oil rigs at a 36 month low, natural gas rigs at a 41 month low, horizontal drilling at a 36 month low..

oil prices finished lower again this week, but with somewhat less volatility than last week, when we saw price moves as great as 25% in both directions in a matter of hoursafter oil prices fell 30% to $22.43 a barrel last week, trading in the contract for US light sweet crude for April delivery, which had been the quoted “price of oil” thru Friday, expired…hence, this week’s oil prices are now quoting the the contract price of US light sweet crude for May delivery, which had finished last week down 29.5% at $22.63 a barrel, in trading that was as volatile as that of the April contract…that May contract price had initially fallen as much as 8% in off-market trading over the weekend, but moved higher on Sunday as traders waited on Congress to agree to an economic stimulus and rescue plan…that dynamic repeated in Monday’s trading, as prices initially fell to as low as $20.80 a barrel after an attempt to move a coronavirus-related rescue proposal forward was defeated in the Senate, but bounced back later to as high as $24.07 after the Fed announced aggressive asset purchases to support markets, before closing the session 73 cents or 3.2% higher at $23.36 per barrel…oil prices moved between gains and losses early on Tuesday, but soared near the close as the US dollar lost value on the Fed moves, with May oil closing 65 cents higher at $24.01 a barrel…oil prices rose at the open on Wednesday on a Tuesday evening industry report that inventories of crude, gasoline and distillates had fallen, and despite trading lower after the EIA reported a 9th consecutive oil inventory increase, rallied alongside broader financial markets as Congress moved toward approval a massive aid package to stem the economic impact of the coronavirus pandemic, closing 48 cents higher at $24.49 a barrel…but oil prices fell on Thursday following those three days of gains, as the prospect of rapidly dwindling demand due to travel bans and lockdowns more than offset hopes that an emergency stimulus would shore up economic activity, and then plummeted to close $1.89 or 7% lower at $22.60 a barrel after the Department of Energy scrapped a plans to buy crude oil for its Strategic Petroleum Reserve because funding for it was not included in the big stimulus package passed by the Senate…prices attempted a recovery early Friday, rising as much as 3%, until headlines from the Saudis that there are no talks with Russia ongoing sent prices tumbling again, with US crude falling back to $20.88 before closing $1.09 or 5% lower on the day at $21.51 a barrel…May oil prices thus ended the week nearly 5% lower, with the quoted “price of oil” falling over 4% and posting a fifth straight weekly loss, as demand destruction caused by the coronavirus outweighed stimulus efforts by policymakers around the world.

natural gas prices, meanwhile, inched up from last week’s 24 year low as somewhat cooler forecasts supported prices in the face of falling demand…after falling 14% to a a 24 year low of $1.604 per mmBTU on both Wednesday and Friday of last week, the contract price for natural gas for April delivery opened more than 7 cents lower at a new 25 year intraday low of $1.533 per mmBTU on Monday before clawing back most of that loss to end just two-tenths of a cent lower at $1.602 per mmBTU, still another 24 year closing low, as milder weather forecasts offset a projected increase of flows to LNG export terminals and expectations of cooler weather for the week ahead….natural gas prices rose 5.1 cents to $1.653 on Tuesday on forecasts for cooler weather and higher demand over the next two weeks than was earlier expected, and on an increase in crude prices, and then tacked on another six-tenths of cent on Wednesday before falling back 2.2 cents to $1.637 per mmBTU on Thursday as the near 8% drop in oil prices and forecasts for milder weather and lower heating demand offset a slightly bigger than expected withdraw from storagenatural gas prices were then virtually flat on a colder weather forecast on Friday, ultimately shedding 0.3 cents, as trading in the April contract expired at $1.634 per mmBTU, thus finishing the week 1.9% higher, after it had fallen 14% the prior week…

the natural gas storage report from the EIA on the week ending March 20th indicated that the quantity of natural gas held in underground storage in the US fell by 29 billion cubic feet to 2,005 billion cubic feet by the end of the week, which left our gas supplies 888 billion cubic feet, or 79.5% higher than the 1,117 billion cubic feet that remained in storage on March 20th of last year, and 292 billion cubic feet, or 17.0% above the five-year average of 1,713 billion cubic feet of natural gas that has been in storage as of the 20th of March in recent years….the 29 billion cubic feet that were withdrawn from US natural gas storage this week was a bit above the consensus estimate for a 27 billion cubic feet withdrawal from a survey of analysts by S&P Global Platts, but was less than the average 40 billion cubic feet of natural gas that have been pulled from natural gas storage during the third week of March over the past 5 years, and also less than the 39 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 20th indicated that a big decrease in our oil imports was more than offset by a big decrease in our oil exports, and hence we were again left with a modest surplus of oil to add to our stored commercial supplies, the twentieth addition of oil to storage in the past twenty-eight weeks….our imports of crude oil fell by an average of 422,000 barrels per day to an average of 6,117,000 barrels per day, after rising by an average of 127,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 528,000 barrels per day to 3,850,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,267,000 barrels of per day during the week ending March 20th, 106,000 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 fell by 100,000 barrels per day to 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 15,267,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 15,838,000 barrels of crude per day during the week ending March 20th, 18,000 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 232,000 barrels of oil per day were being added to to the supplies of oil stored in the US….so looking at all 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 803,000 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 plugged a (+803,000) 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 fell to an average of 6,326,000 barrels per day last week, now 7.0% less than the 6,805,000 barrel per day average that we were importing over the same four-week period last year….the 232,000 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 lower 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 lower at 12,500,000 barrels per day, while a 19,000 barrel per day decrease in Alaska’s oil production to 459,000 barrels per day had no impact on the rounded national total….last year’s US crude oil production for the week ending March 22nd was rounded to 12,100,000 barrels per day, so this reporting week’s rounded oil production figure was 7.4% 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 87.3% of their capacity in using 15,838,000 barrels of crude per day during the week ending March 20th, up from 86.4% of capacity during the prior week, and near the recent average refinery capacity utilization for the third week of March, historically the time of year that refineries change over to summer blends and undergo annual maintenance…hence, the 15,838,000 barrels per day of oil that were refined this week were little changed from the 15,831,000 barrels of crude that were being processed daily during the week ending March 22nd, 2019, when US refineries were operating at 86.6% of capacity….

even with little change in the amount of oil being refined, gasoline output from our refineries was much lower, decreasing by 1,016,000 barrels per day to 8,958,000 barrels per day during the week ending March 20th, after our refineries’ gasoline output had increased by 18,000 barrels per day over the prior week…​that may be because wholesale gasoline has selling at less than 50 cents per gallon, and refineries are losing up to $17 per barrel on every barrel they process… after this week’s drop in gasoline output, our gasoline production was 7.2% lower than the 9,657,000 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) increased by 150,000 barrels per day to 4,838,000 barrels per day, after our distillates output had decreased by 19,000 barrels per day over the prior week…but even after this week’s increase in distillates output, our distillates’ production for the week was still 1.8% less than the 4,925,000 barrels of distillates per day that were being produced during the week ending March 22nd, 2019….

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the eighth week in a row, after twelve consecutive increases, falling by 1,537,000 barrels to 239,282,000 barrels during the week ending March 20th, after our gasoline supplies had decreased by 6,180,000 barrels over the prior week….our gasoline supplies decreased by less this week because the amount of gasoline supplied to US markets decreased by 859,000 barrels per day to 8,837,000 barrels per day, and because our imports of gasoline rose by 146,000 barrels per day to 834,000 barrels per day while our exports of gasoline rose by 232,000 barrels per day to 835,000 barrels per day…but even after this week’s inventory decrease, our gasoline supplies were fractionally higher than last March 22nd’s gasoline inventories of 238,620,000 barrels, and right at the five year average of our gasoline supplies for the same time of the year…

even with the increase in our distillates production, our supplies of distillate fuels decreased for the ​10th week in a row and for the ​19th time in 25 weeks, falling by 678,000 barrels to 124,442,000 barrels during the week ending March 20th, after our distillates supplies had decreased by 2,940,000 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 218,000 barrels per day to 3,795,000 barrels per day, and because our exports of distillates fell by 100,000 barrels per day to 1,256,000 barrels per day, while our imports of distillates fell by 148,000 barrels per day to 115,000 barrels per day….after this week’s inventory decrease, our distillate supplies at the end of the week were 4.4% below the 130,167,000 barrels of distillates that we had stored on March 22nd, 2019, and remained about 11% below the five year average of distillates stocks for this time of the year…

finally, with net supply and demand little changed from the prior week, our commercial supplies of crude oil in storage rose for the twenty-second time in thirty-nine weeks and for the thirty-third time in the past 52 weeks, increasing by 1,623,000 barrels, from 453,737,000 barrels on March 13th to 455,360,000 barrels on March 20th….but even after 9 straight increases, our crude oil inventories remained 3% below the five-year average of crude oil supplies for this time of year, but about 27% higher than the prior 5 year (2010 – 2014) average of crude oil stocks after the third 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​ and a half​, except for during this past summer, after generally falling until then through most of the prior year and a half, our crude oil supplies as of March 20th were 3.0% above the 442,283,000 barrels of oil we had in commercial storage on March 22nd of 2019, and 5.9% above the 429,949,000 barrels of oil that we had in storage on March 23rd of 2018, while at the same time remaining 14.7% below the 533,977,000 barrels of oil we had in commercial storage on March 24th of 2017…     

This Week’s Rig Count

the US rig count decreased for the 23rd time in the past 28 weeks during the week ending March 27th, and is now down by 23.8% from the last rig count of 2018…..Baker Hughes reported that the total count of rotary rigs running in the US decreased by 44 rigs to 728 rigs this past week, which was the least rigs deployed since February 3rd, 2017, and hence a 37 month low…that total was also down by 278 rigs from the 1066 rigs that were in use as of the March 29th report of 2019, and 1,201 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 40 rigs to 624 oil rigs this week, which was the least oil rig activity in 36 months, 192 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 4 to 102 natural gas rigs, which was the least number of natural gas rigs active since October 7th of 2016, and hence was a new 41 month low for natural gas drilling, down by 80 gas rigs from the 190 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..

with the removal of the lone rig that ha​d been drilling​ for​ natural gas offshore from Texas, the rig count in the Gulf of Mexico was down by 1 to 18 rigs this week, with the 18 Gulf rigs remaining all drilling for oil in Louisiana’s offshore waters…that’s now five less than the number of rigs that were deployed in the Gulf a year ago, when 20 rigs were drilling offshore from Louisiana and three rigs were operating in Texas waters…in addition to the removal of one Gulf rig, the two rigs that had been deployed on inland waters – one in ​southern Louisiana and one on a lake on Oklahoma – were both shut down this week, leaving no inland waters rigs active in the US, down from ​the ​2 inland waters rigs​ deployed​ in ​southern Louisiana a year ago..

the count of active horizontal drilling rigs decreased by 43 rigs to 653 horizontal rigs this week, which was the fewest horizontal rigs active since March 10th 2017, and hence a 36 month low for horizontal drilling…it was also 238 fewer horizontal rigs than the 891 horizontal rigs that were in use in the US on March 29th 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 directional rig count was down by two to 47 directional rigs this week, and those were also down by 17 from the 64 directional rigs that were operating during the same week of last year….on the other hand, the vertical rig count was up by 1 to 28 vertical rigs this week, but those were still down by 23 from the 51 vertical rigs that were in use on March 29th 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 27th, the second column shows the change in the number of working rigs between last week’s count (March 20th) and this week’s (March 27th) count, the third column shows last week’s March 20th 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 29th of March, 2019…    

March 27 2020 rig count summary

once again, the rigs withdrawn from the Permian basin accounted for the majority of this week’s rig decline, as well as a fair portion of the horizontal rig pullback…in the Texas Permian, 21 rigs were pulled out of Texas Oil District 8, or the core Permian Delaware, and another rig was shut down in Texas Oil District 8A, which corresponds to the northern Permian Midland…however, two rigs were added to those drilling in Texas Oil District 7C, or the southern Permian Midland, which means that the Permian in Texas saw a net reduction of 20 rigs…since the total Permian basin rig count was reduced by a total of 23, we can therefore figure that the 3 rigs that were shut down in New Mexico had been drilling in the western Permian Delaware…elsewhere in Texas, 5 rigs were pulled out of Texas Oil District 1, and 4 more were removed from Texas Oil District 3, which together account for the Eagle Ford ​shale ​rig reduction and then some…Texas Oil District 6 was also off a rig, accounting for one of the Haynesville shale losses, w​​ith the other two Haynesville rigs coming out of northwest Louisiana, while Texas Oil Districts 2 and 4 both added rigs….the two Williston shale rigs came out of North Dakota, and Oklahoma saw 5 rigs pulled out of the Cana Woodford and one rig pulled out of the Mississippian shale, which suggest that Oklahoma saw two rigs added in basins not tracked separately by Baker Hughes…meanwhile, we’ve already accounted for all natural gas rig changes that occurred this week in mentioning the 3 rig reduction in the Haynesville and the Gulf of Mexico natural gas rig that was removed from Texas waters..

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