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, July 15, 2018

US gasoline output at a record high, oil supplies at a 41 mo. low; global oil output up in June after May revised lower

oil prices ended sharply lower this week, after hitting an air pocket and dropping more than 5% on Wednesday, on the back of the announcement of the resumption of Libyan oil output...after falling a half percent to $73.80 a barrel on an increase in US crude supplies last week, contracts for US light sweet crude for August delivery rose 5 cents to $73.85 a barrel on Monday, as reports that Canada's Syncrude operations would resume activity sooner than expected cut off a rally higher....oil prices then rose 26 cents to $74.11 a barrel on Tuesday, on continued production outages globally, and expectations that sanctions against Iran would limit supplies...on Wednesday, however, oil prices collapsed, with US crude falling $3.73 to $70.38 a barrel, after Libya announced they had resumed exports, and the OPEC reported an increase in oil output; at the same time, North Sea Brent crude, the international benchmark, fell $5.46 to $73.33 per barrel, a daily price move more than three standard deviations from the mean, and the largest one-day drop since February 2016...while Brent crude rebounded $1.11 higher on Thursday, US oil prices were mostly mixed, slipping another 5 cents to $70.33 a barrel at the close, as the resumption of Libyan output offset warnings from the IEA that OPEC was facing a spare capacity crunch...US prices then climbed 68 cents to $71.01 on Friday, but still posted a sharp 3.8% loss for the week, as oil traders weighed returning Libyan supply and global trade disputes against indications of tighter crude supply and shrinking spare output capacity...

natural gas prices also ended the week lower, dropping in four out of 5 trading sessions in sliding a total of 10.6 cents to $2.752 per mmBTU by the end of the week, despite forecasts for the return of hot weather and a smaller than expected injection of surplus gas into storage....the natural gas storage report for week ending July 6th from the EIA indicated that natural gas in storage in the US rose by 51 billion cubic feet to 2,203 billion cubic feet over the week, which left our gas supplies 725 billion cubic feet, or 24.8% below the 2,869 billion cubic feet that were in storage on July 7th of last year, and 519 billion cubic feet, or 19.1% below the five-year average of 2,722  billion cubic feet of natural gas that are typically in storage after the first week of July...the consensus forecast was for an addition of 56 billion cubic feet to gas in underground storage, so this 51 billion cubic feet increase was a bit below what had been expected, and quite a bit lower than the 77 billion cubic foot of weekly surplus natural gas that has typically been added to storage during the first week of July... since US natural gas supplies as July 6th were still 1,587 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week's 51 billion cubic foot addition to supplies now means that we'll need to add an average of 93 billion cubic feet per week over the next 17 weeks to get our gas supplies back to a normal level before the next heating season's withdrawals begin...since that's now unlikely, it means that if the upcoming winter is much colder than normal, then parts of the country will run out of natural gas in storage and shortages will occur before the winter is over...understand, there is no one responsible for seeing that we have adequate natural gas supplies going into the winter, and that US gas producers have a greater incentive to liquefy and export gas at three times the domestic price than to store it here, since any gas shortages that develop will only cause the price to rise, making their remaining gas output more profitable...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending July 6th, indicated that due to a big drop in our oil imports, the week saw the largest withdrawal from our commercial crude supplies since 2016....our imports of crude oil fell from last week's 16 month high by an average of 1,624,000 barrels per day to an average of 7,431,000 barrels per day, while our exports of crude oil fell by an average of 309,000 barrels per day to an average of 2,027,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,404,000 barrels of per day during the week ending July 6th, 1,315,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells was again reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,304,000 barrels per day during the reporting week... 

at the same time, US oil refineries were using 17,652,000 barrels of crude per day during the week ending July 6th, just 1,000 barrels per day less than they used during the prior week, while at the same time 1,805,000 barrels of oil per day were reportedly being pulled out of oil 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 457,000 more barrels per day than what refineries reported they used during the week....to account for that disparity, the EIA needed to insert a (-457,000) 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"... (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 8,271,000 barrels per day, which was still 5.9% more than the 7,811,000 barrel per day average we imported over the same four-week period last year....the 1,805,000 barrel per day drop 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 was unchanged....this week's crude oil production was reported as unchanged despite a 29,000 barrel per day increase in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total....US crude oil production for the week ending July 7th 2017 was reported at 9,397,000 barrels per day, so this week's rounded oil production figure is roughly 16.0% 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...

US oil refineries were operating at 96.7% of their capacity in using 17,652,000 barrels of crude per day during the week ending July 6th, down from 97.1% of capacity the prior week, but still a refinery capacity utilization rate well above historical norms...the 17,652,000 barrels of oil that were refined this week were among the largest refinery throughput figures on record, topped only by the prior three weeks in June of this year, and the 17,725,000 barrels per day that were being refined during the last full week of August 2017....this week's refinery throughput was also 2.4% higher than the 17,244,000 barrels of crude per day that were being processed during the week ending July 7th a year ago, when US refineries were operating at 94.5% of capacity....

even with the amount of oil being refined virtually unchanged this week, gasoline output from our refineries was much higher, rising by 388,000 barrels per day to a record high of 10,699,000 barrels per day during the week ending July 6th, after our refineries' gasoline output had increased by 169,000 barrels per day during the week ending June 29th....with this week's increase, our gasoline production during the week was 2.2% more than the 10,365,000 barrels of gasoline that were being produced daily during the week ending July 7th of last year...at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 21,000 barrels per day to 5,442,000 barrels per day, after rising by 67,000 barrels per day the prior week...however, this week's distillates production was still at a seasonal high, and 1.7% higher than the 5,349,000 barrels of distillates per day that were being produced during the week ending July 7th, 2017...

with gasoline production at a record high, we'll take a look at an historical graph of that production so we can see what's going on there...

