natural gas drilling at a 29 month low as active rigs fall below 900 for first time since ​November 2017

oil prices rose for a second week in a row on a third consecutive larger than expected drop in US crude inventories and renewed optimism about a China trade deal… after rising 1.7% to $55.10 a barrel last ​week ​on the easing of the U.S.-China trade rhetoric that had driven down prices the prior week, prices of US crude for October delivery opened lower on Tuesday after the Labor Day holiday and fell throughout the day amid the imposition of yet another round of tariffs in US-China trade war and ended $1.16, or 2% lower at $53.94 a barrel, weighed down by reports of rising OPEC and Russian oil output as well as reports showing contracting manufacturing activity in the US and Europe…however, prices bounced back on Wednesday, boosted by a broader market rally that began with a positive economic report from China and ultimately carried oil prices to close more than 4% higher at $56.26 a barrel, up $2.32 from Tuesday’s close…​but oil prices ​then ​fell in after market trading after the American Petroleum Institute reported higher crude inventories and thus opened lower and slid ​early ​on Thursday​,​ before reversing to finish 4 cents higher at $56.30 a barrel, bolstered by apparent signs of progress in trade talks between the United States and China, and an EIA report that crude inventories had in fact fallen more than was expectedoil prices were down more than 2% on weak jobs data from the Labor Dept at the start of trading on Friday, but rallied heading into the close after the Fed chairman said the central bank will act “as appropriate” to sustain US economic growth and settled 22 cents higher at $56.52 a barrel, thus finishing the week 2.6% higher than the prior week’s close, the strongest weekly ​rally since early July…..

natural gas prices also finished higher for a second week, despite a larger than expected inventory build, as weather forecasts shifted to warmer over the Labor Day weekend and exports to Mexico were expected to increase as the Sur de Texas pipeline comes into service….after rising 6% to $2.285 per mmBTU last week on the possibility that Hurricane Dorian might impact the Gulf, prices of natural gas for October delivery moved up 7.3 cents on the bullish temperature forecast change on Tuesday, and then rose 8.7 cents more on Wednesday, as short positions established when prices were teasing 39 month lows a month ago were forced to cover…while prices slipped back a penny on Thursday after the EIA reported a larger than expected inventory injection, the natural gas price rally resumed on Friday as prices rose 6.1 cents more to close the week nearly 10% higher than the prior week at $2.496 per mmBTU..

the natural gas storage report for the week ending August 30th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 84 billion cubic feet to 2,941 billion cubic feet by the end of the week, which meant our gas supplies were 383 billion cubic feet, or 15.0% more than the 2,558 billion cubic feet that were in storage on August 30th of last year, while still 82 billion cubic feet, or 2.7% below the five-year average of 3,023 billion cubic feet of natural gas that have been in storage as of the 30th of August in recent years….this week’s 84 billion cubic feet injection into US natural gas storage was above all the projections of analysts surveyed by S&P Global Platts, whose average forecast called for a 75 billion cubic feet injection, and also well above the average 64 billion cubic feet of natural gas that have been added to gas storage during the fourth full week of August over the past 5 years, the 23rd such average or above average storage build in the last 25 weeks…the 1,763 billion cubic feet of natural gas that have been added to storage over the 22 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 1814 billion cubic feet of natural gas that were injected into storage over the same 22 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 30th indicated that because our oil imports had only partially rebounded from last week’s depressed level, we had to pull oil out of storage for the tenth time in 12 weeks…our imports of crude oil rose by an average of 976,000 barrels per day to an average of 6,904,000 barrels per day, after falling by an average of 1,787,000 barrels per day over the prior 2 weeks, while our exports of crude oil rose by an average of 42,000 barrels per day to an average of 3,061,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,843,000 barrels of per day during the week ending August 30th, 934,000 more barrels per day than the net of our imports minus exports during the prior week…over the same period, the production of crude oil from US wells was reported to be 100,000 barrels per day lower than the prior week at 12,400,000 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 16,243,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,381,000 barrels of crude per day during the week ending August 30th, 27,000 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 681,000 barrels of oil per day were being pulled out of 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 456,000 barrels per day less than what our oil refineries reported they used during the week…to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+456,000) 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 great a quantity of oil unaccounted for this week, it calls into question the other oil totals that the EIA has reported and that we have just transcribed (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 6,941,000 barrels per day last week, now 12.5% less than the 7,933,000 barrel per day average that we were importing over the same four-week period last year…the 681,000 barrel per day decrease in our total crude inventories ​all came 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 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states fell by 100,000 barrels per day to 12,000,000 barrels per day, while a 46,000 barrels per day decrease to 354,000 barrels per day in Alaska’s oil production had no impact on the final rounded national production total…last year’s US crude oil production for the week ending August 31st was rounded to 11,000,000 barrels per day, so this reporting week’s rounded oil production figure was 12.7% above that of a year ago, and 47.1% 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 94.8% of their capacity in using 17,381,000 barrels of crude per day during the week ending August 30th, down from 95.2% of capacity the prior week, but still a refinery utilization rate that is fairly typical for August…however, the 17,381,000 barrels per day of oil that were refined this week were 1.5% below the 17,647,000 barrels of crude per day that were being processed during the week ending August 31st, 2018, when US refineries were operating at 96.6% of capacity….

with ​just a modest decrease in the amount of oil being refined, gasoline output from our refineries was quite a bit lower, decreasing by 388,000 barrels per day to 10,272,000 barrels per day during the week ending August 30th, after our refineries’ gasoline output had increased by 763,000 barrels per day over the prior week…but even with that drop in gasoline output, this week’s gasoline production was fractionally higher than the 10,215,000 barrels of gasoline that were being produced daily over the same week of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) slipped by 39,000 barrels per day to 5,154,000 barrels per day, after our distillates output had decreased by 147,000 barrels per day the prior week….with this those back to back decreases, our distillates production was 5.2% less than the 5,439,000 barrels of distillates per day that were being produced during the week ending August 31st, 2018…. 

with the big decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 8th time in 12 weeks and for the 22nd time in twenty-eight weeks, decreasing by 2,396,000 barrels to 229,586,000 barrels during the week to August 30th, after our gasoline supplies had fallen by 2,090,000 barrels over the prior week….our gasoline supplies decreased this week even as the amount of gasoline supplied to US markets decreased by 429,000 barrels per day to 9,471,000 barrels per day because our exports of gasoline rose by 119,000 barrels per day to 819,000 barrels per day, and because our imports of gasoline fell by 248,000 barrels per day to 717,000 barrels per day…after this week’s decrease, our gasoline supplies were 2.1% lower than last August 31st’s inventory level of 234,619,000 barrels, but remain at roughly 3% above 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 15th time in the past 25 weeks, decreasing by 2,538,000 barrels to 133,522,000 barrels during the week ending August 30th, after our distillates supplies had decreased by 2,063,000 barrels over the prior week…our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 86,000 barrels per day to 4,134,000 barrels per day, while our imports of distillates rose by 1,000 barrels per day to 126,000 barrels per day, and while our exports of distillates fell by 56,000 barrels per day to 1,509,000 barrels per day….but even after this week’s inventory decrease, our distillate supplies were still fractionally higher than the 133,120,000 barrels of distillates that we had stored on August 31st, 2018, while at the same time they fell to around 6% below the five year average of distillates stocks for this time of the year…

finally, as our oil imports continue to be somewhat below our needs, our commercial supplies of crude oil in storage fell for the tenth time in twelve weeks but for just the sixteenth time in 33 weeks, decreasing by 4,771,000 barrels, from 427,751,000 barrels on August 23rd to 422,980,000 barrels on August 30th…that decrease left our crude oil inventories near the five-year average of crude oil supplies for this time of year, but still 25.7% higher than the prior 5 year (2009 – 2013) average of crude oil stocks for the Labor Day weekend, 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 generally been rising since last Fall up until the most recent dozen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 30th were still 5.4% above the 401,490,000 barrels of oil we had stored on August 31st of 2018, but at the same time were 8.5% below the 462,353,000 barrels of oil that we had in storage on September 1st of 2017, and 12.0% below the 480,725,000 barrels of oil we had in commercial storage on September 2nd of 2016…  

This Week’s Rig Count

the US rig count fell for the 25th time in 29 weeks over the week ending September 6th, and is now down by more than 17% ​ for the year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 6 rigs to a 22 month low of 898 rigs this past week, which was also down by 150 rigs from the 1048 rigs that were in use as of the September 7th report of 2018, and less than half of 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 decreased by 4 rigs to 738 rigs this week, which was a 21 month low for oil rigs and 122 fewer oil rigs than were running a year ago, and quite a bit 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 fell by 2 rigs to 160 natural gas rigs, a 29 month low for gas rig drilling activity and down by 26 rigs from the 186 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 September 7th, 2008…

offshore ​drilling ​activity was unchanged ​at 28 rigs​ running​ this week, with 25 rigs drilling offshore from Louisiana and one offshore from Texas in the Gulf of Mexico, and two more rigs deployed off the coast of the Kenai Peninsula in Alaska, a net increase of nine offshore rigs from a year ago, when 15 rigs were drilling in Louisiana waters, two were drilling offshore from Texas, and two more were deployed offshore from Alaska….the count of active horizontal drilling rigs was down by 1 rig to 783 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence is a new 21 month low for horizontal drilling…that was also 135 fewer horizontal rigs than the 918 horizontal rigs that were in use in the US on September 7th 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 2 to 48 vertical rigs this week, and those were down by 17 from the 65 vertical rigs that were operating during the same week of last year…in addition, the directional rig count was down by 3 to 67 directional rigs this week, but those were up by 2 from the 65 directional rigs that were in use on September 7th of 2018…

the details on this week’s changes in drilling activity by state and by major 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 table below that 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 September 6th, the second column shows the change in the number of working rigs between last week’s count (August 30th) and this week’s (September 6th) count, the third column shows last week’s August 30th 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 7th of September, 2018…     

September 6 2019 rig count summary

as you can see, the majority of this week’s changes were limited to three states, with the Oklahoma rig count down 5, the Texas count down 3, and the North Dakota count up by 3 rigs, all of which started drilling for oil in the Bakken shale of the Williston basin…the rigs taken down in Oklahoma included three oil rigs in the Cana Woodford shale, one oil rig in the Mississippian Lime, and one rig in a basin not tracked separately by Baker Hughes…in Texas, 4 more rigs were shut down in Texas Oil District 8, or the core Permian Delaware, and another rig was shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while at the same time three rigs were started up in Texas Oil District 7C, or the southern part of the Permian Midland, which together nets out to the 2 rig decrease we see indicated for the Permian basin, while another rig shut down in Texas had been operating in a basin not tracked separately by Baker Hughes….while drilling in the 3 major natural gas basins (the Haynesville, the Marcellus, and the Utica) was unchanged this week, the Eagle Ford of south Texas saw a natural gas rig shut down and an oil rig start up and now has 59 oil rigs and 8 targeting natural gas, while another natural gas rig was also shut down in a basin not tracked separately by Baker Hughes, which could have been either of the aforementioned undocumented rigs in Texas or Oklahoma, or could have been masked by a concurrent oil rig increase in any state, as we see with the Eagle Ford​’s​ indication of “0” change…


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