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, June 10, 2018

the largest one week increase in oil & oil products inventories since 2008 was a holiday week fluke....

US oil prices were again quite volatile this week, rising on threats to oil supplies, then falling when news showed supplies were more than adequate, but ultimately ending the week just a few cents below where they started, in the 3rd weekly decrease in a row...after sliding $2.07 or 3% to $65.81 a barrel last week, benchmark US crude prices for July fell another $1.06 to $64.75 a barrel on Monday to their lowest level in nearly two months, driven lower by growing U.S. oil production, international trade tensions, and expectations that OPEC would raise global supplies...but prices turned around on Tuesday, rising 77 cents to finish at $65.52 a barrel, after 12 of 13 analysts in a Bloomberg survey said Wednesday’s weekly EIA report would show US oil stockpiles decreased the prior week...however, when that EIA report surprised the pundits and showed an increase in crude supplies, oil prices fell back to below their Monday close, shedding 79 cents and ending the day at $64.73 a barrel....but oil prices turned around again on Thursday, rising $1.22 to $65.95 a barrel, on a steep drop in oil exports from Venezuela and word from Algeria’s oil minister that OPEC might not raise output at its meeting later this month...however, that rally reversed again the next morning on a drop in Chinese demand, and prices then fell as low as $65.15 a barrel after JP Morgan cut its 2018 US crude price forecast by $3 to $62.20 a barrel, before steadying near the close to end at $65.74 a barrel, for a loss of 21 cents on the day but just 7 cents, or 0.1%, for the week overall...

international oil prices, meanwhile, followed a similar trajectory, but maintained a premium of over $10 a barrel over US prices throughout the week...the front month of the international benchmark, North Sea Brent crude for August, was down $1.50 on Monday to $75.29 a barrel, its lowest in two months, on growing expectations that OPEC would increase production at their upcoming meeting, but then was little changed over Tuesday and Wednesday while US crude prices were being jacked up and down by the EIA report on US oil supplies...however, Brent prices were up nearly $2 to $77.32 a barrel on Thursday as the drop in exports from Venezuela and concern that OPEC might not raise production had a greater impact on international oil prices...Brent prices then fell 86 cents to end the week at $76.46 a barrel, for a loss of 23 cents or 0.3% on the week, but still $10.79 a barrel more than the similar grade of US crude for August delivery...with a price spread of that magnitude, we can almost guarantee that we'll be seeing record levels of crude exports this summer and beyond, any hurricane disruptions to port traffic notwithstanding...

natural gas prices, meanwhile, also ended lower this week, as forecasts for cooler weather dashed the bulls' hopes for an early summer gas-consuming air conditioning power burn...natural gas prices for July delivery were down 3.2 cents on Monday and 4 cents on Tuesday and despite a 3.4 cent gain on Thursday's natural gas storage report, fell another 4 cents on Friday to end the week 2.4% lower at $2.890 per mmBTU...that natural gas storage report from the EIA for the week ending June 1st indicated that natural gas in storage in the US rose by 92 billion cubic feet to 1,817 billion cubic feet over the week, which still left our gas supplies 799 billion cubic feet, or 30.5% below the 2,616 billion cubic feet that were in storage on June 2nd of last year, and 512  billion cubic feet, or 22.0% below the five-year average of 2,329 billion cubic feet of natural gas that are typically in storage at the beginning of June...the market was anticipating a 97 billion cubic foot addition to gas storage, so this week's 92 billion cubic foot addition was a bit short of expectations, and was also below the average 104 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year...again, we're watching these supplies to see if they can be adequately rebuilt before next winter; as we noted, last year natural gas supplies rose to 3,790 billion cubic feet by the first week of November before withdrawals for heating began, so at today's levels we'd have to add 1,973 billion cubic feet over the next 22 weeks, or nearly 90 billion cubic feet per week, to match that pre-winter level by November, which will become increasingly difficult as we move into the warmer part of the summer, when demand for air conditioning is strongest... 

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 1st, indicated that due to a big jump in our oil imports and and a corresponding drop in our oil exports, we had surplus oil to add to our commercial crude supplies for the eleventh time in the past nineteen weeks.....our imports of crude oil rose by an average of 715,000 barrels per day to an average of 8,346,000 barrels per day during the week, after falling by 528,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 465,000 barrels per day to an average of 1,714,000 barrels per day during this week, which meant that our effective trade in oil over the week ending June 1st worked out to a net import average of 6,632,000 barrels of per day during the week, 1,180,000 barrels per day more than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells rose by 31,000 barrels per day to a record high of 10,800,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,432,000 barrels per day during the reporting week...

meanwhile, US oil refineries were using 17,369,000 barrels of crude per day during the week ending June 1st, 214,000 barrels per day more than they used during the prior week, while at the same time 209,000 barrels of oil per day were reportedly being added to oil storage in the US....hence, we can see that this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 146,000 fewer barrels per day than what was reportedly added to storage plus what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (+146,000) 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 rose to an average of 7,934,000 barrels per day, which was still 4.4% less than the 8,303,000 barrel per day average we imported over the same four-week period last year...the 209,000 barrel per day increase in our total crude inventories included a 296,000 barrel per day addition to our commercially available stocks of crude oil, which was partially offset by a 87,000 barrel per day decrease of the oil in the oil stored in our Strategic Petroleum Reserve, likely part of a sale of government owned oil mandated by this year's federal budget...this week's 31,000 barrel per day increase in our crude oil production included a 35,000 barrel per day increase in output from wells in the lower 48 states, which was slightly offset by a 2,000 barrel per day decrease in oil output from Alaska, with no explanation as to why those rounded figures don't add up...the 10,800,000 barrels of crude per day that were produced by US wells during the week ending June 1st were again the highest on record, 15.9% more than the 9,318,000 barrels per day that US wells were producing during the week ending June 2nd of last year, and 28.1% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

US oil refineries were operating at 95.4% of their capacity in using 17,369,000 barrels of crude per day during the week ending June 1st, up from 93.9% of capacity the prior week, as refineries will usually try to run flat out through the summer driving season...however, the 17,369,000 barrels of oil that were refined this week were still down 1.4% from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017, even as they have finally topped the 17,227,000 barrels of crude per day that were being processed during the same week a year ago, when US refineries were operating at 91.5% of capacity.... 

even with the increase in the amount of oil that was refined this week, gasoline output from our refineries was considerably lower, falling by 775,000 barrels per day to a 4 year seasonal low of 9,658,000 barrels per day during the week ending June 1st, after our refineries' gasoline output had increased by 381,000 barrels per day during the week ending May 25th....that big decrease meant our gasoline production was 2.8% lower during the week than the 9,934,000 barrels of gasoline that were being produced daily during the week ending June 2nd of last year, an otherwise slow refining week......meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 28,000 barrels per day to a seasonal high of 5,324,000 barrels per day, after rising by 358,000 barrels per day the prior week...as a result, this week's distillates production was 7.4% higher than the 4,956,000 barrels of distillates per day than were being produced during the week ending June 2nd, 2017.... 

however, even with the big drop in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 4,603,000 barrels to 239,034,000 barrels by June 1st, the sixth increase in 14 weeks, and the largest increase since December....our gasoline supplies increased primarily because the amount of gasoline supplied to US markets fell by 713,000 barrels per day to 8,976,000 barrels per day, and because our exports of gasoline fell by 118,000 barrels per day to 538,000 barrels per day, while our imports of gasoline fell by 182,000 barrels per day to 777,000 barrels per day....but even after this week's increase, our gasoline inventories finished the week fractionally lower than last June 2nd's level of 240,348,000 barrels, even as they were still roughly 8.6% above the 10 year average of gasoline supplies for this time of the year...      

meanwhile, with this week's increase in distillates production, our supplies of distillate fuels rose for the second time in 9 weeks, increasing by 2,165,000 barrels to 116,794,000 barrels during the week ending June 1st...our distillate inventories increased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, dropped by 817,000 barrels per day to 3,502,000 barrels per day, after increasing by 682,000 barrels per day the prior week, as wholesalers built supplies in advance of the holiday weekend...meanwhile, our exports of distillates rose by 536,000 barrels per day to a near record 1,659,000 barrels per day while our imports of distillates decreased by 91,000 barrels per day to 149,000 barrels per day...however, because our distillate supplies fell by 14,452,000 barrels over six weeks to May 18th, our distillate supplies still ended the week 21.5% below the 148,768,000 barrels that we had stored on June 2nd, 2017, and roughly 15.2% lower than the 10 year average of distillates stocks for this time of the year… 

finally, with our oil exports down and our oil imports much higher, our commercial supplies of crude oil increased for the 12th time in 2018, but just for the 18th time in the past year, as our commercial crude supplies rose by 2,072,000 barrels during the week, from 434,512,000 barrels on May 25th to 436,584,000 barrels on June 1st...however, after falling most of the past year, our oil inventories as of June 1st were still 14.9% below the 513,207,000 barrels of oil we had stored on June 2nd of 2017, 13.0% below the 501,844,000 barrels of oil that we had in storage on June 3rd of 2016, and fractionally below the 438,447,000 barrels of oil we had in storage on June 5th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the prior years...    

before we move on, i want to take a look an anomalous increase in our total inventories in this week's report that was pointed out by Zero Hedge...as it turns out, those increases in our inventories of gasoline, distillates and crude that we've discussed above, when combined with increase in inventories of jet fuel, bunker fuel, propylene, and other oil products, was the largest increase in our total oil and oil products inventories since October of 2008...by way of showing you what happened, we'll include the graph showing that increase from the post at zero hedge: 

June 6 2018 oil & oil products supplies as of June 1

the above graph of our total oil + oil products inventories comes from the Zero Hedge review of this week's EIA release, wherein the graph shows the end of the week supply in billions (not millions) of barrels of crude oil and petroleum products (excluding what's in the SPR) from mid-2006 to the current report...also shown below the graph as red spikes above or below a zero line is the weekly change in crude oil and petroleum products in thousands of barrels...hence, as they point out with the green dashes, this week's 15,756,000 barrel increase in our total inventories was the largest upward spike, and hence the largest increase in our total inventories since 19,673,000 barrels of oil and products were added to our supplies during the week ending October 3rd 2008...

while i can't venture a guess why supplies had jumped that much during that week nearly 10 years ago, this week's inventory jump appears to be an artifact of how our oil product supplies are distributed around the holidays...as we noted earlier, the amount of gasoline supplied to US markets, often seen as an indicator of our consumption, fell by 713,000 barrels per day during the week ending June 1st, while the amount of distillates supplied to US markets dropped by 817,000 barrels per day over the same period...checking other "product supplied" metrics, we find that jet fuel supplied to US markets fell by 163,000 barrels per day, that propane/propylene supplied to US markets fell by 326,000 barrels per day, that residual oil supplied to US markets fell by 12,000 barrels per day, and that other oils supplied to US markets fell by 400,000 barrels per day...with deliveries to US wholesalers down, inventories held by the oil product producers, whose refineries continued to operate, naturally rose...but again, this appears to be a function of product distribution around the holiday; gasoline, diesel fuel, and jet fuel wholesalers and retailers built their inventories in the weeks before the holiday, and hence their deliveries of product were slack during the holiday week...this is evident in the historical record, when for instance, the largest weekly increase in oil and oil products inventories last year was also during the week of Memorial Day, when inventories increased by 15,471,000 barrels, which was nearly a 9 year high at that time...holiday weeks in prior years also show similar anomalous inventory increases, but usually not so extreme as the past two years, and in no case have those increases been evidence of a trend...

This Week's Rig Count

US drilling activity increased for the 15th time in the past sixteen weeks and for 24th time in the past 31 weeks during the week ending June 8th, a period of higher oil prices that has seen rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US increased by 2 rigs to 1062 rigs over the week ending on Friday, which was also 135 more rigs than the 927 rigs that were in use as of the June 9th 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 count of rigs drilling for oil was up by 1 rig to 862 rigs this week, which was also 121 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 also rose by 1 rig to 198 rigs this week, which was only 13 more gas rigs than the 185 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", compared to the 1 "miscellaneous" rig that was running a year ago....

with the addition of a second drilling platform offshore from Texas, drilling activity in the Gulf of Mexico increased by 1 rig to 19 rigs this week, which was still 2 fewer rigs than were drilling in the Gulf of Mexico a year ago, at which time all Gulf of Mexico rigs were in Louisiana waters...there was also a rig drilling offshore from Alaska this week, as there also was during the week ending June 9th a year ago, so the total US offshore count is now at 20 rigs, also down by 2 from last year's offshore total of 22 rigs....in addition, another platform was set up to drill through an inland lake in southern Louisiana this week, so now there are 3 such 'inland waters" rigs operating, same as the number of inland waters rigs that were operating going into the same weekend a year ago...

the count of active horizontal drilling rigs increased by 5 rigs to 934 horizontal rigs this week, which was 154 more horizontal rigs than the 780 horizontal rigs that were in use in the US on June 9th 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 2 rigs to 67 directional rigs this week, which was also up by 1 from the 66 directional rigs that were in use during the same week of last year...on the other hand, the vertical rig count was down by 5 rigs ti 61 vertical rigs this week, which was also down from the 81 vertical rigs that were deployed on June 9th 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 June 8th, the second column shows the change in the number of working rigs between last week's count (June 1st) and this week's (June 8th) count, the third column shows last week's June 1st active rig count, the 4th column shows the change between the number of rigs running on Friday and those 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 9th of June, 2017...           

June 8 2018 rig count summary

except for the three rig decrease in Oklahoma's Cana Woodford, which has often been touted as a hot play, there's not much particularly noteworthy in this week's changes...there was another 3 rig increase in the Permian, apparently all in west Texas this week, which has now seen 112 rigs added this past year, all but one of them drilling for oil, and hence those additions account for the lion's share of the oil rig increases over the past year...drilling in all the major natural gas basins, meanwhile, was again unchanged, with the one rig increase in natural gas rigs occurring in one of those "other" basins not tracked separately by Baker Hughes...we should also note that in addition to the changes shown in the major producing states in the top table above, this week also saw a rig added in Alabama, as well as one in Mississippi...hence, in Alabama, there are now 2 rigs operating, down from 3 a year ago, while the 3 rigs now operating in Mississippi is back to the same number as a year ago...in addition, the only rig that had been drilling in Florida was shut down this week, so Florida is now free of any drilling, same as they were a year ago...

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note:  there’s more here

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