US crude supplies at a 35 month low; total supplies of oil plus products made from it at a 6 1/2 year low; exports of distillates at a 28 week low; vertical drilling at an 18 month high; DUC well backlog at 6.7 months..
oil prices rose for a fifth straight week as global oil supplies tightened and U.S. crude inventories fell to a 35 month low..after rising 3.2% to $71.97 a barrel last week on ongoing hurricane impacts and on tightening supplies of crude and fuel, the contract price for US light sweet crude for October delivery opened lower Monday as a broad commodity sell-off in Asia flowed into US oil markets, and tumbled more than $2 by midafternoon as worries over the potential collapse of China property giant Evergrande dragged down global financial markets and fueled strength in the U.S. dollar before recovering to close $1.68 lower at $70.29 a barrel as traders grew more risk averse, thus boosting the dollar and making oil more expensive for holders of other currencies...however, oil prices reversed that drop on Tuesday, rising above Monday's opening at one point, after the US lifted travel restrictions on fully vaccinated foreign travelers from 33 countries, hence boosting the prospect for increased jet fuel demand, before settling with a modest gain of 27 cents at $70.56 a barrel, as concerns about the global demand outlook counterbalanced the struggle by big OPEC producers to supply enough oil meet that demand, as trading in the October oil contract expired....with oil price quotes now referencing the contract price for US light sweet crude for November delivery, which had finished Tuesday up 35 cents at $70.49 a barrel, oil opened 36 cents higher on Wednesday, after the American Petroleum Institute reported lower inventories across the board, and then surged more than 2% to settle $1.74 higher at $72.23 a barrel after the EIA reported U.S. crude stocks fell to their lowest levels in almost three years and that refinery demand had largely recovered from recent storms...the oil rally continued into Thursday on the large crude draw, as the Fed signaled it could soon start slowing the pace of its bond-buying program in a first step to withdraw pandemic-era stimulus, and settled $1.07 higher at a two month high of $73.30 a barrel, as equities rallied and the US dollar weakened, boosting the appeal of commodities priced in the currency...oil prices were up nearly 1% more on Friday on a report that global output disruptions had forced companies to pull large amounts of crude out of inventories, and settled 68 cents higher at $73.98 a barrel, as the global surge in natural gas prices was expected to force some consumers to switch to oil for heating ahead of winter...oil prices thus finished with a gain of 2.8% on the week, while the November US oil contract, which had closed last week priced at $71.82, finished 3.0% higher...
natural gas prices also rose again this week, in their case for the sixth straight week, as domestic and global supply problems outweighed the impact of bearish weather patterns... after rising 3.4% to $5.105 per mmBTU last week despite a larger than expected inventory build and cooler forecasts, the contract price of natural gas for October delivery fell 12.0 cents to a fresh one-week low of $4.985 per mmBTU on Monday on forecasts for milder weather over the next two weeks, even as gas prices in Europe and Asia soared to record highs over $25, as two US LNG export facilities remained down, one for maintenance and the other in the wake of Hurricane Nicholas...natural gas prices then fell 18.0 cents to a two week low of $4.805 per mmBTU on Tuesday as cooling weather patterns and interruptions to LNG exports portended larger additions to inventories ahead of winter draws...however, natural gas prices ended Wednesday unchanged after trading higher most of the day, despite gas prices at or near record highs of around $25 per mmBTU in Europe and near $28 per mmBTU in Asia...natural gas prices rebounded vigorously on Thursday, propelled by domestic and global supply challenges as the peak winter demand season loomed, and settled 17.1 cents higher at $4.976 per mmBTU, after earlier rising to $5.037 per mmBTU on an injection of gas into storage that was on a par with most forecasts....natural gas prices then climbed over 3% to a one-week high on Friday as some parts of the country started to crank up heaters with the coming of cooler weather even as air conditioning power demand elsewhere declined...and on the strength of that two day rally, natural gas contract prices managed to end with a 0.7% gain on the week, even as cash prices at most major US markets ended lower..
