a naval blockade of Qatar in the Persian Gulf, US sees big jump in oil & product inventories, global rig counts, et al

oil prices fell another 4% this week, after falling 4% the prior week, mostly due to a large and unexpected increase in US oil & oil product supplies…after initially moving higher Monday morning, after Saudi Arabia and three other Arab countries cut ties with Qatar, oil prices tailed off in the afternoon, on concerns about the efficacy of the OPEC production pact, with global prices falling 1% and US oil for July delivery ending 26 cents lower at $47.40 a barrel…falling further in overseas trading earlu Tuesday morning, oil prices stabilized by afternoon, and then ran up nearly $1 to close Tuesday at $48.19 a barrel, after the American Petroleum Institute (API) reported a draw of 4.62 million barrels from crude oil inventories, somewhat more than the 3.5 million barrel decrease the market was expecting….oil prices held above $48 a barrel early Wednesday, but then crashed 5% in the afternoon, after the US Energy Information Administration reverse the API estimates and reported large increases in not just crude oil supplies, but in supplies of gasoline, distillates, and other products as well, with US oil prices closing down $2.47 a barrel at $47.72 a barrel…the price weakness continued into Thursday morning, with US oil falling as low as $45.20 on news from Europe, before bouncing back by mid-day to close at $45.68 a barrel…oil prices then rose on Friday, after a hole drilled into a major pipeline forced the shutdown of some production in Nigeria, with U.S. crude futures ending the day 19 cents higher at $45.83 a barrel, still down nearly 4 percent for the week…

although it apparently has had little impact on oil prices so far, a crisis in the Persian Gulf precipitated by the Arab Gulf Cooperation Council’s repudiation of Qatar provided an ominous background to this week’s other news…following Trump’s visit to the Middle East a couple weeks ago, when he threw his weight behind the Saudis as opposed to the other Mideast terrorist sympathizers, the Saudis had become increasingly belligerent about what they claimed was Qatar’s support for militants, underscored by Qatar’s payment of up to $1 billion to an al-Qaeda affiliate to secure the release of its royal family members who had been kidnapped in Iraq while on a hunting trip…what precipitated Monday’s severing of diplomatic relations, however, was a news story that Qatar’s Emir had criticized the Saudis hostility to Iran, accused them of adopting an extremist ideology that fosters terrorism. and suggested that Donald Trump would not last long…the Qataris claimed their news agency had been hacked and that the story was fake, but apparently it was believable enough to the Saudis and their allies that the Saudis, Bahrain, Egypt, and the United Arab Emirates severed diplomatic ties with Qatar, closing all land, sea, and air routes into the country, effectively cutting off the country from the rest of the Arabian Peninsula..

now, had the US pushed back against that Gulf dispute right then and there, it might have defused the situation, but President Trump immediately took to Twitter to take credit for the Saudi move against Qatar, echoing Saudi claims that Qatar was responsible tor “funding of Radical Ideology,” apparently unaware that the U.S. has 11,000 troops stationed in Qatar, on a base that is arguably America’s most important military outpost in the Middle East…so with Trump’s support, there was subsequently a significant escalation of what had been largely a diplomatic crisis, as the Gulf states then launched a naval blockade of Qatar, and issued a 24 hour ultimatum for Qatar to comply to 10 demands, “or else”, demanding, among other things, that Qatar break diplomatic relations with Iran and shut down Al Jazeera news…that escalation forced US Defense Secretary James Mattis and Secretary of State Rex Tillerson to attempt to run damage control, with Tillerson calling on the Saudi coalition to lift its blockade of Qatar, saying that the Gulf standoff interfered with the fight against ISIS…but no sooner than had senior administration officials attempted to make US policy regarding our ally Qatar clear, than Trump doubled down, again slamming our ally Qatar in a Friday press conference with the president of Romania

