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How Significant Is a 4% US Crude Oil Rig Count Fall in 3 Weeks?

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US crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count fell by eight rigs, from 652 to 644, in the week ending September 18. The sharp fall in the three weeks dealt a blow to the turnaround signs that the US oil rig counts were showing. It’s important to note that ~4% of the rigs have been idled in the past three weeks. The US crude oil rig count rose eight times in the past 12 weeks. Amid crude oil price’s continued weakness, a rig count turnaround looks uncertain once again.

The crude oil rig count fell for 29 weeks until the week ending June 26. During that week, the crude oil rig count was at its lowest level since August 2010.

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Historical perspective

The crude oil rig count fell by 965, or 60%, after 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. 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 fall.

Falling active rigs are negative for oilfield service companies like Schlumberger (SLB) and Baker Hughes. When crude oil rigs fall like they did last week, oilfield service companies lose revenue. Lower active rigs can also negatively affect rig operators including Nabors Industries (NBR) and Transocean (RIG). It can also impact rig makers like National Oilwell Varco (NOV). Nabors Industries accounts for 2.78% of the VanEck Vectors Oil Services ETF (OIH).

Lower rigs could lead to decreased production. This would lower the midstream energy companies’ transportation volumes. This would be negative for midstream MLPs like Plains All American Pipeline (PAA), Williams Partners (WPZ), Genesis Energy (GEL), Targa Resources Partners (NGLS), and Sunoco Logistics Partners (SXL).

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