US oil refining and distillates output at seasonal highs; largest drilling pullback in 33 weeks; smallest DUC increase in 20 months, et al

oil prices moved much higher this past week, lifted by a Friday rally that saw prices rise over 6% at one point, after OPEC announced an agreement to modestly increase their oil output in the 2nd half of this year, thereby removing the uncertainty surrounding the OPEC meeting outcome that had been holding prices lower…after falling 1% last week to $65.06 a barrel on OPEC uncertainty and trade war fears, widely quoted prices for US light sweet crude for July delivery were up 79 cents, or 1.2%, to $65.85 a barrel in volatile trading on Monday, as speculation on the outcome of the OPEC meeting drove trading…that gain was reversed on Tuesday, as oil prices fell 78 cents to $65.07 a barrel, as the escalating trade war between the US and China unleashed selling across most global markets…but oil prices jumped $1.15 to $66.22 a barrel as trading in July oil expired on Wednesday, after the EIA reported the largest weekly drop in U.S. crude supplies since January…now quoting prices of US crude for August, that contract fell 17 cents to $65.54 a barrel on Thursday, as oil traders were reluctant to commit to further buying before the OPEC meeting the next day…however, when that OPEC meeting decided on a modest increase of roughly 600,000 barrels per day in oil output, rather than the million or 1.5 million barrel per day increase some expected, oil prices jumped nearly $4 to $69.38 a barrel after the announcement, before settling back to $68.58 a barrel at the close, with a net gain on the day of $3.04 a barrel, the largest price jump in nearly two years

so you can see what this week’s price jump looks like compared to the recent movement of oil prices, we’ll include a graph of US oil prices over the past six months…

June 23 2018 oil prices

the above graph is an early Saturday afternoon screenshot of the live interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets…each bar on the above graph represents oil prices for a day of oil trading between December 22nd, 2017 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down…for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while for red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar…also visible on this “candlestick” style graph are the faint grey “wicks” above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day…note that since this graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting..

as we can see on the graph above, oil prices have moved up over an irregular trajectory most of this year, as the global oil glut gradually evaporated in the face of the OPEC production cuts that began in January of 2017, and as threats of US sanctions against Venezuela and Iran threatened to tighten crude supplies further…however, after topping $70 a barrel and nearing $73 for the first time since November 2014 in mid May, oil prices started sliding on rumors of this month’s OPEC meeting, and then plunged to $67.88 a barrel when word came from the Saudi oil minister that the Saudis and Russia were prepared to add as much as a million barrels per day to global supplies…so this week’s price increase is largely a reversal of that late May drop, as the uncertainly on what OPEC and Russia will be doing in the 2nd half of this year has now been removed…thus the August WTI contract, representing the benchmark US price, ended the week’s trading on NYMEX 5.8% higher at $68.58 a barrel, while the international benchmark of North Sea Brent, also trading for August, ended 2.9% higher at $75.55 a barrel..

while news on natural gas seemed to have been pushed off the feeds and energy pages that i watch, prices did end lower this week, as the early summer heat wave gave way to more moderate temperatures across much of the US…after ending the prior week above $3 per mmBTU for the first time since January, natural gas prices for July fell 7.1 cents out of the gate on Monday and then another 5.1 cents to $2.90 per mmBTU on Tuesday before steadying, and then ending the week at 2.945 per mmBTU…the natural gas storage report for week ending June 15th from the EIA indicated that natural gas in storage in the US rose by 91 billion cubic feet to 2,004 billion cubic feet over the week, which left our gas supplies 757 billion cubic feet, or 27.4% below the 2,761 billion cubic feet that were in storage on June 16th of last year, and 499 billion cubic feet, or 19.9% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the second week of June…the consensus forecast was for an addition of 85 billion cubic feet to gas in underground storage, so this week’s 91 billion cubic foot addition was again above expectations, and was also above the average 83 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year….so despite the warmer than normal June temperatures, natural gas continues to be added to storage at a pace that would bring our gas supplies back up to a near normal level going into next winter….  

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending June 15th, showed that due to a jump in our oil exports and another increase in oil refining, we had to pull oil out of our commercial crude supplies for the tenth time in the past twenty-one weeks….our imports of crude oil rose by an average of 143,000 barrels per day to an average of 8,242,000 barrels per day during the week, after falling by 247,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 344,000 barrels per day to an average of 2,374,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 15th worked out to a net import average of 5,868,000 barrels of per day during the week, 201,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,768,000 barrels per day during the reporting week…

meanwhile, US oil refineries were using a near record 17,701,000 barrels of crude per day during the week ending June 15th, 196,000 barrels per day more than they used during the prior week, while at the same time 867,000 barrels of oil per day were reportedly being pulled out of oil storage in the US….hence, we can see that this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 66,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-66,000) 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, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,080,000 barrels per day, which was 0.3% more than the 8,057,000 barrel per day average we imported over the same four-week period last year….the 867,000 barrel per day decrease in our total crude inventories included a 845,000 barrel per day withdrawal from our commercially available stocks of crude oil and a 22,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year’s federal budget….this week’s crude oil production was apparently was reported as unchanged because the EIA has decided to round the weekly oil production estimates to the nearest 100,000 barrels per day to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states…however, that rounding creates an even greater inaccuracy in the weekly data, as our production is now shown to have jumped 100,000 barrels per day last week, and then remained unchanged this week, even as the change for both weeks was likely in line with prior weekly increases…moreover, by including one variable that’s rounded to the nearest 100,000 barrels per day in the weekly U.S. Petroleum Balance Sheet, the weekly “unaccounted for crude oil” adjustment on line 13 cannot be accurate to the nearest 1,000 barrels per day, yet it continues to be shown as a factor with that degree of accuracy…

meanwhile, US oil refineries were operating at 96.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 15th, matching the 17 year high for refinery utilization that was set during the week ending December 29, 2017…the 17,701,000 barrels of oil that were refined this week were the 2nd most barrels refined on record, topped only by the 17,725,000 barrels per day that were being refined during the last full week of August 2017….this week’s refinery throughput was also 3.2% higher than the 17,152,000 barrels of crude per day that were being processed during the week ending June 16th a year ago, when US refineries were operating at 94.0% of capacity….

even with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much lower, falling by 352,000 barrels per day to 10,099,000 barrels per day during the week ending June 15th, after our refineries’ gasoline output had increased by 793,000 barrels per day during the week ending June 8th....that decrease meant our gasoline production was 0.6% lower during the week than the 10,161,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year…on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) jumped by 357,000 barrels per day to a near record high of 5,468,000 barrels per day, an output level that was only higher during the last two weeks of 2017…as a result, this week’s distillates production was 4.1% higher than the 5,251,000 barrels of distillates per day than were being produced during the week ending June 16th, 2017, which itself was a seasonal high at that time….  

despite the decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 3,277,000 barrels to 240,040,000 barrels by June 15th, the sixth increase in 15 weeks, but the 22nd increase in 32 weeks, as gasoline inventories, as usual, were being built up over the winter months….our gasoline supplies increased because the amount of gasoline supplied to US markets fell by 553,000 barrels per day to 9,326,000 barrels per day, and because our imports of gasoline rose by 26,000 barrels per day to 850,000 barrels per day, while our exports of gasoline fell by 4,000 barrels per day to 603,000 barrels per day….even after this week’s decrease, our gasoline inventories finished the week three-quarters of a percent lower than last June 16th’s level of 241,866,000 barrels, even as they are now more than 11% above the 10 year average of gasoline supplies for this time of the year…  

meanwhile, with this this week’s big increase in distillates production, our supplies of distillate fuels rose for just the 3rd time in 11 weeks, increasing by 2,715,000 barrels to 117,408,000 barrels during the week ending June 15th…our distillate inventories also increased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 579,000 barrels per day to 3,825,000 barrels per day, after increasing by 902,000 barrels per day the prior week, as distillate wholesalers and retailers rebuilt supplies after the holiday week…meanwhile, our exports of distillates rose by 193,000 barrels per day to 1,304,000 barrels per day, while our imports of distillates decreased by 55,000 barrels per day to 49,000 barrels per day…however, since this week’s inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 15th are still 23.0% below the 152,495,000 barrels that we had stored on June 16th, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year

finally, with our oil exports rising at the same time our refineries were using more oil, our commercial supplies of crude oil decreased for the 12th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 5,914,000 barrels during the week, from 432,441,000 barrels on June 8th to 426,527,000 barrels on June 15th…thus, after falling most of the past year, our oil inventories as of June 15th were 16.2% below the 509,095,000 barrels of oil we had stored on June 16th of 2017, 14.7% below the 499,994,000 barrels of oil that we had in storage on June 17th of 2016, and 1.0% below the 430,837,000 barrels of oil we had in storage on June 19th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years…     

