oil prices reverse May's gains; distillates supplies at a 4 year low, down 22% from a year ago; global oil stores down in April

oil prices fell for the first time in four weeks this week, giving up all of their May gains in the process, but not before hitting new three and a half year highs on Monday and again on Tuesday....after rising 58 cents to $71.28 a barrel last week, mostly on geopolitical fears, oil contracts for June delivery of US oil rose 96 cents to $72.24 a barrel on Monday, the highest since November 2014, on fears that Venezuela’s oil output would fall further after Trump added new financial sanctions to punish the country for re-electing their socialist president Maduro...oil prices then rose to another 42 month high of 72.83 a barrel on U.S. sanctions threats against Iran on Tuesday morning, but then fell back on renewed fears of a trade war between the US and China to close 11 cents lower, as trading in June US oil expired Tuesday afternoon at $72.13 a barrel, even as Brent crude for July, the global benchmark, still settled 35 cents higher, at another 3 1/2 -year closing high of $79.57 a barrel...with the contract for July US oil, which had fallen 15 cents to 72.20 on Tuesday, becoming the quoted front month oil price Wednesday, oil prices fell 36 cents to $71.84 a barrel on Wednesday, after the weekly EIA report showed a shockingly large increase in US oil stockpiles...oil prices then sank $1.13 to $70.71 a barrel on Thursday, on expectations that OPEC, meeting with Russia in St Petersburg, would increase oil output to cover the supply shortfalls expected out of Venezuela and Iran...US crude prices then fell as much as $3 in a broad selloff on Friday, after Saudi energy minister Al-Falih said OPEC and Russia were prepared to adjust oil policy in June, possibly by adding as much as 1 million barrels per day to global supplies, with oil closing the day $2.83 lower at $67.88 a barrel...thus the benchmark July US oil contract, which had ended last week at $71.37 a barrel, ended this week 4.9% lower, in its largest weekly retreat since early February...

since that end of the week oil price crash quickly reversed this month's worth of price increases, we'll include a quick graph of that interesting price trajectory here...

the above graph is an early Saturday morning 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, which we had set to show oil price changes every 2 hours...thus, each bar on this graph represents oil prices for 2 hours of oil trading between 8 AM on May 1st and the end of trading on Friday of this week, with green bars representing the two hour periods when the price of oil went up, and red bars representing the periods when the price of oil went down...for green bars, the starting oil price at the beginning of the 120 minute period is at the bottom of the bar and the price at the end of the period is at the top of the bar, while for red or down periods, the starting price is at the top of the bar and the price at the end of the 2 hours is at the bottom of the bar...also barely visible on this "candlestick" style graph are the faint grey "wicks" above and below each bar, to indicate trading prices during each 2 hour period that were above or below the opening to closing price range for that 2 hour period...   

as you can see, oil prices moved up fairly steadily throughout most of May, driven mostly by Trump's Iran sanctions, repeatedly hitting new 42 month highs on the way, till they reversed in the noon hour on Tuesday, which you can see as an obvious green to red peak...prices then fell in a steeping trajectory until the close, after which they still continued sliding in after hours trading...note that the odd price cite on the right margin was the morning price on May 1st, produced by the interactive function as i navigated the cursor to 8 AM on the graph...that $68.15 thus represents the price at that time, thus showing that oil prices are now down roughly 1% for the month...

natural gas prices, on the other hand, were 3.2% higher this week, hitting 17 week highs on three consecutive days before slipping a tenth of a cent to $2.939 per  mmBTU on Friday, as the temperature outlook progressively indicated a warmer than normal period ahead for most of the country, which would increase power burn for air conditioning, leaving less natural gas left over for storage...the natural gas storage report from the EIA for the week ending May 18th indicated that natural gas in storage in the US rose by 91 billion cubic feet to 1,629 billion cubic feet over the week, which still left our gas supplies 804 billion cubic feet, or 33.0% below the 2,433  billion cubic feet that were in storage on May 19th of last year, and 499 billion cubic feet, or 23.4% below the five-year average of 2,128 billion cubic feet of natural gas that are typically in storage on the third weekend in May...analysts had forecast a 92 billion cubic foot addition to storage, so while this 91 billion cubic foot addition was in line with expectations, it was still above the 74 billion cubic feet of gas that were added to storage over the week ending May 19th last year, and a bit above the average 89 billion cubic foot surplus of natural gas typically added to storage during the third week in May...however, except for the polar vortex year of 2014, natural gas supplies are still at their lowest on record for this time of year, and at 1,629 billion cubic feet they would need to increase by more than 98 billion cubic feet per week to get supplies up to the pre-winter average of 3,800 billion cubic feet by mid-October, a target that will get increasingly difficult as we move into the warmer part of the year, when demand for air conditioning is strongest...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending May 18th, indicated that due to a big jump in our oil imports and and an even larger drop in our oil exports, we had surplus oil to add to our commercial crude supplies for the tenth time in the past seventeen weeks...our imports of crude oil rose by an average of 558,000 barrels per day to an average of 8,159,000 barrels per day during the week, after rising by 258,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 818,000 barrels per day from last week's record high to 1,748,000 barrels per day during this week, which meant that our effective trade in oil over the week ending the 18th worked out to a net import average of 6,411,000 barrels of per day during the week, 1,376,000 barrels per day more than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells inched up by 2,000 barrels per day to a record high of 10,725,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,136,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 16,628,000 barrels of crude per day during the week ending May 18th, 7,000 barrels per day less than they used during the prior week, while at the same time 725,000 barrels of oil per day were reportedly 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 217,000 fewer barrels per day than what was added to storage and what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+217,000) 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 EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,908,000 barrels per day, which was 3.5% less than the 8,192,000 barrel per day average we imported over the same four-week period last year...the 725,000 barrel per day increase in our total crude inventories included a 825,000 barrel per day addition to our commercially available stocks of crude oil, which was partially offset by a 100,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year's federal budget...this week's 2,000 barrel per day increase in our crude oil production included a 24,000 barrel per day increase in output from wells in the lower 48 states, which was mostly offser by a 22,000 barrel per day decrease in oil output from Alaska...the 10,725,000 barrels of crude per day that were produced by US wells during the week ending May 18th were nonetheless again the highest on record, 15.1% more than the 9,320,000 barrels per day that US wells were producing during the week ending May 19th of last year, and up by 27.2% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 91.8% of their capacity in using 16,628,000 barrels of crude per day during the week ending May 18th, up from 91.1% of capacity the prior week, but down from the seasonal high of 93.5% of capacity during the first week of April....the 16,628,000 barrels of oil that were refined this week were 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 17,281,000 barrels of crude per day that were being processed during the week ending May 19th, 2017, when refineries were operating at 93.5% of capacity.... 

even though the amount of oil that was refined this week was little changed, gasoline output from our refineries was much lower, decreasing by 410,000 barrels per day to 10,052,000 barrels per day during the week ending May 18th, after our refineries' gasoline output had increased by 488,000 barrels per day during the week ending May 11th....with this week's decrease, our gasoline production was 1.9% lower during the week than the 10,243,000 barrels of gasoline that were being produced daily during the week ending May 19th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 93,000 barrels per day to 4,938,000 barrels per day, after rising by 38,000 barrels per day the prior week....that left the week's distillates production 5.0% lower than the 5,197,000 barrels of distillates per day than were being produced during the week ending May 19th, 2017....      

