oil bounces off 13 year low, the coming Chesapeake bankruptcy, another record for gasoline stores, et al

it was yet another volatile week for oil prices, as the price swings we saw last week continued in heavy trading that saw an average of 1.5 million thousand barrel contracts change hands daily on the New York Mercantile Exchange (NYMEX) alone…after closing last Friday at $30.89 a barrel, March contract prices for the benchmark US crude fell to close at $29.69 a barrel on Monday and $27.94 a barrel on Tuesday under a barrage of stories that we were running out of space to store all the oil we’ve been producing and importing; even BP warned that “Every Oil Storage Tank Will Be Full In A Few Months”, which would imply that producers would be forced to either shut down production or bid down prices to get someone to take what they’d produced (three weeks ago, prices for one grade of Dakota crude went negative, meaning the producer would have to pay to have it hauled away)…selling pressure became even more pronounced Wednesday, when the story broke that Phillips 66, the nations fourth largest oil refiner, was forced to pay $2.50 and $2.75 a barrel to delay delivery of oil that they had contracted for, unusual in that such a “forward roll” of contract dates usually takes place when trading for the contract expires, which in this case was three weeks ago, meaning that Phillips must have had been unable to move product as fast as they had anticipated then…that news, plus EIA reports of large increases in both gasoline and distillates surpluses, drove oil prices down to a $27.45 a barrel close on Wednesday and then to a 13 year low of $26.21 a barrel on Thursday…but on Friday, the rumors that OPEC, Russia, and other large producers might cut a deal to reduce production resurfaced, and crude prices jumped 12.3% in their largest one day increase since February 2009, closing the week at $29.44 a barrel…obviously it hasn’t been lost on Russian and OPEC energy officials that all they need to do to move oil prices is to talk about a deal, even if the principle parties are unwilling to meet..

instead of our regular long term chart, which really doesn’t show us much more than an extended downward slope in oil prices, today we’ll include a chart below that shows the hourly prices that oil traded at over the past two weeks: 

February 13 2016 60 minute oil prices

the above graph comes from FXCM, a “provider of online foreign exchange (forex) trading, CFD trading, spread betting and related services” and it shows the prices that US WTI crude exchanged at through their online exchange, every hour, 24 hours a day, over the past two weeks…since they’re providing the trading service, the prices aren’t to the penny the same as those seen at the NYMEX, but they track them pretty closely (otherwise traders would play one exchange against the other), and they also trade oil after the regular exchanges are closed…in this candlestick style graph, there’s a bar for every hour over the past two weeks, and each bar shows the price of oil at the start and end of the hour indicated; when the price of oil went down in the given hour, the bar is red, and when the price closed higher at the end of the hour, the bar is green…most of these red and green “candlesticks” also have light grey “wicks” on either end, which represent the range of prices outside of the beginning and ending price that oil traded at over that one hour period…thus we can see that oil traded as low at $26.02 a barrel in the 2 PM hour on Thursday of this week, and as high as $33.55 a barrel after 9 AM on Thursday of last week (if you go to the original chart, it’s interactive and shows the time and price, and the blue button with the arrow in it will launch a full screen popout)…of the ten trading days shown above, only two saw the price of oil rise; Wednesday of last week, when we saw the unwinding of a $600 million triple short that forced covered buying, and Friday of this week, when the OPEC Russia deal rumors brought out the bargain hunters…but if you take a close look at that chart, you can see that even on Friday, after the regular markets has closed with oil at $29.44 a barrel, oil traded lower and ended at $29.06 on this online electronic exchange…

Chesapeake Energy headed for bankruptcy

one piece of news of particular interest to us here in Ohio this week is that Chesapeake Energy, the 2nd largest US natural gas producer and operator of more than half of Ohio’s wells, leasing more than a million acres of the Utica, is likely headed for bankruptcy…on Monday, news broke that they had retained restructuring and bankruptcy attorneys Kirkland and Ellis, leading to a 50% collapse in their already low share price…of course, Chesapeake denied the bankruptcy rumors, saying something to the effect that Kirkland & Ellis & they were just old buddies and they were just getting together for an afternoon tea party, but it’s clear the market didn’t believe them…by Wednesday their bonds maturing March 15, 2016 were trading at 80 cents on the dollar, meaning that they would be paying 299% to maturity if they were honored, so it looks like no one expects them to survive as a going concern past that date…if they file for bankruptcy, they wont be the first fracker to do so, but they may be the largest; at least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, and five more energy producers went bankrupt in the first five weeks of this year, but the best i can tell is that Samson Resources, who filed for Chapter 11 protection on September 16, was the largest energy bankruptcy so far, and at the time of their filing their revenues had been cut in half, to $53 million in the first three months of 2015….Chesapeake, by comparison, last reported third quarter revenues of $2.89 billion…Chesapeake is expected to report 4th quarter results next Wednesday, so we should know more then; by then we’ll also have the results for a host of other frackers, so we should be able to take a look at the prospects for survival of the lot of them then…

The Latest Oil Stats from the EIA

due to a rather large one week drop in our imports of crude, we didn’t see another record for oil inventories this week, but despite the fact that refineries are on a reduced winter schedule, inventories of both gasoline and distillates saw rather large increases, with gasoline stores once again at a new record high…to start with, Energy Information Administration data showed our field production of crude oil fell by 28,000 barrels per day, from 9,214,000 barrels per day during the week ending January 29th, to 9,186,000 barrels per day during the week ending February 5th, which was our lowest production since the week ending in Christmas, and only the first time US crude production fell below year ago levels this year, even though oilfield drilling activity has dropped 70% over the same period…while that’s the lowest production we’ve seen this year, it’s still above our output of any week during September and October, when we believed that oil production turning down…to give you a picture of how our oil production has only slowly pulled back, we’ll include a few graphs of our long term and recent oil production history:

February 13 2016 crude production history

the first graph above, taken from the Weekly US Field Production page at the EIA, shows our crude oil production in thousands of barrels per day weekly over the past 21 years (the original graph is interactive and covers 35 years)…you can see how our conventional oil production gradually decreased in the years prior to 2008 despite high prices, as the old oil fields we were relying on at the time were gradually depleted, and then how our domestic oil production rose from around 5 million barrels per day to top 9 million barrels per day in November of 2014, a level which it has held since…now since the changes in our output over the past weeks arent very apparent on such a long term graph, we’ll next include a graph of our crude oil production over the past year:

February 13 2016 crude production

the above graph is from the Zero Hedge coverage of these same EIA reports and it shows in blue the weekly volume of our oil output from September 2014 to and through the current EIA report for the week ending February 5th…the red bars at the bottom correspond to the blue graph above and represent the weekly change in production, with bars pointing up representing an increase in oil output, and bars pointing down indicating a decrease….here we can more clearly see how our oil production climbed above 9 million barrels per day at the end of 2014, and showed no sign of slowing even as drilling began to be curtailed after the Thanksgiving 2014 OPEC meeting that maintained their production and sent oil prices crashing…our production hit 9,422,000 barrels per day by mid March, and first looked like it was on the way down when it fell to 9,262,000 barrels per day during the week ending May 15th, but recovered and went on to set a record with production at 9,610,000 barrels per day during the week ending June 5th…after July, our output fell quite abruptly and we believed at the time that the cutback in drilling was finally affecting output…but our output steadied above 9.096,000 barrels per day during September and October and inexplicably began to rise again going into the end of the year, hitting an interim high at 9,235,000 barrels per day during the week ending January 15th, before slowly falling to the current level of 9,186,000 barrels per day during the week ending February 5th…the red arrows above are to point out that this week’s production was at the lowest level since December 25th, and to note the magnitude of the decrease…

meanwhile, our crude oil imports, the other major source of our domestic crude supply, fell to an average of 7,124,000 barrels per day during the week ending February 5th, falling by 1,132,000 barrels per day from an average of 8,256,000 barrels per day during the week ending January 29th…while this week’s imports were 2.2% below the 7,286,000 barrels per day we were importing during the week ending February 6th last year, imports are too volatile on a weekly basis to get a good sense of the year over year change, so the weekly Petroleum Status Report (62 pp pdf) reports a 4 week moving average of imports, which showed our oil imports over the last 4 weeks have averaged 7.7 million barrels per day, 5.0% above the same four-week period last year…

in addition, refineries slowed down once again during the period, processing 15,510,000 barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the 15,615,000 barrels per day they were processing during the week ending January 30th, as the US refinery utilization rate fell to 86.1%, down from 86.6% last week and down from a refinery utilization rate as high as 94.5% at the end of November…that was the 6th consecutive weekly drop in refining this year, but we’re still within a half a percent of the 15,564,000 barrels per day we were processing the same week a year earlier (note that this report is for the week ending February 5th and hence does not include the problems with surplus crude oil that Phillips and at least one other refiner ran into on Wednesday this week) 

but even with less crude refined, our gasoline production surged by 911,000 barrels per day to 9,553,000 barrels per day during week ending February 5th, the most gasoline we’ve produced in any week this year and 9.7% more than the 8,708,000 barrel per day gasoline production of the week ending February 6th last year….meanwhile, our output of distillate fuels (ie, diesel fuel and heat oil) fell by 78,000 barrels per day to 4,357,000 barrels per day during week ending the 5th, which was also down by 349,000 barrels per day from the same week a year ago…with the outsized increase in gasoline production, our end of the week supply of gasoline in storage rose for the 13th week in a row, increasing from  254,399,000 barrels last week to 255,657,000 barrels as of February 5th…that is of course, another record for the amount of gasoline put into storage in the US and leaves our gasoline stockpiles 5.4% higher than the 242,647,000 barrels we had stored at the same time last year, which was at that time also a record for gasoline inventories…oddly, our distillate fuel inventories also rose, increasing by by 1,281,000 barrels to 160,976,000 barrels, when everyone was expecting them to continue dropping in the depth of winter…while not a record, that left our distillate inventories nearly 30 million barrels, or 22.7% higher than the same week last year, near the upper limit of their average range for this time of year…btw, the reduced demand for distillates led to a note from Barclay’s warning of a recession in the US which made the rounds this week, but i’d be more likely to attribute it to the weather..

finally, with the large drop in imports, there wasn’t so much surplus oil sloshing around the country as there was in previous weeks, and as a result our stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, fell for the first time this year, dropping by 754,000 barrels to  501,958,000 barrels on February 5th, down from the record high 502,712,000 barrels we had stored on January 30th…but other than that week, it’s only the 2nd week we’ve ever had more than a half billion barrels of oil in storage, and it’s still 20.1% more than the 417,928,000 barrels of oil we had stored in the same week last year, which at that time was itself an all time record for crude oil in storage…so this one week drop in stored oil is small potatoes in the greater scheme of the oil glut, as inventories typically build every week until the end of April, and we’re certainly still in a position to exceed our storage capacity, either at the central depot in Cushing, or nationally, before this late winter build up of crude oil plays out..

This Week’s Rig Counts

with the ongoing low prices, US energy exploitation companies shut down another 5.5% of their active drilling rigs this past week, following on the heels of last weeks cutback by a record 7.8%Baker Hughes reported that the total active rig count fell by 30 rigs to 514 as of February 12th, as their count of active oil rigs fell by 28 to 439 while their count of active gas rigs fell by 2 to 102…a year ago, there were a total of 1358 rigs deployed in the US, with 1056 drilling for oil, 300 drilling for gas, and 2 classified as miscellaneous, whatever that means…of course, by a year ago, the frackers had already started tearing out their rigs as oil & gas prices were collapsing; the total rig count peaked on September 26th of 2014, when 1931 rigs were drilling in the US, while oil rigs hit their fracking era high at 1609 working rigs on October 10, 2014, and the high for gas drilling rigs was the 356 gas rigs that were deployed a month later, on November 11th, 2014…

of the rigs pulled out this week, one of them was a offshore platform drilling in Texas waters in the Gulf of Mexico, so the Gulf rig count is now down to 25, and down from 50 in the Gulf and a total of 52 offshore a year ago…25 more horizontal rigs were stacked this week, after 29 were stacked last week, cutting the count of active horizontal rigs down to 433, which was down from the 1025 horizontal rigs that were deployed the same week last year, and down from the recent high of 1372 horizontal frackers that were drilling on November 21st of 2014….a net of 4 directional rigs were also pulled out, leaving 49, down from the 123 directional that were in use last February 13th…in addition, a single vertical rig was taken out of service, leaving 59 on February 12th, down from the 210 vertical rigs that were deployed a year earlier…

of the major shale basins, the large Permian basin of west Texas and eastern New Mexico saw the greatest reduction with 8 rigs pulled out, still leaving 172 rigs working there, which was still down from 368 rigs working in the Permian a year earlier…in addition, the Cana Woodford of Oklahoma, the DJ-Niobrara of the Rockies front range, and the Williston basin of North Dakota each saw 3 rigs pulled out and stacked; that left the Cana Woodford with 34, down from 43 a year earlier, the Niobrara with 18, down from 42 a year earlier, and the Williston with 39, down from 128 a year earlier….2 rigs were also removed from both the Eagle Ford of south Texas and the Marcellus of the northern Appalachians; that left the Eagle Ford with 58 rigs, down from 164 a year earlier, and the Marcellus with 29 rigs, down from 69 a year earlier…the Ardmore Woodford of Oklahoma also got rid of a rig, leaving 2, down from 6 rigs on February 13th of last year…

the state count tables show that Texas was lighter by 14 rigs, leaving 248 rigs remaining active in the state, down from 598 a year ago…both New Mexico and Oklahoma saw 4 rigs stacked; that left New Mexico with 22 rigs, down from 66 on the same weekend of 2015, and left Oklahoma with 76, down from 171 from a year earlier…North Dakota was down 3 rigs to 39, and down from 123 a year earlier, while Colorado, Pennsylvania, and Wyoming each saw 2 more rigs pulled out…that left Colorado with 20 rigs, down from the year ago 49, left Pennsylvania with 17 rigs, down from 54 rigs a year earlier, and left Wyoming with 11 rigs, down from 39 on February 13th of 2015…Kansas also saw a rig stacked this week; they now have 8 rigs, down from 18 a year ago…meanwhile, drillers in both California and Louisiana started an additional rig this week, even with oil prices below $30 and gas prices below $2 mmBTU…that brought the California count back up to 8, down from 16 last year, and brought Louisiana’s count back up to 47, still down from 108 a year earlier…

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