After finishing June with the first monthly price drop since November, oil prices rallied Friday to finish the week higher for first time in three weeks, as production outages in Libya, Ecuador and Norway offset recession fears...after falling 0.3% to $107.62 a barrel last week as fears of a monetary policy induced recession kept the pressure on prices, the contract price for US light sweet crude for August delivery edged higher in early trade Monday following reports that the Group of Seven wealthy countries was discussing a price cap on Russian crude oil sold under Western insurance and shipping mechanisms, and then rallied due to persistent fears of supply tightness, spurred by a worsening crisis in Libya and anti-government unrest in Ecuador to settle up $1.95, or 1.8%, at $109.57 a barrel as the prospect of even tighter supplies loomed after the Group of Seven rich nations vowed to tighten the squeeze on Russian oil...oil prices rose in Asian trading Tuesday, after China slashed the quarantine time for visitors, fuelling hope for a boost to demand and then extended those gains in early trading in New York as Saudi Arabia and the United Arab Emirates appeared unlikely to be able to boost output significantly, while political unrest in Libya and Ecuador added to supply concerns, and settled $2.19 higher at $111.76 a barrel as G7 leaders agreed to explore a Russian oil price cap and supply pressures mounted, while the easing of COVID curbs in China lifted hopes for demand....oil prices moved higher for a fourth straight session on Wednesday after EIA data showed a drawdown in U.S. crude stockpiles, adding to ongoing worries of tight supplies, but tumbled in afternoon trading to close $1.98 lower at $109.78 a barrel after June US consumer confidence data fell to the lowest since February 2021 and recession fears continued to loom...oil prices edged lower early Thursday, as traders weighed concerns of global supply and a build in U.S. fuel product inventories, and then fell further after OPEC+ confirmed it would only increase output in August as much as previously announced, despite tight global supplies, but made no commitment for September, and settled $4.02, or 3.7% lower at $105.76 a barrel, as traders squared their positions ahead of the 3-day Fourth of July weekend...oil prices extended those losses early Friday as lingering fears of a recession weighed on sentiment and put the benchmarks on track for their third straight weekly loss, but then rallied as supply outages in Libya and an expected shutdown in Norway outweighed expectations that an economic slowdown could dent demand and settled $2.67 higher at $108.43 a barrel, thus managing to salvage an 0.8% increase on the week...
meanwhile, natural gas prices finished sharply lower for a third straight week, as the damage at the Freeport LNG export terminal allowed even more gas to be added to domestic supplies than had been expected...after falling 10.4% to an eleven week low of $6.220 per mmBTU last week as the prospect of lower LNG exports more than offset rising domestic demand, the contract price of natural gas for July delivery rose 28.1 cents to $6.501 per mmBTU on Monday, as an early price slide on the outlook for cooler weather gave way to a technical bounce midday ahead of options expirations on the next day....July contract prices were up another 5.0 cents before that contract expired at $6.5510 per million British thermal units on Tuesday, while the contract price of natural gas for August delivery, which would be the quoted front month price the next day, settled 2.4 cents higher at $6.570 per mmBTU on a preliminary report of a drop in daily output and forecasts for hotter weather over the next two weeks...with price quotes now referencing the August contract, natural gas reversed and settled 7.2 cents lower at $6.498 per mmBTU on Wednesday, on expectations that the storage build would be near normal despite hotter weather, as the Freeport gas export plant outage left more gas available to stockpile for next winter...while natural gas prices initially moved higher early Thursday, the bottom fell out when the EIA reported a larger-than-expected storage injection, and as an update on the Freeport LNG outage sent prices tumbling further to levels not seen in months, and ended the session $1.074, or 16.5% lower at $5.424 per mmBTU....prices recovered part of those losses on Friday, rising 30.6 cents to $5.730 per mmBTU on a technical bounce following the big price drop in the prior session, and on forecasts for hotter weather over the next two weeks than had been previously expected, but they still ended 7.9% lower on the week, while the August gas contract, which had finished the prior week at $6.281 per mmBTU, logged an 8.8% loss...
The EIA's natural gas storage report for the week ending June 24th indicated that the amount of working natural gas held in underground storage in the US rose by 82 billion cubic feet to 2,251 billion cubic feet by the end of the week, which left our gas supplies 296 billion cubic feet, or 11.6% below the 2,547 billion cubic feet that were in storage on June 24th of last year, and 322 billion cubic feet, or 12.5% below the five-year average of 2,573 billion cubic feet of natural gas that have been in storage as of the 24th of June over the most recent five years....the 82 billion cubic foot injection into US natural gas working storage for the cited week was more than the average forecast for a 72 billion cubic foot injection from an S&P Global Platts survey of analysts, and higher than the 73 billion cubic feet that were added to natural gas storage during the corresponding week of 2021, and also more than the average injection of 73 billion cubic feet of natural gas that had typically been added to our natural gas storage during the same week over the past 5 years....
