Oil Rigs Are On The Rise In The U.S. (USO)

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July 10, 2018 7:34am NYSE:USO

Oil Pumps

From Zacks: In its weekly release, Baker Hughes (BHGE – Free Report) , a GE company reported a rise in U.S. rig count.


About the Rig Count

Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry.

A change in the Houston-based oilfield services player’s rotary rig count impacts demand for energy services like drilling, completion and production provided by the likes of Halliburton Company (HAL – Free Report) , Schlumberger Limited (SLB – Free Report) , Diamond Offshore Drilling, Inc. (DO – Free Report) and Transocean Ltd. (RIG – Free Report) .

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1052 in the week ended Jul 6, up from 1047 in the previous week. This marked an increase after the rig count fell for three consecutive weeks.

Despite rig count slipping to an all-time low of 404 in May 2016, it has been rising rapidly in U.S. shale resources. The current national rig count is considerably higher than the prior-year level of 952.

For the week under review, the rise in rig count can be only attributed to increased onshore operations. The number of onshore rigs totaled 1029, up from 1024. The tally for offshore rigs was recorded at 19, in line with the prior week’s count. Also, the number of rigs operating in the inland waters was four last week, same as the count for the week ended Jun 29.

Oil Rig Count: Oil rig count was 863, up from 858 for the week ended Jun 29, marking an increase after a decline for two weeks in a row.

Moreover, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year’s 763.

Natural Gas Rig Count: The natural gas rig count of 187 is flat with the week ended Jun 29.

Per the latest report, the number of natural gas-directed rigs is 88.4% below the all-time high of 1,606 recorded in 2008. Unlike oil, the count of rigs exploring gas is below the year-ago tally of 189.

Rig Count by Type: The number of vertical drilling rigs totaled 55 units, down from the prior week tally of 56. The horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) rose by six units to 997.

Gulf of Mexico (GoM): The GoM rig count is 18 units, of which 15 were oil-directed. The count is in line with the week ended Jun 29.

Conclusion

The number of rigs exploring in the United States increased primarily due to the addition of three oil rigs in the Williston Basin and one in each of the Eagle Ford and Permian basins.

West Texas Intermediate (WTI) crude is trading close to $75-a-barrel psychological mark. As of now, worries of intensifying trade war tensions between the United States and China have gripped the energy market, keeping investors in the dark the direction of commodity prices. Also, the uncertainty of whether the higher oil output from Saudi Arabia and Russia will be able to offset global supply concerns emanating from Venezuela’s supply and Iran’s sanction issues has resulted in crude price volatility. Despites the uncertainties, oil price is trading at a healthy level, making the business scenario favorable for drillers.

Two energy stocks that should make valuable additions to your portfolio are Anadarko Petroleum Corporation (APC – Free Report) and Whiting Petroleum Corporation (WLL – Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

We expect Anadarko Petroleum to witness year-over-year earnings growth of 229.6% in 2018.

Whiting Petroleum has surpassed the Zacks Consensus Estimate in all of the last four quarters.

The United States Oil Fund LP ETF (USO) rose $0.04 (+0.27%) in premarket trading Tuesday. Year-to-date, USO has gained 25.15%, versus a 4.55% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #35 of 113 ETFs in the Commodity ETFs category.


This article is brought to you courtesy of Zacks Research.


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