In the week ended March 6, the number of rigs drilling for oil in the United States totaled 922, compared with 986 in the prior week and 1,443 a year ago. Including 270 other rigs mostly drilling for natural gas, there were a total of 1,192 working rigs in the United States, down 75 week-over-week and down 600 year-over-year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count.

The number of rigs drilling for oil fell by 521 year-over-year and by 64 week-over-week. The natural gas rig count declined by 12 week-over-week to a total of 268 and by 77 year-over-year.

The week-over-week decline in the oil rig count more than doubled last week from a drop of 37 in the prior week. Since October 10, when the number of oil rigs working in the United States totaled 1,609, the number of oil rigs has dropped by 687, or about 57%.

The price of crude oil remained essentially flat last week, opening on Monday at about $49 a barrel and closing on Friday at less than $50 a barrel. In between, the price spiked above $52 early Thursday even after the U.S. Energy Information Administration reported a crude oil inventory rise of more than 10 million barrels in the week.

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The impact of this decline in rigs on actual U.S. production is the subject of much speculation. The U.S. expects production growth to fall into negative territory by April or May. To most people that indicates that crude prices will rise beginning in the second half of the year.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report — cut their long positions on NYMEX crude by 17,000 contracts last week. As of March 3, there were about 300,000 long positions among the Managed Money players, compared with nearly 136,000 short positions. Shorts gained 17,000 contracts last week.

Among the producers themselves, short positions outnumber longs, 368,000 to 240,000, and the difference among swaps dealers is even more tilted toward the shorts. Both groups increased short positions last week.

This is the first time for a month or so that the hedge funds have tilted toward short positions. How long they stay on this side of the bet remains to be seen. If we had to assign a reason to the switch, it would be reports on the amount of crude oil in storage (a lot) and the projected production rate (higher). That is not a formula that supports higher prices over the next several months.

The states losing the most rigs were Texas (down 32), followed by Oklahoma, Pennsylvania and New Mexico (down seven each). Colorado lost five and North Dakota lost three. West Virginia is the only state to add a rig last week.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count dropped by 22 to bring the total down to 333. The Eagle Ford Basin in south Texas lost eight rigs and now has 149 working. The Williston Basin (Bakken) in North Dakota and Montana has 108 working rigs, down three from the prior week.

As of Friday, the posted price for Williston Basin sweet crude had dropped from $33.44 a barrel a week ago to $33.19, and Williston Basin sour dipped from $24.33 to $24.08 a barrel. Eagle Ford Light crude sold for $46.00 a barrel, down from $46.25 on the previous Friday, the same price as West Texas Intermediate (WTI).

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