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Crude Oil Rigs Continue to Fall for 29 Straight Weeks

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Crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count fell by three, from 631 to 628, in the week ending June 26. The latest figure marks 29 consecutive weeks of falling active crude oil rigs. In those 29 weeks, the crude oil rig count fell by 947. Active crude oil rigs are now at the lowest level since August 2010.

For the week ending June 26, crude oil rigs fell in seven US basins, while they rose in one basin. Meanwhile, in the “other basins” category, the crude oil rig count rose by ten 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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Historical perspective

The crude oil rig count is down by 981, 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 drove most of the fall.

Who gains and who loses

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 volumes. This is negative for their revenue. Midstream MLPs (master limited partnerships) like Plains All American Partners (PAA), Williams Partners (WPZ), Genesis Energy (GEL), Targa Resources Partners (NGLS), and Sunoco Logistics Partners (SXL) could suffer when 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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