EIA projects a 10 year low for pre-winter natural gas supplies; oil imports at 16 mo high after biggest jump in 18 months; distillate supplies at a 14 year seasonal low, et al

oil prices ended lower for the third week in a row, mostly due to a big selloff on Monday….after falling $2.84, or 3.8% to $71.01 a barrel last week on the resumption of Libyan oil exports, US crude for August fell another $2.95, or 4.2% to $68.06 a barrel on Monday, as oil traders cut their bets on a supply shortage and reports of rising output from the US and OPEC offset concerns about supply disruptions…that selloff continued Tuesday morning, with oil down another $1.03 to $67.03 early, before it reversed in the afternoon and ended up 2 cents for the day at $68.08 s barrel, as news of a new production outage in Libya served as a reminder that supplies remained tight…US oil prices then rose 68 cents to $68.76 a barrel on Wednesday, as the weekly EIA report showed strong demand for gasoline and distillates, overshadowing a surprise build of U.S. crude inventories…oil prices ended higher again on Thursday, after Saudi Arabia’s OPEC governor issued a statement to OPEC that Saudi crude exports would be lower next month in an effort to avoid oversupplying the market, with US crude closing up 70 cents at $69.46 a barrel…then on Friday, as trading in August oil contracts expired, they finished the week with a $1 increase to end at $70.46 a barrel, after Mr Trump said he’s “not thrilled” about the Fed’s plan to raise interest rates, which spooked the markets and sent the US dollar lower, thus making oil higher priced in dollar terms…however, even after rising four days in a row to it’s highest level all week, that August oil contract still ended the week down 55 cents, or 0.8% from last Friday’s finish for a third consecutive weekly loss…meanwhile, US crude for September, which will be quoted as the price of oil next week, rose just 2 cents on Friday to $68.26 a barrel, to finish the week down $1.69, or 2.4%, on far more robust trading than was seen in the expiring August contract…at the same time, Brent crude for September, the international benchmark price, ended the week with a loss of $2.16, or 2.9%, at $73.07 barrel, having dropped $3.49, or 4.5%, on Monday..

natural gas prices, meanwhile, were little changed this week, ending just a half cent higher at $2.757 per mmBTU for the week, despite an addition to natural gas in storage that was much smaller than analysts had expected….the natural gas storage report for week ending July 13th from the EIA indicated that natural gas in storage in the US rose by 46 billion cubic feet to 2,249 billion cubic feet over the week, which left our gas supplies 710 billion cubic feet, or 24.0% below the 2,959 billion cubic feet that were in storage on July 14th of last year, and 519 billion cubic feet, or 19.2% below the five-year average of 2,784 billion cubic feet of natural gas that are typically in storage after the second week of July…the forecast from the S&P Global Platts’ survey of analysts was for an addition of 59 billion cubic feet to gas in underground storage, so this 46 billion cubic feet increase was somewhat lower than what had been expected, and also quite a bit lower than the 62 billion cubic foot average of weekly surplus natural gas that has typically been added to storage during the second week of July over the past 5 years…as we’ve been pointing out each week that natural gas additions to storage fall short, it’s becoming practically impossible for natural gas supplies to be restored to a normal level before the next heating season’s withdrawals begin, and now the EIA has also admitted as much, as they are now forecasting a 10 year low for natural gas supplies going into this coming winter…the best way to explain their forecast is with the graph they used, so we’ll include that here now…

July 20 2018 EIA forecast for nat gas going into winter

the above graph comes from this week’s Natural Gas Weekly Update by the EIA, and it shows the weekly quantity of natural gas in storage in billions of cubic feet in the lower 48 states from the beginning of 2018 as a dark brown line, the average of natural gas in storage over the prior 5 years as a heavy grey line, and the range of natural gas in storage over the past five years for any given time of year as a grey shaded background behind those graphs…thus the shaded grey area also shows us the normal range of natural gas in storage as supplies fluctuate from season to season, with natural gas in storage underground normally building to a maximum by the end of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the demand for heating during any given spring ….you might recall thatwe burnt 11.5% of the natural gas we had stored in one weekat the beginning of this year, an unheard of record withdrawal, and hence the dark brown graph for this year’s suppplies started out at the bottom of the normal range…then, with the cool April this year, natural gas was still being used for heating three weeks into April, so supplies of gas were actually falling a bit the first three weeks of the normal injection season…then, as we showed from the EIA report of two weeks ago, even though US natural gas production was up 10% for the first half of this year, consumption of natural gas has been up 11%, leaving that much less surplus to be injected into storage each week…thus we arrive at July 13th with 2,303 billion cubic feet in storage, as shown on the graph above, precariously close to the record low levels of gas supplies we carried through 2014, a year when the polar vortex winter had dropped our April 1st supplies to below one million cubic feet for the first time on record…thus, given what we have stored now, the current rate of natural gas production, and the current rate of consumption, the EIA projects that our natural gas supplies will only rise to 3,470 billion cubic feet by October 31st, which would be 365 billion cubic feet lower than the five-year average for that date, and the lowest start to the heating season since October 2008, when natural gas inventories ended the month at 3,412 billion cubic feet…in a normal winter, that wouldn’t be a problem, but should a winter like 2014 repeat, spot shortages of natural gas in the states with the least storage or the most unseasonable demand are not out of the question…you can get more details on projected natural gas prices and the weather forecasts that accompany this natural gas storage outlook in this week’s Natural Gas Weekly Update

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending July 13th, showed that due to a big increase in our oil imports, a drop in our oil exports, and a cutback in our oil refining, we had a surplus of oil to add to our commercial crude supplies for the thirteenth time in the past twenty-five weeks…our imports of crude oil rose by an average of 1,635,000 barrels per day to a 16 month high of 9,066,000 barrels per day, the biggest jump in 18 months, after falling by an average of 1,624,000 barrels per day the prior week, while our exports of crude oil fell by an average of 566,000 barrels per day to an average of 1,461,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 7,605,000 barrels of per day during the week ending July 6th, 2,201,000 barrels per day more than the net of our imports minus exports during the prior week and the highest since August 2017…at the same time, field production of crude oil from US wells was reported to be at a record high of 11,000,000 barrels per day, an increase of 100,000 barrels per day from the previous week, which means that our daily supply of oil from our net imports and from wells totaled an average of 18,606,000 barrels per day during the reporting week… 

at the same time, US oil refineries were using 17,239,000 barrels of crude per day during the week ending July 13th, 413,000 barrels per day less than they used during the prior week, while at the same time 834,000 barrels of oil per day were reportedly being added to the oil that’s in storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 532,000 more barrels per day than what was added to storage plus what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-532,000) 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 8,477,000 barrels per day, which was 8.1% more than the 7,841,000 barrel per day average we imported over the same four-week period last year….as we’ve mentioned before, the four week average of oil imports is more representative than the volatile weekly totals, which may temporarily get skewed by the the number of 2 million barrel VLCCs that unload in any given week, the size of the various other tankers that unload during the week, and the berthing schedule or the weather at the major import ports…the 834,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged….this week’s crude oil production was reported 100,000 barrels per day higher on a 50,000 barrel per day increase in output from Alaska, despite a lack of change in posted production figures for the lower 48 states, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day to reflect their inability to accurately model oil output from all the wells in the lower 48 states, and the Alaska increase was enough to cause an increase in the rounded total….US crude oil production for the week ending July 14th 2017 was reported at 9,429,000 barrels per day, so this week’s rounded oil production figure is roughly 16.7% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

US oil refineries were operating at 94.3% of their capacity in using 17,652,000 barrels of crude per day during the week ending July 13th, down from 96.7% of capacity the prior week, but still a refinery capacity utilization rate above historical norms…similarly, the 17,239,000 barrels of oil that were refined this week was still at a seasonal high, more than any previous 2nd week of July, despite the 413,000 barrel per day drop in throughput from the prior week….however, this week’s refinery throughput was only 0.7% higher than the 17,119,000 barrels of crude per day that were being processed during the week ending July 14th a year ago, when US refineries were operating at 94.0% of capacity….

with the drop in amount of oil being refined this week, gasoline output from our refineries fell by a similar quantity, decreasing by 407,000 barrels per day to 10,292,000 barrels per day during the week ending July 13th, after our refineries’ gasoline output had increased by 388,000 barrels per day during the week ending July 6th…but even after this week’s decrease, our gasoline production during the week was still 1.9% more than the 10,096,000 barrels of gasoline that were being produced daily during the week ending July 14th of last year…at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 268,000 barrels per day to 5,174,000 barrels per day, after falling by 21,000 barrels per day the prior week…however, this week’s distillates production was still near the 2014 seasonal high for mid July, and 4.6% higher than the 4,945,000 barrels of distillates per day that were being produced during the week ending July 14th, 2017…

with the drop in our gasoline production, our supply of gasoline in storage at the end of the week fell by 3,165,000 barrels to 235,832,000 barrels by July 13th, the twelfth decrease in 19 weeks, but just the 13th decrease in 36 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline also fell this week because the amount of gasoline supplied to US markets rose by 433,000 barrels per day to 9,708,000 barrels per day, and because our imports of gasoline fell by 196,000 barrels per day to 657,000 barrels per day, while our exports of gasoline fell by 452,000 barrels per day to 734,000 barrels per day….but even after this week’s decrease, our gasoline inventories were still 2.0% higher than last July 14th’s level of 231,211,000 barrels, and roughly 8.8% above the 10 year average of our gasoline supplies for this time of the year…    

similarly, with our distillates production also much lower, our supplies of distillate fuels decreased by 371,000 barrels to 121,311,000 barrels during the week ending July 13th, in just the 2nd decrease in 8 weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 336,000 barrels per day to 4,141,000 barrels per day, after decreasing by 321,000 barrels per day the prior week, and as our exports of distillates rose by 74,000 barrels per day to 1,226,000 barrels per day, after falling by 258,000 barrels per day the previous week, while our imports of distillates rose by 36,000 barrels per day to 140,000 barrels per day…however, since our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th on the way to falling to a 13 year seasonal low, this week’s drop meant our distillate supplies for the week ending July 13th were thus at a 14 year low for the time of year, 19.9% below the 151,416,000 barrels that we had stored on July 14th, 2017, and roughly 15.9% lower than the 10 year average of distillates stocks for this time of the year…    

since our distillate supplies have now slipped to a seasonal 14 year low for the second week of July, we’ll include a graph showing how they got here…

July 18 2018 distillate supplies as of July 13

the above graph came from a weekly emailed package of oil graphs from John Kemp of Reuters, which is also available as a pdf here, and it shows US distillate fuels inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year’s range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the running median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year…this graph also shows the number of thousands of barrels of distillates we had stored at the end of each week in 2017 traced by a yellow line, and our year to date distillates supplies for each week of 2018 traced in red…we can clearly see within the light blue shaded area that there is a seasonality to distillates supplies, as they’re normally built up during the spring and summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heating oil is greatest…however, this year, when supplies of distillates should have been increasing during April and May – days 91 to 151 above – as they normally do, they were falling instead, largely because we had been exporting our distillates production at a record pace…so even as our refineries have started producing distillates at a record pace in the weeks since, and as we slowly started adding back to our supplies, our increases over the past 8 weeks have not kept up with the pace of inventory increase we’d normally see at this time of year….hence we come to July 13th with our distillate supplies at the lowest level in mid-July since July 16th, 2004, which as John headlines is “the lowest seasonal level in more than a decade”….and like the decline in natural gas supplies, this drop in distillate inventories all came about over recent months, because if we follow the yellow graph line for 2017 back to the beginning of that year, we can see that our distillates supplies had hit a wintertime high of 170,746,000 barrels on February 3rd, 2017, and they’ve been falling almost continuously since…

finally, with our oil production at a record high and our oil imports at a 16 month high while our refineries were pulling back from their recent record pace, our commercial supplies of crude oil increased for the 14th time in 2018 and for the 20th time in the past year, as our commercial crude supplies rose by 5,836,000 barrels during the week, from 405,248,000 barrels on July 6th to 411,084,000 barrels on July 13th…however, after falling most of last year, our oil inventories as of July 13th were still 16.2% below the 490,623,000 barrels of oil we had stored on July 14th of 2017, 15.9% below the 488,830,000 barrels of oil that we had in storage on July 15th of 2016, and 4.8% below the 431,836,000 barrels of oil we had in storage on July 17th of 2015, when the US glut of oil had already risen above the nearly stable supply levels of under 400 million barrels during the prior years…   

This Week’s Rig Count

US drilling activity decreased for the fourth time in six weeks during the week ending July 20th, following 11 consecutive weeks of increases, as the steady increases in drilling for oil we saw with higher oil prices the first half of this year has now stalled…Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 8 rigs to 1046 rigs over the week ending on Friday, which was still 96 more rigs than the 950 rigs that were in use as of the July 21st report of 2017, but was down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market… 

the count of rigs drilling for oil fell by 5 rigs to 858 rigs this week, which was still 94 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 decreased by 2 rigs to 187 rigs this week, which was just one more rig than the 186 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, one of the two drilling rigs that were considered to be “miscellaneous” was also shut down this week, which still shows as an increase from the zero such “miscellaneous” rigs in use a year ago….

two of the platforms which had been operating in the Gulf of Mexico were shut down this week, leaving 17 still drilling offshore, which was 6 fewer than the 23 platforms that were deployed in the Gulf of Mexico a year ago…since there is no other offshore activity in other US waters at this time, nor was there a year ago, those Gulf of Mexico rig totals are identical to the total national offshore count…

the count of active horizontal drilling rigs fell by 8 rigs to 922 horizontal rigs this week, which was still 119 more horizontal rigs than the 803 horizontal rigs that were in use in the US on July 21st 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 1 rig to 67 directional rigs this week, which was also down from the 75 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count increased by 1 rig to 57 vertical rigs this week, which was still down from the 72 vertical rigs that were operating on July 21st 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 July 20th, the second column shows the change in the number of working rigs between last week’s count (July 13th) and this week’s (July 20th) count, the third column shows last week’s July 13th 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 21st of July, 2017…       

July 20 2018 rig count summary

as you can see, pullbacks in drilling activity in Texas and Oklahoma by themselves accounted for this week’s rig count decrease, with New Mexico showing a corresponding 4 rig increase; however, where the Texas and Oklahoma decreases were is not apparent in the basin count….for Texas, we can check the Texas Oil and Gas District counts, which shows a net decrease of 6 rigs in the 2 core Permian basin districts, and a 2 rig increase in fringe Permian areas…so by that, we’d judge that Texas saw a net decrease of 4 rigs in the Permian basin, while 4 Permian rigs were simultaneously deployed on the New Mexican side of the state line…then including the single rig decrease in the Barnett around Dallas-Ft Worth would account for the state’s minus 5 total…meanwhile, Oklahoma’s count decreased by 3 despite the 2 rig increase in the core Cana Woodford basin because the Arkoma-Woodford was down a rig and 3 Granite Wash shutdowns appear to have been on the Oklahoma side of the Texas panhandle border…the Granite Wash rig count, by the way, included a natural gas rig startup and 4 oil rig shutdowns…but natural gas drilling was still down by 2 rigs despite that increase and the increase of a natural gas rig in Ohio’s Utica, because natural gas rigs were simultaneously shut down in the Marcellus of West Virginia, the Barnett of Texas, the Arkoma-Woodford of Oklahoma, and one “other” basin that Baker Hughes does not name…we should also note that outside of the major producing states shown above, Nevada also saw a rig shut down this week, leaving just one rig operating in the state, which is still more than a year ago, when there was no activity state-wide…

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