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, March 17, 2019

largest March natural gas draw on record cuts supplies to 34% below normal; global oil surplus persists despite OPEC cuts

oil prices rose to a four month high before pulling back a bit this past week, as repeated power outages in Venezuela cut their oil exports to zero and the EIA reported a surprise drop in US crude supplies....after ending little changed at $56.07 a barrel on economic concerns last week, contract prices for US crude to be delivered in April rose 72 cents to $56.79 a barrel on Monday, lifted by comments from the Saudi oil minister that OPEC-led supply cuts would continue til at least June....oil prices then rallied to as high as $57.55 a barrel on Tuesday after a country wide power blackout in Venezuela disrupted both oil production and exports, but settled just 8 cents higher at $56.87 a barrel as the gains were limited by a report from the International Energy Agency that the surge in U.S. output would continue til 2024...oil prices then rose steadily throughout Wednesday, first due to a Tuesday evening report from the American Petroleum Institute showing an unexpected decline in oil and fuel supplies, and then in the afternoon after the weekly EIA data confirmed the drop in crude supplies and in gasoline inventories, with oil prices ending the day $1.37 higher at a 4 month high of $58.61 a barrel....oil extended those gains on Thursday, rising 35 cents to $58.61 a barrel, after the OPEC secretariat urged producers to continue supply cuts ahead of a meeting between representatives of Russia and the cartel....oil prices finally eased slightly on Friday after hitting a new 2019 high at $58.95 a barrel, as a slew of weak US economic reports renewed demand concerns, with oil closing 9 cents lower at $58.52 a barrel, but still finishing with a weekly gain of 4.4%, the sharpest weekly rise since the period ended Feb. 15th...

natural gas prices, on the other hand, finished the week lower, as forecasts turned warmer and the last big withdrawal of gas from supplies for this winter was a bit less than traders had expected...prices of natural gas for April delivery were initially down 9.3 cents, or more than 3% to $2.772 per mmBTU on Monday, after forecasts for late March had turned warmer over the weekend....gas prices then pushed 1.2 cents higher on Tuesday and 3.6 cents higher on Wednesday, as traders anticipated what was to be a record storage report for March on Thursday...although natural gas contracts sold off with the release of the report, prices still ended Thursday 3.5 cents higher on concerns about depletion of the natural gas stored in salt domes in the South...with a warmer forecast for late March released on Friday, prices then fell back 6 cents to end the week 2.4% lower at $2.795 per mmBTU...

the natural gas storage report for the week ending March 8th from the EIA indicated that the quantity of natural gas held in storage in the US fell by a March record 204 billion cubic feet to 1,186  billion cubic feet over the week, which meant our gas supplies ended the period 359 billion cubic feet, or 22.3% below the 1,545 billion cubic feet that were in storage on March 9th of last year, and 569 billion cubic feet, or 34.2% below the five-year average of 1,755 billion cubic feet of natural gas that have typically remained in storage after the first full week of March....this week's 204 billion cubic feet withdrawal from US natural gas supplies was a bit less than the 209 billion cubic feet withdrawal that analyst's surveys had forecast, but it was more than double the average of 99 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 a record March withdrawal of gas from storage this week, we'll include below the summary table that heads up the Weekly Natural Gas Storage Report page at the EIA to bring you all up to date with where our supplies stand now... 

March 16 2019 natural gas in storage as of March 8

the above table came from Weekly Natural Gas Storage Report for March 8th, and it shows the amount of natural gas in storage as of March 8th in billions of cubic feet in each of 5 major US regions and in total in the first column, the amount of natural gas in storage on March 1st in the 2nd column, and the difference between the two in the third or "net change" column, with negative numbers in that column representing a natural gas withdrawal during the week...then, the 5th and 6th columns show the amount of natural gas in storage as of March 8th of last year, and the percentage change from last year to this year, while the last two columns show the five year average amount of gas in storage on March 8th for the years 2014 to 2018, and again the percentage change from that 5 year average to this year's natural gas inventory on the same date... 

you can see from that table that natural gas storage facilities in the Eastern US saw a 49 billion cubic feet draw from their supplies over the week, which was well more than their average 34 billion cubic foot withdrawal during the same week over the past five years, and hence the region's gas supply deficit rose to 22.5% below average for this time of year, up from the 16.4% shortfall shown on this table last week...at the same time, natural gas supplies in the Midwest fell by 51 billion cubic feet, also quite a bit higher than their normal 32 billion cubic feet pull for that date, as their supply deficit increased to 27.9% below the average for the second weekend of March, up from 21.4% below normal last week...meanwhile, the South Central region saw a 88 billion cubic feet drop in their supplies, way above their normal 23 billion cubic foot withdrawal, as their natural gas storage deficit increased from 23.5% to 33.5% below their five-year average for this time of year...at the same time, 7 billion cubic feet were pulled out of natural gas supplies in the sparsely populated Mountain region, which has only averaged a 4 billion cubic feet withdrawal during this same week over the last 5 years, and hence their gas supply deficit from normal rose to 43.1%, up from 39.2% a week ago...finally, 10 billion cubic feet of natural gas were withdrawn from storage in the Pacific region, in contrast to the 5 billion cubic feet normally withdrawn in those western states during the same week of March, and hence their natural gas supply deficit rose to 48.7% below normal for this time of year, up from 45.1% a week ago....  

