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, July 10, 2016

oil & gas prices fall as products pile up on east coast, international rig counts for June, et al

contract prices for both crude oil and natural gas dropped around 7% this week, each for different reasons, and neither as part of a general market selloff....after closing last week at $48.99 a barrel, US WTI oil prices fell right out of the gate on Tuesday, following the Monday holiday, as gasoline prices tanked on an east coast oversupply situation that saw cargoes being turned away from New York for lack of storage space, suggesting that some east coast refineries would need to curtail operations, thus exacerbating the oil glut...with refineries thus squeezed, oil ended Tuesday down over 5% to $46.50 a barrel, its biggest daily drop since early September 2015...however, Wednesday brought the estimates of oil supply from the American Petroleum Institute, which indicated that crude inventories had fallen by 6,736,000 million barrels over the prior week, more than twice the drop expected, so oil prices reversed course and rose more than 2.5% before dropping back to settle at $47.43 a barrel, up 1.78%, or 83 cents on the day...however, Thursday brought the official oil inventory figures from the Dept of Energy, which showed oil inventories had only declined by 2,223,000 barrels, which set off another wave of selling, which sent oil prices down $2.29, or 4.8%, to close the day at $45.14 a barrel...then, with news from the Labor Dept on Friday that employers had added 278,000 jobs, twice the number some had expected, economic fundamentals drove oil prices higher on Friday, as oil prices clawed back 27 cents, to close the week at $45.41 a barrel, down 7.3%, for the largest weekly percentage loss since the week ended Feb. 5th..

the drop in the contract price for natural gas, on the other hand, was pretty much a one day affair, as after dropping 7.5% on Tuesday, the daily price changes for the remainder of the week were less than 1% in either direction...recall that last week we looked at natural gas prices for the first time in 3 months because they'd just completed a one month, 80 cent run-up to $2.987 per mmBTU, the highest contract price in 13 months...that was apparently too much too fast for most traders, because a Platts report that natural gas production had increased by 350 million cubic feet a day over the first few days of July from June’s average average of 70.8 billion cubic feet a day, combined with an errant forecast for cooler weather for the next ten days sent prices tumbling to $2.764 per mmBTU, down 22.3 cents on the day, their biggest one day drop since October...with most other weather forecasts calling for warmer weather ahead, natural gas prices inched back up 2.2 cents on Wednesday, closing at 2.786 per mmBTU....prices then slipped back to $2.777 per mmBTU on Thursday, despite new forecasts for a power consuming heatwave for the eastern half of the country, and an EIA gas storage report that injections into storage totaled 39 billion cubic feet (Bcf) for the week ending July 1, quite a bit less than the 77 bilion Bcf addition we'd normally see at this time of year...that was probably because working gas stockpiles remained at 3,179 Bcf, which was 20% more than a year-ago and 23% above the five-year average for this week...the low injection rate and heat wave news may have finally sunk in on Friday, as gas prices rose 2.4 cents on the day to finish the week at $2.801, a loss of more than 6.2% for the week...

The Latest Oil Stats from the EIA

the oil data for the week ending July 1st, released by the US Energy Information Administration on Thursday of this week because of the Monday holiday, indicated a big jump in our oil imports, a large drop in our output of crude oil, crude refining levels that were virtually unchanged from a week earlier, and modest withdrawals of crude oil and refined products from storage...meanwhile, the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was +176,000 barrels per day, down from last week's +537,000 barrels per day, which still meant that 176,000 more barrels per day showed up in our final consumption and inventory figures this week than were accounted for by our production or import figures, meaning one or several of this week's metrics were off by that amount, errors which are typically due to miscues in reporting or gathering that data...however, the past two weeks have served to bring the cumulative daily average of that weekly statistical adjustment factor down to -17,000 barrels per day, which means that figures for the year to date are almost coming into balance...

at any rate, the EIA reported that our imports of crude oil rose by 808,000 barrels per day to an average of 8,363,000 barrels per day during the week ending July 1st, after falling 884,000 barrels per day to an average of 7,555,000 barrels per day during the week ending June 24th...this week's imports were at the 3rd highest weekly level in the last 34 months and 14.3% higher than our imports of 7,316,000 barrels per day the same week a year earlier, but as you’ve seen, oil imports are quite volatile week to week, so the EIA's weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average...that summary showed that the 4 week average of our imports rose back to the 8.0 million barrel per day level, which was 11.6% higher than the same four-week period last year...  

at the same time, the EIA reported that our field production of crude oil fell by 194,000 barrels per day, from an average of 8,622,000 barrels per day during the week ending June 24th to an average of 8,428,000 barrels per day during the week ending July 1st...that appears to be the largest one week drop in our oil output since the last week of August 2012, a production drop that was precipitated at that time by the movement of Hurricane Isaac through the Gulf of Mexico…thus such a drop in output would certainly be a matter of concern if the drop were more widespread, but as it was,156,000 barrels per day of that output drop was cut from Alaska output, which must have had issues that weren't reported on...production in the lower 48 states was down by a modest 38,000 barrels per day to 8,088,000 barrels per day, and if Alaska production returns to the mean, that would suggest we might see a overall production rebound....as it was, this week's oil production was 12.2% below our production of 9,604,000 barrels per day during the same week of 2015, and the lowest since the same amount of oil was produced during the week ending May 9th of 2014....

during the same week, U.S. refineries’ crude oil usage slipped by an insignificant 8,000 barrels per day, from the average of 16,695,000 barrels of crude per day they used during the week ending June 24th to an average of 16,687,000 barrels for the week ending July 1st....that was as the US refinery utilization rate fell to 92.5% during the week, from 93.0% of capacity the prior week, which was still below the refinery utilization rate of 94.7% during the week ending July 3rd last year...nonetheless, this week's refinery throughput was still a half percent higher than the 16,596,000 barrels per day refinery throughput of that week last last year, and also higher than any prior equivalent week in the 34 recent years of EIA data, so they're not exactly slouching...

with refineries throughput little changed, their production of gasoline rose by 59,000 barrels per day to 10,018,000 barrels per day, up from the 9,959,000 barrels per day we produced during the week ending June 24th, which was also 1.5% more than the 9,868,000 barrels of gasoline per day we were producing during the same week last year...at the same time, our refineries output of distillate fuels (diesel fuel and heat oil) fell by 69,000 barrels per day to 4,952,000 barrels per day during the week ending July 1st, which was 2.7% below our distillates production level of 5,092,000 barrels per day during the week ending July 3rd of last year...

with the small increase in gasoline production, our end of the week gasoline inventories fell by just 122,000 barrels to 238,876,000 barrels as of July 1st, as our gasoline imports fell by 139,000 barrels per day to 747,000 barrels per day and gasoline supplied to US markets rose by 46,000 barrels per day to 9,755,000 barrels per day....that means our midsummer gasoline inventories are still a quarter million barrels above the level of the pre-driving season gasoline inventories of May 27th, and thus our gasoline supplies remained 9.6% higher than the 217,952,000 barrels of gasoline that we had stored on July 3rd last year, and 11.5% higher than the 214,321,000 barrels of gasoline we had stored on July 4th of 2014….thus our gasoline supplies are still categorized by the EIA as "well above the upper limit of the average range" for this time of year..  ...

now here's where the sticky wicket we mentioned earlier comes in; despite the fact that our summer inventories of gasoline are always lower than our winter inventories, this summer our gasoline inventories have remained high on the east coast, even as they were reduced somewhat seasonally elsewhere...as a result, storage is at capacity on the east coast, and full vessels of refined product remain anchored outside of New York Harbor with no where to offload their products…ultimately, such full storage is also forcing regional refineries to curtail their production...the EIA's weekly Petroleum Status Report (62 pp pdf) reports on and includes graphs of the stores of oil and each of the major refined products nationally and by region, so we'll include the graph of the east coast gasoline inventory history below, so you can see what's happened...

July 9th 2016 PADD 1 gasoline stocks as of July 1st

in the graph above, copied from figure 2 on page 12 of the EIA's weekly Petroleum Status Report (62 pp pdf), the blue line shows the recent track of East Coast gasoline inventories over the period from January 2015 to July 1st, 2016, while the grey shaded area represents the range of East Coast gasoline inventories as reported weekly by the EIA over the prior 5 years for any given time of year, basically showing us the normal range of East Coast gasoline inventories as they fluctuated from season to season over the 5 years prior to the year and a half shown by the blue line....(note that PADD = Petroleum Administration for Defense District, one of the 5 regions of the country that the EIA keeps separate records for...a map of the 5 PADDs is here; PADD 1 includes all the states on the east coast plus W. Virginia..)   from this graph above, we can see that gasoline supplies in this region first breached 65 million barrels in February of 2015 when they rose to over 70 million barrels, then topped that record by 2 million barrels this this winter...however, instead of falling in the spring and summer as they usually do, regional gasoline inventories rose to hit a new record at the end of June, only slightly backing off this week; (note that the five years prior to this years data now includes the record 70 million barrels level set in 2015)...you can check page 12 of this weeks Petroleum Status Report for similar graphs of the other PAD districts, and you'd see that they're all down somewhat normally for this time of year...but that doesn't ease the glut in the New York area, because all the product pipelines were built to deliver product into that densely populated area, not send products out...

the regional graphs for distillate fuel inventories, which you can find on page 14 of the Petroleum Status Report, show the same situation for PADD 1, which is exacerbated by a similar oversupply in Europe, the normal export destination for surplus distillates...for the week ending July 1st, our distillate fuel inventories fell by 1,574,000 barrels to end the week at 148,939,000 barrels, as again distillates were withdrawn from storage in every region except the east coast...but since our distillate inventories have been well above normal since the El Nino winter reduced US heat oil consumption, our distillate inventories are still 8.4% higher than the 137,461,000 barrels of distillates we had stored as of July 3rd last year, and 22.3% higher than our distillates supplies as of July 4th 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 big increase of imports, the withdrawal of oil from our stocks of crude in storage was a slightly lower than normal 2,223,000 barrels for the week, leaving our oil inventories at 524,350,000 barrels as of July 1st...however, that was still 12.6% higher than the 465,763,000 barrels of oil we had stored as of July 3rd, 2015, and 37.1% higher than the 382,565,000 barrels of oil we had stored on July 4th of 2014....with our oil inventories thus continuing to be that much higher than the seasonal records we set most every week in 2015, our crude oil supplies are also  "well above the upper limit of the average range" for this time of year..."   

This Week's Rig Counts

US drilling activity increased for the 5th week week out of the past 6 during the week ending July 8th, following a string of 41 consecutive weeks without a net increase in total active rigs.....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 9 rigs to 440 rigs during the week ending July 8th, which was down from the 863 rigs that were deployed as of the July 10th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the number of rigs drilling for oil this week rose by 10 rigs to 351, which was down from the 645 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014, while the count of drilling rigs targeting natural gas formations again fell by a single rig to 88 as of July 8th, which was down from the 217 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 were deployed on August 29th, 2008...there was also still one rig running this week that was classified as miscellaneous, unchanged from last week and no different than the miscellaneous count of the same week a year ago....  

the number of working horizontal drilling rigs also increased for the fifth time in six weeks, as their count rose by 11 rigs to 343 rigs this week, which was still down from the 654 horizontal rigs that were in use on July 10th of last year, and down from the record of 1372 horizontal rigs that were in use on November 21st of 2014...during this same week, a net of two directional rigs were pulled down, leaving 36 directional rigs still working, which was down from the 88 directional rigs that were drilling at this time last year....meanwhile, the vertical rig count was unchanged at 61 rigs, which was still down from the 121 vertical 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'll again 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 July 8th the second column shows the change in the number of working rigs since July 1st, the third column shows the July 1st rig count, the 4th column shows the change in the number of rigs running from the equivalent 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 July 10th of 2015: 

July 8 2016 rig count summary

International Rig Counts for June

Friday also saw the monthly release of the international rig counts for June, which unlike the weekly count, is an average of the number of rigs running in each country during the month, rather than the total of those drilling at month end....Baker Hughes reported that an average of 1407 rigs were drilling for oil and natural gas around the globe in June, which was up from the 1,405 rigs that were drilling around the globe in May but down from the 2,136 rigs that were working globally in June of last year...increased North American drilling accounted for the global increase for the first time since July of 2015, as the average US rig count rose from 408 rigs in May to 417 rigs in June, which was still down from 861 rigs in June a year ago, while the average Canadian rig count rose from 42 rigs in May to 63 in June, again still down from 129 rigs in June a year earlier....outside of Northern America, the International rig count fell by 28 rigs to 927 in June, which was also down from 1,158 rigs a year ago, as every other region of the globe saw a decrease in drilling activity for the month...

