US oil production at a record high; rig count drops by most in 35 months…

oil prices rose for a third consecutive week, and while they ended the week more than 20% higher than their December 27th nadir, they still remain almost 30% below their October 3rd closing highafter rising 7.6% to $51.59 a barrel on hopes for a resolution of the US-China trade war last week, US oil prices for February delivery opened this week higher but quickly weakened and ended Monday​ ​$1.08 lower at $50.51 a barrel, pressured by weak Chinese trade data that increased concerns that a global economic slowdown would hurt crude demand…however, oil prices turned around rose with ​global stock markets on Tuesday, propelled by ​a ​Chinese fiscal stimulus intended to reverse their slowing economy, with U.S. crude prices ending $1.60, or 3.2%, higher at $52.11 a barrel…buoyed by a rising stock market, oil prices continued higher early Wednesday, but then fell back over $1 ​at midday ​after the EIA report showed record crude production and much higher refined product inventories, but recovered late in the session to end the day 20 cents higher at $52.31 a barrel…weighed by that surging U.S. crude output and weakening global demand, oil prices turned lower early Thursday, tumbling to as low at $50.98 a barrel, before recovering to close with a loss of just 24 cents at $52.07, on a rebound in U.S. stocks and a report that OPEC had sharply curtailed production in December...after a quiet Friday​ ​morning, oil jumped 3.3% to a 2-month high on news that China had proposed to eliminate its trade surplus by importing more US goods, with oil closing $1.73 higher at $53.80 a barrel…US crude for February thus ended the week 4.3% higher, while the international benchmark Brent crude for March, which had seen a steeper pullback early in the week, ended 3.7% higher at $62.70 a barrel..

meanwhile, natural gas prices spiked nearly 16% higher to $3.591 per mmBTU on Monday, largely on forecasts for a long, severe cold spell, but struggled to maintain that price level the rest of the week and ended Friday at $3.482 per mmBTU, still more than 12% higher than the prior week’s close…the natural gas storage report for the week ending January 11th from the EIA indicated that the quantity of natural gas in storage in the US fell by 81 billion cubic feet to 2,533 billion cubic feet over the week, which left our gas supplies 77 billion cubic feet, or just 3.0% below the 2,610 billion cubic feet that were in storage on January 12th of last year, and 464 billion cubic feet, or 11.4% below the five-year average of 2,860 billion cubic feet of natural gas that have typically been in storage as of the 2nd weekend of January….this week’s 81 billion cubic feet withdrawal from US natural gas supplies was just about on the consensus estimate for a 82 billion cubic feet withdrawal, but it was considerably less the average of 203 billion cubic feet of natural gas that have been withdrawn from US gas storage during the first full week of January over the last 5 years…since the report now tells us that “At 2,533 Bcf, total working gas is within the five-year historical range” we’ll include this week’s graph from the natural gas storage report showing natural gas in storage over the past two years, as compared to that 5 year range… 

January 19 2019 natural gas supplies as of January 11th

the above graph comes from this week’s Natural Gas Storage Report, and it shows the quantity of natural gas ​in ​billion cubic feet in storage in the lower 48 states over the period from December 2016 up to the week ending January 11th 2019 as a blue line, the average of natural gas in storage over the 5 years preceding the same dates shown as a heavy grey line, while the grey shaded background represents the previous upper and lower range of natural gas in storage for any given time of year for the 5 years prior to the two years that are shown by today’s graph…thus the grey area also shows us the normal variation of natural gas storage levels as they fluctuate from season to season, with natural gas in storage underground normally building to a maximum by the first weekend in November, falling through the winter, and usually bottoming out at the end of March or the first week of April, depending of course on the spring heating requirements in any given year…notice how our supplies of natural gas in blue started last year’s heating season fairly close to the 5 year average of natural gas in storage shown in dark grey, then diverged over the year, beginning with the colder than normal January, with the gap separating the grey “normal” line and the blue current supply line slowly getting increasingly wider, until it finally fell below the 5 year low, represented by the grey shaded area, in July of this year…from that time until mid November, the gap between our natural gas supplies and the previous 5 year minimum became progressively wider, until a milder than normal December allowed for ​a period of slower than normal depletion…with the exceptional warmth over the 4 most recent weeks (see map below​ for the most recent week​), we have only needed to withdraw 240 billion cubic feet of natural gas from storage to meet our needs; that compares to the 860 billion cubic feet of natural gas that we needed during the same 4 week period a year ago…as a result, we still had 2,533 billion cubic feet remaining in storage as of January 11th, a bit more than the 2,529 billion cubic feet of gas that were in storage on January 10th 2014, and hence we’re now “within the five-year historical range

January 19 2019 temperature deviation for week ending January 10th (source)

The Latest US Supply and Disposition of Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, reporting on the week ending January 11th, indicated a moderate​ly large ​withdrawal of oil from our commercial crude supplies, largely because of a large increase in our oil exports and a modest drop in our oil imports…our imports of crude oil fell by an average of 319,000 barrels per day to an average of 7,527,000 barrels per day, after rising by an average of 454,000 barrels per day the prior week, while our exports of crude oil rose by an average of 901,000 barrels per day to an average of 2,966,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,561,000 barrels of per day during the week ending January 11th, 1,220,000 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 200,000 barrels per day higher at a record 11,900,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,461,000 barrels per day during this reporting week…

meanwhile, US oil refineries were using 17,223,000 barrels of crude per day during the week ending January 11th, 343,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period 383,000 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 379,000 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 disposition of it, the EIA inserted a (+379,000) 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 rose to an average of 7,605,000 barrels per day last week, but was still 3.6% less than the 7,892,000 barrel per day average that we were importing over the same four-week period last year….the 383,000 barrel per day increase in our total crude inventories was due to a 383,000 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 200,000 barrels per day higher at 11,900,000 barrels per day because the rounded estimate for output from wells in the lower 48 states increased by 200,000 barrels per day to 11,400,000 barrels per day in light of last week’s confirmed monthly figures, while a 2,000 barrel per day increase to 507,000 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 January 12th was at 9,750,000 barrels per day, so this week’s rounded oil production figure was 22.1% above that of a year ago, and 41.2% 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 94.6% of their capacity in using those 17,223,000 barrels of crude per day during the week ending January 11th, down from last week’s 96.1% of capacity, but still the highest capacity utilization rate for the second week of January since 1999….likewise, the 17,223,000 barrels per day of oil that were refined this week were again at a seasonal high for the date for the 29th time out of the past 33 weeks, and 2.1% higher than the 16,875,000 barrels of crude per day that were being processed during the week ending January 12th, 2017, when US refineries were operating at 93.0% of capacity… 

even with the decrease in the amount of oil being refined, the gasoline output from our refineries was higher, rising by 192,000 barrels per day to 9,584,000 barrels per day during the week ending January 11th, after our refineries’ gasoline output had decreased by 752,000 barrels per day to a 50 week low during the prior two weeks…hence, even with the modest increase in this week’s gasoline output, our gasoline production was still 1.3% lower than the 9,710,000 barrels of gasoline that were being produced daily during the same week last year….meanwhile, refineries’ production of distillate fuels (diesel fuel and heat oil) decreased by 151,000 barrels per day to 5,412,000 barrels per day, after that output had decreased by 28,000 barrels per day the prior week….despite that decrease, this week’s distillates production was 6.6% higher than the the 5,076,000 barrels of distillates per day that were being produced during the week ending January 12th, 2018…. 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week jumped by 7,503,000 barrels to 255,565,000 barrels by January 11th, after jumping by a 3 year high of 8,066,000 barrels during the week ending January 4th….our gasoline supplies rose this week as the amount of gasoline supplied to US markets fell by 170,000 barrels per day to 8,565,000 barrels per day, while our imports of gasoline fell by 173,000 barrels per day to 377,000 barrels and our exports of gasoline rose by 103,000 barrels per day to 830,000 barrels per day….with this week’s increase, our gasoline inventories are at a seasonal high for the second week of January, 4.5% higher than last January ​12th’s level of 237,322,000 barrels, and roughly 5% above the five year average of our gasoline supplies for this time of the year…

even with the decrease in our distillates production, our supplies of distillate fuels increased for the 6th time in seventeen weeks, rising by 2,967,000 barrels to 143,009,000 barrels during the week ending January 11th, after our distillates supplies had increased by a record 20,140,000 barrels over the pr​evious two weeks…our distillates supplies increased this week even though the amount of distillates supplied to US markets, a proxy for our domestic demand, rose by 1,494,000 barrels per day to 4,449,000 barrels per day (after falling by 1,911,000 barrels per day over the course of the prior 3 weeks), in part because our imports of distillates rose by 117,000 barrels per day to 378,000 barrels per day, while our exports of distillates fell by 436,000 barrels per day to 917,000 barrels per day….as a result of this week’s increase, our distillate supplies were 2.7% above the 143,088,000 barrels that we had stored on January 12th, 2017, even as they remained 3% below the five year average of distillates stocks for this time of the year…

finally, with soaring exports and falling imports, our commercial supplies of crude oil decreased for sixth time in 7 weeks, falling by 2,683,000 barrels over the week, from 439,738,000 barrels on January 4th to 437,055,000 barrels on January 11th…however, with a run of 10 large weekly increases before the recent smaller decreases, our crude oil inventories are still roughly 8% above the five-year average of crude oil supplies for this time of year, and roughly 30% above the 10 year average of crude oil stocks for the second week of January, with the disparity between those figures arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories have ​mostly been rising since this Fall, after falling through most of the past year and a half until then, our oil supplies as of January 11th were thus 5.9% above the 412,654,000 barrels of oil we had stored on January 12th of 2017, while remaining nearly 10% below the 485,456,000 barrels of oil that we had in storage on January 13th of 2016, and 3.9% below the 455,169,000 barrels of oil we had in storage on January 8th of 2015..   

OPEC’s Monthly Oil Market Report

this week we’re also going to review OPEC’s January Oil Market Report (covering December OPEC & global oil data), which was released on Thursday 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 56 of that report (pdf page 66), 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…

December 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output dropped by 751,000 barrels per day to 31,578,000 barrels per day in December, from their November production total of 32,328,000 barrels per day….however, in November, Qatar was still a member of OPEC​,​ producing 615,000 barrels per day, and that November figure was originally reported as 32,965,000 barrels per day, so OPEC’s November output excluding that of Qatar was at 32,350,000 barrels per day….therefore OPEC’s November output excluding Qatar was revised 22,000 barrels per day lower with this report (for your reference, here is the table of the official November 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 468,000 barrels per day drop in the oil output from Saudi Arabia was the major factor in the 751,000 barrel per day OPEC production decrease, with largely involuntary production decreases of 172,000 barrels per day in the oil output from Libya and 159,000 barrels per day in the oil output from Iran accounting for the rest…OPEC’s December agreement called for oil producers to cut output by 1.2 million barrels per day beginning in January, so this December production cut was for all practical purposes carried out unilaterally by Saudi Arabia, with the decrease of 65,000 barrels per day in the oil output from the United Arab Emirates, their close ally, also likely intentional…..excluding new OPEC member Congo, the December output of 31,349,000 barrels per day from the remaining 13 OPEC members was 761,000 barrels per day below the 32,110,000 barrels per day revised quota they agreed to at their November 2017 meeting, (excluding the 620,000 bpd quota for Qatar), 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 January 2017 to December 2018, and it’s taken from the page numbered 57 (pdf page 67) of the January 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…      

December 2018 OPEC report global oil supply

OPEC’s preliminary estimate indicates that total global oil production fell by 350,000 barrels per day to 100.02 million barrels per day in December, after November’s total global output figure was revised down by 270,000 barrels per day from the 100.64 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 400,000 barrels per day in December after that revision, with increased US and Canadian output the major contributors to the non-OPEC increase….global oil output during December was also 2.83 million barrels per day, or 2.9% higher than the revised 97.19 million barrels of oil per day that were being produced globally in December a year ago (see the January 2018 OPEC report online (pdf) for the originally reported year ago details)…with the December decrease in OPEC’s output following the downward revision to their November output, their November oil production of 31,578,000 barrels per day represented just 31.6% of what was produced globally during the month, down from the 32.8% share they reported for November, when Qatar was still a member….OPEC’s December 2017 production was reported at 32,416,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year and new member Congo from this year, are now producing 573,000 fewer barrels per day of oil than they were producing a year ago, during the twelfth month that their production quotas were in effect, with a 597,000 barrel per day decrease in output from Venezuela and a 1,060,000 barrel per day decrease in output from Iran from that time more than offsetting the production increases of 635,000 barrels per day from the Saudis, 340,000 barrels per day from the Emirates, and 309,000 barrels per day from Iraq…   

despite the 350,000 barrel per day decrease in global oil output in December, we still saw a small surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us… 

December 2018 OPEC report global oil demand

the table above comes from page 31 of the January OPEC Monthly Oil Market Report (pdf page 41), 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 December, 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 last year, all oil consuming regions of the globe were using 99.94 million barrels of oil per day, which was revised from their estimate of 99.98 million barrels of oil per day 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 100.02 million barrels per day during December, which means that there has been a surplus of around 40,000 barrels per day in global oil production as compared to the demand estimated for the month…     

a month ago we estimated a global surplus of around 660,000 barrels per day in global oil production during November, based on figures published at that time…however, as we ​​saw earlier, November’s global output figure was revised down by 270,000 barrels per day from those figures, while global demand was simultaneously revised 40,000 barrels per day lower, so with these revised figures, we now find that global oil production in November was running roughly 430,000 barrels per day greater than demand…also a month ago, we estimated a surplus of 160,000 barrels per day for October; hence, with the downward revision to 4th quarter demand, that October​ oil production​ surplus would now be 200,000 barrels per day…

while 4th quarter demand was revised 40,000 barrels per day lower, 3rd quarter demand was revised 30,000 barrels per day higher at the same time, from 99.32 million barrels of oil per day to 99.35 million barrels of oil per day…that revision now means there were supply shortfalls of 10,000 barrels per day in September, 580,000 barrels per day in August, and 960,000 barrels per day per day in July….

