exports of distillates at a 13 month high, lowest May gasoline supplies since 2014; biggest oil rig drop in three years

SPR at a new 39½ year low, exports of distillates at a 13 month high, lowest May gasoline supplies since 2014; biggest oil rig drop in three years

oil prices fell for the first time in three weeks on recessionary Chinese data and mixed messages from oil producers, but ​​partly recovered from steep losses early in the week after Congress passed a supportive debt ceiling bill....after rising 1.4% to $72.67 a barrel last week on a big jump in gasoline demand and on the largest drawdown of commercial oil supplies since Thanksgiving, the contract price for the benchmark US light sweet crude for July delivery eked out modest gains in overseas trading on Memorial day, after US leaders reached a tentative debt ceiling deal, likely averting a default​ of the world's largest economy and oil consumer, but then tumbled nearly 2% in overseas trading Tuesday, as concerns about the US debt ceiling pact​'s viability​ cooled the market's sentiment​, while mixed messages from major oil producers clouded the outlook ahead of their meeting this weekend...oil ​prices ​continued to slide after markets opened in New York, as physical market indicators for crude signaled that supplies were more than enough to meet demand, and settled the session $3.21 or 4.4% lower at $69.46 a barrel​,​ as traders began to lose faith that Congress would finalize the deal that would raise the debt ceiling and allow the US to meet its financial obligations....oil prices continued lower in Asian trading Wednesday, after a survey indicated that Chinese manufacturing slowed more than had been expected​,​ and were off by 3% in early US trading on the disappointing Chinese data and a stronger US dollar, amid concerns about opposition to the U.S debt ceiling deal, before partly recovering on progress on the debt ceiling bill, but still settied $1.37 lower at $68.09 a barrel....oil prices then extended those losses in evening trading after the American Petroleum Institute surprised traders with a report of a large crude supply build, against expectations of a large withdrawal, but rallied early Thursday on the passage of the debt ceiling bill in the US House late Wednesday night, and settled $2.01 higher at $70.10 a barrel, supported by hopes for a pause in U.S. interest rate increases after Fed officials had suggested interest rates could be held steady this month...oil prices moved higher in Asian trading Friday, as traders priced in the lifting of the US debt ceiling, then rallied in US trading after jobs data indicated a possible pause in rate hikes, and settled $1.64 higher at $71.74 a barrel after Baker Hughes reported the largest drop in oil rig activity since early June 2020, but still ended 1.3% lower on the week as traders awaited the outcome of a weekend meeting of OPEC and its allies, a meeting to which Bloomberg, Reuters and the Wall Street Journal were not invited..

Meanwhile, US natural gas prices finished lower for the third time in eight weeks following an oversized injection of gas into storage ​amid strong production and weak​ weather related​ demand...after falling 10.3% to $2.417 per mmBTU last week as the June gas contract tumbled 15.9% to expire at $2.181 per mmBTU, the contract price of US natural gas for July delivery opened 9 cents lower on Tuesday, as short-term weather forecasts remained bearish​,​ and settled 9.0 cents​ ​lower at $2.327 per mmBTU despite trading 12 cents higher midday on record output from US gas wells and on forecasts for milder weather over the next two weeks than had been expected...while natural gas prices opened 5 cents higher on Wednesday, that just served to start a steady descent that would span the balance of the session, driven lower by the ongoing storage glut and bearish weather forecasts to settle 6.1 cents lower at $2.266 per mmBTU on a decline in gas flows to LNG export plants due to maintenance, and on rising gas imports coming in from Canada....with traders expecting a bearish storage report, natural gas prices opened 7 cents lower on Thursday and tumbled to intraday low of $2.136 ​at 11:15AM​ after a storage report that was in line with bearish expectations before settling down 10.8 cents at $2.158 per mmBTU, driven lower by a robust inventory injection that reflected strong production and anemic demand...with support from bargain buying and technical trading, natural gas prices crept into positive territory on Friday and managed to hold there to settle 1.4 cents higher at $2.172 per mmBTU on record exports to Mexico and on forecasts for more demand over the next two weeks than was previously expected, but still finished 10.1% lower on the week amid ongoing unfavorable supply and demand fundamentals...

