gasoline, distillates & other inventories continue to pile up; demand for them may not be as advertised…

both oil and natural gas prices were only modestly changed from last week, although oil did see a 5% spike on Tuesday that was reversed by a 5% drop on Wednesday…after closing Monday at a two month low of $44.74 a barrel, down from last week’s closing price of $45.41 on continued concern about the refined products glut, US oil prices rose by more than $2 a barrel to close at $46.80 a barrel on Tuesday, largely due to technical factors, wherein traders who had earlier sold oil they didn’t own had to buy oil during a global market rally to cover their contract obligations…however, oil prices fell right back to where they started the week on Wednesday, after EIA data showed a big buildup of gasoline, distillates, and other oil products, as well as an increase in crude oil production…after Wednesday’s close at $44.75 a barrel, oil prices rebounded on to close at $45.68 a barrel on Thursday amid a stock market rally and falling dollar, which made globally traded commodities more expensive in dollars….prices then continued to rise early on Friday after bullish economic releases and later on news of a coup attempt in Turkey and a new pipeline attack in Nigeria, and ended the week at $45.95 a barrel, up a bit more than one percent on the week…

in contrast to the daily gyrations in oil that ended the week with just a small change, natural gas prices moved little each day this week after a 10 cent drop from last week to close at $2.702 per million British Thermal Units (mmBTU) on Monday…with no particular news moving prices, natural gas rose to $2.733 per mmBTU on Tuesday and then to $2.737 per mm-BTU on Wednesday, before falling back to $2.727 per mmBTU on Thursday, after the EIA’s Weekly Natural Gas Storage Report indicated that natural-gas inventories grew by 64 billion cubic feet last week in contrast to the 56 bcf growth expected by forecasters… that left working gas in underground storage in the US as of July 8th at 3,243 billion cubic feet, 18.5% more than the same week a year ago, and 22.1% more than our 5 year average of natural gas stores at this time of year…gas prices then rose by 2.9 cents to close the week at $2.756 per mmBTU as traders finally paid a bit of attention to the weather forecast…now, while this week’s changes in the price of natural gas aren’t exactly newsworthy, what is notable is that despite forecasts for a record setting heatwave over most of the country over the coming two weeks, natural gas prices have been unable to rally out of their trading range…that leads us to believe that natural gas prices have probably seen their high for the year, because if expected air conditioning demand during a record July heatwave can’t move prices, it’s hard to see that much else can…thus, in the face of the slightest bearish news on natural gas, we can probably expect to see another drop in prices, which should hold new drilling, which has already been at record lows, to a minimum…..

The Latest Oil Stats from the EIA

this week’s release of oil data for the week ending July 8th by the US Energy Information Administration indicated a modest increase in our national output of crude oil, a significant drop in our oil imports, and sizable increases in our supplies of refined products, despite an unseasonable cutback in refining….meanwhile, this week’s crude oil fudge factor included to make the weekly U.S. Petroleum Balance Sheet (line 13) balance was +452,000 barrels per day, which meant that 452,000 more barrels per day showed up in our final consumption and inventory figures this week than were accounted for by our production or import figures, meaning one or several of this week’s metrics were incorrect by that amount, errors which are typically due to miscues in reporting or gathering that data…that makes for the 3rd week in a row when we’ve seen a large positive adjustment, which have served to bring this year’s cumulative daily average of that weekly statistical adjustment factor down 0 barrels per day, which amazingly means that despite these large weekly errors, figures for the year to date have completely balanced out…

as we expected, last week’s large drop in our field production of crude oil was partially reversed when oil production from Alaska, which had inexplicably fallen by 156,000 barrels per day last week, rose by 71,000 barrels per day this week, and thus was responsible for a 57,000 barrel per day increase to an average of 8,622,000 barrels per day of crude oil from US wells during the week ending July 8th….that increase – just the 3rd in the last 23 weeks – still left the week’s oil production 11.3% lower than the 9,562,000 barrels we produced during the week ending July 10th of 2015, and 11.7% lower than the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year…our oil production for the week ending July 8th was thus 734,000 barrels per day lower than we what were producing at the beginning of this year… 

at the same time, the EIA reported that our imports of crude oil fell by 522,000 barrels per day to an average of 7,841,000 barrels per day during the week ending July 8th, which was still 487,000 barrels per day, or 6.6% more than the 7,354,000 barrels of oil per day we were importing during the week ending July 10th a year ago…at the same time, the 4 week average of our imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) actually increased to an 8.1 million barrel per day level, which was 11.2% higher than the same four-week period last year…  

