gasoline supplies at a record high; natural gas rigs at a 38 mo low; fracking at a 22 mo low; DUC well backlog is 7 months

oil prices fall by the most since May on pandemic fears; natural gas prices end at another life of contract low; gasoline supplies rise to a record high; natural gas rigs fall to a 38 month low; fracking falls to a 22 month low; the DUC well backlog is 7 months..

oil prices fell each day over past week and hence finished lower for a third straight week as the outbreak of a deadly new virus in China led to the lockdown of a city of 11 million people and the cancellation of Chinese New Year festivities, thereby depressing financial markets worldwideafter falling less than 1% to $58.54 a barrel last week on signs of oil oversupply and weak global demand, the benchmark price of US light sweet crude for February delivery opened more than 1% higher on Tuesday after the holiday after two large oilfields in Libya were shut down by rebel forces loyal to CIA backed General Haftar, but pared those gains in early trading as a new virus in China raised fears of an economic slowdown and sent oil prices back down to close 20 cents lower at $58.34 a barrel in the last day of trading for the February oil contract…thereafter quoting prices for the benchmark March US crude contract, which had finished Tuesday at $58.38, oil fell nearly 3% on Wednesday as the International Energy Agency (IEA) forecast an oil surplus while concerns over a potential epidemic depressed the demand outlook and prices settled $1.64 lower at $56.74 per barrel….oil prices opened lower and tumbled to as low as $54.77 a barrel early Thursday after the API reported large crude and product supply increases, but bounced off the lows after the EIA reported a small crude draw, but still ended $1.15, or 2% lower at $55.59 a barrel, the lowest price since Nov 29, on deepening fears that the coronavirus outbreak in China would have a severe impact on oil demand…U.S. crude prices then fell another 2.5%, or $1.40, on Friday to settle at $54.19, after hitting $53.85, the lowest price since Oct. 31, on concern that the Chinese virus would spread, curbing travel and global oil demand…thus, after fourth straight days of losses, the March oil contract finished 7.4% lower on the week in logging the largest one week decline since May

natural gas prices also finished lower this week as technical selling and bearish weather forecasts beat down prices….after ending last week 9% lower at a life of contract low of $2.003 per mmBTU on a bearish weather outlook and the EIA’s forecasts of lower demand, the price of natural gas for February delivery fell almost another 9% early Tuesday as a pile of $2 stop loss orders had been triggered over the holiday weekend, sending prices cratering, with prices partially recovering late Tuesday to close 10.8 cents lower, still down more than 5%, at $1.895 per mmBTU…gas prices then rebounded a penny on Wednesday and by 2.1 cents on Thursday, getting a boost “from short-term cold weather and snow” in parts of the U.S. as the natural gas storage report showed inventories fell a bit more than was forecast…but that was not enough to hold prices steady even at these depressed levels, as “dramatically bearish weather” continued to beat down natural gas prices on Friday, as they fell 3.3 cents more to close at $1.895 per mmBTU, thus finishing the week 5.5% lower, at yet another life of contract low

the natural gas storage report on the week ending January 17th from the EIA indicated that the quantity of natural gas held in storage in the US fell by 92 billion cubic feet to 2,947 billion cubic feet by the end of the week, which left our gas supplies 554 billion cubic feet, or 23.2% higher than the 2,393 billion cubic feet that were in storage on January 17th of last year, and 251 billion cubic feet, or 9.3% above the five-year average of 2,696 billion cubic feet of natural gas that has been in storage as of the 17th of January in recent years….the 92 billion cubic feet that were withdrawn from US natural gas storage this week was a bit more than the average forecast for a 88 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, but it was much less than the 152 billion cubic feet withdrawal reported during the corresponding week of last year, and less than half of the average 194 billion cubic feet of natural gas that have been pulled from natural gas storage during the second full week of January over the past 5 years….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending January 17th showed that with little change in the week’s supply and demand factors, we again needed to pull oil out of our stored commercial supplies, in this case for the eighth time in the past nineteen weeks….our imports of crude oil fell by an average of 120,000 barrels per day to an average of 6,730,000 barrels per day, after falling by an average of 179,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 67,000 barrels per day to 3,414,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,018,000 barrels of per day during the week ending January 17th, 53,000 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 13,000,000 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 16,018,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 16,857,000 barrels of crude per day during the week ending January 17th, 116,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA’s surveys indicated that an average of 58,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US….hence, we can see that 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 782,000 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 just inserted a (+782,000) 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…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, just as they’re watched & 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 slipped to an average of 6,516,000 barrels per day last week, now 15.8% less than the 7,739,000 barrel per day average that we were importing over the same four-week period last year….the 58,000 barrel per day net withdrawal from our total crude inventories was all pulled 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 unchanged at a record 13,000,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at a record 12,500,000 barrels per day, while a 4,000 barrels per day increase to 484,000 barrels per day in oil production from Alaska 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 January 18th was rounded to 11,900,000 barrels per day, so this reporting week’s rounded oil production figure was 9.2% above that of a year ago, and 54.2% 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 90.5% of their capacity in using 16,857,000 barrels of crude per day during the week ending January 17th, down from 92.2% of capacity the prior week, and a bit below the recent average refinery capacity utilization for the second full week of January…as a result, the 16,857,000 barrels per day of oil that were refined this week were 1.1% below the 17,049,000 barrels of crude that were being processed daily during the week ending January 18th, 2019, when US refineries were operating at 92.9% of capacity….

even with the modest decrease in the amount of oil being refined, gasoline output from our refineries was still higher, increasing by 254,000 barrels per day to 9,535,000 barrels per day during the week ending January 17th, after our refineries’ gasoline output had increased by 394,000 barrels per day over the prior week…but even after this week’s increase in gasoline output, our gasoline production was still 0.7% lower than the 9,604,000 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 251,000 barrels per day to 4,954,000 barrels per day, after our distillates output had decreased by 105,000 barrels per day over the prior week…after this week’s decrease in distillates output, our distillates’ production for the week was 9.0% below the 5,444,000 barrels of distillates per day that were being produced during the week ending January 18th, 2018….

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the eleventh week in a row and for the 17th time in 31 weeks, rising by 1,745,000 barrels to an all time high of 260,032,000 barrels during the week ending January 17th, after our gasoline supplies had increased by 6,678,000 barrels over the prior week….our gasoline supplies increased by less this week because the amount of gasoline supplied to US markets increased by 104,000 barrels per day to 8,662,000 barrels per day, and because our exports of gasoline rose by 201,000 barrels per day to 809,000 barrels per day, while our imports of gasoline rose by 120,000 barrels per day to 563,000 barrels per day….after this week’s smaller than seasonal increase, our gasoline supplies were just fractionally higher than last January 18th’s record gasoline inventory level of 259,615,000 barrels, and slipped to roughly 4% above the five year average of our gasoline supplies for this time of the year, which historically has been the annual peak…

with the decrease in our distillates production, our supplies of distillate fuels decreased for the 11th time in 17 weeks and for 26th time in the past 42 weeks, falling by 1,185,000 barrels to 146,036,000 barrels during the week ending January 17th, after our distillates supplies had increased by 8,171,000 barrels over the prior week….our distillates supplies fell this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 1,204,000 barrels per day to 4,389,000 barrels per day, while our exports of distillates fell by 1,000 barrels per day to 1,054,000 barrels per day, and while our imports of distillates rose by 118,000 barrels per day to 320,000 barrels per day….even after this week’s decrease, our distillate supplies were 2.6% more than the 142,392,000 barrels of distillates that we had stored on January 18th, 2018, but still about 2% below the five year average of distillates stocks for this time of the year…

finally, with refinery oil demand continuing to exceed the supply from imports and production, our commercial supplies of crude oil in storage fell for the seventeenth time in thirty-one weeks and for the twenty-second time in 52 weeks, decreasing by 405,000 barrels, from 428,511,000 barrels on January 10th to 428,106,000 barrels on January 17th…after that decrease, our crude oil inventories fell to 2% below the five-year average of crude oil supplies for this time of year, but were still more than 34.8% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the second full week of January, 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 the past year, except for during the past summer, after generally falling until then through most of the prior year and a half, our oil supplies as of January 17th were 3.8% below the 445,025,000 barrels of oil we had stored on January 18th of 2018, but were 4.0% above the 411,583,000 barrels of oil that we had in storage on January 19th of 2017, while at the same time fell to 12.3% below the 488,296,000 barrels of oil we had in commercial storage on January 20th of 2016…         

This Week’s Rig Count

the US rig count decreased for the 19th time in the past 23 weeks during the week ending January 24th, and is now down by more than 26.7% from the last rig count of 2018…Baker Hughes reported that the total count of rotary rigs running in the US decreased by 2 rigs to 794 rigs this past week, which was also down by 265 rigs from the 1059 rigs that were in use as of the January 25th report of 2019, and 1,135 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 US shale out of business

however, the number of rigs drilling for oil increased by 3 rigs to 676 oil rigs this week, which was still 186 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 five to 115 natural gas rigs, the fewest natural gas rigs deployed since November 11th 2016, and hence a 38 month low for natural gas drilling, down by 82 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 the 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 increased by one rig to 21 rigs this week, as a new rig began drilling offshore from Louisiana…the 20 rigs now drilling in Louisiana waters plus the one that was drilling offshore from Texas was one more than the Gulf of Mexico rig count of 20 rigs during the same week of a year ago, when 20 rigs were drilling offshore from Louisiana and none were operating in Texas waters…since there are no rigs deployed off other US shores elsewhere at this time, nor were there a year ago, the current Gulf of Mexico rig count as well as that of last year is the same as the national total in both cases..

the count of active horizontal drilling rigs was up by 1 rig to 710  horizontal rigs this week, the highest horizontal rig count since November 8th, but still 222 fewer horizontal rigs than the 932 horizontal rigs that were in use in the US on January 25th 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 directional rig count was up by 3 rigs to 47 directional rigs this week, but those were still down by 12 from the 59 directional rigs that were operating during the same week of last year….on the other hand, the vertical rig count was down by 6 rigs to 38 vertical rigs this week, and those were down by 31 from the 68 vertical rigs that were in use on January 25th of 2019…

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 24th, the second column shows the change in the number of working rigs between last week’s count (January 17th) and this week’s (January 24th) count, the third column shows last week’s January 17th 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 25th of January, 2019…   

January 24 2020 rig count summary

checking the Texas district details to find where the two rig increase in the Permian basin might have come from, we find that one rig was pulled out of Texas Oil District 8, or the core Permian Delaware this week, while another rig was pulled out of Texas Oil District 7B, an area often shown as east of the Permian but a district which nonetheless has accounted for Permian rig additions in recent weeks…hence, if both of those rigs had been targeting the Permian, then all of the rigs added in New Mexico must have been new Permian rigs, which would be drilling in the far western reaches of the Permian Delaware…elsewhere, the two rig decrease in Wyoming doesn’t match any of our basin counts, so it’s possible that those were conventional rigs pulled out of one of the productive Wyoming basins, such as the Powder River or Salt Creek …meanwhile, the drop of 5 natural gas rigs includes two from the Haynesville, one from West Virginia’s Marcellus, one from the Eagle Ford, and two from basins not tracked separately by Baker Hughes, while a natural gas rig was added in Ohio’s Utica shale at the same time…in the Eagle Ford of south Texas, the gas rig decrease was offset by the addition of one rig targeting oil, leaving the basin with two rigs targeting gas and 67 rigs targeting oil, while the Haynesville decrease could have been the two rigs pulled out of Texas Oil District 6, or one of those plus the rig that was pulled out of northern Louisiana…the Texas Oil District 6 rig count plus the northern Louisiana rig count now adds up to 44 rigs, so all but one of those are targeting the Haynesville shale..

DUC well report for December

Tuesday of this past week saw the release of the EIA’s Drilling Productivity Report for January, which includes the EIA’s December data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the tenth month in a row, this report showed a decrease in uncompleted wells nationally in December, 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 50 wells, falling from a revised 7,623 DUC wells in November to 7,573 DUC wells in December, which now represents 6.0% fewer DUCs than the 8,055 wells that had been drilled but remained uncompleted as of the end of December of a year ago…this month’s DUC decrease occurred as 1,036 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during December, down by 33 from the 1,069 wells that were drilled in November and the lowest number ​of wells ​drilled since June 2017, while 1,086 wells were completed and brought into production by fracking, a decrease of 115 well completions from the 1,201 completions seen in November and the least completions since February 2018….at the December completion rate, the 7,573 drilled but uncompleted wells left at the end of the month now represents a 7.0 month backlog of wells that have been drilled but are not yet fracked, up from the 6.3 month backlog of a month ago, as the backlog rate is now rising due to falling completions…  

both oil producing and natural gas producing regions saw DUC well decreases in December, even as four of the seven major basins saw small DUC increases…the number of DUC wells remaining in the Oklahoma Anadarko decreased by 54, falling from 686 at the end of November to 632 DUC wells at the end of December, as 58 wells were drilled into the Anadarko basin during November while 112 Anadarko wells were being fracked….at the same time, DUC wells in the Eagle Ford of south Texas decreased by 15, from 1,442 DUC wells at the end of November to 1,427 DUCs at the end of December, as 150 wells were drilled in the Eagle Ford during November, while 165 already drilled Eagle Ford wells were completed….on the other hand, DUC wells in the Bakken of North Dakota increased by 18, from 795 DUC wells at the end of November to 813 DUCs at the end of December, as 100 wells were drilled into the Bakken in December, while 82 of the drilled wells in that basin were being fracked…in addition, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 14, from 3,598 DUC wells at the end of November to 3,612 DUCs at the end of December, as 452 new wells were drilled into the Permian, while 438 wells in the region were being fracked….meanwhile, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range increased by 2 to 448, as 151 Niobrara wells were drilled in December while 149 Niobrara wells were completed….

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 21 wells, from 448 DUCs at the end of November to 427 DUCs at the end of December, as 81 wells were drilled into the Marcellus and Utica shales during the month, while 102 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 6 wells to 214, as 44 wells were drilled into the Haynesville during December, while 38 Haynesville wells were fracked during the same period….thus, for the month of December, DUCs in the five major oil-producing basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 35 wells to 6,932 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 15 wells to 641 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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