US crude supplies at a 43 month low; August global oil output at a record high, but still a half million bpd short of demand

oil prices ended modestly higher in a week that saw several sharp price moves, both to the upside and to the downside…after falling nearly 3% to $67.75 a barrel in their first drop in three weeks last week, contract prices for US crude for October delivery pulled back from an early rally to end 21 cents lower at $67.54 a barrel on Monday, after weekly data from Bloomberg suggested U.S. oil inventories were rising, contradicting an earlier report from Genscape forecasting declining inventories…however, with Hurricane Florence threatening East Coast supplies and ongoing turmoil in Libyan and Iraqi oil fields, traders betting that Iran sanctions would leave the market short of crude pushed oil prices 3% higher to over $70 a barrel on Tuesday on reports that South Korea, Japan and India had already reduced their Iranian crude imports, before prices settled back to close at $69.25 a barrel, an increase of $1.71, or 2.5%, on the day…oil prices then rose past $71 a barrel in a rally on Wednesday after the EIA reported a larger-than-expected drop in U.S. crude inventories before again settling back to close $1.12 higher at $70.37 a barrel…however, oil prices saw their steepest drop in over a month on Thursday in falling $1.78 to $68.59 a barrel, after OPEC reported rising crude production and the IEA (International Energy Agency) pegged global oil supplies at a record high….however, the price rally commenced again on Friday with oil up as much as 2% after it was reported that Secretary of State Pompeo was going to announce new sanctions on Iran, but then faded into a retreat after Trump instructed aides to proceed with tariffs on about $200 billion more of Chinese products, with oil prices closing just 40 cents higher at $68.99 a barrel, an increase of 1.6% for the week…

natural gas prices, meanwhile, were up 5.3 cents over the first three days of last week before a less bullish than expected storage report knocked prices back 6.2 cents over Thursday into Friday to end the week at $2.767 per mmBTU, down less than a penny for the week overall…this week’s EIA natural gas storage report for week ending September 7th indicated that natural gas in storage in the US rose by 69 billion cubic feet to 2,636 billion cubic feet during that cited week, which left our gas supplies 662 billion cubic feet, or 20.1% below the 3,298 billion cubic feet that were in storage on September 8th of last year, and 596 billion cubic feet, or 18.4% below the five-year average of 3,232 billion cubic feet of natural gas that are typically in storage after the first week of September….this week’s 69 billion cubic feet increase in natural gas supplies was more than analyst’s expectations for a 65 billion cubic feet increase, but it was below the 74 billion cubic foot average of natural gas that have typically been added to storage during the first week of September in recent years, the ninth such below average inventory increase in the past ten weeks…natural gas storage facilities in the Midwest saw another 32 billion cubic feet increase this week, while supplies in the East increased by 20 billion cubic feet and are now just 12.9% below normal for this time of year…on the other hand, just 4 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where  natural gas supplies are 23.3% below normal for this time of year, while the South Central region saw a 7 billion cubic foot injection as their natural gas storage deficit increased to 23.4% below their five-year average..

The Latest US Oil Data from the EIA 

this week’s US oil data from the US Energy Information Administration, covering the week ending September 7th, showed that due to lower oil imports, higher oil exports, and an increase in refining, we had to withdraw more oil from our commercial crude supplies for the eighteenth time in the past thirty-three weeks… our imports of crude oil fell by an average of 123,000 barrels per day to an average of 7,591,000 barrels per day, after rising by an average of 229,000 barrels per day the prior week, while our exports of crude oil rose by an average of 320,000 barrels per day to an average of 1,828,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,763,000 barrels of per day during the week ending August 31st, 443,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, field production of crude oil from US wells was reportedly down by 100,000 barrels per day to 10,900,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,663,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using a near record high 17,857,000 barrels of crude per day during the week ending September 7th, 210,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 757,000 barrels of oil per day were reportedly being pulled out of the oil that’s in storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 437,000 fewer barrels per day than what refineries reported they used during the week….to account for that disparity between the supply of oil and the consumption of it, the EIA needed to insert a +437,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”…since that “unaccounted for crude” figure was at -179,000 barrels per day during the prior week, the 611,000 barrel per day swing in that metric from last week means that the week over week changes for one or more of this week’s EIA oil metrics must be in error by a statistically significant amount..(for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…. 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,577,000 barrels per day, still fractionally more than the 7,565,000 barrel per day average that we were importing over the same four-week period last year….the 757,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed at the end of last week….this week’s crude oil production was reported as being down by 100,000 barrels per day to 10,900,000 barrels per day because a rounded 200,000 barrels per day decrease to 10,400,000 barrels per day in the output from wells in the lower 48 states combined with a 6,000 barrels per day increase in oil output from Alaska was only enough to lower the national total, which is now being rounded to the nearest 100,000 barrels per day, by 100,000 barrels per day to 10,900,000 barrels….US crude oil production for the week ending September 8th 2017 had been reduced to 9,353,000 barrels per day in the aftermath of Hurricane Harvey, so this week’s rounded oil production figure was roughly 16.5% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

meanwhile, US oil refineries were operating at 97.6% of their capacity in using 17,857,000 barrels of crude per day during the week ending September 7th, up from 96.6% the prior week and the highest September refinery utilization rate in 20 years….the 17,857,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 14th out of the past 15 weeks, and far more than have ever been refined in a week in September, but not directly comparable to the 14,078,000 barrels of crude per day that were processed during the week ending September 8th 2017, when US refineries were operating at just 77.7% of capacity, because Gulf Coast refineries had been shut down in the aftermath of Hurricane Harvey at that time..

with the increase in the amount of oil being refined this week, gasoline output from our refineries was likewise higher, increasing by 169,000 barrels per day to 10,384,000 barrels per day during the week ending September 7th, after our refineries’ gasoline output had decreased by 22,000 barrels per day during the week ending August 31st…again, due to Hurricane Harvey, our gasoline production during the week is not comparable to that of a year ago, but it was still 2.1% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the week ending August 25th of last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 97,000 barrels per day to a near record high of 5,536,000 barrels per day, after they had risen by 260,000 barrels per day over the prior week…for a rough year over year comparison absent hurricane impacts, we’d note this week’s distillates production was 9.5% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017…. 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,250,000 barrels to 235,869,000 barrels by September 7th, the 13th increase in 29 weeks, and the 27th increase in 44 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline rose this week as the amount of gasoline supplied to US markets fell by 85,000 barrels per day to 9,649,000 barrels per day, after falling by 165,000 barrels per day the prior week, and as our imports of gasoline rose by 65,000 barrels per day to 1,053,000 barrels per day, while our exports of gasoline rose by 203,000 barrels per day to 680,000 barrels per day…after this week’s increase, our gasoline inventories were at another seasonal high, 8.0% higher than last September 8th’s level of 218,310,000 barrels, and roughly 10.3% above the 10 year average of our gasoline supplies for this time of the year

meanwhile, with big increase in our distillates production, our supplies of distillate fuels were likewise much higher, increasing by 6,163,000 barrels to 139,283,000 barrels during the week ending September 7th, the 12th increase in 16 weeks and the largest increase this year…the major reason our distillates supplies increased was because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 1,002,000 barrels per day to 3,288,000 barrels per day, as domestic distributors apparently cut their purchases after having stocked up before the holiday….partially offsetting that, our exports of distillates rose by 429,000 barrels per day to 1,418,000 barrels per day, while our imports of distillates fell by 236,000 barrels per day to 50,000 barrels per day….however, with our distillate supplies still recovering from the 14 year seasonal low that they hit 6 weeks ago, this week’s big inventory increase still leaves our distillates supplies 3.6% below the 144,552,000 barrels that we had stored on September 8th, 2017, and roughly 6.9% lower than the 10 year average of distillates stocks for this time of the year…     

finally, with rising oil exports and near record refining of crude, our commercial supplies of crude oil decreased for the 20th time in 2018 and for the 31st time over the past year, falling by 4,302,000 barrels during the week, from 401,490,000 barrels on August 31st to 396,194,000 barrels on September 7th, which marks the first time our crude supplies were below 400,000 barrels since February 2015…however, even though our crude oil inventories are now about 3 percent below the five-year average of crude oil supplies for this time of year, they are still roughly 18.6% above the 10 year average of crude oil stocks for the first week of September, because it wasn’t early 2015 that our oil inventories first rose above 400 million barrels…but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of September 7th were 15.4% below the 468,241,000 barrels of oil we had stored on September 8th of 2017, 17.5% below the 480,166,000 barrels of oil that we had in storage on September 9th of 2016, and 6.5% below the 423,958,000 barrels of oil we had in storage on September 11th of 2015…  

OPEC’s Monthly Oil Market Report

next we’re going to review OPEC’s September Oil Market Report (covering August OPEC & global oil data), which was released on Wednesday and is available as a free download, and hence it’s the report we check for monthly global oil supply and demand data…the first table from this monthly report that we’ll look at is from the page numbered 58 of that report (pdf page 68), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate…for all their official production measurements, OPEC uses an average of estimates from six “secondary sources”, namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures…

August 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output increased by 278,000 barrels per day to 32,565,000 barrels per day in August, from their July production total of 32,287,000 barrels per day….however, that July figure was originally reported as 32,323,000 barrels per day, so OPEC’s July output was therefore revised 36,000 barrels per day lower with this report (for your reference, here is the table of the official July OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column above, an increase of 256,000 barrels per day in the oil output from Libya was the major reason for this month’s increase, with increases of 90,000 barrels per day in oil output from Iraq and 74,000 barrels per day in output from Nigeria more than offsetting the decrease of 150,000 barrels per day in Iranian output…however, excluding new member Congo, OPEC’s August output of 32,245,000 barrels per day was still 485,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, mostly due to the big drop in Venezuelan output, which has also been impacted by US sanctions… 

the next graphic we’ll look at shows us both OPEC and global monthly oil production on the same graph, over the period from September 2016 to August 2018, and it’s taken from the page numbered 59 (pdf page 69) of the September OPEC Monthly Oil Market Report…on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the millions of barrels per day of global output shown on the right scale…      

August 2018 OPEC report global oil supply

OPEC’s preliminary estimate indicates that total global oil production rose by a rounded 490,000 barrels per day to a record high 98.88 million barrels per day in August, after July’s global output total was revised down by 140,000 barrels per day from the 98.53 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 210,000 barrels per day in August after that revision….global oil output for August was also 2.13 million barrels per day, or 2.2% higher than the 96.75 million barrels of oil per day that were reported as being produced globally in August a year ago (see the September 2017 OPEC report online (pdf) for the year ago details)…with the increase OPEC’s output, their August oil production of 32,565,000 barrels per day represented 32.9% of what was produced globally during the month, up from their 32.8% of global share reported for July…OPEC’s August 2017 production was at 32,755,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding new members Congo and Equatorial Guinea, are still producing 637,000 fewer barrels per day of oil than they were producing a year ago, during the eighth month that their production quotas were in effect, with the 638,000 barrel per day decrease in output from Venezuela from that time responsible for the cartel’s output drop… 

despite the 490,000 barrel per day increase in global oil output in August, elevated summertime demand meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us… 

August 2018 OPEC report global oil demand

the table above comes from page 32 of the September OPEC Monthly Oil Market Report (pdf page 42), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2018 over the rest of the table…on the “Total world” line of the fourth column, we’ve circled in blue the figure that’s relevant for August, which is their revised estimate of global oil demand during the third quarter of 2018…     

OPEC’s estimate is that during the 3rd quarter of this year, all oil consuming regions of the globe have been using 99.38 million barrels of oil per day, which was a downward revision of 0.06 million barrels of oil per day from their prior consumption estimate for the quarter….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, the world’s oil producers were producing 98.88 million barrels per day during August, which means that there was a still a shortfall of around 500,000 barrels per day in global oil production vis-a vis the demand estimated for the month…  

while global demand for the 3rd quarter was revised 0.06 million barrels per day lower, total global oil output for July was revised down by 140,000 barrels per day at the same time, which means the global shortfall of 910,000 barrels per day that we had figured for July last month would now be revised to 990,000 barrels per day…also notice that this report revised oil demand figures for the 1st and second quarters, which we’ve circled in green; that means our previous estimates of surplus or shortfall for those months will have to be revised as well…a month ago, we estimated there was a shortfall of around 70,000 barrels per day in global oil production vis-a vis the demand in June, a shortfall for May of 510,000 barrels per day, and a shortfall in April of 320,000 barrels per day… but as we see in the green ellipse above, oil demand for the 2nd quarter was revised 10,000 barrels per day lower, so our revised global oil shortfalls for the 2nd quarter months will thus be 60,000 barrels per day for June, 500,000 barrels per day for May, and 310,000 barrels per day for April…

while global oil demand figures for the second quarter were revised lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously recomputed oil surplus for the first quarter of 2018 will also have to be recomputed again….since we had last figured a global oil output surplus of 120,000 barrels per day for March, a surplus of 300,000 barrels per day for February, and a surplus of 140,000 barrels per day for January, that revision means that our new figures will show a surplus of 60,000 barrels per day for March, a surplus of 240,000 barrels per day for February, and a surplus of 80,000 barrels per day for January….totaling up all these 8 monthly estimates of surplus or shortfall, we find that for the first eight months of 2018, global oil demand exceeded production by roughly 61,370,000 barrels, actually a comparatively small net oil shortfall that is the equivalent of roughly 15 hours of global oil production at the August production rate…   

This Week’s Rig Count

US drilling activity increased for the seventeenth time in twenty-five weeks during the week ending September 14th, even as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled since May, with oil futures’ prices remaining in backwardation, albeit now less so than in recent weeks….Baker Hughes reported that the total count of rotary rigs running in the US increased by 7 rigs to 1055 rigs over the week ending on Friday, which was 119 more rigs than the 936 rigs that were in use as of the September 15th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market…  

the count of rigs drilling for oil was up by 7 rigs to 867 rigs this week, which was also 118 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations was unchanged at 186 rigs this week, which was also unchanged from the 186 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…meanwhile, two rigs drilling exploratory wells in central Ohio considered to be “miscellaneous” continued to operate this week, an increase from just one such “miscellaneous” rig a year ago…

offshore drilling in the Gulf of Mexico saw a net increase of 1 rig to 18 rigs, up from 17 Gulf of Mexico rigs a year ago…in addition, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is now at 20 rigs, which is thus up by 3 rigs from last year’s total of 17 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf…in addition, two more rigs began drilling through inland bodies of water in southern Louisiana this week, where there are now five such rigs operating, up from the 4 rigs that were drilling through inland waters there a year ago…

the count of active horizontal drilling rigs was up by 3 rigs to 921 horizontal rigs this week, which was also 126 more horizontal rigs than the 795 horizontal rigs that were in use in the US on September 15th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count increased by 6 rigs to 71 directional rigs this week, which was still down from the 74 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was down by 2 rigs to 63 vertical rigs this week, which was also down from the 67 vertical  rigs that were operating on September 15th of 2017… 

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of September 14th, the second column shows the change in the number of working rigs between last week’s count (September 7th) and this week’s (September 14th) count, the third column shows last week’s September 7th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Friday the 15th of September, 2017…    

September 14 2018 rig count summary

Louisiana saw a three rig increase despite having a land based rig shut down in the southern part of the state because of a two rig increase on inland waters and because two additional Gulf of Mexico rigs were in state waters, while one rig offshore from Texas was idled…meanwhile, the three rig increase in Pennsylvania includes two rigs targeting the Marcellus and one rig targeting the Utica….the Utica shale count remained unchanged, however, because a Utica shale rig in Ohio was shut down at the same time…meanwhile, the natural gas rig count remained unchanged because 2 rigs targeting natural gas basins not tracked separately by Baker Hughes were shut down at the same time…all other activity shown above is oil directed, again with basins not tracked by Baker Hughes not shown…

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August’s consumer and producer prices, retail sales, and industrial production; July’s business inventories and JOLTS

Major reports released this past week included the August Consumer Price Index, the August Producer Price Index, the August Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) report for July, all from the Bureau of Labor Statistics; the Retail Sales Report for August, Wholesale Trade, Sales and Inventories for July and Business Sales and Inventories for July, all from the Census Bureau; and August’s Industrial Production and Capacity Utilization from the Fed…this week also saw the Fed’s release of the Consumer Credit Report for July, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $16.6 billion, or at a 5.1% annual rate, as non-revolving credit expanded at a 6.4% rate to $2,881.4 billion and revolving credit outstanding expanded at a 1.5% rate to $1,036.6 billion….

Consumer Prices Rose 0.2% in August on Higher Gasoline and Rent

The consumer price index was 0.2% higher in August, as higher prices for shelter, energy, and most services were only partially offset by lower prices for medical care and apparel…the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.2% in August after rising 0.2% in July, 0.1% in June, 0.2% in May, 0.2% in April but after falling 0.1% in March after it had risen by 0.2% in February, 0.5% in January, 0.1% in December, 0.4% in November, 0.1% in October, 0.5% in September, and by 0.4% last August….the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 252.006 in July to 252.146 in August, which left it statistically 2.699% higher than the 245.519 index reading in August of last year, which is reported as a 2.7% increase….with higher prices for energy partially responsible for the August index increase, seasonally adjusted core prices, which exclude food and energy, rose by 0.1% for the month, with the unadjusted core price index rising from 257.867 to 258.012, which left the core index 2.199% ahead of its year ago reading of 252.460, which is reported as a 2.2% annual increase, down from last month’s 2.4%..

The volatile seasonally adjusted energy price index rose by 1.9% in August, after it had decreased by 0.3% in July and by 0.3% in June, increased by 0.9% in May and by 1.4% in April, decreased by 2.8% in March, increased by 0.1% in February and by 3.0% in January, and is now 10.2% higher than in August a year ago…prices for energy commodities were 3.0% higher in August, while the index for energy services rose by 0.4%, after falling by 0.4% in July…the energy commodity index was higher on a 3.0% increase in price of gasoline, the largest component, and a 2.2% increase in the index for fuel oils, while prices for other energy commodities, such as propane, kerosene, and firewood, averaged 0.7% higher…within energy services, the index for utility gas service rose by 0.9% after falling by 0.5% in July and is now priced 0.1% higher than it was a year ago, while the electricity price index was up 0.3%, after it was down 0.4% in July….energy commodities are now 20.4% higher than their year ago levels, with gasoline prices averaging 20.3% higher than they were a year ago, while the energy services price index is still 0.4% lower than last August, as electricity prices have decreased by 0.5% over that period…

The seasonally adjusted food price index rose 0.1% in August, after rising 0.1% in July, 0.2% in June, being unchanged in May, rising 0.3% in April, 0.1% in March, being unchanged in February, rising 0.2% in January, 0.2% in December, being unchanged in October and November, rising 0.1% in September, and 0.1% last August, as the index for food purchased for use at home was unchanged in August, while prices for food bought for eating away from home were 0.2% higher, as prices at fast food outlets rose 0.3% and prices at full service restaurants rose 0.1%, while food prices at employee sites and schools were 1.2% lower…

In the food at home categories, the price index for cereals and bakery products was unchanged as bread prices rose 0.4%, prices for rice rose 1.8%, cookies prices fell 1.7%, and the index for bakery such as sweetrolls, coffeecakes and doughnuts fell 1.1%…at the same time, the price index for the meats, poultry, fish, and eggs group was 0.1% higher, as the fish and seafood price index rose 1.7% while the poultry price index was 1.0% lower…. the index for dairy products was also 0.1% higher, on a 0.7% increase in the price of fresh whole milk…on the other hand, the fruits and vegetables index was 0.3% lower on a 1.4% decrease in the price index for fresh fruits and a 1.0% decrease in prices for tomatoes…. meanwhile the beverages index was 0.2% higher, as carbonated drink prices were priced 2.2% higher…lastly, the index for the ‘other foods at home’ category was unchanged, as the index for butter and margarine fell 1.7% while peanut butter prices rose 3.2% and prices for salad dressing rose 1.3%….among food at home line items, only prices for eggs, which are still up 14.7% since last August, have seen prices increase greater than 10% over the past year, while no food item has fallen in price by more 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 for this release, 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 August after rising by 0.2% in July,0.2% in June, 0.2% in May, 0.1% in April, 0.1% in March, 0.2% in February, 0.3% in January, 0.3% in December, 0.1% in November, 0.2% in October, 0.1% in September, 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods was down 0.3% in August, while the more heavily weighted 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 August retail sales for inflation in national accounts data, the index for household furnishings and supplies decreased by 0.3%, as the index for major appliances fell 0.5%, and the index for window coverings was 2.4% lower…at the same time, the apparel price index was 1.6% lower, as prices for women’s outerwear fell 5.5% and the index for men’s suits, sport coats, and outerwear was 2.8% lower…on the other hand, prices for transportation commodities other than fuel were up 0.1%, as prices for used cars and trucks rose 0.4% while new car prices were unchanged…however, prices for medical care commodities were 0.3% lower as nonprescription drugs prices fell 0.5% and the index for medical equipment and supplies was 0.8% lower…meanwhile, the recreational commodities index fell 0.5% on 2.3% lower prices for audio equipment and 1.8% lower prices for sports vehicles including bicycles, while the education and communication commodities index was 0.1% higher on a 1.4% increase in prices for personal computers…lastly, a separate price index for alcoholic beverages was unchanged, as was the price index for ‘other goods’…

Within core services, the price index for shelter rose 0.3% on a 0.4% increase in rents, a 0.3% increase in homeowner’s equivalent rent, and a 0.6% increase in costs for lodging away from home at hotels and motels, while the sub-index for water, sewers and trash collection rose 0.3%, and other household operation costs were on average unchanged….on the other hand, the price index for medical care services was down by 0.2%, as dental services fell 0.8%, while health insurance fell 0.3%…meanwhile, the transportation services index was up by 0.3% as vehicle body work rose 0.6% and airline fares rose 2.4%….at the same time, the recreation services index rose 0.1% as cable and satellite television service rose 0.9% and photo processing rose 1.6%….in addition, the index for education and communication services rose 0.2%, as the price index for elementary and high school tuition rose 1.1% and the index for child care and nursery school rose 0.7%…lastly, the index for other personal services was up 0.1% as apparel services other than laundry and dry cleaning rose 0.7%…among core line items, prices for televisions, which are still 18.0% cheaper than a year ago, the price index for audio equipment, which has fallen 14.1% over the past year, the price index for women’s outerwear, which is down by 10.3% from a year ago, and the price index for dishes and flatware, which is now 12.8% lower than last August, have all seen prices fall by more than 10% over the past year, while only prices for laundry equipment, which have risen 13.6% over the past year, have seen prices rise by a double digit magnitude over that span..

Retail Sales Up by 0.1% in August after June and July Sales Revised Higher

Seasonally adjusted retail sales inched higher in August after retail sales for June and July were revised higher…the Advance Retail Sales Report for August (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $509.0 billion during the month, which was up 0.1 percent (±0.4%)* from July’s revised sales of $508.6 billion and 6.6 percent (±0.5 percent) above the adjusted sales in August of last year…July’s seasonally adjusted sales were revised from the $507.5 billion reported last month to $508.6 billion, while June sales were also revised higher, from $504.95 billion to $505.17 billion, with this release….estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 3.3%, from $508,986 million in July to $525,743 million in August, while they were up 6.9% from the $492,031 million of sales in August a year ago…the revision to June sales means that 2nd quarter sales were a bit more than $0.9 billion higher at an annual rate than previously reported, which would be enough to add 0.02 percentage points to 2nd quarter GDP when the 3rd estimate is published at the end of the month…

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the August Census Marts pdf….the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from July to August in the first sub-column, and then the year over year percentage change for those businesses since last August in the 2nd column; the second pair of columns gives us the revision of last month’s July advance monthly estimates (now called “preliminary”) as revised in this report, likewise for each business type, with the June to July change under “Jun 2018 (r)evised”, and the revised July 2017 to July 2018 percentage change in the last column shown…for your reference, our copy of the table of last month’s advance July sale estimates, before this month’s revision, is here….

August 2018 retail sales table

In computing the real personal consumption of goods data for national accounts from this August retail sales report, the BEA will be using the corresponding price changes from the August consumer price index, which we reviewed earlier..since that report showed that the composite price index for all goods less food and energy goods was down 0.3% in August, we can thus figure that real retail sales excluding food and energy will on average be 0.3% higher than the core retail sales shown above…however, the adjustment for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were down 0.8%, the price index for transportation commodities other than fuel was up 0.1%, as prices for new cars and trucks was unchanged while prices for used cars and trucks rose 0.4%; that would mean that real unit sales at auto & parts dealers was actually on the order of 0.9% lower…on the other hand, while sales at clothing stores were 1.7% lower in August, the apparel price index was down 1.6%, meaning that real sales of clothing probably only fell 0.1%%…similarly, since sales at drug stores were up 0.5% while prices for medical care commodities were  0.3% lower, that suggests that real sales at drug stores rose 0.8%…

In addition to those core sales, adjusting food and energy retail sales for price changes must be done separately; the CPI report showed that the food price index rose 0.1% in July, with the index for food purchased for use at home unchanged, while prices for food bought for eating away from home was 0.2% higher…. hence, with nominal sales at food and beverage stores unchanged in August with no corresponding price change, real sales of food at groceries would also be unchanged.…likewise, the 0.2% nominal increase in sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests little change in real sales at bars and restaurants either…meanwhile, while sales at gas stations were up 1.7%, there was a 3.0% increase in the retail price of gasoline, which would suggest real sales of gasoline were down on the order of 1.3%, with the caveat that gasoline stations do sell more than gasoline…averaging real sales computed thusly together, we’d estimate that income and outlays report for August will show that real personal consumption of goods rose 0.2% in August, after rising by a revised 0.4% in July… each single month of that metric will account for almost 8% of 3rd quarter GDP…

Industrial Production Up 0.4% in August After 5 Prior Months Were Revised Lower

The Fed’s G17 release on Industrial production and Capacity Utilization report indicated that industrial production rose by 0.4% in August, after rising by a revised 0.4% in July…while industrial production is now up 4.9% from a year ago, in contrast to last month’s year over year increase of 4.2%, the year ago industrial production figures had been impacted by industrial shutdowns in advance of Hurricane Harvey and unseasonably cool temperatures on the East Coast ….the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 108.2 in August from 107.8 in July, which was revised from the 108.0 that was reported for July a month ago…at the same time, the June reading for the index was revised from 107.9 to 107.4, the May reading for the index was revised from 106.8 to 106.7, the April index reading was revised from 107.7 to 107.6, and the March index was revised from 106.5 to 106.4…

The manufacturing index, which accounts for more than 77% of the total IP index, rose by 0.3, from 104.3 in July to 104.6 in August, after July’s manufacturing index was revised down from 104.6, June’s manufacturing index was revised from 104.3 to 104.0, and April and May’s manufacturing indexes were both revised 0.1 lower…nonetheless, the manufacturing index is still up 3.1% from a year ago….meanwhile, the mining index, which includes oil and gas well drilling, rose from 123.2 in July to 124.1 in August, after the July index was revised down  from 123.4….however, the mining index still remains 14.1% higher than it was a year ago….finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 1.2%, from 104.2 in July to 105.4 in August, after the July utility index was revised down from 104.5 in July, and after the June utility index was revised from 105.0 to 104.1…nonetheless, the utility index also still remains 4.8% above its year ago reading of 100.5..

This report also provides capacity utilization figures, which are 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 rose from 77.9% in July to 78.1% in August…capacity utilization of NAICS durable goods production facilities rose from 75.4 in July to 76.0 in August, after July’s figure was revised down from 75.9%, while capacity utilization for non-durables producers fell from an upwardly revised 77.5% to 77.1%…capacity utilization for the mining sector rose to 92.0% in August from 91.9% in July, which was originally reported as 92.0%, while utilities were operating at 78.0% of capacity during August, up from their 77.2% of capacity during July, which was revised down from 77.2%…year over year capacity growth rates have been 1.2% for manufacturing, 4.5% for mining, and 1.9% for utilities, for a total industry capacity growth rate of 1.7%….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….

Producer Prices Fall in August on Lower Margins for Trade, Transportation and Warehousing Services

The seasonally adjusted Producer Price Index (PPI) for final demand was 0.1% lower in August, the first drop in the index in 18 months, as prices for finished wholesale goods were unchanged, while margins of final services providers decreased by 0.1%…that followed a July report that indicated the PPI was unchanged, with prices for finished wholesale goods up 0.1%, while margins of final services providers decreased by 0.1%, and a June report that indicated the PPI rose 0.3%, as prices for finished wholesale goods averaged 0.1% higher, while margins of final services providers increased by 0.4%….on an unadjusted basis, producer prices are still 2.8% higher than a year ago, albeit down from the year over year increase of 3.3% that was indicated by last month’s report…meanwhile, the core producer price index, which excludes food, energy and trade services, was up by 0.1% for the month, and is now 2.9% higher than in July a year ago…

As noted, the price index for final demand for goods, aka ‘finished goods’, was unchanged in August, after rising by  0.1% in July, 0.1% in June and by a revised 0.9% in May, but after being unchanged in April…the price index for wholesale energy was up 0.4% in August after falling 0.5% in July, rising 0.8% in June and a revised 4.2% in May, while the price index for wholesale foods fell 0.6%, and the index for final demand for core wholesale goods (ex food and energy) was unchanged….the largest wholesale energy price change was a 1.8% increase in wholesale prices for residential natural gas, while wholesale gasoline prices were 0.6% higher…the wholesale food price index, meanwhile, included a 16.5% decrease in wholesale prices for fresh eggs and an 11.3% decrease in wholesale prices for fresh fruits and melons….among wholesale core goods, wholesale prices for industrial chemicals rose 0.8% and wholesale prices for passenger cars increased 0.7%, while wholesale prices for iron and steel scrap decreased 5.6%…

At the same time, the index for final demand for services fell 0.1% in August, after falling 0.1% in July, rising 0.4% in June, 0.3% in May, 0.2% in April and 0.3% in March, as the August index for final demand for trade services fell 0.9%, the index for final demand for transportation and warehousing services fell 0.6%, while the core index for final demand for services less trade, transportation, and warehousing services rose 0.3%….among trade services, seasonally adjusted margins for hardware, building materials, and supplies retailers fell 3.2%, margins for computer hardware, software, and supplies retailers fell 2.9%, and margins for machinery and equipment wholesalers fell 1.7%… among transportation and warehousing services, margins for airline passenger services fell 2.0% and margins for air transportation of freight fell 0.9%…among the components of the core final demand for services index, the index for loan services (partial) rose 3.0% while margins for bundled wired telecommunication access services rose 3.4%..

This report also showed the price index for intermediate processed goods was unchanged in August, after being unchanged in July, rising 0.7% in June, rising a revised 1.3% in May and a revised 0.4% in April….the price index for intermediate energy goods fell 0.3%, as refinery prices for diesel fuel fell 3.8% and producer prices for natural gas sold to industry fell 1.7%…prices for intermediate processed foods and feeds fell 0.9%, as the intermediate price index for meats fell 1.7% and dairy prices fell 1.2%…meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.2% higher on a 2.6% increase in the index for steel mill products and a 2.2% increase in prices for fabricated ferrous wire products….prices for intermediate processed goods are still 6.3% higher than in August a year ago, now the 21st consecutive year over year increase, after 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016….

Meanwhile, the price index for intermediate unprocessed goods fell 5.8% in August, after rising 2.7% in July, falling 1.0% in June, and rising a revised 1.9% in May and a revised 0.9% in April….that was as the August price index for crude energy goods fell 7.9% as crude oil prices fell 13.4%, while the index for unprocessed foodstuffs and feedstuffs fell 5.2%, as producer prices for oilseeds fell 15.0%, prices for slaughter hogs fell 29.8% and producer prices for slaughter poultry fell 17.1%…at the same time, the index for core raw materials other than food and energy materials was 1.9% lower, as prices for iron and steel scrap fell 5.6% and prices for copper base scrap fell 9.3%…this raw materials index is now up by just 2.9% from a year ago, down from the 8.2% year over year increase that we saw in July…

Lastly, the price index for services for intermediate demand rose 0.1% in August, after rising 0.2% in July, 0.1% in June, 0.3% in May, 0.3% in April, 0.3% in March and 0.3% in February…the price index for intermediate trade services was down 1.1%, as margins for intermediate hardware, building material, and supplies retailers fell 3.2% and margins for margins for metals, minerals, and ores wholesalers fell 10.5%…the index for transportation and warehousing services for intermediate demand fell 0.1%, as the index for air transportation of freight fell 0.9% and the index for truck transportation of freight fell 0.2%…meanwhile, the core price index for intermediate services less trade, transportation, and warehousing was 0.5% higher, as the index for gross rents for retail properties rose 5.5%, the index for passenger car rental rose 3.7%, and the index for portfolio management rose 2.9%….over the 12 months ended in July, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is still 2.9% higher than it was a year ago… 

July Business Sales Up 0.2%, Business Inventories Up 0.6%

After the release of the August retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for July (pdf), which incorporates the revised July retail data from that August report and the earlier published 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 $1,454.1 billion in July, up 0.2 percent (±0.1%) from June revised sales, and up 8.1 percent (±1.2 percent) from July sales of a year earlier…note that total June sales were concurrently revised down from the originally reported $1,452.2 billion to $1,451,814 million….manufacturer’s sales were up but statistically unchanged at $501,690 million in July, while retail trade sales, which exclude restaurant & bar sales from the revised July retail sales reported earlier, rose 0.5% to $446,797 million, while wholesale sales were also statistically unchanged at $505,605 million…

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,950.0 billion at the end of July, up 0.6% (±0.1%) from June, and 4.3 percent (±1.3 percent) higher than in July a year earlier…the value of end of June inventories was revised up slightly from the $1,937.2 billion reported last month to $1,937.57 billion…seasonally adjusted inventories of manufacturers were estimated to be valued at $675,839 million, 0.8% higher than in June, inventories of retailers were valued at $637,796 million, 0.5% more than in June, while inventories of wholesalers were estimated to be valued at $636,341 million at the end of July, up 0.6% from June…

In national accounts, all types of business inventories are adjusted for inflation with an item-appropriate component of the producer price index…the July producer price index reported that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were on average unchanged, while prices for unprocessed goods were 2.7% higher….since real private inventories contracted at an inflation adjusted $26.9 billion rate in the 2nd quarter and subtracted 0.97 percentage points from the quarter’s growth rate, any real inventory growth in the 3rd quarter will reverse that and correspondingly add to GDP by whatever percentage of GDP that real inventory growth ends the 3rd quarter at…

Job Openings and Job Quitting at Record Highs in July,  with Layoffs Down

The Job Openings and Labor Turnover Survey (JOLTS) report for July from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 117,000, from 6,822,000 in June to a record high of 6,939,000 in July, after June job openings were revised 160,000 higher, from 6,662,000 to 6,822,000…July’s jobs openings were also 11.9% higher than the 6,202,000 job openings reported for July a year ago, as the job opening ratio expressed as a percentage of the employed remained unchanged at 4.4% in July, while it was up from 4.1% in July a year ago….job openings increased in several sectors, with the 72,000 job opening increase to 1,003,000 openings in the leisure and hospitality sector the largest increase for the month (see table 1 for more details)…like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release…

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and ‘other separations’, which includes retirements and deaths….in July, seasonally adjusted new hires totaled 5,679,000, up by 2,000 from the revised 5,677,000 who were hired or rehired in June, as the hiring rate as a percentage of all employed remained unchanged at 3.8% in July, while it was up from 3.7% in July a year earlier (details of hiring by sector since March are in table 2)….meanwhile, total separations rose by 20,000, from 5,514,000 in June to 5,534,000 in July, while the separations rate as a percentage of the employed was unchanged at 3.7%, which was also unchanged from the separations rate in July a year ago (see table 3)…subtracting the 5,534,000 total separations from the total hires of 5,679,000 would imply an increase of 145,000 jobs in July, in line with and confirming the revised payroll job increase of 147,000 for July reported by the August establishment survey last week

Breaking down the seasonally adjusted job separations, the BLS finds that a record 3,583,000 of us voluntarily quit our jobs in July, up by 106,000 from the revised 3,477,000 who quit their jobs in June, while the quits rate, widely watched as an indicator of worker confidence, rose to 2.4% of total employment, up from 2.3% in June and from 2.2% in July a year earlier (see details in table 4)….in addition to those who quit, another 1,602,000 were either laid off, fired or otherwise discharged in July, down by 50,000 from the revised 1,652,000 who were discharged in June, as the discharges rate remained unchanged at 1.1% of all those who were employed during the month, while it was down from the discharges rate of 1.2% a year earlier….meanwhile, other separations, which includes retirements and deaths, were at 349,000 in July, down from 384,000 in June, for an ‘other separations’ rate of 0.2%, which was down from 0.3% in June but the same rate as in July of last year….both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release

 

(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 picked from the aforementioned GGO posts, contact me…)      

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tables and graphs for September 15th

retail sales:

August 2018 retail sales table

rig count summary:

September 14 2018 rig count summary

gasoline supplies:

September 13 2018 gasoline supply as of Sept 7

distillate supplies:

September 13 2018 distillates supply as of Sept 7

OPEC production:

August 2018 OPEC crude output via secondary sources

global oil production:

August 2018 OPEC report global oil supply

global oil demand:

August 2018 OPEC report global oil demand

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it appears that US natural gas supplies will start this winter at a 15 year low, & maybe even lower than that

oil prices fell for the first time in three weeks this week, as anxiety about the economic impact of worsening trade wars overwhelmed concerns about Iran sanction related supply issues…after rising 1.6% to $69.80 a barrel last week and not trading on Labor Day, October contracts for US light sweet crude jumped to as high as $71.40 a barrel on Tuesday when Gulf Coast platforms were shut down in advance of tropical storm Gordon, but fell back to close the day just 7 cents higher at $69.87 a barrel, weighed down by a stronger dollar and a report of higher crude supplies at the Cushing OK terminalwhen the storm weakened and moved away from oil-producing areas with little apparent impact, oil prices fell $1.15 to $68.72 a barrel on Wednesday, as concerns mounted about the economic impact of global trade disputes…with a Trump deadline on Chinese tariffs looming, oil prices extended those losses on Thursday, initially lower on an API report of a smaller than expected crude draw and continued lower on the EIA report of surging fuel supplies, with crude for October delivery settling 1.4% lower at $67.64 a barrel…oil prices were marginally lower again on Friday, as signs of tightening U.S. oil output were offset by a stronger dollar and fears rising U.S.-China trade tensions could hamper oil demand, with oil prices ending nearly 3% lower for the week at $67.75 a barrel

natural gas prices were also lower this week, despite the heat wave that sat over the heavily populated Northeastern US all week, with natural gas prices for October delivery falling 9.3 cents on Tuesday, 2.8 cents on Wednesday, and 2.3 cents on Thursday before rising four-tenths of a cent on Friday and ending the week 4.8% lower at $2.776 per mmBTU….moreover, despite the precarious winter supply situation, natural gas for January delivery didn’t fare any better, falling 14.9 cents for the week to end at 2.965 per mmBTU, the lowest close for that contract since Spring….either natural gas traders know something we don’t, or a lot of people are going to end up on the wrong side of that trade…

this week’s EIA natural gas storage report for week ending August 31st (hence not yet including this week’s heat wave) indicated that natural gas in storage in the US rose by 63 billion cubic feet to 2,568 billion cubic feet during that cited week, which still left our gas supplies 643 billion cubic feet, or 20.0% below the 3,211 billion cubic feet that were in storage on September 1st of last year, and 590 billion cubic feet, or 18.5% below the five-year average of 3,158 billion cubic feet of natural gas that are typically in storage at the end of August….this week’s 63 billion cubic feet increase in natural gas supplies was slightly more than an S&P Global Platts’ survey of analysts calling for a 60 billion cubic feet increase, but it was slightly below the 65 billion cubic foot average of natural gas that are typically added to storage during the last week of August in recent years, the eighth such below average inventory increase in the past nine weeks…once again, almost all of this week’s increase was added to natural gas storage facilities in the Midwest, which saw a 32 billion cubic feet increase, and in the East, where supplies increased by 22 billion cubic feet…just 5 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where  natural gas supplies are 24.1% below normal for this time of year, while the South Central region actually saw a billion cubic feet pulled out of storage, as their natural gas storage deficit rose to 22.9% below their five-year average..

