oil prices drop another 11% to a 35 month low; record increase in uncompleted wells leaves a 6.7 month backlog

oil prices saw their largest decrease in nearly three years​ this week,​ amid turmoil ​in ​global financial ​markets ​and domestic political chaos….after falling 2.7% to $51.20 a barrel last week despite the OPEC led agreement to remove 1.2 million barrels from production, contract prices of US oil for January delivery fell $1.32 or more than 2.5% to $49.88 a barrel on Monday, the lowest close since September 2017, on fears of oversupply and concerns over global economic growth…with the psychological $50 price support thus pierced, US crude prices plunged $3.64, or 7.3% to a sixteen month low of $46.24 a barrel on Tuesday, as oil supply increases were reported nationally and at the crucial Cushing hub while equity markets fell nearly 2% on signs of a protracted economic downturn in China…oil prices rebounded 96 cents to $47.20 a barrel on Wednesday, after the EIA reported a small drop in domestic crude supplies and the largest draw from distillates supplies since March, as trading in the January contract expired and contract price for February oil rose $1.57 to $48.17 a barrel…now quoting oil contracts for February delivery, those prices fell $2.29, or 4.8%, to a 17 month low of $45.88 a barrel on Thursday, as as equity markets sold off following a Fed rate hike and the Saudis cut prices to Asian buyers…oil prices then fell 29 cents to $45.59 a barrel on Friday, the lowest closing price since January 2016, after earlier hitting $45.13, the lowest intraday price since mid-July 2017, as global oversupply worries kept buyers away from the market ahead of the holidays and the threat of a U.S. government shutdown added to economic uncertainty…oil prices thus ended the week with a loss of more than 11%, the steepest weekly drop since January 2016, leaving them nearly 41% below the 4 year high of $76.41 a barrel seen in trading of November oil on October 3rd

natural gas prices, meanwhile, ended the week little changed, despite seeing quite a bit of volatility during the week, as weather forecasts were repeatedly revised….trading natural gas contracts for January delivery all week, prices plunged 29.9 cents on Monday, jumped 31 cents Tuesday, fell 11.2 cents on Wednesday and 14.3 cents on Thursday before again jumping 23.3 cents higher on Friday to end the week at $3.816 per mmBTU, just 1.1 cent lower than where they ended the week before…..the natural gas storage report for the week ending December 14th from the EIA showed that the quantity of natural gas in storage in the US fell by 141 billion cubic feet to 2,773 billion cubic feet over the week, which left our gas supplies 697 billion cubic feet, or 20.1% below the 3,470 billion cubic feet that were in storage on December 15th of last year, and 720 billion cubic feet, or 20.6% below the five-year average of 3,493 billion cubic feet of natural gas that are typically in storage after the second week of December….this week’s 141 billion cubic feet withdrawal from US natural gas supplies was a bit above the ~136 billion cubic feet that analysts had been expecting, and a bit below the average of 144 billion cubic feet of natural gas that have been withdrawn from storage during the second week of December in recent years…natural gas storage facilities in the East​ern US​ saw a 40 billion cubic feet drop in supplies over the week, which pushed the region’s gas supply deficit to 15.8% below normal for this time of year, while natural gas supplies in the Midwest fell by a less than normal 44 billion cubic feet as their supply deficit fell to 13.5% below normal for the second weekend of December…but the South Central region saw an above normal 38 billion cubic feet drop in their supplies, as their natural gas storage deficit increased to 27.2% below their five-year average for this time of year…at the same time, 7 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region​,​ as their deficit from normal rose to 23.1%, while 11 billion cubic feet were withdrawn from storage in the Pacific region, and their natural gas supply deficit rose to 28.8% below normal for this time of year….however, graphics on the natural gas storage dashboard indicate that all regions of the US saw considerably warmer weather in the week to December 20th, so next week’s reports should show that withdrawals have moderated and supply deficits have lessened in each of those regions..

