US oil prices rose last week as oil traders refocused on supply and demand fundamentals after the prior week's panic sell-off…after falling 13% to a 15 month low of $66.74 a barrel last week in the wake of the second and third biggest bank failures in US history, the contract price for the benchmark US light sweet crude for April delivery fell over $3 in Asian trading on Monday, on fears that turmoil in the global banking sector would spark a recession that would sap fuel demand, and traded off 1% in early New York trading as a deal in which UBS, Switzerland’s largest bank, agreed to buy Credit Suisse in an attempt to rescue the country’s second biggest bank, failed to ease banking concerns, but rallied late in the session to settle the session 90 cents higher at $67.64 a barrel, supported by a sharp retreat in the U.S. dollar as traders positioned ahead of the two-day Fed policy meeting, when officials were expected to deliver another round of interest rate increases amid still high inflation....oil prices headed higher at the open on the last day of trading for April oil on Tuesday, with increasing demand and disruptions in supply pushing prices higher, then advanced more than 1.5% after Russia announced it would extend its unilateral 500,000 bpd production cut, and finished trading $1.69 or 2.5% higher at $69.33 a barrel, while the more actively traded contract for US oil for May delivery settled $1.85 higher at $69.67 a barrel, as measures to stabilize the banking sector and pledges from major central banks to boost liquidity calmed the fears about the financial system that had been roiling markets...now quoting the price of the May oil contract, oil prices rallied early Wednesday after the EIA reported huge drawdowns of fuel products, and continued on their upward trend despite an unexpected build in crude stocks as the dollar fell to a six-week low ahead of the Fed’s decision on interest rates in the afternoon, and settled $1.23 higher at $70.90 a barrel as the U.S. dollar declined sharply after Fed raised the federal funds rate 25 basis points while acknowledging turmoil in the banking sector could slow the already fragile economy...oil prices started rising for a 4th day on Thursday after Goldman Sachs analysts said they expected higher oil prices 12 months from now, pointing to a forecast demand increase in China to more than 16 million barrels daily over the period, but sold off sharply ahead of the close after U.S. Energy Secretary Jennifer Granholm said that refilling the country’s SPR would be difficult this year and might take several years, and settled 94 cents lower at $69.96 a barrel as fading confidence in the financial system reignited fears that another crisis might be looming...oil prices then plunged by 4% early on Friday as the U.S. dollar rallied and banking stocks in Europe crashed in a sign of renewed pressure on the sector, but recovered to trade modestly higher by midday on the expectation of returning Chinese demand and amid a growing consensus that fears of a banking crisis were overblown, before turning lower again and settling with a 70 cent loss on the day at $69.26 a barrel, paring its weekly gains as fresh signs of stress in the banking sector caused investors to move away from riskier assets ahead of the weekend....oil prices still ended 3.8% higher on the week, while the contract for US oil for May delivery, which ended last week at $66.93 a barrel, finished 3.5% higher...
natural gas prices, on the other hand, finished lower as expectations of coming spring weather more than offset slightly cooler near term forecasts...after falling 3.8% to $2.338 per mmBTU in the widespread market rout following the failed bank takeovers last week, the contract price of US natural gas for April delivery opened higher but quickly traded lower on Monday morning, on expectations that weather driven demand would weaken by the end of the month, and tumbled 11.5 cents or 5% to settle at $2.223 per mmBTU as intensifying stress in the global financial system overwhelmed the bulls seizing upon favorable near-term weather, steady export demand and expectations of a seasonally robust inventory withdrawal...but Monday's action was reversed on Tuesday, as natural gas prices opened lower but quickly moved higher as bulls jumped in on the news of gas production cuts and gas settled with a 12.5 cent gain at $2.348 per mmBTU on short covering after prices hit their lowest in a month...but natural gas prices fell from the open on Wednesday on rising output and declining demand and settled 17.7 cents lower at $2.171 per mmBTU, succumbing to spring weather expectations and stout production levels...natural gas prices crept higher early Thursday and rose to an intraday high of $2.261 soon after Thursday's storage report, which was in line with industry expectations, but faded thereafter to settle 1.7 cents lower at $2.154 per mmBTU on afternoon forecasts for less cold weather and lower heating demand over the next two weeks than was previously expected...natural gas prices then traded up on Friday, boosted by colder forecasts and expectations for back-to-back bullish storage draws relative to historic norms, and settled 6.2 cents higher at $2.226 per mmBTU, but still finshed 5.2% lower for the week...
The EIA's natural gas storage report for the week ending March 17th indicated that the amount of working natural gas held in underground storage in the US fell by 72 billion cubic feet to 1,900 billion cubic feet by the end of the week, which left our natural gas supplies 504 billion cubic feet, or 36.1% above the 1,396 billion cubic feet that were in storage on March 17th of last year, and 351 billion cubic feet, or 22.7% more than the five-year average of 1,549 billion cubic feet of natural gas that were in storage as of the 17th of March over the most recent five years….the 72 billion cubic foot withdrawal from US natural gas working storage for the cited week was a bit less than was expected by analysts surveyed by Reuters, whose average forecast called for a 75 billion cubic feet withdrawal, but it was more than the 55 billion cubic feet that were pulled out of natural gas storage during the corresponding week of 2022, and also much more than the average 45 billion cubic feet of natural gas that have typically been withdrawn from our natural gas storage during the same late 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 March 17th showed that the key oil supply and demand metrics were little changed from the prior week, and hence we again had surplus oil to add to our stored commercial crude supplies for the 12th time in 13 weeks, and for the 19th time in the past 29 weeks, on the continued support of 2 million barrels per day of new oil supplies that the EIA could not account for... Our imports of crude oil fell by an average of 45,000 barrels per day to average 6,172,000 barrels per day, after falling by an average of 55,000 barrels per day during the prior week, while our exports of crude oil fell by 95,000 barrels per day to 4,932,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 1,240,000 barrels of oil per day during the week ending March 17th, 50,000 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 12,300,000 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 13,540,000 barrels per day during the March 17th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 15,376,000 barrels of crude per day during the week ending March 17th, an average of 21,000 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 160,000 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 March 17th appear to indicate that our total working supply of oil from net imports and from oilfield production was 1,996,000 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 [+1,996,000] 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, with most everyone treating 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)….(NB: there is also a more recent twitter thread from an EIA administrator addressing these errors, and what they hope to do about it)
Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,217,000 barrels per day last week, which was 0.4% less than the 6,242,000 barrel per day average that we were importing over the same four-week period last year. This week's 160,000 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 100,000 barrels per day higher 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 11,900,000 barrels per day, while Alaska’s oil production was 3,000 barrels per day lower at 441,000 barrels per day and added 400,000 barrels per day to the the rounded national total, same as 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 88.6% of their capacity while using those 15,376,000 barrels of crude per day during the week ending March 17th up from their 88.2% utilization rate during the prior week, as US refineries are now ramping up after completing their seasonal maintenance... The 15,376,000 barrels per day of oil that were refined this week were still 3.2% less than the 15,878,000 barrels of crude that were being processed daily during week ending March 18th of 2022, and 5.1% less than the 16,198,000 barrels that were being refined during the prepandemic week ending March 15th, 2019, when our refinery utilization was 88.9%, also close to normal for mid March ...
With last week's big increase in the amount of oil being refined, the gasoline output from our refineries was finally higher, increasing by 392,000 barrels per day to 9,503,000 barrels per day during the week ending March 17th, after our gasoline output had decreased by 446,000 barrels per day during the prior week. This week’s gasoline production was still 3.1% less than the 9,804,000 barrels of gasoline that were being produced daily over the same week of last year, and 4.3% less than the gasoline production of 9,925,000 barrels per day during the prepandemic week ending March 15th, 2019. Meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 75,000 barrels per day to 4,503,000 barrels per day, after our distillates output had decreased by 97,000 barrels per day during the prior week. Even with this weeks increase, our distillates output was 9.6% less than the 4,979,000 barrels of distillates that were being produced daily during the week ending March 18th of 2022, and 8.5% less than the 4,923,000 barrels of distillates that were being produced daily during the week ending March 15th, 2019...
