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Crude Oil Prices Succumb to Long-Term Fundamentals and Fall 1.7%

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Part 4
Crude Oil Prices Succumb to Long-Term Fundamentals and Fall 1.7% PART 4 OF 5

Will the US Crude Oil Rig Count Fall for the 7th Straight Week?

US crude oil rig count 

Baker Hughes (BHI) is scheduled to release its weekly crude oil rig count report today. Last week’s report showed that the US crude oil rig count had fallen by 13 rigs to 497 rigs for the week ending January 29, 2016. The weekly active US crude oil rig count fell for the sixth straight week. The US crude oil rig count has fallen by 41 rigs in 2016.

Will the US Crude Oil Rig Count Fall for the 7th Straight Week?

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US crude oil rig count: peak and trough 

The US oil rig count peaked at 1,609 rigs in October 2014 and bottomed out at 497 rigs on January 29, 2016. In 2015, the US crude oil rig count fell by 62% to 961 rigs. US drilling activity has fallen due to lower crude oil prices as a result of oversupply concerns.

The drop in drilling activity affects drillers like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL). The EIA (U.S. Energy Information Administration) estimates that US crude oil production could fall by 116,000 bpd (barrels per day) in February 2016. Lower crude oil prices and the falling crude oil rig count suggest that US drilling activity could fall further and US production could slow down.

The fall in oil prices affects shale oil producers like Laredo Petroleum (LPI), Whiting Petroleum (WLL), EOG Resources (EOG), and Pioneer Natural Resources (PXD). (For more on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.) If US crude oil production doesn’t slow down, we could potentially see crude oil trade at low levels for the next two decades.

Impact on ETFs

The roller-coaster ride in the oil and gas market also impacts ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy AlphaDEX Fund (FXN), the Vanguard Energy ETF (VDE), and the VelocityShares 3X Long Crude Oil ETN (UWTI).

To learn more about crude oil production, read Saudi Arabia’s Crude Oil Production: Key for the Global Oil Market and OPEC Crude Oil Production Is Breaking Records. To learn about Russia’s crude oil production, read Russia’s Production Will Put More Pressure on the Crude Oil Market.

In the next part of this series, we’ll look at forecasts for crude oil prices.

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