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, August 12, 2018

seasonal natural gas supply deficit continues to deteriorate; US oil production down a second week, for real this time...

oil prices ended lower for the 6th week in a row, largely on a Wednesday selloff tied to a major escalation of the ongoing trade war between the Trump administration and China...after slipping 20 cents to $68.49 a barrel last week, prices for US crude for September delivery rose 52 cents to $69.01 a barrel on Monday, after OPEC sources said Saudi crude output, which had been expected to replace sanctioned Iranian output, unexpectedly fell in July...prices then rose another 16 cents to $69.17 a barrel on Tuesday, after the U.S. imposed initial sanctions on Iranian goods, leading to further concern that oil sanctions would tighten global oil supplies...however, the bottom fell out of oil prices on Wednesday, as the Chinese responded to another increase in US tariffs on Chinese goods with new 25% tariffs on U.S. fuel and other imports, sending oil prices tumbling $2.23 to a seven week low of $66.94 a barrel....concerns about the accelerating trade wars weighed on prices again on Thursday as oil prices extended their slide another 13 cents to $66.81 a barrel, yet another new 7 week low...but oil prices rallied on Friday after the International Energy Agency raised their 2019 forecast for global oil demand growth by 110,000 barrels a day to 1.5 million barrels while at the same time analysts projected that Iranian crude exports would fall by between 500,000 and 1.3 million barrels per day, with oil finishing up 82 cents at $67.63 a barrel for the day, but still ending with a decline of 86 cents, or 1.2% for the week...

natural gas prices for September, meanwhile, extended last week's rally to a sixth day on Thursday before pulling back 1.1 cents on Friday, and ended the week 9.1 cents higher at $2.944 per mmBTU...while a forecast for warmer weather and hence a greater power burn in mid-August underpinned this week's rally, the natural gas storage deficit compared to the norm continues to be the major factor supporting natural gas prices.....this week's EIA natural gas storage report for week ending August 3rd indicated that natural gas in storage in the US rose by 46 billion cubic feet to 2,354 billion cubic feet during the cited week, which still left our gas supplies 671 billion cubic feet, or 22.2% below the 3,025 billion cubic feet that were in storage on August 4th of last year, and 572 billion cubic feet, or 19.5% below the five-year average of 2,962 billion cubic feet of natural gas that are typically in storage heading into the first weekend of August...since natural gas supplies rose by 82 billion cubic feet to 2389 billion cubic feet during the equivalent week of the modern low supplies year of 2014, this week's natural gas supplies are again the lowest for this time of year since August 1st, 2003 (xls file)...an S&P Global Platts' survey of analysts had forecast that 45 billion cubic feet of natural gas would be added during the week ended August 3rd, so the actual 46 billion cubic feet increase was a bit higher than expectations, but it was still well below the 53 billion cubic foot average of surplus natural gas that has typically been added to storage by the weekend at the beginning of August over recent years...

last year, we began the winter heating season with 3,790 billion cubic feet of natural gas in storage on November 3rd....looking over the modern natural gas storage records (xls), the 3,611 billion cubic feet of natural gas we had stored on November 7th 2014 appears to be the lowest prewinter natural gas storage figure of the past decade...we have to go back to 2008, when 3488 billion cubic feet of natural gas were in storage on November 14th, to find a lower winter start figure...hence, with 2,354 billion cubic feet in storage as of August 3rd, that means we have to add at least 81 billion cubic feet each week for the next 14 weeks to avoid eclipsing the 2008 prewinter low by the 2nd week of November this year...that's probably doable, if we get a cool September and a warm start to November...otherwise, the EIA forecast for a 10 year low for prewinter US natural gas supplies will also go by the boards, and we'll looking at an even more substantial record low for our prewinter 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 August 3rd, indicated that a modest increase in our oil imports was not enough to cover a large increase in our oil exports, and hence we had to withdraw oil from our commercial crude supplies for the fourteenth time in the past twenty-eight weeks... our imports of crude oil rose by an average of 182,000 barrels per day to an average of 7,931,000 barrels per day, after falling by an average of 21,000 barrels per day the prior week, while our exports of crude oil rose by an average of 540,000 barrels per day to an average of 1,850,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,081,000 barrels of per day during the week ending August 3rd, 358,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, field production of crude oil from US wells was reported to be 100,000 barrels per day lower at 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 16,881,000 barrels per day during the reporting week... 

at the same time, US oil refineries were using 17,598,000 barrels of crude per day during the week ending  August 3rd, 118,000 barrels per day more than they used during the prior week, while 193,000 barrels of oil per day were reportedly being pulled out of the oil that's in storage in the US....hence, 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 524,000 fewer barrels per day than what refineries reported they used during the week.....to account for that disparity between the supply of oil and the disposition of it, the EIA needed to insert a (+524,000) 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"...with a difference between oil supply and its disposition as large as that, we have to consider the likelihood that one or more of this week's EIA oil metrics has a statistically significant error.... (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 8,129,000 barrels per day, 1.4% more than the 8,014,000 barrel per day average we were importing over the same four-week period last year....the 193,000 barrel per day decrease in our total crude inventories was all withdrawn from our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve remained unchanged.....this week's crude oil production was reported being down by 100,000 barrels per day to 10,800,000 barrels per day because the output from wells in the lower 48 states was reported down by 100,000 barrels per day to 10,500,000 barrels per day, while oil output from Alaska rose by 4,000 barrels per day, and since the national total is now being rounded to the nearest 100,000 barrels per day to more reflect the EIA's inability to accurately model oil output from all the wells in the lower 48 states, that total fell by that amount as well.....US crude oil production for the week ending August 4th 2017 was reportedly at 9,423,000 barrels per day, so this week's rounded oil production figure is still roughly 14.6% above that of a year ago, 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...

since US crude oil production has now fallen two weeks in a row, after rising 23 weeks in a row and almost continuously since September 2016, we'll take a look at a graph of that and see if we can figure out what might be going on...

August 10 2018 oil production thru Aug 3rd

the above graph, from this week's OilPrice Intelligence Report, shows the history of confirmed oil production data monthly from January 2016 to May 2018 in blue, and then the weekly estimates of US oil production up until the current week in yellow after that period, with both metrics in thousands of barrels per day...above the graph, OilPrice also supplies the rounded weekly estimates of oil production in thousands of barrels per day for the weeks ending June 29th through August 3rd as reported by the EIA...as we've pointed out on previous occasions, the weekly oil data from the EIA that we cover each week is preliminary, and it is typically more than 2 months before the final confirmed figures, published monthly, are released...despite the likelihood of some inaccuracy in the weekly data, we follow it because it's what the oil traders follow, and hence it moves oil prices and ultimately the decisions on the part of exploitation companies to start drilling for oil...

up until last week, a similar graph of confirmed production through April traced in blue was fairly contiguous with the weekly estimates for May and beyond that was shown in yellow...however, when the confirmed production for May was reported last week, it came in at 10,442,000 barrels per day, qan unexpected drop from the 10,472,000 barrels per day reported in April, thus opening up the large gap between the confirmed data and the weekly estimates that we see at the white dashed perpendicular line above...not only did that mean May's estimates had been too high, but estimates of the following weeks were probably too high as well...thus, when the week ending July 27 data was released the week before last showed a 100,000 barrel per day decrease to 11,900,000 barrels per day, i assumed it was because the EIA model for estimating weekly oil production had been adjusted for the new data from May and produced a estimate for July 27th taking that May production drop into account...at that point, i felt that 100,000 barrel per day decrease did not mean that oil production had actually fallen week over week, but that it just meant that production had been rising more slowly than previous estimated, and that previously released weekly data was probably incorrect (note that the EIA does not revise published weekly estimates that are shown to be incorrect; they are left as is while the corrected data is shown in the confirmed monthly tables)...

however, the EIA only changes their model for estimating weekly oil production based on confirmed monthly figures once a month, the week those confirmed figures are released...that means that the 100,000 barrel per day decrease to 11,800,000 barrels per day for the current week reflects an actual decrease in production, not just a change in the EIA oil production model based on the May figures...some have speculated that oil production might have dropped because of a paucity of pipelines coming out of the Permian, but that could have not caused a drop in output unless the throughput of the extant pipelines had actually been reduced....so i have to go back to the EIA's Drilling Productivity Report for July, which showed there was an actual drop in well completions from May to June...thus, with the number of new wells coming into production stagnating, the well known depletion factor associated with fracked wells would become a major factor in our output; ie, if production from existing wells is falling faster than new well output is coming into production, then the losses from the depletion of the older wells aren't being replaced, and our net oil output will drop.  so that is what appears to have happened this week, although we can no longer get a reasonable fix on how much the output drop really was, because as we've noted, those production figures are now being rounded to the nearest 100,000 barrels per day...

meanwhile, US oil refineries were operating at 96.6% of their capacity in using 17,598,000 barrels of crude per day during the week ending August 3rd, up from 96.1% of capacity the prior week, refinery capacity utilization rates that continue above historical norms...the 17,598,000 barrels of oil that were refined this week were also at a seasonal high, now for the 10th week in a row, as compared to any previous 1st week of August...however, this week's refinery throughput was only fractionally higher than the 17,574,000 barrels of crude per day that were being processed during the week ending August 4th 2017, when US refineries were operating at 96.3% of capacity....

even with the increase in the amount of oil being refined this week, gasoline output from our refineries was reported as being considerably lower, decreasing by 570,000 barrels per day to 10,483,000 barrels per day during the week ending August 3rd, after our refineries' gasoline output had increased by 228,000 barrels per day during the week ending July 27th...as a result of that big drop, our gasoline production during the week was 3.8% lower than the 10,301,000 barrels of gasoline that were being produced daily during the same week of last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 78,000 barrels per day to 5,237,000 barrels per day, after falling by 283,000 barrels per day over the prior three weeks...hence, this week's distillates production was still 1.3% lower than the 5,305,000 barrels of distillates per day that were being produced during the week ending  August 4th, 2017...

however, even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week still rose by 2,900,000 barrels to 233,868,000 barrels by August 3rd, just the 8th increase in 22 weeks, but the 24th increase in 39 weeks, as gasoline inventories, as usual, were being built up over the winter months....our supplies of gasoline rose this week because the amount of gasoline supplied to US markets fell by 532,000 barrels per day to 9,346,000 barrels per day, after rising by 603,000 barrels per day over the prior three weeks, and because our imports of gasoline rose by 183,000 barrels per day to 935,000 barrels per day, while our exports of gasoline rose by 75,000 barrels per day to 588,000 barrels per day....after this week's increase, our gasoline inventories ended up 1.2% higher than last August 4th's level of 231,103,000 barrels, and roughly 8.8% above the 10 year average of our gasoline supplies for this time of the year...     

meanwhile, with the increase in our distillates production, our supplies of distillate fuels increased by 1,230,000 barrels to 125,423,000 barrels during the week ending August 3rd, the 8th increase in 11 weeks...our supplies increased even as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 391,000 barrels per day to 4,002,000 barrels per day, after decreasing by 556,000 barrels per day the prior week, while our exports of distillates fell by 49,000 barrels per day to 1,228,000 barrels per day, and while our imports of distillates rose by 12,000 barrels per day to 169,000 barrels per day....however, since our distillate supplies are still coming off a 14 year seasonal low hit just 2 weeks ago, after they had been falling during a time of year when distillates supplies are usually increasing, this week's inventory increase still leaves our distillates supplies 15.1% below the 147,685,000 barrels that we had stored on August 4th, 2017, and roughly 14.9% lower than the 10 year average of distillates stocks for this time of the year...     

finally, with our oil exports rising and our refineries using more oil while our oil production was falling, our commercial supplies of crude oil decreased for the 16th time in 2018 and for the 31st time in the past year, falling by 1,351,000 barrels during the week, from 408,740,000 barrels on July 27th to 407,389,000 barrels on August 3rd...and with our crude oil inventories falling most of last year, our oil supplies as of August 3rd were hence 14.3% below the 475,437,000 barrels of oil we had stored on August 4th of 2017, 17.4% below the 492,969,000 barrels of oil that we had in storage on August 5th of 2016, and 3.4% below the 421,822,000 barrels of oil we had in storage on August 7th of 2015, when US supplies of oil had already moved above the nearly stable levels of under 400 million barrels we saw during the prior years...   

This Week's Rig Count

US drilling activity increased for the fifteenth time in the past twenty weeks during the week ending August 10th, and by the most in one week since May 25th.... Baker Hughes reported that the total count of active rotary rigs running in the US increased by 13 rigs to 1057 rigs over the week ending on Friday, which was also 108 more rigs than the 949 rigs that were in use as of the August 11th report of 2017, but was still down from the shale era 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 count of rigs drilling for oil rose by 10 rigs to 869 rigs this week, which was 101 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 186 rigs this week, which was also up by 5 rigs from the 181 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, two exploratory wells considered to be "miscellaneous" continued drilling this week, in contrast to a year ago, when all rigs were specifically targeting either oil or gas..

two more Gulf of Mexico drilling platforms were started back up this week, so there are now 18 rigs drilling in the Gulf of Mexico, up from the 17 rigs that were drilling in the Gulf last year at this time...in addition, another platform was deployed offshore from Alaska this week, where there are now two rigs drilling, so the total national offshore count is now at 20 rigs, up from 18 offshore rigs a year ago, when there was only one platform drilling in Alaska's Cook Inlet...

the count of active horizontal drilling rigs was up by 12 to 924 horizontal rigs this week, which was also 123 more horizontal rigs than the 801 horizontal rigs that were in use in the US on August 11th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count increased by 1 rig to 69 vertical rigs this week, which was still down from the 72 vertical rigs that were in use during the same week of last year...meanwhile, the directional rig count was unchanged at 64 directional rigs this week, which was still down from the 76 directional rigs that were operating on August 11th 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 August 10th, the second column shows the change in the number of working rigs between last week's count (August 3rd) and this week's (August 10th) count, the third column shows last week's August 3rd 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 11th of August, 2017...      

August 10 2018 rig count summary

unsurprisingly, the largest increase in US drilling since May was led by a 5 rig increase in the Permian, which now has 108 more rigs drilling than a year ago, thus accounting for the total rig increase in the US over the past year by itself...however, those Permian additions initially appear to have been in New Mexico, since the Texas rig count was down by 2 rigs...however, looking at the Texas Oil and Gas District counts in Baker Hughes state data, there appears to be an increase of three rigs in the core Permian districts, offset by a decrease of three rigs in districts that could be considered partially in the Permian, so without going through the individual well logs in Baker Hughes' pivot table, we can't be sure...meanwhile, Louisiana, with a 6 rig addition, saw the largest increase, on the back of the 2 rigs added in the Gulf offshore, and 4 more rigs in the northern part of the state, one of which was in the Haynesville...the Haynesville, by the way, accounts for two of the natural gas rig increases, since the only rig targeting oil in that basin was shut down this week, while two rigs targeting natural gas started up...other natural gas rig changes include a decrease of one rig in the Pennsylvania Marcellus, a decrease of one rig in the Arkoma Woodford of Oklahoma, a decrease of one rig in the Permian (where all rigs are now targeting oil), a decrease of one rig in the Granite Wash (where all rigs are now also targeting oil), an increase of one rig in Ohio's Utica shale, and an increase of four natural gas rigs in 'other' basins not tracked separately by Baker Hughes...we should also note that outside of the major producing states shown above, Alabama had a rig shut down this week, and now has just one deployed, down from two a year ago, that Florida had a land based rig start drilling this week for the first time since January 2014, and that Nebraska also saw a rig start up this week, for only the 2nd week of oilfield activity in the state in the past year...

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note:  there’s more here

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