OPEC report shows a 1,450,000 barrel per day global oil shortage in August; US rig count falls to a new 28 month low

oil prices fell for the first time in 3 weeks after Trump fired national security advisor and reprobate warhawk John Bolton, which oil traders took to mean that a war with Iran was less likely, thus reducing risks of a war-related oil price spike…after rising 2.6% to $56.52 a barrel last week on falling US crude supplies and China trade optimism, prices of US crude for October delivery opened higher on Monday after the new Saudi minister committed to continuing OPEC’s output cuts and moved to a 6 week high as oil bulls interpreted his appointment as a sign that the Saudis would focus on pushing up crude prices, with oil closing $1.33 higher at $57.85 a barrel…the oil price rally continued into early Tuesday, with prices rising to as high as $58.76 a barrel before Trump announced on Twitter that he fired national security advisor John Bolton, sending oil prices tumbling to close down 45 cents at $57.40 a barrel…however, oil price moved back up in after hours trading Tuesday after the API reported a big draw on crude & gasoline supplies and thus opened higher on Wednesday and rose to as high as $58.30 after the EIA also reported a larger than expected draw in crude oil inventories, but then tumbled by as much as 5% on a report that Trump had discussed easing Iranian sanctions as a prelude to talks, with oil prices closing $1.65 lower at $55.75 a barrel…oil prices continued falling on Thursday, after OPEC and its allies delayed discussing bigger production cuts till December and after the EIA lowered its 4th quarter price forecast for Brent, the international benchmark, by $5, with US oil closing down 66 cents at $55.09 a barrel…prices edged lower again on Friday, as forecasts for weakening demand outweighed signs of progress in the U.S.-China trade dispute, with oil prices finishing the day 24 cents lower at $54.85 a barrel…oil thus ended the week $1.67, or 3% lower after four straight days of declines, posting its biggest weekly drop since July, amid oversupply concerns

natural gas prices, on the other hand, finished higher the third week in a row, largely on continued short covering, as traders looked past the summer glut to the heating season aheadafter rising nearly 10% to $2.496 per mmBTU on short covering after forecasts for late summer heat last week, natural gas for October delivery opened higher Monday and moved up 8.9 cents as the forecasts trended hotter, before pulling back a half cent on Tuesday and 2.8 cents on Wednesday, even as an unseasonably strong upper level ridge set up in the eastern half of the nation and limited the retreat…the rally resumed Thursday after the EIA report showed a smaller addition of gas to storage than was expected, with October natural gas prices rising 2.2 cents Thursday and 4 cents Friday to end the week at $2.614 per mmBTU, an increase of 4.7% on the week and nearly 28% higher than its early August lows…

the natural gas storage report for the week ending September 6th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 78 billion cubic feet to 3,019 billion cubic feet by the end of the week, which meant our gas supplies were 393 billion cubic feet, or 15.0% more than the 2,626 billion cubic feet that were in storage on September 6th of last year, while still 77 billion cubic feet, or 2.5% below the five-year average of 3,096 billion cubic feet of natural gas that have been in storage as of the 6th of September in recent years….this week’s 78 billion cubic feet injection into US natural gas storage was somewhat below the forecast for an 87 billion cubic feet injection by analysts surveyed by S&P Global Platts, while it was still above the average 73 billion cubic feet of natural gas that have been added to gas storage during the first week of September over the past 5 years, the 24th such average or above average storage build in the last 26 weeks…the 1,841 billion cubic feet of natural gas that have been added to storage over the 24 weeks of this year’s injection season is the second most for the same period in the modern record, eclipsed only by the record 1906 billion cubic feet of natural gas that were injected into storage over the same 24 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending September 6th indicated that because our refinery throughput and oil exports rose while our oil imports fell, we had to pull oil out of storage for the eleventh time in 13 weeks…our imports of crude oil fell by an average of 180,000 barrels per day to an average of 6,725,000 barrels per day, after rising by an average of 976,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 234,000 barrels per day to an average of 3,295,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,430,000 barrels of per day during the week ending September 6th, 414,000 fewer barrels per day than the net of our imports minus exports during the prior week…over the same period, the production of crude oil from US wells was reported to be unchanged from the prior week at 12,400,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,830,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,495,000 barrels of crude per day during the week ending September 6th, 114,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 987,000 barrels of oil per day were being pulled out of the supplies of oil stored 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 678,000 barrels per day less than what our oil refineries reported they used during the week…to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+678,000) 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 they label in their footnotes as “unaccounted for crude oil”….with that great a quantity of oil unaccounted for this week, it calls into question the other oil totals that the EIA has reported and that we have just transcribed (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) indicated that the 4 week average of our oil imports fell to an average of 6,694,000 barrels per day last week, now 11.7% less than the 7,577,000 barrel per day average that we were importing over the same four-week period last year…the 987,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged…this week’s crude oil production was reported to be unchanged at 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,000,000 barrels per day, while a 44,000 barrels per day increase to 398,000 barrels per day in Alaska’s oil production had no impact on the final rounded national production total…last year’s US crude oil production for the week ending September 7th was rounded to 10,900,000 barrels per day, so this reporting week’s rounded oil production figure was 13.6% above that of a year ago, and 47.1% 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 95.1% of their capacity in using 17,495,000 barrels of crude per day during the week ending September 6th, up from 94.8% of capacity the prior week, refinery utilization rates that are fairly typical for late summer…however, the 17,495,000 barrels per day of oil that were refined this week were still 2.0% below the 17,857,000 barrels of crude per day that were being processed during the week ending September 7th, 2018, when US refineries were operating at 97.6% of capacity….

with the increase in the amount of oil being refined, gasoline output from our refineries was modestly higher, increasing by 88,000 barrels per day to 10,360,000 barrels per day during the week ending September 6th, after our refineries’ gasoline output had decreased by 388,000 barrels per day over the prior week…but even with that increase in gasoline output, this week’s gasoline production was still fractionally lower than the 10,384,000 barrels of gasoline that were being produced daily over the same week of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 187,000 barrels per day to 5,341,000 barrels per day, after our distillates output had decreased by 39,000 barrels per day the prior week….but even with that increase, our distillates production was still 3.5% less than the 5,536,000 barrels of distillates per day that were being produced during the week ending September 7th, 2018…. 

with ​just a modest increase in our gasoline production, our supply of gasoline in storage at the end of the week still fell for the 9th time in 13 weeks and for the 23rd time in twenty-eight weeks, decreasing by 682,000 barrels to 228,904,000 barrels during the week to September 6th, after our gasoline supplies had fallen by 2,396,000 barrels over the prior week….our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 336,000 barrels per day to 9,807,000 barrels per day even while our exports of gasoline fell by 182,000 barrels per day to 637,000 barrels per day, and while our imports of gasoline rose by 80,000 barrels per day to 797,000 barrels per day…after this week’s decrease, our gasoline supplies were 3.0% lower than last September 7th’s inventory level of 235,869,000 barrels, while remaining roughly 3% above the five year average of our gasoline supplies for this time of the year…

with the big increase in our distillates production, our supplies of distillate fuels rose for the 11th time in the past 26 weeks, increasing by 2,704,000 barrels to 136,226,000 barrels during the week ending September 6th, after our distillates supplies had decreased by 2,538,000 barrels over the prior week…our distillates supplies increased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, decreased by 310,000 barrels per day to 3,804,000 barrels per day, and because our exports of distillates fell by 315,000 barrels per day to 1,194,000 barrels per day, while our imports of distillates fell by 82,000 barrels per day to 44,000 barrels per day….but even after this week’s inventory increase, our distillate supplies were still 2.2% less than the 139,283,000 barrels of distillates that we had stored on September 7th, 2018, and remained around 6% below the five year average of distillates stocks for this time of the year…

finally, as our exports rose and our refineries processed more oil, our commercial supplies of crude oil in storage fell for the eleventh time in thirteen weeks but for the seventeenth time in 34 weeks, decreasing by 6,912,000 barrels, from 422,980,000 barrels on August 30th to 416,068,000 barrels on September 6th…that decrease left our crude oil inventories 2% below the five-year average of crude oil supplies for this time of year, but still roughly 24% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the first week of September, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels…since our crude oil inventories had generally been rising over the past year up until the most recent thirteen weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of September 6th were still 5.0% above the 396,194,000 barrels of oil we had stored on September 7th of 2018, but at the same time were 11.1% below the 468,241,000 barrels of oil that we had in storage on September 8th of 2017, and 13.3% below the 480,166,000 barrels of oil we had in commercial storage on September 9th of 2016…  

OPEC’s Monthly Oil Market Report

this week we’re also going to review OPEC’s September Oil Market Report (covering August OPEC & global oil data), which was released on Wednesday of this past week and is available as a free download, and hence it’s the report we check for monthly global oil supply and demand data…​as you’ll see, it shows there was ​again ​a large shortfall in the amount of oil produced ​globally ​in ​August, ​contrary to the story that​’s being told elsewhere​…the first table from this monthly report that we’ll look at is from the page numbered 63 of that report (pdf page 73), 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 a means of impartially adjudicating whether their output quotas and production cuts are being met, to thus avert any potential disputes that could arise if each member reported their own figures…

August 2019 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC’s oil output rose by 136,000 barrels per day to 29,741,000 barrels per day in August, from their revised July production total of 29,605,000 barrels per day…however that July figure was originally reported as 29,609,000 barrels per day, so that means their production for August was, in effect, a 132,000 barrel per day increase from the previously reported production figures (for your reference, here is the table of the official July OPEC output figures as reported a month ago, before this month’s revisions)…

