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, October 30, 2016

natural gas prices crash, oil slips below $50, inventories down again as imports stay low, etal

we're going to start today by explaining what natural gas prices did this week, and to that avail we have a couple graphs that will illustrate what happened...as you should recall, we've picked up natural gas coverage over the past few weeks as prices started rising out of the depressed range they'd been in for nearly 2 years, as they rose more than 10% to a 21 month high three weeks ago, then added 5% more to that to hit a 22 month high the week after that, before falling 10% from their highs last week...prices the front month November contract continued to fall this week, dropping another 9%, until that contract expired on Wednesday afternoon...then, with the December contract price now being quoted as "the price of natural gas", that price then inched back up about 1% in each of the last two days of the week...to show how this transpired, we'll start with a graph of the expiring November contract for natural gas, as of Wednesday, October 26th:

October 26 2016 November nat gas

the above graph shows the November contract price up til Wednesday for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...here we can see how the price of gas broke out of the prior range below $3 per mmBTU earlier this month, as it ran up to $3.341 per mmBTU on Thursday October 14th, as forecasts indicated above normal temperatures for the next two weeks and natural gas analysts wrote that there'd be a spike in natural gas power generation to meet the needs of above normal air conditioning use...however, by last week that story changed, as analysts advised that warmer weather would reduce consumption of gas for heating, and gas prices subsequently fell to $2.993 mmBTU by Friday of last week...as you see above, the price for that November contract then fell every day this week, dropping to $2.831 per mmBTU on Monday, to $2.774 on Tuesday, and finally to $2.731 per mmBTU on Wednesday, when exchange trading in gas for delivery in November expired...and judging by the pickup in volume on the last two days, we'd have to guess that a lot of those traders who bought gas at the top expecting a fall surge in air conditioning to soak up surplus gas supplies had to sell out of their positions at some fairly steep losses before the November contract went off the boards...

next we have a graph of natural gas prices at the close of trading on Thursday, October 27th, as the price now being quoted is for the December contract; the November gas contract is gone...notice the ticker symbol above the graph is NGZ16, representing trading for the December 2016 contract...note also that the labeling on the first graph above was NGX16, representing prices for the November 2016 contract...(for anyone interested, info and symbols for dozens of other natural gas futures contracts are here)

October 27 2016 December nat gas

this Thursday graph now shows the December contract price for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Henry Hub in Louisiana...you'll notice the prior day's $2.731 per mmBTU price is now gone, as December natural gas closed Wednesday trading more than 30 cents higher at $3.046 per mmBtu, before increasing 3.2 cents on Thursday to finish at $3.068 per mmBtu, as the above graph shows...you'll also notice that the high for this December contract approached $3.54 per mmBtu on October 14th, roughly 20 cents higher than the highest price seen for natural gas in November...that prices are higher in the winter months is typical for natural gas, as that's when most utility users want to take delivery, so other things being equal, there's clearly money to be made by middlemen who store gas until winter...as of the end of trading on Friday, natural gas for January was trading at $3.287 per mmBtu, 18.2 cents higher than the $3.105 per mmBTU that natural gas for December closed the week at..

meanwhile, oil prices were also lower this week, dropping every day except Thursday, falling below $50 a barrel on Tuesday for the first time since October 4th, and generally trending lower from there for the rest of the week...after closing lower last week at $50.85 a barrel, U.S. crude prices briefly dipped below $50 per barrel on Monday afternoon, on news of the impending restart of Britain's North Sea Buzzard oilfield and word that Iraq wanted to be exempted from OPEC production cuts, but recovered to close Monday at $50.52 a barrel...prices then edged up early on Tuesday ahead of the release of American Petroleum Institute crude inventory data, but then fell more than 1% in the afternoon to close at a three week low of $49.96 a barrel as Iraq argued that their war against ISIS was a justification for their exclusion from the coordinated OPEC production cuts...oil prices then jumped more than $1 after noon on Wednesday, after the EIA reported a surprise draw from US crude stocks, but gave back most of those gains in the next three hours and as traders focused on the unraveling OPEC deal and an increase in US oil production, and ultimately closed lower at $49.18 a barrel...oil prices then rose on Thursday after it was reported that the Saudis and their Gulf allies told the Russians that they were willing to reduce their peak oil output by up to 4%, with prices ending the day at $49.72 a barrel...selling then reintensified on Friday after word came out that Iraq & Iran were both refusing to freeze their output, and oil went on to close at $48.70 a barrel, down nearly 4.3% for the week, the largest weekly loss since mid-September

The Latest Oil Stats from the EIA

this week's oil data for the week ending October 21st from the US Energy Information Administration indicated that our oil imports remained near the depressed level of the prior week, when Hurricane Matthew was still active, while refinery utilization increased modestly from last week's 43 month lows, hence resulting in another small draw down of our oil supplies...however, we once again saw a large swing in the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance, as it swung to +368,000 barrels per day, from last week's -312,000 barrels per day, which means that 368,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures...that of course means that one or several of this week's metrics were off by that amount, and once again the total 680,000 barrel per day difference from last week makes the comparison of last week’s metric to this week’s virtually meaningless..however, it is that data and those distorted comparisons which move oil prices and hence drilling activity, so we'll continue to review them for whatever insights they provide into what the oil traders are thinking...

with that thought in mind, then, the EIA reported that our imports of crude oil increase by an average of 109,000 barrels per day to an average of 7,016,000 barrels per day during the week ending October 21st, which except for last week, was still the least oil we've imported in any other week this year...that left this week's oil imports down fractionally from the 7,032,000 barrels of oil per day we imported during the corresponding week a year ago, and hence this was only the second week this year that our imports fell below year ago totals ...as a result, the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell to an average of 7.4 million barrels per day and was just 2.1% higher than the same four-week period last year...at the same time, our exports of crude oil were slightly lower, falling by an average of 24,000 barrels per day to an average of 415,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 504,000 barrels per day for the same week, since the EIA has recently switched to reporting Custom's export data, rather than use estimates based on untimely export stats from the Census Bureau..

meanwhile, the EIA reported that production of crude oil from US wells rose by 40,000 barrels per day to an average of 8,504,000 barrels per day during the week ending October 21st, as output from Alaskan fields rose by 12,000 barrels per day while production from the lower 48 states was 28,000 barrels per day higher....that still left the week's domestic oil production 6.7% lower than the 9,112,000 barrels we produced during the week ending October 23rd of last year, and 11.5% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th last year...our oil production for the week ending October 21st was also 715,000 barrels per day, or 7.8% lower, than what we were producing at the beginning of this year, which we're citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015...

for the same week, the amount of crude oil used by US refineries rose by an average of 182,000 barrels per day to an average of 15,552,000 barrels of crude per day, the first refining increase in 7 weeks, as our refinery utilization rate rose to 85.6% during the week, up from last week's 43 month utilization low of 85.0%, but down from the refinery utilization rate of 87.6% seen during the week ending October 23rd last year...US oil refining is still down by 11,376,000 barrels per day, or by 8.1%, in the 7 weeks since Labor Day, as the refinery utilization rate has tumbled from 93.7% over that span .. the crude refined this week nationally was also below the 15,616,000 barrels of crude per day US refineries used during the week ending October 23rd last year, while it was still 2.8% more than 15,129,000 barrels per day that were refined during the equivalent week in 2014...

with the pickup in refining, the EIA reported that refineries’ production of gasoline increased by 339,000 barrels per day to 9,837,000 barrels per day during the week ending October 21st, which meant our gasoline output for this week was 1.4% higher than the gasoline output of 9,703,000 barrels per day during the week ending October 23rd last year, and 8.4% higher than the gasoline production during the equivalent week of 2014....however, at the same time refinery output of distillate fuels (diesel fuel and heat oil) fell by 63,000 barrels per day to 4,536,000 barrels per day during the week ending October 21st, which left the week's distillates output 7.0% lower than the 4,877,000 barrels per day that was being produced during the same week last year, while it was still; 1.5% more than than the 4,471,000 barrels per day of distillates we produced during the equivalent week of 2014...   

however, even with the big increase in gasoline production, our gasoline supplies fell by 1,956,000 barrels to 227,967,000 barrels as of October 21st, as our domestic consumption of gasoline rose by 320,000 barrels per day to 9,118,000 barrels per day and as our gasoline imports fell by 37,000 barrels per day to 834,000 barrels per day....even with this week's drop in supplies, however, the end of the week gasoline inventories were still 3.4% higher than the 218,647,000 barrels of gasoline that we had stored on October 23rd of last year, and 11.3% higher than the 203,138,000 barrels of gasoline we had stored on October 24th of 2014....at the same time, our distillate fuel inventories fell by 3,354,000 barrels to 152,378,000 barrels by October 21st, the 5th consecutive large drop in our distillate supplies....however, even after the withdrawal of 16.4 million barrels of distillates from storage over those 5 weeks, our distillate inventories were still 7.3% higher than the distillate inventories of 142,057,000 barrels of October 23rd last year, and 26.6% above the distillate inventories of 120,377,000 barrels of October 24th, 2014....

lastly, with ongoing low oil imports, our inventories of crude oil fell by 553,000 barrels to 468,158,000 barrels by October 21st, the 7th drop in our oil supplies in 8 weeks...with two hurricanes disrupting imports over that span, our oil supplies have thus fallen more than 27 million barrels, or 5.5% over 8 weeks, at a time of year when oil supplies are usually rising, and are now down 8.6% below their April 29th peak of 512,095,000 barrels...nonetheless, we still ended the week with 4.5% more crude oil in storage than the 447,994,000 barrels we had stored as of the same weekend a year earlier, and 34.3% more crude oil than the 348,475,000 barrels we had stored on October 24th of 2014...  

This Week's Rig Count

while total drilling activity increased for the 6th week in a row during the week ending October 28th, drilling for oil fell for the first time in 18 weeks...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 4 rigs to 553 rigs by Friday, the most active rigs we've seen since February 5th, as drilling has now increased 18 out of the last 21 weeks...nonetheless, that total was still down from the 775 rigs that were deployed as of the October 30th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil fell by 2 rigs to 441 rigs this week, as oil rig activity remains down from the 578 oil directed rigs that were working a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 6 rigs to 114 rigs, which still left active gas rigs down from the 197 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...two working rigs also remain that are classified as miscellaneous, in contrast to a year ago, when no such miscellaneous rigs were active...

the number of working horizontal drilling rigs increased by 5 rigs to 450 rigs this week, which was still down from the 577 horizontal rigs that were in use on October 30th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, three directional drilling rigs were also added, bringing the directional rig count up to 54, which was nonetheless down from the 86 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was cut by 4 rigs to 53 rigs this week, which was also down from the 110 vertical rigs that were drilling in the US during the same week last year...also included in this week's variances, one of the rigs that had been working on a drilling platform offshore from Louisiana was shut down this week, which reduced the Gulf of Mexico rig count to 21, and also reduced the total US offshore count to 22 rigs, as we still have a rig working offshore from Alaska.... those numbers are down from the 32 rigs that were working in the Gulf of Mexico last year at this time, and down from the total of 33 offshore rigs active a year ago…

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 28th, the second column shows the change in the number of working rigs between last week (October 21st) and this week (October 28th), the third column shows last week's October 21st active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday 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 week's case was for October 30th of 2015... 

October 28 2016 rig count summary

what's probably most notable this week is the addition of 5 oil drilling rigs in the Williston basin of North Dakota, better known as the Bakken....this comes despite the aggregate decrease in oil rigs this week, and marks the first time the Bakken has seen an increase of more than two rigs in any one week since September of 2014, maybe indicating that oil prices over $50 for the prior three weeks was enough to move Bakken drillers to the field...on the other hand, those prices did not encourage drillers in Colorado, who pulled out three rigs, including 2 in the Niobrara, their biggest pullback since January...we can also easily account for 5 of the 6 gas directed rigs that were added this week, with the increase of 3 rigs in the Haynesville of northwestern Louisiana and northeastern Texas, and the 2 rigs that were added in the Marcellus in Pennsylvania...we might expect to see those pulled out soon if natural gas prices continue their recent decline...we should also note that among the states not shown above, Indiana also had a rig pulled out this week, leaving them with just one rig active..that's still one rig more than they had a year ago, however, as the state went through the second half of 2015 without any drilling at all...



note: more related news can be found here...

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