Rig Count Dips as Crude Prices Tumble and Hedge Funds Sit on the Sidelines

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In the week ended October 28, the number of rigs drilling for oil in the United States totaled 441, down by two compared with the prior week, and compared with a total of 578 a year ago. Including 114 other rigs drilling for natural gas and two rigs listed as “miscellaneous,” there are a total of 557 working rigs in the country, up by four from last week and down 218 year over year. The data come from the latest Baker Hughes North American Rotary Rig Count released on Friday.

West Texas Intermediate (WTI) crude oil for December delivery traded down about 2.1% on Friday to settle at $48.70. The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had decreased by 600,000 barrels in the week ended October 21 and that gasoline supplies had dropped by 2 million barrels.

Both Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) reported third-quarter results on Friday, and investors’ reaction was quite different. Exxon’s shares dropped about 2.5%, while Chevron’s rose by 3.9%. Both beat profit estimates, but Exxon missed on revenues. Both also had pretty low bars to clear.

On the conference call, Exxon said that it may have to remove 4.6 billion barrels of oil equivalent from its proved reserves as a result of an investigation by the U.S. Securities and Exchange Commission. In order to be counted as “proved,” the oil must have a 90% probability of being produced at a profit with current technology. Exxon’s questionable barrels are mostly located in Canada, and it’s worth noting that the company is the only major producer that has not written down the value of its reserves over the past two years.

Chevron, on the other hand, was more upbeat on its call, revealing that it plans to spend more on its Permian Basin assets in the next few years. A company executive said that Chevron has begun drilling wells in the Permian that share the same design features. The company believes that the technique could boost production from the Permian by 200,000 barrels a day by the end of the decade. Chevron operated five rigs in the Permian in the first half of this year, but the “well-factory” approach lowered development costs by 30%.

Meanwhile, OPEC members Iran and Iraq are pushing to be excluded from the production cuts being proposed for the cartel members. OPEC delegates are met on Friday to hash out an agreement that could be adopted at the cartel’s November 30 meeting, but a dispute over how barrels are counted. And with Iran and Iraq outside the corral, chances for a production cut fade.

The number of rigs drilling for oil in the United States is down year over year by 137 and down two from last week. The natural gas rig count increased by six to a total of 114. The count for natural gas rigs is down by 83 year over year. Natural gas for December delivery closed the week at $3.11 per million BTUs, down 23 cents on the near-month contract compared with the prior week.

U.S. refineries ran at 85.6% of capacity, a week-over-week increase of about 182,000 barrels a day. Imports rose by about 109,000 barrels a day, to more than 7 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 — added 3,819 short contracts for WTI crude oil last week, and dumped 16,042 long contracts. The movement reflects changes as of the October 25 settlement date. Managed money now holds 311,053 long positions, compared with 66,428 short positions. Open interest totaled 1,821,737. There were 40 hedge funds with large short positions last week, up from 29 in the prior week.

Among the producers themselves, short positions outnumber longs 498,051 to 205,471. The number of short positions rose by 591 contracts last week, and longs added 1,926 contracts. Positions among swaps dealers show 276,561 short contracts versus 154,640 long positions. Swaps dealers added 770 contracts to their short positions last week and dropped 6,327 contracts from their long positions.

Among the states, North Dakota added five rigs last week while Pennsylvania and Texas each added two and Wyoming added one rig. Colorado lost three and New Mexico dropped two rigs.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 212, unchanged compared with the previous week’s count. The Eagle Ford Basin in south Texas has 33 rigs in operation, also unchanged week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 35 working rigs, up five for the week.

Enterprise Products Partners lists an October 29 posted price of $45.15 per barrel for WTI and $46.60 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes dropped by $2.15 a barrel in the week.

The pump price of regular gasoline slipped by about a penny week over week. Saturday morning’s average price in the United States was $2.216 a gallon, down just over a penny compared with $2.225 a week ago. The year-ago price was $2.188 a gallon.