Will US Crude Oil Rig Count Data Add Pessimism to the Market?

US crude oil rig count 

Baker Hughes (BHI) is scheduled to release its weekly US crude oil rig count report on February 16, 2016. Last week, the US crude oil rig count fell by 30 rigs to 467 rigs for the week ending February 5, 2016. The weekly active crude oil rig count fell by 19, 8, and 5 rigs, respectively, in Texas, Oklahoma, and Louisiana for the week ending February 5, 2016. The US crude oil rig count fell for the seventh straight week.

Will US Crude Oil Rig Count Data Add Pessimism to the Market?

US crude oil rig count hit a historic low  

The US crude oil rig count has fallen by 71 rigs in 2016. The fall suggests that oil producers are still bearish about crude oil prices in the near term. The current bearish momentum of oil prices and the rig count suggests that oil rigs will be idled more in the coming weeks. The US crude oil rig count peaked at 1,609 rigs in October 2014 and bottomed at 467 rigs on February 5, 2016.

US drilling activity fell more than 60% in the last 12 months due to the catastrophic fall in crude oil prices. The fall in the drilling activity impacts drillers like Diamond Offshore Drilling (DO), Noble (NE), Pacific Drilling (PACD), and Atwood Oceanics (ATW). It also influences ETFs like XOP, OIH, and IYE. They cater to upstream companies’ diversified portfolios. Oil equipment companies like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL) are also influenced by the drilling activity.

EIA’s monthly drilling report  

The EIA’s (U.S. Energy Information Administration) monthly crude oil drilling productivity report stated that US crude oil production from key shale regions could fall by 92,000 barrels per day to 4.9 million barrels per day in March 2016—compared to February 2016. The fall in production would be from the Eagle Ford, Bakken, and Niobrara shale regions. In contrast, if US crude oil production doesn’t slow down, we could potentially see crude oil trade at low levels for the next two decades. For more on US crude oil production, read US Crude Oil Production Could Impact the Global Oil Market.

ETFs 

The roller coaster ride in the oil and gas market also impacts ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy AlphaDEX Fund (FXN), the Direxion Daily Energy Bull 3x (ERX), and the Vanguard Energy ETF (VDE).

In the next part of this series, we’ll discuss the latest crude oil price trends and forecast.