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Are Oil Bulls Tracking US Crude Oil Rigs?

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Aug. 18 2020, Updated 5:18 a.m. ET

US crude oil rigs  

Baker Hughes, a GE Company (BHGE), released its US crude oil rig count report on May 11. Baker Hughes reported that US crude oil rigs increased by ten to 844 on May 4–11. US crude oil rigs were near the highest level since March 13, 2015. The rigs also have risen by 132 or ~18.5% from a year ago.

US oil prices have increased ~66.2% 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 risen ~21.7% and ~24.2%, respectively, since June 21, 2017. These ETFs have exposure to OFS (oilfield equipment and services) stocks.

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Peak and low  

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

Impact 

US crude oil rigs have increased by 518 or ~167.1% since May 27, 2016, partly due to higher crude oil prices. Active WTI crude oil futures have increased ~66.2% since June 21, 2017.

Halliburton (HAL) and Schlumberger (SLB) have increased 25.4% and 11.1%, respectively, since June 21, 2017. Higher oil prices and higher exploration and production activity benefit companies like Schlumberger and Halliburton, which supports their operations.

Higher oil prices in 2018 could increase US oil rigs and crude oil production, which might eventually weigh on oil prices. However, rising upstream activity due to higher crude oil and natural gas prices benefits OFS companies.

The VanEck Vectors Oil Services ETF (OIH) has risen ~19.2% since June 21, 2017. OIH seeks 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.

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