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 12, 2016

oil prices double from recent lows, cheaper gasoline hits refinery margins, global rigs ex-Americas up 24

oil prices rose to 8 month highs on Wednesday of this past week, nearly double the February lows, but dropped back to near where they started the week after unexpected and unseasonal increases in gasoline and distillate inventories, an incremental increase in our oil production and another increase in the oil rig count...US WTI crude prices, which had closed last Friday down 53 cents to $48.62 a barrel, opened higher and rose to close at $49.10 on Monday after news of three more attacks on Nigerian oil infrastructure over the weekend...oil prices continued rising on Tuesday on Nigerian worries, and closed the day at $50.36 a barrel after the American Petroleum Institute indicated a 3.56 million barrel drop in US oil supplies for the week...prices also rose Wednesday morning but turned chaotic with the afternoon release of the official EIA data, which confirmed the large drop in oil supplies, but also showed increases in oil production, gasoline supplies, and distillate supplies...oil fell from $51.17 a barrel to $50.82 a barrel in the first two minutes after the news release, then spiked to $51.34 a barrel three minutes later, before drifting lower and closing for the day at $51.23...oil then fell $1 a barrel early Thursday on profit taking and a half percent increase in the value of the US dollar (higher dollar value raises prices in foreign currency, lowers it in dollars) and then rose back to settle at $50.56 at the close...oil prices continued falling Friday after Baker Hughes showed the second consecutive increase in oil drilling rigs, and closed the week at $49.07 a barrel down nearly 3% for the day...we'll include a 2 year oil price graph here, since it's been a while since we've shown the long view of what price changes have transpired since OPEC production flooded the markets and drove oil prices down...

June 11 2016 WTI oil prices for July

the above graph shows the end of the week prices per barrel over the last 2 years for the July contract of the US benchmark oil, West Texas Intermediate (WTI), when it's stored at or contracted to be delivered to the oil depot in Cushing Oklahoma...since this graph only shows prices for July delivery, the record low prices near $26 a barrel of late February for March delivery would not be shown; but we can see that July oil had dipped below $30 a barrel at that time, while March oil was trading near $26...similarly, prices for this July contract have tended to be higher than the currently quoted price over this price history, just as all oil futures prices have been higher than currently quoted prices, setting up the contango trading we saw so much of last year, wherein traders would buy oil at current prices, enter into a contract to sell it at a higher price at some future date, and then pay for the storage costs until that date...the price differential is not so extreme now, but even today the contract for July 2017 oil is priced at $52.15 a barrel, more than 6% higher than the July 2016 price...with contract prices now generally over $50 a barrel, we're now seeing a modest increase in drilling, as well as the first nominal increase in oil production...Continental Resources said this week that they have now begun completing some of the drilled but uncompleted wells (DUCs) in the Bakken formation, now that oil prices are at $50 per barrel; we assume other oil frackers will do the same, sooner or later...

The Latest Oil Stats from the EIA

as we've already mentioned, this week's oil data from the US Energy Information Administration showed a seasonally significant drop in our oil inventories, offset by increases in our gasoline and distillate inventories, as refineries used more crude than they had in any week over the past two months, while our imports of crude were modestly lower....also as mentioned, our field production of crude oil rose by 10,000 barrels per day, from an average of 8,735,000 barrels per day during the week ending May 27th to an average of 8,745,000 barrels per day during the week ending June 3rd...though that was the largest increase in our production since the week ending January 1st, it was only the 2nd increase in the past 20 weeks, so our production is thus still 9.1% lower than the 9,610,000 barrel per day oil production that we saw during the week ending June 5th of last year, which as it turned out was the high for the year...that increase in oil output was not an indication of an increase in fracking, however, as the entirety of the increase came by way of an 18,000 barrel per day increase in Alaskan production...

at the same time, our imports of crude oil fell by 134,000 barrels per day to average 7,705,000 barrels per day during the week ending June 3rd, down from the average of 7,839,000 barrels per day we were importing during the week ending May 27th...while that was 16.3% more than the 6,623,000 barrels of oil per day we imported during the week ending June 5th a year ago, oil imports are typically volatile week to week, so the EIA's weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average...that metric showed that the 4 week average of our imports was still at the 7.6 million barrel per day level, which was 9.5% above the same four-week period last year... 

meanwhile, U.S. refineries’ crude oil inputs averaged 16,417,000 barrels of per day barrels during the week ending June 3rd, which was 211,000 barrels per day more than the 16,206,000 barrels of crude per day they processed during the week ending May 27th, as the US refinery utilization rate rose to 90.9% during the week, from 89.8% of capacity the prior week...that crude usage was still 1.0% lower than the 16,576,000 barrels per day US refineries used during the week ending June 5th last year, when US refineries were operating at 94.6% of capacity...part of the reason for the current refining slowdown may be that gasoline profit margins have shrunk to their lowest since 2010, as gasoline prices have been falling over the past 4 weeks even as oil prices rose...with the global glut of refined products, some gasoline markets have even gone into "backwardation", which means that future contract prices are lower than those currently quoted, meaning losses for every barrel of gasoline stored...

still, with more oil being refined, our refinery production of gasoline rose by 206,000 barrels per day, as gasoline output averaged 10,122,000 barrels per day during the week ending June 3rd, up from the average of 9,916,000 barrels per day of gasoline produced during the week ending May 27th...that was 1.1% more than the 10,007,000 barrels of gasoline per day we were producing during the same week last year, and the most gasoline we've produced in any week since the middle of last August....at the same time, our refinery output of distillate fuels (diesel fuel and heat oil) also increased, rising by 81,000 barrels per day to 4,838,000 barrels per day during the week ending June 3rd...however, that was still 4.8% below our distillates production of 5,083,000 barrels per day during the week ending June 5th of last year, as 2015 distillates inventories were somewhat tighter, promoting more production...      

however, in contrast to last week, when increased production of gasoline and distillates did not add to inventories, inventories of both products ended this week higher....our gasoline inventories rose by 1,010,000 barrels to 239,629,000 barrels as of June 3rd, the second large unseasonal increase in the past 3 weeks, leaving our gasoline inventories little changed since mid-April, at a time of year when they're usually being used up....that was despite a 94,000 barrels per day drop to 815,000 barrels per day in our gasoline imports, as the gasoline supplied to US markets fell by 148,000 barrels per day to 9,568,000 barrels per day, which was also down from the 9,600,000 barrel per day consumption during the week ending June 5th last year....as a result, this week's gasoline inventories were 10.2% higher than the 217,354,000 barrels of gasoline that we had stored on June 5th last year, and 12.2% higher than the 213,482,000 barrels of gasoline we had stored on June 6th of 2014...so it's no surprise that our gasoline supplies are still categorized by the EIA as "well above the upper limit of the average range" for this time of year.. 

at the same time, our distillate fuel inventories also rose by 1,754,000 barrels to end the week at 149,623,000 barrels, as distillates were added to storage on both the east and west coasts...with distillate inventories already above normal after our warm winter reduced heat oil consumption, our distillate inventories were thus 13.4% higher than the 133,477,000 barrels of distillates we had stored at the same time last year, and 27.3% higher than our distillates supplies as of June 6th 2014, and thus they're also characterized as "well above the upper limit of the average range" for this time of year...   

finally, with the drop in crude imports and the increase in refining, we needed to draw 3,226,000 barrels of oil from our stocks of crude oil in storage, which fell from 535,702.000 barrels on May 27th to 532,476,000 barrels as of June 3rd... the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was a negligible minus 5,000 barrels per day, which means that 5,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final figures...thus our oil inventory level on June 3rd was 13.1% higher than the 470,603,000 barrels of oil we had stored as of June 5th, 2015, and  37.6% higher than the 386,927,000 barrels of oil we had stored on June 6th of 2014...hence, since our oil inventories are still off the charts, it goes without saying that they too are "well above the upper limit of the average range" for this time of year..."

This Week's Rig Counts

as we mentioned in opening, drilling for oil and gas increased this week for the 2nd week in a row, after the overall rig count had not previously increased in any week since August 21st of last year.....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 6 rigs to 414 rigs as of June 10th, which was still down from the 859 rigs that were deployed as of the June 12th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the count of rigs drilling for oil rose by 3 rigs to 328, which was still down from the 635 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 also rose by 3 rigs from last week’s record low to 85 this week, which was down from the 221 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 3 miscellaneous that were operating a year ago....

there were no changes in either offshore or inland lakes rig counts this week; the Gulf of Mexico active rig count remains at 20 rigs, which was down from 29 a year ago, while the total offshore count remains at 21, as there still is an offshore platform drilling off the Cook Inlet in Alaska...the number of working horizontal drilling rigs increased for the second week in a row, after never rising in prior weeks this year, as working horizontal rigs rose by 4 to 323 rigs, which still was down from the 663 horizontal rigs that were in use on June 12th 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 also added, bringing the vertical rig count up to 46, which was down from the 101 vertical rigs that were in use at the end of the same week a year earlier...there was also a directional rig added this week, increasing the directional rig count to 45 rigs, which was still down from the 95 directional rigs that were drilling in the US during the same week a year earlier..    

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 for each state or basin as of June 10th, 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 12th of 2015: 

June 10 2016 rig count summary

as you can see, there were more basin variances over this past week than the week before, when only 3 shale fields saw rig count changes...that the largest increases in drilling were seen in Texas and North Dakota is no surprise, nor are the single rig increases in Alaska, Oklahoma, Ohio and Utah....there's obvious gas rig changes in the Haynesville, the Marcellus, and the Utica, where another rig has been added, while the Mississippian lime of the Kansas Oklahoma border, which had been pretty much been abandoned when prices fell, saw its drilling activity rise from 3 rigs to 5...note that to balance the final state rig count shown above at +6, a drilling rig not shown above was removed from Indiana, the one which had just been set up there during the week ending May 13th...a year ago, in fact over most of the past year, Indiana had no drilling activity...

Global Drilling Activity During May

the past week also saw the monthly release of the international rig count for May, which unlike the weekly count, is an average of the number of rigs running in each country for the month, rather than the total of those drilling at month end....Baker Hughes reported that an average of 1405 rigs were drilling for oil and natural gas around the globe in May, which was down from 1,424 rigs drilling globally in April and down from the 2,127 rigs that were deployed globally in May of last year...the ongoing pullback in US drilling accounted for the decrease, as the average US rig count fell from 437 in April to 408 in May, which was also down from 889 in May a year ago...the US drop caused the Northern America count to fall from 478 rigs in April to 450 in May, as the average Canadian deployment was 42 rigs over the month, up by 1 rig over April, but still down from the 80 rigs that were working in Canada in May a year ago...outside of Northern America, the International rig count rose by 9 rigs to 955 in May, which was still down from 1,158 rigs a year ago, as except for Latin America, all other areas of the globe saw an increase in drilling activity...

drilling increased in the Middle East for the 5th time in the past 10 months, as the region's activity was up by 7 rigs to a May average of 391, which was still down from the 398 rigs deployed in the Middle East a year earlier...the region did see a pullback of 3 rigs working offshore, however, lowering the offshore count to 51, which was still up from their offshore rig count of 41 rigs last May....Pakistan accounted for 4 of the net rigs added in the region, as they were up to 27 rigs in May from 23 in April, and up from the 20 rigs that were drilling in Pakistan a year earlier...Kuwait added 3 rigs, which brought their total to 43 active rigs, which was still down from 48 rigs a year earlier...Oman and Bahrain each added a single rig; that brought Oman up to 69 rigs, down from 70 a year earlier; for Bahrain, it was their first active rig since June a year ago, and also up from no rigs last May...at the same time, Egypt saw 2 rigs idled, dropping their active rig count to 28, which was down from the 36 rigs they had deployed a year ago at this time...meanwhile, the Saudis kept 123 rigs working, the same as last month, and down from 124 rigs last May...the Saudis have been averaging a deployment of 125 rigs throughout 2015 and 2016, an increase from their average of 105 rigs in 2014, when oil prices averaged twice as high, so they’ve been adding rigs as prices fell...

meanwhile, the Latin American countries pulled out another 15 rigs, same as in April, and hence the region is now down by 82 rigs since the first of the year...Latin American countries averaged 188 rigs in May, including 30 offshore, down from the total of 327 rigs, which included 69 offshore rigs, that were active in Latin America in May of 2015, so you can see their pullback in drilling is similar in magnitude to that of our own....Venezuela saw the largest drop, as they were down by 9 rigs to 60, which was down from the 69 rigs that were in use in Venezuela a year ago...Brazil idled 4 more rigs, after shutting down 9 in April, and they were thus down to just 15 active rigs, from the 43 rigs deployed in Brazil in April last year...Argentina, which had added rigs in March and April, shut down 2 in May, leaving 71 still working; that was down from the 104 rigs working Argentina in May of last year..in addition, Ecuador, Peru, and Mexico each cut a single rig in May, that left Ecuador with 2 working rigs, which was down from the 15 they were running a year earlier, left Peru with no rigs running, down from 2 a year earlier, and left Mexico with 22 rigs working, which was down from the 60 rigs working there a year ago....meanwhile, Columbia, which had cut their active rig count from 30 all the way down to 2 over the nine months ending April, added 3 rigs in May, which brought them back up to 5 rigs, which was also down from the 24 rigs they had deployed last May...

elsewhere, the Asia-Pacific region had 190 drilling rigs working in May, 11 more than the 179 rigs working the region in April, but still down from the 217 rigs working the region a year earlier...the largest drilling increase there was offshore of China, where 31 drilling platforms were working in May, up from 26 in April and up from 25 in May a year earlier...in addition, Malaysia, Thailand and Indonesia each added 2 rigs, bringing Malaysia up to 6 rigs, but still down from 12 rigs in May of 2015, bringing Thailand up to 15 rigs, but still down from 19 rigs a year ago, and bringing up to Indonesia 19 rigs, also down from 28 rigs in May of 2015...at the same time, Myanmar cut 2 rigs, leaving just 1 rig working there, same as they had a year ago...rigs working on the African continent, meanwhile, increased by 1 to 91 rigs in May, from 90 in April , which still was down from the 100 rigs working the African continent last year at this time...both the Ivory Coast and Morocco added a rig in May, the Ivory Coast now has 2 rigs drilling, up from 1 rig last May, while Morocco has just the new one, and also had none a year ago...at the same time, a single rig was taken down in the Congo, which now has just 1 rig running, down from 4 a year earlier...

lastly, Baker Hughes reports that the rig count in Europe rose by 5 rigs to 95 in May, which was down from the 118 rigs working in Europe a year ago at this time...trouble is, they include Sakhalin island, off the east coast of Russia, where four rigs were added, as part of Europe....Sakhalin now has 10 rigs working, up from 6 in both April and in May a year ago...elsewhere in Europe, additional rigs were set up in Iceland, Denmark, and offshore of the UK; the new rig was the only rig working Iceland, who also had no activity a year ago, the new rig in Denmark brings their total to 2, same as a year ago, while the UK offshore count rose to 9, which was still down from 16 a year earlier...at the same time, France and the Netherlands both shut down 1 rig; that left France with no drilling activity, same as a year earlier, and left the Dutch with just 2 rigs, down from 5 a year earlier.....note that Iran, Russia, and China rig counts are not included in Baker Hughes international data, although you might have noticed that rigs drilling in China's offshore area are included in the Asian rig totals here...   



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