natural gas supplies above average 1st time in 2 years; refineries slowest since Harvey; largest drop in DUC wells ever

oil prices ended modesty lower this week, largely on disappointment in the details of a proposed US-China trade deal and on a big jump in US oil supplies…after rising nearly 4% to $54.70 a barrel on the promise of further OPEC output cuts and on hopes for a US-China trade pact last week, the price of US light sweet crude for November delivery opened 20 cents higher on Monday amid renewed geopolitical tensions in the Middle East, but immediately began falling as details about the first phase of a U.S.-China trade deal did little to reassure there’​d be a quick end to the trade war and ultimately settled $1.11, or 2% lower at $53.59 a barrel…oil prices fell again on Tuesday, as traders worried that the unrelenting U.S.-China trade war would weaken the global economy and that swelling U.S. crude inventories would further pressure prices, with US crude ending 78 cents, or 1.5%, lower at $52.81 a barrel…however, oil prices recovered part of that loss on Wednesday on hopes that OPEC would extend its supply cuts at their coming biannual meeting, and ended 55 cents, or 1%, higher at $53.36 a barrel…oil prices then tumbled early on Thursday as industry data showed a much larger-than-expected build-up in U.S. inventories, but the drop was limited after the United Kingdom and the European Union announced they had reached a deal on Britain’s separation from the Union, and then, boosted by a weaker dollar, oil prices reversed and rallied late in the session to end up 57 cents at $53.93 a barrel…oil prices edged lower again on Friday, as concerns about the weakest Chinese GDP report in 30 years outweighed a bullish report from its refining sector, but the day’s losses were limited by hopes for progress toward a U.S.-China trade agreement​,​ ​with ​oil end​ing down just 15 cents at $53.78 a barrel…still, oil prices still closed 1.7% lower on the week, as higher US crude inventories and the depressed outlook for energy demand outweighed the optimism about potential future trade deals

natural gas prices, on the other hand, rose for the first time in 5 weeks, as both the 6 to 10 day and the 8 to 14 day forecasts indicated colder than lower temperatures for the broad midsection of the country, and as the storage report came in slightly under the market consensus…after falling 5.9% to $2.214 per mmBTU on record production and weak demand last week, the contract price of natural gas for November delivery rose 6.6 cents or 3% on Monday as a shift to colder in the weather data snapped a 5 day losing streak for natural gas contract prices…momentum from that move carried into Tuesday as prices rose another 5.9 cents, but prices then fell back 3.6 cents on Wednesday as the midday weather models showed less potential for strong, lasting cold..​.​.prices edged higher on Thursday on short-covering and position-squaring ahead of the weekly storage report and ended 1.5 cents higher when the report showed a smaller increase in stores than was expected​, even though it was the largest on record for the date​….natural gas prices then rose two-tenths of a cent on Friday to finish the week at $2.320 per mmBTU, 4.8% higher than the previous Friday…

the natural gas storage report for the week ending October 11th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 104 billion cubic feet to 3,519 billion cubic feet by the end of the week, which meant our gas supplies were 494 billion cubic feet, or 16.3% more than the 3,025 billion cubic feet that were in storage on October 11th of last year, and 14 billion cubic feet, or 0.4% above the five-year average of 3,505 billion cubic feet of natural gas that have been in storage as of the 11th of October in recent years, the first time out natural gas supplies surpassed the previous five-year average since Sept. 22, 2017…..this week’s 104 billion cubic feet injection into US natural gas storage was a bit lower than the consensus forecast for a 108 billion cubic feet injection from analysts surveyed by S&P Global Platts, but it was well above the average 81 billion cubic feet of natural gas that have been added to gas storage during the second week of October over the past 5 years, the 29th such average or above average storage build in the last 31 weeks…the 2,341 billion cubic feet of natural gas that have been added to storage over the 29 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 2​387 billion cubic feet of natural gas that were injected into storage over the same 29 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet…. 

with our natural gas supplies now above the five year average for the first time in nearly 25 months, we’ll include the graph of natural gas in storage that accompanied this week’s storage report…

October 19 2019 natural gas storage for October 11

the above graph comes from this week’s Natural Gas Storage Report, and it shows the quantity of natural gas in billion cubic feet that was in storage in the lower 48 states over the period from September 2017 up to the week ending October 11th 2019 as a blue line, the average of natural gas in storage over the 5 years preceding the same dates shown as a heavy grey line, while the grey shaded background​ graph​ represents the previous upper and lower range of natural gas in storage for any given time of year for the 5 years prior to the two years that are shown by today’s graph…thus the grey area also shows us the normal variation of natural gas storage levels as they fluctuate from season to season, with natural gas in storage underground normally building to a maximum by the first weekend in November, falling through the winter, and usually bottoming out at the end of March or the first week of April, depending of course on the spring heating requirements in any given year…as you can see, the level of natural gas supplies as indicated by the blue graph has been consistently below the 5 year average that’s indicated by the ​dark ​grey graph over the two year span of this graph, with supplies through much of last year well below the 5 year range, often tracking a 15 year low for each date in question…

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending October 11th showed that because of a decrease in our oil exports and a deepening slowdown in our oil refining, we were left with surplus oil to add to storage for the fifth week in a row…our imports of crude oil rose by an average of 70,000 barrels per day to an average of 6,295,000 barrels per day, after falling by an average of 67,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 153,000 barrels per day to an average of 3,248,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,047,000 barrels of per day during the week ending October 11th, 233,000 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 at a record 12,600,000 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 15,647,000 barrels per day during this reporting week..  

meanwhile, US oil refineries were reportedly processing 15,436,000 barrels of crude per day during the week ending October 11th, 221,000 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 1,145,000 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 933,000 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 (+933,000) 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 again this week,​ it​ means that one or all of the oil metrics that the EIA has reported and that we have just transcribed are seriously off the mark (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 6,297,000 barrels per day last week, now 18.2% less than the 7,695,000 barrel per day average that we were importing over the same four-week period last year….the 1,145,000 barrel per day net increase in our total crude inventories included 1,326,000 barrels per day that were added to our commercially available stocks of crude oil, which was offset by a withdrawal of 181,000 barrels per day from our Strategic Petroleum Reserve….this week’s crude oil production was reported to be unchanged at a record 12,600,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at a record 12,100,000 barrels per day, while a 12,000 barrels per day increase to 485,000 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 October 12th was rounded to 10,900,000 barrels per day, so this reporting week’s rounded oil production figure was 15.6% above that of a year ago, and 49.5% 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 83.1% of their capacity in using 15,436,000 barrels of crude per day during the week ending October 11th, down from 85.7% of capacity the prior week, and the lowest refinery utilization rate since September 2017, ​after Hurricane Harvey had caused the shutdown of 12% of US refining capacity along the western Gulf Coast….hence, the 15,436,000 barrels per day of oil that were refined this week was 5.4% less than the 16,316,000 barrels of crude per day that were being processed during the week ending October 12th, 2018, when US refineries were operating at a seasonal low 88.8% of capacity….

with the decrease in the amount of oil being refined, gasoline output from our refineries was also lower, decreasing by 68,000 barrels per day to 9,998,000 barrels per day during the week ending October 11th, after our refineries’ gasoline output had decreased by 15,000 barrels per day the prior week….with that decrease in gasoline output, this week’s gasoline production was 4.1% lower than the 10,430,000 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 147,000 barrels per day to 4,688,000 barrels per day, the lowest since March 2018, after our distillates output had increased by 22,000 barrels per day over the prior week….however, since our distillates production was down by a total of 528,000 barrels per day over the prior 3 weeks, our distillates​’​ production this week was 2.6% below the 4,815,000 barrels of distillates per day that were being produced during the week ending October 12th, 2018…. 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 11th time in 17 weeks and for the 25th time in thirty-two weeks, falling by 2,562,000 barrels to 226,201,000 barrels during the week to October 11th, after our gasoline supplies had decreased by 1,213,000 barrels over the prior week….the decrease in our gasoline supplies was larger this week even though the amount of gasoline supplied to US markets decreased by 106,000 barrels per day to 9,354,000 barrels per day, while our imports of gasoline rose by 9,000 barrels per day to 651,000 barrels per day while our exports of gasoline fell by 15,000 barrels per day to 781,000 barrels per day….after this week’s decrease, our gasoline supplies were 3.4% lower than last October 12th’s inventory level of 234,156,000 barrels, and but remained roughly 2% 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 19th time in the past 31 weeks, decreasing by 3,823,000 barrels to 123,501,000 barrels during the week ending October 11th, after our distillates supplies had decreased by 3,943,000 barrels over the prior week…our distillates supplies fell this week even though our exports of distillates fell by 389,000 barrels per day to 1,065,000 barrels per day while our imports of distillates rose by 105,000 barrels per day to 197,000 barrels per day, because the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 330,000 barrels per day to 4,366,000 barrels per day….after this week’s inventory decrease, our distillate supplies were 6.9% less than the 132,638,000 barrels of distillates that we had stored on October 12th, 2018, and fell to around 11% below the five year average of distillates stocks for this time of the year…

finally, with the refinery slowdown and the decrease in our oil exports, our commercial supplies of crude oil in storage rose for the seventh time in eighteen weeks and for the twenty-second time in 38 weeks, increasing by 2,927,000 barrels, from 425,569,000 barrels on October 4th to 434,850,000 barrels on October 11th to …that increase lifted our crude oil inventories to 2% above the five-year average of crude oil supplies for this time of year, and to more than 31.1% higher than the prior 5 year (2009 – 2013) average of crude oil stocks as of the second weekend of October, 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 July, after generally falling until then through most of the prior year and a half, our oil supplies as of October 4th were still 4.4% above the 416,441,000 barrels of oil we had stored on October 12th of 2018, but at the same time were 4.7% below the 456,485,000 barrels of oil that we had in storage on October 13th of 2017, and 7.2% below the 468,711,000 barrels of oil we had in commercial storage on October 14th of 2016…     

This Week’s Rig Count

the US rig count fell for the 8th time in 9 weeks and for the 31st time in 35 weeks over the week ending October 18th, and is now down by nearly 21.5% 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 a 30 month low of 851 rigs this past week, which was also down by 216 rigs from the 1067 rigs that were in use as of the October 19th 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 increased by 1 rig to 713 rigs this week, which was still 160 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 6 rigs to 137 natural gas rigs, a 32 month low for gas rig drilling activity, down by 57 rigs from the 194 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, a change from a year ago, when there were no such “miscellaneous” rigs deployed..

Gulf of Mexico offshore drilling activity decreased by 2 rigs to 21 Gulf rigs running this week, as 2 rigs that had been drilling offshore from Louisiana were shut down…that still left 21 rigs drilling in Louisiana​’s​ offshore waters, 2 more rigs than the Gulf of Mexico rig count of 19 a year ago, when 18 rigs were drilling in Louisiana waters and one was drilling offshore from Texas…in addition to the Gulf, one rig continues to drill offshore from the Kenai Peninsula in Alaska, which matches the offshore Alaska count of a year ago…hence, the national total of 22 offshore rigs is up by 2 rigs from the 20 rigs that were deployed offshore a year ago…however, another rig began drilling through an inland body of water in southern Louisiana this week, where there are now two​ drilling on inland waters​, but still down from the 3 such “inland waters” rigs deployed a year ago…

the count of active horizontal drilling rigs was down by 5 rigs to 745  horizontal rigs this week, which was the least horizontal rigs deployed since May 12th, 2017 and hence is a 29 month low for horizontal drilling…that was also 181 fewer horizontal rigs than the 926 horizontal rigs that were in use in the US on October 19th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….on the other hand, the directional rig count was unchanged at 55 directional rigs this week, but those were still down by 17 from the 72 directional rigs that were operating during the same week of last year…in addition, the vertical rig count was also unchanged at 51 vertical rigs this week, and those were down by 18 from the 69 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 18th, the second column shows the change in the number of working rigs between last week’s count (October 11th) and this week’s (October 18th) count, the third column shows last week’s October 11th 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 19th of October, 2018…   

