The Oil Rig 2-Year High, and What It Means to You



Latest oil rig data

The US oil rig count reached 688 in the week ending April 21, 2017—a rise of five rigs compared to the previous week, according to the latest data released by Baker Hughes (BHI). The US oil rig count is now at its highest level since May 1, 2015.

On April 25, 2017, crude oil (DBO) (USL) (OIIL) (SCO) prices were ~53.8% lower than their post-2008 crisis high on June 20, 2014, based on closing prices. Oil prices started in a downturn on June 20, 2014, and since then, the number of active oil rigs has fallen 55.5%.

US crude oil production is now ~3.7% below its peak in June 2015, according to the weekly data from the EIA (US Energy Information Administration).

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Rig counts and crude oil prices

Over the past ten years, the lows and highs in the oil rig count and crude oil prices have been three to four months apart, according to research by Morgan Stanley. In January 2009, after the subprime housing crisis, when crude oil prices touched multiyear lows, the rig count bottomed out in June 2009.

Crude oil touched a 12-year low on February 11, 2016, but prices rebounded 89.1% by April 25, 2017. According to the pattern mentioned above, the rig count should have hit a bottom in June 2016.

In the week ending June 3, 2016, the rig count rose for the first time in 11 weeks. Since the bottom of 316 rigs (in the week ending May 27, 2016), the count has more than doubled, rising by 372 rigs as of the week ending April 21, 2017.

Crude oil rigs and crude oil production

According to weekly data, between June 27, 2016, and April 14, 2017, crude oil production rose ~5.9%, which shows the impact of rising rigs on crude oil production.

Remember, the rising rig count will likely mean more pressure on crude oil prices. It could also impact funds such as the United States Brent Oil ETF (BNO), 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 and oil prices

Increased rig efficiency has been helping US oil companies produce more crude oil with fewer rigs. The EIA estimates that oil production per rig from new wells will likely be 735 barrels per day in May 2017—about 30.8% higher than in May 2016.

Notably, improved efficiency could mean more oil in the future from the same number of rigs, which won’t bode well for oil prices either.


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