Drillers are packing up their gear, and investors should be paying attention, especially those invested in oil stocks.

According to the latest Baker Hughes report, the number of international oil rigs (excluding North America) fell by six rigs in May to 653, marking the lowest count in two decades outside of the COVID-19 pandemic collapse.

That's not just a statistic, it's a potential signal of tighter oil supply ahead.

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Fewer Rigs, Supply Squeeze, Price Boost

Fewer rigs today often mean lower production tomorrow, especially when it comes to long-lead international projects. With global demand holding steady — and OPEC+ keeping barrels off the market — this dip in drilling activity could tilt the oil market toward another supply squeeze.

For investors, this backdrop favors upstream oil producers that can operate efficiently, maintain capital discipline and generate strong cash flow even when rigs are idled.

Diamondback Energy Inc FANG is a textbook example. Despite plans to drop three rigs in the second quarter due to soft prices, its focus on the Permian Basin, industry-leading cost structure and resilient profitability — net income rose 7% from 2014 to 2023 despite falling oil prices — makes it a standout.

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Coterra Energy Inc CTRA is also dialing back rig activity in the Permian but brings a diversified mix to the table, thanks to its Marcellus shale gas assets. That combo helps cushion the company against crude price volatility while continuing to deliver shareholder returns.

EOG Resources Inc EOG remains the shale innovator to watch. With top-tier assets in the Permian and Eagle Ford, EOG's commitment to per-well recoveries, capital efficiency and data-driven development makes it well-suited to thrive in a post-drilling-boom world.

And don't count out Occidental Petroleum Corp OXY — Warren Buffett certainly hasn't. Its deep Permian presence and focus on carbon capture and enhanced oil recovery position it for both near-term gains and long-term relevance.

Energy ETFs Could See Renewed Investor Interest

Meanwhile, ETFs such as the Energy Select Sector SPDR Fund XLE and the SPDR S&P Oil & Gas Exploration & Production ETF XOP — which track large-cap and exploration and production energy stocks, respectively — could see renewed investor interest if crude prices move higher on supply-tightening signals.

For energy investors, this 20-year rig count low might just be the rallying cry.

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