US rig count at a 17 month high, oil supplies at another record, et al

US oil prices ended the week 81 cents lower than last week’s final quote, but price quotes for Friday of this week really shouldn’t be compared to those of last week, because each references a different contract month…i’ll explain that oil pricing quirk again, because the change-over of the quoted contract month sometimes even throws me when i’m not watching for it, as it did this week…

at any give time, contracts to buy or sell oil for the coming month and for dozens of months in the future are being traded on the New York Mercantile Exchange (NYMEX), the Chicago Mercantile Exchange (CME), and several other exchanges; for instance, here’s a list of contracts for US light oil currently being traded on the CME; you’ll see they quote different prices for the same kind of oil, by month, all the way out to December 2025…however, the media and most industry publications will only quote the price of oil for the “front month” contract, or the open contract for the month closest to the current date that’s still being traded…when trading in a given front month contract stops trading, several business days before the 1st of that month, the following month’s contract becomes the front month contract, and its price is then quoted in the media as the price of oil, usually without much of an indication that the ‘price of oil’ being quoted is for delivery in a different month than the price that was quoted by the same source 24 hours earlier…at the same time, those sites that display oil price charts will switch the chart of oil prices for the month that expired with a chart of prices for the new front month, and the price history of the new current month shown by those new charts is usually slightly skewed from the prices that had been shown on that same graph over the prior month…

and that change is what happened to oil prices this week….after closing last week at $48.78 a barrel, US WTI oil contracts for April delivery again headed lower on Monday after the prior week’s strong drilling & production data, closing down 56 cents at $48.22 a barrel…at the same time, the WTI oil contract for May delivery, also being actively traded, fell 40 cents from the prior week’s close of $49.31 a barrel to close Monday at $48.91….however, that trading and those prices for May were not reported anywhere, except for on trading related websites…oil prices for April fell another 88 cents on Tuesday, closing at $47.34 a barrel, the lowest price since the November OPEC deal, as traders anticipated the release of data showing a large increase in US oil inventories…since that was the last day of trading for April oil, a few sites covering the price of oil for that day also reported that the more actively traded May contract was also down 67 cents, or 1.4%, to $48.24 a barrel….then on Wednesday, with the April oil contract no longer being traded, many of the same media sites that had reported oil prices down 88 cents to $47.34 a barrel on Tuesday, reported oil down 20 cents to $48.04 on Wednesday, barely making note of the change in the contract month…with the May contract now being quoted as the price of oil, oil then fell 34 more cents on Thursday, closing at $47.70 a barrel, even as many media reports called it the 3rd oil price decrease in a row, even though prices for each separate contract had deceased every day this week…oil pries then rose a bit on Friday, closing the week at $47.97 a barrel, as oil traders positioned themselves for any possible bullish outcome of the coming OPEC meeting in Kuwait on Sunday to review the current level of compliance to the agreed to cuts…with the mid-week contract expiration, some sites properly explained that May oil prices were down $1.34 or 2.7% for the week, while others reported the 81 cent difference between last Friday’s April oil and this Friday’s May oil..

in most articles on oil prices, the contract month that is being quoted is further complicated by the wide difference in expiration dates between the US benchmark oil price, West Texas Intermediate, usually just written as WTI, and the widely quoted international price for North Sea Brent oil…contracts for WTI expire on the 4th US business day prior to the 25th calendar day of the month preceding the contract month, whereas contracts for Brent oil expire on the last business day of the second month preceding the relevant contract month; in other words, the April Brent contract expired on February 28th, and the price for the May contract has been the quoted price of Brent oil throughout March…so for most of each month, articles citing the price of the two benchmark oils are not only quoting different oil types, but also different settlement months…May Brent oil closed this week at $50.80 a barrel, down from $51.76 a barrel the prior Friday…

this week’s natural gas prices, however, were still referencing the price for natural gas to be delivered in April, and will be until March 29th, as trading in natural gas contracts don’t expire until 3 business days before the contract month…those prices were generally up this week, rising 4 out of 5 days, and ending at $3.076 per mmBTU, after closing the prior week at $2.948 per mmBTU…still, as we’ve noted before, prices at these levels are still low enough to discourage the exploitation industry from starting new drilling projects; leaving them just maintaining what they already have going, and only starting up new rigs when prices approach $4…a chart that came in one of the mailings from John Kemp at Reuters goes a long way towards explaining what has kept natural gas prices at these depressed levels over most of the last two years…

March 23 2017 heating demand as of March 17

the above graph comes from one of the emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters (see my footnote below) and it shows the cumulative population-weighted heating degree days for the 2016-17 heating season in red, the same metric for the 2015-16 heating season in yellow, and historical average for the same metric as a white dashed graph…heating degree days are the sum of the average number of degrees below a certain temperature at which it has been determined that buildings need to be heated..,for example, if 65 °F is determined to be the temperature wherein one needs heating, a day with an average temperature of 45 °F would add 20 degree days to the total, while a day with an average temperature of 30 °F would add 35 degree days to the cumulative total…heating degree days are calculated for many areas of the US, and are used by utilities to estimate demand for their output, and are used locally to schedule deliveries of heat oil…this graph shows the result when one takes that heating degree days metric each for area of the US and weighs it based on the population of those areas…ie, if for instance, New York City with a population of 8 million has 25 heating degree days of demand on a given date, it will count for 1000 times more in the total than a county of 8,000 in Wyoming where the measure of their heating demand was 55 degree days on that date…therefore, what this graph shows us is the relative demand for heating for the whole country, from the period beginning in July of each year, a time when there’s no demand for heating… so what we see here is that the US heating needs this season remain very close to those of the record warm 2016 heating season, when cumulative heating degree days were 17% below the average…that translates into 17% lower demand for natural gas heat, and 17% lower demand for heat oil…that reduced demand is the reason that natural gas prices have stayed below $3.00 per mmBTU for most of the last two years, and why drilling for natural gas dropped to an all time low last year, and has barely recovered, which you’ll see in the next graph…

March 25 2017 rig count history to march 17

above, we have a graph of the rig count history from 1991 until last week (ie, this week’s rig count is not yet included)…this graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of investment and economics research, run by Dr Ed Yardeni, and it shows the oil rig count over that 26 year history in violet, the natural gas rig count over that span in green, and then shows the total rig count, which would also occasionally include a miscellaneous rig or two, in red…you can see that natural gas drilling hit its most recent peak in 2010-2011, when natural gas prices were consistently over $4 per mmBTU, while the drilling peak prior to that, in 2008, saw natural gas prices spike to near $14 per mmBTU….since 2011, however, there was only one period in 2014 that saw natural gas prices top $4 per mmBTU, and if you look close, you can see that natural gas drilling briefly picked up at that time…otherwise, natural gas drilling has been in a long term decline since that 2011 peak of 992 rigs, sliding all the way down to 81 rigs in both the first and last week of August 2016…while they’ve increased since then, note that they’re still far below the 240 to 525 rig range that natural gas drillers were deploying even as far back as the early 90s..

The Latest Oil Stats from the EIA

the oil data for the week ending March 17th from the US Energy Information Administration showed a big jump in our imports of crude oil, resulting in another large surplus of crude for the 10th week out of the past 11, pushing our supplies of oil to yet another an all time high, even as our refineries ramped up production to a more seasonal pace…our imports of crude oil increased by an average of 902,000 barrels per day to an average of 8,307,000 barrels per day during the week, while at the same time our exports of crude oil fell by 167,000 barrels per day to an average of 550,000 barrels per day, which meant that our effective imports netted out to 7,757,000 barrels per day during the week, 1,069,000 barrels per day more than the prior week…at the same time, our crude oil production rose by 20,000 barrels per day to an average of 9,129,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,886,000 barrels per day during the cited week…

during the same week, refineries reportedly used 15,801,000 barrels of crude per day, 329,000 barrels per day more than they used during the prior week, while at the same time, 618,000 barrels of oil per day were being added to oil storage facilities in the US….thus, this week’s EIA oil figures would seem to indicate that we used or stored 469,000 less barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -469,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents “unaccounted for crude oil”…that “unaccounted for crude oil” is further described in the glossary of the EIA’s weekly Petroleum Status Report as “the arithmetic difference between the calculated supply and the calculated disposition of crude oil”, which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 7,863,000 barrels per day, still 3.0% below that of the same four-week period last year…at the same time, the 4 week average of our oil exports fell to 721,000 barrels per day, still 86.4% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light oil were barely underway in early 2016…the 608,000 barrel per day increase in our crude inventories included a 708,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 89,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago…meanwhile, this week’s 20,000 barrel per day oil production increase was all from the lower 48 states, as oil output from Alaska was unchanged from last week…the 9,109,000 barrels of crude per day that we produced during the week ending March 17th was the most we’ve produced since the week ending February 12th last year, and was more than 1.0% more than the 9,038,000 barrels per day produced during the week ending March 18th, 2016, while it was still 5.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US refineries were operating at 87.4% of their capacity in using those 15,801,000 barrels of crude per day, up from 85.1% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day….their processing of crude oil is now on a par with the 15,820,000 barrels of crude that were being refined during the week ending March 18th, 2016, when refineries were operating at 88.4% of capacity….with the week’s refinery pickup, gasoline production from our refineries rose by 231,000 barrels per day to 15,820,000 barrels per day during the week ending March 17th, which was 0.9% more than the 9,683,000 barrels per day of gasoline that were being produced during the week ending March 18th a year ago…in addition, refineries’ production of distillate fuels (diesel fuel and heat oil) was also up, rising by 139,000 barrels per day to 4,829,000 barrels per day, which was also up by 1.8% from the 4,742,000 barrels per day of distillates that were being produced during the week ending March 18th last year…