the EIA's natural gas storage report for the week ending September 17th indicated that the amount of working natural gas held in underground storage in the US rose by 76 billion cubic feet to 3,082 billion cubic feet by the end of the week, which left our gas supplies 589 billion cubic feet, or 16.0% below the 3,671 billion cubic feet that were in storage on September 17th of last year, and 229 billion cubic feet, or 6.9% below the five-year average of 3,311 billion cubic feet of natural gas that have been in storage as of the 17th of September in recent years...the 76 billion cubic foot increase in US natural gas in working storage this week was close to the forecast for a 75 billion cubic foot addition from a Reuters survey of analysts, and only a tad more than the average addition of 74 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 slightly more than the 70 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 September 17th indicated that despite sizeable increases in our oilfield production and our oil imports, we still needed to withdraw oil from our stored commercial crude supplies for the 7th consecutive week, and for the 33rd time in the past forty-four weeks….our imports of crude oil rose by an average of 704,000 barrels per day to an average of 6,465,000 barrels per day, after falling by an average of 44,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 185,000 barrels per day to an average of 2,809,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,656,000 barrels of per day during the week ending September 17th, 519,000 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 500,000 barrels per day higher at 10,600,000 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 14,265,000 barrels per day during the cited reporting week…
meanwhile, US oil refineries reported they were processing an average of 15,347,000 barrels of crude per day during the week ending September 17th, 960,000 more barrels per day than the amount of oil they processed during the prior week, while over the same period the EIA’s surveys indicated that an average of 669,000 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 422,000 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 (+422,000) 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...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 6,094,000 barrels per day last week, which was 18.9% more than the 5,125,000 barrel per day average that we were importing over the same four-week period last year…the 669,000 barrel per day net decrease in our crude inventories included 497,000 barrels per day that were pulled out of our commercially available stocks of crude oil, and 172,000 barrels per day of oil that had been stored in our Strategic Petroleum Reserve, part of an emergency loan of oil to Exxon in the wake of hurricane Ida….this week’s crude oil production was reported to be 500,000 barrels per day higher at 10,600,000 barrels per day because the EIA"s rounded estimate of the output from wells in the lower 48 states was 500,000 barrels per day higher at 10,200,000 barrels per day, while a 8,000 barrel per day increase in Alaska’s oil production to 429,000 barrels per day had no impact on the reported 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 19.1% below that of our pre-pandemic production peak, but still 25.8% 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 87.5% of their capacity while using those 15,347,000 barrels of crude per day during the week ending September 10th, up from 82.1% of capacity the prior week, but still a bit below normal utilization for early autumn refinery operations…while the 15,347,000 barrels per day of oil that were refined this week were 14.8% more barrels than the 13,370,000 barrels of crude that were being processed daily during the pandemic impacted week ending September 18th of last year, they were 7.1% below the 16,513,000 barrels of crude that were being processed daily during the week ending September 20th, 2019, when US refineries were operating at what was then a near normal 89.8% 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 372,000 barrels per day to 9,643,000 barrels per day during the week ending September 17th, after our gasoline output had decreased by 851,000 barrels per day over the prior week.…while this week’s gasoline production was 3.5% higher than the 9,315,000 barrels of gasoline that were being produced daily over the same week of last year, it was 5.8% lower than the gasoline production of 10,240,000 barrels per day during the week ending September 20th, 2019….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 298,000 barrels per day to 4,454,000 barrels per day, after our distillates output had decreased by 29,000 barrels per day over the prior week…but even after this week’s increase, our distillates output was a bit less than the 4,470,000 barrels of distillates that were being produced daily during the week ending September 18th, 2020, and 10.9% below the 5,000,000 barrels of distillates that were being produced daily during the week ending September 20th, 2019..
with the big increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the tenth time in twenty-four weeks, and for the 19th time in forty-four weeks, rising by 3,474,000 barrels to 221,616,000 barrels during the week ending September 17th, after our gasoline inventories had decreased by 1,857,000 barrels over the prior week...our gasoline supplies increased this week even though the amount of gasoline supplied to US users rose by 4,000 barrels per day to 8,896,000 barrels per day because our imports of gasoline rose by 444,000 barrels per day to 1,082,000 barrels per day while our exports of gasoline fell by 13,000 barrels per day to 621,000 barrels per day…even after this week’s inventory increase, our gasoline supplies were 2.6% lower than last September 18th's gasoline inventories of 227,499,000 barrels, and about 3% below the five year average of our gasoline supplies for this time of the year…
meanwhile, even with the increase in our distillates production, our supplies of distillate fuels decreased for the sixteenth time in twenty-four weeks and for the 20th time in 40 weeks, falling by 2,554,000 barrels to 131,897,000 barrels during the week ending September 17th, after our distillates supplies had decreased by 1,689,000 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 629,000 barrels per day to 4,424,000 barrels per day, while our imports of distillates rose by 20,000 barrels per day to 184,000 barrels per day and even though our exports of distillates fell by 188,000 barrels per day to a 28 week low of 579,000 barrels per day…after sixteen inventory decreases over the past twenty-four weeks, our distillate supplies at the end of the week were 26.5% below the 175,942,000 barrels of distillates that we had in storage on September 18th, 2020, and about 14% below the five year average of distillates stocks for this time of the year…
meanwhile, with our oil refining recovering from Ida faster than our oil production has, our commercial supplies of crude oil in storage fell for the sixteenth time in eightteen weeks and for the 36th time in the past year, decreasing by 3,481,000 barrels over the week, from 417,445,000 barrels on September 10th to a 35 month low of 413,964,000 barrels on September 17th, after our commercial crude supplies had decreased by 6,422,000 barrels the prior week…after this week’s decrease, our commercial crude oil inventories were about 8% below the most recent five-year average of crude oil supplies for this time of year, but were still about 26% above the average of our crude oil stocks after the third week of September 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 for most of the year after that, our commercial crude oil supplies as of this September 18th were 16.3% less than the 494,406,000 barrels of oil we had in commercial storage on September 19th of 2020, and are now 1.3% less than the 419,538,000 barrels of oil that we had in storage on September 20th of 2019, but still 4.5% more than the 395,989,000 barrels of oil we had in commercial storage on September 21st of 2018…
finally, with our inventory of crude oil and and our supplies of all products made from oil, we're also going to check the total of all U.S. Stocks of Crude Oil and Petroleum Products, including those in the SPR....we find that total inventories, including those in the Strategic Petroleum Reserve and those held by the oil industry, fell by 3,788,000 barrels this week, from 1,845,415,000 barrels on September 10th to 1,841,627,000 barrels on September 17th, which is the lowest since March 6th, 2015, and hence is a 6 1/2 year low...
This Week's Rig Count
The number of drilling rigs active in the US increased for 45th time out of the past 53 weeks during the week ending September 24th, but they were still 34.3% below the pre-pandemic rig count....Baker Hughes reported that the total count of rotary rigs running in the US increased by nine to 521 rigs this past week, which was also 260 more rigs the pandemic hit 261 rigs that were in use as of the September 25th report of 2020, but was still 1,408 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 10 to 421 oil rigs this week, after they had also risen by 10 oil rigs the prior week, and there are now 230 more oil rigs active now than were running a year ago, while they still amount to just 26.1% 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 one to 99 natural gas rigs, which was still up by 24 natural gas rigs from the 71 natural gas rigs that were drilling during the same week a year ago, but still only 6.2% 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' continues to drill in Kern county California, while a year ago there were three such "miscellaneous' rigs reported to be active...
The Gulf of Mexico rig count was up by four rigs to eight rigs this week, which is still only a partial recovery after Gulf rigs fell from 14 rigs the week before Hurricane Ida approached, with seven of this week's rigs deployed in Louisiana waters and another drilling for oil in Alaminos Canyon, offshore from Texas...but the Gulf rig count is still down by 6 rigs from a year ago, when 12 Gulf rigs were drilling for oil offshore from Louisiana and two were deployed for oil in Texas waters….however, there are still 2 rigs drilling for natural gas off the shore of the Kenai peninsula in Alaska this week, and hence the total national offshore rig count of 10 rigs is down by just 4 rigs from the 14 offshore rigs running a year ago, when there was no drilling off Alaska or off our other coasts...
In addition to those rigs offshore, a directional rig targeting oil at a depth of over 15,000 feet returned to an inland body of water in Plaquemines Parish, Louisiana, near the mouth of the Mississippi this week, one of three such inland waters rigs that were shut down in Louisiana in the wake of Ida...last week a new rig had started drilling for oil in the Galveston Bay area, so the inland waters rig count is now two, up from one from a year ago..
The count of active horizontal drilling rigs was up by 5 ro 471 horizontal rigs this week, which was more than double the 224 horizontal rigs that were in use in the US on September 25th of last year, but was just over a third of the record of 1372 horizontal rigs that were deployed on November 21st of 2014….at the same time, the vertical rig count was up by 1 to an 18 month high of 30 vertical rigs this week, and those were also up by 14 from the 16 vertical rigs that were operating during the same week a year ago…..in addition, the directional rig count was up by 3 to 20 directional rigs this week, but those were still down by 1 from the 21 directional rigs that were in use on September 25th 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 September 24th, the second column shows the change in the number of working rigs between last week’s count (September 17th) and this week’s (September 24th) count, the third column shows last week’s September 17th 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 25th of September, 2020...
