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, November 5, 2017

oil exports and distillates exports set new records; oil prices at a two year high

US oil prices rose for the 4th week in a row over the past week, blowing through a two year high on Friday after Baker Hughes reported the largest drop in oil rigs since last year....after rising 4.3% last week to a 6 month high of $53.90 a barrel, contracts for US crude for December rose another 25 cents to an eight month high of $54.15 on Monday on further expectations that those OPEC-led production cuts would be extended beyond March...prices then rose 23 cents more on Tuesday, on analyst's reports that the spike in U.S. crude exports over recent weeks would push US crude prices even higher...oil prices then slipped 8 cents to $54.30 a barrel on Wednesday, largely because the EIA's report of a drop in US crude supplies was not as great as has been expected, based on the prior day's report from the American Petroleum Institute...oil prices then returned to the upside on Thursday, increasing 24 cents to $54.54 a barrel, bolstered by indications that OPEC-led output cuts had tightened the market and drained inventories...while oil prices were mixed on Friday morning, they then spiked up more than 2% in the afternoon after the rig count report showed the largest drop in oil rigs this year, with oil closing up $1.10 on Friday at $55.64 a barrel, ending the week with an increase of $1.74 a barrel, a gain of 3.2% on last week's price..

below, i've copied a graph to show this week's drop in the rig count, and the rough relationship between the price of oil and the number of rigs deployed drilling for oil over time...

November 4 2017 rig count vs WTI price

the above graph was copied from a short post on Friday at Zero Hedge titled "US Oil Rig Count Drops Most Since May 2016 To 5-Month Lows", and it shows the oil rig count, as per Baker Hughes, as a blue graph from roughly mid-April to the present, and then below that, in the form of a red bar graph, the weekly change in the count of the rig count, with an increase in oil rigs represented by a red bar pointing upward from the "0" line, and a decrease in oil rigs represented by a red bar pointing downward from the "0" line...thus this week's decrease of 8 oil rigs is the largest decrease in oil rigs since mid May 2016...the chart also indicates with a charcoal grey line price of WTI, or West Texas Intermediate, the US benchmark price of oil, pulled forward on the graph three months ahead of the rig count dates (calling prices "lagged" is probably a misnomer - it's the drilling that lags)...mislabeling of the graph notwithstanding, what they do show is the rough relationship between the price of oil and the rig count, with it taking about three months for a change in the price of oil to be reflected in the number of active oil rigs; by pulling the price graph forward three months, they're showing that the current downturn in oil drilling is in response to the drop of the price of oil to the $45 a barrel range in August....what that relationship thus portends in light of this week's two year high in oil prices, however, is a return to the oilfields by the drillers sometime around February (lagged 3 months because it takes roughly that long to line up and contract for a rig and a crew and get them in place from the time that the decision to go ahead is made)

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 27th, showed a large drop in our oil imports while our oil exports rose to a record level, and hence there was a sizable withdrawal of oil from storage to meet the needs of our refineries, which saw little change in throughput from the prior week....our imports of crude oil fell by an average of 552,000 barrels per day to an average of 7,571,000 barrels per day during the week, while our exports of crude oil rose by 209,000 barrels per day to a record 2,133,000 barrels per day, which meant that our effective imports netted out to an average of 5,438,000 barrels per day during the week, 761,000 barrels per day less than during the prior week...at the same time, field production of crude oil from US wells rose by 46,000 barrels per day to an average of 9,553,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 14,991,000 barrels per day during the reported week...

at the same time, US oil refineries were using 16,015,000 barrels of crude per day, 10,000 barrels per day less than they used during the prior week, while over the same period 461,000 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 563,000 fewer barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (+563,000) 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 rose to an average of 7,699,000 barrels per day, statistically unchanged from the 7,695,000 barrels per day average imported over the same four-week period last year....the total 461,000 barrel per day withdrawal from our total crude inventories came about on a 348,000 barrel per day withdrawal from our commercial stocks of crude oil and a 113,000 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 this year's hurricanes...this week's 46,000 barrel per day increase in our crude oil production included a 43,000 barrel per day increase in output from wells in the lower 48 states and a 3,000 barrels per day increase in output from Alaska....the 9,553,000 barrels of crude per day that were produced by US wells during the week ending October 20th was 8.9% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 12.1% more than the 8,522,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was still 0.6% 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 16,015,000 barrels of crude per day, up from 87.8% of capacity the prior week, a fairly normal pace for a fall seasonal maintenance period...the 16,015,000 barrels of oil that were refined this week were 9.6% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, but were still 3.7% more than the 15,448,000 barrels of crude per day that were being processed during week ending October 28th, 2016, when refineries were operating at 85.2% of capacity...

even with little change in the amount of oil refined, gasoline output from our refineries was higher, increasing by 251,000 barrels per day to 10,187,000 barrels per day during the week ending October 27th, which was also 3.7% higher than the 9,824,000 barrels of gasoline that were being produced daily during the comparable week a year ago....in addition, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 241,000 barrels per day to 5,036,000 barrels per day, which was 8.0% more than the 4,662,000 barrels per day of distillates that were being produced during the week ending October 28th last year....  

even with the increase in our gasoline production, our gasoline inventories at the end of the week fell by 4,020,000 barrels to 212,849,000 barrels by October 27th, after falling by 5,456,000 barrels the prior week, as our domestic consumption of gasoline rose by 147,000 barrels per day to 9,461,000 barrels per day, as Americans continue to burn far more gasoline than they did last year...meanwhile our exports of gasoline fell by 139,000 barrels per day to 767,000 barrels per day, while our imports of gasoline rose by 307,000 barrels per day to 540,000 barrels per day...with significant gasoline supply withdrawals in 14 out of the last 20 weeks, our gasoline inventories are now down by 12.2% from June 9th's level of 242,444,000 barrels, and 4.9% below last October 28th's level of 223,804,000 barrels, even as they are still roughly 2.7% above the 10 year average of gasoline supplies for this time of the year...  

