18 Sep

Will a Rising Oil Rig Count Upset the Oil Bulls?

WRITTEN BY Rabindra Samanta

Oil rig count

In the week that ended on September 14, the oil rig count rose by seven to 867, just two fewer than its three-and-a-half-year high.

Will a Rising Oil Rig Count Upset the Oil Bulls?

The US oil rig count tends to follow US crude oil prices with a three- to six-month lag. In February 2016, US crude oil prices fell to their lowest closing level in 12 years. Between February 11, 2016, and September 17, 2018, US crude oil active futures rose 162.9%. The oil rig count reached a six-and-a-half-year low of 316 in May 2016. Between May 27, 2016, and September 14, 2018, the oil rig count rose ~174.4%. Between May 27, 2016, and September 7, 2018, US crude oil production rose ~24.8%.

More upside in the oil rig count?

On June 29, US crude oil active futures settled at $74.15 per barrel, their highest closing level since November 24, 2014. Based on the pattern we saw above, the oil rig count could keep rising until at least November.

US crude oil production

In the week that ended on September 7, US crude oil production was 10.9 MMbpd (million barrels per day), 0.1 MMbpd below its record level. Between June 1 and September 7, US crude oil production was 10.8 MMbpd–11 MMbpd. However, last week, the oil rig count climbed toward its three-and-a-half-year high, which could boost US crude oil production—a concern for oil bulls.

Oilfield services stocks

Since February 11, 2016, the VanEck Vectors Oil Services ETF (OIH) has risen 9.4%. Schlumberger (SLB), Halliburton (HAL), Transocean (RIG), and Baker Hughes, a GE company (BHGE), have returned -11.4%, 34.4%, 34.6%, and 14.1%, respectively. These four stocks account for ~44% of OIH’s holdings. The oilfield services subindustry could benefit from rising US drilling activity.

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