMbpd in the week ended Dec. 12, the highest in weekly EIA data going back to 1983, according to government estimates. Production was 9.13 million in the seven days ended Dec. 19.

Oil rigs dropped by five to 527 in the Permian basin in Texas and New Mexico, by three to 188 in the Eagle Ford of Texas and by two to 178 in the Williston of North Dakota, Baker Hughes said. In basins outside the 14 majors listed by Baker Hughes, oil rigs fell by 27 to 375.

Natural gas futures lost 1.7% to $3.135 per million British thermal units on the Nymex, down 26% this year.