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, May 22, 2016

an update on oil prices & what's moving them, another big fudge in EIA data, rig count still edging down..

we haven't covered the ongoing increase in the price of oil while we've been focused on the Utica shale over the past couple weeks, so we'll try to catch up on that first...the major factors that have been influencing oil prices over the past three weeks have been disruptions in the output of several producing counties that have reduced the total supply of oil to US and global markets....the largest of those disruptions, and the one having the most impact on the US, has been the out of control wildfires that have been burning for 3 weeks in the tar sands area of Alberta province in Canada and have now consumed a million and a quarter acres...that tar sands fire story has received fairly extensive coverage as it caused the evacuation of Fort McMurray, Alberta's 3rd largest city, and knocked out an estimated 1 million barrels, or 40%, of Canada's daily oil production...over the same period, there was an acceleration of rebel attacks on oil facilities and pipelines in Nigeria over the past two weeks, which started with 3,153 incidences of pipeline puncturings over the 12 months ending March and culminated in full scale attacks which shut down Chevron and Shell export terminals the week before last, shutting in 250,000 barrels per day of oil exports from Shell and 160,000 barrels per day from the Chevron operation and up tp as many as 800,000 barrels per day as Eni production was later knocked out...those and other disruptions prompted Goldman Sachs, who had been forecasting $20 a barrel oil earlier this year, to turn bullish on oil prices, driving US crude oil prices up $1.51 a barrel to close at $47.72 on Monday of this week after hitting a six-month high earlier that day...they included a graphic timeline of the current and expected oil supply disruptions along with their revised forecast, a copy of which we're including below...

2016 oil outages Goldman via zero hedge

the above graphic, taken from an article at Zero Hedge about the disruptions impacting the price of oil, shows a timeline of those oil production shutdowns that have taken place or are expected to continue over the period from February to December of this year...countries which have had or will have their oil output impacted are color coded across the bottom of the graphic, and the period and size of the expected oil output disruption is thus shown by the width of the corresponding band in the graphic, with the size of the disruption indicated in thousands of barrels of oil per day on the scale on the left....for instance, the March Kirkuk-Ceyhan oil pipeline sabotage, shown in grey, shut down Iraq's largest crude oil export line and knocked out over 500,000 barrels per day for almost a month, and as deliveries to Turkey are not expected to resume, an ~ 200,000 barrel per day grey bar extends from that outage through December, indicating expected future losses...in the current period, we see a large spike of 1,000,000 barrels per day of oil lost as a result of the Canadian fires in a smokey blue-grey color, the Nigerian shutdown in the darkest blue on the graph, and the Libyan export shutdown in red, all starting at roughly the same time, leading to nearly two and a half million barrels of oil being lost to the oil markets as of the current period, or enough to actually create a shot term oil deficit...while we see that Goldman expects the Canadian situation to be resolved by June, they expect Libyan supplies to be curtailed till August, and expect less that half of the Nigerian output to be restored before the end of the year...to show you how all of these oil supply disruptions have affected the price of oil, we'll include a graph of US oil prices below...

May 21 2016 closing price front month oil future

the above graph comes from a page at WTRG Economics which has the specifications for the WTI oil contract and it shows the daily closing price of the current oil contract over the past year...thus, unlike the graph we usually use, this graph shows the price of oil for June delivery from April 20th to May 20th, and before that shows the price of oil for May delivery from March 22nd to April 20th (trading for each contract expires on the third business day prior to the 25th calendar day of the month prior to the delivery month)...thus this graph captures the price of oil that's quoted daily by the media, and also shows when the price of oil for March delivery dropped as low as $26 a barrel in mid-February, a low never reached by other contracts....this week, the price of oil ran up to close as high as $48.35 a barrel on Wednesday, before falling back on the surprise report of an inventory buildup, to close the week at $47.75 a barrel as indicated, still up almost 4% for the week...as it turns out, the June oil contract expired on Friday, and hence the contract for July delivery, now priced at $48.41 a barrel, is now being quoted as the current price of oil....

The Latest US Oil Stats and Fudge Factor from the EIA

we're going to start off our review of the Petroleum Status reports for the week ending May 13th from the Energy Information Administration with the adjustment on line 13 of the EIA balance sheet (pdf), because this week's adjustment is by far the most significant change in the accounting of where our oil came from and where it went this week...to review, the footnote for line 13 identifies the adjustment as "Unaccounted-for Crude Oil, a balancing item"....the Glossary at the end of the EIA's weekly Petroleum Status Report (62 pp pdf) further explains that "Unaccounted-for Crude Oil represents the arithmetic difference between the calculated supply and the calculated disposition of crude oil. The calculated supply is the sum of crude oil production plus imports minus changes in crude oil stocks. The calculated disposition of crude oil is the sum of crude oil input to refineries, crude oil exports, crude oil burned as fuel, and crude oil losses."...as we pointed out last week, data for each of the oil statistics presented by the EIA weekly is collected and published separately, and often times they don't add up, due to variations in the samplings used for each statistic, so that adjustment line is essentially a fudge factor to account for the differences between the amount of oil coming into the system every day and the amount of oil going out, either as products used by consumers or as barrels stored...

the adjustment thus described this week was a positive 480,000 barrels per day...that means that the apparent amount of oil that ended up in refinery products or in storage or otherwise used at the end of the week was 480,000 barrels per day more than we should have had based on our oil production and imports over the same period....compounding that error in this week's data, last week's adjustment was minus 375,000 barrels of oil per day, meaning 375,000 barrels of oil that we appeared to have produced or imported last week did not show up in the final figures...does that mean that oil that disappeared last week showed up this week?  that could be part of what happened, but these statistical discrepancies don't always end up resolved at the end of any given period; for instance, over the last 4 weeks, the adjustment has averaged +107,000 barrels per day; year to date, the average is minus 60,000 barrels per day...the more important point is that our week to week comparisons become meaningless when there is a total swing in the adjustment of 855,000 barrels per day, or almost one-tenth the level of our production, from last week to this week, as the change in the fudge factor dwarfs the changes in all the important metrics..

with that in mind, then, this week's data showed production of crude oil from US wells fell by 11,000 barrels per day, from an average of 8,802,000 barrels per day during the week ending May 6th to an average of 8,791,000 barrels per day during the week ending May 13th ....that was 6.7% below the 9,419,000 barrels per day that we were producing during the second week of May last year, and 8.5% below the 9,610,000 barrel per day peak of our oil production that we saw during the week ending June 10th of last year...our oil production has now been down 16 out of the last 17 weeks and has now dropped by 444,000 barrels per day since the week ending January 15th...

meanwhile, the EIA reported that our imports of crude oil rose by 22,000 barrels per day, from an average of 7,655,000 barrels per day during the week ending May 6th to an average of 7,677,000 barrels per day during the week ending May 13th ...that was 6.6% more than the 6,881,000 barrels of oil per day we imported during the week ending May 15th a year ago, while the EIA's weekly Petroleum Status Report (62 pp pdf) reports that the 4 week moving average of our oil imports has slipped to the 7.6 million barrel per day level, which was still 8.8% more than our oil import rate of the same four-week period last year...   

with the apparent supply of oil thus little changed from last week, inputs of crude oil into US refineries increased by 192,000 barrels per day during the week ending May 13th from the prior week, averaging 16,371,000 barrels per day, now almost 1.0% higher than the 16,213,000 barrels per day US refineries were using during the same week last year....the US refinery utilization rate rose to 90.5% from 89.1% the prior week, but it's still well below the 92.4% utilization rate for US refineries that we saw during the week ending May 15th last year...so with the US supply of crude from imports and oilfields fairly flat and US refineries using 192,000 barrels per day more than last week, you'd figure that refineries would have had to pull some oil out of storage to meet their needs, wouldn't you?  well, that's not what the EIA reported; they say that we had a surplus of crude, and hence our stockpiles of crude oil in storage increased by 1,310,000 barrels to 541,294,000 barrels as of May 13th...that's the second highest week end total we've ever seen, topped only by the 543,394,000 barrels we had stored on April 29th....it's also 12.3% higher than the 482,165,000 barrels of oil we had stored as of May 15th, 2015, and 38.3% higher than the 391,297,000 barrels of oil we had stored on May 16th of 2014....

at any rate, even with more oil apparently being refined, our refinery production of gasoline fell by 54,000 barrels per day, averaging 9,997,000 barrels per day during the week ending May 13th, down from the average 10,051,000 barrels of gasoline per day produced during the week ending May 6th...that was 3.6% more than the 9,651,000 barrels of gasoline per day we were producing during the same week last year, however, as our year to date gasoline output is still running well ahead of last years pace...at the same time, our refinery output of distillate fuels (diesel fuel and heat oil) increased, rising by 160,000 barrels per day to 4,770,000 barrels per day during week ending May 13th, which was still 1.5% lower than our distillates production of 4,844,000 barrels per day during the same week of 2015...    

even with the elevated level of gasoline production, our gasoline inventories fell by 2,496,000 barrels to 238,068,000 barrels, from the 240,564,000 barrels of gasoline we had stored on May 6th...that was as our imports of gasoline fell by 88,000 barrels per day to 691,000 barrels per day during the week ending May 13th, and as the gasoline supplied to US markets rose by 97,000 barrels per day to a near record 9,755,000 barrels per day, just shy of the 9,762,000 barrel per day record gasoline consumption we saw during the week ending August 18th of 2007...but despite the big drawdown of gasoline supplies, this week's gasoline supplies were still 6.3% higher than the 223,936,000 barrels of gasoline that we had stored on May 15th last year, and thus our gasoline stores are still categorized as "well above the upper limit of the average range" for this time of year.. 

our distillate fuel inventories also fell, dropping by 3,170,000 barrels to end the week at 152,162,000 barrels....that's a fairly normal spring planting season drawdown on distillates supplies, and since distillate inventories were already elevated after the warmer than normal winter reduced heat oil consumption, distillate inventories are still 19.1% higher than the 127,724,000 barrels of distillates we had stored at the same time last year...thus, like gasoline, our stores of distillates are also still characterized as "well above the upper limit of the average range" for this time of year...  

This Week's Rig Count

this week saw the smallest net drop in the the number of active rigs drilling in the US thus far this year, but it was still a drop from the record low of last week, so once again we have another record low for drilling activity this week, as the US rig count has now dropped for 39 weeks in a row and set new all time lows for the past 11 consecutive weeks.....Baker Hughes reported that the total count of active rotary rigs running in the US was down by 2 rigs to 404 rigs as of May 20th, which was also down from the 885 rigs that were working as of the May 22nd report last year, and down from the recent high of 1929 rigs that were deployed on November 21st of 2014... the count of rigs drilling for oil was unchanged at 318, which was still down from the 659 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 working oil rigs that was reported on October 10, 2014, while the count of drilling rigs targeting natural gas formations fell by 2 to a record low 85, which was down from the 222 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that was set on August 29th, 2008...there was also one rig deployed that was classified as miscellaneous, unchanged from last week but down from the 4 miscellaneous that were operating a year ago....

there were, however, rigs added both offshore and on inland waters this week...a net of two more drilling platforms were deployed in the Gulf of Mexico this week than last; that came as the lone platform offshore of Texas was shut down and three started drilling offshore of Louisiana...those changes brought the Gulf of Mexico active rig count back up to 23, still down from 28 a year ago, and brought the total offshore count up to 24, down from 29 a year ago....at the same time, there were also 3 rigs set up to drill through inland lakes in southern Louisiana this week, which brought the inland waters rig count up to 5, up from the 3 rigs that were deployed drilling on inland waters at the end of the same week last year...

the count of working horizontal drilling rigs was down by 1 rig to 314 rigs this week, which was down from the 683 horizontal rigs that were in use on May 22nd  of last year, and down from the recent record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 5 vertical rigs were also stacked, leaving 48 vertical rigs still working, which was down from the 117 vertical rigs that were in use at the end of the same week a year earlier...however, the directional rig count rose by 4 rigs to 42, which was still down from the 85 directional rigs that were up and running in the US during the same week last year...    

for the details on which states and which shale basins saw changes in drilling activity this past week, we're again going to include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes...  the first table below shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas basins...in both tables, the first column shows the active rig count as of May 20th, second column shows the change in the number of working rigs from the prior week, the third column shows last weeks rig count, the fourth column shows the change in the number of rigs running from the same week a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was May 22nd of 2015:

May 20 2016 rig count summary

we can see from these tables that this week's net change of two rigs hides a lot of changes in activity that one wouldn't notice without checking these details...for instance, in the second table we see that the Permian basin of western Texas saw three rigs added, but even so, the entirety of the state of Texas was still down by 8 rigs to 173 rigs this week, and down from 373 rigs a year ago...since rig reductions in the Eagle Ford of south Texas and the Barnett Shale of the Dallas-Ft Worth area only account for part of that, it's be a fair guess that the most of the conventional vertical oil rigs that were pulled out this week probably came from that state...also note that the first table above only includes the major producing states, and hence the retirement of the single rig that had been operating in Alabama was missed by this overview...a year ago, there were 2 rigs deployed in Alabama...



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