March global oil surplus at 17.7 million barrels per day; 2nd quarter surplus to be at 6.2 million bpd even after OPEC, Russian, & US cuts

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending April 10th indicated that an increase in our oil exports was not enough to offset a another big pullback in our oil refining, leaving us with an even higher record surplus of oil to add to our stored commercial supplies, the twenty-third addition of oil to storage in the past thirty-one weeks….our imports of crude oil fell by an average of 194,000 barrels per day to an average of 5,680,000 barrels per day, after falling by an average of 173,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 603,000 barrels per day to 3,436,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,244,000 barrels of per day during the week ending April 10th, 797,000 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 fell by 100,000 barrels per day to 12,300,000 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 14,544,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 12,665,000 barrels of crude per day during the week ending April 10th, 969,000 fewer 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 a record average of 2,750,000 barrels of oil per day were being added to the supplies of oil stored in the US….so looking at that data, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 871,000 barrels per day less than what what was added to storage plus 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 plugged a (+871,000) 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 in the industry…(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 5,929,000 barrels per day last week, still 8.4% less than the 6,474,000 barrel per day average that we were importing over the same four-week period last year….the 2,750,000 barrel per day addition to our total crude inventories was all added to our commercially available stocks of crude oil, while the quantity of oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s crude oil production was reported to be down by 100,000 barrels per day to 12,300,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was down by 100,000 barrels per day to 11,800,000 barrels per day, while a 4,000 barrel per day decrease in Alaska’s oil production to 477,000 barrels per day had no impact on the rounded national total….last year’s US crude oil production for the week ending April 12th was rounded to 12,100,000 barrels per day, so this reporting week’s rounded oil production figure was still 1.7% above that of a year ago, and 45.9% 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 69.1% of their capacity in using 12,665,000 barrels of crude per day during the week ending April 10th, down from 75.6% of capacity during the prior week, and the lowest capacity utilization rate since September 2008, when the aftermath of Hurricane Ike shut down Texas Gulf Coast refining….hence, the 12,665,000 barrels per day of oil that were refined this week were 21.2% fewer barrels than the 16,078,000 barrels of crude that were being processed daily during the week ending April 12th, 2019, when US refineries were operating at 87.7% of capacity, and also the fewest barrels refined in any week since September 26th 2008….

even with the big drop in the amount of oil being refined, gasoline output from our refineries was a bit higher, increasing by 97,000 barrels per day to 5,915,000 barrels per day during the week ending April 10th, after our refineries’ gasoline output had decreased by 1,638,000 barrels per day over the prior week….but since that small increase followed two near record drops in gasoline output, our gasoline production this week was 40.4% lower than the 9,917,000 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) decreased by 55,000 barrels per day to 4,927,000 barrels per day, after our distillates output had increased by 16,000 barrels per day over the prior week…but even after this week’s decrease in distillates output, our distillates’ production for the week was still 2.2% more than the 5,038,000 barrels of distillates per day that were being produced during the week ending April 12th, 2019….

with the modest increase in our gasoline production, our supply of gasoline in storage at the end of the week rose for the 3rd week in a row, following 8 weeks of decreases, rising by 4,914,000 barrels to 262,217,000 barrels during the week ending April 10th, after our gasoline supplies had increased by a near record 10,497,000 barrels over the prior week…our gasoline supplies increased this week as the amount of gasoline supplied to US markets increased by 16,000 barrels per day to 5,081,000 barrels per day, while our exports of gasoline fell by 15,000 barrels per day to 755,000 barrels per day and our imports of gasoline fell by 91,000 barrels per day to 402,000 barrels per day….after this week’s inventory increase, our gasoline supplies were 15.0% higher than last April 12th’s gasoline inventories of 227,955,000 barrels, and roughly 12% above the five year average of our gasoline supplies for this time of the year…

with the increase in our distillates production, our supplies of distillate fuels increased for the second time in 13 weeks and for the 7th time in 28 weeks, rising by 6,280,000 barrels to 129,004,000 barrels during the week ending April 10th, after our distillates supplies had increased by 476,000 barrels over the prior week….our distillates supplies rose by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 1,050,000 barrels per day to a 28 year low of 2,757,000 barrels per day, while our exports of distillates rose by 292,000 barrels per day to 1,585,000 barrels per day and because our imports of distillates rose by 128,000 barrels per day to 313,000 barrels per day….after this week’s big inventory increase, our distillate supplies at the end of the week were 1.0% above the 127,691,000 barrels of distillates that we had stored on April 12th, 2019, but still about 7% below the five year average of distillates stocks for this time of the year…

finally, another big pullback in our oil refining, our commercial supplies of crude oil in storage rose for the twenty-fourth time in forty-one weeks and for the thirty-third time in the past 52 weeks, increasing by a record 19,248,000 barrels, from 484,370,000 barrels on April 3rd to 503,618,000 barrels on April 10th, the largest increase on record….but even after 12 straight increases and two straight record increases, our crude oil inventories were just 6% above the five-year average of crude oil supplies for this time of year, but nearly 45% higher than the prior 5 year (2010 – 2014) average of crude oil stocks as of the second Friday in April , with the disparity between those comparisons arising because it wasn’t until early 2015 that our oil inventories first rose above 400 million barrels, and continued rising from there….since our crude oil inventories have generally been rising over the past year and a half, except for during this past summer, after generally falling until then through most of the prior year and a half, our crude oil supplies as of April 10th were 10.6% above the 455,154,000 barrels of oil we had in commercial storage on April 12th of 2019, and 17.8% above the 427,567,000 barrels of oil that we had in storage on April 13th of 2018, while at the same time remaining 5.4% below the 532,343,000 barrels of oil we had in commercial storage on April 14th of 2017…

OPEC’s Monthly Oil Market Report

Thursday of this past week saw the release of OPEC’s March Oil Market Report, which covers OPEC & global oil data for March, and hence it gives us a picture of the global oil supply & demand situation after the breakdown of OPECs agreement to cut oil production in the first quarter, when Saudi and its allies were engaged in an oil price war against the Russians and US shale, but before last week’s agreement to cut production by 9.7 million barrels a day….we should note as a caveat that estimating oil demand while an epidemic is spreading is pretty much a crapshoot, and hence the numbers we’ll be reporting this month should be considered having a much larger margin of error than we’d normally expect from this report..

the first table from this monthly report that we’ll look at is from the page numbered 45 of that report (pdf page 55), 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…

March 2020 OPEC crude output via secondary sources

as we can see from the above table of oil production data, OPEC’s oil output jumped by 821,000 barrels per day to 28,612,000 barrels per day in March, from their revised February production total of 27,790,000 barrels per day…however that February output figure was originally reported as 27,772,000 barrels per day, which means that OPEC’s February production was revised 18,000 barrels per day higher with this report, and hence March’s production was, in effect, an  839,000 barrel per day increase from the previously reported OPEC production figures (for your reference, here is the table of the official February OPEC output figures as reported a month ago, before this month’s revisions)…

from that OPEC table, we can also see that increases of 388,000 barrels per day from the Saudis, 386,000 barrels per day from the Emirates, and 170,000 barrels per day from Kuwait were the reason for the March output increase, far outweighing decreases of 100,000 barrels per day from sanctioned Venezuela, 52,000 barrels per day from sanctioned Iran, and 54,000 barrels per day from wartorn Libya …but except for the increases from the three Saudi allies, it appears that most other OPEC members continued to adhere to the output allocations that were 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 the additional production cuts of 500,000 barrels per day through to March 2020 that were announced at their December 6th, 2019 meeting..

