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Is the US Crude Oil Rig Count Resuming a Downtrend?

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US crude oil rig count

Baker Hughes (BHI) reported that the weekly US crude oil rig count declined by ten rigs, from 662 to 652, in the week ended September 11. The sharp fall in the last two weeks dealt a blow to the turnaround signs the US oil rig counts were showing. The US crude oil rig count increased eight times in the past 11 weeks. Amid crude oil price’s continued weakness, a rig count turnaround looks uncertain once again.

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

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Historical perspective

The crude oil rig count is down by 957, 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. 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 fall.

Falling active rigs are negative for oilfield service companies like Schlumberger (SLB) and Baker Hughes (BHI). When crude oil rigs decrease like they did last week, oilfield service companies lose revenues. Lower active rigs can 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 2.78% of the VanEck Vectors Oil Services ETF (OIH).

Lower rigs could lead to decreased production, which 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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