natural gas prices are at an 18 month low after first January inventory increase on record; commercial crude oil inventories saw largest jump in 22 months, but the Strategic Petroleum Reserve fell to a new 39 year low
US oil prices rose every day this week and finished higher for the fourth time in five weeks following a reopening of China and signs of easing inflation in the US....after falling 8.1% to $73.77 a barrel last week as global recession worries weighed on the outlook for demand, the contract price for the benchmark US light sweet crude for February delivery advanced more than 3% in Asian trading early Monday after China reopened its borders to international visitors for the first time since it imposed travel restrictions in March 2020, and held onto 86 cents of that gain to settle at $74.63 on NYMEX in New York as bulls in the market bet China’s reopening of its economy from tough COVID policies would boost oil consumption....prices edged higher for a fourth straight day on Tuesday as traders awaited U.S. oil inventory data and a bellweather report on inflation scheduled later in the week, but again pared early gains to settle 49 cents higher at $75.12 a barrel even as the EIA forecast record global petroleum consumption next year, as the dollar hovered at seven-month lows...however, oil prices slid after the market closed following American Petroleum Institute data showing a huge crude inventory jump and opened lower on Wednesday, but shrugged off an equally bearish EIA report confirming that huge crude inventory build and rallied to close $2.29 higher at $77.41 a barrel, supported by reports indicating that G7 countries would soon target Russian refined products with sanctions in addition to crude sanctions, which could raise the risk of a more meaningful decline in Russian supplies to global markets....oil prices continued their upward trend on Thursday amid ongoing concerns over the impact of sanctions on Russian crude output, and on expectations of increasing demand in China that could give a boost to the overall global economic outlook, and then rallied to settle 98 cents higher at $78.39 a barrel after the US consumer price index showed inflation fell for the first time since May 2020, thus taking pressure off the Fed as it shifts to smaller rate increases beginning next month...oil prices extended their gains into a seventh straight session in early trading on Friday, on expectations of improved demand growth in China and hopes for less aggressive rate hikes in the United States, and rallied to settle $1.47 or nearly 2% higher at $79.86 a barrel, after data showed easing inflation and a strong labor market was supporting US consumer spending. thus scoring an 8.3% gain for the week and posting the largest weekly net and percentage gain in more than three months...
US natural gas prices, on the other hand, finished lower for the sixth time in seven weeks, after the US saw its first January addition to gas inventories on record...after falling 17.1% to a one year low of $3.710 per mmBTU last week as extended forecasts for exceptional mid-winter warmth drove prices lower, the contract price of US natural gas for February delivery opened 13 cents higher on Monday after the latest forecast data teased a colder U.S. pattern arriving Jan. 23-27 “to finally break” from the current stretch of unseasonably mild temperatures, and settled 20 cents higher at $3.910 per mmBTU as forecasts for slightly more heating demand next week than had been expected led short sellers to take profits after prices had fallen to a one-year low the prior week...however, after again opening 13 cents higher on Tuesday, prices reversed lower and tumbled to their lowest in a year on rising output and the potential that "U.S. natural gas demand could be on track to hit record lows for January, settling down 27.1 cents at $3.639 per mmBTU...after trading lower most of Wednesday, natural gas prices ultimately eked out a 3.2-cent gain on the day amid bargain buying in the final hour of the trading session....natural gas prices tumbled more than 5% early on Thursday, after the EIA reported the first January addition to natural gas storage on record, but reversed late in session to eke out another 2.4 cent gain at $3.695 per mmBTU on the potential colder-than-normal weather coming in late January and uncertainty about when the Freeport LNG export plant in Texas would end its seven-month outage....but natural gas prices plunged 27.6 cents or 7.5% to an 18-month low of $3.419 per mmBTU on Friday on growing expectations that the Freeport plant would remain shut until February or later, and on forecasts that the weather would turn mild again in February following a late January freeze, and thus finished 7.8% lower for the week...
The EIA's natural gas storage report for the week ending January 6th indicated that the amount of working natural gas held in underground storage in the US rose by 11 billion cubic feet to 2,902 billion cubic feet by the end of the week, the first January increase on record, which still left our gas supplies 140 billion cubic feet, or 4.6% less than the 3,042 billion cubic feet that were in storage on January 6th of last year, and 40 billion cubic feet, or 1.4% less than the five-year average of 2,942 billion cubic feet of natural gas that were in storage as of the 6th of January over the most recent five years....the 11 billion cubic foot addition to US natural gas working storage for the cited week surprised a Reuters poll of analysts whose average forecast called for a 13 billion cubic feet withdrawal of gas, and contrasts with the 157 billion cubic feet that were pulled out of natural gas storage during the corresponding week of 2021, and the average 159 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 6th indicated that after an increase in our oil imports and a near record drop in our oil exports, we had surplus oil left to add to our stored commercial crude supplies for the 4th time in 9 weeks, and for the 22nd time in the past 38 weeks, despite a partial rebound in our refinery throughput... Our imports of crude oil rose by an average of 637,000 barrels per day to average 6,350,000 barrels per day, after falling by an average of 540,000 barrels per day during the prior week, while our exports of crude oil fell by 2,070,000 barrels per day to average 2,137,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 4,213,000 barrels of oil per day during the week ending January 6th, 2,707,000 more 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 100,000 barrels per day higher 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 16,413,000 barrels per day during the January 6th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 14,651,000 barrels of crude per day during the week ending January 6th, an average of 831,000 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 average of 2,595,000 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 6th appears to indicate that our total working supply of oil from net imports and from oilfield production was 833,000 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 (+833,000) 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 (+64,000) barrels per day, that means there was a 796,000 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...nonetheless, 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)….
This week's 2,595,000 barrel per day increase in our overall crude oil inventories came as an average of 2,709,000 barrels per day were being added to our commercially available stocks of crude oil, while 114,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve. That draw on the SPR, the smallest in 15 months, should be the last extension of the emergency withdrawal under Biden's "Plan to Respond to Putin’s Price Hike at the Pump" (sic), that was originally intended to supply 1,000,000 barrels of oil per day to commercial interests over a six month period from its inception to the midterm elections in November, in the hope of keeping gasoline and diesel fuel prices from rising over that time. The SPR withdrawals under that program began fluctuating this past summer because the administration had also been attempting to use the Strategic Petroleum Reserve to manipulate prices on a weekly basis. Before that scheme even ran its course, Biden announced another 15,000,000 barrel release from the Strategic Petroleum Reserve to run through the end of December, while simultaneously announcing he'd buy crude to replenish the SPR if oil prices fall to or below the $67-$72 a barrel range, effectively putting a floor under oil at that price. Then, on December 16th, the administration announced an initial token purchase of three million barrels under that plan, for oil to be delivered back to the SPR in February. However, no one would sell us oil at the below market price we were offering, so this week that plan to begin refilling the SPR was postponed...
Including the administration's initial 50,000,000 million barrel SPR release earlier this year, their subsequent 30,000,000 barrel release, and other withdrawals from the Strategic Petroleum Reserve under recent release programs, a total of 284,567,000 barrels of oil have now been removed from the Strategic Petroleum Reserve over the past 29 months, and as a result the 371,580,000 barrels of oil that still remain in our Strategic Petroleum Reserve is now the lowest since December 2nd, 1983, or at another 39 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. The total 180,000,000 barrel drawdown of the now ending Biden release program, which should have finished at the end of December, will have released almost a third of what remained in the SPR when the program started, and leave us with what is less than a 20 day supply of oil at the current consumption rate as we head into the new year.
Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,033,000 barrels per day last week, which was 3.1% less than the 6,227,000 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 12,200,000 barrels per day because the EIA's rounded estimate of the output from wells in the lower 48 states was 200,000 barrels per day higher at 11,800,000 barrels per day, but Alaska’s oil production was 5,000 barrels per day lower at 448,000 barrels per day and thus subtracted 100,000 barrels per day from the rounded national 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 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 84.1% of their capacity while using those 14,651,000 barrels of crude per day during the week ending January 6th, up from their 79.6% utilization rate during the prior week, but still well below normal utilization for early January. The 14,651,000 barrels per day of oil that were refined this week were 5.9% less than the 15,573,000 barrels of crude that were being processed daily during week ending January 7th of 2022, and 13.3% less than the 16,897,000 barrels that were being refined during the prepandemic week ending January 3rd, 2020, when our refinery utilization was at 93.0%, as refinery utilization typically hits its winter peak around New Year's day ...
