Oil prices rose on Friday after a top energy monitor said that prices might have bottomed on hopes that falling supply would help alleviate the global glut of crude. At the same time, the number of drilling rigs working in the Eagle Ford Shale is a fraction of what it was a year ago, down 70 percent. So far this year, drillers have sidelined 29 rigs in the Eagle Ford. The Texas rig count has dropped by 90 rigs since the beginning of the year, to 231 now.
The oilfield service company’s rig count had already been dropping even before crude oil prices started falling in late 2014. Drillers had been getting faster and more efficient, and more companies were moving to pad drilling — putting several wells on each site, which saved them the time of moving rigs between locations. Operators needed fewer drilling rigs to add wells.
The International Energy Agency said that prices have been supported by easing supply around the globe but cautioned that the recent rally might not be sustainable as the demand outlook remains uncertain. Crude prices have rebounded by around 40% since their lows last month.
"For prices there may be light at the end of what has been a long, dark tunnel," the Paris-based agency said in its closely watched monthly report. "But we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance."
Brent crude, the global oil benchmark, rose 1.4% to $40.61 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.9% at $38.55 a barrel.
The IEA projected that U.S. oil output would fall by 530,000 barrels a day this year, while other suppliers like Brazil and Colombia would experience larges losses. Iran's return to the global market after international sanctions were lifted in January has been "less dramatic," the IEA said, with production increasing by 220,000 barrels a day last month.
Still, the IEA cautioned that risks to global oil demand growth are to the downside, with China demand growing at a below-average rate. Crude oil inventories have continued to increase as the surplus crude goes into storage, the agency said. In the U.S., crude stockpiles last week rose to their highest level in more than 80 years, government data showed.
Oil prices have been supported in recent weeks on hopes that major producing countries will limit their output. Saudi Arabia, Russia, Qatar and Venezuela said last month they would be open to a production freeze at January levels, if other producers were to do so as well. Iran, however, has confirmed it won't join such a deal as it seeks to regain lost market share due to the sanctions.
"The chances of any production cut announcements are weak and Iran looks committed to expand oil output," said analysts at ANZ in a research note.
Low prices will continue take their toll on some of the biggest producing countries, many of which face credit-rating downgrades and further budget cuts, RBC analysts said in a report.
"Hence, we continue to believe that more proactive market management measures may be on the table later this year if the recent production freeze announcement, along with improving supply and demand dynamics, fails to push prices materially higher," the bank said.