OPEC extends production cuts 9 months, oil prices tumble; US refining returns to near record levels…

well, the OPEC meeting that everyone had been waiting for came and went this week, and as it turned out, it was just a big non event….OPEC agreed to maintain their production cuts at the same level they’ve been at since the first of the year for another 9 months, Libya and Nigeria will continue to be allowed to produce whatever they can, Russia and a few other non-OPEC oil producers who were in the original pact will maintain their levels of production cuts but no new producing nations will join them, and the next OPEC meeting to check on their progress will be held November 30th…oil traders were clearly expecting something more, since oil prices dropped nearly 5% in the first few hours after the Thursday announcement, although prices did recover some on Friday…rather than explain how oil prices moved up to and after the meeting, we’ll just include a graph of their hourly changes over the last three days of this week, so you can all see for yourselves..

May 27 2017 hourly oil prices

the above graph is a screenshot of the interactive oil price graph at Trading Economics, an online platform that provides economic forecasts, historical data, and trading recommendations…each bar on the above graph represents oil prices for one hour of oil trading between late May 23rd and May 26th, wherein green bars represent the hours when the price of oil went up, and red bars represent the hours when the price of oil went down…for green bars, the hour’s starting oil price is at the bottom of the bar and the price at the end of the hour is at the top of the bar, while in red or down hours, the starting price is at the top of the bar and the price at the end of the hour is at the bottom of the bar…this type of graph is called a candlestick because the range of oil prices outside of the opening and closing price for any given period is indicated by a thin ‘wick’ above or below the “candlestick” part of the graph…so above we can see that oil prices were driven almost as high as $52 a barrel on Wednesday and again early on Thursday morning before the OPEC deal was announced, but then started falling when it became apparent that nothing new would come out the meeting…once the meeting ended with the official press release, oil prices dropped more than 4%, as oil traders who had been betting on a better deal liquidated their positions, and oil closed Thursday at $48.90 a barrel…once that post-deal selling frenzy was over, buyers moved back in on Friday, pushing oil higher to close the week at $49.80 a barrel

note that oil prices being quoted this week are for July delivery….trading of the June contract, which we were quoting last week, expired on Monday at $50.73 a barrel, up 40 cents from last Friday’s close of $50.33…the July contract closed last week at $50.67 a barrel, so this week’s closing price represents a modest drop of 1.7% for the week, even though oil prices saw a drop of nearly 8% from their Thursday morning high to their Friday morning low…although July oil is down from its Thursday high of $52.00, it’s still up from a low of $44.13 a barrel hit just three weeks earlier…

let’s again look at why oil traders don’t have much confidence in the efficacy of this latest OPEC deal to have much of an impact on global oil supplies….we’ll start with a graph of OPEC oil production over the past dozen years..

May 27 2017 OPEC crude production thru April

the graph above was taken from the ‘OPEC April Production Data” post at the Peak Oil Barrel blog and it shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to April 2017, with the data sourced from the May OPEC Oil Market Report which we covered two weeks ago…while we can see that OPEC production during March and April, the two furthest right data points on the graph, was down quite a bit from their record production in November 2016, it’s still not much changed from what they were producing between June 2015 and May of 2016, and moreover, is actually still much higher than what they produced during the three years before that, which is the period that produced the glut of oil the world is still trying to deal with…

next we’ll look at the table of global oil demand forecasts from that May OPEC Oil Market Report of two weeks ago, and project what might happen to oil supplies if OPEC oil production remains unchanged from current levels, as they have now pledged they will do…

April 2017 global oil demand estimate via OPEC copy

to review the above, this table comes from page 37 of the May OPEC Monthly Oil Market Report of two weeks ago, 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 each quarter of 2017 over the rest of the table…on the “Total world” line, starting with the third column, we’ve circled in blue the figures we’re interested in, which is their estimate for global oil demand for the 2nd, 3rd and 4th quarters of 2017… 

OPEC’s estimate for the 2nd quarter of this year is that all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, roughly 1.3% more than they used during the same period of 2016….during April, OPEC produced 31.73 million barrels of oil per day, 33.1% of April’s global oil production of 95.81 million barrels per day… based on their demand projection, that means that even though OPEC’s production for the month was their lowest in a year, there continued to be a surplus of around 480,000 barrels per day in global oil production in April, largely because global oil output was still 0.83 million barrels per day higher than it was in April of 2016…holding these global figures constant, we can figure that a similar surplus of oil will be produced during May and June…

for the third quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.27 million barrels of oil per day, as it will be summer in much of the northern hemisphere, and many oil consuming nations, including members of OPEC burn oil or oil products to produce electricity for air conditioning….so the question for OPEC in the third quarter is will they hold their production steady at or near April’s level and thus forego a sizable percentage of their exports, and hence their revenue, as they consume oil domestically for cooling…for instance, heading into last summer, the Saudis increased their oil production by 400 thousand barrels per day; the year before that, their summertime production increase was even greater…if OPEC members can hold their production near 31.73 million barrels of oil per day, and other non-OPEC producers don’t increase theirs, then it’s possible they can reduce the global oil glut at a rate of nearly 1.46 million barrels per day during the third quarter…but if they step up their production to cover their air conditioning needs, or other non-OPEC countries increase theirs, that reduction will be diminished, and the rebalancing they intend will be defeated…

next, in the 4th quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.47 million barrels of oil per day….that oil demand would rise further in the 4th quarter seemed illogical to me, but looking at the details for 2016 in the oil demand chapter of their report, they show that 4th quarter increases of oil consumption in Africa, India, China and the Pacific more than offset the fall decreases in North American, European and the Middle Eastern oil use…so if that holds in the 4th quarter of 2017, and they maintain their production cuts through then, they can reduce the global glut at a rate of 1.66 million barrels of oil per day…that, of course, assumes the rest of the world’s oil production remains stagnant as well..

