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, January 21, 2018

distillates (heat oil) use at a record high, US & global crude supplies continue to drop..

oil prices fell for the first time in the past five weeks this week, and also fell by the most in any week since early October, but not before hitting another three year high, beating the three year high set at the end of last week....after rising every day during the week ending January 12th and closing with a gain for the week of $2.86, or 4.7% at a three year high of $64.30 a barrel, US crude oil contracts for February delivery opened Tuesday morning at $64.43 a barrel and climbed to a new three year high of $64.89, before falling on profit taking and closing at $63.73...oil prices then recovered and rose 24 cents on Wednesday to $63.97 a barrel, buoyed by expectations for a tenth straight weekly drop in U.S. crude supplies and threats by militants to production facilities in Nigeria...oil prices were then mostly flat on Thursday, as the expected bullish drop in US crude supplies was offset by a bearish jump in our crude oil production, with prices ending 2 cents lower at $63.95 a barrel...prices then fell 58 cents to a one-week low on Friday, as the International Energy Agency predicted U.S. crude production would climb to record a high this year, surpassing the output of Saudi Arabia and Russia, with oil closing the week down 93 cents at $63.37 a barrel, a drop of less than one and a half percent for the week but still the biggest down week since October...

natural gas prices also tracked a bit lower this week, ending 1.5 cents lower at $3.185 per mmBTU, after this week's gas withdrawals from storage were in line with seasonal norms, following last week's record inventory drawdown...the Weekly Natural Gas Storage Report indicated that gas in storage fell by 183 billion cubic feet to 2,584 billion cubic feet in the week ending Friday, January 12, 2018, which left our gas supplies 368 billion cubic feet, or 12.5% less than was in storage on January 13th of last year, and 362 billion cubic feet, or 12.3% below the five-year average of 2,946 billion cubic feet for the second week of the year....since that's still higher than the gas that was left in storage on January 17th of the "polar vortex" year of 2014, the EIA characterizes our natural gas supplies as "within the five-year historical range"....

at the same time, heat oil supplies, as represented by distillate inventories, saw their largest consumption over one week in history, which we have to believe was a delayed impact of the prior week's cold snap...it appears that the distillate inventories figure accesses data for refinery or wholesales supplies of heat oil, which were apparently not impacted until a week after the cold weather, as retailers of heat oil filled their storage tanks to reflect their sales during the cold snap of the prior week...that left heat oil supplies nearly 18% below their year ago levels, but only just over 5% below their 10 year average for this time of year...to put this year's data for supplies of heating fuels into perspective, we'll include a few graphs on the year's heating requirements from John Kemp of Reuters...

the graph below, of daily heating degree days nationally, came from a package of graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday...degree days are used by utilities and suppliers of heating fuels to determine what the daily demand for heating will be, so they can adjust their production or delivery schedules accordingly...they are computed by taking the average daily temperature (typically once hourly readings divided by 24) and subtracting that from 65F, which is considered to be the temperature when most buildings will start to need heating...thus, the colder it gets, the greater the the number of heating degree days; ie, an average temperature of 32F would correspond to 33 degree days, while an average temperature of 20F would be 45 degree days...

January 19 2018 heating demand week ending Jan 12

so, the above graph takes that degree day data from all locations across the US and weighs it by the number of people living in each reporting location to give a population weighted degree average for the US, wherein the yellow graph shows the average degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population degree days for each day this heating season of 2017-2018....while those dots are difficult to read and line up, you can orient what the graph shows by noting that the highest number of degree days was on January 1st, when the all time record for natural gas consumption was set...that date looks to be close to 43 degree days, and it appears that our heating demand dropped to around 16 degree days about 10 days later...

the next graph, also from that package of graphs mailed John Kemp, shows the cumulative heating degree days up till at least mid-January...

January 19 2018 heating demand cumulative week ending Jan 12

in this graph, the divergence of cumulative heating degree days from normal for each of the past three heating seasons is shown daily, with the current year shown as a solid yellow line, last year's divergence shown as a dashed yellow line, and with the divergence from normal of the 2015/2016 heating season shown as a dashed red line....note that all three graphs trend downward, or negative from zero, because all three years experienced warmer than normal temperatures, hence less degree days than normal, up until the recent weeks of this year, when the colder than normal weather has brought this year's divergence back up to near zero...without going into monthly detail, we can see that the 2015/2016 heating season started downward and by springtime had accumulated nearly 700 fewer degree days than a normal year...likewise, the 2016/2017 heating season needed even less heating, and by spring had fallen more than 700 degree days below normal for the season...we have often characterized the heating needs of both years as "17% below normal", based on similar graphs we posted at the end of March last year...this year, the pattern we see describes a cool September, and a generally warmer than normal October, November and early December, which has since been completely reversed in the weeks since Christmas...that now normal heating demand has left our natural gas supplies 12.5% below those of a year ago, and our heat oil supplies nearly 18% below those of a year ago, with exports of both commodities exacerbating the shortfalls...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, which includes details for the week ending January 12th, showed that despite a big pullback in operations at US refineries and a large rebound in oil production from US wells, we again had a large withdrawal of crude oil out of storage, as the week's changes were all obscured by a big shift in the amount of unaccounted for crude oil...our imports of crude oil rose by an average of 292,000 barrels per day to an average of 7,950,000 barrels per day during the week, while our exports of crude oil rose by an average of 234,000 barrels per day to an average of 1,249,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,701,000 barrels of per day during the week, 58,000 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 258,000 barrels per day to 9,750,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,451,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,875,000 barrels of crude per day, 448,000 barrels per day less than they used during the prior week, while 913,000 barrels of oil per day were being pulled out of 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 489,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-489,000) 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 fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...that was a swing of 970,000 barrels per day from the +481,000 barrel per day fudge factor the prior week, and thus calls into question the reliability of all our week over week oil metrics...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports inched up to an average of 7,892,000 barrels per day, still 3.7% less than the 8,195,000 barrels per day average imported over the same four-week period last year....the 913,000 barrel per day decrease in our total crude inventories came about on a 980,000 barrel per day withdrawal from our commercial stocks of crude oil, which was partially offset by a 67,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency... this week's 258,000 barrel per day increase in our crude oil production included a 267,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 9,000 barrels per day decrease in output from Alaska.....the 9,750,000 barrels of crude per day that were produced by US wells during the week ending January 12th was 11.2% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 15.7% above the interim low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 93.0% of their capacity in using those 16,875,000 barrels of crude per day, down from the 95.3% of capacity the prior week, and down from the wintertime record 96.7% of capacity two weeks earlier...the 16,875,000 barrels of oil that were refined this week were 2.4% less than the off-season record 17,608,000 barrels per day that were being refined at the end of December 2017, but were 2.5% more than the 16,468,000 barrels of crude per day that were being processed during the second week of 2017, when refineries were operating at 90.7% of capacity....

even with the decrease in the amount of oil being refined, gasoline production by our refineries was higher, increasing by 185,000 barrels per day to 9,710,000 barrels per day during the week ending January 12th, after falling by 721,000 barrels per day over the prior two weeks....that increase lifted our gasoline production to a level 8.5% higher than the 8,953,000 barrels of gasoline that were being produced daily during the week ending January 13th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 215,000 barrels per day to 5,076,000 barrels per day, after falling by 301,000 barrels per day the prior week...but even with the two big decreases, the week's distillates production was 7.7% higher than the 4,713,000 barrels of distillates per day than were being produced during the the second week of 2017....   

with the increase in our gasoline production, our gasoline inventories at the end of the week rose by 3,620,000 barrels to 240,942,000 barrels by January 12th, their tenth increase in a row...that was as our domestic consumption of gasoline fell by 146,000 barrels per day to 8,668,000 barrels per day, and as our imports of gasoline rose by 132,000 barrels per day to 396,000 barrels per day, while our exports of gasoline rose by 144,000 barrels per day to 948,000 barrels per day....however, even after ten consecutive increases, our gasoline inventories are still down by 2.2% from last January 13th's level of 246,424,000 barrels, even as they are roughly 4.8% above the 10 year average of gasoline supplies for this time of the year...      

however, with this week's drop in distillates production, our supplies of distillate fuels fell by 3,887,000 barrels to 139,201,000 barrels over the week ending January 12th, in the first draw from distillates supplies in 5 weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 1,083,000 barrels per day to a record high of 4,738,000 barrels per day, even as our exports of distillates fell by 163,000 barrels per day to 1,040,000 barrels per day, while our imports of distillates fell by 28,000 barrels per day to 147,000 barrels per day... after this week’s inventory decrease, our distillate supplies were 17.7% lower at the end of the week than the 169,073,000 barrels that we had stored on January 13th, 2017, and roughly 5.3% lower than the 10 year average of distillates stocks at this time of the year… 

finally, even after the slowdown of US refining and the increase in our crude oil production, our commercial crude oil inventories fell for the 34th time in the past 41 weeks, decreasing by 6,861,000 barrels, from 419,515,000 barrels on January 5th to a 28 month low of 412,654,000 barrels on January 12th....while our oil inventories as of January 12th were thus 15.0% below the 485,456,000 barrels of oil we had stored on January 13th of 2017, and 9.3% lower than the 455,169,000 barrels of oil that we had in storage on January 15th of 2016, they were still 13.3% greater than the 364,266,000 barrels of oil we had in storage on January 16th of 2015, at the time when US supplies of oil were just beginning to increase.. 

