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, February 4, 2018

natural gas prices crash on milder weather, heat oil imports at a 8 year high, Cabot in Mansfield area, et al

oil prices fell from last week's highs this week, but not before testing another 37 month intraday high on Monday...after rising last week to a 37 month high of $66.14 a barrel, oil prices opened higher and rose to $66.46 a barrel on Monday morning, before pressure from a strengthening dollar and traders expectations of increasing U.S. crude supplies drove prices lower, with contracts of light US oil for March delivery ending the session down 58 cents, or nearly 1 percent, at $65.43 a barrel... oil prices then fell for a second day on Tuesday, driven by a stronger dollar and ongoing evidence of rising U.S. crude output, with US crude falling $1.06, or 1.6 percent, to close at $64.50 a barrel, in a broad-based selloff of stocks, bonds and commodities...oil prices then rose 23 cents to $64.73 a barrel on Wednesday, despite a big jump in US crude stockpiles, as gasoline demand rose while a Reuters survey showed the OPEC members had achieved a 138 percent supply cut (sic)...US oil prices then jumped $1.07 on Thursday to $65.80 a barrel, after Goldman Sachs said oil supply and demand had reached a balance and raised their 6-month Brent oil-price forecast to $82.50 a barrel...oil prices then fell on Friday in the midst of the worst broad market selloff in two years, as the U.S. dollar rose following a strong jobs report, suggesting that the economy was strong enough for the Fed to again raise interest rates, amplifying the ongoing selloff of stocks, bonds and oil, with crude ending down 35 cents at $65.45 a barrel, a loss of roughly 1% for the week...

meanwhile, natural gas prices were much lower this week, partially because prices fell on their own accord, and partially because trading in the February natural gas contract expired, leaving the widely followed front month price quotes referencing the already lower priced March contract...let's walk through how that happened...you might recall that last week we reported that natural gas prices rose more than 30 cents to a 12 month high of $3.505 per mmBTU...that price was for natural gas to be delivered in February, the closest month to which natural gas contracts were then still trading, typically called the "front month", which would be the price you'd get for natural gas by asking google or by going to any website that shows commodity prices...the price for that February contract then rose 12.6 more cents to close at $3.631 per mmBTU before trading in that contract expired on Monday of this week...then, starting Tuesday, the natural gas price you'd get by checking websites that show commodity prices would be for natural gas to be delivered in March, the closest month which was trading at the time...the price for that March contract rose 2.8 cents on Tuesday to close at $3.195 per mmBTU...however, despite the fact that the price of natural gas rose that day, the price quoted on the commodity price sites appeared to fall 43.6 cents, from $3.631 per mmBTU on Monday to $3.195 per mmBTU on Tuesday....that's because, by convention, the actively traded front month price is always quoted as the price of the commodity...now quoting exclusively March contracts, "natural gas prices" then went on to fall 20 cents on Wednesday, 13.9 cents on Thursday, and another penny on Friday to end the week at $2.846 per mmBTU, quite a substantial drop from the 12 month high price quoted last Friday and the even higher price it reached on Monday...to help you visualize how that happened, we'll include a graph that shows the widely quoted daily prices, irregardless of what contract month it references each day:

February 3 2018 natural gas prices

the above graph is a Saturday screenshot of the live interactive natural gas price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the graph represents natural gas prices for one day of oil trading between August 24th and February 2nd, with green bars representing days when the price of natural gas went up, and red bars representing the days when the price of natural gas went down...for green bars, the starting oil price at the beginning of the day is at the bottom of the bar and the price at the end of the day 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 close is at the bottom of the bar...also visible on this "candlestick" style graph are the feint grey "wicks" above and below each bar, to indicate trading prices during each day that were above or below the opening to closing price range for that day...

thus for Monday, January 29th, you can see that natural gas prices opened below $3.30 per mmBTU and rose to above $3.66 per mmBTU before closing at $3.631 per mmBTU...then Tuesday, natural gas prices opened much lower but were still green, or up for the day, as the quoted month rolled from February to March...from there, however, it was all downhill, with quoted prices for natural gas falling all the way to $2.846 per mmBTU by the close of Friday, actually down more than 80 cents from their high on Monday...

now, even though more than half of this week's price drop in natural gas was due to the change in the month referenced, there was still a drop of over 32 cents in the March contract itself...that was mostly because the weekly natural gas storage report showed a relatively modest 99 billion cubic feet withdrawal of gas supplies from storage for the week ending Friday, January 26th, leaving 2,197 billion cubic feet of gas still in storage, which the EIA reports is "within the five-year historical range" of gas in storage at this time of year....that simply means that although it's worse than the past 3 years, it's not as bad as the polar vortex year of 2014...still, the 2,197 billion cubic feet we had in storage on January 26th was 526 billion cubic feet, or 19.3% less than was in storage on January 27th of last year, and 425 billion cubic feet, or 16.2% below the five-year average of 2,622 billion cubic feet for the fourth week of the year...but since the price of natural gas had spiked due to last week's withdrawal of 288 billion cubic feet, the 99 billion cubic feet withdrawal was mild by comparison, and hence the market panic subsided and natural gas sold off..

now, to help visualize why the withdrawal of natural gas from storage was below normal this week, we have a graph of daily population-weighted heating degree days nationally up to the date of the natural gas storage report...

February 2 2018 population weighted heating demand

the above graph came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday; it incorporates heating 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 day average for the US...degree days are computed by taking the average daily temperature in each location and subtracting that temperature from 65F, the temperature when most buildings are expected to start needing heating...thus, the colder it gets, the greater the number of heating degree days will accumulate, giving utilities and suppliers of heating fuels a heads up as to what the daily demand for heating will be...

on the above graph, the yellow line 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, about 17 degree days above normal for that date...but we can also see that for the cluster of the 10 most recent days on this graph - the ten days prior to the release of this week's natural gas storage report, heating needs were below normal nationally over the period...considering that heating needs for at least 5 of those days was 7 or 8 degrees days below normal, it's almost a surprise that we still needed to take 99 billion cubic feet of gas out of storage, in addition to the roughly 525 billion cubic feet of natural gas that was being produced by US wells over the same period...

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 26th, showed that another big reduction in operations at US refineries, combined with another new record in production from US wells and an ongoing increase in oil imports meant that we had surplus crude oil left over for the first time in 11 weeks...our imports of crude oil rose by an average of 389,000 barrels per day to an average of 8,430,000 barrels per day during the week, while our exports of crude oil rose by an average of 354,000 barrels per day to an average of 1,765,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,665,000 barrels of per day during the week, 35,000 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 41,000 barrels per day to a weekly record high of 9,919,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,584,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,013,000 barrels of crude per day, 470,000 barrels per day fewer than they used during the prior week, while 1,001,000 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 430,000 more barrels per day less than what refineries reported they used during the week plus what was added to storage...to account for that disparity, the EIA needed to insert a (+430,000) 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"...(how this weekly data is gathered, and the reason for that "unaccounted" oil, is explained here)

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 8,020,000 barrels per day, still 4.3% less than the 8,383,000 barrels per day average we imported over the same four-week period last year....the 1,001,000 barrel per day increase in our total crude inventories came about on a 968,000 barrel per day addition to our commercial stocks of crude oil and a 33,000 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 41,000 barrel per day increase in our crude oil production included a 40,000 barrel per day increase in output from wells in the lower 48 states, and a 1,000 barrels per day increase in output from Alaska.....the 9,919,000 barrels of crude per day that were produced by US wells during the week ending January 26th was the highest week on records going back to 1983, 13.1% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 17.7% 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 88.1% of their capacity in using those 16,013,000 barrels of crude per day, down from 90.9% of capacity the prior week, and down from the wintertime record 96.7% of capacity just four weeks earlier...the 16,013,000 barrels of oil that were refined this week were 9.1% 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 still a bit more than the 15,947,000 barrels of crude per day that were being processed during the week ending January 27th, 2017, when refineries were operating at 88.2% of capacity....

even with the seasonal slowdown in the amount of oil being refined, gasoline production by our refineries was still higher, increasing by 209,000 barrels per day to 9,567,000 barrels per day during the week ending January 26th, after decreasing by 352,000 barrels per day the prior week....for the week, our gasoline production was 5.1% higher than the 9,101,000 barrels of gasoline that were being produced daily during the week ending January 27th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 214,000 barrels per day to 4,613,000 barrels per day, after falling by 765,000 barrels per day over the prior three weeks...but even after those four big decreases, the week's distillates production was just 1.4% lower than the 4,677,000 barrels of distillates per day than were being produced during the the fourth week of 2017....   

even with the increase in our gasoline production, our gasoline inventories at the end of the week fell by 1,980,000 barrels to 242,060,000 barrels by January 26th, their first decrease in 12 weeks...that was as our domestic consumption of gasoline rose by 347,000 barrels per day to 9,044,000 barrels per day, and as our imports of gasoline fell by 66,000 barrels per day to 509,000 barrels per day, while our exports of gasoline fell by 212,000 barrels per day to 615,000 barrels per day....but even after eleven increases in twelve weeks, our gasoline inventories are still 5.8% lower than last January 27th's level of 257,086,000 barrels, even as they are roughly 4.1% above the 10 year average of gasoline supplies for this time of the year...      

with the week's drop in distillates production, our supplies of distillate fuels fell by 1,940,000 barrels to 137,900,000 barrels over the week ending January 26th, the second decrease in distillates supplies in the past seven weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 623,000 barrels per day to 4,470,000 barrels per day, even as our imports of distillates rose by 333,000 barrels per day to a eight year high of 584,000 barrels per day, and as our exports of distillates fell by 136,000 barrels per day to 1,004,000 barrels per day... after this week’s inventory decrease, our distillate supplies ended up 19.2% lower at the end of the week than the 170,717,000 barrels that we had stored on January 27th, 2017, and roughly 4.2% lower than the 10 year average of distillates stocks at this time of the year… 

finally, with the slowdown of our refining, the increase in our oil imports, and with our weekly crude oil production at a record level, our commercial crude oil supplies rose for the first time in 11 weeks and for just the 11th time in the past 46 weeks, increasing by 6,776,000 barrels, from their 34 month low of 411,583,000 barrels on January 19th to 418,359,000 barrels on January 26th....but our oil inventories as of that date were still 15.4% below the 494,762 ,000 barrels of oil we had stored on January 27th of 2017, and 11.2% lower than the 471,344,000 barrels of oil that we had in storage on January 29th of 2016, even they were still 10.2% greater than the 379,473,000 barrels of oil we had in storage on January 30th of 2015, at a time when US supplies of oil had just begun to increase... 

This Week's Rig Count

US drilling activity decreased for the fifth time in the past 13 weeks during the week ending February 2nd, 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 was down by 1 rig to 946 rigs in the week ending on Friday, which was still 217 more rigs than the 729 rigs that were deployed as of the February 3rd report of 2017, while it was less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the number of rigs drilling for oil rose by 6 rigs to 765 rigs this week, which was also 182 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 7 rigs to 181 rigs this week, which was only 36 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 1 rig to 16 rigs this week, which was down from the 21 rigs deployed in the Gulf of Mexico a year ago and the total of 22 rigs offshore nationally a year ago....the week's count of active horizontal drilling rigs was unchanged at 808 horizontal rigs this week, which was still up by 212 rigs from the 596 horizontal rigs that were in use in the US on February 3rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...the vertical rig was also unchanged at 66 vertical rigs this week, which was 1 less than the 67 vertical rigs that were in use during the same week of last year....meanwhile, the directional rig count was down by 1 rig to 72 directional rigs this week, which was still up from the 66 directional rigs that were deployed on February 3rd 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 February 2nd, the second column shows the change in the number of working rigs between last week's count (January 26th) and this week's (February 2nd) count, the third column shows last week's January 26th 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 3rd of February, 2017...             

February 2 2018 rig count summary

note that the 3 rig decrease in Wyoming drilling was not in a major basin (although it could have been in the Powder River) so it doesn't show up in the lower table, while the two rig increase in the Haynesville is not noticeable in the count of either Texas or Louisiana, which were both down a rig... the Haynesville increase included one oil directed rig and one natural gas rig, while the Utica shale saw the addition of two new rigs drilling for oil, while a natural gas rig was shut down....with that in mind, scroll down a few paragraphs into the news links below and you'll see that Cabot Oil and Gas is leasing tracts in Richland, Ashland and Knox counties, southwest of Cleveland, with an eye to exploitative drilling....checking our maps of the Utica shale, we note that the Utica is relatively immature in that region of Ohio, meaning that Cabot is likely looking to frack for oil....the combined Utica-Pt Pleasant shale averages 225 feet thick down there, and roughly 2 to 3% of the shale underlying those counties is organic carbon...that contrasts with a combined shale thickness running between 245 and 345 feet in our corner of the state, with an organic content averaging 1 to 2%...

 

note:  there’s more here

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