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Baker Hughes’ U.S. Rig Count Jumps for Third Straight Week

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Baker Hughes‘ (BHI)  rig count report showed the number of oil and gas rigs operating in the U.S. has risen for the third straight week, hitting 424 this week, an increase of 10 rigs over last week and a sign that producers have confidence commodity prices won’t fall lower.

The uptick is somewhat expected, however, as KLR analyst Darren Gacicia notes a ramp-up in active rig count historically tends to lag an oil price rally, which began in March after decade lows hit in February, by as much as a quarter.
But as it was in the 1980s, according to TheStreet‘s founder Jim Cramer, today investors are once again glued to the BHI rig count.

U.S. oil rigs were up by 9 to 337 over 328 last week, while U.S. natural gas rigs were up 1 to 86 versus 85 last week and miscellaneous rigs came in the same at 1.

The U.S. offshore rig count remained stable once again this week at 21, but is down 6 rigs year over year.

Unfortunately, worries over the United Kingdom potentially leaving the European Union, mixed data on global commodity demand and an overall weakness in the global economy have stymied oil’s gains this week. And analysts are concerned that West Texas Intermediate crude oil futures may have been too quick to forecast better prices.

“Just as we thought WTI’s move into the $20s was overdone, we believe WTI’s move north of $50 could have been premature,” Cantor Fitzgerald analyst Brad Carpenter wrote Thursday. “An increase in global unplanned outages helped push WTI into the $50 territory, but as some issues globally are alleviated (while others persist), WTI has trended back into the high $40s.”

Indeed, Canadian oilsands production that was halted by wildfires in May has finally appears to be restarting in northern Alberta, according to Goldman Sachs analysts. Meanwhile, political unrest in Nigeria–most recently the blowing up of an Eni (E) pipeline run by its Agip unit–does not appear to be easing.

 Nevertheless, the oilfield services giant reported earlier in the week that the international rig count was up 9 rigs, or 1%, to 955 in May over April, the first month-to-month increase since September of last year.
 Cantor Fitzgerald’s Carpenter likes names such as Carrizo Oil & Gas (CRZO) for its financial/operational/portfolio flexibility, high quality position in the Eagle Ford, and emerging position in the Delaware and Synergy Resources (SYRG) due to the quality of the company’s newly expanded and redefined footprint in the Wattenberg Fairway of the Denver Basin in Colorado.
 Carrizo shares were trading up more than 8% around 1 p.m. Friday as analysts at Stifelinitated coverage of the oil producer with a Buy rating.

Analysts at energy-centric investment bank Tudor Pickering Holt noted last week that their favorite large, liquid names in a recovery include Chevron (CVX) , Royal Dutch Shell(RDS.A) , Anadarko Petroleum (APC) , Devon Energy (DVN) , Pioneer Natural Resources (PXD) , Baker Hughes and Halliburton Co. (HAL) .

 TPH predicts the rig count will be as high as 650 rigs next year if crude oil trades between $55 and $60 per barrel, but RBC Capital Markets analysts think oil needs to trade above $50 for an extended period before the industry sees a material ramp-up in activity. The KLR Group expects the U.S. gas rig count will average about 115 rigs this year.
Oil was trading up 3% around 1 p.m. Friday to $47 per barrel after six straight sessions of decline, and gas continued to trade well at $2.61 per million British thermal units.
This week’s BHI rig count is a big indicator for investors, as the RigData rig count bottomed two weeks ahead of the BHI count and has risen more dramatically since then, according to Cantor Fitzgerald’s Carpenter.
“We’ve all heard the anecdotal evidence of management teams ramping activity levels at/near the $50 mark through conferences, press releases, bus tours, etc., but we are starting to see the first inklings of a potential ramp in [the second half of 2016],” Carpenter wrote this week.
The analyst noted, however, that an uptick in rigs could mean operators are starting to work through inventories of drilled but uncompleted wells, or DUCs, inferring the rig increase may be a double edged sword.
“If indeed operators are beginning to work through the excess inventory of DUCs (as we believe they are) and new wells drilled, the additional production could dampen the [year over year] decline in US production and thus weigh on WTI prices headed into the end of the year,” he said. “Keep in mind it only took 2.3% of excess global supply to bring WTI prices down by 77% from mid-June 2014 through February 2016.”

TAGS: Oil, Gas, Crude, Energy

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