Jun 01, 2022

News From the Oil Patch: Crude prices surge after EU embargo

Posted Jun 01, 2022 10:55 AM


Crude-oil prices surged on Tuesday, gaining nearly two percent in New York, where the benchmark contract was fetching more than $117 per barrel by lunchtime. Some transactions earlier in the day topped $119, approaching the peak back in March, when prices reached a 14-year high of $126.50. London Brent was trading over $123 per barrel Tuesday. In McPherson, prices also reached a nearly 14-year high. Kansas Common crude last week topped $105 per barrel for the first time since August of 2008.

Gasoline prices on Friday dropped a tenth of a cent per gallon nationwide, the first drop in the national average since April 24th, and a rarity going into a holiday weekend. The auto club Triple-A says national diesel prices also dropped slightly. By Tuesday, average prices for regular gasoline were up three cents to $4.62 per gallon, another all-time record high. Diesel prices were down slightly to $5.52 per gallon. The average across Kansas was $4.12 per gallon.

Moscow announced it will find other importers for its oil shortly after the world’s largest trading bloc agreed to impose a partial embargo by the end of the year. Leaders of the European Union agreed to an oil embargo on Russia over its invasion of Ukraine. The import ban would exempt oil shipments via pipeline, which make up about one-third of the EU's purchases from Russia. The embargo will be phased in over several months.

Despite international sanctions, Russia has netted $20 billion in oil-patch revenue each month this year. The International Energy Agency reports combined sales this year of eight million barrels per day of crude oil and petroleum products. 

About half of Russia's natural gas customers have complied with Vladimir Putin's demand to open accounts with a Russian bank and manage natural gas purchases in Russian currency. It's not clear yet if doing so violates current sanctions. Meanwhile Russian crude shipments continue at a rate of more than 3.4 million barrels per day. Bloomberg reported tankers heading to India, the Suez Canal and the Mediterranean during the week through May 20th.

Baker Hughes reported 727 active drilling rigs across the US. The Rotary Rig Count last week marked a drop of two oil rigs and an increase of one rig seeking natural gas. The counts in Texas and Oklahoma were each up one, while the count in Louisiana dropped by three rigs.

Independent Oil & Gas Service reports 518 wells spudded across Kansas so far this year, and 356 wells in various stages of drilling and completion. The Rig Count in Kansas was up two rigs to 23 in the eastern half of the state, and up one at 31 rigs in Western Kansas. Drilling was underway on two leases in Barton County and one in Stafford County.

Kansas operators completed 25 wells last week, five of them in eastern Kansas and 20 west of Wichita, including one in Ellis County. IOGSI says that makes 650 completed wells so far this year, compared to 300 at this point last year. Regulators in Kansas okayed 23 new drilling locations last week, approving 12 drilling permits east of Wichita and 13 in Western Kansas.

Last year, Kansas crude-oil output reached its lowest point on record, just shy of 28 million barrels for the year, or 76-thousand barrels per day. The latest report from the Kansas Geological Survey shows production in January of this year dipped even lower, to about 71-thousand barrels per day.

US crude inventories dropped by a million barrels to just under 420 million barrels, as of May 20th. The Energy Information Administration says that's about 14% below the five-year average for this time of year. Gasoline stockpiles were down half a million barrels, and are about eight percent below the five-year average for this time of year.

The government reported a slight dip in domestic crude production. In the week through May 20th, US operators pumped 11.86 million barrels per day, down 87-thousand barrels per day for the week. EIA reported US crude-oil imports of 6.5 million barrels per day last week, down about 82-thousand barrels per day from the week before. 

US oil-by-rail traffic last week was down more than nine percent from a year ago, but marked an increase of 702 tanker carloads week-over-week. The Association of American Railroads reports 9,805 tankers delivered petroleum and petroleum products in the week through May 21st. Canadian traffic was up more than 800 tanker carloads, and is nearly thirty percent ahead last year at this time.

An oil-patch trade group reports the state of Texas added another 5,200 jobs to its oil-patch exploration and production payroll from March to April. That brings the total to 190,400 jobs. The Texas Independent Producers and Royalty Owners says the April figure marks an increase of more than 26-thousand positions its count a year earlier.

A federal judge has now blocked a huge drilling program approved by the Trump Administration in western Colorado. US District Judge Marcia Krieger said she vacated previous agency approvals based on the agencies' own admission they had failed to follow environmental law in considering the permits. Gunnison Energy has already drilled the first well. The project involves 35 wells on five pads across 30-thousand acres of US Forest Service land near Gunnison, Colorado.

U.S. President Joe Biden has not ruled out using export restrictions to ease soaring domestic fuel prices. Energy Secretary Jennifer Granholm told reporters last week that, in her words, the president is not taking any tools off the table. Government tallies show the US exported around 8.6 million barrels per day of oil and refined products in 2021, slightly more than it imported.

Saudi Arabia’s oil exports in March reached their highest in at least six years, a billion dollars a day, up 123% over a year ago. Production in the kingdom rose to 10.3 million barrels a day in March, with Brent oil prices averaging $112 a barrel. 

As Texas officials hunt for financial firms hostile to the energy industry, Wall Street is bowing to the pressure in order to continue doing business with the state. Bloomberg has acquired the replies of twenty firms that were sent demand letters from the State Comptroller.  A bill approved last year denies state contracts to companies that restrict or prohibit doing business with energy companies. One small Dallas-based firm replied “Hell no.”