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, February 19, 2017

record highs for US oil exports, gasoline and crude supplies; monthly OPEC and DUC reports, et al

oil contracts once again traded in a narrow price range this week, sliding by 90 cents a barrel to $52.93 a barrel on Monday, and then gradually clawing more than half of that drop back to end the week at $53.40 a barrel, down less than 1% for the week...oil traders seem to believe that the OPEC production cuts will eventually dent the supply glut, which has kept prices from falling below current levels, while US crude inventories continue to pile up, holding back any price increases...rather than discussing how prices moved, we'll just include a current graph so you can see for yourself...

February 18 2017 crude oil prices

the graph above shows the daily closing prices per barrel of oil over the past 3 months for the March contract for the US benchmark oil, West Texas Intermediate (WTI), as stored or to be delivered to the Cushing Oklahoma storage depot...we can see how oil prices jumped 14% during the last week of November, after the OPEC deal was announced, inched up a bit from there to approach $55 a barrel in December, and then slipped back to the $52 to $54 a barrel range over the past 6 weeks...this is a far cry from the 5% a day price changes we saw over most of 2015 and 2016, and we should figure that kind of volatility will return once prices break out of this narrow range...

next we'll include a similar graph of natural gas prices, so you can all see what's happened to them as our winter has turned warmer than expected:

February 17 2007 natural gas prices

the above graph shows the daily closing contract price over the last 3 months for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in March 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, natural gas contract quotes have been sliding since Christmas, at a time when a cold snap brought on the largest December drawdown of natural gas supplies in 6 years...at that time, the then current January contract hit a 2 year high of $3.93 per mmBTU, which ultimately led to a nominal increase in drilling for gas early this year...historically, however, natural gas drilling activity has been on a long downtrend from the 1,606 natural rigs that were deployed on August 29th, 2008, only increasing briefly in late 2009 and early 2010 and again in 2014 in the months after natural gas prices briefly rose above $4.00 per mmBTU, but ultimately sliding to just 82 rigs on June 3rd, 2016 after gas price had earlier slipped below $2 per mmBTU...so although this week has seen another small rig increase, that's probably drilling that was contracted for earlier in the year...absent such contracts, we should expect gas drilling to slow down again until such time as natural gas prices rise appreciably from these levels...

OPEC's February report

Monday of this past week saw the release of the OPEC Monthly Oil Market Report for February (covering January data), so we'll look at that first, because it's the production data in this report, not the IEA estimates that we looked at last week, that will determine, by OPEC's own standards, whether their members have complied with the agreed to production cuts or not...this first table is from page 59 of the OPEC pdf and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as the column headings are labeled...for all their official production measurements, OPEC uses "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator of their output quotas and production cuts, to resolve any potential disputes that might arise if each member reported their own figures...this is also the data we typically see quoted in the media, other than in independent analysis by energy research divisions of organizations such as Platts and Reuters that'll have their own numbers.. 

February 18 2017 January OPEC production

here we see that the official data shows that OPEC production was down by 890,200 barrels per day in January, from a December oil production total that was revised 56,000 barrels per day lower from what was reported last month...(for your reference, here is the December table before those revisions)...recall that OPEC committed to reducing their production by 1.2 million barrels per day, so these initial figures show they're not there yet....these figures are also somewhat less than the 1.04 million barrels per day that the IEA said that OPEC had cut last week, but IEA numbers were higher for December, so their total of 32.06 million barrels per day in January production is closer to OPEC's figure...the IEA showed that the Saudis had cut 560,000 barrels per day to end January at 9.98 million barrels per day, whereas these official numbers indicate the Saudis cut 496,000 barrels per day to end at 9.946 million barrels per day...the IEA also showed smaller cuts for Iraq and the Emirates, two major producers who have only cut half what they promised, than OPEC shows, so these figures would seem to indicate that the cooperation with the cuts is more evenly spread than IEA figures had indicated, even if it was less overall... 

the next table, also from page 59 of the OPEC pdf, shows the oil production that each of the members reported to OPEC (for those that did report)...this data is considered suspect because of the many incentives OPEC members have to fudge their data, and is rarely reported by the media, but i'm including it as a curiosity, because OPEC members are quite obviously reporting that they've cut their output more than the official figures show...what stands out below is that the Saudis claimed to have cut 717,600 barrels per day, while the official totals “from secondary sources" above show they've actually only cut 496,200 barrels per day....that's important because Saudi claims are usually reported by the media, and often move the price of oil...

February 18 2017 January reported OPEC production

next, we'll include a graph of the OPEC data for all members included in this report, so we can see how this month's production stacks up next to historical figures...

February 16 2017 OPEC Januaary outpul

the above graph, taken from the 'OPEC oil charts" page at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to January 2017...obviously, we can see that OPEC production is down quite a bit over the past two months from their record production of 33,374,000 million barrels per day in November, in their run-up before the agreement was reached, but note that their current production is still more than what they were producing last April and May of 2016, and every other month before that, including last January, when they produced 31,628,000 barrels per day (a figure i arrived at by subtracting Indonesian production from the 14 member total they reported last year.pdf) ...that means that despite all of the hullabaloo they've made over cutting production, their January 2017 production of 32,139,000 barrels per day is still 1.6% more oil than they were producing in January 2016...

this next graphic we'll include, as the heading tells us, shows us both OPEC and world oil production monthly on the same graph, from February 2015 to January 2017, and it also comes from page 59 of the February OPEC Monthly Oil Market Report...the pale 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, and that's shown on the right scale...global oil production fell to 95.82 million barrels per day in January, and OPEC production thus represented 33.5% of what was produced globally, a decrease from 34.0% in December...but even with the two months of cuts we can obviously see here, global oil supply is still in surplus, as the table after this graph will show..

February 18 2017 January world oil supply

the table below comes from page 34 of the February OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over 2017 over the rest of the table...while the changes by region from quarter to quarter may be interesting, the reason we're including this table here today is for the forecast for oil demand in the first quarter of 2017, which is shown on the "Total world" line of the second column...projections are that during the first three months of this year, all oil consuming areas of the globe will use 94.84 million barrels of oil per day, up from the 94.62 millions of barrels of oil per day they used in 2016...but as OPEC showed us in the supply section of this report and the summary supply graph above, even with the production cuts, the world's oil producers were still producing 95.82 million barrels per day during January...that means that even after all the production cuts have take place, there was still a surplus of around a million barrels per day in global oil production...

February 18 2017 January world oil demand

The Latest Oil Stats from the EIA

this week's oil data for the week ending February 10th from the US Energy Information Administration showed that our imports of crude oil fell back from last week's record but remained elevated, while our refining of that oil fell for the 5th week in a row to the second lowest rate in a year, and as a result there was another large surplus of crude added to our oil supplies, which were thus boosted to an all time high...our imports of crude oil fell by an average of 881,000 barrels per day to an average of 8,491,000 barrels per day during the week, while at the same time our exports of crude oil rose by 459,000 barrels per day to an average of 1,026,000 barrels per day, which meant that our effective imports netted out to 7,465,000 barrels per day for the week, 1,340,000 barrels per day less than last week...at the same time, our crude oil production slipped by 1,000 barrels per day to an average of 8,977,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,442,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,458,000 barrels of crude per day during the week, 435,000 barrels per day less than during the prior week, while at the same time, 1,361,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we consumed or stored 377,000 more barrels of oil per day than were accounted for by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom 377,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that number by backing into it, using the same method we just illustrated.....

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports inched up to an average of 8.491 million barrels per day, 9.9% higher than the same four-week period last year...we should also note that our crude oil exports of 1,026,000 barrels per day is a new record for oil exports, beating the prior record set in the first year of this year by 299,000 barrels per day...so you'll be sure to see that, we'll include a self explanatory.graph of that jump in our exports from the EIA's crude oil exports page, directly below.....

