Oil Rig Count Up by 14 Last Week, Hedge Funds Thinking Short Again

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In the week ended July 22, the number of rigs drilling for oil in the United States totaled 371, up by 14 compared with the prior week and a total of 659 a year ago. Including 88 other rigs drilling for natural gas and three rigs listed as “miscellaneous,” there are a total of 462 working rigs in the country, up 15 week over week and down 401 year over year. 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 September delivery traded down about 1.1% on Friday to settle at $44.26, down about 4.4% for the week after posting a weekly high of $46.93 on Tuesday. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had decreased by 2.3 million barrels in the week ended July 15 and that gasoline supplies had risen by 900,000 barrels.

The U.S. gasoline glut is probably the biggest reason that crude oil prices continue to wallow around the $45 level rather than $5 to $10 higher. John Kemp at Reuters compared refinery runs for this summer to last summer and found that refiners were operating at 95.0% of capacity last year compared with about 92.5% this year. That should mean refined product supplies are falling.

The anomaly is due to an increase in refinery capacity year over year. U.S. refineries can process nearly 400,000 barrels a day more this year than last. Instead of cutting runs, refiners have chosen to leave that extra capacity idle. And even so, U.S. drivers are not soaking up all the production in what is the peak driving time of the year.

In the past week, the two largest U.S. oilfield services companies, Schlumberger Ltd. (NYSE: SLB) and Halliburton Co. (NYSE: HAL), reported results. Both expect an improvement in their business in the second half of this year. Halliburton said that it believes the North American market has “turned” and it expects a “modest uptick” in rig count. Schlumberger also sees rig counts increasing but noted that pricing for services need to improve in what the CEO called a “medium-for-longer environment.”

The number of rigs drilling for oil in the United States is down by 288 year over year and up by four week over week. The natural gas rig count decreased by one rig to 88. The count for natural gas rigs is down by 128 year over year. Natural gas for August delivery closed the week at $2.78 per million BTUs, down about two cents compared with the prior week.

U.S. refineries ran at 93.2% of capacity, a week-over-week increase of about 319,000 barrels a day. Imports rose by about 293,000 barrels a day to over 8.1 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — added 24,100 short contracts for WTI crude oil last week, and added 5,657 long contracts. The movement reflects changes as of the July 19 settlement date. Managed money holds 289,395 long positions compared with 153,309 short positions. Open interest totaled 1,685,116. There were 53 hedge funds with large short positions last week, up by two compared with the prior week.

Among the producers themselves, short positions outnumber longs by well over two to one: 442,834 to 181,793. The number of short positions fell by 31,031 contracts last week, and longs fell by 26,629 contracts. Positions among swaps dealers show 243,512 short contracts versus 208,551 long positions. Swaps dealers dumped 587 contracts from their short positions last week and dropped 7,639 contracts from their long positions.

Among the states, Texas added 15 rigs last week while California added two and New Mexico added one new rig. Louisiana lost two rigs while Alaska and Kansas each lost one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count rose by eight to 168. The Eagle Ford Basin in south Texas added two rigs to raise its total to 35, and the Williston Basin (Bakken) in North Dakota and Montana now has 27 working rigs, unchanged compared with the prior week.

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Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $40.64 per barrel for WTI and a July 23 price of $41.59 a barrel for Eagle Ford crude. The price for both varieties fell by $1.76 a barrel over the past week.

The pump price of gasoline fell by about 2% week over week. Saturday morning’s average price in the United States was $2.170 a gallon, down from $2.215 a week ago. The year-ago price was $2.740 a gallon.