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 2, 2016

OPEC announces production cuts; what that might mean for us…

in a surprise outcome of their meeting on Wednesday in Algiers, members of OPEC agreed to cut their oil production back to as low as 32.5 million barrels per day, or back to roughly what they were producing in January of this year, from their current elevated levels of over 33.2 million barrels a day....however, how they will achieve those cuts, and who would be cutting how much, was left to be worked out at the regular biennial OPEC meeting in Vienna at the end of November....crude oil prices, which had been slumping earlier in the week, jumped over 5% within hours of the OPEC announcement, and ended the day up around 6%....initial opposition from Iran was overcome as Saudi Energy Minister Khalid al-Falih said going into the meeting that Iran, Nigeria and Libya would be allowed to produce "at maximum levels that make sense" as part of any output limits...although this meeting was promoted as an agreement between OPEC and non-OPEC countries, there was no indication of a concurrent commitment to cut production from Russia, who remains skeptical of the deal and continues to budget for $40 oil ...however, as they've been amenable to such an agreement in the past, it's likely they'll go along if the ultimate OPEC resolution results in real cuts...

after closing up $2.38 at $47.05 a barrel on Wednesday, US oil prices continued to rally on the deal on Thursday, tacking on another 78 cents to close Thursday at $47.83 a barrel on NYMEX...but by the next day the first crack appeared in the deal as word came that Iraq's new oil minister Jabar Ali al-Luaibi held a separate press conference in which he stated that the figures OPEC used did not represent Iraq's actual production & therefore they could not accept the deal in its present form...the brief price rally thus stalled on Friday, as traders took profits and the rig count indicated another increase in US drilling activity, ending Friday up just 22 cents at $48.05 a barrel

since the OPEC announcement only represents an agreement to reach an agreement in November, oil analysts have been generally dismissive of this week's deal... the range of oil output that will be cut by OPEC is expected to be between 200,000 and 700,000 barrels a day from their current production, an amount that could easily be overwhelmed by the 400,000 barrels a day increase in output Russia is expected to log in September, if Russian output holds at that level....but there is no agreement on how much oil would have to be cut from current global production to bring supply and demand back into balance...some argue that it's already close, and will occur sooner rather than later, while on the other extreme, Venezuela's Oil Minister Eulogio del Pino argues that global oil production needs to be cut 9 million barrels per day, of nearly 10%, to sustain the current level of consumption...

to my memory, as oil prices were falling throughout most of 2015, there seemed to be a general consensus that global oil output was between 2 and 2.5 million barrels per day in excess of what was needed...then in the spring of 2016, as the Alberta wildfires cut a million barrels per day from Canadian production during an acceleration of attacks on oil facilities and pipelines in Nigeria, nearly 2.5 million barrels of oil per day was taken out of production globabally, and oil prices rose 80% from their lows as demand for oil briefly exceeded supply...since the May Canadian shutdown was temporary, and since both Nigerian and Libyan exports are rising again, we're certainly back into an output surplus situation today, but i've seen no hard numbers on that recently (although i expect such analysis to be forthcoming shortly, as the possible outcomes of an OPEC cut are sorted out)...

of course, what OPEC ultimately does is going to make a difference to those of us living atop of shale deposits in the US...a Dallas Fed 3rd quarter energy survey of 149 American oil and gas executives released this week showed that less than 10% of oil execs indicated they would increase production substantially if oil prices stayed under $55 a barrel; however, if oil prices rose to the $60 to $64 per barrel range, between 65% and 70% of oil execs indicated they'd then pull out the stops and start drilling everywhere again...the key to whether this deal makes that much of a difference in the price of oil will be the actions of Saudi Arabia, who promised to cut 500,000 barrels per day, which certainly seems to be a reversal of their policy to pump as much as they could that was initiated in November of 2014, which then set the oil price crash in motion...however, since Saudi production normally falls by around 400,000 barrels per day from their summer peak to midwinter for domestic reasons, we likely won't have a good handle on how much they're actually cutting back until next summer's output is in the books...

The Latest Oil Stats from the EIA

the oil data for the week ending September 23rd from the US Energy Information Administration showed cutbacks in both imports and refining activity, and modest drawdowns in supplies of crude oil and distillates, which were offset in the aggregate by increases in supplies of gasoline and propane/propylene...meanwhile, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung back to +240,000 barrels per day, after last week's -532,000 barrels per day, which meant that 240,000 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, meaning one or several of this week's metrics were off by that amount...as with last week, when we saw an even larger swing from a positive adjustment in the data to negative one, a swing of such a magnitude in the opposite direction renders most of the comparisons between this week's data and last week's useless (even though they still drive the market), but at least the 4 week average of this statistical adjustment has leveled off at 13,000 barrels per day, so we may be reaching some kind of equilibrium point in the aggregate...

in keeping with this week's apparent statistical shortfall on the supply side, the EIA reported that our imports of crude oil fell by an average of 474,000 barrels per day to an average of 7,835,000 barrels per day during the week ending September 23rd, which was only 3.7% more than the 7,554,000 barrels of oil per day we imported during the week ending September 25th a year ago...that drop served to push the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) down to an average in the range of 7.8 million barrels per day, now just 6.5% higher than the same four-week period last year... our exports of crude oil were also down, by an average of 81,000 barrels per day to an average of 507,000 barrels per day for the week, apparently less than last year's exports of 526,000 barrels per day in the same September week, at a time when these weekly export estimates were less reliable..

the EIA also reported that production of crude oil from US wells fell by 15,000 barrels per day to an average of 8,497,000 barrels per day during the week ending September 23rd, as output of Alaskan oil fell by 10,000 barrels per day and production from the lower 48 states was 5,000 barrels per day lower, the first decrease in continental US oil production in 4 weeks....the week's domestic oil production was thus 6.6% lower than the 9,096,000 barrels we produced during the week ending September 25th of last year, and 11.6% below the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last  year...that also left our oil production for the week ending September 23rd 722,000 barrels per day lower than what we were producing at the beginning of 2016...