putting this week’s storage data into historical perspective, the 2,773 billion cubic feet of natural gas that we had in storage on December 14th was 15.8% lower than the previous five year low for the 2nd week of December of 3,295 billion cubic feet that was set on December 12th of 2014, and was 12.4% below the previous 10 year low of 3167 billion cubic feet that was set on December 12th of 2008…this year’s December 14th storage level was also 1.0% below the 15 year low of 2,802 billion cubic feet of natural gas that we had in storage on December 16th of 2005, and 2.7% below the 2,850 billion cubic feet that were in storage on December 12th of 2003, a year when supplies had peaked at a lower level than this one…we have to follow the archived records (xls) back 16 years, to December 13th of 2002, when 2,635 billion cubic feet of natural gas were in storage, to find a lower quantity of natural gas in storage at this time in December than we have now…. 

The Latest US Oil Supply and Dispostion Data from the EIA

this week’s US oil data from the US Energy Information Administration, reporting ​on the week ending December 14th, indicated little change in our oil imports, our oil exports, our oil production, and our oil refining, and hence we had another small withdraw oil from our commercial crude supplies for the third in a row, following 10 prior weeks of additions to storage…our imports of crude oil rose by an average of 30,000 barrels per day to an average of 7,423,000 barrels per day, after rising by an average of 174,000 barrels per day the prior week, while our exports of crude oil rose by an average of 51,000 barrels per day to an average of 2,325,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,098,000 barrels of per day during the week ending December 14th, 21,000 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 11,600,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,698,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,408,000 barrels of crude per day during the week ending December 14th, 28,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 132,000 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 would seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was still 578,000 barrels per day short of 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 inserted a (+578,000) 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 fell to an average of 7,549,000 barrels per day, ​which was ​still 1.6% more than the 7,432,000 barrel per day average that we were importing over the same four-week period last year….the total 132,000 barrel per day decrease in our total crude inventories included a 71,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 61,000 barrel per day withdrawal from the oil stored in our Strategic Petroleum Reserve, likely ​representing ​part of a sale of 11 million barrels from those reserves to Exxon et al that closed three and a half months ago….this week’s crude oil production was reported as unchanged at 11,600,000 barrels because the rounded figure for output from wells in the lower 48 states was unchanged at 11,100,000 barrels per day, while a 7,000 barrel per day increase to 498,000 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 December 15th was at 9,789,000 barrels per day, so this week’s rounded oil production figure was 18.5% above that of a year ago, and 37.3% 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 95.4% of their capacity in using that 17,408,000 barrels of crude per day during the week ending December 14th, up from last week’s 95.1% of capacity, and a rather high capacity utilization rate for December or for any time of year….the 17,408,000 barrels per day of oil that were refined this week were still at a seasonal high for the time of year for the 26th time out of the past 29 weeks, and 2.0% higher than the previous seasonal high of 17,063,000 barrels of crude per day that were being processed during the week ending December 15th, 2017, when US refineries were operating at 94.1% of capacity… 

with the small drop in the amount of oil being refined, the gasoline output from our refineries was also lower, decreasing by 123,000 barrels per day to 10,334,000 barrels per day during the week ending December 14th, after our refineries’ gasoline output had increased by 791,000 barrels per day during the week ending December 7th…despite the decrease in this week’s gasoline output, our gasoline production during the week was still the highest on record for mid-December, and 2.7% higher than the 10,065,000 barrels of gasoline that were being produced daily during the same week last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 152,000 barrels per day to 5,393,000 barrels per day, after that output had decreased by 26,000 barrels per day the prior week….despite those decreases, this week’s distillates production was also the highest on record for mid-December, and 3.6% higher than the 5,206,000 barrels of distillates per day that were being  produced during the week ending December 15th, 2017…. 

