US drillers cut oil and gas rigs for 10th week in a row, Baker Hughes says

U.S. energy firms have cut oil and natural gas rigs for a 10th consecutive week, the first such streak since July 2020, with the total rig count falling by eight to 539, its lowest since October 2021. This sustained decline, driven by lower prices prompting firms to prioritize shareholder returns over output growth, occurs despite EIA projections for U.S. crude output to rise to 13.4 million bpd in 2025 and an anticipated 84% increase in spot gas prices in 2025, which is forecast to drive increased gas drilling and output to 105.9 bcfd.

Analysis

The U.S. energy sector is displaying a notable divergence between current activity and future output projections. The oil and gas rig count has fallen for ten consecutive weeks, reaching 539, its lowest point since October 2021 and marking an 8% year-over-year decline. This sustained drop, with oil rigs at a low not seen since September 2021, is a direct consequence of energy firms prioritizing shareholder returns and debt reduction over new production, a strategy prompted by lower commodity prices that led to a 20% rig count reduction in 2023 and a further 5% drop in 2024. However, this trend of capital discipline contrasts sharply with U.S. Energy Information Administration (EIA) forecasts. The EIA projects crude oil production will continue to climb from a record 13.2 million bpd in 2024 to 13.4 million bpd in 2025, implying significant gains in drilling efficiency or the completion of previously drilled wells. Similarly, while gas rigs have declined, the EIA anticipates an 84% surge in spot gas prices in 2025, which is expected to stimulate a rebound in drilling and push gas output to 105.9 bcfd, above 2024 levels.

Key Decisions for Investors

• Investors should monitor the divergence between the declining rig count and rising production forecasts, as sustained output growth with fewer rigs would signal significant efficiency gains and margin expansion for E&P companies.
• The EIA's forecast of an 84% surge in natural gas prices for 2025 suggests a potential turning point; consider evaluating positions in natural gas-levered producers and service companies that would benefit from a subsequent increase in drilling activity.
• For oilfield service providers like Baker Hughes, the current rig count decline represents a near-term headwind, but the outlook could improve if producers are forced to ramp up drilling to meet 2025 production targets or if the projected gas price recovery materializes.
• The primary risk to the bullish output scenario is if commodity prices fail to recover as the EIA predicts, which could extend the period of capital discipline and keep drilling activity suppressed.