Rig Count Rises by Most in 2 Years, Hedge Funds Boost Short Positions

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In the week ended November 11, the number of rigs drilling for oil in the United States totaled 471, up by 19 compared with the prior week and a total of 564 a year ago. Including 116 other rigs drilling for natural gas and 1 rig listed as “miscellaneous,” there are a total of 588 working rigs in the country, up by 20 week over week and down 169 year over year. Last week’s rig count increase is the largest in two years. 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 $45.58. Crude was up by more than 5% for the week. The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies increased by 5.3 million barrels in the week ended November 11, and that gasoline supplies rose by 700,000 barrels.

The OPEC meeting scheduled for November 30 dominates crude price movements now and very likely will continue to do so until the cartel announces an agreement. OPEC’s second- and third-largest producers, Iran and Iraq, have shown little willingness to cap production, although Iran may give the rest of OPEC’s members a break now that production has reached nearly 4 million barrels a month.

The not-so-good news for OPEC’s plan to cap production is noise coming from the U.S. Congress, particularly the House of Representatives, regarding the nuclear deal between Iran and six other countries, including the United States, that enabled the Islamic Republic once again to export oil. Any threat to Iran’s ability to pump and sell oil will likely result in the country digging in its heels on a production cap.

Iraq finds itself in a different bind. The country pays contract producers a per-barrel fee for the oil they pump. If production is restricted by a cap, Iraq is on the hook to pay compensation. Signals out of Iraq have been contradictory, with some indicating no cap and full-tilt production while others indicate Iraq may support a cap. Stay tuned.

The number of rigs drilling for oil in the United States is down by 93 year over year but up 19 week over week. The natural gas rig count increased by 1 to a total of 116. The count for natural gas rigs is down by 77 year over year. Natural gas for December delivery closed the week at $2.85 per million BTUs, up 22 cents on the near-month contract compared with the prior week.

U.S. refineries ran at 89.2% of capacity, a week-over-week increase of about 309,000 barrels a day. Imports rose by about 981,000 barrels a day, to more than 8.4 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission’s (CFTC) weekly Commitments of Traders report — added 22,592 short contracts for WTI crude oil last week, and added 15,593 long contracts. The movement reflects changes as of the November 8 settlement date. Managed money now holds 308,940 long positions compared with 185,047 short positions. Open interest totaled 2,027,539. There were 55 hedge funds with large short positions last week, up from 43  in the prior week.

Among the producers themselves, short positions outnumber longs 550,395 to 276,423. The number of short positions rose by 26,050 contracts last week, and longs added 6,046 contracts. Positions among swaps dealers show 250,861 short contracts versus 247,259 long positions. Swaps dealers dropped 3,874 contracts from their short positions last week and added 38,124 contracts to their long positions.

Among the states, Texas added 8 rigs, Louisiana and Oklahoma added 4 each, Colorado added 2, and Utah added 1 rig. North Dakota, Pennsylvania, and Wyoming each lost 1 rig last week.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 229, up 11 compared with the previous week’s count. The Eagle Ford Basin in south Texas has 38 rigs in operation, unchanged week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 34 working rigs, down 1 for the week..

Enterprise Products Partners lists a November 19 posted price of $42.14 per barrel for WTI and $43.59 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by $2.28 a barrel in the week.

The pump price of regular gasoline slipped by more than 3 cents a gallon week over week. Saturday morning’s average price in the United States was $2.147 a gallon, down $0.031 compared with $2.178 a week ago. The year-ago price was $2.115 a gallon.