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, June 5, 2016

[no] news from the OPEC meeting; US drilling increases for the first time since last August

the big story of this past week turned out to be not a story at all...the semi-annual meeting of the OPEC oil ministers at their headquarters in Vienna Austria produced no agreement on limiting oil output of its members, nor any other oil policy statements...about all they managed to agree on was the selection of Nigeria's Mohammed Barkindo as its new secretary-general, replacing Libya's Abdalla El-Badri, who completed his recent 3 year term...news before the meeting had pretty much discounted the possibility of a deal, as Iran had repeatedly rejected any notion of an output cap in statements beforehand, and there'd been no change in the Saudi position that they would not participate in any agreement that didn't limit Iran, resulting in the same impasse that torpedoed the Doha talks with Russia 7 weeks ago...so although oil prices dropped on the news of no deal, the decrease was quickly reversed the next day as oil traders refocused on fundamentals...

the latest report from OPEC did show that their output was down to 32.52 million barrels per day in May, from the near record production of 32.64 million barrels per day in April, as the disruptions to supply from Nigeria outweighed the increases in output from Iran, the Saudis, and other Gulf states...at the same time, Russian output fell slightly from its post Soviet Union high of 10.91 million barrels per day in March to average 10.83 million barrels per day in May, still well above the 10.2 million barrel per day average they saw in 2015....Canadian tarsands production restarted earlier this past week, and they expect to have full operations restored by this week, which will restore the million barrel per day output that was shut down when the Ft McMurray wildfire tore thru the region three weeks ago...

even with the disruptions to global supply, which we looked at in more detail a few weeks back, US oil prices seem to remain stuck in a range below $50 a barrel, occasionally trading at that price midday before falling to close near $49 a barrel each day this week..a similar price scenario has played out with the global oil benchmark Brent, which has been trading ~75 cents higher than its American counterpart over the past few weeks...prices for both fell to close at their lows for the week on Friday when Baker Hughes released active rig data, which showed an increase of 9 oil rigs, the most since the week ending December 18th 2015, and only the second increase in oil rigs this year...that suggests that some oil drillers think they can cover their drilling costs at these oil prices, which might likewise mean that some of the nearly 3000 DUC wells (drilled but uncompleted) may similarly soon be fracked, which could result in a production spike from US wells, further delaying oil market rebalancing, and ultimately sending oil prices lower...for the short term, however, the diminished Nigerian output seems to be the largest oil market influence; early last week their output was said to be cut to 1.1 million barrels per day, from their normal average of around 2 million barrels per day...furthermore, there were new attacks on Shell and Eni oil facilities on Friday; the Niger Delta Avengers tweeted that they had bombed several named crude oil pipelines operated by Italian oil giant Eni in southern Bayelsa state at about 0100 GMT, and that they blew up the 48-inch Shell Forcados export line about an hour later..

The Latest US Oil Stats from the EIA

this week saw another modest decrease in our field production of crude oil, coupled with a rebound of oil imports to near the average we we've seen most of this year...at the same time there was another modest drop in refinery activity, which nonetheless required another 1.4 million barrel withdrawal from our crude oil inventories.....this week's reports from the Energy Information Administration, delayed til Thursday because of the holiday, showed that our field production of crude oil fell by 32,000 barrels per day, from an average of 8,767,000 barrels per day during the week ending May 20th to an average of 8,735,000 barrels per day during the week ending May 27th...that leaves our output 8.9% lower than the 9,586,000 barrels per day that we were producing during the fourth week of May last year, and 9.1% 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, suggesting than unless we see a large production cut in the next two weeks, our one year drop in oil production will be less than 10% off the peak...our oil production has now been down 18 out of the last 19 weeks and is now 420,000 barrels per day lower than at the beginning of 2016... 

at the same time, this week's data indicated that our imports of crude oil rose by 524,000 barrels per day, from the average of 7,315,000 barrels per day we saw during the week ending May 20th, up to an average of 7,839,000 barrels per day during the week ending May 27th....that was 6.3% more than the 7,373,000 barrels of oil per day we imported during the week ending May 29th 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 remains at the 7.6 million barrel per day level, which was 8.3% more than our oil import rate during the same four-week period last year...

meanwhile, crude oil used by US refineries fell for the second week in a row, dropping to an average of 16,206.000 barrels per day during the week ending May 27th, 73,000 barrels per day less than the average of 16,279,000 barrels of crude oil per day they used during the week ending May 20th...the US refinery utilization rate inched up to 89.8% of operable capacity last week, from a 89.7% capacity utilization rate during the week ending May 20th, but that was still below the 93.2% capacity utilization rate of the week ending May 29th of 2015, when US refineries were processing an average of 16,407,000 barrels of crude each day... since this is the time of year refineries are usually running closer to capacity, it's possible the ongoing oversupply of downstream products with narrow margins is giving them cause to slow their normal operations...

even with less oil being refined, however, our refinery production of gasoline still rose by 50,000 barrels per day, as gasoline output averaged 9,916,000 barrels per day during the week ending May 27th, up from the average of 9,866,000 barrels per day of gasoline produced during the week ending May 20th...that was 5.4% more than the 9,408,000 barrels of gasoline per day we were producing during the same week last year, although the year ago month did see two weeks of gasoline production in excess of 10 million barrels per day...at the same time, our refinery output of distillate fuels (diesel fuel and heat oil) also increased, rising by 96,000 barrels per day to 4,757,000 barrels per day during the week ending May 27th...however, that was 5.3% lower than our distillates production of 5,025,000 barrels per day during the week ending May 29th, 2015, as last year’s distillates inventories were somewhat tighter...     

however, even with increased production of gasoline and distillates, inventories of both ended the week lower....our gasoline inventories fell by 1,492,000 barrels to 238,619,000 barrels on May 27th, after the surprise increase of 2,496,000 barrels during the week ending May 20th....that was as our total gasoline imports averaged 921,000 barrels per day, 12,000 barrels per day less than the prior week, and as the gasoline supplied to US markets rose by 200,000 barrels per day to 9,716,000 barrels per day, which was 8.2% higher than the 8,978,000 barrel per day consumption during the week ending May 29th last year, although that was a holiday week....still, this week's gasoline inventories were 8.3% higher than the 220,293,000 barrels of gasoline that we had stored on May 29th last year, and 12.7% higher than the 211,785,000 barrels of gasoline we had stored on May 30th of 2014...thus our gasoline supplies are still categorized as "well above the upper limit of the average range" for this time of year..

meanwhile, our distillate fuel inventories also fell by 1,255,000 barrels to end the week at 149,623,000 barrels, as diesel fuel was withdrawn from storage in all PADD districts except for the Gulf coast...however, since distillate inventories have been above normal since our warm winter reduced heat oil consumption, our distillate inventories were still 12.8% higher than the 132,612,000 barrels of distillates we had stored at the same time last year, and 26.7% higher than our distillates supplies as of May 30th 2014, and thus they're also characterized as "well above the upper limit of the average range" for this time of year...  

finally, even with the increase in crude imports and the refinery slowdown, we still found it necessary to draw another 1,366,000 barrels of oil from our stocks of crude oil in storage, which fell from 537,068,000 barrels as of May 20th to 535,702.000 barrels as of May 27th...also note that the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was a minus 74,000 barrels per day, which means that 74,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final figures...still, the stated oil inventory level was 12.2% higher than the 477,415,000 barrels of oil we had stored as of May 30th, 2015, and  37.6% higher than the 389,523 ,000 barrels of oil we had stored on May 30th of 2014....to illustrate that, we have a chart below which puts this year's oil inventories in perspective, as compared to recent years...

May 27 2016 oil inventories for June 4

the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics research, run by Dr Ed Yardeni...it shows the end of the week stocks of crude oil in millions of barrels for each week beginning with January 2012, up to and including this week's report for May 27th, with graphs for each year color coded as indicated...here we can clearly see that our oil inventories stayed in a narrow range between 2012 and 2014, represented by the mustard, green and blue bands, typically falling to 350 million barrels by the end of summer and rising to around 390 million barrels by early spring....however, at the beginning of 2015, represented by the grape colored graph, our inventories of oil started rising each week till they reached 490 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms...that continued into 2016, represented by the scarlet colored graph, which shows that our oil inventories rose from what were already record levels to new records up until the record high of the record high of 543,394,000 barrels was set on April 29th, and since then they've been falling at a slower rate than last year...although our supply of oil stored above ground (not counting what's in the government's Strategic Petroleum Reserve) is now down by 6,602,000 barrels from that record that was set 4 weeks ago, our oil inventories are still up by 53,378,000 barrels since the beginning of the year...

This Week's Rig Counts

as we mentioned earlier, this week saw the largest jump in active oil rigs yet this year, which contributed to the first increase in the overall rig count since August 21st of last year......Baker Hughes reported that the total count of active rotary rigs running in the US increased by 4 rigs to 408 rigs as of June 3rd, which was still down from the 868 rigs that were deployed as of the June 5th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...also as mentioned, the count of rigs drilling for oil rose by 9 rigs to 325, which was still down from the 642 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 5 rigs to a record low of 82, which was down from the 222 natural gas rigs that were drilling a year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas that was set on August 29th, 2008...there was also one rig running this week that was classified as miscellaneous, unchanged from last week but down from the 4 miscellaneous that were operating a year ago....

however, there had been rigs drilling both offshore and on inland waters that were shut down this week...a net three drilling platforms that had been deployed in the Gulf of Mexico were taken out of service this week, all of which had been drilling offshore of Louisiana...that cut the Gulf of Mexico active rig count down to 20 rigs, which was down from 27 a year ago, and reduced the total offshore count down to 21, as there still is an offshore platform working off the Cook Inlet in Alaska....at the same time, there was also a rig removed that had been drilling through an inland lake in southern Louisiana, which cut the inland waters rig count down to 5, which was up from the 4 rigs that were deployed drilling on inland waters at the end of the same week last year...

the number of working horizontal drilling rigs increased for the first time since November 13th, as horizontal rigs rose by 5 to 319 rigs this week, which still was down from the 673 horizontal rigs that were in use on June 5th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a single vertical rig was pulled down, leaving 44 vertical rigs still working, which was down from the 99 vertical rigs that were in use at the end of the same week a year earlier...meanwhile, the directional rig count was unchanged at 44 rigs, which was still down from the 96 directional rigs that were drilling 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 June 3rd, the second column shows the change in the number of working rigs from the prior week, the third column shows last weeks rig count, the 4th 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 June 5th of 2015:

Jun 3 2016 rig count summary

as you can see from the above, it continues to be fairly quiet across most of the country, with the only increase in horizontal drilling showing up in the Permian basin, where 5 rigs were added...it's purely speculative, but Pioneer Resources, one of the frackers who works in the Permian as well as elsewhere, has been talking about adding rigs, so that could be their operation that bumped up the rig count there...also note that despite the loss of three rigs offshore and one on an inland lake, Louisiana is only down by one rig this week; checking that, we find they added 3 land based rigs in the southern part of the state, which is not part of a major basin, so those were likely conventional drilling operations...also note that the addition of a single rig on land in Alabama is not included in the major state table above; that's currently the only rig working the state; last year at this time, Alabama also had just one rig active...

(more here)

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