new record for oil and gasoline stores, a record drop in the US rig count, global rigs for January, et al

it seems we set a number of records, or encountered some unusual outliers, this week…first, we have new highs in both the amount of crude oil and the amount gasoline in storage, which isn’t too surprising considering that both hit record highs last week, and we’re at a time of year when inventories of both are normally increasing seasonally…we also saw the largest one week percentage drop in drilling rig activity, at least in the post fracking era, as nearly 8% of the rigs that were running last week have since been pulled out…and we also saw swings in the price of oil the likes of which we have not seen in seven years…oil prices were actually quite volatile all week, with contract prices for US WTI crude falling from $33.62 a barrel on Friday to $29.71 a barrel by the close on Tuesday, making for the largest two day drop in oil prices since January 2009, percentage-wise…but oil prices turned around and jumped 8% on Wednesday, despite the fact that reports of record inventories, that normally drive prices down, were released that same day…it was later revealed that the big price spike at that time was due to the unwinding of a $600 million triple short in the form of an Inverse Crude Oil Exchange Traded Note, which is a financial product designed to produce returns at the inverse of the benchmark oil price, wherein through a combination of short selling, derivatives trading and leveraging, such notes would pay three times the decline in the price of oil for the amount of money bet, but wherein losses are limited to the amount bet on the price change (unlike a straight short sale, where losses are theoretically limitless)…after the oil contract buying needed to unwind that aberrant short selling was done, US oil prices fell more than $1 a barrel to close at $31.72 on Thursday, and continued dropping Friday to close the week at $30.89 a barrel, down almost 9% for the week…

Record Oil Glut

so, we’ll start this week with the developments that led to the record inventories, and then go from there…the primary underlying reason for the big increase in oil inventories this week was a big jump in our imports of crude oil, which were higher by 647,000 barrels per day, rising from an average 7,609,000 barrels per day during the week ending January 22nd to an average of 8,256,000 barrels per day during the week ending January 29th…despite higher domestic oil production, those imports were 11.8% above the 7,387,000 barrels per day we were importing during the same week last year…over the first 4 weeks of this year, our oil imports have now averaged 8.0 million barrels per day, 7.8% higher than our imports during the first 4 weeks of 2015…

meanwhile, production of crude oil from US wells was barely changed, falling by just 7,000 barrels per day, from 9,221,000 barrels per day during the week ending January 22nd to an average of 9,214,000 barrels per day during the week ending January 29th…thus, our field production of crude oil in January averaged about 9,227,000 barrels per day over the past 4 weeks, roughly 100,000 barrels per day more than our average production during September and October, and remains above the 9,192,000 barrels per day that was being produced in the same 4 week period a year ago, despite a 70% drop in active oil drilling rigs over the period since then..

at the same time, our refineries were using 24,000 barrels per day less crude than they did last week, as refinery throughput averaged 15,615,000 barrels per day, a half a percent higher than the 15,544,000 barrels per day that was being refined during the week ending January 30th last year…as a result, there were 7,792,000 barrels of surplus oil left unused at the end of the week, and hence our stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, rose by that much to end the week at 502,712,000 barrels, the first time our oil stores have ever topped the 500 million level in 80 years of EIA record keeping…in fact, it was just 53 weeks ago that our oil inventories topped 400 million barrels for the first time…thus, the 502,712,000 barrels we had stored as of January 29th was 21.7% higher than the 413,060,000 barrels we had stored on January 30th last year, which itself was then an all time record for crude oil in storage…

now, you may be asking, if we’ve had such a glut of oil in storage all year, with typically 25% more oil in storage than the year before, why are we continuing to import so much oil than we were importing previously?   once again, that’s not because we need it for fuel or feedstocks, but rather it’s the work of oil traders…as we’ve mentioned several times in the past, oil future’s prices remain in contango, meaning that the contract price to deliver oil at dates in the future is higher than the current spot price, and higher than the widely quoted near term contract price for oil…what that means is that an oil trader can buy oil today and can simultaneously contract to deliver that oil at some higher price months hence, and guarantee a decent profit, if he can find a place to store that oil in the interim for a fee less than the difference between the current price and the future price…this might be best explained with a picture of Friday’s contract prices for several months in the future, which we’re including below…

February 6th 2015 oil quotes

the table above was obtained from a website called quotes.ino,com and it shows the results of Friday’s trading in several oil futures contracts at the New York Mercantile Exchange (NYMEX) for the US benchmark oil WTI, which trades under the symbol CL….as you can see by the second column, i’ve included the months from the current March contract price to the contract to deliver oil in January 2017, although the table i’ve clipped these quotes from includes prices for these dates through December 2024, and then a bunch of quotes for other oil trades called spreads, which aren’t our concern today….each line shows opening high, low, and closing contract prices for oil delivery in some future month; hence, the first line shows the widely quoted price of oil for delivery in March, which as we mentioned closed the week at $30.89 a barrel, and the last line shows the contract price for delivery of that same oil in January of next year, which closed this week at $40.79 a barrel…what that means is that an oil trader can contract to buy a 2 million barrel tanker of oil at $30.89 a barrel for delivery in March, and and the same time contract to sell that oil for almost $10 a barrel more 10 months in the future, which is instantly profitable, if he can find a place to store that oil for less than the difference…as a practical matter, said trader would probably be paying the global Brent price for imported oil, which have been trending about $1 a barrel more than WTI this week, but the principle of the the contango trade is the same: buy oil cheap, store it, and sell it at a profit in the future…theoretically, the other counter-parties to his two trades are equally satisfied with the prices they’ve voluntarily contracted to either sell oil for today, or to lock in a purchase price and delivery date of oil in the future…

Record Gasoline Stores

as we noted earlier, our refineries were processing 15,615,000 barrels of crude per day during the week ending January 29th, down just 24,000 barrels per day from the prior week, even though the US refinery utilization rate fell to 86.6%, down from 87.4% last week and down from 89.9% a year ago, about normal for this time of year…and with record gasoline inventories already stored, refinery production of gasoline fell further, from 9,377,000 barrels per day during week ending January 22nd to 8,642,000 barrels per day during week ending January 29th, which appears to be our lowest gasoline production since the week ending April 25th of 2014, when 8,625,000 barrels per day were produced…nonetheless, total motor gasoline inventories still increased by 5,938,000 barrels over the week to end at 254,399,000 barrels on January 29th, the first time on record that our gasoline supplies have topped a quarter billion barrels…(strangely enough, our imports of gasoline also rose over the same week, from 576,000 barrels per day during week ending January 22nd to 624,000 barrels per day during week ending January 29th, so we would not be surprised to see contango trading of gasoline as well)….at the same time, refinery production of distillate fuels (diesel fuel and heat oil) decreased slightly, from 4,452,000 barrels per day during the week ending January 22nd, to 4,435,000 barrels per day during the week ending January 29th…but since the weather has remained cold, our distillate fuel inventories fell for the 3rd week in a row, dropping by 777,000 barrels to 159,695,000 barrels, down 3.4% from the 5 year record high 165,554,000 barrels we had stored on January 8th, but still 18.8% higher than the 134,475,000 barrels of distillate fuels we had stored on January 30th last year, and near the upper limit of the average range for this time of year…for a visualization of how these inventory gluts have developed over the past year, we’ll include a graphic showing the change each week over the past 52 weeks, taken from the Zero Hedge coverage of this same report:

February 3 2016 oil and products inventories

there are four bar graphs included above and all of them are formatted similarly; on top is a graph of the weekly change in crude oil inventories, next is the change in oil inventories at the central US depot in Cushing Oklahoma, where oil prices are set; the third shows the change in inventories of gasoline, and the graph on the bottom is for inventories of distillates, with each graph starting at the end of last January and up to and including the data from the current EIA reports for January 29th…within each graph, each bar represents a week of the past year, with green bars indicating an addition to that inventory during the reference week, and red representing a withdrawal from that inventory that week, with the size of the bars indicating the volume in barrels of the addition or withdrawal….thus on the top graph we can see record volumes of crude being added to storage in February, March and April of last year, until the driving season, when higher refinery throughput meant oil inventories were being drawn out between May and October…but except for three weeks around the holidays, we’ve been adding crude every week since, and additions of the last three weeks pushed what crude was in storage to record levels…meanwhile, gasoline inventories, shown in the third chart, stayed fairly well balanced all year until December, when record additions five weeks in a row pushed those stores into record territory…lastly, on the bottom graph, inventories of distillate built up to near record levels from late November through early January as above normal temperatures reduced consumption of heat oil…with the colder weather of the last three weeks of January, those near record supplies are being drawn down but are still near the upper limit of their average range for this time of year…

lastly, so you can see how the last five weeks of increases in gasoline inventories compares to normal, we’ll include a graph of that:

image

in the above graph, taken from this week’s weekly Petroleum Status Report (62 pp pdf), the blue line shows the recent track of our gasoline inventories over the period from June 2014 to January 29, 2016, while the grey shaded area represents the range of our gasoline supplies as reported weekly by the EIA over the prior 5 years, essentially showing us the normal range of gasoline inventories as they fluctuate from season to season….here we can see that the blue line first rose above the normal range in December of 2014, and continued to set seasonal records as it rose rapidly through January of last year, not falling back into the normal range until last summer…but again this fall, gasoline inventories were above their normal range, but as of December they were still lower than last year’s records…but nearly 33 million barrels of gasoline have been added to storage over the last five weeks, which we see as a blue spike on the graph, which has taken our gasoline inventories to record levels, which as of this week are 5.7% higher than the January record set a a year earlier..

Record Percentage Drop in US Rig Count

it appears that this week saw the greatest percentage of active drilling rigs retired in one week in the 16 years of weekly Baker Hughes records, as 48 rigs were pulled out during the week ending February 5th, leaving 571, down from 619 last week, for a percentage reduction of nearly 7.8% in one week…certainly more rigs were pulled out in some weeks early last year, such as on March 6th, when they shut down 75 of the 1276 that were active back then, or during the week of February 13th, when 98 of the 1456 then active rigs were idled, but there were never any total cuts closer to 7% of those then active than on those dates…even scanning through the records of the 2009-2011 gas rig collapse shows nothing net of that percentage drop in one week, largely because oil drilling rigs were being added at the same time, ameliorating the total rig decline…nonetheless, this week Baker Hughes reported that the count of active oil rigs fell by 31 to 467 while the count of active gas rigs fell by 17 to 104 during the week ending February 5th, which was down from 1140 oil rigs, 312 gas rigs and 2 miscellaneous rigs that were actively drilling on the first weekend of February a year ago, and which was already down significantly from the highs set in the prior October and November…oil rigs had hit their fracking era high at 1609 working rigs on October 10, 2014, while the recent high for gas drilling rigs was the 356 rigs that were deployed on November 11th of that same year…

two drilling rigs were pulled out of the Gulf of Mexico during the week, so the Gulf count is now back down to 25, which is also down from 48 working in the Gulf and a total of 50 drilling offshore as of February 6th a year ago…there was also a rig set up on an inland lake in Texas, so there are now 2 rigs drilling through inland waters, with one also in Louisiana, down from the 9 that were set up on inland waters a year earlier… a net of 29 horizontal rigs were stacked this week, cutting the count of horizontal rigs down to 458, which was also down from the 1088 horizontal rigs that were in use the same week last year…in addition, 14 vertical rigs were also taken out of service, leaving 60, down from 233 last year at this time, and 5 directional rigs were also removed, dropping the directional rig count down to 53, which was down from the 135 directional rigs that were in use on February 6th of last year…

of the major shale basins, only the Barnett shale of the Dallas area saw a single rig added; they now have 4 rigs actively drilling, which is still down from the 19 that were in use there a year ago…elsewhere, the Ardmore Woodford of Oklahoma was down 2 rigs to 5, down from 7 rigs a year ago, and the Cana Woodford, also of Oklahoma, also stacked 2 rigs, leaving 37, down from 43 a year ago…in addition, the Eagle Ford of south Texas was down 4 rigs to 60 this week, which was down from 168 rigs last year at this time, and the Granite Wash of the Oklahoma-Texas panhandle region was down 5 rigs to 8 this week,and down from 39 rigs a year ago….the two major gas basins, the Haynesville of Louisiana and the Marcellus of the northern Appalachians, were both down 3 rigs; that left the Haynesville with 15 rigs, down from 43 a year ago, and the Marcellus with 31 rigs, down from 71 rigs a year earlier…the Mississippian of southwest Kansas and bordering states was down 1 rig to 10 and down from 53 rigs working the area a year ago, and the large Permian basin of west Texas and eastern New Mexico was down 2 rigs to 180, which was down from 417 rigs working last year at this time…the Utica shale, mostly of eastern Ohio, was down 1 rig to 13, which was down from last year’s 41, and lastly the Williston of North Dakota was down 2 rigs to 42, which was down from 137 rigs working there a year earlier..

not surprisingly, no states saw drilling rig increases this week…Texas saw the largest decrease, with 19 rigs stacked in the state, leaving 262 rigs active, down from the 654 that were drilling in the state a year ago…Oklahoma was down 8 rigs to 80, which was down from 176 drilling in the state on February 6th of 2015…5 rigs were pulled out of Louisiana, leaving 46, which was down from 107 rigs working the state a year earlier…in addition, Pennsylvania was down 3 rigs to 19, which was down from 54 a year ago, and North Dakota, Mississippi, Utah, and Wyoming were each down 2 rigs…that left North Dakota with 42, down from 132 a year earlier, Mississippi with 3, down from 8 a year earlier, Utah with just 1, down from 12 a year earlier, and Wyoming with 13, down from 42 on the same date a year ago…finally, Alabama, Ohio and Illinois were all down 1 rig, which left Alabama with no rigs, down from 7 a year earlier, Ohio with 13 rigs active, down from 39 a year ago, and Illinois also with none, vs the two that were drilling there the same week a year earlier…

Global Rig Count for January

Friday also saw the monthly release of the global rig count for January, which unlike the weekly count, is an average of the number of rigs running in each country for the month, rather than the total of those drilling at month end…January saw an average of 1,891 rigs drilling for oil and natural gas around the globe, which was down from 1,969 rigs drilling in December and down from the 3,309 rigs that were deployed globally in January of last year…unlike the past three months, when the lions share of the rigs that were pulled during the month came from North America, 50 of the 78 rigs retired this week had been working other continents, as oil prices are apparently now so low as to affect everyone…in North American, the US average rig count was down 60 rigs to 654, and down from 1,683 rig in January of 2015, while the Canadians saw a net addition of 32 rigs from December, as their average rose from 160 rigs to 192, which was still down from the 368 rigs in use in Canada in January of last year…

the Middle East saw rigs pulled out for the first time in 6 months, as the region was down 15 rigs to 407, which was also down from the 415 rigs deployed in the Middle East a year earlier…nonetheless, their offshore rig count was unchanged at 55, and up from 43 offshore platforms working in the region a year ago….the Saudis pulled out 5 rigs to reduce their total active drilling rig count up to 124, which was still up from the 119 rigs that were drilling in the Kingdom last January…Kuwait and Oman both idled three rigs; that left Kuwait with 40, which was down from 48 a year earlier, and Oman with 70, which was still up from the 61 rigs they were using to drill a year earlier…Qatar was the only country in the Middle East to see an increase in January, as they added 2 rigs, bringing their total count back up to 9, same as they had last January…

meanwhile, the Latin American countries saw a reduction 27 rigs, after idling 14 rigs in December, 10 rigs in November and 27 rigs in October, as the region averaged 243 rigs in January, including 51 offshore, down from a total of 351 rigs, which included 79 offshore rigs, in January of 2015….Argentina saw the largest pullback by far, as they were down 19 rigs to 72, which was down from 106 rigs that were in use in Argentina a year ago…Colombia and Brazil both idled 4 rigs; Colombia is now running just 8 rigs, down from a high of 48 in November of last year, while Brazil still has 34 rigs active, down from 47 a year earlier…only Mexico saw an increase, as they added 1 rig and now have 43 working, which is still down from the 69 rigs they had deployed a year ago at this time…

elsewhere, the Asia-Pacific region had 193 drilling rigs working in January, down from 198 in December and down from 232 last January…the largest decrease in the region was in Indonesia, where they reduced their 25 rigs to 20, which was down from the 36 rigs they were running a year ago…India also shut down 3 rigs, but they still have 97, which is down from the 108 the had deployed last January; meanwhile, the Thais added three rigs, bringing their total up to 18, which was an increase from the 15 rigs Thailand was running a year earlier…in addition, the rig count in Europe fell by 6 to 108 in January, which was down from 128 rigs working Europe a year ago, as Poland and Sakhalin Island both idled 2 rigs…the Poles are now running 10 rigs, which is still up from the 7 they were running a year ago, while Sakhalin Island, which is a Russian island in the Pacific but included in European totals, is now running 5 rigs, down from 7 last week and 6 rigs in January of 2015…finally, Africa was the only continent where rigs were added in January, as their count rose by 3 to 94, which was still down from 132 African rigs working a year earlier…Algeria, up 2 rigs to 11, was the only African nation with a rig variance greater than 1, as the Algerians were also up from 47 rigs a year ago…note that Iran, Russia, and China rig counts are not included in Baker Hughes international data, although China’s offshore area, with an average of 27 rigs active in January, is included in the Asian totals here…  

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January jobs report; December’s income and outlays, trade deficit, construction spending, factory inventories and Mortgage Monitor

in addition to the Employment Situation Summary for January from the Bureau of Labor Statistics, this week also saw the release of four December reports that input into our GDP, three of which could result in revisions to the 4th quarter GDP estimate released last week: the Census report on our International Trade for December, the Full Report on Manufacturers’ Shipments, Inventories and Orders for December and the December report on Construction Spending, both also from the Census Bureau…the December report on Personal Income and Spending from the BEA, which includes personal consumption expenditure data for December, was released on Monday and had already been incorporated into the advance GDP figures released Friday…in addition, this week brought us the Consumer Credit Report for December from the Fed, which showed that overall credit expanded by a seasonally adjusted $21.3 billion, or at a 7.2% annual rate, as non-revolving credit expanded at a 7.1% rate to $2,611.2 billion and revolving credit outstanding rose at a 8% rate to $935.6 billion…the BLS also released the 4th Quarter Report on Labor Productivity and Costs, which showed nonfarm business sector labor productivity decreased at a 3.0% annual rate during the fourth quarter, as hours worked increased 3.3% and output of goods and services from those hours increased just 0.1%…

privately issued reports this week included the report on light vehicle sales for January from Wards Automotive, which estimated that vehicles sold at a 17.46 million annual rate in January, the strongest January sales rate since 2006, the Mortgage Monitor for December (pdf) from Black Knight Financial Services, and both of the widely followed reports from the Institute for Supply Management (ISM): the January Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) increased from 48.0% in December to 48.2% in January, still indicating an ongoing contraction in manufacturing firms nationally, and the January Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 53.5%, down from 55.8% in December, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business…both of those reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally…

Employers Add 151,000 Jobs in January; Official Jobless Rate Drops to 4.9%

the Employment Situation Summary for January indicated weakness in payroll job formation coupled with a decent increase in average hourly pay, while the unemployment rate fell and the labor force participation rate rose….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 151,000 jobs in January, after the payroll job increase for December was revised down from 292,000 to 262,000, and the November jobs increase was revised up from 252,000 to 280,000, making the combined number of jobs created in those months 2,000 less than was previously reported…as is usual for January, this report included the results of the annual benchmark revision, which revised prior reports and set March 2015 (the benchmark) at 140,099,000 payroll jobs, 206,000 less than previously reported, which was narrowed to 105,000 fewer jobs by December; hence, 2015 job growth totaled 2.74 million payroll jobs, up from the prior reading of 2.65 million, while job growth in earlier years was reduced…since all the revised figures are incorporated into this months report as if previously reported totals had never been reported, that’s the way we’ll cover it…

seasonally adjusted job increases in January were spread through construction, manufacturing, and the private service sector, gains which were partially offset by job losses in the resource extraction sector, transportation and warehousing, educational services, government, and temporary help services…57,700 jobs were added in retail sales, with 13,300 of those in clothing stores and 13,200 in department stores…another 48,800 jobs were added in accommodation and food services, as bars and restaurants increased payrolls by 46,700…the health care and social assistance sector added another 44,000 jobs, with 23,700 of those in hospitals….29,000 jobs were added in manufacturing, spread through a large variety of both durable goods and non-durable goods manufacturers… and both the financial services sector and construction trades saw an addition of 18,000 jobs…meanwhile, private educational services shed 38,500 jobs in January, due to larger than normal seasonal layoffs, and the transportation and warehousing sector shed 20,300 jobs, as 14,400 more couriers and messengers than normal were let go, following stronger than normal seasonal hiring in the prior 2 months…there were also 7,000 fewer resource extraction jobs, as the mining and drilling industries cut 6,600…finally, the normally strong professional and business services category, which added 60,000 jobs in December, only added 9,000 in January, as temporary help service jobs were reduced by 25,000…partially offsetting the weak job creation, the average workweek for all private employees rose by 0.1 hour to 34.6 hours, with the manufacturing workweek up by 0.1 hour while factory overtime was unchanged at 3.3 hours…employers also reported that average hourly earnings for all employees rose by 12 cents to $25.39, after December’s hourly earnings were unchanged, leaving us with a 2.5% wage gain over the past 12 months…

meanwhile, the January household survey estimated that the seasonally adjusted count of those who were employed rose by 615,000 to 150,544,000, while the number of unemployed fell by 113,000 to 7,791,000, resulting in a drop in the unemployment rate from 5.0% to 4.9%…after accounting for the annual adjustments to the population controls, the net increase in the number employed less the decrease in the number unemployed was greater than the 502,000 increase in the civilian working age population, so the count of those not in the labor force fell by 41,000 to 94,062,000, which was enough to increase the labor force participation rate from 62.6% in December to 62.7% in January, its third increase in as many months….with the decent increase in the employed, the employment to population ratio, which we could think of as an employment rate, also rose by 0.1% to 59.6%…January also saw a 34,000 drop in the number who reported they were involuntarily working part time, from 6,022,000 in December to 5,988,000 in January…however, that decrease was not enough to change the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, which remained at 9.9%, same as in December…

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there…note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page…thus, when you read a paragraph such as “The unemployment rates for adult men (4.5 percent) and Whites (4.3 percent) declined in January. The jobless rates for adult women (4.5 percent), teenagers (16.0 percent), Blacks (8.8 percent), Asians (3.7 percent), and Hispanics (5.9 percent) showed little change over the month. (See tables A-1, A-2, and A-3.)”, you can quickly open Table A-1, Table A-2.and Table A-3, where you would see that the unemployment rate for adult men fell 0.3%, from 4.2% in December to 3.9% in January, while the “little changed”  unemployment rate for Blacks actually rose from 8.3% to 8.8%…

December Personal Income Up 0.3%, Personal Consumption Flat

while our personal consumption expenditures (PCE), the major component of GDP, are probably the most important metric we get from the Personal Income and Outlays report for December from the BEA, this report also gives us personal income data, disposable personal income, which is income after taxes, our monthly savings rate and the PCE price index, the inflation gauge the Fed targets….it is also probably one of the least understood and most misreported of the monthly economic reports, which is largely due to the NIPA-related manner in which the press release from the BEA reports on it…to start with, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the nominal monthly dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts… however, the percentage changes are computed monthly, from one annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from November to December, making for a difficult report to unpack and report on correctly…

thus, when the opening line of the press release for this report tell us “Personal income increased $42.5 billion, or 0.3 percent, and disposable personal income (DPI) increased $37.8 billion,or 0.3 percent, in December“, they mean that the annualized figure for personal income in December, $15,648.0 billion, was $42.5 billion, or almost 0.3% greater than the annualized  personal income figure of $15,605.5 billion for November; the actual change in personal income from November to December is not reported…similarly, annualized disposable personal income, which is income after taxes, also rose by almost 0.3%, from an annual rate of an annual rate of $13,616.6 billion in November to an annual rate of $13,654.4 billion in December…likewise, the contributors to the increase in personal income, listed under “Compensation” in the press release, are also annualized amounts, all of which can be more clearly seen in the Full Release & Tables (PDF) for this release…so when the press release says, “Wages and salaries increased $13.1 billion in December” that really means wages and salaries would increase by $13.1 billion over an entire year if December’s seasonally adjusted increase were extrapolated over that year, just as current personal transfer receipts from government agencies, the largest contributor to the December income increase, rose at a $18.1 billion annual rate…so you can see what’s written in this press release is misleading, and often leads to media reports that misleadingly parrot those lines the same way the BEA wrote it,like the 24/7 Wall St site did this month

personal consumption expenditures (PCE) are reported in the same manner, ie, they fell at an annual rate of $0.7 billion to $12,448.3 billion annually in December, or virtually unchanged from the annual rate of $12,449.0 billion of PCE for November…however, when they’re included in the GDP report, the monthly personal consumption expenditures are adjusted with the price index for PCE, the BEA’s chained type price index based on 2009 prices equal to 100, to give us “real” PCE, and hence the change in the output of goods and services produced for consumers….in table 9 of the pdf for this report we see that that price index fell to 109.731 in December, from 109.835 in November, a decrease of 0.09%, which the BEA rounds to 0.1% when reporting it…hence, we find that real personal consumption expenditures, or PCE after the inflation adjustment, rose by 0.089% for the month, which the BEA rounds to a increase of 0.1%….using the same PCE price index, disposable personal income would be adjusted to show that real disposable personal income, or the purchasing power of disposable income, rose by 0.4% in December, after an increase of 0.2% in November..

with disposable personal income up and personal consumption expenditures virtually unchanged, it only goes to reason that our personal savings for December would be higher…to arrive at the figures for that, the BEA takes total personal outlays, which is the sum of PCE, personal interest payments, and personal current transfer payments, and subtracts that from disposable personal income, to show personal savings at a $753.5 billion annual rate in December, up from the $717.8 billion that we would have ‘saved”’ over a year had November’s savings been extrapolated for a year…this brought the personal savings rate, or personal savings as a percentage of disposable personal income, to 5.5% in December, up  from the savings rate of 5.3% in November…

Trade Deficit Rises in December, Subtracts 5 Basis Points from GDP

our trade deficit rose by 2.6% December, as the net value of our exports decreased and the value of our imports increased….the Census report on our international trade in goods and services for December indicated that our seasonally adjusted goods and services trade deficit rose by $1.1 billion to $43.4 billion in December from a November deficit which was revised from $42.4 billion to $42.2 billion (rounded)…the value of our December exports fell by $0.5 billion to $181.5 billion on a $0.8 billion decrease to $121.2 billion in our exports of goods and a $0.3 billion increase to $60.3 billion in our exports of services, while our imports rose $0.6 billion to $224.9 billion on a $0.5 billion increase to $183.7  billion in our imports of goods and a $0.1 billion increase to $41.2 billion in our imports of services…export prices averaged 1.1% lower in December, so the real growth in exports was greater than the nominal dollar value by that percentage, while import prices were 1.2% lower, similarly incrementally increasing growth in real imports from the dollar values reported here…

the decrease in our December goods exports resulted from lower exports of autos, industrial supplies, capital goods, and foods and feeds, only offset by an increase in our exports of consumer goods…referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of automotive vehicles, parts and engines fell by $599 million to $12,296 million, and our exports of industrial supplies and materials fell by $414 million to $32,434 million on a $491 million drop in our exports petroleum products other than fuel oil and a $429 million drop in our exports of organic chemicals, which were only partially offset by a $373 million increase in our exports of non-monetary gold…in addition, our exports of foods, feeds and beverages fell by $347 million to $9,900 million on a $183 million drop in our exports of soybeans, and our exports of capital goods fell by $339 million to $44,013 million as a $1,454 million decrease in our exports of civilian aircraft was only partially offset by a $413 million increase in our exports of oilfield drilling equipment, a $279 million increase in our exports of computers and a $278 million increase in our exports of aircraft engines, and our exports of goods not categorized by end use fell by $155 million to $4,083 million….on the other hand, our exports of consumer goods rose by $937 million to $16,818 on a $614 million increase in our exports of artwork and antiques and a $175 million increase in our exports of jewelry…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that an increase of $980 million to $30,080 million in our imports of automotive vehicles, parts and engines accounted for more than the total increase in our December imports, as our imports of consumer goods and other goods fell…also increasing in December were our imports of industrial supplies and materials, which rose $507 million to $36,644 million on a $263 million increase in our imports of non-monetary gold and a $203 million increase in our imports of crude oil, and our imports of foods, feeds, and beverages, which rose by $181 million to $10,581 million….on the other hand, our imports of consumer goods fell by $631 million to $48,093 million on a $526 million drop in our imports of artwork and antiques and a $451 million reduction in our imports of televisions and video equipment, our imports of goods not categorized by end use fell by $443 million to $7,210 million, and our imports of capital goods fell by $27 million to $49,162 million as a $345 million increase in our imports of civilian aircraft was offset by a $439 decrease in our imports of computer accessories…..

when computing last week’s GDP report, the BEA used the estimates from the advance report on our trade in goods for December which was released the same day; that report showed a deficit in our trade of goods of $61,513 million for the month…this report indicates an increase in the goods deficit of $1.3 billion to $62.514 billion from a revised November deficit of $61,241 million…also with this report, November exports of goods were revised downward $0.3 billion, November exports of services were revised upward less than $0.1 billion, November imports of goods were revised downward $0.3 billion and November imports of services were revised downward $0.1 billion…in round numbers, that suggests the trade data used in the GDP report had underreported our 4th quarter trade deficit by $0.8 billion, which suggests a downward revision of 0.02 percentage points to GDP when the 2nd estimate of GDP is released at the end of this month…

December Construction Spending Up 0.1% after November revised down 0.5%

in the report on December construction spending (pdf), the Census Bureau estimated that December’s seasonally adjusted construction spending would work out to $1,116.6 billion annually if extrapolated over an entire year, which was barely 0.1 percent (±1.2%)* above the revised annualized estimate of $1,116.0 billion of construction spending in November and 8.2 percent (±1.8%) above the estimated annualized level of construction spending of December last year…the November spending estimate was revised down from $1,122.5 billion to $1,116.0 billion, which when combined with less than expected spending in December, suggests another downward revision to 4th quarter GDP…..private construction spending was at a seasonally adjusted annual rate of $824.0 billion, 0.6 percent (±0.8%)* below the revised November estimate, with residential spending rising  0.9 percent (±1.3%) to an annual rate of $429.6 billion in December, 0.9 percent (±1.3%) above the revised November estimate, while private non-residential construction spending fell 2.1 percent (±0.8%) to $394.4 billion on a 7.3% decrease of private spending for construction of manufacturing facilities…meanwhile, public construction spending was estimated to be at a rate of  $292.5 billion, 1.9 percent (±2.0%)* above the revised November estimate, with spending for highway construction up 9.4% to $95.4 billion while spending for conservation and development was off 9.6% to an annualized $6,839 million for the month…for the entirety of 2015, construction spending totaled $1,097.3 billion, 10.5 percent (±1.2%) above the $993.4 billion spent in 2014…

in reporting 4th quarter GDP, the BEA assumed an increase in nonresidential construction and an increase in residential construction in December….however, gauging the actual impact of this December construction spending report on GDP is difficult because all figures given here are nominal and as you know, data used to compute the change in GDP is adjusted for changes in price, using a multitude of privately published price indexes for the various components of non-residential investment…furthermore, the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling that are not captured by this report…for instance, if we look at the aggregate figures here for the residential construction portion of this report and compare them to the change shown for the nominal value of residential construction in the pdf for the 1st estimate of 4th quarter GDP, we find the numbers barely correspond at all…but we do have two certain number to work with from this report; first, we know that overall annualized construction spending for November was revised down by $6.5 billion annualized; secondly, we also know that the advance GDP report overestimated non-residential construction spending for December by at least $8.6 billion annualized, because it decreased by that much, and they had assumed an increase…that means that the annualized estimates for 4th quarter GDP were at least $15.1 billion too high, or approximately 0.09% of inflation adjusted GDP…thus the annualized change in construction spending implies a subtraction of at least 0.36 percentage points from 4th quarter GDP when the second estimate is released at the end of February..

