natural gas supplies falling faster than winter weather accounts for; Utica drillers shifting to oil bearing rock

oil prices rebounded more than 4% this week, after dropping by nearly 10% in a global market panic the prior week, as the financial markets recovered and carried other prices higher as well…after falling a total of $6.60 a barrel over the prior six trading sessions, oil prices for March delivery steadied on Monday, rising 9 cents to $59.29 a barrel, as global markets stabilized and the US dollar fell in value…not much changed on Tuesday either, as a continually weaker dollar sparked a rebound from an early slide down after the International Energy Agency forecast that oil supplies would outstrip demand, with oil ending the day down 10 cents at $59.19 a barrel…oil prices also started lower on Wednesday morning, but then rebounded sharply after the weekly EIA data showed that crude inventories rose less than expected the prior week, with oil prices finishing $1.41 higher at $60.60 a barrel…the Wednesday rally carried into Thursday, as higher US oil prices forced those who has sold oil they didn’t own to buy it back to cover their bets, with oil prices ending the session 74 cents higher at $61.34 a barrel…oil prices continued higher for a third session on Friday, carried by a strong rebound in global stock markets and a much weaker dollar, as oil ended up another 34 cents at $61.68 a barrel, a closing price that represented a 4.2% increase on the week, in the first weekly gain in three weeks…

meanwhile, natural gas prices were slightly lower this week, after running up to a 12 month high three weeks ago, and then crashing to an 18 month low last week, with this week seeing the smallest price change and least price volatility in the past 7 weeks…after opening lower, natural gas prices for March delivery were down every day this week except Tuesday, when they rose 4.2 cents to $2.594 per mmBTU on what was called ‘technical buying’ in response to oversold conditions…other than that, ongoing forecasts of warmer weather pushed prices lower on Wednesday and Thursday, in spite of the weekly gas report on Thursday that indicated a larger than expected withdrawal of natural gas supplies from underground storage…natural gas prices then fell 2.2 more cents on Friday to end the week at $2.558 per mmBTU, for a net loss of 2.6 cents, or 1.0% on the week…

this week’s natural gas storage report indicated that our natural gas in storage fell by 194 billion cubic feet to 1,884 billion cubic feet in the week ending Friday, February 9, 2018, which left our gas supplies 577 billion cubic feet, or 23.4% lower than the 2,461 billion cubic feet that was in storage on February 10th of last year, and 433 billion cubic feet, or 18.7% below the five-year average of 2,317 billion cubic feet for the sixth week of the year…the typical natural gas withdrawal for the sixth week of the year has averaged 154 billion cubic feet, so the withdrawal during the cited week exceed the norm by 40 billion cubic feet…

now, one would think that a week during the middle of winter that saw a much larger than normal withdrawal of natural gas from storage would have been colder than normal, but that was not the case this week, as we’ll see in the graph below…

February 16 2018 heating demand for week ending February 9th

the above graph, of population weighted heating degree days (PWHDD) nationally, came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday…degree days are a measure of daily heating requirements used by utilities and suppliers of heating fuels to determine what the daily demand for heating will be, so they can adjust their production or delivery schedules accordingly…they are computed by taking the average daily temperature and subtracting that figure from 65F, which is considered to be the temperature when most buildings will start to need heating….hence, the colder it gets, the greater the the number of heating degree days are required for a given location…John’s graph is an average of heating degree day readings from around the country, weighted by population, to give us an average daily heating requirement for the entire country…

in this graphic, then, the yellow graph shows the historical average number of heating degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population-weighted heating degree days for each day this heating season of 2017-2018….while those dots are difficult to read and line up, you can orient what the graph shows by noting that the highest number of degree days was on January 1st, when the all time record for natural gas consumption was set…the 7 red dots farthest to the right are for the current heating week, and as John’s headline says, population weighted heating degree days for that period totaled 192, slightly less than the historical 196 average for the same period in February (as we can see the majority of the right-most red dots are a bit below the yellow line)…so we see that despite the fact that our national heating requirements were slightly below normal for the week, we still had to withdraw more than 25% more natural gas than normal over the same period…

next we have a graphic which compares this year’s heating requirements to the previous two years and to the historical norm…it also came from the same emailed package of natural gas graphs from John Kemp as the graph above..

February 16 2018 seasonal heating demand as of February 9th

in this graph, the difference between normal heating demand and the cumulative heating demand for each of the past three heating seasons is shown daily over the span of a year,  with the divergence in the current year shown as a solid yellow line, last year’s divergence shown as a dashed yellow line, and with the divergence from normal of the 2015/2016 heating season shown as a dashed red line….note that all three graphs trend downward, or negative from zero, because all three years experienced warmer than normal temperatures, hence less degree days than normal, over their heating seasons…i know that here in the Midwest it’s been colder than normal most of this winter, but at the same time the Pacific Coast states, the Rockies, and much of the south has been warmer than normal, resulting in that downward trending solid yellow line for the entire US that we see for this year…note that had it been colder than normal nationally, the graph would be moving upwards, into a range above zero on the graph…for this year’s solid yellow line, the pattern the graph traces describes a cool September, and a generally warmer than normal October, November and early December, a colder than normal January except for one week, and a gradual moderation since…as the heading on the graph says, this year’s cumulative heating demand has actually been 130 population-weighted heating degree days (PWHDD) below normal, compared to the much warmer prior two years that had heating requirements 497 PWHDD and 449 PWHDD below normal respectively…but while our heating requirements were modestly below normal so far this year, we still have had to pull more natural gas out of storage than any other year on record, except for the “polar vortex” dominated winter of 2014, which we’ll see in the next graph….

February 16 2018 gas in storage as of February 9th

the above graph also came from that emailed package of natural gas graphs from John Kemp of Reuters, and it shows the quantity of natural gas in storage, in billions of cubic feet, in the lower 48 states over the period from January 2016 up until the week ending February 9th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the period from January 2015 up until the end of 2017 as a yellow line, and the average of natural gas in storage over the 5 years preceding those same dates shown as a dashed blue line…also shown by the light blue shaded background is the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the years shown by the graph…thus the light shaded area also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to an annual maximum by the middle of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the weather related heating requirements during any given season…

as John Kemp notes on the top of this graph, our supplies of natural gas are well below the average range and near the bottom of that average line; in fact, if we look at the Historical Record of Natural Gas in Working Underground Storage for the Lower 48 States, we see that 2014 was the only year on record to have less natural gas in storage as of the 2nd week of February than the 1,884 billion cubic feet that we had as of this week’s report….yet as we saw in the 2nd graph above, our heating requirements so far this year have been modestly below normal, so the reason that our supplies of natural gas are now well below average hasn’t been the weather…rather it has been our increasing use of natural gas to generate electricity, and increasing liquefaction of natural gas (LNG) for export, (which had reached as much as 3.2 billion cubic feet per day at the Sabine Pass export terminal alone) that have been responsible for drawing down our supplies of natural gas faster than our stagnant gas production can replace them…by tracing the dashed blue line on the graph above, we can see that over a normal heating season, our natural gas supplies are drawn down from an average of around 3,750 billion cubic feet in mid-October to an average of around 1,600 billion cubic feet by the end of March…hence, over a 167 day heating season, the Sabine Pass export terminal alone would be converting 534.4 billion cubic feet, or nearly one-quarter of our normal winter usage, into LNG to be shipped to Europe and Asia…seeing that, just imagine what will happen when we hit a cold winter after all the LNG export facilities now under construction are brought online and also draw from that supply…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending February 9th, indicated that our oil refineries slowed considerably while our oil imports and oil production were little changed, and as a result we added crude oil to storage for the third week in a row…our imports of crude oil fell by an average of 4,000 barrels per day to an average of 7,888,000 barrels per day during the week, while our exports of crude oil rose by an average of 35,000 barrels per day to an average of 1,322,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,566,000 barrels of per day during the week, 39,000 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 20,000 barrels per day to another record high of 10,271,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,837,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,162,000 barrels of crude per day, 635,000 barrels per day less than they used during the prior week, while at the same time 323,000 barrels of oil per day were being added to 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 and from oilfield production was 352,000 barrels per day more than what refineries reported they used during the week plus what was added to storage…to account for that disparity, the EIA needed to insert a (-352,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”…(how this weekly data is gathered, and the reason for that “unaccounted” oil, is explained here)…since there was a 630 barrel per day change in that ‘unaccounted for oil’, from +278,000 barrels per day last week to -352,000 barrels per day this week, our week over week changes are correspondingly unreliable…

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 8,063,000 barrels per day, 5.0% less than the 8,491,000 barrel per day average we imported over the same four-week period last year….the 323,000 barrel per day increase in our total crude inventories came about on a 263,000 barrel per day addition to our commercial stocks of crude oil and a 60,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency, since the Reserve is not authorized to buy oil at this time….this week’s 20,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in output from Alaska…the 10,271,000 barrels of crude per day that were produced by US wells during the week ending February 9th was the highest week on records going back to 1983, 14.4% more than the 8,977,000 barrels per day that US wells were producing on February 10th of last year, and 21.9% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016…

US oil refineries were operating at 89.8% of their capacity in using 16,162,000 barrels of crude per day, down from 92.5% of capacity the prior week, and down from the wintertime record 96.7% of capacity set just six weeks earlier, as US refineries are now into the pre-spring blend changeover and maintenance season…the 16,162,000 barrels of oil that were refined this week were 8.2% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 4.6% more than the 15,458,000 barrels of crude per day that were being processed during the week ending February 10th, 2017, when refineries were operating at 85.4% of capacity….

with the big drop in the amount of oil being refined, gasoline production by our refineries was also much lower, decreasing by 493,000 barrels per day to 9,592,000 barrels per day during the week ending February 9th, after increasing by 518,000 barrels per day the prior week....nonetheless, our gasoline production was still 7.2% higher than the 8,950,000 barrels of gasoline that were being produced daily during the week ending February 10th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 317,000 barrels per day to 5,129,000 barrels per day, after rising by 516,000 barrels per day the prior week…but even after that decrease, the week’s distillates production was still 6.2% higher than the 4,531,000 barrels of distillates per day than were being produced during the equivalent week of 2017….    

however, even with the big decrease in our gasoline production, our gasoline inventories at the end of the week still rose by 3,599,000 barrels to 249,073,000 barrels by February 9th, their thirteenth increase in 14 weeks…that was as our domestic consumption of gasoline fell by 51,000 barrels per day to 9,059,000 barrels per day, and as our exports of gasoline fell by 190,000 barrels per day to 639,000 barrels per day, while our imports of gasoline fell by 108,000 barrels per day to 638,000 barrels per day….but even after thirteen increases in fourteen weeks, our gasoline inventories are still 3.9% lower than last February 10th’s level of 259,063,000 barrels, even as they are now roughly 6.9% above the 10 year average of gasoline supplies for this time of the year…      

with the week’s drop in distillates production, our supplies of distillate fuels fell by 459,000 barrels to 141,367,000 barrels over the week ending February 9th, the third decrease in distillates supplies in the past nine weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 305,000 barrels per day to 4,082,000 barrels per day, and as our imports of distillates fell by 77,000 barrels per day to 236,000 barrels per day while our exports of distillates fell by 72,000 barrels per day to 1,031,000 barrels per day…after this week’s inventory decrease, our distillate supplies were 16.9% lower at the end of the week than the 170,057,000 barrels that we had stored on February 10th, 2017, and fractionally lower than the 10 year average of distillates stocks at this time of the year… 

finally, the big decrease in the amount of oil used by our refineries while our oil supply metrics changed little meant that we had surplus oil to add to our commercial supplies of crude oil for the third time in 13 weeks and for the 13th time in the past 48 weeks, as our crude supplies increased by 1,841,000 barrels, from 420,254,000 barrels on February 2nd to 422,095,000 barrels on February 9th….but even with three increases in a row, our oil inventories as of that date were still 18.5% below the 518,119,000 barrels of oil we had stored on February 10th of 2017, and 10.7% lower than the 472,823,000 barrels of oil that we had in storage on February 12th of 2016, even they were still 7.8% greater than the 391,516,000 barrels of oil we had in storage on February 13th of 2015, at a time when US supplies of oil had just begun to increase…   

This Week’s Rig Count

net US drilling activity was unchanged during the week ending February 16th, with oil drilling increasing and drilling for natural gas decreasing….Baker Hughes reported that the total count of active rotary rigs running in the US was stable at 975 rigs in the week ending on Friday, which was still 224 more rigs than the 751 rigs that were deployed as of the February 17th report of 2017, while it was still down by nearly half 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 7 rigs to 798 rigs this week, which was also 201 more oil rigs than were running a year ago, while the week’s oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations fell by 7 rigs to 177 rigs this week, which was only 24 more gas rigs than the 153 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 activity from platforms in the Gulf of Mexico was increased by 2 rigs to 18 rigs for the week, which was also up from the 17 rigs deployed in the Gulf of Mexico a year ago…however, last year at this time there was also a rig deployed offshore from Alaska, so the total offshore rig count last year was also 18 rigs, same as today’s…meanwhile, a rig which had been drilling from a platform on an inland lake in Louisiana was shut down this week, leaving just one such “inland waters” rig remaining active, which was down from 3 rigs on inland waters as of February 17th of last year…

the week’s count of active horizontal drilling rigs was up by 7 rigs to 839 horizontal rigs this week, which was also up by 225 rigs from the 614 horizontal rigs that were in use in the US on February 17th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the vertical rig was down by 5 rigs to 65 vertical rigs this week, which was the same count as the 65 vertical rigs that were in use during the same week of last year….in addition, the directional rig count was down by 2 rigs to 71 directional rigs this week, which was also down from the 72 directional rigs that were deployed on February 17th of 2017…

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of February 16th, the second column shows the change in the number of working rigs between last week’s count (February 9th) and this week’s (February 16th) count, the third column shows last week’s February 9th 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 17th of February, 2017…              

February 16th 2018 rig count summary

as you can see from the above tables, this week’s ‘unchanged’ rig count masked a lot of changes in activity nonetheless…probably the most surprising in light of an increase of 7 oil rigs was the 4 oil directed rigs that were shut down in the Permian of western Texas and southeast New Mexico, the basin which had been leading this most recent wave of drilling; but even after those shutdowns, the 433 oil directed rigs that remain active in the Permian are still more than half of the 798 oil directed rigs working nationwide, and the Permian also still accounts for 130 of the 224 rigs that have been added over the past year….

there was also a much larger change than is evident from the table in Ohio’s Utica shale this week, as the net loss of 2 rigs masks the fact that 7 natural gas rigs were shut down in the state, while at the same time 5 rigs started drilling targeting oil rich formations…that leaves the total Utica deployment at 15 natural gas directed rigs, and 7 rigs seeking oil, confirming the movement of Ohio’s drilling activity to the north and west that we suspected two weeks ago, when we noted new drilling plans in the Mansfield area... the Utica shale had gone all of 2016 and most of 2017 with just spotty oil drilling, so this now appears to be a significant change likely driven by the higher oil prices we’ve seen over recent months…

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January’s retail sales, consumer and producer prices, industrial production, business inventories, & housing starts

this week saw the release of seven of the regular monthly agency reports, namely the Retail Sales report for January and Business Sales and Inventories for December from the Census Bureau, the January Consumer Price Indexthe January Producer Price Index and the January Import-Export Price Index from the Bureau of Labor Statistics, the January report on Industrial Production and Capacity Utilization from the Fed, and the January report on New Residential Construction, also from the Census Bureau…this week also saw the release of the first two regional Fed manufacturing surveys for February: 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 fell to +13.1, down from +17.7 in January, suggesting decelerating growth in First District manufacturing….meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions rose to +25.8 in February from a  reading +22.2 in January, indicating an larger plurality of that region’s manufacturing firms reported increases in their activity this month..

January Consumer Prices Rise 0.5% on Higher Fuel, Clothing, and Medical Services

the consumer price index increased by 0.5% in January, led by higher prices for fuels, clothing and medical services….the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.5% in January after it had risen 0.1% in December, 0.4% in November, 0.1% in October, 0.5% in September, 0.4% in August, and 0.1% in July….the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 246.524 in December to 247.867 in January, which left it statistically 2.071% higher than the 241.432 index reading of last January, which is reported as a 2.1% year over year increase…with a large increase in energy prices a major reason for this month’s CPI increase, seasonally adjusted core prices, which exclude food and energy, rose by 0.3% for the month, with the unadjusted core index rising from 253.558 to 254.638, which put it 1.821% ahead of its year ago reading of 250.083, which is rounded to a 1.8% increase…

the volatile seasonally adjusted energy price index rose by 3.0% in January, after it had fallen by 0.2% in December, but after it had risen by 3.2% in November and by 2.0% in October, and is now 5.5% higher than in January a year ago….prices for energy commodities were 5.8% higher for the month, while the index for energy services fell by 0.8%, after rising by 0.4% in December….the increase in the energy commodity index was led by a 5.7% increase in the retail price of gasoline, the largest component, while the price of fuel oil rose 9.5%, and while prices for other fuels, including propane, kerosene and firewood, rose by an average of 2.2%…as a result, energy commodities are now priced 9.0% above their year ago levels, with gasoline prices averaging 8.5% higher than they were a year ago…within energy services, the index for utility gas service fell by 2.6% after rising 1.0% in December and 0.7% in November, leaving utility gas priced just 0.2% higher than it was a year ago, while the electricity price index fell by 0.2%, after rising 0.2% in December and 0.5% in November…the energy services price index is now 1.9% higher than last January, as electricity prices have increased by 2.4% over that period…

the seasonally adjusted food price index rose 0.2% in January, after rising 0.2% in December, being unchanged in October and November, rising 0.1% in September, 0.1% in August, 0.2% in July, being unchanged in June, rising 0.2% in May, 0.2% in April, 0.3% in March, 0.2% in February, and 0.1% last January, as the index for food purchased for use at home was 0.1% higher in January, while prices for food bought to eat away from home were 0.4% higher, as prices at fast food outlets rose 0.5% and prices at full service restaurants rose 0.2%, while other food prices away from home rose 0.8%…

in the food at home categories, the price index for cereals and bakery products increased by 0.3%, even as prices for bread fell 0.5%, as prices for cakes and cookies rose 1.6%, and prices for rice rose 1.9%…the price index for the meats, poultry, fish, and eggs group was down 0.2% as poultry prices fell 1.3% and beef and veal prices fell 1.2%, while at the same time the index for dairy products was unchanged despite a 1.2% decrease in the price of fresh whole milk…the fruits and vegetables index was 0.5% higher on a 1.9% increase in prices for fresh fruits and a 2.1% increase in prices for canned vegetables….meanwhile, the beverages index was unchanged as roast coffee prices fell 2.6% while noncarbonated juices and drink prices rose 1.0%….lastly, prices in the ‘other foods at home’ category was also unchanged, as peanut butter prices rose 1.6% while frozen and freeze dried prepared food prices were 1.5% lower….among food at home line items, only tomatoes, which have risen 16.5% since last January, have seen a price change 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 0.3% in January after rising by 0.3% in December, 0.1% in November, 0.2% in October, 0.1% in September, 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods rose by 0.4%, 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 January retail sales for inflation in national accounts data, the index for household furnishings and supplies was 0.2% higher on a 4.1% increase in the index for window and floor coverings and a 3.4% increase in prices for laundry equipment…the apparel price index was 1.7% higher on a 4.8% increase in prices for women’s suits and separates, a 4.5% increase in prices for boy’s apparel, and a 4.2% increase in prices for men’s shirts and sweaters….at the same time, prices for transportation commodities other than fuel were up 0.2%, as prices for used cars and trucks were up 0.4% and prices for tires rose 0.6%…on the other hand, prices for medical care commodities were 0.1% lower on a 0.2% decrease in prescription drug prices, while the recreational commodities index was 0.3% lower on another 3.8% drop in TV prices and a 1.8% decrease in the index for toys….meanwhile, the education and communication commodities index was 0.8% higher, on a 2.5% increase in the index for telephone hardware, calculators, and other consumer information items and a 2.9% increase in prices for computer software and accessories…lastly, a separate price index for alcoholic beverages was unchanged, while the price index for ‘other goods’ was up 0.5% on a 1.4% increase in the index for miscellaneous personal goods..

within core services, which rose by 0.3%, the price index for shelter rose 0.2% on a 0.3% increase in rents and a 0.3% increase in homeowner’s equivalent rent, while costs for lodging away from home at hotels and motels fell 2.5%, the sub-index for water, sewers and trash collection rose 0.2%, and other household operation costs were on average 1.5% higher….at the same time, the index for medical care services was up 0.6%, as prices for eyeglasses and eye care rose 0.9% and hospital services were priced 1.2% higher…meanwhile, the transportation services index was 0.8% higher on a 1.3% increase in car and truck leasing, 1.3% higher prices for motor vehicle insurance, and 1.5% higher parking….the recreation services index rose 0.1% as video discs and other media services rose 5.4% while film processing fell 4.1%, while the index for education and communication services was unchanged as delivery services rose 1.5% while tuition and fees at technical and business schools fell 0.3%…lastly, the index for other personal services was up 0.4% as the index for legal services rose 1.1% and tax return preparation and other accounting fees rose 0.8%…among core line items, the index for toys, which has now fallen 10.0% over the past year, the index for clocks, lamps, and decorator items, which has fallen 10.8%, prices for infants furniture, which are down 11.9%, prices for televisions, which are now 10.7% cheaper than a year ago, the index for audio equipment, which is now 15.1% lower than last January, and prices for wireless phone services, which are still 10.2% lower than a year ago, have all seen prices drop by more than 10% over the past year, while nothing has seen prices rise by a double digit magnitude over that span…

Retail Sales Down 0.3% in January after November and December Revised Lower

seasonally adjusted retail sales decreased 0.3% in January after retail sales for November and December were revised lower…the Advance Retail Sales Report for January (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $492.0 billion during the month, which was down 0.3 percent (±0.5%) from December’s revised sales of $493.3 billion but 3.6 percent (±0.7%) above the adjusted sales in January of last year…December’s seasonally adjusted sales were revised down from $495.4 billion to $493.3 billion, while November’s sales were also revised lower, from $493.6 billion to $493,168 million; as a result, the November to December change was revised up from up 0.4 percent (±0.5%)* to virtually unchanged (±0.3 percent)*…..the revisions to November and December sales would indicate that 4th quarter personal consumption expenditures were lower at a rate greater than a $10.1 billion annually, which would thereby reduce 4th quarter GDP by at least 0.23 percentage points….estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 20.9%, from $541,774 million in December to $444,632 million in January, while they were up 5.1% from the $423,111 million of sales in January a year ago, so we can see how a large seasonal adjustment to holiday and post holiday sales brought the headline sales into line, compared to the big sales decrease that would normally be expected in January…

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

February 2017 retail sales table

even with nominal sales down 0.3% for the month, this January report is worse than it looks, because prices for most items were higher…as we saw when we reviewed the CPI report, the composite price index for all goods except food and energy was 0.4% higher, which means real gross sales of such core goods averaged 0.7% lower for the month; particularly had hit were clothing stores, which saw sales decrease 0.5% despite the 1.7% increase in prices for apparel…outside of core goods, we’d note that gas station sales were down 0.6% despite a 5.7% increase in the retail price of gasoline, suggesting a large drop in real sales of gasoline…similarly, we see that sales at restaurants and bars were down 0.1% despite a 0.4% increase in prices for food away from home, implying a 0.5% drop in real sales at bars and restaurants…even groceries stores would have seen a decrease in real sales, as nominal sales were unchanged with 0.1% higher prices…

Industrial Production Slips 0.1% in January on ‘Mining’ Slowdown

the Fed’s G17 release on Industrial production and Capacity Utilization indicated that industrial production fell by 0.1% in January after rising by a revised 0.4% in December, which left it 3.7% higher than a year ago…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell to 107.2 in January from 107.3 in December, after the December index was revised from 107.5 to 107.3 and the November index was revised from the 106.5 reported last month to 106.9….as a result, industrial production grew 0.3% in November, rather than falling 0.1%, while industrial production grew 0.4% in December rather than the 0.9% growth that was previously reported…

the manufacturing index, which accounts for more than 77% of the total IP index, rose from 104.7 to 104.8 in January but was reported unchanged, after the December index was revised from 105.0 to 104.7, the November index was revised from 104.9 to 104.8, and the September index was revised from 103.1 to  103.2, while the October index remained at 104.6….meanwhile, the mining index, which includes oil and gas well drilling, fell from 113.5 in December to 112.4 in January after the December index was revised down from 113.6, which still left the mining index 8.8% higher than it was a year earlier…finally, the utility index, which often fluctuates due to above or below normal temperatures, rose 0.6% in January, from 108.5 to 109.2, after the December utility index was revised from 108.1 to 108.5…with January 2018’s heating requirements somewhat above those of January 2017, the utility index is now 10.8% higher 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 77.5% in January from 77.7% in December, which was revised from the 77.9% that was reported last month …capacity utilization of NAICS durable goods production facilities was unchanged at 76.1% in January, while capacity utilization for non-durables producers rose from an downwardly revised 77.5% to 77.4%…capacity utilization for the mining sector fell to 84.2% in January from 85.6% in December, which was originally reported as 86.5%, while utilities were operating at 81.1% of capacity during January, up from their 80.8% of capacity during December, which was previously reported at 80.4%…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories….

Producer Prices Up 0.4% in January on Higher Priced Energy

with the release of the Producer Price Index for January 2018 from the BLS, price changes over 2017 were recalculated to reflect seasonal adjustment factors that changed over the year; hence all prior months that we’ll refer to in reviewing this release have been revised to reflect those changes….for January, the seasonally adjusted Producer Price Index (PPI) for final demand rose 0.4%, as prices for finished wholesale goods increased by 0.7%, while margins of final services providers increased by 0.3%…this followed a revised December report that indicated the overall PPI was on average unchanged, as prices for finished goods rose by 0.1%, while margins of final services providers decreased by 0.1%, and a revised November report that showed the overall PPI had increased by 0.4%, as prices for finished goods had increased 0.9%, while margins of final services providers increased by 0.2%….excluding food, energy and trade services, core producer prices were also up 0.4% in January, after rising 0.1% in December, 0.3% in both November and October and 0.2% in September…on an unadjusted basis, producer prices are now 2.7% higher than a year earlier, with the core producer price index 2.5% higher for the year, up from the year over year figures of 2.6% for the PPI and 2.3% for core indicated last month..

as noted, the price index for final demand for goods, aka ‘finished goods’, was up 0.4% in January, after being unchanged in December, rising 0.9% in November, 0.2% in October, 0.6% in September and 0.5% in August…the price index for wholesale energy was up 3.4% in January after rising 0.5% in December and 3.6% in November, while the price index for wholesale foods fell 0.2% and the index for final demand for core wholesale goods (ex food and energy) was 0.2% higher…driving the wholesale energy price index increase was a 7.7% increase in the wholesale price of gasoline and 5.5% higher wholesale prices for heating oil, while wholesale residential natural gas prices fell 2.7%…for wholesale foods, higher prices for vegetables and grain were more than offset by a 36.7% drop in wholesale prices for fresh eggs….among wholesale core goods, prices for construction machinery and equipment fell 2.1% while the wholesale price index for household appliances was up 2.0%…

at the same time, the index for final demand for services rose 0.3% in January, after falling 0.1% in December, rising 0.2% in November, 0.5% in October, and by 0.2% in both August and September, as the January index for final demand for trade services rose 0.3%, the index for final demand for transportation and warehousing services rose 0.4%, while the index for final demand for services less trade, transportation, and warehousing services was also 0.4% higher….among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers increased 10.3% while margins for chemicals and chemical products wholesalers fell 2.3%… among transportation and warehousing services, margins for airline passenger services were 1.6% lower and margins for truck transportation of freight rose 1.4%…in the core final demand for services index, the index for hospital inpatient care rose 1.0% while the index for cell phone and wireless telecommunication services fell 2.6%..

this report also showed the price index for intermediate processed goods was 0.7% higher, after rising 0.5% in December, 0.5% in November, 0.7% in October, and 0.6% in September….the price index for intermediate energy goods rose 2.5% as refinery prices for jet fuel rose 8.1% and prices for unblended gasoline rose 7.1%, while prices for intermediate processed foods and feeds fell 0.3% as the processed eggs index fell 13.2%…meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.3% higher on a 4.4% increase in the index for primary nonferrous metals and a 5.4% increase in prices for copper and brass mill shapes….prices for intermediate processed goods are now 4.6% higher than in January a year ago, now the fifteenth consecutive year over year increase, after 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016….

