US crude oil rigs
Baker Hughes, a GE company, released its weekly US crude oil and natural gas rig count report on February 2, 2018. US crude oil rigs increased by six or 0.8% to 765 between January 26, 2018, and February 2, 2018. Rigs increased by 182 or 31.2% from a year ago.
Crude oil and natural gas rigs are at a six-month high. Rigs increased because US crude oil prices are near three-year highs. Higher oil prices benefit funds like the VanEck Vectors Oil Services ETF (OIH). OIH has exposure to oil drilling companies like Halliburton (HAL), Schlumberger (SLB), Helmerich & Payne (HP), and Transocean (RIG).
Peaks and lows
US crude oil rigs tested a record high of 1,609 in October 2014. Crude oil rigs follow oil prices with an approximate four-month lag. WTI (West Texas Intermediate) crude oil prices averaged above $100 per barrel in June 2014.
On the other hand, US crude oil rigs tested 316 in May 2016—the lowest level since the 1940s. WTI oil prices averaged ~$32 per barrel in January 2016. WTI oil prices were near a 13-year low.
Crude oil rigs follow oil prices with an approximate four-month lag. As a result, changes in rigs are reflected in production by approximately six months. So, the total lag from a change in crude oil prices to the change in output could be from ten to 12 months.
US crude oil rigs have increased by 449 or 142% since the lows in May 2016 due to higher oil prices. US oil prices have risen more than ~55% since June 2017. Production is expected to hit a new record in 2018. For more on US crude oil production, read Part 3 of this series.
Helmerich & Payne estimates that US crude oil rigs could increase by 100–200 in 2018. Higher crude oil prices in 2018 could increase US oil rigs and supplies, which could weigh on oil prices.
Next, we’ll discuss the important drivers for oil prices.