natural gas prices crash, oil slips below $50, inventories down again as imports stay low, etal

we're going to start today by explaining what natural gas prices did this week, and to that avail we have a couple graphs that will illustrate what happened...as you should recall, we've picked up natural gas coverage over the past few weeks as prices started rising out of the depressed range they'd been in for nearly 2 years, as they rose more than 10% to a 21 month high three weeks ago, then added 5% more to that to hit a 22 month high the week after that, before falling 10% from their highs last week...prices the front month November contract continued to fall this week, dropping another 9%, until that contract expired on Wednesday afternoon...then, with the December contract price now being quoted as "the price of natural gas", that price then inched back up about 1% in each of the last two days of the week...to show how this transpired, we'll start with a graph of the expiring November contract for natural gas, as of Wednesday, October 26th:

the above graph shows the November contract price up til Wednesday for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...here we can see how the price of gas broke out of the prior range below $3 per mmBTU earlier this month, as it ran up to $3.341 per mmBTU on Thursday October 14th, as forecasts indicated above normal temperatures for the next two weeks and natural gas analysts wrote that there'd be a spike in natural gas power generation to meet the needs of above normal air conditioning use...however, by last week that story changed, as analysts advised that warmer weather would reduce consumption of gas for heating, and gas prices subsequently fell to $2.993 mmBTU by Friday of last week...as you see above, the price for that November contract then fell every day this week, dropping to $2.831 per mmBTU on Monday, to $2.774 on Tuesday, and finally to $2.731 per mmBTU on Wednesday, when exchange trading in gas for delivery in November expired...and judging by the pickup in volume on the last two days, we'd have to guess that a lot of those traders who bought gas at the top expecting a fall surge in air conditioning to soak up surplus gas supplies had to sell out of their positions at some fairly steep losses before the November contract went off the boards...

next we have a graph of natural gas prices at the close of trading on Thursday, October 27th, as the price now being quoted is for the December contract; the November gas contract is gone...notice the ticker symbol above the graph is NGZ16, representing trading for the December 2016 contract...note also that the labeling on the first graph above was NGX16, representing prices for the November 2016 contract...(for anyone interested, info and symbols for dozens of other natural gas futures contracts are here)

this Thursday graph now shows the December contract price for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Henry Hub in Louisiana...you'll notice the prior day's $2.731 per mmBTU price is now gone, as December natural gas closed Wednesday trading more than 30 cents higher at $3.046 per mmBtu, before increasing 3.2 cents on Thursday to finish at $3.068 per mmBtu, as the above graph shows...you'll also notice that the high for this December contract approached $3.54 per mmBtu on October 14th, roughly 20 cents higher than the highest price seen for natural gas in November...that prices are higher in the winter months is typical for natural gas, as that's when most utility users want to take delivery, so other things being equal, there's clearly money to be made by middlemen who store gas until winter...as of the end of trading on Friday, natural gas for January was trading at $3.287 per mmBtu, 18.2 cents higher than the $3.105 per mmBTU that natural gas for December closed the week at..

meanwhile, oil prices were also lower this week, dropping every day except Thursday, falling below $50 a barrel on Tuesday for the first time since October 4th, and generally trending lower from there for the rest of the week...after closing lower last week at $50.85 a barrel, U.S. crude prices briefly dipped below $50 per barrel on Monday afternoon, on news of the impending restart of Britain's North Sea Buzzard oilfield and word that Iraq wanted to be exempted from OPEC production cuts, but recovered to close Monday at $50.52 a barrel...prices then edged up early on Tuesday ahead of the release of American Petroleum Institute crude inventory data, but then fell more than 1% in the afternoon to close at a three week low of $49.96 a barrel as Iraq argued that their war against ISIS was a justification for their exclusion from the coordinated OPEC production cuts...oil prices then jumped more than $1 after noon on Wednesday, after the EIA reported a surprise draw from US crude stocks, but gave back most of those gains in the next three hours and as traders focused on the unraveling OPEC deal and an increase in US oil production, and ultimately closed lower at $49.18 a barrel...oil prices then rose on Thursday after it was reported that the Saudis and their Gulf allies told the Russians that they were willing to reduce their peak oil output by up to 4%, with prices ending the day at $49.72 a barrel...selling then reintensified on Friday after word came out that Iraq & Iran were both refusing to freeze their output, and oil went on to close at $48.70 a barrel, down nearly 4.3% for the week, the largest weekly loss since mid-September…

The Latest Oil Stats from the EIA

this week's oil data for the week ending October 21st from the US Energy Information Administration indicated that our oil imports remained near the depressed level of the prior week, when Hurricane Matthew was still active, while refinery utilization increased modestly from last week's 43 month lows, hence resulting in another small draw down of our oil supplies...however, we once again saw a large swing in the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance, as it swung to +368,000 barrels per day, from last week's -312,000 barrels per day, which means that 368,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures...that of course means that one or several of this week's metrics were off by that amount, and once again the total 680,000 barrel per day difference from last week makes the comparison of last week’s metric to this week’s virtually meaningless..however, it is that data and those distorted comparisons which move oil prices and hence drilling activity, so we'll continue to review them for whatever insights they provide into what the oil traders are thinking...

with that thought in mind, then, the EIA reported that our imports of crude oil increase by an average of 109,000 barrels per day to an average of 7,016,000 barrels per day during the week ending October 21st, which except for last week, was still the least oil we've imported in any other week this year...that left this week's oil imports down fractionally from the 7,032,000 barrels of oil per day we imported during the corresponding week a year ago, and hence this was only the second week this year that our imports fell below year ago totals ...as a result, the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell to an average of 7.4 million barrels per day and was just 2.1% higher than the same four-week period last year...at the same time, our exports of crude oil were slightly lower, falling by an average of 24,000 barrels per day to an average of 415,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 504,000 barrels per day for the same week, since the EIA has recently switched to reporting Custom's export data, rather than use estimates based on untimely export stats from the Census Bureau..

meanwhile, the EIA reported that production of crude oil from US wells rose by 40,000 barrels per day to an average of 8,504,000 barrels per day during the week ending October 21st, as output from Alaskan fields rose by 12,000 barrels per day while production from the lower 48 states was 28,000 barrels per day higher....that still left the week's domestic oil production 6.7% lower than the 9,112,000 barrels we produced during the week ending October 23rd of last year, and 11.5% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th last year...our oil production for the week ending October 21st was also 715,000 barrels per day, or 7.8% lower, than what we were producing at the beginning of this year, which we're citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015...

for the same week, the amount of crude oil used by US refineries rose by an average of 182,000 barrels per day to an average of 15,552,000 barrels of crude per day, the first refining increase in 7 weeks, as our refinery utilization rate rose to 85.6% during the week, up from last week's 43 month utilization low of 85.0%, but down from the refinery utilization rate of 87.6% seen during the week ending October 23rd last year...US oil refining is still down by 11,376,000 barrels per day, or by 8.1%, in the 7 weeks since Labor Day, as the refinery utilization rate has tumbled from 93.7% over that span .. the crude refined this week nationally was also below the 15,616,000 barrels of crude per day US refineries used during the week ending October 23rd last year, while it was still 2.8% more than 15,129,000 barrels per day that were refined during the equivalent week in 2014...

with the pickup in refining, the EIA reported that refineries’ production of gasoline increased by 339,000 barrels per day to 9,837,000 barrels per day during the week ending October 21st, which meant our gasoline output for this week was 1.4% higher than the gasoline output of 9,703,000 barrels per day during the week ending October 23rd last year, and 8.4% higher than the gasoline production during the equivalent week of 2014....however, at the same time refinery output of distillate fuels (diesel fuel and heat oil) fell by 63,000 barrels per day to 4,536,000 barrels per day during the week ending October 21st, which left the week's distillates output 7.0% lower than the 4,877,000 barrels per day that was being produced during the same week last year, while it was still; 1.5% more than than the 4,471,000 barrels per day of distillates we produced during the equivalent week of 2014...   

however, even with the big increase in gasoline production, our gasoline supplies fell by 1,956,000 barrels to 227,967,000 barrels as of October 21st, as our domestic consumption of gasoline rose by 320,000 barrels per day to 9,118,000 barrels per day and as our gasoline imports fell by 37,000 barrels per day to 834,000 barrels per day....even with this week's drop in supplies, however, the end of the week gasoline inventories were still 3.4% higher than the 218,647,000 barrels of gasoline that we had stored on October 23rd of last year, and 11.3% higher than the 203,138,000 barrels of gasoline we had stored on October 24th of 2014....at the same time, our distillate fuel inventories fell by 3,354,000 barrels to 152,378,000 barrels by October 21st, the 5th consecutive large drop in our distillate supplies....however, even after the withdrawal of 16.4 million barrels of distillates from storage over those 5 weeks, our distillate inventories were still 7.3% higher than the distillate inventories of 142,057,000 barrels of October 23rd last year, and 26.6% above the distillate inventories of 120,377,000 barrels of October 24th, 2014....

lastly, with ongoing low oil imports, our inventories of crude oil fell by 553,000 barrels to 468,158,000 barrels by October 21st, the 7th drop in our oil supplies in 8 weeks...with two hurricanes disrupting imports over that span, our oil supplies have thus fallen more than 27 million barrels, or 5.5% over 8 weeks, at a time of year when oil supplies are usually rising, and are now down 8.6% below their April 29th peak of 512,095,000 barrels...nonetheless, we still ended the week with 4.5% more crude oil in storage than the 447,994,000 barrels we had stored as of the same weekend a year earlier, and 34.3% more crude oil than the 348,475,000 barrels we had stored on October 24th of 2014...  

This Week's Rig Count

while total drilling activity increased for the 6th week in a row during the week ending October 28th, drilling for oil fell for the first time in 18 weeks...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 4 rigs to 553 rigs by Friday, the most active rigs we've seen since February 5th, as drilling has now increased 18 out of the last 21 weeks...nonetheless, that total was still down from the 775 rigs that were deployed as of the October 30th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil fell by 2 rigs to 441 rigs this week, as oil rig activity remains down from the 578 oil directed rigs that were working a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 6 rigs to 114 rigs, which still left active gas rigs down from the 197 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...two working rigs also remain that are classified as miscellaneous, in contrast to a year ago, when no such miscellaneous rigs were active...

the number of working horizontal drilling rigs increased by 5 rigs to 450 rigs this week, which was still down from the 577 horizontal rigs that were in use on October 30th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, three directional drilling rigs were also added, bringing the directional rig count up to 54, which was nonetheless down from the 86 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was cut by 4 rigs to 53 rigs this week, which was also down from the 110 vertical rigs that were drilling in the US during the same week last year...also included in this week's variances, one of the rigs that had been working on a drilling platform offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 21, and also reduced the total US offshore count to 22 rigs, as we still have a rig working offshore from Alaska.... those numbers are down from the 32 rigs that were working in the Gulf of Mexico last year at this time, and down from the total of 33 offshore rigs active a year ago…

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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 28th, the second column shows the change in the number of working rigs between last week (October 21st) and this week (October 28th), the third column shows last week's October 21st active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week's case was for October 30th of 2015... 

what's probably most notable this week is the addition of 5 oil drilling rigs in the Williston basin of North Dakota, better known as the Bakken....this comes despite the aggregate decrease in oil rigs this week, and marks the first time the Bakken has seen an increase of more than two rigs in any one week since September of 2014, maybe indicating that oil prices over $50 for the prior three weeks was enough to move Bakken drillers to the field...on the other hand, those prices did not encourage drillers in Colorado, who pulled out three rigs, including 2 in the Niobrara, their biggest pullback since January...we can also easily account for 5 of the 6 gas directed rigs that were added this week, with the increase of 3 rigs in the Haynesville of northwestern Louisiana and northeastern Texas, and the 2 rigs that were added in the Marcellus in Pennsylvania...we might expect to see those pulled out soon if natural gas prices continue their recent decline...we should also note that among the states not shown above, Indiana also had a rig pulled out this week, leaving them with just one rig active..that's still one rig more than they had a year ago, however, as the state went through the second half of 2015 without any drilling at all...

note: more related news can be found here...

oil hit 15 mo high, imports at 16 mo low, refinery utilization at 43 mo low, gasoline use at 9 mo low, rigs up at fastest rate since 2010, DUCs down, et al

driven by a falling dollar and reports of falling crude supplies, oil prices rose to a 15 month high midweek, before dropping back on Thursday, when the dollar jumped to an 8 month high and trading in the November oil contract expired...after closing last week with a small gain at $50.35 a barrel, US WTI oil prices opened higher Monday morning before later falling on word that Iran planned to boost its oil output to 4 million barrels, as they joined Iraq in protesting that the OPEC production estimates coming out of the Algiers meeting were too low, with prices ending the day below $50 at $49.94 a barrel...prices then rose on Tuesday after the American Petroleum Institute reported a 3.8 million barrel drop in crude supplies while the dollar fell, sending WTI prices higher to close at $50.29 a barrel...oil prices then spiked on Wednesday after the EIA reported an even larger inventory drop of more than 5 million barrels, as oil rose 2.6% to close at at a 15 month high of $51.60...with the dollar resurgent on Thursday and traders noticing concurrent large increase in gasoline supplies, oil gave up most of its Wednesday gains, with the expiring November contract down $1.17, or 2.3 percent, to finish at $50.43 a barrel, while the new front month December contract simultaneously slid $1.19 to settle at $50.63 a barrel....oil for December, now the quoted contract, then steadied on Friday as the dollar eased off eight-month highs while the weekly oil rig count showed drilling still growing, and closed the week at $50.85

meanwhile, natural gas prices, which had hit a 22 month high at $3.341 per mmBTU on Thursday of last week, slowly retreated early this week until Friday, when they fell  nearly 15 cents in a week that saw the November contract price drop 10% from last weeks high...falling from last week's close of $3.285 per mmBTU to close at $3.244 per mmBTU on Monday, gas prices then inched back to $3.263 per mmBTU on Tuesday as analysts continued to cite lower gas production and forecasts for a colder winter...but prices slipped to $3.170 on Wednesday and then to $3.141 per MMBtu on Thursday, after the EIA reported there was a 77 billion cubic feet injection to storage in the week ended October 14th, 5 billion cubic feet more than analysts had expected... prices then fell 14.8 cents, or 4.7%, to $2.993 mmBTU, to a new two-week low on Friday, pressured by those high stockpile levels and "concerns over demand amid warm weather forecasts"...now, while there isn't much news on what drives natural gas prices, we would note that as prices rose over the past few weeks, market commentary was that prices were rising due to forecasts of much warmer than normal weather, which traders apparently believed would translate into greater electricity generation than normal to meet an unseasonable demand for air conditioning (presumably in states south of us)....this week that story was turned on its head, as we're now being told that natural gas prices fell due to warmer-than-normal weather for this time of the year.

