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, December 1, 2019

natural gas prices for January at an all time low; natural gas & oil production both at all time highs

oil prices fell for the first time in four weeks as a report that the Saudis would pressure other OPEC members to carry their own weight at next week's OPEC meeting precipitated a 5% drop on Friday...after closing little changed last week at $57.77 a barrel on conflicting stories on US-China trade, oil inventories, and OPEC, the price of light sweet domestic oil for January delivery started this week higher on new optimism that the US and China would soon sign a deal to end their trade war, and finished Monday up 24 cents at $58.01 a barrel...hopes of progress towards a trade agreement and hopes for an OPEC+ production cut extension pushed prices another 40 cents higher to $58.41 a barrel on Tuesday, even as prices backed backed off before reaching last Thursday's two month high...oil prices then slumped after the American Petroleum Institute (API) reported a crude oil inventory increase much greater than was expected, but came back near the close on Wednesday to end down 30 cents at $58.11 a barrel, as losses were limited by optimism that a U.S.-China trade deal would soon be reached...US oil again traded lower on Thursday in Asia, reacting to the EIA report that oil crude inventories unexpectedly rose last week and ended down 33 cents, or 0.6%, to $57.78 a barrel in overseas trading after Trump signed into law a bipartisan bill backing protesters in Hong Kong, fueling new tensions with China...oil prices then fell sharply in US markets on Friday on rising US-China tensions over Hong Kong and on the resignation of the Iraqi Prime Minister, which traders believed would help quell weeks of unrest in Iraq, and went on to finish $2.94 or 5.1% lower at $55.17 a barrel following reports the Saudis would no longer compensate for excessive production by other OPEC members, and on comments by the Russian Energy Minister that he would prefer if OPEC and other producers delayed the decision on whether to extend their production cuts till April...oil prices thus ended the week 4.5% lower than the prior week's close, but still managed to log an increase of 2.3% for November, their largest monthly gain since June...

meanwhile, natural gas prices fell nearly 16% to an all time low as warmer weather and record high gas production sent prices tumbling...after recovering to lose less than 1% last week at $2.665 per mmBTU, the contract price of natural gas for December delivery fell 13.4 cents on Monday and 6.1 cents on Tuesday, as weekend natural gas production was at a record high while weather models changed from indicating much below normal temperatures over the entire country to just a modest cooling in the East...with trading in the December contract rolling off the boards at $2.470 per mmBTU on Tuesday, the contract price of natural gas for January delivery, which had ended the prior week at $2.710 per mmBTU, fell another 3.2 cents to $2.501 per mmBTU on Wednesday, and then fell 22 cents to an all time low of $2.281 per mmBTU on Friday as the outlook for the second week of December turned warmer, with temperatures expected to be above normal across most of the contiguous U.S.

with natural gas prices for delivery in January thus closing at an all time low, we'll bring up a few price graphs to see what they look like, and what the implications of that record low price might be....the first graph we have here shows the daily price of the January 2020 natural gas contract over the past 6 months...

November 30 2019 daily natural gas prices

the above graph is a screenshot of the interactive daily price of the January natural gas contract at Barchart.com, "the leading provider of real-time or delayed intraday stock and commodities charts and quotes", and it shows the range of prices, in dollars per mmBTU, for that January natural gas contract as a vertical bar for each day over the past 6 months...you might note that each bar has two small horizontal appendages: the one on the left is the opening price for that day, while the appendage on the right is the day's closing price...what we can see here is that up until Friday of this week, this contract had seldom sold for less than $2.50 per mmBTU, and then on Friday it crashed 22 cents to $2.281 per mmBTU, 20 cents lower than it had ever been priced for previously...we should make clear that this graph shows the price of the January contract, which is historically the most expensive, and that mid-summer gas contract prices we have quoted earlier this year were often lower priced...

to extend that price picture out a bit, we'll also include a graph of weekly price of the January natural gas contract over the past year...the format is the same as the graph above, but in this case each bar represents the price range of the January 2020 contract over each of the past 52 weeks...again, the magnitude of this week's price drop compared to other weekly changes stands out..

November 30 2019 weekly natural gas prices

lastly, to give us a long term historical view, we'll include a version of that graph that shows the price range of the January 2020 natural gas contract for each quarter over the past 11 years...:hence, the entirety of what we saw on the daily graph is represented by just the two rightmost bars on this graph, which should give you a good sense of how long natural gas prices have been falling, and how far they have fallen....again, remember this is the graph for the January 2020 futures contract; daily spot prices and the widely quoted front month contract price have been much more volatile over time than the price that a commodity such as natural gas would trade for on a contract that references delivery 5 or 10 years from the date that it's being traded...ie, while futures prices were toying with $9 per mmBTU ten years ago, the then current contract prices topped $12..

November 30 2019 quarterly natural gas prices

these prices represent what a natural gas exploitation company could have locked in to sell their gas in January 2020 at any time over the past 11 years, or the price that a utility could have locked in their purchase of gas over the same period, although in practice, producers and users of gas seldom lock in contract prices that far out...there are similar futures contracts for each month of each year going out at least 5 years (ie, here's natural gas contract prices for February 2024) and then for the beginning month of each quarter going out at least 20 years...while this isn't the lowest price a natural gas contract has traded for, it is the lowest that natural gas contracted for January has ever been priced at...and since futures contract prices farther out generally moved in tandem; ie, natural gas contracted for July 2020 delivery, for instance, fell 11.1 cents on Friday to $2.250 per mmBTU, this week's price move suggests that anyone planning to drill this summer will have a hard time securing a price that will enable profitability..

the natural gas storage report for the week ending November 22nd from the EIA indicated that the quantity of natural gas held in storage in the US decreased by 28 billion cubic feet to 3,610 billion cubic feet by the end of the week, which left our gas supplies 548 billion cubic feet, or 17.9% higher than the 3,062 billion cubic feet that were in storage on November 22nd of last year, but still left our supplies 31 billion cubic feet, or 0.9% below the five-year average of 3,641 billion cubic feet of natural gas that have been in storage as of the 22nd of November in recent years....the 28 billion cubic feet that were withdrawn from US natural gas storage this week was 3 billion cubic feet more than the average forecast of a 25 billion cubic feet withdrawal by analysts surveyed by S&P Global Platts, but was quite a bit less than the average 57 billion cubic feet of natural gas that have been pulled from natural gas storage during the third week of November over the past 5 years, which thus suggests that my theory that we may have entered a new normal where both injections and withdrawals would be greater than their previous norms was only a one week wonder...

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending November 22nd showed that because of increases in our oil imports and oil production, as well as another large draw from the Strategic Petroleum Reserve, we again managed to have a small surplus of oil available to be added to our stored commercial supplies for the tenth time in the past eleven weeks...our imports of crude oil rose by an average of 217,000 barrels per day to an average of 6,190,000 barrels per day, after rising by an average of 222,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 453,000 barrels per day to an average of 3,480,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,710,000 barrels of per day during the week ending November 22nd, 236,000 fewer 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 100,000 barrels per day higher at a record 12,900,000 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 15,610,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 16,334,000 barrels of crude per day during the week ending November 22nd, 101,000 fewer 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 29,000 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 753,000 barrels per day less than what was 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 (+753,000) 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 must necessarily 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, since commonly held illusions always top reality (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 5,997,000 barrels per day last week, now 21.9% less than the 7,677,000 barrel per day average that we were importing over the same four-week period last year....the 29,000 barrel per day net addition our total crude inventories included a 224,000 barrel per day addition to our commercially available stocks of crude oil, which was mostly offset by a withdrawal of 195,000 barrels per day from our Strategic Petroleum Reserve...this week's crude oil production was reported to be 100,000 barrels per day higher at a record 12,900,000 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 12,400,000 barrels per day, while a 7,000 barrel per day increase to 488,000 barrels per day in Alaska's oil production was not large enough to impact the final rounded total...last year's US crude oil production for the week ending November 23rd was rounded to 11,700,000 barrels per day, so this reporting week's rounded oil production figure was 10.3% above that of a year ago, and 53.1% 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 89.3% of their capacity in using 16,334,000 barrels of crude per day during the week ending November 22nd, down from 89.5% of capacity the prior week, and below normal for the third week of November...as a result, the 16,334,000 barrels per day of oil that were refined this week was 6.9% below the 16,855,000 barrels of crude per day that were being processed during the week ending November 23rd, 2018, when US refineries were operating at 95.6% of capacity....

even with a modest decrease in the amount of oil being refined, gasoline output from our refineries was a bit higher, increasing by 12,000 barrels per day to 10,065,000 barrels per day during the week ending November 22nd, after our refineries' gasoline output had decreased by 120,000 barrels per day the prior week....but even with this week's increase in gasoline output, our gasoline production was still 1.0% lower than the 10,186,000 barrels of gasoline that were being produced daily over the same week of last year....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 49,000 barrels per day to 5,075,000 barrels per day, after our distillates output had increased by 85,000 barrels per day over the prior week...after this week's decrease in distillates output, our distillates' production for the week was 7.2% below the 5,471,000 barrels of distillates per day that were being produced during the week ending November 23rd, 2018....

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the 3rd time in nine weeks and for the 9th time in 23 weeks, rising by 5,132,000 barrels to 225,978,000 barrels during the week to November 22nd, after our gasoline supplies had increased by 1,756,000 barrels over the prior week....our gasoline supplies increased by more this week because our imports of gasoline rose by 258,000 barrels per day to 773,000 barrels per day while our exports of gasoline rose by 46,000 barrels per day to 935,000 barrels per day, and while the amount of gasoline supplied to US markets increased by 12,000 barrels per day to 9,204,000 barrels per day....after this week's increase, our gasoline supplies were 0.6% higher than last November 23rd's inventory level of 224,551,000 barrels, and rose to roughly 4% above the five year average of our gasoline supplies for this time of the year...

however, even with the decrease in our distillates production, our supplies of distillate fuels rose for the 1st time in 10 weeks and for 11th time in the past 35 weeks, increasing by 725,000 barrels to 116,406,000 barrels during the week ending November 22nd, after our distillates supplies had decreased by 974,000 barrels over the prior week...our distillates supplies rose this week because our exports of distillates fell by 439,000 barrels per day to 816,000 barrels per day while our imports of distillates fell by 77,000 barrels per day to 238,000 barrels per day, and while the amount of distillates supplied to US markets, an indicator of our domestic demand, increased by 70,000 barrels per day to 4,393,000 barrels per day....but even after this week's inventory increase, our distillate supplies were still 4.4% lower than the 121,801,000 barrels of distillates that we had stored on November 23rd, 2018, and fell to around 12% below the five year average of distillates stocks for this time of the year...

finally, despite this week's increase in oil exports, the oil we pulled out of the SPR meant our commercial supplies of crude oil in storage rose for the twelfth time in twenty-four weeks and for the twenty-seventh time in 44 weeks, increasing by 1,379,000 barrels, from 450,380,000 barrels on November 15th to 451,952,000 barrels on November 22nd...after that increase, our crude oil inventories were roughly 3% above the five-year average of crude oil supplies for this time of year, and almost 35% higher than the prior 5 year (2009 - 2013) average of crude oil stocks after three weeks of November, 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 this year up until July, after generally falling until then through most of the prior year and a half, our oil supplies as of November 22nd were still 0.3% above the 450,485,000 barrels of oil we had stored on November 23rd of 2018, but at the same time were 0.4% below the 453,713,000 barrels of oil that we had in storage on November 24th of 2017, and 7.4% below the 488,145,000 barrels of oil we had in commercial storage on November 25th of 2016...    

This Week's Rig Count

the US rig count fell for the 14th time in 15 weeks and for the 37th time in 41 weeks over the week ending November 29th, and is now down by 26% since the end of last year....Baker Hughes reported that the total count of rotary rigs running in the US fell by 1 rig to a 32 month low of 802 rigs this past week, which was also down by 274 rigs from the 1076 rigs that were in use as of the November 30th report of 2018, and 1127 fewer rigs than the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market...

the number of rigs drilling for oil decreased by 3 to a 31 month low of 668 oil rigs this week, which was also 219 fewer oil rigs than were running a year ago, and well below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations increased by 2 rigs to 131 natural gas rigs, which was ​still ​down by 58 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 September 7th, 2008...in addition to those drilling for oil & gas, three rigs classified as 'miscellaneous'  continued to drill this week; one on the big island of Hawaii, one in Washoe County, Nevada, and one in Lake County, California, in contrast to a year ago, when there were no such "miscellaneous" rigs deployed..

offshore drilling activity in the Gulf of Mexico was unchanged at 22 rigs this week, with all 22 of those drilling offshore from Louisiana...but that's down by one from the Gulf of Mexico rig count of 23 a year ago, when 22 rigs were drilling in Louisiana waters and one was drilling offshore from Texas...since there are no rigs deployed off US shores elsewhere, nor were there a year ago, the Gulf of Mexico count for both years is equal to the national total in each case..

the count of active horizontal drilling rigs was up by 2 rigs to 701 horizontal rigs this week, which was still 233 fewer horizontal rigs than the 934 horizontal rigs that were in use in the US on November 30th 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 vertical rig count was down by 2 to 48 vertical rigs this week, and those were down by 26 from the 74 vertical rigs that were operating during the same week of last year...at the same time, the directional rig count was down by 1 to 53 directional rigs this week, and those were down by 15 from the 68 directional rigs that were in use on November 30th of 2018...

the details on this week's changes in drilling activity by state and by major shale basin are shown in our screenshot below of that part of the rig count summary pdf from Baker Hughes that gives us 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 29th, the second column shows the change in the number of working rigs between last week's count (November 22nd) and this week's (November 29th) count, the third column shows last week's November 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running before the same 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 30th of November, 2018...  

November 29 2019 rig count summary

even though the Permian basin shows no change this week, there was a rig added in Texas Oil District 8, or the core Permian Delaware, while at the same time, a rig was shut down in Texas Oil District 8A, or the northern Permian Midland...since there are no other changes in Texas oil districts that could possibly indicate another Permian change, it's apparent that the rig that was pulled out of New Mexico was operating in an "other" basin in the state, such as the fairly active San Juan Basin in the northwest corner of the state...the two rigs that were pulled out of north-central Texas's Barnett shale were both oil rigs; the two that remain are drilling for natural gas...in addition, an oil rig was pulled out of the Denver-Julesburg NIobrara chalk in Colorado, while the oil rig pulled ​out of the Mississippian​ shale​ came out of Oklahoma, since there haven't been any Mississippian rigs operating in Kansas for quite a while...meanwhile, the increase of 2 rigs targeting natural gas included one added in the Eagle Ford of southeast Texas, which now has 6 natural gas rigs, as an oil rig in that basin was shut down at the same time, and the rig that was added in Texas Oil District 8, or the core Permian Delaware, which is the first natural gas drilling in the Permian since early August 2018....we should also note that a rig started drilling in Nebraska this week, in the first Nebraska activity since April....all 4 Nebraska rig startups since mid-2016 have only lasted a week each time, which is quite unusual...

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note: there’s more here

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