Hedge Funds Cut Short Positions in Oil; Rig Count Falls by 13

Energy

Published: September 5, 2015 9:20 am

Last Updated: April 27, 2020 10:51 pm

In the week ended September 4, the number of rigs drilling for oil in the United States totaled 662, compared with 675 in the prior week and 1,584 a year ago. Including 202 other rigs mostly drilling for natural gas, there are a total of 864 working rigs in the country, down by 13 week over week and down 922 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count.

West Texas Intermediate (WTI) crude oil for October delivery bounced to a high of more than $49 a barrel last week before settling at $45.77 on Friday. For the week, WTI gained about 1.8%. The biggest jump came Monday following the release of the monthly OPEC Bulletin, which included language that some interpreted to mean that the cartel would consider cutting production to boost the price of oil. By late Tuesday, the Saudis had pretty much put paid to that notion and the inventory report from the U.S. Energy Information Administration showed another large build in crude barrels, sending the price to its weekly low.

Crude oil prices rose 10% on Thursday, August 30; 5% on Friday, August 31; and 8% on Monday, September 3, before losing 8% on Tuesday. These are all huge moves. Energy market journalist John Kemp has pointed out that Thursday’s jump was 4.6 standard deviations from the mean and a change of that size should happen just once in every 600 years. A move of 3.5 standard deviations, such as happened on both Monday and Tuesday, should happen once every eight years.

When prices move this much, basically anything can happen, and it often does. And the correct place to look for the cause is not in the oil fields but in the oil markets. Kemp and others, including us, have looked at futures market action as a more likely cause of oil market volatility than supply and demand.

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The number of rigs drilling for oil in the United States is down by 1,575 year over year, and down by 13 week over week. The natural gas rig count remained flat at 202. The count for natural gas rigs is down by 138 year over year.

Gasoline stockpiles decreased by 300,000 barrels last week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — dumped 15,303 short contracts last week and added 5,653 contracts to their long positions. The movement reflects changes as of the September 1 settlement date. Managed money holds 250,891 long positions, compared with 140,701 short positions. The hedge funds that did not dump their short positions covered them, and it is quite likely that short covering provided the volatility we discussed earlier.

Among the producers themselves, short positions outnumber longs, 300,621 to 158,459. The number of short positions last week fell by 1,200 contracts, and longs fell by 8,121 positions. Positions among swaps dealers show 297,795 shorts versus 220,887 longs. Swaps dealers cut 1,948 contracts from their short positions last week and added 2,752 long contracts.

Among the states, Texas lost 11 rigs last week, while Colorado, Kansas and New Mexico lost two each. Alaska, North Dakota and Ohio each lost one. Louisiana added four rigs in the week and California and Oklahoma each added one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count fell by two to 253. The Eagle Ford Basin in south Texas dropped four rigs to bring its count to 93, and the Williston Basin (Bakken) in North Dakota and Montana now has 72 working rigs, down one from the prior week.

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Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $42.50 per barrel for WTI and a September 5 price of $35.20 a barrel for North Dakota Light Sweet. The posted price for a barrel of Eagle Ford crude is $42.45. The price for WTI and Eagle Ford grades rose about $1 a barrel, while the price for North Dakota crude jumped to nearly $34.00 a barrel higher than they were a week ago.

The pump price of gasoline decreased week over week. Saturday morning’s average price in the United States was $2.411 a gallon, down about 3.2% from $2.49 a week ago.

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