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, March 19, 2017

March OPEC report shows global oil glut still building; US horizontal drilling doubles, but uncompleted wells rise...

oil prices continued falling early this past week, but rallied on Wednesday after the EIA's report of the first US oil inventory drawdown in 10 weeks, and ultimately ended the week 29 cents higher at $48.78 a barrel...the early weakness was a continuation of last week's big selloff, as hedge funds who had built up a overwhelmingly long position in oil futures and options continued to head for the exits, and oil prices fell 9 cents to close at $48.40 a barrel on on Monday and then fell to close at $47.72 a barrel on Tuesday, after the Saudis unexpectedly reported that their February oil production had increased...however, after the EIA reported a small decrease in crude supplies and rather large drops in gasoline and distillate supplies on Wednesday, oil prices jumped 2.4% to close at $48.86 a barrel...prices drifted lower on Thursday to close at $48.75 a barrel, and then an attempt at a rally sputtered on Friday, after Baker Hughes reported a double digit increase in active oil drilling rigs, as oil went on to close the week at $48.78 a barrel...

OPEC's March report

since oil pricing, and hence the industry's plans for drilling and fracking in the US, is still largely dependent on what OPEC does, we'll start this week by looking at the new OPEC Monthly Oil Market Report for March (covering February OPEC & global data)...this first table we'll include here is from page 60 of that 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 the column headings are labeled...for all their official production measurements, OPEC uses "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...this is also the oil production data we often see quoted in the media, other than that from independent analysis by energy research divisions of organizations such as Platts and Reuters, who will compute their own numbers.. 

February 2017 OPEC crude output via secondary sources

here we can see that this official data shows that OPEC production was down by 139,500 barrels per day to under 32 million in February, from a January oil production total that was revised 42,000 barrels per day lower from what was reported last month...(for your reference, here are the official January figures before these revisions)...recall that OPEC committed to reducing their production by 1.2 million barrels per day from their October levels (shown here, with Indonesia), so these figures show the remaining 13 members are now pretty close to achieving what they agreed to...however, there are a number of different estimates out there, and depending on who's judging their output and their promises, their compliance with their pledged oil output cuts could be anywhere from 71.9% to 111.5%....however, it wasn't these official figures from OPEC that attracted the attention to this report this week, but rather the February production figures that the OPEC members reported to the OPEC Secretariat, which are shown in the next table...

February 2017 OPEC crude output as reported to OPEC

the above table, also from page 60 of the OPEC pdf, shows the oil production in thousands of barrels per day that each of the members reported to OPEC (for those that did report)...although this data is considered suspect because of the many incentives OPEC members have to fudge their data, it attracted attention and precipitated a Tuesday selloff because the Saudis reported that they increased their production by 263,000 barrels per day, rather than cutting production by 68,100 barrels per day like the official totals show...while their 10,011,000 barrel per day output was still within their committed range, the increase put to rest the market consensus that the Saudis would cover for the other OPEC members such as the Emirates (UAE), who have not met their promised cuts...while oil prices rebounded after the Saudis explained the extra production was purely for domestic storage, over 10 million bpd was still more production from the Saudis than had been expected, and cast a pall of uncertainty over the market, whee traders had believed that OPEC had their production reductions under control..

next, we'll include a graph of the total OPEC oil output for all 13 members included in this report, so we can see how this month's production stacks up compared to historical figures... 

March 18 2017 OPEC February output graph

the above graph, taken from the 'OPEC February Production" post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to February 2017, using the official data from secondary sources...obviously, we can see that February OPEC production of 31,958,000 barrels per day is down quite a bit from their record production of 33,374,000 million barrels per day in November, achieved during their production run-up before the agreement was reached, but note that their current production is still somewhat more than what they were producing between February and May of 2016, and every other month before that, including last January, when they produced 31,628,000 barrels per day (a figure i arrived at by subtracting Indonesian production from the 14 member total they reported last year.pdf) ...similarly, we find that despite all of the brouhaha over the OPEC production cuts, their February 2017 production of 31,958,000 barrels per day is still 1.2% more oil than what the same 13 countries were producing in February 2016...

this next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, from March 2015 to February 2017, and it comes from page 61 of the March OPEC Monthly Oil Market Report...the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for that shown on the right scale...global oil production fell to 95.88 million barrels per day in February, while it was still unchanged from a year earlier, and OPEC production of 31,958,000 barrels per day thus represented 33.3% of what was produced globally, a decrease from the 33.5% OPEC share in January and 34.0% in December...but even with the two months of production cuts we can obviously see here, there is still a surplus of oil supply globally, as the table we'll include next will show.. 

March 2017 OPEC report, global supply for February

the table below comes from page 37 of the March OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over 2017 over the rest of the table...note that the forecast for global oil demand in the current first quarter of 2017 is shown on the "Total world" line of the second column, and projections are that during the first three months of this year, all oil consuming areas of the globe will use 95.34 million barrels of oil per day, up from the 95.05 millions of barrels of oil per day they used in 2016...but as OPEC showed us in the supply section of this report and the summary supply graph above, even with their production cuts, the world's oil producers were still producing 95.88 million barrels per day during February...that means that even after all the production cuts have taken place, there continued to be a surplus of more than half a million barrels per day in global oil production... 

