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, May 6, 2018

distillate fuel supplies at a 45 month low, down 21% from a year ago; horizontal drilling at a 38 month high

US oil prices approached $70 a barrel in climbing to a new 42 month high this week, while international oil prices as represented by North Sea Brent crude breached the $75 a barrel level early in the week and again on Friday before closing at $74.87...after edging 30 cents lower to $68.10 a barrel over the prior week, contracts for June delivery of US crude rose from a session low of $67.17 a barrel to close 47 cents higher at $68.57 a barrel on Monday, after Israeli Prime Minister Netanyahu presented what he described as new evidence that Iran had lied about its nuclear capabilities, which spooked oil traders into thinking the Iran nuclear deal was in jeopardy...however, oil prices fell $1.32 or 2.5% to $67.25 a barrel on Tuesday, after the US dollar strengthened and Netanyahu's revelations were widely debunked...oil prices then turned higher again on Wednesday, rising 68 cents to $67.93 a barrel, after the Fed held US interest rates steady and expressed confidence in higher prices and the International Monetary Fund threatened to expel Venezuela and cut its funding for its failure to provide adequate economic data...oil prices added another 50 cents on Thursday to close at $68.43 a barrel, boosted by OPEC production cuts and the potential for new U.S. sanctions against Iran, with further gains limited by growing U.S. crude inventories...with growing concerns over the economic crisis in Venezuela and the May 12th deadline for Trump's approval of the Iran treaty looming, US oil prices pushed up to as high as $69.97 on Friday before settling at $69.72 a barrel, a three and half year closing high and an increase of $1.62 or 2.4% for the week....

    natural gas prices, on the other hand, were lower 4 out of 5 days this week, but still remained in the narrow 10 cent price band that they've been stuck in since mid-March, as the expected first addition to supplies this year was greater than expected...after falling 8 tenths of a cent on Monday, US natural gas prices for June delivery rose 3.9 cents on Tuesday, then fell a total of 9.1 cents over the next three days to end the week at $2.711 per mmBTU, down 6 cents, or 2.2%, from the prior week's close....the natural gas storage report from the EIA released on Thursday indicated that natural gas in storage in the US rose by 62 billion cubic feet to 1,343 billion cubic feet over the week ending April 27th, which left our gas supplies 903 billion cubic feet, or 40.2% lower than the 2,246 billion cubic feet that were in storage on April 28th of last year, and 534 billion cubic feet, or 28.4% below the five-year average of 1,877 billion cubic feet typically in storage at the end of April....the forecasts had been for a 52 billion cubic foot addition to storage, but while the 62 billion cubic feet actually added beat that, it was still below the 68 billion cubic feet of gas that was added to storage over the week ending April 28th last year, and the 69 billion cubic foot surplus of natural gas normally added to storage during the last week of April...

    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 27th, indicated that due to an increase our oil imports, a decrease in our oil exports, and pullback in the amount of oil used by our refineries, we had surplus oil to add to our commercial crude supplies for the ninth time in the past fourteen weeks...our imports of crude oil rose by an average of 80,000 barrels per day to an average of 8,549,000 barrels per day during the week, after rising by 1,259,000 barrels per day over the prior two weeks, while our exports of crude oil fell from last week's record by an average of 183,000 barrels per day to an average of 2,148,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 27th worked out to a net import average of 6,401,000 barrels of per day during the week, 263,000 barrels per day more than our net imports during the prior week...at the same time, field production of crude oil from US wells rose by 33,000 barrels per day to a record high of 10,619,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,020,000 barrels per day during the reporting week...

