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, September 17, 2017

US oil prices still 13% lower than overseas; OPEC report shows glut vanishing; US gasoline supplies see a record drop..

the $50 a barrel level, as Texas Gulf Coast refineries returned to operation and began to soak up some of the oil glut that had built up during their shutdown...however, front month Brent oil prices, the international benchmark, did rise every day this week and ended at $56.62 a barrel, 13.5% higher than the US price for the same kind of oil...John Kemp at Reuters included a graph of that differential between the two oils for two contract months in one of his articles this week, which we'll include below:

Sept 12 2017 Brent premium over WTI

the above graph accompanied John Kemp's article titled 'Mind the gap: Brent and WTI point in opposite directions', published on Tuesday of this week, and it tracks the difference between the price for North Sea Brent, the global oil benchmark, and West Texas Intermediate (WTI), the US benchmark, which is what we quote every time we speak of US oil prices...the mustard colored graph above shows the excess price of Brent over WTI in dollars per barrel for a contract to deliver each type of oil in November, while the white graph shows the excess price of Brent over WTI in dollars per barrel for a contract to deliver each type of oil in April of 2018...

there had long been a discount on US oil before the export ban on it was lifted as part of a budget deal signed by Obama at the end of 2015, which subsequently brought US oil up to parity with the global price...however, that parity did not last long, and for most of 2016, US WTI oil traded around a dollar below the international price...however, as the chart above indicates, the price differential started rising early in 2017, and had reached an average of around $2.50 a barrel before Harvey shut down Gulf Coast refineries, creating a glut of oil on the Gulf Coast, and shut down the ports, so that oil could not be exported...at that time, November US crude fell in price, while Brent did not, resulting in a premium for Brent of as much as $6, which continued through this week...a smaller gap opened up between the prices for Brent and WTI for April 2018 delivery in white, not particularly logical, as it's not likely that any impact from Harvey would persist that far into the future...of course, if oil overseas continues fetching $6 a barrel more than what oil in the US sells for, then US oil will be exported into those higher priced markets until such time as that price gap closes...

OPEC's September oil report

we're going start by reviewing OPEC's September Oil Market Report (covering August OPEC & global oil data), which was released on Tuesday of this past week....the first table from this report that we'll include here is from page 67 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 an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, 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...  

August 2017 OPEC cude output via secondary sources

from the above table of official oil production data, we can see that OPEC oil output decreased by 79,100 barrels per day in August, to 32,755,000 barrels per day, from a July oil production total of 32,834,000 barrels per day, a figure that was originally reported as 32,869,000 barrels per day (for your reference, here is the table of the official July OPEC output figures before this month's revisions)...as we can see in the far right column, the reason that OPEC's output fell 79,100 barrels per day was largely due to a 112,300 barrel per day decrease in output from Libya, as the 138,300 barrel per day increase from Nigeria was offset by modest decreases in production by Gabon, Iraq, the United Arab Emirates and Venezuela.....these totals bring most OPEC members other than Iraq close to their agreed to production quota, as can be seen in the table below:

Sept 2017 OPEC production and targets as of August 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 eight months of this year, and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as was agreed to at their November meeting, and the 3rd column shows how much each has averaged over or under their quotas for the eight months of this year that OPEC has curtailed production...as you can see from the above, most OPEC members are pretty close to meeting their commitment to cutting their production back 4%, except for Iraq, who has consistently overproduced by roughly 2%...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from September 2015 to August 2017, and it comes from page 68 of the September 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...

August 2017 OPEC report global supply

the preliminary OPEC data indicates that total global oil production fell to 96.75 million barrels per day in August, down by .41 million barrels per day from a July total of 97.16 million barrels per day, which was revised .14 million barrels per day lower than the 97.30 million barrels per day global oil output for July that was reported a month ago...global oil output for August was also 1.10 million barrels per day higher than the 95.65 million barrels of oil per day that was being produced globally in August a year ago (see last September's OPEC report for the year ago data)...OPEC's August production of 32,755,000 barrels per day thus represented 33.9% of what was produced globally, a small increase from the revised 33.8% OPEC share in June...OPEC's August 2016 production, excluding ex-member Indonesia, was at 32,512,000 barrels per day, so even after the alleged production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are still producing more oil than they were producing a year ago, when they were supposedly producing flat out...

after eight months of relatively lower production we can see on the above graph, there was finally a small deficit in the amount of oil being produced globally, as the next table from the OPEC report will show us..    

August 2017 OPEC report global oil demand

the table above comes from page 37 of the September OPEC Monthly Oil Market Report, and it shows regional and total 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 fourth column, we've circled in blue the figure we're interested in, which is their estimate for global oil demand for the third quarter of 2017...

OPEC's estimate is that during the 3rd quarter of this year, all oil consuming areas of the globe will use be using 97.57 million barrels of oil per day, which is an upward revision from their prior estimate of 97.28 million barrels of oil per day...note that they have also revised global oil demand for the second quarter 400,000 barrels per day higher, to 96.05 barrels per day, and revised demand for the first quarter 150,000 barrels per day higher, to 95.54 barrels per day, at the same time...meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world's oil producers were only producing 96.75 million barrels per day during August, which means that during this summer month of greatest demand, there was a shortfall of around 820,000 barrels per day of global oil production in August...also note that global production for July was concurrently revised lower, to 97.16 million barrels per day, so that means there was also a deficit of 410,000 barrels per day in July output, which we had previously figured to be a global oil surplus of around 20,000 barrels per day...in addition, the 400,000 barrels per day upward revision to second quarter demand reduces the June surplus to 1,080,000 barrels per day, and turns what we had previously figured to be a 270,000 barrels per day surplus in May into a 130,000 barrel per day deficit....April's revised figures now show a 440,000 barrel per day deficit, and prior to that the global oil surplus during March would be revised to 630,000 barrels per day, and average surpluses over January and February would be reduced to around 850,000 barrels per day....taken together, this data means that after eight months of OPEC production cuts, roughly 48 million barrels of oil have been added to the global oil glut since the 1st of the year, quite a bit less than the 135 million barrel addition last month's report indicated..  

last, we'll include a graph of the total OPEC oil output for the 13 long term OPEC members included in this report, so we can see how this month's production stacks up compared to historical figures...

August 2017 OPEC oil production historical graph

the above graph, taken from the "OPEC August Crude Oil Production" post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to August 2017, using the same official data from multiple secondary sources as we saw in the first table above...here we can obviously see that OPEC's production for June, July and August is up quite a bit from their previous production this year and is even approaching the record of 33,374,000 million barrels per day the cartel produced in November, a level achieved because they all over produced so that their cuts would be off a higher base...so even as they've cut their oil production from that level, their output for each of the eight months of this year was actually higher than in each of the same months months a year ago, leaving OPEC well on track to exceed their 2016 production this year, even as they attempt to orchestrate the oil markets with reports of their "reduced" production...

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 September 8th, continued to show the effect of Hurricane Harvey on oil supplies and consumption as it transversed Texas and the adjacent Gulf of Mexico the prior week; it indicates a further drop in oil imports, as ship channels in the affected ports remained silted, but a rebound in oil exports, as the primary US oil export facilities at Corpus Christi were reopened, a recovery in oil production, as output from the Eagle Ford shale and the Gulf came back online, and a small drop in per diem oil refining, as the major refinery shutdowns impacted both this week and the last half of the prior one...

our imports of crude oil fell by an average of 603,000 barrels per day to an average of 6,480,000 barrels per day during the week, while at the same time our exports of crude oil rose by 621,000 barrels per day to an average of 774,000 barrels per day, which meant that our effective imports netted out to an average of 5,706,000 barrels per day during the week, 1,224,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 572,000 barrels per day to an average of 9,353,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,059,000 barrels per day during the cited week...

during the same period, US oil refineries were using 14,078,000 barrels of crude per day, 394,000 barrels per day less than they used during the prior week, while at the same time 614,000 barrels of oil per day were being added to oil storage facilities in the US...hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 367,000 more barrels per day than what refineries reported they used during the week plus what was added to storage...to account for that discrepancy, the EIA needed to insert a (-367,000) 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"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 7,565,000 barrels per day, which was 7.6% below the imports of the same four-week period last year....this week's 572,000 barrel per day increase in our crude oil production was the result of a 582,000 barrels per day rebound in oil output from wells in the lower 48 states and a 10,000 barrel per day decrease in oil output from Alaska...the 9,353,000 barrels of crude per day that were produced by US wells during the week ending September 8th was still 1.9% less than the 9,530,000 barrels of crude per day being produced during the pre-hurricane week ending August 25th, but 6.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 10.1% more than the 8,493,000 barrels per day of oil we produced during the during the week ending September 9th a year ago, while it was 2.7% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015... 

US oil refineries were operating at 77.7% of their capacity in using those 14,078,000 barrels of crude per day, down from the of 79.7% of capacity the prior week, and the lowest capacity utilization rate since the end of September 2008....the 14,078,000 barrels of oil refined this week was the least oil refined in the US since March 8th, 2013, 20.6% less that was being refined two weeks earlier, and 15.9% less than the 16,730,000 barrels of crude per day.that were being processed during week ending September 9th, 2016, when refineries were operating at 92.9% of capacity, and roughly 10% below the 10 year average of 15.7 million barrels of crude being refined per day at this time of year...

even with the drop in US oil refining, gasoline production from our refineries rose by 371,000 barrels per day to 9,888,000 barrels per day during the week ending September 8th...that brought this week's gasoline output almost up to the level of the 9,900,000 barrels of gasoline that were being produced daily during the comparable week a year ago....however, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 519,000 barrels per day to 3,973,000 barrels per day at the same time, which was 19.5% less than the 4,933,000 barrels per day of distillates that were being produced during the week ending September 9th last year.... 

even with this week's increase in gasoline production, our end of the week gasoline inventories fell by 8,428,000 barrels to 226,738,000 barrels by September 8th, the 10th decrease in gasoline inventories in 13 weeks and the largest drop on record...that was as our domestic consumption of gasoline rose by 456,000 barrels per day to 9,619,000 barrels per day, and as our exports of gasoline rose by 209,000 barrels per day to 528,000 barrels per day, while our imports of gasoline rose by 81,000 barrels per day to 556,000 barrels per day....with significant gasoline supply withdrawals in 10 out of the last 13 weeks, our gasoline inventories are now 4.4% below last September 9th's level of 228,360,000 barrels, even as they are still fractionally higher than the 217,387,000 barrels of gasoline we had stored on September 11th of 2015, and roughly 3.4% above the 10 year average of gasoline supplies for this time of the year... 

meanwhile, with the big decrease in our distillates production, our supplies of distillate fuels fell by 3,215,000 barrels to 144,552,000 barrels over the week ending September 8th, as the amount of distillates supplied to US markets, a proxy for our domestic consumption, slipped 6,000 barrels per day to 4,057,000 barrels per day, while our exports of distillates fell by 227,000 barrels per day to 511,000 barrels per day and our imports of distillates rose by 26,000 barrels per day to 136,000 barrels per day...after this week’s decrease, our distillate inventories were 11.2% lower than the 162,754,000 barrels that we had stored on September 9th, 2016, and 6.1% lower than the distillate inventories of 153,963,000 barrels of distillates that we had stored on September 11th of 2015, even as they remain fractionally higher than the 10 year average for distillates stocks for this time of the year

finally, with another big drop in use of crude by our refineries, our commercial crude oil inventories rose for the 2nd week in a row, increasing by 5,888,000 barrels to 468,241,000 barrels as of September 8th, just the 4th increase in the past 24 weeks...while our oil inventories as of September 8th were 2.5% below the 480,166,000 barrels of oil we had stored on September 9th of 2016, they were 10.4% higher than the 423,958,000 barrels in of oil that were in storage on September 11th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 41.4% higher than the 331,101,000 barrels of oil we had in storage on September 12th of 2014...  

This Week's Rig Count

US drilling activity decreased for the 8th time in the past 12 weeks during the week ending September 15th, after a string of 23 consecutive weekly increases earlier this year, with both oil and gas drilling seeing pullbacks....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 8 rigs to 936 rigs in the week ending Friday, which was 430 more rigs than the 506 rigs that were deployed as of the September 16th report in 2016, while 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 was down by 7 rigs to 749 rigs this week, their 6th week without an increase, which still left oil rigs up by 333 over the past year, while their count remained 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 1 rig to 186 rigs this week, which was still 97 more rigs than the 89 natural gas rigs that were drilling a year ago, but still way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig that was classified as miscellaneous was still drilling this week, just as there was also a miscellaneous rig that was deployed a year ago...

with new drilling starting on a platform off the Louisiana coast, the Gulf of Mexico rig count increased by 1 rig to 17 rigs this week, which was also the total US offshore count...in both cases, that was down from 20 rigs offshore in the Gulf and for total US a year ago...however, a platform that had seen drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of 4 rigs, the same as a year ago...

the count of active horizontal drilling rigs rose by 2 rigs to 795 rigs this week, which was up by 401 rigs from the 394 horizontal rigs that were in use in the US on September 16th of last year, but was also down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the vertical rig count was down by 8 rigs to 67 vertical rigs this week, which was still up from the 64 vertical rigs that were deployed during the same week last year...at the same time, the directional rig count was down by 2 rigs to 74 rigs this week, which was still up from the 48 directional rigs that were deployed on September 16th of 2016....

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 September 15th, the second column shows the change in the number of working rigs between last week's count (September 8th) and this week's (September 15th) count, the third column shows last week's September 8th 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 for the 16th of September, 2016...     

September 15 2017 rig count summary

this week's details are pretty simple; there were no other changes in states or basins that aren't shown on the table above...

 

note: there's more here....

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