The Permian Basin lost a single rig in the past week, just as major producers in the region began to express new confidence in the prospects of starting to drill more if oil prices continue to climb upward.
But that optimism, after weeks of diminishing activity, layoffs and a rig count less than half of what it was at this time last year, does not mean the downturn is over yet.
The latest rig drop left 237 drilling in the Permian Basin, according to Baker Hughes. Nationally, producers released 11 rigs leaving a total 894 running.
That represented the slightest drop in weeks, as West Texas Intermediate oil prices have climbed about 36 percent since mid-March. The regional Plains-West Texas Intermediate price ended at $55.75 per barrel on Friday.
The price increase, along with a host of other factors like production drop implied by a falling rig count, prompted a series of positive outlooks from oil company executives in earnings calls this week.
“If you just step back and look at the bigger picture, it’s very hard to believe things are going to get markedly better,” said Joseph Triepke, a financial analyst from Odessa and managing director of Oilpro.com. “But it’s fair to say there is a real chance things don’t get a lot worse.”
Meanwhile, oil companies still put pressure on the service sector to cut costs. That pressure has resulted in what local workforce officials estimate to be thousands of layoffs.
Service companies are among Odessa’s top employers, and most operating here have announced or acknowledged cuts, even though precise numbers of job losses are near impossible to calculate without companies disclosing them.
Many observers expect the rig count to keep falling.
The Louisville-based energy analytics firm Genscape revised the forecast its analysts made late last year of a rig count bottom in August at 270 to a recovery that happens earlier but after steeper cuts. The firm now predicts the Permian Basin rig count will dip below 200 rigs before gradually recovering to about 281 by year end.
Oil traders are also watching for production drops after the rig decline. And it has been marginally, by about 130,000 barrels a day in the month of April to about 9.37 million barrels per day on May 1, according to the Energy information Administration.
But production declines have yet to hit the Permian Basin. The region is still marching toward 2 million barrels per day, adding 11,000 barrels of daily production from March to April, according to the EIA
Analysts with Genscape point to storage capacity as one factor that could lead to further price shocks in the region, even though the glut seems less severe than it did as supplies continued to build a month ago.
The storage hub in Cushing, Okla., remains near capacity at 80 percent, according to Genscape. The smaller Midland hub remains at about 70 percent, according to the firm.
Meanwhile, pipeline work looms along with refinery maintenance and seasonal changes in demand, said Hillary Stevenson, an oil market analyst with the firm.
“The Permian is at risk to have some price volatility if production and pipeline maintenance causes inventories to be stranded,” Stevenson said.
There is also the possibility that added drilling and completing a backlog of wells that companies have left as they await higher prices could lead to a spike in production and again cause a price drop, Triepke said.
“We could have kind of fits and starts, where we sort of start to hit a recovery,” Triepke said. “You could certainly see a scenario where we are testing that upper limit.”
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This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.