oil prices jump to 41 month high on war news; global oil output at another record high despite deeper OPEC cuts

oil prices were higher each and every day this week, mostly on wars and rumors of wars, ending at their highest level since November 2014, even as US & global oil supply figures remained bearish…after falling 4.4% to $62.06 a barrel on fears of a trade war with China last week, prices for US crude to be delivered in May rose $1.36 to $63.42 a barrel on Monday, as those trade war fears subsided and oil traders turned their attention to rising tensions in the Middle East, where Israeli missiles hit a Syrian air base and an alleged chemical attack over the weekend allegedly killed dozens of civilians in a rebel-held town near Damascusoil prices then jumped $2.09 to $65.51 a barrel on Tuesday, the highest close since 2014, after Trump threatened Syria and Russia with a missile strike in response to the alleged gas attack and UN Ambassador Nikki Haley said that the US would retaliate against the alleged attack in Syria regardless of what the UN Security Council finds, even as the US had no evidence of who was behind the alleged attack or if it actually happened at all…then on Wednesday, despite a surprisingly large increase in US crude supplies, oil prices still rose $1.31 to $66.82 a barrel, because the Saudis intercepted Houthi missile attacks on their capital Riyadh and on their oil facilities and Russia said they’d shoot down any and all of the missiles that Trump threatened to fire at Syria….while oil prices were down 49 cents on Thursday morning, they rebounded to eke out a 25 cent gain for the day, closing at $67.07 a barrel, after the Saudis intercepted another missile attack, this time over Jazan, and a report of a large drop in OPEC production dominated the news…oil prices then rose for a fifth straight session Friday, with the U.S. benchmark crude gaining 31 cents to close the week $67.38 a barrel, an increase of nearly 9% on the week in the largest weekly price jump in over 8 months

natural gas prices, on the other hand, remained unaffected by the geopolitical news, although they also eked out a small gain for the week, as the contract price for May gas delivery ended the week 3.4 cents higher at $2.735 per mmBTU, even after falling 4.5 cents over Monday and Tuesday, as the weekly storage report on Thursday showed a larger than expected withdrawal of natural gas from storage, which boosted prices heading into the weekend…the week’s natural gas storage report indicated that natural gas in storage in the US fell by 19 billion cubic feet to 1,335 billion cubic feet over the week ending April 6th, which left our gas supplies 725 billion cubic feet, or 35.2% lower than the 2,060 billion cubic feet that were in storage on April 7th of last year, and 375 billion cubic feet, or 21.9% below the five-year average of 1710 billion cubic feet typically in storage after the first week of April…the average first week of April over the past five years has shown a surplus of 9 billion cubic feet, so this week’s shortfall & subsequent withdrawal came at a time of year when natural gas normally starts being injected into storage, although you might recall that last week was colder than normal…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending April 6th, showed that due to a big jump in our oil imports and a big drop in our oil exports, we were able to add to our crude oil supplies for the seventh time in the past eleven weeks…our imports of crude oil rose by an average of 752,000 barrels per day to an average of 8,650,000 barrels per day during the week, after falling by 250,000 barrels per day the prior week, while our exports of crude oil fell from last week’s record by an average of 970,000 barrels per day to an average of 1,205,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 7,445,000 barrels of per day during the week, 1,722,000 barrels per day more than our net imports during the prior week…at the same time, field production of crude oil from US wells rose by 65,000 barrels per day to a record high of 10,525,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,970,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 17,019,000 barrels of crude per day, 83,000 barrels per day more than they used during the prior week, while at the same time 472,000 barrels of oil per day were being added to oil storage facilities in the US….consequently, this week’s crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 479,000 barrels per day more than what refineries reported they used plus what was added to storage during the week…to account for that disparity, the EIA needed to insert a (-479,000) 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, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”… (the details on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, are explained here)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,943,000 barrels per day, which was 1.5% less than the 8,065,000 barrel per day average we imported over the same four-week period last year….the 472,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged…this week’s 65,000 barrel per day increase in our crude oil production included a 85,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 20,000 barrel per day decrease in output from Alaska…the 10,525,000 barrels of crude per day that were produced by US wells during the week ending April 6th were the highest on record, 14.0% more than the 9,235,000 barrels per day that US wells were producing during the week ending April 7th of last year, and 24.9% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016…

US oil refineries were operating at 93.5% of their capacity in using those 17,019,000 barrels of crude per day, up from 93.0% of capacity the prior week, and the highest utilization rate since the first week of this year….the 17,019,000 barrels of oil that were refined this week was a seasonal record, the most oil that US refineries have ever processed this early in any April, beating the record during the week ending April 7th last year…and while this week’s level of refining was still 3.3% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 1.9% more than the 16,697,000 barrels of crude per day that were being processed during that week a year ago, when refineries were operating at 91.0% of capacity….