at the same time, the amount of crude oil used by US refineries fell by an average of 253,000 barrels per day to an average of 16,334,000 barrels of crude per day during the week ending September 23rd, the third significant drop in a row, as the US refinery utilization rate fell to 90.1% for that week, down from 92.0% of capacity the prior week, but up from the refinery utilization rate of 89.8% seen during the week ending September 25th last year...US oil refining is now down by 594,000 barrels per day, or 3.5%, in the 3 weeks since Labor Day, and if the past seasonal patterns hold, will likely remain slow until Thanksgiving...nonetheless, the amount of crude refined this week nationally was still 2.3% more than the 15,962,000 barrels of crude per day US refineries used during the week ending September 25th last year, and 4.1% more than was refined during the equivalent week in 2014 ...    

the large drop in crude oil being refined, combined with the ongoing seasonal switch in refinery processes, led to a 528,000 barrel per day drop in our refineries’ production of gasoline to 9,555,000 barrels per day during the week ending September 23rd, our  lowest gasoline output since the week ending April 22nd...that was also 1.2% lower than our gasoline output of 9,674,000 barrels per day during the week ending September 25th last year, but it was still 5.6% higher than the gasoline production of the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) was also down, falling by 269,000 barrels per day to 4,709,000 barrels per day during the week ending September 23rd, the lowest distillates output since May 6th....that left our distillates output 6.0% less than the 5,010,000 barrels per day that was being produced during the same week last year, and 4.0% less than the 4,907,000 barrels per day of distillates production during the equivalent week of 2014...  

however, even with what appears to be the largest one week drop in gasoline production since the end of February, our gasoline supplies rose by 2,027,000 barrels to 227,183,000 barrels as of September 23rd, the biggest jump in gasoline inventories since May 20th...contributing to the gasoline supply jump was a 209,000 barrel per day increase to 778,000 barrels per day in our gasoline imports and a 770,000 barrel per day drop to 8,800,000 barrels per day in our domestic demand for gasoline, as refiners supplied less gasoline to US markets than in any week since the end of January.....that left this week's gasoline inventories 2.3% higher than the 222,010,000 barrels of gasoline that we had stored on September 25th last year, and 9.0% higher than the 208,488,000 barrels of gasoline we had stored on September 26th of 2014...at the same time, our distillate fuel inventories fell by 1,915,000 barrels to 163,077,000 barrels by September 23rd, which nonetheless still left our distillate inventories 7.6% above the distillate inventories of 151,608,000 barrels of September 25th last year, and 29.7% above the distillate inventories of 125,701,000 barrels of September 26th 2014....

lastly, with the drop in oil imports exceeding the drop in oil demand from refineries while oil production remained stable, our inventories of crude oil fell by 1,882,000 barrels to 502,716,000 barrels as of September 23rd, the 4th oil inventory decrease in a row....nonetheless, we still ended the week with 9.8% more crude oil in storage than the 457,924,000 barrels we had stored as of the same weekend a year earlier, and 41.0% more crude oil than the 356,635,000 barrels we had stored on September 26th 2014... 

This Week's Rig Count

US drilling activity increased for the 2nd week in a row during the week ending September 30th and has now been up 15 out of the last 18 weeks...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 11 rigs to 522 rigs as of Friday, which was still down from the 809 rigs that were deployed as of the October 2nd 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 rose by 7 rigs to 425 rigs this week, and they're now up by 110 since the May 27th bottom, but they're still down from the 614 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...meanwhile, the count of drilling rigs targeting natural gas formations rose by 4 rigs to 96 rigs this week, the biggest jump in gas rigs since June 24th, following last week's 19 month high for natural gas prices...however, gas rigs were also still down from the 195 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...a single rig that was classified as miscellaneous also remained, up from a year ago when there were no miscellaneous rigs at work...  

one of the rigs started up this week was on a drilling platform offshore from Louisiana...that brought the Gulf of Mexico rig count up to 21, which was still down from the 29 rigs that were working in the Gulf of Mexico last year at this time...in addition, another platform was set up to drill offshore from Alaska, but i saw no news on this, so i dont know exactly where they're drilling offshore Alaska at this time of year; this spring and summer, there had been an offshore platform working off the Cook Inlet, but it seems rather late in the season to start driling that far north at this time of year...nonetheless, that addition brought the total US offshore count up to 22 rigs, down from 30 offshore rigs a year ago..

the number of working horizontal drilling rigs rose by 5 rigs to 407 rigs, which was still down from the 609 horizontal rigs that were in use on September 25th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count rose by 4 rigs to 64 rigs this week, which was down from the 117 vertical rigs that were drilling in the US during the same week last year...at the same time, the directional drilling rig count increased by 2 rig to 51 rigs, which was also down from the 83 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 annual rig count changes for the major producing states, and the second table shows weekly and annual 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 September 30th, the second column shows the change in the number of working rigs between last week (September  23rd) and this week (September 30th), the third column shows last week's September 23rd 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 October 2nd of 2015:        

September 30 2016 rig count summary

in addition to the changes shown in the major oil & gas producing states shown above, Baker Hughes state tables show that both Alabama and Arkansas saw a drilling rig added this week, while a single rig was removed from Mississippi...Alabama now has two rigs, down from 3 rigs a year ago, and Arkansas now has 1 active rig, also down from 3 rigs a year ago, while Mississippi now has 3 rigs running, down from 5 active drilling rigs a year ago...



note: there's more related news here...

No comments: