US oil rig count near 9-month low as plunging crude prices squeeze industry

A view of Tesoro's Los Angeles oil refinery in Los Angeles, California, on Oct 10, 2014.  The number of rigs drilling for oil in the US fell to near nine-month lows in the latest week  as low crude prices continue to squeeze the industry. -
A view of Tesoro's Los Angeles oil refinery in Los Angeles, California, on Oct 10, 2014.  The number of rigs drilling for oil in the US fell to near nine-month lows in the latest week  as low crude prices continue to squeeze the industry. -- PHOTO: REUTERS

NEW YORK (REUTERS) - The number of rigs drilling for oil in the United States fell to near nine-month lows in the latest week, data from oil services firm Baker Hughes Inc showed on Monday, as low crude prices continue to squeeze the industry.

The US oil rig count fell by 37 to 1,499 in the week to Dec 29, the lowest level since the first week of April. Last year, at around this time, rig counts rose by 117.

Energy traders have been watching the data closely to determine if steep price drops in crude oil and natural gas over the past six months are prompting oil drillers to cut back on the number of rigs.

Oil rigs have declined in eight of the last 11 weeks from an October record high of 1,609, according to the Baker Hughes data. The declines seemed to correlate with the disinterest shown by drillers toward new oil exploration projects after crude prices hit 5-1/2-year lows.

Seventeen of the rigs closed in the latest week, or nearly half, were located in California. That suggested a wider spread of rig culling was in place after recent sharp cuts in the shale-rich Permian basin in West Texas and New Mexico took the rig count in that area to eight-month lows.

"It's prudent and legitimate industry reaction to the prices we've been seeing," said Mr Kyle Cooper at IAF Advisors in Houston."These price levels are just not profitable for some of the most marginal operators."

On Monday, US crude futures settled below US$54 a barrel, about 50 per cent below the June high above US$107. Benchmark Brent crude finished under US$58, also about half the summer peak of US$115.

Some analysts have cautioned against making too much of the rig declines, as the total number was still 100 over a year ago, when 1,395 rigs were seeking oil.

By contrast, rigs drilling for natural gas rose, up two to 340 in the week to Dec. 29, according to the data. Gas prices have held up better than oil.

On Monday, US natural gas futures jumped 6 per cent to above US$3.18 per million British thermal units on colder weather forecasts that could boost demand for heating. Since June, however, gas is down 35 per cent.