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Ignoring Oil Rig Data Could Cost Oil Bulls

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Oil rig count

In the week ended December 15, 2017, the US oil rig count fell by four to 747, and rose 50% from the same period last year. However, US crude oil prices rose only 10.1% from last year, showing how a higher oil rig count can limit oil prices.

Often, oil prices fluctuate three to six months prior to oil rig counts. For example, in February 2016, US crude oil futures were at a 12-year low. In May 2016, the oil rig count fell to 316, a 6.5-year low.

US crude oil prices have risen 118.1% from their multiyear low. Similarly, the oil rig count has doubled from its multiyear low. Since May 2016, US crude oil production has risen 12%. Therefore, oil traders should watch the number of active oil rigs.

US crude oil futures reached their highest 2017 price on November 24, 2017. The US oil rig count could reach a three-year high by May 2018, and based on the EIA’s weekly data, US crude oil production has reached a new high. More rigs coming online could mean new highs for US crude oil production.

US oil producers’ (XLE) (FENY) stock prices could react negatively to this development. Any downturn in energy stocks constituting equity indexes such as the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) could affect these equity indexes.

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