Nov 09, 2021

News From the Oil Patch: Higher winter heating bills on the way

Posted Nov 09, 2021 11:45 AM


Kansas Common crude at CHS in McPherson gained $2.50 on Friday and starts the week at $71.50 per barrel. That's down nearly three dollars from the beginning of the month, but it's more than $32 higher than at the beginning of the year.

Observers last week reported several signs of a resurgent Kansas oil patch. The Kansas Corporation Commission Web site shows 159 new intent-to-drill notices in October, the best monthly total so far this year. That brings the year-to-date total statewide to 1,027 intents, compared to just 469 by the end of October last year. There are eight new intents on file in Barton County, one in Ellis County, two in Russell County and five in Stafford County.

Independent Oil & Gas Service reported the tally of newly-spudded wells is up more than 146% over a year ago. The number of operators working in the state is up 35%. This week's Rig Count in Kansas shows 15 active rigs east of Wichita, down one, and 26 in Western Kansas, which is up two. Operators are about to spud a new well in Barton County and drilling is underway on a lease in Stafford County.

Kansas regulators approved 39 new drilling permits last week. That brings the total number of new Kansas drilling locations so far this year to 966 compared to just 392 a year ago. There are 28 new permits in eastern Kansas, and 11 west of Wichita, including two permits in Barton County, one in Russell County and three in Stafford County.

Independent Oil & Gas Service reports 33 newly-completed wells across Kansas, with 18 east of Wichita and one each in Ellis and Stafford counties among the 15 in Western Kansas. Operators have completed 753 wells so far this year compared to 719 through October of last year.

The operator of Kansas' largest refinery reported a year-over-year increase of 35% in net income for the fiscal year. CHS reported a big increase in earnings in its agriculture segment, but a decline among its refineries. In a statement, the company said improved refinery margins were more than offset by price increases for Canadian heavy crude, and by what the company called the exceptionally high cost of renewable energy tax credits.

The Kansas Geological Society recognized and named three new oil fields and one infield-wildcat discovery in Kansas last week. They are located in Gove, Haskell, Lane and Greeley counties. That makes 19 new fields identified so far this year, compared to 17 at this point last year.

The OPEC-Plus export group will stay the course, adding another 400,000 barrels per day to their output for December. Delegates on Thursday disregarded demands from President Biden for faster increases. According to Bloomberg, there is growing speculation the U.S. could soon tap the Strategic Petroleum Reserve in an effort to drive down prices. 

U.S. Oil-by-rail traffic was down last month, according to a report from the Association of American Railroads. The trade group says overall rail traffic was down 2.8% last month, but petroleum shipments were down 2,495 carloads, a 6.1% decline. Weekly oil-by-rail tallies across the U.S. were down from a year ago but slightly higher than last week's report. AAR reports 9,558 tanker carloads hauling petroleum for the week through October 30th, up 14 carloads from the week before but down 6.5% from a year ago. Canadian oil-by-rail traffic is down for the week but still nearly 14% higher than a year ago.

Baker Hughes reports 550 active rigs nationwide, an increase of six oil rigs. The count in Texas was up four rigs. Of the 550 active rigs being tracked this week, 492 are horizontal rigs, an increase of nine rigs. The number of active vertical drilling rigs was down four.

U.S. crude inventories increased by more than three million barrels last week to just over 434 million barrels. EIA says stockpiles are about six percent below the five year average for this time of year.

U.S. crude-oil production topped 11 million barrels per day for the sixth week in a row. The Energy Information Administration reports domestic output reached over 11.5 million barrels per day for the week through October 29th. That's an increase of 192,000 barrels per day from the week before, and up more than 1.1 million barrels per day over a year ago.

The government reported a drop in crude imports of over 83,000 barrels per day last week, at 6.2 million barrels per day. The four week average is nearly 15% higher than during the same four-week period last year.

Oil major BP now asserts that worldwide crude-oil demand has once again exceeded 100-million barrels a day, a consumption figure not seen since before the pandemic. Bloomberg reports the resurgent demand has stymied some efforts to curb emissions, pushed prices to multiyear highs, and threatens the world's economic recovery.

North Dakota's biggest operator will drop more than three billion dollars to acquire a huge tract in the Permian Basin of Texas and New Mexico. Continental Resources said in a statement the new drilling rights will help generate a half-billion dollars in free cash flow next year. Continental will pay Pioneer Natural Resources $3.25 billion for 92,000 net acres in the Delaware sub-region of the Permian. Bloomberg reports the record amount of free cash flow in the U.S. shale patch is driving a return to asset sales and corporate consolidation.

The government says you will spend more on heating bills this winter than you have in the last several years. The Energy Information Administration says the higher prices follow changes to energy supply and demand patterns during the pandemic. The increases will depend on the weather, and not all households will see increases. EIA's Winter Fuels Outlook predicts nearly half of US homes heated by natural gas will see their bills go up 30% or more. The report says 41% of homes with electrical heating will see increases of about six percent to their bills. Only about five percent of homes with propane heat, and about four percent of those using heating oil will see increases, but those will both be double-digit increases.