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, April 14, 2019

global oil surplus persists in March, despite OPEC 1st quarter output cuts exceeding 1.6 million barrels per day

oil prices rose for a 6th straight week and are now up 38% since the beginning of the year, with this week's increase underpinned by a new OPEC report that showed they'd cut their output to the lowest in 4 years...after rising nearly 5% to $63.08 a barrel on tighter supplies and improving economic news last week, contract prices for US crude for May delivery rose $1.32, or more than 2%, to $64.40 a barrel on Monday, their highest level since the end of October 2018, driven higher by supply restraints due to U.S. sanctions against Iran and Venezuela, OPEC's output cuts, and renewed fighting in Libya...however, oil prices fell from those 5 month highs on Tuesday, after the International Monetary Fund cut its global economic growth forecasts, and as Russia signaled it may retreat from its production-cutting deal with OPEC, with US crude finishing down 42 cents at $63.98 a barrel...prices then rose on Wednesday towards another new five-month high after OPEC reported their oil production had plunged to four-year low in March and held those gains despite a whopping 7 million barrel increase in US crude inventories, with May crude settling 63 cents higher at $64.61 a barrel...oil prices then retreated from that 5 month high on Thursday, sliding $1.03 to $63.58 a barrel, after sources said OPEC might raise output if Venezuelan and Iranian supplies fall further and prices keep rising...prices recovered a bit of those losses Friday, gaining 31 cents to $63.89 a barrel, as involuntary cuts from Venezuela and Iran and conflict in Libya led to perceptions of a tightening crude market, with May US oil thus ending up 1.3 percent for the week overall...

natural gas prices, on the other hand, ended little changed for the second week in a row...after rising two-tenths of a cent to $2.664 per mmBTU to begin the so-called shoulder season last week, natural gas for May delivery fell four tenths of a cent over the five trading sessions of this week to end the week at $2.660 per mmBTU, as even a bullish miss of expectations on the EIA storage report was not enough to outweigh weak supply/demand balances...the natural gas storage report for the week ending April 5th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 25 billion cubic feet to 1,155 billion cubic feet over the week, which still left our gas supplies 183 billion cubic feet, or 13.7% below the 1,338 billion cubic feet that were in storage on April 6th of last year, and 485 billion cubic feet, or 29.6% below the five-year average of 1,640 billion cubic feet of natural gas that have typically remained in storage as of the first weekend in April in recent years....this week's 25 billion cubic feet injection into US natural gas storage was less than consensus expectations of a 29 billion cubic foot addition to storage, while it was quite a bit more than the 5 billion cubic feet of natural gas that are normally added to gas storage during the first week of April....

for the coming week, the EIA's natural gas storage dashboard indicates that 131 billion cubic feet of natural gas were consumed in residential and commercial use; that compares to the 186 billion cubic feet used by residential and commercial accounts in the week we've just reported on...if other demand factors are little changed otherwise, we should see an injection of around 80 billion cubic feet of natural gas into storage with next week's report..

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 April 5th, indicated a modest increase our refinery usage of crude, with a corresponding decrease in our oil exports, and hence there was another surplus to add to our commercial supplies of crude for the third week in a row...our imports of crude oil fell by an average of 166,000 barrels per day to an average of 6,599,000 barrels per day, after rising by an average of 223,000 barrels per day the prior week, while our exports of crude oil fell by an average of 374,000 barrels per day to 2,349,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,250,000 barrels of per day during the week ending April 5th, 210,000 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 reported to be unchanged at a record 12,200,000 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 16,450,000 barrels per day during this reporting week...

meanwhile, US oil refineries were using 16,100,000 barrels of crude per day during the week ending April 5th, 251,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that 1,004,000 barrels of oil per day were being added to 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 and from oilfield production was 654,000 fewer barrels per day than what was added to storage plus 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 (+654,000) 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"....with that much oil unaccounted for, we have to figure that one or more of this week's oil metrics is in error 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) indicated that the 4 week average of our oil imports fell to an average of 6,709,000 barrels per day last week, now 15.5% less than the 7,943,000 barrel per day average that we were importing over the same four-week period last year.... the 1,004,000 barrel per day increase in our total crude inventories was all added to 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 unchanged at 12,200,000 barrels per day because the rounded estimate for output from wells in the lower 48 states was unchanged at 11,700,000 barrels per day, while a 2,000 barrel per day increase in Alaska's oil production to 484,000 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 April 6th was at 10,525,000 barrels per day, so this reporting week's rounded oil production figure was 15.9% above that of a year ago, and 44.8% 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...    

