By JOHN P. TRETBAR
It’s being labeled the single worst-ever sudden disruption to the international oil market ever, triggering a big spike in both oil prices and Middle East tensions. Coordinated attacks on facilities in Saudi Arabia knocked out roughly five percent of global crude-oil supply. Saudi Aramco lost half of its production in the attacks on two facilities. According to Bloomberg, Saudi Aramco is supplying its customers with stockpiles and is activating idle offshore fields, but it’s not clear how quickly they can make up the difference.
Crude futures prices skyrocketed on Monday, gaining more than ten percent by mid-morning. The Nymex benchmark contract was up $5.53 to $60.38 per barrel. London Brent gained more than six dollars to $66.49.
Kansas Common crude at CHS in McPherson starts the week at $45 per barrel. That price was posted before news broke from the Middle East.
EIA forecasts U.S. crude oil production will average 12.2 million barrels per day this year, an increase of 1.2 million barrels per day from last year’s average. The government now forecasts an increase of another million barrels next year to a predicted annual average of 13.2 million barrels per day in 2020. The agency notes national production growth is slowing down in the oil patch, which the government said was caused by flat crude prices and a slowdown in productivity growth at the well head.
In it’s monthly Short Term Energy Outlook, EIA forecasts West Texas Intermediate prices will lag behind the international benchmark by $5.50 per barrel next year to average about $56.50 a barrel. EIA predicts Brent spot prices will average $62 a barrel next year.
U.S. crude oil production increased slightly last week, to 12.398 million barrels per day, according to the U.S. Energy Information Administration. That’s the second-highest weekly tally ever from EIA and slightly more than 100-thousand barrels per day short of the record set last month.
U.S. crude oil imports averaged 6.7 million barrels per day last week, down by 180,000 barrels per day from the previous week. The four-week average is nearly 12% less than the same four-week period last year.
The government reported a drop in domestic crude oil inventories of nearly seven million barrels. In its weekly summary, EIA said U.S. stockpiles dropped to 416.1 million barrels, or about two percent below the five-year seasonal average.
Total motor gasoline inventories decreased by 0.7 million barrels last week and are about 3% above the five year average for this time of year.
Independent Oil & Gas Service reported a 21% increase in its weekly rig count, with eight active drilling rigs in eastern Kansas, up four, and 27 west of Wichita, which is up two for the week. Operators were about to spud one new well in Stafford County and another in Barton County. Drilling was underway on leases in Barton and Russell counties.
Operators received 27 permits for drilling at new locations last week, 11 in eastern Kansas and 16 in the western half of the state. Barton, Ellis and Stafford counties each report one new permit. There are 691 new drilling permits filed so far this year.
Independent Oil & Gas Service reports 14 new well completions across Kansas for the week, 993 so far this year. There were two newly-completed wells east of Wichita, and 12 in Western Kansas, including dry holes in Barton and Stafford counties.
Texas regulators report a continuing decline in that state’s oil and gas production, the second monthly drop in a row. The Railroad Commission of Texas reports total crude oil production in the Lone Star State dipped to 97.5 million barrels or 3.25 million barrels per day. That’s down nearly 300,000 barrels per day from May’s total, and more than half a million barrels per day below last year’s June production. The state’s production of natural gas and condensate were also lower for the month and year-over-year.
The flaring of natural gas in the Permian Basin of Texas and New Mexico dropped during the first quarter of this year, but will reach an all-time high in the second quarter. The research firm Rystad Energy reports January through March saw the first decline in the natural gas burned off at the well head in the Permian since 2017. Adjusted first-quarter totals show oil producers flared an average of 613 million cubic feet per day of natural gas. But preliminary numbers show another dramatic increase in flaring during the second quarter to about 663 million cubic feet per day.
The top oil producer in New Mexico is selling off nearly one billion dollars worth of non-core assets. Reuters reports Concho Resources plans to use the money to lower its debt and buyback shares. The company said in a statement that the narrow strip of about 100,000 acres lies on the border of Concho’s operations in the Delaware area of the Permian Basin. Spur Energy Partners will shell out $925 million for the package, which officials say produces about 25,000 barrels of oil equivalent per day.
The North Dakota Supreme Court will soon decide a dispute between the state and its largest oil producer in a fight over emissions. Continental Resources is fighting what it calls an overly strict interpretation of regulations by the Department of Environmental Quality. Lawyers for the Oklahoma-based shale producer argue that some “fugitive emissions” are unavoidable. They assert that compliance would require “leakless technology” which does not exist. According to reporting by the Bismarck Tribune, the dispute began a few years ago, when regulators started using optical gas imaging cameras to inspect production facilities. Continental filed the lawsuit in district court a year ago. But a judge rejected the lawsuit saying it belonged in federal court. The company is seeking to reverse the lower court decision and remand the case back for further proceedings.
BP’s decision to divest upstream and midstream assets in Alaska completes the UK super-major’s exit from the region after several divestitures there in recent years. The research firm Rystad Energy calls that part of BP’s strategic shift to tight-oil assets in the U.S. Prior to the sale, BP was the largest operator in Alaska. But, Hilcorp, currently the number-three Alaska operator, will pay $5.6 billion to acquire BP’s stake. The transaction includes BP Exploration’s oil and gas interests in Alaska, and BP Pipelines, which owns part of the Trans Alaska Pipeline System. The deal will make Hilcorp the state’s largest operator, with about sixty percent of the state’s total production. Rystad Energy’s head of upstream research reported significant potential for increased output from Prudhoe Bay, a massive but maturing play that was once once the world’s largest oil field by production.
