oil prices drop most since 2014; natural gas supplies drop most ever in mid-November, to a 16 year low for the date..

oil prices were lower for a 7th consecutive week, with this week’s losses accelerating to the largest weekly drop since December 2014…after falling 6.2% to $56.46 barrel on a building oil glut last week, prices of US oil for December delivery initially fell to as low as $55.05 on Monday after the Russian Energy Minister hedged on cutting oil output, but recovered to end 30 cents higher $56.76 a barrel, as trading in the December oil contract expired…at the same time, the contract for January delivery of US crude, which ended the prior week at $56.68 a barrel, rose 52 cents to $57.20 a barrel, with IEA warnings on Saudi output capacity offsetting fears of Russian overproduction…now quoting January oil, prices plummeted on Tuesday as fears of a supply glut returned, falling a total of $3.77 or 6.6% to $53.43​ a barrel​, as a global stock market selloff raised the specter of ​decreasi​ng demand due to a deteriorating global economy…prices recovered a part of the prior day’s losses on Wednesday, as expectations for a production cut at an early December OPEC meeting helped prices recoup, with oil ending $1.20 higher at $54.63 a barrel…while US markets were closed for the holiday, US oil prices fell in European trading on Thursday, and that selloff carried into Friday trading in the US, with oil prices initially plunging 8 percent to their lowest level in 13 months before ending the day near their lows at $50.42​ a barrel​, a 7.7% drop for the day, in a week that saw losses in excess of 11%, even as OPEC producers considered cutting production to stem the rising global ​oil ​surplus

with yet another big drop in oil prices, we’ll include a graph of US oil prices over the past two years, so you can get a sense of what the recent​ oil​ price drop looks like compared to ​its historical volatility…

November 24 2018 weekly oil prices

the above graph is a Saturday afternoon screenshot of the 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 week of oil trading between October, 2016 and this past week, wherein the green bars represent the weeks when the price of oil went up, and red bars represent the weeks when the price of oil went down…for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, whereas for red or down weeks, the starting price is at the top of the bar and the price of oil at the end of the week is at the bottom of the bar…also slightly visible on this “candlestick” style graph are the faint grey “wicks” above and below each bar, to indicate trading prices during the week that were above or below the opening to closing price range for that week…as you can see, the oil price collapse of last 7 weeks has completely reversed the long rally in prices that began in the second week of October 2017….​(​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..​.)​

​meanwhile, ​the volatility in natural gas prices that we saw last week continued into this one, but prices​ ​actually ended the week with little change….natural gas for December delivery initially jumped 42.8 cents higher to $4.700 per mmBTU on Monday’s forecasts of colder weather, but then dropped 42.6 cents early Tuesday before reversing and ending ​the day ​with a loss of just 17.7 cents at 4.523 per mmBTU…the price action on Wednesday was in the opposite direction, with prices jumping to as high as $4.864 per mmBTU on a record early withdrawal of natural gas from storage, before those gains were reversed and natural gas ended the day with a loss of 7.2 cents at $4.451 per mmBTU…prices then fell another 14.3 cents on Friday to end the week at $4.308 per mmBTU, just 3.8 cents higher than where they started…

the natural gas storage report for the week ending November 16th from the EIA showed that natural gas in storage in the US fell by 134 billion cubic feet to 3,113 billion cubic feet over the week, which left our gas supplies 620 billion cubic feet, or 16.6% below the 3,733 billion cubic feet that were in storage on November 17th of last year, and 710 billion cubic feet, or 18.6% below the five-year average of 3,823 billion cubic feet of natural gas that are typically in storage on the third weekend of November….this week’s 134 billion cubic feet withdrawal from US natural gas supplies was quite a bit more than the 92 to 121 billion cubic feet withdrawal that analysts had been expecting, and way more than the average of 25 billion cubic feet of natural gas that have been withdrawn from storage during the second full week of November in recent years, as it was the largest withdrawal of this size this early in the heating season in history; in fact, many years have not seen a natural gas withdrawal that large for the entire month of November…natural gas storage facilities in the Midwest saw a 32 billion cubic feet drop in supplies over the week, which increased the region’s gas supply deficit to 12.0% below normal, and natural gas supplies in the East also fell by 32 billion cubic feet as their supply deficit rose to 11.7% below normal for this time of year…meanwhile, the South Central region saw a 55 billion cubic feet drop in their supplies, as their natural gas storage deficit jumped to 26.8% below their five-year average for the third weekend of November…at the same time, 8 billion cubic feet were pulled out of natural gas supplies in the Pacific region as their deficit from normal rose to 27.2%, while 7 billion cubic feet were withdrawn from storage in the Mountain region, where their natural gas supply deficit rose to 20.2% below normal for this time of year…. 

compared to other mid November low storage readings, this week’s 3,113 billion cubic feet of natural gas in storage was 13.4% lower than the previous 5 year low of 3,594 billion cubic feet that was set on November 14th of 2014, 10.8% below the 10 year low of 3,488 billion cubic feet that was hit on November 14th of 2008, 4.9% below the 3,274 billion cubic feet of natural gas we had in storage on November 18th of 2005, and 1.3% below the 3155 billion cubic feet that were in storage to start the winter on November 14th of 2003…we have to go back​ 16 years,​ to November 15th 2002, when 3,096 billion cubic feet of natural gas were in storage, to find a lower quantity of natural gas in storage in mid-November than now….

for a visualization of what this week’s natural gas withdrawal looks like historically, we have a graphic showing this year’s weekly change in natural gas inventories as compared to last year’s and to the long term averages:

November 21 2018 change in nat gas inventories thru Nov 16

the above graph was copied from a blog post at Bespoke Weather that was published on Wednesday of this week, shortly after the early release of the natural gas storage report…on this graph, purple shows this year’s weekly additions to natural gas storage in billions of cubic feet above the zero line, and this year’s weekly withdrawals from natural gas storage in billions of cubic feet below the zero line; similarly, weekly additions and withdrawals of natural gas in 2017 are shown in red, the 5 year average weekly change of natural gas in storage is shown in green, and the historical average weekly change of natural gas supplies in EIA data going back to 1992 is shown in orange…at the far left, you can see the record withdrawal of 359 billion of cubic feet that used 11.5% of all the natural gas we had on hand during the first week in January​ of this year​, and a withdrawal of 288 billion cubic feet during the third week of January that would have also been a record withdrawal if not for the first week; those 2 big withdrawals thus dropped our natural gas supplies to 17.5% below normal to start the year…the cold April further reduced supplies vis a vis normal, as you can see that the averages show we should have been adding to supplies at that time of year….through most of the summer, our additions to storage were fairly close the normal range, but by then the stage had already been set for natural gas supplies to be at a 15 year low to start this winter…

to see what kind of temperature factors caused this week’s large withdrawal, and what kind of temperatures will be influencing next week’s natural gas supply report, we’ll next look at the most recent average temperature summary from the EIA’s natural gas storage dashboard:

November 24 2018 daily average temps thru Nov 22nd

the above graphic from the EIA’s natural gas storage dashboard gives us both the average daily temperature from November 9th thru November 22nd in each of the five natural gas regions, as well as a color-coded variance from normal for each of those daily temperature averages, with shades of brown indicating the average temperatures in the region were above normal on a given date, while shades of blue indicate average temperatures that were below normal for the date, as indicated in the legend at the bottom….thus this graphic gives us not only the actual average temperature for each region for each day, but also indicates how much that temperature deviated from the norm…as you can see, temperatures for every region except for the 3 Pacific states were below normal through the week ending November 16th, with both the Midwest and South Central regions, encompassing the large expanse in the middle of the country, between 15 and 19 degrees below normal on three separate days in the period…the following week, which will be reported on next week, looks a bit warmer, but not by much, as if you look at the lower line on the graphic you’ll see national average temperature only rose from an average of around 42 degrees ​during the week ending November 16th ​to ​around ​44 degrees​ in the week after that​, which means we can expect another large withdrawal this coming week​,​ as consumption of natural gas for heating continues apace…

while average temperatures as shown above give us a general idea of the heating requirements over a given period, their relationship is inexact because they don’t differentiate between broad sparsely populated regions of the country where heating demand might be minimal even if it is cold, and the larger cities where a cold snap would result in a large burn of natural gas for heat…moreover, an average temperature for a region like the East above, which includes all the states from Maine to Florida, tells us little about what parts of that region are seeing the heating demand corresponding to the average temperatures….for a better measure of heating demand, utilities and suppliers of heating fuels use a metric called ​heating ​degree days to determine what the daily demand for heating will be, so they can adjust their production or delivery schedules accordingly…those degree days are computed by taking the average daily temperature for a location and subtracting that number from 65 degrees, which is considered to be the temperature when most buildings will start to need heating…hence, the colder it gets, the higher the degree day factor​ becomes​, and hence ​it’s a effective measure of ​heating demand…thus this next graphic, which shows us population weighted heating demand for the entire country, is much more useful in determining the ultimate consumption of natural gas…

