natural gas hit $2 for the first time in 29 months; lower 48 oil production at a 33 month high; commercial crude oil inventories at a new 20 month high as oil supplies that cannot be accounted for tops two million barrels per day; DUC backlog at 4.9 months after largest increase since June 2020
US oil prices fell for the fourth week in the last five on rising US oil inventories and on concern over the potential for a monetary policy induced recession…after falling 4.2% to $76.34 a barrel last week on stronger than expected US inflation data and on a massive build of US crude inventories, the contract price for the benchmark US light sweet crude for March delivery rose in overseas markets on our holiday on Monday, buoyed by optimism over Chinese demand, continued production curbs by major producers, and Russia’s plans to rein in supply, and opened higher in New York on the last day of trading for that contract on Tuesday, but turned mixed as traders shifted focus to the economic and interest rate outlook ahead of the Wednesday release of the minutes from the Fed's recent policy meeting, and settled 18 cents lower at 76.16 a barrel as persistent concerns about global economic growth outweighed supply curbs and prompted investors to take profits on the previous day’s gains before trading in that contract expired, while the contract price for the benchmark US crude for April delivery, which would be quoted as the price of oil the next day, settled 19 cents lower at $76.27 a barrel....oil prices moved lower for a third straight trading session early on Wednesday, as concerns about fuel demand were stoked by expectations that minutes due from the Fed would indicate a need to hike interest rates. and then tumbled 3% to settle $2.41 lower at $73.95 a barrel, as traders worried that recent economic data would mean more aggressive interest rate increases by central banks, pressuring economic growth and fuel demand....despite Wednesday evening's American Petroleum Institute report of another major crude inventory build, oil prices increased in Asian trading on Thursday on expectations that Russia would cut its oil exports more than previously announced, and then rallied further in New York trading, buoyed by the EIA's report of a surprise drawdown of U.S. gasoline supplies amid rebounding demand for the fuel, that offset their report of another weekly build in commercial crude oil inventories, and finished trading $1.44 higher at $75.39 a barrel on expectations of steep cuts to Russian production next month, even as a stronger dollar and a sharper-than-expected jump in U.S. crude inventories added to demand concerns...oil prices edged higher in volatile Asian trading on Friday, bolstered by the prospect of lower Russian exports, but pressured by rising inventories in the United States and concerns over global economic activity. and then climbed over 2% in early US trading ahead of the U.S. PCE price index data that would help shape the debate over monetary policy, but pared early gains to close 93 cents higher at $76.32 a barrel after U.S. inflation data offered more evidence of an overheated economy and ongoing inflationary pressures, paving the way for the Fed to continue raising interest rates into restrictive territory....oil prices thus finished just 2 cents lower on the week, ending virtually flat as prices were supported by the prospect of lower Russian exports but pressured by rising inventories in the US and concerns over global economic activity, while the benchmark April contract price, which had closed the prior week at $76.55 a barrel, finished 0.3% lower...
meanwhile, natural gas prices finished higher for just the 2nd time in 11 weeks, as major winter storms impacted California and the northern tier and March forecasts turned colder...after falling 9.5% to a 28 month low of $2.275 per mmBTU last week as gas output increased while forecasts turned warmer, the contract price of US natural gas for March delivery opened 11 cents lower on Tuesday as compellingly bearish weather conditions and forecasts pushed prices lower once again, and slid 20.2 cents or almost 9% to a near 29-month low of $2.073 per mmBTU as springlike weather blanketed much of the Lower 48...after testing the $2 level in after hours trading, natural gas prices got half of Tuesday's drop back on Wednesday, rising 10.1 cents to $2.174 mmBTU, as traders turned their attention to a winter storm traversing the country, and the potential for a restart of LNG exports from the long shuttered Freeport terminal...natural gas prices advanced for a second session on Thursday, as traders looked beyond another light winter storage withdrawal to the prospect of incrementally tighter balances heading into spring, and settled 14.0 cents higher at $2.314 per mmBTU...natural gas prices finished the week on a firm note on Friday, rising 13.7 cents to $2.451 per mmBTU, as a chillier March outlook and the continued ramp of the Freeport export facility supported the market, and thus ended 7.7% higher on the week, as trading in the March contract ended, while the April contract for US natural gas, which would be quoted contact next week, finished 8.3% higher at $2.548 per mmBTU...