OPEC also intends to extend their production cuts through the 1st quarter of next year, which is not shown in the projection above…but note in purple that we’ve circled the global demand growth percentage change in the far right column…if growth continues at that 1.33% pace, then we can expect oil demand for the 1st quarter of 2018 to rise to roughly 96.71 million barrels of oil per day…thus, if OPEC can hold the line until then, and no other producers fill the gap, they can also be reducing global oil supplies by roughly 900 thousand barrels per day during the first three months of 2018…

so, it appears that OPEC and the Russians have thought this through, and although they wont be reducing oil supplies at quite the 2.5 million barrels per day pace that oil supplies were increasing by through much of the two years proceeding their production cut agreement, they can be taking large chunks out of the glut if other parties not part of the agreement don’t increase their oil output at the same time…however, remember that in April, the baseline for our figures above, Libya was producing 550 thousand barrels per day, and that as we noted two weeks ago, by May they had increased their output to 800,000 barrels per day…before the fall of Muammar Gaddafi, Libya had been consistently been producing 1.6 million barrels of oil per day, so if they can get back half of what they’ve since lost, they could easily add as much as 600,000 barrels per day to OPEC’s output, and effectively cut the OPEC production cuts in half…

outside of OPEC, US oil production is seen as the biggest threat to their ability to control oil supplies…according to the unofficial weekly US oil production data, US oil production has increased by 550,000 barrels per day during the first 20 weeks of this year…since additional oil rigs have been added every week but one during that period and since the backlog of unfracked wells has been increasing at a rate equivalent to 20% of new producing wells, it seems clear that US oil production will continue to increase at close to the same pace it has been rising year to date, so the US could probably add another 800,000 barrels of oil per day to their output by the end of the year…in addition, both Canada, the 6th largest oil exporter globally, and Brazil, the 10th largest, are also increasing their output and pose an additional threat to OPEC’s ability to reduce global supplies…furthermore, the U.K. and Norway are also producing more oil this year, and have to be considered when looking at whether OPEC’s cuts will be effective or not…so in addition to the output from OPEC, oil output from these countries will have to be watched over the next 9 months, to see if OPEC’s production cuts can realize the rebalancing of supply and demand they purport to achieve…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending May 19th, indicated that our refining of crude oil rose to near record levels, while our imports and exports of oil both decreased, and that oil needed to be withdrawn from US storage for the 7th week in a row….our imports of crude oil fell by an average of 296,000 barrels per day to an average of 8,294,000 barrels per day during the week, while at the same time our exports of crude oil fell by 461,000 barrels per day to an average of 625,000 barrels per day, which meant that our effective imports netted out to 7,669,000 barrels per day during the week, 165,000 barrels per day more than during the prior week…at the same time, our field production of crude oil rose by 15,000 barrels per day to an average of 9,320,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,989,000 barrels per day during the cited week…

during the same period, refineries reportedly used 17,281,000 barrels of crude per day, 159,000 barrels per day more than they used during the prior week, while 690,000 barrels of oil per day were being pulled out of oil storage facilities in the US….thus, this week’s EIA oil figures seem to indicate that our total supply of oil from net imports, oilfield production, and from storage was 398,000 more barrels per day than what refineries reported they used…to account for that discrepancy, the EIA inserted a (-398,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as “unaccounted for crude oil”

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports fell to an average of 8,192,000 barrels per day, still 8.1% above the imports of the same four-week period last year…the 690,000 barrel per day decrease in our total crude inventories came about on a 633,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago…this week’s 15,000 barrel per day crude oil production increase resulted from a 20,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in oil output from Alaska…the 9,320,000 barrels of crude per day that we produced during the week ending May 19th was up by 6.3% from the 8,770,000 barrels per day we were producing at the end of 2016, and also up by 6.3% from the 8,767,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US oil refineries were operating at 93.5% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 93.4% of capacity the prior week, but down from the year’s high of 94.1% four weeks earlier…the 17,281,000 barrels of crude per day that refineries took in during the week ending May 19th almost a new record, however, just 4,000 barrels a day less than the 17,285,000 barrels of crude per day that US refineries used during the week ending April 21st….oil refined this week was also 6.2% more than the 16,279,000 barrels of crude per day.that were being processed during week ending May 20th, 2016, when refineries were operating at 89.6\7% of capacity, and roughly 14% above the 10 year average of 15.2  million barrels of crude per day for the 3rd week in May ….

with the near record level of refining, gasoline production from our refineries increased by 223,000 barrels per day to 10,243,000 barrels per day during the week ending May 19th, the highest gasoline production ever this early in the year…gasoline production for the week was thus 3.8% higher than the 9,866,000 barrels of gasoline that were being produced daily during the comparable week a year ago….at the same time, refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 155,000 barrels per day to 5,197,000 barrels per day, which was just shy of an all time record and 11.5% more than the 4,661,000 barrels per day of distillates that were being produced during the week ending May 20th last year…..

even with the seasonal record level of gasoline production, our end of the week gasoline inventories decreased by 787,000 barrels to 239,882,000 barrels by May 19th, mostly because our domestic consumption of gasoline rose by 252,000 barrels per day to 9,704,000 barrels per day…in addition, our gasoline exports rose by 81,000 barrels per day to 589,000 barrels per day, while our imports of gasoline rose by 29,000 barrels per day to 725,000 barrels per day at the same time…but even with the seasonal decrease in our gasoline supplies, they are still less than 0.1% lower than the 240,111,000 barrels that we had stored on May 20th a year ago, but 8.7% higher than the 220,627,000 barrels of gasoline we had stored on May 22nd of 2015, and 13.4% more than the 211,575,000 barrels of gasoline we had stored on May 23rd of 2014…

likewise, even with the increase in distillates production, our supplies of distillate fuels fell by 485,000 barrels to 146,339,000 barrels during the week ending May 19th, somewhat less than the 1,944,000 barrel drop the prior week…that was because our exports of distillates fell by 258,000 barrels per day to 1,008,000 barrels per day, while our imports of distillates fell by 60,000 barrels per day to 101,000 barrels per day…at the same time, the amount of distillates supplied to US markets rose by 144,000 barrels per day to 4,359,000 barrels per day…even though our distillate supplies are still 3.0% below the 150,878,000 barrels that we had stored on May 20th, 2016, when a glut of heat oil persisted after last year’s warm El Nino winter, they remain 13.6% higher than the distillate inventories of 128,839,000 barrels that we had stored on May 22nd of 2015, following a more normal winter…

finally, the ongoing record level of oil refining meant that our commercial inventories of crude oil saw a withdrawal for the seventh week in a row, as they decreased by 4,432,000 barrels to 516,340,000 barrels as of May 19th….but even though our crude oil supplies are down by 19.2 million barrels over the past 7 weeks, we still finished the week with 7.8% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.1% more crude oil in storage than the 505,571,000 barrels of oil in storage on May 20th of 2016…compared to equivalent dates in prior years, we ended the week with 15.7% more crude than the 446,412,000 barrels in of oil in storage on May 22nd of 2015, and 42.9% more crude than the 361,382,000 barrels of oil we had in storage on May 23rd of 2014…

This Week’s Rig Counts

US drilling activity increased for the 19th week in a row and for the 29th time in the past 30 weeks during the week ending May 26th, even as oil rigs saw their smallest weekly rise of the year….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 908 rigs in the week ending Friday, which was 504 more rigs than the 404 rigs that were deployed as of the May 27th report in 2016, and the most drilling rigs we’ve had running since April 24th, 2015, while it was 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 increased by just 2 rigs to 722 rigs this week, which was still well more than double the 316 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations also rose by 5 rigs to 185 rigs this week, which was also more than double the 87 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…in addition, a single rig considered unclassified remained active, same as last week and as a year ago…

offshore drilling remained unchanged with 23 rigs still this week, all of those in the Gulf of Mexico, down from a total of 24 offshore rigs a year ago…the number of rigs that were set up to drill horizontally increased by 7 to 766 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 27th of last year, while it was 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 this week, increasing the vertical rig count to 77 rigs, which was up from the 46 vertical rigs that were deployed during the same week a year ago…on the other hand, the directional rig count was down by 1 rig to 65 rigs this week, which was still up from the 44 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 pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US

geological oil and gas basins…in both tables, the first column shows the active rig count as of May 26th, the second column shows the change in the number of working rigs between last week’s count (May 19th) and this week’s (May 26th) count, the third column shows last week’s May 19th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 27th of May, 2016…       

May 26 2017 rig count summary

a few fairly obvious surprises this week…first, that this week’s increase in drilling was led by a 5 rig increase in Colorado, which up until this week had been relatively stable this year – the 29 rigs they had active a week ago was the same number of rigs they had active during the first week of the year, although it had varied a bit in the interim…another surprise is that Texas saw its first pullback in drilling in 19 weeks; over that 19 week period, Texas drilling had increased by 123 rigs, so they’re not exactly missing the one that was shut down this week…lastly, the increase in drilling for natural gas topped new oil rigs for the first time since January 13th, when oil rigs were down by 7 rigs during a week that natural gas rigs increased by one…gas rigs were added in the Arkoma Woodford of Oklahoma, where one oil rig was shut down while a gas directed rig started up, and in the Eagle Ford of south Texas, where oil rigs still outnumber gas rigs 77 to 9…meanwhile, 3 of the 5 gas rigs that we added this week were in other unnamed basins, as we can clearly see there was no change in activity in the Utica or the Marcellus…also note that other than the changes in the major producing states noted above, Alabama saw one rig removed this week and now have 3 rigs still active, still an increase from a year ago, when there were no rigs active in the state…

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1st quarter GDP revision; April durable goods, new home sales, and existing home sales.

the major release of this past week was the second estimate of 1st quarter GDP from the Bureau of Economic Analysis; other widely watched releases included the April advance report on durable goods and the April report on new home sales, both from the Census bureau, and the Existing Home Sales Report for April from the National Association of Realtors….this week also saw the Chicago Fed National Activity Index for March, a weighted composite index of 85 different economic metrics, which rose to +0.49 in April from +0.07 in March,  after the March index was revised from the +0.08 reported last month…as a result, the 3 month average of that index rose to +23 in April, up from a neutral reading in March, which indicates that national economic activity has been above the historical trend over recent months…

two regional Fed manufacturing surveys for May were also released this week: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index plunged to +1, following last month’s reading of +20, indicating virtual stagnation in that region’s manufacturing, while the Kansas City Fed manufacturing survey for April, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to +8 in May, up from + 7 in April but down from readings of +20 in March and +14 in February, thus indicating a more modest pace of growth in that region’s manufacturing…

1st Quarter GDP Revised to Show Growth at a 1.2% Rate

the Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 1.2% rate in the 1st quarter, revised up from the 0.7% growth rate reported in the advance estimate last month, as real personal consumption expenditures and fixed investment were revised higher, and real government outlays were down less than had previously been reported…in current dollars, our first quarter GDP grew at a 3.4% annual rate, increasing from what would work out to be a $18,869.4 billion a year output rate in the 4th quarter of 2016 to a $19,027.6 billion annual rate in the 1st quarter of this year, with the headline 1.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.2%, aka the GDP deflator, was applied to the current dollar change…

remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the second estimate of 1st quarter GDP, which we find linked to on the sidebar of the BEA press release…specifically, we cite the data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2013, from table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts….the full pdf for the 1st quarter advance estimate, which this estimate revises, is here

growth in real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 0.3% growth rate reported last month to indicate growth a a 0.6% rate with this estimate…that growth figure was arrived at by deflating the 3.0% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated  consumer inflation at a 2.4% annual rate in the 1st quarter, which was also unrevised from a month ago…real consumption of durable goods fell at a 1.4% annual rate, which was revised from the 2.5% drop shown in the advance report, and subtracted 0.11 percentage points from GDP, as a drop in consumption of automobiles at a 13.9% rate more than offset increases in real consumption of furniture, appliances and recreational goods and vehicles….real consumption of nondurable goods by individuals rose at a 1.2% annual rate, revised from the 1.5% increase reported in the 1st estimate, and added 0.18 percentage points to 1st quarter economic growth, as higher consumption of food and most other non-durables was partially offset by decreases in consumption of clothing and energy….at the same time, consumption of services rose at a 0.8% annual rate, revised from the 0.4% growth rate reported last month, and added 0.37 percentage points to the final GDP tally, as a 1.5% decrease in the growth rate in real consumption of housing and utilities offset real growth in other services….

in addition, seasonally adjusted real gross private domestic investment grew at a 4.8% annual rate in the 1st quarter, revised from the 4.3% growth estimate reported last month, as real private fixed investment grew at a 11.9% rate, rather than at the 10.4% rate reported in the advance estimate, while the contraction in inventory growth was somewhat larger than previously estimated…real investment in non-residential structures was revised from growth at a 22.1% rate to growth at a 28.4% rate, while real investment in equipment was revised to show growth at a 7.2% rate, down from the 9.1% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 2.0% rate to growing at a 6.7% rate…meanwhile, the growth rate of residential investment was revised slightly higher, from 13.7% to 13.8% annually…after those revisions, the increase in investment in non-residential structures added 0.69 percentage points to the 1st quarter’s growth rate, the increase in investment in equipment added 0.39 percentage points to the quarter’s growth, greater investment in intellectual property added 0.27 percentage points, while growth in residential investment added 0.50 percentage points to the increase in 1st quarter GDP…

meanwhile, the growth in real private inventories was revised from the originally reported $10.3 billion in inflation adjusted dollars to show inventory grew at an inflation adjusted $4.3 billion rate…this came after inventories had grown at an inflation adjusted $49.6 billion rate in the 4th quarter, and hence the $45.3 billion smaller real inventory growth than in the 4th quarter subtracted 1.07 percentage points from the 1st quarter’s growth rate, revised from the 0.93 percentage point subtraction due to slower inventory growth shown in the advance estimate….however, since slower growth in inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf”, that decrease by $45.3 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA finds that real final sales of GDP rose at a 2.2% rate in the 1st quarter, revised from 1.6% rate shown in the advance estimate…

the previously reported increase in real exports was little changed with this estimate, while the previously reported increase in real imports was revised lower, and as a result our net trade was a slightly larger addition to GDP rather than was previously reported…our real exports grew at a 5.8% rate, unrevised from the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their increase added 0.69 percentage points to the 1st quarter’s growth rate….meanwhile, the previously reported 4.1% increase in our real imports was revised to a 3.8% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, that increase subtracted 0.55 percentage points from 1st quarter GDP….thus, our improving trade balance added a net 0.13% (rounded down) percentage points to 1st quarter GDP, rather than the 0.07% percentage point addition resulting from our improving foreign trade balance that was indicated in the advance estimate..

finally, there was also an upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector shrunk at a 1.1% rate, revised from the 1.7% shrinkage of government indicated by the 1st estimate….real federal government consumption and investment was seen to have shrunk at a 2.0% rate from the 4th quarter in this estimate, which was revised from the 1.9% rate shown in the 1st estimate…real federal outlays for defense were revised to show shrinkage at a 3.9% rate, less than the 4.0% rate previously reported, but still subtracting 0.16% percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 0.7% rate, rather than the 0.9% growth rate previously reported, and added 0.02 percentage points to GDP, revised from the 0.03 percentage point addition shown last month…note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services…meanwhile, real state and local consumption and investment contracted at a 0.6% rate in the quarter, which was revised from the 1.6% shrinkage shown in the 1st estimate, and subtracted 0.06 percentage points from 1st quarter GDP, as real growth in state and local consumption expenditures added 0.06 percentage points, while real state and local investment shrunk at a 6.4% rate subtracted 0.12 percentage points from the quarter’s growth…

April Durable Goods: New Orders Down 0.7%, Shipments Down 0.3%, Inventories Up 0.1%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for April (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell by $1.6 billion or 0.7 percent to $231.2 billion in April, the first decrease in five months…durable goods orders for March were revised to show a 2.3% increase to $232.7 billion, revised from the 0.7% increase to $238.7 billion reported a month ago, as there was an intervening benchmark revision on May 18th that revised all previously published factory data back to 2002…as is usually the case, the volatile monthly change in new orders for transportation equipment led the April headline change, as those transportation equipment orders fell $1.0 billion or 1.2 percent to $78.5 billion, on a 9.2% decrease to $11,482 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were still down 0.4% in April, while the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were virtually unchanged at $62,855 million…

the seasonally adjusted value of April’s shipments of durable goods, which will be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, fell by $0.7 billion or 0.3  percent to $232.4 billion, after March shipments were revised from a increase of 0.2% to a decrease of 0.1%…again, shipments of transportation equipment led the change, as they fell $0.6 billion or 0.5 percent to $77.2 billion, as the value of shipments of commercial aircraft fell 3.0% to $11,247 million; excluding that volatile sector, the value of other shipments of durable goods fell 0.2%, but are still 3.4% higher year to date than a year ago….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 9th time in 10 months, increasing by $0.6 billion or 0.1 percent to $394.2 billion, after the value of March inventories was revised from $648.3 billion to $648.5 billion, now a 0.2% increase from February…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the third time in four months, increasing by $2.4 billion or 0.2 percent to $1,122.9 billion, following a March report which was revised from a 0.2% increase to one of 0.3%…a $1.3 billion or 0.2 percent increase to $766.6 billion in unfilled orders for transportation equipment was responsible for more than half of the aggregate increase, even as unfilled orders excluding transportation equipment rose 0.3% to $356,327 million….compared to a year ago, the unfilled order book for durable goods is still 1.2% below the level of last April, with unfilled orders for transportation equipment 3.1% below their year ago level, on a 4.0% decrease in the backlog of orders for commercial aircraft…

New Home Sales Fall in April

the Census report on New Residential Sales for March (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 569,000 homes annually during the month, which was 11.4 percent (±10.5 percent) below the revised March annual rate of 642,000 new home sales, but still 0.5 percent (±11.3 percent)* above the estimated annual rate that new homes were selling at in April of last year….the asterisk indicates that based on their small sampling, Census could not tell whether April new home sales rose or fell from those in April a year ago, 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 of new single family homes in March were revised from the annual rate of 621,000 reported last month to an annual rate of 642,000, while sales in February, initially reported at an annual rate of 592,000 and revised to a 587,000 rate last month, were revised to an annual rate of 602,000, and new home sales in January, initially reported at an annual rate of 555,000 and revised from a 558,000 rate to a 585,000 rate last month, were again revised higher to a 599,000 a year rate with this release…

the annual rates of sales reported here are seasonally adjusted and extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 55,000 new single family homes sold in April, down from the estimated 61,000 new homes that sold in March but up from the 50,000 new homes that sold in February and from the 45,000 that sold in January …..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in April was $309,200, down from the median sale price of $318,700 in March and down from the median sales price of $321,3004 in April a year ago, while the average new home sales price was at $368,300, down from the $385,400 average sales price in March, and down from the average sales price of $380,000 in April a year ago….a seasonally adjusted estimate of 268,000 new single family houses remained for sale at the end of April, which represents a 5.7 month supply at the April sales rate, up from the 4.9 months of new home supply now reported for March…

for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 569,000 Annual Rate in April and A few Comments on April New Home Sales

Existing Home Sales 2.3% Lower in April

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell at a 2.3% rate from March to April, projecting that 5.57 million existing homes would sell over an entire year if the April home sales pace were extrapolated over that year, a pace that was still 1.6% above the annual sales rate projected in April of a year ago….the NAR also reported that the median sales price for all existing-home types was $244,800 in April, 6.0% higher than in April a year earlier, which they report as “the 62nd consecutive month of year-over-year gains”…..the NAR press release, which is titled “Existing-Home Sales Slip 2.3 Percent in April“, 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 usually look at the raw data overview (pdf) to see what actually happened during the month…this unadjusted data indicates that roughly 449,000 homes sold in April, down 1.3% from the downwardly revised 455,000 homes that sold in March, and down by 4.3% from the 470,000 homes that sold in April of last year…that same pdf indicates that the median home selling price for all housing types rose by 3.5%, from a revised $236,600 in March to $244,800 in April, while the average home sales price rose 3.2% to $287,500, from the $278,700 average sales price in March, while it was up 5.1% from the $273,600 average April home sales price of a year ago…for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: “Existing-Home Sales Slip 2.3 Percent in April” and A Few Comments on April 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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May 27th graphs and tables

rig count summary:

May 26 2017 rig count summary

oil prices:

May 27 2017 hourly oil prices

OPEC production:

May 27 2017 OPEC crude production thru April

OPEC compliance:

May 25 2017 OPEC compliance to date

global demand forecasts:

April 2017 global oil demand estimate via OPEC copy

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US oil & gas drilling at a 2 year high, but April saw another big increase in uncompleted wells

oil prices moved up fairly steadily this week, finishing 5.2% higher, propelled mostly by the likelihood that OPEC and Russia will be extending their production cut agreement by up to 9 months…the initial rally began early in overseas markets on Monday, as US crude for June delivery rose $1.01 a barrel to $48.85 a barrel, after the energy ministers of Russia and Saudi Arabia issued a joint statement saying that the oil output cut needed to be extended until the end of March 2018…prices backed off their highs on Tuesday, however, after the American Petroleum Institute unexpectedly reported an increase in both crude oil and distillates supplies, with oil falling to $48.66 a barrel by the close, and then extending the drop to below $48 in after hours trading…the rally resumed on Wednesday after the EIA figures contradicted the API report and showed drawdowns of oil, gasoline and distillates inventories, with June crude adding 41 cents, or 0.8% for the day, to settle at a three week high of $49.07 a barrel …oil prices rose again on Thursday after other key producing countries suggested they would also adhere to the agreed to production cuts, with June oil closing at $49.35 a barrel….even with the OPEC supply cuts priced in, further OPEC comments ahead of their May 25th meeting drove oil past $50 on Friday, and despite the Baker Hughes report that U.S. drillers added oil rigs for an 18th week in a row, US crude oil rose another 98 cents to $50.33 a barrel, for the highest close since April 19th

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending May 12th, indicated that our refining of crude oil returned to near record levels, while our imports of oil increased to the highest rate in three months, but because of an accompanying increase in our oil exports, oil needed to be withdrawn from US storage for the 6th week in a row….our imports of crude oil rose by an average of 970,000 barrels per day to an average of 8,590,000 barrels per day during the week, while at the same time our exports of crude oil rose by 393,000 barrels per day to an average of 1,086,000 barrels per day, which meant that our effective imports netted out to 7,504,000 barrels per day during the week, 577,000 barrels per day more than during the prior week…at the same time, our field production of crude oil fell by 9,000 barrels per day to an average of 9,305,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,809,000 barrels per day during the cited week…

during the same period, refineries reportedly used 17,122,000 barrels of crude per day, 363,000 barrels per day more than they used during the prior week, while 354,000 barrels of oil per day were being pulled out of oil storage facilities in the US….thus, this week’s EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 41,000 more barrels per day than what refineries reported they used…to account for that discrepancy, the EIA inserted a (-41,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as “unaccounted for crude oil”

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,347,000 barrels per day, now 9.3% above the imports of the same four-week period last year…the 354,000 barrel per day decrease in our total crude inventories came about on a 250,000 barrel per day withdrawal from our commercial stocks of crude oil and a 104,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago…this week’s 9,000 barrel per day crude oil production decrease resulted from a 21,000 barrel per day decrease in oil output from Alaska, which was only partially offset by a 12,000 barrels per day increase in oil output from wells in the lower 48 states…the 9,305,000 barrels of crude per day that we produced during the week ending May 12th was still up by 6.1% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,791,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US oil refineries were operating at 93.4% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 91.5% of capacity the prior week, but down from the year’s high of 94.1% three weeks earlier…the 17,122,000 barrels of crude per day that refineries used during the week ending May 12th was the third most in US history, 4.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 90.5% of capacity, and about 13% above the 10 year average for the 2nd week in May of 15.2  million barrels of crude per day….

even with the week’s increased refining, gasoline production from our refineries slipped by 32,000 barrels per day to 10,020,000 barrels per day during the week ending May 12th, still the third highest gasoline production this year…gasoline production for the week was also still fractionally higher than the 9,997,000 barrels of gasoline that were being produced daily during the comparable week a year ago….on the other hand, refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 86,000 barrels per day to 5,042,000 barrels per day, which was 5.7% more than the 4,770,000 barrels per day of distillates that were being produced during the week ending May 13th last year…..

even with the ongoing elevated level of gasoline production, our gasoline inventories decreased by 413,000 barrels to 241,232,000 barrels as of May 13th, even as they are up by more than 4 million barrels from 5 weeks ago….gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 44,000 barrels per day to 9,452,000 barrels per day while our imports of gasoline fell by 257,000 barrels per day to 696,000 barrels per day, even as our gasoline exports fell by 208,000 barrels per day to 508,000 barrels per day….since some market commentary seems to be reading the decrease in gasoline inventories as a bullish signal, we’ll include a graph here to put this week’s decrease in perspective..

May 17 2017 gasoline inventories for May 12

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters…this graph shows US gasoline inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year range of our gasoline supplies on any given day of the year shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year…the graph also shows the number of barrels of gasoline we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date gasoline supplies represented in red…from this we can there is an obvious seasonality to gasoline supplies, as they’re built up during the winter when few are driving, then start to decline when refineries slow down for spring maintenance and blend readjustment…thus early May is at a time of year when gasoline supplies are typically falling, and in fact, typically falling at a greater pace than they are this year…as a result, this week’s gasoline supplies, by virtue of their smaller drop, popped up to a record level for the 132nd day of the year, which we can see by noting that the red graph has risen above last year’s record for the same date…so even with the decrease in our gasoline supplies, they are now 1.1% higher than the record 238,068,000 barrels that we had stored on May 13th a year ago, 7.5% higher than the 223,936,000 barrels of gasoline we had stored on May 15th of 2015, and 12.8% more than the 213,378,000 barrels of gasoline we had stored on May 16th of 2014…

even with the increase in distillates production, our supplies of distillate fuels fell by 1,944,000 barrels to 146,824,000 barrels during the week ending May 12th; contributing to the drop in distillates supplies was a 107,000 barrel per day increase to 1,266,000 barrels per day in our exports of distillates, and a 86,000 barrel per day increase to 4,215,000 barrels per day in the amount of distillates supplied to US markets, while our imports of distillates rose by 46,000 barrels per day to 161,000 barrels per day… even though our distillate supplies are still 3.5% below the 152,162,000 barrels that we had stored on May 13th, 2016, during the glut of heat oil that persisted after last year’s warm El Nino winter, they remain 15.0% higher than the distillate inventories of 127,724,000 barrels that we had stored on May 15th of 2015, following a more normal winter… 

finally, the elevated level of oil refining, even when combined with increases in both oil imports and oil exports, meant that our commercial inventories of crude oil decreased by 1,753,000 barrels to 520,772,000 barrels as of May 12th, the sixth weekly decrease in a row….but even though our crude supplies are down by nearly 15 million barrels over that 6 week span, we still finished the week with 8.7% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.2% more crude oil in storage than the 509,797,000 barrels of oil in storage on May 13th of 2016…compared to equivalent dates in prior years, we ended the week with 15.9% more crude than the 449,214,000 barrels in of oil in storage on May 15th of 2015, and 44.8% more crude than the 359,725,000 barrels of oil we had in storage on May 16th of 2014…

This Week’s Rig Counts

US drilling activity increased for the 28th time in the past 29 weeks during the week ending May 19th, as total active rigs hit a 2 year high….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 16 rigs to 901 rigs in the week ending Friday, which was 497 more rigs than the 404 rigs that were deployed as of the May 20th report in 2016, and the most drilling rigs we’ve had running since May 1st, 2015, while it was 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 increased by 8 rigs to 720 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations also rose by 8 rigs to 180 rigs this week, which was more than double the 85 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…

three more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana were started back up this week, which bought the the Gulf of Mexico active count back up to 23 rigs, the same number that were working in the Gulf of Mexico a year earlier….however, the rig that had been drilling offshore from Alaska was shut down this week, so our total offshore count is also at 23 rigs, down from a total of 24 offshore rigs a year ago…

the number of rigs that were set up to drill horizontally increased by 17 to 759 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 20th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….however, a net of one vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 48 vertical rigs that were deployed during the same week a year ago…meanwhile, the directional rig count was unchanged at 66 rigs this week, which was still up from the 42 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 pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of May 19th, the second column shows the change in the number of working rigs between last week’s count (May 12th) and this week’s (May 19th) count, the third column shows last week’s May 12th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 20th of May, 2016…        

May 19 2017 rig count summary

as you can see, the increases in drilling were fairly widespread, although Texas, where all or part of 5 of the basins listed are located, did see an increase of 8 rigs, half the total for the week…the only basin to see a slowdown was the Denver-Julesberg Niobrara chalk of the Rockies front range, where two rigs were shut down, accounting for the decrease in Colorado by the same number…part of the 8 rig increase in natural gas directed rigs is fairly obvious, with a 2 rig increase in the Marcellus in Pennsylvania, and a rig increase in both the Utica of Ohio and the Haynesville of Louisiana…discerning the disposition of the other gas wells is more difficult, however, because we first find that the Arkoma Woodford, usually seen as a gas basin, actually saw a net decrease of 2 gas wells, as two oil rigs were started in the basin as two gas rigs were shut down…the “other basins” column does show an increase of 5 natural gas rigs, but that still leaves us one gas rig short…turns out that is also in the Haynesville, where one oil rig was shut down as two gas rigs were added…of the states not shown among the largest producers above, Alabama saw one rig added this week; they now have 4 rigs working the state, up from none a year ago…on the other hand, the only rig drilling in Michigan was shut down this week; it had just started work just two weeks ago, in the first drilling in Michigan in nearly 4 years..

DUC well report for April

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for May, which includes the EIA’s April data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins…once again, this report showed a large increase in uncompleted wells nationally, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the two Texas oil basins, the Permian basin of west Texas and the Eagle Ford in the south…. for all 7 basins covered, the total count of DUC wells rose from 5,534 in March to 5,721 wells in April, the sixth consecutive monthly increase in uncompleted wells….what appears to be happening is that as horizontal drilling has rapidly expanded over the past 9 months, more than doubling over that period, a shortage of competent fracking crews has developed, such that in the most active areas, independent U.S. drillers underspent their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work…active crews are even being hired away from jobs they’re already working on to take offers of higher paying frack jobs elsewhere…since the oil field layoffs started in early 2015, most frackers had gone nearly two years with just skeleton fracking crews still working in most basins around of the country, and many of those who had had been working in the oil fields before the bust have since found work elsewhere…fracking has also gotten much more complex over that period, with 50 stage fracks explosively driving several hundred pounds of proppant per foot of lateral not uncommon, so putting together a fracking crew even vaguely familiar with the latest techniques has become that much harder…

a total of 941 wells were drilled in the 7 basins covered by this report in April, but only 754 wells were completed, thus accounting for the 187 DUC well increase for the month….like in most recent months, most of the April DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in that broad basin, saw its total count of uncompleted wells rise by 126, from 1,869 in March to 1995 in April, as 446 new Permian wells were drilled but only 320 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas rose by 32, from 1283 in March to 1,315 in April, as 167 wells were drilled in the Eagle Ford in April but only 136 were completed….in addition, DUC wells in the Haynesville of Louisiana increased by 17 wells to 191, as 46 wells were drilled but just 29 were fracked, and DUCs in the Bakken of North Dakota increased by 12 to 821, as 84 wells were drilled but just 72 wells were fracked….in addition, the Niobrara chalk of the Rockies front range saw a 4 DUC well increase to 644, and the Marcellus DUC count rose by 2 to 664 uncompleted wells…on the other hand, Ohio’s Utica shale showed a decrease of 6 uncompleted wells and thus had only 87 DUCs remaining at the end of April, as 18 wells were drilled in the Utica during the month while 24 were completed…for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 174 to 4,792 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 13 to 929 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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US oil & gas drilling at a 2 year high, but April saw another big increase in uncompleted wells

oil prices moved up fairly steadily this week, finishing 5.2% higher, propelled mostly by the likelihood that OPEC and Russia will be extending their production cut agreement by up to 9 months…the initial rally began early in overseas markets on Monday, as US crude for June delivery rose $1.01 a barrel to $48.85 a barrel, after the energy ministers of Russia and Saudi Arabia issued a joint statement saying that the oil output cut needed to be extended until the end of March 2018…prices backed off their highs on Tuesday, however, after the American Petroleum Institute unexpectedly reported an increase in both crude oil and distillates supplies, with oil falling to $48.66 a barrel by the close, and then extending the drop to below $48 in after hours trading…the rally resumed on Wednesday after the EIA figures contradicted the API report and showed drawdowns of oil, gasoline and distillates inventories, with June crude adding 41 cents, or 0.8% for the day, to settle at a three week high of $49.07 a barrel …oil prices rose again on Thursday after other key producing countries suggested they would also adhere to the agreed to production cuts, with June oil closing at $49.35 a barrel….even with the OPEC supply cuts priced in, further OPEC comments ahead of their May 25th meeting drove oil past $50 on Friday, and despite the Baker Hughes report that U.S. drillers added oil rigs for an 18th week in a row, US crude oil rose another 98 cents to $50.33 a barrel, for the highest close since April 19th

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending May 12th, indicated that our refining of crude oil returned to near record levels, while our imports of oil increased to the highest rate in three months, but because of an accompanying increase in our oil exports, oil needed to be withdrawn from US storage for the 6th week in a row….our imports of crude oil rose by an average of 970,000 barrels per day to an average of 8,590,000 barrels per day during the week, while at the same time our exports of crude oil rose by 393,000 barrels per day to an average of 1,086,000 barrels per day, which meant that our effective imports netted out to 7,504,000 barrels per day during the week, 577,000 barrels per day more than during the prior week…at the same time, our field production of crude oil fell by 9,000 barrels per day to an average of 9,305,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,809,000 barrels per day during the cited week…

during the same period, refineries reportedly used 17,122,000 barrels of crude per day, 363,000 barrels per day more than they used during the prior week, while 354,000 barrels of oil per day were being pulled out of oil storage facilities in the US….thus, this week’s EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 41,000 more barrels per day than what refineries reported they used…to account for that discrepancy, the EIA inserted a (-41,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as “unaccounted for crude oil”

