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, December 6, 2015

the COP-21 and OPEC meetings, increases in US oil imports, refining, and our oil glut

it seems like most of the energy & environment related news this week was about or emanating from international conferences being held off in the middle of Europe...first there was the 2015 United Nations Framework Convention on Climate Change (UNFCCC), more often known as COP-21, or the 21st conference of the parties, wherein politicians and news media from over 190 countries worldwide boarded jet planes, which consume more than 10% of our oil, to fly off to Paris to discuss how to wean the planet off of such fossil fuels, in the hopes of heading off catastrophic global warming...then there was the semi-annual meeting of OPEC in Vienna Austria, which a year ago at this time resulted in the decision not to cut back on output that started the crash in oil prices that continues to this day...

COP-21 started on Monday and still has a week to go, and if any agreement comes out of it, we'll have to wait years to find out if the promised emission reductions have been met...right now, it doesn't look good; China has already approved construction of an additional 155 coal generation power plants in the first 9 months of this year; India has permitted a similar number of new plants, as their coal-fired electric generating capacity grew 9.4% this year, Japan is building an additional 40 coal fired plants to replace their mothballed nuclear generating capacity, and Germany has also increased coal generation as they've shut down their nuclear plants...all told, the countries meeting in Paris are currently planning to build 2,440 coal-fired power stations in the not too distant future; so by 2030, plants now planned or under construction will increase global coal generating capacity by 40%...most of these new plants have 40 year life spans, which will at least serve to keep private coal mining from Federal lands in Wyoming and Warren Buffett's oil & coal hauling railroads in business for years....

Obama did announce that we would be contributing $30 million to climate risk insurance initiatives in the Pacific, the Caribbean, and Africa, for poor countries at risk of flooding from rising seas that threaten to submerge their populated areas...that's a big outlay; it's actually more than 1% of the cost of a new stealth bomber...meanwhile, back in the US, Americans bought new vehicles at a 18.12 million annual rate in November, marking the first time in our history we've bought new cars at that rate three months in a row...59% of November’s vehicle sales volume was classified as light trucks, ie, pickups and SUVs, as light trucks accounted for three out of every four vehicles sold by US auto makers last month, the highest mix of pickup and SUV deliveries as a percentage of vehicle sales in history.. and while Obama was speechifying in Paris, US trade negotiators were in Geneva working on the “technological neutrality” provisions of TISA (the Trade in Services Agreement), wherein frackers could dispute subsidies for solar or wind power as unfair, while US trade rep Michael Froman was back on Capitol Hill pushing the TPP and other trade agreements that would mandate the exports of our coal, oil & gas to half the world...

the point is that we have to judge what is actually accomplished as a result of this conference, rather than what is promised by the politicians coming out of it...if this conference ends with a plan to tear down all the coal generating capacity now being built, abrogate the trade agreements that we've already signed, and confiscate and junk all the newly purchased gas-guzzlers, then we'd judge that we're making progress towards a global climate solution.....but if it ends with speech making and platitudes like each of the prior climate conferences have, just figure COP-21 is all hot air, it's business as usual, and understand that a lot of jet fuel was burned for no good reason to boot...

Semi-Annual OPEC Meeting

meanwhile, this week's lead up to and speculation before the OPEC meeting was more interesting than the meeting itself, which essentially confirmed the status quo....Venezuela and Ecuador went to Vienna seeking an agreement to cut oil production to support prices, and on Wednesday the word came out of Shana, the Iranian oil ministry, that the majority of OPEC members favored an output cut....so oil prices quickly jumped a dollar in the hopes that cuts would be forthcoming, only to have the Saudis and other Gulf producers crush the rally with word they didn't support those cuts...the next day, probably playing to the media themselves, the Saudis then said they'd agree to production cuts if Iran, Iraq, and other non-OPEC countries, including Russia and Mexico, would also...but Iran has consistently maintained that any output cuts would have to be from other OPEC members, further stressing any OPEC limits would not be binding on them, and the Russians have never been party to any cutbacks, so OPEC pretty much went into Friday's meeting with little expectation of any agreement on production cuts...

so with the Saudis and other Gulf nations dictating policy, there was little room for disagreement, and the OPEC members emerged from their Friday meeting with the current output policies remaining in place...if there was a surprise, it was that they actually lifted their output ceiling to 31.5 million barrels per day, up from the current quota of 30 million barrels per day, which most analysis saw as just an acknowledgement of the reality that they're producing that much already; their October output was roughly 31.4 million barrels per day...at current levels, the global oil market remains oversupplied by as much as 2 million barrels a day, or about 2 percent of global output...in judging what the new OPEC production ceiling really means, the following chart from Bloomberg appears to be instructive...

