oil spikes on Trump’s warmongering; US horizontal drilling doubles from last year, global rigs drop 1st time in 10 months

after falling 36 cents to $50.23 a barrel on Monday, oil were prices were higher daily for the rest of the week, and ended the week up more than 3%, as the US missile strike on Syria boosted prices on Friday, despite somewhat bearish inventory data…US contract prices for May delivery rose 79 cents to 51.03 a barrel on Tuesday, on growing support for an OPEC production cut extension and perceptions that the oil market is tightening…oil then rallied Wednesday morning after the late Tuesday American Petroleum Institute report showed the largest drawdown of US crude supplies so far this year, with prices running up as high as $51.88 a barrel by early afternoon, before the EIA report showed a surprise increase to a new record for crude inventories and smaller than expected draws in gasoline and distillates, sending oil prices tumbling back to close at $51.15 a barrel…oil prices then recovered and moved up steadily on Thursday to close at $51.70 a barrel, on expectations that a seasonal pickup in refining activity would help draw down massive U.S. crude stockpiles…oil prices then spiked more than a dollar in overnight trading on Friday morning after the news broke that US warships in the Mediterranean fired 60 Tomahawk missiles at an airbase in Syria, reaching as high as $52.94 a barrel in early trading before settling back to close the week at $52.24 a barrel, the highest closing price since March 7th… 

the ostensible reason for Thursday night’s US missile attack on Syria was a reported chemical gas attack on Tuesday in the rebel held northern Syrian town of Khan Sheikhoun, where dozens of people, including children, died after writhing, choking, gasping or foaming at the mouth, after breathing in poison that probably contained a nerve agent or other banned chemicals…despite offering no clear proof, President Trump blamed Syria’s president Assad for the attack, (he also blamed Obama) and requested a Pentagon briefing on what military options were available…since Russians were still on the ground in Syria in support of Assad, he opted for the cruise missile strike from the US warships in the Mediterranean, and after warning the Russians in advance, ordered the strike against the Syrian airfield where the military believed the jets that participated in the Tuesday attack were based

i don’t believe that Assad or the Syrian government were responsible, at least not directly, for the chemical gas deaths that occurred on Tuesday, and i believe it’s possible that Trump doesn’t believe they were either, and it’s also apparent that neither does CIA Director Mike Pompeo….the explanation of that Syrian catastrophe that the Russians offered was far more plausible than Trump’s allegations; the Russian defense ministry explained that the Syrian airstrike hit a large terrorist ammunition depot which included the chemical weapons, which were thereby released as a result of the bombing raid, thus killing nearby civilians…furthermore, there is no conceivable reason that Assad would order such an attack on his own people…with the support of the Russians and Iran, he was already clearly winning the long civil war that had consumed his country over the past 6 years, ISIS and Al-Qaeda were already on the run, and the few pockets of various rebel groups that remained in Syria were no longer a serious threat to his government…Trump, on the other hand, has been seeing his approval ratings badly slumping, and was closing in on a hundred days in office with not a single item on his agenda passed through congress…furthermore, he was about to meet with Chinese President Xi Jinping, after warning that the US would take unilateral action against North Korea if the Chinese did not reign in Kim Jong-un…by making a high profile strike from miles away with cruise missiles on a small Syrian airbase, he immediately convinced the Chinese that he’s serious about using force in North Korea, and simultaneously rallied the hawkish Democrats in Congress to his side, and is also likely to see a significant boost to his record low approval ratings..

Be prepared, there is a small chance that our horrendous leadership could unknowingly lead us into World War III.” — Donald J. Trump (@realDonaldTrump) August 31, 2013

The Latest Oil Stats from the EIA

the oil data for the week ending March 31st from the US Energy Information Administration showed another increase in the amount of oil US refineries used, and an even larger drop in our oil imports, but because of an even larger drop in our exports of crude oil, we still saw another small increase in our record high oil supplies for the 12th week out of the past thirteen…our imports of crude oil decreased by an average of 374,000 barrels per day to an average of 7,850,000 barrels per day during the week, while at the same time our exports of crude oil fell by 435,000 barrels per day to an average of 575,000 barrels per day, which meant that our effective imports netted out to 7,275,000 barrels per day during the week, 61,000 barrels per day more than the prior week…at the same time, our crude oil production rose by 52,000 barrels per day to an average of 9,199,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,474,000 barrels per day during the cited week…