even with the increase in our gasoline production, the EIA reported that our gasoline inventories shrunk by 2,811,000 barrels to 243,468,000 barrels as of March 17th, after they had dropped by more than 9.5 million barrels over the prior 2 weeks….that was despite the fact that our domestic consumption of gasoline fell by 54,000 barrels per day to 9,200,000 barrels per day and remains 3.0% off the year ago pace, and was because our imports of gasoline fell by 247,000 barrels per day to 325,000 barrels per day as our gasoline exports rose by 57,000 barrels per day to 592,000 barrels per day…while our gasoline supplies are now down by nearly 15.6 million barrels from the record high set 5 weeks ago, they’re only down 0.7% from last year’s March 18th high of 245,074,000 barrels, and are still 4.3% above the 233,386,000 barrels of gasoline we had stored on March 20th of 2015… 

our supplies of distillate fuels also fell this week, decreasing by 1,190,000 barrels to 155,393,000 barrels by March 17th, even as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 397,000 barrels per day to 4,012,000 barrels per day, and as our imports of distillates rose by 48,000 barrels per day to 127,000 barrels per day, because our exports of distillates rose by 253,000 barrels per day to 1,217,000 barrels per day at the same time….while our distillate inventories are now 4.2% below the bloated distillate inventories of 162,260,000 barrels that we had stored on March 18th 2016, at the end of the warm El Nino winter of last year, they are still 23.5% higher than the distillate inventories of 125,849,000 barrels that we had stored on March 20th of 2015…  

finally, with the big jump in our net oil imports considerably more than the increase in refinery demand, our commercial inventories of crude oil increased for the 10th time in 11 weeks, increasing by 4,954,000 barrels to a record high 533,110,000 barrels by March 17th…at the same time, 628,000 barrels of oil from our Strategic Petroleum Reserve was sold, which left inventories in the SPR at 693,383,000 barrels, a quantity not considered available for commercial use….thus for current commercial purposes, we finished the week ending March with 11.3% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 6.3% more crude oil in storage than what was then a record 501,517,000 barrels of oil in storage on March 18th of 2016, 23.1% more crude than what was also then a record 433,217,000 barrels in storage on March 20th of 2015 and 52.0% more crude than the 350,802,000 barrels of oil we had in storage on March 21st of 2014…

This Week’s Rig Count

US drilling activity increased for the 20th time in 21 weeks during the week ending March 24th, and we also had the 8th double digit rig increase in the past 10 weeks….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 20 rigs to 809 rigs in the week ending on this Friday, which was 345 more rigs than the 476 rigs that were deployed as of the March 25th report in 2016 and the most since Oct 2nd, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014 (see graph above)…

the count of rigs drilling for oil increased by 21 rigs to 652 rigs this week, which was up from the 372 oil directed rigs that were in use a year ago, and more that double the 316 rigs working on May 27th 2016, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations fell by 2 rigs to 155 rigs this week, which was still up from the 92 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…in addition, another rig that was classified as miscellaneous was added this week, and we now have two of those, in contrast to a year ago, when there were no such miscellaneous rigs at work…  

a drilling platform that had been working offshore from Louisiana in the Gulf of Mexico was shut down this week, which reduced the current Gulf of Mexico count to 18 rigs, down from the 27 rigs that were drilling in the Gulf during the same week of 2016…that was also down from a total of 28 rigs working offshore of the US a year ago, when there was also a rig working offshore from California, in addition to the 27 rigs that were drilling in the Gulf of Mexico at the time…in addition, one of the rigs that had been set up to drill through an inland lake in Louisiana was also shut down, leaving the inland waters rig count at 4, the same as it was a year ago..

active horizontal drilling rigs increased by 15 rigs to 673 rigs this week, which is well more than double the May 27th 2016 total of 314 working horizontal rigs…that’s also up by 314 horizontal rigs from the 359 horizontal rigs that were in use in the US on March 25th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, a total of 8 vertical rigs were added this week, bringing the vertical rig count up to 78 rigs, which was also up from the 53 vertical rigs that were deployed during the same week a year ago…meanwhile, the directional rig count was down by 3 rigs to 58 rigs, which was still up from the 52 directional rigs that were deployed during the same week last year….

as usual, the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of March 24th, the second column shows the change in the number of working rigs between last week’s count (March 17th) and this week’s (March 24th) count, the third column shows last week’s March 17th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 25th of March, 2016…          

March 24 2017 rig count summary

as you can see, the Permian basin of western Texas & southeastern New Mexico saw the largest drilling increase again, after a few weeks where not much changed in that basin…increases in the Eagle Ford of south Texas and the Barnett shale near Dallas also added to the Texas total, while the reasons for the 7 rig increase in Oklahoma aren’t so clear, since the two rig increase in the Cana Wordford are the only shale basin targeting rigs added in the state…i’d assume that the other new Oklahoma rigs were of the vertical drilling sort…also note the addition of two rigs in the Marcellus, one in Pennsylvania, and one in West Virginia, which came despite the 2 rig reduction in the natural gas rig count…gas rigs that were removed were not from a major basin, but were rather from a markdown of rigs from “other” areas, the names of which are not included in Baker Hughes summary data..

as noted, a graph that i included above was from an emailed package of graphs from John Kemp, a senior energy analyst and columnist with Reuters, who advises that his mailing list is open to anyone…you can ask for his daily digest by emailing john.kemp@tr.com or you can follow him on twitter, @ https://twitter.com/JKempEnergy where he seems to post much of what he otherwise emails…

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February’s durable goods, new home sales, existiing home sales

widely watched reports that were released this past week were the advance report on durable goods for February and the February report on new home sales, both from the Census bureau, and the Existing Home Sales Report for February from the National Association of Realtors (NAR)…the week also saw the release of the Regional and State Employment and Unemployment Summary for February from the BLS, and the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which rose to +0.34 in February from –0.02 in January, after January’s index was revised from the -0.05 reported last month…as a result, the 3 month average of that index rose to +0.17 in February, up from a revised +0.02 in January, which indicates that national economic activity has been slightly above the historical trend over recent months…in addition, this week also saw the release of the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index at +20 in March, up from +14 in February and its highest reading since March 2011, indicating an accelerating expansion in that region’s manufacturing…

February Durable Goods: New Orders Up 1.7%, Shipments Up 0.3%, Inventories Up 0.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $3.9 billion or 1.7 percent to $235.4 billion in February, after January’s new orders were revised from the $230.4 billion reported last month to $231.5 billion, now 2.3% more than December’s new orders…as a result, year to date new orders are now up by 1.6% from those of 2016…the volatile monthly new orders for transportation equipment were responsible for the month’s increase, as new transportation equipment orders rose $3.3 billion or 4.3 percent to $80.4 billion, on a 47.6% increase to $12,681 million in new orders for commercial aircraft….excluding orders for transportation equipment, new orders still rose 0.4%, while excluding just new orders for defense equipment, new orders rose 2.3%….however, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, fell $93 million or 0.1% to $64,641 million…

meanwhile, the seasonally adjusted value of February shipments of durable goods, which will be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased by $0.6 billion or 0.3 percent to $239.2 billion, after the value of January shipments was revised from from $478.3 billion to $478.3 billion, still down 0.1% from December…higher shipments of machinery led the February increase, as they increased by $0.3 billion or 0.9 percent to $31.1 billion…at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $0.8 billion or 0.2 percent to $385.1 billion, after December inventories were revised from $383.8 billion to $384.3 billion, now up 0.1% from December….

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but somewhat volatile new orders, fell for the eighth time in 9 months, decreasing by just $0.2 billion to $1,114.7 billion however, following a January decrease of 0.3% to $1,114.94 billion, which was revised from the previously reported 0.4% decrease to $1,114.3 billion…a $1.1 billion or 0.1 percent decrease to $752.7 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders were up 0.2% to $361,982 million…the unfilled order book for durable goods is now 1.5% below the level of last February, with unfilled orders for transportation equipment now 3.3% below their year ago level, mostly on a 4.6% decrease in the backlog of orders for commercial aircraft…

New Home Sales Reported Higher in February

the Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 592,000 homes annually during the month, which was 6.1 percent (±17.3 percent)* above the revised January annual sales rate of 558,000 new home sales and 12.8 percent (±18.0 percent)* above the estimated annual rate that new homes were selling at in February of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether February new home sales rose or fell from those of January, or even from February sales 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 is subject to the largest revisions of any census construction series….with this report; sales of new single family homes in January were revised from the annual rate of 555,000 reported last month to an annual rate of 558,000, and new home sales in December, initially reported at an annual rate of 536,000 and revised to a 535,000 rate last month, were revised down to a 530,000 a year rate with this report, while November’s annualized new home sales rate, initially reported at an annual rate of 592,000 and revised up to a 598,000 a year rate last month, were revised back down to a 573,000 rate with this release…

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 49,000 new single family homes sold in February, up from the estimated 41,000 new homes that sold in January and up from the 38,000 that sold in December…..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in February was $296,200, down from the median sale price of $308,200 in January and down from the median sales price of $311,300 in February a year ago, while the average February new home sales price was $390,400, up from the $355,300 average sales price in January, and up from the average sales price of $349,400 in February a year ago….a seasonally adjusted estimate of 266,000 new single family houses remained for sale at the end of February, which represents a 5.4 month supply at the February sales rate, down from the 5.7 months of new home supply reported in January…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 592,000 Annual Rate in February and A few Comments on February New Home Sales..

