new OPEC report; US gasoline demand at a 35 mo low; largest rig increase in 45 months, DUCs increase

oil prices were little changed over the week, despite a sharp drop over the first 3 days and a subsequent recovery before the weekend….the February US oil contract, which closed last week at $52.37 a barrel, closed this week up a nickel at $52.42 a barrel, after trading as high as $52.90 on Friday, in a rally ahead of next week’s OPEC compliance meeting that was cut short by a rig count report that showed the biggest jump in drilling since April 2013…meanwhile, the current oil chart is showing oil prices for March delivery at $53.22 a barrel, an apparent drop from the expiring February contract price .. natural gas prices closed the week 21.5 cents lower than last Friday, falling 4 out of the 5 days this week, only rallying by 6.2 cents on Thursday after the natural gas storage report showed a 243 billion cubic feet drop in supplies, which left us with 12.9% less natural gas in storage than the same week last year, and 2.6% below the 5 year average..  there were two monthly reports released this week, the current oil market report from OPEC and the drilling productivity report from the EIA, that we’re going to want to take a look at today, and as usual, we’ll also look at the weekly EIA oil data & the Baker Hughes rig count…

we’ll start by looking at a few tables from the OPEC Monthly Oil Market Report for January, which not only covers global oil supply and demand data for December, but also includes a global macroeconomic analysis, commodity prices, oil refining, tanker trade and inventories…this first table is from page 55 of the OPEC pdf and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as the column headings are labeled…for all their official business, OPEC uses “secondary sources”, such as analyst’s reports from satellites and shipping data, as an impartial adjudicator for their for their quotas and production cuts, to resolve any potential disputes that might arise if each member reported their own figures…this is also the data you’ll usually see quoted in the media, except for independent analysis by energy research divisions of organizations such as Platts and Reuters that’ll have their own numbers..

January 18 2017 December OPEC production

here we see that the official data shows that OPEC production was down by 220,900 barrels per day in December, from a November oil production total that was revised 174,000 barrels per day higher from what was reported last month…(for your reference, here is the November table before revisions; one major difference to note is that Indonesia, who would not agree to production cuts, is no longer a member of OPEC and hence their totals are not included in the new table above)….we can see that three countries accounted for most of the December drop, according to these official totals; Saudi Arabia, whose output fell 149,300 barrels per day from November’s record high, Nigeria, who’s output fell by 113,500 barrels per day, presumably due to ongoing civil strife, and Venezuela, whose output fell 45,200 barrels per day as the country continues to unravel in the face of the economic war waged against it by the US and its allies.. 

the next table, also from page 55 of the OPEC pdf, shows the oil production that each of the members reported to OPEC (for those that did report)…this data is considered suspect because of the many incentives OPEC members have to fudge their data, and is rarely reported by the media, and we would also have ignored it as well if it weren’t for a few rather large discrepancies vis a vis the official data…first, Kuwait is reporting their output was 56,000 barrels per day lower, which we’d consider a normal claim in the face of expected cuts…but notice Nigeria; they reported their output rose 403,900 barrels per day, rather than falling by 113,500 barrels per day as the official secondary sources reported…i have no way of judging the accuracy of either, but a discrepancy of over half a million barrels per day is enough to swing the OPEC output reduction of  220,900 barrels per day into an increase of a similar magnitude… 

January 18 2017 December OPEC production.B

a major reason for the brief collapse in oil prices in the middle of this week was comments from Saudi Oil Minister of Energy Khalid Al-Falih that OPEC would likely be wrapping up their production cuts after June, which quite obviously suggested that we’d be back into a glut situation by this summer…while he later walked back that idea once he saw oil prices falling, that the Saudis would want to increase their oil production again so soon brought to mind what we pointed out when the cuts were first proposed; that is, that they had already ramped up their production so much this summer that the supposedly steep cuts in production would only take them back to their output levels of March and April of this past year...let’s look at a longer term chart of Saudi Arabian oil production and see if we can figure out what’s going on…

