US crude supplies at a 43 month low; August global oil output at a record high, but still a half million bpd short of demand

oil prices ended modestly higher in a week that saw several sharp price moves, both to the upside and to the downside…after falling nearly 3% to $67.75 a barrel in their first drop in three weeks last week, contract prices for US crude for October delivery pulled back from an early rally to end 21 cents lower at $67.54 a barrel on Monday, after weekly data from Bloomberg suggested U.S. oil inventories were rising, contradicting an earlier report from Genscape forecasting declining inventories…however, with Hurricane Florence threatening East Coast supplies and ongoing turmoil in Libyan and Iraqi oil fields, traders betting that Iran sanctions would leave the market short of crude pushed oil prices 3% higher to over $70 a barrel on Tuesday on reports that South Korea, Japan and India had already reduced their Iranian crude imports, before prices settled back to close at $69.25 a barrel, an increase of $1.71, or 2.5%, on the day…oil prices then rose past $71 a barrel in a rally on Wednesday after the EIA reported a larger-than-expected drop in U.S. crude inventories before again settling back to close $1.12 higher at $70.37 a barrel…however, oil prices saw their steepest drop in over a month on Thursday in falling $1.78 to $68.59 a barrel, after OPEC reported rising crude production and the IEA (International Energy Agency) pegged global oil supplies at a record high….however, the price rally commenced again on Friday with oil up as much as 2% after it was reported that Secretary of State Pompeo was going to announce new sanctions on Iran, but then faded into a retreat after Trump instructed aides to proceed with tariffs on about $200 billion more of Chinese products, with oil prices closing just 40 cents higher at $68.99 a barrel, an increase of 1.6% for the week…

natural gas prices, meanwhile, were up 5.3 cents over the first three days of last week before a less bullish than expected storage report knocked prices back 6.2 cents over Thursday into Friday to end the week at $2.767 per mmBTU, down less than a penny for the week overall…this week’s EIA natural gas storage report for week ending September 7th indicated that natural gas in storage in the US rose by 69 billion cubic feet to 2,636 billion cubic feet during that cited week, which left our gas supplies 662 billion cubic feet, or 20.1% below the 3,298 billion cubic feet that were in storage on September 8th of last year, and 596 billion cubic feet, or 18.4% below the five-year average of 3,232 billion cubic feet of natural gas that are typically in storage after the first week of September….this week’s 69 billion cubic feet increase in natural gas supplies was more than analyst’s expectations for a 65 billion cubic feet increase, but it was below the 74 billion cubic foot average of natural gas that have typically been added to storage during the first week of September in recent years, the ninth such below average inventory increase in the past ten weeks…natural gas storage facilities in the Midwest saw another 32 billion cubic feet increase this week, while supplies in the East increased by 20 billion cubic feet and are now just 12.9% below normal for this time of year…on the other hand, just 4 billion cubic feet cubic feet of gas were added to storage in the Pacific region, where  natural gas supplies are 23.3% below normal for this time of year, while the South Central region saw a 7 billion cubic foot injection as their natural gas storage deficit increased to 23.4% below their five-year average..

