the OPEC inspired oil rally finally ran out of steam this week, as oil prices retreated for the first time in 5 weeks, and by the most in 11 weeks...after closing at $53.99 a barrel last Friday, oil prices fell all day long on Monday, after news of record-high exports from Iraq's southern crude terminals spread doubt about the effectiveness of the OPEC production cuts, leading to a reversal of speculative bets by hedge funds and other money managers, which ultimately pushed crude for February delivery $2.03 lower, as it ended the day at $51.96 a barrel....crude prices continued to slump on Tuesday as oil production from Nigeria jumped and Kuwait's oil minister suggested other non-compliance with OPEC's cuts, and went on to close at $50.82 a barrel, after the announcement that the US will sell 8 million barrels of oil from the Strategic Petroleum Reserve later this month, with delivery in February....oil prices then steadied on Wednesday morning and then turned around to rise more than $1.50 Wednesday afternoon, despite the EIA report of massive builds in supplies of oil, gasoline and distillates and the largest jump in US oil production in 20 months, after the Saudi oil minister said they cut oil production to below 10 million barrels per day and planned to cut deeper cut in February, which would put them more than 100,000 barrels per day below their promised target and 625,000 barrels per day below their recent output high...after closing Wednesday at $52.25 a barrel, oil prices continued rising on that Saudi news Thursday and closed higher at $53.01 a barrel, before the doubts about OPEC compliance crept back in on Friday, and oil prices then dropped back to close the week at $52.37 a barrel, 3.0% lower than last week's close, amid concerns about the biggest drop in Chinese exports since 2009 and what impact that slowdown would have on their demand for crude...
natural gas prices, on the other hand, made a round trip this week, diving to their lowest level since mid-November on Monday, and then regaining most of the prior week's losses over the rest of the week...after rising to a high of $3.93 per mmBTU on the Wednesday after Christmas, natural gas prices had slid more than 45 cents last week to $3.285 per mmBTU, after forecasts for an arctic cold spell faded...facing further forecasts of warmer than anticipated weather conditions for January, natural gas prices fell another 18.2 cents on Monday of this week, ending at $3.103 per mmBTU...that drop was almost completely reversed on Tuesday, as natural gas prices rose 17.5 cents to close at $3.278 per mmBTU, on the possibility of cooler temperatures late January to early February...natural gas prices then reversed again to edge lower on Wednesday, closing at $3.224 per mmBTU, as exceptionally warm weather continued to weigh on the market....natural gas prices then jumped 16.2 cents on Thursday, closing the day at $3.386 per mmBTU, after the EIA's Weekly Natural Gas Storage Report indicated a larger than expected drop of 151 billion cubic feet (Bcf) of gas in storage during the week ending January 6th, which left our natural gas supplies at 3,160 billion cubic feet, 10.3% lower than a year ago but still close to the 5 year average for the fist week in January...natural gas then opened 2 cents lower on Friday as traders incorporated milder weather into their forecasts, but then went on to close more than 3 cents higher at $3.419 per mmBTU, as a couple of weather models added some risk that heating demand could return to seasonal averages by the end of the month...
The Latest Oil Stats from the EIA
this week's oil data for the week ending January 6th from the US Energy Information Administration indicated a jump to a 4 year high in our imports of crude oil and a increase to a new record high in our oil refining, which was still not enough to use all those extra oil imports, leaving our supplies of crude oil quite a bit higher than the prior week...our imports of crude oil rose by an average of 1,869,000 barrels per day to an average of 9,052,000 barrels per day during the week, the most oil we've imported since September, 2012, while at the same time our exports of crude oil rose by an average of 41,000 barrels per day to an average of 727,000 barrels per day, which meant that our effective imports netted out to 8,325,000 barrels per day for the week...at the same time, our crude oil production rose by 176,000 barrels per day to an average of 8,946,000 barrels per day, which means the daily supply of crude oil from imports and wells totaled 17,271,000 barrels per day during the week, 2 million barrels more than the prior week...
refineries reportedly used 17,107,000 barrels of crude per day during the week, an increase of 418,000 barrels per day from the last week of 2016, while at the same time, 585,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA figures seem to indicate that we consumed or stored 421,000 more barrels of oil per day than were accounted for by our increased oil imports and production…therefore, the EIA inserted that phantom 421,000 barrels per day number into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance out...the EIA footnote to that line 13 says that number represents "unaccounted for crude oil", which is further described on page 61 in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil."...as you know, we've been calling that number that's inserted to make oil balance the EIA's weekly oil fudge factor...
that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports rose to an average of 8.2 million barrels per day, now 6.3% higher than the same four-week period last year...our crude oil production for the week ending January 6th was 3.0% lower than the 9,227,000 barrels of crude that we produced during the week ending January 8th of last year, and 6.9% below our record oil production of 9,610,000 barrels per day that we saw during the week ending June 5th 2015...interestingly, this week's big oil production increase all came by way of the lower 48, as Alaskan production was down by 14,000 barrels per day...that suggests that oil prices over $50 a barrel the past 7 weeks has been bringing on additional completions of DUC (drilled, but uncompleted) wells..
US refineries operated at 93.6% of capacity in using those 17,107,000 barrels of crude per day, up from 92.0% of capacity the prior week, to hit a utilization level only reached once in 2016, during the first week of September during 2016...during the same week last year, refineries had consumed 684,000 fewer barrels of crude per day than they did this week, while running at 91.2% of capacity...gasoline production from US refineries rose by 199,000 barrels per day to 9,666,000 barrels per day during the week ending January 6th, which was 9.6% more than the 8,820,000 barrels per day of gasoline produced during the week ending January 8th a year ago, and 5.9% more than the 9,125,000 barrels per day of gasoline produced during the week ending January 9th, 2015, as there is normally a slowdown in gasoline output at this time of year...meanwhile, refineries' output of distillate fuels (diesel fuel and heat oil) actually fell by 5,000 barrels per day to 5,324,000 barrels per day, following the prior week's record high for distillates production...thus our distillates production was still up by 11.8% from the 4,760,000 barrels per day that was being produced during the week ending January 8th last year, and 4.2% higher than the 5,108,000 barrels per day of distillates produced during the same week of 2014...
with the increase in our gasoline production, the EIA reported that our gasoline supplies rose by 5,023,000 barrels to 240,473,000 barrels as of December 30th, for a two week jump of 13.33 million barrels in our gasoline inventories...that was as our domestic consumption of gasoline rose by just 5,000 barrels per day from last week's one year low to 8,470,000 barrels per day, and as our gasoline imports fell 39,000 barrels per day to 683,000 barrels per day while our gasoline exports fell by 15,000 barrels per day to 981,000 barrels per day...even with the back to back large increases, however, our gasoline inventories as of January 6th were little changed from 240,434,000 barrels of gasoline that we had stored on January 8th of last year or the 240,334,000 barrels of gasoline we had stored on January 9th of 2015..
in addition to the near record two week jump in gasoline supplies, our supplies of distillate fuels also rose, increasing by 8,356,000 barrels to 170,041,000 barrels by January 6th, following the prior week's increase of 10,051,000 barrels, which looks to be the largest two week jump in distillates supplies on record...the amount of distillates supplied to US markets, a proxy for our consumption, was up from last weeks record low by 175,000 barrels per day to 2,792,000 barrels per day, but still remained well below normal, while our exports of distillates fell 165,000 barrels per day to 1,035,000 barrels per day, which was somewhat below the average of last year....after the two weeks of oversized increases, our distillate inventories are now 2.7% higher than the distillate inventories of 165,554,000 barrels of January 8th last year, and 21.6% above the distillate inventories of 139,851,000 barrels of January 9th, 2015…
finally, even though we refined a record amount of crude oil, our oil imports were even higher, and as a result our inventories of surplus crude oil rose by 4,097,000 barrels to 483,109,000 barrels by January 6th, a level which was was still 5.7% below the April 29th record of 512,095,000 barrels...nonetheless, we still ended the week with 7.1% more crude oil in storage than the 451,190,000 barrels we had stored January 8th of 2016, and 36.4% more crude than the 354,195,000 barrels of oil we had in storage on January 9th of 2015... furthermore, even though our supplies of residual fuel oil fell by 627,000 barrels to 41,846,000 barrels and our supplies of propane/propylene fell by 4,464,000 barrels to 79,659,000 barrels during this same week, our total supplies of crude and refined products rose by 13,436,000 barrels to 2,030,421,000 barrels during the week ending January 6th, the largest weekly increase since the week ending April 3rd of 2015...
This Week's Rig Count
US drilling activity slowed down for the first time in 11 weeks during the week ending January 13th, in what seems to be a chance anomaly rather than a basic change in drilling intentions...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 6 rigs to 659 rigs in the week ending this Friday, which was still up by 9 rigs from the 650 rigs that were deployed as of the January 15th report last year, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...at the same time, drilling activity in Canada rose by 110 rigs, from 205 rigs a week ago to 315 rigs this week, an increase of more than 50%, which left them well ahead of last year's 227 rig deployment...
rigs drilling for oil in the US decreased by 7 rigs to 522 rigs during the week, only the 2nd retreat in oil drilling in the past 28 weeks...but oil drilling is still up from the 515 oil directed rigs that were working in the US on January 15th last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...Canadian oil drilling increased by 89 rigs to 170 rigs, which was way up from the 110 oil rigs deployed in Canada on January 15th of 2016...at the same time, the count of US drilling rigs targeting natural gas formations increased by 1 rig to 136 rigs, which has now pushed US natural gas drilling above the 135 natural gas rigs that were in use a year ago, while it was still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008... Canadian rigs targeting natural gas increased by 21 rigs to 144 rigs, also up from the 117 natural gas rigs running in Canada a year earlier...one US rig and one Canadian rig that were classified as miscellaneous also remained active, compared to a year ago, when no such miscellaneous rigs were deployed..
another drilling platform began working offshore from Louisiana in the Gulf of Mexico this week, which brought the Gulf of Mexico rig count up to 24, still down from 26 rigs working in the Gulf a year ago..another drilling operation was still ongoing in the offshore waters of Alaska, which means our total offshore count for the week was 25 rigs, also down from last year's offshore US total of 26...however, the last platform that had been drilling through an inland lake in southern Louisiana was shut down this week, so there are now no active rigs in the inland waters category remaining, down from 1 rig on inland waters a year ago..
the number of horizontal drilling rigs working in the US increased by 3 rigs to 537 rigs this week, which is now up from the 511 horizontal rigs that were in use in the US on January 15h last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, two directional rigs were added to those active, increasing the directional rig count to 59, which was still down from the 62 directional rigs that were deployed during the same week last year...however, the vertical rig count fell by 11 rigs to 63 rigs as of January 13th, which left the vertical rig count down from last year's deployment of 77 vertical rigs...
as usual, 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 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 January 13th, the second column shows the change in the number of working rigs between last week's count (January 6th) and this week's (January 13th) count, the third column shows last week's January 6th active rig count, the 4th column shows the change between the number of rigs running this 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 case was for January 15th of 2016...
as you can see from the tables above, the US drilling pullback was fairly widespread, with 6 different states (plus Alabama) and 8 different basins seeing rigs shut down...but as we saw from the Canadian count increase, there does not seem to be a fundamental or economic reason for US drillers to be shutting down rigs this week, so until we hear.otherwise, we've got to consider this week's report anomalous, an odd circumstance wherein several drillers in several states just happened to be shutting down rigs at the same time...at least Ohio was included in that, as we're now back down to 19 rigs, which was still up from 13 rigs a year ago...and as we mentioned, Alabama, which is not included above, also shed a rig this week, and now they have none, an improvement from a year ago, when they had one rig deployed..
International Rig Counts for December
Baker Hughes also released the international rig counts for December earlier this week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1,772 rigs were drilling for oil and natural gas around the globe in December, which was up from the 1,678 rigs that were drilling around the globe in November, but down from the 1,969 rigs that were working globally in December of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 580 rigs in November to 634 rigs in December, which was still down from the average of 714 rigs that were working in the US in December a year ago, while the average Canadian rig count rose from 173 rigs in November to 209 rigs in December, which was also up from the 160 Canadian rigs that were deployed in December a year earlier....outside of Northern America, the International rig count rose by 4 rigs to 929 rigs in November, which was still down from 1,095 rigs a year ago, as increases in drilling in Latin America and Eastern Asia more than offset a decrease in Middle East activity..
drilling activity in the Middle East fell for the 8th time over the past 12 months, as the countries included in this region pulled out a net of 4 rigs, reducing their active rig average to 376 rigs for the month, which was also down from the 422 rigs deployed in the Middle East a year earlier....OPEC member Kuwait cut back from 47 rigs to 44, which was still up from the 43 rigs the Kuwaitis were running a year ago...the Saudis reduced their active rig fleet from 127 rigs to 125, which was also down from the 129 rigs the Saudis were running in December last year, but still up from the 112 rigs they were running in November of 2014, before their attempt to flood the global market...Dubai, an emirate in the United Arab Emirates, also cut their rig count by 2 rigs to 2, also down from 4 rigs in December a year ago...Oman, who is not an OPEC member but who has committed to a production cut of 45,000 barrels a day, also reduced their drilling by 2 rigs, from 61 rigs in November to 59 rigs in December, which left them well below the 73 rigs they were running in December a year ago...on the other hand, Egypt, who is not an OPEC number and who has not agreed to output cuts, added 2 rigs in December and thus had 24 rigs active, which was still down from the 44 rigs they were running a year earlier...in addition, OPEC members Qatar and Abu Dhabi both added a rig; that brought Qatar up to 10 rigs, also up from 7 a year earlier, and brought Abu Dhabi up to 48 rigs, which was still one less than their year ago total...and Israel, who's never had more than 1 rig running over the past two years, started up one rig in December, their first drilling activity since February...
meanwhile, a three rig increase in the Latin American region masked a number of variances in the member states...the region saw its active rig count increase from 181 rigs in November to 184 in December, as their offshore count rose from 28 rigs to 32, while overall drilling was still down from 270 rigs in December of 2015, largely because the region had idled 92 rigs over the first 6 months of 2016...Brazilian and Colombian drillers, neither of whom are party to the production cuts, both added 3 rigs during the month; for Brazil, that brought their active rig count back up to 13 rigs, which was still down from the 38 rigs deployed in Brazil a year earlier, while for Columbia, their count rose to 19 rigs, up from the 12 rigs they had running a year earlier...OPEC member Ecuador and non-OPEC member Chile both added 2 rigs; for Ecuador, that lifted their active rig count to 7 rigs, up from 2 rigs a year earlier, while the Chilean count rose to 4 rigs, up from the 1 rig they were running a year earlier...OPEC member Venezuela started up one more rig and thus had 52 rigs running, still down from 70 rigs a year earlier, as did non-aligned drillers in Bolivia and Peru, where the rig counts rose to 5 rigs and 1 rig respectively, unchanged from a year ago for Bolivia but down from 2 rigs a year ago for Peru....Mexico, who has agreed to cut their oil output by 100,000 barrels a day, also added a rig; they now have 19 rigs active, which is well down from the 42 rigs they were running last December...almost offsetting all of those increases, however, was Argentina, where they cut their drilling activity from 70 rigs down to 59 rigs...that was down from 91 rigs a year ago, and from over 100 active rigs in Argentina in every prior month of 2015
in addition, drilling activity in the Asia-Pacific region increased by 4 rigs to 192 rigs in December, even as their offshore deployment fell from 92 rigs to 87, which was down from the 198 rigs working the region a year earlier, which only included 76 working offshore at that time....Australia added 5 rigs, bringing their total to 9 rigs active nationwide, which was still down from the 16 they were running a year earlier...Thailand and Indonesia both added 2 rigs, bringing their counts up to 12 rigs and 16 rigs respectively, which was down from 4 rigs last year for Thailand and down from 25 rigs last year for Indonesia...the Philippines also started a rig, after having no activity in November, but they were still down from the 4 rigs they had deployed a year ago...on the other hand, China shut down 3 offshore rigs, leaving 25 offshore, same as they had running last December...at the same time, Brunei shut down both of the rigs they had active, while a year ago they had just one, and India reduced their rig count from 177 to 116 rigs, which was still up from the 100 rigs working in India a year earlier....
drilling activity also increased in Europe, rising by 2 rigs to 99 rigs, which was down from the 114 rigs working in Europe a year ago at this time, as their offshore drilling increased from 33 rigs to 35, same as they had offshore a year ago...the offshore increases were of one rig each offshore from Norway and the U.K., which brought the offshore counts in those countries up to 16 rigs and 11 rigs respectively, down from 17 last December for Norway but up from 9 offshore rigs a year ago for the U.K....other European countries adding land based rigs were Hungary and Albania, both of which increased to 2 rigs, same as each had a year earlier...meanwhile, both Bulgaria and the Netherlands shut down a rig; for Bulgaria, that left them with no drilling, down from 2 rigs a year earlier, and for the Netherlands, that left them with 2 rigs active, down from 4 rigs a year ago...
lastly, the African continent saw a net decrease of 1 rig in to 78 rigs in December, which left them down from the 91 rigs working in Africa last year at this time...the Congo Republic shut down all 3 rigs they had active in November, which was also their rig count a year ago...OPEC members Nigeria and Algeria shut down 1 rig each, leaving 4 rigs still drilling in Nigeria, down from 8 rigs a year ago, and leaving 52 rigs still working in Algeria, still up from 49 rigs a year ago....meanwhile, four African nations added 1 rig each: OPEC member Angola, Cameroon, Liberia and Kenya...that brought Angola back up to 4 rigs, still down from last year's 11; brought Cameroon back to 1 rig, same as a year ago, and brought Kenya back up to 11 rigs, same as a year earlier, while the new rig working in Liberia was their first drilling in 2 and a half years....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 25 rigs active in December, were included in the Asian totals here...
note: there's more here: