oil prices rose more than 5% over the past week on a surprise drop in US crude supplies, a promise of deeper output cuts from OPEC, and hopes for a U.S.-China trade deal...after falling 92 cents or 1.7% to $53.78 a barrel last week on a trade talks letdown and on a big jump in US oil supplies, the contract price of US light sweet crude for November delivery continued lower on Monday, after Commerce Secretary Wilbur Ross said a trade deal with China need not be finalized next month, feeding into worries that deepening global economic weakness would hurt demand for oil, prices for which ended down 47 cents, or 0.9%, at a two week low of $53.31 a barrel...but oil prices rebounded on Tuesday on a sentiment shift of concerns on both the UK's Brexit and the U.S.-China trade war, and finished 85 cents higher at $54.16 a barrel, buoyed by a report that OPEC would consider deeper production cuts when they meet in December, as trading in the November oil contract expired...while the price of oil for delivery in December, which had risen 97 cents to $54.48 a barrel on Tuesday, initially started lower on Wednesday on an API report of a larger than expected build of US oil inventories, it quickly reversed and surged higher after the EIA's data showed a surprise draw from U.S. crude stocks, and ultimately closed $1.49, or 2.7% higher at $55.97 per barrel....oil prices then extended that gain on Thursday, with US light sweet crude rising 26 cents to $56.23 a barrel, as the surprise drop in U.S. crude inventories and the prospect of further OPEC cuts offset the demand uncertainty stemming from the trade war and Brexit....oil prices continued rising on Friday after administration officials said they were close to finalizing the first part of a trade deal with China after months of a tariff war and finished the day 43 cents, or 0.8%, higher at $56.66 a barrel, thus ending up over 5% for the week as the news of progress on the so-called 'phase one' of a U.S.-China trade deal eased concerns over a slowdown in economic growth and energy demand...
natural gas prices, on the other hand, fell for a fifth week in the past six as last week's forecasts for a cold weather outbreak moderated and shifted west....after rising 4.8% to $2.320 per mmBTU last week on forecasts for colder than normal temperatures for the broad midsection of the country, the contract price of natural gas for November delivery gave up most of those gains on Monday as the cold forecast by the weather models weakened over the weekend and withdrew to the Rockies, leaving the large population centers in the East and the Midwest near normal, as natural gas prices fell 8.2 cents...gas prices recovered 3.4 cents on Tuesday and another penny on Wednesday as the 6 to 10 day forecast indicated the cold would spread to the south central states, and then gained another 3.4 cents on Thursday after the natural gas storage report showed a smaller inventory increase than analysts had expected...however, natural gas prices then slipped back 1.6 cents on Friday to end the week at $2.300 per mmBTU, down 2 cents or less than 1% for the week...
the natural gas storage report for the week ending October 18th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 87 billion cubic feet to 3,606 billion cubic feet by the end of the week, which meant our gas supplies were 519 billion cubic feet, or 16.8% more than the 3,087 billion cubic feet that were in storage on October 18th of last year, and 28 billion cubic feet, or 0.8% above the five-year average of 3,578 billion cubic feet of natural gas that have been in storage as of the 18th of October in recent years....this week's 87 billion cubic feet injection into US natural gas storage was somewhat lower than the average forecast for a 92 billion cubic feet injection from analysts surveyed by S&P Global Platts, but it was well above the average 73 billion cubic feet of natural gas that have been added to gas storage during the third week of October over the past 5 years, the 30th such average or above average storage build in the last 32 weeks...the 2,428 billion cubic feet of natural gas that have been added to storage over the 30 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 2482 billion cubic feet of natural gas that were injected into storage over the same 30 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….
The Latest US Oil Supply and Disposition Data from the EIA
US oil data from the US Energy Information Administration for the week ending October 18th showed that because of a decrease in our oil imports, an increase in our oil exports, and a pickup in our oil refining, we needed to withdraw oil from storage for the first time in 6 weeks...our imports of crude oil fell by an average of 438,000 barrels per day to an average of 5,857,000 barrels per day, after rising by an average of 70,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 435,000 barrels per day to an average of 3,683,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,174,000 barrels of per day during the week ending October 18th, 873,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be unchanged at a record 12,600,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 14,774,000 barrels per day during this reporting week..
