Oil Rig Count Rises by 8, Hedge Funds Now Wary of Massive Long Positions

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In the week ended March 10, 2017, the number of rigs drilling for oil in the United States totaled 617, up by eight compared with the prior week and up 231 compared with a total of 609 a year ago. Including 151 other rigs drilling for natural gas, there are 768 working rigs in the country, up by 12 week over week and up by 288 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 1.8% on Friday to settle at $48.39. Crude prices decreased by 79 cents a barrel (1.5%) week over week.

The U.S. Energy Information Administration (EIA) reported last Thursday that crude supplies had increased by 8.2 million barrels in the week ended March 3 and that gasoline supplies had fallen by 6.6 million barrels.

WTI crude oil opened the week well above $50 a barrel and closed the week well short of that level. The world’s largest oil commodity trader, Vitol, sees “a lot more growth” in U.S. exports going forward, and that does not augur well for the attempt by OPEC and its allies to lift prices by cutting production.

John Kemp at Reuters reported that hedge funds have accumulated a record long position of more than 900 million barrels in the futures and options markets, betting that prices will rise to more than $60 a barrel. Even though OPEC compliance with the production cuts has reached nearly 99% of its target, the cartel has also said that it will not reduce output in order to let U.S. shale producers boost theirs. Kemp noted:

Prices plunged this week because at least some traders revised their view on the likelihood of an early reduction in stocks and a quick rebalancing.

Concerns about the rapid resumption of shale drilling and the possible re-emergence of surplus production also weighed.

Adding to those factors, the concentration of bullish hedge fund positions raised worries the trade was becoming crowded.

The natural gas rig count increased by five to a total of 151. The count for natural gas rigs is now up by 57 year over year. Natural gas for April delivery closed the week at $3.04 per million BTUs, up 21 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 — added just 223 short futures and options contracts for WTI crude oil last week and dropped 10,927 long contracts. The movement reflects changes as of the March 7 settlement date. Managed money now holds 424,594 long positions compared with 48,991 short positions. Open interest totaled 2,803,226. There were 38 hedge funds with large short positions last week, down five from the prior week.

Among the producers themselves, short positions outnumber longs 710,781 to 416,686. The number of short positions rose by 9,069 contracts last week, and longs added 6,169 contracts.

U.S. refineries ran at 85.9% of capacity, a week-over-week decrease of about 172,000 barrels a day. Imports rose by about 561,000 barrels a day to around 8.2 million barrels a day in the week.

Among the states, Louisiana added five rigs, Colorado and Texas added three each, Ohio and Wyoming each added two rigs and California added one rig. Alaska lost three rigs and New Mexico lost one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count now stands at 309, up one compared with the previous week’s count. The Eagle Ford Basin in south Texas has 68 rigs in operation, down by one week over week, and the Williston Basin (Bakken) in North Dakota and Montana now has 38 working rigs, unchanged for the week.

Enterprise Products Partners lists a March 11 posted price of $44.94 per barrel for WTI and $46.39 a barrel for Eagle Ford crude. The price for WTI fell by $5.50 a barrel and Eagle Ford crude fell by $4.84 a barrel in the week.

The pump price of regular gasoline fell by 1.6 cents a gallon week over week. Saturday morning’s average price in the United States was $2.30 a gallon, compared with $2.316 a week ago. The year-ago price was $1.886 a gallon.