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 24, 2017

US oil prices still at a discount to those overseas; heat oil supplies shrinking heading into winter

US oil prices closed above $50 a barrel for the first time since May this week, but the real story continues to be that the international price for the same grade of oil remains more than 12% higher...while US WTI for November delivery closed on Friday at $50.66 a barrel, an increase of 22 cents on the week, the international benchmark of North Sea Brent for November, an equivalent grade of light sweet crude, was closing in London at $56.86 a barrel, an increase of $1.24 a barrel...as we pointed out last week, that price spread between the US benchmark and the international price also carries well into 2018 oil contracts; for instance, a contract to deliver US crude to Cushing Oklahoma in April of 2018 will get you $51.60 a barrel, whereas the equivalent Brent contract price for April of 2018 will get you $55.70 a barrel...since the cost of shipping oil overseas runs between a dollar and 2 dollars a barrel, depending on the distance shipped, that price difference of more than $4 a barrel creates a strong incentive for those who own US oil in storage to contract to export it at a better price than they can get by contracting to sell it domestically, to US refineries for example...

early this week it appeared that we might have a natural gas price rally on our hands too, but that blew out when a much above normal addition of gas to storage sent prices tumbling...the contract price for natural gas for October delivery had generally stayed in a narrow range between $2.90 per mmBTU (million British Thermal Units) and $3 per mmBTU through most of August, a price generally unprofitable for most Marcellus and Utica exploitation...last week, however, natural gas staged a 4 day mini-rally that added 18 cents per mmBTU to the price, which lasted until a bearish natural gas storage report knocked 4.6 cents off the Friday price and it closed the week at $3.024 per mmBTU...however, by Monday of this week, the weather forecasts had changed, with warmer-than-normal temperatures expected to persist through the end of September across the eastern half of the US, and hence the October natural gas futures contract jumped 12.2 cents to settle at $3.146/MMBtu in anticipation of a late-season demand for cooling...prices then drifted lower, giving up 2.4 cents on Tuesday and another 2.8 cents on Wednesday, while traders waited for the weekly natural gas report....prices then plunged almost 5% on Thursday when that Weekly Natural Gas Storage Report from the EIA showed that utilities added 97 billion cubic feet of gas to storage during the week ended Sept. 15th, compared to a 54 billion cubic feet increase during the same week a year ago and the five-year average increase of 73 billion cubic feet for the same period, as October natural gas futures settled down 14.8 cents, or 4.8 percent, at $2.946 per million BTUs...while prices inched up 1.3 cents on Friday, they still closed the week down 6.5 cents at $2.959 per mmBTU, just about the midpoint of their two month price range...

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 15th, showed that oil production and imports were close to returning to normal after Hurricane Harvey's disruptions, but refineries still lagged their pre-Harvey pace, and as a result our crude oil supplies rose for the third week in a row...our imports of crude oil rose by an average of 888,000 barrels per day to an average of 7,368,000 barrels per day during the week, while at the same time our exports of crude oil rose by 154,000 barrels per day to an average of 928,000 barrels per day, which meant that our effective imports netted out to an average of 6,440,000 barrels per day during the week, 734,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 157,000 barrels per day to an average of 9,510,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,950,000 barrels per day during the reported  week...

during the same period, US oil refineries were using 15,172,000 barrels of crude per day, 1,094,000 barrels per day more than they used during the prior week, and at the same time 426,000 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 352,000 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 (-352,000) 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 7,209,000 barrels per day, which was 10.9% below the imports of the same four-week period last year....the 462,000 barrel per day increase in our total crude inventories came about on a 656,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 230,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is presently being tapped to address temporary spot shortages caused by Harvey...this week's 157,000 barrel per day increase in our crude oil production was the result of a 179,000 barrels per day rebound in oil output from wells in the lower 48 states and a 22,000 barrel per day decrease in oil output from Alaska...the 9,510,000 barrels of crude per day that were produced by US wells during the week ending September 15th was still slightly less than the 9,530,000 barrels of crude per day being produced during the pre-hurricane week ending August 25th, but it was 8.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.7% more than the 8,512,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was 1.0% 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 83.2% of their capacity in using those 15,172,000 barrels of crude per day, up from the of 77.7% of capacity the prior week, but down from the 96.6% capacity utilization rate in the week before Harvey struck....the 15,172,000 barrels of oil refined this week was up 7.8% from the 14,078,000 barrels of crude per day that was being processed the prior week, but still 14.4% less than the 17,725,000 barrels per day that was being refined three weeks earlier, and 8.5% less than the 16,587,000 barrels of crude per day that were being processed during week ending September 16th, 2016, when refineries were operating at 92.0% of capacity...

even with the increase in US oil refining, gasoline production from our refineries slipped by 95,000 barrels per day to 9,793,000 barrels per day during the week ending September 15th...that left this week's gasoline output 2.7% lower than the 10,083,000 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) jumped by 570,000 barrels per day to 4,543,000 barrels per day at the same time, which was still 8.7% less than the 4,978,000 barrels per day of distillates that were being produced during the week ending September 16th last year....  

with the ongoing reduced level of gasoline production, our end of the week gasoline inventories fell by 2,125,000 barrels to 216,185,000 barrels by September 15h, the 11th decrease in gasoline inventories in 14 weeks...that was despite the fact that our domestic consumption of gasoline fell by 178,000 barrels per day to 9,441,000 barrels per day, while our imports of gasoline rose by 131,000 barrels per day to 687,000 barrels per day and while our exports of gasoline rose by 16,000 barrels per day to 544,000 barrels per day....with significant gasoline supply withdrawals in 11 out of the last 14 weeks, our gasoline inventories are now down by 10.8% from June 9th's level of 242,444,000 barrels, and 4.0% below last September 16th's level of 225,156,000 barrels, even as they are still roughly 1.8% above the 10 year average of gasoline supplies for this time of the year...  

even with the big increase in our distillates production, their output still remained well below normal, and hence our supplies of distillate fuels fell by 5,693,000 barrels to 138,859,000 barrels over the week ending September 15th, the largest one week drop since November 2011...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 207,000 barrels per day to 4,264,000 barrels per day, and as our exports of distillates rose by 666,000 barrels per day to 1,177,000 barrels per day, while our imports of distillates fell by 51,000 barrels per day to 85,000 barrels per day...after this week’s big decrease, our distillate inventories ended the week 15.8% lower than the 164,992,000 barrels that we had stored on September 16th, 2016, and 3.5% lower than the 10 year average for distillates stocks for this time of the year…since our distillates supplies have now dropped to below normal for the first time since we've tracked them, we'll take a look at a picture of what that looks like compared to their recent history:

September 20 2017 distillate supplies as of Sept 15

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...this graph shows US distillate fuels inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the median of our distillates inventory, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of barrels of distillates we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date distillates supplies for each week traced in red...from this graph we can initially see there is an obvious seasonality to distillates supplies, as they're built up during the summer then consumed during the winter months, when demand for heat oil is greatest...however, this summer, when supplies of distillates should be increasing like they have every other year, they're collapsing instead, even before the post-Harvey refinery shut downs... and as you can also see from the above, they're at their lowest level in over two years, at a time of year when they should be peaking...unless refineries can turn this around, we could be heading into a heating season of what looks to be a colder than normal winter with very tight heat oil supplies...

finally, with the increases in oil imports and well output, our commercial crude oil inventories rose for the 3rd week in a row, increasing by 4,591,000 barrels to 472,832,000 barrels as of September 15th, still just the 5th increase in the past 25 weeks...while our oil inventories as of September 15th were still fractionally below the 473,966,000 barrels of oil we had stored on September 16th of 2016, they were more than 12.0% higher than the 422,033,000 barrels in of oil that were in storage on September 18th of 2015, and much higher than the normal level for our oil supplies in the years before the oil glut started building up, ie., 44.7% greater than the 326,828,000 barrels of oil we had in storage on September 19th of 2014...  

This Week's Rig Count

US drilling activity decreased for the 9th time in the past 13 weeks during the week ending September 22nd, after a string of 23 consecutive weekly increases earlier this year, with oil drilling down while gas drilling increased....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 1 rig to 935 rigs in the week ending Friday, which was 424 more rigs than the 511 rigs that were deployed as of the September 23rd report in 2016, while it was 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 5 rigs to 744 rigs this week, their 7th week without an increase, which nonetheless still left oil rigs up by 326 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 increased by 4 rigs to 190 rigs this week, which was 98 more rigs than the 92 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, same as a year ago...

drilling started from 2 additional platforms off the Louisiana coast this week, and hence the Gulf of Mexico rig count increased by 2 to 19 rigs this week, which was still down from the 20 rigs that were drilling in the Gulf a year ago...with no offshore drilling other than in the Gulf now or a year ago, those totals are also those given as the total US offshore count....at the same time, a platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of 3 rigs, the same as a year ago...

the count of active horizontal drilling rigs fell by 5 rigs to 790 rigs this week, which was still up by 388 rigs from the 402 horizontal rigs that were in use in the US on September 23rd 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 directional rig count was up by 3 rigs to 77 rigs this week, which was also up from the 49 directional rigs that were deployed on September 23rd of 2016.....at the same time, the vertical rig count was up by 1 rigs to 68 vertical rigs this week, which was also up from the 60 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 September 22nd, the second column shows the change in the number of working rigs between last week's count (September 15th) and this week's (September 22nd) count, the third column shows last week's September 15th 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 23rd of September, 2016...      

September 22 2017 rig count summary

we would note that after 8 weeks with little change, the Permian basin of western Texas and southeast New Mexico bucked the trend with an increase of 6 rigs this week, their biggest jump since May 12th...that was just barely enough to increase the Texas count, however, as the state saw decreases in the Eagle Ford in the south and the Granite Wash of the eastern panhandle area...with the increase of two rigs in the Gulf, Louisiana with 3 new rigs saw the largest increase, while major producers Oklahoma and North Dakota both shed three...meanwhile, there were no changes in activity in the Utica or the Marcellus, as all the gas well increases were in "other" basins, unnamed in Baker Hughes summary data...meanwhile, outside of the major producing states shown above, Alabama also added a rig this week and now has 2 active, also up from just 1 rig a year ago..

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note: there’s more here

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