YIN YANG ZONE: natural gas prices are lowest in a year; US oil supplies at a 36½ year low, SPR is at a 39 year low

natural gas prices are lowest in a year; US oil supplies are at a new 36½ year low, Strategic Petroleum Reserve is at a new 39 year low; oil + oil products supplies are at an 18½ year low

US oil prices finished lower for the first time in four weeks as global recession worries weighed on the outlook for demand...after rising 0.9% to $80.26 a barrel last week after Russia cut off oil supplies to the countries plotting to cap their prices and traders anticipated a recovery in Chinese demand, the contract price for the benchmark US light sweet crude for February delivery edged lower in volatile Asian trading early on Tuesday as weak demand data from China and a gloomy economic outlook weighed on traders, and then nosedived in the New York session to settle $3.33 lower at $76.93 a barrel on the back of a rallying U.S. dollar and reports that OPEC had raised oil production in December amid recoveries in Nigerian and Iraqi output....prices slumped further in early trading on Wednesday as the deepening global downturn was widely expected to cool down oil consumption, then tumbled $4.09 or more than 5% to a three week low of $72.84 a barrel after minutes of the Fed's December meeting revealed no interest rate cuts were on the horizon in 2023, as officials signaled they are committed to fighting inflation despite growing risks of pushing the economy into recession...however, oil prices opened higher on Thursday after American Petroleum Institute data showed that combined gasoline and distillate fuel stocks fell by more than 3 million barrels during the final week of 2022, offsetting a larger-than-expected build in domestic crude oil stockpiles, and then extended those early gains after the EIA reported a smaller crude build, lower fuel supplies, and the SPR at a 1983 low, and settled 83 cents higher at $73.67 a barrel as the weak US stockpile build countered the dour outlook that followed Saudi Arabia’s decision to cut its prices....oil prices edged higher early Friday on hopes of a Chinese demand boost, but the weak broader global economic outlook limited the gains, and then backed off to settle just 10 cents higher at $73.77 a barrel as the U.S. jobs report caused the U.S. dollar to rally as traders bet that inflation was easing and that the Fed wouldn't be as aggressive as some feared, but still ended 8.1% lower for the week, their biggest weekly drop to start the year since 2016...

At the same time, natural gas prices finished lower for the fifth time in six weeks, as forecasts for exceptional mid-winter warmth continued to drive prices....after falling 10.1% to a ten month low of $4.475 per mmBTU last week on forecasts for warm weather to persist over most of the country through mid January, the contract price of US natural gas for February delivery opened 47 cents lower on Tuesday on forecasts that even more bearish weather conditions were expected to last at least another ten days and settled down 48.7 cents or nearly 11% at $3.988 per mmBTU on forecasts for highs in the 60s and 70s over the southern US, with very few sub-freezing daytime highs over the northern US...natural gas prices partly rebounded on Wednesday, despite ongoing forecasts for unseasonably mild weather, rising 18.4 cents to $4.172 per mmBTU, amid estimates for a massive storage withdrawal report and forecasts for higher-than-expected demand for LNG exports over the next two weeks...however, after the EIA reported a smaller-than-expected storage draw, natural gas prices tumbled another 11% and settled 45.2 cents lower at $3.720 per mmBTU, the lowest settlement in more than a year...February futures floundered further on Friday as warmer-than-normal forecasts persisted, and natural gas prices settled another penny lower at $3.710 per mmBTU, thus finishing down 17.1% on the week in "the worst start to a year on record"....

