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, September 6, 2015

oil imports and inventories rise, the oil rig count and fuel prices fall, and America keeps on truckin...

the wild swings in oil prices that we saw last week continued into early this week, fed by rumors and relatively small changes in the weekly metrics, with really no fundamental change to drive the gyrations...after jumping more than 17% on Thursday and Friday of last week due to the unwinding of wrong sided bets that oil prices would fall, US oil prices rose another 8.8% on Monday to close the day at $49.20 a barrel...then on Tuesday, after a rumor that OPEC was "willing to talk" to other oil producers proved to be unfounded, oil prices fell nearly 7.8% to close at $45.41...prices then rose slowly over Wednesday and Thursday to $46.75 a barrel, despite reports of higher oil inventories, before falling back to $46.05 on Friday, a drop attributed to an improving vote count on lifting Iran sanctions and a Chinese loan to Venezuela...

the latest EIA reports did show a larger than usual drop in oil production, which when coupled with a large jump in imports and lower refinery throughput, led to the aforementioned increase in oil inventories...US field production of crude oil fell nearly 1.3%, from 9,337,000 barrels per day in the week ending August 21st to 9,218,000 barrels per day in the week ending August 28th...while that leaves us almost 4.1% below the modern record production of 9,610,000 barrels per day in the first week of June this year, it was still 6.8% higher than our 8,630,000 barrels per day production during the last week of August last year, a level high enough at the time to contribute to the growing global glut that precipitated the drop in oil prices...more than offsetting that production decrease, our imports of crude oil rose by 656,000 barrels per day to 7,855,000 barrels per day in the week ending August 28, enough to bring the 4 week average of imports carried in the weekly Petroleum Status Report (62 pp pdf) up to 7.7 million barrels per day, which is now 0.2% above the same four-week period last year...

although the Whiting Indiana refinery was restarted this past week, it wasn't operating during the last week in August covered by this Wednesday's report, so reported total US refinery usage of crude oil continued to slide, falling for the 4th week in a row, from 16,658,000 barrels per day as of last week's report to 16,389,000 barrels per day in the last week of August covered here...so from four weeks ago, when we reported that our refineries were using oil at a record pace of 17,075,000 barrels a day, US refinery throughput of crude has dropped by over 4%, while our refinery utilization rate has dropped from 96.1% of capacity to 92.8% of operable capacity in the week reported on here...still, that should be temporary, as refinery usage should increase with Whiting back online...Midwest gasoline prices fell 38 cents a gallon on the announcement that they'd again be producing...

with gasoline prices now lower than $2 a gallon in some parts of the country, Americans are replacing their gas-stingy compact cars and hybrids with pickup trucks and SUVs at a record pace...according to this week's report on light vehicle sales for August from Wards Automotive, light vehicles were selling at a 17.72 million annual rate in August, the highest monthly rate of auto sales since July 2005....moreover, August was the fourth consecutive month the seasonally adjusted annual rate of U.S. light-vehicle sales topped the 17 million-unit mark, the first time that’s happened since 2000...breaking out the unadjusted details on August vehicle sales, we find that 725,012 units sold were light domestic trucks, 8.7% higher than the year ago period (which included Labor Day weekend), while 496,097 were US built automobiles, down 6.6% from a year ago...another 174,485 units of August sales were imported cars, down 7.3% from last year, while imported light truck sales rose by 30.3% to 173,613 units...hence, 57.3% of August light vehicle sales were built on a truck frame....the domestic ratios from Ward's are consistent with the Commerce Department's Full Report on Manufacturers' Shipments, Inventories and Orders for July, which indicated that manufacturers shipped light trucks and utility vehicles worth $14,670 million in July, a 9.5% increase, vs just $8,998 million worth of automobiles, 0.2% lower than June...the commerce department data also shows shipments of heavy duty trucks valued at $3,206 million, up 22.1% from a year ago...also note that a much larger proportion of the auto sales are now the larger CUVs, or crossover utility vehicles, which are station wagon type SUVs built on an automobile platform...

with refinery throughput down more than crude oil production and oil imports higher, there was nothing else to do with the surplus glut of crude than to store it for usage later...in the week ending August 28th, our commercial crude oil inventories in storage rose to 455,428,000 barrels, up more than 1% from the 450,761,000 barrels we had stored as of August 21st...that means our crude oil in storage is now 26.7% higher than the 359,570,000 barrels we had stored the last week of August last year, and of course the highest for this time of years in the 80 years that such records have been kept...we should note, though, that these weekly changes in the quantity of oil we have stored, which are widely watched by oil traders and hence move prices almost every week, are really a function of volatile weekly imports...with the largest oil tankers now hauling 2,000,000 or more barrels of oil, that means unloading two extra VLCCs in the same week would almost certainly mean that our imports and hence our inventories would rise for that week...so the oil traders who sit by their screens waiting for the weekly EIA inventory report would really be better informed if they got a ringside seat at the source of that action, at the deepwater Louisiana Offshore Oil Port (LOOP) off the coast of Louisiana in the Gulf of Mexico, where those VLCCs would be unloading....

we're finally starting to see some impact from the lower oil prices on the number of oil rigs the frackers have been operating....for the week ending September 4th, Baker Hughes reported that 13 fewer oil rigs were operating than in the prior week, as rigs drilling for oil fell from 675 to 662 and rigs drilling for gas were unchanged at 202, down from 1584 oil rigs and 340 gas rigs a year ago...3 offshore rigs were added this week, after 8 offshore platforms had been idled in the 3 prior weeks, bringing the offshore count back up to 33, down from 65 a year earlier...a net of 13 horizontal rigs were stacked this week, bringing the fracking rig total down to 672, down from 1333 a year ago....there were also 5 less vertical rigs operating, leaving 120, down from last years 368, while 5 directional rigs were added, bringing that total to 85, down from 224 directional rigs operating during the same week last year...