​we can also see that the 118,000 barrel per day increase by the Saudis, the 86,000 barrel per day increase by Nigeria, and the 43,000 barrel per day increase by Iraq were the reasons that OPEC output rose in August, as most other OPEC members either cut their output or were little changed…however, those increases in the output from Nigeria and Iraq means that both countries are now well over their output allocation as originally determined for each OPEC member after their December 7th, 2018 meeting, when OPEC agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers, and which were extended at their July 1st meeting a little over two months ago…this can be seen in the table of OPEC production allocations we’ve included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, and it shows average daily production quota in millions of barrels of oil per day for each of the OPEC members as was agreed to at their December 2018 meeting and has now been extended through March 2020 as of their recent meeting….note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by a civil war, are exempt from any production quotas, and that none of those exempt countries are producing more than they did in the 4th quarter of 2018, which you can see in the third column of the OPEC production table above…

the next graphic from the report that we’ll include shows us both OPEC and world oil production monthly on the same graph, over the period from September 2017 to August 2019, and it comes from page 64 (pdf page 74) 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 metrics for global output shown on the right scale… 

August 2019 OPEC report global oil supply

including the increase in OPEC’s production from what they produced a month ago, their preliminary estimate now indicates that total global oil production rose by 0.83 million barrels per day to 99.24 million barrels per day in August, but that reported increase came after July’s total global output figure was revised down by 300,000 barrels per day from the 98.71 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 700,000 barrels per day in August after that revision, with higher oil production from the US, Canada, Malaysia, Brazil and Russia the major reasons for the non-OPEC output increase in August…. the 99.24 million barrels per day produced globally in August was also 0.36 million barrels per day, or 0.4% higher than the 98.88 million barrels of oil per day that were being produced globally in August a year ago (see the September 2018 OPEC report (online pdf) for the originally reported August 2018 details)…but even with ​this month’s increase in OPEC’s output, their August oil production of 29,741,000 barrels per day slipped to 30.0% of what was produced globally during the month, down from the revised 30.1% share they contributed in July….OPEC’s August 2018 production was reported at 32,565,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year’s total and new member Congo from this year’s, are now producing 2,527,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.9% of global output, with a 1,394,000 barrel per day drop in output from Iran, a 596,000 barrel per day decrease in the output from Saudi Arabia, and a 523,000 barrel per day decrease in the output from Venezuela from that time more than offsetting the year over year production increases of 141,000 barrels per day from Nigeria, 130,000 barrels per day from Libya, 130,000 barrels per day from Iraq, and 113,000 barrels per day from the United Arab Emirates…   

despite the 830,000 barrels per day increase in global oil output that was seen during August, there was still a large shortfall in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…    

August 2019 OPEC report global oil demand

the table above came from page 35 of the September OPEC Monthly Oil Market Report (pdf page 45), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2019 over the rest of the table…on the “Total world” line in 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 2019…

OPEC ​​has estima​​ted that during the 3rd quarter of this year, all oil consuming regions of the globe will be using 100.63 million barrels of oil per day, which was revised from their estimate of 100.69 million barrels of oil per day for the 3rd quarter a month ago….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world’s oil producers were still only producing 99.24 million barrels per day during August, which means that there was a shortfall of around 1,450,000 barrels per day in global oil production when compared to the demand estimated for the month… in addition, the downward revision of 300,000 barrels per day to July’s global output that’s implied in this report, partially offset by the 60,000 barrels per day downward revision to 3rd quarter demand that we’ve just noted, means that the 1,980,000 barrel per day shortfall that we had previously figured for July based on last month’s figures would now be revised to a deficit of 2,220,000 barrels per day….

however, demand figures for both the first quarter and 2nd quarter were also revised lower with this report, as you can see encircled by the green ellipse on the table above…the 170,000 barrels per day downward revision to 2nd quarter demand would mean that we’d have to revise our global oil deficit for June from 790,000 barrels per day to 620,000, that we’d have to revise our May deficit from 1,160,000 barrels per day to 990,000 barrels per day, and revise our global oil deficit for April from 1,030,000 barrels per day to 860,000 barrels per day…hence, for the 2nd quarter as a whole, even after those downward revision to demand, the world’s oil producers were producing 767,000 barrels per day less than what was needed

note that in green we’ve also circled a downward revision of 30,000 barrels per day to first quarter demand…that means that the global oil surplus of 160,000 barrels per day we had previously figured for March would have to be revised to a global oil surplus of 190,000 barrels per day…similarly, the 610,000 barrel per day global oil output surplus we had for February would now be a 640,000 barrel per day global oil output surplus, and the 520,000 barrel per day global oil output surplus we had for January would be revised to a 550,000 barrel per day oil output surplus.. 

