finding the missing US oil production while waiting for the OPEC meeting

the regularly scheduled biennial meeting of OPEC will take place at their headquarters in Vienna on Wednesday of this week, and the swirl of rumors and speculation as to what might come out of it has been the major factor in oil price swings this week, while dominating the rest of the week’s oil related news…you might recall that at the end of September, OPEC members met in Algiers and agreed to cut their oil production back to 32.5 million barrels a day, without making any commitments on how those cuts would be achieved, leaving those important details to be worked out at this November 30th meeting…while that apparent agreement voiced after the September meeting was enough to cause an immediate $3 a barrel spike in the price of oil, within a few days it became obvious that both Iran and Iraq had not agreed to the figures OPEC had published for their production, and hence were not on board with the cuts…in the weeks since, the oil markets have remained on edge about the possible outcome of this coming meeting, jumping or diving on the slightest mention pro or con from major oil ministers involved in the negotiations…at the same time, most of the OPEC countries attempted to pump as much oil as they could, hoping to improve their negotiating position at this week’s meeting, and as a result OPEC’s production of oil rose from the already elevated level of 33.2 million barrels a day at the time of the September meeting to a record high 33.643 million barrels a day in October….so you can all get an idea how the major players in this stack up, we’ll include a small bar graph of their October production, which is taken from a Friday Bloomberg article about the failure of a planned meeting between OPEC and non-OPEC oil producers

November 26 2016 oil producers

this graphic shows the major OPEC oil producers in blue and non-OPEC producers who have indicated a willingness to negotiate with OPEC on production limits in red; other large producers of oil, such as China, Canada, Norway, Kazakhstan and the US are obviously not included…in round numbers, OPEC countries have to find 1.15 million barrels a day in production cuts to meet their stated target of 32.5 million barrels a day…the Saudis have said they’d be willing to cut back a half million barrels, which doesn’t even get them half way to what they need…but Iran says its current production is at 3.8 million barrels a day, higher than the 3.65 million barrels a day OPEC estimates it produces, and they want to pump 4.2 million barrels a day before they’d even be willing to freeze output…likewise, Iraq disputes OPEC figures that peg the nation’s output at less than 4.2 million barrels per day; they say they’re pumping 4.7 million barrels a day and that they should be exempt from production cuts anyway, because they’ve been at war with ISIS and other Islamic militants…meanwhile, the Russians are already planning a 300,000 barrel per day output increase for 2017, and while they have said they’d be willing to give that up and freeze at today’s levels, they will not cut from where they are today…so we can already see that given the intransigence of these major producers, achieving anything like a 1.15 million barrel per day cuts seems nearly impossible…and we haven’t even counted Nigeria and Libya, who are exempt from the cuts because civil strife has severely restrained output in both countries…both of those counties could easily add a million barrels per day of oil output each by next year, should their production be allowed to return to normal…still, if OPEC should announce an agreement to cut to 32.5 million barrels a day and the market believes them, it could boost oil prices into the $50 to $60 a barrel range, which is the figure at which most US drillers say they would put all their stacked rigs back into the field…

so, despite what appears to be the unlikely possibility that a meaningful freeze or cut could be negotiated, news of this week’s coming meeting continued to move oil prices last week….after closing last week with a 5.3% increase at $45.69 a barrel, the expiring contract price for December US crude rose $1.80, or 3.9%, to finish Monday at $47.49 a barrel, after Putin was quoted saying “We will do everything that our partners from OPEC are expecting” in affirming Russia’s willingness to freeze production…at the same time the contract for January WTI crude, which became the new front-month contract on Monday, rose $1.88, or 4.1%, to end at $48.24 a barrel… with January contract prices now being quoted, oil prices faltered on Tuesday and slipped to $48.03 a barrel, as word was that Iraq and Iran still remained hesitant about an output cut…against the backdrop of the simultaneous release of the weekly EIA data and the Baker Hughes rig count, oil prices fell again on Wednesday, as doubts persisted that OPEC could agree to a production cut large enough to make a significant dent in the global glut of crude, recovering  by the end of the day to end & closing down 7 cents at $47.96 a barrel…then on Friday, after OPEC made it known that they would also ask non-OPEC oil producers to make big cuts in output, the Saudis suddenly pulled out of planned Monday talks with non-OPEC nations including Russia, saying they want an OPEC deal in place before they would send anyone to the non-OPEC talksagainst that backdrop, oil prices fell nearly $2 a barrel that afternoon to close the week at $46.06 a barrel, thereby erasing all but 37 cents of Monday’s increases…

