US oil supplies drop on record crude exports, new drilling at a 3 year high as active rigs top a thousand.

oil prices tumbled with equity markets over the past week, as the Trump administration doubled down on their tariff threats against China, and the specter of a full-scale trade war spooked the markets…after sliding 1.3% to close last week at $64.94 a barrel, US oil prices for May delivery fell $1.93, or nearly 3%, to a two-week low of $63.01 a barrel on Monday, following stocks lower after China retaliated against US tariffs on Chinese steel and aluminum, heightening concerns over a broadening trade war between the U.S. and China…however, oil prices then rebounded 50 cents to $63.51 a barrel on Tuesday as traders shifted their attention back to the oil supply situation and the week’s expected draw from US crude inventories….oil prices then fell 14 cents to $63.37 a barrel on Wednesday, as a surprisingly large draw in U.S. crude supplies offset an early drop to lower prices after China proposed a further broad range of tariffs on U.S. exports…with US stock markets rebounding on Thursday, oil prices rose 17 cents to $63.54 a barrel, as Saudi Arabia unexpected hiked their crude prices, even as oil’s gain was curbed by strength in the dollar….on Friday, however, Trump threatened an additional $100 billion in tariffs on Chinese goods, sending stocks plummeting 767 points, with oil prices following stocks lower, ending the day down $1.48 at $62.06 a barrel, for a net loss of $2.88 a barrel, or 4.4% for the week…

meanwhile, natural gas prices were also lower for the week, even as they appeared to remain immune to geopolitical influences…after rising to $2.733 per mmBTU on the forecast of colder weather last week, natural gas contract prices for May delivery fell 5 cents $2.683 per mmBTU on Monday, after a report that US natural gas output averaged 78.3 billion cubic feet per day over the prior three calendar days, up by 400 million cubic feet per day from the 77.9 billion cubic feet per day output averaged over March…natural gas prices then rose 1.4 cents on Tuesday and 2.1 cents on Wednesday on the persistence of colder than normal temperature forecasts for the northern half of the country, but then gave all those gains up in falling 4.3 cents to $2.675 per mmBTU on Thursday, on what was seen to be a bearish natural gas storage report, wherein the actual withdrawal of 20 billion cubic feet was less than the median forecast of a 26 billion cubic feet draw…so even though natural gas prices recovered 2.6 cents to $2.701 mmBTU on Friday on that cold April forecast, they still ended the week 3.2 cents lower than the prior week’s close…

the week’s natural gas storage report indicated that natural gas in storage in the US fell by 29 billion cubic feet to 1,354 billion cubic feet over the week ending March 30th, which left our gas supplies 697 billion cubic feet, or 34.0% lower than the 2,051 billion cubic feet that were in storage on March 31st of last year, and 347 billion cubic feet, or 20.4% below the five-year average of 1701 billion cubic feet typically in storage at the end of March…however, 9 billion cubic feet of this week’s decrease was a non-flow-related adjustment to working gas stocks in the South Central Nonsalt region, and hence the actual withdrawal of gas from storage for consumption was 20 billion cubic feet….the average withdrawal of natural gas during the last week of March over the past 5 years has been 28 billion cubic feet, so this week’s actual usage fell 8 billion cubic feet short of the norm, even though reported gas in storage fell more than the average amount… 

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending March 30th, showed that due to a big jump in our oil exports and a modest drop in our oil imports, we saw the largest drop in our crude oil supplies in twelve weeks…our imports of crude oil fell by an average of 250,000 barrels per day to an average of 7,898,000 barrels per day during the week, after rising by 1,071,000 barrels per day the prior week, while our exports of crude oil rose by an average of 597,000 barrels per day to a record average of 2,175,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 5,723,000 barrels of per day during the week, 847,000 barrels per day less than our net imports during the prior week…at the same time, field production of crude oil from US wells rose by 27,000 barrels per day to a record high of 10,460,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,183,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,936,000 barrels of crude per day, 141,000 barrels per day more than they used during the prior week, while at the same time 660,000 barrels of oil per day were being pulled out of oil storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 93,000 barrels per day less than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+93,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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”… (the details on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, is explained here)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,677,000 barrels per day, which was 3.4% less than the 7,947,000 barrel per day average we imported over the same four-week period last year….the 660,000 barrel per day withdrawal from our total crude inventories was all taken from our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged…this week’s 27,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, and a 2,000 barrel per day increase in output from Alaska…the 10,460,000 barrels of crude per day that were produced by US wells during the week ending March 30th were the highest on record, 13.7% more than the 9,199,000 barrels per day that US wells were producing during the week ending March 31st of last year, and 24.1% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016…

US oil refineries were operating at 93.0% of their capacity in using those 16,936,000 barrels of crude per day, up from 92.3% of capacity the prior week, but still down from the wintertime record 96.7% of capacity set during the last week of 2017, as US refineries are still ramping up after their pre-spring blend changeover and scheduled maintenance season….nonetheless, the 16,936,000 barrels of oil that were refined this week was a seasonal record, the most oil that US refineries have ever processed during February or March…while that elevated level of refining was still 3.8% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 3.1% more than the 16,429,000 barrels of crude per day that were being processed during the week ending March 31st, 2017, when refineries were operating at 90.8% of capacity….

even with the increase in the amount of oil being refined, gasoline output from our refineries was lower than the prior week, decreasing by 190,000 barrels per day to 10,115,000 barrels per day during the week ending March 30th, after our gasoline output had increased by 373,000 barrels per day during the week ending March 23rd....nonetheless, our gasoline production was still 6.2% greater during the week than the 9,515,000 barrels of gasoline that were being produced daily during the week ending March 31st of last year….however, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 172,000 barrels per day to 5,016,000 barrels per day, after rising by 341,000 barrels per day during the prior week….hence, that increase meant the week’s distillates production was fractionally higher than the 4,967,000 barrels of distillates per day than were being produced during the equivalent week of 2017….    

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,116,000 barrels to 238,477,000 barrels by March 30th, the fifth draw from supplies in a row, but just the sixth decrease in 21 weeks….our gasoline supplies fell as our domestic consumption of gasoline fell by 5,000 barrels per day to 9,203,000 barrels per day, after falling by 116,000 barrels per day the prior week, and even though our exports of gasoline fell by 133,000 barrels per day to 966,000 barrels per day, while our imports of gasoline rose by 76,000 barrels per day to 761,000 barrels per day…with our gasoline supplies now down 5 weeks in a row, our gasoline inventories are fractionally lower than last March 31st’s level of 239,103,000 barrels, even as they are roughly 7.2% above the 10 year average of gasoline supplies for this time of the year…         

with the increase in distillate’s production, our supplies of distillate fuels rose by 537,000 barrels to 129,491,000 barrels over the week ending March 30th, after falling by 8,472,000 barrels over the prior three weeks…our distillate inventories rose because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 488,000 barrels per day to 3,887,000 barrels per day, even as our exports of distillates rose by 233,000 barrels per day to 1,151,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 99,000 barrels per day…but even after this week’s inventory increase, our distillate supplies still ended the week 15.0% lower than the 152,374,000 barrels that we had stored on March 31st, 2017, and roughly 7.2% lower than the 10 year average of distillates stocks at this time of the year…    

finally, to cover the big increase in our oil exports, we had to take oil out of our commercial supplies of crude oil for the 12th time in 20 weeks and for the 37th time in the past year, as our commercial crude supplies decreased by 4,617,000 barrels, from 429,949,000 barrels on March 23rd to 425,332,000 barrels on March 30th….hence, after falling most of the past year, our oil inventories as of March 30th were 20.6% below the 535,543,000 barrels of oil we had stored on March 31st of 2017, 14.7% lower than the 498,598,000 barrels of oil that we had in storage on April 1st of 2016, and 5.4% below the 449,662,000 barrels of oil we had in storage on March 27th of 2015, at a time when the US glut of oil had already begun to surge from the stable levels of prior years… 

since our crude oil exports are the major reason for our falling supplies, and since this week saw a record high for those exports, we’ll include here a graph of those exports over the past year and a half…

April 4 2018 crude exports as of March 30

the above graph of recent US crude oil exports came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, after the release of the weekly EIA report…it shows weekly US crude oil exports in thousands of barrels per day over the past 18 months, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select weeks going back to September 1st, when our exports were choked off as Gulf Coast ports were shut down by Hurricane Harvey…as you can see, our oil exports had only topped a million barrels per day a few times prior to that date…however, after the price of US crude fell to a 10% discount to the comparable international grade in the wake of the hurricanes, US crude suppliers began to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since…oil exports from the US are being sold from supplies benchmarked to the price of WTI, the light sweet grade of oil that’s quoted daily…for the week ending March 30th, when these record exports were recorded, US light crude prices were quoted between $63.72 and $66.55 a barrel, with an average of around $65.25…at the same time, Brent crude, the similar North Sea grade of oil that serves as the international benchmark, was being quoted between $68.78 and $71.05 a barrel, with an average price of just under $70 a barrel…so it’s clear that even after accounting for shipping costs of as much as $2 a barrel, US oil producers are incentivized to sell as much of our oil into international markets as our pipeline and port infrastructure will allow for…

This Week’s Rig Count

US drilling activity increased for the sixth time in seven weeks and for 15th time in the past 22 weeks during the week ending April 6th, a period of higher oil prices that has seen the rig increases far exceed the few decreases…Baker Hughes reported that the total count of active rotary rigs running in the US rose by 10 rigs to 1003 rigs in the week ending on Friday, topping 1000 rigs for the first time since April 2nd, 2015…that was also 164 more rigs than the 839 rigs that were in use as of the April 7th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014… 

the number of rigs drilling for oil increased by 11 rigs to 808 rigs this week, which was also 136 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations was unchanged at 194 rigs this week, which was 29 more gas rigs than the 165 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…however, one of the rigs that was listed as “miscellaneous” was shut down this week, so now there is just one such “miscellaneous” rigs active, down from the 2 “miscellaneous” rigs that were operating a year ago.

the count of drilling rigs working in the Gulf of Mexico was unchanged at 12 rigs, still the lowest number of rigs working in the Gulf or offshore nationally in Baker Hughes records dating back to 1968, & down by 10 rigs from the 22 rigs that were deployed in the Gulf of Mexico a year ago….the count of active horizontal drilling rigs increased by 14 rigs to 884 horizontal rigs this week, which was also up by 189 rigs from the 695 horizontal rigs that were in use in the US on April 7th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count increased by 3 rigs to 63 directional rigs this week, which was still down from the 71 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was down by 7 rigs to 56 vertical rigs this week, which was also down from the 73 vertical rigs that were deployed on April 7th of 2017…

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of April 6th, the second column shows the change in the number of working rigs between last week’s count (March 30th) and this week’s (April 6th) count, the third column shows last week’s March 30th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 7th of April, 2017…   

April 6th 2018 rig count summary

you’ve probably noticed the two rig increase in the Utica shale; that increase holds no surprises this week, as both of those new rigs are targeting natural gas, with one of those in Ohio and the other in Pennsylvania, where there are now two rigs targeting the Utica for natural gas in Beaver county, PA…however, Pennsylvania was down a rig this week because two of their Marcellus rigs were shut down, while drilling the Marcellus was down by only one rig with the addition of another Marcellus natural gas directed rig in West Virginia…the natural gas rig count was unchanged, however, because two rigs targeting gas in the Cana Woodford of Oklahoma were switched out for two rigs targeting oil, while another rig targeting natural gas started up in an unnamed basin…also missing from the above tables were 5 new rigs targeting oil that were started up in “other basins”, at least one of which was the Unitah of Utah, were there were at least 3 horizontal and two directional rigs working as of April 6th….meanwhile, other than the changes for the major oil & gas producing states shown above, Alabama’s only working rig was shut down this week, down from 2 rigs a year ago and marking the first time there was no activity in the state since January 13, 2017, while Mississippi had a rig added and now has 5 deployed, the same as they had working a year ago…

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March jobs report; February’s trade deficit, construction spending, & factory inventories

in addition to the Employment Situation Summary for March from the Bureau of Labor Statistics, this week’s economic releases included three reports that will input into 1st quarter GDP:  the BEA report on our International Trade for February, the February report on Construction Spending, and the Full Report on Manufacturers’ Shipments, Inventories and Orders for February, all from the Census Bureau….in addition, the Fed released the Consumer Credit Report for February, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $10.6 billion, or at a 3.3% annual rate, as non-revolving credit expanded at a 4.4% annual rate to $2,836.6 billion and revolving credit outstanding grew at a 0.2% rate to $1,030.9 billion…

privately issued reports released this week included  the ADP Employment Report for March, the light vehicle sales report for March from Wards Automotive, which estimated that vehicles sold at a 17.40 annual rate in March, up from the 16.96 annual sales rate in February, and up from the 16.53 million rate a year earlier, and the Mortgage Monitor for February from Black Knight Financial Services….that report indicated that 4.30% of US mortgages were delinquent in February, down from 4.31% in January but up from 3.62% in February a year ago, and that 0.65% of all mortgages were in the foreclosure process at the end of the month, down from 0.66% of mortgages in January and down from the 0.93% of mortgages that were in foreclosure in February a year ago…in addition, the week saw both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the March Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 59.3% in March, from 60.8% in February, which still suggests an ongoing expansion in manufacturing firms nationally, and the March Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 58.8% in March, down from 59.5% in February, indicating a slightly smaller plurality of service industry purchasing managers reported expansion in various facets of their business in March…both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally…  

Employers Add 103,000 Jobs in March, Labor Force Participation Rate Falls to 62.9%

the Employment Situation Summary for March showed the weakest payroll job growth in 7 months, while the labor force participation rate fell because a number of the unemployed stopped looking for work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 103,000 jobs in March, after the previously estimated payroll job increase for January was revised down from 239,000 to 176,000 and the payroll jobs increase for February was revised up from 313,000 up to 326,000…including those revisions, this report thus represents a total of just 53,000 more seasonally adjusted payroll jobs than were reported last month, well below the past year’s average of 188,000 jobs per month…the unadjusted data shows that there were actually 665,000 more payroll jobs extant in March than in February, as normal seasonal job increases in sectors such as construction, administrative and waste services, and leisure and hospitality were smoothed over by the seasonal adjustments…

seasonally adjusted job increases in March were weak but still spread through through both the goods producing and the service sectors, with only construction and the retail sector showing job losses a seasonally adjusted basis, while both of those sectors actually added jobs on an unadjusted basis…adjusted construction employment was down 15,000 after increasing 65,000 in February, as it appears that those workers who would have been added in March were brought on early due to the mild February weather, meaning the March job additions were short of normal…meanwhile, the retail sector showed a seasonally adjusted 4,400 job decrease, as general merchandise stores cut 12,600 employees, probably due to store closings…meanwhile, the broad professional and business services sector added 33,000 jobs, as 9,600 more were employed by accounting and bookkeeping services….employment in health care rose by 22,400, with the addition of 9,900 jobs in hospitals…in addition, the manufacturing sectors saw the addition of 22,000 jobs, with metal fabrication factories adding 8,800….and there was also a 11,400 payroll job increase in social assistance sector, with the addition of 11,800 jobs in individual and family services….however, all the other major sectors, including resource extraction, wholesale trade, transportation and warehousing, utilities, information, financial services, education, leisure and hospitality, and government, all saw smaller increases in payroll employment over the month…

the establishment survey also showed that average hourly pay for all employees rose by 8 cents an hour to $26.82 an hour in March, after it had increased by a revised 3 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.42 an hour…employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours in March, while hours for production and non-supervisory personnel slipped by 0.1 hour to 33.7 hours…in addition, the manufacturing workweek was down 0.1 hours at 40.9 hours, and average factory overtime decreased by 0.1 hours to 3.6 hours…

meanwhile, the March household survey indicated that the seasonally adjusted extrapolation of those who reported being employed fell by an estimated 37,000 to 155,178,000, while the similarly estimated number of those qualified as unemployed fell by 121,000 to 6,585,000; which thus meant a decrease of 158,000 in the total labor force…since the working age population had grown by 163,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 323,000 to 95,335,000….with the number of those in the labor force decreasing while the civilian noninstitutional population was increasing, the labor force participation rate fell by 0.1% to 62.9%….at the same time, the small decrease in number employed as a percentage of the increase in the population was not enough to change the employment to population ratio, as it remained at 60.4%…likewise, the decrease in the number unemployed was also not large enough to impact the unemployment rate, which remained at 4.1%….meanwhile, the number who reported they were involuntarily working part time fell by 141,000 to 5,019,000 in March, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 8.2% in February to 8.0% in March, the lowest since November…

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there…note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page.. 

February Trade Deficit Rose 1.6% on Cost of Rights to Broadcast the Winter Olympics

our trade deficit grew by 1.6% February, as the value of our imports increased more than the value of our exports did….the Commerce Department report on our international trade in goods and services for February indicated that our seasonally adjusted goods and services trade deficit rose by $926 million to $57.59 billion in February, from a January deficit that was revised from the originally reported $56.601 billion to $56.665 billion…in rounded figures, the value of our February exports rose by $3.5 billion to $204.4 billion on a $3.0 billion increase to $137.2 billion in our exports of goods and an increase of $0.5 billion to $67.3 billion in our exports of services, while our imports rose $4.4 billion to $262.0 billion on a $3.3 billion increase to $214.2 billion in our imports of goods and a $1.1 billion increase to $47.8 billion in our imports of services…the latter reflected a one-time $1.0 billion increase in charges for the use of intellectual property for the rights to broadcast the 2018 Winter Olympic Games…export prices averaged 0.2% higher in February, so the real growth in exports was less than the nominal dollar growth by that percentage, while import prices were 0.4% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage…

the increase in our February exports of goods came about as a result of higher exports of industrial supplies, capital goods, and of automotive products, which was partially offset by a decrease in our exports of consumer goods…referencing the Full Release and Tables for February (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $2,022 million to $43,468 million on a $602 million increase in our exports of nonmonetary gold, a $293 million increase in our exports of crude oil, a $280 million increase in our exports of natural gas, and a $279 million increase in our exports of coal and other fuels, while our exports of automotive vehicles, parts, and engines rose by $925 million to $14,825 million on a $680 million increase in our exports of passenger cars…in addition, our exports of capital goods rose by $658 million to $45,549 million, led by a $227 million increase in our exports of civilian aircraft, while our exports of foods, feeds and beverages rose by $9 million to $10,746 million, and our exports of other goods not categorized by end use rose by $341 million to $5,009 million….partially offsetting those increases, our exports of consumer goods fell by $480 million to $17,077 million on a $562 million decrease in our exports of pharmaceuticals and a $453 decrease in our exports of jewelry….