drilling in the Middle East fell for the 5th time in the past 6 months, as the region's activity was down by 2 rigs to a June average of 389, which was also down from the 401 rigs deployed in the Middle East a year earlier...the regional pullback was entirely accounted for by the idling of 3 rigs working offshore, lowering the offshore count to 49, which was one more than the 48 rigs the Middle East had working offshore in June a year ago....the largest drilling activity decline was in Oman, where their active rig count fell from 69 to 66, which was also down from the 71 rigs working in Oman last year at this time....both Egypt and Iraq saw two rigs idled in June; for Egypt, that left 26 rigs running, down from 41 rigs a year earlier, and for Iraq, that left 41 rigs working, down from the 53 rigs they had deployed in June of 2015...on the other hand, Pakistan saw the addition of 3 more rigs, after they had added 4 rigs in May; that brought their average June count up to 30 rigs, which was also up from the 17 rigs that were drilling in Pakistan a year earlier...meanwhile, the Saudis also added a rig, bringing their active rig count up to 124, which was also up from the 121 rigs they had deployed last June....the Saudis have been averaging a deployment of 125 rigs over the past year, which is up from their average of 105 rigs in 2014, so their drilling has not skipped a beat as oil prices fell by more than half..

at the same time, the Latin American countries pulled out another 10 rigs, after pulling out 15 rigs in both April and May, and hence the region is now down by 92 rigs since the first of the year…Latin America averaged 178 rigs in June, including 31 offshore, down from the total of 314 rigs, which included 62 offshore rigs, that were active in Latin America in June of 2015....Argentina saw the largest drop, as they were down by 8 rigs to 63, which was down from the 104 rigs that were in use in Argentina a year ago...Venezuela idled 7 more rigs, after shutting down 9 in May, and they're thus down to 53 active rigs, from the 66 rigs that were deployed in Venezuela in June of last year...Mexico also shut down 2 rigs in June, leaving 20 still working; that was down from the 51 rigs working Mexico in June of last year...on the other hand, Ecuador restarted 3 rigs in June, bringing their active count back up to 5 rigs, which was still down from the 15 rigs they were running a year earlier, and Columbia, which had cut their active rig count from 30 all the way down to 2 over the nine months ending April, added 2 rigs in June after adding 3 in May, which brought them back up to 7 rigs, which was still down from the 26 rigs they had deployed last June...

meanwhile, the Asia-Pacific region had 182 drilling rigs working in June, down from 190 rigs working in May, and down from the 215 rigs working the region a year earlier, with the Asia-Pacific offshore count steady at 86...Australia, Indonesia, and Thailand each cut 3 rigs, leaving Australia with 3 rigs working, down from 15 a year earlier, leaving Indonesia with 16 rigs, down from 23 a year earlier, and leaving Thailand with 12 rigs, down from the 19 rigs the Thais were running last June...at 29, there were also 2 fewer rigs working offshore of China, down from 31 rigs in May but still up from the 24 rigs working offshore of China in June a year ago...at the same time, Indian drillers started 6 additional rigs, bringing the count in India to 108 rigs, still down from 113 rigs a year earlier...

elsewhere, countries in Africa shut down 4 rigs in June, leaving 87 still in use, down from the 103 rigs working the African continent last year at this time...Algerians accounted for half the decrease, as they were down 2 rigs to 53, which was still up from the 51 rigs Algeria had active a year earlier...Nigeria, Cameroon, and South Africa each idled a rig, leaving 5 in Nigeria and left none working in either Cameroon and South Africa...at the same time, Congo restarted the rig they had idled in May, and now have 2 rigs running, down from 3 a year earlier....lastly, the rig count in Europe also fell by 4 to 91 in June, which was down from the 113 rigs working in Europe a year ago at this time...Sakhalin island, off the east coast of Russia but included in the European count, idled two rigs, leaving 8 rigs still active, same as a year ago...at the same time, Norway, Denmark and Iceland each shut down a rig; for Denmark and Iceland, that reverses their additions in May, for Norway, it’s a reduction to 16 rigs, down from 19 a year earlier...the United Kingdom also added a fracking rig in June, which is currently their only land based rig, as they also had none on land a year ago...finally, note that Iran, Russia, and China rig counts are not included in Baker Hughes international data, although China's offshore area, with an average of 29 rigs active in June, is included in the Asian totals here...   



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