US oil supplies drop to 25 month low, distillates production at a record high; Ohio sheds 4 rigs

oil prices ended lower for the second week in a row this week, but still remain well above the average break-even prices for most US shale basins, and hence remain at a level that will only encourage further exploitation…after falling a mere 47 cents from a two and a half year high last week, contracts to buy or sell US light crude in January fell 89 cents to end at $57.47 a barrel on Monday, on concerns that higher prices would encourage growth of domestic crude production, as evidenced by the growing US rig count…oil prices then recouped some of those losses on Tuesday, rising 15 cents to $57.62 a barrel, in anticipation that the weekly reports from the API and EIA would show another sizable drop in U.S. crude supplies….while both reports did show decreases in excess of 5 million barrels of crude oil supplies, both reports simultaneously showed surprisingly sharp increases in U.S. inventories of refined fuels, with gasoline supplies seeing the largest increase since January, which thus precipitated a selloff in crude contracts, with oil prices ending Wednesday down $1.66, or 3%, at a three week low of $55.96 a barrel…oil prices then returned to the plus side on Thursday, rising 73 cents, or 1.3%, to settle at $56.69 a barrel, with the rally attributed to a threatened strike in Nigeria, which prompted traders who had sold oil they didn’t own on Wednesday to cover their trades and buy it back…oil prices then rose another 67 cents on Friday, on reports of a jump in Chinese crude imports and a Platts report that OPEC production had hit a 6 month low in November, as oil still closed the week 1.7% lower than last week at $57.36 a barrel….


The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending December 1st, showed that our oil imports remained lower than recent weeks, likely due to the Keystone pipeline shutdown, while our refineries were using oil at a record pace for this time of year, and therefore they again found it necessary to pull quite a bit of oil out of storage to meet their needs…our imports of crude oil fell by an average of 127,000 barrels per day to an average of 7,202,000 barrels per day during the week, while our exports of crude oil fell by an average of 54,000 barrels per day to 1,358,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 5,844,000 barrels of per day during the week, 73,000 barrels per day less than the net imports of the prior week…at the same time, field production of crude oil from US wells rose by 25,000 barrels per day to another record high of 9,707,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,551,000 barrels per day during the reporting week…

during the same week, US oil refineries were using 17,195,000 barrels of crude per day, 192,000 barrels per day more than they used during the prior week, while at the same time 1,151,000 barrels of oil per day were being withdrawn from oil storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 493,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+493,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as “unaccounted for crude oil”…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,576,000 barrels per day, 4.9% less than the 7,963,000 barrels per day average imported over the same four-week period last year….the 1,151,000 barrel per day decrease in our total crude inventories included an 801,000 barrel per day withdrawal from our commercial stocks of crude oil and a 350,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago…this week’s 25,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 5,000 barrels per day increase in output from Alaska….the 9,682,000 barrels of crude per day that were produced by US wells during the week ending December 1st was yet another new record high for US output, 10.7% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.6% more than the 8,697,000 barrels per day of oil that were being produced during the during the equivalent week a year ago…

US oil refineries were operating at 93.8% of their capacity in using those 17,195,000 barrels of crude per day, up from 92.6% of capacity the prior week, thus operating a bit above their normal pace for this time of year…while the 17,195,000 barrels of oil that were refined this week were still 3.0% less than the record 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were at a record level for any week outside of the summer months, 4.7% more than the 16,417,000 barrels of crude per day that were being processed during week ending December 2nd, 2016, when refineries were operating at 90.4% of capacity, and 11.7% above the 10-year seasonal average for this time of the year

even with increase in the amount of oil refined, gasoline output from our refineries was 4.5% lower, decreasing by 464,000 barrels per day to 9,758,000 barrels per day during the week ending December 1st, the second significant drop in a row…that meant out gasoline production was 1.6% lower than the 9,913,000 barrels of gasoline that were being produced daily during the week ending December 2nd of last year…on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 118,000 barrels per day to a record high of 5,402,000 barrels per day, eclipsing the record set two weeks ago…that was also 6.3% more than the 5,083,000 barrels per day of distillates that were being produced during the the same week a year ago….   

even with the drop in our gasoline production, our gasoline inventories at the end of the week rose by 678,000 barrels to 220,882,000 barrels by December 1st, the largest jump in gasoline supplies since the third week in January of this year…that was as our exports of gasoline fell by 319,000 barrels per day from last week’s record high to 894,000 barrels per day, while our imports of gasoline fell by 38,000 barrels per day to 488,000 barrels per day, and as our domestic consumption of gasoline rose by 171,000 barrels per day to 8,895,000 barrels per day at the same time…however, with significant gasoline supply withdrawals in 15 out of the last 25 weeks, our gasoline inventories are still down by 8.9% from their pre-summer high of 242,444,000 barrels, and down by 3.8% from last December 2nd’s level of 229,548,000 barrels, even as they are still roughly 3.4% above the 10 year average of gasoline supplies for this time of the year…  

meanwhile, with our distillates production at a record high, our supplies of distillate fuels rose by 1,667,000 barrels to 129,446,000 barrels over the week ending December 1st, in just the fourth increase in distillates supply in fourteen weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 145,000 barrels per day to 3,737,000 barrels per day, and as our exports of distillates rose by 442,000 barrels per day to 1,572,000 barrels per day, while our imports of distillates rose by 25,000 barrels per day to 145,000 barrels per day…even after this week’s increase, our distillate inventories were still 17.4% lower at the end of the week than the 156,697,000 barrels that we had stored on December 2, 2016, and 5.1% lower than the 10 year average of distillates stocks at this time of the year

finally, with oil imports remaining below normal while refining continued at a seasonal record pace, our commercial crude oil inventories fell for the 28th time in the past 35 weeks, decreasing by 5,160,000 barrels, from 453,713,000 barrels on November 24th to 448,103,000 barrels on December 1st….since that’s now the least amount of oil we’ve had in commercial storage in more than two years, since the week ending October 23rd, 2015, we’ll include a graph that will show the trajectory that brought us to this low point:

December 8 2017 crude oil supplies as of December 1st

on the above graph, taken from the EIA’s This Week in Petroleum Oil Section, the blue line shows the recent track of US oil inventories over the period from December 4th, 2015 to December 1st 2017, while the grey shaded area represents the range of US oil inventories millions of barrels as reported weekly by the EIA over the prior 5 years for any given time of year…thus the grey area also shows us the normal range of US oil inventories as they fluctuate from season to season, typically with a high in the springtime, before the summer driving season, and a low in the fall…and as you can see by the blue line, that pattern continued into early this year, where we were announcing a record glut of oil almost weekly up until the week ending March 24th, 2017, when our oil supplies topped out at 535,543,000, an increase of almost 68% from the early 2014 low of 319,079,000 barrels…however, as you can also see by following the blue line, our oil supplies have been falling since, and at 448,103,000 barrels are now 19.5% below their March 24 high…still, while our oil inventories as of December 1st were 7.6% below the 485,756,000 barrels of oil we had stored on December 2nd of 2016, and 1.2% lower than the 453,553,000 barrels of oil that we had in storage on December 4th of 2015, they were still 28.6% greater than the 348,313,000 barrels of oil we had in storage on December 5th of 2014, before the oil glut in the US had really built our crude supplies up to above normal levels…      

This Week’s Rig Count

US drilling activity increased for the 5th week in a row, but for just the 8th time out of the last 19 weeks during the week ending December 8th, with only oil directed rigs seeing a small increase…Baker Hughes reported that the total count of active rotary rigs running in the US rose by 2 rigs to 931 rigs in the week ending on Friday, which was also 307 more rigs than the 624 rigs that were deployed as of the December 9th report in 2016, while that was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil rose by 2 rigs to 751 rigs this week, which was also an increase of 253 oil rigs over the past year, while the week’s oil rig count remained far below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations was unchanged at 180 rigs this week, which was only 55 more gas rigs than the 125 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…

offshore drilling activity in the Gulf of Mexico and elsewhere nationally was unchanged at 20 rigs this week, which was down from the 22 rigs deployed in the Gulf of Mexico and nationally a year ago…however, there was a new drilling platform that started up on a lake in southern Louisiana this week, where there are now two such drilling platforms deployed, up from the one working on inland waters a year ago…

the count of active horizontal drilling rigs increased by 4 rigs to 796 rigs this week, which was up by 293 rigs from the 503 horizontal rigs that were in use in the US on December 9th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the directional rig count was unchanged at 71 rigs this week, which was still up from the 51 directional rigs that were working during the same week last year….on the other hand, the vertical rig count was down by 2 rigs to 64 vertical rigs this week, which was also down from the 70 vertical rigs that were deployed on December 9th of 2016…

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 December 8th, the second column shows the change in the number of working rigs between last week’s count (December 1st) and this week’s (December 8th) count, the third column shows last week’s December 1st active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 9th of December, 2016…           

December 8 2017 rig count summary

as you can see from the above, the small net change in the number of rigs running masked considerable activity in several different states and basins this week, with the number of increases just barely eclipsing the number of decreases over the period…what is certainly most notable was the 4 rig decrease in drilling in Ohio, which may include the shut down of a non-shale vertical rig, since the net decrease in the 3 state area of Ohio, Pennsylvania and West Virginia is not reflected in the change in Marcellus and Utica activity…the 26 rigs still working in Ohio are the least since July 2nd, as are the 27 rigs that remained deployed in the Utica shale, probably reflective of natural gas prices which have remained below the average break-even price for the region and have trended lower all year…meanwhile, in addition to the major producing states shown in the first table above, Kansas also saw its only working rig shut down this week, leaving none, down from a year ago, when there was one rig active in the state…

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November’s jobs report; October’s trade deficit, factory inventories and wholesale sales

in addition to the Employment Situation Summary for November from the Bureau of Labor Statistics, this week’s releases included three reports that will feed into 4th quarter GDP: the Census report on our International Trade for October, the Full Report on Manufacturers’ Shipments, Inventories and Orders for October, and the October report on Wholesale Trade, Sales and Inventories, also from the Census Bureau…in addition, the Fed released the Consumer Credit Report for October from the Fed, which showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $20.5 billion, or at a 6.5% annual rate, as non-revolving credit expanded at a 5.6% rate to $2,790.7 billion and revolving credit outstanding rose at a 9.9% rate to $1,011.5 billion…

privately issued reports released this week included the November Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 57.4%, down from 60.1% in October, indicating a somewhat smaller plurality of service industry purchasing managers reported expansion in various facets of their business in November, and the Mortgage Monitor for October (pdf) Black Knight Financial Services, which indicated that 4.44% of all mortgages were delinquent in October, up from 4.40% in September and up from 4.35% in October of 2016, and that 0.68% of all mortgages were in the foreclosure process, down from from 0.70% in September and down from 0.99% a year ago….mortgage delinquencies continue to be elevated in regions of the country where properties have experienced hurricane damage…

Employers Add 228,000 Jobs, Unemployment Rate and Labor Force Participation Unchanged

the Employment Situation Summary for November reported better than average job creation, while the employment rate fell even as the unemployment rate was unchanged…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 228,000 jobs in November, after the previously estimated payroll job increase for September was revised up from up from 18,000 to 38,000, while the payroll jobs increase for October was revised down from 261,000 to 244,000…that means that this report represents a total of 232,000 more seasonally adjusted payroll jobs than were reported last month, about 50,000 more than the average of the past 12 months…the unadjusted data, meawhile, shows that there were actually 532,000 more payroll jobs extent than in October, 451,600 of which were seasonal jobs added in the retail sector…

seasonally adjusted job increases in November were spread throughout the private goods producing and service sectors and in government, with the 4,000 jobs lost in the information sector the only notable decrease…the largest job increase was seen in the broad professional and business services sector, which added 46,000 jobs, with 18,300 of those working for temporary employment services…the health care and social assistance sector saw the addition of 33,500 jobs, with the addition of 6,800 jobs in doctor’s offices and 6,900 jobs in home health care services…another 31,000 jobs were added in manufacturing, with 8,300 of those employed in the manufacture of machinery…in addition, 19,000 jobs were added in construction, with 11,900 of those working for nonresidential specialty trade contractors….then, after the seasonal adjustment, retail sales added 18,700 workers, with 6,800 of those working in general merchandise stores, and another 14,000 were employed in the leisure and hospitality sector, with the addition of 18,900 jobs in bars and restaurants…meanwhile, other sectors including mining, wholesale trade, transportation and warehousing, financial activities, private education and government, all saw smaller job gains over the month..

the establishment survey also showed that average hourly pay for all employees rose by 5 cents an hour to $26.55 an hour in November, after it had decreased by a revised 3 cents an hour in October; at the same time, the average hourly earnings of production and non-supervisory employees also increased by 5 cents to $22.24 an hour…employers also reported that the average workweek for all private payroll employees increased by a tenth of an hour to 34.5 hours in November, while weekly hours for production and non-supervisory personnel was unchanged at 33.7 hours…at the same time, the manufacturing workweek was unchanged at 40.9 hours, while average factory overtime was unchanged at 3.5 hours…

meanwhile, the November household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 57,000 to 153,918,000, while the estimated number of those unemployed and looking for work rose by 90,000 to 6,610,000; and hence the total labor force increased by a rounded total of 148,000….since the working age population had grown by 183,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 35,000 to a record high of 95,420,000, which was still not enough to statistically change the labor force participation rate, which remained at 62.7% in November….meanwhile, the increase in number employed as a percentage of the increase in the population was small enough to lower the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.1%…on the other hand, the increase in the number unemployed was not enough to change the unemployment rate, which remained at 4.1%…meanwhile, the number of those who reported they were forced to accept just part time work rose by 48,000, from 4,753,000 in October to 4,801,000 in November, which was enough to increase the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.9% of the labor force in October to 8.0% in November…

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

October Trade Deficit Up 8.6%, Revisions to 3rd Quarter Trade are a Big Hit to GDP

our trade deficit rose by 8.6% in October as the value of our exports slipped a bit while the value of our imports increased….the Census report on our international trade in goods and services for October indicated that our seasonally adjusted goods and services trade deficit rose by $3.8 billion to $48.7 billion in October from a revised September deficit of $44.9 billion…the value of our October exports fell by less than $0.1 billion to $195.9 billion on a $0.3 billion decrease to $130.3 billion in our exports of goods and a $0.3 billion increase to $65.6 billion in our exports of services, while our imports rose $3.8 billion to $244.6 billion on a $3.5 billion increase to $199.4 billion in our imports of goods and a $0.3 billion increase to $45.2 billion in our imports of services…export prices were on average unchanged in October, so the relative real decrease in October exports is close to the nominal decrease, while import prices were 0.2% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage…

major changes in October’s exports of goods included:

  • Foods, feeds, and beverages exports decreased $1.3 billion as soybean exports decreased $1.4 billion.
  • Capital goods exports decreased $1.2 billion as civilian aircraft exports decreased $1.1 billion.
  • Industrial supplies and materials increased $2.6 billion on increased exports of fuel oil, crude oil, natual gas liquids and other petroleum products.

major changes in October’s imports of goods included:

  • Industrial supplies and materials imports increased $1.8 billion on a $1.5 billion increase in crude oil imports
  • Consumer goods imports increased by $0.8 billion led by a $0.3 billion increase in imports of cell phones
  • Imports of other goods not categorized by end use increased by $1.1 billion.

further details from the press release indicate that  “October figures show surpluses, in billions of dollars, with South and Central America ($3.9), Hong Kong ($2.3), Brazil ($1.1), Singapore ($0.7), Saudi Arabia ($0.3), and United Kingdom ($0.2).  Deficits were recorded, in billions of dollars, with China ($31.9), European Union ($12.0), Mexico ($6.0), Japan ($5.9), Germany ($5.3), Italy ($2.7), South Korea ($2.7), India ($2.1), Canada ($1.9), OPEC ($1.6), France ($1.6), and Taiwan ($1.6).

note that with this release, data for exports and imports of goods and services going back to April have been revised, which means previously published GDP figures for the 2nd and 3rd quarter will also have to be revised…while the new 2nd quarter trade data for 2017 will not be incorporated into GDP figures until the annual revision to GDP is undertaken with the 2nd quarter 2018 release at the end of July 2018, revisions to 3rd quarter trade will be included with the 3rd estimate of 3rd quarter GDP, which will be released later this month…the revisions are rather significant, especially to services; for instance, September exports of services were revised down $0.9 billion, while September imports of services revised up $0.6 billion; as result, the September trade deficit was at $44.9 billion, revised from the $43.5 billion reported last month…in like manner, the August trade deficit was revised higher, from the revised deficit of $42.8 billion reported last month to $44.3 billion, and the July trade deficit was revised from the $43.6 billion reported last month to $45.2 billion…hence, the total $4.5 billion upward revision in the trade deficit for the 3rd quarter months would work out to a decrease to third quarter GDP at a rate in excess of $18 billion annually…that means that revisions to trade included with this release will have the effect of subtracting 0.40 percentage points or more from previously published 3rd quarter GDP figures…

to gauge the impact of October trade on 4th quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized here….from that table, we can estimate that revised 3rd quarter real exports of goods averaged 125,674.3 million monthly in chained 2009 dollars, while inflation adjusted October exports were at 125,658 million in the same 2009 dollar quantity index representation… annualizing the change between the two figures, we find that October’s real exports of goods are running at a 0.05% annual rate below those of the 3rd quarter, a change that would not have a statistically significant impact on 4th quarter GDP even if continued through November and December….at the same time,  however, we find that our 3rd quarter real imports of goods averaged 187,706.3 million monthly in chained 2009 dollars, while inflation adjusted October goods imports were at 190,978 million…that would indicate that so far in the 4th quarter, we have seen our real imports of goods increase at annual rate of 7.16% over those of the 3rd quarter…since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 7.16% rate would subtract about 0.88 percentage points from 4th quarter GDP….hence, if the October trade deficit is maintained at the same level throughout the 4th quarter, our deteriorating balance of trade in goods would subtract about 0.88 percentage points from the growth of 4th quarter GDP….note that we have not estimated the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don’t have easy access to all their price changes…  

October Factory Shipments Up 0.4%, Inventories 0.2% Higher

the Census Bureau’s summary of the Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for October, which includes revisions to the November 22nd advance durable goods report, is quite complete, so we’ll just quote directly from it here:

  • New orders for manufactured goods in October, down following two consecutive monthly increases, decreased $0.3 billion or 0.1 percent to $479.6 billion, the U.S. Census Bureau reported today. This followed a 1.7 percent September increase. Shipments, up ten of the last eleven months, increased $2.7 billion or 0.6 percent to $484.2 billion. This followed a 1.1 percent September increase. Unfilled orders, down three of the last four months, decreased $0.2 billion or virtually unchanged to $1,135.1 billion. This followed a 0.3 percent September increase. The unfilled orders-to-shipments ratio was 6.68, unchanged from September. Inventories, up eleven of the last twelve months, increased $1.2 billion or 0.2 percent to $661.6 billion. This followed a 0.6 percent September increase. The inventories-to-shipments ratio was 1.37, unchanged from September.
  • New orders for manufactured durable goods in October, down following two consecutive monthly increases, decreased $1.9 billion or 0.8 percent to $237.4 billion, up from the previously published 1.2 percent decrease. This followed a 2.4 percent September increase. Transportation equipment, also down following two consecutive monthly increases, drove the decrease, $3.4 billion or 4.2 percent to $77.4 billion. New orders for manufactured nondurable goods increased $1.6 billion or 0.7 percent to $242.2 billion.
  • Shipments of manufactured durable goods in October, up five of the last six months, increased $1.1 billion or 0.4 percent to $242.0 billion, up from the previously published 0.1 percent increase. This followed a 1.2 percent September increase. Primary metals, up three of the last four months, led the increase, $0.3 billion or 1.6 percent to $19.9 billion. Shipments of manufactured nondurable goods, up six of the last seven months, increased $1.6 billion or 0.7 percent to $242.2 billion. This followed a 1.0 percent September increase. Petroleum and coal products, up four consecutive months, led the increase, $1.2 billion or 2.6 percent to $46.2 billion.
  • Unfilled orders for manufactured durable goods in October, down three of the last four months, decreased $0.2 billion or virtually unchanged to $1,135.1 billion, unchanged from the previously published decrease. This followed a 0.3 percent September increase. Transportation equipment, also down three of the last four months, drove the decrease, $1.8 billion or 0.2 percent to $770.0 billion.
  • Inventories of manufactured durable goods in October, up fifteen of the last sixteen months, increased $0.6 billion or 0.2 percent to $404.2 billion, up from the previously published 0.1 percent increase. This followed a 0.6 percent September increase. Primary metals, also up fifteen of the last sixteen months, led the increase, $0.3 billion or 0.8 percent to $34.0 billion. Inventories of manufactured nondurable goods, up five consecutive months, increased $0.5 billion or 0.2 percent to $257.3 billion. This followed a 0.7 percent September increase. Chemical products, up three of the last four months, drove the increase, $0.9 billion or 1.0 percent to $84.1 billion. By stage of fabrication, October materials and supplies decreased 0.4 percent in durable goods and decreased 0.3 percent in nondurable goods. Work in process increased 1.0 percent in durable goods and decreased 0.3 percent in nondurable goods. Finished goods decreased 0.4 percent in durable goods and increased 0.9 percent in nondurable goods.

to gauge the effect of October factory inventories on 4th quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories increased 0.3% to $229,026 million; the value of work in process inventories was up 0.6% at $206,903 million, and materials and supplies inventories were valued 0.4% lower at $225,639 million…the producer price index for October indicated that prices for finished goods increased 0.3%, prices for intermediate processed goods were 1.0% higher, and that prices for unprocessed goods were on average unchanged….assuming similar valuations for like inventories, that would suggest that August’s real finished goods inventories were little changed, while real inventories of intermediate processed goods were 0.4% smaller, and that real raw material inventory inventories were 0.4% smaller…since real factory inventories in the 3rd quarter were somewhat higher, any real inventory decreases in the 4th quarter will subtract from growth of 4th quarter GDP…

October Wholesale Sales Up 0.7%, Wholesale Inventories Down 0.5%

the September report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at “$484.6 billion, up 0.7 percent (±0.5 percent) from the revised September level and were up 8.4 percent (±0.9 percent) from the October 2016 level. The August 2017 to September 2017 percent change was revised from the preliminary estimate of up 1.3 percent (±0.4 percent) to up 1.4 percent (±0.4 percent)” …as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold…

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods left in a warehouse represent goods that were produced but not sold, and this September report estimated that wholesale inventories were valued at a seasonally adjusted “$605.3 billion at the end of October, down 0.5 percent (±0.4 percent) from the revised September level. Total inventories were up 3.9 percent (±0.5 percent) from the revised October 2016 level. The September 2017 to October 2017 percent change was revised from the advance estimate of down 0.4 percent (±0.4 percent)* to down 0.5 percent (±0.4 percent).

like factory inventories, to estimate the effect of October wholesale inventories on 4th quarter GDP we must first adjust them for changes in price with appropriate components of the producer price index…although details are not broken out, we’ve previously estimated that about 2/3rd of wholesale inventories are finished goods, with notable exceptions such as crude oil and farm product inventories…as we noted earlier, the producer price index for October indicated that prices for finished goods increased 0.3%; thus the 0.5% decline in the nominal value of wholesale inventories suggest that the lion’s share of real wholesale inventories were down on the order of 0.8% in October…since real wholesale inventories in the 3rd quarter were higher each month, such a real wholesale inventory decrease in the 4th quarter would necessarily subtract substantially from growth of 4th quarter GDP…

 

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

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graphics for December 9th

rig count summary:

December 8 2017 rig count summary

oil supplies:

December 8 2017 crude oil supplies as of December 1st

US maternal mortality:

December 6th 2017 US maternal mortality

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OPEC extends output cuts to end of 2018; US gasoline exports hit a record high

as was widely expected, OPEC oil ministers at their biannual meeting in Vienna on Thursday agreed to extend their reduced oil output quotas at the same level they’ve been at since the beginning of 2017 until the end of 2018; that was, in effect, a nine month extension of the production cut agreement already in place, since at their meeting at the end of May of this year they had agreed to extend the original 6 month agreement of November 2016 by 9 months, from June 2017 through March 2018…the only noteworthy change from the original pact was that Nigeria and Libya, who were previously exempt from the production limits because their oil output had already been reduced by civil strife, have now agreed to a combined cap of 2.8 million barrels per day, less than 100,000 barrels per day above their average output of the last two months, but quite a bit more than the 2.25 million barrels of oil per day the two countries were producing when the first production curtailment agreement was signed…the non-OPEC participants who were in the original pact, led by Russia, also agreed to hold their production at reduced levels, and, since Russian oil companies were reluctant to commit to production cuts for over a year into the future on concerns that an extension for the entirety of 2018 could prompt a spike in crude production in the US, OPEC also agreed to review this deal at their June meeting, with the possibility that they would adjust the agreement at that time, based on any changes in global market conditions they had not foreseen…. 

since the final disposition of this OPEC meeting was largely discounted by oil traders beforehand, the market reaction to the news from this meeting was fairly muted, and trading volumes were not out of the ordinary…oil prices did end 47 cents lower on the week, however, which as it turns out was the largest weekly price drop in 2 months, since oil prices have been in an extended rally over that entire period, and closed last week at a 2½-year high of $58.95 a barrel…from there, it was not unexpected to see oil prices fall 84 cents to $58.11 a barrel in profit taking on Monday, as doubts about the OPEC pact overcame the prior week’s exuberance, and Keystone pipeline imports from Canada resumed…as jittery oil traders stayed on the sidelines awaiting the OPEC news, U.S. oil prices for January delivery then fell 12 cents on Tuesday and then another 69 cents to $57.30 a barrel on Wednesday, as the EIA reported that both gasoline and distillates supplies showed large increases…oil prices then yo-yoed in advance of the OPEC meeting Thursday morning, first rising, then falling below $57 a barrel before ending 10 cents higher at $57.40 a barrel on the news, with overseas prices seeing a larger 46 cent increase….US oil prices then rocketed to as high as $58.88 on Friday, but then retreated to close with a gain of 96 cents at $58.36 a barrel, as all US markets were rocked when former national security adviser Michael Flynn plead guilty to lying under oath and implicated Donald Trump for meddling in Russia while Obama was still president

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending November 24th, showed a big drop in our oil imports (due to the Keystone shutdown) while our refineries were using oil at a record pace for this time of year, and hence we needed to pull quite a bit of oil out of storage to meet their needs…our imports of crude oil fell by an average of 544,000 barrels per day to an average of 7,329,000 barrels per day during the week, while our exports of crude oil fell by an average of 179,000 barrels per day to 1,412,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 5,917,000 barrels of per day during the week, 365,000 barrels per day less than the net imports of the prior week…at the same time, field production of crude oil from US wells rose by 24,000 barrels per day to another record high of 9,682,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,599,000 barrels per day during the reported week… 

during the same week, US oil refineries were using 17,003,000 barrels of crude per day, 165,000 barrels per day more than they used during the prior week, while at the same time 828,000 barrels of oil per day were being withdrawn from oil storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 576,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+576,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as “unaccounted for crude oil”…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,619,000 barrels per day, 1.7% less than the 7,748,000 barrels per day average imported over the same four-week period last year….the 828,000 barrel per day decrease in our total crude inventories included a 490,000 barrel per day withdrawal from our commercial stocks of crude oil and a 338,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago…this week’s 24,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 4,000 barrels per day increase in output from Alaska….the 9,682,000 barrels of crude per day that were produced by US wells during the week ending November 24th was yet another new record high for US output, 10.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.3% more than the 8,699,000 barrels per day of oil that were being produced during the during the equivalent week a year ago…

US oil refineries were operating at 92.6% of their capacity in using those 17,003,000 barrels of crude per day, up from 91.3% of capacity the prior week, and above normal for this time of year…while the 17,003,000 barrels of oil that were refined this week were still 4.1% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were at a record level for any week during the autumn months, 4.4% more than the 16,283,000 barrels of crude per day that were being processed during week ending November 25th, 2016, when refineries were operating at 89.8% of capacity, and 11.8% above the 10-year seasonal average for this time of the year… 

even with increase in the amount of oil refined, gasoline output from our refineries was 2.0% lower, decreasing by 210,000 barrels per day to 10,222,000 barrels per day during the week ending November 24th, after increasing by 580,000 barrels per day the prior week…that production was still 2.4% higher than the 9,986,000 barrels of gasoline that were being produced daily during the week ending November 25th last year, and a new high for any comparable November week on record….in addition, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 51,000 barrels per day from last week’s November record to 5,284,000 barrels per day, which was still 1.3% more than the 5,216,000 barrels per day of distillates that were being produced during the the same week a year ago….    

