Trump Time

oil hits ten month low; prices now below average breakeven for all US oil basins

oil prices fell for the 5th week in a row this week, now the longest losing streak since the summer of 2015, with the new front month price for August oil closing the week at $43.01 a barrel, down 4.4% from its close of $44.97 a barrel the prior week, after seeing its price dip to as low as $42.05 a barrel mid week....in the process, oil prices plumbed levels not seen since November of 2016, when the widely anticipated OPEC production cut was rumored to be on the rocks...this week's price drop thus means that all the price appreciation that OPEC had realized by cutting their production since the beginning of this year has been lost, as prices are now back to the level they were at before their attempt to control the supply of oil was formally announced...we'll include a graph of the daily oil prices over that entire 7 month stretch, so you can see how the price changes transpired, and to save me a lot of words in trying to explain it...

the above graph is a Saturday screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for one day of oil trading between October 10th, 2016 and June 23rd, wherein green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...for green bars, the starting oil price at the beginning of the day 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 or 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, called a candlestick, also shows the range of oil prices outside of the opening and closing price for any given day as a thin 'wick' above or below the "candlestick" part of the graph... 

so, on this graph we can see that oil prices fell to close as low as $43.14 a barrel on Friday November 11th, battered that week by Trump's election, a report of record OPEC production, and the largest US oil output increase in the prior 18 months...while oil prices fell to as low as $42.20 a barrel the next Monday (see the wick on Nov 14?), oil prices rose from there as the markets turned their focus to the end of the month OPEC meeting...oil prices were still as low as $45 a barrel on November 29th, the day before the OPEC meeting, where upon they jumped 14% in the three days following that meeting to approach $52 a barrel...oil prices then stayed roughly between $51 and $54 a barrel over the next three months, before breaking to the downside as US oil stockpiles hit a new record in early March...oil prices attempted to rally in late March and again in early May, but never reached their December to February highs, then finally started into the downturn we're now in after the OPEC ,meeting on May 25th, when they announced a nine-month extension of their ineffective production cuts, sending oil prices tumbling...

with US oil prices currently below $45 a barrel, it should now start to become unprofitable to drill in even the most productive US basins, as we can see by the graphic below, which as the heading tells us, shows us the breakeven prices for drilling new wells:

the above graphic, which i found on twitter, is from the Dallas Fed, and graphs the responses from oil company executives to their survey question, "what oil price does your firm need to profitably drill a new well", which they asked in a Fed survey that took place between March 15th and March 23rd of this year...in the graph, the blue, red, yellow, orange and green bars represent the price range of responses for the Midland, SCOOP/STACK, Eagle Ford, Delaware, and central Permian basins respectively, with the size of the colored bar representing the range of the responses the oil execs gave for each basin, and the black line and dots representing the average of those responses for each basin...thus, what the graphic shows is that in the Permian's Midland basin (blue), 13 oil execs responded that they could break-even with prices as low as $25 a barrel to as high as $65 a barrel, with the average response for those drilling in the Midland basin at $46 a barrel...similarly, for the 8 oil execs drilling in the SCOOP/STACK of central Oklahoma, responses were that they could break even in prices ranging between $35 a barrel and $75 a barrel, with the average response for those drilling in that basin at $47 a barrel....next, four Eagle Ford oil execs said they could break even in a range between $40 and $55 a barrel, with an average breakeven of $48 a barrel; ten drillers in the Permian Delaware said they could break even in a range between $30 and $60 a barrel, also with an average of $48 a barrel; and 13 oil execs who were drilling in the Central Permian said they could break even in a range between $35 and $65 a barrel, with an average of $50 a barrel....next, the purple bar represents responses the Dallas Fed got from oil company executives who were exploring non-shale oil deposits; there were 40 responses from such executives, with some feeling they could break-even at $20 oil, and others saying they needed at least $100 a barrel oil to be profitable...as you can see, the average price needed for non-shale oil was $53 a barrel...lastly, the turquoise bar represents the responses the Dallas Fed got from other shale plays, which would include the Bakken of North Dakota; the eight responses from those other plays were between $45 and $65 a barrel, with an average break-even price of $55 a barrel...

thus, with oil closing this week near $43 a barrel, it's below the average price needed to break-even in all US oil basins, which means that at least half, but not all, of those who were active in the oilfields at the time of this March survey would find themselves unprofitable at today's oil prices...that doesn't mean that they would stop drilling for oil today; most have contracted for the work they'll be doing this month several months ago at higher prices, and even so, many will continue to try to keep the oil flowing even if its unprofitable because that's what they do...estimates are that there is a 3 month to 6 month lag between a change in the price of oil and the associated pace of drilling for it; & that somewhat fits with what we've observed; early this year, for instance, we saw a long period of double digit increases in drilling rig additions that lasted until April 28th, 2 months after the price of oil broke from the $53 a barrel average of February...if that pattern holds, it would  likely take until mid-August or later before we see the slowdown in drilling that should result from the collapse of oil prices that we've seen over the past month...furthermore, considering that there's a 7 month backlog of completed but still unfracked wells in the 4 major US oil basins, US oil production might continue rising until next year, given that the output of many of those still unfracked wells has probably already been contracted for at a price higher than today's..

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 June 16th, showed that US refineries experienced a modest throughput reduction but continued to operate at above seasonally levels, while both our crude oil imports and our crude oil exports were somewhat lower, and hence it was again necessary to withdraw oil from storage for the 10th time out of the last eleven weeks...our imports  of crude oil fell by an average of 149,000 barrels per day to an average of 7,876,000 barrels per day during the week, while at the same time our exports of crude oil fell by 205,000 barrels per day to an average of 517,000 barrels per day, which meant that our effective imports netted out to 7,359,000 barrels per day during the week, 59,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 20,000 barrels per day to an average of 9,350,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,709,000 barrels per day during the cited week... 

during the same period, refineries reportedly used 17,152,000 barrels of crude per day, 104,000 barrels per day less than they used during the prior week, while at the same time 462,000 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, from oilfield production, and from storage was 19,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA inserted a (-19,000) 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 8,057,000 barrels per day, now just 2.0% above the imports of the same four-week period last year...the 462,000 barrel per day decrease in our total crude inventories came about on a 350,000 barrel per day withdrawal from our commercial stocks of crude oil and a 112,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 20 months ago....this week's 20,000 barrel per day increase in our crude oil production resulted from a 25,000 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 9,350,000 barrels of crude per day that we produced during the week ending June 9th was 6.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 7.8% from the 8,677,000 barrel per day output during the during the same week a year ago, while it was still 2.7% below the June 5th 2015 record oil production of 9,610,000 barrels per day... 