February 18 2017 crude oil exports for February 10

meanwhile, this week's 1,000 barrel per day oil production decrease included a 6,000 barrel per day increase in oil production in the lower 48 states, offset by a 7,000 barrel per day decrease in output from Alaska...our crude oil production for the week ending February 10th was 1.7% lower than the 9,135,000 barrels of crude that we produced during the week ending February 12th of last year, while it remained 6.6% below our June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 85.4% of their capacity in using those 15,458,000 barrels of crude per day, down from 87.7% of capacity the prior week, and down from the year high of 93.6% of capacity just five weeks earlier, when they were processing 17,107,000 barrels of crude per day....their processing of oil is also down by 2.5% from the 15,848,000 barrels of crude that were being refined during the week ending February 12th, 2016, when refineries were operating at 88.3% of capacity....with the refinery slowdown, gasoline production from our refineries fell by 854,000 barrels per day to 8,950,000 barrels per day during the week ending February 10th, which was 7.5% less than the 9,675,000 barrels per day of gasoline that were being produced during the week ending February 12th a year ago...at the same time, refineries' production of distillate fuels (diesel fuel and heat oil) fell by 271,000 barrels per day to 4,531,000 barrels per day, which was 2.8% less than the 4,663,000 barrels per day of distillates that were being produced during the week ending February 12th last year, also during a mild winter...

however, even with the big drop in our gasoline production, the EIA reported that our gasoline inventories rose by 2,846,000 barrels to a record 259,063,000 barrels as of February 10th, in the sixth increase in our gasoline supplies in 7 weeks...that happened as our domestic consumption of gasoline fell by 508,000 barrels per day to 8,433,000 barrels per day, again well below normal for this time of year...in addition, our gasoline exports, which have often served to reduce our excess supplies, fell by 447,000 barrels per day to 555,000 barrels per day, while our imports of gasoline fell by 207,000 barrels per day to 604,000 barrels per day, making for the first week our gasoline imports exceeded our gasoline exports since the week ending October 14th...since this week's gasoline supplies are at an all time time high, we'll include a graph of their recent history here...

February 16 2017 gasoline inventory as of Feb 3

the above graph comes from the twitter feed of John Kemp, who is an energy analyst and columnist with Reuters...it shows US gasoline stores in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our supplies on any given date shown in the light blue shaded area, and the median of our supplies, or the middle of the daily range, traced by the blue dashes over each day of the year...the graph also shows our 2016 gasoline inventories traced weekly in a yellow line, with our year to date 2017 gasoline supplies represented in red...thus we can clearly see that for almost all of 2016, our gasoline supplies were at a seasonal high for every given date, and so far in 2017, our weekly totals have broke those year old 2016 records...

and that's what happened this week...last year, on February 12th, our gasoline supplies rose to a new record of 258,693,000 barrels, beating the February 13th 2015 record of 243,132,000 barrels by 6.4%...this week's 259,063,000 barrels thus topped last year's record by just a small fraction, but it is still a new record nonetheless...recent years have shown that gasoline supplies usually start to fall after the 2nd week of February, (which is clearly visible on the graph), so that may very well happen again this year...still, our gasoline stores are now up by nearly 32 million barrels since Christmas, and on track to continue setting seasonal records higher than those set last year..

meanwhile, the big drop in distillates production served to reduce our supplies of distillate fuels by 689,000 barrels to 170,057,000 barrels by February 10th, as the amount of distillates supplied to US markets, a proxy for our consumption, fell by 57,000 barrels per day to 3,853,000 barrels per day, and as our exports of distillates fell by 105,000 barrels per day to 992,000 barrels per day...even so, our distillate inventories are still 4.7% higher than the distillate inventories of 162,375,000 barrels of February 12th last year, and 33.5% above the distillate inventories of 127,409,000 barrels of February 13th, 2015… 

lastly, the ongoing elevated level of our oil imports, combined with slack refining, led to another large addition to our weekly inventories of crude oil, which rose by 9,527,000 barrels to 518,119,000 barrels by February 10th, thus topping the previous record high oil supply of 512,095,000 barrels set on April 29th 2016...so another record high calls for yet another graph...

February 16 2017 oil inventory as of Feb 3

like the previous graph, this graph also comes from the twitter feed of John Kemp, who seems to post several graphs daily, along with other energy news...also like the prior graph, this one shows US oil supplies in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our supplies on any given date shown in the light blue shaded area, and the median of our oil supplies for any day traced by the blue dashes over each day of the year...this graph also shows our 2016 oil inventories traced weekly in yellow, with our year to date 2017 oil supplies in red...the difference here, as we saw last week, is that our 2016 oil supplies were not just fractionally higher than those of 2015, they averaged more than 10% higher, while 2015 oil supplies ran as much as a third higher than those of 2014...thus the 2017 oil inventories are that much higher again, and we've now set a new record for oil supplies on the 41st day of the year, which unlike gasoline supplies, tend to continue to rise seasonally until at least the 120th day of each year (when refining for summer gasoline supplies picks up)....thus, our oil supplies on February 10th were 9.6% higher than the then February record 472,823,000 barrels that we had stored on February 12th of 2016, 32.3% higher than the previous mid-February record of 391,516,000 barrels in storage on February 13th of 2015, and 56.6% higher than the closer to normal 330,956,000 barrels of oil that we had stored on February 12th of 2014...

This Week's Rig Count

US drilling activity increased for the 15th time in 16 weeks during the week ending February 17th, with the five week increase of 92 drilling rigs still the largest 5 week increase since January 2010...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 10 rigs to 751 rigs in the week ending on this Friday, which was 237 more rigs than the 514 rigs that were deployed as of the February 19th report in 2016, but still far from 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 6 rigs to 597 rigs this week, which was up from the 413 oil directed rigs that were in use a year ago, but down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...meanwhile, the count of drilling rigs targeting natural gas formations rose by 4 rigs to 153 rigs this week, which was also up from the 101 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...there also remained a single rig that was classified as miscellaneous, which is marked as a 1 rig increase from a year ago, when there were no such miscellaneous rigs at work...   

four drilling platforms offshore from Louisiana in the Gulf of Mexico were shut down this week, while one was added offshore from Texas, which reduced the net Gulf of Mexico rig count down to 17, which was also down from the 25 rigs working in the Gulf a  year ago…the total US offshore count for the week was thus cut back to 18 rigs, as a drilling operation is still going on in the offshore waters off Alaska.....

the number of horizontal drilling rigs working in the US increased by 7 rigs to 614 rigs this week, which is now up by 184 rigs from the 413 horizontal rigs that were in use in the US on February 19th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, 6 directional rigs were added during the week, bringing the total directional rig count up to 72, up from the 66 directional rigs that were deployed during the same week last year...on the other hand, a net of 3 vertical rigs were stacked this week, reducing the vertical rig count to 65, which was still up from the 50 vertical rigs that were deployed during the same week a year ago...

as usual, 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 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 February 17th, the second column shows the change in the number of working rigs between last week's count (February 10th) and this week's (February 17th) count, the third column shows last week's February 10th active rig count, the 4th column shows the change between the number of rigs running this 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 19th of February, 2016...        

February 17 2017 rig count summary

as you can see from the above tables, the rig count story this week was all Texas, but not so much in the Permian basin as it has been lately, as the 16 Texas rig increases were fairly widespread, with 8 different Texas oil and gas districts seeing increases, while 2 districts saw drilling cut back...the unusual activity was the 5 rig increase in the Granite Wash basin of the eastern Texas panhandle and adjacent Oklahoma area, where all 13 rigs there are now drilling for oil, versus a year ago, when 7 out of the 10 rigs deployed there were drilling for natural gas...as for the increase of 4 rigs targeting natural gas, none were in our area, as 3 were added in the Haynesville and one was added in the Eagle Ford, while obviously the Ohio and Pennsylvania rig counts remained unchanged...also note that outside of the major producing states shown above, Mississippi saw a rig added this week; they now have 3 rigs working, up from just one rig during the same week a year ago..

DUC report for January

this week also saw the release of the EIA's Drilling Productivity Report for January, which once again showed another increase in uncompleted wells nationally, mostly as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin...we had expected that with oil prices above $50, some of the DUC well backlog would be completed, but this report again showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUCs in the US rose from 5,289 in December to 5,391 in January....a possible cause for this increase that i hadn't considered until this week might be a shortage of competent fracking crews...an article at Rigzone this week titled Bringing Back Our People: Industry Combats Workforce Challenges cites their problem as previously laid off workers who will probably never return to the oil industry....since the oil field layoffs started in early 2015, we've now gone nearly two years with just skeleton fracking crews operating in much of the country, and many of those who had worked in the oil fields before have since found work elsewhere...fracking has also gotten much more complex over that period, so putting together a fracking crew familiar with the latest techniques has become that much harder...

like in December, all of the January DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in these stats, saw its total count of uncompleted wells rise from 1,673 in November to 1,757 in January, in keeping with the increase in drilling that we've seen in that basin...at the same time, DUCs in the Niobrara chalk of the Rockies front range rose by 13, to 708 in January, and DUCs in the Eagle Ford of south Texas increased by 11 to 1,255...on the other hand, the Marcellus saw a small decrease in DUCs (which means more wells were being fracked than were being drilled) as the Marcellus DUC count fell from 610 in December to 600 in January...in addition; the Utica also showed a decrease of five uncompleted wells and thus had only 98 DUCs remaining in January...for the month, DUCS in the 4 oil basins tracked by the EIA (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 107 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) fell by 15 wells, as they have generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered....  

 

note:  there’s more here…

Sunday, February 12, 2017

US oil imports hit a 52 month high, a near record jump in oil supplies; OPEC cuts oil output but keeps on drilling..

in case you haven't heard, the Army Corps of Engineers reneged on its commitment to conduct a thorough environmental review of the Dakota Access pipeline, approved the final easement needed to complete the pipeline, and granted the permit that will allow its completion...after that green light from the Corps on Tuesday, Energy Transfer Partners said on Wednesday that it plans to resume work immediately, and Phillips 66, holder of a 25 percent stake in the project, said they expected the Dakota Access Pipeline to start pumping Bakken crude in the second quarter...according to the Associated Press, the Cheyenne River Sioux filed a legal challenge to the easement Thursday in federal court in Washington, D.C. while Standing Rock Sioux Chairman David Archambault flew to Washington to meet with Trump administration officials to share the Tribe’s perspective on why they so strongly opposed the project... U.S. District Judge James "Jeb" Boasberg, who will be overseeing the lawsuit filed by the Standing Rock and Cheyenne River Sioux, is said to be sympathetic to the historic exploitation of Indians in America, but has also denied an earlier attempt by the Standing Rock tribe to halt the pipeline work...

meanwhile, petrogeologist and oil analyst Art Berman echoed the same reservations that i had voiced in reporting that Trump had ordered expedited approval and construction of the Keystone XL...in an article posted at oilprice.com and elsewhere, Berman asserts that it will take at least $85 oil prices to develop enough new oil sand projects needed to fill the Keystone XL, and that even under the optimistic projections from the Canadian Association of Petroleum Producers that annual oil sand production will grow 128,000 barrels per day until 2021, it would take still 10 years to fill the Keystone, even if none of the other new Canadian pipeline projects currently approved and underway were completed...he concludes that TransCanada’s bet is that oil prices will move much higher and more quickly than most forecasts anticipate and that the volumes of bitumen will be there by the time that the pipeline is built, and also a bet that US tight oil plays will continue to produce enough light oil for several decades to dilute the tarry goop to a viscosity light enough to pipe and refine....i'll take the other side of that bet...

at any rate, at least we're going to get a brief respite from the onslaught of pipeline approvals we've seen over the past two weeks...two weeks ago, during his initial barrage of pipeline diktats, Trump named Cheryl LaFleur as acting chairwoman of the Federal Energy Regulatory Commission, and largely as a result of that, Norman Bay, who served as FERC chairman for the past two years, tendered his resignation effective February 3rd...that left the 5 member commission with just two sitting commissioners, LaFleur and Colette Honorable, and as a result FERC no longer has a quorum, can't approve anything, and hence cancelled their next monthly meeting on February 16th....so until such time as Trump vets and appoints at least one more commissioner, and that new commissioner is approved by the Senate, no more pipelines can be approved...according to the Associated Press, there's at least a half dozen major pipeline projects totaling more than $10 billion that now wait approval, including the $2 billion Pennsylvania to Ohio and Michigan Nexus pipeline, that would pass through the counties south of us, and the Atlantic Coast pipeline, which several members of Trump's transition team and White House staff have business or lobbying connections to..

* * * * * 

oil continued to trade in a narrow range this week as news that OPEC had achieved 90% compliance to their agreed to production cuts offset the news that US oil supplies saw their 2nd largest weekly jump in the EIA's records...strength in U.S. dollar, which makes internationally traded commodities cheaper, weighed on oil prices to start off the week, as US WTI oil for March delivery fell 1.5% to close at $53.01 a barrel, after closing the prior week at $53.83....prices continued to fall on Tuesday, after the EIA forecast that US crude output would hit a fracking era high in 2018 and the American Petroleum Institute reported the 2nd largest increase in oil inventories in history, along with large increases in gasoline and distillate supplies, and again ended another 1.5% lower at $52.17 a barrel....however, prices steadied on Wednesday, despite confirmation of the large oil supply increase from the EIA, and closed up 17 cents at $52.34 a barrel, as a drop in gasoline supplies encouraged traders to think that demand for gas was returning to normal....momentum from that rebound carried into Thursday, when prices rose to close at $53.00, after oil ministers from Iran and Qatar suggested that OPEC production cuts might be extended into the 2nd half of this year...oil prices then rose 1.6% on Friday to close out the week 3 cents higher than last week at $53.86 a barrel, after the International Energy Agency said OPEC had achieved a record initial compliance of 90% with their planned production cuts, that global oil output had fallen by 1.5 million barrels per day, and revised upward their estimate of global oil demand growth for this year  from 1.3 million barrels per day to 1.4 million  barrels per day...

for an initial look at those OPEC compliance levels, we have a table of OPEC oil output for December and January as per the IEA (note that's the International Energy Agency, headquartered in Paris, as distinguished from the US EIA, the Energy Information Administration of the US Dept of Energy, in case those similar acronyms are confusing to you)

February 11 2017 OPEC production via IEA

the above table comes from the IEA via Zero Hedge and it shows the IEA estimates of the December output of crude, in millions of barrels, from each of the OPEC members in the first column, estimates of their January output of crude in the second column, and then the supply baseline in the third column, also in millions of barrels ...it's that supply baseline, which is approximately equal to the October production level of each member, on which the 4.5% OPEC production cuts are based, so the amount in millions of barrels of crude that each member is expected to cut is therefore shown in the 4th column, as the "agreed cut"....then, based on these estimates of January oil production, the "actual cut", or the difference between the baseline and each member's January production, is then shown in the next to last column...finally, in the last column, the IEA computes a compliance percentage, which is simply the amount each member has cut shown as a percentage of what they agreed that they would cut...at the bottom, they then total OPEC figures and give us the totals for all 11 members of OPEC, and conclude from those totals that they've achieved 90% compliance..while that's all pretty much self explanatory, as are the footnotes at the bottom of the table, we'd note that the Saudis by themselves cut 116% of what they'd agreed to, and thus account for more than half of the OPEC cuts so far....that means that without the Saudi cuts, OPEC compliance was at a not very spectacular 71.6%...

The Latest Oil Stats from the EIA

this week's oil data for the week ending February 3rd from the US Energy Information Administration showed that our imports of crude oil were at their highest level in over 4 years, while our refining of that oil fell for the 4th week in a row, and as a result this week's surplus of crude that was added to our stored supplies ended up as the 2nd largest on record...our imports of crude oil rose by an average of 1,082,000 barrels per day to an average of 9,372,000 barrels per day during the week, while at the same time our exports of crude oil rose by 18,000 barrels per day to an average of 567,000 barrels per day, which meant that our effective imports netted out to 8,805,000 barrels per day for the week, 1,064,000 barrels per day more than last week...at the same time, our crude oil production rose by 63,000 barrels per day to an average of 8,978,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 17,783,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,893,000 barrels of crude per day during the week, 54,000 barrels per day less than during the prior week, while at the same time, 1,976,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we consumed or stored 86,000 more barrels of oil per day than were accounted for by our oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom 86,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that number by the method we just showed, and hence we've been calling it the EIA's weekly oil fudge factor...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 8.463 million barrels per day, now 10.0% higher than the same four-week period last year...from that same source, we also find that this week's 63,000 barrel per day oil production increase included a 73,000 barrel per day jump in oil production in the lower 48 states, which was partially offset by a 10,000 barrel per day decrease in output from Alaska..our crude oil production for the week ending February 3rd thus was just 2.3% lower than the 9,186,000 barrels of crude that we produced during the week ending February 5th of last year, and 6.6% below our June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 87.7% of their capacity in using those 15,893,000 barrels of crude per day, down from 88.3% of capacity the prior week and down from the year high of 93.6% of capacity just four weeks earlier, but up from the 86.1% capacity utilization rate during the same week a year ago, as refineries are now into their regular winter slowdown...thus, even though the week's oil refining was down by more than 1.2 million barrels per day from the first week of this year, it was 2.5% more than the 15,510 000 barrels of crude refined during the week ending February 5th, 2016....and even though they took in less crude, gasoline production from those refineries rose by 703,000 barrels per day to 9,804,000 barrels per day during the week ending February 3rd, which was 2.6% more than the 9,553,000 barrels per day of gasoline that were produced during the week ending February 5th a year ago (part of this week’s increase was a 226,000 barrel per day adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components)....meanwhile, refineries' production of distillate fuels (diesel fuel and heat oil) also rose, increasing by 125,000 barrels per day to 4,802,000 barrels per day, which was up by 10.2% from the 4,357,000 barrels per day of distillates that were being produced during the week ending February 5th last year, during a mild El Nino winter...

however, even with the increase in our gasoline production, the EIA reported that our gasoline inventories fell by 869,000 barrels to 256,217,000 barrels as of February 3rd, the first drop in our gasoline supplies in 6 weeks...that happened as our domestic consumption of gasoline rose by 631,000 barrels per day to a closer to normal 8,941,000 barrels per day, following 4 weeks wherein gasoline demand approached 16 year lows...that gasoline supply draw-down occurred despite gasoline imports that were up by 323,000 barrels per day to 811,000 barrels per day, while our gasoline exports remained unchanged at 902,000 barrels per day...however, even with this week's withdrawal, our gasoline supplies are up by more than 29 million barrels since Christmas, and remain fractionally higher than the 255,657,000 barrels of gasoline that we had stored on February 5th of last year, and 5.6% above the 242,647,000 barrels of gasoline we had stored on February 6th of 2015...

meanwhile, with the increase in distillates production, our supplies of distillate fuels rose by 29,000 barrels to reach 170,746,000 barrels by February 3rd, for an increase of over 19 million barrels over the first 6 weeks of winter, at a time of year when distillates are usually being drawn down and consumed as heat oil...the amount of distillates supplied to US markets, a proxy for our consumption, rose by 101,000 barrels per day to 3,910,000 barrels per day, and was thus above the average of the past 5 years, and our exports of distillates rose by 217,000 barrels per day to 1,097,000 barrels per day, or else we would have had even more surplus.....still, our distillate inventories ended the week 6.1% higher than the distillate inventories of 160,976,000 barrels of February 5th last year, and 30.1% above the distillate inventories of 131,223,000 barrels of February 6th, 2015…    

lastly, as we mentioned in opening this segment, the elevated level of our oil imports led to the 2nd largest recorded jump in our weekly inventories of crude oil, which rose by 13,830,000 barrels to 508,592,000 barrels by January 27th, a level which is now only 0.7% below the April 29th record level of 512,095,000 barrels...moreover, we ended the week with 8.1% more crude oil in storage than the then record 470,676,000 barrels we had stored on February 5th of 2016, and 32.5% more crude than the 383,800,000 barrels of oil we had in storage on February 6th of 2015...since it's been a while since we've taken a look at a graph of our oil supplies, we'll include the EIA graph of them here first, and explain why these common EIA graphs have become inadvertently deceptive...

February 10 2017 crude oil stocks for Feb 3

in the graph above, copied from the EIA's This Week in Petroleum Oil Section, the blue line shows the recent track of US oil inventories over the period from June 2015 to February 3, 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 year…the grey area intends to show us the normal range of US oil inventories as they fluctuate from season to season over the 5 years prior to the two years shown by the blue line...however, note that the increase in the grey wedge on the right now includes the record oil inventories that we were seeing last year at this time (ie, it includes the image of the blue line, or the early 2016 record inventories) which we have recently been exceeding by 5% to 10% each week...thus, the grey section of the graph, supposedly representing historical seasonal levels, has already become bloated by the record inventories that we've been seeing for two years running, as we can see in the blue line...thus comparing the current inventory level in blue to the grey shaded area is deceptive, in that the top of that grey area now represents record glut of the prior year...by rights, to compare the current blue line to a normal level of inventories, it should be compared to the bottom of the grey shaded area, as we'll show in the graph below, which gives us the exact crude oil supplies for every week of the period:..

February 11 2017 Yardeni crude stocks for Feb 3

the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics research, run by Dr Ed Yardeni...it shows the end of the week stocks of crude oil in millions of barrels for each week beginning with January 2013, up to and including this week's report for February 3rd, with graphs for each year color coded as indicated...here we can see how our oil inventories stayed in a narrow range during 2013 and 2014 (and during the years before then, for that matter), represented by the mustard and green bands, typically falling to below 330 million barrels by the end of each summer and then rising to nearly 370 million barrels by early spring....however, at the beginning of 2015, represented by the blue colored graph, our inventories of oil started rising each week till they topped 450 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms over the rest of that year...that continued into 2016, represented by the grape colored graph, and although the rate of increase over 2015 tailed off late in the year, our 2016 oil supplies had generally averaged about 15% above 2015's elevated levels, and more than 40% above historical levels...now we see in the scarlet colored graph, representing the beginning of 2017, that our oil supplies are rising again from the comparable seasonal records set in 2016...thus, to accurately compare today's oil inventories to the seasonal norm, we'd have to go back not just one or two years, but three years to early 2014, before the current oil glut developed...doing that, we'd find that today's oil inventories of 508.6 million barrels are 54.1% higher than the oil inventories of 329,983,000 barrels seen on February 7th, 2014...

This Week's Rig Count

US drilling activity increased for the 14th time in 15 weeks during the week ending February 10th, with the four week increase in drilling rigs still the largest 4 week increase since January 2010...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 741 rigs in the week ending on this Friday, which was 200 more rigs than the 541 rigs that were deployed as of the February 12th report a year earlier, but of course still far from 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 8 rigs to 591 rigs this week, which was up from the 439 oil directed rigs that were in use a year ago, but down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...meanwhile, the count of drilling rigs targeting natural gas formations rose by 4 rigs to 149 rigs this week, which was also up from the 102 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...there also remained a single rig that was classified as miscellaneous, which we could call an increase from a year ago, when there were no miscellaneous rigs at work...   

one drilling platform offshore from Louisiana in the Gulf of Mexico was shut down this week, which cut the Gulf of Mexico rig count back down to 20, which was also down from the 25 rigs working in the Gulf a  year ago…our total offshore count for the week was thus cut back to 21 rigs, as a drilling operation is still going on in the offshore waters off Alaska...however, one drilling platform started operations on an inland lake in southern Louisiana, where there are now 3 such inland waters operations, which is also up from 2 rigs working on inland waters a year ago..

the number of horizontal drilling rigs working in the US increased by 11 rigs to 607 rigs this week, which is now up by 174 rigs from the 433 horizontal rigs that were in use in the US on February 12th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, a net of one vertical rig was added during the week, bringing the total vertical rig count up to 68, which was also up from the 59 vertical rigs that were deployed during the same week last year...meanwhile, the directional rig count was unchanged at 66 rigs as of February 10th, which was 17 rigs more than last February 12th's count of 49 directional rigs....

as usual, 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 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 February 10th, the second column shows the change in the number of working rigs between last week's count (February 3rd) and this week's (February 10th) count, the third column shows last week's February 3rd active rig count, the 4th column shows the change between the number of rigs running this 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 12th of February, 2016...       

