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, December 2, 2018

oil prices end November down 22%; longest run of US oil inventory increases in three years; refining and distillates output at seasonal highs

oil prices managed to see their first small increase in eight weeks this week, as traders waited for direction from this weekend's G-20 meeting in Buenos Aires and the December 6th OPEC meeting in Vienna, but still finished November with a 22% decline, the largest one month drop in oil prices in more than a decade...after falling more than 11% to $50.42 a barrel on fears of a supply glut last week, contract prices of US crude for January delivery rallied from their oversold condition by $1.21, or 2.4%, to $51.63 a barrel on Monday, clawing back some of last Friday's near 8% drop, supported by a broad rally in U.S. stock markets...but prices floundered again in early trading on Tuesday, sliding 2% to $50.30 a barrel, weighed down by uncertainty over the U.S.-China trade war and signs of increased global crude production, before recovering to end with a loss of just 7 cents at $51.56 a barrel, on expectations that oil exporters would agree to cut their output at the coming OPEC meeting...prices resumed their slide towards $50 on Wednesday, falling $1.27 to $50.29 a barrel, the lowest closing price in more than a year, after the EIA reported the 10th consecutive increase in U.S. crude inventories, feeding oversupply fears...oil prices then slipped under $50 a barrel for the first time in 14 months on Thursday morning as Russia initially signaled little urgency to commit to supply cuts, but then recovered to close with an increase of $1.16 at $51.45 a barrel, after Reuters, citing industry sources, reported that Russia was becoming increasingly convinced it will need to cut oil output in support of OPEC...oil prices then tumbled back below $50 a barrel on Friday morning before spiking to as high as $51.79 during a volatile end-of-week session ahead of the G20 and OPEC meetings, but slipped back again near the close to end 52 cents lower at $50.93 a barrel, with losses limited by expectations that OPEC and Russia would agree some form of production cut in the coming week...so while they avoided another massive selloff and eked out an increase of 1% on the week, the January oil contract still ended November 22.2% lower for the month, and 39% off the 4 year high of $76.41 a barrel seen in trading of November oil on October 3rd...

natural gas prices also ended higher for the week, with those gains complicated by the expiration of trading in the December oil contract on Wednesday...the natural gas contract for December delivery, which ended last week at $4.308 per mmBTU, fell 6 cents on Monday and 1.4 cents on Tuesday before jumping over 50 cents on a contract expiration rally on Wednesday, before ending the day with a gain of 45.3 cents at $4.715 per mmBTU, as yet another cold weather ​forecast fed the increase...meanwhile, the natural gas contract for January delivery, which ended the prior week at $4.355 per mmBTU, fell 4 out of 5 days but also jumped more than 40 cents on Wednesday and ended the week 5.9% higher at $4.612 per mmBTU, shaking off a Thursday drop to as low at $4.45​2​ per mmBTU on a natural gas storage report from the EIA that showed a smaller than expected withdrawal from inventories...

the natural gas storage report for the week ending November 23rd from the EIA showed that the quantity of natural gas in storage in the US fell by 59 billion cubic feet to 3,054 billion cubic feet over the week, which left our gas supplies 644 billion cubic feet, or 17.4% below the 3,698 billion cubic feet that were in storage on November 24th of last year, and 720 billion cubic feet, or 19.1% below the five-year average of 3,774 billion cubic feet of natural gas that are typically in storage on the fourth weekend of November....this week's 59 billion cubic feet withdrawal from US natural gas supplies was somewhat less than the 76 billion cubic foot withdrawal that analysts had been expecting, but it was more than the average of 49 billion cubic feet of natural gas that have been withdrawn from storage during the third full week of November in recent years...natural gas storage facilities in the Midwest saw a 21 billion cubic feet drop in supplies over the week, which increased the region's gas supply deficit to 12.3% below normal for this time of year, while natural gas supplies in the East fell by 25 billion cubic feet and their supply deficit rose to 12.9% below normal for the 4th weekend in November...on the other hand, the South Central region saw a 5 billion cubic feet drop in their supplies, and their natural gas storage deficit remained unchanged at 26.8% below their five-year average for this time in November...at the same time, 4 billion cubic feet were pulled out of natural gas supplies in the Pacific region as their deficit from normal fell to 26.8%, while 3 billion cubic feet were withdrawn from storage in the sparsely populated Mountain region, where their natural gas supply deficit rose to 20.8% below normal for this time of year....  

for a visualization of where our natural gas supplies stand vis-vis what is normal, we'll include this week's graph from the natural gas storage report showing natural gas in storage over the past two years, as compared to the 5 year range... 

December 1 2018 natural gas in storage thru November 23

the above graph comes from this week's Natural Gas Storage Report, and it shows the quantity of natural gas in storage in the lower 48 states over the period from October 2016 up to the week ending November 23rd 2018 as a blue line, the average of natural gas in storage over the 5 years preceding the same dates shown as a heavy grey line, while the grey shaded background represents the previous upper and lower range of natural gas in storage for any given time of year for the 5 years prior to the two years that are shown by today's graph…thus the grey area also shows us the normal variation of natural gas storage levels as they fluctuate from season to season, with natural gas in storage underground normally building to a maximum by the first weekend in November, falling through the winter, and usually bottoming out at the end of March, depending of course on the spring heating requirements ​in any given year...notice that the blue line shows that the quantity gas we had stored in the fall of 2016 was at a record high up ​through October, and then dropped to near normal going into 2017, despite a much milder than normal winter...also notice how our supplies of natural gas in blue started last winter fairly close to the 5 year average of natural gas in storage shown in dark grey, then diverged over the year, beginning with the colder than normal January, with the gap separating the grey "normal" line and the blue current supply line slowly getting increasingly wider, until it finally fell below the 5 year low, represented by the grey shaded area, in August...since then, the gap between our current supplies and the previous 5 year minimum has only gotten progressively wider, and that deficit from normal has continued to widen up through this week...

this November 23rd's 3,054 billion cubic feet of natural gas in storage was thus 11.0% lower than the previous 5 year low of 3,432 billion cubic feet that was set on November 21st of 2014 which is represented on the graph above; moreover, it was also 19.1% below the 3,776 billion cubic feet that were in storage on November 22nd of 2013, before the 2014 winter that set the previous low supply records seen on that chart...compared to other late November low gas storage readings in this century, November 23rd's storage level was 10.8% below the previous 10 year low of 3,288 billion cubic feet that was set on November 21st of 2008, 5.3% below the 3,225 billion cubic feet of natural gas we had in storage on November 25th of 2005, and 3.2% below the 3,154 billion cubic feet that were in storage on November 21st of 2003...we have to ​follow the archived records (xls) back 16 years, to November ​22nd of 2002, when 3047 billion cubic feet of natural gas were in storage, to ​find ​a lower quantity of natural gas in storage ​after three weeks of November than ​we have ​now..... 

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending November 23rd, indicated another large increase in the amount of of oil used by refineries and a corresponding jump in our oil imports, while simultaneous higher oil exports meant there was an even smaller addition to our commercial crude supplies than the prior week, but the still 10th increase in a row and hence the longest string of ​oil ​inventory increases since autumn 2015...our imports of crude oil rose by an average of 608,000 barrels per day to an average of 8,162,000 barrels per day, after rising by an average of 102,000 barrels per day the prior week, while our exports of crude oil rose by an average of ​473,000 barrels per day to an average of 2,442,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,720,000 barrels of per day during the week ending November 23rd, 135,000 more 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 unchanged at 11,700,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 17,420,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 17,553,000 barrels of crude per day during the week ending November 23rd, 698,000 barrels per day more than the amount of oil they used during the prior week, while over the same period a net of 225,000 barrels of oil per day were reportedly being added to the total amount of 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 358,000 barrels per day short of 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 (+358,000) 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"...(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 rose to an average of 7,677,000 barrels per day, now 0.8% more than the 7,619,000 barrel per day average that we were importing over the same four-week period last year....the net 225,000 barrel per day increase in our total crude inventories included a 511,000 barrel per day increase in our commercially available stocks of crude oil, which was partly offset by a 286,000 barrel per day decrease in the amount of oil in our Strategic Petroleum Reserve, likely part of a sale of 11 million barrels from those reserves to Exxon et al that closed two and a half months earlier....this week's crude oil production was reported as unchanged at 11,700,000 barrels because the rounded figure for output from wells in the lower 48 states was unchanged at 11,200,000 barrels per day, while a 5,000 barrel per day decrease to 498,000 barrels per day in oil output from Alaska was not enough to change the rounded national total...last year's US crude oil production for the week ending November 24th was at 9,682,000 barrels per day, so this week's rounded oil production figure was 20.8% above that of a year ago, and 38.8% 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 95.6% of their capacity in using 17,553,000 barrels of crude per day during the week ending November 23rd, up from 92.7% of capacity the prior week, and the highest refinery utilization rate for ​anytime in ​November since 1998....the 17,553,000 barrels per day of oil that were refined this week were at a seasonal high for the time of year for the 23rd time out of the past 26 weeks, and 3.2 higher than the 17,003,000 barrels of crude per day that were being processed during the week ending November 24th, 2017, when US refineries were operating at 92.6% of capacity... 

with the big jump in the amount of oil being refined, the gasoline output from our refineries was a somewhat higher, increasing by 132,000 barrels per day to 10,168,000 barrels per day during the week ending November 23rd, after our refineries' gasoline output had decreased by 20,000 barrels per day during the week ending November 16th...but even with that increase in this week's gasoline output, our gasoline production during the week​ was​ still 3.8% lower than the 10,222,000 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 270,000 barrels per day to a seasonal record 5,471,000 barrels per day, after that output had increased by 208,000 barrels per day the prior week....with that increase, this week's distillates production was 3.5% higher than the 5,284,000 barrels of distillates per day that were being produced during the week ending November 24th 2017.... 

with our gasoline production little changed, our supply of gasoline in storage at the end of the week fell by 764,000 barrels to 224,551,000 barrels by November 23rd, the 6th decrease in the past 7 weeks,​ and​ shrinking our gasoline supplies by 11,621,000 barrels over that span....our gasoline supplies fell again as our exports of gasoline rose by 176,000 barrels per day to 1,061,000 barrels per day, while our imports of gasoline rose by 137,000 barrels per day to 384,000 barrels per day, and as the amount of gasoline supplied to US markets rose by 3,000 barrels per day to 9,188,000 barrels per day...while our gasoline inventories are no longer at a seasonal high, they are still 4.9% higher than last November 24th's level of 214,102,000 barrels, and roughly 6.6% above the 10 year average of our gasoline supplies for this time of the year...

with the big jump in our distillates production, our supplies of distillate fuels increased for the first time in ten weeks, rising by 2,610,000 barrels to 121,801,000 barrels during the week ending November 23rd, after our distillates supplies had fallen by 11,185,000 barrels over the prior four weeks...our distillates supplies increased even though our exports of distillates rose by 669,000 barrels per day to 1,715,000 barrels per day because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 701,000 barrels per day to 3,569,000 barrels per day, while our imports of distillates rose by 82,000 barrels per day to 186,000 barrels per day...but even after this week's decrease, our distillate supplies still ended the week 4.7% below the 127,779,000 barrels that we had stored on November 24th, 2017, and roughly 7.6% below the 10 year average of distillates stocks for this time of the year...       

finally, even with this week's big increase in oil refining, our commercial supplies of crude oil increased for the 10th week in a row and now for the 26th time in 2018, rising by 3,577,000 barrels during the week, from 446,908,000 barrels on November 16th to 450,485,000 barrels on November 23rd...that increase means that our crude oil inventories are now roughly 7% above the five-year average of crude oil supplies for this time of year, and roughly 29.3% above the 10 year average of crude oil stocks for the fourth weekend in November, 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 November 16th were still 0.7% below the 453,713,000 barrels of oil we had stored on November 24th of 2017, 7.7% below the 488,145,000 barrels of oil that we had in storage on November 25th of 2016, and 1.5% below the 457,212,000 barrels of oil we had in storage on November 27th of 2015.. 

This Week's Rig Count

Note: this week's rig count summary covers 9 days, from last week's report on November 21st (ie, the day before Thanksgiving) to Friday, November 30th....with that qualification, Baker Hughes reported that the total count of rotary rigs running in the US decreased by 3 rigs to 1076 rigs over the 9 days ending November 30th, which was still 147 more rigs than the 929 rigs that were in use as of the December 1st 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 announced their attempt to flood the global oil market...  

the count of rigs drilling for oil increased by 2 rigs to 887 rigs this week, which was also 138 more oil rigs than were running a year ago, while it remained 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 5 rigs to 189 natural gas rigs, which was still 9 more than the 180 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...

offshore drilling in the Gulf of Mexico decreased by 2 rigs to 23 rigs this week, which was still 3 more rigs than the 20 rigs active in the Gulf of Mexico a year ago...with no other offshore US drilling activity elsewhere either this week or a year ago, those Gulf of Mexico totals are again equal to the national offshore rig count totals.... 

the count of active horizontal drilling rigs increased by 5 rigs to 929 horizontal rigs this week, which was also 142 more horizontal rigs than the 792 horizontal rigs that were in use in the US on December 1st of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...on the other hand, the directional rig count decreased by 5 rigs to 68  directional rigs this week, which was also down from the 71 directional rigs that were in use during the same week of last year....in addition, the vertical rig count decreased by 3 rigs to 74 vertical rigs this week, which was still up from the 66 vertical rigs that were operating on December 1st 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 30th, the second column shows the change in the number of working rigs between last week's count (November 21st) and this week's (November 30th) count, the third column shows last week's November 21st 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 the 1st of December, 2017...

November 30 2018 rig count summary

obviously, the basin table above doesn't show us either how we had an increase of 5 horizontal rigs, nor how we had the net decrease of three rigs...Louisiana totals, however, offer a clue, as the state saw 3 rigs idled in the southern part of the state, and one rig shut down offshore, none of which were likely to have been horizontal...in addition, at least one of the rigs added in Wyoming was not in a major basin, since rigs in the DJ Niobrara chalk of the Rockies front range were unchanged...on the other hand, none of the Permian Texas oil districts showed any change, so for once the goose-egg in the Permian rig count accurately reflects that there was no change there...meanwhile, the natural gas rig count fell by 5 despite the addition of one natural gas rig in the Haynesville because 2 natural gas rigs were shut down in West Virginia's Marcellus, and 4 natural gas rigs were shut down in "other basins" not named separately by Baker Hughes; it would be a good bet that some or all of those were in Louisiana....we should also note that other than in the major producing states listed above, Alabama also has their only operational rotary rig shut down this week, the first time since April that there was no activity in Alabama...on the other hand, a land based rig began drilling in Florida this week, beginning the third period of drilling Florida has seen this year; in 2017, there was no drilling in Florida save for two weeks in May..

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