oil price percentage jump is most in 15 months; natural gas price jumps to 32 month high on biggest gain in 33 months; 4 week average of gasoline demand at a post pandemic high leaves gasoline supplies at a 42 week low
US oil prices rose more than 10% this week after Chinese virus cases fell to zero, an explosion knocked out a quarter of Mexico's oil production, domestic gasoline demand rose to pre pandemic levels, and an approaching hurricane disrupted US Gulf operations....after oil prices fell 8.9% last week as trading in the September contract on US light sweet oil expired priced at $62.32 a barrel, trading in the contract for US light sweet crude for October delivery, which had finished last week priced at $62.14, opened lower on Monday, but quickly rallied, supported by weakness in the US dollar, and by signs that China had the Delta variant controlled, easing fears of a prolonged setback for energy demand, and settled $3.50 or 5.6% higher at $65.64 a barrel, after weaker-than-expected economic data fueled speculation the Fed would delay tapering until later this year, leading to risk-on trading sentiment across the financial markets...oil prices jumped again on Tuesday, after a fire on a Mexican offshore oil rig killed five and cut the country's daily output by nearly a quarter and finished $1.90, or 3% higher at $67.54 a barrel, after China brought local virus cases down to zero and road traffic showed signs of recovery...oil prices extended their rally for a third day on Wednesday, after Reuters reported that fuel demand had climbed to its highest since the start of the COVID-19 pandemic, and settled 82 cents, or 1.2% higher at $68.36 per barrel as the EIA data also showed that crude and gasoline inventories dropped more than had been expected....however, oil's three day rally ended on Thursday on renewed concerns about demand due to rising COVID-19 infections, and as Mexico restored some of the oil production knocked out earlier in the week and prices settled 94 cents lower at $67.42 a barrel, as traders positioned ahead of coming data on domestic inflation, and potential signals for tapering from the Fed, as policymakers gathered for their annual summit in Jackson Hole, Wyoming...but oil prices moved higher again early on Friday on anticipation that Tropical Storm Ida would disrupt Gulf of Mexico oil production, with forecasts for the storm to strengthen into a Category 3 hurricane prior to its Louisiana landfall on Sunday, and finished trading $1.32 or 2% higher at 68.74 a barrel, with prices further supported by Fed Chairman Powell's speech saying they're still far from pulling interest rates off their record lows...oil prices thus posted the biggest weekly gain in more than a year, after the prior week had seen the greatest losses on over nine months..
With several news sites noting that this week's oil price gain was a nonspecific 'most in more than a year', i decided to determine exactly how much that 'more than a year' was by checking a graph of oil prices, which is included below..
the above is a screenshot of the interactive oil price chart from barchart.com, which i have set to show front month oil prices weekly over the past 5 years, which means you're seeing oil prices as they were quoted by the media...this same chart can be reset to show prices of front month or individual monthly oil contracts over time periods ranging from 1 day to 30 years, as the menu bar on the top indicates, and also to show oil prices by the minute, hour, day, week or month for each...each bar in the graph above represents the range of oil prices for a single week, with weeks when prices rose indicated in green, and weeks when prices fell indicated in red, while the bars across the bottom show trading volume for the weeks in question, again with up weeks indicated by green bars and down weeks indicated in red...notice that the green price bar on the far right, representing this week's prices, is the largest green bar on the graph, which would indicate oil prices rose more this week than in any time in five years...while that's true, note that i have also highlighted the week ending May 4 2020 on the above graph, causing pricing details for that week to appear in a small box in the upper left...that box shows oil prices for the June 2020 crude light contract (CLN20) closed at $26.17 a barrel that week, up $6.38 on the week...while that nominal price gain is smaller than this week's $6.60 gain, percentage wise it is more than three times greater, which is why the media limited the headline gain to just "more than a year"...
natural gas prices also rose more than 10% as the approaching hurricane disrupted Gulf production, following an unexpectly small increase in supplies.. after slipping one cent to $3.851 per mmBTU last week as weather forecasts fluctuated and inventories rose more than had been expected, the contract price of natural gas for September delivery opened higher on Monday and rose 9.4 cents to a one-week high of $3.945 per mmBTU on forecasts that hot weather and high air conditioning demand would continue into early September...gas prices gave up some of that gain on Tuesday as traders focused on near term forecasts for lower demand in the current week and prices ended 4.9 cents lower at $3.896 per mmBTU....natural gas prices then jumped 10 cents early Wednesday before falling back to end just a tenth of a cent higher amid a decline in production and estimates for a relatively light storage increase, as well as an evolving weather picture...but gas prices soared over 7% to a 32-month high on Thursday on a much smaller than expected storage build during the hot weather of last week than had been expected, settling 28.7 cents higher at $4.184 per mmBTU...prices were up another 4% to another 32 month high at $4.370 per mmBTU on Friday, on forecasts that the weather will remain hotter than normal through mid-September, and on concerns Hurricane Ida would shut Gulf production when it hits Louisiana as a major storm early next week, with natural gas thus finishing the week 13.5% higher...and with that, we'll also include a five year graph of natural gas prices..
the above is a screenshot of the interactive natural gas price chart from barchart.com, which again i have set to show front month naural gas prices weekly over the past 5 years, which means we're seeing natural gas prices as they were quoted in the media...the bars and representations on this graph are the same as we outlined for the oil graph above...as you can see, while this week's natural gas prices were the highest since December, they're still short of the $4.50 to $5 per mmBTU price range we saw in November 2018, when a brutally cold month resulted in an early drawdown of supplies, raising concerns of shortages going into that winter, which persisted until milder weather arrived in late December and January...again, i've used my cursor to highlight natural gas prices for the week ending November 12, 2018, which shows that the price of the December 2018 natural gas contract (NGZ18) rose 55.3 cents during that week, more than this week's 51.9 cent gain, which was the largest one week gas price increase over the 5 years shown..
the natural gas storage report from the EIA for the week ending August 20th indicated that the amount of working natural gas held in underground storage in the US rose by 29 billion cubic feet to 2,851 billion cubic feet by the end of the week, which left our gas supplies 563 billion cubic feet, or 16.5% below the 3,414 billion cubic feet that were in storage on August 20th of last year, and 189 billion cubic feet, or 5.8% below the five-year average of 3,040 billion cubic feet of natural gas that have been in storage as of the 20th of August in recent years...the 29 billion cubic foot increase in US natural gas in working storage this week was less than the median forecast for a 37 billion cubic foot addition from a S&P Global Platts survey of analysts, and less than the average addition of 44 billion cubic feet of natural gas that have typically been injected into natural gas storage during the same week over the past 5 years, as well as less than the 45 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 August 20th indicated that despite a sizable decrease in our oil exports, we still needed to withdraw oil from our stored commercial crude supplies for the twelfth time in fourteen weeks, and for the 28th time in the past forty weeks….our imports of crude oil fell by an average of 193,000 barrels per day to an average of 6,157,000 barrels per day, after falling by an average of 34,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 619,000 barrels per day to an average of 2,812,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,345,000 barrels of per day during the week ending August 20th, 426,000 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 14,745,000 barrels per day during the cited reporting week…
meanwhile, US oil refineries reported they were processing 16,072,000 barrels of crude per day during the week ending August 20th, 66,000 more 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 average of 426,000 barrels of oil per day were being pulled out of 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, from storage, and from oilfield production was 901,000 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 just plugged a (+901,000) 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 omission 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 (+1,225,0000) barrels per day, that means there was a 324,000 barrel per day balance sheet difference in the crude oil fudge figure from a week ago, thus calling into question the week over week supply and demand changes indicated by this report...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 fell to an average of 6,334,000 barrels per day last week, which was still 8.8% more than the 5,819,000 barrel per day average that we were importing over the same four-week period last year…the 426,000 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 5,000 barrel per day decrease in Alaska’s oil production to 423,000 barrels per day had no impact on the rounded national production 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 pre-pandemic 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 92.4% of their capacity while using those 16,072,000 barrels of crude per day during the week ending August 20th, up from 92.2% of capacity the prior week, but still somewhat below normal utilization for summertime refinery operations…while the 16,072,000 barrels per day of oil that were refined this week were 9.2% more barrels than the 14,712,000 barrels of crude that were being processed daily during the pandemic impacted week ending August 21st of last year, they were still 7.7% below the 17,408,000 barrels of crude that were being processed daily during the week ending August 23rd, 2019, when US refineries were operating at what was then a normal 95.2% of capacity…
