natural gas prices at new lows; record oil production; 2019 oil shortage was 297,900,000 barrels, or ~3 days of output

oil prices finished lower for a second week as geopolitical fears unwound and oil traders shifted their focus to an imaginary oil glut and sluggish demand….after falling 6.4% to $59.04 a barrel last week because the exchange of missile attacks between the US and Iran failed to interrupt oil supplies, the benchmark price of US light sweet crude for February delivery fell for a fifth consecutive day on Monday as tensions in the Mideast continued to ease over the weekend and oil traders turned their focus to high US fuel supplies, with oil prices finishing down 96 cents at $58.08 a barrel…however, oil prices snapped their losing streak on Tuesday, rising 15 cents to $58.23 a barrel, buoyed by upbeat anticipation of the expected Wednesday signing of a so-called ‘phase one’ U.S.-China trade deal…but oil prices were down again early Wednesday after the late Tuesday API report had showed a surprise increase of US crude supplies, and continued lower to close down 42 cents at $57.81 a barrel after the EIA reported huge increases in domestic supplies of gasoline and distillates….oil prices then opened higher on Thursday on Chinese commitments to much higher purchases of U.S. energy products, but slumped back to $57.56 at midday before rallying to finish 71 cents higher at $58.52 a barrel on news of the Senate approval of the U.S.-Mexico-Canada trade agreement…oil prices then tacked on another 2 cent gain on Friday to finish at $58.54 a barrel, a loss of less than 1% for the week as the positive news on trade was outweighed by signs of oversupply and weak global demand..

meanwhile, natural gas prices finished much lower on continued moderate weather and on reports from the EIA forecasting lower natural gas prices for 2020 and slower growth in natural gas-fired electricity generationafter finishing last week 3.4% higher at $2.202 per mmBTU as traders eyed a return to winter temperatures, the price of natural gas for February delivery opened higher but then moved down on Monday and ended 2 cents lower at $2.182 mmBTU as the shift to colder temperatures failed to impress natural gas traders…prices recovered a half a cent on Tuesday but were down 6.7 cents on Wednesday on forecasts for less cold in the two week forecasts…prices rallied on a bullish storage report on Thursday, but again faded to close 4.3 cents lower at a five month low of $2.077 mmBTU, as the bullish storage report was no match for bearish weather forecasts… February natural gas lost then 7.4 cents, or 3.6%, on Friday to settle at $2.003 per mmBTU, and was thus down about 9% for the week, the lowest close for natural gas prices since May 2016 and the lowest price ever for February 2020 natural gas

the natural gas storage report for the week ending January 10th from the EIA indicated that the quantity of natural gas held in storage in the US fell by 109 billion cubic feet to 3,039 billion cubic feet by the end of the week, which left our gas supplies 494 billion cubic feet, or 19.4% higher than the 2,545 billion cubic feet that were in storage on January 10th of last year, and 149 billion cubic feet, or 5.2% above the five-year average of 2,890 billion cubic feet of natural gas that has been in storage as of the 10th of January in recent years….the 109 billion cubic feet that were withdrawn from US natural gas storage this week was somewhat more than the average forecast for a 92 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, but still far less than the average 194 billion cubic feet of natural gas that have been pulled from natural gas storage during the first full week of January over the past 5 years….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending January 10th showed that because of a modest drop in our oil imports and a sizable increase in our oil exports, we needed to pull oil out of our stored commercial supplies for the seventh time in the past eighteen weeks….our imports of crude oil fell by an average of 179,000 barrels per day to an average of 6,730,000 barrels per day, after rising by an average of 379,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 417,000 barrels per day to 3,481,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,071,000 barrels of per day during the week ending January 10th, 596,000 fewer barrels per day than the net of our imports minus our exports during the prior week…over the same period, the production of crude oil from US wells rose by 100,000 barrels per day to a record 13,000,000 barrels per day, and hence our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,071,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,973,000 barrels of crude per day during the week ending January 10th, 76,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA’s surveys indicated that an average of 364,000 barrels of oil per day were being pulled out of the supplies of oil stored in the US….hence, we can see that 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 538,000 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 just inserted a (+538,000) 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”, thus suggesting an error or errors of that magnitude in the oil supply & demand figures we have just transcribed…however, since the media treats these figures as gospel and since they drive oil pricing and hence decisions to drill for oil, we’ll continue to report them, just as they’re watched & believed as accurate by most everyone else (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 slipped to an average of 6,611,000 barrels per day last week, now 13.1% less than the 7,605,000 barrel per day average that we were importing over the same four-week period last year….the 364,000 barrel per day net withdrawal from our total crude inventories was all from our commercially available stocks of crude oil, while the quantity of oil stored in our Strategic Petroleum Reserve was unchanged….this week’s crude oil production was reported to be 100,000 barrels per day higher at a record 13,000,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at a record 12,500,000 barrels per day, and while even though oil production from Alaska was 3,000 barrels per day lower at 480,000 barrels per day, it still added the same rounded 500,000 barrels per day to the rounded national total….last year’s US crude oil production for the week ending January 11th was rounded to 11,900,000 barrels per day, so this reporting week’s rounded oil production figure was 9.2% above that of a year ago, and 54.2% 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…   

meanwhile, US oil refineries were operating at 92.2% of their capacity in using 16,973,000 barrels of crude per day during the week ending January 10th, down from 93.0% of capacity the prior week, and a bit below the recent average capacity utilization for the first full week of January…as a result, the 16,973,000 barrels per day of oil that were refined this week were 1.5% below the 17,223,000 barrels of crude that were being processed daily during the week ending January 11th, 2019, when US refineries were operating at 94.6% of capacity….

even with just a modest increase in the amount of oil being refined, gasoline output from our refineries was quite a bit higher, increasing by 394,000 barrels per day to 9,281,000 barrels per day during the week ending January 3rd, after our refineries’ gasoline output had decreased by 1,286,000 barrels per day over the prior week…but even after this week’s increase in gasoline output, our gasoline production was still 3.2% lower than the 9,584,000 barrels of gasoline that were being produced daily over the same week of last year….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 105,000 barrels per day to 5,205,000 barrels per day, after our distillates output had increased by 1,000 barrels per day over the prior week…after this week’s decrease in distillates output, our distillates’ production for the week was 3.8% below the 5,412,000 barrels of distillates per day that were being produced during the week ending January 11th, 2018….

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the tenth week in a row and for the 16th time in 30 weeks, rising by 6,678,000 barrels to 258,287,000 barrels during the week to January 10th, after our gasoline supplies had increased by a 4 year high of 9,137,000 barrels over the prior week….our gasoline supplies increased by less this week because the amount of gasoline supplied to US markets increased by 428,000 barrels per day to 8,558,000 barrels per day, while our exports of gasoline fell by 198,000 barrels per day to 608,000 barrels per day, and while our imports of gasoline rose by 42,000 barrels per day to 443,000 barrels per day….after this week’s increase, our gasoline supplies were 1.1% higher than last January 11th’s gasoline inventory level of 255,565,000 barrels, and remained 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 16 weeks and for 16th time in the past 41 weeks, rising by 8,171,000 barrels to 147,221,000 barrels during the week ending January 10th, after our distillates supplies had increased by 5,330,000 barrels over the prior week….our distillates supplies increased by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 188,000 barrels per day to 3,185,000 barrels per day, and because our exports of distillates fell by 373,000 barrels per day to 1,055,000 barrels per day, while our imports of distillates fell by 50,000 barrels per day to 202,000 barrels per day….but even after three weeks of near record inventory increases, our distillate supplies were still 0.7% less than the 140,042,000 barrels of distillates that we had stored on January 11th, 2018, and roughly 3% below the five year average of distillates stocks for this time of the year…

finally, with this week’s increase in oil exports and the decrease in oil imports, our commercial supplies of crude oil in storage fell for the sixteenth time in thirty weeks and for the twenty-first time in 50 weeks, decreasing by 2,549,000 barrels, from 431,060,000 barrels on January 3rd to 428,511,000 barrels on January 10th….after that decrease, our crude oil inventories remained near the five-year average of crude oil supplies for this time of year, but were still almost 35% higher than the prior 5 year (2009 – 2013) average of crude oil stocks after the first full week of January, with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels….even though our crude oil inventories had generally been rising over the past year, except for during the past summer, after generally falling until then through most of the prior year and a half, our oil supplies as of January 10th were 2.0% below the 437,055,000 barrels of oil we had stored on January 11th of 2018, while rising to 3.8% above the 419,515,000 barrels of oil that we had in storage on January 5th of 2017, but at the same time fell to 11.2% below the 485,456,000 barrels of oil we had in commercial storage on January 13th of 2016…        

OPEC’s Monthly Oil Market Report

Wednesday of this past week saw the release of OPEC’s January Oil Market Report, which covers OPEC & global oil data for December, and hence it gives us a snapshot of the global oil supply & demand situation before ​OPEC’s ​increased ​production cuts of up to 2.1 million barrels per day, or more than 2% of global supply, are to go into effect…but as we’ll see, this report shows there was already a shortfall of nearly ​0.8% of the amount of oil produced globally in December, even as it was less than the larger shortfalls seen earlier this year…

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 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…

December 2019 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC’s oil output fell by 161,000 barrels per day to 29,444,000 barrels per day in December, from their revised November production total of 29,606,000 barrels per day…however that November output figure was originally reported as 29,551,000 barrels per day, which means that OPEC’s November production was revised 55,000 barrels per day higher, and hence December’s production was, in effect, a 106,000 barrel per day decrease from the previously reported OPEC production figures (for your reference, here is the table of the official November OPEC output figures as reported a month ago, before this month’s revisions)…

from that table, we can also see that a 111,000 barrel per day decrease in production by the Saudis, a 76,000 barrel per day decrease in production by Iraq, a 46,000 barrel per day decrease in production by the Emirates, and a 44,000 barrel per day decrease in production by Libya were the major reasons for the December drop in OPEC’s output, more than offsetting the increase of 125,000 barrels per day in the output from Angola, while the oil output changes by most other OPEC members had little impact on the total….with th​is month’s increase in Angola’s output, and despite the decrease in Iraq’s output, they are now the only two OPEC countries whose production was above the 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 earlier last year…these output allocations for December can be seen in the table of OPEC production quotas for 2019 we’ve included on the left below:

OPEC supply cut targets as of October 2019

OPEC additional supply cuts as of December 2019

in addition to those cuts, at their meeting with other oil producers on December 6th of this past year, OPEC announced additional production cuts of 500,000 barrels per day through to March 2020 on top of those 2019 allocations, a breakdown of which we have in a table from OPEC on the right above…that table was posted on OPEC’s website after their December 6th meeting, and it shows the additional production cuts each of the OPEC members and their allies among other producers are expected to make over the 3 month period beginning January…as you see, the heaviest cuts fall on the core OPEC members of Saudi Arabia. the United Arab Emirates, Kuwait and Iraq, while embargoed Iran and Venezuela remain exempt…obviously, th​at table would be more meaningful if their current production, or even their expected end production, were included, but i’ve been unable to find a table with those complete details, so we’ll just have to make do switching back and forth between the two tables we have to see how each member is impacted….in addition to those cuts that came out of the OPEC meeting, the Saudis voluntarily pledged to cut an additional 400,000 barrels a day more than was mandated by the December 6th agreement, bringing the total cut for the group to 2.1 million barrels a day, or more than 2% of global output….

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 January 2018 to December 2019, and it comes from page 59 (pdf page 69) 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 metrics for global output shown on the right scale…  

December 2019 OPEC report global oil supply

including the 161,000 barrel per day decrease in OPEC’s production from what they produced a month ago, OPEC’s preliminary estimate indicates that total global oil production decreased by a rounded 0.06 million barrels per day to average 100.28 million barrels per day in December, but that reported decrease came after November’s total global output figure was revised higher by 560,000 barrels per day from the 97.78 million barrels per day of global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 110,000 barrels per day in December after that revision, with higher oil production from the UK, Norway, Canada, Mexico and the US the major reasons for the non-OPEC output increase in December…after the decrease in December’s output from that upward revision to November, the 100.28 million barrels of oil per day produced globally in December were 0.07 million barrels per day, or just fractionally lower than the 100.35 million barrels of oil per day that were being produced globally in December a year ago, before their first round of cuts officially kicked in (see the January 2019 OPEC report (online pdf) for the originally reported December 2018 details)…with this month’s decrease in OPEC’s output, their December oil production of 29,444,000 barrels per day fell to 29.4% of what was produced globally during the month, down from the 29.5% share OPEC contributed in December, and the 29.9% share they had in November….OPEC’s December 2018 production was reported at 31,578,000 barrels per day, which means that the 14 OPEC members who were part of OPEC last year produced 2,134,000 fewer barrels per day of oil​ in December​ than what they produced a year ago, when they accounted for 31.6% of global output, with a 791,000 barrel per day decrease in output from Saudi Arabia, a 677,000 barrel per day drop in the output from Iran, and a 434,000 barrel per day decrease in the output from Venezuela from that time accounting for most of the year over year decrease… 

even with the big upward revision to global oil output that we’ve seen in this report, there was a still substantial shortfall in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…     

December 2019 OPEC report global oil demand

the above table came from page 31 of the December OPEC Monthly Oil Market Report (pdf page 41), 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 fifth column, we’ve circled in blue the figure that’s relevant for December, which is their estimate of global oil demand during the fourth quarter of 2019…

OPEC has estimated that during the 4th quarter of this year, all oil consuming regions of the globe have used 101.07 million barrels of oil per day, which is an upward revision from the 100.95 million barrels of oil per day they reported for the 4th 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 only producing 100.28 million barrels per day during December, which means that there was a shortage of around 790,000 barrels per day in global oil production when compared to the demand estimated for the month… 

the revisions to November output and to 2019 demand (circled in green above) means that the previous surplus of shortfall figures we had computed for prior months should be revised as well…a month ago we estimated a global shortage of around 1,170,000 barrels per day in global oil production during November, based on the figures published at that time…however, as we saw earlier, November’s global output figure was was revised higher by 560,000 barrels per day from those figures, while global demand was simultaneously revised 120,000 barrels per day higher, so with these revised figures, we now find that global oil production in November was running roughly 730,000 barrels per day short of demand…also a month ago, we estimated a shortage of 1,580,000 barrels per day for October; hence, with the upward revision to 4th quarter demand, that October oil production shortage would now be 1,700,000 barrels per day…

note in our green ellipse that demand for oil in the 3rd quarter was revised 90,000 barrels per day lower…we had previously computed a global shortage of 3,030,000 barrels per day in September (after the ​missile ​attack on Saudi production​)​, a deficit of 1,670,000 barrels per day in August, and a deficit of 2,290,000 barrels per day in July’s oil production…with the downward revision to 3​rd​ quarter demand, those shortfalls will now be 2,940,000 barrels per day in September, 1,580,000 barrels per day in August, and 2,200,000 barrels per day in July…

meanwhile, demand for oil in the 2nd quarter was revised 200,000 barrels per day lower…..that would mean that we’d have to revise our most recently computed global oil deficit for June from 310,000 barrels per day to 110,000 barrels per day, that we’d have to revise our May oil shortage from 680,000 barrels per day to 480,000 barrels per day, and that we’d have to revise our global oil deficit for April from 710,000 barrels per day to 510,000 barrels per day…hence, for the 2nd quarter as a whole, even after that big downward revision to demand, the world’s oil producers were still producing 257,000 barrels per day less than what was needed…

also encircled in green is an upward revision of 40,000 barrels per day to first quarter demand, a period when oil supplies exceeded demand….that revision means that the global oil surplus of 190,000 barrels per day we had last figured for March would have to be revised to a global oil surplus of 150,000 barrels per day, that the 640,000 barrel per day global oil output surplus we had for February would now be a 600,000 barrel per day global oil output surplus, and the 550,000 barrel per day global oil output surplus we had for January would be revised to a 510,000 barrel per day oil output surplus…

so as you can see, we have gone from a global oil surplus averaging over 400,000 barrels per day in the first quarter of 2018 to an oil shortage of ​​2, 240,​000 barrels per day by the third quarter, and thence to an oil shortage of around 790,000 barrels per day by December….by totaling up those 12 monthly estimates of surplus or shortfall, we find that for the twelve months of 2019, global oil demand exceeded production by roughly 297,900,000 barrels, a net oil shortfall that is the equivalent of ​almost​ three days of global oil production at the December production rate….however, most of the media, including industry websites, are still reporting on oil supplies as if we still have a global glut of oil, because that has become the established narrative and because no one makes the effort to look at the actual data…

