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, April 21, 2019

natural gas prices at a 34 mo. low after largest April injection on record; active rigs lowest in a year; first DUC drop in 12 mo, backlog at 6.1 months

oil prices managed to increase for a 7th week in a row in slow trading in a holiday shortened week, but not by much, as traders remained cautious while waiting for clarification on Iran sanction exemptions that are due to expire in the first week of May...after rising 1.3% to $63.89 a barrel on deeper than expected OPEC output cuts last week, prices of US crude for May delivery fell 49 cents to $63.40 a barrel on Monday after the Russian finance minister was quoted as saying that Russia might decide to boost production to fight for market share, rather than continue the production cuts they agreed to enact with OPEC... however, prices rebounded 1% on Tuesday, as fighting in Libya and falling Venezuelan and Iranian exports renewed concerns about tightening global supply, with US WTI crude ending 65 cents higher at $64.05 a barrel...oil prices continued moving higher early Wednesday, rising as high as $64.61 a barrel in morning trading, before tumbling in the afternoon to settle down 29 cents at $63.76 a barrel after EIA data showed US crude inventories fell less than the American Petroleum Institute had reported late Tuesday...however, oil prices edged back up on Thursday, as a decrease in Saudi Arabia's crude exports, a drop in U.S. drilling rigs, and lower oil, gasoline & distillate inventories underpinned prices, which went on to finish the day 24 cents higher at $64.00 a barrel, thus managing to end the week with a net gain of 11 cents, or less than 0.2% from the prior week's close....

natural gas prices, on the other hand, were down every day this week, as notably warmer forecast changes and higher natural gas production, combined with a record early April storage injection relentlessly drove prices lower...after ending nearly unchanged at $2.660 per mmBTU in trading last week, natural gas contracts for May delivery fell 7 cents on Monday, 1.8 cents on Tuesday, 5.5 cents on Wednesday, and 2.7 cents with the storage report release on Thursday to end the week down 17 cents or 6.4% at $2.490, the lowest weekly close since June 3rd, 2016...

with natural gas prices thus at a 34 month low, we'll include a longer term graph of the intervening price trajectory, to show you how current prices compare to recent historical prices...

April 20 2019 natural gas prices

the above graph is a Saturday morning 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 represents natural gas prices for a week of trading between the last week of 2015 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...note that the lighter red & green bars at the bottom of the graph represent the trading volume for each day, which doesn't concern us, except to note the poor graph design that has similarly colored natural gas price bars crossing into the trading volume metrics...

we can see that through most of 2018 until October, natural gas prices had stayed in a range roughly between $2.60 and $3 per mmBTU, and it was only when the possibility of a wintertime natural gas shortage became widely known that prices began to move higher...then prices shot up to nearly $5 when November turned cold, and withdrawals of gas from storage were much above normal...then, with the milder temperatures and smaller withdrawals from storage during December and January, natural gas traders figured that the crisis had passed, and hence natural gas prices retreated back to below their previous baseline...

with natural gas prices now near a three year low, the question naturally arises as to whether those who continue to drill for gas will be able to maintain profitability or not....circa 2014, before the OPEC glut which hit natural gas prices at the same time as oil prices were diving, widely quoted analysis had it that the so-called break-even price for natural gas wells in the Pennsylvania Marcellus shale was around $4 per mmBTU...in addition to pointing out that no two wells will exhibit common enough characteristics to put any kind of stake in that kind of single figure analysis anymore, we also have to note there have been efficiency and productivity gains since then that have lowered the price of natural gas extraction considerably from those days...still, at prices below $2.50 per mmBTU, we have to consider that some marginal well prospects will be unprofitable, and in many of those cases will not be completed...

note that while some drillers may have been able to lock in the higher prices of that November price spike for their future drilling plans, prices for gas output from most of the wells started during late 2018 were more than likely contracted for months earlier, when natural gas prices were still below $3 per mmBTU...but even with prices at that level or lower for most of the year, US natural gas production still managed to grow by 11% over that of the prior year...with domestic consumption growing at a 10% rate and LNG exports expected to double, production growth with have to continue at the 2018 pace or better to satisfy that demand..

returning to current data, the natural gas storage report for the week ending April 12th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 92 billion cubic feet to 1,247 billion cubic feet over the week, which still left our gas supplies 57 billion cubic feet, or 4.4% below the 1,304 billion cubic feet that were in storage on April 13th of last year, and 414 billion cubic feet, or 24.9% below the five-year average of 1,661 billion cubic feet of natural gas that have typically remained in storage as of the second weekend in April in recent years....this week's 92 billion cubic feet injection into US natural gas storage was a bit above expectations of an 88 to 90 billion cubic foot addition to storage, while it was quite a bit more than the 21 billion cubic feet of natural gas that are normally added to gas storage during the second week of April...in fact, it was the largest addition of natural gas to storage in any week of April in any of the EIA's natural gas storage records..

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 April 12th, indicated that a large decrease in our oil imports meant that oil had to be withdrawn from our commercial supplies of crude for the first time in 5 weeks...our imports of crude oil fell by an average of 607,000 barrels per day to an average of 5,992,000 barrels per day, after falling by an average of 166,000 barrels per day the prior week, while our exports of crude oil rose by an average of 52,000 barrels per day to 2,401,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,591,000 barrels of per day during the week ending April 12th, 659,000 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 15,691,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,078,000 barrels of crude per day during the week ending April 12th, 22,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that 199,000 barrels of oil per day were being withdrawn from the oil that's in storage in the US.....therefore, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 188,000 fewer barrels per day than the amount of 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 (+188,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil".... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports fell to an average of 6,474,000 barrels per day last week, now 20.6% less than the 8,157,000 barrel per day average that we were importing over the same four-week period last year....the 199,000 barrels of oil per day decrease in our total crude inventories was all pulled from our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be 100,000 barrels per day lower at 12,100,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was 100,000 barrels per day lower at 11,600,000 barrels per day, while a 6,000 barrel per day decrease in Alaska's oil production to 478,000 barrels per day was not enough to make a difference in the rounded national total...last year's US crude oil production for the week ending April 13th was at 10,540,000 barrels per day, so this reporting week's rounded oil production figure was 14.8% 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 87.7% of their capacity in using 16,078,000 barrels of crude per day during the week ending April 12th, up from 87.5% of capacity the prior week, but still quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off....similarly, the 16,078,000 barrels per day of oil that were refined this week were down by 5.1% from the 16,949,000 barrels of crude per day that were being processed during the week ending April 13th, 2018, when US refineries were operating at 92.4% of capacity... 

