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 28, 2018

oil prices at 37 month high, oil supplies at 34 month low, natural gas prices at a 12 month high, gas supplies at a record low for the date

oil prices rose to a 37 month high this week, in a strong rally underpinned by a tumbling US dollar, which makes internationally traded commodities more expensive in our currency than in the currencies of other countries...bizarrely, this week's collapse of the dollar was precipitated by US Treasury Secretary Steven Mnuchin, who told a gathering of global elites in Davos Switzerland that "a weaker dollar is good for us as it relates to trade" and then who doubled down on that policy opinion when International Monetary Fund Director Christine Lagarde demanded a clarification...

after falling last week for the first week in five to $63.37 a barrel, oil for February delivery opened 24 cents higher on Monday and then hung on for a gain of 12 cents, after dollar fluctuations and the restart of some Libyan oil fields caused the market to vacillate, with prices testing lower before rallying to close at $63.49 a barrel, as trading in the February oil contract expired...then oil prices for March, which had increased 26 cents to $63.57 a barrel on Monday, rose 90 cents to $64.39 a barrel on Tuesday, as an upwardly revised IMF forecast for world economic growth led to expectations of increasing demand for petroleum products...oil prices then rose $1.14 to $65.61 a barrel on Wednesday, closing above $65 a barrel for the first time since December 2014, after EIA data showed that US oil supplies fell last week, contrary to the market's expectations for an increase...oil prices then turned lower Thursday, shedding 10 cents to close at 65.51 a barrel, as the U.S. dollar rebounded from earlier losses and strengthened at the close...however, as the brief dollar rally faded on Friday, oil prices resumed their rally, closing up another 63 cents to a 37 month high of $66.14 a barrel, for a gain on the March contract for the week of $2.83 a barrel, or 4.5%, the fifth such rise in six weeks..

since oil prices closed the week at a 37 month high, we'll include a graph of the entire duration so you can see how they got here...

January 27 2018 oil prices

the above graph is a Saturday screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for one week of oil trading between November 2014 and the week just ended, wherein green bars represent the weeks when the price of oil went up, and red bars represent the weeks when the price of oil went down...for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar...barely visible in this compressed view, there are also feint grey "wicks" above and below each bar to indicate trading prices during each week that were above or below the opening to closing price range for that week...

on the far left of the above graph we can see the period at the end of 2014, when oil prices were collapsing after OPEC decided on a strategy of flooding the world with oil, in the hopes of driving US frackers out of business...while hundreds of frackers did end up in bankruptcy, their assets for the most part survived reorganization, and many were absorbed by better capitalized companies...this price chart now tells us that OPEC's new strategy of reducing global supplies has been successful, and that since mid-December, oil prices have risen to and stayed above $60 a barrel for the first time in two and a half years...

natural gas prices also rallied this week, closing at their highest level in overa year, as the weekly natural gas storage report showed that withdrawal of gas supplies from storage for the week ending January 19th matched the 2nd largest draw in US history, eclipsed only by the record draw set two weeks earlier, during the week ending January 5th...since that weekly storage report and long term weather forecasts are just about the only things moving natural gas prices, and since there isn't much news on what drives the daily changes anyhow, we'll go right to a graph of natural gas prices:

January 27 2018 natural gas prices

like the oil graph above, this natural gas graph also comes from a Saturday screenshot of the live interactive natural gas price graph at Daily FX, wherein each bar represents natural gas prices for one week of oil trading between the end of 2015 and the week just ended, with green bars representing weeks when the price of natural gas went up, and red bars representing the weeks when the price of natural gas went down...as you can see over the most recent 6 weeks, natural gas prices have been on somewhat of a tear, rising from below $2.60 per mmBTU at the beginning of December to above $3.50 per mmBTU this week, with prices for the February contract rising 4 out of 5 days this week, from $3.185 per mmBTU last Friday to $3.505 per mmBTU at the close of Friday this week...while gas wells that are already in production might be able to take advantage of these currently higher prices, these prices do not offer an opportunity for those planning new drilling to participate, because futures contract prices beyond the end of this winter have not rallied along with the current prices...for instance, contracts to deliver natural gas in June, although up every day this week, closed at $2.925 per mmBTU, actually less than the same June 2018 contract was selling for at the end of November 2017...likewise, contracts to deliver natural gas in November of 2018, ahead of next winter, also only rose to $2.992 per mmBTU, after increasing every day this week, again a lower price than those same contracts were selling for during the last week of November 2017...so unlike oil prices, where current prices and the futures contracts tend to move in tandem, affording frackers the opportunity to lock in a price for their future output, this rally in natural gas prices has only affected contract or spot prices for this winter, meaning new drilling for natural gas today will be no more profitable than it was two months ago...

as we mentioned earlier, this week's natural gas storage report indicated that the withdrawal of gas supplies from storage for the week ending January 19th

would have matched a record draw, had that old record not been eclipsed by more than 25% just two weeks ago...this week's report showed that natural gas in storage fell by 288 billion cubic feet to 2,296 billion cubic feet in the week ending Friday, January 19, 2018, which left our gas supplies 519 billion cubic feet, or 18.4% less than was in storage on January 20th of last year, and 486 billion cubic feet, or 17.5% below the five-year average of 2,782 billion cubic feet for the third week of the year...that withdrawal equaled the withdraw of the week ending January 10, 2014, which had been the record until this year...as a result, the gas in storage this week fell below the 2,424 billion cubic feet of natural gas that was left in storage on January 17th of the "polar vortex" year of 2014, and hence EIA reports that our natural gas supplies are now "below the five-year historical range"...for a visualization of what that means, we have a graph below from John Kemp of Reuters: 

January 25 2018 nat gas inventories as of January 19 via Kemp

the above graph came directly from the Twitter feed of John Kemp, senior energy analyst and columnist with Reuters, and it shows the quantity of natural gas in storage, in billions of cubic feet, in the lower 48 states over the period from January 2015 up to the week ending January 19th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the period from January 2014 up until the end of 2017 as a yellow line, and the average of natural gas in storage over the 5 years preceding the same dates shown as a dashed blue line...at the same time, the light blue shaded background represents the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the years shown by the graph…thus the light shaded area also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to a maximum by the middle of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the heating needs during any given period...as John Kemp notes in posting this graph, our supplies of natural gas have now fallen below the previous seasonal minimum, which occurred during winter of 2013-2014, which you can see by the far left of the yellow line...what John doesn't say is how unusual that year was, in that our natural gas supplies bottomed out at 824 billion cubic feet at the end of March of that year...prior to that year, and since, our historical natural gas supplies had never fallen below 1,461 billion cubic feet, so by falling below 2014's level we are on track to hit a low far outside of the historical range...we started the 2017-18 heating season with our supplies roughly 5% below normal at 3,790 billion cubic feet, and with two big drops in the first three weeks of 2018, we are now down almost 1,500 billion cubic feet at 2,296 billion cubic feet, with more than half of the heating season still to go..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, which covers the details for the week ending January 19th, showed that despite another reduction in operations at US refineries, an increase in our oil imports, and record oil production from US wells, we again saw a withdrawal of crude oil out of storage for the 10th week in a row...our imports of crude oil rose by an average of 91,000 barrels per day to an average of 8,041,000 barrels per day during the week, while our exports of crude oil rose by an average of 162,000 barrels per day to an average of 1,411,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,630,000 barrels of per day during the week, 71,000 barrels per day less than the net imports of the prior week...at the same time, field production of crude oil from US wells rose by 128,000 barrels per day to a record 9,878,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,508,000 barrels per day during the reporting week...

during the same week, US oil refineries were using 16,483,000 barrels of crude per day, 392,000 barrels per day less than they used during the prior week, while 119,000 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 114,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-114,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 7,904,000 barrels per day, still 2.5% less than the 8,106,000 barrels per day average imported over the same four-week period last year....the 119,000 barrel per day decrease in our total crude inventories came about on a 153,000 barrel per day withdrawal from our commercial stocks of crude oil, which was partially offset by a 34,000 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, since the Reserve is not authorized to buy oil at this time....this week's 128,000 barrel per day increase in our crude oil production included a 126,000 barrel per day increase in output from wells in the lower 48 states, and a 2,000 barrels per day increase in output from Alaska.....the 9,878,000 barrels of crude per day that were produced by US wells during the week ending January 19th was the highest on record, 12.6% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 17.2% 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 90.9% of their capacity in using those 16,483,000 barrels of crude per day, down from 93.0% of capacity the prior week, and down from the wintertime record 96.7% of capacity three weeks earlier...the 16,483,000 barrels of oil that were refined this week were 6.4% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, but were 2.7% more than the 16,047,000 barrels of crude per day that were being processed during the week ending January 20th, 2017, when refineries were operating at 88.3% of capacity....

with the seasonal slowdown in the amount of oil being refined, gasoline production by our refineries was much lower, decreasing by 352,000 barrels per day to 9,358,000 barrels per day during the week ending January 19th, and it has now fallen by 8.7% over the past four weeks....even so, our gasoline production was still 6.0% higher than the 8,825,000 barrels of gasoline that were being produced daily during the week ending January 20th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 249,000 barrels per day to 4,827,000 barrels per day, after falling by 301,000 barrels per day over the prior two weeks...but even after those three big decreases, the week's distillates production was 5.5% higher than the 4,575,000 barrels of distillates per day than were being produced during the the third week of 2017....   

