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, April 23, 2017

oil prices drop 7.4%, oil rigs double from a year ago, oil production at a 20 month high, uncompleted wells increase 2%

oil prices tumbled this week, giving up all the gains they'd seen since Trump's strike on Syria and then some, as fears of further Mideast disruptions subsided, while US drilling productivity advanced again and traders became concerned that OPEC could not follow through on an extension of their output cuts...after closing last week with a 2% gain at $53.18 a barrel, US crude prices for May delivery fell on Monday to $52.65 a barrel, their lowest close in over a week, as traders noted that the EIA's monthly drilling productivity report forecast a US oil production increase of 124,000 barrels a day in May, suggesting an ongoing supply surplus...that projected surge in U.S. shale output carried into Tuesday trading, and May futures traded down another 24 cents at $52.41 a barrel, their lowest close since April 10th, after a Reuters analysis showed that US financial companies were again investing billions in new production... after inching up on Wednesday morning, the bottom dropped out of oil prices on Wednesday afternoon, after the EIA reported a smaller than expected draw from crude oil supplies and a surprise buildup of US gasoline supplies, with the May contract closing down $1.97 at $50.44 a barrel...with trading in May oil contracts expiring on Thursday, that month's contract closed out down another 17 cents, while the contract for June US light crude, which had fallen $2 a barrel on Wednesday to $50.85 a barrel, shed another 14 cents on Thursday to close at $50.71 a barrel...now quoting June as the front month, oil prices fell another $1.09 a barrel on Friday after Baker Hughes reported another weekly rise in the U.S. oil-rig count, to close the week at $49.62 a barrel, despite word from OPEC of a likely extension of their oil output cut...that left the June oil contract with a 7.4% loss for the week, down $3.98 a barrel from its close of $53.60 the previous Friday....

natural gas prices were lower for the week as well, but not as dramatically...after closing last week down 3.4 cents at $3.227 per mmBTU, natural gas prices for May delivery opened the week down 6 cents, and following a volatile session settled at $3.163 per mmBTU, down 6.4 cents, as weather models showed little likelihood of the northeast US tapping into any cold Canadian air masses...with little change in the forecast, prices drifted 1.8 cents lower on Tuesday, closing at $3.145 per mmBTU...then as usual, traders betting on a surprise in the natural gas storage report bid prices higher, as natural gas closed Wednesday up 4 cents at $3.185 per mmBTU...prices for May then fell back on Thursday, after the EIA's weekly natural gas storage report showed a 54 billion cubic feet addition to US supplies, which was 368 billion cubic feet below last year's total for the same period, but 282 billion cubic feet above the five-year average of 1.833 trillion cubic feet for this time in April...that disappointment carried into Friday, as natural gas prices for May, which will continue trading next week, fell 5.8 cents to close the week at $3.101 per mmBTU...

since we're back on natural gas, i want to clear up the ambiguity i left the last time i addressed the US natural gas production and supply situation...at that time, we showed that our natural gas supplies had been at near seasonal highs over the period from October 2015 through November 2016, with October 2016 being the first time in our history that US stored natural gas supplies topped 4 trillion cubic feet....however, that oversupply did not hold through this past winter, despite an equally warm winter vis a vis the prior one...(recall we showed that demand for heating was 17% below normal in both this past winter and during the El Nino winter before that)....US natural gas supplies have been falling despite this warm winter because both demand for natural gas has increased and production of natural gas has decreased....first, because of near record low prices, natural gas replaced and surpassed coal as the leading electrical generation source during 2016...in addition, natural gas deliveries to the Sabine Pass LNG export facility have more than tripled since mid-2016 and will continue to climb further as more liquefaction capacity ramps up....meanwhile, natural gas production has been down by 3.6% to 3.8% from a year earlier in recent months...and as we've showed many times, new drilling for natural gas is not taking place at these price levels (we've noted that it generally takes natural gas prices over $4 mmBTU to substantially increase the natural gas rig count)

so, while domestic production of natural gas looks like it will continue to be below year ago levels in the near term, users and exporters of natural gas are still expecting greater supplies to materialize in the next few years...recall that when we looked at US LNG export capacity additions 7 weeks ago, we saw that liquefaction and export terminals now under construction would demand about 10% of our total natural gas supplies by the end of 2019...meanwhile, the EIA reported that 13 gigawatts of natural gas-fired generating capacity is scheduled to come online in the US in 2017....if that pace of capacity addition is maintained until the end of 2019, it would represent nearly a 10% increase in demand for natural gas from electric utilities...but during this past winter, despite all time record high supplies of stored natural gas in October, our natural gas supplies have now dropped to a level 14.8% below that of the same week in April a year ago, even as we had an equally warm winter....in other words, over the past 6 months, our great natural gas surplus has been burnt off, and we're now just maintaining a near normal supply....that suggests that as the new gas generating capacity and the new gas liquefaction trains become operational, a shortage of natural gas will develop in the US, and natural gas prices will spike accordingly, as they have many times before...since roughly a third of our natural gas consumption is for residential heating, i would expect that our natural gas shortage will manifest itself as soon as the US sees a normal winter...

The Latest US Oil Data from the EIA

the oil data for the week ending April 14th from the US Energy Information Administration showed another large increase in our oil refining while our supply of crude from net imports and production barely inched up, which meant that we had to take oil out of storage to meet refining needs for the second week in a row, but still only for the 3rd time in the past 15 weeks...our imports of crude oil decreased by an average of 68,000 barrels per day to an average of 7,810,000 barrels per day during the week, while at the same time our exports of crude oil fell by 124,000 barrels per day to an average of 565,000 barrels per day, which meant that our effective imports netted out to 7,245,000 barrels per day during the week, 56,000 barrels per day more than the prior week...at the same time, our crude oil production rose by 17,000 barrels per day to an average of 9,253,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,498,000 barrels per day during the cited week...

at the same time, refineries reportedly used 16,938,000 barrels of crude per day, 241,000 barrels per day more than they used during the prior week, while 176,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that refineries used 265,000 more barrels of oil per day than were supplied by what we took out of storage plus our net oil imports and oil well production…therefore, 265,000 barrels of oil per day of "unaccounted for crude oil" is inserted onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the supply and demand data balance out, but no one knows where that oil came from...the reason we follow that weekly fudge factor is because the weekly production and inventory figures often influence the price of oil, and that "unaccounted for crude oil" figure suggests that one or both of those market moving metrics is consistently off by a bunch..

meanwhile, the weekly Petroleum Status Report indicates that the 4 week average of our oil imports fell to an average of 7,941,000 barrels per day, now just 2.0% above the imports of the same four-week period last year, and that the 4 week average of our oil exports inched up to 710,000 barrels per day, 102% higher than the same 4 weeks a year earlier, as we had barely started overseas exports of surplus light crude oil in early 2016....the 176,000 barrel per day decrease in our crude inventories came about on a 148,000 barrel per day withdrawal from our commercial stocks of crude oil and a 28,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago...

this week's 17,000 barrel per day oil production increase resulted from a 21,000 barrel per day increase in oil output from the lower 48 states, which was partially offset by a 4,000 barrels per day decrease in oil output from Alaska...the 9,252,000 barrels of crude per day that we produced during the week ending April 14th was a 20 month high, up by 5.5% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 3.3% from the 8,953,000 barrel per day output during the during week ending April 15th a year ago, while it was still 3.7% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 92.9% of their capacity in using those 16,938,000 barrels of crude per day, up from 91.0% of capacity the prior week, but still down from the year’s high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day...however the quantity of crude oil processed by US refineries was another Spring-time record, beating the 16,697,000 barrel of crude per day record set the prior week by a 241,000 barrel per day margin....it was also 5.2% more than the 16,104,000 barrels of crude per day.that were being processed during week ending April 15th, 2016, when refineries were operating at 89.4% of capacity...

even with the week's refining increase, gasoline production from our refineries decreased by 134,000 barrels per day to 9,794,000 barrels per day during the week ending April 14th, which was still 0.6% more than the 9,738,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 90,000 barrels per day to 5,150,000 barrels per day, which was 9.3% more than the 4,712,000 barrels per day of distillates that were being produced during the week ending April 15th last year...

however, even with the drop in our gasoline production, the EIA reported that our gasoline inventories increased by 1,542,000 barrels to 237,672,000 barrels as of April 14th, after they had dropped by almost 20 million barrels over the prior 6 weeks....that swing to a surplus came about because our imports of gasoline rose by 355,000 barrels per day to 843,000 barrels per day, while our gasoline exports fell by 62,000 barrels per day to 648,000 barrels per day and as our domestic consumption of gasoline fell by 52,000 barrels per day to 9,223,000 barrels per day....although our gasoline supplies are still down by almost 21.4 million barrels from the record high set 9 weeks earlier, they're still only 2 million barrels lower than last April 15th's inventories of 239,651,000 barrels, and are now 5.3% more than the 225,738,000 barrels of gasoline we had stored on April 17th of 2015...

on the other hand, even with the increase in distillate's production, our supplies of distillate fuels fell by 1,955,000 barrels to 148,266,000 barrels during the week ending April 14th, as our exports of distillates jumped by 568,000 barrels per day to 1,419,000 barrels per day even as our imports of distillates rose by 49,000 barrels per day to 167,000 barrels per day and as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 458,000 barrels per day to 4,177,000 barrels per day at the same time...while our distillate inventories are now 7.3% below the 159,935,000 barrels that we had stored on April 15th 2016, following last year's warm El Nino winter, they are still 14.6% higher than the distillate inventories of 129,336,000 barrels that we had stored on April 17th of 2015, following a more normal winter… 

finally, our commercial inventories of crude oil fell for the 3rd time in the past 15 weeks, decreasing by 1,034,000 barrels to 532,343,000 barrels as of April 14th....however, we still finished the week with 11.1% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 4.9% more crude oil in storage than what was then a record 507,312,000 barrels of oil in storage on April 15th of 2016, 16.7% more crude than what was also then a record 456,271,000 barrels in storage on April 17th of 2015, and 45.4% more crude than the 365,878,000 barrels of oil we had in storage on April 18th of 2014...

This Week's Rig Count

because last week's rig count data was released on Thursday because of the Friday holiday, this week's rig count change is for eight days...with that caveat, drilling activity still increased for the 24th time in the past 25 weeks, and the week's increase was also the 11th double digit rig increase in the past 14 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 10 rigs to 857 rigs over the 8 day period ending on Friday April 21st, which was nearly double the 431 rigs that were deployed as of the April 22nd report in 2016, and the most drilling rigs we've had running since September 11th, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 5 rigs to 688 rigs this week, which was more than double the 343 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 24th 2015, while it was still way down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations also rose by 5 rigs to 167 rigs this week, which was up from the 88 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, there were also 2 rigs in use that were classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work... 

another drilling platform that had been working offshore from Louisiana in the Gulf of Mexico was shut down this week, which left 20 offshore rigs still drilling in the Gulf, down from the 25 working in the Gulf of Mexico a year earlier....that was also down from the total of 26 offshore rigs that were deployed a year ago, as there was also an drilling platform working in the Cook Inlet offshore from Alaska during the equivalent week last year...

active horizontal drilling rigs increased by 12 rigs to 718 rigs this week, which was well more than double the 332 horizontal rigs that were in use in the US on April 15th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net of 2 vertical rigs were added this week, bringing the vertical rig count up to 79, which was also up from the 51 vertical rigs that were deployed during the same week last year....however, 4 directional rigs were pulled out this week, reducing the directional rig count down to 60 rigs, which was still up from the 48 directional rigs that were deployed during the same week a year ago...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of April 21st, the second column shows the change in the number of working rigs between last week's count (April 13th) and this week's (April 21st) count, the third column shows last week's April 13th active rig count, the 4th column shows the change between the number of rigs running on Thursday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 22nd of April, 2016...    

April 21 2017 rig count summary

as you can see, there's not much outstanding in the details of this week's count...Texas added 6 rigs during the week, hence accounting for the majority of the additions, and half of those were in the Eagle Ford...otherwise, it's all skinny numbers...however, except for the Marcellus addition in Pennsylvania, where the 5 natural gas rigs were added isn't obvious…one was in the Barnett shale near Ft Worth, where there are now 2 gas rigs and 4 oil rigs operating, while the Haynesville actually dropped a natural gas rig while adding an oil rig...so there were a total of 4 natural gas directed rigs added in the "other" column, in basins which are not named in any of the Baker Hughes summary data...

DUC well report for March

as we mentioned, Monday of this week saw the release of the EIA's Drilling Productivity Report for March, which again showed another increase in uncompleted wells nationally, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the two Texas oil basins, the Permian basin of west Texas and the Eagle Ford in the south....although this backlog of unfracked wells has been building for months, US oil prices below $50 a barrel for much of the month likely contributed to the slowdown of completions in March, even as new well drilling continued to increase...this week’s report indicated that the total count of DUC wells in the US rose from 5,401 in February to 5,522 in March, the fifth consecutive monthly increase in uncompleted wells...over the prior 5 months, a period when oil prices were generally higher than the previous year because of the OPEC cuts, the US DUC count in the 7 regions covered by this report still increased by 10.4%, from 4,995 in October to 5,512 in March....those 5,512 wells represent a backlog that will be completed whenever oil or gas prices rise sufficiently, increasing US oil or gas production and hence oil or gas supply, and thus putting a limit on any rapid run-up of prices...

like in previous months, most of the March DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in that broad basin, saw its total count of uncompleted wells rise by 90, from 1,774 in February to 1,864 in March, as 410 new wells were drilled but only 320 of them were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 26, from 1,259 in February to 1285 in March, as 161 wells were drilled in the Eagle Ford in March but only 135 were completed....in addition, DUC wells in the Haynesville of Louisiana increased by 13 wells to 182, and DUCs in the Bakken of North Dakota increased by 4 to 809...on the other hand, the Niobrara chalk of the Rockies front range saw a 15 well decrease in DUCs (which means more wells were being fracked than were being drilled) as the Niobrara DUC count fell from 638 in February to 623 in March...in addition, the Marcellus DUC count fell by 4 to 662 uncompleted wells, and the Utica shale showed a decrease of 3 uncompleted wells and thus had only 87 DUCs remaining at the end of March, as 18 wells were drilled in the Utica during the month while 21 were completed...for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 105 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 6 wells, although as the report notes, once into production, more than half the wells will produce both oil and gas...

