oil prices at a 4 year high; US crude supplies jump most in 19 months, natural gas supplies increase most since May 11th

oil prices rose for the 4th week in a row in trading that was largely focused on the US sanctions imposed on Iranian oil and the subsequent ability or inability of other oil producers to replace their exports…after rising 3.5% to $73.25 a barrel on the threat to Iran last week, the benchmark US crude contracts for November delivery rose $2.05 on Monday to $75.30 a barrel, the highest level since November 2014, as North American oil demand was secured by the resolution of the US, Canada and Mexico trade dispute while Chinese cuts of Iranian oil heightened fears of a global supply crunch…after trading as high as $75.91 on Tuesday, oil prices slipped back to close 7 cents lower at $75.23 a barrel ahead of data releases expected to show an increase in U.S. crude inventories…however, even after the reported inventory increases, US crude rose 1.6% to 4-year high of $76.41 on Wednesday, despite the biggest weekly jump in U.S. crude supplies in more than a year…however, with international crude at its most technically overbought level since February 2012 and US crude the most overbought since January*, profit taking set in and oil prices tumbled $2.08 to $74.33 a barrel on Thursday, after news broke on an agreement between Saudi Arabia and Russia to increase production to replace Iranian production as US sanctions took effect…oil prices then steadied on Friday, with US crude prices, supported by US jobs data, holding onto a one cent increase at $74.34 a barrel, while the global benchmark Brent crude for December delivery fell 42 cents to settle at $84.16 a barrel, still up 1.4% on the week, while US crude ended with a gain of 1.3% for the week

* (note that speculators had accumulated long positions, or bets on a further increase in prices, amounting to almost 1.2 billion barrels of oil…that is more than 100 times daily US oil production of 11.1 million barrels per day)

natural gas prices were also higher this week, driven by abnormal weather patterns and the now widespread understanding that we would be heading into winter with our natural gas supplies at or near a 15 year low…natural gas prices were initially 8.6 cents higher at $3.094 per mmBTU on Monday, as shifting weather forecasts projected to leave cooling demand nearly unchanged through early October, which would leave current storage deficits relatively intact through the so-called “shoulder season”, or that period each spring and fall when there is usually neither large demand for heating nor for cooling…that prospect carried prices 7.2 cents higher on Tuesday and 6.4 cents more on Wednesday, until the EIA reported a larger than expected injection of natural gas into storage which sent prices tumbling 6.5 cents on Thursday…another smaller decline of 2.2 cents on Friday then left natural gas prices at $3.143 per mmBTU at the end of trading for the week, still 4.5% higher than last Friday’s close..

this week’s natural gas storage report from the EIA for week ending September 28th indicated that natural gas in storage in the US rose by 98 billion cubic feet to 2,866 billion cubic feet during that week, which left our gas supplies 638 billion cubic feet, or 18.2% below the 3,502 billion cubic feet that were in storage on September 29th of last year, and 607 billion cubic feet, or 17.5% below the five-year average of 3,473 billion cubic feet of natural gas that are typically in storage after the fourth week of September….this week’s 98 billion cubic feet increase in natural gas supplies was more than double the 46 billion cubic feet that was added to natural gas storage last week, was somewhat more than the median forecast 88 billion cubic feet from a Reuters poll of natural gas traders, and also was well above the 84 billion cubic foot average of natural gas that have typically been added to storage during the fourth week of September in recent years, but was still only the 3rd above average inventory increase in the past thirteen weeks…natural gas storage facilities in the Midwest saw a 36 billion cubic feet increase this week, reducing their supply deficit to 14.1% below normal, while supplies in the East increased by 34 billion cubic feet and are now only 10.0% below normal for this time of year…meanwhile, the South Central region saw a 22 billion cubic feet increase in their supplies, as their natural gas storage deficit decreased to 25.4% below their five-year average, while just 3 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where natural gas supplies remain 21.8% below normal for this time of year….

since we have just seen the amount of natural gas added to storage in the continental US swing from 46 billion cubic feet in one week to 98 billion cubic feet in the next, it seems it would be an appropriate time to look at some pictures captured from the EIA’s natural gas storage dashboard which will help show how that could happen…we will start with a US map showing how much the temperatures in each geographical area of the 48 states varied from normal during the week ending September 20:

September 29 2018 temperature variance for week ending Sept 20

again, this map comes from the EIA’s natural gas storage dashboard, an EIA website with dozens of interactive graphics tracking various facets and factors influencing US natural gas supplies, which is updated with the most recent data on Thursday of each week…from the legend underneath this map, we can see that most of the US saw temperatures above normal during the cited week, with a broad swath from the central Rockies through the deep South and Great Lakes all the way east to Maine showing temperatures 5 to 9 degrees above normal…for the middle week in September, that means that most of the country saw cooling demand closer to what one would expect in late August than in mid-September, and hence with the associated utility burn, less natural gas than normal was left to be added to winter supplies…

the next map shows how much the temperatures in each area varied from normal during the week ending September 27th:

October 6 2018 temperature variance for week ending Sept 27

here we see that only a handful of states saw temperatures as much as 5 degrees greater than normal during the week ending September 27th, with most of the country seeing temperatures between 4 degrees below normal and 4 degrees above normal…as you know, normal for the last week of September doesnt involve much heating or cooling for most of the country, and hence there was more natural gas left to be added to winter supplies..

next we’ll include a map showing how much temperatures changed between the week ending September 20 and the week ending September 27 across the various regions of the US:

October 4 2018 temperature change week to September 27

as you can see, most of the country except for the already cooler Pacific coast states was cooler during the week ending September 27th than the prior week, with almost half the country seeing temperatures 5 to 9 degrees cooler, with the broad Midwest section and the Northeast seeing temperatures 10 to 14 degrees cooler, and with parts of a few central states seeing temperatures 15 to 19 degrees cooler…hence, we went from a week of summer like air conditioning demand to almost none at all…that change, then, is what accounted for the swing from 46 billion cubic feet of surplus gas during the week ending September 21st to 98 billion cubic feet of surplus during the week ending September 28th..

lastly, since all the maps we’ve shown so far only show a relative change in temperature, we’ll include one that shows the actual temperatures on September 24th across the lower 48 states:

October 6 2018 actual temperature on Sept 24

the above map was taken from the interactive daily animation feature on the national temperature graphic on the EIA’s natural gas storage dashboard, which i paused on September 24th so as to take a picture…as the heading indicates, it shows the average daily temperature for each location on the map, as indicated by the legend below the map…the EIA computes the average daily temperature by adding the high temperature for the day to the low for the day and dividing it by 2; thus, if the afternoon high was 75 degrees at your location while the nighttime low was 65, your average for that date shown above would be 70 degrees (the national weather service also reports daily averages taking temperatures each hour)…of course, this is only one day from the two week period covered, so if you want to see the rest, go to the EIA’s natural gas storage dashboard and run the animation yourself…

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 28th, showed that because of much lower oil exports coupled with higher oil imports, we were able to add oil to our commercial crude supplies for the second time in seven weeks… our imports of crude oil rosel by an average of 163,000 barrels per day to an average of 7,965,000 barrels per day, after falling by an average of 222,000 barrels per day the prior week, while our exports of crude oil fell by an average of 917,000 barrels per day to an average of 1,723,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,242,000 barrels of per day during the week ending September 28th, 1,080,000 more 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 unchanged at 11,100,000 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 17,362,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using 16,591,000 barrels of crude per day during the week ending September 28th, 77,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 1,139,000 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 would seem to indicate that our total working supply of oil from net imports and from oilfield production was 388,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage….to account for that disparity between the supply of oil and the consumption of it, the EIA needed to insert a (+388,000) 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 7,846,000 barrels per day, now 10.2% more than the 7,122,000 barrel per day average that we were importing over the same four-week period last year….the 1,139,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, while 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 closed four weeks ago….this week’s crude oil production was reported as being unchanged at 11,100,000 barrels per day because the rounded output from wells in the lower 48 states remained at 10,600,000 barrels per day, so the 10,000 barrels per day increase in oil output from Alaska was not enough to raise the national total, which is now being rounded to the nearest 100,000 barrels per day….last year’s US crude oil production for the week ending September 29th was at 9,561,000 barrels per day, so this week’s rounded oil production figure was 16.1% above that of a year ago, and 31.7% 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 90.4% of their capacity in using 16,591,000 barrels of crude per day during the week ending September 28th, unchanged from the prior week, thus maintaining a refinery utilization rate higher than in any previous September over the past 14 years….the 16,591,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 17th out of the past 18 weeks, 3.5% higher than the 16,029,000 barrels of crude per day that were processed during the week ending September 29th 2017, when US refineries were operating at 88.1% of capacity….

with the increase in the amount of oil being refined this week, gasoline output from our refineries was likewise higher, increasing by 118,000 barrels per day to 9,950,000 barrels per day during the week ending September 28th, after our refineries’ gasoline output had decreased by 432,000 barrels per day during the week ending September 21st…as a result, our gasoline production during the week was 1.0% higher than the 9,853,000 barrels of gasoline that were being produced daily during the same week last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 34,000 barrels per day to 5,029,000 barrels per day, after that output had fallen by 462,000 barrels per day the prior week….even so, this week’s distillates production was still 2.0% higher than the 4,929,000 barrels of distillates per day that were being produced during the week ending September 29th 2017, as refineries continue to catch up with this summer’s distillates shortfall…. 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 459,000 barrels to 235,680,000 barrels by September 28th, the 18th decrease in the past 32 weeks, encompassing the spring and summer periods of higher consumption when gasoline supplies usually trend lower….our supplies of gasoline fell this week primarily because the amount of gasoline supplied to US markets rose by 115,000 barrels per day to 9,102,000 barrels per day, after falling by 547,000 barrels per day the prior week, and because our imports of gasoline fell by 150,000 barrels per day to 713,000 barrels per day, while our exports of gasoline fell by 145,000 barrels per day to 816,000 barrels per day….but this week’s decrease notwithstanding, our gasoline inventories are again at a seasonal high, 7.4% higher than last September 29th’s level of 218,936,000 barrels, and roughly 8.8% above the 10 year average of our gasoline supplies for this time of the year

