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

Monday, November 4, 2019

a graphic snapshot of natural gas supply and demand + the usual synopsis of weekly reports...

oil prices were down just a bit this past week, as a major rally on Friday nearly reversed four days of lower prices...after rising more than 5% to a month high $56.66 a barrel last week on a drop in US crude supplies, a promise of deeper output cuts from OPEC, and hopes for a U.S.-China trade deal, the price of US light sweet crude for December delivery tracked lower for the first time in five days on Monday, falling 85 cents to $55.81 a barrel on weak Chinese industrial data and forecasts for a US crude oil inventory build... oil prices fell a second day on Tuesday ahead of the expected inventory increase, and ended 27 cents lower at $55.54 a barrel, after earlier hitting a low of $54.61 a barrel when Russia said it’s too early to talk about deeper output cuts, as expectations for large drops in gasoline and distillates supplies offset concerns about crude supplies...prices were little changed early Wednesday after the API had reported a small build in crude supplies, but then tumbled after the EIA reported a larger than expected increase, with oil prices falling to as low as $54.42 a barrel before recovering to $55.06 a barrel, a loss of 48 cents on the day...oil contracts came under renewed selling pressure on Thursday after reports that Chinese factory activity shrank for a sixth straight month while the country’s service sector activity was growing at its slowest pace since February 2016 and continued lower to end down 88 cents at $54.18 a barrel after an oil spill from the Keystone pipeline in North Dakota shut off deliveries of tar sands crude to the Cushing Oklahoma oil depot...oil prices finally moved higher on Friday on stronger-than-expected economic reports from both the US & China, then rallied to finish $2.02 or 3.7% higher at $56.20 a barrel after Chinese state-media said the US and China had reached “consensus on principles” on trade...thus, despite being down more than 5% at one point, oil prices ended down less than 1% for the week, boosted on Friday by strong US jobs data, a fall in the U.S. rig count, and Chinese trade hopes...

natural gas prices, on the other hand, saw their largest weekly gain since January as the long awaited cold arrived and the quoted price switched to the always higher priced December contract... after falling five out of the six prior weeks and ending at $2.300 per mmBTU last Friday, the contract price of natural gas for November delivery rose 14.6 cent Monday and 15.1 cents on Tuesday before trading in that contract expired at $2.597 per mmBTU as the weather models for early November indicated colder than normal temperatures for most of the country east of the Rockies...meanwhile, the natural gas contract for December delivery, which had started the week at $2.459 per mmBTU and risen 9.6 cents on Monday and 8.4 cents on Tuesday, rose another 5.2 cents on Wednesday, before falling back 5.8 cents on Thursday when the weekly storage report indicated more gas had been added to storage than analysts expected...but prices jumped another 8.1 cents on Friday on the early outbreak of November cold to end the week at $2.714 per mmBTU, a gain of 10.4% for the December contract and 41.4 cents or 18% higher than the quoted prices for November gas at the beginning of the week...

the natural gas storage report for the week ending October 25th from the EIA indicated that the quantity of natural gas held in storage in the US increased by 89 billion cubic feet to 3,695 billion cubic feet by the end of the week, which meant our gas supplies were 559 billion cubic feet, or 17.8% more than the 3,136 billion cubic feet that were in storage on October 25th of last year, and 52 billion cubic feet, or 1.4% above the five-year average of 3,643 billion cubic feet of natural gas that have been in storage as of the 25th of October in recent years....this week's 89 billion cubic feet injection into US natural gas storage was 4 billion cubic feet higher than the average forecast for a 85 billion cubic feet injection from analysts surveyed by S&P Global Platts, and it was 24 billion cubic feet above the average 65 billion cubic feet of natural gas that have been added to gas storage during the fourth week of October over the past 5 years, the 31st such average or above average storage build in the last 33 weeks...the 2,519 billion cubic feet of natural gas that have been added to storage over the 31 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 2573 billion cubic feet of natural gas that were injected into storage over the same 31 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….  

with US natural gas supplies now solidly above the 5 year average, in contrast to a year ago, when we were heading into winter with a deficit from normal of more than a 500 billion cubic feet, it seems it would an appropriate time to take a look at how we got here...it so happens that John Kemp of Reuters produced a natural gas chartbook to go with one of his articles this week that will facilitate that...John sends out the articles he publishes on Reuters, along with his daily digest of best in energy news and his research notes, free to those who subscribed to his mailings...if you'd like to be on his list for such mailings, go to this webpage and provide your name and email address: https://twitter.us18.list-manage.com/subscribe?u=92fd2e3ec7962cda008f0732a&id=a5736ab8e1

most of John's Reuters articles include a chartbook with graphics relevant to topic discussed in the article, but since they're usually linked by a small shortened url embedded in the article, it's likely that few readers see them...the natural gas chartbook from which we selected the following graphs opens as a pdf and is here: https://fingfx.thomsonreuters.com/gfx/ce/7/7118/7100/US%20NATURAL%20GAS.pdf and it came with his October 29th article titled U.S. gas market struggles with persistent oversupply...since this article ran before the release of this week's storage report, these graphics do not include this week's data...

the first graph that we're including below shows the quantity of natural gas in storage, in billions of cubic feet, in the lower 48 states over the period from January 2015 up to the week ending October 18th, 2019 as a red line, the quantity of natural gas in storage in the lower 48 states over the "prior year" from the period shown by the red graph as a yellow line, which would thus be from January 2014 up until the end of 2018, and the average of natural gas in storage over the 5 years preceding those same dates shown as a dashed blue line...at the same time, the light blue shaded background on the graph shows us the range of the amount of natural gas in storage for any given time of year for the 5 years prior to the years shown by the red graph…thus the light shaded area on the far left of the graph shows us the five year average from 2010 to 2014, while the light shaded area on the far right of the graph shows us the five year average from 2014 to 2018, with the rest of it between those dates...the graph also shows us the normal range of natural gas in storage as it fluctuates from season to season, with natural gas in storage underground normally building to a maximum by the end of October, falling through the winter, and usually bottoming out at the end of March...

October 31 2019 gas in storage 5 year history

by following the course of the red line, we can see that natural gas supplies began setting record highs in the Fall of 2015, and continued to set seasonal highs until the Fall of 2016, topping out at a record 4,047 billion cubic feet on November 11th of that year...however, by the winter of 2017-18, natural gas supplies were approaching historical lows for the season, as evidenced by the red graph falling to the bottom of the range...that situation was exacerbated during the first week of January 2018, when one cold snap burned 11.5% of our natural gas supplies in a week's time...supplies vis-a-vis the norm recovered a bit from there, but by the end of that winter our natural gas supplies were 38.3% lower than they were the prior year, which you can see in the separation between the red and yellow graphs for 2018 above...then during the summer of 2018, air conditioning demand that was above normal resulted in lower than normal additions to storage, and our supplies dropped well below the norm for the time of year heading into last winter, as evidenced by the red graph tracking far below the normal range...hence, by the time we headed into that winter, natural gas supplies had fallen to a 15 year low; and natural gas prices had hit 4 year high, and by November 26th, 2018, natural gas supplies were at a 16 year low for the season....however, a milder than normal December took the pressure off, and natural gas supplies eventually began the slow climb back towards normal which we've witnessed this year...

this next graph shows​ us​ how much natural gas was added to storage during the main part of ​each annual injection season​ of the past decade​...while the totals on this graph only go up to October 18th of each year, natural gas is normally added to storage up until the first week of November, so this isn't quite a complete picture...also note that John's numbers differ from the injection season totals i have been quoting because the totals i've quoted start with the week ending March 29th, and thus go back to March 23rd.​.​..i​'ve been​ includ​ing that week in my totals because this year that week had an anomalous early injection of 23 billion cubic feet...either way, this year's total to date is the second largest on record...

October 31 2019 injection season increase by year

the next graphic from John's chart booklet below shows monthly US natural gas production from the beginning of 2000 up to August of this year, which is all we have confirmed data for...monthly ​gas ​production is indicated by yellow dots, while the prior 12 month average from any date is tracked by the white linear graph...we can obviously see that US natural gas output has rapidly accelerated over the past two years, after the two year slump precipitated by record low drilling and an associated downturn in completions​ over 2015-2016​...remember that production for each new gas well typically drops by 80% after the first two years and tails off after that, so ​for output ​to rise from this elevated production level, more wells will have to be drilled and completed than are currently being complete​d​...it's been called the red queen syndrome, since frackers have to run faster and faster each year just to stay in the same place...

October 31 2019 monthly natural gas production

the next graph we'll include shows the quantity of natural gas used for electric power over the 2006 to 2019 time frame, with the monthly gas usage tracked by yellow dots, while the dashed white linear graph tracks the average annual consumption over the prior year for any given date...the peaks are evidently the annual summer highs for air conditioning demand, while the wintertime base probably reflects the trend more accurately...note that the 12 month moving average has nearly doubled over the time frame this graph shows, as more natural gas generating capacity has been added by US utilities while coal plants have been retired...​in 2018, ​the electric power sector accounted for 35% of domestic natural gas use..

October 31 2019 monthly natural gas power usage

the next graph shows US natural gas imports and exports, in billions of cubic feet per month, over the historical record from 1973 to August of 2019, with imports shown as a dijon yellow graphic above the zero line, and exports shown as a dark brown graphic extending below the zero line....the white linear graph then tracks the difference between the two metrics as a "net imports" figure, which has historically been a positive number, but over recent months has flipped to a negative number as exports have exceeded imports....historically, more than 90% of our natural gas imports have come by pipeline from Canada, while almost all of our exports have gone by pipeline to both Mexico and Canada...our exports of LNG is a relatively recent phenomena, rising from 1% of our total exports in 2014 to nearly 50% of the total in recent months...​as a result , ​our net natural gas exports in the first-half of 2019 doubled the year-ago levels for the second year in a row..

October 31, 2019 net imports natural gas  monthly

lastly, we'll include John's graph of natural gas rig counts over the past decade....the natural gas rig count low that we hit in ​August ​2016 was the lowest on record; but the fracking era high of 1,606 rigs of  September 7th, 2008 preceded this what's shown on this graph...however, natural gas rigs at one time numbered over 4,500, during the natural gas drilling boom of the 70s, when natural gas prices were four times what they are now....this week natural gas rigs fell to a 34 month low​, but there's still 50 more of them now than at the nadir in 2016​...

October 31 2019 natural gas drilling rig recent history

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending October 25th showed that because of a big jump in our oil imports and a decrease in our oil exports, we had surplus oil to add to our stored supplies for the sixth time in the past seven weeks...our imports of crude oil rose by an average of 840,000 barrels per day to an average of 6,697,000 barrels per day, after falling by an average of 438,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 356,000 barrels per day to an average of 3,327,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,370,000 barrels of per day during the week ending October 25th, 1,196,000 more barrels per day than the net of our imports minus ​our ​exports during the prior week...over the same period, the production of crude oil from US wells was reported to be unchanged at a record 12,600,000 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 15,970,000 barrels per day during this reporting week..  

meanwhile, US oil refineries were reportedly processing 15,998,000 barrels of crude per day during the week ending October 25th, 133,000 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 average of 714,000 barrels of oil per day were being added to 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 and from oilfield production was 743,000 barrels per day less than what was reportedly added to storage plus what our oil refineries reported they used during the week....to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+743,000) 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 again this week, it means that one or all of the oil metrics that the EIA has reported and that we have just transcribed have to be seriously off the mark...​however, since the media treats these figures as gospel and since they drive oil pricing and hence decisions to drill​ for oil​, we continue to report them ​just ​as they're seen & believed by everyone else (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)....  

further details from the weekly Petroleum Status Report (pdf) indicated that the 4 week average of our oil imports rose to an average of 6,268,000 barrels per day last week, still 16.5% less than the 7,509,000 barrel per day average that we were importing over the same four-week period last year....the 714,000 barrel per day net addition to our total crude inventories included a withdrawal of 100,000 barrels per day from our Strategic Petroleum Reserve, which means that 814,000 barrels per day were added to our commercially available stocks of crude oil....this week's crude oil production was reported to be unchanged at a record 12,600,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at a record 12,100,000 barrels per day, while a 29,000 barrel per day decrease to 456,000 barrels per day in Alaska's oil production was not enough to impact the final rounded total...last year's US crude oil production for the week ending October 26th was rounded to 11,200,000 barrels per day, so this reporting week's rounded oil production figure was 12.5% above that of a year ago, and 49.5% 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 87.1% of their capacity in using 15,998,000 barrels of crude per day during the week ending October 25th, up from 85.2% of capacity the prior week, and close to normal for the pre-winter refinery maintenance season...however, the 15,998,000 barrels per day of oil that were refined this week was still 2.6% below the 16,417,000 barrels of crude per day that were being processed during the week ending October 26th, 2018, when US refineries were operating at 89.4% of capacity....

with the increase in the amount of oil being refined, gasoline output from our refineries was also higher, increasing by 86,000 barrels per day to 10,184,000 barrels per day during the week ending October 25th, after our refineries' gasoline output had increased by 100,000 barrels per day the prior week....but even with those increases in gasoline output, this week's gasoline production was 1.7% lower than the 10,364,000 barrels of gasoline that were being produced daily over the same week of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 205,000 barrels per day to 4,970,000 barrels per day, after our distillates output had increased by 77,000 barrels per day over the prior week...but even with those two increases in distillates output, our distillates' production this week was still fractionally below the 4,983,000 barrels of distillates per day that were being produced during the week ending October 26th, 2018.... 

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 13th time in 19 weeks and for the 27th time in thirty-four weeks, falling by 3,037,000 barrels to 220,057​,000​ barrels during the week to October 25th, after our gasoline supplies had decreased by 3,107,000 barrels over the prior week....our gasoline supplies were down again this week as the amount of gasoline supplied to US markets increased by 194,000 barrels per day to 9,784,000 barrels per day, while our imports of gasoline fell by 24,000 barrels per day to 673,000 barrels per day and while our exports of gasoline rose by 27,000 barrels per day to 652,000 barrels per day....after this week's decrease, our gasoline supplies were 2.7% lower than last October 26th's inventory level of 226,169,000 barrels, and but remained roughly 2% above the five year average of our gasoline supplies for this time of the year...

likewise, even with the increase in our distillates production, our supplies of distillate fuels fell for the 21st time in the past 31 weeks, decreasing by 1,032,000 barrels to 226,169,000 barrels during the week ending October 25th, after our distillates supplies had decreased by 2,715,000 barrels over the prior week...our distillates supplies fell by less this week even though the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 187,000 barrels per day to 4,263,000 barrels per day, because our exports of distillates fell by 197,000 barrels per day to 1,012,000 barrels per day while our imports of distillates rose by 25,000 barrels per day to 158,000 barrels per day...after this week's inventory decrease, our distillate supplies were down by 5.2% from the 126,322,000 barrels of distillates that we had stored on October 26th, 2018, but actually increased to around 11% below the five year average of distillates stocks for this time of the year​, as prior years saw greater decreases during the same week ​...

finally, with this week's jump in oil imports coupled with the decrease in our oil exports, our commercial supplies of crude oil in storage rose for the eighth time in twenty weeks and for the eighteenth time in 40 weeks, increasing by 5,702,000 barrels, from 433,151,000 barrels on October 18th to 438,853,000 barrels on October 25th....that increase lifted our crude oil inventories to 1% above the five-year average of crude oil supplies for this time of year, and to more than 30% higher than the prior 5 year (2009 - 2013) average of crude oil stocks as of the last weekend of October, 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 generally been rising over the past year up until July, after generally falling until then through most of the prior year and a half, our oil supplies as of October 25th were 3.0% above the 426,004,000 barrels of oil we had stored on October 26th of 2018, but at the same time were 3.5% below the 454,906,000 barrels of oil that we had in storage on October 27th of 2017, and 9.1% below the 482,578,000 barrels of oil we had in commercial storage on October 28th of 2016...    

