Will Oil Rigs Decelerate Oil’s Rise?

Oil rig count

In the week ending January 12, 2018, there was a rise of ten oil rigs. The US oil rig count was at 752 for the same week—the first rise after four weeks. During those four weeks, US crude oil prices rose 12.2%. The rise in the US oil rig count could eventually increase US crude oil supplies—a bearish factor for oil prices.

Will Oil Rigs Decelerate Oil’s Rise?

Oil rigs and US crude oil production

Usually, the US oil rig count’s tops and bottoms occur three to six months after oil prices’ tops and bottoms. On January 12, 2018, as we discussed in the previous part, US crude oil futures were at the highest closing level since December 8, 2014. We could see the oil rig count at a multiyear high before August 2018.

For example, US crude oil prices fell to the lowest closing level in 12 years on February 11, 2016. The oil rig count fell to its 6.5-year low in May 2016. Since May 2016, the oil rig count has more than doubled. The rise in the oil rig count has increased US crude oil production 8.7%.

US oil production is at ~9.5 MMbpd (million barrels per day)—just 3% below the record, according to weekly data from the EIA. If the number of rigs keeps rising, it could see US crude oil production hit new records in the coming months. It could cap the gains in oil prices.

So, any more upside in the oil rig count could decelerate oil’s rise. It would impact US oil producers’ (XLE) (XOP) stock prices. The energy constituents of the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) would also take a hit from the above development.