oil prices fall on Trump’s BS; natural gas injection matches last week’s record; rig count drops to 13 month low

oil prices ended the week lower for the first time in eight weeks, largely on a big Friday selloff that began after Trump told reporters he had “called up” OPEC and told them to bring down fuel costs, even as no-one at OPEC knew anything at all about the alleged “call” from Trump….after oil prices eked out an 11 cent increase to $64.00 a barrel last week, this week began with the last day of trading for US crude for May delivery, which spiked $1.70 or 3% higher to expire at $65.70 a barrel, after the US announced an end to waivers on Iran sanctions, demanding that buyers of Iranian oil stop purchases by May 1st…at the same time, contracts for US WTI crude for June delivery, which had ended last week priced at $64.07 a barrel, rose $1.48 to $65.55 a barrel on Monday and became the front month, or widely quoted ‘price of oil’….in an ongoing Iran sanctions rally, that June oil price rose another 75 cents to a 6 month high of $66.30 per barrel on Tuesday, after Iran said they’d close the Strait of Hormuz, the conduit for a fifth of the world’s oil, if they were prevented from using it and oil traders expressed skepticism that Saudi Arabia would replace the lost Iranian barrels…however, oil prices opened lower on Wednesday, after a Tuesday night industry report indicated a much larger than expected build of US crude supplies, and went on to settle 41 cents lower at $65.89 a barrel after the EIA confirmed that US oil supplies had in fact risen by much more than traders had expected…after trading higher Thursday morning on the suspension of Russian crude exports to Europe due to pipeline contamination, oil prices turned sharply lower heading into Thursday’s settlement, after a number of reports convinced traders that OPEC could easily replace sanctioned Iranian crude, with oil prices ending down 68 cents at $65.21 a barrel…oil prices then fell steadily on Friday after Trump said he called OPEC and told them to bring oil prices down, with June US crude falling to as low as $62.28 a barrel before recovering a bit before the close to end the session down $1.91 at $63.30 a barrel, thus ending the week down 1.1% and derailing the longest run of weekly gains since the first half of 2015...

meanwhile, natural gas prices, which had been down 5 out of the past six weeks while falling to a 34 month low last week, managed to stage a modest rally after new 34 month lows were set again on Tuesday, and finished 3% higher on the week…quoting natural gas for May delivery all week, prices rose 3.4 cents to $2.524 mBTU on Monday, the first gain in seven sessions, on strong cash prices and the first signs of demand for cooling in the South…that brief move higher didn’t hold, however, as natural gas prices fell 6.9 cents to a new 34 month closing low of $2.455 per mmBTU on Tuesday…prices managed a seven-tenths of a cent rebound on Wednesday, and then turned decidedly higher despite another record injection being logged on Thursday, as forecasts indicated colder than normal temperatures for the northern tier of states, and forecasts warm enough for those in the South to crank up the air conditioning…with that forecast indicating natural gas demand increasing both north and south, natural gas prices posted identical 5.2 cents gains on both Thursday and Friday to end the week at $2.566 per mmBTU, 7.6 cents higher than the prior week’s close…

the natural gas storage report for the week ending April 19th from the EIA indicated that the quantity of natural gas held in storage in the US had again increased by an April record 92 billion cubic feet, now up to 1,339 billion cubic feet by the end of the week, which meant our gas supplies were 55 billion cubic feet, or 4.3% more than the 1,284 billion cubic feet that were in storage on April 20th of last year, while remaining 369 billion cubic feet, or 21.6% below the five-year average of 1,708 billion cubic feet of natural gas that have typically remained in storage as of the third weekend in April in recent years….this week’s 92 billion cubic feet injection into US natural gas storage was in line with market expectations, while it was quite a bit more than the 47 billion cubic feet of natural gas that are normally added to gas storage during the third week of April…over the past 4 weeks, 232 billion cubic feet of natural gas have been added to storage in the lower 48 states; that is in sharp contrast to the same four weeks of 2018, when a cool end to winter meant that 96 cubic feet of natural gas had to be withdrawn from storage over the same 4 week period…

