oil prices were lower for a third consecutive week as tumbling global financial markets overwhelmed concerns about the impact of US sanctions on Iran...after falling 3.1% to $69.12 a barrel on higher than expected oil supplies midst retreating markets last week, US crude oil contracts for November delivery rose 5 cents to finish trading at $69.17 a barrel on Monday, as oil traders weighed the impact of tightening global supplies due to Iran sanctions against increasing chances of a global economic slowdown; at the same time, oil contracts for December delivery, which became the quoted price of oil with the Monday expiration of the November contract, rose 8 cents to close at $69.36 a barrel....now quoting December oil, crude prices crashed with global equity markets on Tuesday to as low as $65.74 a barrel, a two-month low, as traders worried about slackening demand while Saudi Arabia said it could supply more crude quickly, before prices steadied to end Tuesday's session down $2.93, or 4.2 percent, at $66.43 a barrel...prices then rebounded modestly on Wednesday, rising 39 cents to $66.82 a barrel, as larger than expected drawdowns of gasoline and diesel fuel inventories offset the impact of a larger than expected increase in US crude oil supplies....bouncing back from an early sell-off, oil prices were up another 51 cents to $67.33 a barrel on Thursday, as the U.S. stock market rebounded from its biggest drop since 2011 and crude prices followed...prices moved up for a third day on Friday, rising 26 cents $67.59 a barrel, supported by expectations that sanctions on Iran would tighten global supplies, but still ended the week with a loss of $1.69, or more than 2.4% on December oil...
natural gas prices also ended the week lower as surging gas production and forecasts for warmer weather more than offset concerns about winter supplies...natural gas for November delivery initially fell 11.2 cents to $3.138 per mmBTU on Monday, as forecasts indicated heating demand would fall far below average across the eastern third of the country two to three weeks out, weeks in November that usually see the first significant draw from supplies...prices then rebounded 7.4 cents on Tuesday before falling 4.6 cents on Wednesday, as forecasts for mid-November warming continued to weigh on prices...prices then rose 3.6 cents to $3.202 per mmBTU with the release of the storage report on Thursday, before falling back 1.7 cents on Friday to end the week at $3.185 per mmBTU, a decrease of 6.5 cents, or 2% on the week...
this week's natural gas storage report from the EIA for the week ending October 19th indicated that natural gas in storage in the US rose by 58 billion cubic feet to 3,095 billion cubic feet during that week, which left our gas supplies 606 billion cubic feet, or 16.4% below the 3,701 billion cubic feet that were in storage on October 20th of last year, and 624 billion cubic feet, or 16.8% below the five-year average of 3,719 billion cubic feet of natural gas that are typically in storage after the third week of October....this week's 58 billion cubic feet increase in natural gas supplies was above analysts' prediction of an 52 billion cubic foot increase, but it was a below the average of 77 billion cubic feet of natural gas that have been added to storage during the third week of October in recent years, the 12th average or below average inventory increase over the past sixteen weeks...natural gas storage facilities in the Midwest saw a 26 billion cubic feet increase over the week, reducing their supply deficit to 11.7% below normal, while supplies in the East increased by 13 billion cubic feet but saw their deficit rise to 8.6% below normal for this time of year...the South Central region saw a 19 billion cubic feet increase in their supplies, as their natural gas storage deficit increased to 25.1% below their five-year average for the 3rd week in October...meanwhile, a natural gas pipeline rupture in Canada continues to affect imports into the Pacific and Mountain regions; as a result, the Mountain region supplies were unchanged and their deficit from normal rose to 17.7%, while there was a 2 billion cubic feet withdrawal from storage in the Pacific region, where the natural gas supply deficit rose to 24.3% below normal for this time of year....
according to most tellings, the natural gas injection season traditionally ends with the first weekend of November, after which natural gas inventories typically begin to fall, as increasing amounts of natural gas are pulled from storage for heating as temperatures fall heading into winter...in fact, however, we find that the recent history of natural gas storage (xls) shows that there have actually been increases in natural gas supplies during the first full week of November in 4 out of the last 8 years, so we have to consider that might be possible again this year...either way, we can only expect a few more weeks of increases before natural gas supplies peak before winter and start downhill...to assess where we now stand as compared to other years when prewinter supplies were low, we're going to include a graph from RBN energy that shows US natural gas storage history for a few of those key years as compared to last year and the five year history..
the above graph comes from the RBN Energy analytical post titled "Colder Weather - Gas Storage Inventories Are Near Historic Lows. What If This Winter Turns Frigid?" and as published it shows the natural gas storage history for 2005 in billions of cubic feet in yellow, for 2014 in orange, for 2017 in green, and natural gas storage for 2018 year to date in blue..it also shows as blue dots what is presumably the EIA forecast for what appears to be the last 4 weeks of the injection season, which would include a forecast for this week's report that we just covered, since the cited RBN post was published on October 24, the day before this weeks natural gas storage report was released...also shown in a grey shaded area above is the 5 year range of natural gas in storage for any given date during the year, and then the average amount of natural gas in storage for any given date during those 5 years is shown by a grey dotted line...finally, as an addition to the original graph, in red i have penciled in the amount of natural gas storage for the last 11 weeks of 2013, reasons for which i'll explain shortly...