The EIA's natural gas storage report for the week ending December 30th indicated that the amount of working natural gas held in underground storage in the US fell by 221 billion cubic feet to 2,891 billion cubic feet by the end of the week, which meant our gas supplies were 308 billion cubic feet, or 9.6% less than the 3,199 billion cubic feet that were in storage on December 30th of last year, and 208 billion cubic feet, or 6.7% less than the five-year average of 3,099 billion cubic feet of natural gas that were in storage as of the 30th of December over the most recent five years....the 221 billion cubic foot withdrawal from US natural gas working storage for the cited week was less than the average forecast for a 228 billion cubic feet withdrawal in a Reuters poll of analysts, but much more than the 46 billion cubic feet that were pulled from natural gas storage during the corresponding week of 2021, and also much more than the average 98 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 December 30th indicated that after a big drop in our oil refining due to freeze-offs during the Christmas weekend polar outbreak, we had oil left to add to our stored commercial crude supplies for the 3rd time in 8 weeks, and for the 21st time in the past 37 weeks, despite a decrease in our imports and an increase in our exports. Our imports of crude oil fell by an average of 540,000 barrels per day to average 5,712,000 barrels per day, after rising by an average of 433,000 barrels per day during the prior week, while our exports of crude oil rose by 742,000 barrels per day to average 4,207,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 1,505,000 barrels of oil per day during the week ending December 30th, 1,282,000 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 100,000 barrels per day higher at 12,100,000 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 13,605,000 barrels per day during the December 30th reporting week…

Meanwhile, US oil refineries reported they were processing an average of 13,820,000 barrels of crude per day during the week ending December 30th, an average of 2,330,000 fewer 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 151,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US. So, based on that reported & estimated data, the crude oil figures from the EIA for the week ending December 30th appears to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 64,000 barrels per day less than what our oil refineries reported they used during the week. To account for that modest disparity between the apparent supply of oil and the apparent disposition of it, the EIA just inserted a (+64,000) 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 size in this week’s oil supply & demand figures that we have just transcribed.... However, since last week’s “unaccounted for crude oil” was at (+966,000) barrels per day, that means there was a 902,000 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 151,000 barrel per day decrease in our overall crude oil inventories left our oil supplies at 793,026,000 barrels at the end of the week, which was our lowest total oil inventory level since January 17th, 1986, and therefore at another 36 1/2 year low....Our oil inventories decreased this week as an average of 242,000 barrels per day were being added to our commercially available stocks of crude oil, while 393,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve. That draw from the SPR 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 during the summer because the administration had also been attempting to use the Strategic Petroleum Reserve to manipulate prices on a weekly basis. Before that plan even ran out, 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. 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 283,767,000 barrels of oil have now been removed from the Strategic Petroleum Reserve over the past 29 months, and as a result the 372,380,000 barrels of oil that still remain in our Strategic Petroleum Reserve is now the lowest since December 2nd, 1983, or at a new 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 current 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 to begin 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 6,162,000 barrels per day last week, which was still 2.6% less than the 6,327,000 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 11,600,000 barrels per day, while Alaska’s oil production was 1,000 barrels per day lower at 453,000 barrels per day and had no impact on 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 7.6% below that of our pre-pandemic production peak, but was 24.7% 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 79.6% of their capacity while using those 13,820,000 barrels of crude per day during the week ending December 30th, down from their 90.2% utilization rate during the prior week, and a well normal utilization rate for late December. The 13,820,000 barrels per day of oil that were refined this week were 12.9% less than the 15,867,000 barrels of crude that were being processed daily during week ending December 31st of 2021, and 20.0% less than the 17,283,000 barrels that were being refined during the prepandemic week ending December 27th, 2019, when our refinery utilization was at 94.5%, as refinery utilization typically rises into late December ...

With the decrease in the amount of oil being refined this week, gasoline output from our refineries was quite a bit lower, decreasing by 1,678,000 barrels per day to 8,466,000 barrels per day during the week ending December 30th, after our gasoline output had increased by 592,000 barrels per day during the prior week. This week’s gasoline production was 0.5% less than the 8,506,000 barrels of gasoline that were being produced daily over the same week of last year, and 16.8% less than the gasoline production of 10,173,000 barrels per day during the prepandemic week ending December 27th, 2019. At the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 1,050,000 barrels per day to 4,035,000 barrels per day, after our distillates output had decreased by 17,000 barrels per day during the prior week. After that big decrease, our distillates output was 18.7% less than the 4,935,000 barrels of distillates that were being produced daily during the week ending December 31st of 2021, and 24.0% less than the 5,311,,000 barrels of distillates that were being produced daily during the week ending December 27th 2019...