The Latest US Oil Supply and Disposition Data from the EIA
The US oil data reported this week by the US Energy Information Administration includes updated data for the week ending June 17th, which should have been published last week but wasn't due to a hardware failure, and the new data for the week ending June 24th, published on schedule this week...while we're going to cover that most recent update as we usually do, we'll also try to include the most important changes for the week ending June 17th in our narrative...
The EIA's data for the week ending June 24th showed that after a big increase in our refinery throughput and a decrease in our oil imports, and even after the addition of more than a half million barrels per day in oil supplies that could not be accounted for and another big oil withdrawal from the SPR, we had to pull oil out of our stored commercial crude supplies for the 5h time in 7 weeks, and for the 19th time over the past 31 weeks…our imports of crude oil fell by an average of 228,000 barrels per day to an average of 5,998,000 barrels per day, after falling by an average of 759,000 barrels per day during the week ending June 17th, while our exports of crude oil fell by 192,000 barrels per day to 3,380,000 barrels per day, after falling by 153,000 barrels per day during the prior week, which meant that our trade in oil worked out to a net import average of 2,618,000 barrels of oil per day during the week ending June 24th, 36,000 fewer barrels per day than the net of our imports minus our exports during the week ending June 17th…over the same period, production of crude from US wells reportedly rose by 100,000 barrels per day to 12,100,000 barrels per day, after being unchanged during the week ending June 17th, 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 14,718,000 barrels per day during the June 24th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 16,666,000 barrels of crude per day during the week ending June 24th, an average of 403,000 more barrels per day than the amount of oil than our refineries processed during the week ending June 17th, while over the same period the EIA’s surveys indicated that a net of 1,387,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US, after an oil storage drawdown of 1,026,000 barrels of crude per day during the week ending June 17th...so based on that reported & estimated data, the crude oil figures from the EIA for the week ending June 24th appear to indicate that our total working supply of oil from storage, from net imports and from oilfield production was 560,000 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 inserted a (+560,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet in order to make the reported data for the daily supply of oil and for the consumption of it balance out, a fudge factor that they label in their footnotes as “unaccounted for crude oil”, thus suggesting there must have been an omission or error of that magnitude in this week’s oil supply & demand figures that we have just transcribed....even so, 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 1,387,000 barrel per day decrease from our overall crude oil inventories left our total oil supplies at 913,434,000 barrels at the end of the week, our lowest oil inventory level since March 12th, 2004, and therefore at an 18 year low….our oil inventory decreased this week as 395,000 barrels per day were being pulled out of our commercially available stocks of crude oil and 993,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve, and came after 55,000 barrels per day were pulled out of our commercially available stocks and 971,000 barrels per day of oil were pulled out of our Strategic Petroleum Reserve during the week ending June 17th....those draws on the SPR would have included an emergency withdrawal under Biden's "Plan to Respond to Putin’s Price Hike at the Pump", that is expected to supply 1,000,000 barrels of oil per day to commercial interests from now up to the midterm elections in November, in the hope of keeping gasoline and diesel fuel prices from rising further at least up until that time, as well as the previous 30,000,000 million barrel release from the SPR to address the initial Russian supply related shortfalls....the administration's earlier plan to release 50 million barrels from the SPR to incentivize US gasoline consumption wrapped up in May.... including that, and other withdrawals from the Strategic Petroleum Reserve under recent release programs, a total of 158,279,000 barrels of oil have now been removed from the Strategic Petroleum Reserve over the past 23 months, and as a result the 497,868,000 barrels of oil still remaining in our Strategic Petroleum Reserve is now the lowest since April 25th, 1986, or at a 36 year low, as repeated tapping of our emergency supplies for non-emergencies or to pay for other programs had already drained those supplies considerably over the past dozen years, even before the Biden administration's SPR releases....now the total 180,000,000 barrel drawdown expected over the current six month release program to November will remove almost a third of what remained in the SPR when the program started, and leave us with what would be less than a 20 day supply of oil at today's consumption rate...
Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,341,000 barrels per day last week, which was 5.1% less than the 6,683,000 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 higher at 12,100,000 barrels per day because the EIA's rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at 11,700,000 barrels per day, even as Alaska’s oil production was 25,000 barrels per day lower at 404,000 barrels per day but had no impact on the final rounded national total....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 still 7.6% below that of our pre-pandemic production peak, but was 43.6% 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 95.0% of their capacity while using those 16,666,000 barrels of crude per day during the week ending June 24th, up from the 94.0% utilization rate during the week ending June 17th, and bit higher than the normal refinery utilization rate for early summer…the 16,666,000 barrels per day of oil that were refined this week were 2.3% more than the 16,299,000 barrels of crude that were being processed daily during week ending June 25th of 2021, but 3.9% less than the 17,337,000 barrels that were being refined during the prepandemic week ending June 21st, 2019, when refinery utilization was at a fairly normal 94.2% for late June...
