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, December 11, 2016

OPEC & Russian oil production at new highs, NOPEC deal completed, largest rig count jump in 31 months, global rigs, etal

less than a week after both OPEC and Russia committed to lowering their oil production in order to stabilize oil prices, we learned that both were producing oil at record levels in November, even as they were preparing to meet to hash out the details of their planned output reductions...that news knocked the wind out of the oil price rally that saw oil prices rise 16% to 16 month highs over the four days following the OPEC meeting in Vienna on November 30th, and oil prices subsequently fell more than $2 a barrel, or nearly 4%, over Tuesday and Wednesday following those reports, before steadying and retracing most of that loss, ending the week at $51.50 a barrel...

as you'll recall, the proposed OPEC production cutback announced last week generally amounted to a commitment by most OPEC members to reduce their oil output by 4.5% from October levels, which had already risen to a record high of 33.643 million barrels per day in October, from levels of around 32.5 million barrels per day earlier this year...the new November OPEC production data, from a Reuters survey of shipping data and industry sources, indicated that OPEC production had risen to 34.19 million barrels per day in November, from a revised 33.82 million barrels per day in October, as Angola, Nigeria, Libya, Iran, and Iraq all increased output significantly (note that there are several estimates of OPEC production; their own reports cite two estimates other than this one, and the key takeaway from this Reuters survey is that OPEC output rose by 370,000 barrels per day from their previous record high)...meanwhile, Russian oil production rose by 2,000 barrels per day to 11.23 million barrels per day in November, a new post Soviet era record for Russia as a stand alone country, which means they've increased output by 500,000 barrels per day since first committing to cutting 300,000 barrels per day in August ...not only do the November record levels of production add to the current oil glut, but new highs in production for both countries means the cuts announced for January will have to come off of a higher output level than previously estimated..

pushing oil prices higher going into the weekend was the anticipation of the meeting of Russia and other non-OPEC oil producers on Saturday, which were expected to contribute another 600,000 barrels per day in production cuts, on top of the 1.2 million barrel per day cut that OPEC had agreed to last week...as i write this on Saturday evening, the Wall Street Journal is reporting that a deal was struck between Russia and 10 countries outside of OPEC to cut their production by a total of 558,000 barrels per day, with Russia as expected contributing 300,000 barrels per day of that reduction...details on the other countries involved in that deal are still sketchy; Oman, Azerbaijan and Sudan are other producers mentioned as committing to cuts, but i've seen no country by country quantities given...Brazil had already opted out of attendance, so they obviously wont be cutting, nor will Canada, China or Norway, who hopes to ramp up their own production to steal European market share from Russia..

before we move on to the weekly oil data, we should make note that there has been a run-up in natural gas prices with the advent of colder weather...the easiest way to explain what happened is with a graph, which we'll herewith include below...

December 10th natural gas prices

the above graph shows the contract price over the last 3 months for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered in January at 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...as you can see, natural gas contract quotes have increased by nearly $1 per mmBTU over the past month to reach their highest level since December 2014, with forecasts of winter weather being the primary driver, as natural gas stores have remained well above normal and the weekly drawdowns have been close to expectations...the last time we looked at natural gas prices, contract prices for November gas delivery had fallen to $2.731 per mmBTU just as exchange trading in gas for delivery in November expired on October 27th, while at the same time natural gas for delivery in December was being quoted at $3.046 per mmBtu...from this graph we can see that January gas never got that low, which exposes the seasonal price variation typical for gas and heat oil...however, up until recently, even gas prices for January had been held down by the ongoing gas glut and the warmest Fall in US weather history, which even prompted that November nonsense suggesting increased air conditioning would cause higher natural gas consumption by electric utilities...that's by the boards now, as we are heading into a La Nina winter, which tends to be colder than normal...finally, driving prices to a record high on Friday was a forecast of a return to "life-threatening lows the polar vortex brought to parts of the country in 2014"...again, for natural gas, this is a seasonal price spike, and while it may result in some of the drilled but uncompleted (DUC) wells being completed, is not certain to cause an attendant spike in drilling...that's because natural gas prices are in backwardation, meaning futures prices are lower, and thus newly drilled gas wells wont get this current price for their future production...as of this weekend natural gas futures prices indicate that the contract price for April 2017 gas is at $3.453 per mmBTU , but by April 2018 the contract price falls to $2.928 per mmBTU, and that forward natural gas prices after that remain below $3 for most of the next dozen years...

