oil prices ended lower for the first time in three weeks on rising inventories and disappointment in Europe's proposals to restrict Russian fuel exports….after rising 1.9% to a two month high of $81.64 a barrel last week, the contract price for the benchmark US light sweet crude for March delivery moved higher in thin Asian holiday trading on Monday, on hopes that a Chinese demand recovery would follow their recent easing of travel restrictions. but faltered in afternoon US trading to settle 2 cents lower at $81.64 a barrel, selling off after news of a big build in oil inventories at Cushing, Oklahoma, the delivery point for the benchmark US crude contract…oil prices rose again in early Asian trade on Tuesday as traders focused on prospects of demand recovery from top importer China, and on the global economic outlook, but tumbled again in New York trading after S&P Global reported that U.S. business activity contracted in January for the seventh consecutive month, and the Conference Board's Leading Economic Index fell by 1% in December and by 4.2% over six months, and settled $1.49 lower at $80.13 a barrel on concerns about a global economic slowdown and on preliminary indications of a bigger than expected build in U.S. oil inventories…..oil prices held those losses in overnight trading after the American Petroleum Institute reported the largest Cushing depot build since April 2020 and a larger than expected increase in overall crude supplies, but turned mixed in late morning trade on Wednesday after the EIA reported commercial crude and gasoline inventories increased while demand for middle distillates fell back and closed flat at $80.15 a barrel as unplanned refinery outages left commercial crude stockpiles at 16-month highs....however, oil prices rose more than 1% early Thursday after several economic reports came in stronger than expected and settled 86 cents higher at $81.01 a barrel, as the solid growth momentum evident in the data raised hopes that inflation would ease without a recession...oil prices rose again in Asian trading on Friday on demand optimism after better-than-expected economic data in the United States and hopes that the Chinese economy would recover from the impact of Covid, but turned lower in afternoon trade in reaction to reports the G7 coalition was considering a price cap of $100 bbl. for Russian diesel exports -- a level that would allow Russia to continue fuel shipments to the global market with minimum interruptions, and settled $1.33 lower at $79.68 a barrel, as uncertainty increased ahead of next week's OPEC+ committee meeting and the European Union ban on Russia oil products and left oil prices down 2.4% for the week, as indications of continued strong Russian oil supply offset better-than-expected U.S. economic growth data, strong middle distillate refining margins, and hopes of a rapid recovery in Chinese demand.
Meanwhile, US natural gas prices finished lower for the eighth week in nine, as winter gas supplies rose above normal and traders bet against a prospective Freeport export restart…. after falling 7.2% to a 19 month low of $3.174 per mmBTU last week on indications of a further delay in the resumption of LNG exports from Freeport Texas, the contract price of US natural gas for February delivery opened 35 cents higher on Monday after the latest forecasts showed a frigid end to January and possibly into early February, and settled 27.3 cents, or 8.6% higher at $3.447 per mmBTU following Freeport LNG's request to begin the restart process on their LNG plant in Texas...however, natural gas prices reversed and dropped about 6% early Tuesday on uncertainty about when Freeport LNG's plant would restart, and on forecasts for milder weather over the next two weeks than previously forecast, and settled 18.9 cents lower at $3.258 per mmBTU...Wednesday’s trading was more of the same, as natural gas prices fell 19.1 cents to a new 19 month low at $3.067 per mmBTU, as updated forecasts moderated the temperature outlook heading into the second week of February….natural gas prices then fell below $3 for the first time in 20 months on Thursday, as weak weather, strong production and another anemic storage report sent prices down a third consecutive day.…February gas prices jumped ahead of the contract expiration on Friday, with the now thinly traded February contract settling up 16.5 cents to $3.109 per mmBTU on the day but still down 2.0% for the week, while the more active contract of US natural gas for March delivery, which will be quoted as the price of gas next week, settled just a penny higher at $2.849 per mmBTU, and was down 6.2% on the week…
