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Oil Rig Updates: Impact on Oil Production and Oilfield Stocks

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Oil rig count

Last week, the oil rig count fell by two to 805—the lowest level since March 30. The rig count tends to follow US crude oil prices with a three-to-six-month lag.

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In February 2016, US crude oil prices fell to their lowest closing level in 12 years. Between February 11, 2016, and May 13, 2019, US crude oil active futures rose 132.9%. The oil rig count reached a 6.5-year low of 316 in May 2016. Between May 27, 2016, and May 10, 2019, the oil rig count rose ~154.7%. Between May 27, 2016, and May 3, 2018, US crude oil production rose ~39.7%.

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Impact on US crude oil production and oilfield services stocks

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. In the current quarter, the US crude oil production growth rate might reverse course. US crude oil production fell by 187,000 barrels per day in February on a month-over-month basis for the second consecutive month, based on the U.S. Energy Information Administration’s “Monthly Oil Production” report released on April 30.

In the week ending November 16, the oil rig count was at 888—the highest level since March 2015. In the week ending April 26, US crude oil production was 12.2 MMbpd (million barrels per day)—near its new record level. With the lower oil rig count, US crude oil production might fall.

Since the US oil rig count hit a multiyear high on November 16, the VanEck Vectors Oil Services ETF (OIH) has fallen 23.1%. Schlumberger (SLB), Halliburton (HAL), and Transocean (RIG) have fallen 20.9%, 24.1%, and 27.4%, respectively. OIH has 44% exposure to these stocks. Any slowdown in US oil drilling activities could be a further concern for these stocks.

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