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Oil Rig Fear Might Be Looming over Oil Prices

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Oil rig count

Last week, the oil rig count rose by two to 888, the highest level since March 6, 2015. The rig count tends to follow US crude oil prices with a three-month to six-month lag. In February 2016, US crude oil prices fell to the lowest closing level in 12 years. Between February 11, 2016, and November 19, 2018, US crude oil active futures rose 116.6%.

The oil rig count reached a 6.5-year low of 316 in May 2016. Between May 27, 2016, and November 16, 2018, the oil rig count rose ~181%. Between May 27, 2016, and November 9, 2018, US crude oil production rose ~33.9%.

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More upside in the oil rig count?

On October 3, US crude oil active futures settled at $76.41 per barrel, the highest closing level since November 21, 2014. Based on the pattern we saw above, the oil rig count could keep rising until at least March 2019.

US crude oil output

In the week ending on November 9, US crude oil production was at 11.7 MMbpd (million barrels per day), its new record level. Between June 1 and October 26, US crude oil production fell from 10.8 MMbpd and 11.2 MMbpd. US crude oil production broke that range with a rise in the oil rig count in the last few weeks, which might be a concern for oil bulls.

Oilfield services stocks

Since US crude oil’s 12-year low on February 11, 2016, the VanEck Vectors Oil Services ETF (OIH) has fallen 11.5%. Schlumberger (SLB), Halliburton (HAL), Transocean (RIG), and Baker Hughes (BHGE) have returned -29.8%, 14.5%, 13.2%, and -17%, respectively. Together, they account for ~44% of OIH’s holdings.

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