February 10 2017 rig count summary

once again, we see new drilling in the Permian basin of western Texas and New Mexico accounted for half of this week's increase, while a 3 rig addition in the Eagle Ford of south Texas brought the total increase in the state to 7 rigs, with 4 of the Permian rigs apparently on the New Mexico side of the border...on the other hand, the Cana Woodford of Oklahoma, home to the SCOOP and the STACK basins, was down by 5 rigs to 51 rigs this week, after rising by 7 rigs last week, 3 rigs the prior week, and 9 rigs the week before that; i have no idea what's going on down there...nor have i heard news that would explain the 2 rigs that were shut down in Ohio's Utica, which cut the state total back to 19 rigs...we can explain the 4 natural gas rig increase in the light of that Ohio drop by noting the 3 rig increase in the Marcellus, another gas rig in the Haynesville, and two gas rigs in "other basins", which Baker Hughes doesn't name in their summary data...otherwise, what we see above is what we got; there were no changes in states other than those listed above...

International Rig Counts for January

Baker Hughes also released the international rig counts for January on Tuesday of this past week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1,918 rigs were drilling for oil and natural gas around the globe in January, which was up from the 1,772 rigs that were drilling around the globe in December, and up from the 1,969 rigs that were working globally in January of last year, which was the first time global drilling activity surpassed year earlier totals since December of 2014....increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 634 rigs in December to 683 rigs in January, which was also up from the average of 654 rigs that were working in the US in January a year ago, while the average Canadian rig count rose from 209 rigs in December to 302 rigs in January, which was also up from the 192 Canadian rigs that were deployed in January a year earlier....outside of Northern America, the International rig count rose by 4 rigs to 933 rigs in January, which was still down from 1,095 rigs a year ago, as increases in drilling in the Middle East and Eastern Asia more than offset a decrease in Latin American activity..

drilling activity in the Middle East rose for just the 5th time over the past 13 months, as the countries included in this region added a net of 6 rigs, including 3 offshore, increasing their active rig average to 382 rigs for the month, which was still down from the 407 rigs deployed in the Middle East a year earlier....OPEC member Kuwait accounted for the entire increase, as they started 8 more rigs in January and now have 54 rigs active, which was up from the 40 rigs the Kuwaitis were running a year ago....in addition, Egypt, who is not an OPEC number and who has not agreed to output cuts, added 1 rig in January and thus had 25 rigs active, which was still down from the 42 rigs they were running a year earlier....on the other hand, Oman, who is not an OPEC member but who has committed to a production cut of 45,000 barrels a day, cut back their drilling by 2 rigs, from 59 rigs in December to 57 rigs in January, which left them down from the 70 rigs they were running in January a year ago...in addition, the Saudis pulled out one rig in January, which left them with 124 rigs still active, the same number as they had running a year earlier...however, Saudi Arabia's rig count has averaged near 125 rigs weekly since early 2015, up from their average of around 105 rigs in 2014, so they've not yet even pulled back to the level of drilling they were doing before OPEC opened the spigots...among other major OPEC producers, Iraq's drilling was unchanged at 41 rigs in January, while Abu Dhabi of the United Arab Emirates was also unchanged at 48 rigs, the same as their count a year ago, although like the Saudis, they are still doing far more drilling than their 30 rig average of early 2014...

drilling activity in the Asia-Pacific region also increased by a net of 6 rigs to 198 rigs in January, even as their offshore deployment fell by 5 from 87 rigs to 82, which was down from the 198 rigs working the region a year earlier, which just included 75 platforms working offshore at that time....Indonesia, who was booted out of OPEC for not agreeing to the group's production cuts, added 7 rigs and thus had 23 rigs working during January, up from 20 rigs a year earlier....Australia added 5 more rigs, after adding 5 rigs in December, bringing their total to 14 rigs active nationwide, which was thus up from the 13 rigs they were running a year earlier... Brunei, who had shut down both of the rigs they had active in December, started both rigs back up in January, and the 2 rigs they're now running are the same as they had a year earlier....on the other hand, China shut down 5 more offshore rigs, after they had shut down 3 rigs in December, leaving them with 20 rigs working offshore, down from the 27 offshore rigs they were running last January...at the same time, both Papua New Guinea and Malaysia both idled one rig; that left Papua New Guinea with 2 rigs active, same as they had a year earlier, and left Malaysia with 3 rigs running, down form the 5 rigs they were running a year earlier...

meanwhile, the Latin American region saw their active drilling rig numbers drop by a net of 8 rigs to 176 rigs, down from 243 rigs in January of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016....Argentina, where they had shut down 11 rigs in December, shut down another 7 in January, and now have 52 rigs active, down from 72 rigs a year ago, and also down from over the over 100 active rigs Argentina saw through most of 2015...Mexico, who has agreed to cut their oil output by 100,000 barrels a day, idled 3 rigs for the month, which left them with 16 active rigs, down from the 43 rigs they were running last January....Venezuela and Ecuador, both members of OPEC, each shut down 1 rig; that left Venezuela with 51 rigs, down from 67 last January, and left Ecuador with 6 rigs, up from the single rig they were running last January, which was during an anomalous slowdown in Ecuador's normal activity.....in addition, Chile shut down 2 rigs and now have 2 remaining, down from the 3 rigs they had active last January, and Suriname shut down the only rig they had active in December, while they had two active a year ago...on the other hand, Brazilian drillers, who were not party to the OPEC production cuts, added 3 rigs during the month; which brought their active rig count back up to 16 rigs, which was still down from the 34 rigs deployed in Brazil a year earlier.....Trinidad and Tobago, meanwhile, added two rigs, and now have 5 rigs working, which is still down from the 7 rigs they had running a year ago...in addition, both Columbia and Peru added a single rig; for Peru, that brought their active rig count up to 2 rigs, up from none a year earlier, while for Columbia, their count rose to 20 rigs, up from the 8 rigs they had running a year earlier...

drilling activity also slipped a bit in Europe, falling by 1 rig to 98 rigs, which was down from the 108 rigs working in Europe a year ago at this time, as their offshore drilling activity fell from 35 rigs to 31 rigs, also down from 35 rigs offshore a year ago...4 platforms offshore from Norway were idled, leaving 12 still active there, down from 18 a year ago, while the UK idled 3 offshore, leaving them 8 active, same as they had offshore last January....on the other hand, 2 new offshore platforms were deployed off the coast of the Netherlands, and one was set up in the Mediterranean off of Italy...those brought the Netherlands count up to 3 offshore, from one on land and one offshore in December, but down from two on land and two offshore in January of 2016, and brought the Italian count up to 5 rigs, from 4 land based rigs in December and 3 on land last January...elsewhere on land in Europe, Turkey added 3 rigs and now have 32 active, up from 29 rigs in December and a year ago, and France started up two rigs, up from none in in France in December and none most of last year...meanwhile, the Germans shut down 1 rig, leaving them 3 still active, down from the 7 rigs they had deployed a year earlier...

lastly, the African continent saw a net increase of 1 rig to 79 rigs in January, which was still down from the 94 rigs working in Africa last year at this time...OPEC member Nigeria, who is exempt from the organization's production cuts for the time being, added 2 rigs and now have 6 rigs working, which was still down from the 9 rigs they had deployed a year ago...OPEC member Angola also added a rig, and now have 5 rigs active, also down from the 10 rigs they had active a year earlier...in addition, the Congo Republic, which had shut down all 3 rigs they had active in December, added 1 rig back in January, still down from the 3 rigs they had active last January...OPEC member Algeria shut down 1 rig, leaving 51 rigs still working in Algeria, same as they had a year ago....and both Liberia and Ghana shut down the only drilling rig they had active; a year ago, Liberia had no rigs and Ghana had one....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 20 rigs active in January, were included in the Asian totals here...  

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note: there's more here...

Sunday, February 5, 2017

three more natural gas pipelines approved, gasoline supplies at a seasonal high, gasoline demand near a 16 year low

US oil contracts continued to trade in a narrow price range this week, as OPEC production cuts seemed to be holding but market participants continued to worry about the ongoing U.S. drilling recovery...after closing last week at $53.16 a barrel, the contract for March delivery slid 54 cents, or 1%, to settle at $52.63 a barrel on Monday as traders focused on last week's increased US oil production and Friday's jump in the rig count...but then, despite large increases oil and product inventories reported by the American Petroleum Institute on Tuesday and by the EIA on Wednesday, oil prices climbed to close at $52.81 on Tuesday and then to close at $53.88 a barrel on Wednesday, after Trump's saber rattling at Iran spooked oil traders...US prices were then down 34 cents, or 0.6 percent, to $53.54 a barrel on Thursday as the implications of record gasoline supplies became apparent, but they went on to post a modest increase for the week, closing Friday at $53.83 a barrel after Reuters and Bloomberg agreed that OPEC had achieved a roughly 80 percent compliance rate with its promised cuts...US oil prices have now been stuck between $52 and $55 a barrel for over two months, with the price range narrowing to $52 a barrel to $54 a barrel over the past month...typically, when such a tight trading range breaks down, it precipitates a large change, whether positive or negative...

natural gas prices, on the other hand, continued their 6 week slide, ending the week at $3.063 per mmBTU (million British thermal units), their lowest settle since November 23rd...the 2 week and longer range forecasts are now indicating above normal temperatures for almost the entire country, and if that warmth holds there wont be much heating season left to pressure supplies...so it looks like we're out of the woods for the time being, at least until such time as the half dozen LNG export trains now under construction are completed, and gas from our area starts being piped south for shipment to Europe and Asia...

you may recall last week we speculated that despite Trump's order to expedite the Dakota Access Pipeline, there would be little movement on it until his appointees took up their positions at the head of the specific relevant Army units....this week, .however, despite the fact that Vincent Viola, Trump's billionaire nominee for Secretary of the Army, withdrew his name under a cloud of ethics and financial disclosure problems, two congresscritters from North Dakota both issued statements alleging that the acting secretary of the Army, Robert Speer, had ordered the Army Corps of Engineers to grant an easement for the pipeline to run under Lake Oahe...apparently, they're the only ones who knew about it, because a representative of Energy Transfer Partners said that the company did not know anything beyond what they read on the Congressmen's website...still, that pipeline still seems to be moving forward faster than we expected it to....

on the other hand, there was no additional news about the Keystone XL this week, although TransCanada was in the news regarding pipelines in our area...word is that the Federal Energy Regulatory Commission (FERC) ignored the EPA's concerns and approved two of TransCanada's planned natural gas pipelines intended to moved gas from the Marcellus and Utica areas to Midwest and Gulf Coast Markets...the $1.4 billion Leach XPress will transport 1.5 billion cubic feet per day of natural gas across the northern panhandle of West Virginia to Fairfield country southeast of Columbus and then south through Ohio on existing natural gas pipelines, while the Rayne XPress will move 1.0 billion cubic feet a day from Waynesburg PA along the Ohio river and then south to Rayne Louisiana, from where we would not be surprised to see it exported through Cheniere Energy's Sabine Pass natural gas terminal or other Gulf coast LNG export facilities now under construction...

in addition to those two pipelines, on Friday FERC approved the Williams Cos. $3 billion Atlantic Sunrise 200 mile natural gas pipeline expansion from the northeastern Marcellus producing region in Pennsylvania to the Transco mainline in southeastern Pennsylvania, from where it will move south through Maryland, Virginia, North Carolina, and South Carolina...construction on the two Transcanada pipelines is expected to start later this month, and be completed by November, while construction will start on the Atlantic Sunrise in mid-2017, with the portion along the Eastern Seaboard to be completed in time for the 2017-2018 winter heating season, while the Pennsylvania leg will follow in the spring of 2018..

The Latest Oil Stats from the EIA

this week's oil data for the week ending January 27th from the US Energy Information Administration showed that our imports of crude oil rose substantially, while our refining of that oil fell for the 3rd week in a row, and hence the week's surplus of crude that was added to our stored supplies was the largest since October...our imports of crude oil rose by an average of 480,000 barrels per day to an average of 8,290,000 barrels per day during the week, while at the same time our exports of crude oil fell by 50,000 barrels per day to an average of 509,000 barrels per day, which meant that our effective imports netted out to 7,741,000 barrels per day for the week, 530,000 barrels per day more than last week...at the same time, our crude oil production fell by 46,000 barrels per day to an average of 8,915,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,656,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,947,000 barrels of crude per day during the week, 100,000 barrels per day less than the prior week, while at the same time, 923,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we consumed or stored 214,000 more barrels of oil per day than were accounted for by our oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted that phantom 214,000 barrel per day number onto line 13 of the balanc sheet, which the footnote tells us represents "unaccounted for crude oil"...that is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", and hence we've been calling that number the EIA's weekly oil fudge factor...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 8.256 million barrels per day, now 5.3% higher than the same four-week period last year...from that same source, we also find that this week's 46,000 barrel per day oil production decrease included a 45,000 barrel per day drop in production in the lower 48 states, and a thousand barrel per day decrease in output from Alaska..our crude oil production for the week ending January 27th turned out to be 3.2% lower than the 9,214,000 barrels of crude that we produced during the week ending January 29th of last year, and 7.2% below our June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 88.2% of their capacity in using those 15,947,000 barrels of crude per day, down from 88.3% of capacity the prior week and down from the year high of 93.6% just three weeks earlier, but up from the 86.6% capacity utilization during the same week a year ago, as refineries are now in a typical seasonal slowdown...thus, even though the week's refining was down by almost 1.2 million barrels per day from the first week of this year, it was 2.1% more than the 15,615,000 barrels of crude refined during the week ending January 29th, 2016....and even though they took in less crude, gasoline production from those refineries rose by 276,000 barrels per day to 9,101,000 barrels per day during the week ending January 27th, which was 5.3% more than the 8,642,000 barrels per day of gasoline that were produced during the week ending January 29th a year ago....in addition, refineries' production of distillate fuels (diesel fuel and heat oil) also rose, increasing by 102,000 barrels per day to 4,677,000 barrels per day...thus the week's distillates production was up by 5.5% from the 4,435,000 barrels per day that were being produced during the week ending January 29th last year, while it was just fractionally higher than the 4,666,000 barrels per day of distillates produced during the same week of 2015, which was during a colder winter than the last two...     

with the increase in our gasoline production, the EIA reported that our gasoline supplies rose again, by 3,866,000 barrels to 257,086,000 barrels as of January 27th, for what is now a five week jump of nearly 30 million barrels in our gasoline inventories since Christmas...& we might have stored even more, but our gasoline exports were up by 28,000 barrels per day to 902,000 barrels per day, while our gasoline imports were down by 105,000 barrels per day to 488,000 barrels per day...coincidental to that, our domestic consumption of gasoline rose by 261,000 barrels per day from last week's 35 month low to 8,310,000 barrels per day, which left the 4 week average of gasoline demand at 8.222 million barrels per day, down from 8.715 million barrels a day during the same four weeks last year...since something unusual has happened to gasoline demand in this new year, we'll repeat the graph we showed two weeks ago, now including these latest updates:

February 4 2017 gasoline demand as of January 27

the above graph was taken from the bottom of the gasoline section of the EIA's "This Week in Petroleum" and it shows the weekly four week moving average of US gasoline consumption over the past two years, with February 2015 to February 2016 charted in brown, and February 2016 to the most recent week in charted blue...as we pointed out two weeks ago, gasoline consumption was running well ahead of the prior year's pace for most of 2016, until it slipped slightly below the 2015 levels in November and December.....now, following 5 consecutive weeks of low demand, that 4 week average of gasoline demand has dropped to well below last year's pace, and except for a virtually equivalent period in January 2012, is at the lowest it's been since the winter of 2001...two weeks ago i thought the drop to below last year's totals might have been due the ice storms that moved through the middle of the country during that reference week, but now, after a relatively long period of good January driving weather over most of the country, this now unexplained collapse in gasoline demand still persists...Americans certainly aren't  buying smaller cars; sales of vehicles built on truck frames outpaced conventional passenger car sales throughout 2016...yet as you can see, demand for gasoline has almost dropped to a 16 year low...

meanwhile, with the increase in distillates production, we also added 1,568,000 barrels to our supplies of distillate fuels, which reached 170,717,000 barrels by January 27th, for a 5 week increase of over 19 million barrels, at a time of year when distillates are usually being drawn down and consumed as heat oil...the amount of distillates supplied to US markets, a proxy for our consumption, rose by 146,000 barrels per day to 3,809,000 barrels per day, and was thus above the average of the past 5 years...but still, our distillate inventories are 6.9% higher than the distillate inventories of 159,695,000 barrels of January 29th last year, and 27.0% above the distillate inventories of 134,475,000 barrels of January 30th, 2015…  

finally, with big jump in our oil imports, our inventories of crude oil rose by 6,466,000 barrels to 494,762,000 barrels by January 27th, a level which is now only 3.4% below the April 29th record of 512,095,000 barrels...moreover, we ended the week with 5.0% more crude oil in storage than the then record 471,344,000 barrels we had stored on January 29th of 2016, and 30.4% more crude than the 379,473,000 barrels of oil we had in storage on January 30th of 2015...  

This Week's Rig Count

US drilling activity increased for the 13th time in 14 weeks during the week ending February 3rd, with the three week increase in drilling rigs now the largest 3 week increase since January 2010...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 17 rigs to 729 rigs in the week ending on this Friday, which was an increase of 158 rigs from the 571 rigs that were deployed as of the February 5th report a year earlier, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the entire increase was in rigs drilling for oil, which were up by 17 rigs to 583 rigs during the week, and as a result active oil directed rigs are now at their highest since October 23rd, 2015...oil drilling was thus also up from the 467 oil directed rigs that were working in the US on February 5th last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014....drilling rigs targeting natural gas formations remained unchanged at 145 rigs, which was still up from the 104 natural gas directed rigs that were in use a year ago, while it was still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008... 

one drilling platform offshore from Louisiana in the Gulf of Mexico started drilling this week, which brought the Gulf of Mexico rig count up to 21, which was still down from the 26 rigs working in the Gulf a  year ago…our total offshore count for the week was thus up to 22 rigs, with an ongoing drilling operation in the offshore waters off Alaska...the number of horizontal drilling rigs working in the US increased by 17 rigs  to 579 rigs this week, which is now up by 138 from the 458 horizontal rigs that were in use in the US on February 5th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the directional rig count was up by 5 rigs to 66 rigs as of January 27th, which was up by 13 rigs from last February 5th's count of 53 directional rigs....meanwhile, a net of 5 vertical rigs were shut down during the week, reducing the vertical rig count to 67, which was still up from the 60 vertical rigs that were deployed during the same week last year

as usual, 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 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 February 3rd, the second column shows the change in the number of working rigs between last week's count (January 27th) and this week's (February 3rd) count, the third column shows last week's January 27th active rig count, the 4th column shows the change between the number of rigs running this 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 5th of February, 2016...      

February 3 2017 rig count summary

in something of a change from recent weeks, drilling in the Permian with an increase of just 4 rigs was not the driver of this week's increase, as drillers in the Cana Woodford of Oklahoma added 7 rigs to now match the Eagle Ford as the second most active basin in the US...the Cana Woodford is home to the SCOOP and the STACK, two of most discussed plays in the US over the past year...that's the South Central Oklahoma Oil Province (SCOOP) and Sooner Trend Anadarko basin Canadian and Kingfisher (STACK), in case anyone else had been wondering what those acronyms stood for...other than the aforementioned variances, there aren't many other major changes above, with no change in either the Utica or the Marcellus, as the natural gas rig added in the Fayetteville offset the gas rig pulled from the Haynesville....you might note that the totals of new drilling in the basins above don't add up to the 17 rig increase in horizontal rigs...that's because 4 oil directed rigs began operations in basins other than those listed, the names of which Baker Hughes does not include in their summary data sets...

note: there's more here

Sunday, January 29, 2017

Trump orders expedited approval of Keystone XL and Dakota Access pipelines, US gasoline demand at another 35 month low, et al

as you've probably heard, Mr Trump has been quite busy this week.  among several other actions, he signed two diktats on Tuesday to advance the construction of the Keystone XL and the Dakota Access pipelines, both of which had been halted under the Obama administration...the Trump Keystone XL Memorandum declared that construction of the Keystone pipeline was in the national interest, formally invited TransCanada to re-submit its application to the State Department for a Presidential permit for the construction of the pipeline, and directed the relevant agencies to expedite the approval of their application....the Trump Memorandum Regarding Construction of the Dakota Access Pipeline also declared that the construction of that pipeline was in the national interest, and directed that "the Secretary of the Army shall instruct the Assistant Secretary of the Army for Civil Works and the U.S. Army Corps of Engineers to take all actions necessary approve in an expedited manner requests for approvals to construct and operate the DAPL"...those two diktats were part of a series of four pipeline related executive orders that he signed on Tuesday: his first Memorandum on Construction of American Pipelines directed that all manufacturing processes of iron or steel pipeline products used in American pipelines should be produced in the US of American materials, and that was quickly followed by an Executive Order Expediting Environmental Reviews and Approvals For High Priority Infrastructure Projects which directs relevant agencies to establish expedited procedures and deadlines for completion of environmental reviews for port facilities, airports, pipelines, bridges, and highways...

a few days after Trump signed the Keystone XL directive, Transcanada resubmitted their application to the State Department to build the Keystone XL...that application would seem to restart the clock on the whole Keystone pipeline approval procedure, since Obama had officially rejected their previous application in late 2015...so despite whatever intentions the administration has to fast track the project, they'd still have to follow the regulations and review processes that are already part of our laws, and then they'd still have to acquire the land they don’t already have by eminent domain, which could lead to lengthy court battles outside of Trump's or congress's jurisdiction...moreover, the economics of the Keystone project have changed considerably since it was first proposed, at a time when oil prices were twice what they are now...64 of the tar sands projects that were on the drawing board when oil prices first started falling have since been cancelled, with many of of the oil companies involved writing off huge sunk costs, so the oil that was to fill the Keystone won't be there...in addition, the two massive Canadian pipeline projects approved by Canadian Prime Minister Trudeau at the end of last year will already give them more takeaway capacity than the tar sands are currently producing...with oil at $50 a barrel, starting up any new tar sands operations would be unprofitable, since they're barely breaking even on the operations that are already up and running, so i just don't see where they get the oil to fill that pipeline...furthermore, both Trump and congressional Republicans are on board with a 20% tax on imports, which would further increase the cost of any tar sands oil brought into the US...theoretically, Transcanada could get around a US import tax by shipping all the Keystone XL oil directly to the Gulf coast, to be exported overseas directly from there, or by sending it to be refined by US refineries that are designated as international trade zones, but all such products thus refined would still have to be exported from those refineries to avoid the import tax...

as far as the Dakota Access pipeline goes, as of this week, Trump's appointment of billionaire Wall Street trader Vincent Viola as Secretary of he Army has yet to be approved by the full Senate, and Jo-Ellen Darcy, an Obama appointee, has been the Assistant Secretary of the Army for Civil Works since 2009, while Lieutenant General Todd Semonite took command of the Army Corps of Engineers on May 19 of last year...so until Trump has his team in place, the directive to expedite the DAPL is unlikely to go anywhere fast...after that, it's a good bet that the pipeline could be held up by legal action, as both the Standing Rock Sioux tribe and the nonprofit group Earthjustice have vowed to sue....if it is approved, and if it gets past any lawsuit after that, it'd only be a matter of months before it's operating...the Dakota Access subsidiary of Energy Transfer Partners has trenches dug right up to Lake Oahe on both sides, and have the equipment already in place to drill under the lake, a process which could be completed in a few months...north of Lake Oahe, the pipeline has already been filled with Bakken crude, so once the pipeline is completed under the lake, Bakken crude would start to flow south...if that should happen, it would probably reignite drilling in the Bakken, because transport costs from the most remote areas have been adding up to $12 a barrel to the cost of getting Bakken crude to refineries in recent years..

in the few days that have passed since Trump issued those directives, there was news of two major pipeline leaks, almost appropriately with one in Canada and the other in Iowa, about 150 miles northeast of where the Dakota Access pipeline would pass through the state...the Canadian spill, of 200,000 liters of crude, occurred in Saskatchewan, on the land of the Ocean Man First Nation tribe,140 km (87 miles) southeast of the provincial capital of Regina, in an area where there are so many pipelines they don't yet know which pipeline is leaking or which company owns the pipeline that leaked the oil...meanwhile, in Hanlontown, Iowa, roughly 140,000 gallons of diesel fuel spilled from a ruptured pipeline and pooled in a farmer's plowed field near the Hanlontown Slough Waterfowl Production Area...AP calls that the largest fuel spill in the US since 2010, and as of this weekend cleanup is still ongoing, with the cause of the break unknown...

The Latest Oil Stats from the EIA

this week's oil data for the week ending January 20th from the US Energy Information Administration showed that both our imports of crude oil and our oil refining fell substantially for the 2nd week in a row, while we again ended the week with a surplus of crude oil that was added to our stored supplies...our imports of crude oil fell by an average of 568,000 barrels per day to an average of 7,810,000 barrels per day during the week, while at the same time our exports of crude oil fell by 105,000 barrels per day to an average of 599,000 barrels per day, which meant that our effective imports netted out to 7,211,000 barrels per day for the week...at the same time, our crude oil production rose by 17,000 barrels per day to an average of 8,961,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,172,000 barrels per day during the week...

meanwhile, refineries reportedly used 16,047,000 barrels of crude per day during the week, a decrease of 421,000 barrels per day from last week, while at the same time, 406,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we consumed or stored 281,000 more barrels of oil per day than were accounted for by our oil imports and production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted that phantom 281,000 barrels per day number onto line 13, which the footnote tells us represents "unaccounted for crude oil"...that is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", and hence we've been calling it the EIA's weekly oil fudge factor...

that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports fell to an average of 8.1 million barrels per day, still 4.3% higher than the same four-week period last year...our crude oil production for the week ending January 20th was still 2.8% lower than the 9,221,000 barrels of crude that we produced during the week ending January 22nd of last year, and 6.8% below our June 5th 2015 record oil production of 9,610,000 barrels per day...this week's 17,000 barrel per day production increase included an additional 16,000 barrels per day of Alaskan production, and a thousand barrel per day increase in output from the lower 48 states...

US refineries operated at 88.3% of their capacity in using those 16,468,000 barrels of crude per day, down from 90.7% of capacity the prior week and down from the year high of 93.6% two weeks earlier, but up from the 87.4% capacity utilization during the same week a year ago, as refineries typically slow down at this time of year...thus, even though the week's refining was down by more than a million barrels per day from the first week of this year, it was 2.6% more than the 15,639,000 barrels of crude refined during the week ending January 22nd, 2016.....gasoline production from those refineries fell by 128,000 barrels per day to 8,825,000 barrels per day during the week ending January 20th, its lowest in 54 weeks, and hence was 5.9% lower than the 9,377,000 barrels per day of gasoline that were produced during the week ending January 22nd a year ago, and 3.8% lower than the 9,177,000 barrels per day of gasoline produced during the week ending January 23rd, 2015... meanwhile, refineries' output of distillate fuels (diesel fuel and heat oil) fell by 138,000 barrels per day to 4,575,000 barrels per day...but that distillates production was up by 2.8% from the 4,452,000 barrels per day that were being produced during the week ending January 15th last year, while it was 2.9% lower than the 4,712,000 barrels per day of distillates produced during the same week of 2015, which was during a colder winter than the last two...     

even with the drop in our gasoline production, the EIA reported that our gasoline supplies rose again, by 6,796,000 barrels to 253,220,000 barrels as of January 20th, for what is now a three week jump of more than 26 million barrels in our gasoline inventories since Christmas week...that happened as our domestic consumption of gasoline fell by 30,000 barrels per day to another 35 month low of 8,069,000 barrels per day, following the two prior weeks of the lowest gasoline demand in a year...further enhancing our supplies of gasoline as compared to a week earlier, our gasoline exports were down 49,000 barrels per day to 874,000 barrels per day, while our gasoline imports were up 5,000 barrels per day to 593,000 barrels per day...so our gasoline inventories are now 1.9% greater than the 248,461,000 barrels of gasoline that we had stored on January 22nd of last year, and 6.2% above the 238,335,000 barrels of gasoline we had stored on January 23rd of 2015   

similarly, even with a drop in distillates production, we still managed to add 76,000 barrels to our supplies of distillate fuels, which reached 169,149,000 barrels by January 20th, for a 4 week increase of 18.4 million barrels, at a time of year when distillates are usually being consumed for heat oil...the amount of distillates supplied to US markets, a proxy for our consumption, fell by 450,000 barrels per day to 3,645,000 barrels per day, allowing for the surplus...thus our distillate inventories are 5.4% higher than the distillate inventories of 160,472,000 barrels of January 22nd last year, and 27.5% above the distillate inventories of 132,687,000 barrels of January 23rd, 2015… 

finally, even with big drop in oil imports, there was simultaneously enough of a decrease in the amount of oil we refined that left us with extra oil to store, and hence our inventories of crude oil rose by 2,480,000 barrels to 488,296,000 barrels by January 20th, a level which was was still 4.6% below the April 29th record of 512,095,000 barrels...nonetheless, we still ended the week with 5.3% more crude oil in storage than the 463,552,000 barrels we had stored January 22nd of 2016, and 30.9% more crude than the 373,140,000 barrels of oil we had in storage on January 23rd of 2015...  

This Week's Rig Count

US drilling activity increased for the 12th time in 13 weeks during the week ending January 27th, with the two week increase in drilling rigs now the largest increase in the past decade...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 18 rigs to 712 rigs in the week ending on this Friday, which was up by 93 rigs from the 619 rigs that were deployed as of the January 29th report last year, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

drilling for oil in the US increased by 15 rigs to 566 rigs during the week, so oil rigs are now at their highest since November 13th 2015...oil drilling is also up from the 498 oil directed rigs that were working in the US on January 29th last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014.....at the same time, the count of US drilling rigs targeting natural gas formations increased by 3 rigs to 145 rigs, which is up from the 121 natural gas directed rigs that were in use a year ago, while it is still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008... 

however, three drilling platforms that had been drilling offshore from Louisiana in the Gulf of Mexico were shut down this week, which reduced the Gulf of Mexico rig count to 20, which was down from 28 rigs working in the Gulf a year ago…our total offshore count for the week was at 21 rigs, with the ongoing drilling operation that was still in the offshore waters of Alaska, but our total offshore was still down from last year's offshore US total of 28 rigs...meanwhile, two rigs started drilling off of platforms set up on inland lakes in southern Louisiana, which are the only such inland water rigs now active, up from 1 rig on inland waters at this time last year..

the number of horizontal drilling rigs working in the US increased by 20 rigs to 579 rigs this week, which is now up from the 487 horizontal rigs that were in use in the US on January 29th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the directional rig count was up by 1 rig to 61 rigs as of January 27th, which lifted the directional rig above last January 29th's count of 58 directional rigs....meanwhile, a net of 3 vertical rigs shut down during the week, reducing the vertical rig count to 72, which was still down from the 74 vertical rigs that were deployed during the same week last year

as usual, 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 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 27th, the second column shows the change in the number of working rigs between last week's count (January 20th) and this week's (January 27th) count, the third column shows last week's January 20th active rig count, the 4th column shows the change between the number of rigs running this 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 29th of January, 2016...     

January 27 2016 rig count summary

once again, this week's increase in oil well drilling was driven by the ten rig increase in the Permian, which at 291 rigs accounts for more than half of the horizontal drilling going on in the US today...however, were a lot of changes in gas well drilling that don't show up in the tables above...to start with, the Louisiana Haynesville added 3 gas rigs, while one oil rig in the region was shut down, netting the two rig increase that you see...another gas rig was added in Oklahoma's Arkoma Woodford, while in the Cana Woodford a gas rig was pulled out while four oil rigs were added....a gas rig was also pulled out of the Eagle Ford in south Texas, where 6 oil rigs were added...an Arkansas Fayetteville and a West Virginia Marcellus gas rig were also removed, while 3 gas directed rigs were added in other basins not shown above...maybe the only surprise is the decrease of 3 oil rigs in the Denver-Julesburg Niobrara chalk of the Rockies front range, which has now dropped below it's year ago activity level...of the states not shown above, 1 rig was added in Alabama, where they now have 2, up from 1 rig a year earlier, while 1 rig was pulled out of Mississippi, where they also now have 2 remaining, down from 6 rigs on January 29th of 2016...

note: there's more here...