with our gasoline production remaining elevated, our gasoline inventories at the end of the week rose by 3,627,000 barrels to 214,102,000 barrels by November 24th, primarily because our domestic consumption of gasoline fell by 871,000 barrels per day to 8,724,000 barrels per day at the same time, even as our exports of gasoline rose by 431,000 barrels per day to a record high 1,213,000 barrels per day, while our imports of gasoline rose by 12,000 barrels per day to 526,000 barrels per day…however, with significant gasoline supply withdrawals in 15 out of the last 24 weeks, our gasoline inventories are still down by 11.7% from their pre-summer high of 242,444,000 barrels, and more than 5.3% below last November 25th’s level of 226,123,000 barrels, even as they are still roughly 1.8% above the 10 year average of gasoline supplies for this time of the year…   

since our gasoline exports happened to jump to a record high this week, we’ll include a graph below of what those exports look like historically…

November 30 2017 gasoline exports for November 24

the above graph comes from a Zero Hedge post on this week’s EIA report, and it shows US gasoline exports in thousands of barrels per day from mid-2010 to the current week, with gasoline exports prior to July 2016 shown monthly, and gasoline exports after that date shown weekly; prior to 2010, our gasoline exports were negligible and were not tracked separately…as you can see, there is a seasonal pattern to gasoline exports, in that they rise during the fall and winter months, when domestic use of gasoline is at its lowest, and then fall back in the summer, when US demand is higher…although we’ve recently expressed concern, bordering on dire, about the elevated level of our distillates exports, this one week of record high gasoline exports is not yet that critical, especially during a week when our own supplies were near normal and rising…

meanwhile, with our distillates production still near record levels, our supplies of distillate fuels rose by 2,747,000 barrels to 127,779,000 barrels over the week ending November 24th, in just the third supply increase in thirteen weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 175,000 barrels per day to 3,882,000 barrels per day, and as our exports of distillates fell by 300,000 barrels per day to 1,130,000 barrels per day, while our imports of distillates fell by 70,000 barrels per day to 120,000 barrels per day…even after this week’s increase, our distillate inventories were still 17.1% lower at the end of the week than the 154,196,000 barrels that we had stored on November 25th, 2016, and 5.2% lower than the 10 year average of distillates stocks at this time of the year

finally, the big drop in our crude oil imports, combined with another increase in domestic refining demand, meant that our commercial crude oil inventories fell for the 27th time in the past 34 weeks, decreasing by 3,429,000 barrels, from 457,142,000 barrels on November 17th to 453,713,000 barrels on November 24th….while our oil inventories as of November 24th were 7.1% below the 488,145,000 barrels of oil we had stored on November 25th of 2016, and fractionally lower than the 457,212,000 barrels of oil that we had in storage on November 27th of 2015, they were still 30.9% greater than the 347,015,000 barrels of oil we had in storage on November 28th  of 2014, at a time when the buildup of our oil glut in the US was just getting started…      

This Week’s Rig Count

because of last week’s Thanksgiving holiday and resulting early report, this week’s Baker Hughes rig count report for the week ending December 1st covers changes in drilling activity for the nine days from November 22nd to December 1st…for that period, they reported that drilling rig activity increased for the 4th week in a row, but for just the 7th time out of the last 18 weeks, as the active rig count rose by 6 rigs, from 923 rigs on November 22nd to 929 rigs on December 1st….that was also 332 more rigs than the 593 rigs that were deployed as of the December 2nd report last year, but still well down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014… 

the number of rigs drilling for oil rose by 2 rigs to 749 rigs this week, which was also up by 272 oil rigs over the past year, while this week’s oil rig count remained far 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 4 rigs to 180 rigs this week, which was still only 61 more gas rigs than the 119 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…

activity on two platforms that had been drilling in the Gulf of Mexico offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 20 rigs, which was still down from the 22 rigs active in the Gulf of Mexico a year ago…since there were no other offshore rigs active other than those deployed in the Gulf either this week or a year ago, those Gulf of Mexico rig counts are also the same count as the total US offshore count…

the count of active horizontal drilling rigs increased by 6 rigs to 792 rigs this week, which was up by 307 rigs from the 485 horizontal rigs that were in use in the US on December 2nd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, both the vertical rig count and the directional rig counts were unchanged at 66 rigs and 71 rigs respectively, with the vertical rig count also unchanged from a year ago, while the directional rig count was up from the 46 directional rigs that were working on December 2nd a year ago..

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 December 1st, the second column shows the change in the number of working rigs between last week’s count (November 22nd) and this week’s (December 1st) count, the third column shows last week’s November 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 2nd of December, 2016…           

December 1 2017 rig count summary

as you can see, despite the 4 unit increase in rigs drilling for natural gas, the Marcellus and Utica rig counts remained unchanged, as did the corresponding rig counts for Ohio, Pennsylvania and West Virginia…of the new natural gas rigs, three were in the Haynesville, on the Texas side of the northwestern Lousiana border, and one was in an “other” unnamed basin; the rig that was shut down in the Dallas area Barnett shale was an oil rig, leaving the Barnett with 3 gas rigs and one oil rig remaining…otherwise, the above tables are pretty much indicative what changes in activity occurred this past week…

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3rd quarter GDP revision, October income and outlays, construction spending, and new home sales

major economic reports released over the past week included the 2nd estimate of 3rd quarter GDP and the October report on Personal Income and Spending, both from the Bureau of Economic Analysis, and the October report on Construction Spending (pdf) and the October report on new home sales, both from the Census bureau…in addition, the week brought us the last two regional Fed manufacturing surveys for November; the Richmond Fed Survey of Manufacturing Activity for November, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index jumped to a record high of +30 in November, up from +12 in October, suggesting a robust expansion of that region’s manufacturing, while the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity index fell to +19.4 in November from +27.6 in October, still indicative of a strong expansion of the Texas economy…

the week’s privately issued reports included the Case-Shiller Home Price Index for September from S&P Case-Shiller, an index generated by averaging relative home sales prices from July, August and September of this year against a January 2000 baseline, and which reported that home prices nationally for those 3 months averaged 6.2% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 6.1% year over year increase shown in the prior report; the light vehicle sales report for November from Wards Automotive, which estimated that vehicles sold at a 17.35 million annual rate in November, down 3.0% from the 17.89 million annual rate in October, and down 3.3% from the 17.95 million annual rate in November a year ago, and the widely followed November Manufacturing Report On Business from the Institute for Supply Management (ISM), which indicated that the manufacturing PMI (Purchasing Managers Index) fell to 58.2% in November, down slightly from 58.7% in October, still suggesting an ongoing expansion in manufacturing firms nationally…

3rd Quarter GDP Revised to Show Growth at a 3.3% Rate

the Second Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.3% rate in the quarter, revised up from the 3.0% growth rate reported in the advance estimate last month, as growth in both fixed investment and investment in inventories were revised higher, the decrease in our imports was greater than previously estimated, and state and local government spending were revised up from the prior estimate….in current dollars, our third quarter GDP grew at a 5.5% annual rate, increasing from what would work out to be a $19,250.0 billion a year rate in the 2nd quarter to a $19,509.0 billion annual rate in the 3rd quarter of this year, with the headline 3.3% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, aka the GDP deflator, was applied to the current dollar change…

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

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.4% growth rate reported last month to a 2.3% rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 3.9% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 1.5% annual rate in the 3rd quarter, which was statistically unrevised from the PCE inflation rate reported a month ago…real consumption of durable goods grew at a 8.1% annual rate, which was revised from the 8.3% growth rate shown in the advance report, and added 0.59 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 12.6% rate accounted for almost half the durables goods increase…real consumption of nondurable goods by individuals grew at a 2.0% annual rate, revised from the 2.1% growth rate reported in the 1st estimate, and added  0.30 percentage points to 3rd quarter economic growth, as lower consumption of clothing and energy goods was more than offset by greater consumption of food and other non-durables ….at the same time, consumption of services rose at a 1.5% annual rate, statistically unrevised from the growth rate reported last month, and added 0.70 percentage points to the final GDP tally, as real consumption of health care rose at a 4.2% rate and accounted for 60% of the quarter’s growth in services…

meanwhile, seasonally adjusted real gross private domestic investment grew at a 7.3% annual rate in the 3rd quarter, revised from the 6.0% growth estimate reported last month, as real private fixed investment grew at a 2.4% rate, revised from the 1.5% rate reported in the advance estimate, while inventory growth was greater than previously estimated…investment in non-residential structures was revised to show contraction at a 6.8% rate, worse than the 5.2% contraction rate previously reported, while real investment in equipment was revised from growth at a rate of 8.6% to growth at a 10.5% rate, and the quarter’s investment in intellectual property products was revised from growth at a 4.3% rate to growth at a 5.8% rate…on the other hand, real residential investment was shown to be shrinking at a 5.1% annual rate, rather than the 6.0% contraction rate previously reported…after those revisions, the decrease in investment in non-residential structures subtracted 0.20 percentage points from the 3rd quarter’s growth rate, the increase in investment in equipment added 0.56 percentage points to the quarter’s growth rate, lower residential investment subtracted 0.20 percentage points from GDP, while growth in investment in intellectual property added 0.23 percentage points to the growth rate of 3rd quarter GDP…

in addition, investment in real private inventories grew by an inflation adjusted $39.0 billion in the 3rd quarter, revised from the originally reported $35.8 billion of inventory growth…this came after inventories had grown at an inflation adjusted $5.5 billion rate in the 2nd quarter, and hence the $33.5 billion increase in real inventory growth added 0.80 percentage points to the quarter’s growth rate, revised from the 0.73 percentage point addition from inventory growth that was indicated in the advance estimate….since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or “sitting on the shelf”, their increase by $33.5 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 2.5% rate in the 3rd quarter, down from the real final sales growth rate of 2.9% in the 2nd quarter, when the smaller increase in inventory growth meant that growth in real final sales was fairly close to real growth in GDP…

the previously reported increase in real exports was revised a bit lower with this estimate, while the previously reported decrease in real imports was revised even lower, and as a result the change in our net trade was a larger addition to GDP rather than was previously reported…our real exports grew at a 2.2% rate rather than the 2.3% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.27 percentage points to the 3rd quarter’s growth rate, down a tad from the 0.28 percentage point addition shown in the previous report….meanwhile, the previously reported 0.8% decrease in our real imports was revised to a 1.1% decrease, and since imports are subtracted from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.17  percentage points to 3rd quarter GDP, rather than the 0.12 percentage point addition shown last month….thus, our improving trade balance added a rounded total of 0.43 percentage points to 3rd quarter GDP, rather than the (rounded) 0.41 percentage point addition that had been indicated by the advance estimate…

finally, the entire government sector grew at a 0.4% rate, revised from a contraction at a 0.1% rate previously reported, as federal government consumption and investment grew more than initially estimated, while real state & local government consumption and investment shrunk less…real federal government consumption and investment was seen to have grown at a 1.3% rate from the 2nd quarter in this estimate, revised from the 1.1% growth rate shown in the advance estimate, as real federal outlays for defense grew at a 2.4% rate and added 0.09 percentage points to 3rd quarter GDP, revised from the 2.3% growth rate shown previously, while all other federal consumption and investment shrunk at a 0.3% rate and subtracted 0.01 percentage point from 3rd quarter GDP….meanwhile, real state and local consumption and investment shrunk at a 0.1% rate in the quarter, which was revised from the 0.9% contraction rate reported in the 1st estimate, and subtracted 0.01 more percentage point from 3rd quarter GDP….note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services…

Personal Income up 0.4% in October, Personal Spending up 0.3%, PCE Price Index up 0.1%

the October report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month’s data for our personal consumption expenditures (PCE), which accounts for roughly 69.5% of the month’s GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated…in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the dollar value change reported for each of those metrics is not the current monthly change; rather, they’re seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if October’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from September to October….

thus, when the opening line of the press release for this report tell us “Personal income increased $65.1 billion (0.4 percent) in October“, they mean that the annualized figure for seasonally adjusted personal income in October, $16,574.6 billion, was $65.1 billion, or a bit less than 0.4% greater than the annualized personal income figure of $16,509.5 billion extrapolated for September; the actual, unadjusted change in personal income from September to October is not given…at the same time, annualized disposable personal income, which is income after taxes, rose by less than 0.5%, from an annual rate of $14,447.2 billion in September to an annual rate of $14,513.3 billion in October…the monthly contributors to the increase in personal income, which can be viewed in detail in the Full Release & Tables (PDF) for this release, are also annualized…in October, the largest contributors to the $65.1 billion annual rate of increase in personal income were a $26.0 billion increase in wages and salaries and a $19.2 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that we’re most interested in, BEA reports that they increased at a $34.4 billion rate, or by less than 0.3%, as the annual rate of PCE rose from $13,523.0 billion in September to $13,557.4 in October….September PCE was revised from $13,531.2 billion annually to $13,523.0 billion, a revision that was already included in the 2nd estimate of 3rd quarter GDP which we just reviewed (this report, although usually released a business day later than the GDP release, is computed concurrently)….the current dollar increase in October spending resulted from a $5.0 billion annualized increase to an annualized $4,355.7 billion in spending for goods, and a $29.4 billion increase to an annualized $9,201.7 billion in spending for services…total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $38.7 billion to $14,056.0 billion annually in October, which left total personal savings, which is disposable personal income less total outlays, at a $457.3 billion annual rate in October, up from the revised $429.9 billion in annualized personal savings in September… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 3.2% in October from the September savings rate of 3.0%, which was a post recession low…

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is included in Table 9 in the pdf for this report…that index was at 113.245 in October, up from 113.082 in September, giving us a PCE price index change and an inflation adjustment of 0.0144% in October, which the BEA rounded to +0.1% for the press release…note that when the PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to that of another….that result is shown in table 7 of the PDF, where we see that October’s chained dollar consumption total works out to 11,972.4 billion annually, 0.1095% more than September’s 11,959.3 billion, a difference that the BEA reports as +0.1%…

however, to estimate the impact of the change in October PCE on the change in GDP, the month over month change in PCE doesn’t help us much, since GDP is reported quarterly…thus we have to compare October’s real PCE to the the real PCE of the 3 months of the third quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 of the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 11,921.1 billion in chained 2009 dollars..(ie, that’s the same as what’s shown in table 3 of the pdf for the 3rd quarter GDP report)….when we compare October’s real PCE representation of 11,972.4 to the 3rd quarter real PCE figure of 11,921.1, we find that October real PCE has grown at a 1.73% annual rate compared to the 3rd quarter….that would mean that even if October real PCE does not improve during November and December, growth in PCE would still add 1.20 percentage points to the growth rate of the 4th quarter…

