net US oil imports fall to lowest on record, OPEC report shows global oil glut growing again..

oil prices were higher for the second week in a row, pushing to an 18 day high on falling US oil inventories, troubles in Libya and Saudi jawboning...after a 4.2% jump to $61.68 a barrel the prior week, oil contracts for March delivery rose another 22 cents on Tuesday, on reports that oil inventories at the US crude pricing depot at Cushing, Oklahoma fell 2.1 million barrels to a 3 year low, with pricing for that contract expiring at $61.90 a barrel, a 2-week high...at the same time, the new front month crude contract for delivery in April rose 24  cents to $61.79 a barrel...now trading oil for April, oil prices fell 11 cents to $61.68 a barrel on Wednesday on expectations that the EIA report the next day would show rising crude inventories in the US...however, when that report unexpectedly showed the first decrease in US oil supplies in four weeks, oil prices rose $1.09, or about 1.8%, to close Thursday at $62.77 a barrel, with a weakening dollar contributing to the rally...oil prices then rose another 78 cents to end the week at $63.55 a barrel on Friday, on news of the shutdown of a major oilfield in Libya and Saudi comments that the OPEC effort to cut stockpiles had been successful...US oil prices for April thus ended the week with a gain of exactly $2.00, or 3.2%, settling at its highest level since February 5th...

natural gas prices were also higher for the week, largely on forecasts of a return to more seasonable winter weather for much of the US, with prices for March climbing from what was near an 18 month low last week by 5.8 cents on Tuesday and 4.3 cents on Wednesday, before falling back 2.5 cents on Thursday after the release of the weekly storage report, and then losing another nine-tenths of a cent on Friday to close the week with a gain of 6.7 cents, or 2.6%, at $2.625 per mmBTU, still well below the price most US gas producers need to break even...the week's natural gas storage report indicated that our natural gas in storage fell by 124 billion cubic feet to 1,760 billion cubic feet in the week ending Friday, February 16, 2018, which left our gas supplies 609 billion cubic feet, or 25.7% lower than the 2,369 billion cubic feet that was in storage on February 17th of last year, and 433 billion cubic feet, or 19.0% below the five-year average of 2,172 billion cubic feet for the seventh week of the year...the typical natural gas withdrawal for the seventh week of the year has averaged 145 billion cubic feet over the past 5 years, so the withdrawal during the cited week was 21 billion cubic feet below normal..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending February 16th, showed that due to a large increase in our oil exports, along with a similarly large decrease in our oil imports, we had to pull crude oil out of storage for the first time in four weeks, despite the slowest oil refining since the hurricane related shutdowns...our imports of crude oil fell by an average of 867,000 barrels per day to an average of 7,021,000 barrels per day during the week, while our exports of crude oil rose by an average of 722,000 barrels per day to an average of 2,044,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 4,977,000 barrels of per day during the week, 1,589,000 barrels per day less than the net imports of the prior week and the lowest net imports since the EIA started keeping such records in 2001...at the same time, field production of crude oil from US wells fell by 1,000 barrels per day to 10,270,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,247,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 15,833,000 barrels of crude per day, 329,000 barrels per day less than they used during the prior week, while at the same time 330,000 barrels of oil per day were being pulled out of oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 256,000 barrels per day less than what refineries reported they used during the week..to account for that disparity, the EIA needed to insert a (+256,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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"...(how this weekly oil data is gathered, and the likely reason for that "unaccounted" oil, is explained here)...since there was a 653,000 barrel per day change in that 'unaccounted for oil', from -352,000 barrels per day last week to +256,000 barrels per day this week, the week over week changes here are correspondingly unreliable...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 7,808,000 barrels per day, 6.6% less than the 8,360,000 barrel per day average we imported over the same four-week period last year....the 330,000 barrel per day decrease in our total crude inventories came from a 231,000 barrel per day withdrawal from our commercial stocks of crude oil and a 99,000 barrel per day withdrawal of oil from our Strategic Petroleum Reserve, possibly part of the sale of oil reserves included in the recently passed bill to fund the government...this week's 1,000 barrel per day decrease in our crude oil production was due to an 11,000 barrel per day decrease in output from Alaska, which was partially offset by a 10,000 barrel per day increase in output from wells in the lower 48 states...the 10,270,000 barrels of crude per day that were produced by US wells during the week ending February 16th was 14.1% more than the 9,001,000 barrels per day that US wells were producing on February 17th of last year, and 21.9% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 88.1% of their capacity in using 15,833,000 barrels of crude per day, down from 89.8% of capacity the prior week, and down from the wintertime record 96.7% of capacity set just seven weeks earlier, as US refineries are now into the pre-spring blend changeover and maintenance season...the 15,833,000 barrels of oil that were refined this week were 10.1% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 3.7% more than the 15,271,000 barrels of crude per day that were being processed during the week ending February 17th, 2017, when refineries, undergoing seasonal maintenance, were operating at 84.3% of capacity....

even with the drop in the amount of oil being refined, gasoline production by our refineries was much higher, increasing by 515,000 barrels per day to 10,107,000 barrels per day during the week ending February 16th, after decreasing by 493,000 barrels per day the prior week....that increase meant our gasoline production was 7.2% higher for the week than the 9,429,000 barrels of gasoline that were being produced daily during the week ending February 17th of last year....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 322,000 barrels per day to 4,489,000 barrels per day, after falling by 317,000 barrels per day the prior week...but even after that decrease, the week's distillates production was still fractionally higher than the 4,467,000 barrels of distillates per day than were being produced during the equivalent week of 2017....    

with the big increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 261,000 barrels to 249,334,000 barrels by February 16th, the fourteenth increase in 15 weeks....that was even as our exports of gasoline rose by 279,000 barrels per day to 918,000 barrels per day, while our imports of gasoline fell by 288,000 barrels per day to 350,000 barrels per day, and while our domestic consumption of gasoline fell by 57,000 barrels per day to 9,002,000 barrels per day...but even after fourteen increases in fifteen weeks, our gasoline inventories are still 2.8% lower than last February 17th's level of 256,435,000 barrels, even as they are now roughly 7.3% above the 10 year average of gasoline supplies for this time of the year...       

meanwhile, with the week's drop in distillates production, our supplies of distillate fuels fell by 2,422,000 barrels to 138,945,000 barrels over the week ending February 16th, the fourth decrease in distillates supplies in the past ten weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 42,000 barrels per day to 4,224,000 barrels per day, while our exports of distillates fell by 177,000 barrels per day to 854,000 barrels per day and as our imports of distillates rose by 7,000 barrels per day to 243,000 barrels per day...after this week’s inventory decrease, our distillate supplies were 15.9% lower at the end of the week than the 165,133,000 barrels that we had stored on February 17th, 2017, and 2.1% lower than the 10 year average of distillates stocks at this time of the year… 

finally, the big increase in our oil exports combined with a similarly large drop in our oil imports meant that our refineries had to pull oil out of our commercial supplies of crude oil for the 11th time in 14 weeks and for the 36th time in the past 49 weeks, as our commercial crude supplies decreased by 1,616,000 barrels, from 422,095,000 barrels on February 9th to 420,479,000 barrels on February 16th....with that drop occurring at a time of year when oil supplies are usually increasing, our oil inventories as of that date ended the week 18.9% below the 518,683,000 barrels of oil we had stored on February 17th of 2017, and 11.7% lower than the 476,325,000 barrels of oil that we had in storage on February 19th of 2016, even as they were still 5.1% greater than the 399,943,000 barrels of oil we had in storage on February 20th of 2015, at a time when US supplies of oil had just begun to increase...

