US crude production highest in two years; oil drilling slows most since January, DUC wells at a record high

oil prices fell by more than 4% by midweek of the past week, but then recovered most of their earlier losses on Friday to end the week little changed…after sliding 1.4% to $48.82 a barrel last week on increased OPEC production, contract prices for WTI oil for September delivery fell 2.5% on Monday, the largest drop in 5 weeks, after Chinese refineries reported their lowest demand for oil in 3 years against the backdrop of rising crude output from OPEC and U.S. shale-oil producers, with oil prices settling at $47.59 a barrel, a loss of $1.23 on the day…oil prices then hit a three week low of $47.02 a barrel on Tuesday on ongoing demand concerns and strength in the US dollar, before recovering to settle little changed for the day at $47.55 a barrel…oil prices then tanked again on Wednesday, falling 1.6% to $46.78 a barrel by the close, largely on the EIA’s report that US crude production rose to the highest level in over two years, while traders ignoried that the same report showed the largest weekly decline in U.S. crude supplies since last September…prices ended their three session slide on Thursday, rising 31 cents to close at $47.09 a barrel, on expectations of a hefty draw of crude from the U.S. oil storage hub at Cushing, Oklahoma, where US light sweet crude prices are benchmarked from…while little changed on Friday morning, oil prices took off on Friday afternoon after Baker Hughes reported that US oil rig count dropped by 5 rigs, the largest drop in 7 months, with near panic buying of crude futures pushing oil for September delivery up $1.42, or more than 3%, to $48.51 per barrel, which noneheless still left it down 31 cents on the week, for the 3rd consecutive weekly decline…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending August 11th, showed a modest increase in our imports of crude oil, ongoing near-record amounts of crude oil being used by US refineries, and a large withdrawal of oil from our commercial stocks, with all the data called into question by a large swing in unaccounted for crude oil…our imports of crude oil rose by an average of 364,000 barrels per day to an average of 8,126,000 barrels per day during the week, while at the same time our exports of crude oil rose by 170,000 barrels per day to an average of 877,000 barrels per day, which meant that our effective imports netted out to 7,249,000 barrels per day during the week, 194,000 barrels per day more than during the prior week…at the same time, our field production of crude oil rose by 79,000 barrels per day to an average of 9,502,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,751,000 barrels per day during the cited week… 

during the same week, refineries used 17,565,000 barrels of crude per day, just 9,000 barrels per day less than they used during the prior record week, while at the same time 1,278,000 barrels of oil per day were being pulled out of oil storage facilities in the US…hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 464,000 more barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (-464,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as “unaccounted for crude oil”…that’s a swing of 638,000 barrels per day from the “unaccounted” +173,000 figure of last week, and hence that discrepancy underlies all of this week’s crude oil changes…

details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,046,000 barrels per day, which was still 4.7% below the imports of the same four-week period last year…the 1,278,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercial stocks of crude oil, since the amount of oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s 79,000 barrel per day increase in our crude oil production resulted from a 54,000 barrel per day increase in oil output from Alaska and a 25,000 barrels per day increase in oil output from wells in the lower 48 states…the 9,502,000 barrels of crude per day that were produced by US wells during the week ending August 11th was the most we’ve produced since July 2015, 8.3% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.5% more than the 8,597,000 barrel per day of oil we produced during the during the week ending August 12th a year ago, while oil output was still 1.1% below the June 5th 2015 record US oil production of 9,610,000 barrels per day… 

US oil refineries were operating at 96.1% of their capacity in using those 17,565,000 barrels of crude per day, which was down from 96.3% of capacity the prior week, which had been the highest refinery utilization rate in 12 years…the amount of oil refined this week was 4.7% more than the 16,865,000 barrels of crude per day.that were being processed during week ending August 12th, 2016, when refineries were operating at 93.5% of capacity, and roughly 11.9% above the 10 year average of 15.7 million barrels of crude refined per day at this time of year

even with oil refining little changed this week, gasoline production from our refineries decreased by 253,000 barrels per day to 10,048,000 barrels per day during the week ending August 11th, which left this week’s gasoline output 2.3% lower than the 10,280,000 barrels of gasoline that were being produced daily during the comparable week a year ago….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 18,000 barrels per day to 5,287,000 barrels per day, which was still 7.0% more than the 4,939,000 barrels per day of distillates that were being produced during the week ending August 12th last year….