The Latest Oil Stats from the EIA

this week's oil data for the week ending October 14th from the US Energy Information Administration indicated a drop of nearly a million barrels per day in our oil imports, largely due to disruptions caused by Hurricane Matthew, and hence a large drop in our supply of oil by the end of the week...however, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -312,000 barrels per day, from last week's +415,000 barrels per day, which means that 312,000 barrels of oil per day that we appeared to have produced or imported last week did not even show up in the final oil consumption or inventory figures....needless to say, that -726,000 barrel per day swing in the balance sheet adjustment will mean most of our week over week comparisons will be virtually meaningless, and moreover, since the year ago adjustment was at +451,000 barrels per day, the year over year comparisons will be similarly distorted...still, it is this data and those distorted comparisons which move oil prices and hence drilling activity, so we'll continue to review them for whatever insights they provide into what the oil traders are looking at.....year to date, the cumulative daily average of that fudge factor has fallen to -25,000 barrels per day, so it appears that most of oil that disappears from the statistics over one period still seems to be finding its way back into the data in subsequent weeks...

with that in mind, then, the EIA reported that our imports of crude oil fell by an average of 954,000 barrels per day to an average of 6,907,000 barrels per day during the week ending October 14th, which was the least oil we've imported in any week since the week ending June 19th 2015, a time when US oil production was at it's peak...widely seen as the result of the disruption to ship traffic into the Gulf coast ports caused by Hurricane Matthew, this week's oil imports were 564,000 barrels per day, or 7.5% lower than the 7,471,000 barrels of oil per day we imported during the corresponding week a year ago and the first week this year that our imports fell below year ago totals ...as a result, the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell to an average of 7.6 million barrels per day, now just 3.1% higher than the same four-week period last year...meanwhile, our exports of crude oil were also lower, falling by an average of 42,000 barrels per day to an average of 439,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 526,000 barrels per day in the same week, since the EIA has recently switched to reporting Custom's export data, rather than use estimates based on untimely export stats from the Census Bureau..

for the same week, the EIA reported that production of crude oil from US wells rose by 14,000 barrels per day to an average of 8,464,000 barrels per day, as output from Alaskan fields rose by 8,000 barrels per day while production from the lower 48 states was 6,000 barrels per day higher....that still left the week's domestic oil production 6.9% lower than the 9,096,000 barrels we produced during the week ending October 16th of last year, and 11.9% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th last year...our oil production for the week ending October 14th was also 755,000 barrels per day, or 8.2% lower, than what we were producing at the beginning of this year, which was an interim high after our otherwise declining production had also been rising in the last few months of 2015...

meanwhile, the amount of crude oil used by US refineries fell by an average of 182,000 barrels per day to an average of 15,370,000 barrels of crude per day during the week ending October 14th, the sixth significant refining cutback in a row, as our refinery utilization rate fell to a 43 month low of 85.0% for the week, down from 85.5% of capacity the prior week, and down from the refinery utilization rate of 86.6% seen during the week ending October 16th last year...US oil refining has now slowed by 1,552,000 barrels per day, or by 9.2%, in the 6 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the amount of crude oil refined this week nationally was still up a bit from the 15,345,000 barrels of crude per day US refineries used during the week ending October 16th last year, and 1.1% more than was refined during the equivalent week in 2014 ... 

with the moderate drop in the amount of oil used by refineries for the week, the EIA reported that refineries’ production of gasoline fell by 437,000 barrels per day to 9,498,000 barrels per day during the week ending October 14th, as our gasoline output fell nearly a percent below the gasoline output of 9,579,000 barrels per day during the week ending October 16th last year, while it remained 2.0% higher than the gasoline production during the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) rose by 103,000 barrels per day to 4,599,000 barrels per day during the week ending October 14th....however, the week's distillates output was still 2.7% lower than the 4,728,000 barrels per day that was being produced during the same week last year, and a bit less than the 4,604,000 barrels per day of distillates we produced during the equivalent week of 2014...   

however, even with the large drop in gasoline production, our gasoline supplies rose by 2,469,000 barrels to 227,967,000 barrels as of October 14th, the largest one week increase in gasoline supplies since the 12th of February....that happened as our domestic demand for gasoline fell by 466,000 barrels per day to 8,798,000 barrels per day, the lowest weekly consumption since January, and as our imports of gasoline rose by 109,000 barrels per day to 871,000 barrels per day....with this week's increase, our gasoline inventories were thus 3.7% higher than the 219,784,000 barrels of gasoline that we had stored on October 16th of last year, and 11.5% higher than the 204,374,000 barrels of gasoline we had stored on October 10th of 2014...at the same time, our distillate fuel inventories fell by 1,240,000 barrels to 155,732,000 barrels by October 14th, which nonetheless still left our distillate inventories 7.4% above the distillate inventories of 145,008,000 barrels of October 16th last  year, and 23.9% above the distillate inventories of 125,671,000 barrels of October 17th, 2014....

lastly, with the large drop in oil imports, our inventories of crude oil fell by 5,247,000 barrels to 468,711,000 barrels as of October 14th, the 6th drop in our oil supplies in 7 weeks...with two hurricanes disrupting imports over that span, our oil supplies have thus fallen 5.4% over 7 weeks at a time of year when supplies usually rise, and are now down 8.5% below their April 29th peak of 512,095,000 barrels...nonetheless, we still ended the week with 5.4% more crude oil in storage than the 444,618,000 barrels we had stored as of the same weekend a year earlier, and 35.3% more crude oil than the 346,414,000 barrels we had stored on October 17th of 2014...  

This Week's Rig Count

US drilling activity increased for the 5th week in a row during the week ending October 21st, and has now increased 17 out of the last 20 weeks, following a 39 week stretch that hadn't seen any drilling increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 14 rigs to 553 rigs by Friday, an eight month high, which was still down from the 787 rigs that were deployed as of the October 23th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...we've now seen 29 drilling rigs added over the last two weeks, the most rigs added in a two week period since April of 2014, and percentage wise an increase we'd have to go back to early 2010 to match...

the number of rigs drilling for oil rose by 11 rigs to 432 rigs this week,  as oil rigs have now been rising for 17 straight weeks without a retreat, but they're still down from the 594 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations was up by 3 rigs to 108 rigs, which still left active gas rigs down from the 193 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...two working rigs also remain that are classified as miscellaneous, in contrast to a year ago, when no such miscellaneous rigs were active...

offshore drilling activity was again unchanged at 23 rigs, now down from 34 a year earlier, while 1 rig which had been drilling on an inland lake in southern Louisiana was removed, leaving two rigs still active on inland waters, down from 3 such rigs a year ago...the number of working horizontal drilling rigs increased by 14 rigs to 445 rigs this week, which was still down from the 591 horizontal rigs that were in use on October 23rd of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was unchanged at 57 rigs this week, which was down from the 109 vertical rigs that were drilling in the US during the same week last year, and at the same time, the directional rig count was also unchanged at 51 rigs, which was down from the 87 directional rigs that were deployed during the same week last year...

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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 21st, the second column shows the change in the number of working rigs between last week (October 14th) and this week (October 21st), the third column shows last week's October 14th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week's case was for October 23rd of 2015           

it's pretty clear from the above that the major story in this week's drilling increase took place in the Permian basin of western Texas, where 11 rigs were added, and hence accounted for most of the Texas increase of 10 wells...noting the two rig increase in the Eagle Ford of south Texas, and no other obvious Texas reductions, we'd have to assume that the two rigs added in New Mexico were also in the Permian, just on the other side of the Texas border...also noteworthy is the addition of three rigs in Wyoming, especially since the Niobrara of the Rockies's front range lost a rig, apparently in Colorado...the two rig drop in Louisiana included the aforementioned lake rig, and two southern Louisiana land rigs, while a gas rig was added in the Haynesville in the northern part of the state...we should also note that of the states not shown above, Indiana saw another rig added this week, and they now have two, up from none a year ago, while Alabama had their only active rig removed, and they now have none, same as a year ago...

DUC Wells for September

you might recall that as of last month's September Drilling Productivity Report, the EIA began providing a monthly estimate of the number of drilled but uncompleted wells (DUCs) in the 7 regions that the Drilling Productivity Report covers, and that we felt it would be a useful metric to track, being that drillers would not feel pressured to return to the field as long as there was a large inventory of uncompleted wells remaining...the October Drilling Productivity Report was released on Monday of this past week, and it continued show a small overall decrease in uncompleted wells nationally, from 5,096 DUCs in August to 5,069 DUCs in September, with most basins seeing a decline...however, the large Permian basin of western Texas saw an increase of 52 uncompleted wells for the month and they now have 1,378 such uncompleted wells, the most of any basin in the nation (the Eagle Ford basin had the most as of July, but they're now down to 1,276 uncompleted, as they saw 36 more wells completed in September than were drilled)...in our area, the Utica saw another small drop in uncompleted wells, from 126 DUCs in August to 120 DUCs in September, while the Marcellus saw their uncompleted well inventory fall from 665 DUC wells in August to 650 in September...DUCS over the 4 oil basins (ie the Bakken, Niobrara, Permian, and Eagle Ford) have now been lower in each of the last 6 months, as oil well completions started picking up when oil prices first started rising in the spring, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) has generally declined since December 2013, as new natural gas drilling fell to record low levels...

note: there's more in the same vein here...

They Hate Us For Our Freedom

Made from bombed rubble of Aleppo by Syrian artist Tammam Azzam.

natural gas price hits 22 mo. high, gas drilling jumps 11.7%, gas exports and pipelines being planned, et al

crude oil prices jumped 3% on Monday morning on comments from Vladimir Putin, but stumbled lower the rest of the week to end not too far from where they started...after closing last week at $49.81 a barrel, oil traders awoke to Putin's comments in Istanbul that Russia was ready to join OPEC in limiting oil production with either a freeze or a cut, and quickly drove prices to well over $51 a barrel on Monday morning, where they meandered the rest of the day before closing at $51.35, the highest oil price in a year...but on Tuesday, word that Libya had started exporting oil again put a damper on the rally, and oil prices fell back to close at $50.79...prices were further depressed on Wednesday after OPEC said it pumped a record 33.39 million barrels per day in September, up by 220,100 barrels per day from August and closed at $50.18...oil prices then initially fell on Thursday after the EIA report indicated the largest crude inventory increase in 6 months, but recovered and closed higher at 50.44, after traders turned their attention to product inventory drawdowns in that same EIA data...oil prices then rose to top $51 again on Friday morning, but fell amid concern about the persistent global oversupply of oil to close the week at $50.35, after Baker Hughes reported yet another increase in the US rig count...

meanwhile, natural gas prices, which had spiked to a 21 month high at 3.198 per mmBTU on Friday of last week on forecasts of much warmer than normal weather, were again higher this week, while much more volatile...the rally of last week carried into Monday, as gas prices rose more than 2% to close at $3.275 per mmBTU....prices fell to $3.237 per mmBTU, however, with Tuesday's reports that gas production outside of "the Northeast" had fallen 9% in the year since last September, largely as a result lower gas production from oil directed wells....prices slipped further to  $3.210 per mmBTU on Wednesday, then jumped to close at  $3.341 per mmBTU on Thursday, after the EIA published its Short-Term Energy Outlook which indicated that natural gas production continued to decline and projected it would go into deficit in December of this year...then, on little further relevant news, gas traders took their profits and natural gas prices closed the week at $3.285 per mmBTU...with gas prices now hitting a 22 month high, we'll include a 2 year graph of those prices, so you can see what the price slump we've been through looks like..

the above graph shows the November contract price for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...while trading in contracts for delivery in previous months were typically priced slightly lower, this graph gives us a good sense of the natural gas price trajectory over the past two years...before 2014, it was widely thought that the breakeven price for fracked natural gas the best Marcellus spots was around $4 per mmBTU, a price we've now been below for 22 months...as gas prices fell over this span, the gas directed rig count fell from 340 rigs at the end of 2014 to 81 rigs on August 5th and again on August 26th of this year...as we'll see later, with the recent natural gas price increase, the new drilling for natural gas is now picking up again...

Gas Export Projects and Regional Pipeline Projects Planned

RBN Energy, who does excellent in depth analysis on production and movement of oil and gas in the US and Canada, had an important post this week on the number of LNG liquefaction and export projects now in the planning stages or under construction that are scheduled to come online in the next few years or early in the next decade, titled "Catch a Wave - Market Shifts Could Spur a 'Second Wave' of U.S. LNG Export Projects"...up until this year, our exports of natural gas were limited to those we piped to Mexico, while we continued to import even greater volumes of gas from Canada at the same time, making us a net importer of gas, despite the glut of gas in our area...on January 3rd of this year, in a post discussing our first oil exports, we also explained that the first ever batch of US fracked gas was being loaded on a LNG tanker bound for Europe at the new Cheniere Energy Sabine Pass terminal near the Louisiana-Texas border...in the first six months of operation, the first of six planned "liquefaction trains" from that plant had exported 17 cargoes containing the super-cooled, liquefied equivalent of over 50 Bcf of natural gas, so they've probably exported around 30 LNG tanker cargoes by now...this week, the second liquefaction train, which had been operational since July 28, received approval from FERC to start exporting, essentially doubling the Sabine Pass LNG export capacity from current levels...since the April 1 start of the U.S. gas stockpiling season, through Sept. 9, Sabine pass had taken in 119 billion cubic feet of natural gas; during the same period, the US supply glut of natural gas versus the five-year average fell from 874 billion cubic feet to 299 billion cubic feet, so we can see that just the one export train had put a significant dent in our natural gas glut over that short period (the rest of the drawdown was likely related to air conditioning use in light of record high temperatures)...so it's obvious that once the Sabine Pass facility has all 6 export trains running (2 are scheduled next year), they alone will be sucking up all of the surplus natural gas that we currently produce, even in a year with an El Nino winter...

which brings us back to this week's RBN article, which details the LNG liquefaction and export projects now on the drawing boards...Bruce Oskol, the blogger at The Bakken Oil Blog, dug through that RBN Energy article and produced a list of US LNG export projects at various points along the regulatory process, mostly in Lousiana and Texas, which we will now include below: 

• Cheniere: to build a sixth 4.5 MTPA liquefaction train at Sabine Pass LNG site
• Cameron LNG: has proposed two additional 4.5-MTPA liquefaction trains at its Hackberry facility south of Lake Charles, LA
• Lake Charles LNG: has proposed a three-train, 16.2-MTPA liquefaction/LNG export facilty in advanced stages
• LNG Ltd: has proposed the development of the Magnolia LNG project; as many as four 2-MTPA liquefaction plants, near Lake Charles
• Tellurian Investments: developing Driftwood LNG, total capacity up to 26 MTPA; also near Lake Charles
• Louisiana LNG Energy LLC: has proposed construction of a 6-MTPA liquefaction/LNG export terminal on Mississippi river southeast of New Orleans
• Venture Global LNG: two proposed liquefaction/LNG export terminals in Louisiana; one 20-MTPA facility and one 10-MTPA facility
• Southern California Telephone & Energy: developing the Monkey Island liquefaction/LNG export project; south of Lake Charles; at least three 4-MTPA trains
• G2 LNG: has proposed a liquefaction/LNG export facility; up to 14 MTPA; Cameron Parish
• CE FLNG: proposed project; two floating LNG vessels; each vessel up to 4 MTPA
• Cheniere: plans to build three more 4.5-MTPA liquefaction trains at its Cheniere's Corpus Christi facility
• Freeport LNG: developing a possible fourth 4.4-MTPA train at its Freeport site
• Port Arthur LNG, an affiliate of Sempra: leading the development of a proposed two-train, 10-MTPA liquefaction/LNG export terminal along the Sabine-Neches Waterway in Port Arthur; Woodside Petroleum is also participating in this project
• Annova LNG: has proposed a six-train, 6-MTPA liquefaction/LNG export facility planned by Exelon Generation for Brownsville
• Third Point LLC (a NYC-based investment fund) and Samsung Engineering are developing Texas LNG, a proposed 4-MTPA liquefaction/LNG export terminal in Brownsville
• Golden Pass LNG: a joint venture of Qatar Petroleum and Exxon Mobil; a 15.6 MTPA plant at its existing LNG import terminal at Sabine Pass
• Rio Grande LNG, being developed by NextDecade LLC: up to six 4.5-MTPA liquefaciton trains and two LNG loading berths along the Brownsville Shipping Channel
• Kinder Morgan: two 5-MTPA trains in Pascagoula; and, a 2.5-MTPA Elba Island project in Chatham County, GA
• Veresen: a proposed 6-MTPA Jordan Cove LNG project in Coos Bay, OR 

according to RBN, if those projects were all completed (which RBN doubts), they would require more than 30 billion cubic feet of gas per day...our current natural gas production has been running at around 72 billion cubic feet of gas per day, down from a high of near 75 billion cubic feet of gas per day early this past year...recently, our daily surplus ran around 3 billion cubic feet of gas per day in the spring, when there is minimal heating or air conditioning, while our deficit in the winter of 2014 was also around 3 billion cubic feet of gas per day, so right now there are not any where near 30 billion cubic feet of extra gas per day to be had for exports...so where do they think they'll be getting the gas for these export projects, which cost billions of dollar and take years to complete?  a similar number of planned pipeline projects from West Virginia, Ohio and Pennsylvania strongly suggests that much of that gas will come from our part of the country...while we don't yet have a list of all those pipelines, two series of articles from RBN Energy this summer, links to which we'll incllude here for future reference, probably includes details on most of them:

• One Step Closer - Market Impact of 2016 Northeast Natural Gas Demand Trends
• But I Would Pipe 500 Miles - Risks and Opportunities of Northeast Natural Gas Pipeline Expansions
• But I Would Pipe Five Hundred Miles - Evaluating the Rough Economics of a New Gas Pipeline
• But I Would Pipe 500 Miles - Evaluating Economics of a New Gas Pipeline Part 3
• But I Would Pipe Five Hundred Miles - Evaluating Economics of a New Natural Gas Pipeline (Part 4)
• I Saw Miles and Miles of Texas - Northeast Natural Gas Vs. Gulf Coast Production
• Too Much Pipe on Our Hands? - Northeast Natural Gas Production vs. Takeaway Capacity
• One Way or Another - Western Canadian Gas Producers Still Looking for a Way Out
• Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to New England and the Mid-Atlantic States
• Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to the Midwest, Canada
• Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to the Southeast
• Feels Like the First Time - LNG Exports Impact U.S. Natural Gas Supply, Demand and Price
• Too Much Pipe On My Hands?? - Marcellus/Utica Takeaway Capacity to the Gulf Coast

most of the above articles include discussion of pipelines from our area to elsewhere, ie, "takeaway capacity", whether planned or operational...just to be clear, when they refer to "Northeast Gas", they are referring to West Virginia, Ohio and Pennsylvania gas - ie, when the center of the industry universe is Texas, even Kentucky becomes part of the 'northeast'...again, i haven't yet put together a list of the pipelines that are on the drawing boards in our area or their capacity (maybe later this year), but i recall that as these posts were released this summer, i came away with the impression that their takeaway capacity was far in excess of the current production from the Marcellus and Utica shales, in fact, likely more than double what we now produce...the point is that the industry is putting up a lot of money, tens of billions of dollars, to build natural gas pipelines out of our area and to build export ports for that natural gas, gas that wont be there when these projects are completed unless the local frackers at least double the drilling and double the fracking that they're now doing in the Marcellus and Utica regions..

The Latest Oil Stats from the EIA

the oil data for the week ending October 7th from the US Energy Information Administration again showed a large cutbacks in oil refining activity, which when combined with a modest increase in oil imports, led to the first increase in crude oil supplies in 6 weeks, while the reduced refining simultaneously led to decreases in supplies of gasoline and distillates...however, at the same time, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to +415,000 barrels per day, from last week's -130,000 barrels per day, which means that 415,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning one or several of this week's metrics were off by that amount...year to date, the cumulative daily average of that fudge factor has fallen to 18,000 barrels per day, so it appears that most of oil that disappears from the statistics over one period seems to be finding its way back into the data in subsequent weeks...

that fudge factor was the subject of a long post this week by premier oil analyst Art Berman of oilprice.com, which was republished on several websites under the headline "The billion barrel oil swindle: 80% of US oil reserves are unaccounted for"....the use of the word swindle in the headline was unfortunate, and i'm almost certain that click bait word wasn't Berman's choice...there is no swindle in that weekly adjustment, just inaccurate reporting of data...the government simply doesn't have the assets in place to produce exact data on production from every US oil well, exact amount of oil refined by every refinery, the exact oil imports by pipe and by boat, and the amount of oil stored in every tank across the entire country for every Friday by the Wednesday of the next week...most likely, the EIA data is only an estimate in a range, like Census estimates of housing data (which also move markets) which is collected by canvassing Census agents and typically comes up with a 90% confidence range of +/- 15%....since the other numbers which have their accuracy determined by that fudge factor are those that move the markets and the price of oil, that weekly adjustment should likewise be covered by the media, so everyone knows how inaccurate these weekly numbers are...so if you want a better understanding of how these numbers come together, read that Berman piece carefully, as he is exposing that fudge factor that the EIA uses weekly that we've been covering for a year without the detailed explanation that Berman supplies...

moving on to this week's releases, the EIA reported that production of crude oil from US wells fell by 17,000 barrels per day to an average of 8,450,000 barrels per day during the week ending October 7th, as output from Alaskan oil rose by 19,000 barrels per day while production from the lower 48 states was 36,000 barrels per day lower....that left the week's domestic oil production 7.1% lower than the 9,096,000 barrels we produced during the week ending October 9th of last year, and 12.1% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th last  year...our oil production for the week ending September 30th is now 769,000 barrels per day lower than what we were producing at the beginning of this year, which was an interim high after our production had also been rising in the last few months of 2015...

at the same time, the EIA reported that our imports of crude oil rose by an average of 151,000 barrels per day to an average of 7,861,000 barrels per day during the week ending October 7th, which was 7.5% higher than  the 7,315,000 barrels of oil per day we imported during the corresponding week a year ago...that increase helped the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) tick up to an average of 7.9 million barrels per day, now 8.9% higher than the same four-week period last year...meanwhile, our exports of crude oil were also up, rising by an average of 41,000 barrels per day to an average of 481,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 526,000 barrels per day in the same week, as the EIA has recently switched to reporting Custom's import data, rather than untimely stats from the Census Bureau..