US oil refineries were operating at 94.0% of their capacity in using those 17,152,000 barrels of crude per day, which was down from 94.4% of capacity the prior week, but still the 4th highest refinery capacity utilization rate this year...the amount of oil refined this week was also still above the seasonal norm, 3.9% more than the 16,505,000 barrels of crude per day.that were being processed during week ending June 17th, 2016, when refineries were operating at 91.3% of capacity, and roughly 11% above the 10 year average of 15.45 million barrels of crude per day for the 2nd week of June....

even with the modest slowdown in refining, gasoline production from our refineries increased by 320,000 barrels per day to 10,163,000 barrels per day during the week ending June 16th...however, that gasoline output was still 1.2% lower than the 10,289,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) also increased, rising by 97,000 barrels per day to a near seasonal high of 5,251,000 barrels per day, which was also 6.0% more than the 4,956,000 barrels per day of distillates that were being produced during the week ending June 17th last  year.....  

even with the jump in gasoline production, our end of the week gasoline inventories decreased by 578,000 barrels to 241,866,000 barrels by June 16th, after increasing by 5,420,000 barrels over the prior two weeks...this week's gasoline supplies were reduced because our domestic consumption of gasoline jumped by 547,000 barrels per day to 9,816,000 barrels per day, after falling by 553,000 barrels per day the prior two weeks... meanwhile, our gasoline exports rose by 132,000 barrels per day to 657,000 barrels per day, while our imports of gasoline rose by 339,000 barrels per day to 909,000 barrels per day at the same time...with the week’s modest decrease in our gasoline supplies, our gasoline inventories are still at a seasonal high for this week of the year, 1.8% above the prior seasonal record 237,631,000 barrels that we had stored on June 17th a year ago, 10.7% higher than the 218,494,000 barrels of gasoline we had stored on June 19th of 2015, and 12.5% more than the 214,977,000 barrels of gasoline we had stored on June 20th of 2014…  

with the increase in distillates production, our supplies of distillate fuels rose by 1,079,000 barrels to 152,495,000 barrels during the week ending June 16th, after increasing by 4,683,000 barrels the prior two weeks....factors in the difference of this week's increase in supplies were the amount of distillates supplied to US markets, which rose by 113,000 barrels per day to 4,158,000 barrels per day, and our exports of distillates, which fell by 97,000 barrels per day to 1,026,000 barrels per day, while our imports of distillates rose by 26,000 barrels per day to 87,000 barrels per day....even though our distillate supplies are still virtually unchanged from the 152,314,000 barrels that we had stored on June 17th, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're 11.8% higher than the distillate inventories of 135,428,000 barrels that we had stored on June 19th of 2015, following a more normal winter… 

finally, with the continuation of well above seasonal refining, our commercial supplies of crude oil fell for the tenth time in the past 11 weeks, as our oil inventories fell by 2,451,000 barrels to 509,095,000 barrels as of June 16th, as unaccounted for crude oil was not a major factor...however, we still finished the week with 6.3% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 1.8% more crude oil in storage than the 499,994,000 barrels of oil in storage on June 17th of 2016....compared to the same week in prior years, when the oil glut was not so extreme, we ended the week with 18.2% more crude than the 430,837,000 barrels in of oil in storage on June 19th of 2015, and 42.9% more crude than the 356,384,000 barrels of oil we had in storage on June 20th of 2014...    

This Week's Rig Counts

US drilling activity increased for the 23rd week in a row, for the 33rd time in the past 34 weeks, and for the 50th time in the past 52 weeks during the week ending June 23rd, with oil drilling increasing while drilling for natural gas slowed....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 941 rigs in the week ending Friday, which was 520 more rigs than the 421 rigs that were deployed as of the June 24th report in 2016, and the most drilling rigs we've had running since April 17th, 2015, even though it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 11 rigs to 758 rigs this week, which was up by 428 oil rigs over the past year, and the most oil rigs that were in use since April 10th 2015, while it was still far 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 decreased by 3 rigs to 183 rigs this week, which was still 93 more rigs than the 90 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....

there was no change in the Gulf of Mexico rig count this week, where drilling continues from 21 platforms, up from 20 a year ago...we also still had drilling from one platform offshore from Alaska this week, which means the total US offshore count is at 22 rigs, up from 21 rigs a year ago, when there was also one rig drilling offshore from Alaska...in addition, drilling also started from a platform on an inland lake in southern Louisiana this week, where there are now 4 rigs working, up from the 3 rigs working on inland waters last year at this time...

the count of rigs that were set up to drill horizontally increased by 10 rigs to 792 horizontal rigs this week, which was up by 467 from the 325 horizontal rigs that were in use in the US on June 24th of last year, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, 3 more directional rigs were also started up this week, increasing the active directional rig count to 72 rigs, which was up from the 43 directional rigs that were deployed during the same week a year ago...however, the vertical rig count was down by 5 rigs to 77 vertical rigs this week, which was still up from the 53 vertical rigs that were deployed during the same week last year...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 23rd, the second column shows the change in the number of working rigs between last week's count (June 16th) and this week's (June 23rd) count, the third column shows last week's June 16th 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 24th of June, 2016...        :

as you can see, the largest increases this week were in Oklahoma, where 5 rigs were added, including those in the Cana Woodford, the Ardmore Woodford, and the Granite Wash basin near the Texas panhandle, and North Dakota, where the 3 rigs that were added were in the Williston shale....strangely, Texas was almost a no-show this week, unusually quiet in most oil districts, with just one rig added in the Permian and a net no change in the state...just about everything else that changed is obvious from those tables, except for the 3 rig decrease in natural gas rigs...2 of those came out of the Arkoma Woodford in Oklahoma, where there was simultaneously an increase of 2 rigs drilling for oil, resulting in the zero net change we see above, and the other was in another region, not otherwise included in Baker Hughes summary totals...

 note: there's more here...

global oil glut grows again in May; US gasoline supplies hit a seasonal record; uncompleted wells rise again

oil prices were down another 2.4% this week, with US oil for July closing below $45 a barrel for the first time since November, (ie, prior to the first announcement of OPEC production cuts), and have now fallen 14% from the $52 a barrel interim high that was reached the morning of May 25th, the day OPEC announced their 9 month extension of those cuts...rather than try to explain how prices moved each day, we'll just start with a picture of the prices over the past two weeks, which will certainly be clearer than any words i can expend on explaining it...

the above graph is a Friday evening screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for two hours of oil trading between June 5th and June 16th, wherein green bars represent the 2 hour periods when the price of oil went up, and red bars represent the periods when the price of oil went down (note that we reset this graph at 2 hours to capture 2 weeks of data)...for green bars, the starting oil price at the beginning of the 2 hour period 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 periods, 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...as we've mentioned before, 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...

now, what we can see from this graph is that except for two large red candlesticks, representing oil price crashes of over 4% and 3% respectively, oil prices pretty much stayed within narrow ranges over most of the two week period...so what happened during those two 2 hour periods to cause oil prices to fall?  looking back at the interactive graph, we see that the two periods when oil prices crashed were the 2 hours ending 2 PM on Wednesday, June 7th, and the 2 hours ending 2 PM on Wednesday, June 14th...so what happens on Wednesdays?  that's when the EIA releases the comprehensive oil data-sets for oil for the previous week....when that data was released last week (June 7th), the EIA reported significant increases in supplies of oil, gasoline, distillates and all other products, when traders were expecting modest withdrawals, and US oil prices subsequently fell 5.1% that afternoon...this Wednesday's EIA data showed a withdrawal of oil from storage, but not as large as expected, and an unexpected increase in gasoline supplies, which are now at an all time high for the driving season, and as you can see, prices crashed again, ultimately falling nearly from as high as $46.49 on Wednesday morning to as low as $44.56 Wednesday afternoon, before steadying and ending the day at $44.73, which as it turned out was only a penny less than the $44.74 closing price for the week...so it should be clear from this graph that whatever else might move oil prices during the week, those movements are dwarfed by the market reactions to the weekly EIA data...'

