OPEC reports July’s oil output was 2 million barrels per day short of demand; DUCs down most in 33 months as fracking at a 54 month high

oil prices managed to end with a small increase in a week of volatile trading after Trump blinked and delayed the tariffs that he had imposed on China that had sent the markets spiraling lower over the past two weeks…after falling 8% into a bear market on Trump’s tariff threats before recovering more than 6% to close at $54.40 a barrel last week, prices of US crude for September delivery overcame fears of a global economic downturn that had pushed prices down to $53.54 early on Monday and moved higher near the close, ending with a gain of 43 cents at $54.93 a barrel, as signals that Kuwait & the Saudis would continue to reduce global supplies supported an afternoon rally…oil prices then shot up more than 4 percent on Tuesday after Trump bowed to recession fears and said he would delay the tariffs on China he’d announced just a dozen days earlier, with the September oil contract ending $2.17 higher at $57.10 a barrel, the biggest one day price jump so far this year…however, oil prices reversed on Wednesday and erased Tuesday’s gains in falling nearly 6% to $53.97 a barrel after overnight industry reports of a surprise crude and gasoline supply increase and shrinking German GDP data were followed by the EIA’s report that crude inventories had indeed increased, before prices steadied in the afternoon to end at $55.23 a barrel, still a loss of $1.87 on the day…oil prices continued sliding on recession fears and Chinese trade threats on Thursday as Trump’s weakness in delaying the tariffs was mocked in the Chinese press, with US crude closing down 1.4% at $54.47 a barrel even as Brent, the international oil benchmark, ended 2.4% lower at $58.05 a barrel…but oil prices rebounded with the markets on Friday after data showed an unexpectedly large increase in US retail sales, but the gains were capped by an OPEC report warning of slowing economic growth ahead, with oil prices settling 40 cents higher at $54.87 a barrel…with Friday’s small gain, oil prices managed to eke out a 0.7% increase for the week, their first weekly gain in three

natural gas prices also managed to end with a small increase, mostly on the back of what was considered a bullish storage reportafter falling for a fourth week in a row and hitting a 39 month low last week, natural gas contracted for September delivery fell 1.4 cents to $2.105 per mmBTU on Monday, despite forecasts that the remainder of August would be warmer and see greater demand than the same period of a year ago…but prices rose 4.2 cents on the same forecast on Tuesday, and then slipped back four-tenths of a cent on Wednesday in a continuation of the volatility as prices tested multi-year lows over the previous two weeks…however, prices jumped nearly 13 cents with the release of the storage report on Thursday and ended the day 8.9 cents higher at $2.232 per mmBTU…however, with the weak storage build dismissed as being due to pipeline issues, gas prices fell back 3.2 cents to end the week at $2.200 per mmBTU, still a gain of 8.1 cents, or 3.8% for the week, the first increase in 5 weeks…

the natural gas storage report for the week ending August 9th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 49 billion cubic feet to 2,738 billion cubic feet by the end of the week, which meant our gas supplies were 357 billion cubic feet, or 15.0% more than the 2,346 billion cubic feet that were in storage on August 9th of last year, while still 111 billion cubic feet, or 3.9% below the five-year average of 2,849 billion cubic feet of natural gas that have been in storage as of the 9th of August in recent years….this week’s 49 billion cubic feet injection into US natural gas storage was significantly below the 57 billion cubic feet injection predicted by analysts surveyed by S&P Global Platts, while it matched the average 49 billion cubic feet of natural gas that have been added to gas storage during the first full week of August over the past 5 years, the 20th such average or above average storage build in the last 22 weeks…however, the 1,560 billion cubic feet of natural gas that have been added to storage over the 20 weeks of this injection season has now fallen behind the record 1572 billion cubic feet of natural gas that were injected into storage over the same 20 weeks of the 2014 natural gas injection season, but still remains well above the other years on record…    

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 9th indicated that because our refinery throughput fell while an increase in our oil imports partially offset an increase in our oil exports, we had surplus oil to add to storage for the 2nd week in a row…..our imports of crude oil rose by an average of 566,000 barrels per day to an average of 7,714,000 barrels per day, after rising by an average of 485,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 818,000 barrels per day to an average of 2,683,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,031,000 barrels of per day during the week ending August 9th, 252,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, the production of crude oil from US wells was reported to be unchanged at 12,300,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 17,331,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,302,000 barrels of crude per day during the week ending August 9th, 475,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 225,000 barrels of oil per day were being added to the supplies of oil stored 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 and from oilfield production was 196,000 barrels per day less than what was reportedly added to storage and what our oil refineries reported they used during the week…to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+196,000) 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 they label in their footnotes as “unaccounted for crude oil”… (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) indicated that the 4 week average of our oil imports rose to an average of 7,138,000 barrels per day last week, which was still 12.0% less than the 8,116,000 barrel per day average that we were importing over the same four-week period last year…the 225,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be unchanged at 12,300,000 barrels per day even though the rounded estimate of the output from wells in the lower 48 states rose by 100,000 barrels per day to 11,900,000 barrels per day because a 20,000 barrels per day decrease to 433,000 barrels per day in Alaska’s oil production lowered the final rounded national production total by 100,000 barrels per day (EIA”s math, not mine)…last year’s US crude oil production for the week ending August 3rd was rounded to 10,900,000 barrels per day, so this reporting week’s rounded oil production figure was 12.8% above that of a year ago, and 45.9% 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 94.8% of their capacity in using 17,302,000 barrels of crude per day during the week ending August 9th, down from 96.4% of capacity the prior week, but still a refinery utilization rate that is typical for mid summer….however, the 17,302,000 barrels per day of oil that were refined this week were 3.8% below the record 17,981,000 barrels of crude per day that were being processed during the week ending August 10th, 2018, when US refineries were operating at 98.1% of capacity….

with the big decrease in the amount of oil being refined, gasoline output from our refineries was somewhat lower, decreasing by 218,000 barrels per day to 10,203,000 barrels per day during the week ending August 9th, after our refineries’ gasoline output had increased by 5,000 barrels per day the prior week….even so, this week’s gasoline production was just fractionally below the 10,234,000 barrels of gasoline that were being produced daily over the same week of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 209,000 barrels per day to 5,077,000 barrels per day, after our distillates output had increased by 122,000 barrels per day the prior week….but with this week’s decrease, our distillates production was 4.9% less than the 5,337,000 barrels of distillates per day that were being produced during the week ending August 10th, 2018…. 

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the sixth time in 9 weeks and for the 19th time in twenty-five weeks, decreasing by 1,412,000 barrels to 233,760,000 barrels during the week to August 9th, after our gasoline supplies had risen by 4,437,000 barrels over the prior week….our gasoline supplies also decreased this week because the amount of gasoline supplied to US markets increased by 282,000 barrels per day to 9,932,000 barrels per day, and because our imports of gasoline fell by 412,000 barrels per day to 805,000 barrels per day, while our exports of gasoline fell by 324,000 barrels per day to 453,000 barrels per day…after this week’s decrease, our gasoline supplies remained fractionally higher than last August 10th’s inventory level of 233,128,000 barrels, and are still roughly 4% above the five year average of our gasoline supplies at this time of the year…

with the decrease in our distillates production, our supplies of distillate fuels fell for the 13th time in the past 22 weeks, decreasing by 1,938,000 barrels to 135,513,000 barrels during the week ending August 9th, after our distillates supplies had increased by 1,529,000 barrels over the prior week…our distillates supplies decreased this week because our imports of distillates fell by 127,000 barrels per day to 126,000 barrels per day while our exports of distillates rose by 186,000 barrels per day to 1,621,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 27,000 barrels per day to 3,859,000 barrels per day….but even after this week’s inventory decrease, our distillate supplies were still 5.1% higher than the 128,989,000 barrels of distillates that we had stored on August 10th, 2018, while still around 3% below the five year average of distillates stocks for this time of the year…

finally, with the decrease in our refinery throughput, our commercial supplies of crude oil in storage rose for the second time in nine weeks but for the seventeenth time in 30 weeks, increasing by 1,580,000 barrels, from 438,930,000 barrels on August 2nd to 440,510,000 barrels on August 9th…after that increase, our crude oil inventories were roughly 3% above the five-year average of crude oil supplies for this time of year, and were about 32% higher than the prior 5 year (2009 – 2013) average of crude oil stocks for the 2nd Friday of August, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories had generally been rising since this past Fall up until the most recent 9 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 9th were still 6.4% above the 414,194,000 barrels of oil we had stored on August 10th of 2018, but at the same time were 5.6% below the 466,492,000 barrels of oil that we had in storage on August 11th of 2017, and 10.2% below the 490,461,000 barrels of oil we had in commercial storage on August 12th of 2016…  

OPEC’s Monthly Oil Market Report

this week we’re also going to review OPEC’s August Oil Market Report (covering July OPEC & global oil data), which was released on Friday of this past week 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 60 of that report (pdf page 70), 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 a means of impartially adjudicating whether their output quotas and production cuts are being met, to thus avert any potential disputes that could arise if each member reported their own figures…

July 2019 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC’s oil output fell by 246,000 barrels per day to 29,609,000 barrels per day in July, from their revised June production total of 29,855,000 barrels per day…however that June figure was originally reported as 29,830,000 barrels per day, so that means their production for July was actually a 221,000 barrel per day decrease from the previously reported production figures (for your reference, here is the table of the official June OPEC output figures as reported a month ago, before this month’s revisions)…

as you can see, the Saudi’s 134,000 barrel per day output cut made up the lion’s share of OPEC’s July decrease. but most other OPEC members also cut their output proportionately as well…however, that relatively small 32,000 barrels per day increase in the output from Iraq that you see above means they are well over thei output allocation as originally determined for each OPEC member after their December 7th, 2018 meeting, when OPEC agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers, and which were extended at their July 1st meeting a a little over a month ago…in addition, despite the small decrease in July output from Nigeria, their output also remains well above quota, as can be seen in the table of OPEC production allocations we’ve included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, and it shows average daily production quota in millions of barrels of oil per day for each of the OPEC members as was agreed to at their December 2018 meeting and has now been extended through March 2020 as of their recent meeting….note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by a civil war, are exempt from any production quotas, and that among them only Libya has been producing a bit more than they did in the 4th quarter of 2018, which you can see in the third column of the OPEC production table above…

the next graphic from the report that we’ll include shows us both OPEC and world oil production monthly on the same graph, over the period from August 2017 to July 2019, and it comes from page 61 (pdf page 71) of the August 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 metrics for global output shown on the right scale… 

July 2019 OPEC report global oil supply

despite the big decrease in OPEC’s production from what they produced a month ago, their preliminary estimate indicates that total global oil production still rose by 0.23 million barrels per day to 98.71 million barrels per day in July, an increase that came after June’s total global output figure was revised down by 80,000 barrels per day from the 98.56 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 480,000 barrels per day in July after that revision, with higher oil production from Canada, Norway, the UK, Australia, India, Brazil and Azerbaijan the major reasons for the non-OPEC output increase in July…. the 98.71 million barrels per day produced globally in July was also 0.71 million barrels per day, or 0.7% higher than the revised 98.39 million barrels of oil per day that were being produced globally in July a year ago (see the August 2018 OPEC report (online pdf) for the originally reported July 2018 details)…with the decrease in OPEC’s output, their July oil production of 29,609,000 barrels per day slipped to 30.0% of what was produced globally during the month, down from the revised 30.3% share they contributed in June….OPEC’s July 2018 production was reported at 32,323,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year’s total and new member Congo from this year’s, are now producing 2,424,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.9% of global output, with a 1,524,000 barrel per day drop in output from Iran, a 689,000 barrel per day decrease in the output from Saudi Arabia, and a 534,000 barrel per day decrease in the output from Venezuela from that time more than offsetting the year over year production increases of 414,000 barrels per day from Libya, 197,000 barrels per day from Iraq, and 112,000 barrels per day from the Emirates…   

despite the 230,000 barrels per day increase in global oil output that was seen during July, there was still a large shortfall in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…   

July 2019 OPEC report global oil demand

the table above came from page 33 of the August OPEC Monthly Oil Market Report (pdf page 43), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2019 over the rest of the table…on the “Total world” line in the fourth column, we’ve circled in blue the figure that’s relevant for July, which is their revised estimate of global oil demand during the third quarter of 2019…

OPEC has estimated that during the 3rd quarter of this year, all oil consuming regions of the globe will using 100.69 million barrels of oil per day, which was revised from their estimate of 100.61 million barrels of oil per day for the 3rd quarter a month ago….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world’s oil producers were still only producing 98.71 million barrels per day during July, which means that there was a shortfall of around 1,980,000 barrels per day in global oil production when compared to the demand estimated for the month

in addition, the downward revision of 80,000 barrels per day to June’s global output that’s implied in this report, combined with the 10,000 barrels per day upward revision to 2nd quarter demand that we’ve encircled in green, means that the 680,000 barrels per day shortfall that we had previously figured for June based on last month’s figures would now be revised to a deficit of 790,000 barrels per day….likewise, the 10,000 barrels per day upward revision to 2nd quarter demand would mean that we’d have to revise our global oil deficit for May to 1,160,000 barrels per day, and revise our global oil deficit for April to 1,030,000 barrels per day…hence, for the 2nd quarter as a whole, the world’s oil producers were producing 937,000 barrels per day less than what was needed

note that in green we’ve also circled an upward revision of 30,000 barrels per day to first quarter demand…that means that the global oil surplus of 190,000 barrels per day we had previously figured for March would have to be revised to a global oil surplus of 160,000 barrels per day…similarly, the 640,000 barrel per day global oil output surplus we had for February would now be a 610,000 barrel per day global oil output surplus, and the 550,000 barrel per day global oil output surplus we had for January would be revised to a 520,000 barrel per day oil output surplus..

our green ellipse above also highlights that OPEC has revised 2018’s oil demand 80,000 barrels per day higher…when demand for 2018 was last revised in April, we recomputed our 2018 figures and figured that for all of 2018, global oil demand exceeded production by roughly 18,040,000 barrels…this revision means that the 2018 shortfall was 80,000 barrels per day higher, or a total shortfall of roughly 47,240,000 barrels of oil for the year as a whole..

This Week’s Rig Count

the US rig count rose for the first time in a dozen weeks and for just the 3rd time in the past half year during the week ending August 16th, but still remains 13.7% lower year to date….Baker Hughes reported that the total count of rotary rigs running in the US rose by 1 rig to 935 rigs this past week, which was still down by 122 rigs from the 1057 rigs that were in use as of the August 17th report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market…

the count of rigs drilling for oil increased by 6 rigs to 770 rigs this week, which was still 99 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014…at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 4 rigs to 165 natural gas rigs, a 16 month low for gas rig activity and down by 21 rigs from the 186 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008…in addition, a rig classified as miscellaneous was shut down this week, leaving none such operating, down from the 2 “miscellaneous” rigs that were drilling a year ago…

the rig count in the Gulf of Mexico was up by 2 to 25 rigs this week, as two more rigs began operating off the shore of Louisiana…that brought the offshore Louisiana count up to 25, making for a net increase of 6 Gulf of Mexico rigs from the 19 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and two were deployed offshore from Texas…in addition, there continues to be two rigs deployed off the coast of the Kenai Peninsula in Alaska this week, same number as were drilling off the Alaskan shore a year ago, for a total US offshore rig count of 27, up from the total of 21 offshore rigs that were deployed a year ago…in addition to those offshore, southern Louisiana also saw the startup of a rig drilling through an inland body of water, the first such in 4 weeks, but still down from the 2 ‘inland waters’ rigs active in southern Louisiana a year ago

the count of active horizontal drilling rigs was down by 2 to 815 horizontal rigs this week, which was the least horizontal rigs deployed since February 2nd, 2018 and hence a new 18 month low for horizontal drilling…it was also 107 fewer horizontal rigs than the 922 horizontal rigs that were in use in the US on August 17th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the directional rig count was up by 3 to 68 directional rigs this week, but those were down by 2 from the 70 directional rigs that were operating during the same week of last year… meanwhile, the vertical rig count was unchanged at 52 vertical rigs this week, and those were down by 13 from the 65 vertical rigs that were in use on August 17th of 2018…

the details on this week’s changes in drilling activity by state and by major 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 oil & gas 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 16th, the second column shows the change in the number of working rigs between last week’s count (August 9th) and this week’s (August 16th) count, the third column shows last week’s August 9th active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before 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 the 17th of August, 2018…     

August 16 2019 rig count summary

as you can see by the state table above, this week’s one rig increase masked a lot of changes around the country…we’ll start by looking at Texas, where we find 4 rigs were shut down in Texas Oil District 8, which would be the core Permian Delaware, while the rig counts in Texas Oil Districts 7C and 8A, the Permian Midland, were unchanged…that means that the 2 rig increase in New Mexico included one rig in the western-most reaches of the Permian Delaware, and one rig in a basin not tracked separately by Baker Hughes…the 3 rig increase in Louisiana can be accounted for by the 2 added Gulf of Mexico rigs in the state waters, and the inland waters rig start-up we mentioned earlier….for natural gas, the 4 rig decrease in West Virginia’s Marcellus, was completely offset by a 4 rig increase in Pennsylvania’s Marcellus, leaving the Marcellus rig count unchanged…meanwhile, the 3 rigs that were pulled out of Ohio included two natural gas rigs that had been operating in the Utica shale, and the “miscellaneous’ rig that had been drilling a shallow well in Sandusky county…in addition, a natural gas rig was shut down in the Cana Woodford of Oklahoma, where 2 new oil rigs started drilling at the same time, leaving the Cana Woodford with one natural gas rig and 45 drilling for oil…finally, the last natural gas rig that was shut down came out of a basin not tracked separately by Baker Hughes, which could have been anywhere, but which most likely seems to have been pulled out of Oklahoma, given an otherwise unexplained two rig decrease in the state outside of the Cana Woodford…

DUC well report for July

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for August, which includes the EIA’s July data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the fifth month in a row, this report showed a decrease in uncompleted wells nationally in July, as drilling of new wells decreased and completions of drilled wells increased slightly….while there continued to be an increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, the other regions all saw decreases in their DUC inventory, more than offsetting the Permian increases…for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 100 wells, the largest decrease in 33 months, from a revised 8,208 DUC wells in June to 8,108 DUC wells in July, which still represents a 14.0% increase from the 7,114 wells that had been drilled but remained uncompleted as of the end of July a year ago…the decrease occurred as 1,311 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during July, down by 31 from the 1,342 wells drilled in June and the lowest in 15 months, while 1,411 wells were completed and brought into production by fracking, an increase of 19 well completions from the 1,392 completions seen in June and a 54 month high for fracking…at the July completion rate, the 8,108 drilled but uncompleted wells left at the end of the month represent a 5.7 month backlog of wells that have been drilled but are not yet fracked, down from a 6.0 month backlog a year ago…  

both oil producing regions and natural gas producing regions saw DUC well decreases in July, with only the predominantly oil Permian showing an increase…the number of DUC wells left in the Oklahoma Anadarko decreased by 32, from 936 at ​the end of June to 904 DUC wells ​at ​the end of July, as 124 wells were drilled into the Anadarko basin during July while 156 Anadarko wells were being fracked….at the same time, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 23 to 422, as 178 Niobrara wells were drilled in July while 201 Niobrara wells were completed….meanwhile, DUC wells in the Bakken of North Dakota fell by 18, from 693 DUC wells at ​the end of June to 675 DUCs at ​the end of July, as 106 wells were drilled into the Bakken in July, while 124 of the drilled wells in that basin were being fracked…in addtion, DUC wells in the Eagle Ford of south Texas decreased by 13, from 1,517 DUC wells at ​the end of June to 1,504 DUCs at ​the end of July, as 190 wells were drilled in the Eagle Ford during June, while 203 already drilled Eagle Ford wells were completed..

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 16 wells, from 438 DUCs at ​the end of June to 422 DUCs at ​the end of July, as 123 wells were drilled into the Marcellus and Utica shales during the month, while 139 of the already drilled wells in the region were fracked…in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 7 wells to 182, as 46 wells were drilled into the Haynesville during July, while 53 Haynesville wells were fracked during the same period….

on the other hand, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 9, from 3,990 DUC wells at ​the end of June to 3,999 DUCs at ​the end of July, as 544 new wells were drilled into the Permian, but only 535 wells in the region were fracked…….thus, for the month of July, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 77 wells to 7,504 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 23 wells to 604 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both…

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July’s consumer prices, retail sales, industrial production, and new home construction; June’s business inventories

Major economic reports released this past week were the July Consumer Price Index from the Bureau of Labor Statistics, the Retail Sales Report for July and the Business Sales and Inventories report for June, both from the Census bureau, the July report on Industrial Production and Capacity Utilization from the Fed, and the July report on New Residential Construction from the Census Bureau…other reports released this week included Regional and State Employment and Unemployment for July and the July Import-Export Price Index, both from the Bureau of Labor Statistics, and the first two regional Fed manufacturing surveys for August: the Empire State Manufacturing Survey from the New York Fed, which covers New York and northern New Jersey, reported their headline general business conditions index rose from +4.3 in July to +4.8 in August, suggesting a slight pickup in the otherwise slow growth of First District manufacturing, while the Philadelphia Fed Manufacturing Survey for August, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions fell from +21.8 in July to +16.8 in August, still suggesting ongoing growth of that region’s manufacturing industries, as any positive index reading would…

Consumer Prices Up 0.3% in July on Higher Housing & Fuel Costs

The consumer price index was 0.3% higher in July, as higher prices for gasoline, rent, clothing, used vehicles, and most medical services were only partially offset by lower prices for groceries …the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.3% in July after rising 0.1% in June, 0.1% in May, 0.3% in April, 0.4% in March, 0.2% in February, and after they had been unchanged in January, in December and in November, and had risen 0.3% in October, 0.1% in September, 0.1% in August, and 0.2% last July…the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, rose from 256.143 in June to 256.571 in July, which left it statistically 1.811% higher than the 252.006 index reading of June of last year, which is reported as a 1.8% year over year increase….with flat prices for food partially offsetting higher energy prices, seasonally adjusted core prices, which exclude food and energy, also rose by 0.3% for the month, as the unadjusted core price index rose from 263.177 to 263.566, which left the core index 2.2100% ahead of its year ago reading of 257.867, which is reported as a 2.2% year over year increase, up from the 2.1% year over year increase shown in June…

The volatile seasonally adjusted energy price index rose 1.3% in July, after falling 2.3% in June, 0.6% in May, rising 2.9% in April, rising 3.5% in March, rising 0.4% in February, falling 3.1% in January, falling 2.6% in December, falling 2.8% in November, rising by 2.1% in October, and falling by 1.0% in September, and hence is still 2.0% lower than in June a year ago…the price index for energy commodities was 2.4% higher in July, while the index for energy services was unchanged, after falling by 0.7% in June….the energy commodity index was up 2.4% due to a 2.5% increase in the price of gasoline, the largest component, and a 0.6% increase in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average unchanged…within energy services, the price index for utility gas service fell 1.8% after falling 0.3% in June and is now 2.9% lower than it was a year ago, while the electricity price index rose 0.6% after falling 0.8% in June….energy commodities are still 3.4% lower than their year ago levels, with gasoline prices averaging 3.3% lower than they were a year ago, while the energy services price index is 0.2% lower than last July, as electricity prices are now 0.5% higher than a year ago…

The seasonally adjusted food price index was unchanged in July, after being unchanged in June, rising 0.3% in May, falling 0.1% in April, but after rising 0.3% in March, 0.4% in February, 0.2% in January, 0.3% in December, 0.2% in November, being unchanged in October, rising 0.1% in September, 0.1% in August, and 0.1% last July, as the price index for food purchased for use at home fell 0.1% in June, while the index for food bought to eat away from home was 0.2% higher, as prices at fast food outlets and prices at full service restaurants both rose 0.2% while food at employee sites and schools were on average 0.8% higher…

In the food at home categories, the price index for cereals and bakery products was 0.3% higher as average bread prices rose 0.7% and cookie prices rose 1.3%, while the price index for fresh biscuits, rolls, & muffins fell 0.5%…at the same time, the price index for the meats, poultry, fish, and eggs group was 0.1% higher, as the beef and veal price index rose 0.5% and ham prices rose 1.8%, while poultry prices averaged 1.1% lower…meanwhile, the seasonally adjusted index for dairy products was 0.3% lower, as prices for both fresh whole milk and cheese fell 0.2%…on the other hand, the fruits and vegetables index was 0.3% higher on a 0.6% increase in the price index for fresh fruits and a 1.3% increase in the price index for fresh vegetables, led by a 9.5% jump in prices for lettuce….however, the beverages index was 0.4% lower, as roast coffee prices fell 1.4% and carbonated drink prices were 0.5% lower….lastly, the index for the ‘other foods at home’ category was 0.7% lower, as prices for salad dressing fell 2.3%, peanut butter prices fell 1.6%, and the snack food index fell 1.5%….the itemized list for price changes of over 100 separate food items is included at the beginning of Table 2 for this release, which also gives us a line item breakdown for prices of more than 200 CPI items overall…since last July, only prices for lettuce, which have now risen by 14.2% year over year, and prices for eggs, which are down 14.1% from a year ago, are only line items in the ‘food at home’ category with price changes of more than 10% over the past year…

Among the seasonally adjusted core components of the CPI, which rose by 0.3% in July after rising by 0.3% in June, 0.1% in May, 0.1% in April, 0.1% in March, 0.1% in February, and by 0.2% for the five months prior to that, after rising by 0.1% in August, and by 0.2% last July, the composite price index of all goods less food and energy goods was 0.2% higher, while the more heavily weighted composite for all services less energy services was 0.3% higher….among the goods components, which will be used by the Bureau of Economic Analysis to adjust June retail sales for inflation in national accounts data, the price index for household furnishings and supplies was up 0.3%, as the price index for window and floor coverings rose 1.5%, the index for furniture and bedding rose 0.7%, and the price index for outdoor equipment and supplies rose 1.1%, while the price index for major appliances was 1.0% lower….at the same time, the apparel price index was 0.4% higher on a 4.7% increase in the price index for men’s suits, sport coats, and outerwear, a 2.4% increase in the index for women’s suits and separates, and a 2.8% increase in the price index for boys and girls footwear… in addition, the price index for transportation commodities other than fuel was 0.2% higher even as prices for new cars fell 0.2%, because prices for used cars and trucks rose 0.9%, and the price index for motor oil, coolant, and fluids rose 3.9%…meanwhile, prices for medical care commodities also averaged 0.2% higher as prescription drugs prices rose 0.4%….on the other hand, the recreational commodities index was 0.4% lower on a 1.0% decrease in TV prices, a 1.4% drop in the price index for sporting goods, and a 1.7% decrease in the price index for toys, games, hobbies and playground equipment….however, the education and communication commodities index was 1.1% higher on a 2.8% increase in the price index for computers, peripherals, and smart home assistant devices…lastly, a separate price index for alcoholic beverages was 0.4% higher, while the price index for ‘other goods’ rose 0.6% on a 1.0% increase in the price index for tobacco and smoking products…

Within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.2% increase in homeowner’s equivalent rent, and a 1.0% increase in lodging away from home at hotels and motels, while the shelter sub-index for water, sewers and trash collection rose 0.2%, and household operation costs were on average 0.6% higher on a 2.0% increase in moving expenses….at the same time, the price index for medical care services was 0.5% higher, as outpatient hospital services rose 0.7% and health insurance rose 1.7%…meanwhile, the transportation services price index was 0.3% higher as vehicle repairs rose 0.4% and airline fares rose 2.3%….the recreation services price index was 0.2% higher as veterinarian services rose 0.6% and the index for club membership for shopping clubs, fraternal organizations, or participant sports fees rose 1.0%….the index for education and communication services was also 0.2% higher as the index for internet services and electronic information providers services rose 0.6% and technical and business school tuition and fees also rose 0.6%….lastly, the index for other personal services was up 0.5% as the price index for apparel services other than laundry and dry cleaning rose 1.0% and tax preparation services were 0.6% higher…among core line items, prices for televisions, which are now 20.2% cheaper than a year ago, and the price index for telephone hardware, calculators, and other consumer information items, which is down by 15.8% since last July, have both seen prices drop by more than 10% over the past year, while the cost of health insurance, which is now up by 15.9% over the past year, the price index for infants’ furniture, which has increased 11.6% year over year, and intercity busfare, which has increased by 12.8% since last July, are the only line items to have increased by a double digit magnitude over that span….

