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, June 18, 2017

global oil glut grows again in May; US gasoline supplies hit a seasonal record; uncompleted wells rise again

oil prices were down another 2.4% this week, with US oil for July closing below $45 a barrel for the first time since November, (ie, prior to the first announcement of OPEC production cuts), and have now fallen 14% from the $52 a barrel interim high that was reached the morning of May 25th, the day OPEC announced their 9 month extension of those cuts...rather than try to explain how prices moved each day, we'll just start with a picture of the prices over the past two weeks, which will certainly be clearer than any words i can expend on explaining it...

June 16 2017 oil prices 2 hour intervals

the above graph is a Friday evening screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for two hours of oil trading between June 5th and June 16th, wherein green bars represent the 2 hour periods when the price of oil went up, and red bars represent the periods when the price of oil went down (note that we reset this graph at 2 hours to capture 2 weeks of data)...for green bars, the starting oil price at the beginning of the 2 hour period is at the bottom of the bar and the price at the end of the hour is at the top of the bar, while in red or down periods, the starting price is at the top of the bar and the price at the end of the hour is at the bottom of the bar...as we've mentioned before, this type of graph is called a candlestick because 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...

now, what we can see from this graph is that except for two large red candlesticks, representing oil price crashes of over 4% and 3% respectively, oil prices pretty much stayed within narrow ranges over most of the two week period...so what happened during those two 2 hour periods to cause oil prices to fall?  looking back at the interactive graph, we see that the two periods when oil prices crashed were the 2 hours ending 2 PM on Wednesday, June 7th, and the 2 hours ending 2 PM on Wednesday, June 14th...so what happens on Wednesdays?  that's when the EIA releases the comprehensive oil data-sets for oil for the previous week....when that data was released last week (June 7th), the EIA reported significant increases in supplies of oil, gasoline, distillates and all other products, when traders were expecting modest withdrawals, and US oil prices subsequently fell 5.1% that afternoon...this Wednesday's EIA data showed a withdrawal of oil from storage, but not as large as expected, and an unexpected increase in gasoline supplies, which are now at an all time high for the driving season, and as you can see, prices crashed again, ultimately falling nearly from as high as $46.49 on Wednesday morning to as low as $44.56 Wednesday afternoon, before steadying and ending the day at $44.73, which as it turned out was only a penny less than the $44.74 closing price for the week...so it should be clear from this graph that whatever else might move oil prices during the week, those movements are dwarfed by the market reactions to the weekly EIA data...'

OPEC's May oil report

even though OPEC's activity is not, at the present time, driving US oil prices, whether or not they adhere to their production cuts will ultimately be a major factor in global oil supplies, and hence oil prices...so we will again start by taking a look at OPEC's June Oil Market Report (covering May OPEC & global data), which was released on Monday of this week, to 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.....the first table from the June report that we'll include here is from page 58 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 "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... 

May 2017 OPEC cude output via secondary sources

from this table of official oil production data, we can see that OPEC oil output increased by 336,100 barrels per day in May, to 32,139,000 barrels per day, from a April oil production total of 31,803,000 barrels per day, a figure that was revised 53,000 barrels per day higher from the 31,750,000 barrels per day was reported last month...(for your reference, here is the table of the official April figures before these revisions)...as we can see in the far right column, the major reason for the 336,100 barrel per day increase in OPEC's output in May were the 178,200 barrel per day increase in production from Libya and the 174,200 barrel per day increase in oil production from Nigeria, the two OPEC countries that are exempt from the production cuts because their production had already been driven down by domestic strife...otherwise, except for Iraq, the other OPEC countries are all pretty close to their targets, as can be seen in the table below:

June 8 2017 OPEC production  targets via Platts

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members over the first five months of this year (the targeted period) and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as they agreed to at their November meeting...finally, the last column shows the difference in the average production and what the target is for each member, also as a fraction of a million of barrels of oil per day....as you can see, except for Algeria, Gabon, and Iraq, all the other OPEC members have cut production as promised, and only Iraq, with a 64,000 barrel per day surplus, is the lone OPEC member with a significant output overage, which they increased even further in May...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from June 2015 to May 2017, and it comes from page 59 of the June 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...

May 2017 OPEC report, global supply

the preliminary data graphed above indicates that global oil production rose to 95.74 million barrels per day in May, up by 0.13 million barrels per day from a April total of 95.61 million barrels per day, which was revised .20 million barrels per day lower from the 95.81 million barrels per day global oil output that was reported a month ago...that May figure was also 1.48 million barrels per day higher than what was being produced globally in May a year ago...OPEC's May production of 32,139,000 barrels per day thus represented 33.6% of what was produced globally,  an increase from the 33.3% OPEC share in April, which was originally reported as 33.1%, because global oil supply had been overestimated last month...OPEC's May 2016 production, excluding Indonesia, was at 31,621,000 barrels per day, so even after the production cuts, they are still producing 1.6% more oil than they were producing a year ago, when they were supposedly producing flat out...

however, even with the five recent months of production cuts we can clearly 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..    

