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

Monday, September 16, 2019

OPEC report shows a 1,450,000 barrel per day global oil shortage in August; US rig count falls to a new 28 month low

oil prices fell for the first time in 3 weeks after Trump fired national security advisor and reprobate warhawk John Bolton, which oil traders took to mean that a war with Iran was less likely, thus reducing risks of a war-related oil price spike...after rising 2.6% to $56.52 a barrel last week on falling US crude supplies and China trade optimism, prices of US crude for October delivery opened higher on Monday after the new Saudi minister committed to continuing OPEC's output cuts and moved to a 6 week high as oil bulls interpreted his appointment as a sign that the Saudis would focus on pushing up crude prices, with oil closing $1.33 higher at $57.85 a barrel...the oil price rally continued into early Tuesday, with prices rising to as high as $58.76 a barrel before Trump announced on Twitter that he fired national security advisor John Bolton, sending oil prices tumbling to close down 45 cents at $57.40 a barrel...however, oil price moved back up in after hours trading Tuesday after the API reported a big draw on crude & gasoline supplies and thus opened higher on Wednesday and rose to as high as $58.30 after the EIA also reported a larger than expected draw in crude oil inventories, but then tumbled by as much as 5% on a report that Trump had discussed easing Iranian sanctions as a prelude to talks, with oil prices closing $1.65 lower at $55.75 a barrel...oil prices continued falling on Thursday, after OPEC and its allies delayed discussing bigger production cuts till December and after the EIA lowered its 4th quarter price forecast for Brent, the international benchmark, by $5, with US oil closing down 66 cents at $55.09 a barrel...prices edged lower again on Friday, as forecasts for weakening demand outweighed signs of progress in the U.S.-China trade dispute, with oil prices finishing the day 24 cents lower at $54.85 a barrel...oil thus ended the week $1.67, or 3% lower after four straight days of declines, posting its biggest weekly drop since July, amid oversupply concerns ...

natural gas prices, on the other hand, finished higher the third week in a row, largely on continued short covering, as traders looked past the summer glut to the heating season ahead...after rising nearly 10% to $2.496 per mmBTU on short covering after forecasts for late summer heat last week, natural gas for October delivery opened higher Monday and moved up 8.9 cents as the forecasts trended hotter, before pulling back a half cent on Tuesday and 2.8 cents on Wednesday, even as an unseasonably strong upper level ridge set up in the eastern half of the nation and limited the retreat...the rally resumed Thursday after the EIA report showed a smaller addition of gas to storage than was expected, with October natural gas prices rising 2.2 cents Thursday and 4 cents Friday to end the week at $2.614 per mmBTU, an increase of 4.7% on the week and nearly 28% higher than its early August lows...

the natural gas storage report for the week ending September 6th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 78 billion cubic feet to 3,019 billion cubic feet by the end of the week, which meant our gas supplies were 393 billion cubic feet, or 15.0% more than the 2,626 billion cubic feet that were in storage on September 6th of last year, while still 77 billion cubic feet, or 2.5% below the five-year average of 3,096 billion cubic feet of natural gas that have been in storage as of the 6th of September in recent years....this week's 78 billion cubic feet injection into US natural gas storage was somewhat below the forecast for an 87 billion cubic feet injection by analysts surveyed by S&P Global Platts, while it was still above the average 73 billion cubic feet of natural gas that have been added to gas storage during the first week of September over the past 5 years, the 24th such average or above average storage build in the last 26 weeks...the 1,841 billion cubic feet of natural gas that have been added to storage over the 24 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 1906 billion cubic feet of natural gas that were injected into storage over the same 24 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending September 6th indicated that because our refinery throughput and oil exports rose while our oil imports fell, we had to pull oil out of storage for the eleventh time in 13 weeks...our imports of crude oil fell by an average of 180,000 barrels per day to an average of 6,725,000 barrels per day, after rising by an average of 976,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 234,000 barrels per day to an average of 3,295,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,430,000 barrels of per day during the week ending September 6th, 414,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be unchanged from the prior week at 12,400,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,830,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,495,000 barrels of crude per day during the week ending September 6th, 114,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 987,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 678,000 barrels per day less than what our oil refineries reported they used during the week...to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+678,000) 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 they label in their footnotes as "unaccounted for crude oil"....with that great a quantity of oil unaccounted for this week, it calls into question the other oil totals that the EIA has reported and that we have just transcribed (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) indicated that the 4 week average of our oil imports fell to an average of 6,694,000 barrels per day last week, now 11.7% less than the 7,577,000 barrel per day average that we were importing over the same four-week period last year...the 987,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be unchanged at 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,000,000 barrels per day, while a 44,000 barrels per day increase to 398,000 barrels per day in Alaska's oil production had no impact on the final rounded national production total...last year's US crude oil production for the week ending September 7th was rounded to 10,900,000 barrels per day, so this reporting week's rounded oil production figure was 13.6% above that of a year ago, and 47.1% 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 95.1% of their capacity in using 17,495,000 barrels of crude per day during the week ending September 6th, up from 94.8% of capacity the prior week, refinery utilization rates that are fairly typical for late summer...however, the 17,495,000 barrels per day of oil that were refined this week were still 2.0% below the 17,857,000 barrels of crude per day that were being processed during the week ending September 7th, 2018, when US refineries were operating at 97.6% of capacity....

with the increase in the amount of oil being refined, gasoline output from our refineries was modestly higher, increasing by 88,000 barrels per day to 10,360,000 barrels per day during the week ending September 6th, after our refineries' gasoline output had decreased by 388,000 barrels per day over the prior week...but even with that increase in gasoline output, this week's gasoline production was still fractionally lower than the 10,384,000 barrels of gasoline that were being produced daily over the same week of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 187,000 barrels per day to 5,341,000 barrels per day, after our distillates output had decreased by 39,000 barrels per day the prior week....but even with that increase, our distillates production was still 3.5% less than the 5,536,000 barrels of distillates per day that were being produced during the week ending September 7th, 2018.... 

with ​just a modest increase in our gasoline production, our supply of gasoline in storage at the end of the week still fell for the 9th time in 13 weeks and for the 23rd time in twenty-eight weeks, decreasing by 682,000 barrels to 228,904,000 barrels during the week to September 6th, after our gasoline supplies had fallen by 2,396,000 barrels over the prior week....our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 336,000 barrels per day to 9,807,000 barrels per day even while our exports of gasoline fell by 182,000 barrels per day to 637,000 barrels per day, and while our imports of gasoline rose by 80,000 barrels per day to 797,000 barrels per day...after this week's decrease, our gasoline supplies were 3.0% lower than last September 7th's inventory level of 235,869,000 barrels, while remaining roughly 3% above the five year average of our gasoline supplies for this time of the year...

with the big increase in our distillates production, our supplies of distillate fuels rose for the 11th time in the past 26 weeks, increasing by 2,704,000 barrels to 136,226,000 barrels during the week ending September 6th, after our distillates supplies had decreased by 2,538,000 barrels over the prior week...our distillates supplies increased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 310,000 barrels per day to 3,804,000 barrels per day, and because our exports of distillates fell by 315,000 barrels per day to 1,194,000 barrels per day, while our imports of distillates fell by 82,000 barrels per day to 44,000 barrels per day....but even after this week's inventory increase, our distillate supplies were still 2.2% less than the 139,283,000 barrels of distillates that we had stored on September 7th, 2018, and remained around 6% below the five year average of distillates stocks for this time of the year...

finally, as our exports rose and our refineries processed more oil, our commercial supplies of crude oil in storage fell for the eleventh time in thirteen weeks but for the seventeenth time in 34 weeks, decreasing by 6,912,000 barrels, from 422,980,000 barrels on August 30th to 416,068,000 barrels on September 6th...that decrease left our crude oil inventories 2% below the five-year average of crude oil supplies for this time of year, but still roughly 24% higher than the prior 5 year (2009 - 2013) average of crude oil stocks after the first week of September, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising over the past year up until the most recent thirteen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of September 6th were still 5.0% above the 396,194,000 barrels of oil we had stored on September 7th of 2018, but at the same time were 11.1% below the 468,241,000 barrels of oil that we had in storage on September 8th of 2017, and 13.3% below the 480,166,000 barrels of oil we had in commercial storage on September 9th of 2016...  

OPEC's Monthly Oil Market Report

this week we're also going to review OPEC's September Oil Market Report (covering August OPEC & global oil data), which was released on Wednesday of this past week and is available as a free download, and hence it's the report we check for monthly global oil supply and demand data...​as you’ll see, it shows there was ​again ​a large shortfall in the amount of oil produced ​globally ​in ​August, ​contrary to the story that​'s being told elsewhere​...the first table from this monthly report that we'll look at is from the page numbered 63 of that report (pdf page 73), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as a means of impartially adjudicating whether their output quotas and production cuts are being met, to thus avert any potential disputes that could arise if each member reported their own figures...

August 2019 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC's oil output rose by 136,000 barrels per day to 29,741,000 barrels per day in August, from their revised July production total of 29,605,000 barrels per day...however that July figure was originally reported as 29,609,000 barrels per day, so that means their production for August was, in effect, a 132,000 barrel per day increase from the previously reported production figures (for your reference, here is the table of the official July OPEC output figures as reported a month ago, before this month's revisions)...

​we can also see that the 118,000 barrel per day increase by the Saudis, the 86,000 barrel per day increase by Nigeria, and the 43,000 barrel per day increase by Iraq were the reasons that OPEC output rose in August, as most other OPEC members either cut their output or were little changed...however, those increases in the output from Nigeria and Iraq means that both countries are now well over their output allocation as originally determined for each OPEC member after their December 7th, 2018 meeting, when OPEC agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers, and which were extended at their July 1st meeting a little over two months ago...this can be seen in the table of OPEC production allocations we've included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, and it shows average daily production quota in millions of barrels of oil per day for each of the OPEC members as was agreed to at their December 2018 meeting and has now been extended through March 2020 as of their recent meeting....note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by a civil war, are exempt from any production quotas, and that none of those exempt countries are producing more than they did in the 4th quarter of 2018, which you can see in the third column of the OPEC production table above...

the next graphic from the report that we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from September 2017 to August 2019, and it comes from page 64 (pdf page 74) of the September OPEC Monthly Oil Market Report....on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale... 

August 2019 OPEC report global oil supply

including the increase in OPEC's production from what they produced a month ago, their preliminary estimate now indicates that total global oil production rose by 0.83 million barrels per day to 99.24 million barrels per day in August, but that reported increase came after July's total global output figure was revised down by 300,000 barrels per day from the 98.71 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 700,000 barrels per day in August after that revision, with higher oil production from the US, Canada, Malaysia, Brazil and Russia the major reasons for the non-OPEC output increase in August.... the 99.24 million barrels per day produced globally in August was also 0.36 million barrels per day, or 0.4% higher than the 98.88 million barrels of oil per day that were being produced globally in August a year ago (see the September 2018 OPEC report (online pdf) for the originally reported August 2018 details)...but even with ​this month's increase in OPEC's output, their August oil production of 29,741,000 barrels per day slipped to 30.0% of what was produced globally during the month, down from the revised 30.1% share they contributed in July....OPEC's August 2018 production was reported at 32,565,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year's total and new member Congo from this year's, are now producing 2,527,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.9% of global output, with a 1,394,000 barrel per day drop in output from Iran, a 596,000 barrel per day decrease in the output from Saudi Arabia, and a 523,000 barrel per day decrease in the output from Venezuela from that time more than offsetting the year over year production increases of 141,000 barrels per day from Nigeria, 130,000 barrels per day from Libya, 130,000 barrels per day from Iraq, and 113,000 barrels per day from the United Arab Emirates...   

despite the 830,000 barrels per day increase in global oil output that was seen during August, there was still a large shortfall in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us...    

August 2019 OPEC report global oil demand

the table above came from page 35 of the September OPEC Monthly Oil Market Report (pdf page 45), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2019 over the rest of the table...on the "Total world" line in the fourth column, we've circled in blue the figure that's relevant for August, which is their revised estimate of global oil demand during the third quarter of 2019...

OPEC ​​has estima​​ted that during the 3rd quarter of this year, all oil consuming regions of the globe will be using 100.63 million barrels of oil per day, which was revised from their estimate of 100.69 million barrels of oil per day for the 3rd quarter a month ago....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were still only producing 99.24 million barrels per day during August, which means that there was a shortfall of around 1,450,000 barrels per day in global oil production when compared to the demand estimated for the month... in addition, the downward revision of 300,000 barrels per day to July's global output that's implied in this report, partially offset by the 60,000 barrels per day downward revision to 3rd quarter demand that we've just noted, means that the 1,980,000 barrel per day shortfall that we had previously figured for July based on last month's figures would now be revised to a deficit of 2,220,000 barrels per day....

however, demand figures for both the first quarter and 2nd quarter were also revised lower with this report, as you can see encircled by the green ellipse on the table above...the 170,000 barrels per day downward revision to 2nd quarter demand would mean that we'd have to revise our global oil deficit for June from 790,000 barrels per day to 620,000, that we'd have to revise our May deficit from 1,160,000 barrels per day to 990,000 barrels per day, and revise our global oil deficit for April from 1,030,000 barrels per day to 860,000 barrels per day...hence, for the 2nd quarter as a whole, even after those downward revision to demand, the world's oil producers were producing 767,000 barrels per day less than what was needed...

note that in green we've also circled a downward revision of 30,000 barrels per day to first quarter demand...that means that the global oil surplus of 160,000 barrels per day we had previously figured for March would have to be revised to a global oil surplus of 190,000 barrels per day...similarly, the 610,000 barrel per day global oil output surplus we had for February would now be a 640,000 barrel per day global oil output surplus, and the 520,000 barrel per day global oil output surplus we had for January would be revised to a 550,000 barrel per day oil output surplus.. 

our green ellipse above also highlights that OPEC has revised 2018's oil demand 10,000 barrels per day higher...when demand for 2018 was revised a month ago we adjusted our previously computed 2018 figures and for that revision and figured that for all of 2018, global oil demand exceeded production by roughly 47,240,000 barrels of oil for the year as a whole...the 10,000 barrels per day upward revision to 2018 demand would thus add 3,650,000 barrels to that deficit for a total shortfall of 50,890,000 barrels for 2018.​..​

This Week's Rig Count

the US rig count fell for the 26th time in 30 weeks over the week ending September 13th, and is now down by 18.2% since the end of last year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 12 rigs to a 28 month low of 886 rigs this past week, which was also down by 169 rigs from the 1055 rigs that were in use as of the September 14th report of 2018, and well less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil decreased by 5 rigs to 733 rigs this week, which was a 22 month low for oil rigs and 134 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations fell by 7 rigs to 153 natural gas rigs, a 30 month low for gas rig drilling activity and down by 33 rigs from the 186 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008...

