The U.S. energy industry experienced a decline in oil and natural gas rigs in February, with energy companies cutting the most oil and gas rigs in a single month since June 2020. This is according to data from energy services company Baker Hughes Co.
The decline in the rig count is a leading indicator of future production. In the week ending February 24, the rig count fell seven to 753. The gas rig count dropped to its lowest level since April, while the oil rig count decreased by seven to 600, and gas rigs remained steady at 151. Although the count was lower this week than last, the overall count was still up 103 rigs, or 15.8%, from the same period in 2017.
Declining oil and gas rigs count
The oil and gas rigs count fell by 18 for the month, marking the third consecutive month of declines for the first time since July 2020. In February, the number of oil rigs decreased by nine, while the number of gas rigs decreased by nine, marking the largest monthly decline since April 2020.
The decline in the rig count is attributed to weaker energy prices, which are anticipated to have an impact on drilling activity.
Many analysts have predicted that producers will need to reduce the number of rigs digging for gas this year to prevent a potential oversupply issue in the market.
Effect of weaker energy prices on cutting rigs
The energy sector is slowly recovering from pandemic-related reductions due to rising labor and equipment costs. Many businesses are more concerned with paying back investors and reducing debt than increasing production.
Weaker energy prices are expected to have an impact on drilling activity, as businesses focus on cost-cutting measures. Shale companies have reduced their gas-related activities as gas prices continue to fall. As gas prices fall, shale companies are expected to cut down their gas-related activities further.
Chesapeake Energy Corp., a producer specializing in gas, announced that it will eliminate three drilling rigs this year. Also, it will scale back well-completion activities. Rival Coterra Energy predicted that gas production would decrease by 1% from last year. But, that oil volume would increase by around 2% this year. The gas oversupply issue in the market has already caused gas futures to fall to 29-month lows this week.
Oil prices in the future define the number of rigs
By this summer, oil prices will likely reach the $90-$100 per barrel range, according to Pioneer Natural Resources’ CEO. However, after rising by approximately 7% in 2022, U.S. oil futures are currently down roughly 5.3% this year.
Meanwhile, after gaining by around 20% last year, U.S. gas futures have fallen by about 45% so far this year.
The U.S. energy sector experienced a decline in oil and natural gas rigs in February. It’s marking the third consecutive month of decline. The decline is attributed to weaker energy prices, which are expected to have an impact on drilling activity.
Many analysts have predicted that producers will need to reduce the number of rigs digging for gas this year. The reason is to prevent a potential oversupply issue in the market. As shale companies cut down their gas-related activities further, the market is expected to experience a gas oversupply issue.