Over the last month, the number of oil rigs in use in the US has tumbled.
As of last week, the number of oil rigs in use totaled 1,366, below the 1,408 rigs that were in use at the same time last year, while last week's decline in the use of oil and gas rigs was the biggest weekly drop since January 2009.
And Baker Hughes, the company that provides this weekly data, says this drop is going to get worse.
In its earnings presentation on Tuesday, Baker Hughes included the following chart, showing that the number of rigs in use typically declines by 40%-60% during a down cycle.
Baker Hughes
At the peak of this most recent cycle, the number of oil rigs in use totaled 1,609, and so the current decline in the number of oil rigs in use is less than 20%. And in its earnings presentation, Baker Hughes said that in the first quarter of this year, the average US rig count is expected to decline by 15% compared to the fourth quarter.
Additionally, on the company's first quarter earnings conference call, Baker Hughes said it would cut 7,000 jobs in the first quarter, the second time an oil services company has warned of job cuts. Last week, Schlumberger said it would cut 9,000 jobs in response to, "lower commodity pricing and anticipated lower exploration and production spending in 2015."
In its earnings announcement on Tuesday, Baker Hughes CEO Martin Craighead said, "When we reflect on the marketplace, the bearish sentiment that has pervaded our industry is understandable, considering the steep drop in commodity prices in recent months. While market demand ended up being more resilient in the fourth quarter than many had predicted, the recent declines seen in rig counts will clearly affect results in 2015."
The speed and depth of the decline in oil prices has been shocking, but as we move forward into 2015, we are likely to see more commentary like that coming from Baker Hughes as the longer-term impacts of lower prices begin to make their way through the market.