May 21, 2020 5:19 PM

News From the Oil Patch: Kan. crude tops $20 a barrel

Posted May 21, 2020 5:19 PM

By JOHN P. TRETBAR

Kansas crude prices topped $20 a barrel for the first time in two months. Kansas Common crude at CHS in McPherson gained $2.25 Monday to $22 a barrel.

New numbers from the Kansas Geological Survey (KGS) confirm crude-oil production dropping in most of the counties in Kansas last year. One exception in our area is Stafford County, which increased production over the year before by more than 21,000 barrels. Barton County reports total production last year dropped more than 64,000 barrels from the year before. Ellis County's total dropped more than 76,000 barrels last year. 2019 production in Russell County was down 58,000 from the year before. 

KGS this week also released county production totals for the month of January, with the entire state and most counties reporting declines compared to January of last year. But Stafford County outproduced its total from a year earlier by about 4,000 barrels. 

Kansas regulators approved just three new drilling permits last week, two in Ellis County and one in Greeley County. That's 182 permits for drilling at new locations so far this year. Independent Oil & Gas Service reports just nine new well completions for the week, eight of them in Western Kansas. That's 360 completions so far this year.

Baker Hughes reported its sixth weekly decline in the U.S. Rotary Rig Count. Since the second week in March, the national count has dropped more than half, down 454 rigs. For the week ending May 15, the total was 339 active rigs, down 34 oil rigs and one gas rig. Texas reported just 150 active rigs, down 23 for the week. New Mexico and North Dakota were each down four.

Independent Oil & Gas Service reports just seven active rigs across Kansas. The count east of Wichita dropped to zero, down two rigs. In Western Kansas the count is down one to seven rigs. Drilling was underway on one lease in Ellis County last week.

The Energy Information Administration reported a slight draw-down in U.S. crude-oil inventories for the week ending May 8. That contradicts predictions earlier from S&P Global Platts and the American Petroleum Institute, which both predicted inventory increases. EIA said stockpiles were down 700,000 barrels to 531.5 million barrels.

The government said crude-oil imports dropped more than five percent, with the four-week average more than 26% below the same figure a year ago.

The government said weekly production in the U.S. dropped by more than 300,000 barrels per day to just over eleven point six million barrels per day.

A closely-watched government report predicts continuing decreases in liquid fuels demand for the first half of this year, because of travel restrictions and other disruptions to economic activity. The U.S. Energy Information Administration predicts prices this year will average just over half of the average last year. In its Short Term Energy Outlook, EIA predicts global demand will drop by more than eight million barrels per day this year, after dropping six percent in the first quarter. The report predicts continuing declines in U.S. production and continuing growth in global inventories.

Another state is considering intervention to reduce crude oil production, asking operators if producing oil at substantially reduced prices is wasting an important natural resource. Oklahoma has allowed such a declaration to protect leaseholders who shut down production. But in North Dakota, oil-patch representatives fear the state could move to curtail production. The industry overwhelmingly opposed the waste declaration, which could enable the state to order production cuts. The Grand Forks Herald reports there are a few companies that support the proposal, including Continental Resources, the biggest producer in the state.

March crude production in North Dakota dropped another 30,000 barrels a day. The Department of Mineral Resources reports monthly output of just over 1.4 million barrels per day. The state set a record for the captured volume of natural gas produced at oil wells, at two point seven million million-cubic-feet-per-day.

The government predicts a continuing decline in domestic shale-oil production. EIA says total U.S. shale output is now expected to drop by 197,000 barrels per day from May to June, after dropping 183,000 barrels per day the month before.

It appears current prices are high enough to alleviate many concerns over crude-oil storage. The government says storage use has flattened out, after a run on supertankers and inland storage facilities last month. EIA says our current net stockpiles represent 62% of working storage capacity for the week ending May 8. That's unchanged from the week before, but remains 16% higher than at the first of the year. Storage usage at Cushing, Oklahoma actually went down four percent.

Oil-by-rail in the U.S. dropped to 9,554 rail tanker cars last week, down nearly 27% compared to a year earlier. Total freight train traffic is down more than 22%.