Harvey shuts down a quarter of US refining just a week after refining records were set; gasoline shortages result…

we’re going to start with Hurricane Harvey, and what it has done to US energy infrastructure…although there was considerable damage to structures in the Corpus Christi area when it came on shore as a Category 4 storm with 130 mph winds near Rockport, Texas, about 20 miles up the coast, by far the greatest damage was from the rainfall, which surpassed 30 inches in a broad swath of the state from 50 miles west of Houston all the way to the Louisiana border…so we’ll start with a map that shows where that rainfall fell..

Harvey rain totals

the above map comes from the National Weather Service out of Brownsville Texas and as the legend indicates, it shows the extent of the area that received rainfall totals exceeding 20 inches in green, exceeding 30 inches in blue, and exceeding 40 inches in purple…for those of you not familiar with Texas geography, note the 50 mile scale near the lower left hand corner to get an idea about the breadth of the areas receiving such quantities of rain…Harvey was by far the worst rainfall disaster in US history, seeing the greatest amount of rain ever recorded in the Lower 48 states from a single storm, while the 51.88 inches of rainfall measured in Cedar Bayou east of Houston was the most rainfall that ever fell on one place in one event in the continental US….an estimated 24.5 trillion gallons of water fell on Southeast Texas and southern Louisiana during the storm; that’s enough water to cover the entirety of Washington DC 1,727 feet deep, more than 3 times the height of the Washington Monument…estimates are that roughly 460,000 Texans were flooded out, and as many as a million cars were damaged or destroyed…the disaster was exacerbated by urban sprawl into what were once wetlands, where wetlands that could have mitigated the flooding were paved over, and hence could not absorb any of the rain…the Texas coast terrain is relatively flat and drainage infrastructure is inadequate, so with the storm surge forcing high water into the mouths of the bayous, the rain that fell just accumulated on the already saturated surface…

next, we’ll include a map that shows the track of Harvey through the Gulf Coast oil and gas infrastructure:

August 29 2017 Platts map of Harvey

this map came from Platts on Tuesday, and the original version of it just showed the forecast track of Harvey, then a tropical storm, from that day forward…i’ve added the approximate path that Harvey took over the prior Friday through Tuesday period so you can see how the storm moved over land…notable features on this map include the Eagle Ford shale basin in yellow, inland from Corpus Christi and Houston; oil import and export ports, shown as blue diamonds; oil and gas pipelines, shown in blue and orange; LNG terminals, shown as pink triangles, and refineries, shown as variously sized and colored circles, to indicate the amount of oil each normally processes and their status at the time this map was made…the initial impact of the hurricane was to shut down offshore oil and gas production in the western Gulf, as crews were removed from the offshore platforms when the track of the storm was still uncertain…at the same time, at least 25 oil tankers carrying almost 17 million barrels of imported crude were stuck offshore, unable to unload as the Texas ports closed in anticipation of the storm….then, when the storm hit Corpus Christi, its refineries were shut down and loading of crude oil exports from both the Permian and Eagle Ford was halted…although Harvey was downgraded to a tropical storm by the time it made it into the Eagle Ford, most oil production from that field had ahlready been shut in…

now remember, circulation around a hurricane is counter-clockwise, so over this entire time it was drawing moisture in from the warmer than normal Gulf on the eastern side of the storm and pushing the heaviest rain northward into the Houston area…at that point, the storm stalled, moving no more than 2 miles an hour, till it slowly turned around and moved back out into the Gulf, with heavy rain bands now extending as far east as New Orleans (not shown above); the above map thus shows the refinery closures at that time, but as we shall see in the next table, large refineries in Beaumont and Port Arthur marked as operational above were eventually shut down too, as Harvey’s late week rainfall later flooded those areas…

the table below comes from an article at Platts titled Oil Factbox: Gasoline prices soar on Harvey-related outages and it shows the major refinery outages caused by Harvey as of early Friday…roughly 47% of US refining capacity is on the Gulf Coast, and more than half of that was impacted by Harvey…most of these refineries were flooded, so they may be down for a while…for instance, the Saudi owned Motiva refinery in Port Arthur, the largest refinery in the US, will be shut for at least two weeks…Exxon’s Baytown, the 2nd largest US refinery, was hit by the Houston area flooding, and may be back online sooner…however, Exxon’s Beaumont refinery reports flooding still ongoing, with water well over the 10 foot levee protecting the plant, and oil spilling into that water…and that Corpus Christi refineries remain shut down a week after the hurricane passed them may mean they’ve sustained some storm damage, since flooding was not a major problem that far south down the Texas coast…

August 31 2017 refineries shutdown via Platts

notice that as of Friday, this table indicates that 22% of US refining capacity was still offline, meaning 4 million barrels per day of oil were not being refined; others put that figure at 4.4 million barrels, which would mean that one quarter of US refining has been shut down…the result of this has been to push oil prices down, while prices for gasoline, distillates and jet fuel have all been rising…there are already shortages of gasoline in some areas of Texas, and panicked gas lines have formed where gasoline is available…on Wednesday, the Colonial Pipeline, normally carrying gasoline, diesel and jet fuel from several refineries in Houston, Port Arthur through the south Atlantic states to New York, was shut down for lack of supply; that pipeline normally carries “roughly one in every eight barrels of fuel consumed in the country”…a day earlier, the Explorer Pipeline from Houston to Chicago was shut down, cutting off the normal supplies for the Chicago area…even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the US, it’s not in the right places to address these Midwest and East Coast shortages; pipeline terminals typically only have a five-day supply in storage to meet immediate needs…bottom line, that means higher prices and gasoline shortages might hamper travel over the Labor Day holiday weekend

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending August 25th, ie, the week before Harvey hit land, showed a big drop in our imports of crude oil, a new record for the amount of crude oil being used by US refineries, and hence another withdrawal of from our stored supplies of crude oil….our imports of crude oil fell by an average of 885,000 barrels per day to an average of 7,905,000 barrels per day during the week, while at the same time our exports of crude oil fell by 34,000 barrels per day to an average of 902,000 barrels per day, which meant that our effective imports netted out to an average of 7,003,000 barrels per day during the week, 851,000 barrels per day less than during the prior week…at the same time, our field production of crude oil inched higher by 2,000 barrels per day to an average of 9,530,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,533,000 barrels per day during the cited week…

during the same period, refineries were using 17,725,000 barrels of crude per day, 264,000 barrels per day more than they used during the prior week, while at the same time 771,000 barrels of oil per day were being pulled out of oil storage facilities in the US…hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 421,000 less barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (+421) 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, which they label in their footnotes as “unaccounted for crude oil”…note that last week’s unaccounted for crude was -396,000, a swing of 818,000 barrels per day, and hence the week over week data is accordingly suspect..

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 8,146,000 barrels per day, which was 4.6% below the imports of the same four-week period last year….this week’s 2,000 barrel per day increase in our crude oil production was the result of a 14,000 barrel per day increase in oil output from Alaska, which was offset by a 12,000 barrels per day decrease in oil output from wells in the lower 48 states…the 9,530,000 barrels of crude per day that were produced by US wells during the week ending August 25th was the most oil US wells have produced since July 17, 2015, 8.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.3% more than the 8,488,000 barrels per day of oil we produced during the during the week ending August 26th a year ago, while our oil output was still 0.9% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015…

US oil refineries were operating at 96.6% of their capacity in using those 17,725,000 barrels of crude per day, which was up from 95.4% of capacity the prior week, and the highest refinery utilization rate since August 26, 2005….the 17,725,000 barrels of oil refined this week was the most ever refined in US history, 149,000 barrels per day more than the previous record, 6.7% more than the 16,615,000 barrels of crude per day.that were being processed during week ending August 26th, 2016, when refineries were operating at 92.8% of capacity, and roughly 12.9% above the 10 year average of 15.7 million barrels of crude refined per day at this time of year

with this week’s record level of oil refining, gasoline production from our refineries increased by 36,000 barrels per day to a new record high of 10,602,000 barrels per day during the week ending August 25th, topping the record just set last week…that put this week’s gasoline output at a level 5.8% higher than the 10,021,000 barrels of gasoline that were being produced daily during the comparable week a year ago….however, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 36,000 barrels per day to 5,055,000 barrels per day at the same time, which was still 1.6% more than the 4,973,000 barrels per day of distillates that were being produced during the week ending August 26th last year….

with this week’s record gasoline production, our end of the week gasoline inventories increased by 35,000 barrels to 229,937,000 barrels by August 25th, only the 3rd small increase in gasoline inventories in 11 weeks…that was as our domestic consumption of gasoline rose by 217,000 barrels per day to a record 9,846,000 barrels per day, and as our imports of gasoline rose by 284,000 barrels per day to 839,000 barrels per day, and as our exports of gasoline rose by 44,000 barrels per day to 637,000 barrels per day…however, with significant gasoline supply withdrawals in 8 out of the last 11 weeks, our gasoline inventories are still 0.9% below last August 26th’s level of 232,004,000 barrels, while they are still 7.4% higher than the 214,163,000 barrels of gasoline we had stored on August 28th of 2015, and roughly 9% above the 10 year average for gasoline supplies for this time of the year…

meanwhile, even with the decrease in our distillates production, our supplies of distillate fuels managed to increase by 748,000 barrels to 149,163,000 barrels over the week ending August 25th, the third modest distillates inventory increase in a row…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 167,000 barrels per day to 3,910,000 barrels per day, while our imports of distillates fell by 48,000 barrels per day to 84,000 barrels per day, and as our exports of distillates fell by 20,000 barrels per day to 1,122,000 barrels per day….however, even after this week’s increase, our distillate inventories were still 3.6% lower than the 154,753,000 barrels that we had stored on August 26th, 2016, and fractionally lower than the distillate inventories of 149,951,000 barrels of distillates that we had stored on August 28th of 2015, even as they remain more than 5% above the 10 year average for distillates stocks for this time of the year…

finally, with the week’s big drop in our oil imports while our refineries were using oil at a record pace, our commercial crude oil inventories fell for the 19th time in the past 21 weeks, decreasing by another 5,392,000 barrels to 457,773,000 barrels as of August 25th, leaving us with the least oil we’ve had in storage since January 15th, 2016…however, while our oil inventories as of August 25th ended 7.6% below the 495,238,000 barrels of oil we had stored on August 26th of 2016, they were still up considerably from the normal level for our oil supplies in the years before the oil glut started building up, ie., 8.1% higher than the 423,657,000 barrels in of oil that were in storage on August 28th of 2015, and 39.5% higher than the 328,119,000 barrels of oil we had in storage on August 29th of 2014…

This Week’s Rig Count

US drilling activity increased for the 3rd time in the past 10 weeks during the week ending September 1st, after a string of 23 consecutive weekly increases earlier this year, as  apparently there was no Harvey impact….Baker Hughes reported that the total count of active rotary rigs running in the US rose by 3 rigs to 943 rigs in the week ending Friday, which was 446 more rigs than the 497 rigs that were deployed as of the September 2nd report in 2016, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil was unchanged at 759 rigs this week, which still left oil rigs up by 352 oil rigs over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 3 rigs to 183 rigs this week, which was 95 more rigs than the 88 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, one rig that was classified as miscellaneous was still drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count fell by one rig to 16 Gulf rigs this week, as a rig offshore from Louisiana was shut down…nonetheless, the Gulf of Mexico count was still up from the 10 Gulf rigs that were running during the same week a year ago…the total US offshore rig count was the same as the Gulf count, since there was no other US offshore drilling activity except in the Gulf…

working horizontal drilling rigs fell by 2 rigs to 794 rigs this week, which left the horizontal rig count still up by 399 rigs from the 395 horizontal rigs that were in use in the US on September 2nd of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….on the other hand, the vertical rig count was up by 4 rigs to 68 vertical rigs this week, which was also up from the 60 vertical rigs that were deployed during the same week last year…at the same time, the directional rig count was up by 1 rig to 81 rigs this week, which was also up from the 42 directional rigs that were deployed on September 2nd of 2016….

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 weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of September 1st, the second column shows the change in the number of working rigs between last week’s count (August 25th) and this week’s (September 1st) count, the third column shows last week’s August 25th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 2nd of September, 2016…     

September 1 2017 rig count summary

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August’s jobs report; 2nd quarter GDP revision; July’s income and outlays and construction spending

what are probably the three most important monthly economic releases were released on successive days this week; the 2nd estimate of 2nd quarter GDP from the Bureau of Economic Analysis was released on Wednesday, followed by the July report on Personal Income and Spending, also from the BEA, on Thursday, and then the Employment Situation Summary for August from the Bureau of Labor Statistics on Friday…Friday also saw the release of the July report on Construction Spending (pdf) from the  Census Bureau, while earlier in the week saw the release of the Dallas Fed Texas Manufacturing Outlook Survey for August, which indicated its general business activity index was unchanged at 17.0 in August, indicating an ongoing robust manufacturing expansion supporting the energy focused Texas economy…

the week’s privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.03 million annual rate in August, down 4.0% from the 16.69 million annual rate in July, and down 6% from the 16.9 million annual rate in August a year ago; the Case-Shiller Home Price Index for June, which is an average of April, May and June relative home prices, and which reported that home prices nationally for those 3 months averaged 5.8% higher than prices for the same homes that sold during the same 3 month period a year earlier; and the widely followed August Manufacturing Report On Business from the Institute for Supply Management (ISM), which reported that their manufacturing PMI (Purchasing Managers Index) rose to 58.8% in August, up from 56.3% in July, and the highest index reading since April 2011…

Employers Add 156,000 Jobs in August; Employment Rate Falls

the Employment Situation Summary for August reported weak job creation and a drop in the average workweek, while the unemployment rate rose and the employment rate fell…estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 156,000 jobs in August, after the payroll job increase for July was revised down from 209,000 to 189,000, and the payroll jobs increase for June was revised down from 231,000 to 210,000…that means that this report represents a total of just 115,000 more seasonally adjusted payroll jobs than were reported last month, not even enough to keep up with the increase in the working age population…the unadjusted data shows that there were actually 211,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,091,000, so seasonal adjustments had a relatively small impact on this month’s headline count…

seasonally adjusted job increases were spread throughout the private goods producing and service sectors, with only the information and government sectors seeing notable losses of 8,000 and 9.000 jobs respectively….the manufacturing sector added a seasonally adjusted 36,000 jobs, with the addition of 13,700 more jobs in the manufacturing of vehicles and parts….employment in construction increased by 28,000, with 15,400 of those jobs working for residential specialty trade contractors….the broad professional and business services category added 40,000 jobs, as 8,000 more were added in computer systems design and 7,000 more workers found work with employment services….employment in health care rose by 20,200, with the addition of 7,500 jobs in doctor’s offices and 6,400 in hospitals…meanwhile, the other major sectors, including mining and logging, wholesale and retail sales, transportation and warehousing, financial activities, private education and  leisure and hospitality, all saw increases of less than 10,000 in payroll employment over the month…’

the establishment survey also showed that average hourly pay for all employees rose by 3 cents an hour to $26.39 an hour, after it had increased by 9 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.12 an hour, after July’s pay figure was revised 2 cents lower….employers also reported that the average workweek for all private payroll employees decreased by 0.1 hour to 34.4 hours in August, while hours for production and non-supervisory personnel remained at 33.7 hours for the fifth consecutive month…meanwhile, the manufacturing workweek fell by 0.2 hours to 40.7 hours, while average factory overtime was unchanged at 3.3 hours…

at the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who reported being employed fell by an estimated 74,000 to 153,439,000, while the similarly estimated number of those unemployed rose by 151,000 to 7,132,000; which together meant that August saw a net increase of 77,000 in the total labor force…since the working age population had grown by 206,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 128,000 (rounded) to 94,785,000, which was nonetheless not enough to change the labor force participation rate, as it remained at 62.9%….at the same time, the drop in number employed vis-a-vis the increase in the population was great enough to decrease the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.1%…in addition, the increase in count of those unemployed as a percentage of the labor force was enough to increase the unemployment rate from 4.3% to 4.4%…..at the same time, there was also a small decrease of 27,000 in those who reported they were forced to accept just part time work, from 5,282,000 in July to 5,255,000 in August, which thus left the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, unchanged at 8.6% of the labor force in August….

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

2nd Quarter GDP Revised to Indicate Growth at a 3.0% Rate

the Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.0% rate in the quarter, revised down from the 2.6% growth rate reported in the advance estimate last month, as growth in personal consumption expenditures and all types of investment was greater than previously estimated, offsetting smaller downward revisions to exports and to state & local government outlays…..in current dollars, our second quarter GDP grew at a 4.0% annual rate, increasing from what would work out to be a $19,057.7 billion a year rate in the 1st quarter to a $19,246.7 billion annual rate in the 2nd quarter of this year, with the headline 3.0% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.0%, aka the GDP deflator, was applied to the current dollar change…

remember that the GDP 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 2nd estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012; 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 pdf for the 2nd quarter advance estimate, which this estimate revises, is here

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.8% growth rate reported last month to a 3.3% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 3.6% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 0.3% annual rate in the 2nd quarter, which was unrevised from the PCE inflation rate reported a month ago…real consumption of durable goods grew at a 8.9% annual rate, which was revised from the 6.3% growth rate shown in the advance report, and added 0.65 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 14.0% rate accounted for more than half the durables increase….real consumption of nondurable goods by individuals rose at a 4.3% annual rate, revised from the 3.8% increase rate reported in the 1st estimate, and added 0.62 percentage points to 2nd quarter economic growth, as growth in clothing consumption at a 10.6% annual rate led the non-durables growth ….at the same time, consumption of services grew at a 2.1% annual rate, revised from the 1.9% growth rate reported last month, and added 1.00 percentage points to the final GDP tally, led by 3.5% growth in real consumption of housing and utilities…

meanwhile, seasonally adjusted real gross private domestic investment grew at a 3.6% annual rate in the 2nd quarter, revised from the 2.0% growth estimate reported last month, as real private fixed investment grew at a 3.6% rate, rather than at the 2.2% rate reported in the advance estimate, while the previously reported contraction in inventory growth was reversed to show real inventory growth….real investment in non-residential structures was revised from growth at a 4.9% rate to growth at a 6.2% rate, while real investment in equipment was revised to show growth at a 8.8% rate, up from the 8.2% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 1.4% rate to growth at a 4.9% rate, while the contraction rate of residential investment was revised from -6.8% to -6.5% annually…after those revisions, the increase in investment in non-residential structures added 0.18 percentage points to the 2nd quarter’s growth rate, the increase in investment in equipment added 0.47 percentage points to the quarter’s growth, greater investment in intellectual property added 0.20 percentage points, while the decrease in investment in residential structures subtracted 0.26 percentage points from the 2nd quarter’s GDP…

at the same time, investment in real private inventories grew by an inflation adjusted $1.8 billion in the 2nd quarter, revised from the originally reported inventory shrinkage of $0.3 billion…this came after inventories had grown at an inflation adjusted $1.2 billion rate in the 1st quarter, and hence the $0.6 billion increase in real inventory growth added 0.02 percentage points to the quarter’s growth rate, in contrast to the 0.02 percentage point subtraction due to slower inventory growth that was shown in the advance estimate….since growth in inventories indicates that more of the goods produced during the quarter were left “sitting on the shelf”, their increase by $0.6 billion meant that real final sales of GDP were relatively smaller by that much, but not enough to statistically change the growth rate in real final sales of GDP, which was also revised from 2.6% to 3.0%..

the previously reported increase in real exports was revised smaller with this estimate, while at the same time the reported increase in real imports was revised lower by a similar amount, and as a result the net impact of our foreign trade little changed from what was previously reported…our real exports grew at a 3.7% rate rather than the 4.1% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.45 percentage points to the 2nd quarter’s growth rate, a bit less than the 0.48 percentage point addition shown in the previous report….meanwhile, the previously reported 2.1% increase in our real imports was revised to a 1.6% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.23 percentage points from 2nd quarter GDP….thus, our improving trade balance added a net 0.21 percentage points to 2nd quarter GDP, rather than the 0.18% percentage point addition that had been indicated by the advance estimate…

finally, there were negative revisions to real government consumption and investment in this 2nd estimate, as the entire government sector shrunk at a 0.3% rate, revised from the 0.7% growth rate previously reported…real federal government consumption and investment was seen to have grown at a 1.9% rate from the 1st quarter in this estimate, which was revised from the 2.3% growth rate in the 1st estimate…real federal outlays for defense were revised to show growth at a 4.7% rate, rather than the 5.2% growth rate previously reported, and added 0.18% percentage points to 2nd quarter GDP, while all other federal consumption and investment shrunk at a 1.9% rate, same as was previously reported, and subtracted 0.05% percentage points from 2nd quarter GDP…meanwhile, real state and local consumption and investment shrunk at a 1.7% rate in the quarter, which was revised from the 0.2% contraction rate reported in the 1st estimate, and subtracted 0.18% percentage points from 2nd quarter GDP….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, thus indicating an increase in the output of those goods or services…

