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, July 14, 2019

OPEC report shows summer demand exceeding supply by 2 million barrels per day; US rig count falls to 17 month low..

oil prices jumped to a six week high midweek as tropical storm Barry meandered thru the Gulf and forced the shut in of over half of US offshore production....after falling 1.6% to $57.51 a barrel after the OPEC output cut extension disappointed oil traders last week, prices for US crude for August delivery initially jumped nearly 2% on Monday on confirmation that Iran had breached the limit on enriched uranium set by the 2015 accord that had been abrogated by the US, but later pulled back to end with an increase of only 15 cents at 57.66 a barrel, as gains were limited by renewed concerns about a slowing global economy...prices again rose to as high as $59.10 a barrel on Iran tensions early Tuesday, but again fell back to end with a gain of just 17 cents at $57.83 a barrel as concerns over a slowdown in energy demand again kept prices in check...oil prices again opened more than 1% higher on Wednesday after the API had reported that U.S. crude supplies had fallen for a fourth week in a row, but then extended those gains after the EIA confirmed an even larger oil inventory drop and as major producers cut nearly a third of offshore Gulf production, with oil prices finishing $2.60, or 4.5% higher at $60.43 a barrel...the Gulf of Mexico storm and Iran tensions pushed prices to another six-week high at $60.94 a barrel on Thursday before prices fell back to close 23 cents lower at $60.20 a barrel, as OPEC forecast lower demand for its crude oil next year as the U.S. & others lifted production...oil prices rose back to near six-week highs on Friday morning, as Gulf of Mexico oil producers cut more than half their output in the face of tropical storm Barry, but faded again in the afternoon to end just a penny higher at $60.21 a barrel, as concerns over a global crude surplus in the months ahead again limited gains...nonetheless, oil prices still ended nearly 5% higher for the week, as falling inventories, the tropical storm and geopolitical tensions all worked to push prices higher..

natural gas prices also ended higher, as weather forecasts shifted to show widespread heat dominating the Midwest and East over the next couple of weeks, and expectations that hurricane Barry would impact production also pushed prices higher...after finishing the prior week nearly 5% higher at $2.418 per mmBTU, natural gas for August delivery first slipped 1.5 cents on Monday, then rose 2.2 cents on Tuesday and 1.9 cents on Wednesday as the 8 to 14 day forecasts heated up, before falling 2.8 cents on Thursday after the EIA's natural gas storage report showed no surprises....prices then rose 3.7 cents on Friday with Barry bearing down to end the week at $2.453 per mmBTU, 1.4% higher than the prior week's close...

the natural gas storage report for the week ending July 5th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 81 billion cubic feet to 2,471 billion cubic feet by the end of the week, which meant our gas supplies were 275 billion cubic feet, or 12.5% more than the 2,196 billion cubic feet that were in storage on July 6th of last year, while still 142 billion cubic feet, or 5.4% below the five-year average of 2,613 billion cubic feet of natural gas that have been in storage as of the 5th of July in recent years....this week's 81 billion cubic feet injection into US natural gas storage was in line with expectations of an 80 billion cubic feet injection into storage, but was still higher than the average 71 billion cubic feet of natural gas that have been added to gas storage during the first week of July in recent years, the 17th consecutive such above average ​storage change....the 1,283 billion cubic feet of natural gas that have been added to storage over the past 15 weeks has been the largest injection of gas into storage on record for any similar period of the injection season, as the 1,128 billion cubic feet that were added during the same 15 weeks of 2014 (when June was also unusually cool) is the only year that's even close...

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 changes over the week ending July 5th, indicated that a larger than expected withdrawal of oil from our stored crude supplies, the 7th withdrawal in 15 weeks, ​resulted in a major shift in unaccounted for crude from the supply side of the balance sheet to the demand side...our imports of crude oil fell by an average of 284,000 barrels per day to an average of 7,302,000 barrels per day, after rising by an average of 920,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 58,000 barrels per day to 3,048,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 4,254,000 barrels of per day during the week ending July 5th, 342,000 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 higher at 12,300,000 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 16,554,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly using 17,438,000 barrels of crude per day during the week ending July 5th, 148,000 more barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that an average of 1,357,000 barrels of oil per day w​as 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 472,000 barrels per day more than 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 (-472,000) 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"...since the prior week's unaccounted for crude was at +350,000 barrels per day, indicating unaccounted for supply, the week over week metrics we've just reported are undependable to the tune of 812,000 barrels per day..(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 7,253,000 barrels per day last week,​ ​12.3% less than the 8,271,000 barrel per day average that we were importing over the same four-week period last year...the 1,357,000 barrel per day decrease in our total crude inventories was all pulled 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 higher 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 higher at 11,900,000 barrels per day, while Alaska's oil production was statistically unchanged at 426,000 barrels per day....last year's US crude oil production for the week ending July 6th was rounded to 10,900,000 barrels per day, so this reporting week's rounded oil production figure was roughly 12.8% above that of a year ago, and 45.9% 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 94.7% of their capacity in using 17,438,000 barrels of crude per day during the week ending July 5th, up from 94.2% of capacity the prior week, and a fairly normal refinery utilization rate for this time of year....however, the 17,438,000 barrels per day of oil that were refined this week were still 1.2% below the 17,652,000 barrels of crude per day that were being processed during the week ending July 6th, 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 much higher, increasing by 470,000 barrels per day to 10,418,000 barrels per day during the week ending July 5th, after our refineries' gasoline output had inexplicably decreased by 564,000 barrels per day the prior week....but even with that large jump in gasoline output, this week's gasoline production was still 2.6% less than the record 10,699,000 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 22,000 barrels per day to 5,358,000 barrels per day, after our distillates output had increased by 31,000 barrels per day the prior week....and even with this week's increase, the week's distillates production was still 1.5% less than the 5,442,000 barrels of distillates per day that were being produced during the week ending July 6th, 2018.... 

even with the big increase in gasoline production, our supply of gasoline in storage at the end of the week fell for the 4th week in a row and for the 16th time in twenty weeks, decreasing by 1,455,000 barrels to 229,187,000 barrels over the week to July 5th, after our gasoline supplies had decreased by 1,583,000 barrels over the prior week....our gasoline supplies continued to fall because the amount of gasoline supplied to US markets increased by 262,000 barrels per day to 9,754,000 barrels per day, and because our exports of gasoline rose by 137,000 barrels per day to 700,000 barrels per day, even while our imports of gasoline rose by 335,000 barrels per day to 871,000 barrels per day...after our gasoline supplies had reached an all time record high twenty-two weeks ago, they then fell by nearly 13% over the next 10 weeks while US Gulf Coast refineries were crippled by the Venezuelan sanctions, and hence they are still 4.1% lower than last July 6th's inventory level of 238,997,000 barrels, while slumping back to near the five year average of our gasoline supplies at this time of the year...

with the increase in our distillates production, our supplies of distillate fuels rose for the 6th time in the past 17 weeks, increasing by 3,729,000 barrels to 130,517,000 barrels during the week ending July 5th, after our distillates supplies had increased by 1,408,000 barrels over the prior week...our distillates supplies jumped this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, fell by 277,000 barrels per day to 3,551,000 barrels per day, and because our imports of distillates rose by 83,000 barrels per day to 181,000 barrels per day, while our exports of distillates rose by 50,000 barrels per day to 1,455,000 barrels per day...after this week's inventory increase, our distillate supplies were 7.3% higher than the 121,682,000 barrels of distillate that we had stored on July 6th, 2018, even as they remained 5% below the five year average of distillates stocks for this time of the year...

finally, with lower oil imports and greater refinery throughput, our commercial supplies of crude oil in storage fell for a fourth week in a row and for the tenth time in 25 weeks, decreasing by 9,499,000 barrels, from 468,491,000 barrels on June 28th to 458,992,000 barrels on July 5th...but even with that decrease, our crude oil inventories remained roughly 4% above the recent five-year average of crude oil supplies for this time of year, and roughly 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks for the end 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 this year, & since this past Fall, after generally falling until then through most of the prior year and a half, our oil supplies as of July 5th were still 13.2% above the 405,248,000 barrels of oil we had stored on July 6th of 2018, but at the same time were 7.3% below the 495,350,000 barrels of oil that we had in storage on July 7th of 2017, and 7.0% below the 493,718,000 barrels of oil we had stored on July 8th of 2016...   