with our distillates production little changed, our supplies of distillate fuels fell by just 320,000 barrels to 128,921,000 barrels over the week ending October 27th, the eighth decrease in nine weeks, after falling by 5,246,000 barrels the prior week...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 567,000 barrels per day to 3,534,000 barrels per day, and as our exports of distillates rose by 237,000 barrels per day to a record 1,685,000 barrels per day, while our imports of distillates rose by 4,000 barrels per day to 137,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 14.4% lower than the 150,550,000 barrels that we had stored on October 28th, 2016, and 6.5% lower than the 10 year average for distillates stocks for this time of the year…if the forecast La Nina materializes, we will see a shortage of heat oil this winter...

finally, with our oil exports hitting a new record high while our oil imports were dropping, our commercial crude oil inventories fell for the 25th time in the past 30 weeks, decreasing by 2,435,000 barrels, from 457,341,000 barrels on October 20th to 454,906,000 barrels on October 27th...while our oil inventories as of October 27th were 5.7% below the 482,578,000 barrels of oil we had stored on October 28th of 2016, they were still 1.5% higher than the 447,994,000 barrels in of oil that were in storage on October 30th of 2015, and 30.4% greater than the 348,935,000 barrels of oil we had in storage on October 31st of 2014...

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

November 1  2017 crude oil exports for Oct 27

the above graph comes from a weekly emailed package of oil graphs from John Kemp of Reuters, and shows weekly US crude oil exports in thousands of barrels per day over the past 14 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over each of the past 9 weeks...it's clear that our oil exports over the last 6 weeks have breached new levels never seen before, as US drillers would rather sell their oil overseas when the international price continues to be a large premium over the domestic price...

and even while this week our exports were at a record 2,133,000 barrels per day, an article from Reuters appearing at the Christian Science Monitor discussed the logistics of our exporting as much as 3.5 million barrels a day...with total US crude production currently at 9.5 million barrels a day, if we plan to export 3.5 million barrels a day, that will only leave 6 million barrels of our production a day for our own use.....with US refineries typically using 16 to 17 million barrels per day of crude, 3.5 million barrels of exports would mean we'll have to import more than 10 million barrels each day to meet our needs...

now, here's the kicker, right from the scripture of 'the wisdom of markets'...exports from the US are being sold benchmarked to the price of WTI, right now around $55.64 a barrel...but what we import is benchmarked to Brent at $62.07, or to the OPEC basket price, which closed the week at $58.49...so every barrel crude that we export ends up being replaced by more expensive foreign oil...where is the wisdom in that?

This Week's Rig Count

US drilling activity decreased for the 5th week in a row and for 11th time in the past 14 weeks during the week ending November 3rd, with both oil and natural gas rigs seeing cutbacks...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 11 rigs to 898 rigs in the week ending on Friday, which was still 329 more rigs than the 569 rigs that were deployed as of the November 4th report in 2016, while it was well 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 decreased by 8 rigs to 729 rigs this week, their 11th decrease in 13 weeks and, as we noted earlier, the largest drop in oil drilling since May 2016...that still left active oil rigs up by 279 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 3 rigs to 169 rigs this week, which was the smallest natural gas rig deployment since April 21st and just 52 more gas rigs than the 117 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

two oil platforms that had been drilling offshore from Louisiana were shut down this week, leaving just 18 rigs active in the Gulf of Mexico, down from the 21 rigs drilling in the Gulf a year ago....the count of active horizontal drilling rigs was down by 5 rigs to 764 rigs this week, which was the smallest number of horizontal rigs active since May 19th...however, the week's horizontal deployment was still up by 305 rigs from the 459 horizontal rigs that were in use in the US on November 4th of last year, while down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the vertical rig count was also down by 5 rigs to 61 vertical rigs this week, which was still up from the 58 vertical rigs that were working during the same week last year....at the same time, the directional rig count was down by 1 rig to 73 rigs this week, which was still up from the 52 directional rigs that were deployed on November 4th 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 November 3rd, the second column shows the change in the number of working rigs between last week's count (October 27th) and this week's (November 3rd) count, the third column shows last week's October 27th 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 28th of November, 2016...        

November 3 2017 rig count summary

as we can see from the difference between the two tables above, this week saw a much larger turnover of rigs on a state basis than would be indicated by the total rig count or by the major basin counts in the second table...despite overall drilling being down by 11 rigs this week, Colorado saw the addition of 4 rigs, Texas added 3 more, and Alaska added two, and only two of those 9 rig increases - in the Niobrara and the Permian - show up in the major basin count variances...similarly, while Oklahoma shed eight rigs, only the single rig decline in the Ardmore Woodford and the 2 rig decline in the Arkoma Woodford are shown in the second table...furthermore, one would think that the 3 rig drop in the Haynesville would account for the 3 natural gas rigs that were shut down, but that's not the case; there had been two oil rigs working in the Haynesville, and now they're both gone; all 38 Haynesville rigs now target gas...the other two natural gas shutdowns were in the Arkoma Woodford...moreover, in addition to the changes shown in the state table above, Alabama also had one rig shut down, and now has just one, which is still up from a year ago, when they had none; Mississippi had two rigs shut down and also have just one left, down from two a year ago; Nebraska saw the lone rig that was started last week shut back down, which had been the only drilling in the state over the past year; while Montana saw a rig start up for the first time in 1 weeks, while a year ago they had none...

 

note: there's more here

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