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US Crude Oil Rig Count Hits a Multi-Decade Low: What’s Next?

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Updated

Weekly US crude oil rig count 

Baker Hughes (BHI) released its weekly US crude oil rig count report on April 22, 2016. It reported that the US crude oil rig count fell by eight to 343 rigs between April 15, 2016 and April 22, 2016. The weekly active US crude oil rig count fell for the fifth straight week. It’s the lowest level since the 1940s.

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Why did the US crude oil rig count fall?

So far in 2016, the US crude oil rig count lost 195 rigs. The US drilling activity is down 54%—compared to the previous year. The US crude oil rig count peaked at 1,609 rigs in October 2014. The US drilling activity fell due to oil prices falling by 65% since June 2014 due to oversupply.

The fall in drilling activity impacts oil drillers like Atwood Oceanics (ATW), Diamond Offshore (DO), and Seadrill (SDRL).

Monthly drilling report 

The monthly drilling report showed that the US crude oil production from the seven major shale regions could fall by 114,000 bpd (barrels per day) to 4.8 MMbpd (million barrels per day) in May 2016—compared to April 2016.

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International rig count

Baker Hughes also showed data about the international rig count. The international rig count excludes the US and Canada’s rig count data. The data showed that the international rig count fell by 33 to 985 for March 2016—compared to February 2016. It fell by 3.2% month-over-month. It fell by 266 rigs or 21.3% year-over-year.

Impact on stocks and ETFs 

Drilling activity is the barometer of oil producers’ confidence. The fall in drilling activity will impact drillers and oil producers like Energy XXI (EXXI), Denbury Resources (DNR), and Goodrich Petroleum (GDP).

Uncertainty in oil prices impacts ETFs and ETNs like the DB Crude Oil Double Short ETN (DTO), the Direxion Daily Energy Bull 3x Shares ETF (ERX), and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).

Read the next part of the series to find out more about bearish forces in the crude oil market.

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