meanwhile, the price index for intermediate unprocessed goods rose 0.9% in January, after rising 1.9% in December, 3.0% in November, but after falling 0.3% October….the price index for crude energy goods rose 0.5% as raw natural gas prices fell 13.1% while crude oil prices rose 11.6%, while the index for unprocessed foodstuffs and feedstuffs fell 0.8%, as prices for slaughter cattle fell 4.5% and prices for raw milk fell 6.3%…at the same time, the index for core raw materials other than food and energy materials rose 3.8%, as prices for iron and steel scrap rose 12.9% and prices for copper base scrap rose 3.8%…this raw materials index is now up by just 2.5% from a year ago, in contrast to the year over year increase of 10.6% that we saw in November…

lastly, the price index for services for intermediate demand rose 0.1% in January after being unchanged in December, rising 0.5% in November, 0.3% in October, and 0.2% in September…the index for trade services for intermediate demand was down 0.3%, as margins for chemicals and allied products wholesalers fell 2.3% while margins for intermediate wholesalers of paper and plastics products rose 2.4%…the index for transportation and warehousing services for intermediate demand rose, as the intermediate index for long-distance truck transportation of freight rose 1.4%…at the same time, the core price index for services less trade, transportation, and warehousing for intermediate demand was 0.1% higher, as the index for securities brokerage, dealing, investment advice rose 1.6% while the index for internet advertising sold by non-print publishers fell 6.3%….over the 12 months ended in December, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is still 2.9% higher than it was a year ago…

December Business Sales Up 0.6%, Business Inventories Up 0.4%

after the release of the January retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for December (pdf), which incorporates the revised December retail data from that December report and the earlier published December 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 $1,431.3 billion in December, up 0.6 percent (±0.3%) from November’s revised sales, and up 6.7  percent (±0.4%) from December sales of a year earlier…note that total November sales were concurrently revised up from the originally reported $1,420.1 billion to $1,422.763 billion, now up 1.4% from October….manufacturer’s sales rose 0.6% to $495,401 million in December; retail trade sales, which exclude restaurant & bar sales from the revised December retail sales reported earlier, fell 0.1% to $435,673 million, and wholesale sales rose 1.2% to $500,220 million…

meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,902.2 billion at the end of December, up 0.4 percent (±0.1%) from November, and 3.2 percent (±0.3 percent) higher than in December a year earlier…at the same time, the value of end of November inventories was revised from the $1,895.4 reported last month to $1,895.1 billion….seasonally adjusted inventories of manufacturers were estimated to be valued at $669,232 million, up 0.5% from November, while inventories of retailers were valued at $620,850 million, 0.2% more than in November, and inventories of wholesalers were estimated to be valued at $612,122 million at the end of December, 0.4% higher than in November…

January Housing Starts and Building Permits Both Reported Higher

the January report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in January was at a seasonally adjusted annual rate of 1,326,000, which was 9.7 percent (±16.8 percent)* above the revised estimated December annual rate of 1,209,000, and was 7.3 percent (±15.0 percent)* above last January’s rate of 1,236,000 housing starts annually…however, the asterisks indicate 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, January housing starts could have been down by 7.1% or up by as much as 26.5% from those of December, with revisions of a greater magnitude in either direction possible…in this report, the annual rate for December housing starts was revised from the 1,192,000 reported last month to 1,209,000, while November starts, which were first reported at a 1,297,000 annual rate, were unrevised from last month’s initial revised figure of 1,299,000 annually….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 90,100 housing units were started in January, up from the 81,300 units that were started in December, but down from the 97,900 units that were started in November…

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 January, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,396,000, which was 7.4 percent (±1.2 percent) above the revised December rate of 1,300,000 permits, and also 7.4 percent (±1.9 percent) above the 1,300,000 a year rate of building permit issuance in January a year earlier…the annual rate for housing permits issued in December was revised down from the originally reported 1,302,000….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 98,100 housing units were issued in January, up from the revised estimate of 93,100 new permits issued in December…. for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.326 Million Annual Rate in January and Comments on January Housing Starts

 

(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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graphs and tables for February 17th

rig count summary:

February 16th 2018 rig count summary

daily heating requirements:

February 16 2018 heating demand for week ending February 9th

historical heating requirements:

February 16 2018 seasonal heating demand as of February 9th

natural gas supplies:

February 16 2018 gas in storage as of February 9th

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tables and graphs for February 17th

retail sales:

February 2017 retail sales table

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oil and natural gas prices crash 10%, US oil production at an all time high, drilling rigs jump to 34 month high

both oil and natural gas prices crashed 10% this week, as a stock market crash spread to bonds, industrial commodities, cryptocurrencies, and to other major global markets (although one might easily see what happened as a US Treasury bond market crash that spread to stocks and beyond)…technically a “correction”, US stock markets have been falling in volatile trading since hitting an all time high on January 26th, with the widely followed Dow Jones Industrial Average dropping more than 2,400 points to end the week at 24,190.90, including a 1,175 point drop on Monday of this week that was the largest point drop in its history, albeit far from the greatest drop percentage-wise…while the connection between dropping stock prices and prices for commodities such as oil and gas is tenuous at best, what underlies it that the fear that a weakening economy that is presumably indicated by falling stocks will ultimately bring on a recession and thereby reduce demand for energy…however, it could also be argued that US stocks had become excessively overvalued anyway (up 45% since Trump was elected), and this recent crash is just bringing their valuations more in line with what they’re actually worth..

since it’s difficult, if not impossible, to ascertain any specific reasons for this week’s drop in energy prices in the midst of the wave of near panic selling that hit the global financial markets, we’ll start by just including the most recent graphs of their price trajectories, and then review some of the fundamentals that may have contributed to the price moves…(NB: longer term price graphs for both oil & natural gas were included in this letter and posted online here two weeks ago, when they were both at interim record highs)…we’ll start with oil…

February 10 2018 oil prices

the above graph is a Saturday afternoon screenshot of the live interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets…each bar on the graph represents oil prices for one day of oil trading between September 1st and February 9th, with green bars representing days when the price of oil went up, and red bars representing 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 for red or down weeks, the starting price is at the top of the bar and the price at the close is at the bottom of the bar…also faintly visible on this “candlestick” style graph are the feint grey “wicks” above and below each bar, to indicate trading prices during each day that were above or below the opening to closing price range for that day…

above we can see that after closing at a 37 month high of $66.14 a barrel two weeks ago, the five week rally in oil prices sputtered last week, closing down about 1% at $65.45 a barrel, before this week’s selling kicked in, with the global equity market selloff largely seen as responsible for the subsequent drop in oil prices…further contributing to the oil price drop after Wednesday was the weekly EIA report, which indicated that both U.S. crude and fuel inventories rose during the prior week, while oil production from domestic wells showed an inordinately large jump to a record high (as we’ll see, that production jump was largely a data adjustment, but oil traders did not know that)…oil prices were actually attempting to stage a rally on Friday, with crude prices 50 cents higher in the morning, but they then fell $2.70 a barrel in the afternoon to $58.07 after Baker Hughes reported a big jump in new drilling, before recovering to close the week at $59.20 a barrel…for the week, oil prices fell $6.25 a barrel, their largest weekly drop in over a year, after falling 35 cents on the prior Friday for a 6 day loss of just over 10% (btw, the above graph shows a small price increase on Tuesday due to an after hours rally precipitated by an American Petroleum Institute report of a crude oil draw; since that off-hours report was reversed by the EIA data released the next day, that brief Tuesday evening rally did not show up in the NYMEX oil price record, which now indicates oil prices have been down for six days straight…

next, we have a graph of natural gas prices, as quoted daily:

February 10 2018 natural gas prices

like the oil price graph we posted earlier, the above graph is a Saturday screenshot of the live interactive natural gas price graph at Daily FX, wherein each bar on the graph represents natural gas prices for one day of trading between September 1st and February 9th, with green bars representing days when the price of natural gas went up, and red bars representing the days when the price of natural gas went down…as you can see, natural gas prices continued the crash from their year high levels that began last week, when quotes for natural gas dropped more than 80 cents as the front month contract rolled over from February to March…the first big drop this past week, of 9.9 cents on Monday, seems to have been exacerbated by forecasts of milder weather further out, while the drop of 11.3 cents on Friday followed a modest withdrawal of gas from storage and a sense among traders that the worst of winter was behind them…natural gas prices thus ended the week down 26.2 cents at a 16 month low of $2.58 per mmBTU, after the February contract had been quoted at a 13 month high of $3.66 per mmBTU just nine trading sessions earlier…natural gas prices at these levels now should slow down any preparations that might be being made for spring drilling, at least for the time being…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending February 2nd, indicated a big jump to new record in oil production from US wells and a big increase in operations at US refineries, while at the same time a decrease in oil imports was mostly offset by a drop in exports, leaving crude left over for storage for the second week in a row…our imports of crude oil fell by an average of 538,000 barrels per day to an average of 7,892,000 barrels per day during the week, while our exports of crude oil fell by an average of 478,000 barrels per day to an average of 1,287,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,605,000 barrels of per day during the week, 60,000 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 332,000 barrels per day to a weekly record high of 10,251,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,856,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,797,000 barrels of crude per day, 784,000 barrels per day more than they used during the prior week, while at the same time 337,000 barrels of oil per day were being added to 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 and from oilfield production was 278,000 barrels per day less than what refineries reported they used during the week plus what was added to storage…to account for that disparity, the EIA needed to insert a (+278,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”…(how this weekly data is gathered, and the reason for that “unaccounted” oil, is explained here)

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 8,078,000 barrels per day, 4.5% less than the 8,463,000 barrels per day average we imported over the same four-week period last year….the 337,000 barrel per day increase in our total crude inventories came about on a 271,000 barrel per day addition to our commercial stocks of crude oil and a 66,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency, since the Reserve is not authorized to buy oil at this time….this week’s 332,000 barrel per day increase in our crude oil production included a 315,000 barrel per day increase in output from wells in the lower 48 states, and a 17,000 barrels per day increase in output from Alaska…the 10,251,000 barrels of crude per day that were produced by US wells during the week ending February 2nd was the highest week on records going back to 1983, 14.2% more than the 8,978,000 barrels per day we were producing on February 3rd of last year, and 21.6% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016…

meanwhile, US oil refineries were operating at 92.5% of their capacity in using 16,797,000 barrels of crude per day, up from just 88.1% of capacity the prior week, but still down from the wintertime record 96.7% of capacity just five weeks earlier…the 16,797,000 barrels of oil that were refined this week were 4.6% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 5.7% more than the 15,893,000 barrels of crude per day that were being processed during the week ending February 3rd, 2017, when refineries were operating at 87.7% of capacity….

with the big increase in the amount of oil being refined, gasoline production by our refineries was also much higher, increasing by 518,000 barrels per day to 10,085,000 barrels per day during the week ending February 2nd, after increasing by 209,000 barrels per day the prior week....as a result, our gasoline production was 2.9% higher than the 9,804,000 barrels of gasoline that were being produced daily during the week ending February 3rd of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) jumped by 516,000 barrels per day to 5,129,000 barrels per day, after falling by 979,000 barrels per day over the prior four weeks…after that big increase, the week’s distillates production was 6.8% higher than the 4,802,000 barrels of distillates per day than were being produced during the the fifth week of 2017….  

with the big increase in our gasoline production, our gasoline inventories at the end of the week rose by 3,414,000 barrels to 245,474,000 barrels by February 2nd, their twelfth increase in 13 weeks…that was as our domestic consumption of gasoline rose by 66,000 barrels per day to 9,110,000 barrels per day, and as our imports of gasoline rose by 137,000 barrels per day to 746,000 barrels per day, while our exports of gasoline rose by 214,000 barrels per day to 829,000 barrels per day….but even after twelve increases in thirteen weeks, our gasoline inventories are still 4.2% lower than last February 3rd’s level of 256,217,000 barrels, even as they are roughly 4.7% above the 10 year average of gasoline supplies for this time of the year…     

similarly, with the week’s jump in distillates production, our supplies of distillate fuels rose by 3,926,000 barrels to 141,826,000 barrels over the week ending February 2nd, the sixth increase in distillates supplies in the past eight weeks…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 692,000 barrels per day to 3,778,000 barrels per day, even as our imports of distillates fell by 271,000 barrels per day to 313,000 barrels per day, and as our exports of distillates rose by 99,000 barrels per day to 1,103,000 barrels per day…but even after this week’s inventory increase, our distillate supplies were still 16.9% lower at the end of the week than the 170,746,000 barrels that we had stored on February 3rd, 2017, and roughly 1.4% lower than the 10 year average of distillates stocks at this time of the year

finally, even with the big increase in the amount of oil used by our refineries, the jump in our weekly crude oil production meant that our commercial supplies of crude oil rose for the second time in 12 weeks and for the 12th time in the past 47 weeks, increasing by 1,895,000 barrels, from 418,359,000 barrels on January 26th to 420,254,000 barrels on February 2nd ….but even with back to back increases, our oil inventories as of that date were still 17.4% below the 508,592,000 barrels of oil we had stored on February 3rd of 2017, and 10.7% lower than the 470,676,000 barrels of oil that we had in storage on February 5th of 2016, even they were still 9.5% greater than the 383,800,000 barrels of oil we had in storage on February 6th of 2015, at a time when US supplies of oil had just begun to increase… 

A Note on US Oil Production Figures

before we move on, we should explain that big increase in our oil production, which quite obviously put our oil output at a new record high…as we’ve pointed out on several occasions, this weekly oil data from the EIA that we cover is preliminary, and it will typically be more than 2 months before the final confirmed figures, published monthly, are released…despite the likelihood of some inaccuracy in this this weekly data, we follow it because it’s what the oil traders follow, and hence it moves oil prices and ultimately decisions on the part of exploitation companies to start drilling for oil…

so, last week the confirmed monthly oil production data for November was released, and it showed that US crude oil production had increased to 10.038 million barrels per day in November, a big jump from the confirmed 9,654,000 barrels per day of oil production they reported for October…the graph below shows that increase, and the US oil production record over the entire period that monthly records of US oil production have been kept:

February 1 2108 oil production monthly

the above graph comes from the February 1st post on the EIA’s blog “Today in Energy” and it obviously shows US crude production over the period from January of 1920 to November of 2017….the big increase in our November output meant we had topped 10 million barrels per day for just the third time in our history, coming in just a fraction below the 10.044 million barrels per day record production of November 1970…

now, here’s the issue; each week of the past several we’ve stated that our oil production was at a new high, right up until last week when we said “the 9,919,000 barrels of crude per day that were produced by US wells during the week ending January 26th was the highest week on records going back to 1983″….and that has been accurate; up until this week, the preliminary weekly data had never showed our production higher…so along came the monthly report last week, which showed that the previously published weekly oil production data for November, which we have been quoting, was seriously off the mark…so this week, when the EIA came to estimating the new oil production data for the week ending February 2nd, they incorporated what they learned from the monthly report for November…the result of that is illustrated quite well in the following graph showing both monthly and weekly oil production:

February 9  2018 oil production as of February 2

the above graph, from the weekly OilPrice Intelligence Report, shows the history of confirmed monthly oil data from January 2015 to November 2017 in blue, and then the weekly estimates up until the current week in yellow after that period…we can see that up until the November report was released, the yellow line had been nearly contiguous with the blue one, or at least not different enough by a magnitude that would matter…however, after the publication of the monthly report for November, it became clear that the weekly estimates in yellow have been too low…hence, this week the EIA rebenchmarked their weekly production data to the newly released November data to estimate that for the week ending February 2nd, our crude oil production rose to a new record high of 10,251,000 barrels per day, suddenly 332,000 barrels per day more than they reported the prior week….so our production did not really “jump” by that much; rather it was just recomputed to reflect the new, confirmed data…..for more on how this weekly data is gathered and estimated, here’s the fact sheet titled “Estimated domestic crude oil production in EIA’s Weekly Petroleum Status Report (WPSR)” (pdf)

This Week’s Rig Count

US drilling activity increased for just the twelfth time in the past 28 weeks during the week ending February 9th, but this week’s increase was the most in over a year and brought the total rig deployment to the highest level since April 10th, 2015….Baker Hughes reported that the total count of active rotary rigs running in the US was up by 29 rigs to 975 rigs in the week ending on Friday, which was also 234 more rigs than the 741 rigs that were deployed as of the February 10th report of 2017, while it was still down by nearly half 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 26 rigs to 791 rigs this week, which was also 200 more oil rigs than were running a year ago, while the week’s oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations rose by 3 rigs to 184 rigs this week, which was only 35 more gas rigs than the 149 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 activity from platforms in the Gulf of Mexico was unchanged at 16 rigs this week, which was down from the 20 rigs deployed in the Gulf of Mexico a year ago and the total of 21 rigs offshore nationally a year ago….the week’s count of active horizontal drilling rigs was up by 24 rigs to 832 horizontal rigs this week, which was also up by 225 rigs from the 607 horizontal rigs that were in use in the US on February 10th 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 was up by 4 rigs to 70 vertical rigs this week, which was 2 more than the 68 vertical rigs that were in use during the same week of last year….in addition, the directional rig count was up by 1 rig to 73 directional rigs this week, which was also up from the 66 directional rigs that were deployed on February 10th of 2017…

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of February 9th, the second column shows the change in the number of working rigs between last week’s count (February 2nd) and this week’s (February 9th) count, the third column shows last week’s February 2nd 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 10th of February, 2017…             

February 9 2019 rig count summary

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December’s trade deficit, wholesales sales and inventories, and job openings

the key economic release of the past week was the December report on our International Trade from the Census Bureau…the Census also released the Wholesale Trade, Sales and Inventories report for December on Friday this week, while the Bureau of Labor Statistics released the Job Openings and Labor Turnover Survey (JOLTS) for December…in addition, the Fed released the Consumer Credit Report for December, which showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $18.4 billion, or at a 5.8% annual rate, as non-revolving credit expanded at a 5.7% rate to $2,813.1 billion and revolving credit outstanding rose at a 6.0% rate to $1,027.9 billion…this week’s major private report was the Mortgage Monitor for December (pdf) from Black Knight Financial Services, which indicated that 4.71% of US mortgages were delinquent in December, up from 4.55% in November and up from 4.42% in December a year ago, and that 0.65% of all mortgages were in the foreclosure process at the end of the month, down from 0.66% of mortgages in November and down from the 0.95% of mortgages that were in foreclosure in December a year ago…

December Trade Deficit Up 5.3% on Higher Imports of Cellphones, Drugs and Cars

our trade deficit was 5.3% higher in December as the value of both our exports and our imports increased, but our imports increased by more….the Census report on our international trade in goods and services for December indicated that our seasonally adjusted goods and services trade deficit rose by $2.7 billion to $53.1 billion in December from a revised November deficit of $50.4 billion…the value of our December exports rose by $3.5 billion to $203.4 billion on a $3.4 billion increase to $137.5 billion in our exports of goods and a $0.1 billion increase to $65.9 billion in our exports of services, while the value of our imports rose $6.2 billion to $256.5 billion on a $6.0 billion increase to $210.8 billion in our imports of goods, and a $0.3 billion increase to $45.7 billion in our imports of services…the November trade deficit was revised from the originally reported $50.5 billion to $50.4 billion, while trade figures for every prior month of 2017 were also revised, meaning that previously published quarter over quarter figures for GDP will have to be revised as well…export prices were on average 0.1% lower in December, so our real December exports would be more  than the nominal value by that percentage, while import prices were 0.1% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage….

the $3.4 billion increase in our November exports of goods came by way of greater exports of industrial supplies and materials, capital goods, and foods, feeds and beverages…referencing the Full Release and Tables for December (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $1,545 million to $42,812 million on a $214 million increase in our exports of organic chemicals and greater exports of energy goods including fuel oil, coal and natural gas liquids, while our exports of capital goods rose by $1,164 million to $47,443 million on a $784 million increase in our exports of civilian aircraft and a $676 million increase in our exports of industrial machines other than those itemized separately….in addition, our exports of foods, feeds and beverages rose by $448 million to $10,847 million on smaller increases in a large number of items, and our exports of other goods not categorized by end use rose by $517 million to $5,749 million….slightly offsetting the increases in those export categories, our exports of consumer goods fell by $208 million to $16,738 million on a $299 million decrease in our exports of art, antiques and other collectibles, and our exports of automotive vehicles, parts, and engines fell by $75 million to $13,416 million…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows our imports of all major end use categories increased in December, led by greater imports of consumer goods and passenger cars…our imports of consumer goods rose by $3,212 million to $55,495 million on a $1,717 million increase in our imports of cellphones and a $1,820 million increase in our imports of pharmaceutical preparations, while our imports of automotive vehicles, parts and engines rose by $1,055 million to $30,916 million on a $1,149 million increase in our imports of new and used passenger cars…in addition, our imports of industrial supplies and materials rose by $567 million to $45,308 million as our imports of organic chemicals rose by $567 million and our imports of natural gas rose by $226 million, our imports of capital goods rose by $837 million to $57,247 million on a $359 million increase in our imports of civilian aircraft and a $383 million increase in our exports of industrial machines other than those itemized separately, and our imports of foods, feeds, and beverages rose by $249 million to $11,892 million…only slightly offsetting those import increases, our imports of other goods not categorized by end use fell by $65 million to $8405 million….

the press release gives us details on our balance of trade with selected countries: The December figures show surpluses, in billions of dollars, with South and Central America ($3.7), Hong Kong ($2.5), Brazil ($1.1), Singapore ($0.9), and United Kingdom ($0.3). Deficits were recorded, in billions of dollars, with China ($34.0), European Union ($17.2), Mexico ($6.1), Germany ($5.7), Japan ($5.5), Italy ($3.7), South Korea ($2.1), India ($2.1), France ($2.1), Taiwan ($1.6), Canada ($1.4), Saudi Arabia ($0.6), and OPEC ($0.5).