July Retail Sales Rose 0.7% After May Sales were Revised Higher

Seasonally adjusted retail sales were 0.7% higher in July after retail sales for May were revised higher….the Advance Retail Sales Report for July (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $523.5 billion during  the month, which was 0.7 percent (± 0.5 percent) higher than June’s revised sales of $519.9 billion and 3.4 percent (±0.7 percent) above the adjusted sales in July of last year…June’s seasonally adjusted sales were revised from the $519.885 billion reported last month to $519.860 billion, which is considered statistically unchanged, while May sales were revised from $517.682 billion to $518.131 billion, which reduced the June increase from 0.4% to 0.3%….estimated unadjusted sales, extrapolated from a survey of a small sampling of retailers, indicated sales actually rose 2.7%, from $518,179 million in June to $532,348 million in July, while they were up 4.8% from the $508,010 million of sales in July a year ago…combined, the revisions to May and June indicate that 2nd quarter sales were roughly $0.42  billion higher than previously reported, which would add about $1.7 billion to the BEA’s calculation of 2nd quarter personal consumption expenditures at an annual rate before the inflation adjustment, which should be enough to boost 2nd quarter GDP by 0.01 percentage points when the 2nd estimate is published at the end of the month…

Included below we have the table of the monthly and yearly percentage changes in retail sales by business type taken from the July Census pdf….the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from June to July in the first sub-column, and then the year over year percentage change for those businesses since last July in the 2nd column; the second pair of columns gives us the revision of last month’s June advance monthly estimates (now called “preliminary”) as revised in this report, likewise for each business type, with the May to June change under “May 2019 (r)evised” and the revised June 2018 to June 2019 percentage change in the last column shown…for your reference, our copy of the table of last month’s advance June sale estimates, before this month’s revision, is here….

July 2019 retail sales table

To compute July’s real personal consumption of goods data for national accounts from this July retail sales report, the BEA will use the corresponding price changes from the July consumer price index, which we reviewed earlier….to estimate what they will find, we’ll first pull out the usually volatile sales of gasoline from the other totals…from the third line on the above table, we can see that July retail sales excluding the 1.8% jump in sales at gas stations were up by 0.6%….then, subtracting the figures representing the 0.6% increase in grocery & beverage sales and the 1.1% increase in food services sales from that total, we find that core retail sales were up by somewhat more than 0.5% for the month…since the July CPI report showed that the the composite price index of all goods less food and energy goods was 0.2% higher in July, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an increase of about 0.3% for the month…however, the actual adjustment in national accounts 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 0.6%, the July price index for transportation commodities other than fuel was 0.2% higher, which would suggest that real sales at auto & parts dealers were 0.8% lower once price increases are taken into account… similarly, while nominal sales at clothing stores were 0.8% higher in July, the apparel price index was 0.4% higher, which means that real sales of clothing only rose around 0.4%…

In addition to figuring those core retail sales, to make a complete estimate of real July PCE, we’ll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the July CPI report showed that the food price index was unchanged, as the price index for food purchased for use at home fell 0.1% while the index for food bought away from home was 0.2% higher…thus, while nominal sales at food and beverage stores were 0.6% higher, real sales of food and beverages would have been around 0.7% higher in light of the 0.1% decrease in prices…meanwhile, the 1.1% increase in nominal sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests that real sales at bars and restaurants only rose around 0.9% during the month…at the same time, while sales at gas stations were up 1.8%, there was concurrently a 2.5% increase in the price of gasoline during the month, which would suggest that real sales of gasoline were actually on the order of 0.7% lower, with a caveat that gasoline stations sell more than gasoline, and we haven’t accounted for those other sales…by averaging those estimated real sales figures with a sales appropriate weighting, and excluding food services, we’d estimate that the income and outlays report for July will show that real personal consumption of goods rose by around 0.3% in July, after rising by a revised 0.3% in June, rising by a revised 0.6% in May and by 0.6% in April, after rising 1.9% in March, falling by 0.9% in February and rising by 1.7% in January…at the same time, the 0.9% increase in real sales at bars and restaurants should have a notable positive impact on June’s real personal consumption of services…

Industrial Production Down 0.2% in July After Prior Months Revised Lower

The Fed’s G17 release on Industrial production and Capacity Utilization for July indicated that industrial production fell by 0.2% in July after rising by a revised 0.2% in both May and in June…however, after revisions, industrial production is now up just 0.5% from a year ago, as compared to last month’s 1.3% year over year increase…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell to 109.2 in July from 109.4 in June, which was revised from the 109.6 reported for June a month ago…at the same time, the May reading for the IP index was revised down from 109.6 to 109.2, and the April reading for the index was revised down from 109.2 to 109.0….

The manufacturing index, which accounts for more than 77% of the total IP index, decreased by 0.4% to 104.7 in July, after June’s manufacturing index was revised from 105.2 to 105.1, May’s manufacturing index was revised from 104.8 to 104.5, and April’s manufacturing index was revised from 104.6 to 104.3, while the March and the February manufacturing indexes remained unrevised at 105.2 and 105.3 respectively…hence, the manufacturing index is down 0.5% from a year ago, having fallen 1.2% since December….meanwhile, the mining index, which includes oil and gas well drilling, fell from 133.6 in June to 131.2 in July, which was still 5.5% higher than it was a year ago….finally, the utility index, which often fluctuates due to above or below normal temperatures, rose 3.1 to 104.9 in July, after the June utility index was revised from 101.9 to 101.7 and the May index was revised from 105.7 to 105.2…with an equivalently hot July in 2018, the utility index is only 0.3% above its year ago reading of 104.6..

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 fell from 77.8 in June to 77.5 in July, after capacity utilization for June was revised from 77.9% to 77.8%, and after capacity utilization for April and May was revised lower as well….capacity utilization by NAICS durable goods production facilities fell from 75.9 in June to 75.6 in July, while capacity utilization for non-durables producers fell from 76.6% to 76.1% at the same time….meanwhile, capacity utilization for the mining sector fell to 89.1% in July from 91.2% in June, which was originally reported as 91.5%, while utilities were operating at 76.6% of capacity during July, up from their 74.5% of capacity during June, a figure that was originally reported at 74.6%…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….

New Housing Starts Reported Lower in July; Building Permits Higher

The July report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started in July was at a seasonally adjusted annual rate of 1,191,000, which was 4.0 percent  (±8.0 percent)* below the revised June estimated annual rate of 1,241,000 housing units started, but was 0.6 percent (±8.2 percent)* above last July’s pace of 1,184,000 housing starts annually….the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, July’s housing starts could have been up by 4.0% or down by as much as 12.0% from those of June, with even larger revisions eventually possible…in this report, the annual rate for June housing starts was revised down from the 1,253,000 reported last month to 1,241,000, while May starts, which were first reported at a 1,269,000 unit annual rate, were revised from last month’s initial revised figure of 1,265,000 annually to an annual rate of 1,264,000 with this report….

Those annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by Census field agents, which estimated that 113,700 housing units were started in July, down from the 116,600 units started in June…of those housing units started in July, an estimated 84,800 were single family homes and 27,800 were units in structures with more than 5 units, up from the revised 83,400 single family starts in June, but down from the 32,300 units started in structures with more than 5 units in June…

As we’ve pointed out previously, the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in July, Census estimated new building permits were being issued at a seasonally adjusted rate of 1,336,000 housing units per year, which was 8.4 percent (±1.1 percent) above the revised June annual rate of 1,232,000 permits, and was 1.5 percent (±1.4 percent) above the rate of building permit issuance in July a year earlier…the annual rate for housing permits issued in June was revised from 1,220,000 to 1,232,000….

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 120,600 housing units were issued in July, up from the revised estimate of 111,000 new permits issued in June…the July permits included 79,000 permits for single family homes, up from 75,100 single family permits in June, and 37,400 permits for housing units in apartment buildings with 5 or more units, up from 31,900 such multifamily permits a month earlier… for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts decline to 1.191 Million Annual Rate in July and Comments on July Housing Starts.

June Business Sales Up 0.1%, Business Inventories Up 0.1%, Less than Estimated by the BEA

Following the release of the July retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for June(pdf), which incorporates the revised June retail data from that July retail 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 $1,460.1 billion in June, up 0.1 percent (±0.2%)* from May revised sales, and up 1.3 percent (±0.4 percent) from June sales of a year earlier…note that total May sales were revised from the originally reported $1,461.4 billion to $1,458.2 billion, now down 0.1% from April, rather than up 0.2% as had previously been reported….manufacturer’s adjusted sales were up 0.4% to $506,153 million in June, and retail trade sales, which exclude restaurant & bar sales from the revised June retail sales reported earlier, were up 0.3% to $455,392 million, while wholesale sales fell 0.3% to $498,539 million…

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,035.7 billion at the end of June, virtually unchanged (±0.1 percent)* from May, but 5.2 percent (±0.4 percent) higher than in June a year earlier…the value of end of May inventories was revised down from the $2,036.4 billion reported last month to $2,035.8 billion…seasonally adjusted inventories of manufacturers were estimated to be valued at $695,585 million at the end of June, 0.2% higher than those at the end of May, inventories of retailers were valued at $661,444 million, 0.3% less than in May, while inventories of wholesalers were estimated to be valued at $678,669 million at the end of June, statistically unchanged from May…

The Key source data and assumptions that accompanied the release of the advance estimate of 2nd quarter GDP indicates that the BEA had assumed that total seasonally adjusted June manufacturing and trade inventories (on a Census basis) would increase by $3.1 billion from the previously published May figures…since this report shows that total June inventories increased by $0.1 billion while May inventories were revised down by $0.6 billion at the same time, that means that the advance estimate of 2nd quarter GDP overestimated end of June inventories by $3.6 billion, or at an annual rate of $14.4…assuming there is no major change relating to the inflation adjustment on those inventories, a revision to reflect these new figures would be enough to subtract about 0.28 percentage points from 2nd quarter GDP, when the 2nd estimate is released at the end of August…

