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 2, 2017

the looming natural gas supply crunch, and yet another record for US crude supplies in an otherwise slow week

oil prices opened the week lower, but then rose daily the rest of the week, after new data showed a smaller than expected addition to our oil supplies and rather large decreases in our supplies of gasoline and distillates...after closing last week 2.7% lower at $47.97 a barrel, pricing for the benchmark US crude oil for May delivery fell almost 2% on Monday morning, as hedge funds continued to unwind their record bullish positions...that selling ran into renewed buying by noon, however, as other traders focused on an agreement by OPEC and non-OPEC producers to look at extending their oil output cuts by another six months, and oil prices reversed and went on to close just 26 cents lower on the day at $47.73 a barrel...prices then rallied 64 cents to close at $48.37 a barrel on Tuesday, underpinned by news reports that production from western Libyan fields had been reduced by 252,000 barrels per day on renewed fighting...oil prices then rose Wednesday morning after Tuesday afternoon's American Petroleum Institute report showed a modest increase in US oil inventories, then spiked higher yet on Wednesday afternoon after data from the Energy Information Administration showed a weekly increase in U.S. crude inventories that was less than half of market expectations, and went on to close the day 2.4% higher at $49.51 a barrel ...that confluence of bullish news carried oil prices higher the remainder of the week, as they closed over $50 a barrel for the first time in over three weeks at $50.35 a barrel on Thursday, and then went on to close the month at $50.60 on Friday, up 5.5% for the week but still 6% lower for the year to date..

natural gas prices also moved higher this week, as trading for the April delivery contract expired and prices for May gas became the widely quoted front month price...April gas started the week lower, however, falling 2.4 cents to $3.052 per mmBTU (million British Thermal Units) on Monday...April prices then rose 4.4 cents to $3.096 on Tuesday, while natural gas for May was up 4.6 cents to $3.177 per mmBTU....the April natural gas contract then expired at an eight-week high of $3.175 per mmBTU on Wednesday, up 7.9 cents on the day, while the May contract rose 5.4 cents to close at $3.231 per mmBTU...with only May gas trading on Thursday, natural gas prices then fell 4 cents to close at $3.191 per mmBTU on Thursday, after the EIA's Weekly Natural Gas Storage Report showed that natural gas in storage in the US fell 43 billion cubic feet to 2.049 trillion cubic feet in the week ended March 24th, roughly in line with expectations...natural gas prices were then little changed on Friday, shedding a tenth of a cent to close the week at $3.190 per mmBTU...

that Weekly Natural Gas Storage Report is about the only data underpinning natural gas prices at this time of year, since both demand for heating and demand for cooling are not major factors in the trading of May gas, and hence weather forecasts are barely mentioned....John Kemp of Reuters included several graphs derived from data from that EIA storage report in his Thursday mailing, one of which we'll include and explain below..

April 1 2017 natural gas supply history as of March 24

the above graph comes from an emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters, wherein the red line shows our natural gas supplies in billions of cubic feet from January 2015 to March 24th of this year...the yellow line, for the prior year, thus shows our natural gas supplies in billions of cubic feet from January 2014 to the end of 2016, thus retracing some of what the red line shows...the light blue band then shows the prior 5 year range of our natural gas supplies, and thus from the left shows the range of our natural gas supplies from January 2010 through January 2014, extending to the right where it ends with the range of our natural gas supplies from the end of 2012 through the end of 2016...lastly, the blue dashes show the average of that 5 year range of our natural gas stocks that's indicated by the light blue shading...note the obvious seasonal pattern; surplus natural gas is injected into storage each the spring and summer, then withdrawn for use during the heating season.....

by following the red line, we can see that our natural gas supplies were at least at a 5 year high for the time of year from October 2015 through November 2016, with October 2016 being the first time in our history that natural gas supplies topped 4 trillion cubic feet...however, since December of 2016, our natural gas supplies have been falling at a faster rate than normal, despite a warmer than normal winter (recall last week we showed that heating demand was down by 17%) and by the end of January had returned to merely average...supplies of gas have since recovered to above average, largely because of a record warm period that led to the first weekly injection into storage in February history, but they're still more than 400 billion cubic feet below where they were at the same time in March a year ago....what that means is that at the current pace of natural gas production, we are not covering our needs from production at a normal pace even while winter temperatures have remained above normal...

going forward, we know that demand for our natural gas supplies will be greater than it was in the past ...for starters, there are those 13 natural gas export trains now under construction that we looked at 4 weeks ago....when completed, they're projected to be exporting roughly 9.4 billion cubic feet of natural gas per day, or about 10% of our current natural gas production...in addition, with natural gas prices depressed, US electric utilities have been retiring their old coal generation capacity and replacing it with natural gas generation....according to the EIA, gas-fired generating capacity is expected to rise by a further 8 percent before the end of 2018....but even this past year, before this new demand for natural gas comes online, our current field production of natural gas has been unable to maintain our natural gas supplies at an above normal level during a winter when heating demand was 17% below average...and as we have repeatedly stressed, and as was evident from the natural gas rig count graph we showed last week, natural gas drillers will not expand their drilling operations while prices for natural gas are below their break-even point...furthermore, natural gas futures prices are even lower, with most contract prices beyond April 2018 below $3 per mmBTU...so they continue to frack more wells than they are drilling, reducing their uncompleted well backlog as needed, just to maintain their cash-flow...thus, there is not as yet any sign that any of the natural gas that exporters and utilities expect will be there in the future will materialize....to put it quite simply, something's gotta give...

The Latest Oil Stats from the EIA

the oil data for the week ending March 24th from the US Energy Information Administration showed that a combination of a big increase in the amount of oils refineries used and a big jump in our exports of crude oil used up almost all the oil we imported or produced, but we nonetheless still saw a small increase in our record high oil supplies for the 11th week out of the past twelve...our imports of crude oil decreased by an average of 83,000 barrels per day to an average of 8,224,000 barrels per day during the week, while at the same time our exports of crude oil rose by 460,000 barrels per day to an average of 1,010,000 barrels per day, which meant that our effective imports netted out to 7,214,000 barrels per day during the week, 543,000 barrels per day less than the prior week...at the same time, our crude oil production rose by 18,000 barrels per day to an average of 9,147,000 barrels per day,  which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,361,000 barrels per day during the cited week...

during the same week, refineries reportedly used 16,226,000 barrels of crude per day, 425,000 barrels per day more than they used during the prior week, while at the same time, 20,000 barrels of oil per day were being added to oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that we used or stored 115,000 less barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -115,000 barrel per day figure 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 rose to an average of 8,022,000 barrels per day, now 0.7% above that of the same four-week period last year...at the same time, the 4 week average of our oil exports rose to 794,000 barrels per day, now 105.0% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light crude oil were barely underway in early 2016...the 20,000 barrel per day increase in our crude inventories came about on a 124,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 103,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago...

meanwhile, this week's 18,000 barrel per day oil production increase resulted from a 25,000 barrel per day increase in output from the lower 48 states, while oil output from Alaska fell by 7,000 barrels per day from last week...the 9,147,000 barrels of crude per day that we produced during the week ending March 24th was up by 1.4% from the 9,022,000 barrels per day we produced during the equivalent week a year ago and the most we've produced in any week since the week ending February 5th 2016, while it was still 4.8% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 89.3% of their capacity in using those 16,226,000 barrels of crude per day, up from 87.4% of capacity the prior week, but still 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 continues to be on a par with the 16,234,000 barrels of crude that were being refined during the week ending March 25th, 2016, when refineries were operating at 90.4% of capacity....with the week's big refining increase, gasoline production from our refineries rose by 257,000 barrels per day to 10,028,000 barrels per day during the week ending March 24th, the highest this year, and 6.3% more than the 9,430,000 barrels per day of gasoline that were being produced during the week ending March 25th a year ago...in addition, refineries' production of distillate fuels (diesel fuel and heat oil) was also up, rising by 43,000 barrels per day to 4,872,000 barrels per day, which was nonetheless 1.1% lower the 4,927,000 barrels per day of distillates that were being produced during the week ending March 25th last year...

even with the large increase in our gasoline production, the EIA reported that our gasoline inventories again shrunk, decreasing by 3,747,000 barrels to 239,721,000 barrels as of March 24th, after they had already dropped by more than 12.4 million barrels over the prior 3 weeks....that was as our domestic consumption of gasoline rose by 324,000 barrels per day to a seasonal high of 9,524,000 barrels per day and as our gasoline exports rose by 16,000 barrels per day to 608,000 barrels per day, while our imports of gasoline rose by 196,000 barrels per day to 521,000 barrels per day....while our gasoline supplies are now down by more than 19.3 million barrels from the record high set 6 weeks ago, they're only down 1.2% from last year's March 25th high for the date of 242,560,000 barrels, and are still 4.6% above the 229,128,000 barrels of gasoline we had stored on March 27th of 2015...

our supplies of distillate fuels also fell this week, decreasing by 2,483,000 barrels to 152,910,000 barrels by March 24th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 210,000 barrels per day to 4,222,000 barrels per day, even as our imports of distillates fell by 12,000 barrels per day to 115,000 barrels per day, and as our exports of distillates fell by 97,000 barrels per day to 1,120,000 barrels per day at the same time....while our distillate inventories are now 5.1% below the bloated distillate inventories of 161,185,000 barrels that we had stored on March 25th 2016, at the end of last year's warm El Nino winter, they are still 20.2% higher than the distillate inventories of 127,174 ,000 barrels that we had stored on March 27th of 2015… 

finally, our commercial inventories of crude oil increased for the 11th time in the past 12 weeks, increasing by 867,000 barrels to another record high of 533,977,000 barrels by March 24th...at the same time, 724,000 barrels of oil from our Strategic Petroleum Reserve was sold, which left inventories in the SPR at 692,659,000 barrels, a quantity not considered available for commercial use....thus for current commercial purposes, we finished the week ending March 24th with 11.5% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 6.0% more crude oil in storage than what was then a record 503,816,000 barrels of oil in storage on March 25th of 2016, 21.9% more crude than what was also then a record 437,983,000 barrels in storage on March 27th of 2015 and 53.3% more crude than the 348,423,000 barrels of oil we had in storage on March 28th of 2014...

This Week's Rig Count

US drilling activity increased for the 21st time in the past 22 weeks during the week ending March 31st, and this week's increase was also the 9th double digit rig increase in the past 11 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 15 rigs to 824 rigs in the week ending Friday, which was 374 more rigs than the 450 rigs that were deployed as of the April 1st report in 2016, and the most drilling rigs we've had running since Oct 2nd, 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 10 rigs to 662 rigs this week, which was up by 300 from the 362 oil directed rigs that were in use a year ago, and more than double the 316 rigs working on May 27th 2016, 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 5 rigs to 155 rigs this week, which was also 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 are also now 2 rigs deployed that are classified as miscellaneous, compared to a year ago, when there were no such miscellaneous rigs at work... 

there were four additional drilling platforms that started operating in the Gulf of Mexico offshore from Louisiana this week, which boosted the Gulf of Mexico count to 22 rigs, still down from the 24 rigs that were drilling in the Gulf during the same week of 2016...that was also down from a total of 26 rigs that were working offshore of the US a year ago, when there were also rigs working offshore from Alaska and California, in addition to the 24 rigs that were drilling in the Gulf of Mexico at the time...

active horizontal drilling rigs increased by 12 rigs to 685 rigs this week, which is well more than double the May 27th 2016 nadir of 314 working horizontal rigs...that's also up by 339 horizontal rigs from the 346 horizontal rigs that were in use in the US on April 1st 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 total of 12 directional rigs were also added this week, bringing the directional rig count up to 70 rigs, which was also up from the 49 directional rigs that were deployed during the same week a year ago...meanwhile, the vertical rig count was down by 9 rigs to 58 rigs, which was still up from the 55 vertical rigs that were deployed during the same week last year....

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary 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 31st, the second column shows the change in the number of working rigs between last week's count (March 24th) and this week's (March 31st) count, the third column shows last week's March 24th 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 1st of April, 2016...          

March 31 2017 rig count summary

it's fairly obvious that almost all the increases can be accounted for by the 7 rig increase in Texas and the 6 rig increase in Louisiana, where the four new Gulf of Mexico rigs are included in the state count...what happened in the major basins is less obvious, however, because the increases in the Permian, the Eagle Ford, the Haynesville of Louisiana, and the Granite Wash of the Texas panhandle are almost entirely offset by decreases in active rigs in the Cana Woodford of Oklahoma, the Denver-Julesburg Niobrara chalk of the Rockies front range, the Williston of North Dakota and the Mississippian of the Kansas-Oklahoma border....the summary data tells us that there were 10 oil rigs and 4 gas rigs added in "other" basins , which are not named, and shall remain so for now, unless someone wants to dig through the individual wells records in the North America Rotary Rig Count Pivot Table (XLS)...also note that outside of the major producing states listed above, Mississippi also added a rig this week; they now have 5 rigs active, up from 2 rigs a year ago....



note: there's more here...

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