meanwhile, even with a small increase in our distillates production, our supplies of distillate fuels were somewhat lower, decreasing by 1,750,000 barrels to 136,131,000 barrels during the week ending September 28th, their second decrease after 8 weeks of increases…our distillates supplies decreased even though the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 414,000 barrels per day to 3,877,000 barrels per day, because our exports of distillates rose by 416,000 barrels per day to 1,564,000 barrels per day, while our imports of distillates rose by 38,000 barrels per day to 162,000 barrels per day….even after this week’s decrease, however, our distillate supplies were fractionally higher than the 135,439,000 barrels that we had stored on September 29th, 2017, while they remained roughly 4.9% below the 10 year average of distillates stocks for this time of the year…     

finally, with the drop in our oil exports, our commercial supplies of crude oil increased for the 18th time in 2018 and by the most since March 2017, as they jumped by 7,975,000 barrels during the week, from 395,989,000 barrels on September 21st 403,964,000 barrels on September 28th…that increase brought our crude oil inventories back up to the five-year average of crude oil supplies for this time of year, and to a level roughly 19.9% above the 10 year average of crude oil stocks for the end of September, because it wasn’t early 2015 that our oil inventories first rose above 400 million barrels…but since our crude oil inventories had been falling through most of the past year and a half, our oil supplies as of September 28th were still 13.1% below the 470,986,000 barrels of oil we had stored on September 29th of 2017, 13,9% below the 469,108,000 barrels of oil that we had in storage on September 30th of 2016, and 5.8% below the 429,028,000 barrels of oil we had in storage on October 2nd of 2015…   

This Week’s Rig Count

US well drilling rig activity slowed a bit for the second time in 3 weeks during the week ending October 5th, and remains slower than it was at the end of May, as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled, with the backlog of uncompleted oil wells increasing monthly while oil futures’ prices remained in backwardation….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 2 rigs to 1052 rigs over the week ending on Friday, which was still 116 more rigs than the 936 rigs that were in use as of the October 6th 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 two rigs to 861 rigs this week, the third decrease in a row, which was still 113 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 189 rigs, which was two more than the 187 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, two rigs that are categorized as “miscellaneous” continue to drill this week, up from the one such “miscellaneous” rig that was deployed a year ago…

offshore drilling in the Gulf of Mexico increased by 4 rigs to 22 rigs, now the same number of Gulf of Mexico rigs that were active a year ago…in addition, another rig continues to drill offshore from Alaska this week, so the total national offshore count has risen to 23 rigs, up from last year’s total of 22 offshore rigs, as a year ago there was no offshore drilling other than in the Gulf…meanwhile, 2 of the rigs that had been drilling through bodies of water in southern Louisiana were shut down this week, cutting the inland waters rig count down to three, still up from the single rig drilling through inland waters a year ago…

the count of active horizontal drilling rigs was down by 3 rigs to 919 horizontal rigs this week, which was still 127 more horizontal rigs than the 792 horizontal rigs that were in use in the US on October 6th 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 was also down by 3 rigs to 66 directional rigs this week, which was also down from the 79 directional rigs that were in use during the same week of last year….on the other hand, the vertical rig count was up by 4 rigs to 67 vertical rigs this week, which was also up from the 65 vertical rigs that were operating on October 6th 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 October 5th, the second column shows the change in the number of working rigs between last week’s count (September 28th) and this week’s (October 5th) count, the third column shows last week’s September 28th 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 6th of October, 2017…    

October 5 2018 rig count summary

despite the 5 rig drop in Texas and the overall decrease in the Permian, drilling in the core Permian Texas Oil District 8, indicated as the Delaware basin, actually increased by 3 rigs to 330 rigs this week, as 6 Midland basin rigs in Texas Oil District 7C were shut down at the same time…since the overall Permian rig count was only down 1 rig, that would suggest a there was 2 rig increase in the Permian Delaware basin on the New Mexico side of the state line…the 3 rig increase in the Mississippian Lime seems to include one rig in Kansas and two rigs in Oklahoma, with another Oklahoma rig increase offsetting the Cana Woodford decrease not shown…natural gas rigs, meanwhile, netted no change, because the increase in Pennsylvania’s Marcellus was offset by the shutdown of a natural gas rig in the Eagle Ford of south Texas, where 9 natural gas rigs and 69 oil rigs continue to drill…

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