Crude Talk: US Oil Producers Could Force a Flood
Latest oil rig data
The US oil rig count reached 609 in the week ending March 3, 2017—a rise of seven rigs over the previous week, according to data released by Baker Hughes (BHI). The US oil rig count was at the highest level since October 9, 2015.
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On March 7, 2017, crude oil (DBO) (USL) (OIIL) (SCO) prices were ~50.5% lower than their post-2008 crisis high on June 20, 2014, based on closing prices. Oil prices started on a downturn on June 20, 2014. Since then, the number of active oil rigs has fallen 60.6%.
Notably, US crude oil production is ~6.0% lower than it was at its peak in June 2015, according to weekly data from the EIA (US Energy Information Administration).
Rig counts and crude oil production
Over the past ten years, the oil rig count’s bottoms and peaks and crude oil price’s bottoms and peaks have been between three and four months apart, according to research from Morgan Stanley. After the subprime crisis, when crude oil touched multiyear lows in January 2009, the rig count bottomed out in May 2009.
Crude oil touched a 12-year low on February 11, 2016, but it rebounded 102.7% by March 7, 2017. According to the pattern mentioned above, the rig count should have hit its bottom in June 2016.
Rig counts and crude oil prices
The rig count rose for the first time in 11 weeks in the week ending on June 3, 2016. Since then, the count rose by 284 rigs as of the week ending March 3, 2017—a rise of 92.7% from its bottom.
During that period, crude oil production rose ~3.4%, according to weekly data. It shows the impact of rising rigs on crude oil production, and rising rigs would mean more pressure on crude oil prices.
It also means that rig count data could impact funds like the United States Brent Oil ETF (BNO), the Fidelity MSCI Energy ETF (FENY), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the iShares US Oil Equipment & Services (IEZ).
Rig efficiency could impact oil prices
Increasing rig efficiency also helped US oil companies produce more crude oil with fewer rigs. In March 2017, the EIA estimated that the oil production per rig from new wells was 713 barrels per day—about 38.2% higher than in March 2016. For this reason, rising rigs would have a disproportionate impact on oil production.