July 11 2018 gasoline production thru July 6h

the above is a screen copy of the interactive graph that accompanies the EIA spreadsheet for "Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline" which gives us the weekly totals in thousands of barrels per day of our total gasoline production from 1992 to the present, adjusted as indicated...it's a poor graph, but you should be able to see that our gasoline production has been steadily rising over the entire span of this graph, thus repeatedly setting "new record highs" along the way during the summer and winter seasonal peaks of production...ie, the 10,699,000 barrels of gasoline that were produced per day during the week ending July 6th broke the previous record of 10,566,000 barrels per day that had been produced during the week ending August 18th, 2017, which in turn broke the record of 10,537,000 barrels per day set during the week ending December 23rd, 2016, which in turn broke the record of 10,456,000 barrels per day set six weeks earlier….the point being that as long as US refining continues to expand and gasoline production continues to increase, production records are going to be set along the way…so if it hadn’t been this week, more than likely we would have seen another gasoline production record sometime later this year…

however, even with our gasoline production at a record high, our supply of gasoline in storage at the end of the week still fell by 694,000 barrels to 238,997,000 barrels by July 6th, the eleventh decrease in 18 weeks, but just the 12th decrease in 35 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline fell because our exports of gasoline rose by 699,000 barrels per day to 1,186,000 barrels per day even as the amount of gasoline supplied to US markets fell by 594,000 barrels per day to 9,275,000 barrels per day, while our imports of gasoline rose by 205,000 barrels per day to 853,000 barrels per day....but even after this week's decrease, our gasoline inventories were still 1.4% higher than last July 7th's level of 235,656,000 barrels, and roughly 10.6% above the 10 year average of our gasoline supplies for this time of the year...    

meanwhile, with our distillates production little changed, our supplies of distillate fuels increased by 4,125,000 barrels to 117,557,000 barrels during the week ending July 6th, the largest jump in distillate inventories since the first week of this year...that was as our exports of distillates fell by 258,000 barrels per day to 1,152,000 barrels per day, after falling by 426,000 barrels per day the previous week, while our imports of distillates rose by 12,000 barrels per day to 104,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 321,000 barrels per day to 3,805,000 barrels per day, after increasing by 514,000 barrels per day the prior week...however, since this week's big inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th on the way to falling to a 13 year low, our distillate supplies for the week ending July 6th still remain 20.8% below the 153,553,000 barrels that we had stored on July 7th, 2017, and roughly 14.7% lower than the 10 year average of distillates stocks for this time of the year...   

finally, with that big drop in our oil imports coming while refineries were consuming oil at near record pace, the week saw the largest withdrawal of oil from our commercial supplies of crude oil since September 2016, as our commercial crude supplies fell by 12,633,000 barrels during the week, from 417,881,000 barrels on June 29th to 405,248,000 barrels on July 6th, which turns out to be the least amount of oil we've had in storage since February 20, 2015...and after falling 33 weeks over the past year, our oil inventories as of July 6th were 18.2% below the 495,350,000 barrels of oil we had stored on July 7th of 2017, 17.5% below the 491,172,000 barrels of oil that we had in storage on July 8th of 2016, and 5.6% below the 429,368,000 barrels of oil we had in storage on July 10th of 2015, when the US glut of oil had already risen above the nearly stable supply levels of under 400 million barrels during the prior years...  

OPEC's Monthly Oil Market Report

with oil prices again responding to any changes in OPEC's oil output, we'll next take a look at OPEC's July Oil Market Report (covering June OPEC & global oil data) next, which was released Wednesday of this week 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 61 of that report (pdf page 71), 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...    

June 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 173,400 barrels per day in May to 32,327,000 barrels per day, from their May production total of 32,154,000 barrels per day....that May figure was originally reported as 31,869,000 barrels per day before the addition of new member Congo, so the May output of the other OPEC members was therefore revised 34,000 barrels per day lower with this report (for your reference, here is the table of the official May 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 405,400 barrels per day in the output from Saudi Arabia was main reason that the cartel's output rose, as that increase more than offset the decrease of 254,300 barrels per day in Libyan output, the decrease of 88,300 barrels per day in Angolan output, and the decrease of 47,500 barrels per day in Venezuelan output...with an original output quota set at 10,060,000 barrels per day for the Saudis, their output is now well above their allocation, but with OPEC output excluding the Congo at 31,996,000 barrels per day, OPEC's total oil output is still 734,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, mostly on the big drop in Venezuelan output...

the next graphic we'll include shows us both OPEC and world monthly oil production on the same graph, over the period from July 2016 to June 2018, and it comes from the page numbered 62 (pdf page 72) of the July 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 metrics for global output shown on the right scale...     

June 2018 OPEC report global oil supply

OPEC's preliminary data indicates that total global oil production rose by a rounded 600,000 barrels per day to 98.01 million barrels per day in June, apparently after May's global output total was revised down by 450,000 barrels per day from the 97.86 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 430,000 barrels per day in June after that revision....global oil output for June was also 1.74 million barrels per day, or 1.5% higher than the 96.59 million barrels of oil per day that were being produced globally in June a year ago (see the July 2017 OPEC report online (pdf) for the year ago details)...after the downward revision to global output, OPEC's June oil production of 32,327,000 barrels per day represented 33.0% of what was produced globally during the month, up from the 32.6% share reported for May, with the addition of Congo's output also contributing to OPEC's share increase...OPEC's June 2017 production was at 32,611,000 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 741,000 fewer barrels per day of oil than they were producing a year ago, during the sixth month that their production quotas were in effect, with the 598,000 barrel per day decrease in output from Venezuela from that time largely responsible for their output drop...

despite the 600,000 barrel per day increase in global oil output in June, the downward revisions to May output meant that we again saw a small deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

June 2018 OPEC report 2018 global oil demand

the table above comes from page 32 of the July  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 third column, we've circled in blue the figure that's relevant for June, which is their revised estimate of global oil demand during the second quarter of 2018...     