The EIA's natural gas storage report for the week ending February 17th indicated that the amount of working natural gas held in underground storage in the US fell by 71 billion cubic feet to 2,195 billion cubic feet by the end of the week, which left our natural gas supplies 395 billion cubic feet, or 21.9% above the 1,800 billion cubic feet that were in storage on February 17th of last year, and 289 billion cubic feet, or 15.2% more than the five-year average of 1,906 billion cubic feet of natural gas that were in storage as of the 17th of February over the most recent five years….the 71 billion cubic foot withdrawal from US natural gas working storage for the cited week was a bit more than was expected by a Reuters survey of analysts, whose average forecast called for a 68 billion cubic feet withdrawal, but it was much less than the 138 billion cubic feet that were pulled out of natural gas storage during the corresponding week of 2022, and not even half of the average 177 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 February 17th indicated that even after a big jump in our oil exports, we still had quite a bit of surplus oil left to add to our stored commercial crude supplies for the 9th consecutive week, and for the 28th time in the past 44 weeks, largely due to an ongoing glut of oil supplies that could not be accounted for... Our imports of crude oil rose by an average of 94,000 barrels per day to average 6,326,000 barrels per day, after falling by an average of 826,000 barrels per day during the prior week, while our exports of crude oil rose by 1,451,000 barrels per day to average 4,597,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 1,729,000 barrels of oil per day during the week ending February 17th, 1,357,000 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 12,300,000 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 14,029,000 barrels per day during the February 17th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 15,010,000 barrels of crude per day during the week ending February 17th, an average of 17,000 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 an average of 1,093,000 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 provided by the EIA for the week ending February 17th appear to indicate that our total working supply of oil from net imports and from oilfield production was 2,073,000 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 [+2,073,000] 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 was an omission or error of that magnitude in this week’s oil supply & demand figures that we have just transcribed.... However, since most everyone treats these weekly EIA reports as precise, 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 rose to an average of 6,725,000 barrels per day last week, which was still 3.1% more than the 6,523,000 barrel per day average that we were importing over the same four-week period last year. This week's 1,093,000 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 12,300,000 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 a 33 month high of 11,900,000 barrels per day, while Alaska’s oil production was 8,000 barrels per day lower at 447,000 barrels per day and added 400,000 barrels per day to the the rounded national total, 100,000 barrels per day less than Alaska added last week....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 6.1% below that of our pre-pandemic production peak, but was 26.8% 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 85.9% of their capacity while using those 15,010,000 barrels of crude per day during the week ending February 17th, down from their 86.5% utilization rate during the prior week, but still close to normal utilization for mid February, when seasonal maintenance is ongoing. The 15,010.000 barrels per day of oil that were refined this week were 1.5% less than the 15,246,000 barrels of crude that were being processed daily during week ending February 18th of 2022, and 7.2% less than the 16,008,000 barrels that were being refined during the prepandemic week ending February 21st, 2020, when our refinery utilization was 87.9%, close to normal for mid-February ...
Even with the decrease in the amount of oil being refined this week, the gasoline output from our refineries was quite a bit higher, increasing by 339,000 barrels per day to 9,428,000 barrels per day during the week ending February 17th, after our gasoline output had increased by 4,000 barrels per day during the prior week. This week’s gasoline production was also 1.7% more than the 9,270,000 barrels of gasoline that were being produced daily over the same week of last year, while 3.8% less than the gasoline production of 9,797,000 barrels per day during the prepandemic week ending February 21st, 2020. Meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 191,000 barrels per day to 4,700,000 barrels per day, after our distillates output had decreased by 155,000 barrels per day during the prior week. With that increase, our distillates output was a bit more than the 4,693,000 barrels of distillates that were being produced daily during the week ending February 18th of 2022, while still 3.0% less than the 4,846,000 barrels of distillates that were being produced daily during the week ending February 21st 2020...
Even with the increase in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the third time in fifteen weeks and for the 13th time in 28 weeks, decreasing by 1,856,000 barrels to 240,066,000 barrels during the week ending February 17th, after our gasoline inventories had increased by 2,316,000 barrels during the prior week. Our gasoline supplies fell this week because the amount of gasoline supplied to US users jumped by 636,000 barrels per day to 8,910,000 barrels per day, and because our imports of gasoline fell by 113,000 barrels per day to 476,000 barrels per day, while our exports of gasoline fell by 18,000 barrels per day to 768,000 barrels per day.. Even with 12 recent gasoline inventory increases, our gasoline supplies were still 2.6% below last February 18th's gasoline inventories of 246,479,000 barrels, and still about 5% below the five year average of our gasoline supplies for this time of the year…
With the big increase in our distillates production, our supplies of distillate fuels increased for the 3rd time in 8 weeks, and for the 27th time over the past year, rising by 2,698,000 barrels to 121,935,000 barrels during the week ending February 17th, after our distillates supplies had decreased by 1,285,000 barrels during the prior week. Our distillates supplies rose this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, decreased by 123,000 barrels per day to 3,771,000 barrels per day, and because our imports of distillates rose by 193,000 barrels per day to 414,000 barrels per day, and becausevour exports of distillates fell by 62,000 barrels per day to 958,000 barrels per day... After a run of fifty-seven inventory withdrawals over the past ninety-four weeks, our distillate supplies at the end of the week were were 1.9% below the 119,678,000 barrels of distillates that we had in storage on February 18th of 2022, and about 12% below the five year average of our distillates inventories for this time of the year...
Finally, with over two million barrels per day of oil new supplies that could not be accounted for, our commercial supplies of crude oil in storage rose for the 16th time in 28 weeks and for the 24th time in the past year, increasing by 7,647,000 barrels over the week, from 471,394,000 barrels on February 10th to 479,041,000 barrels on February 17th, after our commercial crude supplies had increased by 16,283,000 barrels over the prior week. With even larger oil supply increases in the weeks following the Christmas refinery freeze offs, our commercial crude oil inventories were at a new 20 month high, up by 13.9% from December 30th, and now about 9% above the most recent five-year average of commercial oil supplies for this time of year, and also almost 47% above the average of our available crude oil stocks as of the third weekend of February over the 5 years at the beginning of the past decade, with the apparent 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 February 17th were 15.1% more than the 416,022,000 barrels of oil we had in commercial storage on February 18th of 2022, and 3.5% more than the 463,042,000 barrels of oil that we had in storage during the 2nd Covid surge on February 19th of 2021, and 8.1% more than the 443,335,000 barrels of oil we had in commercial storage on February 21st of 2020…
Lastly, with the SPR at a 39 year low and our supplies of all products made from oil trending near multi-year lows over the recent months, we had been watching 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 on petroleum related supplies.. After the commercial crude and distillate 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 3,302,000 barrels this week, from 1,629,756,000 barrels on February 10th to 1,633,058,000 barrels on February 17th, after our total inventories had increased 19,209,000 barrels the prior week. Even after seven straight big increases, our total petroleum liquids inventories were still down by 484,585,000 barrels, or by 22.8% from their early pandemic high, but they are now up by 3.5% from their December 30th 18 1/2 year low...So, unless such aggregate supplies should begin to drop again in following weeks, this will be our last check of this metric..
This Week's Rig Count
The number of drilling rigs active in the US decreased for the 15th time over the prior 30 weeks during the week ending February 24th, and was 5.0% below the prepandemic level, even after increasing ninety-five times over the past 126 weeks... Baker Hughes reported that the total count of rotary rigs drilling in the US fell by seven to 753 rigs over the past week, which was still 103 more rigs than the 650 rigs that were in use as of the February 25th report of 2022, but was 1,176 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 7 to 600 oil rigs during the past week, after the number of rigs targeting oil had decreased by 2 during the prior week, while there are still 78 more oil rigs active now than were running a year ago, even as they amount to just 37.3% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and while they are now down 12.2% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations remained unchanged at 151 natural gas rigs, which was still up by 24 natural gas rigs from the 127 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 was just one such "miscellaneous" rigs running...
The offshore rig count in the Gulf of Mexico was unchanged at 17 rigs this week, with 16 of those drilling for oil in Louisiana's offshore waters and one also drilling for oil in Texas waters….that Gulf rig count is still up by 5 from the 12 Gulf rigs running a year ago, when 11 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 down by 7 to 693 horizontal rigs this week, which was still 100 more rigs than the 593 horizontal rigs that were in use in the US on February 25th of last year, but was just over 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 two to 16 vertical rigs this week, which was also down by 10 from the 26 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 44 directional rigs this week, and those were also up by 13 from the 31 directional rigs that were in use on February 25th 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 February 24th, the second column shows the change in the number of working rigs between last week’s count (February 17th) and this week’s (February 24th) count, the third column shows last week’s February 17th 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 25th of February, 2022...
even though the natural gas rig count was unchanged, there were quite a few changes among them to get us there...for starters, there were three natural gas rigs pulled out of West Virginia's Marcellus shale, while there were three natural gas rigs added to the Marcellus in Pennsylvania at the same time, leaving the Marcellus rig count unchanged...at the same time, there were two natural gas rigs pulled out of the Haynesville shale in Texas, while there were two natural gas rigs added to the Permian basin in Texas at the same time... checking the Rigs by State file at Baker Hughes, we find that there were two rigs added in Texas Oil District 7C, which overlies the southernmost counties in the Permian Midland, and that rig counts in the other Texas Permian districts were unchanged, so it's likely that's where they went, although switching an oil rig for a natural gas rig in another basin would also leave the apparent totals unchanged...meanwhile, since the Texas Permian basin count is up by 2 rigs while the national Permian rig count was up by one, we can conclude that one of the rigs pulled out of New Mexico had been drilling in the far west reaches of the Permian Delaware, in the southeast corner of that state, with the other rig most likely pulled from the San Juan basin in the northwest corner.....
