a 33 month high for oil imports, another all time high for oil supplies, & another all time low for drilling

the reality of the crude oil glut finally caught up with the oil price rally that had been driven by rumors of an OPEC meeting with Russia this week, as oil prices fell about 5% in their first weekly loss since mid-February, with almost the entirety of that drop occurring on Wednesday, after the EIA release of the weekly oil data, which showed a near record addition to our already record crude stockpiles…while US oil for April delivery had closed last week at $39.44 a barrel, last Friday was the last day of trading for that April contract, and hence all oil price quotes this week were for the higher priced May contract, which had closed last week at $41.14…last week’s rally for that new contract continued on Monday, which saw the now widely quoted price for US crude close at $ 41.52 a barrel…prices then slipped to close at $41.45 a barrel on Tuesday before crashing back to $39.79 a barrel on Wednesday, after the EIA report showed we added 9.4 million more barrels to our already record oil oversupply, more than triple what oil traders were expecting…US crude prices continued falling on Thursday, dropping below $38.40 a barrel on Thursday morning, before the release of the weekly rig count data from Baker Hughes showed another large drop in oil drilling activity, which drove the price back up to end Thursday and the trading week at $39.46 a barrel…

This Week’s EIA data, and a look at our oil production

this week’s big oil inventory increase was largely due to a jump in our imports of crude, which surged to a 33 month high, while while our refining was undergoing a modest slowdown….this week’s Energy Information Administration data indicated that our imports of crude oil rose to an average of 8,384,000 barrels per day during the week ending March 18th, the most oil we’ve imported in any week since the second week of July in 2013…those imports were 691,000 barrels per day higher than the average of 7,693,000 barrels per day we imported during the week ending March 11th and 13.4% more than the average of 7,392,000 barrels per day we were importing during the 3rd week of March last year…over the last 4 weeks, our oil imports have now averaged 8.1 million barrels per day, 11.6% more than we were importing during the same four-week period of last year…

at the same time, our field production of crude oil was averaging 9,038,000 barrels per day during the week ending March 18th, 30,000 barrels per day less than the 9,068,000 barrels per day we were producing domestically during the week ending March 11th…that’s now 4.1% lower than the 9,422,000 barrels per day we were producing during the week ending March 20th last year, and the lowest our oil production has been since the 2nd week of November in  2014, before the Thanksgiving OPEC meeting that set the oil price collapse in motion….still, our current production of over 9 million barrels per day is still almost double the 4.6 million barrel per day average that we saw during the last 4 months of 2008, before fracking production really kicked in…a couple graphs from the recent EIA blog posts published daily under the heading of “Today in Energy” helps put our current production of oil in perspective…the first one, below, comes from the EIA blog post titled “Wells drilled since start of 2014 provided nearly half of Lower 48 oil production in 2015“, which was published on Tuesday of this week..

March 26 2016 oil production by welll age

the bar graph above shows our average total crude oil production annually in millions of barrels per day since 2003, with the size of each bar graphically indicating that production…then, within each year-bar, the amount of each year’s production that came from new wells, under two years old, is indicated by the beige coloration,  the amount of that year’s production that came from 2 to 4 year old wells is indicated by the light brown coloration, and the amount of the given year’s production that came from wells older than four years is indicated by the dark brown…here we can see that an increasing percentage of our production has been coming from those newer wells each year, even as the production from older wells held steady…also note that the 2014 and 2015 production from wells two to four years old is considerably less than what those wells yielded when they were newer, ie, when those wells were in the beige portion of 2012 and 2013…the next graph we’ll look at, which comes from the EIA blog post titled “Hydraulic fracturing accounts for about half of current U.S. crude oil production“, published on March 15th, goes a long way to explain that…

March 26 2016 oil production from fracked and conventional wells

like the first graph, this graph shows our average total crude oil production annually in millions of barrels per day since 2000, with the size of each bar graphically indicating that production; however, instead of by age, each bar is divided into production from fracked wells, in light blue, and production from conventional wells, in dark blue…i’m sure no one is surprised that fracked wells accounted for very little of our production before 2008, and that such fracked wells accounted for more than half of our production in the year just ended…but reflect on that fact when remembering what we saw in the first graph, that recent production from wells two to four years old has been considerably less than what those wells were yielding when they were new…this aggregate data is clear evidence of the rapid depletion of oil wells drilled into shale and fracked, wherein they get that large burst of production during the first few months, but that fracked well production typically falls by 80% after two years have passed, and continues to fall annually from there..for a picture of that, we’ll include an old graphic from a report from the North.Dakota Dept of Resources (pdf), which shows the production over time from a typical well in the Bakken shale, which is still the most productive oil field in the US…it should be pretty obvious what the graph below says about the light blue portions of the graph above, and the future output of the new 2015 wells on the first graph when they’re two to four years old… 

returning to our synopsis of EIA data, even with this week’s large jump in crude oil imports, refining of that crude slowed for the 1st time in 5 weeks, as U.S. crude oil refinery inputs averaged 15,820,000 barrels per day during the week ending March 18th, down by 176,000 barrels per day from the prior week, as the US refinery utilization rate slipped to 88.4%, down from 89.0% during the week of March 11th, a slowdown not unexpected at this time of year, when some refineries are still switching over to summer blends…nonetheless, we still refined 1.9% more crude than the 15,530,000 barrels per day we refined during the week ending March 20th last year, even though we were using less than the 89.0% of refinery capacity that was in use a year ago..

with less oil being refined, our refinery production of gasoline fell by 332,000 barrels per day to 9,683,000 barrels per day during week ending March 18th, down from the seven month high of 10,015,000 barrels per day of gasoline output we saw during week ending the 11th…still, this week’s gasoline output was 7.3% higher than the 9,024,000 barrels per day of gasoline we were producing during week ending March 20th last year, which itself was already above the average range for gasoline production at this time of year…meanwhile, our refinery output of distillate fuels (ie, diesel fuel and heat oil) also fell slightly, decreasing by 39,000 barrels per day to 4,781,000 barrels per day during week ending the 11th, which was still 10,000 barrels per day higher than our distillates production during the same week of 2015…  

with the decrease in gasoline production, combined with a 301,000 barrel per day drop to 415,000 barrels per day in our gasoline imports, gasoline needed to be withdrawn from storage to meet the demand, even though that demand fell from 9,458,000 barrels per day during the week ending March 11th to 9,411,000 barrels per day in this reporting week, and thus we saw another drop of our gasoline stores, as our gasoline inventories fell by 4,642,000 barrels, from 249,716,000 barrels last week to 245,074,000 barrels as of March 18th…but this weeks stores were still 5.0% higher than the 233,386,000 barrels of gasoline that we had stored at the end of the same week last year, which were at the time the highest for that week since 1990, and thus our gasoline stores are still well above the average range of for the third week of March…however, our distillate fuel inventories rose despite lower production, increasing by 1,119,000 barrels to a total of 162,260,000 barrels as of March 18th, as the week saw an unseasonable 497,000 barrel per day drop in demand for distillates…with the ongoing warm winter, our stocks of distillates thus remained well above the upper limit of the average range for this time of year, measuring 28.9% greater than the 125,849,000 barrels of distillates we had stored during the same week last year..  

finally, after combining the large jump in imports with the downturn in refining, we once again ended the week with even more excess crude in the country than the record level that we had last week, as our total inventories of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, rose by 9,357,000 barrels, increasing from 523,178,000 barrels on March 11th to 532,535,000 barrels on March 18th…thus our glut of crude remained 14.1% higher than the then record glut of 466,678,000 barrels in the same week last year, and roughly 39.2% above the 382,471,000 barrels of oil we had stored at the end of the 3rd week of March two years ago, in what could be considered a more normal level of oil supplies for this time of year…we’ve now increased our inventories of crude oil by nearly 50.0 million barrels over the last 10 weeks, setting new records for the amount oil we had in storage in the US in each of the last six of them….below, we’ll include the most recent 20 years of the long term graph that accompanies the EIA data page for the Weekly U.S. Ending Stocks of Crude Oil, so you can see how this glut oil oil in storage has built up over the past year and a half…notice how our supplies started running up at the same time oil prices collapsed at the end of 2014, paused seasonally last summer as refineries were running at a record pace, and have since resumed their surge since the autumn of this past year:

March 23 2016 nventoriess of crude oil 2

This Week’s Rig Count

in addition to the record high in crude oil inventory, this week again saw another all time record low in drilling activity in the US, beating the record that we saw last week by better than two and a half percent…..Baker Hughes reported that their total count of active rigs drilling in the US fell by 12 to 464 as of March 25th, as rigs targeting oil fell by 15 to 372, while the natural gas rig count rose by 3 to 92, even though natural gas prices have been stuck below $2 per mmBTU for the past month and a half, due to the gas glut buildup after a mild winter….those net rig totals were down from the 813 oil rigs, 233 natural gas rigs, and 2 miscellaneous rigs that were in use a year earlier, and well off the records of 1609 working oil rigs set on October 10, 2014 and the recent gas rig record of 1,606 that was set on August 29th, 2008…  

nonetheless, there was still an oil platform that started drilling offshore from California this week, which brought the total number of rigs deployed offshore up to 28, with the other 27 of those in the Gulf of Mexico…meanwhile, a net of 10 horizontal rigs were removed nationally, leaving the count of horizontal rigs at 359, which was down from the 812 horizontal rigs that were in use on March 27th of 2015, and down from the recent record of 1372 horizontal rigs that were drilling on November 21st of 2014…at the same time, 5 vertical rigs were also stacked, leaving 53 still running, which was down from the 144 vertical rigs that were in use at the end of the same week a year earlier…on the other hand, a net of 3 directional rigs were added, bringing the directional rig count back up to 52, which was still down from the 92 directional rigs that were in use the same week last year…

of the major shale basins, the large Permian basin of west Texas and eastern New Mexico was down 5 rigs to 147, which was down from the 290 rigs working the Permian basin on March 27th last year…the Eagle Ford of southern Texas also got rid of four rigs, which left the Eagle Ford with 41 rigs, down from 137 a year earlier….in addition, the Cana Woodford of Oklahoma saw 3 rigs stacked, leaving 31, which was down from 40 last year at this time…then both the Ardmore Woodford, also in Oklahoma, and the Marcellus of the northern Appalachians, were both down by a single rig; that left the Ardmore Woodford with one rig remaining, down from 4 a year earlier, and left the Marcellus with 30 rigs, down from the 70 that were deployed there a year earlier…meanwhile, 2 rigs were added in the Barnett shale of the Dallas-Ft Worth area, where there are now 6 rigs working, the same as were working there a year earlier…

the state count tables showed that Texas had the largest net drilling decrease, as they saw 8 fewer rigs working this week than last and now have 209 rigs deployed, which is down from the 462 rigs that were working in Texas on March 27th last year…at the same time, 3 rigs were pulled out of Oklahoma, where 63 rigs remain, down from 133 a year earlier…2 rigs were also stacked in Alaska, where they now have 10, down from 12 last year at this time…meanwhile, Kansas, Pennsylvania, and Kentucky each saw one rig pulled out….that left Kansas with 7 rigs, down from 13 a year earlier, left Pennsylvania with 18 rigs, down from 51 a year earlier, and left Kentucky peaceful and quiet with no rigs drilling, down from the 2 rigs that were working in the Bluegrass state last year at this time…states adding rigs this week included Louisiana, where the addition of two rigs brought their count back up to 51, which was still down from 72 a year earlier, New Mexico, where 1 rig was added, which brought their count back up to 14, still down from 51 last March 27th, and Illinois, where the single rig they added is a lone driller, just like there was just 1 rig working in Illinois at the same time last year…

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