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 8, 2017

US oil exports hit another record high as US oil continues to sell at a 12% discount

US oil prices were broadly lower this week for the first time since August, but international prices still remain 12% higher for comparative grades of oil, which has now resulted in a second week of record high US oil exports...US prices started the week by falling $1.09 a barrel to $50.58 a barrel on Monday, after a Reuters survey indicated that OPEC had increased their oil output in September....US crude for November delivery then fell another 16 cents to $50.42 a barrel on Tuesday, as speculators continued to cash in their profits after big third quarter gains...oil prices then slipped below $50 a barrel for the first time in more than two weeks on Wednesday, shedding 44 cents to close at $49.98 a barrel, as the EIA report that the US was exporting oil at a record 2 million barrels per day fanned fears that US exports would exacerbate global oversupply...oil prices then recovered and rose 81 cents on Thursday to close at $50.79 a barrel, as indications that Saudi Arabia and Russia would limit production through 2018 pushed prices higher globally....US crude futures then dropped $1.50, or nearly 3%, to $49.29 a barrel on Friday, as yet another hurricane approached the Gulf Coast ports and traders pulled back in advance of Trump's decision next week on the international deal that curbs Iran's nuclear program...US crude thus ended nearly 5% lower for the week, in its first weekly decline in over a month...

however, the problem for US oil remains that despite this week's drop, global oil prices remain roughly 12% higher than those here, which is spurring record exports of US crude....to look at how that developed, we'll include a graph that shows the premium price of Brent crude, the global benchmark, over that of West Texas Intermediate (WTI) crude, the US benchmark, right up to Thursday of this week....

October 7 2017 Brent WTI divergence

the above graph was part of a chart book that was linked to in an article by John Kemp at Reuters titled 'WTI discount to Brent reflects logistics constraints: Kemp', published on Friday of this week, and it tracks the premium of the price for North Sea Brent, the global oil benchmark, over that of West Texas Intermediate (WTI), the US benchmark, since the beginning of this year, with both prices quoted for December delivery (because trading for November Brent expired last Friday)...the point that John makes in his article is that even as overall US crude supplies have been falling, they've been increasing in the Midwest, or more specifically in PADD 2, (Petroleum Administration for Defense District 2) a geographic aggregation that includes all the states from Ohio to Oklahoma and North Dakota...since WTI is priced at Cushing Oklahoma, his thinking goes, that Midwest glut is pushing down the price of WTI vis-a-vis the rest of the world...

while that may be true as far as WTI goes, it's hard for me to see how that Midwest glut could be having such an impact on all North American oil prices....oilprice.com publishes daily a list of over 50 different oil prices from around the US and around the globe, and we can see from that table that US oil prices that should not be impacted by the Midwest glut are similarly discounted...Mars crude, which is an index of Gulf of Mexico deepwater crudes, was priced at $50.52 on Friday, $1.23 more than WTI but still $4.10 lower than Brent...furthermore, there's a list of over a dozen grades of Texas crude, with easy access to the Gulf ports, that are all priced below $46 a barrel....Eagle Ford crude at $45.74 a barrel, for instance, is just a stone's throw away from Corpus Christi, the largest US crude export terminal; if the same oil will fetch $55 a barrel on global markets, they'd be foolish not to export it an pocket the profit...even worse, US crude oil has been selling at a price so low that the Saudis, who own the largest US refinery, could buy it, ship it to their country, resell it as their own and still make a 10% profit...and that disconnect will continue until such time as the spread between US prices and international prices closes enough to prohibit it...

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 29th, showed a modest decrease in the amount of oil used by refineries and a modest decrease in our oil imports coupled with a big jump in our now record oil exports, and as a result our crude oil supplies fell by the most in four weeks.... our imports of crude oil fell by an average of 213,000 barrels per day to an average of 7,214,000 barrels per day during the week, while at the same time our exports of crude oil rose by 419,000 barrels per day to a record high of 1,984,000 barrels per day, which meant that our effective imports netted out to an average of 5,230,000 barrels per day during the week, 706,000 barrels per day less than during the prior week...at the same time, our field production of crude oil rose by 14,000 barrels per day to an average of 9,561,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 14,791,000 barrels per day during the reported week...

at the same time, US oil refineries were using 16,029,000 barrels of crude per day, 145,000 barrels per day less than they used during the prior week, while during the same period 996,000 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 242,000 fewer barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+242,000) 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 inched up to an average of 7,122,000 barrels per day, which was 10.7% below the imports of the same four-week period last year....the rounded 996,000 barrel per day withdrawal from our total crude inventories came about on a 860,000 barrel per day withdrawal from our commercial stocks of crude oil and a 136,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which is still being tapped to address temporary spot shortages caused by Hurricane Harvey...this week's 14,000 barrel per day increase in our crude oil production all came by way of an increase in oil output from Alaska as output from wells in the lower 48 states was unchanged...the 9,561,000 barrels of crude per day that were produced by US wells during the week ending September 29th was the most oil produced in any week since July 17th, 2015, 9.0% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 13.0% more than the 8,460,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was still a half percent 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 88.1% of their capacity in using those 16,029,000 barrels of crude per day, down from 88.6% of capacity the prior week, and down from the 96.6% capacity utilization rate in the week before Harvey struck....the 16,029,000 barrels of oil that was refined this week was still 9.6% less than the 17,725,000 barrels per day that were being refined five weeks earlier, but it was virtually the same as the 16,032,000 barrels of crude per day that were being processed during week ending September 30th, 2016, when refineries were operating at 88.3% of capacity, as they are now slowing down during this time of seasonal maintenance...

