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US Crude Oil Rigs Are near a 1-Month Low

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US crude oil rigs  

Baker Hughes, a GE company (BHGE), reported that US crude oil rigs decreased by four or 0.5% to 796 on March 2–9, 2018. US crude oil rigs are near the lowest level since February 9, 2018.

However, rigs increased by 179 or 29% year-over-year. Rigs increased because US crude oil prices have gained ~46% since June 21, 2017. The SPDR S&P Oil & Gas Equipment & Services ETF (XES) and the iShares U.S. Oil Equipment & Services ETF (IEZ) have risen ~7.8% and ~8.1%, respectively, since June 21, 2017. These funds have exposure to oilfield equipment and services companies.

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Peaks and lows 

The US crude oil rig count hit a record high of 1,609 in October 2014. On the other hand, rigs hit 316 on May 27, 2016—the lowest level since the 1940s.

Impact 

US crude oil rigs have increased by 480 or ~151% since the lows on May 27, 2016—partly due to higher oil prices. US crude oil prices have risen ~46% since June 21, 2017. Oil drillers like Schlumberger (SLB) and Halliburton (HAL) rose 8% and 13%, respectively, during the same period. Higher oil prices and higher exploration and production activity support companies like Schlumberger and Halliburton, which supports the operations.

Helmerich & Payne (HP) predicts that the US crude oil rig count could increase by 100–200 rigs in 2018. Higher oil prices in 2018 could increase US oil rigs and production, which could pressure oil prices. However, rising upstream activity on the back of higher crude oil and natural gas prices is an advantage for OFS (oilfield equipment and services) companies. The VanEck Vectors Oil Services ETF (OIH) has gained 6.5% since June 21, 2017. OIH tracks an index of OFS companies.

Next, we’ll discuss what drives oil prices.

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