meanwhile, the amount of crude oil used by US refineries fell by an average of 480,000 barrels per day to an average of 15,552,000 barrels of crude per day during the week ending October 7th, the fifth significant refining cutback in a row and the largest drop since the 22nd of January, as the US refinery utilization rate fell to 85.5% for the week, down from 88.3% of capacity the prior week, and down from the refinery utilization rate of 86.0% seen during the week ending October 9th last year...US oil refining has now slowed by 1,376,000 barrels per day, or by 8.1%, in the 5 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the crude refined this week nationally was still 1.9% more than the 15,267,000 barrels of crude per day US refineries used during the week ending October 9th last year, and 1.5% more than was refined during the equivalent week in 2014 ... 

with that large reported drop in the amount of oil used by refineries, the output of both gasoline and distillates was lower during the week ending October 7th, after output of both had increased during the week ending September 30th, when there was also a substantial drop in the amount of oil refined...the EIA reported that refineries’ production of gasoline fell by 53,000 barrels per day to 9,935,000 barrels per day during the week ending October 7th, output that was still 3.3% higher than the gasoline output of 9,619,000 barrels per day during the week ending October 9th last year, and 7.4% higher than the gasoline production during the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) fell by 217,000 barrels per day, from 4,713,000 barrels per day during the week ending September 30th to 4,496,000 barrels per day during the week ending October 7th....that left our distillates output 2.5% lower than the 4,613,000 barrels per day that was being produced during the same week last year, and 1.9% less than the 4,582,000 barrels per day of distillates production during the equivalent week of 2014...  

with the modest decrease in gasoline production, our gasoline supplies fell by 1,907,000 barrels to 225,498,000 barrels as of October 7th, even as our domestic demand for gasoline fell by 126,000 barrels per day to 9,264,000 barrels per day, partly because our gasoline imports fell by 241,000 barrels per day to 762,000 barrels per day, from last weeks 41 month high of 1,003,000 barrels per day....even with the drop in supplies, however, the week's gasoline inventories were still 1.9% higher than the 221,302,000 barrels of gasoline that we had stored on October 9th of last year, and 9.6% higher than the 205,673,000 barrels of gasoline we had stored on October 10th of 2014...at the same time, our distillate fuel inventories fell by 3,746,000 barrels to 156,972,000 barrels by October 7th, which nonetheless still left our distillate inventories 6.3% above the distillate inventories of 147,630,000 barrels of October 9th last  year, and 26.0% above the distillate inventories of 124,622,000 barrels of October 10th, 2014....

now, before we explain how our inventories of crude oil rose this week, we should note that as of this week's release, the EIA is no longer including crude oil lease stocks in U.S. total commercial crude oil inventory data...as they explain it, such oil is stored in tanks at sites where producers are drilling on leased land, and are not yet available for commercial use...since the well operators do not count this oil as production until the oil is transferred off the lease, and since the oil supply metric is for "commercial crude oil inventory", they've decided that such lease supplies should not be included in the official supply number...this will thus reduce the reported inventories of crude oil by about 31 million barrels each week, a figure that has not changed much weekly... after that 'fix', our inventories of crude oil rose by 4,850,000 barrels to 473,958,000 barrels as of September 30th, the first increase in our oil supplies in 6 weeks and the largest increase in 6 months...that left us with 8.5% more crude oil in storage than the 436,750,000 barrels we had stored as of the same weekend a year earlier, and 39.7% more crude oil than the 339,303,000 barrels we had stored on October 10th 2014...(NB:  that revised data is from the excel file for Stocks of Crude Oil; the weekly EIA file still has the old figures for prior to this week, which makes it look as if our oil supplies suddenly fell by 31 million barrels)

This Week's Rig Count

US drilling activity increased for the 4th week in a row during the week ending October 14th and has now increased 17 out of the last 20 weeks, after a 39 week stretch that hadn't seen any increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 15 rigs to 539 rigs by Friday, an eight month high, which was still down from the 787 rigs that were deployed as of the October 16th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the number of rigs drilling for oil rose by 4 rigs to 432 rigs this week, as oil rigs have now been rising for 17 straight weeks without a retreat, but they're still down from the 595 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...

at the same time, the count of drilling rigs targeting natural gas formations was up by 11 rigs to 105 rigs, an 11.7% increase which was largest jump in gas rigs since 14 were added on October 31, 2014, and likely the largest percentage jump ever, since to have increased gas rigs by 11.7% back when there were more than 1000 gas rigs active would have meant over a 117 rig jump in one week, something we just don't see anywhere in the records...that still left active gas rigs down from the 192 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...two working rigs also remain that are classified as miscellaneous, in contrast to a year ago, when no such miscellaneous rigs were active...

while offshore drilling activity was unchanged at 23 rigs, down from 33 a year earlier, 2 rigs were added on inland lakes in southern Louisiana, which brought the inland waters count back up to 3 rigs, same as last year and same as two weeks ago...the number of working horizontal drilling rigs increased by 18 rigs to 431 rigs this week, which was still down from the 591 horizontal rigs that were in use on October 16th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a single directional drilling rig was also added, bringing the directional rig count up to 51, which was also down from the 86 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was down by 4 rigs to 57 rigs this week, which was down from the 110 vertical rigs that were drilling in the US during the same week last year...

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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 14th, the second column shows the change in the number of working rigs between last week (October 7th) and this week (October 14th), the third column shows last week's October 7th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week's case was for October 16th of 2015:          

obviously, there were quite a bit more changes this week than in those just past, when we had to look hard to find a change greater than 2...for starters, Louisiana drillers added 6 rigs, including two on inland waters and 2 in the Haynesville, and both New Mexico and Oklahoma saw the addition of three rigs...on the other hand, drilling in Texas was down by 3 rigs, with a drop of 4 rigs in the Eagle Ford of south Texas, and a drop of 2 rigs in the Permian...also note that with the addition of 4 rigs in the Cana Woodford; activity in that basin is now up to 39 rigs, more that last year's 36, as the SCOOP and STACK formations are being exploited...what we don't see here is where the increase of 11 natural gas directed rigs occurred; 2 natural gas rigs were set up in the Haynesville, and two in the Marcellus (one each in PA and West Virginia) but checking the detailed records from all the other major basins, i find the other increases in drilling were all for oil...we should also note that of the states not shown above, both Kentucky and Mississippi saw the addition of one rig this week, that brought Kentucky up to 2 rigs, up from none a year ago, and brought Mississippi back to 3 rigs, still down from 5 rigs last October 16th..in addition, Illinois saw one of their two rigs shut down; as a decrease from the two rigs they had running a year ago..

note: there's more related news here:

From Slaves To Criminals

Hillary 'Screwed'?

"I'm also starting to worry that if this story gets out, we are screwed." - Clinton chief advisor Doug Band https://t.co/4qv2sLIfCH

— WikiLeaks (@wikileaks) October 10, 2016

Assange on Hillary

Apologies for the source and the cloying hypocrisy of Hannity. Of course Hannity and Fox are only broadcasting this because they back Trump. But interviews with Julian Assange are rare. He and Wikileaks have more to follow on Clinton and the Clinton Foundation. 

Assange on how Hillary Clinton misled the FBI about her knowledge of the "C" classification marking https://t.co/IyFt4Qj5FF

— WikiLeaks (@wikileaks) September 7, 2016

oil tops $50, natgas prices at 21 mo high, gasoline imports hit 41 mo high, global rigs for Sept, et al

oil prices rose to a four month high on Thursday before falling back on Friday, while natural gas prices rose nearly 15 cents on Friday alone to end the week at $3.198, a 21 month high...underpinned early in the week by last week's OPEC agreement to make an agreement, US oil price rose 76 cents on Monday to close at 48.81 a barrel...then, after a flurry of negative articles about OPEC's deal, oil prices fell by more than 50 cents on Tuesday morning, only to rally to close at $48.69 a barrel after the American Petroleum Institute reported yet another "shockingly large" drop in US crude oil supplies, when markets were expecting an increase...prices continued to rise on Wednesday, then closed at $49.83 a barrel after government data showed that U.S. crude stockpiles had indeed dropped last week, though not quite as much as the API had reported...that rally on falling supplies carried through to Thursday, when U.S. oil prices closed at $50.44 a barrel, the first close above the $50 level since June...US crude then slid 63 cents to $49.81 on Friday, as oil traders reportedly cashed in their quick profits, with oil prices by that point up more than 12% in the prior 7 trading sessions...

natural gas prices, meanwhile, had been riding near the upper end of their 4 month $2.60 to $3.00 per mmBTU range over the last 2 weeks on continued forecasts of above normal temperatures for most of the US, as traders interpreted those forecasts to indicate greater than normal power consumption for air conditioning...after closing at $2.923 per mmBTU on Monday and $2.964 per mmBTU on Tuesday,  natural gas prices rose to $3.041 per mmBTU on Wednesday, after the winter outlook from the Natural Gas Supply Association forecast this winter to be 12% colder than a year-ago and otherwise made a bullish case for gas prices....after inching up less than a penny to close at $3.049 on Thursday, natural gas prices then rose to close the week at 3.198 per mmBTU on forecasts of unseasonably warm weather in the US from October 12th to the 21st, and expectations that power outages from Hurricane Matthew would not be as great as feared...

The Latest Oil Stats from the EIA

the oil data for the week ending September 30th from the US Energy Information Administration once again showed cutbacks in both oil imports and refining activity, and unusually large drawdowns in supplies of crude oil and distillates for this time of year, leading to the largest drop in aggregate supplies of oil and products since hurricane Hermite disrupted transportation in the Gulf 5 weeks ago...that was as the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -130,000 barrels per day, from last week's +240,000 barrels per day, which means that 130,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final oil consumption or inventory figures, meaning one or several of this week's metrics were off by that amount...however, the 4 week average of this statistical adjustment remained at a modest +23,000 barrels per day, so at least most of the oil that disappears from the statistics one week seems to be finding its way back into the data in subsequent weeks...

for the week ending September 30th, the EIA reported that production of crude oil from US wells fell by 30,000 barrels per day to an average of 8,467,000 barrels per day, as output from Alaskan oil rose by 8,000 barrels per day while production from the lower 48 states was 38,000 barrels per day lower, the first decrease in continental US production in 4 weeks....that left the week's domestic oil production 7.7% lower than the 9,172,000 barrels we produced during the week ending October 2nd of last year, and 11.9% below the record 9,610,000 barrels  per day of oil production that we saw during the week ending June 5th last  year...our oil production for the week ending September 30th is now 752,000 barrels per day lower than what we were producing at the beginning of this year, an interim peak after our production had general been rising in the last few months of 2015...

meanwhile, the EIA reported that our imports of crude oil fell by an average of 125,000 barrels per day to an average of 7,710,000 barrels per day during the week ending September 30th, which was a 9.1% increase from the 7,068,000 barrels of oil per day we imported during the corresponding week a year ago...oddly, that decrease actually increased the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) to  an average of 8.0 million barrels per day, 10.1% higher than the same four-week period last year, because the year's low for oil imports that had occurred as Hermine moved through the Gulf and up the coast dropped out of the average... meanwhile, our exports of crude oil were also down, dropping by an average of 67,000 barrels per day to an average of 440,000 barrels per day for the week,16.4% less than last year's exports of 526,000 barrels per day in the same week, at a time when these volatile weekly export estimates were less reliable..

at the same time, the amount of crude oil used by US refineries fell by an average of 302,000 barrels per day to an average of 16,032,000 barrels of crude per day during the week ending September 30th, the fourth significant refining cutback in a row and the largest since April, as the US refinery utilization rate fell to 88.3% for the week, down from 90.1% of capacity the prior week, but up from the refinery utilization rate of 87.5% seen during the week ending October 2nd last year...US oil refining is now down by 896,000 barrels per day, or 5.3%, in the 4 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the crude refined this week nationally was still 3.0% more than the 15,559,000 barrels of crude per day US refineries used during the week ending October 2nd last year, and 3.1% more than was refined during the equivalent week in 2014 ...    

oddly, even with that large reported drop in the amount of oil used by refineries, their output of both gasoline and distillates was reported higher during the week ending September 30th, following reports for the week ending September 23rd when the drop in both gasoline and distillates output was far in excess of the drop in oil used...that suggests to me that the output of some of last week's refinery runs got shifted into this week's data...whatever the case, the EIA reported that refineries’ production of gasoline rose by 433,000 barrels per day to 9,988,000 barrels per day during the week ending September 30th, the largest increase in gasoline output since the week ending June 17th...our gasoline output was also 7.3% higher than the gasoline output of 9,306,000 barrels per day during the week ending October 2nd last year, and 12.6% higher than the gasoline production during the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) also rose a bit, from 4,709,000 barrels per day during the week ending September 23rd to 4,713,000 barrels per day during the week ending September 30th....however, that still left our distillates output 7.1% less than the 5,071,000 barrels per day that was being produced during the same week last year, and 0.7% less than the 4,748,000 barrels per day of distillates production during the equivalent week of 2014...  

with the increase in gasoline production, our gasoline supplies rose by a modest 222,000 barrels to 227,405,000 barrels as of September 30th, as our domestic demand for gasoline rose by 510,000 barrels per day to 9,390,000 barrels per day and our gasoline imports rose by 225,000 barrels per day to a 41 month record of 1,003,000 barrels per day...probably contributing to both of those unusual increases was the shut down of the leaking Colonial Pipeline during that week, which normally delivers gasoline from the Gulf Coast to the east coast states...fearing shortages of gasoline, drivers in Tennessee, Virginia, Georgia, South Carolina, Alabama and North Carolina were reported lining up for extra gasoline, while the gasoline wholesalers turned to imports from Canada and overseas to meet the shortage...the result left the week's gasoline inventories 1.6% higher than the 223,920,000 barrels of gasoline that we had stored on October 2nd last year, and 8.5% higher than the 209,668,000 barrels of gasoline we had stored on October 3rd of 2014... meanwhile, our distillate fuel inventories fell by 2,359,000 barrels to 160,718,000 barrels by September 30th, which nonetheless still left our distillate inventories 7.8% above the distillate inventories of 149,150,000 barrels of October 2nd last  year, and 27.4% above the distillate inventories of 126,140,000 barrels of October 3rd 2014....

lastly, even though the drop in oil demand from refineries exceeded the drop in supply, our inventories of crude oil still fell by 2,976,000 barrels to 499,740,000 barrels as of September 30th, the 5th consecutive drop in our oil supplies and the first time our oil inventories fell below a half billion barrels since the end of January (NB they'd never been above a half billion barrels before this year)...our oil supplies have thus fallen 5.0% over 5 weeks at a time of year when supplies usually rise, and are down 9.0% from their April 29th peak of 543,394,000 barrels...nonetheless, we still ended the week with 8.4% more crude oil in storage than the 460,997,000 barrels we had stored as of the same weekend a year earlier, and 38.2% more crude oil than the 361,650,000 barrels we had stored on October 3rd 2014... 

