Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, April 12, 2015

global oil output continues to hit records, leaving big banks on the hook for fracking losses, et al

among the highlights of this weeks news, legislators in Maryland have banned fracking in that state until at least October 2017, as their House passed a measure on Friday by a 102-34 margin to prohibit issuance of drilling permits for the process at least until that time...more than 100 business owners in the Western part of the state thought to have exploitable shale had signed a letter to the leadership of the General Assembly in support of the fracking moratorium...earlier in the week their Senate had passed a similar measure by a 45 to 2 margin, so although the governor has taken no position on the measure, the margin in both houses in obviously veto-proof...
the week also saw the publication of a new study by the Johns Hopkins Bloomberg School of Public Health that found elevated levels of toxic radon gas in Pennsylvania homes near sites where fracking was taking place...researchers analyzed more than 860,000 indoor radon measurements from a Pennsylvania Department of Environment Protection database and found that overall ambient levels of the gas, the 2nd leading cause of lung cancer after smoking, have been on the increase since 2004, and that buildings in areas with fracked wells nearby had significantly higher readings of radon compared with buildings in low fracking-activity areas...while there are several links to media articles on this below (here), what is not questioned is how this radioactive gas, which comes from decay of radium-226 originating in the Marcellus, makes its way into homes from fracked wells which are supposedly sealed off from the surface stratums of soil and bedrock...if the rock layers and well casings are permeable enough for radon to make its way to the surface, it seems logical to assume the entire raft of toxic and carcinogenic components of fracking fluid would also eventually do so also...
the news from Ohio included a spill of more than 2,000 gallons of waste oil into a wetlands in Vienna township, just down Route 82 past Route 11, on the other side of the Youngstown-Warren airport...discovered by a local property owner, the spill covered two private ponds and 3000 feet of Little Yankee Run before it was contained by booms...a neighbor let Youngstown TV station WKBN’s news cameras on to his property to see the dead fish, turtles and muskrats that filled his pond, where reports were that the cleanup is expected to take days...the spill was traced to a buried drain pipe on the site of Kleese Development Associates, a local family owned oilfield services company that also sells topsoil & slag...according to an Ohio EPA spokeswoman, there was no indication the oil came from the holding tanks used by the Kleese injection well facilities...concerned about possible well water contamination, hundreds of residents showed up at Mathews High School the next day, where they were advised to drink bottled water for the time being...Nestle, who bottles unlimited quantities of water in California, where residential water use has been curtailed by 25% due to the drought, donated thousands of cases of water to the township to help placate the residents...the cleanup by KDA and a private contractor they have brought in to help is ongoing, so at least the area has a few more of those promised fracking jobs...
the Mississippi River also saw an oil spill this week, which while not large as some of the spills we've reported on lately, was interesting in the way it came about...it seems that the Privocean, a 751-foot bulk coal carrier which was docked north of Convent in southern Louisiana  broke free of its mooring on Monday afternoon and started drifting downriver...eventually this bulk cargo ship, which is 2 and a half football fields long, swung around and struck the 98-foot towing vessel which had been dragged downriver behind the coal carrier while trying to control it,..that boat was luckily able to ground itself on the river bank before sinking...but that's not where the spill occurred; the Privocean continued to drift downstream until it hit an even larger 816-foot oil tanker called the Bravo, which was discharging crude oil at dockside, and hence the collision caused a spill of roughly 420 gallons of oil into the river, and another 126 gallons on the deck of the Bravo...thus this 3 ship collision and small spill by Louisiana standards resulted in a two day closure of 9 miles of the Mississippi, which was finally reopened on Thursday for two way traffic along the entire stretch..
the news from the production and supply side of the oil patch was pretty interesting this week too, as US production and inventories rose again even as Saudi Arabia reported record crude output of 10.3 million barrels a day in March...and while major oil companies worldwide are cutting back on exploration budgets and American frackers are shutting down rigs at a record pace, the Saudis certainly seem to be engaged in an all out push to regain dominance over the global oil market, as they are investing in refineries and additional production capacity even in the face of a worldwide glut of oil and oil products which has brought prices down to half what they were early last summer...the financial times reports that the number of rigs drilling for yet more oil and gas in the Kingdom has increased by 15 to 120 while US rig counts have dropped by half since October to the lowest in four years...and it's not just the Saudis that are hitting records; recent weeks have seen reports that Russian oil output hit a post-Soviet record high average of of 10.71 million barrels per day in March, topping their record output last year, while Iraqi oil production has also hit a new record of over 4 million barrels of crude per day and saw record exports of 92.4 million barrels in March....we wont even speculate how much oil Iran, who produced 3,518,000 barrels a day in 2014, could add to their output if NATO sanctions are lifted as planned this year...and even though Canada is losing over $30 billion a year on tar sands oil, Canadian production continues to grow just as the money losing fracking in the US does...
on top of all that, the Chinese, who became the world's largest importer of oil and other fuels last year, suddenly cut their oil imports back in the middle of March...they had quietly started buying all the cheaper oil that became available when prices started falling in October, then accelerated their oil purchases to a record level as global oil prices approached $50 a barrel in January, buying up Russian and Venezuelan oil on the cheap as the US imposed sanctions on those countries...so why did they suddenly stop importing?  apparently they had been filling a 600 million barrel Strategic Petroleum Reserve and it's now full...so like the US, it appears they are in a position where they really can't import much more, even if prices fall further..
meanwhile, US oil production, which had slipped last week, was back up again this week, though not to the record level of the third week in March, as our oil output for the week ending April 3rd ran at 9,404,000 barrels a day, up from 9,386,000 the prior week and 14.3% higher than the 8,229,000 barrels per day we were producing in the 1st week of April last year...meanwhile, our inventories of crude oil in storage rose by the most weekly in 14 years to reach yet another record, increasing by 10.95 million barrels from the last week in March to 482.39 million barrels, 25.6% more than the 384.12 million barrels of oil stored commercially in the US in the 1st week of April a year ago...(NB: this doesn't include Strategic Petroleum Reserve maintained by the government, which is another 691 million barrels in storage) so it's worth once again to take a look at what that looks like compared to the historical trend, as the graph below from the weekly Petroleum Status Report (62 pp pdf) will show us...
April 3rd oil inventories:
April 2015 crude oil stocks
the shaded area in that graph above is the range of US oil inventories as reported weekly over the past 5 years for any given time of year, essentially showing us the normal range of oil inventories as they fluctuate from season to season...then the blue line is the recent track of US oil inventories over the period from mid 2013 to mid 2015....you can see that at the current level of over 482.4 million barrels, oil inventories are much higher than they've ever been in recent years, and in fact much higher than they've been in the 80 years of EIA record keeping...the debate about how much oil storage space we have left continues, with some reporting we'll hit our capacity this spring with our primary storage hub at Cushing now 90% full, while others say we've got plenty of space left...i have no special insight as to who's right, except to note that we've never in our recent history stored as much as 400 million barrels, much less 480 million...
now, in an attempt to dismiss this glut, an article appeared in Bloomberg this week that said this oil glut isnt really a problem, that refineries have been slack during the seasonal blend change, and that "refiners are poised to make gasoline at a record pace this year", quoting an energy analyst from Wood McKenzie and citing plans from a few smallish Gulf Coast refineries...apparently no one has bothered to look at gasoline inventories, which while they may not be 25% above prior records, have been holding above the range of the last five years since December...we have the chart for that below, too, which also comes from this week's Petroleum Status Report, and which like the crude oil inventory chart above shows the recent track of US gasoline inventories in blue, relative to 5 year of historical gasoline inventories as shown in grey...
April 3rd gasoline inventories:
April 2015 gasoline stocks
what that chart shows is that although gasoline stocks have gone down seasonally in recent weeks, they're still well above the normal range for this time of year, rising to 229.95 million barrels in the week ending April 3rd, their highest level on record for the period, which put them 9.3% higher than the 210.4 million barrels of gasoline in storage in the first week of April last year...and if it isn't obvious to you just by looking at the two graphs, any attempt to quickly refine just 10% of our crude oil stocks into gasoline would lift our gasoline inventories right off that chart...
as crazy as it seems with all this oil and gasoline in storage, US oil imports nonetheless increased again last week, rising by 869,000 barrels per day from the previous week to over 8.2 million barrels a day in the week ending April 3rd...over the 4 week period ending April 3rd, our crude oil imports averaged over 7.6 million barrels per day, which was 4.8% higher than the same four-week period last year..last week's imports of gasoline, including blending components, averaged 526,000 barrels per day, down from 709,000 barrels a day the prior week but up from the 502,000 barrels of gasoline a day we were importing a year ago...
so, on top of the worldwide glut of oil caused by record production by nearly every major producer, we've managed to build ourselves quite a glut of oil in our own country, both by overproducing, and by importing in excess of our needs, both of which are likely tied to the financialization of oil, wherein the paper contracts are driving the physical commodity instead of the other way around...we've also learned this week how some of that papering over of the oil markets is going to play out...it turns out that the major US banks, including JPMorgan, Wells Fargo, Citigroup and Bank of America, will be on the hook for most of the losses that we expected to hit the frackers, because most of the frackers stand to get paid on insurance they bought to protect themselves against lower prices, and the sellers of most of that insurance were the same bankers who'd been loaning the drillers money to keep them operating...according to data compiled by Bloomberg, the value of the hedges held by the 57 U.S. companies in the Bloomberg Explorers and Producers index rose to $26 billion as of Dec. 31, a fivefold increase from the end of September...essentially, that means the frackers will get paid whatever they thought the oil was worth when they started drilling, irregardless of what the market price for oil is when they go to sell it, and the banks will pick up the difference, which still looks pretty close to that $26 billion figure as of today, since oil prices have not changed significantly in the interim...but if oil prices should fall more, the banks could be on the hook for a lot more, and since they're now all too big to allow to fail, ultimately the bailout could all be on Uncle Sugar and the US taxpayers...
(see more at Focus on Fracking)

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