oil prices reverse May’s gains; distillates supplies at a 4 year low, down 22% from a year ago; global oil stores down in April

oil prices fell for the first time in four weeks this week, giving up all of their May gains in the process, but not before hitting new three and a half year highs on Monday and again on Tuesday….after rising 58 cents to $71.28 a barrel last week, mostly on geopolitical fears, oil contracts for June delivery of US oil rose 96 cents to $72.24 a barrel on Monday, the highest since November 2014, on fears that Venezuela’s oil output would fall further after Trump added new financial sanctions to punish the country for re-electing their socialist president Maduro…oil prices then rose to another 42 month high of 72.83 a barrel on U.S. sanctions threats against Iran on Tuesday morning, but then fell back on renewed fears of a trade war between the US and China to close 11 cents lower, as trading in June US oil expired Tuesday afternoon at $72.13 a barrel, even as Brent crude for July, the global benchmark, still settled 35 cents higher, at another 3 1/2 -year closing high of $79.57 a barrel…with the contract for July US oil, which had fallen 15 cents to 72.20 on Tuesday, becoming the quoted front month oil price Wednesday, oil prices fell 36 cents to $71.84 a barrel on Wednesday, after the weekly EIA report showed a shockingly large increase in US oil stockpiles…oil prices then sank $1.13 to $70.71 a barrel on Thursday, on expectations that OPEC, meeting with Russia in St Petersburg, would increase oil output to cover the supply shortfalls expected out of Venezuela and Iran…US crude prices then fell as much as $3 in a broad selloff on Friday, after Saudi energy minister Al-Falih said OPEC and Russia were prepared to adjust oil policy in June, possibly by adding as much as 1 million barrels per day to global supplies, with oil closing the day $2.83 lower at $67.88 a barrel…thus the benchmark July US oil contract, which had ended last week at $71.37 a barrel, ended this week 4.9% lower, in its largest weekly retreat since early February…

since that end of the week oil price crash quickly reversed this month’s worth of price increases, we’ll include a quick graph of that interesting price trajectory here…

May 26 2018 2 hour oil prices since 8AM May 1

the above graph is an early Saturday morning screenshot of the live interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets, which we had set to show oil price changes every 2 hours…thus, each bar on this graph represents oil prices for 2 hours of oil trading between 8 AM on May 1st and the end of trading on Friday of this week, with green bars representing the two hour periods when the price of oil went up, and red bars representing the periods when the price of oil went down…for green bars, the starting oil price at the beginning of the 120 minute period is at the bottom of the bar and the price at the end of the period is at the top of the bar, while for red or down periods, the starting price is at the top of the bar and the price at the end of the 2 hours is at the bottom of the bar…also barely visible on this “candlestick” style graph are the faint grey “wicks” above and below each bar, to indicate trading prices during each 2 hour period that were above or below the opening to closing price range for that 2 hour period…   

as you can see, oil prices moved up fairly steadily throughout most of May, driven mostly by Trump’s Iran sanctions, repeatedly hitting new 42 month highs on the way, till they reversed in the noon hour on Tuesday, which you can see as an obvious green to red peak…prices then fell in a steeping trajectory until the close, after which they still continued sliding in after hours trading…note that the odd price cite on the right margin was the morning price on May 1st, produced by the interactive function as i navigated the cursor to 8 AM on the graph…that $68.15 thus represents the price at that time, thus showing that oil prices are now down roughly 1% for the month…

natural gas prices, on the other hand, were 3.2% higher this week, hitting 17 week highs on three consecutive days before slipping a tenth of a cent to $2.939 per  mmBTU on Friday, as the temperature outlook progressively indicated a warmer than normal period ahead for most of the country, which would increase power burn for air conditioning, leaving less natural gas left over for storage…the natural gas storage report from the EIA for the week ending May 18th indicated that natural gas in storage in the US rose by 91 billion cubic feet to 1,629 billion cubic feet over the week, which still left our gas supplies 804 billion cubic feet, or 33.0% below the 2,433  billion cubic feet that were in storage on May 19th of last year, and 499 billion cubic feet, or 23.4% below the five-year average of 2,128 billion cubic feet of natural gas that are typically in storage on the third weekend in May…analysts had forecast a 92 billion cubic foot addition to storage, so while this 91 billion cubic foot addition was in line with expectations, it was still above the 74 billion cubic feet of gas that were added to storage over the week ending May 19th last year, and a bit above the average 89 billion cubic foot surplus of natural gas typically added to storage during the third week in May…however, except for the polar vortex year of 2014, natural gas supplies are still at their lowest on record for this time of year, and at 1,629 billion cubic feet they would need to increase by more than 98 billion cubic feet per week to get supplies up to the pre-winter average of 3,800 billion cubic feet by mid-October, a target that will get increasingly difficult as we move into the warmer part of the year, when demand for air conditioning is strongest…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending May 18th, indicated that due to a big jump in our oil imports and and an even larger drop in our oil exports, we had surplus oil to add to our commercial crude supplies for the tenth time in the past seventeen weeks…our imports of crude oil rose by an average of 558,000 barrels per day to an average of 8,159,000 barrels per day during the week, after rising by 258,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 818,000 barrels per day from last week’s record high to 1,748,000 barrels per day during this week, which meant that our effective trade in oil over the week ending the 18th worked out to a net import average of 6,411,000 barrels of per day during the week, 1,376,000 barrels per day more than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells inched up by 2,000 barrels per day to a record high of 10,725,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,136,000 barrels per day during the reporting week…

meanwhile, US oil refineries were using 16,628,000 barrels of crude per day during the week ending May 18th, 7,000 barrels per day less than they used during the prior week, while at the same time 725,000 barrels of oil per day were reportedly being added to oil storage 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 217,000 fewer barrels per day than what was added to storage and what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+217,000) 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”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports slipped to an average of 7,908,000 barrels per day, which was 3.5% less than the 8,192,000 barrel per day average we imported over the same four-week period last year…the 725,000 barrel per day increase in our total crude inventories included a 825,000 barrel per day addition to our commercially available stocks of crude oil, which was partially offset by a 100,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year’s federal budget…this week’s 2,000 barrel per day increase in our crude oil production included a 24,000 barrel per day increase in output from wells in the lower 48 states, which was mostly offser by a 22,000 barrel per day decrease in oil output from Alaska…the 10,725,000 barrels of crude per day that were produced by US wells during the week ending May 18th were nonetheless again the highest on record, 15.1% more than the 9,320,000 barrels per day that US wells were producing during the week ending May 19th of last year, and up by 27.2% from 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 91.8% of their capacity in using 16,628,000 barrels of crude per day during the week ending May 18th, up from 91.1% of capacity the prior week, but down from the seasonal high of 93.5% of capacity during the first week of April….the 16,628,000 barrels of oil that were refined this week were down 5.6% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 3.8% less than the 17,281,000 barrels of crude per day that were being processed during the week ending May 19th, 2017, when refineries were operating at 93.5% of capacity…. 

even though the amount of oil that was refined this week was little changed, gasoline output from our refineries was much lower, decreasing by 410,000 barrels per day to 10,052,000 barrels per day during the week ending May 18th, after our refineries’ gasoline output had increased by 488,000 barrels per day during the week ending May 11th....with this week’s decrease, our gasoline production was 1.9% lower during the week than the 10,243,000 barrels of gasoline that were being produced daily during the week ending May 19th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 93,000 barrels per day to 4,938,000 barrels per day, after rising by 38,000 barrels per day the prior week….that left the week’s distillates production 5.0% lower than the 5,197,000 barrels of distillates per day than were being produced during the week ending May 19th, 2017….      

however, even with the big drop in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,883,000 barrels to  233,897,000 barrels by May 18th, just the fourth increase in 12 weeks, but the 19th increase in 28 weeks, as gasoline inventories, as usual, were being built up over the winter months…our gasoline supplies rose this week because our exports of gasoline fell by 569,000 barrels per day to 356,000 barrels per day, and because our imports of gasoline rose by 342,000 barrels per day to 1,063,000 barrels per day, even as our domestic consumption of gasoline rose by 158,000 barrels per day to 9,689,000 barrels per day…but even after this week’s increase, our gasoline inventories finished the week 2.5% lower than last May 19th’s level of 239,882,000 barrels, even as they were still roughly 6.8% above the 10 year average of gasoline supplies for this time of the year…     

meanwhile, with this week’s decrease in distillates production, our supplies of distillate fuels fell by 951,000 barrels to a four year low of 113,995,000 barrels during the week ending May 18th, the 10th decrease in eleven weeks, and after falling by 13,311,000 barrels over the prior five weeks, at a time of year when distillates supplies are typically increasing…our distillate inventories fell again because our exports of distillates rose by 562,000 barrels per day to 1,461,000 barrels per day, and because our imports of distillates fell by 53,000 barrels per day to record low 24,000 barrels per day, even while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 585,000 barrels per day to 3,637,000 barrels per day…after this week’s inventory decrease, our distillate supplies ended the week 22.1% below the 146,339,000 barrels that we had stored on May 19th, 2017, and roughly 15.6% lower than the 10 year average of distillates stocks for this time of the year

with our supplies of distillates now at a 4 year low, we’ll take a look at a graph of what that looks like, compared to recent history:

May 23 2018 distillate supplies as of May 18

in the graph above, copied from the weekly Petroleum Status Report (pdf), the blue line shows the recent track of US distillate inventories in millions of barrels over the period from January 2017 to May 18th, 2018, while the grey shaded area represents the range of distillate inventories in millions of barrels as reported weekly by the EIA over the 5 years prior to the time of year shown by the blue line…thus, on the extreme left of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to January 2012, while on the right side of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to December 2013…as we can see by the blue line, as recently as February 2017 our distillate supplies were at an all time high, but in the 15 months since then, they’ve fallen to a 4 year low, largely because we’ve been exporting diesel fuel at a record pace…only at the end of the polar vortex winter of 2014 were our distillate fuel supplies lower than they are now, due at that time to the exceptionally large use of heat oil over that winter…in fact, the last time distillate supplies were this low after the third week of May was back in 2008, because they’d already recovered to 116,277,000 barrels by May 16, 2014….unlike natural gas, however, where we are largely dependent on storage for our winter supplies, any distillate shortfall during a cold winter could be quickly made up by increasing our distillates imports, albeit more than likely at a much higher price than we are now selling our exports for…

finally, with the big drop in our oil exports accompanied by a big increase in our oil imports, our commercial supplies of crude oil increased for the 11th time in 2018, but just for the 18th time in the past year, as our commercial crude supplies rose by 5,778,000 barrels during the week, from 432,354,000 barrels on May 11th to 438,132,000 barrels on May 18th…however, after falling most of the past year, our oil inventories as of May 18th were still 15.1% below the 516,340,000 barrels of oil we had stored on May 19th of 2017, 13.3% lower than the 505,571,000 barrels of oil that we had in storage on May 20th of 2016, and 1.9% below the 446,412,000 barrels of oil we had in storage on May 22nd of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years…   

OPEC’s Monthly Oil Market Report

next, we’re going to take a look at OPEC’s May Oil Market Report (covering April OPEC & global oil data) this week, as i didn’t have time to get to it last week.. it’s available as a free download and hence it’s the report we check for monthly global oil supply and demand data, rather than the paywalled report of the IEA that’s usually reported in the media…the first table from this monthly report that we’ll 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 thus resolve any potential disputes that could arise if each member reported their own figures…   

April 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output increased by 12,100 barrels per day in April to 31,930,000 barrels per day, from their March production total of 31,918,000 barrels per day, but that was a figure that was originally reported as 31,958,000 barrels per day, so their production for April was actually 27,900 barrels per day lower than the previously reported March figures (for your reference, here is the table of the official March OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column above, an increase of 46,500 barrels per day in the output from Saudi Arabia was the main reason that the cartel’s output rose, with Algeria also contributing a 17,700 barrel per day increase…however, with a quota of 10,060,000 barrels per day for the Saudis, and 1,040,000 barrels per day for the Algerians, both of those countries still remain well below their allocations, according to their original pact…at 31,930,000 barrels per day, OPEC oil output is now 800,000 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 4,429,000 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 May 2016 to April 2018, and it comes from the page numbered 57 (pdf page 65) 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…   

April 2018 OPEC report global oil supply

OPEC’s preliminary data indicates that total global oil production rose by a rounded 120,000 barrels per day to a record 97.89 million barrels per day in April, after March’s global output total was revised down by .36 million barrels per day from the record 98.15 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 110,000 barrels per day…global oil output for April was also 2.08 million barrels per day, or 2.2% higher than the 95.81 million barrels of oil per day that were being produced globally in April a year ago (see the May 2017 OPEC report online (pdf) for the year ago data)… OPEC’s March oil production of 31,930,000 barrels per day thus represented just 32.6% of what was produced globally, the same percentage as in March, as oil output increases by US, the UK, Brazil, and China were only partially offset by decreases in oil output from Canada, Ghana and Kazakhstan…OPEC’s April 2017 production was at 31,732,000 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 71,000 more barrels per day of oil than they were producing a year ago, during the fourth month that their production quotas were in effect, with the increase in OPEC output from last year largely due to recoveries of oil production in Libya and Nigeria…   

however, even with the increase in global oil output that we can see in the above purple graph, April saw the first deficit in the amount of oil being produced globally so far this year, largely due to increasing demand, as this next table from the OPEC report will show us..       

April 2018 OPEC report 2018 global oil demand

the table above comes from page 32 of the May OPEC Monthly Oil Market Report (pdf page 40), 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 third column, we’ve circled in blue the figure that’s relevant for April, which is their revised estimate of global oil demand during the second quarter of 2018…     

thus, OPEC’s estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe will be using 98.08 million barrels of oil per day, which is an upward revision from their prior estimate of 97.84 million barrels of oil per day….at the same time, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world’s oil producers were only producing 97.89 million barrels per day during April, which means that there was a shortfall of around 190,000 barrels per day in global oil production vis-a vis estimated demand during the month…

meanwhile, as you see circled in green above, global oil demand figures for 2017 and for the first quarter of 2018 were also revised higher, which means that our previously computed oil surplus for the first quarter of 2018 and our oil shortfall figures for 2017 will also have to be revised… to start with, we had figured there was a surplus of around 750,000 barrels per day in global oil production vis-a vis demand during March; OPEC’s revised figures show that demand was actually 150,000 barrels per day higher during the 1st quarter than they estimated last month, whereas we saw earlier, March global supply figures were revised 360,000 barrels per day lower…those revisions thus mean that the global oil surplus in March was just 240,000 barrels per day…meanwhile, the 0.15 million barrel of oil per day upward revision to 1st quarter demand means that the surpluses we had computed for January and February were that much lower; based on our figures from a month ago, that means that January’s surplus would be revised down to 260,000 barrels per day, and February’s surplus would be revised down to 420,000 barrels per day…hence, for the first three months of 2018, global oil production exceeded demand by roughly 20.6 million barrels

on the other hand, cumulative global oil demand figures for 2017 were revised higher by 0.13 million barrels per day to 97.13 barrels per day (also circled in green) with this report, with revisions for each quarter of that year shown in the table on page 31 of the May OPEC Monthly Oil Market Report (pdf page 39)…while we’re not about to recompute the surplus or deficit totals for each month of 2017, we can estimate that the total deficit for the year was roughly 47.5 million barrels than had previously been reported (0.13 bpd * 365 days)…that means our previously computed shortfall of 213 million barrels for 2017 oil supply would now be revised to show a global shortfall of 260.5 million barrels for the year, which, according to OPEC, had nearly eliminated the global glut of crude seen before their output cuts began

This Week’s Rig Count

US drilling activity increased for the 13th time in the past fourteen weeks and for 22nd time in the past 29 weeks during the week ending May 25th, 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 increased by 13 rigs to 1059 rigs over the week ending on Friday, which was also 151 more rigs than the 908 rigs that were in use as of the May 26th 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 week before OPEC officially began their attempt to flood the global oil market… 

the number of rigs drilling for oil was up by 15 rigs to 859 rigs this week, which was also 137 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 198 rigs this week, which was only 13 more gas rigs than the 185 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there are also two rigs running now that are listed as “miscellaneous”, compared to the 1 “miscellaneous” rig that was operating a year ago….

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 5 fewer rigs than were drilling in the Gulf of Mexico a year ago…with a rig also drilling offshore from Alaska, the total US offshore count of 19 rigs was down by 4 from last year’s offshore total of 23 rigs….meanwhile the count of active horizontal drilling rigs increased by 7 rigs to 926 horizontal rigs this week, which was 160 more horizontal rigs than the 766 horizontal rigs that were in use in the US on May 26th 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 increased by 5 rigs to 66 vertical rigs this week, which was still down from the 77 vertical rigs that were in use during the same week of last year…in addition,, the directional rig count was up by 1 rig to 67 directional rigs this week, which was also up by 2 rigs from the 65 directional rigs that were deployed on May 26th 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 May 25th, the second column shows the change in the number of working rigs between last week’s count (May 18th) and this week’s (May 25th) count, the third column shows last week’s May 18th active rig count, the 4th column shows the change between the number of rigs running on Friday and those 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 Friday the 26th of May, 2017…         

May 25 2018 rig count summary

as we’ve seen many times this year, the lion’s share of this week’s drilling increase took place in the Permian, where 12 rigs were added through 4 Texas Railroad Commission Oil & Gas Districts in western Texas, while one Permian rig on the New Mexico side of the border was shut down…with the rig count up by one in both the Eagle Ford of south Texas and in the Barnett shale in the Dallas – Ft Worth area, that means 5 rigs outside of the major Texas basins, mostly in northeast Texas, were concurrently shut down in the state, to end with a net gain of 9 rigs for Texas for the week…meanwhile, natural gas rigs were down by 2 nationally despite the addition of one natural gas rig in the West Virginia Marcellus and the switch of an oil rig to natural gas in the Granite Wash tight sand of the Texas – Oklahoma panhandle area because a natural gas rig was shut down in the Eagle Ford while 2 oil rigs were added, and because 3 natural gas rigs in “other basins” not tracked separately by Baker Hughes were shut down at the same time…we should also note that other than the rig changes in the major producing states shown above, Mississippi also saw a rig shut down this week, leaving two rigs operating in the state, still up from one rig deployed in Mississippi the same week a year ago…. 

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