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US Crude Oil Rigs Hit Fresh Lows despite Rising Crude Oil Prices

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US crude oil rigs hit 2010 lows 

The US crude oil rig count hit the lowest level since July 2010, according to the data released by Baker Hughes (BHI) on October 9, 2015. The active US crude rig count fell for the sixth consecutive week for the week ending October 9, 2015. The data showed that the crude oil rig count fell by eight to 606 for the week ending October 9, 2015. Similarly, the crude oil rig count fell by 27 to 614 for the week ending October 2, 2015.

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Impact 

As we discussed in the last part of the series, the massive production led to oversupply in the market. The oversupply led to the fall in the crude oil prices. The fall in the crude oil prices led to the fall in the drilling activity. The fall in the drilling activity led to the fall in rig counts. US crude oil rigs fell from the peak of 1,609 in October 2014 to the new low of 606 on October 9, 2015.

The fall in crude oil rigs has ignited sentiments of slowing US production. The US production has fallen from the peak production in April 2015 to September 2014 levels due to lower oil prices. The falling rigs would support crude oil prices on the consensus of a narrowing gap between the supply and demand in the oversupplied market.

The stable and higher crude oil prices would boost the drilling activity in the short term. The increased drilling activity could support drillers like Schlumberger (SLB), Baker Hughes, and Halliburton (HAL). The higher oil prices could also benefit ETFs like the iShares U.S. Oil Equipment & Services (IEZ). On the other hand, lower oil prices benefit ETFs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO)

The current crude oil rig counts are 1,003 rigs less than 1,609 rigs in 2014. The active US rigs fell more than 60% and oil prices fell more than 50% since June 2014. However, the US crude oil output rose 3% during this period. It signifies improving productivity and lower drilling costs. As a result, it could also motivate oil producers for more drilling activity if crude oil prices stabilize.

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