Energy

Oil Rig Count Up by 3 Last Week, Hedge Funds Pile Into Short Contracts

Paul Ausick

Published: July 30, 2016 9:35 am

Last Updated: January 13, 2020 5:06 am

In the week ended July 29, the number of rigs drilling for oil in the United States totaled 374, up by three compared with the prior week. The number totaled of 664 a year ago. Including 86 other rigs drilling for natural gas and three rigs listed as “miscellaneous,” there are a total of 462 working rigs in the country, unchanged week over week and down 411 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count released on Friday.

West Texas Intermediate (WTI) crude oil for September delivery traded up about 0.6% on Friday to settle at $41.38, down about 6.5% for the week. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 1.7 million barrels in the week ended July 22, and that gasoline supplies had risen by 500,000 barrels.

There is still no end in sight to the U.S. supply glut of either crude oil or gasoline. And as prices move closer and closer to $40 a barrel, fears mount for yet another serious bear market.

Not everyone is convinced, though, that an overabundance of crude and refined products is entirely to blame for falling prices. Industry analysts at Oilprice.com cite Goldman Sachs’ analysts who are blaming the strong dollar:

We are currently going through the typical later stages of an oil bear market, when strengthening crude fundamentals run into weakening product fundamentals. Uncertainties on the near-term path of the oil market re-balancing have left the U.S. dollar as the primary driver to lower crude oil prices recently.

Goldman also suggested that if either Libyan or Nigerian production were to return, the result would weigh on prices as well. This falls into the category of “nothing’s impossible.” Another move that could further depress prices is a cessation of China’s willingness to build its strategic crude reserves. That, too, is unlikely given the low price of oil.

The number of rigs drilling for oil in the United States is down by 290 year over year and up by three week over week. The natural gas rig count decreased by two rigs to 86. The count for natural gas rigs is down by 123 year over year. Natural gas for September delivery closed the week at $2.86 per million BTUs, up about eight cents compared with the prior week.

U.S. refineries ran at 92.4% of capacity, a week-over-week increase of about 277,000 barrels a day. Imports rose by about 303,000 barrels a day, to over 8.4 million barrels a day in the week.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — added 37,516 short contracts for WTI crude oil last week and added 2,037 long contracts. The movement reflects changes as of the July 26 settlement date. Managed money holds 291,432 long positions, compared with 190,825 short positions. Open interest totaled 1,718,306. There were 57 hedge funds with large short positions last week, up three more than in the prior week.

Among the producers themselves, short positions outnumber longs by well over two to one: 449,595 to 191,578. The number of short positions rose by 6,761 contracts last week, and longs rose by 9,785 contracts. Positions among swaps dealers show 240,035 short contracts versus 213,711 long positions. Swaps dealers dumped 3,477 contracts from their short positions last week and added 5,160 contracts from their long positions.

Among the states, Louisiana and New Mexico each added two rigs last week and four states — Colorado, Ohio, Oklahoma, Pennsylvania — each added one rig. Texas lost three rigs, while Alaska and West Virginia each lost two and Utah lost one.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count rose by four to 172. The Eagle Ford Basin in south Texas lost two rigs to lower its total to 33, and the Williston Basin (Bakken) in North Dakota and Montana now has 27 working rigs, unchanged compared with the prior week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $37.59 per barrel for WTI and a July 30 price of $38.54 a barrel for Eagle Ford crude. The price for both varieties fell by $3.05 a barrel over the past week.

The pump price of gasoline fell by about 1.5% week over week. Saturday morning’s average price in the United States was $2.137 a gallon, down from $2.17 a week ago. The year-ago price was $2.674 a gallon.