Crude oil rig count
Baker Hughes (BHI) reported that the weekly US crude oil rig count dropped by seven rigs, from 645 to 638, in the week ended July 17. With last week’s fall, the US crude oil rig count was once again back to its downward trend. The crude oil rig count had fallen for 29 weeks until the week ended June 26. Crude oil rigs are still at their lowest levels since August 2010.
For the week ended July 17, crude oil rigs fell in five US basins while rising in four basins.
The crude oil rig count is down by 971, 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?
Crude oil prices have fallen sharply since June of last year, and they still remain on the lower side. This is good for drivers and the economy.
However, oil producers like Denbury Resources (DNR) and Marathon Oil (MRO) had to cut their rigs in operation in order to reduce costs. So oil companies not only get lower prices for their crude oil production, but their production may also reduce.
Lower active rigs are also negative for oilfield service companies like Schlumberger (SLB) and Baker Hughes (BHI). When crude oil rig counts decreased like they did last week, it’s concerning for oilfield service companies. Falling prices also affect rig operators negatively, including Nabors Industries (NBR) and Transocean (RIG), as well as rig makers like National Oilwell Varco (NOV). Nabors Industries accounts for 3.1% of the VanEck Vectors Oil Services ETF (OIH).
Falling rigs could lead to lower production, which would decrease midstream energy companies’ transportation volumes. This would be negative for midstream MLPs like Plains All American Partners (PAA), Williams Partners (WPZ), Genesis Energy (GEL), Targa Resources Partners (NGLS), and Sunoco Logistics Partners (SXL).