With the increase in the amount of oil being refined this week, gasoline output from our refineries was also higher, increasing by 143,000 barrels per day to 9,497,000 barrels per day during the week ending June 24th, after our gasoline output had decreased by 665,000 barrels per day during the week ending June 17th…this week’s gasoline production was 0.8% less than the 9,926,000 barrels of gasoline that were being produced daily over the same week of last year, and 9.7% below our gasoline production of 10,512,000 barrels per day during the week ending June 21st, 2019, ie, during the year before the pandemic impacted US gasoline output....at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 85,000 barrels per day to 5,136,000 barrels per day, after our distillates output had increased by 93,000 barrels per day during the week ending June 17th…while our distillates output was 2.1% more than the 5,029,000 barrels of distillates that were being produced daily during the week ending June 25th of 2021, it was still 3.2% less than the 5,371,000 barrels of distillates that were being produced daily during the week ending June 21st, 2019...
With the increase in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the second consecutive week, after falling 18 out of the prior 19 weeks, increasing by 2,645,000 barrels to 221,608,000 barrels during the week ending June 24th, after our gasoline inventories had increased by 1,489,000 barrels during the week ending June 17th...our gasoline supplies increased this week even though the amount of gasoline supplied to US users increased by 417,000 barrels per day to 8,922,000 barrels per day, after domestic gasoline supplied had fallen 588,000 barrels per day during the week ending June 17th, while our imports of gasoline rose by 41,000 barrels per day to 824,000 barrels per day, and while our exports of gasoline rose by 39,000 barrels per day to 969,000 barrels per day ...but after 18 inventory drawdowns over the past 21 weeks, our gasoline supplies were still 8.3% lower than last June 25th's gasoline inventories of 241,572,000 barrels, and 8% below the five year average of our gasoline supplies for this time of the year…
After the recent increases in our distillates production, our supplies of distillate fuels increased for the 6th time in seven weeks and for the 16th time in forty-three weeks, rising by 2,559,000 barrels to 112,401,000 barrels during the week ending June 24th, after our distillates supplies had increased by 133,000 barrels during the week ending June 17th….our distillates supplies rose by more this week than last because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 294,000 barrels per day to 3,568,000 barrels per day, while our exports of distillates rose by 35,000 barrels per day to 1,299,000 barrels per day, and while our imports of distillates rose by 2,000 barrels per day to 97,000 barrels per day....but after forty-two inventory withdrawals over the past sixty-three weeks, our distillate supplies at the end of the week were still 18.0% below the 137,076,000 barrels of distillates that we had in storage on June 25th of 2021, and still about 20% below the five year average of distillates inventories for this time of the year…
Meanwhile, with the increase in oil going to refineries and the decrease in our oil imports, and even after this week's big release of crude from our Strategic Petroleum Reserve, our commercial supplies of crude oil in storage fell for the 7th time in 14 weeks and for the 32nd time in the past year, decreasing by 2,762,000 barrels over the week, from 418,328,000 barrels on June 17th to 415,566,000 barrels on June 24th, after our commercial crude supplies had decreased by 386,000 barrels over the week ending June 17th…after this week’s decrease, our commercial crude oil inventories remained about 13% below the most recent five-year average of crude oil supplies for this time of year, but about 18% above the average of our crude oil stocks as of the fourth weekend of June 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 commercial crude oil inventories had jumped to record highs during the Covid lockdowns of spring 2020, and then jumped again after last year's winter storm Uri froze off US Gulf Coast refining, our commercial crude supplies as of this June 24th were 8.1% less than the 452,342,000 barrels of oil we had in commercial storage on June 25th of 2021, and were 22.1% less than the 533,527,000 barrels of oil that we had in storage on June 26th of 2020, and 11.3% less than the 468,491,000 barrels of oil we had in commercial storage on June 28th of 2019…
Finally, with our inventories of crude oil and our supplies of all products made from oil remaining near multi year lows, we are continuing to keep track of 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 thus including everything from gasoline and jet fuel to propane/propylene and residual fuel oil, fell by 602,000 barrels this week, from 1,679,111,000 barrels on June 17th to 1,678,509,000 barrels on June 24th, after our total inventories had fallen by 3,068,000 barrels during the week ending June 17th....that left our total liquids inventories down by 109,924,000 barrels over the first 25 weeks of this year, and at the lowest since October 24th, 2008, or at a 13 1/2 year low...
