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 27, 2015

US oil prices reach parity with global prices, and then some, et al

several times over the past year we warned that if the ban on exports of crude oil from the US was lifted, US oil prices would rise to the level of the international benchmark price, and we'd all end up paying higher prices for all the oil based products we use...at most of those times, US prices had been averaging between $5 and $10 less than global prices, which would have indicated a 10% to 20% increase from the $50 dollar a barrel oil we were then seeing...what we certainly didn't expect is that both US and international prices would be near $35 a barrel when that parity was reached, and that it would come about as international oil prices crashed, instead of while US prices were rising, but that's what happened this week...

last week we posted side by side graphics of the prices for the US benchmark oil, WTI (West Texas Intermediate), and the international benchmark of Brent oil...as Obama was signing the budget bill with the oil export clause last Friday afternoon, WTI oil prices were closing at $34.73 a barrel, down less than 50 cents for the week, while Brent prices had fallen more than a dollar to $36.88 on the same day...on Monday, after it was clear to all market participants that the US would be exporting crude, WTI contract oil prices rose more than a dollar to $35.81 a barrel, while Brent prices fell 50 cents to $36.38 a barrel...on Tuesday, prices of US oil reached parity with international prices, and then went on to close a bit higher, with WTI up to $36.14 a barrel while Brent fell to $36.11....the spread between US and global prices then widened the rest of the week, with US oil prices rising to $37.50 a barrel on Wednesday, while Brent had closed at $37.36, and then with US prices closing at $38.10 a barrel on Christmas eve after a half day's trading, after Brent had closed for the holidays at $37.89 a barrel...

so as of today, US oil prices are now 21 cents a barrel more than international prices, having increased more or decreased less each day of the past two weeks, while the prospect of US oil exports was in the news...that has wiped out the discount American refineries were seeing a year ago, when international oil prices were more than $6 a barrel higher than US prices, and it's a swing of more than $28 a barrel since the Spring of 2011, when US oil was $27.88 a barrel cheaper than Brent....now, as we pointed out last week, with oil prices more than $10 or as much as $25 lower than what the frackers need to break even, we aren't gonna see a rush to drill new wells to supply that international market anyhow, but with US prices now the same as what they're seeing overseas, oil refining companies are even more unlikely to be willing to pay the estimated extra $2 a barrel for a transoceanic shipment....that isn't to say it isn't going to happen at all; a Swiss company has already announced they'd be loading a 600,000 barrel cargo of South Texas Sweet crude in Houston next week for shipment to Europe after the first of the year...that would be a very light crude from the Eagle Ford shale, lighter than WTI, and like Bakken crude, said to be of a grade of oil preferred by some European refineries...but except for such special cases, or perhaps when a Latin American refinery would choose an American crude over say Bonny Light from Nigeria, we should not see a whole lot of oil exporting starting up just yet...so the additional 26,385 new oil wells that the Center for American Progress forecast would be drilled in the U.S. each year with the end of the export ban will likely be deferred until such time as the global oil pricing structure changes...

***

although it was a slow news week, the Columbus Dispatch ran an important four part investigative series titled "Wrong Track" on trains carrying volatile crude oil, a series which was also carried by several other Ohio newspapers...such train transport of explosive oil will eventually become more common with North Dakota's Bakken crude targeted for export through both Atlantic and Pacific ports... the Dispatch found that while Federal regulators are focused on improving the safety of the oil tanker cars, most crude oil train derailments are caused by human error or defective track; ie, an oil tanker car, even if it's defective, isn't going to explode into a fireball if it stays on the tracks...but even as crude by rail more than doubled over two years, there has been no increase in Federal rail inspectors since 2006...and although the railroads do hire their own inspectors, what they find is often not acted on; ie, the fiery derailment and explosion in Mount Carbon, W.Va, which forced 1,100 from their homes for 10 days, was caused by a split rail, which a CSX-hired inspector had known about beforehand...moreover, once a train goes off the rails and a fire starts, emergency first responders are woefully unprepared to deal with such derailments along the roughly 138,000 miles of track in the US, including 5,300 miles in Ohio....finally, to wrap up the series, the Dispatch explains how difficult it was to complete the series, as Federal and state regulators often collaborate with the railroads to keep the public in the dark; reports the Dispatch obtained from Illinois had the names of the railroads blacked out, while West Virginia authorities even redacted the names of the counties through which the oil bomb trains were rolling...

The Latest Oil Data from the EIA

this week's reports from the US Energy Information Administration indicated that our production of crude oil was virtually unchanged from last week, that we imported nearly a million barrels per day less than last week, that our refineries processed somewhat less crude, and that our crude oil inventories fell by almost 5.9 million barrels from the prior week... our field production of crude oil increased by just 3,000 barrels per day to 9,179,000 barrels per day in the week ending December 18th, up from 9,176,000 barrels per day during the week ending December 11th...that's nearly 0.6% above the 9,127,000 barrels per day output during the week of December 19th last year, a time when nearly 3 times as many oil drilling rigs were deployed than have been currently....our output of of shows no sign of letting up; field production over the last 8 weeks has stayed in a range roughly 50,000 more barrels per day than than we saw during the prior 8 weeks... 

however, our imports of crude oil were down by 986,000 barrels per day from last week, when they were at a 2 year high, as we imported 7,326,000 barrels per day during the week ending the 18th, down from 8,312,000 barrels per day during the week of the 11th....as a result, our imports this week were 11.6% below the 8,292,000 barrels per day we imported in the third week of December a year ago, a reversal of last week's imports, which were 17.0% above last year's second week in December...that weekly volatility in oil imports is why the EIA's weekly Petroleum Status Report (62 pp pdf) reports a four-week moving average of oil imports, which averaged about 7.9 million barrels per day in this week's report, 3.4% above the same four-week period last year...

meanwhile, the amount of that crude used by our refineries fell by another 143,000 barrels per day to an average of 16,468,000 barrels per day during the week ending December 18th; the third such weekly drop in a row, as the US refinery utilization rate fell to 91.3%, down from 91.9% last week and from a utilization rate as high as 94.5% four weeks ago...however, we still managed to process 0.8% more crude this week than 16,341,000 barrels per day we used the same week a year ago, when the refinery utilization rate was 93.5%....both production of gasoline and production of distillate fuels (diesel fuel and heat oil) decreased from last week, with gasoline output down by 617,000 barrels per day to 9,346,000 barrels per day, and output of distillates down by 169,000 barrels per day to 4,938,000 barrels per day...even with that large production shortfall, however, our week ending supplies of gasoline rose by 1,111,000 barrels, from 216,867,000 barrels as of December 11th to 220,495,000 barrels of gasoline in storage as of December 18th, which nonetheless meant that gasoline inventories slipped into the lower half of the average range for this time of year, as last year we were adding an average of 4 million barrels a week to our gasoline stocks during December...but even with reduced consumption of heat oil, distillate fuel inventories fell by 661,000 barrels, from 151,976,000 barrels as of December 11th to 151,315,000 as of December 18th, although distillate fuel supplies remained in the upper half of their normal range for this time of year...

however, even with refinery throughput lower, that big drop in our oil imports meant the refineries had to take oil out of storage to meet demands...our total inventories of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, fell by nearly 5.9 million barrels, dropping from 490,657,000 barrels on December 11th to 484,780,000 barrels on December 18th, which was still only the 2nd drawdown of our oil supplies in the last 13 weeks...that means we still had 30.8 million, or 6.8% more barrels in storage than the 453,969,000 barrels we had stored on September 18th of this year, and leaves us 25.2% above the 387,209,000  barrels we had stored on December 19th last year...so we still have the most oil we ever had stored in the 3rd week of December in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year....

finally, you might recall that a few weeks ago i complained that the weekly EIA totals we had for that week didn't add up...there was a bit of that sense again this week, so i tried sorting through the U.S. Petroleum Balance Sheet for the Week Ending 12/18/2015, which is Table 1 in the EIA's weekly Petroleum Status Report (pdf)...in that table, under the heading "Crude Oil Supply", on line 13 they include "Adjustments", which the footnote tells us is "Unaccounted-for Crude Oil" which their glossary tells us is "the arithmetic difference between the calculated supply and the calculated disposition of crude oil."...in other words, the weekly "Adjustments" are a fudge factor used by the EIA to make the week's new supply of crude balance with the week's disposition of that crude...this week the adjustment was a rather large -377,000 barrels per day, meaning, in effect, that 377,000 barrels per day were unaccounted for...in contrast with that, last week the adjustment was +254,000 barrels per day, or that the figures showed that we ended up with 254,000 barrels per day more than was apparently supplied...together, those adjustments give us a week to week swing amounting to 630,000 barrels per day in our oil supply, certainly enough to make virtually all the weekly figures suspect...interestingly, the large number of barrels unaccounted for comes near year end, when 2 of the largest states for oil storage, Texas and Louisiana, are going to be assessing crude oil and products in storage for their annual inventory tax...

