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, June 29, 2020

natural gas prices hit 25 year low; crude supplies and oil + oil product supplies again at new all-time highs

oil prices fell for the 2nd week in the past three this week, on a resurgence of covid-19 cases in the US and globally, which threatened the chance for an economic recovery...after rising nearly 10% to $39.75 a barrel last week on signs of rising demand and on the apparent success of the OPEC+ output cuts, the contract price of US light sweet crude for July delivery opened 1.5% lower on Monday on White House trade adviser Peter Navarro's comments that the trade deal with China was "over", but moved back up after Trump tweeted that the trade agreement was "fully intact" and finished 71 cents higher at $40.46 a barrel on tighter supplies from major producers and an improvement in the long-term demand outlook as trading in the July oil contract expired...now quoting the price of US light sweet crude for August delivery, which had ended last week at $39.83 a barrel and risen 90 cents to $40.73 a barrel on Monday, oil prices moved lower on Tuesday, as a rising number of Covid-19 cases sparked demand fears, and as traders braced for reports expected to show swelling U.S. crude inventories and ended down 36 cents at $40.37 a barrel...oil prices then opened below $40 Wednesday morning following a surprisingly large crude build reported by API overnight and then went on to fall $2.36 or nearly 6% to $38.01 a barrel after the EIA confimed that U.S. crude supplies had hit another record and as mounting coronavirus cases in the US, China, Latin America and India unnerved speculators and pressured oil prices...but oil prices found support on Thursday as data showed that fewer Americans had filed for unemployment benefits last week and that orders for key capital goods had rebounded in May and ended 71 cents higher at $38.72 a barrel, as data provided to Reuters showed road traffic in some of the world's major cities had returned to 2019 levels in June...oil prices then pulled back on Friday as a record rise in U.S. coronavirus cases and growing infections in parts of the world pointed to long-term challenges for a recovery in crude-oil demand and ended down 23 cents at $38.49 a barrel, thus posting a weekly drop of 3.6%, after record U.S. crude inventory data had dragged prices lower midweek...

meanwhile, natural gas prices tumbled to their lowest level since 1995 after a big storage injection was reported Thursday and barely rebounded from there, thus ending lower for a 4th straight week....after falling 3.6% to $1.669 per mmBTU on falling LNG exports last week, the contract price of natural gas for July delivery slipped another half cent on Monday as rising natural gas output offset forecasts for warmer-than-normal weather and higher air conditioning demand over the next two weeks...natural gas prices fell another 2.7 cents on Tuesday, as a weakened heat outlook further weighed on July contract prices, and then fell another 4 cents to a two-month low of $1.597 on Wednesday on forecasts of a big weekly storage build...natural gas prices collapsed over 14 cents to a 25-year low of $1.440 per mmBTU on Thursday after the EIA reported that big build, prompting fears that underground storage caverns would be full by the end of the summer, before ending the session off 11.5 cents at $1.482 per mmBTU....prices then edged up 1.3 cents to finish the week still down more than 10% at $1.495 per mmBTU on Friday despite ongoing demand destruction from expanding coronavirus cases, on a continued slowing of gas output, a small rise in pipeline and LNG exports, and an increase in cooling demand..

Since we haven't looked at natural gas prices lately, we'll ​first ​include a graph of their recent trajectory below..

June 27 2020 natural gas prices

the above graph is a screenshot of the interactive daily price chart for the July natural gas futures contract at Barchart.com, and it shows the range of prices, in dollars per mmBTU, for​ ​​the​ July natural gas futures contract as a vertical bar for each day over the past year...one can barely see it in this view, but 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...

​next, we'll include a graph of ​natural gas prices going back 30 years, to 1990:

June 27 2020 natural gas prices max

​this graph also came from ​​the same the interactive daily price chart for the July natural gas futures contract at Barchart.com​, but we have reset the interactive feature to show the maximum price history, which displays the range of natural gas prices over each month in that history as a vertical bar​...since the July 2020 contract was not trading over that history, this had the effect of changing the focus of the graph to the prices for the nearest monthly natural gas contract that was trading at any given time, which is the same as what is being quoted as 'the price of natural gas' daily...​however, since trading in the July natural gas contract expired​ on​ Friday, ​this and other longer term graphs now reflect natural gas prices for ​the ​August​ gas contract​, which averaged about 5 cents higher than the July contract prices we've discussed today...​nonetheless, it's stil clear that natural gas prices have fallen to their lowest level since 1995..​

the natural gas storage report from the EIA for the week ending June 19th indicated that the quantity of natural gas held in underground storage in the US rose by 120 billion cubic feet to 3,012 billion cubic feet by the end of the week, which left our gas supplies 739 billion cubic feet, or 32.5% higher than the 2,273 billion cubic feet that were in storage on June 19th of last year, and 466 billion cubic feet, or 16.9% above the five-year average of 2,546 billion cubic feet of natural gas that has been in storage as of the 19th of June in recent years....the 120 billion cubic feet that were added to US natural gas storage this week was well above the consensus forecast from S&P Global Platts' survey of analysts calling for a 107 billion cubic feet increase, and was way more than the average of 73 billion cubic feet of natural gas that have been added to natural gas storage during the same week over the past 5 years, and it was also above the 103 billion cubic feet addition of natural gas to storage during the corresponding week of 2019... it was also the most natural gas added to storage during any June week in the modern record, and also the 3rd largest natural gas storage increase in the past decade...

