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 17, 2018

US gasoline demand hits an all time high; distillates supplies at a 10 year seasonal low; global oil supplies down in May

oil prices ended lower for the 4th week in a row as Trump ramped up his trade wars against both our allies and against China, and as it became increasingly evident that OPEC would agree to increase oil production when they meet in Vienna next week...after falling just 7 cents to $65.74 a barrel in volatile trading last week, prices for July delivery of WTI, the benchmark US oil reversed a morning slide and rose 36 cents to $66.10 a barrel on Monday, as comments from the Iraqi oil minister cast doubt as to whether OPEC members would actually boost output at their upcoming meeting...against the backdrop of a Saudi and UAE invasion of Yemen, prices then edged up another 26 cents to close at $66.36 a barrel on Tuesday, after the monthly OPEC report warned there's a high degree of uncertainty still hanging over the global oil markets this year...oil prices then pushed up to a two week high on Wednesday, closing at $66.36 a barrel for a gain of 28 more cents, after the weekly EIA report indicated a larger than expected drop in US crude supplies along with surprise drawdowns of gasoline and distillates inventories...crude prices then rose for a 4th day on Thursday after Saudi oil minister Al Falih said that while “it’s inevitable” that OPEC would agree to boost oil production, the increase in output would be "reasonable", with oil closing 25 cents higher at $66.89 a barrel...but oil prices then crashed on Friday morning, falling by as much as $2.60 to $64.29 a barrel, after Saudi Arabia and Russia said they have already boosted their production modestly, and would make it official at their meeting next week, and Trump imposed 25% tariffs on $50 billion worth of high tech Chinese imports and the Chinese responded immediately with their own tariffs on $50 billion of US goods, with oil prices steadying that afternoon to end down $1.83 for the day at $65.06 a barrel...US oil prices thus ended the week with a loss of 68 cents, or just over 1%, while the international benchmark Brent crude trading for August oil finished the week $3.02 or nearly 4% lower at $73.44 a barrel, dropping $2.50 a barrel on Friday alone...

meanwhile, natural gas prices ended the week higher, rising daily save for a tenth of cent pullback on Tuesday, and ending the week above $3 for the first time since January on a 5.7 cent increase to $3.022 on Friday, on a forecast for hot weather for much of the country, seen as an impediment to rebuilding underground inventories...the natural gas storage report for week ending June 8th from the EIA indicated that natural gas in storage in the US rose by 96 billion cubic feet to 1,913 billion cubic feet over the week, which left our gas supplies 785 billion cubic feet, or 29.1% below the 2,698 billion cubic feet that were in storage on June 9th of last year, and 507 billion cubic feet, or 21.0% below the five-year average of 2,420 billion cubic feet of natural gas that are typically in storage after the first week of June...a Bloomberg survey had forecast an addition to gas storage in a range of between 82 and 95 billion cubic feet, so this week's 96 billion cubic foot addition was above all expectations, and was also above the average 91 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year....at today's inventory levels, we'd have to add 1,877 billion cubic feet of natural gas to storage to match the 3,790 billion cubic feet we had stored after the first week of November last year, so figure we need an inventory build averaging over 89 billion cubic feet per week over the next 21 weeks to bring our gas supplies back up to a reasonable level going into winter....   

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 8th, indicated that due to a combination of lower oil imports, higher oil exports, and increased refining, we had to pull oil out of our commercial crude supplies for the ninth time in the past twenty weeks....our imports of crude oil fell by an average of 247,000 barrels per day to an average of 8,099,000 barrels per day during the week, after rising by 715,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 316,000 barrels per day to an average of 2,030,000 barrels per day during the week, which meant that our effective trade in oil over the week ending June 8th worked out to a net import average of 6,069,000 barrels of per day during the week, 563,000 barrels per day less 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 100,000 barrels per day to a record high of 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,969,000 barrels per day during the reporting week... 

meanwhile, US oil refineries were using a seasonal high of 17,505,000 barrels of crude per day during the week ending June 8th, 136,000 barrels per day more than they used during the prior week, while at the same time 592,000 barrels of oil per day were reportedly being pulled out of 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, from oilfield production, and from storage was 56,000 more barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-56,000) 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 8,059,000 barrels per day, which was 1.3% less than the 8,161,000 barrel per day average we imported over the same four-week period last year...the 592,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged...this week's 100,000 barrel per day increase in our crude oil production was due to a 100,000 barrel per day increase in output from wells in the lower 48 states, while an 18,000 barrel per day decrease in oil output from Alaska was not subtracted from the final figures, with no explanation as to why...the 10,900,000 barrels of crude per day that were produced by US wells during the week ending June 8th were again the highest on record, 16.8% more than the 9,330,000 barrels per day that US wells were producing during the week ending June 9th of last year, and 29.3% 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 95.7% of their capacity in using 17,505,000 barrels of crude per day during the week ending June 8th, up from 95.4% of capacity the prior week, as refineries will usually try to run flat out through the summer driving season...while the 17,505,000 barrels of oil that were refined this week were the most barrels refined this early in any year, they were still down fractionally from the off-season high of 17,608,000 barrels per day that were being refined during the last week of December 2017....this week's refinery throughput was also 1.4% higher the 17,256,000 barrels of crude per day that were being processed during the same week a year ago, when US refineries were operating at 94.4% of capacity.... 

with the increase in the amount of oil that was refined this week, gasoline output from our refineries was much higher, rising by 793,000 barrels per day to 10,451,000 barrels per day during the week ending June 8th, after our refineries' gasoline output had decreased by 775,000 barrels per day during the week ending June 1st....that big increase meant our gasoline production was 6.2% higher during the week than the 9,843,000 barrels of gasoline that were being produced daily during the week ending June 9th of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 213,000 barrels per day to 5,111,000 barrels per day, after rising to a seasonal high the prior week...as a result, this week's distillates production was fractionally lower than the 5,154,000 barrels of distillates per day than were being produced during the week ending June 9th, 2017....  

however, even with the jump in our gasoline production, our supply of gasoline in storage at the end of the week still fell by 2,271,000 barrels to 236,763,000 barrels by June 8th, the ninth decrease in 14 weeks, but just the 10th decrease in 31 weeks, as gasoline inventories, as usual, were being built up over the winter months.....our gasoline supplies decreased because the amount of gasoline supplied to US markets rose by 903,000 barrels per day to a record high of 9,879,000 barrels per day, and because our exports of gasoline rose by 69,000 barrels per day to 607,000 barrels per day, while our imports of gasoline rose by 47,000 barrels per day to 824,000 barrels per day....so after this week's decrease, our gasoline inventories finished the week 2.4% lower than last June 9th's level of 242,444,000 barrels, even as they were still roughly 9.7% above the 10 year average of gasoline supplies for this time of the year...  

since the amount of gasoline supplied to US markets, seen as a measure of domestic demand and consumption, was at a record high this week, we'll include a graph of what that looks like, compared to its recent history...

June 13 2018 gasoline supplied as of June 8

the above graph came from a package of oil graphs on this report that John Kemp of Reuters emailed out on Wednesday (available as a pdf here), and it shows gasoline supplied to US markets in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our domestic gasoline demand for any given date shown in the light blue shaded area, and the median of our gasoline consumption, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of gasoline supplied for each week in 2017 traced weekly by a yellow line, and the year to date gasoline supplied for 2018 represented by the red graph...as John headlines at the top, that red line shows that gasoline supplied rose by 903,000 barrels to a record high of 9.88 million barrels per day with this week's report, which means it rose by more than 10% from the prior week's level...now, you can see by the red line that "gasoline product supplied" is quite volatile, and during the prior week it had fallen to a 16 week low....if you recall our closing discussion on last week's report, we noted that all refinery "product supplied" metrics had dropped last week, resulting in what was the largest jump in product inventories in nearly 10 years, which we showed was a fluctuation similar to that of prior Memorial day weeks...so this week's "record demand" is colored by that drop, as all product supplied metrics bounced back, as wholesalers and retailers rebuilt their own supplies, after the holiday drawdown..

meanwhile, with this this week's decrease in distillates production, our supplies of distillate fuels fell for the 8th time in 10 weeks, decreasing by 2,101,000 barrels to 114,693,000 barrels during the week ending June 8th...our distillate inventories decreased because the amount of distillates supplied to US markets, a proxy for our domestic consumption, jumped by 902,000 barrels per day to 4,404,000 barrels per day, after decreasing by 817,000 barrels per day the prior week, when distillate wholesalers were drawing on their own supplies, which they'd built in advance of the holiday weekend...meanwhile, our exports of distillates fell by 548,000 barrels per day from last week's near record to 1,111,000 barrels per day, while our imports of distillates decreased by 42,000 barrels per day to 104,000 barrels per day...since this week's inventory decrease comes after our distillate supplies fell by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 8th are now 24.3% below the 148,768,000 barrels that we had stored on June 9th, 2017, and roughly 16.1% lower than the 10 year average of distillates stocks for this time of the year...

with our supplies of distillates now at the lowest they've been at this time of year in 10 years, we'll take a look at a graph of what that looks like, compared to that 10 year history:

June 13 2018 distillate inventories as of June 8

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here...it shows US distillate fuels inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of thousands of barrels of distillates we had stored for each week in 2017 traced weekly by a yellow line, with our 2018 year to date distillates supplies for each week traced in red...notice in the light blue shaded area that there is normally a seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, in part due to decreased production, but mostly because we have been exporting our distillates at near a record pace...thus we come to June 8th with our distillate supplies at a 10 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017...

finally, with our oil exports rising and our oil imports falling while our refineries were using more oil, our commercial supplies of crude oil decreased for the 11th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 4,143,000 barrels during the week, from 436,584,000 barrels on June 1st to 432,441,000 barrels on June 8th...thus, after falling most of the past year, our oil inventories as of June 8th were 15.5% below the 511,546,000 barrels of oil we had stored on June 9th of 2017, 13.7% below the 500,911,000 barrels of oil that we had in storage on June 10th of 2016, and fractionally below the 435,771,000 barrels of oil we had in storage on June 12th 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...     

OPEC's Monthly Oil Market Report

we're going to take a look at OPEC's June Oil Market Report (covering May OPEC & global oil data) next, because it's available as a free download and hence it's the report we check for monthly global oil supply and demand data, rather than the paywalled report of the IEA that's widely reported in the media...the first table from this monthly report that we'll look at is from the page numbered 59 of that report (pdf page 67), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures...    

May 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC's oil output increased by 35,400 barrels per day in May to 31,869,000 barrels per day, from their April production total of 31,834,000 barrels per day....however, that April figure was originally reported as 31,930,000 barrels per day, so OPEC's oil production during May was actually 61,000 barrels per day lower than the previously reported April figures (for your reference, here is the table of the official April OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, an increase of 85,500 barrels per day in the output from Saudi Arabia was the main reason that the cartel's output rose, with Algeria contributing a 39,000 barrel per day increase and Iraq's increase of 27,700 barrels per day, together more than offsetting the decreases of 53,500 barrels per day in Nigerian output, 42,500 barrels per day in Venezuelan output, and 24,300 barrels per day in Libyan output...however, with a quota of 10,060,000 barrels per day for the Saudis, and 1,040,000 barrels per day for the Algerians, both of those countries still remain well below their allocations, according to their original pact...and at 31,869,000 barrels per day, OPEC oil output is now 861.000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq's 4,455,000 barrel per day May output above their 4,350,000 barrel per day allocation... 

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from June 2016 to May 2018, and it comes from the page numbered 60 (pdf page 68) of the June OPEC Monthly Oil Market Report...on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...    

May 2018 OPEC report global oil supply

OPEC's preliminary data indicates that total global oil production rose by a rounded 270,000 barrels per day to a record 97.86 million barrels per day in May, after April's global output total was revised down by 300,000 barrels per day from the record 97.89 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by 230,000 barrels per day in May....global oil output for May was also 1.74 million barrels per day, or 1.8% higher than the 96.12 million barrels of oil per day that were being produced globally in May a year ago (see the June 2017 OPEC report online (pdf) for the year ago details)... OPEC's May oil production of 31,869,000 barrels per day thus represented just 32.6% of what was produced globally, the same percentage as in April, as oil output increases by the US, Canada, Brunei, Brazil, Kazakhstan, Azerbaijan, Ghana and Saudi Arabia were only partially offset by decreases in oil output seen in Mexico, Norway, the UK, Australia, Colombia, Egypt, China and Nigeria...OPEC's May 2017 production was at 32,139,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 140,000 fewer barrels per day of oil than they were producing a year ago, during the fifth month that their production quotas were in effect, with the recoveries of oil production in Libya and Nigeria now more than offset by the decrease in output from Venezuela, whose output is now running 571,000 barrels per day below what it was at last May...    

however, despite the record global oil output in May, the downward revisions to supply meant that we again saw a deficit in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us...

May 2018 OPEC report 2018 global oil demand

the table above comes from page 33 of the June OPEC Monthly Oil Market Report (pdf page 41), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2018 over the rest of the table...on the "Total world" line of the third column, we've circled in blue the figure that's relevant for May, which is their revised estimate of global oil demand during the second quarter of 2018...     

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming regions of the globe will be using 98.07 million barrels of oil per day, which is a small downward revision from their prior estimate of 98.08 million barrels of oil per day during the 2nd quarter....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, after the OPEC and non-OPEC production cuts, the world's oil producers were only producing 97.86 million barrels per day during May, which means that there was a shortfall of around 220,000 barrels per day in global oil production vis-a vis estimated demand during the month...

at the same time as 2nd quarter global demand was revised 10,000 barrels per day lower, April's global output total was revised down by 300,000 barrels per day to 97,590,000 barrels per day, so that means that the shortfall for April now works out to 480,000 barrels per day, revised from the 190,000 barrel per day shortfall we had figured on a month ago...but as you see circled in green above, while global oil demand figures for the second quarter were revised slightly lower, global oil demand figures for the first quarter of 2018 were revised 60,000 barrels per day higher, which means that our previously computed oil surplus for the first quarter of 2018 will also have to be recomputed...based on the revisions of a month ago, we had figured a global oil surplus of 240,000 barrels per day for March, a global oil surplus of 420,000 barrels per day for February, and a global oil surplus of 260,000 barrels per day for January...each of those surplus figures thus have to be revised lower based on higher demand, so hence our new figures will show a surplus of 180,000 barrels per day for March, a surplus of 360,000 barrels per day for February, and a surplus of 200,000 barrels per day for January...totaling it all up, that means that for the first five months of 2018, global oil production exceeded demand by just 640,000 barrels, the equivalent of just 9 extra minutes of production at the May rate... 

This Week's Rig Count

US drilling activity decreased for the first time in the past twelve weeks and for just the 2nd time in the past 17 weeks during the week ending June 15th, as drilling for natural gas was curtailed while drilling for oil continued to increase...Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 3 rigs to 1059 rigs over the week ending on Friday, which was still 126 more rigs than the 933 rigs that were in use as of the June 16th report of 2017, while it was 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 863 rigs this week, which was also 116 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 fell by 4 rigs to 194 rigs this week, which was only 8 more gas rigs than the 186 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", in contrast to no such "miscellaneous" rigs in use a year ago....

drilling activity in the Gulf of Mexico and elsewhere in the US offshore was unchanged this week, with 19 platforms deployed in the Gulf and one drilling offshore from Alaska, down from 21 rigs drilling in the Gulf and one offshore from Alaska last June 16th...however, another platform was set up to drill through an inland lake in southern Louisiana this week, so now there are 4 such 'inland waters" rigs operating, an increase from the 3 inland waters rigs that were operating going into the same weekend a year ago...

in their first pullback in 9 weeks, the count of active horizontal drilling rigs decreased by 2 rigs to 932 horizontal rigs this week, which was 150 more horizontal rigs than the 782 horizontal rigs that were in use in the US on June 16th 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 decreased by 1 rig to 60 vertical rigs this week, which was also down from the 82 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count was unchanged at 67 directional rigs this week, which was still down from the 69 vertical rigs that were deployed on June 16th 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 15th, the second column shows the change in the number of working rigs between last week's count (June 8th) and this week's (June 15th) count, the third column shows last week's June 8th 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 16th of June, 2017...     

June 15 2018 rig count summary

as you can see from the above table, this week's small net decrease masked a number of both positive and negative changes in drilling nationally...of particular note was the 4 rig decrease in the Permian basin of west Texas and New Mexico, the largest pullback in the Permian since a similar number of rigs were shut down during the week ending February 2nd...looking at the changes in activity in the individual Texas oil districts in the state data, the core Permian areas appear to show a decrease of 6 rigs, so we can probably figure that two of the New Mexico rig increases were in the western part that basin...for once, the 4 rig decrease in rigs targeting natural gas is easily identifiable, as two rigs were pulled from the Marcellus (one from Pennsylvania and one from West Virginia), a rig targeting gas was pulled out of Oklahoma's Arkoma Woodford, and another gas rig was shut down in Ohio's Utica shale...activity in the Utica is now at 23 rigs, down from 28 rigs a year ago, so some Ohioans can be thankful, despite the state's deterioration otherwise.... 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 Mississippi, while the only rig that had been operating in Montana was pulled out...Mississippi now has 4 rigs operating, up from 3 rigs a year ago, while the Montana rig appears to have just been moved across the North Dakota border, into another part of the Williston basin...

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note:  there’s more here

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