February Existing Home Sales 3.7% Lower

the National Association of Realtors (NAR) reported that existing home sales fell by 3.7% from January to February on a seasonally adjusted basis, projecting that 5.48 million existing homes would sell over an entire year if the February home sales pace were extrapolated over that year, a pace that was still 5.4% above the annual sales rate projected in February of a year ago….the NAR also reported that the median sales price for all existing-home types was $228,400 in February, up from the revised $227,300 in January, and 8.1% higher than in February a year earlier, which they report as “the 60th consecutive month of year-over-year gains”…..the NAR press release, which is titled “Existing-Home Sales Stumble in February“, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf) to see what actually transpired during the month…this unadjusted data indicates that roughly 315,000 homes sold in February, down 1.3% from the 319,000 homes that sold in January, but up by 0.3% from the 314,000 homes that sold in February of last year….that same pdf indicates that the median home selling price for all housing types rose by half a percent, from a revised $227,300 in January to $228,400 in February, while the average home sales price inched up to $270,100 from the $269,500 average sales price in January, while it was up 5.8% from the $255,300 average home sales price of February a year ago…for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: “Existing-Home Sales Stumble in February” and A Few Comments on February Existing Home Sales..

 

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

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graphics for March 25th

population weighted heating demand:

March 23 2017 heating demand as of March 17

rig count summary

March 24 2017 rig count summary

rig count history:

March 25 2017 rig count history to march 17

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March OPEC report shows global oil glut still building; US horizontal drilling doubles, but uncompleted wells rise…

oil prices continued falling early this past week, but rallied on Wednesday after the EIA’s report of the first US oil inventory drawdown in 10 weeks, and ultimately ended the week 29 cents higher at $48.78 a barrel…the early weakness was a continuation of last week’s big selloff, as hedge funds who had built up a overwhelmingly long position in oil futures and options continued to head for the exits, and oil prices fell 9 cents to close at $48.40 a barrel on on Monday and then fell to close at $47.72 a barrel on Tuesday, after the Saudis unexpectedly reported that their February oil production had increased…however, after the EIA reported a small decrease in crude supplies and rather large drops in gasoline and distillate supplies on Wednesday, oil prices jumped 2.4% to close at $48.86 a barrel…prices drifted lower on Thursday to close at $48.75 a barrel, and then an attempt at a rally sputtered on Friday, after Baker Hughes reported a double digit increase in active oil drilling rigs, as oil went on to close the week at $48.78 a barrel…

OPEC’s March report

since oil pricing, and hence the industry’s plans for drilling and fracking in the US, is still largely dependent on what OPEC does, we’ll start this week by looking at the new OPEC Monthly Oil Market Report for March (covering February OPEC & global data)…this first table we’ll include here is from page 60 of that OPEC pdf and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as the column headings are labeled…for all their official production measurements, OPEC uses “secondary sources”, such as analyst’s reports from satellites and shipping data, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures…this is also the oil production data we often see quoted in the media, other than that from independent analysis by energy research divisions of organizations such as Platts and Reuters, who will compute their own numbers.. 

February 2017 OPEC crude output via secondary sources

here we can see that this official data shows that OPEC production was down by 139,500 barrels per day to under 32 million in February, from a January oil production total that was revised 42,000 barrels per day lower from what was reported last month…(for your reference, here are the official January figures before these revisions)…recall that OPEC committed to reducing their production by 1.2 million barrels per day from their October levels (shown here, with Indonesia), so these figures show the remaining 13 members are now pretty close to achieving what they agreed to…however, there are a number of different estimates out there, and depending on who’s judging their output and their promises, their compliance with their pledged oil output cuts could be anywhere from 71.9% to 111.5%….however, it wasn’t these official figures from OPEC that attracted the attention to this report this week, but rather the February production figures that the OPEC members reported to the OPEC Secretariat, which are shown in the next table…

February 2017 OPEC crude output as reported to OPEC

the above table, also from page 60 of the OPEC pdf, shows the oil production in thousands of barrels per day that each of the members reported to OPEC (for those that did report)…although this data is considered suspect because of the many incentives OPEC members have to fudge their data, it attracted attention and precipitated a Tuesday selloff because the Saudis reported that they increased their production by 263,000 barrels per day, rather than cutting production by 68,100 barrels per day like the official totals show…while their 10,011,000 barrel per day output was still within their committed range, the increase put to rest the market consensus that the Saudis would cover for the other OPEC members such as the Emirates (UAE), who have not met their promised cuts…while oil prices rebounded after the Saudis explained the extra production was purely for domestic storage, over 10 million bpd was still more production from the Saudis than had been expected, and cast a pall of uncertainty over the market, whee traders had believed that OPEC had their production reductions under control..

next, we’ll include a graph of the total OPEC oil output for all 13 members included in this report, so we can see how this month’s production stacks up compared to historical figures… 

March 18 2017 OPEC February output graph

the above graph, taken from the ‘OPEC February Production” post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to February 2017, using the official data from secondary sources…obviously, we can see that February OPEC production of 31,958,000 barrels per day is down quite a bit from their record production of 33,374,000 million barrels per day in November, achieved during their production run-up before the agreement was reached, but note that their current production is still somewhat more than what they were producing between February and May of 2016, and every other month before that, including last January, when they produced 31,628,000 barrels per day (a figure i arrived at by subtracting Indonesian production from the 14 member total they reported last year.pdf) …similarly, we find that despite all of the brouhaha over the OPEC production cuts, their February 2017 production of 31,958,000 barrels per day is still 1.2% more oil than what the same 13 countries were producing in February 2016…

this next graphic we’ll include shows us both OPEC and world oil production monthly on the same graph, from March 2015 to February 2017, and it comes from page 61 of the March OPEC Monthly Oil Market Report…the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for that shown on the right scale…global oil production fell to 95.88 million barrels per day in February, while it was still unchanged from a year earlier, and OPEC production of 31,958,000 barrels per day thus represented 33.3% of what was produced globally, a decrease from the 33.5% OPEC share in January and 34.0% in December…but even with the two months of production cuts we can obviously see here, there is still a surplus of oil supply globally, as the table we’ll include next will show.. 

March 2017 OPEC report, global supply for February

the table below comes from page 37 of the March OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC’s forecast for oil demand by region and globally over 2017 over the rest of the table…note that the forecast for global oil demand in the current first quarter of 2017 is shown on the “Total world” line of the second column, and projections are that during the first three months of this year, all oil consuming areas of the globe will use 95.34 million barrels of oil per day, up from the 95.05 millions of barrels of oil per day they used in 2016…but as OPEC showed us in the supply section of this report and the summary supply graph above, even with their production cuts, the world’s oil producers were still producing 95.88 million barrels per day during February…that means that even after all the production cuts have taken place, there continued to be a surplus of more than half a million barrels per day in global oil production… 

March 2017 global oil demand for February via OPEC

The Latest Oil Stats from the EIA

the oil data for the week ending March 10th from the US Energy Information Administration showed a large drop in our imports of crude oil, while refining of such crude was little changed, resulting in the first withdrawal of crude from US storage in 10 weeks…our imports of crude oil fell by an average of 745,000 barrels per day to an average of 7,405,000 barrels per day during the week, while at the same time our exports of crude oil fell by 180,000 barrels per day to an average of 717,000 barrels per day, which meant that our effective imports netted out to 6,688,000 barrels per day during the week, 565,000 barrels per day less than last week…at the same time, our crude oil production rose by 21,000 barrels per day to an average of 9,109,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 15,797,000 barrels per day during the week…

during the same week, refineries reportedly used 15,472,000 barrels of crude per day, 20,000 barrels per day less than during the prior week, while at the same time, 150,000 barrels of oil per day were being taken out of oil storage facilities in the US…thus, this week’s EIA oil figures seem to indicate that we used 475,000 less barrels of oil per day than were supplied by our net oil imports, total oil well production, and what we took out of storage…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -475,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents “unaccounted for crude oil”…that “unaccounted for crude oil” is further described in the glossary of the EIA’s weekly Petroleum Status Report as “the arithmetic difference between the calculated supply and the calculated disposition of crude oil.”, which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports fell to an average of 7.6 million barrels per day, now 4.4% below that of the same four-week period last year…at the same time, the 4 week average of our oil exports fell to 887,000 barrels per day, still 127.3% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light oil were barely underway in early 2016…the 150,000 barrel per day draw out of our crude supplies included a 117,000 barrel per day sale from our Strategic Petroleum Reserve, the first of a planned sale of 5 million barrels annually that was planned during the Obama administration, 18 months ago…meanwhile, this week’s 21,000 barrel per day oil production increase included a 20,000 barrel per day increase in oil production in the lower 48 states and a 1,000 barrel per day increase in output from Alaska…the 9,109,000 barrels of crude per day that we produced during the week ending March 10th was the most we’ve produced since the week ending February 12th last year, and was almost 0.5% more than the 9,068,000 barrels per day produced during the week ending March 11th, 2016, while it was still 5.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day… 

US refineries were operating at 85.1% of their capacity in using those 15,472,000 barrels of crude per day, down from 85.9% of capacity the prior week, and down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day….their processing of crude oil is also down by 3.3% from the 15,996,000 barrels of crude that were being refined during the week ending March 11th, 2016, when refineries were operating at 89.0% of capacity….with the ongoing refinery slowdown, gasoline production from our refineries fell by 304,000 barrels per day to 9,540,000 barrels per day during the week ending March 10th, which was 4.7% less than the 10,015,000 barrels per day of gasoline that were being produced during the week ending March 11th a year ago…in addition, refineries’ production of distillate fuels (diesel fuel and heat oil) was also down, falling by 83,000 barrels per day to 4,690,000 barrels per day, which was also down by 1.9% from the 4,781,000 barrels per day of distillates that were being produced during the week ending March 11th last year… 

with the decrease in our gasoline production, the EIA reported that our gasoline inventories fell by 3,055,000 barrels to 246,279,000 barrels as of March 10th, after they had dropped by a near record 6,555,000 barrels the prior week….that happened as our domestic consumption of gasoline fell by 14,000 barrels per day to 9,254,000 barrels per day, our gasoline exports fell by 206,000 barrels per day to 535,000 barrels per day, and our imports of gasoline rose by 330,000 barrels per day from last week’s 17 year low to 572,000 barrels per day…while our gasoline supplies are thus down by 12,784,000 barrels from the record high set 4 weeks ago, they’re only down 1.4% from last year’s March 11th high of 249,716,000 barrels, and are still 4.6% above the 235,400,000 barrels of gasoline we had stored on March 13th of 2015… 

our supplies of distillate fuels also fell this week, decreasing by 4,229,000 barrels to 157,303,000 barrels by March 10th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 418,000 barrels per day to 4,409,000 barrels per day, and as our imports of distillates fell by 187,000 barrels per day to 79,000 barrels per day, the lowest this heating season, while our exports of distillates fell by 366,000 barrels per day to 964,000 barrels per day….while our distillate inventories are now 2.5% below the bloated distillate inventories of 161,343,000 barrels that we had stored on March 11th 2016, at the end of the warm El Nino winter of last year, they are still 25.0% higher than the distillate inventories of 125,883,000 barrels of March 13th, 2015…   

finally, with our net oil imports considerably lower than in recent weeks while refinery demand for oil was flat, our commercial inventories of crude oil were drawn down for the first time in 10 weeks, decreasing by 237,000 barrels to 528,156,000 barrels by March 10th…at the same time, 816,000 barrels of oil from our Strategic Petroleum Reserve was sold, with 550,000 barrels of going that to Petro China, which left inventories in the SPR at 694,009,000 barrels, a quantity not usually considered when aggregating our oil inventories…thus for current commercial purposes, we still ended the week with 10.3% more crude oil in storage than the 479,012,000 barrels we had at the end of 2016, 7.3% more crude oil in storage than what was then a record 492,160,000 barrels on March 11th of 2016, 24.3% more crude than what was also then a record 425,047,000 barrels in storage on March 13th of 2015 and 53.5% more crude than the 344,183,000 barrels of oil we had in storage on March 14th of 2014…

This Week’s Rig Count

US drilling activity increased for the 19th time in 20 weeks during the week ending March 17th, as we also saw the 7th double digit rig increase in the past 9 weeks….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 21 rigs to 789 rigs in the week ending on this Friday, which was 313 more rigs than the 476 rigs that were deployed as of the March 18th report in 2016, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

the count of rigs drilling for oil increased by 14 rigs to 631 rigs this week, which was up from the 387 oil directed rigs that were in use a year ago, and nearly double the 316 rigs working on May 27th, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations rose by 6 rigs to 157 rigs this week, which was up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…in addition, a single rig that was classified as miscellaneous was added this week, in contrast to a year ago, when there were no such miscellaneous rigs at work…   

a drilling platform that had been working offshore from Texas in the Gulf of Mexico was shut down this week, which lowered the current Gulf of Mexico count to 19 rigs, still down from the 26 rigs that were drilling in the Gulf during the same week of 2016…that was also down from a total of 27 rigs working offshore of the US a year ago, when there was also a rig working offshore from California, in addition to the 26 rigs that were drilling in the Gulf of Mexico at the time…

active horizontal drilling rigs increased by 19 rigs to 658 rigs this week, which is well more than double the May 27th 2016 total of 314 working horizontal rigs…that’s also up by 289 horizontal rigs from the 369 horizontal rigs that were in use in the US on March 18th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, a net total of 2 vertical rigs were added this week, bringing the vertical rig count up to 70 rigs, which was also up from the 58 vertical rigs that were deployed during the same week a year ago…meanwhile, the directional rig count was unchanged at 61 rigs, which was also up from the 49 directional rigs that were deployed during the same week last year….

as usual, the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of March 17th, the second column shows the change in the number of working rigs between last week’s count (March 10th) and this week’s (March 17th) count, the third column shows last week’s March 10th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 18th of March, 2016…           

March 17 2017 rig count summary

noteworthy in this week’s report was the first drop in drilling in the Permian basin of western Texas since October 27th, although with 308 rigs, their active rig total is still more than double their year ago count…although Texas drillers did add 4 rigs this week, the state with the largest increase this week was Oklahoma with 10 rigs, with an increase of 3 rigs in the Arkoma Woodford, while the 3 new Mississippian rigs were also likely in that state, since Kansas shows no change in drilling activity…also note the increase of 5 rigs in North Dakota, possibly in anticipation of the completion of the Dakota Access pipeline, which by cutting shipping costs would increase the wellhead price for Williston basin drillers…and even with the increase of 6 rigs targeting natural gas, the rig count in Ohio’s Utica shale still remained unchanged, as 3 natural gas rigs were added in the Arkoma Woodford, 2 were added in the Eagle Ford, and one each was added in the Marcellus and the Haynesville, while one was pulled out of an “other” unnamed basin…note that outside of the major producing states listed above, both New York and Illinois added a rig this week, while Montana had one rig shut down, and now has none, same as a year ago…for New York, that one new rig is the first drilling they’ve seen since two weeks in July of 2015, while Illinois now has two rigs running, in contrast to a year ago, when they also had none..

DUC report for February

this week also saw the release of the EIA’s Drilling Productivity Report for February, which again showed another increase in uncompleted wells nationally, mostly as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin…as you’ll recall, we had expected that with oil prices above $50, some of the DUC well backlog would be completed, but this report again showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUC wells in the US rose from 5,352 in January to 5,443 in February…a month ago, we speculated that slowdown might be the result of a shortage of competent fracking crews, and the oilfield worker shortage issue again got play this week in an article at oilprice.com this week, where they complain that even trucker jobs with an annual paycheck of $80,000 remain unfilled…frackers have now gone nearly two years with just skeleton fracking crews operating in much of the country, and many of those who had worked in the oil fields in the previous boom have since found work elsewhere, so putting together a fracking crew familiar with the latest techniques has become much harder than before..

like in previous months, most of the February DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in these stats, saw its total count of uncompleted wells rise by 95, from 1,669 in January to 1,764 in February, as we’d expect with the increase in drilling that we’ve seen in that basin…at the same time, DUCs in the Eagle Ford of south Texas rose by 13, to 1,265 in February, and DUCs in the Haynesville of Louisiana increased by 10 wells to 170…on the other hand, the Niobrara chalk of the Rockies front range saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Niobrara DUC count fell from 700 in January to 678 in February…in addition; the Utica also showed a decrease of 5 uncompleted wells and thus had only 92 DUCs remaining at the end of February, and the Marcellus DUC count fell by 4 to 666 uncompleted wells….for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 90 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 1 well, even though natural gas DUCs have generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered…. note there’s more here

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February consumer and producer prices, retail sales, industrial production, & new homes sales: January business inventories and JOLTS

major monthly reports this week included the Retail Sales report for February and Business Sales and Inventories for January from the Census Bureau, the February Producer Price Index and the February Consumer Price Index from the Bureau of Labor Statistics, the February report on Industrial Production and Capacity Utilization from the Fed, and the February report on New Residential Construction from the Census Bureau…in addition, the BLS oddly released both the Job Openings and Labor Turnover Survey (JOLTS) for January and the Regional and State Employment and Unemployment Report for January in the same week… this week also saw the release of the first two regional Fed manufacturing surveys for March: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index slipped to +16.4,  down from +18.7 in February, still suggesting a decent growth rate in First District manufacturing… meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions fell to +32.8 in March from +43.3 in February from a  reading + 23.6 in January, still indicating a large plurality of the region’s manufacturing firms reported increases in their activity this month…

February Consumer Prices Rise 0.1% on Higher Food, Shelter, and Clothing

the consumer price index increased by 0.1% in February, as lower prices for gasoline and most goods partially offset higher prices for food, clothing and shelter…the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.1% in February after it had risen 0.6% in January, 0.3% in December, 0.2% in November, 0.4% in October, 0.3% in September, and 0.2% in August….the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 243.603 in Febraury from 242.839 in January, which left it statistically 2.738% higher than the 236.916 index reading of February last year…with lower prices for gasoline a drag on the increase in the overall index, seasonally adjusted core prices, which exclude food and energy, rose by 0.2% for the month, with the unadjusted core index rising from 250.083 to 251.143, which left it 2.224% ahead of its year ago reading of 245.680…

the volatile seasonally adjusted energy price index fell by 1.0% in February, after it had risen by 4.0% in January, 1.5% in December, 1.2% in November, 3.5% in October, and 2.9% in September…hence, energy prices are still 15.2% higher than a year ago, after seeing negative year over year comparisons through most of 2015 and 2016…prices for energy commodities were 2.8% lower while the index for energy services rose by 1.0%, after rising 0.3% in January ….the drop in the energy commodity index included a 3.0% decrease in the price of gasoline, the largest component, and a 0.4% decrease in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, rose by an average of 1.8%…within energy services, the index for utility gas service rose by 1.5% in its 8th increase in a row, and hence utility gas is now priced 10.9% higher than it was a year ago, while the electricity price index was up 0.8%, after it was unchanged in December and January….energy commodities are still priced 29.8% above their year ago levels, with gasoline prices averaging 30.7% higher than they were a year ago.…meanwhile, the energy services price index is now 3.8% higher than last February, as even electricity prices have increased by 1.9% over that period..