  • The deficit with the European Union increased $3.8 billion to $17.2 billion in December.  Exports increased $1.2 billion to $25.1 billion and imports increased $4.9 billion to $42.3 billion.
  • The deficit with China increased $0.6 billion to $34.0 billion in December. Exports increased $1.1 billion to $11.9 billion and imports increased $1.7 billion to $45.9 billion.

in the advance report on 4th quarter GDP of two weeks ago, our December trade deficit was estimated based on the sketchy Advance Report on our International Trade in Goods which was released just before the GDP release…that report estimated that our seasonally adjusted December goods trade deficit was at $71.6 million on a Census basis, on goods exports of $137.64 billion and goods imports of $209.22 billion…this report revises that and shows that our actual Census basis goods trade deficit in December was at $72.26 billion on adjusted goods imports of $209.26 billion and adjusted goods exports of $137.0 billion…at the same time, the November goods trade deficit was revised down from that advance report by nearly $0.2 billion to $69.8 billion, and the October goods trade deficit was revised down by about $0.05 billion to $68.2 billion…those revisions from the previously published figures would suggest that the 4th quarter trade deficit in goods was roughly $0.51 billion more than was accounted for in last week’s GDP report, or roughly $2.1 billion on an annualized basis, which would subtract about 0.04 percentage points from 4th quarter GDP when the 2nd estimate is released at the end of this month….

however, trade in goods for July, August, September and October, which all go into figuring the change in 4th quarter GDP, were also revised with this report as well, and since our GDP growth is a measure of the change from one quarter to the next, we’d have to adjust for changes in those months as well to get an accurate 4th quarter read…since that data was not revised or included in the advance report on trade in goods, to assess the changes to those months we need to compare the previously published trade details in the pdf for November’s trade report to the revised numbers in the pdf for December’s trade report….without going into too much detail or adjusting for fractional inflation factors, the total trade deficit for July was revised from $45,162 million to $45,102 million, the net trade deficit for August was revised from $44,306 million to $44,245 million, and the net trade deficit for September was revised from $44,890 million to $44,830 million…that means the trade deficit in the 3rd quarter was roughly $1.8 billion less than the figure used by the 4th GDP report, or short at a annual rate of roughly $5.4 billion, and hence the change in the trade deficit from the 3rd quarter to the 4th quarter was that much greater…those 3rd quarter revisions would thus subtract another 0.11 percentage points from the growth of 4th quarter GDP, but the relevant changes to the 3rd quarter data, which also affect 4th quarter growth, will not be applied until the annual revision to GDP is released this summer….

December Wholesale Sales Up 1.2%, Wholesale Inventories Up 0.4%

the December report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $500.2 billion, up by 1.2 percent (±0.7 percent) from the revised November level of $494.2 billion, and 9.1 percent (±1.1 percent) above the value of wholesale sales of a year earlier…the November preliminary sales estimate was revised up by $1.8 billion from $492.4 billion, which now means November sales were 1.9 percent (±0.7 percent) more than those of October, rather than 1.5% as reported last month….wholesale sales of durable goods were up 1.0 percent (+/-0.7%) from last month and were up 10.0% from a year earlier, while wholesale sales of nondurable goods were up by 1.5 percent (+/-0.8%) from November, and were up 8.3 percent from last December, with wholesale sales of petroleum and petroleum products up 23.2%, likely on higher prices…as an intermediate activity, wholesale sales are not included in GDP except as a trade service, since they do not represent an increase in the output of the goods sold….

on the other hand, the monthly change in private wholesale inventories is a major factor in GDP, as additional goods in a warehouse or “on the shelf” represent more goods that had been produced, and the Census estimated they were valued at $612.1 billion at the end of December, 0.4 percent (±0.4 percent)* higher than the revised November level and 3.4 percent (±0.7 percent) above the valuation of last December’s inventories…November’s preliminary inventory estimate was revised from last month’s estimate of $617.7 billion to $609.7 billion, and hence the November change in wholesale inventories was an increase of 0.4%, rather than 0.8% as reported last month…..wholesale durable goods inventories were up 0.4 percent (+/-0.4%) from November and were 4.7% higher than a year earlier, while inventories of nondurable goods were valued 0.4 percent (+/-0.7%) higher than in November and were valued 1.4% higher than last November…

in the advance report on 4th quarter GDP of two weeks ago, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released just before the GDP release…that report estimated that our seasonally adjusted wholesale inventories were valued at $611.45 billion at the end of December, $0.67 billion less than the $612.12 billion that this report shows…that would imply that the quarterly change in 4th quarter inventories was underestimated at a $2.7 billion annual rate, which would mean that the growth rate of 4th quarter GDP was underestimated by about 0.06 percentage points based on what this report shows…

Job Openings and Layoffs Down, Quitting Up, & Hiring Little Changed In December

the Job Openings and Labor Turnover Survey (JOLTS) report for December from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 167,000, from 5,987,000 in November to 5,811,000 in December, after November job openings were revised 108,000 higher, from 5,879,000 to 5,987,000…December’s jobs openings were still 4.9% higher than the 5,539,000 job openings reported in December a year ago, as the job opening ratio expressed as a percentage of the employed at 3.8% was down from the 3.9% logged in November, while it was up from 3.7% in December a year ago…the professional and business services sector, with a 119,000 job opening decrease to 956,000, saw the largest decrease, while the health care and social assistance sector saw job openings increase by 54,000 to 1,062,000 (see table 1 for more details)…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 to 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 December, seasonally adjusted new hires totaled 5,488,000, down by 5,000 from the revised 5,493,000 who were hired or rehired in November, as the hiring rate as a percentage of all employed remained unchanged at 3.7% in December, but was up from 3.6% in December a year earlier (details of hiring by sector since March are in table 2)….meanwhile, total separations rose by 26,000, from 5,212,000 in November to 5,238,000 in December, as the separations rate as a percentage of the employed rose from 3.5% to 3.6%, which also up from 3.5% in December a year ago (see table 3)…subtracting the 5,238,000 total separations from the total hires of 5,488,000 would imply an increase of 250,000 jobs in December, somewhat more than the revised payroll job increase of 160,000 for December reported in the January 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 3,259,000 of us voluntarily quit our jobs in December, up from the revised 3,161,000 who quit their jobs in November, 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 2.1% a year earlier (see details in table 4)….in addition to those who quit, another 1,645,000 were either laid off, fired or otherwise discharged in December, down by 80,000 from the revised 1,725,000 who were discharged in November, as the discharges rate fell from 1.2% to 1.1% of all those who were employed during the month, which was the same as the discharges rate of 1.1% a year earlier….meanwhile, other separations, which includes retirements and deaths, were at 334,000 in November, up from 326,000 in November, for an ‘other separations rate’ of 0.2%, the same as in November but down from 0.3% in December 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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graphs and tables for February 10

rig count summary:

February 9 2019 rig count summary

monthly and weekly oil production:

February 9  2018 oil production as of February 2

oil prices:

February 10 2018 oil prices

natural gas prices:

February 10 2018 natural gas prices

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