US oil and gas producers have ramped up their drilling activity to the highest levels since April 2014, in the wake of last month’s OPEC accord. The total active rig count in the US grew by 27 last week, with active oil rigs increasing by 21, and the active gas rigs growing by 6. The 21-rig jump represents the highest increase in active oil rigs since July 2015. The Permian Basin saw the largest growth in drilling activity, with an 11-rig week over week increase. Following the rig count last Friday, crude oil price experienced an uptick by midday trading, with Brent crude increasing 0.3% to $54.12 and West Texas crude climbing 0.6% to $51.34.
The primary impetus behind the surge is likely the OPEC agreement to curb oil production, the first such accord in eight years which will cut 1.2 million barrels from the organization’s daily output. OPEC was also able to extract commitments from some non-member states to reduce production by as much as 558,000 barrels a day. Accordingly, crude prices rose to a 16-month high earlier this week.
The US made no such commitment to curtail production. As such, whereas domestic oil producers sidelined more than 1,000 rigs last year, the total number of oil and gas rigs in the US spiked from 27 to 624 last week, according to Baker Hughes, Inc. Last week, total US oil output rose by 100,000 barrels to a rate of 8.8 million barrels a day, up from a daily rate of 8.7 million during the week prior. While these numbers are subject to revision and change, the steady rise in the four-week average for US oil output suggests that a sustained resurgence is occurring.
This does not bode well for OPEC, whose plan to mitigate oversupply by cutting production may be undermined by rising prices, which have in turn stirred hundreds of US oil rigs from inactivity and breathed new life into the domestic shale industry. “OPEC’s going to have its hands full with them for a time,” said John Kilduff of Again Capital to CNBC, further noting that US oil activity posed a “major concern” for OPEC. In all, the US has been indifferent to the will of the cartel and is steadily bringing its active oil rig count back to the 2015 count of 524. As it stands, the US had 498 active oil rigs as of last week, or 26 less than last year.