oil prices were down less than half a percent over the past week, as geopolitical concerns competed with supply fundamentals for oil traders' attention...after increasing more than 10% over the prior 10 sessions and closing at $68.40 a barrel last week, US crude oil contracts for June delivery rebounded from a $1.26 drop on Monday morning to finish 24 cents higher at a new 42 month high of $68.64 a barrel, as oil traders feared renewed U.S. sanctions could curtail Iran's oil output and reduce global supplies...prices then dropped 94 cents to $67.70 a barrel on Tuesday, after speeches by Trump and French President Macron telegraphed an agreement on an Iran nuclear deal...however, geopolitical concerns returned to the markets after Venezuela imprisoned Chevron employees for treason on Wednesday, and oil prices subsequently rose 35 cents to $68.05 a barrel, despite a surprising increase in US crude supplies...oil prices rose another 14 cents to $68.19 a barrel on Thursday, as the risk of renewed sanctions on Iran and plunging Venezuelan output offset the effects of a strong dollar...while international oil prices continued to move higher on Iran concerns on Friday, US prices slipped 9 cents to end the week at $68.10 a barrel, 30 cents lower than their previous weekly close, thus logging their first decrease in three weeks...
natural gas prices, meanwhile, were little changed this week, with the June contract ending Friday at a $2.771 per mmBTU, just four-tenths of a cent higher than it closed the previous week, despite a larger than expected withdrawal of gas from storage...the now expired May natural gas contract, on the other hand, was up every day it traded, ending 8.2 cents higher at $2.821 per mmBTU on Thursday, before the June contract became the front month on Friday and fell 6.8 cents...the natural gas storage report from the EIA released on Thursday indicated that natural gas in storage in the US fell by 18 billion cubic feet to 1,281 billion cubic feet over the week ending April 20th, which left our gas supplies 897 billion cubic feet, or 41.2% lower than the 2,178 billion cubic feet that were in storage on April 20th of last year, and 527 billion cubic feet, or 29.1% below the five-year average of 1,808 billion cubic feet typically in storage after the third week of April....the forecasts had been for a 12 billion cubic foot withdrawal, which still would have been unusual for this time of year; normally, the third week of April sees a 60 billion cubic foot surplus of natural gas, which is then injected into storage; last year, there were 71 billion cubic feet of gas added to storage over the week ending April 20th...since the Midwest has been taking the brunt of the withdrawals lately, we'll include a table from that report showing the differences in regional natural gas supply...
the above table is the initial summary table from the EIA's Weekly Natural Gas Storage Report for the week ending April 20th; the first column shows the quantity of natural gas in storage in billions cubic feet for each US region and nationally the week ending April 20th; the second column shows the natural gas in storage for each US region and nationally the week ending April 13th, and the next column shows the change between the two...on the right, under 'Historical Comparisons', they show the billions cubic feet of natural gas in storage for each US region and nationally as of April 20th of last year, and then the average of natural gas in storage for each US region and nationally for the 3rd week in April over the past 5 years...thus we can see that of this week's 18 billion cubic foot withdrawal, 17 billion cubic feet came out of storage in the Midwest, as we would expect, recalling that week, as well as most of April, has seen cooler than normal weather in this region...that left regional gas supplies at 211 billion cubic feet, or 58.0% lower than the 502 billion cubic feet that were in storage in the Midwest on April 20th of last year, and 42.7% below the five-year average of 368 billion cubic feet typically in Midwest storage after the third week of April...
the issue here is not that we're going to run short of natural gas this year anymore, since it's almost certain that the next week will see a surplus, and hence an increase in gas in storage...the question is whether enough natural gas can be added back to storage over the coming months to get our supplies back up to normal by mid-October, when the next heating season begins...that's what we'll be watching as the natural gas injection season progresses...
