gasoline inventories at a record high; DUC well backlog at 7.1 months as wells drilled & wells completed hit 6 month lows

oil prices slipped this week for the first time in 4 weeks, in trading that was somewhat less volatile than what we’ve seen over the past few months, suggesting that prices may be entering a trading range…after rising 4.3% to $53.80 on OPEC output cuts and wishful thinking on trade last week, US oil prices for February delivery traded sharply lower when the markets reopened after the King holiday on Tuesday, after a warning from the International Monetary Fund and weak economic data from China renewed concerns of a slowing global economy and reduced oil demand, with prices ​for​ February oil ending the day down $1.23 at $52.57, while oil contracts for March delivery fell $1.03 to $53.01… now quoting March oil as the market price, oil prices gave up early gains on Wednesday as fears of a widespread economic slowdown, which would dent demand for fuel, weighed on prices and then extended ​into losses when the API reported a surprisingly large increase in US crude supplies, with oil ending down 39 cents at $52.62 a barrel….however, oil prices reversed that slide and rose 51 cents to $53.13 a barrel on Thursday, after a​n administration​ backed Venezuelan leader swore himself in as the country’s interim president and the US threatened sanctions on their oil exports, a move which would hurt US oil refiners more than it would Venezuela….oil prices continued to climb on the new Venezuelan crisis on Friday, despite surging US oil and gasoline supplies, with oil ending the session up 56 cents at $53.69 per barrel…thus for the week, the March US oil contract recovered to end just 0.7% lower than a week earlier, while the international benchmark price for Brent crude for March ended 1.7% lower over 5 days of trading at $61.64, and also posted its first week of losses in four weeks…

natural gas contract prices were also lower this week, mostly ​due to a 13% drop on Tuesday that was precipitated by weaker cash prices for the physical commodity, lower LNG exports, and a long range forecast for warmer weather…then, after falling 44.2 cents to $3.040 per mmBTU on Tuesday, prices of natural gas for February delivery fell another 6 cents on Wednesday after afternoon weather models warmed in the long-range forecast, but​ then​ reversed those losses and rose 11.9 cents on Thursday and 7.9 cents on Friday to end the week at $3.178 per mmBTU, still down 8.7% from the prior Friday’s close…

the natural gas storage report for the week ending January 18th from the EIA indicated that the quantity of natural gas in storage in the US fell by 163 billion cubic feet to 2,370 billion cubic feet over the week, which meant our gas supplies were thus 33 billion cubic feet, or 1.4% above the 2,337 billion cubic feet that were in storage on January 19th of last year, but still 305 billion cubic feet, or 11.4% below the five-year average of 2,675 billion cubic feet of natural gas that have typically been in storage as of the 3rd weekend of January….this week’s 163 billion cubic feet withdrawal from US natural gas supplies was a bit more than the Reuters’ survey estimate that 154 billion cubic feet would be needed, but it was somewhat less the average of 185 billion cubic feet of natural gas that have been withdrawn from US gas storage during the second full week of January over the last 5 years…while 54 billion cubic feet was pulled from natural gas supplies in the East and 56 billion cubic feet were pulled from storage in the Midwest this week, those regions are now running only 8.6% and 5.3% below normal respectively…on the other hand, natural gas supplies in the Pacific region, which were only down 11 billion cubic feet this week, are still 26.9% below their five year average for this time of year..

as this week’s report noted, our natural gas supplies are now above those of the same weekend a year ago….that’s because the temperatures over the recent month this year have been considerably warmer than the equivalent month of last year, and hence much less natural gas has been needed from storage….over the 5 weeks ending January 18th, we only needed to withdraw 303 billion cubic feet of natural gas from storage to meet our needs; however, over the 5 weeks ending January 19th of last year, we found it necessary to pull 1,133 billion cubic feet of natural gas from storage to meet our needs, which were even less at the time, with considerable electrical generation and export capacity having been added in the past year…as you can see from the map below, all regions except for the east remained warmer than normal this past week, and temperatures in the upper Midwest were much above normal, and we still managed to need 163 billion cubic feet of natural gas from storage…hence, the forecast for much colder than normal temperatures for the coming week should put our natural gas supplies for this year to the test, and determine if our stores can remain “within the five-year historical range for this time of year” throughout the remainder of th​is winter…

January 26 2019 temperature deviation for week ending January 17th(source

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

this week’s US oil data from the US Energy Information Administration, reporting on the week ending January 18th, indicated a large increase in our oil imports and a big drop in our oil exports, while our oil refining slowed modestly, which thus resulted in a large addition of surplus oil to our commercial crude supplies…our imports of crude oil rose by an average of 664,000 barrels per day to an average of 8,191,000 barrels per day, after falling by an average of 319,000 barrels per day the prior week, while our exports of crude oil fell by an average of 931,000 barrels per day to an average of 2,035,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,156,000 barrels of per day during the week ending January 18th, 1,595,000 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 ​estimated to be unchanged at a record 11,900,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 18,065,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,049,000 barrels of crude per day during the week ending January 18th, 174,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 1,139,000 barrels of oil per day were reportedly being added to the oil that’s in storage in the US….thus, 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 132,000 barrels per day short of what was added to storage plus 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 (+132,000) 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 rose to an average of 7,739,000 barrels per day last week, but was still 2.1% less than the 7,904,000 barrel per day average that we were importing over the same four-week period last year…. the 1,139,000 barrel per day increase in our total crude inventories ​was a 1,139,000 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 11,900,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,400,000 barrels per day, while a 16,000 barrel per day decrease to 491,000 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 19th was at 9,878,000 barrels per day, so this week’s rounded oil production figure was 20.5% above that of a year ago, and 41.2% 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 92.9% of their capacity in using those 17,049,000 barrels of crude per day during the week ending January 18th, down from last week’s 94.6% of capacity, but still the highest capacity utilization rate for the middle ​week ​of January since 1999….likewise, the 17,049,000 barrels per day of oil that were refined this week were again at a seasonal high for the date for the 30th time out of the past 34 weeks, and 3.4% higher than the 16,483,000 barrels of crude per day that were being processed during the week ending January 19th, 2017, when US refineries were operating at 90.9% of capacity… 

even with the decrease in the amount of oil being refined, the gasoline output from our refineries was a bit higher, rising by 20,000 barrels per day to 9,604,000 barrels per day during the week ending January 18th, after our refineries’ gasoline output had increased by 192,000 barrels per day the prior week….with the modest increase in this week’s gasoline output, our gasoline production was 2.6% higher than the 9,358,000 barrels of gasoline that were being produced daily during the same week last year….meanwhile, refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 208,000 barrels per day to 5,204,000 barrels per day, after that output had decreased by 151,000 barrels per day the prior week….however, despite those decreases, this week’s distillates production was still 7.8% higher than the the 4,827,000 barrels of distillates per day that were being produced during the week ending January 19th, 2018…. 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 4,050,000 barrels to 259,615,000 barrels by January 18th, after jumping by a near record of 15,569,000 barrels during the prior two weeks….our gasoline supplies rose​ again​ this week as our imports of gasoline rose by 184,000 barrels per day to 561,000 barrels and as our exports of gasoline fell by 283,000 barrels per day to 547,000 barrels per day, while the amount of gasoline supplied to US markets rose by 303,000 barrels per day to 8,868,000 barrels per day…with this week’s increase, our gasoline inventories are at a record high, 6.4% higher than last January 19th’s level of 244,040,000 barrels, and roughly 6% above the five year average of our gasoline supplies for this time of the year…

since our gasoline inventories are now at a record high, we’ll include a historical graph of those gasoline inventories for some context:

January 26 2019 gasoline inventory as of January 18th

the above graph was lifted from a Zero Hedge hedge article titled “Gasoline Overproduction Leads To Negative Margins” which in turn was a reposting of an oil price article with the same title, which itself is largely a restatement of a Reuters report which addresses global gasoline inventories, rather than those just in the US…the oil price article incorrectly assumes that record US gasoline inventories are due to overproduction, whereas as we’ve noted, our gasoline production over the recent weeks has been running below that of a year ago and hence is now close to a two year low for the most recent 5 week period…actually, as we’ve reported, our gasoline inventories have recently grown ​largely due to lower domestic consumption and reduced exports…the misunderstanding in the associated article notwithstanding, the graph above correctly shows our weekly gasoline inventories beginning in 2002, and the pattern of seasonally high gasoline supplies in the middle of winter each year should be fairly evident…since there has been a gradual increase in gasoline inventories over the 17 years shown, it’s not surprising that a new record high would be set in any given January or February, when unnecessary driving is at a seasonal low…​in this case, ​the 259,615,000 barrels of gasoline that we had stored on January 18th exceeded the 259,063,000 barrels we had stored on February 10th, 2016 by just 0.2%…

with the decrease in our distillates production, our supplies of distillate fuels decreased for the 12th time in eighteen weeks, falling by 617,000 barrels to 143,009,000 barrels during the week ending January 18th, after our distillates supplies had increased by a record 23,107,000 barrels over the previous three weeks…our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 219,000 barrels per day to 4,668,000 barrels per day while our imports of distillates fell by 23,000 barrels per day to 355,000 barrels per day, and while our exports of distillates rose by 62,000 barrels per day to 979,000 barrels per day….even with this week’s decrease, our distillate supplies were 1.8% above the 139,840,000 barrels that we had stored on January 19th, 2017, even as they remained 2% below the five year average of distillates stocks for this time of the year…

finally, with rising imports and falling exports, our commercial supplies of crude oil increased for ​just the ​2nd time in 8 weeks, rising by 7.970,000 barrels over the week, from 437,055,000 barrels on January 11th to 445,025,000 barrels on January 18th…with a run of 10 large weekly increases before the recent smaller decreases, ​however, ​our crude oil inventories are now roughly 9% above the five-year average of crude oil supplies for this time of year, and more than 30% above the 10 year average of crude oil stocks for the middle 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 had mostly been rising since this past Fall, after falling until then through most of the prior year and a half, our oil supplies as of January 18th were thus 8.1% above the 411,583,000 barrels of oil we had stored on January 19th of 2017, while remaining 8.8% below the 488,296,000 barrels of oil that we had in storage on January 20th of 2016, and 4.0% below the 463,552,000 barrels of oil we had in storage on January 22nd 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, increased for the first time in 4 weeks this past week, but still remains below the levels of early October, when oil prices were 30% higher…Baker Hughes reported that the total count of rotary rigs running in the US rose by 9 rigs to 1059 rigs over the week ending January 25th, which was also 112 more rigs than the 947 rigs that were in use as of the January 26th 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 rose by 10 rigs to 862 rigs this week, which was also 103 more oil rigs active this week 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 decreased by 1 rig to 197 natural gas rigs, which was still 9 more rigs than the 188 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…

drilling in the Gulf of Mexico increased by 1 rig to 20 rigs this week, as the only rig that had been drilling offshore from Texas was shut down, while new drilling began from 2 platforms ​set up ​offshore from Louisiana…that’s an increase of 3 Gulf rigs from a year earlier, when 16 rigs were deployed offshore from Louisiana and a rig was also active offshore from Texas….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 20​1​8, the Gulf of Mexico totals are identical to the US totals…meanwhile, in contrast to the ​increased activity offshore, a single platform which had been drilling through a inland body of water in southern Louisiana was shut down this week​,​ and now only one remains, the same number of such “inland waters” rigs as​ there were​ a year ago…

the count of active horizontal drilling rigs increased by 3 rigs to 932 horizontal rigs this week, which was also 124 more horizontal rigs active than the 808 horizontal rigs that were in use in the US on January 26th of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the directional rig count increased by 4 rigs to 59 directional rigs this week, which was still down from the 73 directional rigs that were in use during the same week of last year…at the same time, the vertical rig count increased by 2 rigs to 68 vertical rigs this week, which was also up from the 66 vertical rigs that were operating on January 26th 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 25th, the second column shows the change in the number of working rigs between last week’s count (January 18th) and this week’s (January 25th) count, the third column shows last week’s January 18th 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 26th of January, 2018…    