however, even with the big drop in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,883,000 barrels to  233,897,000 barrels by May 18th, just the fourth increase in 12 weeks, but the 19th increase in 28 weeks, as gasoline inventories, as usual, were being built up over the winter months...our gasoline supplies rose this week because our exports of gasoline fell by 569,000 barrels per day to 356,000 barrels per day, and because our imports of gasoline rose by 342,000 barrels per day to 1,063,000 barrels per day, even as our domestic consumption of gasoline rose by 158,000 barrels per day to 9,689,000 barrels per day...but even after this week's increase, our gasoline inventories finished the week 2.5% lower than last May 19th's level of 239,882,000 barrels, even as they were still roughly 6.8% 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 951,000 barrels to a four year low of 113,995,000 barrels during the week ending May 18th, the 10th decrease in eleven weeks, and after falling by 13,311,000 barrels over the prior five weeks, at a time of year when distillates supplies are typically increasing...our distillate inventories fell again because our exports of distillates rose by 562,000 barrels per day to 1,461,000 barrels per day, and because our imports of distillates fell by 53,000 barrels per day to record low 24,000 barrels per day, even while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 585,000 barrels per day to 3,637,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 22.1% below the 146,339,000 barrels that we had stored on May 19th, 2017, and roughly 15.6% lower than the 10 year average of distillates stocks for this time of the year…

with our supplies of distillates now at a 4 year low, we'll take a look at a graph of what that looks like, compared to recent history:

in the graph above, copied from the weekly Petroleum Status Report (pdf), the blue line shows the recent track of US distillate inventories in millions of barrels over the period from January 2017 to May 18th, 2018, while the grey shaded area represents the range of distillate inventories in millions of barrels as reported weekly by the EIA over the 5 years prior to the time of year shown by the blue line...thus, on the extreme left of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to January 2012, while on the right side of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to December 2013...as we can see by the blue line, as recently as February 2017 our distillate supplies were at an all time high, but in the 15 months since then, they've fallen to a 4 year low, largely because we've been exporting diesel fuel at a record pace...only at the end of the polar vortex winter of 2014 were our distillate fuel supplies lower than they are now, due at that time to the exceptionally large use of heat oil over that winter...in fact, the last time distillate supplies were this low after the third week of May was back in 2008, because they'd already recovered to 116,277,000 barrels by May 16, 2014....unlike natural gas, however, where we are largely dependent on storage for our winter supplies, any distillate shortfall during a cold winter could be quickly made up by increasing our distillates imports, albeit more than likely at a much higher price than we are now selling our exports for...

finally, with the big drop in our oil exports accompanied by a big increase in our oil imports, our commercial supplies of crude oil increased for the 11th time in 2018, but just for the 18th time in the past year, as our commercial crude supplies rose by 5,778,000 barrels during the week, from 432,354,000 barrels on May 11th to 438,132,000 barrels on May 18th...however, after falling most of the past year, our oil inventories as of May 18th were still 15.1% below the 516,340,000 barrels of oil we had stored on May 19th of 2017, 13.3% lower than the 505,571,000 barrels of oil that we had in storage on May 20th of 2016, and 1.9% below the 446,412,000 barrels of oil we had in storage on May 22nd of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...   

OPEC's Monthly Oil Market Report

next, we're going to take a look at OPEC's May Oil Market Report (covering April OPEC & global oil data) this week, as i didn't have time to get to it last week.. it's available as a free download and hence it's the report we check for monthly global oil supply and demand data, rather than the paywalled report of the IEA that's usually reported in the media...the first table from this monthly report that we'll look at is from the page numbered 51 of that report (pdf page 59), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures...   

as we can see on this table of official oil production data, OPEC's oil output increased by 12,100 barrels per day in April to 31,930,000 barrels per day, from their March production total of 31,918,000 barrels per day, but that was a figure that was originally reported as 31,958,000 barrels per day, so their production for April was actually 27,900 barrels per day lower than the previously reported March figures (for your reference, here is the table of the official March OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, an increase of 46,500 barrels per day in the output from Saudi Arabia was the main reason that the cartel's output rose, with Algeria also contributing a 17,700 barrel per day increase...however, with a quota of 10,060,000 barrels per day for the Saudis, and 1,040,000 barrels per day for the Algerians, both of those countries still remain well below their allocations, according to their original pact...at 31,930,000 barrels per day, OPEC oil output is now 800,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq's 4,429,000 barrel per day output above their 4,350,000 barrel per day allocation... 

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from May 2016 to April 2018, and it comes from the page numbered 57 (pdf page 65) of the April OPEC Monthly Oil Market Report...on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...   

OPEC's preliminary data indicates that total global oil production rose by a rounded 120,000 barrels per day to a record 97.89 million barrels per day in April, after March's global output total was revised down by .36 million barrels per day from the record 98.15 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 110,000 barrels per day...global oil output for April was also 2.08 million barrels per day, or 2.2% higher than the 95.81 million barrels of oil per day that were being produced globally in April a year ago (see the May 2017 OPEC report online (pdf) for the year ago data)... OPEC's March oil production of 31,930,000 barrels per day thus represented just 32.6% of what was produced globally, the same percentage as in March, as oil output increases by US, the UK, Brazil, and China were only partially offset by decreases in oil output from Canada, Ghana and Kazakhstan...OPEC's April 2017 production was at 31,732,000 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 71,000 more barrels per day of oil than they were producing a year ago, during the fourth month that their production quotas were in effect, with the increase in OPEC output from last year largely due to recoveries of oil production in Libya and Nigeria...   

however, even with the increase in global oil output that we can see in the above purple graph, April saw the first deficit in the amount of oil being produced globally so far this year, largely due to increasing demand, as this next table from the OPEC report will show us..       

the table above comes from page 32 of the May OPEC Monthly Oil Market Report (pdf page 40), 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 third column, we've circled in blue the figure that's relevant for April, which is their revised estimate of global oil demand during the second quarter of 2018...     

thus, OPEC's estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe will be using 98.08 million barrels of oil per day, which is an upward revision from their prior estimate of 97.84 million barrels of oil per day....at the same time, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world's oil producers were only producing 97.89 million barrels per day during April, which means that there was a shortfall of around 190,000 barrels per day in global oil production vis-a vis estimated demand during the month...

meanwhile, as you see circled in green above, global oil demand figures for 2017 and for the first quarter of 2018 were also revised higher, which means that our previously computed oil surplus for the first quarter of 2018 and our oil shortfall figures for 2017 will also have to be revised... to start with, we had figured there was a surplus of around 750,000 barrels per day in global oil production vis-a vis demand during March; OPEC's revised figures show that demand was actually 150,000 barrels per day higher during the 1st quarter than they estimated last month, whereas we saw earlier, March global supply figures were revised 360,000 barrels per day lower...those revisions thus mean that the global oil surplus in March was just 240,000 barrels per day...meanwhile, the 0.15 million barrel of oil per day upward revision to 1st quarter demand means that the surpluses we had computed for January and February were that much lower; based on our figures from a month ago, that means that January's surplus would be revised down to 260,000 barrels per day, and February's surplus would be revised down to 420,000 barrels per day...hence, for the first three months of 2018, global oil production exceeded demand by roughly 20.6 million barrels...

on the other hand, cumulative global oil demand figures for 2017 were revised higher by 0.13 million barrels per day to 97.13 barrels per day (also circled in green) with this report, with revisions for each quarter of that year shown in the table on page 31 of the May OPEC Monthly Oil Market Report (pdf page 39)...while we're not about to recompute the surplus or deficit totals for each month of 2017, we can estimate that the total deficit for the year was roughly 47.5 million barrels than had previously been reported (0.13 bpd * 365 days)...that means our previously computed shortfall of 213 million barrels for 2017 oil supply would now be revised to show a global shortfall of 260.5 million barrels for the year, which, according to OPEC, had nearly eliminated the global glut of crude seen before their output cuts began...

This Week's Rig Count

US drilling activity increased for the 13th time in the past fourteen weeks and for 22nd time in the past 29 weeks during the week ending May 25th, 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 increased by 13 rigs to 1059 rigs over the week ending on Friday, which was also 151 more rigs than the 908 rigs that were in use as of the May 26th 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 week before OPEC officially began their attempt to flood the global oil market... 

the number of rigs drilling for oil was up by 15 rigs to 859 rigs this week, which was also 137 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 fell by 2 rigs to 198 rigs this week, which was only 13 more gas rigs than the 185 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there are also two rigs running now that are listed as "miscellaneous", compared to the 1 "miscellaneous" rig that was operating a year ago....

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 5 fewer rigs than were drilling in the Gulf of Mexico a year ago...with a rig also drilling offshore from Alaska, the total US offshore count of 19 rigs was down by 4 from last year's offshore total of 23 rigs....meanwhile the count of active horizontal drilling rigs increased by 7 rigs to 926 horizontal rigs this week, which was 160 more horizontal rigs than the 766 horizontal rigs that were in use in the US on May 26th 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 increased by 5 rigs to 66 vertical rigs this week, which was still down from the 77 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 67 directional rigs this week, which was also up by 2 rigs from the 65 directional rigs that were deployed on May 26th 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 May 25th, the second column shows the change in the number of working rigs between last week's count (May 18th) and this week's (May 25th) count, the third column shows last week's May 18th active rig count, the 4th column shows the change between the number of rigs running on Friday and those 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 Friday the 26th of May, 2017...         

as we've seen many times this year, the lion's share of this week's drilling increase took place in the Permian, where 12 rigs were added through 4 Texas Railroad Commission Oil & Gas Districts in western Texas, while one Permian rig on the New Mexico side of the border was shut down...with the rig count up by one in both the Eagle Ford of south Texas and in the Barnett shale in the Dallas - Ft Worth area, that means 5 rigs outside of the major Texas basins, mostly in northeast Texas, were concurrently shut down in the state, to end with a net gain of 9 rigs for Texas for the week...meanwhile, natural gas rigs were down by 2 nationally despite the addition of one natural gas rig in the West Virginia Marcellus and the switch of an oil rig to natural gas in the Granite Wash tight sand of the Texas - Oklahoma panhandle area because a natural gas rig was shut down in the Eagle Ford while 2 oil rigs were added, and because 3 natural gas rigs in "other basins" not tracked separately by Baker Hughes were shut down at the same time...we should also note that other than the rig changes in the major producing states shown above, Mississippi also saw a rig shut down this week, leaving two rigs operating in the state, still up from one rig deployed in Mississippi the same week a year ago.... 

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note:  there’s more here…

US oil exports at a record high again; Ohio drilling slows from a year ago; DUCs increase for 19th month running

US oil prices continued their relentless advance higher again this week, while the front month contract price for North Sea Brent, the international benchmark, topped $80 a barrel for the first time since before OPEC began its campaign to flood the global markets in November 2014...after running up to a 42 month high on Trump's withdrawal from the multilateral Iran pact last week, US crude for June delivery rose 26 cents to $70.96 a barrel on Monday as the monthly report from OPEC indicated the global glut of crude had nearly been eliminated...then, after hitting a multi-year high of $71.92 a barrel early in the day on Tuesday on Iran concerns, oil prices pulled back to close just 35 cents higher at $71.31 a barrel, after the American Petroleum Institute report said U.S. crude supplies had unexpectedly increased...oil prices slipped as low as $70.66 a barrel on Wednesday, but then rallied to close another 18 cents higher at $71.48 a barrel, after the EIA report showed that rather than increasing, US oil supplies actually fell more than was expected...US crude then rose to yet another three and a half year high of $72.30 on Thursday morning, but then fell back to close unchanged, after Brent, the international benchmark for oil prices, hit a session high of $80.50 a barrel but failed to hold above $80, closing at $79.19...US crude then gave up 21 cents of the week's gain in less volatile trading on Friday, as the Saudis discussed oil-price concerns with Russia and other OPEC members, but still logged their 3rd weekly increase in a row in closing the week with a gain of 58 cents at $71.28 a barrel....

since we in the US are still a net importer of several million barrels of oil per day, each dollar of these oil price increases represents several million dollars that will be flowing from American oil consumers to oil producers abroad every day, with countries such as Saudi Arabia, Iran, Iraq, and Russia the prime beneficiaries, even if we're not importing our oil directly from each of them...while Trump blames OPEC for higher oil prices in his tweets and speeches, it's actually been Trump's own policies that have been responsible for the last $10 of this recent rise, and it's his administration that should get the blame for any economic damage...however, we should point out that higher gasoline prices won't affect all the US states equally, as higher oil prices favor the oil producing states such as Texas, Louisiana, Oklahoma, North Dakota, and Alaska, all of which went heavily for Trump, while it's the "blue states" such as New York, Massachusetts, Maryland, Illinois, California and Hawaii that are being made to suffer...

natural gas prices also rose this week, breaking out of their narrow trading range and closing above $2.85 per mmBTU for the first time since early February...gas prices got their first boost on Monday, rising 3.4 cents to $2.859 per mmBTU, when building heat across major portions of the US increased power-burn demand...then, after falling half a cent on Tuesday and 1.7 cents on Wednesday, natural gas for July delivery rose 4.9 cents to $2.886 per mmBTU on Thursday, even though the EIA reported a higher-than-expected addition to storage, because the the National Weather Service forecast warmer-than-average temperatures for much of the country in their 6 to 10 day outlook...meanwhile, the natural gas storage report from the EIA indicated that natural gas in storage in the US rose by 106 billion cubic feet to 1,538 billion cubic feet over the week ending May 11th, which still left our gas supplies 821 billion cubic feet, or 34.8% below the 2,359 billion cubic feet that were in storage on May 12th of last year, and 501 billion cubic feet, or 24.6% below the five-year average of 2,039 billion cubic feet of natural gas that are typically in storage on the second weekend in May...analysts had forecast a 104 billion cubic foot addition to storage, so while this 106 billion cubic foot addition was in line with expectations, it was still well above the 64 billion cubic feet of gas that were added to storage over the week ending May 12th last year, and above the average 87 billion cubic foot surplus of natural gas typically added to storage during the second week in May...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending May 11th, indicated that due to a big jump to a record level in our oil exports and a modest increase in refining, we had to pull oil out of our commercial crude supplies to meet refinery needs for the seventh time in the past sixteen weeks...our imports of crude oil rose by an average of 278,000 barrels per day to an average of 7,601,000 barrels per day during the week, after falling by 1,226,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 689,000 barrels per day to a record average of 2,566,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 11th worked out to a net import average of 5,035,000 barrels of per day during the week, 411,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells rose by 20,000 barrels per day to a record high of 10,723,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,758,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 16,635,000 barrels of crude per day during the week ending May 11th, 149,000 barrels per day more than they used during the prior week, while at the same time 418,000 barrels of oil per day were reportedly pulled out of 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, from oilfield production, and from storage was 459,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+459,000) 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 EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,986,000 barrels per day, which was 4.3% less than the 8,347,000 barrel per day average we imported over the same four-week period last year...the 418,000 barrel per day reduction in our total crude inventories included a 201,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 217,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, possibly a sale of oil mandated by this year's federal budget...this week's 20,000 barrel per day increase in our crude oil production was all from wells in the lower 48 states, as output from Alaska was unchanged...the 10,723,000 barrels of crude per day that were produced by US wells during the week ending May 11th were once again the highest on record, 15.2% more than the 9,305,000 barrels per day that US wells were producing during the week ending May 5th of last year, and up by 27.2% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 91.1% of their capacity in using 16,635,000 barrels of crude per day during the week ending May 11th, up from 90.4% of capacity the prior week, but down from the seasonal high of 93.5% of capacity during the first week of April....the 16,635,000 barrels of oil that were refined this week were still down 5.5% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 2.8% less than the 17,122,000 barrels of crude per day that were being processed during the week ending May 12th, 2017, when refineries were operating at 93..4% of capacity....