meanwhile, refineries reportedly used 16,429,000 barrels of crude per day, 204,000 barrels per day more than they used during the prior week, while at the same time, 149,000 barrels of oil per day were being added to oil storage facilities in the US….thus, this week’s EIA oil figures would seem to indicate that we used or stored 104,000 more barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom +104,000 barrel per day figure onto line 13 of the petroleum balance sheet, which the footnote tells us represents “unaccounted for crude oil”…that “unaccounted for crude oil” 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”, which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 7,947,000 barrels per day, now 2.3% above that of the same four-week period last year…at the same time, the 4 week average of our oil exports fell to 713,000 barrels per day, 90.1% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light crude oil were barely underway in early 2016…the 149,000 barrel per day increase in our crude inventories came about on a 224,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 75,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago

meanwhile, this week’s 52,000 barrel per day oil production increase resulted from a 40,000 barrel per day increase in output from the lower 48 states and a 12,000 barrels per day increase in oil output from Alaska…the 9,199,000 barrels of crude per day that we produced during the week ending March 31st is now up by 4.9% from the 8,770,000 barrels per day were producing at the end of 2016, and the most we’ve produced since the last week of January 2016…while the week’s production was up by 2.1% from the 9,008,000 barrel per day output during the during the equivalent week a year ago, it was still 4.3% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US refineries were operating at 90.8% of their capacity in using those 16,429,000 barrels of crude per day, up from 89.3% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day… the amount of crude oil processed by refineries continues to be on a par with the 16,433,000 barrels of crude that were being refined during the week ending April 1st, 2016, when refineries were operating at 91.4% of capacity, but they did set a new record high for throughput for any week ending in March….

however, even with the week’s refining increase, gasoline production from our refineries fell by 513,000 barrels per day to 9,515,000 barrels per day during the week ending March 31st, which left it 1.1% lower than the 9,617,000 barrels per day of gasoline that were being produced during the comparable week a year ago (much of that drop was due to a 439,000 barrel per day swing in the “adjustment to correct for the imbalance created by the blending of fuel ethanol and motor gasoline blending components)….on the other hand, refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 95,000 barrels per day to 9,617,000 barrels per day, which was 2.7% more than the 4,838,000 barrels per day of distillates that were being produced during the week ending April 1st last year…

even with the big drop in our gasoline production, the EIA reported that our gasoline inventories were only reduced by 618,000 barrels to 239,103,000 barrels as of March 31st, after they had already dropped by more than 16.1 million barrels over the prior 4 weeks….that was because our domestic consumption of gasoline fell by 279,000 barrels per day to 9,245,000 barrels per day, and because our gasoline exports fell by 19,000 barrels per day to 589,000 barrels per day while our imports of gasoline rose by 86,000 barrels per day to 607,000 barrels per day….while our gasoline supplies are now down by nearly 20 million barrels from the record high set 7 weeks ago, they’re just 2.0% lower than last year’s April 1st record high for any April of 243,998 ,000 barrels, and are still 4.0% above the 229,945,000 barrels of gasoline we had stored on April 3rd of 2015… 

our supplies of distillate fuels also fell a bit for the week, decreasing by 536,000 barrels to 152,374,000 barrels by March 31st, as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 124,000 barrels per day to 4,098,000 barrels per day, and as our imports of distillates rose by 16,000 barrels per day to 131,000 barrels per day, while our exports of distillates fell by 43,000 barrels per day to 1,077,000 barrels per day at the same time….while our distillate inventories are now 6.5% below the bloated distillate inventories of 162,984,000 barrels that we had stored on April 1st 2016, at the end of last year’s warm El Nino winter, they are still 20.1% higher than the distillate inventories of 126,924,000 barrels that we had stored on April 3rd of 2015…  

finally, our commercial inventories of crude oil rose for the 12th time in the past 13 weeks, increasing by 1,566,000 barrels to yet another record high of 535,543,000 barrels by March 31st…at the same time, 524,000 barrels of oil from our Strategic Petroleum Reserve were sold, which left inventories in the SPR at 692,135,000 barrels, a quantity nonetheless not considered available for commercial use….thus for current commercial purposes, we finished the week ending March 31st with 11.8% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 7.4% more crude oil in storage than the 498,598,000 barrels of oil in storage on April 1st of 2016, 19.1% more crude than what was then a record 449,662,000 barrels in storage on April 3rd of 2015 and 52.0% more crude than the 352,341,000 barrels of oil we had in storage on April 4th of 2014… since our oil supplies have hit a new record high in 7 out of the last 8 weeks, we’ll include a picture of what that looks like, and show you why we go back three years with our comparisons…

April 6 2017 oil supplies as of March 31

the above graph is from a picture of the interactive graph that accompanies the ending stocks of crude oil page at the EIA, which fairly clearly shows the end of the week supplies of commercially available crude oil stored in the US (or nearby offshore) weekly since 2000…we can clearly see that oil supplies over the recent weeks were at record levels, but to compare those levels to levels of a similar period of 2016 would be comparing to what were in that year also record levels at the time…similarly, new records for US oil supplies were being set weekly for several consecutive weeks in early 2015, so when we’re comparing today’s supplies to that year, we’re also comparing to what was then already a glut of oil.,..it’s only when we compare today’s supplies to those of the same date in 2014 that we’re making a comparison to what we could consider a normal level of oil supplies for the time of year, and it’s with that in mind that we can say that throughout 2017, US oil supplies have consistently remained more than 50% above the historical norm…

This Week’s Rig Count

US drilling activity increased for the 22nd time in the past 23 weeks during the week ending April 7th, and this week’s increase was also the 10th double digit rig increase in the past 12 weeks….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 15 rigs to 839 rigs in the week ending Friday, which was 396 more rigs than the 443 rigs that were deployed as of the April 8th report in 2016, and the most drilling rigs we’ve had running since September 18th, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil increased by 10 rigs to 672 rigs this week, which was up by 318 from the 354 oil directed rigs that were in use a year ago, and well more than double the low of 316 oil rigs that were working on May 27th 2016, but it was still way down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations rose by 5 rigs to 160 rigs this week, which was also up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…in addition, there remains 2 rigs deployed that are classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work…  

active horizontal drilling rigs increased by 10 rigs to 695 rigs this week, which is also well more than double the May 27th 2016 nadir of 314 working horizontal rigs…it’s also more than double the 341 horizontal rigs that were in use in the US on April 8th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, a net of 4 vertical rigs were added this week, bringing the vertical rig count up to 73, up from the 50 vertical rigs that were deployed during the same week last year….in addition, a single directional rig was also added this week, bringing the directional rig count up to 71 rigs, which was also up from the 52 directional rigs that were deployed during the same week a year ago…

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 pdf 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 April 7th, the second column shows the change in the number of working rigs between last week’s count (March 31st) and this week’s (April 7th) count, the third column shows last week’s March 31st 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 the 8th of April, 2016…           

April 7 2017 rig count summary

once again, the majority of the net increase in drilling is taking place in the Permian basin of west Texas, where at 331 rigs they’re now up by 189 rigs from a year ago and account for almost half of the horizontal drilling activity in the US…increases of 2 rigs in both the Cana Woodford and the Mississippian account for the 4 rig increase in Oklahoma, while the 4 rig decrease in the Granite Wash is the apparent reason that the state of Texas’s increase was reduced to 7 rigs…increases in rigs targeting natural gas were seen in the Arkoma Woodford of Oklahoma, in the Marcellus in West Virginia, in the Barnett of north Texas, where a gas rig was added while a oil rig was shut down, and in two unnamed locations include in “other basins’ on the Baker Hughes basin summary table

International Rig Counts for March

Baker Hughes also released the international rig counts for March on Friday, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end….Baker Hughes reported that an average of 1985 rigs were drilling for oil and natural gas around the globe in March, which was down from the 2,027 rigs that were drilling around the globe in February, but up from the 1,551 rigs that were working globally in March of last year….a seasonal pullback in Canadian drilling was the reason for that, the first  global decrease in 10 months, as the average Canadian rig count fell from 342  rigs in February to 253 rigs in March, which was still up from the 88 Canadian rigs that were deployed in March a year earlier, while the average US rig count rose from 744 rigs in February to 789 rigs in March, which was also up from the average of 478 rigs that were working in the US in March a year ago….outside of Northern America, the International rig count rose by 2 rigs to 943 rigs in March, still down from 1,018 rigs a year ago, as increases in drilling in Latin America , the Middle East, Asia and Africa were offset by a sharp drop in drilling activity in Europe..