The Latest US Oil Data from the EIA
this week's US oil data from the US Energy Information Administration, covering the week ending April 20th, indicated equally large increases in both our oil imports and in our oil exports, but because of a big pullback in the amount of oil used by our refineries, we were able to add oil to our commercial crude supplies for the eighth time in the past thirteen weeks...our imports of crude oil rose by an average of 539,000 barrels per day to an average of 8,469,000 barrels per day during the week, after falling by 720,000 barrels per day the prior week, while our exports of crude oil rose by an average of 552,000 barrels per day to a record high average of 2,331,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 20th worked out to a net import average of 6,138,000 barrels of per day during the week, 43,000 barrels per day less than our net imports during the prior week...at the same time, field production of crude oil from US wells rose by 46,000 barrels per day to a record high of 10,586,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,724,000 barrels per day during the reporting week...
meanwhile, US oil refineries were using 16,621,000 barrels of crude per day during the week ending April 20th, 328,000 barrels per day less than they used during the prior week, while at the same time 205,000 barrels of oil per day were being added to oil storage in the US....consequently, this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 102,000 fewer barrels per day than what refineries reported they used during the week plus what was reportedly added to storage...to account for that disparity, the EIA needed to insert a (+102,000) 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"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this)...
further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,237,000 barrels per day, which was 1.5% more the 8,113,000 barrel per day average we imported over the same four-week period last year...the 205,000 barrel per day addition to our total crude inventories included a 310,000 barrel per day increase in our commercially available stocks of crude oil, partially offset by a 105,000 barrel per day decrease the oil in our Strategic Petroleum Reserve, possibly a sale mandated by this year's federal budget...this week's 46,000 barrel per day increase in our crude oil production included a 33,000 barrel per day increase in output from wells in the lower 48 states and a 13,000 barrel per day increase in output from Alaska...the 10,540,000 barrels of crude per day that were produced by US wells during the week ending April 20th were the highest on record, 14.3% more than the 9,265,000 barrels per day that US wells were producing during the week ending April 21st of last year...
since our crude oil production has been hitting new record highs virtually every week this year, it's worth taking a look at a graph of what those production increases looks like compared to the recent historical trend...
the above graph was copied from a zero hedge review of this week's EIA petroleum status report, and it shows our weekly crude oil production in thousands of barrels per day on the right scale from the beginning of 2015 in blue...it also shows the weekly US rig count on the left scale over that same period in green, with dates for those rig counts shifted forward 3 months from the oil production dates in an attempt to line up weekly production with the number of rigs that were drilling three months prior in any given week...however, the fact is that the number of rigs drilling at any point in time has little to do with future oil production anymore, for a couple of reasons...first, drilling during any week in preparation for fracking does not bring that well into production in any given time-frame...as we saw with the DUC well report last week, there was a 6.4 month backlog of drilled but uncompleted wells in the US in March, a total which has been rising for fairly continuously for two years...completions of those wells, which would bring them into production, has been progressing at an increasing pace, irregardless of the changes in the weekly rig count...another reason that the number of rigs has little to do with the ultimate oil output is that horizontal wells are getting much larger, and are being fracked in an increasing number of stages...just this week, ConocoPhillips set a new record for horizontal drilling with a lateral of 21,478 feet, or more than four miles long...other producers are using up to 2 unit trains (~100 cars each) of sand and fracking in as many as 80 stages...these new fracks in longer laterals are a far cry from from the few stages fracking in 5000 foot laterals common just a few years ago, and hence mean considerably more production from each well when they are completed, without any increase in the number of rigs in use...
so, ignoring the rig count, the above graph clearly shows how our oil production has been spiking over the past several months, exceeding 10 million barrels per day for the first time during the week ending February 2nd, and topping 10.5 million barrels per day just 9 weeks later...at 10,586,000 barrels per day, our oil production is now up by 25.6% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016, with an increase of 804,000 barrels per day year to date, or up 8.2% from the 9,782,000 barrel per day oil production of December 30th...at that rate we'd see an increase of over 2.5 million barrels per day this year alone...putting that into a bit of perspective, the OPEC oil production cuts of 1.2 million barrels per day have been less than half of that...
returning to our EIA data, US oil refineries were operating at 90.8% of their capacity in using those 16,621,000 barrels of crude per day during the week ending April 20th, down from 92.4% of capacity the prior week, and down from the off-season record 96.7% of capacity set during the last week of 2017...the 16,621,000 barrels of oil that were refined this week were the least oil processed since the first week of March, down 5.6% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 3.8% less than the 17,285,000 barrels of crude per day that were being processed during the week ending April 21st, 2017, when refineries were operating at 94.4% of capacity....
with the decrease in the amount of oil being refined, gasoline output from our refineries was much lower than the prior week, decreasing by 308,000 barrels per day to 9,886,000 barrels per day during the week ending April 20th, after our refineries' gasoline output had increased by 54,000 barrels per day during the week ending April 13th....but even with that large decrease, our gasoline production was still 1.8% greater during the week than the 9,710,000 barrels of gasoline that were being produced daily during the week ending April 21st of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 117,000 barrels per day to 4,977,000 barrels per day, after falling by 162,000 barrels per day the prior week....hence, that decrease meant the week's distillates production was 1.7% less than the 5,063,000 barrels of distillates per day than were being produced during the week ending April 21st, 2017....
however, even with the drop in our gasoline production, our supply of gasoline in storage at the end of the week rose by 806,000 barrels to 236,807,000 barrels by April 20th, just the second increase in 8 weeks, but the 17th increase in 24 weeks, as gasoline inventories are typically built up over the winter months...our gasoline supplies rose because our domestic consumption of gasoline fell by 744,000 barrels per day from last week's record to a below normal 9,083,000 barrels per day, and because our imports of gasoline rose by 191,000 barrels per day to 896,000 barrels per day, even as our exports of gasoline rose by 144,000 barrels per day to 791,000 barrels per day...but even with this week's increase, our gasoline inventories are still 1.8% lower than last April 21st's level of 241,041,000 barrels, even as they are now roughly 9.2% above the 10 year average of gasoline supplies for this time of the year...
meanwhile, with this week's decrease in distillates production, our supplies of distillate fuels fell by 2,611,000 barrels to 122,729,000 barrels over the week ending April 20th, the 6th decrease in seven weeks, after falling by 3,017,000 barrels the prior week...our distillate inventories fell again because our exports of distillates rose by 439,000 barrels per day to a record high 1,724,000 barrels per day despite that lower production, while our imports of distillates rose by 20,000 barrels per day to 123,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 607,000 barrels per day to 3,749,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 18.7% lower than the 148,266,000 barrels that we had stored on April 21st, 2017, and roughly 9.6% lower than the 10 year average of distillates stocks at this time of the year…
finally, despite the jump to a record high by our oil exports, we were still able to add to our commercial supplies of crude oil for the 9th time in 2018 and for the 17th time in the past year because of the increase in our imports and the reduced oil consumption by our refineries, as our commercial crude supplies increased by 2,170,000 barrels during the week, rising from 427,567,000 barrels on April 13th to 429,737,000 barrels on April 20th ...however, after falling most of the past year, our oil inventories as of April 13th were still 18.7% below the 528,702,000 barrels of oil we had stored on April 21st of 2017, 15.6% lower than the 509,311,000 barrels of oil that we had in storage on April 22nd of 2016, and 6.2% below the 458,181,000 barrels of oil we had in storage on April 24th of 2015, at a time when the US glut of oil had already begun to surge from the stable levels of prior years...
since our oil exports have hit yet another record this week, we will again include the latest updated chart of their trajectory over the past 20 months..
