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, July 16, 2017

OPEC output jumps in June, reversing their production cuts by a third; US distillates output at a record high

oil prices increased every day this week, rising $2.31 a barrel, or more than 5%, and as a result recovered almost all of what they lost in the short week following the Independence Day holiday...after falling $2.84 a barrel to $44.23 a barrel in post holiday trading of last week, oil prices moved up 17 cents to $44.40 a barrel on Monday on indications that OPEC might widen its production caps to include Nigeria and Libya, the two countries largely responsible for the erosion of the cartel's net compliance in recent months...oil tumbled back to $43.83 a barrel on Tuesday morning after it was revealed that the Saudis pumped 10.07 million barrels a day in June, a breach of their production limit, but then reversed those losses to rise 3% to $45.04 a barrel by the close, after the American Petroleum Institute reported U.S. crude stockpiles declined by 8.1 million barrels for the week ended July 7, the largest draw on supplies since September 2016....prices then rose another 45 cents, or 1%, to $45.49 a barrel on Wednesday, after the EIA confirmed the magnitude of the drop in U.S. crude stockpiles that had been reported by the API...oil prices were up for a 4th trading session on Thursday, rising 59 cents or 1.4% to $46.08 a barrel, despite higher OPEC production, on evidence from the US and China that global oil demand was increasing to meet that supply...oil prices then notched their fifth gain in a row on Friday, tacking on another 46 cents a barrel, as the U.S. dollar weakened on flat consumer prices, reports indicated that output from Saudi' Manifa oilfield had interupted, and the US rig count was relatively flat for the 2nd time in 3 weeks, with oil closing the week at $46.54 a barrel, up 1 percent on the day and 5.22 percent higher for the week...

OPEC's June oil report

with OPEC's increasing production prominent in this week's news, we'll start by taking a look at OPEC's July Oil Market Report (covering June OPEC & global data), which was released on Wednesday of this week....the first table from the July report that we'll include here is from page 63 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 indicate...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...  

June 2017 OPEC cude output via secondary sources

from this table of official oil production data, we can see that OPEC oil output increased by 393,500 barrels per day in June, to 32,611,000 barrels per day, from a May oil production total of 32,217,000 barrels per day, a figure that was originally reported as 32,139,000 barrels per day before the addition of Equatorial Guinea to the Cartel this month...(for your reference, here is the table of the official May OPEC output figures before these revisions)...as we can see in the far right column, not only did OPEC see an increase of 127,000 barrels per day from Libya and 96,700 barrels per day from Nigeria, the two OPEC countries that are exempt from the production cuts because their production had already been driven down by domestic strife, but oil output from Angola, Iraq, and Saudi Arabia all also increased by more than 50,000 barrels per day in June...while Saudi Arabia and Angola still both managed to 'officially' stay under their quotas, the 60,600 barrel per day increase to 4,502,000 barrels per day by Iraq put them more than 150,000 barrels per day over their quota of 4,351,000 barrels per day, 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...i had been hoping that Platts would update this table to include the June production numbers, but as of Saturday evening they have not...

not only did the official OPEC oil production data from secondary sources indicate an increase of nearly 400,000 barrels per day in production for June, but the OPEC members themselves reported even higher production than the official production data indicates, as is shown in the next table...

June 2017 OPEC cude output as reported to OPEC

the above table, also from page 63 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 reports, we noticed that several of the largest OPEC members reported higher production than was attributed to them by the official secondary sources...note especially that Saudi Arabia, whose reported figures should be more accurate than secondary sources, reported that they produced 10,070,000 barrels per day in June, 120,000 barrels per day than the official data, and thus over their quota for the month...Iran reported they produced 3,880,000 barrels per day, a figure which would also put them over their quota, vs their official tally of 3,790,000...also notice that Iraq, who has been the biggest laggard on the production cuts, reported they produced 4,550,000 barrels per day in April, vs their official figure of 4,502,000 barrels per day...likewise, Venezuela reported that they produced 2,156,000 barrels per day in April, whereas the official data indicates they produced 1,936,000 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 June...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from July 2015 to June 2017, and it comes from page 64 of the July 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...

