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 14, 2017

OPEC cuts still not reducing global glut; US sees the largest crude oil inventory draw this year

both oil and natural gas prices moved higher this week, as both commodities saw larger than expected withdrawals of supplies from storage, while oil prices were also underpinned by expectations that OPEC would extend their production cuts when they meet in Vienna later this month....an expression of confidence in that extension from Saudi energy minister Khalid al-Falih on Monday buttressed the rebound from last week's crash, as oil rose 21 cents to close at $46.43 a barrel...prices then moved lower on Tuesday, closing at $45.88 a barrel, after the EIA raised its forecast on domestic crude output for this year and next, and cut its 2017 price outlook...however, when the weekly EIA report showed the largest crude oil inventory draw since December, oil prices surged as much as 4% before settling at $47.33 a barrel, a gain of 3% on the day...momentum from that rally carried into Thursday, as oil added 50 cents more to close at $47.83 a barrel, on news that top OPEC officials were pondering even deeper cuts...oil prices then slipped on Friday, after Baker Hughes reported the US oil rig count rose for the 17th straight week, but stabilized by the end of the day, with June crude closing at $47.84 a barrel, up a penny for the session and up 3.5% for the week..

OPEC's May oil report

since the OPEC production cuts are the main factor underpinning oil prices, and hence the ongoing increases in US drilling, we'll start by taking a quick look at OPEC May Oil Market Report (covering April OPEC & global data), which was released on Thursday of this week...we're going to look at how much oil OPEC produced in April vis a vis global production, and then determine if they are yet meeting their intended outcome of reducing the global glut of oil that's been building up over the past three years, as most OPEC countries were producing flat out over that period....the first table from the May report that 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 current OPEC members over the recent years, quarters and months as the column headings are labeled...for all their official production measurements, OPEC uses data from these "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... 

April 2017 OPEC cude output via secondary sources

from this table of official production data, we can see that OPEC oil output was down by a statistically insignificant 18,200 barrels per day in April, to 31,732,000 barrels per day, from a March oil production total of 31,750,000 barrels per day, a figure that was revised 178,000 barrels per day lower than what was reported last month...(for your reference, here is the table of the official March 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, who is no longer a member), so these figures show that the total production of the remaining 13 members is within a half percent of the level they agreed to cut back to....but note that over 60 thousand barrels of this month's reduction came from Libya, a country that was exempt from the cuts, because their production had been disrupted by domestic unrest....news over the past few weeks indicates they've restored over 180,000 barrels per day of production from two oil fields in the western part of the country, and a report just a few days ago indicated that Libya’s oil production is now running above 800,000 barrels per day (bpd) for the first time since 2014, so we can thus expect that May OPEC production will be that much higher...

that expected output bounce in the May report notwithstanding, there were also interesting divergent April production figures that the OPEC members reported to the OPEC Secretariat, which are shown in the next table...

April 2017 OPEC members 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 reporta, we noticed that almost all the OPEC members reported higher production than was attributed to them by the official secondary sources...note especially that Iraq, who has been a laggard on the production cuts, reported they produced 4,531,000 barrels per day in April, vs their official figure of 4,373,000 barrels per day...likewise, Venezuela reported that they produced 2194,000 barrels per day in April, whereas the official data indicates they produced 1,956,000 barrels per day...if the reported numbers were lower than the official tallies, they might be suspect, but OPEC members have no reason to report that they produced more than they did, because higher oil output numbers would indicate that they're not in compliance with the cuts they agreed to...so if anything, these self reported number indicate that the official output production figures may be an understatement of the oil supply that was actually available in April...

this next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from May 2015 to April 2017, and it comes from page 61 of the May 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 global output shown on the right scale...

April 2017 OPEC report, global supply

preliminary data graphed above indicates that global oil production slipped to 95.81 million barrels per day in April, down by 0.41 million barrels per day from a March total of 96.22 million barrels per day, which was revised .040 million barrels per day higher from the 95.81 million barrels per day global oil output that was reported a month ago...that figure was also 0.83 million barrels per day higher than what was being produced globally a year ago, and more than .90 million barrels per day greater than the global oil supply of two years ago...OPEC's production of 31,732,000 barrels per day thus represented 33.1% of what was produced globally, an increase from the 33.0% OPEC share in March, which was originally reported as 33.3%, because global supply had been underestimated last month...OPEC's April 2016 production, excluding Indonesia, was at 31,709,000 barrels per day, so even after the production cuts, they are still producing a bit more than they were producing a year ago, and roughly 0.20 million more barrels per day than what they were producing in May of 2015, when they were supposedly producing flat out...

however, even with the four recent months of production cuts we can obviously see on the above graph, there is still a surplus of oil supply being produced globally, as the next table that we'll include will show us..   

April 2017 global oil demand estimate via OPEC

the table above comes from page 37 of the May 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...on the "Total world" line of the  third  column, we've circled in blue the figure we're interested in, which is their estimate for global oil demand for the current second quarter of 2017...

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, down from the 95.44 millions of barrels of oil per day they were using in the first quarter but up from the 95.12 millions of barrels of oil per day they were using in 2016...but as OPEC showed us in the oil supply section of this report and the summary supply graph above, even with their production cuts, the world's oil producers were still producing 95.81 million barrels per day during April...that means that even after all the production cuts have taken place, there continued to be a surplus of around 480,000 barrels per day in global oil production in April...in addition, global production for March was revised higher, to 96.22 million barrels per day, so that means the global oil surplus during March was therefore around 780,000 barrels per day, based on the revised first quarter global demand figure of 95.44 million barrels per day shown above...furthermore, February's oil production was 0.23 million barrels per day higher than that of March, so the global oil surplus in February now looks to have been over a million barrels per day, as was January's, which we showed when we reviewed that report three months ago...so despite 4 months of OPEC production cuts, nearly a hundred million barrels of oil have been added to the global oil glut since the 1st of the year...

The Latest US Oil Data from the EIA

this week's US oil data for the week ending May 5th from the US Energy Information Administration indicated a large drop in our refining of crude oil from the record levels of the past two weeks, but an even larger drop in our oil imports, which when combined with an increase in our oil exports, meant that refiners withdrew the most oil out of storage in any week so far this year...our imports of crude oil fell by an average of 644,000 barrels per day to an average of 7,620,000 barrels per day during the week, while at the same time our exports of crude oil rose by 155,000 barrels per day to an average of 693,000 barrels per day, which meant that our effective imports netted out to 6,927,000 barrels per day during the week, 799,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 21,000 barrels per day to an average of 9,314,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,241,000 barrels per day during the cited week...

during the same period, refineries reportedly used 16,759,000 barrels of crude per day, 418,000 barrels per day less than they used during the prior week, while 821,000 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 310,000 more barrels per day than what refineries used...to account for that discrepancy, the EIA inserted a (-310,000) 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 fell to an average of 8,152,000 barrels per day, still 5.0% above the imports of the same four-week period last year...the 828,000 barrel per day decrease in our total crude inventories came about on a 750,000 barrel per day withdrawal from our commercial stocks of crude oil and a 79,000 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 21,000 barrel per day crude oil production increase resulted from a 16,000 barrel per day increase in oil output from wells in the lower 48 states and a 5,000 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 means our oil output is up by 6.2% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,802,000 barrel per day output during the during week ending May 6th a year ago, while it's now only 3.1% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 91.5% of their capacity in using those 16,759,000 barrels of crude per day, which was down from 93.3% of capacity the prior week, and down from the year’s high of 94.1% the week before that...however, the 16,759,000 barrels of crude per day that refineries used during the week ending May 5th was still 3.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 89.1% of capacity, and 10.7% above the 10 year average for the 1st week in May of 1,625,000 barrels of crude per day....

even with the week's big refining pullback, gasoline production from our refineries increased by 269,000 barrels per day to 10,052,000 barrels per day during the week ending May 5th, possibly making up for thw lower than logical gasoline production we’d seen during the prior two weeks...gasoline production for the week was virtually the same as the 10,521,000 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) decreased by 145,000 barrels per day to 4,956,000 barrels per day, which was still 7.5% more than the 4,610,000 barrels per day of distillates that were being produced during the week ending May 6th last year.....

even with the big increase in gasoline production, our gasoline inventories decreased by a nominal 150,000 barrels to 241,232,000 barrels as of May 5th, after they had increased by more than 5 million barrels over the prior three weeks....gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 252,000 barrels per day to 9,408,000 barrels per day, even as our imports of gasoline rose by 260,000 barrels per day to 953,000 barrels per day, while our gasoline exports fell by 15,000 barrels per day to 717,000 barrels per day....even with the increase in our gasoline supplies, however, they are still fractionally higher than the 240,564,000 barrels that we had stored on the equivalent day a year ago, 6.3% higher than the 226,710,000 barrels of gasoline we had stored on May 8th of 2015, and 13.5% more than the 212,408,000 barrels of gasoline we had stored on May 9th of 2014…

with the decrease in distillates production, our supplies of distillate fuels fell by 1,587,000 barrels to 148,768,000 barrels during the week ending May 5th; contributing to the decrease was a 112,000 barrel per day increase to 1,159,000 barrels per day in our exports of distillates, while our imports of distillates rose by just 3,000 barrels per day to 115,000 barrels per day....at the same time, the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 117,000 barrels per day to 4,139,000 barrels per day....while our distillate supplies are still 4.2% below the 155,332,000 barrels that we had stored on May 6th, 2016, after the glut of heat oil that followed last year's warm El Nino winter, they remain 16.0% higher than the distillate inventories of 128,270,000 barrels that we had stored on May 8th of 2015, following a more normal winter… 

finally, the large drop in oil imports, combined with a jump in oil exports, meant that our commercial inventories of crude oil fell for the 5th week in a row, as they decreased by 5,247,000 barrels to 522,525,000 barrels as of May 5th, in the largest decrease of 2017....nonetheless, we still finished the week with 9.1% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.8% more crude oil in storage than the 508,487,000 barrels of oil in storage on May 6th of 2016...compared equivalent dates in prior years, we ended the week with 15.6% more crude than the 451,888,000 barrels in storage on May 8th of 2015, and 42,4% more crude than the 366,951,000 barrels of oil we had in storage on May 9th of 2014...

This Week's Rig Counts

US drilling activity increased for the 27th time in the past 28 weeks during the week ending May 12th, while drilling for oil increased for the 17th week in a row....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 885 rigs in the week ending Friday, which was 479 more rigs than the 406 rigs that were deployed as of the May 13th report in 2016, and the most drilling rigs we've had running since August 21st, 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 9 rigs to 712 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 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 fell by one rig to 172 rigs this week, which was still almost double the 87 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...since we don't often see a good graph that shows both oil and gas rig counts, we'll include this one here:

May 12 2017 rig count

the above graph was posted on Friday on the twitter account of John Kemp, senior energy analyst with Reuters, and it show the US oil rig count from 1990 to this current week in red, and the natural gas rig count over the same period in yellow...here we can see that the expansion of fracking in the US really started as a boom in exploitation of the natural gas basins, as the count of horizontal drilling rigs rose from under 200 in 2005 to over 600 through the summer of 2008, before the onset of recession cut natural gas prices and hence drilling for it...when we came out of the recession, horizontal drilling picked up again, but this time it was for oil, as the horizontal rig count rose from under 400 to over 1,000 by 2011...while all drilling collapsed with the price war initialed by OPEC in November of 2014, it was natural gas rigs that fell to their lowest level in history at 81 rigs, from whence they've barely recovered...as we've pointed out, at this level of drilling for natural gas, old wells are being depleted faster than new wells are brought into production, and if US natural gas exports continue to expand as planned, we'll facing a natural gas shortage in the US as soon a we see a normal winter...

returning to the rig count, two more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana started back up this week, which bought the the Gulf of Mexico count back up to 20 rigs, still down from the 21 working in the Gulf of Mexico a year earlier....including the single rig drilling offshore from Alaska, our total offshore count is now up to 21 rigs, but also still down from a total of 22 offshore a year ago...on the other hand, one of the drilling platforms that was drilling through an inland lake in southern Louisiana was shut down this week, which cut the inland waters rig count back to 4 rigs, still up from the 2 rigs working on inland lakes a year ago...

rigs that were drilling horizontally increased by 8 to 742 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015 and up from the the 315 horizontal rigs that were in use in the US on May 13th 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 1 vertical rig was added this week, bringing the vertical rig count up to 77, which was also up from the 53 vertical rigs that were deployed during the same week last year....however, 1 directional rig was pulled out this week, reducing the directional rig count down to 66 rigs, which was still up from the 38 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 May 12th, the second column shows the change in the number of working rigs between last week's count (May 5th) and this week's (May 12th) count, the third column shows last week's May 5th 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 13th of May, 2016...       

May 12 2017 rig count summary

as we've seen many times this year, the increase in drilling was all about the Permian in western Texas; except for those 8 new horizontal rigs drilling for oil there, we have almost no net changes....Louisiana's count was unchanged, as the two rig increase offshore in the Gulf and another rig added in the northern half of the state was offset by 3 rigs shut down in the south, including the one on an inland lake...Oklahoma managed to cut two rigs despite the 2 rig increase in the Cana Woodford, as at least one that offset those was a gas rig that was shut down in the Mississippian Lime, which straddles the Kansas border...also note that Ohio added a rig, with another gas directed rig in the Utica; the Utica rig count is now at 24 rig, up from 10 rigs in Ohio's Utica a year ago...there was no change in drilling activity this week in the states not shown above, while 2 oil rigs and one gas rig were pulled out of basins other than those listed...

 

note:  there's more here...

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