oil prices rose on OPEC's deep supply cuts for a second week, bolstered by optimism that US and Chinese negotiators would reach a trade deal before Trump's punitive tariffs take hold on March 1st...after rising 5.4% to $55.59 a barrel last week on a report showing that OPEC had already cut its output to the agreed level, US crude contracts for March delivery rose 50 cents to $56.09 a barrel after the markets reopened on Tuesday on evidence of further OPEC production cuts and optimism about the ongoing US trade talks with China...the rally following last week's OPEC cuts continued for a sixth day in a row on Wednesday, after Trump said negotiations with China were going well and suggested he was open to extending them beyond March 1st, as the March oil contract expired 83 cents higher at $56.92 a barrel and the US crude contract for April, which had risen 47 cents on Tuesday, rose 71 cents to finish Wednesday at $57.16 a barrel on hopes that output cuts and U.S. sanctions on Iran and Venezuela would bring oil markets into balance later this year...with the media reports now quoting prices for April oil, prices pushed to new 2019 highs on the supply cuts led by OPEC early Thursday but ended the day 20 cents lower at $56.96 a barrel after the EIA reported that U.S. crude supplies rose for the 5th straight week...prices rose to their highest levels this year again on Friday on hopes that the US and China could resolve their trade disputes before a March 1 deadline during negotiations this week and ended the day 30 cents higher at $57.26 a barrel, their highest close in nearly three and a half months...
natural gas prices, meanwhile, also rose for a second week, but still remained near the 10 month lows plumbed earlier this month...citing trading in the natural gas contract for March delivery all week, natural gas prices rose 3.7 cents to $2.662 per mmBTU on Tuesday as the two week forecast trended colder over the weekend and physical gas prices remained firm, but then dipped 2.6 cents on Wednesday on concerns of oversupply following several weak weekly storage numbers...gas prices jumped 6.1 cents on Thursday, however, afterthe EIA announced a slightly larger draw from storage than was expected and then added another 2 cents on Friday to end the week at $2.717 per mmBTU, as weather models indicated continued colder than normal temperatures for most of the US...
the natural gas storage report for the week ending February 15th from the EIA indicated that the quantity of natural gas held in storage in the US fell by 177 billion cubic feet to 1,705 billion cubic feet over the week, which meant our gas supplies ended the period 73 billion cubic feet, or 4.1% below the 1,778 billion cubic feet that were in storage on February 16th of last year, and 362 billion cubic feet, or 17.5% below the five-year average of 2,067 billion cubic feet of natural gas that have typically remained in storage as of the the middle of February....this week's 177 billion cubic feet withdrawal from US natural gas supplies was between 5 and 35 billion cubic feet higher than queried Platts analysts foecast how much stored gas would be needed, and was somewhat more than the average of 148 billion cubic feet of natural gas that have been withdrawn from US gas storage during the same winter week over the last 5 years.....as you can see on the temperature map from the EIA below, the densely populated eastern third of the US remained warmer than normal during the period, while most of the US west of the Mississippi was colder than normal, and hence used more gas than normal for mid-February...
surprisingly, natural gas storage facilities in the Eastern US saw a 49 billion cubic feet draw from their supplies over the week, actually a bit more than their average 47 billion cubic foot withdrawal over the past five years, as the region's gas supply deficit ticked up to 9.8% below average for this time of year, while natural gas supplies in the Midwest fell by 56 billion cubic feet, also an increase from their normal 51 billion cubic feet pull, as their supply deficit increased to 14.0% below the normal for the middle of February...the South Central region saw a 47 billion cubic feet drop in their supplies, up from their normal 40 billion cubic foot withdrawal, as their natural gas storage deficit increased to 16.1% below their five-year average for this time of year...at the same time, 8 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region, which normally pulls out 5 billion cubic feet during this same week, as their gas supply deficit from normal rose to 33.1%, while 17 billion cubic feet of natural gas were withdrawn from storage in the Pacific region, in contrast to the 5 billion cubic feet normally withdrawn, and their natural gas supply deficit rose to 36.7% below normal for this time of year....