With the decrease in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the 2nd time in eight weeks and for the 12th time in 21 weeks, decreasing by 346,000 barrels to 222,662,000 barrels during the week ending December 30th, after our gasoline inventories had decreased by 3,105,000 barrels during the prior week. Our gasoline supplies fell by less this week despite the production drop because the amount of gasoline supplied to US users fell by 1,813,000 barrels per day to 7,514,000 barrels per day, even as our exports of gasoline rose by 201,000 barrels per day to 1,057,000 barrels per day, and as our imports of gasoline rose by 15,000 barrels per day to 551,000 barrels per day. But after 6 prior gasoline inventory increases, our gasoline supplies were little changed from last December 31st's gasoline inventories of 222,659,000 barrels, while falling to about 6% below the five year average of our gasoline supplies for this time of the year…

With the decrease in our distillates production, our supplies of distillate fuels also decreased for the 2nd time in 8 weeks, and for the 27th time over the past year, falling by 1,427,000 barrels to 118,785,000 barrels during the week ending December 30th, after our distillates supplies had increased by 283,000 barrels during the prior week. Our distillates supplies fell this week even though the amount of distillates supplied to US markets, an indicator of our domestic demand, decreased by 1,081,000 barrels per day to 2,799,000 barrels per day, because our imports of distillates fell by 47,000 barrels per day to 113,000 barrels per day and because our exports of distillates rose by 229,000 barrels per day to 1,553,000 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 December 31st 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 refining, our commercial supplies of crude oil in storage rose for the 9th time in 21 weeks and for the 21st time in the past year, increasing by 1,694,000 barrels over the week, from 418,952,000 barrels on December 23rd to 420,646,000 barrels on December 30th, after our commercial crude supplies had increased by 718,000 barrels over the prior week. After this week's increase, our commercial crude oil inventories rose to around 4% below the most recent five-year average of crude oil supplies for this time of year, and were still more than 28% above the average of our crude oil stocks as of the last weekend of December 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 December 30th were 0.7% more than the 417,851,000 barrels of oil we had in commercial storage on December 31st of 2021, but 13.4% less than the 493,469,000 barrels of oil that we had in storage on January 1st of 2021, and 2.2% less than the 429,896,000 barrels of oil we had in commercial storage on December 27th of 2019…

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 SPR, gasoline and distillate inventory decreases 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, fell by 5,872,000 barrels this week, from 1,583,499,000 barrels on December 23rd to 1,577,627,000 barrels on December 30th, after our total inventories had decreased by 14,737,000 barrels during the prior week. This week's decrease left our total petroleum liquids inventories down by 210,806,000 barrels over the past 52 weeks, and at their lowest since May 14th, 2004, or at a new 18 1/2 year low...

This Week's Rig Count

The number of drilling rigs active in the US decreased for the 10th time over the prior 23 weeks during the week ending January 6th and is now 2.7% below the prepandemic level....Baker Hughes reported that the total count of rotary rigs drilling in the US fell by 7 to 772 rigs over the past week, which was still 184 more rigs than the 588 rigs that were in use as of the January 7th report of 2022, but was 1,157 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 3 to 618 oil rigs during the past week, after the number of rigs targeting oil had decreased by 1 during the prior week, but there are still 137 more oil rigs active now than were running a year ago, even as they amount to just 38.4% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and as they are still down 9.5% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 4 to 152 natural gas rigs, which was still up by 45 natural gas rigs from the 107 natural gas rigs that were drilling during the same week a year ago, even as they were only 9.4% 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 one to sixteen rigs this week, with 15 rigs now drilling in Louisiana's offshore waters, and one rig still drilling for oil offshore from Texas....that Gulf rig count equals the 16 Gulf rigs running a year ago, when 15 of the 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 down by 6 to 700 horizontal rigs this week, which was still 168 more rigs than the 532 horizontal rigs that were in use in the US on January 7th 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 down by one to 26 vertical rigs this week, which was still up by 3 from the 23 vertical rigs that were operating during the same week a year ago…on the other hand, the directional rig count was unchanged at 46 directional rigs this week, and those were up by 13 from the 33 directional rigs that were in use on January 7th 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 6th, the second column shows the change in the number of working rigs between last week’s count (December 30th) and this week’s (January 6th) count, the third column shows last week’s December 30th 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 7th of January, 2022..