offshore drilling activity was down by 2 to 26 rigs running this week, as platforms offshore from Texas and from Alaska were shut down...that still left 25 rigs drilling offshore from Louisiana and one offshore from the Kenai Peninsula in Alaska, a net increase of six offshore rigs from a year ago, when 11 rigs were drilling in Louisiana waters, one was drilling offshore from Texas, and two were deployed offshore from Alaska....

the count of active horizontal drilling rigs was down by 7 rigs to 776 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence is a 22 month low for horizontal drilling...that was also 145 fewer horizontal rigs than the 921 horizontal rigs that were in use in the US on September 14th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the directional rig count was down by 10 to 57 directional rigs this week, and those were down by 14 from the 71 directional rigs that were operating during the same week of last year...on the other hand, the vertical rig count was up by 5 to 53 vertical rigs this week, but those were ​still ​down by 10 from the 63 vertical rigs that were in use on September 14th of 2018...

the details on this week's changes in drilling activity by state and by major 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 oil & gas producing states, and the table below that 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 September 13th, the second column shows the change in the number of working rigs between last week's count (September 6th) and this week's (September 13th) count, the third column shows last week's September 6th active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before 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 the 14th of September, 2018...     

September 13 2019 rig count summary

even with the majority of this week's rig decrease coming out of those drilling for natural gas, the 8 rig decrease in the oil-bearing Permian was still two-thirds of the total that were idled this week....of those, just one rig was shut down in Texas Oil District 8, or the core Permian Delaware, which still has 267 rigs drilling; while 2 rigs were shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, and 5 rigs were shut down in Texas Oil District 7C, or the southern part of the Permian Midland, which now only has 9 rigs still drilling...other major changes in Texas include the startup of 4 rigs in Texas Oil District 7B, which accounts for the 3 rig increase in the Barnett shale, and 3 rigs that were shut down in Texas Oil District 10, the panhandle region, which corresponds to the Granite Wash...since the Granite Wash rig count is unchanged, it seems likely that 3 rigs began operation in the Oklahoma portion of Granite Wash to offset ​the ​shutdowns in Texas, given that the Oklahoma rig count increased despite the idling of 3 rigs in the Cana Woodford....oddly enough, even with this week's pullback in natural gas, the Cana Woodford, historically an oil play, saw a 2nd natural gas rig startup this week, while 4 oil rigs were idled in the basin, while the Barnett shale, more recently ployed for natural gas, had 3 oil ​seeking ​rigs added...another natural gas rig began operations in the Haynesville, apparently on the Texas side, since the Louisiana side of the basin shows a decrease...meanwhile, 3 natural gas rigs were shut down in West Virginia's Marcellus, one was shut down in Ohio' Utica, and 6 natural gas rigs were shut down in "other" basins not tracked separately by Baker Hughes...i'm not sure how to account for the 2 rig increase in Pennsylvania; all of the PA rigs shown to be drilling this week by the North America Rotary Rig Count Pivot Table (excel) are indicated to be in the Marcellus, but of the two rigs drilling in Fayette County, one is shown to be horizontal at a depth greater than 15,000 feet, while the other is indicated to be vertical at less than 5,000 feet...since that's physically impossible, we can probably assume that new PA rig in Fayette county is not targeting the Marcellus, thus accounting for the discrepancy in this week's count...we should also note that a horizontal rig started drilling for oil in Midland county Michigan this week, in the first drilling that state has seen since a 2 week stint in May of 2017...

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Note: there's more here...

Monday, September 9, 2019

natural gas drilling at a 29 month low as active rigs fall below 900 for first time since ​November 2017

oil prices rose for a second week in a row on a third consecutive larger than expected drop in US crude inventories and renewed optimism about a China trade deal... after rising 1.7% to $55.10 a barrel last ​week ​on the easing of the U.S.-China trade rhetoric that had driven down prices the prior week, prices of US crude for October delivery opened lower on Tuesday after the Labor Day holiday and fell throughout the day amid the imposition of yet another round of tariffs in US-China trade war and ended $1.16, or 2% lower at $53.94 a barrel, weighed down by reports of rising OPEC and Russian oil output as well as reports showing contracting manufacturing activity in the US and Europe...however, prices bounced back on Wednesday, boosted by a broader market rally that began with a positive economic report from China and ultimately carried oil prices to close more than 4% higher at $56.26 a barrel, up $2.32 from Tuesday's close...​but oil prices ​then ​fell in after market trading after the American Petroleum Institute reported higher crude inventories and thus opened lower and slid ​early ​on Thursday​,​ before reversing to finish 4 cents higher at $56.30 a barrel, bolstered by apparent signs of progress in trade talks between the United States and China, and an EIA report that crude inventories had in fact fallen more than was expected...oil prices were down more than 2% on weak jobs data from the Labor Dept at the start of trading on Friday, but rallied heading into the close after the Fed chairman said the central bank will act “as appropriate” to sustain US economic growth and settled 22 cents higher at $56.52 a barrel, thus finishing the week 2.6% higher than the prior week's close, the strongest weekly ​rally since early July.....

natural gas prices also finished higher for a second week, despite a larger than expected inventory build, as weather forecasts shifted to warmer over the Labor Day weekend and exports to Mexico were expected to increase as the Sur de Texas pipeline comes into service....after rising 6% to $2.285 per mmBTU last week on the possibility that Hurricane Dorian might impact the Gulf, prices of natural gas for October delivery moved up 7.3 cents on the bullish temperature forecast change on Tuesday, and then rose 8.7 cents more on Wednesday, as short positions established when prices were teasing 39 month lows a month ago were forced to cover...while prices slipped back a penny on Thursday after the EIA reported a larger than expected inventory injection, the natural gas price rally resumed on Friday as prices rose 6.1 cents more to close the week nearly 10% higher than the prior week at $2.496 per mmBTU..