The EIA's natural gas storage report for the week ending January 20th indicated that the amount of working natural gas held in underground storage in the US fell by 91 billion cubic feet to 2,729 billion cubic feet by the end of the week, which left our gas supplies 107 billion cubic feet, or 4.1% above the 2,622 billion cubic feet that were in storage on January 20th of last year, and 128 billion cubic feet, or 4.6% more than the five-year average of 2,601 billion cubic feet of natural gas that were in storage as of the 20th of January over the most recent five years….the 91 billion cubic foot withdrawal from US natural gas working storage for the cited week was more than was expected by a Reuters survey of analysts, whose average forecast called for a 82 billion cubic feet withdrawal of gas, but it was less than half of the 217 billion cubic feet that were pulled out of natural gas storage during the corresponding week of 2022, and also less than half of the average 185 billion cubic feet of natural gas that have typically been withdrawn from our natural gas storage during the same winter 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 20th indicated that even after a big decrease in our oil imports and a jump in our oil exports, we still had a small surplus oil left to add to our stored commercial crude supplies for the 5th consecutive weekly increase, and for the 24th time in the past 40 weeks, essentially due to a big increase in oil supplies that could not be accounted for... Our imports of crude oil fell by an average of 956,000 barrels per day to average 5,905,000 barrels per day, after rising by an average of 511,000 barrels per day during the prior week, while our exports of crude oil rose by 835,000 barrels per day to average 4,707,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 1,198,000 barrels of oil per day during the week ending January 20th, 1,791,000 fewer barrels per day than the net of our imports minus our exports during the prior week. Over the same period, production of crude from US wells was reportedly unchanged at 12,200,000 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 averaged a total of 13,398,000 barrels per day during the January 20th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 14,981,000 barrels of crude per day during the week ending January 20th, an average of 127,000 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 an average of 76,000 barrels of oil per day were being added to the supplies of oil stored in the US. So, based on that reported & estimated data, the crude oil figures from the EIA for the week ending January 20th appears to indicate that our total working supply of oil from net imports and from oilfield production was 1,659,000 barrels per day less than what was added to storage plus our oil refineries reported they used during the week. To account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA just inserted a [+1,659,000] 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 an omission or error of that magnitude in this week’s oil supply & demand figures that we have just transcribed.... Furthermore, since last week’s “unaccounted for crude oil” was at [+866,000] barrels per day, that means there was a 793,000 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 changes to supply and demand from that week to this one that are indicated by this week's report are off by that much, thus rendering those comparisons useless....However, since most everyone treats these weekly EIA reports as gospel, and since these weekly 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)….
Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,207,000 barrels per day last week, which was 0.4% less than the 6,233,000 barrel per day average that we were importing over the same four-week period last year. This week's 76,000 barrel per day increase in our overall crude oil inventories was all added to our commercially available stocks of crude oil, while the amount of oil in our Strategic Petroleum Reserve remained unchanged.. This week’s crude oil production was reported to be unchanged at 12,200,000 barrels per day because the EIA's rounded estimate of the output from wells in the lower 48 states was unchanged at 11,700,000 barrels per day, while Alaska’s oil production was 3,000 barrels per day lower at 450,000 barrels per day but had no impact on the 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 6.8% below that of our pre-pandemic production peak, but was 25.8% above the pandemic low of 9,700,000 barrels per day that US oil production had fallen to during the third week of February of 2021.
US oil refineries were operating at 86.1% of their capacity while using those 14,981,000 barrels of crude per day during the week ending January 20th, up from their 85.3% utilization rate during the prior week, but still below normal utilization for mid January. The 14,981000 barrels per day of oil that were refined this week were 3.3% less than the 15,497,000 barrels of crude that were being processed daily during week ending January 21st of 2022, and 11.1% less than the 16,857,000 barrels that were being refined during the prepandemic week ending January 17h, 2020, when our refinery utilization was at a close to normal 90.5% for mid-January ...
