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 13, 2018

oil prices hit 42 month high on Trump's Iran sanctions; another record for US oil production, another big drop in US distillate supplies…

oil prices hit fresh 42 month highs three times this week before falling back a bit on Friday, in a rally that was mostly a reaction to Trump's abrogation of the 2015 seven nation pact with Iran, which had placed limits on their nuclear power program in exchange for lifting international sanctions....US oil prices topped $70 a barrel for the first time since November 2014 in rising $1.01 to $70.73 a barrel on Monday, boosted by news of more trouble for Venezuelan oil and the likelihood that Trump would re-impose sanctions on Iran in his speech planned for the next day...however, oil prices crashed over 4% to $67.63 a barrel on Tuesday morning, including a 3% drop in just 7 minutes, after CNN erroneously reported that Trump would not withdraw the US from the Iran pact, but prices recovered by the close to end down just $1.67 at $69.06 a barrel, when it became clear that Trump would repudiate the Obama administration's Iran deal and impose 'powerful' sanctions on Iran, including punishing any foreign companies that would do business with them....US oil prices then climbed steadily on Wednesday, rising $2.08 to another 3 1/2-year high of $71.14 a barrel, after it became clear that the US would quit the Iran pact, while the EIA reported a larger-than-expected drawdown of U.S. oil inventories...oil prices rose as high as $71.89 a barrel on Thursday morning before traders moved into to take profits, as the market digested the likely impact of the new Iran sanctions, with oil still ending the day 22 cents higher $71.36 a barrel, yet another 3 1/2 year high...oil prices then fell 66 cents in a see-saw session on Friday, retreating to close at $70.70 a barrel after rising as high as $71.63 earlier, after US allies, including Great Britain, reiterated their support for the Iran nuclear pact and the Saudis said they'd happily plug the hole left in global oil supplies by the loss of Iranian crude....US crude for June delivery thus gained just 98 cents, or 1.4% for the week in their 2nd straight weekly climb, while North Sea Brent for July, the international benchmark, saw prices rise $2.25, or 3.0% over the week to close at $77.12 a barrel, after trading as high as $78 a barrel on Thursday...

since we have a new 42 month high for oil prices, and since it's been a while since we looked at a graph of their trajectory, we'll include one here today..

May 12 2018 - oil prices past 2 years

the above graph is a Saturday afternoon screenshot of the live interactive US oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the graph represents oil prices for one week of oil trading between the 2nd last week of 2015 and May 11th of this year, with green bars representing weeks when the price of oil went up, and red bars representing the weeks when the price of oil went down...for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the weekly close is at the bottom of the bar...also faintly visible on this "candlestick" style graph are the feint grey "wicks" above and below each bar, to indicate trading prices during each week that were above or below the opening to closing price range for that week...

by going back more than two years, we were able to capture on this graph the thirteen year low that US oil prices fell to during the second week of February 2016, when oil prices briefly touched $26.21 a barrel...prices at that level caused record shutdowns of US drilling operations, which culminated in a record rig count low in May of that year, and resulted in the bankruptcies of 123 North American oil and gas producers over a two year period...however, even though the exploitation companies were going bankrupt, very few of them were being liquidated, as for the most part, their stockholders lost everything, their bondholders became the new stockholders, the creditors got screwed, and the frackers kept fracking...subsequently, after nearly doubling from that low by the end of May 2016, oil prices traded in a range between $42 and $54 a barrel for the next 18 months before they began the steady climb to where they are today...

natural gas prices ended the week higher as well, mostly on the back of a 7.7 cent jump to a two week high of $2.814 per mmBTU on Thursday, that came after the EIA's report on gas in storage showed a smaller than expected addition to supplies...the natural gas storage report from the EIA indicated that natural gas in storage in the US rose by 89 billion cubic feet to 1,432 billion cubic feet over the week ending May 4th, still leaving our gas supplies 836 billion cubic feet, or 47.6% lower than the 2,295 billion cubic feet that were in storage on May 5th of last year, and 520 billion cubic feet, or 26.6% below the five-year average of 1,952 billion cubic feet of natural gas that are typically in storage at the first weekend in May...analysts had forecast a 94 to 96 billion cubic foot addition to storage, so while the 89 billion cubic foot addition fell short of expectations, it was nonetheless well above the 49 billion cubic feet of gas that was added to storage over the week ending May 5th last year, and above the average 75 billion cubic foot surplus of natural gas typically added to storage during the first week in May...