The Latest US Oil Supply and Disposition Data from the EIA
this week's US oil data from the US Energy Information Administration, reporting on the week ending February 15th, indicated a big jump in our crude oil imports from the prior week's 22 year low, and a similar large jump in our oil exports, and hence another modest addition of surplus oil to our commercial supplies of crude oil....our imports of crude oil rose by an average of 1,312,000 barrels per day to an average of 7,522,000 barrels per day, after falling by an average of 936,000 barrels per day the prior week, while our exports of crude oil rose by an average of 1,243,000 barrels per day to a record average of 3,607,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,915,000 barrels of per day during the week ending February 15th, 69,000 more 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 estimated to be 100,000 barrels per day higher at a record 12,000,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 15,915,000 barrels per day during this reporting week...
meanwhile, US oil refineries were using 15,711,000 barrels of crude per day during the week ending February 15th, 57,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 525,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....thus, 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 321,000 fewer barrels per day than the oil that was added to storage plus what refineries reported they used during the week....to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+321,000) 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)....
with our crude oil exports now at a record high, we'll include a historical graph showing how they got there..
the above graph of US crude oil exports came from the EIA page containing the html spreadsheet for US oil exports, which is the same page we cite each time we refer to oil export data, and it shows weekly US crude oil exports in thousands of barrels per day over the past 16 years, from early 2003 to the current week...as you can see, prior to January 2017, our oil exports were minimal, because by law they had been outlawed for 40 years, with the exception of oil exports to Mexico and Canada, which were allowed under provisions of the North American Free Trade Agreement (NAFTA)...since the time when they were permitted, however, our exports have steadily risen, often limited by the number and size of ships that could be loaded in one week and the number of US ports which could provide such loading (which also accounts for the week to week volatility you see in the chart above)...contributing to the push to ship our oil offshore has been a price differential between US light sweet crude grades such as West Texas Intermediate, and the price of the similar North Sea Brent, the international benchmark price, which has been running close to 10% for most of the past year...as of Friday's close, Brent oil for April delivery was being quoted at $67.12 a barrel, as compared to the $57.26 a barrel pricing for April WTI...so obviously, US oil traders will continue selling as much US crude into international markets as our port capacity will allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transportation costs... at the same time, our refineries are importing the usually cheaper poorer grades of heavy sour crude they need and paying a premium price for them, because of a shortage of such grades of oil due to the Venezuela embargo...
further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports actually fell to an average of 6,990,000 barrels per day last week, 10.5% less than the 7,808,000 barrel per day average that we were importing over the same four-week period last year.... the 525,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, while the oil stored in our Strategic Petroleum Reserve remained unchanged....this week's crude oil production was reported to be 100,000 barrels per day higher at a record 12,000,000 barrels per day because the rounded estimate for output from wells in the lower 48 states rose by 100,000 barrels per day to 11,500,000 barrels per day, while the 11,000 barrel per day decrease in Alaska's oil production to 487,000 barrels per day was not enough to change the rounded national total...last year's US crude oil production for the week ending February 16th was at 10,270,000 barrels per day, so this reporting week's rounded oil production figure was 16.8% above that of a year ago, and 42.4% 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...
meanwhile, US oil refineries were operating at 85.9% of their capacity in using 15,711,000 barrels of crude per day during the week ending February 15th, unchanged from the prior week, which had been the lowest capacity utilization rate in 16 months....the 15,711,000 barrels per day of oil that were refined this week was the lowest refinery throughput in 16 months, 0.8% below the 15,833,000 barrels of crude per day that were being processed during the week ending February 16th, 2018, when US refineries were operating at 88.1% of capacity...
with the reduction in the amount of oil being refined, the gasoline output from our refineries was also lower, falling by 130,000 barrels per day to 9,489,000 barrels per day during the week ending February 15th, after our refineries' gasoline output had decreased by 237,000 barrels per day the prior week....with that decrease in this week's gasoline output, our gasoline production was 6.1% lower than the 10,107,000 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) decreased by 5,000 barrels per day to 4,759,000 barrels per day, after that output had decreased by 537,000 barrels per day the prior week....but even with that decrease, this week's distillates production was more than 6.0% above the 4,489,000 barrels of distillates per day that were being produced during the week ending February 16th, 2018....
