new low oil prices and how they’re set, Ohio HB 422, Canada adds 144 rigs, & a gasoline glut, too..

as the price of oil has continued to fall over the past several weeks, i’ve been expecting and waiting for the price of oil to stabilize, maybe even rise a bit, such that the ongoing drop in the price of oil would at least stop making headlines…but once again, that was not to be this week, when the news from the market started with stories of oil hitting new 11 year lows on Monday, only to see those stories later eclipsed by headlines that oil prices had hit a 12 year low…after closing last week at $33.55 a barrel, US crude prices started falling right out of the gate on Monday, dropping well below last week’s lows to close at $31.41 at the end of the day….then on Tuesday, prices dropped below $30 a barrel for the first time since 2003, before recovering and closing at $30.44…US oil prices then inched up to $30.48 a barrel on Wednesday, even with EIA reports of rising production and inventories, and rose to $31.20 on Thursday, at which time it momentarily seemed that oil prices had found the bottom at $30 a barrel and were starting to stabilize…but word that sanctions would soon be lifted on Iran oil overwhelmed the markets on Friday, when oil crashed through $30 and closed at $29.43, a closing price for US oil not seen since November 2003…and those frackers who thought they’d be able to export themselves out of this hole by selling their oil at a higher prices overseas are out of luck, because the global price for oil was falling midweek even as US prices were steadying, after which the international benchmark Brent oil price fell 6.3% on Friday to close the week at $28.94 a barrel, 48 cents a barrel below the US price….

once again, we’ll include an oil price chart, this time for just the past three months, so you can see how dramatic the price drop has been over that span…the graph below, from the same NASDAQ site we’ve sourced graphs from previously, shows the New York Mercantile Exchange prices per barrel over the last 3 months for the February contract of the US benchmark oil, West Texas Intermediate (WTI), when it’s stored at or contracted to be delivered to the oil depot in Cushing Oklahoma….you can see that except for that midweek spurt, oil prices have been nothing but down since new year’s eve, when they closed at $37.04 a barrel…

January 16th, 2016 crude oil

while we’ve got that chart up, we’ll look at a few other things that it shows us…on the top, we have CLG 16 or CL 1, identifiers of the oil contract being traded, with CL the exchange symbol for us WTI oil and 1 being the first or front month contract, the contract price for which is typically quoted when the financial press talks about the price of oil; next to that, we have the trading volume: 899566, which is the number of contracts that changed hands on Friday, the most recent day on the chart…likewise, across the bottom, we have red and green bars for each trading day of the last 3 months, which graphically show the number of contracts that traded each day, with red indicating trading on a day when the price for this oil contract was down, and green representing trading on a day when the price for this oil contract was up, as indicated by 1000000 and 2000000 on the margin, indicating trading volume of 1 million or 2 million contracts…now, here’s the thing; each of those contracts represents the a trade of 1000 barrels of oil, meaning that on Friday, when 899,566 contracts changed hands, the rights to 899,566,000 barrels of oil were traded; similarly, when 1,289,527 contracts changed hands on Thursday,1,289,527,000 barrels of oil were traded…hence, since nearly 6 million contracts for February oil were traded at the NYMEX this week, that represents net trades of electronic contracts that had claim to 6 billion barrels of oil…that sounds like a lot of oil, and it is; if you’ve been paying close attention to the EIA stats we review most every week, total US oil production has been running at about 9.2 million barrels per day; that means daily oil trading for just this one oil contract in New York has been more than 100 times the amount of oil we produce daily over the past week…likewise, the amount of oil that we’ve had stored at Cushing and various other depots around the country has been running between 450 million and 480 million barrels over the past several months; that means daily oil trading for just this one contract in New York has typically been for more than twice the quantity of oil that exists anywhere above ground in the entire country…but while one contract may be swapped electronically several times a day, no physical oil ever changes hands in this strictly financial market, which is where oil prices are actually set; when a fracker starts to drill, he’ll typically hedge by selling his future output through such an exchange, just as the price the refinery pays for oil is set by this market…and this is just one contract at one main exchange; there are dozens of less active contracts and less active exchanges, including those in Europe, where similar volumes of oil contracts are traded….so whatever we might say about the oil companies, they are at least getting their hands dirty while making a living off of the dirty oil products we use; at the same time, there are these other bottom feeders at market monitors in New York who do nothing but swap electronic oil, who nonetheless still manage to get very rich between the time the oil comes out of the ground and the time it’s delivered to a refinery to make the products that we use…

Ohio House Bill 422

on January 7th, Democratic State Representatives John Patterson of Jefferson, Michael O’Brien of Warren, and Sean O’Brien of Bazetta in Trumbull County introduced Ohio House Bill 422 a bill to require recording and notification of leases for injection wells, to revise the procedures and requirements governing permits for such wells and to establish an additional fees and requirements governing ground water monitoring related to such injection wells….i first heard about this bill when an article from the Star Beacon crossed one of my feed readers on Friday, and am looking into it for the first time today… the full text is embedded here and it’s 44 pages of cross-referenced sections and referrals to other parts of the Ohio revised code they’re apparently attempting to amend, a bit too much legalese for me to decipher, so for now we’ll have to make due with what i’ve read about it in a few articles from small town Ohio newspaper sites…in addition to the regulations put forth in the summary, this bill includes a ban on any future long term storage of brine or oil waste in tanks underground; that’s apparently in response to the spill of over 2000 gallons of waste oil into a wetlands in Vienna township, near the intersection of Route 82 and Route 11, this spring; recall that waste leaked from a tank all winter and was not discovered until the snow melted, when a neighbor’s pond full of dead fish, turtles and muskrats was exposed….another provision would mandate GPS devices on all brine trucks; this is in order to monitor the brine waste from cradle to grave, from where it’s produced to where it’s injected, and thus to prevent diversions of it like we saw when Lupo was dumping his drilling waste into a tributary of the Mahoning River in order to save on injection tipping fees…this bill also calls for a 2,000 foot minimum set back requirement for putting an injection well near a residential dwelling, and real time monitoring of seismic activity at such well sites so the ODNR can stop injection at the first signs of earthquakes, before they become large enough to cause damage…so this bill seems to include a number of common sense measures currently missing from fracking friendly Ohio law…but how they figure on getting it through a GOP legislature that is so beholden to oil interests they won’t even pass Kasich’s small oil & gas severance tax is beyond me…

This Week’s US and Canadian Rig Counts

you’d never know that oil was trading at half the price most frackers need to break even looking at this week’s rig count data from Baker Hughes…despite the fact that US and international oil prices that have been below $37 a barrel since the beginning of the year, only one of the rigs that was drilling for oil last week was removed this week; as of January 15th, there were still 515 rigs drilling for oil in the US, down from 516 last week, while there remained 135 rigs drilling for natural gas, down 13 from a week ago…that left a total of 650 rigs active going into this weekend, down from 664 rigs working last weekend, and down from 1676 rigs as of January 16th last year, when there were 1366 oil rigs and 310 gas rigs deployed…oil rigs had hit their fracking era high at 1609 on October 10, 2014, while the recent high for gas drilling rigs was the 356 that were deployed on November 11th of that same year… 

and while it may look like American frackers are simply a few cards short of a full deck, Canadian drillers appear to be dumber than a frozen mukluk, cause they added a total 69 rigs this week, after adding 83 rigs last week…the Canadians now have 227 rigs deployed, up from just 83 as of December 31st, with their oil rigs up by 98 to 110 over the past two weeks and their gas rigs up 46 to 117…the price of heavy Canadian oil goes from $80 a barrel in 2014 to as low as $8.35 a barrel on Tuesday of this week and they add over 150 rigs?  help me…

back in the US, one of the rigs pulled out this week had been drilling in the Gulf of Mexico, as was one that had been working on an inland lake in southern Louisiana…the Gulf now has 26 rigs, down from 53 a year ago, while only one rig remains on inland waters, down from 12 last year at this time…a net 8 of the 14 rigs removed were designed for horizontal drilling, leaving the count of horizontal rigs down at 511, which was down from the 1253 horizontal rigs that were in use the same week last year….4 vertical drilling rigs were also taken out of service, leaving 77, down from the 270 vertical rigs that were deployed last year at this time…and 2 directional rigs were also removed, leaving 62, down from the 153 directional rigs in use a year ago…

of the major shale basins, the Permian of west Texas took the biggest hit, as 7 rigs were removed from that basin, leaving 202 still active, down from last year’s 487…both the DJ-Niobrara chalk of the Rockies front range and the Eagle Ford of south Texas had three rigs shut down; for the Niobrara, that left 19, down from 54 a year ago, while 68 remained in the Eagle Ford, down from 185 last year at this time…two more rigs were pulled out of the Williston in North Dakota, which now has 47, down from 165 a year ago, while both the Utica of Ohio and the Barnett of the Dallas area of Texas saw single rig reductions…the Utica now has 13 rigs remaining, down from 49 a year earlier, while the Barnett has 5 left, down from 25 rigs as of the 16th of January last year…basins seeing rigs increase included the Granite Wash of the Oklahoma-Texas panhandle region, which added 2 rigs; they’re now back up to 14, but still down from 43 a year ago…three basins saw additions of a single rig: the Cana Woodford of Oklahoma, the Mississippian centered in southwest Kansas, and the Marcellus of the northern Appalachian region; the Cana Woodford now has 37 rigs, down from last year’s 41, the Mississippian has 12 rigs active, down from last year’s 68, and the Marcellus has 38 rigs, still down from 75 in the same week of 2015….

the Baker Hughes state count tables show that Texas had 301 rigs still working, 7 fewer than last week and down from 766 in the same week last year; Louisiana saw 5 rigs removed this week, leaving 54, down from 107 a year ago…New Mexico, North Dakota, Illinois and Colorado each had two of their working rigs stacked; that leaves New Mexico with 32 rigs, down from 92 last year, North Dakota with 47, down from 156 rigs a year earlier, leaves Illinois with no rigs working, down from 1 last year, and Colorado with 20 rigs, down from 64 on the same weekend of 2015…Ohio, Idaho and Wyoming were all down 1 rig; Ohio now has 13 rigs still drilling, down from 48 a year ago, Idaho now has none, and had none a year ago, while Wyoming has 15 rigs, down from 47 a year ago….states adding rigs this week include Oklahoma, where they added 4 and now have 87 actively drilling, still down from 201 a year earlier, and Alabama, California, Kansas, Pennsylvania, and Kentucky, who all added a single rig…Alabama now has 2 rigs working, down from 7 a year ago; California has 8, down from 18 rigs last year at this time, Kansas has 12, down from last year’s 24, Pennsylvania has 26 rigs still drilling, down from 51 a year ago, and Kentucky has just the rig they added this week, their first in a while, but unchanged from the solitary Kentucky drilling rig that was working on January 16th of last year…

This Week’s Oil Stats from the EIA

this week’s reports from the US Energy Information Administration showed yet another small increase in our production of crude oil, a large jump in our oil imports, and a modest drop in refining of that crude, ending the week with a small increase in crude in storage and large increase in the amount of refined products that were neither consumed or exported and thus had to be added to our stored surplus…our field production of crude oil increased by 8,000 barrels per day to 9,227,000 barrels per day in the week ending January 8th, up from 9,219,000 barrels per day during the week ending January 1st, and our highest output in any week since the 3rd week of August…that’s now the 5th week in row that we’ve seen our oil output increase, and US oil wells are now producing more than 100,000 barrels per day, or 1.2% more than the 9,121,000 barrels per day average they produced during September, despite drop in rigs and the fact that most recently completed horizontal wells are not even being fracked due to low oil prices

meanwhile, our imports of crude oil increased by 678,000 barrels per day from last week to 8,188,000 barrels per day during the week ending January 8th, up from 7,510,000 barrels per day during the week ending January 1st….that’s 9.3% more than the 7,492,000 we imported in the same week of January last year, and marks the 3rd time in the last 6 weeks that our imports have topped the 8 million barrel per day level, a mark which had only been hit on 4 prior occasions since October 2013…since imports are notoriously volatile week to week, the EIA’s weekly Petroleum Status Report (62 pp pdf) reports a four-week moving average of oil imports, which indicates our crude oil imports averaged over 7.7 million barrels per day over the last 4 weeks, 4.1% above the same four-week period last year… 

at the same time, the amount of that crude used by our refineries fell by 194,000 barrels per day to an average of 16,423,000 barrels per day during the week ending January 8th, as the US refinery utilization rate fell to 91.2%, down from 92.5% last week and down from a utilization rate as high as 94.5% at the end of November, as they’re in a normal seasonal slowdown…however, they still managed to process 3.3% more crude this week than the 15,893,000 barrels per day they used the same week a year ago, when the refinery utilization rate was 91.0%….however, even with less crude input than last week, refinery production of gasoline rose from 8,766,000 barrels per day during the week ending January 1st to 8,820,000 barrels per day in the week ending January 8th….at the same time, refinery production of distillate fuels (diesel fuel and heat oil) decreased by 216,000 barrels per day from the week ending the 1st to 4,760,000 barrels per day in the week ending January 8th…but for both gasoline and distillates, that production was more than we could use or export, as our end of the week gasoline in storage rose by 8,438,000 barrels to 240,434,000 barrels, which when combined with the 10,576,000 barrels of surplus gasoline we had to store last week made for the largest two week increase in gasoline inventories on record…while that  240,434,000 barrels of gasoline was only a fraction more than the 240,334,000 barrels we had stored on January 9th last year, last year’s inventories set a record for the most gasoline stored at the 2nd weekend in January, which we have now broken…and while they didn’t set a record, our distillate fuel inventories also increased, rising by 6,136,000 barrels to 165,554,000 barrels, up 3.8% from the 159,418,000 barrels we had stored on January 1st…that was 18.4% more than the 139,851,000 barrels of distillates we had stored last January 9th, putting current distillate fuel supplies above the upper limit of the average range for this time of year…

even with this week’s big jump in imports, however, the EIA says our stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, barely rose at all, increasing by just 234,000 barrels to 482,558,000 barrels as of January 8th, up from 482,324,000 barrels on January 1st…as we’ve noted before when there was such a large discrepancy between oil supplied and oil used, these totals left the “adjustment” on line 13 of the U.S. Petroleum Balance Sheet for the Week Ending 1/8/2016, which is Table 1 in the EIA’s weekly Petroleum Status Report (pdf), at -459,000 barrels of oil per day, barrels of oil that were unaccounted for, which is the largest we’ve seen yet, and which we rather suspect will show up in storage someplace over the next few weeks….nonetheless, the 482,558,000 barrels we have stored as of this report is still 24.4% higher than the 387,782,000 barrels we had stored the same week last year (when, btw, we had an adjustment of +369,000 barrels per day, ie, more than we should have had), and obviously the most we had stored any time in January in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before last year… 

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