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, April 22, 2018

natural gas supplies now 38.3% below those of a year ago; DUC well report shows 6.4 month backlog of unfracked wells

oil prices were higher again this week, and they might have reached $70 a barrel for the first time in three and a half years had not Trump tweeted against them on Friday...after jumping nearly 9% to a 41 month high of $67.38 a barrel on widespread war fears last week, US oil prices for May delivery sunk $1.17 to $66.22 a barrel on Monday, as news over the weekend made it clear that the weekend missile strikes against Syria were likely just a one-off event, and that a direct US - Russia military confrontation had been avoided...oil prices then recovered 30 cents to $66.52 a barrel on Tuesday, bolstered by a strong stock market and concern that possible renewed U.S. sanctions against Iran would impact global oil supplies...prices then jumped nearly 3% on Wednesday, topping $68 for the first time in more than three years and closing up $1.95 at $68.47 a barrel, after the Saudis indicated an oil price target of $80 or even $100, and the EIA reported that U.S. stockpiles fell across the board....oil prices were up more than a dollar again on Thursday morning, hitting highs not seen since November 2014, before pulling back from that three-and-a-half-year high and closing down 18 cents at $68.29 a barrel, after oil ministers meeting in Saudi Arabia said that the global glut of crude supplies has nearly vanished....oil prices then dropped to as low as $67.50 on Friday morning, after Trump criticized OPEC, tweeting "Looks like OPEC is at it again,” “Oil prices are artificially Very High! No good and will not be accepted!” but later stabilized to close up 9 cents at $68.38 a barrel, after OPEC ministers pushed back, saying prices were not artificially inflated, and that they had no specific price objective in stabilizing oil markets...oil prices thus posted a second straight weekly gain as the May contract expired on Friday, while the new front month contract for June oil closed up 7 cents at $68.40 a barrel, for a 1.6% gain on the week...

natural gas prices for May, on the other hand, were little changed over the week, rising 1.7 cents on Monday, falling 1.4 cents on Tuesday, inching up a tenth of a cent on Wednesday, then falling 7.9 cents on Thursday despite a surprisingly large draw from gas supplies, but then gaining that entire 7.9 cents back on Friday to end the week four-tenths of cent higher at $2.739 per mmBTU, or roughly $2.84 a thousand cubic feet....the week's natural gas storage report from the EIA indicated that natural gas in storage in the US fell by 36 billion cubic feet to 1,299 billion cubic feet over the week ending April 13th, which left our gas supplies 808 billion cubic feet, or 38.3% lower than the 2,107 billion cubic feet that were in storage on April 14th of last year, and 449 billion cubic feet, or 25.7% below the five-year average of 1,748 billion cubic feet typically in storage after the second week of April...that large of a withdrawal was unexpected, and any withdrawal of gas from storage in April is unusual, as the heating season officially ended on March 31st with 1,351 billion cubic feet of natural gas in storage in the US, the lowest level at the end of winter since 2014 and the 2nd lowest amount of gas in storage as that date in the short history of the storage report...however, after that official end of the natural gas withdrawal season, we've now seen two more weeks of draw downs, which we're able to see quite clearly in the following graph...

April 19 2018 nat gas in storage as of April 13 via Kemp

the above graph came 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 April 13th 2018 as a red line, the quantity of natural gas in storage in the lower 48 states over the "prior year" from the period shown by the graph, which would thus be 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 those same dates shown as a dashed blue line...at the same time, the light blue shaded background shows us 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, fluctuating of course depending on the temperature related heating needs during any given season...

however, we can see that the red line for this year's natural gas supplies has continued to fall over the past two weeks, while the blue-dashed average of gas in storage, and the yellow line for last year's gas in storage had already turned higher by mid-April...the 36 billion cubic foot drop in supplies referenced by this report compares to an average 38 billion cubic foot build in supplies for the typical second week in April, and the 47 billion cubic feet of natural gas that was added to storage in the week ending April 14th of last year...in fact, if we check the Historical Record of Natural Gas in Working Underground Storage for the Lower 48 States, we can't find any year where there has been a withdrawal of natural gas from storage as late in the year as the 2nd week of April...even the polar vortex of 2014 saw natural gas supplies inch up at the end of March, and saw an increase of 49 billion cubic feet of gas in storage by the week ending April 18th of that year...moreover, the week ending April 20th this year, not yet reported or shown above, is at risk of another withdrawal, since the past week has seen another arctic weather outbreak over the eastern half of the country, where natural gas consumption is the highest...but whatever happens this week, however, it's clear that we will start this year's natural gas injection season with a large deficit...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending April 13th, was almost a reversal of the prior week's, in that it showed that due to a big drop in our oil imports and a big jump in our oil exports, our refineries had to pull oil out of our commercial crude supplies for the fifth time in the past twelve weeks...our imports of crude oil fell by an average of 720,000 barrels per day to an average of 7,930,000 barrels per day during the week, after rising by 752,000 barrels per day the prior week, while our exports of crude oil rose by an average of 544,000 barrels per day to an average of 1,749,000 barrels per day during the week, after falling by 970,000 barrels per day the prior week, which meant that our effective trade in oil over the week ending the 13th worked out to a net import average of 6,181,000 barrels of per day during the week, 1,264,000 barrels per day less than our net imports during the prior week...at the same time, field production of crude oil from US wells rose by 15,000 barrels per day to a record high of 10,540,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,721,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,949,000 barrels of crude per day, 70,000 barrels per day less than they used during the prior week, while at the same time 153,000 barrels of oil per day were being pulled out of oil storage facilities in the US....consequently, this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 75,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+75,000) 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"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports actually rose to an average of 8,157,000 barrels per day, which was 2.7 more the 7,941,000 barrel per day average we imported over the same four-week period last year, the first time our 4 week average imports topped the year ago averages this year....the 153,000 barrel per day withdrawal from our total crude inventories was all taken from our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged...this week's 15,000 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 10,000 barrel per day decrease in output from Alaska...the 10,540,000 barrels of crude per day that were produced by US wells during the week ending April 13th were the highest on record, 13.9% more than the 9,252,000 barrels per day that US wells were producing during the week ending April 14th of last year, and 25.1% 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 92.4% of their capacity in using those 16,949,000 barrels of crude per day, down from 93.5% of capacity the prior week, and and down from the off-season record 96.7% of capacity set during the last week of 2017....hence, the 16,949,000 barrels of oil that were refined this week were 3.7% less than the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, but were statistically unchanged from the 16,938,000 barrels of crude per day that were being processed during the week ending April 14th, 2017, when refineries were operating at 92.9% of capacity....

even with the modest decrease in the amount of oil being refined, gasoline output from our refineries was higher than the prior week, increasing by 54,000 barrels per day to 10,204,000 barrels per day during the week ending April 13th, after our refineries' gasoline output had increased by 35,000 barrels per day during the week ending April 6th....that increase meant that our gasoline production was 4.2% greater during the week than the 9,794,000 barrels of gasoline that were being produced daily during the week ending April 14th of last year....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 162,000 barrels per day to 5,094,000 barrels per day, after rising by 753,000 barrels per day over the prior three weeks....still, that decrease meant the week's distillates production was 1.1% less than the 5,150,000 barrels of distillates per day than were being produced during the week ending April 14th, 2017....    

even with the modest increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 2,968,000 barrels to 235,967,000 barrels by April 13th, the sixth decrease in 7 weeks, but just the 7th decrease in 23 weeks, as gasoline is typically added to storage over the winter months...our gasoline supplies fell because our domestic consumption of gasoline rose by 548,000 barrels per day to a record high of 9,857,000 barrels per day, even while our exports of gasoline fell by 142,000 barrels per day to 647,000 barrels per day, and while our imports of gasoline rose by 50,000 barrels per day to 705,000 barrels per day...with this week's decrease, our gasoline inventories are now 0.7% lower than last April 14th's level of 237,672,000 barrels, even as they remain roughly 7.8% above the 10 year average of gasoline supplies for this time of the year...         

since we have a new record high for domestic gasoline consumption this week, we'll include a graph of the recent history of that metric...

April 18 2018 gasoline supplied week of April 13

the above graph came from a package of oil graphs on this report that John Kemp mailed out on Wednesday, and it shows gasoline supplied to US markets in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our gasoline usage for any given date shown in the light blue shaded area, and the median of our gasoline consumption, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of gasoline supplied for each week in 2017 traced weekly by a yellow line, and our year to date gasoline consumption for 2018 represented by the red graph...as John notes at the top, that red line shows that gasoline supplied rose to a record high of 9.68 million barrels per day with this week's report, which is especially notable in that it happened in April, when as you can see, the summer months are usually the highest months for gasoline consumption...note that this 'gasoline product supplied' number does not necessarily mean that driving increased by that much, as it represents deliveries of gasoline to wholesalers, rather than retail sales, which nonetheless would not have set a record unless retail sales to drivers had demanded a restocking by gasoline wholesalers..

meanwhile, with this week's decrease in distillate's production, our supplies of distillate fuels fell by 3,017,000 barrels to 125,340,000 barrels over the week ending April 13th, the 5th decrease in six weeks and the largest drop since the beginning of January...our distillate inventories fell because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 186,000 barrels per day to 4,356,000 barrels per day, and because our imports of distillates fell by 22,000 barrels per day to 103,000 barrels per day, while our exports of distillates fell by 75,000 barrels per day to 1,285,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 15.5% lower than the 148,266,000 barrels that we had stored on April 14th, 2017, and roughly 7.4% lower than the 10 year average of distillates stocks at this time of the year…    

finally, due to the drop in our oil imports and the jump in our oil exports, we had to take oil out of our commercial supplies of crude oil for the 7th time in 2018 and for the 36th time in the past year, as our commercial crude supplies decreased by 1,071,000 barrels, from 428,638,000 barrels on April 6th to 427,567,000 barrels on April 13th...hence, after falling most of the past year, our oil inventories as of April 13th were 19.7% below the 532,343,000 barrels of oil we had stored on April 14th of 2017, 15.7% lower than the 507,312,000 barrels of oil that we had in storage on April 15th of 2016, and 6.3% below the 456,271,000 barrels of oil we had in storage on April 17th of 2015, at a time when the US glut of oil had already begun to surge from the stable levels of prior years...  

This Week's Rig Count

US drilling activity increased for the eighth time in the past nine weeks and for 17th time in the past 24 weeks during the week ending April 20th, a period of higher oil prices that has consequentially seen the rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 1013 rigs in the week ending on Friday, which was also 156 more rigs than the 857 rigs that were in use as of the April 21st report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014... 

the number of rigs drilling for oil increased by 5 rigs to 820 rigs this week, which was also 132 more oil rigs than were running a year ago, while it was still 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 was unchanged at 192 rigs this week, which was just 25 more gas rigs than the 167 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...in addition, there is also a rig drilling currently that was listed as "miscellaneous", unchanged from last week, but down from the 2 "miscellaneous" rigs that were operating a year ago.

new drilling began from 2 more platforms in the Gulf of Mexico this week, increasing current drilling activity in the Gulf to 18 rigs, which was still 2 rigs less than were working in the Gulf, or anywhere offshore, a year ago...meanwhile, the count of active horizontal drilling rigs increased by 6 rigs to 889 horizontal rigs this week, which was 171 more horizontal rigs than the 718 horizontal rigs that were in use in the US on April 21st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014... meanwhile, the directional rig count was unchanged at 70 rigs this week, which was still up from the 60 directional rigs that were in use during the same week of last year....on the other hand, the vertical rig count decreased by 1 rig to 54 vertical rigs this week, which was also down from the 79 vertical rigs that were deployed on April 21st 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 April 20th, the second column shows the change in the number of working rigs between last week's count (April 13th) and this week's (April 20th) count, the third column shows last week's April 13th active rig count, the 4th column shows the change between the number of rigs running on Friday and as of the equivalent weekend report of 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 on Thursday the 21st of April, 2017...      

April 20 2018 rig count summary

obviously, this was another week when the whole increase in drilling was in the Permian of west Texas, while rigs the rest of the country were just shifting around like chickens in a barnyard...the largest decrease resulting from that shifting was in the Cana Woodford of Oklahoma, which was down 4 rigs to 61 rigs, which nonetheless only subtracted 1 from the Oklahoma total, as rigs were evidently added elsewhere in the state, likely including the two rigs added in the Mississippian lime near the Kansas border...note that drilling in the Utica shale was down by two rigs this week, both of which were targeting natural gas, one in Pennsylvania and one in Ohio...despite that, the natural gas directed rig count remained unchanged because two natural gas rigs were added in the Eagle Ford of south Texas, where one oil rig was shut down at the same time...that left the Eagle Ford with 68 oil rigs, and 8 drilling for natural gas...also note that other than the major producing states shown above, both Alabama and Indiana had rigs start up this week...for Alabama, that single rig is still down from the two rigs working in the state a year ago, while for Indiana, their new rig represents the first drilling the state has seen since February of 2017...

DUC well report for March

Monday of this week saw the release of the EIA's Drilling Productivity Report for April, which includes the EIA's March data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...we last looked at this monthly report in August of last year, when they consolidated their reporting on the Utica shale and the Marcellus into a single geographic unit labeled 'the Appalachia region", while at the same time initiating coverage on the Anadarko region, which includes 24 Oklahoma and 5 Texas counties, and which includes the STACK and SCOOP reservoirs in the Woodford shale, and the Granite Wash tight sands band transversing the Oklahoma Texas Panhandle border....the productivity report itself gets little coverage, as some writers are put off by the seemingly exact projections of yield per rig for the month ahead, which are inaccurate in themselves in that the action of drilling does not yield product until the wells are fracked, which could be months later...nonetheless, the data on drilled but uncompleted wells (DUCs) gives us a good idea of how many wells are being drilled, how many are being completed, and the backlog of those left to complete in each basin...

for March, this report once again showed a large increase in uncompleted wells nationally, mostly because of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin of west Texas, but also because of modest growth in uncompleted wells in the Eagle Ford of south Texas...for all 7 sedimentary regions covered by this report, the total count of DUC wells increased by 94, from 7,598 wells in February to 7,692 wells in March, the eighteenth consecutive monthly increase in uncompleted wells, and hence again the highest number of such unfracked wells in the history of this report....that was as 1291 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) and 1197 wells were completed and brought into production by fracking...hence, at the March completion rate, the 7,692 drilled but uncompleted wells left at the end of March represent a 6.4 month backlog of wells that have been drilled but not yet fracked...

as has been the case for most of the past two years, the March DUC increases were predominantly oil wells, with most of those in the Permian basin...the Permian saw its total count of uncompleted wells rise by 122, from 2,922 DUC wells in February to 3,044 DUCs in March, as 566 new wells were drilled into the Permian but only 444 wells in the region were fracked...at the same time, DUC wells in the Eagle Ford of south Texas rose by 22, from 1,485 DUC wells in February to 1,507 DUCs in March, as 182 wells were drilled in the Eagle Ford during March, while 160 Eagle Ford wells were completed...meanwhile, DUC wells in the Anadarko region rose by 4, from 991 DUC wells in February to 995 DUCs in March, as 141 wells were drilled in the Anadarko region in March while 137 drilled wells in the basin were completed....in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory increase by one to 175, as 54 wells were drilled into the Haynesville, while 53 Haynesville wells were fracked during the same period....on the other hand, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 15 wells, from 764 DUCs in February to 749 DUCs in March, as 104 wells were drilled into the Marcellus and Utica shales, while 119 of the already drilled wells in the region were fracked...meanwhile, DUC wells in the Niobrara chalk of the Rockies front range decreased by 39 to 506, as just 144 Niobrara wells were drilled while 183 Niobrara wells were being fracked...lastly, DUC wells in the Bakken of North Dakota decreased by 1 to 716, as 100 wells were drilled into the Bakken while 101 Bakken wells were fracked...

thus, for the month of March, DUCs in the 5 oil basins tracked by in this report (ie., Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) increased by 108 wells to 6,768 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 14 wells to 924 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...

 

note:  there’s more here…

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