Even with the increase in the amount of oil being refined this week, gasoline output from our refineries was a bit lower, decreasing by 34,000 barrels per day to 8,831,000 barrels per day during the week ending January 20th, after our gasoline output had increased by 332,000 barrels per day during the prior week. This week’s gasoline production was also 1.0% less than the 8,917,000 barrels of gasoline that were being produced daily over the same week of last year, and 7.4% less than the gasoline production of 9,535,000 barrels per day during the prepandemic week ending January 17th, 2020. Similarly, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 9,000 barrels per day to 4,592,000 barrels per day, after our distillates output had increased by 57,000 barrels per day during the prior week. With that, our distillates output was 3.4% less than the 4,756,000 barrels of distillates that were being produced daily during the week ending January 21st of 2022, and 7.3% less than the 4,954,000 barrels of distillates that were being produced daily during the week ending January 17th 2020...
With the recent increases in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the 9th time in eleven weeks and for the 12th time in 24 weeks, increasing by 1,763,000 barrels to 232,022,000 barrels during the week ending January 20th, after our gasoline inventories had increased by 3,483,000 barrels during the prior week. Our gasoline supplies rose by less this week because the amount of gasoline supplied to US users rose by 88,000 barrels per day to 8,142,000 barrels per day, and because our imports of gasoline fell by 103,000 barrels per day to 453,000 barrels per day, while our exports of gasoline fell by 41,000 barrels per day to 893,000 barrels per day.. But even after 9 recent gasoline inventory increases, our gasoline supplies were still 6.4% below last January 21st's gasoline inventories of 247,918,000 barrels, and about 8% below the five year average of our gasoline supplies for this time of the year…
With our recently depressed level of distillates production, our supplies of distillate fuels decreased for the 5th time in 6 weeks, and for the 28th time over the past year, falling by 507,000 barrels to 115,270,000 barrels during the week ending January 20th, after our distillates supplies had decreased by 1,939,000 barrels during the prior week. Our distillates supplies fell by less this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, decreased by 146,000 barrels per day to 3,878,000 barrels per day, and because our imports of distillates rose by 172,000 barrels per day to 320,000 barrels per day, while our exports of distillates rose by 104,000 barrels per day to 1,106,000 barrels per day... After a run of fifty-six inventory withdrawals over the past ninety weeks, our distillate supplies at the end of the week were were 7.9% below the 125,154,000 barrels of distillates that we had in storage on January 21st of 2022, and about 20% below the five year average of distillates inventories for this time of the year...
Meanwhile, with a big increase in oil supplies that could not be accounted for, our commercial supplies of crude oil in storage rose for the 12th time in 24 weeks and for the 22nd time in the past year, increasing by 533,000 barrels over the week, from 448,015,000 barrels on January 13th to 448,548,000 barrels on January 20th, after our commercial crude supplies had increased by 8,408,000 barrels over the prior week. After recent big oil supply increases following the Christmas refinery freeze offs, our commercial crude oil inventories were at a 19 month high, about 3% above the most recent five-year average of commercial oil supplies for this time of year, and were 40.8% above the average of our available crude oil stocks as of the third weekend 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. And even after our commercial crude oil inventories had jumped to record highs during the Covid lockdowns of the Spring of 2020, and then jumped again after February 2021's winter storm Uri froze off US Gulf Coast refining, our commercial crude supplies as of this January 13th were 7.8% more than the 416,190,000 barrels of oil we had in commercial storage on January 21st of 2022, but 5.9% less than the 476,653,000 barrels of oil that we had in storage during the 2nd Covid surge on January 22nd of 2021, while 4.8% more than the 428,106,000 barrels of oil we had in commercial storage on January 17th of 2020…
Finally, with our inventories of crude oil and our supplies of all products made from oil trending near multi-year lows over the most recent months, we are also continuing to watch the total of all U.S. Stocks of Crude Oil and Petroleum Products, including those in the SPR for a sense of the big picture.. After the commercial crude and gasoline inventory increases we've already noted for this week, 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, rose by 3,989,000 barrels this week barrels this week, from 1,601,607,000 barrels on January 13th to 1,605,596,000 barrels on January 20th, after our total inventories had increased by 2,378,000 barrels during the prior week. Even after those increases, our total petroleum liquids inventories were still down by 512,047,000 barrels, or by 24.2% from their early pandemic high, and are just 1.7% from hitting a new 18 1/2 year low...
This Week's Rig Count
The number of drilling rigs active in the US were unchanged from the prior week during the week ending January 27th, and hence remain 2.8% below the prepandemic level, despite increasing in 94 of the prior 121 weeks....Baker Hughes reported that the total count of rotary rigs drilling in the US remained at 771 rigs over the past week, which was still 161 more rigs than the 610 rigs that were in use as of the January 28th report of 2022, but was 1,158 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 decreased by 4 to 609 oil rigs during the past week, after the number of rigs targeting oil had decreased by 10 during the prior week, but there are still 114 more oil rigs active now than were running a year ago, even as they amount to just 37.8% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, while they are now down 10.8% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations increased by 4 to 160 natural gas rigs, which was also up by 45 natural gas rigs from the 115 natural gas rigs that were drilling during the same week a year ago, even as they were still less than 10% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….
Other than those rigs targeting oil and natural gas, Baker Hughes reports that two "miscellaneous" rigs continued drilling this week: one of those was a directional rig drilling to between 5,000 and 10,000 feet on the big island of Hawaii, while the other was a directional rig drilling to between 5,000 and 10,000 feet into a formation in Lake county California that Baker Hughes doesn't track....While we haven't seen any details on either of those wells, in the past we've identified various "miscellaneous" rig activity as being for exploration, for carbon dioxide storage, and for utility scale geothermal projects....a year ago, there were were no such "miscellaneous" rigs running...
The offshore rig count in the Gulf of Mexico decreased by three to thirteen rigs this week, with all of those left now drilling in Louisiana's offshore waters....that Gulf rig count is now down by 5 from the 18 Gulf rigs running a year ago, when 17 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil offshore from Texas....since there aren't any rigs drilling off our other coasts at this time, the Gulf rig count is equal to the national offshore count..
In addition to rigs running offshore, there are still two water based rigs drilling through inland bodies of water this week; those include a directional rig drilling for oil at a depth greater than 15,000 feet in Terrebonne Parish, Louisiana; and a directional rig drilling for oil to between 5,000 and 10,000 feet, inland in Lafourche Parish, Louisiana ...a year ago, there were also two rigs drilling on inland waters...
The count of active horizontal drilling rigs was up by 5 to 705 horizontal rigs this week, which was also 152 more rigs than the 533 horizontal rigs that were in use in the US on January 28th of last year, but just 51.3% of the record 1,374 horizontal rigs that were drilling on November 21st of 2014....on the other hand, the directional rig count was down by 4 to 45 directional rigs this week, while those still were up by 9 from the 36 directional rigs that were operating during the same week a year ago…in addition, the vertical rig count was down by 1 to 21 vertical rigs this week, which equalled the 21 vertical rigs that were in use on January 28th of 2022…
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 27th, the second column shows the change in the number of working rigs between last week’s count (January 20th) and this week’s (January 27th) count, the third column shows last week’s January 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 January, 2022...
while rigs in the Permian basin increased by three, natural gas targeting drilling in the Permian increased by four to seven rigs, while oil rigs in the basin were down by one to 350... in checking the Rigs by State file at Baker Hughes for changes in the Texas Permian basin, we find that there were two rigs added in Texas Oil District 7C, which includes the southernmost counties in the Permian Midland, but that two rigs were pulled out of Texas Oil District 8, which overlies the core Permian Delaware, while rig counts in other Texas Permian districts were unchanged....since the national Permian basin count was up by three oil rigs, we can thus figure that all three rigs added in New Mexico were set up to drill in the far western Permian Delaware, in the southwest corner of that state...thus, four of the five rigs added in the Permian were targeting natural gas, and both of the rig removals from Texas district 8 had been drilling for oil...elsewhere in Texas, there was a rig pulled out of Texas Oil District 2, while there was a rig added in Texas Oil District 4, both of which were most likely offsetting oil rigchanges in the Eagle Ford shale....there was also a rig added in Texas Oil District 6, which was most like a natural gas rig addition in the Haynesville shale, since the rig count in the Haynesville shale area in adjacent Louisiana was down by one, while Haynesville drilling is shown as unchanged....the three rig decrease in Louisiana included that Haynesville reduction, and two rigs pulled out of the state's offshore waters, while Texas also had a rig removed from the Gulf waters of that state..
