US oil prices rose for a third week running while global prices repeatedly tested 4 year highs this past week, as US imposed sanctions against Iran threatened to shut in more than 2% of global oil production...after increasing $2.01 a barrel, or nearly 3% to $70.78 a barrel on global supply concerns last week, US oil contract prices for November delivery jumped nearly $2 more in early trading Monday, after OPEC said it wouldn't raise its output to replace sanctioned Iranian oil, before easing back to close $1.30 higher at $72.08 a barrel...prices then rallied to as high as $72.78 a barrel Tuesday before sliding back to $78.28 a barrel at the close, after Trump once again called on OPEC to pump more oil and stop raising prices...however, oil prices retreated on Wednesday and closed 71 cents lower at $71.57 a barrel after the EIA reported the first increase in US crude supplies in six weeks...but the oil price rally resumed on Thursday, with US crude prices up 55 cents to $72.12 a barrel, as oil traders bet that the loss of Iranian exports due to Trump sanctions was not going to be made up...US crude rose another $1.13 to $73.25 a barrel on Friday, while Brent, the international benchmark, rose to a four-year high at $82.72 a barrel, on news that even China’s Sinopec, under intense pressure from Washington, was halving their loadings of crude oil from Iran this month...US oil prices thus ended 3.5% higher for the week and 4.9% higher for September, their second straight monthly gain...meanwhile, the impact of Iran sanctions was even more pronounced on grades of oil which might be seen as substitutes for Iranian crude; Omani oil, for instance, a low-quality crude which usually trades at a discount to the better known international grades, traded as high as $90.90 a barrel on the Dubai Mercantile Exchange on Wednesday, before closing at $88.96 a barrel, $16.60 a barrel more than the US price at the time...
front month contract natural gas prices, meanwhile, traded at their highest level since February this week, with natural gas for November moving 5.5 cents higher on Monday and 2.9 cents higher on Tuesday on forecasts of a large storage deficit to the start of winter heating season...however, after trading as high as $3.111 per mmBTU on Thursday after the EIA storage report, natural gas prices fell back 4.8 cents on Friday to end the week at 3.008 per mmBTU, just 3.4 cents higher than where they started...surprisingly natural gas for January, which regularly trade at higher prices than warmer months, didn't do much better, rising just 3.8 cents over the week to end at 3.169 per mmBTU, which is actually lower than that contract was trading for in August...
the week's natural gas storage report from the EIA for week ending September 21st indicated that natural gas in storage in the US rose by 46 billion cubic feet to 2,768 billion cubic feet during that week, which left our gas supplies 690 billion cubic feet, or 20.0% below the 3,458 billion cubic feet that were in storage on September 22nd of last year, and 621 billion cubic feet, or 18.3% below the five-year average of 3,389 billion cubic feet of natural gas that are typically in storage after the third week of September....this week's 46 billion cubic feet increase in natural gas supplies was far short of the 61 billion cubic feet increase that a S&P Global Platts' analysts survey had predicted, and it was barely half of the 81 billion cubic foot average of natural gas that have typically been added to storage during the third week of September in recent years, and thus the tenth below average inventory increase in the past twelve weeks...natural gas storage facilities in the Midwest saw a 30 billion cubic feet increase this week, still leaving their supplies 15.1% below normal, while supplies in the East increased by 20 billion cubic feet and are now 11.6% below normal for this time of year...on the other hand, the South Central region saw a 11 billion cubic foot withdrawal from storage as their natural gas storage deficit increased to 26.0% below their five-year average, while just 4 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where natural gas supplies are 21.8% below normal for this time of year....
comparing this week's 2,768 billion cubic feet of natural gas in storage to equivalent dates in the natural gas storage historical record (xls) for those years when we began the heating season with a deficit, we find that natural gas in storage in the lower 48 states was at 2,988 billion cubic feet on September 19th, 2014, at 3,023 billion cubic feet on September 19th, 2008; at 2,885 billion cubic feet on September 23rd, 2005, and at 2,719 billion cubic feet September 19th 2003, so it appears that we're still on track to begin the winter with supplies at a 15 year low...and no sooner than i completed digging those data points out of the historical record than i opened an email from John Kemp of Reuters in which was included a graph showing just that, which we will therefore include here below...
again, the above graph comes from a package of natural gas graphs assembled by John Kemp of Reuters, which is available as an online pdf here...as the graph heading indicates, each bar shows the amount of natural gas in storage after the third week in September for each of the past 25 years...as you can clearly see, supplies this year are the lowest since 2003, and then 2000 before that...the difference is that the supplies we go into winter with now don't have to just heat our homes, they also have to cover several LNG export contracts as well as meet demand for almost one-third of US electrical generation...
The Latest US Oil Data from the EIA
this week's US oil data from the US Energy Information Administration, covering the week ending September 21st, showed that despite lower oil imports and higher oil exports, we were able to add oil to our commercial crude supplies for the first time in six weeks because of a sharp pullback in oil refining... our imports of crude oil fell by an average of 222,000 barrels per day to an average of 7,802,000 barrels per day, after rising by an average of 433,000 barrels per day the prior week, while our exports of crude oil rose by an average of 273,000 barrels per day to an average of 2,640,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,162,000 barrels of per day during the week ending September 21st, 495,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly up by 100,000 barrels per day to 11,100,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,262,000 barrels per day during the reporting week...
meanwhile, US oil refineries were using 16,514,000 barrels of crude per day during the week ending September 21st, 901,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 265,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 517,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption of it, the EIA needed to insert a (+517,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....
further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,783,000 barrels per day, now 9.8% more than the 7,090,000 barrel per day average that we were importing over the same four-week period last year....the 265,000 barrel per day increase in our total crude inventories was added to our commercially available stocks of crude oil, while the amount of oil in our Strategic Petroleum Reserve still remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al closed three weeks ago....this week's crude oil production was reported as being up by 100,000 barrels per day to 11,000,000 barrels per day because a rounded 100,000 barrels per day increase to 10,600,000 barrels per day in the output from wells in the lower 48 states combined with a 2,000 barrels per day increase in oil output from Alaska was only enough to raise the national total, which is now being rounded to the nearest 100,000 barrels per day, by 100,000 barrels per day to 11,100,000 barrels per day....US crude oil production for the week ending September 22nd 2017 had recovered to 9,547,000 barrels per day after Hurricane Harvey, so this week's rounded oil production figure was 16.3% above that of a year ago, and 31.7% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...
with preliminary US oil production figures thus at a new high, we'll include a graph of that and the confirmed monthly data to show what that looks like...
the above graph, from this week's OilPrice Intelligence Report, shows the history of confirmed oil production data monthly from January 2016 to July 2018 in blue, and then the weekly estimates of US oil production up until the current week in yellow after that period, with both metrics in thousands of barrels per day...above the graph, OilPrice also supplies the rounded weekly estimates of oil production in thousands of barrels per day for the weeks ending August 17th through September 21st, as reported by the EIA...as we've pointed out on several previous occasions, the weekly oil data from the EIA that we cover each week is preliminary, and it is typically more than 2 months before the final confirmed figures, published monthly, are released...despite the likelihood of some inaccuracy in the weekly data, we follow it because it's what the oil traders follow, and hence it moves oil prices and ultimately the decisions on the part of exploitation companies to start drilling for oil...the confirmed oil production figures for July were released this week and showed our crude production at a higher than expected 10,964,000 barrels per day, up from 10,695,000 barrels per day in June, which more than likely changed the models for the rounded weekly estimates, which then came in 100,000 barrels per day higher than in the prior week...
meanwhile, US oil refineries were operating at 90.4% of their capacity in using 16,514,000 barrels of crude per day during the week ending September 21st, down from 95.4% the prior week, but still a refinery utilization rate higher than any in September over the prior 14 years....even with the big drop in refinery throughput, the 16,514,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 16th out of the past 17 weeks, 2.1% higher than the 16,174,000 barrels of crude per day that were processed during the week ending September 22nd 2017, when US refineries were operating at 88.6% of capacity....
with the big drop in the amount of oil being refined this week, gasoline output from our refineries was likewise much lower, decreasing by 432,000 barrels per day to 9,832,000 barrels per day during the week ending September 21st, after our refineries' gasoline output had decreased by 114,000 barrels per day during the week ending September 14th...as a result, our gasoline production during the week was fractionally lower than the 9,855,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 462,000 barrels per day to 4,995,000 barrels per day, after that output had fallen by 79,000 barrels per day the prior week....but even after the large drop, this week's distillates production was still nearly 7.7% higher than the 4,639,000 barrels of distillates per day that were being produced during the week ending September 22nd 2017, as refineries have been producing more distillates vis a vis gasoline than usual in recent weeks in order to catch up with the distillates shortfall....
