oil prices hit twenty week high; first 2024 injection of natural gas into storage puts inventories far above any mid-March level on record; natural gas supplies now seem likely to exceed storage capacity later this year; DUC well backlog at 5.2 months even as completions increase…
US oil prices finished virtually unchanged after hitting a 20 week high mid week as an early rally on bullish Chinese data following attacks on Russian refineries was reversed by the threat of a ceasefire in Gaza…after rising 3.9% to a four month high of $81.04 a barrel last week on bullish demand outlooks from the three major forecasting agencies, falling US oil inventories, and intensifying Ukrainian attacks against Russian oil refineries, the contract price for the benchmark US light sweet crude for April delivery continued higher early Monday, supported by weekend news of Ukraine’s attacks on Russian energy infrastructure, incjuding new fires at two refineries, then rallied solidly after Chinese data showed their exports of refined fuels had plummeted by double-digits from a year ago during January and February, suggesting a rebound in domestic fuel demand from their transportation and heavy industry sectors, and settled $1.68 or more than 2% higher at a new 4 month high of $82.72 a barrel as macro-economic data from China came in above expectations, Iraq reduced its oil exports to absorb its oversupply from prior months, and Ukrainian attacks on Russian refineries reduced the amount of distilled products output from Russia…oil prices rallied sharply higher for the second consecutive session on Tuesday as the market remained supported by the Ukrainian attacks against major Russian refineries, and settled 75 cents higher near a five month high at $83.47 a barrel as oil options had their least bearish tilt in months and key timespreads suggested traders were pricing in a tighter market….oil traded lower in overseas markets early Wednesday on a stronger US dollar and mixed inventory data from the American Petroleum Institute, then retreated further in the New York session as traders awaited the Fed’s interest rate policy announcement and took profits ahead of the April contract’s expiration at the close, and settled $1.79 lower at $81.68 a barrel as trading in that April oil contract expired, while the more actively traded oil contract for the benchmark US light sweet crude for May delivery settled $1.46 lower at $81.27 barrel…with markets now quoting the contract price for May oil, prices on that contract moved higher in overnight trading as the U.S. dollar weakened after Fed officials reaffirmed they saw three interest rate cuts coming later this year, but then moved lower early Thursday on reports of a UN draft resolution calling for a ceasefire in Gaza and as another round of profit-taking kicked in, and settled down 20 cents on the day at $81.27 a barrel pressured by weaker U.S. gasoline demand and the UN draft resolution calling for a ceasefire in Gaza…oil prices moved lower on Gazan ceasefire talks in Asian trading Friday, then fell 44 cents to $80.63 a barrel in the US session as the war in Europe and a shrinking U.S. rig count cushioned the drop, to leave oil prices less than 0.5% lower on the week, while the contract price for the US benchmark oil for May, which had closed the prior week at $80.58 a barrel, finished less than 0.1% higher..
meanwhile, natural gas prices inched higher for the first time in three weeks on a bit of chilly weather, despite the first addition to natural gas inventories of the year…after falling 8.3% to $1.655 per mmBTU last week on the smallest withdrawal of gas from storage of the winter and on ongoing weak demand for heating, the contract price for natural gas for April delivery opened seven cents above Friday’s last price on Monday morning on supportive weather forecasts for the coming week, but backed off after the opening rally to settle 4.8 cents higher at $1.703 per mmBTU on colder forecasts and lower output due to lower prices…natural gas prices opened 4 cents higher on Tuesday, as short-term forecasts calling for increased demand and production cuts continued to provide support, and prices settled 4.1 cents higher at $1.744 per mmBTU as bulls fed on near-term weather forecasts that would support a bump in demand and a pullback in the widening of natural gas storage surpluses….however, the April contract opened lower on Wednesday and slid 4.5 cents or more than 2% to settle at $1.699 per mmBTU on forecasts for less demand over the next two weeks than had been expected, and on news of a demand-destroying, extended outage of two liquefaction trains at Freeport LNG’s export plant in Texas….natural gas prices opened lower again on Thursday, knocked down overnight by softening forecasts and the expectation of a historically unseasonal storage injection, and settled 1.6 cents lower at $1.683 per mmBTU after the EIA reported a small injection into inventories for the week ended March 15….natural gas prices extended those losses into the week’s last session as a storage glut and a trimming of demand forecasts kept the pressure on the contract, which settled 2.4 cents lower on the day at $1.659 per mmBTU, but was still up 0.2% on the week…
The EIA’s natural gas storage report for the week ending March 15th indicated that the amount of working natural gas held in underground storage in the US increased for the first time this year, rising by 7 billion cubic feet to 2,332 billion cubic feet by the end of the week, which left our natural gas supplies 411 billion cubic feet, or 21.4% above the 1,921 billion cubic feet that were in storage on March 15th of last year, 678 billion cubic feet, or 41.0% more than the five-year average of 1,654 billion cubic feet of natural gas that were typically in working storage as of the 15th of March over the most recent five years, and the highest late winter inventory level for any March 15th in 30 years of EIA records…the 7 billion cubic foot injection into US natural gas working storage for the cited week was more than the 4 billion cubic foot injection into storage forecast by a Reuters survey of analysts, and it contrasts dramatically with the 68 billion cubic feet that were pulled from natural gas storage during the corresponding second week of March 2023, and also with the average 42 billion cubic feet withdrawal from natural gas storage that has been typical for the same late winter week over the past 5 years…
with the first injection of natural gas into storage for this year, we’ll include a copy of the natural gas storage graph that the EIA includes with this weekly report…in the graph below, the blue line tracks the amount of natural gas that we had in storage each week over the past two years, the dark grey line shows the prior 5 year average of the amount of natural gas in storage for any given date over the two years shown, while the grey shaded area across the graph encompasses all the storage levels recorded over the prior five year for each date that is covered on the chart…
as you can see by following the blue line, our natural gas inventories were not only below average, but at the lower bound of the five year average thru most of 2022, despite an explosion at the Freeport Texas liquefaction facility that shut that plant down for the 2nd half of that year, but then moved to above average when February 2023 turned warmer and demand for heating waned, and subsequently stayed above average since as US production stayed high in the face of modest demand…at the right end of the graph, the blue line represents the unusual storage trajectory for this winter, which has seen well above normal temperatures and hence below normal demand except for that couple weeks in mid-January…as a result, the blue line representing gas in storage has moved well above the normal range, and this week even turned higher about three weeks before normal…the storage levels represented over the last three weeks, ie, since the last week of February, are highest on record for each date, and have tracked at roughly double the 30 year average for dates in March…our underground storage capacity is roughly 4,000 billion cubic feet, so our current storage level of over 2,300 billion cubic feet means we enter the summer with only 1,700 billion cubic feet of empty space left, when a normal summer usually results in a build of between 2,000 and 2,400 billion cubic feet…hence, it now seems likely that we’ll run out of storage space for natural gas before the storage injection season winds down this Fall..
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 15th indicated that after a big jump in our oil exports, we needed to pull oil out of our stored commercial crude supplies for 2nd time in eight weeks and for the 8th time in the past 22 weeks, even after a sizable increase in oil supplies that the EIA could not account for….Our imports of crude oil rose by an average of 787,000 barrels per day to an average of 6,278,000 barrels per day, after falling by an average of 1,730,000 barrels per day to a fifty week low over the prior week, while our exports of crude oil jumped by 1,734,000 barrels per day to average 4,881,000 barrels per day, which hen used to offset imports meant that the net of our trade in oil worked out to a net import average of 1,397,000 barrels of oil per day during the week ending March 15th, 947,000 fewer barrels per day than the net of our imports minus our exports during the prior week. At the same time, transfers to our oil supply from Alaskan gas liquids, from natural gasoline, from condensate, and from unfinished oils averaged 386,000 barrels per day, while during the same week, production of crude from US wells was unchanged at 13,100,000 barrels per day. Hence our daily supply of oil from the net of our international trade in oil, from transfers, and from domestic well production appears to have averaged a rounded total of 14,883,000 barrels per day during the March 15th reporting week…
Meanwhile, US oil refineries reported they were processing an average of 15,785,000 barrels of crude per day during the week ending March 15th, an average of 127,000 more barrels per day than the amount of oil that our refineries reported they were processing during the prior week, while over the same period the EIA’s surveys indicated that a rounded average of 172,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US… So, based on that reported & estimated data, the crude oil figures provided by the EIA for the week ending March 15th appear to indicate that our total working supply of oil from storage, from net imports, from transfers, and from oilfield production was 730,000 barrels per day less than what our oil refineries reported they used during the week…To account for that difference between the apparent supply of oil and the apparent disposition of it, the EIA just plugged a +730,000] barrel per day figure onto line 16 of the weekly U.S. Petroleum Balance Sheet, in order to make the reported data for the supply of oil and for the consumption of it balance out, a fudge factor that they label in their footnotes as “unaccounted for crude oil”, thus suggesting there was an error or omission of that size in the week’s oil supply & demand figures that we have just transcribed….Moreover, since 305,000 barrels of oil demand per day could not be accounted for in last week’s EIA data, that means there was a 1,035,000 barrel per day difference between this week’s oil balance sheet error and the EIA’s crude oil balance sheet error from a week ago, and hence the changes to supply and demand from that week to this one that are indicated by this week’s report are off by that much, and therefore meaningless… But despite that, since most oil traders react to these weekly EIA reports as if they were accurate, and since these weekly figures therefore often drive oil pricing (as is obvious to anyone who watches oil prices), and hence decisions to drill or complete oil wells, we’ll continue to report this data just as it’s published, and just as it’s watched & believed to be reasonably reliable 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)….(note there is also an aging twitter thread from an EIA administrator addressing these ongoing weekly errors, and what they had hoped to do about it)
This week’s average 172,000 barrel per day decrease in our overall crude oil inventories came as an average of 279,000 barrels per day were being pulled out of our commercially available stocks of crude oil, while an average of 107,000 barrels per day were being added to our Strategic Petroleum Reserve, the fifteenth SPR increase in twenty-two weeks, following nearly continuous withdrawals over the prior 39 months… Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to 6,334,000 barrels per day last week, which was still 2.0% more than the 6,217,000 barrel per day average that we were importing over the same four-week period last year. This week’s crude oil production was reported to be unchanged at 13,100,000 barrels per day because the EIA’s rounded estimate of the output from wells in the lower 48 states was unchanged at 12,700,000 barrels per day, while Alaska’s oil production was 9,000 barrels per day higher at 441,000 barrels per day, but still added the same 400,000 barrels per day to the EIA’s rounded national total as it did last week…US crude oil production had reached a pre-pandemic high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week’s reported oil production figure matches that of our pre-pandemic production peak, and is also 35.1% above the pandemic low of 9,700,000 barrels per day that US oil production had fallen to during the third week of February of 2021.
US oil refineries were operating at 87.8% of their capacity while processing those 15,785,000 barrels of crude per day during the week ending March 15th, up from their 86.8% utilization rate of a week earlier, but still on the low side of the normal operating range for mid March, as refinery operations slowly recover from damage caused by the arctic cold that penetrated to the Gulf Coast in mid January… the 15,785,000 barrels per day of oil that were refined this week were 2.7% more than the 15,376,000 barrels of crude that were being processed daily during week ending March 17th of 2023 (after even worse refinery-freeze-off damage following Christmas 2022’s winter storm Elliot), but 2.6% less than the 16,198,000 barrels that were being refined during the prepandemic week ending March 15th, 2019, when our refinery utilization rate was at a closer to normal 88.9%..
Even with the increase in the amount of oil being refined this week, gasoline output from our refineries was somewhat lower, decreasing by 263,000 barrels per day to 9,648,000 barrels per day during the week ending March 15th, after our refineries’ gasoline output had increased by 285,000 barrels per day during the prior week. This week’s gasoline production was still 1.5% more than the 9,503,000 barrels of gasoline that were being produced daily over week ending March 3rd of last year, but 2.8% less than the gasoline production of 9,925,000 barrels per day during the prepandemic week ending March 15th, 2019….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 128,000 barrels per day to 4,690,000 barrels per day, after our distillates output had increased by 217,000 barrels per day during the prior week. After five straight production increases, our distillates output was 4.2% more than the 4,503,000 barrels of distillates that were being produced daily during the week ending March 17th of 2023, but still 4.7% less than the 4,923,000 barrels of distillates that were being produced daily during the week ending March 15th, 2019…
With this week’s decrease in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the seventh consecutive week, following five prior increases, decreasing by 3,310,000 barrels to 230,773,000 barrels during the week ending March 15th, after our gasoline inventories had decreased by 5,662,000 barrels during the prior week. Our gasoline supplies fell by less this week because the amount of gasoline supplied to US users fell by 235,000 barrels per day to 8,809,000 barrels per day, while our exports of gasoline rose by 34,000 barrels per day to 1,033,000 barrels per day, and while our imports of gasoline fell by 138,000 barrels per day to 496,000 barrels per day.…After thirty-three gasoline inventory withdrawals over the past fifty-two weeks, our gasoline supplies were still 0.5% above than last March 17th’s gasoline inventories of 229,598,000 barrels, but about 2% below the five year average of our gasoline supplies for this time of the year…
With this week’s increase in our distillates production, our supplies of distillate fuels rose for 2nd time in eight weeks, following eight consecutive prior increases, increasing by 624,000 barrels to 118,522,000 barrels over the week ending March 15th, after our distillates supplies had increased by 888,000 barrels during the prior week. Our distillates supplies rose by less this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 411,000 barrels per day to 3,786,000 barrels per day, while our exports of distillates fell by 246,000 barrels per day to 985,000 barrels per day and while our imports of distillates fell by 1,000 barrels per day to 170,000 barrels per day…Even with 29 inventory decreases over the past fifty-two weeks, our distillates supplies at the end of the week were 1.8% above the 116,402,000 barrels of distillates that we had in storage on March 17th of 2023, but about 5% below the five year average of our distillates inventories for this time of the year…
Finally, after this week’s big increase in our oil exports, our commercial supplies of crude oil in storage fell for the 11th time in twenty-six weeks and for the 30th time in the past year, decreasing by 1,952,000 barrels over the week, from 446,994,000 barrels on March 8th to 445,042,000 barrels on March 15th, after our commercial crude supplies had decreased by 1,536,000 barrels over the prior week… With this week’s decrease, our commercial crude oil inventories remained about 3% below the most recent five-year average of commercial oil supplies for this time of year, but were still 31.9% above the average of our available crude oil stocks as of the third weekend of March over the 5 years at the beginning of the past decade, with the big difference between those comparisons arising because it wasn’t until early 2015 that our oil inventories had first topped 400 million barrels. After our commercial crude oil inventories had jumped to record highs during the Covid lockdowns of the Spring of 2020, then jumped again after February 2021’s winter storm Uri froze off US Gulf Coast refining, but then fell in the wake of the Ukraine war, only to jump again following the Christmas 2022 refinery freeze offs, our commercial crude supplies as of this March 15th were still 7.5% less than the 481,180,000 barrels of oil left in commercial storage on March 17th of 2023, but 7.7% more than the 413,399,000 barrels of oil that we still had in storage on March 18th of 2022, while still 11.5% less than the 502,711,000 barrels of oil we had in commercial storage on March 19th of 2021, after refinery damage from winter storm Uri left even more crude oil remaining after 2020’s pandemic precautions had left a lot of oil unused…
This Week’s Rig Count
In lieu of a detailed report on the rig count, we are again just including a screenshot of the rig count summary from Baker Hughes…in the table below, the first column shows the active rig count as of March 22nd, the second column shows the change in the number of working rigs between last week’s count (March 15th) and this week’s (March 22nd) count, the third column shows last week’s March 15th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running on the Friday 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 period a year ago, which in this week’s case was the 24th of March, 2023…
DUC well report for February
Monday of the past week saw the release of the EIA’s Drilling Productivity Report for March, which included the EIA’s February data on drilled but uncompleted (DUC) oil and gas wells in the 7 most productive shale regions (click tab 3)….that data showed a decrease in uncompleted wells nationally for the 42nd time out of the past 45 months, even as both drilling of new wells and completions of drilled wells increased in February for the first time in 16 months. but remained well below the average pre-pandemic levels….for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 3 wells, falling from a revised 4,486 DUC wells in January to 4,483 DUC wells in February, which was also 17.5% fewer DUCs than the 5,435 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 862 wells were drilled in the seven regions that this report covers (representing 87% of all U.S. onshore drilling operations) during February, up by 7 from the 855 wells that were drilled in January, while 865 wells were completed and brought into production by fracking them, up from the 846 well completions seen in January, but down from the 906 completions seen during February of last year….at the February completion rate, the 4,483 drilled but uncompleted wells remaining at the end of the month represents a 5.2 month backlog of wells that have been drilled but are not yet fracked, up from the 5.1 month DUC well backlog of a month ago, and up from the eight year low of 4.6 months of January 2023, on a completion rate that is still more than 20% below 2019’s pre-pandemic average…
the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, was up by 11 from a month earlier, rising from 794 DUC wells at the end of January to 805 DUC wells at the end of January, as 83 new wells were drilled into the Marcellus and Utica shales during the month, while 72 of the already drilled wells in the region were fracked..
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