oil production up by the most since last May, total supplies of oil & oil products at another record high..

oil prices rose with little interruption this week, largely on the ongoing talk about a possible Russian – OPEC agreement to freeze their oil output, although a falling US dollar (which makes internationally traded goods more expensive here) and a large drawdown of crude oil and gasoline inventories didn’t help…the best way to see what happened price-wise is to start with a graph, because that picture of spiking prices goes a long way towards showing us all we really need to know…

August 20th 2016 oil prices

the graph above, which should be familiar to you by now, shows the daily prices per barrel over the past 3 months for the September contract of the US benchmark oil, West Texas Intermediate (WTI) as traded at the Cushing Oklahoma depot…Friday’s $48.52 a barrel closing price for that oil contract is now up 22.8% from the $39.51 a barrel interim low price seen at the close on Tuesday, August 2nd, while it’s still 2.3% below the $49.88 a barrel price seen for the August contract on July 1st…note that the light red and green bars across the bottom of the graph show the trading volume for that contract each day, wherein green bars indicate days when the price rose, and red bars indicate days when the price fell…but while we’ve seen the oil price rise 7 days in a row, a fairly impressive rally, note that the height of the bars indicate below average levels of trading for every day this week except Thursday…that’s a fair indication that it’s not big players like major refiners buying oil who are driving this price rise, but rather a collection of smaller oil traders we might think of as bored Pokemon-Go players, who are buying oil contracts in the absence of sellers because that’s what they do…also note that September trading for Brent oil, the international benchmark, has already expired, and the international contract for October delivery is now trading $50.88 a barrel, as it’s been holding a few dollars above the US price for several months now…

The Latest Oil Stats from the EIA

this week’s oil data for the week ending August 12th from the US Energy Information Administration indicated a surprising jump in our production of crude oil, a return to near recent normal levels of oil imports after 3 weeks near 4 year highs, an large increase in oil refining to seasonal levels, and thus a decrease in crude oil inventories, as well as another drop in gasoline inventories… however, the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was + 394,000 barrels per day, which means that 394,000 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, errors which are typically due to miscues in reporting or gathering that data…that’s now the 8th week in a row that we’ve seen a large positive adjustment, and as a result this year’s cumulative daily average of that weekly statistical adjustment is now up to a positive 80,000 barrels per day, which means a lot of oil or refined products have been turning up in the data, the sources for which haven’t been accounted for…of course, this indicates that this weekly crude oil data is unreliable and will need to be revised later, but it’s the weekly data that the markets react to, hence influencing the price of oil and hence ultimately decisions to drill or frack..

at any rate, according to the EIA. domestic production of crude oil from US wells rose by 152,000 barrels per day to an average of 8,597,000 barrels per day during the week ending August 12th, which was our largest one-week jump in oil output since the week ending May 22nd of 2015…moreover, only 52,000 barrels per day of that increase came from Alaska, as the lower 48 saw a 100,000 barrel per day increase to 8,120,000 per day…that increase strongly suggests that a number of those DUC oil wells (drilled but uncompleted) that we looked at 2 weeks ago were likely completed, fracking that may have been set in motion by oil prices near $50 a the end of June….hence our oil production this week was only 8.0% below the 9,348,000 barrels we produced during the week ending August 14th of 2015, and 10.5% lower than the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year…

the EIA also reported that our imports of crude oil fell by an average of 211,000 barrels per day to an average of 8,193,000 barrels per day during the week ending August 12th, the least oil we’ve imported since the week ending July 15th….nonetheless, this week’s imports were still more than 1.9% more than the 8,138,000 barrels of oil per day we imported during the week ending August 14th a year ago, while the 4 week average of our imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) stayed at the 8.4 million barrel per day level, 11.5% above the same four-week period last year…    