the seasonally adjusted food price index rose 0.2% in February, after rising 0.1% in January, but after being unchanged for the 6 prior months, as prices for food purchased for use at home rose 0.3% while prices for food bought to eat away from home rose 0.2%, with average prices at fast food outlets up 0.1% while average prices at full service restaurants rose 0.3%…in the food at home categories, the price index for cereals and bakery products decreased by 0.4% as prices for cookies fell 2.1% and prices for flour and mixes were 1.0% lower…the price index for the meats, poultry, fish, and eggs group rose by 0.2% as pork prices rose 1.5% and processed seafood prices rose 2.8%, while the index for dairy products was 0.8% higher on a 1.0% increase in the price of milk….the fruits and vegetables index was 0.7% higher on a 2.3% increase in prices for fresh vegetables, led by a 6.5% increase in the price of lettuce…the beverages index was 1.5% higher as carbonated drink prices rose 2.1% and coffee prices rose 1.8%….lastly, prices in the ‘other foods at home’ category were on average 0.4% lower, as olives, pickles and relishes averaged a 2.5% decrease…..among food at home line items, eggs, which are still priced 23.3% lower than a year ago, tomatoes, which are 13.3% lower, and fruits other than apples, bananas and citrus, which are 10.6% lower than last year, have seen price changes greater than 10% over the past year…the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall

among the seasonally adjusted core components of the CPI, which rose by 0.2% in February after rising by 0.3% in January, 0.2% in December, 0.2% in November, 0.1% in October, 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods was statistically unchanged, while the more heavily weighted composite for all services less energy services was 0.3% higher….among the goods components, which will be used by the Bureau of Economic Analysis to adjust February retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.1% as prices for major appliances fell 1.4%…the apparel price index was 0.6% higher led by a 1.6% increase in prices for men’s apparel and a 8.0% increase in prices for women’s outwear….prices for transportation commodities other than fuel were down 0.3%, as prices for new vehicles fell 0.2% and prices for used cars and trucks fell 0.6%…prices for medical care commodities were 0.2% lower on 0.2% lower prescription drug prices….meanwhile, the recreational commodities index fell 0.1% on 0.6% lower priced pets, pet supplies, and accessories, while the education and communication commodities index was 0.2% lower on a 1.1% decrease in prices for computer software and accessories…lastly, a separate price index for alcoholic beverages was up down 0.2% on 0.7% lower prices for distilled spirits other than whiskey bought for drinking at home, while the price index for ‘other goods’ was up 0.2% on a 0.4% increase in cigarette prices…

within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in owner’s equivalent rent, and a 0.6% increase in lodging away from home at hotels and motels, while the household operations services index was unchanged….meanwhile, the index for medical care services was up 0.1% as nursing homes and adult day care services rose 1.0%…in addition, the transportation services index was 0.7% higher on a 2.3% increase in car and truck leasing prices…at the same time, the recreation services price index was up 0.9% as admissions to sporting events rose 2.1%, while the index for education and communication services was 0.2% lower as wireless telephone services were priced 1.4% lower and internet services fell 1.0%…lastly, the index for other personal services was up 0.1% as tax return preparation and other accounting fees were 1.1% higher…among core prices, only televisions, which are now 20.1% cheaper than a year ago, have seen prices drop by more than 10% over the past year, while nothing has seen prices rise by a double digit magnitude.. 

Retail Sales Up 0.1% in February after January Sales Revised Higher

seasonally adjusted retail sales increased 0.1% in February after retail sales for January were revised higher…the Advance Retail Sales Report for February (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $474.0 billion during the month, which was up 0.1 percent (±0.5%) from January’s revised sales of $473.6 billion and 5.7 percent (±0.9%) above the adjusted sales in February of last year…January’s seasonally adjusted sales were revised up from $472.1 billion to $473.6 billion, while December’s sales were revised from $470.46 billion to $470.616 billion; as a result, the December to January change was revised up from up 0.4 percent (±0.5%) to up 0.6 percent (±0.2%)…..estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales were down fractionally, from $422,761 million in January to $422,072 million in February, while they were up 2.1% from the $413,554 million of sales in the 29 day February of a year ago..

included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the February Census Marts pdf….the first pair of columns below gives us the seasonally adjusted percentage change in sales for each kind of business from the January revised figure to this month’s February “advance” report in the first sub-column, and then the year over year percentage sales change since last February is in the 2nd column…the second double column pair below gives us the revision of the January advance estimates (now called “preliminary”) as of this report, with the new December to January percentage change under “Dec 2016 (r)” (revised) and the January 2016 to January 2017 percentage change as revised in the last column shown…for your reference, our copy of the table of last month’s advance estimate of January sales, before this month’s revisions, is here.….

February 2017 retail sales table

despite the weak headline, this February report is better than it appears, because much of the weakness was due to lower prices…for instance, while there was a 0.1% drop to $90,547 million in sales at motor vehicle dealers, prices for new vehicles fell 0.2% and prices for used cars and trucks fell 0.6%, which means weighted real unit sales of vehicles were actually up on the order of 0.2%…without that decrease in car sales, other retail sales rose 0.2%…similarly, there was a 2.8% drop in nominal electronics and appliance stores sales, but the CPI tells us that major appliances were 1.4% cheaper during the month, thus partially ameliorating the real decrease…likewise, the 0.6% drop in gas station sales can easily be explained by the 3.0% drop in gasoline prices…on the other hand, clothing store sales fell 0.5% while the apparel index was up 0.6%, meaning real clothing store sales were down 1.1%, and by a similar calculation we can see that real grocery store and restaurant sales were down as well…still, January sales were revised 0.2% higher, which should partially reverse the negative 0.26% personal consumption expenditures for the month, and February PCE for goods should be up on the order of 0.15% from there…

January Business Sales Up 0.2%, Business Inventories Up 0.3%

after the release of the February retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for January (pdf), which incorporates the revised January retail data from that February report and the earlier published January wholesale and factory data to give us a complete picture of the business contribution to the economy for that month….according to the Census Bureau, total manufacturer’s and trade sales were estimated to be valued at a seasonally adjusted $1,359.3 billion in January, up 0.2 percent (±0.2%)* from December’s revised sales, and up 6.4 percent (±0.4%) from January sales of a year earlier…note that total December sales were concurrently revised up from the originally reported $1,356.0 billion to $1,356.64 billion, now a 2.1% increase from November….manufacturer’s sales rose 0.2% to $478,316 million in January; retail trade sales, which exclude restaurant & bar sales from the revised January retail sales reported earlier, rose 0.5% to $417,362 million, while wholesale sales fell 0.1% to $463,649 million…

meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,841.4 billion at the end of January, up 0.3 percent (±0.2%) from the end of December, and 2.3 percent (±0.3%) higher than in January a year earlier…at the same time, the value of end of December inventories was revised from the $1,835.7 reported last month to $1,836.17 billion….seasonally adjusted inventories of manufacturers were estimated to be valued at $627,890 million, up 0.2% from December, and inventories of retailers were valued at $613,489 million, 0.8% more than in December, while inventories of wholesalers were estimated to be valued at $600,030 million at the end of January, 0.2% lower than in December…

Producer Prices Up 0.3% in February on Higher Electricity Prices

the seasonally adjusted Producer Price Index (PPI) for final demand rose 0.3% in February, as prices for finished wholesale goods increased 0.3%, while margins of final services providers increased by 0.4%…this followed a revised January report that indicated the PPI was 0.6% higher, with prices for finished goods up 1.0% while final demand for services rose 0.3%, and a December report that indicated the overall PPI had increased 0.2%, with prices for finished goods up 0.6% while final demand for services rose 0.1%….on an unadjusted basis, producer prices are now 1.8% higher than a year earlier, up from the 1.6% YoY increase indicated a month ago…

as noted, the price index for final demand for goods, aka ‘finished goods’, rose by 0.3% in February, after rising by 1.0% in January, 0.6% in December, 0.2% in November, 0.3% in October, and 0.5% in September, as the index for wholesale energy prices rose 0.6%, the price index for wholesale foods rose 0.3%, and the index for final demand for core wholesale goods (ex food and energy) rose 0.1%…the major wholesale energy price increase was a 1.6% increase in wholesale prices for electric power, while the wholesale food price index moved up on a 16.2% increase in prices fresh and dry vegetables..among wholesale core goods, prices for pharmaceutical preparations increased 1.0%, while wholesale prices for computers and computer equipment were down 1.1%..

meanwhile, the index for final demand for services rose by 0.4% in February after rising by 0.3% in January, and by 0.1% in December, in November and in October, as the index for final demand for trade services rose 0.4%, the index for final demand for transportation and warehousing services rose 0.3%, while the index for final demand for services less trade, transportation, and warehousing services was 0.5% higher….among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers increased 11.3% after rising 14.1% in January, 6.3% in December and  6.0% in November, while margins for fuels and lubricants retailers fell 8.0%…in the core final demand for services index, margins for traveler accommodation services rose 4.3% as margins for arrangement of flights rose 9.8%..

