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, March 20, 2016

oil prices now 50% higher on OPEC / Russian freeze talk, record low rigs and record high oil stores again

this week's news is the same as last week's news was, since we beat the two records that we headlined last week's news with, albeit in a somewhat less spectacular fashion...US oil and gas drilling activity, which last week fell to a 150 year low through a reduction of the number of active rigs by 9, was even slower this week, as an additional 4 drilling rigs were idled...and we also added to our record levels of crude oil in storage, thus setting a new record for our oil inventories for the 5th week in a row, as we added another 1.3 million barrels to storage, again a bit less impressive than when we added a near record 10.4 million barrels to storage to set a new record two weeks ago...

otherwise, it was a rather slow week for news from the fracking patch, with little of the news meriting digging for any further details than are included in the links below (see here)...oil prices rose once again this week, with international prices topping $42 a barrel on Thursday, a high for 2016, on continuing reports that OPEC and Russia will be meeting in April in an attempt to freeze crude oil output at current levels...prices for US crude, which had closed last week at $38.50 a barrel, initially fell around 2 percent to close at $37.18 a barrel on Monday after Iran refused to join OPEC discussions until its own output reached the pre-embargo levels of 4 million barrels per day...oil prices then fell again to close at $36.34 a barrel on Tuesday, as traders focused on the expected increase in record oil inventories...global oil prices then rose on the Wednesday announcement that OPEC and other major oil producers would meet in Qatar on April 17 to discuss an oil production freeze, with US crude closing at $38.46 a barrel...prices then added to their gains on Thursday, as the Wall Street Journal reported that the Saudis were open to a freeze without Iran's participation, after which US prices approached $41 a barrel before falling back to close at $40.20, the first US close above $40 since December 4th....crude prices then fell from those highs to close at $39.44 a barrel on Friday after the release of the U.S oil rig count, which showed that despite prices that had been in the $30s, some drillers had even restarted idled oil rigs...to put that all in perspective, we'll include the weekend graph of oil prices over the last 3 months below..

March 19 2016 oil prices

to explain once again, the above graph shows the daily closing contract price per barrel for April delivery of the US benchmark oil, West Texas Intermediate (WTI), as traded on the New York Mercantile Exchange over the last 3 months...since this graph references the current contract price for April, it doesn't show that when the March contract was the current contract, oil for March delivery had traded as low as $26.02 a barrel on February 11th, which was then the widely cited 13 year low price for oil....hence, at $39.44 a barrel, this weekend's oil price is up more than 50% from that low, partially on speculation that OPEC and Russia will make a deal, not even considering whether they will hold to what terms they might set....although i didn't see the press conference in question, a CNBC oil analyst characterized Saudi oil minister Ali al-Naimi as smirking when talking about such a deal...so whether it will come to pass is still seriously questionable, but the market participants still believe it enough to move the price, and al-Naimi is an old fox who knows how to play the media, so it's quite possible that between him and Russian oil minister Alexander Novak, who has also been speaking positively to the media about a possible deal, the two of them could talk the price of oil up to $50 a barrel without touching a drop of their oil output...

The Latest Oil Stats from the EIA

as we mentioned in opening, US supplies of crude oil in storage rose to another new record this week, but less oil was added to storage than in previous weeks, because our imports fell back from the two year highs of recent weeks, while our own production of crude continued to slow slowly....this week's Energy Information Administration data showed that our field production of crude oil fell by 10,000 barrels per day to 9,067,000 barrels per day during the week ending March 11th, from 9,077,000 barrels per day during the week ending March 4th...that's now 3.7% below the 9,419 ,000 barrels per day we produced during the week ending March 13th last year, and the lowest our oil production has been since the 2nd week of November in  2014...

meanwhile, our imports of crude oil, the other major source of our domestic crude supply, fell to an average of 7,693,000 barrels per day during the week ending March 11th, dropping by 355,000 barrels per day from the average of 8,048,000 barrels per day we imported during the week ending March 4th and down by more than 7.2% from the 2 year high of 8,292,000 barrels per day that we imported during the week ending February 26th... however, that was still 2.6% more than the 7,496,000 barrels per day we were importing during the same week of last year, and our 4 week moving average of imports reported by the weekly Petroleum Status Report (62 pp pdf) is still nearly at the 8.0 million barrel per day level, 10.0% above the same four-week period last year...  

while our supply of crude was thus lower this week, refineries increased the amount they used again, as they processed 15,996,000 barrels per day during the week ending March 11th, 85,000 barrels per day more than the 15,911,000 barrels per day the were processing during the week ending ending March 4th, even though the US refinery utilization rate slipped to 89.0%, down from 89.1% during the week of the 4th..still, that was still the highest refinery capacity utilization rate for the 2nd week of March since 2005, so refineries are ahead of schedule on changing over to their summer blends...so we're thus using 3.6% more crude than the 15,436,000 barrels per day we were using during the week ending March 13th last year, when refineries were operating at 88.1% of capacity...

with more oil being refined, our refinery production of gasoline rose by 435,000 barrels per day to 10,015,000 barrels per day during week ending March 11th, up from the 9,580,000 barrels per day of gasoline we produced during week ending March 4th, and up 2.7% from the 9,754,000 barrel per day gasoline production we saw last year during the week ending March 13th, which had been, until this week, a record for March gasoline output....at the same time, our output of distillate fuels (ie, diesel fuel and heat oil) also rose, increasing by 37,000 barrels per day to 4,781,000 barrels per day during week ending the 11th, which was still a bit lower than  our distillates production of 4,807,000 barrels per day during the same week of 2015... 

however, even with record levels of gasoline production production for any time in March, and a 151,000 barrel per day increase in gasoline imports to 716,000 barrels per day, we apparently still needed to draw gasoline our of storage to meet this week's demand, as our gasoline inventories fell by 747,000 barrels from last week's report to 249,716,000 barrels as of March 11th...now, that was still 6.1% higher than the 235,400,000 barrels of gasoline that we had stored at the same time last year, which was then the highest in years, and still what the EIA characterizes as "well above the upper limit of the average range" in the weekly Petroleum Status Report...but it's been a puzzle that we'd be drawing down our supplies now, that our gasoline production is hitting records, whereas as recently as 3 weeks ago we were still adding to those supplies with considerably less production; in fact, we had added to our gasoline supplies 14 weeks in a row until then, setting records for gasoline supplies each of the last 4 of those weeks...the next graph from the EIA goes a long way in explaining why that happened:

March 15 2016 gasoline demand

the above graph comes from “This Week in Petroleum – Gasoline Section” published by the EIA on March 16th and it shows the 4 week average of US demand for gasoline in millions of barrels per day each week over the past year in blue, and over the preceding year in brown…what you'll notice there is that our demand for gasoline, which had generally been running several hundred thousand barrels per day ahead of last year's, slipped below last year's demand in November, and then fell well below January 2015's demand in January 2016, at which time i endeavored to attempt to explain "why our consumption of gasoline is falling"...no sooner than the pixels were dry on that post than our demand for gasoline started rising again, and is now approaching 500 thousand barrels per day more than it was a year ago at this time...i have no special insight as to why this happened, but just thought pointing it out was necessary for anyone who had been puzzled by the shift in the gasoline storage metrics as i was...

at any rate, our inventories of distillate fuels also fell, decreasing by 1,135,000 barrels end the week of March 11th with 161,343,000 barrels in storage.....but because of the unseasonably mild winter, the drawdown of heating oil has been much less than normal, and our stocks of distillates remained above the upper limit of the average range for this time of year, measuring 28.2% greater than the 125,883,000 barrels of distillates we had stored during the same week last year.. similarly, our inventories of other major petroleum products are also running above well their normal range; residual fuel inventories are at 45,274,000 barrels, 20.7% higher than the 37,495,000 barrels we had stored at the end of the 2nd week of March last year; jet fuel inventories, at 44,390,000 barrels, are 16.0% higher than the 38,240,000 barrels we had stored a year ago; and inventories of propane and propylene feedstocks are at 62,500,000 barrels, 15.1% higher than the 54,284,000 barrels we had stored at the end of the same week a year earlier...

finally, even with the lower imports and the pickup in refining,  we still had 1,317,000 barrels of unused crude oil left over at the end of the week, and hence our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose once again to a new record of 523,178,000 barrels as of March 11th, up from the record 521,861,000 barrels of oil we had stored on March 4th..that was 14.1% higher than the then record of 458,508,000 barrels of oil we had stored as of March 13th, 2015, and 39.2% higher than the 375,852,000 barrels of oil we had stored on March 14th 2014...so we've now increased our inventories of crude oil by 40.6 million barrels over the last 9 weeks, setting new records for the amount oil we had in storage in the US in 7 of them... 

This Week's Rig Count

as we mentioned, the past week also saw another net decrease in the number of rotary rigs actively drilling for oil and gas in the US, and that meant we had another record low for the rig count in the history of such records, and likely for the history of the oil and gas industry in the US...Baker Hughes reported that the total count of active rigs fell by 4 to 476 as of March 18th, as rigs targeting natural gas fell by 5 to 89, while the oil rig count rose by 1 to 387 in the first increase in oil rigs since December...those net totals were down from the 242 natural gas rigs, 825 oil rigs, and 2 miscellaneous rigs that were in use a year earlier, and well off the records of 1609 working oil rigs set on October 10, 2014 and the recent gas rig record of 1,606 that was set on August 29th, 2008... 

breaking down the changes by type of rig, the week ending March 18th saw a net of 6 horizontal rigs stacked, leaving the count of horizontal rigs at 369, which was down from the 826 horizontal rigs that were in use the same week last year, and down from the recent record of 1372 horizontal rigs that were drilling on November 21st of 2014...at the same time, a single directional rig was also removed, dropping the directional rig count down to 49, which was down from the 92 directional rigs that were in use on March 20th of last year...meanwhile, a net of 3 vertical rigs were added, bringing the vertical rig count back up to 58, which was still down from the 148 vertical rigs that were in use the same week a year earlier...

of the major shale basins, the Cana Woodford of Oklahoma was down 3 rigs to 34, which was down from the 40 rigs working that basin on March 20th last year...meanwhile, the Arkoma Woodford of Oklahoma, the Haynesville of Louisiana, the Mississippian of southwest Kansas and bordering states, the Utica of eastern Ohio and the Williston of North Dakota all saw single rig reductions; that left the Arkoma Woodford with 3 rigs running, down from 6 a year earlier, left the Haynesville with 14 rigs, down from 34 a year earlier, left the Mississippian with 7 rigs, down from the 44 rig drilling there last year at this time, left the Utica with 10 rigs, down from 30 a year ago, and left the Williston with 31 rigs, down from 99 a year earlier...at the same time, a net of two rigs were added in the Eagle Ford of southern Texas, where the rig count stood at 45 at the weekend, down from 138 a year earlier...

hence, the state count tables also showed that Texas had added two rigs over the past week, and they now have 217 rigs deployed, which is still down from the 465 rigs that were working the state on March 20th last year…at the same time, 2 rigs were pulled out of New Mexico, where 13 rigs remain, down from 53 a year earlier...the 4 states losing one rig each line up pretty well with the basin counts; the Kansas rig count was down 1 to 8, and down from 12 a year earlier; North Dakota was down 1 rig to 31, and down from 98 rigs a year earlier; the Ohio count was down 1 to 10 rigs and down from 28 rigs a year earlier, and the Oklahoma rig count was also down 1 rig to 66 and down from 136 rigs working a year earlier...


as noted above, there is more here...

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