The number of operating drilling rigs in the United States fell below 900 this week for the first time since 2017 as oilfield activity continues to slow and crude prices remain in a sort of purgatory between $50 and $60 per barrel.
The oil industry could continue to weaken through 2020 unless a global recession is avoided and OPEC and its allies extend their production cuts for all of next year, according to an analysis Friday from the Norwegian research firm Rystad Energy.
Despite record-high U.S. oil and gas production, the energy sector has struggled since late last year because of lower oil prices, skeptical investors, weakening global oil demand and a slow, but steady reduction in drilling activity.
The industry generally needs oil priced near $60 per barrel or higher on a consistent basis to be considered healthy, but crude prices remain comfortably below that threshold. Oil settled at $56.62 a barrel in New York Friday.
Sentiments, however, could change if the Organization of the Petroleum Exporting Countries, Russia, and other members of the so-called OPEC+ group extend their production cuts through 2020 and the escalating U.S.-China trade war is resolved. The trade war is considered the primary driver of the global economic slowdown and increased risks of a recession next year.
Bjørnar Tonhaugen, head of oil market research at Rystad, said that a healthier oil market in 2020 is contingent on three primary factors: OPEC production cuts, the global economy, and new maritime shipping fuel standards going into effect in January that will provide a temporary boost to oil demand as shipping companies change to cleaner burning fuels.
“The global economy needs to avoid a sharp slowdown and oil demand recover to more normal growth rates,” he said. “If the stars fail to align, however, OPEC may need to discuss much deeper cuts to support the market.”
In the beginning of July, OPEC+ agreed to extend their production cuts through March. Within the United States, though, uncertainty about the global economy and energy demand concerns has led to dwindling activity in the oil fields. Oklahoma and Texas led yet another drop in the U.S. rig count, continuing the steady decline since the beginning of this year.
The rig count fell by six this week down to 898 rigs, including 738 of them drilling for oil. Both are at their lowest levels since late 2017, according to the Houston oilfield services company Baker Hughes.
Oklahoma, where the drilling rig count has plummeted by 45 percent in just 12 months, lost five rigs for the week, while Texas shed three rigs, including two in the Permian Basin. North Dakota, with its Bakken shale, was the only state to add to its drilling rig tally.
With this week’s decline, the oil rig count is down 54 percent from its peak of 1,609 in October 2014, before prices began their free fall during the last oil bust. Rigs today, however, are able to drill more wells and to deeper depths to produce more oil and gas, allowing the United Sates to produce record volumes of crude oil and natural gas.
The full version of this article first appeared on the Houston Chronicle – an Energy Voice content partner. For more from the Houston Chronicle click here.
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