June 2017 OPEC report global supply

the preliminary data graphed above indicates that global oil production rose to 96.59 million barrels per day in June, up by 0.66 million barrels per day from a May total of 95.93 million barrels per day, which was revised .21 million barrels per day higher than the 95.74 million barrels per day global oil output that was reported a month ago...that June figure was also 2.26 million barrels per day higher than the 94.33 million barrels per day that was being produced globally in June a year ago (see last July's OPEC report for year ago data)...OPEC's June production of 32,611,000 barrels per day thus represented 33.8% of what was produced globally,  an increase from the 33.6% OPEC share in May...OPEC's June 2016 production, excluding Indonesia, was at 32,118,000 barrels per day, so even after the production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are still producing 1.0% more oil than they were producing a year ago, when they were supposedly producing flat out...

furthermore, even with the six 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..    

June 2017 global oil demand estimate via OPEC

the table above comes from page 37 of the July 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 second quarter of 2017...

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming areas of the globe have used 95.33 million barrels of oil per day, down from the 95.44 millions of barrels of oil per day the world 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 of the globe need either heating or cooling at that time of year...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 96.59 million barrels per day during June...that means that even after 6 months of OPEC and NOPEC production cuts have taken place, there continued to be a surplus of around 1,260,000 barrels per day of global oil production in June...note that global production for May was revised higher, to 95.93 million barrels per day, so that means the global oil surplus during May was therefore around 600,000 barrels per day, also based on the revised second quarter global demand figure of 95.33 million barrels per day shown above...on the same basis, April's global oil surplus was the lowest of the 6 months of the period, at around 280,000 barrels per day...global oil production thus averaged 96.04 million barrels of oil per day over the 3 months of the 2nd quarter, an average surplus of 710,000 million barrels of oil per day over the entire period...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 six months of OPEC production cuts, almost a hundred fifty 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 from the US Energy Information Administration, covering details for the week ending July 7th, showed another increase in US oil exports, another decrease in our oil imports, and another increase the amount of oil used by US refineries, which together resulted in the largest withdrawal from our commercial stocks of crude this year...our imports of crude oil fell by an average of 132,000 barrels per day to an average of 7,610,000 barrels per day during the week, while at the same time our exports of crude oil rose by 150,000 barrels per day to an average of 918,000 barrels per day, which meant that our effective imports netted out to 6,692,000 barrels per day during the week, 282,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 59,000 barrels per day to an average of 9,397,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,089,000 barrels per day during the cited week...

during the same week, refineries reportedly used 17,244,000 barrels of crude per day, 103,000 barrels per day more than they used during the prior week, while at the same time a net of 1,531,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 376,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-376,000) 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 (pdf) show that the 4 week average of our oil imports fell to an average of 7,811,000 barrels per day, which was 3.0% below the imports of the same four-week period last year...the 1,531,000 barrel per day decrease in our total crude inventories came about on a 1,081,000 barrel per day withdrawal from our commercial stocks of crude oil and a 450,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was negotiated in a Federal budget deal 21 months ago....this week's 59,000 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 and a 34,000 barrels per day increase in oil output from Alaska...the 9,338,000 barrels of crude per day that we produced during the week ending June 30th was 7.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 10.7% from our 8,485,000 barrel per day of oil output during the during the same week a year ago, while it was still 2.2% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 94.5% of their capacity in using those 17,244,000 barrels of crude per day, which was up from 93.6% of capacity the prior week, and well above normal for this time of year...the amount of oil refined this week was also well above the seasonal norm, as it was 4.2% more than the 16,544,000 barrels of crude per day.that were being processed during week ending July 8th, 2016, when refineries were operating at 92.3% of capacity, and roughly 10% above the 10 year average of 15.67 million barrels of crude per day for the first week of July....

with the increase in refining, gasoline production from our refineries increased by 104,000 barrels per day to 10,469,000 barrels per day during the week ending June 30th, the greatest weekly gasoline output this year and the second highest weekly gasoline output in history...that gasoline output was also 2.5% higher than the 10,218,000 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) rose by 239,000 barrels per day to 5,349,000 barrels per day, an all time high for distillates production and 6.3% more than the 5,034,000 barrels per day of distillates that were being produced during the week ending July 8th last year.....  

even with near record gasoline production, our end of the week gasoline inventories decreased by 1,647,000 barrels to 235,656,000 barrels by July 7th, the 4th drop in gasoline inventories in a row...this week's gasoline supplies were reduced because our domestic consumption of gasoline increased by 81,000 barrels per day to 9,786,000 barrels per day, the 2nd highest this year, and because our imports of gasoline fell by 211,000 barrels per day to 528,000 barrels per day... meanwhile, our gasoline exports fell by 166,000 barrels per day to 547,000 barrels per day at the same time, partially offsetting the drop in imports....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 1.8% below last year's seasonal high of 240,089,000 barrels for this week of the year, but are still 8.1% higher than the 218,010,000 barrels of gasoline we had stored on July 10th of 2015, and 9.9% more than the 214,492,000 barrels of gasoline we had stored on July 11th of 2014…

with our distillates production at a record high, our supplies of distillate fuels rose by 3,131,000 barrels to 153,553,000 barrels during the week ending July 7th, the fourth increase in six weeks....the major factor in this week's increase in distillates supplies was a 464,000 barrels per day drop to 3,858,000 barrels per day in the amount of distillates supplied to US markets, a proxy for our consumption...meanwhile our exports of distillates rose by 19,000 barrels per day to 1,169,000 barrels per day, while our imports of distillates rose by 17,000 barrels per day to 125,000 barrels per day....with this week's increase, our distillate inventories are now 0.4% higher than the 152,997,000 barrels that we had stored on July 8th, 2016, and 8.7% higher than the distillate inventories of 141,280,000 barrels that we had stored on July 10th of 2015...

finally, with a drop in oil imports, an increase in oil exports, and the pickup of US refining, our commercial supplies of crude oil decreased for the 12th time in the past 14 weeks, as our commercial oil inventories fell by 7,564,000 barrels to 495,350,000 barrels as of July 7th, the largest drop in our oil supplies since Labor Day week of last year... however, we still finished the week with 3.4% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 0.9% more crude oil in storage than the 491,172,000 barrels of oil in storage on July 8th of 2016....compared to prior years, when the oil glut was still building, this week still saw 15.4% more crude than the 429,368,000 barrels in of oil that were in storage on July 10th of 2015, and 44.3% more crude than the 343,297,000 barrels of oil we had in storage on July 11th of 2014...     

This Week's Rig Count

drilling activity failed to increase for the 2nd time in 3 weeks this week, after a 23 week run of increases...Baker Hughes reported that the total count of active rotary rigs running in the US was unchanged at 952 rigs in the week ending Friday, which was still 505 more rigs than the 447 rigs that were deployed as of the July 15th report in 2016, 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 2 rigs to 765 rigs this week, which was up by 408 oil rigs over the past year, and the most oil rigs that were in use since April 2nd 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 2 rigs to 187 rigs this week, which was still 98 more rigs than the 89 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 total offshore or Gulf of Mexico rig counts this week, where drilling continues from 21 platforms in the Gulf, same as the 21 rigs working in the Gulf a year ago, but down from the total 22 offshore a year ago, when there was also a rig deployed offshore in the Cook Inlet of Alaska...one rig that had been operating on an inland lake in southern Louisiana was shut down this week, however, leaving three such inland waters rigs still running, same as a year ago..

active horizontal drilling rigs were unchanged at 804 rigs this week, still up by 460 from the 344 horizontal rigs that were in use in the US on July 15th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....meanwhile, the vertical rig count was up by 2 rigs to 76 vertical rigs this week, which was also up from the 60 vertical rigs that were deployed during the same week last year....on the other hand, the directional rig count was down by 2 rigs to 72 directional rigs this week, which was still up from the 43 directional rigs that were deployed during the same week last year...

as usual, 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 July 14th, the second column shows the change in the number of working rigs between last week's count (July 7th) and this week's (July 14th) count, the third column shows last week's July 7th 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 15th of July, 2016...

July 14 2017 rig count summary

clearly, the net change of zero in drilling rigs masked as much activity as we've seen in prior weeks, with the only difference being that more rigs were simultaneously shut down this week..you'll note that the Permian is back to having the largest increase, after 5 weeks with few changes in that basin, while the Eagle Ford of south Texas and the Cana Woodford of Oklahoma both saw their counts decrease by 4...the natural gas rig decreases were all in "other" unnamed basins, as activity in the 3 states overlying the Utica and the Marcellus was unchanged, although the Eagle Ford did add a natural gas rig, where they now have 9 gas rigs running, while shutting down 5 of their oil rigs at the same time...note that of the states not listed above, Nebraska also saw the only rig working in the state shut down this week, apparently the same rig that just started operating last week; otherwise, Nebraska has only seen spotty drilling activity over the past year...

 

note: there's more here...

No comments: