oil prices hit 7 year high, natural gas hits 14 year high on largest one day price jump on record; natural gas supplies see largest draw this winter; gasoline inventories up most in any 4 week period since Jan 1990 as gasoline demand, excluding worst Covid drops, is at a 10 year low; gasoline imports at a 87 week low; total inventories of oil & all products made from it are at 7 1/2 year low with Strategic Petroleum Reserve at a new 19 year low..
Oil prices rose for a sixth straight week and eclipsed the 7 year high hit last week on heightened tension over Ukraine, tight supplies, and perceptions of rising demand...after rising 2.2% to $85.14 a barrel last week on supply disruptions in the Middle East and on rising tensions between NATO and Russia, the contract price for US light sweet crude for March delivery opened lower on Monday, but rallied to trade slightly higher amid fading Omicron fears and lingering concerns over tightening supplies, on the back of geopolitical tensions in Eastern Europe and the Middle East, but tumbled 4% in afternoon trading amid a steep selloff in global financial markets and a rapidly strengthening U.S. dollar, before partially recovering to finish $1.83 lower at $83.31 a barrel, as the possibility of sooner than expected increases in interest rates had markets spooked...but oil prices opened 1% higher on Tuesday, supported by prospects of short-term supply scarcity on global oil markets due to OPEC+'s inability to quickly raise production and a heightened geopolitical risk premium in the Middle East, and then further rallied in afternoon trade amid growing fears of a Russian invasion of Ukraine and a consequent tightening in supplies. before settling $2.29 higher at $85.60 a barrel, on concerns that supplies could become tight due to Ukraine-Russia tensions, on threats to infrastructure in the United Arab Emirates, and on struggles by OPEC+ to hit its targeted monthly output increase. as traders assessed growing risks of severe sanctions on Russian energy exports in response to the escalating tensions along the Ukrainian border and lower-than-expected inventory levels in the industrialized countries....oil began trading lower on Wednesday after the American Petroleum Institute reported a smaller than expected draw from US crude supplies, but spiked higher in late morning trading in a reaction to EIA inventory data showing total U.S. crude and petroleum product supplies declined more steeply, amid lower oil production and recovering demand for gasoline, while a large drawdown from Cushing stockpiles, the delivery point for WTI contracts, rallied March futures towards $88 barrel, before they settlled $1.75 higher at a fresh seven year high of $87.45 a barrel, as traders fretted over Russia-Ukraine tensions...oil prices advanced again early on Thursday despite an offer of a "diplomatic path" out of the NATO/Russian crisis, but turned lower under pressure from a rallying U.S. Dollar Index following a better-than-expected reading for U.S. fourth-quarter GDP and a hawkish inflation assessment from Fed, and finished with a 74 cent loss on the day at $86.61 a barrel as the market balanced concerns about tight worldwide supplies with expectations the Fed would soon tighten monetary policy....oil prices reversed higher in early morning trade Friday, with all petroleum related contracts heading for their sixth consecutive weekly advance, spurred by heightened geopolitical risk related to tensions along the Russian-Ukrainian border, and the threat of another missile attack on Gulf oil infrastructure from Iranian backed Houthis. and then reached a seven-year high intraday high of $88.84 a barrel early in the session, before falling back to settle just 21 cents higher at $86.82 per barrel, amid concerns of tight supplies as major producers continued their policy of limited output increases amid rising fuel demand...oil prices thus posted their sixth straight weekly gain, ending 2% higher than last Friday's close, fueled by a combination of robust demand, constrained supplies and heightened geopolitical risks amid the tension between the West and Russia over Ukraine..
Meanwhile, natural gas prices settled higher for the fourth time in five weeks, after spiking as much as 72 percent to a 14 year high in the last hour of trading on Thursday, just before trading of the February gas contract expired....after falling 6.2% to $3.999 per mmBTU last week as key temperatures warmed and forecasts moderated, the contract price of natural gas for February delivery moved up on soaring European prices Monday and settled 2.8 cents higher at $4.027 per mmBTU, as Texas natural gas output remained slow to recover from well freeze-offs earlier in January, and then rose another 2.6 cents to $4.053 per mmBTU on Tuesday, as frigid weather and high heating demand over the past week in the U.S. Northeast kept next-day power and spot gas prices in New York and New England at or near their highest levels since January 2018...natural gas prices jumped on Wednesday after one of the major weather models staged the largest reversal this winter, resulting in a huge jump in projected heating demand for the next two weeks, and settled 22.4 cents higher at $4.277 per mmBTU...the February natural gas contract hovered in a narrow range early Thursday, but began rallying after a bullish government inventory report and some usual buying into the contract's expiration, and then spiked nearly 70% on short-covering in the final hour of trading to a 14 year intraday high at $7.400 per mmBTU, before settling $1.988 higher on the session at $6.265 per mmBTU, the sharpest one-day climb for natural gas in exchange history, as no other trading day in the past decade featured a price move even half as large....with the February contract off the boards on Friday, natural gas quotes referenced the contract price of natural gas for March delivery, which had risen 24.7 cents to $4.283 per mmBTU on Thursday, from where it rose another 35.6 cents to $4.639 per mmBTU, riding high on winter weather forecasts, light production, falling stockpiles and robust demand for U.S. exports....natural gas price quotes thus finished the week 16.0% higher, while the March gas contract, which had closed at $3.782 per mmBTU last Friday, added 85.7 cents or 22.7%...
With natural gas prices seeing their largest jump in history this week and hitting a 14 year high in the process, we'll add a graph here to show what that looked like...
The above is a screenshot of the interactive natural gas price chart for the February gas contract from barchart.com, which i have reset to show the price of February natural gas every half hour over its last five days of trading...this interactive graph can also be reset to show prices of front month or individual monthly natural gas contracts over time periods ranging from 1 day to 30 years, as the menu bar on the top indicates, and also to show natural gas prices by the minute, hour, day, week or month for each...each bar in the graph above represents the range of natural gas prices over 30 minutes, with periods when prices rose indicated in green, with the opening price of natural gas during that time at the bottom of the bar and the closing price at the top, and periods when prices fell indicated in red, with the opening price of natural gas at the top of the bar and the closing price at the bottom, while the small sticks above or below each half hour bar represent the extent of the price change above or below the opening and closing price during the period in question....meanwhile, the bars across the bottom show trading volume for the February contract for the periods in question, again with up periods indicated by green bars and down periods indicated in red...it's pretty clear from this graph that almost the entirely of Thursday's price jump came in the last hour, with most of that in the last half hour..
The EIA's natural gas storage report for the week ending January 21st indicated that the amount of working natural gas held in underground storage in the US fell by 219 billion cubic feet to 2,591 billion cubic feet by the end of the week, the largest gas storage withdrawal since February 19th of last year, which left our gas supplies 308 billion cubic feet, or 10.6% below the 2,899 billion cubic feet that were in storage on January 21st of last year, and 25 billion cubic feet, or 1.0% below the five-year average of 2,616 billion cubic feet of natural gas that have been in storage as of the 21st of January over the most recent five years....the 219 billion cubic foot withdrawal from US natural gas working storage for the cited week was a bit more than the average forecast for a 214 billion cubic foot withdrawal from a S&P Global Platts' survey of analysts, but was way more than the 137 billion cubic feet that were pulled from natural gas storage during the corresponding week of 2021, and also quite a bit more than the average withdrawal of 161 billion cubic feet of natural gas that have typically been pulled out natural gas storage during the same week over the past 5 years…
The Latest US Oil Supply and Disposition Data from the EIA
US oil data from the US Energy Information Administration for the week ending January 21st indicated that despite a drop in our oil imports, a shift in unaccounted for crude from demand to supply and a moderate withdrawal of crude from our Strategic Petroleum Reserve meant we had enough oil left to add to our stored commercial crude supplies for the second time in 9 weeks and for the 12th time in the past thirty-five weeks….our imports of crude oil fell by an average of 509,000 barrels per day to an average of 6,236,000 barrels per day, after rising by an average of 675,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 186,000 barrels per day to an average of 2,796,000 barrels per day during the week, which together meant that our effective trade in oil worked out to a net import average of 3,440,000 barrels of per day during the week ending January 21st, 695,000 fewer barrels per day than the net of our imports minus our exports during the prior week…over the same period, production of crude oil from US wells was reportedly 100,000 barrels per day lower at 11,600,000 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 have totaled an average of 15,040,000 barrels per day during the cited reporting week…