meanwhile, US oil refineries were reportedly processing 15,865,000 barrels of crude per day during the week ending October 18th, 429,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net average of 385,000 barrels of oil per day were being withdrawn from the supplies of oil stored in the US....hence, we can see that this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 706,000 barrels per day less than what our oil refineries reported they used during the week....to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+706,000) 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 they label in their footnotes as "unaccounted for crude oil"....with that much oil unaccounted for again this week, it means that one or all of the oil metrics that the EIA has reported and that we have just transcribed have to be seriously off the mark...however, since the media treats these figures as gospel and since they drive oil pricing and hence decisions to drill, we continue to report them as they're seen & believed by everyone else (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) indicated that the 4 week average of our oil imports fell to an average of 6,167,000 barrels per day last week, now 19.5% less than the 7,664,000 barrel per day average that we were importing over the same four-week period last year....the 385,000 barrel per day net withdrawal from our total crude inventories included 242,000 barrels per day that were pulled out of our commercially available stocks of crude oil and a withdrawal of 143,000 barrels per day from our Strategic Petroleum Reserve....this week's crude oil production was reported to be unchanged at a record 12,600,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at a record 12,100,000 barrels per day, and because Alaska's oil production was unchanged at 485,000 barrels per day...last year's US crude oil production for the week ending October 19th was rounded to 10,900,000 barrels per day, so this reporting week's rounded oil production figure was 15.6% above that of a year ago, and 49.5% 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 85.2% of their capacity in using 15,865,000 barrels of crude per day during the week ending October 18th, up from 83.1% of capacity the prior week, but still somewhat below the normal, even for a refinery maintenance season...hence, the 15,865,000 barrels per day of oil that were refined this week was 2.5% below the seasonal low 16,268,000 barrels of crude per day that were being processed during the week ending October 19th, 2018, when US refineries were operating at 89.2% of capacity....
with the increase in the amount of oil being refined, gasoline output from our refineries was also higher, increasing by 100,000 barrels per day to 10,098,000 barrels per day during the week ending October 18th, after our refineries' gasoline output had decreased by 68,000 barrels per day the prior week....with that increase in gasoline output, this week's gasoline production was 4.1% lower than the 10,028,000 barrels of gasoline that were being produced daily over the same week of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 77,000 barrels per day to 4,765,000 barrels per day, after our distillates output had decreased by 147,000 barrels per day over the prior week...since our distillates production is still down by a total of 567,000 barrels per day over the past 5 weeks, our distillates' production this week was still 3.9% below the 4,960,000 barrels of distillates per day that were being produced during the week ending October 19th, 2018....
even with the modest increase in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 12th time in 18 weeks and for the 26th time in thirty-three weeks, falling by 3,107,000 barrels to 223,094,000 barrels during the week to October 18th, after our gasoline supplies had decreased by 2,562,000 barrels over the prior week....the decrease in our gasoline supplies was larger this week because the amount of gasoline supplied to US markets increased by 236,000 barrels per day to 9,590,000 barrels per day, while our imports of gasoline rose by 44,000 barrels per day to 697,000 barrels per day and while our exports of gasoline fell by 156,000 barrels per day to 625,000 barrels per day....after this week's decrease, our gasoline supplies were 2.7% lower than last October 19th's inventory level of 229,330,000 barrels, and but remained roughly 2% above the five year average of our gasoline supplies for this time of the year...
likewise, with the increase in our distillates production, our supplies of distillate fuels fell for the 20th time in the past 30 weeks, decreasing by 2,715,000 barrels to 120,786,000 barrels during the week ending October 18th, after our distillates supplies had decreased by 3,823,000 barrels over the prior week...our distillates supplies fell by less this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, decreased by 290,000 barrels per day to 4,076,000 barrels per day, while our exports of distillates rose by 144,000 barrels per day to 1,209,000 barrels per day while our imports of distillates fell by 64,000 barrels per day to 133,000 barrels per day...after this week's inventory decrease, our distillate supplies were down by 7.4% from the 130,376,000 barrels of distillates that we had stored on October 19th, 2018, and fell to around 12% below the five year average of distillates stocks for this time of the year...
finally, with this week's refinery pickup coupled with the decrease in our net oil imports, our commercial supplies of crude oil in storage fell for the twelfth time in nineteen weeks and for the seventeen time in 39 weeks, decreasing by 1,699,000 barrels, from 434,850,000 barrels on October 11th to 433,151,000 barrels on October 18th....that decrease knocked our crude oil inventories back to the five-year average of crude oil supplies for this time of year, and back to around 30% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the third weekend of October, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising over the past year up until July, after generally falling until then through most of the prior year and a half, our oil supplies as of October 18th were still 2.5% above the 422,787,000 barrels of oil we had stored on October 19th of 2018, but at the same time were 5.3% below the 457,341,000 barrels of oil that we had in storage on October 20th of 2017, and 7.5% below the 468,158,000 barrels of oil we had in commercial storage on October 21st of 2016...
