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, February 10, 2019

not out of the woods on natural gas stores; EIA will report record oil production in excess of 12 million bpd next week

oil prices gave up last week's gains and then some this week, while still remaining in the same narrow range they've been in over the past month...after rising nearly 3% to $55.26 a barrel on the new sanctions on Venezuelan oil exports last week, prices for US oil for March delivery fell 70 cents to $54.56 a barrel on Monday, after unexpected weakness in U.S. factory data raised concerns that an economic slowdown would reduce demand for oil...oil prices then fell another 90 cents to $53.66 on Tuesday, after a survey showing that euro zone business expansion had nearly stalled in January heightened concerns about a global economic slowdown....however, oil prices reversed early losses on Wednesday, after the weekly EIA data showed a drop in product inventories and a smaller rise in U.S. crude stockpiles than the Tuesday API report suggested, and went on to close up 35 cents for the day at $54.01 a barrel...selling returned on Thursday, with March crude prices tumbling 2.5% to $52.64 a barrel, amid indications that the trade war between the U.S. and China would continue....oil prices managed to gain 8 cents against a strong dollar to close at $52.72 a barrel in quiet trading on Friday, but still ended the week 4.6% lower--the largest weekly percentage loss for a front-month contract since the week ended Dec. 21...

meanwhile, natural gas prices continued lower after falling to a 28 week low last week, as the March contract ended this week down 15.1 cents at $2.583 per mmBTU, the lowest closing price since last March, despite an EIA gas storage report that showed the largest draw this season...the natural gas storage report for the week ending February 1st from the EIA indicated that the quantity of natural gas held in storage in the US fell by 237 billion cubic feet to 1,960 billion cubic feet over the week, which meant our gas supplies were 135 billion cubic feet, or 6.4% below the 2,095 billion cubic feet that were in storage on February 2nd of last year, and 414 billion cubic feet, or 17.5% below the five-year average of 2,375 billion cubic feet of natural gas that have typically been in storage as of the 1st weekend in February....this week's 237 billion cubic feet withdrawal from US natural gas supplies was somewhat less than the S&P Global Platts' survey of analysts expectations that 249 billion cubic feet of stored gas would be needed, but it was quite a bit more the average of 150 billion cubic feet of natural gas that have been withdrawn from US gas storage during the same winter week over the last 5 years...

with the polar vortex pushing temperatures more than 20 degrees below normal, 84 billion cubic feet of natural gas were needed from storage in the Midwest during the week, well above the normal 51 billion cubic foot pull for the region, and as a result the region's natural gas supply deficit increased to 14.7% below normal for this time of year, while at the same time natural gas supplies in the South Central region fell by 79 billion cubic feet, as their supply deficit increased to 12.2% below the normal for the first weekend of February...the Eastern states also saw an above normal withdrawal of 59 billion cubic feet of gas, as their natural gas deficit increased to 11.7% below their 5 year average of gas stores at the beginning of February....9 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region, which normally pulls out 7 billion cubic feet for the same week, as their deficit from normal rose to 26.1%, but since temperatures in the Pacific states stayed above normal during the polar vortex, they only needed 6 billion cubic feet of gas from storage for the week, and their deficit from normal fell to 25.9% below their five year average for this time of year as a result...

while the EIA reports that "total working gas is within the five-year historical range", that's because the 5 year reference period includes 2014, which saw multiple outbreaks of the polar vortex, with a withdrawal of 990 billion cubic feet over 4 weeks in February that helped drive that year's natural gas supplies to the lowest on record by the end of March...we certainly don't expect to approach that kind of cold anymore this year, but the temperatures after January of last year were not exceptional, and yet we still approached the current heating season with our natural gas supplies at the lowest level in 15 years...since our natural gas supplies are 6.4% below those of a year ago as of this week, it will take smaller withdrawals through the remainder of this winter and/or larger inventory building this spring and fall to avoid entering the winter of 2020 in the same or worse shape than we entered this one...that fact isn't lost on natural gas traders, who are still pricing natural gas for January 2020 delivery more than 15% higher than the price of the front month contract for natural gas today...

