Shale explorers parked more rigs last week as oil’s rebound proves insufficient to boost drilling work from the lowest level in more than a decade.
The number of active oil rigs in the US fell by four to 181, the least since June 2009, according to Baker Hughes Co data released on Friday.
With crude still well below its pre-pandemic peak earlier this year, producers are focusing on wells that were already drilled and waiting to be fracked as a cheaper alternative for adding production.
“Declines in drilling activity have continued, though at a decelerating rate in the latter half of” the second quarter, Connor Lynagh, an analyst at Morgan Stanley, wrote last week in a note to investors. But, as activity appears to stabilise, the “recovery path remains a key debate.”
Worldwide lockdowns to prevent the spread of Covid-19 had a devastating impact on crude demand at a time when shale explorers were already struggling with too much debt and shareholders were urging them to spend less. While benchmark US oil futures have roughly doubled to $40 a barrel since the start of May, prices are still down by more than 30% for the year.
The rig count is a closely watched metric because it’s long been considered indicative of future crude production. The relationship is imperfect, however, because of the time lag between drilling a well and commencing production, as well as other factors such as the turning off of existing wells in response to price movements.