with the increase in the amount of oil that was refined this week, gasoline output from our refineries saw a substantial jump, increasing by 488,000 barrels per day to 10,462,000 barrels per day during the week ending May 11th, after our refineries' gasoline output had decreased by 71,000 barrels per day during the week ending May 4th.... with that increase, our gasoline production was 4.4% higher during the week than the 10,020,000 barrels of gasoline that were being produced daily during the week ending May 12th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 38,000 barrels per day to 5,031,000 barrels per day, after falling by 2,000 barrels per day the prior week....that still left the week's distillates production fractionally lower than the 5,042,000 barrels of distillates per day than were being produced during the week ending May 12th, 2017....      

however, even with the sizable increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 3,790,000 barrels to  232,014,000 barrels by May 11th, the eighth decrease in 11 weeks, but just the 9th decrease in 27 weeks, as gasoline inventories, as usual, were being built up over the winter months...our gasoline supplies fell this week because our exports of gasoline rose by 344,000 barrels per day to 925,000 barrels per day, and because our imports of gasoline fell by 82,000 barrels per day to 721,000 barrels per day, even as our domestic consumption of gasoline fell by 244,000 barrels per day to 9,531,000 barrels per day...after this week's decrease, our gasoline inventories finished the week 3.6% lower than last May 12th's level of 240,669,000 barrels, even as they were still roughly 9.7% above the 10 year average of gasoline supplies for this time of the year...         

meanwhile, with this week's distillates production again little changed, our supplies of distillate fuels fell by 92,000 barrels to 114,946,000 barrels over the week ending May 11th, the 9th decrease in ten weeks, after falling by 13,219,000 barrels over the prior four weeks...our distillate inventories were thus comparatively little changed because our exports of distillates fell by 457,000 barrels per day to 899,000 barrels per day, and because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 85,000 barrels per day to 4,222,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 77,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 21.7% below the 146,824,000 barrels that we had stored on May 5th, 2017, and roughly 15.4% lower than the 10 year average of distillates stocks for this time of the year…

finally, because we were exporting our crude at a record pace, our commercial supplies of crude oil decreased for the 9th time in 2018 and for the 35th time in the past year, as our commercial crude supplies fell by 1,404,000 barrels during the week, from 433,758,000 barrels on May 4th to 432,354,000 barrels on May 11th ...hence, after falling most of the past year, our oil inventories as of May 11th were 17.0% below the 520,772,000 barrels of oil we had stored on May 12th of 2017, 15.2% lower than the 509,797,000 barrels of oil that we had in storage on May 13th of 2016, and 3.8% below the 449,214,000 barrels of oil we had in storage on May 15th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...  

since our record level of crude oil exports have the major reason for our falling crude supplies, and since this week saw the record of three weeks ago beat by more than 10%, we'll include here a graph of those oil exports 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, which is also accessible online as a pdf here, and it shows weekly US crude oil exports in thousands of barrels per day from September 2016 to the current week, 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 2017, the week when our exports had been choked off because 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, and with those elevated exports, our crude oil supplies have also been falling since...as we've noted over the past couple of weeks, the price of North Sea Brent, the international benchmark, has been again rising faster than the price of US crude, and as of Friday's close was at $78.51 a barrel for July, $7.14 or 10% above the $71.37 a barrel US July crude contract price...hence we can expect that US oil traders will continue to sell as much US crude into international markets this summer as our port capacity will allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transport costs... 

This Week's Rig Count

US drilling activity increased for the 12th time in the past thirteen weeks and for 21st time in the past 28 weeks during the week ending May 18th, 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 increased by just one rig to 1046 rigs over the week ending on Friday, which was 145 more rigs than the 901 rigs that were in use as of the May 19th 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 week before OPEC officially began their attempt to flood the global oil market... 

the number of rigs drilling for oil was unchanged at 844 rigs this week, which was still 124 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 increased by 1 rig to 200 rigs this week, which was only 20 more gas rigs than the 180 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there are also two active rigs that are listed as "miscellaneous", compared to the 1 "miscellaneous" rig that was operating a year ago....

drilling activity in the Gulf of Mexico decreased by two rigs to 18 rigs rig this week, which was 5 fewer rigs that were drilling in the Gulf of Mexico a year ago...however, there was also a rig drilling offshore from Alaska this week, so the total offshore count of 19 rigs was down by 4 from last year's offshore total of 23 rigs....at the same time, another rig began drilling through an inland lake in southern Louisiana this week, where there are now four such inland waters rigs working, the same number of rigs that were deployed on inland waters a year ago..

the count of active horizontal drilling rigs increased by 1 rig to 919 horizontal rigs this week, which was 160 more horizontal rigs than the 759 horizontal rigs that were in use in the US on May 19th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the vertical rig count increased by 6 rigs to 61 vertical rigs this week, which was still down from the 76 vertical rigs that were in use during the same week of last year... on the other hand, the directional rig count was down by 6 rigs to 66 directional rigs this week, which was the same number of directional rigs that were deployed on May 19th 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 May 18th, the second column shows the change in the number of working rigs between last week's count (May 11th) and this week's (May 18th) count, the third column shows last week's May 11th 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 Friday the 19th of May, 2017...        

with the horizontal rig count only up by a single rig, the basin counts should reflect that; however, as we can see, there were three more rigs added in the major basins shown in the table above than were shut down; hence there were two horizontal rigs shut down in other basins not tracked separately by Baker Hughes; without further digging, it's hard to say where those might have been, since all the state changes are accounted for above; the 4 rig increase in the Permian includes 3 rigs in New Mexico and just one in Texas, as there was surprisingly little movement of rigs within that state this week...for rigs targeting natural gas, we can see that one of those was shut down in Ohio's Utica shale, which at 23 rigs in now down by 1 rig from a year ago...still, natural gas drilling increased by 1 rig nationally with the addition of two gas rigs in "other" basins not tracked separately by Baker Hughes...

