Oil Rig Count Rises by 3; OPEC Supply Cut Talks Flounder

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In the week ended November 23, the number of rigs drilling for oil in the United States totaled 474, up by 3 compared with the prior week and a total of 555 a year ago. Including 118 other rigs drilling for natural gas and 1 rig listed as “miscellaneous,” there are a total of 593 working rigs in the country, up by 5 week over week and down 151 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 January delivery traded up about 4.7% in Friday’s holiday-shortened session to settle at $45.96. Crude rose by just 0.5% for the week. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had decreased by 1.3 million barrels in the week ended November 18, and that gasoline supplies had risen by 2.3 million barrels.

The OPEC meeting scheduled for November 30 continues to dominate crude price movements. Reports surfaced late Friday that Saudi Arabia has walked away from a planned meeting with Russia and other non-OPEC oil producers after the Saudis were unable to reach an agreement with other OPEC members on long-discussed production cuts. The meeting, scheduled for Monday, was later cancelled.

Apparently OPEC ministers will be meeting again over the weekend to try to resolve the differences that separate members, particularly, Saudi Arabia, Iran, and Iraq. We covered the differences among these countries in a Friday story that wound up with these words from Reuters oil analyst John Kemp:

In theory, the negotiations turn on mundane issues including claims for exemptions and the use of members’ own production data versus estimates from “secondary sources” to establish baselines from which to cut.

In reality, the negotiations are about the profound issue of sharing out oil revenues and diplomatic, military and economic power, which is what makes progress so difficult.

The 4% drop that we saw in crude prices on Friday is a direct result of the political reality that OPEC has faced for decades. Why anyone believed it would change remains a mystery.

The number of rigs drilling for oil in the United States is down by 81 year over year but, as noted above, up 3 week over week. The natural gas rig count increased by 2 to a total of 118. The count for natural gas rigs is down by 71 year over year. Natural gas for January delivery closed the week at $3.19 per million BTUs, up 34 cents on the near-month contract compared with the prior week.

U.S. refineries ran at 90.8% of capacity, a week-over-week increase of about 271,000 barrels a day. Imports fell by about 845,000 barrels a day, to around 7.6 million barrels a day for the week.

The Commodity Futures Trading Commission (CFTC) did not release its weekly Commitment of Traders report due to the Thanksgiving holiday. The report will be issued Monday, November 28. We would note, however, that hedge funds are massively short on crude oil and if by some miracle OPEC and other producers do manage to reach agreement on production cuts, the short covering on crude contracts will be massive and the price of crude will spike.

Among the states, Pennsylvania added 4 rigs last week, Texas added 3 rigs, and Colorado added 2 rigs. Wyoming dropped 3 rigs, New Mexico lost 2, and North Dakota dropped 1.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 228, down 1 compared with the previous week. The Eagle Ford Basin in south Texas has 38 rigs in operation, unchanged week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 33 working rigs, down 1 for the week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a November 26 posted price of $42.51 per barrel for WTI and $43.96 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by $0.37 a barrel in the week.

The pump price of regular gasoline slipped by over 2 cents a gallon week over week. Saturday morning’s average price in the United States was $2.125 a gallon, down $0.022 from¬†$2.147 a week ago. The year-ago price was $2.054 a gallon.