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Why did US rig count drop to lowest level since April 2010?

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US total rig count

According to oilfield service company Baker Hughes (BHI), there were 1,456 active oil and gas rigs in the United States during the week ended February 6, 2015. That’s 87 less than in the week ended January 30. This is the second highest drop in rigs since January 2009. The previous week’s 90-count decline was the highest.

The US rig count generally experienced an uptrend in 2014. But that trend has reversed in the past couple of months. Nine consecutive weeks of falling rig counts show that US drilling activity is losing momentum. This was also the 13th rig count decrease in the past five months.

After last week’s drop, the US rig count is now at its lowest level since April 2010.

The week’s figures were led by a steep fall in the onshore rig count. Read Part 6 of this series to learn more about the onshore rig count.

According to Baker Hughes, January’s average rig count of 1,683 declined by 199 from December’s average of 1,882. September’s average rig count, 1,931, was the highest since July 2012.

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Why were rig counts lower last week?

Last week’s decrease in rig counts was due to the number of crude oil rigs, which was down by 83. Natural gas rigs also decreased by a count of five. One miscellaneous rig was added last week. Read the next part of this series to see how a fall in oil prices triggered the decline in the oil rig count.

In the last year, the total US rig count has dropped by 315, or 18%. Oil rigs decreased by 276, or 19%. Natural gas rigs decreased by 37, or ~11%.

Total rigs increased by 12 for the same period ending February 7, 2014.

Rig count trends show inclination to spend on drilling

Rig counts tell us how many rigs are actively drilling for oil and gas. The counts suggest how confident producers are about the market for these products. Companies in the drilling environment include ConocoPhillips (COP) and Occidental Petroleum (OXY). These companies are part of the Energy Select Sector SPDR ETF (XLE). Together, they account for 7.6% of XLE’s total portfolio.

Rig counts also indicate how busy oilfield service companies such as Schlumberger (SLB) and Baker Hughes (BHI) are at any given moment. Together, these two companies account for 9.9% of XLE. For more on Schlumberger, read An overview of Schlumberger’s 4Q14 earnings.

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