oil jumps on record volume after Saudi attack; horizontal drilling at a 28 month low; DUCs drop most in 3 years

oil prices were much higher in volatile trading this past week in the wake of the drone & missile attack on Saudi oil infrastructure last Saturday, with the biggest move coming in the opening hour of trading​ on​ Monday…after falling 3% to $54.85 a barrel last week, ironically on the hope that war with Iran was less likely after the firing of national security advisor John Bolton, prices of US crude for October delivery opened 12% higher on Monday with the news that 5.7 million barrels, or more than 5.7% of global daily crude production had been knocked out by the​ drone​ strikes, with many traders figuring that Saudi production would take months to recover…prices remained volatile throughout the session as the Saudis were silent and speculation swirled, slipping back to as low as $58.77 a barrel by midday, but later rallying to close $8.05, or 14.7% higher at $62.90 a barrel on record trading volume of 1.4 million contracts, ​the equivalent of 112 times more oil than the US produces in a day..​.​.however, oil prices opened lower and slid backwards on Tuesday, as traders reassessed the long term fallout from the attack, with US October oil closing $3.54, or 5.7% lower at $59.34 a barrel after the Saudi oil minister said Saudi oil production would be fully back online by the end of September…oil extended its pullback on Wednesday, first on the prior night’s surprise API report of a crude oil inventory increase, and then after the EIA confirmed the crude build, with the October WTI ending $1.23 lower at $58.11 per barrel following reports that 50% of Saudi production was already back online…but oil prices rose again early Thursday, carried by an equity market rally following the Fed’s rate cut, reaching as high as $59.54 a barrel as risks to Saudi output came into focus, but pulled back near the close to end with a gain of just two cents at $58.13 a barrel…prices eased lower on Friday on renewed concern over the U.S.-China trade war, ending down 4 cents at $58.09 a barrel, but still posted a 6% gain for the week, the biggest weekly gain in 3 months

with a record volume of trading in oil on Monday, i went looking for some more details on that, which seems to be fairly well captured in the graph and table below:

September 21 2019 trading volume for Sept 16th

the above graph and table of crude oil trading volume for Monday September 16 came from the CME group website, as the CME (Chicago Mercantile Exchange) is the owner of the NYMEX (New York Mercantile Exchange) where US oil contracts are traded….directly above, we have the first part of the table showing the volume of trading in each of the first five current oil futures contracts, monthly from October ​2019 ​thru February​ 2020​…on the October line, we’ve circled in blue the Monday trading volume of the October contract, which is the contract quoted by the media as “the price of oil”, which was over 1.4 million contracts…since each contract is for a thousand barrels, Monday’s trading in the October contract represents more than 1.4 billion barrels of US light sweet crude changing hands, or roughly 112 times the amount of oil produced in the entire country on an average day…in addition, on the interactive bar chart above the table, we’ve moused over the bar for the total trading in all oil futures contracts on Monday, to expose that total trading volume for the day was over 3.68 million contracts, or 3.68 billion barrels of crude…on the same bar in red indicates that another 517 million options to buy or sell crude contracts were also traded on Monday, bringing our total volume of oil contract trading on Monday to a figure that represents nearly 4.2 billion barrels of crude…that’s 344 times the amount of oil actually produced in the US during the same period, which ​just goes to ​show​ that it’s the speculators in New York and London who control the price of oil, just based on the shear volume of it they trade electronically…

meanwhile, natural gas prices finished lower for the first time in four weeks, mostly on a larger than expected injection of gas into storage…after rising 4.7% to $2.614 per mmBTU on short covering following warmer forecasts last week, the natural gas contract for October delivery jumped 6.7 cents higher Monday on notably hotter forecasts for the eastern & southern US during the second half of September, suggesting a continuation of summerlike cooling demand….​even so, natural gas prices ​still slipped 1.3 cents on Tuesday and 3.1 cents on Wednesday in advance of the Thursday storage report, which indicated more surplus gas was added to storage than​ was​ expected, driving prices 9.9 cents lower by the end of trading on Thursday…prices then slipped another four-tenths of a cent on Friday to end the week down more than 3% at $2.534 mmBTU..

the natural gas storage report for the week ending September 13th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 84 billion cubic feet to 3,103 billion cubic feet by the end of the week, which meant our gas supplies were 393 billion cubic feet, or 14.5% more than the 2,710 billion cubic feet that were in storage on September 13th of last year, while still 75 billion cubic feet, or 2.4% below the five-year average of 3,187 billion cubic feet of natural gas that have been in storage as of the 13th of September in recent years….this week’s 84 billion cubic feet injection into US natural gas storage was somewhat more than the forecast for an 76 billion cubic feet injection by analysts surveyed by S&P Global Platts, ​and it was also a bit above the average 82 billion cubic feet of natural gas that have been added to gas storage during the second week of September over the past 5 years, the 25th such average or above average storage build in the last 27 weeks​… as a result, the weekly storage injections so far this season are averaging 29% above the five-year average…the 1,925 billion cubic feet of natural gas that have been added to storage over the 25 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 1995 billion cubic feet of natural gas that were injected into storage over the same 24 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 September 13th ​showed that because of a big drop in our refinery throughput while our oil imports were rising, we were left with surplus oil to add to storage for the first time in 4 weeks…our imports of crude oil rose by an average of 326,000 barrels per day to an average of 7,050,000 barrels per day, after falling by an average of 180,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 120,000 barrels per day to an average of 3,175,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,875,000 barrels of per day during the week ending September 13th, 446,000 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 unchanged from 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 16,275,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,707,000 barrels of crude per day during the week ending September 13th, 788,000 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 average of 151,000 barrels of oil per day were being added to 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 and from oilfield production was 583,000 barrels per day less than what was reportedly added to storage and 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 (+583,000) 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 again 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 6,652,000 barrels per day last week, now 12.7% less than the 7,704,000 barrel per day average that we were importing over the same four-week period last year…the 151,000 barrel per day increase in our total crude inventories was all added to 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 unchanged at 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,000,000 barrels per day, while a 25,000 barrels per day increase to 423,000 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 September 7th was rounded to 11,00,000 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 91.2% of their capacity in using 16,707,000 barrels of crude per day during the week ending September 13th, down from 95.1% of capacity the prior week, ​& ​somewhat below the normal refinery utilization rate for mid-September…as a result, the 16,707,000 barrels per day of oil that were refined this week were 4.1% below the 17,415,000 barrels of crude per day that were being processed during the week ending September 14th, 2018, when US refineries were operating at 95.4% of capacity….

with the big d​rop in the amount of oil being refined, gasoline output from our refineries was quite a bit lower, decreasing by 909,000 barrels per day to a nine-month low of 9,451,000 barrels per day during the week ending September 13th, after our refineries’ gasoline output had increased by 88,000 barrels per day over the prior week…with that big decrease in gasoline output, this week’s gasoline production was 8.0% lower than the 10,270,000 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) fell by 232,000 barrels per day to 5,109,000 barrels per day, after our distillates output had increased by 187,000 barrels per day the prior week….with that decrease, our distillates production was 6.4% less than the 5,457,000 barrels of distillates per day that were being produced during the week ending September 14th, 2018…. 

however, even with the big drop in our gasoline production, our supply of gasoline in storage at the end of the week managed to increase for the 5th time in 14 weeks and for just the 6th time in twenty-nine weeks, increasing by 781,000 barrels to 229,685,000 barrels during the week to September 13th, after our gasoline supplies had fallen by 682,000 barrels over the prior week….our gasoline supplies increased this week because the amount of gasoline supplied to US markets decreased by 868,000 barrels per day to 8,939,000 barrels per day, while our exports of gasoline rose by 55,000 barrels per day to 692,000 barrels per day, and while our imports of gasoline fell by 296,000 barrels per day to 501,000 barrels per day…but even after this week’s increase, our gasoline supplies were still 1.9% lower than last September 14th’s inventory level of 234,150,000 barrels, while increasing to roughly 4% above the five year average of our gasoline supplies for this time of the year…

likewise, even with the big decrease in our distillates production, our supplies of distillate fuels rose for the 12th time in the past 27 weeks, increasing by 437,000 barrels to 136,663,000 barrels during the week ending September 13th, after our distillates supplies had increased by 2,704,000 barrels over the prior week…our distillates supplies increased this week even as the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 55,000 barrels per day to 3,859,000 barrels per day, and while our exports of distillates rose by 136,000 barrels per day to 1,330,000 barrels per day, as our imports of distillates rose by 98,000 barrels per day to 142,000 barrels per day….but even after this week’s inventory increase, our distillate supplies were still 2.5% less than the 140,122,000 barrels of distillates that we had stored on September 14th, 2018, and remained around 6% below the five year average of distillates stocks for this time of the year…

finally, as our imports rose while our refineries processed much less oil, our commercial supplies of crude oil in storage rose for the third time in fourteen weeks and for the eighteenth time in 35 weeks, increasing by 1,058,000 barrels, from 416,068,000 barrels on September 6th to 417,126,000 barrels on September 13th…that modest increase still left our crude oil inventories 2% below the five-year average of crude oil supplies for this time of year, but more than 24% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the second week of September, 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 over the past year up until the most recent fourteen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of September 13th were still 5.8% above the 394,137,000 barrels of oil we had stored on September 14th of 2018, but at the same time were 8.8% below the 472,832,000 barrels of oil that we had in storage on September 15th of 2017, and also 8.8% below the 473,966,000 barrels of oil we had in commercial storage on September 16th of 2016…   

This Week’s Rig Count

the US rig count fell for the 27th time in 31 weeks over the week ending September 20th, and is now down by 20% since the end of last year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 18 rigs to a 29 month low of 868 rigs this past week, which was also down by 185 rigs from the 1053 rigs that were in use as of the September 21st  report of 2018, and well 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 ​an attempt to flood the global oil market…

the count of rigs drilling for oil decreased by 14 rigs to 719 rigs this week, which was a 28 month low for oil rigs and 147 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 5 rigs to 148 natural gas rigs, a 30 month low for gas rig drilling activity and down by 38 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…however, a vertical rig classified as miscellaneous began drilling on the island of Hawaii this week, targeting a formation between 5000 and 10,000 feet below the surface, matching the miscellaneous rig count of a year ago, when the miscellaneous​ rig​ was​ drilling​ in Richland county Ohio..

Gulf of Mexico offshore drilling activity was down by 2 to 23 rigs running this week, as two  platforms offshore from Louisiana were shut down…the 23 rigs still left drilling offshore from Louisiana were ​up by 5 from the 18 Gulf of Mexico rigs deployed a year ago, when there was 17 rigs drilling in Louisiana waters and one drilling offshore from Texas…in addition to the Gulf, a directional rig began drilling offshore from the Kenai Peninsula in Alaska, where there are now two​ rigs​, one targeting oil and the other targeting natural gas at a​ greater​ depth of more than 15,000 feet…that offshore Alaska count matches the offshore Alaska count of a year ago, so the national total of 25 offshore rigs is up by 5 rigs from the 20​ rigs​ that were deployed offshore a year ago…

the count of active horizontal drilling rigs was down by 20 rigs to 756 horizontal rigs this week, which was the least horizontal rigs deployed since May 12th, 2017 and hence is a 28 month low for horizontal drilling…that was also 163 fewer horizontal rigs than the 921 horizontal rigs that were in use in the US on September 21st 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 51 vertical rigs this week, and those were ​also down by 14 from the 65 vertical rigs that were operating during the same week of last year…on the other hand, the directional rig count was up by 4 to 61 directional rigs this week, but those were still down by 8 from the 69 directional rigs that were in use on September 21st  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 20th, the second column shows the change in the number of working rigs between last week’s count (September 13th) and this week’s (September 20th) count, the third column shows last week’s September 13th 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 21st of September, 2018…      