 

note: there's more here...

Sunday, April 16, 2017

April OPEC report shows global oil glut still growing; US oil refining at a seasonal record

oil prices again tracked higher this week, as saber rattling about Syria had traders weighing geopolitical risks in the Middle East in addition to the usual oil supply issues of OPEC's production cuts and increasing US oil production...after closing last week at a one-month high of $52.24 a barrel, US oil prices for May delivery moved up steadily all day Monday to finish the day at $53.08 a barrel, as hedge funds turned bullish on crude after 5 weeks of liquidating their positions...oil prices rose again on Tuesday morning on headlines of a possible OPEC production cut extension, and then extended their gains after the American Petroleum Institute reported an across the board drawdown of crude and refined products supplies, ending the day at $53.40 a barrel...prices moved higher again Wednesday morning, trading as high as $53.71 a barrel, before pulling back after the weekly EIA showed increasing stockpiles at the U.S. crude hub at Cushing, Oklahoma, and a 20 month high for US crude production, and ended the day down 29 cents at $53.11 a barrel, the first daily price decrease in 8 sessions...prices then inched back up on Thursday, closing 7 cents higher at $53.18 a barrel, despite news of a still rising rig count, as the IEA (International Energy Agency) reported that the global oil market was probably already balanced, as oil inventories were falling in many parts of the world and have started to decline in the OECD as well...

OPEC's April report

since the OPEC April Oil Market Report (covering March OPEC & global data) was out this week, and since their production cuts are ultimately underpinning higher roil prices and hence increased US drilling, we'll take a look at that report first....the first table from that report that we'll include here is from page 62 of that OPEC pdf, and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as the column headings are labeled...for all their official production measurements, OPEC uses data from these "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...

March 2017 OPEC cude output via secondary sources

here we can see that this official data shows that OPEC production was down by 152,700 barrels per day to 31,928,000 barrels per day in March, from a February oil production total of 32,081,000 barrels per day that was revised 123,000 barrels per day higher than what was reported last month...(for your reference, here is the table of the official February figures before these revisions)...recall that OPEC committed to reducing their production by 1.2 million barrels per day from their October levels (shown here, with Indonesia, who is no longer a member), so these figures show that the total production of the remaining 13 members is pretty close to the level they agreed to cut back to....but note that over 90 thousand barrels of this month's reduction came from Nigeria and Libya, the two OPEC nations that were exempt from the cuts, because their production was reduced by domestic unrest...both counties had renewed disruptions in March, but should their problems be overcome, their potential production would be enough to reverse the rest of OPEC's cuts...

next, we'll include a graph of the total OPEC oil output for all 13 members included in this report, so we can see how this month's production stacks up compared to historical figures...

March 2017 OPEC’s crude oil production graph

the above graph, taken from the 'OPEC March Crude Oil Date" post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to March 2017, using the same official data from secondary sources as in the table above...obviously, we can see that March OPEC production of 31,928,000 barrels per day is down quite a bit from their record production of 33,374,000 million barrels per day in November, a level achieved during their production run-up before the agreement was reached…but note that their current production is still somewhat more than what they were producing between February and May of 2016, and every other month before that, including last January...indeed, when we check the March 2016 production data in last April's OPEC Oil Market Report, we find that OPEC production for that month minus the output of Indonesia comes in at 31,526,000 barrels per day....that means that their March production of 31,928,000 barrels per day this year is actually 1.3% higher than in March a year ago, despite the well orchestrated 'cuts' from the elevated levels of October..

this next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, from April 2015 to March 2017, and it comes from page 63 of the April OPEC Monthly Oil Market Report...the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for that shown on the right scale...global oil production slipped to 95.82 million barrels per day in March, down by 0.23 million barrels per day from February but up by 0.22 million barrels per day from March a year ago...OPEC's production of 31,928,000 barrels per day thus represented 33.3% of what was produced globally, a statistically insignificant decrease from the 33.3% OPEC share in February and down from a 33.5% global share in January...but even with the three months of production cuts we can obviously see on this graph, there is still a surplus of oil supply globally, as the next table that we'll include will show us.. 

April 2017 OPEC report, global output for March

the table below comes from page 37 of the April OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over 2017 over the rest of the table...on the "Total world" line of the second column, we've circled in blue the figure we're interested in, which is the estimate for global oil demand over the first quarter of 2017...

April 2017 OPEC report, global oil demand

OPEC's estimate is that during the first three months of this year, all oil consuming areas of the globe used 95.39 million barrels of oil per day, up from the 95.05 millions of barrels of oil per day they were using in 2016...but as OPEC showed us in the oil supply section of this report and the summary supply graph above, even with their production cuts, the world's oil producers were still producing 95.82 million barrels per day during March...that means that even after all the production cuts have taken place, there continued to be a surplus of around 430,000 barrels per day in global oil production in March...in addition, global production for February was revised higher, to 96.05 million barrels per day, so the global oil surplus during February was therefore around 660,000 barrels per day...and as we showed two months ago, using figures from the February report, there was also an excess of nearly a million barrels per day in global oil production in January...clearly, from these figures, oil supply is not yet balanced with demand, and those who say it is are just talking their book and not looking at the data...

The Latest Oil Data from the EIA


the oil data for the week ending April 7th from the US Energy Information Administration showed that an increase in our exports of crude oil coupled with another large increase in our oil refining meant that we had to take oil out of storage to meet those needs for only the 2nd time in the past 14 weeks...our imports of crude oil increased by an average of 28,000 barrels per day to an average of 7,878,000 barrels per day during the week, while at the same time our exports of crude oil rose by 114,000 barrels per day to an average of 689,000 barrels per day, which meant that our effective imports netted out to 7,189,000 barrels per day during the week, 86,000 barrels per day less than the prior week...at the same time, our crude oil production rose by 36,000 barrels per day to an average of 9,235,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,424,000 barrels per day during the cited week...

meanwhile, refineries reportedly used 16,697,000 barrels of crude per day, 268,000 barrels per day more than they used during the prior week, while at the same time, 399,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that refineries used 126,000 less barrels of oil per day than were supplied by what we took out of storage plus our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -126,000 barrel per day figure onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also indicates that the 4 week average of our oil imports rose to an average of 8,065,000 barrels per day, now 3.0% above the imports of the same four-week period last year, and that the 4 week average of our oil exports slipped to 706,000 barrels per day, 94.5% higher than the same 4 weeks a year earlier, since we had barely started overseas exports of surplus light crude oil in early 2016...the 399,000 barrel per day decrease in our crude inventories came about on a 309,000 barrel per day withdrawal from our commercially available crude oil stores and a 89,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago...

meanwhile, this week's 36,000 barrel per day oil production increase resulted from a 35,000 barrel per day increase in oil output from the lower 48 states and a 1,000 barrels per day increase in oil output from Alaska...the 9,235,000 barrels of crude per day that we produced during the week ending April 7th was up by 5.3% from the 8,770,000 barrels per day were producing at the end of 2016, and the most we've produced since the 2nd week of January 2016...while the week's production was up by 2.9% from the 8,977,000 barrel per day output during the during week ending April 8th a year ago, it was still 3.9% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 91.0% of their capacity in using those 16,697,000 barrels of crude per day, up from 90.8% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day...however the quantity of crude oil processed by US refineries was a Spring-time record, just topping the 16,695,000 barrels of crude per day that were being refined during the week ending June 24th last year...since we've had quite a ramp in the amount of crude that US refineries have been processing over recent weeks, which directly led to the first drawdown of crude supplies in 6 weeks, we'll take a look at a graph of that to see how it compares to the historical norm...

APril 12 2017 refinery througput for April 7

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...this graph shows US refinery throughput in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our refinery throughput on any given date shown in the 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 2016 traced weekly by a yellow line, and our year to date oil refining during 2017 represented in red...from this we can there is an obvious seasonal swing for oil refining, with demand for their products highest in the summer and again around the holidays, but we can still see that for most all of 2016 and through most of 2017, oil refining was either at seasonal record highs or near the top of the average range...we can also see that although refining slipped below last year's pace earlier this year, we've had quite a increase in oil refining over the past four weeks, as US refinery throughput surged 7.9%, from 15,472,000 barrels per day March 10th to this week's seasonal record of 16,697,000 barrels of crude per day...that was 4.7% more than the 15,941,000 barrels per day that were being refined during the week ending April 8th last year, when refineries were running at 89.2% of capacity...

with the week's refining increase, gasoline production from our refineries increased by 412,000 barrels per day to 9,927,000 barrels per day during the week ending April 7th, which was 3.9% more than the 9,568,000 barrels per day of gasoline that were being produced during the comparable week a year ago....in addition, refineries' production of distillate fuels (diesel fuel and heat oil) also increased by 93,000 barrels per day to 5,060,000 barrels per day, which was 5.8% more than the 4,784,000 barrels per day of distillates that were being produced during the week ending April 8th last year...

however, even with the big jump in our gasoline production, the EIA reported that our gasoline inventories still shrunk by 2,973,000 barrels to 236,130,000 barrels as of April 7th, after they had already dropped by almost 16.8 million barrels over the prior 5 weeks....that was because our gasoline exports rose by 121,000 barrels per day to 710,000 barrels per day and because our imports of gasoline fell by 119,000 barrels per day to 488,000 barrels per day, while our domestic consumption of gasoline inched up by 30,000 barrels per day to 9,275,000 barrels per day...while our gasoline supplies are now down by nearly 23 million barrels from the record high set 8 weeks ago, they're still just 1.5% lower than last April 8th's inventories of 243,998,000 barrels, and are still 3.6% above the 227,873,000 barrels of gasoline we had stored on April 10th of 2015...

in like manner, even with the increase in distillate's production, our supplies of distillate fuels also fell during the week, decreasing by 2,153,000 barrels to 150,221,000 barrels by April 7th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 537,000 barrels per day to 4,635,000 barrels per day, even as our exports of distillates fell by 226,000 barrels per day to 851,000 barrels per day and as our imports of distillates fell by 11,000 barrels per day to 118,000 barrels per day at the same time....while our distillate inventories are now 8.1% below the record distillate inventories of 163,489,000 barrels that we had stored on April 8th 2016, following last year's warm El Nino winter, they are still 16.5% higher than the distillate inventories of 128,941,000 barrels that we had stored on April 10th of 2015, following a more normal winter… 

finally, our commercial inventories of crude oil fell for only the 2nd time in the past 14 weeks, decreasing by 2,166,000 barrels to 533,377,000 barrels as of April 7th....at the same time, 625,000 barrels of oil from our Strategic Petroleum Reserve was sold, which left inventories in the SPR at 691,510,000 barrels, oil that's not considered available for commercial use....thus, for commercial purposes, we still finished the week ending April 7th with 11.3% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 5.6% more crude oil in storage than what was then a record 505,232,000 barrels of oil in storage on April 8th of 2016, 18.3% more crude than what was also then a record 450,956,000 barrels in storage on April 10th of 2015, and 47.2% more crude than the 362,354,000 barrels of oil we had in storage on April 11th of 2014...

This Week's Rig Count

Baker Hughes released this week's rig count data on Thursday because of the Friday holiday...nonetheless, drilling activity still increased for the 23rd time in the past 24 weeks during this shortened week, although the 5 week string of double digit rig count increases did come to an end...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 847 rigs in the 6 day week ending on Thursday April 13th, which was 407 more rigs than the 440 rigs that were deployed as of the April 15th report in 2016, and the most drilling rigs we've had running since September 11th, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 11 rigs to 683 rigs this week, which was up by 332 from the 351 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 24th 2016, while it was still way down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations fell by 3 rigs to 162 rigs this week, which was still up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, there were also 2 rigs in use that were classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work... 

one drilling platform that had been working offshore from Louisiana in the Gulf of Mexico was shut down this week, which left 21 offshore rigs still drilling in the Gulf, down from 27 in the Gulf of Mexico a year earlier....that was also down from the total of 28 offshore rigs that were deployed a year ago, as there was also an drilling platform working in the Cook Inlet offshore from Alaska last year at this time...in addition, one of the rigs that had been drilling in an inland lake in Louisiana was also idled this week, which still left 3 rigs working on inland waters, all in Louisiana, the same as the number as were deployed on inland waters on April 15th of 2016...

active horizontal drilling rigs increased by 11 rigs to 706 rigs this week, which was well more than double the 335 horizontal rigs that were in use in the US on April 15th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net of 4 vertical rigs were added this week, bringing the vertical rig count up to 77, up from the 54 vertical rigs that were deployed during the same week last year....however, 7 directional rigs were pulled out this week, reducing the directional rig count down to 64 rigs, which was still up from the 51 directional rigs that were deployed during the same week a year ago...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of April 13th, the second column shows the change in the number of working rigs between last week's count (April 7th) and this week's (April 13th) count, the third column shows last week's April 7th active rig count, the 4th column shows the change between the number of rigs running on Thursday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 15th of April, 2016...  

April 13 2017 rig count summary

although increased drilling in the Permian by itself accounted for the week's 8 rig increase, it wasn't Texas that saw the added burden this week, as apparently 7 of the new Permian rigs were set up across the state line in southeast New Mexico...Texas only saw a 2 rig increase, which necessarily included the 3 rig increase in the south Texas Eagle Ford, while rigs were pulled out of the portions of the Granite Wash and the Haynesville that lie in the state...also note that another natural gas rig was added in the Utica shale of Ohio, which brings the Utica count up to 23 rigs, up from 12 rigs a year ago...other than the 3 rig increase in Oklahoma, 2 of which were set up in the Cana Woodford, the big change we don't see in the table above was in Mississippi, where 3 of the 5 rigs that had been operating in the state were pulled out....the two rigs remaining in Mississippi were the same number that were working in the state on April 15th of last year...

note: there's more here...

Sunday, April 9, 2017

oil spikes on Trump's warmongering; US horizontal drilling doubles from last year, global rigs drop 1st time in 10 months

after falling 36 cents to $50.23 a barrel on Monday, oil were prices were higher daily for the rest of the week, and ended the week up more than 3%, as the US missile strike on Syria boosted prices on Friday, despite somewhat bearish inventory data...US contract prices for May delivery rose 79 cents to 51.03 a barrel on Tuesday, on growing support for an OPEC production cut extension and perceptions that the oil market is tightening...oil then rallied Wednesday morning after the late Tuesday American Petroleum Institute report showed the largest drawdown of US crude supplies so far this year, with prices running up as high as $51.88 a barrel by early afternoon, before the EIA report showed a surprise increase to a new record for crude inventories and smaller than expected draws in gasoline and distillates, sending oil prices tumbling back to close at $51.15 a barrel...oil prices then recovered and moved up steadily on Thursday to close at $51.70 a barrel, on expectations that a seasonal pickup in refining activity would help draw down massive U.S. crude stockpiles...oil prices then spiked more than a dollar in overnight trading on Friday morning after the news broke that US warships in the Mediterranean fired 60 Tomahawk missiles at an airbase in Syria, reaching as high as $52.94 a barrel in early trading before settling back to close the week at $52.24 a barrel, the highest closing price since March 7th... 

the ostensible reason for Thursday night's US missile attack on Syria was a reported chemical gas attack on Tuesday in the rebel held northern Syrian town of Khan Sheikhoun, where dozens of people, including children, died after writhing, choking, gasping or foaming at the mouth, after breathing in poison that probably contained a nerve agent or other banned chemicals...despite offering no clear proof, President Trump blamed Syria's president Assad for the attack, (he also blamed Obama) and requested a Pentagon briefing on what military options were available...since Russians were still on the ground in Syria in support of Assad, he opted for the cruise missile strike from the US warships in the Mediterranean, and after warning the Russians in advance, ordered the strike against the Syrian airfield where the military believed the jets that participated in the Tuesday attack were based...

i don't believe that Assad or the Syrian government were responsible, at least not directly, for the chemical gas deaths that occurred on Tuesday, and i believe it's possible that Trump doesn't believe they were either, and it's also apparent that neither does CIA Director Mike Pompeo....the explanation of that Syrian catastrophe that the Russians offered was far more plausible than Trump's allegations; the Russian defense ministry explained that the Syrian airstrike hit a large terrorist ammunition depot which included the chemical weapons, which were thereby released as a result of the bombing raid, thus killing nearby civilians...furthermore, there is no conceivable reason that Assad would order such an attack on his own people...with the support of the Russians and Iran, he was already clearly winning the long civil war that had consumed his country over the past 6 years, ISIS and Al-Qaeda were already on the run, and the few pockets of various rebel groups that remained in Syria were no longer a serious threat to his government...Trump, on the other hand, has been seeing his approval ratings badly slumping, and was closing in on a hundred days in office with not a single item on his agenda passed through congress...furthermore, he was about to meet with Chinese President Xi Jinping, after warning that the US would take unilateral action against North Korea if the Chinese did not reign in Kim Jong-un...by making a high profile strike from miles away with cruise missiles on a small Syrian airbase, he immediately convinced the Chinese that he's serious about using force in North Korea, and simultaneously rallied the hawkish Democrats in Congress to his side, and is also likely to see a significant boost to his record low approval ratings..

Be prepared, there is a small chance that our horrendous leadership could unknowingly lead us into World War III.” -- Donald J. Trump (@realDonaldTrump) August 31, 2013

The Latest Oil Stats from the EIA

the oil data for the week ending March 31st from the US Energy Information Administration showed another increase in the amount of oil US refineries used, and an even larger drop in our oil imports, but because of an even larger drop in our exports of crude oil, we still saw another small increase in our record high oil supplies for the 12th week out of the past thirteen...our imports of crude oil decreased by an average of 374,000 barrels per day to an average of 7,850,000 barrels per day during the week, while at the same time our exports of crude oil fell by 435,000 barrels per day to an average of 575,000 barrels per day, which meant that our effective imports netted out to 7,275,000 barrels per day during the week, 61,000 barrels per day more than the prior week...at the same time, our crude oil production rose by 52,000 barrels per day to an average of 9,199,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,474,000 barrels per day during the cited week...

meanwhile, refineries reportedly used 16,429,000 barrels of crude per day, 204,000 barrels per day more than they used during the prior week, while at the same time, 149,000 barrels of oil per day were being added to oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that we used or stored 104,000 more barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom +104,000 barrel per day figure onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 7,947,000 barrels per day, now 2.3% above that of the same four-week period last year...at the same time, the 4 week average of our oil exports fell to 713,000 barrels per day, 90.1% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light crude oil were barely underway in early 2016...the 149,000 barrel per day increase in our crude inventories came about on a 224,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 75,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago...

meanwhile, this week's 52,000 barrel per day oil production increase resulted from a 40,000 barrel per day increase in output from the lower 48 states and a 12,000 barrels per day increase in oil output from Alaska...the 9,199,000 barrels of crude per day that we produced during the week ending March 31st is now up by 4.9% from the 8,770,000 barrels per day were producing at the end of 2016, and the most we've produced since the last week of January 2016...while the week's production was up by 2.1% from the 9,008,000 barrel per day output during the during the equivalent week a year ago, it was still 4.3% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 90.8% of their capacity in using those 16,429,000 barrels of crude per day, up from 89.3% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day... the amount of crude oil processed by refineries continues to be on a par with the 16,433,000 barrels of crude that were being refined during the week ending April 1st, 2016, when refineries were operating at 91.4% of capacity, but they did set a new record high for throughput for any week ending in March....

however, even with the week's refining increase, gasoline production from our refineries fell by 513,000 barrels per day to 9,515,000 barrels per day during the week ending March 31st, which left it 1.1% lower than the 9,617,000 barrels per day of gasoline that were being produced during the comparable week a year ago (much of that drop was due to a 439,000 barrel per day swing in the "adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components)....on the other hand, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 95,000 barrels per day to 9,617,000 barrels per day, which was 2.7% more than the 4,838,000 barrels per day of distillates that were being produced during the week ending April 1st last year...

even with the big drop in our gasoline production, the EIA reported that our gasoline inventories were only reduced by 618,000 barrels to 239,103,000 barrels as of March 31st, after they had already dropped by more than 16.1 million barrels over the prior 4 weeks....that was because our domestic consumption of gasoline fell by 279,000 barrels per day to 9,245,000 barrels per day, and because our gasoline exports fell by 19,000 barrels per day to 589,000 barrels per day while our imports of gasoline rose by 86,000 barrels per day to 607,000 barrels per day....while our gasoline supplies are now down by nearly 20 million barrels from the record high set 7 weeks ago, they're just 2.0% lower than last year's April 1st record high for any April of 243,998 ,000 barrels, and are still 4.0% above the 229,945,000 barrels of gasoline we had stored on April 3rd of 2015... 

our supplies of distillate fuels also fell a bit for the week, decreasing by 536,000 barrels to 152,374,000 barrels by March 31st, as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 124,000 barrels per day to 4,098,000 barrels per day, and as our imports of distillates rose by 16,000 barrels per day to 131,000 barrels per day, while our exports of distillates fell by 43,000 barrels per day to 1,077,000 barrels per day at the same time....while our distillate inventories are now 6.5% below the bloated distillate inventories of 162,984,000 barrels that we had stored on April 1st 2016, at the end of last year's warm El Nino winter, they are still 20.1% higher than the distillate inventories of 126,924,000 barrels that we had stored on April 3rd of 2015…  

finally, our commercial inventories of crude oil rose for the 12th time in the past 13 weeks, increasing by 1,566,000 barrels to yet another record high of 535,543,000 barrels by March 31st...at the same time, 524,000 barrels of oil from our Strategic Petroleum Reserve were sold, which left inventories in the SPR at 692,135,000 barrels, a quantity nonetheless not considered available for commercial use....thus for current commercial purposes, we finished the week ending March 31st with 11.8% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 7.4% more crude oil in storage than the 498,598,000 barrels of oil in storage on April 1st of 2016, 19.1% more crude than what was then a record 449,662,000 barrels in storage on April 3rd of 2015 and 52.0% more crude than the 352,341,000 barrels of oil we had in storage on April 4th of 2014... since our oil supplies have hit a new record high in 7 out of the last 8 weeks, we'll include a picture of what that looks like, and show you why we go back three years with our comparisons...

April 6 2017 oil supplies as of March 31

the above graph is from a picture of the interactive graph that accompanies the ending stocks of crude oil page at the EIA, which fairly clearly shows the end of the week supplies of commercially available crude oil stored in the US (or nearby offshore) weekly since 2000...we can clearly see that oil supplies over the recent weeks were at record levels, but to compare those levels to levels of a similar period of 2016 would be comparing to what were in that year also record levels at the time...similarly, new records for US oil supplies were being set weekly for several consecutive weeks in early 2015, so when we're comparing today's supplies to that year, we're also comparing to what was then already a glut of oil.,..it's only when we compare today's supplies to those of the same date in 2014 that we're making a comparison to what we could consider a normal level of oil supplies for the time of year, and it's with that in mind that we can say that throughout 2017, US oil supplies have consistently remained more than 50% above the historical norm...

This Week's Rig Count

US drilling activity increased for the 22nd time in the past 23 weeks during the week ending April 7th, and this week's increase was also the 10th double digit rig increase in the past 12 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 15 rigs to 839 rigs in the week ending Friday, which was 396 more rigs than the 443 rigs that were deployed as of the April 8th report in 2016, and the most drilling rigs we've had running since September 18th, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 10 rigs to 672 rigs this week, which was up by 318 from the 354 oil directed rigs that were in use a year ago, and well more than double the low of 316 oil rigs that were working on May 27th 2016, but it was still way down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 5 rigs to 160 rigs this week, which was also up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, there remains 2 rigs deployed that are classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work...  

active horizontal drilling rigs increased by 10 rigs to 695 rigs this week, which is also well more than double the May 27th 2016 nadir of 314 working horizontal rigs...it's also more than double the 341 horizontal rigs that were in use in the US on April 8th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net of 4 vertical rigs were added this week, bringing the vertical rig count up to 73, up from the 50 vertical rigs that were deployed during the same week last year....in addition, a single directional rig was also added this week, bringing the directional rig count up to 71 rigs, which was also up from the 52 directional rigs that were deployed during the same week a year ago...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of April 7th, the second column shows the change in the number of working rigs between last week's count (March 31st) and this week's (April 7th) count, the third column shows last week's March 31st active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 8th of April, 2016...           

April 7 2017 rig count summary

once again, the majority of the net increase in drilling is taking place in the Permian basin of west Texas, where at 331 rigs they're now up by 189 rigs from a year ago and account for almost half of the horizontal drilling activity in the US...increases of 2 rigs in both the Cana Woodford and the Mississippian account for the 4 rig increase in Oklahoma, while the 4 rig decrease in the Granite Wash is the apparent reason that the state of Texas's increase was reduced to 7 rigs...increases in rigs targeting natural gas were seen in the Arkoma Woodford of Oklahoma, in the Marcellus in West Virginia, in the Barnett of north Texas, where a gas rig was added while a oil rig was shut down, and in two unnamed locations include in "other basins' on the Baker Hughes basin summary table...

International Rig Counts for March

Baker Hughes also released the international rig counts for March on Friday, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1985 rigs were drilling for oil and natural gas around the globe in March, which was down from the 2,027 rigs that were drilling around the globe in February, but up from the 1,551 rigs that were working globally in March of last year....a seasonal pullback in Canadian drilling was the reason for that, the first  global decrease in 10 months, as the average Canadian rig count fell from 342  rigs in February to 253 rigs in March, which was still up from the 88 Canadian rigs that were deployed in March a year earlier, while the average US rig count rose from 744 rigs in February to 789 rigs in March, which was also up from the average of 478 rigs that were working in the US in March a year ago....outside of Northern America, the International rig count rose by 2 rigs to 943 rigs in March, still down from 1,018 rigs a year ago, as increases in drilling in Latin America , the Middle East, Asia and Africa were offset by a sharp drop in drilling activity in Europe..

the number of drilling rigs deployed in the Middle East was up by 4 rigs to 386 rigs in March, after their drilling activity had been unchanged in February, which still left them down from 397 rigs a year earlier...Egypt added 7 rigs for the month, which brought their total up to 23 rigs, still down from 31 rigs a year earlier....OPEC member Iraq, who has indicated they'll boost their crude oil production by 600,000 bpd to 5 million bpd by the end of this year, activated 3 additional rigs in March, and thus had 43 rigs deployed, still down from 48 rigs a year earlier...Abu Dhabi of the United Arab Emirates, also an OPEC member, also added a rig in March and thus had 48 rigs working, unchanged from the number they had drilling new wells a year ago...on the other hand, the Kuwaitis shut down 5 rigs during the month, after they had added 7 rigs in February, and now have 54 rigs active, which is up from the 41 rigs they had working a year ago....in addition, Pakistan and the Saudis each shut down one rig in March, which left the Saudis with 119 rigs, down from the 127 rigs they were running a year ago, and which left Pakistan with 20 rigs running, down from the 24 rigs they had deployed in March of 2016

at the same time, the Latin American region saw their active drilling rig count increase by a net of 6 rigs to 185 rigs, down from 218 rigs in March of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016...Argentina added 4 rigs during the month, which brought their total back up to 58 rigs, still down from 68 rigs a year ago...Mexico added 2 rigs and thus have 18 rigs active, still down from 2 rigs a year earlier...the Brazilians also added 2 rigs, bringing their total to 16 rigs, down from 28 rigs a year earlier.. .in addition, both Peru and Bolivia added a rig each, giving Peru 6 rigs and Bolivia 5 rigs, with drilling in neither country much changed over the past year...Latin American countries reducing their rig count included Columbia, who was down 3 rigs to 19 rigs but still up from 4 rigs a year ago, and Chile, a minor producer who shut down 1 rig and had one remaining...

drilling activity in the Asia-Pacific region was up by a net of 2 rigs to 198 rigs in March, which was also up from the 183 rigs working in the region a year earlier...India added two rigs and now have 117 rigs active, up from 104 rigs a year ago...Malaysia also added 2 rigs and now have 5 rigs working, up from 3 rigs a year ago...Thailand and Indonesia each added one rig, bringing them up to 14 rigs and 24 rigs respectively, with Thailand unchanged from a year ago and Indonesia's drilling up from last year's 19 rigs...on the flip-side, single rigs were taken out of service in Australia, Brunei, Vietnam and offshore of China... that left Australia with 13, still up from 9 rigs a year ago, left Brunei with 1 rig, down from 2 last March, left Vietnam with 2 rig, up from 1 rig last March, and left China with 17 offshore platforms working, down from 26 a year ago....

in addition, drilling on the African continent outside of Egypt saw a net increase of 3 rigs to 80 rigs in March, which was still down from the 91 rigs working in Africa last year at this time...OPEC member Nigeria, who is not yet subject to the agreed production cuts, increased their active rigs by 3 to 10 rigs, which was up from 8 rigs in March of last year...OPEC member Algeria added 1 rig, giving them 51 rigs working in March, down from the 54 rigs they had running a year ago....meanwhile, OPEC member Angola shut down 1 rig, and now has just 2 rigs active, down from the 8 rigs they had active a year earlier..

on the other hand, drilling activity was lower Europe, decreasing by 13 rigs to 94 rigs in March, which was also down from the 96 rigs that were working in Europe last March...Turkey shut down 6 land based rigs, leaving 23, which left them down from 28 rigs a year ago...in addition, offshore platforms were idled in several countries...the U.K. shut down 3 offshore rigs, leaving them with 8 rigs still drilling in the North Sea, now down from 9 offshore a year ago...the Dutch shut down both of their active rigs, and now have none, compared to the 3 offshore and 1 land rig they were running last March...Norway shut down one, but they still have 15 rigs drilling offshore, down from 19 offshore a year ago...and the Danes also shut down their only offshore platform, and thus had no drilling in March for only the 3rd month in the last 4 years...the only other change in European activity was on land, where France added a rig and now have 4 rigs running, still down from 5 rigs a year ago...

finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 17 rigs active in March, were included in the Asian totals here, apparently based on satellite intel, which is the way much of the international oil data is collected...  

..

note: there's more here...

Sunday, April 2, 2017

the looming natural gas supply crunch, and yet another record for US crude supplies in an otherwise slow week

oil prices opened the week lower, but then rose daily the rest of the week, after new data showed a smaller than expected addition to our oil supplies and rather large decreases in our supplies of gasoline and distillates...after closing last week 2.7% lower at $47.97 a barrel, pricing for the benchmark US crude oil for May delivery fell almost 2% on Monday morning, as hedge funds continued to unwind their record bullish positions...that selling ran into renewed buying by noon, however, as other traders focused on an agreement by OPEC and non-OPEC producers to look at extending their oil output cuts by another six months, and oil prices reversed and went on to close just 26 cents lower on the day at $47.73 a barrel...prices then rallied 64 cents to close at $48.37 a barrel on Tuesday, underpinned by news reports that production from western Libyan fields had been reduced by 252,000 barrels per day on renewed fighting...oil prices then rose Wednesday morning after Tuesday afternoon's American Petroleum Institute report showed a modest increase in US oil inventories, then spiked higher yet on Wednesday afternoon after data from the Energy Information Administration showed a weekly increase in U.S. crude inventories that was less than half of market expectations, and went on to close the day 2.4% higher at $49.51 a barrel ...that confluence of bullish news carried oil prices higher the remainder of the week, as they closed over $50 a barrel for the first time in over three weeks at $50.35 a barrel on Thursday, and then went on to close the month at $50.60 on Friday, up 5.5% for the week but still 6% lower for the year to date..

natural gas prices also moved higher this week, as trading for the April delivery contract expired and prices for May gas became the widely quoted front month price...April gas started the week lower, however, falling 2.4 cents to $3.052 per mmBTU (million British Thermal Units) on Monday...April prices then rose 4.4 cents to $3.096 on Tuesday, while natural gas for May was up 4.6 cents to $3.177 per mmBTU....the April natural gas contract then expired at an eight-week high of $3.175 per mmBTU on Wednesday, up 7.9 cents on the day, while the May contract rose 5.4 cents to close at $3.231 per mmBTU...with only May gas trading on Thursday, natural gas prices then fell 4 cents to close at $3.191 per mmBTU on Thursday, after the EIA's Weekly Natural Gas Storage Report showed that natural gas in storage in the US fell 43 billion cubic feet to 2.049 trillion cubic feet in the week ended March 24th, roughly in line with expectations...natural gas prices were then little changed on Friday, shedding a tenth of a cent to close the week at $3.190 per mmBTU...

that Weekly Natural Gas Storage Report is about the only data underpinning natural gas prices at this time of year, since both demand for heating and demand for cooling are not major factors in the trading of May gas, and hence weather forecasts are barely mentioned....John Kemp of Reuters included several graphs derived from data from that EIA storage report in his Thursday mailing, one of which we'll include and explain below..

April 1 2017 natural gas supply history as of March 24

the above graph comes from an emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters, wherein the red line shows our natural gas supplies in billions of cubic feet from January 2015 to March 24th of this year...the yellow line, for the prior year, thus shows our natural gas supplies in billions of cubic feet from January 2014 to the end of 2016, thus retracing some of what the red line shows...the light blue band then shows the prior 5 year range of our natural gas supplies, and thus from the left shows the range of our natural gas supplies from January 2010 through January 2014, extending to the right where it ends with the range of our natural gas supplies from the end of 2012 through the end of 2016...lastly, the blue dashes show the average of that 5 year range of our natural gas stocks that's indicated by the light blue shading...note the obvious seasonal pattern; surplus natural gas is injected into storage each the spring and summer, then withdrawn for use during the heating season.....

by following the red line, we can see that our natural gas supplies were at least at a 5 year high for the time of year from October 2015 through November 2016, with October 2016 being the first time in our history that natural gas supplies topped 4 trillion cubic feet...however, since December of 2016, our natural gas supplies have been falling at a faster rate than normal, despite a warmer than normal winter (recall last week we showed that heating demand was down by 17%) and by the end of January had returned to merely average...supplies of gas have since recovered to above average, largely because of a record warm period that led to the first weekly injection into storage in February history, but they're still more than 400 billion cubic feet below where they were at the same time in March a year ago....what that means is that at the current pace of natural gas production, we are not covering our needs from production at a normal pace even while winter temperatures have remained above normal...

going forward, we know that demand for our natural gas supplies will be greater than it was in the past ...for starters, there are those 13 natural gas export trains now under construction that we looked at 4 weeks ago....when completed, they're projected to be exporting roughly 9.4 billion cubic feet of natural gas per day, or about 10% of our current natural gas production...in addition, with natural gas prices depressed, US electric utilities have been retiring their old coal generation capacity and replacing it with natural gas generation....according to the EIA, gas-fired generating capacity is expected to rise by a further 8 percent before the end of 2018....but even this past year, before this new demand for natural gas comes online, our current field production of natural gas has been unable to maintain our natural gas supplies at an above normal level during a winter when heating demand was 17% below average...and as we have repeatedly stressed, and as was evident from the natural gas rig count graph we showed last week, natural gas drillers will not expand their drilling operations while prices for natural gas are below their break-even point...furthermore, natural gas futures prices are even lower, with most contract prices beyond April 2018 below $3 per mmBTU...so they continue to frack more wells than they are drilling, reducing their uncompleted well backlog as needed, just to maintain their cash-flow...thus, there is not as yet any sign that any of the natural gas that exporters and utilities expect will be there in the future will materialize....to put it quite simply, something's gotta give...

The Latest Oil Stats from the EIA

the oil data for the week ending March 24th from the US Energy Information Administration showed that a combination of a big increase in the amount of oils refineries used and a big jump in our exports of crude oil used up almost all the oil we imported or produced, but we nonetheless still saw a small increase in our record high oil supplies for the 11th week out of the past twelve...our imports of crude oil decreased by an average of 83,000 barrels per day to an average of 8,224,000 barrels per day during the week, while at the same time our exports of crude oil rose by 460,000 barrels per day to an average of 1,010,000 barrels per day, which meant that our effective imports netted out to 7,214,000 barrels per day during the week, 543,000 barrels per day less than the prior week...at the same time, our crude oil production rose by 18,000 barrels per day to an average of 9,147,000 barrels per day,  which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,361,000 barrels per day during the cited week...

during the same week, refineries reportedly used 16,226,000 barrels of crude per day, 425,000 barrels per day more than they used during the prior week, while at the same time, 20,000 barrels of oil per day were being added to oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that we used or stored 115,000 less barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -115,000 barrel per day figure onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 8,022,000 barrels per day, now 0.7% above that of the same four-week period last year...at the same time, the 4 week average of our oil exports rose to 794,000 barrels per day, now 105.0% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light crude oil were barely underway in early 2016...the 20,000 barrel per day increase in our crude inventories came about on a 124,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 103,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago...

meanwhile, this week's 18,000 barrel per day oil production increase resulted from a 25,000 barrel per day increase in output from the lower 48 states, while oil output from Alaska fell by 7,000 barrels per day from last week...the 9,147,000 barrels of crude per day that we produced during the week ending March 24th was up by 1.4% from the 9,022,000 barrels per day we produced during the equivalent week a year ago and the most we've produced in any week since the week ending February 5th 2016, while it was still 4.8% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 89.3% of their capacity in using those 16,226,000 barrels of crude per day, up from 87.4% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day....their processing of crude oil continues to be on a par with the 16,234,000 barrels of crude that were being refined during the week ending March 25th, 2016, when refineries were operating at 90.4% of capacity....with the week's big refining increase, gasoline production from our refineries rose by 257,000 barrels per day to 10,028,000 barrels per day during the week ending March 24th, the highest this year, and 6.3% more than the 9,430,000 barrels per day of gasoline that were being produced during the week ending March 25th a year ago...in addition, refineries' production of distillate fuels (diesel fuel and heat oil) was also up, rising by 43,000 barrels per day to 4,872,000 barrels per day, which was nonetheless 1.1% lower the 4,927,000 barrels per day of distillates that were being produced during the week ending March 25th last year...

even with the large increase in our gasoline production, the EIA reported that our gasoline inventories again shrunk, decreasing by 3,747,000 barrels to 239,721,000 barrels as of March 24th, after they had already dropped by more than 12.4 million barrels over the prior 3 weeks....that was as our domestic consumption of gasoline rose by 324,000 barrels per day to a seasonal high of 9,524,000 barrels per day and as our gasoline exports rose by 16,000 barrels per day to 608,000 barrels per day, while our imports of gasoline rose by 196,000 barrels per day to 521,000 barrels per day....while our gasoline supplies are now down by more than 19.3 million barrels from the record high set 6 weeks ago, they're only down 1.2% from last year's March 25th high for the date of 242,560,000 barrels, and are still 4.6% above the 229,128,000 barrels of gasoline we had stored on March 27th of 2015...

our supplies of distillate fuels also fell this week, decreasing by 2,483,000 barrels to 152,910,000 barrels by March 24th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 210,000 barrels per day to 4,222,000 barrels per day, even as our imports of distillates fell by 12,000 barrels per day to 115,000 barrels per day, and as our exports of distillates fell by 97,000 barrels per day to 1,120,000 barrels per day at the same time....while our distillate inventories are now 5.1% below the bloated distillate inventories of 161,185,000 barrels that we had stored on March 25th 2016, at the end of last year's warm El Nino winter, they are still 20.2% higher than the distillate inventories of 127,174 ,000 barrels that we had stored on March 27th of 2015… 

finally, our commercial inventories of crude oil increased for the 11th time in the past 12 weeks, increasing by 867,000 barrels to another record high of 533,977,000 barrels by March 24th...at the same time, 724,000 barrels of oil from our Strategic Petroleum Reserve was sold, which left inventories in the SPR at 692,659,000 barrels, a quantity not considered available for commercial use....thus for current commercial purposes, we finished the week ending March 24th with 11.5% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 6.0% more crude oil in storage than what was then a record 503,816,000 barrels of oil in storage on March 25th of 2016, 21.9% more crude than what was also then a record 437,983,000 barrels in storage on March 27th of 2015 and 53.3% more crude than the 348,423,000 barrels of oil we had in storage on March 28th of 2014...

This Week's Rig Count

US drilling activity increased for the 21st time in the past 22 weeks during the week ending March 31st, and this week's increase was also the 9th double digit rig increase in the past 11 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 15 rigs to 824 rigs in the week ending Friday, which was 374 more rigs than the 450 rigs that were deployed as of the April 1st report in 2016, and the most drilling rigs we've had running since Oct 2nd, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 10 rigs to 662 rigs this week, which was up by 300 from the 362 oil directed rigs that were in use a year ago, and more than double the 316 rigs working on May 27th 2016, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 5 rigs to 155 rigs this week, which was also up from the 88 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, there are also now 2 rigs deployed that are classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work... 

there were four additional drilling platforms that started operating in the Gulf of Mexico offshore from Louisiana this week, which boosted the Gulf of Mexico count to 22 rigs, still down from the 24 rigs that were drilling in the Gulf during the same week of 2016...that was also down from a total of 26 rigs that were working offshore of the US a year ago, when there were also rigs working offshore from Alaska and California, in addition to the 24 rigs that were drilling in the Gulf of Mexico at the time...

active horizontal drilling rigs increased by 12 rigs to 685 rigs this week, which is well more than double the May 27th 2016 nadir of 314 working horizontal rigs...that's also up by 339 horizontal rigs from the 346 horizontal rigs that were in use in the US on April 1st of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a total of 12 directional rigs were also added this week, bringing the directional rig count up to 70 rigs, which was also up from the 49 directional rigs that were deployed during the same week a year ago...meanwhile, the vertical rig count was down by 9 rigs to 58 rigs, which was still up from the 55 vertical rigs that were deployed during the same week last year....

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of March 31st, the second column shows the change in the number of working rigs between last week's count (March 24th) and this week's (March 31st) count, the third column shows last week's March 24th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 1st of April, 2016...          

March 31 2017 rig count summary

it's fairly obvious that almost all the increases can be accounted for by the 7 rig increase in Texas and the 6 rig increase in Louisiana, where the four new Gulf of Mexico rigs are included in the state count...what happened in the major basins is less obvious, however, because the increases in the Permian, the Eagle Ford, the Haynesville of Louisiana, and the Granite Wash of the Texas panhandle are almost entirely offset by decreases in active rigs in the Cana Woodford of Oklahoma, the Denver-Julesburg Niobrara chalk of the Rockies front range, the Williston of North Dakota and the Mississippian of the Kansas-Oklahoma border....the summary data tells us that there were 10 oil rigs and 4 gas rigs added in "other" basins , which are not named, and shall remain so for now, unless someone wants to dig through the individual wells records in the North America Rotary Rig Count Pivot Table (XLS)...also note that outside of the major producing states listed above, Mississippi also added a rig this week; they now have 5 rigs active, up from 2 rigs a year ago....



note: there's more here...