so that’s where the situation stands going into the weekend, with Iran and Turkey now pledging to help Qatar…as usual, dozens of links relating to this story  can be found here…the price of oil has not been impacted much simply because Qatar is not a major oil producer, with output of just about 600,000 barrels per day, or about 2% of OPEC’s total output…but they are the world’s largest supplier of LNG, and there has been some concern in the global markets for LNG, but not enough to affect US natural gas prices, which generally traded between $2.98 per mmBTU and $3.09 per mmBTU this week and ended at $3.039 per mmBTU, a gain of just 4 cents over last week’s close…my sense of what’s going on is that the Saudis have been getting bad press on the terrorist front lately, since they’ve been implicated in the funding of ISIS in Iraq and Syria, and for the 9-11 attacks on the pentagon and world trade center, with congress recently passing a bill allowing victims of 9-11 to sue Saudi Arabia for damages, and they’re trying to shift the blame…ie, the Saudis are now acting like the bad kid who gets caught with stolen goods, and who then tries to blame the theft on the neighbor kid, who in this case is Qatar….

for his part, Donald Trump is devoid of any real knowledge of the Middle East, so he’s believing what the Saudis told him when they threw that great party for him a couple weeks back… it also seems clear that the Saudis believe Trump gave them the go-ahead to take that action against Qatar…in that manner, Trump’s involvement seems strangely similar to the miscommunications in the run up to the first Iraq war, when April Glaspie, George Bush’s ambassador to Iraq, told Saddam Hussein that it was none of our business if Iraq wanted to take back Kuwait, which ultimately precipitated Saddam’s invasion…following that, Bush Sr. moved on Iraq to distract from the media persecution of his young son Neil, who was under fire for losing millions of dollars of depositors money in nighttime poker games in the back offices of Silverado Saving and Loan in Denver…the parallel to today is that Trump’s firing of FBI director Comey was not because he threatened Trump personally, because Trump himself is pretty thick skinned, but because Comey’s investigation threatened his son-in-law, Jared Kushner…at this point, there’s no telling what Trump might do at a time when he feels that the father of his grandchildren is being threatened…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending June 2nd, showed that the combination of a large increase of our crude oil imports and a big drop in our crude oil exports led to the largest addition to US oil supplies in 3 months…our imports of crude oil rose by an average of 365,000 barrels per day to an average of 8,341,000 barrels per day during the week, while at the same time our exports of crude oil fell by 746,000 barrels per day to an average of 557,000 barrels per day, which meant that our effective imports netted out to 7,784,000 barrels per day during the week, 1,102,000 barrels per day more than during the prior week…at the same time, our field production of crude oil fell by 24,000 barrels per day to an average of 9,318,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 17,102,000 barrels per day during the cited week…

during the same period, refineries reportedly used 17,227,000 barrels of crude per day, 283,000 barrels per day less than the record 17,510,000 barrels per day they used during the prior week, while 234,000 barrels of oil per day were being added to oil storage facilities in the US….thus, this week’s EIA oil figures seem to indicate that our total supply of oil from net imports and oilfield production was 359,000 less barrels per day than what refineries reported they used and what oil was reportedly added to storage…to account for that discrepancy, the EIA inserted a +359,000 barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as “unaccounted for crude oil”…

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,303,000 barrels per day, 8.8% above the imports of the same four-week period last year…the 234,000 barrel per day increase in our total crude inventories came about on a 471,000 barrel per day addition our commercial stocks of crude oil, which was partially offset by a 237,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 19 months ago….this week’s 24,000 barrel per day drop in our crude oil production resulted from a 20,000 barrel per day decrease in oil output from wells in the lower 48 states, and a 4,000 barrels per day decrease in oil output from Alaska…the 9,318,000 barrels of crude per day that we produced during the week ending June 2nd was still up by 6.3% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 6.6% from the 8,745,000 barrel per day output during the during the same week a year ago, while it was still 3.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day…

US oil refineries were operating at 94.1% of their capacity in using those 17,227,000 barrels of crude per day, which was down from 95.0% of capacity the prior week, but still the 2nd highest refinery capacity utilization rate this year…the amount of oil refined this week was still well above seasonal norms, 4.9% more than the 16,417,000 barrels of crude per day.that were being processed during week ending June 3rd, 2016, when refineries were operating at 90.9% of capacity, and roughly 13% above the 10 year average of 15.2  million barrels of crude per day for the last week in May ….

with the pullback in refining, gasoline production from our refineries decreased by 496,000 barrels per day to 9,934,000 barrels per day during the week ending June 2nd, the largest one week drop in gasoline production since the third week of September last year….gasoline production for the week was thus 1.9% lower than the 10,122,000 barrels of gasoline that were being produced daily during the comparable week a year ago….at the same time, refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 41,000 barrels per day to 5,267,000 barrels per day, the most distillates ever produced in a week during the Spring and 8.9% more than the 4,838,000 barrels per day of distillates that were being produced during the week ending June 3rd last  year….. 

even with the drop in gasoline production, our end of the week gasoline inventories surprisingly increased by 2,858,000 barrels to 237,024,000 barrels by June 2nd, because all other impacts on our supplies of gasoline were positive….our domestic consumption of gasoline fell by 505,000 barrels per day to 9,317,000 barrels per day, while our gasoline exports fell by 86,000 barrels per day to 555,000 barrels per day and our imports of gasoline rose by 84,000 barrels per day to 787,000 barrels per day at the same time…with the week’s big increase in our gasoline supplies, our gasoline inventories thus are at a seasonal high for this time of year, albeit just fractionally above the seasonal record 239,629,000 barrels that we had stored on June 3rd a year ago, but 10.6% higher than the 217,354,000 barrels of gasoline we had stored on June 5th of 2015, and 12.6% more than the 213,482,000 barrels of gasoline we had stored on June 6th of 2014…  

meanwhile, with a new seasonal high in distillates production, our supplies of distillate fuels rose by 4,355,000 barrels to 151,088,000 barrels during the week ending June 2nd, the largest increase in distillates supplies since the 1st of the year….again, that increase was mostly because the amount of distillates required by US markets fell by 520,000 barrels per day to 3,505,000 barrels per day, while our imports of distillates rose by 47,000 barrels per day to 152,000 barrels per day, and our exports of distillates rose by 42,000 barrels per day to 1,292,000 barrels per day…even though our distillate supplies are still fractionally below the 151,377,000 barrels that we had stored on June 3rd, 2016, when a glut of heat oil supplies persisted after last year’s warm El Nino winter, they’re now 13.2% higher than the distillate inventories of 133,477,000 barrels that we had stored on June 5th of 2015, following a more normal winter… 

finally, the week’s large increase in US oil imports, combined with the big drop in our oil exports, meant that our commercial inventories of crude oil rose for the first time in 9 weeks, as our oil supplies rose by 3,295,000 barrels to 513,207,000 barrels as of June 2nd, the largest increase in 3 months….as a result, we finished the week with 7.1% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.3% more crude oil in storage than the 501,844,000 barrels of oil in storage on June 3rd of 2016….compared to the same week in prior years, we ended the week with 17.1% more crude than the 438,447,000 barrels in of oil in storage on June 5th of 2015, and 44.5% more crude than the 355,221,000 barrels of oil we had in storage on June 6th of 2014…  

This Week’s Rig Counts

US drilling activity increased for the 21st week in a row and for the 31st time in the past 32 weeks during the week ending June 9th, as both oil and natural gas drilling again increased….Baker Hughes reported that the total count of active rotary rigs running in the US increased by 11 rigs to 927 rigs in the week ending Friday, which was 513 more rigs than the 414 rigs that were deployed as of the June 10th report in 2016, and the most drilling rigs we’ve had running since April 24th, 2015, even though it was 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 8 rigs to 741 rigs this week, which was up by 413 oil rigs over the past year, and the most oil rigs that were in use since April 10th 2015, while it was still down by more than half 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 increased by 3 rigs to 185 rigs this week, which was a hundred more rigs than the 85 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…in addition, a single rig considered unclassified remained active, same as last week and as a year ago…