even with the pullback in our gasoline production, our supply of gasoline in storage at the end of the week increased by 1,766,000 barrels to 230,103,000 barrels by December 14th, the 4th increase in the past 9 weeks, which still left our gasoline supplies 6,069,000 barrels lower than they were on the 5th of October….our gasoline supplies rose this week even though the amount of gasoline supplied to US markets rose by 207,000 barrels per day to 9,243,000 barrels per day because our exports of gasoline fell by 363,000 barrels per day to 948,000 barrels per day, while our imports of gasoline rose by 70,000 barrels per day to 595,000 barrels…with th​is week’s increase, our gasoline inventories are once again at a seasonal high for mid-December, 1.0% higher than last December 15th’s level of 227,783,000 barrels, and roughly 3% above the five year average of our gasoline supplies for this time of the year…

even with the ongoing elevated level of our distillates production, our supplies of distillate fuels decreased for the eleventh time in thirteen weeks, falling by 4,237,000 barrels to 119,900,000 barrels during the week ending December 14th, after our distillates supplies had decreased by 1,475,000 barrels during the prior week…our distillates supplies decreased again because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 417,000 barrels per day to a ​​​15 year high ​of ​4,886,000 barrels per day, while our imports of distillates fell by 5,000 barrels per day to 139,000 barrels per day, and while our exports of distillates fell by 180,000 barrels per day to 1,251,000 barrels per day….with this week’s decrease, our distillate supplies finished the week 6.9% below the 128,845,000 barrels that we had stored on December 15th, 2017, and roughly 11% below the five year average of distillates stocks for this time of the year…   

finally, with our oil imports, exports and production little changed, our commercial supplies of crude oil decreased for a third straight week after 10 weekly increases, and for the 24th week in 2018, falling by ​a modest ​497,000 barrels during the week, from 441,954,000 barrels on December 7th to 441,457,000 barrels on December 14th…but even with three straight decreases, our crude oil inventories still remained roughly 7% above the five-year average of crude oil supplies for this time of year, and over 28% above the 10 year average of crude oil stocks for the first week of December, 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 this fall, our oil supplies as of December 14th were only 1.1% above the 436,491,000 barrels of oil we had stored on December 15th of 2017, and remained 9.1% below the 485,449,000 barrels of oil that we had in storage on December 16th of 2016, and 2.4% below the 452,477,000 barrels of oil we had in storage on December 18th of 2015..    

This Week’s Rig Count

US drilling activity increased for the first time in five weeks, led by an increase in oil drilling, hence defying ​our logic that lower oil prices had been the reason that drilling had been slowing in recent weeks… Baker Hughes reported that the total count of rotary rigs running in the US increased by 9 rigs to 1080 rigs over the week ending December 21st, which was also 149 more rigs than the 931 rigs that were in use as of the December 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 increased by 10 rigs to 883 rigs this week, which was also 136 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​ bearing​ formations fell by 1 rig to 197 natural gas rigs, which was still 13 more rigs than the 184 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…

drilling activity in the Gulf of Mexico increased by a single rig to 24 rigs this week, which was up from the 19 rigs deployed in the Gulf of Mexico a year ago at this time…since there is no other offshore drilling off either coast or ​off ​Alaska at this time, nor was there during the same week of 2017, those Gulf of Mexico totals are the same as the US totals..

the count of active horizontal drilling rigs increased by 13 rigs to 940 horizontal rigs this week, the largest increase in horizontal drilling since 14 horizontal rigs were added in the week ending April 6th…it was also 139 more horizontal rigs than the 801 horizontal rigs that were in use in the US on December 22nd 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 vertical rig count decreased by 2 rigs to 69 vertical rigs this week, which was still up from the 64 vertical rigs that were in use during the same week of last year…in addition, the directional rig count also decreased by 2 rigs to 71 directional rigs this week, which was still up from the 66 directional rigs that were operating on December 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 December 21st, the second column shows the change in the number of working rigs between last week’s count (December 14th) and this week’s (December 21st) count, the third column shows last week’s December 14th 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 the 22nd of December, 2017…  

