by rjs, MarketWatch 666
Editor’s note: This is a new feature which will normally appear Monday evening.
US oil prices continued their relentless advance higher again last week, while the front-month contract price for North Sea Brent, the international benchmark, topped $80 a barrel for the first time since before OPEC began its campaign to flood the global markets in November 2014
Please share this article – Go to very top of page, right hand side, for social media buttons.
After running up to a 42 month high on Trump’s withdrawal from the multilateral Iran pact last week, US crude for June delivery rose 26 cents to $70.96 a barrel on Monday (14 May) as the monthly report from OPEC indicated the global glut of crude had nearly been eliminated…then, after hitting a multi-year high of $71.92 a barrel early in the day on Tuesday on Iran concerns, oil prices pulled back to close just 35 cents higher at $71.31 a barrel, after the American Petroleum Institute report said U.S. crude supplies had unexpectedly increased…oil prices slipped as low as $70.66 a barrel on Wednesday, but then rallied to close another 18 cents higher at $71.48 a barrel, after the EIA report showed that rather than increasing, US oil supplies actually fell more than was expected…US crude then rose to yet another three and a half year high of $72.30 on Thursday morning, but then fell back to close unchanged, after Brent, the international benchmark for oil prices, hit a session high of $80.50 a barrel but failed to hold above $80, closing at $79.19…US crude then gave up 21 cents of the week’s gain in less volatile trading on Friday, as the Saudis discussed oil-price concerns with Russia and other OPEC members, but still logged their 3rd weekly increase in a row in closing the week with a gain of 58 cents at $71.28 a barrel….
Since we in the US are still a net importer of several million barrels of oil per day, each dollar of these oil price increases represents several million dollars that will be flowing from American oil consumers to oil producers abroad every day, with countries such as Saudi Arabia, Iran, Iraq, and Russia the prime beneficiaries, even if we’re not importing our oil directly from each of them…while Trump blames OPEC for higher oil prices in his tweets and speeches, it’s actually been Trump’s own policies that have been responsible for the last $10 of this recent rise, and it’s his administration that should get the blame for any economic damage…however, we should point out that higher gasoline prices won’t affect all the US states equally, as higher oil prices favor the oil producing states such as Texas, Louisiana, Oklahoma, North Dakota, and Alaska, all of which went heavily for Trump, while it’s the “blue states” such as New York, Massachusetts, Maryland, Illinois, California and Hawaii that are being made to suffer…
Natural gas prices also rose this week, breaking out of their narrow trading range and closing above $2.85 per mmBTU for the first time since early February…gas prices got their first boost on Monday, rising 3.4 cents to $2.859 per mmBTU, when building heat across major portions of the US increased power-burn demand…then, after falling half a cent on Tuesday and 1.7 cents on Wednesday, natural gas for July delivery rose 4.9 cents to $2.886 per mmBTU on Thursday, even though the EIA reported a higher-than-expected addition to storage, because the the National Weather Service forecast warmer-than-average temperatures for much of the country in their 6 to 10 day outlook…meanwhile, the natural gas storage report from the EIA indicated that natural gas in storage in the US rose by 106 billion cubic feet to 1,538 billion cubic feet over the week ending May 11th, which still left our gas supplies 821 billion cubic feet, or 34.8% below the 2,359 billion cubic feet that were in storage on May 12th of last year, and 501 billion cubic feet, or 24.6% below the five-year average of 2,039 billion cubic feet of natural gas that are typically in storage on the second weekend in May…analysts had forecast a 104 billion cubic foot addition to storage, so while this 106 billion cubic foot addition was in line with expectations, it was still well above the 64 billion cubic feet of gas that were added to storage over the week ending May 12th last year, and above the average 87 billion cubic foot surplus of natural gas typically added to storage during the second week in May…
The Latest US Oil Data from the EIA
This week’s US oil data from the US Energy Information Administration, covering the week ending May 11th, indicated that due to a big jump to a record level in our oil exports and a modest increase in refining, we had to pull oil out of our commercial crude supplies to meet refinery needs for the seventh time in the past sixteen weeks…our imports of crude oil rose by an average of 278,000 barrels per day to an average of 7,601,000 barrels per day during the week, after falling by 1,226,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 689,000 barrels per day to a record average of 2,566,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 11th worked out to a net import average of 5,035,000 barrels of per day during the week, 411,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells rose by 20,000 barrels per day to a record high of 10,723,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,758,000 barrels per day during the reporting week…
Meanwhile, US oil refineries were using 16,635,000 barrels of crude per day during the week ending May 11th, 149,000 barrels per day more than they used during the prior week, while at the same time 418,000 barrels of oil per day were reportedly pulled out of oil storage in the US….consequently, this week’s crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 459,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+459,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…
further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,986,000 barrels per day, which was 4.3% less than the 8,347,000 barrel per day average we imported over the same four-week period last year…the 418,000 barrel per day reduction in our total crude inventories included a 201,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 217,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, possibly a sale of oil mandated by this year’s federal budget…this week’s 20,000 barrel per day increase in our crude oil production was all from wells in the lower 48 states, as output from Alaska was unchanged…the 10,723,000 barrels of crude per day that were produced by US wells during the week ending May 11th were once again the highest on record, 15.2% more than the 9,305,000 barrels per day that US wells were producing during the week ending May 12th of last year, and up by 27.2% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016…
US oil refineries were operating at 91.1% of their capacity in using 16,635,000 barrels of crude per day during the week ending May 11th, up from 90.4% of capacity the prior week, but down from the seasonal high of 93.5% of capacity during the first week of April….the 16,635,000 barrels of oil that were refined this week were still down 5.5% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 2.8% less than the 17,122,000 barrels of crude per day that were being processed during the week ending May 12th, 2017, when refineries were operating at 93..4% of capacity….
