Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Monday, May 16, 2022

SPR at a 21 year low, distillates supplies at a 17 year low; 300,000 bpd global oil surplus in April, despite Russian loss

Strategic Petroleum Reserve at a 21 year low, distillates supplies at a 17 year low; 300,000 bpd global oil surplus in April, despite loss of 1.2 million bpd from Russia & Kazakhstan; natural gas rigs at a 32 month high..

oil prices ended higher for the fourth time in five weeks after first falling over 10%, as fears of product shortages outweighed concerns about slowing demand... after rising 4.9% to a six week high of $109.77 a barrel last week after the EU advanced a plan to phase out imports of Russian oil, the contract price for US light sweet crude for June delivery briefly traded higher early Monday as China’s crude oil imports grew nearly 7 percent in April from the same month a year earlier, but tumbled more than 2% in early trading after Saudi Aramco, the world's largest oil producer, slashed its official selling prices for next month deliveries for Asian and European buyers and then fell hard in afternoon trading to end down $6.68 or more than 6% at $103.09 a barrel as the US dollar hit a 20 year high on rate hike fears and as Covid lockdowns in China continued to eat away at demand....oil prices extended Monday's losses into early trading Tuesday as traders re​assessed​ economic growth prospects in light of the Fed's aggressive rate hike plan, while use of public transport declined 22% from a week earlier across 11 large Chinese cities in the clearest sign yet of deteriorating mobility, and settled $3.33 lower at $99.76 a barrel​,​ as burgeoning US inflation fueled concerns it would force moves that would risk pushing the economy into a recession...oil prices fell again in overnight trading after the American Petroleum Institute reported a 1.6 million bpd inventory build, compared to analyst predictions of a 1.2 million bpd withdrawal, and opened lower on Wednesday, but turned positive in early morning trading after the dollar pulled back from a 20 year high and traders positioned themselves ahead of the release of the Consumer Price Index, and then rallied in afternoon trading after inventory data from the EIA revealed fuel inventories fell by a larger-than-expected margin, and then jumped near the close to settle $5.95 higher at $105.71 a barrel after flows of Russian gas to Europe through a key transit point in Ukraine were​ ​shut off.....but oil prices resumed their decline early Thursday as markets were pressured by stubbornly high US inflation, bolstering the case for aggressive Fed interest rate hikes and traded as much as 3% lower at $102.66 after the International Energy Agency downgraded its 2022 global demand projections for the second month in a row, citing expanded lockdowns in China and economic slowdown in the US, before staging a late rally and ending with a gain of 42 cents at $106.13 a barrel, as the IEA also warned of an “almost universal product shortage,” in its monthly Oil Market Report....the oil price rally continued into Friday, as fears of an acute supply shortage outweighed concerns over a slowdown in global economic growth​,​ and accelerated after​ ​noon to settle up $4.36, or more than 4% higher at $110.49, after US gasoline prices jumped to a record high, China looked ready to ease pandemic restrictions and traders worried supplies would further tighten if the EU banned Russian oil...with the late Friday rally, US crude for June managed to post a 0.7% gain on the week, even as London-traded Brent, the international benchmark, settled up 3.8% on the day but down 0.7% on the week...

on the other hand, natural gas prices finished lower for the second time in nine weeks as domestc production recovered and weather forecasts moderated.... after rising 11% to $8.043 per mmBTU and trading at a 13 year high all last week, the contract price of natural gas for June delivery opened 3% lower on Monday on a forecast reprieve from the late-season cold snaps that had kept northern US demand elevated, and plunged $1.017 to $7.026 per mmBTU, as production showed signs of recovery, easing concerns about inadequate supplies to meet the extreme heat-driven demand in the South...but prices rebounded 35.9 cents or 5% to $7.385 per mmBTU on Tuesday, as traders reassessed choppy domestic production levels and new threats to global supplies amid reports of Russian forces interrupting flows to Europe. and then rose another 25.5 cents to $7.640 per mmBTU on Wednesday on a big drop in output over the prior three days, amid expectations ​that summer production​ would trail demand, potentially pressuring storage supplies...after erratic early trading on Thursday, natural gas prices rallied for a third straight session on the heels of a moderately bullish storage print, and forecasts for ongoing heat in near-term,  and settled 9.9 cents higher at $7.739 per mmBTU..​.​.but gas prices slipped 7.6 cents or 1% to $7.663 per mmBTU in ​a ​less volatile ​session on Friday​,​ on forecasts for milder weather in two weeks and on a 5% drop in European gas prices​,​ despite the shutdown of a pipeline in Ukraine, and thus ended 4.7% lower on the week, thus recovering most of the 20% loss​ hit​ in interday trading ealier in the week​...​.

The EIA's natural gas storage report for the week ending May 6th indicated that the amount of working natural gas held in underground storage in the US rose by 76 billion cubic feet to 1,643 billion cubic feet by the end of the week, which still left our gas supplies 376 billion cubic feet, or 18.6% below the 2,019 billion cubic feet that were in storage on May 6th of last year, and 312 billion cubic feet, or 16.0% below the five-year average of 1,955 billion cubic feet of natural gas that have been in storage as of the 6th of May over the most recent five years....the 76 billion cubic foot injection into US natural gas working storage for the cited week was a bit more than the average forecast for a 74 billion cubic foot injection from an S&P Global Platts survey of analysts, but it was less than the average injection of 82 billion cubic feet of natural gas that have typically been added to our natural gas storage during the same week over the past 5 years, while​ on the other hand​ it was more than the 70 billion cubic feet that were added to natural gas storage during the corresponding week of 2021... 

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending May 6th indicated that after another drop in our oil exports, another oil withdrawal from the SPR, and an increase in oil that could not be accounted for, we again had oil to add to our stored commercial crude supplies, for the 10th time in 24 weeks and for the 19th time in the past forty-nine weeks…our imports of crude oil fell by an average of 62,000 barrels per day to an average of 6,269,000 barrels per day, after rising by an average of 397,000 barrels per day during the prior week, while our exports of crude oil fell by 695,000 barrels per day to 2,879,000 barrels per day during the week, which together meant that our trade in oil worked out to a net import average of 3,390,000 barrels of oil per day during the week ending May 6th, 633,000 more barrels per day than the net of our imports minus our exports during the prior week…over the same period, production of crude oil from US wells was reportedly 100,000 barrels per day lower at 11,800,000 barrels per day, and hence our daily supply of oil from the net of our international trade in oil and from domestic well production appears to have totaled an average of 15,190,000 barrels per day during the cited reporting week…

Meanwhile, US oil refineries reported they were processing an average of 15,696,000 barrels of crude per day during the week ending May 6th, an average of 230,000 more barrels per day than the amount of oil than our refineries processed during the prior week, while over the same period the EIA’s surveys indicated that a net of 214,000 barrels of oil per day were being added to the supplies of oil stored in the US….so based on that reported & estimated data, 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 719,000 barrels per day less than what what was added to storage plus what our oil refineries reported they used during the week…to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA just inserted a (+719,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet in order to make the reported data for the daily supply of oil and for the consumption of it balance out, a fudge factor that they label in  their footnotes as “unaccounted for crude oil”, thus suggesting there must have been an error or omission of that magnitude in this week’s oil supply & demand figures that we have just transcribed.....however, since most everyone treats these weekly EIA reports as gospel, and since these figures often drive oil pricing, and hence decisions to drill or complete oil wells, we’ll continue to report this data just as it's published, and just as it's watched & believed to be reasonably accurate by most everyone in the industry...(for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)….

This week's 214,000 barrel per day rounded increase in our overall crude oil inventories came as 1,212,000 barrels per day were being added to our commercially available stocks of crude oil, while 999,000 barrels per day of oil were being pulled out of our Strategic Petroleum Reserve at the same time....that draw on the SPR now appears to include the initial emergency withdrawal under Biden's "Plan to Respond to Putin’s Price Hike at the Pump", that is expected to supply 1,000,000 barrels of oil per day to commercial interests from now up to the midterm elections in November, in the hope of keeping gasoline and diesel fuel prices from rising further up until that time, as well as the previous 30,000,000 million barrel release from the SPR to address Russian supply related shortfalls, and the administration's earlier plan to release 50 million barrels from the SPR to incentivize US gasoline consumption....since both the press releases from the administration on the SPR releases and the news coverage of them has been less than clear, we'll include here a copy of the SPR release schedule that the Congressional Research Service prepared for members of Congress, so that they'd be able to front-run Energy Department oil releases in their own trading accounts...

the Biden administration's releases from the SPR fall under 3 categories, as shown above...the initial Biden SPR release was a combination of a mandatory sale and an exchange, wherein the oil companies receiving oil from the SPR would be expected to pay it back, while the most recent SPR release was categorized as an emergency sale, meant to accompany sanctions we had imposed on Russian oil in the wake of the Ukraine situation....including other withdrawals from the Strategic Petroleum Reserve under recent release programs, a total of 113,155,000 barrels of oil have now been removed from the Strategic Petroleum Reserve over the past 22 months, and as a result the 542,994,000 barrels of oil still remaining in our Strategic Petroleum Reserve is now the lowest since May 4th, 2001, or at a 21 year low, as repeated tapping of our emergency supplies for non-emergencies or to pay for other programs has already drained those supplies considerably over the past dozen years....so now, the total 180,000,000 barrel drawdown over the next six months will remove almost a third of what remains in the SPR, and leave us with what would be less that a 20 day supply of oil at today's consumption rate, as the following graph illustrates...

