U.S. Oil Production Bucks Drilling Slowdown, Keeps Crude Prices in Check
16 November 2019 - 6:22AM
Dow Jones News
By Ryan Dezember
Drillers are laying down rigs, hydraulic-fracturing equipment
sits idle and U.S. energy producers are promising fiscal restraint.
Yet domestic oil and gas production keeps rising -- a riddle that
has flummoxed traders and kept oil prices trading in a narrow band
in recent weeks.
On Friday, West Texas Intermediate futures for December delivery
traded up 2% to $57.89 a barrel on the New York Mercantile
Exchange. That's about where they ended last week.
The benchmark U.S. oil price hasn't traded above $60 a barrel
since mid-September, when it shot up briefly after strikes on Saudi
oil-production facilities took out a big chunk of the kingdom's
output. U.S. barrels haven't traded for less than $50 since
January.
While Saudi Arabia and its allies in the Organization of the
Petroleum Exporting Countries have curtailed output this year in an
attempt to lift prices and are expected to reiterate their
production cuts when they meet next month in Vienna, an unrelenting
climb in U.S. production has proven to be an obstacle to their
price-setting agenda.
"Rising concerns American crude will keep the oil market
oversupplied will continue to weigh on prices," said Edward Moya,
senior market analyst for trading firm Oanda.
Though several energy producers have promised to spend less
drilling amid low commodity prices, there's no sign yet of waning
output.
The number of rigs drilling specifically for oil in the U.S.
this year is down 22%, or nearly 200 rigs, through last week,
according to oilfield services firm Baker Hughes Co. Meanwhile,
crude-oil production has risen 9.4%, to 12.8 million barrels a day,
according to the U.S. Energy Information Administration.
U.S. shale drillers are on pace to produce 16% more oil this
year than they did in 2018, according to Rystad Energy, a Norwegian
research firm that analyzed the quarterly results of more than 30
companies to derive its estimate.
"We expect continued reductions in capital expenditure and a
renewed focus on cash flow next year," said Rystad's Veronika
Akulinitseva. "However, this does not imply a reduction in oil
output. We are still likely to see another year of oil-production
expansion in U.S. shale -- although at a slower pace than seen this
year."
Executives with Helmerich & Payne Inc., a drilling
contractor with a fleet of about 300 U.S. land rigs, said Friday
that customers have tended to shed older rigs and spend instead on
the newest, most efficient models. That helps explain how output is
rising with fewer rigs drilling. John Lindsay, chief executive of
the Tulsa, Okla., company also said that the dip in the number of
rigs drilling domestically is likely to be short-lived.
"Our customers appear to have outspent their budgets during the
first six months of 2019 and have been making up for it in the
second half," he told investors on a call to discuss the company's
third-quarter results. "We expect to see more stability in rig
demand over the next couple of months and heading into calendar
2020."
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
November 15, 2019 14:07 ET (19:07 GMT)
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