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 23, 2019

oil prices up most in 30 months; natural gas prices hit 3 year low; gasoline demand at an all time high; horizontal drilling at 16 month low, DUC wells down most in 15 months, et al

oil prices saw their largest weekly jump since 2016 this past week after Iran shot down a sophisticated US spy drone which the US claims was operating in international air space and oil traders braced for a US retaliation...after falling 2.7% to $52.51 a barrel last week despite an attack on oil product tankers near the Strait of Hormuz, the benchmark contract price of US crude for July delivery slid steadily throughout the day on Monday as reports of a major industrial slowdown in China outweighed supply fears stoked by the Gulf of Oman oil tanker attacks of last week and finished trading $1.07 lower at $60.94 a barrel...oil prices started lower again on Tuesday, on reports of OPEC struggles to set a date for their next meeting, but then spiked sharply on hopes of a U.S.-China trade deal, after Trump said that he would meet with Chinese President Xi Jingping next week in Japan and ended $1.97 higher at $53.90 a barrel...prices edged up in early trading on Wednesday, following reports that OPEC and its allies were close to agreeing on a meeting date, but slipped back below $54 a barrel after anxieties about global trade and a supply glut overshadowed the EIA report of record gasoline consumption and closed 14 cents lower at $53.76 a barrel...oil prices opened higher Thursday after OPEC and other producers finally agreed on a date for a meeting to discuss output cuts, and then soared more than 5% after Iran shot down a U.S. spy drone, raising fears of a shooting war in the Persian Gulf, with trading in the July oil contract expiring $2.89 higher at $56.65 a barrel and the price of oil for August delivery rising $3.10 to $57.07 a barrel...August oil then opened higher & continued rising to $57.98 a barrel on Friday, but then pulled back slightly after Trump called back U.S. bombers on concern the Iranian death toll would have been disproportionate to Iran’s downing of an unmanned American drone, with oil closing 36 cents higher at $57.43 a barrel...US oil prices thus ended the week nearly 10% higher, in the biggest weekly percentage gain since December 2016, on fears that further conflict would disrupt oil flows from the Middle East, although the price rise in the August contract itself was actually short of 9%..

natural gas prices, meanwhile, ended the week 20.1 cents, or more than 8% lower at $2.186 per mmBTU after falling each day until Friday. when they eked out a tenth of a cent gain...the natural gas contract for July delivery initially fell 11 cents over Tuesday and Wednesday, as the El Nino forecast suggested sustained heat in the lower 48 would be difficult to come by in the coming month and then fell 9.1 cents to a 3 year low after the EIA's natural gas storage report indicated a record injection for the season, well above market expectations...

the natural gas storage report from the EIA for the week ending June 14th showed that the quantity of natural gas held in storage in the US increased by 115 billion cubic feet to 2,203 billion cubic feet by the end of the week, which meant our gas supplies were 209 billion cubic feet, or 10.5% more than the 1,994 billion cubic feet that were in storage on June 15th of last year, while still 199 billion cubic feet, or 8.3% below the five-year average of 2,402 billion cubic feet of natural gas that have been in storage after the second week of June in recent years....this week's 115 billion cubic feet injection into US natural gas storage was well above an S&P Global Platts' survey of analysts which had expected a 104 billion cubic feet injection, and was much higher than the average 92 billion cubic feet of natural gas that have been added to gas storage during the second week of June in recent years...this week's injection was the largest ever for the 2nd week in June and the 5th largest injection of the past decade, in addition to being the 7th injection over 100 billion cubic feet this spring, in contrast to just 2 triple digit injections over the prior three years in any season...the 1,096 billion cubic feet of natural gas that have been added to storage over the past 12 weeks has been the largest injection of gas into storage on record for any similar period this early in the injection season, and probably about double the average 12 week build of the past decade, as the 824 billion cubic feet that were added during the same 12 weeks of 2014 is the only year that even appears close...

