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 1, 2018

new oil well breakeven price charts; US offshore drilling lowest on record, all 7 Utica shale oil rigs shut down..

oil prices fell from last Friday's eight week high over the first three days of trading this week, but rebounded to recover part of their losses on Thursday, supported by a Wall Street rally and a weak dollar....after rising $3.45 a barrel to $65.88 a barrel last week, US light crude for May delivery opened 45 cents higher on Monday and briefly reached $66.55 a barrel before profit taking set in and drove prices lower, with prices ending down 33 cents at $65.55 a barrel at the close, as traders weighed the effect of trade tensions between the U.S. and China on prices...oil then fell another 30 cents to $65.25 a barrel on Tuesday as traders hedged their bets against an expected rise in crude inventories...prices fell again on Wednesday, when the weekly EIA report indicated a larger increase in oil supplies than market participants had anticipated, with May US crude ending down 87 cents at $64.38 a barrel...oil prices then rebounded 56 cents on Thursday to close at $64.94, as news that OPEC and Russia were working on a 10 to 20 year agreement to throttle supplies and other geopolitical concerns drove prices higher...since most markets were closed for Good Friday, oil prices ended the week with a loss of 94 cents or 1.34%, while they ended the first quarter 7.5% higher than at the end of 2017, the third straight quarterly rise...

to help us make some sense out of those oil prices, this week we have the results of the First Quarter Dallas Fed Energy Survey, wherein the Fed questioned 140 oil companies as to what oil prices they needed to run their current operations, and what prices they needed to turn a profit when drilling a new well...the Dallas Fed does these energy surveys every quarter during the year, but just once a year do they include a set of Special Questions about oil prices...during the period between March 14th and March 22nd, 136 oil and gas firms responded to the special questions survey...the first question they asked these companies was what oil price they needed to cover their operating expenses on existing wells, and the results are shown graphically below..

March 28 2018 operating expenses breakeven via Dallas Fed

in the above graph, the blue, brick, yellow, orange, green, and turquoise colored bars represent the price range of oil price responses to that operating expenses question given by oil company executives with operations in the Permian Midland shale, the SCOOP/STACK of Oklahoma, the Permian Delaware, other US oil producing shale basins, other Permian shale wells, and the Bakken shale of North Dakota respectively...in addition, the violet bar on the far right represents the price range of operating expenses answers given by oil company executives with producing oil wells in non shale areas...across the bottom they've indicated the number of oil executives that responded to that headline question for each of those basins or collectives...thus, what the blue bar tells us is that for 15 oil execs with wells in the Permian Midland shale, at least one company needs $50 a barrel oil to cover its operating expenses, at least one can cover its expenses at $12 a barrel oil, and the average price needed to cover operating expenses for all  oil companies producing oil in that basin is $25...likewise, we can see that at least one oil executive with wells in the SCOOP/STACK can cover his expenses at $4 a barrel, but the average oil price needed by the 6 execs with wells in that basin is $27...as the Dallas Fed says, almost all respondents can cover operating expenses for existing wells at "current spot prices", which were $66 per barrel on March 23rd...

next we have a similar graphic showing what oil price each of those respondents said they needed to profitably drill a new well:

March 28 2018 well drilling breakeven via Dallas Fed

in the above graph, the blue, yellow, turquoise, green, brick, and orange colored bars represent the price range of oil price responses to that question given by oil company executives with operations in the Permian Midland basin, the Permian Delaware basin, the Bakken shale of North Dakota, other Permian shale wells, the SCOOP/STACK of Oklahoma, and all other oil producing shale basins respectively...in addition, the violet bar on the far right represents the price range of answers given by oil company executives who might be drilling new wells non shale areas...again, across the bottom of the graphic, they've indicated the number of oil executives that responded for each of those basins or collectives...thus, what this graphic shows is that within the Permian's Midland basin (blue), the average breakeven oil price among 15 oil executives responding to that question was $47 a barrel, with breakeven prices as low as $20 a barrel to as high as $70 a barrel...similarly, for the 13 oil execs who would be drilling new wells in the Delaware basin of west Texas (yellow), responses ranged from a break even oil price of $39 a barrel to a break even price of $70 a barrel, with the average response for those drilling in that basin at $49 a barrel....next, four oil execs with operations in the Bakken shale (turquoise) said they could break even in a range between $40 and $60 a barrel, with an average breakeven of $50 a barrel; then 18 drillers in the other parts of the Permian basin said they could break even with oil prices in a range between $40 and $72 a barrel, with an average of $52 a barrel...7 oil execs who are drilling in the SCOOP/STACK of Oklahoma felt they could be profitable in drilling for oil with oil prices from a low of $39 a barrel to a high of $64 a barrel, with the average response from those 7 at $53 a barrel...next, the orange bar represents the responses the Dallas Fed got from companies with assets in other shale plays, which would include at least the Eagle Ford of Texas and the Niobrara of the Rockies; the seven responses from those other shale plays were between $30 and $70 a barrel, with an average break-even price of $54 a barrel...finally, the purple bar represents responses the Dallas Fed got from oil company executives who were exploiting non-shale oil deposits; there were 34 responses from such executives, with some feeling they could break-even at $20 oil, and others saying they needed at least $70 a barrel oil to be profitable...

needless to say, today's prices are obviously sufficient for new drilling to begin in the majority of oil shale plays...88% of the oil executives polled said they could be profitable at prices under $66 a barrel, which was the March 23rd oil price sited by this survey, just a dollar more than this week's closing price...of course, what price they get when the oil starts to flow months after drilling commences might be quite different, so most try to lock in a price by contracting to sell their output at a pre specified price...at this time, future's prices are a bit lower than those of the widely quoted front month, so that would also shut out a small portion of those oil companies who would otherwise drill at today's price...in Ohio, we saw oil drilling rigs increase by 7 after oil prices pushed above $65 in late January, so although regional Utica shale drillers weren't queried in this survey, that price also seems to be above the breakeven for oil drilling in the northern part of our state...

natural gas prices, meanwhile, ended the week higher on forecasts of continued colder than normal temperatures in the eastern half of the country through mid-April, and a larger than expected withdrawal of natural gas from storage for the week ending March 23rd...the contract to delivery natural gas in May rose 2.4 cents on Monday, another 5.7 cents on Tuesday, then fell 1.6 cents on Wednesday before rising 3.5 cents to $2.733 per mmBTU on Thursday after the storage report....unlike oil prices, these prices are seen to be below breakeven for most natural gas plays, since it has historically taken a natural gas price over $4 per mmBTU to generate a sustained increase in drilling...that may change, however, as additional pipelines distribute gas from areas where there is now a surplus to interstate pipelines feeding export terminals...the week's natural gas storage report indicated that natural gas in storage in the US fell by 63 billion cubic feet to 1,383 billion cubic feet over the week ending March 23rd, which left our gas supplies 672 billion cubic feet, or 32.7% lower than the 2,055 billion cubic feet that were in storage on March 24th of last year, and 346 billion cubic feet, or 20.0% below the five-year average of 1729 billion cubic feet typically in storage at the end of the twelfth week of the year....the average withdrawal of natural gas during the twelfth week of the year over the past 5 years has been 46 billion cubic feet, so the cited week exceeded the normal withdrawal by 17 billion cubic feet, in what still has been a warmer than average winter nationally...

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 23rd, showed a big jump in our oil imports while most other metrics were little changed, and hence we were able to add oil to storage for the 6th time in the past 9 weeks...our imports of crude oil rose by an average of 1,071,000 barrels per day to an average of 8,148,000 barrels per day during the week, after falling 508,000 barrels per day the prior week, while our exports of crude oil rose by an average of 5,000 barrels per day to an average of 1,578,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 6,570,000 barrels of per day during the week, 1,066,000 barrels per day more than out net imports during the prior week...at the same time, field production of crude oil from US wells rose by 26,000 barrels per day to a record high of 10,433,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,003,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 16,795,000 barrels of crude per day, 18,000 barrels per day more than they used during the prior week, while at the same time 235,000 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 working supply of oil from net imports and from oilfield production was 27,000 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 (+27,000) 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 for" oil, is explained here)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,703,000 barrels per day, which was still 4.0% less than the 8,022,000 barrel per day average we imported over the same four-week period last year....the 235,000 barrel per day increase in our total crude inventories was all added our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged...this week's 26,000 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, and a 1,000 barrel per day increase in output from Alaska...the 10,433,000 barrels of crude per day that were produced by US wells during the week ending March 23rd were the highest on record, 14.1% more than the 9,147,000 barrels per day that US wells were producing during the week ending March 24th of last year, and 23.8% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

meanwhile, US oil refineries were operating at 92.3% of their capacity in using those 16,795,000 barrels of crude per day, up from 91.7% of capacity the prior week, but still down from the wintertime record 96.7% of capacity set twelve weeks earlier, as US refineries have just come out of their pre-spring blend changeover and scheduled maintenance season....nonetheless, the 16,795,000 barrels of oil that were refined this week was a seasonal record, the most oil that refineries ever processed during February or March...while that elevated level of refining was still 4.6% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 3.5% more than the 16,226,000 barrels of crude per day that were being processed during the week ending March 24th, 2017, when refineries were operating at 89.3% of capacity....

with the amount of oil being refined little changed, gasoline output from our refineries was higher than the prior week, increasing by 373,000 barrels per day to 10,305,000 barrels per day during the week ending March 23rd, after our gasoline output had decreased by 348,000 barrels per day during the week ending March 16th....as a result, our gasoline production was 2.8% greater during the week than the 10,028,000 barrels of gasoline that were being produced daily during the week ending March 24th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 341,000 barrels per day to 4,844,000 barrels per day, after falling by 646,000 barrels per day over the prior 6 weeks...hence, that increase still left the week's distillates production fractionally lower than the 4,872,000 barrels of distillates per day than were being produced during the equivalent week of 2017....    

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 3,472,000 barrels to 239,593,000 barrels by March 23rd, the fourth draw from supplies in a row, but just the fifth decrease in 20 weeks....our supplies were down even though our domestic consumption of gasoline fell by 116,000 barrels per day to 9,208,000 barrels per day, after falling by 318,000 barrels per day the prior week...that was because our exports of gasoline rose by 413,000 barrels per day to 1,099,000 barrels per day, while our imports of gasoline rose by 121,000 barrels per day to 685,000 barrels per day...so even though our gasoline supplies have increased during 15 of the last twenty weeks, our gasoline inventories are still fractionally lower than last March 24th's level of 239,721,000 barrels, even as they are roughly 6.7% above the 10 year average of gasoline supplies for this time of the year...         

likewise, even with the production increase, our supplies of distillate fuels fell by 2,090,000 barrels to 128,954,000 barrels over the week ending March 23rd, after falling by 6,382,000 barrels the prior two weeks...our distillate inventories fell again largely because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 458,000 barrels per day to 4,375,000 barrels per day, while our exports of distillates fell by 79,000 barrels per day to 918,000 barrels per day, and while our imports of distillates rose by 28,000 barrels per day to 150,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 15.7% lower than the 152,910,000 barrels that we had stored on March 24th, 2017, and roughly 7.9% lower than the 10 year average of distillates stocks at this time of the year…   

finally, due to the big increase in our oil imports, we were able to add to our commercial supplies of crude oil for the 8th time in 19 weeks and for the 16th time in the past year, as our commercial crude supplies increased by 1,643,000 barrels, from 428,306,000 barrels on March 16th to 429,949,000 barrels on March 23rd ...however, after falling most of the past year, our oil inventories as of that date were still 19.5% below the 533,977,000 barrels of oil we had stored on March 24th of 2017, 14.7% lower than the 503,816 ,000 barrels of oil that we had in storage on March 26th of 2016, and 1.8% below the 437,983,000 barrels of oil we had in storage on March 27th of 2015, at a time when the US glut of oil had already begun to surge...

This Week's Rig Count

US drilling activity decreased for the first time in six weeks and for just the 6th time in the past 21 weeks during the week ending March 30th, a period of rising oil prices that has seen the rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rigs to 993 rigs in the week ending on Friday, which was sill 169 more rigs than the 824 rigs that were in use as of the March 31st 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 fell by 7 rigs to 797 rigs this week, which was still 135 more oil rigs than were running a year ago, while it was also 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 4 rigs to 194 rigs this week, which was also 34 more gas rigs than the 160 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, another rig that was considered "miscellaneous" started drilling this week, so now there are two such "miscellaneous" rigs active, the same number of "miscellaneous" rigs that were operating a year ago.

with a rig offshore from Texas shut down this week, drilling in the Gulf of Mexico fell to 12 rigs, which was the lowest number of rigs working in the Gulf or nationally in Baker Hughes records dating back to 1968, & down by 10 rigs from the 22 rigs that were deployed in the Gulf of Mexico a year ago....at the same time, drilling began from a platform on an inland lake in southern Louisiana this week, increasing the inland waters rig count to 4 rigs, the same number that were working on inland waters in southern Louisiana a year earlier...

meanwhile, the count of active horizontal drilling rigs was unchanged at 870 horizontal rigs this week, which was still up by 185 rigs from the 685 horizontal rigs that were in use in the US on March 31st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...the vertical rig count was also unchanged at 63 vertical rigs this week, which was still down from the 69 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count was down by 2 rigs to 60 directional rigs this week, which was also down from the 70 directional rigs that were deployed on March 31st 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 30th, the second column shows the change in the number of working rigs between last week's count (March 23rd) and this week's (March 30th) count, the third column shows last week's March 23rd active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday 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 for the 31st of March, 2017...   

March 30 2018 rig count summary

from the above table, you wouldn't know that the majority of this week's large increase in rigs targeting natural gas took place in our state, as the 7 oil directed that had been operating in the Utica were all shut down, while 6 natural gas directed rigs started up, although in the case of any or all of those, it could have simply been a shift of an oil directed rig to target a natural gas resource...hence, Ohio alone accounted for the entire national decrease in oil rigs and leaves the state with no oil rigs active for the first time since November 10th...other than that surprising turn, there was also another natural gas rig addition in the Marcellus, where two rigs were added in Pennsylvania, where there are now 42, while one rig was shut down in West Virginia, where there are now 16...

 

note:  there’s more here…

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