Oil Rig Count Drops by 8, Hedge Funds Keep Dumping Short Positions

In the week ended March 4, the number of rigs drilling for oil in the United States totaled 392, compared with 400 in the prior week and 922 a year ago. Including 97 other rigs drilling for natural gas, there are a total of 489 working rigs in the country, down 13 week over week and down 703 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 April delivery traded up more than 5% on Friday to settle at $36.33, a rise of nearly 11% for the week. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 10.4 million barrels in the week ended February 26 and that gasoline supplies had fallen by 1.5 million barrels.

Even as rig counts continue to fall by double digits every week, U.S. production, though also declining, is falling quite slowly. According to EIA data, production was down by about 25,000 barrels a day last week to about 9.1 million barrels a day, and since late January production has dropped by about 144,000 barrels a day.

Production will continue to shrink as U.S. producers sharply rein in their capital spending budgets, but that is not likely to have an immediate impact on the global oil glut. We noted last week an International Energy Agency (IEA) report that production outpaces demand by about 2 million barrels a day, and that the global market won’t regain a supply-demand balance until the end of 2017. After that balance is achieved, then global consumption has to deal with some 3 billion barrels in inventory, and that should take several more years to clear.
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What does that mean? It probably means that not only will prices be “lower for longer,” but prices may well be lower forever. In early 2015, Saudi oil minister Ali al-Naimi said that the world might never see $100 oil again. He could very well have been right.

The number of rigs drilling for oil in the United States is down by 536 year over year and by eight week over week. The natural gas rig count fell from 102 to 97. The count for natural gas rigs is down by 171 year over year. Natural gas for April delivery closed the week at $1.67 per million BTUs, down 12 cents from $1.79 at the end of the prior week. Natural gas posted a 52-week low of $1.61 last week.

U.S. refineries ran at 88.3% of capacity, a week-over-week increase of about 167,000 barrels a day. Imports rose to around 8.3 million barrels a day in the week, a week-over-week increase of 490,000 barrels a day.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — dumped 18,531 short contracts last week and added 3,628 long contracts. The movement reflects changes as of the March 1 settlement date. Managed money holds 279,333 long positions, compared with 154,922 short positions. Open interest totaled 1,800,298. There were 68 hedge funds with large short positions last week, a decrease of four compared with the prior week. The hedgies have dumped short contracts in large numbers for the past two settlement periods, and the recent rise in crude prices likely has been quite welcome.

Among the producers themselves, short positions outnumber longs by more than two to one, 442,114 to 166,361. The number of short positions rose by 5,028 contracts last week, and longs fell by 9,661 positions. Positions among swaps dealers show 199,294 shorts versus 262,169 longs. Swaps dealers added 3,604 contracts to their long positions last week and cut 11,436 short contracts.

Among the states, Texas dropped four rigs last week, while North Dakota and Oklahoma each lost three rigs. Colorado lost two, and Louisiana, New Mexico and West Virginia each dropped one rig.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count fell by six to a total of 158. The Eagle Ford Basin in south Texas dropped one to a new total of 46, and the Williston Basin (Bakken) in North Dakota and Montana now has 33 working rigs, down three from the prior week.
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Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $32.37 per barrel for WTI and a March 5 price of $26.76 a barrel for North Dakota Light Sweet. The posted price for a barrel of Eagle Ford crude is $32.32. The price for the WTI and Eagle Ford varieties rose by $3.14 a barrel last week. North Dakota crude added $4.27 a barrel last week.

The pump price of gasoline rose by about 4.2% week over week. Saturday morning’s average price in the United States was $1.813 a gallon, up from $1.74 a week ago.