even with the decrease in our gasoline production, our gasoline inventories at the end of the week rose by 3,098,000 barrels to 244,040,000 barrels by January 19th, their eleventh increase in a row...that was as our imports of gasoline rose by 179,000 barrels per day to 575,000 barrels per day, and as our exports of gasoline fell by 121,000 barrels per day to 827,000 barrels per day, while our domestic consumption of gasoline inched up by 29,000 barrels per day to 8,697,000 barrels per day....however, even after eleven consecutive increases, our gasoline inventories are still 3.5% lower than last January 20th's level of 253,220,000 barrels, even as they are roughly 5.6% above the 10 year average of gasoline supplies for this time of the year...      

likewise, even with the week's drop in distillates production, our supplies of distillate fuels grew by 639,000 barrels to 139,840,000 barrels over the week ending January 19th, the fifth increase in distillates supplies in 6 weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, dropped by 891,000 barrels per day from last week's record high down to 3,847,000 barrels per day, and as our imports of distillates rose by 104,000 barrels per day to a ten month high of 251,000 barrels per day, even as our exports of distillates rose by 100,000 barrels per day to 1,140,000 barrels per day...but even after this week’s inventory increase, our distillate supplies were still 17.3% lower at the end of the week than the 169,149,000 barrels that we had stored on January 20th, 2017, and roughly 3.5% lower than the 10 year average of distillates stocks at this time of the year… 

finally, even with an increase in our oil imports, a slowdown of US refining and with our crude oil production at a record level, our commercial crude oil supplies still fell for the 35th time in the past 45 weeks, decreasing by 1,071,000 barrels, from 412,654,000 barrels on January 12th to a 34 month low of 411,583,000 barrels on January 19th....while our oil inventories as of that date were thus 15.7% below the 488,296,000 barrels of oil we had stored on January 20th of 2017, and 11.2% lower than the 463,552,000 barrels of oil that we had in storage on January 22nd of 2016, they were still 10.3% greater than the 373,140,000 barrels of oil we had in storage on January 23nd of 2015, at the time when US supplies of oil were just beginning to increase...

This Week's Rig Count

US drilling activity increased for the eleventh time in the past 26 weeks during the week ending January 26th, as rigs drilling for oil increased while those drilling for natural gas decreased....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 11 rigs to 947 rigs in the week ending on Friday, which was also 235 more rigs than the 712 rigs that were deployed as of the January 27th 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 rose by 12 rigs to 759 rigs this week, which was also 193 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 fell by 1 rig to 188 rigs this week, which was only 43 more gas rigs than the 145 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 activity from platforms in the Gulf of Mexico decreased by 2 rigs to 17 rigs this week, which was down from 20 rigs in the Gulf of Mexico a year ago and a total of 21 rigs offshore nationally a year ago....the week's count of active horizontal drilling rigs was up by 6 rigs to 808 horizontal rigs this week, which was also up by 229 rigs from the 579 horizontal rigs that were in use in the US on January 27th 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 rose by 9 rigs to 66 vertical rigs this week, which was still down from the 72 vertical rigs that were in use during the same week of last year....on the other hand, the directional rig count was down by 4 rigs to 73 directional rigs this week, which was still up from the 61 directional rigs that were deployed on January 27th 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 26th, the second column shows the change in the number of working rigs between last week's count (January 19th) and this week's (January 26th) count, the third column shows last week's January 19th 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 27th of January, 2017...            

January 26 2018 rig count summary

as you can see from the above, all of this week's drilling increase and then some was concentrated in the Permian basin of western Texas and southeast New Mexico, and that excluding that expansion, drilling in the rest of the country fell by 7 rigs...it's hard to say what brought that on; after seeing its rig count double from 134 rigs in early May of 2016 to 268 on June 2nd of 2017, the Permian seemed like it had gone to sleep over the summer, accounting for only 12 more rigs until November; even after that, new drilling accrued slowly, finally exceeding 400 rigs just two weeks ago...now they've added 24 rigs in just two weeks, so it appears a new cycle of expansion in the Permian is again underway..

also notice that drilling work in the Utica shale in Ohio was cut back by another rig this week, after dropping by 4 rigs a week ago....with 23 rigs remaining in the Utica, that puts the drilling here back to the same level as a year ago...on the other hand, activity in the Marcellus increased by 4 rigs, with all of those starting up in West Virginia...West Virginia now has 19 rigs active, as they've more than doubled the 8 rigs that were drilling there a year ago...

 

note:  there’s more here

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