This Week's Rig Count 

the US rig count fell for the 10th time in 11 weeks and for the 33rd time in 37 weeks over the week ending November 1st, and is now down by more than 24% since the end of last year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 8 rigs to a 31 month low of 822 rigs this past week, which was also down by 245 rigs from the 1067 rigs that were in use as of the November 2nd report of 2018, and 1107 fewer rigs than the shale era high of 1929 drilling rigs that were deployed on November 2nd of 2014, the week before OPEC began their attempt to flood the global oil market...

the number of rigs drilling for oil decreased by 5 to a 30 month low of 691 oil rigs this week, which was also 183 fewer oil rigs than were running a year ago, and quite a bit 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 fell by 3 rigs to 130 natural gas rigs, the least natural gas rigs since December 23 2016 and hence a 34 month low for gas rig drilling activity, down by 63 rigs from the 193 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 September 7th, 2008...in addition​ to those​, a vertical rig classified as miscellaneous continued to drill on the big island of Hawaii this week, in contrast to a year ago, when there were no such "miscellaneous" rigs deployed..

offshore drilling activity ​in the ​Gulf of Mexico increased by 1 rig​ with 21 Gulf rigs running this week, as another rig was added to those drilling offshore from Louisiana this week...the 21 rigs drilling in Louisiana's offshore waters are now 3 more rigs than the Gulf of Mexico rig count of 18 a year ago, when 17 rigs were drilling in Louisiana waters and one was drilling offshore from Texas...in addition to the Gulf, one rig continues to drill offshore from the Kenai Peninsula in Alaska, whereas a year ago the only offshore rigs were in the Gulf...hence, the national total of 22 offshore rigs is up by 4 rigs from the 18 rigs that were deployed offshore a year ago...meanwhile, offsetting the rig that was added in Louisiana's offshore waters this week, a platform from which there ​had been drilling through an inland body of water in southern Louisiana was shut down this week, leaving just one such "inland waters' rig active in the state and nationally...that's down by 2 from a year ago, when 3 'inland waters rigs" were deployed in southern Louisiana...

the count of active horizontal drilling rigs was down by 11 rigs to 717 horizontal rigs this week, which was the least horizontal rigs deployed since April 21st, 2017 and hence is a new 30 month low for horizontal drilling...that was also 212 fewer horizontal rigs than the 929 horizontal rigs that were in use in the US on November 2nd of last year, and also well 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 2 rigs to 53 directional rigs this week, but those were down by 20 from the 73 directional rigs that were operating during the same week of last year...in addition, the vertical rig count increased​ ​by 1 to 52 vertical rigs this week, while those were down by 13 from the 65 vertical rigs that were in use on November 2nd of 2018...

the details on this week's changes in drilling activity by state and by major 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 table below that 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 November 1st, the second column shows the change in the number of working rigs between last week's count (October 25th) and this week's (November 1st) count, the third column shows last week's October 25th 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 ​2nd of November, 2018...   

November 1 2019 rig count summary

in the Texas Oil Districts that encompass the Texas portion of the Permian basin, Texas Oil District 8, or the core Permian Delaware, had three more rigs added this week, while Texas Oil District 8A, or the northern Permian Midland, and Texas Oil District 7C, or the southern Permian Midland, both dropped a rig from a week ago...with the total Permian ​rig ​count down by 1, that means that the two rigs that were pulled out of New Mexico had been operating in the western reaches of the Permian Delaware...meanwhile, the rig that was removed from the Mississippian shale had been operating in Oklahoma, since the Kansas rig count was unchanged at zero, as was the rig that was removed from the Granite Wash, since activity in Texas Oil District 10 was also unchanged...on the other hand, the rig that was pulled out of the Haynesville had been operating in Texas, since the northern Louisiana rig count was unchanged at 31 while drilling in Texas Oil District 6 was down a rig to 21...that Haynesville rig, plus the two rigs that were pulled out of Pennsylvania's Marcellus, account for all of this week's natural gas rig changes; everything else that moved was targeting oil...but we should also note that other than the changes shown in the major producing states above, Florida also had a rig shut down this week, while they still have one remaining; a year ago, there was no drilling in Florida whatsoever...

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