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Slowing US Crude Oil Rig Count Could Lift the Oil Market’s Pessimism

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US crude oil rig count              

Baker Hughes (BHI) released its weekly crude oil rig count report on February 19, 2016. The US crude oil rig count fell by 26 rigs to 413 rigs for the week ending February 19, 2016. The US crude oil rig count fell for the ninth consecutive week. The weekly active US crude oil rig count fell by 125 rigs in 2016.

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Why is the US crude oil rig count falling? 

The current weekly US crude oil rig count is 60% less compared to the levels in 2015. The US drilling activity led to a record fall in crude oil prices due to record oversupply concerns. As a result, US crude oil rigs fell from the peak of 1,609 rigs in October 2014 to a bottom of 413 rigs on February 19, 2016.

The EIA (U.S. Energy Information Administration) estimates that US crude oil production could fall by 116,000 bpd (barrels per day) in February 2016. Oil equipment companies like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL) are also negatively impacted due to the fall in the drilling activity. The fall in the drilling activity suggests shale oil producers like Laredo Petroleum (LPI), Whiting Petroleum (WLL), and Pioneer Natural Resources (PXD) are less optimistic about higher oil prices. In contrast, if the US crude oil production doesn’t slow down, we could see crude oil trade at low levels for the next two decades. To learn more about OPEC’s (Organization of the Petroleum Exporting Countries) crude oil production, read OPEC Crude Oil Production Is Breaking Records. For more on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion. However, historically low rig counts could add optimism to the crude oil market. We could see slowing crude oil production in the future. To learn more, read US Shale Oil Productivity Impacts the US and Global Oil Market. If the shale oil productivity improves and delays the US crude oil production slowdown, we could see a delay in the production cut from the new production alliance.

ETFs

ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy AlphaDEX Fund (FXN), the Vanguard Energy ETF (VDE), and the VelocityShares 3X Long Crude Oil ETN (UWTI) are also impacted by the rise and fall in oil prices.

In the next part of this series, we’ll look at the latest forecasts for crude oil prices.

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