November 23 2018 population weighted heating demand

the above graph came from a Thursday email titled “Best in Energy” that John Kemp, senior energy analyst and columnist with Reuters, sends out free​ ​daily, on request…in this graphic, the yellow graph shows the average degree days that have been needed per capita each day over the typical US heating season (starting with zero in July), while the red dots indicate the actual population weighted degree days for each day of the 2018-2019 heating season…in addition, the graph also include​s 7 white dots which are a forecast of population weighted degree days that will determine heating requirements for the next 7 days…John did not indicate the exact date for this graph, but since the first white dot shows a large spike, i’m guessing that would ​probably ​be ​for ​Thanksgiving day, when New York city and most of the Northeast saw their coldest Thanksgiving in 150 years…thus the red dots would represent the days prior to November 21st, ​with ​all ​the recent ones clustered ​roughly ​between 20 and 25 degree days per capita nationally, indicating heating requirements that would normally be more typical of mid-December…

the next graph, also from that John Kemp emailing, shows the cumulative heating degree day deviation from normal, up to and including this reporting week… 

November 23 2018 heating demand deviation from normal

in this graph, the divergence of cumulative heating degree days from normal for this year and for each of the previous three heating seasons is shown daily, with the current year shown as a solid white line, with last year’s divergence shown as a solid yellow line, with the divergence from normal for the 2016/2017 heating season shown as a dashed yellow line, and with the divergence from normal of the 2015/2016 heating season shown as a dotted yellow line…note that the graphs for all three prior years trend downward, or negative from zero, because all three years experienced warmer than normal temperatures, and hence less degree days than normal…however, after a warmish October, when this year’s heating requirements were also below normal, the white line for 2018-19 has now moved upwards into positive territory, meaning this year’s cumulative heating requirements are now running above normal…the broader takeaway from this graph, though, is that the natural gas demand we saw over the past three years is not a good benchmark for what we’ll need this year, because those years were warmer than normal, with the heating needs of both 2015/2016 and 2016/2017 roughly 17% below normal…as we pointed out four weeks ago, if our natural gas usage this winter is instead similar to that of 2014, our natural gas supplies could fall to below 200 billion cubic feet by the end of the heating season, implying widespread natural gas shortages and much higher prices….

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, referencing the week ending November 16th, indicated a large increase in the amount of of oil used by refineries while oil imports, oil exports, and oil production were relatively little changed, and hence there was an smaller addition to our commercial crude supplies than the prior week, but the 9th increase in a row​ nonetheless​…our imports of crude oil rose by an average of 102,000 barrels per day to an average of 7,554,000 barrels per day, after falling by an average of 87,000 barrels per day the prior week, while our exports of crude oil fell by an average of 81,000 barrels per day to an average of 1,969,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,585,000 barrels of per day during the week ending November 16th, 183,000 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 11,700,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 17,285,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 16,855,000 barrels of crude per day during the week ending November 16th, 423,000 barrels per day more than the amount of oil they used during the prior week, while over the same period a net of 584,000 barrels of oil per day were reportedly being added to the total amount of 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 154,000 barrels per day short of 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 or new storage of it, the EIA inserted a (+154,000) 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) indicate that the 4 week average of our oil imports slipped to an average of 7,472,000 barrels per day, now 2.7% less than the 7,680,000 barrel per day average that we were importing over the same four-week period last year….the net 584,000 barrel per day increase in our total crude inventories included a 693,000 barrel per day increase in our commercially available stocks of crude oil, which was partly offset by a 109,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed two and a half months earlier….this week’s crude oil production was reported as unchanged at 11,700,000 barrels because the rounded figure for output from wells in the lower 48 states was unchanged at 11,200,000 barrels per day, while a 4,000 barrel per day increase to 503,000 barrels per day in oil output from Alaska was not enough to change the rounded national total…last year’s US crude oil production for the week ending November 17th was at 9,658,000 barrels per day, so this week’s rounded oil production figure was 21.1% above that of a year ago, and 38.8% 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 92.7% of their capacity in using 16,855,000 barrels of crude per day during the week ending November 16th, up from 90.1% of capacity the prior week, and the highest refinery utilization rate for mid-November since 2004….the 16,855,000 barrels per day of oil that were refined this week were at a seasonal high for the time of year for the 22nd time out of the past 25 weeks, but were only fractionally higher than the 16,838,000 barrels of crude per day that were being processed during the week ending November 17th, 2017, when US refineries were operating at 91.3% of capacity… 

even with the big jump in the amount of oil being refined, gasoline output from our refineries was a bit lower, decreasing by 20,000 barrels per day to 10,036,000 barrels per day during the week ending November 16th, after our refineries’ gasoline output had increased by 342,000 barrels per day during the week ending November 9th…with that slack in this week’s gasoline output, our gasoline production during the week was thus 3.8% lower than the 10,432,000 barrels of gasoline that were being produced daily during the same week last year….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 208,000 barrels per day to 5,201,000 barrels per day, after that output had increased by 30,000 barrels per day the prior week….nonetheless, the week’s distillates production was still 2.5% lower than the 5,335,000 barrels of distillates per day that were being produced during the week ending November 17th 2017…. 

