OPEC extends production cuts 9 months, oil prices tumble; US refining returns to near record levels...

well, the OPEC meeting that everyone had been waiting for came and went this week, and as it turned out, it was just a big non event....OPEC agreed to maintain their production cuts at the same level they've been at since the first of the year for another 9 months, Libya and Nigeria will continue to be allowed to produce whatever they can, Russia and a few other non-OPEC oil producers who were in the original pact will maintain their levels of production cuts but no new producing nations will join them, and the next OPEC meeting to check on their progress will be held November 30th...oil traders were clearly expecting something more, since oil prices dropped nearly 5% in the first few hours after the Thursday announcement, although prices did recover some on Friday...rather than explain how oil prices moved up to and after the meeting, we'll just include a graph of their hourly changes over the last three days of this week, so you can all see for yourselves..

the above graph is a screenshot of the interactive oil price graph at Trading Economics, an online platform that provides economic forecasts, historical data, and trading recommendations...each bar on the above graph represents oil prices for one hour of oil trading between late May 23rd and May 26th, wherein green bars represent the hours when the price of oil went up, and red bars represent the hours when the price of oil went down...for green bars, the hour's starting oil price is at the bottom of the bar and the price at the end of the hour is at the top of the bar, while in red or down hours, the starting price is at the top of the bar and the price at the end of the hour is at the bottom of the bar...this type of graph is called a candlestick because 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...so above we can see that oil prices were driven almost as high as $52 a barrel on Wednesday and again early on Thursday morning before the OPEC deal was announced, but then started falling when it became apparent that nothing new would come out the meeting...once the meeting ended with the official press release, oil prices dropped more than 4%, as oil traders who had been betting on a better deal liquidated their positions, and oil closed Thursday at $48.90 a barrel...once that post-deal selling frenzy was over, buyers moved back in on Friday, pushing oil higher to close the week at $49.80 a barrel

note that oil prices being quoted this week are for July delivery....trading of the June contract, which we were quoting last week, expired on Monday at $50.73 a barrel, up 40 cents from last Friday's close of $50.33...the July contract closed last week at $50.67 a barrel, so this week's closing price represents a modest drop of 1.7% for the week, even though oil prices saw a drop of nearly 8% from their Thursday morning high to their Friday morning low...although July oil is down from its Thursday high of $52.00, it's still up from a low of $44.13 a barrel hit just three weeks earlier...

let's again look at why oil traders don't have much confidence in the efficacy of this latest OPEC deal to have much of an impact on global oil supplies....we'll start with a graph of OPEC oil production over the past dozen years..

the graph above was taken from the 'OPEC April Production Data" post at the Peak Oil Barrel blog and it shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to April 2017, with the data sourced from the May OPEC Oil Market Report which we covered two weeks ago...while we can see that OPEC production during March and April, the two furthest right data points on the graph, was down quite a bit from their record production in November 2016, it's still not much changed from what they were producing between June 2015 and May of 2016, and moreover, is actually still much higher than what they produced during the three years before that, which is the period that produced the glut of oil the world is still trying to deal with...

next we'll look at the table of global oil demand forecasts from that May OPEC Oil Market Report of two weeks ago, and project what might happen to oil supplies if OPEC oil production remains unchanged from current levels, as they have now pledged they will do...

to review the above, this table comes from page 37 of the May OPEC Monthly Oil Market Report of two weeks ago, 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 each quarter of 2017 over the rest of the table...on the "Total world" line, starting with the third column, we've circled in blue the figures we're interested in, which is their estimate for global oil demand for the 2nd, 3rd and 4th quarters of 2017... 

OPEC's estimate for the 2nd quarter of this year is that all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, roughly 1.3% more than they used during the same period of 2016....during April, OPEC produced 31.73 million barrels of oil per day, 33.1% of April's global oil production of 95.81 million barrels per day... based on their demand projection, that means that even though OPEC's production for the month was their lowest in a year, there continued to be a surplus of around 480,000 barrels per day in global oil production in April, largely because global oil output was still 0.83 million barrels per day higher than it was in April of 2016...holding these global figures constant, we can figure that a similar surplus of oil will be produced during May and June...

for the third quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.27 million barrels of oil per day, as it will be summer in much of the northern hemisphere, and many oil consuming nations, including members of OPEC burn oil or oil products to produce electricity for air conditioning....so the question for OPEC in the third quarter is will they hold their production steady at or near April's level and thus forego a sizable percentage of their exports, and hence their revenue, as they consume oil domestically for cooling...for instance, heading into last summer, the Saudis increased their oil production by 400 thousand barrels per day; the year before that, their summertime production increase was even greater...if OPEC members can hold their production near 31.73 million barrels of oil per day, and other non-OPEC producers don't increase theirs, then it's possible they can reduce the global oil glut at a rate of nearly 1.46 million barrels per day during the third quarter...but if they step up their production to cover their air conditioning needs, or other non-OPEC countries increase theirs, that reduction will be diminished, and the rebalancing they intend will be defeated...

next, in the 4th quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.47 million barrels of oil per day....that oil demand would rise further in the 4th quarter seemed illogical to me, but looking at the details for 2016 in the oil demand chapter of their report, they show that 4th quarter increases of oil consumption in Africa, India, China and the Pacific more than offset the fall decreases in North American, European and the Middle Eastern oil use...so if that holds in the 4th quarter of 2017, and they maintain their production cuts through then, they can reduce the global glut at a rate of 1.66 million barrels of oil per day...that, of course, assumes the rest of the world's oil production remains stagnant as well..

OPEC also intends to extend their production cuts through the 1st quarter of next year, which is not shown in the projection above...but note in purple that we've circled the global demand growth percentage change in the far right column...if growth continues at that 1.33% pace, then we can expect oil demand for the 1st quarter of 2018 to rise to roughly 96.71 million barrels of oil per day...thus, if OPEC can hold the line until then, and no other producers fill the gap, they can also be reducing global oil supplies by roughly 900 thousand barrels per day during the first three months of 2018...

so, it appears that OPEC and the Russians have thought this through, and although they wont be reducing oil supplies at quite the 2.5 million barrels per day pace that oil supplies were increasing by through much of the two years proceeding their production cut agreement, they can be taking large chunks out of the glut if other parties not part of the agreement don't increase their oil output at the same time...however, remember that in April, the baseline for our figures above, Libya was producing 550 thousand barrels per day, and that as we noted two weeks ago, by May they had increased their output to 800,000 barrels per day...before the fall of Muammar Gaddafi, Libya had been consistently been producing 1.6 million barrels of oil per day, so if they can get back half of what they've since lost, they could easily add as much as 600,000 barrels per day to OPEC's output, and effectively cut the OPEC production cuts in half...

outside of OPEC, US oil production is seen as the biggest threat to their ability to control oil supplies...according to the unofficial weekly US oil production data, US oil production has increased by 550,000 barrels per day during the first 20 weeks of this year...since additional oil rigs have been added every week but one during that period and since the backlog of unfracked wells has been increasing at a rate equivalent to 20% of new producing wells, it seems clear that US oil production will continue to increase at close to the same pace it has been rising year to date, so the US could probably add another 800,000 barrels of oil per day to their output by the end of the year...in addition, both Canada, the 6th largest oil exporter globally, and Brazil, the 10th largest, are also increasing their output and pose an additional threat to OPEC's ability to reduce global supplies...furthermore, the U.K. and Norway are also producing more oil this year, and have to be considered when looking at whether OPEC's cuts will be effective or not...so in addition to the output from OPEC, oil output from these countries will have to be watched over the next 9 months, to see if OPEC's production cuts can realize the rebalancing of supply and demand they purport to achieve...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending May 19th, indicated that our refining of crude oil rose to near record levels, while our imports and exports of oil both decreased, and that oil needed to be withdrawn from US storage for the 7th week in a row....our imports of crude oil fell by an average of 296,000 barrels per day to an average of 8,294,000 barrels per day during the week, while at the same time our exports of crude oil fell by 461,000 barrels per day to an average of 625,000 barrels per day, which meant that our effective imports netted out to 7,669,000 barrels per day during the week, 165,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 15,000 barrels per day to an average of 9,320,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,989,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,281,000 barrels of crude per day, 159,000 barrels per day more than they used during the prior week, while 690,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, oilfield production, and from storage was 398,000 more barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a (-398,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports fell to an average of 8,192,000 barrels per day, still 8.1% above the imports of the same four-week period last year...the 690,000 barrel per day decrease in our total crude inventories came about on a 633,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 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 15,000 barrel per day crude oil production increase resulted from a 20,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in oil output from Alaska...the 9,320,000 barrels of crude per day that we produced during the week ending May 19th was up by 6.3% from the 8,770,000 barrels per day we were producing at the end of 2016, and also up by 6.3% from the 8,767,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.5% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 93.4% of capacity the prior week, but down from the year’s high of 94.1% four weeks earlier...the 17,281,000 barrels of crude per day that refineries took in during the week ending May 19th almost a new record, however, just 4,000 barrels a day less than the 17,285,000 barrels of crude per day that US refineries used during the week ending April 21st....oil refined this week was also 6.2% more than the 16,279,000 barrels of crude per day.that were being processed during week ending May 20th, 2016, when refineries were operating at 89.6\7% of capacity, and roughly 14% above the 10 year average of 15.2  million barrels of crude per day for the 3rd week in May ....

with the near record level of refining, gasoline production from our refineries increased by 223,000 barrels per day to 10,243,000 barrels per day during the week ending May 19th, the highest gasoline production ever this early in the year...gasoline production for the week was thus 3.8% higher than the 9,866,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 155,000 barrels per day to 5,197,000 barrels per day, which was just shy of an all time record and 11.5% more than the 4,661,000 barrels per day of distillates that were being produced during the week ending May 20th last year.....

even with the seasonal record level of gasoline production, our end of the week gasoline inventories decreased by 787,000 barrels to 239,882,000 barrels by May 19th, mostly because our domestic consumption of gasoline rose by 252,000 barrels per day to 9,704,000 barrels per day...in addition, our gasoline exports rose by 81,000 barrels per day to 589,000 barrels per day, while our imports of gasoline rose by 29,000 barrels per day to 725,000 barrels per day at the same time...but even with the seasonal decrease in our gasoline supplies, they are still less than 0.1% lower than the 240,111,000 barrels that we had stored on May 20th a year ago, but 8.7% higher than the 220,627,000 barrels of gasoline we had stored on May 22nd of 2015, and 13.4% more than the 211,575,000 barrels of gasoline we had stored on May 23rd of 2014…

likewise, even with the increase in distillates production, our supplies of distillate fuels fell by 485,000 barrels to 146,339,000 barrels during the week ending May 19th, somewhat less than the 1,944,000 barrel drop the prior week...that was because our exports of distillates fell by 258,000 barrels per day to 1,008,000 barrels per day, while our imports of distillates fell by 60,000 barrels per day to 101,000 barrels per day...at the same time, the amount of distillates supplied to US markets rose by 144,000 barrels per day to 4,359,000 barrels per day...even though our distillate supplies are still 3.0% below the 150,878,000 barrels that we had stored on May 20th, 2016, when a glut of heat oil persisted after last year's warm El Nino winter, they remain 13.6% higher than the distillate inventories of 128,839,000 barrels that we had stored on May 22nd of 2015, following a more normal winter…

finally, the ongoing record level of oil refining meant that our commercial inventories of crude oil saw a withdrawal for the seventh week in a row, as they decreased by 4,432,000 barrels to 516,340,000 barrels as of May 19th....but even though our crude oil supplies are down by 19.2 million barrels over the past 7 weeks, we still finished the week with 7.8% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.1% more crude oil in storage than the 505,571,000 barrels of oil in storage on May 20th of 2016...compared to equivalent dates in prior years, we ended the week with 15.7% more crude than the 446,412,000 barrels in of oil in storage on May 22nd of 2015, and 42.9% more crude than the 361,382,000 barrels of oil we had in storage on May 23rd of 2014...

This Week's Rig Counts

US drilling activity increased for the 19th week in a row and for the 29th time in the past 30 weeks during the week ending May 26th, even as oil rigs saw their smallest weekly rise of the year....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 908 rigs in the week ending Friday, which was 504 more rigs than the 404 rigs that were deployed as of the May 27th report in 2016, and the most drilling rigs we've had running since April 24th, 2015, while it was 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 just 2 rigs to 722 rigs this week, which was still well more than double the 316 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half 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 185 rigs this week, which was also more than double the 87 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, a single rig considered unclassified remained active, same as last week and as a year ago...

offshore drilling remained unchanged with 23 rigs still this week, all of those in the Gulf of Mexico, down from a total of 24 offshore rigs a year ago...the number of rigs that were set up to drill horizontally increased by 7 to 766 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 27th of last year, while it was still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, a net of one vertical rig was added this week, increasing the vertical rig count to 77 rigs, which was up from the 46 vertical rigs that were deployed during the same week a year ago...on the other hand, the directional rig count was down by 1 rig to 65 rigs this week, which was still up from the 44 directional 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 May 26th, the second column shows the change in the number of working rigs between last week's count (May 19th) and this week's (May 26th) count, the third column shows last week's May 19th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 27th of May, 2016...       

a few fairly obvious surprises this week...first, that this week's increase in drilling was led by a 5 rig increase in Colorado, which up until this week had been relatively stable this year - the 29 rigs they had active a week ago was the same number of rigs they had active during the first week of the year, although it had varied a bit in the interim...another surprise is that Texas saw its first pullback in drilling in 19 weeks; over that 19 week period, Texas drilling had increased by 123 rigs, so they're not exactly missing the one that was shut down this week...lastly, the increase in drilling for natural gas topped new oil rigs for the first time since January 13th, when oil rigs were down by 7 rigs during a week that natural gas rigs increased by one...gas rigs were added in the Arkoma Woodford of Oklahoma, where one oil rig was shut down while a gas directed rig started up, and in the Eagle Ford of south Texas, where oil rigs still outnumber gas rigs 77 to 9...meanwhile, 3 of the 5 gas rigs that we added this week were in other unnamed basins, as we can clearly see there was no change in activity in the Utica or the Marcellus...also note that other than the changes in the major producing states noted above, Alabama saw one rig removed this week and now have 3 rigs still active, still an increase from a year ago, when there were no rigs active in the state...

note: there's more here...

