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Hedge Funds Bearish on Crude despite Possible Russia-OPEC Deal

PART:
1 2 3 4 5 6 7
Part 6
Hedge Funds Bearish on Crude despite Possible Russia-OPEC Deal PART 6 OF 7

How Drilling Productivity Report Could Impact Production and Prices

US crude oil rig count 

Baker Hughes (BHI) released its weekly US crude oil rig count on May 12, 2017. It reported that US crude oil rigs rose by nine to 712 between May 5 and May 12, 2017. The US crude oil rig count has risen 42 times in the last 45 weeks. US crude oil rigs are at the highest level since April 17, 2015.

The US crude oil rig count has risen 1.3% week-over-week and 124% YoY (year-over-year). The US crude oil rig count rose as crude oil (FENY) (USL) (IEZ) (SCO) prices recovered from lows in early 2016. The rise in the rigs could increase US crude oil output and pressure crude oil prices in 2017. For more on crude oil prices, read part one and part four of this series.

How Drilling Productivity Report Could Impact Production and Prices

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Moves in crude oil (IEZ) (XES) and natural gas (FCG) (BOIL) prices impact oil and gas producers and drillers. A rise in US drilling activity would likely increase US crude oil output. In the short term, rising prices would likely have a positive impact on the earnings of companies like Diamond Offshore (DO), Rowan Companies (RDC), and Atwood Oceanics (ATW).

Peaks and lows  

The US crude oil rig count peaked at 1,609 in October 2014. In contrast, it hit 316 in the week ending May 27, 2016, the lowest level since the 1940s.

US drilling activity fell due to lower oil prices, which were the result of oversupply. Rigs have risen ~125.3% from the lows in May 2016. Technological improvements are also leading to a rise in US drilling activity. As of May 12, 2017, US crude oil prices have risen ~82.5% from their 2016 lows.

EIA’s monthly drilling report

The EIA (U.S. Energy Information Administration) will release its monthly Drilling Productivity report on May 15, 2017. In its previous report, it estimated that US crude oil production would rise in the seven shale regions by 124,000 bpd (barrels per day) to 5,193,000 bpd in May 2017 compared to the previous month. This rise would be the highest level since March 2016. Production is expected to rise mainly in the Permian and Eagle Ford Shale regions during this period. The expectation of a rise in production could pressure oil prices.

In the last part of this series, we’ll take a look at some crude oil price forecasts.

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