largest March natural gas surplus in 7 years on 5% drop in power generation; biggest rig count jump in 14 months

oil prices rose for a 5th straight week in continuing the rally that began after Christmas, and have now risen 37% since the beginning of the year…after rising 1.9% to $60.14 a barrel last week, largely on indications of tighter supplies globally, prices for US crude to be delivered in May continued to rally on Monday, rising $1.45, or 2.4%, to a new 2019 high of $61.59 a barrel, after better-than-expected manufacturing data from the US and China eased worries about slowing global growth and after a Reuters survey found that OPEC output fell to a four-year low in Marchthe Reuters report on the OPEC cuts pushed oil higher again on Tuesday, with prices rising 99 cents to $62.58 a barrel, as the shutdown of a key Venezuela export terminal and a report of a US shale output slowdown underpinned the ongoing rally…however, US crude prices broke below a key support level on Wednesday, after the EIA reported a surprisingly large build in US supplies, but still remained near their 5-month high in closing down 12 cents at $62.46 a barrel…US prices continued slumping on Thursday even as prices for Brent crude, the international benchmark briefly hit $70 a barrel on tight global supplies, with US crude settling 36 cents lower at $62.10 a barrel while Brent contracts for June delivery finished 9 cents higher at $69.40 a barrel…the rally in US crude resumed on Friday, after strong U.S. employment data tempered fears of weakening crude demand, as oil prices rose 98 cents to $63.08 a barrel amid fears that escalating conflict in Libya would further tighten global supplies, thus ending the week with a gain of almost 5%

meanwhile, natural gas prices were little changed in subdued trading in a narrow range, as there is not much news to drive gas prices between the winter heating season and the summer, when demand again increases as natural gas peaking generators are fired up for air conditioning…after closing last week down 4% at $2.662 per mmBTU, natural gas for May delivery rose 4.6 cents on Monday, then fell 6.5 cents over the next three days, and then rose 2.1 cents on Friday to end the week priced at $2.664 per mmBTU, just two-tenths of a cent higher than its previous weekly close…

the natural gas storage report for the week ending March 29th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 23 billion cubic feet to 1,130 billion cubic feet over the week, which still left our gas supplies 228 billion cubic feet, or 16.8% below the 1,358 billion cubic feet that were in storage on March 30th of last year, and 551 billion cubic feet, or 30.9% below the five-year average of 1,635 billion cubic feet of natural gas that have typically remained in storage at the end of March in recent years….this week’s 23 billion cubic feet injection into US natural gas storage was more than the 16 billion cubic feet addition that analysts surveyed by S&P Global Platts had expected, while it was a complete reversal of the average of 23 billion cubic feet of natural gas that are normally withdrawn from gas storage during the last week of March, an early injection which has not happened to that degree since March of 2012….

the magnitude of the addition of gas to storage was a surprise to most because it wasn’t particularly warm during the reference week, as you can see on the map below that we’ve copied from the EIA’s natural gas storage dashboard; in fact, the most densely populated states in the east and California all saw temperatures slightly below normal, which would usually lead to an above normal withdrawal…but the 15 billion cubic feet withdrawal in the East was actually a bit less than the 16 billion cubic feet average withdrawal over the past 5 years for the last week in March, while it was apparently warm enough in the South Central region to have 35 billion cubic feet of natural gas left over to add to storage, in contrast to the 5 billion cubic feet of natural gas that the region typically has in surplus for the same week of the year…the only explicable circumstance we see in reviewing the data for the past week was that natural gas consumption for electrical generation over the 48 states was lower than last year’s each day of the reference week, and on several days was as much as or more than 10% lower, thus saving a total of 13 billion cubic feet of gas over those 7 days, or burning about 5% less natural gas than a year earlier….why that would happen is open to speculation, but it’s possible that enough intermittent power from wind and solar kicked in over that week to displace natural gas generation, thus leading to the unusual March surplus…