March 2017 global oil demand for February via OPEC

The Latest Oil Stats from the EIA

the oil data for the week ending March 10th from the US Energy Information Administration showed a large drop in our imports of crude oil, while refining of such crude was little changed, resulting in the first withdrawal of crude from US storage in 10 weeks...our imports of crude oil fell by an average of 745,000 barrels per day to an average of 7,405,000 barrels per day during the week, while at the same time our exports of crude oil fell by 180,000 barrels per day to an average of 717,000 barrels per day, which meant that our effective imports netted out to 6,688,000 barrels per day during the week, 565,000 barrels per day less than last week...at the same time, our crude oil production rose by 21,000 barrels per day to an average of 9,109,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 15,797,000 barrels per day during the week...

during the same week, refineries reportedly used 15,472,000 barrels of crude per day, 20,000 barrels per day less than during the prior week, while at the same time, 150,000 barrels of oil per day were being taken out of oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we used 475,000 less barrels of oil per day than were supplied by our net oil imports, total oil well production, and what we took out of storage…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -475,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports fell to an average of 7.6 million barrels per day, now 4.4% below that of the same four-week period last year...at the same time, the 4 week average of our oil exports fell to 887,000 barrels per day, still 127.3% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light oil were barely underway in early 2016...the 150,000 barrel per day draw out of our crude supplies included a 117,000 barrel per day sale from our Strategic Petroleum Reserve, the first of a planned sale of 5 million barrels annually that was planned during the Obama administration, 18 months ago...meanwhile, this week's 21,000 barrel per day oil production increase included a 20,000 barrel per day increase in oil production in the lower 48 states and a 1,000 barrel per day increase in output from Alaska...the 9,109,000 barrels of crude per day that we produced during the week ending March 10th was the most we've produced since the week ending February 12th last year, and was almost 0.5% more than the 9,068,000 barrels per day produced during the week ending March 11th, 2016, while it was still 5.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day... 

US refineries were operating at 85.1% of their capacity in using those 15,472,000 barrels of crude per day, down from 85.9% of capacity the prior week, and down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day....their processing of crude oil is also down by 3.3% from the 15,996,000 barrels of crude that were being refined during the week ending March 11th, 2016, when refineries were operating at 89.0% of capacity....with the ongoing refinery slowdown, gasoline production from our refineries fell by 304,000 barrels per day to 9,540,000 barrels per day during the week ending March 10th, which was 4.7% less than the 10,015,000 barrels per day of gasoline that were being produced during the week ending March 11th a year ago...in addition, refineries' production of distillate fuels (diesel fuel and heat oil) was also down, falling by 83,000 barrels per day to 4,690,000 barrels per day, which was also down by 1.9% from the 4,781,000 barrels per day of distillates that were being produced during the week ending March 11th last year... 

with the decrease in our gasoline production, the EIA reported that our gasoline inventories fell by 3,055,000 barrels to 246,279,000 barrels as of March 10th, after they had dropped by a near record 6,555,000 barrels the prior week....that happened as our domestic consumption of gasoline fell by 14,000 barrels per day to 9,254,000 barrels per day, our gasoline exports fell by 206,000 barrels per day to 535,000 barrels per day, and our imports of gasoline rose by 330,000 barrels per day from last week's 17 year low to 572,000 barrels per day...while our gasoline supplies are thus down by 12,784,000 barrels from the record high set 4 weeks ago, they're only down 1.4% from last year's March 11th high of 249,716,000 barrels, and are still 4.6% above the 235,400,000 barrels of gasoline we had stored on March 13th of 2015... 

our supplies of distillate fuels also fell this week, decreasing by 4,229,000 barrels to 157,303,000 barrels by March 10th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 418,000 barrels per day to 4,409,000 barrels per day, and as our imports of distillates fell by 187,000 barrels per day to 79,000 barrels per day, the lowest this heating season, while our exports of distillates fell by 366,000 barrels per day to 964,000 barrels per day....while our distillate inventories are now 2.5% below the bloated distillate inventories of 161,343,000 barrels that we had stored on March 11th 2016, at the end of the warm El Nino winter of last year, they are still 25.0% higher than the distillate inventories of 125,883,000 barrels of March 13th, 2015…   

finally, with our net oil imports considerably lower than in recent weeks while refinery demand for oil was flat, our commercial inventories of crude oil were drawn down for the first time in 10 weeks, decreasing by 237,000 barrels to 528,156,000 barrels by March 10th...at the same time, 816,000 barrels of oil from our Strategic Petroleum Reserve was sold, with 550,000 barrels of going that to Petro China, which left inventories in the SPR at 694,009,000 barrels, a quantity not usually considered when aggregating our oil inventories...thus for current commercial purposes, we still ended the week with 10.3% more crude oil in storage than the 479,012,000 barrels we had at the end of 2016, 7.3% more crude oil in storage than what was then a record 492,160,000 barrels on March 11th of 2016, 24.3% more crude than what was also then a record 425,047,000 barrels in storage on March 13th of 2015 and 53.5% more crude than the 344,183,000 barrels of oil we had in storage on March 14th of 2014...

This Week's Rig Count

US drilling activity increased for the 19th time in 20 weeks during the week ending March 17th, as we also saw the 7th double digit rig increase in the past 9 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 21 rigs to 789 rigs in the week ending on this Friday, which was 313 more rigs than the 476 rigs that were deployed as of the March 18th report in 2016, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the count of rigs drilling for oil increased by 14 rigs to 631 rigs this week, which was up from the 387 oil directed rigs that were in use a year ago, and nearly double the 316 rigs working on May 27th, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 6 rigs to 157 rigs this week, which was up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, a single rig that was classified as miscellaneous was added this week, in contrast to a year ago, when there were no such miscellaneous rigs at work...   

a drilling platform that had been working offshore from Texas in the Gulf of Mexico was shut down this week, which lowered the current Gulf of Mexico count to 19 rigs, still down from the 26 rigs that were drilling in the Gulf during the same week of 2016...that was also down from a total of 27 rigs working offshore of the US a year ago, when there was also a rig working offshore from California, in addition to the 26 rigs that were drilling in the Gulf of Mexico at the time...

active horizontal drilling rigs increased by 19 rigs to 658 rigs this week, which is well more than double the May 27th 2016 total of 314 working horizontal rigs...that's also up by 289 horizontal rigs from the 369 horizontal rigs that were in use in the US on March 18th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net total of 2 vertical rigs were added this week, bringing the vertical rig count up to 70 rigs, which was also up from the 58 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was unchanged at 61 rigs, which was also up from the 49 directional rigs that were deployed during the same week last year....

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 pdf 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 March 17th, the second column shows the change in the number of working rigs between last week's count (March 10th) and this week's (March 17th) count, the third column shows last week's March 10th active rig count, the 4th column shows the change between the number of rigs running this Friday and 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 week’s case was for the 18th of March, 2016...           

March 17 2017 rig count summary

noteworthy in this week’s report was the first drop in drilling in the Permian basin of western Texas since October 27th, although with 308 rigs, their active rig total is still more than double their year ago count...although Texas drillers did add 4 rigs this week, the state with the largest increase this week was Oklahoma with 10 rigs, with an increase of 3 rigs in the Arkoma Woodford, while the 3 new Mississippian rigs were also likely in that state, since Kansas shows no change in drilling activity...also note the increase of 5 rigs in North Dakota, possibly in anticipation of the completion of the Dakota Access pipeline, which by cutting shipping costs would increase the wellhead price for Williston basin drillers...and even with the increase of 6 rigs targeting natural gas, the rig count in Ohio's Utica shale still remained unchanged, as 3 natural gas rigs were added in the Arkoma Woodford, 2 were added in the Eagle Ford, and one each was added in the Marcellus and the Haynesville, while one was pulled out of an "other" unnamed basin...note that outside of the major producing states listed above, both New York and Illinois added a rig this week, while Montana had one rig shut down, and now has none, same as a year ago...for New York, that one new rig is the first drilling they've seen since two weeks in July of 2015, while Illinois now has two rigs running, in contrast to a year ago, when they also had none..

DUC report for February

this week also saw the release of the EIA's Drilling Productivity Report for February, which again showed another increase in uncompleted wells nationally, mostly as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin...as you'll recall, we had expected that with oil prices above $50, some of the DUC well backlog would be completed, but this report again showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUC wells in the US rose from 5,352 in January to 5,443 in February...a month ago, we speculated that slowdown might be the result of a shortage of competent fracking crews, and the oilfield worker shortage issue again got play this week in an article at oilprice.com this week, where they complain that even trucker jobs with an annual paycheck of $80,000 remain unfilled...frackers have now gone nearly two years with just skeleton fracking crews operating in much of the country, and many of those who had worked in the oil fields in the previous boom have since found work elsewhere, so putting together a fracking crew familiar with the latest techniques has become much harder than before..

like in previous months, most of the February DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in these stats, saw its total count of uncompleted wells rise by 95, from 1,669 in January to 1,764 in February, as we'd expect with the increase in drilling that we've seen in that basin...at the same time, DUCs in the Eagle Ford of south Texas rose by 13, to 1,265 in February, and DUCs in the Haynesville of Louisiana increased by 10 wells to 170...on the other hand, the Niobrara chalk of the Rockies front range saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Niobrara DUC count fell from 700 in January to 678 in February...in addition; the Utica also showed a decrease of 5 uncompleted wells and thus had only 92 DUCs remaining at the end of February, and the Marcellus DUC count fell by 4 to 666 uncompleted wells....for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 90 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 1 well, even though natural gas DUCs have generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered....

note there's more here...

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