with the increase in the amount of oil being refined, gasoline output from our refineries was higher than the prior week, increasing by 35,000 barrels per day to 10,150,000 barrels per day during the week ending April 6th, after our gasoline output had decreased by 190,000 barrels per day during the week ending March 30th....with that increase, our gasoline production was 2.2% greater during the week than the 9,927,000 barrels of gasoline that were being produced daily during the week ending April 7th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 240,000 barrels per day to 5,256,000 barrels per day, after rising by 513,000 barrels per day during the prior two weeks….hence, that increase meant the week’s distillates production was 3.9% higher than the 5,060,000 barrels of distillates per day than were being produced during the week ending April 7th, 2017….   

with the modest increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 458,000 barrels to 238,935,000 barrels by April 6th, the first increase in 6 weeks, but the 16th increase in 22 weeks….our gasoline supplies rose even as our domestic consumption of gasoline rose by 70,000 barrels per day to 9,273,000 barrels per day because our exports of gasoline fell by 177,000 barrels per day to 789,000 barrels per day, while our imports of gasoline fell by 106,000 barrels per day to 655,000 barrels per day…with this week’s increase, our gasoline inventories are now 1.2% higher than last April 7th’s level of 236,130,000 barrels, and roughly 13.3% above the 10 year average of gasoline supplies for this time of the year…        

even with the increase in distillate’s production, our supplies of distillate fuels fell by 1,044,000 barrels to 128,447,000 barrels over the week ending  April 6th, the 4th decrease in five weeks…our distillate inventories fell because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 283,000 barrels per day to 4,170,000 barrels per day, and because our exports of distillates rose by 209,000 barrels per day to 1,360,000 barrels per day, while our imports of distillates rose by 26,000 barrels per day to 125,000 barrels per day…after this week’s inventory decrease, our distillate supplies ended the week 14.5% lower than the 150,221,000 barrels that we had stored on April 7th, 2017, and roughly 5.9% lower than the 10 year average of distillates stocks at this time of the year…   

however, because of the drop in our oil exports and the jump in our oil imports, we were able to add oil to our commercial supplies of crude oil for the 8th time in 2018 and for the 16th time in the past year, as our commercial crude supplies increased by 3,306,000 barrels, from 425,332,000 barrels on March 30th to 428,638,000 barrels on April 6th….however, after falling most of the past year, our oil inventories as of April 6th were still 19.6% below the 533,377,000 barrels of oil we had stored on April 7th of 2017, 15.2% lower than the 505,232,000 barrels of oil that we had in storage on April 8th of 2016, and 4.9% below the 450,956,000 barrels of oil we had in storage on April 10th of 2015, at a time when the US glut of oil had already begun to surge from the stable levels of prior years…

OPEC’s Monthly Oil Market Report

Thursday of this past week saw the release of the OPEC’s April Oil Market Report (covering March OPEC & global oil data), which is available as a free download, and hence it’s the report we check for global oil supply data….the first table from this monthly report that we usually look at is from the page numbered 51 of that report (pdf page 59), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate…for all their official production measurements, OPEC uses an average of estimates from six “secondary sources”, namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures… 

March 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output fell by 201,400 barrels per day in March to 31,958,000 barrels per day, from an February production total of 32,159,000 barrels per day, but that was a figure that was originally reported as 32,186,000 barrels per day, so their production for March was actually 228,400 barrels per day lower than the previously reported figures (for your reference, here is the table of the official February OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column above, oil production cutbacks by several of the OPEC members led to the March drop, with an 81,700 barrel per day decrease in Angolan oil output, a 55,300 barrel per day decrease in Venezuela’s oil output, a 46,900 barrel per day decrease in Saudi output, and a 37,200 barrel per day decrease in Libya’s output as the major factors…at 31,958,000 barrels per day, OPEC oil output is now 828,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq’s 4,426,000 barrel per day output above their 4,350,000 barrel per day allocation…

the next graphic we’ll include shows us both OPEC and world oil production monthly on the same graph, over the period from April 2016 to March 2018, and it comes from the page numbered 52 (pdf page 60) of the April OPEC Monthly Oil Market Report…on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale…  

March 2018 OPEC report global oil supply

OPEC’s preliminary data indicates that total global oil production rose by 180,000 barrels per day to a record 98.15 million barrels per day in March, after February’s global output total was revised down by .23 million barrels per day from the record 98.20 million barrels per day global oil output that was reported a month ago, as a 380,000 barrel per day increase in non-OPEC oil production more than made up for this month’s OPEC output cuts….global oil output for March was also 2.33 million barrels per day higher than the 95.82 million barrels of oil per day that were being produced globally in March a year ago (see last April’s OPEC report online (pdf) for the year ago data)… OPEC’s March oil production of 31,958,000 barrels per day thus represented just 32.6% of what was produced globally, down from a revised 32.9% in February, as oil output increases by US, Norway, UK, Bahrain, Brazil, Russia and China were only partially offset by decreases in oil output from Colombia, Oman and Kazakhstan…OPEC’s March 2017 production was at 31,928,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 165,000 more barrels per day of oil than they were producing a year ago, during the third month that their production quotas were in effect, with the increase from last year largely due to recoveries of oil production in Libya and Nigeria… 

the increase in global oil output that we can see in the above purple graph meant there was a surplus in the amount of oil being produced globally, as this next table from the OPEC report will show us..     

March 2018 OPEC report 2018 global oil demand

the table above comes from page 31 of the March OPEC Monthly Oil Market Report (pdf page 39), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2018 over the rest of the table…on the “Total world” line of the second column, we’ve circled in blue the figure that’s relevant for March, which is their revised estimate of global oil demand during the first quarter of 2018…  

so, OPEC’s estimate is that during the 1st quarter of this year, all oil consuming areas of the globe have been using 97.40 million barrels of oil per day, which is an upward revision from their prior estimate of 97.27 million barrels of oil per day (which we’ve circled in green)…..meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, even after the OPEC and non-OPEC production cuts, the world’s oil producers were producing 98.15 million barrels per day during March, which means that there was a surplus of around 750,000 barrels per day in global oil production vis-a vis demand during the month…

meanwhile, the 0.23 million barrels per day upward revision to February’s global output plus the 0.13 million barrel of oil per day upward revision to 1st quarter demand means that our previously computed surplus for February should be revised .36 million barrels per day lower, and thus now stands at 570,000 barrels per day…likewise, the 0.13 million barrel of oil per day upward revision to 1st quarter demand means that January’s surplus was that much lower, now at 410,000 barrels per day…hence, for the first three months of the year, oil production has exceeded supply by roughly 51.9 million barrels

on the other hand, cumulative global oil demand figures for 2017 were revised higher by 0.03 million barrels per day to 97.07 barrels per day (also circled in green) with this report, because of a 0.13  million barrels per day upward revision to 4th quarter demand figures…with 92 days in the 4th quarter, that means our previous estimate of a 201 million barrel oil shortfall for 2017 was about 12 million barrels too low, so we can now re-estimate that the global oil deficit over all of 2017 was approximately 213 million barrels…

This Week’s Rig Count

US drilling activity increased for the seventh time in the past eight weeks and for 16th time in the past 23 weeks during the week ending April 13th, a period of higher oil prices that has consequentially seen the rig increases far exceed the few decreases…Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 1008 rigs in the week ending on Friday, which was the most rigs running in the US since April 2nd, 2015…that was also 161 more rigs than the 847 rigs that were in use as of the April 13th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014…

the number of rigs drilling for oil increased by 7 rigs to 815 rigs this week, which was also 132 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations fell by 2 rigs to 192 rigs this week, which was still 30 more gas rigs than the 162 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…in addition, there is also a rig drilling currently that was listed as “miscellaneous”, unchanged from last week, but down from the 2 “miscellaneous” rigs that were operating a year ago.

new drilling began from 4 additional platforms in the Gulf of Mexico this week, increasing current drilling activity in the Gulf to 16 rigs, which was still 5 rigs less than were working in the Gulf, or anywhere offshore, a year ago…meanwhile, the count of active horizontal drilling rigs decreased by one rig to 883 horizontal rigs this week, which was still 177 more horizontal rigs than the 706 horizontal rigs that were in use in the US on April 13th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the vertical rig count was also down by 1 rig to 55 vertical rigs this week, which was also down from the 77 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count increased by 7 rigs to 70 directional rigs this week, which was up from the 64 directional rigs that were deployed on April 13th of 2017…

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 the 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 13th, the second column shows the change in the number of working rigs between last week’s count (April 6th) and this week’s (April 13th) count, the third column shows last week’s April 6th active rig count, the 4th column shows the change between the number of rigs running on Friday and as of the equivalent weekend report of 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 on Thursday the 13th of April, 2017…    

April 13 2018 rig count summary

one thing that isn’t shown on this week’s tables is the 4 rigs that were added in the Gulf of Mexico; they were all offshore from Louisiana and are hence included in the Louisiana count, which was only up by 1 rig because three land based rigs – one in the northern part of the state, and two in the south, were shut down in Louisiana at the same time…meanwhile, the rig that was added in Ohio’s Utica was targeting a natural gas bearing formation, and there was also a new natural gas added in the Arkoma Woodford of Oklahoma; however, natural gas rigs ended down two because of the shutdown of one rig in the Marcellus of West Virginia, one in the Eagle Ford of south Texas (where three oil rigs were added), and two in other basins not shown above…also note that there’s a 6 rig increase in the major shale basins shown above; assuming those additions were all horizontal rigs, there then had to be at least 7 horizontal rigs shut down in those “other” basins that Baker Hughes does not track separately…

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