DUC wells at a record, up 33% YoY; US military spends more protecting OPEC imports than the cost of the oil itself..

oil prices continued to rally for a second week on concerns over global supply this past week, stalling only after Trump tweeted threats towards OPEC producers on Thursday…after rising 1.6% to $68.99 a barrel in volatile trading last week, contract prices for US crude for October delivery slipped 8 cents to $68.91 a barrel on deepening US-China trade-tensions on Monday, as Trump telegraphed his intention to impose a fourth round of tariffs on Chinese imports, and the Chinese vowed to retaliate…nonetheless, oil prices still rose 94 cents to $69.85 a barrel on Tuesday on signs that OPEC was not prepared to raise oil output to cover shrinking exports from Iran, and as the Saudis signaled they’d be comfortable with prices above $80 per barrel…oil prices then surged $1.27 to $71.12 a barrel on Wednesday after the EIA reported the fifth consecutive weekly decline in U.S. crude oil inventories amid ongoing global supply concerns over U.S. sanctions on Iran…however, oil prices fell back from early gains to close 32 cents lower as the October oil contract expired at $70.80 a barrel on Thursday, after Trump accused Mideast producers of pushing oil price higher, warning that they need to keep crude prices lower because of the military protection the U.S. provides for the region…now quoting oil contract prices for November delivery, which had closed Thursday 45 cents lower at $70.32 a barrel, oil prices reversed their Trump tweet losses and rose to as high as $71.80 a barrel on Friday, but then pared that gain by more than a dollar to close just 46 cents higher at 70.78 a barrel on a report that oil producers planned to increase production by another 500,000 barrels a day in a joint ministerial committee meeting in Algeria this weekend…hence the widely quoted price of oil ended the week with an increase of $1.79 a barrel, or 2.6%, while the November oil contract, which had closed last week at $68.77 a barrel, ended $2.01 a barrel higher, an increase of nearly 3%…

in the wake of Trump’s tweets about the military protection the U.S. provides for the Mideast oil producers, Securing America’s Future Energy, a think tank that advocates reduced U.S. dependence on oil, released a study showing that the US military spends about $81 billion a year to protect oil supplies around the globe…since that $81 billion a year is probably an incomprehensible number to most readers, we figured some context as it relates to oil was appropriate…as we saw in OPEC’s report last week, global oil production averaged around 96 million barrels of oil per day through 2017, and that has increased to around 98 million barrels of oil per day so far this year…,since that’s a daily output amount, we multiply 98 million times 365 to find that global oil production has been running at about 35.77 billion barrels annually…that means that the $81 billion a year we spend on military to protect oil works out to $2.26 a barrel for every barrel of oil produced worldwide…however, since that overseas military spending isn’t really to protect oil being produced stateside, another way of looking at that military expenditure would be to look at just our oil imports, which have been averaging around 8 million barrels per day…using the same math, that means we’re spending $27.74 a barrel to protect our oil imports… however, since the majority of our oil imports come from Canada and other allies, we can assume that the military expenditures to protect that portion of our imports are negligible…so if we look at just our oil imports from OPEC countries, which have been averaging 3.1 million barrels of oil per day over recent years, we could say that our military outlays to protect those oil imports are running roughly $71.50 a barrel, or more than the price of the oil itself…

natural gas prices were also higher this week, to a degree that surprised some analysts, as the news was relatively bearish, with widespread power outages and cooler weather in the wake of Hurricane Florence reducing demandnatural gas prices for October delivery rose 11.9 cents on Tuesday as the storm was downgraded to a tropical depression, and then rose another 6.8 cents with the storage report on Thursday in rising 21 cents to $2.977 per mmBTU over the week, an increase of nearly 7.6%…..the week’s natural gas storage report from the EIA for week ending September 14th indicated that natural gas in storage in the US rose by 86 billion cubic feet to 2,722 billion cubic feet during that week, which left our gas supplies 672 billion cubic feet, or 19.8% below the 3,394 billion cubic feet that were in storage on September 15th of last year, and 586 billion cubic feet, or 17.7% below the five-year average of 3,308 billion cubic feet of natural gas that are typically in storage after the second week of September….this week’s 86 billion cubic feet increase in natural gas supplies was a bit more than the 83 billion cubic feet increase that a S&P Global Platts’ analysts survey had expected, and it was also above the 76 billion cubic foot average of natural gas that have typically been added to storage during the second week of September in recent years, in just the second above average inventory increase in the past eleven weeks…natural gas storage facilities in the Midwest saw a 36 billion cubic feet increase this week, while supplies in the East increased by 30 billion cubic feet and are now just 11.5% below normal for this time of year…on the other hand, the South Central region saw a 12 billion cubic foot injection as their natural gas storage deficit increased to 23.6% below their five-year average, while just 5 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where natural gas supplies are 22.3% below normal for this time of year….analysts from Platts are now forecasting that natural gas in storage will peak at 3.26 trillion cubic feet before withdrawals begin in early November, which would be the lowest level to start the heating season since 2003, when pre-winter natural gas supplies peaked at 3.18 trillion cubic feet…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending September 14th, showed that despite higher oil imports and a sharp pullback in oil refining, we again had to withdraw more oil from our commercial crude supplies for the fifth week in a row, because our oil exports jumped at the same time… our imports of crude oil rose by an average of 433,000 barrels per day to an average of 8,024,000 barrels per day, after falling by an average of 123,000 barrels per day the prior week, while our exports of crude oil rose by an average of 539,000 barrels per day to an average of 2,367,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,657,000 barrels of per day during the week ending September 14th, 106,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, field production of crude oil from US wells was reportedly up by 100,000 barrels per day to 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,657,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using 17,415,000 barrels of crude per day during the week ending September 14th, 443,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 294,000 barrels of oil per day were reportedly being pulled out of 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, from oilfield production, and from storage was 464,000 fewer barrels per day than what refineries reported they used during the week….to account for that disparity between the supply of oil and the consumption of it, 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 reported data for the daily 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 7,704,000 barrels per day, now 6.9% more than the 7,209,000 barrel per day average that we were importing over the same four-week period last year….the 294,000 barrel per day decrease in our total crude inventories was again all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve still remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed two weeks ago….this week’s crude oil production was reported as being up by 100,000 barrels per day to 11,000,000 barrels per day because a rounded 100,000 barrels per day increase to 10,500,000 barrels per day in the output from wells in the lower 48 states combined with a 18,000 barrels per day increase in oil output from Alaska was only enough to raise the national total, which is now being rounded to the nearest 100,000 barrels per day, by 100,000 barrels per day to 11,000,000 barrels per day….US crude oil production for the week ending September 15th 2017 had recovered to 9,510,000 barrels per day after Hurricane Harvey, so this week’s rounded oil production figure was 15.7% 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…

meanwhile, US oil refineries were operating at 95.4% of their capacity in using 17,415,000 barrels of crude per day during the week ending September 14th, down from 97.6% the prior week, but still a refinery utilization rate higher than any in September over the prior 14 years….the 17,415,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 15th out of the past 16 weeks, but not directly comparable to the 15,172,000 barrels of crude per day that were processed during the week ending September 15th 2017, when US refineries were still operating at a reduced 83.2% of capacity in the aftermath of Hurricane Harvey..

with the decrease in the amount of oil being refined this week, gasoline output from our refineries was likewise lower, decreasing by 114,000 barrels per day to 10,270,000 barrels per day during the week ending September 14th, after our refineries’ gasoline output had increased by 169,000 barrels per day during the week ending September 7th…due to Hurricane Harvey’s impact on refining, our gasoline production during the week is not comparable to that of a year ago, but this week’s gasoline output was still 3.1% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the pre-hurricane week ending August 25th of last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 79,000 barrels per day to a still high 5,457,000 barrels per day, after they had risen by 357,000 barrels per day over the prior two weeks…for a rough year over year comparison absent hurricane impacts, we’d note this week’s distillates production was nearly 8% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017, so you can see that refineries have been producing more distillates vis a vis gasoline to catch up with the distillates shortfall…. 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,719,000 barrels to 234,150,000 barrels by September 14th, the 17th decrease in 30 weeks, but just the 18th decrease in 45 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline fell this week even as the amount of gasoline supplied to US markets fell by 115,000 barrels per day to 9,534,000 barrels per day, after falling by 85,000 barrels per day the prior week, because our imports of gasoline fell by 492,000 barrels per day to 561,000 barrels per day, while our exports of gasoline rose by 16,000 barrels per day to 696,000 barrels per day…but even after this week’s decrease, our gasoline inventories were still at a seasonal high, 8.3% higher than last September 15th’s level of 216,185,000 barrels, and roughly 9.3% above the 10 year average of our gasoline supplies for this time of the year

meanwhile, even with the decrease in our distillates production, our supplies of distillate fuels were nonetheless higher, increasing by 839,000 barrels to 140,122,000 barrels during the week ending September 14th, the 13th increase in 17 weeks…our distillates supplies increased even though the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 864,000 barrels per day to 4,152,000 barrels per day, after falling by 1,002,000 barrels per day last week in a post Labor Day adjustment….in addition, our exports of distillates fell by 91,000 barrels per day to 1,326,000 barrels per day, while our imports of distillates rose by 91,000 barrels per day to 141,000 barrels per day, thus adding to supplies….moreover, this week’s increase means that our distillate supplies have recovered from the 14 year seasonal low that they hit 7 weeks ago, as they are now fractionally higher than the 138,859,000 barrels that we had stored on September 15th, 2017, even as they remain roughly 4.5% lower than the 10 year average of distillates stocks for this time of the year…     

finally, because of the ongoing elevated level of our oil exports, our commercial supplies of crude oil decreased for the 21st time in 2018 and for the 32nd time over the past year, falling by 2,057,000 barrels during the week, from 396,194,000 barrels on September 7th to 394,137,000 barrels on September 14th, our lowest supplies of crude oil since February 13, 2015…however, even though our crude oil inventories are now about 3.5% below the five-year average of crude oil supplies for this time of year, they are still roughly 18% above the 10 year average of crude oil stocks for the second week of September, because it wasn’t early 2015 that our oil inventories first rose above 400 million barrels…but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of September 14th were 16.6% below the 472,832,000 barrels of oil we had stored on September 15th of 2017, 16.8% below the 473,966,000 barrels of oil that we had in storage on September 16th of 2016, and 6.6% below the 422,033,000 barrels of oil we had in storage on September 18th of 2015… 

This Week’s Rig Count

US drilling activity decreased for the first time in 4 weeks but for the seventh time in fifteen weeks during the week ending September 21st, as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled since May, with oil futures’ prices remaining in backwardation and the backlog of uncompleted wells increasing….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 2 rigs to 1053 rigs over the week ending on Friday, which was still 118 more rigs than the 935 rigs that were in use as of the September 22nd 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 was down by one rig to 866 rigs this week, which was still 122 more oil rigs than were running a year ago, while it was 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 was unchanged at 186 rigs for the third week in row, which was now down by 4 rigs from the 190 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 rigs that had been drilling exploratory wells in central Ohio categorized as “miscellaneous” was shut down this week, thus equaling the count of one such “miscellaneous” rig that was deployed a year ago…

offshore drilling in the Gulf of Mexico was unchanged from last week at 18 rigs, which was down from the 19 Gulf of Mexico rigs active a year ago…however, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is now at 20 rigs, which is thus up by a rig from last year’s total of 19 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf…..

the count of active horizontal drilling rigs was down by 2 rigs to 919  horizontal rigs this week, which was still 129 more horizontal rigs than the 795 horizontal rigs that were in use in the US on September 22nd 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 also decreased by 2 rigs to 69 directional rigs this week, which was also down from the 77 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was up by 2 rigs to 65 vertical rigs this week, which was still down from the 68 vertical rigs that were operating on September 22nd 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 September 21st, the second column shows the change in the number of working rigs between last week’s count (September 14th) and this week’s (September 21st) count, the third column shows last week’s September 14th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend 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 15th of September, 2017…    

September 21 2018 rig count summary

it’s pretty clear that this week’s rig variance story can be summed up as ‘Texas drilling is up and everywhere else is unchanged or down’, although it does appear likely that the Granite Wash rig addition was on the Oklahoma side of the Texas panhandle border…we can note from the 4th column that 102 of the 122 rigs that were added in the past year were in the Permian basin of western Texas and southeast New Mexico, but it’s also worth noting that the lion’s share of that new drilling has been in the core Permian Texas Oil District 8, indicated as the Delaware basin, where 326 of the active Permian basin rigs are now located…that’s an increase of 10 rigs from a week ago, as 5 Midland basin rigs, 4 in Texas District 7C and 1 in District 7B, were shut down at the same time…another oddity this week that’s not apparent in the tables above is hidden in the two rig decrease in shown in Ohio’s Utica shale; one of those idled rigs had been targeting oil, while the other was a miscellaneous rig that had been drilling an exploratory well into the Knox formation in Ashland county, not even a Utica shale well at all…the Utica shale natural gas rig count actually remained unchanged at 19 rigs, as the only natural gas rig addition was in Oklahoma’s Arkoma Woodford, where an oil rig was shut down at the same time, resulting in the net no change you see above… also note that last week i missed noticing that a new rig had started drilling in South Dakota, in the first drilling that state had seen since November 2014…

DUC well report for August

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for September, which includes the EIA’s August data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 23rd consecutive month, this report again showed an increase in uncompleted wells nationally in August, as both drilling of new wells and completions of those drilled increased….like most previous months, this month’s uncompleted well increase was due to a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, with modest increases of uncompleted wells in the Anadarko basin of Oklahoma and the Eagle Ford of south Texas also contributing…for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 238, from 8,031 wells in July to 8,269 wells in August, again the highest number of such unfracked wells in the history of this report, and up 33% from the 6,227 drilled but uncompleted wells in August a year ago…that was as 1,520 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during August, up from 1,509 in July, while 1,282 wells were completed and brought into production by fracking, a increase of 24 well completions over the 1258 completions seen in July…at the August completion rate, the 8,269 drilled but uncompleted wells left at the end of the month represent a 6.5 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 August DUC well increases were predominantly oil wells, with most of those in the Permian basin…the Permian basin saw its total count of uncompleted wells rise by 211, from 3,419 DUC wells in July to 3,630 DUCs in August, as 636 new wells were drilled into the Permian but only 425 wells in the region were fracked…at the same time, DUC wells in the Anadarko basin region centered in & around Oklahoma rose by 34, from 992 DUC wells in July to 1026 DUCs in August, as 196 wells were drilled in the Anadarko basin during August, while 162 Anadarko wells were completed…over the same period, the number of DUC wells in the Eagle Ford of south Texas increased by 28 to 1,545, as 204 wells were drilled into the Eagle Ford while 176 Eagle Ford wells were fracked….in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by 8 wells to 191, as 60 wells were drilled into the Haynesville during August, while 52 Haynesville wells were fracked during the same period…on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 20 to 427, as 180 Niobrara wells were drilled while 200 Niobrara wells were being fracked…similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 19 wells, from 718 DUCs in July to 699 DUCs in August, as 118 wells were drilled into the Marcellus and Utica shales, while 137 of the already drilled wells in the region were fracked….lastly, DUC wells in the Bakken of North Dakota fell by 4, from 755 DUC wells in July to 751 DUCs in August, as 126 wells were drilled into the Bakken in August while 130 drilled wells in that basin were completed….thus, for the month of August, DUCs in the 5 oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 249 wells to 7,379 wells, while the uncompleted well count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by a net of 11 wells to 890 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…   

+

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s