 

(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 August 17th

retail sales:

July 2019 retail sales table

rig count summary:

August 16 2019 rig count summary

OPEC output:

July 2019 OPEC crude output via secondary sources

global oil supply:

July 2019 OPEC report global oil supply

global oil demand:

July 2019 OPEC report global oil demand

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oil prices fall into bear market; natural gas prices bounce off a 39 month low; rig count falls to a 19 month low..

oil prices fell nearly 8% to a 7 month low on a worsening of the US-China trade war early this past week, but then recovered three-quarters of that decline by week end on reports that the Saudis were on the phone with the Russians in an attempt to stop the price slide…after ending 1% lower at $55.66 a barrel last week on the Thursday Trump tweet announcing new tariffs on China, the contract price of US crude for September delivery opened trading lower on Monday as China had let its currency depreciate to 7 yuan to the dollar in response to Trump’s tariffs, but its losses were limited by a draw from inventories at the Cushing, Oklahoma delivery hub for that contract, as US prices ended down just 93 cents at $54.69 a barrel even as global oil prices fell more than $2 on the currency war news…oil prices fell sharply for second day on Tuesday, tracking a volatile stock market, with US crude ending down $1.06 at $53.63 a barrel, even as Brent crude, the global benchmark, slid into a bear-market in falling more than 20% from its late-April peak…oil prices then plunged further on Wednesday after the EIA reported a surprise increase in US crude and gasoline supplies, with US crude ending down nearly 5% at $51.09 a barrel, while Brent crude fell $2.71 to $56.23 a barrel, an eight-month low….however, oil prices jumped on Thursday due to a firmer yuan and expectations of more OPEC cuts, with US crude ending 2.5% higher at $52.54 a barrel on reports that the Saudis phoned other oil producers to devise a policy response to halt the price slide…prices jumped again on Friday, supported by a drop in European oil inventories and expectations of more OPEC output cuts, despite an International Energy Agency report that demand growth was at its lowest since 2008, with US crude finishing the session $1.96, or 3.7% higher at $54.50 a barrel, the largest one-day gain in nearly a month…but despite that 2 session surge, US WTI prices still ended the week down 2% from last week’s close, while Brent crude finished 5.4% lower at $58.53, with both benchmarks having entered a bear market earlier in the week

natural gas prices, meanwhile, ended the week little changed, after falling to a 39 month low on Monday…after falling for a third week in a row and hitting 38 month lows twice last week before ending at $2.121 per mmBTU, the natural gas contract for September delivery fell 5.1 cents to a 39 month low of $2.070 per mmBTU on Monday, following a weekend report that US dry gas production had hit an all-time high of 90.4 billion cubic feet per day, thus topping 90 billion cubic feet per day for the first time in US history…prices rebounded 4.1 cents on Tuesday on strong power burns and a forecast for hotter than normal weather for the next 15 days, but backed off from that bullish news and still fell 2.8 cents on Wednesday…a slightly smaller than expected addition to storage moved prices 4.5 cent higher on Thursday, but they again fell back to a intraday low of $2.064 per mmBTU on Friday before ending the week at $2.119 per mmBTU, just two-tenths of a cent lower than the previous week’s close

the natural gas storage report for the week ending August 2nd from the EIA indicated that the quantity of natural gas held in storage in the US increased by 55 billion cubic feet to 2,689 billion cubic feet by the end of the week, which meant our gas supplies were 343 billion cubic feet, or 14.6% more than the 2,346 billion cubic feet that were in storage on August 2nd of last year, while still 111 billion cubic feet, or 4.0% below the five-year average of 2,800 billion cubic feet of natural gas that have been in storage as of the 2nd of August in recent years….this week’s 55 billion cubic feet injection into US natural gas storage was a bit below the consensus forecast of a 57 billion cubic feet injection by analysts surveyed by S&P Global Platts , while it was well above the average 43 billion cubic feet of natural gas that have been added to gas storage during the same week of the summer over the past 5 years, the 19th such above average storage build in the last 21 weeks… the 1,511 billion cubic feet of natural gas that have been added to storage over the 19 weeks of this injection season remains as the largest injection of gas into storage on record for any prior similar period of the gas injection season…   

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 2nd indicated the first increase in US crude inventories in 8 weeks, despite a big jump in our refinery throughput, because of an increase in our crude oil imports and a drop in our oil exports, accompanied a major shift of unaccounted for crude from the demand side to the supply side of the oil balance sheet….our imports of crude oil rose by an average of 485,000 barrels per day to an average of 7,148,000 barrels per day, after falling by an average of 365,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 709,000 barrels per day to an average of 1,865,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,283,000 barrels of per day during the week ending August 2nd, 1,194,000 more barrels per day than the net of our imports minus exports during the prior week…over the same period, the production of crude oil from US wells was reported to be 100,000 barrels per day higher than the prior week at 12,300,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 17,583,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly using 17,777,000 barrels of crude per day during the week ending August 2nd, 786,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 341,000 barrels of oil per day were being added to the supplies of oil stored 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 and from oilfield production was 535,000 barrels per day less than what what was added to storage and what our oil refineries reported they used during the week…to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (+535,000) 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 they label in their footnotes as “unaccounted for crude oil”….since last week’s unaccounted for crude was on the demand side at -512,000, that means there was a week over week swing of 1,047,000 barrels per day in the unaccounted for portion of the oil balance sheet, ​or that this week’s week over week comparisons ​were distorted by more than a million barrels of missing crude per day (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) indicated that the 4 week average of our oil imports fell to an average of 6,918,000 barrels per day last week, which was 14.9% less than the 8,129,000 barrel per day average that we were importing over the same four-week period last year…the 341,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be 100,000 barrels per day higher at 12,300,000 barrels per day even though the rounded estimate of the output from wells in the lower 48 states was unchanged at 11,800,000 barrels per day because a 9,000 barrels per day increase to 453,000 barrels per day in Alaska’s oil production raised the final rounded national production total by 100,000 barrels per day (EIA”s math, not mine)…last year’s US crude oil production for the week ending August 3rd was rounded to 10,800,000 barrels per day, so this reporting week’s rounded oil production figure was 13.9% above that of a year ago, and 45.9% 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 96.4% of their capacity in using 17,777,000 barrels of crude per day during the week ending August 2nd, up from 93.0% of capacity the prior week, a refinery utilization rate that has been​ fairly​ typical for mid summer in recent years….the 17,777,000 barrels per day of oil that were refined this week were 1.0% above the 17,598,000 barrels of crude per day that were being processed during the week ending August 3rd, 2018, when US refineries were operating at 96.6% of capacity….

even with the big increase in the amount of oil being refined, gasoline output from our refineries was ​only a bit higher, increasing by 5,000 barrels per day to 10,421,000 barrels per day during the week ending August 2nd, after our refineries’ gasoline output had increased by 327,000 barrels per day the prior week….even so, this week’s gasoline production was 5.1% higher than the 9,913,000 barrels of gasoline that were being produced daily during the same week last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 122,000 barrels per day to 5,286,000 barrels per day, after our distillates output had decreased by 55,000 barrels per day the prior week….​with this week’s increase, our distillates production was 0.9% more than the 5,237,000 barrels of distillates per day that were being produced during the week ending August 3rd, 2018…. 

with our gasoline production little changed, our supply of gasoline in storage at the end of the week rose for the second time in 8 weeks and for the 6th time in twenty-four weeks, rising by 4,437,000 barrels to 235,172,000 barrels over the week to August 2nd, after our gasoline supplies had fallen by 1,791,000 barrels over the prior week….our gasoline supplies increased this week as our imports of gasoline rose by 100,000 barrels per day to 1,217,000 barrels per day while our exports of gasoline fell by 32,000 barrels per day to 777,000 barrels per day, and while the amount of gasoline supplied to US markets increased by 92,000 barrels per day to 9,651,000 barrels per day…after this week’s increase, our gasoline supplies were fractionally higher than last August 3rd’s inventory level of 233,868,000 barrels, and have now risen to roughly 4% above the five year average of our gasoline supplies at this time of the year…

with the increase in our distillates production, our supplies of distillate fuels rose for the 9th time in the past 21 weeks, increasing by 1,529,000 barrels to 137,451,000 barrels during the week ending August 2nd, after our distillates supplies had decreased by 894,000 barrels over the prior week…our distillates supplies increased this week because our imports of distillates jumped by 150,000 barrels per day to 253,000 barrels per day while our exports of distillates fell by 75,000 barrels per day to 1,435,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 1,000 barrels per day to 3,886,000 barrels per day….after this week’s inventory increase, our distillate supplies were 9.6% higher than the 125,423,000 barrels of distillates that we had stored on August 3rd, 2018, but still around 1% below the five year average of distillates stocks for this time of the year…

finally, with higher oil imports and much lower oil exports, our commercial supplies of crude oil in storage rose for the first time in eight weeks but for the sixteenth time in 29 weeks, increasing by 2,385,000 barrels, from 436,545,000 barrels on July 26th to 438,930,000 barrels on August 2nd …after that increase, our crude oil inventories were roughly 2% above the five-year average of crude oil supplies for this time of year, and were 31.0% higher than the prior 5 year (2009 – 2013) average of crude oil stocks for the 1st Friday of August, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories had generally been rising since this past Fall up until the recent 8 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 2nd were still 7.7% above the 407,389,000 barrels of oil we had stored on August 3rd of 2018, but at the same time were 7.7% below the 475,437,000 barrels of oil that we had in storage on August 4th of 2017, and 11.0% below the 492,969,000 barrels of oil we had in commercial storage on August 5th of 2016… 

