Oil Rig Count Rises by 5, Hedge Funds at Record Long Futures Positions

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In the week ended February 24, 2017, the number of rigs drilling for oil in the United States totaled 602, up by five compared with the prior week and up from a total of 400 a year ago. Including 151 other rigs drilling for natural gas and one rig listed as “miscellaneous,” there are a total of 754 working rigs in the country, up week over week by three and up by 252 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 April delivery traded down about 0.4% on Friday to settle at $53.99. Crude prices increased by 59 cents a barrel week over week.

The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had increased by 600,000 barrels in the week ended February 17 and that gasoline supplies had fallen by 2.6 million barrels.

Crude prices have been relatively stable within a range of $50 to $55 a barrel since early January, after climbing from around $45 a barrel before the production cuts by OPEC and other producing nations were announced. The cartel and its partners reached about 90% compliance with their targets in January, but continued rig count increases in U.S. shale plays is keeping a lid on how far up the price will go.

As rigs are added, actual production data lags well behind the increase in rig numbers. That’s due to the time it takes to complete and frack the well. When U.S. onshore production began rising last October, the rigs doing the work had been deployed several months earlier. If weekly rig counts keep climbing, production increases will show up for about the next six months.

The natural gas rig count decreased by two to a total of 151. The count for natural gas rigs is now up by 49 year over year. Natural gas for April delivery closed the week at $2.80 per million BTUs, down four cents on the front-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 — dumped 3,213 short futures and options contracts for WTI crude oil last week and added 20,086 long contracts. The movement reflects changes as of the February 21 settlement date. Managed money now holds 453,030 long positions, compared with 39,393 short positions. Open interest totaled 2,727,947. There were 38 hedge funds with large short positions last week, down three from the prior week.

Long contracts outnumber shorts by more than 10 to one, reaching another record high. Short contracts fell to their lowest level in nearly three years.

Among the producers themselves, short positions outnumber longs 702,585 to 411,332. The number of short positions fell by 53,290 contracts last week, and longs dropped 65,686 contracts. As prices rise toward what most analysts believe will be close their highest level of the year, the incentive diminishes for producers to purchase short contracts as a hedge against falling prices.

U.S. refineries ran at 84.3% of capacity, a week-over-week decrease of about 187,000 barrels a day. Imports fell by about 1.2 million barrels a day to around 7.3 million barrels a day in the week.

Among the states, Texas added eight rigs last week and Utah added one. The states losing rigs were Louisiana and Alaska, down two each, and North Dakota, down one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 306, up three compared with the previous week’s count. The Eagle Ford Basin in south Texas has 64 rigs in operation, up by three week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 35 working rigs, down one for the week.

Enterprise Products Partners lists a February 25 posted price of $50.44 per barrel for WTI and $51.89 a barrel for Eagle Ford crude. The price for WTI and Eagle Ford crudes rose by 59 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 $2.286 a gallon, compared with $2.284 a week ago. The year-ago price was $1.715 a gallon.