By JOHN P. TRETBAR
Analysts point to a lot of factors to explain Monday's rout in the oil-futures market. The May contract for light sweet crude on the Nymex expires Tuesday. There are increasing doubts about worldwide crude-oil demand amid the ongoing pandemic response. And some analysts suggest the U.S. may not have enough storage to handle the widening glut.
The near-month contract for West Texas Intermediate crude was down nearly 41% in Monday morning trading at $10.80 per barrel. Cash crude prices in the Sunflower State reached their lowest level since Oct. 1973. Kansas Common crude starts the week at $8.50 per barrel at CHS in McPherson, after dropping $1.50 a barrel on Friday.
Baker Hughes reported another huge drop in its weekly Rotary Rig Count. The 529 active rigs nationwide mark a drop of 66 oil rigs and seven seeking natural gas. The count in Texas was down 40 rigs, New Mexico was down nine and North Dakota was down seven. The count in Canada is down five at thirty active drilling rigs.
The weekly Rig Count in Kansas from Independent Oil & Gas Service noted another decline, with two active rigs east of Wichita, down one, and three in Western Kansas, down two for the week.
Independent Oil & Gas Service reports just seven new well-completions for the week across the state, all of them west of Wichita, including one in Barton County and one in Stafford County. The running total so far this year is 319 completed wells statewide, 13 in Barton County, 18 in Ellis County, seven in Russell County and nine in Stafford County.
There are just four new drilling permits across Kansas this week, two in Cowley County, one in Gove County, and one in Thomas County.
The volume of oil stored on tanker ships continues to grow amid a crash in demand and a spike in supply. Lloyd's List Maritime reports almost 150 million barrels of crude oil stored in tankers by the second week in April. Shipping analysts suggest additional floating storage will be required if demand continues to crash.
The government is adding a new weekly metric for those tracking the ups and downs of the oil and gas industry. The Energy Information Administration now tracks how much U.S. crude-oil storage capacity is being used. That metric is gaining in importance as traders increasingly store crude oil, in hopes of selling it at better prices later on. As of Friday, April 3, U.S. producers, traders and refiners were using 54% of domestic storage capacity. That's an increase of two percent over a week earlier, and seven percent higher than what was reported in late January.
EIA said U.S. production declined last week. Total production for the week ending April 10 was 12.277 million barrels per day, down 104,000 barrels per day from the week before. Crude-oil inventories increased by nearly twenty million barrels nationwide, to top 500 million barrels for the first time in recent memory. U.S. crude-oil imports were down another one million barrels per day. The four-week average is more than eight percent below the four-week average last year at this time. Gasoline inventories increased nearly five million barrels, and are about 12% above the five-year seasonal average.
The government reduced its predictions of shale-oil production in the U.S. The Energy Information Administration reduced its outlook for April shale production by 366,000 barrels per day and predicted May output would drop even more.
The latest numbers show U.S. oil-by-rail totals down more than 21 percent for the week ending April 11. The Association of American Railroads reports a nearly 22% decline in total freight traffic, with petroleum deliveries dropping to 10,568 carloads. Canada's oil-by-rail traffic was down more than 20%. AAR Senior Vice President John Gray says the pandemic is affecting firms in every industry, and when rail customers suffer a drop in demand, their need for transportation services declines as well.
Top oil firms lined up to voice their opposition after a surprising turn in Texas: the state's top energy regulator is considering placing limits on oil and gas production, a process called proration. Executives from Permian Basin producers told the Railroad Commission of Texas in a meeting last week that they should leave the imbalance between supply and demand to the open market. Two of the state's top producers, Pioneer Natural Resources and Parsley Energy said temporary supply regulations can protect oil companies from a catastrophic crash, and that without regulation prices will continue to drop. Many observers are shocked the commission even considered proration, given the board's longstanding support for the oil patch. Commissioner Ryan Sitton said in a statement that none of the commissioners likes the idea of government control of private enterprise, but also acknowledged that "these unprecedented times" require them to consider "all options to bring stability to the industry."
Crude oil output from the nation's number-two producing state increased by more than 20,000 barrels per day in February. North Dakota's Department of Mineral Resources reported a preliminary production total of more than 42 million barrels for the month, an average of just over 1.45 million barrels per day. If operators sold it back in February they got more than $37 a barrel, but as of this week, North Dakota Light Sweet crude is down to $13.50 a barrel. Officials said the state's woeful flaring rate got a little better in February, as operators captured an all-time high 87% of the natural gas produced. The state reported sixty new drilling permits last month, but no new permits for seismic exploration activity.
In a closely-watched monthly report, the OPEC cartel reduced its worldwide demand-growth forecast for this year to negative territory, to show a first-ever annual demand drop of about 6.8 million [["six point eight million"]] barrels per day. Oil demand predictions for the second quarter of 2020 have been revised downward by almost 12 million barrels per day, with 60% of the losses coming from transportation fuels, primarily gasoline and jet fuel. OPEC's so called Basket Price dropped to its lowest monthly value since September of 2003. The Monthly Oil Market Report notes that all three major crude-oil benchmarks moved into a "super contango" in March. Current U.S. prices for May delivery are about one half the price for delivery a year from now.