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, March 8, 2020

oil prices crash to 42 mo low on OPEC discord; US oil output at a record high; natural gas rigs at a 40 month low

US oil prices saw their largest daily loss since 2014 on Friday, while international prices were down by the most in 11 years, after this week's OPEC+ meeting broke up without an agreement...after falling 16% to $44.76 a barrel last week on the economic impact of the coronavirus epidemic, the contract price of US light sweet crude for April delivery opened lower and continued falling early Monday, being at one point down more than 3% at $43.32, before the freefall was halted by expectations that the OPEC+ alliance would deepen output cuts, and then surged to gain $1.99, or 4.5%, to finish at $46.75 per barrel in their best day since September after reassurances from central bankers around the world that they would take stabilization measures...oil prices rallied again on Tuesday and were again up more than 4% after the Fed moved to slash interest rates by half a point, but finished well off the day’s high as the Fed's rate cut raised worries about the seriousness of the virus's economic fallout, with US crude ending the session up just 43 cents or less than 1% at $47.18 a barrel...oil's price rebound extended into a third day on Wednesday after OPEC+ experts recommended deeper production cuts, and held above $48 after the EIA reported a smaller than expected crude inventory build, but then settled 40 cents lower as oil producers meeting in Vienna appeared to struggle to reach an agreement on production cuts...oil prices were initially higher again on Thursday after sources told Reuters that OPEC had agreed to cut production by 1.5 million barrels per day, but then fell after the coronavirus epidemic worsened, prompting a selloff of risky assets such as stocks, with oil ending down 88 cents at $45.90 a barrel...oil moved briefly higher early Friday on hopes that the Saudis would get their 1.5 million barrel per day cut, but then began sliding after Reuters reported that Russia would not agree to the steeper oil output cuts proposed by OPEC, and finally plunged more than 10% to a 42 month low of $41.28 a barrel after the OPEC meeting ended with no mention of production cuts...US crude prices thus ended the week down 7.8% lower at its lowest close since August 2016, as more than 4.58 million front-month U.S. crude contracts changed hands in the busiest trading week on record...

with oil prices thus finishing the week at a 42 month low, we'll include a 10 year oil price graph so we can see how the current price compares to the historical record:

March 7 2020 oil prices

the above graph is a screenshot of the interactive price chart for the front month oil 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 for the nearest oil futures contract as a vertical bar for each month over the past 10 years....this graph was generated by taking the price quotes for what is called the "front month" oil futures contract, or the contract that is being quoted as "the price of oil" daily, with the each monthly contract price being replaced by the next month's price when trading in that contract expires on the 4th business day prior to the 25th calendar day of the month preceding the contract month.. you might also note that each bar has two small horizontal appendages: the one on the left is the opening price for the month the bar indicates, while the appendage on the right is the month's closing price...as you can see, oil prices are now down to a level seen only once in the past ten years, from late 2015 to early 2016, when oil prices crashed after OPEC after flooded the global oil market, causing a collapse in prices which put hundreds of US oil companies into bankruptcy...before that, oil prices had generally tracked between $80 and $110 a barrel for years..

meanwhile, natural gas prices managed to hold on to a small gain for the week, but remained near historical lows...after falling 12% to a four year low of $1.684 per mmBTU in last week's market bloodbath, the contract price of natural gas for March delivery rebounded 7.2 cents on Monday, even as the weather outlook remained bearish, and continued 4.4 cents higher on Tuesday and 3.7 cents higher on Wednesday on a slight decline in output, despite weather forecasts confirming it would remain warmer-than-normal over the next two weeks....but prices turned lower Thursday, falling 5.5 cents to $1.772 per mmBTU, on forecasts for lower heating demand over the next two weeks, despite an increase in LNG exports and a EIA report showing a near-normal weekly storage draw...prices gave up most of their remaining gains for the week on Friday, falling 6.4 cents to $1.708 per mmBTU, on the absence of any late season cold in the forecasts, but still ended with a gain of 1.4% on the week...

the natural gas storage report on the week ending February 28th from the EIA indicated that the quantity of natural gas held in underground storage in the US fell by 109 billion cubic feet to 2,091 billion cubic feet by the end of the week, which still left our gas supplies 680 billion cubic feet, or 48.2% higher than the 1,411 billion cubic feet that were in storage on February 28th of last year, and 176 billion cubic feet, or 9.2% above the five-year average of 1,915 billion cubic feet of natural gas that has been in storage as of the 28th of February in recent years....the 109 billion cubic feet that were withdrawn from US natural gas storage this week was a bit more than the consensus estimate for a 105 billion cubic feet withdrawal by analysts polled by Platts, and was also a bit more than the average 106 billion cubic feet of natural gas that have been pulled from natural gas storage during the last week of February over the past 5 years, but it was much less than the 152 billion cubic feet withdrawal reported during the corresponding week of 2019..

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending February 28th indicated that a increase in our oil exports was mostly offset by a decrease in our refinery throughput, again leaving us with a bit of oil left to add to our stored commercial supplies for the seventeenth time in the past twenty-five weeks....our imports of crude oil rose by an average of 21,000 barrels per day to an average of 6,238,000 barrels per day, after falling by an average of 330,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 497,000 barrels per day to 4,154,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,084,000 barrels of per day during the week ending February 28th, 476,000 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 rose by 100,000 barrels per day to a record high of 13,100,000 barrels per day, and hence our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,184,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 15,696,000 barrels of crude per day during the week ending February 28th, 312,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA's surveys indicated that an average of 112,000 barrels of oil per day were being added to to the supplies of oil stored in the US....so looking at that data, 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 624,000 barrels per day less than what 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 just inserted a (+624,000) 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", thus suggesting an error or errors of that magnitude in the oil supply & demand figures we have just transcribed...however, since the media treats these figures as gospel and since they drive oil pricing and hence decisions to drill for oil, we'll continue to report them, just as they're watched & believed as accurate by most 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) indicate that the 4 week average of our oil imports fell to an average of 6,495,000 barrels per day last week, now 2.5% less than the 6,663,000 barrel per day average that we were importing over the same four-week period last year....the 112,000 barrel per day net addition to our total crude inventories was all added to our commercially available stocks of crude oil, while the quantity 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 a record high of 13,100,000 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 high of 12,600,000 barrels per day, while a 1,000 barrel per day increase Alaska's oil production to 475,000 barrels per day still added the same rounded 500,000 barrels per day to the rounded national total....last year's US crude oil production for the week ending March 1st was rounded to 12,100,000 barrels per day, so this reporting week's rounded oil production figure was 8.3% above that of a year ago, and 55.4% 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 86.9% of their capacity in using 15,696,000 barrels of crude per day during the week ending February 28th, down from 87.9% of capacity the prior week, but still near the recent average refinery capacity utilization for the end of February, historically the time of year that refineries change blends and undergo maintenance...however, the 15,696,000 barrels per day of oil that were refined this week were 1.8% less than the 15,990,000 barrels of crude that were being processed daily during the week ending March 1st, 2019, when US refineries were operating at 87.5% of capacity....

with the decrease in the amount of oil being refined, gasoline output from our refineries was also lower, decreasing by 40,000 barrels per day to 9,757,000 barrels per day during the week ending February 28th, after our refineries' gasoline output had increased by 272,000 barrels per day over the prior week... after this week's decrease in gasoline output, our gasoline production was 1.0% lower than the 9,852,000 barrels of gasoline that were being produced daily over the same week of last year....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 198,000 barrels per day to 4,648,000 barrels per day, after our distillates output had decreased by 6,000 barrels per day over the prior week...after this week's drop in distillates output, our distillates' production for the week was 5.5% less than the 4,919,000 barrels of distillates per day that were being produced during the week ending March 1st, 2019....

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week fell for the fifth week in a row, after twelve consecutive increases, but ​was still down for the 19th time in 37 weeks, falling by 4,339,000 barrels to 252,048,000 barrels during the week ending February 28th, after our gasoline supplies had decreased by 2,691,000 barrels over the prior week....our gasoline supplies decreased by more this week because the amount of gasoline supplied to US markets increased by 151,000 barrels per day to 9,186,000 barrels per day, while our exports of gasoline fell by 30,000 barrels per day to 802,000 barrels per day, while our imports of gasoline rose by 106,000 barrels per day to 511,000 barrels per day...but even after this week's big inventory decrease, our gasoline supplies were 0.5% higher than last March 1st's gasoline inventories of 250,714,000 barrels, and 2% above the five year average of our gasoline supplies for the same time of the year...

similarly, with the decrease in our distillates production, our supplies of distillate fuels decreased for the 17th time in 23 weeks and for 32nd time in the past 48 weeks, falling by 4,008,000 barrels to 134,464,000 barrels during the week ending February 28th, after our distillates supplies had decreased by 2,115,000 barrels over the prior week....our distillates supplies fell by more this week even though the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 200,000 barrels per day to 3,919,000 barrels per day, because our exports of distillates rose by 221,000 barrels per day to 1,427,000 barrels per day while our imports of distillates fell by 52,000 barrels per day to 125,000 barrels per day....after this week's decrease, our distillate supplies at the end of the week were 1.1% lower than the 135,986,000 barrels of distillates that we had stored on March 1st, 2019, and fell to about 7% below the five year average of distillates stocks for this time of the year...

