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, October 25, 2015

8 million more barrels of oil put into storage; what the strong dollar means for global oil production

this week's reports from the EIA, covering the week ending October 16th, again showed a large buildup in crude oil being put into storage domestically, a result of oversupply and lower demand; in fact, the addition of more than 8 million barrels this week topped last week's 6 month high, and we'd have to go back to early spring, when traders were buying boatloads of oil to store in hopes of higher prices, to find a week that saw that much oil added to US inventories....the increasing glut, combined with virtually no change in production or oilfield activity, finally turned the oil markets, which had been higher since the end of September, and the contract price for domestic WTI oil ended Friday at $44.60 a barrel, down 5.6% from $47.26 a barrel a week earlier...the price of natural gas saw a similar drop; the near term contract closed Monday at $2.442 per mmBTU, down from $2.535 per mmBTU Monday the prior week, eclipsed a three year low at $2.386 per mmBTU on Thursday and then dropped another 10 cents on Friday to close the week at $2.286 per mmBTU, 6.4% lower than its Monday close...inventories of natural gas grew a less than expected 81 billion cubic feet last week, but still remain 4.5% above the five-year average for mid-October, with forecasts for a mild El Nino winter for the northern half of the country suggesting lower than normal consumption..

also putting pressure on oil prices globally was the announcement by the United Arab Emirates (UAE), OPEC's second largest liquids producer, that they planned to expand oil production 30% by 2020, as well as reports that Ayatollah Khamenei had approved the nuclear deal between Iran and the West, and that Iran would boost its oil production within a week after sanctions were lifted, with the Iranian oil minister saying "We don’t need permission from anyone to export our oil," in reference to OPEC...there were also announcements by Thailand that they'd spend 690 billion baht ($19.4 billion) to expand their capacity to produce oil & other energy and by Cuba's state oil monopoly that they plan to drill deepwater wells in the Gulf of Mexico by the end of 2016, in spite low prices for oil...

those, and other expansion of oil exploration and exploitation abroad that we've seen recently remind us that when viewing the price of oil we have to be aware of how the strength of the dollar has made commodities such as oil appear cheap to us, while they may not be quite so low priced when viewed in other country's currencies...beginning with the devaluation of the Chinese Yuan on August 11th, we've watched as most free floating currencies around the globe fell against the dollar, and those currencies of some countries that had been pegged to the dollar were devalued...for instance, the oil and gas producing former Soviet republic of Kazahkstan's tenge fell 22% within a week of China's devaluation, and so far this year, the US dollar has increased 58% against the Brazilian real and 16% against the Canadian dollar...what that means in practical terms for a national oil producer such as Petrobras is that their domestic costs don't change, but the value of the oil they sell internationally is worth that much more in their home currency than it was before; ie, a barrel of oil at today's price will buy as much in Brazil today as a $75 barrel of oil would buy a year ago...similarly, while oil is selling for $44.60 a barrel in the US, it's fetching $58.92 a barrel in Canada, where they get U.S. dollars for the oil and gas they produce and export, but they pay wages and cover most of their other expenses in lower valued Canadian dollars...

This Week’s Data from the EIA

at any rate, the major story in the data this week was once again the big increase in our oil inventories, which rose by 8,028,000 barrels or 1.7%, from 468,559,000 barrels as of October 9th to leave 476,587,000 barrels in storage on October 16th...that eclipsed last week as the largest one week jump in oil inventories since the week ending April 3rd, and gives us 26.2% more oil in storage than the 377,684,000 barrels we had stored at the end of the 3rd week of October a year ago....over the last 4 weeks, our oil inventories have now increased by 5.0% or 22,618,000 barrels, and we now have 25.4% more oil than we ever had stored any time in October in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...

contributing to that increase in inventories was a 165,000 barrel per day increase in our imports of crude oil, which rose to 7,471,000 barrels per day during the week ending October 16th, barely changed from the 7,477,000 barrels per day we imported during the week ending October 17th of last year...however, checking the 4 week average of imports in the weekly Petroleum Status Report (62 pp pdf), we find that U.S. crude oil imports averaged 7.4 million barrels per day over the last 4 weeks, 2.7% below our imports in the same 4 weeks of last year...and as we mentioned, our field production of crude oil was unchanged at 9,096,000 barrels per day for the week ending October 16th, which also happens to be the same as our oil production was during the week ending September 25th...actually, our oil production hasn't budged much over the last 7 weeks, as it's averaged 9,121,000 barrels per day over that span, about 4.3% below the modern weekly record production of 9,610,000 barrels per day that was set in the first week of June this year, but still more than 2% above the same 7 week span a year ago, when our excess production was already starting to impact prices...