OPEC's Monthly Oil Market Report

we also want to quickly review OPEC's February Oil Market Report (covering January OPEC & global oil data), which was released the week before last week, and which is available as a free download....the first table from this report that we'll look at is from page 69 of that OPEC pdf, 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 resolve any potential disputes that could arise if each member reported their own figures...    

as we can see from this table of official oil production data, OPEC oil output slipped by 8,100 barrels per day in January to 32,302,000 barrels per day, from an December production total of 32,310,000 barrels per day, but that was a figure that was originally reported as 32,416,000 barrels per day, so their production for December was effectively a 114,000 barrel per day decrease from previously reported figures (for your reference, here is the table of the official December OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, the main reasons that OPEC's January output fell by 8,100 barrels per day from revised December figures was the decrease of 47,300 barrels per day in output from Venezuela, which is suffering from the effects of economic sanctions imposed by the US...on the other hand, oil output from Iraq increased by 30,200 barrels per day, which leaves them and Nigeria as the only OPEC members whose production is well in excess what their pact calls for, as can be seen in the table below:  

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members for January of this year, and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as was agreed to at their November 2016 meeting, and the 3rd column shows how much each country produced over or under their quota for the month...note that Venezuela alone, now 330,000 barrels per day below quota, more than makes up for smaller amounts of over production by other OPEC members...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from Febraury 2016 to January 2018, and it comes from page 70 of the February 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...   

OPEC's preliminary data indicates that total global oil production rose to 97.66 million barrels per day in January, up by .35 million barrels per day from a December output total of 97.31 million barrels per day, which was revised down by .18 million barrels per day from the 97.49 million barrels per day global oil output for December that was reported a month ago...global oil output for January was also 1.49 million barrels per day higher than the 95.82 million barrels of oil per day that was being produced globally in January a year ago (see last February's OPEC report online (pdf) for the year ago data)... OPEC's January  production of 32,302,000 barrels per day thus represented 33.1% of what was produced globally, down from 33.2% in December, as oil output increases by Canada, Mexico, Norway, UK, Bahrain, Brazil and Kazakhstan were partially offset by decreases in output from the US, Malaysia, Oman, Russia and Azerbaijan....OPEC's January 2017 production was at 32,139,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 29,000 more barrels per day of oil than they were producing a year ago, during the first month that their production quotas went into effect, with the increase largely due to recoveries of oil production in Libya and Nigeria... 

the increase in global oil output that we can see in the above purple graph meant there was a surplus in the amount of oil being produced globally, as the next table from the OPEC report will show us..    

the table above comes from page 41 of the February OPEC Monthly Oil Market Report, and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2018 over the rest of the table...on the "Total world" line of the second column, we've circled in blue the figure that's relevant for January, which is their revised estimate of global oil demand for the first quarter of 2018...  

OPEC's estimate is that over the 1st quarter of this year, all oil consuming areas of the globe will using 97.23 million barrels of oil per day, which is an upward revision from their prior estimate of 97.17 million barrels of oil per day.....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, even after the OPEC and non-OPEC production cuts, the world's oil producers were producing 97.66 million barrels per day during January, which means that there was a surplus of around 430,000 barrels per day in global oil production vis-a vis demand during the month... 

global oil production estimates for December were also revised lower with this report, by 0.18 million barrels per day to 97.31 million barrels per day, while global demand figures for the 4th quarter were revised 0.09 million barrels per day higher at 98.29 million barrels per day; that now means there was a deficit of 980,000 barrels per day in December global oil output, which we had previously figured to be a global oil deficit of around 760,000 barrels per day...in addition, there was also a revision to oil demand estimates for 3rd quarter, which on a cumulative basis for the year worked out to be a 0.03 million barrels per day upward revision to 2017 oil demand (which we have circled in green)...in round numbers, that means our previous estimate of a 183 million barrel oil shortfall for 2017 was about 10 million barrels too low, a revision to 2017 that's almost enough to offset the 13.33 million barrels of oil surplus that we saw globally in January...

This Week's Rig Count

US drilling activity increased for just the 13th time in the past 30 weeks during the week ending February 23rd, but the rig count is still up by 20 over that span, as the increases have exceeded the decreases....Baker Hughes reported that the total count of active rotary rigs running in the US was up by 3 rigs to 978 rigs in the week ending on Friday, which was also 224 more rigs than the 754 rigs that were deployed as of the February 24th report of 2017, while it was still down by nearly half from the recent high of 1929 drilling rigs that  were in use on November 21st of 2014... 

the number of rigs drilling for oil rose by 1 rig to 799 rigs this week, which was also 197 more oil rigs than were running a year ago, while the week's oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations increased by 2 rigs to 179 rigs this week, which was also 28 more gas rigs than the 151 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity from platforms in the Gulf of Mexico decreased by 1 rig to 17 rigs for the week, which was the same number of rigs that were deployed in the Gulf of Mexico a year ago...the total offshore US rig count last year was also at 17 rigs, same as this week's total...meanwhile, a rig began drilling from a platform on an inland lake in Louisiana this week, bringing the "inland waters" rig count up to 2 rigs, which was still down from 4 rigs on inland waters as of February 24th of last year...

the week's count of active horizontal drilling rigs was up by 3 rigs to 842 horizontal rigs this week, which was also up by 218 rigs from the 624 horizontal rigs that were in use in the US on February 24th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was up by 2 rigs to 67 vertical rigs this week, which up from the 61 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count was down by 2 rigs to 69 directional rigs this week, which was the same number of directional rigs that were deployed on February 24th of 2017...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 23rd, the second column shows the change in the number of working rigs between last week's count (February 16th) and this week's (February 23rd) count, the third column shows last week's February 16th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 24th of February, 2017...  

most of what's in the table above is pretty straight forward this week, although as usual Texas is problematic, with so many different basins in or extending into the state...the 2 rig increase in the Permian, however, seems to have been in New Mexico, because both Permian districts in Texas saw their rig counts decline...the one rig gain in Louisiana is net of the the inland lake increase, the offshore decrease, and the additional gas rig that started drilling in the Haynesville; another gas directed rig was added in the Utica, while 2 gas rigs were shut down in the Marcellus, one each in Pennsylvania and West Virginia...the net 2 rig increase for rigs targeting natural gas was from incremental additions in basins not tracked separately by Baker Hughes, so absent some digging through the individual logs, we'll have to leave those as unknown...and in addition to the changes in the major oil and gas producing states shown above, Mississippi saw both rigs which had been active in the state shut down last week, which is the first time on record there were no drilling rigs active in the state; on February 24th year ago, Mississippi drillers had three rigs deployed...