January 18 2017 Saudi oil production

the above graph, taken from a detailed post on this December OPEC data at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for Saudi Arabia over the period from January 2005 to December 2016…it’s well known that the Saudis typically ramp up their oil production in the summer months for their own use, as most of the Saudi cities are air conditioned, with two thirds of their electrical generation petroleum based…to help you see that, i have colored the oil output dot for each July on this chart red…you can thus see that for most years, oil production rose in the summer and then fell in the winter (with the obvious exception of the global financial crisis years of 2009 and 2010), with an especially strong pattern over the past 5 years…thus, by pushing for OPEC cuts during the winter, they get credit for cutting back at a time of year when they would have done so otherwise anyhow, and now they want to ramp back up to normal production again when the heat is on, all the while looking like they’re controlling the market..

we’ll include one more oil production chart, for the other elephant in the oil room, Russia…the following graph, also in thousands of barrels per day, is for Russian oil production over the period from January 2013 to December 2016, and it’s also from that post on December OPEC data at the Peak Oil Barrel blog, although this chart was included in the comment section by the post’s author, Ron Patterson…this graph also seems to be from secondary sources, since Russia themselves reported their December oil production at a record 11,210,000 barrels per day, but whatever the case, it’s obvious that Russian production over the past four months was well in excess of their historical level, and so far in January, they’re reportedly only down by about 100,000 barrels per day…according to the negotiated deal with OPEC and other oil producers, Russia is committed to an eventual cut of 300,000 barrels per day from their November level…but even if they achieve that, they’ll still be producing 100,000 barrels per day more than their average production of the first 8 months of 2016

January 20 2017 Russian oil production

The Latest Oil Stats from the EIA

this week’s oil data for the week ending January 13th from the US Energy Information Administration showed that our imports of crude oil were down to a near normal level after last week’s 4 year high, while our oil refining was also scaled back from last week’s record by nearly the same amount, so a small surplus of crude was again added to our stored supplies…our imports of crude oil fell by an average of 674,000 barrels per day to an average of 8,378,000 barrels per day during the week, while at the same time our exports of crude oil fell from last week’s record of 727,000 barrels per day to an average of 704,000 barrels per day, which meant that our effective imports netted out to 7,674,000 barrels per day for the week…at the same time, our crude oil production slipped by 2,000 barrels per day to an average of 8,944,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled 16,618,000 barrels per day for the week…

meanwhile, refineries reportedly used 16,468,000 barrels of crude per day during the week, a decrease of 639,000 barrels per day from last week’s record, while at the same time, 335,000 barrels of oil per day were being added to oil storage facilities in the US…thus, this week’s EIA figures seem to indicate that we consumed or stored 185,000 more barrels of oil per day than were accounted for by our oil imports and production…therefore, the EIA inserted that phantom 185,000 barrels per day number into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance out…the EIA footnote to that line 13 says that number represents “unaccounted for crude oil”, which is further described in the glossary of the EIA’s weekly Petroleum Status Report as “the arithmetic difference between the calculated supply and the calculated disposition of crude oil.”…as you know, we’ve been calling that number that’s inserted into the data to make oil balance out the EIA’s weekly oil fudge factor...

that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports was virtually unchanged at an average of 8.2 million barrels per day, now 4.5% higher than the same four-week period last year…our crude oil production for the week ending January 13th was 3.2% lower than the 9,235,000 barrels of crude that we produced during the week ending January 15th of last year, and 6.9% below our June 5th 2015 record oil production of 9,610,000 barrels per day…this week’s 2,000 barrels per day decrease was in Alaskan production, as oil output in lower 48 states was unchanged from the prior week..

