Oil Service Stocks Fall After First Rig Decline in More Than 2 Months

Energy oilfield services stocks fell Friday afternoon following news that the number of oil operating rigs in the U.S. dropped for the first time in nearly three months. The decline in rigs comes after a massive build in domestic crude oil inventories this week.

The SPDR S&P Oil & Gas Equipment & Services (XES)   fell about 1% in afternoon trading; diversified oil and gas equipment and services companies such as Halliburton (HAL) and Schlumberger (SLB) were also down slightly during the trading session. 

Oilfield service giant Baker Hughes (BHI) reported Friday that the oil rig count fell by seven over the past week, the first drop in nearly three months. Natural gas rigs climbed by one and an additional miscellaneous rig puts the combined overall count up to 659. The dip in oil rigs ends 10 consecutive weeks of rigs being brought online.

Still, the Permian Basin remains the focal point for producers. The Permian was the only major basin to see its rig count rise, adding one rig. Every other major domestic basin either did not bring rigs online or saw its rig count fall. The DJ-Niobrara rig count fell by two, the biggest decline among the North American basins.

The U.S. offshore rig count climbed by one, but the inland waters dropped by one, falling to zero rigs.

Despite the decline in rigs, Loop Capital Markets boosted its rig count forecast for 2017 and 2018 earlier this week. The firm now projects the 2017 U.S. rig count to be 750, compared to its previous forecast of 610. For 2018, Loop expects 1,000 rigs, up from 850. The firm is bullish on oil service stocks with "significant leverage to rising U.S. land activity." Some of Loop's favorites in the space are Halliburton for the large-caps and Oil States International (OIS) for the smaller-caps.

While Loop anticipates 750 rigs for this year, currently there are 659 -- which is five less than the count during last year, when there was 516 oil rigs and 148 gas rigs. The Baker Hughes rig count is seen as an important industry barometer for drilling activity across the U.S. and North America.

Immediately following the report, crude oil prices were falling. U.S. benchmark West Texas Intermediate for February delivery was down by 0.8%, trading at around $52.56, while Brent crude futures for March fell by 0.6% to $55.65 at 1:20 p.m. ET.

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