Rig Count Up by 8, Hedge Funds Wavering on Short Bets

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In the week ended September 2, the number of rigs drilling for oil in the United States totaled 407, up by one compared with the prior week, but down from a total of 662 a year ago. Including 88 other rigs drilling for natural gas and two rigs listed as “miscellaneous,” there are a total of 497 working rigs in the country, up by eight from a week ago and down 367 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count released on Friday.

West Texas Intermediate (WTI) crude oil for October delivery traded up 2.4% on Friday to settle at $44.20, down about 6.5% for the week. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 2.3 million barrels in the week ended August 26, and that gasoline supplies had dropped by 700,000 barrels.

At an industry conference last week in Stavanger, Norway, Pioneer Natural Resources Co. (NYSE: PXD) CEO Scott Douglas Sheffield told a slightly different story about U.S. production declines than the one we usually hear. According to a report at Platts’ Barrel Blog, lower rig counts in the Permian Basin were due more to declining production from conventional wells than to slower drilling in shale plays.

In the Spraberry-Wolfcamp play where Pioneer operates, the company’s break-even price is $25 a barrel, according to Sheffield, and output from the Permian should be able to rise from 2 million barrels a day to 5 million in the next 10 years, provided that the WTI price reaches $56 a barrel by 2025.

The supermajors like Royal Dutch Shell PLC (NYSE: RDS-A) and Statoil ASA (NYSE: STO) are continuing to invest in massive multibillion dollar projects that take years to pay off, and Shell’s CEO Ben van Beurden believes that those projects will be necessary to meet a forecast demand increase of 1.5 million barrels a day over the next five years.

The number of rigs drilling for oil in the United States is down by 255 year over year and up one from a week ago. The natural gas rig count rose by seven to a total of 88. The count for natural gas rigs is down by 114 year over year. Natural gas for October delivery closed the week at $2.79 per million BTUs, down 11 cents compared with the prior week.

U.S. refineries ran at 92.8% of capacity, a week-over-week decrease of about 64,000 barrels a day. Imports rose by about 275,000 barrels a day to more than 8.9 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the weekly Commodity Futures Trading Commission (CFTC) Commitments of Traders report — added 4,277 short contracts for WTI crude oil last week and dropped 20,113 long contracts. The movement reflects changes as of the August 30 settlement date. Managed money now holds 300,644 long positions compared with 104,928 short positions. Open interest totaled 1,787,891. There were 44 hedge funds with large short positions last week, unchanged from the prior week.

For the first time in three weeks, the hedgies went short after two weeks of massive dumping of short contracts. The move into short positions was tentative, however, probably because the funds are unsure what to expect when OPEC ministers meet later this month for an expected discussion on limiting production.

Among the producers themselves, short positions outnumber longs, 524,848 to 244,999. The number of short positions rose by 22,851 contracts last week, and longs added 38,622 contracts. Positions among swaps dealers show 248,680 short contracts versus 191,965 long positions. Swaps dealers dropped 5,817 contracts from their short positions last week and dropped 14,604 contracts from their long positions.

Among the states, Oklahoma, Texas and Wyoming each added four new rigs, while Pennsylvania added two. North Dakota and West Virginia added one new rig each. Louisiana lost seven rigs (likely due to flooding) and Colorado lost one rig.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count rose by three to 202. The Eagle Ford Basin in south Texas added three rigs and now counts 38 rigs in operation, while the Williston Basin (Bakken) in North Dakota and Montana now has 28 working rigs, up by one compared with the prior week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $40.89 per barrel for WTI and a September 3 price of $42.34 a barrel for Eagle Ford crude. The price for WTI fell by $3.20 a barrel in the week and Eagle Ford crude dropped by $2.70 a barrel.

The pump price of gasoline rose by about 2.8% week over week. Saturday morning’s average price in the United States was $2.211 a gallon, essentially flat compared with $2.212 a week ago. The year-ago price was $2.438 a gallon.