oil prices hit 18 year low in largest drop in 29 years; natural gas prices end at a 24 year low; DUC backlog at 7.1 months

oil prices hit an 18 year on the way to their largest weekly drop in 29 years; natural gas prices ended at a 24 year low; natural gas rigs were at a 41 month low; DUC wells are down 9.7% year over year, their backlog is at 7.1 months

oil prices ended down nearly 30% this week, despite rising nearly 24% on Thursday in the largest single day price jump in history, as the economic impact of the coronavirus pandemic and the Saudi-Russian oil price war continued to destabilize pricing…after falling 23% to $31.73 a barrel for the same reasons last week, the contract price of US light sweet crude for April delivery opened more than 6% higher at $33.75 a barrel Monday morning in an initial response to the Fed’s emergency interest rate cut to 0% on Sunday, but those gains quickly evaporated as traders interpreted the Fed move as panicked and desperate while the Saudis continued to flood global markets with $25 oil, driving US prices down more than 10% to a session low of $28.03 per barrel before recovering to close at $28.70 a barrel, a loss of $3.03 on the day…oil prices continued falling Tuesday as Goldman Sachs slashed its oil forecast to $22 and others forecast oil prices in the teens, with US crude closing $1.75 lower at a 4 year low of $26.95 a barrel, as recession fears and the Saudi price war continued to weigh on markets…oil prices steadied early on Wednesday after the API had reported a drop in U.S. inventories of crude, gasoline and distillates, but then plunged as governments worldwide accelerated lockdowns to counter the coronavirus pandemic, prompting fears of a global economic collapse, with U.S. crude futures falling $6.58, or 24.4%, to settle at $20.37 a barrel, the 3rd largest price drop on record and the lowest oil price in more than 18 years….however, the entirety of that price drop was reversed in the first 4 and a half hours of trading on Thursday, as oil prices briefly spiked 36% to $27.71 a barrel after remarks by Trump that he might intervene in the Saudi-Russian price war on the way to an increase of $4.85, or 23.8%, the biggest one day price jump on record, with US crude settling at $25.22 a barrel, as traders absorbed news of a plethora of central bank and government interventions to combat the economic fallout from the coronavirus pandemic and as Russia indicated it would like to see higher prices…Thursday’s rally continued into early Friday, with US crude reaching $27.89 a barrel in the early hours, but by 11:00 AM, it had sunk back to $25.02 a barrel on the way to a $19.46 a barrel nadir, before recovering to rise 15% from there to close at $22.43 a barrel, down $2.79 or 11.1% to $22.43 a barrel on the day, even as the world’s richest nations poured unprecedented aid into their economies to stop a coronavirus-driven global recession…prices thus finished the week more than 29.3% lower than the prior week, the largest one week percentage drop since 1991, as some traders saw oil demand shrinking as much as 10 to 20 million barrels a day (10-20%) as drivers stay home and flights are grounded across the world

with that, here’s a graph of 20 years of front month oil prices:

March 20 2020 oil prices

the above graph is a screenshot of the interactive price chart for the front month oil 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 for the nearest oil futures contract as a vertical bar for each month over the past 20 years….this graph was generated by taking the price quotes for what is called the “front month” oil futures contract, or the contract that is being quoted as “the price of oil” daily, with the each monthly contract price being replaced by the next month’s price when trading in that contract expires on the 4th business day prior to the 25th calendar day of the month preceding the contract month… you might also note that each bar has two small horizontal appendages: the one on the left is the opening price for the month the bar indicates, while the appendage on the right is the month’s closing price…as you can see, oil prices are now down to a level not seen since March 2002, and well below the lows of late 2015 to early 2016, when oil prices had crashed after OPEC after flooded the global oil market & caused a collapse in prices which put hundreds of US oil companies into bankruptcy

natural gas prices also fell out of bed this week, sliding to a 24 year low on Wednesday, which was then matched at Friday’s close…after rising 9.4% to $1.869 per mmBTU last week on hopes that the collapse in oil prices would prompt drillers to cut back on both oil and gas production, the contract price of natural gas for April delivery fell 5.4 cents, or 3% on Monday, on a rising awareness that the coronavirus pandemic would reduce natural gas demand, and despite forecasts for cooler weather and greater heating demand in the US over the next two weeks than was previously expectedthe economic slowdown continued to pressure prices as they fell 8.6 cents on Tuesday, with forecasts for milder weather and less heating demand next week also pushing prices lower…April natural gas then plunged 12.5 cents or 7% to $1.604 per mmBTU on Wednesday, their lowest price since 1995, tracking lower alongside the day’s 24% collapse in oil prices, as travel bans sparked by the coronavirus slashed the global outlook for energy demandwith the Thursday natural gas storage report close to expectations, natural gas followed other markets higher and rose 5 cents, only to fall back by the same amount on Friday to end the week back at $1.604 per mmBTU, the lowest weekly close since August 1995, and leaving the front-month contract down over 14% this week, its biggest weekly decline since November.

and here’s what a graph of 20 years of natural gas prices looks like:

March 20 2020 natural gas prices

like the oil graph, this graph is a screenshot of the interactive price chart for the front month natural gas contract at Barchart.com, showing the range of prices for the nearest natural gas futures contract as a vertical bar for each month over the past 20 years….like the oil graph, this graph was generated by taking the price quotes for the “front month” natural gas futures contract, or the contract that is being quoted as “the price of oil” daily, with the each monthly contract price being replaced by the next month’s price when trading in that contract expires, which for natural gas contracts occurs on the on the 3rd last business day of the month prior to the contract month….as you can see, current natural gas prices are now the lowest on this 20 year graph, a few cents below the lows hit in late February and early March 2016, and at a level not seen since August 1995…you can access the graph showing the complete natural gas price history using the link to the interactive graph above, which we chose not to include here because it displayed poorly.. 

the natural gas storage report from the EIA on the week ending March 13th indicated that the quantity of natural gas held in underground storage in the US fell by 9 billion cubic feet to 2,034  billion cubic feet by the end of the week, which left our gas supplies 878 billion cubic feet, or 76.0% higher than the 1,156 billion cubic feet that were in storage on March 13th of last year, and 281 billion cubic feet, or 16.0% above the five-year average of 1,816 billion cubic feet of natural gas that has been in storage as of the 13th of March in recent years….the 9 billion cubic feet that were withdrawn from US natural gas storage this week was near the consensus estimate for a 8 billion cubic feet withdrawal from a survey of analysts by S&P Global Platts, but was much less than the average 63 billion cubic feet of natural gas that have been pulled from natural gas storage during the second week of March over the past 5 years, and also way less than the 91 billion cubic feet withdrawal reported during the corresponding week of 2019.. 

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending March 13th indicated that a ​big ​increase in our oil exports reduced the week’s ​domestic ​oil surplus, but we were still left with a ​modest amount of oil to add to our stored commercial supplies, the nineteenth addition ​of oil ​to storage in the past twenty-seven weeks….our imports of crude oil rose by an average of 127,000 barrels per day to an average of 6,539,000 barrels per day, after rising by an average of 174,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 968,000 barrels per day to 4,378,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,161,000 barrels of per day during the week ending March 13th, 841,000 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 rose by 100,000 barrels per day to 13,100,000 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 15,261,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 15,820,000 barrels of crude per day during the week ending March 13th, 119,000 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 279,000 barrels of oil per day were being added to to the supplies of oil stored in the US….so looking at that data, 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 838,000 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 (+838,000) 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) indicate that the 4 week average of our oil imports rose to an average of 6,351,000 barrels per day last week, now 4.5% less than the 6,649,000 barrel per day average that we were importing over the same four-week period last year….the 279,000 barrel per day 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 a record 13,100,000 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 ​a record ​12,600,000 barrels per day, while a 5,000 barrel per day increase Alaska’s oil production to 478,000 barrels per day had no impact on the rounded national total….last year’s US crude oil production for the week ending March 15th was rounded to 12,100,000 barrels per day, so this reporting week’s rounded oil production figure was 8.3% above that of a year ago, and 55.4% 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 86.4% of their capacity in using 15,820,000 barrels of crude per day during the week ending March 13th, the same capacity utilization of the prior week, ​and still near the recent average refinery capacity utilization for the second week of March, historically the time of year that refineries change​ ​over to summer blends and undergo​ annual​ maintenance…nonetheless, the 15,820,000 barrels per day of oil that were refined this week were 2.3% less than the 16,198,000 barrels of crude that were being processed daily during the week ending March 15th, 2019, when US refineries were operating at 88.9% of capacity….

with the modest increase in the amount of oil being refined, gasoline output from our refineries was a bit higher, increasing by 18,000 barrels per day to 9,974,000 barrels per day during the week ending March 13th, after our refineries’ gasoline output had increased by 199,000 barrels per day over the prior week… after this week’s increase in gasoline output, our gasoline production was half a percent higher than the 9,925,000 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 19,000 barrels per day to 4,686,000 barrels per day, after our distillates output had increased by 57,000 barrels per day over the prior week…but even after this week’s increase in distillates output, our distillates’ production for the week was 4.8% less than the 4,923,000 barrels of distillates per day that were being produced during the week ending March 15th, 2019….

despite the increase in our gasoline production, our supply of gasoline in storage at the end of the week ​decrease​d​ for the seventh week in a row, after twelve consecutive increases, falling by 6,180,000 barrels to 240,819,000 barrels during the week ending March 13th, after our gasoline supplies had decreased by 5,049,000 barrels over the prior week….our gasoline supplies decreased by even more this week because the amount of gasoline supplied to US markets increased by 247,000 barrels per day to 9,696,000 barrels per day, while our exports of gasoline fell by 142,000 barrels per day to 603,000 barrels per day, while our imports of gasoline fell by 22,000 barrels per day to 688,000 barrels per day….but even after this week’s big inventory decrease, our gasoline supplies were only 0.3% lower than last March 15th’s gasoline inventories of 241,503 ,000 barrels, and close to the five year average of our gasoline supplies for the same time of the year…

similarly, with the decrease in our distillates production, our supplies of distillate fuels decreased for the 18th time in 24 weeks and for 33rd time in the past 49 weeks, falling by 2,940,000 barrels to 125,120,000 barrels during the week ending March 13th, after our distillates supplies had decreased by a near record 6,404,000 barrels over the prior week….our distillates supplies fell by less this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 385,000 barrels per day to 4,013,000 barrels per day, and because our exports of distillates fell by 174,000 barrels per day to 1,356,000 barrels per day, while our imports of distillates fell by 45,000 barrels per day to 263,000 barrels per day….after this week’s inventory decrease, our distillate supplies at the end of the week were 5.4% lower than the 132,242,000 barrels of distillates that we had stored on March 15th, 2019, and fell to about 11% below the five year average of distillates stocks for this time of the year…

finally, even after the jump in our oil exports, our commercial supplies of crude oil in storage rose for the twenty-first time in thirty-eight weeks and for the thirty-third time in the past 52 weeks, increasing by 1,954,000 barrels, from 451,783,000 barrels on March 6th to 453,737,000 barrels on March 13th ….but even after 8 straight increases, our crude oil inventories slipped to ​almost 3% below the five-year average of crude oil supplies for this time of year, even as they remained 27.2% higher than the prior 5 year (2010 – 2014) average of crude oil stocks after the second week of March, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels​ and continued rising​….since our crude oil inventories had generally been rising over the 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 March 13th were 3.2% above the 439,483,000 barrels of oil we had in commercial storage on March 15th of 2019, and 5.9% above the 428,306,000 barrels of oil that we had in storage on March 16th of 2018, while at the same time remaining 14.9% below the 533,110,000 barrels of oil we had in commercial storage on March 17th of 2017…    

This Week’s Rig Count

the US rig count decreased for the 22nd time in the past 27 weeks during the week ending March 20th, and is now down by 28.7% from the last rig count of 2018…..Baker Hughes reported that the total count of rotary rigs running in the US decreased by twenty rigs to 772 rigs this past week, which was also down by 244 rigs from the 1066 rigs that were in use as of the March 22nd report of 2019, and 1,157 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 decreased by 19 rigs to 664 oil rigs this week, which was also 160 fewer oil rigs than were running a year ago, and ​considerably 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 decreased by 1 to 106 natural gas rigs, which was the least number of natural gas rigs active since October 21st of 2016, and hence was a 41 month low for natural gas drilling​, down by 86 gas rigs from the 192 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, two rigs classified as ‘miscellaneous’ continued to drill this week; one on the big island of Hawaii, and one in Lake County, California… a year ago, there were no such “miscellaneous” rigs deployed..

offshore drilling activity in the Gulf of Mexico remained at 19 rigs this week, with 18 Gulf rigs deployed in Louisiana waters and one rig still drilling offshore from Texas…that’s now one less than the number of rigs that were deployed in the Gulf a year ago, when 17 rigs were drilling offshore from Louisiana and three rigs were operating in Texas waters…with no rigs deployed off other US shores elsewhere at this time, the current Gulf of Mexico rig count is thus equal to the national offshore rig total, as it has been all winter…

the count of active horizontal drilling rigs decreased by 17 rigs to 696 horizontal rigs this week, which was the fewest horizontal rigs active since December 13th 2019, and also 204 fewer horizontal rigs than the 900 horizontal rigs that were in use in the US on March 22nd 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 four rigs to 27 vertical rigs this week, and those were down by 26 from the 53 vertical rigs that were operating during the same week of last year….on the other hand, the directional rig count was up by one rig to 49 directional rigs this week, but those were also down by 14 from the 63 directional rigs that were in use on March 22nd 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 March 20th, the second column shows the change in the number of working rigs between last week’s count (March 13th) and this week’s (March 20th) count, the third column shows last week’s March 13th 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 22nd of March, 2019…    

March 20 2020 rig count summary

as you can see, the rigs withdrawn from the Permian basin accounted for the majority of this week’s rig decline, as well as the lions share of the horizontal rig pullback…in the Texas Permian, six rigs were pulled out of Texas Oil District 8, or the core Permian Delaware​,​ and two more rigs were pulled out of Texas Oil District 7C, or the southern Permian Midland…since the Permian basin rig count was reduced by a total of 13, we can therefore figure that the 5 rigs that were pulled out in New Mexico had been drilling in the western Permian Delaware…elsewhere in Texas, an Eagle Ford rig was pulled out of Texas Oil District 1, while Texas Oil Districts 5 and 9 both lost rigs that weren’t associated with a major shale basin….the Williston shale rig came out of North Dakota, and while Oklahoma saw a rig pulled out of the Cana Woodford, it also had one added in the Granite Wash basin, which means that Oklahoma also saw three rigs pulled out of basins not tracked separately by Baker Hughes…one of those could have been a natural gas rig, since the sole natural gas rig reduction this week also came out of one of those “other” basins that Baker Hughes doesn’t itemize…

DUC well report for December

Tuesday of this past week saw the release of the EIA’s Drilling Productivity Report for March, which includes the EIA’s February data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the twelfth month in a row, this report showed a decrease in uncompleted wells nationally in February, as drilling of new wells decreased and completions of drilled wells increased…..for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 60 wells, falling from a revised 7,697 DUC wells in January to 7,637 DUC wells in February, which now is 9.7% fewer DUCs than the 8,454 wells that had been drilled but remained uncompleted as of the end of February of a year ago…this month’s DUC decrease occurred as 1,014 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during February, down by 2 from the 1,016 wells that were drilled in January and the lowest number of wells drilled since June 2017, while 1,074 wells were completed and brought into production by fracking, an increase of 12 well completions from the 1,062 completions seen in January, but still down from the 1160 completions seen in February of last year….at the February completion rate, the 7,637 drilled but uncompleted wells left at the end of the month now represents a 7.1 month backlog of wells that have been drilled but are not yet fracked, down from the 7.3 month backlog of a month ago…

both oil producing and natural gas producing regions saw DUC well decreases in February, even as two of the seven major basins saw modest DUC increases…the number of DUC wells remaining in the Oklahoma Anadarko decreased by 49, falling from 752 at the end of January to 703 DUC wells at the end of February, as 61 wells were drilled into the Anadarko basin during January while 110 Anadarko wells were being fracked….at the same time, DUC wells in the Eagle Ford of south Texas decreased by 13, from 1,373 DUC wells at the end of January to 1,360 DUCs at the end of February, as 159 wells were drilled in the Eagle Ford during February, while 172 already drilled Eagle Ford wells were completed….in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 12 to 446, as 133 Niobrara wells were drilled in February while 145 Niobrara wells were completed….on the other hand, DUC wells in the Bakken of North Dakota increased by 13, from 839 DUC wells at the end of January to 852 DUCs at the end of February, as 97 wells were drilled into the Bakken in January, while 84 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 11, from 3,490 DUC wells at the end of January to 3,482 DUCs at the end of February, as 454 new wells were drilled into the Permian, while 443 wells in the region were being fracked….

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 9 wells, from 574 DUCs at the end of January to 565 DUCs at the end of February, as 74 wells were drilled into the Marcellus and Utica shales during the month, while 83 of the already drilled wells in the region were fracked….in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 1 well to 230, as 36 wells were drilled into the Haynesville during February, while 37 Haynesville wells were fracked during the same period….thus, for the month of February, 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 50 wells to 6,842 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 10 wells to 795 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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