The Latest Oil Stats from the EIA

the US Energy Information Administration's release of oil data for the week ending December 2nd indicated a large jump in our imports of crude and a modest increase in refining, which nonetheless left our supplies of crude oil somewhat lower than last week...what happened was that the crude oil fudge factor that was inserted to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -425,000 barrels per day, from last week's +384,000 barrels per day, which which means that 425,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final oil consumption or inventory figures, meaning one or several of this week's metrics were in error by that quantiy....with a week to week swing of 809,000 barrels per day in that fudge factor, it goes without saying that our week over week comparisons involving crude are meaningless...moreover, the cumulative daily average of that adjustment is still listed at +116,000 barrels per day for the 3rd week in a row, which certainly can't be right, even though we know that the EIA's week figures remain out of balance by nearly that magnitude for the whole year...

so quickly, for the week ending December 2nd, the EIA reported that our imports of crude oil rose by an average of 755,000 barrels per day to an average of 8,303,000 barrels per day, as the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) rose to an average of 8.0 million barrels per day, now 5.8% higher than the same four-week period last year...meanwhile, our exports of crude oil rose by an average of 25,000 barrels  per day to an average of 499,000 barrels per day for the week, for an increase of 730,000 barrels per day in our net imports, with export data that is not directly comparable to last year's exports of 445,000 barrels per day during the week ending December 4th, ...

at the same time, the EIA reported that production of crude oil from US wells slipped by 2,000 barrels per day to an average of 8,697,000 barrels per day during the week ending December 2nd, only the 2nd decrease in 9 weeks...that was as output from our Alaskan fields was unchanged while production from wells in the lower 48 states was 2,000 barrels per day lower for the 2nd week in a row....that left the week's domestic oil production 5.1% lower than the 9,164,000 barrels of crude we produced during the week ending December 4th of last year, and 9.5% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...

meanwhile, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 134,000 barrels per day to an average of 16,417,000 barrels of crude per day during the week ending December 2nd, as our refinery utilization rate rose to 90.4% during the week, after last week's dip to 89.8%, which still left it down from the refinery utilization rate of 93.1% during the week ending December 4th last year...US oil refining is still down 3.0% from the pre Labor Day high of 16,930,000 barrels per day, at which time the refinery utilization rate had peaked at 93.7%...the rate of crude oil refined this week nationally is also down 1.4% from the 16,652,000 barrels of crude per day US refineries used during the week ending December 4th last year, and down 1.3% from the 16,627,000 barrels per day that were being refined during the equivalent week in 2014... 

however, despite the increase in the amount of crude oil being refined, the EIA reported that refineries’ production of gasoline fell by 73,000 barrels per day to 9,913,000 barrels per day during the week ending December 2nd...however, the year over year comparison still shows that our gasoline production was up about a half percent from the 9,869,000 barrels per day of gasoline produced during the same week a year ago, and up by 8.1% from the 9,169,000 barrels per day of gasoline produced during the week ending December 5th 2014...the EIA also reported that refinery output of distillate fuels (diesel fuel and heat oil) fell by 133,000 barrels per day to 5,083,000 barrels per day during the week ending December 2nd, which was 2.8% lower than the 5,228,000 barrels per day that was being produced during the week ending December 4th last year, and also 2.8% lower than the 5,231,000 barrels per day of distillates produced during the equivalent week of 2014...     

even with the drop in gasoline production, the EIA reported that our gasoline supplies rose by 3,425,000 barrels to 229,548,000 barrels as of December 2nd, as our domestic consumption of gasoline fell by 323,000 barrels per day to 8,757,000 barrels per day, the lowest since the week ending January 29th, even as our gasoline imports fell by 199,000 barrels per day to 652,000 barrels per day....as a result, our gasoline inventories as of December 2nd were 5.5% higher than the 217,653,000 barrels of gasoline that we had stored on December 4th of last year, and 5.9% higher than the 216,764,000 barrels of gasoline we had stored on December 5th of 2014....at the same time, our distillate fuel inventories rose by 2,501,000 barrels to 156,697,000 barrels by December 2nd, leaving our distillate inventories 4.9% higher than the distillate inventories of 149,413,000 barrels of December 4th last year, and 28.7% above the distillate inventories of 121,751,000 barrels of December 5th, 2014…

finally, even with the big jump in our oil imports, the EIA reported that our inventories of crude oil fell by 2,389,000 barrels to 485,756,000 barrels by  December 2nd, which left our supplies 5.1% below their April 29th peak of 512,095,000 barrels...however, we still ended the week with 7.1% more crude oil in storage than the 453,553,000 barrels we had stored as of the same weekend a year earlier, and 39.5% more crude oil than the 348,313,000 barrels we had stored on December 5th of 2014...   