This Week’s Rig Count

US drilling activity decreased for the second time in the past thirteen weeks and for just the 3rd time in the past 18 weeks during the week ending June 22nd, as both drilling for natural gas and drilling for oil slowed simultaneously for the first time since November 3rd, 2017…Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 7 rigs to 1052 rigs over the week ending on Friday, which was also the largest one week drop since November 3rd, which nonetheless left us with 111 more rigs than the 941 rigs that were in use as of the June 23rd report of 2017, while it was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market…

the count of rigs drilling for oil was down by 1 rig to 862 rigs this week, which was still 104 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations fell by 6 rigs to 188 rigs this week, which was only 5 more gas rigs than the 183 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs operating that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

with the shutdown of a rig offshore from Texas, drilling activity in the Gulf of Mexico was down by 1 rig to 18 rigs this week, which was also down from the 21 platforms that were deployed in the Gulf of Mexico a year ago…in addition, the platform that had been drilling offshore from Alaska was also shut down this week, so the total US offshore count of 18 rigs is now down from 22 rigs a year ago, when there was also a rig drilling off of the Alaskan coast…moreover, two of the platforms which had been set up to drill through inland lakes in southern Louisiana were also shut down this week, this week, so now there are only 2 such ‘inland waters” rigs operating, down from the 4 ‘inland waters’ rigs that were operating going into the same weekend a year ago…

for the second week in a row, the count of active horizontal drilling rigs decreased by 2 rigs, falling to 930 horizontal rigs this week, which was still 138 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 23rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count decreased by 5 rigs to 62 directional rigs this week, which was also down from the 72 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was unchanged at 60 vertical rigs this week, which was still down from the 77 vertical rigs that were deployed on June 23rd of 2017…

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 the 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 June 22nd, the second column shows the change in the number of working rigs between last week’s count (June 15th) and this week’s (June 22nd) count, the third column shows last week’s June 15th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 23rd of June, 2017…     

June 22 2018 rig count summary

as you can see, Louisiana saw the largest rig decrease this week, with the 2 rigs shutdown on inland waters, another in the Haynesville in the northwestern part of the state, and another rig on dry land in the south…on the other hand, only Alaska and Wyoming show rig increases, while none of the major basins do…the decreases in drilling for natural gas aren’t entirely evident, however, as in addition to the natural gas rigs shut down in the Haynesville and Pennsylvania Marcellus, we also had the switch of a rig from natural gas to oil in both the Eagle Ford of south Texas and the Granite Wash of the panhandle region, neither of which show up in this overall summary table or as a change in the rig count…in addition to those, 2 other rigs that had been drilling for gas in other unnamed basins not tracked separately by Baker Hughes were also shut down this week; since none of the other states showing decreases are likely candidates for those two gas rig shutdowns, we’d venture a guess that the 2 inland lakes rigs that were shut down this week had also been drilling for gas….

DUC well report for May

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for June, which includes the EIA’s May data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 20th consecutive month, this report again showed an increase in uncompleted wells nationally, but the increase in May was the smallest over that span, as increased well completions have outpaced the growth of new drilling over each of the past 5 months…not unlike most previous months, this month’s increase was mostly because of a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, while basins other than the Eagle Ford of south Texas and the Bakken of North Dakota saw more completions than new wells drilled…for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 31, from 7,741 wells in April to 7772 wells in May, the twentieth consecutive monthly increase in uncompleted wells nationally, and hence again the highest number of such unfracked wells in the history of this report….that was as 1316 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during May, up from 1297 in April, while 1285 wells were completed and brought into production by fracking, an increase of 39 completions over the prior month…hence, at the May completion rate, the 7,772 drilled but uncompleted wells left at the end of April represent more than a 6.0 month backlog of wells that have been drilled but not yet fracked…

as has been the case for most of the past two years, the May DUC well increases were predominantly oil wells, with most of those in the Permian basin…the Permian saw its total count of uncompleted wells rise by 100, from 3,103 DUC wells in April to 3,203 DUCs in May, as 572 new wells were drilled into the Permian but only 472 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas rose by 14, from 1,471 DUC wells in April to 1,485 DUCs in May, as 188 wells were drilled in the Eagle Ford during May, while 174 Eagle Ford wells were completed…in addition, the number of DUC wells in the Bakken of North Dakota increased by 1 to 750, as 110 wells were drilled into the Bakken while 109 Bakken wells were fracked…on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 48 to 491, as just 140 Niobrara wells were drilled while 188 Niobrara wells were being fracked…similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 27 wells, from 771 DUCs in April to 744 DUCs in May, as 102 wells were drilled into the Marcellus and Utica shales, while 129 of the already drilled wells in the region were fracked…meanwhile, DUC wells in the Anadarko region fell by 8, from 921 DUC wells in April to 913 DUCs in May, as 147 wells were drilled in the Anadarko region in April while 155 drilled wells in the basin were completed…lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by one to 186, as 57 wells were drilled into the Haynesville during May, while 58 Haynesville wells were fracked during the same period…

thus, for the month of May, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 59 wells to 6,842 wells, while the uncompleted well count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 28 wells to 930 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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