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 18, 2016

review of non-OPEC oil production cuts; projections for global supply & demand; US gasoline exports hit record high, et al

oil prices remained volatile this week, as countervailing waves of avarice and anxiety about the coming Russian and OPEC led production cuts swept over the oil markets, but by the end of the week they were little changed from last week's close...what might have been the largest price move of the year for US oil was unleashed before the week even started, as oil prices jumped $3 a barrel to $54.50 a barrel at the opening of Asian trading at 11 PM on Sunday, as global oil traders reacted to the agreement by Russia and ten other non OPEC oil producers last Saturday to join the cartel in cutting their oil output...prices in New York were as high as $54.51 a barrel after US markets opened, the highest price since July 6, 2015, but fell back from there over the rest of the day to close Monday up just $1.33 at $52.83 a barrel...oil then traded 50 cents higher on Tuesday morning, but slipped back to close at $52.98 a barrel after the American Petroleum Institute reported large increases in crude and gasoline inventories...prices then fell back to close at $51.04 a barrel on Wednesday, despite the EIA report that US crude supplies had actually fallen, as the IEA (International Energy Agency) reported that OPEC had pumped 34.2 million barrels a day in November, a record high that was 300,000 barrels a day higher than their October record....oil prices continued to fall on Thursday as the US dollar hit a 14-year high against other major currencies, briefly slipping below $50 a barrel, before climbing back near the close to settle down just 14 cents at $50.90 a barrel....prices then rose Friday as oil traders regained faith in the OPEC deal and Goldman Sachs raised its oil price forecast to $57.50, and oil closed the week at $51.90 a barrel, for a gain of less than 1% from last Friday's close of $51.50..

this week we finally have some details on the secondary agreement to cut oil production that came out of that meeting of Russia and other non-OPEC oil producers last Saturday, which we didn't have much information about at that time...that agreement is projected to reduce production of the 11 signatories by 558,000 barrels a day, on top of the 1.2 million barrels a day in cuts already agreed to by OPEC, thus amounting to a total reduction of about 1.8% of global oil supply...in addition to the 300,000 barrel per day cut expected from Russia, other producers contributing relatively large cuts include Mexico, who will cut 100,000 barrels a day, Kazakhstan, who will cut 50,000 barrels a day, Oman, who will cut 45,000 barrels a day, and Azerbaijan, who will cut 35,000 barrels a day...other participants, all with smaller output cuts, include Bahrain, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan....Mexico's participation, especially to that degree, is the one surprising here, at least to me, because i'd thought i'd read that Mexico had opted out...but it does make sense for Mexico to cut output, because their aging giant Cantarell field has been in decline for years, and pushing it to maintain maximum output only risks its viability in the long run...other than Russia, the country to watch among these non-OPEC producers will be Kazakhstan, who just brought their giant Kashagan oil field online in October.. operated by an international consortium including Exxon, Shell, Eni, Total, CNPC, and Japan’s Inpex, Kashagan was projected to add 80,000 barrels a day to Kazakhstan's output, and after spending $50 billion over a dozen years to get it operating, those big oil companies aren't going to want to see it slowed down..

Global Oil Supply and Demand

in addition to this week's release of the aforementioned report on global oil production from the Paris-based International Energy Agency, which is available to subscribers only, OPEC released their Monthly Oil Market Report for December, a free 101 page pdf, which we'll pull a few graphics out of to put this all in perspective....this first table is from page 60 of the OPEC pdf and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as labeled...OPEC uses "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator for their for their quotas and production cuts, rather than use what's directly reported by the members (shown in Table 5.9, also on page 60), to resolve potential disputes that might arise if each member reported their own figures...what we're interested in here are the October and November 2016 figures, and the change between them, shown in the last column....while they also show a new record for their November production, note that the increase reported here is only half of the 300,000 barrels per day jump to 34.2 million barrels a day that was reported by the IEA... 

November OPEC crude production

the next graphic, from page 61 of the December OPEC Monthly Oil Market Report, shows both OPEC and world oil production monthly on the same graph, from December 2014 to November 2016...the pale blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the green graph represents global oil production in millions of barrels per day, as shown on the right scale...according to OPEC, global oil production reached a new record of 96.84 million barrels per day in November, up by more than half million barrels per day from the 96.32 million barrels per day produced in October, and OPEC accounted for 35.0% of that global total..

November world oil supply via OPEC

next, from page 39 of the same OPEC report, we have global oil demand figures for 2015 and each of the quarters of 2016...this represents how much of that oil being produced that's shown above is being consumed, and basically by whom (FSU is the former Soviet Union countries)...thus, global consumption of oil throughout 2016 averaged 94.41 million barrels per day, and the projected demand for oil in the 4th quarter of this year works out to 95.31 million barrels per day, in contrast to November global production of 96.84 million barrels per day...

November world oil demand via OPEC

finally, we have a graphic from the Public Page of the current IEA Oil Market Report, which shows what they project will happen to global oil supply and demand in the first two quarters of 2017 if OPEC and other oil producers go through with their oil production cuts as announced...the green graph shows oil production globally in millions of barrels per day for each quarter since the beginning of 2013, while the yellow graph shows global oil consumption in millions of barrels per day over that same span...the blue bars in the background of that graph show the difference, also in millions of barrels per day, between the green and yellow graphs, with a blue bar pointing upward representing the amount of oil surplus in a given quarter, while a blue bar pointing downward represents a deficit of oil, necessitating withdrawal of oil from storage, and typically resulting in higher oil prices until such time as some of the demand is squeezed out....thus we can see that the world has been producing surplus oil in various amounts since the 2nd quarter of 2014, from which time oil prices have fallen from above $100 a barrel to as low as $26...the IEA now projects that if OPEC and non-OPEC oil producers implement the oil production cuts they've indicated, there will be an estimated oil deficit of 0.6 million of barrels per day globally during the first two quarters of 2017

IEA November 2016 demand supply balance

The Latest Oil Stats from the EIA

this week's oil data for the week ending December 9th from the US Energy Information Administration indicated a big drop in our imports of crude and a small increase in refining, which thus left our end of the week supplies of crude oil quite a bit lower than the prior week....meanwhile, the crude oil fudge factor that was inserted into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance swung to +437,000 barrels per day, from last week's -425,000 barrels per day, which means that 437,000 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 that one or more of this week's metrics were off by that amount.....with a week to week swing of 886,000 barrels per day in that fudge factor, this week's week over week comparisons involving crude are useless...the cumulative daily average of that adjustment has inched up to +117,000 barrels per day, which means the EIA's week figures remain out of balance for the whole year...we've shown that much of that imbalance has been due to under-reported oil production, but guessing how much in any given week is pretty much a crap shoot..

at any rate, for the week ending December 9th, the EIA reported that production of crude oil from US wells rose by 99,000 barrels per day to an average of 8,796,000 barrels per day, the 7th increase in the past 9 weeks, as output from Alaskan fields fell by 2,000 barrels per day while production from wells in the lower 48 states was 101,000 barrels per day higher, which suggests that a number of those drilled but uncompleted wells have now been fracked as oil prices rose...as a result, this week's domestic oil production was just 4.1% lower less that the 9,176,000 barrels of crude we produced during the week ending December 11th of last year, and 8.5% below our record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015... 

at the same time, the EIA reported that our imports of crude oil fell by an average of 943,000 barrels per day to an average of 7,360,000 barrels per day during the week ending December 9th, as the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) fell back to an average of 7.7 million barrels per day, now 2.0% lower than the same four-week period last year...to my memory, that's the first time our 4 week average of oil imports fell below the prior year's 4 week average in the nearly two years we've tracked that metric, although we're sure it was more common when oil production was rising steadily, and before oil pricing went into contango, making it profitable to import and store oil...meanwhile, our exports of crude oil fell by an average of 14,000 barrels  per day during the week ending December 9th to an average of 485,000 barrels per day, in data that is not directly comparable to last year's oil exports of 445,000 barrels per day during the week ending December 11th... 

meanwhile, the EIA also reported that the amount of crude oil used by US refineries rose by an average of 57,000 barrels per day to an average of 16,474,000 barrels of crude per day during the week ending December 29th, as our refinery utilization rate inched up to 90.5% during the week from last week's 90.4%, which still left it lower than the refinery utilization rate of 91.9% during the week ending December 11th of last year...the amount of crude oil being refined this week nationally was down 0.8% from the 16,611,000 barrels of crude per day US refineries used during the week ending December 11th last year, while it was up 1.1% from the 16,301,000 barrels per day that were being refined during the equivalent week in 2014... 

however, despite another increase in the amount of crude oil being refined, the EIA reported that our refineries’ production of gasoline fell again, by 85,000 barrels per day to 9,828,000 barrels per day during the week ending December 9th...our gasoline production was thus down 1.4% from the 9,963,000 barrels per day of gasoline produced during the same week a year ago, but it was still up by 1.8% from the 9,652,000 barrels per day of gasoline produced during the week ending December 12th 2014...the EIA also reported that our refineries' output of distillate fuels (diesel fuel and heat oil) fell by 74,000 barrels per day to 5,009,000 barrels per day during the week ending December 9th, which was 1.9% lower than the 5,107,000 barrels per day that was being produced during the week ending December 11th last year, and also 3.9% lower than the 5,214,000 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 497,000 barrels to 230,045,000 barrels as of December 9th, as our domestic consumption of gasoline increased by 117,000 barrels per day to 8,874,000 barrels per day...that was as our gasoline imports fell by 28,000 barrels per day to 624,000 barrels per day while our gasoline exports rose by 139,000 barrels per day to a record high 1,131,000 barrels per day, which was only the 2nd week in history that our gasoline exports topped 1 million barrels per day...still, our gasoline inventories as of December 9th were 5.5% higher than the 217,653,000 barrels of gasoline that we had stored on December 11th of last year, and 5.9% higher than the 216,764,000 barrels of gasoline we had stored on December 12th of 2014....

at the same time, our distillate fuel inventories fell by 762,000 barrels to 155,935,000 barrels by December 9th, as our exports of distillates rose by 193,000 barrels per day to 1,321,000 barrels per day, the most distillates we've exported since September 23rd....nonetheless, our distillate inventories remained 2.6% higher than the distillate inventories of 151,976,000 barrels of December 11th last year, and 28.3% above the distillate inventories of 121,544,000 barrels of December 12th, 2014…

finally, mostly due to the big drop in our oil imports, our inventories of crude oil fell by 2,563,000 barrels to 483,193,000 barrels by  December 9th, which thus left our oil supplies 5.4% below their April 29th peak of 512,095,000 barrels...however, we nonetheless ended the week with 5.4% more crude oil in storage than the 458,354,000 barrels we had stored as of the same weekend a year earlier, and 39.1% more crude than the 347,466,000 barrels of oil we had in storage on December 12th of 2014...   

This Week's Rig Count

US drilling activity rose for the 12th time in 13 weeks during the week ending December 16th, as higher prices continue to draw more frackers out to the oil fields....Baker Hughes reported that the total count of active rotary rigs running in the US rose by another 13 rigs to 637 rigs by this Friday, which was still down from the 709 rigs that were deployed as of the December 18th 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 increased by 12 rigs to 510 rigs during the week, which was the first time US oil rigs topped 500 rigs since January 22nd of this year, as oil drilling activity has only retreated once in the past 25 weeks...but oil drilling was still down from the 541 oil directed rigs that were working in the US on December 18th 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 1 rig to 126 rigs, which still left active gas rigs down from the 168 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, in contrast to a year ago, when no such miscellaneous rigs were deployed...

both the Gulf of Mexico rig count and total US offshore count remained unchanged at 22 rigs, down from 24 offshore rigs a year ago, which were also all in the Gulf at that time...the number of working horizontal drilling rigs increased by 9 rigs to 512 rigs this week, which was still down from the 559 horizontal rigs that were in use in the US on December 18th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, 3 directional drilling rigs were added, increasing the directional rig count to 54, which was down from the 63 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count increased by a single rig to 71 rigs as of December 16th, which was still down from last December 18th's deployment of 87 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 that 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 16th, the second column shows the change in the number of working rigs between last week's count (December 9th) and this week's (December 16th), the third column shows last week's December 9th 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 18th of 2015...     

December 16th 2016 rig count summary

once again, the entire increase in the oil rig count could be accounted for by the 12 rig increase in the Permian, which at 258 rigs now accounts for more than half of the horizontal drills working in the US...notice that the Louisiana Haynesville now joins the Utica and the Permian with rig counts above their year ago level, whereas the Cana Woodford of Oklahoma, which had been ahead of its year earlier total for several weeks, has now slipped behind, as 3 rigs were shut down in that basin this week even at its year ago total rose...and while the 40 rigs now drilling in the Marcellus is still below last year's 41 rig deployment, the number of those rigs working in Pennsylvania has risen to 31 from last year's 26 rigs, while drilling in West Virginia has dropped from 16 rigs a year ago to 10 rigs currently....also note that outside of the major producing states shown in the summary table above, Alabama also saw a drilling rig start up last week, and thus they now have two rigs working, in contrast to a year ago, when there was no drilling going on in the state...



note: there's more here...

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