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, October 15, 2017

US exports record distillates as domestic shortage worsens; OPEC revises oil demand estimates higher, glut disappears

oil prices rose in 4 out of 5 trading sessions this week and ended at a 2 week high...US WTI crude for November delivery initially rose 29 cents on Monday to close at $49.58 a barrel, on indications from OPEC that they would extend their production cuts past March of next year and attempt to get other producers who were not part of the original pact to go along...the embryonic rally picked up steam on Tuesday after the Saudis announced they would cut their exports by 560,000 barrels per day in November, shorting their Asian customers 10% of their allocations, with US crude increasing $1.34 or 2.7% to close at $50.92 a barrel...prices then rose for a third day on Wednesday, closing 38 more cents higher at $51.30, as Kurdish and Iraqi troops moved to confrontational positions after a Kurdish independence vote and OPEC reported increasing demand for oil...oil prices then slipped on Thursday despite the EIA report that showed lower oil supplies, as the same EIA report showed an unexpected increase in gasoline supplies and the International Energy Agency lowered its 2018 forecast for oil demand, with US crude for November closing 70 cents lower at $50.60 a barrel...oil then pushed to a two week high on Friday after Trump refused to certify Iran’s compliance with the international nuclear deal, raising the specter of new sanctions on their oil output, with US crude up 85 cents, or 1.7%, to settle at $51.45 a barrel, a gain of more than 4% for the week...

international oil prices were also higher this week, with North Sea Brent for December closing Friday at $57.17 a barrel, 10.5% higher than the US December WTI closing price of $51.73 a barrel, so the underpricing of US oil that's been resulting in record US oil exports that we've been complaining about the past month still persists...while US crude exports for this reporting week were down more than 35% from the prior week's record high, they were still at their 4th highest in US history...

OPEC's October oil report

with OPEC jawboning moving the oil markets again, we're going start by reviewing OPEC's October Oil Market Report (covering September OPEC & global oil data), which was released on Wednesday of this past week....the first table from this report that we'll include here is from page 66 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...  

September 2017 OPEC crude output via secondary sources

from the above table of official oil production data, we can see that OPEC oil output increased by 88,500 barrels per day in September, to 32,748,000 barrels per day, from a August production total of 32,659,000 barrels per day, a figure that was originally reported as 32,755,000 barrels per day (for your reference, here is the table of the official August OPEC output figures before this month's revisions)...as we can see in the far right column, the reasons that OPEC's output rose 88,500 barrels per day were the 53,900 barrel per day increase in output from Libya, and the 50,800 barrel per day increase from Nigeria, the two countries that were exempt from the output quotas due to domestic strife...other than those two countries, these totals mean most OPEC members other than Iraq remain close to their agreed to production quota, as can be seen in the table below:

October 2017 OPEC production and targets as of September 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 nine 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 2016 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 more than 2%...however, cuts in excess of those agreed to by the Saudis and several other OPEC countries have generally made up for the 89,000 barrels per day that Iraq is overproducing, so the organization as a whole has kept their commitment to reduce supply....

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from October 2015 to September 2017, and it comes from page 67 of the October 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...

September 2017 OPEC report global supply

the preliminary OPEC data indicates that total global oil production rose to 96.50 million barrels per day in September, up by .41 million barrels per day from a August total of 96.09 million barrels per day, which was revised .66 million barrels per day lower than the 96.75 million barrels per day global oil output for August that was reported a month ago...global oil output for September was still 0.10 million barrels per day higher than the 96.40 million barrels of oil per day that was being produced globally in September a year ago (see last October's OPEC report for the year ago data)... OPEC's September production of 32,748,000 barrels per day represented 33.9% of what was produced globally, a small decrease from their revised 34.0% share of August global output...OPEC's September 2016 production, excluding ex-member Indonesia, was at 32,672,000 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 a bit more oil than they were producing a year ago, when they were supposedly producing flat out...

however, even after the increase in global oil output that we can see on the above graph, there was again a deficit in the amount of oil being produced globally, partly because of an upward revision in the estimate of global demand for oil, as the next table from the OPEC report will show us.. 

September 2017 OPEC report global demand

the table above comes from page 37 of the October 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 quarterly over 2017 over the rest of the table...on the "Total world" line of the fourth column, we've circled in blue the figure that's relevant for September, 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 have been using 97.49 million barrels of oil per day, which is a small downward revision from their prior estimate of 97.57 million barrels of oil per day.....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 96.50 million barrels per day during September, which means that there was a shortfall of around 990,000 barrels per day in global oil production vis-a vis demand during the month...

also note that we have highlighted last month's estimates for global demand in green, so as to point out the other revisions that came with this report, which means our previous computations of global surplus or deficit oil for the past 8 months will also have to be revised...global oil demand for the second quarter was revised 160,000 barrels per day higher, to 96.21 barrels per day, and demand for the first quarter was revised 50,000 barrels per day higher, to 95.59 barrels per day...moreover, global oil production for August was concurrently revised lower, to 96.09 million barrels per day, so that means there was also a deficit of 1,400,000 barrels per day in August output, which we had previously figured to be a global oil deficit of around 820,000 barrels per day...July's global oil production of 97.16 million barrels per day was also a shortfall, but by just 330,000 barrels per day...

in addition, the 160,000 barrels per day upward revision to second quarter demand reduces the June surplus that we had computed to 920,000 barrels per day, and increases the May deficit to 290,000 barrels per day...before that, April's recomputed figures now show a 600,000 barrel per day deficit for the month, and prior to that the global oil surplus during March would be revised down to 470,000 barrels per day, and average surpluses over January and February would be reduced to around 690,000 barrels per day....taken together, this reports data means that after nine months of OPEC production cuts, the global oil glut has been reduced by roughly 27.5 million barrels of oil since the 1st of the year, reversing the 48 million barrel addition to the glut we reported last month, and the even larger additions to the glut we had reported in the months before that...

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 October 6th, showed an increase in our oil imports and a drop in our oil exports, but as refinery throughput also increased, our crude oil supplies fell again, for the fourth week in a row... our imports of crude oil rose by an average of 403,000 barrels per day to an average of 7,617,000 barrels per day during the week, while at the same time our exports of crude oil fell by 715,000 barrels per day to a still high 1,270,000 barrels per day, which meant that our effective imports netted out to an average of 6,347,000 barrels per day during the week, 1,117,000 barrels per day more than during the prior week...at the same time, our field production of crude oil fell by 81,000 barrels per day to an average of 9,480,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,857,000 barrels per day during the reported week...

at the same time, US oil refineries were using 16,258,000 barrels of crude per day, 229,000 barrels per day more than they used during the prior week, while during the same period 564,000 barrels of oil per day were being withdrawn from 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, from oilfield production and from storage, was 133,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-133,000) 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 still fell to an average of 5,988,000 barrels per day, 19.3% below the imports of the same four-week period last year....the rounded 564,000 barrel per day withdrawal from our total crude inventories came about on a 392,000 barrel per day withdraw from our commercial stocks of crude oil and a 171,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which apparently is still being tapped to address short term spot shortages caused by Hurricane Harvey...this week's 81,000 barrel per day decrease in our crude oil production was due to a 87,000 barrel per day decreases in output from wells in the lower 48 states, possibly due to Hurricane Nate, while output from Alaska rose by 6,000 barrels per day...the 9,480,000 barrels of crude per day that were produced by US wells during the week ending October 6th was still 8.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.2% more than the 8,450,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was 1.4% 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 89.2% of their capacity in using those 16,258,000 barrels of crude per day, up from 88.1% of capacity the prior week, but still way down from the 96.6% capacity utilization rate refineries saw in the week before Hurricane Harvey struck....the 16,258,000 barrels of oil that was refined this week was still 8.3% less than the 17,725,000 barrels per day that were being refined six weeks earlier, but it was 5,4% more than the 15,552,000 barrels of crude per day that were being processed during week ending October 7th, 2016, when refineries were operating at 85.5% of capacity, a reduction probably due to seasonal maintenance...

even with the increase in US oil refining, gasoline production from our refineries was lower, dropping by 112,000 barrels per day to 9,741,000 barrels per day during the week ending October 6th, which was also 2.0% lower than the 9,935,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 35,000 barrels per day to 4,964,000 barrels per day, which was 10.4% more than the 4,496,000 barrels per day of distillates that were being produced during the week ending October 7th last year....  

even with the drop in our gasoline production, our end of the week gasoline inventories rose by 2,490,000 barrels to 221,426,000 barrels by October 6th, the third increase in gasoline inventories in a row...that increase was mostly because our exports of gasoline fell by 231,000 barrels per day to 409,000 barrels per day, while our imports of gasoline fell by 2,000 barrels per day but remained elevated at 860,000 barrels per day...offsetting that, however, our domestic consumption of gasoline rose by 239,000 barrels per day to a seasonal high of 9,480,000 barrels per day at the same time...still, with significant gasoline supply withdrawals in 11 out of the last 17 weeks, our gasoline inventories are still down by 8.7% from June 9th's level of 242,444,000 barrels, and 1.8% below last October 7th's level of 225,498,000 barrels, even as they are still roughly 4.7% above the 10 year average of gasoline supplies for this time of the year...  

even with the increase in our distillates production, our supplies of distillate fuels still fell by 1,480,000 barrels to 133,959,000 barrels over the week ending October 6th, the 6th weekly drop in a row....that was because our exports of distillates rose by 246,000 barrels per day to a record 1,612,000 barrels per day, while our imports of distillates rose by 14,000 barrels per day to 85,000 barrels per day...at the same time, the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 359,000 barrels per day to 3,648,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 14.7% lower than the 156,972,000 barrels that we had stored on October 7th, 2016, and 5.6% lower than the 10 year average for distillates stocks for this time of the year

finally, with our oil exports still at an elevated level, our commercial crude oil inventories fell for the 23rd time in 28 weeks, decreasing by 2.747,000 barrels, from 464,963,000 barrels as of September 29th to 462,216,000 barrels on October 6th...while our oil inventories as of October 6th were 2.5% below the 473,958,000 barrels of oil we had stored on October 7th of 2016, they were still 5.9% higher than the 436,590,000 barrels in of oil that were in storage on October 9th of 2015, and 36.2% greater than the 339,303,000 barrels of oil we had in storage on October 10th of 2014...

This Week's Rig Count

US drilling activity decreased for 8th time in the past 11 weeks during the week ending October 13th, and we've now seen only 4 increases in drilling in the past 14 weeks, following an expansion of drilling activity that ran 23 consecutive weeks earlier this year...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 8 rigs to 928 rigs in the week ending Friday, which was still 389 more rigs than the 539 rigs that were deployed as of the October 14th 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 743 rigs this week, their 9th decrease in 10 weeks, which still left active oil rigs up by 311 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 2 rigs to 185 rigs this week, which was 80 more rigs than the 105 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, the only rig that was classified as miscellaneous was shut down this week, leaving none such active, in contrast to the 2 miscellaneous rigs that were deployed during the same week last year..

2 drilling platforms in the Gulf of Mexico off the shore of Louisiana were shut down this week, leaving 20 rigs still running in the Gulf, down from 22 Gulf rigs a year ago...however, last year there was also a rig drilling in the Cook Inlet, offshore of Alaska, which means this week's total offshore rig count of 20 rigs is down three rigs from the 23 offshore rigs of a year ago....

the count of active horizontal drilling rigs was down by 6 rigs to 786 rigs this week, which was still up by 355 rigs from the 431 horizontal rigs that were in use in the US on October 14th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the vertical rig count was down by 2 rigs to 63 vertical rigs this week, but still up from the 57 vertical rigs that were deployed during the same week last year....meanwhile, the directional rig count was unchanged at 79 rigs this week, which was up from the 51 directional rigs that were deployed on October 14th of 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 October 13th, the second column shows the change in the number of working rigs between last week's count (October 6th) and this week's (October 13th) count, the third column shows last week's October 6th 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 14th of October, 2016...     

October 13 2017 rig count summary

it looks like the largest losses this week were in two of the Texas basins, as the Eagle Ford in the south saw six rigs shut down, and the Barnett shale underlying the Dallas/Ft Worth region had their count cut back by 4 rigs...those two basins also account for the natural gas rig reductions, since the Eagle Ford saw its gas directed rig count drop by 2 rigs to 5 rigs, while Barnett shale drillers cut one gas rig and three oil rigs and had 3 gas rigs and one oil rig remaining...the natural gas addition to balance those closures was in the Denver-Julesburg Niobrara, where a well was spud seeking natural gas for the first time in two years...drilling in the Utica and the Marcellus remained unchanged in the aggregate, although it does appear that one Marcellus rig was shut down in West Virginia while one was started in Pennsylvania at the same time....outside of the states shown among the major producers in the first table above, Mississippi also had a rig shut down this week, leaving them with 3 rigs still running, the same number they had running on October 14th a year ago...

 

NOTE: there’s more here

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