oil prices retreat on rising OPEC output; US burns more gasoline than in any other week in our history

oil prices were up three out of 5 trading sessions last week but still ended fractionally lower than where they started, mostly on a report that OPEC had increased its output….building on last week’s 8.6% rally to $49.71 a barrel, the largest price increase this year, WTI oil for September delivery was up another 46 cents on Monday, closing above $50 for the first time in 2 months, and ending July with the largest monthly gain since April 2016, on reports that the US was preparing sanctions against the Venezuelan oil industry…that $50 level didn’t hold, however, as oil prices tumbled more than 3% on Tuesday after a Reuters survey found that OPEC oil output was up by 90,000 barrels per day in July to a 2017 high, with US crude ending the day down $1.01 to $49.16 a barrel…oil prices then recovered 43 cents to $49.59 a barrel on Wednesday after the weekly EIA report showed another decrease in US crude oil supplies and the largest weekly burn of gasoline in US history…oil prices then gave up early gains to trade lower Thursday afternoon, after legendary oil trader Andy Hall (known as “God”) was forced to shutter his hedge fund due to low oil prices, with light sweet crude for delivery in September falling 56 cents, or 1.1%, at $49.03 a barrel, after trading as high as $49.96 early in the day…oil prices continued falling Friday morning, dropping as low as $48.50 a barrel, but then recovered Friday afternoon to close at $49.58 a barrel, after Baker Hughes reported the largest rig count drop since January of this year, with oil thus ending the week just 13 cents lower, easing less than a third of a percent from last week’s close…

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 July 28th, indicated another increase in the amount of oil used by US refineries, but a larger increase in our imports of crude, accompanied by a decrease in our exports of it, which together meant that much less oil was withdrawn from our commercial stocks of crude oil to meet this week’s needs than the prior one…our imports of crude oil rose by an average of 209,000 barrels per day to an average of 8,253,000 barrels per day during the week, while at the same time our exports of crude oil fell by 328,000 barrels per day to an average of 702,000 barrels per day, which meant that our effective imports netted out to 7,551,000 barrels per day during the week, 537,000 barrels per day more than during the prior week…at the same time, our field production of crude oil rose by 20,000 barrels per day to an average of 9,430,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,981,000 barrels per day during the cited week…

during the same week, refineries used 17,408,000 barrels of crude per day, 123,000 barrels per day more than they used during the prior week, while at the same time 218,000 barrels of oil per day were being pulled out of oil storage facilities in the US (down from the withdrawal of 1,030,000 barrels of oil per day the prior week)….thus, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 209,000 fewer barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (+209,000) 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 (pdf) show that the 4 week average of our oil imports rose to an average of 7,976,000 barrels per day, which was still 3.8% below the imports of the same four-week period last year…the 218,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercial stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s 20,000 barrel per day increase in our crude oil production resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in oil output from Alaska…the 9,410,000 barrels of crude per day that were produced by US wells during the week ending July 21st was 7.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.5% more than the 8,515000 barrel per day of oil output during the during the same week a year ago, while it was still 2.1% below the June 5th 2015 record US oil production of 9,610,000 barrels per day…

US oil refineries were operating at 94.5% of their capacity in using those 17,408,000 barrels of crude per day, which was up from 94.3% of capacity the prior week, and above normal for this or any time of year…the amount of oil refined this week was also above the seasonal norm, as it was 3.3% more than the 16,852,000 barrels of crude per day.that were being processed during week ending July 29th, 2016, when refineries were operating at 93.3% of capacity, and roughly 10.5% above the 10 year average of 15.75 million barrels of crude refined per day for the fourth week of July….

even with the increase in refining, gasoline production from our refineries decreased by 98,000 barrels per day from last week’s near record level to 10,295,000 barrels per day during the week ending July 28th, which was still 3.0% higher than the 9,992,000 barrels of gasoline that were being produced daily during the comparable week a year ago….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 101,000 barrels per day to 5,232,000 barrels per day, which was 5.9% more than the 4,940,000 barrels per day of distillates that were being produced during the week ending July 29th last year….

with nominal decrease in our gasoline production, our end of the week supply of gasoline decreased by 2,517,000 barrels to 227,679,000 barrels by July 28th, the 7th drop in gasoline inventories in a row….a record high level of domestic consumption of gasoline, which rose by 21,000 barrels per day to 9,842,000 barrels per day, continues to be responsible for the drop in gasoline supplies, as our gasoline exports decreased by 83,000 barrels per day to 512,000 barrels per day while our imports of gasoline decreased by 174,000 barrels per day to 549,000 barrels per day at the same time….with the decrease in our gasoline supplies, our gasoline inventories are now 4.4% below last year’s seasonal high of  238,190,000 barrels for this week of the year, but are still 5.1% higher than the 216,733,000 barrels of gasoline we had stored on July 31st of 2015, and roughly 5.6% above the 10 year average of gasoline supplies for this week of the year… 

even with the increase in our distillates production, our supplies of distillate fuels still slipped  by 150,000 barrels to 149,414,000 barrels over the week ending July 28th, the 5th drop in six weeks, albeit the smallest ….factors in this week’s small decrease in distillates supplies was a 71,000 barrel per day increase to 1,221,000 barrels per day in our exports of distillates, while our imports of distillates fell by 22,000 barrels per day to 108,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 236,000 barrels per day to 4,140,000 barrels per day….with this week’s decrease, our distillate inventories are now more than 2.4% lower than the 153,155,000 barrels that we had stored on July 29th, 2016, while they remain 3.2% higher than the distillate inventories of 144,812,000 barrels that we had stored on July 31st of 2015, and roughly 8.7% above the 10 year average for distillates stocks for this time of July

finally, even with the net drop in oil imports, the pickup in oil refining still meant our supplies of oil in storage decreased for the 15th time in the past 17 weeks, as our commercial crude oil inventories fell by another 1,527,000 barrels to 481,888,000 barrels as of July 28th, again the least oil we’ve had in storage anytime this year…our oil inventories as of July 28th were also 2.0% below the 490,501,000 barrels of oil we had stored on July 29th of 2016, while they were still 13.9% more than the 423,226,000 barrels in of oil that were in storage on July 31st of 2015…compared to historical figures, before our oil glut began to build up,  this week’s oil supplies were still 44.2% higher than the 334,167,000 barrels of oil we had in storage on August 1st of 2014, and 43.9% above the 10 year average of oil supplies for this time of year …    

This Week’s Rig Count

US drilling activity decreased for the 3rd time in 6 weeks during the week ending August 4th, following 23 consecutive weeks of increases earlier this year, but it appears this week’s drop may have been weather related…Baker Hughes reported that the total count of active rotary rigs running in the US fell by 4 rigs to 954 rigs in the week ending Friday, which was still 490 more rigs than the 464 rigs that were deployed as of the August 5th report in 2016, even though it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil decreased by a single rig to 765 rigs this week, which was still up by 384 oil rigs over the past year, while it was still far 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 decreased by 3 rigs to 189 rigs this week, which was still 108 more rigs than the 81 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…

the Gulf of Mexico rig count fell by 7 rigs to 16 this week, apparently due to the movement of Tropical Storm Emily through the eastern Gulfwatching the movement of the storm, i saw nothing that i felt would threaten rigs offshore from Louisiana, but i imagine some of those rigs may have been shut down as a precaution…the 16 rigs still active in the Gulf was thus down from the 17 rigs that were working in the Gulf the same week last year, but since there is also a rig drilling offshore from Alaska this year, the total US offshore rig count of 17 rigs is the same as the total offshore last year..

active horizontal drilling rigs fell by 3 rigs to 807 rigs this week, the largest horizontal rig decrease in more than a year…however, this week’s horizontal rig count was still up by 445 rigs from the 362 horizontal rigs that were in use in the US on August 5th of last year, while it was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the directional rig count was also down by 3 rigs to 74 directional rigs this week, which was still up from the 44 directional rigs that were deployed during the same week last year…meanwhile, the vertical rig count was up by 2 rigs to 73 rigs this week, which was also up from the 58 vertical rigs that were deployed on August 5th of last year….

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 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 August 4th, the second column shows the change in the number of working rigs between last week’s count (July 28th) and this week’s (August 4th) count, the third column shows last week’s July 28th 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 for the 5th of August, 2016…

August 4 2017 rig count summary

obviously, with the shutdown of 7 of its Gulf of Mexico rigs, Louisiana saw the largest rig count drop this week, even as two land based rigs were added in the southern part of the state…Texas is back with the largest increase this week, adding 4 rigs despite no net change in the Permian, as the Eagle Ford in south Texas added a net of 2 rigs, its first increase in 10 weeks…the largest drop in any basin was in the Cana Woodford of Oklahoma, where three rigs were shut down, as that area of the state experienced another swarm of earthquakes this week…and despite the decrease of 3 natural gas rigs, both the Utica and Marcellus stood pat, thus meaning no change in drilling activity in Ohio, Pennsylvania, or in West Virginia…one natural gas rig was pulled out of the Eagle Ford, where 3 oil directed rigs were added, and two more natural gas rigs were removed from other basins not individually itemized by Baker Hughes, possibly from the Gulf of Mexico…otherwise, the above table is a pretty good representation of the changes that took place this week…

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