It appears the remaining changes all also offset each other....In Oklahoma, there was an oil rig pulled out of the Ardmore Woodford, while there was an oil rig added in the Cana Woodford at the same time, leaving the Oklahoma count unchanged...while there were two rigs added in the Williston basin in North Dakota, there were two rigs pulled out of the Williston in Montana, leaving Montana with one rig remaining and leaving the Williston basin count unchanged...and finally, while there was a natural gas rig added in Pennsylvania's Marcellus, the was a natural gas rig pulled out of West Virginia's Marcellus at the same time, leaving the Marcellus rig count unchanged...
DUC well report for December
Tuesday of last week saw the release of the EIA's Drilling Productivity Report for January, which included the EIA's December data on drilled but uncompleted (DUC) oil and gas wells in the 7 most productive shale regions (click tab 3)....that data showed an increase in uncompleted wells nationally for the second time in 30 months and by the most since June 2020, as well completions slowed while drilling of new wells increased in December, but remained well below average pre-pandemic levels...for the 7 sedimentary regions covered by this report, the total count of DUC wells increased by 40 wells, rising from a revised 4,537 DUC wells in November to 4,577 DUC wells in December, which was still 10.2% fewer DUCs than the 5,099 wells that had been drilled but remained uncompleted as of the end of December of a year ago...this month's DUC increase occurred as 1,011 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during December, up by 6 from the 1,005 wells that were drilled in November, while 971 wells were completed and brought into production by fracking them, down by 18 from the 989 well completions seen in November, but up by 192 from the 779 completions seen in December of last year....at the December completion rate, the 4,577 drilled but uncompleted wells remaining at the end of the month represents a 4.7 month backlog of wells that have been drilled but are not yet fracked, up from the 4.5 month DUC well backlog of a month ago, and now clearly rising from the 7 1/2 year low of 4.4 months of three months ago, despite a completion rate that is still nearly 15% below 2019's pre-pandemic average...
Both oil basin DUCS and natural gas basin DUCs rose during December, and only one basin saw DUCs decrease....the number of uncompleted wells in the Niobrara chalk of the Rockies' front range increased by 29, rising from 497 at the end of November to 526 DUC wells at the end of December, as 138 wells were drilled into the Niobrara chalk during December, while 109 Niobrara wells were completed....at the same time, the number of uncompleted wells remaining in Oklahoma's Anadarko basin increased by 3, rising from 712 at the end of November to 715 DUC wells at the end of December, as 77 wells were drilled into the Anadarko basin during November, while 74 Anadarko wells were completed.... likewise, DUC wells in the Bakken of North Dakota were up by 3 to 531 by the end of December, as 80 wells were drilled into the Bakken during December, while 77 of the drilled wells in the Bakken were being fracked...in addition, DUC wells in the Permian basin of west Texas and New Mexico increased by 1, from 1,068 DUC wells at the end of November to 1,069 DUCs at the end of December, as 432 new wells were drilled into the Permian basin during December, while 431 already drilled wells in the region were being fracked....on the other hand, DUCs in the Eagle Ford shale of south Texas decreased by 9, from 517 DUC wells at the end of November to 508 DUCs at the end of December, as 109 wells were drilled in the Eagle Ford during December, while 118 already drilled Eagle Ford wells were fracked........
among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, increased by 1 well, from 620 DUCs at the end of November to 621 DUCs at the end of December, as 100 new wells were drilled into the Marcellus and Utica shales during the month, while 99 of the already drilled wells in the region were fracked....at the same time, the uncompleted well inventory in the natural gas producing Haynesville shale of the northern Louisiana-Texas border region rose by 12, from 595 DUCs in November to 607 DUCs by the end of December, as 75 wells were drilled into the Haynesville during December, while 63 of the already drilled Haynesville wells were fracked during the same period....thus, for the month of December, DUCs in the five major oil-producing basins tracked by this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by twently-seven to 3,349 wells, while the uncompleted well count in the major natural gas basins (the Marcellus, the Utica, and the Haynesville) was up by thirteen to 1,228 DUC 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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Note: there’s more here..
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