Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, November 11, 2018

oil prices in a record losing streak; natural gas prices jump 13% on forecast cold; rig count at a 44 month high

oil prices were again lower every day this past week, ​& ​hence extend​ed the number of consecutive daily losses to ten, the longest streak of lower oil prices in records going back to November 1984...after falling daily last week to a 6.6% loss at $63.14 a barrel, contracts for December delivery of US crude oil initially moved 64 cents higher on Monday as US sanctions on Iran began, but then eased after the U.S. granted waivers to eight countries to continue buying Iranian crude and ended the day with a loss of 4 cents at $63.10 a barrel...oil prices continued falling on Tuesday, tumbling to as low as $61.31 a barrel on the Iran sanctions waivers, and then ending the day down 89 cents at $62.21 a barrel on worries that ​the global ​economic slowdown ​would reduce demand...oil prices then extended their losses ​on Wednesday, ​after the EIA reported a surprisingly large increase in US crude inventories as US oil production spiked to a record high, ​with WTI ​finishing down another 54 cents at $61.67 a barrel...US crude prices dropped for a ninth consecutive session on Thursday, falling into what traders consider a bear market, ending the day down a dollar at $61.67 a barrel, as traders seemed fixated on the new weekly record high in U.S. crude production cited by the EIA...U.S. crude prices fell then fell for a record 10th consecutive session on Friday, wiping out the contract's gains for the entire year and falling below $60 a barrel for the first time since February, before rallying at the close to end the day down 48 cents at $60.19 a barrel...US crude prices thus ended 4.7% lower for the week and are now down 21.2% from the 4-year high of $76.41 a barrel set on October 3rd, at which time contracts for November oil were being quoted..

since we now have a record setting series of decreases in oil prices on our hands, we'll include a graph of US oil prices over the past five months, so you can see what the past month's price drop looks like...

November 10 2018 daily oil prices

the above graph is an early Saturday afternoon screenshot of the interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for a day of oil trading between June 25, 2018 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while for red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar...also visible on this "candlestick" style graph are the faint grey "wicks" above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day...outside of 4 days in February, oil prices are now at the lowest they've been all year....note that since this graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting.. 

meanwhile, natural gas prices for December delivery spiked by more than 13% this week to end at their highest level this year, largely on the Climate Prediction Center​'s​ forecasts for colder than normal temperatures over most of the country...the initial jump in prices came on Monday, when December natural gas contracts rose 28.3 cents or 8.6% to $3.567 per mmBTU, when the new 6 to 10 day outlook indicated temperatures much below normal for an area from Maine to the Dakotas and down to Texas...natural gas prices changed little over the next three days, ignoring a larger than expected storage increase, and then jumped another 17.6 cents to $3.719 per mmBTU on Friday, despite indications of a warming trend in the 3 to 4 week outlook...

since natural gas prices also made an unusual move to their high for this year, we'll include a graph of those here too...

November 10 2018 daily natural gas prices

like the oil graph above, this is a screenshot of the live interactive US natural gas price graph at Daily FX, covering natural gas prices daily between April 23rd, 2018 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...you can clearly see that natural gas prices spiked much higher to begin this week, after first moving out of a narrow range ​generally below $3 per mmBTU ​at the beginning of October...we​ should men​tion that natural gas prices for January ​2018 ​saw a similar price spike last December, but by January the February contract was already trading lower, and the same could happen this year if the warmer than normal El Nino winter develops as forecast​ and fears of a shortage are alleviated​...

the natural gas storage report for the week ending November 2nd from the EIA indicated that natural gas in storage in the US rose by 65 billion cubic feet to 3,208 billion cubic feet during that week, which left our gas supplies 580 billion cubic feet, or 15.3% below the 3,788 billion cubic feet that were in storage on November 3rd of last year, and 621 billion cubic feet, or 16.2% below the five-year average of 3,829 billion cubic feet of natural gas that are typically in storage on the first weekend of November....this week's 65 billion cubic feet increase in natural gas supplies was more than the 55 billion cubic feet increase in stocks that was called for by a S&P Global Platts survey of analysts , and was also much above the average of 48 billion cubic feet of natural gas that have been added to storage during the bridge week between October and November in recent years, but was still just the 6th average or below average inventory increase over the past eighteen weeks...natural gas storage facilities in the Midwest saw a 24 billion cubic feet increase over the week, which reduced their supply deficit to 10.3% below normal, but natural gas supplies in the East only increased by 5 billion cubic feet and their supply deficit ticked up to 9.6% below normal for this time of year...on the other hand, the South Central region saw a 30 billion cubic feet increase in their supplies, as their natural gas storage deficit decreased to 23.8% below their five-year average for the first weekend of November...meanwhile, the natural gas pipeline rupture in British Columbia has been repaired, but flows to the US remained limited, so only 2 billion cubic feet were added to supplies in the Mountain region, as their deficit from normal still fell to 16.9%, while the 3 billion cubic feet were added to gas in storage in the Pacific region also lowered their natural gas supply deficit to 24.5% below normal for this time of year....

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration for the week ending November 2nd indicated a large upward adjustment to our crude oil production while most other crude supply and demand metrics were relatively little changed, and hence there was another addition to our commercial crude supplies for ​the seventh week in a row...our imports of crude oil rose by an average of 195,000 barrels per day to an average of 7,539,000 barrels per day, after falling by an average of 334,000 barrels per day the prior week, while our exports of crude oil fell by an average of 80,000 barrels per day to an average of 2,405,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,134,000 barrels of per day during the week ending November 2nd, 275,000 more barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly 400,000 barrels per day higher at 11,600,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,734,000 barrels per day during this reporting week... 

meanwhile, US oil refineries were using 16,408,000 barrels of crude per day during the week ending November 2nd, 9,000 barrels per day less than the amount of oil they used during the prior week, while over the same period a net of 793,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 467,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption or new storage of it, the EIA inserted a (+467,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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"...again, with an "unaccounted for crude" figure that large, one or more of this week's oil metrics must still be off by a statistically significant amount (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) indicate that the 4 week average of our oil imports rose to an average of 7,544,000 barrels per day, still 1.2% less than the 7,639,000 barrel per day average that we were importing over the same four-week period last year....the net 793,000 barrel per day increase in our total crude inventories included a 826,000 barrel per day increase in our commercially available stocks of crude oil, which was slightly offset by a 34,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed two months ago....this week's crude oil production was reported up by 400,000 barrels per day to 11,600,000 barrels per day as a result of a rounded 400,000 barrels per day upward adjustment to 11,100,000 barrels per day output from wells in the lower 48 states in light of last week's confirmed production figures, while oil output from Alaska remained at 488,000 barrels per day​, giving us a rounded total of 11,600,000 barrel per day​...last year's US crude oil production for the week ending November 3rd was at 9,620,000 barrels per day, so this week's rounded oil production figure was 20.6% above that of a year ago, and 37.6% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 90.0% of their capacity in using 16,408,000 barrels of crude per day during the week ending November 2nd, up from 89.4% of capacity the prior week, but still a normal utilization rate for the end of the fall refinery maintenance season....the 16,408,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 21st out of the past 23 weeks, but only fractionally higher than the 16,305,000 barrels of crude per day that were processed during the week ending November 3rd, 2017, when US refineries were operating at 89.6% of capacity...

even with  little change​ in ​the amount of oil being refined this week, gasoline output from our refineries was quite a bit lower, decreasing by 650,000 barrels per day to 9,714,000 barrels per day during the week ending November 2nd, after our refineries' gasoline output had increased by 336,000 barrels per day during the week ending October 26th...as a result of that drop in our gasoline output, our gasoline production during the week was 4.5% lower than the 10,167,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 20,000 barrels per day to 4,963,000 barrels per day, after that output had increased by 23,000 barrels per day the prior week....and like gasoline, this week's distillates production was also 4.5% lower than the 5,199,000 barrels of distillates per day that were being produced during the week ending October 27th 2017.... 

however, even with that big drop in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 1,852,000 barrels to 228,021,000 barrels by November 2nd, the 16th increase in the past 37 weeks, after our gasoline supplies had fallen by 7,987,000 barrels over the prior two weeks....our gasoline supplies rose despite lower production because our imports of gasoline rose by 228,000 barrels per day to 591,000 barrels per day, while our exports of gasoline fell by 318,000 barrels per day to 694,000 barrels per day, and because the amount of gasoline supplied to US markets fell by 163,000 barrels per day to 9,099,000 barrels per day...so even after falling most of the fall, our gasoline inventories are still at a seasonal high, 8.8% higher than last November 3rd's level of 209,537,000 barrels, and roughly 8.6% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, with our distillates production little changed, our supplies of distillate fuels fell for the 7th week in a row, decreasing by 3,465,000 barrels to 122,857,000 barrels during the week ending November 2nd, after our distillates suppliies had fallen by 4,052,000 barrels the prior week...our distillates supplies fell even as the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 108,000 barrels per day to 4,318,000 barrels per day, while our exports of distillates rose by 29,000 barrels per day to 1,306,000 barrels per day, and while our imports of distillates rose by 25,000 barrels per day to 166,000 barrels per day....after this week's decrease, our distillate supplies ended the week 2.2% below the 125,562,000 barrels that we had stored on November 3rd, 2017, and fell to roughly 8.5% below the 10 year average of distillates stocks for this time of the year...     

finally, with higher oil production and somewhat higher oil imports, our commercial supplies of crude oil increased for the 7th week in a row and for the 23rd time in 2018, rising by 5,783,000 barrels during the week, from 426,004,000 barrels on October 26th to 431,787,000 barrels on November 2nd...that increase means that our crude oil inventories continue to be more than 3% above the five-year average of crude oil supplies for this time of year, and roughly 23.4% above the 10 year average of crude oil stocks for the first weekend in November, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of November 2nd were still 5.5% below the 457,143,000 barrels of oil we had stored on November 3rd of 2017, 11.0% below the 485,010,000 barrels of oil that we had in storage on November 4th of 2016, and 5.1% below the 454,822,000 barrels of oil we had in storage on November 6th of 2015...       

This Week's Rig Count

US drilling rig activity increased for the fifth time in 7 weeks during the week ending November 7th, and thereby pushed to a 44 month high....Baker Hughes reported that the total count of rotary rigs running in the US increased by 14 rigs to 1081 rigs over the week ending on Friday, which was also 174 more rigs than the 907 rigs that were in use as of the November 10th report of 2017, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil increased by 12 rig​s​ to 886 rigs this week, which was the largest weekly rise in the oil rig count since May and 148 more oil rigs than were running a year ago, while it remained 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 2 to 195 rigs, which was also 26 more than the 169 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

offshore drilling in the Gulf of Mexico increased by 3 rigs to 21 rigs this week, which was also 3 rigs more than the 18 Gulf of Mexico rigs active a year ago​; since there is now no other offshore drilling elsewhere, this week's Gulf of Mexico totals are equal to the national offshore rig count​....​ ​meanwhile, the count of active horizontal drilling rigs increased by 6 rigs to 935 horizontal rigs this week, which was also 159 more horizontal rigs than the 776 horizontal rigs that were in use in the US on November 10th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the directional rig count increased by 1 to 74 directional rigs this week, which is the same number of directional rigs that were in use during the same week of last year....in addition, the vertical rig count was up by 7 rigs to 72 vertical rigs this week, which was also up from the 57 vertical rigs that were operating on November 10th 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 November 9th, the second column shows the change in the number of working rigs between last week's count (November 2nd) and this week's (November 9th) count, the third column shows last week's November 2nd active rig count, the 4th column shows the change between the number of rigs running on Friday and those running on the equivalent weekend 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 10th of November, 2017...     

November 9 2018 rig count summary

you might notice that the basin count does not add up to the 6 horizontal rig count that we​ just​ reported, and you might also notice a nine rig decrease in Oklahoma's Cana Woodford that appears to coincide with and contradict ​the 4 rig increase in Oklahoma's count...i don't have an explanation for that, but i would speculate that it's possible that a number of the rigs that were previously indicated as targeting the Cana Woodford might have been reclassified to another Anadarko basin which Baker Hughes doesn't list...the national totals in the basin by basin spreadsheet add up, because they show an increase of 15 oil rigs and 2 natural gas rigs in "other basins" not tracked separately by Baker Hughes, so for some reason around a dozen rigs that might have previously been included in the Cana Woodford were shifted to that catch all "other" category...elsewhere, the Permian basin shows a 5 rig increase because there was a net increase of one rig in the Texas basins (+3 in the Delaware and -2 in the Midland) and an increase of 4​ rigs​ in Delaware on the New Mexico side of the state line...as we noted, the natural gas rig increase can be accounted for by the 2 rig increase in the "other basins" category, as the two natural rigs that were added in Pennsylvania's Marcellus were offset by natural gas rigs that were shut down in Ohio's Utica and the Eagle Ford of south Texas, which also dropped two oil rigs and now shows a deployment of 68 oil rigs and 8 natural gas rigs....

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note: there's more here

Sunday, November 4, 2018

oil prices see largest drop in ​9 months on demand concerns, glut fears; US oil production at a record high

oil prices were down every day the past week in the largest weekly price drop since ​early ​February, and ended more than 17% below the 4 year high they set ​just ​one month ago...after falling 2.4% to $67.59 a barrel in a global market selloff last week, prices for US oil contract​s for December delivery fell 55 cents to $67.04 a barrel on Monday, as Russia signaled its oil output would remain high and concerns over the global trade slowdown deepened...oil prices then fell more than 1% on Tuesday, on rising global oil output and on concern that global economic growth and demand for fuel would fall ​due to the U.S.-China trade war, closing down 86 cents at $66.18 a barrel...Wednesday saw another 87 cent drop to $65.31 a barrel, as further signs of rising global supply emerged with US and Russian output hitting records, as oil prices finished October with their largest monthly drop in more than 2 years...US crude prices then tumbled $1.62, or 2.5%, to a 7-month low of $63.69 a barrel, as surging output from the US, Russia, and OPEC was met by slowing demand from emerging market economies hit by the US-China trade war...oil prices fell almost ​another percent again on Friday, closing at $63.14 a barrel, after the US said it would temporarily allow eight allies to buy crude from Iran, alleviating fears of a sanction-related supply crunch... the December US oil contract thus ​registered a weekly drop of 6.6%, as US oil prices suffered their fourth straight weekly loss, while the contract for January Brent, the international benchmark, settled at $72.83 a barrel ​with a loss of 6.2%​ for the week​..

on the other hand, natural gas prices for December rose 5.9 cents to $3.284 per mmBTU this week, whipsawed midweek by changing 8 to 14 day forecasts from the Climate Prediction Center, and boosted on Friday by the report of a smaller than expected injection of natural gas into storage...this week's natural gas storage report from the EIA for the week ending October 26th indicated that natural gas in storage in the US rose by 48 billion cubic feet to 3,143 billion cubic feet during that week, which left our gas supplies 623 billion cubic feet, or 16.5% below the 3,766 billion cubic feet that were in storage on October 27th of last year, and 638 billion cubic feet, or 16.9% below the five-year average of 3,781 billion cubic feet of natural gas that are typically in storage after the fourth week of October....this week's 48 billion cubic feet increase in natural gas supplies was below expectations of an inventory increase in the 51 to 53 billion cubic foot range, and was also below the average of 62 billion cubic feet of natural gas that have been added to storage during the fourth week of October in recent years, the 13th average or below average inventory increase over the past seventeen weeks...natural gas storage facilities in the Midwest saw a 22 billion cubic feet increase over the week, which reduced their supply deficit to 11.6% below normal, but natural gas supplies in the East only increased by 1 billion cubic feet and saw their supplies deficit rise to 9.5% below normal for this time of year...on the other hand, the South Central region saw a 26 billion cubic feet increase in their supplies, as their natural gas storage deficit decreased to 24.9% below their five-year average for the 4th week in October...meanwhile, while the natural gas pipeline rupture in Canada has been repaired, flows south had not resumed as of this report; as a result, only 3 billion cubic feet were added to supplies in the Mountain region, where their deficit from normal fell to 17.4%, while there no change of gas in storage in the Pacific region, where the natural gas supply deficit rose to 24.9% below normal for this time of year.... 

the primary reason for this week's much smaller than average addition to storage was the outbreak of cold weather in the populated eastern half of the country that we saw during the period; natural gas production continued at near record levels...this can be clearly seen in the map of weekly average temperature abnormalities below taken from the EIA's natural gas storage dashboard:

November 3 2018 departure from normal temps for week ending October 25

again, this map came from the EIA's natural gas storage dashboard, an EIA website with dozens of interactive graphics tracking various facets and factors influencing US natural gas supplies, which is updated with the most recent data on Thursday of each week...the above map shows how much the temperatures in each geographical area of the 48 states varied from normal during the week ending October 25th, with those areas that were cooler than normal in a shade of blue, while those areas that were warmer than normal are shown in a shade of tan or brown....from the legend underneath this map, we can see that most of the eastern US saw temperatures below normal during the cited week, with a broad swath running from Texas northeast through Maine showing temperatures 5 to 9 degrees below normal...for the fourth week in October, below normal would mean that most of that area, probably with the exception of southern Texas, saw heating demand closer to what one would expect in early to mid November, and hence less natural gas than normal was left to be added to winter supplies... 

however, temperatures ​have since ​moderated during the week through November 1st, which you can see if you go to the natural gas storage dashboard and run the ​daily ​animation that goes with that map...all three of those regions saw a mix of days both above and below normal, with average temperatures thus a few degrees warmer than they were during this reporting week...thus we'd expect that this coming week's natural gas storage report will show additions of gas ​to storage ​much closer to the norm, likely in a range from 55 to 60 billion cubic feet...after that, the forecast is for temperatures to turn colder, so further additions will be minimal if at all..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration for the week ending October 26th indicated yet another addition to our commercial crude supplies for a sixth week in a row, despite a decrease in our oil imports, an increase in our oil exports, and a modest pickup in refining...our imports of crude oil fell by an average of 334,000 barrels per day to an average of 7,344,000 barrels per day, after rising an average of 63,000 barrels per day the prior week, while our exports of crude oil rose by an average of 352,000 barrels per day to an average of 2,485,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,859,000 barrels of per day during the week ending October 26th, 639,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly 300,000 barrels per day higher at 11,200,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,059,000 barrels per day during this reporting week... 

meanwhile, US oil refineries were using 16,417,000 barrels of crude per day during the week ending October 26th, 149,000 barrels per day more than the amount of oil they used during the prior week, while over the same period a net of 239,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 597,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption or new storage of it, the EIA inserted a (+597,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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"...once again, with an "unaccounted for crude" figure that large, one or more of this week's oil metrics must be off by a statistically significant amount (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) indicate that the 4 week average of our oil imports slipped to an average of 7,509,000 barrels per day, now 2.5% less than the 7,699,000 barrel per day average that we were importing over the same four-week period last year....the net 239,000 barrel per day increase in our total crude inventories included a 460,000 barrel per day increase in our commercially available stocks of crude oil, which was partially offset by a 220,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely because of a sale of 11 million barrels from those reserves to Exxon et al that closed eight weeks ago....this week's crude oil production was reported up by 300,000 barrels per day to 11,200,000 barrels per day due to a rounded 300,000 barrels per day rebound to 10,700,000 barrels per day output from wells in the lower 48 states after Hurricane Michael, while a 15,000 barrels per day increase to 488,000 barrels per day in oil output from Alaska was not enough to impact the reported national total, which is now being rounded to the nearest 100,000 barrels per day....last year's US crude oil production for the week ending October 27th was at 9,553,000 barrels per day, so this week's rounded oil production figure was 17.2% above that of a year ago, and 32.9% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

while we report the preliminary US oil production estimates that are released weekly, the EIA also releases confirmed monthly oil production figures a few months later, ​after they ​have ​collect​ed​ the accurate production reports that aren't available on a weekly basis....since this week's release of that monthly report shows a significant divergence from the ​weekly ​figures we've been reporting, we'll include a graphic showing both, so we can see what that divergence looks like...

November 3 2018 US crude production through October 26

the above graph, from this week's OilPrice Intelligence Report, shows the history of confirmed oil production data monthly from January 2016 to August 2018 in blue, and then the weekly estimates of US oil production up until the current week in yellow after that period, with both metrics in thousands of barrels per day....as we've pointed out on several previous occasions, the weekly oil data from the EIA that we cover each week is preliminary, and it is typically more than 2 months before the final confirmed figures, published monthly, are released...we follow the weekly data because it's what the oil traders follow, and hence it moves oil prices and ultimately the decisions on the part of exploitation companies to start drilling for oil...however, the confirmed oil production figures for August were released this week and showed our crude production at a much higher than expected 11,346,000 barrels per day​ average​ during that month, up from 10,964,000 barrels per day in July...the weekly production estimates for August, on the other hand, had ranged from 10,800​,000​ barrels per day to 11,000​,000​ barrels per day, and thus averaged more than 400,000 barrels per day lower than the confirmed figures...if the reason for the inaccuracies in the weekly report persisted to the current week, and we have no reason to believe they haven't, the 400,000 barrels per day error in the weekly oil production figures would go a long way toward explaining the large "unaccounted for crude" figures we've been seeing in recent weeks...

meanwhile, ​this week's report indicates that ​US oil refineries were operating at 89.4% of their capacity in using 16,417,000 barrels of crude per day during the week ending October 26th, up from 89.2% of capacity the prior week, a fairly normal utilization rate for during the fall refinery maintenance season....the 16,417,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 20th out of the past 22 weeks, 2.5% higher than the 16,015,000 barrels of crude per day that were processed during the week ending October 27th, 2017, when US refineries were operating at 88.1% of capacity...

with the increase in the amount of oil being refined this week, gasoline output from our refineries was also higher, increasing by 336,000 barrels per day to 10,364,000 barrels per day during the week ending October 26th, after our refineries' gasoline output had decreased by 402,000 barrels per day during the week ending October 19th...with that rebound in our gasoline output, our gasoline production during the week was 1.7% higher than the 10,187,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) increased by 23,000 barrels per day to 4,983,000 barrels per day, after that output had increased by 145,000 barrels per day the prior week....however, this week's distillates production was still 1.1% lower than the 5,036,000 barrels of distillates per day that were being produced during the week ending October 27th 2017.... 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 3,161,000 barrels to 226,169,000 barrels by October 26th, the 21st decrease in the past 36 weeks, after our gasoline supplies had dropped by 4,826,000 barrels the prior week....our supplies fell even as the amount of gasoline supplied to US markets fell by 62,000 barrels per day to 9,262,000 barrels per day, and as our imports of gasoline rose by 32,000 barrels per day to 363,000 barrels per day, while our exports of gasoline rose by 43,000 barrels per day to 1,012,000 barrels per day...but even after two big decreases, our gasoline inventories are still at a seasonal high, 6.3% higher than last October 27th's level of 212,849,000 barrels, and roughly 7.1% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, even with our distillates production a bit higher higher, our supplies of distillate fuels also fell again, decreasing by 4,052,000 barrels to 126,322,000 barrels during the week ending October 26th, their sixth straight decrease after 8 straight weeks of increases, and the largest drop since March 9th...our distillates supplies fell by much more than last week's decrease because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 420,000 barrels per day to 4,426,000 barrels per day, while our exports of distillates fell by 163,000 barrels per day to 1,277,000 barrels per day, and while our imports of distillates fell by 22,000 barrels per day to 141,000 barrels per day....after this week's decrease, our distillate supplies ended the week 2.0% below the 128,921,000 barrels that we had stored on October 27th, 2017, and remained roughly 6.7% below the 10 year average of distillates stocks for this time of the year...     

finally, despite higher oil exports​,​ lower ​oil ​imports​,​ and an increase in oil being refined, our commercial supplies of crude oil increased for the 6th week in a row and for the 22nd time in 2018, rising by 3,217,000 barrels during the week, from 422,787,000 barrels on October 19th to 426,004,000 barrels on October 26th to ...that increase means that our crude oil inventories continue to be more than 2% above the five-year average of crude oil supplies for this time of year, and roughly 22.4% above the 10 year average of crude oil stocks for the last weekend in October, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of October 26th were still 6.4% below the 454,906,000 barrels of oil we had stored on October 27th of 2017, 11.7% below the 482,578,000 barrels of oil that we had in storage on October 28th of 2016, and 5.5% below the 450,841,000 barrels of oil we had in storage on October 30th of 2015...      

This Week's Rig Count

US drilling rig activity slowed for the second time in 6 weeks during the week ending November 2nd, but just by a bit....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 1 rig to 1067 rigs over the week ending on Friday, which was still 169 more rigs than the 898 rigs that were in use as of the November 3rd report of 2017, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil decreased by 1 rig to 874 rigs this week, which was still 145 more oil rigs than were running a year ago, while it was 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 remained unchanged at 193 rigs, which was still 24 more than the 169 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, a year ago we had a rig categorized as "miscellaneous" deployed, while there are no such "miscellaneous" rigs drilling at this time this year...

offshore drilling in the Gulf of Mexico was unchanged at 18 rigs this week, which was also unchanged from the 18 Gulf of Mexico rigs active a year ago...meanwhile, the only rig that had  been drilling offshore from Alaska was shut down this week, so the total national offshore count is now down to 18 rigs, also the same as a year ago...

the count of active horizontal drilling rigs was up by 2 rigs to 929 horizontal rigs this week, which was also 165 more horizontal rigs than the 764 horizontal rigs that were in use in the US on November 3rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count was unchanged at 73 directional rigs this week, which ​is ​the same number of directional rigs that were in use during the same week of last year....on the other hand, the vertical rig count was down by 3 rigs to 65 vertical rigs this week, which was still up from the 61 vertical rigs that were operating on November 3rd 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 November 2nd, the second column shows the change in the number of working rigs between last week's count (October 26th) and this week's (November 2nd) count, the third column shows last week's October 26th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running on the equivalent weekend 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 3rd of November, 2017...        

November 2 2018 rig count summary

this week's modest 2 rig decrease in the Permian masks significant other changes within its component basins; while just a single rig was shut down in Texas Oil District 8, which would correspond to the core Delaware basin, there were 4 rigs shut down in Texas Oil District 8A, which would correspond to the central platform and Midland Basins; at the same time, 2 rigs were added in Texas Oil District 7C, which could be Midland rigs or southern shelf, and another rig was added in Texas Oil District 7B, which could also be a Midland rig, or outside the basin altogether (Texas oil districts are political boundaries and hence don't correspond directly with the geological basins underlying them)...based on that, our best guess, without digging through the individual well logs in the Rig Count Pivot Table (xls), is that Texas shed a net of 3 Permian rigs, while New Mexico picked one up....natural gas rigs, meanwhile, remained unchanged despite the loss of two in the Marcellus (one each in PA and WV) and the natural gas rig that was shut down in Oklahoma's Arkoma Woodford because a natural gas rig was added to those working Ohio's Utica, and two others were set up in basins not tracked separately by Baker Hughes...

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note:  there's more here..

Sunday, October 28, 2018

what happens to US natural gas supplies if this winter is as cold as 2014 was?

oil prices were lower for a third consecutive week as ​tumbling ​global financial markets overwhelmed concerns about the impact of US sanctions on Iran...after falling 3.1% to $69.12 a barrel on higher than expected oil supplies midst retreating markets last week, US crude oil contracts for November delivery rose 5 cents to finish trading at $69.17 a barrel on Monday, as oil traders weighed the impact of tightening global supplies due to Iran sanctions against increasing chances of a global economic slowdown; at the same time, oil contracts for December delivery, which became the quoted price of oil with the Monday​ ​expiration of the November contract, rose 8 cents to close at $69.36 a barrel....​now ​quoting December oil​​, crude prices crashed with global equity markets ​on Tuesday ​to as low as $65.74 a barrel, a two-month low, as traders worried about slackening demand while Saudi Arabia said it could supply more crude quickly, before prices steadied to end Tuesday's session down $2.93, or 4.2 percent, at $66.43 a barrel...prices then rebounded modestly on Wednesday, rising 39 cents to $66.82 a barrel, as larger than expected drawdowns of gasoline and diesel fuel inventories offset the impact of a larger than expected increase in US crude oil supplies....bouncing back from an early sell-off, oil prices were up another 51 cents to $67.33 a barrel on Thursday, as the U.S. stock market rebounded from its biggest drop since 2011 and crude prices followed...prices moved up for a third day on Friday, rising 26 cents $67.59 a barrel, supported by expectations that sanctions on Iran would tighten global supplies, but still ended the week with a loss of ​$1.69, or more than 2.4%​ on December oil​...

natural gas prices also ended the week lower as surging gas production and forecasts for warmer weather more than offset concerns about winter supplies...natural gas for November delivery initially fell 11.2 cents to $3.138 per mmBTU on Monday, as forecasts indicated heating demand would fall far below average across the eastern third of the country two to three week​s​ out, weeks in November that usually see the first significant draw from supplies...prices then rebounded 7.4 cents on Tuesday before falling 4.6 cents on Wednesday, as forecasts for mid-November warming continued to weigh on prices...prices then ​rose 3.6 cents to $3.202 per mmBTU with the release of the storage report on Thursday, before falling back 1.7 cents on Friday to end the week at $3.185 per mmBTU, a decrease of 6.5 cents, or 2% on the week...

this week's natural gas storage report from the EIA for the week ending October 19th indicated that natural gas in storage in the US rose by 58 billion cubic feet to 3,095 billion cubic feet during that week, which left our gas supplies 606 billion cubic feet, or 16.4% below the 3,701 billion cubic feet that were in storage on October 20th of last year, and 624 billion cubic feet, or 16.8% below the five-year average of 3,719 billion cubic feet of natural gas that are typically in storage after the third week of October....this week's 58 billion cubic feet increase in natural gas supplies was above analysts' prediction of an 52 billion cubic foot increase, but it was a below the average of 77 billion cubic feet of natural gas that have been added to storage during the third week of October in recent years, the 12th average or below average inventory increase over the past sixteen weeks...natural gas storage facilities in the Midwest saw a 26 billion cubic feet increase over the week, reducing their supply deficit to 11.7% below normal, while supplies in the East increased by 13 billion cubic feet ​but saw their deficit rise to 8.6% below normal for this time of year...the South Central region saw a 19 billion cubic feet increase in their supplies, as their natural gas storage deficit increased to 25.1% below their five-year average for the 3rd week in October...meanwhile, a natural gas pipeline rupture in Canada continues to affect imports into the Pacific and Mountain regions; as a result, the Mountain region supplies were unchanged and their deficit from normal rose to 17.7%, while there was a 2 billion cubic feet withdrawal from storage in the Pacific region, where the natural gas supply deficit rose to 24.3% below normal for this time of year.... 

according to most tellings, the natural gas injection season traditionally ends with the first weekend of November, after which natural gas inventories typically begin to fall, as increasing amounts of natural gas are pulled from storage for heating as temperatures ​fall ​heading into winter...in fact, however, we find that the recent history of natural gas storage (xls) shows that there have actually been increases in natural gas supplies during the first full week of November in 4 out of the last 8 years, so we have to consider that might be possible again this year...either way, we can only expect a few more weeks of increases before natural gas supplies peak before winter and start downhill...to assess where we now stand as compared to other years when prewinter supplies were low, we're going to include a graph from RBN energy that shows US natural gas storage history for a few of those key years as compared to last year and the five year history..

October 25 2018 natural gas storage during low years via RBN

the above graph comes from the RBN Energy analytical post titled "Colder Weather - Gas Storage Inventories Are Near Historic Lows. What If This Winter Turns Frigid?" and as published it shows the natural gas storage history​ ​for 2005 in billions of cubic feet in yellow, for 2014 in orange, for 2017 in green, and natural gas storage​ ​for 2018 year to date in blue..it also shows as blue dots what is presumably the EIA forecast for what appears to be the last 4 weeks of the injection season, which would include a forecast for this week's report​ that we just covered​, since the cited RBN post was published on October 24, the day before this weeks natural gas storage report ​was released...also shown in ​a ​grey​ shaded area above​ is the 5 year range of natural gas in storage for any given date during the year, and then the average amount of natural gas in storage for any given date during th​ose 5​​ year​s​ is shown by a grey dotted line...​finally, ​as an addition to the original graph, in red​ ​i have ​penciled in the amount of natural gas storage for the last 11 weeks of 2013, reasons for which i'll explain shortly...

so to begin with the obvious, this year's natural gas storage ​levels ​in blue ha​ve been well below 2017's gas in storage in green and the 5 year average in grey dots; over recent weeks it has also been below the 5 year range, and below the amount of gas stored during 2014, ​which was ​prior to this year the lowest level in over a decade...but as you can also see, this year's natural gas in storage has tracked pretty close to the level of 2005​ (yellow)​, the lowest in 13 years...so with that, we'll look at the actual amounts of gas in storage from the historical natural gas storage archive files (xls)..

as we mentioned earlier, our natural gas supplies had risen to 3,095 billion cubic feet by October 19th of this year; that would compare with the 3,139 billion cubic feet of natural gas that were in storage on October 21st of 2005, so we are pretty close to that level... however, after rising to 3,229 billion cubic feet on November 4th, 2005, the EIA's presumable end of season comparison, natural gas supplies went on to peak at 3,282 billion cubic feet on November 11th, 2005, a 57 billion cubic feet increase during the 2nd week of November, which is one of the largest if not the largest increase that late in the year...so while we may match 2005 storage levels on November 2nd of this year, it seems highly unlikely that we'd match 2005's November 11th high after that...

now, the last thing i want to note on that graph is the 2014 natural gas storage levels...that's the winter we were hit with repeated outbreaks of "the polar vortex", and as a result our natural gas supplies fell to a low of 824 billion cubic feet by March 28th of that year, the lowest in the modern records, and stayed at 5 year lows ​throughout the summer ​until December of that year...so to compare supplies going into this coming winter to that of 2014, we'd have to go back to the fall of 2013, which is why i penciled in those dots and red line on this graph...on October 18th, 2013, US natural gas supplies were at 3,741 billion cubic feet, and they rose to a high of 3,834 billion cubic feet 3 weeks later on November 8th....with our recent October 19th supplies at 3,095 billion cubic feet, that means that if our natural gas usage this winter is similar to that of 2014, our natural gas supplies would fall to just 178 billion cubic feet by the end of the heating season...that would certainly imply widespread natural gas shortages, and answer the question that the RBN post didn't, ie, What If This Winter Turns Frigid?

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration for the week ending October 19th indicated a large addition to our commercial crude supplies for a fifth week in a row, despite a ​sizable increase in our oil exports, ​thus ​resulting in a similar increase in our unaccounted for crude​ oil​...our imports of crude oil rose by an average of 63,000 barrels per day to an average of 7,678,000 barrels per day, after rising an average of 218,000 barrels per day the prior week, while our exports of crude oil rose by an average of 398,000 barrels per day to an average of 2,180,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,498,000 barrels of per day during the week ending October 19th, 335,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,398,000 barrels per day during this reporting week... 

meanwhile, US oil refineries were using 16,268,000 barrels of crude per day during the week ending October 19th, 48,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 741,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 611,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption or new storage of it, the EIA inserted a (+611,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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"...suffice it to say that with an "unaccounted for crude" figure that large, one or more of this week's oil metrics is off by a statistically significant amount (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) indicate that the 4 week average of our oil imports slipped to an average of 7,664,000 barrels per day, now just 0.7% more than the 7,609,000 barrel per day average that we were importing over the same four-week period last year....the net 741,000 barrel per day increase in our total crude inventories ​included a 907,000 barrel per day increase in our commercially available stocks of crude oil, which was partially offset by a 165,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed seven weeks ago....this week's crude oil production was reported as unchanged at 10,900,000 barrels per day because the rounded 10,400,000 barrels per day output from wells in the lower 48 states changed by less than 100,000 barrels per day, while a 26,000 barrels per day decrease to 473,000 barrels per day in oil output from Alaska was not enough to impact the reported national total, which is now being rounded to the nearest 100,000 barrels per day....last year's US crude oil production for the week ending October 20th was at 9,507,000 barrels per day, so this week's rounded oil production figure was 14.7% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016, even as this year's production is still recovering from Hurricane Michael...

meanwhile, US oil refineries were operating at 89.2% of their capacity in using 16,268,000 barrels of crude per day during the week ending October 19th, up from 88.8% of capacity the prior week, still a ​fairly normal utilization rate for the fall refinery maintenance season....and even with this week's throughput decrease, the 16,268,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 19th out of the past 21 weeks, 1.5% higher than the 16,025,000 barrels of crude per day that were processed during the week ending October 20th, 2017, when US refineries were operating at 87.8% of capacity...

with the decrease in the amount of oil being refined this week, gasoline output from our refineries was much lower, decreasing by 402,000 barrels per day to 10,028,000 barrels per day during the week ending October 19th, after our refineries' gasoline output had increased by 719,000 barrels per day during the week ending October 12th...but even with that drop in gasoline output, our gasoline production during the week was almost 1% higher than the 9,936,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) increased by 145,000 barrels per day to 4,960,000 barrels per day, after that output had decreased by 213,000 barrels per day the prior week....hence, this week's distillates production was the highest ever for mid-October, 3.4% higher than the 4,795,000 barrels of distillates per day that were being produced during the week ending October 20th 2017.... 

with the drop in our gasoline production, our supply of gasoline in storage at the end of the week fell by 4,826,000 barrels to 229,330,000 barrels by October 19th, the 20th decrease in the past 35 weeks, and the largest ​weekly ​drop in gasoline supplies since March 9th....our gasoline supplies also fell this week because the amount of gasoline supplied to US markets rose by 142,000 barrels per day to 9,324,000 barrels per day, and because our imports of gasoline fell by 63,000 barrels per day to 331,000 barrels per day, while our exports of gasoline fell by 195,000 barrels per day from last week's high to 969,000 barrels per day...but even after this week's big decrease, our gasoline inventories are still at a seasonal high, 5.7% higher than last October 20th's level of 216,869,000 barrels, and roughly 8.5% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, even with our distillates production somewhat higher, our supplies of distillate fuels still fell again, decreasing by 2,262,000 barrels to 130,376,000 barrels during the week ending October 19th, their fifth straight decrease after 8 straight weeks of increases...our distillates supplies ​fell ​by much more than last week​'s​ d​​ecrease because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 213,000 barrels per day to 4,006,000 barrels per day, and because our exports of distillates rose by 135,000 barrels per day to 1,440,000 barrels per day, while our imports of distillates fell by 2,000 barrels per day to 163,000 barrels per day....but even after this week's decrease, our distillate supplies ended the week fractionally above the 129,241,000 barrels that we had stored on October 20th, 2017, while they remained roughly 4.4% below the 10 year average of distillates stocks for this time of the year...     

finally, despite higher oil exports, our commercial supplies of crude oil increased for the 5th week in a row and for the 21st time in 2018, as they rose by 6,349,000 barrels during the week, from 416,441,000 barrels on October 12th to 422,787,000 barrels on October 19th...that increase means that our crude oil inventories are now more than 2% above the five-year average of crude oil supplies for this time of year, and roughly 22% above the 10 year average of crude oil stocks for the 3rd weekend in October, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of October 19th were still 7.6% below the 457,341,000 barrels of oil we had stored on October 20th of 2017, 9.7% below the 468,158,000 barrels of oil that we had in storage on October 21st of 2016, and 5.6% below the 447,994,000 barrels of oil we had in storage on October 23rd of 2015...     

This Week's Rig Count

US​​ drilling rig activity increased a bit for the fourth time in 5 weeks during the week ending October 26th, and thus is again at another 41 month high....Baker Hughes reported that the total count of rotary rigs running in the US increased by 1 rig to 1065 rigs over the week ending on Friday, which was also 159 more rigs than the 909 rigs that were in use as of the October 27th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil increased by 2 rigs to 875 rigs this week, which was also 138 more oil rigs than were running a year ago, while it was 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 fell by 1 rig to 193 rigs, which was still 21 more than the 172 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, a year ago we had a rig categorized as "miscellaneous" deployed, ​while there are none such drilling at this time this year...

offshore drilling in the Gulf of Mexico was down by 1 rig to 18 rigs this week, which was also down from the 20 Gulf of Mexico rigs active a year ago...however, a single rig continued to drill offshore from Alaska this week, so the total national offshore count is at 19 rigs, compared to 20 a year ago, when there was no offshore drilling other than in the Gulf.....

the count of active horizontal drilling rigs was up by 1 rig to 927 horizontal rigs this week, which was also 158 more horizontal rigs than the 769 horizontal rigs that were in use in the US on October 27th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the directional rig count was up by 1 rig to 73 directional rigs this week, which was still down by 1 from the 74 directional rigs that were in use during the same week of last year....on the other hand, the vertical rig count was down by 1 rig to 68 vertical rigs this week, which was still up from the 66 vertical rigs that were operating on October 27th 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 October 26th, the second column shows the change in the number of working rigs between last week's count (October 19th) and this week's (October 26th) count, the third column shows last week's October 19th active rig count, the 4th column shows the change between the number of rigs running on Friday and those ​running ​on the equivalent weekend 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 27th of October, 2017...       

October 26 2018 rig count summary

as you can see, this week's horizontal rig increase was underpinned by the 4 rig increase in North Dakota's Williston basin; however, North Dakota only shows a two rig increase because two of those new rigs were set up on the Montana side of the border, the first drilling activity in Montana since June 8th and the only time other than last November that Montana has seen two rigs active in the past 3 and a half years...in the Permian basin, meanwhile, two rigs were shut down in Texas Oil District 8A, while a rig was started up on the New Mexico side of the border...Louisiana's 3 rig decrease included the Gulf of Mexico platform that was shut down, and two land based rigs in the southern part of the state...since the rig count in northern Louisiana was unchanged, we can probably assume that the rig addition in the Haynesville was ​on the Texas​ side of the Louisiana border...meanwhile, the natural gas rig count was down this week despite the rig additions in the Haynesville and the West Virginia Marcellus because the rig that was shut down in the Dallas area Barnett shale was a natural gas rig, as were two other rigs shut down in basins not tracked separately by Baker Hughes..

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NOTE: there's more here...

Sunday, October 21, 2018

DUC wells at a record high, leading to a 6.5 month backlog of unfracked wells; rig count at a 41 month high nonetheless

oil prices were down for a second week and hit a one month low on Thursday, as trading on fundamentals gave way to geopolitical concerns arising from the Saudi orchestrated dismemberment and subsequent killing of Washington Post columnist and Saudi insider Jamal Khashoggi, who apparently had information linking the Saudi royals to the 9-11 trade tower bombing and hence had to be shut up...after falling 4% to $71.34 a barrel in a broad based global market selloff last week, prices for US crude oil contracts for November delivery spiked to as high as $72.70 a barrel on Monday after Saudi Al Arabiya television warned that if the US sanctioned Saudi Arabia for the Khashoggi killing, we would "face an economic disaster that would rock the entire world,", but settled back to close just 44 cents higher at $71.78 a barrel on an outlook for long term weakness in oil demand...oil prices then rose another 14 cents to $71.92 a barrel in cautious trading on Tuesday as expectations of higher U.S.oil inventories offset reports of lower oil exports from Iran...after an initial rally to $72.43 a barrel on Wednesday, oil prices tumbled more than 3% to close down $2.17 at $69.75 a barrel, after the EIA reported an increase in US crude supplies that exceeded expectations for the 4th week in a row...oil prices fell another $1.10 to a one month low of $68.65 a barrel on Thursday, as oil traders’ concerns turned to the potential recessionary impact of the escalating trade war between the Trump administration and China...oil prices then bounced back 47 cents on U.S.-Saudi tensions over the Khashoggi killing on Friday, but still ended the week 3.1% lower than last Friday at $69.12 a barrel..

natural gas prices, on the other hand, ended the week higher on volatile trading on changing weather forecasts and concerns over winter supplies...natural gas prices first rose 8.1 cents to $3.242 per mmBTU on Monday as forecasts indicated the current cold snap would linger through October, then gave up three-tenths of a cent on Tuesday, and then rose another 8.1 cents to $3.240 per mmBTU on Wednesday, again on the likelihood of below-average temperatures east of the Rockies and concern that would exacerbate the storage crisis...but a forecast that the cold weather was breaking down precipitated a dramatic Thursday sell-off in November natural gas contracts, which ended 12.2 cents lower at $3.198 per mmBTU, after the natural gas storage report came in close to expectations...natural gas contracts for November delivery then rebounded 5.2 cents on Friday to end the week at $3.250 per mmBTU, a 2.8% increase on the week..

this week's natural gas storage report from the EIA for week ending October 12th indicated that natural gas in storage in the US rose by 81 billion cubic feet to 3,037 billion cubic feet during that week, which left our gas supplies 601 billion cubic feet, or 16.5% below the 3,638 billion cubic feet that were in storage on October 13th of last year, and 605 billion cubic feet, or 17.0% below the five-year average of 3,642 billion cubic feet of natural gas that are typically in storage after the second week of October....this week's 81 billion cubic feet increase in natural gas supplies was a bit below consensus expectations of an 85 billion cubic foot increase, but was a bit above the average of 79 billion cubic feet of natural gas that have been added to storage during the second week of October in recent years, still only the 5th average or above average inventory increase in the past fifteen weeks...natural gas storage facilities in the Midwest saw a 37 billion cubic feet increase this week, reducing their supply deficit to 12.0% below normal, while supplies in the East increased by 22 billion cubic feet but still saw their deficit fall to 8.5% below normal for this time of year...the South Central region saw a 24 billion cubic feet increase in their supplies, as their natural gas storage deficit decreased to 24.8% below their five-year average...however, a natural gas pipeline rupture in Canada cutoff imports to both the Mountain and Pacific regions, so Mountain region supplies fell 3 billion cubic feet and their deficit from normal rose to 16.9%, while there was just a 2 billion cubic feet addition to storage in the Pacific region, where the natural gas supply deficit rose to 23.3% below normal for this time of year.... 

to get an idea of what kind of temperature factors led to this past week's 81 billion cubic feet increase in natural gas stores, we'll take a quick look at the most recent average temperature summary from the EIA's natural gas storage dashboard:

October 19 2018 average regional temperatures

the above graphic from the EIA's natural gas storage dashboard gives us both the average daily temperature from October 5th thru October 18th in each of the five natural gas regions, as well as the variance from normal for each of those daily temperature averages, as color coded at the bottom...to take temperatures in the East for example, the initial 68 and 69 degree averages on October 5th and October 6th are colored with the 2nd lightest shade of brown, indicating those average temperatures were 5 to 9 degrees above normal for the region on those dates...temperatures in the East from October 7th through the 11th are a darker shade of brown, indicating those average temperatures were 10 to 14 degrees above normal; however, the average temperatures in the East had dropped to 56 degrees by October 13th and 14th, and are thus color coded in light blue as being 1 to 4 degrees above normal...so this graphic gives us not only the actual average temperature for each region for each day, but also indicates how much that temperature deviated from the norm..

while the departure from normal helps us understand why a particular week may have deviated from past averages, what really matters for natural gas consumption is the actual temperature...for instance, an average temperature of 68 on a given day is not going to see much heating or cooling demand whether it is above normal in the Northeast or below normal in the deep south...what this graphic shows for week ending October 12th was that temperatures in the East were a bit warm and might have seen some air conditioning use, but not much; that temperatures in the Midwest probably saw little demand for cooling or heating, at least until the last two days of the period, that temperatures in the south central states were a bit warmer than normal and probably saw some modest air conditioning demand, and that temperatures in the Mountain States and Pacific states were cooler than normal and probably saw some demand for heating...however, since we are in this so-called "shoulder season" between the cooling season and the heating season, that means that we were able to store 81 billion cubic feet of natural gas in advance of the winter for for week ending October 12th...since we can see that the current week was much cooler nationally, we would expect that more furnaces will be clicking on nationally, and the associated natural gas surplus will be much less...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending October 12th, showed that because of lower oil exports, higher oil imports, and a slowdown in oil refining, we were able to add oil to our commercial crude supplies for a fourth week in a row, despite a modest hurricane related drop in domestic oil production...our imports of crude oil rose by an average of 218,000 barrels per day to an average of 7,615,000 barrels per day, after falling by an average of 658,000 barrels per day the prior week, while our exports of crude oil fell by an average of 794,000 barrels per day to an average of 1,782,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,833,000 barrels of per day during the week ending October 12th, 1,012,000 more barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly 300,000 barrels per day lower than the prior week at 10,900,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,733,000 barrels per day during this reporting week... 

meanwhile, US oil refineries were using 16,316,000 barrels of crude per day during the week ending October 12th, 352,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 774,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 357,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption or new storage of it, the EIA inserted a (+357,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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 slipped to an average of 7,695,000 barrels per day, still 3.5% more than the 7,435,000 barrel per day average that we were importing over the same four-week period last year....the net 774,000 barrel per day increase in our total crude inventories was due to an 927,000 barrel per day increase in our commercially available stocks of crude oil, which was partially offset by a 157,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed six weeks ago....this week's crude oil production was reported as down by 300,000 barrels per day to 10,900,000 barrels per day because of a rounded 300,000 barrels per day decrease to 10,400,000 barrels per day in the rounded output from wells in the lower 48 states as Gulf of Mexico production was shut in due to Hurricane Michael, while a 13,000 barrels per day increase to 499,000 barrels per day in oil output from Alaska was not enough to impact the reported national total, which is now being rounded to the nearest 100,000 barrels per day....last year's US crude oil production for the week ending October 13th had fallen to 8,406,000 barrels per day in another hurricane impact, so comparing this week's oil production to that of a year ago is not meaningful...

meanwhile, US oil refineries were operating at 88.8% of their capacity in using 16,316,000 barrels of crude per day during the week ending October 12th, unchanged from 88.8% of capacity the prior week, a typical utilization rate for the refinery maintenance season....the 16,316,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 18th out of the past 20 weeks, 5.7% higher than the 15,439,000 barrels of crude per day that were processed during the week ending October 13th, 2017, when US refineries were operating at 84.5% of capacity, an inordinately low figure probably due to a spate of storms active in the Gulf region at that time...

despite the decrease in the amount of oil being refined this week, gasoline output from our refineries was quite a bit higher, increasing by 719,000 barrels per day to 10,430,000 barrels per day during the week ending October 12th, after our refineries' gasoline output had decreased by 239,000 barrels per day during the week ending October 5th...with that jump in gasoline output, our gasoline production during the week was thus 4.0% higher than the 10,031,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 213,000 barrels per day to 4,784,000 barrels per day, after that output had decreased by 1,000 barrels per day the prior week....even so, this week's distillates production was still fractionally higher than the 4,964,000 barrels of distillates per day that were being produced during the week ending October 13th 2017.... 

