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US oil rig count racing down from its peak

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Oil rig count plummets

Baker Hughes’s (BHI) crude oil rig count decreased by 17, from 1,499 to 1,482. This was the fourth straight weekly fall in the oil rig count. In the past four weeks, the oil rig count dropped by 93, the most since January 2005.

The main reductions occurred in the “other” basins category, and oil rigs increased by six counts there. “Other” rigs are in smaller basins or those that don’t fall within a specific geographic basin. Oil rigs in the Permian Basin in Texas decreased by five. Read Part 4 of this series to explore why the Permian Basin is an important crude oil rig indicator.

The oil rig count fell by 127 from its highest-ever weekly count. The rig count was 1,609 on October 10, 2014, the highest since January 2005.

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US oil prices and rig count

The oil rig count has started to respond to falling oil prices in the US. By the end of last week, West Texas Intermediate’s (or WTI) oil price fell ~53% from its high in June last year. If oil prices continue to decline, drillers will have less incentive to drill. Drillers working in the unconventional shales are usually more prone to oil price declines than conventional oilfields in the US. Oil prices below the break-even point could even cause some upstream companies to stop operations. Read Part 9 of this series to learn how crude oil rigs and oil prices are connected.

Oil producers like Occidental Petroleum (OXY), Chevron Corporation (CVX), Concho Resources (CXO), 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).

Read Market Realist’s Why crude prices are carrying the declining trend into 2015 to learn more about the latest crude oil price movements.

One-year oil rig count comparison

In the past year, the number of oil rigs in operation increased by 104, or ~8%. In comparison, oil rigs increased by 60 during the same period last year. Despite this week’s sharp fall, activity in the oil-rich Permian Basin in western Texas drove most of 2014’s increase. 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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