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US Oil Rigs: Crude Oil’s Arch Nemesis

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Apr. 12 2017, Updated 2:32 p.m. ET

Latest oil rig data

The US oil rig count reached 672 in the week ending April 7, 2017, a rise of ten rigs compared to the previous week, according to data released by Baker Hughes (BHI). The US oil rig count is at its highest level since September 4, 2015.

On April 11, 2017, crude oil (DBO) (USL) (OIIL) (SCO) prices were ~50.2% lower than their post-2008 crisis high on June 20, 2014, based on closing prices. Oil prices started on a downturn on June 20, 2014. Since then, the number of active oil rigs has fallen 56.5%.

US crude oil production is ~4.3% below its peak in June 2015, according to weekly data from the EIA (U.S. Energy Information Administration).

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Rig counts and crude oil prices

Over the past ten years, the lows and highs of 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 May 2009.

Crude oil touched a 12-year low on February 11, 2016, but prices rebounded 103.7% by April 11, 2017. According to the pattern mentioned above, the rig count should have hit 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 at 316 rigs in the week ending May 27, 2016, the count has risen by 356 rigs as of the week ending April 7, 2017. That’s more than double its bottom level.

Crude oil rigs and crude oil production

Between May 27, 2016, and March 31, 2017, crude oil production rose ~5.3%, according to weekly data, which shows the impact of rising rigs on crude oil production. A 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 be 720 barrels per day in April 2017, about 33.1% higher than in April 2016. Improved efficiency could mean more oil in the future from the same number of rigs, which doesn’t bode well for oil prices.

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