December Factory Shipments Down 1.4%, Factory Inventories Up 0.2%

press reports say that the Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for December, aka “the factory orders report,” showed that new orders for factory goods fell by 2.9% in December, after falling by 0.7% in November…however, as we learned in October from a conversation with the Census personnel responsible for that report, the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “Full Report on …Orders” because, due to the quick turnaround time on non-durable goods orders, they figured that the data they have for shipments of those goods would be a fair proxy for orders….that lack of hard data, in effect, leaves the “new orders” and “unfilled orders” sections of this report useful only as a revised update to the advance report on durable goods from last week…in the case of December new orders for durable goods, then, the December Full Report showed that new orders for manufactured durable goods fell $11.8 billion or 5.0% to $225.6 billion, a slight upward revision from last week’s reported 5.1% decrease, following a November decrease of 0.5% that was reported as unchanged a month ago…including the 0.8% decrease in shipments of non-durable goods with that, then, the Census Bureau reported that new orders for manufactured goods decreased $13.5 billion or 2.9 percent to $456.5 billion in December, after falling 0.7% in November and 4 out of the last 5 months..

more importantly, then, this report indicated that the value of December factory shipments fell by $6.8 billion or 1.4 percent to $467.0 billion, the 8th decrease in 9 months, with only a 0.1% increase in November…shipments of durable goods were down by $5.1 billion or 2.1 percent to $236.1 billion, revised from the 2.2% decrease reported in the durables report, as shipments of transportation equipment fell 6.7% on a 32.4% drop in shipments of commercial aircraft…without those transportation sector shipments, factory shipments were still 0.4% lower….the value of shipments (and hence of “new orders”) of non-durable goods fell by $1.75 billion, or 0.8%, with a 3.3% drop in shipments from refineries accounting for nearly three-fourths of that decrease and a 2.4% drop in shipments of meat, poultry and seafood products accounting for most of the rest…however, with producer prices for finished goods down 0.2% in December, and prices for intermediate goods down 1.0%, real shipments of non-durable goods were certainly higher than the nominal change in their value would lead us to believe…

meanwhile, the aggregate value of December factory inventories rose for the first time in 6 months, increasing by $1.0 billion or 0.2 percent to $642.3 billion, following an November decrease that was revised from 0.2% to a 0.3% decrease from October…inventories of durable goods rose by $1.9 billion or 0.5 percent to $397.6 billion, the first increase in six months, following a decrease of 0.3% in November…the value of non-durable goods’ inventories fell nearly $1.0 billion or 0.4 percent to $246.0 billion, following a decrease of 0.3% in November…the value of inventories of petroleum and coal products, down in value most of the year, drove the decrease in non-durable inventories, as they fell by $0.8 billion or 2.6% percent to $32.6 billion, which was undoubtedly mostly due to lower prices…as we previously noted, producer prices for finished goods were down 0.2% in December, and prices for intermediate goods were down 1.0%, so real factory inventories of other goods might have also increased as well…in computing last week’s GDP estimate, the BEA assumed a decrease in nondurable manufacturing inventories in December, without quantifying the amount of the decrease, so unless their estimate was significantly lower than this report indicates, the change to 4th quarter GDP estimates should be minimal..

New Foreclosures Up 17.2% in December, Delinquencies Down 2.8%; Mean Time in Foreclosure at 1060 Days

the Mortgage Monitor for December (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 688,672 home mortgages, or 1.37% of all mortgages outstanding, remaining in the foreclosure process at the end of December, which was down from 721,435, or 1.38% of all active loans that were in foreclosure at the end of November, and down from 1.75% of all mortgages that were in foreclosure in December of last year…these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the December “foreclosure inventory” is now showing the lowest percentage of homes that were in the foreclosure process since the fall of 2007… new foreclosure starts, meanwhile, were at their highest level since September, rising to 78,088 in December from 66,626 in November, but still down from 89,357 in December a year ago…while foreclosure starts have been volatile from month to month, 2015’s new foreclosure starts remained in a range about one-third higher than number of new foreclosures we saw in the precrisis year of 2005…

in addition to homes in foreclosure, BKFS data showed that 2,408,249 mortgages, or 4.78% of all mortgage loans, or were at least one mortgage payment overdue but not in foreclosure in December, down from 4.92% of homeowners with a mortgage who were more than 30 days behind in November, but still up from this year’s lowest delinquency rate of 4.66% in March, while still down from the mortgage delinquency rate of 5.42% in December a year earlier…of those who were delinquent in December, 807,656 home owners, or 1.60% of those with a mortgage, were considered seriously delinquent, meaning they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month…combining these totals, we find that a total of 6.15% of homeowners with a mortgage were either late in paying or in foreclosure at the end of December, and that 2.97% of all homeowners were in serious trouble, ie, either “seriously delinquent” or already in foreclosure at month end…

for the details of the history of both those metrics, we’re including below that part of one Mortgage Monitor table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 15 of the pdf….the columns in the table below show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month over the past  and for each January shown going back to January 2005….in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…the average length of delinquency for those who have been more than 90 days delinquent without foreclosure slipped from the April record of 536 days and is now at 491 days, while the average time for those who’ve been in foreclosure without a resolution is just a day off its record high set in November but at 1060 days is still nearly three years…

December 2015 LPS loan counts and days delinquent table


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

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February 6th graphics

gasoline inventories:

image

oil & products inventories:

February 3 2016 oil and products inventories

oil futures price quotes:

February 6th 2015 oil quotes

December loan counts:

December 2015 LPS loan counts and days delinquent table

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crude and gasoline stores at record highs; why consumption is falling…& a Russian-OPEC oil cartel?

a number of on again, off again, stories that Russia was planning to meet with the members of the OPEC cartel to negotiate production cuts drove oil prices higher this week, but even now it’s still not clear if there was any actual communication between any leaders of the countries to bring about such a meeting, or if the entire hullabaloo was just an old idea that gained a life of its own once news bureau foreign energy correspondents started asking questions of officials whose ambiguous responses fed the story as it built on itself…the proposal for an OPEC meeting with Russia had been called for by Venezuelan and Algerian officials and ignored on several occasions over the past year, but what seems to have started this week’s spate of stories was a vague comment by Iraq’s oil minister that “We have seen some flexibility from the brothers in Saudi and a change in tone from Russia,”..that quickly turned into a plethora of articles to the effect that Russia would cooperate with OPEC in reducing oil supply in order to boost prices…even though both Russian and OPEC officials initially denied the rumors, the articles about a planned meeting persisted, as the price of oil continued to rise in response each day…then on Thursday, Tass reported that Russian Energy Minister Alexander Novak indicated he was ready to take part in an upcoming meeting of the OPEC and non-OPEC producers in February, and the price of Brent crude spiked to over $35 a barrel in Europe…but at the same time OPEC delegates denied there was any talk of a meeting with Russia, and Iran went a step further by insisting that they wouldn’t consider a deal until their exports rose 1.5 million barrels per day above current levels  (recall last week that Iran’s new output is not expect to reach 600 thousand bpd until June)…furthermore, everyone knew the Saudis wouldn’t cut their production to benefit Iran, since they broke off diplomatic relations with Iran after their embassy was burnt earlier this month, so by the end of the week serious talk of such a deal had pretty much vaporized.. 

at any rate, that entire sequence of Russia/OPEC news stories never seemed quite kosher to me as it was crossing my feeds this week…here’s why: it was already known by most players in the energy markets that oil shorts were at a all time high at the beginning of the week; “oil shorts” are those who’ve entered into a futures contract to sell oil that they don’t own; their hope is that the price would fall further, and they’d be able to buy oil at a lower price at some time in the future to meet their original contract, and hence make a profit…since they’re putting a very small percentage down when they enter into such contracts, small price moves against them mean the exchange will demand an additional payment to cover their paper, or should we say electronic, losses, and keep them in the black…if prices rise enough, many of those short sellers typically wouldn’t have the funds available to cover their theoretical losses, and they are thus forced to closed out their contract by buying oil back at a now higher price, at a loss to them, which adds to the oil buying and thus drives the price for oil up even more, forcing even more shorts to sell…that’s what’s called a short squeeze, and what i saw happening this week with the price of oil had all the earmarks of it….with a story like that of a Russian OPEC cartel that drives a large price change was put out on the wires, and continued to be repeated and distributed even though it’s been officially denied, it certainly seemed like someone was trying to manipulate the price…the Russian energy minister only chimed in later, when he saw the rumor was moving the price higher…with oil trading of WTI at NYMEX running above 1.2 million 1000 barrel oil contracts each day this week and trading of Brent contracts in London probably even higher, there was a lot of money to be made every day for every $1 per barrel price change…we would not be surprised to hear that Russian oil traders in Europe were among those who profited the most…

New Record High Supplies of Crude Oil and Gasoline

in news that is far less dubious and has more immediate relevance, this week’s stats from the US Energy Information Administration showed that our supplies of crude oil and gasoline in storage have both risen to the highest levels on record, even as our oil imports remain well above last year’s level…this week’s report showed that our imports of crude oil fell by 170,000 barrels per day to average 7,609,000 barrels per day during the week ending January 22nd, down from the 7,779,000 barrels per day import pace of the prior week…while that was 2.5% more than our 7,422,000 barrel per day of imports during the week ending January 23rd a year ago, oil imports are notoriously volatile week to week as 2 million barrel VLCC tankers arrive and are offloaded irregularly, so the EIA’s weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average…that EIA report showed the 4 week average of our imports remained at the 7.8 million barrel per day level, which was 7.2% above the same four-week period last year… 

production of crude oil from US wells, meanwhile, slipped for the first time in 7 weeks, but still remained above the levels of this past fall….our field production of crude oil fell from 9,235,000 barrels per day during the week ending January 15th to 9,221,000 barrels per day during the week ending January 22nd, which except for the past two weeks, was still at a level higher than any week since August…our field production for January has averaged about 9,228,000 barrels per day to date, which is roughly 100,000 barrels per day more than our average production during September and October, and remains 3.8% above the 9,197,000 barrels per day that was being produced in the same 3 week period a year ago, despite a 70% drop in active oil drilling rigs from the peak of October 2014 since then..

however, our refineries used 551,000 barrels per day less crude than they did last week, which meant there were 8,383,000 barrels more of surplus oil left unused at the end of the week; as a result, our stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, rose by that 8,383,000 barrels to end the week at 494,920,000 barrels, which was up 21.7% from the record inventory of 406,727,000 barrels in storage the same week a year ago, and the most oil we’ve ever had stored in the 80 years of EIA record keeping….we’ll include a graphic here so you can all see what that looks like:

January 29 2016 crude oil inventories

in the graph above, copied from “This Week in Petroleum” from the EIA, the blue line shows the recent track of US oil inventories over the period from June 2014 to January 22, 2016, while the grey shaded area represents the range of US oil inventories as reported weekly by the EIA over the prior 5 years for any given time of year, essentially showing us the normal range of US oil inventories as they fluctuate from season to season….we can see that crude oil inventories typically fall through the summer, when refineries are running flat out, just as they did this year, but we’re now heading into the winter period when oil refineries cut back operations and oil inventories rise…note that the large grey wedge on the right now includes the record oil inventories that we were setting last year at this time (ie, it includes the image of the early 2015 inventories) which we are now exceeding by more 20% each week…hence our oil inventories are now exceeding last year’s records by an unheard of margin, just as the 2015 global temperature record exceeded the 2014 global temperature record by an unheard of margin

as noted, the amount crude used by our refineries fell by 551,000 barrels per day to an average of 15,639,000 barrels per day during the week ending January 22nd, as the US refinery utilization rate fell to 87.4%, down from 90.6% last week and down from a utilization rate as high as 94.5% at the end of November, as they’re in a normal seasonal slowdown; respective figures for a year ago were 15,256,000 barrels of oil refined and an 88.0% utilization rate…hence, refinery production of gasoline fell a bit, from 9,453,000 barrels per day during week ending January 15th to 9,377,000 barrels per day during week ending January 22nd, which was still 200,000 barrels per day more gasoline than was produced the same week last year…at the same time, refinery production of distillate fuels (diesel fuel and heat oil) decreased by 100,000 barrels per day from the week ending the 15th to 4,452,000 barrels per day during the week ending January 22nd…for gasoline, that production was again more than we could use or export, and hence our end of the week gasoline in storage rose by 3,464,000 barrels to 248,461,000 barrels, which was the most gasoline we’ve had stored at the end of any week at any time of year in the 25 years of EIA weekly records, which once again merits posting a chart of our gasoline supplies:

January 27 2016 gasoline inventories

the above graph was originally from this week’s weekly Petroleum Status Report (62 pp pdf), but the screen grab of it we’re using here was taken from Reuters oil analyst Jack Kemp because the red arrows he included are instructional…like the crude oil stocks graph above, the blue line on this graph shows the recent track of our gasoline inventories over the period from June 2014 to January 22, 2016, while the grey shaded area represents the range of our gasoline supplies as reported weekly by the EIA over the prior 5 years, showing us the normal range of gasoline inventories as they fluctuate from season to season….the red arrows point to the current week’s inventories and the previous record gasoline supply for this week, which was set on January 23, 2015, again giving us a clear picture of how much we beat the old record by; last January 23rd’s gasoline inventory record was 238,335,000 barrels, so we’ve just beat that record by more than 10 million barrels…you can also see that we can expect gasoline inventories to increase seasonally at least until March, when refineries will begin winding down for maintenance and to switch over to produce summer blends of gasoline..

inventories of other refined products are also above normal for this time of year….with the cold weather, our distillate fuel inventories fell for the 2nd week in a row, dropping by 4,057,000 barrels to 160,472,000 barrels, down 3.1% from the 5 year record high 165,554,000 barrels we had stored on January 8th, which came after a warm December when heat oil consumption was minimal…hence we still have 20.9% more distillate fuels stored than the 132,687,000 barrels of distillates we had stored on January 23rd of last year, leaving current distillate fuel supplies still near the upper limit of the average range for this time of year…quickly running through other major refinery products, supplies of kerosene-type jet fuel were at 41,828,000 barrels as of January 22nd, also near the upper limit of the average range for this time of year…supplies of residual fuel oils, which are used to power ships and large boilers, were at 160,472,000 barrels, not a record but the highest since January 2011…and supplies of propane/propylene were at 83,695,000 barrels, down almost 15% since Christmas, but still well above the average range for this time of year…the point is that not only do we have record supplies of crude oil and gasoline, but also have a glut of all the other products refined from crude, suggesting that US refineries will ultimately be force to slow down before they’re buried in their own output…

Why Gasoline Demand is Down

over the past several weeks i’ve been puzzling over stats and charts that showed that our gasoline consumption has been down considerably since the fall, and that it has now even fallen to below the level of last year for the last 4 weeks…those reports from the EIA did not seem to jive with reports from US automakers that 3 out of 4 new passenger vehicles they’ve been selling are gas guzzlers built on a truck frame, and reports from the Department of Transportation which showed that vehicle miles driven in the US surged 4.3% to a new record in November…this week i realized that what i have been failing to take into account was the fact that the new SUVs and pickup trucks being bought today are essentially replacing vehicles that are 15 or 20 years old that were getting much poorer gas mileage, so i went looking for the stats on that…it seems that even the government refers to data compiled by the Transportation Research Institute at the University of Michigan, and i found a really neat graphic at their website which gives us an excellent picture of what is happening with fuel-economy in  the US light vehicle fleet, which i’m including below…

sales-weighted fuel-economy monthly:

January 28 2016 sales weighted miles per gallon

the above graph shows the average gas mileage for all the cars sold each month since October 2007, divided into mileage years that begin on each October 1st…we can see that the average gas mileage of cars sold in the US hit a peak at nearly 26 miles per gallon in July of 2014, a month after oil peaked at $107 a barrel and 3 months before the infamous OPEC meeting which crashed the price of oil, and it’s been falling in an irregular fashion since, as Americans have been buying a greater percentage of SUVs and pickup trucks as passenger vehicles…we can see on the graph that as of December, new vehicles being purchased were still averaging 24.9 miles per gallon of gasoline, despite the fact that more than half of them were built on a truck frame…but the majority of cars that were being junked at the same time were likely sold well before the 2008 model year, and hence were getting less than 20 miles per gallon…so for the present, every new gas guzzler being bought is an improvement in gasoline consumption on the old cars heading for the junkyard, to the extent that we could eventually see a 20% reduction in gasoline consumption per mile driven as the entire fleet turns over…however, the current deterioration in average gas mileage for new vehicles is set to continue for some time, because current CAFE standards favor even heavier, larger pickups and are not due to be changed until the 2022 model year

This Week’s Rig Counts

lower prices continued to drive more drillers to the sidelines during the week ending January 29th as the total number of active drilling rigs deployed in the US fell for the 6th week in a row…Baker Hughes reported that the total active rig count fell by 18 to 619, as the count of active oil rigs fell by 12 to 498 while the count of active gas rigs fell by 6 to 121…those totals were down from 1223 oil rigs, 319 gas rigs and 1 miscellaneous rig that were actively drilling as of the last weekend of January a year ago, and by that time the rig count had already fallen from the peaks in the prior October and November…oil rigs had hit their fracking era high at 1609 working rigs on October 10, 2014, while the recent high for gas drilling rigs was the 356 rigs that were deployed on November 11th of that same year

one platform in the Gulf of Mexico was idled this week, after three were set up & startred drilling there last week, which left the active Gulf rig count at 28, down from 47 in the Gulf and 49 offshore a year ago…13 rigs that had been doing horizontal drilling were also shut down, cutting the horizontal rig count down to 487, which was down from 1168 in the same week a year ago….in addition, the count of active vertical drilling rigs was down by 3 from last week to 74, which was down from the 235 rigs that were drilling vertically on January 30th of 2015, and 2 directional rigs were also removed, leaving 58 active, down from the 140 directional rigs that were in use a year ago..

of the major shale basins, the Permian of west Texas alone accounted for most of the drop, as a net of 17 rigs that had drilling there last week were stacked, leaving 182, which was down from 454 that were drilling in the Permian last January 31st….the Barnett shale of the Dallas area, the Granite Wash of the Oklahoma-Texas panhandle region, the Marcellus of the northern Appalachians and the Williston of North Dakota all saw a net of one rig removed…those cuts left the Barnett with 3 rigs, down from 19 a year earlier, the Granite Wash with 13 rigs, down from last year’s 40, the Marcellus with 34, down from 75 a year earlier, and the Williston with 44, down from 148 last year at this time…meanwhile, 2 rigs were added in the DJ-Niobrara chalk of the Rockies front range, which brought the count of rigs drilling in that area up to 21, which was still down from 51 a year earlier, and a single rig was added in the Mississippian of southwest Kansas, where the 11 rigs active this week was down from 54 in the same week of 2015…

the Baker Hughes state count tables show that Texas still had 281 rigs still working, down 13 from last week and down from 695 in the same week last year; New Mexico, which also claims some of the Permian basin, was down 4 rigs to 26, which was down from 87 rigs on January 31st of 2015…Louisiana saw 3 rigs stacked this week, leaving 51, which was down from 108 a year earlier, while Kansas, North Dakota and Pennsylvania were each down 1 rig, leaving Kansas with 9 rigs, down from 22 a year earlier, North Dakota with 44 rigs, down from 143 a year earlier, and Pennsylvania with 22 rigs, down from the 54 rigs that were drilling in the Keystone state at the end of January last year…states adding rigs this week included Alaska, where they were up 2 to 13, which was also up from 10 rigs a year earlier, Colorado, where they also added 2 rigs, bringing their count back up to 22, which was still down from last year’s 63, and Oklahoma, where the addition of 1 rig brought their count to 88, still down from 183 a year ago at this time…

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4th quarter GDP, December durable goods, new home sales & state jobs report, November Case-Shiller, et al

the key release this week was the the first or “advance” estimate of 4th quarter GDP from the Bureau of Economic Analysis; the other most widely watched reports were the December advance report on durable goods from the Census bureau, the December report on new home sales, also from the Census bureau, and the November Case-Shiller Home Price Index, which is a 3 month average of prices for repeat home sales closed in September, October and November; in addition, the Bureau of Labor Statistics released the Regional and State Employment and Unemployment Summary for December, and the week also saw the release of the last three regional Fed manufacturing surveys for January…

the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity composite index had fallen to a six year low of -34.6, from a revised reading of -20.1 in December, the thirteenth consecutive negative reading, the result of an going recession in the Texas oil patch economy…the Richmond Fed Survey of Manufacturing Activity for January, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index slipped to +2, following last month’s reading of +6, indicating ongoing sluggish growth in the region’s manufacturing, and the Kansas City Fed manufacturing survey for January, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index was unchanged at –9 in January, its eleventh consecutive negative reading, indicating that their regional contraction, mostly in the energy industry, continues…we also saw the private release of the Chicago Purchasing Managers Index (PMI) for January, which reported their Chicago Business Barometer jumped 12.7 points, from 42.9 in December to 55.6 in January, in a diffusion index where readings above 50 indicate that a plurality of Chicago area purchasing managers saw growth in various facets of their business…

4th Quarter GDP Growth Slows to 0.7% Rate on Inventories and Trade

our economy grew at a 0.7% rate in the 4th quarter as growth in personal consumption slowed, exports fell, fixed investment contributed little, and the increase in private inventories decreased, while growth in the federal government was the sole positive change…the Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 0.7% annual rate over the output of the 3rd quarter of this year, when our real output grew at a 2.0% real rate…in current dollars, our fourth quarter GDP grew at a 1.5% annual rate, increasing from what would work out to be a $18,060.2 billion a year output rate in the 3rd quarter to a $18,128.2 billion annual rate in the 4th quarter, with the headline 0.7% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 0.8%, aka the GDP deflator, was applied to the current dollar change… as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate for the quarter is released, which will be two months from now…also note that December construction and inventory data have yet to be reported, and that BEA assumed an increase in nonresidential construction, an increase in residential construction, a decrease in nondurable manufacturing inventories, and an increase in wholesale and retail inventories ex-autos in December before estimating 4th quarter output..

while we look at the details, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of what actually occurred over the 3 month period, and that they only use the prefix “real” to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those unreal 2009 dollar figures, which we think would be better thought of as representing quantity indexes…given the misunderstanding evoked by the text of the press release, all the data that we’ll use in reporting here comes from the pdf for the 1st estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes…specifically, we refer to table 1, which shows the real (inflation adjusted) percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts…

personal consumption expenditures (PCE), which accounts for over 68% of GDP, grew at a 2.3% rate in current dollars in the 4th quarter, but once the inflation adjustment was made with the quarterly annualized PCE price index change of 0.1%, we find real PCE grew at a 2.2% rate in the 4th quarter, after rising at a 3.0% rate in the 3rd quarter…after annualized 4th quarter consumer spending for durable goods was adjusted for a 1.9% decrease in durable goods prices, the BEA found real growth in output of consumer durables was at a 4.3% annual rate, as real consumption of recreational goods and vehicles led the durables increase with a 11.9% growth rate even as real consumption of automotive vehicles decreased at a 4.9% rate…real output of consumer non-durable goods grew at a 1.5% rate after consumer spending for non-durables was adjusted for lower prices at a 4.5% rate, with real consumption of both food and energy goods seeing minor decreases…meanwhile, the 4.0% nominal growth in consumer outlays for services was reduced with a 2.0% increase in prices for services to show real output of consumer services grew at a 2.0% annual rate, led by a 3.8% real growth rate in health care services while real outlays for housing and utilities shrunk at a 1.4% rate and subtracted 17 percentage points from 4th quarter growth due to warmer than normal weather….thus, with real growth in each of the major components of personal consumption expenditures, real growth in output of consumer durable goods added 0. 32 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.22 percentage points to 4th quarter GDP growth, and real growth in services provided to consumers added 0.93 percentage points to the change in 4th quarter GDP…

the change in other components of the change in GDP are computed by the BEA in the same manner; ie, the actual increase in current dollar spending for the quarter is adjusted with an inflation factor for that component, giving the change in real units of goods or services produced in the quarter, and then those quarterly changes are converted to an annualized figure by compounding them 4 times…thus, real gross private domestic investment, which had shrunk at a 0.7% annual rate in the 3rd quarter, shrunk at a 2.5% annual rate in the 4th quarter; however, most of that decrease in investment growth in both quarters came from slower growth of inventories, as real growth in fixed investment still grew at a 0.2% annual rate in the 4th quarter, down from the 3.7% growth rate of the 3rd quarter…of 4th quarter fixed investment, real non-residential fixed investment fell at a 1.8% rate, as real investment in non-residential structures fell at a 5.3% rate and subtracted 0.15 percentage points from 4th quarter GDP and real investment in equipment fell at a 2.5% rate and subtracted 0.31 percentage points from GDP, while real investment in intellectual property grew at 1.6% rate and added 0.07 percentage points to GDP…in addition, real residential investment grew at a 8.1% rate in the 4th quarter, little changed from the 8.2% growth it saw in the 3rd quarter, and added 0.20 percentage points to GDP…for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3

as was mentioned, slower growth in inventories also reduced investment and hence GDP, as real private inventories grew by an inflation adjusted $68.6 billion in the 4th quarter, down from the $85.5 billion of inflation adjusted inventory growth we saw in the 3rd quarter, and as a result the $16.9 billion slower real inventory growth subtracted 0.45% from the 4th quarter’s growth rate, after $28.0 billion slower real inventory growth in the 3rd quarter subtracted 0.71% from that quarter’s GDP…since slower growth in inventories indicates that less of the goods produced during the quarter were left “sitting on the shelf”, their decrease by $16.9 billion means real final sales of GDP were actually greater by that much, and hence real final sales of GDP rose at a 1.2% rate in the quarter, after real final sales increased at a 2.7% rate in the 3rd quarter, when the change in inventories was larger…

the value of both exports and imports in current dollars fell in the 4th quarter, but after large inflation adjustments due to lower prices for both, mostly for traded commodities, the BEA found that real imports rose while real exports shrunk…after adjusting for a 5.4% annualized decrease in prices, our real exports of goods and services fell at a 2.5% rate in the 4th quarter, after rising at a 0.7% rate in the 3rd quarter, while our real imports, adjusted for lower prices at a 7.8% rate, rose at a 1.1% rate in the 4th quarter, after rising at a 2.3% rate in the 3rd quarter…as you’ll recall, real increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while real increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been, because it was not produced here and hence not part of our national product…thus the 4th quarter decrease in real exports subtracted .31 percentage points from 4th quarter GDP,  a reversal of the 0.09 percentage points that our exports added to GDP in the 3rd quarter, while the 1.1% increase in real imports subtracted .16 percentage points from GDP, down from the 0.35 percentage points that an increase in imports subtracted in the 3rd quarter…thus, our worse trade balance subtracted a net 0.47% percentage points from 4th quarter GDP, after our increased trade deficit had subtracted 0.26% percentage points in the third quarter…

finally, real consumption and investment by branches of government increased at a 0.7% annual rate in the 4th quarter, after increasing at a 1.8% rate in the 3rd quarter, as federal government consumption and investment rose at a 2.7% rate while state and local consumption and investment fell at a 0.6% rate…..inflation adjusted federal spending for defense rose at a 3.6% rate and added 0.14 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment rose at a 1.4% rate and added  0.04 percentage points to GDP…note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services….meanwhile, state and local government investment and consumption expenditures fell at a 0.6% annual rate and subtracted 0.06 percentage points from the quarter’s growth rate, as real growth in state and local consumption expenditures added 0.05 percentage points and a contraction in real state and local investment subtracted 0.11 percentage points…

we’ll again include our FRED GDP graph, so you can picture how these GDP components all come together…in our FRED bar graph below, each color coded bar shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2012…in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and  investment is shown in pink, and the real change in Federal government spending and investment is shown in grey…those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they’ll appear below the zero line…you can clearly see that the only significant positive contribution to GDP growth in the 4th quarter came as a result of increased real personal consumption, with just a bit of help from increased government consumption and investment; the increase in private fixed investment in the 4th quarter was so small it doesn’t even appear on a graph of this scale…meanwhile, the major negatives were slower inventory growth (yellow) smaller exports (purple), and greater imports (green)…

4th quarter 2015 advance GDP

December New Orders for Durable Goods Crash 5.1%, Shipments Down 2.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods fell $12.0 billion or 5.1 percent to $225.4 billion, following a revised decrease of $1.2 billion, or 0.5% in November new orders, which were originally reported as unchanged…new orders for durable goods have now been down 4 out of the last 5 months, and ended the year 3.5% below the level of 2014, the largest drop in the history of the report, in part due to falling prices of some durable goods, such as primary metals and fabricated metal products, and in part due to the July through November shutdown of the Export-Import Bank, the financing vehicle for large export orders…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the December headline change, as those transportation equipment orders fell $10.1 billion or 12.4% to $71.3 billion, as a 69.1% drop to $2,500 million in new orders for defense aircraft was coupled with 29.4% decrease to $9,360 million in new orders for commercial aircraft, which ended the year 32.7% below their level of 2014….excluding those new orders for transportation equipment, other new orders still fell by 1.2% in December, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 4.3% to $65,866 million, after the November change in orders for such capital goods was revised from a 0.4% decrease to a 1.1% decrease….

meanwhile, the seasonally adjusted value of December shipments of durable goods, which were inputs into various components of 4th quarter GDP after adjusting for deflation, fell by  $5.4 billion, or 2.2 percent, to $235.8 billion, after November’s shipments were revised from a increase of 0.9% to a increase of 0.6% and October’s were down 1.2%, unrevised…again, lower shipments of transportation equipment drove the change, as they were down $5.4 billion or 6.7 percent to $75.1 billion, as the value of shipments of commercial aircraft fell 32.4% to $10,844 million; excluding that volatile sector, the value of other shipments of durable goods was unchanged in December but 1.1% lower than 2014 for the year as a whole….meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 1st time in 6 months, increasing by $2.1 billion, or 0.5 percent, to $397.9 billion, after a 0.2% decrease in November that was originally reported as a 0.3% decrease …a $1.8 billion or 1.4 percent increase to $131.8 billion billion in the value of inventories of transportation equipment was again a major factor, as the value of inventories of motor vehicles rose 2.2% to $36,504 million…essentially flat in the 4th quarter, end of the year inventories of durable goods still remain 0.1% lower than at the end of 2014…

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, were down following two consecutive monthly increases, falling by $$5.6 billion or 0.5 percent to $1,187.6 billion after a 0.1% increase in November, again largely due to a decrease in the backlog in orders for transportation equipment, which fell by $3.8 billion or 0.5 percent to $795.2 billion, which you might note is more than half the total of unfilled orders outstanding, as the $607,807 million backlog in commercial aircraft orders alone accounts for more than half of this metric…without the transportation equipment sector, December’s unfilled orders still fell by 0.5%, rising from $394,229 million in November to $392,453 million in December….compared to a year ago, the unfilled order book for durable goods is 1.9% below last December’s level, with unfilled orders for transportation equipment 1.8% below their year ago level…

Half a Million New Homes Sell in 2015, Up More than 10% from 2014

the Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 544,000 new homes a year, which was 10.8 percent (±17.1%)* above the revised November rate of 491,000 new single family homes a year and 9.9 percent (±25.0%)* above the estimated annual rate that new homes were selling at in December of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and subject to the largest revisions of any census construction series….hence, these initial reports are not very reliable and often see significant revisions…with this report; sales new single family homes in November were revised from the annual rate of 490,000 reported last month to a 491,000 a year rate, October’s annualized home sale rate, initially reported at 495,000, was revised from 470,000 to 482,000, while the annual rate of September’s sales, revised from 447,000 to 442,000 last month, was now revised higher, to an annual rate of 457,000…

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 38,000 new single family homes sold in December, up from the 34,000 new homes that sold in November, which was unrevised, while the unadjusted estimate for October home sales was revised from 38,000 to 39,000 after it was originally reported at 41,000, and the estimate for September sales, first reported at 36,000, was revised back up to 35,000, after prior downward revisions to 34,000 and 33,000…all totaled, an estimated 501,000 new homes were sold in 2015, 14.5 percent (±4.5%) above the 437,000 single family homes that sold in 2014….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $288,900, down from $297,000 in November, which was originally reported as $305,000, while the average December new home sales price was $346,400, down from $364,200 in November, and down from the average sales price of $373,500 in December a year ago….a seasonally adjusted estimate of 237,000 new single family houses remained for sale at the end of December, which represents a 5.2 month supply at the December sales rate, down from a 5.7 month supply in November….for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales increased to 544,000 Annual Rate in December and Comments on December New Home Sales

November Case-Shiller Report Shows National Home Prices up 5.3% From a Year Earlier

the Case-Shiller house price indexes for November indicated a 5.3% year over year increase in sales prices on repeat home sales in the ten cities of the original index, a 5.5% year over year increase in the 20 City Composite, and a 5.3% increase in home prices nationally since the November report of last year, led by an 11.1% increase in home prices in Portland and an 11.0% increase in home prices in San Francisco….Case-Shiller also reports a ‘monthly’ increase of 0.1% in the national index and the in 20 city index, and no change in the 10 city index, all of which compare prices of houses sold in August, September and October to those sold in September, October and November, and hence the change in the month over month indexes are arithmetically equal to 1/3rd the difference between August home prices and November home prices, ie, not really a useful monthly change at all…seasonally adjusting those so called month over month indexes shows that all three indexes are 0.9% higher than last month’s; thus, while home prices in 14 of the 20 cities showed an actual increase in November prices when compared to those of August, after those seasonal adjustments were applied, home prices in all 20 of the cities increased…the full pdf of the release, titled Home Prices Continue to Increase in November, is here, and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary….for coverage of this Case-Shiller report on the web, see the following two posts from Bill McBride, which include several graphs: Case-Shiller: National House Price Index increased 5.3% year-over-year in November, followed by his analysis in Real Prices and Price-to-Rent Ratio in November
as we mentioned, since Case-Shiller indexes are simple averages of home price changes over 3 months, they are not very useful for monthly comparisons…that’s simply because two of the months are being compared to themselves, leaving only prices changes from the current month, and the month before the month before last left in each month over month comparison….this is also the case with any three month average, which we can represent by (a + b + c) / 3, with a being the current month, b being last month, and c being the month before that…another way of writing that same expression is “a/3 + b/3 + c/3 ” …. when one compares that to the prior month 3 month average, represented by (b + c + d) / 3, where d is the month before the month before last, we end up comparing (a/3 + b/3 + c/3) to (b/3 + c/3 + d/3), and since two of our elements in that comparison are identical, the comparison simply becomes a/3 to d/3, or one-third the difference between months a and d….nonetheless, such 3 month averages are used by economists everywhere, including at the Fed, as if they’re providing some special insight, even though the comparison they offer borders on nonsense…

State and Regional Employment Report for December

the Regional and State Employment and Unemployment Summary for December expands on the national employment situation summary of three weeks ago by breaking down the state and regional details…as with most BLS reports, the press release is very readable & self explanatory, with BLS referring to appropriate tables linked to at the bottom of the press release wherever relevant, with tables and complete coverage of all 50 states, which means it’s quite a bit more detailed than we can meaningfully cover in a short synopsis….the BLS table corresponding to household survey data, including the seasonally adjusted count of the unemployed and the unemployment rate for each state, is here….North Dakota at 2.7% continues as the state with the lowest unemployment rate, despite the troubles in the oil patch, largely through a reduction of their labor force, while New Mexico had the highest unemployment rate at 6.7%, as they saw their unemployment rate fall from 6.8% in November..

for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last December, see the following two BLS tables accompanying this release: Table 5. Employees on nonfarm payrolls by state and selected industry sector, seasonally adjusted and Table 6. Employees on nonfarm payrolls by state and selected industry sector, not seasonally adjusted …the latter two tables are very detailed, giving you both actual and seasonally adjusted totals for jobs in each state and the District of Columbia in several categories, including construction, manufacturing, trade, transportation and utilities, financial, professional and business services, education and health services, leisure and hospitality and government….the 22 page pdf version of this report has even more detail also includes map graphics for both the employment rate and the year over year payroll jobs increase by state and region…


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

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January 30th graphics

crude oil supply:

January 29 2016 crude oil inventories

gasoline supply:

January 27 2016 gasoline inventories

monthly sales-weighted fuel-economy:

January 28 2016 sales weighted miles per gallon

4th quarter GDP:

4th quarter 2015 advance GDP

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the impact of the addition of new Iranian oil to the global glut, et al

oil prices have been quite volatile this past week, dropping almost 4% when the market opened Tuesday, and then later soaring 21% from their Wednesday lows…recall that US crude prices for crude had fallen to 11 year and then to 12 year lows last week, when the contract price for February delivery started the week at $33.55 a barrel and fell to $29.42 by the Friday close, breaching $30 for the first time since 2003…US markets were closed Monday in observance of the MLK memorial holiday, but that oil contract price continued falling when the markets opened Tuesday, and ended the day at $28.46…at the same time, Brent oil, the international price benchmark which had fallen 6.3% on the prior Friday to close 48 cents a barrel below US prices, continued falling on Monday to close at $28.55, but rebounded to $28.76 a barrel on Tuesday…on Wednesday, as trading in the February contract for US crude was expiring, that price fell nearly 7% more to close at $27.55 a barrel, when global markets crashed as the greed sentiment indicator swung all the way to fear…meanwhile, while trading in February futures was closing out, the contract price for March delivery of US crude fell more than 4% to close Wednesday at $28.33 a barrel…with the March WTI contract now being quoted as the US price of oil, prices rose slightly to close at $27.88 a barrel on Thursday, and then rallied on Friday to close at $32.19 a barrel after citibank called oil “the trade of the year”…meanwhile, quotes for Brent oil rose over those same two days, rising to close at $29.25 a barrel on Thursday and to $32.18 at the end of the day on Friday, and hence the gap between the US price and the international price had closed to just a penny by the end of the week…so, to once again put this week’s oil price changes in perspective, here’s a graph of the March WTI contract oil price over the last three months:

January 23 2016 oil prices

once again, the above graph shows the daily closing contract price per barrel over the last 3 months for March delivery of the US benchmark oil, West Texas Intermediate (WTI), as traded on the New York Mercantile Exchange…as we explained last week, this market is where US oil prices are set, since the daily electronic trading of oil on this exchange is more than 100 times the total volume of physical oil produced in the US…looking at the current end of the graph, you can see all the sturm und drang over the past week has amounted to very little in the end, as oil prices have gone full circle and returned to their level of Thursday the 14th…

as we suggested last week, the primary driver for the dive in oil prices over the past few weeks has been the prospect that oil output from Iran would soon be returning to the global markets, exacerbating the ongoing oil glut…it so happens that the deal to end the sanctions on Iran that would allow its exports to flow was consummated last Saturday evening, probably while we were writing about it a week ago…in the immediate consequence of that, Iran will be increasing its crude output by 500,000 barrels per day over the next few months, which would add another half percent to total global oil supply each day….while that doesn’t sound like much in the overall scheme of things, it would be adding substantially to the million and a half excess barrels of oil that producers currently need to find buyers for…facing this oil glut on Tuesday, the International Energy Agency warned that oil markets “could drown in oversupply” after three consecutive years over which oil production exceeded demand by more than 1 million barrels per day…to attempt to put that possibility in perspective, we’ll include a few graphics from an oilprice.com article  entitled “The World Is Not Running Out Of Storage Space For Oil“, which, by the way, isn’t very convincing in making the point it’s headline asserts…

January 23 2016 oil supply and demand

the above graph shows quarterly levels of global oil production in millions of barrels per day (mb/d, left margin) in green and global oil consumption of that oil in yellow, over the period starting in the first quarter of 2009 (1Q09) to the present, with estimates for both metrics going out to the 4th quarter of 2016 (4Q16)…then behind those ascending supply and demand lines are blue bars essentially showing the difference between the two, or the implied stock change, also in millions of barrels per day (mb/d, right margin); this is the amount of oil that was added to storage for each quarter when the bars pointed up, or the amount of oil that needed to be taken out of storage to meet demand when the blue bars pointed down…you can see that the green supply line has been rising fairly steadily till the recent quarters (end of 2015 is 5th from the right) when it began to turn down…but after the 1st quarter of 2016, green supply begins to rise again as Iranian output is added (as the note at the top of the graph says, they’re assuming Iran’s output will build up to an extra 600,000 barrels per day (600 kb/d) by June, adding to the 32.3 million barrels per day that OPEC countries are already producing)…demand for oil in yellow exhibits quite a seasonal pattern, up in the summer and down in the winter, and hasn’t been rising quite as fast as supply, leading to increases in the quantity left over that needs to be stored, as shown in the blue bars, over the past year and a half, which is projected to continue until the end of 2016…

the next graph we have shows the total amount of oil in storage in the OECD countries (the club of developed countries that are mostly oil importers) over the last two years, as compared to the 5 years prior to that:

January 23 2016 oil supply vs history

in the graph above, the black line shows the track of total stored supplies of crude oil in millions of barrels held monthly by OECD countries during 2015, while the light blue line shows the track of total inventories of crude oil in millions of barrels held by those countries during 2014…the light blue shaded area represents the range of oil inventories held by those same countries over the prior 5 years for the same time of year, essentially showing us the normal range of oil inventories held by the developed capitalist countries as they fluctuate from season to season, while the red line is the average amount of oil that was held in storage by those countries over the same 5 years, from 2010 to 2014…thus we can see that over the past year, a surplus of stored oil has built up in these developed countries that amounted to over 300 million barrels more than normal as of November, apparently the last date where such global data is available..also notice that this year oil supplies continued to build up slowly during the summer and fall, a time of year when oil inventories would normally be drawn down…

This Week’s Stats from the EIA

this week’s reports from the US Energy Information Administration showed still another small increase in our production of crude oil, a comparatively large drop in our oil imports, and another modest drop in refining of that crude, which nonetheless ended with a much larger surplus of unused oil left over than last week….our field production of crude oil inched up by another 8,000 barrels per day to 9,235,000 barrels per day during the week ending January 15th, up from 9,227,000 barrels per day the prior week, and once again our highest output of crude oil in any week since the 3rd week of August…that’s now the 6th week in row that we’ve seen our oil output increase, even if only incrementally, as US oil wells continue to produce 1.2% more than the 9,121,000 barrels per day average they produced during September, and 0.5% more than 9,186,000 barrels per day than they produced in the same week a year ago, despite a 70% drop in active drilling rigs from the peak of October 2014 since then…

at the same time, our imports of crude oil fell by 409,000 barrels per day to a 7,779,000 barrels per day pace, partially reversing the 678,000 barrels per day increase in imports we saw during week ending January 8th…the pace of imports for the week ending January 15th was still 7.2% more than the 7,218,000 barrels per day we imported in the same week of 2015, and still left our 4 week average of our imports over 7.8 million barrels per day, which the EIA’s weekly Petroleum Status Report (62 pp pdf) tells us is 9.6% higher than our oil imports over the same four-week period last year…

meanwhile, the amount of that crude used by our refineries fell by 233,000 barrels per day to an average of 16,190,000 barrels per day during the week ending January 15th, down from an average of 16,423,000 barrels per day during the week ending January 8th…though that was the 4th consecutive drop in refinery throughput, it was still 8.6% more than a year ago, when refineries processed 14,909,000 barrels per day, and a record for refinery throughput in mid-January, when refineries are normally slowing down for the winter…hence it was no surprise that our refinery utilization rate also fell from 91.2% to 90.6%; by the 16th of January last year, it had already fallen to 85.5%…even so, our gasoline production rose for the 2nd week in a row, surging by 633,000 barrels per day to 9,453,000 barrels per day during week ending January 15th, 2.6% more than the 9,215,000 barrels per day production of gasoline a year earlier…meanwhile, our output of distillate fuels (ie, diesel fuel and heat oil) fell by 208,000 barrels per day to 4,552,000 barrels per day during week ending the 15th, which was also down by 216,000 barrels per day from the same week a year ago…with the increase in gasoline production, our end of the week supply of gasoline in storage rose for the 9th week in a row, increasing from 240,434,000 barrels last week to 244,997,000 barrels as of January 15th…that 4,563,000,000 barrel increase, combined with increases of 10,576,000 barrels and 8,438,000 barrels in each of the last two weeks, made for the largest 3 week increase in our stored gasoline in our history, and left our gasoline inventories well above the upper limit of the average range for this time of year….on the other hand, our distillate fuel inventories finally fell after 3 weeks of mid-winter increases had added 13 million barrels to our distillate stocks, as those inventories fell by 1,025,000 barrels to 164,529,000 barrels, down from 165,554,000 barrels on January 8th…that was still 20.6% higher than last January 16th’s 136,579,000 barrels, also putting distillate fuel supplies well into the upper half of their normal range for this time of year… 

finally, in what is slowly becoming an anomalous metric, this week saw a large increase in our inventories of crude oil despite the much lower imports, whereas last week’s surge in imports barely nudged these supply figures at all…the EIA reported that our stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, rose by 3,979,000 barrels to 486,537,000 barrels on January 15th, up from 482,558,000 barrels as of January 8th…that was largely because the “adjustment” on line 13 of the U.S. Petroleum Balance Sheet for the Week Ending 1/15/2016, which is Table 1 in the EIA’s weekly Petroleum Status Report (pdf) swung from a deficit of -459,000 barrels of oil per day last week to a surplus of 244,000 barrels per day this week, continuing the ongoing need to use an increasingly large fudge factor to balance this important market moving metric…nonetheless, the 482,558,000 barrels we have stored as of this report is still 22.3% higher than the 397,853,000 barrels we had stored the same week last year (when the adjustment was -87,000 barrels per day), and obviously the most we had stored any time in January in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before January 23rd of last year…   

The Latest Active Rig Counts

there was just a modest drop in the number of active rigs drilling for oil and gas in the US the week ending January 22nd, as Baker Hughes reported that their count of active oil rigs fell by 5 to 510, and their count of active gas rigs fell by 8 rigs to 127, leaving a total of 637 rigs working at the end of the week, which was down from a total of 1663 rigs that were in use in the same week a year ago, with oil rigs down by 807 from 1317, and gas rigs down by 189 from 316 from that time…those year ago totals from last January 23rd were already well off their peaks; active oil rigs had been as high as 1609 on October 10, 2014, while the recent high for gas drilling rigs was the 356 that were running on November 11th of that same year…  

despite the overall decrease, a net of three Gulf of Mexico rigs were added this week, pushing the offshore count back up to 29, which was still down from 54 offshore rigs, and 53 in the Gulf, a year earlier…a net of 11 rigs that had been doing horizontal drilling were removed, leaving 500 rigs still drilling horizontally active in the US, down from 1229 a year ago…2 directional rigs were also removed, leaving 60, down from the 146 directional rigs that were in use a year ago…the count of active vertical drilling rigs, however, was unchanged from last week at 77, still down from the 258 rigs that were drilling vertically on January 23rd of 2015…

of the major shale basins, Haynesville shale of the Louisiana-Texas border region got rid of the most rigs this week, as they were down by 5 rigs to 18, which was down from the 42 rigs that were deployed in the Haynesville a year earlier…next, the Eagle Ford of south Texas was down 4 rigs to 64 this week, which was down from the 181 rigs deployed there last year at this time..both the Permian basin of west Texas and the Marcellus shale of the northern Appalachian region saw three rigs pulled out; that left the Permian with 199 rigs, down from 481 rigs a year earlier, and left the Marcellus with 35, down more than half from the 76 rigs deployed in the Marcellus the same week last year…two rigs were removed from both the Williston basin of North Dakota and the Mississippian of southwest Kansas; that left the Williston with 45, down from 153 rigs a year earlier, and the Mississippian with 10, down from 63 rigs at the end of the same week a year ago…single rig reductions were seen in the Arkoma Woodford of Oklahoma and the Barnett shale of the Dallas area of Texas, leaving the Arkoma Woodford with 7, still up from 5 a year earlier, and the Barnett with 4, down from 25 a year earlier…basins that saw drilling rigs added this week included the Cana Woodford of Oklahoma, where 2 rigs were added to bring their total to 39, still down from the year earlier 44, and the Utica shale of Ohio, where the addition of one rig brought the count up to 14, which was still down from the 46 rigs deployed in the Utica the same week a year ago..

the Baker Hughes state count tables show that Texas got rid of another 7 rigs this week, leaving 294 still drilling, down from 753 at the end of the same week last year…Pennsylvania saw 3 of its rigs removed, leaving 23, down from 53 rigs working on the 23rd of January last year…Kansas, New Mexico, and North Dakota each saw 2 rigs pulled out and stacked; that left Kansas with 10 rigs, down from 23 a year earlier, New Mexico with 30 rigs, down from last year’s 89, and North Dakota with 45 rigs, down from the 147 that were drilling in the state in the same week a year ago…Alabama saw an offshore drilling rig removed from its waters; that left Alabama with a single rig on land, down from 7 land based rigs working in the state a year ago…and California also got rid of a rig this week, which left the state with 7, down from 15 a year ago…meanwhile, Alaska added 2 rigs, bringing their count back up to 11, the same as a year ago, and Illinois, Ohio and Mississippi all saw the addition of one rig…for Illinois, the new rig was the only rig, although they also had one working in the state a year earlier; Ohio’s count was back up to 14 rigs, but still down from 44 a year ago, while Mississippi ended the week with 6 rigs, down from 9 on January 23rd of 2015….finally, in Louisiana, 4 drilling platforms went into operation offshore in the Gulf at the same time 4 land based rigs, two in the north and two in the south of the state, were removed; that left the Louisiana rig count unchanged at 54 rigs for the week, but still down from the 110 rigs that were working the state during the same week a year ago…

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