Oil rig counts rose
The US oil rig count was 328 for the week ended June 10, 2016, three more than in the previous week, according to data released by Baker Hughes (BHI).
US crude oil production is 9% lower than it was at its peak in June 2015, according to weekly data. On June 14, 2016, crude oil prices were ~54.8% lower than their highs from June 20, 2014.
Rig count and crude oil prices
Over the last ten years, the oil rig count’s bottom and crude oil’s price bottom have been between three and four months apart, according to research from Morgan Stanley. After the subprime crisis, when crude oil (USO) (UWTI) (SCO) (USL) touched multiyear lows in January 2009, the rig count bottomed out in May 2009.
According to this timeframe, the rig count should hit its bottom by June 2016. Crude oil (OIL) touched a 12-year low on February 11, 2016, before rebounding 85% as of June 14, 2016. The oil rig count rose for the first time in 11 weeks in the week ended June 3. Last week, oil rigs rose for the second consecutive week.
Why the rig count is important for oil-weighted stocks
Upstream companies’ reductions in capital expenditure have resulted in a lower rig count and a fall in US crude oil production. If the rig count bottoms out and starts to rise again, it will indicate that upstream companies are starting to increase their drilling activities. This could eventually result in higher crude oil production.
Higher production will weigh on crude oil prices. This could be an important factor for oil-weighted stocks such as Synergy Resources (SYRG), Carrizo Oil & Gas (CRZO), Bonanza Creek Energy (BCEI), and Halcon Resources (HK).