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, May 31, 2015

US oil production hits modern record even as US drilling rigs fall for a record 25th week

it was looking like it was going to be a rather slow and uninteresting week in the oil patch until midday Thursday, when the EIA released their weekly Petroleum Status Report (62 pp pdf) and updated all the data sets therein...what we thought was an ongoing gradual decline in US oil production in the face of a 60% drop in oil rigs is no more, as the past week saw US oil production jump by 3.2% to 9,566,000 barrel per day, the largest weekly spike in our oil production in 19 months, 13.3% higher than the 8,472,000 barrels per day oil output we saw in the same week last year, and setting a new modern era high for US oil production as it was the greatest weekly output in records going back to 1983...

however, even with the big jump in production, our stocks of crude oil in storage fell again, from 482,165 million barrels last week to 479,363  million barrels this week, as US oil refineries were running at full capacity and US oil imports hit a 3 week low, falling 7%, from 7,199,000 barrels per day last week to 6,696,000 barrels per day in the current report...even so, our oil inventories were still 22.0% more than the 392,954 million barrels we had stored in the 4th week of May a year ago, while our oil imports averaged 6.8 million barrels a day over the past 4 weeks, just 3.4% below the imports of the same 4 weeks of 2014...

since we suddenly have a new production record, we'll include the historical graph of Weekly U.S. Field Production of Crude Oil below…here we can see the track of oil output in thousands of barrels per day since 1983, and note that US production had fallen to roughly 5 million barrels a day during the 2006 to 2008 period, and only gradually picked up slowly after that horizontal drilling began…then, spurred on by higher oil prices and easy credit courtesy of the Federal Reserve’s monetary policy, US oil production has increased steadily since 2011, and as we’ve seen this week, still shows no sign of letting up despite the reduction in new oilfield activity...

US oil production, week ending May 22nd:
May 22 2015 oil production

once again, the number of drilling rigs operating in the US and coastal waters fell for an unprecedented 25th week in a row, as the number of rotary rigs drilling for oil fell by 13 to 646, the number of working gas rigs rose by 3 to 225, while there were also 4 miscellaneous rigs in use, which was unchanged from last week...working oil rigs are now down by 890 from a year ago, and down by 963 from the recent peak of 1609 oil rigs that were operating during the week ending October 10th; active gas rigs are down by 101 from a year ago and down by 131 from the 2014 peak of 356 gas rigs that were operating during the week of November 11th...of the 875 rigs active at the end of last week, 844 were land based, 9 less than last week, 2 were drilling on inland waters, 1 less than last week, while the offshore rig count was unchanged at 29...of the total, 674 were horizontal drillers, down 9 from last week and down 577 from 1251 a year ago; 111 were vertical rigs, down 6 from 117 last week and down 292 from 403 a year ago, and 90 were directional rigs, an increase of 5 for the week but a decrease of 61 from a year ago...

despite an increase of 3 rigs working the Eagle Ford shale, the rig count in Texas was down by 4, with the shutdown of 1 rig in the Permian basin the only likely horizontal reduction there...there were also 3 rigs shut down in California, leaving them with just 10 at mid week...and despite the increase in gas rigs, the Marcellus shale saw a reduction of 3 rigs, with Pennsylvania rigs down by 2, apparently with the addition of one rig working in the Utica...Louisiana and Arkansas also saw their rig count reduced by 2, while one rig was shut down in North Dakota's Willston basin...meanwhile, two rigs were added in both Colorado and Oklahoma, bringing their active rig counts up to 41 and 106 respectively, while both Alaska and New Mexico saw one added, bringing their totals to 10 and 48 respectively...the rig count in Ohio was once again unchanged, as were the rig counts in the other states not herein mentioned...
this week's Canadian rig count was a surprise, in that their number of active rigs increased by over 36%, as they added 20 oil rigs this week to almost double their active oil rig total at 44, while they started up 6 more gas rigs to bring their gas rig total to 54...still, the 98 rigs they were running this week is down 100 from the year ago 198, with oil rigs down 61 from 105 and gas rigs down 39 from 93....however, as recently as January 16th of this year, Canadians were running 440 rotary rigs, of which 234 were drilling for oil and 206 were drilling for gas...so this week's increase of 26 is just a small fraction of the total that they've shut down so far this past year...

it's now been 6 months since the Thanksgiving Day OPEC meeting that changed the course of the global oil markets and set off the decline in drilling in the US that persists to this day, so it might be time to take a look back at where we've been...the graph below shows the past year's track of the contract price per barrel of the US benchmark oil, West Texas Intermediate (WTI), at or to be delivered to the oil depot in Cushing Oklahoma...we can see that oil was still near $100 a barrel last summer, in the same price range it had been since 2011, during the period when drillers were still adding rigs and expanding production....and we know that oil drilling continued into the fall, with the rig count peaking in October, even as oil prices slipped below $80 as the global surplus was developing...we can then see the precipitous collapse of prices beginning in the last week of November, when the price of oil fell from $78 to $65 in the days immediately following the OPEC decision to continue their level of production...oil prices then fell below $45 a barrel in intra-day trading in mid January, a level at which 97% of US shale wells became unprofitable, before climbing back up above $58 again in February...they touched the January lows again in March before starting their recent rally to near $60, a price that seems to have nearly as many drillers willing to restart their operations as there are those that are still shutting down...

oil prices, 5/30/15:
May 30 2015 oil prices

even though natural gas prices were not affected by the OPEC decision, their trajectory has been quite similar...like the oil graph above, the graph below shows the benchmark contract price for natural gas based on the price per mmBTU at Henry Hub, Louisiana....(gas is also sometimes quoted in mcf = thousand cubic feet = 1.028 x mmBTU = million BTU) ...again, note the price near the $4 range thought to be breakeven for most of the Haynesville and Marcellus gas wells prior to November, and then the collapse to under $3 per mmBTU since, which has led to the reduction of drilling activities in those fields...however, unlike oil, where the US benchmark has generally been within 10% of the global price, US natural gas prices are far below those on the international markets...for instance, Japan had been paying $15 to $17 per mmBTU for LNG imports since the shutdown of it's nuclear facilities, which has only recently fallen into the $14 mmBTU range...Europeans also want to import more LNG, too; LNG prices in Europe were over $11 mmBTU until recently, when they fell to the $9 range with the global collapse of oil prices...so if Obama gets his trade agreements passed, which will mandate exports of our gas to those markets, US prices will eventually move up to the global prices, and US natural gas exploitation will explode....

natural gas prices, 5/30/15:
May 30 2015 natural gas prices

where we go from here is anyone's guess...i had thought US oil output had started falling in March, and that the US oil glut would gradually subside...this week's data suggests there's no sign of that yet...and in the global markets, Saudi oil output continues to hit new records, Iraq expects to increase their output to a record 3.75 million barrels a day in June, and Iranian oil will soon be flowing again as sanctions are lifted, so it appears that the oil glut will persist for some time...this all flies in the face of what i thought i knew; if someone would have asked me a year ago, i would have told them it'd be damn near impossible for oil to be priced below $80 a barrel for any length of time, based on what i knew then of exploration and production costs...if someone had suggested to me then that we would be looking at an oversupply of oil this year, i would have dismissed them as an impossible dreamer...but now the idea of an oil shortage is nowhere in sight; and it's clear that any increase in prices will bring back the US rigs and worsen the global oversupply situation...so it looks like low oil prices are here to stay, and that forecasts that oil prices may yet trend lower are not unfounded...


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