uploads///Crude oil rigs

What Does a Surging US Crude Oil Rig Count Mean?


Jul. 28 2015, Published 2:47 p.m. ET

Crude oil rig count

Baker Hughes (BHI) reports that the weekly US crude oil rig count went up by 21 rigs, from 638 to 659, in the week ended July 24. This was the biggest crude oil rig addition since May 2014. With last week’s rise, the US crude oil rig count has increased four times in the past five weeks—hinting at stabilization, if not a turnaround.

The crude oil rig count fell for 29 weeks up until the week ended June 26. The number of crude oil rigs is still at its lowest level since August 2010.

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In the week ended July 24, crude oil rigs were added in six US basins and were idled in none. The “other basins” category led the crude oil rig count rise with nine more active rigs last week. The rigs in “other basins” are those in smaller basins or rigs that don’t fall within a specific geographic basin.

Historical perspective

The crude oil rig count is down by 950, or 59%, 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. Reduced activity in the oil-rich Permian Basin in West Texas drove most of the fall.

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Who gains and who loses?

Crude oil prices have fallen sharply since June of last year, and they remain on the lower side. This is good for drivers and the US economy.

Yet oil producers including Denbury Resources (DNR) and Marathon Oil (MRO) have had to cut the number of rigs in operation in order to reduce costs. So oil companies not only get lower prices for their crude oil production, but their production volumes may also be less.

A greater number of active rigs is positive for oilfield service companies such as Schlumberger (SLB) and Baker Hughes (BHI). When crude oil rig counts increased like they did last week, it’s beneficial for oilfield service companies.

More active rigs can also have a positive affect on rig operators, including Nabors Industries (NBR) and Transocean (RIG), as well as rig makers such as National Oilwell Varco (NOV).

Nabors Industries accounts for 3.1% of the VanEck Vectors Oil Services ETF (OIH).

More rigs could lead to greater production, which would increase the volumes transported by midstream energy companies. This would be positive for midstream MLPs such as Plains All American Partners (PAA), Williams Partners (WPZ), Genesis Energy (GEL), Targa Resources Partners (NGLS), and Sunoco Logistics Partners (SXL).


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