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, September 1, 2019

US oil production at a record high; horizontal drilling at a 21 month low

oil prices ended higher despite a big selloff on Friday this past week, as optimism about a potential resolution to the US / China trade war had boosted prices earlier in the week...after ending $1.18 lower at $54.17 a barrel last week as trade war threats ratcheted higher, the contract price of US crude for October delivery initially opened 92 cents lower and fell to as low as $52.96 a barrel on Monday morning after French President Macron floated plans for a meeting between Iranian President Rouhani and Mr Trump, but then rose to as high as $55.26 after noon on prospects of US - China trade talks, before giving up those gains before the close to settle down by 53 cents, or 1%, at $53.64 a barrel, the fourth straight daily decline...oil prices then opened higher and rose steadily Tuesday, after Trump predicted a trade deal with China, with US crude closing $1.29 higher at 54.93 a barrel...oil prices rose again early on Wednesday after API data overnight had showed a big drop in U.S. crude inventories, and then continued higher after the EIA confirmed a large draw on supplies, with US crude for October ending 1.5% higher $55.78 a barrel on what was called "an incredibly bullish report"....oil prices pulled back early Thursday on mounting concerns over the US economy but quickly reversed on new optimism on a possible U.S./China trade dispute resolution, with US crude ending the day 93 cents higher at $56.71 a barrel...however, oil traded lower early on Friday on concerns about the economic impact of the approaching hurricane, and then dropped more than 2% after reports emerged that Russia’s oil output cuts in August would be smaller those agreed to under their deal with OPEC, with US prices ending the day down $1.61 at $55.10 a barrel, but still managing to post a 1.7% gain for the week on the easing of U.S.-China trade rhetoric....

natural gas prices also ended higher, as the approaching Category 4 hurricane apparently reminded traders that US Gulf Coast gas production is subject to disruption from tropical storms in the hurricane season that is just now getting underway...after falling 2.4% to $2.152 per mmBTU on a cool weather outlook last week, natural gas for September delivery rose 7.8 cents, or 3.6% on Monday as the spaghetti hurricane forecast models early in the week appeared to show a better than even chance that the tropical storm entering the Caribbean would end up as a hurricane in the Gulf of Mexico...September gas then gave up 2.8 cents on Tuesday but rose 4.9 cents again on Wednesday as trading of the September natural gas contract expired with its price at $2.251 per mmBTU....at the same time, the natural gas contract for October delivery, which had risen 7.7 on Monday, fallen 4.1 cents on Tuesday, and rose 3.0 cents to $2.222 per mmBTU on Wednesday, rose 7.4 cents with a largely neutral storage report on Thursday as a concurrently released report indicated maintenance issues put southern California's fall injections at risk, before prices slipped 1.1 cents to end the week at $2.285 per mmBTU on Friday, a 6.0% increase for that contract on the week..

the natural gas storage report for the week ending August 23rd from the EIA indicated that the quantity of natural gas held in storage in the US increased by 60 billion cubic feet to 2,857 billion cubic feet by the end of the week, which meant our gas supplies were 363 billion cubic feet, or 14.6% more than the 2,494 billion cubic feet that were in storage on August 23rd of last year, while still 100 billion cubic feet, or 3.4% below the five-year average of 2,957 billion cubic feet of natural gas that have been in storage as of the 23rd of August in recent years....this week's 60 billion cubic feet injection into US natural gas storage was a bit above the average 57 billion cubic feet injection forecast by analysts surveyed by S&P Global Platts, and also a bit above the average 57 billion cubic feet of natural gas that have been added to gas storage during the third full week of August over the past 5 years, the 22nd such average or above average storage build in the last 24 weeks...the 1,679 billion cubic feet of natural gas that have been added to storage over the 21 weeks of this year's injection season is the second most for the same period in the modern record, eclipsed only by the record 1736 billion cubic feet of natural gas that were injected into storage over the same 22 weeks of the 2014 natural gas injection season, a cool summer when there were no injections below 76 billion cubic feet….

