Masters Of War

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

Sunday, June 9, 2019

natural gas prices hit 3 year lows; record oil output; record jump in oil + products inventories; rigs at a 16 month low

oil prices managed to eke out a small increase this week, but not before hitting a new 5-month low and crashing into a bear market mid-week...after falling 9% to $53.50 a barrel last week after Trump had threatened new tariffs on Mexico, the price of US crude for July delivery opened lower and fell as much as 2.6% early Monday, as traders remained rattled by Trump's tariff threats and his termination of India's trade status until Saudi comments that OPEC would continue their cuts through the second half of the year changed their focus and stabilized prices, which recovered to end 25 cents, or 0.5%, lower at $53.25 a barrel...oil prices started lower again on Tuesday on evidence that an economic slowdown would dent energy demand but again recovered in the afternoon to end 23 cents higher at $53.48 a barrel...however, oil prices tumbled in after hours trading after the API reported major inventory increases and thus opened lower again on Wednesday, and subsequently crashed Into a bear market after the EIA reported the biggest stock build in 30 years, with prices falling more than 4% to $50.60 a barrel before recovering near the close to finish down $1.80 at $51.68 a barrel...oil prices initially drifted lower again on Thursday but turned sharply higher near the close on a report that the Trump administration might delay its tariffs on Mexican imports, and closed up 91 cents at $52.59 a barrel...prices continued to rally on hopes for a deal with Mexico early Friday, then rose nearly 3% after Saudi Arabia said OPEC was close to agreeing to extend an output production cut beyond June to close $1.40 higher at $53.99 a barrel...oil prices thus erased their early losses and ended with a gain of nearly 1% for the week, despite having crossed the 20% loss threshold that is considered a bear market earlier in the week...

natural gas prices, meanwhile, tumbled to successive new three year lows, first on ongoing forecasts for below normal mid-June temperatures in the Great Lakes and Midwest states, which would delay air conditioning demand, and then on a near record storage build that exceeded analysts expectations...after falling 15.7 cents to a 35 month low of $2.454 per mmBTU last week, natural gas for July delivery fell 5.1 cents to a three year low of $2.403 per mmBTU on Monday, as the 11 to 15 day forecast called for below normal temperatures from the Rockies south to Texas and east to the Appalachians...persistence of that cool June forecast drove prices to another 3 year low of $2.378 per mmBTU on Wednesday, and then the EIA's report of a larger-than-expected increase in natural gas supplies knocked prices down 5.4 cents to yet another 3 year low of $2.324 per mmBTU on Thursday...to show you what this week's prices look like compared to the recent price trajectory, we'll include a graph of natural gas prices over the past 3 years...

June 8 2019 natural gas prices

the above graph is a Saturday afternoon screenshot of the interactive US natural gas price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph ​portion above ​represents natural gas prices for a week of trading between the last week of May 2016 and this past week, wherein the green bars represent the weeks when the price of natural gas went up, and red bars represent the weeks when the price of natural gas went down...for green bars, the starting natural gas price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar...also barely visible on this shrunken "candlestick" style graph are the very faint grey "wicks" above and below each bar, to indicate trading prices during the week that were above or below the opening to closing price range for that week...(the lighter red & green bars at the bottom of the graph represent the trading volume for each day, which doesn't concern us today)...as you can see, natural gas prices have rarely plumbed this depth, and the last time they did, drilling new wells for natural gas virtually dried up, with the ​national ​natural gas rig count falling to as low as 81 rigs the following summer, which was the lowest natural gas rig count ​over the time Baker Hughes had been keeping records...

the natural gas storage report from the EIA for the week ending May 31st indicated that the quantity of natural gas held in storage in the US increased by 119 billion cubic feet to 1,986 billion cubic feet by the end of the week, which meant our gas supplies were 182 billion cubic feet, or 10.1% more than the 1,804 billion cubic feet that were in storage on June 1st of last year, while still 240 billion cubic feet, or 10.8% below the five-year average of 2,226 billion cubic feet of natural gas that have typically been in storage as of the end of May in recent years....this week's 119 billion cubic feet injection into US natural gas storage was above the median forecast of a Reuters' poll of analysts for a 109 billion cubic foot increase in supplies, and likewise ​much ​higher than the average 102 billion cubic feet of natural gas that have been added to gas storage during the same week of spring in recent years....the 119 billion cubic feet injection also appears to be the third largest injection over the past 5 years, and the 879 billion cubic feet of natural gas that have been added to storage over the past 10 weeks has been the largest injection of gas into storage on record for any similar period this early in the injection season...

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending May 31st, showed that a big increase in our oil imports resulted in a similar increase in our stored crude supplies, the eighth such increase in 11 weeks...our imports of crude oil rose by an average of 1,065,000 barrels per day to an average of 7,927,000 barrels per day, after falling by an average of 81,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 19,000 barrels per day to 3,298,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,629,000 barrels of per day during the week ending May 31st, 1,084,000 more barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be 100,000 barrels per day higher at a record 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 17,029,000 barrels per day during this reporting week...

meanwhile, US oil refineries were​ reportedly​ using 16,938,000 barrels of crude per day during the week ending May 31st, 171,000 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 967,000 barrels of oil per day were being added to of the oil that's in storage in the US....hence, it appears that this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 876,000 barrels per day short of what was added to storage plus what the oil refineries reported they used during the week...to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+876,000) 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 much oil unaccounted for, we have to figure one or more of this week's crude oil metrics are off by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports rose to an average of 7,336,000 barrels per day last week, still 7.5% less than the 7,934,000 barrel per day average that we were importing over the same four-week period last year...the 967,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged...this week's crude oil production was reported to be 100,000 barrels per day higher at a record 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at a record 11,900,000 barrels per day, while a 4,000 barrel per day increase to 478,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending June 1st was rounded to 10,800,000 barrels per day, so this reporting week's rounded oil production figure was roughly 14.8% 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 91.8% of their capacity in using 16,938,000 barrels of crude per day during the week ending May 31st, up from 91.2% of capacity the prior week, but still a bit below the recent historical refinery utilization rate for this time of year​, when refineries are often running flat out​....likewise, the 16,938,000 barrels per day of oil that were refined this week were 2.5% below the 17,369,000 barrels of crude per day that were being processed during the week ending June 1st, 2018, when US refineries were operating at 95.4% of capacity... 

with the increase in the amount of oil being refined, gasoline output from our refineries was similarly higher, increasing by 186,000 barrels per day to 10,049,000 barrels per day during the week ending May 31st, after our refineries' gasoline output had decreased by 20,000 barrels per day the prior week....with that increase in gasoline output, this week's gasoline production was 4.0% more than the 9,658,000 barrels of gasoline that were being produced daily during the same week last year....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) jumped by 222,000 barrels per day to 5,404,000 barrels per day, after our distillates output had decreased by 24,000 barrels per day the prior week...but even with this week's big increase, the week's distillates production was only 1.5% more than the 5,324,000 barrels of distillates per day that were being produced during the week ending June 1st, 2018.... 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose for the fourth time in 16 weeks, increasing by 3,205,000 barrels to 234,149,000 barrels over the week to May 31st, after our gasoline supplies had increased by 2,204,000 barrels over the prior week....our gasoline supplies rose this week as our imports of gasoline rose by 8,000 barrels per day to 1,095,000 barrels per day, and as our exports of gasoline fell by 38,000 barrels per day to 679,000 barrels per day, while the amount of gasoline supplied to US markets increased by 47,000 barrels per day to 9,441,000 barrels per day....after our gasoline supplies had reached an all time record high seventeen weeks ago, and then had fallen by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, our gasoline supplies have now recovered by over 4% in the past 3 weeks and now are back to 2% above the five year average of our gasoline supplies at this time of the year (while still 2.0% lower than last June 1st's inventory level of 239,034,000 barrels), as replacement gasoline supplies have been arriving from Asia & Europe at a 1.2 million barrel per day clip over that span...

meanwhile, with the big increase in our distillates production, our supplies of distillate fuels rose for the 4th time in 12 weeks, increasing by 4,572,000 barrels to 129,372,000 barrels during the week ending May 31st, after our distillates supplies had decreased by 1,615,000 barrels over the prior week....our distillates supplies reversed & rose this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 895,000 barrels per day to a 5 month low of 3,387,000 barrels per day, while our imports of distillates fell by 65,000 barrels per day to 112,000 barrels per day, and while our exports of distillates rose by 168,000 barrels per day to 1,476,000 barrels per day....after this week's inventory ​increase, our distillate supplies were 10.8% higher than the 116,794,000 barrels of distillate that we had stored on June 1st, 2018, even as they were still 3% below the five year average of distillates stocks for this time of the year...

finally, with much higher oil imports and record oil production, our commercial supplies of crude oil in storage increased for the fourteenth time in 20 weeks, rising by 6,671,000 barrels, from 476,493,000 barrels on May 24th to 483,264,000 barrels on May 31st...with that increase, our crude oil inventories rose to 6% above the recent five-year average of crude oil supplies for this time of year, and were well more than 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the end of May, 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 have generally been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of May 31st were 10.7% above the 436,584,000 barrels of oil we had stored on June 1st, of 2018, but at the same time still 5.8% below the 513,207,000 barrels of oil that we had in storage on June 2nd of 2017, and 3.7% below the 501,844,000 barrels of oil we had stored on June 3rd of 2016...  

with that large increase in our crude oil supplies, combined with similar larger than normal increases in supplies of the products made from oil, it turns out that this week saw the largest increase in oil & oil product inventories on record, as you can see in the graph below...

June 7 2019 total oil & products inventory as of May 31

the above graph was taken from a Zero Hedge post titled Oil Crashes Into Bear Market After Biggest Stock Build In 30 Years and it shows the weekly change in millions of barrels in the amount of oil & oil products in storage in the US from 1990 to the current week, which is the extent of the EIA's records on this metric....over that period, the weeks when total inventories increased are represented by a line above the horizontal zero axis, whereas the weeks when total inventories decreased are represented by a line pointing down from the zero line...in the upper right corner, they have marked the​ total​ increase for this week at 22.4 million barrels, and then have extended a green dashed line back from that ​marker ​across the length of the graph to illustrate that no prior week had such a large increase...in addition to the 6,671,000 barrel increase in oil inventories, the 3,205,000 barrel increase in gasoline inventories, and the 4,572,000 barrel increase in distillate inventories we have covered today, the past week also saw a 2.5 million barrel increase in propane/propylene inventories, a 4.6 million barrel increase in inventories of 'other oils', which includes asphalt, road oil, kerosene, and unfinished oil, and modest increases in inventories of jet fuel, residual fuel oil and other minor products to get to the record inventory increase you see graphed above...

This Week's Rig Count

the US rig count fell for the 14th time in sixteen weeks this past week and in so doing fell to a 16 month low, equaling the rig count of early February 2018....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 9 rigs to 975 rigs over the week ending June 7th, which was also down by 87 rigs from the 1062 rigs that were in use as of the June 8th report of 2018, and quite a bit below 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 fell by 11 rigs to 789 rigs this week, which was also a 16 month low, 73 fewer oil rigs than were running a year ago, and less than half of 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 rose by 2 rigs to 186 natural gas rigs, which was still down by 12 rigs from the 198 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

the rig count in the Gulf of Mexico was unchanged at 23 rigs this week, with 2 rigs deployed offshore from Texas and 21 rigs running offshore from Louisiana, which was a decrease of 1 rig for Texas offshore and an increase of 1 rig for Louisiana offshore....those totals are still an increase from the 19 rigs that were deployed in the Gulf in the same week a year ago, when 18 rigs were drilling in Louisiana waters and one was offshore from Texas, and up from the national total of 20 offshore rigs a year ago, when ​there was also ​a rig ​deployed in the waters offshore from Alaska at the time...

the count of active horizontal drilling rigs was down by 7 to 855 horizontal rigs this week, which was a 15 month low for horizontal drilling and 79 fewer horizontal rigs running this week than the 934 horizontal rigs that were in use in the US on June 8th 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 6 rigs to 46 vertical rigs this week, which was also down from the 66 vertical rigs that that were operating during the same week of last year... on the other hand, the directional rig count was up by 4 rigs to 74 directional rigs this week, and those were up by 7 rigs from the 67 directional rigs that were in use on June 8th of 2018... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major 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 June 7th, the second column shows the change in the number of working rigs between last week's count (May 31st) and this week's (June 7th) count, the third column shows last week's May 31st 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 8th of June, 2018...  

June 7 2019 rig count summary

as you can see, the largest decreases this week were in Texas, and specifically in the Permian basin in the western part of the state....of those, four rigs were shut down in Texas Oil District 8, which would be the core Permian Delaware, while single rigs were also idled in Texas Oil District 8A, or the northern Permian Midland basin, and in Texas Oil District 7C, or the southern Permian Midland basin...the other Texas decrease came out of the Eagle Ford shale in the southeast part of the state, as two Eagle Ford oil rigs were shut down, leaving 66, while an 8th rig targeting natural gas in the Eagle Ford was started up at the same time, which shows up as a decrease of two rigs in Texas Oil District 1 and a single rig increase in Texas Oil District 2...​.​two natural gas rigs were also added in Texas Oil District 10, the panhandle's Granite Wash, where an oil rig was shut down at the same time, leaving the Granite Wash with 5 oil rigs and 3 targeting natural gas....elsewhere, two more natural gas rigs were added in northern Louisiana's Haynesville shale, while another natural gas rig started up in an "other" basin not tracked separately by Baker Hughes...at the same time, 3 natural gas rigs were shut down in the Marcellus, one in West Virginia and two in Pennsylvania, and another natural gas rig was idled in the Niobrara chalk of the Rockies front range, which is now back to being all oil rigs...meanwhile, other than the changes in major producing states shown above, Alabama drillers also added a rig this week and now are running three, the most in the state since July 14th of last year, while the only rig deployed in Florida was pulled out, leaving Florida with none, par for the course in the state over the last four years...

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note: there's more here...

Sunday, June 2, 2019

oil price drop of 16% in May tests exploitation companies' profitability...

oil prices dropped nearly 9% this week as an already falling market sold off on Friday after Trump threatened new tariffs on Mexico in retaliation for their lax control of immigration, raising fears of further trade turmoil... after falling more than 6% to $58.63 a barrel last week on a worsening impasse in the US-China trade war, the benchmark price of US crude for July delivery steadied in overseas and off-market trading on Memorial Day and then moved higher on Tuesday, gaining 51 cents to $59.14 a barrel, even as oil traders remained caught between concerns over global supply and fears that the U.S.-Chinese trade conflict would hurt demand...the trade war fears moved to the forefront of concerns on Wednesday and oil prices fell more than 2% after China signaled it might restrict rare earths sales to the US, but perked up near the close after the American Petroleum Institute (API) reported a large draw in crude oil inventory, with oil ending the session just 33 cents lower at $58.81 a barrel...however, prices fell almost 4% to a two month low on Thursday after the EIA failed to confirm the API inventory draw and trade war fears returned, with the benchmark US price closing $2.22 lower at $56.59 a barrel...oil prices then plunged unimpeded on Friday after Trump stoked trade fears by threatening tariffs on Mexico and ended $3.09 or 5.5% lower at $53.30 a barrel, the lowest close since February 12th...oil prices thus ended 8.7% lower for the week and finished May more than 16% lower in their first monthly loss of the year...

with oil prices suddenly in free fall, it seems it would be an appropriate time for us to check what levels of oil prices are needed for oil producing companies to cover their expenses, and what levels of oil prices the exploitation companies need to drill a new well...every quarter the Dallas Fed conducts a survey of more than 200 oil and gas companies headquartered in or operating in their district, which forms the basis of their economic research on the oil & gas industry, and which also includes a set of different questions each quarter...in addition to the usual quarterly survey, the First Quarter Dallas Fed Energy Survey included a set of special questions to update to their data on breakeven oil prices by basin....160 oil and gas firms responded to the special questions survey, and in an overview, they present the results of that survey graphically, and that's what we'll look at today...

as the heading on this first graphic indicates, the first special question the Dallas Fed asked the oil executives was what WTI oil price they needed to cover their expenses on existing wells, and the range of their responses are indicated in a bar graph format below...

May 2019 operating expenses breakeven via Dallas Fed

in the above graph, the blue, brick, yellow, orange, green, purple, and turquoise colored bars represent the range of oil price responses to that operating expenses question given by oil company executives with operations in the Permian Midland shale of western Texas, the Eagle Ford of south Texas, other US oil producing shale basins outside of those graphed, the SCOOP/STACK of Oklahoma, the Permian Delaware of far west Texas and New Mexico, other non-shale oil producing areas, and other Permian shale wells respectively, as the headings above the colored bars indicate...in addition, under each of those bars, they've indicated the number of oil executives that responded to that headline question for each of those basins or collectives...thus, what the first blue bar tells us is that for 19 oil company executives with wells in the Permian Midland shale, at least one company needs oil priced at $45 a barrel to cover its operating expenses, at least one oil company could cover their Midland basin expenses at $9 a barrel oil, and the average price needed to cover operating expenses for all oil companies producing oil in that basin is $27 a barrel...similarly, in the brick colored bar, we can see that at least one oil company with wells in the Eagle Ford can cover it's expenses with oil at $6 a barrel, while another company needs as much as $55 a barrel to cover their operating expenses in the same basin, while the average oil price the 11 companies with wells in the Eagle Ford needs is $28 a barrel...meanwhile, the yellow bar indicates responses from companies operating in 'other' shale basins, presumably such as the Bakken of North Dakota and the Niobrara chalk of the Rockies front range; it appears a company operating in one of those basins can meet their expenses with $5 a barrel oil, while the average prices needed to cover expenses by the 11 companies surveyed is again $28 a barrel, again with at least one company needing as much as $50 oil to cover their expenses in that basin... 

as we can also see in the other bars on that graph, there is at least one company operating in the Permian Delaware who needs $60 oil to cover their expenses, while there is also at least one company operating in another part of the Permian who needs $65 a barrel oil to cover their operating expenses...hence, with this week's WTI oil price closing at $53.50 a barrel, those companies are losing money with every barrel of oil they produce...

next we have a similar graphic showing what oil price each of the survey respondents said they needed to profitably drill a new well:

May 2019 well drilling breakeven via Dallas Fed copy 2

like the first graphic, the colored bars in this 2nd graphic outline the range of responses to the Dallas Fed question as to what oil price each of the executives says they need to profitably drill a new well, with the basin bars arranged left to right from the lowest average oil price to the highest, ie, in a slightly different order than for the operating expenses question...hence, we can see that among the 17 oil executives with operations in the Permian Midland shale who answered this question, at least one can drill a new well and make a profit with $23 oil, while at least one other company needs $65 oil to cover his costs of drilling a new well, while the average oil price needed to turn a profit for all those operating in the Permian Midland taking part in the survey was $47 a barrel...similarly, for the 13 oil execs who might be drilling new wells in one of the other shale basins outside of those graphed (yellow), responses ranged from those who could profit with oil price of $35 a barrel to those who need a price of $60 a barrel, with the average response for those drilling in those basins at $49 a barrel...drillers in the Permian Delaware (green) and in non shale areas (purple) also need an average of $49 a barrel to profitably drill, but we can see the range of answers for the 13 companies in the Permian Delaware is much narrower ($40 to $65) than for the 45 responders operating in non-shale areas, where the profitability threshold for new wells ranges from $20 to $75 a barrel oil...average breakeven prices for new drilling are higher still in the Eagle Ford and Oklahoma's SCOOP/STACK, but notice that even on the far right of the graphic, where other Permian wells have the highest average for profitability at $54 a barrel, above Friday's closing price, there are still drillers who say they can profit with $40 oil, even as some need as much as $70 a barrel to turn a profit....

so the major takeaway from this survey is that there is no single breakeven price, or even a narrow price range, either for operating existing wells, or for drilling new ones, and hence almost every move in the price of oil has the potential to impact the decisions being made in any basin across the US...however, the decisions to drill or not are not made on a daily or weekly basis; oil companies will usually set their budget once a quarter or once a half year, and most will enter into a futures contract to sell all or part of their expected production at a given price well in advance of heading out to the oil patch...still, for those who are not fully hedged and who's breakeven price is in the upper half of the range we see here, a price move like we've seen over the past month might be enough to provide the impetus to cancel or delay a project that they had planned...

meanwhile, natural gas prices also fell this week, albeit not as sharply as those of oil, as demand for air conditioning failed materialize to the degree anticipated and a larger increase of natural gas in storage than traders expected sent prices tumbling...after falling 3.3 cents to $2.598 per mmBTU last week, the contract for June natural gas increased 3.5 cents over Tuesday and Wednesday to finish trading at $2.633 per mmBTU...meanwhile, natural gas for July delivery, which had ended last week at $2.611 per mmBTU, rose just 1.3 cents over those first two days of trading this week before falling 7.7 cents on Thursday and 9.3 cents on Friday to end the week 6% lower at $2.454 per mmBTU...

the natural gas storage report from the EIA for the week ending May 24th indicated that the quantity of natural gas held in storage in the US increased by 114 billion cubic feet to 1,867 billion cubic feet by the end of the week, which meant our gas supplies were 156 billion cubic feet, or 9.1% more than the 1,711 billion cubic feet that were in storage on May 25th of last year, while still 257 billion cubic feet, or 12.1% below the five-year average of 2,124 billion cubic feet of natural gas that have typically been in storage as of the fourth weekend in May in recent years....this week's 114 billion cubic feet injection into US natural gas storage was well above the median forecast for a 98 billion cubic foot increase in supplies in surveys by Bloomberg and Natural Gas Intelligence, and likewise higher than the average 97 billion cubic feet of natural gas that have been added to gas storage during the same week of May in recent years....moreover, the 760 billion cubic feet of natural gas that were added to storage over the past 9 weeks has been the largest injection of gas into storage on record for any similar period this early in the injection season; injections for the same 9 weeks over most recent years aren't even close...

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending May 24th, showed that an increase in our oil exports and an increase refinery throughput meant that we needed to pull oil out of commercial crude storage for the third time in ten weeks...our imports of crude oil fell by an average of 81,000 barrels per day to an average of 6,862,000 barrels per day, after falling by an average of 669,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 395,000 barrels per day to 3,317,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,545,000 barrels of per day during the week ending May 24th, 476,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be 100,000 barrels per day higher at a record 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 15,845,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,767,000 barrels of crude per day during the week ending May 24th, 189,000 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 41,000 barrels of oil per day were being pulled out of the oil that's in storage in the US....hence, it's pretty obvious that this week's crude oil figures from the EIA seems to indicate that our total working supply of oil from net imports, from oilfield production and from storage was 881,000 barrels per day short of what the oil refineries reported they used during the week...to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+881,000) 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 much oil unaccounted for, we have to figure one or more of this week's crude oil metrics are off by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports fell to an average of 7,028,000 barrels per day last week, 8.5% less than the 7,679,000 barrel per day average that we were importing over the same four-week period last year...the 41,000 barrel per day decrease in our total crude inventories all pulled out of our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged...this week's crude oil production was reported to be 100,000 barrels per day higher at a record 12,300,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at a record 11,800,000 barrels per day, while a 3,000 barrel per day decrease to 474,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending May 25th was at 10,769,000 barrels per day, so this reporting week's rounded oil production figure was 14.2% 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 ​91.2% of their capacity in using 16,767,000 barrels of crude per day during the week ending May ​24th, up from 89.9% of capacity the prior week, but still a bit below the recent historical refinery utilization rate for this time of year....likewise, the 16,767,000 barrels per day of oil that were refined this week were 2.3% below the 17,155,000 barrels of crude per day that were being processed during the week ending May 25th, 2018, when US refineries were operating at 93.9% of capacity... 

even with the increase in the amount of oil being refined, gasoline output from our refineries was a bit lower, decreasing by 20,000 barrels per day to 9,863,000 barrels per day during the week ending May 24th, after our refineries' gasoline output had decreased by 29,000 barrels per day the prior week....with that decrease in gasoline output, this week's gasoline production was 5.5% below than the 10,433,000 barrels of gasoline that were being produced daily during the same week last year....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) slipped by 24,000 barrels per day to 5,182,000 barrels per day, after our distillates output had decreased by 58,000 barrels per day the prior week...with this week's decrease, the week's distillates production was 2.2% less than the 5,296,000 barrels of distillates per day that were being produced during the week ending May 25th, 2018.... 

despite the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose for the third time in 15 weeks, increasing by 2,204,000 barrels to 230,944,000 barrels over the week to May 24th, after our gasoline supplies had increased by 3,716,000 barrels over the prior week....our gasoline supplies rose by less this week than last because our imports of gasoline fell by 263,000 barrels per day to 1,087,000 barrels per day, and because our exports of gasoline rose by 301,000 barrels per day to 717,000 barrels per day, while the amount of gasoline supplied to US markets decreased by 35,000 barrels per day to 9,394,000 barrels per day....after having reached an all time record high seventeen weeks ago, our gasoline supplies​ have since fallen 12%​ are still 1.5% lower than last May 25th's inventory level of 234,431,000 barrels, while they now are back to 1% above the five year average of our gasoline supplies at this time of the year...  

meanwhile, with the modest decrease in our distillates production, our supplies of distillate fuels fell for the 8th time in 11 weeks, decreasing by 1,615,000 barrels to 124,800,000 barrels during the week ending May 24th, after our distillates supplies had increased by 768,000 barrels over the prior week....our distillates supplies fell because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 495,000 barrels per day to 4,282.000 barrels per day, while our imports of distillates rose by 75,000 barrels per day to 177,000 barrels per day, and while our exports of distillates fell by 103,000 barrels per day to 1,308,000 barrels per day ...even after this week's inventory decrease, our distillate supplies were still 8.9% higher than the 114,629,000 barrels of distillate that we had stored on May 25th, 2018, even as they are now roughly 5% below the five year average of distillates stocks for this time of the year...

finally, with higher oil exports and an increase in refining, our commercial supplies of crude oil in storage decreased for the sixth time in 19 weeks, slipping by 282,000 barrels from 476,775,000 barrels on May 17th to 476,493,000 barrels on May 24th....even with that decrease, our crude oil inventories ​were 5% above the recent five-year average of crude oil supplies for this time of year, and remained more than 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the fourth weekend in May, 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 have generally been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of May 24th were 9.7% above the 434,512,000 barrels of oil we had stored on May 25th of 2018, but at the same time still 6.6% below the 509,912,000 barrels of oil that we had in storage on May 26th of 2017, and 5.5% below the 504,205,000 barrels of oil we had stored on May 27th of 2016...    

This Week's Rig Count

the US rig count inched up for just the 2nd time in fifteen weeks this past week, but remained close to a 14 month low....Baker Hughes reported that the total count of rotary rigs running in the US increased by 1 rig to 984 rigs over the week ending May 31st, which was still down by 76 rigs from the 1059 rigs that were in use as of the June 1st report of 2018, and quite a bit below 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 rose by 3 rigs to 800 rigs this week, which was still 61 fewer oil rigs than were running a year ago, and less than half of 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 184 natural gas rigs, which was also down by 13 rigs from the 197 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

offshore drilling in the Gulf of Mexico increased by 1 rig to 23 rigs this week, as another rig was added offshore from Texas, where there are now 3 rigs deployed, with the other 20 all offshore from Louisiana....that's up from the 18 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and one was offshore from Texas, and up from the national total of 19 rigs offshore a year ago, as a rig was also set up in the waters offshore from Alaska at that time...

the count of active horizontal drilling rigs was down by 1 to 862 horizontal rigs this week, which was another 14 month low for horizontal drilling, with 67 fewer horizontal rigs running this week than the 929 horizontal rigs that were in use in the US on June 1st of last year, which was also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the directional rig count was up by 1 rig to 70 directional rigs this week, and those were up by 5 rigs from the 65 directional rigs that were in use during the same week of last year...at the same time, the vertical rig count was also up by 1 rig to 52 vertical rigs this week, but those were still down from the 66 vertical rigs that that were operating on June 1st of 2018... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major 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 May 31st, the second column shows the change in the number of working rigs between last week's count (May 24th) and this week's (May 31st) count, the third column shows last week's May 24th 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 1st of June, 2018...      

May 31 2019 rig count summary

the two rigs that were added in New Mexico were both in the Permian Delaware, because the Texas Permian experienced a net loss of 1 rig, with single rigs shut down in Texas Oil District 8, the core Permian Delaware, and in Texas Oil District 7C, or the southern Permian Midland basin, while a rig was added in Texas Oil District 8A, or the northern part of the Permian Midland basin...the Louisiana rig increase was a natural gas rig added in the Haynesville shale in the northwest part of the state, but natural gas drilling ​activity ​still fell by 2 rigs nationally with rig removals in Ohio's Utica shale, West Virginia's Marcellus, and the Eagle Ford of southern Texas; ​note that ​the Eagle Ford shows no net change above because a rig drilling for oil was started up at the same time, leaving the current Eagle Ford deployment at 68 oil rigs and 7 natural gas rigs...we should also note that other than in the major producing states above, Mississippi drillers added two rigs last week and are now running four, up from two rigs a year ago, but not an unusual deployment in the state, which has seen as many as six rigs active at times over the past year...

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note: there's more here...

Sunday, May 26, 2019

oil prices drop most this year; US gasoline imports at 8 year high; DUCs down; uncomplete well backlog at 6.0 months

oil prices saw their largest drop of 2019 this week, as a worsening impasse in the US-China trade war threatened to precipitate a global economic slowdown and an associated decrease in demand for oil...after rising 1.8% to $62.76 a barrel on an outbreak of attacks on oil infrastructure in the Middle East last week, prices of US crude for June delivery opened higher and rose to as high as $63.81 a barrel on Monday morning following Trump's tweeted threat to destroy Iran, but eased from that multi-week high later in the day to settle 34 cents higher at $63.10 a barrel, on indications from OPEC leadership that they would drive down crude inventories “gently”...June oil prices started higher again on Tuesday, but then pulled back on concerns that a lengthy trade war between the US and China would limit crude demand, ending the day 11 cents lower at $62.99 a barrel as trading in the US June oil contract expired...quoting the price of the oil contract for July, which had slipped 8 cents to $63.13 a barrel on Tuesday, Wednesday saw oil prices sink as an unexpected build in U.S. crude stockpiles compounded worries that a prolonged trade war would dent crude demand and end $1.71 or 2.7% lower at $61.39 a barrel...extending those already steep losses, oil prices tumbled nearly 6% on Thursday, as concerns grew that the China-U.S. trade conflict was fast turning into a technology war between the world’s two largest economies, and ended $3.51 a barrel, or 5.7%, lower, $57.91 a barrel, having earlier touched $57.33 a barrel, the lowest oil price since March 13th...oil prices recovered a bit on Friday ahead of the long U.S. and UK holiday weekends, with US crude rising 72 cents or 1.2% to $58 a barrel as oil drillers cut rigs for third week in a row, but were still down more than 6% for the week in posting the worst week this year, pressured by rising inventories and concerns over an economic slowdown...

since oil prices seem to have turned the corner after rising most of this year, we'll include a graph of their recent trajectory here so you can see what that change looks like...

May 25 2019 oil prices

the above graph is a Saturday afternoon screenshot of the interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for a day of oil trading between December 24, 2018 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while for red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar...also slightly visible on this "candlestick" style graph are the faint grey "wicks" above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day...(note that since the above graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting)...you can see that oil prices had been rallying steadily since falling to a 35 month low on Christmas eve, and had been up more than 50% from that low by April 23rd, after which they turned lower on a large inventory build and Trump's jawboning of OPEC...now down 4 out of the last 5 weeks, the trend now appears to be for them to head lower, with no resolution to the US China trade war in sight....   

natural gas prices also ended lower this week as another triple digit storage build and rebounding production more than offset forecasts for possible near term record high temperatures in the Southeast....after rising 1.2 cents to $2.631 per mmBTU on forecasts for warmer temperatures last week, prices of natural gas for June delivery recovered from a 13 cent drop midweek to end the week just 3.3 cents lower at $2.598 per mmBTU​ after the weekly EIA​ storage​ report ​came in on the low end of ​expectations...the natural gas storage report for the week ending May 17th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 100 billion cubic feet to 1,753 billion cubic feet by the end of the week, which meant our gas supplies were 137 billion cubic feet, or 8.5% more than the 1,616 billion cubic feet that were in storage on May 18th of last year, while still 274 billion cubic feet, or 13.5% below the five-year average of 2,027 billion cubic feet of natural gas that have typically been in storage as of the third weekend in May in recent years....this week's 100 billion cubic feet injection into US natural gas storage was a bit below the 103 billion cubic foot increase in supplies projected by Platts, while it was still higher than the 88 billion cubic feet of natural gas that have historically been added to gas storage during the same week of May....while this week's​ inventory​ increase was above average for this time of year, it fell short of the 108 billion cubic feet that were added during the same week of 2014, hence bringing to an end the 7 week streak of 5 year seasonal high injections that we've seen this spring...nonetheless, the 646 billion cubic feet of natural gas that have been added to storage over the past 8 weeks exceeds the addition in any previous similar 8 week period in the modern record, topping the 630 billion cubic feet of gas that were added to storage over the same 8 weeks of 2010....early spring injections for most previous years weren't even close; for instance, only 246 billion cubic feet of natural gas were added to storage over the same 8 weeks of 2018...

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending May 17th, showed that a drop in our oil imports was mostly offset by a drop in our oil exports and an increase in our oil production, so we again saw a sizable addition to our commercial supplies of crude for the seventh time in nine weeks...our imports of crude oil fell by an average of 669,000 barrels per day to an average of 6,943,000 barrels per day, after rising by an average of 919,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 425,000 barrels per day to 2,922,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,021,000 barrels of per day during the week ending May 17th, 244,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be 100,000 barrels per day higher at 12,200,000 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 16,221,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,578,000 barrels of crude per day during the week ending May 17th, 98,000 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 516,000 barrels of oil per day were being added to the oil that's in storage in the US....hence, we can see that this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 872,000 barrels per day short of what was added to storage plus what the oil refineries reported they used during the week...to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+872,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"....with that much oil unaccounted for, we have to figure one or more of this week's crude oil metrics are off by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports fell to an average of 7,166,000 barrels per day last week, 9.4% less than the 7,908,000 barrel per day average that we were importing over the same four-week period last year...the 516,000 barrel per day increase in our total crude inventories was due to a 678,000 barrels per day addition to our commercially available stocks of crude oil, which was partially offset by a 162,000 barrel per day withdrawal from the oil stored in our Strategic Petroleum Reserve, part of a release from our reserves intended to blunt the shortage of crude in the Gulf resulting from the Venezuelan oil sanctions...this week's crude oil production was reported to be 100,000 barrels per day higher at 12,200,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at 11,700,000 barrels per day, while a 4,000 barrel per day decrease to 477,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending May 18th was at 10,725,000 barrels per day, so this reporting week's rounded oil production figure was 13.8% above that of a year ago, and 44.8% 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 89.9% of their capacity in using 16,578,000 barrels of crude per day during the week ending May 17th, down from 90.5% of capacity the prior week, and below the historical refinery utilization rate for this time of year....likewise, the 16,578,000 barrels per day of oil that were refined this week were a bit below the 16,628,000 barrels of crude per day that were being processed during the week ending May 18th, 2018, when US refineries were operating at 91.8% of capacity... 

with the decrease in the amount of oil being refined, gasoline output from our refineries was a bit lower, decreasing by 29,000 barrels per day to 9,883,000 barrels per day during the week ending May 17th, after our refineries' gasoline output had decreased by 217,000 barrels per day the prior week....with that decrease in gasoline output, this week's gasoline production was 1.7% below than the 10,052 ,000 barrels of gasoline that were being produced daily during the same week last year....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 58,000 barrels per day to 5,206,000 barrels per day, after our distillates output had increased by 175,000 barrels per day the prior week...but even with this week's decrease, the week's distillates production was 5.4% more than the 4,938,000 barrels of distillates per day that were being produced during the week ending May 18th, 2018.... 

despite the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose for just the second time in 14 weeks, increasing by 3,716,000 barrels to 228,740,000 barrels over the week to May 17th, after ​our ​gasoline supplies had fallen by 1,123,000 barrels over the prior week....our gasoline supplies rose this week even though the amount of gasoline supplied to US markets increased by 281,000 barrels per day to 9,429,000 barrels per day, after decreasing by 723,000 barrels per day the prior week, because our imports of gasoline rose by 598,000 barrels per day to an eight year high of 1,350,000 barrels per day, while our exports of gasoline fell by 369,000 barrels per day to 416,000 barrels per day...but even after having reached an all time record high seventeen weeks ago, our gasoline supplies are now 2.2% lower than last May 18th's inventory level of 233,897,000 barrels, while they are back to near the five year average of our gasoline supplies at this time of the year...  

since the week's jump in gasoline imports was quite exceptional, we'll take a look at a historical graph of those imports and try to ​figure out what's been going on...

May 22 2019 gasoline imports up to May 17

the above graph is a slightly truncated version of the long term graph of US gasoline imports that accompanies the EIA's html historical gasoline imports spreadsheet​, and​ as the heading indicates, th​is graph shows the weekly volume of US gasoline imports in thousands of barrels per day from 1995 to the current week, which shows the obvious spike to an 8 year high...while there is a seasonality to gasoline imports, ie, generally higher in the summer and lower in the winter, gasoline imports over recent weeks have been above the ​seasonal ​trend of previous years; part of the reason for that increase ​has been our falling gasoline inventories; as we noted earlier, our gasoline supplies had hit a record high of 259,615,000 barrels 17 weeks ago, ​but had fallen by more than 13% up until this week's increase...so why have our gasoline supplies been falling ​so precipitously ​this early, before the summertime driving season?  part of it is ​seasonal, as refineries undergo seasonal maintenance and gear up for warm weather blends in the late winter & early spring months; but this year has seen US refineries slow much more than usual as they seek replacements for the heavy sour crude they had been receiving from Venezuela before the ​administration sponsored coup attempt and related export sanctions; ​just ​two weeks after our gasoline supplies hit a record high, our oil imports fell to a 22 year low and refinery utilization fell to 85.9%, its lowest in 16 months in the immediate impact of those sanctions...and while it has recovered​ from that nadir, refinery utilization has remained below trend since, with a corresponding decrease in gasoline output...the problem is that the heavy sour crude that US Gulf Coast refineries were built ​to use has limited alternative sources outside of Venezuela; ie, the tar sands of Canada, Mexican Maya, and some sours from the Saudis and Iraq...since those supplies were unavailable or already contracted for, US refineries have been forced to buy Russian Urals ​crude ​at a premium price to replace the Venezuelan crude they lost to sanctions...at the same time, the Russians are providing the financing for Venezuela to sell their oil to other markets, like India, ​thus ​getting around the sanctions that shut off our ​own ​supply...

meanwhile, even with the modest decrease in our distillates production, our supplies of distillate fuels managed to increase for the second time in 10 weeks, rising by 768,000 barrels to 126,415,000 barrels during the week ending May 17th, after our distillates supplies had increased by 84,000 barrels over the prior week....our distillates supplies rose because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 307,000 barrels per day to 3,787,000 barrels per day, and because our imports of distillates rose by 61,000 barrels per day to 102,000 barrels per day, while our exports of distillates rose by 212,000 barrels per day to 1,411,000 barrels per day ...after this week's inventory increase, our distillate supplies were 10.9% higher than the 113,995,000 barrels of distillate that we had stored on May 18th, 2018 (a four year low at the time) even as they remain roughly 4% below the five year average of distillates stocks for this time of the year...

finally, ​with higher crude production and a drop in our oil exports, our commercial supplies of crude oil in storage increased for the thirteenth time in 18 weeks, rising by 4,470,000 barrels, from 472,035,000 barrels on May 10th to 476,775 ,000 barrels on May 17th....that increase lifted our crude oil inventories to 4% above the recent five-year average of crude oil supplies for this time of year, and to more than 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the first weekend in May, 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 have generally been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of May 10th were 8.8% above the 438,132,000 barrels of oil we had stored on May 18th of 2018, but at the same time still 7.7% below the 516,340,000 barrels of oil that we had in storage on May 19th of 2017, and 5.6% below the 505,571,000 barrels of oil we had stored on May 20th of 2016...    

This Week's Rig Count

the US rig count was down for the thirteenth time in fourteen weeks this past week, and hence was at another 14 month low....Baker Hughes reported that the total count of rotary rigs running in the US fell by 4 rigs to 983 rigs over the week ending May 24th, which was also down by 76 rigs from the 1059 rigs that were in use as of the May 25th report of 2018, and quite a bit below 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 fell by 5 rigs to 797 rigs this week, which was also 62 fewer oil rigs than were running a year ago, and less than half of 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 rose by 1 rig to 186 natural gas rigs, which was still down by 12 rigs from the 198 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

drilling activity offshore in the Gulf of Mexico was unchanged with 22 rigs still deployed this week, with 20 of those offshore from Louisiana and two more drilling in Texas offshore waters; that's up from the 18 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and one was offshore from Texas, and up from the national total of 19 rigs offshore a year ago, as a rig was also set up in the waters offshore from Alaska at that time...

the count of active horizontal drilling rigs was down by 3 to 863 horizontal rigs this week, which was thus another 14 month low for horizontal drilling, with 63 fewer horizontal rigs running ​this week than the 926 horizontal rigs that were in use in the US on May 25th of last year, ​which was 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 4 rigs to 69 directional rigs this week, but those were still up by 2 rigs from the 67 directional rigs that were in use during the same week of last year...on the other hand, the vertical rig count was up by 3 rigs to 51 vertical rigs this week, but those were still down from the 66 vertical rigs that that were operating on May 25th of 2018... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major 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 May 24th, the second column shows the change in the number of working rigs between last week's count (May 17th) and this week's (May 24th) count, the third column shows last week's May 17th 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 25th of May, 2018...       

May 24 2019 rig count summary

the 4 rig decrease you see indicated for New Mexico all came out of the Permian basin, as the Texas Permian saw a net increase​ of one rig​...while two rigs were shut down in Texas Oil District 8A, or the northern Permian Midland basin, and two more rigs were idled in Texas Oil District 7C, or the southern Permian Midland basin, Texas Oil District 8, which would be the core Permian Delaware, saw a 5 rig increase, thus putting the net Texas Permian into the plus column...elsewhere in Texas, three rigs were added in Texas ​Oil ​District 1, while two were pulled from District 2 and one was shut down in District 3, which combined netted a one rig increase in the Eagle Ford​ and a one rig decrease outside of the basin​, while another rig was pulled out of the Granite Wash in panhandle District 10, which suggests a rig was concurrently added back in the Oklahoma portion of of the Granite Wash...among natural gas rigs, one was ​set up in the Denver-Julesburg Niobrara​ oil play​, which also had two oil rigs shut down at the same time, and two more natural gas rigs were added in the Marcellus, one each in Pennsylvania and in West Virginia, while natural gas rigs were idled in Ohio's Utica​ shale​ and in another basin not tracked separately by Baker Hughes...

DUC well report for March

last week saw the release of the EIA's Drilling Productivity Report for May, which includes the EIA's April data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the second month in a row, this report showed a decrease in uncompleted wells nationally in April, as drilling of new wells decreased and completions of drilled wells increased....while there continued to be a increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, all other regions either saw decreases or little change, thus more than offsetting the Permian increases...for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 43 wells, from a revised 8,433 DUC wells in March to 8,390 DUC wells in April, which still represents a 23.7% increase from the 6,781 wells that had been drilled but remained uncompleted as of the end of April a year ago...that was as 1,364 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during April, down by 14 from the 1,386 wells drilled in March and the lowest in 11 months, while 1,407 wells were completed and brought into production by fracking, an increase of 12 well completions from the 1,395 completions seen in March, and the 1329 well completions of February...at the April completion rate, the 8,390 drilled but uncompleted wells left at the end of the month represent a 6.0 month backlog of wells that have been drilled but not yet fracked...  

in a contrast ​to what we've seen over most of the past couple of years up until a month ago, most of the April DUC well decreases were in oil producing regions, with all major oil producing regions except for the Permian showing double digit drops... DUC wells left in the Oklahoma Anadarko decreased by 26 to 998 wells, as 136 wells were drilled into the Anadarko basin during April while 162 Anadarko wells were being fracked....meanwhile, DUC wells in the Eagle Ford of south Texas decreased by 22, from 1,510 DUC wells in March to 1,488 DUCs in April, as 186 wells were drilled in the Eagle Ford during April, while 208 Eagle Ford wells were completed...in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies' front range decreased by 13 to 545, as 182 Niobrara wells were drilled in April while 195 Niobrara wells were being fracked...at the same time, DUC wells in the Bakken of North Dakota fell by 12, from 726 DUC wells in March to 714 DUCs in April, as 118 wells were drilled into the Bakken in April, while 130 of the drilled wells in that basin were completed...finally, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 19 wells, from 479 DUCs in March to 460 DUCs in April, as 130 wells were drilled into the Marcellus and Utica shales during the month, while 149 of the already drilled wells in the region were fracked...

on the other hand, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 47, from 3,9​1​​7 DUC wells in March to 3,964 DUCs in April, as 555 new wells were drilled into the Permian, but only 508 wells in the region were fracked...lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region also saw their uncompleted well inventory increase by 2 wells to 221, as 57 wells were drilled into the Haynesville during April, while 55 Haynesville wells were fracked during the same period....thus, for the month of April, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 26 wells to 7,709 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 17 wells to 681 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and natural gas...

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note:  there's more here...

Monday, May 20, 2019

horizontal drilling at a 14 month low; April's global oil supplies short of demand despite flat OPEC output

oil prices rose for the first time in four weeks this week, as the threat that hostilities in the Middle East would disrupt global oil supplies overshadowed the rapidly deteriorating trade dispute between the US and China...after falling 28 cents to $61.66 a barrel on a resumption of that trade war last week, prices of US crude for June delivery initially rose to as high as $63.33 a barrel early Monday on news that four ships, including two Saudi oil tankers, had been sabotaged off the UAE coast, just outside the Strait of Hormuz, but then gave up those gains and fell with Wall Street as a negative turn in the U.S.-Chinese trade talks spooked markets, with oil prices ending the day 1% lower at $61.04 a barrel...oil prices then opened lower on Tuesday but again jumped higher after Saudi Arabia reported a drone attack against its pipeline infrastructure that disabled two pumping stations and sent WTI crude to a gain of 74 cents, or 1.2 percent, at $61.78 a barrel...oil prices opened lower Wednesday on the Tuesday evening API report of a massive build of US crude inventories, but shrugged off that increase in crude stockpiles even when confirmed by the EIA later in the day to settle 24 cents higher at $62.02 per barrel....oil prices then jumped as much as 2% higher on Thursday after the Saudis launched air strikes in retaliation for the attacks on their pipeline infrastructure before settling 85 cents higher at $62.87 per barrel, the highest close in two weeks...oil prices then fell 11 cents to $62.76 a barrel on Friday on fears of falling demand due to a worsening standoff in Chinese-U.S. trade talks, but still ended the week with an increase of 1.8% on the deteriorating developments in the Middle East...

natural gas prices also ended the week higher, boosted by forecasts of much warmer than normal temperatures over the major power demand centers from the middle of the U.S. to the East Coast, as yet another above-normal inventory build was brushed off as natural gas for June delivery ended the week 1.2 cents higher at $2.631 per mmBTU...the natural gas storage report for the week ending May 10th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 106 billion cubic feet to 1,653 billion cubic feet by the end of the week, which meant our gas supplies were 130 billion cubic feet, or 8.5% more than the 1,523 billion cubic feet that were in storage on May 11th of last year, while still 286 billion cubic feet, or 14.7% below the five-year average of 1,939 billion cubic feet of natural gas that have typically been in storage as of the second weekend in May in recent years....this week's 106 billion cubic feet injection into US natural gas storage was in line with estimates from surveys of analysts of a 104 billion cubic foot increase in supplies, while it was somewhat higher than the 88 billion cubic feet of natural gas that have historically been added to gas storage during the same week of May....this week's increase was the seventh 5 year seasonal high injection in a row, and the 498 billion cubic feet of natural gas that have been added to storage over the past 5 weeks was the most natural gas added to storage over 5 continuous weeks since a record 562 billion cubic feet week added over the 5 weeks to June 20, 2014

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending May 10th, showed a sizable addition to our commercial supplies of crude for the sixth time in eight weeks, as a massive amount of crude oil that could not be unaccounted for shifted from the demand side to the supply side of the petroleum balance sheet...our imports of crude oil rose by an average of 919,000 barrels per day to an average of 7,612,000 barrels per day, after falling by an average of 721,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 1,025,000 barrels per day to 3,347,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,265,000 barrels of per day during the week ending May 10th, 106,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be down by 100,000 barrels per day to 12,100,000 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 16,365,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,676,000 barrels of crude per day during the week ending May 10th, 271,000 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 524,000 barrels of oil per day were added to the oil that's in storage in the US....​hence, ​we can see that ​this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 835,000 barrels per day short of what was added to storage plus what the oil refineries reported they used during the week...to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+835,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"....with a switch in the unaccounted oil figure from -856,000 last week to +835,000 this week, we have to figure that both weeks' crude oil metrics are​ off by statistically significant amounts, and that week over week comparisons are essentially meaningless... (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 7,217,000 barrels per day last week, still 9.6% less than the 7,986,000 barrel per day average that we were importing over the same four-week period last year...the 524,000 barrel per day increase in our total crude inventories ​was due to a​ 776,000 barrels per day addition to our commercially available stocks of crude oil, which was partially offset by a 252,000 barrel per day withdrawal from the oil stored in our Strategic Petroleum Reserve, part of a release from our reserves intended to blunt the shortage of crude in the Gulf resulting from the Venezuelan oil export sanctions...this week's crude oil production was reported to be 100,000 barrels per day lower at 12,100,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,600,000 barrels per day, while a 5,000 barrel per day increase to 481,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending May 11th was at 10,723,000 barrels per day, so this reporting week's rounded oil production figure was 12.8% above that of a year ago, and 43.6% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...    

meanwhile, US oil refineries were operating at 90.5% of their capacity in using 16,676,000 barrels of crude per day during the week ending May 10th, up from 88.9% of capacity the prior week, but still a bit below the historical refinery utilization rate for this time of year....however, the 16,676,000 barrels per day of oil that were refined this week were a bit more than the 16,635,000 barrels of crude per day that were being processed during the week ending May 11th, 2018, when US refineries were operating at 91.1% of capacity... 

even with the increase in the amount of oil being refined, gasoline output from our refineries was still somewhat lower, decreasing by 217,000 barrels per day to 9,912,000 barrels per day during the week ending May 10th, after our refineries' gasoline output had increased by 202,000 barrels per day the prior week....with that decrease in gasoline output, this week's gasoline production was 5.3% below than the 10,462,000 barrels of gasoline that were being produced daily during the same week last year....​however, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 175,000 barrels per day to 5,264,000 barrels per day, after that distillates output had decreased by 39,000 barrels per day the prior week...with this week's increase, the week's distillates production was 4.6% more than the 5,031,000 barrels of distillates per day that were being produced during the week ending May 11th, 2018.... 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the twelfth time in 13 weeks, decreasing by 1,123,000 barrels to 225,024,000 barrels over the week to May 10th, after gasoline supplies had fallen by 596,000 barrels over the prior week....our gasoline supplies fell even though the amount of gasoline supplied to US markets decreased by 723,000 barrels per day to 9,148,000 barrels per day, after increasing by 643,000 barrels per day the prior week, because our exports of gasoline rose by 294,000 barrels per day to 785,000 barrels per day while our imports of gasoline fell by 362,000 barrels per day to 752,000 barrels per day...so even after having reached an all time record high sixteen weeks ago, our gasoline supplies are now 3.0% lower than last May 11th's inventory level of 232,014,000 barrels, and remain roughly 2% below 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 first time in 9 weeks, but only by 84,000 barrels to 125,647,000 barrels during the week ending May 10th, after our distillates supplies had decreased by 159,000 barrels over the prior week....our distillates supplies inched up even as the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 198,000 barrels per day to 4,094,000 barrels per day, as our exports of distillates fell by 128,000 barrels per day to 1,199,000 barrels per day while our imports of distillates fell by 70,000 barrels per day to 41,000 barrels per day ...​but even ​with this week's inventory decrease, our distillate supplies were ​still ​9.3% higher than the 114,946,000 barrels of distillate that we had stored on May 11th, 2018, even as they remain roughly 2% below the five year average of distillates stocks for this time of the year...

finally, despite ​near--​record oil exports and rising refinery throughput, our commercial supplies of crude oil in storage increased for the twelfth time in 17 weeks, rising by 5,431,000 barrels, from 466,604,000 barrels on 3rd to 472,035,000 barrels on May 10th....that increase​ ​lifted our crude oil inventories to 2% ​above the recent five-year average of crude oil supplies for this time of year, and to more than a third higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the first weekend in May, 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 have generally been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of May 10th were 9.1% above the 432,354,000 barrels of oil we had stored on May 11th of 2018, but at the same time still 9.4% below the 520,772,000 barrels of oil that we had in storage on May 12th of 2017, and 7.4% below the 509,797,000 barrels of oil we had stored on May 13th of 2016...      

OPEC's Monthly Oil Market Report

next we're going to review OPEC's May Oil Market Report (covering April OPEC & global oil data), which was released on Tuesday 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...the first table from this monthly report that we'll look at is from the page numbered 57 of that report (pdf page 67), 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 an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures...

