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

Sunday, July 17, 2022

1,490,000 barrels per day of excess oil was produced in June, even as OPEC was 1,060,000 bpd short of their quota…

US oil supplies at new 18 year low, Strategic Petroleum Reserve at 36½ year low; largest drop in US gasoline and diesel demand since early 2020​ lockdown, ​largest drop in US gasoline production this year; 1.49 million barrels per day of excess oil was produced globally in June, even with OPEC 1,060,000 barrels per day short of their production quota..

US oil prices finished lower for the 4th time out of the past five weeks, as a renewed Covid outbreak in China threatened demand while rising inflation in the US & Europe bolstered the case for economy-crushing interest rate hikes...after falling 3.4% to $104.79 a barrel last week on expectations that the coming engineered recession would impact demand, the contract price for the benchmark US light sweet crude for August delivery tumbled as much as 3.9% in early trading on Monday, as new Covid cases continued to climb in Shanghai, but clawed back most of the early losses to settle 70 cents, or 0.7% lower at $104.09 a barrel​,​ as traders balanced the expected drop in demand in China against ongoing concerns over tight supply...oil prices again fell sharply in early trading Tuesday amid ​the one-two punch of the Covid resurgence and potential new lockdowns in China and of considerable deterioration in the economic outlook for the Eurozone, and then tumbled further as a combination of dwindling liquidity and ongoing concern over China's again restricting travel and closing businesses resulted a loss of almost 8 percent as oil settled $8.25 lower at $95.84 a barrel...oil held those losses in overnight trading after the American Petroleum Institute reported across the board inventory builds, and then fell further early Wednesday after the Labor Department reported the highest consumer inflation in 40 years, bolstering the case for another big Fed interest rate increase, but then steadied to settle 46 cents higher at $96.30 a barrel after EIA data showed the largest weekly fuel inventory build since January....oil fell more than 3% following equity markets​ lower​ early Thursday, as traders rapidly repriced the pace of interest rate hikes by the Fed and the ECB in the face of persistently high inflation, but recovered to end just 52 cents lower at $95.78 a barrel, still the lowest settle since April, even as concerns about faltering demand began to overtake supply worries linked to the Russia-Ukraine war...oil prices rose in early Asian trading on Friday amid uncertainty around how aggressive the Fed would be in hiking interest rates to combat rampant inflation, and then rallied further in New York after a U.S. official told Reuters that an immediate Saudi oil output boost was not expected after Biden's visit, and closed $1.81, or nearly 2% higher at $97.59 a barrel, but still ​finished with a 6.9% loss on the week, triggered by deepening concerns over recession in the US and Europe​,​ as central banks moved aggressively to raise interest rates to rein in excessive consumer demand... 

On the other hand, natural gas prices finished higher for a second consecutive week as record heat across the South led to record natural gas deliveries to the electricity generation sector...after rising 5.3% to $6.034 per mmBTU last week ​because the weekly inventory build fell well short of expectations, the contract price of natural gas for August delivery continued rising on Monday and settled 39.2 cents, or 7% higher at $6.426 per mmBTU, as a brutal heat wave boosted air conditioning demand to record highs in several parts of the country...however, natural gas prices fell on Tuesday amid a broader commodity selloff and followed oil prices down to finish 26.3 cents, or 4.1% lower at $6.163 per mmBTU... the natural gas rally resumed on Wednesday on a drop in daily gas output over the prior few days and on forecasts for hotter weather and greater demand over the next two weeks than had been expected​,​ and prices settled 52.6 cents or 8.5% higher at $6.689 per mmBTU....while traders initially shrugged off a modestly bearish storage report early Thursday and drove natural gas prices higher again much of the day, they reversed course in afternoon trading and prices settled 8.9 cents lower on the day at $6.600 per mmBTU​,​ as falling oil prices again dragged other commodity prices down as well...natural gas prices moved higher again on Friday, drawing strength from record hot temperatures across large portions of the US, which was forecast to continue through the balance of July, and settled 41.6 cents higher at $7.016 per mmBTU, thus finishing 16.3% higher on the week...

