January 2020 natural gas contract expires at an all time low

oil prices rose for the 4th week in a row and for the 7th week out of eight, underpinned by reports that showed larger than expected declines in U.S. supplies of crude and its products….after rising less than 1% to $60.44 a barrel last week as a US-China trade deal rally ended in profit-taking, the benchmark price of US light sweet crude for February delivery started out lower on Monday after Kuwait and Saudi Arabia agreed to renew crude output in the shared neutral zone along their border, but recovered to end 8 cents higher at $60.52 a barrel even as the Russian Energy Minister said the OPEC-led producer group might consider easing output cuts next year…oil traded higher in thin pre-Christmas trading on Tuesday, ahead of reports forecast to show crude stockpiles shrank, after Russia said cooperation with OPEC on supply cuts would continue and settled 59 cents, or 1%, higher at $61.11 per barrel amid renewed optimism that the US and China would soon finalize their trade agreement…oil prices opened higher after the holiday on Thursday after a late Tuesday report from the American Petroleum Institute showed crude inventories fell by much more than was expected and ended 57 higher cents at $61.68 a barrel, the highest price since mid-September drone attacks on Saudi-Arabia, as US stock market indices also closed at record highs…oil prices retreated from those three-month highs early on Friday, despite upbeat economic data from China and the US and optimism over a trade deal between the two, as traders awaited the EIA’s oil inventory data, but then rebounded when the EIA reported a larger than expected draw from crude supplies and managed to end the day 4 cents higher at $61.72 a barrel…oil prices thus ended with a 2.1% gain on the week and higher for the 4th week in a row, now having increased nearly 14% since the end of October….

meanwhile, natural gas prices hit all time lows for the current front month contract three times this week, despite a much larger than normal withdrawal from storage, as near record warmth across most of the nation reduced heating demand heading into January…after closing last week 1.4% higher at $2.328 per mmBTU because weather models were indicating cooler weather two weeks out, the price of natural gas for January delivery opened 3% lower on Monday and continued falling to an all time low of $2.214 per mmBTU, down 11.4 cents on the day, on expectations of lower heating demand as weather forecasts had turned warmer…the selloff continued on Tuesday as natural gas prices fell another 2% to another all time low of $2.172 per mmBTU, as ongoing warmth kept the pressure on prices…however, a drop in production and a slightly cooler forecast sparked a wave of short-covering on Thursday, as gas prices jumped 12.2 cents to $2.294 per mmBTU…however, warm weather pushed prices lower again with the delayed release of the storage report on Friday, falling 13.6 cents to $2.158 per mmBTU on the day, as trading in the January contract expired at another all time low…

with natural gas prices for delivery in January thus expiring at an all time low, we’ll include a price graph of that contract to see what it’s recent history looks like….the graph we have below shows the weekly price of the January 2020 natural gas contract over the past 3 years…

December 28 2019 natural gas for January

the above graph is a screenshot of the interactive weekly price chart for the January 2020 natural gas contract at Barchart.com, “the leading provider of real-time or delayed intraday stock and commodities charts and quotes”, and it shows the range of prices, in dollars per mmBTU, for that January natural gas contract as a vertical bar for each week over the past 3 years…you might note that each bar has two small horizontal appendages: the one on the left is the opening price for the week the bar indicates, while the appendage on the right is the week’s closing price…what we can see here is that up until May of this year, the contract price for January gas seldom sold at less than $3 per mmBTU, and up until a month ago it was seldom priced lower than $2.50 per mmBTU… now, with January arrival’s imminent, the price of that gas contract has fallen to $2.158 per mmBTU, 17 cents lower than it had been priced at the end of the previous week…we should make clear that this graph shows the price of the January contract, which is historically the most expensive, and that mid-summer gas contract prices we have quoted earlier this year were occasionally lower priced…furthermore, even as January gas was falling more than 7% this week, the longer dated futures prices showed less downward movement…even the price of natural gas for February delivery, which will be quoted as “the price of natural gas” next week, only fell a net of 7.9 cents over the 4 trading days this week, and ended the week at $2.231 per mmBTU, 7.3 cents higher than January’s gas price…although it did hit a contract low on Wednesday, traders priced it higher than January on the chance that winter will turn colder by then…

the natural gas storage report for the week ending December 20th from the EIA indicated that the quantity of natural gas held in storage in the US decreased by 161 billion cubic feet to 3,250 billion cubic feet by the end of the week, which still left our gas supplies 518 billion cubic feet, or 19.0% higher than the 2,732 billion cubic feet that were in storage on December 20th of last year, but 69 billion cubic feet, or 2.1% below the five-year average of 3,319 billion cubic feet of natural gas that has been in storage as of the 20th of December in recent years….the 161 billion cubic feet that were withdrawn from US natural gas storage this week was somewhat more than the average forecast for a 153 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, and quite a bit more than the average 101 billion cubic feet of natural gas that have been pulled from natural gas storage during the third week of December over the past 5 years. as well as way more than the 61 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 20th indicated that because the increase in our net oil imports nearly matched the increased demand from refineries, we needed to pull oil out of our stored commercial supplies for the fifth time in the past fifteen weeks…our imports of crude oil rose by an average of 230,000 barrels per day to an average of 6,809,000 barrels per day, after falling by an average of 308,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 236,000 barrels per day to an average of 3,397,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,412,000 barrels of per day during the week ending December 20th, 466,000 more 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 increased by 100,000 barrels per day to 12,900,000 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 16,312,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,980,000 barrels of crude per day during the week ending December 20th, 419,000 more 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 782,000 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 113,000 barrels per day more 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 (-113,000) 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 ​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 6,566,000 barrels per day last week, still 11.5% less than the 7,423,000 barrel per day average that we were importing over the same four-week period last year….the 782,000 barrel per day net withdrawal from our total crude inventories was due to a withdrawal of 782,000 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 100,000 barrels per day higher at 12,900,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at 12,400,000 barrels per day, while Alaska’s oil production was unchanged at 481,000 barrels per day and hence added ​a rounded ​500,000 barrels per day to the rounded national total…last year’s US crude oil production for the week ending December 21st was rounded to 11,700,000 barrels per day, so this reporting week’s rounded oil production figure was 10.3% above that of a year ago, and 53.1% 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 93.3% of their capacity in using 16,980,000 barrels of crude per day during the week ending December 20th, up from 90.6% of capacity the prior week, and close to the recent average capacity utilization for the third week of December…however, the 16,980,000 barrels per day of oil that were refined this week were still 2.3% below the 17,350,000 barrels of crude per day that were being processed during the week ending December 21st, 2018, when US refineries were operating at 95.1% of capacity….

with the big increase in the amount of oil being refined, gasoline output from our refineries was also much higher, increasing by 429,000 barrels per day to 10,269,000 barrels per day during the week ending December 20th, after our refineries’ gasoline output had increased by 87,000 barrels per day ​over ​the prior week….and with this week’s big increase in gasoline output, our gasoline production was 1.2% higher than the 10,144,000 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) rose by 322,000 barrels per day to 5,394,000 barrels per day, after our distillates output had decreased by 156,000 barrels per day over the prior week…but even after this week’s increase in distillates output, our distillates’ production for the week was still 0.9% below the 5,444,000 barrels of distillates per day that were being produced during the week ending December 21st, 2018….

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the seventh week in a row and for the 13th time in 27 weeks, rising by 1,963,000 barrels to 239,260,000 barrels during the week to December 20th, after our gasoline supplies had increased by 2,529,000 barrels over the prior week….our gasoline supplies increased by less this week because our exports of gasoline rose by 280,000 barrels per day to 870,000 barrels per day while our imports of gasoline rose by 75,000 barrels per day to 594,000 barrels per day and while the amount of gasoline supplied to US markets decreased by 108,000 barrels per day to 9,303,000 barrels per day….after this week’s increase, our gasoline supplies were 2.6% higher than last December 21st’s inventory level of 233,106,000 barrels, while they remained roughly 5% above the five year average of our gasoline supplies for this time of the year…

even with the increase in our distillates production, our supplies of distillate fuels decreased for the 10th time in 13 weeks and for 25th time in the past 38 weeks, but only by 152,000 barrels to 124,944,000 barrels during the week ending December 20th, after our distillates supplies had increased by 1,509,000 barrels over the prior week….our distillates supplies decreased this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 96,000 barrels per day to 4,214,000 barrels per day, and because our exports of distillates rose by 535,000 barrels per day to 1,450,000 barrels per day, while our imports of distillates rose by 70,000 barrels per day to 248,000 barrels per day….after this week’s inventory decrease, our distillate supplies were 4.2% higher than the 119,902,000 barrels of distillates that we had stored on December 21st, 2018, while ​they ​slipp​ed to 8% below the five year average of distillates stocks for this time of the year…

finally, with this week’s big increase in refining, our commercial supplies of crude oil in storage fell for the fifteenth time in twenty-eight weeks and for the twentieth time in 48 weeks, decreasing by 5,474,000 barrels, from 446,833,000 barrels on December 13th to 441,359,000 barrels on December 20th…but even after that decrease, our crude oil inventories were still 2% above the five-year average of crude oil supplies for this time of year, and were roughly 32% 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…even though our crude oil inventories had generally been rising over this past year, except for during this summer, after generally falling until then through most of the prior year and a half, our oil supplies as of December 20th were fractionally below the 441,411,000 barrels of oil we had stored on December 21st of 2018, while remaining 1.1% above the 436,491,000 barrels of oil that we had in storage on December 22nd of 2017, but at the same time were 9.1% below the 485,449,000 barrels of oil we had in commercial storage on December 23rd of 2016…       

This Week’s Rig Count

the US rig count decreased for the 16th time in the past 19 weeks over the week ending December 27th, and is now 25.7% below the count as of December 28th of last year….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 8 rigs to 805 rigs this past week, which was also down by 278 rigs from the 1083 rigs that were in use as of the December 28th report of 2018, and 1,124 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 decreased by 8 rigs to 656 oil rigs this week, which was also 208 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 was unchanged at 125 natural gas rigs, matching last week’s 3 year low for natural gas drilling, down by 73 gas rigs from the 198 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 decreased by one rig to 23 rigs this week, as one of the rigs that had been drilling offshore from Louisiana was shut down this week…as a result, the 22 rigs that continued drilling in Louisiana waters plus the one that was drilling offshore from Texas was down by one from the Gulf of Mexico rig count of 24 rigs 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 this year and last is equal to the national total in both cases..

the count of active horizontal drilling rigs was down by 3 rigs to 703 horizontal rigs this week, which was 242 fewer horizontal rigs than the 945 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….in addition, the vertical rig count was down by 7 rigs to 49 vertical rigs this week, and those were also down by 19 from the 68 vertical rigs that were operating during the ​last full week of last year….on the other hand, the directional rig count was was up by 2 to 53 directional rigs this week, but those were still down by 17 from the 70 directional rigs that were in use on December 28th 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 27th, the second column shows the change in the number of working rigs between last week’s count (December 20th) and this week’s (December 27th) count, the third column shows last week’s December 20th 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 28th of December, 2018…   

December 27 2019 rig count summary

much of this week’s drilling decrease virtually reverses the increases we saw last week, which certainly must be coincidental, since no one would be starting rigs one week just to shut them down the next…for rigs drilling in the Texas Permian, which saw a 13 rig increase last week, a net of seven rigs were shut down in Texas Oil District 8, or the core Permian Delaware, two more rigs were pulled out of Texas Oil District 8A, or from the northern Permian Midland, and another rig was pulled out of Texas Oil District 7C, or the southern part of the Permian Midland…in addition, another 2 rigs were pulled out of Texas Oil District 7B, which is usually thought of as east of the main Permian, but which had at least three Permian basin rig additions last week….since the net decrease in the Permian was just nine rigs, and since the two rigs added in New Mexico were likely Permian rigs, we can figure that at least one of the rigs in those 4 Texas ​’Permian’ ​districts was not targeting the Permian, but without digging thru the North America Rotary Rig Count Pivot Table (xls) for the individual well records, we can’t say for sure which, at least on the basis of the summaries we’re provided with…we’re also left somewhat in the dark about what changes happened in Oklahoma, which saw a net one rig increase despite the two rig decrease in the Cana Woodford, hence meaning that three rigs began operating in the state outside of the 5 Oklahoma basins tracked​ & summarized​ here by Baker Hughes…the week’s natural gas rigs changes, however, are pretty straight forward; one natural gas rig was shut down in the Haynesville, in Texas Oil District 6, just across the border from the core Haynesville shale in northern Louisiana, while a natural gas rig began operating in Pennsylvania’s Marcellus at the same time…we should also note that another rig was shut down in Mississippi this week, leaving the state with 3 rigs operating, down from the 6 rigs that were operating in Mississippi a year ago, although as we’ve noted, the rig count in Mississippi has been quite volatile, ranging from 1 rig to 6 rigs and back again over the past year… 

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