DUC well report for April

Monday of this week saw the release of the EIA's Drilling Productivity Report for May, which includes the EIA's April data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...once again this report showed an increase in uncompleted wells nationally, almost entirely because there were dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, while all other basins except for the Eagle Ford of south Texas saw more completions than new wells...for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 55, from 7,622 wells in March to 7677 in April, the nineteenth consecutive monthly increase in uncompleted wells nationally, and hence again the highest number of such unfracked wells in the history of this report....that was as 1297 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during April and 1142 wells were completed and brought into production by fracking...hence, at the April completion rate, the 7,677 drilled but uncompleted wells left at the end of April represent a 6.2 month backlog of wells that have been drilled but not yet fracked...

as has been the case for most of the past two years, the April DUC well increases were predominantly oil wells, with most of those in the Permian basin...the Permian saw its total count of uncompleted wells rise by 111, from 2,975 DUC wells in March to 3,086 DUCs in April, as 569 new wells were drilled into the Permian but only 458 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 18, from 1,476 DUC wells in March to 1,494 DUCs in April, as 185 wells were drilled in the Eagle Ford during April, while 167 Eagle Ford wells were completed...meanwhile, the number of DUC wells in the Bakken of North Dakota remained unchanged 719, as 105 wells were drilled into the Bakken while 105 Bakken wells were fracked...on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 44 to 488, as just 139 Niobrara wells were drilled while 183 Niobrara wells were being fracked...similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 20 wells, from 784 DUCs in March to 764 DUCs in April, as 104 wells were drilled into the Marcellus and Utica shales, while 124 of the already drilled wells in the region were fracked...meanwhile, DUC wells in the Anadarko region fell by 7 from 967 DUC wells in March to 960 DUCs in April, as 141 wells were drilled in the Anadarko region in April while 148 drilled wells in the basin were completed...lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by three to 166, as 54 wells were drilled into the Haynesville, while 57 Haynesville wells were fracked during the same period...

thus, for the month of April, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 78 wells to 6,747 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 23 wells to 930 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas... 

 

note: there’s more here…

oil prices hit 42 month high on Trump's Iran sanctions; another record for US oil production, another big drop in US distillate supplies…

oil prices hit fresh 42 month highs three times this week before falling back a bit on Friday, in a rally that was mostly a reaction to Trump's abrogation of the 2015 seven nation pact with Iran, which had placed limits on their nuclear power program in exchange for lifting international sanctions....US oil prices topped $70 a barrel for the first time since November 2014 in rising $1.01 to $70.73 a barrel on Monday, boosted by news of more trouble for Venezuelan oil and the likelihood that Trump would re-impose sanctions on Iran in his speech planned for the next day...however, oil prices crashed over 4% to $67.63 a barrel on Tuesday morning, including a 3% drop in just 7 minutes, after CNN erroneously reported that Trump would not withdraw the US from the Iran pact, but prices recovered by the close to end down just $1.67 at $69.06 a barrel, when it became clear that Trump would repudiate the Obama administration's Iran deal and impose 'powerful' sanctions on Iran, including punishing any foreign companies that would do business with them....US oil prices then climbed steadily on Wednesday, rising $2.08 to another 3 1/2-year high of $71.14 a barrel, after it became clear that the US would quit the Iran pact, while the EIA reported a larger-than-expected drawdown of U.S. oil inventories...oil prices rose as high as $71.89 a barrel on Thursday morning before traders moved into to take profits, as the market digested the likely impact of the new Iran sanctions, with oil still ending the day 22 cents higher $71.36 a barrel, yet another 3 1/2 year high...oil prices then fell 66 cents in a see-saw session on Friday, retreating to close at $70.70 a barrel after rising as high as $71.63 earlier, after US allies, including Great Britain, reiterated their support for the Iran nuclear pact and the Saudis said they'd happily plug the hole left in global oil supplies by the loss of Iranian crude....US crude for June delivery thus gained just 98 cents, or 1.4% for the week in their 2nd straight weekly climb, while North Sea Brent for July, the international benchmark, saw prices rise $2.25, or 3.0% over the week to close at $77.12 a barrel, after trading as high as $78 a barrel on Thursday...

since we have a new 42 month high for oil prices, and since it's been a while since we looked at a graph of their trajectory, we'll include one here today..

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 week of oil trading between the 2nd last week of 2015 and May 11th of this year, with green bars representing weeks when the price of oil went up, and red bars representing the weeks when the price of oil went down...for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the weekly 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 week that were above or below the opening to closing price range for that week...

by going back more than two years, we were able to capture on this graph the thirteen year low that US oil prices fell to during the second week of February 2016, when oil prices briefly touched $26.21 a barrel...prices at that level caused record shutdowns of US drilling operations, which culminated in a record rig count low in May of that year, and resulted in the bankruptcies of 123 North American oil and gas producers over a two year period...however, even though the exploitation companies were going bankrupt, very few of them were being liquidated, as for the most part, their stockholders lost everything, their bondholders became the new stockholders, the creditors got screwed, and the frackers kept fracking...subsequently, after nearly doubling from that low by the end of May 2016, oil prices traded in a range between $42 and $54 a barrel for the next 18 months before they began the steady climb to where they are today...

natural gas prices ended the week higher as well, mostly on the back of a 7.7 cent jump to a two week high of $2.814 per mmBTU on Thursday, that came after the EIA's report on gas in storage showed a smaller than expected addition to supplies...the natural gas storage report from the EIA indicated that natural gas in storage in the US rose by 89 billion cubic feet to 1,432 billion cubic feet over the week ending May 4th, still leaving our gas supplies 836 billion cubic feet, or 47.6% lower than the 2,295 billion cubic feet that were in storage on May 5th of last year, and 520 billion cubic feet, or 26.6% below the five-year average of 1,952 billion cubic feet of natural gas that are typically in storage at the first weekend in May...analysts had forecast a 94 to 96 billion cubic foot addition to storage, so while the 89 billion cubic foot addition fell short of expectations, it was nonetheless well above the 49 billion cubic feet of gas that was added to storage over the week ending May 5th last year, and above the average 75 billion cubic foot surplus of natural gas typically added to storage during the first week in May...

since we've now turned the corner on the natural gas storage season, we'll take a look at what that supply situation looks like:

the above graph came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, mailed out on Friday morning, 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 2015 up to the week ending May 4th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the "prior year" from the period shown by the red graph as a yellow line, which would thus be from January 2014 up until the end of 2017, and the average of natural gas in storage over the 5 years preceding those same dates shown as a dashed blue line...at the same time, the light blue shaded background shows us 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 a maximum by the middle of October, falling through the winter, and usually bottoming out at the end of March...this year, however, saw smallish withdrawals of gas from storage for the first three reports in April, pushing supplies that much further below normal...so while our gas supplies are now increasing as little of it is being consumed for heating, they are still well below the 5 year average as indicated by the dark dashed line, and not only the lowest of any time since 2014, but also the 2nd lowest for any week in May for as long as these weekly records have been kept...we will now be watching to see if these gas supplies trend back to normal over the next 5 months, such that we can head into the next heating season with adequate supplies...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending May 4th, indicated that due to big drop in our oil imports, we had to pull oil out of our commercial crude supplies to meet refinery needs for the sixth time in the past fifteen weeks...our imports of crude oil fell by an average of 1,226,000 barrels per day to an average of 7,323,000 barrels per day during the week, after rising by 1,339,000 barrels per day over the prior three weeks, while our exports of crude oil fell by an average of 271,000 barrels per day to an average of 1,877,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 4th worked out to a net import average of 5,446,000 barrels of per day during the week, 955,000 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 84,000 barrels per day to a record high of 10,703,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,149,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 16,486,000 barrels of crude per day during the week ending May 4th, 75,000 barrels per day less than they used during the prior week, while at the same time 415,000 barrels of oil per day were reportedly pulled out of 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, from oilfield production, and from storage was 78,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-78,000) 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 EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 8,068,000 barrels per day, which was 1.0% less than the 8,152,000 barrel per day average we imported over the same four-week period last year...the 415,000 barrel per day reduction in our total crude inventories included a 314,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 101,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, possibly a sale of oil mandated by this year's federal budget...this week's 84,000 barrel per day increase in our crude oil production included a 91,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 7,000 barrel per day increase in output from Alaska...the 10,703,000 barrels of crude per day that were produced by US wells during the week ending May 4th were once again the highest on record, 14.9% more than the 9,314,000 barrels per day that US wells were producing during the week ending May 5th of last year, and up by 27% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 90.4% of their capacity in using 16,486,000 barrels of crude per day during the week ending May 4th, down from 91.1% of capacity the prior week, and down from the seasonal high of 93.5% of capacity during the first week of April....the 16,486,000 barrels of oil that were refined this week were the least oil processed since the first week of March, down 6.4% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 1.6% less than the 16,759,000 barrels of crude per day that were being processed during the week ending May 5th, 2017, when refineries were operating at 91.5% of capacity....

