US Crude Oil Rigs Rose despite Oil Prices Hitting a 4-Month Low



US crude oil rig count

Last week, Baker Hughes (BHI) published its weekly active US crude oil rig count report on July 24, 2015. The data showed that the US weekly oil rig count rose by 21 to 659 for the week ending July 24, 2015. In contrast, the crude oil rig count fell by seven to 638 for the week ending July 17, 2015. US active crude oil rigs rose for the third time in the last 33 weeks. Currently, crude oil rigs are 58% below the 1,562 rigs last year.

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Lower crude oil prices and rig count

Crude oil prices have fallen more than 55% since June 2014. Prices fell due to massive oversupply concerns. As a result, the US drilling activity fell by 60% from the peak of 1,609 in October 2014 to the bottom of 628 in June 2015.

Lately, US crude oil prices have lost more than 23% from the peak in May 2015. The carnage in the oil market negatively impacts oil drillers like Superior (SPN), Baker Hughes, and Halliburton (HAL). Despite the fall in crude oil prices, the rig count rose for the week ending July 24, 2015. This means that US production will likely rise more. It’s at a peak level since the 1970s. Record production from the US, Russia, Saudi Arabia, and Iraq will put downward pressure on oil prices.

As a result, lower crude oil prices could slow down investments. International oil and gas companies have delayed $200 billion of investment in more than 45 projects following the massive fall in crude prices, according to Wood Mackenzie. This points to a slowdown in oil production in the future. However, lifting the oil sanctions from Iran could mean a rise in the crude oil production. It would balance the oil market. Iraq is scaling up. There’s a possibility that Libya will join the party. This vicious circle of oil glut persistence provides a glimpse of the crude oil price collapse in 1986.

The uncertainty in the oil market also affects energy ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE).


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