Oil Rig Count Rises by 21, Hedge Funds Net Short 100 Million Barrels in Past 2 Weeks

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In the week ended March 24, 2017, the number of rigs drilling for oil in the United States totaled 652, up by 21 compared with the prior week and 280 higher than a total of 372 a year ago. Including 155 other rigs drilling for natural gas and two listed as “miscellaneous,” there are a total of 809 working rigs in the country, 20 higher week over week and up by 345 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 May delivery closed up 0.9% on Friday to settle at $48.14. Crude prices decreased by 64 cents a barrel (1.3%) week over week.

The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 5 million barrels in the week ended March 17 and that gasoline supplies had fallen by 2.8 million barrels.

The production cuts from OPEC and its 11 non-cartel partners is not having the desired effect on crude prices and the Saudis have begun to hint that the cuts will have to be extended beyond the agreed end date of June. There is a codicil to that, however: the Saudis expect Iran to commit to a production cut for the second six months.

Iran was allowed to grow production during the first initial six-month period, lifting production to near 3.8 million barrels a day. Iran’s oil minister said last week that the Islamic Republic would be willing to hold production at that level until the end of this year, but cuts below that level are unlikely. It’s an election year in Iran and no one wants to be viewed as soft on arch-rival Saudi Arabia.

In the United States, President Donald Trump has signed the permit giving TransCanada federal approval to build the Keystone XL pipeline. The company still faces pushback from environmental groups, particularly in Nebraska, where the pipeline route cuts across the Ogallala Aquifer.

But is the Keystone XL still needed? Two other pipeline expansion projects have already been approved: Kinder Morgan’s Trans Mountain pipeline that runs west from the Alberta oil sands to British Columbia and Enbridge’s Line 3, running east from Alberta to Superior, Wisconsin (presidential permit is already in place). There is little chance that new oil sands projects will come online in the next decade, so where will the oil come from to fill three pipelines with a combined capacity of around 2.5 million barrels a day, about 1.9 million barrels a day more than the existing pipelines already transport?

The U.S. natural gas rig count decreased by two to a total of 155. The count for natural gas rigs is now up by 63 year over year. Natural gas for April delivery closed the week at $3.08 per million BTUs, up 12 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 12,661 short futures and options contracts for WTI crude oil last week and dropped 15,536 long contracts. The movement reflects changes as of the March 21 settlement date. Managed money now holds 371,404 long positions compared with 110,827 short positions. Open interest totaled 2,880,516. There were 59 hedge funds with large short positions last week, up eight from the prior week.

Among the producers themselves, short positions outnumber longs 727,922 to 481,477. The number of short positions fell by 11,814 contracts last week, and longs added 6,038 contracts.

Two weeks ago the hedgies turned net short by 86,784 WTI futures and options contracts, or nearly 87 million barrels of crude. This past week the trade was net short by 28,197 contracts. A shift of more than 100 million barrels in just two weeks. If this is the smart money, where do markets think the price of crude is going?

U.S. refineries ran at 87.4% of capacity, a week-over-week increase of about 329,000 barrels a day. Imports rose by about 902,000 barrels a day, to around 8.3 million barrels a day in the week.

Among the states, Texas added eight rigs last week, Oklahoma added seven, New Mexico added three, and five states — Alaska, California, North Dakota, Pennsylvania and West Virginia — added one rig each. Louisiana lost two rigs last week.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 315, up seven compared with the previous week’s count. The Eagle Ford Basin in south Texas has 72 rigs in operation, up by two during the week, and the Williston Basin (Bakken) in North Dakota and Montana now has 43 working rigs, up by one for the week.

Enterprise Products Partners lists a March 25 posted price of $44.42 per barrel for WTI and $45.87 a barrel for Eagle Ford crude. The price for both WTI and Eagle Ford crude fell by $0.81 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 $2.288 a gallon, compared with $2.294 a week ago. The year-ago price was $2.029 a gallon.