oil prices rose for the 7th time in the past nine weeks on tight crude supplies and signs that fuel demand was holding up, despite the Covid surge.... after falling 3.7% to $71.81 a barrel last week as rising Covid cases and the prospect of added supplies from OPEC weighed on the market, the contract price of US light sweet crude for August delivery opened lower on Monday after OPEC and its allies agreed to end their oil production cuts and increase supplies by September 2022, and quickly tumbled to finish the day's trading down by $5.39, or by more than 7%, at $66.42 a barrel, the biggest single day drop since last September, as the spread of the delta Covid variant among vaccinated populations threatened global demand just as OPEC was increasing supplies...however, oil prices bounced back on Tuesday, reversing some of the panic selling seen on Monday, as trading in the August WTI oil contract expired $1.00 higher to end at $67.42 a barrel, while the more actively traded US oil contract for September delivery, which had fallen $5.21 to 66.35 a barrel on Monday, recovered 85 cents to settle at $67.20 a barrel....however, oil prices tumbled that evening after the API reported a surprise increase in US crude inventories, and hence opened 75 cents lower on Wednesday, but rallied from that point despite the EIA's confirmation of an unexpectedly large crude supply build, to finish $3.10 higher at $70.30 a barrel, as inventories at the Cushing, Oklahoma storage hub, the delivery point for the US oil contract, fell to their lowest level in 18 months...oil prices then rose for a third straight session on Thursday on expectations of tighter supplies through 2021 as economies recovered from the coronavirus crisis, as the September crude contract price rose $1.61 to $71.91 a barrel, thus erasing Monday's rout and turning higher for the week...oil prices edged up again on Friday on forecasts for tight supplies throughout the year and settled 16 cents higher at $72.07 a barrel, on signs that global fuel demand and road traffic was holding up, despite concerns that the virus could stall the recovery. leaving the front-month U.S. oil benchmark contract up by 0.7% for the week, same as the gain seen on the September contract, which had become the front month on Wednesday...
meanwhile, natural gas prices rose every day this week in surging to a new 31 month high, as yet another continental heat wave loomed...after ending last week unchanged at $3.674 per mmBTU as strong export demand offset cooler weather and a bearish storage report, the contract price of natural gas for August delivery opened the week higher on Monday and surged 10.5 cents, or 2.9% to a 30 month high at $3.779 per mmBTU on soaring global natural gas prices and forecasts for more air conditioning demand next week than had been previously expected...gas prices rose another 9.7 cents on Tuesday, bolstered by forecasts for hotter weather and concerns over winter supplies, and then moved up 8.3 cents more on Wednesday to a 31 month high of $3.959 per mmBTU on forecasts that the hotter weather and higher air conditioning demand would continue through early August...prices then topped $4 for the first time since early December 2018 on Thursday, as traders looked past a bearish storage print from the EIA and focused instead on persistently strong demand and relatively light production, with the August contract gaining 4.4 cents on the day and settling at $4.003 per mmBTU...forecasts for an even hotter coast to coast heat dome in the coming week pushed natural gas prices another 5.7 cents higher to yet another 31 month high of $4.060 per mmBTU on Friday, putting the front-month price up almost 11% for the week, its biggest weekly percentage gain since February...
the natural gas storage report from the EIA for the week ending July 16th indicated that the amount of natural gas held in underground storage in the US rose by 49 billion cubic feet to 2,678 billion cubic feet by the end of the week, which still left our gas supplies 532 billion cubic feet, or 16.6% below the 3,210 billion cubic feet that were in storage on July 16th of last year, and 176 billion cubic feet, or 6.2% below the five-year average of 2,854 billion cubic feet of natural gas that have been in storage as of the 16th of July in recent years...the 49 billion cubic feet increase in US natural gas in storage this week was more than the median forecast for a 43 billion cubic foot addition from a S&P Global Platts survey of analysts, and well above the average addition of 36 billion cubic feet of natural gas that have typically been injected into natural gas storage during the same week over the past 5 years, and also above the 38 billion cubic feet that were added to natural gas storage during the corresponding week of 2020…
The Latest US Oil Supply and Disposition Data from the EIA
US oil data from the US Energy Information Administration for the week ending July 16th showed that after a big increase in our oil imports and a near record decrease in our oil exports, we had surplus oil to add to our stored commercial crude supplies for the first time in nine weeks, and for the 12th time in the past thirty-six weeks….our imports of crude oil rose by an average of 875,000 barrels per day to an average of 7,097,000 barrels per day, after rising by an average of 347,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 1,562,000 barrels per day to an average of 2,463,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,634,000 barrels of per day during the week ending July 16th, 2,437,000 more barrels per day than the net of our imports minus our exports during the prior week…over the same period, the production of crude oil from US wells was reportedly unchanged at 11,400,000 barrels per day, and hence our daily supply of oil from the net of our international trade in oil and from domestic well production appears to total an average of 16,034,000 barrels per day during this reporting week…