Louisiana's rig count was up by four with the addition of the inland waters rig in Plaquemines Parish and the three rigs in the state's offshore waters... Oklahoma's four rig increase includes an oil rig added in the Cana Woodford and an oil rig added in the Arkoma Woodford, where a natural gas rig is already deployed, as well as three more rigs in Oklahoma basins that Baker Hughes doesn't name, while at the same time an oil rig was pulled out of the Granite Wash in the area of Oklahoma adjacent to the Texas panhandle...in Texas, the Rigs by State file at Baker Hughes shows that three rigs were added in Texas Oil District 8, which is the core Permian Delaware, while a rig was pulled out of Texas Oil District 8A, which includes the northern counties of the Permian Midland, and another rig was pulled out from Texas Oil District 7C, which includes the southern counties of the Permian Midland, thus netting out to the one rig increase in the Permian basin...also in Texas, we find that two rigs were added in Texas Oil District 1, at least one of which was targeting the Eagle Ford shale, while a rig was pulled out of Texas Oil District 4, which could have also been an Eagle Ford rig if both of the District 1 rig additions were targeting that basin...elsewhere, the rig pulled out of Utah had been drilling in the Uintah basin, even though it's not named by Baker Hughes, because all current drilling activity in Utah has been in that basin, while the lone natural gas rig change came as the natural gas rig that started drilling into the Marcellus shale in Cattaraugus County, New York, last week was shut down this week...
DUC well report for August
Last week saw the release of the EIA's Drilling Productivity Report for September, which includes the EIA's August data for drilled but uncompleted (DUC) oil and gas wells in the 7 most productive shale regions....that data showed a decrease in uncompleted wells nationally for the 15th month in a row, as both completions of drilled wells and drilling of new wells increased, but remained below the pre-pandemic levels...for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 248 wells, falling from 5,961 DUC wells in July to 5,713 DUC wells in August, which was also 35.3% fewer DUCs than the 8,829 wells that had been drilled but remained uncompleted as of the end of August of a year ago...this month's DUC decrease occurred as 609 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during August, up from the 577 wells that were drilled in July, while 857 wells were completed and brought into production by fracking, up from the 838 completions seen in July, and up from the pandemic hit 414 completions seen in August of last year, but still down by 31.9% from the 1,258 completions of August 2019....at the August completion rate, the 5,713 drilled but uncompleted wells left at the end of the month represents a 6.7 month backlog of wells that have been drilled but are not yet fracked, down from the 7.1 month DUC well backlog of a month ago, a ratio that is now approaching that of the year prior to the pandemic, despite a completion rate that is still a third below the pre-pandemic norm...
both oil producing regions and natural gas producing regions saw DUC well decreases in August, while none of the major basins reported a DUC well increase....the number of uncompleted wells remaining in the Permian basin of west Texas and New Mexico decreased by 130, from 2,249 DUC wells at the end of July to 2,119 DUCs at the end of August, as 270 new wells were drilled into the Permian during August, while 400 wells in the region were being fracked...in addition, DUCs in the Eagle Ford shale of south Texas decreased by 43, from 912 DUC wells at the end of July to 869 DUCs at the end of August, as 60 wells were drilled in the Eagle Ford during August, while 103 already drilled Eagle Ford wells were completed.... at the same time, there was also a decrease of 27 DUC wells in the Bakken of North Dakota, where DUC wells fell from 590 at the end of July to 563 DUCs at the end of August, as 39 wells were drilled into the Bakken during August, while 66 of the drilled wells in the Bakken were being fracked....meanwhile, the number of uncompleted wells remaining in Oklahoma's Anadarko basin decreased by 19, falling from 838 at the end of July to 819 DUC wells at the end of August, as 33 wells were drilled into the Anadarko basin during July, while 52 Anadarko wells were completed....in addition, DUC wells in the Niobrara chalk of the Rockies' front range fell by 9, decreasing from 380 at the end of July to 371 DUC wells at the end of August, as 89 wells were drilled into the Niobrara chalk during August, while 98 Niobrara wells were being fracked....
among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 16 wells, from 590 DUCs at the end of July to 574 DUCs at the end of August, as 71 wells were drilled into the Marcellus and Utica shales during the month, while 87 of the already drilled wells in the region were fracked....meanwhile, the uncompleted well inventory in the natural gas producing Haynesville shale of the northern Louisiana-Texas border region was down by four to 398 DUCs, as 47 wells were drilled into the Haynesville during August, while 51 of the already drilled Haynesville wells were fracked during the same period....thus, for the month of August, DUCs in the five major oil-producing basins tracked by this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a total of 228 wells to 4741 wells, while the uncompleted well count in the natural gas basins (the Marcellus, the Utica, and the Haynesville) decreased by 20 wells to 972 wells, although as this report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...
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