the number of drilling rigs deployed in the Middle East was up by 4 rigs to 386 rigs in March, after their drilling activity had been unchanged in February, which still left them down from 397 rigs a year earlier…Egypt added 7 rigs for the month, which brought their total up to 23 rigs, still down from 31 rigs a year earlier….OPEC member Iraq, who has indicated they’ll boost their crude oil production by 600,000 bpd to 5 million bpd by the end of this year, activated 3 additional rigs in March, and thus had 43 rigs deployed, still down from 48 rigs a year earlier…Abu Dhabi of the United Arab Emirates, also an OPEC member, also added a rig in March and thus had 48 rigs working, unchanged from the number they had drilling new wells a year ago…on the other hand, the Kuwaitis shut down 5 rigs during the month, after they had added 7 rigs in February, and now have 54 rigs active, which is up from the 41 rigs they had working a year ago….in addition, Pakistan and the Saudis each shut down one rig in March, which left the Saudis with 119 rigs, down from the 127 rigs they were running a year ago, and which left Pakistan with 20 rigs running, down from the 24 rigs they had deployed in March of 2016

at the same time, the Latin American region saw their active drilling rig count increase by a net of 6 rigs to 185 rigs, down from 218 rigs in March of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016…Argentina added 4 rigs during the month, which brought their total back up to 58 rigs, still down from 68 rigs a year ago…Mexico added 2 rigs and thus have 18 rigs active, still down from 2 rigs a year earlier…the Brazilians also added 2 rigs, bringing their total to 16 rigs, down from 28 rigs a year earlier.. .in addition, both Peru and Bolivia added a rig each, giving Peru 6 rigs and Bolivia 5 rigs, with drilling in neither country much changed over the past year…Latin American countries reducing their rig count included Columbia, who was down 3 rigs to 19 rigs but still up from 4 rigs a year ago, and Chile, a minor producer who shut down 1 rig and had one remaining…

drilling activity in the Asia-Pacific region was up by a net of 2 rigs to 198 rigs in March, which was also up from the 183 rigs working in the region a year earlier…India added two rigs and now have 117 rigs active, up from 104 rigs a year ago…Malaysia also added 2 rigs and now have 5 rigs working, up from 3 rigs a year ago…Thailand and Indonesia each added one rig, bringing them up to 14 rigs and 24 rigs respectively, with Thailand unchanged from a year ago and Indonesia’s drilling up from last year’s 19 rigs…on the flip-side, single rigs were taken out of service in Australia, Brunei, Vietnam and offshore of China… that left Australia with 13, still up from 9 rigs a year ago, left Brunei with 1 rig, down from 2 last March, left Vietnam with 2 rig, up from 1 rig last March, and left China with 17 offshore platforms working, down from 26 a year ago….

in addition, drilling on the African continent outside of Egypt saw a net increase of 3 rigs to 80 rigs in March, which was still down from the 91 rigs working in Africa last year at this time…OPEC member Nigeria, who is not yet subject to the agreed production cuts, increased their active rigs by 3 to 10 rigs, which was up from 8 rigs in March of last year…OPEC member Algeria added 1 rig, giving them 51 rigs working in March, down from the 54 rigs they had running a year ago….meanwhile, OPEC member Angola shut down 1 rig, and now has just 2 rigs active, down from the 8 rigs they had active a year earlier..

on the other hand, drilling activity was lower Europe, decreasing by 13 rigs to 94 rigs in March, which was also down from the 96 rigs that were working in Europe last March…Turkey shut down 6 land based rigs, leaving 23, which left them down from 28 rigs a year ago…in addition, offshore platforms were idled in several countries…the U.K. shut down 3 offshore rigs, leaving them with 8 rigs still drilling in the North Sea, now down from 9 offshore a year ago…the Dutch shut down both of their active rigs, and now have none, compared to the 3 offshore and 1 land rig they were running last March…Norway shut down one, but they still have 15 rigs drilling offshore, down from 19 offshore a year ago…and the Danes also shut down their only offshore platform, and thus had no drilling in March for only the 3rd month in the last 4 years…the only other change in European activity was on land, where France added a rig and now have 4 rigs running, still down from 5 rigs a year ago…

finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China’s offshore area, with an average of 17 rigs active in March, were included in the Asian totals here, apparently based on satellite intel, which is the way much of the international oil data is collected…  

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