US oil refining and distillates output at seasonal highs; largest drilling pullback in 33 weeks; smallest DUC increase in 20 months, et al

oil prices moved much higher this past week, lifted by a Friday rally that saw prices rise over 6% at one point, after OPEC announced an agreement to modestly increase their oil output in the 2nd half of this year, thereby removing the uncertainty surrounding the OPEC meeting outcome that had been holding prices lower...after falling 1% last week to $65.06 a barrel on OPEC uncertainty and trade war fears, widely quoted prices for US light sweet crude for July delivery were up 79 cents, or 1.2%, to $65.85 a barrel in volatile trading on Monday, as speculation on the outcome of the OPEC meeting drove trading...that gain was reversed on Tuesday, as oil prices fell 78 cents to $65.07 a barrel, as the escalating trade war between the US and China unleashed selling across most global markets...but oil prices jumped $1.15 to $66.22 a barrel as trading in July oil expired on Wednesday, after the EIA reported the largest weekly drop in U.S. crude supplies since January...now quoting prices of US crude for August, that contract fell 17 cents to $65.54 a barrel on Thursday, as oil traders were reluctant to commit to further buying before the OPEC meeting the next day...however, when that OPEC meeting decided on a modest increase of roughly 600,000 barrels per day in oil output, rather than the million or 1.5 million barrel per day increase some expected, oil prices jumped nearly $4 to $69.38 a barrel after the announcement, before settling back to $68.58 a barrel at the close, with a net gain on the day of $3.04 a barrel, the largest price jump in nearly two years...

so you can see what this week's price jump looks like compared to the recent movement of oil prices, we'll include a graph of US oil prices over the past six months...

the above graph is an early Saturday afternoon screenshot of the live interactive US 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 a day of oil trading between December 22nd, 2017 and Friday of this week, wherein the 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 for 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...also visible on this "candlestick" style graph are the faint grey "wicks" above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day...note that since this graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting..

as we can see on the graph above, oil prices have moved up over an irregular trajectory most of this year, as the global oil glut gradually evaporated in the face of the OPEC production cuts that began in January of 2017, and as threats of US sanctions against Venezuela and Iran threatened to tighten crude supplies further...however, after topping $70 a barrel and nearing $73 for the first time since November 2014 in mid May, oil prices started sliding on rumors of this month's OPEC meeting, and then plunged to $67.88 a barrel when word came from the Saudi oil minister that the Saudis and Russia were prepared to add as much as a million barrels per day to global supplies...so this week's price increase is largely a reversal of that late May drop, as the uncertainly on what OPEC and Russia will be doing in the 2nd half of this year has now been removed...thus the August WTI contract, representing the benchmark US price, ended the week's trading on NYMEX 5.8% higher at $68.58 a barrel, while the international benchmark of North Sea Brent, also trading for August, ended 2.9% higher at $75.55 a barrel..

while news on natural gas seemed to have been pushed off the feeds and energy pages that i watch, prices did end lower this week, as the early summer heat wave gave way to more moderate temperatures across much of the US...after ending the prior week above $3 per mmBTU for the first time since January, natural gas prices for July fell 7.1 cents out of the gate on Monday and then another 5.1 cents to $2.90 per mmBTU on Tuesday before steadying, and then ending the week at 2.945 per mmBTU...the natural gas storage report for week ending June 15th from the EIA indicated that natural gas in storage in the US rose by 91 billion cubic feet to 2,004 billion cubic feet over the week, which left our gas supplies 757 billion cubic feet, or 27.4% below the 2,761 billion cubic feet that were in storage on June 16th of last year, and 499 billion cubic feet, or 19.9% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the second week of June...the consensus forecast was for an addition of 85 billion cubic feet to gas in underground storage, so this week's 91 billion cubic foot addition was again above expectations, and was also above the average 83 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year....so despite the warmer than normal June temperatures, natural gas continues to be added to storage at a pace that would bring our gas supplies back up to a near normal level going into next winter....  

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 15th, showed that due to a jump in our oil exports and another increase in oil refining, we had to pull oil out of our commercial crude supplies for the tenth time in the past twenty-one weeks....our imports of crude oil rose by an average of 143,000 barrels per day to an average of 8,242,000 barrels per day during the week, after falling by 247,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 344,000 barrels per day to an average of 2,374,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 15th worked out to a net import average of 5,868,000 barrels of per day during the week, 201,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,768,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using a near record 17,701,000 barrels of crude per day during the week ending June 15th, 196,000 barrels per day more than they used during the prior week, while at the same time 867,000 barrels of oil per day were reportedly being pulled out of oil storage in the US....hence, we can see that this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 66,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-66,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,080,000 barrels per day, which was 0.3% more than the 8,057,000 barrel per day average we imported over the same four-week period last year....the 867,000 barrel per day decrease in our total crude inventories included a 845,000 barrel per day withdrawal from our commercially available stocks of crude oil and a 22,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year's federal budget....this week's crude oil production was apparently was reported as unchanged because the EIA has decided to round the weekly oil production estimates to the nearest 100,000 barrels per day to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states...however, that rounding creates an even greater inaccuracy in the weekly data, as our production is now shown to have jumped 100,000 barrels per day last week, and then remained unchanged this week, even as the change for both weeks was likely in line with prior weekly increases...moreover, by including one variable that's rounded to the nearest 100,000 barrels per day in the weekly U.S. Petroleum Balance Sheet, the weekly "unaccounted for crude oil" adjustment on line 13 cannot be accurate to the nearest 1,000 barrels per day, yet it continues to be shown as a factor with that degree of accuracy...

meanwhile, US oil refineries were operating at 96.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 15th, matching the 17 year high for refinery utilization that was set during the week ending December 29, 2017...the 17,701,000 barrels of oil that were refined this week were the 2nd most barrels refined on record, topped only by the 17,725,000 barrels per day that were being refined during the last full week of August 2017....this week's refinery throughput was also 3.2% higher than the 17,152,000 barrels of crude per day that were being processed during the week ending June 16th a year ago, when US refineries were operating at 94.0% of capacity....

even with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much lower, falling by 352,000 barrels per day to 10,099,000 barrels per day during the week ending June 15th, after our refineries' gasoline output had increased by 793,000 barrels per day during the week ending June 8th....that decrease meant our gasoline production was 0.6% lower during the week than the 10,161,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year...on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) jumped by 357,000 barrels per day to a near record high of 5,468,000 barrels per day, an output level that was only higher during the last two weeks of 2017...as a result, this week's distillates production was 4.1% higher than the 5,251,000 barrels of distillates per day than were being produced during the week ending June 16th, 2017, which itself was a seasonal high at that time....  

despite the decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 3,277,000 barrels to 240,040,000 barrels by June 15th, the sixth increase in 15 weeks, but the 22nd increase in 32 weeks, as gasoline inventories, as usual, were being built up over the winter months....our gasoline supplies increased because the amount of gasoline supplied to US markets fell by 553,000 barrels per day to 9,326,000 barrels per day, and because our imports of gasoline rose by 26,000 barrels per day to 850,000 barrels per day, while our exports of gasoline fell by 4,000 barrels per day to 603,000 barrels per day....even after this week's decrease, our gasoline inventories finished the week three-quarters of a percent lower than last June 16th's level of 241,866,000 barrels, even as they are now more than 11% above the 10 year average of gasoline supplies for this time of the year...  

