oil rallies on murder of British MP, gasoline consumption at a record high, rig count up again

after falling from 2016 highs above $51 on Thursday and Friday of last week, US oil prices continued to drift lower each day early this week, dropping to close at $48.88 a barrel on Monday, $48.49 a barrel on Tuesday, and then $48.01 on Wednesday…however, there weren’t any changes in oil fundamentals from the prior weeks that drove the change from rising to falling prices, rather, the most common reason given for the downturn was market fears that Britain would leave the European Union, possibly precipitating a global recession…(on June 23rd, British citizens are due to vote on whether to leave the EU or not; up until last week, polls had indicated they would stay; this week, the “leave” voters swung to a 10 point majority)…on Thursday, heightened fears of the repercussions of an EU breakup hit markets worldwide, with a flight to US assets driving the dollar up and oil down, as oil fell another 4% to close at $46.21 a barrel…however, on Thursday afternoon, pro-European British lawmaker Jo Cox was shot and stabbed by a crazed man yelling “Britain first”, which had the perverse effect of turning global markets around, as traders believed her murder would lessen the popularity of the separatist movement (a writer at the Wall Street Journal even penned an op-ed defending the stock market’s celebration of Ms Cox’s death)…with the British campaigning on the EU referendum thus suspended, global markets and oil rallied on Friday as fears of a British exit subsided, and oil regained most of the previous day’s losses, to close the week at $47.98 a barrel..

The Latest Oil Stats from the EIA

this week’s oil data from the US Energy Information Administration indicated a modest drop in our oil output, a relatively small drop in our oil imports, a corresponding drop in the amount of the oil that we refined, and a relatively small drawdown from our stored oil inventories…however, the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was + 335,000 barrels per day, which means that 335,000 more barrels per day showed up in our final consumption and inventory figures than were accounted for by our production or import figures, meaning one or several of this week’s metrics were incorrect by that amount, likely due to errors in reporting or gathering that data…

so, given the data that was reported this week, it appears that our field production of crude oil fell by 29,000 barrels per day, from an average of 8,745,000 barrels per day during the week ending June 3rd to an average of 8,716,000 barrels per day during the week ending June 10th…that followed the 10,000 barrel per day increase of last week, which had been only the second increase in 20 weeks, and which now looks more like an outlier than the beginning of a trend….this week’s oil output was 9.1% lower than the 9,589,000 barrels per day we were producing during the week ending June 12 last year, and down by 9.3% from our record 9,610,000 barrel per day oil production that we saw during the week ending June 5th of 2015…

at the same time, our imports of crude oil fell by 83,000 barrels per day to average 7,622,000 barrels per day during the week ending June 10th, down from the average of  7,705,000 barrels per day we were importing during the week ending June 3rd….that was 7.9% more than the 7,067,000 barrels of oil per day we imported during the week ending June 12th a year ago, but since oil imports are typically volatile week to week, the EIA’s weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average…that showed that the 4 week average of our imports was still above the 7.6 million barrel per day level, and 9.8% higher than the same four-week period last year… 

meanwhile, U.S. refineries used an average of 16,317,000 barrels of oil per day barrels during the week ending June 10th, 100,000 barrels per day less than the 6,417,000 barrels per day they used during the week ending June 3rd…while that was a bit less than the 16,282,000 barrels of per day that refineries processed during the week ending June 12th last year, that year ago week was an outlier in a month that averaged almost 16.5 million barrels of oil per day of oil refinery inputs….the US refinery utilization rate fell to 90.2% of operable capacity last week, down from a 90.8% capacity utilization rate during the week ending June 3rd, which is very low for this time of year; even with the slow week of June 12th a year earlier, the refinery utilization rate was still at 93.1% at that time…

with less oil being refined, the output of gasoline from refineries fell by 415,000 barrels per day, as gasoline output averaged 9,707,000 barrels per day during the week ending June 3rd, the lowest gasoline production since April 22nd and down from the average of 10,122,000 barrels per day of gasoline produced during the week ending June 3rd…still, that was 0.6% more than the 9,651,000 barrels of gasoline per day we were producing during the same week last year, which was the slowest week of June….however, our refinery output of distillate fuels (diesel fuel and heat oil) increased at the same time, rising by 146,000 barrels per day to 4,984,000 barrels per day during the week ending June 10th…however, that was still half a percent below our distillates production of 5,011,000 barrels per day during the week ending June 12th of last year, as 2015 distillates inventories were somewhat tighter, encouraging more production…      

with the large decrease in gasoline production, our end of the week gasoline inventories fell by 2,625,000 barrels to 237,004,000 barrels on June 10th, following the increase of 1,010,000 barrels during the week ending June 3rd….the drop in supplies was exacerbated by a 68,000 barrel per day drop in our gasoline imports to 747,000 barrels per day and a record amount of gasoline supplied to US markets, which rose by 196,000 barrels per day to 9,762,000 barrels per day, 6.4% higher than the 9,176,000 barrel per day consumption during the week ending June 12th last year, and matching the previous record set during the week ending August 17, 2007…we’ve thus come full circle on this proxy for gasoline consumption, despite the better fuel economy of newer cars…our gasoline consumption averaged over 9.6 million barrels per day during the summer of 2007, and fell to average below 9.0 million barrels per day during the summers of 2012 and 2013…however, at the rate we’re going so far, it looks like that we’ll set a new record for gas guzzling this year…

still, even with that big increase in consumption, our gasoline supplies remained 8.8% higher than the 217,814,000 barrels of gasoline that we had stored on May 29th last year, and 10.6% higher than the 214,267,000 barrels of gasoline we had stored on June 13th of 2014…thus our gasoline supplies are still categorized as “well above the upper limit of the average range” for this time of year.. 