Construction Spending Rose 1.4% in October after Prior Months Were Revised Higher

the Census Bureau’s report on construction spending for October (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,241.5 billion annually if extrapolated over an entire year, which was 1.4 percent (±1.5 percent)* above the revised annualized September estimate of $1,224.6 billion and also 2.9 percent (±1.6 percent) above the estimated annualized level of construction spending in October of last year…the annualized September construction spending estimate was revised 0.4% higher, from $1,219.5 billion to $1,224.6 billion, while the annual rate of construction spending for August was also revised 0.4% higher, from $1,216.0 billion to $1,220.8 billion…the combined upward revisions of $9.9 billion to annualized August and September construction spending figures would be averaged over the 3 months of the quarter and increase 3rd quarter construction by around $3.3 billion annually, and would thus imply a further upward revision of about 0.09 percentage points to third quarter GDP when the third estimate is released on December 22nd….

quoting details on types of construction spending from the Census release: Spending on private construction was at a seasonally adjusted annual rate of $949.9 billion, 0.6 percent (±0.8 percent)* above the revised September estimate of $943.8 billion. Residential construction was at a seasonally adjusted annual rate of $517.7 billion in October, 0.4 percent (±1.3 percent)* above the revised September estimate of $515.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $432.2 billion in October, 0.9 percent (±0.8 percent) above the revised September estimate of $428.4 billion.   In October, the estimated seasonally adjusted annual rate of public construction spending was $291.6 billion, 3.9 percent (±2.6 percent) above the revised September estimate of $280.7 billion. Educational construction was at a seasonally adjusted annual rate of $79.0 billion, 10.9 percent (±2.5 percent) above the revised September estimate of $71.2 billion. Highway construction was at a seasonally adjusted annual rate of $86.8 billion, 1.1 percent (±6.3 percent)* above the revised September estimate of $85.9 billion.

as you can see, construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of October spending reported in this release on 4th quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price… there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for all of those types of construction separately, we’ve opted to use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment… that index showed that aggregate construction costs were up 0.5% month over month in October, after being up 0.3% in August and rising 0.1% in September… 

on that basis, we can estimate that October construction costs were roughly 0.9% more than those of July, 0.6% more than those of August, and obviously 0.5% more than September…we then use those percentages to inflate higher priced spending figures for each of those months, which is arithmetically the same as deflating October construction spending, for purposes of comparison…annualized construction spending in millions of dollars for the third quarter months is given as 1,224,551 in September, 1,220,897 in August, and 1,160,407 in July…thus to adjust October’s nominal construction spending of $1,241,538 million for inflation compared to that of the third quarter, our formula becomes: 1,241,538  / (((1,224,551 * 1.005) + ( 1,220,897 *1.006) + (1,215,351 * 1.009)) / 3) = 1.010699, meaning real construction spending in October was up 1.07% vis a vis that of the 3rd quarter, or up at a 4.35% annual rate…to figure the effect of that change on GDP,  we figure the difference between the third quarter average and October and take the annualized result of that as a fraction of annualized 3rd quarter GDP, and find that October construction spending is rising at a rate that would add 0.34 percentage points to 4th quarter GDP, assuming hypothetically that there would be no change over the next two months…

Average Prices for New Homes Sold in October Tops $400 K

the Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 685,000 homes annually, which was 6.2 percent (±18.0 percent)* above the revised September rate of 645,000 new single family home sales a year and 18.7 percent (±23.5 percent)* above the estimated annual rate that new homes were selling at in October of last year….the asterisks indicates that based on their small sampling, Census could not be certain whether October new home sales rose or fell from those of September, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….with this report; sales new single family homes in September were revised from the annual rate of 677,000 reported last month down to a 645,000 a year rate, while home sales in August, initially reported at an annual rate of 580,000 and revised to a 561,000 a year rate last month, were revised to a 565,000 a year rate with this report, and while July’s home sale rate, initially reported at an annual rate of 571,000 and revised from a 580,000 a year rate to a 582,000 a year rate last month, were revised down to a 564,000 annaul 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 55,000 new single family homes sold in October, up from the estimated 50,000 new homes that sold in September and up from the 48,000 that sold in October a year ago…..the raw numbers from Census field agents further estimated that the median sales price of new houses sold in October was $312,800, down from the median sale price of $314,900 in September but up from the median sales price of $302,800 in October a year ago, while the average new home sales price in October was $400,200, up from the $381,100 average sales price in September, and up from the average sales price of $352,200 in October a year ago….a seasonally adjusted estimate of 282,000 new single family houses remained for sale at the end of October, which represents a 4.9 month supply at the October sales rate, down from the reported 5.0 months of new home supply in September…for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 685,000 Annual Rate in October and A few Comments on October New 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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tables and graphs for December 2nd

rig count summary:

December 1 2017 rig count summary

crude oil supplies:

December 2 2017 crude oil supplies as of November 24

gasoline exports:

November 30 2017 gasoline exports for November 24

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oil prices at a 2½-year high, oil drilling picking up…

oil prices rose nearly 4% this past week and finished at a 2½-year high, as traders focused on a supply disruption to the Cushing hub in Oklahoma, while anticipating extended supply cuts from the OPEC meeting in this coming week…after closing at $56.55 a barrel, down 0.4%, last week for the first time in six weeks, US oil contracts for December crude continued sliding lower on Monday on a stronger dollar and edginess about the upcoming OPEC meeting, closing down 46 cents at $56.09 a barrel as the December contract expired…at the same time, the contract for January crude slid 29 cents to close at $56.42 a barrel…with the media now quoting January crude as ‘the price of oil’, that contract rose 41 cents to $56.83 on Tuesday, on restrained expectations that OPEC would extend their output cuts when they meet in Vienna next week…oil prices then jumped $1.19 or 2.1% to $58.02 on Wednesday after TransCanada reported Keystone pipeline crude deliveries to Oklahoma would be curtailed by 85 percent through November, following last week’s spill of more than 210,000 gallons of tar sands oil under a farm field in northeast South Dakota, which is still unrepaired…that pipeline shutdown would reduce the glut of oil at the Cushing depot, on which these WTI oil contracts are based…momentum from that pipeline shutdown carried through the holiday as oil rose again on Friday, bolstered by reports that OPEC and Russia agreed to a framework to extend their oil production cuts to the end of next year, with oil prices ending up another 93 cents at $58.95 a barrel at the close, a gain of 1.6% on the day and more than 3.9% for the week…

since oil prices are now much higher than they’ve been for a good two years, we’ll include a graph of the recent rally to help you envision how they got here…

November 25 20117 oil prices

the above graph is a screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets…each bar on the above graph represents oil prices for one day of oil trading between June 15th and November 24th, wherein green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down…for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while on red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar…there are also feint grey “wicks” above and below each bar to indicate trading prices for each day that were above or below the opening to closing price range…note at the far right that there are four green bars that would represent this week’s price rally, rather than the three day rally we have described; that’s because this graph also includes online and international trading, which continued through the Thanksgiving holiday, while the New York markets that we reported on were closed…

on that graph, we can almost see that oil prices dipped to a ten month low of $42.05 a barrel on June 21st, which we saw at that time was below the average breakeven price for all US oil basins…from there, oil prices stayed below $50 a barrel until mid-September, which thus led to an extended pullback in oil drilling that lasted through October…however, with oil prices over $50 a barrel since that time, the rig crews have been returning to the field, and drilling for oil has been picking up…now, with oil prices near $60 a barrel, the disincentive of the past two years has reversed, because it will now be profitable to drill for oil in every shale basin in the US, with the possible exception of the thinnest trends of the SCOOP/STACK…if oil prices should continue rising from here, we would not be surprised to even see oil drilling return to the Utica shale, at least to the same degree as we saw before mid 2014, when more than half of the Utica rigs were targeting oil…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending November 17th, showed a big jump in our oil exports while our oil imports were little changed, which meant that oil needed to be pulled out of storage to meet the needs of our refineries, who also saw another increase in throughput…our imports of crude oil slipped by an average of 25,000 barrels per day to an average of 7,873,000 barrels per day during the week, while our exports of crude oil rose by an average of 462,000 barrels per day to 1,591,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,282,000 barrels of per day during the week, 487,000 barrels per day less than the net imports of the prior week…at the same time, field production of crude oil from US wells rose by 13,000 barrels per day to another record high of 9,658,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,940,000 barrels per day during the reported week…