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 the 2nd quarter months, we ​figured there were global oil 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 of 2018 recorded global​ oil​ surplus​es 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 12 monthly estimates of surplus or shortfall, we find that for the twelve months of 2018, global oil demand exceeded production by roughly 56,250,000 barrels, actually a comparatively tiny net oil shortfall that is the equivalent of roughly 13.5 hours of global oil production at the December production rate…..however, should the entirely of the 1.2 million barrel per day OPEC production cut come to pass, we would be looking at a much larger shortfall during this coming year, and it does not yet appear that the market is taking the possibility of an oil shortfall of that magnitude into account..  

This Week’s Rig Count

US drilling activity, as evidenced by the number of drilling rigs active at the end of the week, fell by the most in 35 months during the week ending January 18th, as drilling for both oil and natural gas decreased, probably due to the recently depressed oil prices for both​,​ and ​due to ​the 6.7 month backlog of uncompleted wellsBaker Hughes reported that the total count of rotary rigs running in the US fell by 25 rigs to 1050 rigs over the week ending January 18th, which was still 114  more rigs than the 936 rigs that were in use as of the January 19th report of 2018, but down from the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, which was the week before OPEC announced their attempt to flood the global oil market…  

the count of rigs drilling for oil fell by 21 rigs to 852 rigs this week, which was the largest oil rig pullback since February 19, 2016…nonetheless, there were still 105 more oil rigs active​ this week​ than were running a year ago, while th​at number 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 bearing formations decreased by 4 rigs to 198 natural gas rigs, which was still 9 more rigs than the 189 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008…

two platforms that had been drilling in the Gulf of Mexico offshore from Louisiana were shut down this week, which reduced the Gulf of Mexico rig count to 19 rigs for this report, which the same number of rigs that were deployed in the Gulf of Mexico a year ago at this time…since there is still no other offshore drilling off either coast or off Alaska at this time, nor was there during the same week of 2017-18, that Gulf of Mexico total is identical to the US total…

the count of active horizontal drilling rigs decreased by 19 rigs to 929 horizontal rigs this week, the largest horizontal rig pullback since February 26th, 2016…however, it still left 127 more horizontal rigs active than the 802 horizontal rigs that were in use in the US on January 19th of last year, but it was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the directional rig count decreased by 7 rigs to 55 directional rigs this week, which was also down from the ​77 directional rigs that were in use during the same week of last year, and the lowest directional rig count since December 16, 2016….on the other hand, the vertical rig count increased by 1 rig to 66 vertical rigs this week, which was also up from the 57 vertical rigs that were operating on January 19th of 2018…

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 January 18th, the second column shows the change in the number of working rigs between last week’s count (January 11th) and this week’s (January 18th) count, the third column shows last week’s January 11th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running before 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 1​9th of January, 2018…    

January 18 2019 rig count summary

offhand, i can’t understand how Oklahoma could be down 10 rigs while the Cana Woodford was up 5 rigs and the Ardmore Woodford also added another one; the Mississippian shale is partly underlying Oklahoma, but it appears the 2 rigs that were shut down in that basin were pulled out of Kansas…while 3 rigs were pulled out of the panhandle region Granite Wash basin, one of those was pulled out in Texas, still leaving a big question mark on Oklahoma activity…meanwhile, the Permian basin saw a seven rig increase, as eight rigs were pulled out of Texas Oil District 8, which is the core Permian Delaware, while a Permian Delaware rig was added on the New Mexico side of the border…note that in addition to the major producing states shown above, Montana also had a Williston basin rig shut down, leaving two active in the state, still up from 1 rig a year ago… this week’s natural gas rig situation also looks quite complicated; for starters, a natural gas rig was added in Ohio’s Utica, while at the same time one of the two Utica ​gas ​rigs which had been operating in Pennsylvania was shut down, netting zero for the basin…another gas rig was added in the West Virginia portion of the Marcellus, and yet another was added the Haynesville, in northwestern Louisiana…meanwhile, despite the Ardmore Woodford rig increase, that masked an increase of two oil rigs and a reduction of one rig targeting natural gas…similarly, the one rig increase in the Eagle Ford of south Texas included an increase of two rigs​ targeting oil, and a reduction of natural gas rigs from 9 to 8…and in addition, 4 natural gas rigs were pulled out of “other” basins not tracked individually by Baker Hughes, to give us the total that we reported on earlier… 

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