OPEC targets and production December 4 2015

the above chart is pretty simple; in blue, they track the official OPEC output ceiling in mb/d (million barrels per day) as it's come from OPEC meeting communiques since early 1998, and in red they track the actual output of OPEC oil monthly over the same period...although the Bloomberg caption says they've exceeded their target for 18 months straight, perhaps it would be more accurate to say that they've exceeded their quota for 18 years straight...and looking at that graph for the times when they raised their quota to meet the actual production level like they did this week, it seems like each time they raised their quota, their output went up and away from the target shortly thereafter...

oil prices fell below $40 a barrel after the meeting, from $41.08 a barrel the day before, but the real crash in oil prices this week came after the EIA reports on Wednesday, when the US production and inventory buildup was larger than expected, and oil prices fell 4%, from a close of $41.85 on Tuesday to $39.94 on Wednesday...oil prices had been slightly lower in August, but this week was only the second time since 2009 when US prices closed below $40, and the selloff at the end of the day on Friday that drove prices to that level indicates that traders did not want to own oil at a price above $40 over the weekend...an even larger drop was seen in international oil prices, as Brent, the international benchmark,fell to a 6-Year Low at $42.49/bbl....for perspective, we'll include a graph of recent US prices here...

December 4 2015 oil prices

the above graph shows prices per barrel over the last 6 months for the January contract of the US benchmark oil, West Texas Intermediate (WTI), when it's stored at or contracted to be delivered to the oil depot in Cushing Oklahoma; trading for the contract for December delivery, with a similar price track, expired a couple weeks ago....other than the brief drop to $35 a barrel during the darkest days of the 2009 global financial crisis, we'd have to go back a dozen years to find a time when US oil prices were regularly below this level..

The Latest Oil Stats from the EIA

as noted, there was a small surprise in the latest oil patch data from the US Energy Information Administration, in that production of oil from US wells jumped enough to take it out of the range that it had been in 11 weeks...that was accompanied by a large jump in our oil imports, and an equally large increase in the amount of oil refined, which nonetheless still left us with more unused oil left over, which had to be added to our near record stores...our field production of crude oil rose to 9,202,000 barrels per day in the week ending November 27th, our greatest weekly output since August, and an increase of 37,000 barrels per day from the production rate of 9,165,000 barrels per day during the prior week...that was 1.3% greater than our production of 9,083,000 barrels per day during the 4th week of November last year, although it was still 4.2% below the modern weekly record production of 9,610,000 barrels per day that was set in the first week of June this year...so surprisingly, with all the oil company layoffs and cutbacks on capital spending we've seen this year, and oil drilling down by almost two-thirds, our output of oil remains elevated, and even looks like it's beginning to rise...

in addition to our increasing oil output, our imports of crude oil rose by 414,000 barrels per day to 7,747,000 barrels per day during the last week of November, which was also the most we've imported since the last week of August, when we imported 7,855,000 barrels per day, and the 5th largest weekly crude imports we've seen over the past year...not only was that 6.1% higher than our imports of 7,303,000 barrels per day in the last week of November 2014, the weekly Petroleum Status Report (62 pp pdf) tells us our imports have averaged 7.4 million barrels per day over the last 4 weeks, 0.5% more than the same 4 week period last year...

more than matching the increase in our imports, crude oil used by US refineries jumped by another 423,000 barrels per day in the week ending November 27th, as they're now processing 16,803,000 barrels per day of crude oil, the most since the record refinery throughput we saw during first week of August this year...crude oil consumption by US refineries has now increased by 1,166,000 barrels per day over the last 4 weeks and is 2.7% above the 16,356,000 barrel per day refinery throughput of the same week a year ago, as the US refinery utilization rate rose to 94.5%, up from 92.0% last week and up from 86.4% as recently as the 3rd week in October...with refineries running near flat out, our production of gasoline rose by 208,000 barrels per day to a 9,752,000 barrel per day rate, up from 9,544,000 barrels per day in the week ending November 20th, our production of distillate fuels, such as diesel and heat oil, rose from 5,023,000 barrels per day to 5,168,000 per day, and our production of kerosene type jet fuels rose from 1,648,000 barrels per day to 1,761,000 barrels per day during the week ending November 27th...only our production of propane/propylene feedstocks fell slightly, from 1,668,000 barrels per day in the week ending November 20th to 1,641,000 barrels per day during the week ending November 27th, the current week for this report...

