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, March 11, 2018

natural gas & oil output both at record highs, but gas supplies now 29.5% below those of a year ago

oil ended the week higher, with political developments driving prices more than any fundamental changes in oil supply or demand...that's actually been the case for a few weeks now, starting when oil & natural gas prices crashed 10% during the 2nd week of February on a broad selloff in global equity markets; since that time, oil prices have tended to move in tandem with stock prices, almost regardless of the news from the oil sector...thus we saw the widely traded contract for April oil rise $1.32 to $62.57 a barrel on Monday "on forecasts of higher demand" when the stock market indices were much higher, and then we saw that same contract fall $1.45 to $61.15 a barrel on Wednesday and another $1.03 to $60.12 a barrel on Thursday, during the same hours that the markets were falling after the resignation of Trump's chief economic advisor Gary Cohn and in response to his imposition of tariffs on imported aluminium and steel, which sparked fears of a global trade war...stocks and oil prices then rallied on Friday after Trump accepted an invitation to meet with North Korea’s Kim Jong Un, with oil closing the day $1.92 higher at $62.04 a barrel, with the first drop in oil rig activity in 7 weeks contributing to oil’s price rise...thus US oil prices ended the week with a gain of 79 cents, or 1.3%, despite a bearish US oil supply report on Wednesday...

natural gas prices, on the other hand, moved obliviously to the news and other markets, rising early in the week on an outlook for colder weather and the expected increase in demand, and then falling Thursday and Friday after the weekly storage report indicated a smaller than expected withdrawal of supplies from storage, with natural gas prices for April delivery ending the week 3.7 cents higher at 2.732 per mmBTU...the week's natural gas storage report indicated that our natural gas in storage fell by 57 billion cubic feet to 1,625 billion cubic feet over the week ending Friday, March 2nd, which turned out to be the same as the drawdown during the same week last year, and hence our gas supplies remained 680 billion cubic feet, or 29.5% lower than the 2,305 billion cubic feet that were in storage on March 3rd of last year...the average withdrawal of natural gas during the ninth week of the year has been 129 billion cubic feet over the past 5 years, so this constitutes the third week in a row where our natural gas withdrawals have been much below normal...despite that, however, the 1625 billion cubic feet we had in storage on March 2nd was 300 billion cubic feet, or 15.6% below the five-year average of 1925 billion cubic feet in storage at the end of the ninth week of the year...

before we move on, i want to take a quick look at our natural gas production, because i was quite surprised by the spike in natural gas output in a December that took us to a new production high...we'll start with a graph of our dry natural gas output over the last dozen years...

March 4 2018 natural gas output thru December

up until the recent couple of months, there's not much of a surprise in what we see above...natural gas production rose steadily as the number of rigs drilling into natural formations topped a thousand early in the aught's decade and rose to 1600 rigs by the summer of 2008, with natural gas prices spiking to over $12 per mmBTU...but when prices for natural gas fell to below $5 per mmBTU the next year, natural gas drilling began a slow decline that culminated with as few as 81 rigs working during the summer of 2016, and production likewise fell as new well completions could not keep up with the depleting output from existing wells...with gas drilling rigs once again increasing to over 180 rigs this past summer, production began to gradually rise, but since the drilling activity remained at less than a sixth of previous levels, i did not expect the increase in output that you see above for the most recent months....so we can see exactly what happened, we'll include a table of natural gas output that roughly matches the period that the above graph shows....

March 10 2018 natural gas output spreadsheet thru December

the table above is from the EIA table of US dry natural gas production monthly, which I've lopped off at 2005 because the prior years saw little change...here we can see that US natural gas production rose each year between 2010 and 2015 as fracking of shale brought on new supplies...but then, after March of 2016, the year over year comparisons turned negative, and stayed negative for 15 months, until June and July of this summer saw small increases in output over the prior year...there was another increase in output in October, but when November output failed to follow through, i thought it had reached a plateau...but as you can see above, natural gas output jumped by more than a 100 billion barrels in December to set a new record by a long shot....

now, here's the problem...if our natural gas production from wells was at such an elevated level going into this winter, then why did our supplies of natural gas fall so rapidly during the first few cold snaps? as you'll recall from the graph we showed last week, by the 4th weekend of February, natural gas stocks were down to their second lowest on record, even after a warm spell knocked our seasonal demand for heating to 191 population-weighted heating degree days below normal...in consideration of what we now know was a record level of natural gas output, our natural gas supplies should have stayed above average this winter, in keeping with that lower demand for heating...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending March 2nd, showed there was a large increase in our oil imports and in oil production from the prior week, while at the same time increases in refining and oil exports were relatively modest, which meant that we had oil left over to add to storage for the fifth time in six weeks...our imports of crude oil rose by an average of 721,000 barrels per day to an average of 8,003,000 barrels per day during the week, while our exports of crude oil rose by an average of 53,000 barrels per day to an average of 1,498,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,505,000 barrels of per day during the week, 668,000 barrels per day more than the prior week...at the same time, field production of crude oil from US wells rose by 86,000 barrels per day to a record high of 10,369,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,874,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 15,935,000 barrels of crude per day, 53,000 barrels per day more than they used during the prior week, while at the same time 369,000 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 570,000 barrels per day more than what refineries reported they used plus what was added to storage during the week...to account for that disparity, the EIA needed to insert a (-570,000) 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 oil data is gathered, and the possible reasons for that "unaccounted" oil, is explained here)...since there was a 821,000 barrel per day change in that 'unaccounted for oil' figure, from +252,000 barrels per day last week to -570,000 barrels per day this week, the week over week changes reported here are correspondingly unreliable...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,549,000 barrels per day, still 4.2% less than the 7,879,000 barrel per day average we imported over the same four-week period last year....the 369,000 barrel per day increase in our total crude inventories included a 344,000 barrel per day addition of oil to our commercial stocks of crude oil and a 25,000 barrel per day addition to our Strategic Petroleum Reserve...this week's 86,000 barrel per day increase in our crude oil production included a 80,000 barrel per day increase in output from wells in the lower 48 states and a 6,000 barrel per day increase in output from Alaska...the 10,369,000 barrels of crude per day that were produced by US wells during the week ending March 2nd was the highest on record, 14.1% more than the 9,088,000 barrels per day that US wells were producing during the week ending March 3rd of last year, and 23.0% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 88.0% of their capacity in using those 15,935,000 barrels of crude per day, up from 87.8% of capacity the prior week, but way down from the wintertime record 96.7% of capacity set nine weeks earlier, as some US refineries are still down due to pre-spring blend changeover and scheduled maintenance...the 15,935,000 barrels of oil that were refined this week were 9.5% 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 2.9% more than the 15,492,000 barrels of crude per day that were being processed during the week ending March 3rd, 2017, when refineries, also undergoing seasonal maintenance at the time, were operating at 85.9% of capacity....

even with the small increase in the amount of oil being refined, gasoline output from our refineries saw a big jump, increasing by 532,000 barrels per day to 9,923,000 barrels per day during the week ending March 2nd, after gasoline output had decreased by 717,000 barrels per day the prior week....that increase meant our gasoline production was 0.8% greater during the week than the 9,844,000 barrels of gasoline that were being produced daily during the week ending March 3rd of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 127,000 barrels per day to 4,596,000 barrels per day, after falling by 660,000 barrels per day over the prior 3 weeks...thus that increase still left the week's distillates production 3.7% lower than the 4,773,000 barrels of distillates per day than were being produced during the equivalent week of 2017....   

the big jump in our gasoline production notwithstanding, our supply of gasoline in storage at the end of the week still fell by 788,000 barrels to 251,029,000 barrels by March 2nd, in just the second decrease in 17 weeks....our supplies were down because our domestic consumption of gasoline rose by 416,000 barrels per day to 9,276,000 barrels per day, and because our exports of gasoline rose by 224,000 barrels per day to 760,000 barrels per day, while our imports of gasoline rose by 162,000 barrels per day to 608,000 barrels per day...but since our gasoline supplies have increased 15 of the last seventeen weeks, our gasoline inventories are fractionally higher than last March 3rd's level of 249,334,000 barrels, and roughly 5.9% above the 10 year average of gasoline supplies for this time of the year...        

likewise, even with the week's increase in distillates production, our supplies of distillate fuels still fell by 559,000 barrels to 137,426,000 barrels over the week ending March 2nd, after falling by 3,382,000 barrels the prior two weeks...that was as the amount of distillates supplied to US markets, a proxy for our domestic consumption, inched up by 5,000 barrels per day to 3,926,000 barrels per day, while our exports of distillates rose by 123,000 barrels per day to 1,015,000 barrels per day and while our imports of distillates rose by 58,000 barrels per day to 265,000 barrels per day...after this week’s inventory decrease, our distillate supplies were 14.9% lower at the end of the week than the 161,532,000 barrels that we had stored on March 3rd, 2017, and 3.5% lower than the 10 year average of distillates stocks at this time of the year…  

finally, with our oil imports up and oil demand metrics little changed, we were able to add to our commercial supplies of crude oil for the 6th time in 16 weeks and for the 15th time in the past 51 weeks, as our commercial crude supplies increased by 2,408,000 barrels, from 423,498,000 barrels on February 23rd to 425,906,000 barrels on March 2nd....but even with increases in five out of the last six weeks, our oil inventories as of that date were 19.4% below the 528,393,000 barrels of oil we had stored on March 3rd of 2017, and 13.2% lower than the 490,843,000 barrels of oil that we had in storage on March 5th of 2016, even as they were still 2.5% greater than the 415,425,000 barrels of oil we had in storage on March 6th of 2015, at a time when the US glut of oil had barely begun to build...  

This Week's Rig Count

US drilling activity increased for 7th time in the past 10 weeks during the week ending March 9th, a period which has seen the increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 3 rigs to 984 rigs in the week ending on Friday, which was also 216 more rigs than the 768 rigs that were deployed as of the March 10th 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 fell by 4 rigs to 796 rigs this week, in the first drop in oil drilling in 7 weeks...but those 796 rigs were still 179 more oil rigs than were running a year ago, even as 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 increased by 7 rigs to 188 rigs this week, which was also 37 more gas rigs than the 151 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...

drilling was stopped from another platform in the Gulf of Mexico this week, leaving just 13 rigs active in the Gulf or anywhere in the offshore US, which was down by 7 rigs from the 20 rigs that were deployed in the Gulf of Mexico a year ago, and the least rigs working in the Gulf in Baker Hughes records going back to January 7, 2000, a time when there were 123 rigs drilling in the Gulf....meanwhile, the week's count of active horizontal drilling rigs was up by a single rig to 848 horizontal rigs this week, which was still up by 209 rigs from the 639 horizontal rigs that were in use in the US on March 10th 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 was up by 2 rigs to 61 vertical rigs this week, which was still down from the 68 vertical rigs that were in use during the same week of last year...meanwhile, the directional rig count was unchanged at 75 directional rigs this week, which was still up from the 61 directional rigs that were deployed on March 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 March 9th, the second column shows the change in the number of working rigs between last week's count (March 2nd) and this week's (March 9th) count, the third column shows last week's March 2nd 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 10th of March, 2017...    

March 9 2018 rig count summary

despite the 7 rig increase of drilling rigs targeting natural gas, neither the Utica or the Haynesville was affected, with a single rig addition in the Marcellus in Pennsylvania the only major gas basin to see a rig addition...natural gas rigs were also added in the Arkoma Woodford and the Cana Woodford of Oklahoma, which simultaneously saw seven oil rigs shut down, and in 4 other locations not specified in Baker Hughes summaries...drilling in the Utica was unchanged, with 16 rigs targeting wet gas formations and 7 rigs drilling for oil....however, even as Ohio only saw a single rig added over the past year, production of natural gas from the state's wells increased by 38.4% over a year ago in the 4th quarter, which you'll see in the link from the ODNR below...

 

note:  there’s more here…

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