meanwhile, crude oil usage by US refineries fell by 143,000 barrels per day, to average of 16,544,000 barrels of crude per day in this week’s report…that was as the US refinery utilization rate fell for the 2nd week in a row to 92.3% for the week ending July 8th, down from 92.5% of capacity the prior week and from 93.0% of capacity 2 weeks ago, and in contrast with the refinery utilization rate of 95.3% during the week ending July 10th last year…this was to be expected, considering the product supply glut development we saw last week, wherein cargoes were left stuck sitting in New York harbor for lack of storage space; refining fell by 88,000 barrels per day on the east coast, and by 90,000 barrels per day in the Midwest, while it rose by a seasonal 60,000 barrels per day in the West, where the supply of products is closer to normal…crude oil refined this week was thus 1.7% lower than the 116,825,000 barrels per day US refineries used during the week ending July 10th last year, and also 1.0% lower than the equivalent week in 2014…

even with the pullback in refining, however, US refineries production of gasoline rose by 210,000 barrels per day to 10,218,000 barrels per day during week ending July 8th…that came even as east coast refineries were cutting back their gasoline production by 230,000 barrels per day, although that comes with the caveat that the regional gasoline production stats shown in this week’s Petroleum Status Report are out of balance by 432,000 barrels per day…that increase meant that this week’s gasoline production was 5.8% greater than the 9,658,000 barrels per day of gasoline produced during the equivalent week a year ago, despite the refinery slowdown….and also despite the refinery slowdown, their output of distillate fuels (diesel fuel and heat oil) also rose during this week, climbing by 82,000 barrels per day to 5,034,000 barrels per day during the week ending July 8th…however, that was still 1.2% below our distillates production of 5,093,000 barrels per day during the week ending June 10th of last year……         

with the large increase in gasoline production, our end of the week gasoline inventories rose by 1,213,000 barrels to 240,089,000 barrels as of July 8th, just a few thousand barrels from what we had stored on May 20th, before the driving season officially began on Memorial day…contributing to this week’s increase in gasoline supplies was a 55,000 barrel per day increase to 820,000 barrels per day in our gasoline imports and a drop of 84,000 barrels per day in the amount of gasoline supplied to US markets, which fell to 9,671,000 barrels per day…as a result of that addition to supplies, this week’s gasoline inventories were 10.1% higher than the 218,010,000 barrels of gasoline that we had stored on July 10th last year, and 11.9% higher than the 214,492,000 barrels of gasoline we had stored on July 11th of 2014, meaning our gasoline supplies are still categorized by the EIA as “well above the upper limit of the average range” for this time of year..  

one caveat to that figure for gasoline supplied to US markets, which is widely considered a proxy for gasoline consumption…we quote the weekly figures for that metric, largely because we write weekly, and the weekly figures are what the news media and the markets respond to…but as we’ve tried to point out, the weekly figures are just ballpark estimates, and as we’ve seen from the weekly “adjustment” metrics, which we’ve been calling the EIA’s “fudge factor”, those weekly estimates seldom come close to balancing between oil input and product output, sometimes by a large amount…however, once the discrepancies in the data are ironed out,the EIA also publishes monthly data, which come out two months or more later than the current week…a little over a week ago, Bloomberg’s energy analyst Julian Lee checked the difference between the weekly and the monthly figures, and found that our apparent booming demand for gasoline and oil products, which we reported were at record levels three weeks ago, is largely an illusion; that once the accurate monthly data comes in, this year’s demand for gasoline has yet to top last years…the same goes for all the other refined products across the products spectrum, which you can see in this chart below, which comes from the aforementioned Bloomberg article

July 2 weekly vs monthly oil demand

this graph shows the monthly difference between the oil products demand statistics published weekly, shown in navy blue, and the oil products demand statistics published monthly, shown in teal blue, since the beginning of 2014…this total products graph includes not only gasoline, but also distillates, kerosene type jet fuels, residual oils, propane/propylene and other products, although gasoline does account for roughly half the total…you can see that over the past two years, the weekly estimates of demand for product have generally been excessive, and that since April of 2015, the weekly estimates of ‘product supplied’ have consistently been higher than what the final monthly readings have shown to be the case…and although the recent weekly data has shown that our consumption of oil products was at record levels in June, it has not yet been confirmed by the more accurate monthly data, which as of April appeared to be heading in the opposite direction, implying a revision of a whopping 800,000 barrels a day...

returning to this week’s data, our distillate fuel inventories rose by 4,058,000 barrels to end the week at 152,997,000 barrels, as distillates were added to storage in every region of the country, bumping our distillate inventories up to the highest since the week ending May 6th…as our distillate inventories had already been so much above normal level after the warm winter reduced US heat oil consumption, our distillate inventories as of July 8th were thus 8.3% higher than the 141,280,000 barrels of distillates we had stored at the same weekend last year, and 23.1% higher than our distillates supplies as of July 11th 2014, and therefore they’re also characterized as “well above the upper limit of the average range” for this time of year…   

finally, even with the drop in refining, the larger drop in our imports meant that we needed to withdraw 2,546,000 more barrels of oil from our stocks of crude in storage to meet the week’s need, as thus our crude oil inventories fell by that amount to 521,804,000 barrels as of July 8th…but since national oil inventories even fell by more in the equivalent year ago week, this week’s stores were still 13.1% higher than the 461,417,000 barrels of oil we had stored as of July 10th, 2015, and 39.1% higher than the 375,040,000 barrels of oil we had stored on July 11th of 2014….with our oil inventories thus continuing to be that much higher than the seasonal records we set most every week in 2015, it’s obvious 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

even with the nominally lower prices for oil and gas, US drilling activity increased for the 6th week out of the past 7 weeks during the week ending July 15th, as contracting and hiring for this week’s new drilling was probably already underway weeks ago, when prices were higher…..Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 447 rigs as of July 15th, which was still down from the 857 rigs that were deployed as of the July 17th report last year, and down from the recent high of 1929 rigs that were in use the week before the OPEC meeting of Thanksgiving 2014…the number of rigs drilling for oil this week rose by 6 rigs to 357, which was still down from the 638 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014, while the count of drilling rigs targeting natural gas formations rose by a single rig to 89 this week, which was down from the 218 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 on August 29th, 2008…there was also still one rig running this week that was classified as miscellaneous, unchanged from last week and unchanged from the same week a year ago….  

of the drilling rigs that were added this week, three were offshore on drilling platforms in the Gulf of Mexico, which brought the Gulf of Mexico active rig count back up to 21 rigs, which was still down from 31 Gulf of Mexico rigs a year ago…that also increased the total offshore rig count to 22, as there still is an offshore platform working off the Cook Inlet in Alaska….at the same time, there was a rig removed that had been drilling through an inland lake in southern Louisiana, which cut the inland waters rig count down to 3, which was still up from the 2 rigs that were deployed drilling on inland waters at the end of the same week last year…  

the number of working horizontal drilling rigs also increased for the 6th time in 7 weeks, but only by one this week, as the count of active horizontal rigs increased to 344 rigs, which still was down from the 650 horizontal rigs that were in use on July 17th 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 directional rigs were added, bringing the directional rig count up to 43, which was still down from the 84 directional rigs that were in use at the end of the same week a year earlier…meanwhile, the vertical rig count fell by a single rig to 60 rigs this week, which was also down from the 123 vertical rigs that were drilling in the US during the same week last year…     

for the details on which states and which shale basins saw changes in drilling activity this past week, we’ll 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 as of July 15th, the second column shows the change in the number of working rigs over the last week, the third column shows the July 8th rig count, the 4th column shows the change in the number of rigs running from the equivalent week in July 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 July 17th of 2015: 

July 15 2016 rig count summary

from these tables we can see that New Mexico and Louisiana by themselves accounted for the entirely of this week’s drilling increase, with other states adding or idling one rig a piece as noted…also note that the net of 1 additional horizontal rig this week came by way of shutting down at least 6 such rigs, including 4 that had been drilling into the Barnett shale of the Dallas-Ft Worth area, and adding at least 7 horizontal drillers elsewhere…among states not shown above, Idaho saw the addition of 1 rig this week, their first since December, as a year ago they had no rigs running…Illinois also saw their rig count increase by 1 to 3 rigs; that was up from the 2 rigs they were running in the same week last year, and Mississippi also saw the addition of 1 rig, giving them 2, which was down from the 4 rigs deployed in Mississippi on July 17th of 2015…meanwhile, Nebraska had its only active rig shut down this week, a year ago they were running two in the state….in addition, the rig that started drilling in Hawaii on April 29th wrapped up whatever it was doing there and was pulled out this week; a year ago, there were no rigs in Hawaii…

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