This Week's Rig Count

US drilling activity increased for the 3rd week in a row during the week ending October 7th and has now increased 16 out of the last 19 weeks, after a 39 week stretch that hadn't seen any increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 2 rigs to 524 rigs by Friday, which was still down from the 795 rigs that were deployed as of the October 9th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the number of rigs drilling for oil rose by 3 rigs to 428 rigs this week, and oil rigs have now been rising for 16 weeks without a retreat, but they're still down from the 605 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations fell by 2 rigs to 94 rigs, which left gas directed rigs down from the 189 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...a single rig that was classified as miscellaneous was also added this week, and now there are two such, up from the single miscellaneous rig that was deployed a year ago..

of the water based rig changes this week, an offshore rig was started on a drilling platform offshore from Louisiana, which brought the Gulf of Mexico rig count up to 22, which was still down from the 31 rigs that were working in the Gulf of Mexico last year at this time, and which brought the total US offshore count up to 23 rigs, down from 32 offshore rigs a year ago, as we still have a rig offshore from Alaska..at the same time, 2 rigs which had been drilling through inland lakes in southern Louisiana were shut down, which left just one rig drilling through inland waters, down from 3 such inland waters rigs a year ago..

the number of working horizontal drilling rigs rose by 6 rigs to 413 rigs this week, which was still down from the 598 horizontal rigs that were in use on October 9th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count fell by 3 rigs to 61 rigs this week, which was down from the 114 vertical rigs that were drilling in the US during the same week last year...at the same time, a single directional drilling rig was also pulled out, leaving 50 directional rigs still working, which was also down from the 83 directional rigs that were deployed during the same week last year...

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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 7th, the second column shows the change in the number of working rigs between last week (September 30th) and this week (October 7th), the third column shows last week's September 30th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week's case was for October 9th of 2015:         

once again, we have a week with very little changed in drilling activity; only Texas and Oklahoma saw the addition of as many as 2 rigs, and only the Barnett shale of the Dallas-Ft Worth area saw that large of an increase, while no state or basin saw a rig count reduction greater than 1...we should note that of the states not shown above, both Alabama and Mississippi also saw one rig shut down this week, which left Alabama with 1 rig still working, down from 3 rigs a year ago, and left Mississippi with 2 working rigs, down from 5 rigs last October 9th...in addition, Indiana saw a rig start operating in the state for the first time since June; except for the 5 week period entailed by that occasion, Indiana had not seen drilling over the 17 months prior to this week...

International Rig Counts for September

Baker Hughes also released the international rig counts for September this week, which unlike the weekly count, is an average of the number of rigs running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1,584 rigs were drilling for oil and natural gas around the globe in September, which was up from the 1,547 rigs that were drilling around the globe in August, but down from the 2,171 rigs that were working globally in September of last year...increased North American drilling again accounted for the global increase, as the average US rig count rose from 481 rigs in August to 509 rigs in September, which was still down from the average of 848 rigs working in the US in September a year ago, while the average Canadian rig count rose from 129 rigs in August to 141 rigs in September, again still down from the 183 Canadian rigs that were deployed in September a year earlier....outside of Northern America, the International rig count fell by 3 rigs to 934 rigs in September, which was also down from 1,140 rigs a year ago, as increases in drilling in the Middle East and Latin American regions were more than offset by decreases elsewhere.. 

drilling activity in the Middle East rose for just the 3rd time in the past 9 months, as countries included in this region added a net of 7 rigs, bringing their average up to 386 rigs for the month, which was still down a bit from the 396 rigs deployed in the Middle East a year earlier....the largest regional drilling increase was in Qatar, where their active rig count rose from 5 rigs in August to 9 rigs in September, which was also up from the 6 rigs they had deployed in Qatar in September a year ago...both Iraq and Dubai added two rigs in September; that brought the Iraqi count up to 40 rigs, which was still down from last year's 49, and brought Dubai's count up to 4 rigs, which was up from 2 rigs last September...other countries seeing changes in activity in the Middle East included Kuwait, where their count rose by 1 rig to 48, which was up from the 43 rigs they had deployed last year at this time, Egypt, where they idled a rig, leaving 26 rigs, also down from last year's 38 rigs, and Oman, where they also idled a single rig, leaving 64 rigs active in September, down from the 66 rigs they were runnng in September a year ago...the Saudi rig count, meanwhile, was unchanged at 124, which was down from 125 rigs a year ago...the Saudi count has averaged ~125 rigs since early 2015, which was up from their average of around 105 rigs in 2014, so they really did make an effort to increase their production after the November 2014 OPEC meeting, as they said they would...

meanwhile, the Latin American countries netted an increase of 2 rigs, thus increasing their activity by 11 rigs over the past 3 months, after the region had idled 92 rigs over the first 6 months of 2016…in September, Latin America drillers averaged 189 active rigs, which included 38 offshore, down from their average of 321 rigs, which included 55 offshore rigs, that were active in Latin America in September of 2015...once again, the small net increase masked a number of changes in the individual countries, however, as Argentina increased their active drilling by 5 rigs to 70 rigs, after they had idled 7 rigs in August, which thus left them down from the 110 rigs they had deployed in September of 2015...Ecuador added 2 rigs, bringing their count up to 6 rigs, which was still down from 11 rigs a year earlier...Bolivia also added a rig; they now have 5 active, still down from last year's 6 rigs...Latin American countries cutting rigs in September included Venezuela, where they were down 2 rigs to 51 rigs, also down from 75 rigs a year earlier; Columbia, where they also cut 2 rigs, leaving 6 rigs, down from 26 rigs a year earlier; Mexico, where they were down 1 rig to 25, which was also down from 38 rigs a year earlier, and Chile, where their current 2 rig count matches their year ago activity..

at the same time, the Asia-Pacific region had 190 rigs working in September, down from the 194 rigs they had deployed in August, and down from the 218 rigs working the region a year earlier, as the Asia-Pacific offshore rig count also fell by four rigs to 88....Australia idled 2 of the 3 rigs they added in August and hence are back to 4 rigs, down from the 16 rigs they had working a year earlier...Thailand also idled two rigs in September, leaving 11 still working, down from 18 rigs a year ago...Vietnam, Malaysia, and the Philippines each stacked 1 rig; that left Vietnam with 4 rigs working, up from 3 a year earlier, left Malaysia with 3 rigs, down from last year's 9 rigs, and left the Philippines with 2 rigs, still up from the single rig they had deplored last September...at the same time, the rig count offshore from China increased from 26 rigs to 29, which was also up from the 28 platforms sited offshore of China in September of 2015...

elsewhere, countries in Africa also reduced their net activity by 4 rigs, leaving 77 rigs still drilling, down from the 96 rigs working the African continent last year at this time...Algeria shut down 3 rigs, leaving 53 rigs still working, which was nonetheless up from the 51 rigs that they had active a year earlier...in addition, both Congo and Nigeria idled rigs; that left Congo with none, down from 1 rig a year earlier, and cut the Nigerian count back to 5 rigs, down from 10 rigs a year earlier...at the same time, Morocco set up a single rig, their only one for now, down from 2 a year earlier..

and lastly, the net rig count in Europe also dropped by 4 rigs to 92 rigs in September, which was down from the 109 rigs working in Europe a year ago at this time...Germany and Turkey both stopped 2 rigs; in Germany, that left them with 1 rig active, same as a year ago, and in Turkey, it left 29 rigs still running, up from 28 in September of 2015...in addition, Italy and Norway each idled one rig, that left Italy with 3 rigs active, down from last year's 4 rigs, and left Norway with 16 rigs running, down from 17 last September...meanwhile, both Romania and Denmark added a rig in September, for Romania, that brought them up to 6 rigs, down from 8 rigs a year earlier, while for Denmark, it was their first rig after 2 months without drilling; a year ago, Denmark had 4 rigs working....finally, note that Iranian, Russian, and Chinese rig counts are not included in Baker Hughes international data, although you might have noted that China's offshore area, with an average of 29 rigs active in September, up from 26 in August, were included in the Asian totals here...   

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