US gasoline exports at a record high; OPEC report shows a smaller oil glut than widely assumed..

oil prices ended lower this week, despite last Friday’s agreement between OPEC, Russia and other oil producers to cut output by 1.2 million barrels per day during the first half of 2019…after ending last week 3.3% higher at $52.61 a barrel on that OPEC announcement, contract prices of US oil for January delivery fell $1.61 or more than 3% to $51.00 a barrel on Monday on what some called profit taking after the 2% OPEC rally, in the absence of other relevant news…oil prices then rose over a dollar early Tuesday, but pared their gain to 65 cents after Mr Trump threatened to shut down the federal government if he didn’t get funding for his Mexican border wall, with oil closing at $51.65 a barrel…oil prices rallied early again on Wednesday, on export cuts from Libya and OPEC’s production cuts, but slid to a loss of 50 cents for the day at $51.15 a barrel as the EIA reported that US crude supplies rose less than had been expected and Iran’s oil minister said that OPEC was divided and that other cartel members had been unfriendly at last week’s meeting…oil continued lower Thursday morning, falling to as low as $50.35 a barrel, but then rallied Thursday afternoon on a report from the International Energy Agency that the combined production cuts by OPEC, Russia and Canada would create an oil market supply deficit by the second quarter of next year, with oil closing $1.43 higher at $52.58 a barrel…but oil prices gave back most of those gains on Friday, sliding $1.38 or 2.6% to $51.20 a barrel, as Wall Street stock averages fell to 7 month lows on weak production and sales data from China, with their car sales heading for first annual drop since early 1990s…oil prices for January thus finished the week 2.7% lower than they ended last week, despite the imminent loss of 1.2 million barrels of Russian and OPEC oil production…  

meanwhile, natural gas prices saw their largest one week drop in nearly three years, as persistent forecasts for warmer December led to falling prices each of the last four days, capped by a 29.7 cent drop on Friday, which left closing natural gas prices for January delivery at $3.827 per mmBTU, a loss of nearly 15% on the week….the natural gas storage report for the week ending December 7th from the EIA showed that the quantity of natural gas in storage in the US fell by 77 billion cubic feet to 2,914 billion cubic feet over the week, which left our gas supplies 722 billion cubic feet, or 19.9% below the 3,636 billion cubic feet that were in storage on December 8th of last year, and 723 billion cubic feet, or 19.9% below the five-year average of 3,637 billion cubic feet of natural gas that are typically in storage after the first week of December….this week’s 77 billion cubic feet withdrawal from US natural gas supplies was below the consensus average of 83 billion cubic feet that analysts had expected, and was a bit less than the average of 79 billion cubic feet of natural gas that have been withdrawn from storage during the first week of December in recent years…natural gas storage facilities in the East saw a 20 billion cubic feet drop in supplies over the week, which increased the region’s gas supply deficit to 14.5% below normal for this time of year, and natural gas supplies in the Midwest fell by 29 billion cubic feet as their supply deficit rose to 14.7% below normal for the first weekend of December…despite a surprise 8 billion cubic feet injection of natural gas into salt dome storage facilities, the South Central region still saw a net 7 billion cubic feet drop in their supplies, as their natural gas storage deficit slipped to 26.6% below their five-year average for this time of year…at the same time, 8 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region as their deficit from normal rose to 22.7%, while 15 billion cubic feet were withdrawn from storage in the Pacific region, where their natural gas supply deficit rose to 28.3% below normal for this time of year….  

putting that storage data into historical perspective, the 2,914 billion cubic feet of natural gas that we had in storage on December 7th was 13.2% lower than the previous early December 5 year low of 3,359 billion cubic feet that was set on December 5th of 2014, and was 11.5% below the previous 10 year low of 3,291 billion cubic feet that was set on December 5th of 2008…this year’s December 7th storage was also 1.7% below the the 15 year low of 3,166 billion cubic feet of natural gas that we had in storage on December 9th of 2005, and 2.3% below the 2,984 billion cubic feet that were in storage on December 5th of 2003, a year when supplies had peaked at a lower level than this one…we have to follow the archived records (xls) back 16 years, to December 6th of 2002, when 2,794 billion cubic feet of natural gas were in storage, to find a lower quantity of natural gas in storage at this time in December than we have now…. 

over the four weeks of this year’s heating season to date, 333 billion cubic feet of natural gas have withdrawn from storage in the lower 48 states; that compares to the 164 billion cubic feet that were used in the first five weeks of last year’s heating season; when withdrawals began during the first week of November…for other recent years, there were 241 billion cubic feet of gas withdrawn for use in the 4 weeks up to December 9th of 2016, 154 billion cubic feet in the four weeks up to December 11th of 2015, 252 billion cubic feet withdrawn in the 4 weeks to Dec 5th or 2014, and 301 billion cubic feet withdrawn in the 4 weeks to Dec 6th of 2013…the comparative withdrawals in the 3 years prior to that were all smaller than 123 billion cubic feet, so there is nothing in the recent storage data history (xls) that approaches the early winter natural gas storage withdrawals we have seen this year…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, reporting for the week ending December 7th, showed that despite a big drop in the amount of oil we exported, we still needed to withdraw oil from our commercial crude supplies for the second time in 12 weeks…our imports of crude oil rose by an average of 174,000 barrels per day to an average of 7,393,000 barrels per day, after falling by an average of 943,000 barrels per day the prior week, while our exports of crude oil fell by an average of 929,000 barrels per day from last week’s record to an average of 2,274,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,119,000 barrels of per day during the week ending December 7th, 1,103,000 more 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 reportedly fell by 100,000 barrels per day to 11,600,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,719,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,436,000 barrels of crude per day during the week ending December 7th, 51,000 barrels per day less than the amount of oil they used during the prior week, while over the same period 172,000 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 would seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was still 545,000 barrels per day short of 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 inserted a (+545,000) 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”…(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) indicate that the 4 week average of our oil imports fell to an average of 7,582,000 barrels per day, still 1.9% more than the 7,442,000 barrel per day average that we were importing over the same four-week period last year….the total 172,000 barrel per day decrease in our total crude inventories included a rounded 173,000 barrel per day withdrawal from our commercially available stocks of crude oil, while the oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s crude oil production was reported as down by 100,000 barrels per day to 11,600,000 barrels because the rounded figure for output from wells in the lower 48 states fell by 100,000 barrels per day to 11,100,000 barrels per day, while a 8,000 barrel per day decrease to 491,000 barrels per day in oil output from Alaska was not enough to change the rounded national total…last year’s US crude oil production for the week ending December 8th was at 9,780,000 barrels per day, so this week’s rounded oil production figure was 18.6% above that of a year ago, and 37.6% 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 95.1% of their capacity in using 17,436,000 barrels of crude per day during the week ending December 7th, down a bit from last week’s 95.5% of capacity, but still a rather high capacity utilization rate for November or for any time of year….the 17,436,000 barrels per day of oil that were refined this week were still at a seasonal high for the time of year for the 25th time out of the past 28 weeks, and 2.9% higher than the 16,952,000 barrels of crude per day that were being processed during the week ending December 8th, 2017, when US refineries were operating at 93.4% of capacity… 

despite the small drop in the amount of oil being refined, the gasoline output from our refineries was much higher, increasing by 791,000 barrels per day to 10,457,000 barrels per day during the week ending December 7th, after our refineries’ gasoline output had decreased by 502,000 barrels per day during the week ending November 30th…after that big increase in this week’s gasoline output, our gasoline production during the week was 3.2% higher than the 10,129,000 barrels of gasoline that were being produced daily during the same week last year….meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 26,000 barrels per day to 5,545,000 barrels per day, after that output had increased by 100,000 barrels per day the prior week….despite that decrease, this week’s distillates production was 5.7% higher than the 5,247,000 barrels of distillates per day that were being  produced during the week ending December 8th, 2017…. 

with the big jump in our gasoline production, our supply of gasoline in storage at the end of the week increased by 2,087,000 barrels to 228,337,000 barrels by December 7th, the 3rd increase in the past 8 weeks, which still left our gasoline supplies 7,835,000 barrels lower than they were on the 5th of October….our gasoline supplies rose this week even though the amount of gasoline supplied to US markets rose by 159,000 barrels per day to 9,036,000 barrels per day ​and ​even though our exports of gasoline rose by 310,000 barrels per day to a record high 1,311,000 barrels per day, ​as our imports of gasoline rose by 336,000 barrels per day to 525,000 barrels per day​ to offset those exports​…while our gasoline inventories are no longer at a seasonal high, they were still 0.8% higher than last December 8th’s level of 226,546,000 barrels, and roughly 6% above the 10 year average of our gasoline supplies for this time of the year

even with the elevated level of our distillates production, our supplies of distillate fuels decreased for the tenth time in twelve weeks, falling by 1,475,000 barrels to 124,137,000 barrels during the week ending December 7th, after our distillates supplies had increased by 3,811,000 barrels during the prior week…our distillates supplies decreased because the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 433,000 barrels per day to 4,469,000 barrels per day, and because our imports of distillates fell by 292,000 barrels per day to 144,000 barrels per day, while our exports of distillates rose by 5,000 barrels per day to 1,431,000 barrels per day….with this week’s decrease, our distillate supplies finished the week 3.1% below the 128,076,000 barrels that we had stored on December 8th, 2017, and almost 8% below the 10 year average of distillates stocks for this time of the year…   

finally, despite this week’s drop in our oil exports, our commercial supplies of crude oil still decreased for a second week after 10 increases​,​ and for the 23rd time in 2018, falling by 1,208,000 barrels during the week, from 443,162,000 barrels on November 30th to 441,954,000 barrels on December 7th …but even with that decrease, our crude oil inventories are still roughly 7% above the five-year average of crude oil supplies for this time of year, and over 28% above the 10 year average of crude oil stocks for the first week of December, with the disparity between those figures arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of December 7th were still fractionally below the 442,986,000 barrels of oil we had stored on December 8th of 2017, 8.5% below the 483,193,000 barrels of oil that we had in storage on December 9th of 2016, and 3.5% below the 458,354,000 barrels of oil we had in storage on December 11th of 2015..   

OPEC’s Monthly Oil Market Report

today we’ll also review OPEC’s December Oil Market Report (covering November OPEC & global oil data), which was released on Wednesday of this past week, and which 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 70), 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…

November 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output slipped by an insignificant 11,000 barrels per day to 32,965,000 barrels per day in November, from their October production total of 32,976,000 barrels per day….however, that October figure was originally reported as 32,900,000 barrels per day, so OPEC’s October output was therefore revised 76,000 barrels per day higher with this report (for your reference, here is the table of the official October OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column on the table above, the increase of 377,000 barrels per day in the oil output from Saudi Arabia almost completely offset the decrease of 380,000 barrels per day in Iranian output, and the increases of 71,000 barrels per day in the oil output from the United Arab Emirates and 45,000 barrels per day in the oil output from Kuwait almost offset all the other decreases, leaving total output from the cartel little changed….however, excluding new member Congo, the November output of 32,645,000 barrels per day from the other 14 OPEC members was still 85,000 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, another OPEC country that 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 December 2016 to November 2018, and it’s taken from the page numbered 59 (pdf page 71) of the December 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…      

November 2018 OPEC report global oil supply

OPEC’s preliminary estimate indicates that total global oil production rose by 500,000 barrels per day to a record high 100.64 million barrels per day in November, after October’s total global output figure was revised up by 380,000 barrels per day from the 99.76 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 440,000 barrels per day in November after that revision, with increased US and Canadian output the major contributors to the non-OPEC increase….global oil output during November was also 3.05 million barrels per day, or 3.2% higher than the revised 97.69 million barrels of oil per day that were being produced globally in November a year ago (see the December 2017 OPEC report online (pdf) for the originally reported year ago details)…with the November decrease in OPEC’s output following the upward revision to their October output, their November oil production of 32,965,000 barrels per day represented 32.8% of what was produced globally during the month, down from the 33.0% share reported for October….OPEC’s November 2017 production was reported at 32,448,000 barrels per day, which means that the 14 OPEC members who were part of OPEC last year, excluding new member Congo, are only producing 197,000 more barrels per day of oil than they were producing a year ago, during the eleventh month that their production quotas were in effect, with a 697,000 barrel per day decrease in output from Venezuela and a 864,000 barrel per day decrease in output from Iran from that time nearly offsetting the production increases from the Saudis, the Emirates, Iraq and Libya…  

the 500,000 barrel per day increase in global oil output in November, combined with the upward revision to October’s global output, meant that we finally saw a surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…  

November 2018 OPEC report global oil demand

the table above comes from page 32 of the December OPEC Monthly Oil Market Report (pdf page 44), 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 in the fifth column, we’ve circled in blue the figure that’s relevant for November, which is their revised estimate of global oil demand during the fourth quarter of 2018…       