The EIA's natural gas storage report for the week ending July 8th indicated that the amount of working natural gas held in underground storage in the US rose by 58 billion cubic feet to 2,369 billion cubic feet by the end of the week, which still left our gas supplies 252 billion cubic feet, or 9.6% below the 2,621 billion cubic feet that were in storage on July 8th of last year, and 319 billion cubic feet, or 11.9% below the five-year average of 2,688 billion cubic feet of natural gas that have been in storage as of the 8th of July over the most recent five years....the 58 billion cubic foot injection into US natural gas working storage for the cited week was a bit less than the average forecast for a 61 billion cubic foot injection from an S&P Global Platts survey of analysts, but more than the 49 billion cubic feet that were added to natural gas storage during the corresponding week of 2021, and a bit higher than the average injection of 55 billion cubic feet of natural gas that has typically been added to our natural gas storage during the same week over the past 5 years.... 

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending July 8th indicated that despite increases in our oil exports and in ​the amount of ​oil going to our refineries, we ​again ​had oil left to add our stored commercial crude supplies for the 4th time in 6 weeks, and for the 14th time over the past 33 weeks, because of another large oil withdrawal from the SPR…our imports of crude oil fell by an average of 164,000 barrels per day to an average of 6,675,000 barrels per day, after rising by an average of 841,000 barrels per day during the prior week, while our exports of crude oil rose by 412,000 barrels per day to 3,024,000 barrels per day, which meant that our trade in oil worked out to a net import average of 3,651,000 barrels of oil per day during the week ending July 8th, 576,000 fewer barrels per day than the net of our imports minus our exports during the prior week…over the same period, production of crude from US wells was reportedly 100,000 barrels per day lower at 12,000,000 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 15,651,000 barrels per day during the July ​8th reporting week…

Meanwhile, US oil refineries reported they were processing an average of 16,640,000 barrels of crude per day during the week ending July 8th, an average of 202,000 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 average of 518,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US...so based on that reported & estimated data, the crude oil figures from the EIA for the week ending July 1st appear to indicate that our total working supply of oil from net imports​,​ from oilfield production, and from storage was 471,000 barrels per day less than 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 (+471,000) 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 omission or error 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 518,000 barrel per day decrease in our overall crude oil inventories left those supplies at 912,201,000 barrels at the end of the week, our lowest total oil inventory level since March 4th, 2004, and therefore at a new 18 year low….our oil inventory decreased this week as 465,000 barrels per day were being added to our commercially available supplies of crude oil, while 983,000 barrels per day of oil were being removed from our Strategic Petroleum Reserve.....that draw on the SPR would have been part of the emergency withdrawal under Biden's "Plan to Respond to Putin’s Price Hike at the Pump", that was 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 at least up until that time...the administration's previous 30,000,000 million barrel release from the SPR to address Russian supply related shortfalls wrapped up in June, and ​his earlier plan to release 50 million barrels from the SPR to incentivize US gasoline consumption was completed in May....including those, and other withdrawals from the Strategic Petroleum Reserve under recent release programs, a total of 171,002,000 barrels of oil have now been removed from the Strategic Petroleum Reserve over the past 23 months, and as a result the 485,147,000 barrels of oil still remaining in our Strategic Petroleum Reserve is now the lowest since August 23rd, 1985, or at a 36 1/2 year low, as repeated tapping of our emergency supplies for non-emergencies or to pay for other programs had already drained those supplies considerably over the past dozen years, even before the Biden administration's SPR releases....now the total 180,000,000 barrel drawdown expected over the current six month release program to November will remove almost a third of what remained in the SPR when the program started, and leave us with what would be less than a 20 day supply of oil at today's consumption rate...

Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports slipped to an average of 6,435,000 barrels per day last week, which was still 1.2% more than the 6,361,000 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 12,000,000 barrels per day because the EIA's rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,600,000 barrels per day, while Alaska’s oil production was 26,000 barrels per day higher at 432,000 barrels per day but had no impact on the final rounded national total....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 8.4% below that of our pre-pandemic production peak, but was 23.7% above the pandemic low of 9,700,000 barrels per day that US oil production had fallen to during the third week of February of 2021...