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 April 2018 to March 2020, and it comes from page 46 (pdf page 56) of the March 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…

March 2020 OPEC report global oil supply

due to the 821,000 barrel per day jump in OPEC’s production from what they produced a month ago, OPEC’s preliminary estimate indicates that total global oil production increased by a rounded 0.62 million barrels per day to average 99.86 million barrels per day in March, a reported increase which apparently came after February’s total global output figure was revised lower by 510,000 barrels per day from the 99.75 million barrels per day of global oil output that was reported a month ago, as non-OPEC oil production fell by a rounded 200,000 barrels per day in March after that revision, with lower oil production from the OECD Americas, Norway, Brazil and Kazakhstan the major reasons for the non-OPEC output decrease in March…with the increase in March’s global output, the 99.86 million barrels of oil per day produced globally in March were 1.11 million barrels per day, or 1.1% greater than the revised 98.75 million barrels of oil per day that were being produced globally in March a year ago, the 3rd month of OPECs first round of production cuts (see the April 2019 OPEC report (online pdf) for the originally reported February 2019 details)…with this month’s upward revision to and increase in OPEC’s output, their March oil production of 28,612,000 barrels per day rose to 28.7% of what was produced globally during the month, up from the 28.1% share OPEC contributed in February, and the 28.3% global share they had in January…OPEC’s March 2019 production, which included 524,000 barrels per day from former member Ecuador, was reported at 30,022,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 886,000 fewer barrels per day of oil in March than what they produced a year ago, when they accounted for 30.2% of global output, with a 1,003,000 barrel per day drop in the output from Libya and a 680,000 barrel per day drop in the output from Iran only partially offset by a 392,000 barrel per day increase in the output from the Emirates, a 266,000 barrel per day increase in output from Saudi Arabia, and smaller year over year increases in the output from Kuwait and Nigeria…

with the big jump in OPEC’s output that we’ve seen in this report, there was a substantial surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…

March 2020 OPEC report global oil demand

the above table came from page 25 of the April OPEC Monthly Oil Market Report (pdf page 35), and it shows regional and total oil demand estimates in millions of barrels per day for 2019 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2020 over the rest of the table…on the “Total world” line in the second column, we’ve circled in blue the figure that’s relevant for March, which is their estimate of global oil demand during the first quarter of 2019…

OPEC is estimating that during the 1st quarter of this year, all oil consuming regions of the globe have been using an average of 92.92 million barrels of oil per day, which is a 4.66 million barrel per day downward revision from the 97.58 million barrels of oil per day they were estimating for the 1st quarter a month ago (circled in green), largely reflecting coronavirus related demand destruction….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 producing 99.86 million barrels per day during March, which would imply that there was a surplus of around 6,940,000 barrels per day in global oil production in March when compared to the demand estimated for the month…

however, as we know, most of that downward revision in 1st quarter demand was due to shutdowns and lockdowns imposed worldwide during the month of March, as the economic and fuel consumption impacts during February were mostly limited to China and Korea…that means to get a reasonable idea of what the impact of the reduced demand metric implies, we’ll have to recompute the oil production figures for the first quarter as a whole, and then make our own estimates as how those apply to each month, based on what we know about the impact of the coronavirus…

as we saw earlier, February’s global oil output was revised lower by 510,000 barrels per day to 99.24 million barrels per day with this report, while January’s global oil output was revised to 100.04 million barrels per day with last month’s OPEC report…since this month’s report indicates that March’s global oil output was at 99.86 million barrels per day, that means global oil output for the first quarter averaged 99.724 million barrels per day…given OPEC’s global demand estimate of 92.92 million barrels of oil per day, we can therefore estimate with reasonable accuracy that there was a surplus of around 6,800,000 barrels per day in global oil production over the first quarter when compared to the demand estimated for the quarter

now it gets tricky…since the virus was largely confined to China during January, and Chinese authorities had not even admitted to human to human transmission until January 20th, we can figure the impacts of the virus outbreak on global fuel consumption were negligible during January…hence, we’ll take our original estimate of a surplus of 610,000 barrels per day in global oil production during January and adjust it for the revisions to global production reported in February to estimate that there was a global surplus of 690,000 barrels per day in global oil production during January…next, since we have no special information as to the impacts of the virus outbreak in February, we’ll use our estimate from last month’s OPEC data that there was a surplus of around 2,170,000 barrels per day in global oil production in February, and adjust it with the 510,000 barrels per day downward revision to global output reported this month to estimate that February’s surplus oil production was at 1,660,000 barrels per day during the month…then, backing those oil surplus figures for January and February out of the first quarter’s oil production surplus of 6,940,000 barrels per day leaves us with nearly 550 million barrels of surplus oil in March, or an average surplus during the month of around 17,718,000 barrels per day

given that massive surplus for March, what can we expect in the future in light of last week’s OPEC pact with Russia and other major producers to cut production by 9.7 barrels per day over May and June?  to explain what’s in play for the next three months, we’ll start by including a table of the production cuts each of the participants in last week’s meeting agreed to…

April 13th 2020 OPEC   emergency cuts

the above table was taken from an article at Zero Hedge, and it shows the oil production baseline in thousands of barrel per day off of which each of the oil producers will cut from in the first column, a number which is based on each of the producer’s October 2018 output, ie., a date before the past year’s and past quarter’s output cuts took effect; the second column shows how much each participant will cut in thousands of barrel per day, which is 23% of the October 2018 baseline for all participants except for Mexico, while the last column shows the production level each participant has agreed to after that 23% cut..

using October 2018 as a basis for their cuts means they’re not actually cutting 23% from recent production, because almost all of these producers had higher production back then than they do now…if you simply go back to the first OPEC table we’ve included here (Table 5-8), you can see that OPEC’s production in 2018 was at 31,344,000 barrels per day, 12.8% more than their pre-price war February production of 27,790,000 barrels per day…when we check OPEC’s October 2018 production, we find it was the highest of that year, in fact the highest in 3 years, at 32,965,000 barrels per day, so it begins to look like they cherry-picked that baseline to make it seem their new cuts are more than they actually are…..

moreover, Iran, Libya and Venezuela, whose production has already been beaten down, are not even required to make any cuts…if we were to add the October 2018 production from Iran, Libya and Venezuela back to OPEC’s “proposed voluntary cut level” of 20,599,000 barrel per day, we’d find that OPEC’s May and June production could be as high as 26,185,000 barrels per day, down just 5.8% from their pre-price war production of 27,790,000 barrels per day…so the widely promoted “10 million barrel per day” production cuts are just a deception, designed to underpin oil prices and keep them from falling to a level that would reflect the actual supply demand imbalance….

we find that by excluding whatever Iran, Libya and Venezuela produce, the other OPEC members will be voluntarily reducing their production 15% from their pre-price war levels….then, outside of OPEC, there are really only 3 producers who’s cuts have the potential to make a difference on a global scale; Russia, Kazakhstan, and Mexico, so we’ll check their recent production to see how much they’re really cutting their output…according to page 43 of the April OPEC Monthly Oil Market Report, Russia’s crude oil production was at 10.58 million barrels per day in both February and March, so their “proposed voluntary cut level” of 8,492,000 barrels per day is a 19.7% cut from their current production level….next, according to page 44 of the April OPEC Monthly Oil Market Report, Kazakhstan’s February production level was at 1.65 million barrels per day (their March output is not given), so their “proposed voluntary cut level” of 1,319,000 barrels per day represents a 20% cut from their February production…and for Mexico, page 44 of the April OPEC Monthly Oil Market Report shows their February production level was at 1.73 million barrels per day (again, March is not given), so their “proposed voluntary cut level” of 1,653,000 barrels per day represents a 5.5% cut from what they were producing in February (note that Mexico is a special case, because they are so heavily hedged by buying oil puts that they stand to make more on their hedges if oil prices fall than they’ll lose in selling their oil below cost, so they have no incentive to cut production; hence, OPEC simply had to accept what they offered, or they’d walk away..)

so, given the reality of the much ballyhoo’d production cuts, let’s try to estimate what the 2nd quarter supply / demand balance might be…back on Table 4-2, World Oil Demand in 2020, we’ve also circled in red the figure that’s relevant for the 2nd quarter on the “Total world” line in the third column…OPEC has estimated that during the 2nd quarter, global consumption of oil will be at an 86.70 million barrels of oil per day average, which is a 11.50 million barrel per day downward revision from the 98.20 million barrels of oil per day they had estimated or the 2nd quarter a month ago…since April was half gone before the ink was dry on this most recent production cut agreement, we see no reason that OPEC’s April production will fall from March levels; indeed, it may even rise, considering that the Saudis, the Emirates, & Kuwait were engaged in an all-out production & price war at the beginning of the month…but we”ll just use March’s OPEC output figures for April to simplify our estimate…then we’ll also estimate that oil production will fall by 1 million barrels per day for producing countries other than OPEC, largely on cutbacks to expensive US shale and Canadian tar-sands production, due to depressed oil prices…hence, that would leave April’s global oil production at 98.86 million barrels per day…then in May, these OPEC+ production cuts that we’ve been discussing kick in…rather than the advertised 9.7 million barrels per day cut, we’ve figured that they’ll actually be closer to 7.2 million barrels per day lower than what the same countries produced in February (if they meet their “voluntary” targets)…again, generously estimating that oil production will again fall by 1 million barrels per day for other producing countries not included in this pact would leave May’s global oil production at 89.86 million barrels per day (temporarily accepting more significant digits than our data warrants)…since we have no special insight into what might happen to oil prices by June, we’ll just repeat May’s production figure of 89.86 million barrels per day as our estimate for June…that gives us an average oil production figure of 92.86 million barrels per day for the 2nd quarter against OPEC demand estimate of 86.70 million barrels per day, suggesting that even after Russian & OPEC production cuts, 2nd quarter global production will still be 6,160,000 barrels per day greater than demand…

DUC well report for March

Tuesday of this past week saw the release of the EIA’s Drilling Productivity Report for April, which includes the EIA’s March data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the thirteenth month in a row, this report showed a decrease in uncompleted wells nationally in February, as both the drilling of new wells and completions of drilled wells decreased…..for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 79 wells, falling from a revised 7,655 DUC wells in February to 7,576 DUC wells in March, which now is 10.8% fewer DUCs than the 8,489 wells that had been drilled but remained uncompleted as of the end of March of a year ago…this month’s DUC decrease occurred as 990 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during March, down by 24 from the 1,014 wells that were drilled in February and the lowest number of wells drilled since June 2017, while 1,070 wells were completed and brought into production by fracking, a decrease of 12 well completions from the 1,082 completions seen in February, and down from the 1,332 completions seen in March of last year….at the March completion rate, the 7,576 drilled but uncompleted wells left at the end of the month still represents a 7.1 month backlog of wells that have been drilled but are not yet fracked, same as the DUC well backlog of a month ago…

both oil producing and natural gas producing regions saw DUC well decreases in March, even as two of the seven major basins saw modest DUC increases…the number of DUC wells remaining in the Oklahoma Anadarko decreased by 52, falling from 728 at the end of February to 676 DUC wells at the end of March, as 52 wells were drilled into the Anadarko basin during January while 105 Anadarko wells were being fracked….at the same time, DUC wells in the Eagle Ford of south Texas decreased by 18, from 1,368 DUC wells at the end of February to 1,350 DUCs at the end of March, as 152 wells were drilled in the Eagle Ford during February, while 170 already drilled Eagle Ford wells were completed….in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies’ front range decreased by 11 to 442, as 130 Niobrara wells were drilled in March while 141 Niobrara wells were completed….on the other hand, DUC wells in the Bakken of North Dakota increased by 12, from 870 DUC wells at the end of February to 882 DUCs at the end of March, as 95 wells were drilled into the Bakken in January, while 83 of the drilled wells in that basin were being fracked…in addition, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 8, from 3,433 DUC wells at the end of February to 3,441 DUCs at the end of March, as 450 new wells were drilled into the Permian, while 442 wells in the region were being fracked….

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 18 wells, from 562 DUCs at the end of February to 544 DUCs at the end of March, as 74 wells were drilled into the Marcellus and Utica shales during the month, while 92 of the already drilled wells in the region were fracked….on the other hand, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region had their uncompleted well inventory remain unchanged at 241, as 36 wells were drilled into the Haynesville during March, while 36 of the already drilled Haynesville wells were fracked during the same period….thus, for the month of March, DUCs in the five major oil-producing basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 61 wells to 6,791 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 18 wells to 785 wells, although as this report notes, once into production, more than half the wells drilled nationally will produce both oil and gas…

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