DUC well backlog falls to 6.5 months on jump in completions; oil supplies see largest draw since July

after rising to a 4 month high midweek on the largest drop in US crude supplies since July, oil prices ended the week little changed after renewed fears of economic weakness knocked prices back…after ending last week 4.4% higher at $58.52 a barrel on lower inventories and supply disruptions, prices for US crude to be delivered in April rose 57 cents to $59.09 a barrel on Monday, supported by another OPEC commitment to continue supply cuts til June, and signs of a drop in U.S. crude supplies….an early rally then stalled on Tuesday after reports of Chinese pushback in trade talks, but oil prices still held near multi-month highs as OPEC reported higher “conformity” with their production cut agreement, with US crude finishing just 6 cents lower at $59.03 a barrel…prices then slumped 70 cents early Wednesday, but rallied later to a new 2019 high, after the EIA reported the largest oil storage drop since July, with the April oil contract expiring 80 cents higher at $59.83 a barrel while the contract for May crude rose 93 cents to $60.23 a barrel…May oil prices pulled back from those mulitmonth highs on Thursday after the Fed signaled there would be no rate increases in 2019, citing concerns over global growth prospects, which could threaten energy demandoil prices then tanked with equity markets on Friday as fears of a global slowdown spread, falling to as low as $58.28 a barrel, but recovered to finish down 94 cents at $59.04 a barrel, thus managing to eke out a third straight weekly gain, with May oil finishing up 0.4% from its week-ago finish

natural gas prices, meanwhile, finished lower, as cold weather forecasts early in the week, which had pushed gas prices 5.5 cents higher on Monday and 2.4 cents higher on Tuesday, gave way to warmer weather models and lower natural gas prices later in the week, when prices of natural gas for April delivery fell 5.4 cents on Wednesday, rose a tenth of a cent with the storage report on Thursday, and then fell 6.8 cents on Friday, to end the week at $2.753 per mmBTU, a decrease of 1.5% from the prior week’s $2.795 per mmBTU close..

the natural gas storage report for the week ending March 15th from the EIA indicated that the quantity of natural gas held in storage in the US fell by 47 billion cubic feet to 1,143 billion cubic feet over the week, which meant our gas supplies ended the period 315 billion cubic feet, or 21.5% below the 1,458 billion cubic feet that were in storage on March 16th of last year, and 556 billion cubic feet, or 32.7% below the five-year average of 1,699 billion cubic feet of natural gas that have typically remained in storage after two full weeks of March….this week’s 47 billion cubic feet withdrawal from US natural gas supplies was close to the 48 billion cubic feet withdrawal that analysts surveyed by S&P Global Platts had expected, but it was less than the average of 56 billion cubic feet of natural gas that have been withdrawn from US gas storage during the same winter week over the last 5 years….

with the heating season coming to a close soon, we’ll include a graphic that includes this year’s and last year’s weekly change in natural gas inventories, as well as the long term averages, so we can get an idea what to expect, and what it will take to bring our current natural gas supplies back into the normal range…

March 23 2019 natural gas storage as of March 15

the above graph was copied from a blog post at Bespoke Weather that was published on Thursday of this week, shortly after the release of the natural gas storage report…on this graph, weekly withdrawals from natural gas storage in billions of cubic feet are shown below the zero line, and weekly additions to natural gas storage in billions of cubic feet are shown above the zero line; hence, the dark blue graph for 2019 shows this year’s weekly withdrawals year to date, the red graph shows 2018’s weekly additions and withdrawals of natural gas from storage, the green graph shows the 5 year average weekly change of natural gas in storage, and the orange graph shows the historical average weekly change of natural gas supplies in EIA data going back to 1992…

at the bottom far left corner in red you can see the record withdrawal of 359 billion of cubic feet of natural gas during the first week in January of 2018, 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; which combined lowered our natural gas supplies to 17.5% below normal to start last year, a deficit which persisted throughout the summer, despite near normal additions to storage….then, for the week ending November 16th 2018, you can see the big red spike downward that represented the largest drop in our natural gas supplies ever in mid-November, which came after our natural gas supplies had already started the winter at a 15 year low, and thus left us in an even more precarious situation…however, our supply deficit began to recover with the smallest Christmas-week withdrawal in 13 years, as you can see in the red spike higher on the far right side of the graphic, beginning a trend which persisted into January, when our withdrawals of natural gas remained well below normal, as you can see in the far left of the blue graph…

then, as you can see in the blue 2019 graph, our cold February and early March this year have more recently resulted in above normal withdrawals of gas from storage, up until this week, which have thus left our supplies 32.7% below the 5 year average of natural gas in storage, and 21.5% below last year’s already well below normal levels…observed weather and forecasts indicate that the next two weeks should see withdrawals of gas from storage close to normal, before we head into April, when our natural gas needs should be able to be met out of production….nonetheless, our supplies as of this report are still 315 billion cubic feet below where they were on the same date last year, so to merely bring our supplies of gas back to the low levels that we started this past winter at, we have to add an average of 10 billion cubic feet more natural gas to storage each week this spring and summer than we did last year…on the graphic above, that would mean the blue graph would have to consistently stay above the red one through the next seven months, just to avoid going into the winter of 2020 in worse shape than we started this past winter..

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 March 15th, indicated a big increase in our crude oil exports and a correspondingly large withdrawal from our commercial supplies of crude….our imports of crude oil rose by an average of 186,000 barrels per day to an average of 6,932,000 barrels per day, after falling by an average of 255,000 barrels per day the prior week, while our exports of crude oil rose by an average of 846,000 barrels per day to 3,392,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,540,000 barrels of per day during the week ending March 15th, 660,000 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 was estimated to be 100,000 barrels per day greater than last week at 12,100,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,640,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 16,198,000 barrels of crude per day during the week ending March 15th, 178,000 more barrels per day than the amount of oil they used during the prior week, while over the same period 1,370,000 barrels of oil per day were reportedly being withdrawn from the oil that’s in storage in the US…..therefore, 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 812,000 more barrels per day than the oil 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 (-812,000) 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 that large of a disparity, we have to figure one or more of this week’s oil metrics is in error by a statistically significant amount.. (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) indicated that the 4 week average of our oil imports fell to an average of 6,649,000 barrels per day last week, now 11.2% less than the 7,487,000 barrel per day average that we were importing over the same four-week period last year…. the 1,370,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be 100,000 barrels per day higher at 12,100,000 barrels per day because the rounded estimate for output from wells in the lower 48 states rose by 100,000 barrels per day to 11,600,000 barrels per day, while a 4,000 barrel per day increase in Alaska’s oil production to 484,000 barrels per day was not enough to make a difference in the rounded national total…last year’s US crude oil production for the week ending March 16th was at 10,407,000 barrels per day, so this reporting week’s rounded oil production figure was 16.3% above that of a year ago, and 43.6% 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…    

meanwhile, US oil refineries were operating at 88.9% of their capacity in using 16,198,000 barrels of crude per day during the week ending March 15th, up from 87.6% of capacity the prior week, but still a bit lower than before Venezuelan imports of heavy crude​ that Gulf Coast refineries are optimized to use were cut off….the 16,198,000 barrels per day of oil that were refined this week were down by 3.5% from the 16,777,000 barrels of crude per day that were being processed during the week ending March 16th, 2018, when US refineries were operating at 91.7% of capacity… 

with the increase in the amount of oil being refined, the gasoline output from our refineries was also higher, rising by 190,000 barrels per day to 9,925,000 barrels per day during the week ending March 15th, after our refineries’ gasoline output had decreased by 117,000 barrels per day the prior week….with that increase in ​​the week’s gasoline output, ​this week’s gasoline production​ was​ little changed from the 9,932,000 barrels of gasoline that were being produced daily during the same week last year….meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 67,000 barrels per day to 4,923,000 barrels per day, after that output had decreased by 63,000 barrels per day the prior week….after this week’s increase, the week’s distillates production was more than 9.3% above the 4,503,000 barrels of distillates per day that were being produced during the week ending March 16th, 2018…. 

even with the increase in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 4,587,000 barrels to 241,503,000 barrels over the week to March 15th, after supplies had fallen by 4,624,000 barrels over the prior week….our gasoline supplies continued to fall again this week because the amount of gasoline supplied to US markets increased by 269,000 barrels per day to 9,409,000 barrels per day, after increasing by 78,000 barrels per day the prior week, even as our exports of gasoline fell by 272,000 barrels per day to 659,000 barrels per day, while our imports of gasoline rose by 220,000 barrels per day to 793,000 barrels per day…after having reached a record high eight weeks ago, our gasoline inventories are now fractionally below last March 16th’s level of 243,065,000 barrels, even as they remain roughly 2% above the five year average of our gasoline supplies at this time of the year…

likewise, even with the increase in our distillates production, our supplies of distillate fuels fell for the 18th time in twenty-six weeks, decreasing by 4,127,000 barrels to 132,242,000 barrels during the week ending March 15th, after our distillates supplies had increased by 383,000 barrels over the prior week…our distillates supplies decreased by this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 753,000 barrels per day to 4,706,000 barrels per day, and because our imports of distillates fell by 136,000 barrels per day to 102,000 barrels per day, while our exports of distillates fell by 177,000 barrels per day to 909,000 barrels per day…but even with this week’s inventory decrease, our distillate supplies ended the week 0.9% above the 131,044,000 barrels that we had stored on March 16th, 2018, but fell to roughly 4% below the five year average of distillates stocks for this time of the year…

finally, with the big jump in this week’s oil exports, our commercial supplies of crude oil in storage decreased for the third time in 9 weeks, falling by 9,589,000 barrels over the week, from 449,072,000 barrels on March 8th to 439,483,000 barrels on March 15th…with that big draw, the largest since July of last year, our crude oil inventories are now roughly 2% below the recent five-year average of crude oil supplies for this time of year, but remain around 30% above the prior 5 year (2009 – 2013) average of crude oil stocks after the second full week of March, 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 generally falling until then through most of the prior year and a half, our oil supplies as of March 15th were still 2.6% above the 428,306,000 barrels of oil we had stored on March 16th of 2018, while falling to 17.6% below the 533,110,000 barrels of oil that we had in storage on March 17th of 2017, and 12.4% below the 501,517,000 barrels of oil we had in storage on March 18th of 2016…       

This Week’s Rig Count

US drilling rig activity slowed for the fifth week in a row and is now down by 7% so far this year, as the lower prices for both oil and natural gas we’ve seen since year end​ combined with​ the large backlog of uncompleted wells​​ have continued to impact drilling decisions….Baker Hughes reported that the total count of rotary rigs running in the US fell by 10 rig to 1016 rigs over the week ending March 22nd, which was still 21 more rigs than the 995 rigs that were in use as of the March 23rd 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 9 rig​s​ to 824 rigs this week, which was still 20 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014…at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 1 to 192 natural gas rigs, which was just 2 more than the 190 natural gas rigs that were drilling a year ago, but way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008…

drilling activity offshore in the Gulf of Mexico was down by 2 rigs to 20 rigs this week, which was still up by 7 rigs from the 13 rigs active in the Gulf a year ago, which was a multiyear low at that time…the count of active horizontal drilling rigs decreased by 7 rigs to 900 horizontal rigs this week, which was still 30 more horizontal rigs active than the 870 horizontal rigs that were in use in the US on March 23rd of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…..at the same time, the vertical rig count decreased by 1 rig to 53 vertical rigs this week, which was also down by 10 rigs from the 63 vertical rigs that were in use during the same week of last year….in addition, the directional rig count was down by 2 to 63 directional rigs this week, which was ​still ​up by 1 rig from the 62 directional rigs that were operating on March 23rd 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 March 22nd, the second column shows the change in the number of working rigs between last week’s count (March 15th) and this week’s (March 22nd) count, the third column shows last week’s March 15th 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 23rd of March, 2018…    

March 22 2019 rig count summary

as you can see, half of this week’s rig decrease was ​from the Permian of west Texas and New Mexico, which has now seen their uncompleted well total top 4,000, reducing the​ir​ incentive to drill more…in the Texas Permian, 3 rigs were pulled out of Texas Oil District 8, which would generally correspond to the core Permian Delaware, and one rig was removed from Texas Oil District 7C, or what would be the southern part of the Permian Midland basin…since a total of 5 rigs were pulled out of the Permian, one of them was th​erefore pulled ​out ​from the Permian Delaware in New Mexico, where there was thus also another rig shut down in another part of the state…other than the 4 rig decrease in Texas, you ​also ​see Louisiana’s rig count was down by 3; those included the 2 rigs ​shut down ​in the state’s Gulf of Mexico waters, and a gas ​rig pulled from the Haynesville shale in the northwest quadrant of the state…​in addition to that ​Haynesville natural gas​ rig, another gas rig was pulled out of the Arkoma Woodford in Oklahoma, while a natural gas rig was added in Ohio’s Utica shale…other than those 3, all other changes this week were oil directed rigs, including the 4 rigs shut down in basins not tracked separately by Baker Hughes, which are not shown above…

DUC well report for February

Monday of the  past week saw the release of the EIA’s Drilling Productivity Report for March, which includes the EIA’s February data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 11th month in a row, this report showed an increase in uncompleted wells nationally in February, even as drilling of new wells decreased ​and completions of drilled wells increased….like most previous months, this month’s uncompleted well increase was largely due to an increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, with modest increases of uncompleted wells in the Eagle Ford of south Texas and the Niobrara chalk of the Rockies front range also contributing…for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 93 wells, from a revised 8,483 DUC wells in January to 8,576 DUC wells in February, a 24.5% increase from the 6,887 wells that had been drilled but remained uncompleted as of the end of February a year ago…that was as 1,418 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during February, down by 14 from the 1,432 wells drilled in January, while 1,325 wells were completed and brought into production by fracking, a increase of 113 well completions from the 1,212 completions seen in January…at the February completion rate, the 8,576 drilled but uncompleted wells left at the end of the month represent a 6.5 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 February 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 88, from 3,916 DUC wells in January to 4,004 DUCs in February, as 574 new wells were drilled into the Permian, but only 486 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas increased by 16, from 1,527 DUC wells in January to 1,543 DUCs in February, as 208 wells were drilled in the Eagle Ford during January, while 192 Eagle Ford wells were completed…over the same period, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range increased by 8 wells to 527, as 194 Niobrara wells were drilled in February while 186 Niobrara wells were being fracked…in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region also saw their uncompleted well inventory increase by 4 wells to 211, as 57 wells were drilled into the Haynesville during February, while 53 Haynesville wells were fracked during the same period… meanwhile, DUC wells in the Bakken of North Dakota rose by 1, from 722 DUC wells in January to 723 DUCs in February, as 113 wells were drilled into the Bakken in January, while 112 of the drilled wells in that basin were completed…

on the other hand, the number of DUC wells in the Anadarko basin region centered in Oklahoma decreased by 18 to 1,053, as 145 wells were drilled into the Anadarko basin during February while 163 Anadarko wells were being fracked….lastly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 6 wells, from 521 DUCs in January to 515 DUCs in February, as 1​27 wells were drilled into the Marcellus and Utica shales, while 1​33 of the already drilled wells in the region were fracked…..thus, for the month of February, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by a net of 95 wells to 7,850 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 2 wells to 726 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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