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, October 15, 2017

US exports record distillates as domestic shortage worsens; OPEC revises oil demand estimates higher, glut disappears

oil prices rose in 4 out of 5 trading sessions this week and ended at a 2 week high...US WTI crude for November delivery initially rose 29 cents on Monday to close at $49.58 a barrel, on indications from OPEC that they would extend their production cuts past March of next year and attempt to get other producers who were not part of the original pact to go along...the embryonic rally picked up steam on Tuesday after the Saudis announced they would cut their exports by 560,000 barrels per day in November, shorting their Asian customers 10% of their allocations, with US crude increasing $1.34 or 2.7% to close at $50.92 a barrel...prices then rose for a third day on Wednesday, closing 38 more cents higher at $51.30, as Kurdish and Iraqi troops moved to confrontational positions after a Kurdish independence vote and OPEC reported increasing demand for oil...oil prices then slipped on Thursday despite the EIA report that showed lower oil supplies, as the same EIA report showed an unexpected increase in gasoline supplies and the International Energy Agency lowered its 2018 forecast for oil demand, with US crude for November closing 70 cents lower at $50.60 a barrel...oil then pushed to a two week high on Friday after Trump refused to certify Iran’s compliance with the international nuclear deal, raising the specter of new sanctions on their oil output, with US crude up 85 cents, or 1.7%, to settle at $51.45 a barrel, a gain of more than 4% for the week...

international oil prices were also higher this week, with North Sea Brent for December closing Friday at $57.17 a barrel, 10.5% higher than the US December WTI closing price of $51.73 a barrel, so the underpricing of US oil that's been resulting in record US oil exports that we've been complaining about the past month still persists...while US crude exports for this reporting week were down more than 35% from the prior week's record high, they were still at their 4th highest in US history...

OPEC's October oil report

with OPEC jawboning moving the oil markets again, we're going start by reviewing OPEC's October Oil Market Report (covering September OPEC & global oil data), which was released on Wednesday of this past week....the first table from this report that we'll include here is from page 66 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...  

September 2017 OPEC crude output via secondary sources

from the above table of official oil production data, we can see that OPEC oil output increased by 88,500 barrels per day in September, to 32,748,000 barrels per day, from a August production total of 32,659,000 barrels per day, a figure that was originally reported as 32,755,000 barrels per day (for your reference, here is the table of the official August OPEC output figures before this month's revisions)...as we can see in the far right column, the reasons that OPEC's output rose 88,500 barrels per day were the 53,900 barrel per day increase in output from Libya, and the 50,800 barrel per day increase from Nigeria, the two countries that were exempt from the output quotas due to domestic strife...other than those two countries, these totals mean most OPEC members other than Iraq remain close to their agreed to production quota, as can be seen in the table below:

October 2017 OPEC production and targets as of September 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 nine 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 eight months of this year that OPEC has curtailed production...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, who has consistently overproduced by more than 2%...however, cuts in excess of those agreed to by the Saudis and several other OPEC countries have generally made up for the 89,000 barrels per day that Iraq is 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 October 2015 to September 2017, and it comes from page 67 of the October OPEC Monthly Oil Market Report....the light 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...

September 2017 OPEC report global supply

the preliminary OPEC data indicates that total global oil production rose to 96.50 million barrels per day in September, up by .41 million barrels per day from a August total of 96.09 million barrels per day, which was revised .66 million barrels per day lower than the 96.75 million barrels per day global oil output for August that was reported a month ago...global oil output for September was still 0.10 million barrels per day higher than the 96.40 million barrels of oil per day that was being produced globally in September a year ago (see last October's OPEC report for the year ago data)... OPEC's September production of 32,748,000 barrels per day represented 33.9% of what was produced globally, a small decrease from their revised 34.0% share of August global output...OPEC's September 2016 production, excluding ex-member Indonesia, was at 32,672,000 barrels per day, so even after the alleged production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are still producing a bit more oil than they were producing a year ago, when they were supposedly 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, partly because of an upward revision in the estimate of global demand for oil, as the next table from the OPEC report will show us.. 

September 2017 OPEC report global 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 fourth column, we've circled in blue the figure that's relevant for September, which is their estimate for global oil demand for the third quarter of 2017... 

OPEC's estimate is that during the 3rd quarter of this year, all oil consuming areas of the globe have been using 97.49 million barrels of oil per day, which is a small downward revision from their prior estimate of 97.57 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 96.50 million barrels per day during September, which means that there was a shortfall of around 990,000 barrels per day in global oil production vis-a vis demand during the month...

also note that we have highlighted last month's estimates 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 8 months will also have to be revised...global oil demand for the second quarter was revised 160,000 barrels per day higher, to 96.21 barrels per day, and demand for the first quarter was revised 50,000 barrels per day higher, to 95.59 barrels per day...moreover, global oil production for August was concurrently revised lower, to 96.09 million barrels per day, so that means there was also a deficit of 1,400,000 barrels per day in August output, which we had previously figured to be a global oil deficit of around 820,000 barrels per day...July's global oil production of 97.16 million barrels per day was also a shortfall, but by just 330,000 barrels per day...

in addition, the 160,000 barrels per day upward revision to second quarter demand reduces the June surplus that we had computed to 920,000 barrels per day, and increases the May deficit to 290,000 barrels per day...before that, April's recomputed figures now show a 600,000 barrel per day deficit for the month, and prior to that the global oil surplus during March would be revised down to 470,000 barrels per day, and average surpluses over January and February would be reduced to around 690,000 barrels per day....taken together, this reports data means that after nine months of OPEC production cuts, the global oil glut has been reduced by roughly 27.5 million barrels of oil since the 1st of the year, reversing the 48 million barrel addition to the glut we reported last month, and the even larger additions to the glut we had reported in the months before that...

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 October 6th, showed an increase in our oil imports and a drop in our oil exports, but as refinery throughput also increased, our crude oil supplies fell again, for the fourth week in a row... our imports of crude oil rose by an average of 403,000 barrels per day to an average of 7,617,000 barrels per day during the week, while at the same time our exports of crude oil fell by 715,000 barrels per day to a still high 1,270,000 barrels per day, which meant that our effective imports netted out to an average of 6,347,000 barrels per day during the week, 1,117,000 barrels per day more than during the prior week...at the same time, our field production of crude oil fell by 81,000 barrels per day to an average of 9,480,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,857,000 barrels per day during the reported week...

at the same time, US oil refineries were using 16,258,000 barrels of crude per day, 229,000 barrels per day more than they used during the prior week, while during the same period 564,000 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 133,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-133,000) 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, which they label 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 still fell to an average of 5,988,000 barrels per day, 19.3% below the imports of the same four-week period last year....the rounded 564,000 barrel per day withdrawal from our total crude inventories came about on a 392,000 barrel per day withdraw from our commercial stocks of crude oil and a 171,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which apparently is still being tapped to address short term spot shortages caused by Hurricane Harvey...this week's 81,000 barrel per day decrease in our crude oil production was due to a 87,000 barrel per day decreases in output from wells in the lower 48 states, possibly due to Hurricane Nate, while output from Alaska rose by 6,000 barrels per day...the 9,480,000 barrels of crude per day that were produced by US wells during the week ending October 6th was still 8.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.2% more than the 8,450,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was 1.4% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 89.2% of their capacity in using those 16,258,000 barrels of crude per day, up from 88.1% of capacity the prior week, but still way down from the 96.6% capacity utilization rate refineries saw in the week before Hurricane Harvey struck....the 16,258,000 barrels of oil that was refined this week was still 8.3% less than the 17,725,000 barrels per day that were being refined six weeks earlier, but it was 5,4% more than the 15,552,000 barrels of crude per day that were being processed during week ending October 7th, 2016, when refineries were operating at 85.5% of capacity, a reduction probably due to seasonal maintenance...

even with the increase in US oil refining, gasoline production from our refineries was lower, dropping by 112,000 barrels per day to 9,741,000 barrels per day during the week ending October 6th, which was also 2.0% lower than the 9,935,000 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 35,000 barrels per day to 4,964,000 barrels per day, which was 10.4% more than the 4,496,000 barrels per day of distillates that were being produced during the week ending October 7th last year....  

even with the drop in our gasoline production, our end of the week gasoline inventories rose by 2,490,000 barrels to 221,426,000 barrels by October 6th, the third increase in gasoline inventories in a row...that increase was mostly because our exports of gasoline fell by 231,000 barrels per day to 409,000 barrels per day, while our imports of gasoline fell by 2,000 barrels per day but remained elevated at 860,000 barrels per day...offsetting that, however, our domestic consumption of gasoline rose by 239,000 barrels per day to a seasonal high of 9,480,000 barrels per day at the same time...still, with significant gasoline supply withdrawals in 11 out of the last 17 weeks, our gasoline inventories are still down by 8.7% from June 9th's level of 242,444,000 barrels, and 1.8% below last October 7th's level of 225,498,000 barrels, even as they are still roughly 4.7% 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 still fell by 1,480,000 barrels to 133,959,000 barrels over the week ending September 29th, the 6th weekly drop in a row....that was because our exports of distillates rose by 246,000 barrels per day to a record 1,612,000 barrels per day, while our imports of distillates rose by 14,000 barrels per day to 85,000 barrels per day...at the same time, the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 359,000 barrels per day to 3,648,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 14.7% lower than the 156,972,000 barrels that we had stored on October 7th, 2016, and 5.6% lower than the 10 year average for distillates stocks for this time of the year

finally, with our oil exports still at an elevated level, our commercial crude oil inventories fell for the 23rd time in 28 weeks, decreasing by 2.747,000 barrels, from 464,963,000 barrels as of September 29th to 462,216,000 barrels on October 6th...while our oil inventories as of October 6th were 2.5% below the 473,958,000 barrels of oil we had stored on October 7th of 2016, they were still 5.9% higher than the 436,590,000 barrels in of oil that were in storage on October 9th of 2015, and 36.2% greater than the 339,303,000 barrels of oil we had in storage on October 10th of 2014...

This Week's Rig Count

US drilling activity decreased for 8th time in the past 11 weeks during the week ending October 13th, and we've now seen only 4 increases in drilling in the past 14 weeks, following an expansion of drilling activity that ran 23 consecutive weeks earlier this year...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 8 rigs to 928 rigs in the week ending Friday, which was still 389 more rigs than the 539 rigs that were deployed as of the October 14th report in 2016, while it was 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 down by 5 rigs to 743 rigs this week, their 9th decrease in 10 weeks, which still left active oil rigs up by 311 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 decreased by 2 rigs to 185 rigs this week, which was 80 more rigs than the 105 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, the only rig that was classified as miscellaneous was shut down this week, leaving none such active, in contrast to the 2 miscellaneous rigs that were deployed during the same week last year..

2 drilling platforms in the Gulf of Mexico off the shore of Louisiana were shut down this week, leaving 20 rigs still running in the Gulf, down from 22 Gulf rigs a year ago...however, last year there was also a rig drilling in the Cook Inlet, offshore of Alaska, which means this week's total offshore rig count of 20 rigs is down three rigs from the 23 offshore rigs of a year ago....

the count of active horizontal drilling rigs was down by 6 rigs to 786 rigs this week, which was still up by 355 rigs from the 431 horizontal rigs that were in use in the US on October 14th of last year, but still 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 down by 2 rigs to 63 vertical rigs this week, but still up from the 57 vertical rigs that were deployed during the same week last year....meanwhile, the directional rig count was unchanged at 79 rigs this week, which was up from the 51 directional rigs that were deployed on October 14th of 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 October 13th, the second column shows the change in the number of working rigs between last week's count (October 6th) and this week's (October 13th) count, the third column shows last week's October 6th 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 14th of October, 2016...     

October 13 2017 rig count summary

it looks like the largest losses this week were in two of the Texas basins, as the Eagle Ford in the south saw six rigs shut down, and the Barnett shale underlying the Dallas/Ft Worth region had their count cut back by 4 rigs...those two basins also account for the natural gas rig reductions, since the Eagle Ford saw its gas directed rig count drop by 2 rigs to 5 rigs, while Barnett shale drillers cut one gas rig and three oil rigs and had 3 gas rigs and one oil rig remaining...the natural gas addition to balance those closures was in the Denver-Julesburg Niobrara, where a well was spud seeking natural gas for the first time in two years...drilling in the Utica and the Marcellus remained unchanged in the aggregate, although it does appear that one Marcellus rig was shut down in West Virginia while one was started in Pennsylvania at the same time....outside of the states shown among the major producers in the first table above, Mississippi also had a rig shut down this week, leaving them with 3 rigs still running, the same number they had running on October 14th a year ago...

 

NOTE: there’s more here

Consumer Prices up 0.5% in September on Gasoline Price Spike

the consumer price index increased by 0.5% in September, as gasoline prices spiked after the Texas Gulf Coast refineries were shut down by Hurricane Harvey, accounting for about three-fourths of the month’s overall price increase...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index rose 0.5% in September after rising 0.4% in August. 0.1% in July, being unchanged in June and after falling 0.1% in May....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 245.519 in August to 246.819 in September, which left it statistically 2.233% higher than the 241.428 index reading of last September, which is reported as a 2.2% year over year increase...with higher prices for gasoline driving the gain in the overall index, seasonally adjusted core prices, which exclude food and energy, rose by 0.1% for the month, with the unadjusted core index rising from 252.460 to 252.941, which put it 1.69% ahead of its year ago reading of 248.731...

the volatile seasonally adjusted energy price index increased by 6.1% in September, after it had risen 2.8% in August but after it fell by 0.1% in July, 1.6% in June, and 2.7% in May...however, energy prices are now averaging 10.1% higher than a year ago, after seeing negative year over year comparisons through most of 2015 and 2016...prices for energy commodities were up by 12.6% in September, while the index for energy services fell by 0.2%, after falling 0.1% in August, 0.2% in July and 0.5% in June... the increase in the energy commodity index included a 13.0% jump in the price of gasoline, the largest component, and a 8.2% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, rose by an average of 1.8%…within energy services, the index for utility gas service fell by 0.8% after decreasing by 0.5% in August and 2.3% in July, but utility gas is still priced 3.8% higher than it was a year ago, while the electricity price index was unchanged for the second month in a row....energy commodities are now priced 18.9% above their year ago levels, with gasoline prices averaging 19.3% higher than they were a year ago...meanwhile, the energy services price index is now 2.2% higher than last September, as electricity prices have also risen by 1.7% over that period..

the seasonally adjusted food price index was up 0.1% in September, after rising 0.1% in August, 0.2% in July, being unchanged in June, rising 0.2% in May, 0.2% in April, 0.3% in March, 0.2% in February, and 0.1% in January, but after being unchanged in each of the prior 6 months, as the index for food purchased for use at home was unchanged in September, while prices for food bought to eat away from home was 0.3% higher, as prices at fast food outlets rose 0.4% and prices at full service restaurants both rose 0.2%, while food prices at schools rose 2.1%...

in the food at home categories, the price index for cereals and bakery products increased by 0.1%, as prices for bread fell 0.7% while other bakery product prices rose 1.0%...the price index for the meats, poultry, fish, and eggs group was down 0.4% as beef prices fell 0.7% and ham prices fell 2.2%, while the index for dairy products was 0.6% lower on 1.6% decrease in the price of fresh milk other than whole...the fruits and vegetables index was 0.2% lower on a 0.8% decrease in prices for fresh vegetables, and a 1.5% decrease in prices for frozen fruits and vegetables...on the other hand, the beverages index was 0.4% higher as roast coffee prices were up 1.3% and carbonated drink prices rose 0.5%....lastly, prices in the ‘other foods at home’ category were 0.3% lower on average, as butter prices fell 2.0% and salad dressing prices were 0.6% lower.......among food at home line items, only bacon, which is now priced 13.4% higher than a year ago, has seen a price change greater than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.1% in September after rising by 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods fell by 0.2%, while the more heavily weighted composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust September retail sales for inflation in national accounts data, the index for household furnishings and supplies was 0.4% lower on a 1.5% decrease in prices for laundry appliances and a 3.2% drop in prices for dishes and flatware, while the apparel price index was 0.1% lower as a 3.2% increase in prices for men's suits and outerwear was offset by a 5.1% decrease in prices for women's outwear...prices for transportation commodities other than fuel were down 0.3%, as prices for new cars were down 0.5% while prices for motor oil, coolant, and fluids fell 0.9%...meanwhile, prices for medical care commodities were 0.8% lower on a 1.4% decrease in nonprescription drug prices...on the other hand, the recreational commodities index was unchanged as another 1.5% drop in TV prices was offset by a 1.0% increase in prices for film and photographic supplies and a 1.2% increase in the index for toys, games, hobbies and playground equipment...at the same time, the education and communication commodities index was 1.2% lower on 1.9% decreases in prices for college textbooks and for computer software and accessories...lastly, a separate price index for alcoholic beverages was up 0.4% on 0.8% higher beer prices, while the price index for ‘other goods’ was up 0.5% on a 1.1% increase in the index for hair, dental, shaving, and other personal care products and a 1.7% increase in prices for stationery, gift wrap and other personal paper supplies..

within core services, the price index for shelter rose 0.3% on a 0.2% increase in rents, a 0.2% increase in owner's equivalent rent, and a 1.7% increase in costs for lodging away from home at hotels and motels, while costs for water, sewers and trash collection rose 0.3% and other household operation costs were unchanged....meanwhile, the index for medical care services was up 0.1%, as prices for both hospital services and physicians' services were up 0.2% while health insurance was 0.2% lower...at the same time, the transportation services index was 0.3% higher on an 1.8% increase in intracity mass transit fees and 0.8% higher motor vehicle repairs....the recreation services index rose 0.2% as film processing rose 2.1% and video & audio rental services rose 1.2%, while the index for education and communication services also rose 0.2% as wireless telephone services rose 0.4% and college tuitions rose 0.6%...lastly, the index for other personal services was unchanged as tax return services rose 0.1% and legal services fell 0.2%...among core prices, only the index for clocks, lamps, and decorator items, which is now 13.1% lower than a year ago, and prices for wireless phone services, which are now 11.7% lower than a year ago, have seen prices drop by more than 10% over the past year, while no core line item has seen prices rise by a double digit magnitude in that span..  

 

NOTE: there’s more economic news here

Sunday, October 8, 2017

US oil exports hit another record high as US oil continues to sell at a 12% discount

US oil prices were broadly lower this week for the first time since August, but international prices still remain 12% higher for comparative grades of oil, which has now resulted in a second week of record high US oil exports...US prices started the week by falling $1.09 a barrel to $50.58 a barrel on Monday, after a Reuters survey indicated that OPEC had increased their oil output in September....US crude for November delivery then fell another 16 cents to $50.42 a barrel on Tuesday, as speculators continued to cash in their profits after big third quarter gains...oil prices then slipped below $50 a barrel for the first time in more than two weeks on Wednesday, shedding 44 cents to close at $49.98 a barrel, as the EIA report that the US was exporting oil at a record 2 million barrels per day fanned fears that US exports would exacerbate global oversupply...oil prices then recovered and rose 81 cents on Thursday to close at $50.79 a barrel, as indications that Saudi Arabia and Russia would limit production through 2018 pushed prices higher globally....US crude futures then dropped $1.50, or nearly 3%, to $49.29 a barrel on Friday, as yet another hurricane approached the Gulf Coast ports and traders pulled back in advance of Trump's decision next week on the international deal that curbs Iran's nuclear program...US crude thus ended nearly 5% lower for the week, in its first weekly decline in over a month...

however, the problem for US oil remains that despite this week's drop, global oil prices remain roughly 12% higher than those here, which is spurring record exports of US crude....to look at how that developed, we'll include a graph that shows the premium price of Brent crude, the global benchmark, over that of West Texas Intermediate (WTI) crude, the US benchmark, right up to Thursday of this week....

October 7 2017 Brent WTI divergence

the above graph was part of a chart book that was linked to in an article by John Kemp at Reuters titled 'WTI discount to Brent reflects logistics constraints: Kemp', published on Friday of this week, and it tracks the premium of the price for North Sea Brent, the global oil benchmark, over that of West Texas Intermediate (WTI), the US benchmark, since the beginning of this year, with both prices quoted for December delivery (because trading for November Brent expired last Friday)...the point that John makes in his article is that even as overall US crude supplies have been falling, they've been increasing in the Midwest, or more specifically in PADD 2, (Petroleum Administration for Defense District 2) a geographic aggregation that includes all the states from Ohio to Oklahoma and North Dakota...since WTI is priced at Cushing Oklahoma, his thinking goes, that Midwest glut is pushing down the price of WTI vis-a-vis the rest of the world...

while that may be true as far as WTI goes, it's hard for me to see how that Midwest glut could be having such an impact on all North American oil prices....oilprice.com publishes daily a list of over 50 different oil prices from around the US and around the globe, and we can see from that table that US oil prices that should not be impacted by the Midwest glut are similarly discounted...Mars crude, which is an index of Gulf of Mexico deepwater crudes, was priced at $50.52 on Friday, $1.23 more than WTI but still $4.10 lower than Brent...furthermore, there's a list of over a dozen grades of Texas crude, with easy access to the Gulf ports, that are all priced below $46 a barrel....Eagle Ford crude at $45.74 a barrel, for instance, is just a stone's throw away from Corpus Christi, the largest US crude export terminal; if the same oil will fetch $55 a barrel on global markets, they'd be foolish not to export it an pocket the profit...even worse, US crude oil has been selling at a price so low that the Saudis, who own the largest US refinery, could buy it, ship it to their country, resell it as their own and still make a 10% profit...and that disconnect will continue until such time as the spread between US prices and international prices closes enough to prohibit it...

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 September 29th, showed a modest decrease in the amount of oil used by refineries and a modest decrease in our oil imports coupled with a big jump in our now record oil exports, and as a result our crude oil supplies fell by the most in four weeks.... our imports of crude oil fell by an average of 213,000 barrels per day to an average of 7,214,000 barrels per day during the week, while at the same time our exports of crude oil rose by 419,000 barrels per day to a record high of 1,984,000 barrels per day, which meant that our effective imports netted out to an average of 5,230,000 barrels per day during the week, 706,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 14,000 barrels per day to an average of 9,561,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 14,791,000 barrels per day during the reported week...

at the same time, US oil refineries were using 16,029,000 barrels of crude per day, 145,000 barrels per day less than they used during the prior week, while during the same period 996,000 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 242,000 fewer barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+242,000) 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, which they label 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 inched up to an average of 7,122,000 barrels per day, which was 10.7% below the imports of the same four-week period last year....the rounded 996,000 barrel per day withdrawal from our total crude inventories came about on a 860,000 barrel per day withdrawal from our commercial stocks of crude oil and a 136,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is still being tapped to address temporary spot shortages caused by Hurricane Harvey...this week's 14,000 barrel per day increase in our crude oil production all came by way of an increase in oil output from Alaska as output from wells in the lower 48 states was unchanged...the 9,561,000 barrels of crude per day that were produced by US wells during the week ending September 29th was the most oil produced in any week since July 17th, 2015, 9.0% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 13.0% more than the 8,460,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was still a half percent below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 88.1% of their capacity in using those 16,029,000 barrels of crude per day, down from 88.6% of capacity the prior week, and down from the 96.6% capacity utilization rate in the week before Harvey struck....the 16,029,000 barrels of oil that was refined this week was still 9.6% less than the 17,725,000 barrels per day that were being refined five weeks earlier, but it was virtually the same as the 16,032,000 barrels of crude per day that were being processed during week ending September 30th, 2016, when refineries were operating at 88.3% of capacity, as they are now slowing down during this time of seasonal maintenance...

with the modest decrease in US oil refining, gasoline production from our refineries was little changed, slipping by just 2,000 barrels per day to 9,853,000 barrels per day during the week ending September 29th, which was 1.4% lower than the 9,988,000 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 290,000 barrels per day to 4,929,000 barrels per day, which was 4.5% more than the 4,713,000 barrels per day of distillates that were being produced during the week ending September 30th last year....  

with little change in our gasoline production, our end of the week gasoline inventories rose by 1,525,000 barrels to 217,292,000 barrels by September 29th, just the 5th increase in gasoline inventories in 16 weeks...that increase was mostly because our domestic consumption of gasoline fell by 281,000 barrels per day to 9,241,000 barrels per day, while our imports of gasoline fell by 179,000 barrels per day but remained elevated at 862,000 barrels per day, and while our exports of gasoline rose by 90,000 barrels per day to 640,000 barrels per day...still, with significant gasoline supply withdrawals in 11 out of the last 16 weeks, our gasoline inventories are still down by 9.7% from June 9th's level of 242,444,000 barrels, and 3.7% below last September 30th's level of 227,405,000 barrels, even as they are still roughly 2.3% 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 1,644,000 barrels to 135,439,000 barrels over the week ending September 29th, the 5th weekly drop in a row....that was mostly because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 261,000 barrels per day to 4,007,000 barrels per day, and because our exports of distillates rose by 273,000 barrels per day to 1,366,000 barrels per day, while our imports of distillates fell by 12,000 barrels per day to 72,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 15.7% lower than the 160,718,000 barrels that we had stored on September 30th, 2016, and 5.6% lower than the 10 year average for distillates stocks for this time of the year…since our distillates supplies are now abnormally low for this time of year, we'll again include a graph of what that looks like compared to their recent history:

October 4th distillate supplies as of Sept 29

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 middle 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 an obvious 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, beginning even before the post-Harvey refinery shut downs...we're now heading into a period where refineries will be partially shut down for annual maintenance, so it now looks likely that heat oil supplies will be very tight going into winter...

finally, with the big jump in our oil exports and a decrease in imports, our commercial crude oil inventories fell for the 22nd time in 27 weeks, decreasing by 6,023,000 barrels, from 470,986,000 barrels as of September 22nd to 464,963,000 barrels on September 29th...while our oil inventories as of September 29th were still fractionally below the 469,108,000 barrels of oil we had stored on September 30th of 2016, they were still 8.4% higher than the 429,028,000 barrels in of oil that were in storage on October 2nd of 2015, and 40.7% greater than the 330,380,000 barrels of oil we had in storage on October 3rd of 2014... 

since the major oil story this week is again our record oil exports, we'll include this week's graph of them so you can see how much they've jumped..

October 4th crude exports as of Sept 29

the above graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters...this graph shows weekly US crude oil exports in thousands of barrels per day over the past 13 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over the past 5 weeks...last week i thought our record oil exports might just be a rebound after the Gulf ports reopened after Harvey's damage was cleared; this week it's clear that our exports are now far and above what any rebound would result in, and that's it's now clear our oil is being exported simply because it's so cheaply priced...

This Week's Rig Count

US drilling activity decreased for 7th time in the past 10 weeks during the week ending October 6th, as it continued the contraction that began in mid-July, following an expansion of activity that ran 23 consecutive weeks earlier this year...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 4 rigs to 936 rigs in the week ending Friday, which was still 412 more rigs than the 524 rigs that were deployed as of the October 7th report in 2016, while it was 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 down by 2 rigs to 748 rigs this week, their 8th decrease in 9 weeks, which still left active oil rigs up by 320 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 decreased by 2 rigs to 187 rigs this week, which was 93 more rigs than the 94 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous continued drilling this week, down from the 2 miscellaneous rigs that were deployed the same week last year..

drilling continued from 22 platforms the Gulf of Mexico this week, unchanged from last week and from a year ago...however, last year there was also a rig drilling in the Cook Inlet, offshore of Alaska, which means this week's total offshore rig count of 22 rigs is down a rig from the 23 rigs of a year ago....in addition, another platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of just 1 rig, the same as the inland waters count of a year ago...

the count of active horizontal drilling rigs fell by 2 rigs to 792 rigs this week, which was still up by 379 rigs from the 413 horizontal rigs that were in use in the US on October 7th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the directional rig count was down by 3 rigs to 79 rigs this week, which was still up from the 50 directional rigs that were deployed on October 7th of of 2016.....on the other hand, the vertical rig count was up by 1 rig to 65 vertical rigs this week, up from the 61 vertical rigs that were deployed 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 October 6th, the second column shows the change in the number of working rigs between last week's count (September 29th) and this week's (October 6th) count, the third column shows last week's September 29th 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 7th of October, 2016...     

October 6 2017 rig count summary

 

note:  there’s more here

Sunday, October 1, 2017

US oil production at a 26 month high, US oil exports at a record high..

both US and international oil prices were higher again this week, largely on the strength of a Monday rally that saw US WTI prices rise $1.56 a barrel to a 5 month high at $52.22 a barrel, while North Sea Brent rose $2.16 a barrel to $59.02 a barrel...prices for both oil contracts then fell back in profit taking on Tuesday, with US WTI for November delivery shedding 34 cents and closing at $51.88, while Brent for November delivery fell 58 cents to 58.44 a barrel...however, after Wednesday's EIA report showed that US crude exports were at a record high, US oil prices rose 26 cents to $52.14, while the international benchmark price fell 54 cents to $57.90 a barrel...prices for both crude grades pulled back on Thursday as oil traders closed out their positions ahead of the end of the third quarter, with US crude falling 58 cents to 51.56 a barrel and Brent falling 59 cents to 57.41...however, the oil price rally resumed on Friday, on fears of geopolitical instability in Iraqi Kurdistan, with US crude prices finishing 11 cents higher at $51.67 a barrel, thus closing September with a 9.4% increase, their largest monthly gain since April 2016, while Brent prices ended the day up 13 cents at $57.54 a barrel in the strongest 3rd quarter gain for the international oil benchmark in 13 years..

now, although we've been warning over the past few weeks that such a large price difference between the US benchmark and the international oil price would lead to a surge in US crude exports, and although we did see a record for US crude exports this week, we're not yet sure that the coincidence is connected, as we did think it would take more than a few weeks for that price driven trade in physical oil to develop...let's take a look at a graph of recent US exports so i can point out the reason for my skepticism...

September 27 2017 oil exports as of Sept 22nd

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 weekly US crude oil exports in thousands of barrels per day over the past 13 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over the past 4 weeks...what we can see from the recent history is that our weekly crude oil exports have been very volatile this year, generally over 500,000 barrels per day, but occasionally jumping to as high as 1,200,000 or 1,300,000 barrels per day...the reason that the volume of our crude exports appears so irregular is largely due to the size of the oil tankers and the time it takes to load them...the largest oil tankers can transport as much as 2,000,000 barrels of oil at once, so any week when a number of tankers happen to leave port within a few days of each other, we're going to see a spike in exports on a barrels per day basis...

with that in mind, then, look above at our oil exports for the last 4 weeks...in the week ending September 1st, our oil exports fell to a 3 year low at 153,000 barrels per day, as Hurricane Harvey shut down Corpus Christi and other Texas oil export ports...there was then a recovery to 774,000 barrels per day during the week ending the 8th, and to 928,000 barrels per day during the week ending September 15th, a time when many Texas ports still had draft restrictions in place, limiting the size of the ships that could enter...so it's possible that this week's spike in oil exports was just 'catching up' after Harvey, as the larger tankers that had been waiting offshore were finally docked, filled and departed...that's not to say that US oil exports wont eventually rise due to the lower price of US crude compared to that of international grades, but that from what we see here, we don't yet know if that has yet begun....

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 September 22nd, showed a big increase in the amount of oil used by refineries, that aforementioned big jump in our oil exports, and just modest increases in US oil production and imports, and as a result our crude oil supplies fell for the first time in four weeks....our imports of crude oil rose by an average of 59,000 barrels per day to an average of 7,427,000 barrels per day during the week, while at the same time our exports of crude oil rose by 563,000 barrels per day to a record high of 1,491,000 barrels per day, which meant that our effective imports netted out to an average of 5,936,000 barrels per day during the week, 504,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 37,000 barrels per day to an average of 9,547,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,583,000 barrels per day during the reported week... 

during the same period, US oil refineries were using 16,174,000 barrels of crude per day, 1,002,000 barrels per day more than they used during the prior week, and at the same time 377,000 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 314,000 fewer barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+314,000) 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, which they label 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 7,090,000 barrels per day, which was 9.3% below the imports of the same four-week period last year....the rounded 377,000 barrel per day withdrawal from our total crude inventories came about on a 264,000 barrel per day addition to our commercial stocks of crude oil and a 114,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is still being tapped to address temporary spot shortages caused by Hurricane Harvey...this week's 37,000 barrel per day increase in our crude oil production was the result of a 16,000 barrels per day increase in oil output from wells in the lower 48 states and a 21,000 barrel per day increase in oil output from Alaska...the 9,547,000 barrels of crude per day that were produced by US wells during the week ending September 22nd was the most oil produced in any week since July 17th, 2015, 8.9% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.4% more than the 8,497,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was still 0.7% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015...  

US oil refineries were operating at 88.6% of their capacity in using those 16,174,000 barrels of crude per day, up from the of 83.2% of capacity the prior week, but down from the 96.6% capacity utilization rate in the week before Harvey struck....the 16,174,000 barrels of oil that was refined this week was up 14.9% from the 14,078,000 barrels of crude per day that were being processed two weeks earlier, but still 8.8% less than the 17,725,000 barrels per day that were being refined four weeks earlier, and 1.0% below the 16,334,000 barrels of crude per day that were being processed during week ending September 23rd, 2016, when refineries were operating at 90.1% of capacity...

even with the big increase in US oil refining, gasoline production from our refineries rose by just 62,000 barrels per day to 9,855,000 barrels per day during the week ending September 22nd...however, that gasoline output was still 3.1% higher than the 9,555,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 97,000 barrels per day to 4,639,000 barrels per day, which was still 1.5% less than the 4,709,000 barrels per day of distillates that were being produced during the week ending September 23rd last year....   

with the increase in gasoline production, our end of the week gasoline inventories rose by 1,107,000 barrels to 217,292,000 barrels by September 22nd, only the 4th increase in gasoline inventories in 15 weeks...that increase was largely because our imports of gasoline rose by 354,000 barrels per day to 1,041,000 barrels per day while our exports of gasoline rose by just 6,000 barrels per day to 550,000 barrels per day, and while our domestic consumption of gasoline rose by 81,000 barrels per day to 9,522,000 barrels per day....still, with significant gasoline supply withdrawals in 11 out of the last 15 weeks, our gasoline inventories are still down by 10.3% from June 9th's level of 242,444,000 barrels, and 4.4% below last September 23rd's level of 227,183,000 barrels, even as they are still roughly 2.7% above the 10 year average of gasoline supplies for this time of the year... 

  even with the increase in our distillates production, their output still remained below normal, and hence our supplies of distillate fuels fell by 814,000 barrels to 138,045,000 barrels over the week ending September 22nd, following a big 5,693,000 barrel drop the prior week....that was mostly because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 518,000 barrels per day to 3,746,000 barrels per day, and as our exports of distillates fell by 84,000 barrels per day to 1,093,000 barrels per day, while our imports of distillates at 84,000 barrels per day were little changed from the prior week...after this week’s decrease, our distillate inventories ended the week 15.3% lower than the 163,077,000 barrels that we had stored on September 23rd, 2016, and 4.2% lower than the 10 year average for distillates stocks for this time of the year

finally, with the big jump in our oil exports and the increase in the use of crude by our refineries, our commercial crude oil inventories fell for the first time in four weeks, decreasing by 1,846,000 barrels to 470,986,000 barrels as of September 22nd, also the 21st decrease in the past 26 weeks...while our oil inventories as of September 15th were still fractionally below the 472,084,000 barrels of oil we had stored on September 23rd of 2016, they were still 10.6% higher than the 425,988,000 barrels in of oil that were in storage on September 25th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 44.7% greater than the 325,465,000 barrels of oil we had in storage on September 26th of 2014... 

This Week's Rig Count

US drilling activity increased for just the 4th time in the past 12 weeks during the week ending September 29th, after a string of 23 consecutive weekly increases earlier this year, with oil well drilling up while gas well decreased....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 940 rigs in the week ending Friday, which was 418 more rigs than the 522 rigs that were deployed as of the September 30th report in 2016, while it was 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 up by 6 rigs to 750 rigs this week, their first increase in 8 weeks, which still put oil rigs up by 325 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 decreased by one rig to 189 rigs this week, which was 93 more rigs than the 96 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous continued drilling this week, same as a year ago...

drilling started from 3 more platforms off the Louisiana coast this week, and hence the Gulf of Mexico rig count increased by 3 to 22 rigs this week, which was hence up from the 21 rigs that were drilling in the Gulf a year ago...however, a year ago there was also a rig drilling the Cook Inlet, offshore of Alaska, which means this week's total offshore rig count of 22 is the same as that of a year ago....however, another platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of just 2 rigs, down from 3 on inland waters a year ago... 

the count of active horizontal drilling rigs rose by 4 rigs to 794 rigs this week, which was also up by 387 rigs from the 407 horizontal rigs that were in use in the US on September 30th of last year, but was still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the directional rig count was up by 5 rigs to 82 rigs this week, which was also up from the 51 directional rigs that were deployed on September 30th of 2016.....on the other hand, the vertical rig count was down by 4 rigs to 64 vertical rigs this week, the same number of vertical rigs that were deployed 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 September 29th, the second column shows the change in the number of working rigs between last week's count (September 22nd) and this week's (September 29th) count, the third column shows last week's September 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 30th of September, 2016...      

September 29 2017 rig count summary

what you might immediately notice from the above table is that despite an increase of 5 rigs nationally, and an increase of 4 horizontal rigs, the count of rigs in the major geological oil and gas basins that are tracked separately is down...that's mostly because neither of the oil basins in Utah, the state with the largest rig count increase this week, are covered individually by this Baker Hughes report (there is a North America Rotary Rig Count Pivot Table (xls) which covers each well drilled since 2011 as a line item, but it's tedious to search through)...so except for that 4 rig increase in Utah, and the 3 rig increase in the Gulf of Mexico off Louisiana, drilling in the rest of the country was pretty much stagnant, with Oklahoma, where their horizontal drilling has been damaging their old vertical wells, seeing the largest decrease...and in addition to the major producing states shown on the table above, both Illinois and Mississippi saw single rig increases this week; those additions increased Illinois drilling activity to 2 rigs, same as a year ago, and increased the Mississippi count to 4 rigs, up from 3 rigs a year ago...

 

note: there's more here...

Sunday, September 24, 2017

US oil prices still at a discount to those overseas; heat oil supplies shrinking heading into winter

US oil prices closed above $50 a barrel for the first time since May this week, but the real story continues to be that the international price for the same grade of oil remains more than 12% higher...while US WTI for November delivery closed on Friday at $50.66 a barrel, an increase of 22 cents on the week, the international benchmark of North Sea Brent for November, an equivalent grade of light sweet crude, was closing in London at $56.86 a barrel, an increase of $1.24 a barrel...as we pointed out last week, that price spread between the US benchmark and the international price also carries well into 2018 oil contracts; for instance, a contract to deliver US crude to Cushing Oklahoma in April of 2018 will get you $51.60 a barrel, whereas the equivalent Brent contract price for April of 2018 will get you $55.70 a barrel...since the cost of shipping oil overseas runs between a dollar and 2 dollars a barrel, depending on the distance shipped, that price difference of more than $4 a barrel creates a strong incentive for those who own US oil in storage to contract to export it at a better price than they can get by contracting to sell it domestically, to US refineries for example...

early this week it appeared that we might have a natural gas price rally on our hands too, but that blew out when a much above normal addition of gas to storage sent prices tumbling...the contract price for natural gas for October delivery had generally stayed in a narrow range between $2.90 per mmBTU (million British Thermal Units) and $3 per mmBTU through most of August, a price generally unprofitable for most Marcellus and Utica exploitation...last week, however, natural gas staged a 4 day mini-rally that added 18 cents per mmBTU to the price, which lasted until a bearish natural gas storage report knocked 4.6 cents off the Friday price and it closed the week at $3.024 per mmBTU...however, by Monday of this week, the weather forecasts had changed, with warmer-than-normal temperatures expected to persist through the end of September across the eastern half of the US, and hence the October natural gas futures contract jumped 12.2 cents to settle at $3.146/MMBtu in anticipation of a late-season demand for cooling...prices then drifted lower, giving up 2.4 cents on Tuesday and another 2.8 cents on Wednesday, while traders waited for the weekly natural gas report....prices then plunged almost 5% on Thursday when that Weekly Natural Gas Storage Report from the EIA showed that utilities added 97 billion cubic feet of gas to storage during the week ended Sept. 15th, compared to a 54 billion cubic feet increase during the same week a year ago and the five-year average increase of 73 billion cubic feet for the same period, as October natural gas futures settled down 14.8 cents, or 4.8 percent, at $2.946 per million BTUs...while prices inched up 1.3 cents on Friday, they still closed the week down 6.5 cents at $2.959 per mmBTU, just about the midpoint of their two month price range...

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 September 15th, showed that oil production and imports were close to returning to normal after Hurricane Harvey's disruptions, but refineries still lagged their pre-Harvey pace, and as a result our crude oil supplies rose for the third week in a row...our imports of crude oil rose by an average of 888,000 barrels per day to an average of 7,368,000 barrels per day during the week, while at the same time our exports of crude oil rose by 154,000 barrels per day to an average of 928,000 barrels per day, which meant that our effective imports netted out to an average of 6,440,000 barrels per day during the week, 734,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 157,000 barrels per day to an average of 9,510,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,950,000 barrels per day during the reported  week...

during the same period, US oil refineries were using 15,172,000 barrels of crude per day, 1,094,000 barrels per day more than they used during the prior week, and at the same time 426,000 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 352,000 more barrels per day than what refineries reported they used during the week plus what was added to storage...to account for that discrepancy, the EIA needed to insert a (-352,000) 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, which they label 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 7,209,000 barrels per day, which was 10.9% below the imports of the same four-week period last year....the 462,000 barrel per day increase in our total crude inventories came about on a 656,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 230,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is presently being tapped to address temporary spot shortages caused by Harvey...this week's 157,000 barrel per day increase in our crude oil production was the result of a 179,000 barrels per day rebound in oil output from wells in the lower 48 states and a 22,000 barrel per day decrease in oil output from Alaska...the 9,510,000 barrels of crude per day that were produced by US wells during the week ending September 15th was still slightly less than the 9,530,000 barrels of crude per day being produced during the pre-hurricane week ending August 25th, but it was 8.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.7% more than the 8,512,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was 1.0% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 83.2% of their capacity in using those 15,172,000 barrels of crude per day, up from the of 77.7% of capacity the prior week, but down from the 96.6% capacity utilization rate in the week before Harvey struck....the 15,172,000 barrels of oil refined this week was up 7.8% from the 14,078,000 barrels of crude per day that was being processed the prior week, but still 14.4% less than the 17,725,000 barrels per day that was being refined three weeks earlier, and 8.5% less than the 16,587,000 barrels of crude per day that were being processed during week ending September 16th, 2016, when refineries were operating at 92.0% of capacity...

even with the increase in US oil refining, gasoline production from our refineries slipped by 95,000 barrels per day to 9,793,000 barrels per day during the week ending September 15th...that left this week's gasoline output 2.7% lower than the 10,083,000 barrels of gasoline that were being produced daily during the comparable week a year ago....however, our refineries' production of distillate fuels (diesel fuel and heat oil) jumped by 570,000 barrels per day to 4,543,000 barrels per day at the same time, which was still 8.7% less than the 4,978,000 barrels per day of distillates that were being produced during the week ending September 16th last year....  

with the ongoing reduced level of gasoline production, our end of the week gasoline inventories fell by 2,125,000 barrels to 216,185,000 barrels by September 15h, the 11th decrease in gasoline inventories in 14 weeks...that was despite the fact that our domestic consumption of gasoline fell by 178,000 barrels per day to 9,441,000 barrels per day, while our imports of gasoline rose by 131,000 barrels per day to 687,000 barrels per day and while our exports of gasoline rose by 16,000 barrels per day to 544,000 barrels per day....with significant gasoline supply withdrawals in 11 out of the last 14 weeks, our gasoline inventories are now down by 10.8% from June 9th's level of 242,444,000 barrels, and 4.0% below last September 16th's level of 225,156,000 barrels, even as they are still roughly 1.8% above the 10 year average of gasoline supplies for this time of the year...  

even with the big increase in our distillates production, their output still remained well below normal, and hence our supplies of distillate fuels fell by 5,693,000 barrels to 138,859,000 barrels over the week ending September 15th, the largest one week drop since November 2011...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 207,000 barrels per day to 4,264,000 barrels per day, and as our exports of distillates rose by 666,000 barrels per day to 1,177,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 85,000 barrels per day...after this week’s big decrease, our distillate inventories ended the week 15.8% lower than the 164,992,000 barrels that we had stored on September 16th, 2016, and 3.5% lower than the 10 year average for distillates stocks for this time of the year…since our distillates supplies have now dropped to below normal for the first time since we've tracked them, we'll take a look at a picture of what that looks like compared to their recent history:

September 20 2017 distillate supplies as of Sept 15

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 middle 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...from this graph we can initially see there is an obvious seasonality to distillates supplies, as they're built up during the summer then consumed during the winter months, when demand for heat oil is greatest...however, this summer, when supplies of distillates should be increasing like they have every other year, they're collapsing instead, even before the post-Harvey refinery shut downs... and as you can also see from the above, they're at their lowest level in over two years, at a time of year when they should be peaking...unless refineries can turn this around, we could be heading into a heating season of what looks to be a colder than normal winter with very tight heat oil supplies...

finally, with the increases in oil imports and well output, our commercial crude oil inventories rose for the 3rd week in a row, increasing by 4,591,000 barrels to 472,832,000 barrels as of September 15th, still just the 5th increase in the past 25 weeks...while our oil inventories as of September 15th were still fractionally below the 473,966,000 barrels of oil we had stored on September 16th of 2016, they were more than 12.0% higher than the 422,033,000 barrels in of oil that were in storage on September 18th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 44.7% greater than the 326,828,000 barrels of oil we had in storage on September 19th of 2014...  

This Week's Rig Count

US drilling activity decreased for the 9th time in the past 13 weeks during the week ending September 22nd, after a string of 23 consecutive weekly increases earlier this year, with oil drilling down while gas drilling increased....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 1 rig to 935 rigs in the week ending Friday, which was 424 more rigs than the 511 rigs that were deployed as of the September 23rd report in 2016, while it was 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 down by 5 rigs to 744 rigs this week, their 7th week without an increase, which nonetheless still left oil rigs up by 326 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 increased by 4 rigs to 190 rigs this week, which was 98 more rigs than the 92 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, same as a year ago...

drilling started from 2 additional platforms off the Louisiana coast this week, and hence the Gulf of Mexico rig count increased by 2 to 19 rigs this week, which was still down from the 20 rigs that were drilling in the Gulf a year ago...with no offshore drilling other than in the Gulf now or a year ago, those totals are also those given as the total US offshore count....at the same time, a platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of 3 rigs, the same as a year ago...

the count of active horizontal drilling rigs fell by 5 rigs to 790 rigs this week, which was still up by 388 rigs from the 402 horizontal rigs that were in use in the US on September 23rd of last year, but was also down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the directional rig count was up by 3 rigs to 77 rigs this week, which was also up from the 49 directional rigs that were deployed on September 23rd of 2016.....at the same time, the vertical rig count was up by 1 rigs to 68 vertical rigs this week, which was also up from the 60 vertical rigs that were deployed 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 September 22nd, the second column shows the change in the number of working rigs between last week's count (September 15th) and this week's (September 22nd) count, the third column shows last week's September 15th 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 September, 2016...      

September 22 2017 rig count summary

we would note that after 8 weeks with little change, the Permian basin of western Texas and southeast New Mexico bucked the trend with an increase of 6 rigs this week, their biggest jump since May 12th...that was just barely enough to increase the Texas count, however, as the state saw decreases in the Eagle Ford in the south and the Granite Wash of the eastern panhandle area...with the increase of two rigs in the Gulf, Louisiana with 3 new rigs saw the largest increase, while major producers Oklahoma and North Dakota both shed three...meanwhile, there were no changes in activity in the Utica or the Marcellus, as all the gas well increases were in "other" basins, unnamed in Baker Hughes summary data...meanwhile, outside of the major producing states shown above, Alabama also added a rig this week and now has 2 active, also up from just 1 rig a year ago..

+

note: there’s more here