with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,454,000 barrels to 256,847,000 barrels by February 15th, after rising by 408,000 barrels over the prior week....our gasoline supplies fell this week in part because the amount of gasoline supplied to US markets increased by 152,000 barrels per day to 8,800,000 barrels per day, after decreasing by 425,000 barrels per day the prior week, while our imports of gasoline fell by 37,000 barrels per day to 420,000 barrels per day and as our exports of gasoline fell by 147,000 barrels per day to 812,000 barrels per day...but having set a record high four weeks ago, our gasoline inventories are still at a seasonal high for the middle of February, 3.0% higher than last February 16th's level of 249,334,000 barrels, and roughly 4% above the five year average of our gasoline supplies at this time of the year...
with the decrease in our distillates production, our supplies of distillate fuels fell for the 15th time in twenty-two weeks, decreasing by 1,517,000 barrels to 138,683,000 barrels during the week ending February 15th, after our distillates supplies had increased by 1,087,000 barrels over the prior week...our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 449,000 barrels per day to 4,216,000 barrels per day, as demand for heat oil increased, while our exports of distillates fell by 74,000 barrels per day to 1,191,000 barrels per day, and while our imports of distillates fell by 7,000 barrels per day to 431,000 barrels per day....with this week's decrease, our distillate supplies ended fractionally below the 138,945,000 barrels that we had stored on February 16th, 2018, and remained roughly 2% below the five year average of distillates stocks for this time of the year...
finally, with rising oil imports more than offsetting record exports while our refining of oil remained at a 16 month low, our commercial supplies of crude oil in storage increased for a 5th consecutive week, rising by 3,672,000 barrels over the week, from 450,840,000 barrels on February 8th to a 15 month high of 454,512,000 barrels on February 15th...with weekly increases now in 16 out of the last 22 weeks, our crude oil inventories are roughly 6% above the five-year average of crude oil supplies for this time of year, and roughly 30% above the 10 year average of crude oil stocks for the middle of February, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories have mostly been rising since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of February 15th were thus 8.1% above the 420,479,000 barrels of oil we had stored on February 16th of 2018, while still remaining 12.4% below the 518,683,000 barrels of oil that we had in storage on February 17th of 2017, and 4.6% below the 476,325,000 barrels of oil we had in storage on February 19th of 2016...
This Week's Rig Count
drilling activity in the US slowed a bit this past week, and remains below the levels of this past Fall, when both oil prices and natural gas prices were somewhat higher....Baker Hughes reported that the total count of rotary rigs running in the US fell by 4 rigs to 1047 rigs over the week ending February 22nd, which was still 69 more rigs than the 978 rigs that were in use as of the February 23rd report of 2018, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...
the count of rigs drilling for oil fell by 4 rigs to 853 rigs this week, which was still 54 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 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 194 natural gas rigs, which was still 15 more rigs than the 179 natural gas rigs that were drilling a year ago, but way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...
drilling activity from offshore platforms in the Gulf of Mexico decreased by a net of 2 rigs to 19 rigs this week, as 3 platforms offshore from Louisiana were shut down this week while one was added offshore from Texas, where there are now two rigs drilling in state waters...the 17 rigs running offshore from Louisiana is an increase of 1 from the 16 rigs active there a year ago, while the 2 Texas offshore rigs are also an increase of 1 from the single rig active in Texas waters last year at this time..
the count of active horizontal drilling rigs increased by 1 rig to 916 horizontal rigs this week, which was also 74 more horizontal rigs active than the 842 horizontal rigs that were in use in the US on February 23rd of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the vertical rig count decreased by 3 rigs to 63 vertical rigs this week, which was also down by 4 rigs from the 67 vertical rigs that were in use during the same week of last year....in addition, the directional rig count decreased by 2 rigs to 68 directional rigs this week, which was also down from the 69 directional rigs that were operating on February 23rd of 2018...
