Oct 19, 2021

News From the Oil Patch: Seven-year price records tumble

Posted Oct 19, 2021 10:15 AM

By JOHN P. TRETBAR

Crude prices—here in Kansas, across the country, and around the world—continue to set seven-year records. Kansas Common crude at CHS in McPherson starts the week at $72.50 per barrel after gaining a dollar on Friday. Kansas prices have gained more than $6 a barrel since the beginning of the month. Friday's price is the highest in McPherson since Oct. 16, 2014. 

U.S. crude futures rose slightly Monday morning, gaining eleven cents to $82.39 per barrel. The near-month contract for light sweet crude settled Friday at $82.28, topping $82 for the first time in seven years. Brent crude retreated slightly, dropping 13 cents to $84.73 per barrel, still the highest price in London in seven years. 

Based on the number of wells spudded, drilling activity in Kansas this year is up 80% over the same time a year ago. Independent Oil & Gas Service reports the number of operators exploring in Kansas is up 37% from a year ago.  The Rig Count in Kansas shows a slight uptick this week, with 23 active rigs in the western half of the state, up one rig. The rig count in eastern Kansas was unchanged at 15 active drilling rigs. Drilling was underway Friday on a lease in Barton County, one in Russell County, and one in Stafford County.

Baker Hughes reports 543 active drilling rigs nationally, an increase of 12 oil rigs. The count in the Gulf of Mexico increased by two rigs. Texas is up three, Oklahoma is up two, and New Mexico is down one for the week.

Kansas regulators approved 26 new drilling permits last week. Total new drilling locations approved statewide so far this year reached 845, nearly one-and-a-half times the total at this time last year. There are three new permits in Barton County and one in Stafford County.

Independent Oil & Gas Service reports operators completed nine new wells last week. That's 680 so far this year, which equals the number at this time last year.

The government reported domestic crude-oil production over 11 million barrels per day for the second week in a row. The Energy Information Administration says U.S. operators pumped 100,000 barrels per day more than they did a week ago, and a million barrels per day more than a year ago.

U.S. crude inventories increased last week by more than six million barrels. But as of October 8th stockpiles were about six percent below the five-year average for this time of year. Gasoline stockpiles are about two percent below the five year average. Imports dropped by one million barrels per day, but 22 percent higher than last year over the last four weeks.

Oil-by-rail shipments dropped more than eight percent last week across the U.S. compared to a year ago, but were up nearly 15% in Canada. The Association of American Railroads reports 9,395 tanker cars hauling U.S. petroleum in the week through October 9th, down nearly five hundred carloads from the week before. 

Surging crude prices are leading to surging demands on your personal budget this week. Gasoline prices reached their highest levels since October of 2014. The national average on Thursday was $3.29 a gallon, up a nickel on the week, up 12 cents on the month, and over a dollar and a dime higher than a year ago. The average across Kansas reached three dollars a gallon Thursday for the first time since 2014. Your 15-gallon fill-up will cost you nearly $15 more than a year ago at this time.

Crude production in the number-three crude producing state increased in August by nearly three percent. The North Dakota Department of Mineral Resources reported output of 1.1 million barrels per day. The statewide gas-capture rate improved to 92%, with just eight percent of produced natural gas either flared or vented. 

Oklahoma is proves once again that a robust oil patch translates into a robust state treasury. Government revenues in Oklahoma set records for September and for the year through September. State Treasurer Randy McDaniel said revenue from the state's oil patch increased by nearly 130 percent compared to a year earlier, due largely to rising prices. Gross production taxes collected in September reflect production in July, after prices had topped $72 for the first time in seven years. A year earlier, crude prices were just over $40 a barrel.

Despite surging crude-oil costs, U.S. refiners are seeing improving margins as U.S. gasoline and diesel consumption spike. Reuters reports profit margins on refined products have more than doubled from last year at this time.

Analysts continue to escalate their predictions of the impact rising natural-gas prices will have on global crude-oil demand. By some estimates, the increase in crude demand could reach two million barrels per day within the next few years. That's about five times the impact offered in similar estimates just a week ago. Power producers are increasingly switching from natural gas to oil, reversing a ten-year trend in the other direction.

The world's top oil exporter has been supplying full volumes to Asia, despite limiting its total output in order to comply with the OPEC-Plus agreement. Saudi Aramco is selling additional crude to at least three Asian buyers next month, and meeting full contracted volumes with four others, according to a Reuters report. The company also cut prices in Asia for the second month in a row, as it renews competition with other Middle East producers.

Canada, the world's fourth largest producer of crude oil, has set some lofty goals to curb carbon pollution, hoping for net-zero emissions in thirty years. Oil and gas companies are asking the Canadian government for a system of tax credits to pay for 75% of the cost of new carbon-capture facilities. According to Reuters, the Canadian Association of Petroleum Producers made the request in August.