with our gasoline production little changed, our supply of gasoline in storage at the end of the week fell by 1,295,000 barrels to 225,315,000 barrels by November 16th, the 5th decrease in the past 6 weeks, thus ​shrinking our gasoline supplies by 10,857,000 barrels since the first week of October….our gasoline supplies fell again in part because our exports of gasoline rose by 145,000 barrels per day to 885,000 barrels per day, while our imports of gasoline fell by 6,000 barrels per day to another 13 month low of 247,000 barrels per day, and while the amount of gasoline supplied to US markets fell by 7,000 barrels per day to 9,185,000 barrels per day…but even after falling most of the fall, our gasoline inventories are still at a seasonal high, 7.1% higher than last November 17th’s level of 210,475,000 barrels, and roughly 7.6% above the 10 year average of our gasoline supplies for this time of the year

even with the big jump in our distillates production, our supplies of distillate fuels fell for the 9th week in a row, but only by 77,000 barrels to 119,191,000 barrels during the week ending November 16th, after our distillates supplies had fallen by 11,108,000 barrels over the prior three weeks…our distillates supplies fell again even though the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 363,000 barrels per day to 4,270,000 barrels per day, and as our imports of distillates rose by 201,000 barrels per day to 104,000 barrels per day, while our exports of distillates fell by 132,000 barrels per day to 1,046,000 barrels per day…after this week’s decrease, our distillate supplies ended the week 4.7% below the 125,032,000 barrels that we had stored on November 1​7th, 2017, and were roughly 8.4% below the 10 year average of distillates stocks for this time of the year…       

finally, even with big increase in oil refining, our commercial supplies of crude oil increased for the 9th week in a row and now for the 25th time in 2018, rising by 4,851,000 barrels during the week, from 442,057,000 barrels on November 9th to 446,908,000 barrels on November 16th…that increase means that our crude oil inventories are now roughly 6% above the five-year average of crude oil supplies for this time of year, and roughly 28.1% above the 10 year average of crude oil stocks for the third weekend in November, with the disparity between those figures arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of November 16th were still 2.2% below the 457,142,000 barrels of oil we had stored on November 17th of 2017, 8.6% below the 489,029,000 barrels of oil that we had in storage on November 18th of 2016, and 2.0% below the 456,035,000 barrels of oil we had in storage on November 13th of 2015..

This Week’s Rig Count

​with the Thanksgiving weekend, this week’s rig count was reported on Wednesday rather than Friday and thus only covers 5 days….with that qualification, ​US drilling rig activity decreased for the third time in 9 weeks during the week ending November ​21st, as lower oil prices may be starting to influence decisions to restart rigs that are not already under contract…Baker Hughes reported that the total count of rotary rigs running in the US decreased by 3 rigs to 1079 rigs over the week ending on Friday, which was still 156 more rigs than the 923 rigs that were in use as of the November ​22nd report of 2017, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC ​announced their attempt to flood the global oil market…  

the count of rigs drilling for oil decreased by 3 rigs to 885 rigs this week, which was still 138 more oil rigs than were running a year ago, while it remained 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 194 rigs, which was 18 more than the 176 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…

offshore drilling in the Gulf of Mexico increased by 3 rigs to 25 rigs this week, which was also 3 more rigs than the 22 rigs active ​in the ​Gulf of Mexico a year ago…with no other offshore US drilling being done elsewhere either this week or a year ago, those Gulf of Mexico totals are also equal to the national offshore rig count totals…. 

the count of active horizontal drilling rigs decreased by 10 rigs to 929 horizontal rigs this week, which was still 143 more horizontal rigs than the 786 horizontal rigs that were in use in the US on November 24th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the directional rig count increased by 2 to 73 directional rigs this week, which was also up from the 71 directional rigs that were in use during the same week of last year….in addition, the vertical rig count increased by 5 rigs to 77 vertical rigs this week, which was also up from the 66 vertical rigs that were operating on November 24th 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 November ​21st, the second column shows the change in the number of working rigs between last week’s count (November 16th) and this week’s (November ​21st) count, the third column shows last week’s November 16th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running 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 ​Wednesday the 22nd of November, 2017…

November 21 2018 rig count summary

​despite the removal of three rigs from the Texas Delaware basin, drilling in the greater Permian basin was unchanged, because 3 rigs were added to the Delaware on the New Mexico side of the state line…meanwhile, the 3 rig decrease in North Dakota despite the single rig decrease in the Williston basin leads to most noteworthy outlier in this ​week’s count; that being that 2 more rigs were added in the Williston on the Montana side of the border, where there are now 4 rigs active, the most activity in Montana since February 2015; a year ago, there were 2 rigs active there…

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