this report also showed the price index for processed goods for intermediate demand was 0.4% higher, after rising 1.1% in January, 0.4% in December, and by a revised 0.4% in November…prices for intermediate processed goods are now 5.0% higher than in February a year ago, the fourth year over year increase after 16 months of lower year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016…. in February, the price index for intermediate energy goods rose 0.6%, prices for intermediate processed foods and feeds fell 0.1%, and the core price index for processed goods for intermediate demand less food and energy was 0.5% higher…

at the same time, the price index for intermediate unprocessed goods fell 0.2% in February, after rising 3.8% in January and 8.4% in December, but after falling by 0.2% in November, 0.7% in October, 0.6% in September, and 2.1% in August….the index for crude energy goods fell 4.3% as prices for raw natural gas fell 18.0%, while the price index for unprocessed foodstuffs and feedstuffs rose 2.2%, as the index for slaughter barrows and gilts rose 18.2%…in addition, the index for core raw materials other than food and energy materials rose 1.4%, as wholesale prices for copper scrap rose 2.8% and wholesale prices for paper scrap rose 2.5% … this raw materials index is now up 19.4% from year ago, the largest 12-month jump since a 20.0% increase in September 2011, in contrast to a prior year over year decrease of 26.4% that we saw just 15 months ago, in November of 2015…

lastly, the price index for services for intermediate demand was 0.5% higher in February, after being 0.3% higher in January, 0.4% higher in December and 0.1% higher in November and October.. the index for trade services for intermediate demand was 0.6% higher as margins for intermediate chemicals and allied products wholesalers rose 7.1%…the index for transportation and warehousing services for intermediate demand was also up 0.6%, as pricing for intermediate postal services rose 1.9%, while the core price index for services less trade, transportation, and warehousing for intermediate demand rose 0.5%, as a 2.6% increase in the index for legal services accounted for much of the increase in the intermediate services index…over the 12 months ended in February, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.0% higher than it was a year ago…   

Industrial Production Flat in February on Record Warmth

the Fed’s February G17 release on Industrial production and Capacity Utilization, which includes revisions back to September, reported that industrial production was unchanged in February after falling by a revised 0.1% in January, which left it 0.3% higher than a year ago…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, was at 104.7 in February, after the January index was revised up from 104.6 to 104.7, the December index remained at 104.8, and the November index was revised from the 104.2 reported last month to 104.1..

the manufacturing index, which accounts for more than 77% of the total IP index, rose to 104.5 in February, after the January index was revised from 103.8 to 104.0, and the September index was revised from 103.0 to 102.9…with other months unrevised, the manufacturing index now stands 1.2% above it’s year ago level….meanwhile, the mining index, which includes oil and gas well drilling, rose 2.7%, from 107.7 in January to 110.6 in February, after the January index was revised down from 108.3, which left the mining index 1.8% higher than it was a year earlier…finally, the utility index, which often fluctuates due to above or below normal temperatures, fell by 5.7% in February, from 90.0 to 93.4, after the January utility index was revised from 98.8 to 99.0, down 5.8% from December…with February temperatures at record levels across much of the US, the utility index is now at its lowest level since March 2002, 7.0% lower than it was a year ago…

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell to 75.4% in February from 75.5% in January, which was revised up from the 75.3% reported last month …capacity utilization of NAICS durable goods production facilities rose from a upwardly revised 76.4% in January to 76.7% in February, while capacity utilization for non-durables producers rose from an upwardly revised 75.1% to 75.4%…capacity utilization for the mining sector rose to 80.5% in February from 78.4% in January, which was originally reported as 78.1%, while utilities were operating at 70.9% of capacity during February, down from their 75.3% of capacity during January, which was previously reported at 75.1%…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories..

February Housing Starts Up from December, Permits Down

the February report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in February was at a seasonally adjusted annual rate of 1,288,000, which was 3.0 percent (±13.0 percent)* above the revised estimated January annual rate of 1,251,000, and was 6.2 percent (±10.4 percent)* above last February’s rate of 1,213,000 housing starts a year…the asterisks indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell during the month or even over the past year, with the figures in parenthesis the most likely range of the change indicated; in other words, February housing starts could have been down by 10.0% or up by as much as 16.0% from those of January, with revisions of a greater magnitude in either direction possible…in this report, the annual rate for January housing starts was revised from the 1,285,000 reported last month to 1,251,000, while December starts, which were first reported at a 1,226,000 annual rate, were revised from last month’s initial revised figure of 1,285,000 annually back to a 1,275,000 annual rate with this report….these annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 87,100 housing units were started in February, up from the 82,800 units that were started in January and the 86,500 units that were started in December

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in February, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,213,000, which was 6.2 percent (±1.8 percent) below the revised January rate of 1,293,000 permits, but 4.4 percent (±1.3 percent) above the rate of building permit issuance in February a year earlier…the annual rate for housing permits issued in January was revised up from the originally reported 1,285,000….again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 84,500 housing units were issued in February, down from the revised estimate of 87,300 new permits issued in January…. for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.288 Million Annual Rate in February and Comments on February Housing Starts… 

Job Openings, Hiring, and Job Quitting Up In January, Layoffs Unchanged

the Job Openings and Labor Turnover Survey (JOLTS) report for January from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 87,000, from 5,539,000 in December to 5,626,000 in January, after December job openings were revised 38,000 higher, from 5,501,000 to 5,539,000…January’s jobs openings were also 87,000 lower than the 5,713,000 job openings reported in January a year ago, as the job opening ratio expressed as a percentage of the employed was unchanged from the 3.7% logged in December, while it was down from the 3.8% rate of January a year ago…(details on job openings by industry and region can be viewed in Table 1)…like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release…

the JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and ‘other separations’, which includes retirements and deaths….in January, seasonally adjusted new hires totaled 5,440,000, up by 137,000 from the revised 5,303,000 who were hired or rehired in December, as the hiring rate as a percentage of all employed rose from 3.6% in December to 3.7% in January, and was also up from the 3.6% rate in January a year earlier (details of hiring by sector since March are in table 2)….meanwhile, total separations rose by 174,000, from 5,084,000 in December to 5,258,000 in January, as the separations rate as a percentage of the employed rose from 3.5% to 3.6%, which was also up from 3.5% in January a year ago (see table 3)…subtracting the 5,258,000 total separations from the total hires of 5,440,000 would imply an increase of 182,000 jobs in January, somewhat less than the revised payroll job increase of 238,000 for January reported in the February establishment survey last week but still within the expected +/-115,000 margin of error in these incomplete samplings

breaking down the seasonally adjusted job separations, the BLS finds that 3,220,000 of us voluntarily quit our jobs in January, up from the revised 3,085,000 who quit their jobs in December, while the quits rate, widely watched as an indicator of worker confidence, rose by 0.1% to 2.2% of total employment, while it was also up from the 2.0% rate of a year earlier (see details in table 4)….in addition to those who quit, another 1,625,000 were either laid off, fired or otherwise discharged in January, up by 1,000 from the revised 1,624,000 who were discharged in December, as the discharges rate remained unchanged at 1.1% of all those who were employed during the month, which was down from the discharges rate of 1.2% a year earlier….meanwhile, other separations, which includes retirements and deaths, were at 413,000 in January, up from 375,000 in December, for an ‘other separations rate’ of 0.3%, the same as in December and as in January of last year….both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release…   

 

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

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March 18th tables & graphics

retail sales:

February 2017 retail sales table

rig count summary:

March 17 2017 rig count summary

OPEC supply via secondary sources:

February 2017 OPEC crude output via secondary sources

OPEC supply as reported by members:

February 2017 OPEC crude output as reported to OPEC

OPEC output history:

March 18 2017 OPEC February output graph

global and OPEC oil output:

March 2017 OPEC report, global supply for February

global oil demand:

March 2017 global oil demand for February via OPEC

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oil price breaks as crude supplies hit another record, OPEC drilling increases again…

oil prices finally broke out of their narrow range this week, with US prices ending the week 9.1% lower than a week ago, as they fell every day this week, with the biggest drop precipitated by reports of a much larger than expected addition to our already record high supplies of crude oil…after closing the prior week down 66 cents at $53.33 a barrel, oil prices continued to weaken early this week, falling to $53.20 a barrel on Monday and to $53.14 a barrel on Tuesday, as traders remained concerned that Russia had failed to cut their production as promised in February…however, after the market closed on Tuesday, the American Petroleum Institute reported a massive 11.6 million barrel increase in US commercial oil inventories, against trader’s expectations of a 1.4 million barrel increase, and oil prices began to slide in off market trading…the bottom then fell out of oil prices on Wednesday, when the EIA reported a still excessive 8.2 million barrel increase in US oil supplies, accompanied by a large surge in US oil production, and WTI contracts for April went on to drop $2.86, or 5.4%, to close at $50.28 a barrel…weakness from that crash persisted the rest of the week, as oil prices then fell another dollar to close at $49.28 a barrel on Thursday, steadied and rose back to near $50 a barrel on Friday morning, only to crash back to close at the day’s low of $48.49 a barrel on Friday afternoon, after Baker Hughes reported anther double digit increase in active drilling rigs…since this was the largest price move since the OPEC cuts were initiated in November, we’ll include a graph below of what it looked like…

March 10 2017 oil prices

this graph shows the daily closing prices per barrel of oil over the past 3 months for the April contract for the US benchmark oil, West Texas Intermediate (WTI), as stored or to be delivered to the Cushing Oklahoma storage depot…after oil prices jumped 14% on the OPEC production cut deal in the last week of November, oil prices then stayed in a narrow range above $52 a barrel for the next three months, with the range becoming even narrower over the last 8 weeks…over that span, with oil prices over $50 a barrel for the first time since early 2015, drilling for oil in the US has increased by nearly 30%, from the 477 rigs that were drilling on December 2nd to the 617 rigs that were working this week…over the year before that, drilling for oil generally held steady or increased slowly after peridos when oil prices were in the $45 to $50 a barrel range, while oil drilling generally slowed after periods when oil price quotes were in the low $40s or below…so we believe that this price break to below $50 a barrel will give drillers and frackers reason to pause, and even should drilling continue to expand from here, it will do so at a much slower and more irregular pace than we’ve seen over the past 3 months..

moreover, it seems certain that oil prices at these levels make it extremely unlikely that Transcanada can continue to pursue the Keystone XL pipeline, simply because oil sands expansion is out of the question at these price levels…because they have to burn one barrel of oil to extract three, the breakeven cost for extracting oil from Canada’s tar sands is much higher than most other places around the world; most figures i’ve seen indicate they need $50 US oil prices just to operate the extraction facilities now in existence, without any expansion…Keystone was originally proposed at a time when oil prices were twice what they are now., but 64 of the tar sands projects that were on the drawing board when oil prices first started falling have since been cancelled, with many of of the oil companies involved taking large losses, so the oil that was to fill the Keystone will no longer be there if the pipeline were to be completed…about a year ago, IHS estimated that a new greenfield oil sands mine (without an upgrader) required a WTI price between $85 to $95 per barrel on average to breakeven…a month ago, petrogeologist and oil analyst Art Berman at oilprice.com also showed that it would take at least $85 oil prices for 10 years to develop enough new oil sand projects to fill the Keystone XL…furthermore, there are already two massive Canadian tar sands pipeline projects already approved, which would ship any new dilbit production to the west coast and to the east…the major oil companies see the writing on the wall; just this week, Shell decided to divest nearly all of its Canadian oil sands interests in exchange for $7.25 billion, and Marathon announced an agreement to sell its Canadian subsidiary, including their interest in the Athabasca Oil Sands, and use the proceeds to buy Permian basin assets in Texas…all the deep pocketed major oil companies are getting out of the oil sands, and the small companies left with an interest there do not have the capital wherewithal to expand…

The Latest Oil Stats from the EIA

this week’s oil data for the week ending March 3rd from the US Energy Information Administration indicated that our imports of crude oil rose back to near this years average, while our refinery activity fell further below the seasonal norm, resulting in a large surplus of crude for the 9th week in a row, pushing our supplies of oil to yet another an all time high…our imports of crude oil rose by an average of 561,000 barrels per day to an average of 8,150,000 barrels per day during the week, while at the same time our exports of crude oil rose by 179,000 barrels per day to an average of 897,000 barrels per day, which meant that our effective imports netted out to 7,253,000 barrels per day for the week, 385,000 barrels per day more than last week…at the same time, our crude oil production rose by 56,000 barrels per day to an average of 9,088,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,341,000 barrels per day during the week…

meanwhile, refineries reportedly used 15,492,000 barrels of crude per day during the week, 172,000 barrels per day less than during the prior week, while at the same time, 1,137,000 barrels of oil per day were being added to oil storage facilities in the US…thus, this week’s EIA oil figures seem to indicate that we used or stored 288,000 more barrels of oil per day than were accounted for by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom +288,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents “unaccounted for crude oil”…that “unaccounted for crude oil” is further described in the glossary of the EIA’s weekly Petroleum Status Report as “the arithmetic difference between the calculated supply and the calculated disposition of crude oil.”, which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it.....

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports anomalously fell to an average of 7.879 million barrels per day, now 1.7% below that of the same four-week period last year…meanwhile, the 4 week average of our oil exports rose to 964,000 barrels per day, which was 145.2% higher than the same 4 weeks a year earlier, as the discount on American light sweet crude has made it attractive to foreign buyers…meanwhile, this week’s 56,000 barrel per day oil production increase included a 46,000 barrel per day increase in oil production in the lower 48 states and a 10,000 barrel per day increase in output from Alaska…the 9,088,000 barrels of crude per day that we produced during the week ending March 3rd was the highest since the week ending February 19th last year, just barely topping last March 4th’s total of 9,078,000 barrels per day, while it was still 5.4% below the June 5th 2015 record oil production of 9,610,000 barrels per day… 

US refineries were operating at 85.9% of their capacity in using those 15,492,000 barrels of crude per day, down from 86.0% of capacity the prior week, and down from the year high of 93.6% of capacity eight weeks earlier, when they were processing 17,107,000 barrels of crude per day….their processing of crude oil is also down by 2.6% from the 15,911,000 barrels of crude that were being refined during the week ending March 4th, 2016, when refineries were operating at 89.1% of capacity….but even with the refinery slowdown, gasoline production from our refineries rose by 388,000 barrels per day to 9,844,000 barrels per day during the week ending March 4th, which turns out to be 2.8% more than the 9,580,000 barrels per day of gasoline that were being produced during the week ending March 4th a year ago…moreover, refineries’ production of distillate fuels (diesel fuel and heat oil) was also higher, rising by 18,000 barrels per day to 4,773,000 barrels per day, which was also a bit more than the 4,744,000 barrels per day of distillates that were being produced during the week ending March 4th last year… 

however, even with the increase in our gasoline production, the EIA reported that our gasoline inventories fell by 6,555,000 barrels to 249,334,000 barrels as of March 3rd, for the largest drop in our gasoline supplies since April 2011….factors contributing to that big drop in our gasoline supplies were a 582,000 barrel per day increase to a near normal 9,268,000 barrels per day of domestic consumption of gasoline, and a 215,000 barrel per day drop in our gasoline imports to 242,000 barrels per day, which was the least gasoline we imported in any week since the first week of January 1999…for a historical comparison of this week’s drop in gasoline supplies, we have a small graph below taken from a stack of graphs at Zero Hedge…

March 8 2017 gasoline inventories as of March 3

the above graph comes from a set of graphs in an article at Zero Hedge about this week’s EIA report…it shows the weekly change in gasoline supplies over the last six and a half years, with increases in gasoline supplies indicated by a green bar above the zero line, and decreases in our gasoline supplies indicated by a red bar below the zero line, with the size of each bar indicating the magnitude of the change…Zero Hedge also includes a dark red dashed line from this week’s drop back to the last time there was a drop of this magnitude, which was for the week ending April 8th, 20011, when our gasoline supplies dropped by exactly 7 million barrels in just one week…

now, this week’s drop in gasoline supplies is hardly a crisis, because as you might recall just 3 weeks ago our gasoline supplies were at an all time high, beating the record set in the same week of 2016…notice the above graph also shows a series of green bars in early 2017, when our gasoline supplies were on the rise…thus, despite this week’s big drop, out gasoline supplies are still up by nearly 28.4 million barrels since the first week of November, only down slightly from the March record high of 250,463,000 barrels of gasoline that we had stored on March 4th of last year, and are still 3.9% above the 239,873,000 barrels of gasoline we had stored on March 6th of 2015… 

our supplies of distillate fuels also fell this week, decreasing by 2,676,000 barrels to 161,532,000 barrels by March 3rd, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 278,000 barrels per day to 4,091,000 barrels per day, and as our exports of distillates rose by 46,000 barrels per day to a 24 week high of 1,330,000 barrels per day….while our distillate inventories have now slipped 0.6% below the distillate inventories of 162,478,000 barrels that we had on March 4th at the end of the warm winter of last year, they are still 28.7% higher than the distillate inventories of 125,503,000 barrels of March 6th, 2015…  

finally, with our net oil imports higher and our refinery demand lower, we had an even larger surplus of crude oil remaining, and hence our inventories of crude oil rose for the 9th week in a row to yet another record, increasing by 8,209,000 barrels to 528,393,000 barrels by March 3rd…thus we ended the week with 10.3% more crude oil in storage than the 479,012,000 barrels we ended 2016 with, which we can see in the bar graph below..

March 8 2017 crude inventories to March 3 by year

the above graph comes from an emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters (see my footnote below) and it shows in bar graph fashion the amount of oil added to US crude inventories between December 31st and the first weekend in March for each of the past 11 years…while surplus crude is normally added to storage during the winter months, when refineries are runnng slower, it’s quite obvious that the surpluses have been much larger than average (shown by the red dash) over the past three years…what that has resulted in in terms of increasing supply is then shown in the next graph we’ll include below…

March 11 2017 crude oil inventory as of March 3rd

the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics research, run by Dr Ed Yardeni…it shows the end of the week supply of crude oil in millions of barrels for each week beginning with January 2013, up to and including this week’s report for March 3rd, with graphs for each year color coded as indicated…here we can see how our oil inventories stayed in a narrow range during 2013 and 2014 (and during the years before then, for that matter), represented by the mustard and green bands, typically falling to below 330 million barrels by the end of each summer and then rising to nearly 370 million barrels by early spring….however, at the beginning of 2015, represented by the blue colored graph, our inventories of oil started rising each week till they topped 450 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms over the rest of that year…that continued into 2016, represented by the grape colored graph, and although the rate of increase tailed off from the previous year, our 2016 oil supplies still generally averaged about 15% above 2015’s elevated levels, and more than 40% above historical levels…now we see in the scarlet colored graph, representing the first nine weeks of 2017, that our oil supplies are now again rising at an faster rate from the records set in 2016…as a result, we now have 7.7% more crude oil in storage than the then record 490,843,000 barrels we had stored on March 4th of 2016, 27.2% more crude than the 415,425,000 barrels of oil we had in storage on March 6th of 2015 and 56.2% more crude than the 338,333,000 barrels of oil we had in storage on March 7th of 2014…