Trump Bedtime Reading

Trump Getting On Down With The Beheaders

US oil & gas drilling at a 2 year high, but April saw another big increase in uncompleted wells

oil prices moved up fairly steadily this week, finishing 5.2% higher, propelled mostly by the likelihood that OPEC and Russia will be extending their production cut agreement by up to 9 months...the initial rally began early in overseas markets on Monday, as US crude for June delivery rose $1.01 a barrel to $48.85 a barrel, after the energy ministers of Russia and Saudi Arabia issued a joint statement saying that the oil output cut needed to be extended until the end of March 2018...prices backed off their highs on Tuesday, however, after the American Petroleum Institute unexpectedly reported an increase in both crude oil and distillates supplies, with oil falling to $48.66 a barrel by the close, and then extending the drop to below $48 in after hours trading...the rally resumed on Wednesday after the EIA figures contradicted the API report and showed drawdowns of oil, gasoline and distillates inventories, with June crude adding 41 cents, or 0.8% for the day, to settle at a three week high of $49.07 a barrel ...oil prices rose again on Thursday after other key producing countries suggested they would also adhere to the agreed to production cuts, with June oil closing at $49.35 a barrel....even with the OPEC supply cuts priced in, further OPEC comments ahead of their May 25th meeting drove oil past $50 on Friday, and despite the Baker Hughes report that U.S. drillers added oil rigs for an 18th week in a row, US crude oil rose another 98 cents to $50.33 a barrel, for the highest close since April 19th...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending May 12th, indicated that our refining of crude oil returned to near record levels, while our imports of oil increased to the highest rate in three months, but because of an accompanying increase in our oil exports, oil needed to be withdrawn from US storage for the 6th week in a row....our imports of crude oil rose by an average of 970,000 barrels per day to an average of 8,590,000 barrels per day during the week, while at the same time our exports of crude oil rose by 393,000 barrels per day to an average of 1,086,000 barrels per day, which meant that our effective imports netted out to 7,504,000 barrels per day during the week, 577,000 barrels per day more than during the prior week...at the same time, our field production of crude oil fell by 9,000 barrels per day to an average of 9,305,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,809,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,122,000 barrels of crude per day, 363,000 barrels per day more than they used during the prior week, while 354,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 41,000 more barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a (-41,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,347,000 barrels per day, now 9.3% above the imports of the same four-week period last year...the 354,000 barrel per day decrease in our total crude inventories came about on a 250,000 barrel per day withdrawal from our commercial stocks of crude oil and a 104,000 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 9,000 barrel per day crude oil production decrease resulted from a 21,000 barrel per day decrease in oil output from Alaska, which was only partially offset by a 12,000 barrels per day increase in oil output from wells in the lower 48 states...the 9,305,000 barrels of crude per day that we produced during the week ending May 12th was still up by 6.1% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,791,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.4% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 91.5% of capacity the prior week, but down from the year’s high of 94.1% three weeks earlier...the 17,122,000 barrels of crude per day that refineries used during the week ending May 12th was the third most in US history, 4.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 90.5% of capacity, and about 13% above the 10 year average for the 2nd week in May of 15.2  million barrels of crude per day....

even with the week's increased refining, gasoline production from our refineries slipped by 32,000 barrels per day to 10,020,000 barrels per day during the week ending May 12th, still the third highest gasoline production this year...gasoline production for the week was also still fractionally higher than the 9,997,000 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 86,000 barrels per day to 5,042,000 barrels per day, which was 5.7% more than the 4,770,000 barrels per day of distillates that were being produced during the week ending May 13th last year.....

even with the ongoing elevated level of gasoline production, our gasoline inventories decreased by 413,000 barrels to 241,232,000 barrels as of May 13th, even as they are up by more than 4 million barrels from 5 weeks ago....gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 44,000 barrels per day to 9,452,000 barrels per day while our imports of gasoline fell by 257,000 barrels per day to 696,000 barrels per day, even as our gasoline exports fell by 208,000 barrels per day to 508,000 barrels per day....since some market commentary seems to be reading the decrease in gasoline inventories as a bullish signal, we'll include a graph here to put this week's decrease in perspective..

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 gasoline inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our gasoline supplies on any given day of the year 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 gasoline we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date gasoline supplies represented in red...from this we can there is an obvious seasonality to gasoline supplies, as they're built up during the winter when few are driving, then start to decline when refineries slow down for spring maintenance and blend readjustment...thus early May is at a time of year when gasoline supplies are typically falling, and in fact, typically falling at a greater pace than they are this year...as a result, this week's gasoline supplies, by virtue of their smaller drop, popped up to a record level for the 132nd day of the year, which we can see by noting that the red graph has risen above last year's record for the same date...so even with the decrease in our gasoline supplies, they are now 1.1% higher than the record 238,068,000 barrels that we had stored on May 13th a year ago, 7.5% higher than the 223,936,000 barrels of gasoline we had stored on May 15th of 2015, and 12.8% more than the 213,378,000 barrels of gasoline we had stored on May 16th of 2014…

even with the increase in distillates production, our supplies of distillate fuels fell by 1,944,000 barrels to 146,824,000 barrels during the week ending May 12th; contributing to the drop in distillates supplies was a 107,000 barrel per day increase to 1,266,000 barrels per day in our exports of distillates, and a 86,000 barrel per day increase to 4,215,000 barrels per day in the amount of distillates supplied to US markets, while our imports of distillates rose by 46,000 barrels per day to 161,000 barrels per day... even though our distillate supplies are still 3.5% below the 152,162,000 barrels that we had stored on May 13th, 2016, during the glut of heat oil that persisted after last year's warm El Nino winter, they remain 15.0% higher than the distillate inventories of 127,724,000 barrels that we had stored on May 15th of 2015, following a more normal winter… 

finally, the elevated level of oil refining, even when combined with increases in both oil imports and oil exports, meant that our commercial inventories of crude oil decreased by 1,753,000 barrels to 520,772,000 barrels as of May 12th, the sixth weekly decrease in a row....but even though our crude supplies are down by nearly 15 million barrels over that 6 week span, we still finished the week with 8.7% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.2% more crude oil in storage than the 509,797,000 barrels of oil in storage on May 13th of 2016...compared to equivalent dates in prior years, we ended the week with 15.9% more crude than the 449,214,000 barrels in of oil in storage on May 15th of 2015, and 44.8% more crude than the 359,725,000 barrels of oil we had in storage on May 16th of 2014...

This Week's Rig Counts

US drilling activity increased for the 28th time in the past 29 weeks during the week ending May 19th, as total active rigs hit a 2 year high....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 16 rigs to 901 rigs in the week ending Friday, which was 497 more rigs than the 404 rigs that were deployed as of the May 20th report in 2016, and the most drilling rigs we've had running since May 1st, 2015, while it was 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 8 rigs to 720 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half 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 8 rigs to 180 rigs this week, which was more than double the 85 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...

three more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana were started back up this week, which bought the the Gulf of Mexico active count back up to 23 rigs, the same number that were working in the Gulf of Mexico a year earlier....however, the rig that had been drilling offshore from Alaska was shut down this week, so our total offshore count is also at 23 rigs, down from a total of 24 offshore rigs a year ago...

the number of rigs that were set up to drill horizontally increased by 17 to 759 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 20th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....however, a net of one vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 48 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was unchanged at 66 rigs this week, which was still up from the 42 directional 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 May 19th, the second column shows the change in the number of working rigs between last week's count (May 12th) and this week's (May 19th) count, the third column shows last week's May 12th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 20th of May, 2016...        

as you can see, the increases in drilling were fairly widespread, although Texas, where all or part of 5 of the basins listed are located, did see an increase of 8 rigs, half the total for the week...the only basin to see a slowdown was the Denver-Julesberg Niobrara chalk of the Rockies front range, where two rigs were shut down, accounting for the decrease in Colorado by the same number...part of the 8 rig increase in natural gas directed rigs is fairly obvious, with a 2 rig increase in the Marcellus in Pennsylvania, and a rig increase in both the Utica of Ohio and the Haynesville of Louisiana...discerning the disposition of the other gas wells is more difficult, however, because we first find that the Arkoma Woodford, usually seen as a gas basin, actually saw a net decrease of 2 gas wells, as two oil rigs were started in the basin as two gas rigs were shut down...the "other basins" column does show an increase of 5 natural gas rigs, but that still leaves us one gas rig short...turns out that is also in the Haynesville, where one oil rig was shut down as two gas rigs were added...of the states not shown among the largest producers above, Alabama saw one rig added this week; they now have 4 rigs working the state, up from none a year ago...on the other hand, the only rig drilling in Michigan was shut down this week; it had just started work just two weeks ago, in the first drilling in Michigan in nearly 4 years..

DUC well report for April

Monday of this past week saw the release of the EIA's Drilling Productivity Report for May, which includes the EIA's April data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins...once again, this report showed a large 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.... for all 7 basins covered, the total count of DUC wells rose from 5,534 in March to 5,721 wells in April, the sixth consecutive monthly increase in uncompleted wells....what appears to be happening is that as horizontal drilling has rapidly expanded over the past 9 months, more than doubling over that period, a shortage of competent fracking crews has developed, such that in the most active areas, independent U.S. drillers underspent their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work...active crews are even being hired away from jobs they're already working on to take offers of higher paying frack jobs elsewhere...since the oil field layoffs started in early 2015, most frackers had gone nearly two years with just skeleton fracking crews still working in most basins around of the country, and many of those who had had been working in the oil fields before the bust have since found work elsewhere...fracking has also gotten much more complex over that period, with 50 stage fracks explosively driving several hundred pounds of proppant per foot of lateral not uncommon, so putting together a fracking crew even vaguely familiar with the latest techniques has become that much harder...

a total of 941 wells were drilled in the 7 basins covered by this report in April, but only 754 wells were completed, thus accounting for the 187 DUC well increase for the month....like in most recent months, most of the April 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 126, from 1,869 in March to 1995 in April, as 446 new Permian wells were drilled but only 320 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 32, from 1283 in March to 1,315 in April, as 167 wells were drilled in the Eagle Ford in April but only 136 were completed....in addition, DUC wells in the Haynesville of Louisiana increased by 17 wells to 191, as 46 wells were drilled but just 29 were fracked, and DUCs in the Bakken of North Dakota increased by 12 to 821, as 84 wells were drilled but just 72 wells were fracked....in addition, the Niobrara chalk of the Rockies front range saw a 4 DUC well increase to 644, and the Marcellus DUC count rose by 2 to 664 uncompleted wells...on the other hand, Ohio's Utica shale showed a decrease of 6 uncompleted wells and thus had only 87 DUCs remaining at the end of April, as 18 wells were drilled in the Utica during the month while 24 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 174 to 4,792 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 13 to 929 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...

 

note: there's more here...

OPEC cuts still not reducing global glut; US sees the largest crude oil inventory draw this year

both oil and natural gas prices moved higher this week, as both commodities saw larger than expected withdrawals of supplies from storage, while oil prices were also underpinned by expectations that OPEC would extend their production cuts when they meet in Vienna later this month....an expression of confidence in that extension from Saudi energy minister Khalid al-Falih on Monday buttressed the rebound from last week's crash, as oil rose 21 cents to close at $46.43 a barrel...prices then moved lower on Tuesday, closing at $45.88 a barrel, after the EIA raised its forecast on domestic crude output for this year and next, and cut its 2017 price outlook...however, when the weekly EIA report showed the largest crude oil inventory draw since December, oil prices surged as much as 4% before settling at $47.33 a barrel, a gain of 3% on the day...momentum from that rally carried into Thursday, as oil added 50 cents more to close at $47.83 a barrel, on news that top OPEC officials were pondering even deeper cuts...oil prices then slipped on Friday, after Baker Hughes reported the US oil rig count rose for the 17th straight week, but stabilized by the end of the day, with June crude closing at $47.84 a barrel, up a penny for the session and up 3.5% for the week..

OPEC's May oil report

since the OPEC production cuts are the main factor underpinning oil prices, and hence the ongoing increases in US drilling, we'll start by taking a quick look at OPEC May Oil Market Report (covering April OPEC & global data), which was released on Thursday of this week...we're going to look at how much oil OPEC produced in April vis a vis global production, and then determine if they are yet meeting their intended outcome of reducing the global glut of oil that's been building up over the past three years, as most OPEC countries were producing flat out over that period....the first table from the May report that we'll include here is from page 60 of that OPEC pdf, and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months as the column headings 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... 

from this table of official production data, we can see that OPEC oil output was down by a statistically insignificant 18,200 barrels per day in April, to 31,732,000 barrels per day, from a March oil production total of 31,750,000 barrels per day, a figure that was revised 178,000 barrels per day lower than what was reported last month...(for your reference, here is the table of the official March 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 within a half percent of the level they agreed to cut back to....but note that over 60 thousand barrels of this month's reduction came from Libya, a country that was exempt from the cuts, because their production had been disrupted by domestic unrest....news over the past few weeks indicates they've restored over 180,000 barrels per day of production from two oil fields in the western part of the country, and a report just a few days ago indicated that Libya’s oil production is now running above 800,000 barrels per day (bpd) for the first time since 2014, so we can thus expect that May OPEC production will be that much higher...

that expected output bounce in the May report notwithstanding, there were also interesting divergent April production figures that the OPEC members reported to the OPEC Secretariat, which are shown in the next table...

the above table, also from page 60 of the OPEC pdf, shows the oil production in thousands of barrels per day that each of the members reported to OPEC (for those that did report)...although this data is considered suspect because of the many incentives OPEC members have to fudge their reporta, we noticed that almost all the OPEC members reported higher production than was attributed to them by the official secondary sources...note especially that Iraq, who has been a laggard on the production cuts, reported they produced 4,531,000 barrels per day in April, vs their official figure of 4,373,000 barrels per day...likewise, Venezuela reported that they produced 2194,000 barrels per day in April, whereas the official data indicates they produced 1,956,000 barrels per day...if the reported numbers were lower than the official tallies, they might be suspect, but OPEC members have no reason to report that they produced more than they did, because higher oil output numbers would indicate that they're not in compliance with the cuts they agreed to...so if anything, these self reported number indicate that the official output production figures may be an understatement of the oil supply that was actually available in April...

this next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from May 2015 to April 2017, and it comes from page 61 of the May OPEC Monthly Oil Market Report....the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...

preliminary data graphed above indicates that global oil production slipped to 95.81 million barrels per day in April, down by 0.41 million barrels per day from a March total of 96.22 million barrels per day, which was revised .040 million barrels per day higher from the 95.81 million barrels per day global oil output that was reported a month ago...that figure was also 0.83 million barrels per day higher than what was being produced globally a year ago, and more than .90 million barrels per day greater than the global oil supply of two years ago...OPEC's production of 31,732,000 barrels per day thus represented 33.1% of what was produced globally, an increase from the 33.0% OPEC share in March, which was originally reported as 33.3%, because global supply had been underestimated last month...OPEC's April 2016 production, excluding Indonesia, was at 31,709,000 barrels per day, so even after the production cuts, they are still producing a bit more than they were producing a year ago, and roughly 0.20 million more barrels per day than what they were producing in May of 2015, when they were supposedly producing flat out...

however, even with the four recent months of production cuts we can obviously see on the above graph, there is still a surplus of oil supply being produced globally, as the next table that we'll include will show us..   

the table above comes from page 37 of the May 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  third  column, we've circled in blue the figure we're interested in, which is their estimate for global oil demand for the current second quarter of 2017...

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, down from the 95.44 millions of barrels of oil per day they were using in the first quarter but up from the 95.12 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 95.81 million barrels per day during April...that means that even after all the production cuts have taken place, there continued to be a surplus of around 480,000 barrels per day in global oil production in April...in addition, global production for March was revised higher, to 96.22 million barrels per day, so that means the global oil surplus during March was therefore around 780,000 barrels per day, based on the revised first quarter global demand figure of 95.44 million barrels per day shown above...furthermore, February's oil production was 0.23 million barrels per day higher than that of March, so the global oil surplus in February now looks to have been over a million barrels per day, as was January's, which we showed when we reviewed that report three months ago...so despite 4 months of OPEC production cuts, nearly a hundred million barrels of oil have been added to the global oil glut since the 1st of the year...

The Latest US Oil Data from the EIA

this week's US oil data for the week ending May 5th from the US Energy Information Administration indicated a large drop in our refining of crude oil from the record levels of the past two weeks, but an even larger drop in our oil imports, which when combined with an increase in our oil exports, meant that refiners withdrew the most oil out of storage in any week so far this year...our imports of crude oil fell by an average of 644,000 barrels per day to an average of 7,620,000 barrels per day during the week, while at the same time our exports of crude oil rose by 155,000 barrels per day to an average of 693,000 barrels per day, which meant that our effective imports netted out to 6,927,000 barrels per day during the week, 799,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 21,000 barrels per day to an average of 9,314,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,241,000 barrels per day during the cited week...

during the same period, refineries reportedly used 16,759,000 barrels of crude per day, 418,000 barrels per day less than they used during the prior week, while 821,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 310,000 more barrels per day than what refineries used...to account for that discrepancy, the EIA inserted a (-310,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the supply of oil and the consumption data balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports fell to an average of 8,152,000 barrels per day, still 5.0% above the imports of the same four-week period last year...the 828,000 barrel per day decrease in our total crude inventories came about on a 750,000 barrel per day withdrawal from our commercial stocks of crude oil and a 79,000 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 21,000 barrel per day crude oil production increase resulted from a 16,000 barrel per day increase in oil output from wells in the lower 48 states and a 5,000 barrels per day increase in oil output from Alaska...the 9,293,000 barrels of crude per day that we produced during the week ending April 28th topped last week's 20 month high and means our oil output is up by 6.2% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,802,000 barrel per day output during the during week ending May 6th a year ago, while it's now only 3.1% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 91.5% of their capacity in using those 16,759,000 barrels of crude per day, which was down from 93.3% of capacity the prior week, and down from the year’s high of 94.1% the week before that...however, the 16,759,000 barrels of crude per day that refineries used during the week ending May 5th was still 3.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 89.1% of capacity, and 10.7% above the 10 year average for the 1st week in May of 1,625,000 barrels of crude per day....

even with the week's big refining pullback, gasoline production from our refineries increased by 269,000 barrels per day to 10,052,000 barrels per day during the week ending May 5th, possibly making up for thw lower than logical gasoline production we’d seen during the prior two weeks...gasoline production for the week was virtually the same as the 10,521,000 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) decreased by 145,000 barrels per day to 4,956,000 barrels per day, which was still 7.5% more than the 4,610,000 barrels per day of distillates that were being produced during the week ending May 6th last year.....

even with the big increase in gasoline production, our gasoline inventories decreased by a nominal 150,000 barrels to 241,232,000 barrels as of May 5th, after they had increased by more than 5 million barrels over the prior three weeks....gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 252,000 barrels per day to 9,408,000 barrels per day, even as our imports of gasoline rose by 260,000 barrels per day to 953,000 barrels per day, while our gasoline exports fell by 15,000 barrels per day to 717,000 barrels per day....even with the increase in our gasoline supplies, however, they are still fractionally higher than the 240,564,000 barrels that we had stored on the equivalent day a year ago, 6.3% higher than the 226,710,000 barrels of gasoline we had stored on May 8th of 2015, and 13.5% more than the 212,408,000 barrels of gasoline we had stored on May 9th of 2014…

with the decrease in distillates production, our supplies of distillate fuels fell by 1,587,000 barrels to 148,768,000 barrels during the week ending May 5th; contributing to the decrease was a 112,000 barrel per day increase to 1,159,000 barrels per day in our exports of distillates, while our imports of distillates rose by just 3,000 barrels per day to 115,000 barrels per day....at the same time, the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 117,000 barrels per day to 4,139,000 barrels per day....while our distillate supplies are still 4.2% below the 155,332,000 barrels that we had stored on May 6th, 2016, after the glut of heat oil that followed last year's warm El Nino winter, they remain 16.0% higher than the distillate inventories of 128,270,000 barrels that we had stored on May 8th of 2015, following a more normal winter… 

finally, the large drop in oil imports, combined with a jump in oil exports, meant that our commercial inventories of crude oil fell for the 5th week in a row, as they decreased by 5,247,000 barrels to 522,525,000 barrels as of May 5th, in the largest decrease of 2017....nonetheless, we still finished the week with 9.1% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.8% more crude oil in storage than the 508,487,000 barrels of oil in storage on May 6th of 2016...compared equivalent dates in prior years, we ended the week with 15.6% more crude than the 451,888,000 barrels in storage on May 8th of 2015, and 42,4% more crude than the 366,951,000 barrels of oil we had in storage on May 9th of 2014...

This Week's Rig Counts

US drilling activity increased for the 27th time in the past 28 weeks during the week ending May 12th, while drilling for oil increased for the 17th week in a row....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 885 rigs in the week ending Friday, which was 479 more rigs than the 406 rigs that were deployed as of the May 13th report in 2016, and the most drilling rigs we've had running since August 21st, 2015, while it was 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 9 rigs to 712 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half 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 one rig to 172 rigs this week, which was still almost double the 87 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...since we don't often see a good graph that shows both oil and gas rig counts, we'll include this one here:

the above graph was posted on Friday on the twitter account of John Kemp, senior energy analyst with Reuters, and it show the US oil rig count from 1990 to this current week in red, and the natural gas rig count over the same period in yellow...here we can see that the expansion of fracking in the US really started as a boom in exploitation of the natural gas basins, as the count of horizontal drilling rigs rose from under 200 in 2005 to over 600 through the summer of 2008, before the onset of recession cut natural gas prices and hence drilling for it...when we came out of the recession, horizontal drilling picked up again, but this time it was for oil, as the horizontal rig count rose from under 400 to over 1,000 by 2011...while all drilling collapsed with the price war initialed by OPEC in November of 2014, it was natural gas rigs that fell to their lowest level in history at 81 rigs, from whence they've barely recovered...as we've pointed out, at this level of drilling for natural gas, old wells are being depleted faster than new wells are brought into production, and if US natural gas exports continue to expand as planned, we'll facing a natural gas shortage in the US as soon a we see a normal winter...

returning to the rig count, two more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana started back up this week, which bought the the Gulf of Mexico count back up to 20 rigs, still down from the 21 working in the Gulf of Mexico a year earlier....including the single rig drilling offshore from Alaska, our total offshore count is now up to 21 rigs, but also still down from a total of 22 offshore a year ago...on the other hand, one of the drilling platforms that was drilling through an inland lake in southern Louisiana was shut down this week, which cut the inland waters rig count back to 4 rigs, still up from the 2 rigs working on inland lakes a year ago...

rigs that were drilling horizontally increased by 8 to 742 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015 and up from the the 315 horizontal rigs that were in use in the US on May 13th 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 1 vertical rig was added this week, bringing the vertical rig count up to 77, which was also up from the 53 vertical rigs that were deployed during the same week last year....however, 1 directional rig was pulled out this week, reducing the directional rig count down to 66 rigs, which was still up from the 38 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 May 12th, the second column shows the change in the number of working rigs between last week's count (May 5th) and this week's (May 12th) count, the third column shows last week's May 5th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 13th of May, 2016...       

as we've seen many times this year, the increase in drilling was all about the Permian in western Texas; except for those 8 new horizontal rigs drilling for oil there, we have almost no net changes....Louisiana's count was unchanged, as the two rig increase offshore in the Gulf and another rig added in the northern half of the state was offset by 3 rigs shut down in the south, including the one on an inland lake...Oklahoma managed to cut two rigs despite the 2 rig increase in the Cana Woodford, as at least one that offset those was a gas rig that was shut down in the Mississippian Lime, which straddles the Kansas border...also note that Ohio added a rig, with another gas directed rig in the Utica; the Utica rig count is now at 24 rig, up from 10 rigs in Ohio's Utica a year ago...there was no change in drilling activity this week in the states not shown above, while 2 oil rigs and one gas rig were pulled out of basins other than those listed...

 

note:  there's more here...

oil prices crash to 5 month low; OPEC well drilling increases even as oil output cut extension is affirmed

this past week saw oil prices crash back to levels we last saw before OPEC announced their production cuts at the end of November, which, if it holds, should serve to take some wind out of the sails of that drilling surge we've been seeing in this country over the last 6 months...the ability of OPEC 's cuts to relieve the oil glut had been questioned for some time now, but it was questions as to whether Russia would cooperate or not that precipitated the big Thursday selloff, that temporarily saw oil prices fall more than 8% in one day, before recovering a bit...

after closing last week at $49.33 a barrel, the price of US crude oil for June delivery continued falling on Monday, ending the day at $48.84 a barrel, as rising crude output from Libya and increased U.S. drilling threatened to reverse the effects of the OPEC production cuts...prices then tumbled $1.18 a barrel in a late day selloff on Tuesday, as the latest Reuters survey of OPEC production that showed compliance had fallen slightly was accompanied by a slew of other bearish news, including soaring fuel oil exports from Iraq and ongoing elevated crude exports from other OPEC countries, with June oil closing at $47.66 a barrel, the lowest front-month contract price since March 21st...oil  prices then inched back up on Wednesday, closing at $47.82 a barrel, even as the EIA inventory data showed a lower than expected drawdown of 930,000 barrels, against market estimates of as much as 3 million barrels...oil prices then crashed on Thursday to their lowest level since the OPEC deal was announced, apparently after a Russian spokesman said no decision had yet been made on extending the oil output cut production deal, with US crude closing down $2.30 a barrel, or 4.8% at $46.47...prices continued falling in after hours trading Thursday evening, and were down as much as 3.9% more to $43.76 a barrel during Friday morning trading in Asia, before recovering to above the prior close before the US markets opened on Friday...US oil prices then bounced back from those 5 month lows in US trading on Friday, following assurances by the Saudis that Russia was ready to join OPEC in extending production cuts, as bargain hunters pushed prices back up 70 cents to close the week at $46.22 a barrel, still a loss of 6.3% for the week...

since we're just off of 5 month lows for the price of oil, we'll take a quick look at what a graph of the track of recent prices looks like....

the above graph below is a screenshot of the interactive oil price graph at Trading Economics, an online platform that provides historical data, economic forecasts, and trading recommendations...each bar on the above graph represents oil prices for one day of oil trading between November 10, 2016 and May 5th, wherein green bars represent days when the price of oil went up, and red bars represent days when the price of oil went down...on green or up days, the day's starting oil price is at the bottom of the bar and the price at the end of the day is at the top of the bar, while on red down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar...this type of graph is called a candlestick, as 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 on Friday morning, even though the price of oil was up 70 cents on the day, the price had briefly dipped below $44 a barrel in off hours trading...this graph also includes trading at the end of November, just before OPEC announced their production cuts on November 30th...after that announcement, prices jumped 14.2% in three days, and then continued to rise to $54 by late December, staying in the $51 to $54 range for 3 months….although we've just seen oil price drop around 15% over the past three weeks, my sense is that the bloom came off the OPEC rose in early March, when the price of oil broke out of its trading range and fell nearly 10%, as US crude supplies ran a streak of nine new record highs in a row....i think oil prices would have stayed below $50 a barrel since then, had it not been for the US missile attack on Syria, which precipitated the 10% price spike that you see on the chart above at the end of March into early April...absent that, this week's drop can be seen as a confirmation and continuation of the price drop that started in early March…

The Latest US Oil Data from the EIA

this week's US oil data for the week ending April 28th from the US Energy Information Administration indicated a substantial drop in our oil imports, which was offset by an almost as large drop in our oil exports, and a modest pullback in our refining of crude from last week's record levels, with the net result that we had to take a small amount of oil out of storage to meet refining needs for the fourth week in a row...our imports of crude oil fell by an average of 648,000 barrels per day to an average of 8,264,000 barrels per day over the week, while at the same time our exports of crude oil fell by 614,000 barrels per day to an average of 538,000 barrels per day, which meant that our effective imports netted out to 7,726,000 barrels per day during the week, just 34,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 28,000 barrels per day to an average of 9,293,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 17,019,000 barrels per day during the cited week...

at the same time, refineries reportedly used 17,177,000 barrels of crude per day, 108,000 barrels per day less than they used during the prior week, while 343,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 185,000 more barrels per day than what refineries used...to account for that discrepancy, the EIA inserted a -185,000 barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the supply of oil and the consumption data balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,216,000 barrels per day, still 4.9% above the imports of the same four-week period last year...the 343,000 barrel per day decrease in our total crude inventories came about on a 133,000 barrel per day withdrawal from our commercial stocks of crude oil and a 210,000 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 28,000 barrel per day crude oil production increase resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states and a 3,000 barrels per day increase in oil output from Alaska...the 9,293,000 barrels of crude per day that we produced during the week ending April 28th topped last week's 20 month high and is now up by 6.0% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 4.0% from the 8,938,000 barrel per day output during the during week ending April 29th a year ago, while it was still 3.3% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.3% of their capacity in using those 17,177,000 barrels of crude per day, which was down from 94.1% of capacity the prior week, even as this week's oil throughput was still the 2nd most oil we've refined in any week on record...the 17,177,000 barrels of crude per day refinery throughput was also 7.4% more than the 15,986,000 barrels of crude per day.that were being processed during week ending April 29th, 2016, when refineries were operating at 89.7% of capacity...

even with the week's nominal refining pullback, gasoline production from our refineries increased by 73,000 barrels per day to 9,783,000 barrels per day during the week ending April 28th, which was still a bit less than the 9,811,000 barrels of gasoline that were being produced daily during the comparable week a year ago....in addition, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 38,000 barrels per day to 5,101,000 barrels per day, which was 11.2% more than the 4,589,000 barrels per day of distillates that were being produced during the week ending April 29th last year.....

with the increase in gasoline production, our gasoline inventories increased by a nominal 191,000 barrels to 241,232,000 barrels as of April 28th, after they had increased by more than 4.9 million barrels over the prior two weeks....this week's lower gasoline surplus came about because our imports of gasoline fell by 223,000 barrels per day to 693,000 barrels per day, while our gasoline exports rose by 107,000 barrels per day to 732,000 barrels per day....meanwhile our domestic consumption of gasoline fell by 50,000 barrels per day to 9,156,000 barrels per day, and continues to run at a pace 3% below that of a year ago... with the increase in our gasoline supplies, they are now just a small fraction off the 241,795,000 barrels that we had stored on the equivalent day a year ago, while they are 5.9% higher than the 227,852,000 barrels of gasoline we had stored on May 1st of 2015, and 13.2% more than the 213,180,000 barrels of gasoline we had stored on May 2nd of 2014…

meanwhile, even with the nominal increase in distillates production, our supplies of distillate fuels still fell by 562,000 barrels to 150,355,000 barrels during the week ending April 28th, because the amount of distillates supplied to US markets, a proxy for our consumption, increased by 589,000 barrels per day to 4,256,000 barrels per day...that was even as our exports of distillates fell by 34,000 barrels per day to 1,037,000 barrels per day and as our imports of distillates rose by 58,000 barrels per day to 112,000 barrels per day at the same time...while our distillate inventories are still 4.2% below the 156,979,000 barrels that we had stored on April 29th, 2016, following last year's warm El Nino winter, they remain 15.0% higher than the distillate inventories of 130,773,000 barrels that we had stored on May 1st of 2015, following a more normal winter… 

finally, with a near record amount of crude still going to our refineries, our commercial inventories of crude oil fell for the 4th week in a row, as they decreased by 930,000 barrels to 527,772,000 barrels as of April 28th....nonetheless, we still finished the week with 10.2% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 3.1% more crude oil in storage than what was then a record high of 512,095,000 barrels of oil in storage on April 29th of 2016...we also ended the week with 16.2% more crude than the 454,079,000 barrels in storage on May 1st of 2015, and 44.2% more crude than the 366,004,000 barrels of oil we had in storage on May 2nd of 2014...

This Week's Rig Counts

US drilling activity increased for the 26th time in the past 27 weeks during the week ending May 5th, but it was the smallest increase in the past 9 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 877 rigs in the week ending Friday, which was 462 more rigs than the 415 rigs that were deployed as of the May 6th report in 2016, and the most drilling rigs we've had running since August 28th, 2015, while it was 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 6 rigs to 703 rigs this week, which was more than double the 328 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 down by more than half 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 2 rigs to 173 rigs this week, which was also more than double the 86 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...meanwhile, one of the rigs that was classified as miscellaneous was shut down this week, leaving one, same as the miscellaneous rig count of a year ago...

one of the idled offshore drilling platforms offshore from Louisiana in the Gulf of Mexico started back up this week, which bought the the Gulf of Mexico count back up to 18 rigs, still down from the 23 working in the Gulf of Mexico a year earlier....the week also saw the first drilling offshore from Alaska this year, which brought the total offshore count up to 19 rigs, also still down from a total of 24 offshore a year ago...in addition, there was an additional drilling platform set up on an inland lake in southern Louisiana this week, which took the inland waters rig count up to 5 rigs, up from the 3 rigs on inland lakes a year ago...

rigs that were drilling horizontally increased by 4 to a two year high of 734 horizontal rigs this week, which was up from the the 318 horizontal rigs that were in use in the US on May 6th 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 directional rigs were added this week, bringing the directional rig count up to 67, which was also up from the 44 directional rigs that were deployed during the same week last year....however, 1 vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 53 vertical 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 May 5th, the second column shows the change in the number of working rigs between last week's count (April 28th) and this week's (May 5th) count, the third column shows last week's April 28th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 6th of May, 2016...       

as you can see, there were a lot of changes this week, despite the smaller net increase...by itself, that 7 rig increase in the Permian basin of western Texas and southeast New Mexico could have accounted for the entire week's increase, while other Texas basins saw no net change...the 4 rig increase in Louisiana includes the one in the Haynesville, and the aforementioned Gulf of Mexico and inland lakes rigs...meanwhile, the 7 rig drop in Oklahoma looks like it can be accounted for in total by rig shutdowns in the three Woodford basins and in the Mississippian, which straddles the Kansas border...the 3 rig drop in the Marcellus includes one in Pennsylvania, one in West Virginia, and one in New York...i had missed that the March 17th startup of that well in New York had targeted the Marcellus, assuming they wouldn't try fracking in a state where it was banned; now that rig has shut down....also note that the total count for the major basins is negative; that's because 6 oil rigs and 4 gas rigs started drilling in other unnamed basins...we would venture a guess that one of them is on the Alaskan north slope, where they are trying fracking for the first time...another might be in the Rogersville shale, since Kentucky, not shown above, also added a drilling rig this week, in their first drilling since December 2nd...(NB: after further research, the new Kentucky rig proved to be a directional rig in Bell county, outside of the Rogersville on most maps)

International Rig Counts for March

Baker Hughes also released the international rig counts for April 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 1,917 rigs were drilling for oil and natural gas around the globe in April, which was down from the 1985 rigs that were drilling around the globe in March, but up from the 1,424 rigs that were working globally in April of last year....another Spring-thaw related pullback in Canadian drilling was the reason for the drop, the 2nd global decrease after 9 months of increases, as the average Canadian rig count fell to 108 rigs in April from 253 rigs in March, which was still up from the 41 Canadian rigs that were deployed in March a year earlier, while the average US rig count rose from 789 rigs in March to 853 rigs in April, which was also up from the average of 437 rigs that were working in the US in April a year ago....outside of Northern America, the International rig count rose by 13 rigs to 956 rigs in April, which was also up from 946 international rigs a year ago, as increases in drilling in the Middle East, Asia and Africa were only partially offset by smaller decreases in drilling activity in Latin America and Europe..

drilling rigs deployed in the Middle East increased by 3 rigs to 389 rigs in April, up from 384 rigs a year earlier, after their drilling activity had increased by 4 rigs in March...both Pakistan and OPEC member Iraq added 3 rigs for the month, as the Pakistan count rose to 24 rigs, up from 23 rigs a year ago, while the Iraqis had 46 rigs deployed, up from 43 rigs a year earlier...on the other hand, Egypt shut down 3 rigs over the month, which cut them back to 27 active rigs, down from 30 rigs a year earlier...other drilling rig changes in the region included OPEC members Qatar and Abu Dhabi, who added one rig each, bringing them up to 12 rigs and 49 rigs respectively, while Kuwait and Oman shut down one rig each, cutting them back to 53 rigs and 56 rigs respectively...the Saudis stood pat with 119 rigs, which was down from the 123 rigs they were operating a year ago..

at the same time, drilling activity in the Asia-Pacific region was up by a net of 7 rigs to 205 rigs in March, which was also up from the 179 rigs working in the region a year earlier...Australia added 3 rigs and now have 16 rigs active, up from 6 rigs a year earlier...the Japanese started drilling for the first time this year with 3 rigs, also up from none a year ago...2 rigs were started offshore from China, where there are now 19 rigs active, down from 26 offshore rigs a year ago...Myanmar also added 2 rigs and now have 3 rigs working, same as a year ago...the Philippines also added a rig and now have two, same as a year ago...on the other hand, Brunei, Bangladesh, and Thailand all pulled out rigs in April, which left Brunei and Bangladesh with none, and left Thailand with 13 rigs still working...

meanwhile, the Latin American region saw their active drilling rig count decrease by a net of 3 rigs to 182 rigs, down from 203 rigs in April of last year, and down from 321 rigs as recently as September of 2015, as the region had idled 92 rigs over the first 6 months of 2016...Argentina shut down 9 rigs during the month, which cut their total back to 49 rigs, down from 73 rigs a year ago...Bolivia pulled out 2 rigs and thus had 3 active during the month, also down from 5 rigs a year ago, and Brazil cut back one rig and now has 15 active...on the other hand, Mexico added 4 rigs and thus had 22 rigs active, still down from 23 rigs a year earlier...OPEC member Venezuela added 2 rigs, bringing their total to up to 56 rigs, down from 69 rigs a year earlier.. .in addition, Trinidad added a rig and now has 7 rigs active, both Peru and Chile added a rig each, giving them both 2 rigs, with Peru up from 1 rig a year ago and Chile still down from 3 rigs a year ago...

drilling activity was also lower Europe, decreasing by 3 rigs to 91 rigs in April, which was still up from the 90 rigs that were working in Europe last April...Turkey shut down 2 rigs, leaving 21, which left them down from 29 rigs a year ago...in addition, offshore platforms were idled in several countries...Germans also shut down 2 rigs, leaving 2 active, down from 4 rigs a year earlier....Italy and Sakhalin Island also shut down 1 rig each, leaving them with 3 rigs and 11 rigs respectively...at the same time, Norway added two offshore figs and now have 17 rigs offshore, same as a year ago, and Austria started up their first rig in 2 years...

meanwhile, drilling on the African continent outside of Egypt saw a net increase of 9 rigs to 89 rigs in April, which was still down from the 90 rigs working in Africa last year at this time...OPEC member Algeria added 6 rigs and now have 57 rigs active, up from 55 a year ago...OPEC member Angola added two rigs and now has 4 rigs active...in addition, Gabon added their first rig since June of last year...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 19 rigs active in April, were included in the Asian totals here, apparently based on satellite intel, which is also the way much of the international oil production and export data is collected...

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note: there's more here...