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Does a falling US rig count signal a trend?

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U.S. total rig count decreases

According to oilfield service company Baker Hughes, there were a total of 1,925 active oil and gas rigs in the U.S. during the week ended November 7. That’s four fewer rigs than the previous week, marking the third rig count decrease in six weeks.

The U.S. rig count had been on the rise this year. There were occasional declines, but nothing significant. As of this week’s decline, U.S. rigs have deviated from the upward trend. Meanwhile, on a monthly basis, October’s average was marginally below September’s average, and was the second highest U.S. rig count since July 2012.U.S. Total rig count

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Last week’s decrease was the result of a large downswing in oil rigs, partially offset by additional gas rigs in operation. The number of active oil rigs in the U.S. decreased by 14 in the week, although there were oil rig additions last week in the Permian Basin, as you’ll see in Part 4. The number of natural gas rigs increased by ten. Miscellaneous rig numbers were unchanged last week.

The number of horizontal rigs rose, while the number of vertical rigs fell last week. See Part 5 of this series to learn more about vertical rigs versus horizontal rigs.

Year-to-date, the total U.S. rig count was up by 174, or ~10%. Oil rigs increased by 190, up 14%. Natural gas rigs decreased by 16, or ~4%. In the same period in 2013, total rigs decreased by 8.

Rig count trends show companies’ inclination to spend on drilling

Rig counts tell us how many rigs are actively drilling for oil and gas. Baker Hughes notes that rig count trends are “governed by oil company exploration and development spending, which is influenced by the current and expected price of oil and natural gas.”

Rig counts can be an indication of oil and gas producers’ confidence. Companies in the drilling environment include Chesapeake Energy Corporation (CHK) and Hess Corporation (HES), and are part of the Energy Select Sector SPDR ETF (XLE).

Rig count is one measure of oil and gas drilling activity by oilfield service companies such as Halliburton Company (HAL) and Baker Hughes Incorporated (BHI). These companies are part of the VanEck Vectors Oil Services ETF (or OIH).

Falling rig counts are troubling for oil and gas producers. They’re also a worrisome sign for oilfield service providers. In this series, you’ll learn what influenced natural gas and oil rig counts last week and get to understand why rig counts matter to investors.

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