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US oil rig count is decreasing more in 2015

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Oil rig count plummets

Baker Hughes’s (BHI) crude oil rig count decreased by 61. It decreased from 1,482 to 1,421. This is the steepest fall in the oil rig count since February 1991. This was also the fifth straight weekly fall in the oil rig count. In five weeks, the oil rig count dropped by 154.

The main reductions occurred in Permian and Williston basins. The oil rig count decreased by 27 and eight, respectively. Read Part 4 of this series to explore why the Permian Basin is an important crude oil rig indicator.

In the “other” basins category, and oil rigs decreased by 18. “Other” rigs are in smaller basins. It also includes rigs that don’t fall within a specific geographic basin.

The oil rig count fell by 188. It fell 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 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%. It fell 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 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).

Read Market Realist’s Must-know: Why crude prices bounced from six-year lows 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 28, or ~2%. In comparison, oil rigs increased by 70 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 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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