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, June 9, 2019

natural gas prices hit 3 year lows; record oil output; record jump in oil + products inventories; rigs at a 16 month low

oil prices managed to eke out a small increase this week, but not before hitting a new 5-month low and crashing into a bear market mid-week...after falling 9% to $53.50 a barrel last week after Trump had threatened new tariffs on Mexico, the price of US crude for July delivery opened lower and fell as much as 2.6% early Monday, as traders remained rattled by Trump's tariff threats and his termination of India's trade status until Saudi comments that OPEC would continue their cuts through the second half of the year changed their focus and stabilized prices, which recovered to end 25 cents, or 0.5%, lower at $53.25 a barrel...oil prices started lower again on Tuesday on evidence that an economic slowdown would dent energy demand but again recovered in the afternoon to end 23 cents higher at $53.48 a barrel...however, oil prices tumbled in after hours trading after the API reported major inventory increases and thus opened lower again on Wednesday, and subsequently crashed Into a bear market after the EIA reported the biggest stock build in 30 years, with prices falling more than 4% to $50.60 a barrel before recovering near the close to finish down $1.80 at $51.68 a barrel...oil prices initially drifted lower again on Thursday but turned sharply higher near the close on a report that the Trump administration might delay its tariffs on Mexican imports, and closed up 91 cents at $52.59 a barrel...prices continued to rally on hopes for a deal with Mexico early Friday, then rose nearly 3% after Saudi Arabia said OPEC was close to agreeing to extend an output production cut beyond June to close $1.40 higher at $53.99 a barrel...oil prices thus erased their early losses and ended with a gain of nearly 1% for the week, despite having crossed the 20% loss threshold that is considered a bear market earlier in the week...

natural gas prices, meanwhile, tumbled to successive new three year lows, first on ongoing forecasts for below normal mid-June temperatures in the Great Lakes and Midwest states, which would delay air conditioning demand, and then on a near record storage build that exceeded analysts expectations...after falling 15.7 cents to a 35 month low of $2.454 per mmBTU last week, natural gas for July delivery fell 5.1 cents to a three year low of $2.403 per mmBTU on Monday, as the 11 to 15 day forecast called for below normal temperatures from the Rockies south to Texas and east to the Appalachians...persistence of that cool June forecast drove prices to another 3 year low of $2.378 per mmBTU on Wednesday, and then the EIA's report of a larger-than-expected increase in natural gas supplies knocked prices down 5.4 cents to yet another 3 year low of $2.324 per mmBTU on Thursday...to show you what this week's prices look like compared to the recent price trajectory, we'll include a graph of natural gas prices over the past 3 years...

June 8 2019 natural gas prices

the above graph is a Saturday afternoon screenshot of the interactive US natural gas price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph ​portion above ​represents natural gas prices for a week of trading between the last week of May 2016 and this past week, wherein the green bars represent the weeks when the price of natural gas went up, and red bars represent the weeks when the price of natural gas went down...for green bars, the starting natural gas price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar...also barely visible on this shrunken "candlestick" style graph are the very faint grey "wicks" above and below each bar, to indicate trading prices during the week that were above or below the opening to closing price range for that week...(the lighter red & green bars at the bottom of the graph represent the trading volume for each day, which doesn't concern us today)...as you can see, natural gas prices have rarely plumbed this depth, and the last time they did, drilling new wells for natural gas virtually dried up, with the ​national ​natural gas rig count falling to as low as 81 rigs the following summer, which was the lowest natural gas rig count ​over the time Baker Hughes had been keeping records...

the natural gas storage report from the EIA for the week ending May 31st indicated that the quantity of natural gas held in storage in the US increased by 119 billion cubic feet to 1,986 billion cubic feet by the end of the week, which meant our gas supplies were 182 billion cubic feet, or 10.1% more than the 1,804 billion cubic feet that were in storage on June 1st of last year, while still 240 billion cubic feet, or 10.8% below the five-year average of 2,226 billion cubic feet of natural gas that have typically been in storage as of the end of May in recent years....this week's 119 billion cubic feet injection into US natural gas storage was above the median forecast of a Reuters' poll of analysts for a 109 billion cubic foot increase in supplies, and likewise ​much ​higher than the average 102 billion cubic feet of natural gas that have been added to gas storage during the same week of spring in recent years....the 119 billion cubic feet injection also appears to be the third largest injection over the past 5 years, and the 879 billion cubic feet of natural gas that have been added to storage over the past 10 weeks has been the largest injection of gas into storage on record for any similar period this early in the injection season...

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 May 31st, showed that a big increase in our oil imports resulted in a similar increase in our stored crude supplies, the eighth such increase in 11 weeks...our imports of crude oil rose by an average of 1,065,000 barrels per day to an average of 7,927,000 barrels per day, after falling by an average of 81,000 barrels per day over the prior week, while our exports of crude oil fell by an average of 19,000 barrels per day to 3,298,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,629,000 barrels of per day during the week ending May 31st, 1,084,000 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 100,000 barrels per day higher at a record 12,400,000 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 17,029,000 barrels per day during this reporting week...

meanwhile, US oil refineries were​ reportedly​ using 16,938,000 barrels of crude per day during the week ending May 31st, 171,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 967,000 barrels of oil per day were being added to of the oil that's in storage in the US....hence, it appears that this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 876,000 barrels per day short of what was added to storage plus what 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 (+876,000) 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 they label in their footnotes as "unaccounted for crude oil"....with that much oil unaccounted for, we have to figure one or more of this week's crude oil metrics are off by a statistically significant amount...(for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports rose to an average of 7,336,000 barrels per day last week, still 7.5% less than the 7,934,000 barrel per day average that we were importing over the same four-week period last year...the 967,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the amount of oil stored in our Strategic Petroleum Reserve was unchanged...this week's crude oil production was reported to be 100,000 barrels per day higher at a record 12,400,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day higher at a record 11,900,000 barrels per day, while a 4,000 barrel per day increase to 478,000 barrels per day in Alaska's oil production was not enough to impact the final rounded national total...last year's US crude oil production for the week ending June 1st was rounded to 10,800,000 barrels per day, so this reporting week's rounded oil production figure was roughly 14.8% above that of a year ago, and 47.1% 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 91.8% of their capacity in using 16,938,000 barrels of crude per day during the week ending May 31st, up from 91.2% of capacity the prior week, but still a bit below the recent historical refinery utilization rate for this time of year​, when refineries are often running flat out​....likewise, the 16,938,000 barrels per day of oil that were refined this week were 2.5% below the 17,369,000 barrels of crude per day that were being processed during the week ending June 1st, 2018, when US refineries were operating at 95.4% of capacity... 

with the increase in the amount of oil being refined, gasoline output from our refineries was similarly higher, increasing by 186,000 barrels per day to 10,049,000 barrels per day during the week ending May 31st, after our refineries' gasoline output had decreased by 20,000 barrels per day the prior week....with that increase in gasoline output, this week's gasoline production was 4.0% more than the 9,658,000 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) jumped by 222,000 barrels per day to 5,404,000 barrels per day, after our distillates output had decreased by 24,000 barrels per day the prior week...but even with this week's big increase, the week's distillates production was only 1.5% more than the 5,324,000 barrels of distillates per day that were being produced during the week ending June 1st, 2018.... 

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose for the fourth time in 16 weeks, increasing by 3,205,000 barrels to 234,149,000 barrels over the week to May 31st, after our gasoline supplies had increased by 2,204,000 barrels over the prior week....our gasoline supplies rose this week as our imports of gasoline rose by 8,000 barrels per day to 1,095,000 barrels per day, and as our exports of gasoline fell by 38,000 barrels per day to 679,000 barrels per day, while the amount of gasoline supplied to US markets increased by 47,000 barrels per day to 9,441,000 barrels per day....after our gasoline supplies had reached an all time record high seventeen weeks ago, and then had fallen by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, our gasoline supplies have now recovered by over 4% in the past 3 weeks and now are back to 2% above the five year average of our gasoline supplies at this time of the year (while still 2.0% lower than last June 1st's inventory level of 239,034,000 barrels), as replacement gasoline supplies have been arriving from Asia & Europe at a 1.2 million barrel per day clip over that span...

meanwhile, with the big increase in our distillates production, our supplies of distillate fuels rose for the 4th time in 12 weeks, increasing by 4,572,000 barrels to 129,372,000 barrels during the week ending May 31st, after our distillates supplies had decreased by 1,615,000 barrels over the prior week....our distillates supplies reversed & rose this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 895,000 barrels per day to a 5 month low of 3,387,000 barrels per day, while our imports of distillates fell by 65,000 barrels per day to 112,000 barrels per day, and while our exports of distillates rose by 168,000 barrels per day to 1,476,000 barrels per day....after this week's inventory ​increase, our distillate supplies were 10.8% higher than the 116,794,000 barrels of distillate that we had stored on June 1st, 2018, even as they were still 3% below the five year average of distillates stocks for this time of the year...

finally, with much higher oil imports and record oil production, our commercial supplies of crude oil in storage increased for the fourteenth time in 20 weeks, rising by 6,671,000 barrels, from 476,493,000 barrels on May 24th to 483,264,000 barrels on May 31st...with that increase, our crude oil inventories rose to 6% above the recent five-year average of crude oil supplies for this time of year, and were well more than 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the end of May, 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 have generally 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 May 31st were 10.7% above the 436,584,000 barrels of oil we had stored on June 1st, of 2018, but at the same time still 5.8% below the 513,207,000 barrels of oil that we had in storage on June 2nd of 2017, and 3.7% below the 501,844,000 barrels of oil we had stored on June 3rd of 2016...  

with that large increase in our crude oil supplies, combined with similar larger than normal increases in supplies of the products made from oil, it turns out that this week saw the largest increase in oil & oil product inventories on record, as you can see in the graph below...

June 7 2019 total oil & products inventory as of May 31

the above graph was taken from a Zero Hedge post titled Oil Crashes Into Bear Market After Biggest Stock Build In 30 Years and it shows the weekly change in millions of barrels in the amount of oil & oil products in storage in the US from 1990 to the current week, which is the extent of the EIA's records on this metric....over that period, the weeks when total inventories increased are represented by a line above the horizontal zero axis, whereas the weeks when total inventories decreased are represented by a line pointing down from the zero line...in the upper right corner, they have marked the​ total​ increase for this week at 22.4 million barrels, and then have extended a green dashed line back from that ​marker ​across the length of the graph to illustrate that no prior week had such a large increase...in addition to the 6,671,000 barrel increase in oil inventories, the 3,205,000 barrel increase in gasoline inventories, and the 4,572,000 barrel increase in distillate inventories we have covered today, the past week also saw a 2.5 million barrel increase in propane/propylene inventories, a 4.6 million barrel increase in inventories of 'other oils', which includes asphalt, road oil, kerosene, and unfinished oil, and modest increases in inventories of jet fuel, residual fuel oil and other minor products to get to the record inventory increase you see graphed above...

This Week's Rig Count

the US rig count fell for the 14th time in sixteen weeks this past week and in so doing fell to a 16 month low, equaling the rig count of early February 2018....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 9 rigs to 975 rigs over the week ending June 7th, which was also down by 87 rigs from the 1062 rigs that were in use as of the June 8th report of 2018, and quite a bit below 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 11 rigs to 789 rigs this week, which was also a 16 month low, 73 fewer oil rigs than were running a year ago, and less than half of 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 rose by 2 rigs to 186 natural gas rigs, which was still down by 12 rigs from the 198 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...

the rig count in the Gulf of Mexico was unchanged at 23 rigs this week, with 2 rigs deployed offshore from Texas and 21 rigs running offshore from Louisiana, which was a decrease of 1 rig for Texas offshore and an increase of 1 rig for Louisiana offshore....those totals are still an increase from the 19 rigs that were deployed in the Gulf in the same week a year ago, when 18 rigs were drilling in Louisiana waters and one was offshore from Texas, and up from the national total of 20 offshore rigs a year ago, when ​there was also ​a rig ​deployed in the waters offshore from Alaska at the time...

the count of active horizontal drilling rigs was down by 7 to 855 horizontal rigs this week, which was a 15 month low for horizontal drilling and 79 fewer horizontal rigs running this week than the 934 horizontal rigs that were in use in the US on June 8th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was down by 6 rigs to 46 vertical rigs this week, which was also down from the 66 vertical rigs that that were operating during the same week of last year... on the other hand, the directional rig count was up by 4 rigs to 74 directional rigs this week, and those were up by 7 rigs from the 67 directional rigs that were in use on June 8th 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 June 7th, the second column shows the change in the number of working rigs between last week's count (May 31st) and this week's (June 7th) count, the third column shows last week's May 31st 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 8th of June, 2018...  

June 7 2019 rig count summary

as you can see, the largest decreases this week were in Texas, and specifically in the Permian basin in the western part of the state....of those, four rigs were shut down in Texas Oil District 8, which would be the core Permian Delaware, while single rigs were also idled in Texas Oil District 8A, or the northern Permian Midland basin, and in Texas Oil District 7C, or the southern Permian Midland basin...the other Texas decrease came out of the Eagle Ford shale in the southeast part of the state, as two Eagle Ford oil rigs were shut down, leaving 66, while an 8th rig targeting natural gas in the Eagle Ford was started up at the same time, which shows up as a decrease of two rigs in Texas Oil District 1 and a single rig increase in Texas Oil District 2...​.​two natural gas rigs were also added in Texas Oil District 10, the panhandle's Granite Wash, where an oil rig was shut down at the same time, leaving the Granite Wash with 5 oil rigs and 3 targeting natural gas....elsewhere, two more natural gas rigs were added in northern Louisiana's Haynesville shale, while another natural gas rig started up in an "other" basin not tracked separately by Baker Hughes...at the same time, 3 natural gas rigs were shut down in the Marcellus, one in West Virginia and two in Pennsylvania, and another natural gas rig was idled in the Niobrara chalk of the Rockies front range, which is now back to being all oil rigs...meanwhile, other than the changes in major producing states shown above, Alabama drillers also added a rig this week and now are running three, the most in the state since July 14th of last year, while the only rig deployed in Florida was pulled out, leaving Florida with none, par for the course in the state over the last four years...

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note: there's more here...

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