meanwhile, US oil refineries were operating at 87.5% of their capacity in using 16,100,000 barrels of crude per day during the week ending April 5th, up from 86.4% of capacity the prior week, but still quite a bit lower than before Venezuelan imports of heavy crude that Gulf Coast refineries are optimized to use were cut off....similarly, the 16,100,000 barrels per day of oil that were refined this week were down by 5.4% from the 17,019,000 barrels of crude per day that were being processed during the week ending April 6th, 2018, when US refineries were operating at 93.5% of capacity... 

with the increase in the amount of oil being refined, the gasoline output from our refineries was likewise higher, rising by 356,000 barrels per day to 10,169,000 barrels per day during the week ending April 5th, after our refineries' gasoline output had increased by 156,000 barrels per day the prior week....but even with those back to back increases in gasoline output, this week's gasoline production was only a bit more than the 10,150,000 barrels of gasoline that were being produced daily during the same week last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 168,000 barrels per day to 5,038,000 barrels per day, after that output had decreased by 55,000 barrels per day the prior week...but even after this week's increase, the week's distillates production was still 4.1% less than the 5,256,000 barrels of distillates per day that were being produced during the week ending April 6th, 2018.... 

even with the increase in our gasoline production, the supply of gasoline left in storage at the end of the week fell for the 8th week in a row, decreasing by 7,700,000 barrels to 229,129,000 barrels over the week to April 5th, after supplies had fallen by 1,781,000 barrels over the prior week....the draw from our gasoline supplies was much greater this week than last because the amount of gasoline supplied to US markets increased by 675,000 barrels per day to 9,806,000 barrels per day, after increasing by 7,000 barrels per day the prior week, and because our exports of gasoline rose by 41,000 barrels per day to 656,000 barrels per day while our imports of gasoline fell by 32,000 barrels per day 714,000 barrels per day...after having reached an all time record high ten weeks ago, our gasoline inventories are now 4.1% lower than last April 6th's level of 238,935,000 barrels, and have now fallen back to the five year average of our gasoline supplies at this time of the year...

even with the increase in our distillates production, our supplies of distillate fuels fell for the 21st time in twenty-eight weeks, but just by 116,000 barrels to 128,053,000 barrels during the week ending April 5th, after our distillates supplies had decreased by 1,998,000 barrels over the prior week...the draw on our distillates supplies was smaller this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 377,000 barrels per day to 3,779,000 barrels per day, while our exports of distillates rose by 231,000 barrels per day to 1,374,000 barrels per day, while our imports of distillates fell by 46,000 barrels per day to 98,000 barrels per day...after this week's inventory decrease, our distillate supplies were fractionally lower than the 128,447,000 barrels that we had stored on April 6th, 2018, while remaining roughly 6% below the five year average of distillates stocks for this time of the year...

finally, with record oil production, lower oil exports, and ongoing sub-par refinery runs, our commercial supplies of crude oil in storage increased for the ninth time in 12 weeks, rising by 7,029,000 barrels over the week, from 449,521,000 barrels on March 29th to 456,550,000 barrels on April 5th...that increase was enough to lift our crude oil inventories fractionally above recent five-year average of crude oil supplies for this time of year, while rising to 33.3% above the prior 5 year (2009 - 2013) average of crude oil stocks after the first week of April, with the disparity between those comparisons 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 April 5th were 6.5% above the 428,638,000 barrels of oil we had stored on April 6th of 2018, but at the same time still 14.4% below the 533,377,000 barrels of oil that we had in storage on April 7th of 2017, and 9.6% below the 505,232,000 barrels of oil we had in storage on April 8th of 2016...        

