Shale-oil producers ready to raise production

After slashing production for months, U.S. shale-oil companies say they are ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices.

Last week, EOG Resources Inc. EOG, -0.96%  said it would ramp up output if U.S. prices hold at recent levels, while Occidental Petroleum Corp. OXY, +0.07%  boosted planned production for the year. Other drillers said they would open the taps if U.S. benchmark West Texas Intermediate CLM5, -1.21%   reaches $70 a barrel. WTI settled at $60.50 Wednesday, while global benchmark Brent LCOM5, -0.34% settled at $66.81.

An increase in U.S. production, coupled with rising output by suppliers such as Russia and Brazil, could put a cap on the 40% rally in crude prices since March and even push them lower later in the year, some analysts say.

 “U.S. supply could quickly rebound in response to the recent recovery in prices,” said Tom Pugh, a commodities economist at Capital Economics. “Based on the historical relationship with prices, the fall in the number of drilling rigs already looks overdone, and activity is likely to rebound over the next few months.”

As prices fell last year, shale companies began furiously decommissioning rigs. Twenty-two consecutive weeks of aggressive cuts have left the industry with 930 fewer rigs, a 58% cut from their 1,609 peak in October, according to Baker Hughes, which tracks drilling activity.

By: GEORGI KANTCHEV, BILL SPINDLE