at the same time as gasoline supplies were falling, however, our distillate fuel supplies were rising for the 2nd week in a row, increasing by 786,000 barrels to end the week at 152,163,000 barrels, as the seasonal agricultural related consumption of diesel fuel has slowed…with distillate inventories already above normal after our warm winter reduced heat oil consumption, our distillate inventories were thus 13.9% higher than the 133,591,000 barrels of distillates we had stored on June 12th last year, and 27.5% higher than our distillates supplies as of June 6th 2014…thus they’re also characterized as “well above the upper limit of the average range” for this time of year…   

finally, since the drop in crude imports and crude production was matched by a decrease in refining, we only needed to draw 933,000 barrels of oil from our stocks of crude oil in storage, at a time of year when are stored supplies are usually being used up twice as fast….thus our oil inventory level of 531,543,000 barrels on June 10th was 13.6% higher than the 467,927,000 barrels of oil we had stored as of June 12th, 2015, and 37.6% higher than the 386,348,000 barrels of oil we had stored on June 13th of 2014…hence, since our oil inventories continue to build higher than the seasonal records we set every week in 2015, it goes without saying that our crude oil supplies are also  “well above the upper limit of the average range” for this time of year…” 

This Week’s Rig Counts

drilling activity increased for the third week in a row during the week ending June 17th, after the industry had gone the prior 41 weeks without seeing a net increase in total active rigs…..Baker Hughes reported that the total count of active rotary rigs running in the US increased by 10 rigs to 424 rigs as of June 17th, which was still down by more than half from the 857 rigs that were deployed as of the June 19th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014…the count of rigs drilling for oil rose by 9 rigs to 337, which was still down from the 631 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 working oil rigs that was reported on October 10, 2014, while the count of drilling rigs targeting natural gas formations rose by a single rig to 86 this week, which was down from the 223 natural gas rigs that were drilling a year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas that was set on August 29th, 2008…there was also still one rig running this week that was classified as miscellaneous, unchanged from last week but down from the 3 miscellaneous that were operating a year ago….

one of the rigs added this week was drilling from a platform in the Gulf of Mexico, which brought the Gulf rig count back up to 21, which was still down from the 27 rigs working in the Gulf on last June 19th… that also brought the total offshore count up to 22 rigs, as we still have an offshore platform drilling off the Cook Inlet in Alaska, whereas a year ago all offshore drilling was in the Gulf…horizontal drilling increased for the third week in a row, after going since November 2015 without an increase, as the count of working horizontal rigs rose by 3 rigs to 326 rigs, which still was down from the 662 horizontal rigs that were in use on June 18th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….at the same time, 7 more vertical rigs were also added, bringing the vertical rig count up to 53, which was down from the 101 vertical rigs that were in use at the end of the same week a year earlier…meanwhile, the directional rig count was unchanged at 45 rigs, which was down from the 95 directional rigs that were in use during a year earlier.

for the details on which states and which shale basins saw changes in drilling activity this past week, we will again include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes…the first table below shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas basins…in both tables, the first column shows the active rig count for each state or basin as of June 17th, the second column shows the change in the number of working rigs from the prior week, the third column shows last weeks rig count, the 4th column shows the change in the number of rigs running from  the same week a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was June 19th of 2015:  

June 17 2016 rig count summary

it’s pretty obvious from the above that most of the increased drilling activity was in the various basins of Texas, with the Barnett shale in the Dallas-Ft Worth area seeing it’s activity rise from 2 rigs to 7, and with the Eagle Ford of south Texas and the Permian basin of west Texas both seeing an increase of 4 rigs…and while the Cana Woodford of Oklahoma saw an increase of three rigs, the state total was unchanged, so rigs elsewhere in the state must have been pulled down….this week also saw changes in activity in a few states not listed above…first, Illinois saw it’s rig count double, from 1 rig to 2, which is also up from the single rig they had active a year ago…then both Kentucky and Mississippi saw their rig counts drop from 3 rigs to 1….for Kentucky, that’s still new activity, as a year ago, they had no drilling…for Mississippi, that puts them right back to where they were a year ago, although the state had seen drilling activity levels as high as 7 rigs in November and December of last year…

we’ll also include a copy of a graph from Steven Kopits of Princeton Energy Advisors which was published Friday at Calculated Risk…this graph shows the recent horizontal oil rig count by basin since November of 2014, the month the oil price crash began after OPEC flooded the global markets, with the weekly number of active oil rigs in each basin color coded in a stacked graph as indicated in the key…;set on top of that is a graph of the price of oil over this same period, showing how the falling price of oil has preceded the drop in drilling activity three months later…we’ve covered all these changes at they happened, most weeks explaining the rig count changes in detail, but had never seen a graph that laid out that history in one place like this graph does…it’s pretty clear from this picture that over this year and a half period, the largest percentage decreases in drilling occurred in the Williston basin (Bakken) of North Dakota and the Eagle Ford of south Texas, while basins like the Cana Woodford of Oklahoma have been relatively unchanged…even the Permian, which has seen the largest total rig count drop, still has a relatively large number of rigs still working…

June 17 2016 horizontal rig count by basin

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