oil in bear market, posts longest losing streak in 14 months; natural gas rigs at another 39 month low

oil prices fell for a fifth consecutive week this past week as demand destruction in China overwhelmed OPEC’s attempts to stabilize prices …after falling 4.9% to $51.56 a barrel on fears of a pandemic last week, the benchmark price of US light sweet crude for March delivery opened lower again on Monday and tumbled to its lowest level in more than a year, as the coronavirus outbreak’s impact on Chinese demand further hammered crude prices, with U.S. crude falling 2.8%, or $1.45 per barrel, to settle at $50.11 per barrel, as Chinese oil demand was said to have dropped by about three million barrels a day, or by 20% their of total consumptionprices recovered early on Tuesday, as OPEC was reportedly considering a production cut as large as a million barrels per day, but turned lower late in the day and still ended down 50 cents at $49.61 a barrel, now firmly in bear market territory….oil prices then jumped 4% on Wednesday after reports of coronavirus drug breakthrough and hung on to gain $1.14, or more than 2% to $50.75 a barrel, even as world health experts said treatments for the virus had not yet been found… oil prices moved more than $1 higher again on Thursday after an OPEC+ panel recommended a provisional cut of 600,000 barrels per day in oil output, with traders further encouraged when Russian Foreign Minister Lavrov backed that OPEC+ proposal, but then flattened out to close at $50.95 a barrel, a gain of just 20 cents on the day, as the coronavirus outbreak continued to sap energy demand…oil prices turned lower on Friday after Russian Energy Minister Novak said they needed more time to assess the situation before committing to output cuts and finished down 63 cents at $50.32 a barrel, as traders continued to weigh the expected coronavirus fallout.….oil prices thus ended 2.4% lower for the week in extending their losing streak to the longest since November 2018..

on the other hand, natural gas prices managed a small gain this week on a shift in the forecast to more seasonable weather…after falling 1.6% to $1.841 per mmBTU on mild weather and a supply glut last week, the contract price of natural gas for March delivery fell to another 4 year low on Monday, ending down 2.2 cents at $1.819 per mmBTU, on forecasts for warmer weather through mid-February than was previously expected…but prices jumped 5.3 cents from that 4 year low on Tuesday, as the weather models finally shifted to indicate near-normal temperatures for most of the country in the outlying weeks...however, prices were falling again early on Wednesday, but trimmed those losses on reports of another drop in gas production and ended just 1.1 cents lower at $1.861 per mmBTU….then, even with a larger draw of natural gas from storage than was expected, prices only moved up a tenth of a cent on Thursday, and then fell back four-tenths of a cent on Friday to end the week at $1.858 per mmBTU, a gain of less than 1% on the week..

the natural gas storage report on the week ending January 31st from the EIA indicated that the quantity of natural gas held in storage in the US fell by 137 billion cubic feet to 2,609 billion cubic feet by the end of the week, which left our gas supplies 615 billion cubic feet, or 30.8% higher than the 1,994 billion cubic feet that were in storage on January 31st of last year, and 199 billion cubic feet, or 8.3% above the five-year average of 2,410 billion cubic feet of natural gas that has been in storage as of the 31st of January in recent years….the 137 billion cubic feet that were withdrawn from US natural gas storage this week was more than the average forecast for a 126 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, but it was way less than the 229 billion cubic feet withdrawal reported during the corresponding week of last year, and also less than the average 143 billion cubic feet of natural gas that have been pulled from natural gas storage during the last 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 31st showed that because our net oil imports and oil production were little changed while demand for oil from refineries continued to be weak, we had surplus oil to add to our stored commercial supplies for the thirteenth time in the past twenty-one weeks….our imports of crude oil fell by an average of 46,000 barrels per day to an average of 6,615,000 barrels per day, after rising by an average of 229,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 96,000 barrels per day to 3,413,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,202,000 barrels of per day during the week ending January 31st, 50,000 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 was 100,000 barrels per day lower 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 16,102,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 15,972,000 barrels of crude per day during the week ending January 31st, 48,000 more 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 479,000 barrels of oil per day were being added to 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 349,000 barrels per day less than what what was 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 just inserted a (+349,000) 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 one or more of 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 fell to an average of 6,565,000 barrels per day last week, now 12.3% less than the 7,487,000 barrel per day average that we were importing over the same four-week period last year….the 479,000 barrel per day net addition to our total crude inventories was all added to 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 100,000 barrels per day lower 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 lower at 12,400,000 barrels per day, while a 1,000 barrel per day increase Alaska’s oil production to 485,000 barrels per day 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 February 1st was rounded to 11,900,000 barrels per day, so this reporting week’s rounded oil production figure was 8.4% 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 87.4% of their capacity in using 15,972,000 barrels of crude per day during the week ending January 31st, up from 87.2% of capacity the prior week, but still quite a bit below the recent average refinery capacity utilization for the last week of January…as a result, the 15,972,000 barrels per day of oil that were refined this week were 4.0% below the 16,463,000 barrels of crude that were being processed daily during the week ending February 1st, 2019, when US refineries were operating at 90.7% of capacity….

with the small increase in the amount of oil being refined, gasoline output from our refineries was much higher, increasing by 745,000 barrels per day to 9,903,000 barrels per day during the week ending January 31st, after our refineries’ gasoline output had decreased by 377,000 barrels per day over the prior week…but even after this week’s big increase in gasoline output, our gasoline production was only fractionally higher than the 9,856,000 barrels of gasoline that were being produced daily over the same week of last year….meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 3,000 barrels per day to 4,976,000 barrels per day, after our distillates output had increased by 25,000 barrels per day over the prior week…after this week’s small ​change in distillates output, our distillates’ production for the week was still 2.8% below the 5,121,000 barrels of distillates per day that were being produced during the week ending February 1st, 2018….

even with the big increase in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the first time in thirteen weeks and for the 15th time in 33 weeks, falling by 91,000 barrels to 261,144,000 barrels during the week ending January 31st, after our gasoline supplies had increased by 1,202,000 barrels to a record high over the prior week….our gasoline supplies decreased this week despite the jump in production because our exports of gasoline rose by 337,000 barrels per day to 986,000 barrels per day, while our imports of gasoline rose by 133,000 barrels per day to 676,000 barrels per day and because the amount of gasoline supplied to US markets increased by 140,000 barrels per day to 8,933,000 barrels per day…even after this week’s decrease, our gasoline supplies were 1.3% higher than last February 1st’s gasoline inventories of 257,893,000 barrels, and 4% above the five year average of our gasoline supplies for this time of the year, which historically has been ​near ​the annual peak…

meanwhile, with the decrease in our distillates production, our supplies of distillate fuels decreased for the 13th time in 19 weeks and for 28th time in the past 44 weeks, falling by 1,512,000 barrels to 143,235,000 barrels during the week ending January 31st, after our distillates supplies had decreased by 1,289,000 barrels over the prior week….our distillates supplies fell again this week ​because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 310,000 barrels per day to 4,211,000 barrels per day, even ​as our exports of distillates fell by 208,000 barrels per day to 1,175,000 barrels per day while our imports of distillates rose by 72,000 barrels per day to 19,4000 barrels per day….but even after this week’s decrease, our distillate supplies ​at the end of the week ​were still 3.0% more than the 139,013,000 barrels of distillates that we had stored on February 1st, 201​9, even as they slipped to about 4% below the five year average of distillates stocks for this time of the year…

finally, with most ​of this week’s crude ​supply and demand metrics little changed, our commercial supplies of crude oil in storage rose for the sixteenth time in thirty-three weeks and for the thirtieth time in ​the past ​52 weeks, increasing by 3,355,000 barrels, from 435,009,000 barrels on January 31st to 431,654,000 barrels on January 24th…even after that increase, our crude oil inventories remained roughly 2% below the five-year average of crude oil supplies for this time of year, but remained more than 34.5% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the last 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 31st were 2.7% below the 447,207,000 barrels of oil we had stored on February 1st of 2018, while still 3.5% above the 420,254,000 barrels of oil that we had in storage on February 2nd of 2017, while at the same time falling to 14.5% below the 508,592,000 barrels of oil we had in commercial storage on February 3rd of 2016, during a period that we were adding 10 million barrels per week to storage… 

This Week’s Rig Count

the US rig count was unchanged over the week ending February 7th, after falling 20 out of the 24 prior weeks, and hence remains down by 27% from the end of 2018…..Baker Hughes reported that the total count of rotary rigs running in the US was unchanged at 790 rigs this past week, which was still down by 259 rigs from the 1049 rigs that were in use as of the February 8th report of 2019, and 1,139 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

the number of rigs drilling for oil increased by 1 rig to 676 oil rigs this week, which was still 178 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 one to 111 natural gas rigs, the fewest natural gas rigs deployed since October 21st 2016, and hence another 39 month low for natural gas drilling, down by 84 gas rigs from the 195 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 2 rigs to 23 rigs this week, as a drilling rig was added offshore from Texas, while another rig concurrently began drilling in Louisiana waters…with 22 rigs ​now ​drilling in Louisiana water​s​ in addition to the one offshore from Texas, the Gulf of Mexico count is now up by 4 from from a year ago, when 19 rigs were drilling offshore from Louisiana and none were operating in Texas waters…and 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 th​e count of last year is ​equal to the national total in both cases..

the count of active horizontal drilling rigs was unchanged at 711 horizontal rigs this week, which was still 212 fewer horizontal rigs than the 923 horizontal rigs that were in use in the US on February 8th 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 1 rig to 45 directional rigs this week, but those were also down by 12 from the 58 directional rigs that were operating during the same week of last year…. on the other hand, the vertical rig count was down by 1 rig to 33 vertical rigs this week, and those were down by 35 from the 68 vertical rigs that were in use on February 8th 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 February 7th, the second column shows the change in the number of working rigs between last week’s count (January 31st) and this week’s (February 7th) count, the third column shows last week’s January 31st 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 ​8th of February, 2019…   

February 7 2020 rig count summary

4 rigs were pulled out of Texas Oil District 8, or the core Permian Delaware while ​rigs in ​the other Texas Permian districts were unchanged, so the 3 rigs that were added in New Mexico were in the western reaches of the Permian Delaware…Oklahoma’s changes include the oil rig that was added in the Ardmore Woodford, the natural gas rig that was pulled out of the Arkoma Woodford, and an oil rig that was pulled out of the Cana Woodford, while two more Oklahoma rigs were removed from other Oklahoma basins not tracked separately by Baker Hughes…in addition to the natural gas rig that was pulled out of the Arkoma Woodford, another natural gas rig was pulled out of West Virginia’s Marcellus, while a natural gas rig was added in the Eagle Ford of Texas, where an oil rig was shut down at the same time…the Eagle Ford now has 3 rigs targeting natural gas formations, and 67 rigs drilling for oil..


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