The Latest US Oil Data from the EIA 

this week’s US oil data from the US Energy Information Administration, covering the week ending September 7th, showed that due to lower oil imports, higher oil exports, and an increase in refining, we had to withdraw more oil from our commercial crude supplies for the eighteenth time in the past thirty-three weeks… our imports of crude oil fell by an average of 123,000 barrels per day to an average of 7,591,000 barrels per day, after rising by an average of 229,000 barrels per day the prior week, while our exports of crude oil rose by an average of 320,000 barrels per day to an average of 1,828,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,763,000 barrels of per day during the week ending August 31st, 443,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, field production of crude oil from US wells was reportedly down by 100,000 barrels per day to 10,900,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,663,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using a near record high 17,857,000 barrels of crude per day during the week ending September 7th, 210,000 barrels per day more than the amount of oil they used during the prior week, while over the same period 757,000 barrels of oil per day were reportedly being pulled out of the oil that’s in 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 437,000 fewer barrels per day than what refineries reported they used during the week….to account for that disparity between the supply of oil and the consumption of it, the EIA needed to insert a +437,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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”…since that “unaccounted for crude” figure was at -179,000 barrels per day during the prior week, the 611,000 barrel per day swing in that metric from last week means that the week over week changes for one or more of this week’s EIA oil metrics must be in error by a statistically significant amount..(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 7,577,000 barrels per day, still fractionally more than the 7,565,000 barrel per day average that we were importing over the same four-week period last year….the 757,000 barrel per day decrease 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 remained unchanged, even as a sale of 11 million barrels from those reserves to Exxon et al was closed at the end of last week….this week’s crude oil production was reported as being down by 100,000 barrels per day to 10,900,000 barrels per day because a rounded 200,000 barrels per day decrease to 10,400,000 barrels per day in the output from wells in the lower 48 states combined with a 6,000 barrels per day increase in oil output from Alaska was only enough to lower the national total, which is now being rounded to the nearest 100,000 barrels per day, by 100,000 barrels per day to 10,900,000 barrels….US crude oil production for the week ending September 8th 2017 had been reduced to 9,353,000 barrels per day in the aftermath of Hurricane Harvey, so this week’s rounded oil production figure was roughly 16.5% 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…

meanwhile, US oil refineries were operating at 97.6% of their capacity in using 17,857,000 barrels of crude per day during the week ending September 7th, up from 96.6% the prior week and the highest September refinery utilization rate in 20 years….the 17,857,000 barrels per day of oil that were refined this week were again at a seasonal high, for the 14th out of the past 15 weeks, and far more than have ever been refined in a week in September, but not directly comparable to the 14,078,000 barrels of crude per day that were processed during the week ending September 8th 2017, when US refineries were operating at just 77.7% of capacity, because Gulf Coast refineries had been shut down in the aftermath of Hurricane Harvey at that time..

with the increase in the amount of oil being refined this week, gasoline output from our refineries was likewise higher, increasing by 169,000 barrels per day to 10,384,000 barrels per day during the week ending September 7th, after our refineries’ gasoline output had decreased by 22,000 barrels per day during the week ending August 31st…again, due to Hurricane Harvey, our gasoline production during the week is not comparable to that of a year ago, but it was still 2.1% lower than what had been a record 10,602,000 barrels of gasoline that were produced daily during the week ending August 25th of last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 97,000 barrels per day to a near record high of 5,536,000 barrels per day, after they had risen by 260,000 barrels per day over the prior week…for a rough year over year comparison absent hurricane impacts, we’d note this week’s distillates production was 9.5% higher than the 5,055,000 barrels of distillates per day that were being produced during the week ending August 25th, 2017…. 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,250,000 barrels to 235,869,000 barrels by September 7th, the 13th increase in 29 weeks, and the 27th increase in 44 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline rose this week as the amount of gasoline supplied to US markets fell by 85,000 barrels per day to 9,649,000 barrels per day, after falling by 165,000 barrels per day the prior week, and as our imports of gasoline rose by 65,000 barrels per day to 1,053,000 barrels per day, while our exports of gasoline rose by 203,000 barrels per day to 680,000 barrels per day…after this week’s increase, our gasoline inventories were at another seasonal high, 8.0% higher than last September 8th’s level of 218,310,000 barrels, and roughly 10.3% above the 10 year average of our gasoline supplies for this time of the year

meanwhile, with big increase in our distillates production, our supplies of distillate fuels were likewise much higher, increasing by 6,163,000 barrels to 139,283,000 barrels during the week ending September 7th, the 12th increase in 16 weeks and the largest increase this year…the major reason our distillates supplies increased was because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 1,002,000 barrels per day to 3,288,000 barrels per day, as domestic distributors apparently cut their purchases after having stocked up before the holiday….partially offsetting that, our exports of distillates rose by 429,000 barrels per day to 1,418,000 barrels per day, while our imports of distillates fell by 236,000 barrels per day to 50,000 barrels per day….however, with our distillate supplies still recovering from the 14 year seasonal low that they hit 6 weeks ago, this week’s big inventory increase still leaves our distillates supplies 3.6% below the 144,552,000 barrels that we had stored on September 8th, 2017, and roughly 6.9% lower than the 10 year average of distillates stocks for this time of the year…     

