natural gas price hits another 4 year low; demand revisions leave 610,000 bpd global oil surplus in January…

natural gas prices hits another 4 year low; natural gas drilling at another 39 month low; demand revisions leave 610,000 barrel per day global oil surplus in January…

oil prices ended higher for the first week in six and by the most in any week this year, as oil traders dismissed demand concerns while also ignoring a big increase in US crude supplies…after falling 2.4% to $50.32 a barrel last week as demand destruction in China overwhelmed OPEC’s attempts to stabilize prices, the benchmark price of US light sweet crude for March delivery opened lower and crashed to a 13 month low on Monday, as the rapidly spreading coronavirus dampened the demand outlook for China, the worlds biggest oil consumer while silence from Russia called into question the efficacy of OPEC’s proposed supply cuts, with US crude ending down 75 cents at 49.57 a barrel… oil prices then rebounded on Tuesday in sympathy with a broad rally in equity markets even as OPEC dramatically lowered its forecast for oil demand, and finished up 37 cents at $49.94 a barrel…oil prices then jumped more than 3% on Wednesday as traders eyed deeper production cuts from OPEC, and as China reported the lowest number of new coronavirus cases this month, with US oil closing $1.23 higher at $51.17 a barrel…prices moved up again on Thursday, finishing 25 cents higher at $51.42 a barrel, as traders focused on possible deeper supply cuts from OPEC, while largely ignoring reports of coronavirus related demand cutsthe bear market rally continued into a fourth session on Friday, as traders bet the economic impact of the coronavirus would be short-lived and hoped that further Chinese central bank stimulus would provide a cure, as WTI gained 63 cents to close at $52.05 a barrel, thus finishing 3.4% higher on the week and notching its first weekly rise in six weeks, as Bloomberg News reported a “buying spree” among China’s independent oil refiners

natural gas prices, meanwhile, could not hold on to last week’s small gain and a crashed to another 4 year low, before recovering to end the week with a small loss…after rising less than 1% to end at $1.858 per mmBTU on a shift in the forecasts to more seasonable weather last week, the contract price of natural gas for March delivery tumbled 9.2 cents, or 5%, to a 4 year low of $1.766 per mmBTU on Monday as the latest U.S. forecasts all but eliminated hopes for a late-winter cold spell, even as natural gas production continued risingforecasts for a frigid blast to hit the US next week unpinned a 2.2 cent increase in prices Tuesday and a 5.6 cent increase on Wednesday, but they gave back 1.8 cents on Thursday in spite of that was considered a strong EIA storage report…prices then inched back up 1.1 cents to $1.837 per mmBTU on Friday, but still finished with a 2.1 cent, or 1.1% loss on the week…

the natural gas storage report on the week ending February 7th from the EIA indicated that the quantity of natural gas held in storage in the US fell by 115 billion cubic feet to 2,494 billion cubic feet by the end of the week, which left our gas supplies 601 billion cubic feet, or 31.7% higher than the 1,893 billion cubic feet that were in storage on February 7th of last year, and 215 billion cubic feet, or 9.4% above the five-year average of 2,279 billion cubic feet of natural gas that has been in storage as of the 7th of February in recent years….the 115 billion cubic feet that were withdrawn from US natural gas storage this week was a bit more than the average forecast for a 108 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, and was also more than the 101 billion cubic feet withdrawal reported during the corresponding week of last year, but was still well less than the average 131 billion cubic feet of natural gas that have been pulled from natural gas storage during the first week of February 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 February 7th showed that because of an increase in our oil imports and a decrease in our oil exports, we had quite a bit of surplus oil to add to our stored commercial supplies for the fourteenth time in the past twenty-two  weeks….our imports of crude oil rose by an average of 363,000 barrels per day to an average of 6,978,000 barrels per day, after falling by an average of 46,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 443,000 barrels per day to 2,970,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,008,000 barrels of per day during the week ending February 7th, 806,000 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 higher 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 17,008,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 16,020,000 barrels of crude per day during the week ending February 7th, 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 1,066,000 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 78,000 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 (+78,000) 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” … (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 6,671,000 barrels per day last week, now just 6.8% less than the 7,158,000 barrel per day average that we were importing over the same four-week period last year….the 1,066,000 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 remained unchanged….this week’s crude oil production was reported to be 100,000 barrels per day higher at 13,000,000 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 12,500,000 barrels per day, while a 2,000 barrel per day increase Alaska’s oil production to 487,000 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 8th 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 88.0% of their capacity in using 16,020,000 barrels of crude per day during the week ending February 7th, up from 87.4% of capacity the prior week, but still a bit below the recent average refinery capacity utilization for the first week of February…however, the 16,020,000 barrels per day of oil that were refined this week were 1.6% above the 15,768,000 barrels of crude that were being processed daily during the week ending February 8th, 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 lower, decreasing by 662,000 barrels per day to 9,241,000 barrels per day during the week ending February 7th, after our refineries’ gasoline output had increased by 745,000 barrels per day over the prior week… after this week’s big decrease in gasoline output, our gasoline production was 3.9% lower than the 9,619,000 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 139,000 barrels per day to 4,837,000 barrels per day, after our distillates output had decreased by 3,000 barrels per day over the prior week…after this week’s drop in distillates output, our distillates’ production for the week was still 1.5% above the 4,764,000 barrels of distillates per day that were being produced during the week ending February 8th, 2018….

with the big decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the second time in fourteen weeks and for the 16th time in 34 weeks, falling by 75,000 barrels to 261,049,000 barrels during the week ending February 7th, after our gasoline supplies had decreased by 91,000 barrels from a record high over the prior week….our gasoline supplies decreased this week even as our exports of gasoline fell by 364,000 barrels per day to 622,000 barrels per day, while our imports of gasoline fell by 270,000 barrels per day to 406,000 barrels per day, and while the amount of gasoline supplied to US markets decreased by 211 000 barrels per day to 8,722,000 barrels per day…even after this week’s decrease, our gasoline supplies were 1.1% higher than last February 8th’s gasoline inventories of 258,301,000 barrels, and 3% 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 14th time in 20 weeks and for 29th time in the past 45 weeks, falling by 2,013,000 barrels to 141,222 ,000 barrels during the week ending February 7th, after our distillates supplies had decreased by 1,512,000 barrels over the prior week….our distillates supplies fell again this week even though the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 391,000 barrels per day to 3,820,000 barrels per day, because our exports of distillates rose by 232,000 barrels per day to 1,407,000 barrels per day while our imports of distillates fell by 92,000 barrels per day to 102,000 barrels per day….but even after this week’s decrease, our distillate supplies at the end of the week were still 0.7% more than the 140,200,000 barrels of distillates that we had stored on February 8th, 2019, even as they slipped to about 5% below the five year average of distillates stocks for this time of the year…

finally, with lower oil exports and higher oil imports, our commercial supplies of crude oil in storage rose for the seventeenth time in thirty-four weeks and for the thirtieth time in the past 52 weeks, increasing by 7,459,000 barrels, from 435,009,000 barrels on January 31st to 442,468,000 barrels on February 7th…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 36.1% higher than the prior 5 year (2010 – 2014) 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 February 7th were 1.9% below the 450,840,000 barrels of oil we had stored on February 8th of 2019, while still 4.8% above the 422,095,000 barrels of oil that we had in storage on February 2nd of 2018, while at the same time falling to 14.6% below the 518,119,000 barrels of oil we had in commercial storage on February 3rd of 2017, during a period that we were adding 10 million barrels per week to storage…

OPEC’s Monthly Oil Market Report

Wednesday of this past week saw the release of OPEC’s February Oil Market Report, which covers OPEC & global oil data for January, and hence it gives us a picture of the global oil supply & demand situation as increased production cuts of 500,000 barrels per day from OPEC and its partners were going into effect…but as we’ll see, this report shows there was still a surplus more than 600,000 barrels per day of oil produced globally in January, mostly due to downward revisions to demand..

the first table from this monthly report that we’ll look at is from the page numbered 54 of that report (pdf page 64), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate…for all their official production measurements, OPEC uses an average of estimates from six “secondary sources”, namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as a means of impartially adjudicating whether their output quotas and production cuts are being met, to thus avert any potential disputes that could arise if each member reported their own figures…

January 2020 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC’s oil output fell by 509,000 barrels per day to 28,859,000 barrels per day in January, from their revised December production total of 29,368,000 barrels per day…however that December output figure was originally reported as 29,444,000 barrels per day, which means that OPEC’s December production was revised 76,000 barrels per day lower, and hence January’s production was, in effect, a 585,000 barrel per day decrease from the previously reported OPEC production figures (for your reference, here is the table of the official December OPEC output figures as reported a month ago, before this month’s revisions)…

from that OPEC table, we can also see that the 344,000 barrel per day decrease in production in wartorn Libya was the primary reason for magnitude of the January drop in OPEC’s output, and were it not for that, the target of a 500,000 barrel per day production cut by the group would not have been met….nonetheless, it appears that oil output from most OPEC members, other than Iraq, still remains far enough below the output allocations as originally determined for each OPEC member after their December 7th, 2018 meeting, when OPEC agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers so as to cover their additional first quarter cut….their output allocations for the past year, before January’s​ added​ cuts, can be seen in the table of OPEC production quotas for 2019 we’ve included on the left below: 

OPEC supply cut targets as of October 2019

OPEC additional supply cuts as of December 2019

in addition to the allocations shown on the table on the left, at their meeting with other oil producers on December 6th of this past year, OPEC announced additional production cuts of 500,000 barrels per day through to March 2020 on top of those 2019 allocations, a breakdown of which we have in a table from OPEC on the right above…that table was posted on OPEC’s website after their December 6th meeting, and it shows the additional production cuts each of the OPEC members and their allies among other producers are expected to make over the 3 month period beginning January…as you see, the heaviest cuts fall on the core OPEC members of Saudi Arabia. the United Arab Emirates, Kuwait and Iraq, while embargoed Iran and Venezuela remain exempt…obviously, that table would be more meaningful if their current production, or even their expected end production, were included, but i’ve been unable to find a table with those complete metrics, so we’ll just have to make do switching back and forth between the two tables we have to see how each member is impacted….in addition to those cuts that came out of the OPEC meeting, the Saudis voluntarily pledged to cut an additional 400,000 barrels a day more than was mandated by the December 6th agreement, bringing the total cut for the group to 2.1 million barrels a day, or more than 2% of global output…as we can see, however, the Saudis made no such cuts in January, and actually increased production, although to be fair it’s likely the situation in Libya had a lot to do with that…

the next graphic from the report that we’ll include shows us both OPEC and world oil production monthly on the same graph, over the period from February 2018 to January 2020, and it comes from page 55 (pdf page 65) of the January OPEC Monthly Oil Market Report….on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale… 

January 2020 OPEC report global oil supply

despite the 509,000 barrel per day drop in OPEC’s production from what they produced a month ago, OPEC’s preliminary estimate indicates that total global oil production ​was only down by a rounded 0.01 million barrels per day to average 100.12 million barrels per day in January, a reported decrease which came after December’s total global output figure was revised lower by 150,000 barrels per day from the 100.28 million barrels per day of global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 500,000 barrels per day in January after that revision, with higher oil production from US, the UK, Canada, Malaysia, Qatar and Russia the major reasons for the non-OPEC output increase in January… despite the downtick in January’s output from that revision to December’s output, the 100.12 million barrels of oil per day produced globally in January were 0.80 million barrels per day, or 0.8% greater than the 99.32 million barrels of oil per day that were being produced globally in January a year ago, after their first round of cuts officially kicked in (see the February 2019 OPEC report (online pdf) for the originally reported January 2019 details)…with this month’s big decrease in OPEC’s output, their January oil production of 28,859,000 barrels per day fell to 28.8% of what was produced globally during the month, down from the 29.3% share OPEC contributed in December, and the 29.5%​ global share they had in November….OPEC’s January 2019 production was reported at 30,806,000 barrels per day, which means that the 14 OPEC members who were part of OPEC last year produced 1,947,000 fewer barrels per day of oil in January than what they produced a year ago, when they accounted for 31.0% of global output, with a 668,000 barrel per day drop in the output from Iran, a 480,000 barrel per day decrease in output from Saudi Arabia, and a 373,000 barrel per day decrease in the output from Venezuela from that time accounting for most of the year over year decrease… 

even with the big drop in OPEC’s output that we’ve seen in this report, there was a still substantial surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…     

January 2020 OPEC report global oil demand

the above table came from page 32 of the February OPEC Monthly Oil Market Report (pdf page 42), and it shows regional and total oil demand estimates in millions of barrels per day for 2019 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2020 over the rest of the table…on the “Total world” line in the second column, we’ve circled in blue the figure that’s relevant for January, which is their estimate of global oil demand during the first quarter of 2019…

OPEC is estimating that during the​ 1st quarter of this year, all oil consuming regions of the globe will be using 99.51 million barrels of oil per day, which is a big downward revision from the 99.95 million barrels of oil per day they were estimating for the 1st quarter a month ago, largely reflecting coronavirus related demand destruction….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world’s oil producers were producing 100.12 million barrels per day during January, which means that there was a surplus of around 610,000 barrels per day in global oil production when compared to the demand estimated for the month… 

the revisions to December output and to 2019 demand (included in the green ellipse above) means that the previous surplus ​and shortfall figures we had computed for prior months should be revised as well….a month ago we estimated a global shortage of around 790,000 barrels per day in global oil production during December, based on the figures published at that time…however, as we saw earlier, December’s global output figure was was revised higher by 150,000 barrels per day from those figures, while global demand for the 4th quarter was unrevised, so with these revised figures, we now find that global oil production in December was running roughly 640,000 barrels per day short of demand…

meanwhile, for 2019, OPEC is revising its 3rd quarter demand estimates 60,000 barrels per day lower, and is revising its 1st quarter demand estimates 40,000 barrel per day lower (​breakout ​figures which are not shown on the above table)…based on the December figures, a month ago we had estimated that for the twelve months of 2019, global oil demand exceeded production by roughly 297,900,000 barrels…hence, based on these revisions to 1st quarter and 3rd quarter demand, plus our revision to December’s shortage, we’ll have to revise the oil shortage for the entirely of 2019 to 284,090,000 barrels…that’s still a substantial a net oil shortfall that is the equivalent of almost two days and twenty hours of global oil production at the December production rate

This Week’s Rig Count

the US rig count was unchanged for a second straight week over the week ending February 14th, after falling 20 out of the 24 prior weeks, and hence remains down by 27% from the last week 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 261 rigs from the 1051 rigs that were in use as of the February 15th 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 2 rig​s​ to 678 oil rigs this week, which was still 179 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 110 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 194 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, two rigs classified as ‘miscellaneous’ continued to drill this week; one on the big island of Hawaii, and one in Lake County, California, while the “miscellaneous” rig that had been drilling in Washoe County, Nevada, over the past fourteen weeks was shut down… a year ago, there were no such “miscellaneous” rigs deployed..

offshore drilling activity in the Gulf of Mexico was unchanged at 23 rigs this week, with 22 rigs drilling in Louisiana waters and one rig drilling offshore from Texas…that’s an increase of two Gulf rigs from a year ago, when 20 rigs were drilling offshore from Louisiana and one was 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 the count of last year is equal to the national total in both cases..

the count of active horizontal drilling rigs was up by two to 713 horizontal rigs this week, which the highest horizontal rig count since November 1st of last year, but still 202 fewer horizontal rigs than the 915 horizontal rigs that were in use in the US on February 15th 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 47 directional rigs this week, but those were also down by 23 from the 70 directional rigs that were operating during the same week of last year…. on the other hand, the vertical rig count was down by 3 rigs to 30 vertical rigs this week, and those were down by 36 from the 66 vertical rigs that were in use on February 15th 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 14th, the second column shows the change in the number of working rigs between last week’s count (February 7th) and this week’s (February 14th) count, the third column shows last week’s February 7th 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 15th of February, 2019…    

February 14 2020 rig count summary

in the western Texas Permian basin, two rigs were added in Texas Oil District 8, or the core Permian Delaware, and 1 rig was added in Texas Oil District 7C, or the southern Permian Midland, while at the same time, 1 rig was pulled out of  Texas Oil District 8A, or the northern Permian Midland …hence, for the overall Permian basin to be showing a three rig increase for the week, the rig that was added New Mexico had to have been set up for drilling in the western reaches of the Permian Delaware…the Granite Wash rig addition in the panhandle Texas Oil District 10 accounts for the other Texas rig addition, and while there were some rigs moving around like barnyard chickens in the southeastern part of the state, none of them show up as net activity in any of the summary tables…meanwhile, the only natural gas rig change of this week was the rig that was pulled out of Pennsylvania’s Marcellus; all other natural gas basins were unchanged…

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