meanwhile, with this this week's big increase in distillates production, our supplies of distillate fuels rose for just the 3rd time in 11 weeks, increasing by 2,715,000 barrels to 117,408,000 barrels during the week ending June 15th...our distillate inventories also increased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 579,000 barrels per day to 3,825,000 barrels per day, after increasing by 902,000 barrels per day the prior week, as distillate wholesalers and retailers rebuilt supplies after the holiday week...meanwhile, our exports of distillates rose by 193,000 barrels per day to 1,304,000 barrels per day, while our imports of distillates decreased by 55,000 barrels per day to 49,000 barrels per day...however, since this week's inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 15th are still 23.0% below the 152,495,000 barrels that we had stored on June 16th, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year...

finally, with our oil exports rising at the same time our refineries were using more oil, our commercial supplies of crude oil decreased for the 12th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 5,914,000 barrels during the week, from 432,441,000 barrels on June 8th to 426,527,000 barrels on June 15th...thus, after falling most of the past year, our oil inventories as of June 15th were 16.2% below the 509,095,000 barrels of oil we had stored on June 16th of 2017, 14.7% below the 499,994,000 barrels of oil that we had in storage on June 17th of 2016, and 1.0% below the 430,837,000 barrels of oil we had in storage on June 19th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...     

This Week's Rig Count

US drilling activity decreased for the second time in the past thirteen weeks and for just the 3rd time in the past 18 weeks during the week ending June 22nd, as both drilling for natural gas and drilling for oil slowed simultaneously for the first time since November 3rd, 2017...Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 7 rigs to 1052 rigs over the week ending on Friday, which was also the largest one week drop since November 3rd, which nonetheless left us with 111 more rigs than the 941 rigs that were in use as of the June 23rd report of 2017, while it was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market...

the count of rigs drilling for oil was down by 1 rig to 862 rigs this week, which was still 104 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 6 rigs to 188 rigs this week, which was only 5 more gas rigs than the 183 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

with the shutdown of a rig offshore from Texas, drilling activity in the Gulf of Mexico was down by 1 rig to 18 rigs this week, which was also down from the 21 platforms that were deployed in the Gulf of Mexico a year ago...in addition, the platform that had been drilling offshore from Alaska was also shut down this week, so the total US offshore count of 18 rigs is now down from 22 rigs a year ago, when there was also a rig drilling off of the Alaskan coast...moreover, two of the platforms which had been set up to drill through inland lakes in southern Louisiana were also shut down this week, this week, so now there are only 2 such 'inland waters" rigs operating, down from the 4 'inland waters' rigs that were operating going into the same weekend a year ago...

for the second week in a row, the count of active horizontal drilling rigs decreased by 2 rigs, falling to 930 horizontal rigs this week, which was still 138 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 23rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the directional rig count decreased by 5 rigs to 62 directional rigs this week, which was also down from the 72 directional rigs that were in use during the same week of last year...on the other hand, the vertical rig count was unchanged at 60 vertical rigs this week, which was still down from the 77 vertical rigs that were deployed on June 23rd of 2017...

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 the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 22nd, the second column shows the change in the number of working rigs between last week's count (June 15th) and this week's (June 22nd) count, the third column shows last week's June 15th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 23rd of June, 2017...     

as you can see, Louisiana saw the largest rig decrease this week, with the 2 rigs shutdown on inland waters, another in the Haynesville in the northwestern part of the state, and another rig on dry land in the south...on the other hand, only Alaska and Wyoming show rig increases, while none of the major basins do...the decreases in drilling for natural gas aren't entirely evident, however, as in addition to the natural gas rigs shut down in the Haynesville and Pennsylvania Marcellus, we also had the switch of a rig from natural gas to oil in both the Eagle Ford of south Texas and the Granite Wash of the panhandle region, neither of which show up in this overall summary table or as a change in the rig count...in addition to those, 2 other rigs that had been drilling for gas in other unnamed basins not tracked separately by Baker Hughes were also shut down this week; since none of the other states showing decreases are likely candidates for those two gas rig shutdowns, we'd venture a guess that the 2 inland lakes rigs that were shut down this week had also been drilling for gas....

DUC well report for May

Monday of this past week saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the 20th consecutive month, this report again showed an increase in uncompleted wells nationally, but the increase in May was the smallest over that span, as increased well completions have outpaced the growth of new drilling over each of the past 5 months...not unlike most previous months, this month's increase was mostly because of a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, while basins other than the Eagle Ford of south Texas and the Bakken of North Dakota saw more completions than new wells drilled...for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 31, from 7,741 wells in April to 7772 wells in May, the twentieth consecutive monthly increase in uncompleted wells nationally, and hence again the highest number of such unfracked wells in the history of this report....that was as 1316 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during May, up from 1297 in April, while 1285 wells were completed and brought into production by fracking, an increase of 39 completions over the prior month...hence, at the May completion rate, the 7,772 drilled but uncompleted wells left at the end of April represent more than a 6.0 month backlog of wells that have been drilled but not yet fracked...

as has been the case for most of the past two years, the May DUC well increases were predominantly oil wells, with most of those in the Permian basin...the Permian saw its total count of uncompleted wells rise by 100, from 3,103 DUC wells in April to 3,203 DUCs in May, as 572 new wells were drilled into the Permian but only 472 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 14, from 1,471 DUC wells in April to 1,485 DUCs in May, as 188 wells were drilled in the Eagle Ford during May, while 174 Eagle Ford wells were completed...in addition, the number of DUC wells in the Bakken of North Dakota increased by 1 to 750, as 110 wells were drilled into the Bakken while 109 Bakken wells were fracked...on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 48 to 491, as just 140 Niobrara wells were drilled while 188 Niobrara wells were being fracked...similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 27 wells, from 771 DUCs in April to 744 DUCs in May, as 102 wells were drilled into the Marcellus and Utica shales, while 129 of the already drilled wells in the region were fracked...meanwhile, DUC wells in the Anadarko region fell by 8, from 921 DUC wells in April to 913 DUCs in May, as 147 wells were drilled in the Anadarko region in April while 155 drilled wells in the basin were completed...lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by one to 186, as 57 wells were drilled into the Haynesville during May, while 58 Haynesville wells were fracked during the same period...

thus, for the month of May, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 59 wells to 6,842 wells, while the uncompleted well count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 28 wells to 930 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…

US gasoline demand hits an all time high; distillates supplies at a 10 year seasonal low; global oil supplies down in May

oil prices ended lower for the 4th week in a row as Trump ramped up his trade wars against both our allies and against China, and as it became increasingly evident that OPEC would agree to increase oil production when they meet in Vienna next week...after falling just 7 cents to $65.74 a barrel in volatile trading last week, prices for July delivery of WTI, the benchmark US oil reversed a morning slide and rose 36 cents to $66.10 a barrel on Monday, as comments from the Iraqi oil minister cast doubt as to whether OPEC members would actually boost output at their upcoming meeting...against the backdrop of a Saudi and UAE invasion of Yemen, prices then edged up another 26 cents to close at $66.36 a barrel on Tuesday, after the monthly OPEC report warned there's a high degree of uncertainty still hanging over the global oil markets this year...oil prices then pushed up to a two week high on Wednesday, closing at $66.36 a barrel for a gain of 28 more cents, after the weekly EIA report indicated a larger than expected drop in US crude supplies along with surprise drawdowns of gasoline and distillates inventories...crude prices then rose for a 4th day on Thursday after Saudi oil minister Al Falih said that while “it’s inevitable” that OPEC would agree to boost oil production, the increase in output would be "reasonable", with oil closing 25 cents higher at $66.89 a barrel...but oil prices then crashed on Friday morning, falling by as much as $2.60 to $64.29 a barrel, after Saudi Arabia and Russia said they have already boosted their production modestly, and would make it official at their meeting next week, and Trump imposed 25% tariffs on $50 billion worth of high tech Chinese imports and the Chinese responded immediately with their own tariffs on $50 billion of US goods, with oil prices steadying that afternoon to end down $1.83 for the day at $65.06 a barrel...US oil prices thus ended the week with a loss of 68 cents, or just over 1%, while the international benchmark Brent crude trading for August oil finished the week $3.02 or nearly 4% lower at $73.44 a barrel, dropping $2.50 a barrel on Friday alone...

meanwhile, natural gas prices ended the week higher, rising daily save for a tenth of cent pullback on Tuesday, and ending the week above $3 for the first time since January on a 5.7 cent increase to $3.022 on Friday, on a forecast for hot weather for much of the country, seen as an impediment to rebuilding underground inventories...the natural gas storage report for week ending June 8th from the EIA indicated that natural gas in storage in the US rose by 96 billion cubic feet to 1,913 billion cubic feet over the week, which left our gas supplies 785 billion cubic feet, or 29.1% below the 2,698 billion cubic feet that were in storage on June 9th of last year, and 507 billion cubic feet, or 21.0% below the five-year average of 2,420 billion cubic feet of natural gas that are typically in storage after the first week of June...a Bloomberg survey had forecast an addition to gas storage in a range of between 82 and 95 billion cubic feet, so this week's 96 billion cubic foot addition was above all expectations, and was also above the average 91 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year....at today's inventory levels, we'd have to add 1,877 billion cubic feet of natural gas to storage to match the 3,790 billion cubic feet we had stored after the first week of November last year, so figure we need an inventory build averaging over 89 billion cubic feet per week over the next 21 weeks to bring our gas supplies back up to a reasonable level going into winter....   

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 8th, indicated that due to a combination of lower oil imports, higher oil exports, and increased refining, we had to pull oil out of our commercial crude supplies for the ninth time in the past twenty weeks....our imports of crude oil fell by an average of 247,000 barrels per day to an average of 8,099,000 barrels per day during the week, after rising by 715,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 316,000 barrels per day to an average of 2,030,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 8th worked out to a net import average of 6,069,000 barrels of per day during the week, 563,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells rose by 100,000 barrels per day to a record high of 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,969,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using a seasonal high of 17,505,000 barrels of crude per day during the week ending June 8th, 136,000 barrels per day more than they used during the prior week, while at the same time 592,000 barrels of oil per day were reportedly being pulled out of oil storage in the US....hence, we can see that this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 56,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-56,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,059,000 barrels per day, which was 1.3% less than the 8,161,000 barrel per day average we imported over the same four-week period last year...the 592,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged...this week's 100,000 barrel per day increase in our crude oil production was due to a 100,000 barrel per day increase in output from wells in the lower 48 states, while an 18,000 barrel per day decrease in oil output from Alaska was not subtracted from the final figures, with no explanation as to why...the 10,900,000 barrels of crude per day that were produced by US wells during the week ending June 8th were again the highest on record, 16.8% more than the 9,330,000 barrels per day that US wells were producing during the week ending June 9th of last year, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

US oil refineries were operating at 95.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 8th, up from 95.4% of capacity the prior week, as refineries will usually try to run flat out through the summer driving season...while the 17,505,000 barrels of oil that were refined this week were the most barrels refined this early in any year, they were still down fractionally from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017....this week's refinery throughput was also 1.4% higher the 17,256,000 barrels of crude per day that were being processed during the same week a year ago, when US refineries were operating at 94.4% of capacity.... 

with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much higher, rising by 793,000 barrels per day to 10,451,000 barrels per day during the week ending June 8th, after our refineries' gasoline output had decreased by 775,000 barrels per day during the week ending June 1st....that big increase meant our gasoline production was 6.2% higher during the week than the 9,843,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 213,000 barrels per day to 5,111,000 barrels per day, after rising to a seasonal high the prior week...as a result, this week's distillates production was fractionally lower than the 5,154,000 barrels of distillates per day than were being produced during the week ending June 9th, 2017....  

however, even with the jump in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 2,271,000 barrels to 236,763,000 barrels by June 8th, the ninth decrease in 14 weeks, but just the 10th decrease in 31 weeks, as gasoline inventories, as usual, were being built up over the winter months.....our gasoline supplies decreased because the amount of gasoline supplied to US markets rose by 903,000 barrels per day to a record high of 9,879,000 barrels per day, and because our exports of gasoline rose by 69,000 barrels per day to 607,000 barrels per day, while our imports of gasoline rose by 47,000 barrels per day to 824,000 barrels per day....so after this week's decrease, our gasoline inventories finished the week 2.4% lower than last June 9th's level of 242,444,000 barrels, even as they were still roughly 9.7% above the 10 year average of gasoline supplies for this time of the year...  

since the amount of gasoline supplied to US markets, seen as a measure of domestic demand and consumption, was at a record high this week, we'll include a graph of what that looks like, compared to its recent history...

the above graph came from a package of oil graphs on this report that John Kemp of Reuters emailed out on Wednesday (available as a pdf here), and it shows gasoline supplied to US markets in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our domestic gasoline demand for any given date shown in the light blue shaded area, and the median of our gasoline consumption, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of gasoline supplied for each week in 2017 traced weekly by a yellow line, and the year to date gasoline supplied for 2018 represented by the red graph...as John headlines at the top, that red line shows that gasoline supplied rose by 903,000 barrels to a record high of 9.88 million barrels per day with this week's report, which means it rose by more than 10% from the prior week's level...now, you can see by the red line that "gasoline product supplied" is quite volatile, and during the prior week it had fallen to a 16 week low....if you recall our closing discussion on last week's report, we noted that all refinery "product supplied" metrics had dropped last week, resulting in what was the largest jump in product inventories in nearly 10 years, which we showed was a fluctuation similar to that of prior Memorial day weeks...so this week's "record demand" is colored by that drop, as all product supplied metrics bounced back, as wholesalers and retailers rebuilt their own supplies, after the holiday drawdown..

meanwhile, with this this week's decrease in distillates production, our supplies of distillate fuels fell for the 8th time in 10 weeks, decreasing by 2,101,000 barrels to 114,693,000 barrels during the week ending June 8th...our distillate inventories decreased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 902,000 barrels per day to 4,404,000 barrels per day, after decreasing by 817,000 barrels per day the prior week, when distillate wholesalers were drawing on their own supplies, which they'd built in advance of the holiday weekend...meanwhile, our exports of distillates fell by 548,000 barrels per day from last week's near record to 1,111,000 barrels per day, while our imports of distillates decreased by 42,000 barrels per day to 104,000 barrels per day...since this week's inventory decrease comes after our distillate supplies fell by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 8th are now 24.3% below the 148,768,000 barrels that we had stored on June 9th, 2017, and roughly 16.1% lower than the 10 year average of distillates stocks for this time of the year...

with our supplies of distillates now at the lowest they've been at this time of year in 10 years, we'll take a look at a graph of what that looks like, compared to that 10 year history:

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here...it 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 midpoint of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of thousands of barrels of distillates we had stored for each week in 2017 traced weekly by a yellow line, with our 2018 year to date distillates supplies for each week traced in red...notice in the light blue shaded area that there is normally a seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, in part due to decreased production, but mostly because we have been exporting our distillates at near a record pace...thus we come to June 8th with our distillate supplies at a 10 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017...

finally, with our oil exports rising and our oil imports falling while our refineries were using more oil, our commercial supplies of crude oil decreased for the 11th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 4,143,000 barrels during the week, from 436,584,000 barrels on June 1st to 432,441,000 barrels on June 8th...thus, after falling most of the past year, our oil inventories as of June 8th were 15.5% below the 511,546,000 barrels of oil we had stored on June 9th of 2017, 13.7% below the 500,911,000 barrels of oil that we had in storage on June 10th of 2016, and fractionally below the 435,771,000 barrels of oil we had in storage on June 12th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...     

OPEC's Monthly Oil Market Report

we're going to take a look at OPEC's June Oil Market Report (covering May OPEC & global oil data) next, because it's available as a free download and hence it's the report we check for monthly global oil supply and demand data, rather than the paywalled report of the IEA that's widely reported in the media...the first table from this monthly report that we'll look at is from the page numbered 59 of that report (pdf page 67), 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 thus resolve any potential disputes that could arise if each member reported their own figures...    

as we can see on this table of official oil production data, OPEC's oil output increased by 35,400 barrels per day in May to 31,869,000 barrels per day, from their April production total of 31,834,000 barrels per day....however, that April figure was originally reported as 31,930,000 barrels per day, so OPEC's oil production during May was actually 61,000 barrels per day lower than the previously reported April figures (for your reference, here is the table of the official April OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, an increase of 85,500 barrels per day in the output from Saudi Arabia was the main reason that the cartel's output rose, with Algeria contributing a 39,000 barrel per day increase and Iraq's increase of 27,700 barrels per day, together more than offsetting the decreases of 53,500 barrels per day in Nigerian output, 42,500 barrels per day in Venezuelan output, and 24,300 barrels per day in Libyan output...however, with a quota of 10,060,000 barrels per day for the Saudis, and 1,040,000 barrels per day for the Algerians, both of those countries still remain well below their allocations, according to their original pact...and at 31,869,000 barrels per day, OPEC oil output is now 861.000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq's 4,455,000 barrel per day May output above their 4,350,000 barrel per day allocation... 

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from June 2016 to May 2018, and it comes from the page numbered 60 (pdf page 68) of the June OPEC Monthly Oil Market Report...on this graph, the cerulean 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...    

OPEC's preliminary data indicates that total global oil production rose by a rounded 270,000 barrels per day to a record 97.86 million barrels per day in May, after April's global output total was revised down by 300,000 barrels per day from the record 97.89 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 230,000 barrels per day in May....global oil output for May was also 1.74 million barrels per day, or 1.8% higher than the 96.12 million barrels of oil per day that were being produced globally in May a year ago (see the June 2017 OPEC report online (pdf) for the year ago details)... OPEC's May oil production of 31,869,000 barrels per day thus represented just 32.6% of what was produced globally, the same percentage as in April, as oil output increases by the US, Canada, Brunei, Brazil, Kazakhstan, Azerbaijan, Ghana and Saudi Arabia were only partially offset by decreases in oil output seen in Mexico, Norway, the UK, Australia, Colombia, Egypt, China and Nigeria...OPEC's May 2017 production was at 32,139,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 140,000 fewer barrels per day of oil than they were producing a year ago, during the fifth month that their production quotas were in effect, with the recoveries of oil production in Libya and Nigeria now more than offset by the decrease in output from Venezuela, whose output is now running 571,000 barrels per day below what it was at last May...    

however, despite the record global oil output in May, the downward revisions to supply meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us...

the table above comes from page 33 of the June OPEC Monthly Oil Market Report (pdf page 41), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2018 over the rest of the table...on the "Total world" line of the third column, we've circled in blue the figure that's relevant for May, which is their revised estimate of global oil demand during the second quarter of 2018...     

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe will be using 98.07 million barrels of oil per day, which is a small downward revision from their prior estimate of 98.08 million barrels of oil per day during the 2nd quarter....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 97.86 million barrels per day during May, which means that there was a shortfall of around 220,000 barrels per day in global oil production vis-a vis estimated demand during the month...

at the same time as 2nd quarter global demand was revised 10,000 barrels per day lower, April's global output total was revised down by 300,000 barrels per day to 97,590,000 barrels per day, so that means that the shortfall for April now works out to 480,000 barrels per day, revised from the 190,000 barrel per day shortfall we had figured on a month ago...but as you see circled in green above, while global oil demand figures for the second quarter were revised slightly lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously computed oil surplus for the first quarter of 2018 will also have to be recomputed...based on the revisions of a month ago, we had figured a global oil surplus of 240,000 barrels per day for March, a global oil surplus of 420,000 barrels per day for February, and a global oil surplus of 260,000 barrels per day for January...each of those surplus figures thus have to be revised lower based on higher demand, so hence our new figures will show a surplus of 180,000 barrels per day for March, a surplus of 360,000 barrels per day for February, and a surplus of 200,000 barrels per day for January...totaling it all up, that means that for the first five months of 2018, global oil production exceeded demand by just 640,000 barrels, the equivalent of just 9 extra minutes of production at the May rate... 

This Week's Rig Count

US drilling activity decreased for the first time in the past twelve weeks and for just the 2nd time in the past 17 weeks during the week ending June 15th, as drilling for natural gas was curtailed while drilling for oil continued to increase...Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 3 rigs to 1059 rigs over the week ending on Friday, which was still 126 more rigs than the 933 rigs that were in use as of the June 16th report of 2017, while it was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market... 

the count of rigs drilling for oil was up by 1 rig to 863 rigs this week, which was also 116 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 4 rigs to 194 rigs this week, which was only 8 more gas rigs than the 186 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

drilling activity in the Gulf of Mexico and elsewhere in the US offshore was unchanged this week, with 19 platforms deployed in the Gulf and one drilling offshore from Alaska, down from 21 rigs drilling in the Gulf and one offshore from Alaska last June 16th...however, another platform was set up to drill through an inland lake in southern Louisiana this week, so now there are 4 such 'inland waters" rigs operating, an increase from the 3 inland waters rigs that were operating going into the same weekend a year ago...

in their first pullback in 9 weeks, the count of active horizontal drilling rigs decreased by 2 rigs to 932 horizontal rigs this week, which was 150 more horizontal rigs than the 782 horizontal rigs that were in use in the US on June 16th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count decreased by 1 rig to 60 vertical rigs this week, which was also down from the 82 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count was unchanged at 67 directional rigs this week, which was still down from the 69 vertical rigs that were deployed on June 16th of 2017...

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 the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 15th, the second column shows the change in the number of working rigs between last week's count (June 8th) and this week's (June 15th) count, the third column shows last week's June 8th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 16th of June, 2017...     

as you can see from the above table, this week's small net decrease masked a number of both positive and negative changes in drilling nationally...of particular note was the 4 rig decrease in the Permian basin of west Texas and New Mexico, the largest pullback in the Permian since a similar number of rigs were shut down during the week ending February 2nd...looking at the changes in activity in the individual Texas oil districts in the state data, the core Permian areas appear to show a decrease of 6 rigs, so we can probably figure that two of the New Mexico rig increases were in the western part that basin...for once, the 4 rig decrease in rigs targeting natural gas is easily identifiable, as two rigs were pulled from the Marcellus (one from Pennsylvania and one from West Virginia), a rig targeting gas was pulled out of Oklahoma's Arkoma Woodford, and another gas rig was shut down in Ohio's Utica shale...activity in the Utica is now at 23 rigs, down from 28 rigs a year ago, so some Ohioans can be thankful, despite the state's deterioration otherwise.... also note that in addition to the changes shown in the major producing states in the top table above, this week also saw a rig added in Mississippi, while the only rig that had been operating in Montana was pulled out...Mississippi now has 4 rigs operating, up from 3 rigs a year ago, while the Montana rig appears to have just been moved across the North Dakota border, into another part of the Williston basin...

+

note:  there’s more here…

the largest one week increase in oil & oil products inventories since 2008 was a holiday week fluke....

US oil prices were again quite volatile this week, rising on threats to oil supplies, then falling when news showed supplies were more than adequate, but ultimately ending the week just a few cents below where they started, in the 3rd weekly decrease in a row...after sliding $2.07 or 3% to $65.81 a barrel last week, benchmark US crude prices for July fell another $1.06 to $64.75 a barrel on Monday to their lowest level in nearly two months, driven lower by growing U.S. oil production, international trade tensions, and expectations that OPEC would raise global supplies...but prices turned around on Tuesday, rising 77 cents to finish at $65.52 a barrel, after 12 of 13 analysts in a Bloomberg survey said Wednesday’s weekly EIA report would show US oil stockpiles decreased the prior week...however, when that EIA report surprised the pundits and showed an increase in crude supplies, oil prices fell back to below their Monday close, shedding 79 cents and ending the day at $64.73 a barrel....but oil prices turned around again on Thursday, rising $1.22 to $65.95 a barrel, on a steep drop in oil exports from Venezuela and word from Algeria’s oil minister that OPEC might not raise output at its meeting later this month...however, that rally reversed again the next morning on a drop in Chinese demand, and prices then fell as low as $65.15 a barrel after JP Morgan cut its 2018 US crude price forecast by $3 to $62.20 a barrel, before steadying near the close to end at $65.74 a barrel, for a loss of 21 cents on the day but just 7 cents, or 0.1%, for the week overall...

international oil prices, meanwhile, followed a similar trajectory, but maintained a premium of over $10 a barrel over US prices throughout the week...the front month of the international benchmark, North Sea Brent crude for August, was down $1.50 on Monday to $75.29 a barrel, its lowest in two months, on growing expectations that OPEC would increase production at their upcoming meeting, but then was little changed over Tuesday and Wednesday while US crude prices were being jacked up and down by the EIA report on US oil supplies...however, Brent prices were up nearly $2 to $77.32 a barrel on Thursday as the drop in exports from Venezuela and concern that OPEC might not raise production had a greater impact on international oil prices...Brent prices then fell 86 cents to end the week at $76.46 a barrel, for a loss of 23 cents or 0.3% on the week, but still $10.79 a barrel more than the similar grade of US crude for August delivery...with a price spread of that magnitude, we can almost guarantee that we'll be seeing record levels of crude exports this summer and beyond, any hurricane disruptions to port traffic notwithstanding...

natural gas prices, meanwhile, also ended lower this week, as forecasts for cooler weather dashed the bulls' hopes for an early summer gas-consuming air conditioning power burn...natural gas prices for July delivery were down 3.2 cents on Monday and 4 cents on Tuesday and despite a 3.4 cent gain on Thursday's natural gas storage report, fell another 4 cents on Friday to end the week 2.4% lower at $2.890 per mmBTU...that natural gas storage report from the EIA for the week ending June 1st indicated that natural gas in storage in the US rose by 92 billion cubic feet to 1,817 billion cubic feet over the week, which still left our gas supplies 799 billion cubic feet, or 30.5% below the 2,616 billion cubic feet that were in storage on June 2nd of last year, and 512  billion cubic feet, or 22.0% below the five-year average of 2,329 billion cubic feet of natural gas that are typically in storage at the beginning of June...the market was anticipating a 97 billion cubic foot addition to gas storage, so this week's 92 billion cubic foot addition was a bit short of expectations, and was also below the average 104 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year...again, we're watching these supplies to see if they can be adequately rebuilt before next winter; as we noted, last year natural gas supplies rose to 3,790 billion cubic feet by the first week of November before withdrawals for heating began, so at today's levels we'd have to add 1,973 billion cubic feet over the next 22 weeks, or nearly 90 billion cubic feet per week, to match that pre-winter level by November, which will become increasingly difficult as we move into the warmer part of the summer, when demand for air conditioning is strongest... 

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 1st, indicated that due to a big jump in our oil imports and and a corresponding drop in our oil exports, we had surplus oil to add to our commercial crude supplies for the eleventh time in the past nineteen weeks.....our imports of crude oil rose by an average of 715,000 barrels per day to an average of 8,346,000 barrels per day during the week, after falling by 528,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 465,000 barrels per day to an average of 1,714,000 barrels per day during this week, which meant that our effective trade in oil over the week ending June 1st worked out to a net import average of 6,632,000 barrels of per day during the week, 1,180,000 barrels per day more than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells rose by 31,000 barrels per day to a record high of 10,800,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,432,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 17,369,000 barrels of crude per day during the week ending June 1st, 214,000 barrels per day more than they used during the prior week, while at the same time 209,000 barrels of oil per day were reportedly being added to oil storage in the US....hence, we can see that this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 146,000 fewer barrels per day than what was reportedly added to storage plus what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+146,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,934,000 barrels per day, which was still 4.4% less than the 8,303,000 barrel per day average we imported over the same four-week period last year...the 209,000 barrel per day increase in our total crude inventories included a 296,000 barrel per day addition to our commercially available stocks of crude oil, which was partially offset by a 87,000 barrel per day decrease of the oil in the oil stored in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year's federal budget...this week's 31,000 barrel per day increase in our crude oil production included a 35,000 barrel per day increase in output from wells in the lower 48 states, which was slightly offset by a 2,000 barrel per day decrease in oil output from Alaska, with no explanation as to why those rounded figures don't add up...the 10,800,000 barrels of crude per day that were produced by US wells during the week ending June 1st were again the highest on record, 15.9% more than the 9,318,000 barrels per day that US wells were producing during the week ending June 2nd of last year, and 28.1% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

US oil refineries were operating at 95.4% of their capacity in using 17,369,000 barrels of crude per day during the week ending June 1st, up from 93.9% of capacity the prior week, as refineries will usually try to run flat out through the summer driving season...however, the 17,369,000 barrels of oil that were refined this week were still down 1.4% from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017, even as they have finally topped the 17,227,000 barrels of crude per day that were being processed during the same week a year ago, when US refineries were operating at 91.5% of capacity.... 

even with the increase in the amount of oil that was refined this week, gasoline output from our refineries was considerably lower, falling by 775,000 barrels per day to a 4 year seasonal low of 9,658,000 barrels per day during the week ending June 1st, after our refineries' gasoline output had increased by 381,000 barrels per day during the week ending May 25th....that big decrease meant our gasoline production was 2.8% lower during the week than the 9,934,000 barrels of gasoline that were being produced daily during the week ending June 2nd of last year, an otherwise slow refining week......meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 28,000 barrels per day to a seasonal high of 5,324,000 barrels per day, after rising by 358,000 barrels per day the prior week...as a result, this week's distillates production was 7.4% higher than the 4,956,000 barrels of distillates per day than were being produced during the week ending June 2nd, 2017.... 

however, even with the big drop in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 4,603,000 barrels to 239,034,000 barrels by June 1st, the sixth increase in 14 weeks, and the largest increase since December....our gasoline supplies increased primarily because the amount of gasoline supplied to US markets fell by 713,000 barrels per day to 8,976,000 barrels per day, and because our exports of gasoline fell by 118,000 barrels per day to 538,000 barrels per day, while our imports of gasoline fell by 182,000 barrels per day to 777,000 barrels per day....but even after this week's increase, our gasoline inventories finished the week fractionally lower than last June 2nd's level of 240,348,000 barrels, even as they were still roughly 8.6% above the 10 year average of gasoline supplies for this time of the year...      

meanwhile, with this week's increase in distillates production, our supplies of distillate fuels rose for the second time in 9 weeks, increasing by 2,165,000 barrels to 116,794,000 barrels during the week ending June 1st...our distillate inventories increased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, dropped by 817,000 barrels per day to 3,502,000 barrels per day, after increasing by 682,000 barrels per day the prior week, as wholesalers built supplies in advance of the holiday weekend...meanwhile, our exports of distillates rose by 536,000 barrels per day to a near record 1,659,000 barrels per day while our imports of distillates decreased by 91,000 barrels per day to 149,000 barrels per day...however, because our distillate supplies fell by 14,452,000 barrels over six weeks to May 18th, our distillate supplies still ended the week 21.5% below the 148,768,000 barrels that we had stored on June 2nd, 2017, and roughly 15.2% lower than the 10 year average of distillates stocks for this time of the year… 

finally, with our oil exports down and our oil imports much higher, our commercial supplies of crude oil increased for the 12th time in 2018, but just for the 18th time in the past year, as our commercial crude supplies rose by 2,072,000 barrels during the week, from 434,512,000 barrels on May 25th to 436,584,000 barrels on June 1st...however, after falling most of the past year, our oil inventories as of June 1st were still 14.9% below the 513,207,000 barrels of oil we had stored on June 2nd of 2017, 13.0% below the 501,844,000 barrels of oil that we had in storage on June 3rd of 2016, and fractionally below the 438,447,000 barrels of oil we had in storage on June 5th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...    

before we move on, i want to take a look an anomalous increase in our total inventories in this week's report that was pointed out by Zero Hedge...as it turns out, those increases in our inventories of gasoline, distillates and crude that we've discussed above, when combined with increase in inventories of jet fuel, bunker fuel, propylene, and other oil products, was the largest increase in our total oil and oil products inventories since October of 2008...by way of showing you what happened, we'll include the graph showing that increase from the post at zero hedge: 

the above graph of our total oil + oil products inventories comes from the Zero Hedge review of this week's EIA release, wherein the graph shows the end of the week supply in billions (not millions) of barrels of crude oil and petroleum products (excluding what's in the SPR) from mid-2006 to the current report...also shown below the graph as red spikes above or below a zero line is the weekly change in crude oil and petroleum products in thousands of barrels...hence, as they point out with the green dashes, this week's 15,756,000 barrel increase in our total inventories was the largest upward spike, and hence the largest increase in our total inventories since 19,673,000 barrels of oil and products were added to our supplies during the week ending October 3rd 2008...

while i can't venture a guess why supplies had jumped that much during that week nearly 10 years ago, this week's inventory jump appears to be an artifact of how our oil product supplies are distributed around the holidays...as we noted earlier, the amount of gasoline supplied to US markets, often seen as an indicator of our consumption, fell by 713,000 barrels per day during the week ending June 1st, while the amount of distillates supplied to US markets dropped by 817,000 barrels per day over the same period...checking other "product supplied" metrics, we find that jet fuel supplied to US markets fell by 163,000 barrels per day, that propane/propylene supplied to US markets fell by 326,000 barrels per day, that residual oil supplied to US markets fell by 12,000 barrels per day, and that other oils supplied to US markets fell by 400,000 barrels per day...with deliveries to US wholesalers down, inventories held by the oil product producers, whose refineries continued to operate, naturally rose...but again, this appears to be a function of product distribution around the holiday; gasoline, diesel fuel, and jet fuel wholesalers and retailers built their inventories in the weeks before the holiday, and hence their deliveries of product were slack during the holiday week...this is evident in the historical record, when for instance, the largest weekly increase in oil and oil products inventories last year was also during the week of Memorial Day, when inventories increased by 15,471,000 barrels, which was nearly a 9 year high at that time...holiday weeks in prior years also show similar anomalous inventory increases, but usually not so extreme as the past two years, and in no case have those increases been evidence of a trend...

This Week's Rig Count

US drilling activity increased for the 15th time in the past sixteen weeks and for 24th time in the past 31 weeks during the week ending June 8th, a period of higher oil prices that has seen rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 2 rigs to 1062 rigs over the week ending on Friday, which was also 135 more rigs than the 927 rigs that were in use as of the June 9th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market... 

the count of rigs drilling for oil was up by 1 rig to 862 rigs this week, which was also 121 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations also rose by 1 rig to 198 rigs this week, which was only 13 more gas rigs than the 185 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", compared to the 1 "miscellaneous" rig that was running a year ago....

with the addition of a second drilling platform offshore from Texas, drilling activity in the Gulf of Mexico increased by 1 rig to 19 rigs this week, which was still 2 fewer rigs than were drilling in the Gulf of Mexico a year ago, at which time all Gulf of Mexico rigs were in Louisiana waters...there was also a rig drilling offshore from Alaska this week, as there also was during the week ending June 9th a year ago, so the total US offshore count is now at 20 rigs, also down by 2 from last year's offshore total of 22 rigs....in addition, another platform was set up to drill through an inland lake in southern Louisiana this week, so now there are 3 such 'inland waters" rigs operating, same as the number of inland waters rigs that were operating going into the same weekend a year ago...

the count of active horizontal drilling rigs increased by 5 rigs to 934 horizontal rigs this week, which was 154 more horizontal rigs than the 780 horizontal rigs that were in use in the US on June 9th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the directional rig count increased by 2 rigs to 67 directional rigs this week, which was also up by 1 from the 66 directional rigs that were in use during the same week of last year...on the other hand, the vertical rig count was down by 5 rigs ti 61 vertical rigs this week, which was also down from the 81 vertical rigs that were deployed on June 9th of 2017...

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 the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 8th, the second column shows the change in the number of working rigs between last week's count (June 1st) and this week's (June 8th) count, the third column shows last week's June 1st active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 9th of June, 2017...           

except for the three rig decrease in Oklahoma's Cana Woodford, which has often been touted as a hot play, there's not much particularly noteworthy in this week's changes...there was another 3 rig increase in the Permian, apparently all in west Texas this week, which has now seen 112 rigs added this past year, all but one of them drilling for oil, and hence those additions account for the lion's share of the oil rig increases over the past year...drilling in all the major natural gas basins, meanwhile, was again unchanged, with the one rig increase in natural gas rigs occurring in one of those "other" basins not tracked separately by Baker Hughes...we should also note that in addition to the changes shown in the major producing states in the top table above, this week also saw a rig added in Alabama, as well as one in Mississippi...hence, in Alabama, there are now 2 rigs operating, down from 3 a year ago, while the 3 rigs now operating in Mississippi is back to the same number as a year ago...in addition, the only rig that had been drilling in Florida was shut down this week, so Florida is now free of any drilling, same as they were a year ago...

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note:  there’s more here…

US oil now selling at an $11 discount to global prices; distillates production at a seasonal high

contracts for US oil traded lower for the second week in row this week, but the more significant story was likely that global oil prices traded higher at the same time...as you'll recall, US benchmark crude prices fell nearly 5% to $67.88 a barrel last week, wiping out their May gains, after OPEC and Russia indicated they'd make up any global oil shortfall caused by reduced output from Venezuela and Iran...while US markets were closed for the holiday, US crude for July continued falling another 1.7% to $66.75 a barrel in overseas trading on Monday, while Brent, the international benchmark price fell, 1.4% to $75.39, again on concerns that OPEC and Russia would be increasing supply...with US markets open on Tuesday, the US traded contract was thus reported down $1.15 to $66.73 a barrel, largely reflecting its Monday losses, while Brent prices rose 9 cents to close at $75.39 a barrel....US oil prices then rose $1.48 to $68.21 a barrel on Wednesday, notching their first increase in 6 trading sessions, as oil traders anticipated a drop in U.S. oil supplies in the next day's delayed report, while July Brent rose $2.11 a barrel, or 2.8%, to end at $77.50 a barrel on the ICE exchange in Europe...however, even though the EIA report showed the largest draw from US crude inventories since March, US oil fell nearly 2 percent to $67.04 on Thursday, while the expiring July Brent oil contract rose 9 cents to $77.59, as oil traders focused on increasing US oil production, and worried that the US had inadequate infrastructure to move that production to international markets...the discount for US crude continued to widen on Friday, with the price spread between US WTI oil and Brent reaching $11 a barrel for the first time since 2015, as US oil prices fell $1.23 to $65.81 a barrel, while August Brent only fell 77 cents to $76.79 a barrel, as positive US economic news strengthened the dollar, sparking selling in dollar-denominated commodities...US oil prices thus ended the week 3% lower, at their lowest level since early April, while Brent crude for August, which had stated the week at $76.47, managed a small increase of 32 cents, or less than half a percent...

there's something that isn't right about this wide price spread.  the reason that's usually given for the wide discount on US crude is that we are lacking adequate pipeline infrastructure to move our crude from the wells where it is produced to the ports, and that our ports are incapable of handling the volume of crude that supposedly needs to be exported, and hence a glut of US crude is developing stateside...however, a year ago we were exporting less than half of what we're exporting now, our domestic crude supplies were 15% greater, and there was no big discount on US crude...moreover, the widely quoted WTI price for US crude is based on oil prices at the storage depot in Cushing Oklahoma, the virtual center of US pipeline infrastructure, with plenty of takeaway capacity to the coasts; the oil in the inland oil basins of western Texas, Colorado, and North Dakota is already priced as much as $10 lower than the WTI benchmark price, and is thus $20 below global prices...and remember, even as we are now exporting 2 million barrels of oil per day, twice as much as a year ago, we are still importing an average of 8 million barrels per day to meet our needs...(some of that is because most US refineries are optimized to process heavy, sour oil, and the production from the new wells is exceptionally light and sweet; so we export our high quality oil at a discount, and import the crap our refineries use to make our products at a premium)...still, if there was that much of an oversupply of crude in the US, we would certainly be reducing our oil imports, instead of continuing to import at the same pace...it's almost as if someone is fixing the price so that we get screwed on every barrel, coming and going, but who could that be?

at any rate, natural gas prices also ended slightly lower this week, but not before hitting $3.00 per mmBTU for the first time since January on Tuesday, a day that prices actually ended 6 cents lower at $2.903 per mmBTU...forecasts that were indicating somewhat cooler trends by the second week of June, implying lower power burn for air conditioning, served to drive prices lower, but a smaller than expected addition to storage resulted in a 6.7 cent rally on Thursday, and gas prices added another penny on Friday to close the week at $2.962 per mmBTU, just 1.6 cents below their prior Friday close...the natural gas storage report from the EIA for the week ending May 25th indicated that natural gas in storage in the US rose by 96 billion cubic feet to 1,725 billion cubic feet over the week, which still left our gas supplies 788 billion cubic feet, or 31.4% below the 2,513 billion cubic feet that were in storage on May 26th of last year, and 500 billion cubic feet, or 22.5% below the five-year average of 2,225 billion cubic feet of natural gas that are typically in storage on the fourth weekend in May...the consensus forecast was for a 102 billion cubic foot addition to storage, so while this week's 96 billion cubic foot addition fell short of expectations, it was pretty much in line with the average 97 billion cubic foot surplus of natural gas typically added to storage during the fourth week in May...again, we're watching these supplies to see if they can be adequately rebuilt before next winter; last year, natural gas supplies rose to 3,790 billion cubic feet by the first week of November before withdrawals began, so at today's levels we'd have to add 2,065 billion cubic feet over the next 23 weeks, or nearly 90 billion cubic feet per week, to match that level by November, which will become increasingly difficult as we move into the warmer part of the year, when demand for air conditioning is strongest... 

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending May 25th, indicated that due to a big increase in our oil exports, a sizable drop in our oil imports, and a considerable increase in our oil refining, we had to pull oil out of our commercial crude supplies to meet those refinery needs for the eighth time in the past eighteen weeks....our imports of crude oil fell by an average of 528,000 barrels per day to an average of 7,631,000 barrels per day during the week, after rising by 558,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 431,000 barrels per day to an average of 2,179,000 barrels per day during this week, which meant that our effective trade in oil over the week ending the 25th worked out to a net import average of 5,452,000 barrels of per day during the week, 959,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells rose by 44,000 barrels per day to a record high of 10,769,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,221,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 17,155,000 barrels of crude per day during the week ending May 25th, 527,000 barrels per day more than they used during the prior week, while at the same time 597,000 barrels of oil per day were reportedly being withdrawn from oil storage in the US....consequently, this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 337,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+337,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,679,000 barrels per day, which was 5.5% less than the 8,122,000 barrel per day average we imported over the same four-week period last year...the 597,000 barrel per day reduction in our total crude inventories included a 517,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 80,000 barrel per day decrease of the oil stored in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year's federal budget...this week's 44,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 24,000 barrel per day increase in oil output from Alaska...the 10,769,000 barrels of crude per day that were produced by US wells during the week ending May 25th were again the highest on record, 15.3% more than the 9,342,000 barrels per day that US wells were producing during the week ending May 26th of last year, and up by 27.8% from the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

US oil refineries were operating at 93.9% of their capacity in using 17,155,000 barrels of crude per day during the week ending May 25th, up from 91.8% of capacity the prior week, in the first sign this year that refineries were finally ramping up for the summer driving season...however, the 17,155,000 barrels of oil that were refined this week were still down 2.6% from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 2.0% less than the 17,510,000 barrels of crude per day that were being processed during the week ending May 26th, 2017, when US refineries were already operating at 95.0% of capacity.... 

with the big jump in the amount of oil that was refined this week, gasoline output from our refineries was considerably higher, increasing by 381,000 barrels per day to 10,433,000 barrels per day during the week ending May 25th, after our refineries' gasoline output had decreased by 410,000 barrels per day during the week ending May 18th....however, this week's increase only served to bring our gasoline production back to the same level as the 10,430,000 barrels of gasoline that were being produced daily during the week ending May 26th of last year....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 358,000 barrels per day to a seasonal high of 5,296,000 barrels per day, after falling by 93,000 barrels per day the prior week....hence, that jump meant this week's distillates production was 1.3% higher than the 5,226,000 barrels of distillates per day than were being produced during the week ending May 26th, 2017.... 

with the big jump in our gasoline production, our supply of gasoline in storage at the end of the week rose by a comparably modest 534,000 barrels to 234,431,000 barrels by May 25th, just the fifth increase in 13 weeks, but the 20th increase in 29 weeks, as gasoline inventories, as usual, were being built up over the winter months...the increase in our gasoline supplies was limited because our exports of gasoline rose by 300,000 barrels per day to 656,000 barrels per day, and because our imports of gasoline fell by 104,000 barrels per day to 959,000 barrels per day, while our domestic consumption of gasoline was unchanged from the prior week at 9,689,000 barrels per day...so even after this week's increase, our gasoline inventories finished the week 1.1% lower than last May 26th's level of 237,024,000 barrels, even as they were still roughly 8.8% above the 10 year average of gasoline supplies for this time of the year...      

meanwhile, with this week's sizable increase in distillates production, our supplies of distillate fuels rose for the first time in 8 weeks, increasing by a modest 634,000 barrels from last week's four year low to 114,629,000 barrels during the week ending May 25th...that was just the 2nd increase in twelve weeks, and came after distillates supplies had fallen by 14,452,000 barrels over the prior six weeks, during a time of year when distillates supplies are usually increasing...our distillate inventories only managed a small increase despite the jump in production because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 682,000 barrels per day to 4,319,000 barrels per day, possibly as wholesalers built supplies in advance of the holiday weekend... meanwhile, our exports of distillates fell by 238,000 barrels per day to 1,123,000 barrels per day and our imports of distillates increased by 213,000 barrels per day to 237,000 barrels per day...however, even after this week’s inventory increase, our distillate supplies still ended the week 21.9% below the 146,733,000 barrels that we had stored on May 26th, 2017, and roughly 15.5% lower than the 10 year average of distillates stocks for this time of the year… 

finally, with our oil exports rising and our oil imports falling while our refineries were using more oil, our commercial supplies of crude oil decreased for the 10th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 3,620,000 barrels during the week, from 438,132,000 barrels on May 18th to 434,512,000 barrels on May 25th...hence, after falling most of the past year, our oil inventories as of May 25th were therefore 14.8% below the 509,912,000 barrels of oil we had stored on May 26th of 2017, 13.8% lower than the 504,205,000 barrels of oil that we had in storage on May 27th of 2016, and 2.2% below the 444,464,000 barrels of oil we had in storage on May 29th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...    

This Week's Rig Count

US drilling activity managed to increase for the 14th time in the past fifteen weeks and for 23rd time in the past 30 weeks during the week ending June 1st, a period of higher oil prices that has generally seen the rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US increased by just 1 rig to 1060 rigs over the week ending on Friday, which was also 144 more rigs than the 915 rigs that were in use as of the June 2nd report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market... 

the count of rigs drilling for oil was up by 2 rigs to 861 rigs this week, which was also 128 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 1 rig to 197 rigs this week, which was only 15 more gas rigs than the 182 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are listed as "miscellaneous", compared to the 1 "miscellaneous" rig that was running a year ago....

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 5 fewer rigs than were drilling in the Gulf of Mexico a year ago...since there is also a rig drilling offshore from Alaska at this time, the total US offshore count stands at 19 rigs, down by 4 from last year's offshore total of 23 rigs....however, 2 of the platforms that had been drilling through inland lakes in southern Louisiana were shut down this week, leaving just 2 such 'inland waters" rigs still operating, down from the 4 inland waters rigs that were operating going into the same weekend a year ago...

the count of active horizontal drilling rigs increased by 3 rigs to 929 horizontal rigs this week, which was 158 more horizontal rigs than the 771 horizontal rigs that were in use in the US on June 2nd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the directional rig count decreased by 2 rigs to 65 directional rigs this week, which was also down from the 68 directional rigs that were in use during the same week of last year...meanwhile, the vertical rig count was unchanged at 66 rigs this week, which was still down from the 77 vertical rigs that were deployed on June 2nd of 2017...

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 the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of June 1st, the second column shows the change in the number of working rigs between last week's count (May 25th) and this week's (June 1st) count, the third column shows last week's May 25th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 2nd of June, 2017...          

as we've pointed out several times, most of this year's drilling increase has been in the Permian, and when we hit a week such as this one where Permian activity doesn't increase, the national rig count change is subdued as well....but notice that the total basin count (at +5) is more positive than the summary data would account for; that's because a net of 4 rigs - 3 oil and 1 natural gas - were shut down that had been operating in recently active basins that Baker Hughes doesn't track separately, such as the Unita in Utah, the San Juan in New Mexico, the Powder River in Wyoming, and others whose names escape me right now...that natural gas rig shut down in an unnamed basin appears to be the only natural gas change this week, as all the rig changes noted on the tables above were drilling for oil...

 

Note: there's more here...