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Crude Oil Rig Count Rallies for the Fourth Consecutive Week

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Crude oil rig count rises

Last week, Baker Hughes reported that the active weekly crude oil rig count rose by two to 672 for the week ending August 14, 2015. Likewise, crude oil rigs rose by six to 670 for the week ending August 7, 2015. The US active crude oil rig count rose for the fourth consecutive week despite the mammoth fall in US crude oil prices. The crude oil rig count rose by 34 over the same period. In contrast, oil rigs fell for 30 weeks in the last 36 weeks.

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The four weeks of rising rig counts and speculation of the rising rig count, according to the EIA’s drilling report, suggest that US crude oil production is going to rise. However, crude oil production has fallen four times in the last five weeks, according to EIA sources. These signify the lag effect between crude oil prices, production, and the rig count. It also indicates that productivity per crude oil well is falling.

So, this shows more pressure for US crude oil producers compared to Middle East producers who have a low breakeven cost of $15 per barrel. This showtime for production from high-cost wells has come in order to sustain the business or look out for better sustainability programs rather than spending cuts and layoffs. Ideally, this could crush small exploration and production companies that have high debt.

Crude oil prices have fallen more than 60% since June 2014 due to oversupply concerns. As a result, the US drilling activity fell more than 60% from the peak of 1,609 in October 2014 to 628 in June 2015. This negatively impacted oil drillers like Schlumberger (SLB), Superior (SPN), and Halliburton (HAL).

The roller coaster ride of crude oil prices impacts 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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