US oil prices still at a discount to those overseas; heat oil supplies shrinking heading into winter

US oil prices closed above $50 a barrel for the first time since May this week, but the real story continues to be that the international price for the same grade of oil remains more than 12% higher...while US WTI for November delivery closed on Friday at $50.66 a barrel, an increase of 22 cents on the week, the international benchmark of North Sea Brent for November, an equivalent grade of light sweet crude, was closing in London at $56.86 a barrel, an increase of $1.24 a barrel...as we pointed out last week, that price spread between the US benchmark and the international price also carries well into 2018 oil contracts; for instance, a contract to deliver US crude to Cushing Oklahoma in April of 2018 will get you $51.60 a barrel, whereas the equivalent Brent contract price for April of 2018 will get you $55.70 a barrel...since the cost of shipping oil overseas runs between a dollar and 2 dollars a barrel, depending on the distance shipped, that price difference of more than $4 a barrel creates a strong incentive for those who own US oil in storage to contract to export it at a better price than they can get by contracting to sell it domestically, to US refineries for example...

early this week it appeared that we might have a natural gas price rally on our hands too, but that blew out when a much above normal addition of gas to storage sent prices tumbling...the contract price for natural gas for October delivery had generally stayed in a narrow range between $2.90 per mmBTU (million British Thermal Units) and $3 per mmBTU through most of August, a price generally unprofitable for most Marcellus and Utica exploitation...last week, however, natural gas staged a 4 day mini-rally that added 18 cents per mmBTU to the price, which lasted until a bearish natural gas storage report knocked 4.6 cents off the Friday price and it closed the week at $3.024 per mmBTU...however, by Monday of this week, the weather forecasts had changed, with warmer-than-normal temperatures expected to persist through the end of September across the eastern half of the US, and hence the October natural gas futures contract jumped 12.2 cents to settle at $3.146/MMBtu in anticipation of a late-season demand for cooling...prices then drifted lower, giving up 2.4 cents on Tuesday and another 2.8 cents on Wednesday, while traders waited for the weekly natural gas report....prices then plunged almost 5% on Thursday when that Weekly Natural Gas Storage Report from the EIA showed that utilities added 97 billion cubic feet of gas to storage during the week ended Sept. 15th, compared to a 54 billion cubic feet increase during the same week a year ago and the five-year average increase of 73 billion cubic feet for the same period, as October natural gas futures settled down 14.8 cents, or 4.8 percent, at $2.946 per million BTUs...while prices inched up 1.3 cents on Friday, they still closed the week down 6.5 cents at $2.959 per mmBTU, just about the midpoint of their two month price range...

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 September 15th, showed that oil production and imports were close to returning to normal after Hurricane Harvey's disruptions, but refineries still lagged their pre-Harvey pace, and as a result our crude oil supplies rose for the third week in a row...our imports of crude oil rose by an average of 888,000 barrels per day to an average of 7,368,000 barrels per day during the week, while at the same time our exports of crude oil rose by 154,000 barrels per day to an average of 928,000 barrels per day, which meant that our effective imports netted out to an average of 6,440,000 barrels per day during the week, 734,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 157,000 barrels per day to an average of 9,510,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,950,000 barrels per day during the reported  week...

during the same period, US oil refineries were using 15,172,000 barrels of crude per day, 1,094,000 barrels per day more than they used during the prior week, and at the same time 426,000 barrels of oil per day were being added to oil storage facilities in the US...hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 352,000 more barrels per day than what refineries reported they used during the week plus what was added to storage...to account for that discrepancy, the EIA needed to insert a (-352,000) 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"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,209,000 barrels per day, which was 10.9% below the imports of the same four-week period last year....the 462,000 barrel per day increase in our total crude inventories came about on a 656,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 230,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is presently being tapped to address temporary spot shortages caused by Harvey...this week's 157,000 barrel per day increase in our crude oil production was the result of a 179,000 barrels per day rebound in oil output from wells in the lower 48 states and a 22,000 barrel per day decrease in oil output from Alaska...the 9,510,000 barrels of crude per day that were produced by US wells during the week ending September 15th was still slightly less than the 9,530,000 barrels of crude per day being produced during the pre-hurricane week ending August 25th, but it was 8.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.7% more than the 8,512,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was 1.0% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 83.2% of their capacity in using those 15,172,000 barrels of crude per day, up from the of 77.7% of capacity the prior week, but down from the 96.6% capacity utilization rate in the week before Harvey struck....the 15,172,000 barrels of oil refined this week was up 7.8% from the 14,078,000 barrels of crude per day that was being processed the prior week, but still 14.4% less than the 17,725,000 barrels per day that was being refined three weeks earlier, and 8.5% less than the 16,587,000 barrels of crude per day that were being processed during week ending September 16th, 2016, when refineries were operating at 92.0% of capacity...

even with the increase in US oil refining, gasoline production from our refineries slipped by 95,000 barrels per day to 9,793,000 barrels per day during the week ending September 15th...that left this week's gasoline output 2.7% lower than the 10,083,000 barrels of gasoline that were being produced daily during the comparable week a year ago....however, our refineries' production of distillate fuels (diesel fuel and heat oil) jumped by 570,000 barrels per day to 4,543,000 barrels per day at the same time, which was still 8.7% less than the 4,978,000 barrels per day of distillates that were being produced during the week ending September 16th last year....  

with the ongoing reduced level of gasoline production, our end of the week gasoline inventories fell by 2,125,000 barrels to 216,185,000 barrels by September 15h, the 11th decrease in gasoline inventories in 14 weeks...that was despite the fact that our domestic consumption of gasoline fell by 178,000 barrels per day to 9,441,000 barrels per day, while our imports of gasoline rose by 131,000 barrels per day to 687,000 barrels per day and while our exports of gasoline rose by 16,000 barrels per day to 544,000 barrels per day....with significant gasoline supply withdrawals in 11 out of the last 14 weeks, our gasoline inventories are now down by 10.8% from June 9th's level of 242,444,000 barrels, and 4.0% below last September 16th's level of 225,156,000 barrels, even as they are still roughly 1.8% above the 10 year average of gasoline supplies for this time of the year...  

even with the big increase in our distillates production, their output still remained well below normal, and hence our supplies of distillate fuels fell by 5,693,000 barrels to 138,859,000 barrels over the week ending September 15th, the largest one week drop since November 2011...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 207,000 barrels per day to 4,264,000 barrels per day, and as our exports of distillates rose by 666,000 barrels per day to 1,177,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 85,000 barrels per day...after this week’s big decrease, our distillate inventories ended the week 15.8% lower than the 164,992,000 barrels that we had stored on September 16th, 2016, and 3.5% lower than the 10 year average for distillates stocks for this time of the year…since our distillates supplies have now dropped to below normal for the first time since we've tracked them, we'll take a look at a picture of what that looks like compared to their recent history:

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...this graph shows US distillate fuels inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the median of our distillates inventory, 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 distillates we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date distillates supplies for each week traced in red...from this graph we can initially see there is an obvious seasonality to distillates supplies, as they're built up during the summer then consumed during the winter months, when demand for heat oil is greatest...however, this summer, when supplies of distillates should be increasing like they have every other year, they're collapsing instead, even before the post-Harvey refinery shut downs... and as you can also see from the above, they're at their lowest level in over two years, at a time of year when they should be peaking...unless refineries can turn this around, we could be heading into a heating season of what looks to be a colder than normal winter with very tight heat oil supplies...

finally, with the increases in oil imports and well output, our commercial crude oil inventories rose for the 3rd week in a row, increasing by 4,591,000 barrels to 472,832,000 barrels as of September 15th, still just the 5th increase in the past 25 weeks...while our oil inventories as of September 15th were still fractionally below the 473,966,000 barrels of oil we had stored on September 16th of 2016, they were more than 12.0% higher than the 422,033,000 barrels in of oil that were in storage on September 18th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 44.7% greater than the 326,828,000 barrels of oil we had in storage on September 19th of 2014...  

This Week's Rig Count

US drilling activity decreased for the 9th time in the past 13 weeks during the week ending September 22nd, after a string of 23 consecutive weekly increases earlier this year, with oil drilling down while gas drilling increased....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 1 rig to 935 rigs in the week ending Friday, which was 424 more rigs than the 511 rigs that were deployed as of the September 23rd report in 2016, while it was 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 was down by 5 rigs to 744 rigs this week, their 7th week without an increase, which nonetheless still left oil rigs up by 326 over the past year, while their count remained 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 4 rigs to 190 rigs this week, which was 98 more rigs than the 92 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, same as a year ago...

drilling started from 2 additional platforms off the Louisiana coast this week, and hence the Gulf of Mexico rig count increased by 2 to 19 rigs this week, which was still down from the 20 rigs that were drilling in the Gulf a year ago...with no offshore drilling other than in the Gulf now or a year ago, those totals are also those given as the total US offshore count....at the same time, a platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of 3 rigs, the same as a year ago...

the count of active horizontal drilling rigs fell by 5 rigs to 790 rigs this week, which was still up by 388 rigs from the 402 horizontal rigs that were in use in the US on September 23rd of last year, but was also down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the directional rig count was up by 3 rigs to 77 rigs this week, which was also up from the 49 directional rigs that were deployed on September 23rd of 2016.....at the same time, the vertical rig count was up by 1 rigs to 68 vertical rigs this week, which was also up from the 60 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 September 22nd, the second column shows the change in the number of working rigs between last week's count (September 15th) and this week's (September 22nd) count, the third column shows last week's September 15th 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 for the 23rd of September, 2016...      

we would note that after 8 weeks with little change, the Permian basin of western Texas and southeast New Mexico bucked the trend with an increase of 6 rigs this week, their biggest jump since May 12th...that was just barely enough to increase the Texas count, however, as the state saw decreases in the Eagle Ford in the south and the Granite Wash of the eastern panhandle area...with the increase of two rigs in the Gulf, Louisiana with 3 new rigs saw the largest increase, while major producers Oklahoma and North Dakota both shed three...meanwhile, there were no changes in activity in the Utica or the Marcellus, as all the gas well increases were in "other" basins, unnamed in Baker Hughes summary data...meanwhile, outside of the major producing states shown above, Alabama also added a rig this week and now has 2 active, also up from just 1 rig a year ago..

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note: there’s more here…

US oil prices still 13% lower than overseas; OPEC report shows glut vanishing; US gasoline supplies see a record drop..

the $50 a barrel level, as Texas Gulf Coast refineries returned to operation and began to soak up some of the oil glut that had built up during their shutdown...however, front month Brent oil prices, the international benchmark, did rise every day this week and ended at $56.62 a barrel, 13.5% higher than the US price for the same kind of oil...John Kemp at Reuters included a graph of that differential between the two oils for two contract months in one of his articles this week, which we'll include below:

the above graph accompanied John Kemp's article titled 'Mind the gap: Brent and WTI point in opposite directions', published on Tuesday of this week, and it tracks the difference between the price for North Sea Brent, the global oil benchmark, and West Texas Intermediate (WTI), the US benchmark, which is what we quote every time we speak of US oil prices...the mustard colored graph above shows the excess price of Brent over WTI in dollars per barrel for a contract to deliver each type of oil in November, while the white graph shows the excess price of Brent over WTI in dollars per barrel for a contract to deliver each type of oil in April of 2018...

there had long been a discount on US oil before the export ban on it was lifted as part of a budget deal signed by Obama at the end of 2015, which subsequently brought US oil up to parity with the global price...however, that parity did not last long, and for most of 2016, US WTI oil traded around a dollar below the international price...however, as the chart above indicates, the price differential started rising early in 2017, and had reached an average of around $2.50 a barrel before Harvey shut down Gulf Coast refineries, creating a glut of oil on the Gulf Coast, and shut down the ports, so that oil could not be exported...at that time, November US crude fell in price, while Brent did not, resulting in a premium for Brent of as much as $6, which continued through this week...a smaller gap opened up between the prices for Brent and WTI for April 2018 delivery in white, not particularly logical, as it's not likely that any impact from Harvey would persist that far into the future...of course, if oil overseas continues fetching $6 a barrel more than what oil in the US sells for, then US oil will be exported into those higher priced markets until such time as that price gap closes...

OPEC's September oil report

we're going start by reviewing OPEC's September Oil Market Report (covering August OPEC & global oil data), which was released on Tuesday of this past week....the first table from this report that we'll include here is from page 67 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 an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, 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 the above table of official oil production data, we can see that OPEC oil output decreased by 79,100 barrels per day in August, to 32,755,000 barrels per day, from a July oil production total of 32,834,000 barrels per day, a figure that was originally reported as 32,869,000 barrels per day (for your reference, here is the table of the official July OPEC output figures before this month's revisions)...as we can see in the far right column, the reason that OPEC's output fell 79,100 barrels per day was largely due to a 112,300 barrel per day decrease in output from Libya, as the 138,300 barrel per day increase from Nigeria was offset by modest decreases in production by Gabon, Iraq, the United Arab Emirates and Venezuela.....these totals bring most OPEC members other than Iraq close to their agreed to production quota, 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 eight months of this year, and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as was agreed to at their November meeting, and the 3rd column shows how much each has averaged over or under their quotas for the eight months of this year that OPEC has curtailed production...as you can see from the above, most OPEC members are pretty close to meeting their commitment to cutting their production back 4%, except for Iraq, who has consistently overproduced by roughly 2%...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from September 2015 to August 2017, and it comes from page 68 of the September 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 OPEC data indicates that total global oil production fell to 96.75 million barrels per day in August, down by .41 million barrels per day from a July total of 97.16 million barrels per day, which was revised .14 million barrels per day lower than the 97.30 million barrels per day global oil output for July that was reported a month ago...global oil output for August was also 1.10 million barrels per day higher than the 95.65 million barrels of oil per day that was being produced globally in August a year ago (see last September's OPEC report for the year ago data)...OPEC's August production of 32,755,000 barrels per day thus represented 33.9% of what was produced globally, a small increase from the revised 33.8% OPEC share in June...OPEC's August 2016 production, excluding ex-member Indonesia, was at 32,512,000 barrels per day, so even after the alleged production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are still producing more oil than they were producing a year ago, when they were supposedly producing flat out...

after eight months of relatively lower production we can see on the above graph, there was finally a small deficit in the amount of oil being produced globally, as the next table from the OPEC report will show us..    

the table above comes from page 37 of the September OPEC Monthly Oil Market Report, and it shows regional and total 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 fourth column, we've circled in blue the figure we're interested in, which is their estimate for global oil demand for the third quarter of 2017...

OPEC's estimate is that during the 3rd quarter of this year, all oil consuming areas of the globe will use be using 97.57 million barrels of oil per day, which is an upward revision from their prior estimate of 97.28 million barrels of oil per day...note that they have also revised global oil demand for the second quarter 400,000 barrels per day higher, to 96.05 barrels per day, and revised demand for the first quarter 150,000 barrels per day higher, to 95.54 barrels per day, at the same time...meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world's oil producers were only producing 96.75 million barrels per day during August, which means that during this summer month of greatest demand, there was a shortfall of around 820,000 barrels per day of global oil production in August...also note that global production for July was concurrently revised lower, to 97.16 million barrels per day, so that means there was also a deficit of 410,000 barrels per day in July output, which we had previously figured to be a global oil surplus of around 20,000 barrels per day...in addition, the 400,000 barrels per day upward revision to second quarter demand reduces the June surplus to 1,080,000 barrels per day, and turns what we had previously figured to be a 270,000 barrels per day surplus in May into a 130,000 barrel per day deficit....April's revised figures now show a 440,000 barrel per day deficit, and prior to that the global oil surplus during March would be revised to 630,000 barrels per day, and average surpluses over January and February would be reduced to around 850,000 barrels per day....taken together, this data means that after eight months of OPEC production cuts, roughly 48 million barrels of oil have been added to the global oil glut since the 1st of the year, quite a bit less than the 135 million barrel addition last month's report indicated..  

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

the above graph, taken from the "OPEC August Crude Oil Production" post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to August 2017, using the same official data from multiple secondary sources as we saw in the first table above...here we can obviously see that OPEC's production for June, July and August is up quite a bit from their previous production this year and is even approaching the record of 33,374,000 million barrels per day the cartel produced in November, a level achieved because they all over produced so that their cuts would be off a higher base...so even as they've cut their oil production from that level, their output for each of the eight months of this year was actually higher than in each of the same months months a year ago, leaving OPEC well on track to exceed their 2016 production this year, even as they attempt to orchestrate the oil markets with reports of their "reduced" production...

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 September 8th, continued to show the effect of Hurricane Harvey on oil supplies and consumption as it transversed Texas and the adjacent Gulf of Mexico the prior week; it indicates a further drop in oil imports, as ship channels in the affected ports remained silted, but a rebound in oil exports, as the primary US oil export facilities at Corpus Christi were reopened, a recovery in oil production, as output from the Eagle Ford shale and the Gulf came back online, and a small drop in per diem oil refining, as the major refinery shutdowns impacted both this week and the last half of the prior one...

our imports of crude oil fell by an average of 603,000 barrels per day to an average of 6,480,000 barrels per day during the week, while at the same time our exports of crude oil rose by 621,000 barrels per day to an average of 774,000 barrels per day, which meant that our effective imports netted out to an average of 5,706,000 barrels per day during the week, 1,224,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 572,000 barrels per day to an average of 9,353,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,059,000 barrels per day during the cited week...

during the same period, US oil refineries were using 14,078,000 barrels of crude per day, 394,000 barrels per day less than they used during the prior week, while at the same time 614,000 barrels of oil per day were being added to oil storage facilities in the US...hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 367,000 more barrels per day than what refineries reported they used during the week plus what was added to storage...to account for that discrepancy, the EIA needed to insert a (-367,000) 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"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,565,000 barrels per day, which was 7.6% below the imports of the same four-week period last year....this week's 572,000 barrel per day increase in our crude oil production was the result of a 582,000 barrels per day rebound in oil output from wells in the lower 48 states and a 10,000 barrel per day decrease in oil output from Alaska...the 9,353,000 barrels of crude per day that were produced by US wells during the week ending September 8th was still 1.9% less than the 9,530,000 barrels of crude per day being produced during the pre-hurricane week ending August 25th, but 6.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.1% more than the 8,493,000 barrels per day of oil we produced during the during the week ending September 9th a year ago, while it was 2.7% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 77.7% of their capacity in using those 14,078,000 barrels of crude per day, down from the of 79.7% of capacity the prior week, and the lowest capacity utilization rate since the end of September 2008....the 14,078,000 barrels of oil refined this week was the least oil refined in the US since March 8th, 2013, 20.6% less that was being refined two weeks earlier, and 15.9% less than the 16,730,000 barrels of crude per day.that were being processed during week ending September 9th, 2016, when refineries were operating at 92.9% of capacity, and roughly 10% below the 10 year average of 15.7 million barrels of crude being refined per day at this time of year...

even with the drop in US oil refining, gasoline production from our refineries rose by 371,000 barrels per day to 9,888,000 barrels per day during the week ending September 8th...that brought this week's gasoline output almost up to the level of the 9,900,000 barrels of gasoline that were being produced daily during the comparable week a year ago....however, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 519,000 barrels per day to 3,973,000 barrels per day at the same time, which was 19.5% less than the 4,933,000 barrels per day of distillates that were being produced during the week ending September 9th last year.... 

even with this week's increase in gasoline production, our end of the week gasoline inventories fell by 8,428,000 barrels to 226,738,000 barrels by September 8th, the 10th decrease in gasoline inventories in 13 weeks and the largest drop on record...that was as our domestic consumption of gasoline rose by 456,000 barrels per day to 9,619,000 barrels per day, and as our exports of gasoline rose by 209,000 barrels per day to 528,000 barrels per day, while our imports of gasoline rose by 81,000 barrels per day to 556,000 barrels per day....with significant gasoline supply withdrawals in 10 out of the last 13 weeks, our gasoline inventories are now 4.4% below last September 9th's level of 228,360,000 barrels, even as they are still fractionally higher than the 217,387,000 barrels of gasoline we had stored on September 11th of 2015, and roughly 3.4% above the 10 year average of gasoline supplies for this time of the year... 

meanwhile, with the big decrease in our distillates production, our supplies of distillate fuels fell by 3,215,000 barrels to 144,552,000 barrels over the week ending September 8th, as the amount of distillates supplied to US markets, a proxy for our domestic consumption, slipped 6,000 barrels per day to 4,057,000 barrels per day, while our exports of distillates fell by 227,000 barrels per day to 511,000 barrels per day and our imports of distillates rose by 26,000 barrels per day to 136,000 barrels per day...after this week’s decrease, our distillate inventories were 11.2% lower than the 162,754,000 barrels that we had stored on September 9th, 2016, and 6.1% lower than the distillate inventories of 153,963,000 barrels of distillates that we had stored on September 11th of 2015, even as they remain fractionally higher than the 10 year average for distillates stocks for this time of the year…

finally, with another big drop in use of crude by our refineries, our commercial crude oil inventories rose for the 2nd week in a row, increasing by 5,888,000 barrels to 468,241,000 barrels as of September 8th, just the 4th increase in the past 24 weeks...while our oil inventories as of September 8th were 2.5% below the 480,166,000 barrels of oil we had stored on September 9th of 2016, they were 10.4% higher than the 423,958,000 barrels in of oil that were in storage on September 11th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 41.4% higher than the 331,101,000 barrels of oil we had in storage on September 12th of 2014...  

This Week's Rig Count

US drilling activity decreased for the 8th time in the past 12 weeks during the week ending September 15th, after a string of 23 consecutive weekly increases earlier this year, with both oil and gas drilling seeing pullbacks....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 8 rigs to 936 rigs in the week ending Friday, which was 430 more rigs than the 506 rigs that were deployed as of the September 16th report in 2016, while 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 was down by 7 rigs to 749 rigs this week, their 6th week without an increase, which still left oil rigs up by 333 over the past year, while their count remained 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 1 rig to 186 rigs this week, which was still 97 more rigs than the 89 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, just as there was also a miscellaneous rig that was deployed a year ago...

with new drilling starting on a platform off the Louisiana coast, the Gulf of Mexico rig count increased by 1 rig to 17 rigs this week, which was also the total US offshore count...in both cases, that was down from 20 rigs offshore in the Gulf and for total US a year ago...however, a platform that had seen drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of 4 rigs, the same as a year ago...

the count of active horizontal drilling rigs rose by 2 rigs to 795 rigs this week, which was up by 401 rigs from the 394 horizontal rigs that were in use in the US on September 16th of last year, but was also down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the vertical rig count was down by 8 rigs to 67 vertical rigs this week, which was still up from the 64 vertical rigs that were deployed during the same week last year...at the same time, the directional rig count was down by 2 rigs to 74 rigs this week, which was still up from the 48 directional rigs that were deployed on September 16th of 2016....

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 September 15th, the second column shows the change in the number of working rigs between last week's count (September 8th) and this week's (September 15th) count, the third column shows last week's September 8th 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 for the 16th of September, 2016...     

this week's details are pretty simple; there were no other changes in states or basins that aren't shown on the table above...

 

note: there's more here....

slow recovery of Texas ports, refineries; US oil & gasoline prices remain distorted

most of news out of the oil and gas patch this week related to the gradual recovery of Texas and Louisiana oil port operations, Gulf of Mexico and Eagle Ford oil and gas production, Gulf refinery operations and the related product distribution pipelines...by Monday, the Colonial Pipeline from Houston to the New York area, which supplies about 60% of the incoming oil products to the Atlantic Coast, resumed pumping distillates and jet fuel; by Tuesday, they also resumed pumping gasoline...by Wednesday, almost half of the refinery capacity that had been shut down at the height of the flooding was coming back, with just 4 refineries still remaining totally shut down, and 13 refineries in the process of restarting, which we've learned is a fraught and dangerous procedure...at the beginning of the week, at least 54 tankers with capacity to carry more than 33 million barrels remained in a queue off the Gulf Coast, and although the ports around Houston were open, draft restrictions due to silting of the ship channels remained in place, and as a result Texas oil imports were only proceeding at one fifth of their normal pace...

oil prices remained volatile; US contract prices for October fell to as low as $45.96 a barrel on Wednesday of last week as export ports and refineries closed, then moved back up to as high as $49.16 a barrel this Wednesday, as Harvey damage concerns eased, only to fall back to $47.48 a barrel on Friday as the refinery recovery seemed to be going slower than expected...note that these price quotes are only for US oil and also only for the near term; for instance, the front month price quote for North Sea Brent oil, the international benchmark price, only fell to as low as $50.73 a barrel on Wednesday of last week, and then recovered to close this week at $53.78 a barrel, more than 13% higher than the US price for oil...at the same time, US oil prices for December delivery only fell to close as low as 46.94 at last week's nadir, and then recovered to $48.56 a barrel on Friday, whereas the October 2018 contract price for oil only fell to as low as $48.26 a barrel on Wednesday of last week, and then recovered to close this week at $49.94 a barrel, more than 5% higher than the current oil price...meanwhile, contract prices for October gasoline had risen by as much as 28 cents a gallon to $1.7792 a gallon last week; those prices fell every day this week and ended Friday at $1.6476 a gallon as supply threats were gradually ameliorated...meanwhile, gasoline prices at the pump averaged 30 cents a gallon higher nationally and 50 cents a gallon higher in Texas, as orders to evacuate all 5.6 million people living in Florida put new pressure on gasoline supplies in the Southeast...

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 September 1st, largely reflects the effect of Hurricane Harvey on oil supplies and consumption as it stalled over Texas and the adjacent Gulf of Mexico for most of the week; thus it indicates a drop in oil imports, as ships avoided the affected ports, a drop in oil exports, as the primary US oil export facilities were shut down, a drop in oil production, as output from the Eagle Ford shale was shut in as the hurricane transversed the area, a drop in oil refining, as up to 25% of refining capacity was shut down by the end of the week, and an increase in US crude oil supplies, because without refineries, crude oil is pretty useless...

our imports of crude oil fell by an average of 822,000 barrels per day to an average of 7,083,000 barrels per day during the week, while at the same time our exports of crude oil fell by 749,000 barrels per day to an average of 153,000 barrels per day, which meant that our effective imports netted out to an average of 6,930,000 barrels per day during the week, 73,000 barrels per day less than during the prior week...at the same time, our field production of crude oil fell by 749,000 barrels per day to an average of 8,781,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,711,000 barrels per day during the cited week...

during the same period, US oil refineries were using 14,472,000 barrels of crude per day, 3,253,000 barrels per day less than they used during the prior week, while at the same time 614,000 barrels of oil per day were being added to oil storage facilities in the US...hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 625,000 more barrels per day than what refineries reported they used during the week plus what was added to storage...to account for that discrepancy, the EIA needed to insert a (-625,000) 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"...note that last week's unaccounted for crude was +421,000, so this week's unaccounted oil represents a swing of 1,046,000 barrels per day, and thus we can surmise that the week over week oil data is accordingly suspect...

US oil refineries were operating at 79.7% of their capacity in using those 14,472,000 barrels of crude per day, down from the 12 year high of 96.6% of capacity the prior week, and the lowest capacity utilization rate since the first week of February 2010....the 14,472,000 barrels of oil refined this week was the least oil refined in the US since April 19, 2013, 14.5% less than the 16,615,000 barrels of crude per day.that were being processed during week ending September 2nd, 2016, when refineries were operating at 93.7% of capacity, and roughly 7.5% below the 10 year average of 15.7 million barrels of crude being refined per day at this time of year...for a visual on how bad US refinery throughput was hit by Harvey, we'll include a graph of that below...

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, US oil refining was either at seasonal record highs or near the top of the average range, and that since April of this year, US oil refining had consistently beat the previous records by a large margin...however, oil refining for the week ending September 1st represents a drop of 18.3% from last week's record, a shortfall we might expect to see continue for a least another week as flooded refineries gradually recover...

now, i know no one can look at that chart without asking what caused that obvious plunge to 11,500 gallons per day in the 10 year history...best i can determine that was the result of Hurricane Ike of 2008, which made landfall on Galveston Island on September 13 as a strong Category 2 hurricane, with a storm surge of over 15 feet from Galveston into southern Louisiana...Ike also knocked out power to most of the Houston area at the same time, so while it didn't cause flooding, it certainly could have been responsible for a similar reduction of refining capacity in the week that it hit, which coincidentally marked the onset of the Global Financial Crisis and Great Recession...

with this week's big hit to US oil refining, gasoline production from our refineries fell by 1,085,000 barrels per day from last week's record to 9,517,000 barrels per day during the week ending September 1st, the lowest gasoline output since March....that left this week's gasoline output at a level 6.4% lower than the 10,173,000 barrels of gasoline that were being produced daily during the comparable week a year ago....in addition, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 563,000 barrels per day to 4,492,000 barrels per day at the same time, which was 10.7% less than the 5,031,000 barrels per day of distillates that were being produced during the week ending September 2nd last year....

with this week's reduced gasoline production, our end of the week gasoline inventories fell by 3,199,000 barrels to 226,738,000 barrels by September 1st, the 9th decrease in gasoline inventories in 12 weeks...that was even as our domestic consumption of gasoline fell by 683,000 barrels per day to 9,163,000 barrels per day, the least since April, and as our imports of gasoline fell by 364,000 barrels per day to 475,000 barrels per day, and as our exports of gasoline fell by 418,000 barrels per day to 319,000 barrels per day...with significant gasoline supply withdrawals in 9 out of the last 12 weeks, our gasoline inventories are now half a percent below last September 2nd's level of 227,793,000 barrels, while they are still 5.7% higher than the 214,547,000 barrels of gasoline we had stored on September 4th of 2015, and roughly 8% above the 10 year average of gasoline supplies for this time of the year...

meanwhile, with the big decrease in our distillates production, our supplies of distillate fuels fell by 1,396,000 barrels to 147,767,000 barrels over the week ending September 1st, the first distillates inventory decrease in 4 weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 153,000 barrels per day to 4,063,000 barrels per day, while our exports of distillates fell by 384,000 barrels per day to 738,000 barrels per day and our imports of distillates rose by 26,000 barrels per day to 110,000 barrels per day...after this week’s decrease, our distillate inventories were 6.6% lower than the 158,135,000 barrels that we had stored on September 2nd, 2016, and 2.1% lower than the distillate inventories of 150,903,000 barrels of distillates that we had stored on September 4th of 2015, even as they remain more than 4% above the 10 year average for distillates stocks for this time of the year…

finally, with the big drop in use of crude by our refineries, our commercial crude oil inventories rose for only the 3rd time in the past 22 weeks, increasing by 4,580,000 barrels to 457,773,000 barrels as of September 1st, an increase not even as large as the prior week's decrease...however, while our oil inventories as of September 1st were 3.8% below the 480,725,000 barrels of oil we had stored on September 2nd of 2016, they were 8.5% higher than the 426,062,000 barrels in of oil that were in storage on September 4th of 2015, and up considerably from the normal level for our oil supplies in the years before the oil glut started building up, ie., 41.2% higher than the 327,428,000 barrels of oil we had in storage on September 5th of 2014... 

This Week's Rig Count

US drilling activity increased for the 4th time in the past 11 weeks during the week ending September 8th, after a string of 23 consecutive weekly increases earlier this year, but the count still remains lower than during July and August....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 1 rig to 944 rigs in the week ending Friday, which was 436 more rigs than the 508 rigs that were deployed as of the September 9th report in 2016, while 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 was down by 3 rigs to 756 rigs this week, which still left oil rigs up by 342 over the past year, while their count remained 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 4 rigs to 187 rigs this week, which was 95 more rigs than the 92 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count was unchanged at 16 rigs this week, as was the total offshore count...in both cases, that was down from 18 offshore in the Gulf and in total a year ago...however, a platform was set up and began drilling operations on an inland lake in southern Louisiana this week, for an 'inland waters' count of 5 rigs, the same as a year ago...

working horizontal drilling rigs fell by 1 rig to 793 rigs this week, which left the horizontal rig count still up by 397 rigs from the 396 horizontal rigs that were in use in the US on September 9th of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the directional rig count was down by 5 rigs to 76 rigs this week, which was still up from the 48 directional rigs that were deployed on September 9th of 2016.... on the other hand, the vertical rig count was up by 7 rigs to 75 vertical rigs this week, which was also up from the 64 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 September 8th, the second column shows the change in the number of working rigs between last week's count (September 1st) and this week's (September 8th) count, the third column shows last week's September 1st 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 for the 9th of September, 2016...     

other than the major producing states listed above, Alabama saw its rig count fall by a rig to 1 rig, which was also down from the 2 rigs active in Alabama in the same week last year, while Mississippi saw its rig count increase by 1 rig to 3 rigs, which was still down from the 4 rigs deployed in Mississippi on September 9th 2016..

 

note: there’s more here…

Harvey shuts down a quarter of US refining just a week after refining records were set; gasoline shortages result...

we're going to start with Hurricane Harvey, and what it has done to US energy infrastructure...although there was considerable damage to structures in the Corpus Christi area when it came on shore as a Category 4 storm with 130 mph winds near Rockport, Texas, about 20 miles up the coast, by far the greatest damage was from the rainfall, which surpassed 30 inches in a broad swath of the state from 50 miles west of Houston all the way to the Louisiana border...so we'll start with a map that shows where that rainfall fell..

the above map comes from the National Weather Service out of Brownsville Texas and as the legend indicates, it shows the extent of the area that received rainfall totals exceeding 20 inches in green, exceeding 30 inches in blue, and exceeding 40 inches in purple...for those of you not familiar with Texas geography, note the 50 mile scale near the lower left hand corner to get an idea about the breadth of the areas receiving such quantities of rain...Harvey was by far the worst rainfall disaster in US history, seeing the greatest amount of rain ever recorded in the Lower 48 states from a single storm, while the 51.88 inches of rainfall measured in Cedar Bayou east of Houston was the most rainfall that ever fell on one place in one event in the continental US....an estimated 24.5 trillion gallons of water fell on Southeast Texas and southern Louisiana during the storm; that's enough water to cover the entirety of Washington DC 1,727 feet deep, more than 3 times the height of the Washington Monument...estimates are that roughly 460,000 Texans were flooded out, and as many as a million cars were damaged or destroyed...the disaster was exacerbated by urban sprawl into what were once wetlands, where wetlands that could have mitigated the flooding were paved over, and hence could not absorb any of the rain...the Texas coast terrain is relatively flat and drainage infrastructure is inadequate, so with the storm surge forcing high water into the mouths of the bayous, the rain that fell just accumulated on the already saturated surface...

next, we'll include a map that shows the track of Harvey through the Gulf Coast oil and gas infrastructure:

this map came from Platts on Tuesday, and the original version of it just showed the forecast track of Harvey, then a tropical storm, from that day forward...i've added the approximate path that Harvey took over the prior Friday through Tuesday period so you can see how the storm moved over land...notable features on this map include the Eagle Ford shale basin in yellow, inland from Corpus Christi and Houston; oil import and export ports, shown as blue diamonds; oil and gas pipelines, shown in blue and orange; LNG terminals, shown as pink triangles, and refineries, shown as variously sized and colored circles, to indicate the amount of oil each normally processes and their status at the time this map was made...the initial impact of the hurricane was to shut down offshore oil and gas production in the western Gulf, as crews were removed from the offshore platforms when the track of the storm was still uncertain...at the same time, at least 25 oil tankers carrying almost 17 million barrels of imported crude were stuck offshore, unable to unload as the Texas ports closed in anticipation of the storm....then, when the storm hit Corpus Christi, its refineries were shut down and loading of crude oil exports from both the Permian and Eagle Ford was halted...although Harvey was downgraded to a tropical storm by the time it made it into the Eagle Ford, most oil production from that field had ahlready been shut in...

now remember, circulation around a hurricane is counter-clockwise, so over this entire time it was drawing moisture in from the warmer than normal Gulf on the eastern side of the storm and pushing the heaviest rain northward into the Houston area...at that point, the storm stalled, moving no more than 2 miles an hour, till it slowly turned around and moved back out into the Gulf, with heavy rain bands now extending as far east as New Orleans (not shown above); the above map thus shows the refinery closures at that time, but as we shall see in the next table, large refineries in Beaumont and Port Arthur marked as operational above were eventually shut down too, as Harvey's late week rainfall later flooded those areas...

the table below comes from an article at Platts titled Oil Factbox: Gasoline prices soar on Harvey-related outages and it shows the major refinery outages caused by Harvey as of early Friday...roughly 47% of US refining capacity is on the Gulf Coast, and more than half of that was impacted by Harvey...most of these refineries were flooded, so they may be down for a while...for instance, the Saudi owned Motiva refinery in Port Arthur, the largest refinery in the US, will be shut for at least two weeks...Exxon's Baytown, the 2nd largest US refinery, was hit by the Houston area flooding, and may be back online sooner...however, Exxon's Beaumont refinery reports flooding still ongoing, with water well over the 10 foot levee protecting the plant, and oil spilling into that water...and that Corpus Christi refineries remain shut down a week after the hurricane passed them may mean they've sustained some storm damage, since flooding was not a major problem that far south down the Texas coast...

notice that as of Friday, this table indicates that 22% of US refining capacity was still offline, meaning 4 million barrels per day of oil were not being refined; others put that figure at 4.4 million barrels, which would mean that one quarter of US refining has been shut down...the result of this has been to push oil prices down, while prices for gasoline, distillates and jet fuel have all been rising...there are already shortages of gasoline in some areas of Texas, and panicked gas lines have formed where gasoline is available...on Wednesday, the Colonial Pipeline, normally carrying gasoline, diesel and jet fuel from several refineries in Houston, Port Arthur through the south Atlantic states to New York, was shut down for lack of supply; that pipeline normally carries “roughly one in every eight barrels of fuel consumed in the country"...a day earlier, the Explorer Pipeline from Houston to Chicago was shut down, cutting off the normal supplies for the Chicago area...even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the US, it's not in the right places to address these Midwest and East Coast shortages; pipeline terminals typically only have a five-day supply in storage to meet immediate needs...bottom line, that means higher prices and gasoline shortages might hamper travel over the Labor Day holiday weekend...

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 August 25th, ie, the week before Harvey hit land, showed a big drop in our imports of crude oil, a new record for the amount of crude oil being used by US refineries, and hence another withdrawal of from our stored supplies of crude oil....our imports of crude oil fell by an average of 885,000 barrels per day to an average of 7,905,000 barrels per day during the week, while at the same time our exports of crude oil fell by 34,000 barrels per day to an average of 902,000 barrels per day, which meant that our effective imports netted out to an average of 7,003,000 barrels per day during the week, 851,000 barrels per day less than during the prior week...at the same time, our field production of crude oil inched higher by 2,000 barrels per day to an average of 9,530,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,533,000 barrels per day during the cited week...

during the same period, refineries were using 17,725,000 barrels of crude per day, 264,000 barrels per day more than they used during the prior week, while at the same time 771,000 barrels of oil per day were being pulled out of oil storage facilities in the US...hence, 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 421,000 less barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+421) 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"...note that last week's unaccounted for crude was -396,000, a swing of 818,000 barrels per day, and hence the week over week data is accordingly suspect..

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 8,146,000 barrels per day, which was 4.6% below the imports of the same four-week period last year....this week's 2,000 barrel per day increase in our crude oil production was the result of a 14,000 barrel per day increase in oil output from Alaska, which was offset by a 12,000 barrels per day decrease in oil output from wells in the lower 48 states...the 9,530,000 barrels of crude per day that were produced by US wells during the week ending August 25th was the most oil US wells have produced since July 17, 2015, 8.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.3% more than the 8,488,000 barrels per day of oil we produced during the during the week ending August 26th a year ago, while our oil output was still 0.9% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015...

US oil refineries were operating at 96.6% of their capacity in using those 17,725,000 barrels of crude per day, which was up from 95.4% of capacity the prior week, and the highest refinery utilization rate since August 26, 2005....the 17,725,000 barrels of oil refined this week was the most ever refined in US history, 149,000 barrels per day more than the previous record, 6.7% more than the 16,615,000 barrels of crude per day.that were being processed during week ending August 26th, 2016, when refineries were operating at 92.8% of capacity, and roughly 12.9% above the 10 year average of 15.7 million barrels of crude refined per day at this time of year...

with this week's record level of oil refining, gasoline production from our refineries increased by 36,000 barrels per day to a new record high of 10,602,000 barrels per day during the week ending August 25th, topping the record just set last week...that put this week's gasoline output at a level 5.8% higher than the 10,021,000 barrels of gasoline that were being produced daily during the comparable week a year ago....however, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 36,000 barrels per day to 5,055,000 barrels per day at the same time, which was still 1.6% more than the 4,973,000 barrels per day of distillates that were being produced during the week ending August 26th last year....

with this week's record gasoline production, our end of the week gasoline inventories increased by 35,000 barrels to 229,937,000 barrels by August 25th, only the 3rd small increase in gasoline inventories in 11 weeks...that was as our domestic consumption of gasoline rose by 217,000 barrels per day to a record 9,846,000 barrels per day, and as our imports of gasoline rose by 284,000 barrels per day to 839,000 barrels per day, and as our exports of gasoline rose by 44,000 barrels per day to 637,000 barrels per day...however, with significant gasoline supply withdrawals in 8 out of the last 11 weeks, our gasoline inventories are still 0.9% below last August 26th's level of 232,004,000 barrels, while they are still 7.4% higher than the 214,163,000 barrels of gasoline we had stored on August 28th of 2015, and roughly 9% above the 10 year average for gasoline supplies for this time of the year...

meanwhile, even with the decrease in our distillates production, our supplies of distillate fuels managed to increase by 748,000 barrels to 149,163,000 barrels over the week ending August 25th, the third modest distillates inventory increase in a row…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 167,000 barrels per day to 3,910,000 barrels per day, while our imports of distillates fell by 48,000 barrels per day to 84,000 barrels per day, and as our exports of distillates fell by 20,000 barrels per day to 1,122,000 barrels per day....however, even after this week’s increase, our distillate inventories were still 3.6% lower than the 154,753,000 barrels that we had stored on August 26th, 2016, and fractionally lower than the distillate inventories of 149,951,000 barrels of distillates that we had stored on August 28th of 2015, even as they remain more than 5% above the 10 year average for distillates stocks for this time of the year…

finally, with the week's big drop in our oil imports while our refineries were using oil at a record pace, our commercial crude oil inventories fell for the 19th time in the past 21 weeks, decreasing by another 5,392,000 barrels to 457,773,000 barrels as of August 25th, leaving us with the least oil we've had in storage since January 15th, 2016...however, while our oil inventories as of August 25th ended 7.6% below the 495,238,000 barrels of oil we had stored on August 26th of 2016, they were still up considerably from the normal level for our oil supplies in the years before the oil glut started building up, ie., 8.1% higher than the 423,657,000 barrels in of oil that were in storage on August 28th of 2015, and 39.5% higher than the 328,119,000 barrels of oil we had in storage on August 29th of 2014...

This Week's Rig Count

US drilling activity increased for the 3rd time in the past 10 weeks during the week ending September 1st, after a string of 23 consecutive weekly increases earlier this year, as  apparently there was no Harvey impact....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 3 rigs to 943 rigs in the week ending Friday, which was 446 more rigs than the 497 rigs that were deployed as of the September 2nd report in 2016, while 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 was unchanged at 759 rigs this week, which still left oil rigs up by 352 oil rigs over the past year, while their count remained 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 3 rigs to 183 rigs this week, which was 95 more rigs than the 88 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count fell by one rig to 16 Gulf rigs this week, as a rig offshore from Louisiana was shut down...nonetheless, the Gulf of Mexico count was still up from the 10 Gulf rigs that were running during the same week a year ago...the total US offshore rig count was the same as the Gulf count, since there was no other US offshore drilling activity except in the Gulf...

working horizontal drilling rigs fell by 2 rigs to 794 rigs this week, which left the horizontal rig count still up by 399 rigs from the 395 horizontal rigs that were in use in the US on September 2nd of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the vertical rig count was up by 4 rigs to 68 vertical rigs this week, which was also up from the 60 vertical rigs that were deployed during the same week last year...at the same time, the directional rig count was up by 1 rig to 81 rigs this week, which was also up from the 42 directional rigs that were deployed on September 2nd of 2016....

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 September 1st, the second column shows the change in the number of working rigs between last week's count (August 25th) and this week's (September 1st) count, the third column shows last week's August 25th 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 for the 2nd of September, 2016...     

 

note: there's more here...