By JOHN P. TRETBAR
Oil prices plunged to multi-year lows on Monday as tensions between Russia and Saudi Arabia compound the issues of reduced demand brought on by the virus epidemic. The crude selloff began last week when OPEC failed to strike a new production-cut deal with Russia. That reportedly prompted Saudi Arabia to slash its prices and ramp up production. The Saudis cut export prices by nearly ten percent, and plan to boost oil output next month to well above 10 million barrels a day. The effects were quickly reflected in the sharpest price decline since at least 1991. The global oil benchmark plummeted as low as $31.02 a barrel, and Goldman Sachs Group warned prices could drop to near $20 a barrel.
By lunchtime Monday, the U.S. benchmark had lost another 16%, down $6.71 to $34.57 a barrel. That's the lowest price for WTI on the Nymex since March of 2016. London Brent gave 18%, dropping nearly eight dollars at $37.28 a barrel.
Kansas crude prices followed the national and international benchmarks on Friday, dropping 13%, or nearly five dollars. Prices at CHS in McPherson start the week at $31.50 a barrel, the lowest price since 2004. Expect that price to drop more to reflect Monday's declines in the broader markets.
Rig Counts across Kansas continue to decline. Independent Oil & Gas Service reports three active drilling rigs in eastern Kansas, which is down one from last week, and eleven west of Wichita, which is down two. The weekly report shows a three-rig increase in the total number of INactive Rigs, including two that have now been cold stacked. Operators are about to spud a new well in Russell County.
Baker Hughes reports 793 active drilling rigs nationwide, marking an increase of four oil rigs. The count in Texas was up three, while Oklahoma and North Dakota were each down one. Canada was down 37 at 203 rigs.
Regulators last week approved 25 permits for drilling at new locations, 12 east of Wichita and 13 in Western Kansas, including three in Stafford County. Independent Oil & Gas Service reports eight newly-completed wells for the week, all of them in Western Kansas, including one new well-completion in Barton County.
The government reported a spike in U.S. crude-oil inventories last week. EIA said domestic stockpiles increased 800,000 barrels to 441.1 million barrels for the week ending February 28. That's about four percent below the five-year seasonal average.
Imports increased by 21,000 barrels per day to 6.2 million barrels per day. The four-week average is about two-and-a-half percent less than a year ago.
Weekly crude oil production in the United States averaged over 13 million barrels per day for the first time ever. EIA said U.S. operators pumped 13,174,000 barrels per day during the week ending February 28.
Ed Cross of the Kansas Independent Oil & Gas Association said Kansas production is dropping while U.S. production is going up because most of the production here comes from conventional vertical wells, while much of the increase in production nationally comes from unconventional, horizontal plays.
The latest numbers show last year was among the two worst years ever for crude production in Kansas. In an email interview, Cross tells us his records show last year's Kansas production total was slightly higher than in 2002. The main driver for more Kansas activity and improved production, Cross said, is higher crude prices, which averaged a bearish $47 a barrel last year. Cross said low prices and the threat of recession and economic slowdown made Kansas operators very cautious and conservative. He says many companies in the Sunflower State are restructuring their capital expense budgets to become more specialized in their core producing assets. Cross adds that operators here are working to improve operational ef iciencies and optimize supply-chain relationships.
The U.S. Energy Information Administration, which gets its numbers from state agencies including the Kansas Geological Survey, reports production of just over 2.7 million barrels in December, bringing the EIA's annual published total for last year to 32.98 million barrels (a little over 90,000 barrels per day). That would mark the lowest annual total in 70 years of state record-keeping. According to data posted on the KGS Web site, the annual total in 2019 is about a million barrels less than the previous low posted in 2002.
Oil-by-rail traffic last week jumped more than twelve percent. The Association of American Railroads reports a nearly four percent increase in the year-to-date cumulative total for oil tanker traffic. Canada traffic increased 25% over the same week last year, and the running total so far this year is up more than 26%. The report for the full month of February shows traffic increases in 10 of the 20 carload commodity categories tracked by the AAR each month. These included petroleum and petroleum products, which were up more than seven percent. Combined totals for all categories were down eight percent from a year earlier.