since we've now turned the corner on the natural gas storage season, we'll take a look at what that supply situation looks like:

May 11 2018 natural gas supplies as of May 4

the above graph came from a package of natural gas graphs that John Kemp, senior energy analyst and columnist with Reuters, mailed out on Friday morning, 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 May 4th 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 red graph as a yellow line, which would thus be from January 2014 up until the end of 2017, 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...this year, however, saw smallish withdrawals of gas from storage for the first three reports in April, pushing supplies that much further below normal...so while our gas supplies are now increasing as little of it is being consumed for heating, they are still well below the 5 year average as indicated by the dark dashed line, and not only the lowest of any time since 2014, but also the 2nd lowest for any week in May for as long as these weekly records have been kept...we will now be watching to see if these gas supplies trend back to normal over the next 5 months, such that we can head into the next heating season with adequate supplies...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending May 4th, indicated that due to big drop in our oil imports, we had to pull oil out of our commercial crude supplies to meet refinery needs for the sixth time in the past fifteen weeks...our imports of crude oil fell by an average of 1,226,000 barrels per day to an average of 7,323,000 barrels per day during the week, after rising by 1,339,000 barrels per day over the prior three weeks, while our exports of crude oil fell by an average of 271,000 barrels per day to an average of 1,877,000 barrels per day during the week, which meant that our effective trade in oil over the week ending the 4th worked out to a net import average of 5,446,000 barrels of per day during the week, 955,000 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 84,000 barrels per day to a record high of 10,703,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,149,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 16,486,000 barrels of crude per day during the week ending May 4th, 75,000 barrels per day less than they used during the prior week, while at the same time 415,000 barrels of oil per day were reportedly pulled out of 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, from oilfield production, and from storage was 78,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-78,000) 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 EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports fell to an average of 8,068,000 barrels per day, which was 1.0% less than the 8,152,000 barrel per day average we imported over the same four-week period last year...the 415,000 barrel per day reduction in our total crude inventories included a 314,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 101,000 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 84,000 barrel per day increase in our crude oil production included a 91,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 7,000 barrel per day increase in output from Alaska...the 10,703,000 barrels of crude per day that were produced by US wells during the week ending May 4th were once again the highest on record, 14.9% more than the 9,314,000 barrels per day that US wells were producing during the week ending May 5th of last year, and up by 27% 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 90.4% of their capacity in using 16,486,000 barrels of crude per day during the week ending May 4th, down from 91.1% of capacity the prior week, and down from the seasonal high of 93.5% of capacity during the first week of April....the 16,486,000 barrels of oil that were refined this week were the least oil processed since the first week of March, down 6.4% from the off-season record of 17,608,000 barrels per day that were being refined during the last week of December 2017, and 1.6% less than the 16,759,000 barrels of crude per day that were being processed during the week ending May 5th, 2017, when refineries were operating at 91.5% of capacity....

with the decrease in the amount of oil that was refined this week, gasoline output from our refineries was correspondingly lower than the prior week, decreasing by 71,000 barrels per day to 9,974,000 barrels per day during the week ending May 4th, after our refineries' gasoline output had increased by 159,000 barrels per day during the week ending April 27th.... with that decrease, our gasoline production was fractionally lower during the week than the 10,052,000 barrels of gasoline that were being produced daily during the week ending May 5th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 2,000 barrels per day to 4,993,000 barrels per day, after rising by 18,000 barrels per day the prior week....that left the week's distillates production fractionally higher than the 4,956,000 barrels of distillates per day than were being produced during the week ending May 5th, 2017....    

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell by 2,174,000 barrels to 235,804,000 barrels by May 4th, the seventh decrease in 10 weeks, but just the 8th decrease in 26 weeks, as gasoline inventories, as usual, were being built up over the winter months...our gasoline supplies fell this week because our domestic consumption of gasoline rose by 685,000 barrels per day to 9,775,000 barrels per day, and because our imports of gasoline fell by 120,000 barrels per day to 803,000 barrels per day, while our exports of gasoline fell by 320,000 barrels per day to 581,000 barrels per day...after this week's decrease, our gasoline inventories finished 2.2% lower than last May 5th's level of 241,082,000 barrels, even as they are now roughly 10.3% above the 10 year average of gasoline supplies for this time of the year...          

meanwhile, with this week's distillates production again little changed, our supplies of distillate fuels fell by 3,791,000 barrels to 115,038,000 barrels over the week ending May 4th, the 8th decrease in nine weeks, after falling by 9,428,000 barrels over the prior three weeks...our distillate inventories fell again because while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 178,000 barrels per day to 4,307,000 barrels per day, our exports of distillates rose by 213,000 barrels per day to 1,356,000 barrels per day, while our imports of distillates rose by 52,000 barrels per day to 128,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 22.7% below the 148,768,000 barrels that we had stored on May 5th, 2017, and roughly 16.1% lower than the 10 year average of distillates stocks for this time of the year

finally, because our oil imports fell while our oil exports remained elevated, our commercial supplies of crude oil decreased for the 8th time in 2018 and for the 35th time in the past year, as our commercial crude supplies fell by 2,197,000 barrels during the week, from 435,955,000 barrels on April 27th to 433,758,000 barrels on May 4th...hence, after falling most of the past year, our oil inventories as of May 4th were 17.0% below the 522,525,000 barrels of oil we had stored on May 5th of 2017, 14.7% lower than the 508,487,000 barrels of oil that we had in storage on May 6th of 2016, and 4.0% below the 451,888,000 barrels of oil we had in storage on May 8th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of prior years...  

This Week's Rig Count

US drilling activity increased for the 11th time in the past twelve weeks and for 20th time in the past 27 weeks during the week ending May 11th, 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 13 rigs to 1045 rigs over the week ending on Friday, which was also 160 more rigs than the 885 rigs that were in use as of the May 12th 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 officially began their attempt to flood the global oil market...

the number of rigs drilling for oil increased by 10 rigs to 844 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 increased by 3 rigs to 199 rigs this week, which was 27 more gas rigs than the 172 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, there are also two active rigs that are listed as "miscellaneous", up from the 1 "miscellaneous" rig that was operating a year ago....

drilling activity in the Gulf of Mexico increased by one rig to 20 rigs rig this week, which is the same number of rigs that were 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 21 rigs of last May 12th is one more than this week's offshore total....at the same time, another rig began drilling through an inland lake in southern Louisiana this week, where there are now three such inland waters rigs working, still down from the 4 rigs that were deployed on inland waters a year ago..

the count of active horizontal drilling rigs increased by 5 rigs to 918 horizontal rigs this week, which was the most horizontal rigs active since February 27, 2015, and 176 more horizontal rigs than the 742 horizontal rigs that were in use in the US on May 12th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count increased by 8 rigs to 72 directional rigs this week, which was also up from the 66 directional rigs that were in use during the same week of last year... meanwhile, the vertical rig count was unchanged at 55 rigs this week, which was down from the 77 vertical rigs that were deployed on May 12th 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 11th, the second column shows the change in the number of working rigs between last week's count (May 4th) and this week's (May 11th) count, the third column shows last week's May 4th 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 11 2018 rig count summary

in a bit of a reversal of last week's 6 rig increase on the New Mexico side of the Permian basin, this week's Permian increase was all on the Texas side of the border, where 7 rigs were added in Texas's Permian districts, while at the same time 4 New Mexico rigs were shut down, 2 of which don't appear to have been in that basin...elsewhere, the three rig increase in Oklahoma appears include one each in the Cana Woodford, the Mississippian lime, and the Granite Wash, which also extends into the Texas panhandle...in addition, the three rig increase in Colorado was likely all in the Denver-Julesburg Niobrara chalk, as a Wyoming rig that was likely working that basin was concurrently shut down during the same week....meanwhile, 3 natural gas directed rigs were added in the Eagle Ford of south Texas, where an oil rig was shut down at the same time, leaving the rig deployment in the Eagle Ford at 12 gas rigs and 66 oil rigs...obviously, another natural gas rig was also deployed in West Virginia's Marcellus at the same time, while the national gas rig increase remained at 3 as a single gas rig in an "other' unnamed basin was shut down at the same time...

 

note:  there’s more here

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