The above graph comes from a post by oil and gas researcher Rory Johnston at Substack, wherein he discusses the implications of the million barrel per day SPR release, and it shows the historical quantity of oil held in our Strategic Petroleum Reserve, beginning from its inception following the Arab Oil Embargo of 1973-74 to the present day...the graph is further annotated to indicate the reasons for major additions to and withdrawals from the SPR, most of which were due to disruptions to oil supplies following hurricanes in the Gulf (you can get a better view of those annotations by clicking on the graph, or even better yet, view the enlarged original at substack.com....on the far right, Rory has projected where the strategic petroleum Reserve will end up after the Biden withdrawals are complete, which will take the SPR back to its level of 1983, while it was still being filled...based on an estimated average daily US oil consumption of 18,000,000 barrels per day, the US will have roughly 18 1/2 days of oil supply left in the Strategic Petroleum Reserve this November, after all three of the Biden administration's SPR withdrawal programs have run their course ...

Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 6,093,000 barrels per day last week, which was 6.2% more than the 5,740,000 barrel per day average that we were importing over the same four-week period last year….this week’s crude oil production was reported to be 100,000 barrels per day lower at 11,800,000 barrels per day even though the EIA's rounded estimate of the output from wells in the lower 48 states was unchanged at 11,400,000 barrels per day, because Alaska’s oil production fell by 7,000 barrels per day to 447,000 barrels per day and subtracted 100,000 barrels per day from the final rounded national total (that's the EIA's math, not mine)....US crude oil production had reached a pre-pandemic high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week’s reported oil production figure was 9.9% below that of our pre-pandemic production peak, but was 40.0% above the interim low of 8,428,000 barrels per day that US oil production had fallen to during the last week of June of 2016...

US oil refineries were operating at 90.0% of their capacity while using those 15,696,000 barrels of crude per day during the week ending May 6th, up from the 88.4% utilization rate of the prior week, but still below the historical utilization rate for early May refinery operations…the 15,696,000 barrels per day of oil that were refined this week were 4.5% more barrels than the 15,020,000 barrels of crude that were being processed daily during week ending May 7th of 2021, when refineries were still recovering from winter storm Uri, and 21.0% more than the 12,976,000 barrels of crude that were being processed daily during the week ending May 8th, 2020, when US refineries were operating at what was then a much lower than normal 70.5% of capacity during the first wave of the pandemic, but still 4.3% less than the 16,405,000 barrels that were being refined during the prepandemic week ending May 3rd 2019, when refinery utilization was also at a somewhat below normal 88.9% for the first weekend of May...

With the increase in the amount of oil being refined this week, gasoline output from our refineries was a bit higher, increasing by 27,000 barrels per day to 9,716,000 barrels per day during the week ending May 6th, after our gasoline output had increased by 175,000 barrels per day over the prior week.…this week’s gasoline production was 1.3% more than the 9,588,000 barrels of gasoline that were being produced daily over the same week of last year, but 4.1% below our gasoline production of 10,129,000 barrels per day during the week ending May 3rd, 2019, ie, the year before the pandemic impacted gasoline output....at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 163,000 barrels per day to 4,882,000 barrels per day, after our distillates output had decreased by 63,000 barrels per day over the prior week…after that increase, our distillates output was 4.9% more than the 4,655,000 barrels of distillates that were being produced daily during the week ending May 7th of 2021, but 4.1% less that the 5,089,000 barrels of distillates that were being produced daily during the week ending May 3rd, 2019...

Even with the recent increases in our gasoline production, our supplies of gasoline in storage at the end of the week fell for the thirteenth time in fourteen weeks, decreasing by 3,607,000 barrels to 224,968,000 barrels during the week ending May 6th, after our gasoline inventories had decreased by 2,230,000 barrels over the prior week....our gasoline supplies decreased again this week even though the amount of gasoline supplied to US users decreased by 154,000 barrels per day to 8,702,000 barrels per day, because our imports of gasoline fell by 432,000 barrels per day to 695,000 barrels per day while our exports of gasoline rose by 106,000 barrels per day to 942,000 barrels per day....but even with 13 inventory drawdowns over the past 14 weeks, our gasoline supplies were still only 4.8% lower than last May 7th's gasoline inventories of 236,189,000 barrels, and 5% below the five year average of our gasoline supplies for this time of the year…

Even with this week's increase in our distillates production, our supplies of distillate fuels decreased for the 14th time in seventeen weeks and for the 26th time in thirty-six weeks, falling by 913,000 barrels to a seventeen year low of 104,029,000 barrels during the week ending May 6th, after our distillates supplies had decreased by 2,344,000 barrels to a 14 year low during the prior week….our distillates supplies fell again this week even though the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 179,000 barrels per day to 3,777,000 barrels per day, because our exports of distillates rose by 168,000 barrels per day to 1,357,000 barrels per day, and while our imports of distillates rose by 31,000 barrels per day to 122,000 barrels per day.....after forty-one inventory withdrawals over the past fifty-seven weeks, our distillate supplies at the end of the week were 22.9% below the 136,153,000 barrels of distillates that we had in storage on May 7th of 2021, and about 23% below the five year average of distillates inventories for this time of the year…

The depressed level of our distillate supplies has led to diesel fuel and heat oil prices that have been $1 per gallon more than the already elevated price of gasoline, and both gasoline and diesel hit new record highs on NYMEX this week...supplies of diesel and pricing of it are also elevated in Europe and globally, leading to economic restrictions and power outages in countries that cant afford it, such as Sri Lanka, Pakistan, and now India...because price of diesel for immediate delivery versus the next month widened to the largest ever gap last week, Gulf refiners found it more profitable to sell immediately to Europe than wait weeks for pipeline delivery to the US east coast, with those exports to Europe exacerbating domestic shortages....although those diesel shortages had developed over time, the loss of Russian oil has compounded the problem, because refineries get more diesel per barrel oil out of a heavy crude than they do from a light one, and most Russian oil exports are medium heavy sour crudes....that global shortage of diesel also explains the thinking behind the 1 million barrel per day SPR release better than the administration's political messaging about gasoline prices...for US Gulf Coast and European refineries that were built to use a medium heavy crude like Russian Urals, they need to find an equivalent grade of crude to replace it, or do some expensive blending of other grades to match it…remember that the administration’s first frantic moves after the Russian oil ban were to try to get Venezuelan oil and even Iranian oil back on the market to replace it?…since the US Strategic Petroleum Reserve is 60% heavier grades of crude, it appears that they’re pulling it out to partially replace embargoed Russian oil globally…most oil we get from shale is light and sweet, typically more expensive, but worthless when one is trying to replace Russian oil  losses...

Meanwhile, with this week's decrease in our oil exports and the big withdrawal from the SPR, our commercial supplies of crude oil in storage rose for the 17th time in 41 weeks and for the 20th time in the past year, increasing by 8,487,000 barrels over the week, from 415,727,000 barrels on April 29th to 424,214,000 barrels on May 6th, after our commercial crude supplies had increased by 1,303,000 barrels over the prior week…with this week’s increase, our commercial crude oil inventories rose to about 13% below the most recent five-year average of crude oil supplies for this time of year, and were still 19.3% above the average of our crude oil stocks as of the first weekend of May over the 5 years at the beginning of the past decade, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first topped 400 million barrels....since our crude oil inventories had jumped to record highs during the Covid lockdowns of spring 2020, and then jumped again after last year's winter storm Uri froze off US Gulf Coast refining, our commercial crude oil supplies as of this May 6th were 12.5% less than the 484,691,000 barrels of oil we had in commercial storage on May 7th of 2021, and were also 20.2% less than the 531,476,000 barrels of oil that we had in storage on May 8th of 2020, and 9.1% less than the 466,604,000 barrels of oil we had in commercial storage on May 3rd of 2019…

Finally, with our inventories of crude oil and our supplies of all products made from oil remaining near multi year lows, we are also continuing to keep track of the total of all U.S. Stocks of Crude Oil and Petroleum Products, including those in the SPR....the EIA's data shows that the total of our oil and oil product inventories, including those in the Strategic Petroleum Reserve and those held by the oil industry, and thus including everything from gasoline and jet fuel to propane/propylene and residual fuel oil, rose by 2,898,000 barrels this week, from 1,696,420,000 barrels on April 29th to 1,699,318,000 barrels on May 6th, after our total inventories had fallen by 479,000 barrels to a 13 1/3 year low during the prior week, and leaving our total liquids inventories still down by 89,115,000 barrels over the first 18 weeks of this year....

OPEC's Report on Global Oil for April

Thursday of this week saw the release of OPEC's May Oil Market Report, which includes details on OPEC & global oil data for April, and hence it gives us a picture of the global oil supply & demand situation ​at a time when major cities in China were under restrictive Covid lockdowns, while ​at the same time ​exports of Russian oil were curtailed by sanctions imposed by the West..​.​.in the face of those circumstances, OPEC and aligned oil producers ​had ​agreed to increase their output by 400,000 barrels per day for a ninth consecutive month, ie the 9th such increase from the previously agreed to July 2021 level, which was in turn part of the fifth production quota policy reset that they've made over the past twenty-three months, all in response to the pandemic-related slowdown and subsequent irregular recovery....note that with the course and impact of the Ukraine war and the pandemic still uncertain, we consider the demand projections made herein to be pretty speculative, and hence will not address any projections beyond the April estimates..

The first table from this month​'s report that we'll review is from the page numbered 45 of this month's report (pdf page 55), 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 below indicate...for all their official production measurements, OPEC uses an average of production estimates by 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 a means of impartially adjudicating whether their output quotas and production cuts are being met, to thereby avert any potential disputes that could arise if each member reported their own figures...

As we can see on the bottom line of the above table, OPEC's oil output increased by 153,000 barrels per day to 28,648,000 barrels per day during April, up from their revised March production total that averaged 28,495,000 barrels per day....however, that March output figure was originally reported as 28,557,000 barrels per day, which therefore means that OPEC's March production was revised 62,000 barrels per day lower with this report, and hence OPEC's April production was, in effect, just 91,000 barrels per day higher than the previously reported OPEC production figure (for your reference,here is the table of the official March OPEC output figures as reported a month ago, before this month's revision)...

According to the agreement reached between OPEC and the other oil producers at their Ministerial Meeting on July 18th, 2021, the oil producers party to that agreement were to raise their output by a total of 400,000 barrels per day each month through December 2021, which was subsequently renewed at monthly meetings to include further 400,000 barrel per day production increases in January, February, March, April​, ​May ​and now June ​of 2022, and which would indicate an increase of 254,000 barrels per day each month from the OPEC members listed above, with the rest of the 400,000 bpd supplied by other producers. including Russia....but as we can see from the above table, OPEC's increase of 153,000 barrels per day fell far short of that​ commitment​...the production decreases in Nigeria, which has ongoing pipeline theft and leakage problems, and in Libya, with their repeated bouts of civil strife, were obviously the reason for the April shortfall, but several other OPEC members continue to be short of what they were expected to produce, as we'll see in the next table...

The adjacent table was originally included as a downloadable attachment to the press release following the 26th OPEC and non-OPEC Ministerial Meeting on March 2nd, 2022, which set OPEC's and other aligned producers​'​ production quotas for April... since war torn Libya and US sanctioned producers Iran and Venezuela are exempt from the production cuts imposed by the joint agreement that governs the output of the other OPEC producers, they are not shown here, and OPEC's quota is aggregated under the total listed for the 'OPEC 10', which you can see was to be at 25,315,000 barrels per day in March....therefore, the 24,464,000 barrels those 10 OPEC members actually produced in April were 851,000 barrels per day short of what they were expected to produce during the month, with Nigeria and Angola accounting for most of this month's shortfall, while only Kuwait and the UAE were able to produce what was expected of them.....

* * *

Recall that the original 2020 oil producer's agreement was to jointly cut their oil production by 23%, or by 9.7 million barrels per day, from an October 2018 baseline for just two months early in the pandemic, during May and June of 2020, but that initial 9.7 million bpd production cut agreement was extended to include July 2020 at a meeting between OPEC and other producers on June 6th, 2020....then, in a subsequent meeting in July of that year, OPEC and the other oil producers agreed to ease their deep supply cuts by 2 million barrels per day to 7.7 million barrels per day for August 2020 and subsequent months, which thus became the agreement that governed OPEC's output for the rest of 2020...the OPEC+ agreement for their January 2021 production, which was later extended to include February and March and then April's output, was to further ease their supply cuts by 500,000 barrels per day to a ​reduction of 7.2 million barrels per day from that original 2018 baseline...then, during a difficult meeting on April 1st of last year, OPEC and the other oil producers that are aligned with them agreed to incrementally adjust their oil production higher each month by a pre-set amount for each country over the following three months, thus extending their joint output cut agreement through July....production levels for August and the following months of last year were to be determined by a July 1st OPEC meeting, but that meeting was adjourned on July 2nd due to a dispute between the UAE and the Saudis over the 2018 reference production levels, and a subsequent attempt to restart that meeting on July 5th was called off....so it wasn't until July 18th 2021 that a tentative compromise addressing August 2021's output quotas was worked out, allowing oil producers in aggregate to increase their production by 400,000 barrels per day in August, and again by that amount in each of the following months, and also to boost reference production levels for the UAE, the Saudis, Iraq and Kuwait beginning in April 2022, which is now reflected in the OPEC production quota table you see above​, and which makes the effective monthly increase 432,000 barrels per day​....OPEC and other producers then agreed to increase their production in January 2022 by a further 400,000 barrels per day in a meeting concluded on the 2nd of December, 2021, and reaffirmed their intention to continue that policy with another 400,000 barrel per day increase in February at a meeting concluded January 4, 2022, and then agreed to stick to that 400,000 bpd oil output increase in March, despite pressure from the US to raise output more quickly, at a meeting on February 2nd....then, at a meeting on March 2nd, OPEC and its oil-producing allies, which included Russia, decided to hold their production increase at that level thru April in an OPEC+ meeting that only lasted 13 minutes, their shortest meeting ever...then on March 31, OPEC and aligned producers agreed to reaffirm the decisions of the prior Ministerial meetings and again limit their production increase ​for May ​to the agreed 400,000 barrels per day, because "the current [oil market] volatility is not caused by fundamentals, but by ongoing geopolitical developments"...most recently, in an OPEC and non-OPEC Ministerial Meeting held on May 5th, they again reaffirmed the decision of the July18th 2021 meeting to increase production by 432,000 barrels per day in June of this year..

Hence OPEC arrived at the production quotas for August 2021 through April of this year by repeatedly readjusting the original 23%, or 9.7 million barrel per day production cut from the October 2018 baseline that they first agreed to for May and June 2020, first to a 7.7 million barrel per day output reduction from the baseline for the remainder of 2020, then to a 7.2 million barrel per day production cut from the baseline for the first four months of this year, which was subsequently raised to an 8.2 million barrel per day oil output reduction after the Saudis unilaterally committed to cut their own production by a million barrels per day during the Covid surge of February, March, and then later during April of last year....under the agreement prior to the current one affecting this month, OPEC's production cut in April 2021 was set at 4,564,000 barrels per day below the October 2018 baseline, which was lowered to a cut of 3,650,000 barrels per day from the baseline with the prior comprehensive agreement, which thus set the July production quota for the "OPEC 10" at 23,033,000 barrels per day, with war torn Libya and US sanctioned producers Iran and Venezuela exempt from the production cuts imposed by thiat agreement....for OPEC and the other producers to increase their output by 400,000 barrels per day from that July 2021 level, each producer would be allowed to initially increase their production by just over 1% per month since that time...for OPEC alone, a 254,000 barrel per day increase each month since, begining with the July 2021 quota of 23,033,000 barrels per day, is how they arrived at the 25,​315,000 barrels per day quota for OPEC for ​April that you see on the table above..

The next graphic from this month's report that we'll look at shows us both OPEC's and worldwide oil production monthly on the same graph, over the period from May 2020 to April 2022, and it comes from page 48 (pdf page 58) of OPEC's May Oil Market Report....on this graph, the cerulean blue bars represent OPEC's monthly 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....

Including this month's 153,000 barrel per day increase in OPEC's production from their revised production of a month earlier, OPEC's preliminary estimate is that total global liquids production decreased by a rounded 770,000 barrels per day to average 98.74 million barrels per day in April, a reported decrease which came after March's total global output figure was apparently revised down by 150,000 barrels per day from the 99.66 million barrels per day of global oil output that was estimated for March a month ago, as non-OPEC oil production fell by a rounded 920,000 barrels per day in April after that downward revision, largely due to the loss of ~1,200,000 barrels per day from Russia and Kazakhstan, even as the US and Norway were able to increase their production by​ a combined​ ~300,000 barrels per day

Even after that decrease in April's global output, the 98.74 million barrels of oil per day that were produced globally during the month were 6.70 million barrels per day, or 6.​1% more than the revised 93.​04 million barrels of oil per day that were being produced globally in April a year ago, which was the fourth month that OPEC and their allied producers had reduced their output cuts by 500,000 barrels per day from the 7.7 million barrels per day production cut that they applied to the last 5 months of 2020, but also the third month that the Saudis had unilaterally decreased their own production by a million barrels per day in response to the pandemic's hit to demand (see the May 2021 OPEC report (online pdf) for the originally reported April 2021 details)...with this month's modest increase in OPEC's output while global output was falling, their April oil production of 28,648,000 barrels per day amounted to 29.0% of what was produced globally during the month, up from their revised 28.6% share of the global total in March....OPEC's April 2021 production was reported at 25,083,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 3,515,000 barrels per day, or 14.2% more barrels per day of oil this April than what they produced a year earlier, when they accounted for 27.0% of global output...

Even after the decrease in global oil output that we've seen in this report, the amount of oil being produced globally during the month was still a bit more than the expected global demand, as this next table from the OPEC report will show us....

The above table came from page 27 of the April Oil Market Report (pdf page 37), and it shows regional and total oil demand estimates in millions of barrels per day for 2021 in the first column, and then OPEC's estimate of oil demand by region and globally quarterly over 2022 over the rest of the table...on the "Total world" line in the third column, we've circled in blue the figure that's relevant for April, which is their estimate of global oil demand during the second quarter of 2022....OPEC is estimating that during the 2nd quarter of this year, all oil consuming regions of the globe will be using an average of 98.44 million barrels of oil per day, which is a downward revision of 670,000 barrels per day from their estimate for 2nd quarter demand of a month ago (that revision is circled in green)...but as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were producing 98.74 million barrels per day during April, which would imply that there was a surplus of around 300,000 barrels per day of global oil production in March, when compared to the demand estimated for the month...

Note that in green we have also circled an upward revision of 330,000 barrels per day to OPEC's previous estimates of first quarter demand...for March, that means that that the 710,000 barrels per day global oil output surplus we had previously figured for March would be revised to a surplus of 230,000 barrels per day, after the downward revision of 150,000 barrels per day to March's global oil output that's implied in this report is also taken into account... similarly, the upward revision to first quarter demand means that the global oil surplus of 340,000 barrels per daywe had previously figured for February would now be revised to a surplus of just 10,000 barrels per day, but that the 410,000 barrels per day global oil output shortage we had previously figured for January would be revised to a shortage of 740,000 barrels per day, in light of the 330,000 barrel per day upward revision to first quarter demand....

Also note that in orange we've also circled an upward revision of 100,000 barrels per day to 2021's demand, which also means that the supply shortfalls that we previously reported for last year would have to be revised....a separate table on page 26 of the March Oil Market Report (pdf page 36) indicates the revisions to 2021 demand included an an upward revision of 180,000 barrels per day to 4th quarter 202​1​ demand, and upward revisions of 70,000 barrels per day to oil demand for the 1st quarter, the 2nd quarter and the 3rd quarters of 2021...we're not inclined to go back and recompute the shortages for each month of 2021, but we do have adequate totals for the year from our prior reports such that we can estimate an aggregate revision​ for the year​...

With the release of OPEC's January Oil Market Report four months ago, we had complete and revised data for all of 2021, and found that the world was short 527,910,000 barrels of oil during the year, which worked out to a shortage of 1,446,300 barrels of oil per day....OPEC's February​ 2022​ Oil Market Report then revised aggregate global demand for 2021 higher by 10,000 barrels per day, OPEC's March Oil Market Report revised 2021​'s​ demand higher by 90,000 barrels per day, OPEC's ​April Oil Market Report revised 2021 demand higher by 70,000 barrels per day, and now this month's report has revised that demand higher by another 100,000 barrels per day....that means our original estimate of 2021's oil shortage now needs to be revised a total 270,000 barrels per day higher, or to 1,716,300 barrels per day...that would therefore revise the total shortage total shortage of oil for last year up to 537,765,000 barrels....we're still far from running out, however, because the quantities of oil being produced globally during the pandemic of 2020 still averaged over 1.1 trillion barrels, or over 3 million barrels per day more than anyone wanted...

This Week's Rig Count

The number of drilling rigs running in the US rose for the 73rd time over the prior 85 weeks during the week ending May 13th, but it still remained 10.0% below the prepandemic rig count.....Baker Hughes reported that the total count of rotary rigs drilling in the US increased by nine to 714 rigs this past week, which was also 261 more rigs than 453 rigs that were in use as of the May 14th report of 2021, but was still 1,215 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, a week before OPEC began to flood the global market with oil in an attempt to put US shale out of business….

The number of rigs drilling for oil was up by 6 to 563 oil rigs during this week, after rigs targeting oil had increased by 5 during the prior week, and there are now 211 more oil rigs active now than were running a year ago, even as they still amount to just 35.0% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and as they are still down ​by ​17.6% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations rose by 3 to 149 natural gas rigs, which was the most natural gas rigs deployed since September 13th, 2019, up by 49 natural gas rigs from the 100 natural gas rigs that were drilling during the same week a year ago, even as they were still only 9.3% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008…in addition to rigs targeting oil and gas, Baker Hughes continues to show two "miscellaneous" rigs active; one is a rig drilling vertically for a well or wells intended to store CO2 emissions in Mercer county North Dakota, and the other is also a vertical rig, drilling 5,000 to 10,000 feet into a formation in Humboldt county Nevada that Baker Hughes doesn't track; a year ago, there was only one such "miscellaneous" rig running...

The offshore rig count in the Gulf of Mexico increased by one to seventeen this week, with all of this week's Gulf rigs drilling for oil in Louisiana waters....that's two more than the count of offshore rigs that were active in the Gulf a year ago, when all 15 Gulf rigs were drilling for oil offshore from Louisiana…in addition to rigs drilling in the Gulf, there's also an offshore rig drilling in the Cook Inlet of Alaska, where natural gas is being targeted at a depth greater than 15,000 feet....a year ago, there were no offshore rigs other than those deployed in the Gulf of Mexico....

This week also saw the startup of a water based directional rig, drilling for oil at a depth between 10,000 and 15,000 feet, inland in the Galveston Bay area, and during the same week of a year ago, there was also one such "inland waters" rig deployed...

The count of active horizontal drilling rigs was up by 5 to 651 horizontal rigs this week, which was also 238 more rigs than the 408 horizontal rigs that were in use in the US on May 14th of last year, but still 52.6% less than the record 1,374 horizontal rigs that were drilling on November 21st of 2014....at the same time, the directional rig count was up by 4 to 38 directional rigs this week, and those were up by 10 from the 28 directional rigs that were operating during the same week a year ago…meanwhile, the vertical rig count was unchanged at 25 vertical rigs this week, while those were also up by 10 from the 15 vertical rigs that were in use on May 14th of 2021….

The details on this week’s changes in drilling activity by state and by major shale basin are shown in our screenshot below of that part of the rig count summary pdf from Baker Hughes that gives us those changes…the first table below shows weekly and year over year rig count changes for the major oil & gas producing states, and the table below that 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 May 13th, the second column shows the change in the number of working rigs between last week’s count (May 6th) and this week’s (May 13th) count, the third column shows last week’s May 6th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running on the Friday before the same weekend 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 the 14th of May, 2021...

Once again, it appears most of the activity was outside the major oil basins this week, with the two oil rigs added to Oklahoma's Cana Woodford a notable exception...Oklahoma also saw the addition of a natural gas rig to the Arkoma Woodford, and the removal of an oil rig from the Ardmore Woodford...since that nets out to an addition of two rigs ​in the state ​and Oklahoma's rig count was up by four, we have to figure two more rigs were added elsewhere in the state in a basin that Baker Hughes doesn't track...likewise, the rigs added in both Colorado and Wyoming were in basins that Baker Hughes doesn't track, since the rig count in the Denver-Julesburg NIobrara chalk of the Rockies front range was unchanged, and while we can assume that the rig added in Utah was in the Uintah basin by its county location, that's also a basin that Baker Hughes doesn't track...meanwhile, the rig added in the Gulf of Mexico accounts for the increase in Louisiana, and as usual, the rig added in North Dakota was in the Williston basin, while the rig pulled out of Kansas had been drilling in the Mississippian shale, with the Mississippian rig that remains across the state line in Oklahoma....

checking the Rigs by State file at Baker Hughes for the changes in Texas, we find that two rigs were added in Texas Oil District 1, but that a rig was pulled out of Texas Oil District 2, which accounts for the Eagle Ford shale ​one rig ​increase, and that a rig was pulled out of Texas Oil District 10, which accounts for the rig lost in the Granite Wash basin in the panhandle region....remarkably, rig activity in all four Permian basin Districts remained unchanged...meanwhile, for natural gas rigs, we had the one added in Oklahoma's Arkoma Woodford, and two added in "other basins" that Baker Hughes doesn't track, which could have been in any of those we've previously mentioned, or even not, if a gas rig addition somewhere had been masked by the removal of an oil rig in the same location...

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note: there's more here...

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