With the increase in the amount of oil being refined this week, gasoline output from our refineries was a bit higher, increasing by 67,000 barrels per day to 8,533,000 barrels per day during the week ending January 6th, after our gasoline output had decreased by 1,678,000 barrels per day during the prior week. This week’s gasoline production was 0.5% less than the 8,574,000 barrels of gasoline that were being produced daily over the same week of last year, and 4.0% less than the gasoline production of 8,887,000 barrels per day during the prepandemic week ending January 3rd, 2020. At the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 509,000 barrels per day to 4,544,000 barrels per day, after our distillates output had decreased by 1,050,000 barrels per day during the prior week. Even after that increase, our distillates output was 5.1% less than the 4,788,000 barrels of distillates that were being produced daily during the week ending January 6th of 2022, and 14.4% less than the 5,310,000 barrels of distillates that were being produced daily during the week ending January 3rd 2020...
With the increase in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the 7th time in nine weeks and for the 10th time in 22 weeks, increasing by 4,114,000 barrels to 226,776,000 barrels during the week ending January 6th, after our gasoline inventories had decreased by 346,000 barrels during the prior week. Our gasoline supplies rose this week as the amount of gasoline supplied to US users rose by 44,000 barrels per day but remained quite depressed at 7,558,000 barrels per day, and because our exports of gasoline fell by 190,000 barrels per day to 867,000 barrels per day, while our imports of gasoline fell by 35,000 barrels per day to 516,000 barrels per day. Even after 7 recent gasoline inventory increases, our gasoline supplies were still 5.8% below last January 7th's gasoline inventories of 240,748,000 barrels, while falling to about 7% below the five year average of our gasoline supplies for this time of the year…
Even with the increase in our distillates production, our supplies of distillate fuels still decreased for the 3rd time in 9 weeks, and for the 28th time over the past year, falling by 1,069,000 barrels to 117,716,000 barrels during the week ending January 6th, after our distillates supplies had decreased by 1,427,000 barrels during the prior week. Our distillates supplies fell again this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 1,022,000 barrels per day to 3,821,000 barrels per day, even as our imports of distillates rose by 96,000 barrels per day to 209,000 barrels per day while our exports of distillates fell by 468,000 barrels per day to 1,085,000 barrels per day... After fifty-four inventory withdrawals over the past eighty-eight weeks, our distillate supplies at the end of the week were were 6.4% below the 126,846,000 barrels of distillates that we had in storage on January 6th of 2021, and about 14% below the five year average of distillates inventories for this time of the year...
Meanwhile, after the big drop in our oil exports and the increase in our imports, our commercial supplies of crude oil in storage rose for the 10th time in 22 weeks and by the most since February 2021, increasing by 18,961,000 barrels over the week, from 420,646,000 barrels on December 30th to 439,607,000 barrels on January 6th, after our commercial crude supplies had increased by 1,694,000 barrels over the prior week. After this week's increase, our commercial crude oil inventories rose to around 4% above the most recent five-year average of crude oil supplies for this time of year, and were more than 33% above the average of our crude oil stocks as of the first 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 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 6th were 6.4% more than the 413,298,000 barrels of oil we had in commercial storage on January 7th of 2022, but 8.8% less than the 482,211,000 barrels of oil that we had in storage on January 8th of 2021, and 2.0% more than the 431,060,000 barrels of oil we had in commercial storage on January 3rd of 2020…
Finally, with our inventories of crude oil and our supplies of all products made from oil 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. 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 21,602,000 barrels this week barrels this week, from 1,577,627,000 barrels on December 30th to 1,599,229,000 barrels on January 6th, after our total inventories had decreased by 5,872,000 barrels this week barrels during the prior week. But even with that increase, our total petroleum liquids inventories are still down by 357,903,000 barrels or 18.3% from their prepandemic high, and just 1.3% from a new 18 1/2 year low...