Meanwhile, US oil refineries reported they were processing an average of 15,497,000 barrels of crude per day during the week ending January 21st, an average of 44,000 more barrels per day than the amount of oil that our refineries processed during the prior week, while over the same period the EIA’s surveys indicated that a net of 161,000 barrels of oil per day were being added to the supplies of oil stored in the US…so based on all 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 617,000 barrels per day less than what our oil refineries reported they used during the week plus what we added to storage during the week…to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA just inserted a (+617,000) 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 balance sheet 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...moreover, since last week’s EIA fudge factor was at (-501,000) barrels per day, that means there was a 1,118,000 barrel per day difference between this week's balance sheet error and the EIA's crude oil balance sheet error from a week ago, and hence the week over week supply and demand changes indicated by this week's report are completely worthless.....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 oil wells, we’ll continue to report this data just as it's published, and just as it's 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)….
This week's 161,000 barrel per day increase in our overall crude oil inventories left our total oil supplies at 1,006,972,000 barrels, just 1,845,000 barrel above a 10 year low...this week's oil inventory increase came as 340,000 barrels per day were being added to our commercially available stocks of crude oil, while 179,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve, part of the first installment of Biden's plan to release 50 million barrels from the SPR, in order to incentive continued use of US gas guzzlers....including the drawdowns from the Strategic Petroleum Reserve under such politically motivated programs, a total of 64,288,000 barrels have been removed from the Strategic Petroleum Reserve over the past 18 months, and as a result the amount of oil left in our Strategic Petroleum Reserve has fallen to the lowest since November 8th, 2002, or to another new 19 year low of 590,782,000 barrels per day, as repeated tapping of our emergency supplies for political expediency or to “pay for” other programs had already drained those supplies considerably over the past dozen years...based on an estimated prepandemic consumption level of around 18 million barrels per day, the US will have roughly 30 1/2 days of oil supply left in the Strategic Petroleum Reserve when the Biden program is complete...
Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,233,000 barrels per day last week, which was still 9.8% more than the 5,679,000 barrel per day average that we were importing over the same four-week period last year….this week’s crude oil production was reported to be 100,000 barrels per day lower at 11,600,000 barrels per day even though the EIA's rounded estimate of the output from wells in the lower 48 states was unchanged at 11,300,000 barrels per day, because Alaska’s oil production was 6,000 barrels per day lower at 449,000 barrels per day and thus subtracted 100,000 barrels per day from rounded national production total (by the EIA's math)...US crude oil production had reached a pre-pandemic high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week’s reported oil production figure was 11.5% below that of our pre-pandemic production peak, but 37.6% 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...
US oil refineries were operating at 87.7% of their capacity while using those 15,497,000 barrels of crude per day during the week ending January 21st, down from a utilization rate of 88.1% the prior week, and lower than the historical utilization rate for mid-January refinery operations…the 15,497,000 barrels per day of oil that were refined this week were still 5.3% more barrels than the 14,721,000 barrels of crude that were being processed daily during the pandemic impacted week ending January 22nd of 2021, but 2.7% less than the 15,924,000 barrels of crude that were being processed daily during the week ending January 24th, 2020, when US refineries were operating at what was then also a below normal 87.2% of capacity...
With the increase in oil being refined this week, gasoline output from our refineries was again higher, increasing by 229,000 barrels per day to 8,917,000 barrels per day during the week ending January 21st, after our gasoline output had increased by 114,000 barrels per day over the prior week.…hence, this week’s gasoline production was 2.8% more than the 8,885,000 barrels of gasoline that were being produced daily over the same week of last year, but 2.4% less than the gasoline production of 9,158,000 barrels per day during the week ending January 24th, 2020.....at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 28,000 barrels per day to 4,756,000 barrels per day, after our distillates output had decreased by 60,000 barrels per day over the prior week…after that modest increase, our distillates output was 5.2% more than the 4,518,000 barrels of distillates that were being produced daily during the week ending January 22nd of 2021, but 4.5% less than the 4,979,000 barrels of distillates that were being produced daily during the week ending January 24th, 2020...
