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Crude Oil Rigs Fall for 28 Weeks: Winners and Losers

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Crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count fell by four, from 635 to 631, in the week ending June 19. The latest figure marks 28 consecutive weeks of falling active crude oil rigs. In those 28 weeks, the crude oil rig count fell by 944. Active crude oil rigs are now at their lowest level since August 2010.

For the week ending June 19, crude oil rigs fell in five US basins, while they rose in four basins. In the “other basins” rig category, the crude oil rig count also fell by two last week. The rigs in “other basins” are those in smaller basins or rigs that don’t fall within a specific geographic basin.

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Crude oil rigs fall 61% in eight months

The crude oil rig count fell by 978, or 61%, since hitting 1,609 rigs on October 10, 2014. That week, the crude oil rig count was at its highest level since July 1987, according to Baker Hughes. Lower activity in the oil-rich Permian Basin in West Texas has driven most of the fall.

Who won and who lost?

The price of crude oil has fallen sharply since June of last year. It still remains on the lower side. This is good for drivers and the economy.

However, oil producers like Denbury Resources (DNR), Cenovus Energy (CVE), and Marathon Oil (MRO) have to cut the rigs in operation to reduce costs. This is negative for their production. It’s also negative for OFS (oilfield service) companies like Schlumberger (SLB) and Halliburton (HAL).

Oil companies not only get lower prices for their crude oil production, but their production may also be reduced. This drives their profits even lower. So, investors in oil companies and OFS companies should watch the rig counts. Falling production also reduces midstream energy companies’ transportation volume. This is negative for their revenue.

Midstream MLPs (master limited partnerships) like Plains All American Partners (PAA), Williams Partners (WPZ), Genesis Energy L.P. (GEL), Targa Resources Partners (NGLS), and Sunoco Logistics Partners (SXL) suffer when upstream crude oil production falls.

Marathon Oil accounts for 1.38% of the Energy Select Sector SPDR ETF (XLE). Sunoco Logistics accounts for 4.9% of the Alerian MLP ETF (AMLP).

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