oil & gas sell off after Barry clears; DUCs down for a 4th month as drilling slows, uncompleted well backlog at 6 months

oil prices fell more than 7% this week as Gulf of Mexico production came back on line and tensions between Iran and the US showed signs of easing…after rising nearly 5% to $60.21 a barre last week as tropical storm Barry disrupted production and shipping in the Gulf, the contract price of US crude for August delivery initially moved higher on Monday as Chinese industrial production and retail sales reports beat expectations, but ultimately turned lower and gave back a portion of last week’s storm gains, as Gulf of Mexico operations began to recover, with oil closing down 63 cents at $59.58 a barrel…oil prices were again lower on Tuesday morning as more production facilities returned to operation in the Gulf, and then retreated further on Tuesday afternoon after Secretary of State Mike Pompeo said that Iran was ready to negotiate its missile program, with US crude closing down $1.96 at $57.62 a barrel…oil prices initially rose Wednesday even as API data suggested U.S. crude inventories fell less than expected, but then fell to close 84 cents lower at 56.78 a barrel, after the EIA reported massive increases in oil product inventories and Trump sent Senator Rand Paul as his emissary to mediate with Iran, signalling that Trump is serious about getting a deal done…oil prices moved lower again on Thursday, despite Iran’s claim that it seized a foreign oil tanker in the Persian Gulf, as the International Energy Agency’s latest Oil Market Report forecast that a huge glut of oil would build up next year, with oil prices falling $1.48 to $55.30 a barrel by the close…oil prices then moved higher Friday on reports that Iran had seized a British-flagged oil tanker in the Strait of Hormuz, with US crude briefly touching $56.36 a barrel after the U.S. Navy destroyed an Iranian drone nearby, before falling back to $55.63 a barrel by the end of trading in New York, an increase of just 33 cents on the day…nonetheless, US WTI crude still fell 7% for the week while the international oil benchmark Brent lost about 5.5%, the steepest losses for both oil benchmarks since late May

natural gas prices, meanwhile, ended the week more than 8% lower, despite the onset of a heatwave stretching from Colorado to the East Coast and the first lower than average injection of gas into storage in 18 weeks…after finishing the prior week 1.4% higher at $2.453 per mmBTU as hurricane Barry bore down on Louisiana, prices of natural gas for August delivery started the new week by giving up the entire prior week’s gain and then some, falling 4.5 cents as forecasts for the final part of July showed a change to cooler weather….prices then fell 10.2 cents on Tuesday and two-tenths of a cent on Wednesday as the shift to cooler in the weather pattern for the balance of July became more entrenched…prices were quite volatile with the release of the storage report on Thursday, initially jumping more than 5 cents, but then falling back to end down 1.7 cents as traders brushed aside the bullish storage number…the selling of natural gas contracts continued on Friday, as prices slid another 3.6 cents to end the week at $2.251 per mmBTU, thus having fallen every day this week

the natural gas storage report for the week ending July 12th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 62 billion cubic feet to 2,533 billion cubic feet by the end of the week, which meant our gas supplies were 291 billion cubic feet, or 13.0% greater than the 2,242 billion cubic feet that were in storage on July 12th of last year, while still 143 billion cubic feet, or 5.3% below the five-year average of 2,676 billion cubic feet of natural gas that have been in storage as of the 12th of July in recent years….this week’s 62 billion cubic feet injection into US natural gas storage was a bit below S&P Global Platts’ survey of analysts that forecast a 65 billion cubic feet injection into storage, and it was also lower than the average 63 billion cubic feet of natural gas that have been added to gas storage during the second week of July in recent years, the first below average storage change in 18 weeks….nonetheless, the 1,355 billion cubic feet of natural gas that have been added to storage over the past 16 weeks is still the largest injection of gas into storage on record for any similar period of the injection season…this week was the first time this summer that temperatures over the entire densely populated eastern US were above normal (as you can see on the map from the EIA below), and as a result, natural gas consumption for electric generation averaged 41 billion cubic feet per day during the week, in contrast to the average of just over 38 billion cubic feet of natural gas per day that were used for for electric generation during the same week last year…

July 20th 2019 temperature anomalies thru July 11 (source)

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending July 12th, indicated decreases in our oil imports, our oil exports, our crude oil production and our refining, reflecting the initial impacts of tropical storm Barry which had been building in the Gulf of Mexico that week before making landfall as a hurricane on July 13th…our imports of crude oil fell by an average of 470,000 barrels per day to an average of 6,832,000 barrels per day, after falling by an average of 284,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 514,000 barrels per day to 2,534,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,298,000 barrels of per day during the week ending July 12th, 44,000 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 300,000 barrels per day lower at 12,000,000 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 16,298,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly using 17,267,000 barrels of crude per day during the week ending July 12th, 172,000 fewer 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 445,000 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 524,000 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 (+524,000) 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”….since the prior week’s unaccounted for crude was at -472,000 barrels per day, indicating unaccounted for oil supply, the week over week metrics we’ve just reported differ to the tune of 996,000 barrels per day, and hence should not be relied on….(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 7,094,000 barrels per day last week, 16.3% less than the 8,477,000 barrel per day average that we were importing over the same four-week period last year…the 445,000 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 300,000 barrels per day lower at 12,000,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 400,000 barrels per day lower at 11,500,000 barrels per day, while Alaska’s oil production increased by 28,000 barrels per day to 455,000 barrels per day, which was enough to raise the final rounded national production total by 100,000 barrels per day (that’s the EIA’s arithmetic, not mine)….last year’s US crude oil production for the week ending July 13th was rounded to 11,000,000 barrels per day, so this reporting week’s rounded oil production figure was roughly 9.1% above that of a year ago, and 42.4% 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 94.4% of their capacity in using 17,267,000 barrels of crude per day during the week ending July 12th, down from 94.7% of capacity the prior week, but still a fairly normal refinery utilization rate for this time of year, despite the approaching hurricane….the 17,267,000 barrels per day of oil that were refined this week were also fractionally above the 17,239 ,000 barrels of crude per day that were being processed during the week ending July 13th, 2018, when US refineries were operating at 94.3% of capacity….

with the decrease in the amount of oil being refined, gasoline output from our refineries was much lower, decreasing by 563,000 barrels per day to 9,855,000 barrels per day during the week ending July 12th, after our refineries’ gasoline output had increased by 470,000 barrels per day the prior week….with that big drop in gasoline output, this week’s gasoline production was 4.2% less than the 10,292,000 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) rose by 3,000 barrels per day to 5,361,000 barrels per day, after our distillates output had increased by 22,000 barrels per day the prior week….but after that small increase, the week’s distillates production was 3.6% more than the 5,174,000 barrels of distillates per day that were being produced during the week ending July 13th, 2018…. 

even with the big drop in gasoline production, our supply of gasoline in storage at the end of the week rose for the first time in 5 weeks and for just the 5th time in twenty-one weeks, increasing by 3,565,000 barrels to 232,752,000 barrels over the week to July 12th, after our gasoline supplies had decreased by 1,455,000 barrels over the prior week….our gasoline supplies increased this week because the amount of gasoline supplied to US markets decreased by 540,000 barrels per day to 9,214,000 barrels per day, and because our exports of gasoline fell by 83,000 barrels per day to 617,000 barrels per day, while our imports of gasoline fell by 19,000 barrels per day to 852,000 barrels per day…after our gasoline supplies had reached an all time record high twenty-three weeks ago, they then fell by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, and hence they are still 1.3% lower than last July 13th’s inventory level of 235,832,000 barrels, while just 2% above the five year average of our gasoline supplies at this time of the year…

with our distillates production little changed, our supplies of distillate fuels rose for the 7th time in the past 18 weeks, increasing by 5,686,000 barrels to 136,203,000 barrels during the week ending July 12th, the largest increase since January, and coming after our distillates supplies had increased by 3,729,000 barrels over the prior week…our distillates supplies rose again this week because our exports of distillates fell by 339,000 barrels per day to 1,116,000 barrels per day while our imports of distillates fell by 49,000 barrels per day to 132,000 barrels per day, while the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 14,000 barrels per day to 3,565,000 barrels per day…after this week’s inventory increase, our distillate supplies were 12.3% higher than the 121,311,000 barrels of distillate that we had stored on July 13th, 2018, but still remained 2% below the five year average of distillates stocks for this time of the year…

finally, with lower oil imports and falling oil production, our commercial supplies of crude oil in storage fell for a fifth week in a row and for the eleventh time in 26 weeks, decreasing by 3,116,000 barrels, from 458,992,000 barrels on July 5th to 455,876,000 barrels on July 12th…but even with that decrease, our crude oil inventories remained roughly 4% above the recent five-year average of crude oil supplies for this time of year, and roughly 35% higher than the prior 5 year (2009 – 2013) average of crude oil stocks for the 2nd week of July, 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, up until the past month, after generally falling until then through most of the prior year and a half, our oil supplies as of July 12th were still 10.9% above the 411,084,000 barrels of oil we had stored on July 13th of 2018, but at the same time were 7.1% below the 490,623,000 barrels of oil that we had in storage on July 14th of 2017, and 6.7% below the 488,830,000 barrels of oil we had stored on July 15th of 2016…    

This Week’s Rig Count

the US rig count fell for the 19th time in 22 weeks during the week ending July 19th, and is now down by 12% so far this year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 4 rigs to a new 17 month low of 954 rigs this past week, which was also down by 96 rigs from the 1054 rigs that were in use as of the July 13th 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 fell by 5 rigs to 779 rigs this week, which was also a 17 month low, 79 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 increased by 2 rigs to 174 natural gas rigs, which was still down by 13 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…however, one of the rigs classified as miscellaneous was shut down this week and now there is only one such active, matching the “miscellaneous” rig count of a year ago…

the rig count in the Gulf of Mexico was down by 1 to 25 rigs this week, as one of the two rigs that had been drilling off the coast of Texas w​as shut down…that still leaves 24 rigs drilling offshore from Louisiana and a single rig deployed offshore from Texas, an increase of 8 offshore rigs from the 17 rigs that were deployed in the Gulf in the same week a year ago, when 15 rigs were drilling in Louisiana waters and two were deployed offshore from Texas…

the count of active horizontal drilling rigs was down by 2 to 829 horizontal rigs this week, which was the least horizontal rigs deployed since February 2nd, 2018 and hence also a new 17 month low for horizontal drilling…it was also 93 fewer horizontal rigs than the 922 horizontal rigs that were in use in the US on July 20th 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 vertical rig count was down by 1 rig to 56 vertical rigs this week, and that was also down by 1 from the 57 vertical rigs that were operating during the same week of last year….in addition, the directional rig count was down by 1 rig to 69 directional rigs this week, but those were up from the 67 directional rigs that were in use on July 20th 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 July 19th, the second column shows the change in the number of working rigs between last week’s count (July 12th) and this week’s (July 19th) count, the third column shows last week’s July 12th 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 20th of July, 2018…    

July 19 2019 rig count summary

note that while the Texas rig count was down by 2, the two major Texas shale basins were both up: the Permian in the west by 3 and the Eagle Ford in the south by 1; moreover, that was as 4 horizontal rigs were pulled out of Texas Oil District 8, or the core Permian Delaware, while two rigs were started up in Texas Oil District 7C, or the southern Permian Midland, which means that rigs in the Texas Permian were down by a net of two…therefore, we can figure that all 5 rigs that were added in New Mexico were in the westernmost extent of the Permian Delaware…meanwhile, the one rig increase in the Eagle Ford also masks a bigger change in that basin, as two Eagle Ford oil rigs were shut down, leaving 58, while three natural gas rigs were started up, bringing the Eagle Ford gas rig count up to 9…elsewhere, natural gas rigs were shut down in West Virginia’s Marcellus and Louisiana’s Haynesville, while another rig targeting natural gas was started up in an “other’ basin not tracked separately by Baker Hughes…we should also note that other than the changes shown for the major producing states above, a rig was also shut down in Alabama this week, where a single rig continues to drill; that single rig is the same ​number ​as a year ago, as Alabama has only rarely had more than 2 rigs active at the same time in recent years…

DUC well report for June

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for July, which includes the EIA’s June data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the fourth month in a row, this report showed a decrease in uncompleted wells nationally in June, as drilling of new wells decreased and completions of drilled wells increased slightly….while there continued to be a increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, most other regions saw decreases in their DUC inventory, thus more than offsetting the Permian increases…for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 41 wells, from a revised 8,289 DUC wells in May to 8,248 DUC wells in June, which still represents a 19.2% increase from the 6,920 wells that had been drilled but remained uncompleted as of the end of June a year ago…the decrease occurred as 1,342 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during June, down by 33 from the 1,375 wells drilled in May and the lowest in 1 months, while 1,383 wells were completed and brought into production by fracking, an increase of 4 well completions from the 1,379 completions seen in April…at the June completion rate, the 8,248 drilled but uncompleted wells left at the end of the month represent a 6.0 month backlog of wells that have been drilled but are not yet fracked…  

both oil producing regions and natural gas producing regions saw DUC well decreases in June, with only the predominantly oil Permian showing a substantial increase…the number of DUC wells left in the Oklahoma Anadarko decreased by 29, from 968 in May to 939 DUC wells in June, as 127 wells were drilled into the Anadarko basin during June while 156 Anadarko wells were being fracked….at the same time, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 22 to 473, as 173 Niobrara wells were drilled in June while 195 Niobrara wells were completed….meanwhile, DUC wells in the Bakken of North Dakota fell by 15, from 709 DUC wells in May to 694 DUCs in June, as 115 wells were drilled into the Bakken in June, while 130 of the drilled wells in that basin were being fracked…

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 15 wells, from 447 DUCs in May to 432 DUCs in June, as 124 wells were drilled into the Marcellus and Utica shales during the month, while 139 of the already drilled wells in the region were fracked…in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 3 wells to 189, as 50 wells were drilled into the Haynesville during June, while 53 Haynesville wells were fracked during the same period….

on the other hand, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 42, from 3,960 DUC wells in May to 4.002 DUCs in June, as 549 new wells were drilled into the Permian, but only 507 wells in the region were fracked….and lastly, DUC wells in the Eagle Ford of south Texas increased by 1, from 1,518 DUC wells in May to 1,519 DUCs in June, as 204 wells were drilled in the Eagle Ford during June, while 203 already drilled Eagle Ford wells were completed…..thus, for the month of June, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 23 wells to 7,627 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 18 wells to 621 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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