December 21 2018 rig count summary

this week’s changes in the Permian included a rig addition in New Mexico and ​​a net ​one rig ​decrease in Texas, as two rigs were added in Texas Oil District 8, which would correspond to the core Permian – Delaware basin, while Texas Oil District 8A, which includes part of the Permian Midland, saw 3 rigs pulled out…other Texas changes include an oil rig pulled out of the Eagle Ford in south Texas, and an oil rig added in the Dallas-Ft Worth area Barnett shale, which is more often accessed for gas…while 4 rigs were pulled out of the Granite Wash straddles the Texas panhandle Oklahoma border, only one of those appears to have been in Texas…Oklahoma’s count then includes the loss of three of those Granite Wash rigs and the additions of 2 ​rigs ​in the Cana Woodford and 3 ​rigs ​in the Mississippian shale, which straddles the state’s border with Kansas…strangely enough, the Granite Wash, which is usually drilled for oil, saw the addition of a natural gas rig this week, while 5 oil rigs were concurrently pulled out…other natural gas rig additions ​were seen in the Pennsylvania Marcellus and the Haynesville, on the Texas side of the Louisiana border, while natural gas rigs were pulled out of Ohio’s Utica and 3 “other basins” not tracked separately by Baker Hughes…also note that other than the states shown above, Alabama saw the start up of two drilling rigs after being quiet for ​three ​weeks, matching their total of a year ago, Mississippi also saw the addition of 2 rigs this week and now has 6 running, equal to the most in the state since 2015, while Florida, a state which has only seen sporadic activity over the past 5 years, had its lone active rig pulled out after drilling for the 3 prior weeks…

DUC well report for November

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for December, which includes the EIA’s November data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 8th month in a row, this report showed an increase in uncompleted wells nationally in November, as both drilling of new wells and completions of drilled wells increased, but the new drilling increased at a faster pace….like most previous months, this month’s uncompleted well increase was mostly due to a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, with smaller 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 a record 287 wells, from a revised 8,436 wells in October to 8,723 wells in November, again the highest number of such unfracked wells in the history of this report, and an increase of 35.4% from the 6,442 wells that had been drilled but remained uncompleted in November a year ago…that was as 1,594 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during November, up from the 1,577 drilled in October, while 1,307 wells were completed and brought into production by fracking, a increase of just 9 well completions over the 1,298 completions seen in October…at the November completion rate, the 8,723 drilled but uncompleted wells left at the end of the month now represent a 6.7 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 November 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 248, from 3,791 DUC wells in October to 4,039 DUCs in November, as 686 new wells were drilled into the Permian, but only 438 wells in the region were fracked…at the same time, DUC wells in the Anadarko basin region​ centered​ in Oklahoma increased by 45, from 1,090 DUC wells in October to 1,135 DUCs in November, as 210 wells were drilled in the Anadarko basin during November, while 165 Anadarko basin wells were completed…over the same period, the number of DUC wells in the Eagle Ford of south Texas increased by 28 to 1,563, as 215 wells were drilled into the Eagle Ford while 187 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 9 wells to 210, as 64 wells were drilled into the Haynesville during November, while 55 Haynesville wells were fracked during the same period…

on the other hand, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 19 wells, from 607 DUCs in October to 588 DUCs in November, as 118 wells were drilled into the Marcellus and Utica shales, while 137 of the already drilled wells in the region were fracked…in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 16 wells to 421, as 179 Niobrara wells were drilled while 195 Niobrara wells were being fracked…lastly, DUC wells in the Bakken of North Dakota fell by 8, from 775 DUC wells in October to 767 DUCs in November, as 122 wells were drilled into the Bakken in November, while 130 of the drilled wells in that basin were completed….thus, for the month of November, DUCs in the 5 oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by a net of 297 wells to 7,795 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 10 wells to 798 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and natural gas…

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