first quarter oil prices rise most in 10 years; first quarter rig count drops most in 3 years

oil prices rose for a 4th straight week despite a Trump attempt to drive them lower this past week and thus ended March with the largest quarterly price increase since 2009after rising just 0.4% to $59.04 a barrel last week, prices for US crude to be delivered in May drifted lower on Monday, as concerns about a global economic slowdown more than offset the prospect of tighter crude supply, with prices finishing 22 cents lower at $58.82 a barrel…but oil prices rose nearly 2 percent on Tuesday as traders turned their attention to geopolitical factors, including U.S. sanctions on Iran and Venezuela, that were tightening global supplies, with US crude ending $1.12 higher at $59.94 a barrel…an early Wednesday rally to $60.22 was cut short, however, when the EIA surprised traders by reporting ​an increase in US crude supplies and record production, with May WTI oil falling 53 cents for the day and settling at $59.41 per barrel…oil prices then fell more than 2% to $58.20 on Thursday morning, after Trump tweeted it’s ‘very important that OPEC increase the flow of oil’ because prices are too high, but then recovered from those losses and subsequently rallied above pre-tweet levels before slipping back to settle 11 cents lower at $59.30 a barrel..​.​.momentum from the Trump tweet recovery carried into Friday, as oil prices opened 23 cents higher and then rallied to as high as $60.73 a barrel after weekly data from Baker Hughes showed the number of oil rigs fell by eight and went on to close 84 cents, or 1.4% higher at $60.14 a barrel, the highest closing price since Nov. 9th and a 32% increase ​over the first quarter, the​ ​biggest quarterly rise in a decade

with all the media headlines touting that largest quarterly oil price rise since 2009, it seems a little perspective is in order, so we’ll include a graph that shows daily US oil prices over the last six months…

March 30 2019 oil prices

the above graph is a Saturday afternoon screenshot of the interactive US oil 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 oil prices for a day of oil trading between October 1st, 2018 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down…for green bars, the starting oil 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 slightly 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…so while you can see that prices have rallied steadily since the first of the year, and are now up 32% for the 1st quarter, they are still more than 21% lower than the 4 year high of $76.41 a barrel that they closed at on October 3rd 2018, less than 6 months ago…put another way, while prices are up $18 from their Christmas​ eve​ low, they’re still $16 below where they were in early October (​and ​note that since the above graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting..  

while oil prices were pushing higher, natural gas prices fell quite steadily on progressively warmer April forecasts following a gain of just two-tenths of a cent on Monday…quoting natural gas for April delivery at the beginning of the week, prices for that contract fell 4​.2​ cents ​over the next two days ​before expiring at $2.713 per mmBTU on Wednesday…then natural gas prices for May delivery, which had ended last week priced at $2.767 per mmBTU and had fallen 4.8 cents by Wednesday’s close, ​​fell another seven-tenths of a cent on Thursday and 5 cents more on Friday to end the week down 10.5 cents at $2.662 per mmBTU, pressured by warm weather and the report of a weak supply draw

the natural gas storage report for the week ending March 22nd from the EIA ​showed that the quantity of natural gas held in storage in the US fell by 36 billion cubic feet to 1,107 billion cubic feet over the week, which meant our gas supplies ended the period 285 billion cubic feet, or 20.5% below the 1,392 billion cubic feet that were in storage on March 23rd of last year, and 551 billion cubic feet, or 33.2% below the five-year average of 1,658 billion cubic feet of natural gas that have typically remained in storage after three full weeks of March….this week’s 36 billion cubic feet withdrawal from US natural gas supplies was slightly more than the 33 billion cubic feet withdrawal that analysts surveyed by S&P Global Platts had expected, but it was less than the average of 41 billion cubic feet of natural gas that have been withdrawn from US gas storage during the same March week over the last 5 years…. 

with the past week’s temperatures generally above normal over the lower 48 states, and with Cheniere’s Sabine Pass LNG export faculty partly down for maintenance, it appears that this will have been the last storage report of this heating season to show a draw on supplies, as most heating needs in the moderate temperatures of April should be able to be met out of current production…analysts at S&P Global Platts are calling for an injection of 16 billion cubic feet of natural gas into storage for the week ending March 29th and then a 32 billion cubic feet injection for the following week…the national weather service’s 8 to 14 day forecast ​on Saturday ​had indicated a high probability of much above normal temperatures for every place east of the Great Plains, and a better than average chance of above normal temperatures almost everywhere else, so the chances of a late winter cold spell affecting supplies nationally now seem slim…that does not preclude some areas still seeing natural gas shortfalls, though…as Platts points out, the 62 billion cubic feet left in storage in the Rockies region is almost one-quarter lower than at any other time in EIA’s historical data, and further draws were expected on nearly empty regional storage fields this weekend as a cold front sweeps the region…but from after that until next fall, we should be seeing additions to storage, so the immediacy we’ve associated with these reports over the past several months should now be by the boards…

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 22nd, indicated modest decreases in both our crude oil imports and our oil exports, but an addition to our commercial supplies of crude, as oil that was unaccounted shifted from the demand side of the balance sheet last week to the supply side this week…our imports of crude oil fell by an average of 392,000 barrels per day to an average of 6,540,000 barrels per day, after rising by an average of 186,000 barrels per day the prior week, while our exports of crude oil fell by an average of 506,000 barrels per day to 2,886,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,654,000 barrels of per day during the week ending March 22nd, 114,000 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 reported to be unchanged from 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 15,754,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 15,831,000 barrels of crude per day during the week ending March 22nd, 367,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 400,000 barrels of oil per day were reportedly being added to 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 and from oilfield production was 477,000 fewer barrels per day than what was added to storage plus 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 (+477,000) 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 last week’s unaccounted oil was at -812,000 barrels per day, that means 1,289,000 million barrels of oil per day miraculously appeared on the US oil balance sheet from one week to the next, meaning that any comparison of figures from this week to last week is pretty much meaningless.. (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 rose to an average of 6,805,000 barrels per day last week, still 11.7% less than the 7,703,000 barrel per day average that we were importing over the same four-week period last year…. the 400,000 barrel per day increase in our total crude inventories was all added to 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 unchanged at 12,100,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,600,000 barrels per day, while a ​5,000 barrel per day increase in Alaska’s oil production to 48​9,000 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 23rd was at 10,433,000 barrels per day, so this reporting week’s rounded oil production figure was 16.0% 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 86.6% of their capacity in using 15,831,000 barrels of crude per day during the week ending March 22nd, down from 88.9% of capacity the prior week, and quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off….​similarly, the 15,831,000 barrels per day of oil that were refined this week were down by 5.7% from the 16,795,000 barrels of crude per day that were being processed during the week ending March 23rd, 2018, when US refineries were operating at 92.3% of capacity… 

with the decrease in the amount of oil being refined, the gasoline output from our refineries was also lower, falling by 268,000 barrels per day to 9,657,000 barrels per day during the week ending March 22nd, after our refineries’ gasoline output had increased by 190,000 barrels per day the prior week….with that decrease in the week’s gasoline output, this week’s gasoline production was 6.3% less than the 10,305,000 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) ​inched up​ by 2,000 barrels per day to 4,925,000 barrels per day, after that output had increased by 67,000 barrels per day the prior week…but after this week’s small increase, the week’s distillates production was 1.7% above the 4,844,000 barrels of distillates per day that were being produced during the week ending March 23rd, 2018…. 

with the decrease in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 2,883,000 barrels to 238,620,000 barrels over the week to March 22nd, after supplies had fallen by 4,587,000 barrels over the prior week….the draw from our gasoline supplies was smaller this week than last because the amount of gasoline supplied to US markets decreased by 285,000 barrels per day to 9,124,000 barrels per day, after increasing by 269,000 barrels per day the prior week, while our exports of gasoline rose by 34,000 barrels per day to 693,000 barrels per day, and while our imports of gasoline fell by 105,000 barrels per day to 688,000 barrels per day…after having reached a record high nine weeks ago, our gasoline inventories are now fractionally lower than last March 23rd’s level of 239,593,000 barrels, even as they remain roughly 2% above the five year average of our gasoline supplies at this time of the year…

with little change in our distillates production, our supplies of distillate fuels fell for the 19th time in twenty-seven weeks, decreasing by 2,075,000 barrels to 130,167,000 barrels during the week ending March 22nd, after our distillates supplies had decreased by 4,127,000 barrels over the prior week…the draw on our distillates supplies was smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 490,000 barrels per day to 4,216,000 barrels per day, and because our imports of distillates rose by 93,000 barrels per day to 195,000 barrels per day, while our exports of distillates rose by 291,000 barrels per day to 1,200,000 barrels per day…but even with this week’s inventory decrease, our distillate supplies ended the week 1.0% above the 128,954,000 barrels that we had stored on March 23rd, 2018, while falling to roughly 5% below the five year average of distillates stocks for this time of the year…

finally, with the sudden reappearance of some of the crude that had gone missing for two weeks, our commercial supplies of crude oil in storage increased for the seventh time in 10 weeks, rising by 2,800,000 barrels over the week, from 439,483,000 barrels on March 15th to 442,283,000 barrels on March 22nd…however, with a total draw of over 13.4 million barrels in the 2 previous weeks, our crude oil inventories were still roughly 2% below the recent five-year average of crude oil supplies for this time of year, while remaining around 30% above the prior 5 year (2009 – 2013) average of crude oil stocks after the third 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 22nd were still 2.9% above the 429,949,000 barrels of oil we had stored on March 23rd of 2018, but ​at the same time, still 17.2% below the 533,977,000 barrels of oil that we had in storage on March 24th of 2017, and 12.2% below the 503,816,000 barrels of oil we had in storage on March 25th of 2016…        

This Week’s Rig Count

US drilling rig activity fell for the sixth week in a row and is now down by more that 7% so far this year, which is the largest drilling pullback in any quarter since the first quarter of 2016….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 29th, which was still 13 more rigs than the 993 rigs that were in use as of the March 30th 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 816 rigs this week, which was still 19 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 2 rigs to 190 natural gas rigs, which was 4 rigs less than the 194 natural gas rigs that were drilling a year ago, and 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 increased by 3 rigs to 23 rigs this week, which was more than double the 11 rigs active in the Gulf a year ago, which was the lowest on record at that time…at the same time, a drilling platform set up on an inland body of water in southern Louisiana was shut down, leaving just two of those so-called “inland water rigs” ​left ​active, in contrast to the 4 inland waters rigs active in the state a year earlier…

the count of active horizontal drilling rigs decreased by 9 rigs to 891 horizontal rigs this week, which was still 21 more horizontal rigs active than the 870 horizontal rigs that were in use in the US on March 30th 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 2 rigs to 51 vertical rigs this week, which was also down by 12 rigs from the 63 vertical rigs that were in use during the same week of last year….on the other hand, the directional rig count increased by 1 rig to 64 directional rigs this week, which was also up by 4 rigs from the 64 directional rigs that were operating on March 30th 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 ​oil & gas ​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 29th, the second column shows the change in the number of working rigs between last week’s count (March 22nd) and this week’s (March 29th) count, the third column shows last week’s March 22nd 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 30th of March, 2018…  

March 29 2019 rig count summary

for the second week in a row, half of this week’s rig decrease was due to rigs being shut down in the Permian of western Texas and New Mexico, where a total of 4,004 uncompleted wells could be reducing their incentive to drill more…​this week, ​all 5 of those Permian rig reductions were pulled out of Texas Oil District 8, which would correspond to the core Permian Delaware, while Permian rigs in New Mexico and the Midland basin were unchanged…also in Texas, another 5 oil rigs were pulled out of the Eagle Ford​ in the southeast​, where a 9th natural gas rig was concurrently started up…Texas drillers managed to hold the statewide reductions to 6 rigs primarily through the addition of 3 rigs in the panhandle Texas Oil District 10, two of which were the Granite Wash ​basin ​additions you see above, with one of those targeting natural gas…the once highly touted STACK/SCOOP play in the Cana Woodford of Oklahoma also saw a 3 rig reduction this week and is now down by 14 rigs from a year ago, while the old Bakken shale in the Williston basin saw three rigs added and is now pulling ahead of its year ago totals…despite the 2 gas additions we’ve cited, natural gas rigs ended down two because one of the 3 natural gas rigs that had been drilling in the Arkoma Woodford of Oklahoma was replaced by an oil rig, and 3 natural gas rigs in basins not tracked separately by Baker Hughes were concurrently shut down…also note that other than the usual major producing states shown above, Virginia also saw a ​directional ​drilling rig start up ​in Campbell County ​this week, in only the second time there was drilling activity in the state since 2014…

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note:  there’s more here

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