with this week’s increase in the amount of oil being refined, the gasoline output from our refineries was also higher, increasing by 249,000 barrels per day to 10,249,000 barrels per day during the week ending August 20th, after our gasoline output had increased by 39,000 barrels per day over the prior week.…while this week’s gasoline production was 7.7% higher than the 9,518,000 barrels of gasoline that were being produced daily over the same week of last year, it was 3.9% lower than the gasoline production of 10,660,000 barrels per day during the week ending August 23rd, 2019….meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 140,000 barrels per day to 4,988,000 barrels per day, after our distillates output had decreased by 37,000 barrels per day over the prior week…even after that increase, this week’s distillates output was 2.6% less than the 5,122,000 barrels of distillates that were being produced daily during the week ending August 21st, 2020, and 3.9% below the 5,193,000 barrels of distillates that were being produced daily during the week ending August 23rd, 2019..
even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the ninth time in twenty-one weeks, and for the 15th time in forty-one weeks, falling by 2,241,000 to a forty-two week low of 225,924,000 barrels during the week ending August 20th, after our gasoline inventories had increased by 696,000 barrels over the prior week...our gasoline supplies decreased this week because the amount of gasoline supplied to US users increased by 239,000 barrels per day to 9,572,000 barrels per day, and because our exports of gasoline rose by 260,000 barrels per day to 911,000 barrels per day, while our imports of gasoline rose by 333,000 barrels per day to 1,076,000 barrels per day…after this week’s inventory decrease, our gasoline supplies were 5.5% lower than last August 21st's gasoline inventories of 239,179,000 barrels, and about 3% below the five year average of our gasoline supplies for this time of the year…
meanwhile, with the increase in our distillates production, our supplies of distillate fuels also increased for the eighth time in twenty weeks and for the 20h time in 36 weeks, rising by 645,000 barrels to 138,459,000 barrels during the week ending August 20th, after our distillates supplies had decreased by 2,697,000 barrels during the prior week….our distillates supplies rose week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 219,000 barrels per day to 4,104,000 barrels per day, and because our imports of distillates rose by 146,000 barrels per day to 288,000 barrels per day while our exports of distillates rose by 27,000 barrels per day to 1,079,000 barrels per day…but after twelve inventory decreases over the past twenty weeks, our distillate supplies at the end of the week were still 22.7% below the 179,195,000 barrels of distillates that we had in storage on August 21st, 2020, and about 8% below the five year average of distillates stocks for this time of the year…
finally, even with the decrease in our oil exports, our commercial supplies of crude oil in storage fell for the 17th time in the past twenty-seven weeks and for the 35th time in the past year, decreasing by 2,980,000 barrels over the week, from 435,544,000 barrels on August 13th to 432,564,000 barrels on August 20th, after our commercial crude supplies had decreased by 3,233,000 barrels the prior week…after this week’s decrease, our commercial crude oil inventories were about 6% below the most recent five-year average of crude oil supplies for this time of year, but were still 30.2% above the average of our crude oil stocks after the third week of August 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 August 20th were still 14.8% less than the 507,763,000 barrels of oil we had in commercial storage on August 21st of 2020, but still 1.1% more than the 427,751,000 barrels of oil that we had in storage on August 23rd of 2019, and 6.6% more than the 405,792,000 barrels of oil we had in commercial storage on August 24th of 2018…
This Week's Rig Count
The number of drilling rigs active in the US increased for the 42nd time out of the past 49 weeks during the week ending August 27th, but was still down by 35.9% from the pre-pandemic rig count….Baker Hughes reported that the total count of rotary rigs running in the US increased by five to 508 rigs this past week, which was double the pandemic hit 254 rigs that were in use as of the August 28th report of 2020, but was still 1,421 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 5 to 410 oil rigs this week, after rising by 8 oil rigs the prior week, and that’s now 230 more oil rigs than were running a year ago, but it’s barely over a quarter 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 97 natural gas rigs, which was still up by 25 natural gas rigs from the 72 natural gas rigs that were drilling during the same week a year ago, but still only 6% of the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….in addition to oil and gas rigs, a horizontal rig that Baker Hughes classifies as "miscellaneous' is still drilling in Kern county California, while a year ago there were two such "miscellaneous' rigs reported to be active...
The Gulf of Mexico rig count was unchanged at 14 rigs this week, with all 14 of those rigs now drilling for oil in Louisiana’s offshore waters….that was one more than the 13 rigs that were drilling in the Gulf a year ago, when 10 Gulf rigs were drilling for oil offshore from Louisiana and three were deployed for oil in Texas waters….in addition to those Gulf of Mexico rigs, we continue to have a rig drilling for natural gas off the shore of the Kenai peninsula in Alaska, and hence the national offshore rig count is now 15, up from 13 offshore rigs a year ago..
In addition to those rigs offshore, we also still have three rigs drilling through inland bodies of water in Louisiana this week. whereas there was only one such “inland waters” rigs running a year ago…the “inland waters” rig include a directional rig targeting oil near the mouth of the Mississippi in Plaquemines Parish, Louisiana; a horizontal rig drilling for oil in the Haynesville shale through a lake in DeSoto parish in the northwestern corner of the state, just south of Shreveport, and another directional rig drilling for oil through an inland body of water in Terrebonne Parish of southern Louisiana...
The count of active horizontal drilling rigs was up by 5 to 459 horizontal rigs this week, which was more than double the 221 horizontal rigs that were in use in the US on August 28th of last year, but was roughly a third of the record of 1372 horizontal rigs that were deployed on November 21st of 2014…..in addition, the vertical rig count was up by 2 to 21 vertical rigs this week, and those were also up by 8 from the 13 vertical rigs that were operating during the same week a year ago….on the other hand, the directional rig count was down by 2 to 28 directional rigs this week, but those were still up by 8 from the 20 directional rigs that were in use on August 28th 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 August 27th, the second column shows the change in the number of working rigs between last week’s count (August 20th) and this week’s (August 27th) count, the third column shows last week’s August 20th 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 28th of August, 2020...
the two rigs added in Wyoming were in a basin that Baker Hughes doesn't track, which means that two rigs must have been shut down in an untracked basin elsewhere, since the totals on our tables balance with the national count otherwise...checking the details on the Permian basin in Texas from the Rigs by State file at Baker Hughes, we find that one rig was added in Texas Oil District 8, which is the core Permian Delaware, but that the rig counts in all other Permian districts were unchanged...hence, with the Texas Permian count up by one while national Permian count was up by two, that means that the rig that was added in New Mexico must have been set up to drill in the far west reaches of the Permian Delaware in that state...there were also no other changes elsewhere in Texas, so that means that the Granite Wash basin rig that was added had to been in Oklahoma, in one of the counties adjacent to the Texas panhandle...Oklahoma also has oil rig additions in the Ardmore Woodford and the Cana Woodford, but since the state rig total is only up by 1, that means there must have been two rig removals elsewhere in the state in basins that Baker Hughes doesn't track, offsetting those Wyoming rig additions we mentioned earlier..
Although there appears to have been no changes to natural gas rigs this week, we found that a natural gas rig was shut down in Oklahoma's Arkoma Woodford this week, while an oil rig was started up in that basin at the same time...since the national natural gas rig count was unchanged, that means that there also had to have been a natural gas rig added somewhere in one of those basins that Baker Hughes doesn't track, possibly even offset by an oil rig addition in the same basin at the same time...
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