US gasoline output at a record high, oil supplies at a 41 mo. low; global oil output up in June after May revised lower

oil prices ended sharply lower this week, after hitting an air pocket and dropping more than 5% on Wednesday, on the back of the announcement of the resumption of Libyan oil output…after falling a half percent to $73.80 a barrel on an increase in US crude supplies last week, contracts for US light sweet crude for August delivery rose 5 cents to $73.85 a barrel on Monday, as reports that Canada’s Syncrude operations would resume activity sooner than expected cut off a rally higher….oil prices then rose 26 cents to $74.11 a barrel on Tuesday, on continued production outages globally, and expectations that sanctions against Iran would limit supplies…on Wednesday, however, oil prices collapsed, with US crude falling $3.73 to $70.38 a barrel, after Libya announced they had resumed exports, and the OPEC reported an increase in oil output; at the same time, North Sea Brent crude, the international benchmark, fell $5.46 to $73.33 per barrel, a daily price move more than three standard deviations from the mean, and the largest one-day drop since February 2016…while Brent crude rebounded $1.11 higher on Thursday, US oil prices were mostly mixed, slipping another 5 cents to $70.33 a barrel at the close, as the resumption of Libyan output offset warnings from the IEA that OPEC was facing a spare capacity crunch…US prices then climbed 68 cents to $71.01 on Friday, but still posted a sharp 3.8% loss for the week, as oil traders weighed returning Libyan supply and global trade disputes against indications of tighter crude supply and shrinking spare output capacity

natural gas prices also ended the week lower, dropping in four out of 5 trading sessions in sliding a total of 10.6 cents to $2.752 per mmBTU by the end of the week, despite forecasts for the return of hot weather and a smaller than expected injection of surplus gas into storage….the natural gas storage report for week ending July 6th from the EIA indicated that natural gas in storage in the US rose by 51 billion cubic feet to 2,203 billion cubic feet over the week, which left our gas supplies 725 billion cubic feet, or 24.8% below the 2,869 billion cubic feet that were in storage on July 7th of last year, and 519 billion cubic feet, or 19.1% below the five-year average of 2,722  billion cubic feet of natural gas that are typically in storage after the first week of July…the consensus forecast was for an addition of 56 billion cubic feet to gas in underground storage, so this 51 billion cubic feet increase was a bit below what had been expected, and quite a bit lower than the 77 billion cubic foot of weekly surplus natural gas that has typically been added to storage during the first week of July… since US natural gas supplies as July 6th were still 1,587 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week’s 51 billion cubic foot addition to supplies now means that we’ll need to add an average of 93 billion cubic feet per week over the next 17 weeks to get our gas supplies back to a normal level before the next heating season’s withdrawals begin…since that’s now unlikely, it means that if the upcoming winter is much colder than normal, then parts of the country will run out of natural gas in storage and shortages will occur before the winter is over…understand, there is no one responsible for seeing that we have adequate natural gas supplies going into the winter, and that US gas producers have a greater incentive to liquefy and export gas at three times the domestic price than to store it here, since any gas shortages that develop will only cause the price to rise, making their remaining gas output more profitable…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending July 6th, indicated that due to a big drop in our oil imports, the week saw the largest withdrawal from our commercial crude supplies since 2016….our imports of crude oil fell from last week’s 16 month high by an average of 1,624,000 barrels per day to an average of 7,431,000 barrels per day, while our exports of crude oil fell by an average of 309,000 barrels per day to an average of 2,027,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,404,000 barrels of per day during the week ending July 6th, 1,315,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells was again reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,304,000 barrels per day during the reporting week… 

at the same time, US oil refineries were using 17,652,000 barrels of crude per day during the week ending July 6th, just 1,000 barrels per day less than they used during the prior week, while at the same time 1,805,000 barrels of oil per day were reportedly being pulled out of oil storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 457,000 more barrels per day than what refineries reported they used during the week….to account for that disparity, the EIA needed to insert a (-457,000) 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 fell to an average of 8,271,000 barrels per day, which was still 5.9% more than the 7,811,000 barrel per day average we imported over the same four-week period last year….the 1,805,000 barrel per day drop in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged….this week’s crude oil production was reported as unchanged despite a 29,000 barrel per day increase in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total….US crude oil production for the week ending July 7th 2017 was reported at 9,397,000 barrels per day, so this week’s rounded oil production figure is roughly 16.0% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

