Why the US rig count recorded its biggest crash since April 2009



US total rig count decreases

According to oilfield service company Baker Hughes (BHI), there were 1,840 active oil and gas rigs in the US during the week ending December 26. That’s 35 fewer than in the week ending December 19. This was the biggest decline in the US rig count since April 17, 2009.

The US rig count has generally been on an uptrend in 2014, marred by the occasional decline. But a straight fall for three consecutive weeks shows that US rigs are losing strength. This was the seventh rig count decrease in the past 13 weeks. Also, this was the lowest US rig count since April 25.

On a monthly basis, 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.

Article continues below advertisement

Why rigs decreased last week

Last week’s decrease was a result of a fall in oil rigs. The number of oil rigs decreased by 37. The number of natural gas rigs increased by two in the week, while miscellaneous rig counts stayed the same. Reading the next part of this series to see how a fall in oil prices has triggered an oil rig count decline.

The decrease in the onshore rig count led to the decrease in US rig counts 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 89, or ~5%. Oil rigs increased by 121, up 9%. Natural gas rigs decreased by 32, or ~9%. In the same period in 2013, total rigs increased by five.

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 Hess Corporation (HES) 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 Baker Hughes (BHI) use the rig count as a gauge of industry health. BHI 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.


More From Market Realist