US crude oil rig count
Baker Hughes, a GE Company (BHGE), released its US crude oil rigs report on June 22. Baker Hughes reported that US crude oil rigs fell by one to 862 on June 15–22. However, US crude oil rigs hit the highest level since March 13, 2015, during the week ending June 15. The rigs have risen by 104 or ~13.7% year-over-year.
Active WTI crude oil futures have increased ~61.3% since June 21, 2017. The iShares US Oil Equipment & Services ETF (IEZ) has risen ~15.1% since June 21, 2017. IEZ has exposure to oilfield equipment and services stocks.
WTI oil prices increased ~5.4% on June 15–22. IEZ rose 2.1% during the same period. Unit (UNT), Noble (NE), Newpark Resources (NR), and Ensco (ESV) rose 12.4%, 10.4%, 8.9%, and 8.6%, respectively, on June 15–22. These stocks were among the top percentage gainers IEZ’s holdings during this period. These stocks account for ~7% of IEZ’s holdings.
Peaks and lows
The US crude oil rig count reached a record high of 1,609 in October 2014. US crude oil rigs follow oil prices with an approximate four-month lag. WTI crude oil prices averaged ~$104 per barrel in June 2014.
On the other hand, US crude oil rigs reached 316 on May 27, 2016—the lowest level since the 1940s. WTI crude oil prices averaged ~$32.8 per barrel in January 2016.
Monthly drilling productivity report
The U.S. Energy Information Administration estimates that the US crude oil production would rise in the seven shale regions by 141,000 bpd (barrels per day) to 7,339,000 bpd in July—compared to the previous month. The production is estimated to rise mainly in the Permian and Eagle Ford Shale regions during this period. The expectation of a rise in the production could pressure oil prices.
For the week ending June 22, WTI oil prices have dropped ~5% since May 21. WTI crude oil futures hit a 41-month high on May 21. The prices fell due to the possibility of a large rise in the oil production from Russia, Saudi Arabia, and the US. On June 22, OPEC said that it would increase the output by 600,000 bpd starting in July. Major oil producers only pledged to bring the supply cut compliance back to 100% from higher levels due to unintended production drops from member countries.
Oil rigs are reacting to the drop in crude oil prices with a lag. As a result, oil rigs are steady at 862 in June.
Next, we’ll discuss hedge funds’ net long positions in WTI crude oil.