US crude oil rigs
On April 20, 2018, Baker Hughes, a GE company (BHGE), released its US crude oil rig count report. Baker Hughes reported that US crude oil rigs increased by five or 0.6% to 820 on April 13–20. US crude oil rigs were at the highest level since March 20, 2015. The rigs also have risen by 132 or ~19.2% from last year.
US crude oil prices have increased ~61% since June 21, 2017. The iShares U.S. Oil Equipment & Services ETF (IEZ) and the SPDR S&P Oil & Gas Equipment & Services ETF (XES) have increased ~16%, respectively, since June 21, 2017. These funds have exposure to OFS (oilfield equipment and services) stocks.
Peak and low
US crude oil rigs hit a record high of 1,609 in October 2014. Crude oil rigs follow crude oil prices with an approximate four-month lag. US crude oil prices averaged above $100 per barrel in June 2014. US oil rigs hit 316 on May 27, 2016—the lowest level since the 1940s. US crude oil prices averaged ~$32 per barrel in January 2016.
US crude oil rigs have increased by 504 or ~160% since May 27, 2016, partly due to higher crude oil prices. WTI oil prices have increased ~61% since June 21, 2017. Halliburton (HAL) and Schlumberger (SLB) increased 25% and 8.2%, respectively, during the same period. Higher oil prices and higher exploration and production activity helps companies like Schlumberger and Halliburton, which supports their operations.
Higher oil prices in 2018 could increase US oil rigs and oil production, which could weigh on oil prices. However, rising upstream activity due to higher oil and natural gas prices benefits OFS companies. The VanEck Vectors Oil Services ETF (OIH) has gained ~14.1% since June 21, 2017. OIH aims to track an index of OFS companies including Schlumberger and Halliburton. These two companies account for ~36% of OIH’s holdings.
Next, we’ll discuss what could drive crude oil prices this week.