Crude production in the United States could start declining between June and July if the number of oil rigs in the country continues to fall, Reuters has reported.
The count of US oil rigs in use this month dropped by 18% since October last year from 1,609 to 1,317.
If the number of oil rigs continues to fall, it is very likely that we see a drop in US production, the report added.
The decline in oil drilling that has occurred so far across the US is probably enough to ensure U.S. production peaks by April or May, though that might not be evident until June or July given delays in publishing production records, it continued.
Last week alone, Baker Hughes cut down their active rigs from 189 at the beginning of October to 147, which is the lowest number since December 2010.
A number of US oil majors have followed suit putting the total count of US shale rigs at its lowest in two decades.
The move by U.S. majors to reduce their offshore assets has been largely seen as a response to the falling oil prices and the consequent drop in revenue.
This might be good news for OPEC whose decision not to cut production was largely motivated by the idea that lower oil prices will eventually drive US shale producers out of the market.
Due to its high production cost, it would be uneconomical and financially unviable to continue producing at the same pace, which would stabilise the global supply on the market and cause prices to rise.
If oil prices average at $58 a barrel in 2015 and $75 in 2016, the number of oil rigs will drop by about 24% from January to October 2015, according to the US Energy Information Administration (EIA).
However, fewer rigs do not necessarily mean lower US oil production, the EIA says.
While lower crude prices have a crucial role to play in output, other key factors such as the efficiency of drilling, the rate of decline in production from existing wells and changes in the amount of time between the start of drilling and the completion of the well should also be taken into consideration.
Giving the 2008-2009 recession as an example, the EIA said, that although prices fell by 71% to $39.09 per barrel, drilling and production continued to increase.
Surprisingly enough, crude output started declining at $57 a barrel, when a significant number of projects were interrupted and rigs dropped by 62%, but the fall in output “was not nearly as dramatic”, the energy group said.