With the increase in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the seventh time in nine weeks, after falling each week over the preceding six weeks, increasing by 1,297,000 barrels to 247,918,000 barrels during the week ending January 21st, after our gasoline inventories had increased by a record 23,962,000 barrels over the prior three weeks...our gasoline supplies increased by less this week because the amount of gasoline supplied to US users increased by 281,000 barrels per day to 8,505,000 barrels per day, while our imports of gasoline fell by 77,000 barrels per day to a 87 week low of 314,000 barrels per day and while our exports of gasoline rose by 19,000 barrels per day to 412,000 barrels per day…after four straight big inventory increases, our gasoline supplies are now fractionally higher than last January 22nd's gasoline inventories of 240,748,000 barrels, but still about 2% below the five year average of our gasoline supplies for this time of the year…
the four week average of our gasoline demand fell by 302,000 barrels to a 44 week low of 8,202,000 barrels per day this week...while that's 6.1% higher than gasoline demand low of 7,729,000 barrels per day during the Covid surge of last January 22nd, it's down by 3.9% from the gasoline demand of 8,537,000 barrels per day on Jan 24th 2019, which was the low for that year...except for other pandemic impacted weeks when our demand tanked, our gasoline demand during the last 4 weeks was the lowest in 10 years....meanwhile, the gasoline inventory increase of 25,259,000 barrels over the past 4 weeks was the largest for any four week period on record since 1990, when gasoline inventories jumped by 26,643,000 in the period ending February 9th, handily exceeding the 4 week inventory increase of 23,952,000 barrels that we saw at the outset of the pandemic lockdowns from mid-March to mid April of 2020...
On the other hand, with the recent decreases in our distillates production, our supplies of distillate fuels decreased for the fifteenth time in twenty-two weeks, falling by 2,798,000 barrels to 125,154,000 barrels during the week ending January 21st, after our distillates supplies had decreased by 1,431,000 barrels during the prior week….our distillates supplies fell by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 198,000 barrels per day to 4,754,000 barrels per day, and as our imports of distillates fell by 80,000 barrels per day to 226,000 barrels per day, while our exports of distillates fell by 56,000 barrels per day to 627,000 barrels per day,....after twenty-eight inventory decreases over the past forty-two weeks, our distillate supplies at the end of the week were 23.1% below the 162,847,000 barrels of distillates that we had in storage on January 22nd of 2021, and about 17% below the five year average of distillates inventories for this time of the year…
Meanwhile, with the switch in unaccounted for crude from demand to supply and the withdrawal of crude from our Strategic Petroleum Reserve, our commercial supplies of crude oil in storage rose for the 9th time in 25 weeks and for the 18th time in the past year, increasing by 2,377,000 barrels over the week, from 413,813,000 barrels on January 14th to 416,190,000 barrels on January 21st, after our commercial crude supplies had increased by 515,000 barrels over the prior week…after this week’s increase, our commercial crude oil inventories remained about 8% below the most recent five-year average of crude oil supplies for this time of year, but were still about 31% above the average of our crude oil stocks after the third week of January 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 spring 2020 and remained elevated for most of the year after that, our commercial crude oil supplies as of this January 21st were 12.7% less than the 476,653,000 barrels of oil we had in commercial storage on January 22nd of 2021, and are now 3.9% less than the 431,654,000 barrels of oil that we had in storage on January 24th of 2020, and also 6.7% less than the 445,944,000 barrels of oil we had in commercial storage on January 25th of 2019…
Finally, with our inventory of crude oil and our supplies of all products made from oil all near multi year lows, we are continuing to track the total of all U.S. Stocks of Crude Oil and Petroleum Products, including those in the SPR....the EIA's data shows that the total of our oil and oil product inventories, including those in the Strategic Petroleum Reserve and those held by the oil industry, and including everything from gasoline and jet fuel to propane/propylene and residual fuel oil, fell by 5,341,000 barrels this week, from 1,775,470,000 barrels on January 21st to 1,780,811,000 barrels on January 14th...that means our total supplies are now the lowest since June 13th, 2014, or at a seven and a half year low, which is somewhat amazing, in light of the near record increase in gasoline inventories..
This Week's Rig Count
The number of drilling rigs running in the US increased for the 60th time over the past 71 weeks during the week ending January 28th, but were still 23.1% below the prepandemic rig count....Baker Hughes reported that the total count of rotary rigs drilling in the US increased by six to 610 rigs this past week, which was also 226 more rigs than the pandemic hit 384 rigs that were in use as of the January 29th report of 2021, but was also still 1,319 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 market with oil in an attempt to put US shale out of business….
The number of rigs drilling for oil was up by 4 to 495 oil rigs during this week, after they had decreased by 1 rig during the prior week, and there are now 200 more oil rigs active now than were running a year ago, even as they still amount to just 30.8% of the shale era 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 up by 2 to 115 natural gas rigs, which was also up by 27 natural gas rigs from the 88 natural gas rigs that were drilling during the same week a year ago, but still only 7.2% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….also note that last year's rig count also included a rig that Baker Hughes had classified as "miscellaneous', while there are no such "miscellaneous' rigs deployed this week...
The Gulf of Mexico rig count was unchanged at 18 rigs this week, with seventeen of this week's Gulf rigs drilling for oil in Louisiana waters and another rig drilling for oil in Alaminos Canyon, offshore from Texas....that's still two more Gulf rigs than the 16 rigs that were active in the Gulf a year ago, when 15 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil in Texas waters…since there is not any drilling off our other coasts at this time, nor was there a year ago, the Gulf rig counts are equal to the national offshore totals for both years....
In addition to those rigs offshore, we also have 2 water based rigs drilling inland; one is a horizontal rig targeting oil at a depth of between 5000 and 10,000 feet, drilling from an inland body of water in Plaquemines Parish, Louisiana, near the mouth of the Mississippi, and the other is a directional rig drilling for oil at a depth of over 15,000 feet in the Galveston Bay area...however, the inland waters rig count of two is still down from the three inland waters rigs that were drilling a year ago..
The count of active horizontal drilling rigs was up by 9 to 553 horizontal rigs this week, which was also 209 more rigs than the 344 horizontal rigs that were in use in the US on January 29th of last year, but still 59.8% less than the record 1,374 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the directional rig count was down by 1 to 36 directional rigs this week, but those were still up by 18 from the 18 directional rigs that were operating during the same week a year ago….at the same time, the vertical rig count was down by 2 rigs to 22 vertical rigs this week, while those were also down by 1 from the 22 vertical rigs that were in use on January 29th of 2021….
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 January 28th, the second column shows the change in the number of working rigs between last week’s count (January 21st) and this week’s (January 28th) count, the third column shows last week’s January 21st 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 29th of January, 2021...
this week we'll start by looking at the four rig increase in Texas drilling activity...checking the Rigs by State file at Baker Hughes for changes in Texas, we find that two rigs were added in Texas Oil District 8, which encompasses the core Permian Delaware, but that rigs in the other Permian districts were unchanged...since the national Permian rig count was only up by one, that two rig increase in the Texas Permian means that the rig that was pulled out in New Mexico had to have been drilling in the westernmost Permian Delaware...elsewhere in Texas, we find that two rigs were added in Texas Oil District 5, which accounts for the increase of 2 oil rigs in the Dallas/Ft Worth area Barnett shale...then, while we had a one rig increase in Oklahoma, there was an oil rig pulled out of the Ardmore Woodford, which means that two rigs must have been added elsewhere in Oklahoma, in a basin that Baker Hughes doesn't track...finally, to address the two rig increase in natural gas rigs, we find one of those was added in Pennsylvania's Marcellus shale, while the other was added in the Haynesville shale of northwestern Louisiana...
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Note: there’s more here…
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