record jump in crude supplies; gasoline output at a 35 year low; gasoline demand at a record low..

2nd largest build of gasoline stores on record: refinery utilization at the lowest since September 2008 (hurricane Ike), refining the fewest barrels in 9 years; rig count at a 40 month low

oil prices finished lower for the sixth week in the past seven despite an agreement between OPEC & Russia to cut a record amount of oil production, as analysts pointed out the cuts were less than half of what was needed to balance supply and demand in the wake of the global COVID-19 imposed economic shutdown… after rising 31.7% to $28.34 a barrel last week on hopes for an end to the Saudi-Russian price war and an agreement to cut supplies, the contract price of US light sweet crude for May delivery opened 8% lower at $26.09 a barrel after the OPEC+ video conference that was originally scheduled for Monday was delayed until Thursday amid an intensifying dispute between Russia and Saudi Arabia over who was to blame for falling crude prices, and despite moving back up to $28.24 during the Monday session on optimism that an agreement to cut production would be reached, faded near the close to end down $2.26 at $$26.08 a barrel…..oil prices rallied in Asia trading early Tuesday, with US crude trading at $27.15, after a Russian exec opined that his country was “very, very close” to an agreement to cut production, but opened at $26.34 in New York on doubts that any production cuts could be enough, and tumbled to $23.63 a barrel after the EIA cut its 2020 oil price outlook by over 20% and lowered its crude production forecasts…oil traded flat early Wednesday after the American Petroleum Institute and the EIA both reported huge crude oil inventory increases, but strengthened late in the session on hopes for a production cut agreement to end the day’s trading $1.46, or 6.2% higher at $25.09 a barrel, as Russia signaled willingness to cut their outputoil prices then jumped 12% to trade at $28.36 per barrel early Thursday on a report that Saudi Arabia and Russia had reached a deal to cut as much as 20 million barrels per day, but then tumbled more than 20% in the afternoon after Mexico balked at the cuts they were expected to make, throwing the entire agreement into doubt, while US crude went on to close $2.33, or 9.3% lower at $22.76 per barrel….while US markets were closed Friday due to Good Friday and US crude thus finished the week 19.7% lower, Brent crude, the international benchmark, did trade on Friday and was down nearly 2.5% to $31.82 per barrel, despite the deal that should end the price war between Saudi Arabia and Russia…

on the other hand, natural gas prices finished higher on forecasts for cooler weather and a resumption of Chinese LNG imports… after bouncing off a series of 24 year lows to close at $1.621 per mmBTU last week, the contract price for natural gas for May delivery opened higher and rose 11.0 cents or 6.8%, to settle at $1.731 per mmBTU on forecasts for cooler weather and higher heating demand for the following week than was previously expected…the rally continued uninterrupted on Tuesday, on reports that deliveries of U.S. natural gas to China had resumed after more than a year, as May gas rose 12.1 cents, or 7.0% to $1.852 per mmBTU, the highest close in three weeks…however, a warmer turn in weather models ended the brief rally on Wednesday, as the May contract settled at $1.783 per mmBTU, down 6.9 cents, as the electricity trade group Edison Electric Institute said power demand fell to a 16-year low …natural gas prices then fell 5 cents, or almost 3%, to $1.733 per mmBTU on Thursday on a bigger-than-expected storage build and long-range forecasts calling for demand destruction due to the coronavirus outbreak, but still ended the week 6.9% higher than the prior week’s close…

the natural gas storage report from the EIA for the week ending April 3rd indicated that the quantity of natural gas held in underground storage in the US rose by 38 billion cubic feet to 2,024 billion cubic feet by the end of the week, which lifted our gas supplies to 876 billion cubic feet, or 76.3% higher than the 1,148 billion cubic feet that was in storage on April 3rd of last year, and 324 billion cubic feet, or 19.1% above the five-year average of 1,700 billion cubic feet of natural gas that has been in storage as of the 3rd of April in recent years….the 38 billion cubic feet that were added to US natural gas storage this week was well above the consensus estimate from a survey of analysts by S&P Global Platts for a 25 billion cubic feet addition, and was also above the 25 billion cubic feet of natural gas that have been pulled from natural gas storage during the same week over the past 5 years, and way above the 6 billion cubic feet addition of natural gas to storage 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 April 3rd indicated that a big drop in our oil production and a drop in our oil imports was not enough to offset a near-record pullback in our oil refining, leaving us with a record surplus of oil to add to our stored commercial supplies, the twenty-second addition of oil to storage in the past thirty weeks….our imports of crude oil fell by an average of 173,000 barrels per day to an average of 5,874,000 barrels per day, after falling by an average of 70,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 322,000 barrels per day to 2,833,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,041,000 barrels of per day during the week ending April 3rd, 149,000 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 600,000 barrels per day to 12,400,000 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 15,441,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 13,634,000 barrels of crude per day during the week ending April 3rd, 1,263,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA’s surveys indicated that a record average of 2,186,000 barrels of oil per day were being added 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 361,000 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 (+361,000) 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….(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 6,144,000 barrels per day last week, now 8.4% less than the 6,709,000 barrel per day average that we were importing over the same four-week period last year….the 2,186,000 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 down by 600,000 barrels per day to 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was down by 600,000 barrels per day to 11,900,000 barrels per day, while a 16,000 barrel per day increase in Alaska’s oil production to 475,000 barrels per day had no impact on the rounded national total….last year’s US crude oil production for the week ending April 5th was rounded to 12,200,000 barrels per day, so this reporting week’s rounded oil production figure was still 1.6% above that of a year ago, and 47.1% 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 75.6% of their capacity in using 13,634,000 barrels of crude per day during the week ending April 3rd, down from 82.3% of capacity during the prior week, and the lowest capacity utilization rate since September 2008, when the aftermath of Hurricane Ike shut down Texas Gulf Coast refining….hence, the 13,634,000 barrels per day of oil that were refined this week were 15.3% fewer barrels than the 16,100,000 barrels of crude that were being processed daily during the week ending April 5th, 2019, when US refineries were operating at 87.5% of capacity, and also the fewest barrels refined in any week since February 18, 2011….

with the big drop in the amount of oil being refined, gasoline output from our refineries was much lower, decreasing by 1,638,000 barrels per day to a 35 year low of 5,818,000 barrels per day during the week ending April 3rd, after our refineries’ gasoline output had decreased by 1,502,000 barrels per day over the prior week….after those two big drops in gasoline output, our gasoline production was 42.8% lower than the 9,813,000 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 16,000 barrels per day to 4,982,000 barrels per day, after our distillates output had increased by 128,000 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 1.1% less than the 5,038,000 barrels of distillates per day that were being produced during the week ending April 5th, 2019….

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose for the 2nd time in 10 weeks and by the second most in history, rising by 10,497,000 barrels to 257,303,000 barrels during the week ending April 3rd, after our gasoline supplies had increased by 7,524,000 barrels over the prior week…our gasoline supplies increased this week because the amount of gasoline supplied to US markets decreased by 1,594,000 barrels per day to 5,065,000 barrels per day, indicating the lowest gasoline demand on record, while our exports of gasoline rose by 97,000 barrels per day to 770,000 barrels per day and our imports of gasoline fell by 243,000 barrels per day to 493,000 barrels per day….after this week’s big inventory increase, our gasoline supplies were 12.3% higher than last April 5th’s gasoline inventories of 229,129,000 barrels, and roughly 10% above the five year average of our gasoline supplies for this time of the year…

with the increase in our distillates production, our supplies of distillate fuels increased for the first time in 12 weeks and for the 6th time in 27 weeks, rising by 476,000 barrels to 122,724,000 barrels during the week ending April 3rd, after our distillates supplies had decreased by 2,194,000 barrels over the prior week….our distillates supplies rose this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 100,000 barrels per day to 3,807,000 barrels per day, and because our exports of distillates fell by 206,000 barrels per day to 1,293,000 barrels per day and because our imports of distillates rose by 58,000 barrels per day to 185,000 barrels per day….but even after this week’s inventory increase, our distillate supplies at the end of the week were still 4.2% below the 128,053,000 barrels of distillates that we had stored on April 5th, 2019, and about 12% below the five year average of distillates stocks for this time of the year…

finally, with the near-record pullback in our oil refining and the big drop in exports, our commercial supplies of crude oil in storage rose for the twenty-third time in forty weeks and for the thirty-third time in the past 52 weeks, increasing by a record 15,177,000 barrels, from 469,193,000 barrels on March 27th, 484,370,000 barrels on April 3rd, the largest increase on record….but even after 11 straight increases, our crude oil inventories were just 2% above the five-year average of crude oil supplies for this time of year, but 40.1% higher than the prior 5 year (2010 – 2014) average of crude oil stocks as of the first Friday in April , 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 from there….since our crude oil inventories have 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 April 3rd were 6.1% above the 456,550,000 barrels of oil we had in commercial storage on April 5th of 2019, and 13.0% above the 428,638,000 barrels of oil that we had in storage on April 6th of 2018, while at the same time remaining 9.2% below the 533,377,000 barrels of oil we had in commercial storage on April 7th of 2017…      

This Week’s Rig Count

the US rig count decreased for the 25th time in the past 30 weeks during the short week ending April 9th, and is now down 44.4% from the interim high at end of 2018 (note that because of the Good Friday holiday, this week’s rig count was released a day early and hence only covers six days)….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 62 rigs to 602 rigs this past week, which was the least rigs deployed since December 2, 2016, and hence is a 40 month low for the US rig count…that total was also down by 420 rigs from the 1022 rigs that were in use as of the April 12th report of 2019, and 1,327 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 58 rigs to 504 oil rigs this week, which was also the least oil rig activity in 40 months, 329 fewer oil rigs than were running a year ago, and less than a third of the rigs 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 96 natural gas rigs, which was the least number of natural gas rigs active since October 7th of 2016, and hence was a new 42 month low for natural gas drilling, down by 93 gas rigs from the 189 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..

the Gulf of Mexico rig count was unchanged at 18 rigs this week, with 17 of those rigs drilling for oil in Louisiana’s offshore waters and one drilling for oil offshore from Texas…that’s five less than the rig count in the Gulf a year ago, when 20 rigs were drilling offshore from Louisiana and three rigs were operating in Texas waters…there are no rigs operating offshore elsewhere at this time, nor were there a year ago, so the Gulf rig count is equivalent to the national rig count, just as it has been all winter…

the count of active horizontal drilling rigs decreased by 48 rigs to 545 horizontal rigs this week, which was the fewest horizontal rigs active since January 13th 2017, and hence is a 39 month low for horizontal drilling…it was also 344 fewer horizontal rigs than the 889 horizontal rigs that were in use in the US on April 12th 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 down by six to 35 directional rigs this week, and those were also down by 43 from the 78 directional rigs that were operating during the same week of last year….in addition, the vertical rig count was down by 8 to 22 vertical rigs this week, and those were down by 33 from the 55 vertical rigs that were in use on April 12th 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 April 9th, the second column shows the change in the number of working rigs between last week’s count (April 3rd) and this week’s (April 9th) count, the third column shows last week’s April 3rd 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 12th of April, 2019…    

April 10 2020 rig count summary

as you can see, this weeks basin totals indicate a decrease of 49 rigs, one more than the decrease of the horizontal rig count nationally, which thus means that a horizontal rig was added in a basin not tracked separately by Baker Hughes…to account for the 35 rig decrease in the Permian basin, we’ll again start in Texas, where we note that 28 rigs were pulled out of Texas Oil District 8, or the core Permian Delaware, while a rig was actually added in Texas Oil District 7C, or the southern Permian Midland…that means that the Permian in Texas saw a total reduction of 27 rigs, which means that the 7 rigs that were shut down in New Mexico had been drilling in the western Permian Delaware, and still leaves us a rig short of the 35 Permian rigs that were stacked this week…assuming those totals are accurate, it’s possible that a rig might have started up elsewhere in New Mexico, such as in the San Juan basin, while 8 Permian rigs were shut down in the state, or it’s also possible that one of the three rigs pulled out ofTexas Oil District 1 could have been in the Val Verde basin along the Rio Grande, an area shown to be in the easternmost Permian on some maps; either way, it’s a shift we hadn’t seen previously…

elsewhere in Texas, two rigs were pulled from Texas Oil District 2, one rig was removed from Texas Oil District 3, and two more rigs were stacked in Texas Oil District 4, which together with the District 1 rig losses would more than account for the 6 rigs pulled out of the Eagle Ford formation…Texas Oil District 10 had one rig stacked, accounting for the decrease in the Granite Wash basin, and Texas Oil District 6 was again down a rig, thus accounting for the Haynesville shale natural gas rig loss, while the 25 Haynesville shale rigs deployed in northwest Louisiana again remained unchanged…

in other states, the two rig loss in the Williston shale includes 1 rig from North Dakota and 1 rig from Montana, and the two rigs pulled out of the Niobrara chalk were most likely from Colorado, while the 2 rigs pulled out of the Cana Woodford are the only named basin rigs that came out of Oklahoma, so there was another rig shut down in a basin not tracked separately by Baker Hughes…in addition, rig cutbacks you see above in Alaska, California, Utah, and Wyoming all came out of basins that Baker Hughes doesn’t itemize…finally, to account for the decrease of four rigs seeking natural gas, we start with the Texas Haynesville rig and then add the rig pulled out of West Virginia’s Marcellus, and then find that the other two natural gas rigs​ ​were also removed from one of those “other basins” not tracked separately by Baker Hughes…

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