our green ellipse above also highlights that OPEC has revised 2018’s oil demand 10,000 barrels per day higher…when demand for 2018 was revised a month ago we adjusted our previously computed 2018 figures and for that revision and figured that for all of 2018, global oil demand exceeded production by roughly 47,240,000 barrels of oil for the year as a whole…the 10,000 barrels per day upward revision to 2018 demand would thus add 3,650,000 barrels to that deficit for a total shortfall of 50,890,000 barrels for 2018.​..​

This Week’s Rig Count

the US rig count fell for the 26th time in 30 weeks over the week ending September 13th, and is now down by 18.2% since the end of last year….Baker Hughes reported that the total count of rotary rigs running in the US fell by 12 rigs to a 28 month low of 886 rigs this past week, which was also down by 169 rigs from the 1055 rigs that were in use as of the September 14th report of 2018, and well less than half of 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 5 rigs to 733 rigs this week, which was a 22 month low for oil rigs and 134 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014…at the same time, the number of drilling rigs targeting natural gas bearing formations fell by 7 rigs to 153 natural gas rigs, a 30 month low for gas rig drilling activity and down by 33 rigs from the 186 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008…

offshore drilling activity was down by 2 to 26 rigs running this week, as platforms offshore from Texas and from Alaska were shut down…that still left 25 rigs drilling offshore from Louisiana and one offshore from the Kenai Peninsula in Alaska, a net increase of six offshore rigs from a year ago, when 11 rigs were drilling in Louisiana waters, one was drilling offshore from Texas, and two were deployed offshore from Alaska….

the count of active horizontal drilling rigs was down by 7 rigs to 776 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence is a 22 month low for horizontal drilling…that was also 145 fewer horizontal rigs than the 921 horizontal rigs that were in use in the US on September 14th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, the directional rig count was down by 10 to 57 directional rigs this week, and those were down by 14 from the 71 directional rigs that were operating during the same week of last year…on the other hand, the vertical rig count was up by 5 to 53 vertical rigs this week, but those were ​still ​down by 10 from the 63 vertical rigs that were in use on September 14th of 2018…

the details on this week’s changes in drilling activity by state and by major 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 oil & gas producing states, and the table below that 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 13th, the second column shows the change in the number of working rigs between last week’s count (September 6th) and this week’s (September 13th) count, the third column shows last week’s September 6th active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number 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 14th of September, 2018…     

September 13 2019 rig count summary

even with the majority of this week’s rig decrease coming out of those drilling for natural gas, the 8 rig decrease in the oil-bearing Permian was still two-thirds of the total that were idled this week….of those, just one rig was shut down in Texas Oil District 8, or the core Permian Delaware, which still has 267 rigs drilling; while 2 rigs were shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, and 5 rigs were shut down in Texas Oil District 7C, or the southern part of the Permian Midland, which now only has 9 rigs still drilling…other major changes in Texas include the startup of 4 rigs in Texas Oil District 7B, which accounts for the 3 rig increase in the Barnett shale, and 3 rigs that were shut down in Texas Oil District 10, the panhandle region, which corresponds to the Granite Wash…since the Granite Wash rig count is unchanged, it seems likely that 3 rigs began operation in the Oklahoma portion of Granite Wash to offset ​the ​shutdowns in Texas, given that the Oklahoma rig count increased despite the idling of 3 rigs in the Cana Woodford….oddly enough, even with this week’s pullback in natural gas, the Cana Woodford, historically an oil play, saw a 2nd natural gas rig startup this week, while 4 oil rigs were idled in the basin, while the Barnett shale, more recently ployed for natural gas, had 3 oil ​seeking ​rigs added…another natural gas rig began operations in the Haynesville, apparently on the Texas side, since the Louisiana side of the basin shows a decrease…meanwhile, 3 natural gas rigs were shut down in West Virginia’s Marcellus, one was shut down in Ohio’ Utica, and 6 natural gas rigs were shut down in “other” basins not tracked separately by Baker Hughes…i’m not sure how to account for the 2 rig increase in Pennsylvania; all of the PA rigs shown to be drilling this week by the North America Rotary Rig Count Pivot Table (excel) are indicated to be in the Marcellus, but of the two rigs drilling in Fayette County, one is shown to be horizontal at a depth greater than 15,000 feet, while the other is indicated to be vertical at less than 5,000 feet…since that’s physically impossible, we can probably assume that new PA rig in Fayette county is not targeting the Marcellus, thus accounting for the discrepancy in this week’s count…we should also note that a horizontal rig started drilling for oil in Midland county Michigan this week, in the first drilling that state has seen since a 2 week stint in May of 2017…

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