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, April 17, 2016

while waiting for Doha, US oil supplies hit another record high, drilling hit another record low

oil markets, and most of those who write about them, were in a state of suspended animation most of this past week as they awaited results from the meeting of major global oil producers this weekend in Doha Qatar, where a freeze of oil production at current or at January levels is on the table...oil ministers and other officials of the members of OPEC, except for war-torn Libya and Iran, are participating, while non-OPEC oil producers Russia, Mexico, Azerbaijan, Oman, and Bahrain will also attend...several other large oil producers, including Canada, Norway and Brazil, won't be involved, with Norway declining to participate and releasing their invitation just this week...rumors and news of such a get together of OPEC and non OPEC oil producers has been a major factor in driving the price of oil higher over the past two months, as oil prices have typically jumped on reported comments by one of the participants favorable to such a freeze, while prices have fallen when official comments suggesting that it wont work out are reported on...the well publicized secret meeting between Saudi oil minister Ali al-Naimi and Russian energy minister Alexander Novak in Qatar on February 16th that started this ball rolling came less than a week after oil prices bounced off a 13 year low near $26 a barrel back on February 11th...
the upcoming meeting continued to influence oil prices early this week as well, as the front month contract price for US oil rose from last week's closing price of $39.58 a barrel to close Monday at $40.36 a barrel, then jumped nearly 5% to close at a 4 month high of $42.17 a barrel on Tuesday on headlines of a Russian-Saudi agreement for a "Production Freeze" ...however, as the EIA report of a larger than expected inventory buildup reminded oil traders that the oil glut is still with us, oil prices fell back to close at $41.76 a barrel on Wednesday...that, plus uncertainly on the Doha outcome weighed on prices the rest of the week, as oil closed at $41.50 a barrel and then $40.36 a barrel on Friday, ending the week at the same price as Monday's close...
writing this late Saturday afternoon, i had intended to speculate about what might happen at this Doha meeting, and what the possible outcomes and their effects might be...but i realized that since Doha is 7 hours ahead of us, what i write about it may already be moot by the time you read this...in fact, if you google "Doha OPEC" later this morning, you'll probably learn more about the results and their expected impact that i could guess at before the fact...suffice it to say that a large part of the recent oil price rally is based on the thinking that an agreement to freeze production would be reached, and that any breakup of the Doha meeting that doesn't at least put that forward will be bearish for prices...but on the other hand, since Russia, the Saudis, and most of the major producers save Iran are already producing flat out, an agreement to freeze at current levels won't do much to alleviate the glut that those current levels of production have already produced..
The Latest Oil Reports from the EIA and a Look at our Declining Oil Output
in a reversal of last week's oil patch activity, US refinery oil inputs dropped back to a more seasonal level this week while our oil imports returned to the same elevated level that we've seen all year, and hence the week again showed a large surplus of unused crude added to inventories, thus setting yet another record for US oil stores... Wednesday's reports from the US Energy Information Administration showed that our imports of crude oil averaged 7,940,000 barrels per day during the week ending April 8th, up by 686,000 barrels per day from the average of 7,254,000 barrels per day we imported during the week ending April 1st...that was 11.1% more than the 7,148,000 barrels of oil per day we imported during the week ending April 10th a year ago, and the EIA's weekly Petroleum Status Report (62 pp pdf) reports that the 4 week moving average of our oil imports was still at the 7.8 million barrel per day level, which was 4.1% above the same four-week period last year...  
at the same time, production of crude oil from US wells fell for the 11th time in the past 12 weeks, dropping by 31,000 barrels per day, from an average of 9,008,000 barrels per day during the week ending April 1st to an average of 8,977,000 barrels per day during the week ending April 8th, marking the first time our oil output has dropped below 9 million barrels per day since October 31st 2014...our oil production was hence down 4.3% from the 9,384,000 barrel per day level of the same week a year ago, and down 6.6% from the recent weekly record of 9,610,000 of oil production set in the week ending June 5th last year...we're going to take a closer look at that recent oil production history, starting with a graph that comes from this week's OilPrice Intelligence Report from oilprice.com...
