Oil closed in on $30 a barrel Friday as production continues to fall and demand for petroleum products picks up as more states restart their economies after two months of coronavirus-related restrictions.
The price of West Texas Intermediate, the U.S. benchmark, settled at $29.43 a barrel Friday, up 6 percent from Thursday. Just two weeks ago, a barrel of crude cost about $12.
Crude’s rally adds to growing optimism that oil is on the rebound after plunging to a record low negative-$36.98 on April 20. However, $30 oil is nowhere near the price needed for many U.S. shale producers to turn a profit, typically $50 to $60 a barrel. And the steep cuts to production and spending on new drilling portends prolonged pain for the industry and fewer jobs in the Houston region.
Energy companies continue to shut down rigs and halt drilling on new wells after oil prices plunged during the coronavirus pandemic, which has crushed global demand for crude and petroleum products such as gasoline, diesel and jet fuel. Fracking activity in the U.S. is forecast to bottom out this month before recovering in the third quarter, according to Rystad Energy, a Norwegian energy research firm.
“We will probably see activity stay at the current low level for the rest of the second quarter,” Artem Abramov, Rystad’s head of shale research, said in a statement. “A modest recovery is expected in the third quarter, but stable West Texas Intermediate oil prices in the low- to mid-$30s are required to see this recovery in selected core acreage positions operated by producers with strong balance sheets.”
Even if oil holds in the range of $30 to $35, U.S. production isn’t expected to quickly return to pre-coronavirus levels. The Energy Department this week forecast that domestic production would decline by 1.3 million barrels a day next year as the rig count fell to a new all-time low.
U.S. producers are expected to average 11.7 million barrels per day in 2020 and 10.9 million barrels per day in 2021, down from the 2019 average of 12.2 million barrels per day, according to the U.S. Energy Information Administration. The federal agency warned, however, that its forecast is “highly uncertain” given the still fluid nature of the coronavirus pandemic and the economic fallout.
“Much of the recent changes in the WTI price will continue to affect production later this year and throughout 2021,” the EIA said in a report this week. “EIA’s forecast 0.8 million barrels-per-day decline in U.S. crude oil production in 2021 would be the largest annual decline in U.S. crude oil production on record.”
Producers large and small have cut output, including majors such as Exxon Mobil and smaller drillers like Diamondback Energy, as they reduce output from existing wells and shut down others.
Their actions are reflected in the plunging U.S. rig count, a leading indicator of oil production nationally, which fell for the 10th consecutive week and to a level eclipsing the low point of the 2014-16 oil bust.
The number of drilling rigs in operation across the nation declined to 339, down 35 from a week ago, according to Baker Hughes, a Houston oil field services company. During the 2014-16 oil bust, the rig count bottomed out at 404.
The number of rigs in operation has plunged by 66 percent compared with a year ago, when 987 rigs were in operation. Most of the losses this week came in Texas, where operators idled 23 rigs. Texas, home to most of the prolific Permian Basin, hosts about half of the nation’s oil and gas rigs.
paul.takahashi@chron.com
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