Market Overview

The Baker Hughes Rig Count Explained

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The Baker Hughes Rig Count Explained

Every Friday, U.S. oil & gas investors finish out the week with an important litmus test of the health of the overall industry. Since 1944, Baker Hughes Incorporated (NYSE: BHI) has reported weekly counts of total rig drilling activity in the U.S. and Canada. The North American rig count is released every Friday at noon central time.

Oil exploration and production company use drilling rigs to explore or develop oil & gas reserves. When the price of crude oil collapsed in 2014 due to a global supply glut, North American drillers shut down many of their least-profitable rigs. In the past year, many of those rigs have been coming back online, indicating a potential recovery in the market.

Related Link: Hedge Funds Are Dumping Oil, But Remain Extremely Bullish

Few investors get access to weekly updates on the strength of their market, but the rig count is an important measure that impacts all subsectors of the U.S. energy industry.

“The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons,” the Baker Hughes website says.

Traders can use the rig counts as a proxy for oil production and oil services demand, and even use the counts to predict where the price of WTI crude oil is headed next.

Last week’s report revealed eight more U.S. rigs came online last week, bringing the total number of active U.S. rigs up to 762. That number represents a huge 273-rig increase over a year ago.

Both the United States Oil Fund LP (NYSE: USO) and the United States Brent Oil Fund LP (NYSE: BNO) took a big hit last week after the Energy Information Administration reported U.S. crude oil stockpiles climbed to 528.4 million barrels.

Disclosure: the author is long BHI.

 

Related Articles (USO + BNO)

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