oil prices rally 8.6%; US crude supplies fall below those of a year earlier for first time since 2014

oil prices rose every day this past week, in what ended up with the biggest weekly price increase so far this year...the rally started with news on Monday that OPEC had reached an agreement that Saudi Arabia, the Emirates and Kuwait would further cut oil exports, and that previously exempt Nigeria would agree to cap their oil production at 1.8 million barrels a day, with US crude for September delivery increasing 57 cents to $48.60 a barrel on the day....WTI September futures then rose $1.55 or 3.3 percent on Tuesday, to finish at $47.89 a barrel, the highest close for that benchmark since early June, after the Saudis further committed to a million barrel per day export reduction and Anadarko Petroleum said it would cut its 2017 outlays by $300 million because of depressed oil prices, in the first sign that U.S. oil producers might be cutting back on new well drilling...oil prices then approached eight-week highs on Wednesday,  rising 86 cents or 1.8 percent to $48.75 a barrel, after the EIA reported that U.S. crude, gasoline, and distillate inventories all fell in the prior week, with our oil supplies dropping below their year earlier level for the first time since 2014...the buying momentum spurred by the inventory declines carried into Thursday, as US light, sweet crude prices rose another 29 cents, or 0.6%, to $49.04 a barrel, the first close over $49 a barrel since May 30th...with a relatively small increase in oil rigs reported on Friday, traders remained focused on the OPEC crude oil export cuts and the larger than expected inventory draws and pushed oil prices up another 67 cents, or 1.4 percent, to $49.71 on Friday, capping an 8.6% increase for the week, the largest weekly gain this year...

with the headlines all noting that "largest price gain this year" for this week, we'll include a chart of oil prices over the past 6 months for some perspective...

the above graph is a 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 February 1st and July 28th, 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...at the far right, we can see the five green bars that represent this week's price rally; but note that this week's rally started from last Friday's 8 day low, so more than a third of this week's increase was just recovering what was lost last week...also note that this week's close is still nearly $2 a barrel below the May high, which itself was $2 a barrel below the April high...furthermore, we had an extended 4 month period ending in March where oil rarely saw prices below $52 a barrel...so we're still a way from reaching those levels, or anything that looks like a permanent change to the downward trend that we've been in since then...

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 July 21st, showed a small increase in US oil imports, a big increase in our oil exports, and a substantial increase the amount of oil used by US refineries, which thus meant that more oil was again withdrawn from our commercial stocks of crude oil to meet those needs...our imports of crude oil rose by an average of 48,000 barrels per day to an average of 8,044,000 barrels per day during the week, while at the same time our exports of crude oil rose by 302,000 barrels per day to an average of 1,030,000 barrels per day, which meant that our effective imports netted out to 7,014,000 barrels per day during the week, 254,000 barrels per day less than during the prior week...at the same time, our field production of crude oil fell by 19,000 barrels per day to an average of 9,410,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,424,000 barrels per day during the cited week...

during the same week, refineries used 17,285,000 barrels of crude per day, 166,000 barrels per day more than they used during the prior week, while at the same time 1,030,000 barrels of oil per day were being pulled out of oil storage facilities in the US (coincidentally the same amount of oil as we exported)....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 169,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-169,000) 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 (pdf) show that the 4 week average of our oil imports inched up to an average of 7,848,000 barrels per day, which was still 4.2% below the imports of the same four-week period last year...the 1,030,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercial stocks of crude oil, as oil stored in our Strategic Petroleum Reserve was unchanged....this week's 19,000 barrel per day decrease in our crude oil production resulted from a 54,000 barrels per day drop in oil output from Alaska, which was only partially offset by a 35,000 barrel per day increase in oil output from wells in the lower 48 states...the 9,410,000 barrels of crude per day that were produced by US wells during the week ending July 21st was 7.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.5% more than the 8,515000 barrel per day of oil output during the during the same week a year ago, while it was still 2.1% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.3% of their capacity in using those 17,285,000 barrels of crude per day, which was up from 94.0% of capacity the prior week, and above normal for this or any time of year...the amount of oil refined this week was also above the seasonal norm, as it was 4.2% more than the 16,586,000 barrels of crude per day.that were being processed during week ending July 22nd, 2016, when refineries were operating at 92.4% of capacity, and roughly 9% above the 10 year average of 15.8 million barrels of crude refined per day for the third week of July....

with the increase in refining, gasoline production from our refineries increased by 297,000 barrels per day to 10,393,000 barrels per day during the week ending July 21st, which was the third highest weekly gasoline production on record; it was also 3.2% higher than the 10,068,000 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 rose by 186,000 barrels per day to 5,131,000 barrels per day, which was 4.3% more than the 4,918,000 barrels per day of distillates that were being produced during the week ending July 22nd last year....

even with the increase in our gasoline production, our end of the week supply of gasoline decreased by 1,015,000 barrels to 230,196,000 barrels by July 21st, the 6th drop in gasoline inventories in a row....a 229,000 barrels per day increase to 9,821,000 barrels per day in our domestic consumption of gasoline was responsible for the drop in supplies, which occurred despite a 132,000 barrel per day increase to 723,000 barrels per day in our imports of gasoline... meanwhile, our gasoline exports increased by 22,000 barrels per day to 595,000 barrels per day at the same time, partially offsetting the increase in gasoline imports....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 4.7% below last year's seasonal high of  241,452,000 barrels for this week of the year, but are still 6.6% higher than the 215,922,000 barrels of gasoline we had stored on July 24th of 2015, and roughly 6.5% above the 10 year average of gasoline supplies for this week of the year… 

likewise, even with the increase in our distillates production, our supplies of distillate fuels fell by 1,852,000 barrels to 149,564,000 barrels over the week ending July 21st, the 4th drop in five weeks....a factor in this week's decrease in distillates supplies was a 108,000 barrel per day increase to 1,150,000 barrels per day in our exports of distillates...in addition, the amount of distillates supplied to US markets, a proxy for our consumption. rose by 42,000 barrels per day to 4,376,000 barrels per day, while our imports of distillates rose by 4,000 barrels per day to 130,000 barrels per day....with this week's decrease, our distillate inventories are nearly 1.6% lower than the 152,003,000 barrels that we had stored on July 22nd, 2016, but they remain 38% higher than the distillate inventories of 144,103,000 barrels that we had stored on July 24th of 2015, and roughly 10.7% above the 10 year average for distillates stocks for this time of July...

finally, with the increase in oil exports and the pickup in oil refining, our stored supplies of oil decreased for the 14th time in the past 16 weeks, as our commercial crude oil inventories fell by 7,208,000 barrels to 483,415,000 barrels as of July 21st, leaving us with the least oil we've had in storage anytime this year.. furthermore, our oil supplies dropped below their year ago level for the first time since 2014, as July 21st's oil inventories were 1.4% below the 490,501,000 barrels of oil we had stored on July 22nd of 2016...with that, we have another graph that will attempt to put this into perspective...

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters, which i've attempted to embellish with a bit of additional information...John's graph shows US commercial oil 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 level of our oil supplies, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year...the original graph also shows the number of barrels of oil we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 oil supplies represented in red for the year to date ..to that i've added a green line which very approximately represents our 2015 oil inventories in thousands of barrels for each day of that year, a violet line which similarly represents our 2014 oil inventories in thousands of barrels for each day of that year, and a brown line which represents our 2013 oil inventories in thousands of barrels for each day of that year...note that the lines that i've included were drawn by hand by dragging a mouse over the graph using the Microsoft Paint utility, and thus are far less than exact; they're only meant to show the trend in our oil supplies over that period...

and the trend that they show is that oil inventories stayed in a narrow range fairly close to the 10 year mean throughout 2013 and 2014, typically falling to below 330 million barrels by the end of each summer and then rising to nearly 370 million barrels by early spring...however, at the beginning of 2015, represented by the green colored graph, our inventories of oil started rising each week till they topped 450 million barrels at the end of April 2015, and then stayed elevated in a range roughly 80 to 100 million barrels above the previous norms over the rest of that year...that large year over year difference continued into early 2016, represented by Mr Kemp's yellow colored graph, and although the rate of increase tailed off from the previous year, our 2016 oil supplies still generally averaged about 15% above 2015's elevated levels, and more than 40% above historical levels...now note that the red graph representing 2017 has been above the 2016 level, which previously had represented a record for each "day of the year" throughout the year, up until this week..so although our oil supplies as of July 21st may have just slipped below those of the same week in 2016, they are still 13.0% higher than the 427,633,000 barrels in of oil that we had in storage on July 24th of 2015, 44.0% higher than the 335,631,000 barrels of oil we had in storage on July 25th of 2014, and 43.7% higher than the 10 year average of oil supplies for this time of year ...  

N.B. take a good look at those graphs for 2013, 2014, and 2015 while you're here; they're probably the last you'll ever see me try to draw by hand...   

This Week's Rig Count

US drilling activity increased for only the 2nd time in 5 weeks during the week ending July 28th, following 23 consecutive weeks of increases earlier this year....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 8 rigs to 958 rigs in the week ending Friday, which was 495 more rigs than the 463 rigs that were deployed as of the July 29th report in 2016, and the most drilling rigs we've had running since April 10th, 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 2 rigs to 766 rigs this week, which was up by 392 oil rigs over the past year, and the most oil rigs that were in use since April 2nd 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 6 rigs to 192 rigs this week, which was 108 more rigs than the 86 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas 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 23 platforms, up from the 19 rigs working in the Gulf a year ago...however, a new platform started drilling offshore from Alaska this week, so the total US offshore rig count increased to 24 rigs, up from a total of 19 offshore a year ago, because it was this week a year ago that the rig deployed in the Cook Inlet offshore from Alaska was shut down..

active horizontal drilling rigs increased by 7 to 810 rigs this week, up by 392 from the 374 horizontal rigs that were in use in the US on July 29th of last year and the most horizontal rigs in use since March 27th of 2015, while the horizontal count is still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count was up by 2 rigs to 77 directional rigs this week, which was also up from the 48 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was down by 1 rig to 71 rigs this week, which was still up from the 61 vertical rigs that were deployed during the same week last year....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary 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 July 28th, the second column shows the change in the number of working rigs between last week's count (July 21st) and this week's (July 28th) count, the third column shows last week's July 21st 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 29th of July, 2016...

notice that although the Permian basin saw the largest increase with 5 new drilling rigs, the rig count in Texas was still down by one...that's because 4 of the new Permian rigs were set up on the New Mexico side of the border, which is why New Mexico saw the most rigs added of any state this week...the other large increase was in the Cana Woodford of central Oklahoma, where 4 rigs were added, and since the Mississippian shale increase was also in Oklahoma, at least two rigs were pulled out of the state in areas not targeting the major shale deposits...the reason for the Texas drilling decrease was a 6 rig reduction in Texas Oil District 2, a small wedge in the southeast part of the state that includes part of the Eagle Ford trend...otherwise, Texas rig increases were seen in District 1 in the south central part of the state, District 3, centered around Houston, District 8, in the heart of the Permian, and in District 9, which would be in the Barnett shale underlying Dallas-Ft Worth...since there was no change in Texas District 10, that means the rig that was added in the Granite Wash was on the Oklahoma side of the panhandle border...meanwhile, rigs targeting natural gas were added in Ohio's Utica shale, in the Marcellus in West Virginia, the Barnett in Texas and 3 rigs in 'other' basins that are not named in Baker Hughes summary data...also note that of the states not included in the major producing states table above, Mississippi saw two rigs pulled out this week, and now have just one rig remaining; that's also a decrease from the same week a year ago, when 3 rigs were working in the state..

 

note:  there’s  more here

oil prices down on rising OPEC output; another drop in US oil, gasoline supplies; backlog of unfracked wells at record high

oil prices were mixed but modestly higher over the first four days of last week, hitting a 6 week high on Thursday, but then fell nearly two and a half percent on Friday to close below $46 a barrel for the first time in a week and a half, on indications of rising OPEC oil output....after rising every day the prior week and closing at $46.54 a barrel, US oil for August delivery fell 52 cents to $46.02 on Monday, after the Drilling Productivity Report from the EIA forecast an August increase of 113,000 barrels in US shale oil production....prices bounced back on Tuesday after Bloomberg reported that Saudi Arabia was mulling output cuts on the order of 1 million barrels per day, twice what the OPEC pact required, with oil closing up 38 cents on the day at $46.40 a barrel...prices then jumped over $47 a barrel for the first time in two weeks on Wednesday, closing at $47.12, after the EIA reported a big drop in US crude, gasoline and distillate stockpiles....US oil for August delivery then rose to a six week high of $47.55 a barrel Thursday morning before falling on profit taking to close Thursday at $46.79 a barrel, as trading in the August contract expired...concurrently, oil for September delivery, the new front month contract, fell 40 cents to close Thursday at $46.92 a barrel...now trading September oil on Friday, prices fell more than 2 percent for the day, wiping out the week's gains, after Reuters reported that an oil tanker-tracking firm reported July supply from OPEC would rise by 145,000 barrels per day, with September oil closing down $1.15 at $45.77 a barrel, a drop of 98 cents or almost 2% from where that contract started the week, and 77 cents lower than last week's close for August oil...

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 July 14th, showed an increase in US oil imports, a decrease in our oil exports, and a decrease the amount of oil used by US refineries, which nonetheless still left us short of oil for the week, which thus meant another withdrawal from our commercial stocks of crude oil...our imports of crude oil rose by an average of 386,000 barrels per day to an average of 7,996,000 barrels per day during the week, while at the same time our exports of crude oil fell by 190,000 barrels per day to an average of 728,000 barrels per day, which meant that our effective imports netted out to 7,268,000 barrels per day during the week, 576,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 32,000 barrels per day to an average of 9,429,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,797,000 barrels per day during the cited week...

during the same week, refineries reportedly used 17,119,000 barrels of crude per day, 125,000 barrels per day less than they used during the prior week, while at the same time 676,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 254,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-254,000) 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 (pdf) show that the 4 week average of our oil imports rose to an average of 7,841,000 barrels per day, which was 1.7% below the imports of the same four-week period last year...the 676,000 barrel per day decrease in our total crude inventories shows up as a 675,000 barrel per day withdrawal from our commercial stocks of crude oil while oil stored in our Strategic Petroleum Reserve was unchanged, so there's some weird rounding in one or both of those metrics....this week's 32,000 barrel per day increase in our crude oil production resulted from a 30,000 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 9,429,000 barrels of crude per day that were produced by US wells during the week ending July 14th was 7.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 11.0% from our 8,494,000 barrel per day of oil output during the during the same week a year ago, while it was still 1.9% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.0% of their capacity in using those 17,119,000 barrels of crude per day, which was down from 94.5% of capacity the prior week, but still above normal for this time of year...the amount of oil refined this week was also above the seasonal norm, as it was 1.5% more than the 16,863,000 barrels of crude per day.that were being processed during week ending July 15th, 2016, when refineries were operating at 93.2% of capacity, and roughly 10% above the 10 year average of 15.6 million barrels of crude refined per day for the second week of July....

with the slowdown in refining, gasoline production from our refineries decreased by 373,000 barrels per day to 10,096,000 barrels per day during the week ending June 14th, which was still fractionally higher than the 10,050,000 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) fell by 404,000 barrels per day from last week's all time high to 4,945,000 barrels per day, which was also down by 1.2% from the 5,004,000 barrels per day of distillates that were being produced during the week ending July 15th last year.....  

with the drop in our gasoline production, our end of the week supply of gasoline decreased by 4,445,000 barrels to 231,211,000 barrels by July 14th, the 5th drop in gasoline inventories in a row....that was despite a 194,000 barrels per day drop to 9,592,000 barrels per day in our domestic consumption of gasoline, and in spite of a 68,000 barrel per day increase to 591,000 barrels per day in our imports of gasoline... meanwhile, our gasoline exports increased by 26,000 barrels per day to 573,000 barrels per day at the same time, partially offsetting the increase in gasoline imports....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 4.1% below last year's seasonal high of  241,000,000 barrels for this week of the year, but are still 6.9% higher than the 216,285,000 barrels of gasoline we had stored on July 17th of 2015, and roughly 7.4% above the 10 year average of gasoline supplies for this time of year… 

with a similar sizable drop in our distillates production, our supplies of distillate fuels fell by 2,137,000 barrels to 151,416,000 barrels during the week ending July 14th, after increasing by 3,131,000 barrels the prior week....other than the drop in production, the major factor in this week's decrease in distillates supplies was a 467,000 barrel per day increase to 4,334,000 barrels per day in the amount of distillates supplied to US markets, a proxy for our consumption...meanwhile our exports of distillates fell by 127,000 barrels per day to 1,042,000 barrels per day, while our imports of distillates rose by 1,000 barrels per day to 126,000 barrels per day....with this week's increase, our distillate inventories are nearly 1% lower than the 152,783,000 barrels that we had stored on July 15th, 2016, but they remain 7.0% higher than the distillate inventories of 141,515,000 barrels that we had stored on July 17th of 2015, and roughly 12.6% above the 10 year average for distillates stocks for this time of July...

finally, with the increase in oil imports, and the relatively slower refining, our commercial supplies of crude oil decreased for the 13th time in the past 15 weeks, as our commercial oil inventories fell by 4,727,000 barrels to 490,623,000 barrels as of July 14th, leaving us with the least oil in storage since the end of January.. however, we still finished the week with 2.4% more crude oil in storage than the 479,012,000 barrels we had stored at the end of last year, and a small fraction more crude oil in storage than the 488,830,000 barrels of oil in storage on July 15th of 2016....compared to historical figures, when the oil glut was still building, this week still saw 13.6% more crude than the 431,836,000 barrels in of oil that were in storage on July 17th of 2015, 44.6% more crude than the 339,328,000 barrels of oil we had in storage on July 18th of 2014, and 45.7% more than the 10 year average of oil supplies for this time of year ...      

This Week's Rig Count

US drilling activity stalled for the 3rd time in 4 weeks during the week ending July 21st, following 23 consecutive weeks of increases....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rigs to 950 rigs in the week ending Friday, which was still 488 more rigs than the 462 rigs that were deployed as of the July 22nd report in 2016, 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 decreased by 1 rig to 764 rigs this week, which was still up by 393 oil rigs over the past year, 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 also decreased by 1 rig to 186 rigs this week, which was still 98 more rigs than the 88 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, new drilling started from 2 platforms in the Gulf of Mexico offshore of Louisiana this week, which brought the Gulf of Mexico activity count up to 23 rigs, up from 18 rigs in the Gulf and a total of 19 offshore a year ago, when there was also a rig deployed offshore of Alaska, in the Cook Inlet...

the count of active horizontal drilling rigs decreased by one rig to 803 rigs this week, the first drop in horizontal drilling since November 11th of 2016...however, active horizontal rigs were still up by 446 rigs from the 357 horizontal rigs that were in use in the US on July 22nd of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....meanwhile, the vertical rig count was down by 4 rigs to 72 vertical rigs this week, which was still up from the 61 vertical rigs that were deployed during the same week last year....on the other hand, the directional rig count was up by 3 rigs to 75 directional rigs this week, which was also up from the 44 directional rigs that were deployed during the same week last year...

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary 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 July  21st, the second column shows the change in the number of working rigs between last week's count (July 14th) and this week's (July 21st) count, the third column shows last week's July 14th 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 22nd of July, 2016...

clearly, there's a lot of minus signs on this week's table, something we haven't seen much of this past year...the two most active states, Texas and Oklahoma, were down 3 rigs each, with decreases in the Barnett near Dallas-Ft Worth and the Eagle Ford of south Texas contributing to the Texas drop, while Oklahoma dropped rigs in the Arkoma Woodford and the Mississippian...meanwhile, Louisiana added 4 rigs, with additions in the Gulf of Mexico and the Haynesville...once again, the number of drilling rigs working in the Utica and the Marcellus were unchanged, and hence there was also no change in drilling activity in Ohio, Pennsylvania, or West Virginia...natural gas rigs ended up down one despite the addition of two in the Haynesville, however, as one natural gas rig was pulled from the Arkoma Woodford and two were removed from other basins not individually itemized by Baker Hughes...of the states not included on the above list of major producers, Alabama got rid of one rig and Illinois got rid of two; that left Alabama with two rigs, still up from just 1 rig throughout last July, and left Illinois with one rig, down from the 3 that were running in the state last July 22nd...meanwhile, Kentucky saw two rigs start up in the the state's first drilling since June 2nd, also an increase from a year ago, when there were no rigs active in the state...

DUC well report for June

this past week also saw the release of the EIA's Drilling Productivity Report for July, which includes the EIA's June 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, 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 sedimentary basins covered by this report, the total count of DUC wells rose from 5,877 wells in May to 6031 wells in June, the eighth consecutive monthly increase in uncompleted wells, and the highest number of such unfracked wells in the short history of this report....as we know from the weekly rig counts,  horizontal drilling has rapidly expanded over the past year, more than doubling over that period, and as a result a shortage of competent fracking crews has developed, such that existing fracking crews are unable to keep up with the number of newly drilled wells...yet another article this week tells us that skilled worker shortages are hampering fracking operations, noting 200 frack crew job openings listed for North Dakota alone...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 had since found work elsewhere, and have no interest in returning to boom/bust oil work...furthermore, fracking crew retirements were up 33 percent last year, & intelligent young people dont want to work in an oilfield any more than they want any kind of dirty, manual labor job... fracking has also become more complex and technically demanding 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 capable of correctly & accurately executing the current fracking techniques has become that much more difficult...

a total of 1,026 new wells were drilled in the 7 basins covered by this report during June, but only 872 drilled wells were completed, thus accounting for the 154 DUC well increase for the month....as has been the case all year, the June DUC increases were oil wells, with most of those in the Permian basin...the Permian saw its total count of uncompleted wells rise by 130, from 2,114 DUC wells in May to 2,244 DUCs in June, as 475 new wells were drilled into the Permian but only 345 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 42, from 1,364 DUC wells in May to 1,406 DUCs in June, as 187 wells were drilled in the Eagle Ford in June but only 145 drilled wells were completed....in addition, DUC wells in the Bakken of North Dakota increased by 8 to 819, as 92 wells were drilled but just 84 Bakken wells were fracked, while the Niobrara chalk of the Rockies front range saw their uncompleted well inventory increase by 2 wells to 663, as 142 wells were drilled into the Niobrara, while 140 wells were fracked during the same period....on the other hand, the Marcellus DUC count fell by 20 wells, from 663 DUCs in May to 643 DUCs in June, as 60 Marcellus wells were drilled while 80 were fracked...likewise, Ohio's Utica shale showed a decrease of 11 uncompleted wells and thus had only 62 uncompleted wells remaining at the end of June, as 23 new wells were drilled into the Utica during the month while 34 Utica wells were completed...meanwhile, the Haynesville shale of Louisiana was the only natural gas basin to see a DUC well decrease, as their uncompleted well inventory rose by 3 wells to 194, as 47 wells were drilled into the Haynesville, while 44 wells were fracked in the same region...for the month, DUCs in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 182 wells to 5,132 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 28 wells to 899 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 output jumps in June, reversing their production cuts by a third; US distillates output at a record high

oil prices increased every day this week, rising $2.31 a barrel, or more than 5%, and as a result recovered almost all of what they lost in the short week following the Independence Day holiday...after falling $2.84 a barrel to $44.23 a barrel in post holiday trading of last week, oil prices moved up 17 cents to $44.40 a barrel on Monday on indications that OPEC might widen its production caps to include Nigeria and Libya, the two countries largely responsible for the erosion of the cartel's net compliance in recent months...oil tumbled back to $43.83 a barrel on Tuesday morning after it was revealed that the Saudis pumped 10.07 million barrels a day in June, a breach of their production limit, but then reversed those losses to rise 3% to $45.04 a barrel by the close, after the American Petroleum Institute reported U.S. crude stockpiles declined by 8.1 million barrels for the week ended July 7, the largest draw on supplies since September 2016....prices then rose another 45 cents, or 1%, to $45.49 a barrel on Wednesday, after the EIA confirmed the magnitude of the drop in U.S. crude stockpiles that had been reported by the API...oil prices were up for a 4th trading session on Thursday, rising 59 cents or 1.4% to $46.08 a barrel, despite higher OPEC production, on evidence from the US and China that global oil demand was increasing to meet that supply...oil prices then notched their fifth gain in a row on Friday, tacking on another 46 cents a barrel, as the U.S. dollar weakened on flat consumer prices, reports indicated that output from Saudi' Manifa oilfield had interupted, and the US rig count was relatively flat for the 2nd time in 3 weeks, with oil closing the week at $46.54 a barrel, up 1 percent on the day and 5.22 percent higher for the week...

OPEC's June oil report

with OPEC's increasing production prominent in this week's news, we'll start by taking a look at OPEC's July Oil Market Report (covering June OPEC & global data), which was released on Wednesday of this week....the first table from the July report that we'll include here is from page 63 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 indicate...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 393,500 barrels per day in June, to 32,611,000 barrels per day, from a May oil production total of 32,217,000 barrels per day, a figure that was originally reported as 32,139,000 barrels per day before the addition of Equatorial Guinea to the Cartel this month...(for your reference, here is the table of the official May OPEC output figures before these revisions)...as we can see in the far right column, not only did OPEC see an increase of 127,000 barrels per day from Libya and 96,700 barrels per day from Nigeria, the two OPEC countries that are exempt from the production cuts because their production had already been driven down by domestic strife, but oil output from Angola, Iraq, and Saudi Arabia all also increased by more than 50,000 barrels per day in June...while Saudi Arabia and Angola still both managed to 'officially' stay under their quotas, the 60,600 barrel per day increase to 4,502,000 barrels per day by Iraq put them more than 150,000 barrels per day over their quota of 4,351,000 barrels per day, 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...i had been hoping that Platts would update this table to include the June production numbers, but as of Saturday evening they have not...

not only did the official OPEC oil production data from secondary sources indicate an increase of nearly 400,000 barrels per day in production for June, but the OPEC members themselves reported even higher production than the official production data indicates, as is shown in the next table...

the above table, also from page 63 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 reports, we noticed that several of the largest OPEC members reported higher production than was attributed to them by the official secondary sources...note especially that Saudi Arabia, whose reported figures should be more accurate than secondary sources, reported that they produced 10,070,000 barrels per day in June, 120,000 barrels per day than the official data, and thus over their quota for the month...Iran reported they produced 3,880,000 barrels per day, a figure which would also put them over their quota, vs their official tally of 3,790,000...also notice that Iraq, who has been the biggest laggard on the production cuts, reported they produced 4,550,000 barrels per day in April, vs their official figure of 4,502,000 barrels per day...likewise, Venezuela reported that they produced 2,156,000 barrels per day in April, whereas the official data indicates they produced 1,936,000 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 June...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from July 2015 to June 2017, and it comes from page 64 of the July 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 96.59 million barrels per day in June, up by 0.66 million barrels per day from a May total of 95.93 million barrels per day, which was revised .21 million barrels per day higher than the 95.74 million barrels per day global oil output that was reported a month ago...that June figure was also 2.26 million barrels per day higher than the 94.33 million barrels per day that was being produced globally in June a year ago (see last July's OPEC report for year ago data)...OPEC's June production of 32,611,000 barrels per day thus represented 33.8% of what was produced globally,  an increase from the 33.6% OPEC share in May...OPEC's June 2016 production, excluding Indonesia, was at 32,118,000 barrels per day, so even after the production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are still producing 1.0% more oil than they were producing a year ago, when they were supposedly producing flat out...

furthermore, even with the six 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 37 of the July 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 second quarter of 2017...

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming areas of the globe have used 95.33 million barrels of oil per day, down from the 95.44 millions of barrels of oil per day the world 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 of the globe need either heating or cooling at that time of year...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 96.59 million barrels per day during June...that means that even after 6 months of OPEC and NOPEC production cuts have taken place, there continued to be a surplus of around 1,260,000 barrels per day of global oil production in June...note that global production for May was revised higher, to 95.93 million barrels per day, so that means the global oil surplus during May was therefore around 600,000 barrels per day, also based on the revised second quarter global demand figure of 95.33 million barrels per day shown above...on the same basis, April's global oil surplus was the lowest of the 6 months of the period, at around 280,000 barrels per day...global oil production thus averaged 96.04 million barrels of oil per day over the 3 months of the 2nd quarter, an average surplus of 710,000 million barrels of oil per day over the entire period...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 six months of OPEC production cuts, almost a hundred fifty 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 from the US Energy Information Administration, covering details for the week ending July 7th, showed another increase in US oil exports, another decrease in our oil imports, and another increase the amount of oil used by US refineries, which together resulted in the largest withdrawal from our commercial stocks of crude this year...our imports of crude oil fell by an average of 132,000 barrels per day to an average of 7,610,000 barrels per day during the week, while at the same time our exports of crude oil rose by 150,000 barrels per day to an average of 918,000 barrels per day, which meant that our effective imports netted out to 6,692,000 barrels per day during the week, 282,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 59,000 barrels per day to an average of 9,397,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,089,000 barrels per day during the cited week...

during the same week, refineries reportedly used 17,244,000 barrels of crude per day, 103,000 barrels per day more than they used during the prior week, while at the same time a net of 1,531,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 376,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-376,000) 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 (pdf) show that the 4 week average of our oil imports fell to an average of 7,811,000 barrels per day, which was 3.0% below the imports of the same four-week period last year...the 1,531,000 barrel per day decrease in our total crude inventories came about on a 1,081,000 barrel per day withdrawal from our commercial stocks of crude oil and a 450,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was negotiated in a Federal budget deal 21 months ago....this week's 59,000 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 and a 34,000 barrels per day increase in oil output from Alaska...the 9,338,000 barrels of crude per day that we produced during the week ending June 30th was 7.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 10.7% from our 8,485,000 barrel per day of oil output during the during the same week a year ago, while it was still 2.2% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.5% of their capacity in using those 17,244,000 barrels of crude per day, which was up from 93.6% of capacity the prior week, and well above normal for this time of year...the amount of oil refined this week was also well above the seasonal norm, as it was 4.2% more than the 16,544,000 barrels of crude per day.that were being processed during week ending July 8th, 2016, when refineries were operating at 92.3% of capacity, and roughly 10% above the 10 year average of 15.67 million barrels of crude per day for the first week of July....

with the increase in refining, gasoline production from our refineries increased by 104,000 barrels per day to 10,469,000 barrels per day during the week ending June 30th, the greatest weekly gasoline output this year and the second highest weekly gasoline output in history...that gasoline output was also 2.5% higher than the 10,218,000 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) rose by 239,000 barrels per day to 5,349,000 barrels per day, an all time high for distillates production and 6.3% more than the 5,034,000 barrels per day of distillates that were being produced during the week ending July 8th last year.....  

even with near record gasoline production, our end of the week gasoline inventories decreased by 1,647,000 barrels to 235,656,000 barrels by July 7th, the 4th drop in gasoline inventories in a row...this week's gasoline supplies were reduced because our domestic consumption of gasoline increased by 81,000 barrels per day to 9,786,000 barrels per day, the 2nd highest this year, and because our imports of gasoline fell by 211,000 barrels per day to 528,000 barrels per day... meanwhile, our gasoline exports fell by 166,000 barrels per day to 547,000 barrels per day at the same time, partially offsetting the drop in imports....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 1.8% below last year's seasonal high of 240,089,000 barrels for this week of the year, but are still 8.1% higher than the 218,010,000 barrels of gasoline we had stored on July 10th of 2015, and 9.9% more than the 214,492,000 barrels of gasoline we had stored on July 11th of 2014…

with our distillates production at a record high, our supplies of distillate fuels rose by 3,131,000 barrels to 153,553,000 barrels during the week ending July 7th, the fourth increase in six weeks....the major factor in this week's increase in distillates supplies was a 464,000 barrels per day drop to 3,858,000 barrels per day in the amount of distillates supplied to US markets, a proxy for our consumption...meanwhile our exports of distillates rose by 19,000 barrels per day to 1,169,000 barrels per day, while our imports of distillates rose by 17,000 barrels per day to 125,000 barrels per day....with this week's increase, our distillate inventories are now 0.4% higher than the 152,997,000 barrels that we had stored on July 8th, 2016, and 8.7% higher than the distillate inventories of 141,280,000 barrels that we had stored on July 10th of 2015...

finally, with a drop in oil imports, an increase in oil exports, and the pickup of US refining, our commercial supplies of crude oil decreased for the 12th time in the past 14 weeks, as our commercial oil inventories fell by 7,564,000 barrels to 495,350,000 barrels as of July 7th, the largest drop in our oil supplies since Labor Day week of last year... however, we still finished the week with 3.4% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 0.9% more crude oil in storage than the 491,172,000 barrels of oil in storage on July 8th of 2016....compared to prior years, when the oil glut was still building, this week still saw 15.4% more crude than the 429,368,000 barrels in of oil that were in storage on July 10th of 2015, and 44.3% more crude than the 343,297,000 barrels of oil we had in storage on July 11th of 2014...     

This Week's Rig Count

drilling activity failed to increase for the 2nd time in 3 weeks this week, after a 23 week run of increases...Baker Hughes reported that the total count of active rotary rigs running in the US was unchanged at 952 rigs in the week ending Friday, which was still 505 more rigs than the 447 rigs that were deployed as of the July 15th report in 2016, 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 2 rigs to 765 rigs this week, which was up by 408 oil rigs over the past year, and the most oil rigs that were in use since April 2nd 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 2 rigs to 187 rigs this week, which was still 98 more rigs than the 89 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 total offshore or Gulf of Mexico rig counts this week, where drilling continues from 21 platforms in the Gulf, same as the 21 rigs working in the Gulf a year ago, but down from the total 22 offshore a year ago, when there was also a rig deployed offshore in the Cook Inlet of Alaska...one rig that had been operating on an inland lake in southern Louisiana was shut down this week, however, leaving three such inland waters rigs still running, same as a year ago..

active horizontal drilling rigs were unchanged at 804 rigs this week, still up by 460 from the 344 horizontal rigs that were in use in the US on July 15th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....meanwhile, the vertical rig count was up by 2 rigs to 76 vertical rigs this week, which was also up from the 60 vertical rigs that were deployed during the same week last year....on the other hand, the directional rig count was down by 2 rigs to 72 directional rigs this week, which was still up from the 43 directional rigs that were deployed during the same week last year...

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary 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 July 14th, the second column shows the change in the number of working rigs between last week's count (July 7th) and this week's (July 14th) count, the third column shows last week's July 7th 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 15th of July, 2016...

clearly, the net change of zero in drilling rigs masked as much activity as we've seen in prior weeks, with the only difference being that more rigs were simultaneously shut down this week..you'll note that the Permian is back to having the largest increase, after 5 weeks with few changes in that basin, while the Eagle Ford of south Texas and the Cana Woodford of Oklahoma both saw their counts decrease by 4...the natural gas rig decreases were all in "other" unnamed basins, as activity in the 3 states overlying the Utica and the Marcellus was unchanged, although the Eagle Ford did add a natural gas rig, where they now have 9 gas rigs running, while shutting down 5 of their oil rigs at the same time...note that of the states not listed above, Nebraska also saw the only rig working in the state shut down this week, apparently the same rig that just started operating last week; otherwise, Nebraska has only seen spotty drilling activity over the past year...

 

note: there's more here...

the great US natural gas exports myth

oil prices rose to a 4 week high on Monday, before the 4th of July holiday, but fell from there to end the week roughly 3.9% lower than where they closed last week...the $1.03 price increase to $47.01 a barrel on Monday was largely attributed to the spate of short-covering that propelled the prior week's rally, but on the holiday prices for August US crude fell sharply in electronic and overseas trading after Russia was reported to oppose any proposal to deepen OPEC-led production cuts, with WTI down $1.94, or 4.1%, to $45.13 a barrel, even though trades made that day did not settle til Wednesday the 5th....prices then jumped to as high as $46.53 a barrel on Thursday after the EIA report indicated major inventory draws across the board, but then collapsed near the close to end the day with a gain of just 39 cents at $45.52 a barrel...Friday brought further price deterioration on reports of higher OPEC exports and a double digit increase in the rig count, with August crude down another $1.29 to $44.23 a barrel, the lowest close since June 26th...

The Great US Natural Gas Exports Myth

Mr Trump was in Europe this week for the annual meeting of the G-20, the heads of government for the world's 20 largest economies...part of Trump/'s agenda on that trip was to promote exports of US natural gas in Europe, with the apparent intention of undermining Russian dominance of natural gas markets on the continent....the groundwork for this natural gas scheme was laid in late June, when the US Senate voted 98 to 2 to impose further sanctions on Russia, with the intention of waylaying the construction of the Nord-Stream 2, a subsea natural gas pipeline planned from Russia to Germany, which international energy firms are involved in...to an extent, the Europeans went along with that scheme, extending their own energy sanctions against Russia to January 31st, 2018.....nonetheless, i found this entire stratagem bizarre and self-defeating; as you may recall, i've previously pointed out that our natural gas supplies are a lot tighter than they appear to be, and there's no way that additional supplies can be developed at the prices that are being promised for these exports...what i'm going to do today is show you the natural gas data that i'm looking at, so you can see how i've come to that conclusion...

the first screenshot below is from the EIA table of US dry natural gas production monthly, which i've lopped off at 8 years because the long history of US natural gas output is not an issue here...we can see that US natural gas production rose each year between 2010 and 2015 as fracking brought on new supplies...but look at the 2016 data starting in March; US natural gas production is lower each month of 2016 after that than the equivalent month of 2015...likewise, for the first four months of 2017 for which there is confirmed production data, our natural gas production was again lower...that means our natural gas production had been falling for 14 months in a row going into April, and since recent natural gas drilling and fracking remains far below that of the boom years, we have every reason to believe that decrease in output has continued to the present...yet even the Reuters article on the Trump promotion of our natural gas exports refers to "fast-growing supplies of U.S. natural gas", a myth that every one in the media seems to believe without question...here's the data; you can see our production is clearly falling:

next, we'll include excerpts of a few tables on US natural gas exports...first, like the above, is a truncated excerpt of the EIA table of US natural gas exports...no surprise here, they've been rising, and now at a much more rapid pace since Cheniere's Sabine Pass natural gas natural gas liquefaction facilities started exporting LNG in May of last year..

just to put those exports into perspective, we'll include the top of the table of US natural gas exports by country; while you can see which countries our exports are going by looking at the entire table, we dont particularly care where they're going to, as we're including this table because it shows exports by pipeline (which obviously can only go to Canada and Mexico) and LNG exports by vessel, which are going all over the world...

next, we have a truncated excerpt of the EIA table of US natural gas imports...looking closely at the numbers, you'll see that our natural gas imports generally fell between 2010 and 2014 when our production was rising, but that our imports of natural gas started increasing again as our production fell and our exports rose...comparing this table to the export table above, you'll see that during the winter months, when much of the US is using natural gas for heat, our imports of natural gas exceed our exports of it...for instance, in December 2016, we exported over 250 billion cubic feet of natural gas, and imported over 280 billion cubic feet of it...on the other hand, in April, when the US consumption of gas for heating and cooling is moderate, our natural gas exports did exceed our imports by around 9 billion cubic feet...the EIA projects that we will still be a net importer of natural gas in 2017, and not become a net exporter of natural gas until 2018...

next, to put our imports in perspective we have the top of the EIA's table of US natural gas imports by country...what you see here is that almost all of our imported natural gas is now coming from Canada...since we are still importing more natural gas than we're exporting, that means that we are, in effect, importing natural gas from Canada to export it through Texas and Louisiana...without Canadian gas coming in to replace what we export, a shortage of natural gas would develop in the US...it should also be clear from what we've shown so far that for us to export any more natural gas to Europe, much less replace what they get from Russia, we'd have to first import more of it from Canada..

next, let's look at a graph of natural gas supplies that we have stored underground:

the above graph comes from the twitter feed of John Kemp, senior energy analyst and columnist with Reuters, wherein the red line shows our natural gas supplies in billions of cubic feet from January 2015 to June 30th of this year...the yellow line, for the year prior to the one shown by the red line, thus shows our natural gas supplies in billions of cubic feet from January 2014 to the end of 2016, thus retracing some of what the red line shows...the light blue band then shows the prior 5 year range of our natural gas supplies, and thus from the left shows the range of our natural gas supplies from January 2010 through January 2014, extending to the right where it ends with the range of our natural gas supplies from the end of 2012 through the end of 2016...lastly, the blue dashes show the average of that 5 year range of our natural gas stocks that's indicated by the light blue shading...note the obvious seasonal pattern; surplus natural gas is injected into storage each spring and summer, then withdrawn for use during the heating season...

just from looking at that graph, it appears that our natural gas supplies remain near normal, slightly above the average of the 5 year range...but next, we're going to pull out an old graph from the heating season that will call that simple visual analysis into question....this is a graph we posted on March 26th, showing heating demand for this past winter in red and heating demand for the winter before that in yellow, and the long term average heating demand as a light dashed line...a detailed explanation of what heating degree days are and what this chart shows is included with the original post, but suffice it to say that what this chart shows is that demand for natural gas for heating was 17% below normal in each of the last two winters...with that in mind, look back at the above graph of our natural gas supplies...by following the red line, we can see that our natural gas supplies were at least at a 5 year high for the time of year from October 2015 through November 2016, with October 2016 being the first time in our history that natural gas supplies topped 4 trillion cubic feet...that's normal, we'd expect a record glut of natural gas with demand for heating 17% below normal...but notice that since December of 2016 our natural gas supplies were falling at a faster rate than normal, despite another warmer than normal winter, and by the end of January had returned to merely average...our supplies then recovered to above average because of a record warm period that led to the first weekly injection of gas into storage in February history, but as of this date they're still nearly 300 billion cubic feet below where they were at the same time in June a year ago....what that means is that at the current pace of natural gas production, we were unable to maintain our surplus from production at a the same pace as last year, even while demand remained below normal....what that suggests is that should domestic demand for natural gas jump to above average levels, either due to increased electrical generation or due to a colder than normal winter, our production plus Canada's imports will be inadequate to meet our export contracts and our own needs at the same time...

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 30th, showed an increase in US oil exports, a decrease in our oil imports, and a significant increase in operations at US refineries, which thus resulted in the second largest withdrawal from our commercial stocks of crude this year...our imports  of crude oil fell by an average of 274,000 barrels per day to an average of 7,742,000 barrels per day during the week, while at the same time our exports of crude oil rose by 240,000 barrels per day to an average of 768,000 barrels per day, which meant that our effective imports netted out to 6,974,000 barrels per day during the week, 514,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 88,000 barrels per day to an average of 9,338,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,312,000 barrels per day during the cited week...

during the same week, refineries reportedly used 17,141,000 barrels of crude per day, 251,000 barrels per day more than they used during the prior week, and at the same time a net of 957,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 128,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-128,000) 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 (pdf) show that the 4 week average of our oil imports actually rose to an average of 7,915,000 barrels per day, which was nonetheless 1.0% below the imports of the same four-week period last year...the 957,000 barrel per day decrease in our total crude inventories came about on a 900,000 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 88,000 barrel per day increase in our crude oil production resulted from a 105,000 barrel per day increase in oil output from wells in the lower 48 states as Gulf production came back online, which was partially offset by a 17,000 barrels per day decrease in oil output from Alaska, which was reportedly due to maintenance ...the 9,338,000 barrels of crude per day that we produced during the week ending June 30th was 6.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 10.8% from our 8,428,000 barrel per day of oil output during the during the same week a year ago, while it was still 2.8% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.6% of their capacity in using those 17,141,000 barrels of crude per day, which was up from 92.5% of capacity the prior week, and well above normal for this time of year...the amount of oil refined this week was also well above the seasonal norm, as it was 2.7% more than the 16,687,000 barrels of crude per day.that were being processed during week ending July 1st, 2016, when refineries were operating at 92.5% of capacity, and roughly 10% above the 10 year average of 15.6 million barrels of crude per day for the last week of June....

with the pickup in refining, gasoline production from our refineries increased by 31,000 barrels per day to 10,365,000 barrels per day during the week ending June 30th, the highest weekly gasoline output this year...that gasoline output was also 3.5% higher than the 10,018,000 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) fell by 144,000 barrels per day to 5,100,000 barrels per day, still a seasonal high for the last week of June and 4.3% more than the 5,100,000 barrels per day of distillates that were being produced during the week ending July 1st last  year.....  

even with the increase in gasoline production, our end of the week gasoline inventories decreased by 3,669,000 barrels to 237,303,000 barrels by June 30th, now almost reversing the gasoline supply increases of early June...this week's gasoline supplies were reduced because our domestic consumption of gasoline increased by 167,000 barrels per day to 9,705,000 barrels per day, and because of this week's 278,000 barrel per day adjustment to correct for the imbalance created by the blending of fuel ethanol and gasoline blending components... meanwhile, our gasoline exports rose by 51,000 barrels per day to 713,000 barrels per day, while our imports of gasoline rose by 168,000 barrels per day to 739,000 barrels per day at the same time....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 0.7% below last year's seasonal high of 238,876,000 barrels for this week of the year, but are still 8.9% higher than the 217,952,000 barrels of gasoline we had stored on July 3rd of 2015, and 10.7% more than the 214,321,000 barrels of gasoline we had stored on July 4th of 2014…

with the decrease in our distillates production, our supplies of distillate fuels fell by 1,850,000 barrels to 150,422,000 barrels during the week ending June 30th, the second decrease after increasing by 5,762,000 barrels over the prior three weeks....the major factor in this  week's drop in distillates supplies was the amount of distillates supplied to US markets, which rose by 293,000 barrels per day to 4,322,000 barrels per day...meanwhile our exports of distillates fell by 236,000 barrels per day to 1,150,000 barrels per day, while our imports of distillates fell by 21,000 barrels per day to 108,000 barrels per day....despite the drop in supplies, our distillate inventories are still 1.0% higher than the 148,939,000 barrels that we had stored on July 1st, 2016, and 9.4% higher than the distillate inventories of 137,461,000 barrels that we had stored on July 3rd of 2015...

finally, with the drop in imports and pickup of US refining, our commercial supplies of crude oil decreased for the 11th time in the past 13 weeks, as our oil inventories fell by 6,299,000 barrels to 502,914,000 barrels as of June 30th.. however, we still finished the week with 5.0% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 1.9% more crude oil in storage than the 493,718,000 barrels of oil in storage on July 1st of 2016....our supplies of oil also remain well ahead of those of the same week in prior years; with 16.0% more crude than the 433,714,000 barrels in of oil that were in storage on July 3rd of 2015, and 42.9% more crude than the 350,822,000 barrels of oil we had in storage on July 4th of 2014...    

This Week's Rig Counts

increasing drilling activity returned to the US during the week ending July 7th, with both oil and gas rigs higher, after the prior week had seen the first drilling slowdown in 24 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 952 rigs in the week ending Friday, which was 512 more rigs than the 440 rigs that were deployed as of the July 8th 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 7 rigs to 763 rigs this week, which was up by 412 oil rigs over the past year, and the most oil rigs that were in use since April 3rd 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 5 rigs to 189 rigs this week, which was 101 more rigs than the 88 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 total offshore or Gulf of Mexico rig counts this week, where drilling continues from 21 platforms, up from the 18 rigs working in the Gulf and total 19 offshore a year ago....active horizontal drilling rigs increased by 12 to 804 rigs this week, up by 461 from the 343 horizontal rigs that were in use in the US on July 8th of last year and the most horizontal rigs in use since March 27th of 2015, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count was up by 3 rigs to 74 directional rigs this week, which was also up from the 36 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was down by 3 rigs to 74 rigs this week, which was still up from the 61 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 July 7th, the second column shows the change in the number of working rigs between last week's count (June 30th) and this week's (July 7th) count, the third column shows last week's June 30th 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 8th of July, 2016...

note that this week saw the first decrease in drilling in the Permian basin of West Texas and southeastern New Mexico in 16 weeks; you'll recall that up until just a few months ago, almost half of the new drilling was taking place in that region...hence, Texas was limited to a increase of 2 rigs, which could be accounted for by the increase in the Granite Wash of the panhandle border...of the major shale basins, Oklahoma's Cana Woodford saw the largest increase, with 4 oil rigs added this week, while the Haynesville of northwestern Louisiana saw both an oil and a gas rig added....note horizontal rig increases shown in the table above only add up to 7, so there's 5 fracking rigs unaccounted for; some of those may be in Alaska, where recent news articles describe new drilling and fracking in the HRZ shale on the North Slope...of the states not shown above, rigs were added in both Nebraska and Montana last week; Nebraska has had intermittent drilling over the past year, and also had a rig active the same week a year ago, but that Montana drilling appears to be the first in the state since the oil bust at the end of 2014...'

 

note: there's more here...