This Week's Rig Count
the US rig count fell for the 9th time in 10 weeks and for the 32nd time in 36 weeks over the week ending October 25th, and is now down by 23.4% since the end of last year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 21 rigs to a 30 month low of 830 rigs this past week, the largest drop in 6 months, down by 238 rigs from the 1068 rigs that were in use as of the October 26th report of 2018, and well less than half of 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 decreased by 17 rigs to a 30 month low of 696 oil rigs this week, which was also 179 fewer oil rigs than were running a year ago, and quite a bit 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 fell by 4 rigs to 133 natural gas rigs, the least natural gas rigs since December 30 2016 and hence a 33 month low for gas rig drilling activity, down by 60 rigs from the 193 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008...in addition, a vertical rig classified as miscellaneous continued to drill on the big island of Hawaii this week, in contrast to a year ago, when there were no such "miscellaneous" rigs deployed..
Gulf of Mexico offshore drilling activity decreased by 1 rig to 20 Gulf rigs running this week, as a rig that had been drilling offshore from Louisiana was shut down...that still left 20 rigs drilling in Louisiana's offshore waters, 2 more rigs than the Gulf of Mexico rig count of 18 a year ago, when 17 rigs were drilling in Louisiana waters and one was drilling offshore from Texas...in addition to the Gulf, one rig continues to drill offshore from the Kenai Peninsula in Alaska, which matches the offshore Alaska count of a year ago...hence, the national total of 21 offshore rigs is up by 2 rigs from the 19 rigs that were deployed offshore a year ago...
the count of active horizontal drilling rigs was down by 17 rigs to 728 horizontal rigs this week, which was the least horizontal rigs deployed since April 28th, 2017 and hence is a new 30 month low for horizontal drilling...that was also 199 fewer horizontal rigs than the 927 horizontal rigs that were in use in the US on October 26th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count was down by 4 rigs to directional rigs this week, and those were down by 22 from the 72 directional rigs that were operating during the same week of last year...on the other hand, the vertical rig count was unchanged at 51 vertical rigs this week, while those were down by 17 from the 68 vertical rigs that were in use on October 26th of 2018...
the details on this week's changes in drilling activity by state and by major 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 oil & gas producing states, and the table below that 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 25th, the second column shows the change in the number of working rigs between last week's count (October 18th) and this week's (October 25th) count, the third column shows last week's October 18th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number 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 26th of October, 2018...
we again have a problem with the Permian basin rig count this week, since the Rigs by State - Current and Historical excel file from Baker Hughes appears to show a drop of 7 rigs in the Texas Oil Districts that encompass the Texas portion of that basin.... Texas Oil District 8, or the core Permian Delaware, shows 266 rigs deployed, a drop of 3 from last week; Texas Oil District 8A, or the northern Permian Midland, shows 13 rigs remaining active, a drop of two from a week ago, while Texas Oil District 7C, or the southern Permian Midland, has 26 rigs remaining, also a drop of two rigs from a week ago...last week we had rig additions in those districts that were two greater than the Permian basin increase, and we assumed that those 2 additional rigs were in the same region but not targeting the Permian...however, since we hadn't seen that happen before, and since it has been reversed this week, it's possible that last week's Permian count was in error and this week's count corrected it...as i noted last week, one could search the North America Rotary Rig Count Pivot Table (xls), which has individual well records going back to February 2011, to see what the actual changes were, but unless one knew offhand which counties were in each of those Texas oil districts. it would likely be an all day chore...
at any rate, with the Texas Permian basins showing a 7 rig decrease this week, it seems likely that the rig that was pulled from New Mexico was not a Permian rig...meanwhile, the 6 rig decrease in Oklahoma appears to include the 2 oil rigs pulled out of the Cana Woodford, the single oil rig pulled out of the Ardmore Woodford, 2 rigs pulled out of basins not tracked separately by Baker Hughes, and an oil rig that had been drilling in the Granite Wash, since Texas Oil District 10, or the Texas side of that basin, saw a 1 rig increase....elsewhere, the 2 oil rigs pulled out of the Williston basin match the North Dakota count, and the rig pulled out of the Gulf of Mexico accounts for 1 rig decrease in Louisiana...however, the two rig decrease in Wyoming probably includes a rig that had been drilling in the Denver-Julesburg Niobrara chalk, since Colorado saw a one rig increase....meanwhile, among rigs targeting natural gas, this week saw two rigs pulled out of the Marcellus, one each from Pennsylvania and from West Virginia, and two rigs removed from those "other basins" not tracked separately by Baker Hughes...we would also note that other than the major producing states listed in the table above, both Alabama and South Dakota saw single rigs removed this week, leaving both states with no drilling at this time...a year ago, Alabama had one rig deployed, while South Dakota had none...
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