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports of goods and shows that higher imports of capital goods, industrial supplies and materials, and foods, feeds and beverages were largely responsible for the increase in our February imports…our imports of capital goods rose by $1,823 million to $57,782 million on a $450 million increase in our imports of civilian aircraft, a $282 million increase in our imports of materials handling equipment, a $252 million increase in our imports of computers, a $240 million increase in our imports of telecommunications equipment, and a $230 million increase in our imports of industrial machines other than those listed separately…in addition, our imports of industrial supplies and materials rose by $783 million to $48,091 million, as our imports of crude oil rose by $740 million and our imports of organic chemicals rose by $290 million, and our imports of foods, feeds, and beverages rose by $767 million to $12,643 million on a $306 million increase in foods other than those itemized separately…also, our imports of consumer goods rose by $555 million to $55,122 million on a $999 million increase in our imports of pharmaceuticals, a $423 million increase in our imports of furniture, and a $212 million increase in our imports of nonwool or cotton clothing and textiles, which were partially offset by a $1,007 million decrease in our imports of cellphones, and our imports of automotive vehicles, parts and engines rose by $146 million to $31,088 million…partially offsetting those increases, our imports of other goods not categorized by end use fell by $528 million to $7,822 million…

to gauge the impact of January and February trade on 1st quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2009 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized here….from that table, we can figure that 4th quarter real exports of goods averaged 128,106 million monthly in chained 2009 dollars, while inflation adjusted 1st quarter goods exports were at 126,884 million and 129,401 million for January and February respectively in that same 2009 dollar quantity index representation…averaging January and February goods exports and then computing the annualized change between that average and the average of the fourth quarter, we find that the 1st quarter’s real exports of goods are running at a 0.12% annual rate above those of the 4th quarter, or at a pace that would add a bit less than 0.01 percentage point to 1st quarter GDP…..in a similar manner, we find that our 4th quarter real imports of goods averaged 194.913.3 million monthly in chained 2009 dollars, while inflation adjusted January and February imports were at 196,842 million and 198,507 million respectively, after that same 2009 chained dollars inflation adjustment…that would indicate that so far in the 1st quarter, our real imports of goods have increased at a 5.79% annual rate from those of the 4th quarter…since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 5.79% rate would thus subtract 0.66 percentage points from 1st quarter GDP….hence, if the average trade deficit in goods of the two months reported here is continued in March, the net effect of our international trade in goods will be to subtract 0.65 percentage points from 1st quarter GDP…

note that we have not computed the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that we can still approximate that the $1.0 billion increase in our imports of services relating to the broadcast rights for Winter Olympic Games would subtract another 0.10 percentage points from 1st quarter GDP at the same time…

Construction Spending Rose 0.1% in February after January & December Revised Much Higher

the Census Bureau’s report on February construction spending (pdf) reports that “Construction spending during February 2018 was estimated at a seasonally adjusted annual rate of $1,273.1 billion, 0.1 percent (±1.2 percent)* above the revised January estimate of $1,272.2 billion. The February figure is 3.0 percent (±1.5 percent) above the February 2017 estimate of $1,235.7 billion. During the first two months of this year, construction spending amounted to $176.3 billion, 4.4 percent (±1.3 percent) above the $168.9 billion for the same period in 2017.”…the January annualized spending estimate was revised 0.7% higher, from $1,262.8 billion to $1,272.2 billion, while December’s construction spending was revised from $1,262.7 billion to $1,272.65 billion annually, which would suggest a major upward revision to 4th quarter GDP when the annual revisions are released later this summer…

details on different subsets of construction spending are provided by the Census release summary: Spending on private construction was at a seasonally adjusted annual rate of $982.0 billion, 0.7 percent (±1.6 percent)* above the revised January estimate of $974.8 billion. Residential construction was at a seasonally adjusted annual rate of $533.4 billion in February, 0.1 percent (±1.3 percent)* above the revised January estimate of $532.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $448.6 billion in February, 1.5 percent (±1.6 percent)* above the revised January estimate of $441.9 billion. In February, the estimated seasonally adjusted annual rate of public construction spending was $291.1 billion, 2.1 percent (±1.6 percent) below the revised January estimate of $297.4 billion. Educational construction was at a seasonally adjusted annual rate of $74.6 billion, 0.5 percent (±2.6 percent)* below the revised January estimate of $75.0 billion. Highway construction was at a seasonally adjusted annual rate of $88.5 billion, 0.2 percent (±5.4 percent)* below the revised January estimate of $88.7 billion.

as you can see from that excerpt, construction spending would input into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments… however, gauging the impact of the February spending that’s reported here on GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…adding to the problem, the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, making an accurate estimate a real chore to undertake manually…so in lieu of trying to adjust for all of those different indices, we’ve opted to just use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment…

that price index showed that aggregate construction costs were up 0.1% in February, after they had increased by 0.8% in January, decreased by 0.1% in December and were unchanged in November…on that basis, we can estimate that February construction costs were roughly 0.9% more than those of December, 0.8% more than those of November, and 0.8% more than those of October…we then use those relative percentages to inflate the lower cost spending figures for each of the 4th quarter months vis a vis February, which is arithmetically the same as adjusting higher priced January and February construction spending downward, for purposes of comparison….this report gives annualized construction spending in millions of dollars for the 4th quarter months as $1,272,648 in December, $1,252,144 in November, and $1,237,649 in October, while annualized construction costs were at $1,273,085 in February and $1,272,178 in January….thus to compare January’s nominal construction spending of $1,183,840 and February’s figure of $1,192,822  to inflation adjusted figures of the fourth quarter, our formula becomes: ((1,273,085 +1,272,178 * 1.001) / 2 ) / ((1,272,648 * 1.009 + 1,252,144 * 1.008 + 1,237,649 * 1.008)/ 3) = 1.00685, which tells us that real construction spending over January and February was up by 0.685% from that of the 4th quarter period, or up at a 2.77% annual rate…then, to figure the potential effect of that change on GDP,  we take the difference between the 4th quarter inflation adjusted average and that of January’s & February’s adjusted spending as a fraction of 4th quarter GDP, and find that 1st quarter construction spending is rising at a rate that would add about 0.20 percentage points to 1st quarter GDP, assuming there is little change in real construction in March..

February Factory Shipments Up 0.2%, Factory Inventories 0.3% Higher

the Census Bureau’s summary of the Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for February, which precedes the detailed spreadsheet of those metrics and which includes revisions to the February advance durable goods report which we reviewed two weeks ago, is quite complete, so we’ll just quote directly from that here:

  • New orders for manufactured goods in February, up six of the last seven months, increased $6.0 billion or 1.2 percent to $498.0 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent January decrease. Shipments, up fourteen of the last fifteen months, increased $1.0 billion or 0.2 percent to $500.5 billion. This followed a 0.7 percent January increase. Unfilled orders, up five of the last six months, increased $1.9 billion or 0.2 percent to $1,142.8 billion. This followed a 0.3 percent January decrease. The unfilled orders-to-shipments ratio was 6.49, down from 6.52 in January. Inventories, up fifteen of the last sixteen months, increased $2.3 billion or 0.3 percent to $675.2 billion. This followed a 0.4 percent January increase. The inventories-to-shipments ratio was 1.35, unchanged from January.
  • New orders for manufactured durable goods in February, up three of the last four months, increased $7.2 billion or 3.0 percent to $247.3 billion, down from the previously published 3.1 percent increase. This followed a 3.6 percent January decrease. Transportation equipment, also up three of the last four months, led the increase, $5.5 billion or 7.0 percent to $83.5 billion. New orders for manufactured nondurable goods decreased $1.2 billion or 0.5 percent to $250.7 billion.
  • Shipments of manufactured durable goods in February, up nine of the last ten months, increased $2.2 billion or 0.9 percent to $249.8 billion, unchanged from the previously published increase. This followed a 0.5 percent January increase. Machinery, up six of the last seven months, led the increase, $0.6 billion or 1.7 percent to $33.3 billion. Shipments of manufactured nondurable goods, down following eight consecutive monthly increases, decreased $1.2 billion or 0.5 percent to $250.7 billion. This followed a 1.0 percent January increase. Petroleum and coal products, down following seven consecutive monthly increases, drove the decrease, $2.0 billion or 3.7 percent to $50.5 billion.
  • Unfilled orders for manufactured durable goods in February, up five of the last six months, increased $1.9 billion or 0.2 percent to $1,142.8 billion, unchanged from the previously published increase. This followed a 0.3 percent January decrease. Transportation equipment, up two of the last three months, led the increase, $1.4 billion or 0.2 percent to $773.3 billion. 
  • Inventories of manufactured durable goods in February, up nineteen of the last twenty months, increased $1.8 billion or 0.4 percent to $410.8 billion, unchanged from the previously published increase. This followed a 0.4 percent January increase. Transportation equipment, up three consecutive months, led the increase, $0.7 billion or 0.5 percent to $132.7 billion. Inventories of manufactured nondurable goods, up nine consecutive months, increased $0.4 billion or 0.2 percent to $264.4 billion. This followed a 0.4 percent January increase. Petroleum and coal products, up eight consecutive months, led the increase, $0.2 billion or 0.5 percent to $42.8 billion.