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending June 19th indicated that a sizable increase in our oil production was almost enough to cover a large increase our oil exports, again leaving us with surplus oil to add to our stored commercial supplies of crude oil for the 3rd week in a row, and for the 30th time in the past forty-one weeks....our imports of crude oil fell by an average of 102,000 barrels per day to an average of 6,540,000 barrels per day, after falling by an average of 222,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 695,000 barrels per day to an average of 3,157,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 3,383,000 barrels of per day during the week ending June 19th, 797,000 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 500,000 barrels per day to 11,000,000 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 14,383,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 13,840,000 barrels of crude per day during the week ending June 19th, 239,000 more 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 a net of 490,000 barrels of oil per day were being added to the supplies of oil stored in the US....so based on that reported & estimated 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 53,000 barrels per day more 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 just ​inserted a (-53,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the average daily supply of oil and the average daily 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....(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 6,556,000 barrels per day last week, which was 11.6% less than the 7,415,000 barrel per day average that we were importing over the same four-week period last year....the 490,000 barrel per day net addition to our total crude inventories included 284,000 barrels per day that were added to our Strategic Petroleum Reserve, and 206,000 barrels per day that were being added to our commercially available stocks of crude oil ....this week's crude oil production was reported to be up by 500,000 barrels per day to 11,000,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was up by 500,000 barrels per day to 10,600,000 barrels per day, while a 1,000 barrel per day increase in Alaska's oil production to 362,000 barrels per day had no impact on the rounded national total....last year's US crude oil production for the week ending June 21st was rounded to 12,100,000 barrels per day, so this reporting week's rounded oil production figure was about 9.1% below that of a year ago, yet still 30.5% 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 74.6% of their capacity while using 13,840,000 barrels of crude per day during the week ending June 19th, up from 73.8% of capacity during the prior week, but excluding the 2005 & 2008 hurricane​-related refinery ​interruptions, still one of the lowest refinery utilization rates of the last thirty years...hence, the 13,840,000 barrels per day of oil that were refined this week were still 20.2% fewer barrels than the 17,337,000 barrels of crude that were being processed daily during the week ending June 21st, 2019, when US refineries were operating at 94.2% of capacity....

with the increase in the amount of oil being refined, gasoline output from our refineries was also higher, increasing by 438,000 barrels per day to 8,794,000 barrels per day during the week ending June 19th, after our refineries' gasoline output had increased by 217,000 barrels per day over the prior week... however, since our gasoline production is still recovering from a multi-year low, this week's gasoline output was still 16.3% lower than the 10,512,000 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) increased by 63,000 barrels per day to 4,561,000 barrels per day, after our distillates output had decreased by 264,000 barrels per day over the prior week...but even after this week's increase in distillates output, our distillates' production was 14.0% less than the 5,305,000 barrels of distillates per day that were being produced during the week ending June 21st, 2019....

even with the big increase in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 6th time in 9 weeks and for the 14th time in 21 weeks, falling by 1,673,000 barrels to 255,322,000 barrels during the week ending June 19th, after our gasoline supplies had decreased by 1,666,000 barrels over the prior week...our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 738,000 barrels per day to 8,608,000 barrels per day, while our imports of gasoline rose by 174,000 barrels per day to 704,000 barrels per day, and while our exports of gasoline fell by 209,000 barrels per day to 286,000 barrels per day....even after this week's inventory decrease, our gasoline supplies were still 9.9% higher than last June 21st's gasoline inventories of 232,225,000 barrels, and roughly 9% above the five year average of our gasoline supplies for this time of the year...  

with the increase in our distillates production, our supplies of distillate fuels increased for the eleventh time in 23 weeks and for the 16th time in 38 weeks, rising by 249,000 barrels to 174,720,000 barrels during the week ending June 19th, after our distillates supplies had decreased by 1,358,000 barrels over the prior week....our distillates supplies rose this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, fell by 89,000 barrels per day to 3,466,000 barrels per day, and because our exports of distillates fell by 173,000 barrels per day to 1,128,000 barrels per day, while our imports of distillates fell by 94,000 barrels per day to 69,000 barrels per day....after this week's inventory increase, our distillate supplies at the end of the week were 39.4% above the 125,380,000 barrels of distillates that we had stored on June 21st, 2019, and about 28% above the five year average of distillates stocks for this time of the year...

finally, even with the drop in our crude oil output and the decrease in our oil imports, our commercial supplies of crude oil in storage rose for the 19th time in twenty-two weeks and for the 34th time in the past 52 weeks, increasing by 1,442,000 barrels, from a record high of 539,280,000 barrels on June 12th to another all time high of 540,722,000 barrels on June 19th...that meant our our commercial crude oil inventories were around 16% above the five-year average of crude oil supplies for this time of year, and around 54% above the prior 5 year (2010 - 2014) average of our crude oil stocks for the third week of June, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first topped 400 million barrels....since our crude oil inventories have generally been rising since September 2018, except for during last summer, after generally falling until then through most of the prior year and a half, our crude oil supplies as of June 19th were 15.2% above the 469,576,000 barrels of oil we had in commercial storage on June 21st of 2019, 29.8% above the 416,636,000 barrels of oil that we had in storage on June 22nd of 2018, and 6.2% above the 509,213,000 barrels of oil we had in commercial storage on June 16th of 2017...  

furthermore, once again checking the total of our commercial oil supplies and the stockpiles of all the refined product made from oil, we find those supplies have increased by 3,932,000 barrels this week to ​yet ​another record high of 1,450,655,000 barrels, 11.6% more than the 1,299,928,000 barrel total of the same week a year ago...   

This Week's Rig Count

the US rig count fell for the 16th week in a row during the week ending June 26th, but just by the minimum, leaving the rig count down by 66.6% over that fifteen week period....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 1 rig to 265 rigs this past week, which was the fewest active rigs in Baker Hughes records going back to 1940 and 139 fewer rigs than the all time low prior to this year, and was also down by 702 rigs from the 967 rigs that were in use as of the June 28th report of 2019, and 1,664 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 their first attempt to put US shale out of business....

the number of rigs drilling for oil decreased by 1 rig to 188 oil rigs this week, after falling by 10 oil rigs the prior week, leaving oil rig activity at its lowest since June 12, 2009, which was also 605 fewer oil rigs than were running a year ago, and less than an eighth of the recent high of 1609 rigs that were drilling for oil on October 10th, 2014....at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 75 natural gas rigs, matching the lowest number of natural gas rigs running in at least 80 years, down by 98 natural gas rigs from the 173 natural gas rigs that were drilling a year ago, and less than a twentieth of modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008...in addition to those 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 was just one such "miscellaneous" rig deployed, drilling a test well in Sandusky county Ohio..

the Gulf of Mexico rig count was unchanged at 11 rigs this week, with all of those rigs drilling for oil in Louisiana's offshore waters...that matches the fewest number of rigs working in the Gulf or offshore nationally in Baker Hughes offshore records dating back to 1968, and was 15 fewer rigs than the 26 rigs drilling in the Gulf a year ago, when 24 rigs were drilling offshore from Louisiana and two rigs were operating in Texas waters...there are no rigs operating off other US shores at this time, nor were there a year ago, so the Gulf of Mexico rig count is equal to the national rig count, just as it has been since the onset of last winter...

the count of active horizontal drilling rigs decreased by 4 rigs to 234 horizontal rigs this week, which was the fewest horizontal rigs active since December 30th, 2005, and hence is a new 14 year low for horizontal drilling...it was also 610 fewer horizontal rigs than the 840 horizontal rigs that were in use in the US on June 28th of last year, and less than a fifth of 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 to 20 directional rigs this week, but those were still down by 48 from the 68 directional rigs that were operating during the same week of last year...at the same time, the vertical rig count rose by 1 rig to 15 vertical rigs this week, but those were also still down by 44 from the 59 vertical rigs that were in use on June 28th 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 June 19th, the second column shows the change in the number of working rigs between last week's count (June 12th) and this week's (June 19th) count, the third column shows last week's June 12th 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 21st of June, 2019...    

June 26 2020 rig count summary

as you can see, there was very little change in drilling activity ​anywhere this week, suggesting that prices have risen high enough that drillers are no longer anxious to shut down money-losing operations, but not high enough to encourage ​the ​addition of new rigs to the field...checking the rig counts in the Texas part of Permian basin, we find no changes in either Texas Oil District 8, which is the core Permian Delaware, or in Texas Oil District 7C and Texas Oil District 8A, the southern and northern reaches of the Permian Midland respectively...with the rig count in the Texas Permian thus unchanged, that means that the rig that was shut down in New Mexico would have been drilling in the western Permian Delaware to account for the 1 rig decrease in the Permian basin rig count nationally...​.​the lone rig that was added in Texas this week was Texas Oil District 3, which we usually attribute to the Eagle Ford shale, but rigs in that basin were unchanged this week, so the ​District 3 rig was ​apparently ​targeting some other unnamed formation...elsewhere, the rig pulled out of Colorado had been drilling in the Denver-Julesburg Niobrara chalk, and the rig pulled out of Wyoming had been drilling in another basin not tracked by Baker Hughes, while the rig added in Oklahoma was drilling in the Cana Woodford, where the rig count rose to 6 but was still down from 49 rigs a year ago...we should also note that there were no changes in natural gas rigs anywhere in the country this week...

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note: there's more here..

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