This Week’s Rig Count

the US rig count increased for the 3rd time in the past 22 weeks during the week ending January 17th, but is still more than 26.5% lower than the last ​rig ​count of 2018…Baker Hughes reported that the total count of rotary rigs running in the US increased by 15 rigs to 796 rigs this past week, which was still down by 254 rigs from the 1050 rigs that were in use as of the January 18th report of 2019, and 1,133 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began to flood the global oil market in an attempt to put US shale out of business

the number of rigs drilling for oil increased by 14 rigs to 673 oil rigs this week, which was 179 fewer oil rigs than were running a year ago, and much less than 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 rose by one to 120 natural gas rigs, which was still down by 78 gas rigs from the 198 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…in addition to the rigs drilling for oil & gas, three rigs classified as ‘miscellaneous’ continued to drill this week; one on the big island of Hawaii, one in Washoe County, Nevada, and one in Lake County, California, compared to a year ago, when there were no such “miscellaneous” rigs deployed..

offshore drilling activity in the Gulf of Mexico decreased by one rig to 20 rigs this week, as another rig that had been drilling offshore from Louisiana was shut down this week, the 4th Louisiana offshore decrease in a row…however, the 19 rigs that continued drilling in Louisiana waters plus the one that was drilling offshore from Texas was one more than the Gulf of Mexico rig count of 19 rigs during the same week of a year ago, when 18 rigs were drilling offshore from Louisiana and one rig was drilling in Texas waters…since there are no rigs deployed off US shores elsewhere at this time, nor were there a year ago, the Gulf of Mexico count for this year and last is the same as the national total in both cases..

the count of active horizontal drilling rigs was up by 11 rigs to 709 horizontal rigs this week, the highest horizontal rig count since November 8th, but still 220 fewer horizontal rigs than the 929 horizontal rigs that were in use in the US on January 18th 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 vertical rig count was up by 5 rigs to 43 vertical rigs this week, but those were still down by 23 from the 66 vertical rigs that were operating during the same week of last year….on the other hand, the directional rig count was down by 1 to 44 directional rigs this week, and those were down by 11 from the 55 directional rigs that were in use on January 11th of 2019…

the details on this week’s changes in drilling activity by state and by major shale basin are shown in our screenshot below of that part of the rig count summary pdf from Baker Hughes that gives us 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 January 17th, the second column shows the change in the number of working rigs between last week’s count (January 10th) and this week’s (January 17th) count, the third column shows last week’s January 10th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before the same 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 18th of January, 2019…   

January 17 2020 rig count summary

three rigs were added in Texas Oil District 8, or the core Permian Delaware this week, while the rig count in the other Texas oil districts encompassing the Permian basin in Texas were unchanged…since the Permian basin rig count was up by a total of six, that means that the three rigs that were added in New Mexico were also Permian rigs, drilling in the far western reaches of the Permian Delaware…the other Texas rig ​changes, meanwhile, were ​the two rigs added ​in Texas Oil District 2 of the Eagle Ford, while the rig that was pulled out of the Granite Wash was apparently operating in Oklahoma, since activity in the panhandle Texas Oil District 8 was unchanged…Oklahoma, meanwhile, saw a rig addition in the Ardmore Woodford and at least one elsewhere not shown above…the Williston basin only shows a two rig increase while the North Dakota activity increased by 3 rigs because a Williston rig in Montana was shut down at the same time; one Williston rig remains in Montana as of this week, down from two a year ago….meanwhile, the single natural gas rig addition this week doesn’t even show up in this weeks tables, as it was in a basin not tracked separately by Baker Hughes… 

+

 

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s