this week’s Ohio Supreme Court rulings, another record for refined products supplies, et al

before we start on the regular fracking patch news, we should take note of two rulings which were handed down by the Ohio Supreme Court this week that relate to fracking in Ohio….in the first, the Court ruled in favor of Secretary of State Jon Husted and against the citizen petitions to establish a charter form of county government that had been advanced by groups in Athens, Meigs and Portage counties, news of which we’ve been carrying as it developed over the past several months, wherein local election boards had ruled against the petitions, ultimately throwing the decisions to the Secretary of State…this was basically a replay of the rulings of last summer that we covered in two posts, wherein county charter government proposals in Athens, Fulton and Medina were ruled off the November 2015 ballot…

the second Supreme Court ruling involved, as best i can determine, 16 cases that had been brought in regards to the state’s Dormant Mineral Act, wherein the court ruled on three of those cases, while the remaining cases were disposed of based on the authority of those initial three decisions…to cut to the chase, the question being decided was who owns the mineral rights to a property, the surface land owner, or the mineral rights holder, after decades of extraction inactivity at the site…i gather that the Ohio Dormant Mineral Act, Ohio Revised Code § 5301.56, sets forth that ownership of mineral rights would transfer to the owner of the surface property after said mineral rights would deem to be abandoned…however, the court ruled that this transfer is not automatic, ie, that the surface owner must bring a quiet title action to obtain a judicial decree that a mineral interest has been abandoned, and otherwise, as in the cases being ruled on this week, the mineral rights holder would retain those long dormant rights…thus, in the lead case, Corban v. Chesapeake, the court found that an Ohio man who had inherited 164.5 acres in Harrison County could not prevent Chesapeake from drilling on his land, even though the property had been purchased by his family 57 year ago from a coal company, since that company had retained rights to the oil and gas deposits…thus, it would appear that all of those properties in our part of the state that have at one time had gas or drilling on them would be subject to fracking in the future, without any additional compensation the surface landowners…that would seem to include all the farms that had wells drilled on them in the gas boom of the mid-1980s, when everyone with a piece of land in this part of the county thought they were the reincarnation of J.R. Ewing, and that would be the case even if said farms have since been sold and been subsequently developed as residential properties…now, there are several links to this ruling here, including two from law journals, so i’d welcome anyone with a law background to further clarify what this ruling means for those who might own or who have purchased such a property in this part of the state, because eventually we’re going to want to know that…

in other news, oil prices fell more than 6% this week, despite two days that saw prices rise, as global oil glut concerns overwhelmed the impact of other news & rumors…after closing last week at $45.88 a barrel, oil prices rose nearly one percent on Monday, supported by a weaker dollar and a broad-based market rally, and closed up 41 cents at 46.29 a barrel…but oil prices fell steadily all day Tuesday, after OPEC raised its 2017 forecast of non-OPEC oil supplies and the Paris based International Energy Agency (IEA) published its September Oil Market Report, which forecast demand for oil would only grow 1.3 million barrels per day this year, or 100,000 barrels per day less than their prior estimate…after falling 3% on that news to close at $44.90 a barrel on Tuesday, oil prices then fell another 3% on Wednesday to close at $43.58 a barrel on news that oil shipments from both Libya and Nigeria would soon be resuming, exacerbating the oil glut…oil prices then rose roughly 0.8% to $43.91 on Thursday when gasoline prices rose 5.1% after a major rupture of the Colonial Pipeline, which transports 1.2 million barrels of gasoline a day from Texas to New Jersey, spilled the fuel near Birmingham Alabama, closing the pipeline and thus threatening gasoline supplies to 6 states…oil prices then resumed their slide on Friday after a report from Goldman Sachs forecast that crude would continue to trade within the $45-50 band over the next 12 months, and that any price increase above $50 was highly unlikely, comparing the current period to the 12 year stretch in the 1990s, when oil traded around $20 a barrel….oil prices thus closed the week at $43.03 a barrel, 6.2% lower than last Friday’s close..

The Latest Oil Stats from the EIA

this week’s oil stats for the week ending September 9th from the US Energy Information Administration indicated that our oil imports returned to recent levels after last week’s storm related interruptions, that refinery throughput eased from the near record levels of last week, and that a relatively small drawdown of crude oil inventories was more than offset by a six and a half million barrel increase in supplies of refined products…however, this week’s crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung back to +513,000 barrels per day, after last week’s -169,000 barrels per day, which meant that 513,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our production or import figures, meaning one or several of this week’s metrics were off by that amount… we’ve now seen a large positive adjustment in 11 out of the last 12 weeks, and as a result this year’s cumulative daily average of that weekly statistical adjustment has risen to a positive 101,000 barrels per day, a significant reversal of the negative adjustment we saw through the first 6 months of this year, when much of what we had appeared to have produced or imported wasn’t showing up in the final consumption or inventory figures…   

this week’s EIA data also showed that production of crude oil from US wells rose by 35,000 barrels per day to an average of 8,493,000 barrels per day during the week ending September 9th, as output of Alaskan oil rose by 30,000 barrels per day and production from the lower 48 states was 5,000 barrels per day higher, the second small increase in continental US production in a row….that still left the week’s domestic oil production 6.8% lower than the 9,117,000 barrels we produced during the week ending September 11th of last year, and 11.6% off the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year…our oil production for the week ending September 9th was also still 726,000 barrels per day lower than what we were producing at the beginning of this year…  

during the same week, the EIA reported that our imports of crude oil rose by an average of 993,000 barrels per day to an average of 8,062,000 barrels per day, 12.1% more than the 7,189,000 barrels of oil per day we imported during the week ending September 11th a year ago…the 4 week average of our oil imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) remained at an average of 10.2 million barrels per day, 10.1% higher than the same four-week period last year… at the same time our exports of crude oil fell by an average of 83,000 barrels per day to an average of 418,000 barrels per day during the week ending  September 9th, well down from the oil export record of 698,000 barrels per day we saw during the week ending August 26th…combined, that meant our net imports were 1,076,000 higher than last week…

meanwhile, the amount of crude oil used by US refineries fell by an average of 200,000 barrels per day to an average of 16,730,000 barrels of crude per day during the week ending September 9th, as the US refinery utilization rate fell to 92.9% for that week, down from 93.7% of capacity the prior week, and down from the refinery utilization rate of 93.1% logged during the week ending September 11th last year…refining on the glutted east coast fell by 54,000 barrels per day as the refinery utilization rate there fell back to 85.5% from last week’s 89.6%, while the Gulf coast refineries also took in 116,000 less barrels of crude per day than they did last week…nonetheless, the amount of crude refined this week nationally was still 1.3% more than the 16,513,000 barrels of crude per day US refineries used during the week ending September 11th last year, and 2.6% more than the equivalent week in 2014, as refining for “the summer driving season” now comes to a close with the passing of the labor day weekend …   

the 200,000 barrel per day drop in crude oil being refined, combined with the beginning of the seasonal switch in refinery processes, led to a 273,000 barrel per day drop in our refineries’ production of gasoline, which fell to 9,900,000 barrels per day during the week ending September 9th, the lowest gasoline output since the second week of June…still, that was 7.1% higher than our gasoline output of 9,247,000 barrels per day during the week ending September 11th last year, and 7.9% higher than the gasoline production of the equivalent week of 2014….at the same time, refinery output of distillate fuels (diesel fuel and heat oil) was also down, falling by 98,000 barrels per day to 4,933,000 barrels per day during the week ending September 9th….that left our distillates output 2.8% less than the 5,076,000 barrels per day that was being produced during the same week last year, but still a bit more than the 4,910,000 barrels per day of distillates production of the equivalent week of 2014…  

however, even with the slowdown in gasoline production, our gasoline inventories rose by 567,000 barrels to 228,360,000 barrels as of September 9th, as our gasoline imports rose by 43,000 barrels per day to 650,000 barrels per day and as our domestic demand for gasoline fell by 189,000 barrels per day to 9,406,000 barrels per day, confirming that driving really did tail off after Labor Day…that left this week’s gasoline inventories 5.0% higher than the 217,387,000 barrels of gasoline that we had stored on September 11th last year, and 8.4% higher than the 210,738,000 barrels of gasoline we had stored on September 12th of 2014…at the same time, our distillate fuel inventories rose by 4,619,000 barrels to 162,754,000 barrels by September 9th, which was the largest one week build of distillate inventories since January 8th of this year…that put our distillate inventories 5.7% above the distillate inventories of 153,963,000 barrels of September 11th last year, and 27.4% above the distillate inventories of 127,772,000 barrels of September 12th, 2014…  

end of the week inventories of most other major refined products were higher as well….our stockpiles of propane/propylene rose by 1,963,000 barrels to 98,51,000 barrels last week, which meant they were 3.5% above last year’s September 11th record high of 97,693,000 barrels, and 30.5% higher than the propane/propylene inventories of the same weekend in 2014…inventories of kerosene type jet fuel rose by 908,000 barrels to 42,749,000 barrels as of September 9th, 4.1% above our jet fuel stockpiles of 41,077,000 barrels on September 11th last year, and 10.8% higher than our 38,596,000 barrels of jet fuel supplies we had stored on September 12th of 2014…in addition, our stockpiles of residual fuel oils rose by 997,000 barrels to 40,583,000 barrels as of September 9th, up 4.1% from the 38,988,000 barrels we had stored a year earlier, and 11.3% higher than the 36,463,000 barrels of residual fuel oils we had stored on September 12th of 2014….and while inventories of NGPL (Natural Gas Plant Liquids) and LRG (Liquefied Refinery Gases) fell by 439,000 barrels to 150,681,000 barrels as of September 9th, they remained 14.0% higher than the 132,196,000 barrels we had stored as of September 11th last year, and 15.0% higher than the equivalent week in 2014…adding all the refined products together, we find that they rose by 6,571,000 barrels over the week ending September 9th, to another new record high, just as we’ve seen them do almost every week this year…

lastly, the expected rebound in our oil supplies after Hurricane Hermine curtailed last week’s East Coast and Gulf imports did not materialize, and therefore refineries and exporters found in necessary to withdraw 559,000 barrels of oil from our stockpiles of crude oil in storage to meet their needs, and hence our oil inventories as of September 9th fell to 510,798,000 barrels…but that was still 12.0% higher than the 455,894,000 barrels of oil we had stored as of September 11th, 2015, and 41.0% higher than the 362,271,000 barrels of oil we had stored on September 12th of 2014, so the two weeks of inventory drawdowns barely put a dent in our oversupply of crude…. 

This Week’s Rig Count

US drilling activity fell for the 3rd time in the past 16 weeks during the week ending September 16th, following the prior string of 39 weeks back to August 21, 2015 wherein the rig count had not risen at all…Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rigs to 506 rigs as of Friday, which was also down from the 842 rigs that were deployed as of the September 18th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014…the number of rigs drilling for oil rose by 3 rigs to 416 rigs this week, and they’re now up by 100 rigs since the May 27th nadir; however, that was still down from the 644 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…meanwhile, the count of drilling rigs targeting natural gas formations fell by 3 rigs to 89 rigs this week, which was also down from the 198 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…the week also saw the removal of 1 rig that was classified as miscellaneous, still leaving a single miscellaneous rig in play, still up from a year ago when there were no miscellaneous rigs deployed….  

two additional drilling platforms were deployed in the Gulf of Mexico this week, both of which were offshore from Louisiana…that bought the Gulf of Mexico and the total US offshore count up to 20 rigs, down from 29 rigs drilling in the Gulf and a total of 31 rigs working offshore nationally a year ago…at the same time, there was also a rig removed that had been drilling through an inland lake in southern Louisiana, which cut the inland waters rig count back to 4 rigs, which was down from 5 rigs on inland waters a year earlier…

the number of working horizontal drilling rigs fell by 2 rigs this week after rising by only 1 rig last week, which left the count of active horizontal rigs at 394 rigs, which was down from the 664 horizontal rigs that were in use on September 18th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count was unchanged at 64 rigs this week, which was down from the 119 vertical rigs that were drilling in the US during the same week last year, while the directional drilling rig count was also unchanged at 48 rigs, which was also down from the 83 directional rigs that were deployed during the same week last year…     

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes which shows those changes…the first table below shows weekly and annual rig count changes for the major producing states, and the second table shows weekly and annual 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 September 16th, the second column shows the change in the number of working rigs between last week (September 9th) and this week (September 16th), the third column shows last week’s September 9th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday in September a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week’s case was September 18th of 2015:      

September 16 2016 rig count summary

there’s really not much to see here this week, is there?  Oklahoma saw three rigs added, with one obviously in the Ardmore Woodford and another in the Cana Woodford, but those came after they had pulled out 4 rigs last week, which we suspected may have been in reaction to the record setting 5.8 earthquake they’d seen in that region the Saturday before…Louisiana was down two rigs despite the 2 additions in the Gulf, and we can account for part of that by the inland lake rig shutdown and the rig pulled out of the Haynesville, which also accounts for one of the gas directed rigs pulled out…we should also note that a single rig was also pulled out of Alabama, where 1 rig remains, and out of Idaho, where there are now none, which aren’t shown on the state table above…otherwise, there were 2 more rigs added in the Permian, which by itself accounts for 70 of the oil rigs that have been added since the end of April…thus, without the Permian, there wouldn’t be much of a drilling recovery to speak of at all…

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