meanwhile, the amount of crude oil used by US refineries rose by 268,000 barrels per day to an average of 16,865,000 barrels of crude per day during the week ending August 12th…that was as the US refinery utilization rate rose to 93.5% during the week, up from 92.2% of capacity during the week ending August 5th but still below the refinery utilization rate of 95.1% logged during the week ending  August 14th 2015…crude oil refining on the product glut bound east coast was down by 1000 barrels per day as their utilization rate oddly rose to 84.2%, but their throughput was still 12.8% below a year ago, when east coast refineries were being operated at 93.5% of capacity…nationally, crude oil refined this week was a half percent more than the 16,775,000 barrels of oil per day US refineries processed during the week ending August 14th last year, and was 2.7% more than the equivalent week in 2014…  

with the increase in refining, our refineries’ production of gasoline rose by 182,000 barrels per day to an average of 10,280,000 barrels per day during the week ending August 12th, just 9,000 barrels per day short of the gasoline output record we set during the week ending June 17th…still, that was only 0.3% higher than our gasoline output of 10,248,000 barrels per day during the week ending August 14th last year, which was the high for 2015 gasoline production…at the same time, refinery output of distillate fuels (diesel fuel and heat oil) also jumped, rising by 200,000 barrels per day to 4,939,000 barrels per day during the week ending August 12th….that brought our distillates output to within 2.6% of the 5,072,000 barrels per day that was being produced during the same week last year…

even with the near record output of gasoline, however, our gasoline inventories fell again, dropping by 2,724,000 barrels to 232,659,000 barrels as of August 12th, which was again well above the normal summertime drawdown…contributing to this week’s gasoline shortfall was a 320,000 barrel per day drop in our gasoline imports to 610,000 barrels per day, while the amount of gasoline supplied to US markets slipped by an inconsequential 7,000 barrels per day to 9,762,000 barrels per day…nonetheless, this week’s gasoline inventories were still 9.3% higher than the 212,774,000 barrels of gasoline that we had stored on August 14th last year, and also 9.1% higher than the 213,274,000 barrels of gasoline we had stored on August 15th of 2014, so our gasoline supplies still remain categorized by the EIA as “well above the upper limit of the average range” for this time of year..         

even as our gasoline inventories dropped, our distillate fuel inventories rose by 1,939,000 barrels to 153,155,000 barrels by August 12th, as our demand for distillates fell 8.9% to 3,488,000 barrels per day during the week…that increase in supplies brought our distillate inventories to a level 3.2% above the distillate inventories of 148,400,000 barrels of the 14th of August last year, and 26.0% above the distillate inventories of 121,542,000 barrels of August 15th, 2014, which the EIA characterized as “near the upper limit of the average range for this time of year”… 

  with our crude oil imports lower and our refinery consumption of crude higher, we needed to draw oil out of storage to meet that need, and hence our stocks of crude oil in storage fell by 2,508,000 barrels to 521,093,000  barrels….nonetheless, we still ended the week with 14.2% more oil in storage than the 456,213,000 barrels we had stored as of the same weekend a year earlier, and 43.7% more oil than we had stored on August 15th of 2014….since our oil supplies first topped 500 million barrels early this year, and first topped 400 million barrels in January of 2015, it’s pretty obvious that our current crude oil supplies of 521.1 million barrels also remain “well above the upper limit of the average range” for this time of year…”     

now, as we mentioned in opening, that 2.5 million barrel drop in crude supplies and the 2.7 million barrel drop in gasoline supplies were widely seen as contributing to this week’s oil price rally…oil prices jumped about 50 cents a barrel right after the Wednesday EIA release, then spiked another $1 a barrel on Thursday morning after the inventory data was digested…oil traders apparently see those drops in supply as evidence that the oil glut which drove prices down is being alleviated…however, the day traders in oil apparently can’t see past the oil and gasoline numbers, because they ignored the 1.9 million barrel increase in distillates supply, the 1.8 million barrel increase in propane/propylene inventories, the 552,000 barrel increase in residual fuels supply, and a 2.2 million barrel increase in “other oils”, which includes unfinished oils, road oil, and natural gas plant liquids…add them all together, it meant that total commercial petroleum inventories were still up 1.3 million barrels for the week, which is a record high, as you can clearly see on the graph below… 

August 18 2016 Total Commercial Oil and Petroleum Inventories for August 12

the above graph, from the EIA, is a static version of the interactive graph that accompanies the EIA’s Weekly U.S. Ending Stocks of Crude Oil and Petroleum Products page…this graph takes crude oil, natural gas liquids, and all the products produced from them and adds them together, for a weekly total of all commercial supplies, amounts for which are all listed separately and in total on the EIA’s Total Stocks of Crude Oil and Petroleum Products page…for the week ending August 12th, this total rose to 1,393,563,000 barrels, a new record high that was 1,320,000 barrels more than the previous week…in fact, so far in just this year alone we have set and eclipsed 22 new record highs of this total supply metric, almost a continuous weekly increase except for during May, when the total dropped by less than a million barrels each week…but we’ve now set new records for total supplies 7 weeks in a row, adding a total of 21.7 million barrels of oil and oil products to what we already have stored over that 7 week stretch….

This Week’s Rig Count

drilling activity rose again during the week ending August 19th, for the 11th time in the last 12 weeks, following a prior string of 39 weeks wherein the rig count had not risen at all…Baker Hughes reported that the total count of active rotary rigs running in the US rose by 10 rigs to 491 rigs as of Friday, which was still down from the 885 rigs that were deployed as of the August 21st report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014…the number of rigs drilling for oil this week rose by 10 rigs to 406, which was still down from the 674 oil directed rigs that were in use the same week last year, 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 was unchanged at 83 rigs, which was down from the 211 natural gas rigs that were drilling on August 21st year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas on August 29th, 2008…there were also two rigs drilling this week that were classified as miscellaneous, unchanged from last week but up from the same week a year ago, when there were no miscellaneous rigs drilling ….  

included in this week’s totals was the startup of new drilling from a platform offshore from Louisiana in the Gulf of Mexico, which brought the Gulf of Mexico active rig count back up to 18 rigs, which was still down from 31 Gulf of Mexico rigs a year ago…since the Gulf rigs are the only offshore rigs going right now, 18 is also the count for the US total offshore, which is down from 32 offshore drillers at this time last year…

meanwhile, the number of working horizontal drilling rigs increased for the 10th time in the past dozen weeks, rising by 7 rigs to 382, which still was down from the 677 horizontal rigs that were in use on August 21st of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count increased by 2 rigs to 64 rigs, which was still down from the 130 vertical rigs that were drilling in the US during the same week last year, while the directional rig count was up by 1 rig to 41 rigs, which was down from the 78 directional rigs that were in use during the same week last year… 

details on this week’s changes in drilling activity by state and shale basin are included in our screenshot below 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 for the major producing states, 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 August 19th, the second column shows the change in the number of working rigs between August 12th and August 19th, the third column shows the August 12th rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday in August 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 week’s case was August 21st of 2015:   

August 19 2016 rig count summary

once again, the increase of 7 rigs in the Permian basin of west Texas underpinned this week’s rig count increase, but this week showed some other notable activity; an increase of 3 rigs in central Oklahoma’s Cana Woodford basin, and an increase of 3 rigs in the Marcellus, apparently by adding 2 rigs in Pennsylvania and 1 rig in West Virginia…since those Marcellus rigs were almost certainly natural gas directed, we have to guess that 3 conventional natural gas rigs were removed elsewhere, to account for the unchanged gas rig count…the drop of two rigs to 27 in the Williston basin, home of the Bakken shale, is also a surprise; that count from Baker Hughes has not been consistent with the daily rig count released by the North Dakota Department of Mineral Resources, which shows 32 rigs as of this weekend…

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