Oilfield services company Baker Hughes Inc. (NASDAQ:BHI) says the number of rigs exploring for oil and natural gas in the U.S. has increased by one to 885 this week. On Friday, 674 rigs were seeking oil while 211 explored for natural gas. A year ago, 1,896 rigs were active. This marks the rig count’s fifth consecutive weekly gain.
Among major oil and gas producing states, North Dakota and Oklahoma each gained three rigs while Alaska, California, Kansas and Wyoming gained one each. Texas lost 6 rigs, Pennsylvania lost 2 and Colorado, Louisiana and West Virginia each lost one. The states – Arkansas, New Mexico, Ohio and Utah remained unchanged.
The data also suggests that in recent weeks, drillers have been propping up vertical-drilling rigs. Those units have climbed from 99 in early June to 130 on Friday, boosting the share of vertical rigs in the U.S. market from 11.4 percent to 14.7 percent. In the same time, active horizontal drilling rigs have increased by four.
“The question is how long will it continue to rise,” said Phil Flynn, an analyst with the Price Futures Group, referring to the increasing rig count. “With oil prices dropping to around $40, at some point we will see a fallback in rig counts.”
Benchmark West Texas Intermediate (WTI) crude oil dropped to $40 and settling at $40.45 for the day, down nearly $2 a barrel for the week. The unexpected 2.6 million barrel increase in crude oil inventories was the main driver of the lower prices.
There are two important factors for the inventory increase. First is the shutting down of a refining unit at BP’s Whiting, Industries. There is still no estimate of when the unit may come online. Second, US imports increased by 475,000 barrels a day last week to more than 8 barrels a day.
So why are rigs coming back online while the price of crude is low? Some of the gains may be coming from small oil companies that hedged their production in May and June, when the price was around $60, says Will Harris, senior vice president of oil adviser Asset Risk Management.
“We have an extremely busy May and June when we started rallying. It was stable and you had a forward curve that was sloping upward so you could hedge at $65” he said. “It was survival hedging.”
US crude oil prices hit an all time low since 2009
A barrel of U.S. crude oil has fallen below $40 per barrel for the first time since the end of the global economic crisis. The price of oil has fallen for eight consecutive weeks, the longest since 1986. Oil is down 34 percent from its high of $61.43 this year and 62 percent from its high of $107.26 last year. (Read More)