Gulf of Mexico platforms offshore from Texas and offshore from Florida where drilling had been taking place were both shut down this week, leaving the Gulf of Mexico count at 21 rigs, now all offshore from Louisiana, still up from 20 rigs working in the Gulf of Mexico a year ago…however, drilling restarted on one platform offshore from Alaska, which brought the total US offshore count up to 22 rigs, up from 21 rigs a year ago, when there was also drilling offshore from Alaska…in addition, one rig which had been drilling through an inland lake in Louisiana was also shut down this week, leaving the inland waters rig count at 3, down from the 5 rigs which were drilling on inland lakes last year at this time…

rigs that were set up to drill horizontally increased by 9 rigs to 780 horizontal rigs this week, which was the most horizontal rigs in use since April 2nd of 2015, and up from the the 323 horizontal rigs that were in use in the US on June 10th of last year, while it was still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, a net of 4 vertical rigs were also added this week, increasing the vertical rig count to 81 rigs, which was up from the 46 vertical rigs that were deployed during the same week a year ago…at the same time, the directional rig count was down by 2 rigs to 66 directional rigs this week, which was still up from the 45 directional rigs that were deployed during the same week last year…

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 June 9th, the second column shows the change in the number of working rigs between last week’s count (June 2nd) and this week’s (June 9th) count, the third column shows last week’s June 2nd active rig count, the 4th column shows the change between the number of rigs running on 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 the 10th of June, 2016…        

June 9 2017 rig count summary

unlike last week, when most of the new rigs were set up in Texas, this week Oklahoma showed the largest increase, with 5 new rigs, and New Mexico followed with an increase of 4 rigs, while Texas shows a decrease of 3 rigs….clearly, 4 of the new Oklahoma rigs were set up in the Cana Woodford, while the other addition is likely in the Mississippian shale, which the state shares with Kansas…all 4 of the new Permian basin rigs appear to be in New Mexico, because the Texas district breakdown shows 3 rigs added in District 8 while 3 were taken down in District 8A, which could simply mean those were moved to another location in the same region…other than that, 6 different Texas Districts saw a rig decrease, while 3 saw increases, including the rig added in the Barnett shale of the Dallas Ft Worth area…meanwhile, 2 natural gas directed rigs were added in Ohio’s Utica, where there are now 28 rigs, up from just 12 rigs a year ago…the Marcellus also saw a 2 rig increase, both of which were in West Virginia, and two natural gas rigs were also added in the Arkoma Woodford, where 2 oil directed rigs were shut down…the natural gas rigs that were shut down were the one in the Ardmore Woodford, and 4 in “other basins” which are not named in the summary data…other than the states shown above, Mississippi saw an increase from 1 rig to 3 rigs last week, which is also up from the 1 rig that was running in the state a year ago, while Florida saw that lone offshore rig shut down, which left them with none, same as a year ago…

International Rig Count for May

Baker Hughes also released the international rig counts for May this week, 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 1,935 rigs were drilling for oil and natural gas around the globe in May, which was up from the 1,917 rigs that were drilling around the globe in April, and up from the 1,405 rigs that were working globally in May of last year….as has been the case for the past year, increased drilling in North America led the global increase, as the average US rig count rose from 853 rigs in April to 893 rigs in May, which was more than double the average of 408 rigs that had been working in the US in May a year ago…Canadian drilling, on the other hand, saw another Spring-thaw related pullback in their activity, as the Canadian rig count fell from 108 rigs in April to 85 rigs in May, which was still up from the 42 Canadian rigs that were deployed in May a year earlier…..outside of Northern America, the International rig count rose by just 1 rig to 957 rigs in May, which was up by just 2 rigs from 955 international rigs a year ago, as increases in drilling in the Middle East, Latin America and Europe were offset by decreases in drilling activity in Asia and Africa..