with the decrease in the amount of oil that was refined this week, gasoline output from our refineries was correspondingly lower than the prior week, decreasing by 71,000 barrels per day to 9,974,000 barrels per day during the week ending May 4th, after our refineries' gasoline output had increased by 159,000 barrels per day during the week ending April 27th.... with that decrease, our gasoline production was fractionally lower during the week than the 10,052,000 barrels of gasoline that were being produced daily during the week ending May 5th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 2,000 barrels per day to 4,993,000 barrels per day, after rising by 18,000 barrels per day the prior week....that left the week's distillates production fractionally higher than the 4,956,000 barrels of distillates per day than were being produced during the week ending May 5th, 2017....    

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 2,174,000 barrels to 235,804,000 barrels by May 4th, the seventh decrease in 10 weeks, but just the 8th decrease in 26 weeks, as gasoline inventories, as usual, were being built up over the winter months...our gasoline supplies fell this week because our domestic consumption of gasoline rose by 685,000 barrels per day to 9,775,000 barrels per day, and because our imports of gasoline fell by 120,000 barrels per day to 803,000 barrels per day, while our exports of gasoline fell by 320,000 barrels per day to 581,000 barrels per day...after this week's decrease, our gasoline inventories finished 2.2% lower than last May 5th's level of 241,082,000 barrels, even as they are now roughly 10.3% above the 10 year average of gasoline supplies for this time of the year...          

meanwhile, with this week's distillates production again little changed, our supplies of distillate fuels fell by 3,791,000 barrels to 115,038,000 barrels over the week ending May 4th, the 8th decrease in nine weeks, after falling by 9,428,000 barrels over the prior three weeks...our distillate inventories fell again because while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 178,000 barrels per day to 4,307,000 barrels per day, our exports of distillates rose by 213,000 barrels per day to 1,356,000 barrels per day, while our imports of distillates rose by 52,000 barrels per day to 128,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 22.7% below the 148,768,000 barrels that we had stored on May 5th, 2017, and roughly 16.1% lower than the 10 year average of distillates stocks for this time of the year…

finally, because our oil imports fell while our oil exports remained elevated, our commercial supplies of crude oil decreased for the 8th time in 2018 and for the 35th time in the past year, as our commercial crude supplies fell by 2,197,000 barrels during the week, from 435,955,000 barrels on April 27th to 433,758,000 barrels on May 4th...hence, after falling most of the past year, our oil inventories as of May 4th were 17.0% below the 522,525,000 barrels of oil we had stored on May 5th of 2017, 14.7% lower than the 508,487,000 barrels of oil that we had in storage on May 6th of 2016, and 4.0% below the 451,888,000 barrels of oil we had in storage on May 8th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of prior years...  

This Week's Rig Count

US drilling activity increased for the 11th time in the past twelve weeks and for 20th time in the past 27 weeks during the week ending May 11th, 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 13 rigs to 1045 rigs over the week ending on Friday, which was also 160 more rigs than the 885 rigs that were in use as of the May 12th 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 week before OPEC officially began their attempt to flood the global oil market...

the number of rigs drilling for oil increased by 10 rigs to 844 rigs this week, which was also 132 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 increased by 3 rigs to 199 rigs this week, which was 27 more gas rigs than the 172 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 are also two active rigs that are listed as "miscellaneous", up from the 1 "miscellaneous" rig that was operating a year ago....

drilling activity in the Gulf of Mexico increased by one rig to 20 rigs rig this week, which is the same number of rigs that were drilling in the Gulf of Mexico a year ago...however, a year ago there was also a rig drilling offshore from Alaska, so the total offshore count of 21 rigs of last May 12th is one more than this week's offshore total....at the same time, another rig began drilling through an inland lake in southern Louisiana this week, where there are now three such inland waters rigs working, still down from the 4 rigs that were deployed on inland waters a year ago..

the count of active horizontal drilling rigs increased by 5 rigs to 918 horizontal rigs this week, which was the most horizontal rigs active since February 27, 2015, and 176 more horizontal rigs than the 742 horizontal rigs that were in use in the US on May 12th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count increased by 8 rigs to 72 directional rigs this week, which was also up from the 66 directional rigs that were in use during the same week of last year... meanwhile, the vertical rig count was unchanged at 55 rigs this week, which was down from the 77 vertical rigs that were deployed on May 12th 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 May 11th, the second column shows the change in the number of working rigs between last week's count (May 4th) and this week's (May 11th) count, the third column shows last week's May 4th 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 Friday the 5th of May, 2017...      

in a bit of a reversal of last week's 6 rig increase on the New Mexico side of the Permian basin, this week's Permian increase was all on the Texas side of the border, where 7 rigs were added in Texas's Permian districts, while at the same time 4 New Mexico rigs were shut down, 2 of which don't appear to have been in that basin...elsewhere, the three rig increase in Oklahoma appears include one each in the Cana Woodford, the Mississippian lime, and the Granite Wash, which also extends into the Texas panhandle...in addition, the three rig increase in Colorado was likely all in the Denver-Julesburg Niobrara chalk, as a Wyoming rig that was likely working that basin was concurrently shut down during the same week....meanwhile, 3 natural gas directed rigs were added in the Eagle Ford of south Texas, where an oil rig was shut down at the same time, leaving the rig deployment in the Eagle Ford at 12 gas rigs and 66 oil rigs...obviously, another natural gas rig was also deployed in West Virginia's Marcellus at the same time, while the national gas rig increase remained at 3 as a single gas rig in an "other' unnamed basin was shut down at the same time...