with the increase in the amount of oil that was refined this week, gasoline output from our refineries saw a substantial jump, increasing by 488,000 barrels per day to 10,462,000 barrels per day during the week ending May 11th, after our refineries’ gasoline output had decreased by 71,000 barrels per day during the week ending May 4th.... with that increase, our gasoline production was 4.4% higher during the week than the 10,020,000 barrels of gasoline that were being produced daily during the week ending May 12th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 38,000 barrels per day to 5,031,000 barrels per day, after falling by 2,000 barrels per day the prior week….that still left the week’s distillates production fractionally lower than the 5,042,000 barrels of distillates per day than were being produced during the week ending May 12th, 2017….
however, even with the sizable increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 3,790,000 barrels to 232,014,000 barrels by May 11th, the eighth decrease in 11 weeks, but just the 9th decrease in 27 weeks, as gasoline inventories, as usual, were being built up over the winter months…our gasoline supplies fell this week because our exports of gasoline rose by 344,000 barrels per day to 925,000 barrels per day, and because our imports of gasoline fell by 82,000 barrels per day to 721,000 barrels per day, even as our domestic consumption of gasoline fell by 244,000 barrels per day to 9,531,000 barrels per day…after this week’s decrease, our gasoline inventories finished the week 3.6% lower than last May 12th’s level of 240,669,000 barrels, even as they were still roughly 9.7% above the 10 year average of gasoline supplies for this time of the year…
meanwhile, with this week’s distillates production again little changed, our supplies of distillate fuels fell by 92,000 barrels to 114,946,000 barrels over the week ending May 11th, the 9th decrease in ten weeks, after falling by 13,219,000 barrels over the prior four weeks…our distillate inventories were thus comparatively little changed because our exports of distillates fell by 457,000 barrels per day to 899,000 barrels per day, and because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 85,000 barrels per day to 4,222,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 77,000 barrels per day…after this week’s inventory decrease, our distillate supplies ended the week 21.7% below the 146,824,000 barrels that we had stored on May 12th, 2017, and roughly 15.4% lower than the 10 year average of distillates stocks for this time of the year…
finally, because we were exporting our crude at a record pace, our commercial supplies of crude oil decreased for the 9th time in 2018 and for the 35th time in the past year, as our commercial crude supplies fell by 1,404,000 barrels during the week, from 433,758,000 barrels on May 4th to 432,354,000 barrels on May 11th …hence, after falling most of the past year, our oil inventories as of May 11th were 17.0% below the 520,772,000 barrels of oil we had stored on May 12th of 2017, 15.2% lower than the 509,797,000 barrels of oil that we had in storage on May 13th of 2016, and 3.8% below the 449,214,000 barrels of oil we had in storage on May 15th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years…
since our record level of crude oil exports have the major reason for our falling crude supplies, and since this week saw the record of three weeks ago beat by more than 10%, we’ll include here a graph of those oil exports over the past 20 months.
https://econintersect.com/images/2018/05/67361484fracking.2018.may.20.fig.01.jpg
the above graph came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, which is also accessible online as a pdf here, and it shows weekly US crude oil exports in thousands of barrels per day from September 2016 to the current week, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select weeks going back to September 1st 2017, the week when our exports had been choked off because Gulf Coast ports were shut down by Hurricane Harvey…as you can see, our oil exports had only topped a million barrels per day a few times prior to that date…however, after the price of US crude fell to a 10% discount to the comparable international grade in the wake of the hurricanes, US crude suppliers began to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since, and with those elevated exports, our crude oil supplies have also been falling since…as we’ve noted over the past couple of weeks, the price of North Sea Brent, the international benchmark, has been again rising faster than the price of US crude, and as of Friday’s close was at $78.51 a barrel for July, $7.14 or 10% above the $71.37 a barrel US July crude contract price…hence we can expect that US oil traders will continue to sell as much US crude into international markets this summer as our port capacity will allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transport costs…
This Week’s Rig Count
US drilling activity increased for the 12th time in the past thirteen weeks and for 21st time in the past 28 weeks during the week ending May 18th, a period of higher oil prices that has consequentially seen the rig increases far exceed the few decreases…Baker Hughes reported that the total count of active rotary rigs running in the US increased by just one rig to 1046 rigs over the week ending on Friday, which was 145 more rigs than the 901 rigs that were in use as of the May 19th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market…
the number of rigs drilling for oil was unchanged at 844 rigs this week, which was still 124 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations increased by 1 rig to 200 rigs this week, which was only 20 more gas rigs than the 180 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there are also two active rigs that are listed as “miscellaneous”, compared to the 1 “miscellaneous” rig that was operating a year ago….
drilling activity in the Gulf of Mexico decreased by two rigs to 18 rigs rig this week, which was 5 fewer rigs that were drilling in the Gulf of Mexico a year ago…however, there was also a rig drilling offshore from Alaska this week, so the total offshore count of 19 rigs was down by 4 from last year’s offshore total of 23 rigs….at the same time, another rig began drilling through an inland lake in southern Louisiana this week, where there are now four such inland waters rigs working, the same number of rigs that were deployed on inland waters a year ago..
the count of active horizontal drilling rigs increased by 1 rig to 919 horizontal rigs this week, which was 160 more horizontal rigs than the 759 horizontal rigs that were in use in the US on May 19th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the vertical rig count increased by 6 rigs to 61 vertical rigs this week, which was still down from the 76 vertical rigs that were in use during the same week of last year… on the other hand, the directional rig count was down by 6 rigs to 66 directional rigs this week, which was the same number of directional rigs that were deployed on May 19th of 2017…
the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of May 18th, the second column shows the change in the number of working rigs between last week’s count (May 11th) and this week’s (May 18th) count, the third column shows last week’s May 11th active rig count, the 4th column shows the change between the number of rigs running on Friday and as of the equivalent weekend report of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Friday the 19th of May, 2017…
https://econintersect.com/images/2018/05/74350181fracking.2018.may.20.fig.02.jpg
with the horizontal rig count only up by a single rig, the basin counts should reflect that; however, as we can see, there were three more rigs added in the major basins shown in the table above than were shut down; hence there were two horizontal rigs shut down in other basins not tracked separately by Baker Hughes; without further digging, it’s hard to say where those might have been, since all the state changes are accounted for above; the 4 rig increase in the Permian includes 3 rigs in New Mexico and just one in Texas, as there was surprisingly little movement of rigs within that state this week…for rigs targeting natural gas, we can see that one of those was shut down in Ohio’s Utica shale, which at 23 rigs in now down by 1 rig from a year ago…still, natural gas drilling increased by 1 rig nationally with the addition of two gas rigs in “other” basins not tracked separately by Baker Hughes…
DUC well report for April
Monday of this week saw the release of the EIA’s Drilling Productivity Report for May, which includes the EIA’s April data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…once again this report showed an increase in uncompleted wells nationally, almost entirely because there were dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, while all other basins except for the Eagle Ford of south Texas saw more completions than new wells…for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 55, from 7,622 wells in March to 7677 in April, the nineteenth consecutive monthly increase in uncompleted wells nationally, and hence again the highest number of such unfracked wells in the history of this report….that was as 1297 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during April and 1142 wells were completed and brought into production by fracking…hence, at the April completion rate, the 7,677 drilled but uncompleted wells left at the end of April represent a 6.2 month backlog of wells that have been drilled but not yet fracked…
as has been the case for most of the past two years, the April DUC well increases were predominantly oil wells, with most of those in the Permian basin…the Permian saw its total count of uncompleted wells rise by 111, from 2,975 DUC wells in March to 3,086 DUCs in April, as 569 new wells were drilled into the Permian but only 458 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas rose by 18, from 1,476 DUC wells in March to 1,494 DUCs in April, as 185 wells were drilled in the Eagle Ford during April, while 167 Eagle Ford wells were completed…meanwhile, the number of DUC wells in the Bakken of North Dakota remained unchanged 719, as 105 wells were drilled into the Bakken while 105 Bakken wells were fracked…on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 44 to 488, as just 139 Niobrara wells were drilled while 183 Niobrara wells were being fracked…similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 20 wells, from 784 DUCs in March to 764 DUCs in April, as 104 wells were drilled into the Marcellus and Utica shales, while 124 of the already drilled wells in the region were fracked…meanwhile, DUC wells in the Anadarko region fell by 7 from 967 DUC wells in March to 960 DUCs in April, as 141 wells were drilled in the Anadarko region in April while 148 drilled wells in the basin were completed…lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by three to 166, as 54 wells were drilled into the Haynesville, while 57 Haynesville wells were fracked during the same period…
thus, for the month of April, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 78 wells to 6,747 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 23 wells to 930 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…
