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Is the Oil Rig Count Signaling Trouble for Oil Prices?

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Oil rig count

Last week, the oil rig count rose by ten to 883. 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 the lowest closing level in 12 years. Between February 11, 2016, and December 24, 2018, US crude oil active futures rose 62.3%.

The oil rig count reached a 6.5-year low of 316 in May 2016. Between May 27, 2016, and December 21, 2018, the oil rig count rose ~179.4%. Between May 27, 2016, and December 14, 2018, US crude oil production rose ~32.8%.

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The oil rig count topped?

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. In the week ending November 16, the oil rig count was at the highest level since March 2015.

US crude oil output

In the week ending on December 14, US crude oil production was 11.6 MMbpd (million barrels per day)—near its record levels. On June 1–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 past few weeks. With another rebound in the oil rig count, the growth in US oil production could increase rapidly.

Oilfield services stocks

Since US crude oil’s 12-year low on February 11, 2016, the VanEck Vectors Oil Services ETF (OIH) has fallen 39.2%. Schlumberger (SLB), Halliburton (HAL), Transocean (RIG), and Baker Hughes, a GE company (BHGE), have fallen 48.9%, 12.7%, 26.4%, and 26.1%, respectively. Together, they account for ~44% of OIH’s holdings. Any slowdown in US oil drilling activities could drag these stocks.

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