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Editorial/Opinion

 

Lynn Doan & Dan Murtaugh: New hot
traders are watching is 71 years old rig count

 

 

It was like clockwork.

Every week since 1944, Baker Hughes Inc. would release its survey of how many rigs were out drilling for U.S oil and gas. And every week, oil and gas traders would, for the most part, overlook it.

What a difference a $50-a-barrel slide in oil makes. This past Friday, traders were bent over their desks, staring at their screens, waiting for 1 p.m. New York time to see whether drillers extended their biggest-ever retreat from U.S. oil fields. (They did.) Oil futures spiked within minutes of the count, closing at the highest level in four days.

“I don't think I've heard ‘Baker Hughes' more in my life than I have in the past month,” Dan Flynn, a trader at Price Futures Group in Chicago, said by phone on Feb. 13. “It's like I'm saying it in my sleep.”

The sudden interest in Houston-based Baker Hughes's rig counts shows how desperate traders have become to find the bottom of the oil market after the biggest collapse since 2008. The company was known as Hughes Tool Co. and was still owned by Hollywood filmmaker, aviator and land baron Howard Hughes Jr. when it first released the weekly count 71 years ago.

“The company has distributed the rig count for about 70 years, and has typically seen an increase in interest when commodity prices are more volatile,” Melanie Kania, a spokeswoman for Baker Hughes, the third-biggest oil field service provider in the world, said by e-mail on Tuesday. “The recent drop in oil prices is no exception.”

The slide in prices has sidelined 480 rigs within two months, erased tens of thousands of jobs and cut hundreds of billions of dollars in spending.

“The bulls are jumping on what's become one of the few bullish data points out there for oil,” Tim Evans, energy analyst at Citi Futures Perspective in New York, said by phone on Feb. 13. “It seems to be the short-term traders trading around the release of the number, even when underlying oil production is still trending higher.”

 

More Production

Despite drillers using the fewest rigs in almost four years, the nation will pump 9.3 million barrels a day this year, the most since 1972, Energy Information Administration forecast last week.

This surging output from bigger, more prolific U.S. shale wells is exactly what rendered the weekly rig changes a moot point years ago. So much so that the U.S. government came up with a new way of gauging output and oil trader Patrick Sullivan said he actually forgot the numbers were due out Feb. 13.

“It wasn't until oil prices moved up that I was looking at the numbers,” Sullivan, a trader for Ronin Capital LLC in New York, said by phone. “I knew about the numbers for a long time, but nobody was ever watching them. Well, nobody until two weeks ago.”

More than 6,800 front-month West Texas Intermediate contracts changed hands in the three minutes after Baker Hughes released the rig count on Feb. 13. That was up from the roughly 800 traded in the three minutes leading up to it. Three weeks earlier, 1,320 lots traded immediately after the report.

Oil Jumps

The newfound prominence of the rig count is particularly grating to traders in Europe, where the data is released just as the weekend is starting.

“I now have to wait until the rig count comes out on a Friday -- and it's bloody late!” Ian Taylor, chief executive officer of Vitol Group, the world's largest independent oil trading firm, said at a conference in London on Feb. 10. “Can you Americans get it out a bit earlier? It would be most helpful for all of us trying to go home and see our lovely families.”

U.S. oil benchmark WTI for March delivery jumped $1.57 a barrel, or 3.1 percent, to settle at $52.78 a barrel that day. Prices have gained each of the past three Fridays. The contract fell $1.39 to $52.14 Wednesday on the New York Mercantile Exchange.

For the first time in almost 20 years of writing market commentary, Evans said he sat at his desk on Feb. 13 waiting for the rig counts to show up so he could analyze them and send a special report to clients.

“Maybe a month ago was the first time that I ever saw the price really move after the headlines on the rig counts hit the wire,” he said. “You've got bond traders driving electric vehicles who wouldn't recognize an oil well if it were in their back yard, and now even they know Baker Hughes.”

Lynn Doan in San Francisco at ldoan6@bloomberg.net and Dan Murtaugh in Houston at dmurtaugh@bloomberg.net are Bloomberg reporters. The views expressed are his own. Petroleumworld does not necessarily share these views.

Editor's Note: This story was originally published by Bloomberg, 02/18/2015. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 02/21/2015

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