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, June 7, 2015

this weeks OPEC meeting, the EPA report on fracking and drinking water, et al

two stories dominated the news out of the fracking patch this week: the OPEC semi-annual meeting, their first since Thanksgiving, and the release of a 998-page, $33 million EPA report on fracking and drinking water that was five years in the fudge making...the OPEC meeting didn't change anything - oil ministers agreed on Friday to hold their quotas at the same level they've been at over the last 6 months - but the lead up to it generated a lot of rehashing of what they've done to the oil markets and what they might do...the EPA report found plenty of instances of drinking water pollution in their thousand pages, but those didn't make it to the press release or the official comments, leading to a plethora of headlines suggesting fracking is harmless, especially in publications predisposed to that point of view...

as noted, the OPEC meeting concluded Friday with the decision by the group to maintain their maximum production limit at 30 million barrels of oil a day, the same level it has officially been set at for the past year, which amounts to about a third of global oil output...previously, when oil prices fell below the level the cartel had established, OPEC members would agree to cut production to force prices back up, so holding production at its previous level in the face of falling prices, as they have done this year, is a new tactic, which is intended to drive prices down, and which is aimed mostly at high cost North American producers, as we've discussed here many times before...the 30 million barrel daily ceiling isn't a hard and fast quota, either, as most OPEC members exceed that if they can; ie., in May, oil output from OPEC members averaged 31.22 million barrels per day, up from 31.16 million barrels per day in April, as Angolan output hit a new record, while Saudi output was stable at 10.30 million barrels a day, same as April but higher than last year, when they were consistently producing under 10 million bpd...

one thing the OPEC membership failed to address at this meeting was the request by Iran to have their quota increased; the Western embargo against their oil exports is expected to end shortly, at which time they'll be adding around 400,000 barrels per day to global supplies almost immediately, with up to as much as 1 million barrels per day by next year...if Iranian supplies come online without an adjustment from other OPEC producers, there is obviously the potential for another wave of lower oil prices...

however, oil supply, from OPEC and elsewhere, is only half the equation that goes into determining prices; demand for oil products is the other side of the calculation, and it has been rising...US light vehicle sales hit a 10 year high in May, with cars and light trucks selling at a 17.7 million a year rate, driven by a surge in purchases of gas-guzzling SUVs and pickups...furthermore, in March, we learned that vehicle miles driven on US highways had reached a new high on a rolling 12 month basis, 4.9% higher than last year, after more than seven years of Americans driving less miles than they did in 2007...and it's not just Americans who are driving more; the Chinese have been buying vehicles at a rate of over 2 million a month, around 40% more than Americans buy, with a 49% increase in Chinese SUV sales in the first quarter of this year now accounting for a quarter of Chinese sales...apparently they have a serious problem with road rage in China, and as a result Chinese drivers are buying more SUVs, for intimidation and defensive purposes, all trying to drive a bigger car than their neighbors...as a result, Chinese gasoline sales are up 20% from a year ago, and they have since surpassed US as the largest oil importer of crude oil... the point is, if OPEC holds their output steady at 30 million barrels per day for long enough, demand for oil and its products will outstrip their supply, prices will rise, and US frackers will be back in the drivers seat...

the major problem with the EPA report on fracking's impact on drinking water was the ambiguity of their press release and executive summary (pdf), leading most everyone who read it to take from it whatever they thought beforehand as the confirmed result....in the nearly thousand pages of the full report (which i havent read) they certainly documented many of cases or drinking water contamination that we've all read or heard about, but by the time the details were rung out of it for a summary, they were couched in so many weasel words that it was hard to draw any certain bead on what their conclusion was; the EPA seems to have elevated official obfuscation to an art form not seen since the days of the Greenspan Fed....hence, on the day of the report's release, we saw headlines as varied as EPA: Fracking is safe for drinking water and EPA: Fracking's no big threat to water all the way to EPA: Fracking has caused isolated, not widespread, water pollution and It’s Official: EPA Says Fracking Pollutes Drinking Water...there also seemed to be an orchestrated effort on the day of the release to establish that the conclusion of the report was that fracking was harmless; checking hundreds of headlines on google news, those that said fracking was harmless to drinking water outnumbered the others 2 to 1...so you can expect to hear the same from the majority of Americans whose only exposure to the news is to the headlines..

the EPA study concluded there was not "widespread or systemic" contamination of drinking water from fracking...surface waters might be polluted, or drinking water might be impacted by poorly sealed well casements or from ancillary activities associated with fracking, but not from fracking itself, which we all know takes place thousands of feet below the surface...so that isn't something we didnt already know; it isn't the fracking 5000 or 10,000 feet down itself that impacts the drinking water at the surface, it's something else that happens during the drilling or after the fracking is done that pollutes the water....and as widespread fracking is still relatively new, we still dont know what the longer term effects to our water supply might be...just because the millions of gallons of toxic chemical laced frack water deep underground have not yet migrated to surface layers from which we draw our drinking water now doesn't mean they wont ever...water, and any pollutants it may be carrying, tends to move through pores in layers of rock at a snails pace...so just because fracking a well a mile down and 2 miles away from your water supply hasn't yet contaminated your water today doesn't mean it wont ten or twenty years from today...

while the OPEC countries were pumping out oil at their fastest pace since 2012, US oil production also hit a new modern high in the week ending May 29th ...after the unexpected oil production jump by 3.2% to 9,566,000 barrel per day last week, US oil output again increased incrementally to another new record of 9,586,000 barrels per day in the current reporting week; that's 14.4% more than US oil companies were producing during the last week in May last year, as oil companies continue to pump out more oil even in the face of low prices so they can at least pay the interest on their debts...even with that record domestic production, however, US oil imports still rose by 677,000 barrels per day from the previous week to 7,373,000 barrels per day this week...the weekly Petroleum Status Report (62 pp pdf) tells us that over the last four weeks, crude oil imports have averaged over 7.0 million barrels per day, just 1.3% less than the same 4 weeks last year...but even with record production and higher imports, US commercial crude oil inventories fell by 1,948,000 barrels to 479,363,000 barrels, which was still 23% higher than a year ago and the highest ever for the last week in May in the 80 years of EIA data....the reason crude stocks fell was because refineries were turning much of that new crude into products, as total crude and petroleum product inventories increased by 7.4 million barrels to 1,944,356 in the current week, as both stocks of propane/propylene and stocks of distillate fuels each rose by roughly 3.8 million barrels this week...

meanwhile, there were 7 fewer drilling rigs operating in the US in the week just ended, as Baker Hughes reported that the US rig count fell to 868 as of June 5th, with 642 oil rigs, 4 less than last week and 894 less than a year ago, and 222 gas rigs, down 3 from a week ago and down 98 from a year ago, still working at week end...although that was the 26th consecutive decrease in the rig count, the past five weeks have all seen net decreases of less than a dozen, as the number that are restarted each week are now nearly as many as those that are shut down...this week saw 673 horizontal rigs still operating, just one less than last week, and 99 vertical rigs, a reduction of 12, as 6 additional directional rigs were started up, after 5 were added last week, bringing the directional total up to 96...however, they show 7 fewer rigs in the Eagle Ford shale of southeast Texas, which were almost certainly fracked, as well as losses of a rig each in the Utica, the Willston, the Cana Woodford. and the Arkoma Woodford, so unless the majority of those were vertical, their basin counts dont match their counts of the type of drilling rigs...by state, Texas shed 5 rigs, New Mexico and Colorado were both rid of two each, and Arkansas, North Dakota, Ohio, and Pennsylvania each saw one less, while Louisiana added 3, West Virginia added 2, and California and Kansas added one each....meanwhile, the Canadian rig count was up by 18 from a week ago, with oil rigs up 15 to 59, and gas rigs up 3 to 57...

this week also saw the release of the international rig counts for the month of May, which are an average of the number of rigs running during the month for each area and hence differ from the weekly rig counts for North America...excluding the US and Canada, there were 1,158 rigs operating in other countries worldwide, 44 lower that the rig count of 1,202 in April, and down 147 rigs from the 1,350 international rigs counted in May of last year...of those, offshore rigs were down 16 to 284, and down 42 from the 326 offshore drilling platforms running a year ago...regionally, the Middle East saw a reduction of 12 rigs, leaving 398, after they added 3 rigs in April; note that the rig count for Iran is not included here…African nations saw their average May rig count fall by 20 to 120 from 100 in April, the Asia Pacific region saw 11 fewer rigs operating at 217, and European rigs were reduced by 3 to 116....meanwhile, Latin American countries added a net 2 rigs, after they saw a reduction of 26 to 325 in April...major changes in the Middle East oil rigs included an addition of 6 rigs in Oman to bring their total to 59, and a reduction of 4 rigs in Egypt...interestingly, the Saudis shut down 10 oil rigs in May, after they added 9 in February, 5 in March, and 1 in April....at 71 oil rigs, the Saudis are still running 11 more than a year ago; they are also running 53 gas rigs, up from 41 in May of 2014...

(more here)

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