distillates demand falls to 28 year low, distillates supplies rise to 37 year high

oil prices rose for a sixth straight week to close at a 3 month high this week on improving US economic data and on hopes that OPEC would announce an extension of their production cuts at a meeting rescheduled for Saturday….after rising 6.7% to $35.49 a barrel last week on the apparent success of the OPEC+ production cuts, the contract price of US light sweet crude for July delivery opened lower on Monday as oil traders hedged bets in advance of the possible OPEC+ meeting this week to discuss whether to extend  production cuts beyond June​,​ but steadied to finish down just 5 cents at $35.44 a barrel as rising U.S.-China tensions weighed on sentiment even in the face of reports that OPEC and Russia were close to a deal on extending output cuts…oil opened higher and continued rising through Tuesday on reports that Saudi Arabia and Russia were close to inking a two-month extension of the current oil production cuts through September 1st and finished $1.37 higher at $36.81 a barrel as economic activity began to recover after the easing of coronavirus lockdownsoil prices​ then​ erased most of Tuesday’s gains early on Wednesday on doubts that the OPEC meeting would go ahead as planned, but rallied late iin the session to finish 48 cents higher at $37.29 a barrel as prices were supported by a reported drawdown of U.S. crude inventoriesoil prices were little changed on Thursday as investors awaited a decision from crude producers on whether to extend their record output cuts and settled 12 cents higher $37.41 a barrel…oil prices ​spiked higher early on Friday after an unexpected drop in the US jobless rate and then rallied to a $2.14 increase at $39.55 a barrel on Opec’s decision to bring forward to Saturday their discussion of extended output cuts, thus finishing the week more than 11% higher, with both US and international prices finishing at their highest level since March 6th

Meanwhile, natural gas prices finished the week lower as traders watched the daily changes in natural gas output and US LNG exports​ for supply & demand clues​… after slipping 3.2 cents or 1.7% to $1.849 per mmBTU last week on falling demand for LNG, the contract price of natural gas for July delivery opened lower on Monday despite forecasts for warmer weather and higher air conditioning demand and tumbled to a 4% loss at $1.774 per MMBTU, as US LNG exports continued to drop in the face of record low gas prices in Europe and Asia…natural gas traded in a narrow range on Tuesday and finished three-tenths of a cent higher, and then rose 4.4 cents to $1.821 per mmBTU on Wednesday on improving supply and demand balances, as traders watched a tropical storm that could disrupt Gulf Coast production and as LNG exports edged up with higher gas prices in Europe…natural gas ended little changed at $1.822 per mmBTU on Thursday as rising LNG exports offset a smaller-than-expected weekly storage build and an increase in natural gas output, but then fell back 4 cents to end the week 3.6% lower at $1.782 per mmBTU on forecasts for milder weather and lower air conditioning demand through mid-June.

the natural gas storage report from the EIA for the week ending May 29th indicated that the quantity of natural gas held in underground storage in the US rose by 102 billion cubic feet to 2,714 billion cubic feet by the end of the week, which left our gas supplies 762 billion cubic feet, or 39.0% higher than the 1,952 billion cubic feet that were in storage on May 29th of last year, and 422 billion cubic feet, or 18.4% above the five-year average of 2,292 billion cubic feet of natural gas that has been in storage as of the 29th of May in recent years….the 102 billion cubic feet that were added to US natural gas storage this week was less than the consensus forecast for a 111 billion cubic feet increase from a survey of analysts by S&P Global Platts, while it was close to the average 103 billion cubic feet of natural gas that have been added to natural gas storage during the same week over the past 5 years and was somewhat below the 118 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 29th showed that due to a drop our oil imports, a decrease in crude production, an increase in refining, and a big addition to the SPR, we had to withdraw oil from our stored commercial supplies of crude oil for the third time in four weeks, and for the 11th time in the past thirty-eight weeks….our imports of crude oil fell by an average of 1,021,000 barrels per day to an average of 6,179,000 barrels per day, after risng by an average of 2,003,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 382,000 barrels per day to an average of 2,794,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,385,000 barrels of per day during the week ending May 29th, 639,000 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 fell by 200,000 barrels per day to 11,200,000 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 14,585,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 13,307,000 barrels of crude per day during the week ending May 29th, 316,000 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 a net of 278,000 barrels of oil per day were being added to the supplies of oil stored in the US….based on that reported & estimated 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 1,001,000 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 (-1,001,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the ​average ​daily supply of oil and the ​average​ daily​ ​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 usually 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 5,992,000 barrels per day last week, which was still 18.3% less than the 7,336,000 barrel per day average that we were importing over the same four-week period last year….the 278,000 barrel per day net addition to our total crude inventories included a record 574,000 barrels per day that were added to our Strategic Petroleum Reserve, which was partly offset by a 297,000 barrels per day withdrawal from our commercially available stocks of crude oil ….this week’s crude oil production was reported to be down by 200,000 barrels per day to 11,200,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was down by 200,000 barrels per day to 10,800,000 barrels per day, while a 32,000 barrel per day decrease in Alaska’s oil production to 380,000 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 31st was rounded to 12,400,000 barrels per day, so this reporting week’s rounded oil production figure was about 9.7% below that of a year ago, yet still 32.9% 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 71.8% of their capacity while using 13,307,000 barrels of crude per day during the week ending May 29th, up from 71.3% of capacity during the prior week, but still among the lowest refinery utilization rates of the last thirty years…hence, the 13,307,000 barrels per day of oil that were refined this week were 21.4% fewer barrels than the 16,938,000 barrels of crude that were being processed daily during the week ending May 31st, 2019, when US refineries were operating at 91.8% of capacity….

with the increase in the amount of oil being refined, gasoline output from our refineries was quite a bit higher, increasing by 608,000 barrels per day to 7,779,000 barrels per day during the week ending May 29th, after our refineries’ gasoline output had increased by 5,000 barrels per day over the prior week… however, since our gasoline production i​s still recovering from ​a multi-year low, this week’s gasoline output was still 22.6% lower than the 10,049,000 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 66,000 barrels per day to 4,714,000 barrels per day, after our distillates output had decreased by 24,000 barrels per day over the prior week…after this week’s decrease in distillates output, our distillates’ production was 12.8% less than the 5,404,000 barrels of distillates per day that were being produced during the week ending May 31st, 2019….

with the big increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the 2nd time in 6 weeks and for the 6th time in 18 weeks, rising by 2,795,000 barrels to 257,795,000 barrels during the week ending May 29th, after our gasoline supplies had decreased by 724,000 barrels over the prior week…our gasoline supplies also increased this week because our imports of gasoline rose by 490,000 barrels per day to 782,000 barrels per day, while our exports of gasoline rose by 53,000 barrels per day to 263,000 barrels per day, while the amount of gasoline supplied to US markets increased by 296,000 barrels per day to 7,549,000 barrels per day ….with this week’s inventory increase, our gasoline supplies were 10.1% higher than last May 31st’s gasoline inventories of 234,149,000 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 ninth time in 20 weeks and for the 14th time in 35 weeks, rising by 9,934,000 barrels to a 37 year high of 174,261,000 barrels during the week ending May 29th, after our distillates supplies had increased by 5,495,000 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 548,000 barrels per day to a 28 year low of 2,718,000 barrels per day, and because our exports of distillates fell by 135,000 barrels per day to 740,000 barrels per day, while our imports of distillates rose by 8,000 barrels per day to 163,000 barrels per day….after this week’s inventory increase, our distillate supplies at the end of the week were 34.7% above the 129,372,000 barrels of distillates that we had stored on May 31st, 2019, and about 28% above the five year average of distillates stocks for this time of the year…

finally, with the big drop our oil imports, the big addition to the SPR​, ​the increase in refining, and ​the drop in production​, our commercial supplies of crude oil in storage fell for the 3rd time in nineteen weeks and for the twentieth time in the past 52 weeks, decreasing by 2,077,000 barrels, from a 38 month high of 534,422,000 barrels on May 22nd to 532,345,000 barrels on May 29th….but with near steady increases this year and three record increases over past 9 weeks, our commercial crude oil inventories are still 12% above the five-year average of crude oil supplies for this time of year, and nearly 50% above the prior 5 year (2010 – 2014) average of crude oil stocks for the end 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 ​continued rising….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 29th were 10.2% above the 483,264,000 barrels of oil we had in commercial storage on May 31st of 2019, 21.9% above the 436,584,000 barrels of oil that we had in storage on June 1st of 2018, and 3.7% above the 513,207,000 barrels of oil we had in commercial storage on June 2nd 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 15,144,000 barrels to a record high of 1,429,929,000 barrels, 9.7% more than the 1,303,043,000 barrel total of the same week a year ago… 

This Week’s Rig Count

the US rig count fell for the 13th week in a row during the week ending June 5th, and is now down by 64.2% over that t​hirteen week period….Baker Hughes reported that the total count of rotary rigs running in the US decreased by 17 rigs to 284 rigs this past week, which was the fewest rigs deployed in Baker Hughes records going back to 1940 and 120 fewer rigs than the prior all time low, also down by 691 rigs from the 975 rigs that were in use as of the June 7th report of 2019, and 1,645 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 ​their first attempt to put US shale out of business….

the number of rigs drilling for oil decreased by 16 rigs to 208 oil rigs this week, after falling by 15 oil rigs the prior week, leaving oil rig activity at its lowest since June 19, 2009, which was also 583 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 1 to 76 natural gas rigs, which was the least natural gas rigs running in at least 80 years​, down by 110 natural gas rigs from the 186 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 up by one to 13 rigs this week, with all of those Gulf rigs drilling for oil in Louisiana’s offshore waters…that’s still ten fewer rigs than the rig count in the Gulf a year ago, when 21 rigs were drilling offshore from Louisiana and two rigs were operating in Texas waters…there are no rigs operating off ​other ​US shores at this time, nor were there a year ago, so the Gulf of Mexico 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 18 rigs to 253 horizontal rigs this week, which was the fewest horizontal rigs active since April 21st, 2006, and hence is a new 14 year low for horizontal drilling…it was also 602 fewer horizontal rigs than the 855 horizontal rigs that were in use in the US on June 7th of last year, and less than a fifth of the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the vertical rig count was unchanged at 7 vertical rigs this week, but those were down by 39 from the 46 vertical rigs that were operating during the same week of last year…on the other hand, the directional rig count increased by 1 to 24 directional rigs this week, but those were still down by 50 from the 74 directional rigs that were in use on June 7th 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 June 5th, the second column shows the change in the number of working rigs between last week’s count (May 29th) and this week’s (June 5th) count, the third column shows last week’s May 29th 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 7th of June, 2019…    

June 5 2020 rig count summary

the basin totals above show a net decrease of 18 rigs, matching the number of horizontal rigs removed nationally this week, so hopefully the above table accounts for all the changes in activity this week has brought us….checking the rig losses in the Texas part of Permian basin, we find that 4 rigs were pulled out of Texas Oil District 8, or the core Permian Delaware, while the rig count in other Texas Permian basin districts remained unchanged…since the overall Permian rig total was down by 7 rigs, that means that the 3 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 7 rigs…​.​elsewhere in Texas, 5 rigs were pulled out of Texas Oil District 1, and 5 rigs were pulled out of Texas Oil District 2, while a rig was added in Texas Oil District 3, and another rig was added in Texas Oil District 4…together, the changes in those districts account for the 9 rig reduction in Eagle Ford shale, which stretches in a relatively narrow band through the southeastern part of the state and thus touches on those 4 Oil Districts, and also account​ for ​the additon of a rig in that region that doesn’t target the Eagle Ford, possibly the directional ​drilling ​rig that was added this week…in other states, Oklahoma saw a one rig reduction despite the rig added in the Cana Woodford because rigs were concurrently pulled out of the Ardmore Woodford and the Granite Wash, which borders on the Texas panhandle, while Louisiana saw a one rig reduction despite the addition of the rig in the Gulf of Mexico because rigs were concurrently pulled out of the Haynesville shale in the northwest and from a non-shale basin in the southern part of the state…that Haynesville shale rig, and the rig removed from the Granite Wash basin, were the only natural gas rig reductions this week, while a rig taretting natural gas started drilling in one of those “other” basins not tracked separately by Baker Hughes at the same time…

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