In the week ended January 27, 2017, the number of rigs drilling for oil in the United States totaled 566, up by a 15 compared with the prior week and up 68 compared with a total of 498 a year ago. Including 145 other rigs drilling for natural gas and one rig listed as “miscellaneous,” there are a total of 712 working rigs in the country, up by 18 week over week and up by 93 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 March delivery traded down up 1.1% on Friday to settle at $53.17. Crude prices decreased by less than 0.1% week over week.

The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 2.8 million barrels in the week ended January 20, and that gasoline supplies had jumped by 6.8 million barrels.

As we see from last week’s Commitments of Traders report, the smart money (aka, hedge funds) are once more piling into long futures positions. The funds are betting that supply will drop enough to draw down huge global stockpiles of crude, thereby raising demand and, of course, prices.

Fund managers stand to make money from their net long positions if the price of nearby oil futures contracts rises relative to longer-dated futures contracts as the oil market rebalances. In the futures market that is called backwardation.

John Kemp at Reuters also points out that calendar spread options, which are bets on the difference be current and future prices that eliminate the need to bet on the actual price of crude, is becoming a popular and crowded trade. One danger here is that some of the funds may decide to take profits. In that case, the spread option price falls, and with it the physical option price.

Another threat is that market supply-demand rebalancing doesn’t happen as expected, leaving the market stuck in contango and increasing liquidation risk significantly.

The natural gas rig count increased by three to a total of 145. The count for natural gas rigs is now up by 24 year over year. Natural gas for March delivery closed the week at $3.39 per million BTUs, up 19 cents on the near-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 — dropped 6,254 short futures and options contracts for WTI crude oil last week and added 15,176 long contracts. The movement reflects changes as of the January 24 settlement date. Managed money now holds 421,899 long positions compared with 50,960 short positions. Open interest totaled 2,839,256. There were 45 hedge funds with large short positions last week, up one from the prior week.

Among the producers themselves, short positions outnumber longs 676,517 to 410,204. The number of short positions fell by 962 contracts last week, and longs dropped 6,574 contracts. Positions among swaps dealers show 393,781 short contracts versus 118,145 long positions. Swaps dealers added 7,022 contracts to their short positions last week and dropped 4,077 contracts from their long positions.

U.S. refineries ran at 88.3% of capacity, a week-over-week decrease of about 421,000 barrels a day. Imports fell by about 568,000 barrels a day, to around 7.8 million barrels a day in the week.

Among the states, Texas added nine rigs last week, Oklahoma added five rigs, New Mexico added four, Louisiana added two, while Alaska and North Dakota each added one rig. Colorado dropped three rigs last week, and Arkansas and West Virginia each lost one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 291, up 10 compared with the previous week’s count. The Eagle Ford Basin in south Texas has 54 rigs in operation, up by five week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 37 working rigs, up two for the week.

Enterprise Products Partners lists a January 28 posted price of $49.62 per barrel for WTI and $51.07 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by $0.75 a barrel in the week.

The pump price of regular gasoline fell by nearly four cents a gallon week over week. Saturday morning’s average price in the United States was $2.282 a gallon, compared with $2.319 a week ago. The year-ago price was $1.822 a gallon.

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