US oil refineries were operating at 96.7% of their capacity in using 17,652,000 barrels of crude per day during the week ending July 6th, down from 97.1% of capacity the prior week, but still a refinery capacity utilization rate well above historical norms…the 17,652,000 barrels of oil that were refined this week were among the largest refinery throughput figures on record, topped only by the prior three weeks in June of this year, and the 17,725,000 barrels per day that were being refined during the last full week of August 2017….this week’s refinery throughput was also 2.4% higher than the 17,244,000 barrels of crude per day that were being processed during the week ending July 7th a year ago, when US refineries were operating at 94.5% of capacity….

even with the amount of oil being refined virtually unchanged this week, gasoline output from our refineries was much higher, rising by 388,000 barrels per day to a record high of 10,699,000 barrels per day during the week ending July 6th, after our refineries’ gasoline output had increased by 169,000 barrels per day during the week ending June 29th....with this week’s increase, our gasoline production during the week was 2.2% more than the 10,365,000 barrels of gasoline that were being produced daily during the week ending July 7th of last year…at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 21,000 barrels per day to 5,442,000 barrels per day, after rising by 67,000 barrels per day the prior week…however, this week’s distillates production was still at a seasonal high, and 1.7% higher than the 5,349,000 barrels of distillates per day that were being produced during the week ending July 7th, 2017…

with gasoline production at a record high, we’ll take a look at an historical graph of that production so we can see what’s going on there…

July 11 2018 gasoline production thru July 6h

the above is a screen copy of the interactive graph that accompanies the EIA spreadsheet for “Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline” which gives us the weekly totals in thousands of barrels per day of our total gasoline production from 1992 to the present, adjusted as indicated…it’s a poor graph, but you should be able to see that our gasoline production has been steadily rising over the entire span of this graph, thus repeatedly setting “new record highs” along the way during the summer and winter seasonal peaks of production…ie, the 10,699,000 barrels of gasoline that were produced per day during the week ending July 6th broke the previous record of 10,566,000 barrels per day that had been produced during the week ending August 18th, 2017, which in turn broke the record of 10,537,000 barrels per day set during the week ending December 23rd, 2016, which in turn broke the record of 10,456,000 barrels per day set six weeks earlier….the point being that as long as US refining continues to expand and gasoline production continues to increase, production records are going to be set along the way…so if it hadn’t been this week, more than likely we would have seen another gasoline production record sometime later this year…

however, even with our gasoline production at a record high, our supply of gasoline in storage at the end of the week still fell by 694,000 barrels to 238,997,000 barrels by July 6th, the eleventh decrease in 18 weeks, but just the 12th decrease in 35 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline fell because our exports of gasoline rose by 699,000 barrels per day to 1,186,000 barrels per day even as the amount of gasoline supplied to US markets fell by 594,000 barrels per day to 9,275,000 barrels per day, while our imports of gasoline rose by 205,000 barrels per day to 853,000 barrels per day….but even after this week’s decrease, our gasoline inventories were still 1.4% higher than last July 7th’s level of 235,656,000 barrels, and roughly 10.6% above the 10 year average of our gasoline supplies for this time of the year…    

meanwhile, with our distillates production little changed, our supplies of distillate fuels increased by 4,125,000 barrels to 117,557,000 barrels during the week ending July 6th, the largest jump in distillate inventories since the first week of this year…that was as our exports of distillates fell by 258,000 barrels per day to 1,152,000 barrels per day, after falling by 426,000 barrels per day the previous week, while our imports of distillates rose by 12,000 barrels per day to 104,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 321,000 barrels per day to 3,805,000 barrels per day, after increasing by 514,000 barrels per day the prior week…however, since this week’s big inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th on the way to falling to a 13 year low, our distillate supplies for the week ending July 6th still remain 20.8% below the 153,553,000 barrels that we had stored on July 7th, 2017, and roughly 14.7% lower than the 10 year average of distillates stocks for this time of the year…   

