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, May 7, 2017

oil prices crash to 5 month low; OPEC well drilling increases even as oil output cut extension is affirmed

this past week saw oil prices crash back to levels we last saw before OPEC announced their production cuts at the end of November, which, if it holds, should serve to take some wind out of the sails of that drilling surge we've been seeing in this country over the last 6 months...the ability of OPEC 's cuts to relieve the oil glut had been questioned for some time now, but it was questions as to whether Russia would cooperate or not that precipitated the big Thursday selloff, that temporarily saw oil prices fall more than 8% in one day, before recovering a bit...

after closing last week at $49.33 a barrel, the price of US crude oil for June delivery continued falling on Monday, ending the day at $48.84 a barrel, as rising crude output from Libya and increased U.S. drilling threatened to reverse the effects of the OPEC production cuts...prices then tumbled $1.18 a barrel in a late day selloff on Tuesday, as the latest Reuters survey of OPEC production that showed compliance had fallen slightly was accompanied by a slew of other bearish news, including soaring fuel oil exports from Iraq and ongoing elevated crude exports from other OPEC countries, with June oil closing at $47.66 a barrel, the lowest front-month contract price since March 21st...oil  prices then inched back up on Wednesday, closing at $47.82 a barrel, even as the EIA inventory data showed a lower than expected drawdown of 930,000 barrels, against market estimates of as much as 3 million barrels...oil prices then crashed on Thursday to their lowest level since the OPEC deal was announced, apparently after a Russian spokesman said no decision had yet been made on extending the oil output cut production deal, with US crude closing down $2.30 a barrel, or 4.8% at $46.47...prices continued falling in after hours trading Thursday evening, and were down as much as 3.9% more to $43.76 a barrel during Friday morning trading in Asia, before recovering to above the prior close before the US markets opened on Friday...US oil prices then bounced back from those 5 month lows in US trading on Friday, following assurances by the Saudis that Russia was ready to join OPEC in extending production cuts, as bargain hunters pushed prices back up 70 cents to close the week at $46.22 a barrel, still a loss of 6.3% for the week...

since we're just off of 5 month lows for the price of oil, we'll take a quick look at what a graph of the track of recent prices looks like....

May 6th 2017 oil price chart

the above graph below is a screenshot of the interactive oil price graph at Trading Economics, an online platform that provides historical data, economic forecasts, and trading recommendations...each bar on the above graph represents oil prices for one day of oil trading between November 10, 2016 and May 5th, wherein green bars represent days when the price of oil went up, and red bars represent days when the price of oil went down...on green or up days, the day's starting oil price is at the bottom of the bar and the price at the end of the day is at the top of the bar, while on red down days, the starting price is at the top of the bar and the price at the end of the day is at the bottom of the bar...this type of graph is called a candlestick, as the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph...thus we can see that on Friday morning, even though the price of oil was up 70 cents on the day, the price had briefly dipped below $44 a barrel in off hours trading...this graph also includes trading at the end of November, just before OPEC announced their production cuts on November 30th...after that announcement, prices jumped 14.2% in three days, and then continued to rise to $54 by late December, staying in the $51 to $54 range for 3 months….although we've just seen oil price drop around 15% over the past three weeks, my sense is that the bloom came off the OPEC rose in early March, when the price of oil broke out of its trading range and fell nearly 10%, as US crude supplies ran a streak of nine new record highs in a row....i think oil prices would have stayed below $50 a barrel since then, had it not been for the US missile attack on Syria, which precipitated the 10% price spike that you see on the chart above at the end of March into early April...absent that, this week's drop can be seen as a confirmation and continuation of the price drop that started in early March…