even with the big jump in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 2,014,000 barrels to 234,156,000 barrels by October 12th, the 19th decrease in the past 34 weeks, a period encompassing the spring and summer weeks of higher gasoline consumption, when supplies usually trend lower....our supplies of gasoline fell this week because our exports of gasoline rose by 135,000 barrels per day to an October record high of 1,164,000 barrels per day, and because our imports of gasoline fell by 299,000 barrels per day to 394,000 barrels per day, and because the amount of gasoline supplied to US markets rose by 104,000 barrels per day to 9,182,000 barrels per day....but even after this week's decrease, our gasoline inventories are still at a seasonal high, 5.3% higher than last October 13th's level of 222,334,000 barrels, and roughly 10.4% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, with our distillates production somewhat lower, our supplies of distillate fuels also fell again, decreasing by 827,000 barrels to 132,638,000 barrels during the week ending October 12th, their fourth straight decrease after 8 straight weeks of increases...our distillates supplies decreased even as the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 836,000 barrels per day from last week's record high to 3,793,000 barrels per day, partly because our exports of distillates rose by 338,000 barrels per day to 1,305,000 barrels per day, while our imports of distillates fell by 22,000 barrels per day to 165,000 barrels per day....after this week's decrease, our distillate supplies ended 1.4% below the 134,487,000 barrels that we had stored on October 13th, 2017, and roughly 5.7% below the 10 year average of distillates stocks for this time of the year...     

finally, despite higher oil exports and lower oil imports, our commercial supplies of crude oil increased for the 4th week in a row and for the 20th time in 2018, as they rose by 6,490,000 barrels during the week, from 409,951,000 barrels on October 5th to 416,441,000 barrels on October 12th...that increase means that our crude oil inventories are now about 2% above the five-year average of crude oil supplies for this time of year, and roughly 22% above the 10 year average of crude oil stocks for the 2nd weekend in October, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...but since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of October 12th were still 8.7% below the 456,485,000 barrels of oil we had stored on October 13th of 2017, 11.2% below the 468,711,000 barrels of oil that we had in storage on October 14th of 2016, and 6.3% below the 444,618,000 barrels of oil we had in storage on October 16th of 2015...    

This Week's Rig Count

US well drilling rig activity increased for the third time in 4 weeks during the week ending October 19th, eclipsing this year's previous high set after the first week of June, and thus it's now the highest since March 20th 2015....Baker Hughes reported that the total count of rotary rigs running in the US increased by 4 rigs to 1067 rigs over the week ending on Friday, which was also 154 more rigs than the 913 rigs that were in use as of the October 20th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil increased by 4 rigs to 873 rigs this week, which was also 137 more oil rigs than were running a year ago, while it was 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 rose by 1 rig to 194 rigs, which was also 17 more than the 177 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...on the other hand, the last active rig categorized as "miscellaneous" was shut down this week, so there are no "miscellaneous" rigs deployed now, same as a year ago...

offshore drilling in the Gulf of Mexico fell by 3 rigs to 19 rigs this week, which was down from the 20 Gulf of Mexico rigs active a year ago...however, a single rig continued to drill offshore from Alaska this week, so the total national offshore count is at 20 rigs, same as a year ago, when there was no offshore drilling other than in the Gulf.....

the count of active horizontal drilling rigs was down by 1 rig to 926 horizontal rigs this week, which was still 155 more horizontal rigs than the 771 horizontal rigs that were in use in the US on October 20th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the directional rig count was up by 2 rigs to 72 directional rigs this week, which was still down from the 80 directional rigs that were in use during the same week of last year....in addition, the vertical rig count was up by 3 rigs to 69 vertical rigs this week, which was also up from the 62 vertical rigs that were operating on October 20th 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 October 19th, the second column shows the change in the number of working rigs between last week's count (October 12th) and this week's (October 19th) count, the third column shows last week's October 12th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend 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 20th of October, 2017...      

October 19 2018 rig count summary

as you can see, this week's drilling increase was all about Texas, as except for California, all other states that saw changes had their rig counts reduced...of the 8 rigs added in Texas, 4 were in the core Texas Oil District 8, or the Permian Delaware basin, and 2 were in Texas Oil District 7C, or the Permian Midland basin; so that means either that more than one Permian rig was shut down in New Mexico, or that some of the rig start ups in the Texas Permian region were conventional rigs that didn't involve horizontal drilling in the Permian itself...note that despite the 3 rig decrease in Gulf of Mexico rigs offshore from Louisiana, the state saw no changes in its overall rig count because of the addition of 3 land based rigs in the southern part of the state at the same time...meanwhile, other than the 1 rig decrease in Pennsylvania's Marcellus, all other rig increases or decreases in the basins shown above were oil rigs, but the natural gas rig count still rose by 1 because of a 2 rig increase in basins not tracked separately by Baker Hughes...

DUC well report for September

Monday of this past week saw the release of the EIA's Drilling Productivity Report for October, which includes the EIA's September data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the 24th consecutive month, this report again showed an increase in uncompleted wells nationally in September, even as drilling of new wells slowed while completions of drilled wells increased....like most previous months, this month's uncompleted well increase was due to a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, with modest increases of uncompleted wells in the Anadarko basin of Oklahoma and the Eagle Ford of south Texas also contributing...for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 192, from 8,197 wells in August to 8,389 wells in September, again the highest number of such unfracked wells in the history of this report, and up 32.5% from the 6,329 wells that had been drilled but remained uncompleted in September a year ago...that was as 1,437 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during September, down from 1,495 in August, while 1,281 wells were completed and brought into production by fracking, a increase of 11 well completions over the 1270 completions seen in August...at the September completion rate, the 8,389 drilled but uncompleted wells left at the end of the month represent a 6.5 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 September DUC well increases were predominantly oil wells, with most of those in the Permian basin...the Permian basin saw its total count of uncompleted wells rise by 194, from 3,525 DUC wells in August to 3,722 DUCs in September, as 619 new wells were drilled into the Permian but only 425 wells in the region were fracked...at the same time, DUC wells in the Anadarko basin region in & around Oklahoma rose by 31, from 1014 DUC wells in August to 1,045 DUCs in September, as 191 wells were drilled in the Anadarko basin during September, while 160 Anadarko basin wells were completed...over the same period, the number of DUC wells in the Eagle Ford of south Texas increased by 18 to 1,584, as 179 wells were drilled into the Eagle Ford while 197 Eagle Ford wells were fracked....on the other hand, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 22 wells, from 687 DUCs in August to 665 DUCs in September, as 114 wells were drilled into the Marcellus and Utica shales, while 136 of the already drilled wells in the region were fracked...in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies' front range decreased by 15 wells to 407, as 181 Niobrara wells were drilled while 196 Niobrara wells were being fracked...similarly, DUC wells in the Bakken of North Dakota fell by 11, from 778 DUC wells in August to 767 DUCs in September, as 124 wells were drilled into the Bakken in September while 135 drilled wells in that basin were completed....lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 3 wells to 199, as 47 wells were drilled into the Haynesville during September, while 50 Haynesville wells were fracked during the same period...thus, for the month of September, DUCs in the 5 oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by a net of 217 wells to 7525 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 25 wells to 864 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas... 

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note: there’s more here