finally, with that big drop in our oil imports coming while refineries were consuming oil at near record pace, the week saw the largest withdrawal of oil from our commercial supplies of crude oil since September 2016, as our commercial crude supplies fell by 12,633,000 barrels during the week, from 417,881,000 barrels on June 29th to 405,248,000 barrels on July 6th, which turns out to be the least amount of oil we’ve had in storage since February 20, 2015…and after falling 33 weeks over the past year, our oil inventories as of July 6th were 18.2% below the 495,350,000 barrels of oil we had stored on July 7th of 2017, 17.5% below the 491,172,000 barrels of oil that we had in storage on July 8th of 2016, and 5.6% below the 429,368,000 barrels of oil we had in storage on July 10th of 2015, when the US glut of oil had already risen above the nearly stable supply levels of under 400 million barrels during the prior years…  

OPEC’s Monthly Oil Market Report

with oil prices again responding to any changes in OPEC’s oil output, we’ll next take a look at OPEC’s July Oil Market Report (covering June OPEC & global oil data) next, which was released Wednesday of this week and is available as a free download, and hence it’s the report we check for monthly global oil supply and demand data…the first table from this monthly report that we’ll look at is from the page numbered 61 of that report (pdf page 71), 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…    

June 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 173,400 barrels per day in May to 32,327,000 barrels per day, from their May production total of 32,154,000 barrels per day….that May figure was originally reported as 31,869,000 barrels per day before the addition of new member Congo, so the May output of the other OPEC members was therefore revised 34,000 barrels per day lower with this report (for your reference, here is the table of the official May 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 405,400 barrels per day in the output from Saudi Arabia was main reason that the cartel’s output rose, as that increase more than offset the decrease of 254,300 barrels per day in Libyan output, the decrease of 88,300 barrels per day in Angolan output, and the decrease of 47,500 barrels per day in Venezuelan output…with an original output quota set at 10,060,000 barrels per day for the Saudis, their output is now well above their allocation, but with OPEC output excluding the Congo at 31,996,000 barrels per day, OPEC’s total oil output is still 734,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, mostly on the big drop in Venezuelan output…

the next graphic we’ll include shows us both OPEC and world monthly oil production on the same graph, over the period from July 2016 to June 2018, and it comes from the page numbered 62 (pdf page 72) of the July 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…     

June 2018 OPEC report global oil supply

OPEC’s preliminary data indicates that total global oil production rose by a rounded 600,000 barrels per day to 98.01 million barrels per day in June, apparently after May’s global output total was revised down by 450,000 barrels per day from the 97.86 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 430,000 barrels per day in June after that revision….global oil output for June was also 1.74 million barrels per day, or 1.5% higher than the 96.59 million barrels of oil per day that were being produced globally in June a year ago (see the July 2017 OPEC report online (pdf) for the year ago details)…after the downward revision to global output, OPEC’s June oil production of 32,327,000 barrels per day represented 33.0% of what was produced globally during the month, up from the 32.6% share reported for May, with the addition of Congo’s output also contributing to OPEC’s share increase…OPEC’s June 2017 production was at 32,611,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding new members Congo and Equatorial Guinea, are still producing 741,000 fewer barrels per day of oil than they were producing a year ago, during the sixth month that their production quotas were in effect, with the 598,000 barrel per day decrease in output from Venezuela from that time largely responsible for their output drop…

despite the 600,000 barrel per day increase in global oil output in June, the downward revisions to May output meant that we again saw a small deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us… 

June 2018 OPEC report 2018 global oil demand

the table above comes from page 32 of the July  OPEC Monthly Oil Market Report (pdf page 42), 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 June, which is their revised estimate of global oil demand during the second quarter of 2018…     

OPEC’s estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe have been using 98.04 million barrels of oil per day, which is a downward revision of a rounded 0.04 million barrels of oil per day from their prior estimate for the 2nd quarter, as we’ve circled in green….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, the world’s oil producers were producing 98.01 million barrels per day during June, which means that there was a small shortfall of around 30,000 barrels per day in global oil production vis-a vis the demand estimated for during the month… 

at the same time that 2nd quarter global demand was being revised a rounded 40,000 barrels per day lower, May’s global output total was revised down by 450,000 barrels per day to 97,410,000 barrels per day, so that means that the shortfall for May now works out to 630,000 barrels per day, revised from the 220,000 barrel per day shortfall we had figured on a month ago…the 2nd quarter revision to global demand also means that the global shortfall for April would be revised from the 480,000 barrels per day that we figured last month to 440,000 barrels per day…

however, as is also circled in green above, while global oil demand figures for the second quarter were revised lower, global oil demand figures for the first quarter of 2018 were revised 50,000 barrels per day higher, which means that our previously recomputed oil surplus for the first quarter of 2018 will have to be recomputed again…based on the revisions of a month ago, we had figured a global oil surplus of 180,000 barrels per day for March, a surplus of 360,000 barrels per day for February, and a surplus of 200,000 barrels per day for January…each of those surplus figures thus have to be revised lower based on revised higher demand, so hence our new figures will show a surplus of 130,000 barrels per day for March, a surplus of 310,000 barrels per day for February, and a surplus of 150,000 barrels per day for January…totaling it all up, that means that for the first six months of 2018, global oil demand exceeded production by 16,270,000 barrels, a relatively small oil shortfall that is the equivalent of roughly four hours of global oil production at the June rate…  

This Week’s Rig Count

US drilling activity increased for the second time in five weeks, but for 13th time in the past 16 weeks during the week ending July 13th, as the steady increase in drilling for oil we saw with higher oil prices the first half of this year has stalled over the past month…Baker Hughes reported that the total count of active rotary rigs running in the US increased by 2 rigs to 1054 rigs over the week ending on Friday, which was 102 more rigs than the 952 rigs that were in use as of the July 14th report of 2017, but was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market… 

the count of rigs drilling for oil was unchanged at 863 rigs this week, which was 98 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 increased by 2 rigs to 189 rigs this week, which was also up by 2 from the 182 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs drilling this week that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

with a second platform starting operations off the coast of Texas, drilling activity in the Gulf of Mexico increased by 1 rig to 19 rigs this week, which was still 2 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago…however, the drilling platform that had been deployed offshore from Alaska was shut down this week, so the total US offshore count remains at 19 rigs, down by 2 rigs from the total 21 offshore rigs that were drilling a year ago…however, there was also a platform that started drilling on an inland body of water in southern Louisiana this week, so there are now 5 such “inland waters” rigs operating, up from 3 on inland waters a year ago…

the count of active horizontal drilling rigs was unchanged a 930 horizontal rigs this week, which was still 126 more horizontal rigs than the 804 horizontal rigs that were in use in the US on July 14th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…meanwhile, the directional rig count increased by 1 rig to 68 directional rigs this week, which was still down from the 72 directional rigs that were in use during the same week of last year…in addition, the vertical rig count increased by 1 rig to 56 vertical rigs this week, which was still down from the 76 vertical rigs that were operating on July 14th 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 July 13th, the second column shows the change in the number of working rigs between last week’s count (July 6th) and this week’s (July 13th) count, the third column shows last week’s July 6th 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 14th of July, 2017…      

July 13 2018 rig count summary

as you can see, there was not much variation in the rig counts across the states or the primary basins from a week ago…all the major basin changes seen above were oil rigs, as the two rig increase in natural gas drilling took place in basins not tracked separately by Baker Hughes, or more than likely would have been conventional rig start ups, as the rig on the inland waters platform likely was; as you can see, the major natural gas basins, including the Marcellus and the Utica, saw no change…

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