once again, a major factor in this week's seasonal record injection was the below normal temperatures for the week over the most populated areas of the US, which you can see on the map below, which thus reduced demand for air conditioning and power generation:

June 21 2019 temperature anomalies week ending June 13(source)

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 June 14th, showed modest decreases in our oil imports and in our crude production, which when combined with increases in our oil exports and our oil refining meant that we had to withdraw oil from out stored crude supplies for the 4th time in 13 weeks...our imports of crude oil fell by an average of 144,000 barrels per day to an average of 7,467,000 barrels per day, after falling by an average of 316,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 300,000 barrels per day to 3,422,000  barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,045,000 barrels of per day during the week ending June 14th, 444,000 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 reported to be 100,000 barrels per day lower at 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 16,245,000 barrels per day during this reporting week...

meanwhile, US oil refineries were reportedly using 17,264,000 barrels of crude per day during the week ending June 14th, 200,000 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 444,000 barrels of oil per day were being withdrawn from the supplies of oil stored in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 575,000 barrels per day short of what our 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 (+575,000) 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 that one or more of this week's crude oil metrics are again 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 7,467,000 barrels per day last week, now 7.6% less than the 8,080,000 barrel per day average that we were importing over the same four-week period last year...the 444,000 barrel per day decrease in our total crude inventories was all taken out of our commercially available stocks of crude oil, while the amount of 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 12,200,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,700,000 barrels per day, while a 14,000 barrel per day decrease to 466,000 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 15th was rounded to 10,900,000 barrels per day, so this reporting week's rounded oil production figure was roughly 11.9% 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 93.9% of their capacity in using 17,264,000 barrels of crude per day during the week ending June 14th, up from 93.2% of capacity the prior week, and finally a fairly normal refinery utilization rate for this time of year....however, the 17,264,000 barrels per day of oil that were refined this week were still 2.5% below the 17,701,000 barrels of crude per day that were being processed during the week ending June 15th, 2018, when US refineries were operating at 96.7% of capacity....

with the increase in the amount of oil being refined, gasoline output from our refineries was similarly higher, increasing by 147,000 barrels per day to 10,423,000 barrels per day during the week ending June 14th, after our refineries' gasoline output had increased by 227,000 barrels per day the prior week....with those big increases in gasoline output, this week's gasoline production was 2.3% more than the 10,099,000 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) rose by 132,000 barrels per day to 5,371,000 barrels per day, after our distillates output had decreased by 165,000 barrels per day the prior week...but even with this week's increase, the week's distillates production was still 1.7% less than the 5,468,000 barrels of distillates per day that were being produced during the week ending June 15th, 2018.... 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 1st time in 5 weeks and for​ the ​13th time in 17 weeks, decreasing by 1,692,000 barrels to 233,221,000 barrels over the week to June 14th, after our gasoline supplies had increased by 764,000 barrels over the prior week...our gasoline supplies fell this week because the amount of gasoline supplied to US markets increased by 51,000 barrels per day to a record high 9,928,000 barrels per day and because our exports of gasoline rose by 99,000 barrels per day to 630,000 barrels per day, while our imports of gasoline rose by 137,000 barrels per day to 837,000 barrels per day...after our gasoline supplies had reached an all time record high nineteen weeks ago, they then fell by nearly 13% over 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, and hence are still 2.8% lower than last June 8th's inventory level of 240,040,000 barrels, and only 1% above the five year average of our gasoline supplies at this time of the year...

similarly, even with the increase in our distillates production, our supplies of distillate fuels fell for the 10th time in 14 weeks, decreasing by 1,000,000 barrels to 128,372,000 barrels during the week ending June 14th, after our distillates supplies had decreased by 1,000,000 barrels over the prior week....our distillates supplies fell this week even though the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 307,000 barrels per day to 4,061,000 barrels per day, because our exports of distillates rose by 416,000 barrels per day to 1,553,000 barrels per day while our imports of distillates rose by 42,000 barrels per day to 165,000 barrels per day....but even after this week's inventory decrease, our distillate supplies were still 8.9% higher than the 117,408,000 barrels of distillate that we had stored on June 15th, 2018, even as they fell to 5% below the five year average of distillates stocks for this time of the year...