This Week’s Rig Count

the US rig count fell for the 22nd time in 25 weeks during the week ending August 9th, and is now down by 13.8% year to date….Baker Hughes reported that the total count of rotary rigs running in the US fell by 8 rigs to a new 19 month low of 934 rigs this past week, down by 123 rigs from the 1057 rigs that were in use as of the August 10th report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market…

the count of rigs drilling for oil fell by 6 rigs to 764 rigs this week, which was an 18 month low for oil rigs, 105 fewer than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014…at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 2 rigs to 169 natural gas rigs, which was down by 17 rigs from the 186 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008…in addition, a rig classified as miscellaneous continued to drill this week, which was one less than the 2 “miscellaneous” rigs drilling a year ago…

the rig count in the Gulf of Mexico was up by 1 to 23 rigs this week, as another Gulf rig began operating off the shore of Louisiana…that brought the offshore Louisiana count up to 23, making for an increase of 5 Gulf of Mexico rigs from the 18 rigs that were deployed in the Gulf in the same week a year ago, when 16 rigs were drilling in Louisiana waters and two were deployed offshore from Texas…in addition, there continues to be two rigs deployed off the coast of Alaska this week, same number as were drilling off the Alaskan shore a year ago, for a total US offshore rig count of 25, up from the total of 20 offshore rigs that were deployed a year ago..

the count of active horizontal drilling rigs was down by 2 to 817 horizontal rigs this week, which was the least horizontal rigs deployed since February 2nd, 2018 and hence also a new 18 month low for horizontal drilling…it was also 107 fewer horizontal rigs than the 924 horizontal rigs that were in use in the US on August 10th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the directional rig count was also down by 2 to 65 directional rigs this week, but those were up from the 6​4 directional rigs that were operating during the same week of last year… at the same time, the vertical rig count was down by 4 to 52 vertical rigs this week, and that was down by 17 from the 69 vertical rigs that were in use on August 10th of 2018…

the details on this week’s changes in drilling activity by state and by ​major ​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 oil & gas 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 9th, the second column shows the change in the number of working rigs between last week’s count (August 2nd) and this week’s (August 9th) count, the third column shows last week’s August 2nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before 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 the 10th of August, 2018…     

August 9 2019 rig count summary

once again, the most significant changes in drilling activity were outside of Texas, with the 4 rigs that were pulled out of Alaska not even showing up on the major US basin table above…in Oklahoma, the 3 rigs that were shut down in the Cana Woodford were apparently offset by a rig increase in the Granite Wash near the Texas panhandle, since Texas Oil District 10, where the Granite Wash stretches into Texas, only added one rig…the 2 rig decrease in the Haynesville also appears to have been split between states, as northern Louisiana only saw one rig pulled out, while Texas Oil District 6, which includes the western reaches of the Haynesville, also saw one rig shut down this week…however, there were no rig changes in the Texas Permian, so both of the rigs added in that basin were added in New Mexico, in the western-most reaches of the Permian Delaware…while the 2 rig decrease in the Haynesville ​appears to adequately explain the national natural gas rig count decrease, one of the rigs added in the Granite Wash happened to be targeting natural gas, while a natural gas rig in an ‘other’ not tracked separately by Baker Hughes was concurrently shut down…

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July’s producer prices, June’s wholesale inventories & JOLTS

Agency issued reports released this past week included the July Producer Price Index and the Job Openings and Labor Turnover Survey (JOLTS) for June, both from the Bureau of Labor Statistics, and the June report on Wholesale Trade, Sales and Inventories from the Census Bureau…in addition, the Fed released the Consumer Credit Report for June, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $14.4  billion, or at a 4.2% annual rate, as non-revolving credit expanded at a 5.8% rate to $3,030.6 billion while revolving credit outstanding contracted at a 0.1% rate to $1,071.5 billion…

Privately issued reports included the July Non-Manufacturing Report On Business from the Institute of Supply Management, which saw the NMI (non-manufacturing index) fall to 53.7% in July, from 55.1% in June, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business in July than in June, and the Mortgage Monitor for June (pdf) from Black Knight Financial Services, which indicated that 3.73% of mortgages were delinquent in June, up from 3.36% delinquent in May, but down from the 3.74% delinquency rate in May 2018, and that 0.49% of mortgages remained in the foreclosure process in June, up from 0.49% of all mortgages in May but down from 0.56% a year ago…June’s near 11% jump in mortgage delinquencies was one of the top five such single-month increases in the past decade and one of the top 15 among records going back to 2000….

Producer Price Index Rose 0.2% July, Largely On Higher Energy Prices

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.2% in July, as prices for finished wholesale goods increased 0.4%, while margins of final services providers decreased by 0.1%…that followed a June report that indicated the PPI rose 0.1%, as prices for finished wholesale goods decreased 0.4%, while margins of final services providers increased by 0.4%, a May report that indicated the PPI was also 0.1% higher, as prices for finished wholesale goods averaged 0.2% lower while average margins of final services providers rose 0.3%, a revised April report that now has the PPI 0.3% higher, with prices for finished wholesale goods and average margins of final services providers both 0.3% higher, and a revised March report that showed the PPI had increased by 0.4%, with prices for finished wholesale goods up 1.0% and margins of final services providers now up 0.1%….on an unadjusted basis, producer prices are 1.7% higher than a year ago, same as had been indicated by last month’s report…meanwhile, the core producer price index, which excludes food, energy and trade services, was down 0.1% for the month, and is now only 1.7% higher than in June a year ago, down from the 2.1% YoY increase shown in June…

As noted, the price index for final demand for goods, aka ‘finished goods’, was 0.4% higher in July, after being 0.4% lower in June, 0.2% lower in May, 0.3% higher in April, 1.0% higher in March, 0.3% higher in February, 0.6% lower in January, 0.6% lower in December, 0.5% lower in November, 0.8% higher in October, and 0.1% lower in September of 2018….the finished goods index rose in July because the price index for wholesale energy was 2.3% higher, after falling by 3.1% in June and by 1.0% in May, after rising by a revised 2.2% in April and a revised 5.2% in March, while the price index for wholesale foods rose 0.2% in July after rising 0.6% in June, and while the index for final demand for core wholesale goods (excluding food and energy) rose 0.5 after being unchanged for three months in a row….wholesale energy prices were higher on a 5.2% increase in wholesale prices for gasoline, a 7.9% jump in wholesale prices for diesel fuel, and 8.0% higher wholesale prices for home heating oil, while the wholesale food price index rose on a 6.2% increase in the wholesale price index for grains, a 3.0% increase in wholesale prices for fish and shellfish, and a 1.8% increase in wholesale prices for beef and veal….among wholesale core goods, the wholesale price index for office and store machines and equipment rose 12.7% , wholesale prices for mining machinery and equipment rose 1.6%, and wholesale prices for cigarettes rose 0.8%..

At the same time, the index for final demand for services fell 0.1% in July, after rising 0.4% in June, 0.3% in May, a revised 0.3% in April, and a revised 0.1% in March, as the index for final demand for trade services rose 0.2% in July and the index for final demand for transportation and warehousing services also rose 0.2%, while the core index for final demand for services less trade, transportation, and warehousing services was 0.3% lower…. among trade services, seasonally adjusted margins for auto parts and tire retailers rose 6.2%, margins for major household appliance retailers rose 6.1%, margins for flooring and floor coverings retailers rose 3.0%, and margins for machinery and vehicle wholesalers rose 3.0%, while margins for fuels and lubricants retailers fell 9.9%… among transportation and warehousing services, margins for air transportation of freight rose 0.9% and margins for airline passenger services rose 1.5%…among the components of the core final demand for services index, margins for guestroom rentals fell 4.3% while margins for traveler accommodation services fell 3.6%..

This report also showed the price index for intermediate processed goods rose 0.2% in July, after falling 1.1% in June and 0.2% in May, after being unchanged in April (revised), and rising a revised 0.6% in March….the price index for intermediate energy goods rose 2.2%, as refinery prices for gasoline rose 5.2% and refinery prices for diesel fuel rose 7.9%, while prices for natural gas sold to electric utilities fell 5.1%…however, prices for intermediate processed foods and feeds fell 0.1%, as the producer price index for prepared animal feeds fell 1.6% and producer prices for processed poultry fell 0.7%… in addition, the core price index for intermediate processed goods less food and energy fell 0.2% as producer prices for steel mill products decreased 2.6% and producer prices for hardwood lumber fell 2.4%… prices for intermediate processed goods are now 2.0% lower than in June a year ago, the third consecutive year over year decrease following 29 months of year over year increases, which had been preceded by 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 rose 1.6 in July, after falling 3.3% in June, falling 5.1% in May, rising a revised 3.1% in April, but after falling a revised 0.4% in March (which had been reported as a 2.3% price increase as recently as two months ago)….that was as the July price index for crude energy goods rose 2.8% as crude oil prices rose 10.9%, while the price index for unprocessed foodstuffs and feedstuffs fell 0.2% as a 16.1% decrease in producer prices for slaughter hogs and a 7.6% decrease in producer prices for alfalfa hay were partially offset by a 10.3% increase in producer prices for corn….at the same time, the index for core raw materials other than food and energy materials rose 1.9%, as wastepaper prices rose 6.3% and prices for nonferrous metal ores rose 5.5%…this raw materials index is still 10.4% lower than a year ago, as the year over year change on this index has been negative all year…

Lastly, the price index for services for intermediate demand fell 0.2% in July, after rising 0.2% in June, being unchanged in May, rising a revised 0.2% in April,  a revised 0.5% in March, being unchanged in February, rising 0.2% in January, and rising 0.1% in December and in November…the price index for intermediate trade services was 0.8% lower, as margins for intermediate paper and plastic product wholesalers fell 6.1% and margins for intermediate machinery and equipment parts and supplies wholesalers fell 2.2%…on the other hand, the index for transportation and warehousing services for intermediate demand rose 0.3%, as the intermediate index for courier, messenger, and U.S. postal services rose 0.8% and the price index for pipeline transportation of petroleum products rose 3.6%…meanwhile, the core price index for intermediate services less trade, transportation, and warehousing fell 0.1%, as the index for business loans (partial) fell 3.7% and the intermediate index for traveler accommodation services fell 3.6% while the price index for waste collection rose 3.5%….over the 12 months ended in June, the year over year  price index for services for intermediate demand, which has never turned negative on an annual basis, is still 2.0% higher than it was a year ago…

Job Openings Lower in June; Hiring, Layoffs, and Job Quitting Also Down

The Job Openings and Labor Turnover Survey (JOLTS) report for June from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 36,000, from 7,384,000 in May to 7,348,000 in June, after May job openings were revised higher, from 7,323,000 to 7,384,000…June jobs openings were also 0.6% lower than the 7,393,000 job openings reported in June a year ago, as the job opening ratio expressed as a percentage of the employed fell from 4.7 in May to 4.6% in June, and was also down from the 4.7% rate in June of a year ago…the greatest drop in June job openings was in bars and restaurants, where openings fell by 81,000 to 835,000, while job openings in retail rose by 73,000 to 888,000 (see table 1 for details on other categories of job openings)…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 June, seasonally adjusted new hires totaled 5,702,000, down by 58,000 from the revised 5,760,000 who were hired or rehired in May, as the hiring rate as a percentage of all employed was unchanged at 3.8%, while it remained lower than the 3.9% hiring rate in June a year earlier (details of hiring by industry since January are in table 2)….meanwhile, total separations decreased by 76,000, from 5,557,000 in May to 5,481,000 in June, as the separations rate as a percentage of the employed fell from 3.7% to 3.6%, which was also down from the 3.7% separations rate of June a year ago (see table 3)…subtracting the 5,481,000 total separations from the total hires of 5,702,000 would imply an increase of 221,000 jobs in June, somewhat more than the revised payroll job increase of 193,000 for June reported by the July establishment survey last week, but still within the expected +/-115,000 margin of error in these incomplete samplings

Breaking down the seasonally adjusted job separations, the BLS finds that 3,433,000 of us voluntarily quit their jobs in June, down from the revised 3,478,000 who quit their jobs in May, while the ‘quits rate’, widely watched as an indicator of worker confidence, remained unchanged at 2.3% of total employment, same as the quits rate of a year earlier (see details in table 4)….in addition to those who quit, another 1,702,000 were either laid off, fired or otherwise discharged in June, down by 71,000 from the revised 1,773,000 who were discharged in May, as the discharges rate fell from 1.2% to 1.1% of all those who were employed during the month, which was also down from the discharges rate of 1.2% a year earlier (see table 5)…meanwhile, other separations, which includes retirements and deaths, were at 345,000 in June, up from 303,000 in May, for an ‘other separations rate’ of 0.2%, same as in May and as in June 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 easily accessed using the links to tables at the bottom of the press release

June Wholesale Sales Down 0.3% After May Sales Revised 0.7% Lower; Inventories Virtually Unchanged

The June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $498.5 billion, down 0.3 percent (+/-0.4%)* from the revised May level, and down 0.2 percent (±1.1 percent)* from wholesale sales of June 2018… the May preliminary estimate was revised down $3.6 billion or 0.7% to $499.8 billion from the $503.4 billion sales reported last month, which is now 0.6% less than April’s sales, rather than a 0.1% increase…as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold….

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this June report estimated that wholesale inventories were valued at a seasonally adjusted $678.7 billion at month end, virtually unchanged (+/-0.2%)* from the revised May level but 7.6 percent (±1.1 percent) higher than in June a year ago, with the May preliminary estimate revised higher, from $678.1 billion to $678.4 billion at the same time, still a 0.4% increase from April….

In the advance report on 2nd quarter GDP of two weeks ago, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released the day before the GDP release…that report estimated that our seasonally adjusted wholesale inventories were valued at $680.02 billion at the end of June, up from $678.39 billion in May….that’s $1.35 billion more than the $678.67 billion that this report shows, which would imply that the quarterly change in 2nd quarter inventories was overestimated at roughly a $5.4 billion annual rate…assuming there’s no revision in the inflation adjustment to those inventories, that would mean that the growth rate of 2nd quarter GDP was overestimated by more than 0.10 percentage points, just based on what this report shows…

 

(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 August 10th

rig count summary:

August 9 2019 rig count summary

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oil prices see largest one-day loss in 53 months; natural gas prices fall to 38 month low; oil supplies lowest in 38 weeks

oil prices finished the week lower despite being up 4 out of 5 days, as Trump’s surprise Thursday tweet of new tariffs on China shook financial markets and sent crude tumbling to its largest single day loss in over 4 years….after rising less than 1% to $56.20 a barrel on a big US oil inventory withdrawal last week, prices of US crude for September delivery initially slipped lower on Monday after reports of ‘constructive’ talks with Iran, but turned higher as the prospect of an interest rate cut by the Fed overshadowed concerns about slower global economic growth, with prices finishing the session 67 cents higher at $56.87 a barrel…expectations of a Fed rate cut and a US crude supply drawdown pushed prices higher again on Tuesday, with the WTI contract for September delivery rising $1.18 to settle at $58.05 per barrel, with those gains extended in after hours after the API reported a larger-than-expected crude draw…hence, oil prices opened higher on Wednesday and moved even higher after the EIA confirmed the big draw of crude and lower supplies of gasoline and distillates, rising for the fifth consecutive day to $58.58 a barrel, as traders awaited the widely expected first cut in interest rates in more than 10 years…however, oil prices fell on Thursday morning after the Fed cut rates but signaled further rate cuts might be limited, and then nosedived by as much as 8% after Trump said he’d impose another 10% tariff on $300 billion more of Chinese imports, as US crude went on to end the day $4.63 lower at $53.95 a barrel, the largest single-day decline since February 2015oil prices rebounded more than $1 from that oversold level early on Friday and continued higher to close up $1.71 at $55.66 per barrel, but still ended down 1% on the week that saw the U.S./China trade war overshadow both the Fed rate cut and a bullish inventory report...

natural gas prices also ended lower, falling for a third week in a row and ending the week below the multi-year low set in June…after falling 4% to a hair above a 3 year low at $2.169 per mmBTU last week, prices of natural gas for August delivery tumbled 2.8 cents to $2.141 on the final day of trading for the August natural gas contract on Monday, largely on a weekend trend toward cooler medium range weather forecasts; at the same time, the natural gas contract for September delivery fell 3.4 cents to $2.116 per mmBTU, a 38 month low…however, September gas rebounded 2.1 cents on Tuesday and then rose 9.6 cents to $2.233 per mmBTU on Wednesday, as the trend toward cooler weather lifted, while stronger power burns improved the fundamentals….however, a bearish storage report sent prices 3.1 cents lower on Thursday, and the week ended with another 8.1 cent selloff on Friday to send the September natural gas contract price back to $2.121 per mmBTU, just a half a cent above that 38 month low set Monday…

with natural gas prices still ending at their lowest weekly close in 38 months, we’ll include a graph of natural gas prices over the past 3 1/2 years to show you how we got here…

August 3 2019 weekly natural gas prices

the above graph is a Saturday afternoon screenshot of the interactive US natural gas price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets…each bar on the above graph portion above represents natural gas prices for a week of trading between the start of 2016 and this past week, wherein the green bars represent the weeks when the price of natural gas went up, and red bars represent the weeks when the price of natural gas went down…for green bars, the starting natural gas price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar…also barely visible on this scaled-down “candlestick” style graph are the very faint grey “wicks” above and below each bar, to indicate trading prices during the week that were above or below the opening to closing price range for that week…(the lighter red & green bars at the bottom of the graph represent the trading volume for each week, not a concern for us today)…as you can see, natural gas prices have been falling steadily since approaching $5 per mmBTU in November, when it appeared that natural gas supplies might be inadequate for the coming winter, and have now been testing these 3 year lows for the past 6 weeks, and first established a new three year low in the middle of June…average breakeven prices for drilling new natural gas wells are now down to near $3, so a drilling slowdown is to be expected….when gas prices first fell below $2.50 in early 2016, drilling new wells for natural gas virtually dried up, with the national natural gas rig count falling to as low as 81 rigs the following summer, which was the lowest natural gas rig count over the entire time Baker Hughes had been keeping records… 

the natural gas storage report for the week ending July 26th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 65 billion cubic feet to 2,634 billion cubic feet by the end of the week, which meant our gas supplies were 334 billion cubic feet, or 13.2% greater than the 2,300 billion cubic feet that were in storage on July 26th of last year, while still 123 billion cubic feet, or 4.5% below the five-year average of 2,757 billion cubic feet of natural gas that have been in storage as of the 26th of July in recent years….this week’s 65 billion cubic feet injection into US natural gas storage was quite a bit more than the consensus expectations of analysts surveyed by S&P Global Platts for a 53 billion cubic feet injection , and it was much ​above the average 36.6 billion cubic feet of natural gas that have been added to gas storage during the fourth week of July over the past 5 years, the 18th above average storage build in the last 20 weeks… the 1,456 billion cubic feet of natural gas that have been added to storage over the 18 weeks of this injection season has been the largest injection of gas into storage on record for any prior similar period of the gas injection season…  

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending July 26th, indicated the 10th decrease in crude inventories in 18 weeks, despite a ​big ​drop in our oil exports and a rebound in our crude oil production, ​which was ​man​i​fest as a major shift of unaccounted for crude from the supply side to the demand side of the oil balance sheet….our imports of crude oil fell by an average of 365,000 barrels per day to an average of 6,663,000 barrels per day, after rising by an average of 194,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 718,000 barrels per day to an average of 2,574,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,089,000 barrels of per day during the week ending July 26th, 353,000 more barrels per day than the net of our imports minus exports during the prior week…over the same period, the​ ​production of crude oil from US wells was reported to be 900,000 barrels per day higher ​than the prior week ​at 12,200,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,289,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly using 16,991,000 barrels of crude per day during the week ending July 26th, 43,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 1,213,000 barrels of oil per day were being withdrawn from the supplies of oil stored 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 512,000 barrels per day more than what our oil refineries reported they used during the week…to account for that disparity between the supply of oil and the disposition of it, the EIA inserted a (-512,000) 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 they label in their footnotes as “unaccounted for crude oil”….since last week’s unaccounted for crude was on the supply side at +450, that means there was a week over week swing of 962,000 barrels per day in the unaccounted for portion of the ​oil ​balance sheet, rendering this week’s week over week comparisons meaningless (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) indicated that the 4 week average of our oil imports fell to an average of 6,956,000 barrels per day last week, which was 13.1% less than the 8,004,000 barrel per day average that we were importing over the same four-week period last year…the 1,213,000 barrel per day decrease in our total crude inventories was all pulled out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be 900,000 barrels per day higher at ​12,2​00,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states ​was ​1,000,000 barrels per day ​higher at 11,800,000 barrels per day, largely due to ​resumed production ​in the Gulf of Mexico, while a 14,000 barrels per day decrease to 444,000 barrels per day in Alaska’s oil production lowered the final rounded national production total by 100,000 barrels per day (EIA”s math, not mine)…last year’s US crude oil production for the week ending July 27th was rounded to 10,900,000 barrels per day, so this reporting week’s rounded oil production figure was 11.9% above that of a year ago, and 44.8% 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 93,0% of their capacity in using 16,991,000 barrels of crude per day during the week ending July 26th, down from 93.1% of capacity the prior week, a utilization ​rate that’s a bit lower ​than normal for mid summer….the 16,991,000 barrels per day of oil that were refined this week were also 2.8% below the 17,480,000 barrels of crude per day that were being processed during the week ending July 27th, 2018, when US refineries were operating at 96.1% of capacity….

even with the small decrease in the amount of oil being refined, gasoline output from our refineries was quite a bit higher, increasing by 327,000 barrels per day to 10,416,000 barrels per day during the week ending July 26th, after our refineries’ gasoline output had increased by 234,000 barrels per day the prior week….but even with those big increases in gasoline output, this week’s gasoline production was still fractionally lower than the 10,483,000 barrels of gasoline that were being produced daily during the same week last year….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 55,000 barrels per day to 5,164,000 barrels per day, after our distillates output had decreased by 142,000 barrels per day the prior week….but even after those decreases, the week’s distillates production was a bit more than the 5,159,000 barrels of distillates per day that were being produced during the week ending July 27th, 2018…. 

despite the increase in gasoline production, our supply of gasoline in storage at the end of the week still fell for the sixth time in 7 weeks and for the 18th time in twenty-three weeks, falling by 1,791,000 barrels to 230,735,000 barrels over the week to July 26th, after our gasoline supplies had slipped by 226,000 barrels over the prior week….our gasoline supplies decreased this week because our exports of gasoline rose by 251,000 barrels per day to 809,000 barrels per day, and while our imports of gasoline rose by 132,000 barrels per day to 1,117,000 barrels per day, and while the amount of gasoline supplied to US markets decreased by 114,000 barrels per day to 9,559,000 barrels per day…after our gasoline supplies had reached an all time record high twenty-five weeks ago, they then fell by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, and as a result they are still fractionally lower than last July 27th’s inventory level of 230,968,000 barrels, while just 2% above the five year average of our gasoline supplies at this time of the year…

with the decrease in our distillates production, our supplies of distillate fuels fell for the 12th time in the past 20 weeks, decreasing by 894,000 barrels to 135,922,000 barrels during the week ending July 26th, after our distillates supplies had increased by 613,000 barrels over the prior week…our distillates supplies decreased this week because our exports of distillates rose by 538,000 barrels per day to 1,510,000 barrels per day while our imports of distillates fell by 2,000 barrels per day to 103,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 379,000 barrels per day to 3,885,000 barrels per day….but even after this week’s inventory ​decrease, our distillate supplies were still 9.4% higher than the 124,193,000 barrels of distillates that we had stored on July 27th, 2018, but around 3% below the five year average of distillates stocks for this time of the year…

finally, even with our oil production returning to normal after tropical storm Barry and our oil exports falling, our commercial supplies of crude oil in storage fell for a seventh week in a row and for the thirteenth time in 28 weeks, decreasing by 8,496,000 barrels, from 445,041,000 barrels on July 19th to 436,545,000 barrels on July 26th…after that big decrease, our crude oil inventories slipped back to ​near ​the five-year average of crude oil supplies for this time of year, while remaining more than 30% higher than the prior 5 year (2009 – 2013) average of crude oil stocks for the 4th week of July, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories had generally been rising since this past Fall until the recent 7 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of July 26th were still 6.8% above the 408,740,000 barrels of oil we had stored on July 27th of 2018, but at the same time were 9.4% below the 481,888,000 barrels of oil that we had in storage on July 28th of 2017, and 11.3% below the 491,914,000 barrels of oil we had stored on July 29th of 2016…      

since it’s probably been a half year that we’ve been explaining that this year’s crude inventories are above last years but below the two years before that, it might be useful if we included a picture of that…so below we have a graph that shows total US crude oil inventories weekly since the beginning of 2016, oddly ​labeled​ as a fraction of a billion barrels….the graph below comes from the Zero Hedge summary of this week’s Petroleum Status Report, but ignore the sidebar “M”, as it should ​indicate billion​s​; everything else on the graph is accurate…as the red arrow that Zero Hedge includes indicates, our crude oil inventories are now at their lowest since November 2nd, 2018…

August 1 2019 crude inventories as of July 26th

This Week’s Rig Count

the US rig count fell for the 21st time in 24 weeks during the week ending August 2nd, and is now down by more than 13% year to date….Baker Hughes reported that the total count of rotary rigs running in the US fell by 4 rigs to a new 18 month low of 944 rigs this past week, down by 102 rigs from the 1044 rigs that were in use as of the August 3rd report of 2018, and quite a bit below the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market…

the count of rigs drilling for oil fell by 6 rigs to 770 rigs this week, which was also a 18 month low for oil rigs, 89 fewer than were running a year ago, and less than half of the recent high of 1609 rigs that were drilling for oil on October 10th, 2014…at the same time, the number of drilling rigs targeting natural gas bearing formations increased by 2 rigs to 171 natural gas rigs, which was ​still ​down by 12 rigs from the 183 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008…in addition, a rig classified as miscellaneous continued to drill this week, which was one ​less than the 2 “miscellaneous” rigs drilling a year ago…

the rig count in the Gulf of Mexico was down by 1 to 22 rigs this week, as the only rig which had been drilling offshore from Texas was shut down…that still left 22 rigs drilling offshore from Louisiana, an increase of 6 Gulf of Mexico rigs from the 16 rigs that were deployed in the Gulf in the same week a year ago, when 14 rigs were drilling in Louisiana waters and two were deployed offshore from Texas…in addition, there continues to be two rigs deployed off the coast of Alaska this week, up from the one rig drilling off the Alaskan shore a year ago…combining those, the total US offshore rig count is​ thus​ at 24, 7 more offshore rigs than were deployed a year ago..

the count of active horizontal drilling rigs was down by 4 to 819 horizontal rigs this week, which was the least horizontal rigs deployed since February 2nd, 2018 and hence also a new 18 month low for horizontal drilling…it was also 93 fewer horizontal rigs than the 912 horizontal rigs that were in use in the US on August 3rd of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the directional rig count was unchanged at 67 directional rigs this week, but those were ​more than the 64 directional rigs that were operating during the same week of last year… in addition, vertical rig count was also unchanged at 56 vertical rigs this week, but that was down by 12 from the 68 vertical rigs that were in use on August 3rd of 2018…

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 oil & gas 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 2nd, the second column shows the change in the number of working rigs between last week’s count (July 26th) and this week’s (August 2nd) count, the third column shows last week’s July 26th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before 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 the 3rd of August, 2018…    

August 2 2019 rig count summary

as you can see, this week’s drilling pullback was concentrated in Oklahoma, which was down 5 rigs, but it’s not immediately obvious where those 5 rigs came from; obviously, the rig that was shut down in the Cana Woodford ha​d been drilling in Oklahoma, and it also appears that as many as 3 rigs could have been pulled out of the Granite Wash in Oklahoma, since Texas Oil District 10 in the panhandle ​region ​where the Granite Wash is located actually added a rig…but we still have to figure that at least 1 of the Oklahoma rig ​cutbacks came out of an area not included in the major Oklahoma basins ​listed ​by Baker Hughes…elsewhere in Texas, we have 2 rigs pulled out of Texas Oil District 8, or the core Permian Delaware, and a single rig pulled out of Texas Oil District 7C, or the southern Permian Midland basin, while Texas Oil District 8A, or the northern part of the Permian Midland, saw 4 additional rigs start up…hence, that means that the 2 rigs that were shut down in New Mexico had been drilling in the western Permian Delaware…the natural gas rig that was started up in the Haynesville also appears to have been added in Texas, since the rig count in northern Louisiana was unchanged while Texas Oil District 6, which includes the western reaches of the Haynesville, also saw a rig added this week…meanwhile, the other natural gas rig that was added this week was in a basin not tracked separately by Baker Hughes, as none of the other basins shown above had a change in their ​natural ​gas rig count this week..

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Note: there’s more here….

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