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Winners and Losers in the Last 27 Weeks of Falling Crude Oil Rigs



Crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count decreased by seven, from 642 to 635, in the week ending June 12. The latest figure marks 27 consecutive weeks of declining active crude oil rigs. In those 27 weeks, the crude oil rig count decreased by 940. Active crude oil rigs are now at their lowest since August 2010 levels.

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Major shales losing rigs

Last week, crude oil rigs decreased in the key shales, including the Eagle Ford Shale, the Cana Woodford Shale, and the Permian Basin. The decrease was partially offset by a rig count increase in the Granite Wash. In the next part of this series, we’ll discuss the Permian Basin rig count in more detail.

In the “other basins” rig category, the crude oil rig count also decreased by five last week. The rigs in “other basins” are those in smaller basins or rigs that don’t fall within a specific geographic basin.

The crude oil rig count fell by 974, 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 decline.

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, which 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 oilfield services (or OFS) 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 19.5% of the VanEck Vectors Oil Services ETF (OIH).


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