Zinc supplies are quickly shrinking,…
Saudi oil minister Al-Falih is…
The number of oil rigs in the United States has dropped to its lowest since 2013, thanks to oil selling at below $50 per barrel, and most of that deficit occurred in the US portion of Bakken formation, where the American boom in shale oil began.
There were 49 fewer oil rigs operating in the United States in the week ending Jan. 23, bringing the total down to 1,317, according to Baker Hughes Inc., which follows such trends on its website. It said most of those rigs were taken out of service in North Dakota, the center of the Bakken shale field, which straddles the US-Canada border.
This is part of a larger trend brought on by the collapse in the price of crude oil. The number of US rigs has dropped by a record 258 in the past seven weeks, Baker Hughes reported. Suddenly the United States may no longer be the world's largest producer of fossil fuels.
And it may indicate that Saudi Arabia's price war against US shale production is working. American oil was causing a market glut, driving down prices. But on Nov. 26, OPEC, meeting at its headquarters in Vienna, decided to maintain production at 30 million barrels per day, starting a price war to reclaim market share lost to US producers. The strategy was conceived by Saudi Oil Minister Ali al-Naimi.
Al-Naimi has since explained, in the Middle East Economic Survey that his plan was to drive inefficient oil producers from the world market so that OPEC producers could return to profitability. Al-Naimi didn't specify US producers, but extracting oil from shale is more expensive than conventional drilling and therefore becomes less profitable as the price of crude declines.
This is not good news to David Roberts, the CEO of Penn West Petroleum Ltd., who predicted that 800 rigs may be decommissioned in the United States in the first half of 2015. Michael Wittner, head of global oil research at Societe Generale, agreed.
“If you go down to operating cost levels in the $30-$40 [per barrel] West Texas Intermediate range, and stay there, you will start to lose production in the highest-cost fields in North America,” Wittner said Jan. 19 at a conference in Calgary.
“You’re already seeing the rig counts coming down,” Wittner said. “Drilling will come down. Well completions will come down. In the end, it’s the steep [price] decline rates that are going to do the job.”
The effect is being felt acutely in Crosby in northwestern North Dakota, a town of about 1,300 souls about five miles south of the Canadian border. Its plight is probably best expressed by a 230-acre strip of gravel, empty except for streetlights and idle utility hookups on the south side of this once-prosperous oil town.
Related: IEA Provides First Sign That Tide May Be Turning For Oil Prices
The strip was supposed to have been filled with offices and other businesses involved in and supporting oil field services. Several years ago Crosby's municipal government spent $1.7 million to buy the land, and the state spent an additional $9 million on it. The town's leaders even discussed building 300 housing units in the area because its population was expected to double or even triple.
But the gravel strip resembles nothing more than a ghost town, or perhaps the grin of an old man whose gums display a single tooth. There is, after all, just one building on this road, and its lonely presence shows how quickly hopes can be dashed, says Cecile Krimm, editor of The Journal, the newspaper for Divide, N.D.
“The year they proposed this they could have gotten quite a bit of commerce in there,” Krimm told The Christian Science Monitor. “But now? It’s like a street to nowhere. You’ve got streetlights on and nobody’s home.”
By Andy Tully of Oilprice.com
More Top Reads From Oilprice.com:
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com