Each Friday, Baker Hughes, one of the world’s largest oil field services company, reports on the U.S. Oil rig count, and last week was a continuation of a month-long downward trend. The national rig count fell from 644 to 640, which was actually a smaller loss than weeks as of late; however, a year ago the Oil rig count here in the U.S. was 1,592. Without overcomplicating things; when the price of oil drops, and the cost to drill it stays relatively the same, the incentive to drillfor that oil diminishes. As we have witnessed a rapid decline in the price of crude oil over the last twelve months, we have concurrently seen the number of U.S. Oil rigs more than cut in half.
Internationally, the low price of crude oil has also taken its toll. The Venezuelan economy is being dragged into an even deeper crisis as the price of crude oil hovers around a six-year low. Venezuelan crude oil production, a significant source of their GDP, is down 10% from two years ago and is producing only 2.5 million barrels a day, versus their peak of 3.7 million/day. Both Venezuela and Algeria have suggested to OPEC the dire need to lower output in order to prop up prices, but crude tycoon, Saudi Arabia continues to be unwilling to relinquish market share. Venezuela and Algeria have also taken such drastic measures to increase prices by trying to recruit non-OPEC producers, Mexico and Russia, to turn down production, but were unsuccessful in their effort.
Last week’s market gains have been cut early this morning. HO is trading -.0268 at $1.4957 and RBOB is also down and is trading -.0221 at $1.3744. WTI crude is down 88 cents to $44.82. Refinery complications still continue to plague Husky in Lima, and major BP refineries are going into turnaround soon, implications of that will be monitored.