Even with the big increase in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the fifth consecutive week and by the most since September 3rd 2021, decreasing by 6,399,000 barrels to 229,598,000 barrels during the week ending March 17th, after our gasoline inventories had decreased by 2,061,000 barrels during the prior week. Our gasoline supplies fell by more this week because the amount of gasoline supplied to US users rose by 366,000 barrels per day to 8,960,000 barrels per day, while our exports of gasoline rose by 1,000 barrels per day to 892,000 barrels per day, and while our imports of gasoline rose by 21,000 barrels per day to 471,000 barrels per day.. Following five straight gasoline inventory decreases, our gasoline supplies were 3.5% below last March 18th's gasoline inventories of 238,043,000 barrels, and about 4% below the five year average of our gasoline supplies for this time of the year…
Likewise, even with the increase in our distillates production, our supplies of distillate fuels decreased for the 7th time in 12 weeks, and by the most since October 7th, falling by 3,313,000 barrels to 119,715,000 barrels during the week ending March 17th, after our distillates supplies had decreased by 2,537,000 barrels during the prior week. Our distillates supplies decreased by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 238,000 barrels per day to 3,974,000 barrels per day, and as our exports of distillates rose by 16,000 barrels per day to 1,225,000 barrels per day, while our imports of distillates rose by 67,000 barrels per day to 222,000 barrels per day.. Even after fifty-eight inventory withdrawals over the past ninety-six weeks, our distillate supplies at the end of the week were 3.8% above the 112,135,000 barrels of distillates that we had in storage on March 18th of 2022, but still about 9% below the five year average of our distillates inventories for this time of the year...
Finally, with nearly two million barrels per day of new oil supplies that could not be accounted for, our commercial supplies of crude oil in storage rose for the 19th time in 29 weeks and for the 30th time in the past year, increasing by 1,117,000 barrels over the week, from 480,063,000 barrels on March 10th to 481,180,000 barrels on March 17th, after our commercial crude supplies had increased by 1,550,000 barrels over the prior week. With several large oil supply increases in the weeks following the Christmas refinery freeze offs, our commercial crude oil inventories are now about 8% above the most recent five-year average of commercial oil supplies for this time of year, and also about 46% above the average of our available crude oil stocks as of the third weekend of March 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 March 17th were 16.4% more than the 413,399,000 barrels of oil we had in commercial storage on March 18th of 2022, but 4.3% less than the 502,711,000 barrels of oil that we had in storage in the wake of winter storm Uri on March 19th of 2021, while 5.7% more than the 455,360,000 barrels of oil we had in commercial storage on March 20th of 2020…
This Week's Rig Count
The number of drilling rigs active in the US increased for the second time in six weeks during the week ending March 24th, but were 4.4% below the prepandemic count, despite increasing ninety-seven times over the past 129 weeks... Baker Hughes reported that the total count of rotary rigs drilling in the US rose by 4 to 758 rigs over the past week, which was also 88 more rigs than the 670 rigs that were in use as of the March 25th report of 2022, but was 1,171 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 4 to 593 oil rigs during the past week, after the number of rigs targeting oil had decreased by 1 during the prior week, and there are still 62 more oil rigs active now than were running a year ago, even as they amount to just 36.9% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and while they are still down 13.2% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 162 natural gas rigs, which was still up by 25 natural gas rigs from the 137 natural gas rigs that were drilling during the same week a year ago, even as they were still only 10.1% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….
In addition to those rigs targeting oil and natural gas, Baker Hughes continues to show that three rigs they've labeled as "miscellaneous" are still drilling this week: those include a directional rig drilling to between 5,000 and 10,000 feet on the big island of Hawaii, 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, and a directional rig drilling to between 5,000 and 10,000 feet into a formation in Pershing county Nevada, also unnamed by Baker Hughes. While we haven't seen any details on any of those wells, in the past we've identified various "miscellaneous" rig activity as being for exploration rather than production, for carbon dioxide storage, and for utility scale geothermal projects....a year ago, there were two such "miscellaneous" rigs running...
The offshore rig count in the Gulf of Mexico was up by one to 17 rigs this week, with 16 of those rigs drilling for oil in Louisiana's offshore waters, and one drilling for oil in Texas waters….that Gulf rig count is also up by 3 from the 14 Gulf rigs running a year ago, when 13 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil offshore from Texas…in addition to rigs drilling in the Gulf of Mexico, there is also a directional rig drilling for oil at a depth between 10,000 and 15,000 feet, offshore from the Kenai Peninsula Borough of Alaska...hence, we now have a total of 18 rigs drilling offshore, up from the national offshore count of 14 a year ago..
In addition to rigs running offshore, there is also a water based directional rig drilling for oil at a depth greater than 15,000 feet through an inland body of water in Terrebonne Parish, Louisiana this week...a year ago, there were three rigs drilling on inland waters...
The count of active horizontal drilling rigs was unchanged at 692 horizontal rigs this week, which was still 82 more rigs than the 610 horizontal rigs that were in use in the US on March 25th of last year, even as it was just over half of the record 1,374 horizontal rigs that were drilling on November 21st of 2014.....meanwhile, the vertical rig count was up by one to 16 vertical rigs this week, while those were still down by 9 from the 25 vertical rigs that were operating during the same week a year ago…at the same time, the directional rig count was up by 3 to 50 directional rigs this week, and those were also up by 15 from the 35 directional rigs that were in use on March 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 March 24th, the second column shows the change in the number of working rigs between last week’s count (March 17th) and this week’s (March 24th) count, the third column shows last week’s March 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 18th of March, 2022...
we'll start by checking the Rigs by State file at Baker Hughes for the changes in the Texas Permian...there we find that there were two rigs added in Texas Oil District 8A, which overlies the northern part of the Permian Midland, but that a rig was pulled out of Texas Oil District 7C, which includes a couple counties in the easternmost Permian Midland...since the Texas Permian rig count was thus up by one rig while the national Permian count was up by 3, we can figure that the 2 rigs added in New Mexico were set up to drill in the western Permian Delaware, in the southeast corner of that state....oddly enough, those were the only changes Texas this week, after the state saw 19 rig additions and 14 rig removals last week..
in other states, Oklahoma saw oil rig removals from the Granite Wash basin near the Texas panhandle and from the Mississippian shale along the Kansas border, while a natural gas rig was added in the Cana Woodford in the first natural gas drilling in that basin since September 2019...in Colorado, meanwhile, there was an oil rig added in the DJ Niobrara chalk of the Rockies front range, while in Louisiana, there was an oil rig added in the state's offshore waters...there were also a few changes that aren't evident in the tables above; a natural gas rig was pulled out of a basin that Baker Hughes doesn't track, while there was an oil rig added in a basin that Baker Hughes doesn't track; since there is no imbalance in the changes elsewhere, it's likely those offset each other in the same basin...
DUC well report for February
Monday of last week saw the release of the EIA's Drilling Productivity Report for March, which included the EIA's February 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 consecutive month, following 29 consecutive decreases, as both well completions and drilling of new wells decreased in February, 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 21 wells, rising from a revised 4,752 DUC wells in December to 4,773 DUC wells in February, which was still 6.5% fewer DUCs than the 5,105 wells that had been drilled but remained uncompleted as of the end of February of a year ago...this month's DUC increase occurred as 992 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during February, down by 15 from the 1,007 wells that were drilled in January, while 971 wells were completed and brought into production by fracking them, down by 1 from the 972 well completions seen in January, but up by 195 from the 776 completions seen in February of last year....at the February completion rate, the 4,773 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, statistically unchanged from the DUC well backlog of a month ago, but up 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 February, and only one basin saw DUCs decrease....the number of uncompleted wells in the Niobrara chalk of the Rockies' front range increased by 10, rising from 641 at the end of January to 651 DUC wells at the end of February, as 115 wells were drilled into the Niobrara chalk during February, while 105 Niobrara wells were completed....at the same time, the number of uncompleted wells remaining in Oklahoma's Anadarko basin increased by 4, rising from 732 at the end of January to 736 DUC wells at the end of February, as 75 wells were drilled into the Anadarko basin during February, while 71 Anadarko wells were completed.... meanwhile, DUC wells in the Permian basin of west Texas and New Mexico increased by 2, from 1,042 DUC wells at the end of January to 1,044 DUCs at the end of February, as 435 new wells were drilled into the Permian basin during February, 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 580 by the end of February, as 80 wells were drilled into the Bakken during February, 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 8, from 434, DUC wells at the end of January to 426 DUCs at the end of February, as 114 wells were drilled in the Eagle Ford during February, while 122 of the 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 one well, from 662 DUCs at the end of January to 663 DUCs at the end of February, as 98 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 11, from 662 DUCs in January to 673 DUCs by the end of February, as 75 wells were drilled into the Haynesville during February, while just 64 of the already drilled Haynesville wells were fracked during the same period....thus, for the month of February, DUCs in the five major oil-producing basins tracked by this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by nine to 3,437 DUC wells, while the uncompleted well count in the major natural gas basins (the Marcellus, the Utica, and the Haynesville) was up by twelve to 1,336 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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