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Crude Oil Rigs Rise after 29 Weeks: What Does This Mean?

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Jul. 3 2015, Published 7:58 p.m. ET

Crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count rose by 12, from 628 to 640, in the week ending July 2. The latest figure marks the first rise after 29 consecutive weeks of falling active crude oil rigs. The last time the weekly rig count rose was in the week of December 5, 2014. However, crude oil rigs are still at their lowest levels since August 2010.

For the week ending July 2, crude oil rigs rose in eight US basins, while they fell in two basins.

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Historical perspective

The crude oil rig count is down by 969, 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 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) had to cut the rigs in operation to reduce costs. So, oil companies not only get lower prices for their crude oil production, but their production may also be reduced. Marathon Oil accounts for 1.39% of the Energy Select Sector SPDR ETF (XLE).

Lower active rigs are also negative for OFS (oilfield service) companies like Schlumberger (SLB) and Baker Hughes (BHI). In contrast, when crude oil rigs rise like they did last week, it’s good for OFS companies. It also benefits rig operators—like Nabors Industries (NBR) and Transocean (RIG)—as well as rig makers like National Oilwell Varco (NOV).

Rising rigs could lead to greater production. This grows midstream energy companies’ transportation volumes. This is positive for 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).

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