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 19, 2017

OPEC cuts and rising demand reducing global oil supply; US distillates supply falling despite seasonal record production..

oil prices finally fell this week, for the first time in the past six weeks, but a rally on Friday put the downturn in jeopardy until the last hour of trading...after trading just off a two year high most of last week, US oil for December delivery added another 2 cents a barrel on Monday, closing at $56.76 a barrel, as the ongoing geopolitical tension from the Saudi royal purge and regional saber rattling offset concerns about rising US output...oil prices then tumbled $1.06 to $55.70 a barrel on Tuesday, after the International Energy Agency in Paris lowered its forecast for demand by 100,000 barrels a day for 2017 and 2018, more than offsetting OPEC's prior forecast of higher demand...oil prices were then down another 37 cents to $55.33 a barrel on Wednesday, after the EIA reported an unexpected increase in crude oil and gasoline stockpiles, along with record crude production...oil prices ended lower again after a choppy session on Thursday, on ongoing concerns about growing U.S. production and inventories, despite expectations that OPEC would extend a supply-cut deal when they meet in Vienna at the end of the month, closing down another 19 cents at $55.14 a barrel...oil prices then rallied and rose steadily on Friday, after Saudi Arabia's energy minister Khalid al-Falih reiterated that further production cuts are necessary to continue rebalancing the market, with oil prices trading as high as $56.68 a barrel before closing up $1.41, or 2.6%, to finish the week at $56.55 a barrel, down just 21 cents from the prior month's close...

with the likelihood of further OPEC production cuts moving oil prices again, we'll start by reviewing OPEC's November Oil Market Report (covering October OPEC & global oil data), which was released on Monday of this past week....the first table from this report that we'll look at is from page 64 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...   

October 2017 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC oil output decreased by 150,900 barrels per day in October, to 32,589,000 barrels per day, from a September production total of 32,740,000 barrels per day, a figure that was originally reported as 32,748,000 barrels per day (for your reference, here is the table of the official September OPEC output figures before this month's revisions)...as you'll note in the far right column above, the main reason that OPEC's output fell by 150,900 barrels per day was the 131,000 barrel per day drop in oil output from Iraq; also contributing was a 54,400 barrel per day decrease in output from Nigeria and a 43,600 barrel per day decrease in output from Venezuela, who's crude output was at a 28-year low...on the other hand, note the 69,800 barrel per day increase in output from Angola, which was thus producing well above their agreed to quota...and other than Angola, Iraq's oil output is again above their agreed quota, despite October's big cutback, as can be seen in the table below: 

November 2017 OPEC production and targets as of October 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 ten 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 ten months of this year that the OPEC pact to curtail production has been in effect...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, whose production has averaged nearly 2% higher than what they committed to...however, cuts in excess of what was agreed to by the Saudis, Venezuela, and other OPEC countries have more than made up for the 83,000 barrels per day that Iraq has been 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 November 2015 to October 2017, and it comes from page 65 of the November OPEC Monthly Oil Market Report....the cerulean 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...

October 2017 OPEC report global supply

OPEC's preliminary data indicates that total global oil production rose to 96.71 million barrels per day in October, up by .53 million barrels per day from a September total of 96.18 million barrels per day, which was revised .32  million barrels per day lower from the 96.50 million barrels per day global oil output for September that was reported a month ago...global oil output for October was still 0.39 million barrels per day higher than the 96.32 million barrels of oil per day that was being produced globally in October a year ago (see last November's OPEC report for the year ago data)... OPEC's October production of 32,589,000 barrels per day represented 33.7% of what was produced globally, down from their revised 34.0% share of September global output, as oil output increases by Mexico, Norway, the UK, Brazil, Canada, Malaysia and China more than made up for OPEC's decrease...OPEC's October 2016 production, excluding ex-member Indonesia, was at 32,921,000 barrels per day, so even after their production cuts, the 13 OPEC members who were part of OPEC last year, excluding new member Equatorial Guinea, are only producing 1.0% less oil than they were producing a year ago, at a time when they were considered to be 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, in part due to an upward revision of the OPEC estimate of global demand for oil, as the next table from the OPEC report will show us.. 

October 2017 OPEC report global oil 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 fifth column, we've circled in blue the figure that's relevant for October, which is their estimate for global oil demand for the fourth quarter of 2017... 

OPEC's estimate is that over the 4th quarter of this year, all oil consuming areas of the globe will be using 98.08 million barrels of oil per day, which is an upward revision from their prior 4th quarter estimate of 97.91 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 96.71 million barrels per day during October, which means that there was a shortfall of around 1,370,000 barrels per day in global oil production vis-a vis demand during the month...

also note that we have highlighted the estimates for the first 3 quarters of 2017 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 9 months should also be revised...global oil demand for the third quarter was revised 230,000 barrels per day higher, to 97.72 million barrels per day, while demand for the second quarter was revised 70,000 barrels per day higher, to 96.28 million barrels per day, and global demand for the first quarter was revised 80,000 barrels per day higher, to 95.67 million barrels per day...

global oil production estimates for September were concurrently revised lower, to 96.18 million barrels per day, so that now means there was also a deficit of 1,540,000 barrels per day in September global output, which we had previously figured to be a global oil deficit of around 990,000 barrels per day...with higher demand estimates for the third quarter, the August global shortfall would now be revised up to 1,630,000 barrels per day, while July's global oil production of 97.16 million barrels per day would be 560,000 barrels per day less than the new 3rd quarter demand figure of 97.72 barrels per day...

with the caveat that we've now revised figures for prior months this year several times, and hence increasing the chance of a dumb arithmetic error, the 70,000 barrels per day upward revision to second quarter demand reduces the June global surplus that we had computed to 850,000 barrels per day, and increases the May deficit to 360,000 barrels per day, and increases the April global oil deficit to 670,000 barrels per day...prior to that the global oil surplus during March would now be revised down to 390,000 barrels per day, and average surpluses over January and February would be reduced to around 610,000 barrels per day....taken together, this reports data means that after ten months of OPEC production cuts, the global oil glut has been reduced by roughly 72.66 million barrels of oil since the 1st of the year, up from the global deficit of 27.4 million barrels for 9 months that we had computed based on last month's figures...

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 November 10th, indicated another a substantial increase in our oil refining, which was more than matched by an increase in imports, and hence we managed to have a modest amount oil left to store for the 2nd week in a row....our imports of crude oil rose by an average of 521,000 barrels per day to an average of 7,898,000 barrels per day during the week, while our exports of crude oil rose by 260,000 barrels per day to 1,129,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,769,000 barrels of per day during the week, 261,000 barrels per day more than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 25,000 barrels per day to another record high of 9,645,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 16,414,000 barrels per day during the reported week...

during the same week, US oil refineries were using 16,639,000 barrels of crude per day, 334,000 barrels per day more than they used during the prior week, while over the same period 164,000 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 389,000 fewer barrels per day than what refineries reported they used and what was added to storage during the week...to account for that discrepancy, the EIA needed to insert a (+389,000) 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, a metric that is labeled 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 7,742,000 barrels per day, still 2.8% less than the 7,969,000 barrels per day average imported over the same four-week period last year....the 164,000 barrel per day increase in our total crude inventories came about on a 265,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 101,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was included in a Federal budget deal 25 months ago...this week's 25,000 barrel per day increase in our crude oil production included a 20,000 barrel per day increase in output from wells in the lower 48 states and a 5,000 barrels per day increase in output from Alaska....the 9,645,000 barrels of crude per day that were produced by US wells during the week ending November 10th was another new record high for US output, 10.0% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.1% more than the 8,681,000 barrels per day of oil we produced during the during the equivalent week a year ago...

US oil refineries were operating at 91.0% of their capacity in using those 16,639,000 barrels of crude per day, up from 89.6% of capacity the prior week, about par for this time of year... the 16,639,000 barrels of oil that were refined this week were still 6.1% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, even as they were 3.2% more than the 16,126,000 barrels of crude per day that were being processed during week ending November 11th, 2016, when refineries were operating at 89.2% of capacity, and more than 10% above the 10-year seasonal average for this time of year...

even with increase in the amount of oil refined, gasoline output from our refineries was 3.0% lower, decreasing by 315,000 barrels per day to 9,852,000 barrels per day during the week ending November 10th, which was also 3.0% lower than the 10,152,000 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 32,000 barrels per day to 5,231,000 barrels per day, which was a record for any week in November, and 5.0% more than the 4,984,000 barrels per day of distillates that were being produced during the week ending November 11th last year....  

our lower gasoline production notwithstanding, our gasoline inventories at the end of the week still rose by 894,000 barrels to 210,431,000 barrels by November 10th, after falling by 12,788,000 barrels over the prior three weeks, as our domestic consumption of gasoline fell by 324,000 barrels per day to 9,172,000 barrels per day, even as our exports of gasoline rose by 212,000 barrels per day to 844,000 barrels per day, while our imports of gasoline fell by 56,000 barrels per day to 349,000 barrels per day...however, with significant gasoline supply withdrawals in 15 out of the last 22 weeks, our gasoline inventories are still down by 13.2% from the pre-summer high of 242,444,000 barrels, and 5.1% below last November 11th's level of 221,709,000 barrels, even as they are still roughly 1% 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 799,000 barrels to 124,763,000 barrels over the week ending November 10th, the tenth decrease in eleven weeks, after falling by 3,359,000 barrels the prior week...the smaller drawdown occurred because the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 457,000 barrels per day to 4,029,000 barrels per day, even as our exports of distillates rose by 198,000 barrels per day to 1,477,000 barrels per day, while our imports of distillates rose by 75,000 barrels per day to 161,000 barrels per day...after this week’s decrease, our distillate inventories ended the week 16.2% lower than the 148,912,000 barrels that we had stored on November 11th, 2016, and 6.7% lower than the 10 year average of distillates stocks at this time of the year

finally, with a big increase in oil imports coming while our oil production was at a record high, our commercial crude oil inventories rose for the 7th time in the past 32 weeks, increasing by 1,854,000 barrels, from 457,143,000 barrels on November 3rd to 458,997,000 barrels on November 10th....while our oil inventories as of November 10th were 6.4% below the 490,284,000 barrels of oil we had stored on November 11th of 2016, they were still fractionally higher than the 455,074,000 barrels of oil that we had in storage on November 13th of 2015, and 31.6% greater than the 348,758,000 barrels of oil we had in storage on November 6th of 2014, at a time when the buildup of our oil glut was just getting started...   

This Week's Rig Count

US drilling activity increased 5th time in the past 16 weeks during the week ending November 17th, but in contrast to last week, when only oil drilling increased, this week only saw new rigs targeting natural gas...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 8 rigs to 915 rigs in the week ending on Friday, which was also 327 more rigs than the 588 rigs that were deployed as of the November 18th 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 unchanged at 738 rigs this week, which was still up by 267 oil rigs 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 was rose by 8 rigs to 177 rigs this week, which was still only 61 more gas rigs than the 116 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...

drilling began from 3 addition platforms in the Gulf of Mexico offshore from Louisiana this week, which increased the Gulf of Mexico rig count to 21 rigs, which was still down from the 23 rigs active in the Gulf of Mexico a year ago...since there were no other offshore rigs active other than those in the Gulf either this week or a year ago, those Gulf counts are also the same count as the total US offshore count...

the count of active horizontal drilling rigs was unchanged at 764 rigs this week, which left them up by 306 rigs from the 470 horizontal rigs that were in use in the US on November 18th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count was up by 2 rigs to 76 rigs this week, which was also up from the 52 directional rigs that were working during the same week last year....in addition, the vertical rig count was up by 6 rigs to 63 vertical rigs this week, which was still down from the 66 vertical rigs that were deployed on November 18th 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 17th, the second column shows the change in the number of working rigs between last week's count (November 10th) and this week's (November 17th) count, the third column shows last week's November 10th 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 18th of November, 2016...          

November 17 2017 rig count summary

there's not much on the tables above that can explain how 8 rigs targeting natural gas were added this week, while the horizontal rig count remained unchanged at the same time...we would have thought that the rig that was added in Ohio's Utica, for instance, would have been one of the new natural gas rigs, but that's not the case, since that rig is targeting oil, in only the third week of Utica oil drilling since May of 2016...the Haynesville, of northwest Louisiana and adjacent Texas, which has seen more oil drilling recently, did add two natural gas rigs this week, as all 40 of their rigs are now back to targeting gas...the other 6 natural gas rigs are in Baker Hughes's "other" category, wherein the basins and locations are not named...based on the Texas and Louisiana state counts, however, we would guess that most of the new natural gas rigs are in those two states or the adjacent Gulf, and are most likely conventionally drilled vertical wells...note that other than the major producing states shown above, Mississippi also saw a rig added this week, and now they have two rigs active, same as they had on November 18th a year ago..

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note:  there’s more here

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