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 18, 2018

natural gas supplies falling faster than winter weather accounts for; Utica drillers shifting to oil bearing rock

oil prices rebounded more than 4% this week, after dropping by nearly 10% in a global market panic the prior week, as the financial markets recovered and carried other prices higher as well...after falling a total of $6.60 a barrel over the prior six trading sessions, oil prices for March delivery steadied on Monday, rising 9 cents to $59.29 a barrel, as global markets stabilized and the US dollar fell in value...not much changed on Tuesday either, as a continually weaker dollar sparked a rebound from an early slide down after the International Energy Agency forecast that oil supplies would outstrip demand, with oil ending the day down 10 cents at $59.19 a barrel...oil prices also started lower on Wednesday morning, but then rebounded sharply after the weekly EIA data showed that crude inventories rose less than expected the prior week, with oil prices finishing $1.41 higher at $60.60 a barrel...the Wednesday rally carried into Thursday, as higher US oil prices forced those who has sold oil they didn't own to buy it back to cover their bets, with oil prices ending the session 74 cents higher at $61.34 a barrel...oil prices continued higher for a third session on Friday, carried by a strong rebound in global stock markets and a much weaker dollar, as oil ended up another 34 cents at $61.68 a barrel, a closing price that represented a 4.2% increase on the week, in the first weekly gain in three weeks...

meanwhile, natural gas prices were slightly lower this week, after running up to a 12 month high three weeks ago, and then crashing to an 18 month low last week, with this week seeing the smallest price change and least price volatility in the past 7 weeks...after opening lower, natural gas prices for March delivery were down every day this week except Tuesday, when they rose 4.2 cents to $2.594 per mmBTU on what was called 'technical buying' in response to oversold conditions...other than that, ongoing forecasts of warmer weather pushed prices lower on Wednesday and Thursday, in spite of the weekly gas report on Thursday that indicated a larger than expected withdrawal of natural gas supplies from underground storage...natural gas prices then fell 2.2 more cents on Friday to end the week at $2.558 per mmBTU, for a net loss of 2.6 cents, or 1.0% on the week...

this week's natural gas storage report indicated that our natural gas in storage fell by 194 billion cubic feet to 1,884 billion cubic feet in the week ending Friday, February 9, 2018, which left our gas supplies 577 billion cubic feet, or 23.4% lower than the 2,461 billion cubic feet that was in storage on February 10th of last year, and 433 billion cubic feet, or 18.7% below the five-year average of 2,317 billion cubic feet for the sixth week of the year...the typical natural gas withdrawal for the sixth week of the year has averaged 154 billion cubic feet, so the withdrawal during the cited week exceed the norm by 40 billion cubic feet...

now, one would think that a week during the middle of winter that saw a much larger than normal withdrawal of natural gas from storage would have been colder than normal, but that was not the case this week, as we'll see in the graph below...

February 16 2018 heating demand for week ending February 9th

the above graph, of population weighted heating degree days (PWHDD) nationally, came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Friday...degree days are a measure of daily heating requirements 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 and subtracting that figure from 65F, which is considered to be the temperature when most buildings will start to need heating....hence, the colder it gets, the greater the the number of heating degree days are required for a given location...John's graph is an average of heating degree day readings from around the country, weighted by population, to give us an average daily heating requirement for the entire country...

in this graphic, then, the yellow graph shows the historical average number of heating degree days needed per capita over the typical US heating season (starting with zero in July) and the red dots show the actual population-weighted heating 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...the 7 red dots farthest to the right are for the current heating week, and as John's headline says, population weighted heating degree days for that period totaled 192, slightly less than the historical 196 average for the same period in February (as we can see the majority of the right-most red dots are a bit below the yellow line)...so we see that despite the fact that our national heating requirements were slightly below normal for the week, we still had to withdraw more than 25% more natural gas than normal over the same period...

next we have a graphic which compares this year's heating requirements to the previous two years and to the historical norm...it also came from the same emailed package of natural gas graphs from John Kemp as the graph above..

February 16 2018 seasonal heating demand as of February 9th

in this graph, the difference between normal heating demand and the cumulative heating demand for each of the past three heating seasons is shown daily over the span of a year,  with the divergence in 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, over their heating seasons...i know that here in the Midwest it's been colder than normal most of this winter, but at the same time the Pacific Coast states, the Rockies, and much of the south has been warmer than normal, resulting in that downward trending solid yellow line for the entire US that we see for this year...note that had it been colder than normal nationally, the graph would be moving upwards, into a range above zero on the graph...for this year's solid yellow line, the pattern the graph traces describes a cool September, and a generally warmer than normal October, November and early December, a colder than normal January except for one week, and a gradual moderation since...as the heading on the graph says, this year's cumulative heating demand has actually been 130 population-weighted heating degree days (PWHDD) below normal, compared to the much warmer prior two years that had heating requirements 497 PWHDD and 449 PWHDD below normal respectively...but while our heating requirements were modestly below normal so far this year, we still have had to pull more natural gas out of storage than any other year on record, except for the "polar vortex" dominated winter of 2014, which we'll see in the next graph....

February 16 2018 gas in storage as of February 9th

the above graph also came from that emailed package of natural gas graphs from John Kemp of 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 2016 up until the week ending February 9th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the period from January 2015 up until the end of 2017 as a yellow line, and the average of natural gas in storage over the 5 years preceding those same dates shown as a dashed blue line...also shown by the light blue shaded background is 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 an annual maximum by the middle of October, falling through the winter, and usually bottoming out at the end of March, depending of course on the weather related heating requirements during any given season...

as John Kemp notes on the top of this graph, our supplies of natural gas are well below the average range and near the bottom of that average line; in fact, if we look at the Historical Record of Natural Gas in Working Underground Storage for the Lower 48 States, we see that 2014 was the only year on record to have less natural gas in storage as of the 2nd week of February than the 1,884 billion cubic feet that we had as of this week's report....yet as we saw in the 2nd graph above, our heating requirements so far this year have been modestly below normal, so the reason that our supplies of natural gas are now well below average hasn't been the weather...rather it has been our increasing use of natural gas to generate electricity, and increasing liquefaction of natural gas (LNG) for export, (which had reached as much as 3.2 billion cubic feet per day at the Sabine Pass export terminal alone) that have been responsible for drawing down our supplies of natural gas faster than our stagnant gas production can replace them...by tracing the dashed blue line on the graph above, we can see that over a normal heating season, our natural gas supplies are drawn down from an average of around 3,750 billion cubic feet in mid-October to an average of around 1,600 billion cubic feet by the end of March...hence, over a 167 day heating season, the Sabine Pass export terminal alone would be converting 534.4 billion cubic feet, or nearly one-quarter of our normal winter usage, into LNG to be shipped to Europe and Asia...seeing that, just imagine what will happen when we hit a cold winter after all the LNG export facilities now under construction are brought online and also draw from that supply...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending February 9th, indicated that our oil refineries slowed considerably while our oil imports and oil production were little changed, and as a result we added crude oil to storage for the third week in a row...our imports of crude oil fell by an average of 4,000 barrels per day to an average of 7,888,000 barrels per day during the week, while our exports of crude oil rose by an average of 35,000 barrels per day to an average of 1,322,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,566,000 barrels of per day during the week, 39,000 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 20,000 barrels per day to another record high of 10,271,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,837,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,162,000 barrels of crude per day, 635,000 barrels per day less than they used during the prior week, while at the same time 323,000 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 352,000 barrels per day more 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 (-352,000) 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)...since there was a 630 barrel per day change in that 'unaccounted for oil', from +278,000 barrels per day last week to -352,000 barrels per day this week, our week over week changes are correspondingly unreliable...

further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 8,063,000 barrels per day, 5.0% less than the 8,491,000 barrel per day average we imported over the same four-week period last year....the 323,000 barrel per day increase in our total crude inventories came about on a 263,000 barrel per day addition to our commercial stocks of crude oil and a 60,000 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 20,000 barrel per day increase in our crude oil production included a 25,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in output from Alaska...the 10,271,000 barrels of crude per day that were produced by US wells during the week ending February 9th was the highest week on records going back to 1983, 14.4% more than the 8,977,000 barrels per day that US wells were producing on February 10th of last year, and 21.9% 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 89.8% of their capacity in using 16,162,000 barrels of crude per day, down from 92.5% of capacity the prior week, and down from the wintertime record 96.7% of capacity set just six weeks earlier, as US refineries are now into the pre-spring blend changeover and maintenance season...the 16,162,000 barrels of oil that were refined this week were 8.2% 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 4.6% more than the 15,458,000 barrels of crude per day that were being processed during the week ending February 10th, 2017, when refineries were operating at 85.4% of capacity....

with the big drop in the amount of oil being refined, gasoline production by our refineries was also much lower, decreasing by 493,000 barrels per day to 9,592,000 barrels per day during the week ending February 9th, after increasing by 518,000 barrels per day the prior week....nonetheless, our gasoline production was still 7.2% higher than the 8,950,000 barrels of gasoline that were being produced daily during the week ending February 10th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 317,000 barrels per day to 5,129,000 barrels per day, after rising by 516,000 barrels per day the prior week...but even after that decrease, the week's distillates production was still 6.2% higher than the 4,531,000 barrels of distillates per day than were being produced during the equivalent week of 2017....    

however, even with the big decrease in our gasoline production, our gasoline inventories at the end of the week still rose by 3,599,000 barrels to 249,073,000 barrels by February 9th, their thirteenth increase in 14 weeks...that was as our domestic consumption of gasoline fell by 51,000 barrels per day to 9,059,000 barrels per day, and as our exports of gasoline fell by 190,000 barrels per day to 639,000 barrels per day, while our imports of gasoline fell by 108,000 barrels per day to 638,000 barrels per day....but even after thirteen increases in fourteen weeks, our gasoline inventories are still 3.9% lower than last February 10th's level of 259,063,000 barrels, even as they are now roughly 6.9% 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 459,000 barrels to 141,367,000 barrels over the week ending February 9th, the third decrease in distillates supplies in the past nine weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 305,000 barrels per day to 4,082,000 barrels per day, and as our imports of distillates fell by 77,000 barrels per day to 236,000 barrels per day while our exports of distillates fell by 72,000 barrels per day to 1,031,000 barrels per day...after this week’s inventory decrease, our distillate supplies were 16.9% lower at the end of the week than the 170,057,000 barrels that we had stored on February 10th, 2017, and fractionally lower than the 10 year average of distillates stocks at this time of the year… 

finally, the big decrease in the amount of oil used by our refineries while our oil supply metrics changed little meant that we had surplus oil to add to our commercial supplies of crude oil for the third time in 13 weeks and for the 13th time in the past 48 weeks, as our crude supplies increased by 1,841,000 barrels, from 420,254,000 barrels on February 2nd to 422,095,000 barrels on February 9th....but even with three increases in a row, our oil inventories as of that date were still 18.5% below the 518,119,000 barrels of oil we had stored on February 10th of 2017, and 10.7% lower than the 472,823,000 barrels of oil that we had in storage on February 12th of 2016, even they were still 7.8% greater than the 391,516,000 barrels of oil we had in storage on February 13th of 2015, at a time when US supplies of oil had just begun to increase...   

This Week's Rig Count

net US drilling activity was unchanged during the week ending February 16th, with oil drilling increasing and drilling for natural gas decreasing....Baker Hughes reported that the total count of active rotary rigs running in the US was stable at 975 rigs in the week ending on Friday, which was still 224 more rigs than the 751 rigs that were deployed as of the February 17th report of 2017, while it was still down by nearly half from 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 7 rigs to 798 rigs this week, which was also 201 more oil rigs than were running a year ago, while the week's oil rig count still remained well 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 177 rigs this week, which was only 24 more gas rigs than the 153 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 was increased by 2 rigs to 18 rigs for the week, which was also up from the 17 rigs deployed in the Gulf of Mexico a year ago...however, last year at this time there was also a rig deployed offshore from Alaska, so the total offshore rig count last year was also 18 rigs, same as today's...meanwhile, a rig which had been drilling from a platform on an inland lake in Louisiana was shut down this week, leaving just one such "inland waters" rig remaining active, which was down from 3 rigs on inland waters as of February 17th of last year...

the week's count of active horizontal drilling rigs was up by 7 rigs to 839 horizontal rigs this week, which was also up by 225 rigs from the 614 horizontal rigs that were in use in the US on February 17th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the vertical rig was down by 5 rigs to 65 vertical rigs this week, which was the same count as the 65 vertical rigs that were in use during the same week of last year....in addition, the directional rig count was down by 2 rigs to 71 directional rigs this week, which was also down from the 72 directional rigs that were deployed on February 17th 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 16th, the second column shows the change in the number of working rigs between last week's count (February 9th) and this week's (February 16th) count, the third column shows last week's February 9th 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 17th of February, 2017...              

February 16th 2018 rig count summary

as you can see from the above tables, this week's 'unchanged' rig count masked a lot of changes in activity nonetheless...probably the most surprising in light of an increase of 7 oil rigs was the 4 oil directed rigs that were shut down in the Permian of western Texas and southeast New Mexico, the basin which had been leading this most recent wave of drilling; but even after those shutdowns, the 433 oil directed rigs that remain active in the Permian are still more than half of the 798 oil directed rigs working nationwide, and the Permian also still accounts for 130 of the 224 rigs that have been added over the past year....

there was also a much larger change than is evident from the table in Ohio's Utica shale this week, as the net loss of 2 rigs masks the fact that 7 natural gas rigs were shut down in the state, while at the same time 5 rigs started drilling targeting oil rich formations...that leaves the total Utica deployment at 15 natural gas directed rigs, and 7 rigs seeking oil, confirming the movement of Ohio's drilling activity to the north and west that we suspected two weeks ago, when we noted new drilling plans in the Mansfield area... the Utica shale had gone all of 2016 and most of 2017 with just spotty oil drilling, so this now appears to be a significant change likely driven by the higher oil prices we've seen over recent months...

+

NOTE:  there’s more here