US crude oil rig count
On Friday, January 15, 2016, Baker Hughes (BHI) released its weekly crude oil rig count report. The report showed that the US crude oil rig count fell by one rig to 515 rigs for the week ending January 15, 2016. The crude oil rig count had fallen by 20 rigs to 516 rigs for the week ending January 8. The US crude oil rig count has fallen by 63 rigs in the last two months.
Why the US crude oil rig count is falling
US crude oil prices have fallen by 70% since June 2014 due to oversupply concerns. This has led to a sharp drop in drilling activity. US drilling activity has fallen by 68% in the last year. The fall in drilling activity affects oil equipment companies like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL). The US oil rig count peaked at 1,609 rigs in October 2014 and bottomed out at 515 rigs on January 15, 2016.
Impact on US oil producers
The drop in drilling activity leads to a fall in US production. The EIA (U.S. Energy Information Administration) estimates that US crude oil output could slow down to 8.7 MMbpd (million barrels per day) in 2016 and 8.5 MMbpd in 2017. US production peaked at 9.4 MMbpd in 2015. This was the highest production level since the 1970s. However, lower oil prices and higher break-even costs and production costs will continue to put pressure on shale oil producers like EOG Resources (EOG) and Whiting Petroleum (WLL). To read more about the struggles of US energy companies, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.
The uncertainty in the oil and gas market also affects ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the VelocityShares 3x Long Crude Oil ETN (UWTI).
In the next part of this series, we’ll explore the latest crude oil price estimates and trends.