This Week’s Rig Count

US drilling activity increased for the 18th time in 19 weeks during the week ending March 10th, as we saw the 6th double digit rig increase in the past 8 weeks….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 768 rigs in the week ending on this Friday, which was 288 more rigs than the 480 rigs that were deployed as of the March 11th report in 2016, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

the count of rigs drilling for oil rose by 8 rigs to 617 rigs this week, which was up from the 386 oil directed rigs that were in use a year ago, but down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations rose by 5 rigs to 146 rigs this week, which was up from the 94 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…the rig that was classified as miscellaneous that has been running for several months was finally shut down this week, and thus there are now no such miscellaneous rigs at work…   

two more drilling platforms were added to those working in the Gulf of Mexico this week, both offshore from Louisiana, which brought the Gulf of Mexico count up to 20 rigs, still down from the 26 rigs that were drilling in the Gulf during the same week of 2016…that also brought the total US offshore count for the week up to 20 rigs, all in the Gulf of Mexico, down from a total of 27 offshore rigs a year ago, when there was also a rig working offshore from California, in addition to the 26 rigs in the Gulf of Mexico…also this week, a rig was also set up to drill through an inland lake in Louisiana, where there are now 5 such inland lakes rigs active, up from the 3 that were drilling on inland waters a year ago…

the number of horizontal drilling rigs working in the US increased by 6 rigs to 639 rigs this week, which is now up by 264 horizontal rigs from the 375 horizontal rigs that were in use in the US on March 11th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, a net total of 6 vertical rigs were added this week, bringing the vertical rig count up to 68, which was also up from the 55 vertical rigs that were deployed during the same week a year ago…meanwhile, the directional rig count was unchanged at 61 rigs, which was also up from the 50 directional rigs that were deployed during the same week last year….

as usual, the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of March 10th, the second column shows the change in the number of working rigs between last week’s count (March 3rd) and this week’s (March 10th) count, the third column shows last week’s March 3rd active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 11th of March, 2016…         

March 10 2017 rig count summary

the first thing we have to note is that this week’s increase came without an increase in drilling in Texas, who did not see an increase for the first time since September…the states with the largest increases this week included Louisiana, with the two new rigs in the Gulf, the one on an inland lake, and two in the Haynesville, and Colorado and Oklahoma, who each added three rigs…Oklahoma’s increase does not appear to be of horizontal drilling outfits, since none of the shale basins in that state show a gain. whereas the 4 rig increase in the Denver-Julesburg Niobrara could account for the Colorado or the Wyoming increases….note that the Utica in Ohio added two rigs this week and now has 22 rigs active, double the 11 rigs that were active a year ago….also note that of the states not listed above, Mississippi also added a rig and now has 4 rigs active, up from 2 rigs a year ago, while Nevada saw its only rig, which had been working in the state since July, shut down…

International Rig Counts for February

Baker Hughes also released the international rig counts for February on Tuesday of this past week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end….Baker Hughes reported that an average of 2,027 rigs were drilling for oil and natural gas around the globe in February, which was up from the 1,918 rigs that were drilling around the globe in January, and up from the 1,761 rigs that were working globally in February of last year….increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 683 rigs in January to 744 rigs in February, which was also up from the average of 532 rigs that were working in the US in February a year ago, while the average Canadian rig count rose from 302  rigs in January to 342 rigs in February, which was also up from the 211 Canadian rigs that were deployed in February a year earlier….outside of Northern America, the International rig count rose by 8 rigs to 941 rigs in February, which was still down from 1,018 rigs a year ago, as increases in drilling in Europe and Latin America more than offset small decreases in Asia and Africa..

the count of rigs deployed in the Middle East was unchanged at 382 rigs in February, after their drilling activity had increased by 6 rigs in January, which still left them down from 404 rigs a year earlier…OPEC member Kuwait, whose compliance with the cartel’s agreed to cuts has been on par so far, activated 7 additional rigs in February, and thus had 59 rigs deployed, up from 43 rigs a year earlier…the Qataris, also an OPEC member, also added a rig in February and thus had 11 rigs working, up from the 6 that were drilling new wells a year ago…Bahrain, an island country in the Gulf who is not an OPEC member, also added a rig and now have 2 drilling, in contrast to a year ago, when they had no activity….on the other hand, the Saudis idled 4 of their rigs during the month, and now have 120 rigs active, which is down from the 128 rigs they had working a year ago..still,  Saudi Arabia’s rig count had averaged near 125 rigs weekly since early 2015, up from their average of around 105 rigs in 2014, so they’ve not yet pulled back to the level of drilling they were doing before OPEC started the price war…Egypt, who is not an OPEC member, shut down 2 of their rigs in February, leaving them 23 rigs still active, down from 35 rigs a year earlier…in addition, OPEC members Iraq and Abu Dhabi of the United Arab Emirates, and Israel each shut down 1 rig for the month…for Iraq, that left 40 rigs still active, down from 49 rigs a year earlier, for Abu Dhabi, that left 47 rigs down from 48 a year earlier, andthat  left Israel with no drilling activity, down from 1 active rig a year ago..

meanwhile, the Latin American region saw their active drilling rig numbers increase by a net of 3 rigs to 179 rigs, down from 237 rigs in February of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016…OPEC member Venezuela added 3 rigs and thus had 54 rigs active for the month, which was down from the 69 rigs they had deployed a year earlier…in Argentina, where they had shut down 11 rigs in December and another 7 rigs in January, added two back in February and thus had 54 rigs working, down from 65 a year earlier and down from over the over 100 active rigs Argentina saw through most of 2015…Columbia, also not a cartel member, also added two rigs in February, bringing their active total up to 22 rigs, up from 7 rigs a year earlier….in addition, OPEC member Ecuador added 1 rig rig and thus had 7 rigs active, up from 4 rigs a year earlier…Latin American countries reducing their rig count included Brazil, who was down 2 rigs to 14 rigs, and down from 35 rigs a year ago, and Bolivia, Peru, Guyana, minor producers who each shut down 1 rig…

drilling activity in the Asia-Pacific region slipped by a net of 2 rigs to 196 rigs in February, which was still up from the 182 rigs working ove the region a year earlier…the Chinese shut down 2 more offshore rigs, after they had shut down 5 offshore rigs in January and 3 offshore rigs in December, leaving them with 18 rigs working offshore, down from the 25 offshore rigs they were running last February…India shut down 1 rig but still had 115 rigs active, up from 99 rigs a year earlier….and Vietnam also shut down 1 rig, leaving 3 rigs active, the same as they had a year ago…meanwhile, Thailand added one rig and thus had 13 rigs active, which was still down from 16 rigs a year earlier, and Bangladesh also started drilling with a single rig, in the first drilling in Bangladesh since the end of 2014…

on the other hand, drilling activity picked up in Europe, rising by 9 rigs to 107 rigs rigs, which was was the same number of rigs working in Europe a year ago at this time, as their offshore drilling activity rose from 31 rigs to 38 rigs, also up from the 36 rigs offshore of Europe a year ago…Noway added 4 platforms offshore to bring their total to 16 rigs, all offshore, down from 18 rigs offshore a year ago…the UK also added 3 offshore, increasing their offshore count to 11 rigs, up from 7 rigs offshore last February….Sakhalin Island, off the east coast of Russia but inexplicably included in the European totals, added 2 rigs offshore and 3 on land, bringing their total deployment to 12 rigs, up from 6 rigs a year ago…Romania added 2 land based rigs and shut down 1 offshore, and thus have 7 onshore rigs active, same as a year ago…in addition, Poland added 2 land based rigs and thus had 10 active, up from 7 rigs a year ago, and Greece started up a rig offshore, their first activity since last July…meanwhile, Turkey shut down 3 rigs, leaving them with 29 rigs still working, same as a year ago, Italy shut down one offshore platform, leaving 4 rigs on land still active, the Dutch shut down an offshore rig, leaving them with 2 offshore, and France, Hungary and Iceland each cut back from 2 rigs to one, as none of them ran more than 2 rigs over the recent year…

lastly, the African continent excluding Egypt saw a net decrease of 2 rigs to 77 rigs in February, which was also down from the 88 rigs working in Africa last year at this time…OPEC member Angola shut down 2 rigs, and now has 3 rigs active, also down from the 8 rigs they had active a year earlier..OPEC member Algeria shut down 1 rig, leaving 50 rigs still working in Algeria, down from the 52 rigs they had a year ago…Tunisia shut down 1 of the two rigs they had active, which is still more than a year ago when they had no rigs active…on the other hand, OPEC member Nigeria, who is exempt from the organization’s production cuts for the time being, added 1 rig and now have 7 rigs working, which was still down from the 9 rigs they had deployed a year ago, and Senegal started up a single rig in their first drilling activity since May of last year…finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China’s offshore area, with an average of 18 rigs active in February, were included in the Asian totals here…  

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as noted above, one of the graphs that i included above was from an emailed package of graphs from John Kemp, a senior energy analyst and columnist with Reuters…he advises that his mailing list is open to anyone, quoting him: “SIGN UP to receive a free daily digest of best in energy news + my research notes by emailing john.kemp@tr.com”    i’ve been receiving a daily mailing of links & graphics, copies of his columns as published, and a weekly pdf of graphs… so if anyone is interested in receiving the same, just write to John Kemp as noted above…alternatively you can also follow him on twitter, @ https://twitter.com/JKempEnergy where he seems to post much of what he otherwise mails….

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