December 3rd graphics

rig count summary:

December 2nd 2016 rig count summary

OPEC production graph:

December 3 2016 OPEC oil production as of October

OPEC production table:

December 3 2016 OPEC production table

world production graphic:

December 3 2016 world oil supply

week’s oil prices:

December 3 2016 hourly oil prices

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finding the missing US oil production while waiting for the OPEC meeting

the regularly scheduled biennial meeting of OPEC will take place at their headquarters in Vienna on Wednesday of this week, and the swirl of rumors and speculation as to what might come out of it has been the major factor in oil price swings this week, while dominating the rest of the week’s oil related news…you might recall that at the end of September, OPEC members met in Algiers and agreed to cut their oil production back to 32.5 million barrels a day, without making any commitments on how those cuts would be achieved, leaving those important details to be worked out at this November 30th meeting…while that apparent agreement voiced after the September meeting was enough to cause an immediate $3 a barrel spike in the price of oil, within a few days it became obvious that both Iran and Iraq had not agreed to the figures OPEC had published for their production, and hence were not on board with the cuts…in the weeks since, the oil markets have remained on edge about the possible outcome of this coming meeting, jumping or diving on the slightest mention pro or con from major oil ministers involved in the negotiations…at the same time, most of the OPEC countries attempted to pump as much oil as they could, hoping to improve their negotiating position at this week’s meeting, and as a result OPEC’s production of oil rose from the already elevated level of 33.2 million barrels a day at the time of the September meeting to a record high 33.643 million barrels a day in October….so you can all get an idea how the major players in this stack up, we’ll include a small bar graph of their October production, which is taken from a Friday Bloomberg article about the failure of a planned meeting between OPEC and non-OPEC oil producers

November 26 2016 oil producers

this graphic shows the major OPEC oil producers in blue and non-OPEC producers who have indicated a willingness to negotiate with OPEC on production limits in red; other large producers of oil, such as China, Canada, Norway, Kazakhstan and the US are obviously not included…in round numbers, OPEC countries have to find 1.15 million barrels a day in production cuts to meet their stated target of 32.5 million barrels a day…the Saudis have said they’d be willing to cut back a half million barrels, which doesn’t even get them half way to what they need…but Iran says its current production is at 3.8 million barrels a day, higher than the 3.65 million barrels a day OPEC estimates it produces, and they want to pump 4.2 million barrels a day before they’d even be willing to freeze output…likewise, Iraq disputes OPEC figures that peg the nation’s output at less than 4.2 million barrels per day; they say they’re pumping 4.7 million barrels a day and that they should be exempt from production cuts anyway, because they’ve been at war with ISIS and other Islamic militants…meanwhile, the Russians are already planning a 300,000 barrel per day output increase for 2017, and while they have said they’d be willing to give that up and freeze at today’s levels, they will not cut from where they are today…so we can already see that given the intransigence of these major producers, achieving anything like a 1.15 million barrel per day cuts seems nearly impossible…and we haven’t even counted Nigeria and Libya, who are exempt from the cuts because civil strife has severely restrained output in both countries…both of those counties could easily add a million barrels per day of oil output each by next year, should their production be allowed to return to normal…still, if OPEC should announce an agreement to cut to 32.5 million barrels a day and the market believes them, it could boost oil prices into the $50 to $60 a barrel range, which is the figure at which most US drillers say they would put all their stacked rigs back into the field…

so, despite what appears to be the unlikely possibility that a meaningful freeze or cut could be negotiated, news of this week’s coming meeting continued to move oil prices last week….after closing last week with a 5.3% increase at $45.69 a barrel, the expiring contract price for December US crude rose $1.80, or 3.9%, to finish Monday at $47.49 a barrel, after Putin was quoted saying “We will do everything that our partners from OPEC are expecting” in affirming Russia’s willingness to freeze production…at the same time the contract for January WTI crude, which became the new front-month contract on Monday, rose $1.88, or 4.1%, to end at $48.24 a barrel… with January contract prices now being quoted, oil prices faltered on Tuesday and slipped to $48.03 a barrel, as word was that Iraq and Iran still remained hesitant about an output cut…against the backdrop of the simultaneous release of the weekly EIA data and the Baker Hughes rig count, oil prices fell again on Wednesday, as doubts persisted that OPEC could agree to a production cut large enough to make a significant dent in the global glut of crude, recovering  by the end of the day to end & closing down 7 cents at $47.96 a barrel…then on Friday, after OPEC made it known that they would also ask non-OPEC oil producers to make big cuts in output, the Saudis suddenly pulled out of planned Monday talks with non-OPEC nations including Russia, saying they want an OPEC deal in place before they would send anyone to the non-OPEC talksagainst that backdrop, oil prices fell nearly $2 a barrel that afternoon to close the week at $46.06 a barrel, thereby erasing all but 37 cents of Monday’s increases…

The Latest Oil Stats from the EIA

Wednesday’s release of oil data for the week ending November 18th by the US Energy Information Administration indicated the third consecutive large increase in our oil refining and a concurrent large drop in our imports of oil, which thus resulted in a draw-down of our supplies of crude oil and a corresponding increase in our supplies of the products made from it…for the same report, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance increased to +419,000 barrels per day, from last week’s +256,000 barrels per day, which means that 419,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or several of this week’s metrics were off by that amount…that’s now the 5th large positive adjustment in a row, and as a result the cumulative daily average of that adjustment has risen to +116,000 barrels per day, meaning the EIA’s figures remain out of balance for the whole year…but since these figures still continue to drive oil prices and hence oil field activity, we’ll continue to track them as long as the market participants continue to follow them…

so, for the week ending November 18th, the EIA reported that our imports of crude oil fell by an average of 845,000 barrels per day to an average of 7,578,000 barrels per day, the 5th week in a row wherein our oil imports changed by more than 10% as last week our imports rose by 981,000 barrels per day, the prior week they fell by 1,553,000 barrels per day, and the week before that they rose by 1,979,000, as tankers that had been held offshore by hurricane Matthew made it into port…while i’ve seen no reason for the ongoing extreme volatility in weekly imports, those swings meant that the 4 week average of our oil imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) actually rose this week to an average of 8.1 million barrels per day, 13.3% higher than the same four-week period last year…meanwhile, our exports of crude oil fell by an average of 12,000 barrels  per day to an average of 469,000 barrels per day for the week, in data that is not directly comparable to last year’s exports of 445,000 barrels per day during the equivalent week

at the same time, the EIA reported that production of crude oil from US wells rose by 9,000 barrels per day to an average of 8,690,000 barrels per day during the week ending November 18th, the sixth increase in 7 weeks, as output from Alaskan fields fell by 3,000 barrels per day for the second week in row, while production from well in the lower 48 states was 12,000 barrels per day higher….that still left the week’s domestic oil production 5.2% lower than the 9,165,000 barrels of crude we produced during the week ending November 20th of last year, and 9.6% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015…our oil production for the week ending November 18th was also 529,000 barrels per day, or 5.8% lower than what we were producing at the beginning of this year, which we’re citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015…since we’re talking about OPEC oil production this week, and since it’s been two years since OPEC tried to overwhelm US production with their won, we’ll also include a graph of the recent track of US oil production…

November 23 2016 oil production

the above graph comes from the online version of the OilPrice Intelligence Report, which was prepared Friday of this week with the headline “Saudis Withdraw From Non-OPEC Meeting, But Odds For Deal Are Still Good“…this graph shows the EIA’s Monthly U.S. Field Production of Crude Oil from January 2014 up until August 2015 in blue, and the EIA’s Weekly U.S. Field Production of Crude Oil in yellow, with both expressed in thousands of barrels of oil per day…notice that the monthly data is actual confirmed production, unlike the weekly estimates that the markets follow and we quote weekly, which are based on a small sampling of refineries…that confirmed data indicates that production of crude oil from US wells was at 8,744,000 barrels per day during August, the highest level in three months…in contrast to that, we reported oil production of 8,445,000 barrels per day for the week ending August 5th, 8,597,000 barrels per day for the week ending August 12th, 8,548,000 barrels per day for the week ending August 19th, 8,488,000 barrels per day for the week ending August 26th, and 8,458,000 barrels per day for the week ending September 2nd, which means we reported an August mean production of 8,511,000 barrels per day, or 233,000 barrels per day short of what was actually being produced…so right here we have a prime example of the kind of errors that are in the weekly data, which the balance sheet “fudge factor” covers for…the monthly data shows that US oil production fell no more than 10% from the peak, and as of August was only down around 7% from the average production of the summer of 2015…thus these two years of oil prices generally half of what they were in mid-2014′ barely dented US oil output, and makes a joke of the early forecasts that our output would fall to 5 million barrels per day…

returning to this week’s estimates, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 271,000 barrels per day to an average of 16,397,000 barrels of crude per day during the week ending November 18th, as our refinery utilization rate rose to 90.8% during the week from last week’s 89.2%, but was still lower than the refinery utilization rate of 92.0% of the week ending November 20th last year…US oil refining has thus increased by 949,000 barrels per day in the past three weeks, and is now only down 3.1% from the pre Labor Day high of 16,930,000 barrels per day, at which time refinery utilization rate had peaked at 93.7%…the rate of crude oil refined this week nationally is now up 0.1% from the 16,380,000 barrels of crude per day US refineries used during the week ending November 20th last year, and up 2.8% from the 15,957,000 barrels per day that were being refined during the equivalent week in 2014… 

however, even with the increase in the amount of crude oil being refined, refineries’ production of gasoline apparently fell by 452,000 barrels per day to 9,700,000 barrels per day during the week ending November 18th, the 2nd large weekly drop in gasoline production, after a apparent record high prior week…you might recall that when that apparent production record was set two weeks ago, we pointed out that it was mostly due to a swing of 554,000 barrels per day in the fudge factor for gasoline, which is shown in Table 2 on page 7 of the U.S. Petroleum Balance Sheet, which the footnote tells us is an “adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components”…that fudge factor swung by 692,000 barrels per day this week, from +353,000 barrels per day to -339,000 barrels per day, rendering the week over week gasoline production comparison useless…the year over year comparison shows that gasoline production was still up 1.6% from the 9,544,000 barrels per day of gasoline produced a year ago, a more likely increase than the 8% & 12% jumps in gasoline output being reported two weeks ago…also reasonable is the EIA report that refinery output of distillate fuels (diesel fuel and heat oil) rose by 96,000 barrels per day to 5,080,000 barrels per day during the week ending November 18th….that puts the week’s distillates output 1.1% higher than the 5,023,000 barrels per day that was being produced during the same week last year, and 3.7% higher than the 4,900,000 barrels per day of distillates we produced during the equivalent week of 2014…     

the large drop in gasoline production figures are further called into question by the EIA report that our gasoline supplies rose by 2,317,000 barrels to 224,026,000 barrels as of November 18th, as our domestic consumption of gasoline fell by 335,000 barrels per day to 9,024,000 barrels per day and as our gasoline imports rose by 34,000 barrels per day to 855,000 barrels per day…as a result, our gasoline inventories as of November 18th were 3.4% higher than the 216,732,000 barrels of gasoline that we had stored on November 20th of last year, and 8.5% higher than the 206,424,000 barrels of gasoline we had stored on November 21st of 2014….at the same time, our distillate fuel inventories rose by 327,000 barrels to 149,239,000 barrels by November 18th, only the 2nd increase in our distillate supplies in 9 weeks….and despite the withdrawal of nearly 15.8 million barrels of distillates from storage over the past 9 weeks, our distillate inventories were still 5.6% higher than the distillate inventories of 141,364,000 barrels of November 20th last year, and 31.9% above the distillate inventories of 113,146,000 barrels of November 21st, 2014…

finally, with that big drop in our oil imports, our inventories of crude oil fell by 1,255,000 barrels to 489,029,000 barrels by November 18th, the first drop in our oil supplies in four weeks….however, with 2 hurricanes interfering with oil imports over the last 12 weeks, our oil stockpiles are now more than 6.2 million barrels below the 495,238,000 barrels we had stored at the end of August, thus slipping at a time of year when oil supplies are usually rising, and are now thus 4.5% below their April 29th peak of 512,095,000 barrels…however, we still ended the week with 7.2% more crude oil in storage than the 456,035,000 barrels we had stored as of the same weekend a year earlier, and 39.4% more crude oil than the 350,704,000 barrels we had stored on November 21st of 2014… 

This Week’s Rig Count

because of the holiday, the weekly Baker Hughes rig count report was released on Wednesday, November 23rd, and thus covers changes in drilling activity for just the five days from November 18th to the 23rd…nonetheless, they reported that drilling rig activity increased for the 9th time out of the last 10 weeks, as the active rig count rose by 5 rigs, from 588 rigs on November 23rd to 593 rigs on November 23rd…that was still down from the 744 rigs that were deployed as of the November 25th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

rigs deployed drilling for oil rose by 3 rigs to 474 rigs during the abbreviated week, which was still the most oil rigs we’ve had working since January 29th, as oil drilling activity has only been down once in the past 22 weeks…but oil drilling was still down from the 555 oil directed rigs that were working on November 25th a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 2 rigs to 118 rigs, which still left active gas rigs down from the 189 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008…one rig that was classified as miscellaneous also remained active, an increase from a year ago, when no such miscellaneous rigs were working…

offshore drilling activity remained unchanged at 23 rigs, all of which were in the Gulf of Mexico, down from 30 in the Gulf and in total last year at this time…the number of working horizontal drilling rigs increased by 5 rigs to 475 rigs this week, which was still down from the 569 horizontal rigs that were in use on November 25th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the count of both vertical rigs and directional rigs were unchanged from last week, with 66 vertical rigs in use, down from last year’s 109 rigs, and 52 directional rigs deployed, down from the 66 directional rigs that were working on November 25th 2015…

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 which 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 November 23rd, the second column shows the change in the number of working rigs between last week (November 18th) and this week (November 23rd), the third column shows last week’s November 18th active rig count, the 4th column shows the change in the number of rigs running this Wednesday from the equivalent Wednesday 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  case was for November 25th of 2015…   

November 23 2016 rig count summary

what’s obviously most notable in this week’s tables is that the increase in drilling was driven by a 4 rig increase in Pennsylvania’s Marcellus, and that while there was a 3 rig increase in Texas, it was not in the Permian, which is where more than half of the new rigs added since May have been concentrated…since gas directed rigs were only up by 2, that 4 rig increase in the Marcellus means gas drlling rigs were reduced elsewhere, and where that is is not shown in our major basins above, as Baker Hughes has the 2 gas rig reduction listed under “other”…the 3 rig drop in Wyoming drilling is similarly not in any major basin, since the only major basin that extends into Wyoming is the Denver-Julesburg Niobrara, which showed a 2 rig increase…and we should note that of the states not shown above, Mississippi saw a doubling of its active rigs count from 2 rigs to 4, which is still down from the 7 rigs that were drilling in Mississippi through November of last year..

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October durable goods, new and existing home sales

there were just a few widely watched reports released this week, with no releases on Thanksgiving or Friday….Tuesday saw the Existing Home Sales Report for October from the National Association of Realtors (NAR), and Wednesday saw the advance report on durable goods for October and the October report on new home sales, both from the Census bureau…on Monday we had the release of the Chicago Fed National Activity Index (CFNAI) for October, a weighted composite index of 85 different economic metrics, which rose to -0.08 in October from -0.23 in September, revised from the -0.14 that had been reported for September last month….that left the 3 month average of the index at –0.27 in October, down from a revised –0.20 in September, which indicates that national economic activity remains somewhat below the historical trend over recent months….in addition, Tuesday also saw the release of the Richmond Fed Survey of Manufacturing Activity for November, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose to +4 in November from -4 in October, the first positive reading in 3 months, suggesting a return to expansion for that region’s manufacturing…

October Durable Goods: New Orders Up 4.8%, Shipments Up 0.1%, Inventories Unchanged

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for October (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $11.0 billion or 4.8 percent to $239.4 billion in October, after September’s new orders were revised from the $227.3 billion reported last month to $228.4 billion, now 0.4% greater than August’s orders, which had originally been reported as down 0.1%…year to date new orders are still 0.2% below those of 2015, vs the -0.4% year over year change we saw in this report last month….the volatile monthly change in new orders for transportation equipment was responsible for the big jump, as new transportation equipment orders rose $9.5 billion or 12.0 percent to $88.2 billion, on a 94.1% increase to $21,819 million in new orders for commercial aircraft….excluding orders for transportation equipment, new orders still rose 1.0%, and excluding just new orders for defense equipment, new orders increased 5.2%…. at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $234 million or 0.4% to $63,053 million…

meanwhile, the seasonally adjusted value of October shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by  $0.2 billion or 0.1 percent to $234.6 billion, after September shipments were revised from from $234.5 billion to $234.4 billion, still up 0.8% from August…shipments of transportation equipment were down 1.4% on a 0.7% decrease in shipments of motor vehicles, a 3.6% decrease in shipments of commercial aircraft, and a 4.4% decrease in shipments of defense aircraft, while a $0.3 billion or 1.1% increase to $30.5 billion in shipments of fabricated metal products led the overall shipments increase…at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 4th month in a row, after being down the prior 6 months, increasing by $0.1 billion or less than 0.1 percent to $383.7 billion, after September inventories were revised from $384.0 billion to $383.6 billion, statistically unchanged from August…a $0.2 billion or 0.2 percent to $123.8 billion in inventories of transportation equipment accounted for the increase, as without them other inventories were down by $0.1 billion…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, increased for the first time in 5 months, rising by $8.2 billion or 0.7 percent to $1,128.6 billion, following a September decrease of 0.2%, which was revised from the previously reported 0.4% decrease…a $7.5 billion or 1.0 percent to $773.1 billion increase in unfilled orders for transportation equipment was responsible for most of the increase, as unfilled orders excluding transportation equipment orders were up $753 million or 0.2% to $355,527 million…compared to a year earlier, the unfilled order book for durable goods is still 1.1% below the level of last October, with unfilled orders for transportation equipment still 1.9% below their year ago level, largely on a 6.7% decrease in the backlog of orders for motor vehicles…  

Recent New Home Sales Revised Lower, Still Ahead of Last Year’s Pace

the Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 563,000 homes annually, which was 1.9 percent (±13.1%)* below the revised September rate of 574,000 new single family home sales a year but 17.8 percent (±16.9%) above the estimated annual rate that new homes were selling at in October of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether October new home sales rose or fell from those of September, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….with this report; sales new single family homes in September were revised from the annual rate of 593,000 reported last month to a 574,000 a year rate, while home sales in August, initially reported at an annual rate of 609,000 and revised to a 575,000 a year rate last month, were revised to a 567,000 a year rate with this report, and while July’s annualized home sale rate, initially reported at an annual rate of 654,000 and revised from a 659,000 a year rate to a 652,000 a year rate last month, were further revised down to a 622,000 rate with this release..

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 45,000 new single family homes sold in October, approximately the same as the estimated 45,000 new homes that sold in September but down from the 47,000 that sold in July…..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in October was $304,500, down from the median sale price of $314,100 in September but up from the median sales price of $298,700 in October a year ago, while the average October new home sales price was $354,900, down from the $364,100 average sales price in September, and down from the average sales price of $366,900 in October a year ago….a seasonally adjusted estimate of 246,000 new single family houses remained for sale at the end of October, which represents a 5.2 month supply at the October sales rate, up from the reported 4.8 months of new home supply in September…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales at 563,000 Annual Rate in October and A few Comments on October New Home Sales..

October Existing Home Sales Up 2.0% from September

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 2.0% from September to October, projecting that a post recession record 5.60 million existing homes would sell over an entire year if the October home sales pace were extrapolated over that year, a pace that was also 5.9% above the annual sales rate projected in October of a year ago…September sales, now shown at a 5.49 million annual rate, were revised up from the 5.47 million annual rate indicated by last month’s report…the NAR also reported that the median sales price for all existing-home types was $232,200 in October, down from $235,300 in September but 6.0% higher than in October a year earlier, which they report as “the 56th consecutive month of year-over-year gains”…..the NAR press release, which is titled “Existing-Home Sales Jump Again in October“, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month…this unadjusted data indicates that roughly 446,000 homes sold in October, down by 8.2% from the 486,000 homes that sold in September, and up by less than a half percent from the 471,000 homes that sold in October of last year, so we can see that it was just a seasonal adjustment that caused the annualized published figures to show an increase……that same pdf indicates that the median home selling price for all housing types fell 1.3%, from a revised $235,300 in September to $232,200 in October, while the average home sales price was $274,300, down 1.0% from the $277,100 average sales price in September, but up 4.4% from the $262,700 average home sales price of October a year ago…regionally, average home sales prices ranged from a low of $212,000 in the Midwest to a high of $372,900 in the West, with only the West seeing average home prices rise by a modest $500… for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: Existing Home Sales increased in October to 5.60 million SAAR and A Few Comments on October Existing Home Sales

 

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)                

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November 26th graphics

US oil production:

November 23 2016 oil production

oil production from OPEC and NOPEC producers:

November 26 2016 oil producers

rig count summary:

November 23 2016 rig count summary

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US becomes a natural gas exporter, press finds "largest oil deposit ever", rigs jump, DUCs increase, et al

we’ll start by noting that the US has hit a major natural gas milestone as of this week, as our exports of natural gas have exceeded our imports, making us a net exporter of natural gas for the first time in our history….this came about as our ongoing imports from Canada were reduced because the discount for Canadian gas compared to US prices had fallen to 36 cents per mmBTU from a prior average of 60-cents per mmBTU, and because the sole operating natural gas liquefaction facility at Sabine Pass Louisiana began to run a third “train” to liquefy gas for export…not many knew that up until this week, we’ve continued to import copious amount of Canadian gas despite our own overproduction, because it could be had for even lower prices than our own record lows, even as we exported smaller amounts of gas to Mexico…this switch to being an exporter is just the beginning… recall that 5 weeks ago we published a list of 19 LNG export projects that were at various stages along the regulatory process, and that we noted that should they all be completed, they would require more than 30 billion cubic feet of gas per day to meet their combined capacities…since our current natural gas production has been running at around 72 billion cubic feet of gas per day, production of gas from newly fracked US wells would have to increase by more than 40% from current levels if all those projects would be completed…since more than half of the new natural gas production over the past 4 years has come from the Marcellus and the Utica, that suggests that it would be new wells in our region that would be supplying this export demand…in the Utica, that new gas supply would generally have to come from the counties east and south of Geauga because, as we showed 6 months ago, the hydrocarbons in the Utica underlying most of our county and points west exist as oil..

that news on our gas exports notwithstanding, the fracking patch story that by far received the most mainstream media coverage this week was that “The largest oil deposit ever found in America was just discovered in Texas“…now, of course, the way that headline and many other headlines put it is just plain nonsense; there was no massive oil deposit in west Texas that had gone undiscovered until this week…what prompted the headline was the first assessment of the Wolfcamp shale in the Midland Basin portion of Texas’ Permian Basin by the U.S. Geological Survey, which found that the Wolfcamp “contains an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids” of technically recoverable resources…the Wolfcamp shale is just one of many shale deposits in the Permian basin; others that you might find familiar include the Delaware, the Spraberry, Bone Springs, and the Wolfberry…and the existence of copious oil reserves in this basin isn’t new or “just discovered”; drilling in the Wolfcamp has been part of the rig count increase in the Permian basin that we’ve been seeing since May, which as we’ve pointed out, has accounted for more than half of the rigs added nationally over the past 5 months…in fact, the USGS itself notes that their assessment came by way of the over 3000 horizontal wells that had already been drilled and completed in the Wolfcamp, and as a result of those wells they found from that that the reserves in Wolfcamp alone were nearly three times larger than the reserves shown to be contained in the Bakken shale, which the USGS last assessed in 2013….what i found most notable in the description of this shale basin was that it’s as much as a mile thick in some places, which is more than 10 times the thickness of the Eagle Ford or the Bakken…compare that to the thickness of the combined Utica-Point Pleasant formation that underlies Ohio, which is only 225 to 245 feet thick where it’s now being worked, and which maxes out at 395 feet thick in the far northeastern corner of the state..

so just how much oil is 20 billion barrels?  matched up against the current US oil production of around 8.7 million barrels per day, 20 billion barrels could replace our current production for 2,325 days, or somewhat less than 6 and a half years…but when considering the US, we have to note that our oil consumption is far in excess of our oil production…so, if we take this year’s cumulative daily average of our production plus our net imports (i.e., imports minus exports) from line 1 and line 4 of the weekly U.S. Petroleum Balance Sheet, we find that we’ve been using about 16.2 million barrels of oil per day throughout 2016… thus, at that rate, the 20 billion barrels of oil in the Wolfcamp would last us 1,234 days, or less than three and a half years….but since our oil has just started to flow overseas this year with the lifting of the oil export ban and much more of it may be destined for export once additional facilities to load oil onto ocean going ships are constructed, we have to consider that the oil found in the US has now become part of the global oil supply….in that case, the 20 billion barrels of oil in the Wolfcamp shale is only about 210 days of global oil consumption at current levels, which means that for oil to continue to be a sustainable energy source for entire planet, we’d have to find three world class oil reservoirs the size of the Wolfcamp every two years…

coincidentally, the Drilling Productivity Report for November was released on Monday of this past week, and it showed the first increase in uncompleted wells nationally in the past 7 months, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian…you might recall that as of the September Drilling Productivity Report, the EIA began providing a monthly estimate of the number of drilled but uncompleted wells (DUCs) in the 7 regions that the Drilling Productivity Report covers; at that time, they estimated that such wells had decreased by 34 wells during August, indicative of frackers completing more wells than were being drilled… in September, such DUCs were again down by 27 wells, as higher oil prices continued to result in more fracking than drilling…in the current report for October, they showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUCs in the US rose from 5097 in September to 5,155 in October…the Permian basin, which includes the Wolfcamp and several other shale plays in EIA stats, saw its total count of uncompleted wells rise from 1,382 in September to 1,467 in October, in keeping with the increase in drilling that we’ve seen in that basin…on the other hand, DUCs in the Eagle Ford of south Texas fell by 30, from 1339 in September to 1,309 in October…the Marcellus also saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Marcellus DUC count fell from 650 in September to 643 in October…DUCs in other basins were little changed; the Utica showed an increase of one uncompleted well and thus had 115 DUCs in October…for the month, DUCS in the 4 oil basins (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased for the first time in 7 months, as drilling in the Permian picked up, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) slipped by 2 wells and has generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered…. 

The Latest Oil Stats from the EIA

this week’s release of oil data for the week ending November 11th by the US Energy Information Administration indicated the second consecutive big increase in our oil refining since the fall slowdown began, accompanied by a large jump in our imports of oil, which thus resulted in increases in our supplies of both oil and most of the products made from it…in the same report, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance fell to +256,000 barrels per day, from last week’s +450,000 barrels per day, which means that 256,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or several of this week’s metrics were off by that amount…that’s now the 4th large positive adjustment in a row, and as a result the cumulative daily average of that adjustment has risen to 109,000 barrels per day, meaning the EIA’s figures remain out of balance for the whole year, and should by rights be taken with a large grain of salt, if not completely ignored…but these figures still continue to drive oil prices and hence oil field activity, so we’ll just continue to track them as long as the market participants continue to believe them…

so, for the week ending November 11th, the EIA reported that our imports of crude oil rose by an average of 981,000 barrels per day to an average of 8,423,000 barrels per day, as our imports still remain inexplicably more volatile than usual after the hurricane induced disruption of 5 weeks ago…those imports were 20.9% more oil than the 6,968,000 barrels per day we imported during the week ending November 13th last year and as a result, the 4 week average of our oil imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) bounced back up to an average of 8.0 million barrels per day, 12.6% higher than the same four-week period last year…meanwhile, our exports of crude oil rose by an average of 71,000 barrels  per day to an average of 481,000 barrels per day for the week, in data that is not directly comparable to last year’s exports of 504,000 barrels per day during the equivalent week

at the same time, the EIA reported that production of crude oil from US wells slipped by 11,000 barrels per day to an average of 8,681,000 barrels per day during the week ending November 11th, the first decrease in 6 weeks, coming after US production had increased by 170,000 barrels per day last week… that happened as output from Alaskan fields fell by 3,000 barrels per day, and production from the lower 48 states was 8,000 barrels per day lower….that left the week’s domestic oil production 5.4% lower than the 9,182,000 barrels we produced during the week ending November 13th of last year, and 9.7% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015…our oil production for the week ending November 11th was also 538,000 barrels per day, or 5.8% lower, than what we were producing at the beginning of this year, which we’re citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015…

meanwhile, the also reported that the amount of crude oil used by US refineries rose by an average of 309,000 barrels per day to an average of 16,126,000 barrels of crude per day during the week ending November 11th, as our refinery utilization rate rose to 89.2% during the week from last week’s 87.1%, but it was still lower than the refinery utilization rate of 90.3% logged during the week ending November 13th last year…US oil refining is still down by 804,000 barrels per day, or by 4.7%, in the 10 weeks since Labor Day, as the refinery utilization rate had fallen from 93.7% from then to 85.2% by the end of October .. the quantity of crude oil refined this week nationally is now up slightly from the 16,076,000 barrels of crude per day US refineries used during the week ending November 13th last year, and up 1.3% from the 15,913,000 barrels per day that were being refined during the equivalent week in 2014… 

however, even with the jump in the amount of crude oil being used by refineries, the EIA reported that refineries’ production of gasoline fell by 302,000 barrels per day to 10,456,000 barrels per day during the week ending November 11th, after it had risen by 632,000 barrels per day to an apparent record high prior week, a record which was facilitated by the change in the fudge factor to correct for the imbalance created by the blending of ethanol with gasoline…thus this week’s ‘drop’ in gasoline production reflects the absence of the big change in that fudge factor, rather than a real decrease…hence, our gasoline output for the week was still 6.2% higher than the gasoline output of 9,558,000 barrels per day during the week ending November 13th last year, and 5.4% higher than the gasoline production during the same week of 2014….at the same time, the EIA reported that refinery output of distillate fuels (diesel fuel and heat oil) rose by 200,000 barrels per day to 4,984,000 barrels per day during the week ending November 11th….however, that increase still the week’s distillates output 1.0% lower than the 5,032,000 barrels per day that was being produced during the same week last year, while it was 4.0% higher than the 4,793,000 barrels per day of distillates we produced during the equivalent week of 2014…     

absent the big swing in the gasoline fudge factor, the EIA reported that our gasoline supplies rose by 746,000 barrels to 221,709,000 barrels as of November 11th, even as our domestic consumption of gasoline rose by 146,000 barrels per day to 9,359,000 barrels per day, largely because our gasoline imports rose by 321,000 barrels per day to 821,000 barrels per day, which looks to be the largest increase in gasoline imports since July 26th 2013…as a result, November 11th’s gasoline inventories were 3.5% higher than the 214,254,000 barrels of gasoline that we had stored on November 13th of last year, and 8.4% higher than the 204,599,000 barrels of gasoline we had stored on November 14th of 2014….at the same time, our distillate fuel inventories rose by 310,000 barrels to 148,912,000 barrels by November 11th, the first increase in our distillate supplies in 8 weeks….however, even after the withdrawal of 16.1 million barrels of distillates from storage over the past 8 weeks, our distillate inventories were still 6.1% higher than the distillate inventories of 140,318,000 barrels of November 13th last year, and 29.7% above the distillate inventories of 114,794,000 barrels of November 14th, 2014…

finally, with that big jump in our oil imports, our inventories of crude oil rose by 5,274,000 barrels to 490,284,000 barrels by November 11th, the third increase in a row, over which time our supplies of crude oil have increased by 22,126,000 barrels….however, with 2 hurricanes interfering with oil imports in the 8 prior weeks, our oil stockpiles are still nearly 5 million barrels below the 495,238,000 barrels we had stored at the end of August, thus slipping at a time of year when oil supplies are usually rising, and remain 4.3% below their April 29th peak of 512,095,000 barrels…however, we still ended the week with 7.7% more crude oil in storage than the 455,074,000 barrels we had stored as of the same weekend a year earlier, and 40.6% more crude oil than the 348,758,000 barrels we had stored on November 14th of 2014…   

This Week’s Rig Count

US drilling activity rose for the 8th time in 9 weeks during the week ending November 18th, bouncing back from last week’s one rig decrease to post the largest increase in 31 months….Baker Hughes reported that the total count of active rotary rigs running in the US rose by 20 rigs to 588 rigs by this Friday, which was still down from the 767 rigs that were deployed as of the November 20th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

rigs deployed drilling for oil rose by 19 rigs to 471 rigs for the week, the most oil rigs we’ve had working since January 29th, as oil drilling activity has only been down once in the past 21 weeks…oil drilling work is still down from the 564 oil directed rigs that were working on November 20th a year ago, however, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 116 rigs, which still left active gas rigs down from the 193 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008…another rig that was active was classified as miscellaneous, an increase from a year ago, when no such miscellaneous rigs were active…

offshore drilling activity increased with the activation of two additional drilling platforms in the Gulf of Mexico off the Louisiana coast, where there are now 22 rigs drilling….another driller is working offshore from Texas, so the Gulf of Mexico count is now up to 23, but still down from 30 last year at this time…that’s also true of the total US offshore count, because no rigs other than those in the Gulf were active offshore elsewhere this week or during the same week a year ago….in addition, a single rig was set up to drill through an inland lake in southern Louisiana this week, bringing the inland waters rig count back up to two, same as a year ago…

the number of working horizontal drilling rigs increased by 13 rigs to 470 rigs this week, which was still down from the 581 horizontal rigs that were in use on November 20th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count increased by 7 rigs to 66 rigs this week, which was down from the 107 vertical rigs that were drilling in the US during the same week last year…meanwhile the directional rig count was unchanged at 52 rigs, which was down from the 69 directional rigs that were deployed during the same week last year… 

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 which 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 November 18th, the second column shows the change in the number of working rigs between last week (November 11th) and this week (November 18th), the third column shows last week’s November 11th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was for November 20th of 2015…   

November 18 2016 rig count summary

once again, we can see that the Permian basin increase was behind the near record increase in drilling this week, as once again the 11 rigs added in Permian accounted for more than half of this week’s jump…note that at 229 rigs, drilling in the Permian is now up by 4 rigs from a year ago, and accounts for nearly half of the horizontal rigs working in the entire nation…also notice that there were 3 rigs added in the Utica, all of which were drilling for natural gas, as are all of the 19 rigs that were active here this week; that’s only 1 rig shy of the 20 active in the Utica a year ago, meaning the Utica is close to joining the Permian and the Cana Woodford as the plays seeing the largest rebound this summer and fall….note that in addition to the state changes shown in the first table above, Alabama also saw a rig start up this week, their first activity since October 14th…it’s also an increase from a year ago, as there was no drilling in Alabama between mid October of 2015 and mid January of this year

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October’s retail sales, consumer prices, industrial production, producer prices, and new housing; September’s business inventories..

agency reports released this week included Retail Sales for October and Business Sales and Inventories for September from the Census Bureau, the October Import-Export Price Index, the October Producer Price Index and the October Consumer Price Index from the Bureau of Labor Statistics, the October report on Industrial Production and Capacity Utilization from the Fed, and the October report on New Residential Construction, also from the Census Bureau…in addition, the BLS also released the Regional and State Employment and Unemployment for October on Friday, which breaks down the establishment survey and household survey data from the monthly jobs report released two weeks ago by region and by state..

this week also saw the release of three regional Fed manufacturing surveys for November: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose from -6.8 in October to +1.5 in November, it’s first positive reading in 4 months, suggesting that the contraction in First District manufacturing may be ending…the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions edged down, from a reading of +9.7 in October to +7.6 in November, suggesting that the region’s manufacturing continues to expand, albeit at a more moderate pace, while the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +1 in September, down from +6 in both September and October, suggesting weak expansion in that region for the third month in a row, following 18 months of contraction mostly in energy related industries…

Retail Sales Rise 0.8% in October after September Increase Revised up to 1.0%

seasonally adjusted retail sales increased in October after retail sales for August and September were both revised higher…the Advance Retail Sales Report for October (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $465.9 billion during the month, which was up 0.8 percent (±0.5%) from September’s revised sales of $462.1 billion and 4.3 percent (±0.7%) above the adjusted sales in October of last year…September’s seasonally adjusted sales were revised from $459.8 billion to $462.1 billion, while August’s sales were also revised a bit higher, from $457.0 billion to $457.2 billion, with this release….estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales rose 1.5%, from $447,774 million in September to $454,520 million in October, while they were up 2.2% from the $444,959 million of sales in October a year ago…the total $2.5 billion upward revision to August and September sales should boost previous estimates of the personal consumption expenditures contribution to 3rd quarter GDP by about 0.22 percentage points…

included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the October Census Marts pdf….the first double column below gives us the seasonally adjusted percentage change in sales for each kind of business from the September revised figure to this month’s October “advance” report in the first sub-column, and then the year over year percentage sales change since last October in the 2nd column…the second double column pair below gives us the revision of the September advance estimates (now called “preliminary”) as of this report, with the new August to September percentage change under “Aug 2016 r” (revised) and the September 2015 to September 2016 percentage change as revised in the last column shown…for your reference, the table of last month’s advance estimate of September sales, before this month’s revisions, is here.….

October 2016 retail sales table

from the above table, we can see that the 1.1% increase to $94,683 million in seasonally adjusted sales at motor vehicle and parts dealers was not a major factor in the October sales increase, because without automotive sales, retail sales were still up 0.8%…car sales for September, however, were revised higher, from $92,862 million to $93,681 million, and were responsible for most of the upward revision to that month’s sales…also note that there was an 2.4% increase to $33,860 million in sales at gas stations, which we figure to be mostly due to higher prices….however, if we take out both gas station sales and motor vehicles and parts sales, retail sales were still up 0.7%…we’ll be able to ascertain the net economic impact of this nominal jump in retail sales once we adjust them for the price data from the CPI..

October CPI up 0.4% on Higher Priced Gasoline

the consumer price index increased by 0.4% in October, as higher prices for energy and housing were only partially offset by lower prices for groceries…the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index rose 0.4% in October after it had risen 0.3% in September, 0.2% in August, been unchanged in July, and rose 0.2% in both May and June….the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 241.428 in September to 241.729 in October, which left it statistically 1.636% higher than the 237.838 index reading of last October, which is reported as a 1.6% YoY increase….regionally, prices for urban consumers have risen 2.3% in the West, 1.6% in the Northeast, 1.5% in the South, and 1.0% in the Midwest over the past year, with greater price increases within regions in cities of more than 1,500,000 people everywhere except in the Northeast, where the largest cities averaged just a 1.5% price increase…with higher prices for gasoline alone accounting for more than half the gain in the overall index, seasonally adjusted core prices, which exclude food and energy, rose by just 0.1% for the month, with the unadjusted core index rising from 248.731 to 249.218, which put it 2.144% ahead of its year ago reading of 243.985…

the volatile seasonally adjusted energy price index increased by 3.5% in October, after it had risen 2.9% in September, been unchanged in August and fell by 1.6% in July…that October increase was also enough to push the year over year energy index into positive territory at +0.1% for the first time in almost 2 years….prices for energy commodities were 6.7% higher while the index for energy services rose by 0.5%, after rising by 0.7% in September….the increase in the energy commodity index included a 7.0% hike in the price of gasoline, the largest component, and a 5.9% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, fell by an average of 0.2%…within energy services, the index for utility gas service rose by 0.9% after increasing by 0.8% in September, 2.1% in August and by 3.1% in July, and hence utility gas is now priced 4.8% higher than it was a year ago, while the electricity price index rose by 0.4%, after increasing by 0.7% in September…however, energy commodities are still priced 0.9% below their year ago levels, with gasoline prices also averaging 0.9% lower than they were a year ago.…meanwhile, the energy services price index is now 1.3% higher than last October, as even electricity prices have increased by 0.4% over that period..

the seasonally adjusted food price index was unchanged in October, just as it was in July, August and in September, as 0.2% lower prices for food purchased for use at home offset 0.1% higher prices for food bought to eat away from home, where average prices at fast food outlets rose 0.2% while average prices at full service restaurants was unchanged…the food price index is now 0.4% lower than a year ago, as a 2.3% decrease in the price of food at home has been mostly offset by a 2.4% increase in prices for food away from home, which included a 1.9% increase in prices of lunches at elementary and secondary schools…

in the food at home categories, the price index for cereals and bakery products was unchanged as 2.7% higher prices for rice and a 0.5% increase in prices for bread were offset by a 2.7% decrease in prices for fresh sweetrolls, coffeecakes, doughnuts and a 1.0% decrease in flour and prepared flour mixes…the price index for the meats, poultry, fish, and eggs group fell by 0.7% as beef prices fell 1.5%, egg prices fell 1.2%, and pork prices fell 1.1%, while the index for dairy products was 0.3% higher as a 0.9% increase in prices for milk was offset by 0.2% drop in prices for other dairy products…the fruits and vegetables index was 0.2% higher, as a 2.2% increase in prices for frozen fruits and vegetables and a 0.9% increase for canned fruits and vegetables more than offset 1.5% lower prices for oranges and 2.0% lower priced lettuce….the beverages index was 0.4% lower as a 1.1% drop in the price of roast coffee more than offset 0.7% higher prices for carbonated drinks…lastly, prices in the other foods at home category were on average 0.1% lower, as 2.0% lower priced butter and 1.0% lower salad dressings were offset by higher prepared frozen foods and 0.5% higher peanut butter……among food at home line items, only eggs, which are now priced 35.5% lower than a year ago, and lettuce, which is 11.9% lower than last year, have seen a price change greater than 10% over the past year…the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall

among the seasonally adjusted core components of the CPI, which rose by 0.1% in October after rising by 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods increased by 0.1%, while the composite for all services less energy services was 0.2% higher….among the goods components, which will be used by the Bureau of Economic Analysis to adjust October retail sales for inflation in national accounts data, the index for household furnishings and supplies was unchanged as a 2.5% drop in prices for laundry equipment was offset by 2.5% higher prices for living room, kitchen, and dining room furniture, while the apparel price index was 0.3% higher on a 1.0% increase in prices for footwear and a 0.3% increase in prices for women’s apparel…prices for transportation commodities other than fuel were up 0.1%, as prices for new cars rose 0.2%, prices for new trucks rose 0.3%, while prices for used cars and trucks were down 0.1% after falling 0.3% in September, 0.6% in August,1.0% in July, 1.1% in June and 1.3% in May…meanwhile, prices for medical care commodities were 0.1% higher on a 0.2% increase in prescription drug prices…on the other hand, the recreational commodities index fell 0.4% on a 1.2% drop in TV prices and 1.3% lower toy prices, and the education and communication commodities index was 0.6% lower as a 2.1% cut in prices for personal computers and a 1.8% price drop for telephone hardware more than offset a 0.3% increase in prices for college textbooks….lastly, a  separate price index for alcoholic beverages was up 0.4% on 0.6% higher prices for beer and 0.9% higher prices for distilled spirits at home, while the price index for ‘other goods’ was down 0.1% as a 0.4% increase in cigarette prices was more than offset by 0.3% decreases in prices for cosmetics, perfume, bath, nail preparations and implements and for hair, dental, shaving, and miscellaneous personal care products…

within core services, the price index for shelter rose 0.4% on a 0.4% increase in rents, a 0.3% increase in owner’s equivalent rent, and a 1.8% increase in costs for lodging away from home at hotels and motels, while costs for water, sewers and trash collection rose 0.1% and other household operation costs were 0.3% higher….meanwhile, the index for medical care services was unchanged as prices for hospital services rose 0.2% while prices for both physicians’ services and health insurance were 0.1% lower…at the same time, the transportation services index was 0.2% lower on a 2.2% drop in airfares and 0.5% lower car and truck leasing…the recreation services index was unchanged as pet services rose 0.4% while video & audio rental services fell 2.4%, and the index for education and communication services was also unchanged as internet services providers cut prices 1.0%, wireless telephone services were 0.5% lower, while elementary and high school tuition and fees rose 0.8% and college tuitions rose 0.4%…lastly, the index for other personal services was also unchanged as tax return services fell 0.2% while apparel services other than laundry and dry cleaning were 0.5% higher…among core prices, televisions, which are now 21.7% cheaper than a year ago, internet services, which are down by 10.1% since last October, wireless telephone services, which are 10.2% lower, and automobile service club membership fees, which are now down 10.8% from a year ago, all saw prices drop by more than 10% over the past year, while no line item showed an increase of that magnitude…

Estimating the Real Change in October Retail Sales Using the October CPI

with this CPI release for October, we can now attempt to estimate the economic impact of the October retail sales figures which we reviewed earlier, which saw nominal sales rise 0.8%…for the most accurate estimate, and the way the BEA will be figuring 4th quarter GDP at the end of January, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, October’s clothing store sales, which were up by 0.6% in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were up by 0.3%, which tells us that real retail sales of clothing were only up by 0.3% October…then, to get a GDP relevant quarterly change, we’d have to compare such adjusted real clothing sales for October with the similarly adjusted real clothing consumption for the 3 months of the third quarter (July, August and September), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually.  The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was up 0.1%, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales…in dollars, those sales were up by roughly 0.9% in October, while as we noted their composite price index was up 0.1%, meaning that real retail sales excluding food and energy sales were up by around 0.8%.  then, for the rest of the retail aggregate, we find sales at food and beverage stores were up 0.9% in September, while prices for food at home were down 0.2%, suggesting a real increase of around 1.1% in the quantity of food & beverages purchased for the month.  Next, sales at bars and restaurants were down 0.7% in dollars, but those dollars also bought 0.2% less “food away from home”, so real sales at bars and restaurants were really down by about 0.9%.  And while gas station sales were up 2.2%, gasoline prices were up 7.0%, suggesting a 4.8% real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and since we don’t have a detailed breakout on that, we’ll just zero out that obviously wrong decrease in gasoline consumption from our calculation…thus, weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in October were up about 0.6% from those of September…

next, to see how the change in real October sales impacts the change in 4th quarter GDP, we have to compare those October sales to those of the 3rd quarter…first, to get an approximation of the real adjusted changes for October vis a vis the 3 months of the third quarter, we also have to adjust the October percentage change for the upward revision to September and August sales that were included in the October retail report, which saw September’s seasonally adjusted sales revised from $459.8 billion to $462.1 billion and August’s sales revised from $457.0 billion to $457.2 billion…percentage-wise, those revisions increased the September sales increase over August from 0.6% to 1.0%, while it left the August percentage change statistically unchanged at 0.1% below July…next, we access Table 7 in the pdf for the September personal income and outlays report, which gives us already inflation adjusted changes for the prior months, where we find that real sales of goods were up 0.6% in July, down 0.8% in August and up 0.5% in September (month over month)…after adjusting those real sales with the blunt instrument of the October retail revisions, we could then estimate that revised real goods would be up 0.6% in July, down 0.8% in August and up 0.9% in September…that means that October real sales, up 0.6% from September, were hence up about 1.5% from August and up 0.7% from July, or up more than 0.9% from the average of the 3rd quarter…that works out to growth in real goods consumption at a 3.75% annual rate, a pace that would add at approximately .82 (+/-10%) percentage points to 4th quarter GDP in the goods portion of personal consumption expenditures alone, even should November and December show no improvement…

Industrial Production Unchanged in October, Capacity Utilization Slips 0.1%

the Fed’s G17 release on Industrial production and Capacity Utilization reported that industrial production was unchanged in October by after falling by a revised 0.2 percent in September, as revisions to the index for utilities raised the rate of change in total industrial production in August from down 0.5% to down 0.1%, while it lowered the September change from up 0.1 to down 0.2%….the June to July percentage increase was also revised, from up 0.5% to up 0.4%….the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 104.3 in October from 104.2 in September, which was statistically unrevised after the August index was revised from 104.2 to 104.5, and the July index was revised from 104.7 to 104.6…year over year industrial production remains down 0.9%, slightly better than last month’s 1.0% decrease….

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.2, from 103.0 in September to 103.2 in October, after September’s manufacturing index was revised down from 103.1 to 103.0, August’s index was revised down from 102.9 to 102.8, and July’s index was revised down from 103.5 to 103.4….meanwhile, the mining index, which includes oil and gas well drilling, rose from 104.2 in September to 106.1 in October, after the September index was revised down from 104.3, leaving the mining index 7.0% lower than it was a year ago….finally, the utility index, which often fluctuates due to above or below normal temperatures, fell 2.6% in September, from 104.9 to 102.2, after the September utility index was revised up from 103.8 and the August utility index was revised up from 104.9 to 108.1; as a result of those revisions, the utility index is only 0.1% lower than it was a year earlier..

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell to 75.3% in October from 75.4% in September, which was recalculated but unchanged from last month’s report …capacity utilization of NAICS durable goods production facilities rose from 76.0% in September to 76.2% in October, after September’s figure was revised up from 75.8%, while capacity utilization for non-durables producers was unchanged from a downwardly revised 74.3%…capacity utilization for the mining sector rose to 77.0% in October from 75.2% in September, which was originally reported as 75.5%, while utilities were operating at 77.8% of capacity during October, down from their 79.9% of capacity during September, which was revised up from the previously reported 79.1%…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories…. 

Producer Prices Flat in October as Higher Energy Prices are Offset by Lower Trade and Core Services

the seasonally adjusted Producer Price Index (PPI) for final demand was unchanged in October as prices for finished wholesale goods increased 0.4%, while margins of final services providers fell by 0.3%…this followed a September report that indicated the overall PPI had increased by 0.3%, with prices for finished goods up 0.7% while final demand for services rose 0.1%, and a August report that indicated the PPI was statistically unchanged, with prices for finished goods down 0.4% while final demand for services rose 0.1%….producer prices are now up 0.8% from a year ago, since most of the price decreases relating to lower oil and commodity prices went by the boards in early 2015…

as noted, the price index for final demand for goods, aka ‘finished goods’, rose by 0.4% in October, after rising 0.7% in September but falling by 0.4% in both July and August, as the index for wholesale energy prices rose 2.5% from September to October while the price index for wholesale foods was 0.8% lower and the index for final demand for core wholesale goods (ex food and energy) rose 0.1%…major wholesale price changes for September included a 20% increase for liquefied petroleum gas and a 9.7% increase for gasoline, while wholesale prices for eggs fell 21.1%, after rising 24.2% in September..

