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US Oil Production: Analyzing Key Drivers

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Oil rig count

Last week, the oil rig count rose by two to 807— near the lowest level since March 30, 2018. 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 the lowest closing level in 12 years. Between February 11, 2016, and May 6, 2019, US crude oil active futures rose 137.5%. The oil rig count reached a 6.5-year low of 316 in May 2016. Between May 27, 2016, and May 3, 2019, the oil rig count rose ~155.3%. Between May 27, 2016, and April 26, 2018, US crude oil production rose ~40.8%.

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US crude oil production

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. US crude oil production fell by 187 thousand 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 on April 26, the US crude oil production was 12.3 MMbpd (million barrels per day)—a new record level. With the lower oil rig count, US crude oil production might fall going forward.

US crude oil output and oilfield services stocks

Since the US oil rig count hit a multiyear high on November 16, the VanEck Vectors Oil Services ETF (OIH) has fallen 15.5%. Schlumberger (SLB), Halliburton (HAL), and Transocean (RIG) fell 14.5%, 14.9%, and 22%, respectively. OIH has 44% exposure to these stocks. Any slowdown in US oil drilling activities could be a concern for these stocks.

Any slowdown in US oil production might also impact broader market indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA).

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