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, April 23, 2017

oil prices drop 7.4%, oil rigs double from a year ago, oil production at a 20 month high, uncompleted wells increase 2%

oil prices tumbled this week, giving up all the gains they'd seen since Trump's strike on Syria and then some, as fears of further Mideast disruptions subsided, while US drilling productivity advanced again and traders became concerned that OPEC could not follow through on an extension of their output cuts...after closing last week with a 2% gain at $53.18 a barrel, US crude prices for May delivery fell on Monday to $52.65 a barrel, their lowest close in over a week, as traders noted that the EIA's monthly drilling productivity report forecast a US oil production increase of 124,000 barrels a day in May, suggesting an ongoing supply surplus...that projected surge in U.S. shale output carried into Tuesday trading, and May futures traded down another 24 cents at $52.41 a barrel, their lowest close since April 10th, after a Reuters analysis showed that US financial companies were again investing billions in new production... after inching up on Wednesday morning, the bottom dropped out of oil prices on Wednesday afternoon, after the EIA reported a smaller than expected draw from crude oil supplies and a surprise buildup of US gasoline supplies, with the May contract closing down $1.97 at $50.44 a barrel...with trading in May oil contracts expiring on Thursday, that month's contract closed out down another 17 cents, while the contract for June US light crude, which had fallen $2 a barrel on Wednesday to $50.85 a barrel, shed another 14 cents on Thursday to close at $50.71 a barrel...now quoting June as the front month, oil prices fell another $1.09 a barrel on Friday after Baker Hughes reported another weekly rise in the U.S. oil-rig count, to close the week at $49.62 a barrel, despite word from OPEC of a likely extension of their oil output cut...that left the June oil contract with a 7.4% loss for the week, down $3.98 a barrel from its close of $53.60 the previous Friday....

natural gas prices were lower for the week as well, but not as dramatically...after closing last week down 3.4 cents at $3.227 per mmBTU, natural gas prices for May delivery opened the week down 6 cents, and following a volatile session settled at $3.163 per mmBTU, down 6.4 cents, as weather models showed little likelihood of the northeast US tapping into any cold Canadian air masses...with little change in the forecast, prices drifted 1.8 cents lower on Tuesday, closing at $3.145 per mmBTU...then as usual, traders betting on a surprise in the natural gas storage report bid prices higher, as natural gas closed Wednesday up 4 cents at $3.185 per mmBTU...prices for May then fell back on Thursday, after the EIA's weekly natural gas storage report showed a 54 billion cubic feet addition to US supplies, which was 368 billion cubic feet below last year's total for the same period, but 282 billion cubic feet above the five-year average of 1.833 trillion cubic feet for this time in April...that disappointment carried into Friday, as natural gas prices for May, which will continue trading next week, fell 5.8 cents to close the week at $3.101 per mmBTU...

since we're back on natural gas, i want to clear up the ambiguity i left the last time i addressed the US natural gas production and supply situation...at that time, we showed that our natural gas supplies had been at near seasonal highs over the period from October 2015 through November 2016, with October 2016 being the first time in our history that US stored natural gas supplies topped 4 trillion cubic feet....however, that oversupply did not hold through this past winter, despite an equally warm winter vis a vis the prior one...(recall we showed that demand for heating was 17% below normal in both this past winter and during the El Nino winter before that)....US natural gas supplies have been falling despite this warm winter because both demand for natural gas has increased and production of natural gas has decreased....first, because of near record low prices, natural gas replaced and surpassed coal as the leading electrical generation source during 2016...in addition, natural gas deliveries to the Sabine Pass LNG export facility have more than tripled since mid-2016 and will continue to climb further as more liquefaction capacity ramps up....meanwhile, natural gas production has been down by 3.6% to 3.8% from a year earlier in recent months...and as we've showed many times, new drilling for natural gas is not taking place at these price levels (we've noted that it generally takes natural gas prices over $4 mmBTU to substantially increase the natural gas rig count)

so, while domestic production of natural gas looks like it will continue to be below year ago levels in the near term, users and exporters of natural gas are still expecting greater supplies to materialize in the next few years...recall that when we looked at US LNG export capacity additions 7 weeks ago, we saw that liquefaction and export terminals now under construction would demand about 10% of our total natural gas supplies by the end of 2019...meanwhile, the EIA reported that 13 gigawatts of natural gas-fired generating capacity is scheduled to come online in the US in 2017....if that pace of capacity addition is maintained until the end of 2019, it would represent nearly a 10% increase in demand for natural gas from electric utilities...but during this past winter, despite all time record high supplies of stored natural gas in October, our natural gas supplies have now dropped to a level 14.8% below that of the same week in April a year ago, even as we had an equally warm winter....in other words, over the past 6 months, our great natural gas surplus has been burnt off, and we're now just maintaining a near normal supply....that suggests that as the new gas generating capacity and the new gas liquefaction trains become operational, a shortage of natural gas will develop in the US, and natural gas prices will spike accordingly, as they have many times before...since roughly a third of our natural gas consumption is for residential heating, i would expect that our natural gas shortage will manifest itself as soon as the US sees a normal winter...

The Latest US Oil Data from the EIA

the oil data for the week ending April 14th from the US Energy Information Administration showed another large increase in our oil refining while our supply of crude from net imports and production barely inched up, which meant that we had to take oil out of storage to meet refining needs for the second week in a row, but still only for the 3rd time in the past 15 weeks...our imports of crude oil decreased by an average of 68,000 barrels per day to an average of 7,810,000 barrels per day during the week, while at the same time our exports of crude oil fell by 124,000 barrels per day to an average of 565,000 barrels per day, which meant that our effective imports netted out to 7,245,000 barrels per day during the week, 56,000 barrels per day more than the prior week...at the same time, our crude oil production rose by 17,000 barrels per day to an average of 9,253,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,498,000 barrels per day during the cited week...

at the same time, refineries reportedly used 16,938,000 barrels of crude per day, 241,000 barrels per day more than they used during the prior week, while 176,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that refineries used 265,000 more barrels of oil per day than were supplied by what we took out of storage plus our net oil imports and oil well production…therefore, 265,000 barrels of oil per day of "unaccounted for crude oil" is inserted onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the supply and demand data balance out, but no one knows where that oil came from...the reason we follow that weekly fudge factor is because the weekly production and inventory figures often influence the price of oil, and that "unaccounted for crude oil" figure suggests that one or both of those market moving metrics is consistently off by a bunch..

meanwhile, the weekly Petroleum Status Report indicates that the 4 week average of our oil imports fell to an average of 7,941,000 barrels per day, now just 2.0% above the imports of the same four-week period last year, and that the 4 week average of our oil exports inched up to 710,000 barrels per day, 102% higher than the same 4 weeks a year earlier, as we had barely started overseas exports of surplus light crude oil in early 2016....the 176,000 barrel per day decrease in our crude inventories came about on a 148,000 barrel per day withdrawal from our commercial stocks of crude oil and a 28,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago...

this week's 17,000 barrel per day oil production increase resulted from a 21,000 barrel per day increase in oil output from the lower 48 states, which was partially offset by a 4,000 barrels per day decrease in oil output from Alaska...the 9,252,000 barrels of crude per day that we produced during the week ending April 14th was a 20 month high, up by 5.5% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 3.3% from the 8,953,000 barrel per day output during the during week ending April 15th a year ago, while it was still 3.7% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 92.9% of their capacity in using those 16,938,000 barrels of crude per day, up from 91.0% of capacity the prior week, but still down from the year’s high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day...however the quantity of crude oil processed by US refineries was another Spring-time record, beating the 16,697,000 barrel of crude per day record set the prior week by a 241,000 barrel per day margin....it was also 5.2% more than the 16,104,000 barrels of crude per day.that were being processed during week ending April 15th, 2016, when refineries were operating at 89.4% of capacity...

even with the week's refining increase, gasoline production from our refineries decreased by 134,000 barrels per day to 9,794,000 barrels per day during the week ending April 14th, which was still 0.6% more than the 9,738,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 90,000 barrels per day to 5,150,000 barrels per day, which was 9.3% more than the 4,712,000 barrels per day of distillates that were being produced during the week ending April 15th last year...

however, even with the drop in our gasoline production, the EIA reported that our gasoline inventories increased by 1,542,000 barrels to 237,672,000 barrels as of April 14th, after they had dropped by almost 20 million barrels over the prior 6 weeks....that swing to a surplus came about because our imports of gasoline rose by 355,000 barrels per day to 843,000 barrels per day, while our gasoline exports fell by 62,000 barrels per day to 648,000 barrels per day and as our domestic consumption of gasoline fell by 52,000 barrels per day to 9,223,000 barrels per day....although our gasoline supplies are still down by almost 21.4 million barrels from the record high set 9 weeks earlier, they're still only 2 million barrels lower than last April 15th's inventories of 239,651,000 barrels, and are now 5.3% more than the 225,738,000 barrels of gasoline we had stored on April 17th of 2015...

on the other hand, even with the increase in distillate's production, our supplies of distillate fuels fell by 1,955,000 barrels to 148,266,000 barrels during the week ending April 14th, as our exports of distillates jumped by 568,000 barrels per day to 1,419,000 barrels per day even as our imports of distillates rose by 49,000 barrels per day to 167,000 barrels per day and as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 458,000 barrels per day to 4,177,000 barrels per day at the same time...while our distillate inventories are now 7.3% below the 159,935,000 barrels that we had stored on April 15th 2016, following last year's warm El Nino winter, they are still 14.6% higher than the distillate inventories of 129,336,000 barrels that we had stored on April 17th of 2015, following a more normal winter… 

finally, our commercial inventories of crude oil fell for the 3rd time in the past 15 weeks, decreasing by 1,034,000 barrels to 532,343,000 barrels as of April 14th....however, we still finished the week with 11.1% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 4.9% more crude oil in storage than what was then a record 507,312,000 barrels of oil in storage on April 15th of 2016, 16.7% more crude than what was also then a record 456,271,000 barrels in storage on April 17th of 2015, and 45.4% more crude than the 365,878,000 barrels of oil we had in storage on April 18th of 2014...

