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Oil rig counts battle falling crude oil prices

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Oil rig count increases

Baker Hughes’ (BHI) major basin oil rig count increased by three—from 1,572 to 1,575. The main additions were in “Other” basins—oil rigs jumped by eight counts. “Other” rigs are in basins that are smaller in size or that don’t fall within a specific geographic basin. The decrease was partially offset by a reduction of five rigs in the Eagle Ford Shale.

The US oil rig count has been on shaky ground since the crude price slump. This was only the seventh oil rig increase in the past four months. This week, oil rigs looked to strengthen because the crude price didn’t change much from the week ending November 28.

The current oil rig count isn’t far from its highest weekly count ever. The rig count was 1,609 on October 1. That’s the highest it’s been since January 2005.

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US oil price and rig count

The oil rig count may slowly respond to falling oil prices in the US. By the end of last week, West Texas Intermediate’s (or WTI) oil price fell ~39% from its high in June. WTI’s price fell 4% from the beginning of the week until Friday, December 5.

If oil prices continue to decline, drillers will have less incentive to drill. Oil prices below the break-even point could even cause some upstream companies to stop operations.

Oil producers—like Chevron Corporation (CVX), Hess Corporation (HES), Marathon Oil Corporation (MRO), and Continental Resources (CLR)—have a higher break-even point. They work in some of the unconventional shales. These operations are usually more prone to oil price declines than conventional oilfields in the US.

Read Market Realist’s article Crude reels from Saudi’s “slight maneuver” after OPEC knockout to learn more about the latest crude oil price movements.

Some of these companies are part of the Energy Select Sector SPDR ETF (XLE).

Year-to-date (or YTD) oil rig count

Since the beginning of 2014, the number of oil rigs in operation increased by 197—or ~14%. In comparison, oil rigs increased by 79 during the same period last year. In 2014, activity in the oil-rich Permian Basin in western Texas drove most of the increase. This region added 102 oil rigs. Read Part 4 of this series for more information about the Permian rigs.

In the next part of this series, you’ll see why US gas-targeted rig counts increased.

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