in spite of the decrease in our gasoline production, our end of the week supply of gasoline increased by 22,000 barrels to 231,125,000 barrels by August 11th, the 2nd increase in gasoline inventories in 9 weeks…that was as our domestic consumption of gasoline fell by 275,000 barrels per day to 9,522,000 barrels per day, while other factors worked to reduce supplies; ie, our imports of gasoline fell by 441,000 barrels per day to 667,000 barrels per day, and our exports of gasoline rose by 216,000 barrels per day to 670,000 barrels per day…however, with significant gasoline supply withdrawals in 7 out of the last 9 weeks, our gasoline inventories are still 0.7% below last August 12th’s level of 232,659,000 barrels, even as they are still 8.6% higher than the 212,774,000 barrels of gasoline we had stored on August 14th of 2015, and almost 9% above the 10 year average for gasoline supplies for this time of the year

similarly, even with the decrease in our distillates production, our supplies of distillate fuels rose by 702,000 barrels to 148,387,000 barrels over the week ending August 11th…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 288,000 barrels per day to 4,222,000 barrels per day, and as our imports of distillates rose by 126,000 barrels per day to 167,000 barrels per day, even as our exports of distillates rose by 49,000 barrels per day to 1,132,000 barrels per day….even after this week’s increase, our distillate inventories were still 3.1% lower than the 153,135 ,000 barrels that we had stored on August 12th, 2016, and fractionally lower than the distillate inventories of 148,400,000 barrels of distillates that we had stored on August 14th of 2015, even as they remain roughly 5.7% above the 10 year average for distillates stocks for this time of the year

finally, in light of this week’s big swing in “unaccounted for crude oil”, our commercial crude oil inventories fell for the 17th time in the past 19 weeks, apparently decreasing by another 8,945,000 barrels to 466,492,000 barrels as of August 11th, leaving us with the least oil we’ve had in storage since january 22nd 2016…thus, our oil inventories as of August 11th were also 4.9% below the 490,461,000 barrels of oil we had stored on August 12th of 2016, even as they were still 9.9% more than the 424,442,000 barrels in of oil that were in storage on August 14th of 2015…compared to historical quantities of oil we’ve had in storage at the same time of year, before our oil glut began to build up, this week’s oil supplies were still  39.0% higher than the 335,568,000 barrels of oil we had in storage on August 15th of 2014, and about 40.3% above the 10 year average of our oil supplies for the second week of August … 

This Week’s Rig Count

US drilling activity decreased for the 5th time in 8 weeks during the week ending August 18th, following a string of 23 consecutive weekly increases earlier this year, as drilling for oil slowed while rigs drilling for natural gas inched higher….Baker Hughes reported that the total count of active rotary rigs running in the US fell by 3 rigs to 946 rigs in the week ending Friday, which was still 455 more rigs than the 491 rigs that were deployed as of the August 19th report in 2016, even though it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil decreased by five rigs to 763 rigs this week, the largest drop in oil rigs since January 13th, which still left oil rigs up by 357 oil rigs over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 182 rigs this week, which was also 99 more rigs than the 83 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, one rig that was classified as miscellaneous started drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count fell by one rig to 16 offshore rigs this week, which was down the 18 rigs that were working in the Gulf during the same week last year…in addition, the rig that had been drilling offshore from Alaska was also shut down, and thus the total US offshore rig count was down 2 to 16 rigs…

active horizontal drilling rigs fell by 2 rigs to 799 rigs this week, which left the horizontal rig count still up by 417 rigs from the 382 horizontal rigs that were in use in the US on August 19th of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the vertical rig count was down by 6 rigs to 66 vertical rigs this week, which was still up from the 64 vertical rigs that were deployed during the same week last year…meanwhile, the directional rig count was up by 5 rigs to 81 rigs this week, which was also up from the 45 directional rigs that were deployed on August 15th of 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 pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows 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 August 18th, the second column shows the change in the number of working rigs between last week’s count (August 11th) and this week’s (August 18th) count, the third column shows last week’s August 11th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 19th of August, 2016…    

August 18 2017 rig count summary

it’s odd to see a decrease in the Oklahoma rig count even as the Cana Woodford count is up by 4 and while the Ardmore Woodford also added a rig….that strongly suggests that the rig that was shut down in the Granite Wash was on the Oklahoma side of the Texas panhandle border, and that the two rigs that were idled in the Mississippian were similarly on the Oklahoma side of the Kansas border where that field lies…otherwise, changes in most other states match the basins; 2 rigs came out the Williston in North Dakota, and shutdown of 2 offshore platforms accounts for the rig count decreases in Alaska and Louisiana…meanwhile, the rig that was added in the Ardmore Woodford accounted for the natural gas addition; note that drilling in the 3 major natural gas basins, the Utica, the Marcellus, and the Haynesville, was unchanged from a week earlier…and there were also no changes in the number of rigs drilling in states other than those shown above..

DUC well report for July

Monday of this week saw the release of the EIA’s Drilling Productivity Report for August, which includes the EIA’s July data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins…commencing with Monday’s report, the EIA has begun coverage of drilling productivity and drilled but uncompleted wells (DUCs) in the Anadarko region, which includes 24 Oklahoma and 5 Texas counties, and, which, based on their mapping, would apparently include the STACK and SCOOP reservoirs in the Woodford shale, and the Granite Wash tight sands band transversing the Oklahoma – Texas Panhandle border….by adding this region, this report now covers 87% of all U.S. onshore drilling operations….at the same time, they have consolidated their reporting on the Utica shale and the Marcellus into a single geographic unit labeled the Appalachia region…their reason for doing this appears to be a rather simplistic state border consideration; as they explain: “With the increasing number of wells in Pennsylvania being drilled into the Utica formation and some wells in Ohio producing from the Marcellus shale, the previous regional definitions based on surface boundaries are becoming less meaningful, especially where the two plays overlap.”…as a result of this consolidation, the Appalachia region will refer to a wide geographical region that includes almost all of West Virginia, most of Pennsylvania, southeastern Ohio, and western New York..

after those changes, this report once again showed a large increase in uncompleted wells nationally, mostly because of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, but also because of proportional growth in uncompleted wells in the Eagle Ford of south Texas and the newly covered Anadarko region…for all 7 sedimentary basins covered by this report, the total count of DUC wells increased by 208, from 6,851 wells in June to 7059 wells in July, the ninth consecutive monthly increase in uncompleted wells, and, with the addition of the Anadarko, the highest number of such unfracked wells in the short history of this report….as we’ve seen from the weekly rig counts, US horizontal drilling expanded rapidly in the year thru June, more than doubling over that period, and as a result a shortage of competent fracking crews has developed, such that existing fracking crews have been unable to keep up with the number of newly drilled wells…moreover, the last month of trading for the July oil contract, which would govern prices received for oil produced during that month, saw prices average $46 a barrel, below the average breakeven price for most US basins, which probably discouraged any new production that hadn’t been contracted for at a better price earlier…

with the addition of the Anadarko, a total of 1,224 new wells were drilled in the 7 basins now covered by this report during July, but only 1,016 drilled wells were completed in the same areas, thus accounting for the 208 DUC well increase for the month….as has been the case all year, the July DUC increases were predominantly oil wells, with most of those in the Permian basin…the Permian saw its total count of uncompleted wells rise by 135, from 2,195 DUC wells in June to 2,330 DUCs in July, as 485 new wells were drilled into the Permian but only 350 wells in the region were fracked…at the same time, DUC wells in the Anadarko region rose by 42, from 906 DUC wells in June to 948 DUCs in July, as 162 wells were drilled in the Anadarko region in July but only 120 drilled wells were completed….similarly, DUCs in the Eagle Ford of south Texas rose by 42, from 1,385 DUC wells in June to 1,420 DUCs in July, as 180 wells were drilled in the Eagle Ford during July, while just 145 Eagle Ford wells were completed….in addition, DUC wells in the Niobrara chalk of the Rockies front range increased by 6 to 674, as 148 Niobrara wells were drilled but just 142 Niobrara wells were fracked, while the Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by 5 wells to 194, as 49 wells were drilled into the Haynesville, while 44 Haynesville wells were fracked during the same period…..on the other hand, the drilled but uncompleted well count in the Appalachian region fell by 13 wells, from 624 DUCs in June to 611 DUCs in July, as 71 wells were drilled into the Marcellus while 73 Marcellus were fracked, and as 29 new wells were drilled into the Utica during the month while 40 Utica wells were completed….the Utica now has just 43 DUC wells remaining, down from 126 DUC wells in January, so if the Utica frackers intend to keep Ohio gas production at their recent levels, more Utica wells would have to be drilled shortly….in the remaining region covered by this report, DUC wells in the Bakken of North Dakota decreased by 2 to 782, as 100 wells were drilled into the Bakken while 102 Bakken wells were fracked…thus, for the month of July, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 213 wells to 6,154 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 8 wells to 905 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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