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, November 4, 2018

oil prices see largest drop in ​9 months on demand concerns, glut fears; US oil production at a record high

oil prices were down every day the past week in the largest weekly price drop since ​early ​February, and ended more than 17% below the 4 year high they set ​just ​one month ago...after falling 2.4% to $67.59 a barrel in a global market selloff last week, prices for US oil contract​s for December delivery fell 55 cents to $67.04 a barrel on Monday, as Russia signaled its oil output would remain high and concerns over the global trade slowdown deepened...oil prices then fell more than 1% on Tuesday, on rising global oil output and on concern that global economic growth and demand for fuel would fall ​due to the U.S.-China trade war, closing down 86 cents at $66.18 a barrel...Wednesday saw another 87 cent drop to $65.31 a barrel, as further signs of rising global supply emerged with US and Russian output hitting records, as oil prices finished October with their largest monthly drop in more than 2 years...US crude prices then tumbled $1.62, or 2.5%, to a 7-month low of $63.69 a barrel, as surging output from the US, Russia, and OPEC was met by slowing demand from emerging market economies hit by the US-China trade war...oil prices fell almost ​another percent again on Friday, closing at $63.14 a barrel, after the US said it would temporarily allow eight allies to buy crude from Iran, alleviating fears of a sanction-related supply crunch... the December US oil contract thus ​registered a weekly drop of 6.6%, as US oil prices suffered their fourth straight weekly loss, while the contract for January Brent, the international benchmark, settled at $72.83 a barrel ​with a loss of 6.2%​ for the week​..

on the other hand, natural gas prices for December rose 5.9 cents to $3.284 per mmBTU this week, whipsawed midweek by changing 8 to 14 day forecasts from the Climate Prediction Center, and boosted on Friday by the report of a smaller than expected injection of natural gas into storage...this week's natural gas storage report from the EIA for the week ending October 26th indicated that natural gas in storage in the US rose by 48 billion cubic feet to 3,143 billion cubic feet during that week, which left our gas supplies 623 billion cubic feet, or 16.5% below the 3,766 billion cubic feet that were in storage on October 27th of last year, and 638 billion cubic feet, or 16.9% below the five-year average of 3,781 billion cubic feet of natural gas that are typically in storage after the fourth week of October....this week's 48 billion cubic feet increase in natural gas supplies was below expectations of an inventory increase in the 51 to 53 billion cubic foot range, and was also below the average of 62 billion cubic feet of natural gas that have been added to storage during the fourth week of October in recent years, the 13th average or below average inventory increase over the past seventeen weeks...natural gas storage facilities in the Midwest saw a 22 billion cubic feet increase over the week, which reduced their supply deficit to 11.6% below normal, but natural gas supplies in the East only increased by 1 billion cubic feet and saw their supplies deficit rise to 9.5% below normal for this time of year...on the other hand, the South Central region saw a 26 billion cubic feet increase in their supplies, as their natural gas storage deficit decreased to 24.9% below their five-year average for the 4th week in October...meanwhile, while the natural gas pipeline rupture in Canada has been repaired, flows south had not resumed as of this report; as a result, only 3 billion cubic feet were added to supplies in the Mountain region, where their deficit from normal fell to 17.4%, while there no change of gas in storage in the Pacific region, where the natural gas supply deficit rose to 24.9% below normal for this time of year.... 

the primary reason for this week's much smaller than average addition to storage was the outbreak of cold weather in the populated eastern half of the country that we saw during the period; natural gas production continued at near record levels...this can be clearly seen in the map of weekly average temperature abnormalities below taken from the EIA's natural gas storage dashboard:

November 3 2018 departure from normal temps for week ending October 25

again, this map came from the EIA's natural gas storage dashboard, an EIA website with dozens of interactive graphics tracking various facets and factors influencing US natural gas supplies, which is updated with the most recent data on Thursday of each week...the above map shows how much the temperatures in each geographical area of the 48 states varied from normal during the week ending October 25th, with those areas that were cooler than normal in a shade of blue, while those areas that were warmer than normal are shown in a shade of tan or brown....from the legend underneath this map, we can see that most of the eastern US saw temperatures below normal during the cited week, with a broad swath running from Texas northeast through Maine showing temperatures 5 to 9 degrees below normal...for the fourth week in October, below normal would mean that most of that area, probably with the exception of southern Texas, saw heating demand closer to what one would expect in early to mid November, and hence less natural gas than normal was left to be added to winter supplies... 

however, temperatures ​have since ​moderated during the week through November 1st, which you can see if you go to the natural gas storage dashboard and run the ​daily ​animation that goes with that map...all three of those regions saw a mix of days both above and below normal, with average temperatures thus a few degrees warmer than they were during this reporting week...thus we'd expect that this coming week's natural gas storage report will show additions of gas ​to storage ​much closer to the norm, likely in a range from 55 to 60 billion cubic feet...after that, the forecast is for temperatures to turn colder, so further additions will be minimal if at all..

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration for the week ending October 26th indicated yet another addition to our commercial crude supplies for a sixth week in a row, despite a decrease in our oil imports, an increase in our oil exports, and a modest pickup in refining...our imports of crude oil fell by an average of 334,000 barrels per day to an average of 7,344,000 barrels per day, after rising an average of 63,000 barrels per day the prior week, while our exports of crude oil rose by an average of 352,000 barrels per day to an average of 2,485,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,859,000 barrels of per day during the week ending October 26th, 639,000 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 reportedly 300,000 barrels per day higher at 11,200,000 barrels per day, which means that our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,059,000 barrels per day during this reporting week... 

meanwhile, US oil refineries were using 16,417,000 barrels of crude per day during the week ending October 26th, 149,000 barrels per day more than the amount of oil they used during the prior week, while over the same period a net of 239,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....hence, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports and from oilfield production was 597,000 fewer barrels per day than what refineries reported they used during the week plus what oil was added to storage....to account for that disparity between the supply of oil and the consumption or new storage of it, the EIA inserted a (+597,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily 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"...once again, with an "unaccounted for crude" figure that large, one or more of this week's oil metrics must be off by a statistically significant amount (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) indicate that the 4 week average of our oil imports slipped to an average of 7,509,000 barrels per day, now 2.5% less than the 7,699,000 barrel per day average that we were importing over the same four-week period last year....the net 239,000 barrel per day increase in our total crude inventories included a 460,000 barrel per day increase in our commercially available stocks of crude oil, which was partially offset by a 220,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely because of a sale of 11 million barrels from those reserves to Exxon et al that closed eight weeks ago....this week's crude oil production was reported up by 300,000 barrels per day to 11,200,000 barrels per day due to a rounded 300,000 barrels per day rebound to 10,700,000 barrels per day output from wells in the lower 48 states after Hurricane Michael, while a 15,000 barrels per day increase to 488,000 barrels per day in oil output from Alaska was not enough to impact the reported national total, which is now being rounded to the nearest 100,000 barrels per day....last year's US crude oil production for the week ending October 27th was at 9,553,000 barrels per day, so this week's rounded oil production figure was 17.2% above that of a year ago, and 32.9% 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...

while we report the preliminary US oil production estimates that are released weekly, the EIA also releases confirmed monthly oil production figures a few months later, ​after they ​have ​collect​ed​ the accurate production reports that aren't available on a weekly basis....since this week's release of that monthly report shows a significant divergence from the ​weekly ​figures we've been reporting, we'll include a graphic showing both, so we can see what that divergence looks like...

November 3 2018 US crude production through October 26

the above graph, from this week's OilPrice Intelligence Report, shows the history of confirmed oil production data monthly from January 2016 to August 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....as we've pointed out on several 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...we follow the weekly data 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...however, the confirmed oil production figures for August were released this week and showed our crude production at a much higher than expected 11,346,000 barrels per day​ average​ during that month, up from 10,964,000 barrels per day in July...the weekly production estimates for August, on the other hand, had ranged from 10,800​,000​ barrels per day to 11,000​,000​ barrels per day, and thus averaged more than 400,000 barrels per day lower than the confirmed figures...if the reason for the inaccuracies in the weekly report persisted to the current week, and we have no reason to believe they haven't, the 400,000 barrels per day error in the weekly oil production figures would go a long way toward explaining the large "unaccounted for crude" figures we've been seeing in recent weeks...

meanwhile, ​this week's report indicates that ​US oil refineries were operating at 89.4% of their capacity in using 16,417,000 barrels of crude per day during the week ending October 26th, up from 89.2% of capacity the prior week, a fairly normal utilization rate for during the fall refinery maintenance season....the 16,417,000 barrels per day of oil that were refined this week were once again at a seasonal high, for the 20th out of the past 22 weeks, 2.5% higher than the 16,015,000 barrels of crude per day that were processed during the week ending October 27th, 2017, when US refineries were operating at 88.1% of capacity...

with the increase in the amount of oil being refined this week, gasoline output from our refineries was also higher, increasing by 336,000 barrels per day to 10,364,000 barrels per day during the week ending October 26th, after our refineries' gasoline output had decreased by 402,000 barrels per day during the week ending October 19th...with that rebound in our gasoline output, our gasoline production during the week was 1.7% higher than the 10,187,000 barrels of gasoline that were being produced daily during the same week last year...meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) increased by 23,000 barrels per day to 4,983,000 barrels per day, after that output had increased by 145,000 barrels per day the prior week....however, this week's distillates production was still 1.1% lower than the 5,036,000 barrels of distillates per day that were being produced during the week ending October 27th 2017.... 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 3,161,000 barrels to 226,169,000 barrels by October 26th, the 21st decrease in the past 36 weeks, after our gasoline supplies had dropped by 4,826,000 barrels the prior week....our supplies fell even as the amount of gasoline supplied to US markets fell by 62,000 barrels per day to 9,262,000 barrels per day, and as our imports of gasoline rose by 32,000 barrels per day to 363,000 barrels per day, while our exports of gasoline rose by 43,000 barrels per day to 1,012,000 barrels per day...but even after two big decreases, our gasoline inventories are still at a seasonal high, 6.3% higher than last October 27th's level of 212,849,000 barrels, and roughly 7.1% above the 10 year average of our gasoline supplies for this time of the year...

meanwhile, even with our distillates production a bit higher higher, our supplies of distillate fuels also fell again, decreasing by 4,052,000 barrels to 126,322,000 barrels during the week ending October 26th, their sixth straight decrease after 8 straight weeks of increases, and the largest drop since March 9th...our distillates supplies fell by much more than last week's decrease because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 420,000 barrels per day to 4,426,000 barrels per day, while our exports of distillates fell by 163,000 barrels per day to 1,277,000 barrels per day, and while our imports of distillates fell by 22,000 barrels per day to 141,000 barrels per day....after this week's decrease, our distillate supplies ended the week 2.0% below the 128,921,000 barrels that we had stored on October 27th, 2017, and remained roughly 6.7% below the 10 year average of distillates stocks for this time of the year...     

finally, despite higher oil exports​,​ lower ​oil ​imports​,​ and an increase in oil being refined, our commercial supplies of crude oil increased for the 6th week in a row and for the 22nd time in 2018, rising by 3,217,000 barrels during the week, from 422,787,000 barrels on October 19th to 426,004,000 barrels on October 26th to ...that increase means that our crude oil inventories continue to be more than 2% above the five-year average of crude oil supplies for this time of year, and roughly 22.4% above the 10 year average of crude oil stocks for the last weekend in October, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...however, since our crude oil inventories had been falling through most of the past year and a half until just recently, our oil supplies as of October 26th were still 6.4% below the 454,906,000 barrels of oil we had stored on October 27th of 2017, 11.7% below the 482,578,000 barrels of oil that we had in storage on October 28th of 2016, and 5.5% below the 450,841,000 barrels of oil we had in storage on October 30th of 2015...      

This Week's Rig Count

US drilling rig activity slowed for the second time in 6 weeks during the week ending November 2nd, but just by a bit....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 1 rig to 1067 rigs over the week ending on Friday, which was still 169 more rigs than the 898 rigs that were in use as of the November 3rd report of 2017, but 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 decreased by 1 rig to 874 rigs this week, which was still 145 more oil rigs than were running a year ago, while it was 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 remained unchanged at 193 rigs, which was still 24 more than the 169 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, a year ago we had a rig categorized as "miscellaneous" deployed, while there are no such "miscellaneous" rigs drilling at this time this year...

offshore drilling in the Gulf of Mexico was unchanged at 18 rigs this week, which was also unchanged from the 18 Gulf of Mexico rigs active a year ago...meanwhile, the only rig that had  been drilling offshore from Alaska was shut down this week, so the total national offshore count is now down to 18 rigs, also the same as a year ago...

the count of active horizontal drilling rigs was up by 2 rigs to 929 horizontal rigs this week, which was also 165 more horizontal rigs than the 764 horizontal rigs that were in use in the US on November 3rd of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the directional rig count was unchanged at 73 directional rigs this week, which ​is ​the same number of directional rigs that were in use during the same week of last year....on the other hand, the vertical rig count was down by 3 rigs to 65 vertical rigs this week, which was still up from the 61 vertical rigs that were operating on November 3rd 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 November 2nd, the second column shows the change in the number of working rigs between last week's count (October 26th) and this week's (November 2nd) count, the third column shows last week's October 26th active rig count, the 4th column shows the change between the number of rigs running on Friday and those running on the equivalent weekend 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 3rd of November, 2017...        

November 2 2018 rig count summary

this week's modest 2 rig decrease in the Permian masks significant other changes within its component basins; while just a single rig was shut down in Texas Oil District 8, which would correspond to the core Delaware basin, there were 4 rigs shut down in Texas Oil District 8A, which would correspond to the central platform and Midland Basins; at the same time, 2 rigs were added in Texas Oil District 7C, which could be Midland rigs or southern shelf, and another rig was added in Texas Oil District 7B, which could also be a Midland rig, or outside the basin altogether (Texas oil districts are political boundaries and hence don't correspond directly with the geological basins underlying them)...based on that, our best guess, without digging through the individual well logs in the Rig Count Pivot Table (xls), is that Texas shed a net of 3 Permian rigs, while New Mexico picked one up....natural gas rigs, meanwhile, remained unchanged despite the loss of two in the Marcellus (one each in PA and WV) and the natural gas rig that was shut down in Oklahoma's Arkoma Woodford because a natural gas rig was added to those working Ohio's Utica, and two others were set up in basins not tracked separately by Baker Hughes...

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note:  there's more here..

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