US refineries operated at 90.7% of capacity in using those 16,468,000 barrels of crude per day, down from 93.6% of capacity the prior week, but not much changed from the 90.6% capacity utilization during the same week a year ago, even though they refined 1.7% more crude per day this week than they did during the same week last year…gasoline production from those refineries fell by 719,000 barrels per day to 8,953,000 barrels per day during the week ending January 13th, its lowest in 53 weeks, and hence was 5.2% lower than the 9,453,000 barrels per day of gasoline that were produced during the week ending January 15th a year ago, and 2.8% lower than the 9,215,000 barrels per day of gasoline produced during the week ending January 16th, 2015… meanwhile, refineries’ output of distillate fuels (diesel fuel and heat oil) fell by 611,000 barrels per day to 4,713,000 barrels per day, following two weeks of near record high distillates production…thus our distillates production was still up by 3.5% from the 4,552,000 barrels per day that were being produced during the week ending January 15th last year, but 1.2% lower than the 4,768,000 barrels per day of distillates produced during the same week of 2014…     

even with the big drop in our gasoline production, the EIA reported that our gasoline supplies rose by 5,591,000 barrels to 240,473,000 barrels as of January 13th, for what is now a three week jump of nearly 19 million barrels in our gasoline inventories…that happened as our domestic consumption of gasoline fell by 401,000 barrels per day to a 35 month low of 8,069,000 barrels per day, following two prior weeks of the lowest gasoline demand in a year..(our gasoline exports and our gasoline imports were both down by similar amounts and hence made little difference in the week’s surplus) …since we now have an unusually sharp, if seasonal, drop in gasoline demand, we’ll include a graph of what that looks like..

January 19 2017 gasoline demand

the graph above was taken from the bottom of the gasoline page from the EIA’s “This Week in Petroleum” and it basically shows the four week moving average of US gasoline consumption over the past two years, with February 2015 to February 2016 in brown, and February 2016 to the most recent week in blue…what’s obvious here is that gasoline consumption was running well ahead of the prior year’s pace for most of 2016, until it slipped slightly below the 2015 levels in November and December…..now, as you can see, the past three consecutive weeks of low demand has dropped that 4 week average to well below last year’s pace, and is in fact at the lowest it’s been since the winter of 2014…it’s possible the ice storms that moved through the middle of the country curtailed driving in the reference week, but that in itself should not drop gasoline demand over a 4 week period to a three year low, especially when compared to previous winters with their own periods of hazardous driving…but even with low gasoline usage, and after three large inventories increases in row, our gasoline inventories as of January 13th were just 0.6% higher than the  244,997,000 barrels of gasoline that we had stored on January 15th of last year, and 2.3% above the 240,922,000 barrels of gasoline we had stored on January 16th of 2015…

meanwhile, the big drop in distillates production lowered our supplies of distillate fuels by 968,000 barrels to 169,073,000 barrels by January 13th, following a 2 week jump of 18.4 million barrels, the largest two week jump in distillates supplies on recordthe amount of distillates supplied to US markets, a proxy for our consumption, was up by 897,000 barrels per day to 4,095,000 barrels per day, or else we would have added even more…thus our distillate inventories are still 2.8% higher than the distillate inventories of 164,529,000 barrels of January 15th last year, and 23.8% above the distillate inventories of 136,579 ,000 barrels of January 16th, 2015…

finally, even with big drop in oil imports, there was a decrease in the amount of oil we refined of nearly the same magnitude, which meant we again had extra oil to store, and hence our inventories of crude oil rose by 2,347,000 barrels to 485,456,000 barrels by January 13th, a level which was was still  5.2% below the April 29th record of 512,095,000 barrels…nonetheless, we still ended the week with 6.7% more crude oil in storage than the 455,169,000 barrels we had stored January 15th of 2016, and 33.3% more crude than the 364,266,000 barrels of oil we had in storage on January 16th of 2015… 

