U.S. Oil Rig Count Finally Looking Up

Experts are saying that the U.S. oil rig count is nearing a climactic point that could bolster production, raise prices and lure businesses back to the well pad.

The Houston-based oilfield services company Baker Hughes reported another drop in the U.S. rig count, making it the 16th rig decline in row. The continuous drop in oil rigs has left an estimated 800 rigs idling, which is 50 percent of a 1,609 peak hit in October 2014.

But the decline, which followed a seven-month oil price rout, has slowed in recent weeks, a sign that the rig count could be approaching its low point. Some believe that a 50 to 60 percent drop is as far as it will fall.

"Production companies are in a holding pattern for now," said Eric Lee, analyst at Citi in New York. "It could be the beginning of the flattening of the decline in the rig count."

Although the U.S. rig count has been an enigma for traders and analysts, it has proven vital for global oil markets that have been flooded this year by oversupply partly due to an overwhelming U.S. production.

U.S. drillers were forced to scale back after oil prices fell 60 percent to near $40 a barrel in January from more than $100 a barrel last June. Last week, rigs fell to 813, according to a weekly survey conducted by oil service firm Baker Hughes, the lowest number since 2011.

U.S. companies remain nervous about oil prices. Spending has been cut as prices fail to rebound significantly, and further price drops could quickly lead to more shrinkage in the rig count. Oil prices were around $50 on Wednesday.

But signs have emerged that the rig count slowdown is easing as energy firms take stock before removing their most efficient rigs in core producing areas that cost less to produce. While the oil rig count has not risen in months, the count shrank by just 12 last week, the smallest drop this year.

"We think 1,000-1,200 rigs will keep production steady. With 800 rigs, we should see production decline in the second half of the year," said Francisco Blanch, analyst at Bank of America. "We might see a little more rigs lost, but the majority of the fall is behind us."

So far, U.S. oil output remains strong and continues to contribute to a huge glut in supplies worldwide, in part because a drop in production generally lags a drop in drilling but also because rigs are more efficient now than even a year ago.