YIN YANG ZONE: largest draw from US oil supplies in 80 months; lowest May gasoline supplies since 2014; distillates supplies at 12 month low

Strategic Petroleum Reserve at a new 39½ year low after largest draw from US oil supplies since Labor Day 2016, lowest May gasoline supplies since 2014; distillates supplies at 12 month low

US oil prices finished higher for a second week following 4 straight weekly declines, on a big jump in gasoline demand and on the largest drawdown of commercial oil supplies since Thanksgiving…after rising 2.1% to $71.55 per barrel last week on hopes for a debt ceiling deal as Canadian oil supplies were reduced by widespread wildfires, the contract price for the benchmark US light sweet crude for June delivery fell 1% in Asian trading early Monday as continuing uncertainty about the safety of US public debt led oil traders to avoid risks, but rebounded Monday morning in New York after US House Speaker McCarthy said debt ceiling negotiations had been productive, and settled 44 cents higher at $71.99 a barrel as traders balanced concerns over supply disruptions in Canada and Iraq against the potential risk of U.S. defaulting on its debt, as trading in the June oil contract expired…with Tuesday's oil quotes referencing the contract price of the benchmark US crude for July delivery, which had risen 36 cents to $72.05 a barrel on Monday, oil traded higher in a narrow price range Tuesday, as the market waited for news on the debt ceiling negotiations, then rallied after the S&P Purchasing Managers' Index indicated that US business activity had expanded at the sharpest pace in over two years, and settled 86 cents higher at $72.91 a barrel as Saudi Arabia’s Energy Minister warned traders against betting on continued declines in oil prices...oil prices then extended those gains to about 2% in post-settlement trade Tuesday evening after figures from the American Petroleum Institute showed large draws from crude and gasoline supplies, leaving gasoline inventories at the lowest pre-Memorial Day levels since 2014...oil prices rose in Asian trade early on Wednesday, following estimates of a large U.S. inventory draw and the warning from the Saudi energy minister for short sellers, then extended those gains in New York trading after the EIA reported the largest crude draw since November and a big gasoline draw on rising demand, and continued to trend higher to settle with a gain of $1.43 at a three week high of $74.34 a barrel as demand for gasoline jumped to the second highest weekly rate so far this year…..however, oil prices fell in early Asian trading on Thursday after uncertainty that the United States would avoid a debt default weighed against the prospect of further OPEC+ production cuts, and then retraced nearly all of their gains of the first three days of this week in the New York session after Russia’s Deputy Prime Minister Alexander Novak said he did not believe additional OPEC+ cuts were likely, and settled down $2.51 at $71.83 a barrel on the day as a stronger US dollar fueled by positive US economic data and expectations for a Fed rate hike next month added to the downward momentum...but oil prices edged higher on a weaker dollar early Friday, as debt ceiling negotiations seemed to be entering the home stretch and fears of a US government shutdown subsided, and settled 84 cents higher $72.67 a barrel after the number of oil-targeted rigs in the United States decreased for the fourth consecutive week to the lowest level in a year….for the week, oil prices ended 1.6% higher, while the July oil contract, which had closed the prior week at $71.69 a barrel, finished 1.4% higher...

Meanwhile, US natural gas prices finished lower for just the second time in seven weeks, as weather driven demand was nowhere to be found…..after rising 14.1% to $2.592 per mmBTU last week on prospects for a production pullback and tighter supplies, the contract price of US natural gas for June delivery opened 10 cents lower on Monday as temperature forecasts for early June remained unsupportive, and tumbled throughout the morning before stabilizing and settling 18.5 cents lower at $2.400 per mmBTU, as traders took profits after the contract price had soared last week ..natural gas prices opened lower Tuesday and traded within three cents of $2.360 for the majority of the morning, as cooling demand remained elusive and production levels held strong, and settled the session 7.9 cents lower at $2.321 per mmBTU as exports from Canada increased with U.S. well output on track to hit a monthly record high...however, natural gas prices opened 5 cents higher and stabilized at that level for the duration of the session, as traders overlooked bearish weather forecasts and instead focused on the declining rig count, as prices settled 7.7 cents higher at $2.398 per mmBTU on warmer forecasts that should boost demand more than was previously expected through early June...natural gas prices opened a few cents lower on Thursday, but briefly jumped to an intraday high of $2.410 per mmBTU right after 10:30AM, after the natural gas storage report landed on the bullish side of expectations, but resumed its slide shortly thereafter to settle 9.1 cents lower at $2.307 per mmBTU on record U.S. output, rising Canadian exports and forecasts for milder U.S. weather and lower demand over the next two weeks than was previously expected....natural gas prices opened lower and tumbled throughout the Friday session, as listless demand and strong production levels kept prices in check, and settled down 12.6 cents at a three week low of $2.181 per mmBTU, on record U.S. output, rising Canadian exports and forecasts for milder U.S. weather and lower demand next week, as global gas prices collapsed and trading in the June contract expired, thus ending 15.9% lower for the week...

The EIA's natural gas storage report for the week ending May 19th indicated that the amount of working natural gas held in underground storage in the US increased by 96 billion cubic feet to 2,336 billion cubic feet by the end of the week, which left our natural gas supplies 529 billion cubic feet, or 29.3% above the 1,807 billion cubic feet that were in storage on May 19th of last year, and 340 billion cubic feet, or 17.0% more than the five-year average of 1,996 billion cubic feet of natural gas that were in storage as of the 19th of May over the most recent five years…note, however, that the oft quoted national average obscures the fact that gas supplies are still 37.4% below normal for this date in the West, while 32.2% and 27.6% above normal in both the East and Midwest regions of the country at the same time....the 96 billion cubic foot injection into US natural gas working storage for the cited week was less than the 100 billion cubic feet addition to supplies that was expected by industry analysts surveyed by Reuters, but it was more than the 87 billion cubic feet that were added to natural gas storage during the corresponding week of 2022, while it matched the average 96 billion cubic feet addition to natural gas storage that has been typical for the same Spring 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 May 19th showed that after a big drop in our oil imports, and an even bigger drop in new oil supplies that the EIA could not account for, we needed to pull oil out of our stored commercial crude supplies for the 6th time in 9 weeks, and for the 15th time in the past 39 weeks, even as oil continued to be released from our Strategic Petroleum Reserve .. Our imports of crude oil fel by an average of 1,010,000 barrels per day to 5,850,000 barrels per day, after rising by an average of 1,306,000 barrels per day the prior week, while our exports of crude oil rose by an average of 232,000 barrels per day to 4,549,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 1,301,000 barrels of oil per day during the week ending May 19th, 1,249,000 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 12,300,000 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 13,601,000 barrels per day during the May 19th reporting week…

Meanwhile, US oil refineries reported they were processing an average of 16,069,000 barrels of crude per day during the week ending May 19th, an average of 79,000 more barrels per day than the amount of oil that our refineries processed during the prior week, while over the same period the EIA’s surveys indicated that an average of 2,013,000 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 provided by the EIA for the week ending May 19th appear to indicate that our total working supply of oil from net imports, from oilfield production and from storage was 456,000 barrels per day less than what 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 [+456,000] 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 the week’s oil supply & demand figures that we have just transcribed….Moreover, since last week’s “unaccounted for crude oil” was at (+1,614,000) barrels per day, that means there was a 1,158,000 barrel per day difference between this week's oil 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 complete nonsense...However, since most oil traders treat these weekly EIA reports as accurate, and since these weekly figures therefore 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 reliable 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)

This week's 2,013,000 barrel per day decrease in our overall crude oil inventories was the largest in over 7 years, beating the often cited November 25, 2022 high by 16,000 barrels per day....it came as an average of 1,779,000 barrels per day were being pulled out of our commercially available stocks of crude oil, while 233,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve at the same time, the seventh straight draw on the SPR this year, wherein government owned oil is being sold into the domestic markets as part of an earlier budget balancing withdrawal mandated by congress, and as a result the 357,954,000 barrels of oil that still remain in our Strategic Petroleum Reserve is now the lowest since September 16th, 1983, or at a new 39 1/2 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 big SPR releases of last year. However, those Biden administration releases amounted to about 42% of what was left in the SPR when they took office, and that left us with what is now less than a 19 day supply of oil at the current consumption rate.

Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,166,000 barrels per day last week, which was 3.9% less than the 6,414,000 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 12,300,000 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 34,000 barrels per day higher at 438,000 barrels per day, but still added the same 400,000 barrels per day to the rounded national total as it did 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 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 91.7% of their capacity while using those 16,069,000 barrels of crude per day during the week ending May 19th, down from their 92.0% utilization rate during the prior week, but still a rate that's on the high side of normal for mid May... The 16,069,000 barrels per day of oil that were refined this week were 1.2% less than the 16,269,000 barrels of crude that were being processed daily during week ending May 20th of 2022, and 3.1% less than the 16,578,000 barrels that were being refined during the prepandemic week ending May 17th, 2019, when our refinery utilization rate was at 89.9%, close to normal for this time of year...

With the increase in the amount of oil being refined this week, the gasoline output from our refineries was much higher, increasing by 833,000 barrels per day to 10,315,000 barrels per day during the week ending May 19th, after our gasoline output had decreased by 341,000 barrels per day during the prior week. This week’s gasoline production was 9.5% more than the 9,423,000 barrels of gasoline that were being produced daily over the same week of last year, and 4.4% more than the gasoline production of 9,883,000 barrels per day during the prepandemic week ending May 17th, 2019. Meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 19,000 barrels per day to 4,856,000 barrels per day, after our distillates output had increased by 250,000 barrels per day during the prior week. Even with those increases, our distillates output was 5.3% less than the 5,147,000 barrels of distillates that were being produced daily during the week ending May 20th of 2022, and 6.4% less than the 5,206,000 barrels of distillates that were being produced daily during the week ending May 17th, 2019...

Even with this week's big increase in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the twelfth time in fourteen weeks, and for the 43rd time in 65 weeks, decreasing by 2,053,000 barrels to 216,277,000 barrels during the week ending May 19th, after our gasoline inventories had decreased by 1,381,000 barrels during the prior week. Our gasoline supplies fell by more this week despite the much higher production because the amount of gasoline supplied to US users rose by 529,000 barrels per day to 9,437,000 barrels per day, and because our imports of gasoline fell by 81,000 barrels per day to 763,000 barrels per day, while our exports of gasoline fell by 219,000 barrels per day to 711,000 barrels per day. After twelve gasoline inventory decreases over the past ourteen weeks, our gasoline supplies were 1.6% below last May 20th's gasoline inventories of 219,707,000 barrels, and about 8% below the five year average of our gasoline supplies for this time of the year…

Meanwhile, even with this week's increase in our distillates production, our supplies of distillate fuels decreased for the ninth time in eleven weeks, falling by 561,000 barrels to a twelve month low of 106,233,000 barrels during the week ending May 19th, after our distillates supplies had increased by 80,000 barrels during the prior week. Our distillates supplies fell this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 462,000 barrels per day to 4,198,000 barrels per day, even as our exports of distillates fell by 322,000 barrels per day to 914,000 barrels per day, and as our imports of distillates rose by 18,000 barrels per day to 156,000 barrels per day.... After 65 inventory withdrawals over the past one hundred and four weeks, our distillate supplies at the end of the week were 1.2% below the 106,921,000 barrels of distillates that we had in storage on May 20th of 2022, and are now about 18% below the five year average of our distillates inventories for this time of the year...

Finally, after the big drops in our oil imports and of our new oil supplies that the EIA could not account for, our commercial supplies of crude oil in storage fell for the 7th time in 22 weeks and for the 24th time in the past year, decreasing by 12,456,000 barrels over the week, from 467,624,000 barrels on May 12th to 455,168,000 barrels on May 19th, after our commercial crude supplies had increased by 5,040,000 barrels over the prior week. Even after several large oil supply increases in the weeks following the Christmas refinery freeze offs, our commercial crude oil inventories now 3% below the most recent five-year average of commercial oil supplies for this time of year, but are around 27% above the average of our available crude oil stocks as of the third weekend of May 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. After our commercial crude oil inventories had jumped to record highs during the Covid lockdowns of the Spring of 2020, then jumped again after February 2021's winter storm Uri froze off US Gulf Coast refining, but then fell in the wake of the Ukraine war, our commercial crude supplies as of this May 19th were 8.4% more than the 419,801,000 barrels of oil we had in commercial storage on May 20th of 2022, but were 6.0% less than the 484,349,000 barrels of oil that we still had in storage in the wake of winter storm Uri on May 21st of 2021, and now 14.8% less than the 534,422,000 barrels of oil we had in commercial storage after the pandemic effects took hold on May 22nd of 2020…