This Week’s Rig Count and December Drilling Productivity Report

US drilling activity increased during the week ending January 20th, with drilling rigs seeing the largest increase in 45 months, after falling last week for the first time in 11 weeks…Baker Hughes reported that the total count of active rotary rigs running in the US increased by 35 rigs to 694 rigs in the week ending on this Friday, which was up by 57 rigs from the 637 rigs that were deployed as of the January 22nd report last year, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…at the same time, drilling activity in Canada rose by 24 more rigs to 342 rigs, so they’re now up from just 205 rigs two weeks ago, and well ahead of last year’s 250 rig deployment…

US rigs drilling for oil increased by 29 rigs to 551 rigs during the week, so oil rigs are now at their highest since November 25th 2015…oil drilling is also up from the 510 oil directed rigs that were working in the US on January 22nd last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…..at the same time, the count of US drilling rigs targeting natural gas formations increased by 6 rigs to 142 rigs, which is up from the 127 natural gas directed rigs that were in use a year ago, while it is still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008… 

one drilling platform that had been drilling offshore from Louisiana in the Gulf of Mexico was shut down this week, which reduced the Gulf of Mexico rig count to 23, which was down from 29 rigs working in the Gulf a year ago…our total offshore count for the week was still at 24 rigs, with the ongoing drilling operation that was still in the offshore waters of Alaska, but our total offshore was still down from last year’s offshore US total of 29 rigs…

the number of horizontal drilling rigs working in the US increased by 22 rigs to 559 rigs this week, which is now up from the 500 horizontal rigs that were in use in the US on January 22nd last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, 12 vertical rigs were added to those active, increasing the vertical rig count to 75, which was still down from the 77 vertical rigs that were deployed during the same week last year…in addition, the directional rig count was up by 1 rig to 60 rigs as of January 20th, which brought the directional rig count even with last January 22nd’s directional of 60 directional rigs…

as usual, 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 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 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 January 20th, the second column shows the change in the number of working rigs between last week’s count (January 13th) and this week’s (January 20th) count, the third column shows last week’s January 13th active rig count, the 4th column shows the change between the number of rigs running this 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 January 22nd of 2016…        

January 20 2017 rig count summary

as you can see above, rigs were added in all of the most active basins except for the Denver-Julesburg-Niobrara, which although unchanged at 23 rigs is still up from the 19 rigs working there a year ago…again, the Permain led with a 13 rig increase, and thus at 281 rigs they account for more than half of the horizontal drilling going on in the US right now…also back above year ago activity levels is the Cana Woodford in Oklahoma, where 9 more rigs were set up this week…i’m sure you’ll note the 3 rig increase in the Utica shale as well, which at 23 rigs is also well ahead of the 14 rigs drilling in the Utica last January 22nd….since there was only only a two rig increase in Ohio, we’d assume that the other new Utica drilling is in Pennsylvania, while the new Marcellus drilling is in West Virginia…note that in addition to the state changes shown in the first table above, Alabama also saw a rig start up this week, probably the same one that shut down last week.. the single rig they have active now matches their count of a year ago…Mississippi drillers also added a rig; they now have 3 acive, down from 6 a ear ago

we also want to make note of the Drilling Productivity Report for December, which to our surprise showed another increase in uncompleted wells nationally, mostly as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian…we had expected that with higher oil prices, some of the DUC well backlog would be completed, but current report showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUCs in the US rose from 5,212 in November to 5,379 in December….since DUC wells were at 5,097 in September, we’ve thus had an increase of 282 uncompleted wells over that 3 month span, after a 6 month run when more wells were being completed than were being drilled…all of the December DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in EIA stats, saw its total count of uncompleted wells rise from 1,569 in November to 1,706 in December, in keeping with the increase in drilling that we’ve seen in that basin…at the same time, DUCs in the Niobrara chalk of the Rockies front range rose by 30, from 674 in November to 704 in December…on the other hand, the Marcellus saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Marcellus DUC count fell from 627 in November to 617 in December…in addition; the Utica showed a decrease of six uncompleted wells and thus had only 99 DUCs remaining in December…for the month, DUCS in the 4 oil basins (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 180 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) fell by 13 wells, as they have generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered…. 

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