even with natural gas supplies as depleted as they are now, and even with supplies in the Pacific and Mountain regions already at their modern day lows, it seems unlikely that we'd see any shortages any more at this time of year, since we've usually warmed enough nationally by April to begin adding surplus gas to storage for next winter....so it's natural gas for next winter that we'll have to be concerned about now, since our supplies as of this report are now 359 billion cubic feet below where they were on the same date in 2018...unless we can improve considerably on 2018's surplus, and can add at least 10 billion cubic feet o​r more natural gas to storage each week this year than we did last year, we risk starting next winter with supplies lower than we started the current one, which was at a 15 year low at the time...

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 March 8th, indicated a modest decreases in both our crude oil imports and our oil exports, but a withdrawal from our commercial supplies of crude, as oil that was unaccounted shifted from the supply side of the balance sheet to the demand side....our imports of crude oil fell by an average of 255,000 barrels per day to an average of 6,746,000 barrels per day, after rising by an average of 1,084,000 barrels per day the prior week, while our exports of crude oil fell by an average of 257,000 barrels per day to 2,546,000  barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,200,000 barrels of per day during the week ending March 8th, 2,000 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 estimated to be 100,000 barrels per day lower than last week at 12,000,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 16,200,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,020,000 barrels of crude per day during the week ending March 8th, 30,000 more barrels per day than the amount of oil they used during the prior week, while over the same period 522,000 barrels of oil per day were reportedly being withdrawn from the oil that's in storage in the US.....therefore, this week's crude oil figures from the EIA would seem to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 732,000 more barrels per day than the oil 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 (-732,000) 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 last week's unaccounted oil was at +700,000 barrels per day, that means 1,432,000 million barrels of oil per day disappeared off the US oil balance sheet from one week to the next, meaning that any comparison of figures from this week to last week is essentially meaningless.. (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) indicated that the 4 week average of our oil imports rose to an average of 6,797,000 barrels per day last week, now 9.0% less than the 7,473,000 barrel per day average that we were importing over the same four-week period last year.... the 522,000 barrel per day decrease in our total crude inventories all came out of our commercially available stocks of crude oil, as the oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be 100,000 barrels per day lower at 12,000,000 barrels per day because the rounded estimate for output from wells in the lower 48 states fell by 100,000 barrels per day to 11,500,000 barrels per day, while a  6,000 barrel per day decrease in Alaska's oil production to 480,000 barrels per day was not enough to make a difference in the rounded national total...last year's US crude oil production for the week ending March 9th was at 10,381,000 barrels per day, so this reporting week's rounded oil production figure was 15.6% above that of a year ago, and 42.4% 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...    

meanwhile, US oil refineries were operating at 87.6% of their capacity in using 16,020,000 barrels of crude per day during the week ending March 8th, up from 87.5% of capacity the prior week, but still lower than before Venezuelan imports of heavy crude were cut off....the 16,020,000 barrels per day of oil that were refined this week were down by 0.9% from the 16,162,000 barrels of crude per day that were being processed during the week ending March 9th, 2018, when US refineries were operating at 90.0% of capacity... 

with little change in the amount of oil being refined, the gasoline output from our refineries was somewhat lower, falling by 117,000 barrels per day to 9,735,000 barrels per day during the week ending March 8th, after our refineries' gasoline output had increased by 299,000 barrels per day the prior week....with that decrease in the week's gasoline output, our gasoline production was 5.3% lower than the 10,280,000 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) decreased by 63,000 barrels per day to 4,856,000 barrels per day, after that output had increased by 103,000 barrels per day the prior week....but even after this week's decrease, the week's distillates production was more than 8.4% above the 4,478,000 barrels of distillates per day that were being produced during the week ending March 9th, 2018.... 

with the decrease in our gasoline production, the supply of gasoline left in storage at the end of the week fell by 4,624,000 barrels to 246,090,000 barrels over the week to March 8th, after supplies had fallen by 4,227,000 barrels over the prior week....our gasoline supplies fell again this week in part because the amount of gasoline supplied to US markets increased by 78,000 barrels per day to 9,140,000 barrels per day, after increasing by 81,000 barrels per day the prior week, and because our exports of gasoline rose by 20,000 barrels per day to 931,000 barrels per day, even as our imports of gasoline rose by 18,000 barrels per day to 573,000 barrels per day...after having reached a record high seven weeks ago, our gasoline inventories are still fractionally above last March 9th's level of 244,758,000 barrels, and remain roughly 2% above the five year average of our gasoline supplies at this time of the year...