meanwhile, US oil refineries reported they were processing 16,007,000 barrels of crude per day during the week ending July 16th, 87,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA’s surveys indicated that a net of 301,000 barrels of oil per day were being added to the supplies of oil stored in the US….so based on that reported & estimated data, 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 274,000 barrels per day less than what was added to storage plus 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 just plugged a (+274,000) 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”, thus suggesting there must have been a error or errors of that magnitude in this week’s oil supply & demand figures that we have just transcribed….since last week’s EIA fudge factor was at (+1,369,000) barrels per day, that means there was a 1,095,000 barrel per day balance sheet difference in the crude oil fudge figure from a week ago, thus rendering the week over week supply and demand changes indicated by this report useless…. however, since most everyone treats these weekly EIA reports as gospel and since these figures often drive oil pricing and hence decisions to drill or complete wells, we’ll continue to report them as they’re published, just as they’re watched & believed to be reasonably accurate by most everyone in the industry….(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 rose to an average of 6,400,000 barrels per day last week, which was 2.9% more than the 6,218,000 barrel per day average that we were importing over the same four-week period last year… the 301,000 barrel per day net increase in our crude inventories was all added to our commercially available stocks of crude oil, while the quantity of oil stored in our Strategic Petroleum Reserve remained unchanged…..this week’s crude oil production was reported to be unchanged at 11,400,000 barrels per day because the EIA"s rounded estimate of the output from wells in the lower 48 states was unchanged at 11,000,000 barrels per day, while a 56,000 barrel per day decrease in Alaska’s oil production to 378,000 barrels per day had no impact on the rounded national total….US crude oil production had hit a pre-pandemic record high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week’s reported oil production figure was 13.0% below that of our production peak, but 35.3% above the interim low of 8,428,000 barrels per day that US oil production had fallen to during the last week of June of 2016…
meanwhile, US oil refineries were operating at 91.4% of their capacity while using those 16,007,000 barrels of crude per day during the week ending July 16th, down from 91.8% of capacity the prior week, and somewhat below normal for summertime operations…while the 16,007,000 barrels per day of oil that were refined this week were 11.9% higher than the 14,309,000 barrels of crude that were being processed daily during the pandemic impacted week ending July 17th of last year, they were still 6.0% below the 17,034,000 barrels of crude that were being processed daily during the week ending July 19th, 2019, when US refineries were operating at what was a seasonally low 93.1% of capacity…
with this week’s decrease in the amount of oil being refined, the gasoline output from our refineries was also lower, decreasing by 728,000 barrels per day to 9,130,000 barrels per day during the week ending July 16th, after our gasoline output had decreased by 696,000 barrels per day over the prior week…while this week’s gasoline production was still fractionally higher than the 9,079,000 barrels of gasoline that were being produced daily over the same week of last year, it was j9.5% lower than the gasoline production of 10,089,000 barrels per day during the week ending July 19th, 2019….meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 24,000 barrels per day to 4,902,000 barrels per day, after our distillates output had decreased by 41,000 barrels per day over the prior week…while this week’s distillates output was 2.9% more than the 4,763,000 barrels of distillates that were being produced daily during the week ending July 17th, 2020, it was 6.1% below the 5,219,000 barrels of distillates that were being produced daily during the week ending July 19th, 2019..
with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the fifth time in sixteen weeks, and for the 15th time in thirty-six weeks, falling by 121,000 barrels to 236,414,000 barrels during the week ending July 16th, after our gasoline inventories had increased by 1,038,000 barrels over the prior week...our gasoline supplies decreased this week even though our imports of gasoline rose by 330,000 barrels per day to a ten year high of 1,374,000 barrels per day while our exports of gasoline rose by 119,000 barrels per day to 866,000 barrels per day, and as the amount of gasoline supplied to US users increased by 12,000 barrels per day to 9,295,000 barrels per day…after this week’s inventory decrease, our gasoline supplies were 4.2% lower than last July 17th's gasoline inventories of 246,733,000 barrels, and near the five 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 decreased for the tenth time in fifteen weeks and for the 16th time in 31 weeks, falling by 1,349,000 barrels to 141,000,000 barrels during the week ending July 16th, after our distillates supplies had increased by 3,657,000 barrels during the prior week….our distillates supplies fell this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 761,000 barrels per day to 3,925,000 barrels per day, while our exports of distillates fell by 59,000 barrels per day to 1,257,000 barrels per day, and while our imports of distillates rose by 10,000 barrels per day to 66,000 barrels per day… after ten inventory decreases over the past fifteen weeks, our distillate supplies at the end of the week were 20.8% below the 177,883,000 barrels of distillates that we had in storage on July 17th, 2020, and about 4% below the five year average of distillates stocks for this time of the year…
finally, with the drop in our oil exports and the increase in our oil imports, our commercial supplies of crude oil in storage rose for the fourth time in the past seventeen weeks and for the 24th time in the past year, increasing by 2,107,000 barrels over the week, from 437,580,000 barrels on July 9th to 439,687,000 barrels on July 16th, after our commercial crude supplies had decreased by 7,896,000 barrels the prior week….with this week’s decrease, our commercial crude oil inventories rose to about 7% below the most recent five-year average of crude oil supplies for this time of year, and were about 29% above the average of our crude oil stocks as of the the 3rd weekend of July over the 5 years at the beginning of the past decade, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first topped 400 million barrels….since our crude oil inventories had jumped to record highs during the Covid lockdowns of last spring and remained elevated thereafter, our commercial crude oil supplies as of this July 16th were 18.1% less than the 536,580,000 barrels of oil we had in commercial storage on July 17th of 2020, and 1.2% less than the 445,041,000 barrels of oil that we had in storage on July 19th of 2019, but are still 8.6% more than the 404,937,000 barrels of oil we had in commercial storage on July 20th of 2018…
This Week's Rig Count
The number of drilling rigs active in the US increased for the 38th time out of the past 44 weeks during the week ending July 23rd, but was still down by 38.1% from the pre-pandemic rig count….Baker Hughes reported that the total count of rotary rigs running in the US increased by seven to 491 rigs this past week, which was also up by 240 rigs from the pandemic hit 251 rigs that were in use as of the July 24th report of 2020, but was still 1,438 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, a week before OPEC began to flood the global oil market in an attempt to put US shale out of business….
The number of rigs drilling for oil was up by 7 to 387 oil rigs this week, after rising by 2 oil rigs the prior week, and it’s also 206 more oil rigs than were running a year ago, while it’s still just 24.1% of 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 104 natural gas rigs, which was still up by 36 natural gas rigs from the 68 natural gas rigs that were drilling during the same week a year ago, but still just 6.5% of the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….
The Gulf of Mexico rig count was unchanged at 17 rigs this week, with 16 of those rigs drilling for oil in Louisiana’s offshore waters and one drilling for oil offshore from Texas….that was five more rigs than the 12 rigs that were drilling in the Gulf a year ago, when 10 Gulf rigs were drilling for oil offshore from Louisiana and two were deployed for oil in Texas waters….since there are no rigs operating off of other US shores at this time, nor were there a year ago, this week’s national offshore rig totals are equal to the Gulf rig count… in addition to those rigs offshore, we continue to have a rig drilling through an inland body of water in Terrebonne Parish of southern Louisiana, whereas there were no such “inland waters” rigs running a year ago…
The count of active horizontal drilling rigs was up by 5 to 439 horizontal rigs this week, which was also up by 224 rigs from the 216 horizontal rigs that were in use in the US on July 24th of last year, but less than a third of the record of 1372 horizontal rigs that were deployed on November 21st of 2014….at the same time, the directional rig count was up by one to 33 directional rigs this week, and those were up by 11 from the 22 directional rigs that were operating during the same week a year ago….in addition, the vertical rig count was up by 1 to 19 vertical rigs this week, and those were also up by 5 from the 14 vertical rigs that were in use on July 24th of 2020….
The details on this week’s changes in drilling activity by state and by major shale basin are shown in our screenshot below of that part of the rig count summary pdf from Baker Hughes that gives us 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 July 23rd, the second column shows the change in the number of working rigs between last week’s count (July 16th) and this week’s (July 23rd) count, the third column shows last week’s July 16th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running on the Friday before the same 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 24th of July, 2020..
checking first for the details on the Permian basin in Texas from the Rigs by State file at Baker Hughes, we find that one oil rig was added in Texas Oil District 8, which is the core Permian Delaware in the westernmost part of the state, and that two oil rigs were added in Texas Oil District 8A, which encompasses the northern counties of the Permian Midland, and that another oil rig was added in Texas Oil District 7C, which encompasses the southern counties of the Permian Midland, thus accounting for this week's Permian basin increase...however, the Permian basin gas drilling rig that had been started last week was either pulled out or converted to oil this week, so hence there was a net addition of 5 oil rigs in the basin...elsewhere in Texas, two rigs were added in Texas Oil District 10, at least one of which was an oil rig in the Granite Wash basin, while the rig counts in other Texas districts remained unchanged... meanwhile, in Louisiana, two rigs were pulled out from the northern part of the state, one of which was a natural gas rig in the Haynesville shale...elsewhere, the Ardmore Woodford rig addition was in Oklahoma, while the two Utah rig additions were in the Unitah basin, one of which was targetting natural gas...that gas rig, and another addition, are aggregated by Baker Hughes as "other natural gas rigs", offseting the natural gas losses in the Permain and Haynesville that we've previously noted...
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note: there's more here...
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