The Latest Oil Stats from the EIA

Wednesday’s release of oil data for the week ending November 18th by the US Energy Information Administration indicated the third consecutive large increase in our oil refining and a concurrent large drop in our imports of oil, which thus resulted in a draw-down of our supplies of crude oil and a corresponding increase in our supplies of the products made from it…for the same report, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance increased to +419,000 barrels per day, from last week’s +256,000 barrels per day, which means that 419,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or several of this week’s metrics were off by that amount…that’s now the 5th large positive adjustment in a row, and as a result the cumulative daily average of that adjustment has risen to +116,000 barrels per day, meaning the EIA’s figures remain out of balance for the whole year…but since these figures still continue to drive oil prices and hence oil field activity, we’ll continue to track them as long as the market participants continue to follow them…

so, for the week ending November 18th, the EIA reported that our imports of crude oil fell by an average of 845,000 barrels per day to an average of 7,578,000 barrels per day, the 5th week in a row wherein our oil imports changed by more than 10% as last week our imports rose by 981,000 barrels per day, the prior week they fell by 1,553,000 barrels per day, and the week before that they rose by 1,979,000, as tankers that had been held offshore by hurricane Matthew made it into port…while i’ve seen no reason for the ongoing extreme volatility in weekly imports, those swings meant that the 4 week average of our oil imports reported by the EIA’s weekly Petroleum Status Report (62 pp pdf) actually rose this week to an average of 8.1 million barrels per day, 13.3% higher than the same four-week period last year…meanwhile, our exports of crude oil fell by an average of 12,000 barrels  per day to an average of 469,000 barrels per day for the week, in data that is not directly comparable to last year’s exports of 445,000 barrels per day during the equivalent week

at the same time, the EIA reported that production of crude oil from US wells rose by 9,000 barrels per day to an average of 8,690,000 barrels per day during the week ending November 18th, the sixth increase in 7 weeks, as output from Alaskan fields fell by 3,000 barrels per day for the second week in row, while production from well in the lower 48 states was 12,000 barrels per day higher….that still left the week’s domestic oil production 5.2% lower than the 9,165,000 barrels of crude we produced during the week ending November 20th of last year, and 9.6% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015…our oil production for the week ending November 18th was also 529,000 barrels per day, or 5.8% lower than what we were producing at the beginning of this year, which we’re citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015…since we’re talking about OPEC oil production this week, and since it’s been two years since OPEC tried to overwhelm US production with their won, we’ll also include a graph of the recent track of US oil production…

November 23 2016 oil production

the above graph comes from the online version of the OilPrice Intelligence Report, which was prepared Friday of this week with the headline “Saudis Withdraw From Non-OPEC Meeting, But Odds For Deal Are Still Good“…this graph shows the EIA’s Monthly U.S. Field Production of Crude Oil from January 2014 up until August 2015 in blue, and the EIA’s Weekly U.S. Field Production of Crude Oil in yellow, with both expressed in thousands of barrels of oil per day…notice that the monthly data is actual confirmed production, unlike the weekly estimates that the markets follow and we quote weekly, which are based on a small sampling of refineries…that confirmed data indicates that production of crude oil from US wells was at 8,744,000 barrels per day during August, the highest level in three months…in contrast to that, we reported oil production of 8,445,000 barrels per day for the week ending August 5th, 8,597,000 barrels per day for the week ending August 12th, 8,548,000 barrels per day for the week ending August 19th, 8,488,000 barrels per day for the week ending August 26th, and 8,458,000 barrels per day for the week ending September 2nd, which means we reported an August mean production of 8,511,000 barrels per day, or 233,000 barrels per day short of what was actually being produced…so right here we have a prime example of the kind of errors that are in the weekly data, which the balance sheet “fudge factor” covers for…the monthly data shows that US oil production fell no more than 10% from the peak, and as of August was only down around 7% from the average production of the summer of 2015…thus these two years of oil prices generally half of what they were in mid-2014′ barely dented US oil output, and makes a joke of the early forecasts that our output would fall to 5 million barrels per day…

returning to this week’s estimates, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 271,000 barrels per day to an average of 16,397,000 barrels of crude per day during the week ending November 18th, as our refinery utilization rate rose to 90.8% during the week from last week’s 89.2%, but was still lower than the refinery utilization rate of 92.0% of the week ending November 20th last year…US oil refining has thus increased by 949,000 barrels per day in the past three weeks, and is now only down 3.1% from the pre Labor Day high of 16,930,000 barrels per day, at which time refinery utilization rate had peaked at 93.7%…the rate of crude oil refined this week nationally is now up 0.1% from the 16,380,000 barrels of crude per day US refineries used during the week ending November 20th last year, and up 2.8% from the 15,957,000 barrels per day that were being refined during the equivalent week in 2014… 

however, even with the increase in the amount of crude oil being refined, refineries’ production of gasoline apparently fell by 452,000 barrels per day to 9,700,000 barrels per day during the week ending November 18th, the 2nd large weekly drop in gasoline production, after a apparent record high prior week…you might recall that when that apparent production record was set two weeks ago, we pointed out that it was mostly due to a swing of 554,000 barrels per day in the fudge factor for gasoline, which is shown in Table 2 on page 7 of the U.S. Petroleum Balance Sheet, which the footnote tells us is an “adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components”…that fudge factor swung by 692,000 barrels per day this week, from +353,000 barrels per day to -339,000 barrels per day, rendering the week over week gasoline production comparison useless…the year over year comparison shows that gasoline production was still up 1.6% from the 9,544,000 barrels per day of gasoline produced a year ago, a more likely increase than the 8% & 12% jumps in gasoline output being reported two weeks ago…also reasonable is the EIA report that refinery output of distillate fuels (diesel fuel and heat oil) rose by 96,000 barrels per day to 5,080,000 barrels per day during the week ending November 18th….that puts the week’s distillates output 1.1% higher than the 5,023,000 barrels per day that was being produced during the same week last year, and 3.7% higher than the 4,900,000 barrels per day of distillates we produced during the equivalent week of 2014…     