during the same week, US oil refineries were using 16,838,000 barrels of crude per day, 199,000 barrels per day more than they used during the prior week, while over the same period 511,000 barrels of oil per day were being withdrawn storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 387,000 fewer barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (+387,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, a metric that is labeled in their footnotes as “unaccounted for crude oil”…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,680,000 barrels per day, now 5.3% less than the 8,110,000 barrels per day average imported over the same four-week period last year….the 511,000 barrel per day decrease in our total crude inventories included a 265,000 barrel per day withdrawal from our commercial stocks of crude oil and a 246,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago…this week’s 13,000 barrel per day increase in our crude oil production was due to a 20,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 7,000 barrels per day decrease in output from Alaska….the 9,658,000 barrels of crude per day that were produced by US wells during the week ending November 17th was another new record high for US output, 10.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.1% more than the 8,690,000 barrels per day of oil we produced during the during the equivalent week a year ago…

US oil refineries were operating at 91.3% of their capacity in using those 16,838,000 barrels of crude per day, up from 91.0% of capacity the prior week, and above normal for November…while the 16,838,000 barrels of oil that were refined this week were still 5.0% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, they were 2.7% more than the 16,397,000 barrels of crude per day that were being processed during week ending November 18th, 2016, when refineries were operating at 90.8% of capacity, and more than 12.7% above the 10-year seasonal average for this time of year

with increase in the amount of oil refined, gasoline output from our refineries was 5.9% higher, increasing by 580,000 barrels per day to 10,432,000 barrels per day during the week ending November 17th, which was also 7.5% higher than the 9,700,000 barrels of gasoline that were being produced daily during the comparable November week a year ago….in addition, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 104,000 barrels per day to 5,335,000 barrels per day, which was a record distillates output for any week in any November, and 5.0% more than the 5,080,000 barrels per day of distillates that were being produced during the week ending November 18th last year….   

even with the big jump in our gasoline production, our gasoline inventories at the end of the week just rose by 44,000 barrels to 210,475,000 barrels by November 17th, because our domestic consumption of gasoline rose by 423,000 barrels per day to 9,595,000 barrels per day at the same time, even as our exports of gasoline fell by 62,000 barrels per day to 782,000 barrels per day, while our imports of gasoline rose by 165,000 barrels per day to 514,000 barrels per day…however, with significant gasoline supply withdrawals in 15 out of the last 23 weeks, our gasoline inventories are still down by 13.2% from their pre-summer high of 242,444,000 barrels, and by over 6.0% below last November 18th’s level of 224,026,000 barrels, even as they are still roughly 0.8% above the 10 year average of gasoline supplies for this time of the year…  

with the increase in our distillates production, our supplies of distillate fuels rose by 269,000 barrels to 125,032,000 barrels over the week ending November 17th, in just the second small supply increase in twelve weeks, after falling by 9,724,000 barrels over the prior three weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 28,000 barrels per day to 4,057,000 barrels per day, while our exports of distillates fell by 47,000 barrels per day to 1,430,000 barrels per day, and while our imports of distillates rose by 29,000 barrels per day to 190,000 barrels per day…even after this week’s increase, our distillate inventories were still 16.2% lower at the end of the week than the 149,239,000 barrels that we had stored on November 18th, 2016, and 5.3% lower than the 10 year average of distillates stocks at this time of the year

finally, the big increase in our crude oil exports, combined with the increase in domestic refining, meant that our commercial crude oil inventories fell for the 26th time in the past 33 weeks, decreasing by 1,855,000 barrels, from 458,997,000 barrels on November 10th to 457,142,000 barrels on November 17th….while our oil inventories as of November 17th were 6.5% below the 489,029,000 barrels of oil we had stored on November 18th of 2016, they were still fractionally higher than the 456,035,000 barrels of oil that we had in storage on November 20th of 2015, and 30.3% greater than the 350,704,000 barrels of oil we had in storage on November 21st of 2014, at a time when the buildup of our oil glut in the US was just getting started…    

This Week’s Rig Count

because of the holiday, the weekly Baker Hughes rig count report was released on Wednesday, November 22nd, and thus covers changes in drilling activity for just the five days from November 17th to the 22nd…nonetheless, they reported that drilling rig activity increased during that period for the 3rd week in a row, but just the 6th time out of the last 17 weeks, as the active rig count rose by 8 rigs, from 915 rigs on November 17th to 923 rigs on November 22nd…that was also 330 more rigs than the 593 rigs that were deployed as of the November 23rd report last year, but still way down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

the number of rigs drilling for oil rose by 9 rigs to 747 rigs this week, which was also up by 273 oil rigs over the past year, while this week’s count remained far 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 1 rig to 176 rigs this week, which was still only 58 more gas rigs than the 118 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…

drilling began from one platform in the Gulf of Mexico offshore from Louisiana this week, which increased the Gulf of Mexico rig count to 22 rigs, which was still down from the 23 rigs active in the Gulf of Mexico a year ago…since there were no other offshore rigs active other than those deployed in the Gulf either this week or a year ago, those Gulf of Mexico rig counts are also the same count as the total US offshore count…

the count of active horizontal drilling rigs increased by 10 rigs to 786 rigs this week, which put them up by 311 rigs from the 475 horizontal rigs that were in use in the US on November 23rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count was up by 3 rigs to 66 vertical rigs this week, which happened to be the same number as the 66 vertical rigs that were deployed on November 23rd of 2016…on the other hand, the directional rig count was down by 5 rigs to 71 rigs this week, which was still up from the 52 directional rigs that were working during the same week last year….

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of November 22nd, the second column shows the change in the number of working rigs between last week’s count (November 17th) and this week’s (November 22nd) count, the third column shows last week’s November 17th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 23rd of November, 2016…          

November 22 2017 rig count summary

as you can see from the above, we have another week where the major basin variances table doesn’t tell us much; despite the net addition of 10 horizontal rigs during the period, the major basins tracked here only account for 3 rig additions, and one rig shutdown…part of the problem is that Baker Hughes has not changed the basins they track as activity has shifted over the years; for instance, the Fayetteville in Arkansas has gone almost two years with no more than one rig active, as compared to 2011, when that basin averaged over 30 active rigs a week…yet basins that are now seeing more activity, such as the Unita in Utah and the Powder River Basin in Wyoming, have not yet even been listed here…with a 4 rig increase in Wyoming, it’s entirely possible that half of the week’s new rigs were set up in the Powder River Basin, but without digging through the individual well logs in the North America Rotary Rig Count Pivot Table (XLS), there’s no easy way of determining exactly where they were…note that in addition to the activity changes in the major producing states shown above, Montana also saw another rig added this week, and they thus have two rigs working, up from none a year ago, and the first time more than one rig was active in the state since March 2015..

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