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, July 26, 2020

distillate inventories at a 38 year high even as refinery utilization stays near 30 year low...

oil prices ended 1.7% higher this past week on hopes for a virus vaccine and on economic reports that suggested the demand recovery was intact.... after rising 4 cents, or 0.1% to $40.59 per barrel last week as big drop in US crude supplies was offset by OPEC's announcement that they'd increase production, the contract price of US light sweet crude for August delivery opened lower on Monday, weighed down by reports of an increase in the rate of new coronavirus infections, but rebounded to close 22 cents higher at $40.81 a barrel after reports of safe human clinical trials of a new Covid-19 vaccine....oil prices then jumped nearly 3% on Tuesday, buoyed by positive news about vaccine trials and the completion of an new EU economic stimulus deal, with trading in the August US oil contract expiring $1.15 higher at $41.96 a barrel, while the new front month September oil contract rose $1.00 to close at $41.92 a barrel....with reports now quoting the contract price of US light sweet crude for September delivery, oil prices slipped lower overnight after a surprisingly large crude inventory build was reported by the API, but recovered to finish just 2 cents lower at $41.90 a barrel despite the EIA's confirmation of that surprise build in U.S. oil supplies....concerns over rising supplies of crude and products and alarming growth in US coronavirus cases weighed on prices Thursday, and September oil ended down 83 cents at $41.07 a barrel as new claims for unemployment benefits unexpectedly rose for the first time in nearly four months...oil prices initially moved lower on rising US / China tensions Friday, but later rallied on strong economic data in Europe and the US to settle 22 cents higher at $41.29 a barrel, thus posting its third positive week in four on demand recovery hopes...

natural-gas also ended the week higher, supported by a widespread heatwave and a tropical storm in the Gulf of Mexico that threatened to disrupt offfshore production in the region....after falling 4.8% to $1.718 per mmBTU on moderating temperature forecasts and rising natural gas output last week, the contract price of natural gas for August delivery opened lower on Monday and tumbled 7.7 cents or 4.5% to a three week low of $1.641 per mmBTU, as natural gas output increased even as gas stockpiles remained about 16% over the five-year average....but gas prices regained 3.4 cents of that loss on Tuesday as power generators burned record amounts of gas as the heat wave blanketing much of the country intensified...however, gas prices only rose six-tenths of a cent on Wednesday even after forecasts that the heat wave would continue through early August...but prices spiked on Thursday as Tropical Storm Hanna strengthened, threatening natural gas production in the western Gulf, and the August gas contract finished 10.4 cents higher a $1.785 per mmBTU ...prices extended that rally by 2.3 cents on Friday, after signs of an improving liquefied natural gas (LNG) export environment and as Hanna was forecast to become a hurricane as it moved westward toward the Texas coast...natural gas prices thus finished the week with a 5.2% gain at a two week high of $1.808 per mmBTU, as forecasts continued to call for hotter weather and higher-than-expected air conditioning demand over the next two weeks.

the natural gas storage report from the EIA for the week ending July 17th indicated that the quantity of natural gas held in underground storage in the US rose by 37 billion cubic feet to 3,215 billion cubic feet by the end of the week, which left our gas supplies 656 billion cubic feet, or 25.6% greater than the 2,559 billion cubic feet that were in storage on July 17th of last year, and 436 billion cubic feet, or 15.7% above the five-year average of 2,779 billion cubic feet of natural gas that have been in storage as of the 17th of July in recent years....the 37 billion cubic feet that were added to US natural gas storage this week was more than the average 33 billion cubic feet increase that was forecast by analysts polled by S&P Global Platts, but it was less than the 45 billion cubic feet addition of natural gas to storage during the corresponding week of 2019, and it matched the average of 37 billion cubic feet of natural gas that has been added to natural gas storage during the same week 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 July 17th indicated a large addition to our stored commercial supplies of crude oil for the 5th week of the past seven, following a large withdrawal from supplies last week, despite little net change in the other metrics that effect oil supplies....our imports of crude oil rose by an average of 373,000 barrels per day to an average of 5,567,000 barrels per day, after falling by an average of 1,827,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 450,000 barrels per day to an average of 2,993,000 barrels per day during the week, which mean​s that our effective trade in oil worked out to a net import average of 2,948,000 barrels of per day during the week ending July 17th, 77,000 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 reportedly rose by 100,000 barrels per day to 11,100,000 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 14,048,000 barrels per day during this reporting week..

meanwhile, US oil refineries reported they were processing 14,206,000 barrels of crude per day during the week ending July 17th, 103,000 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 a net of 699,000 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 857,000 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 just inserted a (+857,000) 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 data for the average daily consumption of it balance out, essentially a fudge factor that they label in their footnotes as "unaccounted for crude oil"....that followed the insertion of a (-768,000) barrel per day figure into last week's oil balance sheet, when there was a supply surplus of 768,000 barrels per day, and hence from last week to this week the the EIA's fudge factor swung by a total of 1,625,000 barrels per day, thus rendering the week over week oil supply & demand comparisons statistical nonsense....however, since the media usually treats these weekly EIA figures as gospel and since these numbers often 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 in the industry....(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 6,218,000 barrels per day last week, which was 13.5% less than the 7,187,000 barrel per day average that we were importing over the same four-week period last year....the 699,000 barrel per day net addition to our total crude inventories came as 699,000 barrels per day were being added to our commercially available stocks of crude oil while the supplies in our Strategic Petroleum Reserve remained unchanged....this week's crude oil production was reported to be 100,000 barrels per day higher at 11,100,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states rose by 100,000 barrels per day to 10,600,000 barrels per day while a 4,000 barrel per day increase in Alaska's oil production to 461,000 barrels per day wasn't enough to impact the rounded national total....last year's US crude oil production for the week ending July 19th, which was impacted by a Gulf storm, was rounded to 11,300,000 barrels per day, so this reporting week's rounded oil production figure was about 1.8% below that of a year ago, yet still 31.7% 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 77.9% of their capacity while using 14,206,000 barrels of crude per day during the week ending July 17th, down from from 78.1% of capacity during the prior week, but excluding the 2005, 2008, and 2017 hurricane-related refinery interruptions, still one of the lowest refinery utilization rates of the last thirty years...hence, the 14,206,000 barrels per day of oil that were refined this week were still 16.6% fewer barrels than the 17,034,000 barrels of crude that were being processed daily during the week ending July 19th, 2019, when US refineries were operating at 93.1% of capacity....

with the decrease in the amount of oil being refined, gasoline output from our refineries was a bit lower, decreasing by 16,000 barrels per day to 8,079,000 barrels per day during the week ending July 10th, after our refineries' gasoline output had increased by 50,000 barrels per day over the prior week... with our gasoline production still recovering from a multi-year low, this week's gasoline output was 10.0% lower than the 10,089,000 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) decreased by 97,000 barrels per day to 4,763,000 barrels per day, after our distillates output had increased by 104,000 barrels per day over the prior week... after this week's decrease in distillates output, our distillates' production was 8.7% less than the 5,219,000 barrels of distillates per day that were being produced during the week ending July 19th, 2019....

with the decrease in our gasoline production, our supply of gasoline in storage at the end of the week decreased for the 9th time in 13 weeks and for the 17th time in 25 weeks, falling by 1,802,000 barrels to 246,733,000 barrels during the week ending July 17th, after our gasoline supplies had decreased by 3,147,000 barrels over the prior week...our gasoline supplies decreased by less this week because the amount of gasoline supplied to US markets decreased by 98,000 barrels per day to 8,550,000 barrels per day and because our imports of gasoline rose by 49,000 barrels per day to 542,000 barrels per day and because our exports of gasoline fell by 122,000 barrels per day to 479,000 barrels per day....but even after this week's inventory decrease, our gasoline supplies were still 6.1% higher than last July 19th's gasoline inventories of 232,526,000 barrels, and roughly 7% 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 increased for the thirteenth time in 27 weeks and for the 18th time in 42 weeks, rising by 1,047,000 barrels to a 38 year high of 177,883,000 barrels during the week ending July 17th, after our distillates supplies had decreased by 453,000 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 469,000 barrels per day to 3,223,000 barrels per day, even while our exports of distillates rose by 107,000 barrels per day to 1,439,000 barrels per day and while our imports of distillates fell by 47,000 barrels per day to 52,000 barrels per day....after this week's inventory decrease, our distillate supplies at the end of the week were 30.0% above the 136,816,000 barrels of distillates that we had in storage on July 19th, 2019, and about 27% above the five year average of distillates stocks for this time of the year...

with distillate inventories now at a 38 year high, we'll include a graph of their historical levels and explain why that's particularly remarkable for this time of year​..​

July 22 2020 distillates inventory

the above graph, which originally came from Bloomberg, was copied from the Zero Hedge coverage of this week's EIA report, and it shows US distillate supplies in millions of barrels, from mid-1982 to this week...while it's difficult to decipher from that graph, if you check out the EIA's interactive graph of distillate inventories and the accompanying spreadsheet, you'd find that the fluctuation we see in that graph is an annual pattern, with the yearly high in ​distillate ​supplies most often occurring when heat oil is being stockpiled just before midwinter, while the annual lows most often occur in late spring after cold winters have depleted the heat oil stockpile, or in mid-summer, when diesel fuel consumption is strongest...hence, that this week's 38 year high in distillate inventories should occur during the normally depleted summertime makes this week's record all the more remarkable...

finally, with the increase in unaccounted for oil, our commercial supplies of crude oil in storage rose for the 21st time in twenty-six weeks and for the 36th time in the past year, increasing by 4,892,000 barrels, from 531,688,000 barrels on July 10th to 536,580,000 barrels on July 17th....after that increase, our our commercial crude oil inventories were around 19% above the five-year average of crude oil supplies for this time of year, and about 59% above the prior 5 year (2010 - 2014) average of our crude oil stocks for the ​third weekend of July, 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 of 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 July 17th were 20.6% above the 445,041,000 barrels of oil we had in commercial storage on July 19th of 2019, 32.5% more than the 404,937,000 barrels of oil that we had in storage on July 20th of 2018, and 11.0% above the 483,415,000 barrels of oil we had in commercial storage on July 21st of 2017...    

This Week's Rig Count

the US rig count fell for the 20th week in a row during the week ending July 24th, and is now down by 68.3% over that​ twenty week period....Baker Hughes reported that the total count of rotary rigs running in the US decreased by 2 rigs to 251 rigs this past week, which again was the fewest active rigs in Baker Hughes records going back to 1940 and 153 fewer rigs than the all time low prior to this year​...it was also down by 695 rigs from the 946 rigs that were in use as of the July ​26th report of 2019, and 1,678 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 increased by 1 rig to 181 oil rigs this week, after falling by 1 oil rig the prior week, which was still 595 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 fell by 3 rigs to 68 natural gas rigs, which was the least natural gas rigs running in at least 80 years, and down by 101 natural gas rigs from the 169 natural gas rigs that were drilling a year ago, and was less than a twentieth of the 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 Sonoma County, California... a year ago, there was just one such "miscellaneous" rig deployed...

the Gulf of Mexico rig count was unchanged at 12 rigs this week, with 10 of those rigs drilling for oil in Louisiana's offshore waters and two of them drilling for oil offshore from Texas...that was 11 fewer rigs than the 23 rigs drilling in the Gulf a year ago, when 22 rigs were drilling offshore from Louisiana and one rig was operating in Texas waters...while there are no rigs operating off other US shores at this time, a year ago there were two rigs deployed offshore from Alaska, so this week's national offshore count is down by 13 from the national offshore rig count of 25 a year ago

the count of active horizontal drilling rigs was unchanged at 215 horizontal rigs this week, which matches the fewest horizontal rigs drilling in the US since November 18th, 2005, and was also 608 fewer horizontal rigs than the 823 horizontal rigs that were in use in the US on July 26th of last year, and less than a sixth of 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 one to 14 vertical rigs this week, and those were also down by 42 from the 56 vertical rigs that were operating during the same week of last year....in addition, the directional rig count also fell by 1 rig to 22 directional rigs this week, and those were also down by 45 from the 67 directional rigs that were in use on July 26th 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 July 24th, the second column shows the change in the number of working rigs between last week's count (July 17th) and this week's (July 24th) count, the third column shows last week's July 17th 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 26th of July, 2019...    

July 24 2020 rig count summary

there continued to be more changes in drilling activity this week, even as it remains subdued vis-a-vis the norm...checking the rig counts in the Texas part of Permian basin, we find that two rigs were added in Texas Oil District 8, or the core Permian Delaware, and another rig was added in Texas Oil District 7C or the southern Permian Midland, while a rig was shut down in Texas Oil District 8A or the northern Permian Midland, and another rig was shut down in Texas Oil District 7B, which includes a few counties in the far eastern Permian Midland...since the national Permian basin rig count was up by 2 rigs, that ​strongly ​suggests that the rig that was added in New Mexico would have been set up to drill in the western Permian Delaware, to account for the national increase...elsewhere in Texas, there was a rig added in Texas Oil District 2, but there were also three rigs shut down in Texas Oil District 3, which are both part of the region we ​normally ​associate with activity in the Eagle Ford shale, which stretches in a relatively narrow band through the southeastern part of the state and touches on four Oil Districts...since the Eagle Ford shows an increase of one rig, that would suggest that the three rigs shut down in Texas Oil District 3 were not targeting the Eagle Ford, but rather some basin that Baker Hughes does not track...however, checking the breakout for the Eagle Ford basin, we find that one natural gas rig was shut down in that basin, while two oil rigs were added at the same time...that could have occured ​with any number of combinations of offsetting start-ups and shutdowns in those disticts that wouldn't show up in the district totals...in addition, since the panhandle Texas Oil District 10 currently shows no activity, that means that the oil rig that was added in the Granite Wash was across the state line in south central Oklahoma...however, Oklahoma shows no net change because a rig drilling for oil in the Cana Woodford was shut down at the same time...lasly, for the three rig decrease in natural gas rigs, we first have the natural gas rig that was removed from the Eagle Ford, and then the two rigs that were removed from the Marcellus, one each of which had been drilling in Pennsylvania and West Virginia...

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