OPEC's May oil report

even though OPEC's activity is not, at the present time, driving US oil prices, whether or not they adhere to their production cuts will ultimately be a major factor in global oil supplies, and hence oil prices...so we will again start by taking a look at OPEC's June Oil Market Report (covering May OPEC & global data), which was released on Monday of this week, to 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.....the first table from the June report that we'll include here is from page 58 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 "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 oil production data, we can see that OPEC oil output increased by 336,100 barrels per day in May, to 32,139,000 barrels per day, from a April oil production total of 31,803,000 barrels per day, a figure that was revised 53,000 barrels per day higher from the 31,750,000 barrels per day was reported last month...(for your reference, here is the table of the official April figures before these revisions)...as we can see in the far right column, the major reason for the 336,100 barrel per day increase in OPEC's output in May were the 178,200 barrel per day increase in production from Libya and the 174,200 barrel per day increase in oil production from Nigeria, the two OPEC countries that are exempt from the production cuts because their production had already been driven down by domestic strife...otherwise, except for Iraq, the other OPEC countries are all pretty close to their targets, as can be seen in the table below:

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members over the first five months of this year (the targeted period) and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as they agreed to at their November meeting...finally, the last column shows the difference in the average production and what the target is for each member, also as a fraction of a million of barrels of oil per day....as you can see, except for Algeria, Gabon, and Iraq, all the other OPEC members have cut production as promised, and only Iraq, with a 64,000 barrel per day surplus, is the lone OPEC member with a significant output overage, which they increased even further in May...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from June 2015 to May 2017, and it comes from page 59 of the June 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...

the preliminary data graphed above indicates that global oil production rose to 95.74 million barrels per day in May, up by 0.13 million barrels per day from a April total of 95.61 million barrels per day, which was revised .20 million barrels per day lower from the 95.81 million barrels per day global oil output that was reported a month ago...that May figure was also 1.48 million barrels per day higher than what was being produced globally in May a year ago...OPEC's May production of 32,139,000 barrels per day thus represented 33.6% of what was produced globally,  an increase from the 33.3% OPEC share in April, which was originally reported as 33.1%, because global oil supply had been overestimated last month...OPEC's May 2016 production, excluding Indonesia, was at 31,621,000 barrels per day, so even after the production cuts, they are still producing 1.6% more oil than they were producing a year ago, when they were supposedly producing flat out...

however, even with the five recent months of production cuts we can clearly 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 36 of the June 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 the planet was using in the first quarter but up from the 95.12 millions of barrels of oil per day they were using in 2016...that's typical for spring, as few regions need either heating or cooling...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 95.74 million barrels per day during May...that means that even after 5 months of OPEC and NOPEC production cuts have taken place, there continued to be a surplus of around 410,000 barrels per day in global oil production in May...note that global production for April was revised lower, to 95.61 million barrels per day, so that means the global oil surplus during April was therefore around 280,000 barrels per day, also based on the revised second quarter global demand figure of 95.33 million barrels per day shown above...prior to that, we saw that the global oil surplus during March was around 780,000 barrels per day, and nearly a million barrels per day in January and February, as we've shown when reviewing revisions to these reports in prior months... that means that despite the five months of OPEC production cuts, over 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 release of US oil data from the US Energy Information Administration, covering details for the week ending June 9th, showed that US refineries continued to operate at above seasonally levels, while our crude oil imports fell and our crude oil exports rose, and hence it was necessary to withdraw oil from storage for the 9th time out of the last ten week...our imports of crude oil fell by an average of 316,000 barrels per day to an average of 8,025,000 barrels per day during the week, while at the same time our exports of crude oil rose by 165,000 barrels per day to an average of 722,000 barrels per day, which meant that our effective imports netted out to 7,303,000 barrels per day during the week, 481,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 12,000 barrels per day to an average of 9,330,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,633,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,256,000 barrels of crude per day, 29,000 barrels per day more than they used during the prior week, while at the same time 295,000 barrels of oil per day were being taken from 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 and oilfield production and from storage was 328,000 less barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a +328,000 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 8,161,000 barrels per day, still 7.1% above the imports of the same four-week period last year...the 295,000 barrel per day decrease in our total crude inventories came about on a 237,000 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 part of a Federal budget deal 20 months ago....this week's 12,000 barrel per day increase in our crude oil production resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 13,000 barrels per day decrease in oil output from Alaska...the 9,339,000 barrels of crude per day that we produced during the week ending June 9th was up by 6.4% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 7.0% from the 8,716,000 barrel per day output during the during the same week a year ago, while it was still 2.9% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.4% of their capacity in using those 17,256,000 barrels of crude per day, which was up from 94.1% of capacity the prior week, and the 2nd highest refinery capacity utilization rate this year...the amount of oil refined this week was well above seasonal norms, 5.8% more than the 16,317,000 barrels of crude per day.that were being processed during week ending June 10th, 2016, when refineries were operating at 90.2% of capacity, and roughly 12% above the 10 year average of 15.4 million barrels of crude per day for the first full week of June....

even with the elevated level of refining, gasoline production from our refineries decreased by 91,000 barrels per day to 9,843,000 barrels per day during the week ending June 9th...however, that gasoline output was still 1.4% higher than the 9,707,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 113,000 barrels per day from last week's seasonal high to 5,154,000 barrels per day, which was still 3.4% more than the 4,984,000 barrels per day of distillates that were being produced during the week ending June 10th last  year..... 

even with the drop in gasoline production, our end of the week gasoline inventories again surprisingly increased by 2,096,000 barrels to 242,444,000 barrels by June 9th, after increasing by 2,858,000 barrels the prior week...the major factor in the gasoline surplus has been our domestic consumption of gasoline, which fell by 48,000 barrels per day to 9,269,000 barrels per day, after falling by 505,000 barrels per day the prior week... meanwhile, our gasoline exports fell by 30,000 barrels per day to 525,000 barrels per day and our imports of gasoline fell by 213,000 barrels per day to 574,000 barrels per day at the same time...with the week’s big increase in our gasoline supplies, our gasoline inventories thus are at a seasonal high for this time of year, 2.3% above the prior seasonal record 237,004,000 barrels that we had stored on June 10th a year ago, 11.3% higher than the 217,814,000 barrels of gasoline we had stored on June 12th of 2015, and 13.2% more than the 214,267,000 barrels of gasoline we had stored on June 13th of 2014…  

likewise, even with the decrease in distillates production, our supplies of distillate fuels rose by 328,000 barrels to 151,416,000 barrels during the week ending June 9th, after increasing by 4,355,000 barrels the prior week...factors in the change of the size of the increase in supplies were the amount of distillates supplied to US markets, which rose by 540,000 barrels per day to 4,045,000 barrels per day, and our imports of distillates, which fell by 91,000 barrels per day to 61,000 barrels per day, while our exports of distillates fell by 169,000 barrels per day to 1,123,000 barrels per day....even though our distillate supplies are still fractionally below the 152,163,000 barrels that we had stored on June 10th, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're now 13.3% higher than the distillate inventories of 133,591,000 barrels that we had stored on June 12th of 2015, following a more normal winter… 

finally, with the week's increase in US oil exports and the drop in our oil imports, our commercial supplies of crude oil fell for the ninth time in the past 10 weeks, as our oil inventories fell by 1,661,000 barrels to 511,546,000 barrels as of June 9th, a decrease which was nonetheless less than expected....as a result, we still finished the week with 6.8% 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 500,911,000 barrels of oil in storage on June 10th of 2016....compared to the same week in prior years, when the glut was not so bad, we ended the week with 17.4% more crude than the 435,771,000 barrels in of oil in storage on June 12th of 2015, and 44.2% more crude than the 354,642,000 barrels of oil we had in storage on June 13th of 2014...   

This Week's Rig Counts

US drilling activity increased for the 22nd week in a row and for the 32nd time in the past 33 weeks during the week ending June 16th, although it was the smallest increase since the week of March 3rd....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 6 rigs to 933 rigs in the week ending Friday, which was 509 more rigs than the 424 rigs that were deployed as of the June 17th report in 2016, and the most drilling rigs we've had running since April 17th, 2015, even though it was still less than half of 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 747 rigs this week, which was up by 410 oil rigs over the past year, and the most oil rigs that were in use since April 10th 2015, while it was still far 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 increased by 1 rig to 186 rigs this week, which was a hundred more gas rigs than the 86 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...however, the only rig that was considered miscellaneous was shut down this week, which contrasts to a year ago, when there was also a miscellaneous rig operating...

there was no change in the Gulf of Mexico count this week, where drilling continues from 21 platforms, the same as a year ago...however, we still had drilling from one platform offshore from Alaska this week, which means the total US offshore count is at 22 rigs, up from 21 rigs a year ago, when there no drilling offshore from Alaska...rigs that were set up to drill horizontally increased by 2 rigs to 782 horizontal rigs this week, which was the smallest horizontal rig increase since the first week of 2017... horizontal rigs are still up by 456 from the the 326 horizontal rigs that were in use in the US on June 17th of last year, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, a net of 3 directional rigs were also added this week, increasing the directional rig count to 69 rigs, which was up from the 45 directional rigs that were deployed during the same week a year ago...in addition, the vertical rig count was up by 1 rig to 82 vertical rigs this week, which was also up from the 53 vertical rigs that were deployed during the same week last year...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 16th, the second column shows the change in the number of working rigs between last week's count (June 9th) and this week's (June 16th) count, the third column shows last week's June 9th 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 17th of June, 2016...        :

as you can see, with the small increase in horizontal drilling, the Williston basin of North Dakota with an increase of 3 rigs turns out to be the only major shale basin with an increase in drilling this week, although we know there were increases of at least 3 horizontal rigs in other unnamed basins, because the Barnett of north central Texas, the Haynesville of Louisiana, and the Cana Woodford and the Mississippian of Oklahoma all saw horizontal rigs idled this week...those changes account for the larges state increase, North Dakota with 3 more rigs, and contribute to the largest rig decrease, Oklahoma with 4 less...for the other changes, we have little to go on without tediously scrolling thru the detailed logs, because none of Baker Hughes summary data gives any indication what oil or gas source might be targeted by the new directional and vertical rigs...

DUC well report for May

Monday of this past week also saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May 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, almost entirely because 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 by this report, the total count of DUC wells rose from 5,770 wells in April to 5,946 wells in May, the seventh consecutive monthly increase in uncompleted wells....as we pointed out a month ago, as horizontal drilling has rapidly expanded over the past 10 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 are underspending 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...over the 2 and a half year oil field slump and associated layoffs that began 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 as a result many of those who had had been working in the oil fields before the bust have since found work elsewhere, and have no interest in returning to boom/bust oil work...furthermore, fracking has also become 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 familiar with the latest techniques has become that much harder...

a total of 992 wells were drilled in the 7 basins covered by this report during May, but only 816 wells were completed, thus accounting for the 176 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 125, from 2,038 in April to 2,163 in May, as 465 new wells were drilled into the Permian but only 340 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 47, from 1,316 in April to 1,363 wells in May, as 186 wells were drilled in the Eagle Ford in April but only 139 drilled wells were completed....in addition, DUC wells in the Haynesville of Louisiana increased by 9 wells to 201, as 47 wells were drilled but just 38 wells were fracked, and DUCs in the Bakken of North Dakota increased by 8 to 833, as 86 wells were drilled there but just 78 Bakken wells were fracked....meanwhile, the Niobrara chalk of the Rockies front range was the only oil basin to see a DUC well reduction, as their uncompleted well inventory fell by 3 wells to 646, as 132 wells were drilled into the Niobrara, while 135 wells were fracked in the same region...in addition, the Marcellus DUC count fell by 1 to 667 uncompleted wells, as 57 Marcellus wells were drilled while 58 were fracked...likewise, Ohio's Utica shale showed a decrease of 9 uncompleted wells and thus had only 73 DUCs remaining at the end of May, as 19 new wells were drilled into the Utica during the month while 28 Utica wells 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 177 to 5,005 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 1 well to 941 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...

a naval blockade of Qatar in the Persian Gulf, US sees big jump in oil & product inventories, global rig counts, et al

oil prices fell another 4% this week, after falling 4% the prior week, mostly due to a large and unexpected increase in US oil & oil product supplies...after initially moving higher Monday morning, after Saudi Arabia and three other Arab countries cut ties with Qatar, oil prices tailed off in the afternoon, on concerns about the efficacy of the OPEC production pact, with global prices falling 1% and US oil for July delivery ending 26 cents lower at $47.40 a barrel...falling further in overseas trading earlu Tuesday morning, oil prices stabilized by afternoon, and then ran up nearly $1 to close Tuesday at $48.19 a barrel, after the American Petroleum Institute (API) reported a draw of 4.62 million barrels from crude oil inventories, somewhat more than the 3.5 million barrel decrease the market was expecting....oil prices held above $48 a barrel early Wednesday, but then crashed 5% in the afternoon, after the US Energy Information Administration reverse the API estimates and reported large increases in not just crude oil supplies, but in supplies of gasoline, distillates, and other products as well, with US oil prices closing down $2.47 a barrel at $47.72 a barrel...the price weakness continued into Thursday morning, with US oil falling as low as $45.20 on news from Europe, before bouncing back by mid-day to close at $45.68 a barrel...oil prices then rose on Friday, after a hole drilled into a major pipeline forced the shutdown of some production in Nigeria, with U.S. crude futures ending the day 19 cents higher at $45.83 a barrel, still down nearly 4 percent for the week...

although it apparently has had little impact on oil prices so far, a crisis in the Persian Gulf precipitated by the Arab Gulf Cooperation Council's repudiation of Qatar provided an ominous background to this week's other news...following Trump's visit to the Middle East a couple weeks ago, when he threw his weight behind the Saudis as opposed to the other Mideast terrorist sympathizers, the Saudis had become increasingly belligerent about what they claimed was Qatar's support for militants, underscored by Qatar's payment of up to $1 billion to an al-Qaeda affiliate to secure the release of its royal family members who had been kidnapped in Iraq while on a hunting trip...what precipitated Monday's severing of diplomatic relations, however, was a news story that Qatar's Emir had criticized the Saudis hostility to Iran, accused them of adopting an extremist ideology that fosters terrorism. and suggested that Donald Trump would not last long...the Qataris claimed their news agency had been hacked and that the story was fake, but apparently it was believable enough to the Saudis and their allies that the Saudis, Bahrain, Egypt, and the United Arab Emirates severed diplomatic ties with Qatar, closing all land, sea, and air routes into the country, effectively cutting off the country from the rest of the Arabian Peninsula..

now, had the US pushed back against that Gulf dispute right then and there, it might have defused the situation, but President Trump immediately took to Twitter to take credit for the Saudi move against Qatar, echoing Saudi claims that Qatar was responsible tor "funding of Radical Ideology,” apparently unaware that the U.S. has 11,000 troops stationed in Qatar, on a base that is arguably America’s most important military outpost in the Middle East...so with Trump's support, there was subsequently a significant escalation of what had been largely a diplomatic crisis, as the Gulf states then launched a naval blockade of Qatar, and issued a 24 hour ultimatum for Qatar to comply to 10 demands, "or else", demanding, among other things, that Qatar break diplomatic relations with Iran and shut down Al Jazeera news...that escalation forced US Defense Secretary James Mattis and Secretary of State Rex Tillerson to attempt to run damage control, with Tillerson calling on the Saudi coalition to lift its blockade of Qatar, saying that the Gulf standoff interfered with the fight against ISIS...but no sooner than had senior administration officials attempted to make US policy regarding our ally Qatar clear, than Trump doubled down, again slamming our ally Qatar in a Friday press conference with the president of Romania...

so that's where the situation stands going into the weekend, with Iran and Turkey now pledging to help Qatar...as usual, dozens of links relating to this story  can be found here...the price of oil has not been impacted much simply because Qatar is not a major oil producer, with output of just about 600,000 barrels per day, or about 2% of OPEC's total output...but they are the world's largest supplier of LNG, and there has been some concern in the global markets for LNG, but not enough to affect US natural gas prices, which generally traded between $2.98 per mmBTU and $3.09 per mmBTU this week and ended at $3.039 per mmBTU, a gain of just 4 cents over last week's close...my sense of what's going on is that the Saudis have been getting bad press on the terrorist front lately, since they've been implicated in the funding of ISIS in Iraq and Syria, and for the 9-11 attacks on the pentagon and world trade center, with congress recently passing a bill allowing victims of 9-11 to sue Saudi Arabia for damages, and they're trying to shift the blame...ie, the Saudis are now acting like the bad kid who gets caught with stolen goods, and who then tries to blame the theft on the neighbor kid, who in this case is Qatar....

for his part, Donald Trump is devoid of any real knowledge of the Middle East, so he's believing what the Saudis told him when they threw that great party for him a couple weeks back... it also seems clear that the Saudis believe Trump gave them the go-ahead to take that action against Qatar...in that manner, Trump's involvement seems strangely similar to the miscommunications in the run up to the first Iraq war, when April Glaspie, George Bush's ambassador to Iraq, told Saddam Hussein that it was none of our business if Iraq wanted to take back Kuwait, which ultimately precipitated Saddam's invasion...following that, Bush Sr. moved on Iraq to distract from the media persecution of his young son Neil, who was under fire for losing millions of dollars of depositors money in nighttime poker games in the back offices of Silverado Saving and Loan in Denver...the parallel to today is that Trump's firing of FBI director Comey was not because he threatened Trump personally, because Trump himself is pretty thick skinned, but because Comey's investigation threatened his son-in-law, Jared Kushner...at this point, there's no telling what Trump might do at a time when he feels that the father of his grandchildren is being threatened...

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 June 2nd, showed that the combination of a large increase of our crude oil imports and a big drop in our crude oil exports led to the largest addition to US oil supplies in 3 months...our imports of crude oil rose by an average of 365,000 barrels per day to an average of 8,341,000 barrels per day during the week, while at the same time our exports of crude oil fell by 746,000 barrels per day to an average of 557,000 barrels per day, which meant that our effective imports netted out to 7,784,000 barrels per day during the week, 1,102,000 barrels per day more than during the prior week...at the same time, our field production of crude oil fell by 24,000 barrels per day to an average of 9,318,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 17,102,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,227,000 barrels of crude per day, 283,000 barrels per day less than the record 17,510,000 barrels per day they used during the prior week, while 234,000 barrels of oil per day were being added to 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 and oilfield production was 359,000 less barrels per day than what refineries reported they used and what oil was reportedly added to storage...to account for that discrepancy, the EIA inserted a +359,000 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 8,303,000 barrels per day, 8.8% above the imports of the same four-week period last year...the 234,000 barrel per day increase in our total crude inventories came about on a 471,000 barrel per day addition our commercial stocks of crude oil, which was partially offset by a 237,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 19 months ago....this week's 24,000 barrel per day drop in our crude oil production resulted from a 20,000 barrel per day decrease in oil output from wells in the lower 48 states, and a 4,000 barrels per day decrease in oil output from Alaska...the 9,318,000 barrels of crude per day that we produced during the week ending June 2nd was still up by 6.3% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 6.6% from the 8,745,000 barrel per day output during the during the same week 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 94.1% of their capacity in using those 17,227,000 barrels of crude per day, which was down from 95.0% of capacity the prior week, but still the 2nd highest refinery capacity utilization rate this year...the amount of oil refined this week was still well above seasonal norms, 4.9% more than the 16,417,000 barrels of crude per day.that were being processed during week ending June 3rd, 2016, when refineries were operating at 90.9% of capacity, and roughly 13% above the 10 year average of 15.2  million barrels of crude per day for the last week in May ....

with the pullback in refining, gasoline production from our refineries decreased by 496,000 barrels per day to 9,934,000 barrels per day during the week ending June 2nd, the largest one week drop in gasoline production since the third week of September last year....gasoline production for the week was thus 1.9% lower than the 10,122,000 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 41,000 barrels per day to 5,267,000 barrels per day, the most distillates ever produced in a week during the Spring and 8.9% more than the 4,838,000 barrels per day of distillates that were being produced during the week ending June 3rd last  year..... 

even with the drop in gasoline production, our end of the week gasoline inventories surprisingly increased by 2,858,000 barrels to 237,024,000 barrels by June 2nd, because all other impacts on our supplies of gasoline were positive....our domestic consumption of gasoline fell by 505,000 barrels per day to 9,317,000 barrels per day, while our gasoline exports fell by 86,000 barrels per day to 555,000 barrels per day and our imports of gasoline rose by 84,000 barrels per day to 787,000 barrels per day at the same time...with the week’s big increase in our gasoline supplies, our gasoline inventories thus are at a seasonal high for this time of year, albeit just fractionally above the seasonal record 239,629,000 barrels that we had stored on June 3rd a year ago, but 10.6% higher than the 217,354,000 barrels of gasoline we had stored on June 5th of 2015, and 12.6% more than the 213,482,000 barrels of gasoline we had stored on June 6th of 2014…  

meanwhile, with a new seasonal high in distillates production, our supplies of distillate fuels rose by 4,355,000 barrels to 151,088,000 barrels during the week ending June 2nd, the largest increase in distillates supplies since the 1st of the year....again, that increase was mostly because the amount of distillates required by US markets fell by 520,000 barrels per day to 3,505,000 barrels per day, while our imports of distillates rose by 47,000 barrels per day to 152,000 barrels per day, and our exports of distillates rose by 42,000 barrels per day to 1,292,000 barrels per day...even though our distillate supplies are still fractionally below the 151,377,000 barrels that we had stored on June 3rd, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're now 13.2% higher than the distillate inventories of 133,477,000 barrels that we had stored on June 5th of 2015, following a more normal winter… 

finally, the week's large increase in US oil imports, combined with the big drop in our oil exports, meant that our commercial inventories of crude oil rose for the first time in 9 weeks, as our oil supplies rose by 3,295,000 barrels to 513,207,000 barrels as of June 2nd, the largest increase in 3 months....as a result, we finished the week with 7.1% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.3% more crude oil in storage than the 501,844,000 barrels of oil in storage on June 3rd of 2016....compared to the same week in prior years, we ended the week with 17.1% more crude than the 438,447,000 barrels in of oil in storage on June 5th of 2015, and 44.5% more crude than the 355,221,000 barrels of oil we had in storage on June 6th of 2014...  

This Week's Rig Counts

US drilling activity increased for the 21st week in a row and for the 31st time in the past 32 weeks during the week ending June 9th, as both oil and natural gas drilling again increased....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 11 rigs to 927 rigs in the week ending Friday, which was 513 more rigs than the 414 rigs that were deployed as of the June 10th report in 2016, and the most drilling rigs we've had running since April 24th, 2015, even though 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 741 rigs this week, which was up by 413 oil rigs over the past year, and the most oil rigs that were in use since April 10th 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 increased by 3 rigs to 185 rigs this week, which was a hundred more rigs than the 85 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...

Gulf of Mexico platforms offshore from Texas and offshore from Florida where drilling had been taking place were both shut down this week, leaving the Gulf of Mexico count at 21 rigs, now all offshore from Louisiana, still up from 20 rigs working in the Gulf of Mexico a year ago...however, drilling restarted on one platform offshore from Alaska, which brought the total US offshore count up to 22 rigs, up from 21 rigs a year ago, when there was also drilling offshore from Alaska...in addition, one rig which had been drilling through an inland lake in Louisiana was also shut down this week, leaving the inland waters rig count at 3, down from the 5 rigs which were drilling on inland lakes last year at this time...

rigs that were set up to drill horizontally increased by 9 rigs to 780 horizontal rigs this week, which was the most horizontal rigs in use since April 2nd of 2015, and up from the the 323 horizontal rigs that were in use in the US on June 10th 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 4 vertical rigs were also added this week, increasing the vertical rig count to 81 rigs, which was up from the 46 vertical rigs that were deployed during the same week a year ago...at the same time, the directional rig count was down by 2 rigs to 66 directional rigs this week, which was still up from the 45 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 June 9th, the second column shows the change in the number of working rigs between last week's count (June 2nd) and this week's (June 9th) count, the third column shows last week's June 2nd 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 10th of June, 2016...        

unlike last week, when most of the new rigs were set up in Texas, this week Oklahoma showed the largest increase, with 5 new rigs, and New Mexico followed with an increase of 4 rigs, while Texas shows a decrease of 3 rigs....clearly, 4 of the new Oklahoma rigs were set up in the Cana Woodford, while the other addition is likely in the Mississippian shale, which the state shares with Kansas...all 4 of the new Permian basin rigs appear to be in New Mexico, because the Texas district breakdown shows 3 rigs added in District 8 while 3 were taken down in District 8A, which could simply mean those were moved to another location in the same region...other than that, 6 different Texas Districts saw a rig decrease, while 3 saw increases, including the rig added in the Barnett shale of the Dallas Ft Worth area...meanwhile, 2 natural gas directed rigs were added in Ohio's Utica, where there are now 28 rigs, up from just 12 rigs a year ago...the Marcellus also saw a 2 rig increase, both of which were in West Virginia, and two natural gas rigs were also added in the Arkoma Woodford, where 2 oil directed rigs were shut down...the natural gas rigs that were shut down were the one in the Ardmore Woodford, and 4 in "other basins" which are not named in the summary data...other than the states shown above, Mississippi saw an increase from 1 rig to 3 rigs last week, which is also up from the 1 rig that was running in the state a year ago, while Florida saw that lone offshore rig shut down, which left them with none, same as a year ago...

International Rig Count for May

Baker Hughes also released the international rig counts for May 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 1,935 rigs were drilling for oil and natural gas around the globe in May, which was up from the 1,917 rigs that were drilling around the globe in April, and up from the 1,405 rigs that were working globally in May of last year....as has been the case for the past year, increased drilling in North America led the global increase, as the average US rig count rose from 853 rigs in April to 893 rigs in May, which was more than double the average of 408 rigs that had been working in the US in May a year ago...Canadian drilling, on the other hand, saw another Spring-thaw related pullback in their activity, as the Canadian rig count fell from 108 rigs in April to 85 rigs in May, which was still up from the 42 Canadian rigs that were deployed in May a year earlier.....outside of Northern America, the International rig count rose by just 1 rig to 957 rigs in May, which was up by just 2 rigs from 955 international rigs a year ago, as increases in drilling in the Middle East, Latin America and Europe were offset by decreases in drilling activity in Asia and Africa..

drilling rigs deployed in the Middle East increased by 2 rigs to 389 rigs in May, up from 384 rigs a year earlier, after Middle East drilling activity had increased by 4 rigs in March and by 3 rigs in April...OPEC member Iraq added 5 rigs for the month and has now added 11 rigs over the past three months, as the Iraqis had 51 rigs deployed in May, up from 43 rigs a year earlier...OPEC member Kuwait, and non-members Pakistan and Israel, each added two rigs in May...those increases brought Kuwait up to 55 rigs, up from 43 rigs a year earlier, brought Pakistan up to 25 rigs, still down from 23 rigs a year earlier, and represented the only drilling activity in Israel, where they also had no rigs deployed last May...on the other hand, Egypt shut down 4 more rigs over the month, after idling 3 in April, which cut them back to 23 active rigs, down from 28 rigs a year earlier...OPEC member Qatar and Oman both cut back 2 rigs, leaving Qatar with 10 rigs, still up from 7 a year ago, and leaving Oman with 54 rigs, down from 69 rigs a year earlier...in addition, Abu Dhabi of the UAE also idled a rig, leaving them 48 rigs still running, same as a year earlier...

at the same time, drilling activity in the Latin American region was up by a net of 8 rigs to 190 rigs in May, which was up from the 188 rigs working in the region a year earlier...Argentina added 4 rigs during the month, and now has 53 rigs active, still down from 71 rigs a year ago...OPEC member Ecuador added 2 rigs in May, and now has 9 rigs running, up from 2 rigs a year ago...in addition, Brazil, Mexico, Columbia and Peru each added a single rig...that brought Brazil up to 16 rigs, up from 15 a year ago, brought Mexico up to 23, also up a rig from last year, brought Columbia up to 20 rigs from 5 rigs a year earlier, and brought Peru, where there were no rigs active last May, up to 3 rigs this May...only OPEC member Venezuela idled 2 rigs, cutting their total back to 54 rigs, down from 60 rigs a year earlier.. .

meanwhile, drilling activity in the Asia-Pacific region was down by 8 rigs to 197 rigs in May, which was still up from the 190 rigs working in the region a year earlier...former OPEC member Indonesia idled 3 rigs and now has 20 rigs active, still up from 19 rigs a year earlier....Malaysia shut down 2 rigs, leaving 3 rigs still running, down from 6 rigs a year ago....Myanmar also shut down 2 rigs and had just 1 rig still active, same as a year ago....others in the region cutting back included Australia, down a rig to 15, Thailand, down a rig to 12, and Papua New Guinea, down a rig to one...regional additions were in Brunei, where they now have 1 rig running, in Vietnam, where their 3 rigs matches their year ago total, and offshore from China, where there are now 20 rigs active, down from 31 offshore rigs a year ago..

drilling activity was also lower on the African continent, decreasing by 5 rigs to 84 rigs in May, which was also down from the 91 rigs that were working in Africa last May...OPEC member Algeria shut down 4 rigs after adding 6 rigs in April, and now has 53 rigs active, down from 55 rigs a year ago...OPEC member Nigeria shut down 2 rigs and had 8 rigs still active, up from 6 rigs a year ago...2 rigs were also shut down in Kenya, where there are now 9 rigs active, down from 11 a year ago....OPEC member Angola idled one rig, after adding two in April, and now has 3 active rigs remaining, down from the 9 rigs they had deployed in May a year ago...but Congo-Brazzaville added two rigs and now has 3 rigs working, up from 1 rig a year ago, and the Ivory Coast started up their first rig since October...

lastly, drilling activity increased in Europe, rising by 4 rigs to 95 rigs in May, which was the same number of rigs that were working in Europe last May...on net, all of the European rig additions were offshore; Norway added two rigs offshore, and now have 18 drilling platforms working, up from 17 a year ago...both the Netherlands and the UK also started offshore platforms; for the Dutch, it was their first drilling after two months of no activity, whereas the Brits now have 10 rigs drilling offshore, up from 9 a year ago...on land, Turkey added 2 rigs and now has 23 rigs working, still down from 29 rigs a year ago, and Italy added a rig and now has 4 active, still down from 5 rigs a year ago...at the same time, Romania shut down two rigs and now has 5 rigs running, up from 4 rigs a year ago, and Austria shut down the rig they started up in April, which had been their only drilling in 2 years...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 20 rigs active in May, was 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...

 

note: there's more here, including extensive coverage of the Qatar crisis

record high oil exports, record high refining, leads to largest drop in US oil supplies this year...

oil prices were down more than 4% this week, largely on reports that OPEC oil production increased in May, which was in turn mostly due to increased oil production from Libya and Nigeria, who are exempt from the cartel's agreed to production cuts....after falling last week to $49.80 a barrel on disappointment over OPECs latest agreement, US crude oil for July delivery traded down 19 cents to $49.61 per barrel on Monday, even as US markets were closed for the holiday, as traders focused on further increases in U.S. drilling activity...with US markets open on Tuesday, oil prices slid to as low as $49.03 early on news that Libyan producers had solved a technical problem and expected to return production to 800,000 bpd, but moved back up in the afternoon to close at $49.66 a barrel...oil prices then tumbled to as low as $47.73 on Wednesday after reports that OPEC compliance dropped to 92% in May from 96% in April, and again pared losses late in the day to close at $48.32 a barrel...oil prices then jumped nearly $1 on Thursday after the EIA reported that US oil supplies were down for the 8th month in a row, dropping by the most since December, but retreated just as fast to close at $48.36 a barrel, a gain of just 4 cents on the day...oil prices came under continued pressure Friday, on concerns that President Trump's decision to abandon the Paris climate pact would spark more crude drilling in the US, with WTI crude futures for July falling $1.07, or 2.2 percent, to $47.29 per barrel by 8:48 a.m., again only to recover late in the day and end the week at $47.66, a loss of 70 cents or 1.4% on the day and 4.3% for the week..

meanwhile,  prices for natural gas were down every day this week, losing more than 9% over the period, and ending below $3 per mmBTU for the first time since February...after closing last week at $3.310 per mmBTU, natural gas prices for July fell 16.5 cents on Tuesday, on forecasts for cooler than normal June temperatures for most of the Eastern US, which would reduce the expected electric generation spike for air conditioning...natural gas prices then fell 7.4 cents on Wednesday and 6.3 cents on Thursday, as the EIA reported a larger than expected increase in natural gas inventories....prices then fell another nine-tenths of a cent on Friday to close the week at $2.999 per mmBTU, well below the break even price for most drillers in our area...we'll include a graph of recent natural gas prices so you can see what this week's price trajectory looks like:

the above graph shows the daily closing contract price over the last 6 months for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in July 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, July natural gas prices had been holding in the $3.25 to $3.50 per mmBTU range over most of the period, and now have taken a dive on the fear that a cool summer might reduce consumption...as we've observed before, natural gas prices in this range are below what the frackers need to break even, as natural gas drilling activity has been on a long downtrend from the 1,606 natural rigs that were deployed on August 29th, 2008, only increasing briefly in late 2009 and early 2010 and again in 2014 in the months after natural gas prices briefly rose above $4.00 per mmBTU...although currently up from just 82 rigs on June 3rd, 2016, today's natural gas drilling remains well below the level seen over the prior 25 years...

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 26th, showed that both our refining of crude oil and our exports of it both hit all time highs, while our imports of oil fell at the same time, and as a result the amount of oil that needed to be withdrawn from US storage during the week was the highest since December...our imports of crude oil fell by an average of 309,000 barrels per day to an average of 7,985,000 barrels per day during the week, while at the same time our exports of crude oil rose by 678,000 barrels per day to a record high average of 1,303,000 barrels per day, which meant that our effective imports netted out to 6,682,000 barrels per day during the week, 987,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 22,000 barrels per day to an average of 9,342,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,024,000 barrels per day during the cited week...

during the same period, refineries reportedly used a record 17,510,000 barrels of crude per day, 229,000 barrels per day more than they used during the prior week, while 1,058,000 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 428,000 less barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a +428,000 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 8,122,000 barrels per day, 6.6% above the imports of the same four-week period last year...the 1,058,000 barrel per day decrease in our total crude inventories came about on a 918,000 barrel per day withdrawal from our commercial stocks of crude oil and a 140,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 19 months ago....this week's 22,000 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, and a 2,000 barrels per day increase in oil output from Alaska...the 9,342,000 barrels of crude per day that we produced during the week ending May 19th was up by 6.5% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 6.9% from the 8,735,000 barrel per day output during the during the same week a year ago, while it was still 2.8% below the June 5th 2015 record oil production of 9,610,000 barrels per day....since the week did see a new record high set for US oil exports, topping the record of 1,211,000 barrels per day set during the week ending February 17th, we'll include a graph of what that looks like, so you can see how US oil exports have exploded in the year and a half since the oil export ban was lifted:

notice that since the beginning of the year, our oil exports have jumped up and down from week to week, in a range between 550,000 barrels per day and the past week's 1,303,000 barrels per day...that's largely a function of the timing of tanker loadings and departures...with the largest oil tankers able to carry as much as 2 million barrels of oil at once, the departure of two such large tankers in one week is enough to cause a 570,000 barrel per day increase from a week when no such tanker leave port..

US oil refineries were operating at 95.0% of their capacity in using 17,510,000 barrels of crude per day, which was up from 93.5% of capacity the prior week, and the highest refinery utilization rate since August 2015....since we also set a new record for the amount of oil refined in any one week, breaking the record set just 5 weeks ago, we'll again include a graph here of what that looks like, as compared to our recent refining history...

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...the graph shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of oil refined for each week in 2016 traced weekly by a yellow line, with our year to date oil refining for 2017 represented in red...thus we can see that for most all of 2016 and through most of 2017, US oil refining was either at seasonal record highs or near the top of the average range...we can also see there is normally a seasonal swing for oil refining, with demand for their products typically highest in the summer and again around the holidays; hence the record levels of refining we've been seeing this spring are out of season and completely "off the chart" compared to any US refining activity we've seen previously....the 17,510,000 barrels of crude per day refined during the week ending May 26th beat the previous record of 17,285,000 barrels per day set during the week ending April 21st, 2017 by 1.3%; it was also 8.0% more than the 16,206,000 barrels per day that were being refined during the week ending May 27 of 2016, when refineries were running at 89.8% of capacity, and more than 14% above the 10 year average for the 4th week in May of 15.3 million barrels of crude per day.....

with the record level of refining, gasoline production from our refineries increased by 187,000 barrels per day to 10,430,000 barrels per day during the week ending May 26th, the highest gasoline production ever this early in the year, and just short of the all time record of 10,456,000 barrels per day of gasoline production during the first week of November last year....gasoline production for the week was thus 5.2% higher than the 9,916,000 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 29,000 barrels per day to 5,226,000 barrels per day, the most distillates ever produced in a week in the Spring and 9.9% more than the 4,757,000 barrels per day of distillates that were being produced during the week ending May 27th last year..... 

however, even with the seasonal record level of gasoline production, our end of the week gasoline inventories decreased by 2,858,000 barrels to 237,024,000 barrels by May 26th, because our domestic consumption of gasoline rose by 118,000 barrels per day to 9,822,000 barrels per day and because our gasoline exports rose by 52,000 barrels per day to 641,000 barrels per day, while our imports of gasoline fell by 22,000 barrels per day to 703,000 barrels per day at the same time...but even with the week’s big decrease in our gasoline supplies, gasoline inventories are currently less than 1% below the 238,619,000 barrels that we had stored on May 27th a year ago, but still 7.6% higher than the 220,293,000 barrels of gasoline we had stored on May 29th of 2015, and 11.9% more than the 211,785,000 barrels of gasoline we had stored on May 30th of 2014…

meanwhile, with the seasonal high in distillates production, our supplies of distillate fuels rose by 394,000 barrels to 146,733,000 barrels during the week ending May 26th, after falling the last four weeks in a row....that increase was mostly because the amount of distillates supplied to US markets fell by 334,000 barrels per day to 4,025,000 barrels per day, while our exports of distillates rose by 242,000 barrels per day to 1,250,000 barrels per day, and our imports of distillates rose by 4,000 barrels per day to 105,000 barrels per day at the same time...even though our distillate supplies are still 1.9% below the 149,623,000 barrels that we had stored on May 27th, 2016, when a glut of heat oil persisted after last year's warm El Nino winter, they're now 10.6% higher than the distillate inventories of 132,612,000 barrels that we had stored on May 29th of 2015, following a more normal winter…

finally, our record level of oil refining, combined with our record level of oil exports, meant that our commercial inventories of crude oil saw their largest withdrawal of oil since December, as our oil supplies fell by 6,428,000 barrels to 509,912,000 barrels as of May 26th....but even though our crude oil supplies are down by more than 25.6 million barrels over the past 8 weeks, we still finished the week with 6.5% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 1.1% more crude oil in storage than the 504,205,000 barrels of oil in storage on May 20th of 2016...compared to equivalent dates in prior years, we ended the week with 14.7% more crude than the 444,464,000 barrels in of oil in storage on May 29th of 2015, and 42.5% more crude than the 357,951,000 barrels of oil we had in storage on May 30th of 2014... 

This Week's Rig Counts

US drilling activity increased for the 20th week in a row and for the 30th time in the past 31 weeks during the week ending June 2nd, even as the size of the weekly increases has tapered off over the past month....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 916 rigs in the week ending Friday, which was 508 more rigs than the 408 rigs that were deployed as of the June 3rd report in 2016, and the most drilling rigs we've had running since April 24th, 2015, even though 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 11 rigs to 733 rigs this week, which was up by 408 rigs over the past year, 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 3 rigs to 182 rigs this week, which was still a hundred more rigs than the 82 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 at 23 rigs still this week, with all of those in the Gulf of Mexico, which was up from 20 Gulf of Mexico rigs and up from a total of 21 offshore rigs a year ago...the number of working rigs that were set up to drill horizontally increased by 5 rigs to 771 horizontal rigs this week, which was the most horizontal rigs in use since April 2nd of 2015, and up from the the 319 horizontal rigs that were in use in the US on June 3rd 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 3 directional rigs were added this week, increasing the directional rig count to 68 rigs, which was up from the 44 directional rigs that were deployed during the same week a year ago...at the same time, the vertical rig count was unchanged at 77 rigs this week, which was still up from the 45 vertical rigs that were deployed during the same week last year...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 2nd, the second column shows the change in the number of working rigs between last week's count (May 26th) and this week's (June 2nd) count, the third column shows last week's May 26th 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 3rd of June, 2016...       

again, there wasn't much change in drilling activity for most states and in the major basins, save for in Texas, where 5 rigs were added this week...and that's pretty much been the story for the past year; of the 508 additional rigs that have started drilling since June 3rd 2016, 287 of them have been in Texas, with 222 of them in the Permian basin of the far western part of the state and 57 rigs in the Eagle Ford in the south...elsewhere, this week's three rig increase in Oklahoma likely includes the new rig in the Mississippian shale on the Kansas border, and two rigs in basins not named in Baker Hughes summaries...there has been quite a bit more activity in those "other basins" of late; maybe it's time for Baker Hughes to initiate coverage of some of those newer basins, and drop those where activity has stagnated, such as the Fayetteville of Arkansas, which had only seen one rig change in the past year and a half...of the states not listed above, Illinois saw a rig added this week, and they now have 3 rigs active, that's up from the single rig that was working in Illinois a year ago...in addition, Florida added a rig, because one of the offshore platforms that had been working in the Gulf in Louisiana waters was moved to offshore of Florida this week, still in the Gulf....that's the first drilling offshore from Florida since January 2015, and except for drilling for three weeks on land a month ago, the only Florida drilling activity in the past year...

 

^{note:  there’s more here…}