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US Crude Oil Rig Count Tests Fresh Multi-Decade Low

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Weekly US crude oil rig count  

Baker Hughes (BHI) published its weekly US crude oil rig count on May 13, 2016. The US crude oil rig count fell by ten to 318 rigs between May 6 and May 13, 2016. The weekly active US crude oil rig count fell for the eighth straight week. It’s at the lowest level since the 1940s. The US drilling activity fell by 3% week-over-week and by 51.8% YoY (year-over-year).

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US crude oil rig count: Peak and low  

The US crude oil rig count peaked at 1,609 rigs in October 2014. It peaked due higher crude oil prices between 2010 and 2014, technological advancement, and the availability of cheaper credit. It hit the lowest level of 318 for the week ending May 13, 2016. The drilling activity fell due to lower crude oil prices. US oil producers have higher break-even costs and higher production costs compared to oil producers in the Middle East and Russia. This led to a decline in the US crude oil production. Read US Crude Oil Production Fell for 15th Straight Week: What’s Next? for more on US crude oil production. The fall in the drilling activity impacts oil drillers like Noble (NE), Diamond Offshore (DO), ENSCO (ESV), and Seadrill (SDRL). For the latest on the monthly drilling report, read the first part of the series.

Monthly international rig counts 

Baker Hughes’ (BHI) rig count data for the international oil rig count excludes data for the US and Canada. It showed that oil rigs fell by 20 rigs to 699 for April 2016—compared to the previous month. It fell by 2.8% month-over-month. It also fell by 231 rigs, or 24.8%, YoY.

Impact on energy stocks and ETFs 

Drilling activity is the barometer of oil producers’ confidence. The decline in drilling activity impacts oil producers like Contango Oil & Gas (MCF), Denbury Resources (DNR), and QEP Resources (QEP). The uncertainty in crude oil and natural gas prices impacts ETFs and ETNs like the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the PowerShares DWA Energy Momentum (PXI), the United States Brent Oil (BNO), and the First Trust Energy AlphaDEX Fund (FXN).

Read more about the U.S. Commodity Futures Trading Commission’s “Commitment of Traders” report in the next part of the series.

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