US oil and gas production will soon start sliding after drillers shut down a surprisingly large number of rigs for the second week in a row.
Two Friday’s ago, it was news that 17 gas drilling rigs had been closed that surprised – last Friday it was news that energy companies had shut down 11 oil rigs.
That was the highest weekly number for oil rig closures since September, 2021, energy services firm Baker Hughes Co said in its weekly report on Friday.
The previous week’s cut of 17 natural gas rigs was the biggest drop since June 2020.
The oil and gas rig count fell by 11 to 720 last week, the lowest since May 2022.
Baker Hughes said that puts the total rig count down eight, or 1%, below this time last year, the first time since April 2021 that current rigs in use numbers have fallen below the year ago level.
US oil rigs in use totalled to 575 last week, the lowest since June 2022, while gas rigs numbers were unchanged at 141 after the previous week’s slump.
That fall saw the total number of oil rigs in use further below the two and a half year high of 627 rigs posted on December 2, 2022.
Most of the rig reductions were in Texas where the total count dropped by nine to 355, the lowest since a year ago this month.
The slide in rig numbers in the past six weeks has had little impact on forecasts for US production this year. The Energy Information Administration still says oil output from the seven biggest shale basins in the US is due to rise in June to the highest on record.
US crude oil production in the week ended May 12 fell -0.8% week on week to 12.2 million bpd, only 900,000 bpd (-6.9%) below the February 2020 record-high of 13.1 million bpd.
But analysts use the data as a predictor of future US production movements and after the big slide in the past couple of months, they are starting to worry that US crude and gas production will fall later in the year.
Oddly the second big slide in rig numbers in a fortnight had no impact on prices which were spooked by comments from Fed chair, Jay Powell and the move by Republicans to put debt ceiling talks with the Biden administration on hold as a way of putting pressure on the government to delivery bigger spending cuts.
All this saw US West Texas Intermediate crude oil for June delivery lose 31 cents to settle at $US71.55 a barrel, after earlier touching US$73.40. July Brent crude, the global benchmark, closed down 28 cents at $US75.58.
The drop came after Powell said in a speech that tightening credit conditions following the collapse of three regional banks may be sufficient to slow growth and ease the need for a June rate hike.
Oil and US gas prices were supported during the week by supply interruptions from Canadian bushfires which forced wells and production facilities to shut down briefly.
WTI closed up 2.25% for the week and Brent was up 1.9%. US natural gas futures were up for another week with a gain of 10.8% but that only trimmed the year-to-date loss to 33%.
Besides the interruptions in Canadian supplies, US oil inventories rose 1.3 million barrels last week but are still just under the five-year average for early summer.
But there was support from the US Department of Energy announce the start of 3 million barrels of crude oil purchases to start re-filling America’s strategic reserves. As well the International Energy Agency raised its demand growth forecast for 2023 and thus foresees a tighter market in the second half of the year.
But the news was negative from the European natural gas sector where the Dutch benchmark price, the Rotterdam TTF, is trading at 30 euros per megawatt hour, a level not seen since November 2021.
In the JKM northern Asian LNG market, the July price fell to $US9.75 per million British Thermal units – that’s down a quarter in six weeks.
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Gold just ended three days of falls that took it well under the $US2,000 an ounce level on Friday after the Republicans theatrically stopped talks with the White House on the debt ceiling and spending cuts.
After sliding well under $US2,000 for the first time since May 1 on Wednesday and falling further on Thursday on increased optimism for the talks’ success next week, the move by the Republicans came as a surprise to some, but not those who remember previous talks back in 2011 and 2013 when the Republicans in Congress pulled similar delaying tactics.
The Republicans quickly returned to the talks on Friday night but they ended a couple of hours later.
Also helping drag gold higher were those comments from Federal Reserve Chair Jay Powell that the troubled US regional banking sector may ease the need for further rate hikes.
That saw Comex gold for August delivery closed up $US22.00 at $US1,998.60 an ounce, while the Comex front month June contract ended at just over $US1,979 an ounce. That put prices down around 1.8% for the week.
Comex silver rose 1.3% on Friday to end the week on $US24.02. That was still down 0.4% for the week.
Comex copper added 1% on Friday to just over $US3.72 a pound for a tiny weekly gain of 0.07%. Copper traders remain bruised from the week Chinese economic data this month.
Powel said in Friday speech that tightening credit conditions following the collapse of three regional banks may cut into growth, easing the need for a further rate hike next month.
The dollar fell sharply following his remarks, with the ICE dollar index last seen down 0.5 points to 103.08, after earlier touching 103.62.
A pause in talks between House majority leader Kevin McCarthy and the White House also sent investors fleeing risk, as House negotiators walked away, which McCarthy blamed on the Biden Administration refusing to concede on spending cuts, Bloomberg reported.
Bond yields also fell, surrendering early gains. The US two-year note was last seen at 4.251%, down 1.6 basis points, while the yield on the 10-year note was down 2.9 basis points to 3.679%.