finally, even with those much higher oil exports, our commercial supplies of crude oil in storage rose for the twentieth time in thirty-seven weeks and for the thirty-first time in the past 52 weeks, increasing by 784,000 barrels, from 443,335,000 barrels on February 21st to 444,119,000 barrels on February 28th....but even after 6 straight increases, our crude oil inventories slipped to roughly 4% below the five-year average of crude oil supplies for this time of year, even while they remained about 34% higher than the prior 5 year (2010 - 2014) average of crude oil stocks at the end of February, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels....even though our crude oil inventories had generally been rising over the past year, except for during this past summer, after generally falling until then through most of the prior year and a half, our oil supplies as of February 28th were 1.9% below the 452,934,000 barrels of oil we had in commercial storage on March 1st of 2019, while still 4.3% above the 425,906,000 barrels of oil that we had in storage on March 2nd of 2018, while at the same time remaining 15.9% below the 520,184,000 barrels of oil we had in commercial storage on March 3rd of 2017, a week which followed a period when we had been adding 10 million barrels per week to storage...   

This Week's Rig Count

the US rig count increased for the 4th time in 27 weeks over the week ending March 6th but still remains down by 26.8% from the end of 2018....Baker Hughes reported that the total count of rotary rigs running in the US increased by three rigs to 793 rigs this past week, which was still down by 234 rigs from the 1027 rigs that were in use as of the March 8th report of 2019, and 1,136 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began to flood the global oil market in an attempt to put US shale out of business...

the number of rigs drilling for oil increased by 4 rigs to 682 oil rigs this week, which was still 152 fewer oil rigs than were running a year ago, and much lower than 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 1 to 109 natural gas rigs, which was the least number of natural gas rigs active since October 21st of 2016, and hence was a 40 month low for natural gas drilling...natural gas rigs were also down by 84 gas 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 the rigs drilling for oil & gas, two rigs classified as 'miscellaneous' continued to drill this week; one on the big island of Hawaii, and one in Lake County, California... a year ago, there were no such "miscellaneous" rigs deployed..

offshore drilling activity in the Gulf of Mexico increased by one rig to 23 rigs this week, with 22 of those Gulf rigs drilling in Louisiana waters and one rig drilling offshore from Texas...that was one more than the number of rigs that were deployed in the Gulf a year ago, when 19 rigs were drilling offshore from Louisiana and three rigs were operating in Texas waters...with no rigs deployed off other US shores elsewhere at this time, the current Gulf of Mexico rig count is equal to the national offshore rig total​,​​ as it was the same week a year ago​...however, a drilling rig also began drilling through a lake in McClain country Oklahoma this week, and with another such "inland waters" rig also running in Louisiana, there are now two "inland waters" rigs drilling in the US, up from one a year ago..

the count of active horizontal drilling rigs was unchanged at 706 horizontal rigs this week, which was still 196 fewer horizontal rigs than the 904 horizontal rigs that were in use in the US on March 8th of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the directional rig count was up by five rigs to 51 directional rigs this week, but those were down by 16 from the 67 directional rigs that were operating during the same week of last year....on the other hand, the vertical rig count was down by two rigs to 34 vertical rigs this week, and those were also down by 22 from the 56 vertical rigs that were in use on March 8th of 2019...

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 March 6th, the second column shows the change in the number of working rigs between last week's count (February 28th) and this week's (March 6th) count, the third column shows last week's February 28th 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 8th of March, 2019...    

March 6 2020 rig count summary

in the Texas Permian basin, 3 rigs were added in Texas Oil District 8, an area ​that corresponds to the core Permian Delaware, while there were no changes in Texas Oil Districts 7B, 7C or 8A, the districts that encompass the Permian Midland basin...hence, with a 4 rig increase in the Permian overall, we can figure that the rig that was added in New Mexico had to drilling in the western Permian Delaware...meanwhile, the rig that was added in the Granite Wash basin was also in Texas, as Texas Oil District 10 shows a one rig increase, but the rig that was added in the Haynesville was in northwestern Louisiana, as the rig count in Texas Oil District 6 was unchanged...Louisiana also saw rig increases offshore and in the southern part of the state, where there weren't any rigs deployed last week....meanwhile, Oklahoma's rig count was down two with the removal of three oil rigs from the Cana Woodford and the addition of the vertical rig on the lake in McClain county...the rig pulled out of North Dakota has been drilling in the Williston basin, while the rigs pulled out of Wyoming and California, as well at the rig added in Utah, do not correspond to basins that Baker Hughes itemizes...for natural gas rigs, Baker Hughes shows one rig being added in the Haynesville, while one was removed from West Virginia's Marcellus and another was pulled out of an "other basin" that they don't track separately...

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note: there's more here...

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