News from the Oil Patch: Crude prices tumble

By JOHN P. TRETBAR

The Kansas Independent Oil & Gas Association holds its 84th annual Convention & Expo beginning this weekend, Aug. 15 to 17, at Wichita's Century II Convention Center. Members of the Kansas Congressional delegation take part in a panel discussion on "The Changing Face of Energy Policy" on Aug 16 from 10-11 am. Sen. Roger Marshall, Rep. Ron Estes, Rep. Jake LaTurner, and Rep. Tracey Mann will weigh in with KIOGA President Edward Cross moderating. The keynote speaker is former U.S. Secretary of State Mike Pompeo, who addresses the membership luncheon on Monday, Aug. 16, from 12:30 to 2:00 pm. You can find more information, including registration and booth information, at KIOGA's website at (https://kioga.org/). 

Kansas Common crude at CHS in McPherson starts the week at $58.50 per barrel, after dropping 75 cents on Friday. Kansas prices are down nearly $6 per barrel from the first of the Month, but are nearly $20 per barrel higher than at the first of the year. 

Friday's settlement price for Nymex benchmark crude was $68.28 per barrel, down $3 from a week ago. Prices for both WTI and Brent Crude dropped 7 percent last week, marking the worst weekly price-performance since October. In midday trading Monday, the near-month contract for light sweet crude had dropped another $2 to $66.29 per barrel, a three percent dip for the day. The contract traded as low as $65 earlier in the session. Bank of America said COVID uncertainty remains the biggest challenge for the oil markets.

Not only are the Saudis raising production, they're raising prices. Bloomberg reports the world's largest crude-oil exporter is raising U.S. September prices by 10 to 20 cents a barrel. Prices in Asia are going up by anywhere from 20 to 60 cents per barrel.

Gas prices continue to rise. The auto club AAA says the monthly national average pump price went from $3.00 per gallon in May to $3.15 in July. The average on Monday was $3.19 per gallon, up more than a dollar from a year ago. The average across Kansas $2.92 per gallon, also up more than a dollar from August of 2020. 

Intent-to-drill filings in the state are approaching pre-pandemic levels. The Kansas Corporation Commission reports 90 new intent-to-drill notices filed across the Sunflower State last month, which brings the year-to-date total to 630 new intents. That's just shy of the 641 intents filed by the end of July 2019, and well ahead of the 111 notices filed by this time last year. There were four new intents filed in Barton County last month, one in Ellis County, one in Russell County and six in Stafford County.

Independent Oil & Gas Service reports a slight increase in Kansas drilling activity for the week. The Rig Count in Kansas shows nine active rigs east of Wichita, which is unchanged, and 25 in Western Kansas, which is up two rigs. Drilling continued on one lease in Russell County, and operators are about to spud a new well in Barton County, one in Ellis County, and two in Stafford County.

Baker Hughes reported 491 active drilling rigs across the US, an increase of two oil rigs. The count in Wyoming was up three rigs. Texas was down one, while Oklahoma and News Mexico were each up one.

Kansas regulators approved 18 new drilling permits for the week, 577 so far this year. There were seven new permits issued in eastern Kansas, and 11 west of Wichita, including one in Russell County and two in Stafford County.

Operators last week completed two wells in Ellis County and two in Russell County. Independent Oil & Gas Service reports 34 newly completed wells statewide, for a year-to-date total of 461.

U.S. crude inventories increased last week by nearly four million barrels. The Energy Information Administration reports domestic stockpiles of just over 439 million barrels, or about six percent below the five-year average for this time of year. EIA said gasoline inventories were down more than five million barrels, and are now about three percent below the five-year seasonal average.

The government said crude-oil production last week dropped by about 71,000 barrels per day compared to the week before. Domestic output averaged just over 11.17 million barrels per day for the week through July 20th. That's up slightly from the same week a year ago. 

EIA reported a slight decline in U.S. crude-oil imports last week to 6.4 million barrels per day. Average imports for the last four weeks are nearly 16% higher than the same four weeks a year ago.

The Association of American Railroads says total U.S. rail traffic in July was up slightly over a year ago, but the percentage increase was significantly lower than in other recent months. Total rail traffic was up 3.8 percent year-over-year. Oil-by-rail traffic in the U.S. last week was down for the week, but remains more than two percent higher than in the same period last year. AAR reports 10,289 petroleum tankers rolling the rails last week, down 241 tankers from the week before. Canadian oil-by-rail was also down for the week, but was 31% higher than the same week a year ago.

One energy consultant says a significant U.S. supply response to soaring prices is practically impossible before the first half of next year without a dramatic increase in drilling rigs. That's because tight oil operators in the major shale basins are running out of wells that are drilled but uncompleted. Rystad Energy's head of shale research says without DUCs, any increases in fracking will now require increases in drilling and thus increases in drilling rigs. In the Permian Basin, only about 1,550 horizontal DUCs remained by the end of June, a 37% decline from a year earlier. The Web site World Oil says the industry could see complete normalization of CUD inventories by this fall.

Energy consumption in the United States dropped to a 25-year low last year, driven mainly by the pandemic response. The Energy Information Administration reports average nationwide consumption of 18.1 million barrels of oil equivalent per day in 2020, the lowest level since 1995. EIA's Monthly Energy Review reports petroleum consumption decreased in every energy-consuming sector. Consumption dropped by a record 15% in the transportation sector.