to gauge the effect of February factory inventories on 1st quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories increased 0.1% to $211,892 million; the value of work in process inventories was up 0.4% at $211,337 million, and materials and supplies inventories were valued 0.6% higher at $229,586 million…meanwhile, the producer price index for February indicated that prices for finished goods decreased 0.1%, that prices for intermediate processed goods were 0.7% higher, and that prices for unprocessed goods were on average 2.8% higher….assuming similar valuations for like inventories, that would suggest that February’s real finished goods inventories were 0.4% greater than January’s, that real inventories of intermediate processed goods were 0.3% smaller, and that real raw material inventory inventories were 2.2% smaller…since real factory inventories in the 4th quarter were a bit higher, any real inventory decreases over the 1st quarter will subtract from growth of 1st quarter GDP…

 

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)   

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table and graph for April 7th

rig count summary:

April 6th 2018 rig count summary

crude exports:

April 4 2018 crude exports as of March 30

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new oil well breakeven price charts; US offshore drilling lowest on record, all 7 Utica shale oil rigs shut down..

oil prices fell from last Friday’s eight week high over the first three days of trading this week, but rebounded to recover part of their losses on Thursday, supported by a Wall Street rally and a weak dollar….after rising $3.45 a barrel to $65.88 a barrel last week, US light crude for May delivery opened 45 cents higher on Monday and briefly reached $66.55 a barrel before profit taking set in and drove prices lower, with prices ending down 33 cents at $65.55 a barrel at the close, as traders weighed the effect of trade tensions between the U.S. and China on prices…oil then fell another 30 cents to $65.25 a barrel on Tuesday as traders hedged their bets against an expected rise in crude inventories…prices fell again on Wednesday, when the weekly EIA report indicated a larger increase in oil supplies than market participants had anticipated, with May US crude ending down 87 cents at $64.38 a barrel…oil prices then rebounded 56 cents on Thursday to close at $64.94, as news that OPEC and Russia were working on a 10 to 20 year agreement to throttle supplies and other geopolitical concerns drove prices higher…since most markets were closed for Good Friday, oil prices ended the week with a loss of 94 cents or 1.34%, while they ended the first quarter 7.5% higher than at the end of 2017, the third straight quarterly rise

to help us make some sense out of those oil prices, this week we have the results of the First Quarter Dallas Fed Energy Survey, wherein the Fed questioned 140 oil companies as to what oil prices they needed to run their current operations, and what prices they needed to turn a profit when drilling a new well…the Dallas Fed does these energy surveys every quarter during the year, but just once a year do they include a set of Special Questions about oil prices…during the period between March 14th and March 22nd, 136 oil and gas firms responded to the special questions survey…the first question they asked these companies was what oil price they needed to cover their operating expenses on existing wells, and the results are shown graphically below..

March 28 2018 operating expenses breakeven via Dallas Fed

in the above graph, the blue, brick, yellow, orange, green, and turquoise colored bars represent the price range of oil price responses to that operating expenses question given by oil company executives with operations in the Permian Midland shale, the SCOOP/STACK of Oklahoma, the Permian Delaware, other US oil producing shale basins, other Permian shale wells, and the Bakken shale of North Dakota respectively…in addition, the violet bar on the far right represents the price range of operating expenses answers given by oil company executives with producing oil wells in non shale areas…across the bottom they’ve indicated the number of oil executives that responded to that headline question for each of those basins or collectives…thus, what the blue bar tells us is that for 15 oil execs with wells in the Permian Midland shale, at least one company needs $50 a barrel oil to cover its operating expenses, at least one can cover its expenses at $12 a barrel oil, and the average price needed to cover operating expenses for all  oil companies producing oil in that basin is $25…likewise, we can see that at least one oil executive with wells in the SCOOP/STACK can cover his expenses at $4 a barrel, but the average oil price needed by the 6 execs with wells in that basin is $27…as the Dallas Fed says, almost all respondents can cover operating expenses for existing wells at “current spot prices”, which were $66 per barrel on March 23rd…

next we have a similar graphic showing what oil price each of those respondents said they needed to profitably drill a new well:

March 28 2018 well drilling breakeven via Dallas Fed

in the above graph, the blue, yellow, turquoise, green, brick, and orange colored bars represent the price range of oil price responses to that question given by oil company executives with operations in the Permian Midland basin, the Permian Delaware basin, the Bakken shale of North Dakota, other Permian shale wells, the SCOOP/STACK of Oklahoma, and all other oil producing shale basins respectively…in addition, the violet bar on the far right represents the price range of answers given by oil company executives who might be drilling new wells non shale areas…again, across the bottom of the graphic, they’ve indicated the number of oil executives that responded for each of those basins or collectives…thus, what this graphic shows is that within the Permian’s Midland basin (blue), the average breakeven oil price among 15 oil executives responding to that question was $47 a barrel, with breakeven prices as low as $20 a barrel to as high as $70 a barrel…similarly, for the 13 oil execs who would be drilling new wells in the Delaware basin of west Texas (yellow), responses ranged from a break even oil price of $39 a barrel to a break even price of $70 a barrel, with the average response for those drilling in that basin at $49 a barrel….next, four oil execs with operations in the Bakken shale (turquoise) said they could break even in a range between $40 and $60 a barrel, with an average breakeven of $50 a barrel; then 18 drillers in the other parts of the Permian basin said they could break even with oil prices in a range between $40 and $72 a barrel, with an average of $52 a barrel…7 oil execs who are drilling in the SCOOP/STACK of Oklahoma felt they could be profitable in drilling for oil with oil prices from a low of $39 a barrel to a high of $64 a barrel, with the average response from those 7 at $53 a barrel…next, the orange bar represents the responses the Dallas Fed got from companies with assets in other shale plays, which would include at least the Eagle Ford of Texas and the Niobrara of the Rockies; the seven responses from those other shale plays were between $30 and $70 a barrel, with an average break-even price of $54 a barrel…finally, the purple bar represents responses the Dallas Fed got from oil company executives who were exploiting non-shale oil deposits; there were 34 responses from such executives, with some feeling they could break-even at $20 oil, and others saying they needed at least $70 a barrel oil to be profitable…

needless to say, today’s prices are obviously sufficient for new drilling to begin in the majority of oil shale plays…88% of the oil executives polled said they could be profitable at prices under $66 a barrel, which was the March 23rd oil price sited by this survey, just a dollar more than this week’s closing price…of course, what price they get when the oil starts to flow months after drilling commences might be quite different, so most try to lock in a price by contracting to sell their output at a pre specified price…at this time, future’s prices are a bit lower than those of the widely quoted front month, so that would also shut out a small portion of those oil companies who would otherwise drill at today’s price…in Ohio, we saw oil drilling rigs increase by 7 after oil prices pushed above $65 in late January, so although regional Utica shale drillers weren’t queried in this survey, that price also seems to be above the breakeven for oil drilling in the northern part of our state…

natural gas prices, meanwhile, ended the week higher on forecasts of continued colder than normal temperatures in the eastern half of the country through mid-April, and a larger than expected withdrawal of natural gas from storage for the week ending March 23rd…the contract to delivery natural gas in May rose 2.4 cents on Monday, another 5.7 cents on Tuesday, then fell 1.6 cents on Wednesday before rising 3.5 cents to $2.733 per mmBTU on Thursday after the storage report….unlike oil prices, these prices are seen to be below breakeven for most natural gas plays, since it has historically taken a natural gas price over $4 per mmBTU to generate a sustained increase in drilling…that may change, however, as additional pipelines distribute gas from areas where there is now a surplus to interstate pipelines feeding export terminals…the week’s natural gas storage report indicated that natural gas in storage in the US fell by 63 billion cubic feet to 1,383 billion cubic feet over the week ending March 23rd, which left our gas supplies 672 billion cubic feet, or 32.7% lower than the 2,055 billion cubic feet that were in storage on March 24th of last year, and 346 billion cubic feet, or 20.0% below the five-year average of 1729 billion cubic feet typically in storage at the end of the twelfth week of the year….the average withdrawal of natural gas during the twelfth week of the year over the past 5 years has been 46 billion cubic feet, so the cited week exceeded the normal withdrawal by 17 billion cubic feet, in what still has been a warmer than average winter nationally…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending March 23rd, showed a big jump in our oil imports while most other metrics were little changed, and hence we were able to add oil to storage for the 6th time in the past 9 weeks…our imports of crude oil rose by an average of 1,071,000 barrels per day to an average of 8,148,000 barrels per day during the week, after falling 508,000 barrels per day the prior week, while our exports of crude oil rose by an average of 5,000 barrels per day to an average of 1,578,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 6,570,000 barrels of per day during the week, 1,066,000 barrels per day more than out net imports during the prior week…at the same time, field production of crude oil from US wells rose by 26,000 barrels per day to a record high of 10,433,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,003,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,795,000 barrels of crude per day, 18,000 barrels per day more than they used during the prior week, while at the same time 235,000 barrels of oil per day were being added to oil storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 27,000 barrels per day less than what refineries reported they used during the week plus what was added to storage…to account for that disparity, the EIA needed to insert a (+27,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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”… (how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, is explained here)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,703,000 barrels per day, which was still 4.0% less than the 8,022,000 barrel per day average we imported over the same four-week period last year….the 235,000 barrel per day increase in our total crude inventories was all added our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged…this week’s 26,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, and a 1,000 barrel per day increase in output from Alaska…the 10,433,000 barrels of crude per day that were produced by US wells during the week ending March 23rd were the highest on record, 14.1% more than the 9,147,000 barrels per day that US wells were producing during the week ending March 24th of last year, and 23.8% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016…

meanwhile, US oil refineries were operating at 92.3% of their capacity in using those 16,795,000 barrels of crude per day, up from 91.7% of capacity the prior week, but still down from the wintertime record 96.7% of capacity set twelve weeks earlier, as US refineries have just come out of their pre-spring blend changeover and scheduled maintenance season….nonetheless, the 16,795,000 barrels of oil that were refined this week was a seasonal record, the most oil that refineries ever processed during February or March…while that elevated level of refining was still 4.6% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 3.5% more than the 16,226,000 barrels of crude per day that were being processed during the week ending March 24th, 2017, when refineries were operating at 89.3% of capacity….

with the amount of oil being refined little changed, gasoline output from our refineries was higher than the prior week, increasing by 373,000 barrels per day to 10,305,000 barrels per day during the week ending March 23rd, after our gasoline output had decreased by 348,000 barrels per day during the week ending March 16th....as a result, our gasoline production was 2.8% greater during the week than the 10,028,000 barrels of gasoline that were being produced daily during the week ending March 24th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 341,000 barrels per day to 4,844,000 barrels per day, after falling by 646,000 barrels per day over the prior 6 weeks…hence, that increase still left the week’s distillates production fractionally lower than the 4,872,000 barrels of distillates per day than were being produced during the equivalent week of 2017….    

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 3,472,000 barrels to 239,593,000 barrels by March 23rd, the fourth draw from supplies in a row, but just the fifth decrease in 20 weeks….our supplies were down even though our domestic consumption of gasoline fell by 116,000 barrels per day to 9,208,000 barrels per day, after falling by 318,000 barrels per day the prior week…that was because our exports of gasoline rose by 413,000 barrels per day to 1,099,000 barrels per day, while our imports of gasoline rose by 121,000 barrels per day to 685,000 barrels per day…so even though our gasoline supplies have increased during 15 of the last twenty weeks, our gasoline inventories are still fractionally lower than last March 24th’s level of 239,721,000 barrels, even as they are roughly 6.7% above the 10 year average of gasoline supplies for this time of the year…         

likewise, even with the production increase, our supplies of distillate fuels fell by 2,090,000 barrels to 128,954,000 barrels over the week ending March 23rd, after falling by 6,382,000 barrels the prior two weeks…our distillate inventories fell again largely because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 458,000 barrels per day to 4,375,000 barrels per day, while our exports of distillates fell by 79,000 barrels per day to 918,000 barrels per day, and while our imports of distillates rose by 28,000 barrels per day to 150,000 barrels per day…after this week’s inventory decrease, our distillate supplies ended the week 15.7% lower than the 152,910,000 barrels that we had stored on March 24th, 2017, and roughly 7.9% lower than the 10 year average of distillates stocks at this time of the year…   

finally, due to the big increase in our oil imports, we were able to add to our commercial supplies of crude oil for the 8th time in 19 weeks and for the 16th time in the past year, as our commercial crude supplies increased by 1,643,000 barrels, from 428,306,000 barrels on March 16th to 429,949,000 barrels on March 23rd …however, after falling most of the past year, our oil inventories as of that date were still 19.5% below the 533,977,000 barrels of oil we had stored on March 24th of 2017, 14.7% lower than the 503,816 ,000 barrels of oil that we had in storage on March 26th of 2016, and 1.8% below the 437,983,000 barrels of oil we had in storage on March 27th of 2015, at a time when the US glut of oil had already begun to surge…

This Week’s Rig Count

US drilling activity decreased for the first time in six weeks and for just the 6th time in the past 21 weeks during the week ending March 30th, a period of rising oil prices that has seen the rig increases far exceed the few decreases…Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rigs to 993 rigs in the week ending on Friday, which was sill 169 more rigs than the 824 rigs that were in use as of the March 31st report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014… 

the number of rigs drilling for oil fell by 7 rigs to 797 rigs this week, which was still 135 more oil rigs than were running a year ago, while it was also well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations increased by 4 rigs to 194 rigs this week, which was also 34 more gas rigs than the 160 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, another rig that was considered “miscellaneous” started drilling this week, so now there are two such “miscellaneous” rigs active, the same number of “miscellaneous” rigs that were operating a year ago.

with a rig offshore from Texas shut down this week, drilling in the Gulf of Mexico fell to 12 rigs, which was the lowest number of rigs working in the Gulf or nationally in Baker Hughes records dating back to 1968, & down by 10 rigs from the 22 rigs that were deployed in the Gulf of Mexico a year ago….at the same time, drilling began from a platform on an inland lake in southern Louisiana this week, increasing the inland waters rig count to 4 rigs, the same number that were working on inland waters in southern Louisiana a year earlier…

meanwhile, the count of active horizontal drilling rigs was unchanged at 870 horizontal rigs this week, which was still up by 185 rigs from the 685 horizontal rigs that were in use in the US on March 31st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…the vertical rig count was also unchanged at 63 vertical rigs this week, which was still down from the 69 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count was down by 2 rigs to 60 directional rigs this week, which was also down from the 70 directional rigs that were deployed on March 31st of 2017…

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of March 30th, the second column shows the change in the number of working rigs between last week’s count (March 23rd) and this week’s (March 30th) count, the third column shows last week’s March 23rd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 31st of March, 2017…   

March 30 2018 rig count summary

from the above table, you wouldn’t know that the majority of this week’s large increase in rigs targeting natural gas took place in our state, as the 7 oil directed that had been operating in the Utica were all shut down, while 6 natural gas directed rigs started up, although in the case of any or all of those, it could have simply been a shift of an oil directed rig to target a natural gas resource…hence, Ohio alone accounted for the entire national decrease in oil rigs and leaves the state with no oil rigs active for the first time since November 10th…other than that surprising turn, there was also another natural gas rig addition in the Marcellus, where two rigs were added in Pennsylvania, where there are now 42, while one rig was shut down in West Virginia, where there are now 16…

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4th quarter GDP Revision, February’s Personal Income and Outlays

the key economic releases this week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis…we also saw the release of the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which rose to +0.88 in February from +0.02 in January, after January’s index was revised down from the +0.12 reported last month…as a result, the 3 month average of that index rose to +0.37 in February, up from a revised +0.16 in January, which indicates that national economic activity has been somewhat above the historical trend over recent months…in addition, the Case-Shiller Home Price Index for January from S&P Case-Shiller reported that home prices during November, December and January averaged 6.2% higher nationally than prices for the same homes that sold during the same 3 month period a year earlier…

this week also saw the release of the last two regional Fed manufacturing surveys for March: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index fell to +21.4 from last month’s twelve year high of +37.2, still suggesting a strong expansion in the Texas energy centered economy, while the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell to +15 in March, down from a near record +28 in February, but up from +14 in January, also suggesting an ongoing expansion in that region’s manufacturing…

4th Quarter GDP Revised to Indicate Growth at a 2.9% Rate

the Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.9% rate in the 4th quarter, revised from the 2.5% growth rate indicated by the second estimate reported last month, as both personal consumption expenditures and inventory investment were greater than was previously estimated, while losses from trade were a bit more than was previously estimated…..in current dollars, our fourth quarter GDP grew at a 5.3% annual rate, increasing from what would work out to be a $19,500.6 billion a year output rate in the 3rd quarter to a $19,754.1 billion annual rate in the 4th quarter, with the headline 2.9% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 2.3%, known in aggregate as the GDP deflator, were applied to the current dollar change….

remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times the change that actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2014; table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components for the most recent quarters; table 4, which shows the change in the price indexes for each of those components; and table 5, which shows the quantity indexes for each of the GDP components, which are used to convert current dollar figures into units of output represented by chained dollar amounts…the pdf for the 4th quarter 2nd estimate, which this estimate revises, is here

seasonally adjusted real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 4.0% annual rate in the 4th quarter, rather than the 3.8% growth rate reported last month, as growth of consumer spending in dollars at a 6.9% annual rate was deflated with the PCE price index, which indicated consumer inflation grew at a 2.7% annual rate in the 4th quarter, which was unrevised from the second estimate….real consumption of durable goods grew at a 13.7% annual rate, revised from 13.8% in the second estimate, and added 0.98 percentage points to GDP, as real output of motor vehicles grew at a 19.0% annual rate and accounted for 0.45 percentage points of that growth….real consumption of nondurable goods by individuals rose at a 4.8% annual rate, revised from the 4.3% increase reported in the 2nd estimate, and added 0.69 percentage points to 4th quarter growth, as all categories of non-durables saw output grow in the quarter….in addition, real consumption of services grew at a 2.3% annual rate, revised from the 2.1% rate reported last month, and added 1.08 percentage points to the final GDP tally, as increases in the real output of housing and utilities and health care services accounted for more than half of the 4th quarter increase in services…

meanwhile, real gross private domestic investment grew at a 4.7% annual rate in the 4th quarter, revised from the 3.5% growth estimate made last month, as real private fixed investment was revised from growth at a 8.1% rate to growth at a 8.2% rate, while real inventory growth was much greater than previously estimated…investment in non-residential structures was revised from growth at a 2.5% rate to growth at a 6.3% rate, while real investment in equipment was revised to show growth at a 11.6% rate, revised from the 11.8% growth rate previously reported…in addition, the 4th quarter’s investment in intellectual property was revised from growth at a 2.4% rate to growth at a 0.8% rate, and the growth rate of residential investment was revised from 13.0% to 12.8% annually…after those revisions, the increase in investment in non-residential structures added 0.18 percentage points to the economy’s growth rate, investment in equipment added 0.63 percentage points, investment in intellectual property added 0.03 percentage points , and growth in residential investment added 0.46 percentage points to the change in the growth rate of 4th quarter GDP…

at the same time, the inflation adjusted growth of real private inventories was revised from the previously reported $8.0 billion to show inventories had grown at an $15.6 billion rate, which came after inventories had grown at an inflation adjusted $38.5 billion rate in the 3rd quarter, and hence the $22.9 billion negative change in real inventory growth from the 3rd quarter to the 4th subtracted 0.53 percentage points from the 4th quarter’s growth rate, revised from the 0.70 percentage point subtraction from GDP due to the even slower inventory growth reported in the second estimate….however, since a decrease in the growth of inventories indicates that less of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their decrease at a $22.9 billion rate conversely meant that real final sales of GDP were actually greater by that much, and hence real final sales of GDP grew at a 3.4% rate in the 4th quarter, revised from the 3.3% growth rate shown in the second estimate, compared to the real final sales increase at a 2.4% rate in the 3rd quarter, when the greater increase in inventory growth meant that the quarter’s growth in real final sales was lower….

the previously reported increase in real exports was revised a bit lower with this estimate, while the reported increase in real imports was revised a bit higher, and hence our net trade was a greater subtraction from GDP than was previously reported…our real exports grew at a 7.0% rate, rather than at the 7.1% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.83 percentage points to the 4th quarter’s growth rate….meanwhile, the previously reported 14.0% rate of increase in our real imports was revised to an 14.1% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their growth subtracted 1.99 percentage points from 4th quarter GDP….thus, our weakening trade balance subtracted a net 1.16 percentage points from 4th quarter GDP, revised from the 1.13 percentage point GDP subtraction resulting from foreign trade that was indicated in the second estimate..

finally, there was also a small upward revision to real government consumption and investment in this 3rd estimate, as the real growth rate for the entire government sector was revised from growth at a 2.9% rate to growth at a 3.0% rate…real federal government consumption and investment was seen to have grown at a 3.2% rate in this estimate, the same growth rate shown in the second estimate, but real federal outlays for defense grew at a 5.5% rate and added 0.21 percentage points to 4th quarter GDP, revised from the 5.6% growth rate shown previously, while growth in all other federal consumption and investment was revised from a statistically unchanged rate to a contraction at a 0.1% rate, which nonetheless was still too small a change to impact 4th quarter GDP…meanwhile, real state and local consumption and investment was revised from growth at a 2.7% rate in the first estimate to growth at a 2.9% rate in this estimate, as state and local investment spending grew at a 15.4% rate and added 0.25 percentage points to 4th quarter GDP, while state and local consumption spending grew at a 0.6% rate and added 0.06 percentage points to GDP…note that government outlays for social insurance are not included in this government GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services…. 

Personal Income up 0.4% in February, Personal Spending up 0.2%, PCE Price Index up 0.2%

since our personal consumption expenditures account for nearly 70% of GDP, they are usually the key metric for determining the ultimate trajectory of GDP each quarter, and hence the key monthly release that inputs into GDP each quarter is the report on Personal Income and Outlays from the Bureau of Economic Analysis…. this report gives us the monthly data on our personal consumption expenditures (PCE) and the monthly PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated…..this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, the amounts are seasonally adjusted and at an annual rate; ie, in February’s case, this report tells us what income and spending would be for a year if February’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, and in the case of this month’s report they give us the percentage change in each annual metric from January to February…

thus, when the opening line of the press release for this report tell us “Personal income increased $67.3 billion (0.4 percent) in February“, that means that the annualized figure for US personal income in February, $16,861.2 billion, was $67.3 billion, or a bit more than 0.4% greater than the annualized  personal income figure of $16,793.9 billion for January; the actual change in personal income from January to February is not given…similarly, annualized disposable personal income, which is income after taxes, rose by a bit less than 0.4%, from an annual rate of an annual rate of $14,740.9 billion in January to an annual rate of $14,794.7 billion in February…the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized…in February, the largest contributors to the $67.3 billion annual rate of increase in personal income were a $41.1 billion increase in wages and salaries and a $15.3 billion increase in proprietors’ income…

for the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they increased at a $27.7 billion rate, or a tad more than 0.2 percent, as the annual rate of PCE rose from $13,749.3 billion in January to $13,777.0 in February, after the January PCE figure was revised down from the originally reported $13,743.1 billion annually…the current dollar increase in February spending resulted from a $31.6 billion annualized increase to $9,252.5 billion in annualized in spending for services, which was partially offset by a $3.9 billion decrease to $4,401.8 billion in spending for goods, as we saw in the earlier February retail sales report….total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $28.7 billion to $14,297.3 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $497.4 billion annual rate in February, up from the revised $471.3 billion in annualized personal savings in January… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 3.4% in February from January’s savings rate of 3.2%… 

before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is included in Table 9 in the pdf for this report….that index rose from 114.082 in January to 114.299 in February, a month over month inflation rate that’s statistically 0.1902%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of around 0.4% in January…applying that inflation adjustment to the nominal change in personal spending left real PCE statistically unchanged in February, after a January’s real PCE decrease of 0.2%…note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in the BEA’s familiar chained 2009 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another….that result is shown in table 7 of the PDF, where we see that February’s chained dollar consumption total works out to 12,054.2 billion annually, just a bit more than January’s 12,052.8 billion…

finally, to estimate the impact of the change in PCE on the change in GDP, we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter….while this report shows PCE for all those months on a monthly basis, the BEA also provides the annualized chained dollar PCE on a  quarterly basis in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3 months of the 4th quarter was represented by 12,035.2 billion in chained 2009 dollars…(note that’s the same figure shown in table 3 of the pdf for the 4th quarter GDP report)…next, by averaging the annualized chained 2009 dollar figures for January and February, 12,052.8 billion and 12,054.2 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have data for so far….when we compare that average of 12,053.3 to the 4th quarter real PCE of 12,035.2, we find that 1st quarter real PCE has grown at a 0.6096% annual rate for the two months of the 4th quarter we have (note the math to get that annual rate: (((12,052.8 + 12,054.2)/ 2 )  / 12,035.2 ) ^ 4 = 1.006096…that means that if March real PCE does not improve from the average of January and February, growth in PCE would add just 0.42 percentage points to the growth rate of the 1st quarter, which would be the weakest contribution from PCE since the second quarter of 2012… 

 

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)   

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graphs and tables for March 31st

rig count summary:

March 30 2018 rig count summary

oil prices needed to cover operating expenses:

March 28 2018 operating expenses breakeven via Dallas Fed

oil prices needed to drill a new well:

March 28 2018 well drilling breakeven via Dallas Fed

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in a dozen years of US fracking, new oil exports have exceeded all new oil production

oil prices rose to an eight week high this week, decoupling from the prices of US stock markets, which saw their worst week in more than two years, even as the same news events impacted both…US crude for April delivery started by falling 28 cents to $62.06 a barrel Monday, initially in tandem with a 1.5% drop in stocks, on fears of a potential trade war brought on by Trump’s steel and aluminum tariffs…but oil prices then rose $1.34 as the April oil contract expired at $63.40 a barrel on Tuesday on fears that Trump would reimpose sanctions on Iran, thereby taking their oil exports off the market…then, in trading oil for May delivery on Wednesday, oil prices for that new front month contract rose $1.63 to $65.17 a barrel, after the EIA surprised traders by reporting an unexpected draw of crude oil from US inventories…oil prices then fell 87 cents to $64.30 a barrel on Thursday as Trump announced trade sanctions on China and China in turn retaliated against 128 American made products…however, oil prices then rallied again on Friday, rising $1.58 to an eight week high of $65.88 a barrel, after Trump appointed war criminal John Bolton, whose lies got us into Iraq and who now wants war with Iran and North Korea, as national security adviser, which oil analysts felt increased the likelihood that the U.S. would re-impose sanctions on Iran and thereby disrupt their oil flow…thus the price of the May oil contract gained $3.45, or 5.5% on the week, in the largest weekly increase for oil prices since mid-February…

meanwhile, natural gas prices drifted lower, even as cold weather forecasts lingered, as traders saw the heating season coming to a close….trading natural gas for April delivery all week, prices fell 3.7 cents on Monday, rose 2.4 cents on Tuesday, and then fell another 8.4 cents over the next three days to end the week down 3.6% at $2.591 per mmBTU, the lowest closing price in over a month…the week’s natural gas storage report indicated that natural gas in storage in the US fell by 86 billion cubic feet to 1,446 billion cubic feet over the week ending Friday, March 16th, which left our gas supplies 667 billion cubic feet, or 31.6% lower than the 2,113 billion cubic feet that were in storage on March 17th of last year, and 329 billion cubic feet, or 18.5% below the five-year average of 1775 billion cubic feet typically in storage at the end of the eleventh week of the year….the average withdrawal of natural gas during the eleventh week of the year over the past 5 years has been 53 billion cubic feet, so this was the first time in 5 weeks that our natural gas withdrawals exceeded the norm, in what is still a warmer than average winter nationally…

Oil Exports vs Oil Production

this week i’d like to look at a few situations that i didn’t have time for last week…the first of those regards our historical oil & oil products exports, which was inspired by the following graph that appeared on the EIA’s blog Today in Energy on March 15th, and was subsequently featured as the “Chart of the Week” in the OilPrice Intelligence Report on March 20th

March 17 2018 crude oil exports through 2017

the above graph, from the EIA blogpost titled “U.S. crude oil exports increased and reached more destinations in 2017“, shows average US oil exports annually in thousands of barrels per day from 1920 up until 2017…as that post informs us, “U.S. crude oil exports grew to an average of 1.1 million barrels per day (b/d) in 2017…nearly double the level of exports in 2016….supported by increasing U.S. crude oil production and expanded infrastructure.“…as you can see, prior to 2016, our oil exports were negligible, because for 40 years there had been a ban on exporting US crude to any countries other than Canada and Mexico, who were exempt from that ban through the provisions of the North American Free Trade Agreement…however, after intense pressure from the oil industry, Congress included a provision to repeal that export ban in the bipartisan budget bill of December, 2015, Obama signed it, and the oil floodgates were opened…

since that graph only shows annual data till 2017, we’ll also include a graph that shows weekly US oil exports right up to the current week’s report….

March 21 1018 crude exports as of March 16th

the above graph of US crude oil exports was from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, after the release of the weekly EIA report…it shows weekly US crude oil exports in thousands of barrels per day over the past 18 months, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select weeks going back to September 1st, when Gulf Coast ports were shut down by Hurricane Harvey…as you can see, our oil exports had only topped a million barrels per day a few times prior to that date…however, after the price of US crude fell to a 10% discount to the comparable international grade, US crude suppliers began to sell as much oil overseas as our pipeline and port infrastructure would allow, and as a result our oil exports have stayed above a million barrels per day since…so far in 2018, our exports of crude oil have average just under 1.5 million barrels per day, compared to well under 100,000 barrels per day in the earlier years of the aughts decade (as shown on the first chart above)…that means our crude exports have increased by more than 1.4 million barrels per day over the period that horizontal drilling & fracking has become the go-to method to increase oil production….now, hold onto that 1.4 million barrels per day increase in oil exports while we look at another graph…

March 24 2018 oil products exports thru March 16

the above graph accompanies the online EIA spreadsheet showing the weekly history of ‘Total U.S. Exports of Petroleum Products‘, and shows our exports of such products in thousands of barrels per day…this is our exports of all the products that are produced by refining crude oil, including gasoline, diesel fuel, heat oil, jet fuel, residual fuels, propane/propylene and other petrochemical feedstocks…as you can see, prior to the advent of fracking, our exports of such products were consistently below 1 million barrels per day (see the spreadsheet)…however, starting around 2005, our exports of these products began to rise, and as you can see from the graph above, have been averaging over 5 million barrels per day over the past 6 months, after the brief spike lower when our refining and exporting was interrupted by last year’s hurricanes…hence, our total exports of products that are made from oil has increased by more than 4 million barrels per day since fracking technology has added to our domestic supply…add the increase in our exports of crude to that, and we find that our total exports of crude oil and petroleum products has increased by an average of nearly 5.5 million barrels per day over the past dozen years

so, let us next look at our oil production history, to see how much the output from US wells has increased over that same time frame….

March 24 2018 oil production thru March 16

the above graph accompanies the online EIA spreadsheet showing the weekly history of crude oil production from US wells, and it shows that production in thousands of barrels per day…here we can see that the oil output from legacy US oil wells was gradually decreasing in the early aughts, but save for the interruptions caused by hurricanes and similar acts of nature, stayed above 5 million barrels per day throughout that period…output from US wells then began to rise in the current decade as oil output from fracked wells was added to the conventional wells totals, and as of the most recent week topped 10.4 million barrels per day for the first time in history…thus we could estimate that output from US wells has increased by 5.3 million barrels per day over the past dozen years…but as we showed earlier in this exercise, the exports of that oil and the products from it has increased by 5.5 million barrels per day over the same period…what this simply and clearly demonstrates is that the entirety of increase in US oil production that has resulted from a dozen years fracking was not for the benefit of US consumers, but rather wholly and exclusively for the benefit of US oil companies, who’ve found it more profitable to supply foreign customers with oil and oil products, at the expense of the health and well being of the US citizens living in those areas where the dangerous and disruptive fracking has been taking place…

OPEC’s Monthly Oil Market Report

i also want to quickly review OPEC’s March Oil Market Report (covering February OPEC & global oil data), which was released on Wednesday of last week, and which is available as a free download….the first table from this report that we’ll look at is from the page numbered 59 of that report (pdf page 67), 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 resolve any potential disputes that could arise if each member reported their own figures…    

February 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output fell by 77,100 barrels per day in February to 32,186,000 barrels per day, from an January production total of 32,263,000 barrels per day, but that was a figure that was originally reported as 32,302,000 barrels per day, so their production for February was actually a 114,000 barrel per day decrease from the previously reported figures (for your reference, here is the table of the official January OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column above, one of the main reasons that OPEC’s February output fell by 77,100 barrels per day from the revised January figures was the decrease of 52,400 barrels per day in output from Venezuela, which continues to suffer from the effects of economic sanctions imposed by the US…in addition, oil output from the Emirates fell by 34,300 barrels per day and oil output from Iraq fell by 25,500 barrels per day…on the other hand, oil output from Nigeria rose by 24,900 barrels per day, which left them and Iraq as the only OPEC members whose production was well in excess what their pact calls for, as can be seen in the table below: 

February 2018 OPEC output vs quota via Platts

the above table is from the “OPEC guide” page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members for February of this year, and the 2nd column shows the allocated daily production quota in millions of barrels of oil per day for each member, after they agreed to cut their oil output by 4% at their November 2016 meeting, and the 3rd column shows how much each country produced over or under their quota for the month…note that Venezuela alone, now 400,000 barrels per day below quota, more than makes up for smaller amounts of over production by Nigeria and Iraq, and to a lesser extent, Iran and Libya…

the next graphic we’ll include shows us both OPEC and world oil production monthly on the same graph, over the period from March 2016 to February 2018, and it comes from the page numbered 60 (pdf page 68) 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…   

February 2018 OPEC report global oil supply

OPEC’s preliminary data indicates that total global oil production rose to a record 98.20 million barrels per day in February, up by .37 million barrels per day from a January output total of 97.83 million barrels per day, which was revised up by .15 million barrels per day from the 97.66 million barrels per day global oil output for January that was reported a month ago…global oil output for February was also 2.32 million barrels per day higher than the 95.88 million barrels of oil per day that was being produced globally in February a year ago (see last March’s OPEC report online (pdf) for the year ago data)… OPEC’s February production of 32,186,000 barrels per day thus represented just 32.8% of what was produced globally, their lowest on record, down from a revised 33.0% in January, as oil output increases by US, Mexico, Norway, UK, Bahrain, Brazil and Kazakhstan were only partially offset by decreases in output from Canada and Russia…OPEC’s February 2017 production was at 31,958,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 98,000 more barrels per day of oil than they were producing a year ago, during the second month that their production quotas were in effect, with the increase from last year largely due to recoveries of oil production in Libya and Nigeria… 

the increase in global oil output that we can see in the above purple graph meant there was a surplus in the amount of oil being produced globally, as the next table from the OPEC report will show us..     

February 2018 OPEC report 2018 global oil demand

the table above comes from page 32 of the March OPEC Monthly Oil Market Report (pdf page 40), 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 of the second column, we’ve circled in blue the figure that’s relevant for February, which is their revised estimate of global oil demand for the first quarter of 2018…  

OPEC’s estimate is that during the 1st quarter of this year, all oil consuming areas of the globe will be using 97.27 million barrels of oil per day, which is an upward revision from their prior estimate of 97.23 million barrels of oil per day (which we’ve circled in green)…..meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, even after the OPEC and non-OPEC production cuts, the world’s oil producers were producing 98.20 million barrels per day during February, which means that there was a surplus of around 930,000 barrels per day in global oil production vis-a vis demand during the month…

meanwhile, the 0.15 million barrels per day upward revision to January’s global output offset by the 0.04 million barrels of oil per day upward revision to 1st quarter demand means that our previously computed surplus for January should be revised .11 million barrels per day higher, and thus now stands at 540,000 barrels per day…hence, for the first two months of the year, oil production has exceeded supply by roughly 42.8 million barrels…on the other hand, cumulative global oil demand figures for 2017 were revised higher by 0.02 million barrels per day to 97.01 barrels per day (also circled in green) with this report, because of a 0.09 million barrels per day upward revision to 4th quarter demand figures…in round numbers, that means our previous estimate of a 193 million barrel oil shortfall for 2017 was about 8 million barrels too low, so we can now re-estimate that the global oil deficit for 2017 was approximately 201 million barrels…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending March 16th, indicated that due to another big drop in our oil imports and a big increase in refining, we needed to pull oil out of storage for the 2nd time in the past 8 weeks…our imports of crude oil fell by an average of 508,000 barrels per day to an average of 7,077,000 barrels per day during the week, after falling 418,000 barrels per day the prior week, while our exports of crude oil rose by an average of 86,000 barrels per day to an average of 1,573,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 5,504,000 barrels of per day during the week, 594,000 barrels per day less than out net imports during the prior week…at the same time, field production of crude oil from US wells rose by 26,000 barrels per day to a record high of 10,407,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 15,911,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,777,000 barrels of crude per day, 410,000 barrels per day more than they used during the prior week, while at the same time 375,000 barrels of oil per day were being pulled out of oil storage facilities in the US….hence, this week’s crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 491,000 barrels per day less than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (+491,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the 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”… (how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, is explained here)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports inched up to an average of 7,487,000 barrels per day, which was still 4.8% less than the 7,863,000 barrel per day average we imported over the same four-week period last year….the 375,000 barrel per day decrease in our total crude inventories all came from our commercial stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged…this week’s 26,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states, and a 6,000 barrel per day increase in output from Alaska…the 10,407,000 barrels of crude per day that were produced by US wells during the week ending March 16th were the highest on record, 14.0% more than the 9,129,000 barrels per day that US wells were producing during the week ending March 17th of last year, and 23.5% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016…

US oil refineries were operating at 91.7% of their capacity in using those 16,777,000 barrels of crude per day, up from 90.0% of capacity the prior week, but still down from the wintertime record 96.7% of capacity set eleven weeks earlier, as US refineries are just coming out of their pre-spring blend changeover and scheduled maintenance season….nonetheless, the 16,777,000 barrels of oil that were refined this week was a seasonal record, the most oil that refineries ever processed during February or March…while that elevated level of refining was still 4.7% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 6.2% more than the 15,801,000 barrels of crude per day that were being processed during the week ending March 17th, 2017, when refineries, still wrapping up seasonal maintenance at that time, were operating at 87.4% of capacity….

even with the increase in the amount of oil being refined, gasoline output from our refineries was lower than the prior week, decreasing by 348,000 barrels per day to 9,932,000 barrels per day during the week ending March 16th, after our gasoline output had increased by 357,000 barrels per day during the week ending March 9th....as a result, our gasoline production was only 1.6% greater during the week than the 9,771,000 barrels of gasoline that were being produced daily during the week ending March 17th of last year….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 25,000 barrels per day to 4,503,000 barrels per day, after falling by 671,000 barrels per day over the prior 5 weeks…hence, that small increase still left the week’s distillates production 6.8% lower than the 4,829,000 barrels of distillates per day than were being produced during the equivalent week of 2017….   

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,693,000 barrels to 243,065,000 barrels by March 16th, the third draw in a row, but just the fourth decrease in 19 weeks….our supplies were down even though our domestic consumption of gasoline fell by 318,000 barrels per day to 9,324,000 barrels per day, after rising by 782,000 barrels per day over the prior two weeks….at the same time, our exports of gasoline fell by 99,000 barrels per day to 686,000 barrels per day, while our imports of gasoline fell by 40,000 barrels per day to 564,000 barrels per day…so even after our gasoline supplies have increased during 15 of the last nineteen weeks, our gasoline inventories are now fractionally lower than last March 17th’s level of 243,468,000 barrels, even as they are roughly 7.5% above the 10 year average of gasoline supplies for this time of the year…         

at the same time, our supplies of distillate fuels fell by 2,022,000 barrels to 131,044,000 barrels over the week ending March 16th, after falling by 4,360,000 barrels the prior week…our distillate inventories fell even though our exports of distillates fell by 495,000 barrels per day to 997,000 barrels per day, while our imports of distillates fell by 101,000 barrels per day to 122,000 barrels per day, and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 85,000 barrels per day to 3,917,000 barrels per day…after this week’s inventory decrease, our distillate supplies ended the week 15.7% lower than the 155,393,000 barrels that we had stored on March 17th, 2017, and 7.1% lower than the 10 year average of distillates stocks at this time of the year…   

finally, with the drop in our oil imports and the increase in oil refining, we had to pull oil out of our commercial supplies of crude oil for the 11th time in 18 weeks and for the 36th time in the past year, as our commercial crude supplies decreased by 2,622,000 barrels, from 430,928,000 barrels on March 9th to 428,306,000 barrels on March 16th…hence, after sliding most of the past year, our oil inventories as of that date were 19.7% below the 533,110,000 barrels of oil we had stored on March 17th of 2017, and 14.6% lower than the 501,517,000 barrels of oil that we had in storage on March 19th of 2016, and 1.1% below the 425,047,000 barrels of oil we had in storage on March 20th of 2015, at a time when the US glut of oil had just begun to build…our oil supplies have now also dropped below their prior five year average for just the third time in 9 years, as the chart from Barron Energy below shows..   

March 23 2018 crude oil supplies as of March 17

This Week’s Rig Count

US drilling activity increased for the 5th week in a row and for the 14th time in the past 20 weeks during the week ending March 23rd, a period of rising oil prices which has seen the rig increases far exceed the few decreases…Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 995 rigs in the week ending on Friday, which was also 186 more rigs than the 809 rigs that were in use as of the March 24th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014… 

the number of rigs drilling for oil rose by 4 rigs to 804 rigs this week, which was 152 more oil rigs than were running a year ago, even as the week’s oil rig count still remained well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations increased by 1 rig to 190 rigs this week, which was also 35 more gas rigs than the 155 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, a single rig that was considered “miscellaneous” continued drilling this week, down from the two such “miscellaneous” rigs that were operating a year ago.

drilling in the Gulf of Mexico was unchanged at 13 rigs, still the lowest number of rigs working in the Gulf this century, & down by 5 rigs from the 18 rigs that were deployed in the Gulf of Mexico a year ago….at the same time, a rig which had been working on an inland lake in southern Louisiana was shut down this week, leaving three such inland waters rigs still active, down from the 4 inland waters rigs that were working in southern Louisiana a year earlier…

meanwhile, the week’s count of active horizontal drilling rigs rose by 5 rigs to 870 horizontal rigs this week, which was also up by 197 rigs from the 673 horizontal rigs that were in use in the US on March 24th of last year, but 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 6 rigs to 63 vertical rigs this week, which was still down from the 78 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count was down by 6 rigs to 62 directional rigs this week, which was still up from the 58 directional rigs that were deployed on March 24th of 2017…

the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows the weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of March 23rd, the second column shows the change in the number of working rigs between last week’s count (March 16th) and this week’s (March 23rd) count, the third column shows last week’s March 16th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 24th of March, 2017… 

March 23rd 2018 rig count summary

with the drilling increase in the Permian of west Texas exceeding the total increase nationally, it almost looks like this week is a return to the pattern of last spring, when drilling in the Permian surged while activity in the rest of the country stagnated…but you wouldn’t guess from looking at the table above that the natural gas rig increase was in the Cana Woodford of Oklahoma, which happened to have 6 oil directed rigs shut down at the same time…that leaves the Cana Woodford with 57 oil rigs and two gas rigs, the largest natural gas deployment in that basin since February 2016…at the same time the Utica, which had gone from zero oil rigs seven weeks earlier to 8 oil rigs last week, saw one of those oil rigs shut down this week, while the Utica’s natural gas rigs remained unchanged at 16 rigs…and in addition to the major producing states shown on the table above, Mississippi also saw a rig added this week, and now has 4 rigs running, which is the same number they had running last March 24th…

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