record highs for oil refining, crude and distillate exports; largest US crude supply drop since Sept 2016, distillate supplies at a 13 year low, et al

oil prices rose another 8% this week, on top of last Friday’s near 5% jump, and are now pushing $75 a barrel, as oil production disruptions in Canada and Libya along with a bellicose US policy on Iran portended that tighter oil supplies were in the offing, despite OPEC pledges to pump more crude….after closing last week 5.8% higher at $68.58 a barrel, mostly on the Friday news of an OPEC agreement to modestly increase output, contracts for US light sweet crude for August delivery fell 50 cents to $68.08 a barrel on Monday, as oil traders digested the possible outcomes of the OPEC deal and worried about deepening US trade wars…however, US crude prices surged $2.45, or 3.6%, to $70.53 a barrel on Tuesday, after the State Department threatened to slap sanctions on any country, friend or foe, that didn’t cut their oil imports from Iran to “zero” by November…oil prices then continued rising from that level the rest of the week, hitting new 3-and-a-half year highs on each day, as an outage in Canada disrupted oil flow to the US and oil traders bet that the Saudis would not be able to make up the production lost from US sanctions on Iran and Venezuela…the largest move in that rally came on Wednesday, when oil prices rose $2.23, or 3%, to 72.76 a barrel, after the EIA reported the largest weekly drop in US crude supplies since September 2016…U.S. crude then hit another a three-and-a-half year high on Thursday, rising 69 cents to $73.45 a barrel, on continued concerns that Trump’s threats against oil importers could cause a large drop in crude exports from IranFriday fretting was much of the same, with concerns linked to Venezuela, Libya and Canada, as well as Iranian exports, as oil rose another 70 cents to $74.15 a barrel to finish the week with a gain of just over 8%, a gain of almost 11% for the month, an increase of over 14% for the second quarter, and an increase of almost 23% for the first half of 2018….

natural gas prices, on the other hand, ended both the week and the month lower, as higher production offset the impacts of a looming heat wave and an addition to storage that fell short of expectationsUS natural gas prices for August rose a penny on Tuesday and 5 cents on Wednesday, and then pushed above $3 per mmBTU on Thursday morning before the natural gas storage report cut prices back to $2.94 per mmBTU at the close…August gas futures then settled 1.6 cents lower on Friday to close the week at $2.924 per mmBTU, down 2.1 cents from the previous Friday’s close…the natural gas storage report for week ending June 22nd from the EIA indicated that natural gas in storage in the US rose by 66 billion cubic feet to 2,074 billion cubic feet over the week, which left our gas supplies 735 billion cubic feet, or 26.2% below the 2,809 billion cubic feet that were in storage on June 23rd of last year, and 501 billion cubic feet, or 19.5% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the third week of June…the consensus forecast was for an addition of 71 billion cubic feet to gas in underground storage, but this report also revised the prior week’s addition of gas to storage 4 billion cubic feet higher, so the net at the end of the week was fairly close to consensus, and also close to the average 72 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year…however, since current natural gas supplies are still 1,724 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week’s 66 billion cubic foot addition to supplies is well short of the 90 billion cubic feet per week we’ll need to see weekly over the next 19 weeks to get our supplies back to a normal level before the next heating season’s withdrawals begin…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending June 22nd, showed that due to a record level of domestic oil refining and record oil exports, we had to pull oil out of our commercial crude supplies for the eleventh time in the past twenty-two weeks….our imports of crude oil rose by an average of 114,000 barrels per day to an average of 8,356,000 barrels per day during the week, after rising by 143,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 626,000 barrels per day to a record average of 3,000,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,356,000 barrels of per day during the week ending June 22nd, 512,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,256,000 barrels per day during the reporting week… 

at the same time, US oil refineries were using a record 17,816,000 barrels of crude per day during the week ending June 22nd, 115,000 barrels per day more than they used during the prior week, while at the same time 1,413,000 barrels of oil per day were reportedly being pulled out of oil storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 147,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-147,000) 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”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,261,000 barrels per day, which was 2.4% more than the 8,057,000 barrel per day average we imported over the same four-week period last year….the 1,413,000 barrel per day decrease in our total crude inventories came entirely out of our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged….this week’s crude oil production was reported as unchanged despite the report of a 100,000 barrel per day increase in oil output from all the wells in the lower 48 states and a 38,000 barrel per day decrease in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total…the unrounded US crude oil production for the week ending June 23 2017 was reported at 9,250,000 barrels per day, so this week’s figure is roughly 17.8% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

meanwhile, US oil refineries were operating at 97.5% of their capacity in using 17,816,000 barrels of crude per day during the week ending June 22nd, the highest refinery utilization rate since our refineries operated at 97.6% of capacity during the week ending June 1st 2001the 17,816,000 barrels of oil that were refined this week were the most barrels refined on record, topping the 17,725,000 barrels per day that were being refined during the last full week of August 2017….this week’s refinery throughput was also 5.5% higher than the 16,890,000 barrels of crude per day that were being processed during the week ending June 23rd a year ago, when US refineries were operating at 92.5% of capacity….  

with the amount of oil that we’re refining now at a new record high, we’ll take a look at a graph of the recent history of that metric for some perspective…

June 27 2018 refinery throughput thru June 23rd

the above graph of US refinery throughput came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Wednesday, which is also available as a pdf here; it shows US refinery throughput in thousands of barrels per day by “day of the year” for the past ten years, with the past ten year range of our refinery throughput for any given date shown as a light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year….the graph also shows the number of barrels of oil refined for each week in 2017 traced by a yellow line, with our year to date oil refining for each week of 2018 represented by the red graph…you can clearly see that except for the disruptions to refining caused by last year’s hurricanes, 2017’s refining in yellow had been at the top of the historical range almost all year, and that the pace of refining in 2018 in red has generally been topping that, except for in late April and May…you can also see that the summer is usually when refiners see their seasonal highs, so although this peak in June was earlier than we might have expected, the trend for US refining has been higher, and new records sometime this summer were probably to be expected..  

with the record amount of oil being refined this week, gasoline output from our refineries was a bit higher, rising by 43,000 barrels per day to 10,142,000 barrels per day during the week ending June 22nd, after our refineries’ gasoline output had decreased by 352,000 barrels per day during the week ending June 15th....hence, even with this week’s increase, our gasoline production during the week was 1.9% below the 10,334,000 barrels of gasoline that were being produced daily during the week ending June 23rd of last year…at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 72,000  barrels per day to 5,396,000 barrels per day, after rising by 357,000 barrels per day to a near record high the prior week…as a result, this week’s distillates production was still 2.9% higher than the 5,244,000 barrels of distillates per day than were being produced during the week ending June 23rd, 2017…

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,156,000 barrels to 241,196,000 barrels by June 22nd, the seventh increase in 16 weeks, but the 23rd increase in 33 weeks, as gasoline inventories, as usual, were being built up over the winter months….that increase was less than last week’s increase of 3,277,000 barrels because the amount of gasoline supplied to US markets rose by 405,000 barrels per day to 9,731,000 barrels per day, while our imports of gasoline rose by 138,000 barrels per day to 988,000 barrels per day, and our exports of gasoline rose by 10,000 barrels per day to 613,000 barrels per day….after this week’s increase, our gasoline inventories finished the week at a seasonal high for this time of year, but just fractionally higher than last June 23rd’s level of 240,972,000 barrels, even as they are now almost 11.6% above the 10 year average of our gasoline supplies for this time of the year…    

meanwhile, with this week’s decrease in distillates production, our supplies of distillate fuels ended the week little changed, increasing by just 15,000 barrels to 117,423,000 barrels during the week ending June 22nd…that was as our exports of distillates rose by 532,000 barrels per day to a record high of 1,836,000 barrels per day, while our imports of distillates rose by 5,000 barrels per day to 54,000 barrels per day and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 213,000 barrels per day to 3,612,000 barrels per day, after decreasing by 579,000 barrels per day the prior week…since this week’s small inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 22nd are still 22.9% below the 152,272,000 barrels that we had stored on June 23rd, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year…  

since our distillate supplies have now slipped to a 13 year low for this time of year, we’ll include a graph showing how they got here

