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Oil continues its march to the back burner

As Americans prepare to start the summer driving season with the upcoming Memorial Day long weekend, there are more signs of a looming slowdown in US oil and gas production later in the year.

Another nine oil and gas rigs were shut down in the US last week, taking the number closed in May so far to a massive 45, the biggest number for a month for three years which has increased expectations of a slide in production across the country in coming months.

It was in fact the biggest monthly drop since mid -2020 when oil and gas companies were facing sliding prices and demand in the middle of the pandemic which made the drop in rig use easy to understand.

This time around the factors are nowhere near as convincing and yet US energy companies have spent much of this year de-commissioning rigs, especially in shale rich areas like western Texas.

Last week, energy firms cut rigs for a fourth week in a row, according to the weekly Baker Hughes report on Friday.

News of the big drop came as oil markets prepared for an OPEC+ meeting next weekend in Vienna that could see another cut in production to go with the surprise 1.1 million barrel cut a couple of months ago.

The OPEC threat saw US West Texas Intermediate (WTI) crude futures close higher on Friday as traders noted the drop in oil rig use.

WTI crude oil for July delivery closed up 1.4% to settle at $US72.87 a barrel in New York. July Brent crude, the global marker crude, was up $US1.16 cents to $US77.17 a barrel.

US oil futures are down about 9.5% so far this year after gaining about 7% in 2022 and Brent futures are down 10%.

Oil and gas rigs in use, fell by nine to 711 last week, the lowest since May 2022. Baker Hughes said that puts the total rig count down by 16, or 2%, below this time last year.

US oil rigs fell by five to 570, their lowest since May 2022, while gas rigs dropped by four to 137, their lowest since March 2022 as gas prices again slid to be down 40% this year so far.

May saw the US oil count drop 21 rigs, which was the biggest monthly drop since June 2020. The gas count dropped by 24 rigs in May in its biggest monthly rig decline since January 2016.

The massive, 40% drop in gas prices has already seen companies like Chesapeake Energy Corp to announce plans to reduce production by cutting some rigs – especially in the Haynesville shale in Arkansas, Louisiana and Texas.

Most of the rig reductions this week were in the Haynesville where the total count dropped by three to 54, the lowest since February 2022.

Helping lift prices on Friday was a softening in the US dollar – but it still ended higher for the week.

The Aussie dollar ended around 65.20 US cents, down 2% over the week as the greenback made ground against the yen, the euro and sterling up to Friday.

Russia said last week that it expects no change to production quotas from the cartel’s meeting this week given voluntary cuts of more than one-million barrels per day that took effect at the start of May, while Saudi Arabia’s oil minister said short sellers should watch out.

“While Russia’s Deputy Prime Minister Alexander Novak today indicated that OPEC+ would likely stay the course next week, we think the producer group will give careful consideration to a deeper cut given residual demand concerns.

“We will concede that the group may forgo further action given the recent rebound in prices and the fact that the reduction announced in April is only now starting to impact balances, Helima Croft, Head of Global Commodity Strategy and Research at RBC Capital Markets, said in a note on Friday.

However, the US reported consumer spending was stronger than expected last month, rising 0.5% after being unchanged in March. As well, the personal consumption expenditures index, the Federal Reserve’s preferred inflation measure, also rose, climbing 4.4% on an annualized basis, above the 4.2% rise reported for March.


The American Automobile Association (AAA) is forecasting that as many as 42.3 million Americans will travel 50 miles (around 80 km) or more from home this Memorial Day weekend.

That would be up 7% from 2022 and the highest for a Memorial Day weekend since 2005.

“We have 2.7 million more people travelling this year than we did last year. Travel continues to come back,” the AAA said last week. “The busiest travel was in 2000. But coming back from the COVID shutdowns, we continue to increase.”

This forecast is seen to be bullish for US demand for petrol and oil, although the market hasn’t supported that contention in recent weeks with a slide of around 5% over the last month.