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Fewer Crude Oil Rigs for 26 Weeks: Who Gains, Who Loses?

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Oil rig count decreases

Baker Hughes (BHI) reported that the weekly US crude oil rig count decreased by four, from 646 to 642, in the week ending June 5. The latest figure marks 26 consecutive weeks of fewer active crude oil rigs. In those 26 weeks, the crude oil rig count decreased by 933. Active oil rigs are now at their lowest since August 2010 levels.

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Major shales are losing rigs

Last week, four crude oil rigs decreased in the Eagle Ford shale and two in Cana Woodford shale, partially offset by oil rig additions in the Mississippian Lime and Permian basins. In the next part of this series, we’ll discuss the Permian Basin rig count in more detail.

The crude oil rig count fell by 967, or 60%, 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 decline.

Who gains and who loses?

Crude oil’s price fell sharply since June last year. It still remains on the lower side. This is good for drivers and the economy.

However, oil producers such as 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 services) 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 rig counts.

Marathon Oil accounts for 1.37% of the Energy Select Sector SPDR ETF (XLE). Schlumberger accounts for 18.8% of the VanEck Vectors Oil Services ETF (OIH).

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