with the modest decrease in US oil refining, gasoline production from our refineries was little changed, slipping by just 2,000 barrels per day to 9,853,000 barrels per day during the week ending September 29th, which was 1.4% lower than the 9,988,000 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 290,000 barrels per day to 4,929,000 barrels per day, which was 4.5% more than the 4,713,000 barrels per day of distillates that were being produced during the week ending September 30th last year....  

with little change in our gasoline production, our end of the week gasoline inventories rose by 1,525,000 barrels to 217,292,000 barrels by September 29th, just the 5th increase in gasoline inventories in 16 weeks...that increase was mostly because our domestic consumption of gasoline fell by 281,000 barrels per day to 9,241,000 barrels per day, while our imports of gasoline fell by 179,000 barrels per day but remained elevated at 862,000 barrels per day, and while our exports of gasoline rose by 90,000 barrels per day to 640,000 barrels per day...still, with significant gasoline supply withdrawals in 11 out of the last 16 weeks, our gasoline inventories are still down by 9.7% from June 9th's level of 242,444,000 barrels, and 3.7% below last September 30th's level of 227,405,000 barrels, even as they are still roughly 2.3% 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 fell by 1,644,000 barrels to 135,439,000 barrels over the week ending September 29th, the 5th weekly drop in a row....that was mostly because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 261,000 barrels per day to 4,007,000 barrels per day, and because our exports of distillates rose by 273,000 barrels per day to 1,366,000 barrels per day, while our imports of distillates fell by 12,000 barrels per day to 72,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 15.7% lower than the 160,718,000 barrels that we had stored on September 30th, 2016, and 5.6% lower than the 10 year average for distillates stocks for this time of the year…since our distillates supplies are now abnormally low for this time of year, we'll again include a graph of what that looks like compared to their recent history:

October 4th distillate supplies as of Sept 29

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...notice in the light blue shaded area that there is an obvious seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this summer, when supplies of distillates should have been increasing like they have every other year, they were falling all summer instead, beginning even before the post-Harvey refinery shut downs...we're now heading into a period where refineries will be partially shut down for annual maintenance, so it now looks likely that heat oil supplies will be very tight going into winter...

finally, with the big jump in our oil exports and a decrease in imports, our commercial crude oil inventories fell for the 22nd time in 27 weeks, decreasing by 6,023,000 barrels, from 470,986,000 barrels as of September 22nd to 464,963,000 barrels on September 29th...while our oil inventories as of September 29th were still fractionally below the 469,108,000 barrels of oil we had stored on September 30th of 2016, they were still 8.4% higher than the 429,028,000 barrels in of oil that were in storage on October 2nd of 2015, and 40.7% greater than the 330,380,000 barrels of oil we had in storage on October 3rd of 2014... 

since the major oil story this week is again our record oil exports, we'll include this week's graph of them so you can see how much they've jumped..

October 4th crude exports as of Sept 29

the above graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters...this graph shows weekly US crude oil exports in thousands of barrels per day over the past 13 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over the past 5 weeks...last week i thought our record oil exports might just be a rebound after the Gulf ports reopened after Harvey's damage was cleared; this week it's clear that our exports are now far and above what any rebound would result in, and that's it's now clear our oil is being exported simply because it's so cheaply priced...

This Week's Rig Count

US drilling activity decreased for 7th time in the past 10 weeks during the week ending October 6th, as it continued the contraction that began in mid-July, following an expansion of 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 4 rigs to 936 rigs in the week ending Friday, which was still 412 more rigs than the 524 rigs that were deployed as of the October 7th 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 2 rigs to 748 rigs this week, their 8th decrease in 9 weeks, which still left active oil rigs up by 320 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 187 rigs this week, which was 93 more rigs than the 94 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 continued drilling this week, down from the 2 miscellaneous rigs that were deployed the same week last year..

drilling continued from 22 platforms the Gulf of Mexico this week, unchanged from last week and from 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 22 rigs is down a rig from the 23 rigs of a year ago....in addition, another platform that had been drilling on an inland lake in southern Louisiana was shut down this week, leaving an 'inland waters' count of just 1 rig, the same as the inland waters count of a year ago...

the count of active horizontal drilling rigs fell by 2 rigs to 792 rigs this week, which was still up by 379 rigs from the 413 horizontal rigs that were in use in the US on October 7th 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 directional rig count was down by 3 rigs to 79 rigs this week, which was still up from the 50 directional rigs that were deployed on October 7th of of 2016.....on the other hand, the vertical rig count was up by 1 rig to 65 vertical rigs this week, up from the 61 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 October 6th, the second column shows the change in the number of working rigs between last week's count (September 29th) and this week's (October 6th) count, the third column shows last week's September 29th 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 7th of October, 2016...     

October 6 2017 rig count summary

 

note:  there’s more here

1 comment:

humansofjandk said...

US exports selling price is nowadays too costly