 

note:  there’s more here…

distillate fuel supplies at a 45 month low, down 21% from a year ago; horizontal drilling at a 38 month high

US oil prices approached $70 a barrel in climbing to a new 42 month high this week, while international oil prices as represented by North Sea Brent crude breached the $75 a barrel level early in the week and again on Friday before closing at $74.87...after edging 30 cents lower to $68.10 a barrel over the prior week, contracts for June delivery of US crude rose from a session low of $67.17 a barrel to close 47 cents higher at $68.57 a barrel on Monday, after Israeli Prime Minister Netanyahu presented what he described as new evidence that Iran had lied about its nuclear capabilities, which spooked oil traders into thinking the Iran nuclear deal was in jeopardy...however, oil prices fell $1.32 or 2.5% to $67.25 a barrel on Tuesday, after the US dollar strengthened and Netanyahu's revelations were widely debunked...oil prices then turned higher again on Wednesday, rising 68 cents to $67.93 a barrel, after the Fed held US interest rates steady and expressed confidence in higher prices and the International Monetary Fund threatened to expel Venezuela and cut its funding for its failure to provide adequate economic data...oil prices added another 50 cents on Thursday to close at $68.43 a barrel, boosted by OPEC production cuts and the potential for new U.S. sanctions against Iran, with further gains limited by growing U.S. crude inventories...with growing concerns over the economic crisis in Venezuela and the May 12th deadline for Trump's approval of the Iran treaty looming, US oil prices pushed up to as high as $69.97 on Friday before settling at $69.72 a barrel, a three and half year closing high and an increase of $1.62 or 2.4% for the week....

natural gas prices, on the other hand, were lower 4 out of 5 days this week, but still remained in the narrow 10 cent price band that they've been stuck in since mid-March, as the expected first addition to supplies this year was greater than expected...after falling 8 tenths of a cent on Monday, US natural gas prices for June delivery rose 3.9 cents on Tuesday, then fell a total of 9.1 cents over the next three days to end the week at $2.711 per mmBTU, down 6 cents, or 2.2%, from the prior week's close....the natural gas storage report from the EIA released on Thursday indicated that natural gas in storage in the US rose by 62 billion cubic feet to 1,343 billion cubic feet over the week ending April 27th, which left our gas supplies 903 billion cubic feet, or 40.2% lower than the 2,246 billion cubic feet that were in storage on April 28th of last year, and 534 billion cubic feet, or 28.4% below the five-year average of 1,877 billion cubic feet typically in storage at the end of April....the forecasts had been for a 52 billion cubic foot addition to storage, but while the 62 billion cubic feet actually added beat that, it was still below the 68 billion cubic feet of gas that was added to storage over the week ending April 28th last year, and the 69 billion cubic foot surplus of natural gas normally added to storage during the last week of April...

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 27th, indicated that due to an increase our oil imports, a decrease in our oil exports, and pullback in the amount of oil used by our refineries, we had surplus oil to add to our commercial crude supplies for the ninth time in the past fourteen weeks...our imports of crude oil rose by an average of 80,000 barrels per day to an average of 8,549,000 barrels per day during the week, after rising by 1,259,000 barrels per day over the prior two weeks, while our exports of crude oil fell from last week's record by an average of 183,000 barrels per day to an average of 2,148,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 27th worked out to a net import average of 6,401,000 barrels of per day during the week, 263,000 barrels per day more than our net imports during the prior week...at the same time, field production of crude oil from US wells rose by 33,000 barrels per day to a record high of 10,619,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,020,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 16,561,000 barrels of crude per day during the week ending April 27th, 60,000 barrels per day less than they used during the prior week, while at the same time 824,000 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 365,000 fewer barrels per day than what refineries reported they used during the week plus what was reportedly being added to storage...to account for that disparity, the EIA needed to insert a (+365,000) 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 8,400,000 barrels per day, which was 2.2% more the 8,216,000 barrel per day average we imported over the same four-week period last year...the 824,000 barrel per day addition to our total crude inventories included a 888,000 barrel per day increase in our commercially available stocks of crude oil, partially offset by a 64,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, possibly a sale of oil mandated by this year's federal budget...this week's 33,000 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 and a 8,000 barrel per day increase in output from Alaska...the 10,619,000 barrels of crude per day that were produced by US wells during the week ending April 27th were the highest on record, 14.3% more than the 9,293,000 barrels per day that US wells were producing during the week ending April 21st of last year, and up by 26% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 91.1% of their capacity in using 16,561,000 barrels of crude per day during the week ending April 27th, actually up from 90.8% of capacity the prior week, but still down from the off-season record 96.7% of capacity set during the last week of 2017...the 16,561,000 barrels of oil that were refined this week were the least oil processed since the first week of March, down 5.9% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 3.6% less than the 17,177,000 barrels of crude per day that were being processed during the week ending April 28th, 2017, when refineries were operating at 93.3% of capacity....

even with the decrease in the amount of oil that was refined this week, gasoline output from our refineries was higher than the prior week, increasing by 159,000 barrels per day to 10,045,000 barrels per day during the week ending April 27th, after our refineries' gasoline output had decreased by 308,000 barrels per day during the week ending April 20th.... with that increase, our gasoline production was 2.7% greater during the week than the 9,783,000 barrels of gasoline that were being produced daily during the week ending April 28th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 18,000 barrels per day to 4,995,000 barrels per day, after falling by 117,000 barrels per day the prior week....however, even with that increase, the week's distillates production was still 2.1% less than the 5,101,000 barrels of distillates per day than were being produced during the week ending April 28th, 2017....   

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,171,000 barrels to 237,978,000 barrels by April 27th, just the third increase in 9 weeks, but the 18th increase in 25 weeks, as gasoline inventories are normally built up over the winter months...our gasoline supplies rose as our domestic consumption of gasoline rose by 7,000 barrels per day to 9,090,000 barrels per day, and as our imports of gasoline rose by 27,000 barrels per day to 923,000 barrels per day, while our exports of gasoline rose by 110,000 barrels per day to 901,000 barrels per day...but even with this week's increase, our gasoline inventories are still 1.3% lower than last April 28th's level of 241,232,000 barrels, even as they are now roughly 11.2% above the 10 year average of gasoline supplies for this time of the year...         

meanwhile, even with this week's small increase in distillates production, our supplies of distillate fuels fell by 3,900,000 barrels to 118,829,000 barrels over the week ending April 27th, the 7th decrease in eight weeks, after falling by 5,628,000 barrels the prior two weeks...our distillate inventories fell again because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 736,000 barrels per day to 4,485,000 barrels per day, even as our exports of distillates fell by 581,000 barrels per day from last week's record high to 1,143,000 barrels per day, while our imports of distillates fell by 47,000 barrels per day to 76,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 21.0% lower than the 150,355,000 barrels that we had stored on April 28th, 2017, and roughly 13.8% lower than the 10 year average of distillates stocks at this time of the year…with our distillate supplies approaching a 4 year low, we'll take a quick look at a graph of what that looks like, compared to recent history:

in the graph above, copied from the weekly Petroleum Status Report (pdf), the blue line shows the recent track of US distillate inventories in millions of barrels over the period from June 2016 to April 27, 2018, while the grey shaded area represents the range of distillate inventories in millions of barrels as reported weekly by the EIA over the 5 years prior to the time of year shown by the blue line, ie, on the extreme left of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to June 2011, while on the right side of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to May 2013...as we can see by the blue line, as recently as February 2017 our distillate supplies were at an all time high, but in the 14 months since then, they've fallen to a 45 month low, largely because we've been exporting diesel fuel at a record pace...only at the end of the polar vortex winter of 2014 were our distillate fuel supplies lower than they are now, then due to the exceptionally large use of heat oil...

finally, because of the increase our oil imports and the decrease in our oil exports, we were able to add to our commercial supplies of crude oil for the 10th time in 2018 and for the 17th time in the past year, as our commercial crude supplies increased by 6,218,000 barrels during the week, rising from 429,737,000 barrels on April 20th to 435,955,000 barrels on April 27th...however, after falling most of the past year, our oil inventories as of April 27th were still 17.4% below the 527,772,000 barrels of oil we had stored on April 28th of 2017, 14.9% lower than the 512,095,000 barrels of oil that we had in storage on April 29th of 2016, and 4.0% below the 458,181,000 barrels of oil we had in storage on May 1st of 2015, during a period when the US glut of oil had already begun to surge from the stable levels of prior years...   

