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Rig Count Drops and Crude Oil Prices Hold onto Gains

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Rig count decline

On May 8, Baker Hughes (BHI) reported that oil rigs dropped by 11 to 668. Last week, active oil rigs were at 679. Drilling rigs represent 74.7% of the overall drilling activity. The drilling activity declined for the 22nd week. The current active rig counts are 56% lower than the rig counts last year and 3.4% lower than the previous week. Despite the falling rig counts, crude oil prices held onto the gains in Friday’s trade.

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However, the pace of the rig count decline has slowed down recently. The weekly US crude oil production is also slowing down. The EIA (U.S. Energy Information Administration) reported that weekly US crude oil production was at 9.369 MMbpd (million barrels per day) for the week ending May 1—compared to 9.373 MMbpd for the week ending April 24.

Production declined for the third time in the last month. The slowing production and higher oil prices are gaining oil producers’ confidence. US energy players like Pioneer Natural Resources (PXD) and EOG Resources (EOG) are expected to increase the drilling activity—if WTI (West Texas Intermediate) oil stabilizes around $65 per barrel.

The EIA’s drilling productivity report will be released today. The report shows oil and gas production changes in the lower 48 states of the US.

Last week, the EIA published that weekly US commercial crude oil inventories declined by 3.9 MMbbls (million barrels) to 487 MMbbls from 490.9 MMbbls for the week ending May 1. The oil stockpile dropped for the first time since January 7, 2015.

Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and the SPDR Oil and Gas ETF (XOP) followed the price trajectory of WTI crude oil prices. They gained by 1.64% and 2.10%, respectively, in Friday’s trade.

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