finally, with greater oil exports and refinery usage, combined with lower oil imports and lower oil production, our commercial supplies of crude oil in storage fell for the seventh time in 22 weeks, decreasing by 3,106,000 barrels, from 485,470,000 barrels on June 7th to 482,364,000 barrels on June 14th...with that decrease, our crude oil inventories slipped to 7% above the recent five-year average of crude oil supplies for this time of year, but still remained more than 37% higher than the prior 5 year (2009 - 2013) average of crude oil stocks after the second week of June, 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 June 14th were 13.1% above the 426,527,000 barrels of oil we had stored on June 15th, of 2018, but at the same time still 5.3% below the 509,095,000 barrels of oil that we had in storage on June 16th of 2017, and 3.5% below the 499,994,000 barrels of oil we had stored on June 17th of 2016...  

This Week's Rig Count

the US rig count fell for the 16th time in eighteen weeks over the week ending June 21st and was thus at another 16 month low, as the week saw the slowest drilling activity since February 2nd 2018....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 2 rigs to 967 rigs this past week, which was also down by 87 rigs from the 1059 rigs that were in use as of the June 22nd 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 rose by 1 rig to 788 rigs this week, which was​ still​ 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 fell by 4 rigs to 177 natural gas rigs, which was also down by 11 rigs from the 188 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...in addition, there was also the startup of a rig classified as miscellaneous this week, the first such miscellaneous running since October, but down from the 2 miscellaneous rigs that were running a year ago, when Cabot Oil & Gas was drilling 2 exploratory wells into the Knox formation in Ohio that Baker Hughes ha​d ​labeled as miscellaneous...

the rig count in the Gulf of Mexico was unchanged at 24 rigs this week, with 22 rigs running offshore from Louisiana and 2 rigs deployed offshore from Texas....that's a 6 rig increase from the 18 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and one was deployed offshore from Texas..

the count of active horizontal drilling rigs was down by 6 to 846 horizontal rigs this week, which was a new 16 month low for horizontal drilling and 84 fewer horizontal rigs than the 930 horizontal rigs that were in use in the US on June 22nd 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 directional rig count was unchanged at 68 directional rigs this week, but those were up by 6 rigs from the 62 directional rigs that were operating during the same week of last year....on the other hand, the vertical rig count was up by 4 rigs to 53 vertical rigs this week, but those were down from the 60 vertical rigs that that were in use on June 22nd 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 21st, the second column shows the change in the number of working rigs between last week's count (June 14th) and this week's (June 21st) count, the third column shows last week's June 14th 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 22nd of June, 2018...    

June 21 2019 rig count summary

in the Texas Permian, 3 rigs were shut down in Texas Oil District 8, which would be the core Permian Delaware, while a single rig was concurrently started up in Texas Oil District 7C, or the southern Permian Midland basin; since those changes account for the 2 rig loss shown for the Permian above, we have to figure that the rig that was shut down in New Mexico had been drilling in one of the other basins in the state, with the San Juan basin in the northwest most likely, since ​a ​decrease in natural gas rigs is not ​easily ​accounted for otherwise...while Texas had a rig start up and another shut down in areas of the state not in a major tracked basin shown above, the other two rigs pulled out of Texas that are shown came out of the Granite Wash in the panhandle, with one of those having been drilling for gas...other natural gas rig shut downs that are shown include the two that were shut down in Pennsylvania's Marcellus, and natural gas rigs that had been operating in Oklahoma's Arkoma Woodford​ and Ohio's Utica shale, while there was also a natural gas rig removed from an "other basin" not tracked separately by Baker Hughes, which​,​ as we've speculated​,​ could have been from New Mexico's San Juan...at the same time, 2 rigs targeting natural gas were started up in West Virginia's Marcellus, one of just 6 states where there continues to be more drilling than a year ago...

