Oil prices may have dipped last week, but they are still up more than 80% from their lows earlier in the year and it’s that gain which seems to have produced the first rise in oil rig use in the US in 10-months.
The weekly report on rig use across the US from services firm Baker Hughes revealed the number of rigs drilling for oil rose by 9 to 325. Overall rigs in use rose 4 to 408 as five gas rigs were taken out of service.
While the total is still down 460 from a year ago, the fact that oil rigs in active use rose for the first time since last August after a concerted rise in oil prices sent a tremor of concern through energy markets on Friday night and helped lower prices on the day and the week.
According to James Williams, energy economist at WTRG Economics, “It’s encouraging, but the exploration business will still be in the ICU [intensive care unit] for the foreseeable future,” Marketwatch.com reported.
“While rig count is it is up, it remains too low to increase oil production—except possibly in the Permian [Basin] which has just about the number of rigs running to maintain current output,” he said. “The other major oil plays are well below the level that will increase production or stem the decline,” Mr Williams was quoted as saying.
Prices were helped earlier in the week by the news that US oil stocks fell by 1.4 million barrels for the week ended May 27, while total output dropped 32,000 barrels a day to just over 8.7 million barrels a day. Analysts say the momentum remains in the direction of falling output.
A total of 35 US oil producers have gone bust so far in 2016 and while most of these are still in business and producing less oil than before, they haven’t stopped their pumps completely, meaning US production has been stronger for longer than expected.
It is now declining and it will take several months of rises in oil rig use before a turnaround appears, but if prices firm above $US50 a barrel, the likelihood of a reversal appearing later this year rises.
As a result of the news of the rise in rig usage oil futures settled lower on Friday. Not helping as well was the weak US employment report for May which raised concerns over the outlook for energy demand.
Oil prices rose above $US49 a barrel in early trading as the US dollar slumped on the back of the weak jobs data, but then retreated on the news of the rise in rigs in use.
July West Texas Intermediate crude futures eased 55 cents, or 1.1%, to settle at $US48.62 a barrel in New York. For the week, prices lost about 1.4% following three straight weeks of solid gains.
In London, August Brent crude futures fell 40 cents, or 0.8%, to settle at $US49.64 a barrel, with the contract down about 0.6% for the week.
Meanwhile there was an upside in the weak jobs report for gold – helping the metal shake off a month of falling prices.
Non-farm payrolls rose by just 38,000 in May and hiring in the prior two months was weaker than initially estimated, with 59,000 jobs cut, according to the US Labor Department said. The level of monthly hiring was the lowest since 2010.
On Comex, the most-active August gold futures contract jumped $US30.30, or 2.5%, to settle at $US1,242.90 an ounce, posting the sharpest one-day climb in 11 weeks.
July silver jumped 34 cents, or 2.1%, to $US16.365 an ounce. For the week, silver was up about 0.6%.
And Comex July copper rose 4.3 cents, or 2.1%, to $2.113 a pound—down less than 0.1% for the week.
