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, January 21, 2018

distillates (heat oil) use at a record high, US & global crude supplies continue to drop..

oil prices fell for the first time in the past five weeks this week, and also fell by the most in any week since early October, but not before hitting another three year high, beating the three year high set at the end of last week....after rising every day during the week ending January 12th and closing with a gain for the week of $2.86, or 4.7% at a three year high of $64.30 a barrel, US crude oil contracts for February delivery opened Tuesday morning at $64.43 a barrel and climbed to a new three year high of $64.89, before falling on profit taking and closing at $63.73...oil prices then recovered and rose 24 cents on Wednesday to $63.97 a barrel, buoyed by expectations for a tenth straight weekly drop in U.S. crude supplies and threats by militants to production facilities in Nigeria...oil prices were then mostly flat on Thursday, as the expected bullish drop in US crude supplies was offset by a bearish jump in our crude oil production, with prices ending 2 cents lower at $63.95 a barrel...prices then fell 58 cents to a one-week low on Friday, as the International Energy Agency predicted U.S. crude production would climb to record a high this year, surpassing the output of Saudi Arabia and Russia, with oil closing the week down 93 cents at $63.37 a barrel, a drop of less than one and a half percent for the week but still the biggest down week since October...

natural gas prices also tracked a bit lower this week, ending 1.5 cents lower at $3.185 per mmBTU, after this week's gas withdrawals from storage were in line with seasonal norms, following last week's record inventory drawdown...the Weekly Natural Gas Storage Report indicated that gas in storage fell by 183 billion cubic feet to 2,584 billion cubic feet in the week ending Friday, January 12, 2018, which left our gas supplies 368 billion cubic feet, or 12.5% less than was in storage on January 13th of last year, and 362 billion cubic feet, or 12.3% below the five-year average of 2,946 billion cubic feet for the second week of the year....since that's still higher than the gas that was left in storage on January 17th of the "polar vortex" year of 2014, the EIA characterizes our natural gas supplies as "within the five-year historical range"....

at the same time, heat oil supplies, as represented by distillate inventories, saw their largest consumption over one week in history, which we have to believe was a delayed impact of the prior week's cold snap...it appears that the distillate inventories figure accesses data for refinery or wholesales supplies of heat oil, which were apparently not impacted until a week after the cold weather, as retailers of heat oil filled their storage tanks to reflect their sales during the cold snap of the prior week...that left heat oil supplies nearly 18% below their year ago levels, but only just over 5% below their 10 year average for this time of year...to put this year's data for supplies of heating fuels into perspective, we'll include a few graphs on the year's heating requirements from John Kemp of Reuters...

the graph below, of daily heating degree days nationally, came from a package of graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday...degree days are used by utilities and suppliers of heating fuels to determine what the daily demand for heating will be, so they can adjust their production or delivery schedules accordingly...they are computed by taking the average daily temperature (typically once hourly readings divided by 24) and subtracting that from 65F, which is considered to be the temperature when most buildings will start to need heating...thus, the colder it gets, the greater the the number of heating degree days; ie, an average temperature of 32F would correspond to 33 degree days, while an average temperature of 20F would be 45 degree days...

January 19 2018 heating demand week ending Jan 12

so, the above graph takes that degree day data from all locations across the US and weighs it by the number of people living in each reporting location to give a population weighted degree average for the US, wherein the yellow graph shows the average degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population degree days for each day this heating season of 2017-2018....while those dots are difficult to read and line up, you can orient what the graph shows by noting that the highest number of degree days was on January 1st, when the all time record for natural gas consumption was set...that date looks to be close to 43 degree days, and it appears that our heating demand dropped to around 16 degree days about 10 days later...

the next graph, also from that package of graphs mailed John Kemp, shows the cumulative heating degree days up till at least mid-January...

January 19 2018 heating demand cumulative week ending Jan 12

in this graph, the divergence of cumulative heating degree days from normal for each of the past three heating seasons is shown daily, with the current year shown as a solid yellow line, last year's divergence shown as a dashed yellow line, and with the divergence from normal of the 2015/2016 heating season shown as a dashed red line....note that all three graphs trend downward, or negative from zero, because all three years experienced warmer than normal temperatures, hence less degree days than normal, up until the recent weeks of this year, when the colder than normal weather has brought this year's divergence back up to near zero...without going into monthly detail, we can see that the 2015/2016 heating season started downward and by springtime had accumulated nearly 700 fewer degree days than a normal year...likewise, the 2016/2017 heating season needed even less heating, and by spring had fallen more than 700 degree days below normal for the season...we have often characterized the heating needs of both years as "17% below normal", based on similar graphs we posted at the end of March last year...this year, the pattern we see describes a cool September, and a generally warmer than normal October, November and early December, which has since been completely reversed in the weeks since Christmas...that now normal heating demand has left our natural gas supplies 12.5% below those of a year ago, and our heat oil supplies nearly 18% below those of a year ago, with exports of both commodities exacerbating the shortfalls...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, which includes details for the week ending January 12th, showed that despite a big pullback in operations at US refineries and a large rebound in oil production from US wells, we again had a large withdrawal of crude oil out of storage, as the week's changes were all obscured by a big shift in the amount of unaccounted for crude oil...our imports of crude oil rose by an average of 292,000 barrels per day to an average of 7,950,000 barrels per day during the week, while our exports of crude oil rose by an average of 234,000 barrels per day to an average of 1,249,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,701,000 barrels of per day during the week, 58,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 258,000 barrels per day to 9,750,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,451,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,875,000 barrels of crude per day, 448,000 barrels per day less than they used during the prior week, while 913,000 barrels of oil per day were being pulled out of oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 489,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-489,000) 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, a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...that was a swing of 970,000 barrels per day from the +481,000 barrel per day fudge factor the prior week, and thus calls into question the reliability of all our week over week oil metrics...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports inched up to an average of 7,892,000 barrels per day, still 3.7% less than the 8,195,000 barrels per day average imported over the same four-week period last year....the 913,000 barrel per day decrease in our total crude inventories came about on a 980,000 barrel per day withdrawal from our commercial stocks of crude oil, which was partially offset by a 67,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency... this week's 258,000 barrel per day increase in our crude oil production included a 267,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 9,000 barrels per day decrease in output from Alaska.....the 9,750,000 barrels of crude per day that were produced by US wells during the week ending January 12th was 11.2% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 15.7% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 93.0% of their capacity in using those 16,875,000 barrels of crude per day, down from the 95.3% of capacity the prior week, and down from the wintertime record 96.7% of capacity two weeks earlier...the 16,875,000 barrels of oil that were refined this week were 2.4% less than the off-season record 17,608,000 barrels per day that were being refined at the end of December 2017, but were 2.5% more than the 16,468,000 barrels of crude per day that were being processed during the second week of 2017, when refineries were operating at 90.7% of capacity....

even with the decrease in the amount of oil being refined, gasoline production by our refineries was higher, increasing by 185,000 barrels per day to 9,710,000 barrels per day during the week ending January 12th, after falling by 721,000 barrels per day over the prior two weeks....that increase lifted our gasoline production to a level 8.5% higher than the 8,953,000 barrels of gasoline that were being produced daily during the week ending January 13th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 215,000 barrels per day to 5,076,000 barrels per day, after falling by 301,000 barrels per day the prior week...but even with the two big decreases, the week's distillates production was 7.7% higher than the 4,713,000 barrels of distillates per day than were being produced during the the second week of 2017....   

with the increase in our gasoline production, our gasoline inventories at the end of the week rose by 3,620,000 barrels to 240,942,000 barrels by January 12th, their tenth increase in a row...that was as our domestic consumption of gasoline fell by 146,000 barrels per day to 8,668,000 barrels per day, and as our imports of gasoline rose by 132,000 barrels per day to 396,000 barrels per day, while our exports of gasoline rose by 144,000 barrels per day to 948,000 barrels per day....however, even after ten consecutive increases, our gasoline inventories are still down by 2.2% from last January 13th's level of 246,424,000 barrels, even as they are roughly 4.8% above the 10 year average of gasoline supplies for this time of the year...      

however, with this week's drop in distillates production, our supplies of distillate fuels fell by 3,887,000 barrels to 139,201,000 barrels over the week ending January 12th, in the first draw from distillates supplies in 5 weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 1,083,000 barrels per day to a record high of 4,738,000 barrels per day, even as our exports of distillates fell by 163,000 barrels per day to 1,040,000 barrels per day, while our imports of distillates fell by 28,000 barrels per day to 147,000 barrels per day... after this week’s inventory decrease, our distillate supplies were 17.7% lower at the end of the week than the 169,073,000 barrels that we had stored on January 13th, 2017, and roughly 5.3% lower than the 10 year average of distillates stocks at this time of the year… 

finally, even after the slowdown of US refining and the increase in our crude oil production, our commercial crude oil inventories fell for the 34th time in the past 41 weeks, decreasing by 6,861,000 barrels, from 419,515,000 barrels on January 5th to a 28 month low of 412,654,000 barrels on January 12th....while our oil inventories as of January 12th were thus 15.0% below the 485,456,000 barrels of oil we had stored on January 13th of 2017, and 9.3% lower than the 455,169,000 barrels of oil that we had in storage on January 15th of 2016, they were still 13.3% greater than the 364,266,000 barrels of oil we had in storage on January 16th of 2015, at the time when US supplies of oil were just beginning to increase.. 

January OPEC Oil Market Report

since we've also been tracking the impact of OPEC's production cuts on global oil supplies since those cuts were initiated in January this year, we will again review the latest OPEC Oil Market Report (covering December OPEC & global oil data), which was released on Thursday of the past week, and which is available as a free download....the first table from that report that we'll look at is from page 65 of that OPEC pdf, and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...    

December 2017 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC oil output increased by 42,400 barrels per day in December to 32,416,000 barrels per day, from an November production total of 32,373,000 barrels per day, but that was a figure that was originally reported as 32,448,000 barrels per day, so their production for December was actually a decrease from previously reported figures (for your reference, here is the table of the official November OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, the main reasons that OPEC's December output rose by 42,400 barrels per day from revised November figures were the increases of 44,800 barrels per day in output from Angola and of 75,700 barrels per day in output from Nigeria, which were partially offset by an 82,200 barrel per day decrease in output from Venezuela...note that the increase in Angolan production came after an even larger decrease in November, meaning Iraq is still the only OPEC member whose production is well in excess what their pact calls for, as can be seen in the table below:  

December 2017 OPEC output vs quota via Platts

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members over the twelve months of this year, and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as was agreed to at their November 2016 meeting, and the 3rd column shows how much each has averaged over or under their quotas for the twelve months that the OPEC pact to curtail production has been in effect...we should clarify that Nigeria and Libya are no longer exempt from the pact, since they have agreed to a combined output cap of 2.8 million barrels per day at the November 30th OPEC meeting...with a combined output of 2,823,000 barrels per day in December, they were a bit in excess of that new quota for this month, but over the entire past year their output was well below that quota....and as you can see from the above, most OPEC members are pretty close to meeting their commitment to cutting their production back 4%, except for Iraq, whose production has averaged nearly 2% higher than what they committed to...however, cuts in excess of what was agreed to by the Saudis, Venezuela, and other OPEC countries have more than made up for the 80,000 barrels per day that Iraq has been overproducing, so the cartel as a whole has kept their commitment to reduce supply....  

for a visualization of how OPEC's cuts have progressed, we'll next include a longer term historical graph of their monthly oil output: 

December 2017 OPEC oil production historical graph

the above graph was taken from the "OPEC December Oil Production" post at the Peak Oil Barrel blog, where Ron Patterson also posts similar graphs for each of the OPEC members...this graph shows total oil production, in thousands of barrels per day, for all of the current 14 members of OPEC, for the period from January 2005 to December 2017, using the history of the same official data from secondary sources that we saw in the first table above...we can see that OPEC's December production of 32,416,000 barrels per day, despite the increase from November, remains lower than their production of the prior five months, while it's higher than OPEC production of the first 5 months of this year...we can also see how OPEC's production spiked to a record last November, just before they announced their output cuts, giving them quite a bit of leeway to "reduce" production from those elevated levels, without ever having to fully cut back to the level they were producing at in late 2015 and early 2016...

the next graphic we'll include below comes from page 66 of the January OPEC Monthly Oil Market Report, and shows us both OPEC and world oil production monthly on the same graph, over the period from January 2016 to December 2017...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...   

December 2017 OPEC report global oil supply

OPEC's preliminary data indicates that total global oil production rose to a 13 month high of 97.49 million barrels per day in December, up by .40 million barrels per day from a November total of 97.09 million barrels per day, which was revised .35 million barrels per day lower from the 97.44 million barrels per day global oil output for November that was reported a month ago...global oil output for December was also 0.57 million barrels per day higher than the 96.92 million barrels of oil per day that was being produced globally in December a year ago (see last January's OPEC report online (pdf) for the year ago data)... OPEC's December production of 32,416,000 barrels per day thus represented 33.3% of what was produced globally, the same as their share of November global output, as oil output increases by Canada, Mexico, Norway, Brazil and Kazakhstan were partially offset by decreases in output from the UK, the US and China....OPEC's December 2016 production was at 33,085,000 barrels per day, so even after their production cuts, the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are producing just 2.4% less oil than they were producing a year ago, in the month before their production quotas went into effect...

  however, even after the increase in global oil output that we can see in the above purple graph, there was again a deficit in the amount of oil being produced globally, as the next table from the OPEC report will show us..   

December 2017 OPEC report global oil demand copy

the table above comes from page 37 of the January OPEC Monthly Oil Market Report, and it shows regional and total oil demand in millions of barrels per day for 2016 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2017 over the rest of the table...on the "Total world" line of the fifth column, we've circled in blue the figure that's relevant for December, which is their revised estimate of global oil demand for the fourth quarter of 2017...  

OPEC's estimate is that over the 4th quarter of last year, all oil consuming areas of the globe were using 98.20 million barrels of oil per day, which is an upward revision from their prior 4th quarter estimate of 98.08 million barrels of oil per day.....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 97.44 million barrels per day during December, which means that there was a shortfall of around 860,000 barrels per day in global oil production vis-a vis demand during the month... 

global oil production estimates for November were also revised lower with this report, by 0.35 million barrels per day to 97.09 million barrels per day, so combined with the 0.12 million barrel per day upward revision of 4th quarter demand, that now means there was also a deficit of 1,110,000 barrels per day in November global oil output, which we had previously figured to be a global oil deficit of around 640,000 barrels per day...in addition, since there were also revisions to oil demand estimates for 3rd quarter, as well as the 4th (which we have circled in green), that means the surplus or shortfall figures we previously computed for those months will also have to be recomputed...

hence the global oil deficit for October, which we had previously figured to be a deficit of 1,480,000 barrels per day, is now 0.12 millions barrel per day higher, or 1,600,000 barrels per day...revising our prior 3 quarter results for the 0.05 million barrel per day upward revision of 3rd quarter demand, we find there was a shortfall of 1,540,000 barrels per day in September global output, a global shortfall of 1,680,000 barrels per day in August, and a global oil shortfall of 565,000 barrels per day in July...

prior to that, we estimated a global oil surplus of 850,000 barrels per day in June, a global oil deficit of 360,000 barrels per day in May, a global oil deficit of 670,000 barrels per day in April, a global surplus of 390,000 barrels per day in March and average surpluses over January and February of around 610,000 barrels per day....adding those totals together, we find that the data from the 12 monthly OPEC reports we've covered means that after a year of OPEC production cuts, the global oil glut has been reduced by roughly 183.065 million barrels of oil since the 1st of the year, with most of that reduction coming over the last five months of 2017...included in that was at least a 54.549 million barrel drop in US oil supplies, which fell from 479,012,000 barrels on December 30th 2016 to 424,463,000 barrels as of December 29th, 2017, and as we've seen, continued to fall into the new year...

This Week's Rig Count

US drilling activity decreased for the fourth time in the past 11 weeks during the week ending January 19th, as natural gas rigs increased but those drilling for oil decreased by more....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 3 rigs to 936 rigs in the week ending on Friday, which was still 242 more rigs than the 694 rigs that were deployed as of the January 20th report of 2017, while it was also less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil fell 5 rigs to 747 rigs this week, which was still 196 more oil rigs than were running a year ago, while the week's oil rig count remained far 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 rose by 2 rigs to 189 rigs this week, which was 47 more gas rigs than the 142 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

offshore drilling activity was unchanged this week, with 19 rigs still drilling from platforms in the Gulf of Mexico; that was down from 23 rigs in the Gulf of Mexico a year ago and a total of 24 rigs offshore a year ago...this week's count of active horizontal drilling rigs was down by 3 rigs to 802 horizontal rigs this week, which was still up by 243 rigs from the 559 horizontal rigs that were in use in the US on January 20th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count fell by 5 rigs to 57 vertical rigs this week, which was also down from the 75 vertical rigs that were in use during the same week of last year....on the other hand, the directional rig count was up by 5 rigs to 77 directional rigs this week, which was also up from the 60 directional rigs that were deployed on January 20th 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 January 19th, the second column shows the change in the number of working rigs between last week's count (January 12th) and this week's (January 19th) count, the third column shows last week's January 12th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 20th of January, 2017...            

January 19 2018 rig count summary

as i'm sure you'll notice, despite the national increase in natural gas drilling, the Utica shale drillers in Ohio shut down 4 rigs, including 3 natural gas directed rigs, and the only Utica rig that had been targeting oil...on the other hand, 3 natural gas were added in the Marcellus, with one of those in Pennsylvania and two in West Virginia...at the same time, one of the rigs shut down in the Niobrara chalk of Colorado had been targeting gas, while the Haynesville drillers shut down an oil rig and started a gas rig and in the Eagle Ford, they started up a natural gas rig while shutting down 4 rigs targeting oil...there was also a natural gas rig started in an "other" basin, unnamed by Baker Hughes, but other than those, all other changes in activity shown above was for oil rigs...we should also note that other than the major producing states shown in the first table above, Mississippi drillers added a rig and now have 3 running, the same as they had running a year earlier, whereas Alabama saw a rig shut down, leaving just one active, also the same number that they had working last January 20th...

 

note:  there’s more here

Sunday, January 14, 2018

one cold snap burns 11.5% of US natural gas supplies; 8 more weeks like that and our gas storage will be totally empty

the cold week that we saw at the beginning of this month set quite an amazing record for US natural gas supplies, and put an exclamation point on our concerns about the natural gas that we're exporting...in the first week of the new year, or more specifically over the week that ended on January 5th, the demand for natural gas was so great that we had to use nearly eleven and a half percent of all the natural gas that was in storage in the US, in addition to everything that was produced by US wells during the week, to meet the needs of heating, industry, power generation, and contracted exports...as you know, on Thursday of every week (except on holidays), the EIA publishes the Weekly Natural Gas Storage Report, which reports on the amount of natural gas in storage in each of the 5 energy regions and in total as of the prior Friday...this week, that report showed that we had withdrawn a record 359 billion cubic feet of natural gas from storage during the week, an all time high by more than 25% over the previous record gas withdrawal...since not many of you would follow a link to it, we'll just include the lead table from that natural gas storage report here now, and explain what happened:

January 13 2018 natural gas storage report of Jan 11 for Jan 5

the above is a copy of the initial table from this week's Natural Gas Storage Report, covering the changes of natural gas in US storage for the week ending January 5th...the first column of numbers shows the amount of natural gas in billions of cubic feet that was left stored in each US region and naturally as of January 5th; the 2nd column shows the amount of natural gas in billions of cubic feet that had been stored as of a week earlier, ie as of December 29th, and the 3rd column shows the change between the two...then, in the columns on the right, we have similar totals of natural gas in storage during the same week a year ago, and the 5 year averages for this time of year....thus, we see that the US started the week with 3,126 billion of cubic feet of natural gas in storage, and by the end of the week that had fallen to 2,767 billion of cubic feet, which means we used 11.5% of all the natural gas we had in the entire country in just one short week...with just 2,767 billion of cubic feet left at the end of the week, it means quite simply that if we continue using natural gas from storage at the same 359 billion cubic feet rate that we used it this week, we'll run out of it in 8 weeks, completely. there will be no natural gas left in the entire country. period.

next, we'll show you a chart of our natural gas supplies over time so you can see how this week's drop stands out...

January 13 2018 natural gas supplies as of January 5

the above graph also comes from this week's Natural Gas Storage Report, and it shows the quantity of natural gas in storage in the lower 48 states over the period from December 2015 up to the week ending January 5th 2018 as a blue line, the average of natural gas in storage over the 5 years preceding the same dates shown as a heavy grey line, while the grey shaded background represents the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the two years shown by the graph…thus the grey area also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to a maximum by the end of September, falling through the winter, and usually bottoming out at the end of March, depending of course on the weather during any given year...we started the 2017-18 heating season with our supplies roughly 5% below normal, short of 3,800 billion cubic feet, and with this big drop in the first week of 2018, about half of our normal range of winter supplies are already gone, and we are now tracking the 5-year minimum of the polar vortex year of 2014, which is indicated by the bottom of the grey shading...

we can also see by the blue line above that the quantity gas we had stored throughout 2016 was at a record high for each week during the year, up until October, when US natural gas supplies topped 4 trillion cubic feet for the first time in history...gas supplies then dropped from that record to nearly normal by the end of December, at which time we felt that shouldn't have happened in a warmer than normal winter...by March of this past year, based on John Kemp's data that showed heating demand was 17% below normal for the year, we warned that we were not covering our natural gas needs from production, even while winter temperatures were above normal, and that something would have to give if we ever saw a colder than normal winter...

to the best of my knowledge, the EIA does not publish weekly natural gas production figures, or how much gas comes out of US wells each week...they do publish monthly natural gas production figures, however, with a couple month lag for the time it takes them to compile accurate data....looking at that data, we can see that over the first 10 months of 2017, US natural gas production totaled 22,113 billion cubic feet, or an average of 2,211.3 billion cubic feet per month....there are 304 days during the first ten months of the year, so that means our average daily natural gas production was 72.74 billion cubic feet during 2017...multiplying that by 7 gives us a average weekly natural gas production of 509.18 billion cubic feet for the first ten months of the year...if that average held through to the end of the year, that suggests that during the week ending January 5th, we used that 509 billion cubic feet of production, plus the 359 billion cubic feet of natural gas we took out of storage, for an approximate total of 868 billion cubic feet of natural gas for the week ending January 5th...put another way, by using 868 billion cubic feet during that week, we were using 70% more natural gas than what we were producing...

this week's record drawdown really got started on New Year's Day, when the US set a record for natural gas consumption...the EIA commemorated that record with a blog post, titled Cold weather, higher exports result in record natural gas demand which included a couple graphics which we think will be useful in explaining what happened...

January 13 2018 record nat gas demand week of  Jan 5

as we noted, the above graphic comes from the EIA post titled Cold weather, higher exports result in record natural gas demand, which explains the record natural gas usage in the US on New Year's day...on the left half of that graphic, the EIA presents a very tight graph showing US natural gas consumption daily from the beginning of 2013 to the end of 2017...of course, one can't discern any daily amounts on such a small graph, but they highlight the previous record of 143.3 billion cubic feet of natural gas that were used on January 7th, 2014, which was topped by the 150.7 billion cubic feet of natural gas that were used on New Year's day of this year....not coincidentally, that brown graph shows our natural gas exports in a darker shade across the bottom of the graphic...

on the right of that brown graph, the EIA presents a bar graph that highlights the differences in natural gas usage between the old single day record and the new one set on New Year's day...the blue part of each bar represents the portion of the day's natural gas consumption that was used for heating, and it's pretty obvious that heating use was greater on January 7th 2014 than on January 1st of this year...next, the yellow part of each bar is that portion of each day's natural gas consumption that was used for power generation, and here the 2018 record clearly tops the power usage of old record in 2014...industrial usage of natural gas, shown in green, may have also been greater on 1/1/18 than on 1/7/14, but not by much..."other" usage of gas, shown in brown, was also quite close...but the big difference, shown in cherry red and sangria at the top of the bars, is our natural gas exports, by pipeline to Mexico and as LNG by tanker to destinations world wide, that really put this week's record gas demand over the top...

from here, the shortfalls during winter can only get worse....for instance, earlier this year, the EIA projected that natural gas for power generation would increase by 8% in 2018...that would add nearly 3 billion cubic feet more to daily demand...but the real issue going forward is going to be increasing LNG exports, which, based on those liquefaction facilities already under construction, could easily triple by the end of next winter...since much of the natural gas that the power plants and the LNG exporters will be using is already under contract at the near record low prices that natural gas has been quoted at over the past few years, it will be the residential and commercial users that will be paying the higher prices that the coming shortage of natural gas will precipitate...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, also details for the week ending January 5th, and showed a pullback in operations at US refineries from the record pace of recent weeks, but also an equally large drop in oil production from US wells, which meant we again had to pull oil out of storage to meet our needs...our imports of crude oil fell by an average of 308,000 barrels per day to an average of 7,658,000 barrels per day during the week, while our exports of crude oil fell by an average of 460,000 barrels per day to an average of 1,015,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,643,000 barrels of per day during the week, 152,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells fell by 290,000 barrels per day to 9,492,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,135,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 17,323,000 barrels of crude per day, 282,000 barrels per day less than they used during the prior week, while 707,000 barrels of oil per day were being pulled out of oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 481,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+481,000) 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, a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"..

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,863,000 barrels per day, now 4.3% less than the 8,218,000 barrels per day average imported over the same four-week period last year....the 707,000 barrel per day decrease in our total crude inventories was entirely from our commercial stocks of crude oil, as inventories in our Strategic Petroleum Reserve remained unchanged... this week's 290,000 barrel per day decrease in our crude oil production was due to a 293,000 barrel per day decrease in output from wells in the lower 48 states, possibly due to severe weather in North Dakota, while oil output from Alaska, where it was warm, increased by 3,000 barrels per day....the 9,492,000 barrels of crude per day that were produced by US wells during the week ending January 5th was still 8.2% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.6% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 95.3% of their capacity in using those 17,323,000 barrels of crude per day, down from the record 96.7% of capacity the prior week, but still above normal for this time of year....the 17,323,000 barrels of oil that were refined this week were 2.3% less than the record 17,725,000 barrels per day that were being refined at the end of August of this year, but were 1.3% more than the 17,107,000 barrels of crude per day that were being processed during the first week of 2017, when refineries were operating at 93.6% of capacity....

with the decrease in the amount of oil being refined, gasoline output from our refineries was also lower, decreasing by 157,000 barrels per day to 9,526,000 barrels per day during the week ending January 5th, after falling by 562,000 barrels per day....that drop also left our gasoline production 1.5% lower than the 9,666,000 barrels of gasoline that were being produced daily during the week ending January 6th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 301,000 barrels per day to 5,291,000 barrels per day, after rising 386,000 barrels per day to new record highs over the prior two weeks...that decrease left the week's distillates production fractionally lower than the 5,329,000 barrels of distillates per day that were being produced during the the first week of 2017....   

even with the decrease in our gasoline production, our gasoline inventories at the end of the week rose by 4,135,000 barrels to 237,322,000 barrels by January 5th, their ninth increase in a row...that was as our domestic consumption of gasoline rose by 164,000 barrels per day from last week's 10 month low to 8,814,000 barrels per day, and as our exports of gasoline fell by 149,000 barrels per day to 804,000 barrels per day, while our imports of gasoline fell by 85,000 barrels per day to 264,000 barrels per day....however, even after nine consecutive builds, our gasoline inventories are still down by 2.1% from their pre-summer high of 242,444,000 barrels, and down by 1.3% from last January 6th's level of 240,473,000 barrels, even as they are roughly 5.4% above the 10 year average of gasoline supplies for this time of the year...      

likewise, in spite of the drop in our distillates production, our supplies of distillate fuels rose by 4,254,000 barrels to 143,088,000 barrels over the week ending January 5th, following a year high increase of 8,899,000 barrels the prior week...that was even as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 67,000 barrels per day to 3,655,000 barrels per day, and as our exports of distillates rose by 341,000 barrels per day to 1,203,000 barrels per day, while our imports of distillates rose by 46,000 barrels per day to 175,000 barrels per day... even after this week’s inventory increase, however, our distillate supplies were still 15.9% lower at the end of the week than the 170,041,000 barrels that we had stored on January 6th, 2017, and roughly 1% lower than the 10 year average of distillates stocks at this time of the year… 

finally, despite the slowdown in oil used in refining, the coincident drop in our crude oil production meant that our commercial crude oil inventories fell again, for the 33rd time in the past 40 weeks, decreasing by 4,948,000 barrels, from 424,463,000 barrels on December 29th to a 28 month low of 419,515,000 barrels on January 5th....while our oil inventories as of January 5th were thus 13.2% below the 483,109,000 barrels of oil we had stored on January 6th of 2017, and 7.0% lower than the 451,190,000 barrels of oil that we had in storage on January 8th of 2016, they were still 18.4% greater than the 354,195,000 barrels of oil we had in storage on January 9th of 2015, before the US oil glut became a headline issue... 

This Week's Rig Count

US drilling activity increased for the tenth time in the past 24 weeks during the week ending January 12th, but this week the increase was by the most for any week since May 19th....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 15 rigs to 939 rigs in the week ending on Friday, which was also 280 more rigs than the 659 rigs that were deployed as of the January 13th report of 2017, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 10 rigs to 752 rigs this week, which was also 230 more oil rigs than were running a year ago, while the week's oil rig count remained far 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 rose by 5 rigs to 187 rigs this week, which was 51 more gas rigs than the 136 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity in the Gulf of Mexico increased by 2 rigs to 19 rigs this week, but that was still down from the 24 rigs that were drilling from platforms in the Gulf of Mexico a year ago...the total national offshore count was the same, also up two rigs to 19 rigs for this week, but a year ago there was also a rig drilling offshore from Alaska, which means this week's national offshore total is down 6 rigs from the 25 offshore rigs that were working last January 13th...

this week's count of active horizontal drilling rigs was up by 7 rigs to 805 horizontal rigs this week, and also up by 268 rigs from the 537 horizontal rigs that were in use in the US on January 13th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the directional rig count was up by 8 rigs to 72 directional rigs this week, which was also up from the 59 directional rigs that were working during the same week last year....meanwhile, the vertical rig count wasunchanged at 62 vertical rigs this week, but that was down from the 63 vertical rigs that were deployed on January 13th 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 January 12th, the second column shows the change in the number of working rigs between last week's count (January 5th) and this week's (January 12th) count, the third column shows last week's January 5th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 13th of January, 2017...               

January 12 2018 rig count summary

it seems odd that Texas drilling pulled back, even as the country saw the largest increase in drilling in more than half a year...when oil & gas drilling first started coming back after prices stabilized in mid-2016, Texas drilling, especially in the Permian basin, accounted for half the new rigs...now Texas drilling has stalled, while Permian basin work seems to have moved across the border to New Mexico...

 

note: there's more here...

Sunday, January 7, 2018

oil prices hit 3 year high, natgas prices fall despite the cold, US refining and distillates production tops last week's records

oil prices pushed to a 3 year high over the first three days of trading this week, but then fell back almost 1% on profit taking on Friday....after closing out 2017 at a two and a half year high of $60.42 a barrel, US crude for February delivery pushed 32 cents higher to a new high early Tuesday before settling 5 cents lower at $60.37 a barrel, as the damaged pipelines in Libya and the UK restarted and the EIA reported that U.S oil production increased to the highest level in more than four decades in October...oil prices then surged nearly $2 on Wednesday after the Iranian's regime's response to domestic economic protests left 21 dead, but then pulled back to end the session with a increase of $1.26, or 2.1 percent, at $61.63 a barrel, its highest closing price since December 2014...oil prices then added to that interim record on Thursday, closing above $62 a barrel for the first time in more than three years, after the EIA reported that U.S. crude supplies shrank by the most since August, with oil prices ending up 38 cents at $62.01 a barrel after trading as high as $62.21...oil prices then retreated on Friday, giving up 57 cents to close at $61.44, as tensions in Iran subsided, oil traders cashed in their profits, and rising U.S. production and weaker refined products demand weighed on the market...for the week, prices ended $1.02, or 1.7% higher, their 4th higher weekly close in a row...

natural gas prices also took an interesting ride this week, especially in light of the record cold outbreak over the Midwest and densely populated eastern US... after hitting a 16 month low at 2.592 per mmBTU on the Thursday before Christmas, natural gas prices rose as expected during the record cold outbreak of Christmas week, finishing at $2.953 on December 29th...however, the nationally quoted futures price for February delivery stalled after rising 10.3 cents to $3.056 on Tuesday and then fell every other day this week, and ended down 15.8 cents at $2.795 per mmBTU, 5.4% lower than it started the week...meanwhile, at the same time that February natural gas futures were falling on the NYMEX, spot prices for power generation reached a record $175.00 per million British thermal units in New York, with other trading hubs in New York and New England seeing prices exceeding $100 per mmBTU...however, since the futures prices did not rise on those local shortages, there would be no way to write contracts for natural gas at those higher prices, and hence no opportunity for the drillers to participate in those prices....since we haven't been doing a very consistent job of tracking natural gas prices, we'll include a graph of their recent trajectory so you can see how their decline has transpired..

January 6 2018 natural gas prices

the above graph shows the daily closing contract price over the last year for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in February at the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...as you can see, the contract for February natural gas prices had been sliding since mid-November after holding in the $3.20 to $3.40 per mmBTU range over most of the summer, and crashed to below $2.60 before the cold weather set in...generally, there are only two factors that move domestic gas prices, the amount of gas in storage and the weather...according to the Weekly Natural Gas Storage Report from the EIA, natural gas in storage was at 3,126 billion cubic feet as of Friday, December 29th, a net decrease of 206 billion cubic feet from the previous week...that left natural gas supplies 5.8% below where they were at the end of last year, and also 5.8% below their average level for this time of year...some are anticipating another draw of as much as 300 billion cubic feet when the report for the week just ended is released....if gas in storage being that much below normal with this kind of weather doesn't raise natural gas prices, it's hard to imagine what can...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending December 29th, showed that because of an increase in our oil exports, and because US refineries were running at a record pace for this time of year, the amount of oil left in storage in the US fell by the most in 5 months...our imports of crude oil fell by an average of 27,000 barrels per day to an average of 7,966,000 barrels per day during the week, while our exports of crude oil rose by an average of 265,000 barrels per day to an average of 1,475,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,491,000 barrels of per day during the week, 292,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 28,000 barrels per day to 9,782,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,273,000 barrels per day during the reporting week...

during the same week, US oil refineries were using 17,608,000 barrels of crude per day, 210,000 barrels per day more than they used during the prior week, while at the same time 1,009,000 barrels of oil per day were being pulled out of oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was still 326,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+326,000) 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, a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,789,000 barrels per day, just 0.1% less than the 7,795,000 barrels per day average imported over the same four-week period last year....the 1,009,000 barrel per day decrease in our total crude inventories came about on a 1,060,000 barrel per day withdrawal from our commercial stocks of crude oil, which was partially offset by a 51,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency... this week's 28,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, and a 3,000 barrels per day increase in output from Alaska....the 9,754,000 barrels of crude per day that were produced by US wells during the week ending December 29th was 11.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 16.1% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 96.7% of their capacity in using those 17,608,000 barrels of crude per day, up from 95.7% of capacity the prior week, and the highest capacity utilization on record for any week outside of the summer driving season....the 17,608,000 barrels of oil that were refined this week were only 0.7% less than the record 17,725,000 barrels per day that were being refined at the end of August of this year, and were 5.5% more than the 16,689,000 barrels of crude per day that were being processed during week ending December 30th, 2016, when refineries were operating at 92.0% of capacity, and roughly 14.3% above the 10-year seasonal average of oil refined at this time of the year... 

despite the increase in the amount of oil being refined, gasoline output from our refineries was much lower, decreasing by 562,000 barrels per day to 9,682,000 barrels per day during the week ending December 29th, after increasing by 181,000 barrels per day during the prior week...part of this week's decrease was due to a 280,000 barrel per day swing in the weekly adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components, while the record also shows there is typically a large drop in gasoline production at the end of each year....thus, even with this week's large decrease, our gasoline production was still 2.3% higher than the 9,467,000 barrels of gasoline that were being produced daily during the week ending December 30th of last year....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 116,000 barrels per day at the same time to a new record high of 5,592,000 barrels per day, after rising 270,000 barrels per day to a record the prior week...that meant the week's distillates production was 4.9% higher than the prior record 5,329,000 barrels of distillates per day that were being produced during the the last week of 2016....   

in spite of the big drop in our gasoline production, our gasoline inventories at the end of the week rose by 4,813,000 barrels to 233,187,000 barrels by December 29th, their eighth increase in a row...that was because our domestic consumption of gasoline also dropped, by 835,000 barrels per day to 8,650,000 barrels per day, a decrease in demand for gasoline that's consistent with previous holiday week lulls at the end of the year...at the same time, our exports of gasoline rose by 91,000 barrels per day to 953,000 barrels per day, while our imports of gasoline fell by 39,000 barrels per day to 349,000 barrels per day....however, with significant gasoline supply withdrawals throughout the summer months, our gasoline inventories are still down by 3.8% from their pre-summer high of 242,444,000 barrels, and down nearly 1% from last December 30th's level of 235,450,000 barrels, even as they are roughly 5.4% above the 10 year average of gasoline supplies for this time of the year...      

meanwhile, with our distillates production at a record level, our supplies of distillate fuels rose by 8,899,000 barrels to 129,935,000 barrels over the week ending December 29th, the largest increase in distillates supply in a year but just the seventh increase in eighteen weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 738,000 barrels per day to 3,588,000 barrels per day, and as our exports of distillates fell by 371,000 barrels per day to a 16 week low of 862,000 barrels per day, while our imports of distillates fell by 110,000 barrels per day 129,000 barrels per day... even after this week’s inventory increase, however, our distillate supplies were still 14.1% lower at the end of the week than the 161,685,000 barrels that we had stored at the end of 2016, but now were less than 1% lower than the 10 year average of distillates stocks at this time of the year… 

finally, with higher oil exports and US oil refining at a near record pace, our commercial crude oil inventories fell for the 32nd time in the past 39 weeks, decreasing by 7,419,000 barrels, from 431,882,000 barrels on December 22nd to a 27 month low of 424,463,000 barrels on December 29th......since that's now the least amount of oil we've had in commercial storage since the week ending September 18th, 2015, we'll include a graph that will show how our once excessive glut of oil in storage has evaporated... 

January 6 2018 crude oil supplies as of December 29

on the above graph, taken from the EIA's This Week in Petroleum Crude Oil Section, the blue line shows the recent track of US oil inventories over the period from June 3rd, 2016 to December 29th 2017, while the grey shaded area represents the range of US oil inventories millions of barrels as reported weekly by the EIA over the prior 5 years for any given time of the 2 years from June 2016 to June 2018…thus the grey area also shows us the normal range of US oil inventories as they fluctuate from season to season, typically with a high in the springtime, before the summer driving season, and a low in the fall...and as you can see by the blue line, that oil supply pattern continued into early this year, where we seeing a record supply of oil almost weekly up until the week ending March 31st, 2017, when our oil supplies topped out at 535,543,000, an increase of almost 68% from the early 2014 low of 319,079,000 barrels...however, as you can also see by following the blue line, our oil supplies have been falling since, and at 424,463,000 barrels are now 20.7% below their March 31st high...there are two reasons that our oil supplies have been dropping so fast; first, that we've been refining more of that oil than ever before, and second, that we've been exporting more of our domestic production than ever before (we continued to import 7.9 million barrels per day in 2017, essentially unchanged from the 7.9 million barrels per day we imported during 2016)...so to illustrate those reasons for our drop in oil supplies, we'll include graphs of that refinery usage and oil exports over the period in question....

January 4 2018 refinery throughput for December 29

this graph of refinery throughput came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Thursday; it shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of oil refined for each week in 2016 traced weekly by a yellow line, with our year to date oil refining for 2017 represented by the red graph...you can clearly see that this year's oil refining (red) has been beating what were the record or near record levels of last year (yellow) by a large margin since the beginning of April, except for during the disruptions to refining resulting from this year's hurricanes, setting several records for US refining on the way... 

January 6th 2017 crude exports as of December 29

the above graph of US crude oil exports was also from a weekly package of oil graphs that John Kemp of Reuters emailed two weeks ago; i've just added the data points for the two most recent weeks to bring it up to date...as it now stands, this graph now shows weekly US crude oil exports in thousands of barrels per day over the past 16 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over several of the past 17 weeks...recall that US oil exports had been illegal for 40 years, after the OPEC oil embargo had left us short of fuel...that oil export ban was lifted in December of 2015, and as you see through most of 2016 our oil exports stayed under 700,000 barrels per day...from then, until September of 2017, our oil exports had only topped a million barrels per day five times...however, since the hurricane disruption to shipping, there's been a premium for international oil of 10% to 12% over the price of equivalent grades of US crude, encouraging US crude suppliers to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since...

as a result of these record oil exports and record refining, then, our oil inventories as of December 29th were 11.4% below the 479,012 ,000 barrels of oil we had stored at the end of 2016, and 5.9% lower than the 450,956,000 barrels of oil that we had in storage on January 1st of 2016...however, our crude supplies at year end were still 21.7% greater than the 348,806,000 barrels of oil we had in storage on January 2nd of 2015, before the oil glut in the US had really built our crude supplies up to above normal levels..

This Week's Rig Count

US drilling activity decreased for the third time in 9 weeks during the week ending January 5th, and by the most for any week in that period....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 5 rigs to 925 rigs in the week ending on Friday, which was still 259 more rigs than the 665 rigs that were deployed as of the January 6th report of 2017, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil fell by 5 rigs to 742 rigs this week, which was still 213 more oil rigs than were running a year ago, while the week's oil rig count remained far 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 remained unchanged at 182 rigs this week, which was only 47 more gas rigs than the 135 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

drilling activity in the Gulf of Mexico was was down by 1 rig to 17 rigs this week, which was also down from the 23 rigs that were drilling from platforms in the Gulf of Mexico a year ago...the total national offshore count was also down 1 rig at 17 rigs this week, but a year ago there was also a rig drilling offshore from Alaska, which means this week's national offshore total is down 7 rigs from the 24 offshore rigs that were working last January 6th...in addition, a drilling platform which had been drilling through an inland lake in Louisiana was also shut down this week, leaving the inland waters rig count at just 1 rig, the same as a year ago...

this week's count of active horizontal drilling rigs was up by 2 rigs to 798 horizontal rigs this week, and also up by 264 rigs from the 534 horizontal rigs that were in use in the US on January 6th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was down by 3 rigs to 62 vertical rigs this week, and that was also down from the 74 vertical rigs that were working during the same week last year....meanwhile, the directional rig count was down by 4 rigs to 64 rigs this week, which was still up from the 57 directional rigs that were deployed on January 6th 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 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 January 5th, the second column shows the change in the number of working rigs between last week's count (December 29th) and this week's (January 5th) count, the third column shows last week's December 29th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 6th of January, 2017...               

January 5th 2018 rig count summary

notice that the basin variances table doesn't show us much this week; part of the reason for that is that there were few changes in horizontal drilling work, while at the same time Baker Hughes has neglected to add other basins to their coverage for several years, leaving us blind to the changes in those basins, unless we were to dig through the records for individual wells included in Baker Hughes' North America Rotary Rig Count Pivot Table (xls)...we do know, though, that Louisiana accounted for 6 rig shutdowns, and the summary does break out Louisiana drilling into 4 categories; offshore, which was down 1 rig to 16 rigs, inland waters, which was also down 1 to 1 rig, northern Louisiana land rigs, which are mostly in the Haynesville shale, also down 1 rig to 38 rigs, and southern Louisiana land rigs, which are mostly drilling conventional wells, down 3 rigs to 1 rig this week...

 

note:  there’s more here

Sunday, December 31, 2017

oil ends 2017 above $60, first time in 30 months; US refining at wintertime high, distillates production at a record high

oil prices rose for the 2nd week in a row this week and ended at their highest level of the year, closing above $60 a barrel for the first time since June of 2015...after being little changed in light overseas trading through the Christmas weekend, US crude oil prices for February delivery surged $1.50 to close at a 2-1/2-year high of $59.97 a barrel on Tuesday, on news that an explosion on a major Libyan oil pipeline had disrupted the country's crude supply...prices then eased back 33 cents on Wednesday to close at $59.64 a barrel after the head of the Libyan state oil firm told Reuters the pipeline repair could take a week but would not have a major impact on exports, and on news that the cracked North Sea Forties pipeline was gradually resuming operations...oil prices then see-sawed on Thursday and ended 20 cents higher at $59.84 a barrel after the weekly EIA report showed a continuation of the ongoing decline in US oil supplies...US crude prices then rose 58 cents to close at $60.42 a barrel on Friday, 41% higher than its lowest point earlier this year, as oil traders interpreted a decline in US crude production and the weekly rig count to mean that producers were being cautious about ramping up their output...prices thus ended the week 12.5% higher than at the end of 2016, and up 132% from their low in February 2016...

since oil prices are at a two and a half year high and appear to have clearly broken out of the trading range they've been in for the past year and a half, we'll next include a graph of that price history so we can see how this price rally has developed..

December 30 2017 oil price history

the above graph is a screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for one week of oil trading between May 2011 and December 29th of this year, wherein green bars represent the weeks when the price of oil went up, and red bars represent the weeks when the price of oil went down...for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar...barely visible in this compressed view, there are also feint grey "wicks" above and below each bar to indicate trading prices during each week that were above or below the opening to closing price range for that week...

on this graph, we can see how oil prices stayed in a range roughly between $80 and $110 a barrel from mid-2011 till the fall of 2014, a period that saw widespread drilling and fracking helter-skelter across the breadth of the US...oil prices had already slipped to $78 a barrel the week before the Thanksgiving 2014 OPEC meeting that declared war on US fracking, after which oil prices quickly fell to $65 a barrel, and then continued lower, albeit with some intervening price rallies, until bottoming out at $26.02 a barrel on February 11, 2016, before spiking back up to $29 a barrel a day later (look closely at the graph, and you can see the 'wick' for that price dip at the bottom of the red candlestick for that week)...oil prices climbed to $50 a barrel pretty quickly after that, and generally stayed in a range between $44 a barrel and $54 a barrel from the Spring of 2016 through the Autumn of this year, a price range which kept the frackers confined to the most profitable sweet spots in the most productive oil fields...with prices now trending higher, we would expect to see a gradual expansion by exploration and exploitation enterprises into areas of the US that have seen little activity over the past few years...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending December 22nd, showed that despite an increase in our oil imports and a decrease in our oil exports, we once again had to pull quite a bit of oil out of storage, mostly because US refineries were running at a record pace for this time of year...our imports of crude oil rose by an average of 159,000 barrels per day to an average of 7,993,000 barrels per day during the week, while our exports of crude oil fell by an average of 648,000 barrels per day to an average of 1,210,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,783,000 barrels of per day during the week, 807,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells fell by 35,000 barrels per day to 9,754,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,537,000 barrels per day during the reporting week...

during the same week, US oil refineries were using 17,398,000 barrels of crude per day, 335,000 barrels per day more than they used during the prior week, while at the same time 644,000 barrels of oil per day were being withdrawn from oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was still 217,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+217,000) 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, a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,598,000 barrels per day, still 5.9% less than the 8,075,000 barrels per day average imported over the same four-week period last year....the 644,000 barrel per day decrease in our total crude inventories came about on a 658,000 barrel per day withdrawal from our commercial stocks of crude oil, which was slightly offset by a 14,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency... this week's 35,000 barrel per day decrease in our crude oil production was due to a 24,000 barrel per day decrease in output from wells in the lower 48 states, and an 11,000 barrels per day decrease in output from Alaska....the 9,754,000 barrels of crude per day that were produced by US wells during the week ending December 22nd was still 11.2% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 15.7% above the recent low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 95.7% of their capacity in using those 17,398,000 barrels of crude per day, up from 94.1% of capacity the prior week, and the highest capacity utilization on record for any week in December since 1998....the 17,398,000 barrels of oil that were refined this week was only 1.8% less than the record 17,725,000 barrels per day that were being refined at the end of August of this year, and was 5.1% more than the 16,557,000 barrels of crude per day that were being processed during week ending December 23rd, 2016, when refineries were operating at 91.0% of capacity, and roughly 12.5% above the 10-year seasonal average for this time of the year... 

we'll include a graph of what that refinery throughput looks like, since it's so far above the norm, and almost a record at a out of season time of year..

December 20 2017 refinery throughput as of December 15

the above graph came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out last week...this graph shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of oil refined for each week in 2016 traced weekly by a yellow line, with our year to date oil refining for 2017 represented by the red graph...since John was on vacation this week, i've taken the liberty of adding this week's refinery spike to his graph of the prior week, so you can see how far above last year's record level this week's refining has been...in fact, you can also see that this year's oil refining has been beating what were the record or near record levels of last year by a large margin since the beginning of April, except for during the disruptions to refining resulting from this year's hurricanes, setting several record highs on the way...

with the big increase in the amount of oil being refined, gasoline output from our refineries was likewise higher, increasing by 181,000 barrels per day to 10,246,000 barrels per day during the week ending December 22nd, after slipping during the prior week despite increased refining....however, even with this week's increase, our gasoline production was still 2.8% lower than the record 10,537,000 barrels of gasoline that were being produced daily during the week ending December 23rd of last year....however, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 270,000 barrels per day at the same time to a record high of 5,476,000 barrels per day, which was also 10.5% more than the 4,957,000 barrels of distillates per day that were being produced during the the same week a year ago....  

with the increase in our gasoline production, our gasoline inventories at the end of the week rose by 591,000 barrels to 228,374,000 barrels by December 22nd, their seventh increase in a row...that was as our domestic consumption of gasoline increased by 59,000 barrels per day to 9,485,000 barrels per day, and as our exports of gasoline rose by 58,000 barrels per day to 862,000 barrels per day, while our imports of gasoline fell by 99,000 barrels per day to 388,000 barrels per day....however, with significant gasoline supply withdrawals throughout the summer months, our gasoline inventories are still down by 5.8% from their pre-summer high of 242,444,000 barrels, even as they are up fractionally from last December 23rd's level of 227,143,000 barrels, and roughly 4.4% above the 10 year average of gasoline supplies for this time of the year...     

meanwhile, with our distillates production at a record level, our supplies of distillate fuels rose by 1,090,000 barrels to 129,935,000 barrels over the week ending December 22nd, in just the sixth increase in distillates supply in seventeen weeks...that was even as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 400,000 barrels per day to 4,326,000 barrels per day, and as our imports of distillates fell by 141,000 barrels per day 239,000 barrels per day, while our exports of distillates fell by 317,000 barrels per day to 4,326,000 barrels per day...even after this week’s inventory increase, however, our distillate supplies were still 14.3% lower at the end of the week than the 151,634,000 barrels that we had stored on December 23rd, 2016, and roughly 5.0% lower than the 10 year average of distillates stocks at this time of the year

finally, with US refineries using oil at a record pace, our commercial crude oil inventories fell for the 31st time in the past 38 weeks, decreasing by 4,609,000 barrels, from 436,491,000 barrels on December 15th to a 26 month low of 431,882,000 barrels on December 22nd ....while our oil inventories as of December 22nd were thus 11.1% below the 486,063,000 barrels of oil we had stored on December 23rd of 2016, and 5.1% lower than the 455,106,000 barrels of oil that we had in storage on December 25th of 2015, they were still 22.4% greater than the 352,979,000 barrels of oil we had in storage on December 26th of 2014, when the buildup to an oil glut in the US was just getting started... 

This Week's Rig Count

US drilling activity decreased for the second time in 8 weeks during the week ending December 29th, but all the changes over the past 4 weeks have really been insignificant....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rig to 929 rigs in the week ending on Friday, which was still 271 more rigs than the 658 rigs that were deployed as of the December 30th report in 2016, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil was unchanged at 747 rigs this week, which was still 222 more oil rigs than were running a year ago, while the week's oil rig count remained far 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 2 rigs to 182 rigs this week, which was still only 50 more gas rigs than the 132 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

with the shutdown of a drilling platform offshore from Texas, drilling activity in the Gulf of Mexico was was down by 1 rig to 18 rigs this week, which was also down from the 22 rigs that were drilling from platforms in the Gulf of Mexico a year ago...the total national offshore count was also down 1 rig at 18 rigs this week, but a year ago there was also a rig drilling offshore from Alaska, for a national total of 23 offshore rigs that were working last December 30th...

this week's count of active horizontal drilling rigs was down by 5 rigs to 796 horizontal rigs this week, but it was still up by 264 rigs from the 532 horizontal rigs that were in use in the US at the end of last year, but of course was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was up by 1 rig to 65 vertical rigs this week, but that was still down from the 70 vertical rigs that were working during the same week last year....in addition, the directional rig count was up by 2 rigs to 68 rigs this week, which was also up from the 56 directional rigs that were deployed on December 30th of 2016...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of December 29th, the second column shows the change in the number of working rigs between last week's count (December 22nd) and this week's (December 29th) count, the third column shows last week's December 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 30th of December, 2016...               

December 29 rig count summary

you'll notice that despite the decrease of two rigs targeting natural gas nationally, there was still a rig added in Ohio's Utica shale; at the same time, gas rigs were pulled out of the Haynesville in Texas at the Louisiana border, and out of two 'other' gas fields not named in Baker Hughes summaries...otherwise, the few changes you see on the tables above seem to be the extent of this week's changes, as it seems even most decisions in the oil fields were put on hold during the holiday week...

 

note: there’s more here..