July Personal Incomes Up 0.4%, Personal Spending Up 0.3%, PCE Price Index Up 0.1%

other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important regular economic release we see monthly, as each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter’s GDP by itself…in addition, this report also includes 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, 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 July’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 June to July..

thus, when the opening line of the press release for the July report tell us “Personal income increased $65.6 billion (0.4 percent) in July“, they mean that the annualized figure for seasonally adjusted personal income in July, $16,450.3 billion, was $65.6 billion, or a bit less than 0.4% greater than the annualized personal income figure of $16,384.7 billion extrapolated for June; the actual, unadjusted change in personal income from June to July, which is an order of magnitude lower,  is not given…at the same time, annualized disposable personal income, which is income after taxes, rose by less than 0.3%, from an annual rate of $14,370.8 billion in June to an annual rate of $14,410.4 billion in July….the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized…in July, the largest contributors to the $65.6 billion annual rate of increase in personal income were a $41.4 billion increase in wages and salaries and a $13.5 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at a $44.7 billion rate, or by a bit more than 0.3% from June, as the annual rate of PCE rose from $13,338.6 billion in June to $13,383.3 billion in July….June PCE was revised from $13,304.7 billion annually to $13,338.6 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the upward revision in the 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although released a business day later than the GDP release, is concurrent with GDP data)….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $45.2 billion to $13,900.3 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $510.2 billion annual rate in July, down from the revised $515.7 billion in annualized personal savings in June… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, slipped to 3.5% in July from the June savings rate of 3.6%…

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….that’s done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is included in Table 9 in the pdf for this report…that index rose from 112.285 in June to 112.384 in July, a month over month inflation rate that’s statistically 0.088%, which BEA reports as an increase of 0.1 percent, following the statistically unchanged PCE price index reported for June…note that when the PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in our 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 July’s chained dollar consumption total works out to 11,909.1 billion annually, 0.2458% more than June’s 11,879.9 billion, a difference that the BEA reports as +0.2%…

however, to estimate the impact of the change in PCE on the change in GDP, the month over month change doesn’t help us much, since GDP is reported quarterly….thus we have to compare July’s real PCE to the the real PCE of the 3 months of the second quarter….while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly 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 2nd quarter was represented by 11,854.4 billion in chained 2009 dollars..(ie, that’s the same as is shown in table 3 of the pdf for the 2nd quarter GDP report)….when we compare July’s adjusted PCE of 11,909.1 to the 2nd quarter real PCE of 11,854.4, we find that July real PCE has grown at a 1.86% annual rate compared to the 2nd quarter….this means that even if July’s real PCE growth does not improve during August and September, growth in PCE would still add 1.28 percentage points to the growth rate of the 3rd quarter…

Construction Spending Fell 0.6% in July after Prior Months Were Revised Much Higher

the Census Bureau report on construction spending for July (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,211.5 billion annually if extrapolated over an entire year, which was 0.6 percent (±1.5 percent)* below the revised annualized estimate of $1,219.2 billion of construction spending in June but still 1.8 percent (±1.8 percent)* above the estimated annualized level of construction spending in July of last year…the June construction spending estimate was revised 1.1% higher, from $1,205.8 billion to $1,221.6 billion, while the annual rate of construction spending for May was revised more than 1.2% higher, from $1,221.6 billion to $1,236.7 billion….together, those revisions would suggest an upward revision of 0.26 percentage points to 2nd quarter GDP when the third estimate is released at the end of September…

quoting further details from the Census release: “Spending on private construction was at a seasonally adjusted annual rate of $945.5 billion, 0.4 percent (±1.0 percent)* below the revised June estimate of $949.4 billion. Residential construction was at a seasonally adjusted annual rate of $517.5 billion in July, 0.8 percent (±1.3 percent)* above the revised June estimate of $513.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $428.0 billion in July, 1.9 percent (± 1.0 percent) below the revised June estimate of $436.2 billion.In July, the estimated seasonally adjusted annual rate of public construction spending was $266.0 billion, 1.4 percent (±2.6 percent)* below the revised June estimate of $269.8 billion. Educational construction was at a seasonally adjusted annual rate of $66.2 billion, 4.4 percent (±3.9 percent) below the revised June estimate of $69.2 billion. Highway construction was at a seasonally adjusted annual rate of $84.8 billion, 0.1 percent (±6.9 percent)* above the revised June estimate of $84.7 billion

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of July spending reported in this release on 3rd quarter GDP is difficult because all figures given here are nominal and as you know, data used to compute the change in GDP must be adjusted for changes in price, and the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment….in lieu of trying to adjust for all of those indices, we’ve opted to just use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment…

that index showed that aggregate construction costs were up 1.2% in July, after rising 0.2% in and June and 0.1% from April to May…on that basis, we can estimate that July construction costs were roughly 1.4% more than those of May and 1.5% more  than those of April…we then use those percentages to inflate lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes…annualized construction spending in millions of dollars for the second quarter is given as 1,219,237 for June, 1,236,722 for May, and 1,217,658 for April, while it was at 1,211,508 for July …thus to compare July’s inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,211,508 / (((1,219,237 * 1.012)+ ( 1,236,722 * 1.014) + (1,217,658 * 1.015)) /3) = 0.976, meaning real construction spending in July was down 2.4% vis a vis the 2nd quarter, or down at a 9.2% annual rate…to figure the effect of that change on GDP,  we annualize the difference between the second quarter average and July and take the result as a fraction of 2nd quarter GDP, and find that July construction spending is falling at a rate that would subtract nearly a full percentage point from 3rd quarter GDP should we see no improvement in August or September…

 

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

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September 2 graphics

rig count summary:

September 1 2017 rig count summary

Harvey rainfall map:

Harvey rain totals

Harvey track through oil infrastructure:

August 29 2017 Platts map of Harvey

refinery outages:

August 31 2017 refineries shutdown via Platts

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US oil production at a 25 month high, gasoline production at a record high, oil supplies at a 19 month low

oil prices fell on Monday and never recovered to the levels of last week, as potential impacts from the hurricane hitting the Texas coast weighed on crude prices, while simultaneously boosting those of gasoline…after closing last Friday with a 3% gain to $48.51 a barrel in a week that saw prices a bit lower, US light sweet crude for September delivery fell $1.14 to $47.37 a barrel on Monday, in a selloff that was widely described as “profit-taking’…oil prices then headed higher Tuesday, with the expiring September oil contract closing 27 cents higher at $47.64 a barrel, while the October contract, which had started the week at $48.89, rose 30 cents to $47.83 a barrel, on expectations that the week’s data would show that U.S. supplies of crude oil had fallen for an eighth-consecutive week…with Wednesday’s oil price quotes now referencing crude for October delivery, oil prices rose 58 cents, or 1.2%, to settle at $48.41 a barrel at the close on Wednesday after the EIA report showed the expected decreases in supplies of crude oil and gasoline…with Hurricane Harvey strengthening and heading towards the Texas coast where one third of US refining capacity was in the path of the storm, oil prices tumbled 98 cents, or 2%, to $47.43 a barrel on Thursday, on fears that the Harvey would force refinery closures and thus reduce demand; hence, at the same time, September gasoline rose 4.52 cents, or almost 3%, to $1.6641 a gallon…oil prices then recovered and edged up 44 cents to $47.87 a barrel on Friday, as the the oil industry shut down production and evacuated offshore wells as the storm approached…that left the October oil contract price down 89 cents, or 1.8% for the week, its third consecutive weekly drop, while at the same time US gasoline spot prices had risen almost 10 percent to a high of $1.74 a gallon, their highest since April.…the result was that U.S. gasoline crack spreads, or the difference between the price refineries pay for oil and their price of gasoline, rose throughout the week and ended at their widest in five years for this time of year…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending August 18th, showed a big increase in our imports of crude oil, still near-record amounts of crude oil being used by US refineries, and yet another withdrawal of oil from our commercial stocks….our imports of crude oil rose by an average of 664,000 barrels per day to an average of 8,790,000 barrels per day during the week, while at the same time our exports of crude oil rose by 59,000 barrels per day to an average of 936,000 barrels per day, which meant that our effective imports netted out to an average of 7,854,000 barrels per day during the week, 605,000 barrels per day more than during the prior week…at the same time, our field production of crude oil rose by 26,000 barrels per day to an average of 9,528,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 17,382,000 barrels per day during the cited week…

during the same week, refineries used 17,461,000 barrels of crude per day, 104,000 barrels per day less than they used during the prior week, while at the same time 475,000 barrels of oil per day were being pulled out of oil storage facilities in the US…hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 396,000 more barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (-396,000) 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, which they label in their footnotes as “unaccounted for crude oil”…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,233,000 barrels per day, which was still 3.1% below the imports of the same four-week period last year….this week’s 26,000 barrel per day increase in our crude oil production resulted from a 14,000 barrel per day increase in oil output from Alaska and a 12,000 barrels per day increase in oil output from wells in the lower 48 states…the 9,528,000 barrels of crude per day that were produced by US wells during the week ending August 18th was the most oil US wells have produced since July 17, 2015, 8.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.5% more than the 8,548,000 barrels per day of oil we produced during the during the week ending August 19th a year ago, while oil output was still 0.9% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015…

US oil refineries were operating at 95.4% of their capacity in using those 17,461,000 barrels of crude per day, which was down from 96.1% of capacity the prior week, but still above normal for this or for any time of year…the amount of oil refined this week was 4.7% more than the 16,679,000 barrels of crude per day.that were being processed during week ending August 19th, 2016, when refineries were operating at 92.5% of capacity, and roughly 11.2% above the 10 year average of 15.7 million barrels of crude refined per day at this time of year

even with oil refining down a bit this week, gasoline production from our refineries increased by 518,000 barrels per day to a new record high of 10,566,000 barrels per day during the week ending August 18th, topping the previous record set during the week ending last December 23rd, 2016….that put this week’s gasoline output at a level 5.3% higher than the 10,035,000 barrels of gasoline that were being produced daily during the comparable week a year ago….however, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 196,000 barrels per day to 5,091,000 barrels per day at the same time, which was still 5.0% more than the 4,849,000 barrels per day of distillates that were being produced during the week ending August 19th last year….

however, even with this week’s record gasoline production, our end of the week gasoline inventories decreased by 1,223,000 barrels to 229,902,000 barrels by August 18th, the 8th decrease in gasoline inventories in 10 weeks…that was as our domestic consumption of gasoline rose by 107,000 barrels per day to 9,629,000 barrels per day, and as our imports of gasoline fell by 122,000 barrels per day to 555,000 barrels per day, and as our exports of gasoline rose by 23,000 barrels per day to 693,000 barrels per day…with significant gasoline supply withdrawals in 8 out of the last 10 weeks, our gasoline inventories are now 1.2% below last August 19th’s level of 232,695,000 barrels, even as they are still 7.2% higher than the 214,434,000 barrels of gasoline we had stored on August 21st of 2015, and almost 9% above the 10 year average for gasoline supplies for this time of the year…

meanwhile, with the decrease in our distillates production, our supplies of distillate fuels were little changed, rising by just 28,000 barrels to 148,387,000 barrels over the week ending August 18th, after rising by 702,000 barrels the previous week…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 145,000 barrels per day to 4,077,000 barrels per day, while our imports of distillates fell by 35,000 barrels per day to 132,000 barrels per day and as our exports of distillates rose by 10,000 barrels per day to 1,142,000 barrels per day….after this week’s small increase, our distillate inventories were still 3.2% lower than the 153,257,000 barrels that we had stored on August 19th, 2016, and fractionally lower than the distillate inventories of 149,836,000 barrels of distillates that we had stored on August 21st of 2015, even as they remain roughly 5.7% above the 10 year average for distillates stocks for this time of the year

finally, even with the large increase in oil imports, our commercial crude oil inventories fell for the 18th time in the past 20 weeks, decreasing by another 3,327,000 barrels to 463,165,000 barrels as of August 18th, leaving us with the least oil we’ve had in storage since January 15th, 2016…since that’s been a matter of concern in some corners, we’ll include a graph of what that looks like below…

August 23 2017 crude oil supplies as of August 18

the above graph was taken from the Zero Hedge coverage of this week’s EIA release and it shows our commercial inventories of crude in billions of barrels from September 2012 through this week’s report….while we can clearly see that our oil supplies are down substantially over the last 4 months from their March peak, to a level roughly matching that of mid-January 2016, they’re still up considerably from the normal level for our oil supplies in the years before the oil glut started building up.. thus, though our oil inventories as of August 18th were 6.0% below the 492,962,000 barrels of oil we had stored on August 19th of 2016, they were still 10.5% more than the 418,990,000 barrels in of oil that were in storage on August 21st of 2015, and 40.8% higher than the 329,024,000 barrels of oil we had in storage on August 22nd of 2014…

This Week’s Rig Count

US drilling activity decreased for the 6th time in the past 9 weeks during the week ending August 25th, following a string of 23 consecutive weekly increases earlier this year, as both drilling for oil and for natural gas slowed….Baker Hughes reported that the total count of active rotary rigs running in the US fell by 6 rigs to 940 rigs in the week ending Friday, which was still 451 more rigs than the 489 rigs that were deployed as of the August 26th report in 2016, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil decreased by four rigs to 759 rigs this week, which still left oil rigs up by 353 oil rigs over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations decreased by 2 rigs to 180 rigs this week, which was still 99 more rigs than the 81 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, one rig that was classified as miscellaneous was still drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count rose by one rig to 17 Gulf rigs this week, the same number that were working in the Gulf during the same week last year…that’s also the same as the total US offshore rig count for this week, since there was no other US offshore drilling except in the Gulf…

active horizontal drilling rigs fell by 3 rigs to 796 rigs this week, which left the horizontal rig count still up by 417 rigs from the 379 horizontal rigs that were in use in the US on August 26th of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the vertical rig count was down by 2 rigs to 64 vertical rigs this week, which was still up from the 62 vertical rigs that were deployed during the same week last year…at the same time, the directional rig count was down by 1 rig to 80 rigs this week, which was still up from the 48 directional rigs that were deployed on August 26th of last year….

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 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 August 25th, the second column shows the change in the number of working rigs between last week’s count (August 18th) and this week’s (August 25th) count, the third column shows last week’s August 18th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 26th of August, 2016…    

August 25 2017 rig count summary

noteworthy this week is that the Marcellus saw the greatest loss of any basin, down 3 rigs to 43 rigs…hence, Pennsylvania joined Texas as the states with the greatest decrease, as drillers in both states shut down three rigs…we would also note that the number of rigs active in Pennsylvania fallen to 31, while at the same time the Ohio rig count was up by 1 rig to 29 rigs with the addition of another rig in the Utica…the drop of 2 rigs in natural gas activity was a bit more involved than Pennsylvania shutting down 3 rigs while Ohio added one, however, since natural gas rigs were also added in the Haynesville of Louisiana and the Eagle Ford of south Texas, where there were two oil-directed rigs pulled out at the same time…that was as two natural gas rigs were concurrently pulled out of ‘other’ basins, which are not named by Baker Hughes in their summaries….going forward, we can probably expect to see a reduction in Eagle Ford drilling next week, because widespread rain totals of up to 40 inches are expected in the area, and some analysts believe those shale fields could be out of commission for up to two months in the subsequent flooding…meanwhile, that new rig in the Gulf of Mexico was supposedly offshore from Texas, and we can almost guarantee that there was no drilling going on there as the Category 4 Hurricane passed overhead…

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July’s durable goods, new and existing home sales

the week’s widely watched releases included the July advance report on durable goods and the July report on new home sales, both from the Census bureau, and the Existing Home Sales Report for July from the National Association of Realtors (NAR)…the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, which fell to -0.01 in July, down from +0.16  in June…after revisions of the index for 4 out of the last 5 months, the 3 month average of the index was at –0.05, down from +0.09 in June, which indicates national economic activity has been slightly below the historical trend over those recent months…in addition, this week saw the release of two more regional Fed manufacturing surveys for August: 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 was unchanged at +14 in August, suggesting an ongoing modest expansion of that region’s manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +16 in July from +10 in July and +11 in June, also suggesting an ongoing expansion in that region’s manufacturing..

July Durable Goods: New Orders Down 6.8%, Shipments Up 0.4%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $16.7 billion or 6.8 percent to $229.2 billion in July, the largest drop since August 2014, following a revised increase of 6.4% to $245.9 billion in June new orders, which had been originally reported as a 6.5% increase to $245.6 billion…with upward revisions to prior months, year to date new orders are still running 5.0% above those of 2015, the same year over year change we saw in this report last month…as is usually the case, the volatile monthly change in new orders for transportation equipment drove the July headline change, as those transportation equipment orders fell $17.4 billion or 19.0% to $74.3 billion, on a 70.7% decrease to $7,373 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were up 0.5% in July, as new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 0.4% to $63,784 million…

the seasonally adjusted value of July’s shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, rose by $1.0 billion or 0.4 percent to $237.4 billion, after June shipments were little changed from those of May….a 0.5% increase in shipments of transportation equipment underpinned the July change, as they rose $0.4 billion to $79.2 billion… meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the twelfth in thirteen months, increasing by $1.3 billion or 0.3 percent to $398.8 billion, after the change in June inventories was revised from a 0.4% increase to a 0.5% increase…an increase in inventories of transportation equipment were a factor in the inventory increase, as they rose $0.6 billion or 0.5 percent to $129.6 billion, on a 3.4% increase to $13,149 million in inventories of defense aircraft and a 1.2% increase to $34,742 million in inventories of motor vehicles…excluding the increase in inventories of transportation equipment, all other durable goods inventories still increased 0.3% to $269,207 million…

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, fell for the second time in three months, declining by $3.8 billion or 0.3 percent to $1,131.8 billion, following a June increase of 1.3% that was was revised a bit lower but was statistically unchanged…..unsurprisingly, a $4.8 billion or 0.6 percent decrease to $772.2 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment were up 0.3% to $359,617 million….compared to a year earlier, the unfilled order book for durable goods is now 0.7% above the level of last July, even as unfilled orders for transportation equipment are 0.7% below their year ago level, largely on a 1.7% decrease in the backlog of orders for commercial aircraft…   

New Home Sales Seemed to be Slowing in July

the Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 571,000 new homes a year, which was 9.4 percent (±12.9 percent)* below the revised June rate of 630,000 new single family home sales a year and  8.9 percent (±15.4 percent)* below the estimated annual rate that new homes were selling at in July of last year….the asterisk indicates that based on their small sampling, Census could not be certain whether July new home sales rose or fell from those of June, 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 June were revised from the annual rate of 610,000 reported last month to a 630,000 a year rate, and home sales in May, initially reported at an annual rate of 610,000 and revised down to a 605,000 a year rate last month, were revised up to a 618,000 annual rate with this report, while April’s annualized home sales rate, initially reported at 569,000 and revised from 593,000 to 577,000 last month, were also revised back up to a 590,000 rate with this release..

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which showed that approximately 49,000 new single family homes sold in July, down from the 58,000 new homes that sold in June and the 59,000 that sold in May….the raw numbers from Census field agents further estimated that the median sales price of new houses sold in July was $313,700, up from the median sale price of $311,600 in June and up from the median of $295,000 in July a year ago, while the average July new home sales price was $371,200 , up from $370,000 average sales price in June, and up from the average sales price of $355,000 in July a year ago….a seasonally adjusted estimate of 276,000 new single family houses remained for sale at the end of July, which represents a 5.8 month supply at the July sales rate, up from the reported 5.4 month supply in June….for more details and graphics on this report, see Bill McBride’s two posts, New Home Sales decrease to 571,000 Annual Rate in July and A few Comments on June New Home Sales

Existing Home Sales Down 1.3% in July

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell 1.3% from June to July, projecting that 5.44 million homes would sell over an entire year if the July home sales pace were extrapolated over that year, a pace that was still 2.1% above the annual sales rate projected in July of a year ago….at the same time, June home sales at a 5.51 million annual rate were revised down from the 5.52 million rate shown in last month’s report…the NAR also reported that the median sales price for all existing-home types was $258,300 in July, 6.2% higher than in July a year earlier, which they report as “the 65th consecutive monthly year over year increase in home prices“…..the NAR press release, which is titled “Existing-Home Sales Slide 1.3 Percent in July“, 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…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month…this unadjusted data indicates that roughly 513,000 homes sold in July, down by 14.5% from the 600,000 homes that sold in June, and unchanged from the estimated 513,000 homes that sold in July of last year, so we can see there was a sizable seasonal adjustment just to bring the annualized published figures up to the level reported…that same pdf indicates that the median home selling price for all housing types fell 1.9%, from a revised $263,300 in June to $258,300 in July, while the average home sales price was $298,800, down 1.5% from the $303,500 average selling price in June, but up 4.9% from the $284,900 average home sales price of July a year ago, with the regional average home sales prices ranging from a low of $237,000 in the Midwest to a high of $393,400 in the West…for additional commentary with long term graphs on this report, see “NAR: “Existing-Home Sales Slide 1.3 Percent in July”” and “A Few Comments on June 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 from the aforementioned GGO posts, contact me…)

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August 26th graphics

rig count summary:

August 25 2017 rig count summary

crude oil inventories:

August 23 2017 crude oil supplies as of August 18

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US crude production highest in two years; oil drilling slows most since January, DUC wells at a record high

oil prices fell by more than 4% by midweek of the past week, but then recovered most of their earlier losses on Friday to end the week little changed…after sliding 1.4% to $48.82 a barrel last week on increased OPEC production, contract prices for WTI oil for September delivery fell 2.5% on Monday, the largest drop in 5 weeks, after Chinese refineries reported their lowest demand for oil in 3 years against the backdrop of rising crude output from OPEC and U.S. shale-oil producers, with oil prices settling at $47.59 a barrel, a loss of $1.23 on the day…oil prices then hit a three week low of $47.02 a barrel on Tuesday on ongoing demand concerns and strength in the US dollar, before recovering to settle little changed for the day at $47.55 a barrel…oil prices then tanked again on Wednesday, falling 1.6% to $46.78 a barrel by the close, largely on the EIA’s report that US crude production rose to the highest level in over two years, while traders ignoried that the same report showed the largest weekly decline in U.S. crude supplies since last September…prices ended their three session slide on Thursday, rising 31 cents to close at $47.09 a barrel, on expectations of a hefty draw of crude from the U.S. oil storage hub at Cushing, Oklahoma, where US light sweet crude prices are benchmarked from…while little changed on Friday morning, oil prices took off on Friday afternoon after Baker Hughes reported that US oil rig count dropped by 5 rigs, the largest drop in 7 months, with near panic buying of crude futures pushing oil for September delivery up $1.42, or more than 3%, to $48.51 per barrel, which noneheless still left it down 31 cents on the week, for the 3rd consecutive weekly decline…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering details for the week ending August 11th, showed a modest increase in our imports of crude oil, ongoing near-record amounts of crude oil being used by US refineries, and a large withdrawal of oil from our commercial stocks, with all the data called into question by a large swing in unaccounted for crude oil…our imports of crude oil rose by an average of 364,000 barrels per day to an average of 8,126,000 barrels per day during the week, while at the same time our exports of crude oil rose by 170,000 barrels per day to an average of 877,000 barrels per day, which meant that our effective imports netted out to 7,249,000 barrels per day during the week, 194,000 barrels per day more than during the prior week…at the same time, our field production of crude oil rose by 79,000 barrels per day to an average of 9,502,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,751,000 barrels per day during the cited week… 

during the same week, refineries used 17,565,000 barrels of crude per day, just 9,000 barrels per day less than they used during the prior record week, while at the same time 1,278,000 barrels of oil per day were being pulled out of oil storage facilities in the US…hence, this week’s crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 464,000 more barrels per day than what refineries reported they used during the week…to account for that discrepancy, the EIA needed to insert a (-464,000) 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, which they label in their footnotes as “unaccounted for crude oil”…that’s a swing of 638,000 barrels per day from the “unaccounted” +173,000 figure of last week, and hence that discrepancy underlies all of this week’s crude oil changes…

details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,046,000 barrels per day, which was still 4.7% below the imports of the same four-week period last year…the 1,278,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercial stocks of crude oil, since the amount of oil stored in our Strategic Petroleum Reserve remained unchanged….this week’s 79,000 barrel per day increase in our crude oil production resulted from a 54,000 barrel per day increase in oil output from Alaska and a 25,000 barrels per day increase in oil output from wells in the lower 48 states…the 9,502,000 barrels of crude per day that were produced by US wells during the week ending August 11th was the most we’ve produced since July 2015, 8.3% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.5% more than the 8,597,000 barrel per day of oil we produced during the during the week ending August 12th a year ago, while oil output was still 1.1% below the June 5th 2015 record US oil production of 9,610,000 barrels per day… 

US oil refineries were operating at 96.1% of their capacity in using those 17,565,000 barrels of crude per day, which was down from 96.3% of capacity the prior week, which had been the highest refinery utilization rate in 12 years…the amount of oil refined this week was 4.7% more than the 16,865,000 barrels of crude per day.that were being processed during week ending August 12th, 2016, when refineries were operating at 93.5% of capacity, and roughly 11.9% above the 10 year average of 15.7 million barrels of crude refined per day at this time of year

even with oil refining little changed this week, gasoline production from our refineries decreased by 253,000 barrels per day to 10,048,000 barrels per day during the week ending August 11th, which left this week’s gasoline output 2.3% lower than the 10,280,000 barrels of gasoline that were being produced daily during the comparable week a year ago….at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) fell by 18,000 barrels per day to 5,287,000 barrels per day, which was still 7.0% more than the 4,939,000 barrels per day of distillates that were being produced during the week ending August 12th last year….

in spite of the decrease in our gasoline production, our end of the week supply of gasoline increased by 22,000 barrels to 231,125,000 barrels by August 11th, the 2nd increase in gasoline inventories in 9 weeks…that was as our domestic consumption of gasoline fell by 275,000 barrels per day to 9,522,000 barrels per day, while other factors worked to reduce supplies; ie, our imports of gasoline fell by 441,000 barrels per day to 667,000 barrels per day, and our exports of gasoline rose by 216,000 barrels per day to 670,000 barrels per day…however, with significant gasoline supply withdrawals in 7 out of the last 9 weeks, our gasoline inventories are still 0.7% below last August 12th’s level of 232,659,000 barrels, even as they are still 8.6% higher than the 212,774,000 barrels of gasoline we had stored on August 14th of 2015, and almost 9% above the 10 year average for gasoline supplies for this time of the year

similarly, even with the decrease in our distillates production, our supplies of distillate fuels rose by 702,000 barrels to 148,387,000 barrels over the week ending August 11th…that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 288,000 barrels per day to 4,222,000 barrels per day, and as our imports of distillates rose by 126,000 barrels per day to 167,000 barrels per day, even as our exports of distillates rose by 49,000 barrels per day to 1,132,000 barrels per day….even after this week’s increase, our distillate inventories were still 3.1% lower than the 153,135 ,000 barrels that we had stored on August 12th, 2016, and fractionally lower than the distillate inventories of 148,400,000 barrels of distillates that we had stored on August 14th of 2015, even as they remain roughly 5.7% above the 10 year average for distillates stocks for this time of the year

finally, in light of this week’s big swing in “unaccounted for crude oil”, our commercial crude oil inventories fell for the 17th time in the past 19 weeks, apparently decreasing by another 8,945,000 barrels to 466,492,000 barrels as of August 11th, leaving us with the least oil we’ve had in storage since january 22nd 2016…thus, our oil inventories as of August 11th were also 4.9% below the 490,461,000 barrels of oil we had stored on August 12th of 2016, even as they were still 9.9% more than the 424,442,000 barrels in of oil that were in storage on August 14th of 2015…compared to historical quantities of oil we’ve had in storage at the same time of year, before our oil glut began to build up, this week’s oil supplies were still  39.0% higher than the 335,568,000 barrels of oil we had in storage on August 15th of 2014, and about 40.3% above the 10 year average of our oil supplies for the second week of August … 

This Week’s Rig Count

US drilling activity decreased for the 5th time in 8 weeks during the week ending August 18th, following a string of 23 consecutive weekly increases earlier this year, as drilling for oil slowed while rigs drilling for natural gas inched higher….Baker Hughes reported that the total count of active rotary rigs running in the US fell by 3 rigs to 946 rigs in the week ending Friday, which was still 455 more rigs than the 491 rigs that were deployed as of the August 19th report in 2016, even though it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014….

the number of rigs drilling for oil decreased by five rigs to 763 rigs this week, the largest drop in oil rigs since January 13th, which still left oil rigs up by 357 oil rigs over the past year, while their count remained far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 182 rigs this week, which was also 99 more rigs than the 83 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, one rig that was classified as miscellaneous started drilling this week, compared to the 2 miscellaneous rigs that were working a year ago..

the Gulf of Mexico rig count fell by one rig to 16 offshore rigs this week, which was down the 18 rigs that were working in the Gulf during the same week last year…in addition, the rig that had been drilling offshore from Alaska was also shut down, and thus the total US offshore rig count was down 2 to 16 rigs…

active horizontal drilling rigs fell by 2 rigs to 799 rigs this week, which left the horizontal rig count still up by 417 rigs from the 382 horizontal rigs that were in use in the US on August 19th of last year, while their count was also still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014….in addition, the vertical rig count was down by 6 rigs to 66 vertical rigs this week, which was still up from the 64 vertical rigs that were deployed during the same week last year…meanwhile, the directional rig count was up by 5 rigs to 81 rigs this week, which was also up from the 45 directional rigs that were deployed on August 15th of last year…. 

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 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 August 18th, the second column shows the change in the number of working rigs between last week’s count (August 11th) and this week’s (August 18th) count, the third column shows last week’s August 11th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 19th of August, 2016…    

August 18 2017 rig count summary

it’s odd to see a decrease in the Oklahoma rig count even as the Cana Woodford count is up by 4 and while the Ardmore Woodford also added a rig….that strongly suggests that the rig that was shut down in the Granite Wash was on the Oklahoma side of the Texas panhandle border, and that the two rigs that were idled in the Mississippian were similarly on the Oklahoma side of the Kansas border where that field lies…otherwise, changes in most other states match the basins; 2 rigs came out the Williston in North Dakota, and shutdown of 2 offshore platforms accounts for the rig count decreases in Alaska and Louisiana…meanwhile, the rig that was added in the Ardmore Woodford accounted for the natural gas addition; note that drilling in the 3 major natural gas basins, the Utica, the Marcellus, and the Haynesville, was unchanged from a week earlier…and there were also no changes in the number of rigs drilling in states other than those shown above..

DUC well report for July

Monday of this week saw the release of the EIA’s Drilling Productivity Report for August, which includes the EIA’s July data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins…commencing with Monday’s report, the EIA has begun coverage of drilling productivity and drilled but uncompleted wells (DUCs) in the Anadarko region, which includes 24 Oklahoma and 5 Texas counties, and, which, based on their mapping, would apparently include the STACK and SCOOP reservoirs in the Woodford shale, and the Granite Wash tight sands band transversing the Oklahoma – Texas Panhandle border….by adding this region, this report now covers 87% of all U.S. onshore drilling operations….at the same time, they have consolidated their reporting on the Utica shale and the Marcellus into a single geographic unit labeled the Appalachia region…their reason for doing this appears to be a rather simplistic state border consideration; as they explain: “With the increasing number of wells in Pennsylvania being drilled into the Utica formation and some wells in Ohio producing from the Marcellus shale, the previous regional definitions based on surface boundaries are becoming less meaningful, especially where the two plays overlap.”…as a result of this consolidation, the Appalachia region will refer to a wide geographical region that includes almost all of West Virginia, most of Pennsylvania, southeastern Ohio, and western New York..

after those changes, this report once again showed a large increase in uncompleted wells nationally, mostly because of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, but also because of proportional growth in uncompleted wells in the Eagle Ford of south Texas and the newly covered Anadarko region…for all 7 sedimentary basins covered by this report, the total count of DUC wells increased by 208, from 6,851 wells in June to 7059 wells in July, the ninth consecutive monthly increase in uncompleted wells, and, with the addition of the Anadarko, the highest number of such unfracked wells in the short history of this report….as we’ve seen from the weekly rig counts, US horizontal drilling expanded rapidly in the year thru June, more than doubling over that period, and as a result a shortage of competent fracking crews has developed, such that existing fracking crews have been unable to keep up with the number of newly drilled wells…moreover, the last month of trading for the July oil contract, which would govern prices received for oil produced during that month, saw prices average $46 a barrel, below the average breakeven price for most US basins, which probably discouraged any new production that hadn’t been contracted for at a better price earlier…

with the addition of the Anadarko, a total of 1,224 new wells were drilled in the 7 basins now covered by this report during July, but only 1,016 drilled wells were completed in the same areas, thus accounting for the 208 DUC well increase for the month….as has been the case all year, the July DUC increases were predominantly oil wells, with most of those in the Permian basin…the Permian saw its total count of uncompleted wells rise by 135, from 2,195 DUC wells in June to 2,330 DUCs in July, as 485 new wells were drilled into the Permian but only 350 wells in the region were fracked…at the same time, DUC wells in the Anadarko region rose by 42, from 906 DUC wells in June to 948 DUCs in July, as 162 wells were drilled in the Anadarko region in July but only 120 drilled wells were completed….similarly, DUCs in the Eagle Ford of south Texas rose by 42, from 1,385 DUC wells in June to 1,420 DUCs in July, as 180 wells were drilled in the Eagle Ford during July, while just 145 Eagle Ford wells were completed….in addition, DUC wells in the Niobrara chalk of the Rockies front range increased by 6 to 674, as 148 Niobrara wells were drilled but just 142 Niobrara wells were fracked, while the Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by 5 wells to 194, as 49 wells were drilled into the Haynesville, while 44 Haynesville wells were fracked during the same period…..on the other hand, the drilled but uncompleted well count in the Appalachian region fell by 13 wells, from 624 DUCs in June to 611 DUCs in July, as 71 wells were drilled into the Marcellus while 73 Marcellus were fracked, and as 29 new wells were drilled into the Utica during the month while 40 Utica wells were completed….the Utica now has just 43 DUC wells remaining, down from 126 DUC wells in January, so if the Utica frackers intend to keep Ohio gas production at their recent levels, more Utica wells would have to be drilled shortly….in the remaining region covered by this report, DUC wells in the Bakken of North Dakota decreased by 2 to 782, as 100 wells were drilled into the Bakken while 102 Bakken wells were fracked…thus, for the month of July, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 213 wells to 6,154 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 8 wells to 905 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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