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 25, 2017

oil hits ten month low; prices now below average breakeven for all US oil basins

oil prices fell for the 5th week in a row this week, now the longest losing streak since the summer of 2015, with the new front month price for August oil closing the week at $43.01 a barrel, down 4.4% from its close of $44.97 a barrel the prior week, after seeing its price dip to as low as $42.05 a barrel mid week....in the process, oil prices plumbed levels not seen since November of 2016, when the widely anticipated OPEC production cut was rumored to be on the rocks...this week's price drop thus means that all the price appreciation that OPEC had realized by cutting their production since the beginning of this year has been lost, as prices are now back to the level they were at before their attempt to control the supply of oil was formally announced...we'll include a graph of the daily oil prices over that entire 7 month stretch, so you can see how the price changes transpired, and to save me a lot of words in trying to explain it...

June 24 2017 daily oil prices

the above graph is a Saturday 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 one day of oil trading between October 10th, 2016 and June 23rd, wherein green bars represent the days when the price of oil went up, and red bars represent the days when the price of oil went down...for green bars, the starting oil price at the beginning of the day 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 or 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, called a candlestick, also shows the range of oil prices outside of the opening and closing price for any given day as a thin 'wick' above or below the "candlestick" part of the graph... 

so, on this graph we can see that oil prices fell to close as low as $43.14 a barrel on Friday November 11th, battered that week by Trump's election, a report of record OPEC production, and the largest US oil output increase in the prior 18 months...while oil prices fell to as low as $42.20 a barrel the next Monday (see the wick on Nov 14?), oil prices rose from there as the markets turned their focus to the end of the month OPEC meeting...oil prices were still as low as $45 a barrel on November 29th, the day before the OPEC meeting, where upon they jumped 14% in the three days following that meeting to approach $52 a barrel...oil prices then stayed roughly between $51 and $54 a barrel over the next three months, before breaking to the downside as US oil stockpiles hit a new record in early March...oil prices attempted to rally in late March and again in early May, but never reached their December to February highs, then finally started into the downturn we're now in after the OPEC ,meeting on May 25th, when they announced a nine-month extension of their ineffective production cuts, sending oil prices tumbling...

with US oil prices currently below $45 a barrel, it should now start to become unprofitable to drill in even the most productive US basins, as we can see by the graphic below, which as the heading tells us, shows us the breakeven prices for drilling new wells:

June 16, 2017 breakeven prices for new wells

the above graphic, which i found on twitter, is from the Dallas Fed, and graphs the responses from oil company executives to their survey question, "what oil price does your firm need to profitably drill a new well", which they asked in a Fed survey that took place between March 15th and March 23rd of this year...in the graph, the blue, red, yellow, orange and green bars represent the price range of responses for the Midland, SCOOP/STACK, Eagle Ford, Delaware, and central Permian basins respectively, with the size of the colored bar representing the range of the responses the oil execs gave for each basin, and the black line and dots representing the average of those responses for each basin...thus, what the graphic shows is that in the Permian's Midland basin (blue), 13 oil execs responded that they could break-even with prices as low as $25 a barrel to as high as $65 a barrel, with the average response for those drilling in the Midland basin at $46 a barrel...similarly, for the 8 oil execs drilling in the SCOOP/STACK of central Oklahoma, responses were that they could break even in prices ranging between $35 a barrel and $75 a barrel, with the average response for those drilling in that basin at $47 a barrel....next, four Eagle Ford oil execs said they could break even in a range between $40 and $55 a barrel, with an average breakeven of $48 a barrel; ten drillers in the Permian Delaware said they could break even in a range between $30 and $60 a barrel, also with an average of $48 a barrel; and 13 oil execs who were drilling in the Central Permian said they could break even in a range between $35 and $65 a barrel, with an average of $50 a barrel....next, the purple bar represents responses the Dallas Fed got from oil company executives who were exploring non-shale oil deposits; there were 40 responses from such executives, with some feeling they could break-even at $20 oil, and others saying they needed at least $100 a barrel oil to be profitable...as you can see, the average price needed for non-shale oil was $53 a barrel...lastly, the turquoise bar represents the responses the Dallas Fed got from other shale plays, which would include the Bakken of North Dakota; the eight responses from those other plays were between $45 and $65 a barrel, with an average break-even price of $55 a barrel...

thus, with oil closing this week near $43 a barrel, it's below the average price needed to break-even in all US oil basins, which means that at least half, but not all, of those who were active in the oilfields at the time of this March survey would find themselves unprofitable at today's oil prices...that doesn't mean that they would stop drilling for oil today; most have contracted for the work they'll be doing this month several months ago at higher prices, and even so, many will continue to try to keep the oil flowing even if its unprofitable because that's what they do...estimates are that there is a 3 month to 6 month lag between a change in the price of oil and the associated pace of drilling for it; & that somewhat fits with what we've observed; early this year, for instance, we saw a long period of double digit increases in drilling rig additions that lasted until April 28th, 2 months after the price of oil broke from the $53 a barrel average of February...if that pattern holds, it would  likely take until mid-August or later before we see the slowdown in drilling that should result from the collapse of oil prices that we've seen over the past month...furthermore, considering that there's a 7 month backlog of completed but still unfracked wells in the 4 major US oil basins, US oil production might continue rising until next year, given that the output of many of those still unfracked wells has probably already been contracted for at a price higher than today's..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending June 16th, showed that US refineries experienced a modest throughput reduction but continued to operate at above seasonally levels, while both our crude oil imports and our crude oil exports were somewhat lower, and hence it was again necessary to withdraw oil from storage for the 10th time out of the last eleven weeks...our imports  of crude oil fell by an average of 149,000 barrels per day to an average of 7,876,000 barrels per day during the week, while at the same time our exports of crude oil fell by 205,000 barrels per day to an average of 517,000 barrels per day, which meant that our effective imports netted out to 7,359,000 barrels per day during the week, 59,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 20,000 barrels per day to an average of 9,350,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,709,000 barrels per day during the cited week... 

during the same period, refineries reportedly used 17,152,000 barrels of crude per day, 104,000 barrels per day less than they used during the prior week, while at the same time 462,000 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, from oilfield production, and from storage was 19,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA inserted a (-19,000) 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 8,057,000 barrels per day, now just 2.0% above the imports of the same four-week period last year...the 462,000 barrel per day decrease in our total crude inventories came about on a 350,000 barrel per day withdrawal from our commercial stocks of crude oil and a 112,000 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 20,000 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 5,000 barrels per day decrease in oil output from Alaska...the 9,350,000 barrels of crude per day that we produced during the week ending June 9th was 6.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 7.8% from the 8,677,000 barrel per day output during the during the same week a year ago, while it was still 2.7% below the June 5th 2015 record oil production of 9,610,000 barrels per day... 

US oil refineries were operating at 94.0% of their capacity in using those 17,152,000 barrels of crude per day, which was down from 94.4% of capacity the prior week, but still the 4th highest refinery capacity utilization rate this year...the amount of oil refined this week was also still above the seasonal norm, 3.9% more than the 16,505,000 barrels of crude per day.that were being processed during week ending June 17th, 2016, when refineries were operating at 91.3% of capacity, and roughly 11% above the 10 year average of 15.45 million barrels of crude per day for the 2nd week of June....

even with the modest slowdown in refining, gasoline production from our refineries increased by 320,000 barrels per day to 10,163,000 barrels per day during the week ending June 16th...however, that gasoline output was still 1.2% lower than the 10,289,000 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) also increased, rising by 97,000 barrels per day to a near seasonal high of 5,251,000 barrels per day, which was also 6.0% more than the 4,956,000 barrels per day of distillates that were being produced during the week ending June 17th last  year.....  

even with the jump in gasoline production, our end of the week gasoline inventories decreased by 578,000 barrels to 241,866,000 barrels by June 16th, after increasing by 5,420,000 barrels over the prior two weeks...this week's gasoline supplies were reduced because our domestic consumption of gasoline jumped by 547,000 barrels per day to 9,816,000 barrels per day, after falling by 553,000 barrels per day the prior two weeks... meanwhile, our gasoline exports rose by 132,000 barrels per day to 657,000 barrels per day, while our imports of gasoline rose by 339,000 barrels per day to 909,000 barrels per day at the same time...with the week’s modest decrease in our gasoline supplies, our gasoline inventories are still at a seasonal high for this week of the year, 1.8% above the prior seasonal record 237,631,000 barrels that we had stored on June 17th a year ago, 10.7% higher than the 218,494,000 barrels of gasoline we had stored on June 19th of 2015, and 12.5% more than the 214,977,000 barrels of gasoline we had stored on June 20th of 2014…  

with the increase in distillates production, our supplies of distillate fuels rose by 1,079,000 barrels to 152,495,000 barrels during the week ending June 16th, after increasing by 4,683,000 barrels the prior two weeks....factors in the difference of this week's increase in supplies were the amount of distillates supplied to US markets, which rose by 113,000 barrels per day to 4,158,000 barrels per day, and our exports of distillates, which fell by 97,000 barrels per day to 1,026,000 barrels per day, while our imports of distillates rose by 26,000 barrels per day to 87,000 barrels per day....even though our distillate supplies are still virtually unchanged from the 152,314,000 barrels that we had stored on June 17th, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're 11.8% higher than the distillate inventories of 135,428,000 barrels that we had stored on June 19th of 2015, following a more normal winter… 

finally, with the continuation of well above seasonal refining, our commercial supplies of crude oil fell for the tenth time in the past 11 weeks, as our oil inventories fell by 2,451,000 barrels to 509,095,000 barrels as of June 16th, as unaccounted for crude oil was not a major factor...however, we still finished the week with 6.3% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 1.8% more crude oil in storage than the 499,994,000 barrels of oil in storage on June 17th of 2016....compared to the same week in prior years, when the oil glut was not so extreme, we ended the week with 18.2% more crude than the 430,837,000 barrels in of oil in storage on June 19th of 2015, and 42.9% more crude than the 356,384,000 barrels of oil we had in storage on June 20th of 2014...    

This Week's Rig Counts

US drilling activity increased for the 23rd week in a row, for the 33rd time in the past 34 weeks, and for the 50th time in the past 52 weeks during the week ending June 23rd, with oil drilling increasing while drilling for natural gas slowed....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 8 rigs to 941 rigs in the week ending Friday, which was 520 more rigs than the 421 rigs that were deployed as of the June 24th 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 11 rigs to 758 rigs this week, which was up by 428 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 decreased by 3 rigs to 183 rigs this week, which was still 93 more rigs than the 90 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....

there was no change in the Gulf of Mexico rig count this week, where drilling continues from 21 platforms, up from 20 a year ago...we also 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 was also one rig drilling offshore from Alaska...in addition, drilling also started from a platform on an inland lake in southern Louisiana this week, where there are now 4 rigs working, up from the 3 rigs working on inland waters last year at this time...

the count of rigs that were set up to drill horizontally increased by 10 rigs to 792 horizontal rigs this week, which was up by 467 from the 325 horizontal rigs that were in use in the US on June 24th 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, 3 more directional rigs were also started up this week, increasing the active directional rig count to 72 rigs, which was up from the 43 directional rigs that were deployed during the same week a year ago...however, the vertical rig count was down by 5 rigs to 77 vertical rigs this week, which was still 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 23rd, the second column shows the change in the number of working rigs between last week's count (June 16th) and this week's (June 23rd) count, the third column shows last week's June 16th 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 24th of June, 2016...        :

June 23 2017 rig count summary

as you can see, the largest increases this week were in Oklahoma, where 5 rigs were added, including those in the Cana Woodford, the Ardmore Woodford, and the Granite Wash basin near the Texas panhandle, and North Dakota, where the 3 rigs that were added were in the Williston shale....strangely, Texas was almost a no-show this week, unusually quiet in most oil districts, with just one rig added in the Permian and a net no change in the state...just about everything else that changed is obvious from those tables, except for the 3 rig decrease in natural gas rigs...2 of those came out of the Arkoma Woodford in Oklahoma, where there was simultaneously an increase of 2 rigs drilling for oil, resulting in the zero net change we see above, and the other was in another region, not otherwise included in Baker Hughes summary totals...



 note: there's more here...

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