Fewer Crude Oil Rigs for 25 Weeks: Who Gains and Who Loses?
Rigs Continue to Fall Even as Crude Oil Consolidates
Oil rig count decreased
Baker Hughes (BHI) reported that the weekly US crude oil rig count decreased by 13, from 659 to 646, in the week ending May 29—compared to the previous week. Now, the number of active oil rigs is at the lowest level since August 2010. The latest figure marks 25 consecutive weeks of fewer active crude oil rigs. In those 25 weeks, the crude oil rig count decreased by 929.
Major shales are losing rigs
Last week, the oil rig count decreased in many of the major resource shales, including the Permian and Williston Basin. In the next part of this series, we’ll discuss the Permian Basin rig count in more detail.
In the “other basins” rig category, the crude oil rig count also decreased by ten last week. The rigs in “other basins” are those in smaller basins or rigs that don’t fall within a specific geographic basin.
The crude oil rig count fell by 963, or 60%, since hitting 1,609 rigs on October 10, 2014. That week, the crude oil rig count was at its highest level since July 1987, according to Baker Hughes’ records. Lower activity in the oil rich Permian Basin in West Texas drove most of the decline since October last year.
Who gains and who loses?
Crude oil’s price fell sharply since June last year. It still remains on the lower side. This is good for drivers and the economy.
However, oil producers—including Whiting Petroleum (WLL), Denbury Resources (DNR), Cenovus Energy (CVE), Laredo Petroleum (LPI), and Marathon Oil (MRO)—have to cut the rigs in operation to reduce costs. This is negative for their production. It’s also negative for OFS (oilfield equipment and services companies) like Schlumberger (SLB) and Halliburton (HAL).
Oil companies not only get lower prices for their crude oil production, but their production may also reduce. This drives their profits even lower. So, investors in oil companies and OFS companies should watch the rig counts.
Marathon Oil accounts for 1.38% of the Energy Select Sector SPDR ETF (XLE). Schlumberger accounts for 19.9% of the Market Vectors Oil Services ETF (OIH).
Browse this series on Market Realist:
