Nov. had largest fracking drop in 57 months; natural gas rigs fell to 3 year low while oil rigs rose most in 22 months

oil prices hit three month highs on three days this week on their way to rising for the 6th time in seven weeks, but gave up most of their gains for the week in Friday profit taking ahead of the holidays…after rising 1.5% to a three month high at $60.07 a barrel on hopes for a US-China trade deal last week, the benchmark price of US light sweet crude for January delivery opened lower and slipped to $59.17 as confidence about the U.S.-China trade deal was tempered by the agreement’s limited nature and lack of details, but then recovered later in the session to settle 14 cents higher at a three-month closing high of $60.21 a barrel on renewed trade optimism boosted by ​​the better U.S. manufacturing and services data released earlier…oil prices then moved higher for a fourth consecutive day on Tuesday in a positive response to further details on the trade agreement between the U.S. and China and finished 73 cents higher at another 3 month high of $60.94 a barrel after Trump’s economic adviser Larry Kudlow predicted U.S. exports to China would double under the dealafter a Tuesday evening report from the API indicated surprise large build of crude inventories, oil prices opened lower on Wednesday​, ​but recovered midday after the EIA reported crude oil inventories had actually decreased by an expected 1.1 million barrels and ended down just a penny at $60.93 a barrel …oil prices were back at three-month highs ​again ​on Thursday as thawing US-China trade relations supported financial markets, as trading in the January oil contract ended 29 cents higher at $61.22 ​a barrel, ​while the contract for February US oil finished 33 cents higher at $61.18 a barrel…however, oil prices moved sharply lower on Friday after Baker Hughes reported that the number of active U.S. rigs drilling for oil rose by 18, the biggest jump in 22 months, and as oil traders took profits ahead of upcoming holidays and oil ended down 74​ cents​, or 1.2%, at $60.44 a barrel…nonetheless, oil prices still finished up slightly for the week, with US crude 37​ ​cents or less than one percent ​higher ​when compared to last Friday’s close, while the February oil contract was 46 cents ​higher ​on the week…

natural gas prices also ended a bit higher this week, after hitting an all time low the prior Monday…after recovering from $2.158 per mmBTU to close the week 1.6% lower at $2.296 per mmBTU last week, the price of natural gas for January delivery rose 4.5 cents to $2.341 per mmBTU on Monday on forecasts confirming cold weather and high heating demand this week, despite an outlook showing next week would be warmer than previously expected…but trading on the longer term forecast came to the fore on Tuesday, as natural gas prices slid 2.2 cents, and then fell another 3.3 cents on Wednesday as a forecast for this December’s total demand (GWDD) to be very close to the warm December of a year ago hit prices again….prices even fell another 1.3 cents on Thursday, despite an EIA report that withdrawals from natural gas inventories were much greater than expected…but natural gas prices reversed on Friday when the forecasts did, rising 5.5 cents to close the week 1.4% higher at $2.328 per mmBTU, as weather models began to feature colder changes through early January

the natural gas storage report for the week ending December 13th from the EIA indicated that the quantity of natural gas held in storage in the US decreased by 107 billion cubic feet to 3,411 billion cubic feet by the end of the week, which left our gas supplies ​still ​618 billion cubic feet, or 22.1% higher than the 2,793 billion cubic feet that were in storage on December 13th of last year, but 9 billion cubic feet, or 0.3% below the five-year average of 3,420 billion cubic feet of natural gas that have been in storage as of the 13th of December in recent years….the 107 billion cubic feet that were withdrawn from US natural gas storage this week was somewhat more than the average forecast for a 93 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, but was below the average 112 billion cubic feet of natural gas that have been pulled from natural gas storage during the second week of December over the past 5 years. as well as ​below ​the 132 billion cubic feet withdrawal reported during the corresponding week in 2018…

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending December 13th indicated that because of an increase in our oil exports and a decrease in our oil imports, we had to pull oil out of our stored commercial supplies to meet ​our ​refining needs for the fourth time in the past fourteen weeks…our imports of crude oil fell by an average of 308,000 barrels per day to an average of 6,579,000 barrels per day, after rising by an average of 899,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 233,000 barrels per day to an average of 3,633,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,946,000 barrels of per day during the week ending December 13th, 541,000 fewer barrels per day than the net of our imports minus our exports during the prior week…over the same period, the production of crude oil from US wells was reportedly unchanged at 12,800,000 barrels per day, and hence our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,746,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,562,000 barrels of crude per day during the week ending December 13th, 35,000 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 155,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was still 661,000 barrels per day less than what our oil refineries reported they used during the week….to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+661,000) 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”, thus suggesting an error or errors of that magnitude in the oil supply & demand figures we just transcribed…however, since the media treats these figures as gospel and since they drive oil pricing and hence decisions to drill for oil, we continue to report them, just as they’re seen & believed by most everyone else (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 6,411,000 barrels per day last week, still 15.1% less than the 7,549,000 barrel per day average that we were importing over the same four-week period last year….the 155,000 barrel per day net withdrawal from our total crude inventories was due to a withdrawal of 155,000 barrels per day from our commercially available stocks of crude oil, while the quantity oil stored in our Strategic Petroleum Reserve was unchanged……this week’s crude oil production was reported to be unchanged at 12,800,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,300,000 barrels per day, while a 7,000 barrel per day decrease to 481,000 barrels per day in Alaska’s oil production was not large enough to impact the final rounded​ national​ total…last year’s US crude oil production for the week ending December 14th was rounded to 11,600,000 barrels per day, so this reporting week’s rounded oil production figure was 10.3% above that of a year ago, and 51.9% 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 90.6% of their capacity in using 16,562,000 barrels of crude per day during the week ending December 13th, the same capacity utilization as the prior week, and well below the recent normal for the second week of December…as a result, the 16,562,000 barrels per day of oil that were refined this week was 4.9% below the 17,408,000 barrels of crude per day that were being processed during the week ending December 14th, 2018, when US refineries were operating at 95.4% of capacity….

with US refinery inputs consistently below those of a year ago, we’ll include here a graph of those, so we can try to see what has been happening…

December 18 2019 refinery inputs thru December 13th

the above graph of US refinery throughput came from a newsletter emailed daily by John Kemp, senior energy analyst and columnist with Reuters, which you can sign up for free here; it shows US refinery throughput in thousands of barrels per day by “day of the year” for the past ten years, with the past ten year range of our refinery throughput for any given date shown as a light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year….the graph also shows the number of barrels of oil refined for each week in 2018 traced by a yellow line, with our year to date oil refining for each week of 2019 traced by the red graph…we can thus see that with a few exceptions, 2018’s refining in yellow had been at the top of the historical range for most of the year, and that pace of refining in 2018 was generally beating the records set in 2017 (not shown)…however, with the sanctions imposed on Venezuelan crude at the end of January of this year, US Gulf coast refineries, which are configured to process the heavy sour crude that Venezuela produces, could not come up with adequate replacements for that crude to run at their optimum pace, and as you see, US refineries ran nearly 5% below the prior year’s pace through winter and spring, ​ultimately ​buying boatloads of Urals crude from the Russians to replace the Venezuelan crude they’d lost…then, just when those refineries were starting to get back to near normal early this fall, the Keystone pipeline carrying heavy sour crude from Canada sprung a leak and was shut down, again interrupting the flow of the type of crude those refineries need to run at their optimum...there ha​s been an effort to replace that loss with releases from the Strategic Petroleum Reserve, but that was only marginally successful…but even though the Keystone pipeline has been up and running again for weeks now, US refinery utilization still continues nearly 5% below the prior year’s seasonal norms……

even with the decrease in the amount of oil being refined, gasoline output from our refineries was higher, increasing by 87,000 barrels per day to 9,840,000 barrels per day during the week ending December 13th, after our refineries’ gasoline output had decreased by 188,000 barrels per day the prior week….but even with this week’s increase in gasoline output, our gasoline production was 4.8% lower than the 10,334,000 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 156,000 barrels per day to 5,072,000 barrels per day, after our distillates output had decreased by 35,000 barrels per day over the prior week…hence, after this week’s decrease in distillates output, our distillates’ production for the week was 6.0% below the 5,393,000 barrels of distillates per day that were being produced during the week ending December 14th, 2018….

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the 6th time in twelve weeks and for the 12th time in 26 weeks, rising by 2,529,000 barrels to 237,297,000 barrels during the week to December 13th, after our gasoline supplies had increased by 5,405,000 barrels over the prior week….our gasoline supplies increased by less this week even though our exports of gasoline fell by 326,000 barrels per day to 590,000 barrels per day, because our imports of gasoline fell by 60,000 barrels per day to 519,000 barrels per day and because the amount of gasoline supplied to US markets increased by 529,000 barrels per day to 9,411,000 barrels per day….after this week’s increase, our gasoline supplies were 3.1% higher than last December 14th’s inventory level of 230,103,000 barrels, while they remained roughly 5% above the five year average of our gasoline supplies for this time of the year…

even with the decrease in our distillates production, our supplies of distillate fuels rose for the 3rd time in 12 weeks and for 13th time in the past 37 weeks, increasing by 1,509,000 barrels to 125,096,000 barrels during the week ending December 13th, after our distillates supplies had increased by 4,118,000 barrels over the prior week…the increase in our distillates supplies was less this week ​because ​the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 389,000 barrels per day to 4,120,000 barrels per day, while our exports of distillates fell by 156,000 barrels per day to 915,000 barrels per day, and while our imports of distillates rose by 16,000 barrels per day to 178,000 barrels per day….after this week’s inventory increase, our distillate supplies were 4.3% higher than the 119,900,000 barrels of distillates that we had stored on December 14th, 2018, while remaining 7% below the five year average of distillates stocks for this time of the year…

finally, this week’s decrease in oil imports, combined with the increase in oil exports, meant our commercial supplies of crude oil in storage fell for the fourteenth time in twenty-seven weeks and for the nineteenth time in 47 weeks, decreasing by 1,085,000 barrels, from 447,918,000 barrels on December 6th ​to​ 446,833,000 barrels on December 13th…even after that decrease, our crude oil inventories ​were nearly 4% above the five-year average of crude oil supplies for this time of year, and ​were over 34% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after two weeks of December, 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 this past year, except for the summer, after generally falling until then through most of the prior year and a half, our oil supplies as of December 13th were still 1.2% above the 441,457,000 barrels of oil we had stored on December 14th of 2018, and 2.4% above the 436,491,000 barrels of oil that we had in storage on December 15th of 2017, but at the same time were 8.0% below the 485,449,000 barrels of oil we had in commercial storage on December 16th of 2016…      

This Week’s Rig Count

the US rig count increased for just the 2nd time in the past 18 weeks over the week ending December 20th, but still remains 24.9% below the count at the end of last year….Baker Hughes reported that the total count of rotary rigs running in the US increased by 14 to 813 rigs this past week, which was still down by 267 rigs from the 1080 rigs that were in use as of the December 21st report of 2018, and 1,116 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market…

the number of rigs drilling for oil increased by 18 rigs to 667 oil rigs this week, which was the biggest oil rig increase since February 9 2018, but still left 198 fewer oil rigs than were running a year ago, and much less than 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 decreased by 4 rigs to 125 natural gas rigs, which was the least number of natural gas rigs deployed since December 9th, 2016, an hence a 3 year low for natural gas drilling, down by 72 gas rigs from the 197 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 to those rigs drilling for oil & gas, three rigs classified as ‘miscellaneous’ continued to drill this week; one on the big island of Hawaii, one in Washoe County, Nevada, and one in Lake County, California, in contrast to a year ago, when there were no such “miscellaneous” rigs deployed..

offshore drilling activity in the Gulf of Mexico increased by one rig to 24 rigs this week, with the addition of another rig in Louisiana waters…as a result, the 23 rigs that are drilling in Louisiana waters plus the one that was drilling offshore from Texas this week matches the Gulf of Mexico rig count of a year ago, when 23 rigs were drilling offshore from Louisiana waters and one rig was drilling in Texas waters…since there are no rigs deployed off US shores elsewhere, nor were there a year ago, the Gulf of Mexico count for both years is also equal to the national total in both cases..

in addition to the rigs drilling in offshore waters, one rig also started drilling through an inland body of water in southern Louisiana this week, the first such inland waters rig in 7 weeks…however, that was still down by 2 from the inland waters count of a year ago, when three such rigs were drilling in southern Louisiana…

the count of active horizontal drilling rigs was up by 13 rigs to 706 horizontal rigs this week, which was still 234 fewer horizontal rigs than the 940 horizontal rigs that were in use in the US on December 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 up by 2 to 56 vertical rigs this week, but those were still down by 13 from the 69 vertical rigs that were operating during the same week of last year….on the other hand, the directional rig count was was down by 1 to 51 directional rigs this week, and those were down by 20 from the 71 directional rigs that were in use on December 21st of 2018…

the details on this week’s changes in drilling activity by state and by major shale basin are shown in our screenshot below of that part of the rig count summary pdf from Baker Hughes that gives us 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 December 20th, the second column shows the change in the number of working rigs between last week’s count (December 13th) and this week’s (December 20th) count, the third column shows last week’s December 13th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before the same 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 December, 2018…  

December 20 2019 rig count summary

as you can see from the above, the return of oil rigs to Texas’s Permian and Eagle Ford was what made the difference this week, in contrast to the falling rig count we’ve seen over most of this past year…25 oil rigs were started up in those two basins alone, while 4 natural gas rigs were shut down at the same time, with three of those gas rigs​ ​coming out of the Eagle Ford, which has 3 natural gas rigs remaining, while the Permian saw it’s only natural gas rig stacked…meanwhile, a net of ten rigs were added in Texas Oil District 8, or the core Permian Delaware, and another 5 rig​s​ began operating in Texas Oil District 7B, which is usually thought of as east of the main Permian play but which now has 6 rigs deployed…with another rig added in New Mexico, we can figure that two of that total of 16 rigs were not actually targeting the Permian, but outside of digging thru the North America Rotary Rig Count Pivot Table (xls) for the individual well records, we can’t say for sure which ones on the basis of the summaries we’re provided with…outside of the natural gas rigs pulled from those two Texas basins, another gas rig was shut down in Pennsylvania’s Marcellus, while a natural gas rig was added in a basin not tracked separately by Baker Hughes (most likely in Louisiana or Oklahoma, as those are the states with unaccounted for increases)…we should also note that another rig was shut down in Mississippi this week, and the state now has 4 rigs operating, which puts their count below the 6 rigs that were operating in Mississippi a year ago, a reversal from last week when the year ago total was lower, as the rig count in Mississippi has been quite volatile, ranging from 1 ​rig ​to 6 rigs and back again over the past year…

DUC well report for November

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for December, which includes the EIA’s November data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the ninth month in a row, this report showed a decrease in uncompleted wells nationally in November, as both drilling of new wells and completions of drilled wells decreased…..for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 131 wells, falling from a revised 7,705 DUC wells in October to 7,574 DUC wells in November, which now represents 2.1% fewer DUCs than the 7,740 wells that had been drilled but remained uncompleted as of the end of November of a year ago…this month’s DUC decrease occurred as 1,069 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during November, down by 36 from the 1,148 wells that were drilled in October and the lowest ​number drilled ​since June 2017, while 1,200 wells were completed and brought into production by fracking, a decrease of 155 well completions from the 1,355 completions seen in October and the least completions since January, and the largest drop in completions since February 2015….at the November completion rate, the 7,574 drilled but uncompleted wells left at the end of the month now represents a 6.3 month backlog of wells that have been drilled but are not yet fracked, up from the 5.6 month backlog of a month ago…  

both oil producing regions and natural gas producing regions saw DUC well decreases in November, while 2 of the major basins saw ​minor DUC increases…the number of DUC wells remaining in the Oklahoma Anadarko decreased by 58, falling from 737 at the end of October to 679 DUC wells at the end of November, as 61 wells were drilled into the Anadarko basin during November while 119 Anadarko wells were being fracked….meanwhile, DUC wells in the Eagle Ford of south Texas decreased by 24, from 1,421 DUC wells at the end of October to 1,397 DUCs at the end of November, as 154 wells were drilled in the Eagle Ford during November, while 178 already drilled Eagle Ford wells were completed….in addition, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells fall by 20, from 3,579 DUC wells at the end of October to 3,559 DUCs at the end of November, as 468 new wells were drilled into the Permian, while 488 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 10 to 490, as 160 Niobrara wells were drilled in November while 170 Niobrara wells were completed….on the other hand, DUC wells in the Bakken of North Dakota increased by 2, from 758 DUC wells at the end of October to 760 DUCs at the end of November, as 100 wells were drilled into the Bakken in November, while 98 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 25 wells, from 497 DUCs at the end of October to 472 DUCs at the end of November, as 81 wells were drilled into the Marcellus and Utica shales during the month, while 106 of the already drilled wells in the region were fracked….however, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by 4 wells to 217, as 45 wells were drilled into the Haynesville during November, while 41 Haynesville wells were fracked during the same period….thus, for the month of November, DUCs in the five ​major ​oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 110 wells to 6,885 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 21 wells to 689 wells, although as this report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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