largest September addition to natural gas in storage on record; drilling for natural gas falls to 32 month low

oil prices saw their largest weekly drop since mid-July on weak economic data, but managed to break an eight day losing streak on Friday when the September employment report was not as bad as some feared…after falling 3.6% to $55.91 a barrel after the Saudis restored their oil production to the pre-attack level last week, prices of US light sweet crude for November delivery tanked on Monday on reports that the Trump administration was considering more extreme measures in its economic war with China and ended down $1.84, or 3.3%, at $54.07 a barrel, as fears of a supply shortfall after the Sept. 14 attack on Saudi Arabia fadedoil prices rebounded early Tuesday on a Reuters report that oil output from the world’s largest oil producers fell during the third quarter, but then turned lower after a report showing US manufacturing had slowed by the most in over ten years, with US crude settling down 45 cents at $53.62 a barrel…oil prices rebounded again early Wednesday after oil industry data showed a surprise drop in U.S. crude inventories, but quickly reversed after the EIA report showed that US crude inventories had actually risen by more than was expected, and ended down 98 cents at $52.64 a barrel after the ADP reported that September private payrolls came in below expectations…oil prices moved lower for an eighth-straight session on Thursday after a report that U.S. services sector growth had slowed to its most anemic pace in three years, but recovered from the session low of $50.99 to finish at $52.45 a barrel, down just 19 cents on the day…oil prices finally moved higher Friday after the Labor Department reported payroll jobs increased moderately in September and that the unemployment rate dropped to a 50-year low of 3.5%, and ended 36 cents higher at $52.81 a barrel, but still ended more than 5% lower for the week, its second consecutive weekly decline...

natural gas prices also ended the week lower even as they broke a 12 day losing streak on Thursday after the longer term weather forecasts suggested cooler weather and hence the onset of the heating season for the middle section of the country…after falling each day last week (and in fact every day since September 16th) and ending down nearly 6% at $2.404 per mmBTU, the quoted contract price of natural gas for November delivery resumed its downward slide on Monday, falling 7.4 cents to $2.33 per mmBTU, after weekend data had indicated a new all-time high for gas production, and forecasts suggested reduced cooling demand without the need for much heating…natural gas prices fell 4.7 cents on Tuesday and then 3.6 cents more on Wednesday, the 12th straight decline in a slump that had seen prices for November gas fall 17.5% over the prior 2 and a half weeks….however, on Thursday, despite a storage report that was on the high side of estimates, prices quickly recovered after the EIA report as mid-October weather outlooks trended cooler and ended the day 8.2 cents higher at $2.329 per mmBTU…the November gas contract price then added another 2.3 cents on Friday to end the week at $2.352 per mmBTU, still 5.2 cents or 2.2% lower than where it ended the prior week..

the natural gas storage report for the week ending September 27th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 112 billion cubic feet to 3,317 billion cubic feet by the end of the week, which meant our gas supplies were 465 billion cubic feet, or 16.3% more than the 2,852 billion cubic feet that were in storage on September 27th of last year, while still 18 billion cubic feet, or a half percent below the five-year average of 3,335 billion cubic feet of natural gas that have been in storage as of the 27th of September in recent years….this week’s 112 billion cubic feet injection into US natural gas storage was a bit more than the forecast for an 109 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 fourth week of September over the past 5 years, the 27th such average or above average storage build in the last 29 weeks…the 2,139 billion cubic feet of natural gas that have been added to storage over the 27 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 2204 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….  

as it turns out, that 112 billion cubic feet increase in natural gas storage was the largest on record for the month of September, and the second highest Fall injection in the modern records for this storage report, a level which we can get a sense of with the following graphic of the weekly natural gas inventory change.. 

October 5 2019 change in natural gas inventories up to Sept 27

the above graphic is a screenshot of an interactive graphic included on the EIA’s weekly natural gas storage dashboard, and as the heading indicates, it shows the weekly change, in billions of cubic feet, of natural gas in storage in the lower 48 states…the blue dots represent the weekly changes of natural gas in storage for each week this year up to the current report, and the dark diamonds represent the 5 year average change of natural gas in storage for each of the weeks of the year, while the shaded grey background to those markers represent the range of changes for each week of the year over that 5 year span…thus, for this week, which i have highlighted on this interactive graph by moving my cursor below this week’s dots, you can see the 112 billion cubic feet addition for this year, the 82 billion cubic feet average for the same week over the prior 5 years, and the prior range of between 47 billion cubic feet and 110 billion cubic feet of natural gas that was added to storage over the prior 5 years, with that latter large injection being the one for the same period in 2014…

notice that the blue dots representing this year’s weekly injections are often above the prior 5 year range, as represented by the grey shading, and that the blue dot for the current week’s injection is clearly higher than any prior injection recorded in the 2nd half of the year above…as it turns out, the recent historical records show this week’s 112 billion cubic foot injection was the highest ever for September, and the second highest for the season, eclipsed only by the 113 billion cubic feet injection for the week ending October 7th, 2011….the historical record also shows that this year’s injection of 2,139 billion cubic feet is in sharp contrast to the injections of 2018, when just 1,512 billion cubic feet of natural gas were added to storage between the last week of March and the last week of September, leading to the lowest November gas stores in 16 years, and subsequently to concerns about possible mid-winter shortages…

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 27th showed that because of a big pullback in our oil refining, we were left with surplus oil to add to storage for the third week in a row…our imports of crude oil fell by an average of 87,000 barrels per day to an average of 6,291,000 barrels per day, after falling by an average of 672,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 116,000 barrels per day to an average of 2,867,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,424,000 barrels of per day during the week ending September 27th, 29,000 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 at a 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 15,824,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,017,000 barrels of crude per day during the week ending September 27th, 496,000 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 443,000 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 636,000 barrels per day less than what was reportedly added to storage plus 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 (+636,000) 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 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 6,611,000 barrels per day last week, now 15.7% less than the 7,984,000 barrel per day average that we were importing over the same four-week period last year….the 443,000 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 lower at a record 12,400,000 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 11,900,000 barrels per day, while a 8,000 barrels per day increase to 480,000 barrels per day in Alaska’s oil production ha no impact on the final rounded national production total…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 11.7% 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 86.4% of their capacity in using 16,017,000 barrels of crude per day during the week ending September 27th, down from 89.8% of capacity the prior week, & well below the normal refinery utilization rate for mid-September, partially due to tropical storm Imelda’s track through southeastern Texas…as a result, the 16,017,000 barrels per day of oil that were refined this week was 3.5% less than the 16,591,000 barrels of crude per day that were being processed during the week ending September 28th, 2018, when US refineries were operating at 90.4% of capacity….

with the decrease in the amount of oil being refined, gasoline output from our refineries was also lower, decreasing by 159,000 barrels per day to 10,081,000 barrels per day during the week ending September 27th, after our refineries’ gasoline output had increased by 789,000 barrels per day the prior week…but even with that decrease in gasoline output, this week’s gasoline production was 1.3% higher than the 9,950,000 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 187,000 barrels per day to 4,813,000 barrels per day, after our distillates output had decreased by 341,000 barrels per day over the prior 2 weeks….with those decreases, our distillates production was 4.3% below the 5,029,000 barrels of distillates per day that were being produced during the week ending September 28th, 2018…. 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 10th time in 16 weeks and for the 24th time in thirty-one weeks, falling by 228,000 barrels to 229,976,000 barrels during the week to September 27th, after our gasoline supplies had increased by 519,000 barrels over the prior week….the decrease in our gasoline supplies came even as the amount of gasoline supplied to US markets decreased by 209,000 barrels per day to 9,137,000 barrels per day, as our exports of gasoline rose by 115,000 barrels per day to 920,000 barrels per day, while our imports of gasoline rose by 43,000 barrels per day to 843,000 barrels per day….after this week’s decrease, our gasoline supplies were 2.2% lower than last September 28th’s inventory level of 235,221,000 barrels, while slipping back to roughly 3% 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 17th time in the past 29 weeks, decreasing by 2,418,000 barrels to 131,267,000 barrels during the week ending September 27th, after our distillates supplies had decreased by 2,978,000 barrels over the prior week…the decrease in our distillates supplies was less extreme this week because our exports of distillates fell by 374,000 barrels per day to 1,249,000 barrels per day, while our imports of distillates fell by 44,000 barrels per day to 50,000 barrels per day, while the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 63,000 barrels per day to 3,960,000 barrels per day….after this week’s inventory decrease, our distillate supplies were 3.6% less than the 136,131,000 barrels of distillates that we had stored on September 28th, 2018, and fell to around 8% below the five year average of distillates stocks for this time of the year…

finally, with the slowdown in our refining of oil, our commercial supplies of crude oil in storage rose for the fifth time in sixteen weeks and for the twentieth time in 37 weeks, increasing by 3,104,000 barrels, from 419,538,000 barrels on September 20th to 422,642,000 barrels on September 27th…that increase still left our crude oil inventories near the five-year average of crude oil supplies for this time of year, but more than 25% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the fourth 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 sixteen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of September 27th were still 4.6% above the 403,964,000 barrels of oil we had stored on September 28th of 2018, but at the same time were 9.1% below the 464,963,000 barrels of oil that we had in storage on September 29th of 2017, and 9.9% below the 469,108,000 barrels of oil we had in commercial storage on September 30th of 2016…    

This Week’s Rig Count

the US rig count fell for the 7th week in a row and for the 29th time in 33 weeks over the week ending October 4th, and is now down by more than 21% since the beginning of this year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 5 rigs to nearly a 30 month low of 855 rigs this past week, which was also down by 197 rigs from the 1057 rigs that were in use as of the October 5th 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 3 rigs to 710 rigs this week, which was a 29 month low for oil rigs and 151 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 144 natural gas rigs, a 32 month low for gas rig drilling activity and down by 45 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 unchanged with 22 Gulf rigs still running this week, with all of those drilling offshore from Louisiana…​ ​however, with a jump in the​ Gulf in​ same week of last year, th​is week’s count now matches the Gulf of Mexico rig count of a year ago, when 21 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 the same number of rigs that were deployed offshore a year ago…

the count of active horizontal drilling rigs was down by 3 rigs to 749 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 919 horizontal rigs that were in use in the US on October 5th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…likewise, the directional rig count was also down by 3 to 54 directional rigs this week, and those were down by 12 from the 66 directional rigs that were operating during the same week of last year…on the other hand, the vertical rig count increased by 1 to 52 vertical rigs this week, but those were down by 15 from the 67 vertical rigs that were in use on October 5th 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 October 4th, the second column shows the change in the number of working rigs between last week’s count (September 27th) and this week’s (October 4th) count, the third column shows last week’s September 27th 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 5th of October, 2018…   :

October 4 2019 rig count summary

as you can see, the 4 rig increase in New Mexico partially offset this week’s rig decrease in other states…to determine where in New Mexico those rigs might have been added, we have to first check the Permian rig count in Texas, which we find in the Rigs by State – Current and Historical excel file from Baker Hughes, and which shows that 3 rigs were pulled out of Texas Oil District 8, or the core Permian Delaware, while drilling in both Texas Oil District 8A and Texas Oil District 7C, the northern and southern Permian Midland, was unchanged…hence, for the Permian rig count to show a one rig increase, all 4 of the rigs added in New Mexico had to have been start-ups in the western Permian Delaware…meanwhile, in the Eagle Ford of South Texas, 6 oil seeking rigs were shut down, while 4 natural gas rigs were added, leaving the Eagle Ford deployment at 50 oil rigs and 10 targeting natural gas…on the other hand, the 2 rigs that were shut down in Oklahoma’s Cana Woodford included one oil rig and one targeting gas, while another Oklahoma rig was shut down outside of the major basins tracked by Baker Hughes…meanwhile, North Dakota only shows a 1 rig increase despite the 2 rigs added in the Williston basin because a second Williston basin rig was started up in Montana, the first time Montana has had two rigs deployed since January…note that to offset the 4 natural gas rigs that were added in the Eagle Ford, 2 natural gas rigs were pulled out of West Virginia’s Marcellus, one natural gas rig was pulled out of Oklahoma’s Cana Woodford, one natural gas rig was pulled out of northern Louisiana’s Haynesville while an oil rig was added ​in ​Shelby county Texas ​on the ​western ​side of the Haynesville at the same time, and 2 natural gas rigs were removed from basins not tracked separately by Baker Hughes…lastly, we should also note that other than the changes in the major producing states shown above, Mississippi also saw a rig shut down this week and now has two rigs remaining active; the rig count in that state has fluctuated back and forth between 1 and 6 rigs over just the past couple months, so who knows what’s going on down there….


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