US oil supplies fall most in 6 mos on record exports; February natural gas hits a contract low; gas rigs at 37 month low

oil prices ended higher for a 5th week in a row and for the eighth week out of the past nine, as US oil supplies fell much more than was expected while the US assassination of Iran’s top general and the commander of the Iraqi Popular Mobilization Forces sparked fears of a major conflict in the Persian Gulf and subsequent supply disruptions …after rising 2.1% to $61.72 a barrel last week on reports of falling US crude supplies, the benchmark price of US light sweet crude for February delivery opened higher on Monday and rose to a three-month high at $62.34, buoyed by optimism over U.S.-China trade deal, but backed off those highs later in quiet trading in the day to finish 4 cents lower $61.68 a barrel, thus snapping a four-day winning streakoil prices again drifted lower throughout the session on the final day of 2019 and lost another 62 cents, finishing at $61.06 per barrel, but still managed a gain of 34% on the year, its largest annual advance since 2016…oil prices started the new year higher on Thursday, as warming US-China trade relations eased demand concerns and rising tensions in the Middle East fueled worries about supply, but then faded to move between gains and losses later in the session under pressure from a stronger dollar and ended the day up just 12 cents at $61.18 a barrel…but oil prices surged much higher on Friday after reports that a US drone strike had killed Iran’s top military commander in a strike at the Baghdad airport, with the international benchmark Brent jumping $3 and US crude finishing $1.87 higher at $63.05 a barrel, as the EIA also reported the largest drop in US crude supplies in 6 months…oil prices thus ended 2.2% higher on the week, and finished at their highest in more than 7 months

meanwhile, natural gas prices again finished lower, driven by milder weather and an abundance of supply…after trading of the contract for January natural gas expired at an all time low of $2.158 per mmBTU on record high temperatures across much of the US last week, the price of natural gas for February delivery fell 4.5 cents to it’s own record closing low of $2.186 per mmBTU on Monday, as signs of sustained cold weather remained absent from the long-range forecasts…while natural gas prices managed to eke out a three-tenths of a cent gain to $2.189 per mmBTU on Tuesday, they still finished the year 26% lower, their largest annual percentage decline since 2014…the natural gas price slide resumed with the new year on Thursday, as both short and longer term forecasts indicated a lot of warmth for the heavily populated eastern half of the country, with the price of February gas falling 6.7 cents to another record low at $2.122 per mmBTU, as ‘exceptionally bearish’ weather kept pressure on prices…while prices moved more than 4 cents higher awaiting the storage report early on Friday, they slipped back to close with a gain of just eight-tenths of a cent at $2.130 per mmBTU, down 4.5% on the week, as the draw from natural gas inventories was below expectations..

the natural gas storage report for the week ending December 27th from the EIA indicated that the quantity of natural gas held in storage in the US decreased by 58 billion cubic feet to 3,192 billion cubic feet by the end of the week, which still left our gas supplies 484 billion cubic feet, or 17.9% higher than the 2,708 billion cubic feet that were in storage on December 27th of last year, but 38 billion cubic feet, or 1.2% below the five-year average of 3,230 billion cubic feet of natural gas that has been in storage as of the 27th of December in recent years….the 58 billion cubic feet that were withdrawn from US natural gas storage this week was somewhat below the average forecast for a 67 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, and was quite a bit less than the average 94 billion cubic feet of natural gas that have been pulled from natural gas storage during the fourth week of December over the past 5 years. but still way more than the 24 billion cubic feet withdrawal reported during the corresponding warm 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 27th indicated that because of a sizable decrease in our oil imports, a record amount of oil exports, and an increase in demand for oil from refineries, we needed to pull oil out of our stored commercial supplies for the sixth time in the past sixteen weeks…our imports of crude oil fell by an average of 457,000 barrels per day to an average of 6,352,000 barrels per day, after rising by an average of 230,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 1,065,000 barrels per day to a record of 4,462,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 1,890,000 barrels of per day during the week ending December 27th, 1,522,000 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 unchanged at 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 14,790,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,283,000 barrels of crude per day during the week ending December 27th, 303,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that an average of 1,638,000 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 856,000 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 (+856,000) 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’ll continue to report them, as they’re seen & believed as accurate 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 6,657,000 barrels per day last week, still 10.8% less than the 7,446,000 barrel per day average that we were importing over the same four-week period last year….the 1,638,000 barrel per day net withdrawal from our total crude inventories was all from our commercially available stocks of crude oil, while the quantity of oil stored in our Strategic Petroleum Reserve was unchanged….this week’s crude oil production was reported to be was unchanged at 12,900,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,400,000 barrels per day, while oil production from Alaska was 6,000 barrels per day higher at 487,000 barrels per day but still added the same rounded 500,000 barrels per day to the rounded national total….last year’s US crude oil production for the week ending December 28th 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 94.5% of their capacity in using 17,283,000 barrels of crude per day during the week ending December 27th, up from 93.3% of capacity the prior week, and near the recent average capacity utilization for the fourth week of December…however, the 17,283,000 barrels per day of oil that were refined this week were still 2.7% below the 17,760,000 barrels of crude per day that were being processed during the week ending December 28th, 2018, when US refineries were operating at 97.2% of capacity….

even with the increase in the amount of oil being refined, gasoline output from our refineries was a bit lower, decreasing by 96,000 barrels per day to 10,173,000 barrels per day during the week ending December 27th, after our refineries’ gasoline output had increased by 429,000 barrels per day over the prior week…but even after this week’s decrease in gasoline output, our gasoline production was still 6.7% higher than the 9,533,000 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 83,000 barrels per day to 5,311,000 barrels per day, after our distillates output had increased by 322,000 barrels per day over the prior week…and after this week’s decrease in distillates output, our distillates’ production for the week was 5.0% below the 5,591,000 barrels of distillates per day that were being produced during the week ending December 28th, 2018….

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week increased for the eighth week in a row and for the 14th time in 28 weeks, rising by 3,212,000 barrels to 242,472,000 barrels during the week to December 27th, after our gasoline supplies had increased by 1,963,000 barrels over the prior week….our gasoline supplies increased by more this week because the amount of gasoline supplied to US markets decreased by 342,000 barrels per day to 8,961,000 barrels per day, while our exports of gasoline rose by 155,000 barrels per day to 1,025,000 barrels per day and while our imports of gasoline fell by 121,000 barrels per day to 473,000 barrels per day….after this week’s increase, our gasoline supplies were 1.0% higher than last December 28th’s inventory level of 239,996,000 barrels, while they remained roughly 5% above the five year average of our gasoline supplies for this time of the year…

likewise, even with the decrease in our distillates production, our supplies of distillate fuels increased for the 4th time in 14 weeks and for 14th time in the past 39 weeks, rising by 8,776,000 barrels to 124,944,000 barrels during the week ending December 27th, the largest increase since January 4th of 2019, after our distillates supplies had decreased by 152,000 barrels over the prior week….our distillates supplies increased this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 1,159,000 barrels per day to 3,055,000 barrels per day, the largest drop since 2016, and because our exports of distillates fell by 265,000 barrels per day to 1,185,000 barrels per day, while our imports of distillates fell by 65,000 barrels per day to 183,000 barrels per day….after this week’s inventory increase, our distillate supplies were 3.3% higher than the 129,431,000 barrels of distillates that we had stored on December 28th, 2018, even as they were still 6% below the five year average of distillates stocks for this time of the year…

finally, with this week’s record oil exports, combined with lower oil imports and another sizable increase in the amount of oil used by refineries, 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 11,463,000 barrels, from 441,359,000 barrels on December 20th to 429,896,000 barrels on December 27th, the largest draw from stores since June 21st….after that big decrease, our crude oil inventories were back to near the five-year average of crude oil supplies for this time of year, but were still more than 35% higher than the prior 5 year (2009 – 2013) average of crude oil stocks as of the last weekend 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 past summer, after generally falling until then through most of the prior year and a half, our oil supplies as of December 27th were 2.6% below the 441,418,000 barrels of oil we had stored on December 28th of 2018, while remaining 1.3% above the 424,463,000 barrels of oil that we had in storage on December 29th of 2017, but at the same time were 10.3% below the 479,012,000 barrels of oil we had in commercial storage on December 30th of 2016…        

since our record oil exports were the primary reason for the largest decrease in US crude supplies in over 6 months, we’ll include a graph of their recent history below…

January 4th, 2020 US oil exports as of December 27

the above graph of US crude oil exports came from the EIA spreadsheet listing weekly weekly US oil exports since 1991 and it shows weekly US crude oil exports in millions of barrels per day from early 2016 to the current week…prior to January 2017, our oil exports were minimal, because by law they had been outlawed for 40 years, with the exception of oil exports to Mexico and Canada, which were allowed under provisions of the North American Free Trade Agreement (NAFTA)…since that time, however, our exports have steadily risen, often limited only by the number and size of ships that could be loaded in one week and the number of ports which could provide such loading (which also accounts for the volatility you see in the chart above)…note that while we’ve been exporting an average of around 2,981,000 barrels per day this year, up 51.5% from 2018, we have at the same time been importing an average of 6,812,000 barrels per day…the reason for oil coming & going like that is that most US refineries can’t use most of the oil coming from US shale wells, which is light and sweet, because they are configured to use the sour and heavier oil that we had been importing before the shale boom…so we’re exporting what is actually a premium quality oil from our own wells, while at the same time importing the poorer quality, heavier sulfuric oil from overseas that many less complex foreign refineries can’t use…

This Week’s Rig Count

the US rig count decreased for the 17th time in the past 20 weeks ​during the week ending January 3rd, and is now 26.5% below the count at the end of 2018…Baker Hughes reported that the total count of rotary rigs running in the US decreased by 9 rigs to a 33 month low of 796 rigs this past week, which was also down by 279 rigs from the 1075 rigs that were in use as of the January 4th report of 2014, and 1,133 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 to flood the global oil market​ in an attempt to put shale out of business​

the number of rigs drilling for oil decreased by 7 rigs to 649 oil rigs this week, which was also a 33 month low for oil rigs, 207 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 fell by 2 to 123 natural gas rigs, the fewest natural gas rigs deployed since December 2nd 2016, and hence a 37 month low for natural gas drilling, down by 75 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, compared 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 22 rigs this week, as another rig that had been drilling offshore from Louisiana was shut down this week…as a result, the 21 rigs that continued drilling in Louisiana waters plus the one that was drilling offshore from Texas matched the Gulf of Mexico rig count of 22 rigs a year ago, when 21 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 2 rigs to 701 horizontal rigs this week, which was 244 fewer horizontal rigs than the 945 horizontal rigs that were in use in the US on January 4th 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 down by 5 rigs to 44 vertical rigs this week, and those were also down by 20 from the 64 vertical rigs that were operating during the same week of last year….in addition, the directional rig count was was down by 2 to 51 directional rigs this week, and those were down by 15 from the 55 directional rigs that were in use on January 4th 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 January 3rd, the second column shows the change in the number of working rigs between last week’s count (December 27th) and this week’s (January 3rd) count, the third column shows last week’s December 27th 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 4th of January, 2018…   

January 3 2020 rig count summary

the first thing you might notice about this week’s tables is that the decreases shown in the state counts fall well short of the nine rig decrease reported nationally this week…that’s because all the rigs that had been running in deep south states not included in the table above were also shut down this week…that includes Mississippi, where three rigs were shut down this week to leave them with none, which is the first time on record there was no drilling in Mississippi whatsoever, and down from 2 rigs a year ago…elsewhere, the rig that was shut down in Alabama had just started up 3 weeks earlier, while a year ago the state also had two rigs deployed…and in Florida, the rig that was shut down leaves the state with no activity for the first time since mid-August, but it matches the state’s null count through January of 2019…since those three states are not known for major shale plays, it seems likely that the 5 rigs pulled out of them account for this week’s big drop in vertical rig deployment..

elsewhere, the only evident change in the Texas Permian was a one rig reduction in Texas Oil District 8A, or the northern Permian Midland, which means the New Mexico rig that was shut down had been operating in the eastern Permian Delaware, to thus​ ​account for the two rig drop in the Permian…in Oklahoma, rigs were shut down in the Cana Woodford and the Arkoma Woodford, while an oil rig began drilling in the Ardmore Woodford for the first time in nine weeks…for natural gas, rig reductions were seen in Oklahoma’s Arkoma Woodford and Pennsylvania’s Marcellus, thus accounting for the national drop of two rigs targeting natural gas..

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