natural gas prices see steepest monthly drop in 15 years; Christmas week natural gas withdrawal is smallest in 13 years

oil prices rebounded into the new year, rising every day this week, largely on news of a drop in OPEC output and hints of progress on resolving the U.S.-China trade imbroglio…after falling 0.6% to $45.33 a barrel in volatile trading that saw prices drop as low as $42.36 a barrel last week, prices of US oil for February delivery initially rallied nearly 2% on Monday on comments from both the US and Chinese presidents indicating progress in trade talks, but later fell back to close with a gain of just 8 cents at $45.41 a barrel, thus ending 2018 down nearly 25 percent, the first annual decline since 2015…after opening the new year higher, oil prices then slid to as low as $44.35 on Wednesday morning, before staging a rally that lifted prices from near session lows of $44.50 to $46.50 in the matter of a minute, likely on a report that OPEC’s oil output plunged by the most in almost two years, and then rose to as high as $47.78 a barrel, before falling back to settle with a gain for the day of $1.13 at $46.54 a barrel, weighed down by concerns of a slowing global economyoil prices were higher again in choppy trade on Thursday, first rising to $47.49 and then falling back to $45.35, before ending with a gain of 55 cents at $47.09 a barrel, as concerns about slowing economic growth and a glut of crude were offset by Saudi output cuts and weakness in the US dollar…oil prices rose to as high as $49.22 ​a barrel ​on Friday, supported by a drop in the oil rig count, on news that vice-ministerial trade talks between the US and China had been scheduled for next week, but again fell back late to close with a gain of just 87 cents at $47.96 a barrel, with gains capped by an EIA report of large increases in refined product inventories…US oil prices thus​ ended​ 5.8% higher on the week, their biggest weekly increase since August, while the international benchmark of Brent crude for March ended the week $3.85 or 7.2% higher at $57.06, its largest gain in more than two years

meanwhile, natural gas prices fell for the 5th week in a row as warm weather persisted and the the EIA reported the smallest Christmas week withdrawal in the modern record…prices of natural gas for February delivery fell 36.3 cents to $2.94 per mmBTU on Monday, trading below $3 per mmBTU for the first time since September…hence, natural gas finished the month of December down 36.3%, the sharpest monthly drop since March of 2003, and yes, a 36.3 cent drop on Monday did result in prices 36.3% lower than a month earlier…natural gas prices were then pretty much flat over the first two trading days of the new year, inching up 1.8 cents on Wednesday, but falling back 1.3 cents on Thursday, before rallying 9.9 cents or 3.3% on Friday to close the week at $3.044 per mmBTU, on the risk of colder weather come the 3rd week of January

with that near​ly​ historic drop in natural gas prices, we’ll include a graph of the recent price trajectory, to show you what that looked like..

January 5 2019 natural gas prices

the above graph is a Saturday afternoon screenshot of the interactive US natural gas 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 natural gas prices for a day of trading between mid August of 2018 and Friday of this week, wherein the green bars represent the days when the price of natural gas went up, and red bars represent the days when the price of natural gas went down…for green bars, the starting natural gas price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while for red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar…also visible on this “candlestick” style graph are the faint grey “wicks” above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day…you can see that before October, natural gas prices had stayed below $3 per mmBTU, and it was only when the possibility of a wintertime natural gas shortage became widely known that prices began to move ​higher…then prices shot up to nearly $5 when November turned cold, and withdrawals of gas from storage were much above normal…now, with the milder temperatures and smaller withdrawals from storage of the past few weeks, the ​natural gas traders are thinking that the crisis has past, and hence natural gas prices ​have fallen back to their previous baseline…

the natural gas storage report for the week ending December 28th from the EIA showed that the quantity of natural gas in storage in the US fell by 20 billion cubic feet to 2,705 billion cubic feet over the week, which left our gas supplies 450 billion cubic feet, or 14.3% below the 3,155 billion cubic feet that were in storage on December 29th of last year, and 560 billion cubic feet, or 17.2% below the five-year average of 3,265 billion cubic feet of natural gas that are typically in storage ​going into the last weekend of December….this week’s 20 billion cubic feet withdrawal from US natural gas supplies was much less than the 44 billion cubic feet to 47 billion cubic feet withdrawal that major surveys had forecast, and it was way below the average of 107 billion cubic feet of natural gas that have been withdrawn from US gas storage during the fourth week of December in the last 5 years…at it turns out, this week’s withdrawal was​ also​ the smallest Christmas week withdrawal since 2005..

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: 

January 5th 2019 change in natural gas inventories for Dec 28

the above graph was copied from a blog post at Bespoke Weather that was published on Friday of this week, ​shortly ​after the holiday postponed release of the natural gas storage report…on this graph, the dark blue ​graph ​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 during the first week in January of this year, and a withdrawal of 288 billion cubic feet during the third week of January 2018 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, a deficit which persisted throughout the summer, despite near normal additions to storage….in the week ending November 16th, you can see the big blue spike down that represented the largest drop in our supplies ever in mid-November, which came after our natural gas supplies had already started the winter at a 15 year low…then, two weeks ago, there was also a large withdrawal, but as you can see, by that time the 5 year average withdrawal was already near that level for mid-December…now we have had two much smaller than normal withdrawals of gas from storage, with this recent week showing the smallest Christmas​-week​ withdrawal since 2005​; contrast that with Christmas week of last year (shown in red), when 193 billion cubic feet ​of natural gas were​ needed from storage to meet demand​…while the past two weeks​ of low withdrawals​ have certainly taken the pressure off​ supplies​,​ ​we aren’t completely out of the woods yet, since our gas stores are still more than 17% below recent averages, ​but barring a real frigid January, we should be able to make it through the winter with the supplies we now have on hand..

The Latest US Oil Supply and Disposition Data from the EIA

this week’s US oil data from the US Energy Information Administration, reporting on the week ending December 28th, indicated a big pickup in oil refining coupled with a modest decrease in our oil imports and a big drop in our oil exports, which together meant our commercial crude supplies remained statistically unchanged for the second week in a row…our imports of crude oil fell by an average of 264,000 barrels per day to an average of 7,392,000 barrels per day, after rising by an average of 233,000 barrels per day the prior week, while our exports of crude oil fell by an average of 732,000 barrels per day to an average of 2,237,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,155,000 barrels of per day during the week ending December 28th, 468,000 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 16,855,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,760,000 barrels of crude per day during the week ending December 28th, 410,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 1,000 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 906,000 barrels per day short of what refineries reported they used during the week plus what was added to storage….to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+90​6,000) 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 as high as 90​6,000 barrels per day, all of this week’s oil supply and disposition figures that we have cited must therefore be considered questionable…(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 rose to an average of 7,466,000 barrels per day, but was still 4.1% less than the 7,789,000 barrel per day average that we were importing over the same four-week period last year….the 1,000 barrel per day increase in our total crude inventories was due to a 1,000 barrel per day addition to our commercially available stocks of crude oil, since the oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s crude oil production was reported unchanged at 11,700,000 barrels per day because the rounded figure for output from wells in the lower 48 states was unchanged at 11,200,000 barrels per day, while a 2,000 barrel per day decrease to 495,000 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 29th was at 9,782,000 barrels per day, so this week’s rounded oil production figure was 19.6% 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 97.2% of their capacity in using those 17,760,000 barrels of crude per day during the week ending December 28th, ​up from last week’s 95.1% of capacity, and the highest December capacity utilization rate on record….the 17,760,000 barrels per day of oil that were refined this week were thus again at a seasonal high for the time of year for the 27th time out of the past 31 weeks, and 0.9% higher than the previous December high of 17,608,000 barrels of crude per day that were being processed during the week ending December 29th, 2017, when US refineries were operating at 96.7% of capacity…  … 

despite the increase in the amount of oil being refined, the gasoline output from our refineries was much lower, decreasing by 611,000 barrels per day to 9,533,000 barrels per day during the week ending December 28th, after our refineries’ gasoline output had decreased by 190,000 barrels per day during the week ending December 21st…with that decrease in this week’s gasoline output, our gasoline production during the week was 1.5% lower than the 9,682,000 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 147,000 barrels per day to 5,591,000 barrels per day, after that output had increased by 51,000 barrels per day the prior week….with that increase, this week’s distillates production virtually equal to the the 5,592,000 barrels of distillates per day that were being produced during the week ending December 29th, 2017…. 

even with the pullback in our gasoline production, our supply of gasoline in storage at the end of the week increased by 6,890,000 barrels to 239,996,000 barrels by December 28th, the 6th increase in the past 11 weeks, and enough to finally lift our gasoline supplies back above those of early October….our gasoline supplies rose this week because the amount of gasoline supplied to US markets fell by 725,000 barrels per day to 8,623,000 barrels per day while our exports of gasoline rose by 21,000 barrels per day to 872,000 barrels per day and our imports of gasoline fell by 195,000 barrels per day to 314,000 barrels…with this week’s increase, our gasoline inventories are again at a seasonal high for anytime in December, 2.9% higher than last December 29th’s level of 233,187,000 barrels, and roughly 5% above the five year average of our gasoline supplies for this time of the year…

with the near record production of distillates, our supplies of distillate fuels increased for just the 4th time in fifteen weeks, rising by 9,529,000 barrels to 129,431,000 barrels during the week ending December 28th, after our distillates supplies had increased by a statistically insignificant 2,000 barrels during the prior week…our distillates supplies increased because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 1,039,000 barrels per day to 3,203,000 barrels per day (after falling by 644,000 barrels per day the prior week), and because our exports of distillates fell by 184,000 barrels per day to 1,222,000 barrels per day, while our imports of distillates fell by 9,000 barrels per day to 195,000 barrels per day….but despite this week’s big increase, our distillate supplies finished the week 6.8% below the 138,834,000 barrels that we had stored on December 29th, 2017, and remained 7% below the five year average of distillates stocks for this time of the year…   

finally, with the week’s big drop in oil exports largely offset by lower imports and increased refining, our commercial supplies of crude oil rose by a statistically insignificant 7,000 barrels to 441,418,000 barrels on December 28th, from 441,411,000 barrels on December 21st, the first increase in 5 weeks but the 27th ‘up’ week of 2018….with our increases for the year now greater than our decreases, our crude oil inventories were thus roughly 8% 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 last 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 28th​ ​were only 4.0% above the 424,463,000 barrels of oil we had stored on December 29th of 2017, and remained 7.8% below the 479,012,000 barrels of oil that we had in storage on December 30th of 2016, and 2.1% below the 450,956,000 barrels of oil we had in storage on January 1st of 2015..    

This Week’s Rig Count

US drilling activity decreased for the fifth time in seven weeks during the week ending January 4th, as drilling for oil has stagnated in light of depressed oil prices and a 6.7 month backlog of uncompleted wellsBaker Hughes reported that the total count of rotary rigs running in the US decreased by 8 rigs to 1075 rigs over the week ending January 4th, which was still 151 more rigs than the 924 rigs that were in use as of the January 5th report of 2018, 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 fell by 8 rigs to 877 rigs this week, which was still 135 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 bearing formations was unchanged at 198 natural gas rigs, which was still 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 targeting rigs that were deployed on August 29th, 2008… 

two of the rigs that were shut down this week had been drilling from platforms in the Gulf of Mexico, which reduced the Gulf of Mexico rig count to 22 rigs for the week, which was still 5 rigs more than the 17 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 2017-18, those Gulf of Mexico totals are identical to the US totals..

the count of active horizontal drilling rigs remained unchanged at 945 horizontal rigs this week, which was still 147 more horizontal rigs than the 798 horizontal rigs that were in use in the US on January 5th 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 4 rig to 64 vertical rigs this week, which was still up from the 62 vertical rigs that were in use during the same week of last year…at the same time, the directional rig count also decreased by 4 rigs to 66 directional rigs this week, which was still up from the 64 directional rigs that were operating on January 5th of 2018…

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 January 4th, the second column shows the change in the number of working rigs between last week’s count (December 28th) and this week’s (January 4th) count, the third column shows last week’s December 28th 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 5th of January, 2018…  

January 4 2019 rig count summary

in addition to the major producing states shown above, Mississippi also saw 4 rigs shut down this week, leaving 2 rigs active in the state, their lowest count since last January 12th…those 4 from Mississippi, and the 5 rigs pulled out of California, pretty much account for this week’s decrease (the 2 Gulf of Mexico rigs that were shut down come out of Louisiana’s count)…otherwise, i don’t see anything that’s hidden in this table, such as a “no change” masking a gas rig being swapped out for an oil rig, so what the table indicates this week is pretty much what happened…since the basin count above shows an increase of two rigs while the horizontal rig count was unchanged, two horizontal rigs had to have been pulled out of basins not tracked separately by Baker Hughes, ​such as those in California and Mississippi…then there were also 8 ​more ​rigs, 4 vertical and 4 directional, pulled out of those “other” basins not tracked separately by Baker Hughes, for a net decrease of 10 rigs in “other basins”….and all of those changes, including those shown above, were oil rigs; there were no changes to gas rig counts in any state…



note:  there’s more here

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