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Oil Rigs Rally for the Second Week despite Lower Crude Oil Prices

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Crude oil rig count rises

On July 10, 2015, Baker Hughes (BHI) released the weekly active crude oil rig count report. Baker Hughes’ data showed that crude oil rigs rose by two to 641 for the week ending July 10, 2015. Last week, oil rigs rose by 13 to 641 for the week ending July 3, 2015. Crude oil rigs rose for the second straight week after falling consecutively for 29 weeks. Currently, crude oil rigs are 918 rigs lower than the 1,563 active oil rigs in 2014.

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The recent rise in crude oil rigs benefits oil equipment service companies like Flotek (FTK), Baker Hughes, and Halliburton (HAL). The rising US production also shows US oil producers’ confidence. However, crude oil prices almost lost 17% from the peaks of May 2015. The recent slump in crude oil prices might slow down the pace of drilling activity in the near term.

US WTI (West Texas Intermediate) crude oil futures contracts fell 60% from over $107 per barrel in June 2014 to $42 in March 2015 due to oversupply concerns and slowing demand. This led to a massive fall in crude oil rigs. They bottomed at 628 in June 2015. In contrast, US active oil rigs peaked at 1,609 in October 2014.

The uncertainty in the crude oil market isn’t just impacting upstream companies. It also impacts oil and gas ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE).

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