finally, with rising oil exports and near record refining of crude, our commercial supplies of crude oil decreased for the 20th time in 2018 and for the 31st time over the past year, falling by 4,302,000 barrels during the week, from 401,490,000 barrels on August 31st to 396,194,000 barrels on September 7th, which marks the first time our crude supplies were below 400,000 barrels since February 2015…however, even though our crude oil inventories are now about 3 percent below the five-year average of crude oil supplies for this time of year, they are still roughly 18.6% above the 10 year average of crude oil stocks for the first week of September, because it wasn’t early 2015 that our oil inventories first rose above 400 million barrels…but since our crude oil inventories have now been falling through most of the past year and a half, our oil supplies as of September 7th were 15.4% below the 468,241,000 barrels of oil we had stored on September 8th of 2017, 17.5% below the 480,166,000 barrels of oil that we had in storage on September 9th of 2016, and 6.5% below the 423,958,000 barrels of oil we had in storage on September 11th of 2015…  

OPEC’s Monthly Oil Market Report

next we’re going to review OPEC’s September Oil Market Report (covering August OPEC & global oil data), which was released on Wednesday 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 58 of that report (pdf page 68), 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…

August 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 278,000 barrels per day to 32,565,000 barrels per day in August, from their July production total of 32,287,000 barrels per day….however, that July figure was originally reported as 32,323,000 barrels per day, so OPEC’s July output was therefore revised 36,000 barrels per day lower with this report (for your reference, here is the table of the official July 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 256,000 barrels per day in the oil output from Libya was the major reason for this month’s increase, with increases of 90,000 barrels per day in oil output from Iraq and 74,000 barrels per day in output from Nigeria more than offsetting the decrease of 150,000 barrels per day in Iranian output…however, excluding new member Congo, OPEC’s August output of 32,245,000 barrels per day was still 485,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, mostly due to the big drop in Venezuelan output, which has also been impacted by US sanctions… 

the next graphic we’ll look at shows us both OPEC and global monthly oil production on the same graph, over the period from September 2016 to August 2018, and it’s taken from the page numbered 59 (pdf page 69) of the September 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 millions of barrels per day of global output shown on the right scale…      

August 2018 OPEC report global oil supply

OPEC’s preliminary estimate indicates that total global oil production rose by a rounded 490,000 barrels per day to a record high 98.88 million barrels per day in August, after July’s global output total was revised down by 140,000 barrels per day from the 98.53 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 210,000 barrels per day in August after that revision….global oil output for August was also 2.13 million barrels per day, or 2.2% higher than the 96.75 million barrels of oil per day that were reported as being produced globally in August a year ago (see the September 2017 OPEC report online (pdf) for the year ago details)…with the increase OPEC’s output, their August oil production of 32,565,000 barrels per day represented 32.9% of what was produced globally during the month, up from their 32.8% of global share reported for July…OPEC’s August 2017 production was at 32,755,000 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 637,000 fewer barrels per day of oil than they were producing a year ago, during the eighth month that their production quotas were in effect, with the 638,000 barrel per day decrease in output from Venezuela from that time responsible for the cartel’s output drop… 

despite the 490,000 barrel per day increase in global oil output in August, elevated summertime demand meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us… 

August 2018 OPEC report global oil demand

the table above comes from page 32 of the September 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 fourth column, we’ve circled in blue the figure that’s relevant for August, which is their revised estimate of global oil demand during the third quarter of 2018…     

OPEC’s estimate is that during the 3rd quarter of this year, all oil consuming regions of the globe have been using 99.38 million barrels of oil per day, which was a downward revision of 0.06 million barrels of oil per day from their prior consumption estimate for the quarter….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 98.88 million barrels per day during August, which means that there was a still a shortfall of around 500,000 barrels per day in global oil production vis-a vis the demand estimated for the month…  

while global demand for the 3rd quarter was revised 0.06 million barrels per day lower, total global oil output for July was revised down by 140,000 barrels per day at the same time, which means the global shortfall of 910,000 barrels per day that we had figured for July last month would now be revised to 990,000 barrels per day…also notice that this report revised oil demand figures for the 1st and second quarters, which we’ve circled in green; that means our previous estimates of surplus or shortfall for those months will have to be revised as well…a month ago, we estimated there was a shortfall of around 70,000 barrels per day in global oil production vis-a vis the demand in June, a shortfall for May of 510,000 barrels per day, and a shortfall in April of 320,000 barrels per day… but as we see in the green ellipse above, oil demand for the 2nd quarter was revised 10,000 barrels per day lower, so our revised global oil shortfalls for the 2nd quarter months will thus be 60,000 barrels per day for June, 500,000 barrels per day for May, and 310,000 barrels per day for April…

while global oil demand figures for the second quarter were revised lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously recomputed oil surplus for the first quarter of 2018 will also have to be recomputed again….since we had last figured a global oil output surplus of 120,000 barrels per day for March, a surplus of 300,000 barrels per day for February, and a surplus of 140,000 barrels per day for January, that revision means that our new figures will show a surplus of 60,000 barrels per day for March, a surplus of 240,000 barrels per day for February, and a surplus of 80,000 barrels per day for January….totaling up all these 8 monthly estimates of surplus or shortfall, we find that for the first eight months of 2018, global oil demand exceeded production by roughly 61,370,000 barrels, actually a comparatively small net oil shortfall that is the equivalent of roughly 15 hours of global oil production at the August production rate…   

This Week’s Rig Count

US drilling activity increased for the seventeenth time in twenty-five weeks during the week ending September 14th, even as the steady increases in drilling for oil we saw with higher oil prices during the first part of this year have stalled since May, with oil futures’ prices remaining in backwardation, albeit now less so than in recent weeks….Baker Hughes reported that the total count of rotary rigs running in the US increased by 7 rigs to 1055 rigs over the week ending on Friday, which was 119 more rigs than the 936 rigs that were in use as of the September 15th report of 2017, but was still down from the shale era 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 up by 7 rigs to 867 rigs this week, which was also 118 more oil rigs than were running a year ago, while it was 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 was unchanged at 186 rigs this week, which was also unchanged from the 186 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…meanwhile, two rigs drilling exploratory wells in central Ohio considered to be “miscellaneous” continued to operate this week, an increase from just one such “miscellaneous” rig a year ago…

offshore drilling in the Gulf of Mexico saw a net increase of 1 rig to 18 rigs, up from 17 Gulf of Mexico rigs a year ago…in addition, two rigs continued to drill offshore from Alaska this week, so the total national offshore count is now at 20 rigs, which is thus up by 3 rigs from last year’s total of 17 offshore rigs, since a year ago there was no offshore drilling other than in the Gulf…in addition, two more rigs began drilling through inland bodies of water in southern Louisiana this week, where there are now five such rigs operating, up from the 4 rigs that were drilling through inland waters there a year ago…

the count of active horizontal drilling rigs was up by 3 rigs to 921 horizontal rigs this week, which was also 126 more horizontal rigs than the 795 horizontal rigs that were in use in the US on September 15th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count increased by 6 rigs to 71 directional rigs this week, which was still down from the 74 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was down by 2 rigs to 63 vertical rigs this week, which was also down from the 67 vertical  rigs that were operating on September 15th 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 September 14th, the second column shows the change in the number of working rigs between last week’s count (September 7th) and this week’s (September 14th) count, the third column shows last week’s September 7th active rig count, the 4th column shows the change between the number of rigs running on Friday and those on the equivalent weekend 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 15th of September, 2017…    

September 14 2018 rig count summary

Louisiana saw a three rig increase despite having a land based rig shut down in the southern part of the state because of a two rig increase on inland waters and because two additional Gulf of Mexico rigs were in state waters, while one rig offshore from Texas was idled…meanwhile, the three rig increase in Pennsylvania includes two rigs targeting the Marcellus and one rig targeting the Utica….the Utica shale count remained unchanged, however, because a Utica shale rig in Ohio was shut down at the same time…meanwhile, the natural gas rig count remained unchanged because 2 rigs targeting natural gas basins not tracked separately by Baker Hughes were shut down at the same time…all other activity shown above is oil directed, again with basins not tracked by Baker Hughes not shown…

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