The Latest US Oil Data from the EIA

this week's US oil data for the week ending April 28th from the US Energy Information Administration indicated a substantial drop in our oil imports, which was offset by an almost as large drop in our oil exports, and a modest pullback in our refining of crude from last week's record levels, with the net result that we had to take a small amount of oil out of storage to meet refining needs for the fourth week in a row...our imports of crude oil fell by an average of 648,000 barrels per day to an average of 8,264,000 barrels per day over the week, while at the same time our exports of crude oil fell by 614,000 barrels per day to an average of 538,000 barrels per day, which meant that our effective imports netted out to 7,726,000 barrels per day during the week, just 34,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 28,000 barrels per day to an average of 9,293,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 17,019,000 barrels per day during the cited week...

at the same time, refineries reportedly used 17,177,000 barrels of crude per day, 108,000 barrels per day less than they used during the prior week, while 343,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 185,000 more barrels per day than what refineries used...to account for that discrepancy, the EIA inserted a -185,000 barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the supply of oil and the consumption data balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,216,000 barrels per day, still 4.9% above the imports of the same four-week period last year...the 343,000 barrel per day decrease in our total crude inventories came about on a 133,000 barrel per day withdrawal from our commercial stocks of crude oil and a 210,000 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 28,000 barrel per day crude oil production increase resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states and a 3,000 barrels per day increase in oil output from Alaska...the 9,293,000 barrels of crude per day that we produced during the week ending April 28th topped last week's 20 month high and is now up by 6.0% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 4.0% from the 8,938,000 barrel per day output during the during week ending April 29th a year ago, while it was still 3.3% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.3% of their capacity in using those 17,177,000 barrels of crude per day, which was down from 94.1% of capacity the prior week, even as this week's oil throughput was still the 2nd most oil we've refined in any week on record...the 17,177,000 barrels of crude per day refinery throughput was also 7.4% more than the 15,986,000 barrels of crude per day.that were being processed during week ending April 29th, 2016, when refineries were operating at 89.7% of capacity...

even with the week's nominal refining pullback, gasoline production from our refineries increased by 73,000 barrels per day to 9,783,000 barrels per day during the week ending April 28th, which was still a bit less than the 9,811,000 barrels of gasoline that were being produced daily during the comparable week a year ago....in addition, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 38,000 barrels per day to 5,101,000 barrels per day, which was 11.2% more than the 4,589,000 barrels per day of distillates that were being produced during the week ending April 29th last year.....

with the increase in gasoline production, our gasoline inventories increased by a nominal 191,000 barrels to 241,232,000 barrels as of April 28th, after they had increased by more than 4.9 million barrels over the prior two weeks....this week's lower gasoline surplus came about because our imports of gasoline fell by 223,000 barrels per day to 693,000 barrels per day, while our gasoline exports rose by 107,000 barrels per day to 732,000 barrels per day....meanwhile our domestic consumption of gasoline fell by 50,000 barrels per day to 9,156,000 barrels per day, and continues to run at a pace 3% below that of a year ago... with the increase in our gasoline supplies, they are now just a small fraction off the 241,795,000 barrels that we had stored on the equivalent day a year ago, while they are 5.9% higher than the 227,852,000 barrels of gasoline we had stored on May 1st of 2015, and 13.2% more than the 213,180,000 barrels of gasoline we had stored on May 2nd of 2014…

meanwhile, even with the nominal increase in distillates production, our supplies of distillate fuels still fell by 562,000 barrels to 150,355,000 barrels during the week ending April 28th, because the amount of distillates supplied to US markets, a proxy for our consumption, increased by 589,000 barrels per day to 4,256,000 barrels per day...that was even as our exports of distillates fell by 34,000 barrels per day to 1,037,000 barrels per day and as our imports of distillates rose by 58,000 barrels per day to 112,000 barrels per day at the same time...while our distillate inventories are still 4.2% below the 156,979,000 barrels that we had stored on April 29th, 2016, following last year's warm El Nino winter, they remain 15.0% higher than the distillate inventories of 130,773,000 barrels that we had stored on May 1st of 2015, following a more normal winter… 

finally, with a near record amount of crude still going to our refineries, our commercial inventories of crude oil fell for the 4th week in a row, as they decreased by 930,000 barrels to 527,772,000 barrels as of April 28th....nonetheless, we still finished the week with 10.2% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 3.1% more crude oil in storage than what was then a record high of 512,095,000 barrels of oil in storage on April 29th of 2016...we also ended the week with 16.2% more crude than the 454,079,000 barrels in storage on May 1st of 2015, and 44.2% more crude than the 366,004,000 barrels of oil we had in storage on May 2nd of 2014...

This Week's Rig Counts

US drilling activity increased for the 26th time in the past 27 weeks during the week ending May 5th, but it was the smallest increase in the past 9 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 877 rigs in the week ending Friday, which was 462 more rigs than the 415 rigs that were deployed as of the May 6th report in 2016, and the most drilling rigs we've had running since August 28th, 2015, while it was 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 6 rigs to 703 rigs this week, which was more than double the 328 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 down by more than half 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 2 rigs to 173 rigs this week, which was also more than double the 86 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...meanwhile, one of the rigs that was classified as miscellaneous was shut down this week, leaving one, same as the miscellaneous rig count of a year ago...

one of the idled offshore drilling platforms offshore from Louisiana in the Gulf of Mexico started back up this week, which bought the the Gulf of Mexico count back up to 18 rigs, still down from the 23 working in the Gulf of Mexico a year earlier....the week also saw the first drilling offshore from Alaska this year, which brought the total offshore count up to 19 rigs, also still down from a total of 24 offshore a year ago...in addition, there was an additional drilling platform set up on an inland lake in southern Louisiana this week, which took the inland waters rig count up to 5 rigs, up from the 3 rigs on inland lakes a year ago...

rigs that were drilling horizontally increased by 4 to a two year high of 734 horizontal rigs this week, which was up from the the 318 horizontal rigs that were in use in the US on May 6th 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 4 directional rigs were added this week, bringing the directional rig count up to 67, which was also up from the 44 directional rigs that were deployed during the same week last year....however, 1 vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 53 vertical 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 May 5th, the second column shows the change in the number of working rigs between last week's count (April 28th) and this week's (May 5th) count, the third column shows last week's April 28th active rig count, the 4th column shows the change between the number of rigs running on 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 the 6th of May, 2016...       

May 5 2017 rig count summary

as you can see, there were a lot of changes this week, despite the smaller net increase...by itself, that 7 rig increase in the Permian basin of western Texas and southeast New Mexico could have accounted for the entire week's increase, while other Texas basins saw no net change...the 4 rig increase in Louisiana includes the one in the Haynesville, and the aforementioned Gulf of Mexico and inland lakes rigs...meanwhile, the 7 rig drop in Oklahoma looks like it can be accounted for in total by rig shutdowns in the three Woodford basins and in the Mississippian, which straddles the Kansas border...the 3 rig drop in the Marcellus includes one in Pennsylvania, one in West Virginia, and one in New York...i had missed that the March 17th startup of that well in New York had targeted the Marcellus, assuming they wouldn't try fracking in a state where it was banned; now that rig has shut down....also note that the total count for the major basins is negative; that's because 6 oil rigs and 4 gas rigs started drilling in other unnamed basins...we would venture a guess that one of them is on the Alaskan north slope, where they are trying fracking for the first time...another might be in the Rogersville shale, since Kentucky, not shown above, also added a drilling rig this week, in their first drilling since December 2nd...(NB: after further research, the new Kentucky rig proved to be a directional rig in Bell county, outside of the Rogersville on most maps)

International Rig Counts for March

Baker Hughes also released the international rig counts for April on Friday, 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 1,917 rigs were drilling for oil and natural gas around the globe in April, which was down from the 1985 rigs that were drilling around the globe in March, but up from the 1,424 rigs that were working globally in April of last year....another Spring-thaw related pullback in Canadian drilling was the reason for the drop, the 2nd global decrease after 9 months of increases, as the average Canadian rig count fell to 108 rigs in April from 253 rigs in March, which was still up from the 41 Canadian rigs that were deployed in March a year earlier, while the average US rig count rose from 789 rigs in March to 853 rigs in April, which was also up from the average of 437 rigs that were working in the US in April a year ago....outside of Northern America, the International rig count rose by 13 rigs to 956 rigs in April, which was also up from 946 international rigs a year ago, as increases in drilling in the Middle East, Asia and Africa were only partially offset by smaller decreases in drilling activity in Latin America and Europe..