the above graph came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, and it shows weekly US crude oil exports in thousands of barrels per day over the past 20 months, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select weeks going back to September 1st, when our exports were choked off as Gulf Coast ports were shut down by Hurricane Harvey...as you can see, our oil exports had only topped a million barrels per day a few times prior to that date...however, after the price of US crude fell to a 10% discount to the comparable international grade in the wake of the hurricanes, US crude suppliers began to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since...as of Friday, US WTI (West Texas Intermediate) crude for June was selling at $68.10 a barrel, while June North Sea Brent, the international benchmark crude of an equivalent grade, was selling at $74.64 a barrel, so it's evident that US oil traders will be pulling down large windfall profits to sell US crude into the international markets in the months going forward, even after paying the roughly $2 a barrel transport costs...
with the record for crude exports occurring the same week as a record for distillates exports and an increase in our gasoline exports, it shouldn't be much of a surprise that our total exports of oil and the products made from it were also at a record high, eclipsing the old export record by nearly 10%, and that's what the next graph shows:
this is the graph that accompanies the EIA spreadsheet for "Weekly U.S. Exports of Crude Oil and Petroleum Products" which gives us the weekly totals in thousands of barrels per day of all our exports of oil and all products made from oil, including gasoline, distillates, fuel oil, and petrochemical precursors...we exported 8,332,000 barrels per day of such oil & oil products during the week ending April 20th, obviously a new record, up from 6,725,000 barrels per day the prior week, and 39.4% more than the 5,979,000 barrels per day that were being exported during the same week a year earlier...
This Week's Rig Count
US drilling activity increased for the ninth time in the past ten weeks and for 18th time in the past 25 weeks during the week ending April 27th, a period of higher oil prices that has consequentially seen the rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 8 rigs to 1021 rigs in the week ending on Friday, which was also 151 more rigs than the 870 rigs that were in use as of the April 28th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014...
the number of rigs drilling for oil increased by 5 rigs to 825 rigs this week, which was also 128 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations was increased by 3 rigs to 195 rigs this week, which was 24 more gas rigs than the 171 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there is also a rig drilling currently that is listed as "miscellaneous", unchanged from last week, but down from the 2 "miscellaneous" rigs that were operating a year ago.
drilling activity in the Gulf of Mexico was unchanged at 18 rigs rig this week, while the year ago offshore totals fell, which meant that the total Gulf count and total offshore count is now 1 rig higher than the 17 offshore rigs deployed a year ago...this week also saw a rig set up to drill through an inland lake in Louisiana, where there are now 5 such rigs working, up from the 4 rigs deployed on inland waters during the week ending April 28th of a year ago..
the count of active horizontal drilling rigs increased by 12 rigs to 901 horizontal rigs this week, which was 171 more horizontal rigs than the 730 horizontal rigs that were in use in the US on April 28th 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 directional rig count was down by 2 rigs to 68 rigs this week, which was still up from the 63 directional rigs that were in use during the same week of last year....at the same time, the vertical rig count also decreased by 2 rigs to 52 vertical rigs this week, which left their count down from the 77 vertical rigs that were deployed on April 28th 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 April 27th, the second column shows the change in the number of working rigs between last week's count (April 20th) and this week's (April 27th) count, the third column shows last week's April 20th active rig count, the 4th column shows the change between the number of rigs running on Friday and as of the equivalent weekend report of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Thursday the 28th of April, 2017...
it's a bit of a surprise to see this week's increase led by the 9 rig increase in the Cana Woodford of Oklahoma, as drilling in that basin has been stagnant to lower over recent months, after it rose to 74 rigs in the middle of November, while drilling elsewhere had been on the increase...all those were oil rigs, as was the rig addition in the Ardmore Woodford, while the rig added in the Arkoma Woodford was targeting natural gas...meanwhile, the increase of two natural gas rigs in Ohio's Utica shale was offset by natural gas rig shutdowns in Pennsylvania's Marcellus and Arkansas' Fayetteville...other natural gas rig increases came in the Haynesville of northern Louisiana and in an "other" basin not tracked separately by Baker Hughes...note that other than the major producing states shown above, Nevada also saw a rig added this week and now has two; up until 7 weeks ago, Nevada had gone over a year with no drilling at all...
note: there’s more here..
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