record US oil exports; largest draw on crude supplies in 33 months; horizontal rigs at 16 mo low, vertical rigs at 4 mo hi

oil prices rose for a second week on ongoing hostilities between the US and Iran and the largest drawdown of US crude inventories in nearly 3 years, while oil traders held back awaiting the outcome of the Trump-Xi summit in Japan this weekend and the OPEC meeting next week…after jumping nearly 9% to $57.43 a barrel last week after Iran shot down a US spy drone which had ventured into its airspace, the price of US crude for August delivery opened higher and rose to $58.22 a barrel on Monday after Trump questioned the need for the US to defend the Straight of Hormuz, but the gains were capped on worries over weakening demand as oil prices settled with a gain of 47 cents at $57.90 a barrel…oil prices hung in a narrow range on Tuesday as concerns over declining crude demand were offset by risks linked to new U.S. sanctions targeting Iranian leaders, with prices settling 7 cents lower at $57.83 a barrel…however, oil prices opened more than a dollar higher on Wednesday on word of a permanent closure of major East Coast refinery and on industry data that showed U.S. crude stockpiles fell more than expected and then spiked up another dollar after the EIA reported the largest oil inventory withdrawal in nearly 3 years, before settling to close $1.55 higher at $59.38, with both oil & gasoline futures posting their highest settlements in 5 weeks…oil prices started out lower on Thursday, pressured by doubts that the G20 summit could produce a breakthrough on trade, and on perceptions that oil supply is ample despite the prospect of continued OPEC curbs, but then turned higher in the afternoon and managed to eke out a new multiweek high at $59.43 a barrel, as traders weighed tensions between the U.S. and Iran that threatened global supplies…oil prices were trending higher again on Friday, but then fell sharply just before the close as the other parties to the Iran nuclear deal vowed to forgo dollar based oil pricing to normalize trade with Iran, with oil finishing down 96 cents, or 1.6%, at $58.47 a barrel…but despite Friday’s drop, oil prices still posted their second straight weekly gain while waiting for the G20 and OPEC talks, and finished with a gain more than 9% for the month of June, their fifth monthly gain this year, even after falling 16% during May

meanwhile, natural gas prices rose from last week’s three year low, as 15 day forecasts for hotter weather lifted prices for both the July natural gas contract and for August natural gas by more than 11 cents on Monday, and then the August contract tacked on another 5.6 cents on Thursday after the natural gas storage report showed a slightly lower than expected addition to storage over the previous week…the contract for July natural gas, which had ended last week more than 8% lower at $2.186 per mmBTU, rose 10.5 cents before trading in that contract expired at $2.291 per mmBTU on Wednesday, marking the lowest final monthly settlement for a natural gas contract since the June settlement of 2016, while the contract for August natural gas, which had fallen to $2.169 per mmBTU last week, rose 6.4% to end the week at $2.308 per mmBTU…

the natural gas storage report from the EIA for the week ending June 21st showed that the quantity of natural gas held in storage in the US increased by 98 billion cubic feet to 2,301 billion cubic feet by the end of the week, which meant our gas supplies were 236 billion cubic feet, or 11.4% more than the 2,065 billion cubic feet that were in storage on June 22nd of last year, while still 171 billion cubic feet, or 6.9% below the five-year average of 2,472 billion cubic feet of natural gas that have been in storage after the third week of June in recent years….this week’s 98 billion cubic feet injection into US natural gas storage was was a little short of the average consensus estimate for a 101 billion cubic feet injection, but was still much higher than the average 70 billion cubic feet of natural gas that have been added to gas storage during the third week of June in recent years, the 15th consecutive such above average injection….the 1,194 billion cubic feet of natural gas that have been added to storage over the past 13 weeks has been the largest injection of gas into storage on record for any similar period of the injection season, as the 934 billion cubic feet that were added during the same 13 weeks of 2014 (when June was also unusually cool) is the only year that even appears close…

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 changes over the week ending June 21st, showed that a big drop in our oil imports combined with record exports of domestic crude meant that we saw the largest withdrawal of oil from our stored crude supplies in nearly three years, even as it was just  the 5th withdrawal in 14 weeks…our imports of crude oil fell by an average of 812,000 barrels per day to an average of 6,656,000 barrels per day, after falling by an average of 144,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 348,000 barrels per day to a record 3,770,000 barrels per day during the week (shown below), which meant that our effective trade in oil worked out to a net import average of 2,886,000 barrels of per day during the week ending June 21st, 1,160,000 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 reported to be 100,000 barrels per day lower 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 14,986,000 barrels per day during this reporting week…

