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 23, 2016

oil hit 15 mo high, imports at 16 mo low, refinery utilization at 43 mo low, gasoline use at 9 mo low, rigs up at fastest rate since 2010, DUCs down, et al

driven by a falling dollar and reports of falling crude supplies, oil prices rose to a 15 month high midweek, before dropping back on Thursday, when the dollar jumped to an 8 month high and trading in the November oil contract expired...after closing last week with a small gain at $50.35 a barrel, US WTI oil prices opened higher Monday morning before later falling on word that Iran planned to boost its oil output to 4 million barrels, as they joined Iraq in protesting that the OPEC production estimates coming out of the Algiers meeting were too low, with prices ending the day below $50 at $49.94 a barrel...prices then rose on Tuesday after the American Petroleum Institute reported a 3.8 million barrel drop in crude supplies while the dollar fell, sending WTI prices higher to close at $50.29 a barrel...oil prices then spiked on Wednesday after the EIA reported an even larger inventory drop of more than 5 million barrels, as oil rose 2.6% to close at at a 15 month high of $51.60...with the dollar resurgent on Thursday and traders noticing concurrent large increase in gasoline supplies, oil gave up most of its Wednesday gains, with the expiring November contract down $1.17, or 2.3 percent, to finish at $50.43 a barrel, while the new front month December contract simultaneously slid $1.19 to settle at $50.63 a barrel....oil for December, now the quoted contract, then steadied on Friday as the dollar eased off eight-month highs while the weekly oil rig count showed drilling still growing, and closed the week at $50.85

meanwhile, natural gas prices, which had hit a 22 month high at $3.341 per mmBTU on Thursday of last week, slowly retreated early this week until Friday, when they fell  nearly 15 cents in a week that saw the November contract price drop 10% from last weeks high...falling from last week's close of $3.285 per mmBTU to close at $3.244 per mmBTU on Monday, gas prices then inched back to $3.263 per mmBTU on Tuesday as analysts continued to cite lower gas production and forecasts for a colder winter...but prices slipped to $3.170 on Wednesday and then to $3.141 per MMBtu on Thursday, after the EIA reported there was a 77 billion cubic feet injection to storage in the week ended October 14th, 5 billion cubic feet more than analysts had expected... prices then fell 14.8 cents, or 4.7%, to $2.993 mmBTU, to a new two-week low on Friday, pressured by those high stockpile levels and "concerns over demand amid warm weather forecasts"...now, while there isn't much news on what drives natural gas prices, we would note that as prices rose over the past few weeks, market commentary was that prices were rising due to forecasts of much warmer than normal weather, which traders apparently believed would translate into greater electricity generation than normal to meet an unseasonable demand for air conditioning (presumably in states south of us)....this week that story was turned on its head, as we're now being told that natural gas prices fell due to warmer-than-normal weather for this time of the year.

The Latest Oil Stats from the EIA

this week's oil data for the week ending October 14th from the US Energy Information Administration indicated a drop of nearly a million barrels per day in our oil imports, largely due to disruptions caused by Hurricane Matthew, and hence a large drop in our supply of oil by the end of the week...however, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -312,000 barrels per day, from last week's +415,000 barrels per day, which means that 312,000 barrels of oil per day that we appeared to have produced or imported last week did not even show up in the final oil consumption or inventory figures....needless to say, that -726,000 barrel per day swing in the balance sheet adjustment will mean most of our week over week comparisons will be virtually meaningless, and moreover, since the year ago adjustment was at +451,000 barrels per day, the year over year comparisons will be similarly distorted...still, it is this 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 looking at.....year to date, the cumulative daily average of that fudge factor has fallen to -25,000 barrels per day, so it appears that most of oil that disappears from the statistics over one period still seems to be finding its way back into the data in subsequent weeks...

