North American Drilling Rig Count Falls

Baker Hughes Incorporated (NYSE: BHI) has announced that despite the rise in oil prices, its count on rigs fell in the last week. The services firm reported that the North American rig count totaled 2,233, down from 2,262 the week before and down from 2,354 in the same period a year ago. The drop reflected a decline of 33 oil rigs and 2 natural gas rigs in Canada, while US oil rigs increased by 13 and US natural gas rigs decreased by 7.

The total number of US rigs reached 1,930, up from 1,924 in the previous week and up from 1,920 in the same period a year ago. The oil rig count is up by 398 rigs year-over-year while the number of US natural gas rigs has dropped by 385. Canadian oil rigs have declined by 85 year-over-year and natural gas rigs are down 46.

The declining demand for gas rigs comes about due to low natural gas prices, which are causing producers to cut back on gas production. The increase in oil rigs is led by higher demand in Texas and North Dakota.

The impact on services company, like Baker Hughes, Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), and others, has been moderate so far, with most posting gains in the second quarter. But the slowdown in natural gas drilling has led to increasing pressure on prices, and that coupled with higher costs, could weigh on growth in the second half of the year.

The Market Vectors Oil Services ETF (NYSEMKT: OIH) is up 3% today, at $40.02 in a 52-week range of $32.54-$45.14. The other companies are showing strength as well today, very likely due to the nearly 5% rise in crude prices. Higher crude prices typically spur more exploration and drilling, which benefits the services companies.

Paul Ausick