OPEC’s estimate is that during the 4th quarter of this year, all oil consuming regions of the globe are using 99.98 million barrels of oil per day, which was unrevised from their estimate of a month ago….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 100.64 million barrels per day during November, which means that there has been a surplus of around 660,000 barrels per day in global oil production as compared to the demand estimated for the month…    

meanwhile, a month ago we estimated a global shortfall of around 220,000 barrels per day in global oil production during October, based on figures published at that time…however, as we saw earlier, October’s global output figure was revised up by 380,000 barrels per day from those figures…thus instead of the shortfall indicated by last month’s figures, we now find that oil production in October was running roughly 160,000 barrels per day greater than demand…

since there are no revisions to supply or demand for the prior months, the surplus or shortfall figures for those months that we had recomputed last month remained unchanged; for September, oil supply and demand just about matched, while August saw a 550,000 barrels per day shortfall, and July’s shortfall was even greater at 930,000 barrels per day….for the remainder of the year, the 2nd quarter months saw shortfalls of 170,000 barrels per day ​in June, 610,000 barrels per day ​in May, and 400,000 barrels per day ​in April, while the first quarter recorded smaller surplus figures of 20,000 barrels per day in March, 200,000 barrels per day in February, and 40,000 barrels per day in January…

by totaling up those 11 monthly estimates of surplus or shortfall, we find that for the first eleven months of 2018, global oil demand exceeded production by roughly 49,070,000 barrels, actually a comparatively tiny net oil shortfall that is the equivalent of less than 12 hours of global oil production at the November production rate…while November global production would be expected to rise from its current 100.64 million barrels per day; so too would global demand, which OPEC is forecasting to average 100.08 barrels per day through 2019…so should the entirely of the 1.2 million barrel production cut come to pass, instead of an oil surplus, we would be looking at a shortfall of up to 640,000 barrels per day during the coming year…it does not appear that the market is yet taking the possibility of an oil shortfall of that magnitude into account..

This Week’s Rig Count

US drilling activity decreased for the fourth week in a row, and was hence down for the 6th time in the past 12 weeks during the week ending December 14th, as drilling for oil slowed with currently lower prices, while severe backwardation in natural gas futures is preventing today’s drillers from taking advantage of its temporarily higher price… Baker Hughes reported that the total count of rotary rigs running in the US decreased by 4 rig to 1071 rigs over the week ending December 14th, which was still 141 more rigs than the 930 rigs that were in use as of the December 15th report of 2017, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market…  

the count of rigs drilling for oil decreased by 4 rigs to 873 rigs this week, which was still 126 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 198 natural gas rigs, which was still 15 more rigs than the 183 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…

offshore activity was again unchanged with 23 rigs continuing to drill in the Gulf of Mexico, which was 4 more rigs than the 19 rigs active in the Gulf of Mexico and in total a year ago…the count of active horizontal drilling rigs decreased by 6 rigs to 927 horizontal rigs this week, which was still 125 more horizontal rigs than the 801 horizontal rigs that were in use in the US on December 15th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…on the other hand, the vertical rig count increased by 1 rig to 71 vertical rigs this week, which was also up from the 60 vertical rigs that were in use during the same week of last year….in addition, the directional rig count also increased by 1 rig to 73 directional rigs this week, which was also up from the 69 directional rigs that were operating on December 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 December 14th, the second column shows the change in the number of working rigs between last week’s count (December 7th) and this week’s (December 14th) count, the third column shows last week’s December 7th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running 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 the ​15th of December, 2017…  

December 14 2018 rig count summary

Texas Oil District 8, which would correspond to the core Permian – Delaware basin, saw an increase of 2 rigs, while drilling in other Texas Oil Districts in or partially in the Permian ​basin ​w​ere unchanged, so it appears that all 5 of the rigs shut down in New Mexico this week had been oil rigs targeting the Permian…the 5 rig increase in Wyoming, on the other hand, does not represent new drilling in any of the basins shown above, since activity in the Niobrara chalk of the Rockies front range was unchanged, so those 5 rigs could represent new drilling in the Green River basin, the Powder River basin, the Wind River basin or the Bighorn basin, or even some where else in Wyoming…the three rig drop in the Williston basin includes the 2 rigs shut down in North Dakota plus a rig in Montana, not shown above, which still has 3 rigs active, up from the one rig in Montana a year ago…meanwhile, natural gas rigs ended the week unchanged despite the rigs shut down in Pennsylvania’s Marcellus, Oklahoma’s Arkoma Woodford, and northwestern Louisiana’s Haynesville because there was a natural gas rig added in Ohio’s Utica and two natural gas rigs added in “other” basins not shown above or tracked separately by Baker Hughes…finally, we should note that in addition to Montana and the major producing states shown above, Illinois, which has seen on and off drilling with one rig over the past year, saw their lone rig shut down this week, while Mississippi also saw a rig shut down but still had four left​ running​, up from 2 rigs in Mississippi a year ago… 

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