June 27 2018 distillate supplies as of June 23rd

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here…it shows US distillate fuels inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the running median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year…the graph also shows the number of thousands of barrels of distillates we had stored at the end of each week in 2017 traced weekly by a yellow line, with our year to date distillates supplies for each week of 2018 traced in red…notice within the light blue shaded area that there is normally a seasonality to distillates supplies, as they’re normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest…however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, mostly because we have been exporting our distillates at a record pace…thus we come to June 22nd with our distillate supplies now at a 13 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017… 

finally, with our oil exports at a record high at the same time our refineries were using oil at a record pace, our commercial supplies of crude oil decreased for the 13th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 9,891,000 barrels during the week, from 426,527,000 barrels on June 15th to 416,636,000 barrels on June 22nd, the largest drop in our crude supplies since September 2nd 2016…thus, after falling most of the past year, our oil inventories as of June 22nd were 18.2% below the 509,213,000 barrels of oil we had stored on June 23rd of 2017, 16.0% below the 495,941,000 barrels of oil that we had in storage on June 24th of 2016, and 3.8% below the 433,223,000 barrels of oil we had in storage on June 26th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the  prior years…       

since our record level of crude oil exports have the major reason for our falling crude supplies, and since this week saw the previous record for oil exports beat by nearly 17%, we’ll include here a graph of those oil exports over the past 22 months..  

June 27 2018 crude exports week ending June 23rd

the above graph also came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, which is also accessible online as a pdf here, and it shows weekly US crude oil exports in thousands of barrels per day from September 2016 to the current week, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select dates going back to September 1st 2017, the week when our exports had been choked off because Gulf Coast ports were shut down by Hurricane Harvey and fell to 153,000 barrels per day…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, and with those elevated exports, our crude oil supplies have also been falling since…as we’ve noted several times over the past couple of months, the spread between the price of North Sea Brent, the international benchmark, and that of the similar US grade, has widened to as much as $10 or $11 a barrel, so we expected that US oil traders would sell as much US crude into international markets this summer as our port capacity would allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transportation costs…while that spread has narrowed to below $6 this week on the Canadian problems, oil being exported in June and through July was more than likely contracted for during that period of the wider price spreads…

to compare this year’s drop in our oil supplies with what has happened in previous years, we’ll include one more graph from that Kemp package..

June 27 2018 year to date crude supplies as of June 23rd

again, this graph also came from John Kemp’s weekly package of oil graphs, which is accessible online as a pdf here…as the legend tells us, the bars on the graph show the change in US crude inventories between December 31st and June 22 for each of the last 11 years, with bars for increases above the 0 level, and the lone bar for this year’s decrease showing up as a bar below the 0 level…typically, oil inventories are built up during the first five months of the year, then are drawn down as refineries run flat out to supply additional gasoline during the summer driving season…that normal early year build up of our oil supplies is what the first ten bars on that graph show us, which John identifies in his header as an average 37 million barrels of oil added during this period over the past ten years…this year, however, our oil supplies have fallen by 6.4 million barrels during these first six months, as instead of adding oil to storage, we have been pulleing oil out of our supplies and exporting it…since we built up our oil supplies to abnormal levels during the periods of low prices in 2015 and 2016 as you can see on the graph, our crude supplies are not becoming critically low at this point, but they are now below the 5 year average of our supplies for this time of year…

This Week’s Rig Count

US drilling activity decreased for the third week in a row, after 11 consecutive increases, and was hence down for the 4th time in the last 19 weeks during the week ending June 29th, as both drilling for natural gas and drilling for oil slowed simultaneously for the 2nd week in a row…Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 5 rigs to 1047 rigs over the week ending on Friday, which still left us with 107 more rigs than the 940 rigs that were in use as of the June 30th report of 2017, while that count was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market… 

the count of rigs drilling for oil was down by 4 rigs to 858 rigs this week, which was still 102 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 down by 1 rig to 187 rigs this week, which was only 3 more gas rigs than the 184 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs operating that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 3 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago…however, the platform that had been idled offshore from Alaska last week was started back up this week, so the total US offshore count of 19 rigs is now down by 2 rigs from the total 21 offshore rigs that were drilling a year ago, when there was no rig drilling off of the Alaskan coast…in addition, the two platforms on inland lakes in southern Louisiana that had been shut down last week were restarted this week, so now there are four ‘inland waters” rigs operating again, the same number of ‘inland waters’ rigs that were operating going into the same weekend a year ago…

the count of active horizontal drilling rigs was down again, for the 3rd week running, decreasing by 4 rigs to 926 horizontal rigs this week, which was still 134 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 30th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the vertical rig count decreased by 4 rigs to 56 vertical rigs this week, which was also down from the 77 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count increased by 3 rigs to 65 directional rigs this week, which was still down from the 71 directional rigs that were operating on June 30th 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 June 29th, the second column shows the change in the number of working rigs between last week’s count (June 22nd) and this week’s (June 29th) count, the third column shows last week’s June 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report 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 on Friday the 30th of June, 2017…      

June 29 2018 rig count summary

oil drilling decreased by 2 rigs in both the Eagle Ford of south Texas and the Williston aka Bakken of North Dakota, and while it increased by 2 rigs in Oklahoma’s Cana Woodford, it was also down by two rigs in basins not itemized separately by Baker Hughes…the pace of natural gas drilling, meanwhile, was unchanged in the Utica and the Marcellus, while it was down by 3 rigs in the Haynesville, and up by 2 rigs in those unnamed basins not tracked separately by Baker Hughes…of the states not listed above, Alabama saw both of the rigs that had been operating in the state shut down this week, and now they have none, down from the 3 rigs running in Alabama a year ago, while Mississippi also saw two rigs shut down, and now have just 2 rigs operating in the state, also down from the 3 rigs running in Mississippi a year ago…

while we’ve been expecting that natural gas well drilling would slow with gas prices below $3 per mmBTU, we certainly didn’t anticipate that oil drilling would also be curtailed, especially in light of the price rally we’ve seen over the past year…yet here we are at the end of June with oil prices above $70 a barrel for the second time this year, and the oil rig count is now at the lowest it’s been in six weeks…when we looked at the Dallas Fed survey of oil executives at the end of March this year, we saw that 88% of the oil executives polled said they could be profitable at prices under $66 a barrel, which is roughly the average price we’ve seen throughout the 2nd quarter of this year….even allowing for 3 to 4 months lead time before drilling starts, we’d be talking oil prices that were consistently over $60 a barrel when today’s rigs were contracted for, certainly more profitable than the $44 to $54 barrel oil we saw last year, when oil drillers were increasing their rig deployment by roughly 20%…so why this pullback has arrived at this time is anyone’s guess, especially since the backlog of incomplete wells has nearly stabilized in all areas except the Permian..

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1st Quarter GDP Revision, May’s Reports on Personal Income and Outlays, Durable Goods, and New Home Sales

the key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis, and the May report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP….other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for April from S&P Case-Shiller, wherein their national home price index was reported as 6.4% higher than in the same month’s report a year ago…this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which fell from a upwardly revised +0.42 in April to -0.15 in May; that left the 3 month average of the index at +0.18, indicating national economic activity has been slightly above the historical trend over these recent months…

in addition, this week also saw the results of the last three Fed manufacturing surveys for June; the Texas area manufacturing survey from the Dallas Fed reported its broadest general business activity index rose from +26.8 in May to +36.5 in June, indicating that Texas manufacturing activity is now expanding at an even more robust pace, 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 rose from +16 in May to +20  in June, indicating a bit of a pickup in the growth rate of that region’s manufacturing, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index slipped to +28 in June from +29 in May, still indicating a strong expansion among that region’s manufacturers…

Q1 GDP Revised to Show Growth at a 2.0% Rate as GDP Deflator is Revised Higher on Lower Import Prices

the Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services increased at a 2.0% annual rate in the quarter, revised from the 2.2% growth rate reported in the second estimate last month, as the GDP deflator was revised from 1.9% to 2.2%….in current dollars, our first quarter GDP grew at a 4.24% annual rate, actually a bit higher than the 4.2% current dollar growth shown in the 2nd estimate, increasing from what would work out to be a $19,754.1 billion a year output rate in the 4th quarter of last year to a $19,960.1 billion annual rate in the 1st quarter of this year, with the headline 2.0% annualized rate of increase in real output arrived at after that annualized GDP inflation adjustment averaging 2.2%, revised from 1.9%, was applied to the current dollar change…

recall 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 of that what 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 third estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we cite the data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2014, from table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts….the full pdf for the 1st quarter 2nd estimate, which this estimate revises, is here… 

