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, July 12, 2015

oil prices slide more than 10%; a further fracking pullback likely..

the past week saw the first significant change in oil prices in the past 3 months, as US crude oil prices crashed 8% to $52.53 a barrel on Monday, then fell another 4% on Tuesday before moving higher, and finally drifted back up on Thursday and Friday to close the week at $52.80 a barrel....the immediate reason given for the Monday price crash was the Sunday vote in the Greek referendum, in which around 62% of the Greeks marked their ballots "OXI", which we're told translates as "hell no", meaning they rejected terms of a bailout offered by the Troika of the EU, the ECB, and the IMF representing their international creditors, which had imposed austerity on the Greeks & squeezed the Greek banks into a shutdown...however, an ongoing crash in the Chinese stock markets, where investors had lost more than $3.4 trillion in equity value since mid-June (ie, a half a trillion more than the GDP of France) was probably a larger factor, as a pullback by the Chinese, the world's largest importer of oil, would have a much greater impact on oil demand than an exit from the Eurozone by Greece...and that concern was certainly exacerbated by an International Energy Agency forecast that the rebalancing of the oil markets would extend well into 2016 in the face of a global market that was “massively oversupplied”

up until late last week, US oil prices had steadied in a range near $60 a barrel since early April, after nearing $45 in price dives in January and March ...this had seemed to result in some equilibrium in drilling activity, as the net change in the total rig count over the last month was minimal...however, the $60 price and drop in the rig count hadn't affected oil production, either, as we had hit a 32 year high in output at 9,610,000 barrels per day during the first week of June, and we virtually matched that this past week with output of 9,604,000 barrels per day...early on in the oil price decline, oil companies managed to stay afloat because they had largely hedged their drilling operations to pay off at higher prices even if oil prices fell...the higher oil prices of last year also enabled them to continue to borrow heavily to fund operations during the first part of this year, based on the value of their reserves in October, when banks had last evaluated the drillers for credit worthiness, and when oil prices were between $80 and $85 a barrel....their access to funds now is limited by their latest semi-annual evaluation in April, when their reserves were valued between $50 and $55 a barrel...and with oil futures prices now also below $60 a barrel out until 2017, they've lost the ability to hedge their new drilling at prices up to $90 a barrel as they have in the past...so we have to believe with further weakness in oil prices now, we should soon see another pullback in the fracking patch, especially among the smaller drillers who are not as well capitalized as the oil giants...

the oil price drop does not appear to have affected oilfield operations yet this week, however, as there were 5 more oil rigs operating in the US than last week, when we saw 12 oil rigs added in the first oil rig increase in 29 weeks...meanwhile, 2 gas rigs were idled this week after 9 were shut down last week...with the additional stacking of 2 miscellaneous rigs, it left the total rig count at week end up 1 at 863, with 645 oil rigs, 217 gas rigs, and 1 miscellaneous rig remaining in operation...that's down from 1563 oil rigs, 311 gas rigs, and 1 miscellaneous rig that were operating as of the second weekend in July a year ago...the configuration of rigs operating in the US as of July 10th included 654 horizontal rigs, 121 vertical rigs, and 88 directional rigs, with conventional vertical rigs increasing by 13 this week after increasing by 1 last week, while horizontal drilling rigs were reduced by 3 both this week and last week and directional rigs dropped 9 this week after falling 1 last week; that's consistent with the trend of recent weeks, so while the overall rig count has stabilized, oil companies continue to idle fracking operations while they increase conventional drilling...

the pullback in fracking operations has not been consistent across all basins, however...for instance, the past week saw an addition of 7 rigs in the west Texas & eastern New Mexico Permian basin, after 1 rig was added there last week; this most active of all areas now shows 239 active rigs, which is still down from 563 a year ago; the Eagle Ford, in southeast Texas, saw 4 rigs pulled this week after 3 were added last week; they now have 102 rigs running, down from 218 a year ago...the Williston basin in North Dakota shows 71 rigs operating as of Friday, down from 179 a year ago, as 6 rigs were idled this week after 3 were started up last week...62 rigs remain in the Marcellus, down just 18 from last year's 80, but 2 of those were stacked this week after 1 was stacked last week...the 3 Woodford shale plays in Oklahoma saw a net loss of one rig over the past two weeks, with the Ardmore Woodford at 7, unchanged from last year, the Arkoma Woodford at 6, down from 7, and the Cana Woodford at 33, up from 27 and the only shale basin to see an increase in rigs since last year...there were 27 rigs running in the Haynesville shale of western Louisiana, which was unchanged over the past two week and down from 42 a year ago, while a rig was added in the Utica shale in each of the past two weeks to bring the total there back up to 21, down from 44 a year ago..those changes in the primary basins pretty much account for the changes in the state rig counts, except for Kansas, which rid themselves of 3 rigs over the past two weeks and now has 10, down from 31 a year ago...

in addition to the weekly North American rig counts, which also showed the Canadian rig count 30 higher than last week at 169, with oil rigs up 19 to 91, and gas rigs up 11 to 78, Baker Hughes also released the international rig count for June this week, which indicated that there were 1146 drilling rigs in operation outside of the US and Canada in June, down 12 from May's 1158 and down 198 from last June's 1344...the pullback in drilling was concentrated in Latin America, where the working rig total fell by 13 to 314, with a drop in offshore rigs by 7 to 62 and a reduction in land based rigs by 6 to 252, as the Mexican rig count fell by 9 from 60 to 51...a net of two rigs were also idled in the Asia Pacific area, leaving the region with 215, down from 251 last year, as India, now with 113, added 4 rigs while Indonesian drillers shut down 5,  leaving 23...Europeans shut down 3, leaving 113, as the UK idled 4 offshore rigs, leaving 12 offshore remaining....meanwhile, 3 rigs were added in Africa, which ran 103 rigs in June, as Algerian rigs rose from 48 to 51 while several other countries on the continent increased or reduced theirs by 1...finally, the Middle East also added 3, bringing their June total to 401, as Egypt added 5, Kuwait and Abu-Dhabi both added 2, while the Saudis reduced their working rigs by 3 to 121...while the Saudis are now down from using 126 rigs two months ago, they're up from 104 rigs they were running a year ago and up from 82 rigs in June of 2013...and remember, when the Saudis drill a well, it produces for 40 years before the flow tapers off; but when the frackers drill one, it produces decently for 2 years and by then it's 80% depleted...the Saudis produced a record 10.3 million barrels per day in May, and claim they're ready to increase their oil output in the coming months....the frackers have to frack faster and faster just to stay in the same place...

meanwhile, as we mentioned earlier, US crude oil production rose to 9,604,000 barrels per day in the week ending July 3rd, up from 9,595,000 barrels per day the prior week, and up 12.8% from our output of 8,514,000 barrels per day in the first week of July of 2014...with near record production, our imports of crude oil fell by nearly 200,000 barrels per day, from 7,513,000 last week to 7,316,000 this week, which still works out to be a bit more than the 7,285,000 we imported in the same week last year...with lower priced oil, gross profit margins for refineries are up more than 50% from a year ago; the weekly Petroleum Status Report (62 pp pdf) indicates that US refineries were operating at 94.7% of their operable capacity last week, as refinery inputs averaged 16.6 million barrels per day, up 65,000 barrels per day from last week, but still short of the record 16.8 million barrels per day they processed in the 2nd and 3rd week of July last year...thus, with field production of crude near a record and imports virtually unchanged from a year ago, U.S. commercial crude inventories unseasonably rose for a second week in a row, adding 384,000 barrels of oil to the 465,379,000 barrels of oil that were in storage last week to give us 465,763,000 total barrels of oil in storage on July 3rd, 21.7% higher than the same week last year, and in fact much higher than had ever been stored in the 80 years of EIA record keeping, which had never seen the 400 million barrel level breached before this year...

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(the above was crossposted from Focus on Fracking, where you'll find more oil patch news...)

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