The Latest US Oil Supply and Disposition Data from the EIA

this week's US oil data from the US Energy Information Administration, reporting on the week ending February 1st, indicated that we again managed a modest addition of surplus oil to our commercial crude supplies, despite a big jump in our crude oil exports, largely because of a large swing from unaccounted for crude demand to unaccounted for crude supply...our imports of crude oil rose by an average of 63,000 barrels per day to an average of 7,146,000 barrels per day, after falling by an average of 1,108,000 barrels per day the prior week, while our exports of crude oil rose by an average of 926,000 barrels per day to an average of 2,870,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,276,000 barrels of per day during the week ending February 1st, 863,000 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 estimated to be unchanged at a record 11,900,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from wells totaled an average of 16,176,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,633,000 barrels of crude per day during the week ending February 1st, 170,000 more barrels per day than the amount of oil they used during the prior week, while over the same period 180,000 barrels of oil per day were reportedly being added to the oil that's in storage in the US....thus, 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 637,000 fewer barrels per day than the oil that was added to storage plus 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 inserted a (+637,000) 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"...since that "unaccounted for crude" figure was at minus 445,000 barrels per day the prior week, it represents a swing of 1,082,000 barrels per day in that error margin, enough to consider th​is week's week over week changes very unreliable....(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 fell to an average of 7,487,000 barrels per day last week, which was 7.3% less than the 8,078,000 barrel per day average that we were importing over the same four-week period last year.... the 180,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, while the oil stored in our Strategic Petroleum Reserve remained unchanged....this week's crude oil production was reported unchanged at 11,900,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,400,000 barrels per day, while a 9,000 barrel per day increase 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 February 2nd was at 10,251,000 barrels per day, so this week's rounded oil production figure was 16.1% above that of a year ago, and 41.2% 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...     

as we've often mentioned, these weekly oil production figures we report are preliminary, and the EIA also releases confirmed monthly oil production figures a few months later, after they have collected all the precise production reports that aren't available on a weekly basis....that monthly report ​for ​November was released this week, and since the monthly data shows a production jump that's not yet reflected in the weekly figures, we'll include a graphic showing both, so we can see what that ​difference ​looks like... 

February 9 2019 confirmed crude production

the above graph was taken from this week's OilPrice Intelligence Report, and it shows the history of confirmed oil production data monthly from January 2016 to November 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 (note the yellow arrow is a bit off)....above the graph, OilPrice also gives us the rounded weekly estimates of oil production in thousands of barrels per day for the weeks ending December 28th through February 1st, as was reported by the EIA....we follow that 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 November were released this week and showed our crude production at a higher than expected 11,900,000 barrels per day average during that month, up from the confirmed 11,555,000 barrels per day in October...the weekly production estimates for November, on the other hand, had ranged from 11,600,000 barrels per day to 11,700,000 barrels per day, and thus averaged 220,000 barrels per day lower than the confirmed figures....when the confirmed oil production figure comes in that much higher than the weekly estimates, the EIA will subsequently adjust their weekly estimate to reflect the new confirmed production totals...hence, it's reasonable to assume that EIA's production estimate for next week will be at least at 12,100,000 barrels per day, and most likely higher, hence topping 12 million barrels per day for the first time in history...

meanwhile, US oil refineries were operating at 90.7% of their capacity in using 16,633,000 barrels of crude per day during the week ending February 1st, up from the prior week's 90.1% of capacity, and a fairly high capacity utilization rate for this time of year....however, the 16,633,000 barrels per day of oil that were refined this week were 1.0% below the 16,797,000 barrels of crude per day that were being processed during the week ending February 2nd, 2018, when US refineries were operating at an even higher 92.5% of capacity... 

even with the modest increase in the amount of oil being refined, the gasoline output from our refineries was a bit lower, falling by 48,000 barrels per day to 9,856,000 barrels per day during the week ending February 1st, after our refineries' gasoline output had increased by 300,000 barrels per day the prior week....with the decrease in this week's gasoline output, our gasoline production was 2.3% lower than the 10,085,000 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 102,000 barrels per day to 5,121,000 barrels per day, after that output had decreased by 185,000 barrels per day the prior week....with that increase, this week's distillates production was little changed from the 5,129,000 barrels of distillates per day that were being produced during the week ending February 2nd, 2018.... 

even with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week rose by 513,000 barrels to 257,893,000 barrels by February 1st, after falling by 2,235,000 barrels over the prior week....our gasoline supplies rose this week mostly because the amount of gasoline supplied to US markets fell by 491,000 barrels per day to 9,073,000 barrels per day, after increasing by 999,000 barrels per day over the prior two weeks, and because our imports of gasoline rose by 102,000 barrels per day to 625,000 barrels while our exports of gasoline rose by 288,000 barrels per day to 895,000 barrels per day....having set a record high two weeks ago, our gasoline inventories are still at a seasonal high for the first weekend of February, 5.1% higher than last February 2nd's level of 245,474,000 barrels, and roughly 5% above the five year average of our gasoline supplies for this time of the year...

even with the increase in our distillates production, our supplies of distillate fuels decreased for the 14th time in twenty weeks, falling by 2,257,000 barrels to 139,013,000 barrels during the week ending February 1st, after our distillates supplies had decreased by 1,122,000 barrels over the prior week...our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, jumped by 551,000 barrels per day to 4,673,000 barrels per day, not surprising given the heating needs for the week, while our exports of distillates rose by 37,000 barrels per day to 1,229,000 barrels per day and our imports of distillates rose by 324,000 barrels per day to 459,000 barrels per day...with this week's decrease, our distillate supplies are now 2.0% below the 141,826,000 barrels that we had stored on February 2nd, 2018, and fell to roughly 4% below the five year average of distillates stocks for this time of the year...

finally, with the caveat that the source of much of this week's crude supply was unaccounted for, our commercial supplies of crude oil in storage increased for the 4th time in the past 10 weeks, rising by 1,263,000 barrels over the week, from 445,944,000 barrels on January 25th to 447,207,000 barrels on February 1st...with weekly increases now in 14 out of the last 20 weeks, our crude oil inventories are roughly 6% above the five-year average of crude oil supplies for this time of year, and ​nearly 30% above the 10 year average of crude oil stocks for the first weekend of February, with the disparity between those figures arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had mostly been rising since this past Fall, after falling until then through most of the prior year and a half, our oil supplies as of February 1st were thus 6.4% above the 420,254,000 barrels of oil we had stored on February 2nd of 2018, while still remaining 12.1% below the 508,592,000 barrels of oil that we had in storage on February 3rd of 2017, and 5.0% below the 470,676,000 barrels of oil we had in storage on February 5th of 2016...     

This Week's Rig Count

US drilling activity, as evidenced by the number of drilling rigs active at the end of the week, increased for the second time in 6 weeks this past week, but still remains well below the levels of October and November, when both oil and natural gas prices were considerably higher....Baker Hughes reported that the total count of rotary rigs running in the US rose by 4 rigs to 1049 rigs over the week ending February 8th, which was also 74 more rigs than the 975 rigs that were in use as of the February 9th report of 2018, 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 rose by 7 rigs to 854 rigs this week, which was also 63 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 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 3 rigs to 195 natural gas rigs, which was still 11 more rigs than the 184 natural gas rigs that were drilling a year ago, but way down from the modern era high of 1,606 natural gas targeting rigs that were deployed on August 29th, 2008...

offshore drilling activity was unchanged, with 19 rigs still deployed in the Gulf of Mexico this week, with all of those offshore from Louisiana...that was still 3 more Gulf rigs than were drilling a year earlier, when 15 rigs were deployed offshore from Louisiana and a rig was also active offshore from Texas....since there is still no other offshore drilling off either coast or off Alaska at this time, nor was there during the same week of 2018, this week's Gulf of Mexico totals are again identical to the overall US offshore totals...

the count of active horizontal drilling rigs decreased by 2 rigs to 923 horizontal rigs this week, which was still 91 more horizontal rigs active than the 832 horizontal rigs that were in use in the US on February 9th of last year, but was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....on the other hand, the vertical rig count increased by 5 rigs to 68 vertical rigs this week, which was still down from the 70 vertical rigs that were in use during the same week of last year...meanwhile, the directional rig count increased by 1 rig to 58 directional rigs this week, which was also down from the 73 directional rigs that were operating on February 9th of 2018... 

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 February 8th, the second column shows the change in the number of working rigs between last week's count (February 1st) and this week's (February 8th) count, the third column shows last week's February 1st active rig count, the 4th column shows the change between the number of rigs running on Friday and those running before 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 2nd of February, 2018...    

February 8 2019 rig count summary

as you can see, this week's rig increases were primary in Alaska and California, both major producing states, but neither of which have been in the vanguard of new drilling activity in recent years...we didn't see any news on where new drilling might be taking place in Alaska, but considering the time of year, it's unlikely it was anywhere on the North Slope or in the Arctic National Wildlife Refuge, where the administration is barreling ahead with plans to drill for oil...even with those Alaska and California increases, however, the state totals shown above don't add up to the 4 rig increase we reported, because Mississippi drillers also added a rig this week and now have 4 rigs running, up from 3 rigs a year ago...while the major basin count does reflect the decrease of 2 horizontal rigs, that doesn't mean there weren't changes elsewhere, just that the additions and subtractions in those 'other' basins netted out to zero...that's obvious from the natural gas rig count changes, which showed one natural gas rig added in the Dallas / Ft Worth area Barnett shale, where an oil rig was concurrently pulled out, one natural gas rig pulled out of the south Texas Eagle Ford, which saw two oil rigs added at the same time, and 3 natural gas rigs pulled out of basins not tracked separately by Baker Hughes...meanwhile, it looks like the three rig decrease in the Permian was spread out across the basin, with one rig pulled from Texas Oil District 8, which would be the core Permian Delaware, one rig pulled from Texas Oil District 7C, which would be the southern Permian Midland, and one Permian rig pulled out of ​the ​Permian Delaware​ in ​New Mexico...

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note: there's more here....