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US Rig Count Rises despite Catastrophic Crude Price Fall


Dec. 22 2015, Updated 8:07 a.m. ET

Crude oil rig count 

On December 18, 2015, Baker Hughes (BHI) published its weekly US crude oil rig count report. BHI reported that the US crude oil rig count rose by 17 rigs to 541 rigs for the week ending December 18 compared with the previous week.

The US crude oil rig count fell by 21 rigs to 524 rigs for the week ending December 11. The US crude oil rig count rose for first time in the last five weeks. The Permian Basin has added five rigs for the week ending December 24.

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US crude oil rig count peak and bottom 

The US oil rig count bottomed at 524 rigs on December 11, 2015. In contrast, it peaked at 1,609 rigs in October 2014. The US crude oil rig count peaked due to record US production. We discussed why US production hit its record in Part Two of this series. The US crude oil rig count bottomed due to lower oil prices resulting from oversupply. Oil prices fell 18% in December 2015 and 35% in 2015.

Recently, the crude oil rig count has risen as indicated above. The rise in the crude oil rig count is positive for crude oil drillers such as Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL).

ETFs such as the United States Oil ETF (USO), the PowerShares DB Energy ETF (DBE), and the iShares US Oil Equipment & Services ETF (IEZ) are affected by volatility in the oil and gas market.

The rise in drilling activity suggests that oil production will continue to increase in the near term. However, in its monthly drilling report, the EIA (U.S. Energy Information Administration) estimated that US crude oil production in the key shale region could fall by 0.12 MMbpd (million barrels per day) in January 2016 compared to December 2015.

The fall in production may be driven by the Bakken, Eagle Ford, and Niobrara Shale regions. Production is expected to rise in the Permian Basin.

In the next part of this series, we’ll discuss whether crude oil prices could rebound.


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