oil & natural gas prices both down again in volatile trading; warm spell gives natural gas stores a breather..

oil prices ended lower for the 3rd week in a row in quite volatile trading that largely synched with the wild gyrations in wall street markets this week, which in turn were driven by year end tax strategies of hedge funds and institutions rather than any specific economic developments…after falling $5.61 or 11% to $45.59 a barrel, largely on technical factors last week, contract prices of US oil for February delivery plunged another $3.06 or 6.7% to $42.53 a barrel to start the week on Monday, as fears of an economic slowdown rattled global financial markets and drove unrequited selling in light pre-Christmas trading…those fears apparently dissipated over the holiday, as financial markets roared back to their largest gain in history on Wednesday while oil prices shot back up $3.69, or 8.7%, to $46.22 a barrel, their largest daily gain in more than two years…however, as stock indices retreated again on Thursday, so too did crude prices, as they fell $1.61, or 3.5%, to $44.61 a barrel, “giving back some of the gains that were brought along with the euphoria in the stock market“…oil prices then staged a modest rally on Friday, rising 72 cents to $45.33 a barrel, after the weekly EIA inventory data showed a small drop in US crude inventories, in contrast to Thursday API figures that had showed a massive crude supply build…nonetheless, February US crude still finished with a decline of 0.6% for the week, while the global benchmark February Brent crude, which did not participate in the Friday rally, ended the week 3.0% lower at $52.20 a barrel, after having seen a 4.2% drop on Thursday…

natural gas prices, meanwhile, fell for a fourth consecutive week, as unusually warm weather for December continued to reduce demand for natural gas and thus took the edge off the deep supply deficit we started the winter with…quoting natural gas contracts for January delivery to start the week, prices fell 34.9 cents to $3.467 per mmBTU on Monday, as the forecasts for early January cold which had held up prices the prior week had been lifted over the weekend…prices then edged back up 7.6 cents on Wednesday and another 9.9 cents on Thursday as trading in the January gas contract expired at $3.642 per mmBTU…at the same time, natural gas contracts for February delivery, which had ended the prior week priced at $3.750 per mmBTU, fell 32.7 cents on Christmas eve, rebounded 3.5 cents on Wednesday and 8.8 cents on Thursday, and then crashed 24.3 cents to an 8 week low of $3.303 per mmBTU on Friday, as the temperature forecasts again backed off earlier cold forecasts and the EIA reported the smallest withdrawal of natural gas from storage yet this winter….the February natural gas contract price thus ended down nearly 12% for the week, and 13% below where the January natural gas contract had settled the prior Friday….

the natural gas storage report for the week ending December 21st from the EIA showed that the quantity of natural gas in storage in the US fell by 48 billion cubic feet to 2,725 billion cubic feet over the week, which left our gas supplies 623 billion cubic feet, or 18.6% below the 3,348 billion cubic feet that were in storage on December 22nd of last year, and 647 billion cubic feet, or 19.2% below the five-year average of 3,372 billion cubic feet of natural gas that are typically in storage after the third week of December….this week’s 48 billion cubic feet withdrawal from US natural gas supplies was just about what most analysts had been expecting, but it was well below the average of 121 billion cubic feet of natural gas that have been withdrawn from US gas storage during the third week of December in recent years…natural gas storage facilities in the Eastern US saw a 16 billion cubic feet draw from their supplies over the week, half of their average withdrawal over the past five years, as the region’s gas supply deficit was reduced to 14.4% below normal for this time of year, while natural gas supplies in the Midwest fell by 23 billion cubic feet, in contrast to the normal 40 billion cubic feet pull, as their supply deficit was reduced to 12.2% below the normal for the third weekend of December…the South Central region only saw a 2 billion cubic feet drop in their supplies, in contrast to their normal 30 billion cubic foot withdrawal, as their natural gas storage deficit was reduced to 25.5% below their five-year average for this time of year…at the same time, 3 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region, which normally pulls out 7 billion cubic feet for the week, as their deficit from normal fell to 21.9%, while 4 billion cubic feet were withdrawn from storage in the Pacific region, vs 12 billion cubic feet normally withdrawn, and their natural gas supply deficit fell to 27.4% below normal for this time of year….

so, we’ve just seen our weekly withdrawal drop from 141 billion cubic feet during the week ending December 14th to just 48 billion cubic feet during the current reporting week ending December 21st…as we’ve mentioned several times, natural gas demand and hence withdrawal of gas from storage is largely driven by changes in temperature, relatively steady industrial and export demand notwithstanding…that can be illustrated quite well with a couple graphics we’ve pulled from the EIA’s natural gas storage dashboard and included below; both are similar, with the first showing daily regional average temperatures from November 30th to December 13th, and the second showing daily regional temperatures from December 14th to December 27th:

December 19 2018 average regional temps Nov 30 to Dec 13

December 29 2018 average regional temps Dec 14 to Dec 27

the above graphics from the EIA’s natural gas storage dashboard gives us both the average daily temperature covering the period from November 30th through December 27th in each of the five natural gas regions, and also 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 in the first graphic above, temperatures for the heavily populated East, Midwest and South Central regions were generally below normal over the period from December 8th thru December 14th, with the temperatures in the East, which accounts more than a third of the population, consistently averaging in the mid-30s, while temperatures in the Midwest saw average temperatures in the 20s for four days to start the period…that colder than normal period, which included 3 days that were 5 to 9 degrees colder than normal for each of those regions, is what resulted in the 141 billion cubic feet withdrawal from our natural gas supplies over the week ending December 14th, just modestly above the 5 year average withdrawal of 136 billion cubic feet…

now look at the period from December 15th thru December 21st, representing the dates of this week’s report; not only were the temperatures in the East, Midwest and South Central regions above normal for each day during the period, but temperatures for all 5 regions were above normal for every day during the period, with temperatures in the East averaging in the mid-40s, and temperatures in the Midwest averaging in the upper 30s over the period…in fact, except for a few counties on the Gulf Coast, the entire US saw above normal temperatures during the week, with the broad area from the northern Rockies to the Great Lakes all more than 10 degrees above normal, as you can see on the map below, also from the natural gas storage dashboard….overall, we can estimate that temperatures for the lower 48 averaged at least 7 degrees warmer during the week ending December 21st than they were during the week ending December 14th…as a result, the daily production of 87.2 billion cubic feet was nearly adequate to meet the country’s needs, and hence only 48 billion cubic feet, or about 7 billion cubic feet per day, needed to be withdrawn from storage during the week…furthermore, if we look at the daily regional average temperatures over the 6 days beginning December 22 shown above, they too are all above normal, with the small exception of the 30 degree average on December 27th for the mountain states…that means that the coming week’s report for the week ending December 28th will again show a withdrawal from storage much below normal, also serving to alleviate the natural gas deficit which had been running 20% below normal nationally in recent weeks…

December 29 2018 temperature departure from normal for week to Dec 20

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 21st, indicated a modest increase in our oil imports and a big jump in our oil exports, while our commercial crude supplies nonetheless remained statistically unchanged, resulting in a large jump in unaccounted for crude….our imports of crude oil rose by an average of 233,000 barrels per day to an average of 7,656,000 barrels per day, after rising by an average of 30,000 barrels per day the prior week, while our exports of crude oil rose by an average of 644,000 barrels per day to an average of 2,969,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,687,000 barrels of per day during the week ending December 21st, 411,000 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 reportedly increased by 100,000 barrels per day to 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 16,387,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,350,000 barrels of crude per day during the week ending December 21st, 58,000 barrels per day less than the amount of oil they used during the prior week, while over the same period ​7,000 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 ​​957,000 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 (+957,000) 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”…with our unaccounted for crude reaching 957,000 barrels per day, the largest amount in recent history, all of this week’s oil supply and disposition figures ​that we have cited ​must be taken with a big grain of salt…(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 7,423,000 barrels per day, now 2.3% less than the 7,598,000 barrel per day average that we were importing over the same four-week period last year….the statistical ​6,000 barrel per day decrease in our total crude inventories included a rounded ​7,000 barrel per day withdrawal from our commercially available stocks of crude oil, while the oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s crude oil production was reported 100,000 barrels per day higher at 11,700,000 barrels per day because the rounded figure for output from wells in the lower 48 states rose by 100,000 barrels per day to 11,200,000 barrels per day, while a 1,000 barrel per day decrease to 497,000 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 22nd was at 9,754,000 barrels per day, so this week’s rounded oil production figure was almost 20% 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 95.1% of their capacity in using th​ose 17,350,000 barrels of crude per day during the week ending December 21st, down from last week’s 95.4% of capacity, but still a high capacity utilization rate for December or for any time of year….the 17,350,000 barrels per day of oil that were refined this week were no longer at a seasonal high for the time of year, however, as they were fractionally lower than the previous seasonal high of 17,398,000 barrels of crude per day that were being processed during the week ending December 22nd, 2017, when US refineries were operating at 95.7% of capacity… 

with the small drop in the amount of oil being refined, the gasoline output from our refineries was also lower, decreasing by 190,000 barrels per day to 10,334,000 barrels per day during the week ending December 21st, after our refineries’ gasoline output had decreased by 123,000 barrels per day during the week ending December 14th…with that decrease in this week’s gasoline output, our gasoline production during the week was 0.8% lower than the 10,222,000 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) increased by 51,000 barrels per day to 5,444,000 barrels per day, after that output had decreased by 152,000 barrels per day the prior week….even with that increase, this week’s distillates production was fractionally lower than the 5,476,000 barrels of distillates per day that were being  produced during the week ending December 22nd, 2017…. 