with that in mind, then, the EIA reported that our imports of crude oil fell by an average of 954,000 barrels per day to an average of 6,907,000 barrels per day during the week ending October 14th, which was the least oil we've imported in any week since the week ending June 19th 2015, a time when US oil production was at it's peak...widely seen as the result of the disruption to ship traffic into the Gulf coast ports caused by Hurricane Matthew, this week's oil imports were 564,000 barrels per day, or 7.5% lower than the 7,471,000 barrels of oil per day we imported during the corresponding week a year ago and the first 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 7.6 million barrels per day, now just 3.1% higher than the same four-week period last year...meanwhile, our exports of crude oil were also lower, falling by an average of 42,000 barrels per day to an average of 439,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 526,000 barrels per day in 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..

for the same week, the EIA reported that production of crude oil from US wells rose by 14,000 barrels per day to an average of 8,464,000 barrels per day, as output from Alaskan fields rose by 8,000 barrels per day while production from the lower 48 states was 6,000 barrels per day higher....that still left the week's domestic oil production 6.9% lower than the 9,096,000 barrels we produced during the week ending October 16th of last year, and 11.9% 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 14th was also 755,000 barrels per day, or 8.2% lower, than what we were producing at the beginning of this year, which was an interim high after our otherwise declining production had also been rising in the last few months of 2015...

meanwhile, the amount of crude oil used by US refineries fell by an average of 182,000 barrels per day to an average of 15,370,000 barrels of crude per day during the week ending October 14th, the sixth significant refining cutback in a row, as our refinery utilization rate fell to a 43 month low of 85.0% for the week, down from 85.5% of capacity the prior week, and down from the refinery utilization rate of 86.6% seen during the week ending October 16th last year...US oil refining has now slowed by 1,552,000 barrels per day, or by 9.2%, in the 6 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the amount of crude oil refined this week nationally was still up a bit from the 15,345,000 barrels of crude per day US refineries used during the week ending October 16th last year, and 1.1% more than was refined during the equivalent week in 2014 ... 

with the moderate drop in the amount of oil used by refineries for the week, the EIA reported that refineries’ production of gasoline fell by 437,000 barrels per day to 9,498,000 barrels per day during the week ending October 14th, as our gasoline output fell nearly a percent below the gasoline output of 9,579,000 barrels per day during the week ending October 16th last year, while it remained 2.0% higher than the gasoline production during the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) rose by 103,000 barrels per day to 4,599,000 barrels per day during the week ending October 14th....however, the week's distillates output was still 2.7% lower than the 4,728,000 barrels per day that was being produced during the same week last year, and a bit less than the 4,604,000 barrels per day of distillates we produced during the equivalent week of 2014...   

however, even with the large drop in gasoline production, our gasoline supplies rose by 2,469,000 barrels to 227,967,000 barrels as of October 14th, the largest one week increase in gasoline supplies since the 12th of February....that happened as our domestic demand for gasoline fell by 466,000 barrels per day to 8,798,000 barrels per day, the lowest weekly consumption since January, and as our imports of gasoline rose by 109,000 barrels per day to 871,000 barrels per day....with this week's increase, our gasoline inventories were thus 3.7% higher than the 219,784,000 barrels of gasoline that we had stored on October 16th of last year, and 11.5% higher than the 204,374,000 barrels of gasoline we had stored on October 10th of 2014...at the same time, our distillate fuel inventories fell by 1,240,000 barrels to 155,732,000 barrels by October 14th, which nonetheless still left our distillate inventories 7.4% above the distillate inventories of 145,008,000 barrels of October 16th last  year, and 23.9% above the distillate inventories of 125,671,000 barrels of October 17th, 2014....

lastly, with the large drop in oil imports, our inventories of crude oil fell by 5,247,000 barrels to 468,711,000 barrels as of October 14th, the 6th drop in our oil supplies in 7 weeks...with two hurricanes disrupting imports over that span, our oil supplies have thus fallen 5.4% over 7 weeks at a time of year when supplies usually rise, and are now down 8.5% below their April 29th peak of 512,095,000 barrels...nonetheless, we still ended the week with 5.4% more crude oil in storage than the 444,618,000 barrels we had stored as of the same weekend a year earlier, and 35.3% more crude oil than the 346,414,000 barrels we had stored on October 17th of 2014...  

This Week's Rig Count

US drilling activity increased for the 5th week in a row during the week ending October 21st, and has now increased 17 out of the last 20 weeks, following a 39 week stretch that hadn't seen any drilling increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 14 rigs to 553 rigs by Friday, an eight month high, which was still down from the 787 rigs that were deployed as of the October 23th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...we've now seen 29 drilling rigs added over the last two weeks, the most rigs added in a two week period since April of 2014, and percentage wise an increase we'd have to go back to early 2010 to match...

the number of rigs drilling for oil rose by 11 rigs to 432 rigs this week,  as oil rigs have now been rising for 17 straight weeks without a retreat, but they're still down from the 594 oil directed rigs that were in use 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 was up by 3 rigs to 108 rigs, which still left active gas rigs down from the 193 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...

offshore drilling activity was again unchanged at 23 rigs, now down from 34 a year earlier, while 1 rig which had been drilling on an inland lake in southern Louisiana was removed, leaving two rigs still active on inland waters, down from 3 such rigs a year ago...the number of working horizontal drilling rigs increased by 14 rigs to 445 rigs this week, which was still down from the 591 horizontal rigs that were in use on October 23rd 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 was unchanged at 57 rigs this week, which was down from the 109 vertical rigs that were drilling in the US during the same week last year, and at the same time, the directional rig count was also unchanged at 51 rigs, which was down from the 87 directional rigs that were deployed during the same week last year...

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 21st, the second column shows the change in the number of working rigs between last week (October 14th) and this week (October 21st), the third column shows last week's October 14th 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 23rd of 2015           

October 21 2016 rig count summary

it's pretty clear from the above that the major story in this week's drilling increase took place in the Permian basin of western Texas, where 11 rigs were added, and hence accounted for most of the Texas increase of 10 wells...noting the two rig increase in the Eagle Ford of south Texas, and no other obvious Texas reductions, we'd have to assume that the two rigs added in New Mexico were also in the Permian, just on the other side of the Texas border...also noteworthy is the addition of three rigs in Wyoming, especially since the Niobrara of the Rockies's front range lost a rig, apparently in Colorado...the two rig drop in Louisiana included the aforementioned lake rig, and two southern Louisiana land rigs, while a gas rig was added in the Haynesville in the northern part of the state...we should also note that of the states not shown above, Indiana saw another rig added this week, and they now have two, up from none a year ago, while Alabama had their only active rig removed, and they now have none, same as a year ago...

DUC Wells for September

you might recall that as of last month's September Drilling Productivity Report, the EIA began providing a monthly estimate of the number of drilled but uncompleted wells (DUCs) in the 7 regions that the Drilling Productivity Report covers, and that we felt it would be a useful metric to track, being that drillers would not feel pressured to return to the field as long as there was a large inventory of uncompleted wells remaining...the October Drilling Productivity Report was released on Monday of this past week, and it continued show a small overall decrease in uncompleted wells nationally, from 5,096 DUCs in August to 5,069 DUCs in September, with most basins seeing a decline...however, the large Permian basin of western Texas saw an increase of 52 uncompleted wells for the month and they now have 1,378 such uncompleted wells, the most of any basin in the nation (the Eagle Ford basin had the most as of July, but they're now down to 1,276 uncompleted, as they saw 36 more wells completed in September than were drilled)...in our area, the Utica saw another small drop in uncompleted wells, from 126 DUCs in August to 120 DUCs in September, while the Marcellus saw their uncompleted well inventory fall from 665 DUC wells in August to 650 in September...DUCS over the 4 oil basins (ie the Bakken, Niobrara, Permian, and Eagle Ford) have now been lower in each of the last 6 months, as oil well completions started picking up when oil prices first started rising in the spring, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) has generally declined since December 2013, as new natural gas drilling fell to record low levels...



note: there's more in the same vein here...

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