holidays saw largest increase in distillates supplies on record; natural gas drilling now at a 40 month high

oil prices were again higher this week, largely on optimistic chatter coming out of the US-China trade talks in Beijing, but finally snapped their longest rally in 9 years when prices fell back for the first time since December 27th during Friday’s session…after rising $2.63 or 5.8% to $47.96 a barrel last week, mostly on news of a big drop in OPEC output, US oil prices for February delivery opened higher and initially jumped to as high as $49.79 a barrel on Monday morning, on Saudi shipment cuts and expectations ahead of US-China trade talks, but later fell back to close just 56 cents higher at $48.52 a barrel, supported by steadier equities marketsoptimism about the trade talks in Beijing again drove prices higher throughout the day on Tuesday, with oil prices finishing $1.26 or 2.6% higher at $49.78 a barrel…oil prices then spiked when the trade talks in Beijing were carried over into an unscheduled third day on Wednesday, with US crude finishing $2.58 or 5% higher at $52.36 a barrel, despite an EIA report showing much bigger-than-expected increases in stockpiles of gasoline and distillatesthat EIA report and concerns about US-China trade talks initially sent oil prices tumbling 1% on Thursday morning, but prices recovered to close 23 cents higher at $52.59 a barrel, its ninth straight day of gains, supported by comments from Fed chairman Powell that lifted stock markets…however, hopes for the longest rally on record were dashed on Friday when worries over a global economic slowdown returned after talks in Beijing broke up without a deal being struck to end the escalating US-China trade war and oil prices fell $1, or 1.9%, to $51.84 per barrel, snapping a 9-session streak of price gains

natural gas prices, meanwhile, ended the week higher on the strength of a Friday rally, but traded near $3 per mmBTU for most of the week as warm weather persisted….after the steepest monthly price drop in 15 years left natural gas prices at $3.044 per mmBTU at the end of last week, a change in the weekend forecast that delayed the arrival of January cold pushed prices 10 cents lower on Monday…natural gas prices then rallied more than 10 cents on a report of lower production on Tuesday, but fell back to close at $2.967 per mmBTU, a gain of just 2.3 cents….a forecast for slightly colder temperatures later in January added 1.7 cents on Wednesday, but even a larger than expected withdrawal of natural gas from storage couldn’t sustain a rally on Thursday, as prices fell back 1.5 cents…however, the forecast cold finally arrived in force on Friday and sent natural gas prices 13 cents higher as they closed the week at 3.099 mmBTU, 5.5 cents higher than the prior week’s close…

the natural gas storage report for the week ending January 4th from the EIA indicated that the quantity of natural gas in storage in the US fell by 91 billion cubic feet to 2,614 billion cubic feet over the week, which left our gas supplies 204 billion cubic feet, or 7.2% below the 2,818 billion cubic feet that were in storage on January 5th of last year, and 464 billion cubic feet, or 15.1% below the five-year average of 3,078 billion cubic feet of natural gas that have typically been in storage heading into the first weekend of January….this week’s 91 billion cubic feet withdrawal from US natural gas supplies was more than the average estimate for a 75 billion cubic feet withdrawal that a Reuters poll had forecast, but it was much less the average of 182 billion cubic feet of natural gas that have been withdrawn from US gas storage during the New Year week in the last 5 years…an all time record 359 billion cubic feet of natural gas were withdrawn from storage during the week ending January 5th of last year, so that large withdrawal obviously impacted the 5 year average, as well as being the reason that our storage deficit from last year fell from 14.3% last week to 7.2% this week…

The Latest US Supply and Disposition of Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, also reporting on the week ending January 4th, indicated that despite a large increase in our oil imports and a modest drop in our oil exports, the data showed a modest withdrawal of oil from our commercial crude supplies because the unaccounted for crude factor was reversed from that of the prior week …our imports of crude oil rose by an average of 454,000 barrels per day to an average of 7,846,000 barrels per day, after falling by an average of 264,000 barrels per day the prior week, while our exports of crude oil fell by an average of 172,000 barrels per day to an average of 2,065,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,781,000 barrels of per day during the week ending January 4th, 626,000 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 17,481,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,566,000 barrels of crude per day during the week ending January 4th, 194,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 240,000 barrels of oil per day were reportedly being pulled out of the oil 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 155,000 barrels per day more than what refineries reported they used during the week….to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (-155,000) 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”…since our unaccounted for crude was at +906,000 barrels per day last week, this week’s oil supply and disposition figures would be considered more accurate than last week’s…(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 7,579,000 barrels per day last week, but was still 3.6% less than the 7,863,000 barrel per day average that we were importing over the same four-week period last year….the 240,000 barrel per day increase in our total crude inventories was due to a 240,000 barrel per day addition to 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 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 10,000 barrel per day increase to 505,000 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 January 5th was at 9,492,000 barrels per day, so this week’s rounded oil production figure was 23.3% 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 96.1% of their capacity in using those 17,566,000 barrels of crude per day during the week ending January 4th, down from last week’s December record 97.2% of capacity, but still the highest capacity utilization rate for the first week of January since 1999….likewise, the 17,566,000 barrels per day of oil that were refined this week were again at a seasonal high for the date for the 28th time out of the past 32 weeks, and 1.4% higher than the 17,323,000 barrels of crude per day that were being processed during the week ending January 5th, 2017, when US refineries were operating at 95.3% of capacity… 

with the decrease in the amount of oil being refined, the gasoline output from our refineries was also lower, falling by 141,000 barrels per day to 9,392,000 barrels per day during the week ending January 4th, after our refineries’ gasoline output had decreased by 611,000 barrels per day during the week ending December 28th…with that decrease in this week’s gasoline output, our gasoline production was the lowest in 50 weeks, and 1.1% lower than the 9,525,000 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 28,000 barrels per day to 5,563,000 barrels per day, after that output had increased by 147,000 barrels per day the prior week….despite that decrease, this week’s distillates production was 5.1% higher than the the 5,592,000 barrels of distillates per day that were being produced during the week ending January 5th, 2017…. 

even with the pullback in our gasoline production, our supply of gasoline in storage at the end of the week jumped by 8,066,000 barrels to 248,062,000 barrels by January 4th, the 7th increase in the past 12 weeks, and the largest increase in gasoline inventories since the week ending January 1st, 2016….our gasoline supplies rose this week because our imports of gasoline rose by 236,000 barrels per day to 550,000 barrels while our exports of gasoline fell by 145,000 barrels per day to 727,000 barrels per day, and while the amount of gasoline supplied to US markets rose by 113,000 barrels per day to 8,735,000 barrels per day, after falling by 725,000 barrels per day the prior week….with this week’s increase, our gasoline inventories are again at a seasonal high for the first week of January, 4.5% higher than last January 5th’s level of 237,322,000 barrels, and roughly 5% above the five year average of our gasoline supplies for this time of the year…

with our elevated level of distillates production, our supplies of distillate fuels increased for the 5th time in sixteen weeks, rising by 10,611,000 barrels to 129,431,000 barrels during the week ending January 4th, after our distillates supplies had increased by 9,529,000 barrels during the prior week…this week’s increase was the largest one week increase since the week ending January 2nd, 2015, and the two week increase of 20,140,000 barrels was the largest two week increase on record…our distillates supplies increased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 248,000 barrels per day to 2,955,000 barrels per day (after falling by 1,663,000 barrels per day over the course of the prior 2 weeks), and because our imports of distillates rose by 66,000 barrels per day to 261,000 barrels per day, while our exports of distillates rose by 131,000 barrels per day to 1,353,000 barrels per day….but despite this week’s big increase, our distillate supplies were still 2.1% below the 143,088,000 barrels that we had stored on January 5th, 2017, and 5% below the five year average of distillates stocks for this time of the year…   

since our distillate supplies have just seen the largest two week jump on record, we’ll include a graph showing what that looked like..

January 9th 2019 distillates supplies for January 4

the above graph came from a email from John Kemp of Reuters, which might also have been posted on his twitter page, and it shows US distillate fuels inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year’s range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the running median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year…this graph also shows the number of thousands of barrels of distillates we had stored at the end of each week in 2017 traced by a yellow graph, and our distillates supplies for each week of 2018 traced in red…to that red 2018 graph i have added an extension into the week ending January 4th, 2019, to bring his last graph for last year up to date….

notice that within the light blue shaded area that there is a seasonality to distillates supplies, as they’re normally built up during the spring and summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heating oil is greatest…as you can see in yellpw, as recently as February 2017, our distillate supplies were repeatedly setting wintertime record highs, but then fell to below average by summer as our distillate exports increase…then, during this past year, when supplies of distillates should have been increasing during April and May – days 91 to 151 above – as they normally do, they were falling instead, largely because we had been exporting our distillates production at a record pace, and hence our supplies tracked near a 10 year low for most of June and June…so even though distillates supplies recovered somewhat during August, they began falling again in September and, like natural gas, were nearly 10% below their 10 year average heading into winter, when distillates are used as heat oil…so even though our refineries have started producing distillates at a near record pace in the weeks since, and we’ve thus seen the largest two week build on record, at least partially due to the recent mild temperatures, our supplies as of January 4th were still 2.1% below those of a year ago, and 5% below the 5 year average for this time of year…

finally, with this week’s reversal in the unaccounted for crude factor, our commercial supplies of crude oil decreased for fifth time in 6 weeks, falling by 1,680,000 barrels during the week, from 441,418,000 barrels on December 28th to 439,738,000 barrels on January 4th…however, with a run of 10 large weekly increases before the recent smaller decreases, our crude oil inventories are still roughly 8% above the five-year average of crude oil supplies for this time of year, and roughly 30% above the 10 year average of crude oil stocks for the beginning of January, with the disparity between those figures arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories have largely been rising since this Fall, after falling through most of the past year and a half until then, our oil supplies as of January 4th were thus 4.8% above the 419,515,000 barrels of oil we had stored on January 5th of 2017, while remaining 7.8% below the 479,012,000 barrels of oil that we had in storage on January 6th of 2016, and 2.1% below the 450,956,000 barrels of oil we had in storage on January 8th of 2015..  

This Week’s Rig Count

US drilling activity, as evidenced by the number of drilling rigs active at the end of the week, was unchanged for the week ending January 11th, as drilling for oil decreased, likely in light of recently depressed oil prices and a 6.7 month backlog of uncompleted wells, while drilling for natural gas increased, likely reflecting the high natural gas prices of several weeks ago, when this week’s drilling work was being contracted… Baker Hughes reported that the total count of rotary rigs running in the US remained at 1075 rigs over the week ending January 11th, which was still 136 more rigs than the 939 rigs that were in use as of the January 12th report of 2018, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, which was the week before OPEC announced their attempt to flood the global oil market…  

the count of rigs drilling for oil fell by 4 rigs to 873 rigs this week, which was still 121 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 increased by 4 rigs to 202 natural gas rigs, which was also 15 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…however, this week marked the first time that​ active natural gas rigs have topped 200 since September 4th, 2015….

a rig that had been drilling from a platform in the Gulf of Mexico offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 21 rigs for th​is​​report, which was still 2 rigs more than the 19 rigs deployed in the Gulf of Mexico a year ago at this time…since there is still 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…in addition to the rig offshore from Louisiana being idled, a rig drilling from a platform on Louisiana inland waters was also shut down this week, leaving two such “inland waters” rigs operating there, still up from the one inland waters rig active a year ago…

the count of active horizontal drilling rigs increased by 3 rigs to 948 horizontal rigs this week, which was also 143 more horizontal rigs than the 805 horizontal rigs that were in use in the US on January 12th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the vertical rig count increased by 1 rig to 65 vertical rigs this week, which was also up from the 62 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count decreased by 4 rigs to 62 directional rigs this week, which was also down from the 72 directional rigs that were operating on January 12th 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 11th, the second column shows the change in the number of working rigs between last week’s count (January 4th) and this week’s (January 11th) count, the third column shows last week’s January 4th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running before 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 12th of January, 2018…   

January 11 2019 rig count summary

while the Permian basin saw a one rig increase, the net change in the Texas Permian basin was a decrease, as two rigs were added to Texas Oil District 8, ​which is ​the core Permian Delaware, while 3 rigs were pulled out of Texas Oil District 7C, or the southern​ portion of the​ Permian Midland…meanwhile, the Permian Delaware that extends into New Mexico saw the addition of two rigs, netting an increase of one for the entire basin…meanwhile, the 4 rig increase in the Marcellus, 2 in Pennsylvania and 2 in West Virginia, accounts for this week’s natural gas rig increase by itself; however, natural gas rigs were also added in Ohio​’s​ Utica and northern Louisiana’s Haynesville, as two natural gas rigs that had been drilling in basins not tracked separately by Baker Hughes were concurrently pulled out…since the natural gas rig increases that are evident ​above account for an increase of 6 horizontal rigs, we know that 3 horizontal rig​s​ must have been shut down elsewhere…two of those obviously had been drilling in Oklahoma’s Cana Woodford, but even those were partially offset by the Permian increase…so there must have been 2 horizontal rigs pulled out of basins not tracked separately by Baker Hughes…with no unaccounted for changes in other states, it would seem those would have had to be in Oklahoma, unless we had a masked rig switch elsewhere, such as a horizontal rig pulled out of a state while a vertical rig was added, which would appear as a goose-egg in the summary tables…

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