April 2019 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC's oil output fell by 3,000 barrels per day to 30,031,000 barrels per day in April , from their revised March production total of 30,034,000 barrels per day...however that March figure was originally reported as 30,022,000 barrels per day, so that means their production for April was, in effect, a 9,000 barrel per day increase from the previously reported figures (for your reference, here is the table of the official March OPEC output figures as reported a month ago, before this month's revisions)...

the largely involuntary Iranian output cuts of 164,000 barrels per day due to US sanctions on their exports were more than offset by increases in output from Iraq, Libya and Nigeria, which also served to offset production cuts from Saudi Arabia and Angola...the 28,000 barrels per day increase in output from Venezuela is a bit of a surprise; considering recent media reports that their production had continued to fall under pressure of the US led coup attempts...meanwhile, the 113,000 barrels per day increase in the output from Iraq now puts them back over the output allocations assigned to each member after their December 7th 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, as does the 92,000 barrels per day increase in the output from Nigeria, as 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 shows average daily production quota in millions of barrels of oil per day for each of the OPEC members for the first 6 months of this year, as was agreed to at their December 2018 meeting...note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by disruptive civil strife, are exempt from any production quotas, and that only Libya had produced any more than they did in the 4th quarter of 2018, as ​can be seen in the fifth column of the OPEC production table above...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from May 2017 to April 2019, and it comes from page 58 (pdf page 68) of the April 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... 

April 2019 OPEC report global oil supply

despite the small increase in OPEC's production from what they reported a month ago, their preliminary estimate indicates that total global oil production fell by 0.07 million barrels per day to 98.82 million barrels per day in April, but that came after March's total global output figure was revised down by 310,000 barrels per day from the 99.26 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production fell by a rounded 70,000 barrels per day in April after that revision, with lower oil output from Kazakhstan, Canada, China and Russia the major reasons for the non-OPEC production decrease.... the 98.82 million barrels per day produced globally in April was ​still 1.05 million barrels per day, or 1.1% higher than the revised 97.77 million barrels of oil per day that were being produced globally in April a year ago (see the May 2018 OPEC report (online pdf) for the originally reported March 2018 details)...with little change in OPEC's output, their April oil production of 30,031,000 barrels per day represented 30.4% of what was produced globally during the month, up from the 30.2% share they reported for March, before revisions increase​d​ their March global share to 30.4%....OPEC's April 2018 production was reported at 31,930,000 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 1,664,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.6% of global output, with a 668,000 barrel per day decrease in the output from Venezuela and a 1,269,000 barrel per day drop in output from Iran from that time more than offsetting the year over year production increases of 188,000 barrels per day from the Emirates, 194,000 barrels per day from Libya, and 201,000 barrels per day from Iraq... 

the 70,000 barrels per day decrease in global oil output ​that was ​seen during April, combined with the 310,000 barrels per day downward revision to March's global output, meant there was a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

April 2019 OPEC report global oil demand

the table above comes from page 34 of the May OPEC Monthly Oil Market Report (pdf page 44), 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 third column, we've circled in blue the figure that's relevant for April, which is their revised estimate of global oil demand during the second quarter of 2019...

OPEC is estimating that during the 2nd quarter of this year, all oil consuming regions of the globe will using 99.20 million barrels of oil per day, which was revised 0.02 million barrels of oil per day higher than their estimate for the 2nd 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 only producing 98.82 million barrels per day during April, which means that there was a shortfall of around 380,000 barrels per day in global oil production when compared to the demand estimated for the month...

in addition, the downward revision of 310,000 barrels per day to March's global output that's implied in this report, combined with the 30,000 barrels per day upward revision to 1st quarter demand ​that ​we've circled in green means that the 240,000 barrels per day global oil output surplus we had figured for March would now be revised to a deficit of 100,000 barrels per day....however, that follows a revised 350,000 barrel per day global oil output surplus in February and a revised 260,000 barrel per day global oil output surplus in January, so despite OPEC cuts of more than 1.6 million barrels per day in the first quarter of this year, a small global oil surplus for the year to date still persists... 

we should also note that the previous estimate for 2018's oil demand was revised 30,000 barrels per day higher with this report, which we've also highlighted ​with​in that green ellipse...the 2018 demand table on page 33 of the May OPEC Monthly Oil Market Report (pdf page 43) indicates that demand revision was spread evenly across the year, so that means that for all of 2018, global oil demand exceeded production by roughly 18,040,000 barrels, still a comparatively small net oil shortfall that would be the equivalent of less than four hours and twenty minutes of global production at the December production rate...  

This Week's Rig Count

the US rig count was down by just one this past week, but that still meant it was at another 14 month low and continued the ongoing slide that has seen drilling rig activity decrease ​in ​twelve out of the last 13 weeks....Baker Hughes reported that the total count of rotary rigs running in the US fell by 1 rig to 987 rigs over the week ending May 17th, which was also down by 59 rigs from the 1046 rigs that were in use as of the May 18th report of 2018, and quite a bit below 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 fell by 3 rigs to 802 rigs this week, which was also 42 fewer oil rigs than were running a year ago, and less than half of 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 increased by 2 rigs to 185 natural gas rigs, which was still down by 15 rigs from the 200 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

drilling activity offshore in the Gulf of Mexico increased by 2 rigs to 22 rigs this week, as 3 rigs were added offshore from Louisiana, where there are now 20, and one rig was shut down in Texas offshore waters, where just two rigs remain offshore...those totals are up from a year ago, when 18 rigs were deployed offshore, 17 in Louisiana waters, and one offshore from Texas...

the count of active horizontal drilling rigs was down by 6 to 866 horizontal rigs this week, which was also 53 fewer horizontal rigs than the 918 horizontal rigs that were in use in the US on May 18th of last year, and well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...that is the smallest number of horizontal rigs deployed since March 9th 2018, and means that horizontal rigs are also now at a 14 month low....meanwhile, the vertical rig count was up by 3 rigs to 48 vertical rigs this week, which was still down from the 61 vertical rigs that were in use during the same week of last year...in addition, the directional rig count was up by 2 rigs to 73 directional rigs this week, but those were up by 7 rigs from the 66 directional rigs that were operating on May 18th of 2018... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major 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 May 17th, the second column shows the change in the number of working rigs between last week's count (May 10th) and this week's (May 17th) count, the third column shows last week's May 10th 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 18th of May, 2018...       

May 17 2019 rig count summary

as ​you can see, there was a 4 rig increase in Ohio's drilling activity this week, despite the pullbacks elsewhere, while the Utica shale only shows an increase of 3 rigs...since the North America Rotary Rig Count Pivot Table (xls) shows that only Utica natural gas rigs are active in Ohio, we can figure that the sole Utica shale rig that had been deployed in Pennsylvania was shut down this week, along with 2 Marcellus rigs that had been operating in the Keystone state, to bring the Utica rig count into balance...the Marcellus shale, meanwhile, shows a three rig decrease, because a Marcellus rig that had been operating in West Virginia was also shut down at the same time...in addition to those, 2 natural gas rigs were also shut down in the northwestern Louisiana portion of the Haynesville shale, but the national natural gas rig count still showed an increase of 2 rigs because ​a net of ​4 natural gas rigs were concurrently started up in basins not tracked separately by Baker Hughes, with Wyoming and Louisiana the most likely locations for those..

oil rigs, meanwhile, were shut down in Texas and also in Oklahoma, even though the Cana Woodford in central Oklahoma had an oil rig start up...in the Permian basin of western Texas, three rigs were shut down in Texas Oil District 8, which​ would be the core Permian Delaware, and three more were shut down in Texas Oil District 8A, or the northern Permian Midland basin, while two rigs were added in Texas Oil District 7C, or the southern Permian Midland basin...since the Permian ​basin ​shows a net 3 rig decrease, those Texas changes means that the rig that was added in New Mexico was deployed in the far western portion of the Permian Delaware...for the remaining changes in activity in Alaska, Oklahoma, and Wyoming, check out the North America Rotary Rig Count Pivot Table (xls), which lists the details on each rig deployment individually, ...

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note: there's more here...