meanwhile, the index for final demand for services fell by 0.3% in October after rising by 0.1% in both August and September, falling by 0.3% in July and rising 0.4% in June, as the index for final demand for transportation and warehousing services rose 0.2% while the index for final demand for trade services fell 0.3% and the core services index for final demand for services less trade, transportation, and warehousing services was also 0.3% lower….among transportation and warehousing services, margins for air transport of freight rose 0.5% and margins for truck transport of freight rose 0.3% ..among trade services, seasonally adjusted margins for fuels and lubricants retailers were down 7.4%, margins for TV, video, and photographic equipment and supplies retailers were down 5.1%, and margins for food and alcohol retailers were 3.0% lower, while margins for major household appliances retailers were up 10.2%.. in the core final demand services index, 5.7% lower margins for securities brokerage, dealing, investment advice, and related services was the major factor in the October drop in the index…

this report also showed the price index for processed goods for intermediate demand was 0.3% higher, after rising 0.5% in September, falling 0.1% in August, and rising 0.2% in July, 0.9% in June, and 0.8% in May…however, prices for intermediate processed goods still remain 0.5% lower than in October a year ago, as they fell every month from last July through March….the price index for intermediate energy goods rose by 1.2% in October, while prices for intermediate processed foods and feeds fell 0.7%, and the core price index for processed goods for intermediate demand less food and energy was 0.2% higher…

at the same time, the price index for intermediate unprocessed goods was 0.6% lower in October, after rising by 1.3% in September, falling by 2.8% in August and 0.4% in July but after rising by 2.8% in June, 1.3% in May, 3.0% in April and 1.6% in March, in the only increases in that index since June of last year…contributing to the October decrease was a 5.7% drop in the price index for unprocessed foodstuffs and feedstuffs, as slaughter livestock prices fell 11.5%, and a 1.1% decrease in the index for core raw materials other than food and energy materials, while the index for crude energy goods rose 5.8% as prices for crude oil rose 10.4%… this raw materials index is still 4.2% lower than it was a year ago, but most of the year over year decrease of 26.4% that was seen in November 2015 has now been retraced…

lastly, the price index for services for intermediate demand was 0.6% lower in October, after being 0.4% higher in September, unchanged in August but after rising 0.3% higher in July and 0.8% in June, in only the second decrease for this index in the past year… the index for trade services for intermediate demand was 0.5% lower and the core price index for services less trade, transportation, and warehousing for intermediate demand was down 0.8%, while the index for transportation and warehousing services for intermediate demand was 0.2% higher…a major factor in the decrease in prices for core services for intermediate demand was a 3.1% decrease in the index for intermediate services related to business loans (partial); in addition, the indexes for securities brokerage, dealing, investment advice, and related services and marketing consulting services were also lower…margins for minerals and ores wholesaling, chemicals and allied products wholesaling, and fuels and lubricants retailing pulled the intermediate trade services down, while a 0.4% increase in prices for courier, messenger, and U.S. postal services led the intermediate transportation and warehousing services higher…over the 12 months ended in October, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.3% higher than it was a year ago…

October Housing Starts Jump Most in 34 Years, New Permits Rise

the report on New Residential Construction for October (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,323,000 units during the month, which was 25.5 percent (±12.6%) above the revised September estimated annual rate of 1,154,000 housing unit starts, and was 23.3 percent (±14.4%) above last October’s pace of 1,073,000 housing starts a year…the figures in parenthesis are the most likely range of the change indicated; in other words, October’s housing starts could have been up by as little as 12.9% or by as much as 38.1% from those of September, with even larger revisions possible after a number of months…in this report, the annual rate for September housing starts was revised up more than 10%, from the 1,047,000 reported last month to 1,154,000, while July starts, which were first reported at a 1,142,000 annual rate, were revised up from last month’s initial revised figure of 1,150,000 annually to 1,164,000 annually with this report….

those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 114,900 housing units were started in October, up from the 94,800 units that were started in September…of those housing units started in October, an estimated 73,500 were single family homes and 40,500 were units in structures with more than 5 units, up from the revised 67,700 single family starts in September, and up from the 25,700 units started in structures with more than 5 units in September…

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in October, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,229,000 housing units, which was 0.3 percent (±2.0%)* above the September rate of 1,225,000 permits, and was 4.6 percent (±1.4%) above the rate of building permit issuance in October a year earlier…the annual rate for housing permits issued in September was unrevised at 1,225,000….again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 97,900 housing units were issued in October, actually down from the revised estimate of 107,700 new permits issued in September…the October permits included 60,500 permits for single family homes, down from 63,300 single family permits issued in September, and 35,000 permits for housing units in apartment buildings with 5 or more units, down from 41,000 such multifamily permits a month earlier… for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.323 Million Annual Rate in October and Comments on October Housing Starts… 

September Business Sales Up 0.7% Business Inventories Up 0.1%

after the release of the October retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for September (pdf), which incorporates the revised September retail data from that October report and the earlier published September wholesale and factory data to give us a complete picture of the business contribution to the economy for that month….according to the Census Bureau, total manufacturer’s and trade sales were estimated to be valued at a seasonally adjusted $1,314.6 billion in September, up 0.7 percent (±0.2%) from August’s revised sales, and up 0.8 percent (±0.4%) from September sales of a year earlier…note that total August sales were concurrently revised up from the originally reported  $1,304.1 billion to $1,305.9 billion….manufacturer’s sales were up 0.8% to $463,012 million in September, and retail trade sales, which exclude restaurant & bar sales from the revised September retail sales reported earlier, rose 1.0% to $406,691 million, while wholesale sales rose 0.2% to $444,945 million…

meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,818.7 billion at the end of September, up 0.1 percent (±0.1%)* from August, and 0.6 percent (±0.6%)* higher than in September a year earlier…the value of end of August inventories, although recalculated, remained statistically unrevised at the $1,816.9 billion reported last month…seasonally adjusted inventories of manufacturers were estimated to be valued at $621,350 million, statistically unchanged from August, inventories of retailers were valued at $607,205 million, 0.2% more than in August, while inventories of wholesalers were estimated to be valued at $590,176 million at the end of September, 0.1% higher than in August…

in assessing the impact of the components of this report on 3rd quarter GDP, we looked at the September factory inventories reported two weeks ago and now included herein and judged that 3rd quarter GDP would have to be adjusted upwards by 0.09 percentage points to account for the differences between that factory report and GDP estimates; conversely, last week we judged that September wholesale inventories were over-estimated at a $2.06 billion rate, implying an downward revision of 0.06 percentage points to 3rd quarter GDP…for retail inventories, the BEA’s technical note for 3rd quarter GDP indicates that they had estimated that the value of June retail inventories in September to be $607.6 billion, up from $605.8 billion in August…this report thus revises that and reports that September retail inventories were actually at $607.2 billion, meaning the end of 3rd quarter retail inventories were lower, at a $1.6 billion annual rate, than the BEA had estimated in the advance report of 3rd quarter GDP, thus suggesting a downward revision of 0.04 percentage points to 3rd quarter GDP, based on those overestimated retail inventories….together, the BEA’s net overestimation of 3rd quarter business inventories would thus imply a 0.01 percentage point reduction to 3rd quarter GDP when the 2nd estimate is released at the end of November…

 

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…) 

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November 19th tables

retail sales:

October 2016 retail sales table

rig count summary:

November 18 2016 rig count summary

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