you may recall that even last week we pointed out that refineries were now producing way more product that we were using, leading to building gluts in most of the refined products, so it only goes to reason that would have continued this week...our week ending supplies of gasoline rose by 135,000 barrels to 216,867,000 barrels as of November 27th, which was more than 8 million barrels above the year ago 208,567,000 barrels, and well above the upper limit of the average range for this time of year, even as we managed to increase our gasoline exports from 439,000 barrels per day to 616,000 barrels per day over the last 2 weeks...distillate fuel inventories (ie, diesel fuel and heat oil) jumped by more than 3 million barrels, rising from 141,364,000 barrels last week to 144,415,000 barrels as of November 27th, up 24.3% from 116,174,000 barrels the same week a year ago, as current heat oil consumption has collapsed.. inventories of kerosene type jet fuels also rose, from 37,216,000 barrels last week to 38,052,000 barrels this week, but remain the only major refined product where supplies remain in the lower half of their average range for this time of year...only stockpiles of propane/propylene fell from the record high they set last week, dropping from 106,202,000 barrels last week to 104,103,000 barrels this week, but they're still way above the average for this time of year, and up 31.1% from the 79,416,000 barrels we had stored on November 28th last year...

and once again this week, even with the big increase in refinery throughput to above normal levels, the nearly equal increase in our oil imports combined with the bounce in production left us with more than a million more barrels than we could use...as a result, our inventory of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose for the 10th week in a row, increasing from 488,247,000 barrels on November 20th to 489,424,000 barrels on November 27th, which works out to 110.1 million more barrels, or 29.0% more oil in storage, than the 379,335,000 barrels we had stored on November 28th a year ago...so we added nearly 35.5 million barrels to our stores in the last 10 weeks, and we now have the most oil we ever had stored anytime in November in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...

This Week's Rig Counts

the total number of active drilling rigs deployed in the US fell for the 6th week in a row in the week ending December 4th, despite an increase in gas drilling activity....Baker Hughes reported that the total active rig count fell by 7 to 737, as their count of active oil rigs fell by 10 to 545 while their count of active gas rigs rose 3 to 192...those totals were down from 1575 oil rigs, 344 gas rigs and 1 miscellaneous rig that were active as of the first weekend of December a year ago, as the count a year ago had already fallen from the peaks in October and November...notable this week was that a net of 5 Gulf of Mexico offshore platforms were shut down, leaving just 25 in use, down from 56 in the Gulf and 58 total offshore a year ago...however, we did see a new drilling rig set up on an inland lake in southern Louisiana, so there are now two operating on inland waters, down from 12 a year ago...

this week it was the vertical drillers who saw the largest decrease, as they were reduced by 5 to 104, which i imagine only goes to reason, since the Gulf of Mexico rigs must have been vertical...vertical rigs are now down from 354 a year ago, while this week the net count for active horizontal rigs was unchanged at 569, down from the 1368 horizontal rigs that were operating in the same week a year ago....two directional rigs were also removed, leaving 64, down from 198 direction rigs that were being run during the same week last year..

of the major shale basins, the Permian of west Texas again saw the largest reduction for the 4th week in a row, with 4 rigs removed, leaving them with 217, which was down from 568 in the same week last year...2 rigs were also pulled from the Williston basin of North Dakota, leaving that Bakken shale area with 60 active rigs, down from 189 a year earlier...the DJ-Niobrara chalk of the Rockies front range also saw a rig idled, leaving 25 active in the region, down from the 61 that were drilling there on the 5th of December 2014...meanwhile, both the Granite Wash of the Oklahoma-Texas panhandle region and the Cana Woodford of central Oklahoma saw single rigs added; the Granite Wash now has 13 rigs drilling it, down from 63 a year ago, while the Cana Woodford has 35, down from the 43 rigs that were active there a year ago at this time..

the Baker Hughes state count tables show that Louisiana saw the greatest rig reduction, as their net count was down by 4, as they saw 6 offshore rigs removed while 1 rig was set up on the aforementioned inland lake and another land rig started drilling on land nearby...the net Texas rig count was reduced by 3, as drillers added a rig offshore in the Gulf to the 2 they already had there, leaving Texas with 333, down from 896 a year ago...North Dakota drillers were down 2 rigs to 60, down from 180 a year ago, and Colorado and Utah both saw a rig idled...Colorado now has 27 active rigs, down from 70 a year ago, while Utah has 4 rigs deployed, down from last year's 23....meanwhile, both Oklahoma and Wyoming saw their active rigs increase by 2...Oklahoma is back up to 84, but still down from 211 a year ago, while Wyoming is back up to 22, but down from 59 a year ago...the rig counts in all other states were unchanged this week, and all but Alaska, where they have 12, up from 11, were lower than a year earlier...


(Note: more here)

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