Sepember 20 2019 rig count summary

a significant number of the rigs that were shut down this week had been drilling in basins not tracked separately by Baker Hughes, so the basin table above comes up short on identifying the rigs shut down in the various states…for instance, the 10 rigs idled in Oklahoma include ​single ​oil rigs in the Arkoma Woodford and Ardmore Woodford, two oil rigs and one natural gas rig in the Cana Woodford, and 5 rigs in those “other basins” that Baker Hughes does not track…in Texas, we saw a rig added in Texas Oil District 8, or the core Permian Delaware, and 2 rigs added in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while 6 rigs were shut down in Texas Oil District 7C, or the southern part of the Permian Midland, for a net loss of 3 Permian​ oil​ rigs in Texas, which thus means that the New Mexico start-up was in the far western Permian Delaware​ basin​…the 2 oil rigs and single natural gas rig shut down in the south Texas Eagle Ford account for 3 more Texas losses, leaving just one Texas retirement in a basin not tracked separately by Baker Hughes…elsewhere, the two rigs shut down in the Williston basin match the North Dakota count, but the rig added in the Denver-Julesburg NIobrara of the Rockies front range means that 2 rigs in either Wyoming or Colorado were shut down in those “other” basins that Baker Hughes doesn’t track…those “other” basins also account for the remaining 3 natural gas rig closures. as the rig count in all the major natural gas basins was unchanged this week…also note that other than the changes in activity in the major producing states shown above, Mississippi had two rigs start up this week and now has three rigs drilling, still down from 5 rigs a year ago, while Montana also saw a rig start up in the first drilling in that state since January…the aforementioned miscellaneous rig that started drilling in Hawaii, by the way, is the first drilling in that state since July 2016…

DUC well report for August

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for September, which includes the EIA’s August data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the sixth month in a row, this report showed a decrease in uncompleted wells nationally in July, as both drilling of new wells and completions of drilled wells decreased….moreover, the Permian basin of western Texas and New Mexico, which had been seeing an increase of newly drilled but uncompleted wells (DUCs) ever​y​ month of late, also saw a decrease in DUCs​ in​ August​ ​for the first time since August 2016…for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 142 wells, the largest decrease in 36 months, falling from a revised 8,092 DUC wells in July to 7,950 DUC wells in August, which still represents a 10.7% increase from the 7,181 wells that had been drilled but remained uncompleted as of the end of August a year ago…th​at DUC decrease occurred as 1,247 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during August, down by 62 from the 1,311 wells drilled in July and the lowest in 17 months, while 1,389 wells were completed and brought into production by fracking, a decrease of 6 well completions from the 1,395 completions seen in July….at the August completion rate, the 7,950 drilled but uncompleted wells left at the end of the month still represent a 5.7 month backlog of wells that have been drilled but are not yet fracked, the same backlog as a month ago…  

both oil producing regions and natural gas producing regions saw DUC well decreases in August, with only the natural gas producing Haynesville shale showing a small increase…the number of DUC wells left in the Oklahoma Anadarko decreased by 46, from 906 at the end of July to 860 DUC wells at the end of August, as 102 wells were drilled into the Anadarko basin during August while 148 Anadarko wells were being fracked….in addition, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells fall by 25, from 3,864 DUC wells at the end of July to 3,839 DUCs at the end of August, as 525 new wells were drilled into the Permian, while 550 wells in the region were being fracked….at the same time, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 23 to 438, as 178 Niobrara wells were drilled in August while 201 Niobrara wells were completed….meanwhile, DUC wells in the Bakken of North Dakota fell by 22, from 674 DUC wells at the end of July to 652 DUCs at the end of August, as 97 wells were drilled into the Bakken in August, while 119 of the drilled wells in that basin were being fracked…in addition, DUC wells in the Eagle Ford of south Texas decreased by 16, from 1,474 DUC wells at the end of July to 1,458 DUCs at the end of August, as 184 wells were drilled in the Eagle Ford during August, while 200 already drilled Eagle Ford wells were completed..

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 12 wells, from 529 DUCs at the end of July to 517 DUCs at the end of August, as 116 wells were drilled into the Marcellus and Utica shales during the month, while 128 of the already drilled wells in the region were fracked…on the other hand, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by 2 wells to 188, as 45 wells were drilled into the Haynesville during August, while 43 Haynesville wells were fracked during the same period….thus, for the month of August, 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 132 wells to 7,247 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 10 wells to 703 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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