The oil rig count
The oil rig count rose by nine to 747 in the week ending November 24, 2017. It was the second rise in the last three weeks. Since the week ending November 10, 2017, US crude oil active futures only rose 2.2%. The rise in the oil rig count could decelerate the gain in oil prices. A sustained rise going forward could even help reverse gains because rising rigs mean more oil supply in the future.
Oil price and the rig count
US crude oil prices and the oil rig have an interesting relationship. The oil rig count tends to take cues from oil prices with a three to six-month lag. For example, US crude oil hit a 12-year low in February 2016. In May 2016, the oil rig count was at the lowest level in the last 6.5 years. US crude oil prices have more than doubled from that low. The oil rig count has risen from its low of 316 in May 2016.
US crude oil production has risen 10.6% from May 2016 to date. Therefore, oil traders must keep an eye on the oil rig count for US crude oil supplies.
On November 24, 2017, US crude oil closed at its highest closing price in 2017. According to the relationship we discussed above, we could see the oil rig count breaking its three-year high by May 2018. That’s why this pattern might serve as a bearish indicator for oil prices in the coming days.
Higher US crude oil production could also impact US oil producers’ (XLE) (FENY) stock prices. Movements in energy stocks influence the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA).