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, September 16, 2018

US crude supplies at a 43 month low; August global oil output at a record high, but still a half million bpd short of demand

oil prices ended modestly higher in a week that saw several sharp price moves, both to the upside and to the downside...after falling nearly 3% to $67.75 a barrel in their first drop in three weeks last week, contract prices for US crude for October delivery pulled back from an early rally to end 21 cents lower at $67.54 a barrel on Monday, after weekly data from Bloomberg suggested U.S. oil inventories were rising, contradicting an earlier report from Genscape forecasting declining inventories...however, with Hurricane Florence threatening East Coast supplies and ongoing turmoil in Libyan and Iraqi oil fields, traders betting that Iran sanctions would leave the market short of crude pushed oil prices 3% higher to over $70 a barrel on Tuesday on reports that South Korea, Japan and India had already reduced their Iranian crude imports, before prices settled back to close at $69.25 a barrel, an increase of $1.71, or 2.5%, on the day...oil prices then rose past $71 a barrel in a rally on Wednesday after the EIA reported a larger-than-expected drop in U.S. crude inventories before again settling back to close $1.12 higher at $70.37 a barrel...however, oil prices saw their steepest drop in over a month on Thursday in falling $1.78 to $68.59 a barrel, after OPEC reported rising crude production and the IEA (International Energy Agency) pegged global oil supplies at a record high....however, the price rally commenced again on Friday with oil up as much as 2% after it was reported that Secretary of State Pompeo was going to announce new sanctions on Iran, but then faded into a retreat after Trump instructed aides to proceed with tariffs on about $200 billion more of Chinese products, with oil prices closing just 40 cents higher at $68.99 a barrel, an increase of 1.6% for the week...

natural gas prices, meanwhile, were up 5.3 cents over the first three days of last week before a less bullish than expected storage report knocked prices back 6.2 cents over Thursday into Friday to end the week at $2.767 per mmBTU, down less than a penny for the week overall...this week's EIA natural gas storage report for week ending September 7th indicated that natural gas in storage in the US rose by 69 billion cubic feet to 2,636 billion cubic feet during that cited week, which left our gas supplies 662 billion cubic feet, or 20.1% below the 3,298 billion cubic feet that were in storage on September 8th of last year, and 596 billion cubic feet, or 18.4% below the five-year average of 3,232 billion cubic feet of natural gas that are typically in storage after the first week of September....this week's 69 billion cubic feet increase in natural gas supplies was more than analyst's expectations for a 65 billion cubic feet increase, but it was below the 74 billion cubic foot average of natural gas that have typically been added to storage during the first week of September in recent years, the ninth such below average inventory increase in the past ten weeks...natural gas storage facilities in the Midwest saw another 32 billion cubic feet increase this week, while supplies in the East increased by 20 billion cubic feet and are now just 12.9% below normal for this time of year...on the other hand, just 4 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where  natural gas supplies are 23.3% below normal for this time of year, while the South Central region saw a 7 billion cubic foot injection as their natural gas storage deficit increased to 23.4% below their five-year average..

The Latest US Oil Data from the EIA 

this week's US oil data from the US Energy Information Administration, covering the week ending September 7th, showed that due to lower oil imports, higher oil exports, and an increase in refining, we had to withdraw more oil from our commercial crude supplies for the eighteenth time in the past thirty-three weeks... our imports of crude oil fell by an average of 123,000 barrels per day to an average of 7,591,000 barrels per day, after rising by an average of 229,000 barrels per day the prior week, while our exports of crude oil rose by an average of 320,000 barrels per day to an average of 1,828,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,763,000 barrels of per day during the week ending August 31st, 443,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly down by 100,000 barrels per day to 10,900,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,663,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using a near record high 17,857,000 barrels of crude per day during the week ending September 7th, 210,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 757,000 barrels of oil per day were reportedly being pulled out of the oil that's in storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 437,000 fewer barrels per day than what refineries reported they used during the week....to account for that disparity between the supply of oil and the consumption of it, the EIA needed to insert a +437,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...since that "unaccounted for crude" figure was at -179,000 barrels per day during the prior week, the 611,000 barrel per day swing in that metric from last week means that the week over week changes for one or more of this week's EIA oil metrics must be in error by a statistically significant amount..(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer).... 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,577,000 barrels per day, still fractionally more than the 7,565,000 barrel per day average that we were importing over the same four-week period last year....the 757,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed at the end of last week....this week's crude oil production was reported as being down by 100,000 barrels per day to 10,900,000 barrels per day because a rounded 200,000 barrels per day decrease to 10,400,000 barrels per day in the output from wells in the lower 48 states combined with a 6,000 barrels per day increase in oil output from Alaska was only enough to lower the national total, which is now being rounded to the nearest 100,000 barrels per day, by 100,000 barrels per day to 10,900,000 barrels....US crude oil production for the week ending September 8th 2017 had been reduced to 9,353,000 barrels per day in the aftermath of Hurricane Harvey, so this week's rounded oil production figure was roughly 16.5% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 97.6% of their capacity in using 17,857,000 barrels of crude per day during the week ending September 7th, up from 96.6% the prior week and the highest September refinery utilization rate in 20 years....the 17,857,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 14th out of the past 15 weeks, and far more than have ever been refined in a week in September, but not directly comparable to the 14,078,000 barrels of crude per day that were processed during the week ending September 8th 2017, when US refineries were operating at just 77.7% of capacity, because Gulf Coast refineries had been shut down in the aftermath of Hurricane Harvey at that time..

with the increase in the amount of oil being refined this week, gasoline output from our refineries was likewise higher, increasing by 169,000 barrels per day to 10,384,000 barrels per day during the week ending September 7th, after our refineries' gasoline output had decreased by 22,000 barrels per day during the week ending August 31st...again, due to Hurricane Harvey, our gasoline production during the week is not comparable to that of a year ago, but it was still 2.1% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the week ending August 25th of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 97,000 barrels per day to a near record high of 5,536,000 barrels per day, after they had risen by 260,000 barrels per day over the prior week...for a rough year over year comparison absent hurricane impacts, we'd note this week's distillates production was 9.5% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017.... 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,250,000 barrels to 235,869,000 barrels by September 7th, the 13th increase in 29 weeks, and the 27th increase in 44 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline rose this week as the amount of gasoline supplied to US markets fell by 85,000 barrels per day to 9,649,000 barrels per day, after falling by 165,000 barrels per day the prior week, and as our imports of gasoline rose by 65,000 barrels per day to 1,053,000 barrels per day, while our exports of gasoline rose by 203,000 barrels per day to 680,000 barrels per day...after this week's increase, our gasoline inventories were at another seasonal high, 8.0% higher than last September 8th's level of 218,310,000 barrels, and roughly 10.3% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, with big increase in our distillates production, our supplies of distillate fuels were likewise much higher, increasing by 6,163,000 barrels to 139,283,000 barrels during the week ending September 7th, the 12th increase in 16 weeks and the largest increase this year...the major reason our distillates supplies increased was because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 1,002,000 barrels per day to 3,288,000 barrels per day, as domestic distributors apparently cut their purchases after having stocked up before the holiday....partially offsetting that, our exports of distillates rose by 429,000 barrels per day to 1,418,000 barrels per day, while our imports of distillates fell by 236,000 barrels per day to 50,000 barrels per day....however, with our distillate supplies still recovering from the 14 year seasonal low that they hit 6 weeks ago, this week's big inventory increase still leaves our distillates supplies 3.6% below the 144,552,000 barrels that we had stored on September 8th, 2017, and roughly 6.9% lower than the 10 year average of distillates stocks for this time of the year...     

finally, with rising oil exports and near record refining of crude, our commercial supplies of crude oil decreased for the 20th time in 2018 and for the 31st time over the past year, falling by 4,302,000 barrels during the week, from 401,490,000 barrels on August 31st to 396,194,000 barrels on September 7th, which marks the first time our crude supplies were below 400,000 barrels since February 2015...however, even though our crude oil inventories are now about 3 percent below the five-year average of crude oil supplies for this time of year, they are still roughly 18.6% above the 10 year average of crude oil stocks for the first week of September, because it wasn't early 2015 that our oil inventories first rose above 400 million barrels...but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of September 7th were 15.4% below the 468,241,000 barrels of oil we had stored on September 8th of 2017, 17.5% below the 480,166,000 barrels of oil that we had in storage on September 9th of 2016, and 6.5% below the 423,958,000 barrels of oil we had in storage on September 11th of 2015...  

OPEC's Monthly Oil Market Report

next we're going to review OPEC's September Oil Market Report (covering August OPEC & global oil data), which was released on Wednesday and is available as a free download, and hence it's the report we check for monthly global oil supply and demand data...the first table from this monthly report that we'll look at is from the page numbered 58 of that report (pdf page 68), 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 thus resolve any potential disputes that could arise if each member reported their own figures...

August 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC's oil output increased by 278,000 barrels per day to 32,565,000 barrels per day in August, from their July production total of 32,287,000 barrels per day....however, that July figure was originally reported as 32,323,000 barrels per day, so OPEC's July output was therefore revised 36,000 barrels per day lower with this report (for your reference, here is the table of the official July OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, an increase of 256,000 barrels per day in the oil output from Libya was the major reason for this month's increase, with increases of 90,000 barrels per day in oil output from Iraq and 74,000 barrels per day in output from Nigeria more than offsetting the decrease of 150,000 barrels per day in Iranian output...however, excluding new member Congo, OPEC's August output of 32,245,000 barrels per day was still 485,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, mostly due to the big drop in Venezuelan output, which has also been impacted by US sanctions... 

the next graphic we'll look at shows us both OPEC and global monthly oil production on the same graph, over the period from September 2016 to August 2018, and it's taken from the page numbered 59 (pdf page 69) of the September OPEC Monthly Oil Market Report...on this graph, 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 millions of barrels per day of global output shown on the right scale...      

August 2018 OPEC report global oil supply

OPEC's preliminary estimate indicates that total global oil production rose by a rounded 490,000 barrels per day to a record high 98.88 million barrels per day in August, after July's global output total was revised down by 140,000 barrels per day from the 98.53 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 210,000 barrels per day in August after that revision....global oil output for August was also 2.13 million barrels per day, or 2.2% higher than the 96.75 million barrels of oil per day that were reported as being produced globally in August a year ago (see the September 2017 OPEC report online (pdf) for the year ago details)...with the increase OPEC's output, their August oil production of 32,565,000 barrels per day represented 32.9% of what was produced globally during the month, up from their 32.8% of global share reported for July...OPEC's August 2017 production was at 32,755,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding new members Congo and Equatorial Guinea, are still producing 637,000 fewer barrels per day of oil than they were producing a year ago, during the eighth month that their production quotas were in effect, with the 638,000 barrel per day decrease in output from Venezuela from that time responsible for the cartel's output drop... 

despite the 490,000 barrel per day increase in global oil output in August, elevated summertime demand meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

August 2018 OPEC report global oil demand

the table above comes from page 32 of the September OPEC Monthly Oil Market Report (pdf page 42), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2018 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 August, which is their revised estimate of global oil demand during the third quarter of 2018...     

OPEC's estimate is that during the 3rd quarter of this year, all oil consuming regions of the globe have been using 99.38 million barrels of oil per day, which was a downward revision of 0.06 million barrels of oil per day from their prior consumption estimate for the quarter....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, the world's oil producers were producing 98.88 million barrels per day during August, which means that there was a still a shortfall of around 500,000 barrels per day in global oil production vis-a vis the demand estimated for the month...  

while global demand for the 3rd quarter was revised 0.06 million barrels per day lower, total global oil output for July was revised down by 140,000 barrels per day at the same time, which means the global shortfall of 910,000 barrels per day that we had figured for July last month would now be revised to 990,000 barrels per day...also notice that this report revised oil demand figures for the 1st and second quarters, which we've circled in green; that means our previous estimates of surplus or shortfall for those months will have to be revised as well...a month ago, we estimated there was a shortfall of around 70,000 barrels per day in global oil production vis-a vis the demand in June, a shortfall for May of 510,000 barrels per day, and a shortfall in April of 320,000 barrels per day... but as we see in the green ellipse above, oil demand for the 2nd quarter was revised 10,000 barrels per day lower, so our revised global oil shortfalls for the 2nd quarter months will thus be 60,000 barrels per day for June, 500,000 barrels per day for May, and 310,000 barrels per day for April...

while global oil demand figures for the second quarter were revised lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously recomputed oil surplus for the first quarter of 2018 will also have to be recomputed again....since we had last figured a global oil output surplus of 120,000 barrels per day for March, a surplus of 300,000 barrels per day for February, and a surplus of 140,000 barrels per day for January, that revision means that our new figures will show a surplus of 60,000 barrels per day for March, a surplus of 240,000 barrels per day for February, and a surplus of 80,000 barrels per day for January....totaling up all these 8 monthly estimates of surplus or shortfall, we find that for the first eight months of 2018, global oil demand exceeded production by roughly 61,370,000 barrels, actually a comparatively small net oil shortfall that is the equivalent of roughly 15 hours of global oil production at the August production rate...   

This Week's Rig Count

US drilling activity increased for the seventeenth time in twenty-five weeks during the week ending September 14th, even as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled since May, with oil futures' prices remaining in backwardation, albeit now less so than in recent weeks....Baker Hughes reported that the total count of rotary rigs running in the US increased by 7 rigs to 1055 rigs over the week ending on Friday, which was 119 more rigs than the 936 rigs that were in use as of the September 15th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil was up by 7 rigs to 867 rigs this week, which was also 118 more oil rigs than were running a year ago, while it was well 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 186 rigs this week, which was also unchanged from the 186 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...meanwhile, two rigs drilling exploratory wells in central Ohio considered to be "miscellaneous" continued to operate this week, an increase from just one such "miscellaneous" rig a year ago...

offshore drilling in the Gulf of Mexico saw a net increase of 1 rig to 18 rigs, up from 17 Gulf of Mexico rigs a year ago...in addition, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is now at 20 rigs, which is thus up by 3 rigs from last year's total of 17 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf...in addition, two more rigs began drilling through inland bodies of water in southern Louisiana this week, where there are now five such rigs operating, up from the 4 rigs that were drilling through inland waters there a year ago...

the count of active horizontal drilling rigs was up by 3 rigs to 921 horizontal rigs this week, which was also 126 more horizontal rigs than the 795 horizontal rigs that were in use in the US on September 15th 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 increased by 6 rigs to 71 directional rigs this week, which was still down from the 74 directional rigs that were in use during the same week of last year...on the other hand, the vertical rig count was down by 2 rigs to 63 vertical rigs this week, which was also down from the 67 vertical  rigs that were operating on September 15th of 2017... 

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 the 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 14th, the second column shows the change in the number of working rigs between last week's count (September 7th) and this week's (September 14th) count, the third column shows last week's September 7th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of 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 on Friday the 15th of September, 2017...    

September 14 2018 rig count summary

Louisiana saw a three rig increase despite having a land based rig shut down in the southern part of the state because of a two rig increase on inland waters and because two additional Gulf of Mexico rigs were in state waters, while one rig offshore from Texas was idled...meanwhile, the three rig increase in Pennsylvania includes two rigs targeting the Marcellus and one rig targeting the Utica....the Utica shale count remained unchanged, however, because a Utica shale rig in Ohio was shut down at the same time...meanwhile, the natural gas rig count remained unchanged because 2 rigs targeting natural gas basins not tracked separately by Baker Hughes were shut down at the same time...all other activity shown above is oil directed, again with basins not tracked by Baker Hughes not shown...

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Note: there's more here...

Sunday, September 9, 2018

it appears that US natural gas supplies will start this winter at a 15 year low, & maybe even lower than that

oil prices fell for the first time in three weeks this week, as anxiety about the economic impact of worsening trade wars overwhelmed concerns about Iran sanction related supply issues...after rising 1.6% to $69.80 a barrel last week and not trading on Labor Day, October contracts for US light sweet crude jumped to as high as $71.40 a barrel on Tuesday when Gulf Coast platforms were shut down in advance of tropical storm Gordon, but fell back to close the day just 7 cents higher at $69.87 a barrel, weighed down by a stronger dollar and a report of higher crude supplies at the Cushing OK terminal...when the storm weakened and moved away from oil-producing areas with little apparent impact, oil prices fell $1.15 to $68.72 a barrel on Wednesday, as concerns mounted about the economic impact of global trade disputes...with a Trump deadline on Chinese tariffs looming, oil prices extended those losses on Thursday, initially lower on an API report of a smaller than expected crude draw and continued lower on the EIA report of surging fuel supplies, with crude for October delivery settling 1.4% lower at $67.64 a barrel...oil prices were marginally lower again on Friday, as signs of tightening U.S. oil output were offset by a stronger dollar and fears rising U.S.-China trade tensions could hamper oil demand, with oil prices ending nearly 3% lower for the week at $67.75 a barrel...

natural gas prices were also lower this week, despite the heat wave that sat over the heavily populated Northeastern US all week, with natural gas prices for October delivery falling 9.3 cents on Tuesday, 2.8 cents on Wednesday, and 2.3 cents on Thursday before rising four-tenths of a cent on Friday and ending the week 4.8% lower at $2.776 per mmBTU....moreover, despite the precarious winter supply situation, natural gas for January delivery didn't fare any better, falling 14.9 cents for the week to end at 2.965 per mmBTU, the lowest close for that contract since Spring....either natural gas traders know something we don't, or a lot of people are going to end up on the wrong side of that trade...

this week's EIA natural gas storage report for week ending August 31st (hence not yet including this week's heat wave) indicated that natural gas in storage in the US rose by 63 billion cubic feet to 2,568 billion cubic feet during that cited week, which still left our gas supplies 643 billion cubic feet, or 20.0% below the 3,211 billion cubic feet that were in storage on September 1st of last year, and 590 billion cubic feet, or 18.5% below the five-year average of 3,158 billion cubic feet of natural gas that are typically in storage at the end of August....this week's 63 billion cubic feet increase in natural gas supplies was slightly more than an S&P Global Platts' survey of analysts calling for a 60 billion cubic feet increase, but it was slightly below the 65 billion cubic foot average of natural gas that are typically added to storage during the last week of August in recent years, the eighth such below average inventory increase in the past nine weeks...once again, almost all of this week's increase was added to natural gas storage facilities in the Midwest, which saw a 32 billion cubic feet increase, and in the East, where supplies increased by 22 billion cubic feet...just 5 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where  natural gas supplies are 24.1% below normal for this time of year, while the South Central region actually saw a billion cubic feet pulled out of storage, as their natural gas storage deficit rose to 22.9% below their five-year average..

natural gas usually needs to be withdrawn from storage for heating starting around the first full week of November, so that means we most likely have 9 more weeks of the so-called natural gas 'injection season' to build our gas inventories before winter...over the last five years, we've averaged 3,835 billion cubic feet of natural gas in storage heading into winter at that first weekend in November, and that average seems to be close to the average of the last decade as well...scanning over the historical natural gas storage archive files (xls), we just find a few times over the last dozen years when gas supplies were substantially below that level going into winter; November 7th of 2014, when supplies managed to recover to 3,611 billion cubic feet after that year's polar vortex winter; November 7th 2008, when supplies fell to 3,472 billion cubic feet, and November 8th 2007, when supplies were at 3,540 billion cubic feet before wintertime withdrawals began....thus, with our natural gas supplies starting September at 2,568 billion cubic feet, we would have to add a nearly impossible 116 billion cubic feet per week before the first weekend in November merely to avoid having our winter gas supplies fall to a 10 year low...moreover, to beat the 2008 nadir, we would still need to add more than 100 billion cubic feet a week...looking at the xls record of recent years, we added 479 billion cubic feet, or just 53 billion cubic feet per week, over the same 9 weeks of 2017; we added 610 billion cubic feet, or 61 billion cubic feet per week in the ten weeks through November 11 of 2016, and we added 723 billion cubic feet, or 80 billion cubic feet per week, during the corresponding 9 weeks of the injection season in 2015...those numbers certain suggest it's highly unlikely that we could add 100 billion cubic feet per week of natural gas to storage for the rest of this injection season, so bettering 2008 seems out of the question...based on the averages of the last 3 years, we'll probably add about 65 billion cubic feet per week over the next nine weeks, and show about 3153 billion cubic feet of natural gas in storage on November 2nd, which probably means we'll be going into winter with our natural gas supplies near the 3187 billion cubic feet of gas we had stored on November 7th 2003, which would thus be a 15 year low...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending August 31st, showed that despite a sizable increase in our net oil imports, we withdrew more oil from our commercial crude supplies to meet the needs of our refineries for the seventeenth time in the past thirty-two weeks, because the "unaccounted for crude" factor switched from the supply side of the crude oil balance sheet to the consumption the side of it... our imports of crude oil rose by an average of 229,000 barrels per day to an average of 7,714,000 barrels per day, after falling by an average of 1,529,000 barrels per day over the prior 2 weeks, while our exports of crude oil fell by an average of 271,000 barrels per day to an average of 1,508,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,206,000 barrels of per day during the week ending August 31st, 500,000 more barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly unchanged at a record 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 17,206,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using 17,647,000 barrels of crude per day during the week ending August 31st, 81,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 615,000 barrels of oil per day were reportedly being pulled out of the oil that's in storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 179,000 more barrels per day than what refineries reported they used during the week....to account for that disparity between the supply of oil and the disposition of it, the EIA needed to insert a (-179,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...since that "unaccounted for crude" figure was at +493,000 barrels per day during the prior week, the 667,000 barrel per day swing in that metric from last week explains how withdrawals from storage would rise despite higher net imports, while it also means that week over week changes for one or more of this week's EIA oil metrics must be in error by a statistically significant amount..(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer).... 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,933,000 barrels per day, still fractionally less than the 7,976,000 barrel per day average that we were importing over the same four-week period last year....the 615,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed at the end of the week....this week's crude oil production was reported as being unchanged at 11,000,000 barrels per day despite a rounded 100,000 barrels per day increase to 10,600,000 barrels per day in the output from wells in the lower 48 states, because oil output from Alaska fell by 16,000 barrels per day, which was enough to keep the national total, which is now being rounded to the nearest 100,000 barrels per day, unchanged at 11,000,000 barrels per day....US crude oil production for the week ending September 1st 2017 had been reduced to 8,781,000 barrels per day by Hurricane Harvey, so this week's rounded oil production figure was roughly 25.3% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 96.6% of their capacity in using 17,647,000 barrels of crude per day during the week ending August 31st, up from 96.3% the prior week and well above normal, even for this time of year....the 17,647,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 13th out of the past 14 weeks, but not directly comparable to the 14,472,000 barrels of crude per day that were processed during the week ending September 1st 2017, when US refineries were operating at just 79.7% of capacity, because Gulf Coast refineries had been shut down due to Hurricane Harvey at that time..

despite the modest increase in the amount of oil being refined this week, gasoline output from our refineries was a bit lower, decreasing by 22,000 barrels per day to 10,215,000 barrels per day during the week ending August 31st, after our refineries' gasoline output had increased by 86,000 barrels per day during the week ending August 24th...again, due to Hurricane Harvey, our gasoline production during the week is not comparable to that of a year ago, but it was 3.6% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the week ending August 25th last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 260,000 barrels per day to a high for the date of 5,439,000 barrels per day, after they had fallen by 247,000 barrels per day over the prior week...for a rough year over year comparison absent hurricane impacts, we'd note this week's distillates production was 7.6% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017.... 

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,554,000 barrels to 232,774,000 barrels by August 31st, the 12th increase in 28 weeks, and the 26th increase in 43 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline rose this week because the amount of gasoline supplied to US markets fell by 165,000 barrels per day to 9,734,000 barrels per day, after rising by 446,000 barrels per day the prior week, and because our imports of gasoline rose by 120,000 barrels per day to 988,000 barrels per day, while our exports of gasoline fell by 108,000 barrels per day to 477,000 barrels per day...after this week's increase, our gasoline inventories were at a seasonal high, 3.5% higher than last September 1st's level of 226,738,000 barrels, and more than 10% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, with big increase in our distillates production, our supplies of distillate fuels were likewise much higher, increasing by 3,119,000 barrels to 133,120,000 barrels during the week ending August 31st, the 11th increase in 15 weeks...our distillates supplies also increased because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 147,000 barrels per day to 4,290,000 barrels per day, after increasing by 372,000 barrels per day the prior week, and because our exports of distillates also fell by 147,000 barrels per day to 989,000 barrels per day, while our imports of distillates rose by 12,000 barrels per day to 286,000 barrels per day....however, with our distillate supplies still recovering from the 14 year seasonal low that they hit 6 weeks ago, this week's inventory increase still leaves our distillates supplies 9.9% below the 147,767,000 barrels that we had stored on September 1st, 2017, and roughly 9% lower than the 10 year average of distillates stocks for this time of the year...   

finally, despite this week's increase in our net oil imports, our commercial supplies of crude oil decreased for the 19th time in 2018 and for the 31st time over the past year, falling by 4,302,000 barrels during the week, from 405,792,000 barrels on August 24th to 401,490,000 barrels on August 31st....but although our crude oil inventories are a bit below the five year average of crude oil supplies for this time of year, they are still roughly 29.6% above the 10 year average of crude oil stocks for the end  August, because it wasn't early 2015 that our oil inventories first rose above 400 million barrels...but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of August 31st were 13.2% below the 462,353,000 barrels of oil we had stored on September 1st of 2017, 16.5% below the 480,725,000 barrels of oil that we had in storage on September 2nd of 2016, and 4.2% below the 426,062,000 barrels of oil we had in storage on September 4th of 2015... 

This Week's Rig Count

the pace of US drilling activity again stalled during the week ending September 7th, after increasing 17 out of the 23 prior weeks....Baker Hughes reported that the total count of rotary rigs running in the US was unchanged at 1048 rigs over the week ending on Friday, which was still 104 more rigs than the 944 rigs that were in use as of the September 8th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...  

the count of rigs drilling for oil was down by two rigs to 860 rigs this week, which was still 104 more oil rigs than were running a year ago, while it was well 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 rose by 2 rigs to 186 rigs this week, which nonetheless was down a rig from the 187 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...meanwhile, two rigs drilling exploratory wells in Ohio considered to be "miscellaneous" continued to operate this week, up from just one such "miscellaneous" rig a year ago...

one of the rigs that was added this week was in the Gulf of Mexico, where there are now 17 rigs deployed, up from 16 a year ago...in addition, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is at 19 rigs, which is thus up by 3 from last year's total of 16 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf...meanwhile, another rig began drilling through an inland body of water in southern Louisiana this week, where there are now three such rigs operating, down from the 5 rigs that were drilling through inland waters there a year ago...

the count of active horizontal drilling rigs was up by 1 rig to 918 horizontal rigs this week, which was also 125 more horizontal rigs than the 793 horizontal rigs that were in use in the US on September 8th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the vertical rig count decreased by one rig to 65 vertical rigs this week, which was also down from the 75 vertical rigs that were in use during the same week of last year...meanwhile, the directional rig count was unchanged at 65 directional rigs this week, which was down from the 76 directional rigs that were operating on September 8th of 2017... 

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 the 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 7th, the second column shows the change in the number of working rigs between last week's count (August 31st) and this week's (September 7th) count, the third column shows last week's August 31st active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of 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 on Friday the 8th of September, 2017...   

September 7 2018 rig count summary

once again, these summary tables do not match the summary national summary data we just gave you, as the state table implies an increase in the rig count, while the basin table implies a decrease in horizontal drilling...the data for the states not listed is easy to find, and it shows that a rig was shut was shut down in Mississippi, where 5 rigs continue to drill, which is up from 3 rigs in Mississipppi a year ago...we imagine that the 2 rig increase in Wyoming could have been new horizontal drilling in the Powder River Basin, where oil exploiters have expressed new interest, but since the horizontal rigs that were added this week could have been in any one of a dozen basins that Baker Hughes does not track separately, one would have to dig through the individual well logs in the Baker Hughes pivot table to find out for sure, something we are not inclined to do this week...that's also where this week's increase in natural gas rigs also appears to be hidden, since a gas rig was shut down in the Haynesville while 3 gas rigs were added in basins not tracked separately by Baker Hughes...

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note: there's more here....

Sunday, September 2, 2018

US gasoline demand at a record high; mild Midwest temperatures help boost natural gas supplies

oil prices moved higher for a 2nd week this week, amid crosscurrents of concerns about Iran sanctions, global trade tensions, and oil supply issues... after closing the prior week $3.51 a barrel or 5.4% higher at $68.72 a barrel, US oil for October delivery rose 15 cents to $68.87 a barrel on Monday, supported by a strengthening stock market and news that the US and Mexico had completed a trade deal to replace NAFTA...however, with oil prices up more than $4 over 8 trading sessions, profit-taking set in on Tuesday, pushing oil prices 34 cents lower to $68.53 a barrel, with losses limited by the positive developments on the trade front...oil prices then rose 98 cents to a three week high of $69.51 a barrel on Wednesday, after the EIA reported a drawdown of U.S. crude and gasoline supplies, and reports indicated reduced Iranian crude exports in advance of US sanctions...oil prices rose again on Thursday, extending the gains on the fall in US supply, on growing evidence of disruptions to crude output from Iran and Venezuela, with oil ending Thursday's trading up 74 cents, or 1.1 percent, at $70.25, the highest closing price in six weeks...while oil prices fell 45 cents to $69.80 a barrel on Friday on renewed trade war concerns, they still ended both the week and the month higher, with oil prices for October delivery 1.6% higher than a week ago, and 3.2% higher than a month ago, although we should note that oil prices were being quoted just 1.5% lower at $68.76 a barrel on July 31st, when September oil was the front month contract at the time...

meanwhile, while price quotes for natural gas appeared to end the week a tenth of a cent lower than last week at $2.916 per mmBTU, that was also a function of a midweek change in the quoted front month contract...natural gas for September delivery, which had closed last week at 2.917 per mmBTU, fell 6.5 cents over Monday and Tuesday before rising 4.3 cents on Wednesday as trading in September natural gas contracts expired at $2.895 per mmBTU...after that, natural gas for October delivery, which had started the week priced at $2.913 per mmBTU, became the widely quoted 'price of natural gas' and rose 1.1 cents to $2.874 per mmBTU on Thursday and 4.2 cents on Friday, to end the week $2.916 per mmBTU, three-tenths of a cent higher than what that contract had started the week at...

meanwhile, this week's EIA natural gas storage report for week ending August 24th indicated that natural gas in storage in the US rose by 70 billion cubic feet to 2,505 billion cubic feet during that cited week, which still left our gas supplies 646 billion cubic feet, or 20.5% below the 3,151 billion cubic feet that were in storage on August 25th of last year, and 588 billion cubic feet, or 19.0% below the five-year average of 3,093 billion cubic feet of natural gas that are typically in storage heading into the fourth weekend of August....this week's 70 billion cubic feet increase in natural gas supplies was above expectations of a mid-60s bcf increase and was also above the 59 billion cubic foot average of natural gas that has typically been added to storage during the third full week of August in recent years, thus breaking this summer's string of seven consecutive below average inventory increases...mild temperatures and low humidity in the Midwest during that week were the major factor in the above average build; 35 billion cubic feet of this week's increase was added to natural gas storage facilities in the Midwest...Canadian imports returned as well, likely contributing to supplies in the Midwest and in the East, where 27 billion cubic feet cubic feet of natural gas were added to storage, reducing that region's deficit to just 13.2% below normal... on the other hand, only 2 billion cubic feet cubic feet of gas were added to storage in the South Central region, where supplies of gas remain 22.3% below their five-year average, and only 2 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where supplies are 25.4% below normal for this time of year...so while imports from Canada may backstop natural gas shortages in the Midwest and East this winter, they are unlikely to be of much help to natural gas supplies in the southern parts of the country, should those regions experience a colder than normal winter..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending August 24th, indicated that despite a significant pullback in our oil refining, a large increase in our oil exports while our oil imports remained depressed meant that we still had to withdraw oil from our commercial crude supplies to meet the needs of our refineries for the sixteenth time in the past thirty-one weeks... our imports of crude oil fell by an average of 33,000 barrels per day to an average of 7,485,000 barrels per day, after falling by an average of 1,496,000 barrels per day the prior week, while our exports of crude oil rose by an average of 624,000 barrels per day to an average of 1,779,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,706,000 barrels of per day during the week ending August 24th, 657,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reportedly unchanged at a record 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,706,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using 17,566,000 barrels of crude per day during the week ending August 24th, 324,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 367,000 barrels of oil per day were reportedly being pulled out of the oil that's in storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working 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 between the supply of oil and the disposition of it, 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...since that "unaccounted for crude" figure was at -305,000 barrels per day during the prior week, we know that the week over week changes for one or more of this week's EIA oil metrics must be in error by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer).... 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,987,000 barrels per day, now 1.9% less than the 8,146,000 barrel per day average that we were importing over the same four-week period last year....the 367,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves had been announced during that week....this week's crude oil production was reported as being unchanged at 11,000,000 barrels per day despite a rounded 100,000 barrels per day decrease to 10,500,000 barrels per day in the output from wells in the lower 48 states, because oil output from Alaska rose by 33,000 barrels per day, which was enough to keep the national total, which is now being rounded to the nearest 100,000 barrels per day, unchanged at 11,000,000 barrels per day....US crude oil production for the week ending August 25th 2017 was reportedly at 9,530,000 barrels per day, so this week's rounded oil production figure was roughly 15.4% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 96.3% of their capacity in using 17,566,000 barrels of crude per day during the week ending August 24th, down from 98.1% the prior week but still higher than normal, even at this time of year....however, the 17,566,000 barrels per day of oil that were refined this week dropped below last year's total for this time of year, thus ending a 12 week streak of refining at seasonal record levels....this week's refinery throughput was 0.9% lower than what had been a record 17,725,000 barrels of crude per day that were processed during the week ending August 25th 2017, when US refineries were operating at 96.6% of capacity.... 

even with the reduction in the amount of oil being refined this week, gasoline output from our refineries was nonetheless higher, increasing by 86,000 barrels per day to 10,237,000 barrels per day during the week ending August 24th, after our refineries' gasoline output had decreased by 83,000 barrels per day during the week ending August 17th...even with this week's increase, however, our gasoline production during the week was still 3.4% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the same week of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 247,000 barrels per day to what was still a high for the date of 5,179,000 barrels per day, after they had risen by 89,000 barrels per day over the prior week...hence, this week's distillates production was still 2.5% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017...

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,554,000 barrels to 232,774,000 barrels by August 24th, the 16th decrease in 27 weeks, but just the 17th decrease in 42 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline also fell this week because the amount of gasoline supplied to US markets rose by 446,000 barrels per day to a record 9,899,000 barrels per day, after rising by 59,000 barrels per day the prior week, while our imports of gasoline rose by 51,000 barrels per day to 868,000 barrels per day, and while our exports of gasoline fell by 59,000 barrels per day to 585,000 barrels per day...but even after this week's decrease, our gasoline inventories were still 1.2% higher than last August 25th's level of 229,937,000 barrels, and roughly 9.4% above the 10 year average of our gasoline supplies for this time of the year...with 'gasoline product supplied', often seen as a measure of gasoline consumption, at a record high this week, we'll take a look at a graph of that metric and explain what it means...

September 1 2018 gasoline demand as of August 24

the above graph came from a the set of oil graphs on this report that John Kemp of Reuters emailed out two weeks ago (available as a pdf here), on which i've penciled in an extension to bring it up to date, as John had not produced graphs on this metric this week or last...the graph shows gasoline supplied to US markets in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our domestic gasoline demand for any given date shown in the light blue shaded area, and the median of domestic gasoline supplied, 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 gasoline supplied for each week in 2017 traced weekly by a yellow line, and the year to date number of barrels of gasoline supplied for prior 2018 weeks represented by the red graph...as you can see by following the red and yellow graphs, the weekly change in "gasoline product supplied" is quite volatile, often hitting multi-week lows one week, and multi-week highs the next, or vice versa...that's because this metric does not directly track our demand for gasoline at the retail level, but rather the amount of gasoline supplied by refineries to large bulk terminals and distributors...thus, in anticipating an increase in demand over the Labor Day holiday weekend, these gasoline distributors increased their inventories at a record pace in the week ending August 24th, resulting in the new record for this metric...we thus expect that as those distributor's inventories are drawn down over the holiday weekend, "gasoline product supplied" will return to its baseline, much as occurred during the week after Memorial Day, when we saw the largest one week increase in oil & oil products inventories in 10 years as the product supplied metrics reversed...

meanwhile, with the decrease in our distillates production, our supplies of distillate fuels were likewise lower, decreasing by 837,000 barrels to 130,001,000 barrels during the week ending August 24th, the 4th decrease in 14 weeks...our distillates supplies also decreased because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 372,000 barrels per day to 4,437,000 barrels per day, after increasing by 106,000 barrels per day the prior week, while our exports of distillates fell by 106,000 barrels per day to 1,136,000 barrels per day, and our imports of distillates rose by 129,000 barrels per day to 274,000 barrels per day....with our distillate supplies still recovering from the 14 year seasonal low that they hit 5 weeks ago, this week's inventory decrease means our distillates supplies are now 12.8% below the 149,163,000 barrels that we had stored on August 25th, 2017, and also roughly 12.8% lower than the 10 year average of distillates stocks for this time of the year...  

finally, with this week's big increase in our oil exports, our commercial supplies of crude oil decreased for the 18th time in 2018 and for the 30th time over the past year, falling by 2,566,000 barrels during the week, from 408,358,000 barrels on August 17th to 405,792,000 barrels on August 24th....with that decrease, our crude oil inventories have now dipped a bit below the five year average of crude oil supplies for this time of year, even as they are still roughly 20.1% above the 10 year average of crude oil stocks for the 4th week of August, because it wasn't until the oil glut of the past 3 years that our inventories first rose above 400 million barrels...but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of August 24th were 11.3% below the 457,773,000 barrels of oil we had stored on August 25th of 2017, 18.1% below the 495,238,000 barrels of oil that we had in storage on August 26th of 2016, and 4.2% below the 423,657,000 barrels of oil we had in storage on August 28th of 2015...

This Week's Rig Count

US drilling activity increased for the sixteenth time in twenty-three weeks during the week ending August 31st, although the steady increases in drilling for oil we saw with higher oil prices during the first half of this year have stalled, with oil futures' prices remaining in deep backwardation.... Baker Hughes reported that the total count of rotary rigs running in the US rose by 4 rigs to 1048 rigs over the week ending on Friday, which was 105 more rigs than the 943 rigs that were in use as of the September 1st report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...    

the count of rigs drilling for oil was up by two rigs to 862 rigs this week, which was also 103 more oil rigs than were running a year ago, while it was still well 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 also rose by 2 rigs to 184 rigs this week, which was just 1 more than the 183 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...meanwhile, two rigs drilling exploratory wells considered to be "miscellaneous" continued to operate this week, up from just one such "miscellaneous" rig a year ago...

one of the rigs that was added this week began drilling through an inland body of water in southern Louisiana, where there are now two such rigs operating, down from the 4 rigs that were drilling through inland waters there a year ago...the week's Gulf of Mexico rig count was unchanged at 16 rigs, the same number as were drilling in the Gulf a year ago...however, two rigs continued drilling offshore from Alaska this week, so the total national offshore count is at 18 rigs, which is thus up from last year's total of 16 offshore rigs, as a year ago there was no offshore drilling other than in the Gulf..

the count of active horizontal drilling rigs was down by 2 rigs to 917 horizontal rigs this week, which was still 123 more horizontal rigs than the 794 horizontal rigs that were in use in the US on September 1st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the vertical rig count increased by 3 rigs to 66 vertical rigs this week, which was still down from the 68 vertical rigs that were in use during the same week of last year...at the same time, the directional rig count also increased by 3 rigs to 65 directional rigs this week, which was also still down from the 81 directional rigs that were operating on September 1st of 2017... 

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 the 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 August 31st, the second column shows the change in the number of working rigs between last week's count (August 24th) and this week's (August 31st) count, the third column shows last week's August 24th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of 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 on Friday the 1st of September, 2017...  

August 31 2018 rig count summary

there is not much to note on this week's tables, and we can also quickly see that neither the state table nor the basin table reflect the national rig count changes which we have just reviewed...the state count is short because it does't include Mississippi, which saw their rig count rise from 3 rigs last week to 6 rigs this week, which was up from 4 rigs a year ago, and the most rigs that were drilling in Mississippi since January of 2016...meanwhile, the total count on the basin table above reflects a net increase of one horizontal rig, while we know from the summary that horizontal rigs were down by two, which means there was a net decrease of 3 horizontal rigs in other basins not tracked separately by Baker Hughes...with Oklahoma and New Mexico the only states showing rig count decreases, we might speculate that it's possible horizontal rigs could have been shut down in New Mexico's San Juan Basin or in the Oklahoma Anandarko basin outside of the Woodford basins tracked above...but without digging through the individual well logs in the Baker Hughes pivot table we can't know for sure; ie, it's also possible that a horizontal rig could have been shut down in almost any other basin, such as the Powder River basin of Wyoming, while a vertical or directional was started in the state at the same time, to net at a zero...meanwhile, the rig added in Pennsylvania's Marcellus is the only natural gas rig addition indicated above; the other natural gas rig was also in a basin not tracked separately by Baker Hughes...

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NOTE: there's more here...

Sunday, August 26, 2018

another sub par natural gas build, US oil production back at record high, refinery utilization rate highest in 17 years

oil prices rose this week for the first time in eight weeks, even as the front month contract shifted to October oil midweek, which was, at the time, priced $1.51 a barrel less than the expiring September contract...after falling $1.72 or 2.6% to $65.91 a barrel last week on concerns about falling global demand, US light sweet crude for September delivery rose 52 cents to $66.43 a barrel on Monday as trade war worries eased and oil traders turned to concerns about the impact of U.S. sanctions on Iran...the Iran sanctions rally then picked up steam on Tuesday, with September oil logging a fourth straight gain before expiring 92 cents higher at $67.35 a barrel, while at the same time oil for October delivery became the quoted contract and rose 42 cents to close Tuesday at $65.84 a barrel...October oil contract prices then jumped $2.02, or more than 3% from that level on Wednesday to a 2 week high of $67.86 a barrel, after the weekly EIA report indicated that U.S. crude supplies fell much more than traders had anticipated...oil prices then steadied on Thursday, as trade talks between the US and China collapsed, offsetting the impact of lower crude inventories, with October US crude ending 3 cents lower at $67.83 a barrel...the rally resumed on Friday, however, amid reports that Iranian tanker loading were already down by 700,000 barrels per day during the first half of August, 3 months before the sanctions were to kick in, as U.S. crude went on to finish the day 89 cents or 1.3% higher at $68.72 a barrel...thus for the week, the widely quoted price of oil rose $2.81 a barrel, or more than 4%, after seven consecutive weekly declines, while the contract for October oil ended $3.51 a barrel or 5.4% higher, having closed the prior week at $65.21 barrel..

meanwhile, prices for natural gas for September delivery continued in the same narrow price range they've been in since Spring, even as the seasonal storage deficit has become critical...after ending last week at $2.946 per mmBTU, natural gas prices rose to as high as $2.993 per mmBTU in early trading Wednesday, before sliding to a 4.7 cent loss on Friday and ending the week at $2.917 per mmBTU....this week's EIA natural gas storage report for week ending August 17th indicated that natural gas in storage in the US rose by 48 billion cubic feet to 2,435 billion cubic feet during the cited week, which still left our gas supplies 684 billion cubic feet, or 21.9% below the 3,119 billion cubic feet that were in storage on August 18th of last year, and 599 billion cubic feet, or 19.7% below the five-year average of 3,034 billion cubic feet of natural gas that are typically in storage heading into the third weekend of August....the 48 billion cubic feet increase in natural gas supplies was close to the expectations of most market participant surveys and thus had little impact on natural gas prices, but it was still below the 52 billion cubic foot average of natural gas that has typically been added to storage during the second full week of August in recent years, thus making for the 7th consecutive below average inventory build...with that in mind, we'll again take a look at the graph from the natural gas storage report to see the effect of this string of below average additions..

August 25 2018 natural gas supplies as of August 17th

the above graph comes from this week's Natural Gas Storage Report, and it shows the quantity of natural gas in storage in the lower 48 states over the period from August 2016 up to the week ending August 17th 2018 as a blue line, the average of natural gas in storage over the 5 years preceding the same dates shown as a heavy grey line, while the grey shaded background represents the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the two years shown by the graph…thus the grey area also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to a maximum by the end of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the spring heating requirements for any given year...what we want to point out on that graph this week is the divergence between the 5 year average amount of natural gas in storage for any given date of the year, which is shown as a dark grey graph, and that of current supplies of natural gas, shown in blue...notice that the blue line shows that the quantity gas we had stored throughout the summer and fall of 2016 was at a record high for each week during the year, up until October, and then dropped to near normal going into 2017, despite a much milder than normal winter...nonetheless, we can see that our natural gas supplies stayed above the average level through most of 2017, and didn't fall to below normal until the 2017-2018 heating season began...notice that since then, however, the gap separating the grey "normal" line and the blue current supply line has gotten increasingly wider, up until this summer, when the blue line representing current supplies has failed to keep up with the normal level of increase for 7 weeks straight....hence, instead of rebuilding our natural gas supplies back to a normal level before winter, each week we have been getting progressively farther away from what we should have stored before the heating season begins at the beginning of November...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending August 17th, indicated that because of a large drop in our oil imports, we had to withdraw oil from our commercial crude supplies to meet the needs of our refineries for the fifteenth time in the past thirty weeks... our imports  of crude oil fell by an average of 1,496,000 barrels per day to an average of 7,518,000 barrels per day, after rising by an average of 1,083,000 barrels per day the prior week, while our exports of crude oil fell by an average of 437,000 barrels per day to an average of 1,155,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,363,000 barrels of per day during the week ending August 17th, 1,059,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be 100,000 barrels per day higher at a record 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 17,363,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using 17,892,000 barrels of crude per day during the week ending August 17th, 89,000 barrels per day less than the record amount they used during the prior week, while over the same period 834,000 barrels of oil per day were reportedly being pulled out of the oil that's in storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 305,000 barrels per day more than what refineries reported they used during the week....to account for that disparity between the supply of oil and the disposition of it, the EIA needed to insert a (-305,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...since that "unaccounted for crude" figure was at +631,000 barrels per day during the prior week, we know that the week over week changes for one or more of this week's EIA oil metrics must be in error by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer).... 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 8,053,000 barrels per day, now 2.2% less than the 8,233,000 barrel per day average that we were importing over the same four-week period last year....the 834,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a new sale of 11 million barrels from those reserves was announced this week....this week's crude oil production was reported being 100,000 barrels per day higher at a record 11,000,000 barrels per day because the output from wells in the lower 48 states increased by a rounded 100,000 barrels per day to 10,600,000 barrels per day while oil output from Alaska rose by 34,000 barrels per day, and hence the national total, which is now being rounded to the nearest 100,000 barrels per day to reflect the EIA's inability to accurately model oil output from all the wells in the lower 48 states, was thus also up by 100,000 barrels per day.....US crude oil production for the week ending August 18th 2017 was reportedly at 9,528,000 barrels per day, so this week's rounded oil production figure was roughly 15.4% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 98.1% of their capacity in using 17,892,000 barrels of crude per day during the week ending August 17th, unchanged the prior week, again the highest refinery utilization rates seen in 17 years....the 17,892,000 barrels per day of oil that were refined this week were also at a seasonal high, now for the 12th week in a row, as compared to any previous 3rd week of August....this week's refinery throughput was 2.5% higher than the 17,461,000 barrels of crude per day that were being processed during the week ending August 18th 2017, when US refineries were operating at 95.4% of capacity....

with the modest reduction in the amount of oil being refined this week, gasoline output from our refineries was likewise modestly lower, decreasing by 83,000 barrels per day to 10,151,000 barrels per day during the week ending August 17th, after our refineries' gasoline output had increased by 321,000 barrels per day during the week ending August 10th...with this week's decrease, however, our gasoline production during the week was 3.9% lower than what had been a record 10,566,000 barrels of gasoline that were produced daily during the same week of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 89,000 barrels per day to a seasonal high of 5,426,000 barrels per day, after rising by 100,000 barrels per day over the prior week...that meant this week's distillates production was 6.6% higher than the 5,091,000 barrels of distillates per day that were being produced during the week ending August 18th, 2017...

even with the modest decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 1,200,000 barrels to a seasonal high of 234,328,000 barrels by August 17th, the 11th increase in 26 weeks, and the 25th increase in 41 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline rose this week because our imports of gasoline rose by 154,000 barrels per day to 817,000 barrels per day, while our exports of gasoline fell by 291,000 barrels per day to 644,000 barrels per day, and because the amount of gasoline supplied to US markets fell by 59,000 barrels per day to 9,453,000 barrels per day, after rising by 166,000 barrels per day the prior week...after this week's increase, our gasoline inventories were 1.9% higher than last August 18th's level of 229,902,000 barrels, and roughly 9.8% above the 10 year average of our gasoline supplies for this time of the year...     

meanwhile, with the increase in our distillates production, our supplies of distillate fuels increased by 1,849,000 barrels to 130,838,000 barrels during the week ending August 17th, the 10th increase in 13 weeks...our supplies increased even though the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 106,000 barrels per day to 4,065,000 barrels per day, after decreasing by 43,000 barrels per day the prior week, and even though our exports of distillates rose by 185,000 barrels per day to 1,043,000 barrels per day, while our imports of distillates fell by 29,000 barrels per day to 145,000 barrels per day....however, since our distillate supplies are still coming off the 14 year seasonal low that they hit 4 weeks ago, because they had been falling during the spring, when distillates supplies are usually increasing, this week's inventory increase still leaves our distillates supplies 11.8% below the 148,415,000 barrels that we had stored on August 18th, 2017, and roughly 12.1% lower than the 10 year average of distillates stocks for this time of the year...  

finally, with our oil imports down by nearly 1.5 million barrels per day, our commercial supplies of crude oil decreased for the 17th time in 2018 and for the 30th  time in the past year, falling by 5,836,000 barrels during the week, from 414,194,000 barrels on August 10th to 408,358,000 barrels on August 17th ...but even with that decrease, our crude oil inventories are still a bit above the five year average of crude oil supplies for this time of year, and roughly 15.5% above the 10 year average of crude oil stocks for the 3rd week of August...but since our crude oil inventories had been falling through most of the past year and a half, our oil supplies as of August 17th were 11.8% below the 463,165,000 barrels of oil we had stored on August 18th of 2017, 17.2% below the 492,962,000 barrels of oil that we had in storage on August 19th of 2016, and 2.5% below the 418,990,000 barrels of oil we had in storage on August 21st of 2015, when US supplies of oil had already risen above the nearly stable levels of under 400 million barrels that we'd seen during the prior years...  

This Week's Rig Count

US drilling activity decreased for the sixth time in eleven weeks during the week ending August 24th, following 11 consecutive weeks of increases, as the steady increases in drilling for oil we saw with higher oil prices during the first half of this year have stalled since oil futures' prices have shifted into deep backwardation.... Baker Hughes reported that the total count of rotary rigs running in the US fell by 13 rigs to 1044 rigs over the week ending on Friday, which was still 104 more rigs than the 940 rigs that were in use as of the August 25th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...    

the count of rigs drilling for oil was down by nine rigs at 860 rigs this week, which was still 101 more oil rigs than were running a year ago, while it was still well 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 fell by 4 rigs to 182 rigs this week, which was only 2 more rigs than the 184 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...meawhile, two rigs drilling exploratory wells considered to be "miscellaneous" continued operating this week, up from just one such "miscellaneous" rig a year ago...

three of the rigs that were shut down this week had been drilling from platforms in the Gulf of Mexico, cutting the Gulf of Mexico rig count down to 16 rigs, down from the 17 rigs that were drilling in the Gulf last year at this time...however, two rigs continued drilling offshore from Alaska this week, so the total national offshore count is at 18 rigs, which is thus up from last year's total of 17 offshore rigs, as a year ago there was no offshore drilling other than in the Gulf...in addition to Gulf rigs, one of the rigs that had been drilling through an inland body of water in southern Louisiana was also shut down this week, leaving the 'inland waters' rig count at 1, down from the 3 rigs that were drilling on inland waters a year ago...

the count of active horizontal drilling rigs was down by 3 rigs to 919  horizontal rigs this week, which was still 123 more horizontal rigs than the 796 horizontal rigs that were in use in the US on August 25th 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 decreased by 2 rigs to 63 vertical rigs this week, which was thus down from the 64 vertical rigs that were in use during the same week of last year...moreover, the directional rig count decreased by 8 rigs to 62 directional rigs this week, which was also down from the 80 directional rigs that were operating on August 25th of 2017... 

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 the 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 August 24th, the second column shows the change in the number of working rigs between last week's count (August 17th) and this week's (August 24th) count, the third column shows last week's August 17th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 25th of August, 2017...  

August 24 2018 rig count summary

as you can see, most of this week's drilling pullback was in two states; Louisiana, which shed a total of 7 rigs, and North Dakota, which was down by 4 Williston oil rigs...the Louisiana count includes the 3 newly idled offshore rigs that were in the state's waters in the Gulf of Mexico, the inland waters rig that was shut down, and three rigs in the northern part of the state, with some of those in the Haynesville shale, which saw a 3 rig increase on the Texas side of the state line, thus accounting for the Texas rig increase, even as other rigs were shifted elsewhere around Texas at the same time...note that the count in the major basins was down by 6 rigs, while the total horizontal count was down by just three; that would mean that 3 horizontal rigs began drilling elsewhere, in a basin not tracked separately by Baker Hughes...where that might be is not immediately evident, so one would have to dig through the individual well logs in the Baker Hughes pivot table to ascertain where...meanwhile, there are no changes hidden in the basin counts above, such as a switch of a rig from oil to gas drilling or vice-versa; what we see above are actually the only basin changes that occurred...thus, natural gas rigs were shut down in Ohio's Utica and Pennsylvania's Marcellus, while an additional gas directed rig was added in the Haynesville...the other 3 natural gas rigs that were shut down would have thus had to have been among the rigs other than those we've already accounted for, with even the three Louisiana offshore rigs among the likely possibilities....

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note: there's more here