Energy

Oil Rig Count Up by 7 Last Week, Hedge Funds Scooping Up Short Contracts

Paul Ausick

Published: August 6, 2016 9:40 am

Last Updated: January 13, 2020 4:52 am

In the week ended August 5, the number of rigs drilling for oil in the United States totaled 381, up by seven compared with the prior week and a total of 670 a year ago. Including 81 other rigs drilling for natural gas and two rigs listed as “miscellaneous,” there are a total of 464 working rigs in the country, up week over week by two and down 420 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 0.1% on Friday to settle at $41.98, up about 1% for the week. The U.S. Energy Information Administration (EIA) reported last Wednesday that crude supplies had increased by 1.4 million barrels in the week ended July 29, and that gasoline supplies had dropped by 3.3 million barrels.

Rebalancing the global crude oil market, despite the hopeful words from the International Energy Agency (IEA) and OPEC, is proceeding in fits and starts. Supply continues to outstrip demand and as long as that condition lasts, rebalancing will depend on cutting production.

Typically when markets try to rebalance to oversupply, production cuts work in tandem with higher demand. That drives up the price of oil, more drilling begins and demand is met by increased supply.

The situation today remains too much supply and not a large enough bump in demand. Essentially two customers, China and India, have provided what increased demand there is. The United States and other developed countries have simply not done their part to drive demand and, consequently, more supply.

The U.S. natural gas market got a surprise last week when the EIA reported a drawdown of 6 billion cubic feet in inventories. Natural gas rig counts dropped by five last week as drillers reduce production in an effort to push inventories down ahead of the heating season. Producers are getting some help from the hot weather across most of the county, which is driving demand for electricity to run air-conditioning systems.

The number of rigs drilling for oil in the United States is down by 289 year over year and up by seven week over week. The natural gas rig count decreased by five rigs to 81. The count for natural gas rigs is down by 132 year over year. Natural gas for September delivery closed the week at $2.76 per million BTUs, down about 10 cents compared with the prior week.

U.S. refineries ran at 93.3% of capacity, a week-over-week increase of about 266,000 barrels a day. Imports rose by about 301,000 barrels a day, to over 8.7 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 36,938 short contracts for WTI crude oil last week and added 1,022 long contracts. The movement reflects changes as of the August 2 settlement date. Managed money now holds 292,454 long positions, compared with 227,763 short positions. Open interest totaled 1,792,640. There were 61 hedge funds with large short positions last week, up by four compared with the prior week.

This is the second week in a row in which the hedge funds have added more than 35,000 short contracts to their positions. That’s a big number, and a good indication of where the “smart” money is placing its bets on the price of oil.

Among the producers themselves, short positions outnumber longs by well over two to one: 460,778 to 209,219. The number of short positions rose by 11,183 contracts last week, and longs rose by 17,641 contracts. Positions among swaps dealers show 243,886 short contracts versus 215,743 long positions. Swaps dealers added 3,851 contracts to their short positions last week and added 2,032 contracts to their long positions.

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

In the Permian Basin of west Texas and southeastern New Mexico, the rig count rose by five to 177. The Eagle Ford Basin in south Texas added four rigs to raise its total to 37, and the Williston Basin (Bakken) in North Dakota and Montana now has 28 working rigs, up by one compared with the prior week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $38.25 per barrel for WTI and an August 6 price of $39.20 a barrel for Eagle Ford crude. The price for both varieties rose by $0.66 a barrel over the past week.

The pump price of gasoline fell by about 0.6% week over week. Saturday morning’s average price in the United States was $2.123 a gallon, down from $2.137 a week ago. The year-ago price was $2.623 a gallon.