Oil prices took a hit…
The U.S. rig count has…
With oil prices persistently low, it’s no surprise that rig counts worldwide in November were 16 percent lower than they were a year earlier. The drop would have been even steeper if it hadn’t been for OPEC’s decision a year ago to maintain its production levels despite a market glut.
The oil services company Baker Hughes Inc., in its closely watched monthly report on global drilling activity, said 1,109 oil rigs were in use outside Canada and the United States in November, a decrease of only two from October but down by 215 from November 2014, when the count was 1,324.
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The news from North America continued to be grim. In Canada, the count for last month was 178, six fewer than the 184 working in October and 243 fewer than the 421 in use during November 2014. In the United States, 760 rigs were in operation in November, down 31 from 791 in the previous month and down 1,165 from the 1,925 in November 2014.
All told, the worldwide count was 2,047 rigs, down 39 from the 2,086 operating in October and 1,623 fewer than the 3,670 in service during November 2014.
Baker Hughes’ “international” regions include Africa, Asia Pacific, Europe, Latin America, which all showed year-to-year declines, and, of course, the Middle East, which actually saw a rise of 16 rigs, from 403 in November 2014 to 419 last month.
It may not be surprising that oil production remains generous in the Middle East, but it also reflects OPEC’s determination to win back and keep the market share it lost in recent years to producers who aren’t members of the cartel, particularly the United States.
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Hydraulic fracturing, or fracking, helped breathe new life into U.S. energy production a few years ago, coaxing oil and gas out of the shale deposits that can’t be tapped with conventional drilling. This practice, although relatively expensive, helped put the country back on the road toward energy self-sufficiency, and the export of shale oil intruded into OPEC’s customer base.
This eventually became a glut that depressed oil prices, which stood at more than $110 per barrel in June 2014. Five months later, at its meeting in Vienna, OPEC resisted calls by some members to cut its production ceiling to help restore prices. Instead the group decided to maintain output at 30 million barrels per day to drive prices down further and make fracked oil unprofitable.
Maintaining oil production levels, though, ought to keep the rig count static in the Middle East, where many of OPEC’s most productive countries are situated. But evidently in order to put a little extra pressure on drillers in the United States, some of the cartel’s members have actually been exceeding its production ceiling by an estimate of 1.3 million barrels of oil per day, on average.
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Some of that extra oil can be produced by working existing wells more strenuously, but during the past year, 16 more wells have been put into service in the Middle East to ensure plentiful output and continued pressure on frackers in the United States.
And it doesn’t appear that the situation will be resolved any time soon. At Friday’s meeting in Vienna, OPEC decided not to change its stance on production, at least until it can assess the impact of Iran’s return to the global market once sanctions over its nuclear program are lifted, probably early in 2016.
And the price of oil keeps sliding. On Monday, the price of the U.S. benchmark crude, West Texas Intermediate, which recently had been priced at a little more than $40 per barrel, plunged to $38 per barrel.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com