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 1, 2020

oil prices fall 16%, biggest drop since 2008; natural gas prices end at a 4 year low, near a 21 year low

oil prices fell by more than 2% each day this week​ and ​ended down by the most in any week since 2008, ​as ​building ​awareness of the economic impacts of the coronavirus epidemic finally battered financial markets worldwide....after rising 2% to $53.38 a barrel on oil supply cutoffs in Libya and Venezuela last week, the contract price of US light sweet crude for April delivery opened more than 1% lower on Monday and skidded to a 4% loss, as the rapid spread of coronavirus in countries outside China left investors concerned about a big hit to demand, with US crude ending $2.12 lower at $51.26....oil prices continued lower Tuesday, as concerns about the spread of the coronavirus outweighed OPEC talk of output cuts and Libyan supply losses ​and oil prices settled down $1.53, or 3%, at $49.90 a barrel, the lowest settlement in two weeks...oil prices briefly rose back above $50 a barrel on Wednesday, as both the API and EIA reported smaller than expected crude inventory builds, but then fell to their lowest in more than a year after hundreds of new coronavirus cases in Europe and the Middle East stoked fears that energy demand would drop, with April US crude closing $1.17 lower at $48.73 a barrel...oil prices then fell for a fifth straight day on Thursday as the growing number of new coronavirus cases outside of China fueled fears of a pandemic which ​would lower crude demand and ended $1.64 lower at $47.09, the lowest close since January 2019...fears that a slowing global economy would hit energy demand continued to push prices lower Friday, with oil prices at one point down almost 7% to $43.85 a barrel, before shaving the day​'​s losses to end down 5% at $44.76 a barrel, after fears over the outbreak had sent shares on Wall Street down by the most in almost a decade....oil prices thus finished more than 16% lower on the week, the biggest weekly drop since December 2008, with the spread of the COVID-19 epidemic around the world expected to significantly dent demand for crude...

with oil prices seeing such a significant drop, we'll include a graph of their recent trajectory so you can see how fast and how far they've fallen..

February 29 2020 April 2020 oil prices 

the above graph is a screenshot of the interactive daily price chart for the April 2020 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 that April contract as a vertical bar for each ​day over the past year...you might​ also​ note that each bar has two small horizontal appendages: the one on the left is the opening price for the day the bar indicates, while the appendage on the right is the day's closing price...what you'll want to notice is that the contract price for April oil hit a 14 month high at $64.05 a barrel on January 6th of this year and has been falling since, and is now more than 30% off that high and is down by 27% since the beginning of the year...

natural gas prices also finished much lower this week, with the April gas contact ​ending ​at an all time low, while the front month price ​as​ quote​d daily​ ​slid to its lowest​ level​ in 4 years...after rising 3.7% to $1.905/mmBTU on the strength of a late-winter cold snap last week, the contract price of natural gas for March delivery fell 7.8 cents to $1.827 on Monday, following further warming in the latest weather models....the March contract price then moved up 2.0 cents on Tuesday but fell 2.6 cents on Wednesday as trading in the March contract expired at $1.821 per mmBTU....meanwhile, the price of natural gas contracts for April delivery, which had ended last week at $1.917 per mmBTU, had fallen to $1.837 per mmBTU by the close on Wednesday, then fell 8.5 cents on Thursday to settle at a four year low of $1.752 per mmBTU, on what was called "a paltry draw" of natural gas from storage...the April contract price was then down another 6.8 cents to $1.684 per mmBTU on Friday, as traders brushed off the last fleeting cold spell of the season and like oil, turned their focus to the possible impacts that the coronavirus impact might have on demand...that left the April natural gas down more than 12% on the week at an all time low for the contract, while the quoted "price of natural gas" was at a 4 year low, and closing in on the lowest price since the third quarter of 1998...

with natural gas​ prices​ also at significant lows, we'll also include a pair of charts on ​their​ recent trajectory...

February 28 2020 nearby month natural gas prices

the above graph is a screenshot of the interactive monthly price chart for the nearby natural gas futures contract at Barchart.com, and like the oil graph we showed earlier, it shows the range of prices, in dollars per mmBTU, for the nearest natural gas futures contract as a vertical bar for each month over the past 12 years...this graph was compiled by taking quotes for what is called the "front month" natural gas contract, or the contract that is being quoted as "the price of natural gas" daily, with the each monthly contract price being replaced by the next one when trading in that contract expires on the third business day before the end of the preceding month...the lowest natural gas price on this graph is from early March 2016, when the April 2016 contract briefly traded at $1.611 per mmBTU...the lowest price that natural gas saw this ​past ​week was on Friday, when April 2020 gas briefly traded at ​$​1.642 per mmBTU​,​ before ending the week at $1.684...

in contrast to that graph, this next graph​ from the same interactive site​ shows the monthly price of the April 2020 natural gas contract over the last 12 years, and you can clearly see that the current price for that contract is at a life of contract low...in the futures market, one can lock in a price to buy or sell a commodity 20 years in the future...thus, ​during the month of March 2016, when natural gas was being quoted at prices ​ranging ​between $1.611 and $2.032 per mmBTU, one could enter into a contract to buy or sell natural gas in April 2020 at prices ranging from $2.660 to $2.884 per mmBTU, ​obviously ​well above the daily price...thus, when we've said in the past that a given natural contract price was at an all time low, it's this future's price that we are referring to...spot natural gas prices, or what physical natural gas ​might ​trade at on a given day, were as low as $1.50 in the mid-1990's, even as​ the​ long term future prices for gas were $1 higher...

February 28 2020 April 2020 natural gas prices

meanwhile, the natural gas storage report on the week ending February 21st from the EIA indicated that the quantity of natural gas held in storage in the US fell by 143 billion cubic feet to 2,200 billion cubic feet by the end of the week, which left our gas supplies 637 billion cubic feet, or 40.8% higher than the 1563 billion cubic feet that were in storage on February 21st of last year, and 179 billion cubic feet, or 8.9% above the five-year average of 2,121 billion cubic feet of natural gas that has been in storage as of the 21st of February in recent years....the 143 billion cubic feet that were withdrawn from US natural gas storage this week was smaller that the consensus estimate for a 155 billion cubic feet withdrawal, and was also less than the 167 billion cubic feet withdrawal reported during the corresponding week of last year, but was still more than the average 122 billion cubic feet of natural gas that have been pulled from natural gas storage during the third week of February over the past 5 years.... 

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 21st indicated that a decrease in our oil imports 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 sixteenth time in the past twenty-four weeks....our imports of crude oil fell by an average of 330,000 barrels per day to an average of 6,217,000 barrels per day, after falling by an average of 431,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 93,000 barrels per day to 3,657,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,560,000 barrels of per day during the week ending February 21st, 423,000 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 unchanged at 13,000,000 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 15,560,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 16,008,000 barrels of crude per day during the week ending February 21st, 202,000 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 65,000 barrels of oil per day were being added to 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 512,000 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 (+512,000) 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...​nonetheless, 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 6,589,000 barrels per day last week, now just 1.6% less than the 6,699,000 barrel per day average that we were importing over the same four-week period last year....the 65,000 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 unchanged at 13,000,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was unchanged at 12,500,000 barrels per day, while a 8,000 barrel per day decrease Alaska's oil production to 474,000 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 February 22nd was rounded to 12,100,000 barrels per day, so this reporting week's rounded oil production figure was 7.4% above that of a year ago, and 54.2% 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 87.9% of their capacity in using 16,008,000 barrels of crude per day during the week ending February 21st, down from 89.4% of capacity the prior week, ​but still close to the recent average refinery capacity utilization for the third week of February...nonetheless, the 16,008,000 barrels per day of oil that were refined this week were fractionally more than the 15,890,000 barrels of crude that were being processed daily during the week ending February 22nd, 2019, when US refineries were operating at 87.1% of capacity....

even with the decrease in the amount of oil being refined, gasoline output from our refineries was somewhat higher, increasing by 272,000 barrels per day to 9,797,000 barrels per day during the week ending February 21st, after our refineries' gasoline output had increased by 284,000 barrels per day over the prior week... after this week's increase in gasoline output, our gasoline production was 2.6% higher than the 9,553,000 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 6,000 barrels per day to 4,846,000 barrels per day, after our distillates output had increased by 15,000 barrels per day over the prior week...after this week's small change in distillates output, our distillates' production for the week was fractionally above the 4,816,000 barrels of distillates per day that were being produced during the week ending February 22nd, 2018....

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week ​fell for the fourth week in a row, after twelve consecutive increases, but w​ere still down for the 18th time in 36 weeks, falling by 2,691,000 barrels to 256,387,000 barrels during the week ending February 21st, after our gasoline supplies had decreased by 1,971,000 barrels over the prior week....our gasoline supplies decreased by more this week because our exports of gasoline rose by 72,000 barrels per day to 842,000 barrels per day, while our imports of gasoline fell by 16,000 barrels per day to 405,000 barrels per day, and because the amount of gasoline supplied to US markets increased by 117,000 barrels per day to 9,035,000 barrels per day...even after this week's inventory decrease, our gasoline supplies were 0.6% higher than last February 22nd's gasoline inventories of 254,941,000 barrels, and 3% above the five year average of our gasoline supplies for this time of the year...

meanwhile, with the decrease in our distillates production, our supplies of distillate fuels decreased for the 16th time in 22 weeks and for 31st time in the past 47 weeks, falling by 2,115,000 barrels to 138,472,000 barrels during the week ending February 21st, after our distillates supplies had decreased by 635,000 barrels over the prior week....our distillates supplies fell by more this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, rose by 391,000 barrels per day to 4,119,000 barrels per day, even as our exports of distillates fell by 137,000 barrels per day to 1,206,000 barrels per day while our imports of distillates rose by 50,000 barrels per day to 177,000 barrels per day....nonetheless, after this week's decrease, our distillate supplies at the end of the week were little changed from the 138,683,000 barrels of distillates that we had stored on February 22nd, 2019, while ​they slipped to about 5% below the five year average of distillates stocks for this time of the year...

finally, even with lower oil imports and higher oil exports, our commercial supplies of crude oil in storage rose for the nineteenth time in thirty-six weeks and for the ​thirty​-first time in the past 52 weeks, increasing by 452,000 barrels, from 442,883,000 barrels on February 14th to 443,335,000 barrels on February 21st....but even after 5 straight increases, our crude oil inventories slipped to roughly 3% below the five-year average of crude oil supplies for this time of year, even ​while they remained 34.6% higher than the prior 5 year (2010 - 2014) average of crude oil stocks after the third week 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 th​is past summer, after generally falling until then through most of the prior year and a half, our oil supplies as of February 21st were 0.6% below the 445,865,000 barrels of oil we had in commercial storage on February 22nd of 2019, while still 4.7% above the 423,498,000 barrels of oil that we had in storage on February 23rd of 2018, while at the same time remaining 14.8% below the 520,184,000 barrels of oil we had in commercial storage on February 24th 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 was little changed for the 4th week in row over the week ending February 28th, after being down 18 of the prior 22 weeks, and hence remains down by 27% from the end of 2018....Baker Hughes reported that the total count of rotary rigs running in the US decreased by one rig to 790 rigs this past week, which was also down by 248 rigs from the 1038 rigs that were in use as of the March 1st report of 2019, and 1,139 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 decreased by 1 rig to 678 oil rigs this week, which was also 165 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 was unchanged at 110 natural gas rigs for the 3rd week in a row, but still down by 85 gas rigs from the 195 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 was unchanged at 22 rigs this week, with 21 of those Gulf rigs drilling in Louisiana waters and one rig drilling offshore from Texas...that was the same 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...since there are no rigs deployed off other US shores elsewhere at this time, nor were there a year ago, the current Gulf of Mexico rig count as well as the count of last year is equal to the national offshore rig total in both cases..

the count of active horizontal drilling rigs was down by 6 to 706 horizontal rigs this week, which also 203 fewer horizontal rigs than the 911 horizontal rigs that were in use in the US on March 1st 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 up by 4 rigs to 34 vertical rigs this week, but those were still down by 24 from the 60 vertical rigs that were operating during the same week of last year....at the same time, the directional rig count was up by one rigs to 46 directional rigs this week, but those were also down by 21 from the 67 directional rigs that were in use on March 1st 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 February 28th, the second column shows the change in the number of working rigs between last week's count (February 21st) and this week's (February 28th) count, the third column shows last week's February 21st 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 1st of March, 2019...    

February 28 2020 rig count summary

the 4 rig increase in Texas includes 2 rigs that were added in Texas Oil District 8, which corresponds to the core Permian Delaware, and another rig that started up in Texas Oil District 7B, while a rig was being pulled out of Texas Oil District 7C, or the southern Permian Midland at the same time...hence, the rig added in District 7B must have been targeting the far eastern Midland basin for the Permian basin to show a 2 rig increase for the week...elsewhere in Texas, rigs were pulled out of Oil Districts 1 and 3 to account for the 2 rig decrease in the Eagle Ford, while 2 rigs were added in Texas Oil District 6, one was added in Texas Oil District 2, and one was added offshore...it appears that the 2 rigs added in Texas Oil District 6 were natural gas rigs in the Haynesville shale, while a Haynesville gas rig was concurrently taken down in adjacent northern Louisiana​....​other Baker Hughes data shows the Haynesville shale with a one rig increase to 43 rigs​ this week​, so it appears that the above table is wrong on that count...the natural gas rig count still balances because there was also a natural gas rig pulled out of a basin not tracked separately by Baker Hughes....meanwhile, since there was no change in the panhandle Texas Oil District 10, it seems likely that the oil rig pulled out of the Granite Wash had been operating in Oklahoma...other changes in Oklahoma​ would include the 2 rigs that were added in the Cana Woodford shale, and one rig that was pulled out of the Ardmore Woodford, and hence it seems likely that 3 rigs were also shut down in other Oklahoma basins not shown above...elsewhere, the Denver-Julesburg Niobrara rig addition could have been in either Colorado or in Wyoming, but Colorado seems more likely, since other basins in Wyoming have had more activity lately..

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note: there's more here...

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