Latest US Rig Counts

with the holiday, Baker Hughes reported the US and Canadian rig counts on Wednesday (December 23) instead of the usual Friday, so this week's rig count represents the change in drilling activity over just 5 days...over that period, the total count of rigs drilling for gas and oil in the US was down by 9 from December 18th to 700 rigs as of the 23rd, with active oil rigs down 3 to 538, and working gas rigs down 6 to 162...that was down from a total of 1,840 drilling rigs that were deployed on December 26th last year, of which 1499 were rigs drilling for oil, 340 were rigs targeting gas, and one was classified as miscellaneous...oil rigs had hit their fracking era high at 1609 on October 10, 2014, while the recent high for gas drilling rigs was 356, and occurred on November 11th last year...

all types of drilling rigs were shut down this week...there were 554 horizontal rigs in use this week, 5 fewer than last week, and down from 1350 horizontal rigs that were deployed in the the same week last year....the vertical rig count was down 1 to 86, and down from from 309 a year ago, while the directional rig count was down by 3 to 60, down from the 181 directional rigs that were in use as of the 4th weekend of December last year...24 drilling platforms remained in use offshore, all in the Gulf of Mexico, which was unchanged from last week but down from 56 in the Gulf and a total of 58 offshore last year at this time...

of the major shale basins, the Permian of west Texas again saw the largest change, as they added 6 rigs to bring their total to 212, which was nonetheless still down more than 60% from last year's 536...three other basins saw additions of a single rig: the Cana Woodford of Oklahoma, the Mississippian of southwest Kansas, and the Granite Wash of the Oklahoma-Texas panhandle region; the Cana Woodford was up to 39 rigs, but still down from 48 rigs working a year earlier, the Mississippian was up to 12, but down from 72 rigs a year ago, while the Granite Wash was up to 15 rigs, but down from the 52 rigs deployed there the same week last year....meanwhile, the Williston basin, centered in North Dakota, saw 3 rigs pulled out, leaving 55, down from 179 a year ago, and both the Fayetteville of Arkansas and the Haynesville of northwest Louisiana were down 2 rigs; the Fayetteville was left with 1 rig standing, down from 9 a year ago, while Haynesville still had 24 rigs deployed, down from 40 in the same week last year...in addition, the DJ-Niobrara chalk of the Rockies front range saw one rig stacked, leaving 23, down from 60 rigs as of a year ago...lastly, the always mysterious "other basins" saw a net reduction of 10 rigs, 6 oil and 4 gas, leaving these other basins with 167 rigs still deployed, down from 477 rigs working those basins on December 26th of last year..

the Baker Hughes state count tables show that both North Dakota and Wyoming saw their net rig count down by 3, with North Dakota's 55 rigs down from 169 a year ago, while Wyoming's 17 rigs was down from last year's 57...then both Louisiana and Arkansas saw 2 rigs taken out; that left Louisiana with 56 rigs working, down from last year's 111, while Arkansas was left with just 1 rig, down from 12 a year earlier...in addition, Alaska, Colorado, and Texas each saw their net rig count reduced by 1; in Alaska, they still had 11 rigs working, which was up from 10 a year earlier, while Colorado's count was down to 24 rigs from last year's 69, and Texas still had 319 rigs, down from 852 a year earlier...meanwhile, 2 additional rigs were deployed in Oklahoma, and both New Mexico and Kansas saw 1 rig added; those additions brought Oklahoma back up to 88, which was still down from 209 a year ago, while New Mexico had 38 rigs working as of the 23rd, down from 102 a year earlier, and Kansas had 12 rigs, down from the 29 drilling rigs that were deployed on December 26th of 2014...


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