This Week's Rig Count
The number of drilling rigs active in the US decreased for the 13th time over the prior 24 weeks during the week ending January 14th and for the 94th time in 120 weeks but is still 2.3% below the prepandemic level....Baker Hughes reported that the total count of rotary rigs drilling in the US rose by 3 to 775 rigs over the past week, which was also 174 more rigs than the 601 rigs that were in use as of the January 7th report of 2022, but was 1,154 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 5 to 623 oil rigs during the past week, after the number of rigs targeting oil had decreased by 3 during the prior week, and there are now 131 more oil rigs active now than were running a year ago, even as they amount to just 38.7% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, while they are still down 8.8% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 2 to 150 natural gas rigs, which was still up by 41 natural gas rigs from the 109 natural gas rigs that were drilling during the same week a year ago, even as they were only 9.3% 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 increased by three to nineteen rigs this week, with 18 rigs now drilling in Louisiana's offshore waters, and one rig still drilling for oil offshore from Texas....that Gulf rig count is one more than 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, the Gulf rig count equals 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 was just one such rig drilling on inland waters...
The count of active horizontal drilling rigs was unchanged at 700 horizontal rigs this week, which was still 159 more rigs than the 532 horizontal rigs that were in use in the US on January 14th of last year, but just 50.9% of the record 1,374 horizontal rigs that were drilling on November 21st of 2014....in addition, the vertical rig count was also unchanged at 26 vertical rigs this week, which was still up by 1 from the 25 vertical rigs that were operating during the same week a year ago…on the other hand, the directional rig count was up by 3 to 49 directional rigs this week, and those were up by 14 from the 35 directional rigs that were in use on January 14th 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 13th, the second column shows the change in the number of working rigs between last week’s count (January 6th) and this week’s (January 13th) count, the third column shows last week’s January 6th 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 14th of January, 2022....
checking the Rigs by State file at Baker Hughes for the changes in the Texas Permian, we find that there was a rig pulled out of Texas Oil District 7C, which covers the southernmost counties in the Permian Midland, but that rig counts in other Texas Permian districts were unchanged....since the national Permian basin count was up by three, we can thus figure that all three rigs added in New Mexico were set up to drill for oil in the far western Permian Delaware, in the southwest corner of that state, but that the rig removal from Texas district 7C was either not targetting the Permian, or that rig a removal in another Permian district was offset by a rig addition in the same district that was targetting that basin...elsewhere in Texas, there were four rigs added in Texas Oil District 1, and there was also two rigs added in Texas Oil District 2, but there were three rigs pulled out of Texas Oil District 3, and there was also two rigs pulled out of Texas Oil District 4; at least three of the additions in those first wo districts were oil rigs added to the Eagle Ford shale, while at least one of the removals was a natural gas rig pulled out of the Eagle Ford; the other changes could have also involved the Eagle Ford, if there were concurrently an offfsetting change of the same type of rig that wouldn't have showed up in the totals, which now show the Eagle Ford with 69 oil rigs and 4 natural gas rigs active....there was also a rig added in Texas Oil District 6, apparently a natural gas rig in the Haynesville shale, since the rig count in the Haynesville shale area in adjacent Louisiana was down by two, while the national Haynesville count was only down by one....Texas alao saw an oil rig removed from the Barnett shale underlying the Dallas-Ft Worth area, but since there is no corresponding activity shown in a related Texas district, it must have been offset by a rig addition in the same area that wasn't targeting the Barnett...meanwhile, the Louisiana rig count was still up by one with the addition of three offshore directional rigs in the state's waters...
In Oklahoma, there was a rig added in the Mississippian shale, while there were two rigs pulled out of the Cana Woodford; since the Oklahoma count is down by two, there must have been a removal from another basin in he state not tracked by Baker Hughes...meanwhile, the oil rig pulled out of the DJ Niobrara chalk had been drilling in Colorado, while an oil rig was added in California in a basin not tracked by Baker Hughes...the only natural gas rig changes apparent this week were the rig removals from the Haynesville and the Eagle Ford we previously noted; all other changes involved oil rigs ...
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Note: there’s more here..
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