This Week's Rig Count

US drilling activity increased for the tenth time in the past eleven weeks and for 19th time in the past 26 weeks during the week ending May 4th, 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 11 rigs to 1032 rigs in the week ending on Friday, which was also 155 more rigs than the 877 rigs that were in use as of the May 5th 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 week before OPEC began their attempt to flood the global oil market...

the number of rigs drilling for oil increased by 9 rigs to 834 rigs this week, which was also 131 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 increased by 1 rigs to 196 rigs this week, which was 23 more gas rigs than the 173 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, one rig began drilling that was listed as "miscellaneous", and there are now two such miscellaneous rigs deployed, up from the 1 "miscellaneous" rig that was operating a year ago.

drilling activity in the Gulf of Mexico increased by one rig to 19 rigs rig this week, which is up from the 18 rigs drilling in the Gulf of Mexico a year ago...however, a year ago there was also a rig drilling offshore from Alaska, so the total offshore count of 19 rigs is the same as that of last May 5th...on the other hand, three of the platforms which had been drilling on inland lakes in southern Louisiana were shut down this week, leaving just 2 remaining, down from the 5 rigs that were deployed on inland waters a year ago..

the count of active horizontal drilling rigs increased by 12  rigs to 913 horizontal rigs this week, which was the most horizontal rigs active since February 27, 2015, and 179 more horizontal rigs than the 734 horizontal rigs that were in use in the US on May 5th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count also increased by 3 rigs to 55 vertical rigs this week, which was still down from the 76 vertical rigs that were in use during the same week of last year... on the other hand, the directional rig count was down by 4 rigs to 64 rigs this week, which was also down from the 67 directional rigs that were deployed on May 5th 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 May 4th, the second column shows the change in the number of working rigs between last week's count (April 27th) and this week's (May 4th) count, the third column shows last week's April 27th 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 Friday the 5th of May, 2017...     

as we can see from the basin table above, once again the Permian basin increase of 6 rigs accounted for the lion's share of this week's oil drilling increase, but in this week's case it was not in Texas, as New Mexico saw the 6 rig increase while the drilling in the Permian districts of Texas was unchanged...meanwhile, the single rig targeting natural gas was added in the Haynesville; as you can see, rig counts in both the Marcellus and Utica shale were unchanged...and in addition to the major producing states shown above, Mississippi saw two of their 5 rigs shut down this week, but at 3 rigs their count is still up from the 1 rig that was working the state a year ago, while Florida saw the first drilling rig operating in the state since August 2015...

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on Tuesday of this week, the EIA's daily blog "Today in Energy" had some interesting and informative graphs accompanying their post titled U.S. crude oil production efficiency continues to improve that tie in to our discussion last week about why the number of rigs drilling for any given week has become decoupled from expected oil production at some future date...since we're segueing this from the weekly rig count discussion, we'll start with their graph showing the historical rig counts in each of the major US shale oil basins...

as noted, the above graph came from the EIA post titled U.S. crude oil production efficiency continues to improve, and it shows the average number of rigs deployed monthly over the 11 years from the beginning of 2007 to the end of 2017, with the map insert providing a color coded key to the graph...as you can see, drilling in the Permian basin of west Texas and southeast New Mexico shown in brown has always led the nation in the number of horizontal rigs deployed, but early on drilling in the other basins was a larger contributor to the total...however, after OPEC knocked US drilling down to historical lows in 2016, new drilling in the Permian has far outnumbered that of everywhere else...for instance, if we look back at this week's rig count table for an exact number, we see that there were 458 rigs deployed in the Permian as of May 4th, which was a bit over half of all the horizontal rigs deployed national as of that date...

next, we'll include the graph from that same post that shows what the average first month of oil production in each of those regions has looked like over time...

again, this graph came from the EIA blogpost titled U.S. crude oil production efficiency continues to improve, and it shows how that production has continue to improve by graphing the average first month of oil production in barrels per day for each of the major producing oil shale basins from 2007 to 2017, again color coded by basin as the map insert indicates...here we can see that up until mid 2009, first month oil production for all US basins other than the Bakken had averaged below 50 barrels per day, as the frackers were only partially successful at exploiting those basins early on...subsequently, first month production from the Eagle Ford of south Texas began to rise, and by the end of 2017, the average well in the Eagle Ford was also producing over 600 barrels per day during its first month of operation...other basins have been slower to increase output, but as you can see, first month output from the Permian has now risen from around 100 barrels per day in mid 2013 to over 500 barrels per day by the end of 2017...the reasons for the higher production per well are many-fold, but it's primarily due to longer horizontal laterals, multi-stage fracking in 50 stages or more, and using much more sand than previously, typically several thousand pounds of sand per foot of lateral, which is driven into the shale layer by water pressures at 10,000 pounds per square inch...using these techniques, the frackers are not merely fracturing the rock, but pulverizing it, and leaving enough sand between the fragments that a large percentage of the embedded oil and gas can escape...

the last graph from the that post we'll include shows the historical well output over time for each of the oil producing regions therein discussed...

again, from that same EIA blogpost, this graphic actually includes 5 graphs, one for each of the major shale oil producing basins discussed, with the graphs again color coded by the adjacent map...the key to this graphic is in the series of years shown below the US map, which shows the relative darkness of each year as it's graphed in color in the individual maps...all 5 graphs above are constructed in the same manner; each graph has 5 production graph lines within it, one for each year since 2013, with 2013 being the lightest shade and 2017 being the darkest....each annual line then shows the average production of fracked wells for that given year for each month that oil wells started that year have been in operation...thus, for example, in the middle top graphic above for the Bakken, the lightest yellow line shows the average production record of all Bakken wells that were fracked and began producing oil in 2013, so by following along that line, we can see that in the first month 2013 Bakken wells began to produce, their output averaged around 330 barrels of oil per day, but by the time the 2013 Bakken wells were 12 months old, their production dropped to below 150 barrels per day, and by the time they were 24 months old, their production had slipped to below 100 barrels per day....go out to the end of that light yellow 2013 line, and we see that production of those 2013 wells had slipped to around 40 barrels per day by the 60th month of operation, and presumably continues to deplete further to this day...(NB: my numbers are estimates based on eyeballing the graphs; actual data behind the graphs was not supplied)

if we then look at the 2014 yellow line, we see a bit higher production than in 2013; wells started that year produced around 380 barrels per day the first month, were producing over 150 barrels per day by the 12th month, and over 100 barrels per day in the 24th month...likewise, there continues to be greater output for each year thereafter in that Bakken graph until we come to the top graph, for wells drilled in 2017, which start with an initial production of around 680 barrels per day the first month, and are still producing 340 barrels per day by the 12th month, or more than the 2013 wells averaged at the beginning of their production...the point that we're making here is that there is no set relationship between the number of rigs drilling wells and expected oil production...however, we will continue to review the rig count because the drilling of new wells is the most obvious evidence of the environmental impact of the exploration and exploitation industry..

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note:  there’s more here…