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,347,000 barrels per day, now 9.3% above the imports of the same four-week period last year…the 354,000 barrel per day decrease in our total crude inventories came about on a 250,000 barrel per day withdrawal from our commercial stocks of crude oil and a 104,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago…this week’s 9,000 barrel per day crude oil production decrease resulted from a 21,000 barrel per day decrease in oil output from Alaska, which was only partially offset by a 12,000 barrels per day increase in oil output from wells in the lower 48 states…the 9,305,000 barrels of crude per day that we produced during the week ending May 12th was still up by 6.1% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,791,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US oil refineries were operating at 93.4% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 91.5% of capacity the prior week, but down from the year’s high of 94.1% three weeks earlier…the 17,122,000 barrels of crude per day that refineries used during the week ending May 12th was the third most in US history, 4.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 90.5% of capacity, and about 13% above the 10 year average for the 2nd week in May of 15.2  million barrels of crude per day….

even with the week’s increased refining, gasoline production from our refineries slipped by 32,000 barrels per day to 10,020,000 barrels per day during the week ending May 12th, still the third highest gasoline production this year…gasoline production for the week was also still fractionally higher than the 9,997,000 barrels of gasoline that were being produced daily during the comparable week a year ago….on the other hand, refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 86,000 barrels per day to 5,042,000 barrels per day, which was 5.7% more than the 4,770,000 barrels per day of distillates that were being produced during the week ending May 13th last year…..

even with the ongoing elevated level of gasoline production, our gasoline inventories decreased by 413,000 barrels to 241,232,000 barrels as of May 13th, even as they are up by more than 4 million barrels from 5 weeks ago….gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 44,000 barrels per day to 9,452,000 barrels per day while our imports of gasoline fell by 257,000 barrels per day to 696,000 barrels per day, even as our gasoline exports fell by 208,000 barrels per day to 508,000 barrels per day….since some market commentary seems to be reading the decrease in gasoline inventories as a bullish signal, we’ll include a graph here to put this week’s decrease in perspective..

May 17 2017 gasoline inventories for May 12

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters…this graph shows US gasoline inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year range of our gasoline supplies on any given day of the year shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year…the graph also shows the number of barrels of gasoline we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date gasoline supplies represented in red…from this we can there is an obvious seasonality to gasoline supplies, as they’re built up during the winter when few are driving, then start to decline when refineries slow down for spring maintenance and blend readjustment…thus early May is at a time of year when gasoline supplies are typically falling, and in fact, typically falling at a greater pace than they are this year…as a result, this week’s gasoline supplies, by virtue of their smaller drop, popped up to a record level for the 132nd day of the year, which we can see by noting that the red graph has risen above last year’s record for the same date…so even with the decrease in our gasoline supplies, they are now 1.1% higher than the record 238,068,000 barrels that we had stored on May 13th a year ago, 7.5% higher than the 223,936,000 barrels of gasoline we had stored on May 15th of 2015, and 12.8% more than the 213,378,000 barrels of gasoline we had stored on May 16th of 2014…

even with the increase in distillates production, our supplies of distillate fuels fell by 1,944,000 barrels to 146,824,000 barrels during the week ending May 12th; contributing to the drop in distillates supplies was a 107,000 barrel per day increase to 1,266,000 barrels per day in our exports of distillates, and a 86,000 barrel per day increase to 4,215,000 barrels per day in the amount of distillates supplied to US markets, while our imports of distillates rose by 46,000 barrels per day to 161,000 barrels per day… even though our distillate supplies are still 3.5% below the 152,162,000 barrels that we had stored on May 13th, 2016, during the glut of heat oil that persisted after last year’s warm El Nino winter, they remain 15.0% higher than the distillate inventories of 127,724,000 barrels that we had stored on May 15th of 2015, following a more normal winter… 

finally, the elevated level of oil refining, even when combined with increases in both oil imports and oil exports, meant that our commercial inventories of crude oil decreased by 1,753,000 barrels to 520,772,000 barrels as of May 12th, the sixth weekly decrease in a row….but even though our crude supplies are down by nearly 15 million barrels over that 6 week span, we still finished the week with 8.7% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.2% more crude oil in storage than the 509,797,000 barrels of oil in storage on May 13th of 2016…compared to equivalent dates in prior years, we ended the week with 15.9% more crude than the 449,214,000 barrels in of oil in storage on May 15th of 2015, and 44.8% more crude than the 359,725,000 barrels of oil we had in storage on May 16th of 2014…

This Week’s Rig Counts

US drilling activity increased for the 28th time in the past 29 weeks during the week ending May 19th, as total active rigs hit a 2 year high….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 16 rigs to 901 rigs in the week ending Friday, which was 497 more rigs than the 404 rigs that were deployed as of the May 20th report in 2016, and the most drilling rigs we’ve had running since May 1st, 2015, while it was 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 increased by 8 rigs to 720 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations also rose by 8 rigs to 180 rigs this week, which was more than double the 85 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…

three more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana were started back up this week, which bought the the Gulf of Mexico active count back up to 23 rigs, the same number that were working in the Gulf of Mexico a year earlier….however, the rig that had been drilling offshore from Alaska was shut down this week, so our total offshore count is also at 23 rigs, down from a total of 24 offshore rigs a year ago…

the number of rigs that were set up to drill horizontally increased by 17 to 759 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 20th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….however, a net of one vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 48 vertical rigs that were deployed during the same week a year ago…meanwhile, the directional rig count was unchanged at 66 rigs this week, which was still up from the 42 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 pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of May 19th, the second column shows the change in the number of working rigs between last week’s count (May 12th) and this week’s (May 19th) count, the third column shows last week’s May 12th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 20th of May, 2016…        

May 19 2017 rig count summary

as you can see, the increases in drilling were fairly widespread, although Texas, where all or part of 5 of the basins listed are located, did see an increase of 8 rigs, half the total for the week…the only basin to see a slowdown was the Denver-Julesberg Niobrara chalk of the Rockies front range, where two rigs were shut down, accounting for the decrease in Colorado by the same number…part of the 8 rig increase in natural gas directed rigs is fairly obvious, with a 2 rig increase in the Marcellus in Pennsylvania, and a rig increase in both the Utica of Ohio and the Haynesville of Louisiana…discerning the disposition of the other gas wells is more difficult, however, because we first find that the Arkoma Woodford, usually seen as a gas basin, actually saw a net decrease of 2 gas wells, as two oil rigs were started in the basin as two gas rigs were shut down…the “other basins” column does show an increase of 5 natural gas rigs, but that still leaves us one gas rig short…turns out that is also in the Haynesville, where one oil rig was shut down as two gas rigs were added…of the states not shown among the largest producers above, Alabama saw one rig added this week; they now have 4 rigs working the state, up from none a year ago…on the other hand, the only rig drilling in Michigan was shut down this week; it had just started work just two weeks ago, in the first drilling in Michigan in nearly 4 years..

DUC well report for April

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for May, which includes the EIA’s April data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins…once again, this report showed a large increase in uncompleted wells nationally, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the two Texas oil basins, the Permian basin of west Texas and the Eagle Ford in the south…. for all 7 basins covered, the total count of DUC wells rose from 5,534 in March to 5,721 wells in April, the sixth consecutive monthly increase in uncompleted wells….what appears to be happening is that as horizontal drilling has rapidly expanded over the past 9 months, more than doubling over that period, a shortage of competent fracking crews has developed, such that in the most active areas, independent U.S. drillers underspent their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work…active crews are even being hired away from jobs they’re already working on to take offers of higher paying frack jobs elsewhere…since the oil field layoffs started in early 2015, most frackers had gone nearly two years with just skeleton fracking crews still working in most basins around of the country, and many of those who had had been working in the oil fields before the bust have since found work elsewhere…fracking has also gotten much more complex over that period, with 50 stage fracks explosively driving several hundred pounds of proppant per foot of lateral not uncommon, so putting together a fracking crew even vaguely familiar with the latest techniques has become that much harder…

a total of 941 wells were drilled in the 7 basins covered by this report in April, but only 754 wells were completed, thus accounting for the 187 DUC well increase for the month….like in most recent months, most of the April DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in that broad basin, saw its total count of uncompleted wells rise by 126, from 1,869 in March to 1995 in April, as 446 new Permian wells were drilled but only 320 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas rose by 32, from 1283 in March to 1,315 in April, as 167 wells were drilled in the Eagle Ford in April but only 136 were completed….in addition, DUC wells in the Haynesville of Louisiana increased by 17 wells to 191, as 46 wells were drilled but just 29 were fracked, and DUCs in the Bakken of North Dakota increased by 12 to 821, as 84 wells were drilled but just 72 wells were fracked….in addition, the Niobrara chalk of the Rockies front range saw a 4 DUC well increase to 644, and the Marcellus DUC count rose by 2 to 664 uncompleted wells…on the other hand, Ohio’s Utica shale showed a decrease of 6 uncompleted wells and thus had only 87 DUCs remaining at the end of April, as 18 wells were drilled in the Utica during the month while 24 were completed…for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 174 to 4,792 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 13 to 929 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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April industrial production and new housing starts

regular monthly reports that were released this week included the April report on Industrial Production and Capacity Utilization from the Fed, the April report on New Residential Construction from the Census Bureau, and the Regional and State Employment and Unemployment Summary for April from the Bureau of Labor Statistics…the week also saw the release of the first two regional Fed manufacturing surveys for May: 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 fell to -1.0, down from +5.2 in April, suggesting an end to growth of First District manufacturing… meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose to +38.8 in May from +22.0 in April, indicating a significant plurality of the region’s manufacturing firms reported increases in their activity this month…

Industrial Production Up 1.0% in April

industrial production increased in April by the most since February 2014 on widespread increases among all its components, led by a 6.5% jump in motor vehicle assemblies…the Fed’s G17 release on Industrial production and Capacity Utilization for April reported that industrial production rose 1.0% in April after rising by a revised 0.4% in March, which left total output 2.2% higher than a year ago…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, was at 105.1 in April, after the February index was revised up from 103.5 to 103.7, which reduced the March gain to 0.4% from the previously reported 0.5%…

the manufacturing index, which accounts for more than 77% of the total IP index, rose 1.0% to 103.9 in April, after the March index was revised from 102.9 to 102.8, and the February index was revised from 103,3 to 103.2…as a result, the manufacturing index now stands 1.7% above its year ago level….meanwhile, the mining index, which includes oil and gas well drilling, rose 1.2%, from 106.9 in March to 108.2 in April, after the March index was revised up from from the originally reported 106.1, which left the mining index 7.3% higher than it was a year earlier…finally, the utility index, which typically fluctuates due to deviations from normal temperatures, rose by 0.7% in April, from 101.5 to 102.2, after the March utility index was revised from 101.3 to 101.5, up 8.2% from February…

this report also includes capacity utilization data, which is expressed as a percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 76.7% in April from 76.1% in March, after capacity utilization for both January and February were identically revised from 75.7% to 75.8%…capacity utilization of NAICS durable goods production facilities rose from a revised 74.6% in March to 75.3% in April, while capacity utilization for non-durables producers rose from a revised 76.8% to 77.5%…capacity utilization for the mining sector rose to 83.3% in April from 82.5% in March, which was previously reported as 81.9%, while utilities were operating at 76.3% of capacity during April, up from their 75.8% of capacity during March, which was previously reported at 75.7%…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.. 

April Housing Starts and Building Permits Reported Lower

the March report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were started at a seasonally adjusted annual rate of 1,172,000 in April, which was 2.6 percent (±8.8 percent)* below the revised March estimate of 1,203,000 annually, but was still 0.7 percent (±7.0 percent)* above last April’s rate of 1,164,000 housing starts a year…the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell during April, or even from a year ago, with the figures in parenthesis the most likely range of the change indicated; in other words, April housing starts could have been up by 6.6% or down by as much as 11.4% from those of March, with revisions of a greater magnitude in either direction possible…in this report, the annual rate for March housing starts was revised from the 1,215,000 reported last month to 1,203,000, while February starts, which were first reported at a 1,288,000 annual rate, were revised from last month’s initial revised figure of 1,303,000 annually back to a 1,288,000 annual rate with this report….these annual rates of housing 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 106,600 housing units were started in April, up from the 97,600 housing units that were started in March and the 87,800 housing units that were started in February..

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 April, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,229,000, which was 2.5 percent (±1.1 percent) below the revised March rate of 1,260,000 permits, but was still 5.7 percent (±1.4 percent) above the rate of building permit issuance in April a year earlier…the annual rate for housing permits issued in March was unrevised….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 roughly 102,900 housing units were issued in April, down from the revised estimate of 112,500 new permits issued in March…. for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk:Housing Starts decreased to 1.172 Million Annual Rate in April and Comments on April Housing Starts… 

 

(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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May 20th graphics

gasoline supplies:

May 17 2017 gasoline inventories for May 12

rig count summary:

May 19 2017 rig count summary

drilling productivity report map:

drilling productivity report coverage

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