OPEC's Monthly Oil Market Report

next we're going to review OPEC's July Oil Market Report (covering June OPEC & global oil data), which was released on Thursday of this past week and 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 63 of that report (pdf page 73), 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 a​ means of​ impartial​ly​ adjudicat​ing whether their output quotas and production cuts are being met, to thus avert any potential disputes that could arise if each member reported their own figures...

June 2019 OPEC crude output via secondary sources

so, as we can see from this table of oil production data, OPEC's oil output fell by 68,000 barrels per day to 29,830,000 barrels per day in June, from their revised May production total of 29,898,000 barrels per day...however that May figure was originally reported as 29,876,000 barrels per day, so that means their production for June was really a 46,000 barrel per day decrease from the previously reported figures (for your reference, here is the table of the official May OPEC output figures as reported a month ago, before this month's revisions)...

the largely involuntary Iranian output ​reduction of 142,000 barrels per day due to US sanctions on their exports was the primary reason for the cartel's output cut in June, as relatively smaller production cuts by Angola, by Iraq, by Kuwait, by Algeria and by Libya were more than offset by increases in output from Nigeria and the Saudis...​however, that 129,000 barrels per day increase in the output from Nigeria that you see above now puts them well over the output allocations originally ​determined for each member after their December 7th, 2018 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, and which were extended at their July 1st meeting a few weeks back...in addition, despite the small June decrease in output from Iraq, their output also remains ​well ​above quota, as 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 it shows average daily production quota in millions of barrels of oil per day for each of the OPEC members as was agreed to at their December 2018 meeting and has now been extended through March 2020...note that Venezuela and Iran, whose oil exports are being sanctioned by the Trump administration, and Libya, which has been beset by a civil war, are exempt from any production quotas, and that only Libya has been producing more than they did in the 4th quarter of 2018, as ​you can see in the third column of the OPEC production table above...

the next graphic from the report that we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from July 2017 to June 2019, and it comes from page 64 (pdf page 74) of the July 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... 

June 2019 OPEC report global oil supply

despite the decrease in OPEC's production from what they reported a month ago, their preliminary estimate indicates that total global oil production still rose by 0.47 million barrels per day to 98.56 million barrels per day in June,​ an increase ​that ​came after May's total global output figure was revised down by 170,000 barrels per day from the 98.26 million barrels per day global oil output that was reported a month ago, as non-OPEC oil production rose by a rounded 540,000 barrels per day in June after that revision, with higher oil output from the US, Brazil, Kazakhstan, Russia and China the major reasons for the non-OPEC production increase.... the 98.56 million barrels per day produced globally in June was still 0.71 million barrels per day, or 0.7% higher than the revised 97.85 million barrels of oil per day that were being produced globally in June a year ago (see the July 2018 OPEC report (online pdf) for the originally reported June 2018 details)...with the decrease in OPEC's output, their June oil production of 29,830,000 barrels per day slipped to 30.3% of what was produced globally during the month, down from the revised 30.5% share they contributed in May....OPEC's June 2018 production was reported at 32,327,000 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 2,225,000 fewer barrels per day of oil than they were producing a year ago, when they accounted for 33.0% of global output, with a 1,575,000 barrel per day drop in output from Iran, a 607,000 barrel per day decrease in the output from Saudi Arabia, and a 606,000 barrel per day decrease in the output from Venezuela from that time more than offsetting the year over year production increases of 405,000 barrels per day from Libya, 185,000 barrels per day from Iraq, and 186,000 barrels per day from the Emirates...  

despite the 470,000 barrels per day increase in global oil output that was seen during June, there was still a large ​shortfall in the amount of oil being produced globally during the month, as this next table from the OPEC report will show us...   

June 2019 OPEC report global oil demand

the table above came from page 33 of the July OPEC Monthly Oil Market Report (pdf page 43), 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 third column, we've circled in blue the figure that's relevant for June, which is their revised estimate of global oil demand during the second quarter of 2019...

OPEC has estimated that during the 2nd quarter of this year, all oil consuming regions of the globe have been using 99.24 million barrels of oil per day, which was unrevised from their estimate for the 2nd 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 ​only producing 98.56 million barrels per day during June, which means that there was a shortfall of around 680,000 barrels per day in global oil production when compared to the demand estimated for the month...

in addition, the downward revision of 170,000 barrels per day to May's global output that's implied in this report means that the 980,000 barrels per day shortfall that we had​ originally​ figured for May based on last month's figures would ​now ​have to be revised to a deficit of 1,150,000 barrels per day during May....combined with ​the deficit of 1,020,000 barrels per day that we had previously figured for April, that means that for the 2nd quarter of 2019, global oil production has been running around 950,000 barrels per day short of what's need to cover demand....while those deficits follow a first quarter that saw surpluses of 550,000 barrels per day for January, 640,000 barrels per day in February, and 190,000 barrels per day for March, note that in the 4th column above, global demand during the 3rd quarter, or summertime in the northern hemisphere, is expected to increase by 1,370,000 barrels per day to 100.61 million barrels of oil per day...that means that unless there is an unexpected pickup in oil production from the non-OPEC countries, the third quarter will be seeing oil output deficits near or above 2 million barrels of oil per day, or ​roughly 2%​ of ​total demand....

This Week's Rig Count

the US rig count fell for the 18th time in 21 weeks during the week ending July 12th, and is now down by 11.5% for the year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 5 rigs to a 17 month low of 958 rigs this past week, which was also down by 96 rigs from the 1054 rigs that were in use as of the July 13th 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 4 rigs to 784 rigs this week, which was also 79 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 decreased by 2 rigs to 172 natural gas rigs, which was also down by 17 rigs from the 189 natural gas rigs that were drilling a year ago, and way down from the modern era high of 1,606 rigs targeting natural gas that were deployed on August 29th, 2008...however, another rig classified as miscellaneous was ​began drilling this week and hence there are now two such active, matching the "miscellaneous rig" count of a year ago...

the rig count in the Gulf of Mexico increased by 2 to 26 rigs this week, as two more rigs began drilling off the coast of Louisiana...that means there are now 24 rigs drilling offshore from Louisiana and 2 rigs deployed offshore from Texas, an increase of 7 offshore rigs from the 19 rigs that were deployed in the Gulf in the same week a year ago, when 17 rigs were drilling in Louisiana waters and two were deployed offshore from Texas...on the other hand, one of the 3 platforms that had been drilling through inland waters in ​southern ​Louisiana was shut down this week, leaving two​ still active​, down from the 5 "inland waters" rigs that were drilling in Louisiana on July 13th 2018...

the count of active horizontal drilling rigs was down by 8 to 831 horizontal rigs this week, which was the least horizontal rigs deployed since February 9th, 2018 and hence a new 17 month low for horizontal drilling...it was also 99 fewer horizontal rigs than the 930 horizontal rigs that were in use in the US on July 13th 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 1 rig to 57 vertical rigs this week, but those were still up ​by 1 ​from the 56 vertical rigs that were operating during the same week of last year....on the other hand, the directional rig count was up by 4 rigs to 70 directional rigs this week, and those were also up from the 68 directional rigs that were in use on July 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 July 12th, the second column shows the change in the number of working rigs between last week's count (July 5th) and this week's (July 12th) count, the third column shows last week's July 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 6th of July, 2018...    

July 12 2019 rig count summary

as you can see, this week's rig reductions were concentrated in Texas, in both the Eagle Ford and the Permian basins within Texas...in the Permian, 3 horizontal rigs were pulled out of Texas Oil District 8, which would be the core Permian Delaware, and 3 more were pulled out of Texas Oil District 7C, or the southern Permian Midland...meanwhile, 4 oil rigs and one targeting natural gas were pulled out of the Eagle Ford of southeast Texas, which left 60 oil rigs and 6 natural gas rigs still active in that basin...at the same time, oil targeting rigs were added in the Cana Woodford of central Oklahoma and the DJ Niobrara chalk of the Rockies front range, while a natural gas rig was added in the Haynesville on the Texas side of the border, as the northern Louisiana rig count was unchanged while Texas Oil District 6 saw a one rig increase...meanwhile, two more natural gas rigs were shut down in "other" basins not tracked separately by Baker Hughes...

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note: there's more here...

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