even with the decrease in our distillates production, our supplies of distillate fuels rose for the 8th time in twenty-five weeks, increasing by 383,000 barrels to 136,369,000 barrels during the week ending March 8th, but after our distillates supplies had decreased by 2,393,000 barrels over the prior week...our distillates supplies increased by this week because our exports of distillates fell by 284,000 barrels per day to 1,086,000 barrels per day, while our imports of distillates fell by 8,000 barrels per day to 238,000 barrels per day, and because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 192,000 barrels per day to 3,953,000 barrels per day...with this week's inventory increase, our distillate supplies ended the week 2.5% above the 133,066,000 barrels that we had stored on March 9th, 2018, but remained roughly 1% below the five year average of distillates stocks for this time of the year...

finally, while 1,432,000 million barrels of oil per day went missing from last week​'s stats​ to this week​'s​, our commercial supplies of crude oil in storage decreased for the second time in 8 weeks, falling by 3,862,000 barrels over the week, from 452,934,000 barrels on March 1st to 449,072,000 barrels on March 8th...but with weekly increases in 17 out of the past 25 weeks, our crude oil inventories are still roughly 2% above the recent five-year average of crude oil supplies for this time of year, and around 35% above the prior 5 year (2009 - 2013) average of crude oil stocks after the first full week of March, 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 generally falling until then through most of the prior year and a half, our oil supplies as of March 8th were 4.2% above the 430,928,000 barrels of oil we had stored on March 9th of 2018, while falling to 15.0% below the 528,156,000 barrels of oil that we had in storage on March 10th of 2017, and 8.8% below the 492,160,000 barrels of oil we had in storage on March 11th of 2016...      

OPEC's Monthly Oil Market Report

next we're going to review OPEC's March Oil Market Report (covering February OPEC & global oil data), which was released on Thursday of this past week, and which is available as a free download, and hence it's the report we check for monthly global oil supply and demand data...the first table from this monthly report that we'll look at is from the page numbered 60 of that report (pdf page 70), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to thus resolve any potential disputes that could arise if each member reported their own figures...

February 2019 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC's oil output fell by 221,000 barrels per day to 30,549,000 barrels per day in February, from their revised January production total of 30,770,000 barrels per day...however that January figure was originally reported as 30,806,000 barrels per day, so that means their production for February was effectively a 257,000 barrel per day decrease from the previously reported figures (for your reference, here is the table of the official January OPEC output figures as reported a month ago, before this month's revisions)...

as we can tell from the far right column on the table above, output cuts by Saudi Arabia and Venezuela alone accounted for this month's production reduction, with the cut of 142,000 barrels per day in the oil output from Venezuela being​ involuntary,​ due to US sanctions on their exports....except for Iraq and Nigeria, the oil output from the other OPEC members shown above is pretty close to the output allocations assigned to each member after their December 7th meeting, when they agreed to cut 800,000 barrels per day as part of a 1.2 million barrel per day cut agreed to with Russia and other oil producers...this can be seen in the table of OPEC production allocations we've included below:

February 6 2019 Platts on OPEC allocations

the above table came from a February 6th post on Saudi cuts and OPEC allocations at S&P Global Platts, which has more details: the column of numbers shows average daily production quota in millions of barrels of oil per day for each of the OPEC members for the first 6 months of this year, as was agreed to at their December 2018 meeting...note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by disruptive civil strife, are exempt from any production quotas, yet the oil output of all of them remains below that of the 4th quarter of 2018 shown in the fifth column of the OPEC production table above...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from March 2017 to February 2019, and it comes from page 61 (pdf page 71) of the March OPEC Monthly Oil Market Report....on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...     

February 2019 OPEC report global oil supply

OPEC's preliminary estimate indicates that total global oil production fell by 0.16 million barrels per day to 99.15 million barrels per day in February, after January's total global output figure was revised down by 10,000 barrels per day from the 99.32 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 65,000 barrels per day in February after that revision, with increased oil output from US, the UK and Brazil the major reasons for the non-OPEC production increase.... the 99.15 million barrels per day produced globally in February was also 1.50 million barrels per day, or 1.5% higher than the revised 97.65 million barrels of oil per day that were being produced globally in February a year ago (see the March 2018 OPEC report online (pdf) for the originally reported February 2018 details)...after the February decrease in OPEC's output, their February oil production of 30,549,000 barrels per day represented just 30.8% of what was produced globally during the month, down from the 31.0% share they reported for January....OPEC's February 2018 production was reported at 32,186,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding Qatar from last year's total and new member Congo from this year's, are now producing 1,351,000 fewer barrels per day of oil than they were producing a year ago, with a 576,000 barrel per day decrease in output from Venezuela and a 1,070,000 barrel per day decrease in output from Iran from that time more than offsetting the year over year production increases of 245,000 barrels per day from the Emirates, 208,000 barrels per day from Iraq and 105,000 barrels per day from the Saudis...   

however, despite the 0.16 million barrels per day decrease in global oil output we've seen during February, on top of the revised 1.02 million barrels per day decrease in January, we still had a small surplus in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us... 

February 2019 OPEC report global oil demand

the table above comes from page 35 of the February OPEC Monthly Oil Market Report (pdf page 45), and it shows regional and total oil demand in millions of barrels per day for 2018 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2019 over the rest of the table...on the "Total world" line in the second column, we've circled in blue the figure that's relevant for February, which is their revised estimate of global oil demand during the first quarter of 2018...       

OPEC's estimate is that during the 1st quarter of this year, all oil consuming regions of the globe have been using 99.02 million barrels of oil per day, which was the same as their estimate of a month ago....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were still producing 99.15 million barrels per day during February, which means that there was a surplus of around 130,000 barrels per day in global oil production as compared to the demand now estimated for the month...in addition, with the downward revision of 10,000 barrels per day to January's output, the revised oil output surplus for January would now have been 290,000 barrels per day...

we should also note that the previous estimate for 2018's oil demand was revised 40,000 barrels per day lower with this report, a figure which we've highlighted in green...that downward revision wasn't evenly spread over the whole year, however, as the 2018 demand table on page 34 of the March OPEC Monthly Oil Market Report (pdf page 44) shows that demand for the 4th quarter was revised 210,000 barrels per day lower, and that demand for the 3rd quarter was revised 50,000 barrels per day lower, while oil demand for 2018's 1st and 2nd quarter was unrevised from previously published figures...that means that for all of 2018, global oil demand exceeded production by roughly ​14,450,000 barrels, a comparatively tiny net oil shortfall that would be the equivalent of less than 3 and a half hours of global oil production at the revised December production rate...... 

This Week's Rig Count

US drilling activity slowed for the fourth week in a row, while active rigs are still down 6% so far this year, as the lower prices for both oil and natural gas we've seen in recent weeks and the large backlog of uncompleted wells continue to impact drilling decisions....Baker Hughes reported that the total count of rotary rigs running in the US fell by 1 rig to 1026 rigs over the week ending March 15th, which was still 36 more rigs than the 990 rigs that were in use as of the March 16th 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 fell by 1 rig to 833 rigs this week, which was still 33 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 was unchanged at 193 natural gas rigs, which was just 4 more than the 189 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...

drilling activity offshore in the Gulf of Mexico was unchanged at 22 rigs this week, which is up by 9 from the 13 rigs active in the Gulf a year ago, which was sitting at a multiyear low at that time...the count of active horizontal drilling rigs increased by 3 rigs to 907 horizontal rigs this week, which was also 42 more horizontal rigs active than the 865 horizontal rigs that were in use in the US on March 16th 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 decreased by 2 rigs to 54 vertical rigs this week, which was also down by 3 rigs from the 57 vertical rigs that were in use during the same week of last year....at the same time, the directional rig count was down by 2 to 65 directional rigs this week, which was also down from the 68  directional rigs that were operating on March 16th 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 March 15th, the second column shows the change in the number of working rigs between last week's count (March 8th) and this week's (March 15th) count, the third column shows last week's March 8th 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 16th of March, 2018...   

March 15 2019 rig count summary

as you can see, the rig decreases this week were concentrated in the Cana Woodford and Mississippian Lime, which are both in Oklahoma, although the Mississippian formation does stretch into Kansas, while the week's major drilling increase was in the Williston basin of North Dakota...those were all oil directed rigs, by the way; there were no net state or basin changes whatsoever in any natural gas rig metrics this week...in the Permian basin, which still accounts for more than half of the horizontal drilling nationally, single rig decreases are shown in Texas Oil District 8, which corresponds to the core Permian Delaware, and Texas Oil District 7C, or the southern Permian Midland basin, while a Permian rig was concurrently added in the Permian Delaware on the New Mexico side of the state line...meanwhile, the 3 rig increase in Alaska reverses the 4 rig decrease in the state the prior week, so those changes may have been weather related, rather than based on any economics of future production....we would also note that other than the changes shown above in the major producing states, Alabama also had its only rig pulled out this week, rendering the state rigless for the second time this year, in contrast to a year ago, when there was one rig active in the state....

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