drilling rigs deployed in the Middle East increased by 2 rigs to 389 rigs in May, up from 384 rigs a year earlier, after Middle East drilling activity had increased by 4 rigs in March and by 3 rigs in April…OPEC member Iraq added 5 rigs for the month and has now added 11 rigs over the past three months, as the Iraqis had 51 rigs deployed in May, up from 43 rigs a year earlier…OPEC member Kuwait, and non-members Pakistan and Israel, each added two rigs in May…those increases brought Kuwait up to 55 rigs, up from 43 rigs a year earlier, brought Pakistan up to 25 rigs, still down from 23 rigs a year earlier, and represented the only drilling activity in Israel, where they also had no rigs deployed last May…on the other hand, Egypt shut down 4 more rigs over the month, after idling 3 in April, which cut them back to 23 active rigs, down from 28 rigs a year earlier…OPEC member Qatar and Oman both cut back 2 rigs, leaving Qatar with 10 rigs, still up from 7 a year ago, and leaving Oman with 54 rigs, down from 69 rigs a year earlier…in addition, Abu Dhabi of the UAE also idled a rig, leaving them 48 rigs still running, same as a year earlier…

at the same time, drilling activity in the Latin American region was up by a net of 8 rigs to 190 rigs in May, which was up from the 188 rigs working in the region a year earlier…Argentina added 4 rigs during the month, and now has 53 rigs active, still down from 71 rigs a year ago…OPEC member Ecuador added 2 rigs in May, and now has 9 rigs running, up from 2 rigs a year ago…in addition, Brazil, Mexico, Columbia and Peru each added a single rig…that brought Brazil up to 16 rigs, up from 15 a year ago, brought Mexico up to 23, also up a rig from last year, brought Columbia up to 20 rigs from 5 rigs a year earlier, and brought Peru, where there were no rigs active last May, up to 3 rigs this May…only OPEC member Venezuela idled 2 rigs, cutting their total back to 54 rigs, down from 60 rigs a year earlier.. .

meanwhile, drilling activity in the Asia-Pacific region was down by 8 rigs to 197 rigs in May, which was still up from the 190 rigs working in the region a year earlier…former OPEC member Indonesia idled 3 rigs and now has 20 rigs active, still up from 19 rigs a year earlier….Malaysia shut down 2 rigs, leaving 3 rigs still running, down from 6 rigs a year ago….Myanmar also shut down 2 rigs and had just 1 rig still active, same as a year ago….others in the region cutting back included Australia, down a rig to 15, Thailand, down a rig to 12, and Papua New Guinea, down a rig to one…regional additions were in Brunei, where they now have 1 rig running, in Vietnam, where their 3 rigs matches their year ago total, and offshore from China, where there are now 20 rigs active, down from 31 offshore rigs a year ago..

drilling activity was also lower on the African continent, decreasing by 5 rigs to 84 rigs in May, which was also down from the 91 rigs that were working in Africa last May…OPEC member Algeria shut down 4 rigs after adding 6 rigs in April, and now has 53 rigs active, down from 55 rigs a year ago…OPEC member Nigeria shut down 2 rigs and had 8 rigs still active, up from 6 rigs a year ago…2 rigs were also shut down in Kenya, where there are now 9 rigs active, down from 11 a year ago….OPEC member Angola idled one rig, after adding two in April, and now has 3 active rigs remaining, down from the 9 rigs they had deployed in May a year ago…but Congo-Brazzaville added two rigs and now has 3 rigs working, up from 1 rig a year ago, and the Ivory Coast started up their first rig since October…

lastly, drilling activity increased in Europe, rising by 4 rigs to 95 rigs in May, which was the same number of rigs that were working in Europe last May…on net, all of the European rig additions were offshore; Norway added two rigs offshore, and now have 18 drilling platforms working, up from 17 a year ago…both the Netherlands and the UK also started offshore platforms; for the Dutch, it was their first drilling after two months of no activity, whereas the Brits now have 10 rigs drilling offshore, up from 9 a year ago…on land, Turkey added 2 rigs and now has 23 rigs working, still down from 29 rigs a year ago, and Italy added a rig and now has 4 active, still down from 5 rigs a year ago…at the same time, Romania shut down two rigs and now has 5 rigs running, up from 4 rigs a year ago, and Austria shut down the rig they started up in April, which had been their only drilling in 2 years…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 20 rigs active in May, was included in the Asian totals here, apparently based on satellite intel, which is also the way much of the international oil production and export data is collected…

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