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US oil rig count looks for a bottom

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Oil rig count plummets

Oilfield service company Baker Hughes’s (BHI) crude oil rig count has decreased by 55, from 1,421 to 1,366. This is the second-most significant drop since February 1991. The most significant drop occurred only the previous week, when 61 rigs were lost from the count. The latest figures also mark the sixth straight weekly fall in the oil rig count. In that time span, the oil rig count has dropped by 180.

The main reductions occurred in the Permian, Eagle Ford, and Williston basins, where the oil rig count decreased by fourteen, nine, and seven, respectively.

In the “other” basins category, oil rigs decreased by 21. “Other” rigs are those in smaller basins or those that don’t fall within a specific geographic basin.

The oil rig count has fallen by 243, or 15%, since hitting a recent high. The rig count was 1,609 on October 10, 2014—the highest it had been since January 2005.

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Oil producers such as Whiting Petroleum (WLL), Chevron (CVX), Hess Corporation (HES), and Continental Resources (CLR) have a relatively high break-even point. Some of these companies are part of the Energy Select Sector SPDR ETF (XLE). As oil prices continue to dip, the performance of these companies is getting hammered, as revenues are closely tied to crude oil. For more on the relationship between crude oil prices and rigs, read Part 9 of this series.

As well, you may be interested in Market Realist’s recent series, As oil benchmarks converge experts ask “Will the US export?”, which covers the latest crude oil price movements.

One-year oil rig count comparison

In the last year, the number of oil rigs in operation decreased by 42, or ~3%. In comparison, oil rigs increased by 92 during the same period last year. Activity in the oil-rich Permian Basin in West Texas drove most of the increase in 2014. Read Part 4 of this series for more information about the Permian rigs.

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

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