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Are US Oil Drillers Braking on Oil Production Growth?

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Oil rig count

Last week, the oil rig count fell sharply by ten to 877. The 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 December 10, 2018, US crude oil active futures rose 94.6%.

The oil rig count reached a six-and-a-half-year low of 316 in May 2016. Between May 27, 2016, and December 7, 2018, the oil rig count rose ~177.5%. Between May 27, 2016, and November 30, 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—their 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 that ended on November 30, US crude oil production was 11.7 MMbpd (million barrels per day), a continuation of its record levels. From June 1 to October 26, US crude oil production was between 10.8 MMbpd and 11.2 MMbpd. Production broke that range with a rise in the oil rig count in the last few weeks. However, with the retreat in the oil rig count, the growth in US oil production could slow.

Oilfield services stocks

Since US crude oil’s 12-year low on February 11, 2016, the VanEck Vectors Oil Services ETF (OIH) has fallen 24.9%. Schlumberger (SLB), Halliburton (HAL), Transocean (RIG), and Baker Hughes, a GE company (BHGE), have returned -39%, 1.7%, -6.3%, and -23.2%, respectively. Together, they account for ~44% of OIH’s holdings. Any slowdown in US oil drilling activities could drag on these stocks.

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