oil falls back to pre-Saudi attack price; natural gas supplies increase by most in any Fall week in 4 years

oil prices retreated this week after reports that Saudi Arabia’s oil production had been completely restored after the crippling September 14th drone strike, with prices briefly falling below their September 13th closing low…after rising 6% to $58.09 a barrel in volatile and record trading volume last week in the wake of the attacks on Saudi infrastructure, prices of US light sweet crude for November delivery, which had moved in tandem with the expiring October oil contract last week, opened 2% higher on Monday following reports that full recovery of Saudi Arabia’s oil fields hit by the drone attack might take many months and held on for a 1% increase to $58.64 a barrel, even though the Saudis reportedly restored much of their lost output, as prices were supported by growing tensions in the Persian Gulf…however, the bottom fell out of oil prices on Tuesday after Trump accused China of unfair trade practices, “massive” market barriers, currency manipulation and intellectual property theft, rekindling fears that the U.S.-China trade war would dampen global economic activity, with US oil futures closing $1.35 lower at $57.29 a barrel…oil prices then opened 1% lower at $56.70 a barrel on Wednesday after a Tuesday evening American Petroleum Institute report of a unexpected crude oil inventory increase, and extended those losses after the EIA reported an even larger inventory increase, with oil ending down 80 cents at $56.49 a barrel, as Trump said he saw a path to peace with Iran, further cooling the risk premium that had built into oil prices…oil prices then fell for the third straight day on Thursday, as Saudi Arabia’s moves to quickly restore their output after the attacks on their oil infrastructure promised yet more oil supply, with US crude ending down 8 cents at $56.41 a barrel, having fallen 2% to $55.41 a barrel earlier in the day…prices fell further again on Friday on news that Saudi Arabia had declared a partial cease-fire in Yemen, further dialing down the tension that had prompted the Yemeni attack, with oil falling to as low as $54.75 a barrel on claims by Iranian President Rouhani that the U.S. had offered to lift all sanctions if Iran was willing to negotiate, but pared those losses after Trump denied that any such offer had been made, and ended just 50 cents lower at $55.91 a barrel, thus finishing the week with a loss of 3.6%, its steepest drop since mid-July, as prior fears about supply shortages waned

natural gas prices also fell this past week, closing lower each day, with most of the drop coming after the EIA reported a surprisingly large injection of natural gas into storage…after falling after falling more than 3% to $2.534 per mmBTU on a bearish storage report last week, the price of natural gas for October delivery slipped seven-tenths of a cent on Monday and 2.4 cents in volatile trading on Tuesday, as traders speculated as to whether the weather would turn bullish or bearish in October, with the possibility that cooling might still be needed in the South if the month stayed warm simultaneously reducing the need for heating in the northern tier of states…natural gas prices slipped another tenth of a cent in quiet trading on Wednesday, and then fell 7.4 cents to close at $2.428 per mmBTU after the EIA reported the first triple digit storage addition of natural gas to storage of the season as trading in the October gas contract expired…at the same time, contracts for November delivery of natural gas, which had ended last week priced at $2.555 per mmBTU, fell 7.5 cents to 2.443 mmBTU on Thursday, and then another 3.9 cents on Friday to end the week at $2.404 per mmBTU, a 5.9% drop from where that contract had ended the prior week (note that natural gas valuations vary seasonally, so we can’t compare the nominal price of one month’s contract to another’s) 

the natural gas storage report for the week ending September 20th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 102 billion cubic feet to 3,205 billion cubic feet by the end of the week, which meant our gas supplies were 444 billion cubic feet, or 16.1% more than the 2,761 billion cubic feet that were in storage on September 20th of last year, while still 47 billion cubic feet, or 1.4% below the five-year average of 3,252 billion cubic feet of natural gas that have been in storage as of the 20th of September in recent years….this week’s 103 billion cubic feet injection into US natural gas storage was somewhat more than the forecast for an 93 billion cubic feet injection by analysts surveyed by S&P Global Platts, while it was well above the average 82 billion cubic feet of natural gas that have been added to gas storage during the third week of September over the past 5 years, the 26th such average or above average storage build in the last 28 weeks…the 2,027 billion cubic feet of natural gas that have been added to storage over the 26 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 2093 billion cubic feet of natural gas that were injected into storage over the same 26 weeks of the 2014 natural gas injection season, a coolish summer when there were no injections below 76 billion cubic feet…. 

what’s most interesting about this week’s 102 billion cubic feet of surplus natural gas is that it came during a week when temperatures over most of the country were above normal, as you can see in the map below of the reporting week’s temperature anomalies:

September 28th 2019 temperature anomalies for week ending September 19th

the above temperature anomaly map came from the EIA’s weekly interactive natural gas storage dashboard, and as you can gather, it shows how much the temperature in each of several hundred regions of the country varied from the norm, with the brown shading showing above normal temperatures…one would have thought with temperatures in that broad area in the middle of the country 5 to 9 degrees above normal, air conditioning demand would have also been above normal….but if you go to the natural gas storage dashboard and scroll down to the interactive graph showing the daily requirements of natural gas for electrical generation, you can see by mousing over it that natural gas for electricity averaged a billion cubic feet per day less than a year ago, despite a 10% year over year increase in gas driven generation capacity…& as a result of that inexplicable low demand for natural gas generated electric power, natural gas storage saw its first Autumn 100 billion cubic feet injection into storage since 2015..

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 20th showed that despite of a big drop in our oil imports, we were still left with surplus oil to add to storage for the second time in 5 weeks, essentially due to a big jump in unaccounted for crude…our imports of crude oil fell by an average of 672,000 barrels per day to an average of 6,378,000 barrels per day, after rising by an average of 326,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 192,000 barrels per day to an average of 2,983,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,395,000 barrels of per day during the week ending September 20th, 480,000 fewer 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 higher at a record 12,500,000 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 15,895,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,513,000 barrels of crude per day during the week ending September 20th, 193,000 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 344,000 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 962,000 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 (+962,000) 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 once again this week, it calls into question all the other oil metrics 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 rose to an average of 6,764,000 barrels per day last week, still 13.1% less than the 7,783,000 barrel per day average that we were importing over the same four-week period last year…the 344,000 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 100,000 barrels per day higher at a record 12,500,000 barrels per day even though the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,000,000 barrels per day, because a 49,000 barrels per day increase to 472,000 barrels per day in Alaska’s oil production added 100,000 barrels per day to the final rounded national production total (EIA’s math, not mine)…last year’s US crude oil production for the week ending September 21st was rounded to 11,100,000 barrels per day, so this reporting week’s rounded oil production figure was 12.1% above that of a year ago, and 48.3% 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 89.8% of their capacity in using 16,513,000 barrels of crude per day during the week ending September 20th, down from 91.2% of capacity the prior week, & somewhat below the normal refinery utilization rate for a non-hurricane week in mid-September…nonetheless, the 16,513,000 barrels per day of oil that were refined this week were not much changed from the 6,514,000 barrels of crude per day that were being processed during the week ending September 21st, 2018, when US refineries were operating at 90.4% of capacity….

even with the decrease in the amount of oil being refined, gasoline output from our refineries was quite a bit higher, increasing by 789,000 barrels per day to 10,240,000 barrels per day during the week ending September 20th, after our refineries’ gasoline output had decreased by 909,000 barrels per day to a nine month low the prior week…with that big increase in gasoline output, this week’s gasoline production was 4.1% higher than the 9,832,000 barrels of gasoline that were being produced daily over the same week of last year….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 109,000 barrels per day to 5,000,000 barrels per day, after our distillates output had decreased by 232,000 barrels per day the prior week….but even with those decreases, our distillates production was still pretty close to the 4,995,000 barrels of distillates per day that were being produced during the week ending September 21st, 2018…. 

with the big jump in our gasoline production, our supply of gasoline in storage at the end of the week increased for the 6th time in 15 weeks but for just the 7th time in thirty weeks, increasing by 519,000 barrels to 230,204,000 barrels during the week to September 20th, after our gasoline supplies had increased by 781,000 barrels over the prior week….the increase in our gasoline supplies was limited this week because the amount of gasoline supplied to US markets increased by 407,000 barrels per day to 9,346,000 barrels per day, and because our exports of gasoline rose by 113,000 barrels per day to 805,000 barrels per day, while our imports of gasoline rose by 299,000 barrels per day to 800,000 barrels per day….but even after this week’s increase, our gasoline supplies were still 2.3% lower than last September 21st’s inventory level of 235,680,000 barrels, while remaining roughly 4% above the five year average of our gasoline supplies for this time of the year…

with the decrease in our distillates production, our supplies of distillate fuels fell for the 16th time in the past 28 weeks, decreasing by 2,978,000 barrels to 133,685,000 barrels during the week ending September 20th, after our distillates supplies had increased by 437,000 barrels over the prior week…our distillates supplies decreased this week because our exports of distillates rose by 297,000 barrels per day to 1,623,000 barrels per day, while our imports of distillates fell by 58,000 barrels per day to 94,000 barrels per day, while the amount of distillates supplied to US markets, a​n indicator ​​of our domestic demand, increased by 38,000 barrels per day to 3,897,000 barrels per day….after this week’s inventory decrease, our distillate supplies were 3.0% less than the 137,881,000 barrels of distillates that we had stored on September 21st, 2018, and fell to around 7% below the five year average of distillates stocks for this time of the year…

finally, even though our oil imports were much lower, our commercial supplies of crude oil in storage still rose for the fourth time in fifteen weeks and for the nineteenth time in 36 weeks, increasing by 2,412,000 barrels, from 417,126,000 barrels on September 13th to 419,538,000 barrels on September 20th…that increase brought our crude oil inventories back to near the five-year average of crude oil supplies for this time of year, and to more than 25% 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 fifteen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of September 20th were still 5.9% above the 395,989,000 barrels of oil we had stored on September 21st of 2018, but at the same time were 10.9% below the 470,986,000 barrels of oil that we had in storage on September 22nd of 2017, and 11.1% below the 472,084,000 barrels of oil we had in commercial storage on September 23rd of 2016…    

This Week’s Rig Count

the US rig count fell for the 28th time in 32 weeks over the week ending September 27th, and is now down by 20.6% since the beginning of the year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 8 rigs to a 29 month low of 860 rigs this past week, which was also down by 194 rigs from the 1054 rigs that were in use as of the September 28th 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 began their attempt to flood the global oil market…

the count of rigs drilling for oil decreased by 6 rigs to 713 rigs this week, which was a 28 month low for oil rigs and 150 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 146 natural gas rigs, a 30 month low for gas rig drilling activity and down by 43 rigs from the 189 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…in addition, a vertical rig classified as miscellaneous continued to drill on the big island of Hawaii this week, down by one from the miscellaneous rig count of a year ago, when 2 miscellaneous rigs were deployed..

Gulf of Mexico offshore drilling activity was down by 1 rig to 22 rigs running this week, as a platform offshore from Louisiana was shut down…​however, the 22 rigs left drilling offshore from Louisiana was still 4 more than the 18 Gulf of Mexico rigs deployed a year ago, when 17 rigs were drilling in Louisiana waters and one was drilling offshore from Texas…in addition to the Gulf, two rigs continue to drill offshore from the Kenai Peninsula in Alaska, one targeting oil at 5,000 to 10,000 feet and the other targeting natural gas at a depth of more than 15,000 feet, which matches the offshore Alaska count of a year ago…hence, the national total of 24 offshore rigs is up by 4 rigs from the 20 rigs that were deployed offshore a year ago…

the count of active horizontal drilling rigs was down by 4 rigs to 752 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 170 fewer horizontal rigs than the 922 horizontal rigs that were in use in the US on September 28th 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 down by 4 to 57 directional rigs this week, and those were down by 12 from the 69 directional rigs that were operating during the same week of last year…meanwhile, the vertical rig count was unchanged at 51 vertical rigs this week, and those were also down by 12 from the 63 vertical rigs that were in use on September 28th 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 27th, the second column shows the change in the number of working rigs between last week’s count (September 20th) and this week’s (September 27th) count, the third column shows last week’s September 20th 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 28th of September, 2018…  

September 27 2019 rig count summary

the five rig decrease in Texas included all three of the Permian basin tear-downs, as one rig was pulled out of Texas Oil District 8, or the core Permian Delaware, and 2 more rigs were shut down in Texas Oil District 7C, or the southern part of the Permian Midland…the rig pulled out of the Eagle Ford in the southern part of the state was a natural gas rig, leaving the Eagle Ford with a deployment of 56 rigs targeting oil and 6 rigs targeting natural gas; it seems likely that rig came of out of Texas Oil District 2, which was down by two rigs, because the Eagle Ford gas trend is closer to the Gulf coast…in addition, the rig pulled from the Granite Wash was also a natural gas rig, but it appears to have come out of the area of Oklahoma bordering the Texas panhandle, since the rig count in Texas Oil District 10 was unchanged at one; the 2 Granite Wash rigs that remain​ ​are targeting oil…meanwhile, drilling in all three of the major natural gas basins – Ohio’s Utica, the Marcellus of Pennsylvania and West Virginia, and the northwest Louisiana Haynesville – was unchanged for the 2nd week in a row..


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