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 April 19th, showed that due to a large increase in our oil imports, we had surplus oil left to add to our commercial supplies of crude for the fourth time in five weeks…our imports of crude oil rose by an average of 1,157,000 barrels per day to an average of 7,149,000 barrels per day, after falling by an average of 607,000 barrels per day the prior week, while our exports of crude oil rose by an average of 280,000 barrels per day to 2,681,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,468,000 barrels of per day during the week ending April 19th, 877,000 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 up by 100,000 barrels per day to 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 16,668,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 16,583,000 barrels of crude per day during the week ending April 19th, 550,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that 783,000 barrels of oil per day were 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 698,000 barrels per day short of what was added to storage plus what 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 (+698,000) 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 rose to an average of 6,626,000 barrels per day last week, still 19.6% less than the 8,237,000 barrel per day average that we were importing over the same four-week period last year…the 783,000 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 100,000 barrels per day higher at a record 12,200,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was 100,000 barrels per day higher at 11,700,000 barrels per day, while a 1,000 barrel per day decrease to 477,000 barrels per day in Alaska’s oil production was not enough to make a difference in the rounded national total…last year’s US crude oil production for the week ending April 20th was at 10,586,000 barrels per day, so this reporting week’s rounded oil production figure was 15.2% 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 90.1% of their capacity in using 16,583,000 barrels of crude per day during the week ending April 19th, up from 87.7% of capacity the prior week, but still a bit below the normal refinery utilization rate for the middle of April….similarly, the 16,583,000 barrels per day of oil that were refined this week were still a bit less than the 16,621,000 barrels of crude per day that were being processed during the week ending April 20th, 2018, when US refineries were operating at 90.8% of capacity… 

even with the large increase in the amount of oil being refined, gasoline output from our refineries was still somewhat lower, decreasing by 136,000 barrels per day to 9,781,000 barrels per day during the week ending April 19th, after our refineries’ gasoline output had decreased by 252,000 barrels per day the prior week….with that decrease in gasoline output, this week’s gasoline production was 1.1% less than the 9,886,000 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) rose by 241,000 barrels per day to 5,064,000 barrels per day, after that distillates output had decreased by 215,000 barrels per day the prior week…and after this week’s increase, the week’s distillates production was 1.7% more than the 4,977,000 barrels of distillates per day that were being produced during the week ending April 20th, 2018…. 

with the decrease in our gasoline production, the supply of gasoline left in storage at the end of the week fell for the 10th week in a row, decreasing by 2,129,000 barrels to 225,826,000 barrels over the week to April 19th, after gasoline supplies had fallen by 1,174,000 barrels over the prior week….that was as the amount of gasoline supplied to US markets decreased by 11,000 barrels per day to 9,409,000 barrels per day, after decreasing by 386,000 barrels per day the prior week, and as our imports of gasoline fell by 85,000 barrels per day 905,000 barrels per day, while our exports of gasoline fell by 53,000 barrels per day to 546,000 barrels per day…after having reached an all time record high thirteen weeks ago, our gasoline inventories are now 4.6% lower than last April 20th’s level of 236,807,000 barrels, and have now fallen to roughly 2% below the five year average of our gasoline supplies at this time of the year…

even with the increase in our distillates production, our supplies of distillate fuels fell for the 23rd time in thirty weeks, decreasing by 662,000 barrels to 127,029,000 barrels during the week ending April 19th, after our distillates supplies had decreased by 362,000 barrels over the prior week…the draw on our distillates supplies was a bit greater this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 443,000 barrels per day to 3,796,000 barrels per day, while our exports of distillates fell by 62,000 barrels per day to 1,608,000 barrels per day, and while our imports of distillates rose by 107,000 barrels per day to 245,000 barrels per day…but even after this week’s inventory decrease, our distillate supplies were still 3.5% higher than the 122,729,000 barrels of distillate that we had stored on April 20th, 2018, even as they fell to roughly 6% below the five year average of distillates stocks for this time of the year…

finally, with that big jump in our oil imports, our commercial supplies of crude oil in storage increased for the tenth time in 14 weeks, rising by 5,479,000 barrels over the week, from 455,154,000 barrels on April 12th to 460,633,000 barrels on April 19th…that increase was enough to bring our crude oil inventories back to the recent five-year average of crude oil supplies for this time of year, while they also were also a third higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the third week of April, 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 have 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 April 19th were 7.2% above the 429,737,000 barrels of oil we had stored on April 20th of 2018, but at the same time still 12.9% below the 528,702,000 barrels of oil that we had in storage on April 21st  of 2017, and 9.6% below the 509,311,000 barrels of oil we had in storage on April 22nd of 2016…        

since our recent crude inventory increases have concurrently been accompanied by rapidly falling oil product inventories, i’d like to include a set of bar graphs to show you what that looks like graphically…this set of inventory bar graphs was copied from the Zero Hedge report of this past week that reviewed the weekly EIA report:

April 25 2019 oil inventory bar graphs for April 19

above we have 4 similar bar graphs stacked one on top of another; from the top, the first shows the weekly change in US crude oil inventories, then the weekly change in oil inventories at the Cushing Oklahoma storage depot, then the weekly change in gasoline inventories, and lastly the weekly change in inventories of distillates…each graph has the same format: inventory increases for a given week are shown as a green bar above the zero line, whereas inventory decreases are shown as a red bar pointing down from the zero line, wherein the size of the bar in both cases is indicative of the size of the inventory increase or decrease…thus we can see in the top graph that US crude inventories have increased substantially in 4 out of the last 5 weeks, as Zero Hedge has boxed in green, and in a broader look they’ve increased in 10 out of the past 14 weeks…but then look at the last two graphs, which show inventories of gasoline and distillates decreasing; in the case of distillates, they’re now down 6 weeks in a row and 12 weeks out of the last 14, sliding from 143 million barrels to 127 million barrels over that span, and in the case of gasoline, they’re now down 10 weeks in a row, dropping all the way down to 225,826,000 barrels, from 258,301,000 barrels on February 8th, ie, heading in the wrong direction only a month before Memorial Day….many are writing off these decreases to normal spring refinery maintenance, but as we’ve been pointing out, refinery utilization over this period has been quite a bit below that of the same season in recent years…and as we’ve also been pointing out, the beginning of this sharp refinery slowdown coincides to the date with the imposition of Trump administration sanctions on importation of heavy sour Venezuelan crude, which many US Gulf Coast were optimized to use….and it has taken until this week for us to see US oil imports return to the pre-sanction level, likely heralding the first arrivals of comparable grades of heavy sour crude from the Middle East…

This Week’s Rig Count

US drilling rig activity decreased for the ninth time in ten weeks, and has now slowed to a 13 month low, 3% below year ago levels, with both oil and gas drilling down by similar percentages….Baker Hughes reported that the total count of rotary rigs running in the US fell by 21 rigs to 996 rigs over the eight days ending April 26th, which was also down by 30 rigs from the 1021 rigs that were in use as of the April 27th report of 2018, and quite a bit below 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…note that this week’s rig count is for 8 days, after last week’s count was released on the Thursday before Good Friday…

the count of rigs drilling for oil fell by 20 rigs to 805 rigs this week, which was also 20 fewer oil rigs than were running a year ago, and was only half of 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 rig to 186 natural gas rigs, which was also down by 9 rigs from the 195 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 was down by 2 rigs to 21 rigs this week, which was still 1 more rig than the 18 rigs active in the Gulf a year ago…however, the week also saw the startup of a platformed rig drilling on an inland body of water in southern Louisiana, where there are now 4 such ‘inland waters’ rigs running, down from the 5 ‘inland waters’ rigs deployed a year ago…

the number of active horizontal drilling rigs decreased by 13 rigs to 873 horizontal rigs this week, which was 28 fewer horizontal rigs than the 901 horizontal rigs that were in use in the US on April 27th of last year, and well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…..at the same time, the directional rig count decreased by 4 rigs to 71 directional rigs this week, but that was still up by 3 rigs from the 68 directional rigs that were in use during the same week of last year….in addition, the vertical rig count decreased by 4 rigs to 47 vertical rigs this week, which was down from the 52 vertical rigs that were operating on April 27th 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 26th, the second column shows the change in the number of working rigs between last week’s count (April 18th) and this week’s (April 26th) count, the third column shows last week’s April 18th active rig count, the 4th column shows the change between the number of rigs running on Friday and the 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 27th of April, 2018…     

April 26 2019 rig count summary

as you can see, this week’s drilling pullback was fairly widespread, with all of the major oil basins seeing rig reductions…while this was happening even as oil prices were at a 6 month high, we have to realize that there’s quite a lag – maybe an average of 3 or 4 months – between the time when a exploitation company makes the decision to drill and the time they contract a drilling rig and get it deployed in the field…so it’s likely that the decisions to curtail drilling that we’ve seen over recent weeks were probably made at a time when oil prices were $10 to $15 a barrel below where they were at this week…

of the 9 rigs pulled out in Texas, five came out of Texas Oil District 1 in the southeast, which would include the 4 shut down from the Eagle Ford; another 2 rigs were removed from the panhandle region Texas Oil District 10, which would be the Granite Wash, and which could have thus included a rig added back in that basin on the Oklahoma side of the border…in the Permian, two rigs were removed from Texas Oil District 8, or the core Permian Delaware, and two rigs were pulled out of Texas Oil District 7C, or the southern Permian Midland basin, while two rigs were added in Texas Oil District 8A, or the northern Permian Midland basin…with a Permian reduction of 3 rigs nationally, those Texas changes suggest that the rig that was shut down in New Mexico had also been operating in the Permian Delaware…

among rigs targeting natural gas, one was removed from Ohio’s Utica shale, while one was also pulled out of the Eagle Ford in south Texas, where 8 natural gas rigs remain deployed along side of 65 rigs drilling for oil…at the same time, a natural gas rig was started up in the Rockies’ Niobrara chalk for the first time in over a year, where an oil rig was concurrently shut down, but 28 oil directed rigs still continue to drill….we should also note that the lone rig which had been drilling in Indiana was also shut down this week, leaving Indiana without drilling activity for the first time since last April 20th..

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