U.S. drillers this week added oil rigs for a fifth week in six, according to a closely followed report Friday, prompting analysts to predict the rig count has bottomed and production will start to edge up early next year.
Drillers added 10 oil rigs in the week to July 8, bringing the total rig count up to 351, compared with 645 a year ago, energy services firm Baker Hughes Inc said.
Before this week, drillers added oil rigs in only five out of 26 weeks this year, cutting on average eight rigs per week for a total of 195. Last year, they cut 18 rigs per week on average for a total of 963, the biggest decline since at least 1988.
After slumping from 1,609 rigs in October 2014 amid the biggest oil price rout in a generation, the rig count started to inch up in June as U.S. crude futures hovered around the key $50-a-barrel level that analysts said would trigger a return to the well pad.
U.S. crude futures this week however were on track to fall nearly 8 percent to around $45 a barrel in their worst weekly decline in five-months on global economic worries.
But looking forward, prices were expected to rise with futures for the balance of the year trading below $47 and calendar 2017 fetching $50.
"We believe the U.S. oil rig count bottomed in late May at around 316 rigs, and expect U.S. oil production to bottom in February 2017 at about 7.735 million barrels per day," analysts at Swiss bank UBS said this week in a report.
UBS explained the nine-month lag between the rig count bottom and production hitting bottom on the time it takes to put a new well into service after a company decides to drill it - about three months to secure a rig and six to complete the well.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the total oil and natural rig count would average 483 in 2016, 667 in 2017 and 945 in 2018, versus 978 in 2015.
The total oil and gas rig count bottomed at 404 in mid May, the lowest level since at least 1940, and increased by nine to 440 in the week ended July 8, according to Baker Hughes data.
Analysts at U.S. financial services firm Cowen & Co said producers added most rigs in the Permian basin in West Texas since
the rig count bottomed, noting Concho Resources Inc and Energen Corp were the most active drillers.
(Reporting by Scott DiSavino; Editing by Marguerita Choy)