January OPEC Oil Market Report

since we've also been tracking the impact of OPEC's production cuts on global oil supplies since those cuts were initiated in January this year, we will again review the latest OPEC Oil Market Report (covering December OPEC & global oil data), which was released on Thursday of the past week, and which is available as a free download....the first table from that report that we'll look at is from page 65 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...    

December 2017 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC oil output increased by 42,400 barrels per day in December to 32,416,000 barrels per day, from an November production total of 32,373,000 barrels per day, but that was a figure that was originally reported as 32,448,000 barrels per day, so their production for December was actually a decrease from previously reported figures (for your reference, here is the table of the official November OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, the main reasons that OPEC's December output rose by 42,400 barrels per day from revised November figures were the increases of 44,800 barrels per day in output from Angola and of 75,700 barrels per day in output from Nigeria, which were partially offset by an 82,200 barrel per day decrease in output from Venezuela...note that the increase in Angolan production came after an even larger decrease in November, meaning Iraq is still the only OPEC member whose production is well in excess what their pact calls for, as can be seen in the table below:  

December 2017 OPEC output vs quota 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 twelve 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 twelve months that the OPEC pact to curtail production has been in effect...we should clarify that Nigeria and Libya are no longer exempt from the pact, since they have agreed to a combined output cap of 2.8 million barrels per day at the November 30th OPEC meeting...with a combined output of 2,823,000 barrels per day in December, they were a bit in excess of that new quota for this month, but over the entire past year their output was well below that quota....and 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 80,000 barrels per day that Iraq has been overproducing, so the cartel as a whole has kept their commitment to reduce supply....  

for a visualization of how OPEC's cuts have progressed, we'll next include a longer term historical graph of their monthly oil output: 

December 2017 OPEC oil production historical graph

the above graph was taken from the "OPEC December Oil Production" post at the Peak Oil Barrel blog, where Ron Patterson also posts similar graphs for each of the OPEC members...this graph shows total oil production, in thousands of barrels per day, for all of the current 14 members of OPEC, for the period from January 2005 to December 2017, using the history of the same official data from secondary sources that we saw in the first table above...we can see that OPEC's December production of 32,416,000 barrels per day, despite the increase from November, remains lower than their production of the prior five months, while it's higher than OPEC production of the first 5 months of this year...we can also see how OPEC's production spiked to a record last November, just before they announced their output cuts, giving them quite a bit of leeway to "reduce" production from those elevated levels, without ever having to fully cut back to the level they were producing at in late 2015 and early 2016...

the next graphic we'll include below comes from page 66 of the January OPEC Monthly Oil Market Report, and shows us both OPEC and world oil production monthly on the same graph, over the period from January 2016 to December 2017...on this graph, 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...   

December 2017 OPEC report global oil supply

OPEC's preliminary data indicates that total global oil production rose to a 13 month high of 97.49 million barrels per day in December, up by .40 million barrels per day from a November total of 97.09 million barrels per day, which was revised .35 million barrels per day lower from the 97.44 million barrels per day global oil output for November that was reported a month ago...global oil output for December was also 0.57 million barrels per day higher than the 96.92 million barrels of oil per day that was being produced globally in December a year ago (see last January's OPEC report online (pdf) for the year ago data)... OPEC's December production of 32,416,000 barrels per day thus represented 33.3% of what was produced globally, the same as their share of November global output, as oil output increases by Canada, Mexico, Norway, Brazil and Kazakhstan were partially offset by decreases in output from the UK, the US and China....OPEC's December 2016 production was at 33,085,000 barrels per day, so even after their production cuts, the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are producing just 2.4% less oil than they were producing a year ago, in the month before their production quotas went into effect...

  however, even after the increase in global oil output that we can see in the above purple graph, there was again a deficit in the amount of oil being produced globally, as the next table from the OPEC report will show us..   

December 2017 OPEC report global oil demand copy

the table above comes from page 37 of the January 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 estimate of 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 December, which is their revised estimate of global oil demand for the fourth quarter of 2017...  

OPEC's estimate is that over the 4th quarter of last year, all oil consuming areas of the globe were using 98.20 million barrels of oil per day, which is an upward revision from their prior 4th quarter estimate of 98.08 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 97.44 million barrels per day during December, which means that there was a shortfall of around 860,000 barrels per day in global oil production vis-a vis demand during the month... 

global oil production estimates for November were also revised lower with this report, by 0.35 million barrels per day to 97.09 million barrels per day, so combined with the 0.12 million barrel per day upward revision of 4th quarter demand, that now means there was also a deficit of 1,110,000 barrels per day in November global oil output, which we had previously figured to be a global oil deficit of around 640,000 barrels per day...in addition, since there were also revisions to oil demand estimates for 3rd quarter, as well as the 4th (which we have circled in green), that means the surplus or shortfall figures we previously computed for those months will also have to be recomputed...

hence the global oil deficit for October, which we had previously figured to be a deficit of 1,480,000 barrels per day, is now 0.12 millions barrel per day higher, or 1,600,000 barrels per day...revising our prior 3 quarter results for the 0.05 million barrel per day upward revision of 3rd quarter demand, we find there was a shortfall of 1,540,000 barrels per day in September global output, a global shortfall of 1,680,000 barrels per day in August, and a global oil shortfall of 565,000 barrels per day in July...

prior to that, we estimated a global oil surplus of 850,000 barrels per day in June, a global oil deficit of 360,000 barrels per day in May, a global oil deficit of 670,000 barrels per day in April, a global surplus of 390,000 barrels per day in March and average surpluses over January and February of around 610,000 barrels per day....adding those totals together, we find that the data from the 12 monthly OPEC reports we've covered means that after a year of OPEC production cuts, the global oil glut has been reduced by roughly 183.065 million barrels of oil since the 1st of the year, with most of that reduction coming over the last five months of 2017...included in that was at least a 54.549 million barrel drop in US oil supplies, which fell from 479,012,000 barrels on December 30th 2016 to 424,463,000 barrels as of December 29th, 2017, and as we've seen, continued to fall into the new year...

This Week's Rig Count

US drilling activity decreased for the fourth time in the past 11 weeks during the week ending January 19th, as natural gas rigs increased but those drilling for oil decreased by more....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 3 rigs to 936 rigs in the week ending on Friday, which was still 242 more rigs than the 694 rigs that were deployed as of the January 20th report of 2017, while it was also 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 fell 5 rigs to 747 rigs this week, which was still 196 more oil rigs than were running a year ago, while the week's oil rig count remained far below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations rose by 2 rigs to 189 rigs this week, which was 47 more gas rigs than the 142 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

offshore drilling activity was unchanged this week, with 19 rigs still drilling from platforms in the Gulf of Mexico; that was down from 23 rigs in the Gulf of Mexico a year ago and a total of 24 rigs offshore a year ago...this week's count of active horizontal drilling rigs was down by 3 rigs to 802 horizontal rigs this week, which was still up by 243 rigs from the 559 horizontal rigs that were in use in the US on January 20th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count fell by 5 rigs to 57 vertical rigs this week, which was also down from the 75 vertical rigs that were in use during the same week of last year....on the other hand, the directional rig count was up by 5 rigs to 77 directional rigs this week, which was also up from the 60 directional rigs that were deployed on January 20th of 2017...

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 the 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 January 19th, the second column shows the change in the number of working rigs between last week's count (January 12th) and this week's (January 19th) count, the third column shows last week's January 12th 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 20th of January, 2017...            

January 19 2018 rig count summary

as i'm sure you'll notice, despite the national increase in natural gas drilling, the Utica shale drillers in Ohio shut down 4 rigs, including 3 natural gas directed rigs, and the only Utica rig that had been targeting oil...on the other hand, 3 natural gas were added in the Marcellus, with one of those in Pennsylvania and two in West Virginia...at the same time, one of the rigs shut down in the Niobrara chalk of Colorado had been targeting gas, while the Haynesville drillers shut down an oil rig and started a gas rig and in the Eagle Ford, they started up a natural gas rig while shutting down 4 rigs targeting oil...there was also a natural gas rig started in an "other" basin, unnamed by Baker Hughes, but other than those, all other changes in activity shown above was for oil rigs...we should also note that other than the major producing states shown in the first table above, Mississippi drillers added a rig and now have 3 running, the same as they had running a year earlier, whereas Alabama saw a rig shut down, leaving just one active, also the same number that they had working last January 20th...

 

note:  there’s more here

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