The EIA's natural gas storage report for the week ending May 26th indicated that the amount of working natural gas held in underground storage in the US increased by 110 billion cubic feet to 2,446 billion cubic feet by the end of the week, which left our natural gas supplies 557 billion cubic feet, or 29.5% above the 1,889 billion cubic feet that were in storage on May 26th of last year, and 349 billion cubic feet, or 16.6% more than the five-year average of 2,097 billion cubic feet of natural gas that were in storage as of the 26th of May over the most recent five years…note, however, that the oft​en ​​cited national average obscures the fact that gas supplies are still 34.6% below normal for this date in the ​Pacific states, while 30.8% and 26.3% above normal in both the East and Midwest regions of the country at the same time....the 110 billion cubic foot injection into US natural gas working storage for the cited week was more than the 106 billion cubic feet addition to supplies that was expected by industry analysts surveyed by Reuters, and it was much more than the 82 billion cubic feet that were added to natural gas storage during the corresponding week of 2022, as well as more than the average 101 billion cubic feet addition to natural gas storage that has been typical for the same May 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 26th showed that after a big jump in our oil imports, an even bigger jump in new oil supplies that the EIA could not account for, and an increase in the oil released from our Strategic Petroleum Reserve, we had surplus oil to add to our stored commercial crude supplies for the 4th time in ten weeks, and for the 25th time in the past 40 weeks, as oil also continued to be released​ to the markets​ from our Strategic Petroleum Reserve .. Our imports of crude oil rose by an average of 1,367,000 barrels per day to​ a four month high of ​​7,217,000 barrels per day, after falling by an average of 1,010,000 barrels per day the prior week, while our exports of crude oil rose by an average of 366,000 barrels per day to 4,915,000 barrels per day, which combined meant that the net of our trade in oil worked out to a net import average of 2,302,000 barrels of oil per day during the week ending May 26th, 1,001,000 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 lower at 12,200,000 barrels per day, and hence our daily supply of oil from the net of our international trade in oil and from domestic well production appears to have averaged a total of 14,502,000 barrels per day during the May 26th reporting week…

Meanwhile, US oil refineries reported they were processing an average of 16,165,000 barrels of crude per day during the week ending May 26th, an average of 96,000 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 281,000 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 May 26th appear to indicate that our total working supply of oil from net imports and from oilfield production was 1,945,000 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 [+1,945,000] 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 (+456,000) barrels per day, that means there was a 1,489,000 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 281,000 barrel per day increase in our overall crude oil inventories came as an average of 641,000 barrels per day were being added to our commercially available stocks of crude oil, while 360,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve at the same time, the eighth 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....as a result the 355,436,000 barrels of oil that still remain in our Strategic Petroleum Reserve is now the lowest since September 9th, 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 rose to an average of 6,370,000 barrels per day last week, which was 0.2% less than the 6,385,000 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  lower at 12,​200,000 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 lower at 11,800,000 barrels per day, while Alaska’s oil production was 20,000 barrels per day lower at 418,000 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 6.9% below that of our pre-pandemic production peak, but was 25.8% above the pandemic low of 9,700,000 barrels per day that US oil production had fallen to during the third week of February of 2021.

US oil refineries were operating at 93.1% of their capacity while using those 16,165,000 barrels of crude per day during the week ending May 26th, up from their 91.7% utilization rate during the prior week, and a utilization rate that's on the high side of normal for late May... The 16,165,000 barrels per day of oil that were refined this week were 0.8% more  than the 16,033,000 barrels of crude that were being processed daily during week ending May 27th of 2022, but 3.6% less than the 16,767,000 barrels that were being refined during the prepandemic week ending May 24th, 2019, when our refinery utilization rate was at 91.2%, close to normal for this time of year...

Even with the increase in the amount of oil being refined this week, the gasoline output from our refineries was ​somewhat lower, decreasing by 344,000 barrels per day to 9,971,000 barrels per day during the week ending May 26th, after our gasoline output had increased by 833,000 barrels per day during the prior week. This week’s gasoline production was still a bit more than the 9,968,000 barrels of gasoline that were being produced daily over the same week of last year, and 1.1% more than the gasoline production of 9,863,000 barrels per day during the prepandemic week ending May 24th, 2019. Meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 165,000 barrels per day to 5,040,000 barrels per day, after our distillates output had increased by 19,000 barrels per day during the prior week. With those increases, our distillates output was 1.1% more than the 4,984,000 barrels of distillates that were being produced daily during the week ending May 27th of 2022, but 2.7% less than the 5,182,000 barrels of distillates that were being produced daily during the week ending May 24th, 2019...

With this week's big decrease in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the thirteenth time in fifteen weeks, and for the 44th time in 66 weeks, decreasing by 207,000 barrels to 216,070,000 barrels during the week ending May 26th, after our gasoline inventories had decreased by 2,053,000 barrels during the prior week. Our gasoline supplies fell by much less this week despite the lower production because the amount of gasoline supplied to US users fell by 339,000 barrels per day to 9,098,000 barrels per day, and because our imports of gasoline rose by 70,000 barrels per day to 833,000 barrels per day, while our exports of gasoline rose by 240,000 barrels per day to 951,000 barrels per day. After thirteen gasoline inventory decreases over the past fifteen weeks, our gasoline supplies were 1.3% below last May 27th's gasoline inventories of 218,996,000 barrels, and about 8% below the five year average of our gasoline supplies for this time of the year…