meanwhile, consumption of that oil by refineries rose a bit, as refinery inputs of crude oil averaged 15,345,000 barrels per day in this current report, which was 78,000 barrels per day more than last week’s average...the refinery utilization rate inched back up to 86.4%, from 86.0%, but that's still well below the 96.1% of capacity US refineries were running at at the peak of the summer driving season, in late July and early August...while output of finished gasoline rose by more than 300,000 barrels per day in the week ending October 9th, it fell by 90,000 barrels per day this week, as output of distillates like diesel fuel, which fell last week, rose...but while ending gasoline inventories decreased by 1,518,000 barrels to 219,784,000 barrels this week, they're still above the upper limit of the average range for this time of year, so there’ll be no need to step up production....hence, while oil supplies increased somewhat with stable production and the increase in imports, the demand for that oil from from refineries didn't keep pace, which led to the increase in oil headed for storage...

The Latest Rig Counts

while the number of rigs drilling for oil fell for the 8th straight week this past week, the total number of active rigs was unchanged at 787, as Baker Hughes reported that their count of rigs targeting oil was down by just 1 to 594, while their count of rigs drilling for natural gas was up by 1 to 193...the total rig count is still down by 1,140 rigs from the year ago total of 1,927 working rigs, with oil rigs down 1,001 from last year's 1598 and gas rigs down 139 from last year's 320...net vertical drilling rigs in use were down by 1 to 109, which was 252 fewer than the 361 vertical rigs operating a year ago...meanwhile, 1 directional drilling rig was added bringing their total to 87, which was down from 211 on October 24th 2014, and rigs designed to drill horizontally were unchanged at 591 for the week and down from 1355 a year earlier...also note that 2 more rigs were added in the Gulf of Mexico this week, so we're now up to 35 offshore, 34 in the Gulf and one off California, which is still down from 55 offshore rigs a year ago...

the net zero change in rigs counts did not preclude several shifts within states or shale basins...the most active basin saw the greatest decrease, as 4 rigs were shut down in the Permian of west Texas, leaving 229, which was down from the 568 rigs that were working the Permian last October 24th...3 rigs were also stacked in the Marcellus, leaving 43, which was down from 81 a year earlier, while 2 rigs were taken down in the Mississippian (along the Texas / Oklahoma border) leaving 11, down from 73 a year earlier...on the other hand, two rigs were added in Ohio's Utica, bringing the Utica count up to 22, which is still down by more than half from last year's 49...two more rigs were also set up in the Haynesville of northern Louisiana, bringing the count in that basin up to 26, in contrast to the year ago Haynesville total of 40...and 1 rig was added to the Eagle Ford of south Texas, bringing the count in that basin up to 77, which was still down from 216 in the same week last year...the difference between those listed as added and those taken down leaves 4 horizontal rigs unaccounted for this week; hard to say where they might have been added, but shale basins in Illinois and Mississippi that are not listed in the Baker Hughes tables are suspect..

there were also relatively large changes in the state rig counts...including the two in the Haynesville and the two in the Gulf, Louisiana saw an increase of 5 rigs, bringing the state count up to 73, compared to 110 a year ago...two rigs were added in Ohio, and we now have 21, but that's still down from 44 last year on this date...a single rig was added in each of 5 states; Oklahoma, Alaska, Illinois, Mississippi, and Nebraska; those bringsthe Oklahoma count to 90, down from 204 a year ago; the Alaska count to 12, up from 8 a year ago; the Illinois count to 3, up from 1 a year ago, the Mississippi count to 6, which is down from 16 a year ago, while Nebraska now has 1 rig operating, down from 2 a year ago... 

with a decrease of 3 rigs in the Permian and 2 in the panhandle District 10, Texas saw the largest rig count decrease, as they were down 5 to 346 this week, and down from 906 a year ago...Kansas and Pennsylvania both saw 2 rigs shut down; Kansas now has 7, down from 21 a year ago, while Pennsylvania now has 27, down from 52 a year ago...New Mexico's count was down 1 to 40 rigs, and down from 103 a year ago, and West Virginia's was down 1 to 17, and down from 36 a year ago...lastly, Alabama saw their last active rig shut down this week; a year ago, they had 7 rigs working...


(Note: other fracking related news can be found here)

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