note that other than the major producing states shown above, Alabama also saw a rig shut down this week, and now have just two rigs deployed, same as their count of a year ago, while one rig was newly deployed in Mississippi, where there are now 5 rigs operating, up from four a year ago...also note that while one rig was shut down in Ohio's Utica shale, Ohio's rig count remained unchanged at 20 rigs because a vertical rig began drilling in Sandusky county to a depth of "less than 5000 feet"...that's the rig that Baker Hughes classified as 'miscellaneous', which are usually exploratory wells not specifically targeting a known oil or gas field...to my knowledge, that's the first drilling in Sandusky county, or anywhere in that part of the state, since the shale era shifted the focus to deeper beds accessed by horizontal drilling in the southeast...

DUC well report for May

Monday of this week saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May data for drilled but uncompleted oil and gas wells in the 7 most productive shale regions...for the third month in a row, this report showed a decrease in uncompleted wells nationally in May, as both drilling of new wells decreased and completions of drilled wells decreased....while there continued to be a increase of newly drilled but uncompleted wells (DUCs) in the Permian basin of western Texas and New Mexico, all other regions saw decreases in their DUC inventory, thus more than offsetting the Permian increases...for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 77 wells, from a revised 8,360 DUC wells in April to 8,283 DUC wells in May, which still represents a 21.2% increase from the 6,832 wells that had been drilled but remained uncompleted as of the end of May a year ago...th​e decrease occurred as 1,318 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during May, down by 46 from the 1,364 wells drilled in April and the lowest in 13 months, while 1,395 wells were completed and brought into production by fracking, a decrease of 16 well completions from the 1,411 completions seen in April, but the same number of well completions as in March...at the May completion rate, the 8,283 drilled but uncompleted wells left at the end of the month represent a 5.9 month backlog of wells that have been drilled but not yet fracked...  

​unlike what we've seen over recent years​,​ oil producing regions​ saw ​​the majority of the ​May DUC well decreases, with all major oil producing regions except for the Permian showing double digit DUC drops...the number of DUC wells left in the Oklahoma Anadarko decreased by 33, from 996 in April to 963 DUC wells in May, as 127 wells were drilled into the Anadarko basin during May while 160 Anadarko wells were being fracked....at the same time, DUC wells in the Eagle Ford of south Texas decreased by 24, from 1,479 DUC wells in April to 1,455 DUCs in May, as 181 wells were drilled in the Eagle Ford during May, while 205 already drilled Eagle Ford wells were completed...in addition, the drilled but uncompleted well count in the Niobrara chalk of the Rockies' front range decreased by 18 to 538, as 177 Niobrara wells were drilled in May while 195 Niobrara wells were being fracked...meanwhile, DUC wells in the Bakken of North Dakota fell by 17, from 716 DUC wells in April to 699 DUCs in May, as 113 wells were drilled into the Bakken in May, while 130 of the drilled wells in that basin were completed...

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 24 wells, from 461 DUCs in April to 437 DUCs in May, as 124 wells were drilled into the Marcellus and Utica shales during the month, while 148 of the already drilled wells in the region were fracked...in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 2 wells to 220, as 51 wells were drilled into the Haynesville during April, while 53 Haynesville wells were fracked during the same period....

on the other hand, the Permian basin of west Texas and New Mexico saw its total count of uncompleted wells rise by 41, from 3,930 DUC wells in April to 3,971 DUCs in May, as 545 new wells were drilled into the Permian, but only 504 wells in the region were fracked......thus, for the month of May, DUCs in the five oil basins tracked by in this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a net of 51 wells to 7,626 wells, while the uncompleted well count in the natural gas basins (the Marcellus, Utica, and the Haynesville) decreased by 26 wells to 657 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and natural gas...

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note: there's more here...

1 comment:

Clipping said...

Thank you so much for the detailed article.Thanks again.