This Week's Rig Count

US drilling activity rose for the 11th time in 12 weeks during the week ending December 9th, possibly reacting to the OPEC deal to post the largest increase in 31 months....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 27 rigs to 624 rigs by this Friday, which was still down from the 709 rigs that were deployed as of the December 11th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014... 

rigs deployed drilling for oil in the US rose by 21 rigs to 498 rigs during the week, which was the most oil rigs we've had working in any week since January 29th, as oil drilling activity has only retreated once in the past 24 weeks...but oil drilling was still down from the 524 oil directed rigs that were working on December 11th 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 125 rigs, which still left active gas rigs down from the 185 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...one rig that was classified as miscellaneous also remained active, technically an increase from a year ago, when no such miscellaneous rigs were working...

drilling on bodies of water was unchanged from last week, as both the Gulf of Mexico rig count and total offshore count remained at 22 rigs, down from 23 offshore rigs a year ago...the number of working horizontal drilling rigs increased by 18 rigs to 503 rigs this week, which was still down from the 554 horizontal rigs that were in use on December 11th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 5 directional drilling rigs were added, bringing the directional rig count back up to 51, which was down from the 64 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count increased by 4 rigs to 70 rigs as of December 9th, which was still down from last December 11th's deployment of 91 vertical rigs..

as usual, 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 December 9th, the second column shows the change in the number of working rigs between last week's count (December 2nd) and this week (December 9th), the third column shows last week's December 2nd 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 reporting week a year ago, which in this case was for December 11th of 2015...    

December 9th 2016 rig count summary

again we see that this week's drilling increase was led by an 11 rig increase in the Permian of west Texas, which has now seen a 109 rig increase since the last week of May, and thus accounts for nearly half of the 220 drilling rig increase that we've seen over that span...furthermore, with 246 rigs deployed targeting that shale basin, the Permian alone accounts for nearly half of the 503 horizontal drilling rigs currently in use...with additional increases in the Eagle Ford of south Texas and in the Granite Wash tight sand of the panhandle region, Texas managed a 17 rig increase, the largest we've seen in any one state in any one week....the other big jump in shale targeted drilling this week was in the Denver-Julesburg-Niobrara of the Rockies front range, where 6 rigs were added, which is likely reflected by the 6 rig increase in Colorado, since Wyoming has been adding conventional rigs of late...meanwhile, the only natural gas rig increases noted above are in the Marcellus, as of the 6 rigs targeting natural gas added this week, 4 were logged in the unnamed "other' column...however, those two were enough to increase the Pennsylvania rig count to 31, now topping their 30 rigs a year ago...we should also note that outside of the major producing states shown in the summary table above, Indiana saw two rigs started up, having none working last week and none a year ago, while Kentucky saw its two rigs pulled out, leaving none, down from one last year…in addition, Illinois saw one rig stacked, leaving one, in contrast to none a year ago, and Mississippi saw its rig count reduced from 4 rigs to 3, also down from 4 rigs a year ago...


International Rig Count for November

Baker Hughes also released the international rig counts for November this week, which unlike the weekly North American count, is an average of the number of rigs that were 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 1,678 rigs were drilling for oil and natural gas around the globe in November, which was up from the 1,620 rigs that were drilling around the globe in October, but down from the 2,047 rigs that were working globally in November of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 544 rigs in October to 580 rigs in November, which was still down from the average of 760 rigs that were working in the US in November a year ago, while the average Canadian rig count rose from 156 rigs in September to 173 rigs in November, again still down from the 178 Canadian rigs that were deployed in November a year earlier....outside of Northern America, the International rig count rose by 5 rigs to 925 rigs in November, which was also down from 1,109 rigs a year ago, as increases in drilling in Europe and Eastern Asia more than offset a decrease in Middle East activity.. 

drilling activity in the Middle East fell for the 7th time in the past 11 months, as the countries included in this region pulled out a net of 11 rigs, reducing their active rig average to 380 rigs for the month, which was also down from the 419 rigs deployed in the Middle East a year earlier....most of the cutback in drilling could be accounted for by reductions in Oman, and by OPEC members Qatar and Abu Dhabi, who each removed 3 rigs...Oman's cut was from 64 rigs to 61, which was also down from the 72 rigs deployed in Oman last November, while the Qataris cut back to 9 rigs from 12, which was up from the 5 rigs they had deployed a year ago, and Abu Dhabi reduced their active rigs to 47, which was down from the 52 they had active last November...two other OPEC members also cut their drilling back by a single rig; Iraq's drilling was down from 42 rigs to 41, which was also down from 51 rigs a year earlier, and Kuwait cut back from 48 rigs to 47, which was still up from the 43 rigs the Kuwaitis were running a year ago...in addition, Egypt cut back their drilling from 23 rigs in October to 22 rigs in November, well down from the 45 rigs running in Egypt a year earlier...however, the Saudis added a rig in November and thus were running 127 rigs, the same as they were running a year ago...as we've mentioned previously, the Saudis have continued to increase drilling throughout this period of lower prices, increasing their rig counts from in the 80s in 2013 to average 105 rigs in 2014, and gradually increasing from there to average 125 rigs this year...

