Rising Rig Count, Continuing Crude Glut Weighs on Price

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In the week ended October 21, the number of rigs drilling for oil in the United States totaled 443, up by 11 compared with the prior week, but down from a total of 594 a year ago. Including 108 other rigs drilling for natural gas and tow rigs listed as “miscellaneous,” there are a total of 553 working rigs in the country, up by 14 week over week and down 234 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 December delivery traded up about 0.4% on Friday to settle at $51.00. The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had decreased by 5.2 million barrels in the week ended October 14, and that gasoline supplies had risen by 2.5 million barrels.

On Friday we took a quick look at an interesting development from last week’s Oil & Money conference in London. The Saudi Arabian energy minister said that lack of capital spending could mean supply will be constrained in a few years and crude prices will necessarily rise.

On the other side, Exxon Mobil CEO Rex Tillerson said that is not necessarily the case, and his argument was buttressed by a new report from the World Energy Council that indicates peak demand for oil could come as soon as 2030.

On Friday Javier Blas and Alex Longley at Bloomberg News looked at both the speculative and physical markets for oil and saw signs that the crude market may not be as close to balance as some analysts believe, at least in the European market. They cite a Commerzbank analyst who said, “In the very short-term the market remains oversupplied not only by a small margin, but by a large one.”

Nigeria is ramping its production again, and so is Libya. Russia is pumping at record levels, and the massive Kashagan field in the Caspian Sea offshore of Kazakhstan has finally begun producing at a rate of about 90,000 barrels a day and could boost that to 370,000 barrels a day by next summer. Kazakhstan is not a member of OPEC and has not participated in any discussions regarding production cuts.

Speculators (hedge funds and other managed money) face a choice before the end of October. Do they roll their long bets into a widening contango ahead of the OPEC meeting on November 30 or do they take profits now and sit on the sidelines for a while?

The number of rigs drilling for oil in the United States is down by 151 year over year and up 11 week over week. The natural gas rig count increased by three to a total of 108. The count for natural gas rigs is down by 85 year over year. Natural gas for December delivery closed the week at $3.34 per million BTUs, down 16 cents on the near-month contract compared with the prior week.

U.S. refineries ran at 85% of capacity, a week-over-week decrease of about 182,000 barrels a day. Imports fell by about 954,000 barrels a day, to around 6.9 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission’s (CFTC’s) weekly Commitments of Traders report — dropped 20,628 short contracts for WTI crude oil last week and dumped 10,517 long contracts. The movement reflects changes as of the October 18 settlement date. Managed money now holds 327,095 long positions compared with 62,609 short positions. Open interest totaled 1,811,281. There were 29 hedge funds with large short positions last week, down from 36 in the prior week.

Among the producers themselves, short positions outnumber longs 497,460 to 203,545. The number of short positions fell by 43,297 contracts last week, and longs dropped 38,531 contracts. Positions among swaps dealers show 275,791 short contracts versus 160,967 long positions. Swaps dealers dropped 4,820 contracts from their short positions last week and 8,994 contracts to their long positions.

Among the states, Texas added 10 rigs last week, Wyoming added three, New Mexico added two and Alaska and Utah added one each. Louisiana lost two rigs and Colorado dropped one rig.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 212, up 11 compared with the previous week’s count. The Eagle Ford Basin in south Texas has 33 rigs in operation, up two last week, and the Williston Basin (Bakken) in North Dakota and Montana now has 30 working rigs, unchanged for the week.

Enterprise Products Partners L.P. (NYSE: EPD) lists an October 22 posted price of $47.30 per barrel for WTI and $48.75 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by $0.50 a barrel in the week.

The pump price of gasoline slipped by about 1% week over week. Saturday morning’s average price in the United States was $2.225 a gallon, down just over two cents compared with $2.248 a week ago. The year-ago price was $2.224 a gallon.