January 25 2019 rig count summary

since there is an apparent increase of 7 horizontal rigs shown in the basin totals shown above, we know that 4 horizontal rigs working in other basins not tracked separately by Baker Hughes must have been shut down…and since those basin count changes shown only account for activity ​in ​a handful of states, we know that most of the state count changes involved increases or decreases in rigs in those same basins…​meanwhile, ​the rig counts in all four Permian basin Texas Oil Districts were all unchanged this week, so New Mexico’s 4 rig increase included three rigs in the Permian and one elsewhere in the state, as there are at least ​2 other plays in New Mexico which have been drilled recently…although the Eagle Ford of southern Texas shows no change in its count, drillers​ in​ the Eagle Ford did in fact add a natural gas rig while shutting down an oil rig, leaving 72 oil rigs still active there…other natural gas rigs were added in Ohio’s Utica shale and West Virginia’s Marcellus, ​where there were 2 rigs added while a Pennsylvania Marcellus rig was shut down…to arrive at the ‘minus one’ natural gas rig number we mentioned earlier, 4 natural gas rigs working in other basins not tracked separately by Baker Hughes were concurrently shut down…finally, in addition to the totals for the major producing states that are shown above, drillers in Mississippi also added a rig this week and now have 3 rigs active, same number as a year ago, while Bakken frackers shut down another one of their rigs in Montana, where just a single rig remains active, same as a year ago…there had been as many as 4 rigs working in Montana at the beginning of December…

DUC well report for ​December

Tuesday of this past week saw the release of the EIA’s Drilling Productivity Report for January, which includes the EIA’s December data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 9th month in a row, this report showed an increase in uncompleted wells nationally in ​December, even though both drilling of new wells and completions of drilled wells decreased….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 a moderate increase of uncompleted wells in 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 218 wells, from a revised 8,376 wells in November to 8,594 wells in December, a 31.2% increase from the 6,548 wells that had been drilled but remained uncompleted in December a year ago…that was as 1,429 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during December, down from the 1,531 drilled in November, while 1,211 wells were completed and brought into production by fracking, a decrease of 88 well completions from the 1,299 completions seen in November…at the December completion rate, the 8,594 drilled but uncompleted wells left at the end of the month now represent a 7.1 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 December 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 205, from 3,843 DUC wells in November to 4,048 DUCs in December, as 601 new wells were drilled into the Permian, but only 396 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas increased by 41, from 1,520 DUC wells in November to 1,561 DUCs in December, as 214 wells were drilled in the Eagle Ford during December, while 173 Eagle Ford wells were completed…over the same period, the number of DUC wells in the Anadarko basin region centered in Oklahoma increased by 7 to 1,077, as 166 wells were drilled into the Anadarko basin while 159 Anadarko 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 6 wells to 193, as 55 wells were drilled into the Haynesville during December, while 49 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 27 wells, from 556 DUCs in November to 529 DUCs in December, as 111 wells were drilled into the Marcellus and Utica shales, while 138 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 3 wells to 455, as 175 Niobrara wells were drilled in December while 178 Niobrara wells were being fracked…lastly, DUC wells in the Bakken of North Dakota fell by 11, from 742 DUC wells in November to 731 DUCs in December, as 107 wells were drilled into the Bakken in December, while 118 of the drilled wells in that basin were completed….thus, for the month of December, 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 239 wells to 7,872 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 21 wells to 722 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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