even with the pullback in our gasoline production, our supply of gasoline in storage at the end of the week increased by 3,006,000 barrels to 233,106,000 barrels by December 21st, the 5th increase in the past 10 weeks, which​ nonetheless​ still left our gasoline supplies 3,066,000 barrels lower than they were on the 5th of October, at a time of year when gasoline inventories are usually increasing….our gasoline supplies rose this week even though the amount of gasoline supplied to US markets rose by 105,000 barrels per day to 9,348,000 barrels per day while our exports of gasoline fell by 97,000 barrels per day to 851,000 barrels per day and our imports of gasoline fell by 86,000 barrels per day to 509,000 barrels…with this week’s increase, our gasoline inventories are once again at a seasonal high for the third week in December, 2.1% higher than last December 22nd’s level of 228,374,000 barrels, and roughly 4% 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 increased for just the 3rd time in fourteen weeks, but just by a statistically insignificant 2,000 barrels to 119,902,000 barrels during the week ending December 21st, after our distillates supplies had decreased by 4,237,000 barrels during the prior week…our distillates supplies eked out that small increase because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 644,000 barrels per day to 4,242,000 barrels per day, while our imports of distillates rose by 65,000 barrels per day to 204,000 barrels per day, and while our exports of distillates rose by 155,000 barrels per day to 1,406,000 barrels per day….despite this week’s increase, our distillate supplies finished the week 7.7% below the 129,935,000 barrels that we had stored on December 22nd, 2017, and roughly 11% below the five year average of distillates stocks for this time of the year…   

finally, with the caveat that oil which was unaccounted for this week approached a million barrels per day, our commercial supplies of crude oil slipped by a statistically insignificant 46,000 barrels to 441,411,000 barrels on December 21st, from 441,457,000 barrels on December 14th, the fourth straight decrease after 10 weekly increases, and the 25th down week during 2018….but even after four 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 21st were only 2.2% above the 431,882,000 barrels of oil we had stored on December 22nd of 2017, and remained 9.2% below the 486,063,000 barrels of oil that we had in storage on December 23rd of 2016, and 3.0% below the 455,106,000 barrels of oil we had in storage on December 25th of 2015..     

This Week’s Rig Count

US drilling activity increased for the second week in a row, and was thence up for the 8th time in the past 14 weeks during the week ending December 28th, as drilling for oil continued to expand despite depressed prices and a 6.7 month backlog of uncompleted wellsBaker Hughes reported that the total count of rotary rigs running in the US increased by 3 rigs to 1083 rigs over the week ending December 28th, which was also 154 more rigs than the 929 rigs that were in use as of the December 29th 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 2 rigs to 885 rigs this week, which was also 138 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 increased by 1 rig to 198 natural gas rigs, which was also 16 more rigs than the 182 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 was unchanged at 24 rigs this week, which was up from the 18 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 identical to the US totals..

the count of active horizontal drilling rigs increased by 5 rigs to 945 horizontal rigs this week, which was also 149 more horizontal rigs than the 796 horizontal rigs that were in use in the US on December 29th 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 1 rig to 68 vertical rigs this week, which was still up from the 65 vertical rigs that were in use during the same week of last year…​at the same time, the directional rig count also decreased by 1 rig to 70 directional rigs this week, which was still up from the 68 directional rigs that were operating on December 29th 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 28th, the second column shows the change in the number of working rigs between last week’s count (December 21st) and this week’s (December 28th) count, the third column shows last week’s December 21st 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 2​9th of December, 2017… 

December 28 2018 rig count summary

in something of an oddity, both this week’s state variance table and the shale basin table match the summary figures we have just reviewed; not necessarily because there was no change in activity outside of these major states or basins, but because if there was, it netted out to no change, and thus doesn’t show any in either the Current and Historical Rigs by State xls spreadsheet, nor the count by basin table of the North America Rotary Rig Count excel file that we check each week…the Permian basin, which accounts for more than 40% of US drilling activity, also shows a net no change, even though two rigs were added in Texas Oil District 8, the core Permian – Delaware basin, and ​even ​though ​another rig was added to Texas Oil District 7C, or the southern part of the Permian Midland, because 3 rigs were pulled out of Texas Oil District 8A, or the northern Permian Midland…meanwhile, natural gas rigs were added in Ohio’s Utica shale and Louisiana’s Haynesville, while one natural gas rig was pulled out of Oklahoma’s Ardmore Woodford, which shows no net change because an oil rig was added in that basin at the same time…

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