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Oil drop wipes out thousands of US jobs

brent_crude_oil_050The tide may be turning in the retreat of the U.S. oil explorers.

Rigs targeting oil fell by 33 to 986, the smallest decline since Jan. 2, Baker Hughes Inc. said on its website Friday. Energy rigs in the Permian Basin shale region dropped by seven to 355 after dropping by as much as 49 earlier in the month. The Eagle Ford in Texas lost three rigs.

The slowing decline in rig numbers comes as oil posted its first monthly increase since June after falling 50 percent in a year. The U.S. has lost more than a third of its oil rigs over four months in a retrenchment that threatens to bring the nation’s shale boom to a halt. Saudi Arabia has sought to allow prices to fall to curb U.S. and other non-OPEC output.

Three or four weeks ago, the rig count “was falling like Newton’s apple and now it’s just rolling down the hill,” James Williams, president of WTRG Economics, said in a phone interview Friday. “What it means is that the Saudi policy is working.”

The drop in oil prices has already wiped out thousands of U.S. jobs and dried up more than $86 billion in capital spending as domestic producers face stiff competition from suppliers abroad.

Saudi Arabia, the most powerful member of the Organization of Petroleum Exporting Countries, led the group’s November decision to maintain production levels as prices plunged. The world’s biggest crude exporter will maintain that tack when the group next meets in June, according to some of the world’s biggest banks.

OPEC production climbed 163,000 barrels a day to 30.568 million in February, led by gains in Saudi Arabia, according to a Bloomberg survey of oil companies, producers and analysts.

Analysts watch the rig count to help forecast U.S. production. The idling of 589 rigs in 12 weeks hasn’t yet led to a reduction in output, which is forecast by the Energy Information Administration to climb to 9.3 million barrels a day this year, the highest since 1972. Output rose 5,000 barrels a day in the week ended Feb. 20 to reach 9.29 million, the highest rate in weekly EIA data going back to 1983.

Crude stockpiles swelled 8.43 million barrels to a record 434.1 million over the same period.

“You can’t really look at rig counts and make an assessment of what this will do with production,” Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania, said by phone Friday. “We are seeing record production week in and week out regardless.”

The U.S. benchmark West Texas Intermediate oil for April delivery rose $1.59 to $49.76 a barrel Friday on the New York Mercantile Exchange. Prices tumbled 49 percent in the last half of 2014. WTI’s discount to Brent crude widened to $12.82 this month from $4.75 thanks to the ample supplies and production combined with U.S. laws against most crude exports.

U.S. oil drillers Chesapeake Energy Corp. and Continental Resources Inc. joined the ranks of companies this week presenting analysts with spending cuts. The “sharp drop in expenditures” will slow oil production growth in North America this year, with fourth-quarter output potentially flat compared with the year earlier, Evercore ISI said in its Feb. 22 report.

“I want to compliment our industry for their prompt response to today’s low oil price environment,” Continental Resources Chief Executive Officer Harold Hamm said in a call with analysts Feb. 25. “These actions will accelerate the rebalancing of supply and demand and facilitate the recovery of more rational prices.”

Analysts at Wood Mackenzie Ltd. and Genscape Inc. have forecast that the number of rigs actively drilling in the U.S. will continue to slide into the second quarter before bottoming.

“The current rig count is pointing to U.S. production growth decelerating close to the level required in our view to balance the oil market,” Goldman Sachs Group Inc. said in a research note Feb. 20. “We continue to expect that lower prices will be required in order for the capex and rig cuts to materialize into sufficiently lower production growth.”-Bloomberg