Prices on the global oil market sure have been volatile over the past several weeks, falling again recently after rising from their multiyear lows earlier in 2015, and now climbing again late this week, due in part to cutbacks in production and exploration by U.S. oil companies.
According to Texas-based oil field service company Baker Hughes (BHI), as of Friday the number of active drilling rigs in the U.S. for oil and gas wells was down 56 from a week earlier, with 41 oil rigs and 15 gas rigs cut. That's now down by 734 rigs compared to the same time period a year earlier. Active drilling rigs for oil and gas wells in Canada were down by 80 compared to last week and are now down by 249 compared to March 2014.
The boom in North American shale oil output, along with OPEC's decision to continue its current production levels, has flooded the world market with oil. That has hurt the bottom line of U.S. oil producers as well as local economies across much of the nation's oil-producing regions.
Earlier this week, crude oil futures fell to a six-year low when the U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories grew by 9.6 million barrels compared to a week earlier. It also noted that the nation's oil supply was at its highest level for this time of year than at any time in the past 80 years, at 458.5 million barrels.
But in another report this week, the EIA announced that the declining rig counts would be affecting near-term production rates in three key oil-producing regions across the country: the Eagle Ford in Texas; the Niobrara in Colorado, Wyoming, Nebraska and Kansas; and the Bakken in Montana and North Dakota.
However, the EIA also says production gains in other U.S. oil fields, in particular the Permian Basin in Texas and New Mexico, caused overall crude oil production to rise slightly this month, to 5.6 million barrels per day, in the regions the EIA tracks daily. And that production rate is expected to remain unchanged in April.
The EIA acknowledges that oil wells come and go, and that over time, production from long-term "legacy wells" declines. But recently, it says the rate of decline has been increasing in some regions.
"This means that, in order for overall production to increase, operators must drill enough new wells to overcome the decline from legacy wells," the report continues. "As fewer wells are drilled, this decline becomes a significant challenge to overcome."