elsewhere in Texas, the rig count was down by one in Texas Oil District 6, which we believe represents the addition of an oil rig and the removal of two Haynesville natural gas rigs in that district, based on recent oil rig activity in that area, which we have not seen in adjacent Louisiana, which was unchanged this week, with all natural gas rigs in the northern part of the state... the rig count was also down by one in Texas Oil District 10, which overlies the Granite Wash basin of the Texas panhandle, accounting for one of the rigs pulled from that basin, with the other Granite Wash apparently pulled from Oklahoma at the same time....meanwhile, Oklahoma saw oil rigs added in the Ardmore Woodford and the Cana Woodford, and an oil rig pulled out of the Arkoma Woodford....however, since the Oklahoma state count is down by two, two rigs must have been removed from an Oklahoma formation or formations not tracked by Baker Hughes at the same time...that is also the case with the two rigs pulled out of California; Baker Hughes does not separately cover any basins in that state...meanwhile, the rig pulled out of Colorado had been drilling in the DJ Niobrara chalk of the Rockies front range in that state, where all rigs target oil...
DUC well report for January
Monday of last week saw the release of the EIA's Drilling Productivity Report for February, which included the EIA's January 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 third time in 31 months and by the most since June 2020, even as both well completions and drilling of new wells decreased in January, despite being well below the average pre-pandemic levels...for the 7 sedimentary regions covered by this report, the total count of DUC wells increased by 42 wells, rising from a revised 4,629 DUC wells in December to 4,671 DUC wells in January, which was still 8.1% fewer DUCs than the 5,084 wells that had been drilled but remained uncompleted as of the end of January of a year ago...this month's DUC increase occurred as 1,005 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during January, down by 5 from the 1,010 wells that were drilled in December, while 963 wells were completed and brought into production by fracking them, down by 12 from the 975 well completions seen in December, but up by 219 from the 744 completions seen in January of last year....at the January completion rate, the 4,671 drilled but uncompleted wells remaining at the end of the month represents a 4.9 month backlog of wells that have been drilled but are not yet fracked, up from the 4.7 month DUC well backlog of a month ago, and now clearly rising from the 7 1/2 year low of 4.4 months of four months ago, despite a completion rate that is now about 15% below 2019's pre-pandemic average...
Both oil basin DUCS and natural gas basin DUCs rose during January, and only one basin saw DUCs decrease....the number of uncompleted wells in the Niobrara chalk of the Rockies' front range increased by 22, rising from 539 at the end of December to 561 DUC wells at the end of January, as 128 wells were drilled into the Niobrara chalk during January, while 106 Niobrara wells were completed....at the same time, the number of uncompleted wells remaining in Oklahoma's Anadarko basin increased by 4, rising from 722 at the end of December to 726 DUC wells at the end of January, as 75 wells were drilled into the Anadarko basin during January, while 71 Anadarko wells were completed.... likewise, DUC wells in the Permian basin of west Texas and New Mexico also increased by 4, from 1,079 DUC wells at the end of December to 1,083 DUCs at the end of January, as 437 new wells were drilled into the Permian basin during January, while 433 already drilled wells in the region were being fracked...in addition, DUC wells in the Bakken of North Dakota were up by 1 to 553 by the end of January, as 80 wells were drilled into the Bakken during January, while 79 of the drilled wells in the Bakken were being fracked.....on the other hand, DUCs in the Eagle Ford shale of south Texas decreased by 4, from 482 DUC wells at the end of December to 478 DUCs at the end of January, as 112 wells were drilled in the Eagle Ford during January, while 116 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 2 wells, from 631 DUCs at the end of December to 633 DUCs at the end of January, as 99 new wells were drilled into the Marcellus and Utica shales during the month, while 97 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 13, from 624 DUCs in December to 637 DUCs by the end of January, as 74 wells were drilled into the Haynesville during January, while 61 of the already drilled Haynesville wells were fracked during the same period....thus, for the month of January, 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 3,401 wells, while the uncompleted well count in the major natural gas basins (the Marcellus, the Utica, and the Haynesville) was up by fifteen to 1,270 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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