the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of February 22nd, the second column shows the change in the number of working rigs between last week's count (February 15th) and this week's (February 22nd) count, the third column shows last week's February 15th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running before 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 the 23rd of February, 2018...
even thought the Permian shows no net change, there was movement within the basin; Texas Oil District 8, or the core Permian Delaware, saw three rigs added, and there are now 317 rigs drilling there, while 1 rig was pulled out of Texas Oil District 7C, or the southern Permian Midland, one rig was pulled from Texas Oil District 8A, corresponding to the northern Permian Midland, and one rig was pulled from the extreme western part of the Permian Delaware in New Mexico...the other details are rather straightforward this week, compared to some weeks of late, with the 2 rig decrease in Oklahoma accounted for by the 3 rig decrease in the Cana Woodford of central Oklahoma offset by the addition of a single rig in the Granite Wash near the Texas panhandle, while the 2 rig decrease in Louisiana is accounted for by the 3 rig decrease in the state's Gulf of Mexico waters, offset by the addition of a rig in the Haynesville shale in the northwestern part of the state....the Haynesville shale addition represents a natural gas rig, as does the addition of a rig in the Marcellus of West Virginia...those were offset by the natural gas rig that was shut down in the Barnett shale of the Dallas / Ft Worth area, and another natural gas rig that was shut down in a basin not tracked separately by Baker Hughes...
DUC well report for January
Tuesday of this past week saw the release of the EIA's Drilling Productivity Report for February, which includes the EIA's January data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the 10th month in a row, this report showed an increase in uncompleted wells nationally in January, as both drilling of new wells and completions of drilled wells increased slightly, but drilling continued to outpace completions....like most previous months, this month's uncompleted well increase was almost entirely due to a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, with a modest increase of uncompleted wells in the Eagle Ford of south Texas also contributing...for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 207 wells, from a revised 8,591 DUC wells in December to 8,798 DUC wells in January, a 28.3% increase from the 6,857 wells that had been drilled but remained uncompleted as of the end of January a year ago...that was as 1,453 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during January, up by 17 from the 1,436 wells drilled in December, while 1,246 wells were completed and brought into production by fracking, a increase of 35 well completions from the 1,211 completions seen in December...at the January completion rate, the 8,798 drilled but uncompleted wells left at the end of the month represent a 7.1 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 December DUC well increases were predominantly oil wells, with most of those in the Permian basin...the Permian basin saw its total count of uncompleted wells rise by 205, from 3,843 DUC wells in December to 4,048 DUCs in January, as 609 new wells were drilled into the Permian, but only 404 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas increased by 29, from 1,520 DUC wells in December to 1,561 DUCs in January, as 214 wells were drilled in the Eagle Ford during January, while 185 Eagle Ford wells were completed...over the same period, the number of DUC wells in the Anadarko basin region centered in Oklahoma increased by 4 to 1,085, as 164 wells were drilled into the Anadarko basin during January while 160 Anadarko wells were fracked....meanwhile, the drilled but uncompleted well count in the Niobrara chalk of the Rockies' front range increased by 3 wells to 519, as 184 Niobrara wells were drilled in January while 181 Niobrara wells were being fracked...in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region also saw their uncompleted well inventory increase by 3 wells to 205, as 56 wells were drilled into the Haynesville during January, while 53 Haynesville wells were fracked during the same period...
on the other hand, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 22 wells, from 529 DUCs in December to 507 DUCs in January, as 116 wells were drilled into the Marcellus and Utica shales, while 138 of the already drilled wells in the region were fracked...and lastly, DUC wells in the Bakken of North Dakota fell by 15, from 742 DUC wells in December to 731 DUCs in January, as 110 wells were drilled into the Bakken in January, while 125 of the drilled wells in that basin were completed....thus, for the month of January, DUCs in the 5 oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by a net of 226 wells to 8,086 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 19 wells to 712 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and natural gas...
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note: there's more here...
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