April 8th oil production
as marked, the above graph shows our oil production in thousands of barrels a day since the beginning of 2014 to the current weekly report (for the week ending April 8th)….but notice there are two parts to that graph; the first part, in blue, shows the confirmed monthly figures up to and including January of this year, the remainder, in yellow, shows the weekly estimates of production since the beginning of February…the weekly data, which we report on, are just estimates extrapolated from a small sampling of reports, whereas once all the data is in, the EIA logs it as a monthly report, again as barrels per day of production, which supersedes the previously published weekly data...the confirmed monthly data, which you can sort of glean from the graph, indicates that our oil production peaked at 9,694,000 barrels per day during April of last year, dipped to 9,315,000 barrels per day in June, and then gradually moved up to 9,452,000 barrels per day in September, before beginning the slide that continues to this day...
the reason we want to look at this today is a report from the International Energy Agency (IEA), a Paris based energy think tank set up by the rich oil consuming nations, that projects that global oil markets will “move close to balance” in the second half of the year as US shale production drops...now, most estimates over the past year have put the global oversupply of oil at between 2.1 million and 2.6 million barrels per day, and it strikes me as unrealistic to think that US production could drop by that much by the end of this year...looking at US oil prices over the past year, we see it wasn't until August that oil prices fell below $50, and it wasn't until November that prices started their dive to below $40, where they've been most of 2016, during which time shale well completions virtually halted...our confirmed December production averaged 9,235,000 barrels per day, while our unconfirmed production averaged 9,043,000 during March, a decrease of not even 2.1% over the three months that oil was priced below $40 a barrel and oil field activity was at a near standstill...at that rate of decrease, our oil production would still be at 8,485,000 barrels per day by next December, certainly not enough of a decrease, even from the peak, to reduce a global oversupply of more than 2 million barrels per day anytime this year...remember, fracked shale wells see their largest depletion during the first few months of operation, and output tails off only slowly for years thereafter...therefore, once new wells are no longer part of the mix, the depletion rate for US production will slow....yet the IEA says it's the crash of US production, not a freeze from the Doha talks, that will lead to a rebalancing of global oil supply...
as we mentioned earlier, refinery processing of crude oil fell back by the most yet this year, after establishing early April highs last week...US refineries used 15,941,000 barrels of oil per day during the week ending April 8th, 492,000 barrels per day less than the average of 16,433,000 barrels per day they processed during the week ending April 1st, as the US refinery utilization rate fell to 89.2% of operable capacity last week, down from a 91.4% capacity utilization rate during the week ending the 1st...while the prior week's oil processing was 3.1% ahead of the year earlier pace, this week we were processing 1.7% less than the 16,212,000 barrels per day that US refineries had used during the week ending April 10th 2015...
with less oil being refined, refinery production of gasoline fell to average 9,568,000 barrels per day during week ending April 8th, down from our gasoline output average of 9,617,000 barrels per day during week ending April 1st...that output of gasoline was still up more than 3.4% from the 9,249,000 barrels of gasoline per day that we produced during the same week last year, a time when gasoline output was unusually depressed....at the same time, our refineries' output of distillate fuels (diesel fuel and heat oil) fell by 54,000 barrels per day to 4,784,000 barrels per day during week ending the 8th, which was also 211,000 barrels per day, or 4.2% lower than our distillates production during the same week of 2015...    
our lower production of gasoline, combined with a 101,000 barrel per day decrease in our imports of gasoline and an extraordinary 409,000 barrel per day increase in our demand for gasoline (see last metric) meant that gasoline had to be withdrawn from storage to meet that demand, and hence our gasoline inventories fell to 239,761,000 barrels by April 8th, down from the 243,998,000 barrels of gasoline we had stored as of April 1st...but this weeks stores were still 5.2% higher than the 227,873,000 barrels of gasoline that we had stored at the end of the same week last year, which were at the time the highest for the second weekend in April since 1993, and thus our gasoline stores are still well above the average range of their normal level for this time of year…at the same time, our distillate fuel inventories rose despite that lower production, increasing by 505,000 barrels to a total of 163,489,000 barrels as of April 8th...thus our stocks of distillates also remained well above the upper limit of the average range for this time of year, measuring 26.8% greater than the 128,941,000 barrels of distillates we had stored during the same week last year..   
finally, with the increase in imports and the slowdown in refining, we ended up with 6,634,000 more 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 536,531,000 barrels as of April 8th, up from the 529,897,000 barrels of oil we had stored on April 1st...that was 10.9% higher than the then record of 483,687,000 barrels of oil we had stored as of April 10th, 2015, and 36.1% higher than the 394,135,000 barrels of oil we had stored on April 11th of 2014....we've now increased our inventories of crude oil by by nearly 54 million barrels over the last 13 weeks, setting new records for the amount oil we had in storage in the US in 8 of the last 9 of them... 
