Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, December 10, 2017

US oil supplies drop to 25 month low, distillates production at a record high…

oil prices ended lower for the second week in a row this week, but still remain well above the average break-even prices for most US shale basins, and hence remain at a level that will only encourage further exploitation...after falling a mere 47 cents from a two and a half year high last week, contracts to buy or sell US light crude in January fell 89 cents to end at $57.47 a barrel on Monday, on concerns that higher prices would encourage growth of domestic crude production, as evidenced by the growing US rig count...oil prices then recouped some of those losses on Tuesday, rising 15 cents to $57.62 a barrel, in anticipation that the weekly reports from the API and EIA would show another sizable drop in U.S. crude supplies....while both reports did show decreases in excess of 5 million barrels of crude oil supplies, both reports simultaneously showed surprisingly sharp increases in U.S. inventories of refined fuels, with gasoline supplies seeing the largest increase since January, which thus precipitated a selloff in crude contracts, with oil prices ending Wednesday down $1.66, or 3%, at a three week low of $55.96 a barrel...oil prices then returned to the plus side on Thursday, rising 73 cents, or 1.3%, to settle at $56.69 a barrel, with the rally attributed to a threatened strike in Nigeria, which prompted traders who had sold oil they didn't own on Wednesday to cover their trades and buy it back...oil prices then rose another 67 cents on Friday, on reports of a jump in Chinese crude imports and a Platts report that OPEC production had hit a 6 month low in November, as oil still closed the week 1.7% lower than last week at $57.36 a barrel....


The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending December 1st, showed that our oil imports remained lower than recent weeks, likely due to the Keystone pipeline shutdown, while our refineries were using oil at a record pace for this time of year, and therefore they again found it necessary to pull quite a bit of oil out of storage to meet their needs...our imports of crude oil fell by an average of 127,000 barrels per day to an average of 7,202,000 barrels per day during the week, while our exports of crude oil fell by an average of 54,000 barrels per day to 1,358,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 5,844,000 barrels of per day during the week, 73,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 25,000 barrels per day to another record high of 9,707,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,551,000 barrels per day during the reporting week...

during the same week, US oil refineries were using 17,195,000 barrels of crude per day, 192,000 barrels per day more than they used during the prior week, while at the same time 1,151,000 barrels of oil per day were being withdrawn from oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 493,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+493,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,576,000 barrels per day, 4.9% less than the 7,963,000 barrels per day average imported over the same four-week period last year....the 1,151,000 barrel per day decrease in our total crude inventories included an 801,000 barrel per day withdrawal from our commercial stocks of crude oil and a 350,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago...this week's 25,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 5,000 barrels per day increase in output from Alaska....the 9,682,000 barrels of crude per day that were produced by US wells during the week ending December 1st was yet another new record high for US output, 10.7% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.6% more than the 8,697,000 barrels per day of oil that were being produced during the during the equivalent week a year ago...

US oil refineries were operating at 93.8% of their capacity in using those 17,195,000 barrels of crude per day, up from 92.6% of capacity the prior week, thus operating a bit above their normal pace for this time of year...while the 17,195,000 barrels of oil that were refined this week were still 3.0% less than the record 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were at a record level for any week outside of the summer months, 4.7% more than the 16,417,000 barrels of crude per day that were being processed during week ending December 2nd, 2016, when refineries were operating at 90.4% of capacity, and 11.7% above the 10-year seasonal average for this time of the year...

even with increase in the amount of oil refined, gasoline output from our refineries was 4.5% lower, decreasing by 464,000 barrels per day to 9,758,000 barrels per day during the week ending December 1st, the second significant drop in a row...that meant out gasoline production was 1.6% lower than the 9,913,000 barrels of gasoline that were being produced daily during the week ending December 2nd of last year...on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 118,000 barrels per day to a record high of 5,402,000 barrels per day, eclipsing the record set two weeks ago...that was also 6.3% more than the 5,083,000 barrels per day of distillates that were being produced during the the same week a year ago....   

even with the drop in our gasoline production, our gasoline inventories at the end of the week rose by 678,000 barrels to 220,882,000 barrels by December 1st, the largest jump in gasoline supplies since the third week in January of this year...that was as our exports of gasoline fell by 319,000 barrels per day from last week's record high to 894,000 barrels per day, while our imports of gasoline fell by 38,000 barrels per day to 488,000 barrels per day, and as our domestic consumption of gasoline rose by 171,000 barrels per day to 8,895,000 barrels per day at the same time...however, with significant gasoline supply withdrawals in 15 out of the last 25 weeks, our gasoline inventories are still down by 8.9% from their pre-summer high of 242,444,000 barrels, and down by 3.8% from last December 2nd's level of 229,548,000 barrels, even as they are still roughly 3.4% above the 10 year average of gasoline supplies for this time of the year...  

meanwhile, with our distillates production at a record high, our supplies of distillate fuels rose by 1,667,000 barrels to 129,446,000 barrels over the week ending December 1st, in just the fourth increase in distillates supply in fourteen weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 145,000 barrels per day to 3,737,000 barrels per day, and as our exports of distillates rose by 442,000 barrels per day to 1,572,000 barrels per day, while our imports of distillates rose by 25,000 barrels per day to 145,000 barrels per day...even after this week’s increase, our distillate inventories were still 17.4% lower at the end of the week than the 156,697,000 barrels that we had stored on December 2, 2016, and 5.1% lower than the 10 year average of distillates stocks at this time of the year

finally, with oil imports remaining below normal while refining continued at a seasonal record pace, our commercial crude oil inventories fell for the 28th time in the past 35 weeks, decreasing by 5,160,000 barrels, from 453,713,000 barrels on November 24th to 448,103,000 barrels on December 1st....since that's now the least amount of oil we've had in commercial storage in more than two years, since the week ending October 23rd, 2015, we'll include a graph that will show the trajectory that brought us to this low point:

December 8 2017 crude oil supplies as of December 1st

on the above graph, taken from the EIA's This Week in Petroleum Oil Section, the blue line shows the recent track of US oil inventories over the period from December 4th, 2015 to December 1st 2017, while the grey shaded area represents the range of US oil inventories millions of barrels as reported weekly by the EIA over the prior 5 years for any given time of year…thus the grey area also shows us the normal range of US oil inventories as they fluctuate from season to season, typically with a high in the springtime, before the summer driving season, and a low in the fall...and as you can see by the blue line, that pattern continued into early this year, where we were announcing a record glut of oil almost weekly up until the week ending March 24th, 2017, when our oil supplies topped out at 535,543,000, an increase of almost 68% from the early 2014 low of 319,079,000 barrels...however, as you can also see by following the blue line, our oil supplies have been falling since, and at 448,103,000 barrels are now 19.5% below their March 24 high...still, while our oil inventories as of December 1st were 7.6% below the 485,756,000 barrels of oil we had stored on December 2nd of 2016, and 1.2% lower than the 453,553,000 barrels of oil that we had in storage on December 4th of 2015, they were still 28.6% greater than the 348,313,000 barrels of oil we had in storage on December 5th of 2014, before the oil glut in the US had really built our crude supplies up to above normal levels...      

This Week's Rig Count

US drilling activity increased for the 5th week in a row, but for just the 8th time out of the last 19 weeks during the week ending December 8th, with only oil directed rigs seeing a small increase...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 2 rigs to 931 rigs in the week ending on Friday, which was also 307 more rigs than the 624 rigs that were deployed as of the December 9th report in 2016, while that was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil rose by 2 rigs to 751 rigs this week, which was also an increase of 253 oil rigs over the past year, while the week's oil rig count remained far below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations was unchanged at 180 rigs this week, which was only 55 more gas rigs than the 125 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

offshore drilling activity in the Gulf of Mexico and elsewhere nationally was unchanged at 20 rigs this week, which was down from the 22 rigs deployed in the Gulf of Mexico and nationally a year ago...however, there was a new drilling platform that started up on a lake in southern Louisiana this week, where there are now two such drilling platforms deployed, up from the one working on inland waters a year ago...

the count of active horizontal drilling rigs increased by 4 rigs to 796 rigs this week, which was up by 293 rigs from the 503 horizontal rigs that were in use in the US on December 9th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count was unchanged at 71 rigs this week, which was still up from the 51 directional rigs that were working during the same week last year....on the other hand, the vertical rig count was down by 2 rigs to 64 vertical rigs this week, which was also down from the 70 vertical rigs that were deployed on December 9th of 2016...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 8th, the second column shows the change in the number of working rigs between last week's count (December 1st) and this week's (December 8th) count, the third column shows last week's December 1st active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 9th of December, 2016...           

December 8 2017 rig count summary

as you can see from the above, the small net change in the number of rigs running masked considerable activity in several different states and basins this week, with the number of increases just barely eclipsing the number of decreases over the period...what is certainly most notable was the 4 rig decrease in drilling in Ohio, which may include the shut down of a non-shale vertical rig, since the net decrease in the 3 state area of Ohio, Pennsylvania and West Virginia is not reflected in the change in Marcellus and Utica activity...the 26 rigs still working in Ohio are the least since July 2nd, as are the 27 rigs that remained deployed in the Utica shale, probably reflective of natural gas prices which have remained below the average break-even price for the region and have trended lower all year...meanwhile, in addition to the major producing states shown in the first table above, Kansas also saw its only working rig shut down this week, leaving none, down from a year ago, when there was one rig active in the state...

 

Note:  there’s more here

Sunday, December 3, 2017

OPEC extends output cuts to end of 2018; US gasoline exports hit a record high

as was widely expected, OPEC oil ministers at their biannual meeting in Vienna on Thursday agreed to extend their reduced oil output quotas at the same level they've been at since the beginning of 2017 until the end of 2018; that was, in effect, a nine month extension of the production cut agreement already in place, since at their meeting at the end of May of this year they had agreed to extend the original 6 month agreement of November 2016 by 9 months, from June 2017 through March 2018...the only noteworthy change from the original pact was that Nigeria and Libya, who were previously exempt from the production limits because their oil output had already been reduced by civil strife, have now agreed to a combined cap of 2.8 million barrels per day, less than 100,000 barrels per day above their average output of the last two months, but quite a bit more than the 2.25 million barrels of oil per day the two countries were producing when the first production curtailment agreement was signed...the non-OPEC participants who were in the original pact, led by Russia, also agreed to hold their production at reduced levels, and, since Russian oil companies were reluctant to commit to production cuts for over a year into the future on concerns that an extension for the entirety of 2018 could prompt a spike in crude production in the US, OPEC also agreed to review this deal at their June meeting, with the possibility that they would adjust the agreement at that time, based on any changes in global market conditions they had not foreseen.... 

since the final disposition of this OPEC meeting was largely discounted by oil traders beforehand, the market reaction to the news from this meeting was fairly muted, and trading volumes were not out of the ordinary...oil prices did end 47 cents lower on the week, however, which as it turns out was the largest weekly price drop in 2 months, since oil prices have been in an extended rally over that entire period, and closed last week at a 2½-year high of $58.95 a barrel...from there, it was not unexpected to see oil prices fall 84 cents to $58.11 a barrel in profit taking on Monday, as doubts about the OPEC pact overcame the prior week's exuberance, and Keystone pipeline imports from Canada resumed...as jittery oil traders stayed on the sidelines awaiting the OPEC news, U.S. oil prices for January delivery then fell 12 cents on Tuesday and then another 69 cents to $57.30 a barrel on Wednesday, as the EIA reported that both gasoline and distillates supplies showed large increases...oil prices then yo-yoed in advance of the OPEC meeting Thursday morning, first rising, then falling below $57 a barrel before ending 10 cents higher at $57.40 a barrel on the news, with overseas prices seeing a larger 46 cent increase....US oil prices then rocketed to as high as $58.88 on Friday, but then retreated to close with a gain of 96 cents at $58.36 a barrel, as all US markets were rocked when former national security adviser Michael Flynn plead guilty to lying under oath and implicated Donald Trump for meddling in Russia while Obama was still president...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending November 24th, showed a big drop in our oil imports (due to the Keystone shutdown) while our refineries were using oil at a record pace for this time of year, and hence we needed to pull quite a bit of oil out of storage to meet their needs...our imports of crude oil fell by an average of 544,000 barrels per day to an average of 7,329,000 barrels per day during the week, while our exports of crude oil fell by an average of 179,000 barrels per day to 1,412,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 5,917,000 barrels of per day during the week, 365,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 24,000 barrels per day to another record high of 9,682,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,599,000 barrels per day during the reported week... 

during the same week, US oil refineries were using 17,003,000 barrels of crude per day, 165,000 barrels per day more than they used during the prior week, while at the same time 828,000 barrels of oil per day were being withdrawn from oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 576,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+576,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,619,000 barrels per day, 1.7% less than the 7,748,000 barrels per day average imported over the same four-week period last year....the 828,000 barrel per day decrease in our total crude inventories included a 490,000 barrel per day withdrawal from our commercial stocks of crude oil and a 338,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago...this week's 24,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 4,000 barrels per day increase in output from Alaska....the 9,682,000 barrels of crude per day that were produced by US wells during the week ending November 24th was yet another new record high for US output, 10.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.3% more than the 8,699,000 barrels per day of oil that were being produced during the during the equivalent week a year ago...

US oil refineries were operating at 92.6% of their capacity in using those 17,003,000 barrels of crude per day, up from 91.3% of capacity the prior week, and above normal for this time of year...while the 17,003,000 barrels of oil that were refined this week were still 4.1% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were at a record level for any week during the autumn months, 4.4% more than the 16,283,000 barrels of crude per day that were being processed during week ending November 25th, 2016, when refineries were operating at 89.8% of capacity, and 11.8% above the 10-year seasonal average for this time of the year... 

even with increase in the amount of oil refined, gasoline output from our refineries was 2.0% lower, decreasing by 210,000 barrels per day to 10,222,000 barrels per day during the week ending November 24th, after increasing by 580,000 barrels per day the prior week...that production was still 2.4% higher than the 9,986,000 barrels of gasoline that were being produced daily during the week ending November 25th last year, and a new high for any comparable November week on record....in addition, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 51,000 barrels per day from last week's November record to 5,284,000 barrels per day, which was still 1.3% more than the 5,216,000 barrels per day of distillates that were being produced during the the same week a year ago....    

with our gasoline production remaining elevated, our gasoline inventories at the end of the week rose by 3,627,000 barrels to 214,102,000 barrels by November 24th, primarily because our domestic consumption of gasoline fell by 871,000 barrels per day to 8,724,000 barrels per day at the same time, even as our exports of gasoline rose by 431,000 barrels per day to a record high 1,213,000 barrels per day, while our imports of gasoline rose by 12,000 barrels per day to 526,000 barrels per day...however, with significant gasoline supply withdrawals in 15 out of the last 24 weeks, our gasoline inventories are still down by 11.7% from their pre-summer high of 242,444,000 barrels, and more than 5.3% below last November 25th's level of 226,123,000 barrels, even as they are still roughly 1.8% above the 10 year average of gasoline supplies for this time of the year...   

since our gasoline exports happened to jump to a record high this week, we'll include a graph below of what those exports look like historically...

November 30 2017 gasoline exports for November 24

the above graph comes from a Zero Hedge post on this week's EIA report, and it shows US gasoline exports in thousands of barrels per day from mid-2010 to the current week, with gasoline exports prior to July 2016 shown monthly, and gasoline exports after that date shown weekly; prior to 2010, our gasoline exports were negligible and were not tracked separately...as you can see, there is a seasonal pattern to gasoline exports, in that they rise during the fall and winter months, when domestic use of gasoline is at its lowest, and then fall back in the summer, when US demand is higher...although we've recently expressed concern, bordering on dire, about the elevated level of our distillates exports, this one week of record high gasoline exports is not yet that critical, especially during a week when our own supplies were near normal and rising...

meanwhile, with our distillates production still near record levels, our supplies of distillate fuels rose by 2,747,000 barrels to 127,779,000 barrels over the week ending November 24th, in just the third supply increase in thirteen weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 175,000 barrels per day to 3,882,000 barrels per day, and as our exports of distillates fell by 300,000 barrels per day to 1,130,000 barrels per day, while our imports of distillates fell by 70,000 barrels per day to 120,000 barrels per day...even after this week’s increase, our distillate inventories were still 17.1% lower at the end of the week than the 154,196,000 barrels that we had stored on November 25th, 2016, and 5.2% lower than the 10 year average of distillates stocks at this time of the year

finally, the big drop in our crude oil imports, combined with another increase in domestic refining demand, meant that our commercial crude oil inventories fell for the 27th time in the past 34 weeks, decreasing by 3,429,000 barrels, from 457,142,000 barrels on November 17th to 453,713,000 barrels on November 24th....while our oil inventories as of November 24th were 7.1% below the 488,145,000 barrels of oil we had stored on November 25th of 2016, and fractionally lower than the 457,212,000 barrels of oil that we had in storage on November 27th of 2015, they were still 30.9% greater than the 347,015,000 barrels of oil we had in storage on November 28th  of 2014, at a time when the buildup of our oil glut in the US was just getting started...      

This Week's Rig Count

because of last week's Thanksgiving holiday and resulting early report, this week's Baker Hughes rig count report for the week ending December 1st covers changes in drilling activity for the nine days from November 22nd to December 1st...for that period, they reported that drilling rig activity increased for the 4th week in a row, but for just the 7th time out of the last 18 weeks, as the active rig count rose by 6 rigs, from 923 rigs on November 22nd to 929 rigs on December 1st....that was also 332 more rigs than the 593 rigs that were deployed as of the December 2nd report last year, but still well down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014... 

the number of rigs drilling for oil rose by 2 rigs to 749 rigs this week, which was also up by 272 oil rigs over the past year, while this week's oil rig count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 4 rigs to 180 rigs this week, which was still only 61 more gas rigs than the 119 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

activity on two platforms that had been drilling in the Gulf of Mexico offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 20 rigs, which was still down from the 22 rigs active in the Gulf of Mexico a year ago...since there were no other offshore rigs active other than those deployed in the Gulf either this week or a year ago, those Gulf of Mexico rig counts are also the same count as the total US offshore count...

the count of active horizontal drilling rigs increased by 6 rigs to 792 rigs this week, which was up by 307 rigs from the 485 horizontal rigs that were in use in the US on December 2nd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, both the vertical rig count and the directional rig counts were unchanged at 66 rigs and 71 rigs respectively, with the vertical rig count also unchanged from a year ago, while the directional rig count was up from the 46 directional rigs that were working on December 2nd a year ago..

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 1st, the second column shows the change in the number of working rigs between last week's count (November 22nd) and this week's (December 1st) count, the third column shows last week's November 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 2nd of December, 2016...           

December 1 2017 rig count summary

as you can see, despite the 4 unit increase in rigs drilling for natural gas, the Marcellus and Utica rig counts remained unchanged, as did the corresponding rig counts for Ohio, Pennsylvania and West Virginia...of the new natural gas rigs, three were in the Haynesville, on the Texas side of the northwestern Lousiana border, and one was in an "other" unnamed basin; the rig that was shut down in the Dallas area Barnett shale was an oil rig, leaving the Barnett with 3 gas rigs and one oil rig remaining...otherwise, the above tables are pretty much indicative what changes in activity occurred this past week...

 

Note:  there’s more here

Sunday, November 26, 2017

oil prices at a 2½-year high, oil drilling picking up...

oil prices rose nearly 4% this past week and finished at a 2½-year high, as traders focused on a supply disruption to the Cushing hub in Oklahoma, while anticipating extended supply cuts from the OPEC meeting in this coming week...after closing at $56.55 a barrel, down 0.4%, last week for the first time in six weeks, US oil contracts for December crude continued sliding lower on Monday on a stronger dollar and edginess about the upcoming OPEC meeting, closing down 46 cents at $56.09 a barrel as the December contract expired...at the same time, the contract for January crude slid 29 cents to close at $56.42 a barrel...with the media now quoting January crude as 'the price of oil', that contract rose 41 cents to $56.83 on Tuesday, on restrained expectations that OPEC would extend their output cuts when they meet in Vienna next week...oil prices then jumped $1.19 or 2.1% to $58.02 on Wednesday after TransCanada reported Keystone pipeline crude deliveries to Oklahoma would be curtailed by 85 percent through November, following last week's spill of more than 210,000 gallons of tar sands oil under a farm field in northeast South Dakota, which is still unrepaired...that pipeline shutdown would reduce the glut of oil at the Cushing depot, on which these WTI oil contracts are based...momentum from that pipeline shutdown carried through the holiday as oil rose again on Friday, bolstered by reports that OPEC and Russia agreed to a framework to extend their oil production cuts to the end of next year, with oil prices ending up another 93 cents at $58.95 a barrel at the close, a gain of 1.6% on the day and more than 3.9% for the week...

since oil prices are now much higher than they've been for a good two years, we'll include a graph of the recent rally to help you envision how they got here...

November 25 20117 oil prices

the above graph is a screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for one day of oil trading between June 15th and November 24th, wherein green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while on red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar...there are also feint grey "wicks" above and below each bar to indicate trading prices for each day that were above or below the opening to closing price range...note at the far right that there are four green bars that would represent this week's price rally, rather than the three day rally we have described; that's because this graph also includes online and international trading, which continued through the Thanksgiving holiday, while the New York markets that we reported on were closed...

on that graph, we can almost see that oil prices dipped to a ten month low of $42.05 a barrel on June 21st, which we saw at that time was below the average breakeven price for all US oil basins...from there, oil prices stayed below $50 a barrel until mid-September, which thus led to an extended pullback in oil drilling that lasted through October...however, with oil prices over $50 a barrel since that time, the rig crews have been returning to the field, and drilling for oil has been picking up...now, with oil prices near $60 a barrel, the disincentive of the past two years has reversed, because it will now be profitable to drill for oil in every shale basin in the US, with the possible exception of the thinnest trends of the SCOOP/STACK...if oil prices should continue rising from here, we would not be surprised to even see oil drilling return to the Utica shale, at least to the same degree as we saw before mid 2014, when more than half of the Utica rigs were targeting oil...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending November 17th, showed a big jump in our oil exports while our oil imports were little changed, which meant that oil needed to be pulled out of storage to meet the needs of our refineries, who also saw another increase in throughput...our imports of crude oil slipped by an average of 25,000 barrels per day to an average of 7,873,000 barrels per day during the week, while our exports of crude oil rose by an average of 462,000 barrels per day to 1,591,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,282,000 barrels of per day during the week, 487,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 13,000 barrels per day to another record high of 9,658,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,940,000 barrels per day during the reported week...

during the same week, US oil refineries were using 16,838,000 barrels of crude per day, 199,000 barrels per day more than they used during the prior week, while over the same period 511,000 barrels of oil per day were being withdrawn storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 387,000 fewer barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+387,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,680,000 barrels per day, now 5.3% less than the 8,110,000 barrels per day average imported over the same four-week period last year....the 511,000 barrel per day decrease in our total crude inventories included a 265,000 barrel per day withdrawal from our commercial stocks of crude oil and a 246,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago...this week's 13,000 barrel per day increase in our crude oil production was due to a 20,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 7,000 barrels per day decrease in output from Alaska....the 9,658,000 barrels of crude per day that were produced by US wells during the week ending November 17th was another new record high for US output, 10.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.1% more than the 8,690,000 barrels per day of oil we produced during the during the equivalent week a year ago...

US oil refineries were operating at 91.3% of their capacity in using those 16,838,000 barrels of crude per day, up from 91.0% of capacity the prior week, and above normal for November...while the 16,838,000 barrels of oil that were refined this week were still 5.0% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were 2.7% more than the 16,397,000 barrels of crude per day that were being processed during week ending November 18th, 2016, when refineries were operating at 90.8% of capacity, and more than 12.7% above the 10-year seasonal average for this time of year...

with increase in the amount of oil refined, gasoline output from our refineries was 5.9% higher, increasing by 580,000 barrels per day to 10,432,000 barrels per day during the week ending November 17th, which was also 7.5% higher than the 9,700,000 barrels of gasoline that were being produced daily during the comparable November week a year ago....in addition, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 104,000 barrels per day to 5,335,000 barrels per day, which was a record distillates output for any week in any November, and 5.0% more than the 5,080,000 barrels per day of distillates that were being produced during the week ending November 18th last year....   

even with the big jump in our gasoline production, our gasoline inventories at the end of the week just rose by 44,000 barrels to 210,475,000 barrels by November 17th, because our domestic consumption of gasoline rose by 423,000 barrels per day to 9,595,000 barrels per day at the same time, even as our exports of gasoline fell by 62,000 barrels per day to 782,000 barrels per day, while our imports of gasoline rose by 165,000 barrels per day to 514,000 barrels per day...however, with significant gasoline supply withdrawals in 15 out of the last 23 weeks, our gasoline inventories are still down by 13.2% from their pre-summer high of 242,444,000 barrels, and by over 6.0% below last November 18th's level of 224,026,000 barrels, even as they are still roughly 0.8% above the 10 year average of gasoline supplies for this time of the year...  

with the increase in our distillates production, our supplies of distillate fuels rose by 269,000 barrels to 125,032,000 barrels over the week ending November 17th, in just the second small supply increase in twelve weeks, after falling by 9,724,000 barrels over the prior three weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 28,000 barrels per day to 4,057,000 barrels per day, while our exports of distillates fell by 47,000 barrels per day to 1,430,000 barrels per day, and while our imports of distillates rose by 29,000 barrels per day to 190,000 barrels per day...even after this week’s increase, our distillate inventories were still 16.2% lower at the end of the week than the 149,239,000 barrels that we had stored on November 18th, 2016, and 5.3% lower than the 10 year average of distillates stocks at this time of the year

finally, the big increase in our crude oil exports, combined with the increase in domestic refining, meant that our commercial crude oil inventories fell for the 26th time in the past 33 weeks, decreasing by 1,855,000 barrels, from 458,997,000 barrels on November 10th to 457,142,000 barrels on November 17th....while our oil inventories as of November 17th were 6.5% below the 489,029,000 barrels of oil we had stored on November 18th of 2016, they were still fractionally higher than the 456,035,000 barrels of oil that we had in storage on November 20th of 2015, and 30.3% greater than the 350,704,000 barrels of oil we had in storage on November 21st of 2014, at a time when the buildup of our oil glut in the US was just getting started...    

This Week's Rig Count

because of the holiday, the weekly Baker Hughes rig count report was released on Wednesday, November 22nd, and thus covers changes in drilling activity for just the five days from November 17th to the 22nd...nonetheless, they reported that drilling rig activity increased during that period for the 3rd week in a row, but just the 6th time out of the last 17 weeks, as the active rig count rose by 8 rigs, from 915 rigs on November 17th to 923 rigs on November 22nd...that was also 330 more rigs than the 593 rigs that were deployed as of the November 23rd report last year, but still way down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 9 rigs to 747 rigs this week, which was also up by 273 oil rigs over the past year, while this week's count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations fell by 1 rig to 176 rigs this week, which was still only 58 more gas rigs than the 118 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling began from one platform in the Gulf of Mexico offshore from Louisiana this week, which increased the Gulf of Mexico rig count to 22 rigs, which was still down from the 23 rigs active in the Gulf of Mexico a year ago...since there were no other offshore rigs active other than those deployed in the Gulf either this week or a year ago, those Gulf of Mexico rig counts are also the same count as the total US offshore count...

the count of active horizontal drilling rigs increased by 10 rigs to 786 rigs this week, which put them up by 311 rigs from the 475 horizontal rigs that were in use in the US on November 23rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was up by 3 rigs to 66 vertical rigs this week, which happened to be the same number as the 66 vertical rigs that were deployed on November 23rd of 2016...on the other hand, the directional rig count was down by 5 rigs to 71 rigs this week, which was still up from the 52 directional rigs that were working during the same week last year....

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of November 22nd, the second column shows the change in the number of working rigs between last week's count (November 17th) and this week's (November 22nd) count, the third column shows last week's November 17th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 23rd of November, 2016...          

November 22 2017 rig count summary

as you can see from the above, we have another week where the major basin variances table doesn't tell us much; despite the net addition of 10 horizontal rigs during the period, the major basins tracked here only account for 3 rig additions, and one rig shutdown...part of the problem is that Baker Hughes has not changed the basins they track as activity has shifted over the years; for instance, the Fayetteville in Arkansas has gone almost two years with no more than one rig active, as compared to 2011, when that basin averaged over 30 active rigs a week...yet basins that are now seeing more activity, such as the Unita in Utah and the Powder River Basin in Wyoming, have not yet even been listed here...with a 4 rig increase in Wyoming, it's entirely possible that half of the week's new rigs were set up in the Powder River Basin, but without digging through the individual well logs in the North America Rotary Rig Count Pivot Table (XLS), there's no easy way of determining exactly where they were...note that in addition to the activity changes in the major producing states shown above, Montana also saw another rig added this week, and they thus have two rigs working, up from none a year ago, and the first time more than one rig was active in the state since March 2015..

 

Note: there's more here...

Sunday, November 19, 2017

OPEC cuts and rising demand reducing global oil supply; US distillates supply falling despite seasonal record production..

oil prices finally fell this week, for the first time in the past six weeks, but a rally on Friday put the downturn in jeopardy until the last hour of trading...after trading just off a two year high most of last week, US oil for December delivery added another 2 cents a barrel on Monday, closing at $56.76 a barrel, as the ongoing geopolitical tension from the Saudi royal purge and regional saber rattling offset concerns about rising US output...oil prices then tumbled $1.06 to $55.70 a barrel on Tuesday, after the International Energy Agency in Paris lowered its forecast for demand by 100,000 barrels a day for 2017 and 2018, more than offsetting OPEC's prior forecast of higher demand...oil prices were then down another 37 cents to $55.33 a barrel on Wednesday, after the EIA reported an unexpected increase in crude oil and gasoline stockpiles, along with record crude production...oil prices ended lower again after a choppy session on Thursday, on ongoing concerns about growing U.S. production and inventories, despite expectations that OPEC would extend a supply-cut deal when they meet in Vienna at the end of the month, closing down another 19 cents at $55.14 a barrel...oil prices then rallied and rose steadily on Friday, after Saudi Arabia's energy minister Khalid al-Falih reiterated that further production cuts are necessary to continue rebalancing the market, with oil prices trading as high as $56.68 a barrel before closing up $1.41, or 2.6%, to finish the week at $56.55 a barrel, down just 21 cents from the prior month's close...

with the likelihood of further OPEC production cuts moving oil prices again, we'll start by reviewing OPEC's November Oil Market Report (covering October OPEC & global oil data), which was released on Monday of this past week....the first table from this report that we'll look at is from page 64 of that OPEC pdf, and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...   

October 2017 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC oil output decreased by 150,900 barrels per day in October, to 32,589,000 barrels per day, from a September production total of 32,740,000 barrels per day, a figure that was originally reported as 32,748,000 barrels per day (for your reference, here is the table of the official September OPEC output figures before this month's revisions)...as you'll note in the far right column above, the main reason that OPEC's output fell by 150,900 barrels per day was the 131,000 barrel per day drop in oil output from Iraq; also contributing was a 54,400 barrel per day decrease in output from Nigeria and a 43,600 barrel per day decrease in output from Venezuela, who's crude output was at a 28-year low...on the other hand, note the 69,800 barrel per day increase in output from Angola, which was thus producing well above their agreed to quota...and other than Angola, Iraq's oil output is again above their agreed quota, despite October's big cutback, as can be seen in the table below: 

November 2017 OPEC production and targets as of October via Platts

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members over the first ten months of this year, and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as was agreed to at their November 2016 meeting, and the 3rd column shows how much each has averaged over or under their quotas for the ten months of this year that the OPEC pact to curtail production has been in effect...as you can see from the above, most OPEC members are pretty close to meeting their commitment to cutting their production back 4%, except for Iraq, whose production has averaged nearly 2% higher than what they committed to...however, cuts in excess of what was agreed to by the Saudis, Venezuela, and other OPEC countries have more than made up for the 83,000 barrels per day that Iraq has been overproducing, so the organization as a whole has kept their commitment to reduce supply....

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from November 2015 to October 2017, and it comes from page 65 of the November OPEC Monthly Oil Market Report....the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...

October 2017 OPEC report global supply

OPEC's preliminary data indicates that total global oil production rose to 96.71 million barrels per day in October, up by .53 million barrels per day from a September total of 96.18 million barrels per day, which was revised .32  million barrels per day lower from the 96.50 million barrels per day global oil output for September that was reported a month ago...global oil output for October was still 0.39 million barrels per day higher than the 96.32 million barrels of oil per day that was being produced globally in October a year ago (see last November's OPEC report for the year ago data)... OPEC's October production of 32,589,000 barrels per day represented 33.7% of what was produced globally, down from their revised 34.0% share of September global output, as oil output increases by Mexico, Norway, the UK, Brazil, Canada, Malaysia and China more than made up for OPEC's decrease...OPEC's October 2016 production, excluding ex-member Indonesia, was at 32,921,000 barrels per day, so even after their production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are only producing 1.0% less oil than they were producing a year ago, at a time when they were considered to be producing flat out...

however, even after the increase in global oil output that we can see on the above graph, there was again a deficit in the amount of oil being produced globally, in part due to an upward revision of the OPEC estimate of global demand for oil, as the next table from the OPEC report will show us.. 

October 2017 OPEC report global oil demand

the table above comes from page 37 of the October OPEC Monthly Oil Market Report, and it shows regional and total oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally quarterly over 2017 over the rest of the table...on the "Total world" line of the fifth column, we've circled in blue the figure that's relevant for October, which is their estimate for global oil demand for the fourth quarter of 2017... 

OPEC's estimate is that over the 4th quarter of this year, all oil consuming areas of the globe will be using 98.08 million barrels of oil per day, which is an upward revision from their prior 4th quarter estimate of 97.91 million barrels of oil per day.....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world's oil producers were only producing 96.71 million barrels per day during October, which means that there was a shortfall of around 1,370,000 barrels per day in global oil production vis-a vis demand during the month...

also note that we have highlighted the estimates for the first 3 quarters of 2017 for global demand in green, so as to point out the other revisions that came with this report, which means our previous computations of global surplus or deficit oil for the past 9 months should also be revised...global oil demand for the third quarter was revised 230,000 barrels per day higher, to 97.72 million barrels per day, while demand for the second quarter was revised 70,000 barrels per day higher, to 96.28 million barrels per day, and global demand for the first quarter was revised 80,000 barrels per day higher, to 95.67 million barrels per day...

global oil production estimates for September were concurrently revised lower, to 96.18 million barrels per day, so that now means there was also a deficit of 1,540,000 barrels per day in September global output, which we had previously figured to be a global oil deficit of around 990,000 barrels per day...with higher demand estimates for the third quarter, the August global shortfall would now be revised up to 1,630,000 barrels per day, while July's global oil production of 97.16 million barrels per day would be 560,000 barrels per day less than the new 3rd quarter demand figure of 97.72 barrels per day...

with the caveat that we've now revised figures for prior months this year several times, and hence increasing the chance of a dumb arithmetic error, the 70,000 barrels per day upward revision to second quarter demand reduces the June global surplus that we had computed to 850,000 barrels per day, and increases the May deficit to 360,000 barrels per day, and increases the April global oil deficit to 670,000 barrels per day...prior to that the global oil surplus during March would now be revised down to 390,000 barrels per day, and average surpluses over January and February would be reduced to around 610,000 barrels per day....taken together, this reports data means that after ten months of OPEC production cuts, the global oil glut has been reduced by roughly 72.66 million barrels of oil since the 1st of the year, up from the global deficit of 27.4 million barrels for 9 months that we had computed based on last month's figures...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending November 10th, indicated another a substantial increase in our oil refining, which was more than matched by an increase in imports, and hence we managed to have a modest amount oil left to store for the 2nd week in a row....our imports of crude oil rose by an average of 521,000 barrels per day to an average of 7,898,000 barrels per day during the week, while our exports of crude oil rose by 260,000 barrels per day to 1,129,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,769,000 barrels of per day during the week, 261,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 25,000 barrels per day to another record high of 9,645,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,414,000 barrels per day during the reported week...

during the same week, US oil refineries were using 16,639,000 barrels of crude per day, 334,000 barrels per day more than they used during the prior week, while over the same period 164,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 389,000 fewer barrels per day than what refineries reported they used and what was added to storage during the week...to account for that discrepancy, the EIA needed to insert a (+389,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,742,000 barrels per day, still 2.8% less than the 7,969,000 barrels per day average imported over the same four-week period last year....the 164,000 barrel per day increase in our total crude inventories came about on a 265,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 101,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago...this week's 25,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states and a 5,000 barrels per day increase in output from Alaska....the 9,645,000 barrels of crude per day that were produced by US wells during the week ending November 10th was another new record high for US output, 10.0% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.1% more than the 8,681,000 barrels per day of oil we produced during the during the equivalent week a year ago...

US oil refineries were operating at 91.0% of their capacity in using those 16,639,000 barrels of crude per day, up from 89.6% of capacity the prior week, about par for this time of year... the 16,639,000 barrels of oil that were refined this week were still 6.1% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, even as they were 3.2% more than the 16,126,000 barrels of crude per day that were being processed during week ending November 11th, 2016, when refineries were operating at 89.2% of capacity, and more than 10% above the 10-year seasonal average for this time of year...

even with increase in the amount of oil refined, gasoline output from our refineries was 3.0% lower, decreasing by 315,000 barrels per day to 9,852,000 barrels per day during the week ending November 10th, which was also 3.0% lower than the 10,152,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 32,000 barrels per day to 5,231,000 barrels per day, which was a record for any week in November, and 5.0% more than the 4,984,000 barrels per day of distillates that were being produced during the week ending November 11th last year....  

our lower gasoline production notwithstanding, our gasoline inventories at the end of the week still rose by 894,000 barrels to 210,431,000 barrels by November 10th, after falling by 12,788,000 barrels over the prior three weeks, as our domestic consumption of gasoline fell by 324,000 barrels per day to 9,172,000 barrels per day, even as our exports of gasoline rose by 212,000 barrels per day to 844,000 barrels per day, while our imports of gasoline fell by 56,000 barrels per day to 349,000 barrels per day...however, with significant gasoline supply withdrawals in 15 out of the last 22 weeks, our gasoline inventories are still down by 13.2% from the pre-summer high of 242,444,000 barrels, and 5.1% below last November 11th's level of 221,709,000 barrels, even as they are still roughly 1% above the 10 year average of gasoline supplies for this time of the year...  

even with the increase in our distillates production, our supplies of distillate fuels fell by 799,000 barrels to 124,763,000 barrels over the week ending November 10th, the tenth decrease in eleven weeks, after falling by 3,359,000 barrels the prior week...the smaller drawdown occurred because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 457,000 barrels per day to 4,029,000 barrels per day, even as our exports of distillates rose by 198,000 barrels per day to 1,477,000 barrels per day, while our imports of distillates rose by 75,000 barrels per day to 161,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 16.2% lower than the 148,912,000 barrels that we had stored on November 11th, 2016, and 6.7% lower than the 10 year average of distillates stocks at this time of the year

finally, with a big increase in oil imports coming while our oil production was at a record high, our commercial crude oil inventories rose for the 7th time in the past 32 weeks, increasing by 1,854,000 barrels, from 457,143,000 barrels on November 3rd to 458,997,000 barrels on November 10th....while our oil inventories as of November 10th were 6.4% below the 490,284,000 barrels of oil we had stored on November 11th of 2016, they were still fractionally higher than the 455,074,000 barrels of oil that we had in storage on November 13th of 2015, and 31.6% greater than the 348,758,000 barrels of oil we had in storage on November 6th of 2014, at a time when the buildup of our oil glut was just getting started...   

This Week's Rig Count

US drilling activity increased 5th time in the past 16 weeks during the week ending November 17th, but in contrast to last week, when only oil drilling increased, this week only saw new rigs targeting natural gas...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 8 rigs to 915 rigs in the week ending on Friday, which was also 327 more rigs than the 588 rigs that were deployed as of the November 18th report in 2016, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil was unchanged at 738 rigs this week, which was still up by 267 oil rigs over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations was rose by 8 rigs to 177 rigs this week, which was still only 61 more gas rigs than the 116 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling began from 3 addition platforms in the Gulf of Mexico offshore from Louisiana this week, which increased the Gulf of Mexico rig count to 21 rigs, which was still down from the 23 rigs active in the Gulf of Mexico a year ago...since there were no other offshore rigs active other than those in the Gulf either this week or a year ago, those Gulf counts are also the same count as the total US offshore count...

the count of active horizontal drilling rigs was unchanged at 764 rigs this week, which left them up by 306 rigs from the 470 horizontal rigs that were in use in the US on November 18th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count was up by 2 rigs to 76 rigs this week, which was also up from the 52 directional rigs that were working during the same week last year....in addition, the vertical rig count was up by 6 rigs to 63 vertical rigs this week, which was still down from the 66 vertical rigs that were deployed on November 18th of 2016...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of November 17th, the second column shows the change in the number of working rigs between last week's count (November 10th) and this week's (November 17th) count, the third column shows last week's November 10th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 18th of November, 2016...          

November 17 2017 rig count summary

there's not much on the tables above that can explain how 8 rigs targeting natural gas were added this week, while the horizontal rig count remained unchanged at the same time...we would have thought that the rig that was added in Ohio's Utica, for instance, would have been one of the new natural gas rigs, but that's not the case, since that rig is targeting oil, in only the third week of Utica oil drilling since May of 2016...the Haynesville, of northwest Louisiana and adjacent Texas, which has seen more oil drilling recently, did add two natural gas rigs this week, as all 40 of their rigs are now back to targeting gas...the other 6 natural gas rigs are in Baker Hughes's "other" category, wherein the basins and locations are not named...based on the Texas and Louisiana state counts, however, we would guess that most of the new natural gas rigs are in those two states or the adjacent Gulf, and are most likely conventionally drilled vertical wells...note that other than the major producing states shown above, Mississippi also saw a rig added this week, and now they have two rigs active, same as they had on November 18th a year ago..

.

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Sunday, November 12, 2017

US oil production at a record high, distillate supplies are becoming critical, turmoil in the Middle East, et al

oil prices spiked to a new two year high on Monday on turmoil in Saudi Arabia*, but even though they drifted lower the rest of the week as the chaotic news was digested, they still ended higher for the fifth consecutive week, in what is now the longest rally this year....US oil prices for December rose $1.71 a barrel, the largest price jump this year, to a 2 year high of $57.35 a barrel on Monday, on a spate of news out of Saudi Arabia, that included the announcement of the coerced resignation of Lebanon's prime minister Saad al-Harir, the interception of a missile from Yemen that had targeted the International Airport in the Saudi capital of Riyadh, and what is being called a purge of the Saudi aristocracy by Crown Prince Muhammed bin Salman, starting with the arrest of dozens of wealthy business elites and 11 of his royal cousins, and including such billionaire notables as Prince Alwaleed bin Talal, known in the US for his playboy lifestyle and his large holdings of Citigroup, 21st Century Fox and Twitter...as chaotic news continued to come out of the region, oil prices climbed to an intraday high of $57.61 a barrel on Tuesday, a 28 month high, before falling to close at $57.20 a barrel, when some of the worst geopolitical fears surrounding the weekend's news dissipated...oil prices then fell 39 cents to $56.81 a barrel on Wednesday after the EIA report showed a surprise increase in crude stocks and record US oilfield production, suggesting the glut might persist longer than previously thought...crude prices then regained most of that loss on Thursday, rising 36 cents to $57.17 a barrel, after the Saudis announced plans to cut their crude exports by 120,000 barrels per day in December while simultaneously ordering their citizens to leave Lebanon, threatening yet another proxy war with Iran...prices continued to rise slowly on Friday morning and were at one point 18 cents higher, but then slid in the afternoon to close down 43 cents at $56.74 a barrel, after Baker Hughes reported that U.S. drillers had added the most oil rigs in a week since June, suggesting that current record output would continue to grow....oil prices thus ended the week $1.10 a barrel, or nearly 2% higher than the prior week's close, in their fifth-straight week of gains...

* NB: more than 3 dozen articles on the turmoil in the Middle East can be  found at the end of this post on Focus on Fracking

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending November 3rd, showed that even with a substantial increase in our oil refining, and a decrease in oil imports, we still managed to have some oil left for storage, mostly due to a huge drop in our oil exports.....our imports of crude oil fell by an average of 194,000 barrels per day to an average of 7,377,000 barrels per day during the week, while our exports of crude oil fell by 1,264,000 barrels per day to 869,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,508,000 barrels of per day during the week, 1,070,000 barrels per day more than net imports during the prior week...at the same time, field production of crude oil from US wells rose by 67,000 barrels per day to record high of 9,620,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,128,000 barrels per day during the reported week...

during the same week, US oil refineries were using 16,305,000 barrels of crude per day, 290,000 barrels per day more than they used during the prior week, while over the same period 222,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 399,000 fewer barrels per day than what refineries reported they used and what was added to storage during the week...to account for that discrepancy, the EIA needed to insert a (+399,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,639,000 barrels per day, still 0.6% more than the 7,695,000 barrels per day average imported over the same four-week period last year....the 222,000 barrel per day addition to our total crude inventories all went into commercial facilities, as oil stored in our Strategic Petroleum Reserve was unchanged from the prior week...this week's 67,000 barrel per day increase in our crude oil production included a 65,000 barrel per day increase in output from wells in the lower 48 states and a 2,000 barrels per day increase in output from Alaska....the 9,620,000 barrels of crude per day that were produced by US wells during the week ending November 3rd was a new record high for US output, 9.7% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.7% more than the 8,522,000 barrels per day of oil we produced during the during the equivalent week a year ago...since we have a new record for US oil output, we'll include a long term graph of that here:

November 9 2017 US oil output for Nov 3rd

the above graph, taken from a post on this week's EIA report at Zero Hedge, shows oil production from US wells in thousands of barrels per day, weekly since 1985, with this week's record high clearly called out...notice that we had hit a three and a half year low in oil production just 4 weeks earlier, when Hurricane Nate shut in Gulf of Mexico and nearby land production, creating that odd jumble at the current end of the graph, not unlike the oil production downturns in 2005 caused by Hurricanes Katrina and Rita, or the 2008 out disruption caused by Hurricane Gustav...

returning to the week ending November 3rd, US oil refineries were operating at 89.6% of their capacity in using those 16,305,000 barrels of crude per day, up from 88.1% of capacity the prior week, a bit stronger than the normal pace for the end of the fall maintenance period...however, the 16,305,000 barrels of oil that were refined this week were still 8.0% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, even as they were 3.1% more than the 15,817,000 barrels of crude per day that were being processed during week ending November 4th, 2016, when refineries were operating at 87.1% of capacity, and more than 10% above the 10-year seasonal average...

even with increase in the amount of oil refined, gasoline output from our refineries was little changed, decreasing by 20,000 barrels per day to 10,167,000 barrels per day during the week ending November 3rd, which was also 2.8% lower than the 10,456,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 163,000 barrels per day to 5,199,000 barrels per day, which was 8.7% more than the 4,784,000 barrels per day of distillates that were being produced during the week ending November 4th last year....  

with our gasoline production little changed, our gasoline inventories at the end of the week fell by 3,312,000 barrels to 209,537,000 barrels by November 3rd, after falling by 9,476,000 barrels over the prior two weeks, as our domestic consumption of gasoline rose by 35,000 barrels per day to 9,496,000 barrels per day, and as our exports of gasoline fell by 135,000 barrels per day to 732,000 barrels per day, while our imports of gasoline also fell by 135,000 barrels per day to 405,000 barrels per day...with significant gasoline supply withdrawals in 15 out of the last 21 weeks, our gasoline inventories are now down by 13.6% from June 9th's level of 242,444,000 barrels, and 5.2% below last November 4th's level of 220,963,000 barrels, even as they are still roughly 1.0% above the 10 year average of gasoline supplies for this time of the year...  

even with the increase in our distillates production, our supplies of distillate fuels fell by 3,359,000 barrels to 125,562,000 barrels over the week ending November 3rd, the ninth decrease in ten weeks, after falling by just 320,000 barrels the prior week...that was because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 952,000 barrels per day to 4,486,000 barrels per day, even as our exports of distillates fell by 406,000 barrels per day from last week's record high to 1,279,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 86,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 15.5% lower than the 148,602,000 barrels that we had stored on November 4th, 2016, and 6.5% lower than the 10 year average for distillates stocks for this time of the year…we'll also include a chart of what that looks like, since it appears our supplies of distillates are becoming critically low heading into winter...

November 8 2017 distillate supplies as of November 3rd

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...this graph shows US distillate fuels inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of barrels of distillates we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date distillates supplies for each week traced in red...notice in the light blue shaded area that there is normally a seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this summer, when supplies of distillates should have been increasing like they have every other year, they were falling all summer instead, largely because we have been exporting our distillates at a record pace, with some recent weeks seeing as much as 40% of our production going overseas...but in the US, we never deny the oil companies their profits, even if the margin of safety for our own use gets precariously narrow...thus we are heading into what looks like it will be a colder than normal winter with much lower than normal supplies of heat oil in storage, which is now likely to result in a shortage of heat oil and correspondingly higher prices in the US, sometime before the heating season comes to a close....

lastly, with our oil production at a record high while our oil exports were sharply lower, our commercial crude oil inventories rose for the just the 6th time in the past 31 weeks, increasing by 2,237,000 barrels, from 454,906,000 barrels on October 27th to 457,143,000 barrels on November 3rd...while our oil inventories as of October 27th were still 5.7% below the 485,010,000 barrels of oil we had stored on November 4th of 2016, they were a half percent higher than the 454,822,000 barrels in of oil that were in storage on November 6th of 2015, and 32.1% greater than the 346,150,000 barrels of oil we had in storage on November 6th of 2014, as the buildup of oil supplies was just getting started...  

This Week's Rig Count

US drilling activity increased for the 1st time in 6 weeks and for 4th time in the past 15 weeks during the week ending November 10th, as only oil rigs were added this past week...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 9 rigs to 907 rigs in the week ending on Friday, which was also 339 more rigs than the 568 rigs that were deployed as of the November 11th report in 2016, while it was still well less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 9 rigs to 738 rigs this week, in just their 3rd increase in 14 weeks and, which put the count of active oil rigs up by 286 over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations was unchanged at 169 rigs this week, which was just 54 more gas rigs than the 115 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

activity offshore remained unchanged this week, with 18 rigs active in the Gulf of Mexico, down from the 21 rigs drilling in the Gulf a year ago....the count of active horizontal drilling rigs rose by 12 rigs to 764 rigs this week, their first increase in 6 weeks, putting them up by 319 rigs from the 457 horizontal rigs that were in use in the US on November 11th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count was up by 1 rig to 74 rigs this week, which was also up from the 52 directional rigs that were working during the same week last year...on the other hand, the vertical rig count was down by 5 rigs to 57 vertical rigs this week, which was also down from the 59 vertical rigs that were deployed on November 11th of 2016...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of November 10th, the second column shows the change in the number of working rigs between last week's count (November 3rd) and this week's (November 10th) count, the third column shows last week's November 3rd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 11th of November, 2016...         

November 10 2017 rig count summary

as you can see from the above tables, most of this week's rig increase was concentrated in Oklahoma's Cana Woodford basin, more popularly known by the acronym of the SCOOP - STACK play...that 7 rig increase was the largest for that basin since February 3rd, as it was not a major participant in this year's first half rig increase, which was led by drilling in the Permian of west Texas...also note that although the Permian did see a 6 rig increase this week, Texas saw a 4 rig decrease, all of which were outside of the major basins highlighted by Baker Hughes...the Permian district in Texas did see a three rig increase, while New Mexico saw an increase of 4 rigs, so one of those seven new rigs in the region was not targeting the Permian...lastly, note that there was also a rig pulled out of the Utica shale, while the Ohio and Pennsylvania rig counts were unchanged at 29 rigs and 31 rigs respectively...the best i can figure as to what happened there was that one rig was shut down in the Marcellus in West Virginia, while one rig was added in the Marcellus of Pennsylvania, while at the same time a Pennsylvania rig targeting the Utica shale was shut down...that would leave both the Marcellus and Pennsylvania rig counts unchanged, while showing one rig decreases in West Virginia and in the Utica, which is what we see...

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