the large drop in gasoline production figures are further called into question by the EIA report that our gasoline supplies rose by 2,317,000 barrels to 224,026,000 barrels as of November 18th, as our domestic consumption of gasoline fell by 335,000 barrels per day to 9,024,000 barrels per day and as our gasoline imports rose by 34,000 barrels per day to 855,000 barrels per day…as a result, our gasoline inventories as of November 18th were 3.4% higher than the 216,732,000 barrels of gasoline that we had stored on November 20th of last year, and 8.5% higher than the 206,424,000 barrels of gasoline we had stored on November 21st of 2014….at the same time, our distillate fuel inventories rose by 327,000 barrels to 149,239,000 barrels by November 18th, only the 2nd increase in our distillate supplies in 9 weeks….and despite the withdrawal of nearly 15.8 million barrels of distillates from storage over the past 9 weeks, our distillate inventories were still 5.6% higher than the distillate inventories of 141,364,000 barrels of November 20th last year, and 31.9% above the distillate inventories of 113,146,000 barrels of November 21st, 2014…

finally, with that big drop in our oil imports, our inventories of crude oil fell by 1,255,000 barrels to 489,029,000 barrels by November 18th, the first drop in our oil supplies in four weeks….however, with 2 hurricanes interfering with oil imports over the last 12 weeks, our oil stockpiles are now more than 6.2 million barrels below the 495,238,000 barrels we had stored at the end of August, thus slipping at a time of year when oil supplies are usually rising, and are now thus 4.5% below their April 29th peak of 512,095,000 barrels…however, we still ended the week with 7.2% more crude oil in storage than the 456,035,000 barrels we had stored as of the same weekend a year earlier, and 39.4% more crude oil than the 350,704,000 barrels we had stored on November 21st of 2014… 

This Week’s Rig Count

because of the holiday, the weekly Baker Hughes rig count report was released on Wednesday, November 23rd, and thus covers changes in drilling activity for just the five days from November 18th to the 23rd…nonetheless, they reported that drilling rig activity increased for the 9th time out of the last 10 weeks, as the active rig count rose by 5 rigs, from 588 rigs on November 23rd to 593 rigs on November 23rd…that was still down from the 744 rigs that were deployed as of the November 25th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

rigs deployed drilling for oil rose by 3 rigs to 474 rigs during the abbreviated week, which was still the most oil rigs we’ve had working since January 29th, as oil drilling activity has only been down once in the past 22 weeks…but oil drilling was still down from the 555 oil directed rigs that were working on November 25th a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 2 rigs to 118 rigs, which still left active gas rigs down from the 189 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008…one rig that was classified as miscellaneous also remained active, an increase from a year ago, when no such miscellaneous rigs were working…

offshore drilling activity remained unchanged at 23 rigs, all of which were in the Gulf of Mexico, down from 30 in the Gulf and in total last year at this time…the number of working horizontal drilling rigs increased by 5 rigs to 475 rigs this week, which was still down from the 569 horizontal rigs that were in use on November 25th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the count of both vertical rigs and directional rigs were unchanged from last week, with 66 vertical rigs in use, down from last year’s 109 rigs, and 52 directional rigs deployed, down from the 66 directional rigs that were working on November 25th 2015…

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 from Baker Hughes which shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of November 23rd, the second column shows the change in the number of working rigs between last week (November 18th) and this week (November 23rd), the third column shows last week’s November 18th active rig count, the 4th column shows the change in the number of rigs running this Wednesday from the equivalent Wednesday 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  case was for November 25th of 2015…   

November 23 2016 rig count summary

what’s obviously most notable in this week’s tables is that the increase in drilling was driven by a 4 rig increase in Pennsylvania’s Marcellus, and that while there was a 3 rig increase in Texas, it was not in the Permian, which is where more than half of the new rigs added since May have been concentrated…since gas directed rigs were only up by 2, that 4 rig increase in the Marcellus means gas drlling rigs were reduced elsewhere, and where that is is not shown in our major basins above, as Baker Hughes has the 2 gas rig reduction listed under “other”…the 3 rig drop in Wyoming drilling is similarly not in any major basin, since the only major basin that extends into Wyoming is the Denver-Julesburg Niobrara, which showed a 2 rig increase…and we should note that of the states not shown above, Mississippi saw a doubling of its active rigs count from 2 rigs to 4, which is still down from the 7 rigs that were drilling in Mississippi through November of last year..

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