Hedge Funds Add to Short Positions as US Oil Rig Count Drops by 21

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In the period ended December 11, the number of rigs drilling for oil in the United States totaled 524, compared with 545 in the prior week and 1,546 a year ago. Including 185 other rigs drilling for natural gas, there are a total of 709 working rigs in the country, down from 737 week over week and down 1,184 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count released on Friday.

Benchmark West Texas Intermediate (WTI) crude oil for February delivery closed last Friday at $39.97 and dropped about 8% to close at $36.76 a week later. Friday’s report from the International Energy Agency capped a week of steadily lower prices.

U.S. crude oil inventories fell by 3.6 million barrels last week, according the Energy Information Administration. The drawdown briefly sent prices higher, but reality quickly prevailed and prices continued their slide. The U.S. crude oil inventory, excluding the Strategic Petroleum Reserve, now stands at 485.9 million barrels.

The number of rigs drilling for oil in the United States is down by 1,022 year over year, and down by a whopping 21 week over week. The natural gas rig count fell by seven to total 185 at the end of the week. The count for natural gas rigs is down by 161 year over year. The past week’s rig loss is more than double the previous week’s, and that may be due partly to seasonal effects. Drilling typically slows down in the winter months.

Gasoline stockpiles increased by 800,000 barrels last week, and U.S. refineries ran at 93.1% of capacity, a week-over-week decrease of about 151,000 barrels a day.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — added 26,065 short contracts last week and 2,084 long contracts. The movement reflects changes as of the December 8 settlement date. Managed money holds 253,141 long positions, compared with 178,888 short positions. Open interest totaled 1,713,573, up about 3.2% week over week. The number of hedge funds with large short positions dropped to 63 last week. The increase in open interest and in short positions was predictable given oil’s performance two weeks ago. We could see more of the same this week as the demand outlook in the near-term is less than rosy.

Among the producers themselves, short positions outnumber longs, 371,547 to 161,463. The number of short positions rose by 5,499 contracts last week, and longs rose by 4,340 positions. Positions among swaps dealers show 241,189 shorts versus 246,450 longs. Swaps dealers dropped 9,135 contracts from their short positions last week and added just 73 long contracts.

Among the states, Texas lost nine rigs last week, and New Mexico and Ohio dropped four each. Colorado and North Dakota each lost two rigs, and five states lost one rig each: Alaska, Arkansas, Utah, West Virginia and Wyoming. Oklahoma and Pennsylvania each added one rig.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count fell by 13 to a total of 204. The Eagle Ford Basin in south Texas added three rigs to bring the total there to 76, and the Williston Basin (Bakken) in North Dakota and Montana now has 58 working rigs, down two from the prior week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $32.07 per barrel for WTI and a December 12 price of $27.70 a barrel for North Dakota Light Sweet. The posted price for a barrel of Eagle Ford crude is $32.02. The price for all three grades of crude fell by more than $4 a barrel in the past week.

The pump price of gasoline decreased week over week. Saturday morning’s average price in the United States was $2.015 a gallon, down about 1.3% from $2.042 a week ago.