oil prices were generally higher this week on half of normal trading volume, as many traders apparently took an early holiday vacation...after closing last week at $51.90 a barrel, the contract for US oil for January delivery rose 22 cents on Monday to settle at $52.12 a barrel, while the more-active February contract rose 11 cents to $53.06 a barrel, as news of the assassination of the Russian ambassador to Turkey brought out fears of political instability in the Middle East...with trading in the January oil contract expiring on Tuesday at $52.23 a barrel, the February contract rose 24 cents, or 0.5%, to $53.30 a barrel, on forecasts of a large draw in U.S. crude supplies that would give credence to the belief that the oil glut was ending, and a bigger than expected inventory draw as reported by the American Petroleum Institute...however, oil prices fell 1.5% on Wednesday when the EIA reported that US crude inventories had actually increased, and ultimately closed down 81 cents at $52.49 a barrel...crude prices resumed their upward march on Thursday on strong U.S. economic data, a pause in the U.S. dollar rally, and optimism that crude producers would abide by an agreement to limit output, and closed up 46 cents at $52.95 a barrel...prices then drifted a bit higher on light trading, not even reacting to the 3rd consecutive double digit jump in the oil rig count, and closed the week at $53.02 a barrel, a price quote not comparable to last week's because it's now referencing a different contract month...
it might be worth it to take a closer look at the oil futures market, since we've just been through a week when the reference month for the widely quoted "price of oil" changed, and the price of oil jumped nearly a dollar a barrel as a result...over the past two years, we've often mentioned in passing that future contract prices for oil were higher than were current prices, whether we were referencing contango trading, which had made it profitable to buy and store oil, or whether we were talking about the economics of completing wells at a given price...but while we've linked to pages of those futures price quotes, i don't think we've never shown them, and i wouldn't expect that most of you would have had the time to follow all the links that i've used in these mailings...so today we'll just copy part of a page showing quotes for the first handful of oil futures quotes, and explain what it shows...
the above table, which shows oil futures prices for the next 14 months, comes from barchart.com, who calls themselves a "provider of market data solutions for individuals and businesses"...technically, each line on that table shows Friday's trading in a contract to deliver West Texas Intermediate grade (WTI) oil to (or to buy WTI oil from) the depot at Cushing Oklahoma for one month in the future, as noted in the blue parenthesis in the first column... the contracts are further identifiable by the 5 digit ticker symbol, wherein CL is the symbol for WTI light crude oil (the US benchmark oil), the next letter is a symbol for the month (ie, G=February, H=March, etc), and the last two digits are the year...the 2nd column has Friday's closing price for each of those contracts, and the 3rd column has the change in price from Thursday to Friday for each contract...note that this is just a small part of the list; the page i took this from includes monthly oil futures quotes going out to 2022, and then quotes for December and June through the year 2025..
the "price of oil" that's given in the media (and which we quote) is always for the current front month, which in this week's case was for January on Monday and Tuesday, and for February thereafter...you'll see there's also a cash price listed, CLY00 at $52.98 a barrel, but note that there's a zero in the volume column, because no one bought oil for cash on Friday, which we'd expect to be the case on most days, and that's why that cash price is never quoted...in an over-simplification of the practice, oil refineries will contract for their oil needs based on these futures prices many months or years in the future, just as oil well drillers will contract to sell their future production at some future date based on these prices, and thus whatever price changes occur between now and that time in the future will thus not affect them, because they've got their selling price locked in...thus though Friday's quoted price of oil was $53.02 a barrel, a hypothetical fracker who may been planning to start drilling after the first of the year might not be able to schedule a fracking crew until April, and thus might contract to sell his expected initial output in May, at prices of $55.24 a barrel...of course, the reality is more complex, as a driller in the Bakken who must ship by rail may receive a well head price that is a set steep discount from WTI, and may engage in much more complicated hedging strategies than simple selling oil futures contracts for given months, but the underlying pricing principle is the same...it's also important to remember what we showed last January; that it's not the oil users or the oil producers who set the price, it's the oil traders in New York,.because daily oil trading for just one oil contract in New York has been running well more than 100 times the amount of oil produced in the entire US daily, and because daily oil trading for just one contract in New York electronically swaps more than twice the quantity of oil that exists anywhere above ground in the entire country, oil producers have no real say in what price they'll receive for their oil, nor do refiners in what price they'll ultimately pay.
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we missed coverage of natural gas prices last week, so we'll pick up on what happened to them over the past two weeks now...when we looked at natural gas prices two weeks ago, they had just run up almost $1 per mmBTU (million British thermal units) to $3.75 per mmBTU in a month's time, as the the warmest Fall in US weather history was giving way to forecasts of a colder than normal La Nina winter...but no sooner than we sounded the alarm on that price spike, natural gas prices began to fall back, dropping 23.9 cents to $3.507 per mmBTU on Monday of last week, and then dropping lower for three out of the next four days to end last week at $3.415 per mmBTU...that collapse continued early this week, as natural gas prices fell to $3.392 per mmBTU on Monday, then to $3.263 per mmBTU on Tuesday, as increasingly milder weather forecasts continued to weigh on the market...but it appears someone got wind of the Thursday natural gas storage report on Wednesday, because nat gas prices spiked 18.1 cents, or 5.5% in the first hour of trading on rumors of an inventory draw in a range between 197 and 210 billion cubic feet, and went on to close up 27.9 cents at $3.542 per mmBTU...that natural gas storage report did indeed showed we had to pull 209 billion cubic feet of natural gas out of storage to meet our heating needs during the week ending December 16th, the biggest withdrawal for the week since 2010, which left us with 3,597 billion cubic feet of gas left, 5.9% less than a year earlier, a warm week which only required a 32 billion cubic feet withdraw...gas prices then went on to close $3.538 per mmBTU on Thursday and $3.662 per mmBTU on Friday, which you can see in the graph below..
again, this familiar graph shows the contract price over the last 3 months for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in January at the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...as we made note of two weeks ago, January natural gas futures are invariably higher than for the other months, and if we navigate to the page of natural gas futures prices similar to the oil futures table above we find that May prices for natural gas are more than 20 cents lower than January's, and most natural gas prices after April 2018 are below $3 per mmBTU, so it does a fracker no good to start drilling now on these temporary higher January prices, facing the inability to contract for sale at prices at these levels in the out months, and the likelihood that prices will be much lower in the future...
btw, you might have noted that i've been reluctant to ascribe a reason for most gas prices moves, simply because such large price moves for such small changes in expectations seem irrational to me...as RBN Energy explained the natural gas markets last week, "natural gas inventory—as reported by the EIA each week—is regarded as an ever-present bellwether for price direction in the natural gas market. Gas market participants and analysts train their eyes on weather forecasts—and the constant daily, or even intraday, revisions to the forecasts—along with natural gas flow data and other fundamental factors to see how they might change the storage picture.."
The Latest Oil Stats from the EIA
this week's oil data for the week ending December 16th from the US Energy Information Administration indicated a big jump in our imports of crude and a modest increase in our refining, but not enough to use all those extra imports, leaving our supplies of crude oil somewhat higher than the prior week...our imports of crude oil rose by an average of 1,111,000 barrels per day to an average of 8,471,000 barrels per day during the week, while at the same time our exports of crude oil rose by an average of 72,000 barrels per day to an average of 557,000 barrels per day, which meant that our effective imports netted out to 7,914,000 barrels per day for the week...at the same time, our crude oil production fell by 10,000 barrels per day to an average of 8,786,000 barrels per day, which means the daily supply of oil from imports and wells totaled 16,700,000 barrels per day...refineries reportedly used 16,658,000 barrels of crude per day during the week, an increase of 184,000 barrels per day from the week ending the 9th...but at the same time, 322,000 barrels of oil per day were being added to storage facilities in the US, virtually reversing the 366,000 barrels of oil per day of stored oil that was used up in the prior week...
thus, this week's EIA figures seem to indicate that we ended up with 280,000 more barrels of oil per day than were accounted for by our oil imports and production, and therefore the EIA inserted that 280,000 barrels per day into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance...the EIA footnote to that line 13 calls it "unaccounted for crude oil", which is further described on page 61 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."...as you know, we've been calling that number the EIA's weekly fudge factor...
from that same weekly Petroleum Status Report we find that the 4 week average of our oil imports rose to an average of 7.9 million barrels per day, now 0.9% higher than the same four-week period last year, which has also become somewhat meaningless as our weekly oil imports rise and fall on the order of a million barrels per day....our oil production for the week of the 16th was 4.3% lower less that the 9,179,000 barrels of crude we produced during the week ending December 18th of last year, and 8.6% below our record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...
US refineries operated at 91.5% of capacity in using those 16,658,000 barrels of crude per day, up from 90.5% the prior week and up from 91.3% during the same week a year ago, as they also refined 190,000 more barrels of crude per day than they did during the same week last year...gasoline production from those refineries rose by 322,000 barrels per day to 10,150,000 barrels per day during the week ending December 16th, which was 8.6% more than the 9,346,000 barrels per day of gasoline produced during the week ending December 18th a year ago, but just 2.3% more than the 9,920,000 barrels per day of gasoline produced during the week ending December 19th 2014...at the same time, refineries' output of distillate fuels (diesel fuel and heat oil) rose by 113,000 barrels per day to 5,122,000 barrels per day during the week ending December 16th, which was 3.7% higher than the 4,938,000 barrels per day that was being produced during the week ending December 18th last year, but 2.2% lower than the 5,236,000 barrels per day of distillates produced during the same week of 2014...
even with the week's increases in gasoline and distillates production, however, supplies of both reportedly dropped...our gasoline supplies fell by 1,309,000 barrels to 228,736,000 barrels as of December 16th, as our domestic consumption of gasoline increased by 395,000 barrels per day to 9,269,000 barrels per day, our gasoline imports fell by 177,000 barrels per day to 447,000 barrels per day, and our gasoline exports fell by 336,000 barrels per day from last week's record high of 1,131,000 barrels per day...nonetheless, our gasoline inventories as of December 16th were still 3.7% higher than the 220,495,000 barrels of gasoline that we had stored on December 18th of last year, and 1.2% higher than the 226,097,000 barrels of gasoline we had stored on December 19th of 2014....at the same time, our distillate fuel inventories fell by 2,420,000 barrels to 155,935,000 barrels by December 16th, as with the sudden burst of arctic weather our consumption of distillates rose by 519,000 barrels per day to 4,549,000 barrels per day during the week ending December 16th , the most distillates we've used in any week since January 23rd, 2015....nonetheless, our distillate inventories remained 1.5% higher than the distillate inventories of 151,315,000 barrels of December 18th last year, and 24.0% above the distillate inventories of 123,847,000 barrels of December 12th, 2014…
finally, mostly due to the big jump in our oil imports, our inventories of crude oil rose by 2,563,000 barrels to 485,449,000 barrels by December 16th, still 5.2% below the April 29th record of 512,095,000 barrels...and we thus ended the week with 7.3% more crude oil in storage than the 452,477,000 barrels we had stored as of the same weekend a year earlier, and 36.8% more crude than the 354,733,000 barrels of oil we had in storage on December 19th of 2014...
This Week's Rig Count
drilling activity rose for the 13th time in the past 14 weeks during the week ending December 23rd, as ongoing higher prices for gas and oil underpinned increased fracking of completed wells....Baker Hughes reported that the total count of active rotary rigs running in the US rose by another 16 rigs to 653 rigs by this Friday, which was still down from the 700 rigs that were deployed as of the Wednesday December 23rd report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...
rigs drilling for oil increased by 13 rigs to 523 rigs during the week, which was the most oil drilling rigs that have been in use in any week this year, as oil drilling activity has only retreated once in the past 25 weeks...but oil drilling was still down from the 538 oil directed rigs that were working in the US on December 23rd last year, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 3 rigs to 129 rigs, which still left active gas rigs down from the 162 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...one rig that was classified as miscellaneous also remained active, in contrast to a year ago, when no such miscellaneous rigs were deployed...
two offshore platforms began drilling in the Gulf of Mexico this week, both offshore from Louisiana, which brought the Gulf of Mexico rig count up to 24, same as a year ago...at the same time, another drilling operation began in the offshore waters of Alaska, which means the total US offshore count of 25 rigs has surpassed last year's offshore count of 24...the number of working horizontal drilling rigs increased by 14 rigs to 526 rigs this week, which was still down from the 554 horizontal rigs that were in use in the US on December 23rd last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 4 directional drilling rigs were added, increasing the directional rig count to 58, which was down from the 60 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count fell by 2 rigs to 69 rigs as of December 23rd, which left the vertical rig count down from last December 23rd's deployment of 86 vertical rigs...
as usual, 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 from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 23rd, the second column shows the change in the number of working rigs between last week's count (December 16th) and this week's (December 23rd) count, the third column shows last week's December 16th active rig count, the 4th column shows the change in the number of rigs running this Friday from the Wednesday before Christmas 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 case was for December 23rd of 2015...
there's not much that's particularly noteworthy in this week's state or basin rig variances...once again, the increase of 4 rigs in the Permian was the most in the country, but that's still down from the 12 rigs Permian drillers added last week or the 11 rigs they added the week before...the 262 rigs now working in the Permian is now almost double the 137 rigs that were drilling there during the last week of May, and the 125 rigs they've added over the ensuing 29 weeks thus accounts for nearly 60% of the 212 horizontal drilling rig increase that's occurred nationally since then...Oklahoma topped he Texas addition this week by adding 6 rigs, with 2 of those targeting the Cana Woodford, and 1 in the Ardmore Woodford, the first rig working in that basin since September 23rd...i'll assume you've all also noticed there was also a rig addition in the Utica; that means we now have 20 rigs running, up from 16 rigs a year ago, with one of those Utica rigs just across the state line in PA...changes not shown on the tables above include the addition of another rig in Indiana, where there are now 3 rigs running, up from none a year ago, Mississippi, where they shut down 1 rig and now have 2 rigs active, down from 5 rig a year ago, and Illinois, where their last active rig was shut down this week, while a year ago they had two...
oil prices remained volatile this week, as countervailing waves of avarice and anxiety about the coming Russian and OPEC led production cuts swept over the oil markets, but by the end of the week they were little changed from last week's close...what might have been the largest price move of the year for US oil was unleashed before the week even started, as oil prices jumped $3 a barrel to $54.50 a barrel at the opening of Asian trading at 11 PM on Sunday, as global oil traders reacted to the agreement by Russia and ten other non OPEC oil producers last Saturday to join the cartel in cutting their oil output...prices in New York were as high as $54.51 a barrel after US markets opened, the highest price since July 6, 2015, but fell back from there over the rest of the day to close Monday up just $1.33 at $52.83 a barrel...oil then traded 50 cents higher on Tuesday morning, but slipped back to close at $52.98 a barrel after the American Petroleum Institute reported large increases in crude and gasoline inventories...prices then fell back to close at $51.04 a barrel on Wednesday, despite the EIA report that US crude supplies had actually fallen, as the IEA (International Energy Agency) reported that OPEC had pumped 34.2 million barrels a day in November, a record high that was 300,000 barrels a day higher than their October record....oil prices continued to fall on Thursday as the US dollar hit a 14-year high against other major currencies, briefly slipping below $50 a barrel, before climbing back near the close to settle down just 14 cents at $50.90 a barrel....prices then rose Friday as oil traders regained faith in the OPEC deal and Goldman Sachs raised its oil price forecast to $57.50, and oil closed the week at $51.90 a barrel, for a gain of less than 1% from last Friday's close of $51.50..
this week we finally have some details on the secondary agreement to cut oil production that came out of that meeting of Russia and other non-OPEC oil producers last Saturday, which we didn't have much information about at that time...that agreement is projected to reduce production of the 11 signatories by 558,000 barrels a day, on top of the 1.2 million barrels a day in cuts already agreed to by OPEC, thus amounting to a total reduction of about 1.8% of global oil supply...in addition to the 300,000 barrel per day cut expected from Russia, other producers contributing relatively large cuts include Mexico, who will cut 100,000 barrels a day, Kazakhstan, who will cut 50,000 barrels a day, Oman, who will cut 45,000 barrels a day, and Azerbaijan, who will cut 35,000 barrels a day...other participants, all with smaller output cuts, include Bahrain, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan....Mexico's participation, especially to that degree, is the one surprising here, at least to me, because i'd thought i'd read that Mexico had opted out...but it does make sense for Mexico to cut output, because their aging giant Cantarell field has been in decline for years, and pushing it to maintain maximum output only risks its viability in the long run...other than Russia, the country to watch among these non-OPEC producers will be Kazakhstan, who just brought their giant Kashagan oil field online in October.. operated by an international consortium including Exxon, Shell, Eni, Total, CNPC, and Japan’s Inpex, Kashagan was projected to add 80,000 barrels a day to Kazakhstan's output, and after spending $50 billion over a dozen years to get it operating, those big oil companies aren't going to want to see it slowed down..
Global Oil Supply and Demand
in addition to this week's release of the aforementioned report on global oil production from the Paris-based International Energy Agency, which is available to subscribers only, OPEC released their Monthly Oil Market Report for December, a free 101 page pdf, which we'll pull a few graphics out of to put this all in perspective....this first table is from page 60 of the 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 labeled...OPEC uses "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator for their for their quotas and production cuts, rather than use what's directly reported by the members (shown in Table 5.9, also on page 60), to resolve potential disputes that might arise if each member reported their own figures...what we're interested in here are the October and November 2016 figures, and the change between them, shown in the last column....while they also show a new record for their November production, note that the increase reported here is only half of the 300,000 barrels per day jump to 34.2 million barrels a day that was reported by the IEA...
the next graphic, from page 61 of the December OPEC Monthly Oil Market Report, shows both OPEC and world oil production monthly on the same graph, from December 2014 to November 2016...the pale blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the green graph represents global oil production in millions of barrels per day, as shown on the right scale...according to OPEC, global oil production reached a new record of 96.84 million barrels per day in November, up by more than half million barrels per day from the 96.32 million barrels per day produced in October, and OPEC accounted for 35.0% of that global total..
next, from page 39 of the same OPEC report, we have global oil demand figures for 2015 and each of the quarters of 2016...this represents how much of that oil being produced that's shown above is being consumed, and basically by whom (FSU is the former Soviet Union countries)...thus, global consumption of oil throughout 2016 averaged 94.41 million barrels per day, and the projected demand for oil in the 4th quarter of this year works out to 95.31 million barrels per day, in contrast to November global production of 96.84 million barrels per day...
finally, we have a graphic from the Public Page of the current IEA Oil Market Report, which shows what they project will happen to global oil supply and demand in the first two quarters of 2017 if OPEC and other oil producers go through with their oil production cuts as announced...the green graph shows oil production globally in millions of barrels per day for each quarter since the beginning of 2013, while the yellow graph shows global oil consumption in millions of barrels per day over that same span...the blue bars in the background of that graph show the difference, also in millions of barrels per day, between the green and yellow graphs, with a blue bar pointing upward representing the amount of oil surplus in a given quarter, while a blue bar pointing downward represents a deficit of oil, necessitating withdrawal of oil from storage, and typically resulting in higher oil prices until such time as some of the demand is squeezed out....thus we can see that the world has been producing surplus oil in various amounts since the 2nd quarter of 2014, from which time oil prices have fallen from above $100 a barrel to as low as $26...the IEA now projects that if OPEC and non-OPEC oil producers implement the oil production cuts they've indicated, there will be an estimated oil deficit of 0.6 million of barrels per day globally during the first two quarters of 2017
The Latest Oil Stats from the EIA
this week's oil data for the week ending December 9th from the US Energy Information Administration indicated a big drop in our imports of crude and a small increase in refining, which thus left our end of the week supplies of crude oil quite a bit lower than the prior week....meanwhile, the crude oil fudge factor that was inserted into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance swung to +437,000 barrels per day, from last week's -425,000 barrels per day, which means that 437,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or more of this week's metrics were off by that amount.....with a week to week swing of 886,000 barrels per day in that fudge factor, this week's week over week comparisons involving crude are useless...the cumulative daily average of that adjustment has inched up to +117,000 barrels per day, which means the EIA's week figures remain out of balance for the whole year...we've shown that much of that imbalance has been due to under-reported oil production, but guessing how much in any given week is pretty much a crap shoot..
at any rate, for the week ending December 9th, the EIA reported that production of crude oil from US wells rose by 99,000 barrels per day to an average of 8,796,000 barrels per day, the 7th increase in the past 9 weeks, as output from Alaskan fields fell by 2,000 barrels per day while production from wells in the lower 48 states was 101,000 barrels per day higher, which suggests that a number of those drilled but uncompleted wells have now been fracked as oil prices rose...as a result, this week's domestic oil production was just 4.1% lower less that the 9,176,000 barrels of crude we produced during the week ending December 11th of last year, and 8.5% below our record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...
at the same time, the EIA reported that our imports of crude oil fell by an average of 943,000 barrels per day to an average of 7,360,000 barrels per day during the week ending December 9th, as the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell back to an average of 7.7 million barrels per day, now 2.0% lower than the same four-week period last year...to my memory, that's the first time our 4 week average of oil imports fell below the prior year's 4 week average in the nearly two years we've tracked that metric, although we're sure it was more common when oil production was rising steadily, and before oil pricing went into contango, making it profitable to import and store oil...meanwhile, our exports of crude oil fell by an average of 14,000 barrels per day during the week ending December 9th to an average of 485,000 barrels per day, in data that is not directly comparable to last year's oil exports of 445,000 barrels per day during the week ending December 11th...
meanwhile, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 57,000 barrels per day to an average of 16,474,000 barrels of crude per day during the week ending December 29th, as our refinery utilization rate inched up to 90.5% during the week from last week's 90.4%, which still left it lower than the refinery utilization rate of 91.9% during the week ending December 11th of last year...the amount of crude oil being refined this week nationally was down 0.8% from the 16,611,000 barrels of crude per day US refineries used during the week ending December 11th last year, while it was up 1.1% from the 16,301,000 barrels per day that were being refined during the equivalent week in 2014...
however, despite another increase in the amount of crude oil being refined, the EIA reported that our refineries’ production of gasoline fell again, by 85,000 barrels per day to 9,828,000 barrels per day during the week ending December 9th...our gasoline production was thus down 1.4% from the 9,963,000 barrels per day of gasoline produced during the same week a year ago, but it was still up by 1.8% from the 9,652,000 barrels per day of gasoline produced during the week ending December 12th 2014...the EIA also reported that our refineries' output of distillate fuels (diesel fuel and heat oil) fell by 74,000 barrels per day to 5,009,000 barrels per day during the week ending December 9th, which was 1.9% lower than the 5,107,000 barrels per day that was being produced during the week ending December 11th last year, and also 3.9% lower than the 5,214,000 barrels per day of distillates produced during the equivalent week of 2014...
even with the drop in gasoline production, the EIA reported that our gasoline supplies rose by 497,000 barrels to 230,045,000 barrels as of December 9th, as our domestic consumption of gasoline increased by 117,000 barrels per day to 8,874,000 barrels per day...that was as our gasoline imports fell by 28,000 barrels per day to 624,000 barrels per day while our gasoline exports rose by 139,000 barrels per day to a record high 1,131,000 barrels per day, which was only the 2nd week in history that our gasoline exports topped 1 million barrels per day...still, our gasoline inventories as of December 9th were 5.5% higher than the 217,653,000 barrels of gasoline that we had stored on December 11th of last year, and 5.9% higher than the 216,764,000 barrels of gasoline we had stored on December 12th of 2014....
at the same time, our distillate fuel inventories fell by 762,000 barrels to 155,935,000 barrels by December 9th, as our exports of distillates rose by 193,000 barrels per day to 1,321,000 barrels per day, the most distillates we've exported since September 23rd....nonetheless, our distillate inventories remained 2.6% higher than the distillate inventories of 151,976,000 barrels of December 11th last year, and 28.3% above the distillate inventories of 121,544,000 barrels of December 12th, 2014…
finally, mostly due to the big drop in our oil imports, our inventories of crude oil fell by 2,563,000 barrels to 483,193,000 barrels by December 9th, which thus left our oil supplies 5.4% below their April 29th peak of 512,095,000 barrels...however, we nonetheless ended the week with 5.4% more crude oil in storage than the 458,354,000 barrels we had stored as of the same weekend a year earlier, and 39.1% more crude than the 347,466,000 barrels of oil we had in storage on December 12th of 2014...
This Week's Rig Count
US drilling activity rose for the 12th time in 13 weeks during the week ending December 16th, as higher prices continue to draw more frackers out to the oil fields....Baker Hughes reported that the total count of active rotary rigs running in the US rose by another 13 rigs to 637 rigs by this Friday, which was still down from the 709 rigs that were deployed as of the December 18th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...
rigs deployed drilling for oil increased by 12 rigs to 510 rigs during the week, which was the first time US oil rigs topped 500 rigs since January 22nd of this year, as oil drilling activity has only retreated once in the past 25 weeks...but oil drilling was still down from the 541 oil directed rigs that were working in the US on December 18th a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 126 rigs, which still left active gas rigs down from the 168 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...one rig that was classified as miscellaneous also remained active, in contrast to a year ago, when no such miscellaneous rigs were deployed...
both the Gulf of Mexico rig count and total US offshore count remained unchanged at 22 rigs, down from 24 offshore rigs a year ago, which were also all in the Gulf at that time...the number of working horizontal drilling rigs increased by 9 rigs to 512 rigs this week, which was still down from the 559 horizontal rigs that were in use in the US on December 18th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 3 directional drilling rigs were added, increasing the directional rig count to 54, which was down from the 63 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count increased by a single rig to 71 rigs as of December 16th, which was still down from last December 18th's deployment of 87 vertical rigs...
as usual, 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 from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 16th, the second column shows the change in the number of working rigs between last week's count (December 9th) and this week's (December 16th), the third column shows last week's December 9th active rig count, the 4th column shows the change in the number of rigs running this Friday from 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 case was for December 18th of 2015...
once again, the entire increase in the oil rig count could be accounted for by the 12 rig increase in the Permian, which at 258 rigs now accounts for more than half of the horizontal drills working in the US...notice that the Louisiana Haynesville now joins the Utica and the Permian with rig counts above their year ago level, whereas the Cana Woodford of Oklahoma, which had been ahead of its year earlier total for several weeks, has now slipped behind, as 3 rigs were shut down in that basin this week even at its year ago total rose...and while the 40 rigs now drilling in the Marcellus is still below last year's 41 rig deployment, the number of those rigs working in Pennsylvania has risen to 31 from last year's 26 rigs, while drilling in West Virginia has dropped from 16 rigs a year ago to 10 rigs currently....also note that outside of the major producing states shown in the summary table above, Alabama also saw a drilling rig start up last week, and thus they now have two rigs working, in contrast to a year ago, when there was no drilling going on in the state...
less than a week after both OPEC and Russia committed to lowering their oil production in order to stabilize oil prices, we learned that both were producing oil at record levels in November, even as they were preparing to meet to hash out the details of their planned output reductions...that news knocked the wind out of the oil price rally that saw oil prices rise 16% to 16 month highs over the four days following the OPEC meeting in Vienna on November 30th, and oil prices subsequently fell more than $2 a barrel, or nearly 4%, over Tuesday and Wednesday following those reports, before steadying and retracing most of that loss, ending the week at $51.50 a barrel...
as you'll recall, the proposed OPEC production cutback announced last week generally amounted to a commitment by most OPEC members to reduce their oil output by 4.5% from October levels, which had already risen to a record high of 33.643 million barrels per day in October, from levels of around 32.5 million barrels per day earlier this year...the new November OPEC production data, from a Reuters survey of shipping data and industry sources, indicated that OPEC production had risen to 34.19 million barrels per day in November, from a revised 33.82 million barrels per day in October, as Angola, Nigeria, Libya, Iran, and Iraq all increased output significantly (note that there are several estimates of OPEC production; their own reports cite two estimates other than this one, and the key takeaway from this Reuters survey is that OPEC output rose by 370,000 barrels per day from their previous record high)...meanwhile, Russian oil production rose by 2,000 barrels per day to 11.23 million barrels per day in November, a new post Soviet era record for Russia as a stand alone country, which means they've increased output by 500,000 barrels per day since first committing to cutting 300,000 barrels per day in August ...not only do the November record levels of production add to the current oil glut, but new highs in production for both countries means the cuts announced for January will have to come off of a higher output level than previously estimated..
pushing oil prices higher going into the weekend was the anticipation of the meeting of Russia and other non-OPEC oil producers on Saturday, which were expected to contribute another 600,000 barrels per day in production cuts, on top of the 1.2 million barrel per day cut that OPEC had agreed to last week...as i write this on Saturday evening, the Wall Street Journal is reporting that a deal was struck between Russia and 10 countries outside of OPEC to cut their production by a total of 558,000 barrels per day, with Russia as expected contributing 300,000 barrels per day of that reduction...details on the other countries involved in that deal are still sketchy; Oman, Azerbaijan and Sudan are other producers mentioned as committing to cuts, but i've seen no country by country quantities given...Brazil had already opted out of attendance, so they obviously wont be cutting, nor will Canada, China or Norway, who hopes to ramp up their own production to steal European market share from Russia..
before we move on to the weekly oil data, we should make note that there has been a run-up in natural gas prices with the advent of colder weather...the easiest way to explain what happened is with a graph, which we'll herewith include below...
the above graph shows the contract price over the last 3 months for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in January at the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...as you can see, natural gas contract quotes have increased by nearly $1 per mmBTU over the past month to reach their highest level since December 2014, with forecasts of winter weather being the primary driver, as natural gas stores have remained well above normal and the weekly drawdowns have been close to expectations...the last time we looked at natural gas prices, contract prices for November gas delivery had fallen to $2.731 per mmBTU just as exchange trading in gas for delivery in November expired on October 27th, while at the same time natural gas for delivery in December was being quoted at $3.046 per mmBtu...from this graph we can see that January gas never got that low, which exposes the seasonal price variation typical for gas and heat oil...however, up until recently, even gas prices for January had been held down by the ongoing gas glut and the warmest Fall in US weather history, which even prompted that November nonsense suggesting increased air conditioning would cause higher natural gas consumption by electric utilities...that's by the boards now, as we are heading into a La Nina winter, which tends to be colder than normal...finally, driving prices to a record high on Friday was a forecast of a return to "life-threatening lows the polar vortex brought to parts of the country in 2014"...again, for natural gas, this is a seasonal price spike, and while it may result in some of the drilled but uncompleted (DUC) wells being completed, is not certain to cause an attendant spike in drilling...that's because natural gas prices are in backwardation, meaning futures prices are lower, and thus newly drilled gas wells wont get this current price for their future production...as of this weekend natural gas futures prices indicate that the contract price for April 2017 gas is at $3.453 per mmBTU , but by April 2018 the contract price falls to $2.928 per mmBTU, and that forward natural gas prices after that remain below $3 for most of the next dozen years...
The Latest Oil Stats from the EIA
the US Energy Information Administration's release of oil data for the week ending December 2nd indicated a large jump in our imports of crude and a modest increase in refining, which nonetheless left our supplies of crude oil somewhat lower than last week...what happened was that the crude oil fudge factor that was inserted to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -425,000 barrels per day, from last week's +384,000 barrels per day, which which means that 425,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final oil consumption or inventory figures, meaning one or several of this week's metrics were in error by that quantiy....with a week to week swing of 809,000 barrels per day in that fudge factor, it goes without saying that our week over week comparisons involving crude are meaningless...moreover, the cumulative daily average of that adjustment is still listed at +116,000 barrels per day for the 3rd week in a row, which certainly can't be right, even though we know that the EIA's week figures remain out of balance by nearly that magnitude for the whole year...
so quickly, for the week ending December 2nd, the EIA reported that our imports of crude oil rose by an average of 755,000 barrels per day to an average of 8,303,000 barrels per day, as the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) rose to an average of 8.0 million barrels per day, now 5.8% higher than the same four-week period last year...meanwhile, our exports of crude oil rose by an average of 25,000 barrels per day to an average of 499,000 barrels per day for the week, for an increase of 730,000 barrels per day in our net imports, with export data that is not directly comparable to last year's exports of 445,000 barrels per day during the week ending December 4th, ...
at the same time, the EIA reported that production of crude oil from US wells slipped by 2,000 barrels per day to an average of 8,697,000 barrels per day during the week ending December 2nd, only the 2nd decrease in 9 weeks...that was as output from our Alaskan fields was unchanged while production from wells in the lower 48 states was 2,000 barrels per day lower for the 2nd week in a row....that left the week's domestic oil production 5.1% lower than the 9,164,000 barrels of crude we produced during the week ending December 4th of last year, and 9.5% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...
meanwhile, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 134,000 barrels per day to an average of 16,417,000 barrels of crude per day during the week ending December 2nd, as our refinery utilization rate rose to 90.4% during the week, after last week's dip to 89.8%, which still left it down from the refinery utilization rate of 93.1% during the week ending December 4th last year...US oil refining is still down 3.0% from the pre Labor Day high of 16,930,000 barrels per day, at which time the refinery utilization rate had peaked at 93.7%...the rate of crude oil refined this week nationally is also down 1.4% from the 16,652,000 barrels of crude per day US refineries used during the week ending December 4th last year, and down 1.3% from the 16,627,000 barrels per day that were being refined during the equivalent week in 2014...
however, despite the increase in the amount of crude oil being refined, the EIA reported that refineries’ production of gasoline fell by 73,000 barrels per day to 9,913,000 barrels per day during the week ending December 2nd...however, the year over year comparison still shows that our gasoline production was up about a half percent from the 9,869,000 barrels per day of gasoline produced during the same week a year ago, and up by 8.1% from the 9,169,000 barrels per day of gasoline produced during the week ending December 5th 2014...the EIA also reported that refinery output of distillate fuels (diesel fuel and heat oil) fell by 133,000 barrels per day to 5,083,000 barrels per day during the week ending December 2nd, which was 2.8% lower than the 5,228,000 barrels per day that was being produced during the week ending December 4th last year, and also 2.8% lower than the 5,231,000 barrels per day of distillates produced during the equivalent week of 2014...
even with the drop in gasoline production, the EIA reported that our gasoline supplies rose by 3,425,000 barrels to 229,548,000 barrels as of December 2nd, as our domestic consumption of gasoline fell by 323,000 barrels per day to 8,757,000 barrels per day, the lowest since the week ending January 29th, even as our gasoline imports fell by 199,000 barrels per day to 652,000 barrels per day....as a result, our gasoline inventories as of December 2nd were 5.5% higher than the 217,653,000 barrels of gasoline that we had stored on December 4th of last year, and 5.9% higher than the 216,764,000 barrels of gasoline we had stored on December 5th of 2014....at the same time, our distillate fuel inventories rose by 2,501,000 barrels to 156,697,000 barrels by December 2nd, leaving our distillate inventories 4.9% higher than the distillate inventories of 149,413,000 barrels of December 4th last year, and 28.7% above the distillate inventories of 121,751,000 barrels of December 5th, 2014…
finally, even with the big jump in our oil imports, the EIA reported that our inventories of crude oil fell by 2,389,000 barrels to 485,756,000 barrels by December 2nd, which left our supplies 5.1% below their April 29th peak of 512,095,000 barrels...however, we still ended the week with 7.1% more crude oil in storage than the 453,553,000 barrels we had stored as of the same weekend a year earlier, and 39.5% more crude oil than the 348,313,000 barrels we had stored on December 5th of 2014...
This Week's Rig Count
US drilling activity rose for the 11th time in 12 weeks during the week ending December 9th, possibly reacting to the OPEC deal to post the largest increase in 31 months....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 27 rigs to 624 rigs by this Friday, which was still down from the 709 rigs that were deployed as of the December 11th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...
rigs deployed drilling for oil in the US rose by 21 rigs to 498 rigs during the week, which was the most oil rigs we've had working in any week since January 29th, as oil drilling activity has only retreated once in the past 24 weeks...but oil drilling was still down from the 524 oil directed rigs that were working on December 11th a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 6 rigs to 125 rigs, which still left active gas rigs down from the 185 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...one rig that was classified as miscellaneous also remained active, technically an increase from a year ago, when no such miscellaneous rigs were working...
drilling on bodies of water was unchanged from last week, as both the Gulf of Mexico rig count and total offshore count remained at 22 rigs, down from 23 offshore rigs a year ago...the number of working horizontal drilling rigs increased by 18 rigs to 503 rigs this week, which was still down from the 554 horizontal rigs that were in use on December 11th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 5 directional drilling rigs were added, bringing the directional rig count back up to 51, which was down from the 64 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count increased by 4 rigs to 70 rigs as of December 9th, which was still down from last December 11th's deployment of 91 vertical rigs..
as usual, 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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 9th, the second column shows the change in the number of working rigs between last week's count (December 2nd) and this week (December 9th), the third column shows last week's December 2nd active rig count, the 4th column shows the change in the number of rigs running this Friday from 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 case was for December 11th of 2015...
again we see that this week's drilling increase was led by an 11 rig increase in the Permian of west Texas, which has now seen a 109 rig increase since the last week of May, and thus accounts for nearly half of the 220 drilling rig increase that we've seen over that span...furthermore, with 246 rigs deployed targeting that shale basin, the Permian alone accounts for nearly half of the 503 horizontal drilling rigs currently in use...with additional increases in the Eagle Ford of south Texas and in the Granite Wash tight sand of the panhandle region, Texas managed a 17 rig increase, the largest we've seen in any one state in any one week....the other big jump in shale targeted drilling this week was in the Denver-Julesburg-Niobrara of the Rockies front range, where 6 rigs were added, which is likely reflected by the 6 rig increase in Colorado, since Wyoming has been adding conventional rigs of late...meanwhile, the only natural gas rig increases noted above are in the Marcellus, as of the 6 rigs targeting natural gas added this week, 4 were logged in the unnamed "other' column...however, those two were enough to increase the Pennsylvania rig count to 31, now topping their 30 rigs a year ago...we should also note that outside of the major producing states shown in the summary table above, Indiana saw two rigs started up, having none working last week and none a year ago, while Kentucky saw its two rigs pulled out, leaving none, down from one last year…in addition, Illinois saw one rig stacked, leaving one, in contrast to none a year ago, and Mississippi saw its rig count reduced from 4 rigs to 3, also down from 4 rigs a year ago...
International Rig Count for November
Baker Hughes also released the international rig counts for November this week, 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 1,678 rigs were drilling for oil and natural gas around the globe in November, which was up from the 1,620 rigs that were drilling around the globe in October, but down from the 2,047 rigs that were working globally in November of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 544 rigs in October to 580 rigs in November, which was still down from the average of 760 rigs that were working in the US in November a year ago, while the average Canadian rig count rose from 156 rigs in September to 173 rigs in November, again still down from the 178 Canadian rigs that were deployed in November a year earlier....outside of Northern America, the International rig count rose by 5 rigs to 925 rigs in November, which was also down from 1,109 rigs a year ago, as increases in drilling in Europe and Eastern Asia more than offset a decrease in Middle East activity..
drilling activity in the Middle East fell for the 7th time in the past 11 months, as the countries included in this region pulled out a net of 11 rigs, reducing their active rig average to 380 rigs for the month, which was also down from the 419 rigs deployed in the Middle East a year earlier....most of the cutback in drilling could be accounted for by reductions in Oman, and by OPEC members Qatar and Abu Dhabi, who each removed 3 rigs...Oman's cut was from 64 rigs to 61, which was also down from the 72 rigs deployed in Oman last November, while the Qataris cut back to 9 rigs from 12, which was up from the 5 rigs they had deployed a year ago, and Abu Dhabi reduced their active rigs to 47, which was down from the 52 they had active last November...two other OPEC members also cut their drilling back by a single rig; Iraq's drilling was down from 42 rigs to 41, which was also down from 51 rigs a year earlier, and Kuwait cut back from 48 rigs to 47, which was still up from the 43 rigs the Kuwaitis were running a year ago...in addition, Egypt cut back their drilling from 23 rigs in October to 22 rigs in November, well down from the 45 rigs running in Egypt a year earlier...however, the Saudis added a rig in November and thus were running 127 rigs, the same as they were running a year ago...as we've mentioned previously, the Saudis have continued to increase drilling throughout this period of lower prices, increasing their rig counts from in the 80s in 2013 to average 105 rigs in 2014, and gradually increasing from there to average 125 rigs this year...
in addition to the cuts in the Middle East, the Latin American region saw its active rig count reduced by a net of 2 rigs to 181 rigs, while they were also down from 284 rigs in November of 2015, as the region had idled 92 rigs over the first 6 months of 2016...the region's November change also included shutting down 2 more offshore platforms, after they had shut down 8 offshore rigs the prior month, leaving Latin American offshore activity at 28 rigs, which was also down from 52 offshore last November...Brazilian drillers continued to cut back, reducing their active count from 14 rigs to 10, which was down from the 36 rigs deployed in Brazil a year earlier...Mexican drillers shut down 3 rigs in November, leaving an average of 18 rigs active, down from 38 rigs last November...Bolivia, Chile, OPEC member Ecuador, and Peru also each shut down a rig in November; for Bolivia, the 4 rigs remaining were down from 7 rigs a year earlier; for Chile, their remaining 2 rigs were the same as last year's count; for Ecuador, their 5 rigs were up from last years 4 rigs, and Peru had no rigs remaining active, down from 1 rig in November of 2015...on the other hand, drillers in Columbia added 5 rigs in November, bringing their count up to 16 rigs, which was also up from 15 rigs a year earlier...OPEC member Venezuela started up 3 more rigs and thus had 51 rigs running, still down from 70 rigs a year earlier, and Argentina also added a rig, bringing them back to 70, still down from 101 rigs last November..
meanwhile, drilling activity in the Asia-Pacific region increased by 6 rigs to 188 rigs in November, as their offshore deployment rose from 84 rigs to 92, which was down from the 208 rigs working the region a year earlier, which included 85 working offshore at that time....India added 5 rigs, bringing their total to 117 rigs active nationwide, which was up from the 105 rigs they had deployed in November of last year...both Vietnam and Papua New Guinea added 2 rigs, bringing their counts up to 4 rigs and 3 rigs respectively, up from 4 rigs last year for Vietnam but down from 3 rigs last year for Papua New Guinea...other Asian Pacific countries adding one rig included Australia, Brunei, and Myanmar, bringing their totals up to 4 rigs, 2 rigs and 1 rig respectively, down from 14 rigs a year ago for Australia, unchanged from last year for Brunei, and up from none last year for Myanmar...on the other hand, Indonesia idled 3 more rigs after shutting down 2 in October and hence were down to running 14 rigs, down from the 24 rigs they had working in November a year earlier...in addition, single rig reductions were seen in Malaysia, Thailand and the Philippines...for Malaysia, that left 4 rigs, down from last year's 7 rigs; for Thailand, that left 10 rigs still working, down from 17 a year ago, and for the Philippines it left no rigs active, in contrast with the 3 rigs they were running a year earlier...
oddly, the net rig count in Europe saw the largest jump in November, rising by 10 rigs to 97 rigs, which was down from the 108 rigs working in Europe a year ago at this time, as offshore drilling that was shut down in October returned in November, as the European offshore count rose to 33 rigs from 24 rigs a month ago...Norwegian drillers accounted for most of that, as they reactivated 6 of the 7 North Sea platforms that were shut down in October, and now have 15 active, up by 1 rig from last year's 14...at the same time, the UK also added 3 offshore rigs, and now have 10, which was down from the 12 platforms they had working offshore a year earlier...in addition, Germany added 2 rigs, and now have 4 rigs active, up from 3 last year, and Italy and Spain added one rig each...for Italy, the 4 rigs active in November was also up from 3 rigs last year, while the rig the Spaniards added was their first drilling since October 2012...partially offsetting those increases, Turkish drillers shut down 2 rigs and thus had 29 active in November, up from 28 rigs a year earlier, while the Dutch shut down 1 rig, leaving 3 rigs active, the same number that were active in the Netherlands a year ago....
lastly, the African continent saw an addition of 2 rigs in November, although at 79 rigs their activity was still down from the 90 rigs working in Africa last year at this time...three African nations added 1 rig each: Angola, the Congo Republic, and OPEC member Nigeria...that brought Angola back to 3 rigs, still down from last year's nine; brought the Congo Republic back to 3 rigs, same as a year ago, and brought Nigeria back up to 5 rigs, also down from 9 rigs a year earlier....at the same time, the last active rig in Cote d'Ivoire was shut down; a year ago, the Ivory Coast had 3 rigs active....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although China's offshore area, with an average of 28 rigs active in November, were included in the Asian totals here...
at their meeting in Vienna on Wednesday, the member nations of OPEC agreed to cut their oil production by 4.5% for a period to run 6 months, effective January 1st...the amount of oil output each member is expected to forgo is generally based on their October production, although for some countries, such as Iran, the baseline for the output cut has been adjusted for special factors...Libya and Nigeria, whose recent production has been disrupted by civil conflict, will be exempt from the cuts...Indonesia, an oil importer who would not agree to a cut, was suspended from OPEC, and what they would have cut was to be absorbed by other member....figures released by OPEC indicate they want a cut of almost 1.2 million barrels per day, or roughly in line with what we previewed last week...in addition, OPEC announced that non-OPEC oil producers, who were not represented at the meeting, will contribute an additional output cut of 600,000 barrels per day... presumably, details on those non-OPEC oil production cuts will be worked out at a December 9th meeting at Doha, but since Russia is on board with a cut of 300,000 barrels per day, achieving that target should not be difficult....oil traders apparently believe that OPEC and other producers will be able to achieve what they've set out, because since the announcement of the deal, oil prices have risen 14%...
as you may recall, last week i was skeptical that such an agreement could be worked out, and thought that even if it were, it would quickly fall apart...i'm now of the opinion that their production cut will hold, and that it will be at least partially if not completely effective in reducing the global oil glut, and thereby push up the price of oil...one factor i hadn't counted on was the direct involvement of Vladimir Putin in the deal; originally, the Russian oil companies had only committed to give up the increase in production they planned for next year; now it appears they've also been pressured into participating in an actual 300,000 barrels per day cut in their own production...moreover, Putin himself acted as an intermediary between Saudi Prince Mohammed bin Salman and Iran's Ayatollah Ali Khamenei and President Hassan Rouhani to grease the skids for the deal that was eventually made, that allowed Iran's production figures to be overstated such that their "cut" actually amounts to a small increase from their current production...with the Saudis and Iranians waging proxy wars in both Syria and Yemen, that Putin could convince them to put their animosity aside and agree to a deal was a major breakthrough for OPEC...moreover, their strategy has already resulted an instant success, which will now convince all parties to hold the line irregardless of their personal differences...after agreeing to cut their production by 4.5%, oil prices immediately rose 14%, so they already have a gain of 9.5% on the oil that they will be producing over what they would have had otherwise....
to put this production cutback in perspective, we'll next include a series of graphics which should give you a decent idea how big this production cut is relative to OPEC's recent and earlier oil production, and relative to the global oil supply...first, we'll start with a graph of OPEC's monthly oil production over the past dozen years...
the above graph, taken from the 'OPEC oil charts" page at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 14 members of OPEC for the period from January 2005 to October 2016...as we pointed out last week, OPEC production has been spiking the past few months as member states pumped what they could to be better positioned for any percentage cutback resulting from this earlier planned meeting, and had reached 33.643 million barrels per day as of the October report...the agreed to production cuts will reduce their output to approximately 32.5 million barrels per day, which you should notice is about what they were producing in March and April of this year...
next, we have a table of oil production by each of the members of OPEC for the recent months, quarters, and years, which comes from the November OPEC Monthly Oil Market Report, which was released on November 11th...here you can see that the total oil output for the first quarter of 2016 (1Q16) was 32,500,000 barrels per day, exactly what these "cutbacks in production" hope to get back to...for the Persian Gulf OPEC members, much of cut that will be close to their normal seasonal reduction anyhow, since they usually ramp up their oil production during the summer months to generate electricity for air conditioning...
note that the numbers shown in the October column above are close to the reference production levels on which the 4.5% production cuts are based...for instance, the Saudis will be cutting from 10,544,000 barrels per day back to 10,058,000 barrels per day, the Iraqis will be cutting from the 4,561,000 barrels per day shown above to 4,351,000 barrels per day, and the Kuwaitis will be cutting from 2,838,000 barrels per day to 2,707,000 barrels per day...the exception is for Iran, whose cuts are based on their production from Table 5.8: OPEC crude oil production based on direct communication in that same OPEC monthly report, wherein Iran reported oil production of 3,920,000 barrels per day in October...thus, when Iran cuts 4.5% from that level, their allowed production will be 3,797,000 barrels per day, actually 90,000 barrels per day more than their OPEC reference production...
the next graphic, as the heading tells us, shows both OPEC and world oil production monthly on the same graph, from November 2014 to October 2016, and it also comes from the November OPEC Monthly Oil Market Report...the pale blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the green graph represents global oil production in millions of barrels per day, and that's shown on the right scale...global oil production reached 96.32 million barrels per day in October, just short of last year's November record, and OPEC production represented 34.9% of what was produced globally...note that the June OPEC Monthly Oil Market Report indicates global production in May was at 94.51 million barrels per day, so if OPEC is successful in cutting their production by 1.2 barrels per day from October levels, and the non-OPEC producers cut another 600,000 barrels per day, global oil production will be reduced all the way back to the level that we saw in May of this year, when there was an acceleration of rebel attacks on oil facilities and pipelines in Nigeria and Canadian oil production was interrupted by the Alberta wildfires...
lastly, instead of explaining in detail how oil prices moved this week, we'll just include a chart which shows oil prices for every hour, every day, for the 5 trading days in question...the graph below is a Saturday afternoon screenshot of the oil price graph at DailyFX, a trading news platform which specializes in foreign exchange (FX) trading...each bar on this graph represents oil prices for one hour of trading; when oil prices went up during a given hour, the bar will be green, with the starting price at the bottom of the bar and the price at the end of the hour at the top of the bar...during hours when the price of oil fell, the bar will be red, with the starting price at the top of the bar and the price at the end of the hour at the bottom of the bar...this variety of graph is called a candlestick, and the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph...thus we can see that in the wee hours of Wednesday morning, when it appeared neither Iran or Iraq would agree to a cut, oil prices fell below $45 a barrel, as some were even forecasting that oil prices would fall to $20 a barrel after the presumed OPEC meeting failure...oil prices then ran up to as high as $51.75 a barrel during the day on Thursday, before sliding back to close at $51.06...but the rally picked up again on Friday and oil closed the week with another gain at $51.68 a barrel, up 14.2% in the three days after the OPEC meeting..
oil prices above $50 a barrel will likely accelerate the return of US drillers and frackers to the field, as we've already seen 5 months of steadily rising rig counts with oil prices stuck between $42 and $50 a barrel...also recall that two weeks ago, the Drilling Productivity Report for November showed that the count of drilled but uncompleted wells rose to 5,155 in October, with more than half of those in the Permian and the Eagle Ford, the two big shale oil fields of Texas...we would expect a pickup in completion of those wells, and an attendant increase in US oil production as prices rise, partially ameliorating the OPEC production cuts...and should oil prices top $60 a barrel, the Dallas Fed 3rd quarter energy survey of American oil and gas executives indicates that between 65% and 70% of oil execs would then pull out all the stops and start drilling everywhere again...
The Latest Oil Stats from the EIA
the US Energy Information Administration's release of oil data for the week ending November 25th indicated that our imports of oil were little changed, and that gasoline and distillates production and inventories rose, while our supplies of crude oil were slightly lower...the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance decreased to +384,000 barrels per day, from last week's +419,000 barrels per day, which still means that 384,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or several of this week's metrics were off by that amount...that's the 6th large positive adjustment in a row, but the cumulative daily average of that adjustment remains at +116,000 barrels per day, meaning the EIA's week figures remain out of balance for the whole year...as we saw last week, much of that imbalance has been due to under-reported oil production
for the week ending November 25th, the EIA reported that production of crude oil from US wells rose by 9,000 barrels per day to an average of 8,699,000 barrels per day, the 7th increase in 8 weeks, as output from Alaskan fields rose by 11,000 barrels per day while production from well in the lower 48 states was 2,000 barrels per day lower....that left the week's domestic oil production 5.5% lower than the 9,202,000 barrels of crude we produced during the week ending November 27th of last year, and 9.5% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...
at the same time, the EIA reported that our imports of crude oil fell by an average of 30,000 barrels per day to an average of 7,548,000 barrels per day during the week ending November 25th, as the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell back to an average of 7.7 million barrels per day, now just 5.3% higher than the same four-week period last year...meanwhile, our exports of crude oil rose by an average of 5,000 barrels per day to an average of 474,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 445,000 barrels per day during the week ending November 27th...
meanwhile, the EIA also reported that the amount of crude oil used by US refineries fell by an average of 114,000 barrels per day to an average of 16,283,000 barrels of crude per day during the week ending November 25th, as our refinery utilization rate slipped back to 89.8% during the week, after last week's 90.8%, which left it way down from the refinery utilization rate of 94.5% of the week ending November 27th last year...US oil refining is now down 3.8% from the pre Labor Day high of 16,930,000 barrels per day, at which time refinery utilization rate had peaked at 93.7%...the rate of crude oil refined this week nationally is also down 3.1% from the 16,803,000 barrels of crude per day US refineries used during the week ending November 27th last year, and down a half percent from the 16,356,000 barrels per day that were being refined during the equivalent week in 2014...
however, even with the decrease in the amount of crude oil being refined, refineries’ production of gasoline rose by 286,000 barrels per day to 9,986,000 barrels per day during the week ending November 25th, as we continue to see large swings in the fudge factor for gasoline, shown in Table 2 on page 7 of the U.S. Petroleum Balance Sheet, which the footnote tells us is an "adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components"...that fudge factor fell by 307,000 barrels per day this week, from -339,000 barrels per day to -32,000 barrels per day, accounting for the apparent increase in production from last week's distorted figure...the year over year comparison now shows that our gasoline production was up 2.4% from the 9,752,000 barrels per day of gasoline produced during the same week a year ago, despite the lower refining throughput...the EIA also reported that refinery output of distillate fuels (diesel fuel and heat oil) rose by 136,000 barrels per day to 5,216,000 barrels per day during the week ending November 25th, the highest since last December 4th....that distillates output was 0.9% higher than the 5,168,000 barrels per day that was being produced during the week ending November 27th last year, and 3.7% higher than the 5,028,000 barrels per day of distillates produced during the equivalent week of 2014...
with the jump in gasoline production, the EIA reported that our gasoline supplies rose by 2,097,000 barrels to 226,123,000 barrels as of November 25th, as both our domestic consumption of gasoline and our gasoline imports were little changed...as a result, our gasoline inventories as of November 25th were 4.3% higher than the 216,867,000 barrels of gasoline that we had stored on November 27th of last year, and 8.4% higher than the 208,567,000 barrels of gasoline we had stored on November 28th of 2014....at the same time, our distillate fuel inventories rose by 4,957,000 barrels to 154,196,000 barrels by November 25th, the largest one week jump in distillate supplies since January 8th of this year...so while our distillates inventories are still down by 10.8 million barrels over the past 10 weeks, they were 6.8% higher than the distillate inventories of 144,415,000 barrels of November 27th last year, and 32.7% above the distillate inventories of 116,174,000 barrels of November 28th, 2014…
finally, with our oil imports still below the recent mean, our inventories of crude oil fell by 884,000 barrels to 488,145,000 barrels by November 25th, which left them 4.7% below their April 29th peak of 512,095,000 barrels...however, we still ended the week with 6.8% more crude oil in storage than the 457,212,000 barrels we had stored as of the same weekend a year earlier, and 40.7% more crude oil than the 347,015,000 barrels we had stored on November 28th of 2014...
This Week's Rig Count
because of last week's Thursday holiday, the Baker Hughes rig count report for the week ending December 2nd covers changes in drilling activity for the nine days from November 23rd to December 2nd.. for that period, they reported that drilling rig activity increased for the 10th time out of the last 11 weeks, as the active rig count rose by 4 rigs, from 593 rigs on November 23rd to 597 rigs on December 2nd....that was still down from the 737 rigs that were working as of the December 4th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....noteworthy in this week's report was that Canadian drillers added 26 rigs, which brought their active rig total up to 200, surpassing the 177 rigs they had deployed a year ago at this time..
rigs deployed drilling for oil in the US rose by 3 rigs to 477 rigs during the week, which was the most oil rigs we've had working in any week since January 29th, as oil drilling activity has only been down once in the past 23 weeks...but oil drilling was still down from the 545 oil directed rigs that were working on December 4th a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 119 rigs, which still left active gas rigs down from the 192 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...one rig that was classified as miscellaneous also remained active, an increase from a year ago, when no such miscellaneous rigs were working...
one of the rigs that had been working on a drilling platform offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 22, and also cut the total US offshore count to 22 rigs, down from the 25 rigs that were working in the Gulf of Mexico last year at this time, which was also the total for all US offshore rigs active a year ago...in addition, one rig that had been drilling through inland freshwater in southern Louisiana was also shut down, leaving just one rig working on inland waters, down from 2 such rigs a year ago...
the number of working horizontal drilling rigs increased by 10 rigs to 485 rigs this week, which was still down from the 569 horizontal rigs that were in use on December 4th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, six directional drilling rigs were pulled out and stacked, reducing the directional rig count to 46, which was down from the 64 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count of 66 rigs was unchanged from last week, but down from last year's deployment of 104 vertical rigs..
as usual, 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 from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 2nd, the second column shows the change in the number of working rigs between last week's count (on November 23rd) and this week (December 2nd), the third column shows last week's November 23rd active rig count, the 4th column shows the change in the number of rigs running this Friday from 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 case was for December 4th of 2015...
this week's variances show a return to the pattern we've being seeing for most of the past 5 months, wherein the biggest jump in drilling was again in the Permian basin of western Texas, which at 235 rigs now shows more drilling activity than the 217 rigs that were working there a year ago...since both the Dallas area Barnett shale and the south Texas Eagle Ford also saw two rig increases, that suggests that Texas saw an increase of 11 horizontal rigs, while other drilling rig types were pulled out...also note the increase of 3 gas directed drilling rigs in the Haynesville, generally a northwestern Louisiana field, although with the 4 rig decrease in that state, those additions could be in across the border in Texas too...also hard to square is the 4 rigs that were added in Wyoming; they weren't in any of the major basins, since the DJ Niobrara saw a 2 rig decrease...all in all, this week’s changes were not as immediately clear as we normally see...
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