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe have been using 98.04 million barrels of oil per day, which is a downward revision of a rounded 0.04 million barrels of oil per day from their prior estimate for the 2nd quarter, as we've circled in green....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 98.01 million barrels per day during June, which means that there was a small shortfall of around 30,000 barrels per day in global oil production vis-a vis the demand estimated for during the month... 

at the same time that 2nd quarter global demand was being revised a rounded 40,000 barrels per day lower, May's global output total was revised down by 450,000 barrels per day to 97,410,000 barrels per day, so that means that the shortfall for May now works out to 630,000 barrels per day, revised from the 220,000 barrel per day shortfall we had figured on a month ago...the 2nd quarter revision to global demand also means that the global shortfall for April would be revised from the 480,000 barrels per day that we figured last month to 440,000 barrels per day...

however, as is also circled in green above, while global oil demand figures for the second quarter were revised lower, global oil demand figures for the first quarter of 2018 were revised 50,000 barrels per day higher, which means that our previously recomputed oil surplus for the first quarter of 2018 will have to be recomputed again...based on the revisions of a month ago, we had figured a global oil surplus of 180,000 barrels per day for March, a surplus of 360,000 barrels per day for February, and a surplus of 200,000 barrels per day for January...each of those surplus figures thus have to be revised lower based on revised higher demand, so hence our new figures will show a surplus of 130,000 barrels per day for March, a surplus of 310,000 barrels per day for February, and a surplus of 150,000 barrels per day for January...totaling it all up, that means that for the first six months of 2018, global oil demand exceeded production by 16,270,000 barrels, a relatively small oil shortfall that is the equivalent of roughly four hours of global oil production at the June rate...  

This Week's Rig Count

US drilling activity increased for the second time in five weeks, but for 13th time in the past 16 weeks during the week ending July 13th, as the steady increase in drilling for oil we saw with higher oil prices the first half of this year has stalled over the past month...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 2 rigs to 1054 rigs over the week ending on Friday, which was 102 more rigs than the 952 rigs that were in use as of the July 14th report of 2017, but was down from the recent 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 unchanged at 863 rigs this week, which was 98 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 increased by 2 rigs to 189 rigs this week, which was also up by 2 from the 182 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...in addition, there continues to be two rigs drilling this week that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

with a second platform starting operations off the coast of Texas, drilling activity in the Gulf of Mexico increased by 1 rig to 19 rigs this week, which was still 2 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago...however, the drilling platform that had been deployed offshore from Alaska was shut down this week, so the total US offshore count remains at 19 rigs, down by 2 rigs from the total 21 offshore rigs that were drilling a year ago...however, there was also a platform that started drilling on an inland body of water in southern Louisiana this week, so there are now 5 such "inland waters" rigs operating, up from 3 on inland waters a year ago...

the count of active horizontal drilling rigs was unchanged a 930 horizontal rigs this week, which was still 126 more horizontal rigs than the 804 horizontal rigs that were in use in the US on July 14th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count increased by 1 rig to 68 directional rigs this week, which was still down from the 72 directional rigs that were in use during the same week of last year...in addition, the vertical rig count increased by 1 rig to 56 vertical rigs this week, which was still down from the 76 vertical rigs that were operating on July 14th 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 July 13th, the second column shows the change in the number of working rigs between last week's count (July 6th) and this week's (July 13th) count, the third column shows last week's July 6th 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 14th of July, 2017...      

July 13 2018 rig count summary

as you can see, there was not much variation in the rig counts across the states or the primary basins from a week ago...all the major basin changes seen above were oil rigs, as the two rig increase in natural gas drilling took place in basins not tracked separately by Baker Hughes, or more than likely would have been conventional rig start ups, as the rig on the inland waters platform likely was; as you can see, the major natural gas basins, including the Marcellus and the Utica, saw no change...

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note:  there’s more here…

Sunday, July 8, 2018

US LNG exports to quadruple in 2 years, use more than half of current gas output if all proposed plants are completed

US oil prices fell for the first time in 3 weeks this week, mostly on news of a surprise increase in US oil inventories, while international prices fell even more, mostly on news of higher global oil output...after rising 8% to $74.15 a barrel last week on US Iran policy and an interruption of Canadian supplies, US crude for August delivery fell 21 cents to $73.94 a barrel on Monday, on news of higher oil output from Saudi Arabia and Russia and concern over the global trade war launched by the US...for those same reasons, the international benchmark Brent crude ended $1.93 lower to $77.30 a barrel, as its late May $11 price premium over US crude has eroded over the past month on higher than expected output from OPEC....US crude prices then rocketed to as high as $75.27 a barrel at the open on Tuesday as oil output from Libya was cut off, but rolled over and fell sharply in mid-morning trading to a low of $72.73 a barrel, before steadying in the afternoon and ending with gain of 20 cents a $74.14 a barrel on the day, while Brent closed 46 cents higher at $77.76 at the same time...after the holiday, US oil prices were rising again on Thursday morning, reaching $74.96 a barrel, before falling steadily in the afternoon to end the day $1.20 lower at $72.94 a barrel, after the delayed EIA oil data unexpectedly revealed the first increase in US crude supplies in a month...US benchmark prices rallied on Friday, however, rising 86 cents to $73.80 a barrel, when data showed that oil inventories at Cushing OK, the delivery point for pricing U.S. crude, fell to their lowest in 3-1/2 years, largely due to an outage at the Syncrude facility in Canada that's expected to last for a month...at the same time, Brent crude, the international benchmark slipped 28 cents on rising OPEC production to close the week at $77.11 a barrel, thus ending the week only $4.31 a barrel above the US price...

natural gas prices also ended the week lower, initially dropping 6.2 cents to $2.862 per mmBTU on Monday, on data showing record natural gas production, and on expectations for more seasonal weather later in the month, and then ending the week fractionally lower at $2.858 per mmBTU, after the EIA storage report showed a supply increase on the higher side of average estimates....the natural gas storage report for week ending June 29th from the EIA indicated that natural gas in storage in the US rose by 78 billion cubic feet to 2,152 billion cubic feet over the week, which left our gas supplies 717 billion cubic feet, or 25.0% below the 2,869 billion cubic feet that were in storage on June 30th of last year, and 493 billion cubic feet, or 18.6% below the five-year average of 2,645 billion cubic feet of natural gas that are typically in storage after the last week of June...the consensus forecast was for an addition of 75 billion cubic feet to gas in underground storage, so this 78 billion cubic feet increase was fairly close to the consensus, but somewhat higher than the 70 billion cubic foot of weekly surplus natural gas that is typically added to storage at this time of year...however, since natural gas supplies as of end of June were still 1,638 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week's 78 billion cubic foot addition to supplies was still short of the 91 billion cubic feet per week we need to see weekly over the next 18 weeks to get our gas supplies back to a normal level before the next heating season's withdrawals begin...

a few graphics from two different reports on natural gas that were out this week will help put us our natural gas supply situation into perspective...

July 7 2018 first half natural gas supply and demand changes

this first graph is from the EIA's natural gas weekly for this week, and was part of this week's feature on natural gas supply and consumption for the first half of 2018, in which they cite data from PointLogic Energy, a natural gas analytical unit of IHS...the blue bar graph shows the change, in billions of cubic feet per day, in US consumption of natural gas between the first half of 2017 and the first half of 2018, while the green bar graph shows the change, in billions of cubic feet per day, in US supply of natural gas between the first half of 2017 and the first half of 2018...according to the accompanying data, total natural gas consumption averaged 87.4 billion cubic feet per day (Bcf/d) in the continental US during the first half of 2018, which was 8.4 Bcf/d (11%) greater than during the first half of 2017....that 8.4 billion cubic feet per day additional demand this year is what's graphed in blue, and we can see that most of the new gas consumption has been increased residential and commercial use, for electric generation, and for LNG exports...at the same time, US supplies of natural gas averaged 84.8 billion cubic feet per day during the first half of 2018, a 7.8 Bcf/d (10%) year-on-year increase....that 7.8 billion cubic feet per day of new supply is what's graphed in green, and as you can see, most of it is increased dry gas output from wells, with a small increase of imports from Canada...

what we should take away from that graphic is that US demand for natural gas at 87.4 billion cubic feet per day was greater than our supply at 84.8 billion cubic feet per day, (hence leading to the 25% year over year drop of natural gas in underground storage) and that demand for natural gas has been growing faster than new production is..

at the same time the EIA was publishing that analysis of natural gas supply and demand, S&P Global Platts was issuing a new special report titled Insurgent shale: prospects and perils for US LNG exports (pdf)...suffice it to say that their new report did not consider where new supplies of natural gas would come from, but was largely concerned with the potential for a bottleneck at the Panama Canal if we tried to push all of our proposed natural gas exports through the isthmus at once...while we're not worried about the potential for a gas tanker traffic jam at the Panama Canal, there were some graphics in that report that should raise our concern...the first is a map and table showing US LNG export plants that have been approved, some of which are under construction or already shipping LNG overseas..

July 5 2018 LNG plants operating and approved

the above map and legend are from page 6 of that Platts report, and show the US LNG facilities that are operating, that are under construction, and those that are approved for construction, but have not yet seen ground broken, and the expected gas processing capacity for each...at the top of the list are the two LNG liquefaction plants that are currently operating and exporting LNG: Sabine Pass on the LA-Texas border, with a listed output of 1.40 billion cubic feet per day, and Cove Point Maryland, with a listed output of .82 billion cubic feet per day...note that since Cove Point just began exporting a few months ago, most of its output doesn't even show up in the blue bar for increased LNG exports on the EIA bar graph above...according to Platts, we're currently exporting 2.22 billion cubic feet per day of natural gas in the form of LNG (and more gas exports are also piped to Mexico)

meanwhile, the second grouping on the above list shows the LNG production facilities currently under construction, including another 0.7 billion cubic feet per day at Sabine Pass, 2.10 billion cubic feet per day at Hackberry, Louisiana, 2.14 billion cubic feet per day of liquefaction capacity at Freeport, Texas, 2.14 of capacity at Corpus Christi, and .35 billion cubic feet per day at Elba Island Georgia...together, those plants under construction will represent another 7.43 billion cubic feet per day of natural gas export capacity, some of which will be coming online within a year, and all of which will be completed within two years...that means that by mid-2020, we will be exporting 9.65 billion cubic feet per day of natural gas in the form of LNG, more than quadruple what we are now exporting...recall that during the first half of 2018, our supplies of natural gas from wells and Canadian imports were running at 84.8 billion cubic feet per day, so that means our expected LNG exports will amount to more than 11% of current production by mid-2020...most of these exports are under long term contracts, so they will be supplied first; US consumers who happen to need natural gas for heating on a cold day in the middle of winter will wait in line for whatever gas remains...

in addition, as you can see at the bottom of the table, there are 4 more additional LNG plants that have been approved but are not yet under construction; two at Lake Charles, Louisiana, with a combined draw of 3.28 billion cubic feet per day from our natural gas supplies, another at Hackberry, Louisiana, with a capacity of 1.41 billion cubic feet per day of gas, and another 2.10 billion cubic feet per day at Sabine Pass, on the Texas side of the border...

and that's just the beginning of what this industry thinks they can do, because there are an additional 16 applications still pending or in pre-filing for LNG export plants, with a combined liquefaction capacity of 28.17 billion cubic feet of natural gas per day, as the map and table below from that Platts report shows:

July 5 2018 LNG plants proposed

should all of these plants be approved and constructed, the total export capacity of all 27 plants shown on the two graphics above would amount to 44.61 billion cubic feet of natural gas per day, if my off top of my head arithmetic is correct...that's more than half our present daily production, and should we merely continue to use natural gas domestically at today's pace, it would imply an increase in demand for natural gas of over 50%, far exceeding the most optimistic forecasts for future US natural gas production that i've ever seen...in fact, even Platt's own forecast for natural gas output that accompany this report only indicates a ~23% increase in US natural gas production by 2023, so it appears that the analysts at Platts, like the rest of the industry, have so thoroughly bought into their own hype that they can't even put two and two together anymore, publishing an inherent contradiction right there in their own data...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 29th, indicated that due to a big jump in our oil imports and a refinery pullback from the prior week's record throughput, we had a surplus of oil to add to our commercial crude supplies for the twelfth time in the past twenty-three weeks....our imports of crude oil rose by an average of 699,000 barrels per day to an average of 9,055,000 barrels per day, a 16 month high, while our exports of crude oil fell by an average of 664,000 barrels per day to an average of 2,336,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,719,000 barrels of per day during the week ending June 29th, 1,363,000 barrels per day more than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,619,000 barrels per day during the reporting week...

at the same time, US oil refineries were using 17,653,000 barrels of crude per day during the week ending June 29th, 163,000 barrels per day less than they used during the prior week, while at the same time 178,000 barrels of oil per day were reportedly being added to oil 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 and from oilfield production was 212,000 fewer barrels per day than what was added to storage plus what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-212,000) 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"... (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 rose to an average of 8,438,000 barrels per day, which was 6.6% more than the 7,915,000 barrel per day average we imported over the same four-week period last year....the 178,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged....this week's crude oil production was reported as unchanged despite a 45,000 barrel per day decrease in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total....US crude oil production for the week ending June 30 2017 was reported at 9,338,000 barrels per day, so this week's rounded oil production figure is roughly 16.7% 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 97.1% of their capacity in using 17,653,000 barrels of crude per day during the week ending June 29th, down from the 17 year high of 97.5% of capacity the prior week, but still a refinery capacity utilization figure higher than any seen in recent years...the 17,653,000 barrels of oil that were refined this week were likewise among the largest refinery throughput figures on record, topped only by the prior two weeks in June and the 17,725,000 barrels per day that were being refined during the last full week of August 2017....this week's refinery throughput was also 3.0% higher than the 17,141,000 barrels of crude per day that were being processed during the week ending June 30th a year ago, when US refineries were operating at 93.6% of capacity....

even with the reduction in amount of oil being refined this week, gasoline output from our refineries was somewhat higher, rising by 169,000 barrels per day to 10,311,000 barrels per day during the week ending June 29th, after our refineries' gasoline output had increased by 43,000 barrels per day during the week ending June 22nd....but even with this week's increase, our gasoline production during the week was still fractionally less than the 10,365,000 barrels of gasoline that were being produced daily during the week ending June 30th of last year...at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 67,000  barrels per day to 5,463,000 barrels per day, after falling by 72,000 barrels per day the prior week...however, this week's distillates production was still 7.1% higher than the 5,100,000 barrels of distillates per day that were being produced during the week ending June 30th, 2017...

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,505,000 barrels to 239,691,000 barrels by June 29th, the tenth decrease in 17 weeks, but just the 11th decrease in 34 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline fell because the amount of gasoline supplied to US markets rose by 138,000 barrels per day to 9,869,000 barrels per day, while our imports of gasoline fell by 340,000 barrels per day to 648,000 barrels per day, and while our exports of gasoline fell by 126,000 barrels per day to 487,000 barrels per day....but even after this week's decrease, our gasoline inventories still finished the week at a seasonal high for this time of year, 1.0% higher than last June 30th's level of 240,972,000 barrels, as they remain almost 11.6% above the 10 year average of our gasoline supplies for this time of the year...   

meanwhile, with the increase in distillates production, our supplies of distillate fuels increased by 134,000 barrels to 117,557,000 barrels during the week ending June 29th, the fifth small increase in six weeks...that was as our exports of distillates fell by 426,000 barrels per day from last week's record to 1,410,000 barrels per day, while our imports of distillates rose by 38,000 barrels per day to 92,000 barrels per day and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 514,000 barrels per day to 4,126,000 barrels per day, after decreasing by 692,000 barrels per day the prior two weeks...however, since this week's small inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 29th still remain 21.8% below the 150,422,000 barrels that we had stored on June 30th, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year...  

finally, with our oil imports at a 16 month high and our oil production continuing at a near record pace, our commercial supplies of crude oil increased for the 13th time in 2018 and for the 19th time in the past year, as our commercial crude supplies rose by 1,245,000 barrels during the week, from 416,636,000 barrels on June 22nd to 417,881,000 barrels on June 29th...however, after falling most of the past year, our oil inventories as of June 29th were still 16.9% below the 502,914,000 barrels of oil we had stored on June 30th of 2017, 15.4% below the 493,718,000 barrels of oil that we had in storage on July 1st of 2016, and 3.7% below the 433,714,000 barrels of oil we had in storage on July 3rd of 2015, when the US glut of oil was already well above the nearly stable supply levels of under 400 million barrels of the prior years... 

This Week's Rig Count

US drilling activity increased for the first time in four weeks, but for 12th time in the last 15 weeks during the week ending July 6th, as drilling for oil widened after two weeks of contraction...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 5 rigs to 1052 rigs over the week ending on Friday, which was 100 more rigs than the 952 rigs that were in use as of the July 7th report of 2017, but was down from the recent 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 5 rigs to 863 rigs this week, which was also 100 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 was unchanged at 187 rigs this week, which down by 2 from the 189 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...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 3 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago...there was also a drilling platform deployed offshore from Alaska this week, so the total US offshore count of 19 rigs is now down by 2 rigs from the total 21 offshore rigs that were drilling a year ago, when there was no drilling being done off of the Alaskan coast....

the count of active horizontal drilling rigs was also up for the first time in four weeks, increasing by 4 rigs to 930 horizontal rigs this week, which was also 126 more horizontal rigs than the 804 horizontal rigs that were in use in the US on July 7th 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 2 rigs to 67 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 decreased by 1 rig to 55 vertical rigs this week, which was also down from the 74 vertical rigs that were operating on July 7th 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 July 7th, the second column shows the change in the number of working rigs between last week's count (June 29th) and this week's (July 7th) count, the third column shows last week's June 29th 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 7th of July, 2017...      

July 6 2018 rig count summary

a lot of activity is missing from this summary table this week, as we can see just by adding the totals...for instance, since we know there was an increase of 4 horizontal rigs, the net decrease of 4 rigs drilling in the major basins shown above means that 8 horizontal rigs were added elsewhere, outside of the purview of the Baker Hughes summaries...most of those were likely in outlying areas of Oklahoma's Anadarko basin, since the state saw a one rig increase while the Cana Woodford saw a 6 rig decrease and another rig was pulled out of the Ardmore Woodford...others could have been in states not listed above; for instance, Indiana, Alabama and Mississippi each saw one rig added this week, after Alabama and Mississippi had both seen 2 rigs shut down last week...Indiana now has two rigs operating for the first time since January 2015, and Alabama has just that one rig operating at this time, down from the 3 rigs running in Alabama a year ago, while Mississippi now has 3 rigs operating in the state, the same number of rigs that were running in Mississippi a year ago...

although the Utica shows no change in net activity, that masks the switch of one of the 23 gas rigs that were operating in the formation last week to oil targeted drilling...natural gas rigs, meanwhile, ended unchanged, as the reduction of gas rigs in the Utica and Louisiana's Haynesville was offset by increases in gas rigs elsewhere, in the Anadarko or other formations not tracked separately by Baker Hughes..

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note:  there’s more here…

Sunday, July 1, 2018

record highs for oil refining, crude and distillate exports; largest US crude supply drop since Sept 2016, distillate supplies at a 13 year low, et al

oil prices rose another 8% this week, on top of last Friday's near 5% jump, and are now pushing $75 a barrel, as oil production disruptions in Canada and Libya along with a bellicose US policy on Iran portended that tighter oil supplies were in the offing, despite OPEC pledges to pump more crude....after closing last week 5.8% higher at $68.58 a barrel, mostly on the Friday news of an OPEC agreement to modestly increase output, contracts for US light sweet crude for August delivery fell 50 cents to $68.08 a barrel on Monday, as oil traders digested the possible outcomes of the OPEC deal and worried about deepening US trade wars...however, US crude prices surged $2.45, or 3.6%, to $70.53 a barrel on Tuesday, after the State Department threatened to slap sanctions on any country, friend or foe, that didn’t cut their oil imports from Iran to “zero” by November...oil prices then continued rising from that level the rest of the week, hitting new 3-and-a-half year highs on each day, as an outage in Canada disrupted oil flow to the US and oil traders bet that the Saudis would not be able to make up the production lost from US sanctions on Iran and Venezuela...the largest move in that rally came on Wednesday, when oil prices rose $2.23, or 3%, to 72.76 a barrel, after the EIA reported the largest weekly drop in US crude supplies since September 2016...U.S. crude then hit another a three-and-a-half year high on Thursday, rising 69 cents to $73.45 a barrel, on continued concerns that Trump's threats against oil importers could cause a large drop in crude exports from Iran...Friday fretting was much of the same, with concerns linked to Venezuela, Libya and Canada, as well as Iranian exports, as oil rose another 70 cents to $74.15 a barrel to finish the week with a gain of just over 8%, a gain of almost 11% for the month, an increase of over 14% for the second quarter, and an increase of almost 23% for the first half of 2018....

natural gas prices, on the other hand, ended both the week and the month lower, as higher production offset the impacts of a looming heat wave and an addition to storage that fell short of expectations...US natural gas prices for August rose a penny on Tuesday and 5 cents on Wednesday, and then pushed above $3 per mmBTU on Thursday morning before the natural gas storage report cut prices back to $2.94 per mmBTU at the close...August gas futures then settled 1.6 cents lower on Friday to close the week at $2.924 per mmBTU, down 2.1 cents from the previous Friday's close...the natural gas storage report for week ending June 22nd from the EIA indicated that natural gas in storage in the US rose by 66 billion cubic feet to 2,074 billion cubic feet over the week, which left our gas supplies 735 billion cubic feet, or 26.2% below the 2,809 billion cubic feet that were in storage on June 23rd of last year, and 501 billion cubic feet, or 19.5% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the third week of June...the consensus forecast was for an addition of 71 billion cubic feet to gas in underground storage, but this report also revised the prior week's addition of gas to storage 4 billion cubic feet higher, so the net at the end of the week was fairly close to consensus, and also close to the average 72 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year...however, since current natural gas supplies are still 1,724 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week's 66 billion cubic foot addition to supplies is well short of the 90 billion cubic feet per week we'll need to see weekly over the next 19 weeks to get our supplies back to a normal level before the next heating season's withdrawals begin...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 22nd, showed that due to a record level of domestic oil refining and record oil exports, we had to pull oil out of our commercial crude supplies for the eleventh time in the past twenty-two weeks....our imports of crude oil rose by an average of 114,000 barrels per day to an average of 8,356,000 barrels per day during the week, after rising by 143,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 626,000 barrels per day to a record average of 3,000,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,356,000 barrels of per day during the week ending June 22nd, 512,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,256,000 barrels per day during the reporting week... 

at the same time, US oil refineries were using a record 17,816,000 barrels of crude per day during the week ending June 22nd, 115,000 barrels per day more than they used during the prior week, while at the same time 1,413,000 barrels of oil per day were reportedly being pulled out of oil 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 147,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-147,000) 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"... (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 rose to an average of 8,261,000 barrels per day, which was 2.4% more than the 8,057,000 barrel per day average we imported over the same four-week period last year....the 1,413,000 barrel per day decrease in our total crude inventories came entirely out of our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged....this week's crude oil production was reported as unchanged despite the report of a 100,000 barrel per day increase in oil output from all the wells in the lower 48 states and a 38,000 barrel per day decrease in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total...the unrounded US crude oil production for the week ending June 23 2017 was reported at 9,250,000 barrels per day, so this week's figure is roughly 17.8% 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 97.5% of their capacity in using 17,816,000 barrels of crude per day during the week ending June 22nd, the highest refinery utilization rate since our refineries operated at 97.6% of capacity during the week ending June 1st 2001...the 17,816,000 barrels of oil that were refined this week were the most barrels refined on record, topping the 17,725,000 barrels per day that were being refined during the last full week of August 2017....this week's refinery throughput was also 5.5% higher than the 16,890,000 barrels of crude per day that were being processed during the week ending June 23rd a year ago, when US refineries were operating at 92.5% of capacity....  

with the amount of oil that we're refining now at a new record high, we'll take a look at a graph of the recent history of that metric for some perspective...

June 27 2018 refinery throughput thru June 23rd

the above graph of US refinery throughput came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Wednesday, which is also available as a pdf here; it shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown as a light blue shaded area, and the median of our refinery throughput, 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 oil refined for each week in 2017 traced by a yellow line, with our year to date oil refining for each week of 2018 represented by the red graph...you can clearly see that except for the disruptions to refining caused by last year's hurricanes, 2017's refining in yellow had been at the top of the historical range almost all year, and that the pace of refining in 2018 in red has generally been topping that, except for in late April and May...you can also see that the summer is usually when refiners see their seasonal highs, so although this peak in June was earlier than we might have expected, the trend for US refining has been higher, and new records sometime this summer were probably to be expected..  

with the record amount of oil being refined this week, gasoline output from our refineries was a bit higher, rising by 43,000 barrels per day to 10,142,000 barrels per day during the week ending June 22nd, after our refineries' gasoline output had decreased by 352,000 barrels per day during the week ending June 15th....hence, even with this week's increase, our gasoline production during the week was 1.9% below the 10,334,000 barrels of gasoline that were being produced daily during the week ending June 23rd of last year...at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 72,000  barrels per day to 5,396,000 barrels per day, after rising by 357,000 barrels per day to a near record high the prior week...as a result, this week's distillates production was still 2.9% higher than the 5,244,000 barrels of distillates per day than were being produced during the week ending June 23rd, 2017...

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,156,000 barrels to 241,196,000 barrels by June 22nd, the seventh increase in 16 weeks, but the 23rd increase in 33 weeks, as gasoline inventories, as usual, were being built up over the winter months....that increase was less than last week's increase of 3,277,000 barrels because the amount of gasoline supplied to US markets rose by 405,000 barrels per day to 9,731,000 barrels per day, while our imports of gasoline rose by 138,000 barrels per day to 988,000 barrels per day, and our exports of gasoline rose by 10,000 barrels per day to 613,000 barrels per day....after this week's increase, our gasoline inventories finished the week at a seasonal high for this time of year, but just fractionally higher than last June 23rd's level of 240,972,000 barrels, even as they are now almost 11.6% above the 10 year average of our gasoline supplies for this time of the year...    

meanwhile, with this week's decrease in distillates production, our supplies of distillate fuels ended the week little changed, increasing by just 15,000 barrels to 117,423,000 barrels during the week ending June 22nd...that was as our exports of distillates rose by 532,000 barrels per day to a record high of 1,836,000 barrels per day, while our imports of distillates rose by 5,000 barrels per day to 54,000 barrels per day and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 213,000 barrels per day to 3,612,000 barrels per day, after decreasing by 579,000 barrels per day the prior week...since this week's small inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 22nd are still 22.9% below the 152,272,000 barrels that we had stored on June 23rd, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year...  

since our distillate supplies have now slipped to a 13 year low for this time of year, we'll include a graph showing how they got here

June 27 2018 distillate supplies as of June 23rd

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here...it 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 running median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of thousands of barrels of distillates we had stored at the end of each week in 2017 traced weekly by a yellow line, with our year to date distillates supplies for each week of 2018 traced in red...notice within the light blue shaded area that there is normally a seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, mostly because we have been exporting our distillates at a record pace...thus we come to June 22nd with our distillate supplies now at a 13 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017... 

finally, with our oil exports at a record high at the same time our refineries were using oil at a record pace, our commercial supplies of crude oil decreased for the 13th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 9,891,000 barrels during the week, from 426,527,000 barrels on June 15th to 416,636,000 barrels on June 22nd, the largest drop in our crude supplies since September 2nd 2016...thus, after falling most of the past year, our oil inventories as of June 22nd were 18.2% below the 509,213,000 barrels of oil we had stored on June 23rd of 2017, 16.0% below the 495,941,000 barrels of oil that we had in storage on June 24th of 2016, and 3.8% below the 433,223,000 barrels of oil we had in storage on June 26th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the  prior years...       

since our record level of crude oil exports have the major reason for our falling crude supplies, and since this week saw the previous record for oil exports beat by nearly 17%, we'll include here a graph of those oil exports over the past 22 months..  

June 27 2018 crude exports week ending June 23rd

the above graph also came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, which is also accessible online as a pdf here, and it shows weekly US crude oil exports in thousands of barrels per day from September 2016 to the current week, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select dates going back to September 1st 2017, the week when our exports had been choked off because Gulf Coast ports were shut down by Hurricane Harvey and fell to 153,000 barrels per day...as you can see, our oil exports had only topped a million barrels per day a few times prior to that date...however, after the price of US crude fell to a 10% discount to the comparable international grade in the wake of the hurricanes, US crude suppliers began to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since, and with those elevated exports, our crude oil supplies have also been falling since...as we've noted several times over the past couple of months, the spread between the price of North Sea Brent, the international benchmark, and that of the similar US grade, has widened to as much as $10 or $11 a barrel, so we expected that US oil traders would sell as much US crude into international markets this summer as our port capacity would allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transportation costs...while that spread has narrowed to below $6 this week on the Canadian problems, oil being exported in June and through July was more than likely contracted for during that period of the wider price spreads...

to compare this year's drop in our oil supplies with what has happened in previous years, we'll include one more graph from that Kemp package..

June 27 2018 year to date crude supplies as of June 23rd

again, this graph also came from John Kemp's weekly package of oil graphs, which is accessible online as a pdf here...as the legend tells us, the bars on the graph show the change in US crude inventories between December 31st and June 22 for each of the last 11 years, with bars for increases above the 0 level, and the lone bar for this year's decrease showing up as a bar below the 0 level...typically, oil inventories are built up during the first five months of the year, then are drawn down as refineries run flat out to supply additional gasoline during the summer driving season...that normal early year build up of our oil supplies is what the first ten bars on that graph show us, which John identifies in his header as an average 37 million barrels of oil added during this period over the past ten years...this year, however, our oil supplies have fallen by 6.4 million barrels during these first six months, as instead of adding oil to storage, we have been pulleing oil out of our supplies and exporting it...since we built up our oil supplies to abnormal levels during the periods of low prices in 2015 and 2016 as you can see on the graph, our crude supplies are not becoming critically low at this point, but they are now below the 5 year average of our supplies for this time of year...

This Week's Rig Count

US drilling activity decreased for the third week in a row, after 11 consecutive increases, and was hence down for the 4th time in the last 19 weeks during the week ending June 29th, as both drilling for natural gas and drilling for oil slowed simultaneously for the 2nd week in a row...Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 5 rigs to 1047 rigs over the week ending on Friday, which still left us with 107 more rigs than the 940 rigs that were in use as of the June 30th report of 2017, while that count was down from the recent 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 4 rigs to 858 rigs this week, which was still 102 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 was down by 1 rig to 187 rigs this week, which was only 3 more gas 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...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 3 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago...however, the platform that had been idled offshore from Alaska last week was started back up this week, so the total US offshore count of 19 rigs is now down by 2 rigs from the total 21 offshore rigs that were drilling a year ago, when there was no rig drilling off of the Alaskan coast...in addition, the two platforms on inland lakes in southern Louisiana that had been shut down last week were restarted this week, so now there are four 'inland waters" rigs operating again, the same number of 'inland waters' rigs that were operating going into the same weekend a year ago...

the count of active horizontal drilling rigs was down again, for the 3rd week running, decreasing by 4 rigs to 926 horizontal rigs this week, which was still 134 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 30th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count decreased by 4 rigs to 56 vertical rigs this week, which was also down from the 77 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count increased by 3 rigs to 65 directional rigs this week, which was still down from the 71 directional rigs that were operating on June 30th 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 June 29th, the second column shows the change in the number of working rigs between last week's count (June 22nd) and this week's (June 29th) count, the third column shows last week's June 22nd 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 30th of June, 2017...      

June 29 2018 rig count summary

oil drilling decreased by 2 rigs in both the Eagle Ford of south Texas and the Williston aka Bakken of North Dakota, and while it increased by 2 rigs in Oklahoma's Cana Woodford, it was also down by two rigs in basins not itemized separately by Baker Hughes...the pace of natural gas drilling, meanwhile, was unchanged in the Utica and the Marcellus, while it was down by 3 rigs in the Haynesville, and up by 2 rigs in those unnamed basins not tracked separately by Baker Hughes...of the states not listed above, Alabama saw both of the rigs that had been operating in the state shut down this week, and now they have none, down from the 3 rigs running in Alabama a year ago, while Mississippi also saw two rigs shut down, and now have just 2 rigs operating in the state, also down from the 3 rigs running in Mississippi a year ago...

while we've been expecting that natural gas well drilling would slow with gas prices below $3 per mmBTU, we certainly didn't anticipate that oil drilling would also be curtailed, especially in light of the price rally we've seen over the past year...yet here we are at the end of June with oil prices above $70 a barrel for the second time this year, and the oil rig count is now at the lowest it's been in six weeks...when we looked at the Dallas Fed survey of oil executives at the end of March this year, we saw that 88% of the oil executives polled said they could be profitable at prices under $66 a barrel, which is roughly the average price we've seen throughout the 2nd quarter of this year....even allowing for 3 to 4 months lead time before drilling starts, we'd be talking oil prices that were consistently over $60 a barrel when today's rigs were contracted for, certainly more profitable than the $44 to $54 barrel oil we saw last year, when oil drillers were increasing their rig deployment by roughly 20%...so why this pullback has arrived at this time is anyone's guess, especially since the backlog of incomplete wells has nearly stabilized in all areas except the Permian..

 

note:  there’s more  here