This Week's Rig Count

because last week's rig count data was released on Thursday because of the Friday holiday, this week's rig count change is for eight days...with that caveat, drilling activity still increased for the 24th time in the past 25 weeks, and the week's increase was also the 11th double digit rig increase in the past 14 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 10 rigs to 857 rigs over the 8 day period ending on Friday April 21st, which was nearly double the 431 rigs that were deployed as of the April 22nd report in 2016, and the most drilling rigs we've had running since September 11th, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 5 rigs to 688 rigs this week, which was more than double the 343 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 24th 2015, while it was still way 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 also rose by 5 rigs to 167 rigs this week, which was up from the 88 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, there were also 2 rigs in use that were classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work... 

another drilling platform that had been working offshore from Louisiana in the Gulf of Mexico was shut down this week, which left 20 offshore rigs still drilling in the Gulf, down from the 25 working in the Gulf of Mexico a year earlier....that was also down from the total of 26 offshore rigs that were deployed a year ago, as there was also an drilling platform working in the Cook Inlet offshore from Alaska during the equivalent week last year...

active horizontal drilling rigs increased by 12 rigs to 718 rigs this week, which was well more than double the 332 horizontal rigs that were in use in the US on April 15th 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 of 2 vertical rigs were added this week, bringing the vertical rig count up to 79, which was also up from the 51 vertical rigs that were deployed during the same week last year....however, 4 directional rigs were pulled out this week, reducing the directional rig count down to 60 rigs, which was still up from the 48 directional rigs that were deployed during the same week a year ago...

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 April 21st, the second column shows the change in the number of working rigs between last week's count (April 13th) and this week's (April 21st) count, the third column shows last week's April 13th active rig count, the 4th column shows the change between the number of rigs running on Thursday 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 22nd of April, 2016...    

April 21 2017 rig count summary

as you can see, there's not much outstanding in the details of this week's count...Texas added 6 rigs during the week, hence accounting for the majority of the additions, and half of those were in the Eagle Ford...otherwise, it's all skinny numbers...however, except for the Marcellus addition in Pennsylvania, where the 5 natural gas rigs were added isn't obvious…one was in the Barnett shale near Ft Worth, where there are now 2 gas rigs and 4 oil rigs operating, while the Haynesville actually dropped a natural gas rig while adding an oil rig...so there were a total of 4 natural gas directed rigs added in the "other" column, in basins which are not named in any of the Baker Hughes summary data...

DUC well report for March

as we mentioned, Monday of this week saw the release of the EIA's Drilling Productivity Report for March, which again showed another increase in uncompleted wells nationally, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the two Texas oil basins, the Permian basin of west Texas and the Eagle Ford in the south....although this backlog of unfracked wells has been building for months, US oil prices below $50 a barrel for much of the month likely contributed to the slowdown of completions in March, even as new well drilling continued to increase...this week’s report indicated that the total count of DUC wells in the US rose from 5,401 in February to 5,522 in March, the fifth consecutive monthly increase in uncompleted wells...over the prior 5 months, a period when oil prices were generally higher than the previous year because of the OPEC cuts, the US DUC count in the 7 regions covered by this report still increased by 10.4%, from 4,995 in October to 5,512 in March....those 5,512 wells represent a backlog that will be completed whenever oil or gas prices rise sufficiently, increasing US oil or gas production and hence oil or gas supply, and thus putting a limit on any rapid run-up of prices...

like in previous months, most of the March DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in that broad basin, saw its total count of uncompleted wells rise by 90, from 1,774 in February to 1,864 in March, as 410 new wells were drilled but only 320 of them were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 26, from 1,259 in February to 1285 in March, as 161 wells were drilled in the Eagle Ford in March but only 135 were completed....in addition, DUC wells in the Haynesville of Louisiana increased by 13 wells to 182, and DUCs in the Bakken of North Dakota increased by 4 to 809...on the other hand, the Niobrara chalk of the Rockies front range saw a 15 well decrease in DUCs (which means more wells were being fracked than were being drilled) as the Niobrara DUC count fell from 638 in February to 623 in March...in addition, the Marcellus DUC count fell by 4 to 662 uncompleted wells, and the Utica shale showed a decrease of 3 uncompleted wells and thus had only 87 DUCs remaining at the end of March, as 18 wells were drilled in the Utica during the month while 21 were completed...for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 105 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 6 wells, although as the report notes, once into production, more than half the wells will produce both oil and gas...

 

note: there's more here...

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