May oil price rise is largest on record; crude supplies at 38 month high; rig count now 25% below prior all time low

oil prices rose for a fifth consecutive week after the Monday holiday as traders were encouraged by the apparent success of the OPEC+ production cuts….after rising 12.6% to $33.25 a barrel on a large drop in US crude supplies and on a continued easing of Covid-19 restrictions last week, the contract price of US light sweet crude for July delivery opened higher on Tuesday on growing confidence that oil producers had been following through on commitments to cut supplies and continued rising to post a $1.10 gain at $34.35 a barrel, as fuel demand picked up after the easing of coronavirus restrictions…however, oil prices tumbled out of the gate on Wednesday on reports that Russia was in favor of easing up on supply cuts as planned in July and then finished $1.54 lower at $32.81 a barrel after Trump said he was working on a strong response to China’s proposed security law in Hong Kong...prices slid for a second consecutive session on Thursday as oil industry data showed a steep and surprising build-up in crude stockpiles, but rebounded after the EIA reported a steady improvement in U.S. refining activity, which mitigated the surprise build in crude and diesel fuel supplies, as oil settled 90 cents higher at $33.71 a barrel…oil prices then opened lower and slid to $32.36 a barrel early Friday, but reversed course to finish the day $1.78 higher at $35.49 a barrel, after a spokesman for the president said that despite rising tensions, Trump was not pulling out of the U.S.-China trade deal…oil prices thus finished the week $2.24 or 6.7% higher and posted a record 88% increase for the month, almost doubling the 44.6% gain of September 1990, the second best month on record

natural gas prices also finished the week higher, but this week’s apparent price increase was due to the switch to quotes for July natural gas, which historically trades higher than June gas on anticipation of increased hot weather induced demand…after rising 5.2% to $1.731 per mmBTU on falling gas production last week, the contract price of natural gas for June delivery opened higher and rose 6.2 cents on Tuesday, on an ongoing slowing of gas output, despite falling exports and demand…however, US-China tensions further dented the outlook for LNG exports on Wednesday, as trading in the June natural gas contract expired 7.1 cents lower at $1.722 per mmBTU while the more actively traded contract for July natural gas, which had ended the prior week at $1.881 per mmBTU, fell 5.9 cents to $1.886 per mmBTU….July natural gas prices fell another 5.9 cents on Thursday on a bearish natural gas storage report, but then rose 2.2 cents on Friday to finish the week at a three week closing high of $1.849 per mmBTU on a forecast for stronger air-conditioning demand over the next two weeks…note that although the quoted price for natural gas finished 6.8% higher than last week, the price of the July natural gas contract actually ended 3.2 cents , or 1.7% lower than where it had ended the prior week… 

the natural gas storage report from the EIA for the week ending May 22nd indicated that the quantity of natural gas held in underground storage in the US rose by 109 billion cubic feet to 2,612 billion cubic feet by the end of the week, which left our gas supplies 778 billion cubic feet, or 42.2% higher than the 1,834 billion cubic feet that were in storage on May 22nd of last year, and 423 billion cubic feet, or 19.3% above the five-year average of 2,189 billion cubic feet of natural gas that has been in storage as of the 22nd of May in recent years….the 109 billion cubic feet that were added to US natural gas storage this week was more than the consensus forecast for a 101 billion cubic feet increase from a survey of analysts by S&P Global Platts, and was well above the 93 billion cubic feet of natural gas that have been added to natural gas storage during the same week over the past 5 years, but was a bit below the 110 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 May 22nd showed that due to a big increase in our oil imports, we had surplus oil to add to our stored commercial supplies of crude oil for the first time in three weeks, but for the 27th time in the past thirty-seven weeks….our imports of crude oil jumped by an average of 2,003,000 barrels per day to an average of 7,200,000 barrels per day, after falling by an average of 194,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 63,000 barrels per day to an average of 3,176,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,024,000 barrels of per day during the week ending May 22nd, 2,066,000 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 11,400,000 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 15,424,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 12,991,000 barrels of crude per day during the week ending May 22nd, 87,000 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 1,434,000 barrels of oil per day were being added to the supplies of oil stored in the US….based on that reported 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 999,000 barrels per day more than 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 (-999,000) 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 weekly EIA figures as gospel and since these numbers often 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 in the industry…(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 5,875,000 barrels per day last week, which was still 16.4% less than the 7,028,000 barrel per day average that we were importing over the same four-week period last year….the 1,434,000 barrel per day addition to our total crude inventories included 1,133,000 barrels per day that were added to our commercially available stocks of crude oil and 302,000 barrels per day that were being added to our Strategic Petroleum Reserve….this week’s crude oil production was reported to be down by 100,000 barrels per day to 11,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was down by 100,000 barrels per day to 11,000,000 barrels per day, while a 11,000 barrel per day decrease in Alaska’s oil production to 412,000 barrels per day was not enough to have an impact on the rounded national total….last year’s US crude oil production for the week ending May 24th was rounded to 12,300,000 barrels per day, so this reporting week’s rounded oil production figure was about 7.1% below that of a year ago, yet still 35.3% 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 71.3% of their capacity while using 12,991,000 barrels of crude per day during the week ending May 22nd, up from 69.4% of capacity during the prior week, but still among the lowest refinery utilization rates of the last thirty years…hence, the 12,991,000 barrels per day of oil that were refined this week were 22.5% fewer barrels than the 16,767,000 barrels of crude that were being processed daily during the week ending May 24th, 2019, when US refineries were operating at a seasonally normal 91.2% of capacity….

with the increase in the amount of oil being refined, gasoline output from our refineries was a bit higher, increasing by 5,000 barrels per day to 7,171,000 barrels per day during the week ending May 22nd, after our refineries’ gasoline output had decreased by 331,000 barrels per day over the prior week… since our gasoline production still remains near multi-year lows, this week’s gasoline output was 27.3% lower than the 9,863,000 barrels of gasoline that were being produced daily over the same week of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 24,000 barrels per day to 4,780,000 barrels per day, after our distillates output had decreased by 88,000 barrels per day over the prior week…after this week’s decrease in distillates output, our distillates’ production was 7.8% less than the 5,182,000 barrels of distillates per day that were being produced during the week ending May 24th, 2019….

with little change in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 4th time in 5 weeks and for the 12th time in 17 weeks, falling by 724,000 barrels to 255,000,000 barrels during the week ending May 22nd, after our gasoline supplies had increased by 2,830,000 barrels over the prior week…our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 463,000 barrels per day to 7,253,000 barrels per day, and because our imports of gasoline fell by 234,000 barrels per day to 292,000 barrels per day, while our exports of gasoline fell by 34,000 barrels per day to 210,000 barrels per day….even after this week’s inventory decrease, our gasoline supplies were still 10.4% higher than last May 24th’s gasoline inventories of 230,944,000 barrels, and roughly 10% above the five year average of our gasoline supplies for this time of the year…  

even with the decrease in our distillates production, our supplies of distillate fuels increased for the eighth time in 19 weeks and for the 13th time in 34 weeks, rising by 5,495,000 barrels to 164,327,000 barrels during the week ending May 22nd, after our distillates supplies had increased by 3,831,000 barrels over the prior week….our distillates supplies rose by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 402,000 barrels per day to 3,266,000 barrels per day, while our exports of distillates fell by 26,000 barrels per day to 885,000 barrels per day and while our imports of distillates fell by 167,000 barrels per day to 155,000 barrels per day….after this week’s inventory increase, our distillate supplies at the end of the week were 31.7% above the 126,415,000 barrels of distillates that we had stored on May 24th, 2019, and about 24% above the five year average of distillates stocks for this time of the year…

finally, with the big jump in our oil imports, our commercial supplies of crude oil in storage rose for the 16th time in eighteen weeks and for the thirty-third time in the past 52 weeks, increasing by 7,929,000 barrels, from 526,494,000 barrels on May 15th to a 38 month high of 534,422,000 barrels on May 22nd….with near steady increases including three record increases over past 8 weeks, our crude oil inventories are now 13% above the five-year average of crude oil supplies for this time of year, and over 50% above the prior 5 year (2010 – 2014) average of crude oil stocks for the 4th week of May, 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 never fell back….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 May 22nd were 12.2% above the 476,493,000 barrels of oil we had in commercial storage on May 24th of 2019, 23.0% above the 434,512,000 barrels of oil that we had in storage on May 25th of 2018, and 4.8% above the 509,912,000 barrels of oil we had in commercial storage on May 26th of 2017…  

furthermore, if we check the total of our commercial oil supplies and the stockpiles of all the refined product made from oil, we find those supplies have just increased by 14,865,000 barrels to a record high of 1,414,785,000 barrels, 10.5% more than the 1,280,243,000 barrel total of the same week a year ago…   

This Week’s Rig Count

the US rig count fell for the 12th week in a row during the week ending May 29th, and is now down by 62% over that twelve week period….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 17 rigs to 301 rigs this past week, which was the fewest rigs deployed in Baker Hughes records going back to 1940 and 103 fewer rigs than the prior all time low, also down by 683 rigs from the 984 rigs that were in use as of the May 31st report of 2019, and 1,628 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 15 rigs to 222 oil rigs this week, after falling by 21 oil rigs the prior week, leaving oil rig activity at its lowest since June 26, 2009, which was also 578 fewer oil rigs than were running a year ago, and less than a seventh of 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 was down by 2 to 77 natural gas rigs, which was the least natural gas rigs running in at least 80 years. down by 107 natural gas rigs from the 184 natural gas rigs that were drilling a year ago, and less than a twentieth of 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 12 rigs this week, with all of those Gulf rigs drilling for oil in Louisiana’s offshore waters…that’s eleven fewer rigs 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 equal to the national rig count, just as it has been since the onset of this past winter…

the count of active horizontal drilling rigs decreased by 14 rigs to 271 horizontal rigs this week, which was the fewest horizontal rigs active since May 5th, 2006, and hence is a new 14 year low for horizontal drilling…it was also 591 fewer horizontal rigs than the 862 horizontal rigs that were in use in the US on May 31st of last year, and less than a fifth of the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count was down by 1 to 7 vertical rigs this week, and those were down by 45 from the 52 vertical rigs that were operating during the same week of last year…in addition, the directional rig count decreased by 2 to 23 directional rigs this week, and those were also down by 47 from the 70 directional rigs that were in use on May 31st 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 May 29th, the second column shows the change in the number of working rigs between last week’s count (May 22nd) and this week’s (May 29th) count, the third column shows last week’s May 22nd 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 31st of May, 2019…    

May 29 2020 rig count summary

strangely, this weeks basin totals show a decrease of 16 rigs, which is 2 more than the number of horizontal rigs removed nationally this week, which would suggest that two horizontal drilling rigs would have been started up in “other” shale basins not tracked separately by Baker Hughes…it’s also possible that one or more of the rigs targeting a shale basin was not horizontal, considering that the vertical and directional rigs changes do no seem to be accounted for ….checking the rig losses in the Texas part of Permian basin, we find that 12 rigs were pulled out of Texas Oil District 8, while the rig count in other Texas Permian basins remained unchanged…since the overall Permian rig total was down by 14 rigs, that means that the 2 rigs that were shut down in New Mexico must have been drilling in the western Permian Delaware, to account for the national Permian basin reduction of 14 rigs…elsewhere in Texas, a rig was added in the panhandle Texas Oil District 10, which we would normally figure to be a Granite Wash rig, but that basin shows no change this week…in other states, the two rigs that were pulled out of North Dakota had been drilling for oil in the Williston basin, home of the Bakken shale, while the two rigs that were pulled out of Pennsylvania had been drilling for natural gas in the Marcellus…offsetting those, however, a new natural gas rig started up in Ohio’s Utica, as did a natural gas rig start drilling in Oklahoma’s Arkoma Woodford…to account for the 2 natural gas rig loss nationally, Baker Hughes shows 2 natural gas rigs removed from “other” basins they don’t track separately…with no evidence of any other change in activity elsewhere, we would have to guess those “other” rigs probably had been drilling in Oklahoma and California…


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