US oil refineries were operating at 94.9% of their capacity while using those 16,640,000 barrels of crude per day during the week ending July 8th, up from their 94.5% utilization rate during the prior week, and in line with the historical refinery utilization rate for early summer…the 16,640,000 barrels per day of oil that were refined this week were 3.4% more than the 16,093,000 barrels of crude that were being processed daily during week ending July 9th of 2021, but 3.4% less than the 17,267,000 barrels that were being refined during the prepandemic week ending July 12th, 2019, when our refinery utilization was at a fairly normal 94.4% for early July...

Even with the increase in the amount of oil being refined this week, gasoline output from our refineries was still much lower, decreasing by 1,425,000 barrels per day to 8,921,000 barrels per day during the week ending July 8th, after our gasoline output had increased by 849,000 barrels per day during the prior week…this week’s gasoline production was 9.5% less than the 9,858,000 barrels of gasoline that were being produced daily over the same week of last year, and likewise 9.5% less than our gasoline production of 9,855,000 barrels per day during the week ending July 12th, 2019, ie, during the year before the pandemic impacted US gasoline output....at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 246,000 barrels per day to 9,855,000 barrels per day, after our distillates output had increased by 243,000 barrels per day during the prior week…even with that big ​decrease, our distillates output was 4.2% more than the 4,926,000 barrels of distillates that were being produced daily during the week ending July 9th of 2021, but 4.2 less than the 5,361,000 barrels of distillates that were being produced daily during the week ending July 12th, 2019...

Even with the big decrease in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the fourth time out of the past twenty-three weeks, increasing by 5,825,000 barrels to 224,937,000 barrels during the week ending July 8th, after our gasoline inventories had decreased by 2,496,000 barrels during the prior week...our gasoline supplies increased this week because the amount of gasoline supplied to US users decreased by 1,351,000 barrels per day to 8,062,000 barrels per day, the largest drop in gasoline demand since the March 2020 lockdown, ​but after domestic gasoline supplied had increased by ​908​,000 barrels per day ​over the prior ​two ​week​s​, and even as our imports of gasoline fell by 230,000 barrels per day to 715,000 barrels per day, while our exports of gasoline fell by 175,000 barrels per day to 840,000 barrels per day...but after 19 inventory drawdowns over the past 23 weeks, our gasoline supplies were 4.3% lower than last July 9th's gasoline inventories of 236,535,000 barrels, and about 5% below the five year average of our gasoline supplies for this time of the year…

Similarly, even after the decrease in our distillates production, our supplies of distillate fuels increased for the 7th time in nine weeks and for the 17th time in forty-five weeks, rising by 2,668,000 barrels to 113,803,000 barrels during the week ending July 8th, after our distillates supplies had decreased by 1,266,000 barrels during the prior week….our distillates supplies rose this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 1,014,000 barrels per day to a one year low of 3,368,000 barrels per day, the biggest drop ​in demand ​since April 2020, while our exports of distillates rose by 239,000 barrels per day to 1,521,000 barrels per day, and while our imports of distillates rose by 33,000 barrels per day to 137,000 barrels per day....but after forty-three inventory withdrawals over the past sixty-five weeks, our distillate supplies at the end of the week were 20.1% below the 142,349,000 barrels of distillates that we had in storage on July 9th of 2021, and still about 18% below the five year average of distillates inventories for this time of the year…

Meanwhile, even with the increase in our oil exports​ and our refining​, this week's big release of crude from our Strategic Petroleum Reserve meant our commercial supplies of crude oil in storage rose for the 9th time in 16 weeks and for the 22nd time in the past year, increasing by 3,254,000 barrels over the week, from 423,800,000 barrels on July 1st to 427,054,000 barrels on July 8th, after our commercial crude supplies had increased by 8,234,000 barrels over the prior week…after those increases, our commercial crude oil inventories were still about ​8% below the most recent five-year average of crude oil supplies for this time of year, but about 25% above the average of our crude oil stocks as of the second weekend of July 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 commercial crude oil inventories had jumped to record highs during the Covid lockdowns of the Spring of 2020, and then jumped again after last year's winter storm Uri froze off US Gulf Coast refining, our commercial crude supplies as of this July 8th were still 2.4% less than the 437,580,000 barrels of oil we had in commercial storage on July 9th of 2021, and were 19.7% less than the 531,688,000 barrels of oil that we had in storage on July 10th of 2020, and 6.3% less than the 455,876,000 barrels of oil we had in commercial storage on July 12th 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 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 14,863,000 barrels this week, from 1,677,795,000 barrels on July 1st to 1,692,658,000 barrels on July 8th, after our total inventories had fallen by 714,000 barrels during the prior week...that ​big increase ​still left our total liquids inventories down by 95,775,000 barrels over the first 27 weeks of this year, but now nearly 15 million barrels from a new 13 1/2 year low...

OPEC's Report on Global Oil for June

Tuesday of this week saw the release of OPEC's July Oil Market Report, which includes details on OPEC & global oil data for June, and hence it gives us a picture of the global oil supply & demand situation at a time when parts of China were ​still ​under restrictive Covid lockdowns, reducing demand, while at the same time the supply of Russian oil was curtailed by sanctions imposed by the West....in light of those offsetting circumstances, OPEC and aligned oil producers had again agreed to increase their output by 400,000* barrels per day for a eleventh consecutive month, ie the 11th 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-five months, all in response to the pandemic-related demand 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 in this report to be pretty speculative, and hence will not address any projections beyond the June estimates..

The first table from this month's report that we'll review is from the page numbered 47 of this month's report (pdf page 59), 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 has used 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..​..​with this report, the consultancy​ ​Wood Mackenzie and ​the ​research​ and intelligence​ ​firm ​Rystad Energy have been added to OPEC's secondary sources, and the IEA has been omitted...

As we can see on the bottom line of the above table, OPEC's oil output increased by 234,000 barrels per day to 28,716,000 barrels per day during June, up from their revised May production total that averaged 28,482,000 barrels per day....however, that May output figure was originally reported as 28,508,000 barrels per day, which therefore means that OPEC's May production was revised 26,000 barrels per day lower with this report, and hence OPEC's June production was, in effect, just 208,000 barrels per day higher than the previously reported OPEC production figure (for your reference, here is ​a copy of ​the table of the official May 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, (later bumped up to 432,000 bpd) which was subsequently renewed at monthly meetings to include further 400,000+ barrel per day production increases in January, February, March, April, May, and June of 2022, and which would indicate an increase of 254,000 barrels per day each month from the OPEC members listed above, (now 286,000 barrels per day) with the rest of the current 432,000 barrel per day cartel increase to supplied by other producers. including Russia....so OPEC's increase of 234,000 barrels per day fell short of their expected increase....and while the production decrease in Libya, which has been strangled by political infighting bordering on civil war, was obviously the major reason for the June shortfall. 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 28th OPEC and non-OPEC Ministerial Meeting on May 5th, 2022, which set OPEC's and other aligned oil producers' production quotas for June... 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 in this list, and OPEC's quota ​excluding them ​is aggregated under the total listed for the 'OPEC 10', which you can see was expected to be at 25,864,000 barrels per day in June....therefore, the 24,804,000 barrels those 10 OPEC members actually produced in June were 1,060,000 barrels per day short of what they were expected to produce during the month, with Nigeria and Angola accounting for ​a large part of this month's shortfall, while only the UAE was 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 ​early ​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 on which the cuts are based, 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 now makes the ​cartel's ​effective monthly production 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"...​following that, in an OPEC and non-OPEC Ministerial Meeting held on May 5th, they again "reaffirmed, reconfirmed, and reinterated" the decision of the July 18th 2021 meeting to increase production by 432,000 barrels per day in June of this year​, which is the agreement that covers this report's output​...however, in a meeting held June 2nd, they agreed to advance the 432,000 barrel per day increase they had already scheduled for September, with that increase to be split evenly between July and August...hence, the production increase now scheduled for those two months is 648,000 barrels per day​, which should bring each member's production back to the October 2018 baseline​...

Hence OPEC arrived at the production quotas for August 2021 through June of this year after 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 and recent months, 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 ​subsequent 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 that 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, that meant a 254,000 barrel per day increase for each month from July 2021 to April 2022, at which time the incremental 32,000 barrels per day adjustment they arrived at in July 2021 kicked in....adding together those monthly ​quota ​increases since last July, when the quota was at 23,033,000 barrels per day is how they arrived at the 25,864,000 barrels per day quota for OPEC for ​June 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 July 2020 to June 2022, and it comes from page 48 (pdf page 60) of OPEC's July 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....

After this month's 234,000 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 increased by a rounded 1,320,000 barrels per day to average 99.82 million barrels per day in June, a reported increase which came after May's total global output figure was apparently revised down by 250,000 barrels per day from the 98.75 million barrels per day of global oil output that was estimated for May a month ago, as non-OPEC oil production rose by a rounded 1,100,000 barrels per day in June after that downward revision, as 700,000 barrels per day production growth from the US and Russia was only partly offset by a decine totaling 300,000 barrels per day in the output of Norway and Kazakhstan ...

After that 1.32 million barrel per day increase in June's global output, the 99.82 million barrels of oil per day that were produced globally during the month were 5.10 million barrels per day, or 5.4% more than the revised 94.72 million barrels of oil per day that were being produced globally in June a year ago, which was the second month after OPEC and their allied producers began their program of monthly production increases from the 7.2 million barrels per day production cut that had governed their ​output over the first four months of last year (see the July 2021 OPEC report (online pdf) for the originally reported June 2021 details)...with this month's increase in OPEC's output modest compared to the global increase, their June oil production of 28,716,000 barrels per day amounted to 28.8% of what was produced globally during the month, down from their revised 28.9% share of the global total in May....OPEC's June 2021 production was reported at 26,043,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 2,682,000 barrels per day, or 10.3% more barrels per day of oil this June than what they produced last June, when they accounted for 27.9% of global output...

With the increases in both OPECs and global oil output that we've seen in this report, the amount of oil being produced globally during the month was significantly more than the expected global demand, as this next table from the OPEC report will show us....

The above table came from page 25 of the July 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 June, which is their estimate of global oil demand during the second quarter of 2022....OPEC ​has ​estimated that during the 2nd quarter of this year, all oil consuming regions of the globe have been using an average of 98.33 million barrels of oil per day, which is an upward revision of 150,000 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 99.82 million barrels per day during June, which would imply that there was a surplus of around 1,490,000 barrels per day of global oil production in June, when compared to the demand estimated for the month...

In addition to figuring June's global oil supply surplus that's evident in this report, the upward revision of 150,000 barrels per day to second quarter demand that's indicated in green above, combined with the 250,000 barrel per day downward revision to May's global oil supplies that's implied in this report, means that the 560,000 barrels per day global oil output surplus we had previously figured for May would now be revised to a surplus of just 160,000 barrels per day...in addition, the 710,000 barrels per day global oil output surplus we had previously figured for April, in light of the 150,000 barrels per day upward revision to second quarter demand, would now be revised to a surplus of 560,000 barrels per day...  

note that in green we have also circled an upward revision of 60,000 barrels per day to OPEC's previous estimates of first quarter demand....for March, that means that the global oil output surplus of 230,000 barrels per day we had previously figured for March would be revised to a surplus of 170,000 barrels per day... however, the upward revision to first quarter demand means that the 10,000 barrels per day global oil output surplus we had previously figured for February would now be revised to a shortage of 50,000 barrels per day, and that the global oil output shortage of 740,000 barrels per day we had previously figured for January would now be revised to a shortage of 800,000 barrels per day, in light of that 60,000 barrel per day upward revision to first quarter demand...

This Week's Rig Count

The number of drilling rigs running in the US increased for the 79th time over the prior 94 weeks during the week ending July 15th, but still remained 4.7% below the prepandemic rig count....Baker Hughes reported that the total count of rotary rigs drilling in the US increased by 4 to 756 rigs this past week, which was also 272 more rigs than 484 rigs that were in use as of the July 16th report of 2021, but was still 1,173 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 increased by 2 to 599 oil rigs during the past week, after rigs targeting oil had risen by 2 during the prior week, and there are now 219 more oil rigs active now than were running a year ago, even as they still amount to just 37.2% of the shale era high of 1609 rigs that were drilling for oil on October 10th, 2014, and as they are still down 12.3% from the prepandemic oil rig count….at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 153 natural gas rigs, which was still up by 52 natural gas rigs from the 101 natural gas rigs that were drilling during the same week a year ago, even as they were still only 9.5% 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 natural gas, Baker Hughes now shows four "miscellaneous" rigs now; the new ones include a horizontal rig drilling between 5,000 to 10,000 feet into the Permian basin in Dawson county Texas, and a directional rig drilling between 5,000 to 10,000 feet on the big island of Hawaii....we also have a rig drilling vertically to between 10,000 and 15,000 feet for a well or wells intended to store CO2 emissions in Mercer county North Dakota, and another vertical rig, drilling more than 15,000 feet into a formation in Humboldt county Nevada that Baker Hughes doesn't track...a year ago, there were no such "miscellaneous" rigs running...

The offshore rig count in the Gulf of Mexico was down by 3 to 13 rigs this week, with all of this week's Gulf rigs drilling for oil in Louisiana's offshore waters....that's now four less than the 17 offshore rigs that were active in the Gulf a year ago, when 16 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil offshore from Texas.…in addition to rigs drilling in the Gulf, we also have an offshore rig drilling in the Cook Inlet of Alaska, where natural gas is being targeted at a depth greater than 15,000 feet, while year ago, there were no offshore rigs other than those deployed in the Gulf of Mexico....

in addition to rigs ​running ​offshore, we now have 4 water based rigs drilling through inland bodies of water....one is a directional rig targeting oil at a depth greater than 15,000 feet on Grand Isle, Louisiana; others include a directional rig drilling for oil at a depth between 10,000 and 15,000 feet, inland in the Galveston Bay area, and two directional inland water rigs drilling for oil in Terrebonne Parish, Louisiana, one of which is targeting a formation greater than 15,000 feet in depth, while the other is shown drilling to between 10,000 and 15,000 feet... during the same week of a year ago, there was just one such "inland waters" rig deployed...

The count of active horizontal drilling rigs was up by four to 686 horizontal rigs this week, which was also 252 more rigs than the 434 horizontal rigs that were in use in the US on July 16th of last year, but less than half of the record 1,374 horizontal rigs that were drilling on November 21st of 2014....at the same time,  the vertical rig count was up by 3 to 30 vertical rigs this week, and those were also up by 12 from the 18 vertical rigs that were operating during the same week a year ago…on the other hand, the directional rig count was down by 3 to 40 directional rigs this week, while those were still up by 8 from the 32 directional rigs that were in use on July 16th 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 July 15th, the second column shows the change in the number of working rigs between last week’s count (July 8th) and this week’s (July 15th) count, the third column shows last week’s July 8th 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 16th of July, 2021...

checking the Rigs by State file at Baker Hughes for the changes in Texas, we first find that a rig was pulled out of Texas Oil District 1, but that a rig was added in Texas Oil District 4, which would have been the natural gas rig added in the Eagle Ford shale, while the rig removed from District 1 was likely pulled out of a basin in that district that Baker Hughes doesn't track, even though most of the drilling in that district ​typically ​targets the Eagle Ford...in the Texas oil districts covering the Permian basin, we find that one rig was added in Texas Oil District 7C, which includes the southern counties of the Permian Midland, and that two rigs were added in Texas Oil District 8, which covers the core Permian Delaware, but that a rig was removed from Texas Oil District 8A, which includes the northern counties of the Permian Midland...since that indicates a two rig increase in the Permian basin in Texas, we have to conclude that the two rigs removed from New Mexico had been ​drilling ​in ​the west​ern​ Permian Delaware for the national Permian count to show no change...​​Texas also saw rigs added in Texas Oil District 6, apparently in a basin that Baker Hughes doesn't track, and in Texas Oil District 10 of the Texas panhandle, which accounts for one of the rigs added in the Granite Wash basin......the other Granite Wash rig was ​across the state line ​in Oklahoma, which also had two rigs added in a basin or basins that Baker Hughes doesn't track...meanwhile, the rig that was added in North Dakota was targeting the Bakken shale in the Williston basin, but the Williston basin count remained unchanged because a Williston basin rig was pulled out of Montana at the same time, which isn't shown above...​lastly, ​there was a natural gas rig pulled out of the Haynesville shale in the northwest part of Louisiana​, and three rigs shut down in the state's Gulf of Mexico waters, while a rig was added in the southern part of the state at the same time..

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note: there’s more here..

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