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Why the US rig count dropped for the second time in a row

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US total rig count decreases

According to oilfield service company Baker Hughes (BHI), there were 1,875 active oil and gas rigs in the US during the week ending December 19. That’s 18 fewer than in the week ending December 12. This was the second-highest decline in the US rig count since March 29, 2013.

The US rig count has generally been on an uptrend this year, marred by the occasional decline. But this week’s decrease shows that US rigs are losing strength. This was the third rig count decrease in the past month. Also, this was the lowest US rig count since July 25.

November’s average rig count of 1,925 didn’t change from October’s average, according to BHI. September’s average rig count of 1,931 was the highest US rig count since July 2012.

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Why rigs decreased last week

Last week’s decrease was a result of a fall in both oil and gas rigs. The number of oil rigs decreased by ten. The number of natural gas rigs decreased by eight in the week, while miscellaneous rigs stayed the same.

The decrease in the onshore rig count led to the decrease in the US rig count this week. See Part 6 of this series to learn more about onshore versus offshore rigs.

Year-to-date, the total US rig count was up by 124, or ~7%. Oil rigs increased by 158, up 11%. Natural gas rigs decreased by 34, or ~9%. In the same period in 2013, total rigs increased by six.

Rig count trends show companies’ inclination to spend on drilling

Rig counts tell us how many rigs are actively drilling for oil and gas, which indicates oil and gas producers’ confidence. Companies in the drilling environment include Chevron Corporation (CVX) and Concho Resources (CXO). These companies are part of the Energy Select Sector SPDR ETF (XLE).

The rig count is one measure of oil and gas drilling activity. Oilfield service companies like Schlumberger (SLB) use the rig count as a gauge of industry health. SLB is part of the VanEck Vectors Oil Services ETF (OIH) and the SPDR S&P 500 ETF (SPY).

Falling rig counts could be a concern for oil and gas producers. Falling rig counts are also negative for oilfield service providers. In this series, you’ll learn what influenced oil and natural gas rig counts last week.

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