Meanwhile, with this week's big increase in our distillates production, our supplies of distillate fuels increased for the third time in twelve weeks, rising by 985,000 barrels to 106,657,000 barrels during the week ending May 26th, after our distillates supplies had decreased by 561,000 barrels to a twelve month low during the prior week. Our distillates supplies also rose this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, decreased by 552,000 barrels per day to 3,646,000 barrels per day, even as our exports of distillates rose by 539,000 barrels per day to a 13 month high of 1,453,000 barrels per day, and as our imports of distillates rose by 43,000 barrels per day to 199,000 barrels per day.... Even after 65 inventory withdrawals over the past one hundred and five weeks, our distillate supplies at the end of the week were 0.2% above the 106,392,000 barrels of distillates that we had in storage on May 27th of 2022, but are still about 18% below the five year average of our distillates inventories for this time of the year...

Finally, after the big jumps in our oil imports and in our new oil supplies that the EIA could not account for, our commercial supplies of crude oil in storage rose for the 16th time in 23 weeks and for the 29th time in the past year, increasing by 4.489,000 barrels over the week, from 455,168,000 barrels on May 19th to 459,657,000 barrels on May 26th, after our commercial crude supplies had decreased by 12,456,000 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 2% below the most recent five-year average of commercial oil supplies for this time of year, but are around 28% above the average of our available crude oil stocks as of the last 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 26th were 10.8% more than the 414,733,000 barrels of oil we had in commercial storage on May 27th of 2022, but were 4.1% less than the 479,270,000 barrels of oil that we still had in storage in the wake of winter storm Uri on May 21st of 2021, and are now 13.7% less than the 532,345,000 barrels of oil we had in commercial storage on May 29th of 2020, after the pandemic restrictions had left a lot of oil unused…

This Week's Rig Count

The number of drilling rigs active in the US decreased for the twelfth time in the past sixteen weeks during the week ending June 2nd, and is now 12.2% below the prepandemic rig count, despite increasing ninety-nine times over the past 139 weeks... Baker Hughes reported that the total count of rotary rigs drilling in the US fell by 15 rigs to 696 rigs over the past week, which was 31 fewer rigs than the 727 rigs that were in use as of the June 3rd report of 2022, and was also 1,233 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 15 to 555 oil rigs during the past week, the biggest oil rig drop in three years, after the number of rigs targeting oil had fallen by five rigs during the prior week, leaving nineteen fewer oil rigs active now than were running a year ago, as they amount to just 34.4% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and while they are now down 18.7% from the prepandemic oil rig count of 683….at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 137 natural gas rigs, which was still 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 unchanged at  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 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…but 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 14 to 628 horizontal rigs this week, which was 38 fewer rigs than the 666 horizontal rigs that were in use in the US on June 3rd of last year, and only 45.7% 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 1 at 16 vertical rigs this week, and those were down by 9 from the 25 vertical rigs that were operating during the same week a year ago....meanwhile, the directional rig count was unchanged at 52 directional rigs this week, and those were up by 16 from the 36 directional rigs that were in use on June 3rd 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 June 2nd, the second column shows the change in the number of working rigs between last week’s count (May 26th) and this week’s (June 2nd) count, the third column shows last week’s May 26th 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 3rd of June, 2022...

we'll start by checking the Rigs by State file at Baker Hughes for the changes Texas...in the districts overlying the Eagle Ford shale, we find that a rig was pulled out of Texas Oil District 1, another rig was pulled out of Texas Oil District 2, and that two more rigs were pulled out of Texas Oil District 3....those removals account for ​the drop of two oil rigs in the Eagle Ford shale, and ​the removal of ​two more oil rigs from basins that Baker Hughes doesn't track....in the Texas Permian, we find that there was a rig pulled out of Texas Oil District 8A, which includes the counties overlying the northern Permian Midland, but that the rig counts in other Texas Permian districts were unchanged....since the Texas Permian rig count was thus down by one while the national Permian count was down by two, we can therefore conclude that the 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, there was a rig pulled out of Texas Oil District 6, which accounts for one of the natural gas rigs pulled from the Haynesville shale; the other Haynesville shale rig removal was from northwest Louisiana, where there was also an oil rig pulled out of a basin that Baker Hughes doesn't track in the southern tier of the state...despite the Haynesville shale removals, the natural gas rig count remained unchanged because two Permian basin oil rigs were swapped out and replaced by two Permian rigs targeting natural gas, leaving the area totals unchanged;....the Permian basin now has 5 natural gas rigs and 343 targeting oil still active...in Oklahoma, oil rigs were pulled out of the Ardmore Woodford and the Cana Woodford and from fa basin that Baker Hughes doesn't cover, while the two rigs pulled out of the Williston basin included one from North Dakota and one from Montana, which was the last rig that had been drilling in that state...

++

++

++

Note:  there’s more here..