October 18 2019 rig count summary

we have a problem with the Permian rig count this week, since the Rigs by State – Current and Historical excel file from Baker Hughes shows that one rig was added in Texas Oil District 8, or the core Permian Delaware, that two rigs were added in Texas Oil District 8A, or the northern Permian Midland, and another rig was added in Texas Oil District 7C, or the southern Permian Midland…as it’s likely that the rig pulled out of New Mexico had been operating in the western Permian Delaware, and since the Permian count is only up by one, we have to assume that two of those rigs that were added in Texas Permian districts were not targeting the Permian…to determine where, one could search the North America Rotary Rig Count Pivot Table (xls), which has individual well records going back to February 2011, but unless one knew ​offhand ​which counties were in each of those Texas districts it would likely be a fool’s errand…

in addition, there’s also a disconnect on the totals in the Marcellus ​shale ​and the states involved, since the Marcellus shows a three rig decrease while West Virginia shows a one rig decrease and Pennsylvania shows 4 fewer rigs…since the West Virginia and Pennsylvania current rig counts add up to the current Marcellus count, that means the shallow vertical rigs targeting gas we noted starting up in Fayette County, Pennsylvania during the week ending Sept 13th and in southern West Virginia earlier this year were both shut down this week…to get from there to the 6 rig decrease in natural gas that this week’s report shows, then, we include all 5 of those Appalachian rigs – 3 in the Marcellus and the two shallower rigs targeting formations not tracked separately by Baker Hughes, and two natural gas rig pulled out of the Eagle Ford in southeastern Texas, which are then offset by a rig added in the Barnett shale formation in the north central part of the state…however, neither of those Texas formations shows a change in the table above because their natural gas change was offset by a change in oil rigs; for the Eagle Ford, two oil rigs were added, leaving that basin’s count at 52 oil rigs and 8 targeting natural gas, while an oil rig was pulled out of the Barnett shale, leaving the Barnett with two oil rigs and two targeting natural gas…

DUC well report for September

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for October, which includes the EIA’s September data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the seventh month in a row, this report showed a decrease in uncompleted wells nationally in September, as both drilling of new wells and completions of drilled wells decreased….moreover, the inventory of uncompleted wells fell in every major US basin, including the Permian basin of western Texas and New Mexico, which had seen increases of newly drilled but uncompleted wells (DUCs) every month from August 2016 through August 2019…for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 206 wells, the largest decrease on record, falling from a revised 7,946 DUC wells in July to 7,740 DUC wells in September, which still represents 6.2% more than the 7,284 wells that had been drilled but remained uncompleted as of the end of September of a year ago…that DUC decrease occurred as 1,184 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during September, down by 61 from the 1,245 wells that were drilled in August and the lowest in 19 months, while 1,390 wells were completed and brought into production by fracking, a decrease of 5 well completions from the 1,395 completions seen in August….at the September completion rate, the 7,740 drilled but uncompleted wells left at the end of the month still represent a 5.6 month backlog of wells that have been drilled but are not yet fracked, down from a backlog of 5.7 months a month ago…  

both oil producing regions and natural gas producing regions saw DUC well decreases in September, since no major basin saw an increase…the number of DUC wells remaining in the Oklahoma Anadarko decreased by 59, from 885 at the end of August to 826 DUC wells at the end of September, as 82 wells were drilled into the Anadarko basin during September while 141 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 49, from 3,717 DUC wells at the end of August to 3,668 DUCs at the end of September, as 503 new wells were drilled into the Permian, while 552 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 32 to 473, as 168 Niobrara wells were drilled in September while 200 Niobrara wells were completed….meanwhile, DUC wells in the Eagle Ford of south Texas decreased by 24, from 1,468 DUC wells at the end of August to 1,444 DUCs at the end of September, as 175 wells were drilled in the Eagle Ford during August, while 199 already drilled Eagle Ford wells were completed….in addition, DUC wells in the Bakken of North Dakota fell by 21, from 696 DUC wells at the end of August to 675 DUCs at the end of September, as 104 wells were drilled into the Bakken in August, while 125 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 16 wells, from 520 DUCs at the end of July to 504 DUCs at the end of September, as 107 wells were drilled into the Marcellus and Utica shales during the month, while 123 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 5 wells to 180, as 45 wells were drilled into the Haynesville during September, while 50 Haynesville wells were fracked during the same period….thus, for the month of September, 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 185 wells to 7,056 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 21 wells to 684 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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