This Week's Rig Count

The number of drilling rigs active in the US decreased for the eleventh time in the past fifteen weeks during the week ending May 26th, and is now 10.3% below the prepandemic rig count, despite increasing ninety-nine times over the past 138 weeks... Baker Hughes reported that the total count of rotary rigs drilling in the US fell by 9 rigs to 711 rigs over the past week, which was 16 fewer rigs than the 727 rigs that were in use as of the May 27th report of 2022, and was also 1,218 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 fell by 5 to 570 oil rigs during the past week, after the number of rigs targeting oil had fallen by eleven rigs during the prior week, and there are now four fewer oil rigs active now than were running a year ago, as they amount to just 35.4% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and while they are now down 16.5% from the prepandemic oil rig count of 683….at the same time, the number of drilling rigs targeting natural gas bearing formations was down by four to 137 natural gas rigs, which was also down by 14 natural gas rigs from the 151 natural gas rigs that were drilling during the same week a year ago, and as they now amount to just 8.5% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….

In addition to those rigs specifically targeting oil and natural gas, Baker Hughes shows that four rigs they've labeled as "miscellaneous" are drilling this week: those include a directional rig drilling to between 10,000 and 15,000 feet into a formation in Beaver county Utah, 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 into a formation 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....Four such rigs operating at once is unusual; a year ago, there were two such "miscellaneous" rigs running...

The offshore rig count in the Gulf of Mexico was down by one to 20 rigs this week, with 18 of those rigs drilling for oil in Louisiana's offshore waters, and two drilling for oil in Texas waters; the rig that had been drilling for natural gas offshore from Vermilion, Louisiana, was shut down this week ....that Gulf rig count is still up by 5 from the 15 Gulf rigs running a year ago, when all 15 Gulf rigs were drilling for oil offshore from Louisiana…however, since there was a rig drilling offshore from Alaska during the same week a year ago, the national total of 20 rigs drilling offshore is up by 4 rigs from the national offshore count of 16 a year ago..

In addition to rigs running offshore, there are still two inland water based deployed this week...one is a vertical rig drilling for natural gas to between 10,000 and 15,000 feet on a lake in Jefferson Parish Louisiana, while the other is a directional rig drilling for oil at a depth of between 10,000 and 15,000 feet through an inland body of water 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 eight to 642 horizontal rigs this week, which was 24 fewer rigs than the 666 horizontal rigs that were in use in the US on May 27th of last year, and only 46.7% 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 2 at 19 vertical rigs this week, and those were down by 8 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 1 to 52 directional rigs this week, and those were up by 16 from the 36 directional rigs that were in use on May 27th 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 May 26th, the second column shows the change in the number of working rigs between last week’s count (May 19th) and this week’s (May 26th) count, the third column shows last week’s May 19th 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 27th of May, 2022...

the five rig drop in Oklahoma includes the two oil rigs that were pulled out of the Cana Woodford and three rigs which had been drilling in a basin o basins that Baker Hughes doesn't cover, most likely in some part of the Anadarko; the two rigs pulled out of Utah had been deployed in the Uintah basin, where all of Utah's drilling is taking place, but also a basin not tracked by Baker Hughes....in Louisiana, two natural gas rigs were pulled out of the Haynesville shale in the northwest quadrant of that state, and another natural gas that had been drilling offshore from Vermilion was also removed, while a land rig targeting a basin not tracked by Baker Hughes was added in the southern part of the state...there was also an oil rig removed from the DJ Niobrara chalk in Colorado, and an oil rig pulled off of Alaska's North Slope..meanwhile, the rig added in Wyoming was likely set up in one of the three active basins in that state not tracked by Baker Hughes..

next, in 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 8, which overlies the core Permian Delaware, but that a rig was added in Texas Oil District 7C, which includes the counties over the southern Permian Midland, and that four more rigs were added in Texas Oil District 8A, which includes the counties over the northern Permian Midland, while two rigs were pulled out of Texas Oil District 7C, which includes a county or two over the far eastern Permian Midland.....since those changes seem to indicate that the Texas Permian rig count was up by 2 while the national Permian count was up by 1, we can thus conclude the that rig pulled out of New Mexico had been drilling in the far western Permian Delaware in the southeast corner of that state...elsewhere in Texas, we find that a rig was added in Texas Oil District 1, which accounts for a natural gas rig addition in the Eagle Ford shale, that a rig was pulled out of Texas Oil District 5, which accounts for the oil rig removed from the Barnett shale, and that another rig was pulled out of Texas Oil District 6, which accounts for the third natural gas rig pulled from the Haynesville shale, while a rig was added in Texas Oil District 10, accounting for the oil rig addition in the Granite Wash basin..