in addition to the cuts in the Middle East, the Latin American region saw its active rig count reduced by a net of 2 rigs to 181 rigs, while they were also down from 284 rigs in November of 2015, as the region had idled 92 rigs over the first 6 months of 2016...the region's November change also included shutting down 2 more offshore platforms, after they had shut down 8 offshore rigs the prior month, leaving Latin American offshore activity at 28 rigs, which was also down from 52 offshore last November...Brazilian drillers continued to cut back, reducing their active count from 14 rigs to 10, which was down from the 36 rigs deployed in Brazil a year earlier...Mexican drillers shut down 3 rigs in November, leaving an average of 18 rigs active, down from 38 rigs last November...Bolivia, Chile, OPEC member Ecuador, and Peru also each shut down a rig in November; for Bolivia, the 4 rigs remaining were down from 7 rigs a year earlier; for Chile, their remaining 2 rigs were the same as last year's count; for Ecuador, their 5 rigs were up from last years 4 rigs, and Peru had no rigs remaining active, down from 1 rig in November of 2015...on the other hand, drillers in Columbia added 5 rigs in November, bringing their count up to 16 rigs, which was also up from 15 rigs a year earlier...OPEC member Venezuela started up 3 more rigs and thus had 51 rigs running, still down from 70 rigs a year earlier, and Argentina also added a rig, bringing them back to 70, still down from 101 rigs last November..

meanwhile, drilling activity in the Asia-Pacific region increased by 6 rigs to 188 rigs in November, as their offshore deployment rose from 84 rigs to 92, which was down from the 208 rigs working the region a year earlier, which included 85 working offshore at that time....India added 5 rigs, bringing their total to 117 rigs active nationwide, which was up from the 105 rigs they had deployed in November of last year...both Vietnam and Papua New Guinea added 2 rigs, bringing their counts up to 4 rigs and 3 rigs respectively, up from 4 rigs last year for Vietnam but down from 3 rigs last year for Papua New Guinea...other Asian Pacific countries adding one rig included Australia, Brunei, and Myanmar, bringing their totals up to 4 rigs, 2 rigs and 1 rig respectively, down from 14 rigs a year ago for Australia, unchanged from last year for Brunei, and up from none last year for Myanmar...on the other hand, Indonesia idled 3 more rigs after shutting down 2 in October and hence were down to running 14 rigs, down from the 24 rigs they had working in November a year earlier...in addition, single rig reductions were seen in Malaysia, Thailand and the Philippines...for Malaysia, that left 4 rigs, down from last year's 7 rigs; for Thailand, that left 10 rigs still working, down from 17 a year ago, and for the Philippines it left no rigs active, in contrast with the 3 rigs they were running a year earlier...

oddly, the net rig count in Europe saw the largest jump in November, rising by 10 rigs to 97 rigs, which was down from the 108 rigs working in Europe a year ago at this time, as offshore drilling that was shut down in October returned in November, as the European offshore count rose to 33 rigs from 24 rigs a month ago...Norwegian drillers accounted for most of that, as they reactivated 6 of the 7 North Sea platforms that were shut down in October, and now have 15 active, up by 1 rig from last year's 14...at the same time, the UK also added 3 offshore rigs, and now have 10, which was down from the 12 platforms they had working offshore a year earlier...in addition, Germany added 2 rigs, and now have 4 rigs active, up from 3 last year, and Italy and Spain added one rig each...for Italy, the 4 rigs active in November was also up from 3 rigs last year, while the rig the Spaniards added was their first drilling since October 2012...partially offsetting those increases, Turkish drillers shut down 2 rigs and thus had 29 active in November, up from 28 rigs a year earlier, while the Dutch shut down 1 rig, leaving 3 rigs active, the same number that were active in the Netherlands a year ago....

lastly, the African continent saw an addition of 2 rigs in November, although at 79 rigs their activity was still down from the 90 rigs working in Africa last year at this time...three African nations added 1 rig each: Angola, the Congo Republic, and OPEC member Nigeria...that brought Angola back to 3 rigs, still down from last year's nine; brought the Congo Republic back to 3 rigs, same as a year ago, and brought Nigeria back up to 5 rigs, also down from 9 rigs a year earlier....at the same time, the last active rig in Cote d'Ivoire was shut down; a year ago, the Ivory Coast had 3 rigs active....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although China's offshore area, with an average of 28 rigs active in November, were included in the Asian totals here...   



note: there's more here..

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