drilling rigs deployed in the Middle East increased by 3 rigs to 389 rigs in April, up from 384 rigs a year earlier, after their drilling activity had increased by 4 rigs in March...both Pakistan and OPEC member Iraq added 3 rigs for the month, as the Pakistan count rose to 24 rigs, up from 23 rigs a year ago, while the Iraqis had 46 rigs deployed, up from 43 rigs a year earlier...on the other hand, Egypt shut down 3 rigs over the month, which cut them back to 27 active rigs, down from 30 rigs a year earlier...other drilling rig changes in the region included OPEC members Qatar and Abu Dhabi, who added one rig each, bringing them up to 12 rigs and 49 rigs respectively, while Kuwait and Oman shut down one rig each, cutting them back to 53 rigs and 56 rigs respectively...the Saudis stood pat with 119 rigs, which was down from the 123 rigs they were operating a year ago..

at the same time, drilling activity in the Asia-Pacific region was up by a net of 7 rigs to 205 rigs in March, which was also up from the 179 rigs working in the region a year earlier...Australia added 3 rigs and now have 16 rigs active, up from 6 rigs a year earlier...the Japanese started drilling for the first time this year with 3 rigs, also up from none a year ago...2 rigs were started offshore from China, where there are now 19 rigs active, down from 26 offshore rigs a year ago...Myanmar also added 2 rigs and now have 3 rigs working, same as a year ago...the Philippines also added a rig and now have two, same as a year ago...on the other hand, Brunei, Bangladesh, and Thailand all pulled out rigs in April, which left Brunei and Bangladesh with none, and left Thailand with 13 rigs still working...

meanwhile, the Latin American region saw their active drilling rig count decrease by a net of 3 rigs to 182 rigs, down from 203 rigs in April of last year, and down from 321 rigs as recently as September of 2015, as the region had idled 92 rigs over the first 6 months of 2016...Argentina shut down 9 rigs during the month, which cut their total back to 49 rigs, down from 73 rigs a year ago...Bolivia pulled out 2 rigs and thus had 3 active during the month, also down from 5 rigs a year ago, and Brazil cut back one rig and now has 15 active...on the other hand, Mexico added 4 rigs and thus had 22 rigs active, still down from 23 rigs a year earlier...OPEC member Venezuela added 2 rigs, bringing their total to up to 56 rigs, down from 69 rigs a year earlier.. .in addition, Trinidad added a rig and now has 7 rigs active, both Peru and Chile added a rig each, giving them both 2 rigs, with Peru up from 1 rig a year ago and Chile still down from 3 rigs a year ago...

drilling activity was also lower Europe, decreasing by 3 rigs to 91 rigs in April, which was still up from the 90 rigs that were working in Europe last April...Turkey shut down 2 rigs, leaving 21, which left them down from 29 rigs a year ago...in addition, offshore platforms were idled in several countries...Germans also shut down 2 rigs, leaving 2 active, down from 4 rigs a year earlier....Italy and Sakhalin Island also shut down 1 rig each, leaving them with 3 rigs and 11 rigs respectively...at the same time, Norway added two offshore figs and now have 17 rigs offshore, same as a year ago, and Austria started up their first rig in 2 years...

meanwhile, drilling on the African continent outside of Egypt saw a net increase of 9 rigs to 89 rigs in April, which was still down from the 90 rigs working in Africa last year at this time...OPEC member Algeria added 6 rigs and now have 57 rigs active, up from 55 a year ago...OPEC member Angola added two rigs and now has 4 rigs active...in addition, Gabon added their first rig since June of last year...finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 19 rigs active in April, were included in the Asian totals here, apparently based on satellite intel, which is also the way much of the international oil production and export data is collected...

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note: there's more here...

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