Rig Count Jumps as Crude Prices Plunge; Hedge Funds Raise Short Bets

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In the week ended October 28, the number of rigs drilling for oil in the United States totaled 450, up by nine compared with the prior week and compared with a total of 572 a year ago. Including 117 other rigs drilling for natural gas and two rigs listed as “miscellaneous,” there are a total of 569 working rigs in the country, up by 12 from a week ago and down 202 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 December delivery traded down about 1.2% on Friday to settle at $44.13. Crude fell by 9.5% for the week, the biggest one-week decline in the price since January. The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had increased by a record-breaking 14.4 million barrels in the week ended October 28, and that gasoline supplies had dropped by 2.2 million barrels.

The steep rise in the crude inventory last week was probably related to a spike in imports, which rose by 9 million barrels while refinery runs were lower week over week and maintenance continues. The import spike is almost certainly temporary and should decrease over the next few weeks as refineries come back online.

Another factor pushing prices down last week was added skepticism over OPEC’s commitment to cutting production in an effort to push crude prices higher. It got worse for producers on Friday following an exclusive report at Reuters indicating that the rivalry between Saudi Arabia and Iran has heated up again.

Reuters cited an OPEC official who said, “The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting.” The threat, which the Saudis denied making, came after Iran declared its intention to ignore a freeze on output.

Saudi Arabia wants Iran to freeze output at 3.66 million barrels a day, the most recent level reported by the cartel’s “secondary sources.” Iran said it produced 3.85 million barrels a day in September and that it will only freeze production when its output reaches 12.7% of OPEC’s ceiling, or 4.2 million barrels a day.

Russia has made noises about joining OPEC in freezing production, but judging by the increases in U.S. rig counts, if the price of crude heads back above $50, more U.S. production will come online and keep prices in check. OPEC and Saudi Arabia may no longer possess the market power to create a significant and sustained boost to crude prices. We’re not living in 1975 anymore.

The number of rigs drilling for oil in the United States is down by 122 year over year but up nine week over week. The natural gas rig count increased by three to a total of 117. The count for natural gas rigs is down by 82 year over year. Natural gas for December delivery closed the week at $2.78 per million BTUs, down 33 cents on the near-month contract compared with the prior week.

U.S. refineries ran at 85.2% of capacity, a week-over-week decrease of about 104,000 barrels a day. Imports rose by about 2 million barrels a day, to 9 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission’s (CFTC’s) weekly Commitments of Traders report — added 12,462 short contracts for WTI crude oil last week and dropped 20,754 long contracts. The movement reflects changes as of the November 1 settlement date. Managed money now holds 290,299 long positions compared with 78,890 short positions. Open interest totaled 1,854,612. There were 43 hedge funds with large short positions last week, up from 40 in the prior week.

Among the producers themselves, short positions outnumber longs 489,187 to 224,859. The number of short positions fell by 8,864 contracts last week, and longs added 19,388 contracts. Positions among swaps dealers show 279,027 short contracts versus 168,346 long positions. Swaps dealers added 2,466 contracts to their short positions last week and added 13,706 contracts to their long positions.

Among the states, Texas added six rigs, Oklahoma added three, Louisiana and North Dakota added two each and Colorado added one. Alaska lost a rig last week.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 218, up by six compared with the previous week’s count. The Eagle Ford Basin in south Texas has 35 rigs in operation, up two week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 37 working rigs, up five for the week.

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Enterprise Products Partners lists a November 5 posted price of $40.52 per barrel for WTI and $41.97 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes dropped by $4.63 a barrel in the week.

The pump price of regular gasoline slipped by less than a penny week over week. Saturday morning’s average price in the United States was $2.222 a gallon, down $0.006 compared with $2.216 a week ago. The year-ago price was $2.213 a gallon.