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Number of US Oil Rigs Down for 12th Consecutive Week

Oil RigsFor the 12th straight week, the number of oil rigs in the United States is down, extending a drop off considered the steepest on record for drilling. Meanwhile, the price of crude oil experienced losses for a second week.

Rigs in the US targeting oil dropped to 986, down an additional 33. At that rate, the total number has now declined under 1,000 for the first time since 2011. Rigs targeting gas were also down to 280, a drop of 9. Combined, to include a miscellaneous rig, numbers are now at 1,267, a decline of 43.

Over a four-month period, more than one-third of US oil rigs have been lost, threatening to bring the country’s boom in shale to a complete stop possibly sometime this year. Already, reduced oil prices have resulted in thousands of people being without work and over $86 billion in capital spending to dry up while at the same time, producers face extremely tough competition from foreign suppliers.

As stated by Andy Lipow, President of Houston-based Lipow Oil Associates LLC, the layup of rigs is ongoing although at a slower pace. The consulting firm believes the oil market will continue to see a downward slide to the low $40s.

To help with forecasting US production, analysts have been keeping a close eye on rig count. At this point, output from the 589 idling rigs has not been cut, which according to the Energy Information Administration (EIA), is expected to jump to 9.3 million barrels per day in 2015, reaching the highest level in 43 years.

At the end of February, output climbed 5,000 barrels per day, reaching 9.29 million, which is the highest in weekly data reported by the EIA since 1983. In addition, crude stockpiles hit a new record of 434.1 million barrels, up 8.43 million for the same period.

Stephen Schork, President of Schork Group, Inc., another consulting group, said that making an assessment on what the changes will do to production cannot be based on the number of rigs. After all, week-after-week, regardless of the number of rigs, record production is being seen.

For April, the US benchmark West Texas Intermediate (WTI) oil climbed to $48.67 per barrel on the New York Mercantile Exchange, up $.50. The discount from WTI for Brent crude is now over $12 a barrel for February, up from $4.75 because of good production and supply along with laws in the US against the majority of exports for crude.

This week, numerous companies joined forces in presenting analysts with falling prices and spending cuts. Because there is a significant decline in expenditures, oil production growth in North American will slow down this year. For fourth-quarter output, many analysts expect it to be flat compared to earlier this year.

Harold Hamm, Chief Executive Officer with Continental Resources, complimented the industry for responding quickly to the low oil price situation, saying that because of this, actions will speed up the process of bringing supply and demand into balance while aiding the recovery of prices that are more rational.

Competition from the Organization of Petroleum Exporting Countries (OPEC) is giving producers in the US some interesting competition. That organization accounts for roughly 40% of oil in the world and has refused to cut back on the amount of output. In fact, production from OPEC jumped 163,000 barrels per day this month to 30,568 million.

Analysts are forecasting that the number of rigs in the United States actively drilling will keep dropping well into the second quarter of 2015 before finally leveling off. With the current number, it appears that production growth in the US is decelerating near the level needed to balance out the market. Lower prices are needed for the capex and rig cuts to turn into production growth that is sufficiently lower.

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