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Oil Rig Count Plunges While Hedge Funds Boost Bets on Lower Prices

In the week ended October 2, the number of rigs drilling for oil in the United States totaled 614, compared with 640 in the prior week and 1,591 a year ago. Including 195 other rigs drilling for natural gas, there are a total of 809 working rigs in the country, down by 29 week over week and down 1,113 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 November delivery bounced to a high of $47.10 a barrel last week before settling at $45.54 on Friday, to close the week down by about 0.4%. The price reached its weekly high just ahead of Thursday’s report on the nation’s national gas inventory.

Last week marks the fifth consecutive week with a drop in the rig count, and that is propping up crude prices a bit. But energy consulting and research firm Rystad Energy believes production of oil from U.S. shale plays could increase by 200,000 barrels a day in 2016 due to “overperforming wells and a significant backlog of drilled uncompleted (DUC) possibly coming online in 2016.” The researchers also say:

If well performance continues to increase (i.e. more proppant per well leading to higher initial production rates) for the wells currently under development, shale production will not decrease at the same pace as activity. Wells under development currently correspond to ~80% of the total spudded 2015 well count [of 11,300]. The wells “under development” include drilled, not yet producing wells and not yet drilled wells. In fact, according to in-house research and analysis, ~43% of under development wells of 2015 are wells already drilled but pending completion (DUC). If the DUC wells are completed during 2016, shale production will increase during this year; if the DUC wells continues or increases during 2016, shale production can remain constant year-over-year.

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The number of rigs drilling for oil in the United States is down by 977 year over year and down by 26 week over week. The natural gas rig count slipped by two, from 197 to 195. The count for natural gas rigs is down by 135 year over year.

Gasoline stockpiles increased by 3.3 million barrels last week, even though refineries ran at less than 90% of capacity as they perform scheduled maintenance and switch to winter-grade fuel.

Hedge funds — under the Managed Money heading in the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders report — added 7,184 short contracts last week and dumped 6,267 of their long contracts. The movement reflects changes as of the September 29 settlement date. Managed money holds 263,126 long positions compared with 112,736 short positions. Open interest increased by 11,685 contracts to 1,617,902 week over week. Last week marks the first time in several weeks that hedge funds have added to their short positions. The number of hedge funds with large short positions rose from 53 to 59 last week.

Among the producers themselves, short positions outnumber longs, 344,482 to 166,039. The number of short positions last week rose by 19,640 contracts, and longs rose by 11,055 positions. Positions among swaps dealers show 283,332 shorts versus 212,026 longs. Swaps dealers dropped 4,137 contracts from their short positions last week and added 4,470 long contracts.

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Among the states, Oklahoma dropped eight rigs last week, Texas dropped six rigs, and Louisiana and New Mexico each dropped four. Pennsylvania and Colorado each dropped three rigs and Alaska dropped two. California and North Dakota each counted one fewer rig last week. Arkansas, Kansas, Ohio and West Virginia added one rig each.

In the Permian Basin of west Texas and southeastern New Mexico, the rig count fell by five to 245. The Eagle Ford Basin in south Texas dropped three rigs to bring its count to 82, and the Williston Basin (Bakken) in North Dakota and Montana now has 66 working rigs, down one from the prior week.

Enterprise Products Partners L.P. (NYSE: EPD) lists a posted price of $41.99 per barrel for WTI and an October 3 price of $36.66 a barrel for North Dakota Light Sweet. The posted price for a barrel of Eagle Ford crude is $41.94. The price for WTI and Eagle Ford grades fell by 16 cents a barrel last week, while North Dakota Light Sweet rose by $1.81 over the past week.

The pump price of gasoline increased slightly week over week. Saturday morning’s average price in the United States was $2.293 a gallon, up less than a penny from $2.287 a week ago.

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By Paul Ausick