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 21, 2021

oil hits 32 mo high; ​​refineries running at post pandemic high, gasoline output at 15 mo hi​gh; DUC backlog at 8.4 months

oil prices hit 32 month high; natural gas price hits 7 month high; refinery utilization at a 17 month high; refinery throughput at a 16 month high; gasoline production at a 15 month high;  post pandemic record jump in​ combined​ fuel demand; distillates exports at a 37 week high; DUC backlog at 8.4 months..

oil prices rose to a 31 month high for the fourth straight week on rising demand and falling supplies early this week, before fading going into the weekend on fears of a tighter monetary policy...after rising 1.9% to a 31 month high of $70.91 a barrel last week on forecasts from the EIA and IEA for higher fuel demand in the second half of 2021, the contract price of US light sweet crude for July delivery opened lower on Monday due to the expected extension of virus restrictions in the U.K, but then moved more than 1% higher, boosted by renewed confidence in the economic revival and an associated jump in oil demand, before sliding back to end down 3 cents at $70.88 a barrel, on traders' concern over gasoline demand and the potential for new oil supply from Iran....but oil opened higher on Tuesday and shot up nearly 2%, buoyed by expectations demand would recover rapidly in the second half of 2021. and settled $1.24 higher at $72.12 a barrel, the highest in more than two and a half years, getting a further boost from expectations of higher energy demand ahead of an EIA report that was expected to show a fourth-straight weekly decline in crude inventories...oil prices extended their gains in after hours trading Tuesday evening after the American Petroleum Institute reported the biggest draw from crude inventories in more than 5 months and hence opened 33 cents higher on Wednesday, and then headed to $73 oil after the EIA also reported a big crude draw, along with a pickup in fuel demand, before again fading at the close to finish just 3 cents higher at yet another 32 month high of $72.15 a barrel, pulled lower after Fed officials suggested they expected two interest rate increases by the end of 2023...oil prices slumped in Thursday's trading as a rising dollar pushed traders who had bought oil as an inflation hedge to dump the commodity, and July crude settled $1.11 lower at $71.04 a barrel as demand worries resurfaced after new coronavirus cases jumped in Britain, while supply concerns over the return of Iranian barrels also weighed on the market...after falling for a second day in Asian trading on a surging dollar, oil prices rebounded in thin holiday trading in the US on Friday after OPEC sources said the producer group expected limited U.S. oil output growth this year, despite rising prices, and finished 60 cents higher at $71.64 a barrel, thus ending up 1.0% on the week and posting a fourth straight weekly gain, as signs of a global demand recovery and supply discipline among producers encouraged traders...

meanwhile, natural gas prices finished lower for just the second time in eleven weeks, as utilities switched to cheaper coal and cooler weather was forecast to follow this week's heatwave ...after rising 6.4% to a seven month high at $3.296 per mmBTU last week after a major eastern pipeline announced pressure and volume restrictions, the contract price of natural gas for July delivery opened nearly 5 cents higher Monday amid blistering summer heat and a recovery in LNG exports, and extended those gains to close 5.6 cents higher at another seven month high of $3.352 per mmBTU....but gas prices were down twice that much Tuesday, settling at $3.240 per mmBTU, after Monday's high gas prices prompted power generators to switch to coal to keep air conditioning running...natural gas futures retreated more than 5 cents in early trading Wednesday as analysts pointed to technical factors, rather than fundamentals, that were moving prices, before recovering to close 1.1 cents higher at $3.251 per mmBTU as new data showed production declined, exports climbed and weather forecasts pointed to strong cooling demand in the weeks ahead...natural gas prices were little changed on Thursday, closing up 0.2 cents at $3.251 per mmBTU, as a smaller than expected storage build offset forecasts for less hot weather over the two weeks following this week's record breaking heatwaves...but natural gas prices slid 3.8 cents to finish the week down 2.5% at $3.215 per mmBTU on Friday, as weather forecasts for the week ahead shifted cooler and a storm in the Gulf of Mexico threatened to curb demand...

the natural gas storage report from the EIA for the week ending June 11th indicated that the amount of natural gas held in underground storage in the US rose by 16 billion cubic feet to 2,427 billion cubic feet by the end of the week, which thus left our gas supplies 453 billion cubic feet, or 15.7% below the 2,880 billion cubic feet that were in storage on June 11th of last year, and 126 billion cubic feet, or 4.9% below the five-year average of 2,553 billion cubic feet of natural gas that have been in storage as of the 11th of June in recent years...however, this week's storage data was skewed by a record one-time adjustment of 51 billion cubic feet of gas, shifted from working storage to cushion gas by Pacific Gas and Electric, that resulted in a steep decrease in reported working gas supplies in the Pacific region;...absent that 'on paper' reclassification, injections of natural gas into storage were actually at 67 billion cubic feet during the cited week... nonetheless, the 16 billion cubic feet increase in US natural gas officially in storage this week was therefore far below the average forecast of a 78 billion cubic foot addition from an S&P Global Platts survey of analysts, and was also way below the average addition of 87 billion cubic feet of natural gas that have typically been injected into natural gas storage during the second week of June over the past 5 years, as well as far below the 86 billion cubic feet that were added to natural gas storage during the corresponding week of 2020...  

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 11th showed that because of a big increase in our oil exports and another increase in our refinery throughput, we again needed to withdraw oil from our stored commercial crude supplies for the sixth time in the past seven weeks and for the 20th time in the past thirty-one weeks....our imports of crude oil rose by an average of 108,000 barrels per day to an average of 6,746,000 barrels per day, after rising by an average of 1,007,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 953,000 barrels per day to an average of 3,884,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 2,862,000 barrels of per day during the week ending June 11th, 845,000 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 200,000 barrels per day to 11,200,000 barrels per day, and hence our daily supply of oil from the net of our trade in oil and from well production appears to total an average of 14,062,000 barrels per day during this reporting week... 

meanwhile, US oil refineries reported they were processing 16,337,000 barrels of crude per day during the week ending June 11th, 412,000 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 1.178,000 barrels of oil per day were being pulled out of 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, from storage, and from oilfield production was 1,097,000 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 just plugged a (+1,097,000) 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 there must have been a error or errors of that magnitude in this week's oil supply & demand figures that we have just transcribed.....furthermore, since last week's EIA fudge factor was at (+276,000) barrels per day, that means there was a 820,000 barrel per day balance sheet difference in the unaccounted for crude oil figure from a week ago, thus rendering the week over week supply and demand changes we have just transcribed meaningless....​ ​however, since most everyone treats these weekly EIA reports as gospel and since these figures often drive oil pricing and hence decisions to drill or complete wells, we'll continue to report them as they're published, just as they're watched & believed to be 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 rose to an average of 6,322,000 barrels per day last week, which was 5.9% less than the 6,721,000 barrel per day average that we were importing over the same four-week period last year... the 1,178,000 barrel per day net withdrawal from our crude inventories included a 1,051,000 barrel per day withdrawal from our commercially available stocks of crude oil, and a 127,000 barrel per day withdrawal from our Strategic Petroleum Reserve, space in which has been leased for commercial purposes...this week's crude oil production was reported to be 200,000 barrels per day higher at 11,200,000 barrels per day because the rounded estimate of the output from wells in the lower 48 states was 200,000 barrels per day higher at 10,800,000 barrels per day, while an 3,000 barrel per day increase in Alaska's oil production to 446,000 barrels per day had no impact on the rounded national total....US crude oil production was at a pre-pandemic record high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week's reported oil production figure was 14.5% below that of our production peak, yet still 32.9% above 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 92.6% of their capacity while using those 16,337,000 barrels of crude per day during the week ending June 4th, up from 91.3% of capacity the prior week, and the highest refinery utilization since January 3rd of last year...while the 16,337,000 barrels per day of oil that were refined this week were the most since January 17, 2020 and 20.1% higher than the 13,600,000 barrels of crude that were being processed daily during the pandemic impacted week ending June 12th of last year, they were still 5.4% below the 17,264,000 barrels of crude that were being processed daily during the week ending June 14th, 2019, when US refineries were operating at a close to summertime normal 93.9% of capacity...

with this week's increase in the amount of oil being refined, the gasoline output from our refineries increased by 495,000 barrels per day to a 15 month high of 9,926,000 barrels per day during the week ending June 11th, after our gasoline output had decreased by 136,000 barrels per day over the prior week...while this week's gasoline production was 18.8% higher than the 8,356,000 barrels of gasoline that were being produced daily over the same week of last year, it was still half a percent lower than the March 13th 2020 pre-pandemic high of 9,974,000 barrels per day, and 4.8% below the gasoline production of 10,423,000 barrels per day during the week ending June 14th, 2019....meanwhile, our refineries' production of distillate fuels (diesel fuel and heat oil) increased by 135,000 barrels per day to 5,056,000 barrels per day, after our distillates output had increased by 111,000 barrels per day over the prior week...while this week's distillates output was 12.4% more than the 4,498,000 barrels of distillates that were being produced daily during the week ending June 12th, 2020, it was still 5.9% below the 5,371,000 barrels of distillates that were being produced daily during the week ending June 14th, 2019..,...

With the increase in our gasoline production, our supply of gasoline in storage at the end of the week increased for the ninth time in eleven weeks, and for the 23rd time in thirty-one weeks, rising by 1,954,000 barrels to 242,980,000 barrels during the week ending June 11th, after our gasoline inventories had increased by 7,046,000 barrels over the prior week...our gasoline supplies increased by less this week because the amount of gasoline supplied to US users increased by 880,000 barrels per day to 9,360,000 barrels per day, even as our exports of gasoline fell by 122,000 barrels per day to 835,000 barrels per day, while our imports of gasoline remained unchanged at 1,050,000 barrels per day...and even after this week's inventory increase, our gasoline supplies were 5.5% lower than last June 12th's gasoline inventories of 256,995,000 barrels, but remained close to the five year average of our gasoline supplies for this time of the year... 

meanwhile, despite the increase in our distillates production, our supplies of distillate fuels decreased for the eighth time in ten weeks and for the 14th time in 26 weeks, falling by 1,023,000 barrels to 136,191,000 barrels during the week ending June 11th, after our distillates supplies had increased by 4,412,000 barrels during the prior week....our distillates supplies fell this week because the amount of distillates supplied to US markets, an indicator of our domestic demand, ​r​ose by 923,000 barrels per day to 4,336,000 barrels per day, even as our imports of distillates rose by 182,000 barrels per day to 371,000 barrels per day while our exports of distillates rose by 174,000 barrels per day to a 37 week high of 1,237,000 barrels per day....after eight inventory decreases over the past ten weeks, our distillate supplies at the end of the week were 21.9% below the 174,471,000 barrels of distillates that we had in storage on June 12th, 2020, and about 6% below the five year average of distillates stocks for this time of the year...

finally, with the jump in our oil exports and the ongoing increase in our oil refining, our commercial supplies of crude oil in storage fell for ninth time in the past seventeen weeks and for the 26th time in the past year, decreasing by 7,355,000 barrels, from 474,029,000 barrels on June 4th to 466,674,000 barrels on June 11th, after our crude supplies had decreased by 5,241,000 barrels the prior week....after this week's decrease, our commercial crude oil inventories fell to about 5% below the most recent five-year average of crude oil supplies for this time of year, but were still 32.0% above the average of our crude oil stocks as of the the second week of June over the 5 years at the beginning of the past decade, 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 had jumped to record highs during the Covid lockdowns of last spring, our commercial crude oil supplies as of ​this ​June 11th were 13.5% less than the 539,280,000 barrels of oil we had in commercial storage on June 12th of 2020, and are now 3.3% less than the 482,364,000 barrels of oil that we had in storage on June 14th of 2019, but are still 9.4% more than the 426,527,000 barrels of oil we had in commercial storage on June 15th of 2018...      

This Week's Rig Count

The US rig count rose for the 35th time over the past 40 weeks during the week ending June 18th, but it's still down by 40.7% from the pre-pandemic rig count....Baker Hughes reported that the total count of rotary rigs running in the US was up by 9 to 470 rigs this past week, which was also up by 204 rigs from the pandemic hit 266 rigs that were in use as of the June 19th report of 2020, but was still 1,459 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 was up by 8 to 373 oil rigs this week, after rising by 6 rigs the prior week, and that's now 184 more oil rigs than were running a year ago, but i​t'​s still just 23.2% 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 up by 1 to 97 natural gas rigs, which was also up by 22 natural gas rigs from the 75 natural gas rigs that were drilling during the same week a year ago, and still just 6.0% of the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008....

The Gulf of Mexico rig count was unchanged at 13 rigs this week, with all 13 of those rigs drilling for oil in Louisiana's offshore waters....that ​was ​two more than the 11 rigs that were drilling in the Gulf a year ago, when again all 11 Gulf rigs were drilling for oil offshore from Louisiana....since there are no rigs operating off of other US shores at this time, nor were there a year ago, this week's national offshore rig totals are equal to the Gulf rig count... however, in addition to those rigs offshore, a rig continued to drill through an inland lake in St Mary parish, Louisiana this week, whereas there were no such "inland waters" rigs running a year ago...

The count of active horizontal drilling rigs was up by 5 to 425 horizontal rigs this week, which was also up by 191 rigs from the 234 horizontal rigs that were in use in the US on June 19th of last year, but less than a third of the record of 1372 horizontal rigs that were deployed on November 21st of 2014....at the same time, the vertical rig count was up by three to 20 vertical rigs this week, and those were also up by 6 from the 14 vertical rigs that were operating during the same week a year ago....in addition, the directional rig count was up​ ​by 1 to 25 directional rigs this week, which was also up by 7 from the 18 directional rigs that were in use on June 19th of 2020....

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 18th, the second column shows the change in the number of working rigs between last week's count (June 11th) and this week's (June 18th) count, the third column shows last week's June 11th active rig count, the 4th column shows the change between the number of rigs running on Friday and the number running on the Friday 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 19th of June, 2020..    

June 18 2021 rig count summary

as you can see,​ rig additions were quite widespread this week, suggesting that higher prices are contributing to new drilling activity in areas that have long been stable....checking first for the details on the Permian basin in Texas from the Rigs by State file at Baker Hughes, we find that five oil rigs were added in Texas Oil District 8, which is the core Permian Delaware, while four rigs were pulled out from Texas Oil District 7C, which encompasses the southern counties of the Permian Midland, which thus gives us a net increase of just one rig in the Texas Permian...elsewhere in Texas, we find that three rigs were added in Texas Oil District 2, while three rigs were pulled out of Texas Oil District 1, at least one but possibly all of which account for the decrease in the Eagle Ford shale, depending on how many of the District 2 additions were targeting that basin....Texas also had an oil rig added in Texas Oil District 10 in the panhandle, which accounts for this week's Granite Wash basin addition...elsewhere, the three rigs added in the Denver-Julesburg Niobrara chalk of the Rockies' front range account for the Colorado rig addition and two of new Wyoming rigs, while the other new Wyoming rig was set up in a basin that Baker Hughes doesn't track...Baker Hughes also doesn't account for changes in the basins of California or Utah, two other states where rigs were added this week...likewise, the rig pulled out in Oklahoma was also from a basin that Baker Hughes does keep counts on...however, the oil rig addition in North Dakota was in the Bakken shale of the Williston basin....​meanwhile, ​for rigs targeting natural gas, there was a rig addition in Ohio's Utica shale, and two rigs added in Pennsylvania's Marcellus, while three rigs were pulled out of the Marcellus in West Virginia at the same time....natural gas rigs were still up by one, however, because a natural gas rig was added in one of those aforementioned basins that Baker Hughes doesn't track, which would include at least one of the rig additions in Texas Oil District 2...

