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Analyzing the Latest Oil Rig Data: What It Tells Investors

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Latest oil rig data

The US crude oil rig count was 591 in the week ending February 10, 2017—a rise of eight rigs compared to the previous week, according to data released by Baker Hughes (BHI). The US oil rig count was at the highest level since October 30, 2015.

On February 14, 2017, crude oil (USO) (USL) (OIIL) (SCO) prices were ~50.4% lower than their post-2008 crisis high on June 20, 2014, based on closing prices. Oil prices started a downturn on June 20, 2014. Since then, the number of active oil rigs has fallen 61.7%. US crude oil production is ~6.6% less than it was at its peak in June 2015, according to weekly data from the U.S. Energy Information Administration.

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Rig counts and crude oil production

Over the past ten years, the oil rig count’s bottoms and peaks and crude oil price’s bottoms and peaks have been between three and four months apart, according to research from Morgan Stanley. After the subprime crisis, when crude oil touched multiyear lows in January 2009, the rig count bottomed out in May 2009.

Crude oil touched a 12-year low on February 11, 2016, but it rebounded 103% by February 14, 2017. According to the pattern mentioned above, the rig count should have hit its bottom in June 2016.

Rig counts and crude oil prices

The rig count rose for the first time in 11 weeks in the week ending June 3, 2016. Since then, the count rose by 266 rigs as of the week ending February 3, 2017—a rise of 87% from its bottom. During that period, crude oil production rose ~2.8%, according to weekly data. It shows the impact of rising rigs on crude oil production. So, rising rigs would mean more pressure on crude oil prices.

It also means that rig count data could impact funds like the Fidelity MSCI Energy ETF (FENY), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the iShares US Oil Equipment & Services (IEZ).

Rig efficiency could impact oil prices

Increasing rig efficiency also helped US oil companies produce more crude oil with fewer rigs. In February 2017, the EIA estimated that the oil production per rig from new wells was 697 barrels per day—about 39.4% more than in February 2016. So, rising rigs would have a disproportionate impact on production.

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