Oil prices rose last week while natural gas prices fell, but pricing for the later was complicated by the Wednesday expiration of the contract for November delivery of gas, meaning that as of Wednesday afternoon the quoted price for natural gas was for the higher priced contract for December delivery.  More on that in a second, but oil prices fell from $44.60 a barrel last week to a six week low of $43.20 a barrel by the Tuesday close on news that plans to sell at least 58 million barrels of crude oil from our strategic petroleum reserve, starting in 2018, were included in the budget and debt ceiling deal reached between the white house and congress early Monday.  The stupidity of announcing an unnecessary oil sale at a loss after prices had fallen 60% notwithstanding, oil prices jumped back up on news of a modest inventory increase on Wednesday, then extended those gains when an industry group reported that oil stocks fell at the Cushing Oklahoma oil hub, and closed the week at $46.59 a barrel, up more than $2 on the week.

Meanwhile, the price of natural gas for delivery in November, which had closed last week down 6.4%, at a three year low of $2.286 per mmBTU, fell nearly 10% more on Monday, its biggest one-day decline since February 2014, on forecasts of continuing warmer weather.  It closed the day at $2.062 mmBTU, briefly sliding below $2, which had it held would have been a record low.  Then, after rising above $2.10 on Tuesday, the November contract price fell 3.6 cents to $2.056 per million BTU before trading on the contract expired Wednesday morning.  The quoted price for natural gas then became the contract price for delivery in December, which was off about six cents on the day to $2.302 mmBTU.  December gas prices then fell to $2.257 on Thursday before finally steadying and recouping some of the loss, to close the week at $2.322 per mmBTU. So even though the quoted price for gas was about 3 cents higher than a week earlier, the price now quoted is for the typically more expensive December delivery, the contract for which was down 4 cents from the beginning of the week..

3rd Quarter Reports from the Fracking Patch

The past week has seen the release of the first batch of 3rd quarter fracking earnings reports, mostly from the major oil & gas companies, with a few independent frackers also reporting, so by taking a look at how they did over this July thru September period, which included two months after oil prices had fallen below $50 a barrel, we should be able to tell whether their losses are becoming severe enough to shut them down or not.  Understand that the vertically integrated major oil companies, who have downstream oil refining and product marketing operations, are likely to see that side of their business even more profitable when oil prices are lower; in fact, some are experiencing record profit margins on the refining part of their business.  However, the financial situation for independent drillers, whose profitability is directly related to the wellhead price they receive for oil and gas, has been quite tenuous; nearly two dozen frackers have already filed for bankruptcy already this year, and if oil and gas prices hold at current levels, it's doubtful many drillers without other operations can survive..

Of the major oil companies reporting this week, Exxon saw its 3rd quarter profits fall by nearly half from the year ago level, as the $4.24 billion they earned in the 3rd quarter wastheir worst 3rd quarter in 12 years.  That drop was despite the fact that profits of their refining operations doubled to $2 billion, while their exploration and exploitation business profits fell from $5.1 billion to $1.4 billion on a 2.3% increase in output.  Reporting the same day, Chevron logged 3rd quarter profits of $2 billion, 64% lower than a year earlier, on 37% lower revenues; they were saved from worse results by record refining margins, for which California drivers paid the price.  Chevron has been cutting costs, which means they've been cutting people; three months ago, they announced layoffs of 1,500 globally; with Friday's earning report, they announced they'd be cutting up to 7,000 more jobs, or 11 percent of their global workforce, and that they'd sell off $5 to $10 billion in assets by the end of 2017, in addition to the $15 billion of assets they'd announced divestiture plans for earlier this year...

On Thursday, Royal Dutch Shell reported a huge third quarter loss of $7.4 billion, which included charges of $7.9 billion, including $2.6 billion for their cancelled drilling project offshore of Alaska and $2 billion related to the decision this week to pull out of their tar sands operations.  That loss was down from profits of $5.3 billion in the third quarter last year, but wasn't enough to interrupt their dividend or interfere with their purchase of BG (British Gas).  Luckily for them, the administration cancelled their arctic leases, so at least they won't have to keep paying on Alaska operations they now know to be hopeless.  Earlier in the week,BP had reported profits of $1.8 billion, 40% lower than last year's $3 billion and said they planned an additional $3 to $5 billion of asset sales going forward.  BP had reported a 2nd quarter loss of $6.3 billion related to the Gulf oil spill, and said they plan to balance their cashflows by 2017 based on $60 a barrel oil...

In contrast with the oil majors that have a large refining and retail presence, ConocoPhillips, which had refocused its business on exploration, production and distribution of oil, reported a third quarter net loss of $1.07 billion, their worst quarterly results in 6 years, compared with third-quarter 2014 earnings of $2.7 billion.  At the same time, they announced they would further cut their 2015 capital spending budget, to $10.2 billion from $11.0 billion, and exit all their deepwater exploration projects by 2017.  In addition, Occidental Petroleum, the fourth-largest U.S. oil producer, reported a third-quarter loss of $2.61 billion, after reporting a profit of $1.21 billion in the 3rd quarter of last year.  Simultaneous with their earnings statement, they announced they'd be shutting down and pulling out of their operations in the North Dakota oil patch, to concentrate their capital outlays on their core Texas shale holdings.  Meanwhile, Marathon Oil, with a large presence in the Eagle Ford, became the first major shale producer to cut their dividend, slashing it from 21 cents to a token 5 cents per share, after they reported 3rd quarter profits of $948 million, compared with $672 million in the same period a year ago, largely from the profitable results of their Speedway retail gas station chain...

Others reporting this week included Hess Corporation, who reported a third-quarter loss of $279 million, compared to earnings of nearly $1 billion a year earlier; Anadarko Petroleum, who reported a third-quarter net loss of $2.24 billion, compared to a profit of $1.09 billion a year earlier; Murphy Oil, who reported a third quarter loss of $1,595 million on revenue of $714.9 million in the period; Whiting Petroleum, the largest oil producer operating in North Dakota, who reported a net loss of $1.87 billion, compared with a net income of $158 million last year; Pennsylvania based Range Resources, who lost $301 million in the quarter vs profits of $146 million in the same period a year ago; Cabot Oil & Gas, who reported a third-quarter loss of $2.2 million, after reporting net income of $85 million in the same period a year earlier, and Pittsburgh based EQT Corp, who reported third quarter net income of $40.8 million, mostly from hedging operations, compared to third quarter 2014 earnings of $98.6 million. Excluding the profits from derivatives trading, EQT reported an adjusted net loss of $50.2 million for the quarter...

There were two companies that didn't report earnings this week.  Denver based American Eagle Energy and Tulsa based Samson Resources, both working shale plays in the Bakken of North Dakota, both filed for Chapter 11 bankruptcy, both announcing plans to sell off their North Dakota assets in an attempt to pay off some of their debts.  Samson Resources apparently hopes to reorganize and emerge as a viable operator; American Eagle "could not be reached" for comment.  Between June and September, 10 oil and gas companies working in North Dakota's Bakken oil patch have filed for bankruptcy; a total of 19 have filed in the last year.  As of Tuesday, North Dakota sweet crude was selling for about $36 a barrel, more than $7 a barrel below the US benchmark price.  With few pipelines in place, most Bakken crude must be shipped by rail, adding to its costs...

This Week’s Oil Data from the EIA

The weekly stats from the Energy Information Administration showed that our oil production rose a bit, our imports fell a lot, and our refineries used more crude, which combined to lower the amount of surplus that had to be stored.  US field production of crude oil rose by 16,000 barrels a day, from 9,096,000 barrels per day during the week ending October 16th to 9,112,000 barrels per day during the week ending October 23nd, about 1.6% higher than the same week a year ago, but still in the same narrow range that it's been in over the last 8 weeks.  Meanwhile, our crude oil imports, the other primary source of domestic supply, fell by 439,000 barrels per day from last week, but at 7,032,000 barrels per day during the week ending the 23rd was only 1.0% below the import rate of the 4th week of October last year.  Checking the 4 week average of imports carried in the weekly Petroleum Status Report (62 pp pdf), we find that U.S. crude oil imports averaged 7.2 million barrels per day over the last 4 weeks, 3.8% below the same 4 weeks last year, so neither our production nor imports is that much off the pace of last year, before OPEC announced they would leave open the spigots.

Meanwhile, crude oil used by US refineries averaged 15,616,000 barrels per day during the week ending October 23, 2015, 271,000 barrels per day more than the week before, as our refineries operated at 87.6% of capacity in the current week, up from 86.4% of their operable capacity the prior week, and up from 86.6% of capacity in the 4th week of October last year.  Gasoline production increased to an average of 9,703,000 barrels per day, and distillate fuel production was also up, averaging 4.9 million barrels per day.  Nonetheless, our ending gasoline inventories fell, from 219,784,000 barrels last week to 218,647,000 barrels this week, but they still remain above the upper limit of the average range for this time of year, while distillate inventories are in the middle of the average range for this time of year, and propane/propylene inventories, which were unchanged last week, are still well above the upper limit of the average range we’ve ever had stored at this time of year.

So, essentially, the combination of lower imports and greater usage led to a drop in the widely watched amount of crude oil that we added to storage this past week.  US stocks of crude oil in storage, not counting the government's Strategic Petroleum Reserve, rose to 479,963,000 barrels as of October 23rd, up 3,376,000 barrels from 476,587,000 barrels as of October 16th.  While that's still quite a substantial inventory build, it was down from the more than 8 million barrels we added last week, hence the market's relief.   But we're still up nearly 26 million barrels from 5 weeks ago, and we still have 26.4% more oil in storage than we had in the 4th week of October a year ago..  That's also the most oil we ever had stored anytime in October in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...

Latest Rig Counts

Also supporting the price of oil this week was the falling number of rigs drilling for it, as some traders still see a relationship between drilling and production, despite the fact that our active rig count is down by more than 60% from a year ago while our production of oil is still inching up.  Baker Hughes reported that their count of rigs targeting oil was down by 16 to 578 as of October 30th, while their count of rigs drilling for natural gas was up by 4 to 197.   That's the ninth week in a row that oil rigs have been down, and they're now down by 1,004 from last's year's 1582 active oil rigs.  On the other hand, working gas rigs have now been up 3 weeks in a row, but they're still down by 149 from the year ago total of 346...

2 of the rigs pulled out this week had been operating in the Gulf, so the Gulf of Mexico count is back down to 32, and down from 51 a year ago.  We also managed to get rid of 14 rigs designed to drill horizontally, leaving the horizontal rig count at 577, down from the 1353 horizontal rigs that were in use at the end of October a year ago.  Net vertical drilling rigs, on the other hand, increased by 3 to 112, but that's still below the year ago 365.  Also, one directional rig was also taken out of service this week, leaving 86, down from 211 a year earlier..

The rig counts from the major shale basins leave us a mystery as to where those 14 horizontal rigs were pulled from, however, because the major shale basins only show a loss of 4 rigs.  2 of those came from the Eagle Ford of south Texas, which is now down to 75 rigs, and down from 218 a year ago.  The Haynesville of Louisiana and Texas also idled a rig; they now have 25, down from the 41 rigs working a year ago, as did the Utica of Ohio and the Williston of North Dakota.  The former is down to 21 rigs, and down from 46 a year ago, while the latter is down to 63, and down from 192 rigs a year ago..  Meanwhile, one rig was added in the Granite Wash, and at 13 that Texas panhandle field is still down from 59 a year ago...

Among the primary oil producing states, Texas, with 7 less rigs, saw the greatest decline, but they still have 339 rigs working, down from 901 a year ago.  Oklahoma also shed 6 rigs; they now have 84, down from 208 at the last weekend of October last year.  Louisiana idled a net two rigs, as both the Gulf rigs were registered to that state, although they also saw a southern land rig shut down and one rig set up on an inland lake; at 71 rigs, they're down from 112 a year earlier.  Three states saw their count drop by one: North Dakota, Ohio, and West Virginia.  North Dakota now has 62 active rigs, down from 180 a year ago, Ohio has 20, down from 42 a year ago, and West Virginia has 16, down from 34 last year at this time.  Meanwhile, 2 rigs were added in both Kansas and New Mexico, where they now have 9 and 42 respectively, down from 26 and 100 a year ago.  In addition, Alaska also added a rig, and at 13 rigs, they're up from 8 rigs a year ago, and the only state to see a year over year increase..

Note: the above was first posted at Focus on Fracking