DUC well report for May

Monday of this past week saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May data for drilled but uncompleted (DUC) oil and gas wells in the 7 most productive shale regions....that data showed a decrease in uncompleted wells nationally for the 12th month in a row, as both completions of drilled wells and drilling of new wells increased, but remained below the pre-pandemic levels...for the 7 sedimentary regions covered by this report, the total count of DUC wells decreased by 247 wells, falling from a revised 6,768 DUC wells in April to 6,521 DUC wells in May, which was also 26.1% fewer DUCs than the 8,822 wells that had been drilled but remained uncompleted as of the end of May of a year ago...this month's DUC decrease occurred as 532 wells were drilled in the 7 regions that this report covers (representing 87% of all U.S. onshore drilling operations) during May, up from the 511 wells that were drilled in April, while 779 wells were completed and brought into production by fracking, up from the 765 completions seen in April, and up from the pandemic hit 253 completions seen in May of last year, but down by 40% from the 1,298 completions of May 2019....at the May completion rate, the 6,521 drilled but uncompleted wells left at the end of the month represents a 8.4 month backlog of wells that have been drilled but are not yet fracked, down from the 9.1 month DUC well backlog of a month ago, with the understanding that this normally indicative backlog ratio is being skewed by a completion rate that is still around 50% below the pre-pandemic norm...

both oil producing regions and natural gas producing regions saw DUC well decreases in May, and none of the major basins reported DUC well increases....the number of uncompleted wells remaining in the Permian basin of west Texas and New Mexico decreased by 115, from 2,731 DUC wells at the end of April to 2,616 DUCs at the end of May, as 258 new wells were drilled into the Permian during May, while 373 wells in the region were completed...at the same time, DUC wells in the Niobrara chalk of the Rockies' front range fell by 41, decreasing from 448 at the end of April to 407 DUC wells at the end of May, as 44 wells were drilled into the Niobrara chalk during May, while 85 Niobrara wells were being fracked....in addition, DUCs in the Eagle Ford of south Texas decreased by 31, from 1,071 DUC wells at the end of April to 1,040 DUCs at the end of May, as 53 wells were drilled in the Eagle Ford during May, while 84 already drilled Eagle Ford wells were completed.... at the same time, there was also a decrease of 27 DUC wells in the Bakken of North Dakota, where DUC wells fell from 663 at the end of April to 636 DUCs at the end of May, as 29 wells were drilled into the Bakken during April, while 56 of the drilled wells in the Bakken were being fracked..... meanwhile, the number of uncompleted wells remaining in Oklahoma's Anadarko decreased by 19, falling from 880 at the end of April to 861 DUC wells at the end of May, as 27 wells were drilled into the Anadarko basin during May, while 46 Anadarko wells were being fracked....

among the natural gas producing regions, the drilled but uncompleted well count in the Appalachian region, which includes the Utica shale, fell by 13 wells, from 590 DUCs at the end of April to 577 DUCs at the end of May, as 72 wells were drilled into the Marcellus and Utica shales during the month, while 85 of the already drilled wells in the region were fracked....in addition, the natural gas producing Haynesville shale of the northern Louisiana-Texas border region saw their uncompleted well inventory decrease by 1 to 384, as 49 wells were drilled into the Haynesville during May, while 50 of the already drilled Haynesville wells were fracked during the same period....thus, for the month of May, DUCs in the five major oil-producing basins tracked by this report (ie., the Anadarko, Bakken, Niobrara, Permian, and Eagle Ford) decreased by a total of 233 wells to 5,560 wells, while the uncompleted well count in the natural gas basins (the Marcellus, the Utica, and the Haynesville) decreased by 14 wells to 961 wells, although as this report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...   

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note: there's more here...

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