Crude Oil Prices Collapse to Hit a 7-Year Low
US crude oil rig count
On December 11, 2015, Baker Hughes (BHI) published its active weekly crude oil rig count report. Baker Hughes reported that the US crude oil rig count fell by 21 rigs to 524 rigs for the week ending December 11, 2015. This is the lowest level since April 2010. The US active crude oil rig count has fallen by 151 rigs in the last 15 weeks. The Permian basin saw crude oil rigs fall by 15 for the week ending December 11. The Williston Basin crude oil rig count fell by two rigs for the same period. In contrast, the Eagle Ford Shale added three crude oil rigs during the week.
Why the crude oil rig count is falling
The steep drop in the crude oil rig count is due to the catastrophic fall in crude oil prices. Crude oil prices have fallen 16% in December 2015 and more than 60% since June 2014. As a result, US drilling activity has fallen more than 66% in the last year. The drop in drilling activity affects the business activity of oil drillers like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL).
The US oil rig count hit a new low of 524 on December 11, 2015. It peaked at 1,609 rigs in October 2014. The falling trend in current crude oil prices and the crude oil rig count suggests that there is more pain ahead. The EIA (U.S. Energy Information Administration) projects that US production could fall by 0.116 MMbpd (million barrels per day) in the key shale regions in January 2016, as compared to December 2015. The fall in production suggests oil producers are less optimistic about higher oil prices.
ETFs like the United States Oil Fund LP (USO) and the iShares US Oil Equipment & Services ETF (IEZ) are affected by volatile crude oil prices. In the next part of this series, we’ll discuss whether crude oil prices have bottomed out.
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