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, August 7, 2016

oil imports at 45 month high, gas drilling at all time low, DUC wells at 2300, global rig count rising again

contract prices for US oil fell by more than 5% the first two days of this past week, then rallied by 5.8% over the next two, and finally slipped a little on Friday to end the week up less than a half percent from where they started...after closing last week at down nearly 6% to $41.60 a barrel, oil prices extended their slump on Monday on news of record production from the OPEC countries, falling hourly to below $40 a barrel by mid-afternoon, only steadying in the last hour to close the day at $40.06 a barrel...prices seemed to be in a freefall on Tuesday morning as they fell below $39.30 a barrel before noon, but rebounded a bit to close at 39.51 a barrel after the American Petroleum Institute reported an unexpected 1.3 million barrel drawdown of inventories at Cushing Oklahoma, the storage depot on which US oil contract prices are based...prices were then up by 3% to close at $40.83 a barrel on Wednesday after the EIA reported a larger than expected 3.3 million barrel draw of gasoline inventories...then on Thursday, short covering kicked in push oil $1,10 higher, or 2.7%, to close at $41.93 a barrel, as those who sold oil they didn't own on Tuesday were forced to buy oil to cover their commitments...prices then opened lower on Friday, but pared losses to close the week at $41,80 a barrel, after Baker Hughes reported the number of U.S. oil rigs rose for a sixth straight week....

The Latest Oil Stats from the EIA

as mentioned, the oil data for the week ending July 29th from the US Energy Information Administration showed an unusually large draw from our stored supply of gasoline, which was offset by additions to inventories of most other refined products as well as crude, which couldn't help but increase in the face of oil imports that were near a 4 year high, even though refineries returned to operating at a more seasonable level...however, this week's crude oil fudge factor included to make the weekly U.S. Petroleum Balance Sheet (line 13) balance was again positive, at +533,000 barrels per day, which meant that 533,000 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, so we have to again take this week's data with a large grain of salt...that's now the 6th week in a row that we've seen a large positive adjustment, and as a result this year's cumulative daily average of that weekly statistical adjustment is now up to a positive 53,000 barrels per day, a reversal of the negative adjustment we saw through the first 6 months of this year, when much of what we had appeared to have produced or imported did not show up in the final consumption or inventory figures...

the EIA reported that our imports of crude oil rose by an average of 301,000 barrels per day to an average of 8,738,000 barrels per day during the week ending July 22nd, the most oil we've imported in any week since the week ending October 19th of 2012....this week's imports were more than 1.5 million barrels per day, or 21.7%, more than the 7,180 ,000 barrels of oil per day we imported during the week ending July 31st a year ago, and the 4 week average of our imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) rose to an average of 8.3 million barrels per day, 10.4% higher than the same four-week period last year...

at the same time, our field production of crude oil fell for the first time in four weeks, as oil output from US wells was down by 55,000 barrels per day to an average of 8,460,000 barrels per day during the week ending July 29th, entirely on a 55,000 barrel per day drop in production from Alaska (oil production from the lower 48 states did not decrease for the first time since January)...however, the overall drop in output still left the week's oil production down by more than a million barrels per day, or down by 10.6% from the 9,465,000 barrels we produced during the week ending July 31st of 2015, and 12.0% lower than the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year...our oil production for the week ending July 29th was thus 759,000 barrels per day lower than we what were producing at the beginning of this year... 

meanwhile, the amount of crude oil used by US refineries rose by 266,000 barrels per day to an average of 16,852,000 barrels of crude per day during the week ending July 29th...that was as the US refinery utilization rate rose to 93.3% during the week, up from 92.4% of capacity during the week ending July 22nd but down from the refinery utilization rate of 96.1% logged during the week ending July 31st 2015, the high for the year...crude oil refining on the product glut bound east coast rose by 83,000 barrels per day as their utilization rate rose to 84.9%, but their throughput was still 10.4% below a year ago, when east coast refineries were being operated at 97.1% of capacity...nationally, crude oil refined this week was still 1.3% less than the 17,075,000 barrels of oil per day US refineries processed during the week ending July 31st last year, but was 2.8% more than the equivalent week in 2014... 

even with the increase in refining, however, our refineries’ production of gasoline slipped from the levels of last week, dropping by 76,000 barrels per day to an average of 9,992,000 barrels per day during the week ending July 29th...that was still a few barrels per day higher than the 9,984,000 barrels per day of gasoline produced in the same week last year, but still the lowest in 5 weeks...at the same time, refinery output of distillate fuels (diesel fuel and heat oil) increased, rising by 22,000 barrels per day to 4,940,000 barrels per day during the week ending July 29th....that still left distillates output 1.7% below the 5,025,000 barrels per day that was being refined the same week last year, which itself was the lowest distillates output for that month...production of jet fuel was higher, however, rising from 1,688,000 barrels per day last week to 1,759,000 barrels per day during the week, in keeping with news reports that east coast refineries were switching production to such products for which the margins were more profitable...

with the modest drop in our output of gasoline we might expect a small drop in gasoline supplies at this time of year, but the EIA reported that our gasoline inventories fell by 3,262,000 barrels to 238,190,000 barrels as of July 29th, the first drop in 5 weeks and the largest drop since the 2nd week in April...partially precipitating the drawdown from gasoline inventories was a 232,000 barrel per day decrease in our gasoline imports to 637,000 barrels per day, our lowest gasoline imports since March, and also 22.5% less than the 822,000 barrels of gasoline we imported during the same week a year earlier...rumor has it that the gasoline tankers which were backed up in New York harbor waiting to unload have moved on down the coast, so we may see a surge in gasoline imports shortly....nonetheless, this week's gasoline inventories were still 9.9% higher than the 216,733,000 barrels of gasoline that we had stored on July 31st  last year, and also 11.4% higher than the 213,849,000 barrels of gasoline we had stored on August 1st of 2014... so our gasoline supplies still remain categorized by the EIA as "well above the upper limit of the average range" for this time of year..    

even as our gasoline inventories dropped, our distillate fuel inventories rose by 1,152,000 barrels to 153,155,000 barrels on July 29th, now well above our distillate inventories of 148,939,000 on the 1st of July...since our distillate inventories have continued to run far above the normal level since this winter, our distillate inventories as of July 22nd are now 5.8% higher than the 144,812,000 barrels of distillates we had stored as of July 31st last year, and 22.6% higher than our distillates supplies as of August 1st 2014, and thus they are also considered "above the upper limit of the average range" for this time of year...     

finally, with the big jump in imports being more than our refineries could use, we ended up with 1,413,000 more barrels of oil than we needed this week, which was subsequently added to our stocks of crude in storage, and hence our crude oil inventories rose to 522,546,000 barrels as of July 29th, the 2nd sizable increase in a row....thus we ended up with 14.8% more oil in storage than the 455,275,000 barrels we had stored as of the same weekend a year earlier, and 42.9% more oil than we had stored on August 1st of 2014....since our oil supplies first topped 500 million early this year, and first topped 400 million in January of 2015, it goes without saying that our crude oil supplies also remain "well above the upper limit of the average range" for this time of year..."    

This Week's Rig Count

US drillers netted an addition of just one rig in the week ending August for the 2nd week running, but that still meant the total rig count has risen 9 out of the last ten weeks, following a prior string of 39 weeks where the rig count had not risen at all...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 1 to 464 rigs as of Friday, which was still down from the 884 rigs that were deployed as of the August 7th 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 7 rigs to 381, which was still down from the 670 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 fell by 5 rigs to 81 rigs this week, which breaks the previous record for the all time low for natural gas rigs set on June 3rd....gas rigs were also down from the 213 natural gas rigs that were drilling on August 7th year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas on August 29th, 2008; prior to this year, there is no record of less than 150 natural gas rigs deployed in the US in any week...there were also two rigs drilling this week that were classified as miscellaneous, down by 1 rig from last week but up from the single miscellaneous rig that was drilling the same week a year ago....  

two of the platforms that had been drilling offshore of Louisiana in the Gulf of Mexico were shut down this week, leaving 17 still active in the Gulf of Mexico and offshore nationally at week end, down from 37 rigs drilling in the Gulf and a total of 38 rigs offshore nationally a year ago...the number of working horizontal drilling rigs rose by 8 rigs this week after falling by 3 last week, as the count of active horizontal rigs rose 362 rigs, which was still down from the 672 horizontal rigs that were in use on August 7th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count dropped by 3 rigs to 58 rigs this week, which was down from the 129 vertical rigs that were drilling in the US during the same week last year, and the directional rig count fell by 4 rigs to 44 rigs, which was down from the 83 directional rigs that were deployed 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 August 5th, the second column shows the change in the number of working rigs between July 29th and August 5th, the third column shows the July 29th rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday in August 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 August 7th of 2015:  

August 5 2016 rig count summary

here we can see that we can practically account for the entire increase in horizontal drilling by the increases in the Permian and the Eagle Ford, the two major shale basins in Texas...that Permian increase might also account for the 2 rig increase in New Mexico, as that basin straddles the state border...note that the 4 rig drop in Louisiana includes the two rigs that were pulled out of the Gulf of Mexico...otherwise, the rest of the country was fairly stable, with no more than one rig added or taken down any where else...not shown above was the increase from 1 rig to 2 in Alabama, which brings them back to the same level of drilling activity as they saw a year ago…

as you've probably noticed, we've been including the highs for drilling as we cover this report weekly, since the Baker Hughes reports only show the year ago data, and a year ago the rig count was already cut in half from the prior year...but even as our rig count has risen 9 out of the last ten weeks, at 464 rigs it's still less than one quarter of the 1929 rigs that were in use the week before the 2014 Thanksgiving OPEC meeting that precipitated this oil bust...still, oil production is down less than 10% from then, and only down 12% from the peak, and this week we saw the national oil output stabilize, which one wouldn't have thought would happen with only a quarter as many new wells being drilled...moreover, a lot of the wells that have been drilled over the past year haven't even been completed, and hence aren't yet even producing, as we can see in this bar graph below...

July 2016 DUC inventory

the above graph comes from a press release from Rystad Energy, a Norwegian company that bills themselves as "an independent oil and gas consulting services and business intelligence data firm"...in the graph above, each bar represents the number of "drilled but uncompleted" or DUC oil wells in the US, which you can see has been clearly rising….this is happening because fracking, the most expensive part of the operation, is being held off until prices rise...within each bar, the number of DUC wells or the given month from each major oil shale basin in color coded, with red representing the number of Eagle Ford DUC wells, beige representing the number of Bakken DUC wells, grey representing the drilled but not fracked wells in the Permian basin, pink representing the DUC well inventory in the Niobrara of the Rockies, and silver representing the DUC oil wells in the rest of the US...what we can see here is that the number of uncompleted wells has grown monthly through this entire period of record low drilling levels, meaning that some number of the low level of wells drilled we've seen in recent weeks are not going to the fracking stage where additional production would be forthcoming...thus we now have roughly 2300 oil wells, with over 600 in each of the major oil shale plays, waiting for such time as the drillers feel the price is right, when the wells will be completed and production will begin, almost certainly adding to the oil glut when that happens...thus, this is a shadow oil inventory that can be brought forth in as little as a few weeks, depending on the availability of equipment and fracking crews...and with this much of a backlog of drilled but incomplete wells, it's not likely many drillers will feel pressure to increase the number of new wells they'd be drilling anytime soon..

International Rig Counts for July

Friday also saw the monthly release of the international rig counts for July, 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 rig drilling at month end....Baker Hughes reported that an average of 1481 rigs were drilling for oil and natural gas around the globe in July, which was up from the 1,407 rigs that were drilling around the globe in June but down from the 2,167 rigs that were working globally in July of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 417 rigs in June to 449 rigs in July, which was still down from the average of 866 rigs working in the US in July a year ago, while the average Canadian rig count rose from 63 in June to 94 rigs in July, again still down from the 183 Canadian rigs that were deployed in July a year earlier....outside of Northern America, the International rig count rose by 11 rigs to 938 in July, which was also down from 1,118 rigs a year ago, as every region of the globe except Africa saw an increase in drilling activity for the month...

drilling in the Middle East increased for only the 2nd month this year, as the region's activity was up by a single rig to an average of 390, which nonetheless was only down by 1 rig from the 391 rigs deployed in the Middle East a year earlier...288 of the rigs working in the region were targeting oil, up from 284 in June, while the regional gas rig count fell by 3 to 102...the Middle East did see the addition of 3 rigs working offshore, increasing the offshore count to 52, which was also up from the 49 rigs the region had working offshore in July a year ago....the largest drilling activity increase was in Kuwait, where their active rig count rose by 3 rigs, from 44 to 47 rigs, which was also up by 3 from the 44 rigs working in Kuwait last year at this time....both Egypt and Saudi Arabia also added a rig in July; for Egypt, that gave them 27 working rigs, down from 42 rigs a year earlier, while for the Saudis, the increase brought them up to 125 active rigs, which was also up from the 123 rigs the Saudis had deployed last July...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, but roughly 2/3rds of their new drilling has been for natural gas; they now have 56 rigs targeting that resource...Middle East countries seeing a drilling pullback in July included Iraq, where their active rig count fell by 2 to 39, which was also down from the 44 rigs active in Iraq a year ago, and Oman and Pakistan, which each saw one rig idled...that left Oman with 65 rigs, down from 67 a year earlier, and left Pakistan with 29 rigs, which was up from the 23 rigs working there last year...

meanwhile, the Latin American countries added 8 rigs in July in the region's first increase this year; previously, the region had idled 92 rigs over the prior 6 months…Latin America drillers averaged 186 rigs in July, which included 33 offshore, down from the total of 313 rigs, which including 54 offshore rigs, that were active in Latin America in July of 2015....Argentina alone accounted for the regional increase, as they added 9 rigs to give them an average of 72 active rigs, which was nonetheless down from the 106 rigs that were in use in Argentina a year ago...in addition, Mexican drillers added 3 rigs to give them 23, down from 45 a year ago, and Brazil also added one rig, giving them 15 active in July, down from 37 rigs a year earlier...on the other hand, Venezuela idled 3 more rigs, after shutting down 7 rigs in June and 9 in May, and they're thus down to 50 active rigs, from the 70 rigs that were deployed in Venezuela in July of last year...other Latin American countries shutting down a single rig each included Bolivia, now with 5 rigs, Columbia, now with 6 rigs, Ecuador, now with 4 rigs, and Trinidad, which now has 4 rigs, down from 8 a year ago..

at the same time, the Asia-Pacific region had 186 drilling rigs working in July, up from the 182 rigs working in June, but down from the 214 rigs working the region a year earlier, with the Asia-Pacific offshore count rising by two rigs to 88...an increase of 5 rigs to 113 rigs in India accounted for the regional increase, while India's count is still down from 116 rigs a year ago...Indonesia also added a rig, but at 17 they're still down from 22 rigs a year earlier, while the addition of a rig in the Philippines brought them up to 2, still down from 3 rigs last July...Malaysia idled 2 rigs and now has 3 active, down from 6 rigs a year ago, and Thailand cut back one rig, leaving 11 active, down from 18 a year earlier...

elsewhere, countries in Africa shut down 5 rigs in July, leaving 82 still in drilling, down from the 94 rigs working the African continent last year at this time...Angola accounted for 4 rigs of that decrease, as they were down to 5 rigs in July, which was also down from the 8 rigs that they had active a year earlier...Kenya shut down 1 rig, leaving 10, also 1 rig fewer than they were running a year earlier...the Congo and the Ivory Coast also shut down one rig each, leaving both countries with one rig remaining, essentially unchanged from a year earlier...meanwhile, two rigs were added in Algeria, which now has 55 rigs deployed, up from 50 last July....

lastly, the rig count in Europe increased by 3 to 94 rigs in July, which was down from the 108 rigs working in Europe a year ago at this time...Norway, with an increase of 4 rigs to 20, more than accounted for the continent's increase, as their rig count is now the same as last July...the UK also added an offshore rig, bringing their offshore count up to 10, which was down from 12 rigs a year earlier, and Iceland also set up a lone rig; a year ago, they had none...meanwhile, Denmark, Germany and Italy each shut down a rig, leaving Denmark without any, down from 3 working rigs a year earlier, leaving Germany with 2 rigs, up from none last July and leaving Italy with 3 rigs, still up from 4 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 28 rigs active in July, down 1 from June, is included in the Asian totals here...   

note: there's more here...

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