June 26 2019 crude exports thru June 21 (source)

meanwhile, US oil refineries were reportedly using 17,337,000 barrels of crude per day during the week ending June 21st, 73,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 1,827,000 barrels of oil per day were being withdrawn from the supplies of oil stored in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 525,000 barrels per day short of what our 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 (+525,000) 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 they label 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 crude oil metrics are again off 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 7,415,000 barrels per day last week, now 10.2% less than the 8,261,000 barrel per day average that we were importing over the same four-week period last year…the 1,827,000 barrel per day decrease in our total crude inventories was all pulled out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be 100,000 barrels per day lower at 12,100,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,600,000 barrels per day, while a 8,000 barrel per day increase to 474,000 barrels per day in Alaska’s oil production was not enough to impact the final rounded national total….last year’s US crude oil production for the week ending June 22nd was rounded to 10,900,000 barrels per day, so this reporting week’s rounded oil production figure was roughly 11.0% 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 94.2% of their capacity in using 17,337,000 barrels of crude per day during the week ending June 21st, up from 93.9% of capacity the prior week, and a fairly normal refinery utilization rate for this time of year….however, the 17,337,000 barrels per day of oil that were refined this week were still 2.7% below the 17,816,000 barrels of crude per day that were being processed during the week ending June 22nd, 2018, when US refineries were operating at 97.5% of capacity….

with the increase in the amount of oil being refined, gasoline output from our refineries was similarly higher, increasing by 89,000 barrels per day to 10,512,000 barrels per day during the week ending June 21st, after our refineries’ gasoline output had increased by 147,000 barrels per day the prior week….after 4 consecutive weekly increases in gasoline output, this week’s gasoline production was 3.6% more than the 10,142,000 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) fell by 66.000 barrels per day to 5,305,000 barrels per day, after our distillates output had increased by 132,000 barrels per day the prior week….with this week’s decrease, the week’s distillates production was 1.7% less than the 5,396,000 barrels of distillates per day that were being produced during the week ending June 22nd, 2018…. 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 2nd time in 6 weeks and for the 14th time in 18 weeks, decreasing by 996,000 barrels to 232,225,000 barrels over the week to June 21st, after our gasoline supplies had decreased by 1,692,000 barrels over the prior week…that smaller draw from our gasoline supplies was because the amount of gasoline supplied to US markets decreased by 642,000 barrels per day from last week’s record high to 9,466,000 barrels per day, while our exports of gasoline rose by 309,000 barrels per day to 939,000 barrels per day, while our imports of gasoline fell by 21,000 barrels per day to 816,000 barrels per day….after our gasoline supplies had reached an all time record high twenty weeks ago, they then fell by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, and hence are still 3.7% lower than last June 22nd’s inventory level of 241,196,000 barrels, and back to near the five year average of our gasoline supplies at this time of the year…

with the decrease in our distillates production, our supplies of distillate fuels fell for the 11th time in 15 weeks, decreasing by 2,441,000 barrels to 125,380,000 barrels during the week ending June 21st, after our distillates supplies had decreased by 551,000 barrels over the prior week….our distillates supplies fell by more this week than last because our exports of distillates rose by 166,000 barrels per day to 1,719,000 barrels per day and because our imports of distillates fell by 132,000 barrels per day to 33,000 barrels per day, while the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 93,000 barrels per day to 3,968,000 barrels per day….but even after this week’s inventory decrease, our distillate supplies were still 6.8% higher than the 117,423,000 barrels of distillate that we had stored on June 22nd, 2018, even as they fell to 7% below the five year average of distillates stocks for this time of the year…

finally, with record oil exports and that big drop in our oil imports, our commercial supplies of crude oil in storage fell for the eighth time in 23 weeks and by the most since Sept 2nd, 2016, decreasing by 12,788,000 barrels, from 482,364,000 barrels on June 14th to 469,576,000 barrels on June 21st…with that decrease, our crude oil inventories fell to 5% above the recent five-year average of crude oil supplies for this time of year, but still remained about 35% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the third week of June, 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 generally 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 June 21st were still 12.7% above the 416,636,000 barrels of oil we had stored on June 22nd, of 2018, but at the same time 7.8% below the 509,213,000 barrels of oil that we had in storage on June 23rd of 2017, and 5.3% below the 495,941,000 barrels of oil we had stored on June 24th of 2016…    

since this week’s crude inventory withdrawal was the largest in nearly three years, and since supplies of gasoline and distillates were concurrently drawn down, we’ll include a set of bar graphs of the historical changes in each of them to show you what the recent changes look like graphically…this set of inventory bar graphs was copied from the Zero Hedge post of this past week that reviewed the weekly EIA report:

June 28 2019 inventories as of June 21

above we have 4 similar bar graphs stacked one on top of another; from the top, the first graph shows the weekly change in US crude oil inventories over the last 3 and a half years, the second graph shows the weekly change in oil inventories at the Cushing Oklahoma storage depot, the basis for WTI oil contracts; the third graph shows the weekly change in gasoline inventories over the same period, while the bottom graph shows 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…in addition, note that on the top graph ​for crude ​oil ​inventories, Zero Hedge has included a heavy dashed red line from this week’s increase back in time to September 2nd, 2016, the only time on this graph that the red bar, marking the decrease in crude supplies, was greater than this week’s decrease… however, even though this week’s withdrawal from stored supplies was large by historical standards, it is somewhat of an outlier compared to recent experience, wherein we’ve been seeing additions to inventories more often than not, which you can see on the graph as a preponderance of green bars pointing upwards going back to September of last year….

the opposite is largely true for the gasoline inventory graph (3rd from the top) and the distillates inventory graph on the bottom, as you can see that the majority of recent weeks for both have red bars pointing down, indicating falling supplies…but note that both had large increases in the first weeks of the year, before the sanctions on Venezuelan crude kicked in and reduced the throughput of US refineries by 10%, as Gulf Coast refiners scrambled for weeks ​​to find equivalent grades of the heavy sour crude that they were designed to process…the two graphs thus clearly show the unintended ​consequences ​​of policy decisions made on the spur of the moment at the urging of the most reprobate of US officials and politicians​ on our own domestic energy supplies​…

This Week’s Rig Count

the US rig count was unchanged over the week ending June 28th and hence matched the 16 month low of the prior week, when the rig count had fallen for the 16th time in eighteen weeks…Baker Hughes reported that the total count of rotary rigs running in the US remained at 967 rigs this past week, which was still down by 80 rigs from the 1047 rigs that were in use as of the June 29th 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…

the count of rigs drilling for oil rose by 4 rigs to 793 rigs this week, which was still 65 fewer oil rigs than were running a year ago, and less than 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 fell by 4 rigs to 173 natural gas rigs, which was also down by 14 rigs from the 187 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008…in addition, there was also a rig classified as miscellaneous operating this week, which was down from the 2 miscellaneous rigs that were running a year ago, when Cabot Oil & Gas was drilling 2 exploratory wells into the Knox formation in Ohio that Baker Hughes had labeled as miscellaneous…

the rig count in the Gulf of Mexico increased by 2 to 26 rigs this week, as two more rigs began operations off the coast of Louisiana…the Gulf rig deployment now includes 24 rigs running offshore from Louisiana and 2 rigs deployed offshore from Texas, an increase ​of​ 8 ​​rig​s ​from the 18 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and one was deployed offshore from Texas…however, a year ago there was also a rig drilling offshore from Alaska, while all of this week’s offshore activity was in the Gulf of Mexico…meanwhile, one of the so-called “inland waters” rigs which had been operating in southern Louisiana was also shut down this week, leaving three rigs still deployed on inland waters in the state, down from the 4 inland waters rigs that were operating in Louisiana a year ago…​​

the count of active horizontal drilling rigs was down by 6 to 840 horizontal rigs this week, which was a new 16 month low for horizontal drilling and 86 fewer horizontal rigs than the 926 horizontal rigs that were in use in the US on June 29th of last year, and also 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 was unchanged at 68 directional rigs this week, but those were up by 3 rigs from the 65 directional rigs that were operating during the same week of last year….on the other hand, the vertical rig count was up by 6 rigs to​ 59 vertical rigs this week, and those were also up from the 56 vertical rigs that that were in use on June 29th of 2018…hard to say if it’s a significant development yet, but over the past three weeks, 15 horizontal rigs have been shut down, while 13 new vertical rigs have started drilling, pushing the vertical rig count to a 4 month high….

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 June 28th, the second column shows the change in the number of working rigs between last week’s count (June 21st) and this week’s (June 28th) count, the third column shows last week’s June 21st 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 29th of June, 2018…     

June 28 2019 rig count summary

this week’s tables are obviously missing some information, since the major basin variances shown above total a net decrease of two, while we know from the summary that horizontal rigs were down by six….based on the state totals, we might guess that two of them might have been drilling in Alaska, while another two horizontal rigs might have been pulled out of a basin in Oklahoma or Texas not shown above…in Texas, 3 horizontal rigs were added in Texas Oil District 8, which would be the core Permian Delaware, while the rig counts in the other Permian districts were unchanged, which means that the rig that was shut down in New Mexico must have been drilling in the western Permian Delaware…elsewhere in Texas, two rigs were pulled out of the Eagle Ford, one each ​drilling for oil and​ for​ natural gas, leaving the Eagle Ford with 64 oil rigs and 7 targeting natural gas, while the 2 oil rigs pulled out of the Granite Wash were both targeting natural gas, and they were in Oklahoma, since drilling in the Texas Panhandle Oil District 10 was unchanged…meanwhile, the fourth natural gas rig that was shut down this week came out of an “other’ basin not tracked separately by Baker Hughes..


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