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How Long Will the Crude Oil Rig Count Continue to Fall?

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US crude oil rig count falls again 

Baker Hughes (BHI) released its weekly crude oil rig count report on November 25, 2015. The report highlighted that US active crude oil rigs fell by nine rigs to 555 for the week ending November 25, 2015. Likewise, crude oil rigs fell by 10 to 564 for the week ending November 20, 2015. The US crude oil rig count fell for the thirteenth straight week. It fell by 120 rigs.

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Why the crude oil rig count is falling 

The current crude oil rig count is 65% lower than last year’s 1,572. The crude oil rig count fell due to a fall in crude oil prices. US crude oil prices fell due to oversupply concerns. US crude oil prices fell more than 50% in the last year. US crude oil rigs peaked at 1,609 in October 2014 and bottomed at 555 on November 25, 2015.

Falling rig counts will negatively influence oil drillers like Baker Hughes, Schlumberger (SLB), Superior (SPN), and Halliburton (HAL). The current bearish momentum of crude oil prices and rigs suggest that oil rigs could fall further. However, over the long term, falling rigs and lower investments in oil and gas exploration and production project should lead to slowing production. Slowing production would narrow the gap between supply and demand over the long term.

The narrow gap between supply and demand should benefit oil prices. Higher oil prices lead to improving drilling activity over the long term. The volatility in the market affects ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the Select Sector SPDR Fund ETF (XLE), the First Trust Energy AlphaDEX Fund (FXN), and the iShares US Oil Equipment & Services ETF (IEZ).

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