the natural gas storage report for the week ending August 30th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 84 billion cubic feet to 2,941 billion cubic feet by the end of the week, which meant our gas supplies were 383 billion cubic feet, or 15.0% more than the 2,558 billion cubic feet that were in storage on August 30th of last year, while still 82 billion cubic feet, or 2.7% below the five-year average of 3,023 billion cubic feet of natural gas that have been in storage as of the 30th of August in recent years....this week's 84 billion cubic feet injection into US natural gas storage was above all the projections of analysts surveyed by S&P Global Platts, whose average forecast called for a 75 billion cubic feet injection, and also well above the average 64 billion cubic feet of natural gas that have been added to gas storage during the fourth full week of August over the past 5 years, the 23rd such average or above average storage build in the last 25 weeks...the 1,763 billion cubic feet of natural gas that have been added to storage over the 22 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 1814 billion cubic feet of natural gas that were injected into storage over the same 22 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 30th indicated that because our oil imports had only partially rebounded from last week's depressed level, we had to pull oil out of storage for the tenth time in 12 weeks...our imports of crude oil rose by an average of 976,000 barrels per day to an average of 6,904,000 barrels per day, after falling by an average of 1,787,000 barrels per day over the prior 2 weeks, while our exports of crude oil rose by an average of 42,000 barrels per day to an average of 3,061,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,843,000 barrels of per day during the week ending August 30th, 934,000 more barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be 100,000 barrels per day lower than the prior week at 12,400,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,243,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,381,000 barrels of crude per day during the week ending August 30th, 27,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 681,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 456,000 barrels per day less than what our oil refineries reported they used during the week...to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+456,000) 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 they label in their footnotes as "unaccounted for crude oil"....with that great a quantity of oil unaccounted for this week, it calls into question the other oil totals that the EIA has reported and that we have just transcribed (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) indicated that the 4 week average of our oil imports fell to an average of 6,941,000 barrels per day last week, now 12.5% less than the 7,933,000 barrel per day average that we were importing over the same four-week period last year...the 681,000 barrel per day decrease in our total crude inventories ​all came out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be 100,000 barrels per day lower at 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states fell by 100,000 barrels per day to 12,000,000 barrels per day, while a 46,000 barrels per day decrease to 354,000 barrels per day in Alaska's oil production had no impact on the final rounded national production total...last year's US crude oil production for the week ending August 31st was rounded to 11,000,000 barrels per day, so this reporting week's rounded oil production figure was 12.7% above that of a year ago, and 47.1% 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 94.8% of their capacity in using 17,381,000 barrels of crude per day during the week ending August 30th, down from 95.2% of capacity the prior week, but still a refinery utilization rate that is fairly typical for August...however, the 17,381,000 barrels per day of oil that were refined this week were 1.5% below the 17,647,000 barrels of crude per day that were being processed during the week ending August 31st, 2018, when US refineries were operating at 96.6% of capacity....

with ​just a modest decrease in the amount of oil being refined, gasoline output from our refineries was quite a bit lower, decreasing by 388,000 barrels per day to 10,272,000 barrels per day during the week ending August 30th, after our refineries' gasoline output had increased by 763,000 barrels per day over the prior week...but even with that drop in gasoline output, this week's gasoline production was fractionally higher than the 10,215,000 barrels of gasoline that were being produced daily over the same week of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) slipped by 39,000 barrels per day to 5,154,000 barrels per day, after our distillates output had decreased by 147,000 barrels per day the prior week....with this those back to back decreases, our distillates production was 5.2% less than the 5,439,000 barrels of distillates per day that were being produced during the week ending August 31st, 2018.... 

with the big decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 8th time in 12 weeks and for the 22nd time in twenty-eight weeks, decreasing by 2,396,000 barrels to 229,586,000 barrels during the week to August 30th, after our gasoline supplies had fallen by 2,090,000 barrels over the prior week....our gasoline supplies decreased this week even as the amount of gasoline supplied to US markets decreased by 429,000 barrels per day to 9,471,000 barrels per day because our exports of gasoline rose by 119,000 barrels per day to 819,000 barrels per day, and because our imports of gasoline fell by 248,000 barrels per day to 717,000 barrels per day...after this week's decrease, our gasoline supplies were 2.1% lower than last August 31st's inventory level of 234,619,000 barrels, but remain at roughly 3% above the five year average of our gasoline supplies at this time of the year...

with the decrease in our distillates production, our supplies of distillate fuels fell for the 15th time in the past 25 weeks, decreasing by 2,538,000 barrels to 133,522,000 barrels during the week ending August 30th, after our distillates supplies had decreased by 2,063,000 barrels over the prior week...our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 86,000 barrels per day to 4,134,000 barrels per day, while our imports of distillates rose by 1,000 barrels per day to 126,000 barrels per day, and while our exports of distillates fell by 56,000 barrels per day to 1,509,000 barrels per day....but even after this week's inventory decrease, our distillate supplies were still fractionally higher than the 133,120,000 barrels of distillates that we had stored on August 31st, 2018, while at the same time they fell to around 6% below the five year average of distillates stocks for this time of the year...

finally, as our oil imports continue to be somewhat below our needs, our commercial supplies of crude oil in storage fell for the tenth time in twelve weeks but for just the sixteenth time in 33 weeks, decreasing by 4,771,000 barrels, from 427,751,000 barrels on August 23rd to 422,980,000 barrels on August 30th...that decrease left our crude oil inventories near the five-year average of crude oil supplies for this time of year, but still 25.7% higher than the prior 5 year (2009 - 2013) average of crude oil stocks for the Labor Day weekend, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising since last Fall up until the most recent dozen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 30th were still 5.4% above the 401,490,000 barrels of oil we had stored on August 31st of 2018, but at the same time were 8.5% below the 462,353,000 barrels of oil that we had in storage on September 1st of 2017, and 12.0% below the 480,725,000 barrels of oil we had in commercial storage on September 2nd of 2016...  

This Week's Rig Count

the US rig count fell for the 25th time in 29 weeks over the week ending September 6th, and is now down by more than 17% ​ for the year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 6 rigs to a 22 month low of 898 rigs this past week, which was also down by 150 rigs from the 1048 rigs that were in use as of the September 7th report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil decreased by 4 rigs to 738 rigs this week, which was a 21 month low for oil rigs and 122 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations fell by 2 rigs to 160 natural gas rigs, a 29 month low for gas rig drilling activity and down by 26 rigs from the 186 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008...

offshore ​drilling ​activity was unchanged ​at 28 rigs​ running​ this week, with 25 rigs drilling offshore from Louisiana and one offshore from Texas in the Gulf of Mexico, and two more rigs deployed off the coast of the Kenai Peninsula in Alaska, a net increase of nine offshore rigs from a year ago, when 15 rigs were drilling in Louisiana waters, two were drilling offshore from Texas, and two more were deployed offshore from Alaska....the count of active horizontal drilling rigs was down by 1 rig to 783 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence is a new 21 month low for horizontal drilling...that was also 135 fewer horizontal rigs than the 918 horizontal rigs that were in use in the US on September 7th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was down by 2 to 48 vertical rigs this week, and those were down by 17 from the 65 vertical rigs that were operating during the same week of last year...in addition, the directional rig count was down by 3 to 67 directional rigs this week, but those were up by 2 from the 65 directional rigs that were in use on September 7th of 2018...

the details on this week's changes in drilling activity by state and by major 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 oil & gas producing states, and the table below that 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 September 6th, the second column shows the change in the number of working rigs between last week's count (August 30th) and this week's (September 6th) count, the third column shows last week's August 30th active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before 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 the 7th of September, 2018...     

September 6 2019 rig count summary

as you can see, the majority of this week's changes were limited to three states, with the Oklahoma rig count down 5, the Texas count down 3, and the North Dakota count up by 3 rigs, all of which started drilling for oil in the Bakken shale of the Williston basin...the rigs taken down in Oklahoma included three oil rigs in the Cana Woodford shale, one oil rig in the Mississippian Lime, and one rig in a basin not tracked separately by Baker Hughes...in Texas, 4 more rigs were shut down in Texas Oil District 8, or the core Permian Delaware, and another rig was shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while at the same time three rigs were started up in Texas Oil District 7C, or the southern part of the Permian Midland, which together nets out to the 2 rig decrease we see indicated for the Permian basin, while another rig shut down in Texas had been operating in a basin not tracked separately by Baker Hughes....while drilling in the 3 major natural gas basins (the Haynesville, the Marcellus, and the Utica) was unchanged this week, the Eagle Ford of south Texas saw a natural gas rig shut down and an oil rig start up and now has 59 oil rigs and 8 targeting natural gas, while another natural gas rig was also shut down in a basin not tracked separately by Baker Hughes, which could have been either of the aforementioned undocumented rigs in Texas or Oklahoma, or could have been masked by a concurrent oil rig increase in any state, as we see with the Eagle Ford​'s​ indication of "0" change...

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NOTE: there's more here...

Sunday, September 1, 2019

US oil production at a record high; horizontal drilling at a 21 month low

oil prices ended higher despite a big selloff on Friday this past week, as optimism about a potential resolution to the US / China trade war had boosted prices earlier in the week...after ending $1.18 lower at $54.17 a barrel last week as trade war threats ratcheted higher, the contract price of US crude for October delivery initially opened 92 cents lower and fell to as low as $52.96 a barrel on Monday morning after French President Macron floated plans for a meeting between Iranian President Rouhani and Mr Trump, but then rose to as high as $55.26 after noon on prospects of US - China trade talks, before giving up those gains before the close to settle down by 53 cents, or 1%, at $53.64 a barrel, the fourth straight daily decline...oil prices then opened higher and rose steadily Tuesday, after Trump predicted a trade deal with China, with US crude closing $1.29 higher at 54.93 a barrel...oil prices rose again early on Wednesday after API data overnight had showed a big drop in U.S. crude inventories, and then continued higher after the EIA confirmed a large draw on supplies, with US crude for October ending 1.5% higher $55.78 a barrel on what was called "an incredibly bullish report"....oil prices pulled back early Thursday on mounting concerns over the US economy but quickly reversed on new optimism on a possible U.S./China trade dispute resolution, with US crude ending the day 93 cents higher at $56.71 a barrel...however, oil traded lower early on Friday on concerns about the economic impact of the approaching hurricane, and then dropped more than 2% after reports emerged that Russia’s oil output cuts in August would be smaller those agreed to under their deal with OPEC, with US prices ending the day down $1.61 at $55.10 a barrel, but still managing to post a 1.7% gain for the week on the easing of U.S.-China trade rhetoric....

natural gas prices also ended higher, as the approaching Category 4 hurricane apparently reminded traders that US Gulf Coast gas production is subject to disruption from tropical storms in the hurricane season that is just now getting underway...after falling 2.4% to $2.152 per mmBTU on a cool weather outlook last week, natural gas for September delivery rose 7.8 cents, or 3.6% on Monday as the spaghetti hurricane forecast models early in the week appeared to show a better than even chance that the tropical storm entering the Caribbean would end up as a hurricane in the Gulf of Mexico...September gas then gave up 2.8 cents on Tuesday but rose 4.9 cents again on Wednesday as trading of the September natural gas contract expired with its price at $2.251 per mmBTU....at the same time, the natural gas contract for October delivery, which had risen 7.7 on Monday, fallen 4.1 cents on Tuesday, and rose 3.0 cents to $2.222 per mmBTU on Wednesday, rose 7.4 cents with a largely neutral storage report on Thursday as a concurrently released report indicated maintenance issues put southern California's fall injections at risk, before prices slipped 1.1 cents to end the week at $2.285 per mmBTU on Friday, a 6.0% increase for that contract on the week..

the natural gas storage report for the week ending August 23rd from the EIA indicated that the quantity of natural gas held in storage in the US increased by 60 billion cubic feet to 2,857 billion cubic feet by the end of the week, which meant our gas supplies were 363 billion cubic feet, or 14.6% more than the 2,494 billion cubic feet that were in storage on August 23rd of last year, while still 100 billion cubic feet, or 3.4% below the five-year average of 2,957 billion cubic feet of natural gas that have been in storage as of the 23rd of August in recent years....this week's 60 billion cubic feet injection into US natural gas storage was a bit above the average 57 billion cubic feet injection forecast by analysts surveyed by S&P Global Platts, and also a bit above the average 57 billion cubic feet of natural gas that have been added to gas storage during the third full week of August over the past 5 years, the 22nd such average or above average storage build in the last 24 weeks...the 1,679 billion cubic feet of natural gas that have been added to storage over the 21 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 1736 billion cubic feet of natural gas that were injected into storage over the same 22 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 23rd indicated that because our oil imports fell significantly for the second week in a row, we had to pull oil out of storage for the ninth time in 11 weeks...our imports of crude oil fell by an average of 1,290,000 barrels per day to an average of 5,928,000 barrels per day, after falling by an average of 497,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 216,000 barrels per day to an average of 3,019,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,909,000 barrels of per day during the week ending August 23rd, 1,506,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be 200,000 barrels per day higher than the prior week at a record 12,500,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,409,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,408,000 barrels of crude per day during the week ending August 23rd, 295,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 1,433,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 566,000 barrels per day less than what our oil refineries reported they used during the week...to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+566,000) 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 they label in their footnotes as "unaccounted for crude oil"...with that great a quantity of oil unaccounted for this week, it obviously calls into question the other oil totals that the EIA has reported and that we have just transcribed (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) indicated that the 4 week average of our oil imports fell to an average of 7,002,000 barrels per day last week, now 12.3% less than the 7,987,000 barrel per day average that we were importing over the same four-week period last year...the 1,433,000 barrel per day decrease in our total crude inventories was all pulled out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be 200,000 barrels per day higher at a record 12,500,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states rose by 100,000 barrels per day to a record high of 12,100,000 barrels per day, and because a 61,000 barrels per day increase to 400,000 barrels per day in Alaska's oil production also bumped up the final rounded national production total by another 100,000 barrels per day...last year's US crude oil production for the week ending August 24th was rounded to 11,000,000 barrels per day, so this reporting week's rounded oil production figure was 13.6% above that of a year ago, and 48.3% 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...    

with the weekly data showing our ​estimated weekly oil production is now at a record high, we'll include a graph of what that production looks like compared to its recent history...

August 28 2019 oil production thru Aug 23rd

the above graph is the later part of the historical US crude oil production graph that accompanies the online spreadsheet of the historical data, and we've cut it off to show US oil production from 2005 to the current week...as you can can see, our production had fallen to around 5 milllion barrels per day before horizontal drilling and fracking took hold (from over 10 million barrels per day in the early 70s) and it has now climbed to more than twice that, reaching an unconfirmed 12.5 million barrels per day this reporting week...while most of those downward spikes in production that you can see above were due to disruptions caused by major hurricanes in the Gulf, the million barrel per day drop that occurred earlier this summer was due to tropical storm Barry, which was but a tropical storm during most of the time it spent meandering through the Gulf...

meanwhile, US oil refineries were operating at 95.2% of their capacity in using 17,408,000 barrels of crude per day during the week ending August 23rd, down from 95​.9% of capacity the prior week, but still a refinery utilization rate that is fairly typical for mid summer...the 17,408,000 barrels per day of oil that were refined this week were 0.9% below the 17,566,000 barrels of crude per day that were being processed during the week ending August 24th, 2018, when US refineries were operating at 96.3% of capacity....

even with the decrease in the amount of oil being refined, gasoline output from our refineries was much higher, increasing by 763,000 barrels per day to a near record 10,660,000 barrels per day during the week ending August 23rd, after our refineries' gasoline output had decreased by 524,000 barrels per day over the prior 2 weeks...as a result of that big jump in output, this week's gasoline production was 4.1% above the 10,237,000 barrels of gasoline that were being produced daily over the same week of last year, but still short of the record 10,699,000 barrels per day produced during the week ending July 6th 2018....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 147,000 barrels per day to 5,193,000 barrels per day, after our distillates output had increased by 263,000 barrels per day the prior week....but even with this week's decrease, our distillates production was still a bit more than the 5,179,000 barrels of distillates per day that were being produced during the week ending August 24th, 2018.... 

even with the ​big ​increase in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 7th time in 11 weeks and for the 21st time in twenty-seven weeks, decreasing by 2,090,000 barrels to 231,982,000 barrels during the week to August 23rd, after our gasoline supplies had risen by 312,000 barrels over the prior week....our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 274,000 barrels per day to ​9,9​0​0,000 barrels per day, ​while our exports of gasoline fell by 24,000 barrels per day to 700,000 barrels per day, ​and ​while our imports of gasoline rose by 73,000 barrels per day to 965,000 barrels per day...after this week's decrease, our gasoline supplies ​were fractionally lower than last August 24th's inventory level of 232,774,000 barrels, and have slipped to roughly 3% above the five year average of our gasoline supplies at this time of the year...

with the decrease in our distillates production, our supplies of distillate fuels fell for the 14th time in the past 24 weeks, decreasing by 2,063,000 barrels to 136,060,000 barrels during the week ending August 23rd, after our distillates supplies had increased by 2,610,000 barrels over the prior week...our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 290,000 barrels per day to 4,048,000 barrels per day, and because our imports of distillates fell by 85,000 barrels per day to 125,000 barrels per day, and because our exports of distillates rose by 146,000 barrels per day to 1,565,000 barrels per day....but even after this week's inventory decrease, our distillate supplies were still 4.7% higher than the 130,001,000 barrels of distillates that we had stored on August 24th, 2018, while ​at the same time ​they fell to around 4% below the five year average of distillates stocks for this time of the year...

finally, with much less oil being imported even as our refineries pulled back a bit, our commercial supplies of crude oil in storage fell for the ninth time in eleven weeks but for​ just​ the fifteenth time in 32 weeks, decreasing by 10,027,000 barrels, from 437,778,000 barrels on August 16th to 427,751,000 barrels on August 23rd...that decrease was enough to lower our crude oil inventories back to the five-year average of crude oil supplies for this time of year, and to less than 30% higher than the prior 5 year (2009 - 2013) average of crude oil stocks for the 4th Friday of August, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising since​ last Fall up until the most recent 11 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 23rd were still 5.4% above the 405,792,000 barrels of oil we had stored on August 24th of 2018, but at the same time were 6.6% below the 457,773,000 barrels of oil that we had in storage on August 25th of 2017, and 13.6% below the 495,238,000 barrels of oil we had in commercial storage on August 26th of 2016... 

This Week's Rig Count

the US rig count fell for the 24th time in 28 weeks over the week ending August 30th, and is now 16.5% below where it began the year at....Baker Hughes reported that the total count of rotary rigs running in the US fell by 12 rigs to a 21 month low of 904 rigs this past week, which was also down by 144 rigs from the 1048 rigs that were in use as of the August 31st report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil decreased by 12 rigs to 742 rigs this week, which was a 19 month low for oil rigs and 120 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 162 natural gas rigs, tying last week's 28 month low for gas rig drilling activity and down by 22 rigs from the 184 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008...

the rig count in the Gulf of Mexico was unchanged at 26 rigs this week, with one rig operating off the shore of Texas and 25 rigs offshore from Louisiana, a net increase of 10 Gulf of Mexico rigs from the 16 rigs that were deployed in the Gulf in the same week a year ago, when 14 rigs were drilling in Louisiana waters and two were deployed offshore from Texas...in addition, there continues to be two rigs deployed off the coast of the Kenai Peninsula in Alaska this week, same number as were drilling off the Alaskan shore a year ago, for a total US offshore rig count of 28, up from the total of 18 offshore rigs that were deployed a year ago...however, the rig that had started drilling through an inland body of water in southern Louisiana two weeks ago was shut down this week, and now there are no inland water rigs deployed, in contrast to a year ago, when there were two...

the count of active horizontal drilling rigs was down by 13 to 784 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence ​is ​a new 21 month low for horizontal drilling...it was also 133 fewer horizontal rigs than the 917 horizontal rigs that were in use in the US on August 31st of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was unchanged at 50 vertical rigs this week, and those were down by 16 from the 66 vertical rigs that were operating during the same week of last year...on the other hand, the directional rig count was up by 1 to 70 directional rigs this week, and those were up by 5 from the 65 directional rigs that were in use on August 31st of 2018...

the details on this week's changes in drilling activity by state and by major 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 oil & gas producing states, and the table ​below that ​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 August 30th, the second column shows the change in the number of working rigs between last week's count (August 23rd) and this week's (August 30th) count, the third column shows last week's August 23rd active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before 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 the 31st of August, 2018...     

August 30 2019 rig count summary

as you can see, the 5 rigs that were shut down in the Permian again led the decrease this week, following the 7 Permian rigs that were idled last week...in the Texas Permian, 4 more rigs were shut down in Texas Oil District 8, or the core Permian Delaware, and 3 more rigs were shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while at the same time two rigs were started up in Texas Oil District 7C, or the southern part of the Permian Midland....with Texas Permian rigs thus down 5, that means that the rig that was shut down in New Mexico had been operating in one of the other basins in the state...meanwhile,  since Texas Oil District 10 shows no change, that means the Granite Wash rig that was shut down had been drilling in Oklahoma, along with the rig that had been drilling in the Ardmore Woodford, offset by the increase of an oil rig in the Arkoma Woodford, which otherwise has rigs targeting gas...at the same time, the two rigs that were shut down the Denver-Julesburg Niobrara chalk of the Rockies front range appear to account for the rig count drops in Wyoming and Colorado, while the 3 rig increase in the Williston matches the 3 rig increase in North Dakota...among rigs targeting natural gas, there were rigs shut down in the Pennsylvania Marcellus and in the Texas portion of the Haynesville shale (District 6), while 2 natural gas rigs began operating in "other" basins not tracked separately by Baker Hughes...we should also note that other than the changes shown above for the major producing states, the Mississippi rig count was cut by 2 back to one rig, after being as high as 6 rigs just two weeks ago; that's the least rigs running in Mississippi since February 23, 2018; a year ago, the state had 6 rigs deployed...

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Note: there’s more here...

Sunday, August 25, 2019

oil production in lower 48 states at a record high, rig count at a 21 month low, and a note on last week's OPEC report

oil prices ended lower for a 3rd week in four as the Chinese pulled a Trump and unexpectedly hit US goods with new tariffs, and Trump responded by ordering US companies to get out of China, ratcheting up the trade war to a whole new level...after managing a small 0.7% increase to $54.87 a barrel last week after Trump had decided to delay his latest Chinese tariffs, prices of US crude for September delivery opened higher on Monday after a weekend attack on a Saudi oil facility by Yemen’s Houthis threatened crude supplies, and continued higher to settle up $1.34, or 2.44% at $56.21 a barrel, with further gains limited by what was seen as a downbeat OPEC report on Friday...pricing for September oil continued higher on Tuesday, on expectations that the coming weekly oil data would show a decline in U.S. crude supplies, with trading in the September crude contracted expiring 13 cents higher at $56.34 a barrel, while crude oil for October delivery, the new front month contract, fell a penny to $56.13 a barrel....after rising to as high as $57.13 a barrel on a bullish API inventory report early on Wednesday, October oil prices then slid after the EIA reported a crude oil drawdown that was less than traders had hoped for and went on to close at $55.68, a loss of 45 cents on the day....oil prices opened higher on new tensions with Iran on Thursday, but then fell back on recession fears as the Fed's annual economic symposium got underway in Jackson Hole, Wyoming, with oil ending down 33 cents at $55.35 a barrel...oil then sold off with global markets on Friday, after China unveiled new tariffs on U.S. goods, dampening economic expectations, and after Trump responded by ordering US firms out of China, with US crude prices settling $1.18 lower at $54.17 a barrel, after earlier falling to as low as $53.24...US crude prices thus ended 1.3% lower than the previous Friday's close, but October Brent crude, the international benchmark, managed to show a 1.2% week-on-week increase, having risen 27 cents on Wednesday, and only falling 58 cents to $59.34 a barrel on the US/China trade war news on Friday...

natural gas prices also ended the week lower, largely because a big dome of cooler-than-normal temperatures was forecast to sit in the middle of country by the extended outlooks all week and there was no other news to move them higher...after rising 8.1 cents, or 3.8% to $2.200 per mmBTU on a bullish storage report last week, natural gas for September delivery managed to close a penny higher on Monday, overcoming cooler temperatures and record production which had pushed prices more than 6 cents lower early in the day, on word that a new natural gas export pipeline would soon be up & running...prices managed another eight-tenths of a cent gain on Tuesday before closing 4.8 cents lower on Wednesday, unable to repeat the bounce from the lows seen on Monday...prices then fell 1.1 cents on Thursday when the natural gas storage report showed no surprises, and then finished the week by slipping another seven-tenths of a cent to $2.152 per mmBTU on Friday, as cooler weather forecasts persisted for the final week of August and into the beginning of September..

the natural gas storage report for the week ending August 16th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 59 billion cubic feet to 2,797 billion cubic feet by the end of the week, which meant our gas supplies were 369 billion cubic feet, or 15.2% more than the 2,428 billion cubic feet that were in storage on August 16th of last year, while still 103 billion cubic feet, or 3.6% below the five-year average of 2,900 billion cubic feet of natural gas that have been in storage as of the 16th of August in recent years....this week's 59 billion cubic feet injection into US natural gas storage was close to the 61 billion cubic feet injection predicted by analysts surveyed by S&P Global Platts, while it was above the average 50 billion cubic feet of natural gas that have been added to gas storage during the second full week of August over the past 5 years, the 21st such average or above average storage build in the last 23 weeks...the 1,619 billion cubic feet of natural gas that have been added to storage over the 21 weeks of this year's injection season is the second most on record, eclipsed only by the record 1660 billion cubic feet of natural gas that were injected into storage over the same 21 weeks of the 2014 natural gas injection season...

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 16th indicated that because our oil imports fell while our refinery consumption of oil rose, we had to pull oil out of storage for the first time in 3 weeks...our imports of crude oil fell by an average of 497,000 barrels per day to an average of 7,218,000 barrels per day, after rising by an average of 566,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 120,000 barrels per day to an average of 2,803,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,415,000 barrels of per day during the week ending August 16th, 617,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be unchanged at 12,300,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,715,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,702,000 barrels of crude per day during the week ending August 16th, 401,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 390,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 598,000 barrels per day less than what our oil refineries reported they used during the week...to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+598,000) 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 they label in their footnotes as "unaccounted for crude oil"...obviously, with that much oil unaccounted for this week, it calls into question the other oil totals that the EIA has reported and we have transcribed (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) indicated that the 4 week average of our oil imports rose to an average of 7,186,000 barrels per day last week, which was still 10.8% less than the 8,053,000 barrel per day average that we were importing over the same four-week period last year...the 390,000 barrel per day decrease in our total crude inventories was all pulled out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be unchanged at 12,300,000 barrels per day even though the rounded estimate of the output from wells in the lower 48 states rose by 100,000 barrels per day to a record high 12,000,000 barrels per day, because a 94,000 barrels per day decrease to 339,000 barrels per day in Alaska's oil production lowered the final rounded national production total by 100,000 barrels per day...last year's US crude oil production for the week ending August 17rd was rounded to 11,000,000 barrels per day, so this reporting week's rounded oil production figure was 11.8% above that of a year ago, and 45.9% 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...    

meanwhile, US oil refineries were operating at 95.9% of their capacity in using 17,702,000 barrels of crude per day during the week ending August 16th, up from 94.8% of capacity the prior week, refinery utilization rates that are fairly typical for mid summer....however, the 17,702,000 barrels per day of oil that were refined this week were still 1.1% below the 17,892,000 barrels of crude per day that were being processed during the week ending August 17th, 2018, when US refineries were operating at 98.1% of capacity....

even with the increase in the amount of oil being refined, gasoline output from our refineries was somewhat lower, decreasing by 306,000 barrels per day to 9,897,000 barrels per day during the week ending August 16th, after our refineries' gasoline output had decreased by 218,000 barrels per day the prior week....that left this week's gasoline production 2.5% below the 10,151,000 barrels of gasoline that were being produced daily over the same week of last year....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 263,000 barrels per day to 5,340,000 barrels per day, after our distillates output had decreased by 209,000 barrels per day the prior week....but even with this week's increase, our distillates production was 1.6% less than the 5,426,000 barrels of distillates per day that were being produced during the week ending August 17th, 2018.... 

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week managed an increase for the fourth time in 10 weeks and for the 6th time in twenty-six weeks, increasing by 312,000 barrels to 234,072,000 barrels during the week to August 16th, after our gasoline supplies had fallen by 1,412,000 barrels over the prior week....our gasoline supplies increased this week because the amount of gasoline supplied to US markets decreased by 306,000 barrels per day to 9,626,000 barrels per day, and because our imports of gasoline rose by 89,000 barrels per day to 892,000 barrels per day, while our exports of gasoline rose by 213,000 barrels per day to 676,000 barrels per day...after this week's increase, our gasoline supplies ended fractionally lower than last August 17th's inventory level of 234,328,000 barrels, but remain roughly 4% above the five year average of our gasoline supplies at this time of the year...

with the increase in our distillates production, our supplies of distillate fuels rose for the 10th time in the past 23 weeks, increasing by 2,610,000 barrels to 138,123,000 barrels during the week ending August 16th, after our distillates supplies had decreased by 1,938,000 barrels over the prior week...our distillates supplies increased this week because our imports of distillates rose by 84,000 barrels per day to 210,000 barrels per day while our exports of distillates fell by 202,000 barrels per day to 1,419,000 barrels per day, and because the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 101,000 barrels per day to 3,758,000 barrels per day....after this week's inventory increase, our distillate supplies were 5.6% higher than the 130,838,000 barrels of distillates that we had stored on August 10th, 2018, while still around 2% below the five year average of distillates stocks for this time of the year...

finally, with less oil being imported at the same time our refineries were using more oil, our commercial supplies of crude oil in storage fell for the eighth time in ten weeks but for the fourteenth time in 31 weeks, decreasing by 2,732,000 barrels, from 440,510,000 barrels on August 9th to 437,778,000 barrels on August 16th...even after that decrease, our crude oil inventories were still roughly 2% above the five-year average of crude oil supplies for this time of year, and were about 31% higher than the prior 5 year (2009 - 2013) average of crude oil stocks for the 3rd Friday of August, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising since this past Fall up until the most recent 10 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 16th were still 7.2% above the 408,358,000 barrels of oil we had stored on August 17th of 2018, but at the same time were 5.5% below the 463,165,000 barrels of oil that we had in storage on August 18th of 2017, and 11.2% below the 492,962,000 barrels of oil we had in commercial storage on August 19th of 2016...   

Why Everyone Got the OPEC Report Wrong

you should recall that we covered the August OPEC report last week, because even if you didn't read it, our headline noted that report had showed that July's oil output was 2 million barrels per day short of demand...since i don't see a lot of the coverage of such Friday reports while i'm working on these newsletters on Saturdays, i was surprised to see a number of articles when the next week began characterizing that report as bearish, including those from Reuters, Bloomberg, and oilprice.com...since that certainly wasn't my take, i went back to the OPEC report (which i had downloaded), to see where that misunderstanding was coming from...since many who covered it had reported that OPEC had reported that they had revised this year's global demand for oil lower, i went straight to the demand section of the report, which begins on page 33, or pdf page 43...pasted below is a copy of the introduction to the demand section, so you can see how it reads...

July 2019 OPEC report global oil demand text

notice first that demand is expected to rise, but by a bit less they had previously forecast, and hence the growth of demand was revised lower...and that's what was picked up by the Reuters article, which reads "the Organization of the Petroleum Exporting Countries cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market will be in slight surplus in 2020."...however, that OPEC synopsis of their own report above, as repeated by Reuters, is a serious misstatement of what the data actually shows, which you'll see on the table showing global demand for 2019, which appeared on the same page of the report as the text above, directly below it...

July 2019 OPEC report global oil demand copy

the table above came from page 33 of the August OPEC Monthly Oil Market Report (pdf page 43), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2019 over the rest of the table...in red on the right, we've circled the metrics that the OPEC summary, and by extension everyone else who repeated it, were referring to...as you can see on the revision line, demand growth for 2019 was expected to be 1,100,000 barrels per day, revised down -0.04 mb/d, or 40,000 barrels per day...

so, how did that revision come about?  2019's demand growth is the change from 2018 demand to 2019 demand, and we've circled the revisions for demand for those years in green and blue above...in the far left column, we see that global demand for 2018 was revised HIGHER, from 98.73 million barrels of oil per day to 98.82 million barrels per day, which is rounded down to an 80,000 barrel per day UPWARD revision....in the blue ellipse, we can see that global demand for 2019 was also revised HIGHER, by 50,000 barrels per day to 99.92 million barrels of oil per day...however, when we take the difference between those two upward revisions as circled in red, we find the year over year growth in demand is lower than had previously been reported, simply because the upward revision to 2018 was greater than the upward revision to 2019...

unfortunately, everyone who is writing about this OPEC report, including the OPEC analyst who wrote the summary, has taken that downward revision of growth to mean a downward revision to demand, which is not the case...in fact, third quarter demand was revised 0.08 million barrels of oil per day higher and came in 1.98 million barrels of oil per day greater than July's global output, as our analysis last week showed...the key point is that demand growth was adjusted lower, not that demand was adjusted lower...in fact, 2019's demand was adjusted higher, but 2018's demand was revised even higher, and hence the difference between 2018 and 2019, ie "growth", was less...but an 50,000 barrel per day upward revision to 2019 demand, combined with a 2 million barrel per day shortage of oil during the month of July, is decidedly not bearish by any interpretation of the facts...

This Week's Rig Count

the US rig count fell for the 23rd time in 27 weeks over the week ending August 23rd, and is now 15.4% lower than where it began the year at....Baker Hughes reported that the total count of rotary rigs running in the US fell by 19 rigs to a 21 month low of 916 rigs this past week, which was also down by 128 rigs from the 1044 rigs that were in use as of the August 24th report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil decreased by 16 rigs to 754 rigs this week, which was a 19 month low for oil rigs and 106 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 3 rigs to 162 natural gas rigs, a 28 month low for gas rig activity and down by 20 rigs from the 182 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008...

however, the rig count in the Gulf of Mexico was up by 1 to 26 rigs this week, as a new rig began operating off the shore of Texas...that rig was added to the 25 rigs offshore from Louisiana already operating in the Gulf, a net increase of 10 Gulf of Mexico rigs from the 16 rigs that were deployed in the Gulf in the same week a year ago, when 14 rigs were drilling in Louisiana waters and two were deployed offshore from Texas...in addition, there continues to be two rigs deployed off the coast of the Kenai Peninsula in Alaska this week, same number as were drilling off the Alaskan shore a year ago, for a total US offshore rig count of 28, up from the total of 18 offshore rigs that were deployed a year ago...

the count of active horizontal drilling rigs was down by 18 to 797 horizontal rigs this week, which was the least horizontal rigs deployed since December 29, 2017 and hence a new 19 month low for horizontal drilling...it was also 122 fewer horizontal rigs than the 919 horizontal rigs that were in use in the US on August 24th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was down by 2 rigs to 50 vertical rigs this week, and those were down by 13 from the 63 vertical rigs that were operating during the same week of last year...on the other hand, the directional rig count was up by 1 to 69 directional rigs this week, and those were up by 7 from the 62 directional rigs that were in use on August 24th of 2018...

the details on this week's changes in drilling activity by state and by major 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 oil & gas 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 August 23rd, the second column shows the change in the number of working rigs between last week's count (August 16th) and this week's (August 23rd) count, the third column shows last week's August 16th active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before 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 the 24th of August, 2018...     

August 23 2019 rig count summary

with the Permian showing a 7 rig decrease, we'll start by looking at ​that region in ​Texas, where we find 5 more rigs were shut down in Texas Oil District 8, which would be the core Permian Delaware, and another rig was shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while a rig was started up in Texas Oil District 7C, or the southern part of the Permian Midland....with Texas Permian rigs thus down 5, that means that the 2 rig​s ​that were shut down in New Mexico had both been operating in the western-most reaches of the Permian Delaware, to arrive at the 7 rig decrease across the entire basin...then, ​we can figure that  ​at least 4 of the 5 rig decrease in the DJ Niobrara chalk of the Rockies' front range appear to have been pulled out of Colorado, while the fifth one was offset by a startup in that state or Wyoming which isn't shown, leaving us uncertain from whence it came...Oklahoma's decreases came out of the Cana Woodford, the Ardmore Woodford, and one elsewhere in the state also not shown above, while the rig added in the Mississippian basin this week was in Kansas, which shared a spate of 65 earthquakes with Oklahoma this week, probably due to drilling waste water injections, as they occurred in an otherwise seismically inactive area...for rigs targeting natural gas, ​there was just the 3 rig decrease in the Marcellus, which came by way of a 6 rig decrease in Pennsylvania and a 3 rig increase in West Virginia, while all the other rig changes around the country you see above involved rigs targeting oil formations...we should note, however, that other than the changes shown above for the major producing states, both Florida and Illinois saw initial rig start-ups this week, while Mississippi saw its six rig deployment cut in half to three...for Florida, the rig start up seems to be a continuation of the on-and-off several weeks of drilling followed by several wees of layoff that have prevailed in the state over the past year, while the Illinois start-up is the first drilling in the state since a 4 week run last November...meanwhile, Mississippi has seen between 2 and 6 rigs drilling in the state since the beginning of 2018, with no discernible pattern to their changes in activity....

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note: there's more here....