May 2017 global oil demand estimate via OPEC

the table above comes from page 36 of the June 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 the planet was using in the first quarter but up from the 95.12 millions of barrels of oil per day they were using in 2016...that's typical for spring, as few regions need either heating or cooling...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 95.74 million barrels per day during May...that means that even after 5 months of OPEC and NOPEC production cuts have taken place, there continued to be a surplus of around 410,000 barrels per day in global oil production in May...note that global production for April was revised lower, to 95.61 million barrels per day, so that means the global oil surplus during April was therefore around 280,000 barrels per day, also based on the revised second quarter global demand figure of 95.33 million barrels per day shown above...prior to that, we saw that the global oil surplus during March was around 780,000 barrels per day, and nearly a million barrels per day in January and February, as we've shown when reviewing revisions to these reports in prior months... that means that despite the five months of OPEC production cuts, over 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 release of US oil data from the US Energy Information Administration, covering details for the week ending June 9th, showed that US refineries continued to operate at above seasonally levels, while our crude oil imports fell and our crude oil exports rose, and hence it was necessary to withdraw oil from storage for the 9th time out of the last ten week...our imports of crude oil fell by an average of 316,000 barrels per day to an average of 8,025,000 barrels per day during the week, while at the same time our exports of crude oil rose by 165,000 barrels per day to an average of 722,000 barrels per day, which meant that our effective imports netted out to 7,303,000 barrels per day during the week, 481,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 12,000 barrels per day to an average of 9,330,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,633,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,256,000 barrels of crude per day, 29,000 barrels per day more than they used during the prior week, while at the same time 295,000 barrels of oil per day were being taken from 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 and oilfield production and from storage was 328,000 less barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a +328,000 barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it 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 8,161,000 barrels per day, still 7.1% above the imports of the same four-week period last year...the 295,000 barrel per day decrease in our total crude inventories came about on a 237,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 20 months ago....this week's 12,000 barrel per day increase in our crude oil production resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 13,000 barrels per day decrease in oil output from Alaska...the 9,339,000 barrels of crude per day that we produced during the week ending June 9th was up by 6.4% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 7.0% from the 8,716,000 barrel per day output during the during the same week a year ago, while it was still 2.9% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.4% of their capacity in using those 17,256,000 barrels of crude per day, which was up from 94.1% of capacity the prior week, and the 2nd highest refinery capacity utilization rate this year...the amount of oil refined this week was well above seasonal norms, 5.8% more than the 16,317,000 barrels of crude per day.that were being processed during week ending June 10th, 2016, when refineries were operating at 90.2% of capacity, and roughly 12% above the 10 year average of 15.4 million barrels of crude per day for the first full week of June....

even with the elevated level of refining, gasoline production from our refineries decreased by 91,000 barrels per day to 9,843,000 barrels per day during the week ending June 9th...however, that gasoline output was still 1.4% higher than the 9,707,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 113,000 barrels per day from last week's seasonal high to 5,154,000 barrels per day, which was still 3.4% more than the 4,984,000 barrels per day of distillates that were being produced during the week ending June 10th last  year..... 

even with the drop in gasoline production, our end of the week gasoline inventories again surprisingly increased by 2,096,000 barrels to 242,444,000 barrels by June 9th, after increasing by 2,858,000 barrels the prior week...the major factor in the gasoline surplus has been our domestic consumption of gasoline, which fell by 48,000 barrels per day to 9,269,000 barrels per day, after falling by 505,000 barrels per day the prior week... meanwhile, our gasoline exports fell by 30,000 barrels per day to 525,000 barrels per day and our imports of gasoline fell by 213,000 barrels per day to 574,000 barrels per day at the same time...with the week’s big increase in our gasoline supplies, our gasoline inventories thus are at a seasonal high for this time of year, 2.3% above the prior seasonal record 237,004,000 barrels that we had stored on June 10th a year ago, 11.3% higher than the 217,814,000 barrels of gasoline we had stored on June 12th of 2015, and 13.2% more than the 214,267,000 barrels of gasoline we had stored on June 13th of 2014…  

likewise, even with the decrease in distillates production, our supplies of distillate fuels rose by 328,000 barrels to 151,416,000 barrels during the week ending June 9th, after increasing by 4,355,000 barrels the prior week...factors in the change of the size of the increase in supplies were the amount of distillates supplied to US markets, which rose by 540,000 barrels per day to 4,045,000 barrels per day, and our imports of distillates, which fell by 91,000 barrels per day to 61,000 barrels per day, while our exports of distillates fell by 169,000 barrels per day to 1,123,000 barrels per day....even though our distillate supplies are still fractionally below the 152,163,000 barrels that we had stored on June 10th, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're now 13.3% higher than the distillate inventories of 133,591,000 barrels that we had stored on June 12th of 2015, following a more normal winter… 

finally, with the week's increase in US oil exports and the drop in our oil imports, our commercial supplies of crude oil fell for the ninth time in the past 10 weeks, as our oil inventories fell by 1,661,000 barrels to 511,546,000 barrels as of June 9th, a decrease which was nonetheless less than expected....as a result, we still finished the week with 6.8% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.1% more crude oil in storage than the 500,911,000 barrels of oil in storage on June 10th of 2016....compared to the same week in prior years, when the glut was not so bad, we ended the week with 17.4% more crude than the 435,771,000 barrels in of oil in storage on June 12th of 2015, and 44.2% more crude than the 354,642,000 barrels of oil we had in storage on June 13th of 2014...   

This Week's Rig Counts

US drilling activity increased for the 22nd week in a row and for the 32nd time in the past 33 weeks during the week ending June 16th, although it was the smallest increase since the week of March 3rd....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 6 rigs to 933 rigs in the week ending Friday, which was 509 more rigs than the 424 rigs that were deployed as of the June 17th report in 2016, and the most drilling rigs we've had running since April 17th, 2015, even though it was still less than half of 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 747 rigs this week, which was up by 410 oil rigs over the past year, and the most oil rigs that were in use since April 10th 2015, while it was still far 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 increased by 1 rig to 186 rigs this week, which was a hundred more gas rigs than the 86 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...however, the only rig that was considered miscellaneous was shut down this week, which contrasts to a year ago, when there was also a miscellaneous rig operating...

there was no change in the Gulf of Mexico count this week, where drilling continues from 21 platforms, the same as a year ago...however, we still had drilling from one platform offshore from Alaska this week, which means the total US offshore count is at 22 rigs, up from 21 rigs a year ago, when there no drilling offshore from Alaska...rigs that were set up to drill horizontally increased by 2 rigs to 782 horizontal rigs this week, which was the smallest horizontal rig increase since the first week of 2017... horizontal rigs are still up by 456 from the the 326 horizontal rigs that were in use in the US on June 17th of last year, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, a net of 3 directional rigs were also added this week, increasing the directional rig count to 69 rigs, which was up from the 45 directional rigs that were deployed during the same week a year ago...in addition, the vertical rig count was up by 1 rig to 82 vertical rigs this week, which was also up from the 53 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 June 16th, the second column shows the change in the number of working rigs between last week's count (June 9th) and this week's (June 16th) count, the third column shows last week's June 9th 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 17th of June, 2016...        :

June 16 2017 rig count summary

as you can see, with the small increase in horizontal drilling, the Williston basin of North Dakota with an increase of 3 rigs turns out to be the only major shale basin with an increase in drilling this week, although we know there were increases of at least 3 horizontal rigs in other unnamed basins, because the Barnett of north central Texas, the Haynesville of Louisiana, and the Cana Woodford and the Mississippian of Oklahoma all saw horizontal rigs idled this week...those changes account for the larges state increase, North Dakota with 3 more rigs, and contribute to the largest rig decrease, Oklahoma with 4 less...for the other changes, we have little to go on without tediously scrolling thru the detailed logs, because none of Baker Hughes summary data gives any indication what oil or gas source might be targeted by the new directional and vertical rigs...

DUC well report for May

Monday of this past week also saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins...once again, this report showed a large increase in uncompleted wells nationally, almost entirely because 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.... for all 7 basins covered by this report, the total count of DUC wells rose from 5,770 wells in April to 5,946 wells in May, the seventh consecutive monthly increase in uncompleted wells....as we pointed out a month ago, as horizontal drilling has rapidly expanded over the past 10 months, more than doubling over that period, a shortage of competent fracking crews has developed, such that in the most active areas, independent U.S. drillers are underspending their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work...over the 2 and a half year oil field slump and associated layoffs that began in early 2015, most frackers had gone nearly two years with just skeleton fracking crews still working in most basins around of the country, and as a result many of those who had had been working in the oil fields before the bust have since found work elsewhere, and have no interest in returning to boom/bust oil work...furthermore, fracking has also become more complex over that period, with 50 stage fracks explosively driving several hundred pounds of proppant per foot of lateral not uncommon, so putting together a fracking crew familiar with the latest techniques has become that much harder...

a total of 992 wells were drilled in the 7 basins covered by this report during May, but only 816 wells were completed, thus accounting for the 176 DUC well increase for the month....like in most recent months, most of the April 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 125, from 2,038 in April to 2,163 in May, as 465 new wells were drilled into the Permian but only 340 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 47, from 1,316 in April to 1,363 wells in May, as 186 wells were drilled in the Eagle Ford in April but only 139 drilled wells were completed....in addition, DUC wells in the Haynesville of Louisiana increased by 9 wells to 201, as 47 wells were drilled but just 38 wells were fracked, and DUCs in the Bakken of North Dakota increased by 8 to 833, as 86 wells were drilled there but just 78 Bakken wells were fracked....meanwhile, the Niobrara chalk of the Rockies front range was the only oil basin to see a DUC well reduction, as their uncompleted well inventory fell by 3 wells to 646, as 132 wells were drilled into the Niobrara, while 135 wells were fracked in the same region...in addition, the Marcellus DUC count fell by 1 to 667 uncompleted wells, as 57 Marcellus wells were drilled while 58 were fracked...likewise, Ohio's Utica shale showed a decrease of 9 uncompleted wells and thus had only 73 DUCs remaining at the end of May, as 19 new wells were drilled into the Utica during the month while 28 Utica wells 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 177 to 5,005 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 1 well to 941 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...

 

note: there's more here...

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