even with the relatively small decrease in the amount of oil being refined, the gasoline output from our refineries was considerably lower, decreasing by 252,000 barrels per day to 9,917,000 barrels per day during the week ending April 12th, after our refineries' gasoline output had increased by 356,000 barrels per day the prior week....with that decrease in gasoline output, this week's gasoline production was 2.8% less than the 10,204,000 barrels of gasoline that were being produced daily during the same week last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 215,000 barrels per day to 4,823,000 barrels per day, after that distillates output had increased by 168,000 barrels per day the prior week...and after this week's decrease, the week's distillates production was 5.3% less than the 5,094,000 barrels of distillates per day that were being produced during the week ending April 13th, 2018.... 

with the decrease in our gasoline production, the supply of gasoline left in storage at the end of the week fell for the 9th week in a row, decreasing by 1,174,000 barrels to 227,955,000 barrels over the week to April 12th, after supplies had fallen by 7,700,000 barrels over the prior week....the draw from our gasoline supplies was less this week than last because the amount of gasoline supplied to US markets decreased by 386,000 barrels per day to 9,420,000 barrels per day, after increasing by 675,000 barrels per day the prior week, and because our imports of gasoline rose by 276,000 barrels per day 990,000 barrels per day, while our exports of gasoline fell by 57,000 barrels per day to 599,000 barrels per day...after having reached an all time record high eleven weeks ago, our gasoline inventories are now 3.4% lower than last April 13th's level of 235,967,000 barrels, and have now fallen to roughly 1% below the five year average of our gasoline supplies at this time of the year...

with the decrease in our distillates production, our supplies of distillate fuels fell for the 22nd time in twenty-nine weeks, decreasing by 362,000 barrels to 127,691,000 barrels during the week ending April 12th, after our distillates supplies had decreased by 116,000 barrels over the prior week...the draw on our distillates supplies was a bit greater this week because our exports of distillates rose by 286,000 barrels per day to 1,660,000 barrels per day, while our imports of distillates rose by 40,000 barrels per day to 138,000 barrels per day while the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 226,000 barrels per day to 3,553,000 barrels per day...but even after this week's inventory decrease, our distillate supplies were still 1.9% higher than the 125,340,000 barrels of distillate that we had stored on April 13th, 2018, while also still roughly 5% below the five year average of distillates stocks for this time of the year...

finally, with a drop in our oil imports and a decrease in our oil production, our commercial supplies of crude oil in storage decreased for the fourth time in 13 weeks, falling by 1,396,000 barrels over the week, from 456,550,000 barrels on April 5th to 455,154,000 barrels on April 12th...that decrease was enough to knock our crude oil inventories back to 2% below the recent five-year average of crude oil supplies for this time of year, while they remained more than 30% above the prior 5 year (2009 - 2013) average of crude oil stocks after the second week of April, 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 mostly 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 April 12th were 6.5% above the 427,567,000 barrels of oil we had stored on April 13th of 2018, but at the same time still 14.5% below the  532,343,000 barrels of oil that we had in storage on April 14th of 2017, and 10.3% below the 507,312,000 barrels of oil we had in storage on April 15th of 2016...         

This Week's Rig Count

Note: due to the holiday, this week's rig count was released on Thursday of this week and thus includes the rig changes over just 6 days; nonetheless, US drilling rig activity decreased for the eighth time in nine such weekly reports, and has now dropped below year ago levels for the first time since 2016....Baker Hughes reported that the total count of rotary rigs running in the US fell by 10 rigs to 1012 rigs over the short week ending April 18th, which was also down by 1 rig from the 1013 rigs that were in use as of the April 20th report of 2018, while well down from 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 8 rigs to 825 rigs this week, which was still 5 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 2 rigs to 187 natural gas rigs, which was also down by 5 rigs from the 192 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 remained unchanged at 23 rigs this week, which was still 5 more rigs than the 18 rigs active in the Gulf a year ago...however, the number of active horizontal drilling rigs decreased by 3 rigs to 896 horizontal rigs this week, which was the least horizontal rigs deployed in any week over the past year, and 3 fewer horizontal rigs than the 889 horizontal rigs that were in use in the US on April 20th of last year, and 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 also decreased by 3 rigs to 75 directional rigs this week, but that was up by 5 rigs from the 70 directional rigs that were in use during the same week of last year....in addition, the vertical rig count decreased by 4 rigs to 51 vertical rigs this week, which was down from the 54 vertical rigs that were operating on April 20th 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 April 18th, the second column shows the change in the number of working rigs between last week's count (April 12th) and this week's (April 18th) count, the third column shows last week's April 12th 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 20th of April, 2018...    

April 19 2019 rig count summary

there's not much particularly noteworthy in these counts this week; as you can see, the rig count reductions were fairly widespread and for the most part were in those states with the greatest activity to begin with, save the rig that was shut down in Alaska...with no rig changes apparent in New Mexico, we assumed that the Permian reduction had come out of Texas, and that turned out to be accurate, as a single rig was pulled out of Texas Oil District 8A, or the northern Permian Midland basin, while rig counts in the other Permian regions remained unchanged...the week's natural gas rig reductions were also straightforward; 2 natural gas rigs were removed from the Haynesville shale in northwestern Louisiana, while natural gas rigs operating in all other basins also remained unchanged...

DUC well report for March

Monday of this past week saw the release of the EIA's Drilling Productivity Report for April, which includes the EIA's March data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the first time in 12 months, this report showed a small decrease in uncompleted wells nationally in March, as drilling of new wells decreased and completions of drilled wells increased....while there continued to be a large 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 all 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 4 wells, from a revised 8,504 DUC wells in February to 8,500 DUC wells in March, still a 25.6% increase from the  6,769 wells that had been drilled but remained uncompleted as of the end of March a year ago...that was as 1,388 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during March, down by 14 from the 1,423 wells drilled in February and the lowest in 11 months, while 1,392 wells were completed and brought into production by fracking, a increase of 113 well completions from the 1,327 completions seen in February and the 1212 completions of January...at the March completion rate, the 8,500 drilled but uncompleted wells left at the end of the month represent a 6.1 month backlog of wells that have been drilled but not yet fracked...  

in a contrast with what we've seen over most of the past couple of years, a number of ​the ​March DUC well decreases were in oil producing regions, with the Anadarko basin region centered in Oklahoma seeing the largest drop... DUC wells left in the Anadarko decreased by 29 to 1,019, as 139 wells were drilled into the Anadarko basin during March while 168 Anadarko wells were being fracked....at the same time, DUC wells in the Bakken of North Dakota fell by 12, from 722 DUC wells in February to 710 DUCs in March, as 113 wells were drilled into the Bakken in March, while 125 of the drilled wells in that basin were completed...in addition, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 8 wells, from 509 DUCs in February to 501 DUCs in March, as 130 wells were drilled into the Marcellus and Utica shales, while 138 of the already drilled wells in the region were fracked...and in​ a​ major change from recent months, DUC wells in the Eagle Ford of south Texas decreased by 5, from 1,514 DUC wells in February to 1,509 DUCs in March, as 203 wells were drilled in the Eagle Ford during March, while 208 Eagle Ford wells were completed...

on the other hand, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 49, from 3,972 DUC wells in February to 4,021 DUCs in March, as 554 new wells were drilled into the Permian, but only 505 wells in the region were fracked...in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region also saw their uncompleted well inventory increase by 1 well to 212, as 57 wells were drilled into the Haynesville during March, while 56 Haynesville wells were fracked during the same period...lastly, the drilled but uncompleted well count in the Niobrara chalk of the Rockies' front range ​remained unchanged at 528, as 192 Niobrara wells were drilled in March while 192 Niobrara wells were being fracked...thus, for the month of March, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by a net of 3 wells to 7,787 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 7 wells to 713 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...

Sunday, April 14, 2019

global oil surplus persists in March, despite OPEC 1st quarter output cuts exceeding 1.6 million barrels per day

oil prices rose for a 6th straight week and are now up 38% since the beginning of the year, with this week's increase underpinned by a new OPEC report that showed they'd cut their output to the lowest in 4 years...after rising nearly 5% to $63.08 a barrel on tighter supplies and improving economic news last week, contract prices for US crude for May delivery rose $1.32, or more than 2%, to $64.40 a barrel on Monday, their highest level since the end of October 2018, driven higher by supply restraints due to U.S. sanctions against Iran and Venezuela, OPEC's output cuts, and renewed fighting in Libya...however, oil prices fell from those 5 month highs on Tuesday, after the International Monetary Fund cut its global economic growth forecasts, and as Russia signaled it may retreat from its production-cutting deal with OPEC, with US crude finishing down 42 cents at $63.98 a barrel...prices then rose on Wednesday towards another new five-month high after OPEC reported their oil production had plunged to four-year low in March and held those gains despite a whopping 7 million barrel increase in US crude inventories, with May crude settling 63 cents higher at $64.61 a barrel...oil prices then retreated from that 5 month high on Thursday, sliding $1.03 to $63.58 a barrel, after sources said OPEC might raise output if Venezuelan and Iranian supplies fall further and prices keep rising...prices recovered a bit of those losses Friday, gaining 31 cents to $63.89 a barrel, as involuntary cuts from Venezuela and Iran and conflict in Libya led to perceptions of a tightening crude market, with May US oil thus ending up 1.3 percent for the week overall...

natural gas prices, on the other hand, ended little changed for the second week in a row...after rising two-tenths of a cent to $2.664 per mmBTU to begin the so-called shoulder season last week, natural gas for May delivery fell four tenths of a cent over the five trading sessions of this week to end the week at $2.660 per mmBTU, as even a bullish miss of expectations on the EIA storage report was not enough to outweigh weak supply/demand balances...the natural gas storage report for the week ending April 5th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 25 billion cubic feet to 1,155 billion cubic feet over the week, which still left our gas supplies 183 billion cubic feet, or 13.7% below the 1,338 billion cubic feet that were in storage on April 6th of last year, and 485 billion cubic feet, or 29.6% below the five-year average of 1,640 billion cubic feet of natural gas that have typically remained in storage as of the first weekend in April in recent years....this week's 25 billion cubic feet injection into US natural gas storage was less than consensus expectations of a 29 billion cubic foot addition to storage, while it was quite a bit more than the 5 billion cubic feet of natural gas that are normally added to gas storage during the first week of April....

for the coming week, the EIA's natural gas storage dashboard indicates that 131 billion cubic feet of natural gas were consumed in residential and commercial use; that compares to the 186 billion cubic feet used by residential and commercial accounts in the week we've just reported on...if other demand factors are little changed otherwise, we should see an injection of around 80 billion cubic feet of natural gas into storage with next week's report..

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 April 5th, indicated a modest increase our refinery usage of crude, with a corresponding decrease in our oil exports, and hence there was another surplus to add to our commercial supplies of crude for the third week in a row...our imports of crude oil fell by an average of 166,000 barrels per day to an average of 6,599,000 barrels per day, after rising by an average of 223,000 barrels per day the prior week, while our exports of crude oil fell by an average of 374,000 barrels per day to 2,349,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,250,000 barrels of per day during the week ending April 5th, 210,000 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 unchanged at a record 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 16,450,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,100,000 barrels of crude per day during the week ending April 5th, 251,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that 1,004,000 barrels of oil per day were being added to the oil that's in storage in the US.....therefore, 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 654,000 fewer barrels per day than what was added to storage plus 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 (+654,000) 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 that one or more of this week's oil metrics is in error 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 6,709,000 barrels per day last week, now 15.5% less than the 7,943,000 barrel per day average that we were importing over the same four-week period last year.... the 1,004,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be unchanged at 12,200,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,700,000 barrels per day, while a 2,000 barrel per day increase in Alaska's oil production to 484,000 barrels per day was not enough to make a difference in the rounded national total...last year's US crude oil production for the week ending April 6th was at 10,525,000 barrels per day, so this reporting week's rounded oil production figure was 15.9% 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 87.5% of their capacity in using 16,100,000 barrels of crude per day during the week ending April 5th, up from 86.4% of capacity the prior week, but still quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off....similarly, the 16,100,000 barrels per day of oil that were refined this week were down by 5.4% from the 17,019,000 barrels of crude per day that were being processed during the week ending April 6th, 2018, when US refineries were operating at 93.5% of capacity... 

with the increase in the amount of oil being refined, the gasoline output from our refineries was likewise higher, rising by 356,000 barrels per day to 10,169,000 barrels per day during the week ending April 5th, after our refineries' gasoline output had increased by 156,000 barrels per day the prior week....but even with those back to back increases in gasoline output, this week's gasoline production was only a bit more than the 10,150,000 barrels of gasoline that were being produced daily during the same week last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 168,000 barrels per day to 5,038,000 barrels per day, after that output had decreased by 55,000 barrels per day the prior week...but even after this week's increase, the week's distillates production was still 4.1% less than the 5,256,000 barrels of distillates per day that were being produced during the week ending April 6th, 2018.... 

even with the increase in our gasoline production, the supply of gasoline left in storage at the end of the week fell for the 8th week in a row, decreasing by 7,700,000 barrels to 229,129,000 barrels over the week to April 5th, after supplies had fallen by 1,781,000 barrels over the prior week....the draw from our gasoline supplies was much greater this week than last because the amount of gasoline supplied to US markets increased by 675,000 barrels per day to 9,806,000 barrels per day, after increasing by 7,000 barrels per day the prior week, and because our exports of gasoline rose by 41,000 barrels per day to 656,000 barrels per day while our imports of gasoline fell by 32,000 barrels per day 714,000 barrels per day...after having reached an all time record high ten weeks ago, our gasoline inventories are now 4.1% lower than last April 6th's level of 238,935,000 barrels, and have now fallen back to the five year average of our gasoline supplies at this time of the year...

even with the increase in our distillates production, our supplies of distillate fuels fell for the 21st time in twenty-eight weeks, but just by 116,000 barrels to 128,053,000 barrels during the week ending April 5th, after our distillates supplies had decreased by 1,998,000 barrels over the prior week...the draw on our distillates supplies was smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 377,000 barrels per day to 3,779,000 barrels per day, while our exports of distillates rose by 231,000 barrels per day to 1,374,000 barrels per day, while our imports of distillates fell by 46,000 barrels per day to 98,000 barrels per day...after this week's inventory decrease, our distillate supplies were fractionally lower than the 128,447,000 barrels that we had stored on April 6th, 2018, while remaining roughly 6% below the five year average of distillates stocks for this time of the year...

finally, with record oil production, lower oil exports, and ongoing sub-par refinery runs, our commercial supplies of crude oil in storage increased for the ninth time in 12 weeks, rising by 7,029,000 barrels over the week, from 449,521,000 barrels on March 29th to 456,550,000 barrels on April 5th...that increase was enough to lift our crude oil inventories fractionally above recent five-year average of crude oil supplies for this time of year, while rising to 33.3% above the prior 5 year (2009 - 2013) average of crude oil stocks after the first week of April, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had mostly 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 April 5th were 6.5% above the 428,638,000 barrels of oil we had stored on April 6th of 2018, but at the same time still 14.4% below the 533,377,000 barrels of oil that we had in storage on April 7th of 2017, and 9.6% below the 505,232,000 barrels of oil we had in storage on April 8th of 2016...        

OPEC's Monthly Oil Market Report

next we're going to review OPEC's April Oil Market Report (covering March OPEC & global oil data), which was released on Wednesday of this past week and was a major factor in the price rally we saw that day...this report 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 58 of that report (pdf page 68), 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...

March 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 534,000 barrels per day to 30,022,000 barrels per day in March, from their revised February production total of 30,557,000 barrels per day...however that February figure was originally reported as 30,549,000 barrels per day, so that means their production for March was, in effect, a 526,000 barrel per day decrease from the previously reported figures (for your reference, here is the table of the official February OPEC output figures as reported a month ago, before this month's revisions)...

once again, output cuts of 324,000 barrels per day by Saudi Arabia and 289,000 barrels per day by Venezuela alone accounted for this month's production reduction, with the drop in the oil output from Venezuela being largely involuntary, due to US sanctions on their exports....in addition, the 126,000 barrels per day cut in the output from Iraq now brings them pretty close to 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, leaving Nigeria as the sole OPEC member who is still producing in excess of their quota to any degree....this can be seen in the table of OPEC production allocations we've included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, and 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 shown 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 April 2017 to March 2019, and it comes from page 59 (pdf page 69) 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...

March 2019 OPEC report global oil supply

OPEC's preliminary estimate indicates that total global oil production fell by 0.14 million barrels per day to 99.26 million barrels per day in March, but that came after February's total global output figure was revised up by 25​0​,000 barrels per day from the 99.15 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 390,000 barrels per day in March after that revision, with increased oil output from US and Brazil the major reasons for the non-OPEC production increase.... the 99.26 million barrels per day produced globally in March was also 1.05 million barrels per day, or 1.1% higher than the revised 98.21 million barrels of oil per day that were being produced globally in March a year ago (see the April 2018 OPEC report online (pdf) for the originally reported March 2018 details)...after the March decrease in OPEC's output, their March oil production of 30,022,000 barrels per day represented just 30.2% of what was produced globally during the month, down from the 30.8% share they reported for February....OPEC's March 2018 production was reported at 31,958,000 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 1,674,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.6% of global output, with a 756,000 barrel per day drop in the output from Venezuela and a 1,116,000 barrel per day decrease in output from Iran from that time more than offsetting the year over year production increases of 195,000 barrels per day from the Emirates, 130,000 barrels per day from Libya, and 96,000 barrels per day from Iraq...   

however, despite the 0.14 million barrels per day decrease in global oil output seen during March, the upward revision to February's global output meant we still had a small surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

March 2019 OPEC report global oil demand

the table above comes from page 34 of the February 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 second column, we've circled in blue the figure that's relevant for March, which is their revised estimate of global oil demand during the first quarter of 2018...        

OPEC has estimated that during the 1st quarter of this year, all oil consuming regions of the globe have been using 99.02 million barrels of oil per day, which was the same as their estimate for the 1st quarter a month ago....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were still producing 99.26 million barrels per day during March, which means that there was a surplus of around 240,000 barrels per day in global oil production as compared to the demand estimated for the month...in addition, the upward revision of 25​0​,000 barrels per day to February's output​ that's implied in this report means that the global oil output surplus for February would now be revised to 380,000 barrels per day....that follows a 290,000 barrel per day global oil output surplus in January, so despite OPEC cuts now totaling more than 1.​6 million barrels per day​ over the first quarter of this year​, the global oil glut still persists...

we should also note that the previous estimate for 2018's oil demand was revised 20,000 barrels per day lower with this report, a figure which we've highlighted in a green ellipse...the 2018 demand table on page 33 of the March OPEC Monthly Oil Market Report (pdf page 43) shows that ​was because ​demand for the 4th quarter was revised 80,000 barrels per day lower, while oil demand for the remainder of 2018 was unrevised from previously published figures...that revision means that for all of 2018, global oil demand exceeded production by roughly 7,090,000 barrels, a comparatively tiny net oil shortfall that would be the equivalent of less than one hour and forty​-​five minutes of global production at the December production rate...  

This Week's Rig Count

US drilling rig activity decreased for the seventh time in eight weeks, with a surprising number of this week​'s ​changes ​occurring ​among natural gas rigs, while oil rigs ​still ​managed to eke out an increase for the 2nd week in a row.....Baker Hughes reported that the total count of rotary rigs running in the US fell by 3 rigs to 1022 rigs over the week ending April 12th, which was still 14 more rigs than the 1008 rigs that were in use as of the April 13th report of 2018, while well down from 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 2 rigs to 833 rigs this week, which was also 18 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 5 rigs to 189 natural gas rigs, which was also down by 4 rigs from the 192 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 1 rig to 23 rigs this week, which was also 7 more rigs than the 16 rigs active in the Gulf a year ago, which was coming off a record low at that time...meanwhile, the number of active horizontal drilling rigs decreased by 12 rigs to 899 horizontal rigs this week, which was the least horizontal rigs deployed since April 20th of last year, but still 6 more horizontal rigs than the 883 horizontal rigs that were in use in the US on April 13th of last year, while down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014.....on the other hand, the directional rig count increased by 8 rigs to 78 directional rigs this week, which was also up by 8 rigs from the 70 directional rigs that were in use during the same week of last year....in addition, the vertical rig count increased by 1 rig to 55 vertical rigs this week, which was the same as the number of vertical rigs that were operating on April 13th 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 April 12th, the second column shows the change in the number of working rigs between last week's count (April 5th) and this week's (April 12th) count, the third column shows last week's April 5th 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 13th of April, 2018...   

April 12 2019 rig count summary

as you can see, this week's ​rig count decrease was driven by the drop of 6 natural gas rigs in the Marcellus shale, 5 of which came out of Pennsylvania, and one of which was pulled from West Virginia...Pennsylvania's pullback was limited to 3 rigs, however, with the addition of two natural gas rigs in the Utica shale, one in Lawrence county and the other in Beaver county, with the latter going to a depth of less than 10,000 feet, strongly suggesting it was drilling in the Ohio valley or adjacent lowlands...meanwhile, the Utica shale also saw a rig addition in Ohio, to account for the 3 rig increase you see for the Utica above...on the other hand, two more natural gas rigs were pulled out of the Haynesville shale in northern Louisiana, while another natural gas ​rig​ was also pulled out of the Arkoma Woodford of Oklahoma, which also saw an oil rig shut down at the same time...lastly, a natural gas rig was added in an "other" basin not tracked separately by Baker Hughes, to leave us with the net decrease of 5 natural gas rigs that we reported earlier...note, however, that ​came by way of shutting down 8 rigs in the traditional dry gas plays of the Marcellus and Haynesville, and adding back three natural gas rigs in the liquids heavy Utica...that suggests that at least some of the drillers in the area may be shifting away from the underpriced dry natural gas into the more lucrative natural gas liquids, either to supply the Mariner East pipeline across Pennsylvania to the Marcus Hook refinery​,​ or​ to the coast​ for export, or ultimately as feedstock for the petrochemical crackers that are planned for the Ohio valley...

meanwhile, the two rig increase in the Permian basin masks quite a bit of movement​ inside the basin​, as 4 rigs were added in Texas Oil District 8, which corresponds to the core Permian Delaware, and 2 rigs were added in Texas Oil District 8, or the northern Permian Midland basin, while two Permian rigs were concurrently shut down in Texas Oil District 7C, or the southern Permian Midland basin...hence, since Texas added 4 Permian rigs, the two rigs shut down in New Mexico ​would have been in the Permian Delaware on their side of the state line..

in addition to the changes in the major producing states shown in the table above, we also have to note that Alabama had a rig added back this week after 5 weeks without, which was still down from the 2 rigs deployed in the state a year ago, that Mississippi also added a rig and now has 4 rigs drilling in the state, up from 2 rigs a year ago, and that the lone rig that started up in Nebraska last week was shut down this week...Nebraska has only seen drilling activity two other weeks out of the past year; one week in July and one week in October...

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Sunday, April 7, 2019

largest March natural gas surplus in 7 years on 5% drop in power generation; biggest rig count jump in 14 months

oil prices rose for a 5th straight week in continuing the rally that began after Christmas, and have now risen 37% since the beginning of the year...after rising 1.9% to $60.14 a barrel last week, largely on indications of tighter supplies globally, prices for US crude to be delivered in May continued to rally on Monday, rising $1.45, or 2.4%, to a new 2019 high of $61.59 a barrel, after better-than-expected manufacturing data from the US and China eased worries about slowing global growth and after a Reuters survey found that OPEC output fell to a four-year low in March... the Reuters report on the OPEC cuts pushed oil higher again on Tuesday, with prices rising 99 cents to $62.58 a barrel, as the shutdown of a key Venezuela export terminal and a report of a US shale output slowdown underpinned the ongoing rally...however, US crude prices broke below a key support level on Wednesday, after the EIA reported a surprisingly large build in US supplies, but still remained near their 5-month high in closing down 12 cents at $62.46 a barrel...US prices continued slumping on Thursday even as prices for Brent crude, the international benchmark briefly hit $70 a barrel on tight global supplies, with US crude settling 36 cents lower at $62.10 a barrel while Brent contracts for June delivery finished 9 cents higher at $69.40 a barrel...the rally in US crude resumed on Friday, after strong U.S. employment data tempered fears of weakening crude demand, as oil prices rose 98 cents to $63.08 a barrel amid fears that escalating conflict in Libya would further tighten global supplies, thus ending the week with a gain of almost 5%...

meanwhile, natural gas prices were little changed in subdued trading in a narrow range, as there is not much news to drive gas prices between the winter heating season and the summer, when demand again increases as natural gas peaking generators are fired up for air conditioning...after closing last week down 4% at $2.662 per mmBTU, natural gas for May delivery rose 4.6 cents on Monday, then fell 6.5 cents over the next three days, and then rose 2.1 cents on Friday to end the week priced at $2.664 per mmBTU, just two-tenths of a cent higher than its previous weekly close...

the natural gas storage report for the week ending March 29th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 23 billion cubic feet to 1,130 billion cubic feet over the week, which still left our gas supplies 228 billion cubic feet, or 16.8% below the 1,358 billion cubic feet that were in storage on March 30th of last year, and 551 billion cubic feet, or 30.9% below the five-year average of 1,635 billion cubic feet of natural gas that have typically remained in storage at the end of March in recent years....this week's 23 billion cubic feet injection into US natural gas storage was more than the 16 billion cubic feet addition that analysts surveyed by S&P Global Platts had expected, while it was a complete reversal of the average of 23 billion cubic feet of natural gas that are normally withdrawn from gas storage during the last week of March, an early injection which has not happened to that degree since March of 2012....

the magnitude of the addition of gas to storage was a surprise to most because it wasn't particularly warm during the reference week, as you can see on the map below that we've copied from the EIA's natural gas storage dashboard; in fact, the most densely populated states in the east and California all saw temperatures slightly below normal, which would usually lead to an above normal withdrawal...but the 15 billion cubic feet withdrawal in the East was actually a bit less than the 16 billion cubic feet average withdrawal over the past 5 years for the last week in March, while it was apparently warm enough in the South Central region to have 35 billion cubic feet of natural gas left over to add to storage, in contrast to the 5 billion cubic feet of natural gas that the region typically has in surplus for the same week of the year...the only explicable circumstance we see in reviewing the data for the past week was that natural gas consumption for electrical generation over the 48 states was lower than last year's each day of the reference week, and on several days was as much as or more than 10% lower, thus saving a total of 13 billion cubic feet of gas over those 7 days, or burning about 5% less natural gas than a year earlier....why that would happen is open to speculation, but it's possible that enough intermittent power from wind and solar kicked in over that week to displace natural gas generation, thus leading to the unusual March surplus...

April 6 2019 temperature anomolies for week ending March 28

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 March 29th, indicated a modest increase in our crude oil imports and a modest decrease in our oil exports, while refinery usage was little changed, and hence there was another ​surplus to add to our commercial supplies of crude, much of which was still unaccounted for nonetheless...our imports of crude oil rose by an average of 223,000 barrels per day to an average of 6,763,000 barrels per day, after falling by an average of 392,000 barrels per day the prior week, while our exports of crude oil fell by an average of 163,000 barrels per day to 2,723,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,040,000 barrels of per day during the week ending March 29th, 386,000 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 than last week at a record 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 16,240,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 15,849,000 barrels of crude per day during the week ending March 29th, 18,000 more barrels per day than the amount of oil they used during the prior week, while over the same period 1,034,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US.....therefore, 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 643,000 fewer barrels per day than what was added to storage plus 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 (+643,000) 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 that one or more of this week's oil metrics is in error 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 6,745,000 barrels per day last week, now 12.1% less than the 7,677,000 barrel per day average that we were importing over the same four-week period last year.... the 1,034,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be up by 100,000 barrels per day to a record 12,200,000 barrels per day because the rounded estimate for output from wells in the lower 48 states increased by 100,000 barrels per day to 11,700,000 barrels per day, while a 7,000 barrel per day decrease in Alaska's oil production to 482,000 barrels per day was not enough to make a difference in the rounded national total...last year's US crude oil production for the week ending March 30th was at 10,460,000 barrels per day, so this reporting week's rounded oil production figure was 16.6% 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 86.8% of their capacity in using 15,849,000 barrels of crude per day during the week ending March 29th, down from 86.6% of capacity the prior week, and quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off....similarly, the 15,849,000 barrels per day of oil that were refined this week were down by 6.4% from the 16,936,000 barrels of crude per day that were being processed during the week ending March 30th, 2018, when US refineries were operating at 93.0% of capacity... 

with little change in the amount of oil being refined, the gasoline output from our refineries was somewhat higher, rising by 156,000 barrels per day to 9,813,000 barrels per day during the week ending March 29th, after our refineries' gasoline output had decreased by 268,000 barrels per day the prior week....but even with that increase in the week's gasoline output, this week's gasoline production was still 3.0% less than the 10,115,000 barrels of gasoline that were being produced daily during the same week last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 55,000 barrels per day to 4,870,000 barrels per day, after that output had increased by 2,000 barrels per day the prior week...​and after this week's ​modest decrease, the week's distillates production was 2.9% less than the 5,016,000 barrels of distillates per day that were being produced during the week ending March 30th, 2018.... 

even with the increase in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 1,781,000 barrels to 236,839,000 barrels over the week to March 29th, after supplies had fallen by 2,883,000 barrels over the prior week....the draw from our gasoline supplies was smaller this week than last because our imports of gasoline rose by 58,000 barrels per day to 746,000 barrels per day while our exports of gasoline fell by 78,000 barrels per day to 615,000 barrels per day, while the amount of gasoline supplied to US markets increased by 7,000 barrels per day to 9,131,000 barrels per day, after decreasing by 285,000 barrels per day the prior week...after having reached an all time record high ten weeks ago, our gasoline inventories are now fractionally lower than last March 30th's level of 238,477,000 barrels, even as they remain roughly 2% above the five year average of our gasoline supplies at this time of the year...

with the ​modest decrease in our distillates production, our supplies of distillate fuels fell for the 20th time in twenty-eight weeks, decreasing by 1,998,000 barrels to 128,169,000 barrels during the week ending March 29th, after our distillates supplies had decreased by 2,075,000 barrels over the prior week...the draw on our distillates supplies was a bit smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 60,000 barrels per day to 4,156,000 barrels per day, and because our exports of distillates fell by 57,000 barrels per day to 1,143,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 144,000 barrels per day...with this week's inventory decrease, our distillate supplies ended the week 1.0% below the 129,491,000 barrels that we had stored on March 30th, 2018, while falling to roughly 6% below the five year average of distillates stocks for this time of the year...

finally, with higher oil production​, higher oil imports and lower oil exports, our commercial supplies of crude oil in storage increased for the eighth time in 11 weeks, rising by 7,238,000 barrels over the week, from 442,283,000 barrels on March 22nd to 449,521,000 barrels on March 29th...that increase was enough to bring our crude oil inventories back in line with the recent five-year average of crude oil supplies for this time of year, while remaining around 30% above the prior 5 year (2009 - 2013) average of crude oil stocks after the last week of March, with the disparity between those ​comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had mostly 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 March 29th were 5.7% above the 425,332,000 barrels of oil we had stored on March 30th of 2018, but at the same time still 16.1% below the 535,543,000 barrels of oil that we had in storage on March 31st of 2017, and 9.8% below the 498,598,000 barrels of oil we had in storage on April 1st of 2016...          

This Week's Rig Count

US drilling rig activity increased for the first time in seven weeks, as US E&P companies appear to be returning to the field after the largest single quarter pullback in 3 years....Baker Hughes reported that the total count of rotary rigs running in the US rose by 19 rigs to 1025 rigs over the week ending April 5th, the largest jump in rig activity since February 9th, 2018, and 22 more rigs than the 1003 rigs that were in use as of the April 6th report of 2018, while still well down from 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 15 rigs to 831 rigs this week, which was also 23 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations increased by 4 rigs to 194 natural gas rigs, which was the same number of natural gas rigs that were drilling a year ago, but way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

​even with the overall increase, ​drilling activity offshore in the Gulf of Mexico decreased by 1 rig to 22 rigs this week, which was still 10 more than the 12 rigs active in the Gulf a year ago, which was near a record low at that time...at the same time, a drilling platform was set up to drill ​through an inland body of water in southern Louisiana, where there are now 3 of those so-called "inland water rigs" active, still less than the 4 "inland waters" rigs active in the state a year earlier...

the ​number of active horizontal drilling rigs increased by 10 rigs to 901 horizontal rigs this week, which was also 17 more horizontal rigs active than the 884 horizontal rigs that were in use in the US on April 6th of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014.....at the same time, the vertical rig count increased by 3 rigs to 54 vertical rigs this week, which was still down by 2 rigs from the 56 vertical rigs that were in use during the same week of last year....in addition, the directional rig count increased by 6 rigs to 70 directional rigs this week, which was also up by 7 rigs from the 63 directional rigs that were operating on April 6th 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 April 5th, the second column shows the change in the number of working rigs between last week's count (March 29th) and this week's (April 5th) count, the third column shows last week's March 29th active rig count, the 4th column shows the change between the number of rigs running on Friday and t​he 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 6th of April, 2018...   

April 5 2019 rig count summary

as you can see, the 8 rig increase in the Permian basin of western Texas and New Mexico accounted for the lion's share of the week's horizontal rig increase, coming right after that basin had seen 10 rigs shut down over the previous two weeks...this week's Permian increases include 3 rigs that were added in Texas Oil District 8, which would correspond to the core Permian Delaware, and three rigs added in Texas Oil District 8A, which would be in the northern Permian Midland...meanwhile, one rig was pulled out of Texas Oil District 7C, or the southern Midland, which would thus mean there was a net increase of 5 Permian rigs in Texas, while 3 Permian rigs were added in New Mexico's Permian Delaware, which would include the ​Bone Spring formation...two more rigs were also added in Texas Oil District 6, which would include the natural gas producing Haynesville shale that Texas shares with northern Louisiana, but since that province of Louisiana shows no change, it's not clear whether Texas added 2 Haynesville rigs while Louisiana shut one down, or whether Texas added one Haynesville rig and another one in Texas Oil District 6 that was not targeting the Haynesville...other than that Haynesville addition, the only other natural gas rig changes were in the Marcellus, where 4 natural gas rigs were added in West Virginia, while one Marcellus rig was shut down in Pennsylvania...also note that other than the major producing states shown above, Nebraska also saw a rig added this week in only the third week of drilling activity in that state since July 2016...

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Sunday, March 31, 2019

first quarter oil prices rise most in 10 years; first quarter rig count drops most in 3 years

oil prices rose for a 4th straight week despite a Trump attempt to drive them lower this past week and thus ended March with the largest quarterly price increase since 2009...after rising just 0.4% to $59.04 a barrel last week, prices for US crude to be delivered in May drifted lower on Monday, as concerns about a global economic slowdown more than offset the prospect of tighter crude supply, with prices finishing 22 cents lower at $58.82 a barrel...but oil prices rose nearly 2 percent on Tuesday as traders turned their attention to geopolitical factors, including U.S. sanctions on Iran and Venezuela, that were tightening global supplies, with US crude ending $1.12 higher at $59.94 a barrel...an early Wednesday rally to $60.22 was cut short, however, when the EIA surprised traders by reporting ​an increase in US crude supplies and record production, with May WTI oil falling 53 cents for the day and settling at $59.41 per barrel...oil prices then fell more than 2% to $58.20 on Thursday morning, after Trump tweeted it's 'very important that OPEC increase the flow of oil' because prices are too high, but then recovered from those losses and subsequently rallied above pre-tweet levels before slipping back to settle 11 cents lower at $59.30 a barrel..​.​.momentum from the Trump tweet recovery carried into Friday, as oil prices opened 23 cents higher and then rallied to as high as $60.73 a barrel after weekly data from Baker Hughes showed the number of oil rigs fell by eight and went on to close 84 cents, or 1.4% higher at $60.14 a barrel, the highest closing price since Nov. 9th and a 32% increase ​over the first quarter, the​ ​biggest quarterly rise in a decade...

with all the media headlines touting that largest quarterly oil price rise since 2009, it seems a little perspective is in order, so we'll include a graph that shows daily US oil prices over the last six months...

March 30 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 October 1st, 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...so while you can see that prices have rallied steadily since the first of the year, and are now up 32% for the 1st quarter, they are still more than 21% lower than the 4 year high of $76.41 a barrel that they closed at on October 3rd 2018, less than 6 months ago...put another way, while prices are up $18 from their Christmas​ eve​ low, they're still $16 below where they were in early October (​and ​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..  

while oil prices were pushing higher, natural gas prices fell quite steadily on progressively warmer April forecasts following a gain of just two-tenths of a cent on Monday...quoting natural gas for April delivery at the beginning of the week, prices for that contract fell 4​.2​ cents ​over the next two days ​before expiring at $2.713 per mmBTU on Wednesday...then natural gas prices for May delivery, which had ended last week priced at $2.767 per mmBTU and had fallen 4.8 cents by Wednesday's close, ​​fell another seven-tenths of a cent on Thursday and 5 cents more on Friday to end the week down 10.5 cents at $2.662 per mmBTU, pressured by warm weather and the report of a weak supply draw...

the natural gas storage report for the week ending March 22nd from the EIA ​showed that the quantity of natural gas held in storage in the US fell by 36 billion cubic feet to 1,107 billion cubic feet over the week, which meant our gas supplies ended the period 285 billion cubic feet, or 20.5% below the 1,392 billion cubic feet that were in storage on March 23rd of last year, and 551 billion cubic feet, or 33.2% below the five-year average of 1,658 billion cubic feet of natural gas that have typically remained in storage after three full weeks of March....this week's 36 billion cubic feet withdrawal from US natural gas supplies was slightly more than the 33 billion cubic feet withdrawal that analysts surveyed by S&P Global Platts had expected, but it was less than the average of 41 billion cubic feet of natural gas that have been withdrawn from US gas storage during the same March week over the last 5 years.... 

with the past week's temperatures generally above normal over the lower 48 states, and with Cheniere's Sabine Pass LNG export faculty partly down for maintenance, it appears that this will have been the last storage report of this heating season to show a draw on supplies, as most heating needs in the moderate temperatures of April should be able to be met out of current production...analysts at S&P Global Platts are calling for an injection of 16 billion cubic feet of natural gas into storage for the week ending March 29th and then a 32 billion cubic feet injection for the following week...the national weather service's 8 to 14 day forecast ​on Saturday ​had indicated a high probability of much above normal temperatures for every place east of the Great Plains, and a better than average chance of above normal temperatures almost everywhere else, so the chances of a late winter cold spell affecting supplies nationally now seem slim...that does not preclude some areas still seeing natural gas shortfalls, though...as Platts points out, the 62 billion cubic feet left in storage in the Rockies region is almost one-quarter lower than at any other time in EIA's historical data, and further draws were expected on nearly empty regional storage fields this weekend as a cold front sweeps the region...but from after that until next fall, we should be seeing additions to storage, so the immediacy we've associated with these reports over the past several months should now be by the boards...

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 March 22nd, indicated modest decreases in both our crude oil imports and our oil exports, but an addition to our commercial supplies of crude, as oil that was unaccounted shifted from the demand side of the balance sheet last week to the supply side this week...our imports of crude oil fell by an average of 392,000 barrels per day to an average of 6,540,000 barrels per day, after rising by an average of 186,000 barrels per day the prior week, while our exports of crude oil fell by an average of 506,000 barrels per day to 2,886,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,654,000 barrels of per day during the week ending March 22nd, 114,000 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 unchanged from last week at 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 15,754,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 15,831,000 barrels of crude per day during the week ending March 22nd, 367,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 400,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US.....therefore, 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 477,000 fewer barrels per day than what was added to storage plus 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 (+477,000) 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"....since last week's unaccounted oil was at -812,000 barrels per day, that means 1,289,000 million barrels of oil per day miraculously appeared on the US oil balance sheet from one week to the next, meaning that any comparison of figures from this week to last week is pretty much 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 6,805,000 barrels per day last week, still 11.7% less than the 7,703,000 barrel per day average that we were importing over the same four-week period last year.... the 400,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be unchanged at 12,100,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,600,000 barrels per day, while a ​5,000 barrel per day increase in Alaska's oil production to 48​9,000 barrels per day was not enough to make a difference in the rounded national total...last year's US crude oil production for the week ending March 23rd was at 10,433,000 barrels per day, so this reporting week's rounded oil production figure was 16.0% 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 86.6% of their capacity in using 15,831,000 barrels of crude per day during the week ending March 22nd, down from 88.9% of capacity the prior week, and quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off....​similarly, the 15,831,000 barrels per day of oil that were refined this week were down by 5.7% from the 16,795,000 barrels of crude per day that were being processed during the week ending March 23rd, 2018, when US refineries were operating at 92.3% of capacity... 