This Week's Rig Count
for the sixth week in a row, we once again slowed to another all time low for drilling activity in the US, as Baker Hughes reported that their total count of active rigs drilling in the US fell by 3 rigs to 440 rigs as of April 15th, which was down from the 954 rigs that were deployed on April 17th of 2015, and down from the recent high of 1929 rigs that were working on November 21st of 2014... the count of rigs drilling for oil fell by 3 to 351, which was down from 734 a year earlier, and down from the recent high of 1609 working oil rigs that was set on October 10, 2014, while the count of drilling rigs targeting natural gas was unchanged at 89, off the record low by 1, down from the 217 natural gas rigs that were deployed a year ago, and down from the recent natural gas rig high of 1,606 that was set on August 29th, 2008...
three drilling rigs were started up in the Gulf of Mexico during the week, so the active Gulf platform count is now back up to 27, which is barely down from the 32 working in the Gulf and a total of 33 drilling offshore as of April 17th a year ago...at the same time, one of the rigs drilling through inland lakes in Louisiana was removed, so there are now 3 rigs remaining on inland waters, down from the 4 rigs that were set up on inland waters a year earlier... a net of 6 horizontal rigs were stacked this week, cutting the count of horizontal rigs down to 335, which was also down from the 741 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 stacked, leaving 51 directional rigs still running, which was down from the 91 directional rigs that were in use at the end of the same week a year earlier...meanwhile, a net of 4 vertical rigs were added, bringing the vertical rig count back up to 54, which was still down from the 122 vertical rigs that were in use on April 17th of last year... 
of the major shale basins, only the Cana Woodford of Oklahoma shut down as many as 2 rigs, as their active count fell to 30 rigs, down from 40 a year earlier...at the same time, the Arkoma Woodford of Oklahoma, the Eagle Ford of south Texas, the Marcellus of the northern Appalachians, the Mississippian of the southwest Kansas are, the Permian of west Texas and the Williston of North Dakota each saw one rig idled this week...those shutdowns left the Arkoma Woodford with 3 rigs, down from 6 a year earlier, left the Eagle Ford with 42 rigs, down from 123 a year earlier, left the Marcellus with 28 rigs, down from the 69 working there last year at this time, left the Mississippian with 4 rigs, down from 31 a year ago, left the Permian with 141 rigs, down from 258 rigs a year earlier, and left the Williston with 26 rigs, down from the 84 rigs working there a year earlier...meanwhile, only the Barnett shale of the Dallas area saw a single rig added; they now have 5 rigs actively drilling there, which is still down from the 6 rigs that were in use there a year ago...
the Baker Hughes state count tables indicate that Texas got rid of a net 3 rigs, still leaving 194 still drilling in the state as of April 15th, down from the 412 rigs that were deployed in Texas a year earlier...then Alabama, Alaska, North Dakota, Pennsylvania, and Wyoming each saw one rig removed...that left Alabama with 1 rig, down from 2 rigs on April 17th of 2015, left Alaska with 7 rigs, down from 12 a year earlier, left North Dakota, with 26 rigs, down from 83 a year earlier, left Pennsylvania with 16 rigs still drilling, down from 48 a year ago, and left Wyoming with 8 active rigs, down from the 23 rigs working the state a year earlier....at the same time, New Mexico added 2 rigs, bringing their count up to 19, which was still well down from the 49 rigs working New Mexico last year at this time...also, Kansas, Kentucky, Louisiana and Mississippi all saw a single additional rig set up...that brought Kansas up to 6 rigs, still down from 11 last year at this time, brought Kentucky up to 2 rigs, the same as they had deployed a year earlier, brought Louisiana up to 48 rigs, still down from last year's 72, and brought Mississippi up to 2 rigs, down from 4 rigs a year earlier...

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