OPEC's Monthly Oil Market Report

next we're going to review OPEC's April Oil Market Report (covering March OPEC & global oil data), which was released on Wednesday of this past week and was a major factor in the price rally we saw that day...this report 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 58 of that report (pdf page 68), 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...

March 2019 OPEC crude output via secondary sources

as we can see from this table of official oil production data, OPEC's oil output fell by 534,000 barrels per day to 30,022,000 barrels per day in March, from their revised February production total of 30,557,000 barrels per day...however that February figure was originally reported as 30,549,000 barrels per day, so that means their production for March was, in effect, a 526,000 barrel per day decrease from the previously reported figures (for your reference, here is the table of the official February OPEC output figures as reported a month ago, before this month's revisions)...

once again, output cuts of 324,000 barrels per day by Saudi Arabia and 289,000 barrels per day by Venezuela alone accounted for this month's production reduction, with the drop in the oil output from Venezuela being largely involuntary, due to US sanctions on their exports....in addition, the 126,000 barrels per day cut in the output from Iraq now brings them pretty close to the output allocations assigned to each member after their December 7th meeting, when OPEC 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, leaving Nigeria as the sole OPEC member who is still producing in excess of their quota to any degree....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, and 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, and that only Libya had produced any more than they did in the 4th quarter of 2018, as 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 April 2017 to March 2019, and it comes from page 59 (pdf page 69) of the April 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...

March 2019 OPEC report global oil supply

OPEC's preliminary estimate indicates that total global oil production fell by 0.14 million barrels per day to 99.26 million barrels per day in March, but that came after February's total global output figure was revised up by 25​0​,000 barrels per day from the 99.15 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 390,000 barrels per day in March after that revision, with increased oil output from US and Brazil the major reasons for the non-OPEC production increase.... the 99.26 million barrels per day produced globally in March was also 1.05 million barrels per day, or 1.1% higher than the revised 98.21 million barrels of oil per day that were being produced globally in March a year ago (see the April 2018 OPEC report online (pdf) for the originally reported March 2018 details)...after the March decrease in OPEC's output, their March oil production of 30,022,000 barrels per day represented just 30.2% of what was produced globally during the month, down from the 30.8% share they reported for February....OPEC's March 2018 production was reported at 31,958,000 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 1,674,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 32.6% of global output, with a 756,000 barrel per day drop in the output from Venezuela and a 1,116,000 barrel per day decrease in output from Iran from that time more than offsetting the year over year production increases of 195,000 barrels per day from the Emirates, 130,000 barrels per day from Libya, and 96,000 barrels per day from Iraq...   

however, despite the 0.14 million barrels per day decrease in global oil output seen during March, the upward revision to February's global output meant 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... 

March 2019 OPEC report global oil demand

the table above comes from page 34 of the February OPEC Monthly Oil Market Report (pdf page 44), 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 March, which is their revised estimate of global oil demand during the first quarter of 2018...        

OPEC has estimated 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 for the 1st quarter 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 99.26 million barrels per day during March, which means that there was a surplus of around 240,000 barrels per day in global oil production as compared to the demand estimated for the month...in addition, the upward revision of 25​0​,000 barrels per day to February's output​ that's implied in this report means that the global oil output surplus for February would now be revised to 380,000 barrels per day....that follows a 290,000 barrel per day global oil output surplus in January, so despite OPEC cuts now totaling more than 1.​6 million barrels per day​ over the first quarter of this year​, the global oil glut still persists...

we should also note that the previous estimate for 2018's oil demand was revised 20,000 barrels per day lower with this report, a figure which we've highlighted in a green ellipse...the 2018 demand table on page 33 of the March OPEC Monthly Oil Market Report (pdf page 43) shows that ​was because ​demand for the 4th quarter was revised 80,000 barrels per day lower, while oil demand for the remainder of 2018 was unrevised from previously published figures...that revision means that for all of 2018, global oil demand exceeded production by roughly 7,090,000 barrels, a comparatively tiny net oil shortfall that would be the equivalent of less than one hour and forty​-​five minutes of global production at the December production rate...  

This Week's Rig Count

US drilling rig activity decreased for the seventh time in eight weeks, with a surprising number of this week​'s ​changes ​occurring ​among natural gas rigs, while oil rigs ​still ​managed to eke out an increase for the 2nd week in a row.....Baker Hughes reported that the total count of rotary rigs running in the US fell by 3 rigs to 1022 rigs over the week ending April 12th, which was still 14 more rigs than the 1008 rigs that were in use as of the April 13th report of 2018, while well 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 2 rigs to 833 rigs this week, which was also 18 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations decreased by 5 rigs to 189 natural gas rigs, which was also down by 4 rigs from the 192 natural gas rigs that were drilling a year ago, and 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 increased by 1 rig to 23 rigs this week, which was also 7 more rigs than the 16 rigs active in the Gulf a year ago, which was coming off a record low at that time...meanwhile, the number of active horizontal drilling rigs decreased by 12 rigs to 899 horizontal rigs this week, which was the least horizontal rigs deployed since April 20th of last year, but still 6 more horizontal rigs than the 883 horizontal rigs that were in use in the US on April 13th of last year, while down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014.....on the other hand, the directional rig count increased by 8 rigs to 78 directional rigs this week, which was also up by 8 rigs from the 70 directional rigs that were in use during the same week of last year....in addition, the vertical rig count increased by 1 rig to 55 vertical rigs this week, which was the same as the number of vertical rigs that were operating on April 13th 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 oil & gas 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 April 12th, the second column shows the change in the number of working rigs between last week's count (April 5th) and this week's (April 12th) count, the third column shows last week's April 5th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number 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 13th of April, 2018...   

April 12 2019 rig count summary

as you can see, this week's ​rig count decrease was driven by the drop of 6 natural gas rigs in the Marcellus shale, 5 of which came out of Pennsylvania, and one of which was pulled from West Virginia...Pennsylvania's pullback was limited to 3 rigs, however, with the addition of two natural gas rigs in the Utica shale, one in Lawrence county and the other in Beaver county, with the latter going to a depth of less than 10,000 feet, strongly suggesting it was drilling in the Ohio valley or adjacent lowlands...meanwhile, the Utica shale also saw a rig addition in Ohio, to account for the 3 rig increase you see for the Utica above...on the other hand, two more natural gas rigs were pulled out of the Haynesville shale in northern Louisiana, while another natural gas ​rig​ was also pulled out of the Arkoma Woodford of Oklahoma, which also saw an oil rig shut down at the same time...lastly, a natural gas rig was added in an "other" basin not tracked separately by Baker Hughes, to leave us with the net decrease of 5 natural gas rigs that we reported earlier...note, however, that ​came by way of shutting down 8 rigs in the traditional dry gas plays of the Marcellus and Haynesville, and adding back three natural gas rigs in the liquids heavy Utica...that suggests that at least some of the drillers in the area may be shifting away from the underpriced dry natural gas into the more lucrative natural gas liquids, either to supply the Mariner East pipeline across Pennsylvania to the Marcus Hook refinery​,​ or​ to the coast​ for export, or ultimately as feedstock for the petrochemical crackers that are planned for the Ohio valley...

meanwhile, the two rig increase in the Permian basin masks quite a bit of movement​ inside the basin​, as 4 rigs were added in Texas Oil District 8, which corresponds to the core Permian Delaware, and 2 rigs were added in Texas Oil District 8, or the northern Permian Midland basin, while two Permian rigs were concurrently shut down in Texas Oil District 7C, or the southern Permian Midland basin...hence, since Texas added 4 Permian rigs, the two rigs shut down in New Mexico ​would have been in the Permian Delaware on their side of the state line..

in addition to the changes in the major producing states shown in the table above, we also have to note that Alabama had a rig added back this week after 5 weeks without, which was still down from the 2 rigs deployed in the state a year ago, that Mississippi also added a rig and now has 4 rigs drilling in the state, up from 2 rigs a year ago, and that the lone rig that started up in Nebraska last week was shut down this week...Nebraska has only seen drilling activity two other weeks out of the past year; one week in July and one week in October...

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