News From the Oil Patch: Crude prices caught in the crossfire

By JOHN P. TRETBAR

Between the war in Ukraine to the war on COVID-19, crude prices are caught in the crossfire. Futures prices dropped more than six percent on Monday after the Chinese financial hub of Shanghai launched a lockdown to curb rising COVID-19 infections. The markets have been up and down many times since the Russian invasion of Ukraine. Last week, London Brent prices rose nearly 12 percent for the week, while WTI was up almost nine percent.

After settling at nearly $114 per barrel on Friday, New York prices at lunchtime Monday were down more than six dollars to $107.89 per barrel.

Prices in Kansas are up nine dollars from a week ago. Kansas Common crude at CHS in McPherson starts the week just over $104 per barrel after gaining two dollars per barrel on Friday.

A weekly government reports showed a sizable decline in US crude inventories. The Energy Information Administration reports US stockpiles totaled 413.4 million barrels on March 18th. That's down 2.5 million barrels. US inventories are about 13% below the five-year average for this time of year.

EIA said total motor gasoline inventories decreased by 2.9 million barrels last week and are equal to the five year average for this time of year. After hitting a record $4.33 per gallon on March 1th, AAA said the national average price for regular gasoline dropped a dime in two weeks to $4.23. The average across Kansas on Thursday (3/24) was $3.77 per gallon, almost a dime cheaper than a week earlier.

In the three weeks following the invasion of Ukraine, gasoline and diesel prices rose in tandem faster than they ever have. The Energy Information Administration reports U.S. regular retail gasoline prices across all formulations increased 22% from February 24th, the start of the invasion, to March 14th. During the same period, retail diesel fuel prices increased 29%. Both have since retreated from record highs. EIA says retail gasoline and diesel fuel prices have never increased at a rate that fast over a three-week period since they began keeping track, which for gasoline was in August 1990, and for diesel March 1994.

The government said US crude-oil imports rose 92,000 barrels per day last week, topping out at 6.5 million barrels per day. Over the last four weeks, imports averaged 6.2 million barrels per day, or about nine percent more than the same four-week period a year ago.

The Energy Information Administration reports crude-oil production last week dipped by about 10,000 barrels per day from the week before.  Operators pumped 11.631 million barrels per day in the week through March 18th, according to EIA. 

Oil-by-rail for the week is down more than 21% from a year ago, amid a broader decline in total rail traffic. The Association of American Railroads reports 9,181 carloads hauling petroleum and petroleum products in the week through March 19th.

The weekly Rotary Rig Count from Baker Hughes was up seven oil rigs to 670 nationwide. The count in Texas was up six rigs.

The spike in Kansas drilling activity continues, with 261 new wells drilled so far this year, more than double the tally at this time last year. The Rig Count in Kansas was down 6% for the week. Independent Oil & Gas Service reports 19 active drilling rigs in the eastern half of the state, which is up one, and 24 in Western Kansas, which is down four. Drilling was underway Friday on two leases in Barton County and one in Ellis County, and they're about to spud a new well in Russell County. Friday's search showed 24 wells in our area drilled to total depth but not yet completed.

Operators completed 40 new wells last week including one in Barton County and one in Russell County. Independent Oil & Gas Service reports 24 newly completed wells in eastern Kansas and 16 west of Wichita. Operators in Kansas have completed 374 wells so far this year.

Kansas regulators gave their okay to 31 new drilling locations last week, 336 so far this year. There are 15 new permits in the eastern half of the state and 16 in Western Kansas, including seven in Barton County and one in Stafford County.

Crude-oil production in the number-three crude-producing state dropped by five percent in January. The North Dakota Department of Mineral Resources reports output dropped from over 1.1 million barrels per day in December to just over a million barrels per day in January. The latest monthly tally shows the state's operators continue to capture more than 93% of the natural gas produced at their oil wells, but the gas capture rate went down from 94% the month before.

The oil patch in Texas added more than 5,000 jobs last month, the biggest leap in over a decade and the second highest in thirty years.  The Texas Oil & Gas Association reported the production sector employed 181,900 people in Texas last month, up 16 percent compared to September 2020, the lowest point of the employment slump brought on by the pandemic.

The Biden Administration says it will resume energy lease sales on federal lands, after an appeals judge allowed the government to use a new metric for calculating the potential social costs of greenhouse gas emissions. The policy is designed to slow climate change by making such emissions more expensive.

Russian President Vladimir Putin ordered that any natural-gas contracts with "unfriendly" countries, meaning those that are imposing sanctions, must be settled in Russian rubles rather than foreign currencies. Western nations are hoping to ease the strain of energy sanctions in Europe, by offering Liquefied Natural Gas shipments to replace Russian natural gas.

Saudi Arabia has resumed active talks with Beijing to price some of its oil sales to China in the Chinese unit of currency, the yuan. The move would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia. The Wall Street Journal reports the talks with China over currency and pricing have been going on for six years but have accelerated this year. The Saudis are reportedly unhappy with decades-old U.S. security commitments to defend the kingdom.