U.S. oil rigs dive to lowest since 2010, more cuts seen

(Reuters) - U.S. oil drillers began the year by slashing the number of rigs to the lowest in over five years, data showed on Friday, with analysts saying further reductions are almost certain as producers respond to a deepening oil price rout.

Stacked rigs are seen along with other idled oil drilling equipment at a depot in Dickinson, North Dakota June 26, 2015. REUTERS/Andrew Cullen

Drillers cut 20 oil rigs in the week ended Jan. 8, the third-largest one-week decline since May, oil services company Baker Hughes Inc said in its closely followed report. The reductions occurred across every major shale patch, from the Permian to the Bakken.

The remaining 516 rigs were the fewest since April 2010, according to the data, but few expect the slump to end there. Oil prices have dropped more than $10 a barrel over the past two months, about half of that in the past week. Lower prices are likely to be reflected in more idled rigs over the coming month or two.

“So long as the price for oil stays low, the rig count will continue to decline,” said Arthur Gelber, founder and president of energy consulting and advisory firm Gelber and Associates in Houston.

U.S. oil futures on Friday failed to draw any support from the sharp fall in rigs, settling at $33.16 a barrel, the lowest since Feb. 2004. Investors remain worried about a persistent global glut and a bleak demand outlook.

U.S. crude futures dropped 30 percent last year.

The rig count decline was the seventh reduction in the past eight weeks and brings the total rig count down to about a third of the 1,421 oil rigs operating in same week a year ago.

In 2015, drillers idled a total of 963 oil rigs, the first annual cut since 2002 and the biggest annual decline since at least 1988, according to Baker Hughes.

Over the prior five years (2010-2014), producers added on average 216 oil rigs per year. In 2015, however, they cut on average 18 oil rigs per week.

U.S. crude futures were trading at higher levels around $38 a barrel for the rest of 2016 and $43 for 2017. Some analysts said this could entice producers to return to drilling later this year.

One of the biggest U.S. independent drillers, Pioneer Natural Resources Co, said this week its preliminary 2016 production growth forecast was 10 percent to 15 percent compared with 2015.

Pioneer said it still forecasts compound annual production growth of 15 plus percent over 2016 through 2018, assuming the addition of two rigs to three rigs per year during 2017 and 2018.

This week, drillers cut four oil rigs in the Bakken in North Dakota and Montana, bringing the total to 49, the lowest rig count in the basin since at least 2009.

U.S. natural gas rigs, meanwhile, fell by 14 this week, knocking the overall oil and gas rig count to 664, the lowest since August 1999.

Reporting by Scott DiSavino; Editing by Marguerita Choy and David Gregorio