    meanwhile, US oil refineries were using 16,561,000 barrels of crude per day during the week ending April 27th, 60,000 barrels per day less than they used during the prior week, while at the same time 824,000 barrels of oil per day were being added to oil storage 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 and from oilfield production was 365,000 fewer barrels per day than what refineries reported they used during the week plus what was reportedly being added to storage...to account for that disparity, the EIA needed to insert a (+365,000) 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 rose to an average of 8,400,000 barrels per day, which was 2.2% more the 8,216,000 barrel per day average we imported over the same four-week period last year...the 824,000 barrel per day addition to our total crude inventories included a 888,000 barrel per day increase in our commercially available stocks of crude oil, partially offset by a 64,000 barrel per day decrease of the oil in our Strategic Petroleum Reserve, possibly a sale of oil mandated by this year's federal budget...this week's 33,000 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 8,000 barrel per day increase in output from Alaska...the 10,619,000 barrels of crude per day that were produced by US wells during the week ending April 27th were the highest on record, 14.3% more than the 9,293,000 barrels per day that US wells were producing during the week ending April 21st of last year, and up by 26% from 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 91.1% of their capacity in using 16,561,000 barrels of crude per day during the week ending April 27th, actually up from 90.8% of capacity the prior week, but still down from the off-season record 96.7% of capacity set during the last week of 2017...the 16,561,000 barrels of oil that were refined this week were the least oil processed since the first week of March, down 5.9% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 3.6% less than the 17,177,000 barrels of crude per day that were being processed during the week ending April 28th, 2017, when refineries were operating at 93.3% of capacity....

    even with the decrease in the amount of oil that was refined this week, gasoline output from our refineries was higher than the prior week, increasing by 159,000 barrels per day to 10,045,000 barrels per day during the week ending April 27th, after our refineries' gasoline output had decreased by 308,000 barrels per day during the week ending April 20th.... with that increase, our gasoline production was 2.7% greater during the week than the 9,783,000 barrels of gasoline that were being produced daily during the week ending April 28th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 18,000 barrels per day to 4,995,000 barrels per day, after falling by 117,000 barrels per day the prior week....however, even with that increase, the week's distillates production was still 2.1% less than the 5,101,000 barrels of distillates per day than were being produced during the week ending April 28th, 2017....   

    with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,171,000 barrels to 237,978,000 barrels by April 27th, just the third increase in 9 weeks, but the 18th increase in 25 weeks, as gasoline inventories are normally built up over the winter months...our gasoline supplies rose as our domestic consumption of gasoline rose by 7,000 barrels per day to 9,090,000 barrels per day, and as our imports of gasoline rose by 27,000 barrels per day to 923,000 barrels per day, while our exports of gasoline rose by 110,000 barrels per day to 901,000 barrels per day...but even with this week's increase, our gasoline inventories are still 1.3% lower than last April 28th's level of 241,232,000 barrels, even as they are now roughly 11.2% above the 10 year average of gasoline supplies for this time of the year...         

    meanwhile, even with this week's small increase in distillates production, our supplies of distillate fuels fell by 3,900,000 barrels to 118,829,000 barrels over the week ending April 27th, the 7th decrease in eight weeks, after falling by 5,628,000 barrels the prior two weeks...our distillate inventories fell again because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 736,000 barrels per day to 4,485,000 barrels per day, even as our exports of distillates fell by 581,000 barrels per day from last week's record high to 1,143,000 barrels per day, while our imports of distillates fell by 47,000 barrels per day to 76,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 21.0% lower than the 150,355,000 barrels that we had stored on April 28th, 2017, and roughly 13.8% lower than the 10 year average of distillates stocks at this time of the year…with our distillate supplies approaching a 4 year low, we'll take a quick look at a graph of what that looks like, compared to recent history:

    May 2 2018 distillate supplies as of April 27

    in the graph above, copied from the weekly Petroleum Status Report (pdf), the blue line shows the recent track of US distillate inventories in millions of barrels over the period from June 2016 to April 27, 2018, while the grey shaded area represents the range of distillate inventories in millions of barrels as reported weekly by the EIA over the 5 years prior to the time of year shown by the blue line, ie, on the extreme left of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to June 2011, while on the right side of the graph, the grey shaded area shows shows the 5 year range of distillate inventories back to May 2013...as we can see by the blue line, as recently as February 2017 our distillate supplies were at an all time high, but in the 14 months since then, they've fallen to a 45 month low, largely because we've been exporting diesel fuel at a record pace...only at the end of the polar vortex winter of 2014 were our distillate fuel supplies lower than they are now, then due to the exceptionally large use of heat oil...

    finally, because of the increase our oil imports and the decrease in our oil exports, we were able to add to our commercial supplies of crude oil for the 10th time in 2018 and for the 17th time in the past year, as our commercial crude supplies increased by 6,218,000 barrels during the week, rising from 429,737,000 barrels on April 20th to 435,955,000 barrels on April 27th...however, after falling most of the past year, our oil inventories as of April 27th were still 17.4% below the 527,772,000 barrels of oil we had stored on April 28th of 2017, 14.9% lower than the 512,095,000 barrels of oil that we had in storage on April 29th of 2016, and 4.0% below the 458,181,000 barrels of oil we had in storage on May 1st of 2015, during a period 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 tenth time in the past eleven weeks and for 19th time in the past 26 weeks during the week ending May 4th, 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 11 rigs to 1032 rigs in the week ending on Friday, which was also 155 more rigs than the 877 rigs that were in use as of the May 5th 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 week before OPEC began their attempt to flood the global oil market...

    the number of rigs drilling for oil increased by 9 rigs to 834 rigs this week, which was also 131 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 increased by 1 rigs to 196 rigs this week, which was 23 more gas rigs than the 173 natural gas rigs that were drilling a year ago, but way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, one rig began drilling that was listed as "miscellaneous", and there are now two such miscellaneous rigs deployed, up from the 1 "miscellaneous" rig that was operating a year ago.

    drilling activity in the Gulf of Mexico increased by one rig to 19 rigs rig this week, which is up from the 18 rigs drilling in the Gulf of Mexico a year ago...however, a year ago there was also a rig drilling offshore from Alaska, so the total offshore count of 19 rigs is the same as that of last May 5th...on the other hand, three of the platforms which had been drilling on inland lakes in southern Louisiana were shut down this week, leaving just 2 remaining, down from the 5 rigs that were deployed on inland waters a year ago..

    the count of active horizontal drilling rigs increased by 12  rigs to 913 horizontal rigs this week, which was the most horizontal rigs active since February 27, 2015, and 179 more horizontal rigs than the 734 horizontal rigs that were in use in the US on May 5th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count also increased by 3 rigs to 55 vertical rigs this week, which was still down from the 76 vertical rigs that were in use during the same week of last year... on the other hand, the directional rig count was down by 4 rigs to 64 rigs this week, which was also down from the 67 directional rigs that were deployed on May 5th 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 May 4th, the second column shows the change in the number of working rigs between last week's count (April 27th) and this week's (May 4th) count, the third column shows last week's April 27th 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 Friday the 5th of May, 2017...     

    May 4 2018 rig count summary

    as we can see from the basin table above, once again the Permian basin increase of 6 rigs accounted for the lion's share of this week's oil drilling increase, but in this week's case it was not in Texas, as New Mexico saw the 6 rig increase while the drilling in the Permian districts of Texas was unchanged...meanwhile, the single rig targeting natural gas was added in the Haynesville; as you can see, rig counts in both the Marcellus and Utica shale were unchanged...and in addition to the major producing states shown above, Mississippi saw two of their 5 rigs shut down this week, but at 3 rigs their count is still up from the 1 rig that was working the state a year ago, while Florida saw the first drilling rig operating in the state since August 2015...

    * * *

    on Tuesday of this week, the EIA's daily blog "Today in Energy" had some interesting and informative graphs accompanying their post titled U.S. crude oil production efficiency continues to improve that tie in to our discussion last week about why the number of rigs drilling for any given week has become decoupled from expected oil production at some future date...since we're segueing this from the weekly rig count discussion, we'll start with their graph showing the historical rig counts in each of the major US shale oil basins...

    May 2 2018 rig count by region

    as noted, the above graph came from the EIA post titled U.S. crude oil production efficiency continues to improve, and it shows the average number of rigs deployed monthly over the 11 years from the beginning of 2007 to the end of 2017, with the map insert providing a color coded key to the graph...as you can see, drilling in the Permian basin of west Texas and southeast New Mexico shown in brown has always led the nation in the number of horizontal rigs deployed, but early on drilling in the other basins was a larger contributor to the total...however, after OPEC knocked US drilling down to historical lows in 2016, new drilling in the Permian has far outnumbered that of everywhere else...for instance, if we look back at this week's rig count table for an exact number, we see that there were 458 rigs deployed in the Permian as of May 4th, which was a bit over half of all the horizontal rigs deployed national as of that date...

    next, we'll include the graph from that same post that shows what the average first month of oil production in each of those regions has looked like over time...

    May 2 2018 first month of oil production

    again, this graph came from the EIA blogpost titled U.S. crude oil production efficiency continues to improve, and it shows how that production has continue to improve by graphing the average first month of oil production in barrels per day for each of the major producing oil shale basins from 2007 to 2017, again color coded by basin as the map insert indicates...here we can see that up until mid 2009, first month oil production for all US basins other than the Bakken had averaged below 50 barrels per day, as the frackers were only partially successful at exploiting those basins early on...subsequently, first month production from the Eagle Ford of south Texas began to rise, and by the end of 2017, the average well in the Eagle Ford was also producing over 600 barrels per day during its first month of operation...other basins have been slower to increase output, but as you can see, first month output from the Permian has now risen from around 100 barrels per day in mid 2013 to over 500 barrels per day by the end of 2017...the reasons for the higher production per well are many-fold, but it's primarily due to longer horizontal laterals, multi-stage fracking in 50 stages or more, and using much more sand than previously, typically several thousand pounds of sand per foot of lateral, which is driven into the shale layer by water pressures at 10,000 pounds per square inch...using these techniques, the frackers are not merely fracturing the rock, but pulverizing it, and leaving enough sand between the fragments that a large percentage of the embedded oil and gas can escape...

    the last graph from the that post we'll include shows the historical well output over time for each of the oil producing regions therein discussed...

    May 2 2018 oil production by month of operation

    again, from that same EIA blogpost, this graphic actually includes 5 graphs, one for each of the major shale oil producing basins discussed, with the graphs again color coded by the adjacent map...the key to this graphic is in the series of years shown below the US map, which shows the relative darkness of each year as it's graphed in color in the individual maps...all 5 graphs above are constructed in the same manner; each graph has 5 production graph lines within it, one for each year since 2013, with 2013 being the lightest shade and 2017 being the darkest....each annual line then shows the average production of fracked wells for that given year for each month that oil wells started that year have been in operation...thus, for example, in the middle top graphic above for the Bakken, the lightest yellow line shows the average production record of all Bakken wells that were fracked and began producing oil in 2013, so by following along that line, we can see that in the first month 2013 Bakken wells began to produce, their output averaged around 330 barrels of oil per day, but by the time the 2013 Bakken wells were 12 months old, their production dropped to below 150 barrels per day, and by the time they were 24 months old, their production had slipped to below 100 barrels per day....go out to the end of that light yellow 2013 line, and we see that production of those 2013 wells had slipped to around 40 barrels per day by the 60th month of operation, and presumably continues to deplete further to this day...(NB: my numbers are estimates based on eyeballing the graphs; actual data behind the graphs was not supplied)

    if we then look at the 2014 yellow line, we see a bit higher production than in 2013; wells started that year produced around 380 barrels per day the first month, were producing over 150 barrels per day by the 12th month, and over 100 barrels per day in the 24th month...likewise, there continues to be greater output for each year thereafter in that Bakken graph until we come to the top graph, for wells drilled in 2017, which start with an initial production of around 680 barrels per day the first month, and are still producing 340 barrels per day by the 12th month, or more than the 2013 wells averaged at the beginning of their production...the point that we're making here is that there is no set relationship between the number of rigs drilling wells and expected oil production...however, we will continue to review the rig count because the drilling of new wells is the most obvious evidence of the environmental impact of the exploration and exploitation industry..

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    note:  there’s more here…

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