Oil Rig Count Rises by 14, Hedge Funds Pile Into Short Positions

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In the week ended March 17, 2017, the number of rigs drilling for oil in the United States totaled 631, up by 14 compared with the prior week and up 244 compared with a total of 617 a year ago. Including 157 other rigs drilling for natural gas and one listed as “miscellaneous,” there are a total of 789 working rigs in the country, up by 21 week over week and by 313 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 April delivery closed up just three cents on Friday to settle at $48.78. Crude prices increased by 37 cents a barrel (0.6%) week over week.

The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had decreased by 200,000 barrels in the week ended March 10 and that gasoline supplies had fallen by 3.1 million barrels.

The production cuts instituted by OPEC members and its non-member acolytes were supposed to be accompanied by an increase in demand. That hasn’t happened — at least not yet.

Bloomberg News cites Kevin Book, managing director of ClearView Energy Partners:

Don’t expect the U.S. driver to save the market this year — he cares about the price now. There’s now a strong correlation between price and gasoline demand. This is likely to lead to a flattening or even decline of U.S. demand as early as late this year.

And it’s not just that drivers are consuming less gasoline. Their new cars are more fuel-efficient. The EIA reported a model-year 2015 fleet average miles-per-gallon rating of 24.8, a record high that is projected to rise to 25.6 mpg for 2016.

Demand is rising globally, particularly in the emerging economies of Asia. That will help keep prices higher for producers, but as the past two weeks have shown, without some help from the world’s largest consumer of gasoline, propping up crude prices is hard to do.

The natural gas rig count increased by six to a total of 157. The count for natural gas rigs is now up by 68 year over year. Natural gas for April delivery closed the week at $2.96 per million BTUs, down five cents on the front-month contract compared with the prior week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission’s (CFTC’s) weekly Commitments of Traders report — added 49,176 short futures and options contracts for WTI crude oil last week and dropped 37,608 long contracts. The movement reflects changes as of the March 14 settlement date. Managed money now holds 386,941 long positions compared with 98,167 short positions. Open interest totaled 3,052,948. There were 51 hedge funds with large short positions last week, up 13 from the prior week.

Among the producers themselves, short positions outnumber longs 739,736 to 475,439. The number of short positions rose by 28,955 contracts last week, and longs added 58,753 contracts.

The sharp increases among producers and other market participants, including refiners, indicates two things: first, producers have returned in force to locking in prices with hedges; and second, refiners and other market participants are betting on higher prices to help balance the cost of crude and the price they receive for their refined products and services.

U.S. refineries ran at 85.1% of capacity, a week-over-week decrease of about 20,000 barrels a day. Imports fell by about 745,000 barrels a day, to around 7.4 million barrels a day in the week.

Among the states, Oklahoma added 10 rigs last week, North Dakota added five, Texas added four, two states — Colorado and Utah — added two each, and Alaska added one new rig. Wyoming shed two rigs and Louisiana and New Mexico each lost one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 308, down one compared with the previous week’s count. The Eagle Ford Basin in south Texas has 70 rigs in operation, up by two week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 42 working rigs, up by four for the week.

Enterprise Products Partners lists a March 18 posted price of $45.23 per barrel for WTI and $46.68 a barrel for Eagle Ford crude. The price for both WTI and Eagle Ford crude fell by $0.29 a barrel in the week.

The pump price of regular gasoline fell by 0.6 cents a gallon week over week. Saturday morning’s average price in the United States was $2.294 a gallon, compared with $2.30 a week ago. The year-ago price was $1.974 a gallon.