April 6 2019 temperature anomolies for week ending March 28

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 29th, indicated a modest increase in our crude oil imports and a modest decrease in our oil exports, while refinery usage was little changed, and hence there was another ​surplus to add to our commercial supplies of crude, much of which was still unaccounted for nonetheless…our imports of crude oil rose by an average of 223,000 barrels per day to an average of 6,763,000 barrels per day, after falling by an average of 392,000 barrels per day the prior week, while our exports of crude oil fell by an average of 163,000 barrels per day to 2,723,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,040,000 barrels of per day during the week ending March 29th, 386,000 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 100,000 barrels per day higher than last week at a record 12,200,000 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 16,240,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 15,849,000 barrels of crude per day during the week ending March 29th, 18,000 more barrels per day than the amount of oil they used during the prior week, while over the same period 1,034,000 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 643,000 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 (+643,000) 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 much oil unaccounted for, we have to figure that 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 6,745,000 barrels per day last week, now 12.1% less than the 7,677,000 barrel per day average that we were importing over the same four-week period last year…. the 1,034,000 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 up by 100,000 barrels per day to a record 12,200,000 barrels per day because the rounded estimate for output from wells in the lower 48 states increased by 100,000 barrels per day to 11,700,000 barrels per day, while a 7,000 barrel per day decrease in Alaska’s oil production to 482,000 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 30th was at 10,460,000 barrels per day, so this reporting week’s rounded oil production figure was 16.6% above that of a year ago, and 44.8% 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…    

meanwhile, US oil refineries were operating at 86.8% of their capacity in using 15,849,000 barrels of crude per day during the week ending March 29th, down from 86.6% 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 15,849,000 barrels per day of oil that were refined this week were down by 6.4% from the 16,936,000 barrels of crude per day that were being processed during the week ending March 30th, 2018, when US refineries were operating at 93.0% of capacity… 

with little change in the amount of oil being refined, the gasoline output from our refineries was somewhat higher, rising by 156,000 barrels per day to 9,813,000 barrels per day during the week ending March 29th, after our refineries’ gasoline output had decreased by 268,000 barrels per day the prior week….but even with that increase in the week’s gasoline output, this week’s gasoline production was still 3.0% less than the 10,115,000 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) fell by 55,000 barrels per day to 4,870,000 barrels per day, after that output had increased by 2,000 barrels per day the prior week…​and after this week’s ​modest decrease, the week’s distillates production was 2.9% less than the 5,016,000 barrels of distillates per day that were being produced during the week ending March 30th, 2018…. 

even with the increase in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 1,781,000 barrels to 236,839,000 barrels over the week to March 29th, after supplies had fallen by 2,883,000 barrels over the prior week….the draw from our gasoline supplies was smaller this week than last because our imports of gasoline rose by 58,000 barrels per day to 746,000 barrels per day while our exports of gasoline fell by 78,000 barrels per day to 615,000 barrels per day, while the amount of gasoline supplied to US markets increased by 7,000 barrels per day to 9,131,000 barrels per day, after decreasing by 285,000 barrels per day the prior week…after having reached an all time record high ten weeks ago, our gasoline inventories are now fractionally lower than last March 30th’s level of 238,477,000 barrels, even as they remain roughly 2% above the five year average of our gasoline supplies at this time of the year…

with the ​modest decrease in our distillates production, our supplies of distillate fuels fell for the 20th time in twenty-eight weeks, decreasing by 1,998,000 barrels to 128,169,000 barrels during the week ending March 29th, after our distillates supplies had decreased by 2,075,000 barrels over the prior week…the draw on our distillates supplies was a bit smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 60,000 barrels per day to 4,156,000 barrels per day, and because our exports of distillates fell by 57,000 barrels per day to 1,143,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 144,000 barrels per day…with this week’s inventory decrease, our distillate supplies ended the week 1.0% below the 129,491,000 barrels that we had stored on March 30th, 2018, while falling to roughly 6% below the five year average of distillates stocks for this time of the year…

finally, with higher oil production​, higher oil imports and lower oil exports, our commercial supplies of crude oil in storage increased for the eighth time in 11 weeks, rising by 7,238,000 barrels over the week, from 442,283,000 barrels on March 22nd to 449,521,000 barrels on March 29th…that increase was enough to bring our crude oil inventories back in line with 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 last week of March, with the disparity between those ​comparisons 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 29th were 5.7% above the 425,332,000 barrels of oil we had stored on March 30th of 2018, but at the same time still 16.1% below the 535,543,000 barrels of oil that we had in storage on March 31st of 2017, and 9.8% below the 498,598,000 barrels of oil we had in storage on April 1st of 2016…          

This Week’s Rig Count

US drilling rig activity increased for the first time in seven weeks, as US E&P companies appear to be returning to the field after the largest single quarter pullback in 3 years….Baker Hughes reported that the total count of rotary rigs running in the US rose by 19 rigs to 1025 rigs over the week ending April 5th, the largest jump in rig activity since February 9th, 2018, and 22 more rigs than the 1003 rigs that were in use as of the April 6th report of 2018, while still well 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 rose by 15 rigs to 831 rigs this week, which was also 23 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 increased by 4 rigs to 194 natural gas rigs, which was the same number of 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…

​even with the overall increase, ​drilling activity offshore in the Gulf of Mexico decreased by 1 rig to 22 rigs this week, which was still 10 more than the 12 rigs active in the Gulf a year ago, which was near a record low at that time…at the same time, a drilling platform was set up to drill ​through an inland body of water in southern Louisiana, where there are now 3 of those so-called “inland water rigs” active, still less than the 4 “inland waters” rigs active in the state a year earlier…

the ​number of active horizontal drilling rigs increased by 10 rigs to 901 horizontal rigs this week, which was also 17 more horizontal rigs active than the 884 horizontal rigs that were in use in the US on April 6th 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 increased by 3 rigs to 54 vertical rigs this week, which was still down by 2 rigs from the 56 vertical rigs that were in use during the same week of last year….in addition, the directional rig count increased by 6 rigs to 70 directional rigs this week, which was also up by 7 rigs from the 63 directional rigs that were operating on April 6th 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 April 5th, the second column shows the change in the number of working rigs between last week’s count (March 29th) and this week’s (April 5th) count, the third column shows last week’s March 29th active rig count, the 4th column shows the change between the number of rigs running on Friday and t​he number 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 6th of April, 2018…   

April 5 2019 rig count summary

as you can see, the 8 rig increase in the Permian basin of western Texas and New Mexico accounted for the lion’s share of the week’s horizontal rig increase, coming right after that basin had seen 10 rigs shut down over the previous two weeks…this week’s Permian increases include 3 rigs that were added in Texas Oil District 8, which would correspond to the core Permian Delaware, and three rigs added in Texas Oil District 8A, which would be in the northern Permian Midland…meanwhile, one rig was pulled out of Texas Oil District 7C, or the southern Midland, which would thus mean there was a net increase of 5 Permian rigs in Texas, while 3 Permian rigs were added in New Mexico’s Permian Delaware, which would include the ​Bone Spring formation…two more rigs were also added in Texas Oil District 6, which would include the natural gas producing Haynesville shale that Texas shares with northern Louisiana, but since that province of Louisiana shows no change, it’s not clear whether Texas added 2 Haynesville rigs while Louisiana shut one down, or whether Texas added one Haynesville rig and another one in Texas Oil District 6 that was not targeting the Haynesville…other than that Haynesville addition, the only other natural gas rig changes were in the Marcellus, where 4 natural gas rigs were added in West Virginia, while one Marcellus rig was shut down in Pennsylvania…also note that other than the major producing states shown above, Nebraska also saw a rig added this week in only the third week of drilling activity in that state since July 2016…

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