(Reuters) - U.S. energy firms cut 21 oil rigs this week, the biggest decline since February 2016, as drillers reacted to the 40 percent plunge in U.S. crude prices late last year.
Drillers cut 21 oil rigs in the week to Jan. 18, bringing the total count down to 852, the lowest since May 2018, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday.
Many of the rigs cut were in the Permian Basin in Texas and New Mexico, the country’s biggest shale oil formation, were the rig count dropped by seven this week to 481, the lowest since August.
Oil prices tanked in the fourth quarter of 2018, with U.S. crude futures dropping from a near four-year high of $76.90 a barrel in early October to an 18-month low of $42.36 in December.
The move forced some companies to reconsider capital spending plans, and there is ongoing concern that prices will remain soft enough that it will restrict new investment.
“Obviously they’re reacting in sort of slow-motion fashion to the price crash that we had during November and December,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York, noting it takes a month or two to add or pull a rig after deciding to do so.
The rest of this week’s rig decline occurred in smaller oil producing regions scattered across the country.
The U.S. rig count, an early indicator of future output, is still much higher than a year ago when 747 rigs were active after energy companies boosted spending in 2018 to capture higher prices that year.
Several producers, however, have said they expect to reduce drilling activity in 2019 after U.S. crude prices fell 25 percent last year, the first annual decline since 2015.
If they follow through on those cuts, it would be the first annual average rig count decline in three years after they added 138 oil rigs in 2018 and 222 in 2017. They cut 11 rigs in 2016.
U.S. financial services firm Cowen & Co this week said the exploration and production (E&P) companies it tracks have provided mixed guidance for 2019 after indicating they would spend about $88.7 billion in 2018, a 23 percent increase over the $72.2 billion spent in 2017.
There were 1,050 oil and natural gas rigs active in the United States this week, according to Baker Hughes.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week forecast the average combined oil and gas rig count will fall from 1,032 in 2018 to 999 in 2019 before rising to 1,087 in 2020. That forecast was unchanged from the previous week.
Reporting by Scott DiSavino and Laila Kearney in New York; Editing by Marguerita Choy