Oil Rig Count Rises by 8, Hedge Funds Went Net Short Last Week

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In the week ended February 10, 2017, the number of rigs drilling for oil in the United States totaled 591, up by eight compared with the prior week and up 152 compared with a total of 439 a year ago. Including 149 other rigs drilling for natural gas and one rig listed as “miscellaneous,” there are a total of 741 working rigs in the country, up by 12 week over week and up by 158 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 up 1.6% on Friday to settle at $53.85. Crude prices increased by two cents week over week.

The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 13.8 million barrels in the week ended February 3, and that gasoline supplies had fallen by 900,000 barrels.

On Friday, the International Energy Agency (IEA) said that global crude supplies plunged by 1.5 million barrels per day in January, primarily due to lower output from both OPEC and non-OPEC producers. Total January supply came in at 96.4 million barrels a day, some 730,000 barrels a day below the January 2015 total.

According to the IEA, OPEC cut production in January by 90% of its targeted 1.2 million barrels per day. However, the cartel’s production in the last three months of 2016 had been ramped way up and the percentage cuts were based on these high numbers.

Crude oil stockpiles in OECD nations were 286 million barrels above the five-year average at the end of December, according to the IEA, and have now fallen from an all-time high of 3.11 billion barrels in July of last year to below 3 billion barrels.

The boost in production in the last quarter of last year and the high inventory levels could indicate that OPEC’s planned six-month cuts to production won’t be able to rebalance the market and will have to be extended for another six months.

The natural gas rig count increased by four to a total of 149. The count for natural gas rigs is now up by 47 year over year. Natural gas for March delivery closed the week at $3.04 per million BTUs, down a penny 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 — added 12,710 short futures and options contracts for WTI crude oil last week and dropped 7,830 long contracts. The movement reflects changes as of the February 7 settlement date. Managed money now holds 420,078 long positions compared with 60,691 short positions. Open interest totaled 2,909,593. There were 43 hedge funds with large short positions last week, up one from the prior week.

Among the producers themselves, short positions outnumber longs 707,498 to 440,989. The number of short positions rose by 4,239 contracts last week, and longs added 8,413 contracts. Positions among swaps dealers show 417,947 short contracts versus 126,635 long positions. Swaps dealers added 8,936 contracts to their short positions last week and added 7,210 contracts to their long positions.

The net change in hedge funds’ position last week tilted to the shorts by about 20,000 contracts. That’s hardly surprising since the ratio of long to short positions in the futures and options markets was at levels not seen in 10 years. How much impact that will have on crude future prices is anyone’s guess.

U.S. refineries ran at 87.7% of capacity, a week-over-week decrease of about 54,000 barrels a day. Imports rose by about 1.1 million barrels a day, to around 9.4 million barrels a day in the week.

Among the states, Texas added seven rigs last week, New Mexico added four and Louisiana and West Virginia each added two. Pennsylvania added one new rig while Ohio and Wyoming each lost two rigs.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 301, up six compared with the previous week’s count. The Eagle Ford Basin in south Texas has 59 rigs in operation, up by three week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 37 working rigs, unchanged for the week.

Enterprise Products Partners lists a February 11 posted price of $50.31 per barrel for WTI and $51.76 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by three cents a barrel in the week.

The pump price of regular gasoline rose by less than a penny a gallon week over week. Saturday morning’s average price in the United States was $2.276 a gallon, compared with $2.275 a week ago. The year-ago price was $1.703 a gallon.