natural gas usually needs to be withdrawn from storage for heating starting around the first full week of November, so that means we most likely have 9 more weeks of the so-called natural gas ‘injection season’ to build our gas inventories before winter…over the last five years, we’ve averaged 3,835 billion cubic feet of natural gas in storage heading into winter at that first weekend in November, and that average seems to be close to the average of the last decade as well…scanning over the historical natural gas storage archive files (xls), we just find a few times over the last dozen years when gas supplies were substantially below that level going into winter; November 7th of 2014, when supplies managed to recover to 3,611 billion cubic feet after that year’s polar vortex winter; November 7th 2008, when supplies fell to 3,472 billion cubic feet, and November 8th 2007, when supplies were at 3,540 billion cubic feet before wintertime withdrawals began….thus, with our natural gas supplies starting September at 2,568 billion cubic feet, we would have to add a nearly impossible 116 billion cubic feet per week before the first weekend in November merely to avoid having our winter gas supplies fall to a 10 year low…moreover, to beat the 2008 nadir, we would still need to add more than 100 billion cubic feet a week…looking at the xls record of recent years, we added 479 billion cubic feet, or just 53 billion cubic feet per week, over the same 9 weeks of 2017; we added 610 billion cubic feet, or 61 billion cubic feet per week in the ten weeks through November 11 of 2016, and we added 723 billion cubic feet, or 80 billion cubic feet per week, during the corresponding 9 weeks of the injection season in 2015…those numbers certain suggest it’s highly unlikely that we could add 100 billion cubic feet per week of natural gas to storage for the rest of this injection season, so bettering 2008 seems out of the question…based on the averages of the last 3 years, we’ll probably add about 65 billion cubic feet per week over the next nine weeks, and show about 3153 billion cubic feet of natural gas in storage on November 2nd, which probably means we’ll be going into winter with our natural gas supplies near the 3187 billion cubic feet of gas we had stored on November 7th 2003, which would thus be a 15 year low…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending August 31st, showed that despite a sizable increase in our net oil imports, we withdrew more oil from our commercial crude supplies to meet the needs of our refineries for the seventeenth time in the past thirty-two weeks, because the “unaccounted for crude” factor switched from the supply side of the crude oil balance sheet to the consumption the side of it… our imports of crude oil rose by an average of 229,000 barrels per day to an average of 7,714,000 barrels per day, after falling by an average of 1,529,000 barrels per day over the prior 2 weeks, while our exports of crude oil fell by an average of 271,000 barrels per day to an average of 1,508,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,206,000 barrels of per day during the week ending August 31st, 500,000 more barrels per day than the net of our imports minus exports during the prior week…over the same period, field production of crude oil from US wells was reportedly unchanged at a record 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 17,206,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using 17,647,000 barrels of crude per day during the week ending August 31st, 81,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 615,000 barrels of oil per day were reportedly being pulled out of the oil that’s in storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 179,000 more barrels per day than what refineries reported they used during the week….to account for that disparity between the supply of oil and the disposition of it, the EIA needed to insert a (-179,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”…since that “unaccounted for crude” figure was at +493,000 barrels per day during the prior week, the 667,000 barrel per day swing in that metric from last week explains how withdrawals from storage would rise despite higher net imports, while it also means that week over week changes for one or more of this week’s EIA oil metrics must be in error by a statistically significant amount..(for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…. 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,933,000 barrels per day, still fractionally less than the 7,976,000 barrel per day average that we were importing over the same four-week period last year….the 615,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed at the end of the week….this week’s crude oil production was reported as being unchanged at 11,000,000 barrels per day despite a rounded 100,000 barrels per day increase to 10,600,000 barrels per day in the output from wells in the lower 48 states, because oil output from Alaska fell by 16,000 barrels per day, which was enough to keep the national total, which is now being rounded to the nearest 100,000 barrels per day, unchanged at 11,000,000 barrels per day….US crude oil production for the week ending September 1st 2017 had been reduced to 8,781,000 barrels per day by Hurricane Harvey, so this week’s rounded oil production figure was roughly 25.3% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

meanwhile, US oil refineries were operating at 96.6% of their capacity in using 17,647,000 barrels of crude per day during the week ending August 31st, up from 96.3% the prior week and well above normal, even for this time of year….the 17,647,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 13th out of the past 14 weeks, but not directly comparable to the 14,472,000 barrels of crude per day that were processed during the week ending September 1st 2017, when US refineries were operating at just 79.7% of capacity, because Gulf Coast refineries had been shut down due to Hurricane Harvey at that time..

despite the modest increase in the amount of oil being refined this week, gasoline output from our refineries was a bit lower, decreasing by 22,000 barrels per day to 10,215,000 barrels per day during the week ending August 31st, after our refineries’ gasoline output had increased by 86,000 barrels per day during the week ending August 24th…again, due to Hurricane Harvey, our gasoline production during the week is not comparable to that of a year ago, but it was 3.6% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the week ending August 25th last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 260,000 barrels per day to a high for the date of 5,439,000 barrels per day, after they had fallen by 247,000 barrels per day over the prior week…for a rough year over year comparison absent hurricane impacts, we’d note this week’s distillates production was 7.6% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017…. 

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,554,000 barrels to 232,774,000 barrels by August 31st, the 12th increase in 28 weeks, and the 26th increase in 43 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline rose this week because the amount of gasoline supplied to US markets fell by 165,000 barrels per day to 9,734,000 barrels per day, after rising by 446,000 barrels per day the prior week, and because our imports of gasoline rose by 120,000 barrels per day to 988,000 barrels per day, while our exports of gasoline fell by 108,000 barrels per day to 477,000 barrels per day…after this week’s increase, our gasoline inventories were at a seasonal high, 3.5% higher than last September 1st’s level of 226,738,000 barrels, and more than 10% above the 10 year average of our gasoline supplies for this time of the year

meanwhile, with big increase in our distillates production, our supplies of distillate fuels were likewise much higher, increasing by 3,119,000 barrels to 133,120,000 barrels during the week ending August 31st, the 11th increase in 15 weeks…our distillates supplies also increased because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 147,000 barrels per day to 4,290,000 barrels per day, after increasing by 372,000 barrels per day the prior week, and because our exports of distillates also fell by 147,000 barrels per day to 989,000 barrels per day, while our imports of distillates rose by 12,000 barrels per day to 286,000 barrels per day….however, with our distillate supplies still recovering from the 14 year seasonal low that they hit 6 weeks ago, this week’s inventory increase still leaves our distillates supplies 9.9% below the 147,767,000 barrels that we had stored on September 1st, 2017, and roughly 9% lower than the 10 year average of distillates stocks for this time of the year…   

finally, despite this week’s increase in our net oil imports, our commercial supplies of crude oil decreased for the 19th time in 2018 and for the 31st time over the past year, falling by 4,302,000 barrels during the week, from 405,792,000 barrels on August 24th to 401,490,000 barrels on August 31st….but although our crude oil inventories are a bit below the five year average of crude oil supplies for this time of year, they are still roughly 29.6% above the 10 year average of crude oil stocks for the end  August, because it wasn’t early 2015 that our oil inventories first rose above 400 million barrels…but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of August 31st were 13.2% below the 462,353,000 barrels of oil we had stored on September 1st of 2017, 16.5% below the 480,725,000 barrels of oil that we had in storage on September 2nd of 2016, and 4.2% below the 426,062,000 barrels of oil we had in storage on September 4th of 2015… 

This Week’s Rig Count

the pace of US drilling activity again stalled during the week ending September 7th, after increasing 17 out of the 23 prior weeks….Baker Hughes reported that the total count of rotary rigs running in the US was unchanged at 1048 rigs over the week ending on Friday, which was still 104 more rigs than the 944 rigs that were in use as of the September 8th report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market…  

the count of rigs drilling for oil was down by two rigs to 860 rigs this week, which was still 104 more oil rigs than were running a year ago, while it was well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations rose by 2 rigs to 186 rigs this week, which nonetheless was down a rig from the 187 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…meanwhile, two rigs drilling exploratory wells in Ohio considered to be “miscellaneous” continued to operate this week, up from just one such “miscellaneous” rig a year ago…

one of the rigs that was added this week was in the Gulf of Mexico, where there are now 17 rigs deployed, up from 16 a year ago…in addition, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is at 19 rigs, which is thus up by 3 from last year’s total of 16 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf…meanwhile, another rig began drilling through an inland body of water in southern Louisiana this week, where there are now three such rigs operating, down from the 5 rigs that were drilling through inland waters there a year ago…

the count of active horizontal drilling rigs was up by 1 rig to 918 horizontal rigs this week, which was also 125 more horizontal rigs than the 793 horizontal rigs that were in use in the US on September 8th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the vertical rig count decreased by one rig to 65 vertical rigs this week, which was also down from the 75 vertical rigs that were in use during the same week of last year…meanwhile, the directional rig count was unchanged at 65 directional rigs this week, which was down from the 76 directional rigs that were operating on September 8th of 2017… 

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of September 7th, the second column shows the change in the number of working rigs between last week’s count (August 31st) and this week’s (September 7th) count, the third column shows last week’s August 31st active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Friday the 8th of September, 2017…   

September 7 2018 rig count summary

once again, these summary tables do not match the summary national summary data we just gave you, as the state table implies an increase in the rig count, while the basin table implies a decrease in horizontal drilling…the data for the states not listed is easy to find, and it shows that a rig was shut was shut down in Mississippi, where 5 rigs continue to drill, which is up from 3 rigs in Mississipppi a year ago…we imagine that the 2 rig increase in Wyoming could have been new horizontal drilling in the Powder River Basin, where oil exploiters have expressed new interest, but since the horizontal rigs that were added this week could have been in any one of a dozen basins that Baker Hughes does not track separately, one would have to dig through the individual well logs in the Baker Hughes pivot table to find out for sure, something we are not inclined to do this week…that’s also where this week’s increase in natural gas rigs also appears to be hidden, since a gas rig was shut down in the Haynesville while 3 gas rigs were added in basins not tracked separately by Baker Hughes…

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August’s jobs report; July’s trade deficit, construction spending, and factory inventories

In addition to the Employment Situation Summary for August from the Bureau of Labor Statistics, this week also saw the release of three July reports that provide us with inputs to 3rd quarter GDP, and in some cases suggest revisions to 2nd quarter GDP: the July report on our International Trade from the Bureau of Economic Analysis, and the July report on Construction Spending (pdf), and the Full Report on Manufacturers’ Shipments, Inventories and Orders for July, both from the Census Bureau…

The week’s major privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.60 million annual rate in August, down from the 16.68 million annual rate in July, but up from the hurricane impacted 16.03 million annual rate in August a year ago; and both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the August Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 61.3% in August, up from 58.1% in July, and the highest index reading since May 2004, and the August Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 58.5% in August, up from 55.7% in July, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in August than in July…both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally…   

Employers Add 201,000 Jobs in August but Employment Rate Falls; Those ‘Not in Labor Force’ at a Record High

The Employment Situation Summary for August reported modest job creation but a large drop in the number employed, and hence a drop in both the employment rate and the labor participation rate, while the unemployment rate remained unchanged….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 201,000 jobs in August, after the payroll job increase for July was revised down from 157,000 to 147,000, and the payroll jobs increase for June was revised down from 248,000 to 208,000…those revisions mean that this report represents a total of just 151,000 more seasonally adjusted payroll jobs than were reported last month, less than the increase in the working age population…the unadjusted data shows that there were actually 334,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,148,000, so seasonal adjustments continue to impact the monthly headline job count…

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors, slightly offset by smallish decreases of 6,000 jobs in the information sector, 5,900 jobs in retail, 3,000 in manufacturing, and 3,000 in government….the broad professional and business services category added 53,000 jobs, as 8,000 more were added by management and technical consulting services and 10,000 more workers found work with temporary employment services….employment in health care and social assistance rose by 40,700, with the addition of 7,900 jobs with home health care services and 8,200 jobs in hospitals….employment in construction increased by 23,000, with 15,300 of those working for specialty trade contractors….employment in the wholesale trade sector increased by 22,400, with 13,600 of those in durable goods trade…..there were also 20,200 more jobs in transportation and warehousing, with the addition of 5,700 in trucking, and the leisure and hospitality sector added a seasonally adjusted 17,000 jobs, by virtue of the addition of 17,500 more jobs in bars and restaurants….in addition, employment in private education increased by 11,700 and employment in the financial sector rose by 11,000, with the addition of 4,900 jobs in real estate…..meanwhile, the other major sectors, including mining and logging and utilities all saw increases of less than 10,000 in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 10 cents an hour to $27.16 an hour, after it had increased by a revised 8 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $22.73 an hour, after July’s pay figure was also revised a penny higher….employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours in August, while hours for production and non-supervisory personnel remained at 33.8 hours for the fifth consecutive month…meanwhile, the manufacturing workweek was unchanged at 41.0 hours, while average factory overtime was unchanged at 3.5 hours…

At the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who would self-report being employed fell by an estimated 423,000 to 155,542,000, while the similarly estimated number of those who would report unemployment fell by 46,000 to 6,234,000; which together meant that August saw a net decrease of 469,000 in the total labor force…since the working age population had grown by 223,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 692,000 to a record 96,290,000, which was enough to lower the labor force participation rate by 0.2% to 62.7%….at the same time, the drop in number employed vis-a-vis the increasing population was great enough to decrease the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.3%…on the other hand, decrease in count of those unemployed as a percentage of the smaller labor force was not enough to change the unemployment rate, as it remained at 3.9%…..meanwhile, the number who reported they were involuntarily working part time fell by 188,000 to 4,379,000 in August, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.5% in July to 7.4% in August, the lowest since April 2001…..

Like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there…note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page..

July Trade Deficit Up 9.5% on Record Imports and Lower Exports

Our trade deficit rose by 9.5% in July as the value of our exports decreased and the value of our imports increased….the Census report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit increased by $4.34 billion to $50.08 billion in July from a revised June deficit of $45.74 billion…after rounding, the value of our July exports fell by $2.1 billion to $211.1 billion on a $2.3 billion decrease to $140.8 billion in our exports of goods, which was slightly offset by a $0.2 billion increase to $70.3 billion in our exports of services, while our imports rose by $2.2 billion to a record $261.2 billion on a $1.9 billion increase to a $213.9 billion in our imports of goods and a $0.3 billion increase to $47.2 billion in our imports of services…export prices were on average 0.5% lower in July, so the relative real change in exports for the month was greater than the nominal change by that percentage, while import prices were on average unchanged, meaning that real growth in imports would be at the same percentage as the nominal dollar growth change reported here…

The decrease in our July exports was mostly due to lower exports of capital goods and farm products, or more specifically commercial aircraft and soybeans….referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of capital goods fell by $949 million to $46,335 million due to a $1,568 million decrease in our exports of civilian aircraft, and that our exports of foods, feeds and beverages fell by $880 million to $13,175 million on a $682 million decrease in our exports of soybeans…in addition, our exports of consumer goods fell by $389 million to $15,974 million on a $285 million decrease in our exports of artwork, antiques, and other collectibles, and our exports of other goods not categorized by end use fell by $514 million to $5,118 million…partially offsetting those decreases, our exports of automotive vehicles, parts, and engines rose by $597 million to $12,967 million on a $986 million increase in our exports of new and used passenger cars, and our exports of industrial supplies and materials rose by $241 million to $46,530 million on a $411 million increase in our exports of natural gas liquids and a $277 million increase in our exports of petroleum products other than fuel oil, which were partly offset by a $413 million decrease in our exports of fuel oil..

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that greater imports of capital goods, industrial supplies and materials, and automotive vehicles, parts and engines were responsible for the $2.2 billion jump in our goods imports…our imports of capital goods rose by $665 million to $58,159 million on an increase of $467 million in our imports of computers, a $320 million increase in our imports of computer accessories, and a $268 million increase in our imports of semiconductors, while our imports of industrial supplies and materials rose by $531 million to $49,289 million on an increase of $348 million in our imports of fuel oil, an increase of $273 million in our imports of crude oil and an increase of $218 million in our imports of iron and steel mill products, while our imports of automotive vehicles, parts and engines rose by $503 million to $30,710 million on a $469 million increase in our imports of trucks, buses, and special purpose vehicles…in addition, our imports of foods, feeds, and beverages rose by $286 million to $12,440 million and our imports of other goods not categorized by end use rose by $650 million to $9,030 million….partially offsetting the increases in those categories, our imports of consumer goods fell by $777 million to $52,618 million because our imports of pharmaceuticals fell by $1,307 million, offsetting increased imports in a slew of other consumer goods..

To gauge the impact of July trade in goods on 3rd quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except they are not annualized here….from that table, we can compute that 2nd quarter real exports of goods averaged 151,601.7 million monthly in 2012 dollars, while inflation adjusted July exports were at 149,577 million in that same 2012 dollar quantity index representation… annualizing the change between the two figures, we find that July’s real exports are running at a 5.2% annual rate below those of the 2nd quarter, or at a pace that would subtract about 0.41 percentage points from 3rd quarter GDP if continued through August and September…..in a similar manner, we find that our 2nd quarter real imports averaged 229,085.3 million monthly in chained 2012 dollars, while inflation adjusted July imports were at 232,034 million…that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of more than 5.2% from those of the 2nd quarter…since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 5.2% rate would subtract about 0.59 percentage points from 3rd quarter GDP….hence, if the July trade deficit is maintained throughout the 3rd quarter, our deteriorating balance of trade in goods over that of the 2nd quarter would subtract a full percentage point from the growth of 3rd quarter GDP….however, note that we have not computed the impact of the less volatile change in services here because the BEA does not provide inflation adjusted data on those, and we don’t have easy access to all their price changes…

Construction Spending Rose 0.1% in July after Prior Months Were Revised Lower

The Census Bureau report on construction spending for July (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,315.4 billion annually if extrapolated over an entire year, which was a scant 0.1 percent (±1.5 percent)* above the revised annualized estimate of $1,314.2 billion of construction spending in June but still 5.8 percent (±1.8 percent) above the estimated annualized level of construction spending in July of last year…the June construction spending estimate was revised 0.2% lower, from $1,317.2 billion to $1,314.2 billion, while the annual rate of construction spending for May was revised 0.6% lower, from $1,332.2 billion to $1,324.347 billion….together, those revisions would suggest a downward revision of 0.08 percentage points to 2nd quarter GDP when the third estimate is released at the end of September, assuming the net impacts from the inflation adjustments are similar to those we saw in the 2nd estimate…

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,010.9 billion, 0.1 percent (±0.7 percent)* below the revised June estimate of $1,011.9 billion. Residential construction was at a seasonally adjusted annual rate of $560.1 billion in July, 0.6 percent (±1.3 percent)* above the revised June estimate of $556.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.9 billion in July, 1.0 percent (±0.7 percent) below the revised June estimate of $455.3 billion.
  • Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $304.5 billion, 0.7 percent (±3.0 percent)* above the revised June estimate of $302.3 billion. Educational construction was at a seasonally adjusted annual rate of $71.6 billion, 2.1 percent (±5.9 percent)* above the revised June estimate of $70.1 billion. Highway construction was at a seasonally adjusted annual rate of $94.2 billion, 0.4 percent (±7.1 percent)* above the revised June estimate of $93.8 billion.

Construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of July spending reported in this release on 3rd quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment, so in lieu of trying to adjust for all of those price indices, we’ve opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed for our estimate…

That price index showed that aggregate construction costs were up 0.4% in July, after rising 0.2% in and June but after being unchanged from April to May…on that basis, we can estimate that July construction costs were roughly 0.6% more than those of May and those of April, and obviously 0.4% more than those of June…we then use those percentages to inflate the lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes…annualized construction spending in millions of dollars for the second quarter is given as 1,314,235 for June, 1,324,347 for May, and 1,314,692 for April, while it was at 1,315,441 million in July …thus to compare July’s inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,315,441 / (((1,314,235 * 1.004)+ ( 1,324,347 * 1.006) + (1,314,692 * 1.006)) /3) = 0.9929, meaning real construction spending in July was down 0.7% vis a vis the 2nd quarter, or down at a 2.8% annual rate…to figure the effect of that change on GDP,  we take the difference between the second quarter spending average and that of July and take that result as a fraction of 2nd quarter GDP, and find that aggregate July construction spending is falling at a rate that would subtract approximately 0.20 percentage points from 3rd quarter GDP should we see no improvement in August or September…

Factory Shipments Flat in July, Factory Inventories Up 0.8%

The July Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $3.9 billion or 0.8 percent to $497.8 billion in July, following an increase of 0.6% to $501.6 billion in June, which was revised from the 0.7% increase to $501.7 billion reported last month….however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “factory orders report”, both the “new orders” and “unfilled orders” sections of this report are really only useful as a revised update to the July advance report on durable goods we reported on two weeks ago…on those revisions, the Census Bureau’s own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we’ll just quote directly from that summary here:

  • New orders for manufactured goods in July, down following two consecutive monthly increases, decreased $3.9 billion or 0.8 percent to $497.8 billion, the U.S. Census Bureau reported today. This followed a 0.6 percent June increase. Shipments, up fourteen of the last fifteen months, increased less than $0.1 billion or virtually unchanged to $501.7 billion. This followed a 1.0 percent June increase. Unfilled orders, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion. This followed a 0.4 percent June increase. The unfilled orders-to-shipments ratio was 6.73, up from 6.64 in June. Inventories, up twenty-one consecutive months, increased $5.6 billion or 0.8 percent to $675.8 billion. This followed a 0.2 percent June increase. The inventories-to-shipments ratio was 1.35, up from 1.34 in June.
  • New orders for manufactured durable goods in July, down three of the last four months, decreased $4.3 billion or 1.7 percent to $247.2 billion, unchanged from the previously published decrease. This followed a 0.9 percent June increase. Transportation equipment, also down three of the last four months, drove the decrease, $4.6 billion or 5.2 percent to $83.0 billion. New orders for manufactured nondurable goods increased $0.5 billion or 0.2 percent to $250.6 billion.
  • Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $0.4 billion or 0.2 percent to $251.1 billion, unchanged from the previously published decrease. This followed a 1.7 percent June increase. Transportation equipment, down three of the last four months, drove the decrease, $1.4 billion or 1.7 percent to $84.2 billion. Shipments of manufactured nondurable goods, up thirteen of the last fourteen months, increased $0.5 billion or 0.2 percent to $250.6 billion. This followed a 0.4 percent June increase. Petroleum and coal products, up twelve of the last thirteen months, led the increase, $0.2 billion or 0.4 percent to $56.2 billion.
  • Unfilled orders for manufactured durable goods in July, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion, unchanged from the previously published increase. This followed a 0.4 percent June increase. Machinery, up five of the last six months, drove the increase, $0.4 billion or 0.4 percent to $104.9 billion.
  • Inventories of manufactured durable goods in July, up twenty of the last twenty-one months, increased $5.1 billion or 1.3 percent to $408.6 billion, unchanged from the previously published increase. This followed a virtually unchanged June increase. Transportation equipment, up three of the last four months, led the increase, $4.5 billion or 3.5 percent to $131.4 billion. Inventories of manufactured nondurable goods, up thirteen consecutive months, increased $0.5 billion or 0.2 percent to $267.3 billion. This followed a 0.6 percent June increase. Petroleum and coal products, up three of the last four months, led the increase, $0.5 billion or 1.1 percent to $42.0 billion. .

To estimate the effect of those July factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories was statistically unchanged at $235,002 million; the value of work in process inventories rose 2.1% to $209,065 million, and materials and supplies inventories were valued 0.6% higher at $231,772 million…the July producer price index reported that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were on average unchanged, while prices for unprocessed goods were 2.7% higher….assuming similar valuations for like types of inventories, that would suggest that April’s real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were 2.1% higher, and real raw material inventory inventories were about 2.1% lower…since real NIPA factory inventories were substantially lower in the 2nd quarter, the fact that this report indicates little real change in aggregate July factory inventories will therefore have a corresponding positive impact on the growth rate of 3rd quarter GDP…

 

(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 picked from the aforementioned GGO posts, contact me…)     

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September 7th table

rig count summary:

September 7 2018 rig count summary

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US gasoline demand at a record high; mild Midwest temperatures help boost natural gas supplies

oil prices moved higher for a 2nd week this week, amid crosscurrents of concerns about Iran sanctions, global trade tensions, and oil supply issues… after closing the prior week $3.51 a barrel or 5.4% higher at $68.72 a barrel, US oil for October delivery rose 15 cents to $68.87 a barrel on Monday, supported by a strengthening stock market and news that the US and Mexico had completed a trade deal to replace NAFTA…however, with oil prices up more than $4 over 8 trading sessions, profit-taking set in on Tuesday, pushing oil prices 34 cents lower to $68.53 a barrel, with losses limited by the positive developments on the trade front…oil prices then rose 98 cents to a three week high of $69.51 a barrel on Wednesday, after the EIA reported a drawdown of U.S. crude and gasoline supplies, and reports indicated reduced Iranian crude exports in advance of US sanctions…oil prices rose again on Thursday, extending the gains on the fall in US supply, on growing evidence of disruptions to crude output from Iran and Venezuela, with oil ending Thursday’s trading up 74 cents, or 1.1 percent, at $70.25, the highest closing price in six weeks…while oil prices fell 45 cents to $69.80 a barrel on Friday on renewed trade war concerns, they still ended both the week and the month higher, with oil prices for October delivery 1.6% higher than a week ago, and 3.2% higher than a month ago, although we should note that oil prices were being quoted just 1.5% lower at $68.76 a barrel on July 31st, when September oil was the front month contract at the time…

meanwhile, while price quotes for natural gas appeared to end the week a tenth of a cent lower than last week at $2.916 per mmBTU, that was also a function of a midweek change in the quoted front month contract…natural gas for September delivery, which had closed last week at 2.917 per mmBTU, fell 6.5 cents over Monday and Tuesday before rising 4.3 cents on Wednesday as trading in September natural gas contracts expired at $2.895 per mmBTU…after that, natural gas for October delivery, which had started the week priced at $2.913 per mmBTU, became the widely quoted ‘price of natural gas’ and rose 1.1 cents to $2.874 per mmBTU on Thursday and 4.2 cents on Friday, to end the week $2.916 per mmBTU, three-tenths of a cent higher than what that contract had started the week at…

meanwhile, this week’s EIA natural gas storage report for week ending August 24th indicated that natural gas in storage in the US rose by 70 billion cubic feet to 2,505 billion cubic feet during that cited week, which still left our gas supplies 646 billion cubic feet, or 20.5% below the 3,151 billion cubic feet that were in storage on August 25th of last year, and 588 billion cubic feet, or 19.0% below the five-year average of 3,093 billion cubic feet of natural gas that are typically in storage heading into the fourth weekend of August….this week’s 70 billion cubic feet increase in natural gas supplies was above expectations of a mid-60s bcf increase and was also above the 59 billion cubic foot average of natural gas that has typically been added to storage during the third full week of August in recent years, thus breaking this summer’s string of seven consecutive below average inventory increases…mild temperatures and low humidity in the Midwest during that week were the major factor in the above average build; 35 billion cubic feet of this week’s increase was added to natural gas storage facilities in the Midwest…Canadian imports returned as well, likely contributing to supplies in the Midwest and in the East, where 27 billion cubic feet cubic feet of natural gas were added to storage, reducing that region’s deficit to just 13.2% below normal… on the other hand, only 2 billion cubic feet cubic feet of gas were added to storage in the South Central region, where supplies of gas remain 22.3% below their five-year average, and only 2 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where supplies are 25.4% below normal for this time of year…so while imports from Canada may backstop natural gas shortages in the Midwest and East this winter, they are unlikely to be of much help to natural gas supplies in the southern parts of the country, should those regions experience a colder than normal winter..