The Latest US Oil Supply and Disposition Data from the EIA

US oil data from the US Energy Information Administration for the week ending August 23rd indicated that because our oil imports fell significantly for the second week in a row, we had to pull oil out of storage for the ninth time in 11 weeks...our imports of crude oil fell by an average of 1,290,000 barrels per day to an average of 5,928,000 barrels per day, after falling by an average of 497,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 216,000 barrels per day to an average of 3,019,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,909,000 barrels of per day during the week ending August 23rd, 1,506,000 fewer barrels per day than the net of our imports minus exports during the prior week...over the same period, the production of crude oil from US wells was reported to be 200,000 barrels per day higher than the prior week at a record 12,500,000 barrels per day, so our daily supply of oil from the net of our trade in oil and from well production totaled an average of 15,409,000 barrels per day during this reporting week..

meanwhile, US oil refineries were reportedly processing 17,408,000 barrels of crude per day during the week ending August 23rd, 295,000 fewer barrels per day than the amount of oil they used during the prior week, while over the same period the EIA reported that a net of 1,433,000 barrels of oil per day were being pulled out of 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, from oilfield production, and from storage was 566,000 barrels per day less than what our oil refineries reported they used during the week...to account for that disparity between the apparent supply of oil and the apparent disposition of it, the EIA inserted a (+566,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the reported data for the daily supply of oil and the consumption of it balance out, essentially a fudge factor that they label in their footnotes as "unaccounted for crude oil"...with that great a quantity of oil unaccounted for this week, it obviously calls into question the other oil totals that the EIA has reported and that 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) indicated that the 4 week average of our oil imports fell to an average of 7,002,000 barrels per day last week, now 12.3% less than the 7,987,000 barrel per day average that we were importing over the same four-week period last year...the 1,433,000 barrel per day decrease in our total crude inventories was all pulled out of our commercially available stocks of crude oil, while the amount of oil stored in our Strategic Petroleum Reserve remained unchanged...this week's crude oil production was reported to be 200,000 barrels per day higher at a record 12,500,000 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 a record high of 12,100,000 barrels per day, and because a 61,000 barrels per day increase to 400,000 barrels per day in Alaska's oil production also bumped up the final rounded national production total by another 100,000 barrels per day...last year's US crude oil production for the week ending August 24th was rounded to 11,000,000 barrels per day, so this reporting week's rounded oil production figure was 13.6% above that of a year ago, and 48.3% 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...    

with the weekly data showing our ​estimated weekly oil production is now at a record high, we'll include a graph of what that production looks like compared to its recent history...

August 28 2019 oil production thru Aug 23rd

the above graph is the later part of the historical US crude oil production graph that accompanies the online spreadsheet of the historical data, and we've cut it off to show US oil production from 2005 to the current week...as you can can see, our production had fallen to around 5 milllion barrels per day before horizontal drilling and fracking took hold (from over 10 million barrels per day in the early 70s) and it has now climbed to more than twice that, reaching an unconfirmed 12.5 million barrels per day this reporting week...while most of those downward spikes in production that you can see above were due to disruptions caused by major hurricanes in the Gulf, the million barrel per day drop that occurred earlier this summer was due to tropical storm Barry, which was but a tropical storm during most of the time it spent meandering through the Gulf...

meanwhile, US oil refineries were operating at 95.2% of their capacity in using 17,408,000 barrels of crude per day during the week ending August 23rd, down from 95​.9% of capacity the prior week, but still a refinery utilization rate that is fairly typical for mid summer...the 17,408,000 barrels per day of oil that were refined this week were 0.9% below the 17,566,000 barrels of crude per day that were being processed during the week ending August 24th, 2018, when US refineries were operating at 96.3% of capacity....

even with the decrease in the amount of oil being refined, gasoline output from our refineries was much higher, increasing by 763,000 barrels per day to a near record 10,660,000 barrels per day during the week ending August 23rd, after our refineries' gasoline output had decreased by 524,000 barrels per day over the prior 2 weeks...as a result of that big jump in output, this week's gasoline production was 4.1% above the 10,237,000 barrels of gasoline that were being produced daily over the same week of last year, but still short of the record 10,699,000 barrels per day produced during the week ending July 6th 2018....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 147,000 barrels per day to 5,193,000 barrels per day, after our distillates output had increased by 263,000 barrels per day the prior week....but even with this week's decrease, our distillates production was still a bit more than the 5,179,000 barrels of distillates per day that were being produced during the week ending August 24th, 2018.... 

even with the ​big ​increase in our gasoline production, our supply of gasoline in storage at the end of the week fell for the 7th time in 11 weeks and for the 21st time in twenty-seven weeks, decreasing by 2,090,000 barrels to 231,982,000 barrels during the week to August 23rd, after our gasoline supplies had risen by 312,000 barrels over the prior week....our gasoline supplies decreased this week because the amount of gasoline supplied to US markets increased by 274,000 barrels per day to ​9,9​0​0,000 barrels per day, ​while our exports of gasoline fell by 24,000 barrels per day to 700,000 barrels per day, ​and ​while our imports of gasoline rose by 73,000 barrels per day to 965,000 barrels per day...after this week's decrease, our gasoline supplies ​were fractionally lower than last August 24th's inventory level of 232,774,000 barrels, and have slipped to roughly 3% above the five year average of our gasoline supplies at this time of the year...

with the decrease in our distillates production, our supplies of distillate fuels fell for the 14th time in the past 24 weeks, decreasing by 2,063,000 barrels to 136,060,000 barrels during the week ending August 23rd, after our distillates supplies had increased by 2,610,000 barrels over the prior week...our distillates supplies decreased this week because the amount of distillates supplied to US markets, a proxy for our domestic demand, increased by 290,000 barrels per day to 4,048,000 barrels per day, and because our imports of distillates fell by 85,000 barrels per day to 125,000 barrels per day, and because our exports of distillates rose by 146,000 barrels per day to 1,565,000 barrels per day....but even after this week's inventory decrease, our distillate supplies were still 4.7% higher than the 130,001,000 barrels of distillates that we had stored on August 24th, 2018, while ​at the same time ​they fell to around 4% below the five year average of distillates stocks for this time of the year...

finally, with much less oil being imported even as our refineries pulled back a bit, our commercial supplies of crude oil in storage fell for the ninth time in eleven weeks but for​ just​ the fifteenth time in 32 weeks, decreasing by 10,027,000 barrels, from 437,778,000 barrels on August 16th to 427,751,000 barrels on August 23rd...that decrease was enough to lower our crude oil inventories back to the five-year average of crude oil supplies for this time of year, and to less than 30% higher than the prior 5 year (2009 - 2013) average of crude oil stocks for the 4th Friday of August, with the disparity between those comparisons arising because it wasn't until early 2015 that our oil inventories first rose above 400 million barrels...since our crude oil inventories had generally been rising since​ last Fall up until the most recent 11 weeks, after generally falling until then through most of the prior year and a half, our oil supplies as of August 23rd were still 5.4% above the 405,792,000 barrels of oil we had stored on August 24th of 2018, but at the same time were 6.6% below the 457,773,000 barrels of oil that we had in storage on August 25th of 2017, and 13.6% below the 495,238,000 barrels of oil we had in commercial storage on August 26th of 2016... 

This Week's Rig Count

the US rig count fell for the 24th time in 28 weeks over the week ending August 30th, and is now 16.5% below where it began the year at....Baker Hughes reported that the total count of rotary rigs running in the US fell by 12 rigs to a 21 month low of 904 rigs this past week, which was also down by 144 rigs from the 1048 rigs that were in use as of the August 31st report of 2018, and less than half of the shale era high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC announced their attempt to flood the global oil market...

the count of rigs drilling for oil decreased by 12 rigs to 742 rigs this week, which was a 19 month low for oil rigs and 120 fewer oil rigs than were running a year ago, and quite a bit below the recent high of 1609 rigs that were drilling for oil on October 10th, 2014...at the same time, the number of drilling rigs targeting natural gas bearing formations was unchanged at 162 natural gas rigs, tying last week's 28 month low for gas rig drilling activity and down by 22 rigs from the 184 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 August 29th, 2008...

the rig count in the Gulf of Mexico was unchanged at 26 rigs this week, with one rig operating off the shore of Texas and 25 rigs offshore from Louisiana, a net increase of 10 Gulf of Mexico rigs from the 16 rigs that were deployed in the Gulf in the same week a year ago, when 14 rigs were drilling in Louisiana waters and two were deployed offshore from Texas...in addition, there continues to be two rigs deployed off the coast of the Kenai Peninsula in Alaska this week, same number as were drilling off the Alaskan shore a year ago, for a total US offshore rig count of 28, up from the total of 18 offshore rigs that were deployed a year ago...however, the rig that had started drilling through an inland body of water in southern Louisiana two weeks ago was shut down this week, and now there are no inland water rigs deployed, in contrast to a year ago, when there were two...

the count of active horizontal drilling rigs was down by 13 to 784 horizontal rigs this week, which was the least horizontal rigs deployed since November 17th, 2017 and hence ​is ​a new 21 month low for horizontal drilling...it was also 133 fewer horizontal rigs than the 917 horizontal rigs that were in use in the US on August 31st of last year, and also well down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was unchanged at 50 vertical rigs this week, and those were down by 16 from the 66 vertical rigs that were operating during the same week of last year...on the other hand, the directional rig count was up by 1 to 70 directional rigs this week, and those were up by 5 from the 65 directional rigs that were in use on August 31st of 2018...

the details on this week's changes in drilling activity by state and by major shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows 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 August 30th, the second column shows the change in the number of working rigs between last week's count (August 23rd) and this week's (August 30th) count, the third column shows last week's August 23rd active rig count, the 4th column shows the change between the  number of rigs running on Friday and the number running before the equivalent 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 31st of August, 2018...     

August 30 2019 rig count summary

as you can see, the 5 rigs that were shut down in the Permian again led the decrease this week, following the 7 Permian rigs that were idled last week...in the Texas Permian, 4 more rigs were shut down in Texas Oil District 8, or the core Permian Delaware, and 3 more rigs were shut down in Texas Oil District 8A, encompassing the northern part of the Permian Midland, while at the same time two rigs were started up in Texas Oil District 7C, or the southern part of the Permian Midland....with Texas Permian rigs thus down 5, that means that the rig that was shut down in New Mexico had been operating in one of the other basins in the state...meanwhile,  since Texas Oil District 10 shows no change, that means the Granite Wash rig that was shut down had been drilling in Oklahoma, along with the rig that had been drilling in the Ardmore Woodford, offset by the increase of an oil rig in the Arkoma Woodford, which otherwise has rigs targeting gas...at the same time, the two rigs that were shut down the Denver-Julesburg Niobrara chalk of the Rockies front range appear to account for the rig count drops in Wyoming and Colorado, while the 3 rig increase in the Williston matches the 3 rig increase in North Dakota...among rigs targeting natural gas, there were rigs shut down in the Pennsylvania Marcellus and in the Texas portion of the Haynesville shale (District 6), while 2 natural gas rigs began operating in "other" basins not tracked separately by Baker Hughes...we should also note that other than the changes shown above for the major producing states, the Mississippi rig count was cut by 2 back to one rig, after being as high as 6 rigs just two weeks ago; that's the least rigs running in Mississippi since February 23, 2018; a year ago, the state had 6 rigs deployed...

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