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 0.9% annual rate in the 1st quarter, down from the 1.0% growth rate reported last month…that PCE growth figure was arrived at by deflating the 3.4% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 2.5% annual rate in the 1st quarter, which was revised from the 2.6% PCE inflation rate published a month ago….real consumption of durable goods fell at a 2.1% annual rate, which was revised from the 2.6% rate of decrease shown in the second estimate, and subtracted 0.16 percentage points from GDP, as a drop in consumption of automobiles & parts at a 12.4% rate more than offset an increase in real consumption of recreational goods and vehicles and other durable goods…real consumption of nondurable goods by individuals rose at a 0.5% annual rate, revised from the 0.4% increase reported in the 2nd estimate, and added 0.07 percentage points to 1st quarter growth, as increases in real consumption of food and other non-durables offset decreases in real consumption of clothing and energy goods ….meanwhile real consumption of services rose at a 1.5% annual rate, revised from the 1.8% rate reported last month, and added 0.69 percentage points to the final GDP tally, as relatively sluggish growth in consumption of housing and utilities and health care offset stronger growth in other services….

meanwhile, seasonally adjusted real gross private domestic investment grew at a 7.5% annual rate in the 1st quarter, revised from the 7.2% growth estimate reported last month, as real private fixed investment grew at a 7.6% rate, rather than at the 6.5% rate reported in the second estimate, while inventory growth was somewhat less than previously estimated…real investment in non-residential structures was revised from growth at a 14.2% rate to growth at a 16.2% rate, while real investment in equipment was revised to show growth at a 5.8% rate, up from the 5.5% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 10.9% rate to growth at a 13.2% rate, while the contraction rate of residential investment was reduced, from being down at a 2.0% rate to down a 1.1% rate annually…after those revisions, the increase in investment in non-residential structures added 0.44 percentage points to the 1st quarter’s growth rate, the increase in investment in equipment added 0.33  percentage points to the quarter’s growth, greater investment in intellectual property added 0.51 percentage points, while contraction in residential investment subtracted 0.04 percentage points from the increase in 1st quarter GDP…

meanwhile, the growth in real private inventories was revised from the $20.2 billion in inflation adjusted dollars reported last month to show inventory grew at an inflation adjusted $13.9 billion rate in the 1st quarter…this came after inventories had grown at an inflation adjusted $15.6 billion rate in the 4th quarter, and hence the $1.7 billion smaller real inventory growth than in the 4th quarter subtracted 0.01 percentage points from the 1st quarter’s growth rate, revised from the 0.13 percentage point addition to GDP due to the modest inventory growth shown in the second estimate….however, since slower growth in inventories ultimately indicates that less of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, that decrease by $1.7 billion meant that real final sales of GDP were actually greater than GDP by that small bit, and therefore the BEA found that real final sales of GDP rose at a 2.0% rate in the 1st quarter, statistically unrevised from the second estimate, when inventory growth had subtracted from final sales…

the previously reported increase in real exports was revised lower, while the increase in real imports was revised higher, and as a result our net trade was a small subtraction from GDP, rather than the addition to GDP that was previously reported…our real exports grew at a 3.6% rate, revised from the 4.2% rate 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 increase added 0.44 percentage points to the 1st quarter’s growth rate….meanwhile, the previously reported 2.8% increase in our real imports was revised to a 3.2% increase, largely due to a a revision of the imports deflator from 9.0% to 7.2%, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, that increase subtracted 0.48 percentage points from 1st quarter GDP….thus, our deteriorating trade balance subtracted a net 0.04 percentage points from 1st quarter GDP, rather than the 0.08% percentage point addition to GDP resulting from an improving foreign trade balance that was indicated by the second estimate..

finally, there were also revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown growing at a 1.3% rate, revised from the 1.1% growth rate for government indicated by the 2nd estimate….real federal government consumption and investment was seen to have grown at a 1.7% rate from the 4th quarter in this estimate, which was unrevised from the growth rate shown in the 2nd estimate, as real federal outlays for defense grew at a 1.8% rate and added 0.07 percentage points to 1st quarter GDP, and all other federal consumption and investment grew at a 1.6% rate and added 0.04 percentage points to GDP, all of which were unrevised…meanwhile, real state and local consumption and investment grew at a 1.0% rate in the quarter, revised from the 0.8% growth rate in the 2nd estimate, and added 0.11 percentage points to 1st quarter GDP, which was revised from the 0.08 addition shown in the second estimate…note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thereby indicating an increase in the output of those goods or services…

lastly, we should clarify what happened with the various inflation adjustments in this revision…as previously noted, the reason GDP was revised lower was that the overall GDP deflator was revised higher, from 1.9% to 2.2%, thus reducing real GDP from the nominal amounts by a greater amount…that happened as the PCE deflator, which should be most heavily weighted, was revised down from 2.6% to 2.5%, the gross investment deflator was revised down from 2.9% to 2.8%, the exports deflator was unchanged, the imports deflator was revised down from 9.0% to 7.2%, while the government deflator was revised up from 3.2% to 3.4%… so why was the GDP deflator revised higher when most of its components were revised lower?   the large upward revision to GDP prices reflects a big downward revision to import prices, notably petroleum, based on newly updated International Transactions data…since oil prices were revised lower, that means we imported more of it for the same dollars…and since imports are a subtraction from GDP, any change in their price has an opposite effect on the GDP deflator…thus it was the large downward revision in the price of imported oil which caused the overall GDP inflation adjustment to rise, and hence caused reported GDP to fall, despite the slight upward revision to current dollar GDP…

May Personal Income up 0.4%, Spending up 0.2%; 2 Months PCE Would Add 1.63 Percentage Points to Q2 GDP

the May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 69% of GDP, and the PCE price index, the inflation gauge the Fed targets, and 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 same 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 are not the current monthly change; rather, they’re seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if May’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from April to May….

thus, when the opening line of the press release for this report tell us “Personal income increased $60.0 billion (0.4 percent) in May“, they mean that the annualized figure for seasonally adjusted personal income in May, $17,005.4 billion, was $60.0 billion, or somewhat less than 0.4% greater than the annualized  personal income figure of $16,945.4 billion for April; the actual, unadjusted change in personal income from April to May is not given…similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.4%, from an annual rate of an annual rate of $14,418.5 billion in April to an annual rate of $14,447.8 billion in May….the contributors to the increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $26.1 billion increase to $8,688.8 billion annually wages and salaries and a $17.1 billion increase to $2,530.0 billion annually in interest and dividend income…

for the personal consumption expenditures (PCE) that we’re most interested in, BEA reports that they increased at a $27.8 billion annual rate, or by about 0.2 percent, as the annual rate of PCE rose from $13,892.9 billion in April to $13,920.7 in May; that happened as the April PCE figure was revised down from the originally reported $13,906.9 billion annually and March PCE was revised from $13,827.1 billion to $13,824.8 billion, revisions that were already captured by the 3rd estimate of 1st quarter GDP we reported on earlier….the current dollar increase in May spending resulted from a $19.8 billion annualized increase to an annualized $4,474.6 billion in spending for goods and a $8.1 billion increase to $4,474.6 billion in annualized spending for services….total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $29.3 billion to $14,447.8 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $482.0 billion annual rate in May, up from the revised $448.0 billion annualized personal savings in April… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 3.2% in May from April’s savings rate of 3.0%…

as you know, 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 achieves that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, and which is included in Table 9 in the pdf for this report…that index rose from 114.521 in April to 114.764 in May, a month over month inflation rate that’s statistically 0.2122%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of 0.2% they reported for April…applying that inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 0.0% in May, after an April real PCE increase of 0.3%….but notice 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 those 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 May’s chained dollar consumption total works out to 12,130.5 billion annually, 0.0115% less than April’s 12,131.9 billion, a difference that the BEA reports as 0.0%, even as the full fractions are used in all their computations…

  however, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don’t help us much, since GDP is reported quarterly…thus we have to compare April and May’s real PCE to the the real PCE of the 3 months of the first quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 12,061.0 billion in chained 2009 dollars..(note that’s the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)….then, by averaging the annualized chained 2009 dollar figures for April and May, 12,131.9 billion and 12,130.5 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far….when we compare that average of 12,131.2 billion to the 1st quarter real PCE of 12,061.0 billion, we find that 2nd quarter real PCE has grown at a 2.35% annual rate for the two months of the 2nd quarter we have data for a this point…(note the math to get that annual growth rate: (((12,130.5 +12,131.9) / 2 ) / 12,061.0) ^4 = 1.0234857)….that’s a pace that would add 1.63 percentage points to the growth rate of the 2nd quarter by itself, even if there is no improvement in June PCE from the April-May average… 

May Durable Goods: New Orders Down 0.6%, Shipments Down 0.1%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $1.4 billion or 0.6 percent to $248.8 billion in May, following a revised decrease of 1.0% to $250.2 billion in April’s new orders, which had originally been reported as a 1.7% decrease to $248.5 billion…however, year to date new orders are still running 9.9% higher than they were a year ago, despite the back to back decreases….as is usually the case, the volatile monthly change in new orders for transportation equipment led the May headline change, as those transportation equipment orders fell $0.9 billion or 1.0 percent to $86.1 billion, on a 4.2% decrease to $55,555 million in new orders for motor vehicles and parts and a 7.0% decrease to $14,807 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders still fell 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.2% to $67,865 million…

the seasonally adjusted value of May’s shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, decreased by $0.2 billion or less than 0.1 percent to $246.9 billion, in their first decrease in 10 months…again, shipments of transportation equipment drove the change, as they fell $0.5 billion or 0.6 percent to $82.1 billion, as the value of shipments of motor vehicles fell 4.4% to $55,418 million…excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, and are now 7.9% higher year to date than a year ago…. meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 18th time in 19 months, increasing by $1.1 billion or 0.3 percent to $403.0 billion, after April inventories were revised from $401.7 billion to $401.861 billion, still a 0.3% increase from March…inventories of motor vehicles led the increase, rising $338 million or 0.9 percent to $35,989 million…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the sixth time in seven months, increasing by $5.9 billion or 0.5 percent to $1,160.6 billion, following a April increase of 0.6% to $1,154.6 billion, revised from the $1,153.4 billion reported a month ago…a $4.0 billion or 0.5% decrease to $800.3 billion in unfilled orders for transportation equipment was responsible for most of the increase, but unfilled orders excluding transportation equipment orders were also up 0.5% to $360,213 million….compared to a year earlier, the unfilled order book for durable goods is now 4.7% above the level of last May, with unfilled orders for transportation equipment 4.4% above their year ago level, on a 5.9% increase in the backlog of orders for motor vehicles and parts…

New Homes Sales Reported Higher in May; Prices Lower

the Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 689,000 homes annually during the month, which was 6.7 percent (±14.1 percent)* above the revised April rate of 646,000 new single family homes a year and 14.1 percent (±19.9 percent)* above the estimated annual rate that new homes were selling at in May of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of April or even from those in May a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….hence, these initial new home sales reports are not very reliable and often see significant revisions…with this report; sales new single family homes in April were revised from the annual rate of 662,000 reported last month to a 646,000 annual rate, March’s annualized home sale rate, initially reported at 694,000, was revised from last months downwardly revised figure of 672,000 to 671,000, while the annual rate of February’s sales, initially reported at an annual rate of 618,000 and revised from a revised annual rate of 667,000 to a rate of 659,000 last month, were further revised to a 663,000 annual rate with this report…

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 65,000 new single family homes sold in May, up from the 62,000 new homes that sold in April, but unchanged from the estimated 65,000 new homes that sold in March….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $313,000, down from the median sales price of $318,500 in April, while the average May new home sales price was $368,500, down from a $394,600 average price in April, and down from the average home sales price of $378,400 in May a year ago….a seasonally adjusted estimate of 299,000 new single family houses remained for sale at the end of May, which represents a 5.2 month supply at the May sales rate, down from a 5.4 month supply in April….for more details and graphics on this report, see Bill McBride’s two posts on this month’s report, New Home Sales increase to 689,000 Annual Rate in May and A few Comments on May New Home Sales..

 

(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 picked from the aforementioned GGO posts, contact me…)    

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graphs and tables for June 30th

rig count summary:

June 29 2018 rig count summary

refinery throughput:

June 27 2018 refinery throughput thru June 23rd

distillate supplies:

June 27 2018 distillate supplies as of June 23rd

crude exports:

June 27 2018 crude exports week ending June 23rd

YTD crude inventory change:

June 27 2018 year to date crude supplies as of June 23rd

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US oil refining and distillates output at seasonal highs; largest drilling pullback in 33 weeks; smallest DUC increase in 20 months, et al

oil prices moved much higher this past week, lifted by a Friday rally that saw prices rise over 6% at one point, after OPEC announced an agreement to modestly increase their oil output in the 2nd half of this year, thereby removing the uncertainty surrounding the OPEC meeting outcome that had been holding prices lower…after falling 1% last week to $65.06 a barrel on OPEC uncertainty and trade war fears, widely quoted prices for US light sweet crude for July delivery were up 79 cents, or 1.2%, to $65.85 a barrel in volatile trading on Monday, as speculation on the outcome of the OPEC meeting drove trading…that gain was reversed on Tuesday, as oil prices fell 78 cents to $65.07 a barrel, as the escalating trade war between the US and China unleashed selling across most global markets…but oil prices jumped $1.15 to $66.22 a barrel as trading in July oil expired on Wednesday, after the EIA reported the largest weekly drop in U.S. crude supplies since January…now quoting prices of US crude for August, that contract fell 17 cents to $65.54 a barrel on Thursday, as oil traders were reluctant to commit to further buying before the OPEC meeting the next day…however, when that OPEC meeting decided on a modest increase of roughly 600,000 barrels per day in oil output, rather than the million or 1.5 million barrel per day increase some expected, oil prices jumped nearly $4 to $69.38 a barrel after the announcement, before settling back to $68.58 a barrel at the close, with a net gain on the day of $3.04 a barrel, the largest price jump in nearly two years

so you can see what this week’s price jump looks like compared to the recent movement of oil prices, we’ll include a graph of US oil prices over the past six months…

June 23 2018 oil prices

the above graph is an early Saturday afternoon screenshot of the live interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets…each bar on the above graph represents oil prices for a day of oil trading between December 22nd, 2017 and Friday of this week, wherein the green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down…for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day is at the top of the bar, while for red or down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar…also visible on this “candlestick” style graph are the faint grey “wicks” above and below each bar, to indicate trading prices during the day that were above or below the opening to closing price range for that day…note that since this graph includes off market and after hours trading, the prices shown above do not correspond exactly to the NYMEX exchange prices we have been quoting..

as we can see on the graph above, oil prices have moved up over an irregular trajectory most of this year, as the global oil glut gradually evaporated in the face of the OPEC production cuts that began in January of 2017, and as threats of US sanctions against Venezuela and Iran threatened to tighten crude supplies further…however, after topping $70 a barrel and nearing $73 for the first time since November 2014 in mid May, oil prices started sliding on rumors of this month’s OPEC meeting, and then plunged to $67.88 a barrel when word came from the Saudi oil minister that the Saudis and Russia were prepared to add as much as a million barrels per day to global supplies…so this week’s price increase is largely a reversal of that late May drop, as the uncertainly on what OPEC and Russia will be doing in the 2nd half of this year has now been removed…thus the August WTI contract, representing the benchmark US price, ended the week’s trading on NYMEX 5.8% higher at $68.58 a barrel, while the international benchmark of North Sea Brent, also trading for August, ended 2.9% higher at $75.55 a barrel..

while news on natural gas seemed to have been pushed off the feeds and energy pages that i watch, prices did end lower this week, as the early summer heat wave gave way to more moderate temperatures across much of the US…after ending the prior week above $3 per mmBTU for the first time since January, natural gas prices for July fell 7.1 cents out of the gate on Monday and then another 5.1 cents to $2.90 per mmBTU on Tuesday before steadying, and then ending the week at 2.945 per mmBTU…the natural gas storage report for week ending June 15th from the EIA indicated that natural gas in storage in the US rose by 91 billion cubic feet to 2,004 billion cubic feet over the week, which left our gas supplies 757 billion cubic feet, or 27.4% below the 2,761 billion cubic feet that were in storage on June 16th of last year, and 499 billion cubic feet, or 19.9% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the second week of June…the consensus forecast was for an addition of 85 billion cubic feet to gas in underground storage, so this week’s 91 billion cubic foot addition was again above expectations, and was also above the average 83 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year….so despite the warmer than normal June temperatures, natural gas continues to be added to storage at a pace that would bring our gas supplies back up to a near normal level going into next winter….  

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending June 15th, showed that due to a jump in our oil exports and another increase in oil refining, we had to pull oil out of our commercial crude supplies for the tenth time in the past twenty-one weeks….our imports of crude oil rose by an average of 143,000 barrels per day to an average of 8,242,000 barrels per day during the week, after falling by 247,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 344,000 barrels per day to an average of 2,374,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 15th worked out to a net import average of 5,868,000 barrels of per day during the week, 201,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,768,000 barrels per day during the reporting week…

meanwhile, US oil refineries were using a near record 17,701,000 barrels of crude per day during the week ending June 15th, 196,000 barrels per day more than they used during the prior week, while at the same time 867,000 barrels of oil per day were reportedly being pulled out of oil storage in the US….hence, we can see that this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 66,000 fewer barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-66,000) 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”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,080,000 barrels per day, which was 0.3% more than the 8,057,000 barrel per day average we imported over the same four-week period last year….the 867,000 barrel per day decrease in our total crude inventories included a 845,000 barrel per day withdrawal from our commercially available stocks of crude oil and a 22,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year’s federal budget….this week’s crude oil production was apparently was reported as unchanged because the EIA has decided to round the weekly oil production estimates to the nearest 100,000 barrels per day to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states…however, that rounding creates an even greater inaccuracy in the weekly data, as our production is now shown to have jumped 100,000 barrels per day last week, and then remained unchanged this week, even as the change for both weeks was likely in line with prior weekly increases…moreover, by including one variable that’s rounded to the nearest 100,000 barrels per day in the weekly U.S. Petroleum Balance Sheet, the weekly “unaccounted for crude oil” adjustment on line 13 cannot be accurate to the nearest 1,000 barrels per day, yet it continues to be shown as a factor with that degree of accuracy…

meanwhile, US oil refineries were operating at 96.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 15th, matching the 17 year high for refinery utilization that was set during the week ending December 29, 2017…the 17,701,000 barrels of oil that were refined this week were the 2nd most barrels refined on record, topped only by the 17,725,000 barrels per day that were being refined during the last full week of August 2017….this week’s refinery throughput was also 3.2% higher than the 17,152,000 barrels of crude per day that were being processed during the week ending June 16th a year ago, when US refineries were operating at 94.0% of capacity….

even with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much lower, falling by 352,000 barrels per day to 10,099,000 barrels per day during the week ending June 15th, after our refineries’ gasoline output had increased by 793,000 barrels per day during the week ending June 8th....that decrease meant our gasoline production was 0.6% lower during the week than the 10,161,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year…on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) jumped by 357,000 barrels per day to a near record high of 5,468,000 barrels per day, an output level that was only higher during the last two weeks of 2017…as a result, this week’s distillates production was 4.1% higher than the 5,251,000 barrels of distillates per day than were being produced during the week ending June 16th, 2017, which itself was a seasonal high at that time….  

despite the decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 3,277,000 barrels to 240,040,000 barrels by June 15th, the sixth increase in 15 weeks, but the 22nd increase in 32 weeks, as gasoline inventories, as usual, were being built up over the winter months….our gasoline supplies increased because the amount of gasoline supplied to US markets fell by 553,000 barrels per day to 9,326,000 barrels per day, and because our imports of gasoline rose by 26,000 barrels per day to 850,000 barrels per day, while our exports of gasoline fell by 4,000 barrels per day to 603,000 barrels per day….even after this week’s decrease, our gasoline inventories finished the week three-quarters of a percent lower than last June 16th’s level of 241,866,000 barrels, even as they are now more than 11% above the 10 year average of gasoline supplies for this time of the year…  

meanwhile, with this this week’s big increase in distillates production, our supplies of distillate fuels rose for just the 3rd time in 11 weeks, increasing by 2,715,000 barrels to 117,408,000 barrels during the week ending June 15th…our distillate inventories also increased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 579,000 barrels per day to 3,825,000 barrels per day, after increasing by 902,000 barrels per day the prior week, as distillate wholesalers and retailers rebuilt supplies after the holiday week…meanwhile, our exports of distillates rose by 193,000 barrels per day to 1,304,000 barrels per day, while our imports of distillates decreased by 55,000 barrels per day to 49,000 barrels per day…however, since this week’s inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 15th are still 23.0% below the 152,495,000 barrels that we had stored on June 16th, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year

finally, with our oil exports rising at the same time our refineries were using more oil, our commercial supplies of crude oil decreased for the 12th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 5,914,000 barrels during the week, from 432,441,000 barrels on June 8th to 426,527,000 barrels on June 15th…thus, after falling most of the past year, our oil inventories as of June 15th were 16.2% below the 509,095,000 barrels of oil we had stored on June 16th of 2017, 14.7% below the 499,994,000 barrels of oil that we had in storage on June 17th of 2016, and 1.0% below the 430,837,000 barrels of oil we had in storage on June 19th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years…     

This Week’s Rig Count

US drilling activity decreased for the second time in the past thirteen weeks and for just the 3rd time in the past 18 weeks during the week ending June 22nd, as both drilling for natural gas and drilling for oil slowed simultaneously for the first time since November 3rd, 2017…Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 7 rigs to 1052 rigs over the week ending on Friday, which was also the largest one week drop since November 3rd, which nonetheless left us with 111 more rigs than the 941 rigs that were in use as of the June 23rd report of 2017, while it was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market…

the count of rigs drilling for oil was down by 1 rig to 862 rigs this week, which was still 104 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 fell by 6 rigs to 188 rigs this week, which was only 5 more gas rigs than the 183 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs operating that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

with the shutdown of a rig offshore from Texas, drilling activity in the Gulf of Mexico was down by 1 rig to 18 rigs this week, which was also down from the 21 platforms that were deployed in the Gulf of Mexico a year ago…in addition, the platform that had been drilling offshore from Alaska was also shut down this week, so the total US offshore count of 18 rigs is now down from 22 rigs a year ago, when there was also a rig drilling off of the Alaskan coast…moreover, two of the platforms which had been set up to drill through inland lakes in southern Louisiana were also shut down this week, this week, so now there are only 2 such ‘inland waters” rigs operating, down from the 4 ‘inland waters’ rigs that were operating going into the same weekend a year ago…

for the second week in a row, the count of active horizontal drilling rigs decreased by 2 rigs, falling to 930 horizontal rigs this week, which was still 138 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 23rd 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 decreased by 5 rigs to 62 directional rigs this week, which was also down from the 72 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count was unchanged at 60 vertical rigs this week, which was still down from the 77 vertical rigs that were deployed on June 23rd 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 June 22nd, the second column shows the change in the number of working rigs between last week’s count (June 15th) and this week’s (June 22nd) count, the third column shows last week’s June 15th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report 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 on Friday the 23rd of June, 2017…     

June 22 2018 rig count summary

as you can see, Louisiana saw the largest rig decrease this week, with the 2 rigs shutdown on inland waters, another in the Haynesville in the northwestern part of the state, and another rig on dry land in the south…on the other hand, only Alaska and Wyoming show rig increases, while none of the major basins do…the decreases in drilling for natural gas aren’t entirely evident, however, as in addition to the natural gas rigs shut down in the Haynesville and Pennsylvania Marcellus, we also had the switch of a rig from natural gas to oil in both the Eagle Ford of south Texas and the Granite Wash of the panhandle region, neither of which show up in this overall summary table or as a change in the rig count…in addition to those, 2 other rigs that had been drilling for gas in other unnamed basins not tracked separately by Baker Hughes were also shut down this week; since none of the other states showing decreases are likely candidates for those two gas rig shutdowns, we’d venture a guess that the 2 inland lakes rigs that were shut down this week had also been drilling for gas….

DUC well report for May

Monday of this past week saw the release of the EIA’s Drilling Productivity Report for June, which includes the EIA’s May data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions…for the 20th consecutive month, this report again showed an increase in uncompleted wells nationally, but the increase in May was the smallest over that span, as increased well completions have outpaced the growth of new drilling over each of the past 5 months…not unlike most previous months, this month’s increase was mostly because of a big increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, while basins other than the Eagle Ford of south Texas and the Bakken of North Dakota saw more completions than new wells drilled…for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 31, from 7,741 wells in April to 7772 wells in May, the twentieth consecutive monthly increase in uncompleted wells nationally, and hence again the highest number of such unfracked wells in the history of this report….that was as 1316 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during May, up from 1297 in April, while 1285 wells were completed and brought into production by fracking, an increase of 39 completions over the prior month…hence, at the May completion rate, the 7,772 drilled but uncompleted wells left at the end of April represent more than a 6.0 month backlog of wells that have been drilled but not yet fracked…

as has been the case for most of the past two years, the May DUC well increases were predominantly oil wells, with most of those in the Permian basin…the Permian saw its total count of uncompleted wells rise by 100, from 3,103 DUC wells in April to 3,203 DUCs in May, as 572 new wells were drilled into the Permian but only 472 wells in the region were fracked…at the same time, DUC wells in the Eagle Ford of south Texas rose by 14, from 1,471 DUC wells in April to 1,485 DUCs in May, as 188 wells were drilled in the Eagle Ford during May, while 174 Eagle Ford wells were completed…in addition, the number of DUC wells in the Bakken of North Dakota increased by 1 to 750, as 110 wells were drilled into the Bakken while 109 Bakken wells were fracked…on the other hand, the drilled but uncompleted well count in the Niobrara chalk of the Rockies front range decreased by 48 to 491, as just 140 Niobrara wells were drilled while 188 Niobrara wells were being fracked…similarly, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 27 wells, from 771 DUCs in April to 744 DUCs in May, as 102 wells were drilled into the Marcellus and Utica shales, while 129 of the already drilled wells in the region were fracked…meanwhile, DUC wells in the Anadarko region fell by 8, from 921 DUC wells in April to 913 DUCs in May, as 147 wells were drilled in the Anadarko region in April while 155 drilled wells in the basin were completed…lastly, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by one to 186, as 57 wells were drilled into the Haynesville during May, while 58 Haynesville wells were fracked during the same period…

thus, for the month of May, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 59 wells to 6,842 wells, while the uncompleted well count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 28 wells to 930 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas… 

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May’s reports on new home construction and existing home sales

the only widely watched reports released over the past week were the May report on New Residential Construction from the Census Bureau and the May report on existing home sales from the National Association of Realtors (NAR)….in addition, this week also saw the release of the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions fell from +34.4 in May to +19.9 in June, still suggesting an ongoing expansion in that region’s manufacturing, but at a less robust pace… 

New Housing Construction Increases in May, Permits Lower

the May report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched number of new housing units started was at a seasonally adjusted annual rate of 1,350,000, which was 5.0 percent (±10.2 percent)* above the revised April estimated annual rate of 1,286,000 housing units started, and was 20.3 percent (±14.4 percent) above last May’s rate of 1,122,000 housing starts a year…the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell from April to May, with the figure in parenthesis the most likely range of the change indicated; in other words, May’s housing starts could have been down by 5.2% or up by as much as 15.2% from those of April, with even larger revisions possible…in this report, the annual rate for April housing starts was revised from the 1,278,000 estimated last month to 1,286,000, while March housing starts, which were first reported at a 1,319,000 annual rate, were revised from last month’s initial revised annualized figure of 1,336,000 down to 1,327,000 annually with this report….these annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 124,900 housing units were started in May, up from the 117,600 units started in April and the 107,200 started in March…of those housing units started in May, an estimated 88,300 were single family homes and 35,700 were units in structures with more than 5 units, up from the revised 85,100 single family starts and 30,700 units started in structures with more than 5 units in April…

the monthly data on new building permits, with a smaller margin of error and hence usually smaller revisions, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in May, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,301,000 housing units, which was 4.6 percent (±1.4 percent) below the revised April permit rate of 1,364,000 but 8.0 percent (±1.3 percent) above the rate of permit issuance in May a year earlier….the annual rate for housing permits issued in April was revised from 1,364,000 to 1,352,000…quoting the report on the types of permits:  “Single-family authorizations in May were at a rate of 844,000; this is 2.2 percent (±1.0 percent) below the revised April figure of 863,000. Authorizations of units in buildings with five units or more were at a rate of 421,000 in May...”  again, these annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 124,900 housing units were issued in May, up from the revised estimate of 119,900 new permits issued in April… that included permits for an estimated 84,400 single family units in May, up from 79,100 in April, and permits for 37,300 units in structures with more than 5 units, down from 37,400 in April….for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.350 Million Annual Rate in May and Comments on May Housing Starts

Existing Home Sales Fell 0.4% in May; Median Price at a Record High

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 0.4% from April to May, projecting that 5.43 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was also 3.0% slower than the annual sales rate projected in May of a year ago…that came after an annual sales rate of 5.45 million homes in April, which was revised from the originally reported 5.46 million annual sales rate, and an annual home sales rate of 5.60 million in March…the NAR also reported that the median sales price for all existing-home types in May was $264,800, which topped the prior record $263,300 median price set last June, and was 4.9% higher than a year earlier, which they report is “the 75th straight month of year-over-year gains“……the NAR press release, which is titled Existing-Home Sales Backpedal, Decrease 0.4 Percent in May, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month…this data indicates that roughly 536,000 homes sold in May, up by 16.5% from the 460,000 homes that sold in April but 3.4% less than the 555,000 homes that sold in May of last year, so we can see the effect of the seasonal adjustment to correct for the typical large springtime increase in home sales…that same pdf indicates that the median home selling price for all housing types rose 2.7%, from a revised $257,900 in April to $264,800 in May, while the average home sales price was $303,500, up 1.9% from the $297,800 average in April, and up 3.1% from the $294,300 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $238,400 in the Midwest to a high of $411,800 in the West…for additional details and long term graphs on this report, see “NAR: “Existing-Home Sales Backpedal, Decrease 0.4 Percent in May”” and “A Few Comments on May Existing Home Sales” from Bill McBride at Calculated Risk..

 

(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 picked from the aforementioned GGO posts, contact me…)    

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tables and graphs for June 23rd

rig count summary:

June 22 2018 rig count summary

oil prices:

June 23 2018 oil prices

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US gasoline demand hits an all time high; distillates supplies at a 10 year seasonal low; global oil supplies down in May

oil prices ended lower for the 4th week in a row as Trump ramped up his trade wars against both our allies and against China, and as it became increasingly evident that OPEC would agree to increase oil production when they meet in Vienna next week…after falling just 7 cents to $65.74 a barrel in volatile trading last week, prices for July delivery of WTI, the benchmark US oil reversed a morning slide and rose 36 cents to $66.10 a barrel on Monday, as comments from the Iraqi oil minister cast doubt as to whether OPEC members would actually boost output at their upcoming meeting…against the backdrop of a Saudi and UAE invasion of Yemen, prices then edged up another 26 cents to close at $66.36 a barrel on Tuesday, after the monthly OPEC report warned there’s a high degree of uncertainty still hanging over the global oil markets this year...oil prices then pushed up to a two week high on Wednesday, closing at $66.36 a barrel for a gain of 28 more cents, after the weekly EIA report indicated a larger than expected drop in US crude supplies along with surprise drawdowns of gasoline and distillates inventories…crude prices then rose for a 4th day on Thursday after Saudi oil minister Al Falih said that while “it’s inevitable” that OPEC would agree to boost oil production, the increase in output would be “reasonable”, with oil closing 25 cents higher at $66.89 a barrel…but oil prices then crashed on Friday morning, falling by as much as $2.60 to $64.29 a barrel, after Saudi Arabia and Russia said they have already boosted their production modestly, and would make it official at their meeting next week, and Trump imposed 25% tariffs on $50 billion worth of high tech Chinese imports and the Chinese responded immediately with their own tariffs on $50 billion of US goods, with oil prices steadying that afternoon to end down $1.83 for the day at $65.06 a barrel…US oil prices thus ended the week with a loss of 68 cents, or just over 1%, while the international benchmark Brent crude trading for August oil finished the week $3.02 or nearly 4% lower at $73.44 a barrel, dropping $2.50 a barrel on Friday alone…

meanwhile, natural gas prices ended the week higher, rising daily save for a tenth of cent pullback on Tuesday, and ending the week above $3 for the first time since January on a 5.7 cent increase to $3.022 on Friday, on a forecast for hot weather for much of the country, seen as an impediment to rebuilding underground inventoriesthe natural gas storage report for week ending June 8th from the EIA indicated that natural gas in storage in the US rose by 96 billion cubic feet to 1,913 billion cubic feet over the week, which left our gas supplies 785 billion cubic feet, or 29.1% below the 2,698 billion cubic feet that were in storage on June 9th of last year, and 507 billion cubic feet, or 21.0% below the five-year average of 2,420 billion cubic feet of natural gas that are typically in storage after the first week of June…a Bloomberg survey had forecast an addition to gas storage in a range of between 82 and 95 billion cubic feet, so this week’s 96 billion cubic foot addition was above all expectations, and was also above the average 91 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year….at today’s inventory levels, we’d have to add 1,877 billion cubic feet of natural gas to storage to match the 3,790 billion cubic feet we had stored after the first week of November last year, so figure we need an inventory build averaging over 89 billion cubic feet per week over the next 21 weeks to bring our gas supplies back up to a reasonable level going into winter….   

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending June 8th, indicated that due to a combination of lower oil imports, higher oil exports, and increased refining, we had to pull oil out of our commercial crude supplies for the ninth time in the past twenty weeks….our imports of crude oil fell by an average of 247,000 barrels per day to an average of 8,099,000 barrels per day during the week, after rising by 715,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 316,000 barrels per day to an average of 2,030,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 8th worked out to a net import average of 6,069,000 barrels of per day during the week, 563,000 barrels per day less than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells rose by 100,000 barrels per day to a record high of 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,969,000 barrels per day during the reporting week… 

meanwhile, US oil refineries were using a seasonal high of 17,505,000 barrels of crude per day during the week ending June 8th, 136,000 barrels per day more than they used during the prior week, while at the same time 592,000 barrels of oil per day were reportedly being pulled out of oil storage in the US….hence, we can see that this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 56,000 more barrels per day than what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-56,000) 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”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,059,000 barrels per day, which was 1.3% less than the 8,161,000 barrel per day average we imported over the same four-week period last year…the 592,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged…this week’s 100,000 barrel per day increase in our crude oil production was due to a 100,000 barrel per day increase in output from wells in the lower 48 states, while an 18,000 barrel per day decrease in oil output from Alaska was not subtracted from the final figures, with no explanation as to why…the 10,900,000 barrels of crude per day that were produced by US wells during the week ending June 8th were again the highest on record, 16.8% more than the 9,330,000 barrels per day that US wells were producing during the week ending June 9th of last year, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

US oil refineries were operating at 95.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 8th, up from 95.4% of capacity the prior week, as refineries will usually try to run flat out through the summer driving season…while the 17,505,000 barrels of oil that were refined this week were the most barrels refined this early in any year, they were still down fractionally from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017….this week’s refinery throughput was also 1.4% higher the 17,256,000 barrels of crude per day that were being processed during the same week a year ago, when US refineries were operating at 94.4% of capacity…. 

with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much higher, rising by 793,000 barrels per day to 10,451,000 barrels per day during the week ending June 8th, after our refineries’ gasoline output had decreased by 775,000 barrels per day during the week ending June 1st....that big increase meant our gasoline production was 6.2% higher during the week than the 9,843,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year…meanwhile, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 213,000 barrels per day to 5,111,000 barrels per day, after rising to a seasonal high the prior week…as a result, this week’s distillates production was fractionally lower than the 5,154,000 barrels of distillates per day than were being produced during the week ending June 9th, 2017….  

however, even with the jump in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 2,271,000 barrels to 236,763,000 barrels by June 8th, the ninth decrease in 14 weeks, but just the 10th decrease in 31 weeks, as gasoline inventories, as usual, were being built up over the winter months…..our gasoline supplies decreased because the amount of gasoline supplied to US markets rose by 903,000 barrels per day to a record high of 9,879,000 barrels per day, and because our exports of gasoline rose by 69,000 barrels per day to 607,000 barrels per day, while our imports of gasoline rose by 47,000 barrels per day to 824,000 barrels per day….so after this week’s decrease, our gasoline inventories finished the week 2.4% lower than last June 9th’s level of 242,444,000 barrels, even as they were still roughly 9.7% above the 10 year average of gasoline supplies for this time of the year…  

since the amount of gasoline supplied to US markets, seen as a measure of domestic demand and consumption, was at a record high this week, we’ll include a graph of what that looks like, compared to its recent history…

June 13 2018 gasoline supplied as of June 8

the above graph came from a package of oil graphs on this report that John Kemp of Reuters emailed out on Wednesday (available as a pdf here), and it shows gasoline supplied to US markets in thousands of barrels per day by “day of the year” for the past ten years, with the past ten year range of our domestic gasoline demand for any given date shown in the light blue shaded area, and the median of our gasoline consumption, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year….the graph also shows the number of barrels of gasoline supplied for each week in 2017 traced weekly by a yellow line, and the year to date gasoline supplied for 2018 represented by the red graph…as John headlines at the top, that red line shows that gasoline supplied rose by 903,000 barrels to a record high of 9.88 million barrels per day with this week’s report, which means it rose by more than 10% from the prior week’s level…now, you can see by the red line that “gasoline product supplied” is quite volatile, and during the prior week it had fallen to a 16 week low….if you recall our closing discussion on last week’s report, we noted that all refinery “product supplied” metrics had dropped last week, resulting in what was the largest jump in product inventories in nearly 10 years, which we showed was a fluctuation similar to that of prior Memorial day weeks…so this week’s “record demand” is colored by that drop, as all product supplied metrics bounced back, as wholesalers and retailers rebuilt their own supplies, after the holiday drawdown..

meanwhile, with this this week’s decrease in distillates production, our supplies of distillate fuels fell for the 8th time in 10 weeks, decreasing by 2,101,000 barrels to 114,693,000 barrels during the week ending June 8th…our distillate inventories decreased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 902,000 barrels per day to 4,404,000 barrels per day, after decreasing by 817,000 barrels per day the prior week, when distillate wholesalers were drawing on their own supplies, which they’d built in advance of the holiday weekend…meanwhile, our exports of distillates fell by 548,000 barrels per day from last week’s near record to 1,111,000 barrels per day, while our imports of distillates decreased by 42,000 barrels per day to 104,000 barrels per day…since this week’s inventory decrease comes after our distillate supplies fell by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 8th are now 24.3% below the 148,768,000 barrels that we had stored on June 9th, 2017, and roughly 16.1% lower than the 10 year average of distillates stocks for this time of the year

with our supplies of distillates now at the lowest they’ve been at this time of year in 10 years, we’ll take a look at a graph of what that looks like, compared to that 10 year history:

June 13 2018 distillate inventories as of June 8

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here…it shows US distillate fuels inventories in thousands of barrels by “day of the year” for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year…the graph also shows the number of thousands of barrels of distillates we had stored for each week in 2017 traced weekly by a yellow line, with our 2018 year to date distillates supplies for each week traced in red…notice in the light blue shaded area that there is normally a seasonality to distillates supplies, as they’re normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest…however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, in part due to decreased production, but mostly because we have been exporting our distillates at near a record pace…thus we come to June 8th with our distillate supplies at a 10 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017…

finally, with our oil exports rising and our oil imports falling while our refineries were using more oil, our commercial supplies of crude oil decreased for the 11th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 4,143,000 barrels during the week, from 436,584,000 barrels on June 1st to 432,441,000 barrels on June 8th…thus, after falling most of the past year, our oil inventories as of June 8th were 15.5% below the 511,546,000 barrels of oil we had stored on June 9th of 2017, 13.7% below the 500,911,000 barrels of oil that we had in storage on June 10th of 2016, and fractionally below the 435,771,000 barrels of oil we had in storage on June 12th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years…     

OPEC’s Monthly Oil Market Report

we’re going to take a look at OPEC’s June Oil Market Report (covering May OPEC & global oil data) next, because it’s available as a free download and hence it’s the report we check for monthly global oil supply and demand data, rather than the paywalled report of the IEA that’s widely reported in the media…the first table from this monthly 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 thus resolve any potential disputes that could arise if each member reported their own figures…    

May 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC’s oil output increased by 35,400 barrels per day in May to 31,869,000 barrels per day, from their April production total of 31,834,000 barrels per day….however, that April figure was originally reported as 31,930,000 barrels per day, so OPEC’s oil production during May was actually 61,000 barrels per day lower than the previously reported April figures (for your reference, here is the table of the official April OPEC output figures as reported a month ago, before this month’s revisions)…as you can tell from the far right column above, an increase of 85,500 barrels per day in the output from Saudi Arabia was the main reason that the cartel’s output rose, with Algeria contributing a 39,000 barrel per day increase and Iraq’s increase of 27,700 barrels per day, together more than offsetting the decreases of 53,500 barrels per day in Nigerian output, 42,500 barrels per day in Venezuelan output, and 24,300 barrels per day in Libyan output…however, with a quota of 10,060,000 barrels per day for the Saudis, and 1,040,000 barrels per day for the Algerians, both of those countries still remain well below their allocations, according to their original pact…and at 31,869,000 barrels per day, OPEC oil output is now 861.000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq’s 4,455,000 barrel per day May output above their 4,350,000 barrel per day allocation… 

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

May 2018 OPEC report global oil supply

OPEC’s preliminary data indicates that total global oil production rose by a rounded 270,000 barrels per day to a record 97.86 million barrels per day in May, after April’s global output total was revised down by 300,000 barrels per day from the record 97.89 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 230,000 barrels per day in May….global oil output for May was also 1.74 million barrels per day, or 1.8% higher than the 96.12 million barrels of oil per day that were being produced globally in May a year ago (see the June 2017 OPEC report online (pdf) for the year ago details)… OPEC’s May oil production of 31,869,000 barrels per day thus represented just 32.6% of what was produced globally, the same percentage as in April, as oil output increases by the US, Canada, Brunei, Brazil, Kazakhstan, Azerbaijan, Ghana and Saudi Arabia were only partially offset by decreases in oil output seen in Mexico, Norway, the UK, Australia, Colombia, Egypt, China and Nigeria…OPEC’s May 2017 production was at 32,139,000 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 140,000 fewer barrels per day of oil than they were producing a year ago, during the fifth month that their production quotas were in effect, with the recoveries of oil production in Libya and Nigeria now more than offset by the decrease in output from Venezuela, whose output is now running 571,000 barrels per day below what it was at last May…    

however, despite the record global oil output in May, the downward revisions to supply meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us…

May 2018 OPEC report 2018 global oil demand

the table above comes from page 33 of the June OPEC Monthly Oil Market Report (pdf page 41), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC’s estimate of oil demand by region and globally quarterly over 2018 over the rest of the table…on the “Total world” line of the third column, we’ve circled in blue the figure that’s relevant for May, which is their revised estimate of global oil demand during the second quarter of 2018…     

OPEC’s estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe will be using 98.07 million barrels of oil per day, which is a small downward revision from their prior estimate of 98.08 million barrels of oil per day during the 2nd quarter….meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world’s oil producers were only producing 97.86 million barrels per day during May, which means that there was a shortfall of around 220,000 barrels per day in global oil production vis-a vis estimated demand during the month…

at the same time as 2nd quarter global demand was revised 10,000 barrels per day lower, April’s global output total was revised down by 300,000 barrels per day to 97,590,000 barrels per day, so that means that the shortfall for April now works out to 480,000 barrels per day, revised from the 190,000 barrel per day shortfall we had figured on a month ago…but as you see circled in green above, while global oil demand figures for the second quarter were revised slightly lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously computed oil surplus for the first quarter of 2018 will also have to be recomputed…based on the revisions of a month ago, we had figured a global oil surplus of 240,000 barrels per day for March, a global oil surplus of 420,000 barrels per day for February, and a global oil surplus of 260,000 barrels per day for January…each of those surplus figures thus have to be revised lower based on higher demand, so hence our new figures will show a surplus of 180,000 barrels per day for March, a surplus of 360,000 barrels per day for February, and a surplus of 200,000 barrels per day for January…totaling it all up, that means that for the first five months of 2018, global oil production exceeded demand by just 640,000 barrels, the equivalent of just 9 extra minutes of production at the May rate… 

This Week’s Rig Count

US drilling activity decreased for the first time in the past twelve weeks and for just the 2nd time in the past 17 weeks during the week ending June 15th, as drilling for natural gas was curtailed while drilling for oil continued to increase…Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 3 rigs to 1059 rigs over the week ending on Friday, which was still 126 more rigs than the 933 rigs that were in use as of the June 16th report of 2017, while it was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC officially began their attempt to flood the global oil market… 

the count of rigs drilling for oil was up by 1 rig to 863 rigs this week, which was also 116 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 fell by 4 rigs to 194 rigs this week, which was only 8 more gas rigs than the 186 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs operating that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

drilling activity in the Gulf of Mexico and elsewhere in the US offshore was unchanged this week, with 19 platforms deployed in the Gulf and one drilling offshore from Alaska, down from 21 rigs drilling in the Gulf and one offshore from Alaska last June 16th…however, another platform was set up to drill through an inland lake in southern Louisiana this week, so now there are 4 such ‘inland waters” rigs operating, an increase from the 3 inland waters rigs that were operating going into the same weekend a year ago…

in their first pullback in 9 weeks, the count of active horizontal drilling rigs decreased by 2 rigs to 932 horizontal rigs this week, which was 150 more horizontal rigs than the 782 horizontal rigs that were in use in the US on June 16th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the vertical rig count decreased by 1 rig to 60 vertical rigs this week, which was also down from the 82 vertical rigs that were in use during the same week of last year…on the other hand, the directional rig count was unchanged at 67 directional rigs this week, which was still down from the 69 vertical rigs that were deployed on June 16th 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 June 15th, the second column shows the change in the number of working rigs between last week’s count (June 8th) and this week’s (June 15th) count, the third column shows last week’s June 8th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report 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 on Friday the 16th of June, 2017…     

June 15 2018 rig count summary

as you can see from the above table, this week’s small net decrease masked a number of both positive and negative changes in drilling nationally…of particular note was the 4 rig decrease in the Permian basin of west Texas and New Mexico, the largest pullback in the Permian since a similar number of rigs were shut down during the week ending February 2nd…looking at the changes in activity in the individual Texas oil districts in the state data, the core Permian areas appear to show a decrease of 6 rigs, so we can probably figure that two of the New Mexico rig increases were in the western part that basin…for once, the 4 rig decrease in rigs targeting natural gas is easily identifiable, as two rigs were pulled from the Marcellus (one from Pennsylvania and one from West Virginia), a rig targeting gas was pulled out of Oklahoma’s Arkoma Woodford, and another gas rig was shut down in Ohio’s Utica shale…activity in the Utica is now at 23 rigs, down from 28 rigs a year ago, so some Ohioans can be thankful, despite the state’s deterioration otherwise…. also note that in addition to the changes shown in the major producing states in the top table above, this week also saw a rig added in Mississippi, while the only rig that had been operating in Montana was pulled out…Mississippi now has 4 rigs operating, up from 3 rigs a year ago, while the Montana rig appears to have just been moved across the North Dakota border, into another part of the Williston basin…

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