This Week's Rig Count
The number of drilling rigs running in the US decreased for just the second time in 36 weeks and for the 8th time over the prior 92 weeks during the week ending July 1st, and still remained 5.4% below the prepandemic rig count....Baker Hughes reported that the total count of rotary rigs drilling in the US decreased by 3 to 750 rigs this past week, which was still 275 more rigs than 475 rigs that were in use as of the July 2nd report of 2021, but was also 1,179 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 increased by 1 to 595 oil rigs during the past week, after rigs targeting oil had risen by 10 during the prior week, and there are 219 more oil rigs active now than were running a year ago, even as they still amount to just 37.0% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and as they are still down 12.9% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations fell by 4 to 153 natural gas rigs, which was still up by 54 natural gas rigs from the 99 natural gas rigs that were drilling during the same week a year ago, even as they were still only 9.5% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008…in addition to rigs targeting oil and natural gas, Baker Hughes continues to show two "miscellaneous" rigs still active; one is a rig drilling vertically for a well or wells intended to store CO2 emissions in Mercer county North Dakota, and the other is also a vertical rig, drilling 5,000 to 10,000 feet into a formation in Humboldt county Nevada that Baker Hughes doesn't track...a year ago, there were no such "miscellaneous" rigs running...
The offshore rig count in the Gulf of Mexico was increased by 1 to 16 rigs this week, with all of this week's Gulf rigs drilling for oil in Louisiana waters....that's two more than the 14 offshore rigs that were active in the Gulf a year ago, when 13 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil offshore from Texas.…in addition to rigs drilling in the Gulf, we also have an offshore rig drilling in the Cook Inlet of Alaska, where natural gas is being targeted at a depth greater than 15,000 feet, while year ago, there were no offshore rigs other than those deployed in the Gulf of Mexico....
in addition to rigs offshore, we continue to have 3 water based rigs drilling through inland bodies of water this week, including a directional rig drilling for oil at a depth between 10,000 and 15,000 feet, inland in the Galveston Bay area, and two directional inland water rigs drilling for oil in Terrebonne Parish, Louisiana, one of which is targeting a formation greater than 15,000 feet in depth, while the other is shown drilling to between 10,000 and 15,000 feet... during the same week of a year ago, there were two such "inland waters" rig deployed...
The count of active horizontal drilling rigs was down by three to 682 horizontal rigs this week, which was still 253 more rigs than the 429 horizontal rigs that were in use in the US on July 2nd of last year, but less than half of the record 1,374 horizontal rigs that were drilling on November 21st of 2014....at the same time, the vertical rig count was down by 2 to 25 vertical rigs this week, while those were still up by 9 from the 16 vertical rigs that were operating during the same week a year ago…on the other hand, the directional rig count was up by two to 43 directional rigs this week, and those were up by 13 from the 30 directional rigs that were in use on July 2nd 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 July 1st, the second column shows the change in the number of working rigs between last week’s count (June 24th) and this week’s (July 1st) count, the third column shows last week’s June 24th 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 2nd of July, 2021....
note that even though the Cana Woodford count was down by 5 oil rigs, the Oklahoma count was unchanged due to oil rig additions in the Arkoma Woodford and the Ardmore Woodford, and three oil rig additions in basins that Baker Hughes doesn't track....to account for the drop of four rigs in the Eagle Ford, we check the Rigs by State file at Baker Hughes for the changes in that area, where we find that four rigs were pulled out of Texas Oil District 1, but that a rig was added in Texas Oil District 2 and another rig was added in Texas Oil District 3....since the Eagle Ford shale was down by 4 rigs with the removal of two oil rigs and two gas rigs, those 4 must have come out of District 1, while the additions in Districts 2 and 3 must have been targeting basins that that Baker Hughes doesn't track in the same region....with those four rig removals, the Eagle Ford is left with 8 natural gas rig and 60 rigs targeting oil still drilling...
in the Texas oil districts covering the Permian basin, we find that two rigs were added in Texas Oil District 7C, which includes the southern counties of the Permian Midland, but that rigs were pulled out of Texas Oil District 8, which covers the core Permian Delaware, from Texas Oil District 8A, which includes the northern counties of the Permian Midland, and from Texas Oil District 7B, which includes the easternmost counties of the Permian Midland...since that appears to indicate that the Texas Permian rig count was down by one, it's reasonable to conclude that the rig added in New Mexico must have been added in the western Permian Delaware in the southeast corner of that state...elsewhere in Texas, a rig was added in Texas Oil District 5, which appears to be targeting a basin that Baker Hughes doesn't track...
changes in drilling activity elsewhere include the offshore oil rig added in Louisiana's waters, the only change in that state, and rigs pulled out of Utah's Uintah basin, Ohio's Utica shale, and Pennsylvania's Marcellus...the latter two were natural gas rigs, and when added to the two natural gas rigs pulled out of the Eagle Ford, they account for this week's four gas rig decrease....
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