however, even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 1,530,000 barrels to a seasonal high of 235,680,000 barrels by September 21st, the 14th increase in the past 31 weeks, through the spring and summer periods of higher consumption when gasoline supplies usually trend lower....our supplies of gasoline rose this week primarily because the amount of gasoline supplied to US markets fell by 547,000 barrels per day to 8,987,000 barrels per day, after falling by 200,000 barrels per day the prior two weeks, and because our imports of gasoline rose by 302,000 barrels per day to 863,000 barrels per day, while our exports of gasoline rose by 265,000 barrels per day to 961,000 barrels per day...hence, after this week's increase, our gasoline inventories are again at a seasonal high, 8.5% higher than last September 22nd's level of 217,292,000 barrels, and roughly 9.3% above the 10 year average of our gasoline supplies for this time of the year...
meanwhile, with the decrease in our distillates production, our supplies of distillate fuels were also lower, decreasing by 2,241,000 barrels to 137,881,000 barrels during the week ending September 21st, in their first decrease in nine weeks...our distillates supplies decreased as the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 139,000 barrels per day to 4,291,000 barrels per day, after rising by 864,000 barrels per day the prior week, and as our imports of distillates fell by 17,000 barrels per day to 124,000 barrels per day, while our exports of distillates fell by 178,000 barrels per day to 1,148,000 barrels per day....this week's decrease means that our distillate supplies are now fractionally lower than the 138,045,000 barrels that we had stored on September 22nd, 2017, and still roughly 4.8% below the 10 year average of distillates stocks for this time of the year...
finally, with the pullback in refinery crude processing, our commercial supplies of crude oil increased for the 17th time in 2018 and for the 20th time over the past year, rising by 1,852,000 barrels during the week, from 394,137,000 barrels on September 14th to 395,989,000 barrels on September 21st...however, even though our crude oil inventories remain below the five-year average of crude oil supplies for this time of year, they are nonetheless roughly 18.6% above the 10 year average of crude oil stocks for the third week of September, because it wasn't early 2015 that our oil inventories first rose above 400 million barrels...but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of September 21st were 15.9% below the 470,986,000 barrels of oil we had stored on September 22nd of 2017, 16.1% below the 472,084,000 barrels of oil that we had in storage on September 23rd of 2016, and 7.0% below the 425,988,000 barrels of oil we had in storage on September 25th of 2015...
This Week's Rig Count
US drilling rig activity saw a small increase for the second time in 3 weeks during the week ending September 28th, but still remains slower than at the end of May, as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled, with oil futures' prices remaining in backwardation and the backlog of uncompleted wells increasing monthly....Baker Hughes reported that the total count of rotary rigs running in the US increased by 1 rigs to 1054 rigs over the week ending on Friday, which was still 114 more rigs than the 940 rigs that were in use as of the September 29th report of 2017, but was down from the shale era 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 count of rigs drilling for oil was down by three rigs to 863 rigs this week, which was still 113 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations increased by three rigs to 189 rigs, which is the same number of 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, another rig that was categorized as "miscellaneous" began drilling this week, with that count of two now up from the one such "miscellaneous" rig that was deployed a year ago...
offshore drilling in the Gulf of Mexico was unchanged from last week at 18 rigs, which was down from the 22 Gulf of Mexico rigs active a year ago...however, two rigs continued to drill offshore from Alaska this week, so the total national offshore count remains at 20 rigs, still down from last year's total of 22 offshore rigs, as a year ago there was no offshore drilling other than in the Gulf.....
the count of active horizontal drilling rigs was up by 3 rigs to 922 horizontal rigs this week, which was also 128 more horizontal rigs than the 795 horizontal rigs that were in use in the US on September 29th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the vertical rig count was down by 2 rigs to 63 vertical rigs this week, which was also down from the 64 vertical rigs that were in use during the same week of last year...meanwhile, the directional rig count was unchanged at 69 directional rigs this week, which was still down from the 82 directional rigs that were operating on September 29th 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 September 28th, the second column shows the change in the number of working rigs between last week's count (September 21st) and this week's (September 28th) count, the third column shows last week's September 21st active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Friday the 22nd of September, 2017...
while it appears from the table above that there was a sudden jump of 7 rigs in Oklahoma's Cana Woodford, most of that is actually just a reversal of last week's drop of 6 rigs in that basin, so we'd judge that last week's drop just represented a half dozen rigs that were idled between jobs, which thus show up as new startups this week...however, since all those Cana Woodford rigs were oil rigs, we can just about figure every other reduction we see above is likely an oil rig, in order to end with a minus three count for oil rigs this week...natural gas rig start ups, on the other hand, were in the Haynesville and Oklahoma's Ardmore Woodford, with one of the Haynesville rigs in northwestern Louisiana and the other across the border in eastern Texas...we should also note that other than the changes shown for the major producing states above, Nevada also saw its only active rig idled this week, ending the drilling that began there in mid-March; a year ago, there were no rigs in Nevada...
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note: there's more here...