so to begin with the obvious, this year's natural gas storage levels in blue have been well below 2017's gas in storage in green and the 5 year average in grey dots; over recent weeks it has also been below the 5 year range, and below the amount of gas stored during 2014, which was prior to this year the lowest level in over a decade...but as you can also see, this year's natural gas in storage has tracked pretty close to the level of 2005 (yellow), the lowest in 13 years...so with that, we'll look at the actual amounts of gas in storage from the historical natural gas storage archive files (xls)..
as we mentioned earlier, our natural gas supplies had risen to 3,095 billion cubic feet by October 19th of this year; that would compare with the 3,139 billion cubic feet of natural gas that were in storage on October 21st of 2005, so we are pretty close to that level... however, after rising to 3,229 billion cubic feet on November 4th, 2005, the EIA's presumable end of season comparison, natural gas supplies went on to peak at 3,282 billion cubic feet on November 11th, 2005, a 57 billion cubic feet increase during the 2nd week of November, which is one of the largest if not the largest increase that late in the year...so while we may match 2005 storage levels on November 2nd of this year, it seems highly unlikely that we'd match 2005's November 11th high after that...
now, the last thing i want to note on that graph is the 2014 natural gas storage levels...that's the winter we were hit with repeated outbreaks of "the polar vortex", and as a result our natural gas supplies fell to a low of 824 billion cubic feet by March 28th of that year, the lowest in the modern records, and stayed at 5 year lows throughout the summer until December of that year...so to compare supplies going into this coming winter to that of 2014, we'd have to go back to the fall of 2013, which is why i penciled in those dots and red line on this graph...on October 18th, 2013, US natural gas supplies were at 3,741 billion cubic feet, and they rose to a high of 3,834 billion cubic feet 3 weeks later on November 8th....with our recent October 19th supplies at 3,095 billion cubic feet, that means that if our natural gas usage this winter is similar to that of 2014, our natural gas supplies would fall to just 178 billion cubic feet by the end of the heating season...that would certainly imply widespread natural gas shortages, and answer the question that the RBN post didn't, ie, What If This Winter Turns Frigid?
The Latest US Oil Data from the EIA
this week's US oil data from the US Energy Information Administration for the week ending October 19th indicated a large addition to our commercial crude supplies for a fifth week in a row, despite a sizable increase in our oil exports, thus resulting in a similar increase in our unaccounted for crude oil...our imports of crude oil rose by an average of 63,000 barrels per day to an average of 7,678,000 barrels per day, after rising an average of 218,000 barrels per day the prior week, while our exports of crude oil rose by an average of 398,000 barrels per day to an average of 2,180,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,498,000 barrels of per day during the week ending October 19th, 335,000 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 unchanged at 10,900,000 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 16,398,000 barrels per day during this reporting week...
meanwhile, US oil refineries were using 16,268,000 barrels of crude per day during the week ending October 19th, 48,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 741,000 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 would seem to indicate that our total working supply of oil from net imports and from oilfield production was 611,000 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 or new storage of it, the EIA inserted a (+611,000) 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"...suffice it to say that with an "unaccounted for crude" figure that large, one or more of this week's oil metrics is off by a statistically significant amount (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) indicate that the 4 week average of our oil imports slipped to an average of 7,664,000 barrels per day, now just 0.7% more than the 7,609,000 barrel per day average that we were importing over the same four-week period last year....the net 741,000 barrel per day increase in our total crude inventories included a 907,000 barrel per day increase in our commercially available stocks of crude oil, which was partially offset by a 165,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed seven weeks ago....this week's crude oil production was reported as unchanged at 10,900,000 barrels per day because the rounded 10,400,000 barrels per day output from wells in the lower 48 states changed by less than 100,000 barrels per day, while a 26,000 barrels per day decrease to 473,000 barrels per day in oil output from Alaska was not enough to impact the reported national total, which is now being rounded to the nearest 100,000 barrels per day....last year's US crude oil production for the week ending October 20th was at 9,507,000 barrels per day, so this week's rounded oil production figure was 14.7% above that of a year ago, and 29.3% 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, even as this year's production is still recovering from Hurricane Michael...
meanwhile, US oil refineries were operating at 89.2% of their capacity in using 16,268,000 barrels of crude per day during the week ending October 19th, up from 88.8% of capacity the prior week, still a fairly normal utilization rate for the fall refinery maintenance season....and even with this week's throughput decrease, the 16,268,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 19th out of the past 21 weeks, 1.5% higher than the 16,025,000 barrels of crude per day that were processed during the week ending October 20th, 2017, when US refineries were operating at 87.8% of capacity...
with the decrease in the amount of oil being refined this week, gasoline output from our refineries was much lower, decreasing by 402,000 barrels per day to 10,028,000 barrels per day during the week ending October 19th, after our refineries' gasoline output had increased by 719,000 barrels per day during the week ending October 12th...but even with that drop in gasoline output, our gasoline production during the week was almost 1% higher than the 9,936,000 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) increased by 145,000 barrels per day to 4,960,000 barrels per day, after that output had decreased by 213,000 barrels per day the prior week....hence, this week's distillates production was the highest ever for mid-October, 3.4% higher than the 4,795,000 barrels of distillates per day that were being produced during the week ending October 20th 2017....
with the drop in our gasoline production, our supply of gasoline in storage at the end of the week fell by 4,826,000 barrels to 229,330,000 barrels by October 19th, the 20th decrease in the past 35 weeks, and the largest weekly drop in gasoline supplies since March 9th....our gasoline supplies also fell this week because the amount of gasoline supplied to US markets rose by 142,000 barrels per day to 9,324,000 barrels per day, and because our imports of gasoline fell by 63,000 barrels per day to 331,000 barrels per day, while our exports of gasoline fell by 195,000 barrels per day from last week's high to 969,000 barrels per day...but even after this week's big decrease, our gasoline inventories are still at a seasonal high, 5.7% higher than last October 20th's level of 216,869,000 barrels, and roughly 8.5% above the 10 year average of our gasoline supplies for this time of the year...
meanwhile, even with our distillates production somewhat higher, our supplies of distillate fuels still fell again, decreasing by 2,262,000 barrels to 130,376,000 barrels during the week ending October 19th, their fifth straight decrease after 8 straight weeks of increases...our distillates supplies fell by much more than last week's decrease because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 213,000 barrels per day to 4,006,000 barrels per day, and because our exports of distillates rose by 135,000 barrels per day to 1,440,000 barrels per day, while our imports of distillates fell by 2,000 barrels per day to 163,000 barrels per day....but even after this week's decrease, our distillate supplies ended the week fractionally above the 129,241,000 barrels that we had stored on October 20th, 2017, while they remained roughly 4.4% below the 10 year average of distillates stocks for this time of the year...
finally, despite higher oil exports, our commercial supplies of crude oil increased for the 5th week in a row and for the 21st time in 2018, as they rose by 6,349,000 barrels during the week, from 416,441,000 barrels on October 12th to 422,787,000 barrels on October 19th...that increase means that our crude oil inventories are now more than 2% above the five-year average of crude oil supplies for this time of year, and roughly 22% above the 10 year average of crude oil stocks for the 3rd weekend in October, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of October 19th were still 7.6% below the 457,341,000 barrels of oil we had stored on October 20th of 2017, 9.7% below the 468,158,000 barrels of oil that we had in storage on October 21st of 2016, and 5.6% below the 447,994,000 barrels of oil we had in storage on October 23rd of 2015...
This Week's Rig Count
US drilling rig activity increased a bit for the fourth time in 5 weeks during the week ending October 26th, and thus is again at another 41 month high....Baker Hughes reported that the total count of rotary rigs running in the US increased by 1 rig to 1065 rigs over the week ending on Friday, which was also 159 more rigs than the 909 rigs that were in use as of the October 27th report of 2017, but was still 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 increased by 2 rigs to 875 rigs this week, which was also 138 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 fell by 1 rig to 193 rigs, which was still 21 more 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, a year ago we had a rig categorized as "miscellaneous" deployed, while there are none such drilling at this time this year...
offshore drilling in the Gulf of Mexico was down by 1 rig to 18 rigs this week, which was also down from the 20 Gulf of Mexico rigs active a year ago...however, a single rig continued to drill offshore from Alaska this week, so the total national offshore count is at 19 rigs, compared to 20 a year ago, when there was no offshore drilling other than in the Gulf.....
the count of active horizontal drilling rigs was up by 1 rig to 927 horizontal rigs this week, which was also 158 more horizontal rigs than the 769 horizontal rigs that were in use in the US on October 27th 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 was up by 1 rig to 73 directional rigs this week, which was still down by 1 from the 74 directional rigs that were in use during the same week of last year....on the other hand, the vertical rig count was down by 1 rig to 68 vertical rigs this week, which was still up from the 66 vertical rigs that were operating on October 27th 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 October 26th, the second column shows the change in the number of working rigs between last week's count (October 19th) and this week's (October 26th) count, the third column shows last week's October 19th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running 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 27th of October, 2017...
as you can see, this week's horizontal rig increase was underpinned by the 4 rig increase in North Dakota's Williston basin; however, North Dakota only shows a two rig increase because two of those new rigs were set up on the Montana side of the border, the first drilling activity in Montana since June 8th and the only time other than last November that Montana has seen two rigs active in the past 3 and a half years...in the Permian basin, meanwhile, two rigs were shut down in Texas Oil District 8A, while a rig was started up on the New Mexico side of the border...Louisiana's 3 rig decrease included the Gulf of Mexico platform that was shut down, and two land based rigs in the southern part of the state...since the rig count in northern Louisiana was unchanged, we can probably assume that the rig addition in the Haynesville was on the Texas side of the Louisiana border...meanwhile, the natural gas rig count was down this week despite the rig additions in the Haynesville and the West Virginia Marcellus because the rig that was shut down in the Dallas area Barnett shale was a natural gas rig, as were two other rigs shut down in basins not tracked separately by Baker Hughes..
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NOTE: there's more here...
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