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending August 24th, indicated that despite a significant pullback in our oil refining, a large increase in our oil exports while our oil imports remained depressed meant that we still had to withdraw oil from our commercial crude supplies to meet the needs of our refineries for the sixteenth time in the past thirty-one weeks… our imports of crude oil fell by an average of 33,000 barrels per day to an average of 7,485,000 barrels per day, after falling by an average of 1,496,000 barrels per day the prior week, while our exports of crude oil rose by an average of 624,000 barrels per day to an average of 1,779,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,706,000 barrels of per day during the week ending August 24th, 657,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, field production of crude oil from US wells was reportedly unchanged at a record 11,000,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,706,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using 17,566,000 barrels of crude per day during the week ending August 24th, 324,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 367,000 barrels of oil per day were reportedly being pulled out of the oil that’s in storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 493,000 fewer barrels per day than what refineries reported they used during the week….to account for that disparity between the supply of oil and the disposition of it, the EIA needed to insert a (+493,000) 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, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”…since that “unaccounted for crude” figure was at -305,000 barrels per day during the prior week, we know that the week over week changes for one or more of this week’s EIA oil metrics must be in error by a statistically significant amount…(for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…. 

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,987,000 barrels per day, now 1.9% less than the 8,146,000 barrel per day average that we were importing over the same four-week period last year….the 367,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged, even as a sale of 11 million barrels from those reserves had been announced during that week….this week’s crude oil production was reported as being unchanged at 11,000,000 barrels per day despite a rounded 100,000 barrels per day decrease to 10,500,000 barrels per day in the output from wells in the lower 48 states, because oil output from Alaska rose by 33,000 barrels per day, which was enough to keep the national total, which is now being rounded to the nearest 100,000 barrels per day, unchanged at 11,000,000 barrels per day….US crude oil production for the week ending August 25th 2017 was reportedly at 9,530,000 barrels per day, so this week’s rounded oil production figure was roughly 15.4% above that of a year ago, and 30.5% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

meanwhile, US oil refineries were operating at 96.3% of their capacity in using 17,566,000 barrels of crude per day during the week ending August 24th, down from 98.1% the prior week but still higher than normal, even at this time of year….however, the 17,566,000 barrels per day of oil that were refined this week dropped below last year’s total for this time of year, thus ending a 12 week streak of refining at seasonal record levels….this week’s refinery throughput was 0.9% lower than what had been a record 17,725,000 barrels of crude per day that were processed during the week ending August 25th 2017, when US refineries were operating at 96.6% of capacity…. 

even with the reduction in the amount of oil being refined this week, gasoline output from our refineries was nonetheless higher, increasing by 86,000 barrels per day to 10,237,000 barrels per day during the week ending August 24th, after our refineries’ gasoline output had decreased by 83,000 barrels per day during the week ending August 17th…even with this week’s increase, however, our gasoline production during the week was still 3.4% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the same week of last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 247,000 barrels per day to what was still a high for the date of 5,179,000 barrels per day, after they had risen by 89,000 barrels per day over the prior week…hence, this week’s distillates production was still 2.5% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017…

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,554,000 barrels to 232,774,000 barrels by August 24th, the 16th decrease in 27 weeks, but just the 17th decrease in 42 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline also fell this week because the amount of gasoline supplied to US markets rose by 446,000 barrels per day to a record 9,899,000 barrels per day, after rising by 59,000 barrels per day the prior week, while our imports of gasoline rose by 51,000 barrels per day to 868,000 barrels per day, and while our exports of gasoline fell by 59,000 barrels per day to 585,000 barrels per day…but even after this week’s decrease, our gasoline inventories were still 1.2% higher than last August 25th’s level of 229,937,000 barrels, and roughly 9.4% above the 10 year average of our gasoline supplies for this time of the year…with ‘gasoline product supplied’, often seen as a measure of gasoline consumption, at a record high this week, we’ll take a look at a graph of that metric and explain what it means…

September 1 2018 gasoline demand as of August 24

the above graph came from a the set of oil graphs on this report that John Kemp of Reuters emailed out two weeks ago (available as a pdf here), on which i’ve penciled in an extension to bring it up to date, as John had not produced graphs on this metric this week or last…the graph shows gasoline supplied to US markets in thousands of barrels per day by “day of the year” for the past ten years, with the past ten year range of our domestic gasoline demand for any given date shown in the light blue shaded area, and the median of domestic gasoline supplied, 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 supplied for each week in 2017 traced weekly by a yellow line, and the year to date number of barrels of gasoline supplied for prior 2018 weeks represented by the red graph…as you can see by following the red and yellow graphs, the weekly change in “gasoline product supplied” is quite volatile, often hitting multi-week lows one week, and multi-week highs the next, or vice versa…that’s because this metric does not directly track our demand for gasoline at the retail level, but rather the amount of gasoline supplied by refineries to large bulk terminals and distributors…thus, in anticipating an increase in demand over the Labor Day holiday weekend, these gasoline distributors increased their inventories at a record pace in the week ending August 24th, resulting in the new record for this metric…we thus expect that as those distributor’s inventories are drawn down over the holiday weekend, “gasoline product supplied” will return to its baseline, much as occurred during the week after Memorial Day, when we saw the largest one week increase in oil & oil products inventories in 10 years as the product supplied metrics reversed…

meanwhile, with the decrease in our distillates production, our supplies of distillate fuels were likewise lower, decreasing by 837,000 barrels to 130,001,000 barrels during the week ending August 24th, the 4th decrease in 14 weeks…our distillates supplies also decreased because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 372,000 barrels per day to 4,437,000 barrels per day, after increasing by 106,000 barrels per day the prior week, while our exports of distillates fell by 106,000 barrels per day to 1,136,000 barrels per day, and our imports of distillates rose by 129,000 barrels per day to 274,000 barrels per day….with our distillate supplies still recovering from the 14 year seasonal low that they hit 5 weeks ago, this week’s inventory decrease means our distillates supplies are now 12.8% below the 149,163,000 barrels that we had stored on August 25th, 2017, and also roughly 12.8% lower than the 10 year average of distillates stocks for this time of the year…  

finally, with this week’s big increase in our oil exports, our commercial supplies of crude oil decreased for the 18th time in 2018 and for the 30th time over the past year, falling by 2,566,000 barrels during the week, from 408,358,000 barrels on August 17th to 405,792,000 barrels on August 24th….with that decrease, our crude oil inventories have now dipped a bit below the five year average of crude oil supplies for this time of year, even as they are still roughly 20.1% above the 10 year average of crude oil stocks for the 4th week of August, because it wasn’t until the oil glut of the past 3 years that our inventories first rose above 400 million barrels…but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of August 24th were 11.3% below the 457,773,000 barrels of oil we had stored on August 25th of 2017, 18.1% below the 495,238,000 barrels of oil that we had in storage on August 26th of 2016, and 4.2% below the 423,657,000 barrels of oil we had in storage on August 28th of 2015…

This Week’s Rig Count

US drilling activity increased for the sixteenth time in twenty-three weeks during the week ending August 31st, although the steady increases in drilling for oil we saw with higher oil prices during the first half of this year have stalled, with oil futures’ prices remaining in deep backwardation…. Baker Hughes reported that the total count of rotary rigs running in the US rose by 4 rigs to 1048 rigs over the week ending on Friday, which was 105 more rigs than the 943 rigs that were in use as of the September 1st report of 2017, but was still down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market…    

the count of rigs drilling for oil was up by two rigs to 862 rigs this week, which was also 103 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations also rose by 2 rigs to 184 rigs this week, which was just 1 more than the 183 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…meanwhile, two rigs drilling exploratory wells considered to be “miscellaneous” continued to operate this week, up from just one such “miscellaneous” rig a year ago…

one of the rigs that was added this week began drilling through an inland body of water in southern Louisiana, where there are now two such rigs operating, down from the 4 rigs that were drilling through inland waters there a year ago…the week’s Gulf of Mexico rig count was unchanged at 16 rigs, the same number as were drilling in the Gulf a year ago…however, two rigs continued drilling offshore from Alaska this week, so the total national offshore count is at 18 rigs, which is thus up from last year’s total of 16 offshore rigs, as a year ago there was no offshore drilling other than in the Gulf..

the count of active horizontal drilling rigs was down by 2 rigs to 917 horizontal rigs this week, which was still 123 more horizontal rigs than the 794 horizontal rigs that were in use in the US on September 1st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the vertical rig count increased by 3 rigs to 66 vertical rigs this week, which was still down from the 68 vertical rigs that were in use during the same week of last year…at the same time, the directional rig count also increased by 3 rigs to 65 directional rigs this week, which was also still down from the 81 directional rigs that were operating on September 1st of 2017… 

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of August 31st, the second column shows the change in the number of working rigs between last week’s count (August 24th) and this week’s (August 31st) count, the third column shows last week’s August 24th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend of a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was on Friday the 1st of September, 2017…  

August 31 2018 rig count summary

there is not much to note on this week’s tables, and we can also quickly see that neither the state table nor the basin table reflect the national rig count changes which we have just reviewed…the state count is short because it does’t include Mississippi, which saw their rig count rise from 3 rigs last week to 6 rigs this week, which was up from 4 rigs a year ago, and the most rigs that were drilling in Mississippi since January of 2016…meanwhile, the total count on the basin table above reflects a net increase of one horizontal rig, while we know from the summary that horizontal rigs were down by two, which means there was a net decrease of 3 horizontal rigs in other basins not tracked separately by Baker Hughes…with Oklahoma and New Mexico the only states showing rig count decreases, we might speculate that it’s possible horizontal rigs could have been shut down in New Mexico’s San Juan Basin or in the Oklahoma Anandarko basin outside of the Woodford basins tracked above…but without digging through the individual well logs in the Baker Hughes pivot table we can’t know for sure; ie, it’s also possible that a horizontal rig could have been shut down in almost any other basin, such as the Powder River basin of Wyoming, while a vertical or directional was started in the state at the same time, to net at a zero…meanwhile, the rig added in Pennsylvania’s Marcellus is the only natural gas rig addition indicated above; the other natural gas rig was also in a basin not tracked separately by Baker Hughes…

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