The number of drilling rigs operating nationally rose this week as private oil producers returned to the oil field, buoyed by crude prices hovering above $70 a barrel. 

Drillers added five rigs, raising the nation’s count to 484, according to oil-field services firm Baker Hughes and research firm Enverus. A year ago, there were 253 rigs in operation as the global pandemic slashed crude demand. 

However, Texas lost two rigs, lowering the state’s rig count to 222. Texas is the nation’s largest oil and natural-gas production state, and is home to nearly half of the nation’s operating rigs.  
The rig count is recovering more slowly than anticipated, given how quickly crude prices have bounced back to more than $70 a barrel, up from less than $48 a barrel in January. That’s because public oil exploration and production companies remain restrained, even as demand for gasoline and jet fuel is ramping up. West Texas Intermediate, the U.S. crude benchmark, was trading around $72.10 midday Friday. 

Despite rising crude prices, oil majors are maintaining capital discipline, part of an industrywide effort to woo investors back into the battered energy sector. Oil companies are focused on paying down debt and raising shareholder dividends instead of boosting production. 

RECOVERY: Rig count holds steady even as oil prices rise

Private oil exploration and production companies, however, are rushing back into the oil-field, lured by higher prices and lower prices for oil-field service workers. Bank of America Global Research expects exploration and production spending in North America to increase by 13 percent this year and 30 percent next year. 

“U.S. public (oil companies) are remaining capital disciplined, but the private (companies) who still react to price signals, are in full-blown growth mode with  oil north of $70 a barrel, exceptionally low service costs, and still ample access to capital,” Chase Mulvehill, a Bank of America analyst, wrote in a research note. 
U.S. drilling activity remained muted this week as OPEC and its allies last week failed to reach an agreement on restoring production levels cut during the pandemic. On Wednesday, Saudi Arabia and the United Arab Emirates reached a compromise that analysts expect will lead to a deal that could gradually raise OPEC production as petroleum demand recovers from the pandemic. 

The fate of the global crude market rests on OPEC. If OPEC decides to raise production too quickly, crude prices would take a hit as supply floods the market. 

U.S. crude production is running about 2 million barrels a day below its peak of about 13 million barrels a day in early 2020. Texas produced almost 4.7 million barrels a day in April compared with a peak of 5.4 million barrels a day in March 2020, just before the coronavirus raced through the U.S.  

The growth in U.S. production is taking market share from OPEC, but is unlikely to shift the global market. 

“The private (exploration and production companies) won’t ruin the party yet, but they are surely capable of compressing the (economic) cycle if OPEC continues to inflate prices over the next two to three years,” Mulvehill said. “Thus, with OPEC seemingly willing to again trade price for share — just look at Saudi’s desire to extend current OPEC+ agreement through year-end 2022 — we see this as a net positive for U.S. shale.”