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U.S. Oil Production Bucks Drilling Slowdown, Keeps Crude Prices in Check

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11/15/2019 | 02:08pm EST

By Ryan Dezember

Drillers are laying down rigs, hydraulic-fracturing equipment sits idle and U.S. energy producers are promising fiscal restraint. Yet domestic oil and gas production keeps rising -- a riddle that has flummoxed traders and kept oil prices trading in a narrow band in recent weeks.

On Friday, West Texas Intermediate futures for December delivery traded up 2% to $57.89 a barrel on the New York Mercantile Exchange. That's about where they ended last week.

The benchmark U.S. oil price hasn't traded above $60 a barrel since mid-September, when it shot up briefly after strikes on Saudi oil-production facilities took out a big chunk of the kingdom's output. U.S. barrels haven't traded for less than $50 since January.

While Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries have curtailed output this year in an attempt to lift prices and are expected to reiterate their production cuts when they meet next month in Vienna, an unrelenting climb in U.S. production has proven to be an obstacle to their price-setting agenda.

"Rising concerns American crude will keep the oil market oversupplied will continue to weigh on prices," said Edward Moya, senior market analyst for trading firm Oanda.

Though several energy producers have promised to spend less drilling amid low commodity prices, there's no sign yet of waning output.

The number of rigs drilling specifically for oil in the U.S. this year is down 22%, or nearly 200 rigs, through last week, according to oilfield services firm Baker Hughes Co. Meanwhile, crude-oil production has risen 9.4%, to 12.8 million barrels a day, according to the U.S. Energy Information Administration.

U.S. shale drillers are on pace to produce 16% more oil this year than they did in 2018, according to Rystad Energy, a Norwegian research firm that analyzed the quarterly results of more than 30 companies to derive its estimate.

"We expect continued reductions in capital expenditure and a renewed focus on cash flow next year," said Rystad's Veronika Akulinitseva. "However, this does not imply a reduction in oil output. We are still likely to see another year of oil-production expansion in U.S. shale -- although at a slower pace than seen this year."

Executives with Helmerich & Payne Inc., a drilling contractor with a fleet of about 300 U.S. land rigs, said Friday that customers have tended to shed older rigs and spend instead on the newest, most efficient models. That helps explain how output is rising with fewer rigs drilling. John Lindsay, chief executive of the Tulsa, Okla., company also said that the dip in the number of rigs drilling domestically is likely to be short-lived.

"Our customers appear to have outspent their budgets during the first six months of 2019 and have been making up for it in the second half," he told investors on a call to discuss the company's third-quarter results. "We expect to see more stability in rig demand over the next couple of months and heading into calendar 2020."

Write to Ryan Dezember at ryan.dezember@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BAKER HUGHES -0.14% 22.14 Delayed Quote.2.98%
HELMERICH & PAYNE -1.73% 38.64 Delayed Quote.-19.40%
LINDSAY CORPORATION -0.14% 90.57 Delayed Quote.-5.90%
LONDON BRENT OIL 0.03% 63.24 Delayed Quote.12.96%
WTI 0.05% 58.32 Delayed Quote.24.23%
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