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note: there’s more here…

natural gas supplies falling faster than winter weather accounts for; Utica drillers shifting to oil bearing rock

oil prices rebounded more than 4% this week, after dropping by nearly 10% in a global market panic the prior week, as the financial markets recovered and carried other prices higher as well...after falling a total of $6.60 a barrel over the prior six trading sessions, oil prices for March delivery steadied on Monday, rising 9 cents to $59.29 a barrel, as global markets stabilized and the US dollar fell in value...not much changed on Tuesday either, as a continually weaker dollar sparked a rebound from an early slide down after the International Energy Agency forecast that oil supplies would outstrip demand, with oil ending the day down 10 cents at $59.19 a barrel...oil prices also started lower on Wednesday morning, but then rebounded sharply after the weekly EIA data showed that crude inventories rose less than expected the prior week, with oil prices finishing $1.41 higher at $60.60 a barrel...the Wednesday rally carried into Thursday, as higher US oil prices forced those who has sold oil they didn't own to buy it back to cover their bets, with oil prices ending the session 74 cents higher at $61.34 a barrel...oil prices continued higher for a third session on Friday, carried by a strong rebound in global stock markets and a much weaker dollar, as oil ended up another 34 cents at $61.68 a barrel, a closing price that represented a 4.2% increase on the week, in the first weekly gain in three weeks...

meanwhile, natural gas prices were slightly lower this week, after running up to a 12 month high three weeks ago, and then crashing to an 18 month low last week, with this week seeing the smallest price change and least price volatility in the past 7 weeks...after opening lower, natural gas prices for March delivery were down every day this week except Tuesday, when they rose 4.2 cents to $2.594 per mmBTU on what was called 'technical buying' in response to oversold conditions...other than that, ongoing forecasts of warmer weather pushed prices lower on Wednesday and Thursday, in spite of the weekly gas report on Thursday that indicated a larger than expected withdrawal of natural gas supplies from underground storage...natural gas prices then fell 2.2 more cents on Friday to end the week at $2.558 per mmBTU, for a net loss of 2.6 cents, or 1.0% on the week...

this week's natural gas storage report indicated that our natural gas in storage fell by 194 billion cubic feet to 1,884 billion cubic feet in the week ending Friday, February 9, 2018, which left our gas supplies 577 billion cubic feet, or 23.4% lower than the 2,461 billion cubic feet that was in storage on February 10th of last year, and 433 billion cubic feet, or 18.7% below the five-year average of 2,317 billion cubic feet for the sixth week of the year...the typical natural gas withdrawal for the sixth week of the year has averaged 154 billion cubic feet, so the withdrawal during the cited week exceed the norm by 40 billion cubic feet...

now, one would think that a week during the middle of winter that saw a much larger than normal withdrawal of natural gas from storage would have been colder than normal, but that was not the case this week, as we'll see in the graph below...

the above graph, of population weighted heating degree days (PWHDD) nationally, came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday...degree days are a measure of daily heating requirements used by utilities and suppliers of heating fuels to determine what the daily demand for heating will be, so they can adjust their production or delivery schedules accordingly...they are computed by taking the average daily temperature and subtracting that figure from 65F, which is considered to be the temperature when most buildings will start to need heating....hence, the colder it gets, the greater the the number of heating degree days are required for a given location...John's graph is an average of heating degree day readings from around the country, weighted by population, to give us an average daily heating requirement for the entire country...

in this graphic, then, the yellow graph shows the historical average number of heating degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population-weighted heating degree days for each day this heating season of 2017-2018....while those dots are difficult to read and line up, you can orient what the graph shows by noting that the highest number of degree days was on January 1st, when the all time record for natural gas consumption was set...the 7 red dots farthest to the right are for the current heating week, and as John's headline says, population weighted heating degree days for that period totaled 192, slightly less than the historical 196 average for the same period in February (as we can see the majority of the right-most red dots are a bit below the yellow line)...so we see that despite the fact that our national heating requirements were slightly below normal for the week, we still had to withdraw more than 25% more natural gas than normal over the same period...

next we have a graphic which compares this year's heating requirements to the previous two years and to the historical norm...it also came from the same emailed package of natural gas graphs from John Kemp as the graph above..

in this graph, the difference between normal heating demand and the cumulative heating demand for each of the past three heating seasons is shown daily over the span of a year,  with the divergence in the current year shown as a solid yellow line, last year's divergence shown as a dashed yellow line, and with the divergence from normal of the 2015/2016 heating season shown as a dashed red line....note that all three graphs trend downward, or negative from zero, because all three years experienced warmer than normal temperatures, hence less degree days than normal, over their heating seasons...i know that here in the Midwest it's been colder than normal most of this winter, but at the same time the Pacific Coast states, the Rockies, and much of the south has been warmer than normal, resulting in that downward trending solid yellow line for the entire US that we see for this year...note that had it been colder than normal nationally, the graph would be moving upwards, into a range above zero on the graph...for this year's solid yellow line, the pattern the graph traces describes a cool September, and a generally warmer than normal October, November and early December, a colder than normal January except for one week, and a gradual moderation since...as the heading on the graph says, this year's cumulative heating demand has actually been 130 population-weighted heating degree days (PWHDD) below normal, compared to the much warmer prior two years that had heating requirements 497 PWHDD and 449 PWHDD below normal respectively...but while our heating requirements were modestly below normal so far this year, we still have had to pull more natural gas out of storage than any other year on record, except for the "polar vortex" dominated winter of 2014, which we'll see in the next graph....

the above graph also came from that emailed package of natural gas graphs from John Kemp of Reuters, and it shows the quantity of natural gas in storage, in billions of cubic feet, in the lower 48 states over the period from January 2016 up until the week ending February 9th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the period from January 2015 up until the end of 2017 as a yellow line, and the average of natural gas in storage over the 5 years preceding those same dates shown as a dashed blue line...also shown by the light blue shaded background is the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the years shown by the graph…thus the light shaded area also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to an annual maximum by the middle of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the weather related heating requirements during any given season...

as John Kemp notes on the top of this graph, our supplies of natural gas are well below the average range and near the bottom of that average line; in fact, if we look at the Historical Record of Natural Gas in Working Underground Storage for the Lower 48 States, we see that 2014 was the only year on record to have less natural gas in storage as of the 2nd week of February than the 1,884 billion cubic feet that we had as of this week's report....yet as we saw in the 2nd graph above, our heating requirements so far this year have been modestly below normal, so the reason that our supplies of natural gas are now well below average hasn't been the weather...rather it has been our increasing use of natural gas to generate electricity, and increasing liquefaction of natural gas (LNG) for export, (which had reached as much as 3.2 billion cubic feet per day at the Sabine Pass export terminal alone) that have been responsible for drawing down our supplies of natural gas faster than our stagnant gas production can replace them...by tracing the dashed blue line on the graph above, we can see that over a normal heating season, our natural gas supplies are drawn down from an average of around 3,750 billion cubic feet in mid-October to an average of around 1,600 billion cubic feet by the end of March...hence, over a 167 day heating season, the Sabine Pass export terminal alone would be converting 534.4 billion cubic feet, or nearly one-quarter of our normal winter usage, into LNG to be shipped to Europe and Asia...seeing that, just imagine what will happen when we hit a cold winter after all the LNG export facilities now under construction are brought online and also draw from that supply...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending February 9th, indicated that our oil refineries slowed considerably while our oil imports and oil production were little changed, and as a result we added crude oil to storage for the third week in a row...our imports of crude oil fell by an average of 4,000 barrels per day to an average of 7,888,000 barrels per day during the week, while our exports of crude oil rose by an average of 35,000 barrels per day to an average of 1,322,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,566,000 barrels of per day during the week, 39,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 20,000 barrels per day to another record high of 10,271,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,837,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,162,000 barrels of crude per day, 635,000 barrels per day less than they used during the prior week, while at the same time 323,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 352,000 barrels per day more than what refineries reported they used during the week plus what was added to storage...to account for that disparity, the EIA needed to insert a (-352,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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"...(how this weekly data is gathered, and the reason for that "unaccounted" oil, is explained here)...since there was a 630 barrel per day change in that 'unaccounted for oil', from +278,000 barrels per day last week to -352,000 barrels per day this week, our week over week changes are correspondingly unreliable...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 8,063,000 barrels per day, 5.0% less than the 8,491,000 barrel per day average we imported over the same four-week period last year....the 323,000 barrel per day increase in our total crude inventories came about on a 263,000 barrel per day addition to our commercial stocks of crude oil and a 60,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency, since the Reserve is not authorized to buy oil at this time....this week's 20,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in output from Alaska...the 10,271,000 barrels of crude per day that were produced by US wells during the week ending February 9th was the highest week on records going back to 1983, 14.4% more than the 8,977,000 barrels per day that US wells were producing on February 10th of last year, and 21.9% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 89.8% of their capacity in using 16,162,000 barrels of crude per day, down from 92.5% of capacity the prior week, and down from the wintertime record 96.7% of capacity set just six weeks earlier, as US refineries are now into the pre-spring blend changeover and maintenance season...the 16,162,000 barrels of oil that were refined this week were 8.2% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 4.6% more than the 15,458,000 barrels of crude per day that were being processed during the week ending February 10th, 2017, when refineries were operating at 85.4% of capacity....

with the big drop in the amount of oil being refined, gasoline production by our refineries was also much lower, decreasing by 493,000 barrels per day to 9,592,000 barrels per day during the week ending February 9th, after increasing by 518,000 barrels per day the prior week....nonetheless, our gasoline production was still 7.2% higher than the 8,950,000 barrels of gasoline that were being produced daily during the week ending February 10th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 317,000 barrels per day to 5,129,000 barrels per day, after rising by 516,000 barrels per day the prior week...but even after that decrease, the week's distillates production was still 6.2% higher than the 4,531,000 barrels of distillates per day than were being produced during the equivalent week of 2017....    

however, even with the big decrease in our gasoline production, our gasoline inventories at the end of the week still rose by 3,599,000 barrels to 249,073,000 barrels by February 9th, their thirteenth increase in 14 weeks...that was as our domestic consumption of gasoline fell by 51,000 barrels per day to 9,059,000 barrels per day, and as our exports of gasoline fell by 190,000 barrels per day to 639,000 barrels per day, while our imports of gasoline fell by 108,000 barrels per day to 638,000 barrels per day....but even after thirteen increases in fourteen weeks, our gasoline inventories are still 3.9% lower than last February 10th's level of 259,063,000 barrels, even as they are now roughly 6.9% above the 10 year average of gasoline supplies for this time of the year...      

with the week's drop in distillates production, our supplies of distillate fuels fell by 459,000 barrels to 141,367,000 barrels over the week ending February 9th, the third decrease in distillates supplies in the past nine weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 305,000 barrels per day to 4,082,000 barrels per day, and as our imports of distillates fell by 77,000 barrels per day to 236,000 barrels per day while our exports of distillates fell by 72,000 barrels per day to 1,031,000 barrels per day...after this week’s inventory decrease, our distillate supplies were 16.9% lower at the end of the week than the 170,057,000 barrels that we had stored on February 10th, 2017, and fractionally lower than the 10 year average of distillates stocks at this time of the year… 

finally, the big decrease in the amount of oil used by our refineries while our oil supply metrics changed little meant that we had surplus oil to add to our commercial supplies of crude oil for the third time in 13 weeks and for the 13th time in the past 48 weeks, as our crude supplies increased by 1,841,000 barrels, from 420,254,000 barrels on February 2nd to 422,095,000 barrels on February 9th....but even with three increases in a row, our oil inventories as of that date were still 18.5% below the 518,119,000 barrels of oil we had stored on February 10th of 2017, and 10.7% lower than the 472,823,000 barrels of oil that we had in storage on February 12th of 2016, even they were still 7.8% greater than the 391,516,000 barrels of oil we had in storage on February 13th of 2015, at a time when US supplies of oil had just begun to increase...   

This Week's Rig Count

net US drilling activity was unchanged during the week ending February 16th, with oil drilling increasing and drilling for natural gas decreasing....Baker Hughes reported that the total count of active rotary rigs running in the US was stable at 975 rigs in the week ending on Friday, which was still 224 more rigs than the 751 rigs that were deployed as of the February 17th report of 2017, while it was still down by nearly half from the recent high of 1929 drilling rigs that  were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 7 rigs to 798 rigs this week, which was also 201 more oil rigs than were running a year ago, while the week's oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 7 rigs to 177 rigs this week, which was only 24 more gas rigs than the 153 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity from platforms in the Gulf of Mexico was increased by 2 rigs to 18 rigs for the week, which was also up from the 17 rigs deployed in the Gulf of Mexico a year ago...however, last year at this time there was also a rig deployed offshore from Alaska, so the total offshore rig count last year was also 18 rigs, same as today's...meanwhile, a rig which had been drilling from a platform on an inland lake in Louisiana was shut down this week, leaving just one such "inland waters" rig remaining active, which was down from 3 rigs on inland waters as of February 17th of last year...

the week's count of active horizontal drilling rigs was up by 7 rigs to 839 horizontal rigs this week, which was also up by 225 rigs from the 614 horizontal rigs that were in use in the US on February 17th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the vertical rig was down by 5 rigs to 65 vertical rigs this week, which was the same count as the 65 vertical rigs that were in use during the same week of last year....in addition, the directional rig count was down by 2 rigs to 71 directional rigs this week, which was also down from the 72 directional rigs that were deployed on February 17th of 2017...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 16th, the second column shows the change in the number of working rigs between last week's count (February 9th) and this week's (February 16th) count, the third column shows last week's February 9th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 17th of February, 2017...              

as you can see from the above tables, this week's 'unchanged' rig count masked a lot of changes in activity nonetheless...probably the most surprising in light of an increase of 7 oil rigs was the 4 oil directed rigs that were shut down in the Permian of western Texas and southeast New Mexico, the basin which had been leading this most recent wave of drilling; but even after those shutdowns, the 433 oil directed rigs that remain active in the Permian are still more than half of the 798 oil directed rigs working nationwide, and the Permian also still accounts for 130 of the 224 rigs that have been added over the past year....

there was also a much larger change than is evident from the table in Ohio's Utica shale this week, as the net loss of 2 rigs masks the fact that 7 natural gas rigs were shut down in the state, while at the same time 5 rigs started drilling targeting oil rich formations...that leaves the total Utica deployment at 15 natural gas directed rigs, and 7 rigs seeking oil, confirming the movement of Ohio's drilling activity to the north and west that we suspected two weeks ago, when we noted new drilling plans in the Mansfield area... the Utica shale had gone all of 2016 and most of 2017 with just spotty oil drilling, so this now appears to be a significant change likely driven by the higher oil prices we've seen over recent months...

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NOTE:  there’s more here…

oil and natural gas prices crash 10%, US oil production at an all time high, drilling rigs jump to 34 month high

both oil and natural gas prices crashed 10% this week, as a stock market crash spread to bonds, industrial commodities, cryptocurrencies, and to other major global markets (although one might easily see what happened as a US Treasury bond market crash that spread to stocks and beyond)...technically a "correction", US stock markets have been falling in volatile trading since hitting an all time high on January 26th, with the widely followed Dow Jones Industrial Average dropping more than 2,400 points to end the week at 24,190.90, including a 1,175 point drop on Monday of this week that was the largest point drop in its history, albeit far from the greatest drop percentage-wise...while the connection between dropping stock prices and prices for commodities such as oil and gas is tenuous at best, what underlies it that the fear that a weakening economy that is presumably indicated by falling stocks will ultimately bring on a recession and thereby reduce demand for energy...however, it could also be argued that US stocks had become excessively overvalued anyway (up 45% since Trump was elected), and this recent crash is just bringing their valuations more in line with what they're actually worth..

since it's difficult, if not impossible, to ascertain any specific reasons for this week's drop in energy prices in the midst of the wave of near panic selling that hit the global financial markets, we'll start by just including the most recent graphs of their price trajectories, and then review some of the fundamentals that may have contributed to the price moves...(NB: longer term price graphs for both oil & natural gas were included in this letter and posted online here two weeks ago, when they were both at interim record highs)...we'll start with oil...

the above graph is a Saturday afternoon screenshot of the live 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 graph represents oil prices for one day of oil trading between September 1st and February 9th, with green bars representing days when the price of oil went up, and red bars representing 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 weeks, the starting price is at the top of the bar and the price at the close is at the bottom of the bar...also faintly visible on this "candlestick" style graph are the feint grey "wicks" above and below each bar, to indicate trading prices during each day that were above or below the opening to closing price range for that day...

above we can see that after closing at a 37 month high of $66.14 a barrel two weeks ago, the five week rally in oil prices sputtered last week, closing down about 1% at $65.45 a barrel, before this week's selling kicked in, with the global equity market selloff largely seen as responsible for the subsequent drop in oil prices...further contributing to the oil price drop after Wednesday was the weekly EIA report, which indicated that both U.S. crude and fuel inventories rose during the prior week, while oil production from domestic wells showed an inordinately large jump to a record high (as we'll see, that production jump was largely a data adjustment, but oil traders did not know that)...oil prices were actually attempting to stage a rally on Friday, with crude prices 50 cents higher in the morning, but they then fell $2.70 a barrel in the afternoon to $58.07 after Baker Hughes reported a big jump in new drilling, before recovering to close the week at $59.20 a barrel...for the week, oil prices fell $6.25 a barrel, their largest weekly drop in over a year, after falling 35 cents on the prior Friday for a 6 day loss of just over 10% (btw, the above graph shows a small price increase on Tuesday due to an after hours rally precipitated by an American Petroleum Institute report of a crude oil draw; since that off-hours report was reversed by the EIA data released the next day, that brief Tuesday evening rally did not show up in the NYMEX oil price record, which now indicates oil prices have been down for six days straight...

next, we have a graph of natural gas prices, as quoted daily:

like the oil price graph we posted earlier, the above graph is a Saturday screenshot of the live interactive natural gas price graph at Daily FX, wherein each bar on the graph represents natural gas prices for one day of trading between September 1st and February 9th, with green bars representing days when the price of natural gas went up, and red bars representing the days when the price of natural gas went down...as you can see, natural gas prices continued the crash from their year high levels that began last week, when quotes for natural gas dropped more than 80 cents as the front month contract rolled over from February to March...the first big drop this past week, of 9.9 cents on Monday, seems to have been exacerbated by forecasts of milder weather further out, while the drop of 11.3 cents on Friday followed a modest withdrawal of gas from storage and a sense among traders that the worst of winter was behind them...natural gas prices thus ended the week down 26.2 cents at a 16 month low of $2.58 per mmBTU, after the February contract had been quoted at a 13 month high of $3.66 per mmBTU just nine trading sessions earlier...natural gas prices at these levels now should slow down any preparations that might be being made for spring drilling, at least for the time being...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending February 2nd, indicated a big jump to new record in oil production from US wells and a big increase in operations at US refineries, while at the same time a decrease in oil imports was mostly offset by a drop in exports, leaving crude left over for storage for the second week in a row...our imports of crude oil fell by an average of 538,000 barrels per day to an average of 7,892,000 barrels per day during the week, while our exports of crude oil fell by an average of 478,000 barrels per day to an average of 1,287,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,605,000 barrels of per day during the week, 60,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 332,000 barrels per day to a weekly record high of 10,251,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,856,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,797,000 barrels of crude per day, 784,000 barrels per day more than they used during the prior week, while at the same time 337,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 278,000 barrels per day less than what refineries reported they used during the week plus what was added to storage...to account for that disparity, the EIA needed to insert a (+278,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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"...(how this weekly data is gathered, and the reason for that "unaccounted" oil, is explained here)

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 8,078,000 barrels per day, 4.5% less than the 8,463,000 barrels per day average we imported over the same four-week period last year....the 337,000 barrel per day increase in our total crude inventories came about on a 271,000 barrel per day addition to our commercial stocks of crude oil and a 66,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency, since the Reserve is not authorized to buy oil at this time....this week's 332,000 barrel per day increase in our crude oil production included a 315,000 barrel per day increase in output from wells in the lower 48 states, and a 17,000 barrels per day increase in output from Alaska...the 10,251,000 barrels of crude per day that were produced by US wells during the week ending February 2nd was the highest week on records going back to 1983, 14.2% more than the 8,978,000 barrels per day we were producing on February 3rd of last year, and 21.6% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

meanwhile, US oil refineries were operating at 92.5% of their capacity in using 16,797,000 barrels of crude per day, up from just 88.1% of capacity the prior week, but still down from the wintertime record 96.7% of capacity just five weeks earlier...the 16,797,000 barrels of oil that were refined this week were 4.6% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 5.7% more than the 15,893,000 barrels of crude per day that were being processed during the week ending February 3rd, 2017, when refineries were operating at 87.7% of capacity....

with the big increase in the amount of oil being refined, gasoline production by our refineries was also much higher, increasing by 518,000 barrels per day to 10,085,000 barrels per day during the week ending February 2nd, after increasing by 209,000 barrels per day the prior week....as a result, our gasoline production was 2.9% higher than the 9,804,000 barrels of gasoline that were being produced daily during the week ending February 3rd of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) jumped by 516,000 barrels per day to 5,129,000 barrels per day, after falling by 979,000 barrels per day over the prior four weeks...after that big increase, the week's distillates production was 6.8% higher than the 4,802,000 barrels of distillates per day than were being produced during the the fifth week of 2017....  

with the big increase in our gasoline production, our gasoline inventories at the end of the week rose by 3,414,000 barrels to 245,474,000 barrels by February 2nd, their twelfth increase in 13 weeks...that was as our domestic consumption of gasoline rose by 66,000 barrels per day to 9,110,000 barrels per day, and as our imports of gasoline rose by 137,000 barrels per day to 746,000 barrels per day, while our exports of gasoline rose by 214,000 barrels per day to 829,000 barrels per day....but even after twelve increases in thirteen weeks, our gasoline inventories are still 4.2% lower than last February 3rd's level of 256,217,000 barrels, even as they are roughly 4.7% above the 10 year average of gasoline supplies for this time of the year...     

similarly, with the week's jump in distillates production, our supplies of distillate fuels rose by 3,926,000 barrels to 141,826,000 barrels over the week ending February 2nd, the sixth increase in distillates supplies in the past eight weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 692,000 barrels per day to 3,778,000 barrels per day, even as our imports of distillates fell by 271,000 barrels per day to 313,000 barrels per day, and as our exports of distillates rose by 99,000 barrels per day to 1,103,000 barrels per day...but even after this week’s inventory increase, our distillate supplies were still 16.9% lower at the end of the week than the 170,746,000 barrels that we had stored on February 3rd, 2017, and roughly 1.4% lower than the 10 year average of distillates stocks at this time of the year…

finally, even with the big increase in the amount of oil used by our refineries, the jump in our weekly crude oil production meant that our commercial supplies of crude oil rose for the second time in 12 weeks and for the 12th time in the past 47 weeks, increasing by 1,895,000 barrels, from 418,359,000 barrels on January 26th to 420,254,000 barrels on February 2nd ....but even with back to back increases, our oil inventories as of that date were still 17.4% below the 508,592,000 barrels of oil we had stored on February 3rd of 2017, and 10.7% lower than the 470,676,000 barrels of oil that we had in storage on February 5th of 2016, even they were still 9.5% greater than the 383,800,000 barrels of oil we had in storage on February 6th of 2015, at a time when US supplies of oil had just begun to increase... 

A Note on US Oil Production Figures

before we move on, we should explain that big increase in our oil production, which quite obviously put our oil output at a new record high...as we've pointed out on several occasions, this weekly oil data from the EIA that we cover is preliminary, and it will typically be more than 2 months before the final confirmed figures, published monthly, are released...despite the likelihood of some inaccuracy in this this weekly data, we follow it because it's what the oil traders follow, and hence it moves oil prices and ultimately decisions on the part of exploitation companies to start drilling for oil...

so, last week the confirmed monthly oil production data for November was released, and it showed that US crude oil production had increased to 10.038 million barrels per day in November, a big jump from the confirmed 9,654,000 barrels per day of oil production they reported for October...the graph below shows that increase, and the US oil production record over the entire period that monthly records of US oil production have been kept:

the above graph comes from the February 1st post on the EIA's blog "Today in Energy" and it obviously shows US crude production over the period from January of 1920 to November of 2017....the big increase in our November output meant we had topped 10 million barrels per day for just the third time in our history, coming in just a fraction below the 10.044 million barrels per day record production of November 1970...

now, here's the issue; each week of the past several we've stated that our oil production was at a new high, right up until last week when we said "the 9,919,000 barrels of crude per day that were produced by US wells during the week ending January 26th was the highest week on records going back to 1983"....and that has been accurate; up until this week, the preliminary weekly data had never showed our production higher...so along came the monthly report last week, which showed that the previously published weekly oil production data for November, which we have been quoting, was seriously off the mark...so this week, when the EIA came to estimating the new oil production data for the week ending February 2nd, they incorporated what they learned from the monthly report for November...the result of that is illustrated quite well in the following graph showing both monthly and weekly oil production:

the above graph, from the weekly OilPrice Intelligence Report, shows the history of confirmed monthly oil data from January 2015 to November 2017 in blue, and then the weekly estimates up until the current week in yellow after that period...we can see that up until the November report was released, the yellow line had been nearly contiguous with the blue one, or at least not different enough by a magnitude that would matter...however, after the publication of the monthly report for November, it became clear that the weekly estimates in yellow have been too low...hence, this week the EIA rebenchmarked their weekly production data to the newly released November data to estimate that for the week ending February 2nd, our crude oil production rose to a new record high of 10,251,000 barrels per day, suddenly 332,000 barrels per day more than they reported the prior week....so our production did not really "jump" by that much; rather it was just recomputed to reflect the new, confirmed data.....for more on how this weekly data is gathered and estimated, here's the fact sheet titled "Estimated domestic crude oil production in EIA’s Weekly Petroleum Status Report (WPSR)" (pdf)

This Week's Rig Count

US drilling activity increased for just the twelfth time in the past 28 weeks during the week ending February 9th, but this week's increase was the most in over a year and brought the total rig deployment to the highest level since April 10th, 2015....Baker Hughes reported that the total count of active rotary rigs running in the US was up by 29 rigs to 975 rigs in the week ending on Friday, which was also 234 more rigs than the 741 rigs that were deployed as of the February 10th report of 2017, while it was still down by nearly half from the recent high of 1929 drilling rigs that  were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 26 rigs to 791 rigs this week, which was also 200 more oil rigs than were running a year ago, while the week's oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations rose by 3 rigs to 184 rigs this week, which was only 35 more gas rigs than the 149 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity from platforms in the Gulf of Mexico was unchanged at 16 rigs this week, which was down from the 20 rigs deployed in the Gulf of Mexico a year ago and the total of 21 rigs offshore nationally a year ago....the week's count of active horizontal drilling rigs was up by 24 rigs to 832 horizontal rigs this week, which was also up by 225 rigs from the 607 horizontal rigs that were in use in the US on February 10th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig was up by 4 rigs to 70 vertical rigs this week, which was 2 more than the 68 vertical rigs that were in use during the same week of last year....in addition, the directional rig count was up by 1 rig to 73 directional rigs this week, which was also up from the 66 directional rigs that were deployed on February 10th of 2017...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 9th, the second column shows the change in the number of working rigs between last week's count (February 2nd) and this week's (February 9th) count, the third column shows last week's February 2nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 10th of February, 2017...             

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note: there’s more here…

natural gas prices crash on milder weather, heat oil imports at a 8 year high, Cabot in Mansfield area, et al

oil prices fell from last week's highs this week, but not before testing another 37 month intraday high on Monday...after rising last week to a 37 month high of $66.14 a barrel, oil prices opened higher and rose to $66.46 a barrel on Monday morning, before pressure from a strengthening dollar and traders expectations of increasing U.S. crude supplies drove prices lower, with contracts of light US oil for March delivery ending the session down 58 cents, or nearly 1 percent, at $65.43 a barrel... oil prices then fell for a second day on Tuesday, driven by a stronger dollar and ongoing evidence of rising U.S. crude output, with US crude falling $1.06, or 1.6 percent, to close at $64.50 a barrel, in a broad-based selloff of stocks, bonds and commodities...oil prices then rose 23 cents to $64.73 a barrel on Wednesday, despite a big jump in US crude stockpiles, as gasoline demand rose while a Reuters survey showed the OPEC members had achieved a 138 percent supply cut (sic)...US oil prices then jumped $1.07 on Thursday to $65.80 a barrel, after Goldman Sachs said oil supply and demand had reached a balance and raised their 6-month Brent oil-price forecast to $82.50 a barrel...oil prices then fell on Friday in the midst of the worst broad market selloff in two years, as the U.S. dollar rose following a strong jobs report, suggesting that the economy was strong enough for the Fed to again raise interest rates, amplifying the ongoing selloff of stocks, bonds and oil, with crude ending down 35 cents at $65.45 a barrel, a loss of roughly 1% for the week...

meanwhile, natural gas prices were much lower this week, partially because prices fell on their own accord, and partially because trading in the February natural gas contract expired, leaving the widely followed front month price quotes referencing the already lower priced March contract...let's walk through how that happened...you might recall that last week we reported that natural gas prices rose more than 30 cents to a 12 month high of $3.505 per mmBTU...that price was for natural gas to be delivered in February, the closest month to which natural gas contracts were then still trading, typically called the "front month", which would be the price you'd get for natural gas by asking google or by going to any website that shows commodity prices...the price for that February contract then rose 12.6 more cents to close at $3.631 per mmBTU before trading in that contract expired on Monday of this week...then, starting Tuesday, the natural gas price you'd get by checking websites that show commodity prices would be for natural gas to be delivered in March, the closest month which was trading at the time...the price for that March contract rose 2.8 cents on Tuesday to close at $3.195 per mmBTU...however, despite the fact that the price of natural gas rose that day, the price quoted on the commodity price sites appeared to fall 43.6 cents, from $3.631 per mmBTU on Monday to $3.195 per mmBTU on Tuesday....that's because, by convention, the actively traded front month price is always quoted as the price of the commodity...now quoting exclusively March contracts, "natural gas prices" then went on to fall 20 cents on Wednesday, 13.9 cents on Thursday, and another penny on Friday to end the week at $2.846 per mmBTU, quite a substantial drop from the 12 month high price quoted last Friday and the even higher price it reached on Monday...to help you visualize how that happened, we'll include a graph that shows the widely quoted daily prices, irregardless of what contract month it references each day:

the above graph is a Saturday screenshot of the live interactive 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 graph represents natural gas prices for one day of oil trading between August 24th and February 2nd, with green bars representing days when the price of natural gas went up, and red bars representing the days when the price of natural gas 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 weeks, the starting price is at the top of the bar and the price at the close is at the bottom of the bar...also visible on this "candlestick" style graph are the feint grey "wicks" above and below each bar, to indicate trading prices during each day that were above or below the opening to closing price range for that day...

thus for Monday, January 29th, you can see that natural gas prices opened below $3.30 per mmBTU and rose to above $3.66 per mmBTU before closing at $3.631 per mmBTU...then Tuesday, natural gas prices opened much lower but were still green, or up for the day, as the quoted month rolled from February to March...from there, however, it was all downhill, with quoted prices for natural gas falling all the way to $2.846 per mmBTU by the close of Friday, actually down more than 80 cents from their high on Monday...

now, even though more than half of this week's price drop in natural gas was due to the change in the month referenced, there was still a drop of over 32 cents in the March contract itself...that was mostly because the weekly natural gas storage report showed a relatively modest 99 billion cubic feet withdrawal of gas supplies from storage for the week ending Friday, January 26th, leaving 2,197 billion cubic feet of gas still in storage, which the EIA reports is "within the five-year historical range" of gas in storage at this time of year....that simply means that although it's worse than the past 3 years, it's not as bad as the polar vortex year of 2014...still, the 2,197 billion cubic feet we had in storage on January 26th was 526 billion cubic feet, or 19.3% less than was in storage on January 27th of last year, and 425 billion cubic feet, or 16.2% below the five-year average of 2,622 billion cubic feet for the fourth week of the year...but since the price of natural gas had spiked due to last week's withdrawal of 288 billion cubic feet, the 99 billion cubic feet withdrawal was mild by comparison, and hence the market panic subsided and natural gas sold off..

now, to help visualize why the withdrawal of natural gas from storage was below normal this week, we have a graph of daily population-weighted heating degree days nationally up to the date of the natural gas storage report...

the above graph came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday; it incorporates heating degree day data from all locations across the US and weighs it by the number of people living in each reporting location to give a population weighted degree day average for the US...degree days are computed by taking the average daily temperature in each location and subtracting that temperature from 65F, the temperature when most buildings are expected to start needing heating...thus, the colder it gets, the greater the number of heating degree days will accumulate, giving utilities and suppliers of heating fuels a heads up as to what the daily demand for heating will be...

on the above graph, the yellow line shows the average degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population degree days for each day this heating season of 2017-2018....while those dots are difficult to read and line up, you can orient what the graph shows by noting that the highest number of degree days was on January 1st, when the all time record for natural gas consumption was set...that date looks to be close to 43 degree days, about 17 degree days above normal for that date...but we can also see that for the cluster of the 10 most recent days on this graph - the ten days prior to the release of this week's natural gas storage report, heating needs were below normal nationally over the period...considering that heating needs for at least 5 of those days was 7 or 8 degrees days below normal, it's almost a surprise that we still needed to take 99 billion cubic feet of gas out of storage, in addition to the roughly 525 billion cubic feet of natural gas that was being produced by US wells over the same period...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, which covers the details for the week ending January 26th, showed that another big reduction in operations at US refineries, combined with another new record in production from US wells and an ongoing increase in oil imports meant that we had surplus crude oil left over for the first time in 11 weeks...our imports of crude oil rose by an average of 389,000 barrels per day to an average of 8,430,000 barrels per day during the week, while our exports of crude oil rose by an average of 354,000 barrels per day to an average of 1,765,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,665,000 barrels of per day during the week, 35,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 41,000 barrels per day to a weekly record high of 9,919,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,584,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,013,000 barrels of crude per day, 470,000 barrels per day fewer than they used during the prior week, while 1,001,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 430,000 more barrels per day less than what refineries reported they used during the week plus what was added to storage...to account for that disparity, the EIA needed to insert a (+430,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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"...(how this weekly data is gathered, and the reason for that "unaccounted" oil, is explained here)

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 8,020,000 barrels per day, still 4.3% less than the 8,383,000 barrels per day average we imported over the same four-week period last year....the 1,001,000 barrel per day increase in our total crude inventories came about on a 968,000 barrel per day addition to our commercial stocks of crude oil and a 33,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency, since the Reserve is not authorized to buy oil at this time....this week's 41,000 barrel per day increase in our crude oil production included a 40,000 barrel per day increase in output from wells in the lower 48 states, and a 1,000 barrels per day increase in output from Alaska.....the 9,919,000 barrels of crude per day that were produced by US wells during the week ending January 26th was the highest week on records going back to 1983, 13.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 17.7% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 88.1% of their capacity in using those 16,013,000 barrels of crude per day, down from 90.9% of capacity the prior week, and down from the wintertime record 96.7% of capacity just four weeks earlier...the 16,013,000 barrels of oil that were refined this week were 9.1% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were still a bit more than the 15,947,000 barrels of crude per day that were being processed during the week ending January 27th, 2017, when refineries were operating at 88.2% of capacity....

even with the seasonal slowdown in the amount of oil being refined, gasoline production by our refineries was still higher, increasing by 209,000 barrels per day to 9,567,000 barrels per day during the week ending January 26th, after decreasing by 352,000 barrels per day the prior week....for the week, our gasoline production was 5.1% higher than the 9,101,000 barrels of gasoline that were being produced daily during the week ending January 27th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 214,000 barrels per day to 4,613,000 barrels per day, after falling by 765,000 barrels per day over the prior three weeks...but even after those four big decreases, the week's distillates production was just 1.4% lower than the 4,677,000 barrels of distillates per day than were being produced during the the fourth week of 2017....   

even with the increase in our gasoline production, our gasoline inventories at the end of the week fell by 1,980,000 barrels to 242,060,000 barrels by January 26th, their first decrease in 12 weeks...that was as our domestic consumption of gasoline rose by 347,000 barrels per day to 9,044,000 barrels per day, and as our imports of gasoline fell by 66,000 barrels per day to 509,000 barrels per day, while our exports of gasoline fell by 212,000 barrels per day to 615,000 barrels per day....but even after eleven increases in twelve weeks, our gasoline inventories are still 5.8% lower than last January 27th's level of 257,086,000 barrels, even as they are roughly 4.1% above the 10 year average of gasoline supplies for this time of the year...      

with the week's drop in distillates production, our supplies of distillate fuels fell by 1,940,000 barrels to 137,900,000 barrels over the week ending January 26th, the second decrease in distillates supplies in the past seven weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 623,000 barrels per day to 4,470,000 barrels per day, even as our imports of distillates rose by 333,000 barrels per day to a eight year high of 584,000 barrels per day, and as our exports of distillates fell by 136,000 barrels per day to 1,004,000 barrels per day... after this week’s inventory decrease, our distillate supplies ended up 19.2% lower at the end of the week than the 170,717,000 barrels that we had stored on January 27th, 2017, and roughly 4.2% lower than the 10 year average of distillates stocks at this time of the year… 

finally, with the slowdown of our refining, the increase in our oil imports, and with our weekly crude oil production at a record level, our commercial crude oil supplies rose for the first time in 11 weeks and for just the 11th time in the past 46 weeks, increasing by 6,776,000 barrels, from their 34 month low of 411,583,000 barrels on January 19th to 418,359,000 barrels on January 26th....but our oil inventories as of that date were still 15.4% below the 494,762 ,000 barrels of oil we had stored on January 27th of 2017, and 11.2% lower than the 471,344,000 barrels of oil that we had in storage on January 29th of 2016, even they were still 10.2% greater than the 379,473,000 barrels of oil we had in storage on January 30th of 2015, at a time when US supplies of oil had just begun to increase... 

This Week's Rig Count

US drilling activity decreased for the fifth time in the past 13 weeks during the week ending February 2nd, as rigs drilling for oil increased while those drilling for natural gas decreased....Baker Hughes reported that the total count of active rotary rigs running in the US was down by 1 rig to 946 rigs in the week ending on Friday, which was still 217 more rigs than the 729 rigs that were deployed as of the February 3rd report of 2017, while it was less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 6 rigs to 765 rigs this week, which was also 182 more oil rigs than were running a year ago, while the week's oil rig count remained far below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 7 rigs to 181 rigs this week, which was only 36 more gas rigs than the 145 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity from platforms in the Gulf of Mexico decreased by 1 rig to 16 rigs this week, which was down from the 21 rigs deployed in the Gulf of Mexico a year ago and the total of 22 rigs offshore nationally a year ago....the week's count of active horizontal drilling rigs was unchanged at 808 horizontal rigs this week, which was still up by 212 rigs from the 596 horizontal rigs that were in use in the US on February 3rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...the vertical rig was also unchanged at 66 vertical rigs this week, which was 1 less than the 67 vertical rigs that were in use during the same week of last year....meanwhile, the directional rig count was down by 1 rig to 72 directional rigs this week, which was still up from the 66 directional rigs that were deployed on February 3rd of 2017...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 2nd, the second column shows the change in the number of working rigs between last week's count (January 26th) and this week's (February 2nd) count, the third column shows last week's January 26th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 3rd of February, 2017...             

note that the 3 rig decrease in Wyoming drilling was not in a major basin (although it could have been in the Powder River) so it doesn't show up in the lower table, while the two rig increase in the Haynesville is not noticeable in the count of either Texas or Louisiana, which were both down a rig... the Haynesville increase included one oil directed rig and one natural gas rig, while the Utica shale saw the addition of two new rigs drilling for oil, while a natural gas rig was shut down....with that in mind, scroll down a few paragraphs into the news links below and you'll see that Cabot Oil and Gas is leasing tracts in Richland, Ashland and Knox counties, southwest of Cleveland, with an eye to exploitative drilling....checking our maps of the Utica shale, we note that the Utica is relatively immature in that region of Ohio, meaning that Cabot is likely looking to frack for oil....the combined Utica-Pt Pleasant shale averages 225 feet thick down there, and roughly 2 to 3% of the shale underlying those counties is organic carbon...that contrasts with a combined shale thickness running between 245 and 345 feet in our corner of the state, with an organic content averaging 1 to 2%...

 

note:  there’s more here…