with the decrease in the amount of oil being refined, the gasoline output from our refineries was also lower, falling by 268,000 barrels per day to 9,657,000 barrels per day during the week ending March 22nd, after our refineries' gasoline output had increased by 190,000 barrels per day the prior week....with that decrease in the week's gasoline output, this week's gasoline production was 6.3% less than the 10,305,000 barrels of gasoline that were being produced daily during the same week last year....​at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) ​inched up​ by 2,000 barrels per day to 4,925,000 barrels per day, after that output had increased by 67,000 barrels per day the prior week...but after this week's small increase, the week's distillates production was 1.7% above the 4,844,000 barrels of distillates per day that were being produced during the week ending March 23rd, 2018.... 

with the decrease in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 2,883,000 barrels to 238,620,000 barrels over the week to March 22nd, after supplies had fallen by 4,587,000 barrels over the prior week....the draw from our gasoline supplies was smaller this week than last because the amount of gasoline supplied to US markets decreased by 285,000 barrels per day to 9,124,000 barrels per day, after increasing by 269,000 barrels per day the prior week, while our exports of gasoline rose by 34,000 barrels per day to 693,000 barrels per day, and while our imports of gasoline fell by 105,000 barrels per day to 688,000 barrels per day...after having reached a record high nine weeks ago, our gasoline inventories are now fractionally lower than last March 23rd's level of 239,593,000 barrels, even as they remain roughly 2% above the five year average of our gasoline supplies at this time of the year...

with little change in our distillates production, our supplies of distillate fuels fell for the 19th time in twenty-seven weeks, decreasing by 2,075,000 barrels to 130,167,000 barrels during the week ending March 22nd, after our distillates supplies had decreased by 4,127,000 barrels over the prior week...the draw on our distillates supplies was smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 490,000 barrels per day to 4,216,000 barrels per day, and because our imports of distillates rose by 93,000 barrels per day to 195,000 barrels per day, while our exports of distillates rose by 291,000 barrels per day to 1,200,000 barrels per day...but even with this week's inventory decrease, our distillate supplies ended the week 1.0% above the 128,954,000 barrels that we had stored on March 23rd, 2018, while falling to roughly 5% below the five year average of distillates stocks for this time of the year...

finally, with the sudden reappearance of some of the crude that had gone missing for two weeks, our commercial supplies of crude oil in storage increased for the seventh time in 10 weeks, rising by 2,800,000 barrels over the week, from 439,483,000 barrels on March 15th to 442,283,000 barrels on March 22nd...however, with a total draw of over 13.4 million barrels in the 2 previous weeks, our crude oil inventories were still roughly 2% below the recent five-year average of crude oil supplies for this time of year, while remaining around 30% above the prior 5 year (2009 - 2013) average of crude oil stocks after the third full week of March, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had mostly 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 March 22nd were still 2.9% above the 429,949,000 barrels of oil we had stored on March 23rd of 2018, but ​at the same time, still 17.2% below the 533,977,000 barrels of oil that we had in storage on March 24th of 2017, and 12.2% below the 503,816,000 barrels of oil we had in storage on March 25th of 2016...        

This Week's Rig Count

US drilling rig activity fell for the sixth week in a row and is now down by more that 7% so far this year, which is the largest drilling pullback in any quarter since the first quarter of 2016....Baker Hughes reported that the total count of rotary rigs running in the US fell by 10 rig to 1016 rigs over the week ending March 29th, which was still 13 more rigs than the 993 rigs that were in use as of the March 30th report of 2018, but down from 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 8 rigs to 816 rigs this week, which was still 19 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 2 rigs to 190 natural gas rigs, which was 4 rigs less than the 194 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 3 rigs to 23 rigs this week, which was more than double the 11 rigs active in the Gulf a year ago, which was the lowest on record at that time...at the same time, a drilling platform set up on an inland body of water in southern Louisiana was shut down, leaving just two of those so-called "inland water rigs" ​left ​active, in contrast to the 4 inland waters rigs active in the state a year earlier...

the count of active horizontal drilling rigs decreased by 9 rigs to 891 horizontal rigs this week, which was still 21 more horizontal rigs active than the 870 horizontal rigs that were in use in the US on March 30th of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014.....at the same time, the vertical rig count decreased by 2 rigs to 51 vertical rigs this week, which was also down by 12 rigs from the 63 vertical rigs that were in use during the same week of last year....on the other hand, the directional rig count increased by 1 rig to 64 directional rigs this week, which was also up by 4 rigs from the 64 directional rigs that were operating on March 30th 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 March 29th, the second column shows the change in the number of working rigs between last week's count (March 22nd) and this week's (March 29th) count, the third column shows last week's March 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and those 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 30th of March, 2018...  

March 29 2019 rig count summary

for the second week in a row, half of this week's rig decrease was due to rigs being shut down in the Permian of western Texas and New Mexico, where a total of 4,004 uncompleted wells could be reducing their incentive to drill more...​this week, ​all 5 of those Permian rig reductions were pulled out of Texas Oil District 8, which would correspond to the core Permian Delaware, while Permian rigs in New Mexico and the Midland basin were unchanged...also in Texas, another 5 oil rigs were pulled out of the Eagle Ford​ in the southeast​, where a 9th natural gas rig was concurrently started up...Texas drillers managed to hold the statewide reductions to 6 rigs primarily through the addition of 3 rigs in the panhandle Texas Oil District 10, two of which were the Granite Wash ​basin ​additions you see above, with one of those targeting natural gas...the once highly touted STACK/SCOOP play in the Cana Woodford of Oklahoma also saw a 3 rig reduction this week and is now down by 14 rigs from a year ago, while the old Bakken shale in the Williston basin saw three rigs added and is now pulling ahead of its year ago totals...despite the 2 gas additions we've cited, natural gas rigs ended down two because one of the 3 natural gas rigs that had been drilling in the Arkoma Woodford of Oklahoma was replaced by an oil rig, and 3 natural gas rigs in basins not tracked separately by Baker Hughes were concurrently shut down...also note that other than the usual major producing states shown above, Virginia also saw a ​directional ​drilling rig start up ​in Campbell County ​this week, in only the second time there was drilling activity in the state since 2014...

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