while last week saw rigs added in Texas while the big cutback was in Louisiana, this week those changes were reversed, as drillers in the South having been moving rigs around like chickens in a barnyard...11 rigs were pulled out of Texas oil fields this week, including 4 that had been operating in the Eagle Ford, 2 that had been fracking the Permian basin, and likely the 2 from the Granite Wash, since Oklahoma added a rig this week...that left Texas with 375 active rigs, down from 907 in the first week of September last year, with rigs in the Eagle Ford at 93, down from 202, rigs in the Granite Wash at 15, down from last year's 68, while 253 rigs were still working in the Permian, down from 563 a year earlier...meanwhile, 4 rigs were added in Louisiana, which now has 75, including 31 offshore, down from 117 last year, and since the Haynesville shale count was down 2 to 29, it's a fair guess those were pulled from the Texas side of the basin...Oklahoma's count, meanwhile was up 1 to 106, which was down from 213 a year ago, as a rig was added in the Arkoma Woodford while one was pulled from the Cana Woodford, which at 39 rigs, up from 37 last year, remains the only shale play to have seen  increased activity from a year ago...

the only other shale basins to see changes this week were the Williston, down 1 rig to 72 and down from 192 a year ago, and the Utica, which was also down 1 to 19, and down from 43 a year ago...as a result of those changes, the North Dakota rig count was down 1 to 71 while Ohio rig count was down 1 to 18...the other states that saw changes in their rig counts this week were Alaska, which was down 1 rig to 12, but up from 7 rigs a year ago, Colorado, which was down 2 rigs to 34 and down from 74 a year ago, Kansas, also down 2 rigs to 11, and down from 23 last year, and New Mexico, which was down 2 rigs to 48 and down by half from 96 a year ago...the only other state to see a rig added this week was California, where there are now 14 rigs active, down from 46 the same week a year ago...

we're gonna wrap this up this week with two charts that show the recent history of oil and gas prices and the number of rigs drilling for each as a result of those prices...the first graph immediately below, is from a Yahoo finance article at midweek, so it's missing the Friday data which we have just reviewed, so you can imagine that if you'd like, but we're looking at it for the longer term trends here...on the graph below, the count of active oil rigs since August 2007 is shown in blue and is noted by the numbers on the left margin, while the track of the oil price per barrel is shown in yellow as indicated on the right margin....we can see that before the recession, and before fracking for oil really got serious, the oil rig count had topped 400 in late 2008, less than half of today's count, before the recession and attendant collapse of oil prices from $145 to $30 caused drillers to pull more than half their rigs out of the fields...the number of rigs drilling for oil then increased steadily, from a low of 179 in June of 2009 till they topped 1400 in June of 2012, and stayed in that range until early 2014, when additional oil rigs were added until the peak of 1609 rigs was reached on October 10th...but notice that both times oil prices collapsed, in 2008 and again last year, it took several months before drillers started pulling their rigs in earnest....so since it's only been a little over 2 months into this new downturn in oil prices, we may just be seeing the first signs of an oil rig pullback..

Sept 2 2015 oil rigs and prices

the 2nd graph we have below comes from the Natural Gas Weekly Update from the EIA (Energy Information Administration), a summary which is useful reading by itself...the metrics aren't as clear as i'd like, but there's a lot of information packed into that small graph, which like the one above, shows the number of rigs drilling for natural gas and the benchmark price for that gas for each week going back to the beginning of 2007, with the gas rig count again shown on the left margin and the oil prices shown on the right...there are 3 colored bands across the graph, representing the number of each type of rig drilling for gas in any given week...the width of the green band represents the number of conventional vertical rigs drilling for gas weekly; the width of the brown band indicates the number of horizontal rigs drilling thru shale for fracking, while the blue band represents the number of directional rigs drilling diagonally into a gas field...as a result of the way they're stacked on the graph, then, the top of the green colored band is in effect the total rig count for each week, while the price of natural gas over that span is shown by the track of the heavy black graph's path...

Sept 3 2015 EIA natural gas weekly

so here we see that the big bust of the natural gas market occurred with the onset of the recession, when gas prices dropped from near $13.50 per mmBTU in the spring of 2008 to $3.00 per MMBTU by the summer of 2009...but note once again that the total gas rig count continued to rise through much of 2008, reaching a peak with 1,606 rigs drilling for natural gas in the last week of August 2008, only to see that count follow the price down to hit 665 gas rigs by July 17, 2009, when the rig count start rising again...then gas drillers, mostly frackers in the Marcellus and the Haynesville, continued to overproduce even in the face of falling prices until natural gas prices collapsed to near $2 per mmBTU in early 2012....gas rigs then began a slow decline that we could say lasts until this day...so it's taken years for natural gas drillers to wash out; oil drillers could just be in the first innings of their losing game....and although it's not entirely clear on this graph, natural gas prices have recently broken out of their 3 month trading range, between $2.75 and $2.95 per mmBTU, that had persisted since June, and for the last two weeks have seen the benchmark gas price stay in a $2.65 to $2.70 per mmBTU range...if that persists, we'd expect to see more attrition in the gas patch as well...

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