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, December 6, 2021

natural gas prices fall by most in 8 years, maybe most ever; SPR at an 18 1/2 year low; 22 week low in gasoline demand

natural gas prices fall by the most in almost 8 years, maybe ​by the most ever; Strategic Petroleum Reserve ​is ​at an 18 1/2 year low; gasoline supplies rose by most in 22 weeks on a 22 week low in demand

oil prices fell for the sixth consecutive week​ this week​, as OPEC decided to increase production even as a Omicron surge loomed...after falling 10.4% to $68.15 a barrel last week after the discovery of a new Covid variant sent global markets tumbling, the contract price for US light sweet crude for January delivery opened 2% higher on Monday on bargain hunting by oil traders returning to the market following "black Friday's" 13% plunge, and rallied more than 5% to trade as high as $72.93​,​ before paring the day's gains to settle $1.80 higher at $69.95 a barrel, as traders turned their focus to the upcoming meeting among OPEC and Russia-led partners, and the possible delay of their planned production increase in light of renewed travel resections tied to the emergence omicron variant of ​Covid....but oil prices tumbled nearly 5 percent on Tuesday after Moderna’s ​CEO cast doubt on the efficacy of COVID-19 vaccines against the Omicron variant, spooking financial markets and adding to worries about oil demand, as oil ​settled $3.77 lower at $66.18 a barrel, thus ending November 20.8% lower, the biggest monthly drop in prices since March 2020....oil prices jumped more than 4% ahead of the OPEC meeting early Wednesday on speculation the producer's group might pause their supply hikes, but pared a portion of the gains late morning Wednesday after an inventory report from the EIA showed domestic crude oil production jumped to an 18-month high, and gasoline and distillate fuels supplies registered large builds, only to completely reverse the morning rally to fall 5% and settle 61 cents lower at $65.57 per barrel​,​ after the CDC announced the first US case of Omicron...oil prices whipsawed between 5% lower and 3% higher on Thursday, as traders reassessed near-term supply fundamentals after OPEC+ unexpectedly decided to proceed with a 400,000-barrel-per-day (bpd) production increase, a move that ​was expected to exacerbate a buildup in global oil inventories, and settled 93 cents higher at $66.50 a barrel, even as the alliance said in a statement that "the meeting remains in session," ​suggesting they c​ould "make immediate adjustments" should the current market conditions shift... oil prices continued higher early Friday, rising as much as 4% at one point, after the OPEC+ alliance said it could immediately revisit that 400,000 bpd increase if demand suffers in coming weeks, but again reversed and gave back all its gains, closing 24 cents lower at $66.26 a barrel, as a weaker-than-expected US jobs report and ​the ​rapidly spreading omicron variant added uncertainty to demand outlooks, and thus closed down for the sixth straight week, the longest stretch of weekly declines since 2018, and 2.8% lower than last Friday's close...

t​o illustrate how oil prices ran up to a 7 year high of $83.83 on October ​25th only to tumble back to a three month low this week, we'll include a graph below showing the trajectory of oil prices over the past 6 months..

The above is a screenshot of the current contract's interactive oil price chart from barchart.com, which i have set to show ​daily oil prices ​for the January 2022 oil contract over the past 6 months....th​at​ same chart can be reset to show prices of front month or individual monthly oil contracts over time periods ranging from 1 day to 30 years, as the menu bar on the top indicates, and also to show oil prices by the minute, hour, day, week or month for each...each bar in the graph above represents the range of oil prices for ​one day, with days when prices rose indicated in green, with th​at ​day's ​opening price at the bottom of the bar and the​ day's​ closing price at the top, ​while ​days when prices fell ​are ​indicated in red, with the opening price at the top of the bar and the closing price at the bottom​...the small barely visible sticks above or below each monthly bar represent the extent of the price change above or below the opening and closing price during the ​day in question....​ ​likewise, the bars across the bottom show trading volume for the ​January oil contract for the ​days in question, again with up ​days indicated by green bars and down ​days indicated in red....​espectially noteworthy on the graph above is the 13.1% drop in prices on Friday of last week,​ the largest daily drop since April 2020 (when oil prices ​fell below $0)​, when global markets tanked with the discovery of the new Covid strain...​

meanwhile, ​this week's ​natural gas prices fell by the most in nearly 8 years ​due to a forecast​ for a​ warm December, increasing expectations that gas supplies would ​remain adequate for the rest of winter​....after the contract price of natural gas for December delivery rose 7.5% to expire at $5.447 per mmBTU last week on higher domestic heating demand and record global gas prices, this week's natural gas trading started with the contract price of natural gas for January delivery plummeting 62.3 cents or 11.4% to $4.854 per mmBTU, as forecasts shifted warmer through the middle of December, allaying concern about tight domestic supplies amid a global shortage of the fuel...natural gas prices continued tumbling Tuesday, shedding another 28.7 cents or nearly 6%​,​ to settle at a 3 month low of $4.567 per mmBTU, as traders looked past robust demand for U.S. exports and fixated on exceptionally light domestic heating demand expectations heading well into December, as natural gas contracts ended November down more than 15%, the biggest monthly percentage loss since January 2020....natural gas prices were down almost 7% again on Wednesday in falling 30.9 cents to ​another ​3 month low ​at $4.258 per mmBTU, on ongoing forecasts for mild winter weather, record gas production, and ample amounts of gas in storage, and then gave up early gains to fall another 20.2 cents, or 4.7% to ​$​4.056​ ​per mmBTU on Thurday, after the latest government storage data failed to generate any buzz in the market...natural gas prices finally managed to gain 7.6 cents or nearly 2% on Friday, on forecasts for slighly cooler weather, rising LNG exports and a small decline in output to finish the week at $4.132 per mmBTU, still down 24% from the prior week and the biggest weekly decline since February 2014...

​you'll note that i cited Reuters for that "biggest weekly decline since February 2014"; curious to see what happened back then, i brought up an interactive natural gas price graph, set it to show weekly prices changes, and scrolled back over recent natural gas​ ​price history​ to see what might have happened at that time....as it turned out, there was no weekly price decline of this week's magnitude shown during February 2014​; the worst down ​week that month was the week of February 24, when natural gas prices opened at $5.089 and closed at $4.609, and the week over week change was minus 40.3 cents...earlier that month, during the week ending February 3rd, 2014, there was more volatility, with a 99.8 cent difference between the high and low price, but at the end of the week prices were only down 16.8 cents...so whatever Reuters was looking at there, i didn't see it...in fact, i think this week's drop was the greatest on record, but that's a conclusion i've arrived at by manually searching for big price changes, which could be prone to error...

i'll include a natural price graph price graph here and describe the method i've used, in case anyone else wants to give it a shot...:

The above graph is a screenshot of the ​current ​interactive natural gas price chart from barchart.com, which i have set to show front month natural gas prices ​weekly over the past 20 years, which means you're seeing the range of natural gas prices over that time as they were quoted daily by the media...​again, ​this same chart can be reset to show prices of front month or individual monthly natural gas contracts over time periods ranging from 1 day to 30 years, as the menu bar on the top indicates, and also to show natural gas prices by the minute, hour, day, week or month for each...each bar in the graph above represents the range of natural gas prices for a single week, with weeks when prices rose indicated in green, and weeks when prices fell indicated in red, with the small barely visible sticks above or below each​ weekly bar representing the extent of the price change above or below the opening and closing price for the week​ ​in question....likewise, the bars across the bottom show trading volume for the weeks in question, again with up weeks indicated by green bars and down weeks indicated in red...

​you can see that on the 5 year graph above​, this week's $1.345, or 24% drop in natural gas prices shows up as a large red bar, clearly the largest red bar on the graph, hence telling us that this week's price drop was the largest over the 5 year span of the graph...the only other weekly red bar that's close is that of December 10, 2018, when natural gas prices opened at $4.590 and closed at $3.827, prices one can get directly from this interactive graph by hovering one's cursor over the date in question...thus it's just a simple matter of scrolling back through the prior years on the graph looking for a red bar the size of this week's and checking the data....so i went back past 10 years and found nothing close to a 24% drop; moreover, i didnt see a weekly drop in natural gas prices of any magnitude ultil after the 2008 price spike...while there were a couple occasions that year when nominal prices fell a bit more than this week's $1.345, that was when natural gas prices were over $10, so the percentage drop back then was much less than this week, not any more than 16%...

The EIA's natural gas storage report for the week ending November 26th indicated that the amount of working natural gas held in underground storage in the US fell by 59 billion cubic feet to 3,564 billion cubic feet by the end of the week, which left our gas supplies 375 billion cubic feet, or 9.5% below the 3,939 billion cubic feet that were in storage on November 26th of last year, and 86 billion cubic feet, or 2.4% below the five-year average of 3,650 billion cubic feet of natural gas that have been in storage as of the 26th of November over the most recent years...the 59 billion cubic foot withdrawal from US natural gas working storage this week was in line with the average forecast for a 58 billion cubic foot withdrawal from Reuters, Bloomberg and Natural Gas Intelligence's surveys of analysts, but it dwarfed the 4 billion cubic feet that were pulled from natural gas storage during the corresponding week of 2020, and ​was ​almost double the average withdrawal of 31 billion cubic feet of natural gas that have typically been pulled out 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 November 26th showed that after a switch of “unaccounted for crude oil” from the supply side to the demand side, we needed to pull oil out of our stored commercial crude supplies for the third time in ten weeks and for the twenty-third time in the past thirty-five weeks….our imports of crude oil rose by an average of 168,000 barrels per day to an average of 6,604,000 barrels per day, after rising by an average of 245,000 barrels per day during the prior week, while our exports of crude oil rose by an average of 99,000 barrels per day to an average of 2,704,000 barrels per day during the week, which together meant that our effective trade in oil worked out to a net import average of 3,900,000 barrels of per day during the week ending November 26th, 69,000 more barrels per day than the net of our imports minus our exports during the prior week…over the same period, production of crude oil from US wells was reportedly 100,000 barrels per day higher at 11,600,000 barrels per day, and hence our daily supply of oil from the net of our international trade in oil and from domestic well production appears to have totaled an average of 15,500,000 barrels per day during the cited reporting week…

Meanwhile, US oil refineries reported they were processing an average of 15,631,000 barrels of crude per day during the week ending November 26th, an average of 9,000 fewer barrels per day than the amount of oil they processed during the prior week, while over the same period the EIA’s surveys indicated that a net of 408,000 barrels of oil per day were being pulled out 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 277,000 barrels per day more 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 plunked a (-277,000) 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 balance sheet fudge factor that they label in their footnotes as “unaccounted for crude oil”, thus suggesting there must have been a error or omission of that magnitude in this week’s oil supply & demand figures that we have just transcribed...and since last week’s EIA fudge factor was at (+220,000) barrels per day, that means there was a 497,000 barrel per day difference in the EIA's crude oil balance sheet error from a week ago, and hence the week over week supply and demand changes indicated by this week's report are fairly useless...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 oil wells, we’ll continue to report this data just as it's published, and just as it's watched & believed to be reasonably 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)….

This week's 408,000 barrel per day net decrease in our crude oil inventories came as 130,000 barrels per day were pulled out of our commercially available stocks of crude oil, while 278,000 barrels per day of oil were pulled out of our Strategic Petroleum Reserve, possibly still part of an emergency loan of oil to Exxon in the wake of hurricane Ida...including the drawdowns from the Strategic Petroleum Reserve under such emergency programs, a total of 51,920,000 barrels per day have been removed from the Strategic Petroleum Reserve for a series of other "emergencies" over the past 16 months, and as a result the amount of oil in our Strategic Petroleum Reserve has fallen to an 18 1/2 year low of 602,556,000 barrels per day, as repeated tapping of our emergency supplies for political expediency or to “pay for” other programs have already drained those supplies over the past dozen years...with the BIden administration's announcement last week that another 50 million barrels of oil will be released to incentivize continued use of American gas guzzlers, we have initiated weekly coverage of the SPR storage status on this blog...

Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports rose to an average of 6,335,000 barrels per day last week, which was 18.5% more than the 5,345,000 barrel per day average that we were importing over the same four-week period last year….this week’s crude oil production was reported to be 100,000 barrels per day higher at 11,600,000 barrels per day even though the EIA's rounded estimate of the output from wells in the lower 48 states was unchanged at 11,100,000 barrels per day, because a 5,000 barrel per day increase in Alaska’s oil production to 454,000 barrels per day added 100,000 barrels per day to the reported rounded national production total (EIA mat​h​)​..​.US crude oil production had hit 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 still 11.5% below that of our pre-pandemic production peak, but 37.6% above the interim low of 8,428,000 barrels per day that US oil production had fallen to during the last week of June of 2016...

US oil refineries were operating at 88.​8% of their capacity while using those 15,631,000 barrels of crude per day during the week ending November 26th, up from 88.6% of capacity the prior week, but still a bit below normal utilization for late-autumn refinery operations…the 15,631,000 barrels per day of oil that were refined this week were 11.6% more barrels than the 14,012,000 barrels of crude that were being processed daily during the pandemic impacted week ending November 27th of last year, but 6.9% less than the 16,798,000 barrels of crude that were being processed daily during the week ending November 29th, 2019, when US refineries were operating at what was then a close to normal 91.9% of capacity...

Even with the amount of oil being refined little changed this week, the gasoline output from our refineries was quite a bit lower, decreasing by 450,000 barrels per day to 9,649,000 barrels per day during the week ending November 26th, after our gasoline output had increased by 177,000 barrels per day over the prior week.…this week’s gasoline production was still 12.4% more than the 8,584,000 barrels of gasoline that were being produced daily over the same week of last year, but 2.9% less than the gasoline production of 9,941,000 barrels per day during the week ending November 29th, 2019….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 88,000 barrels per day to 4,872,000 barrels per day, after our distillates output had decreased by 58,000 barrels per day over the prior week…with that increase, our distillates output was 6.2% more than the 4,587,000 barrels of distillates that were being produced daily during the week ending November 27th, 2020, but 7.4% less than the 5,263,000 barrels of distillates that were being produced daily during the week ending November 29th, 2019..

Even with the big d​rop in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the first time in eight weeks, and for the thirteenth time in thirty-two weeks, rising by 4,029,000 to 215,422,000 barrels during the week ending November 26th, after our gasoline inventories had decreased by 603,000 barrels to a 48 month low over the prior week...our gasoline supplies increased this week because the amount of gasoline supplied to US users decreased by 538,000 barrels per day to ​a 22 week low of ​8,796,000 barrels per day, and because our imports of gasoline rose by 160,000 barrels per day to 643,000 barrels per day, while our exports of gasoline rose by 279,000 barrels per day to 887,000 barrels per day…even after this week’s big inventory increase, our gasoline supplies were 7.8% lower than last November 27th's gasoline inventories of 233,638,000 barrels, and about 5% below 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 third time in fourteen weeks and for the 11th time in 34 weeks, rising by 2,160,000 barrels to 123,877,000 barrels during the week ending November 26th, after our distillates supplies had decreased by 1,968,000 barrels to a 23 month low during 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 182,000 barrels per day to 4,209,000 barrels per day, and because our exports of distillates fell by 419,000 barrels per day to 588,000 barrels per day​,​ while our imports of distillates fell by 98,000 barrels per day to 234,000 barrels per day....but after twenty-three inventory decreases over the past thirty-four weeks, our distillate supplies at the end of the week were 15.1% below the 145,870,000 barrels of distillates that we had in storage on November 27th, 2020, and about 9% below the five year average of distillates stocks for this time of the year…

Meanwhile, in addtion to this week's withdrawal of oil from our Strategic Petroleum Reserve, our commercial supplies of crude oil in storage also fell for the 17th time in the past twenty-seven-weeks and for the 33rd time in the past year, decreasing by 909,000 barrels over the week, from 434,020,000 barrels on November 19th to 433,111,000 barrels on November 26th, after our commercial crude supplies had increased by 1,017,000 barrels over the prior week…after this week’s decrease, our commercial crude oil inventories slipped to around 6% below the most recent five-year average of crude oil supplies for this time of year, but were still 24.9% above the average of our crude oil stocks as of the last weekend of November 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 and remained elevated for most of the year after that, our commercial crude oil supplies as of this November 26th were 11.3% less than the 488,042,000 barrels of oil we had in commercial storage on November 27th of 2020, and are now 3.1% less than the 447,096,000 barrels of oil that we had in storage on November 29th of 2019, and 2.3% less than the 443,162,000 barrels of oil we had in commercial storage on November 30th of 2018…

Finally, with our inventory of crude oil and our supplies of all products made from oil all at or near multi year lows, we are continuing to track the total of all U.S. Stocks of Crude Oil and Petroleum Products, including those in the SPR....the EIA's data shows that total oil and oil product inventories, including those in the Strategic Petroleum Reserve and those held by the oil industry, rose by 2,319,000 barrels this week, from 1,822,392,000 barrels on November 19th to 1,824,711,000 barrels on November 26th, which is still the 2nd lowest level of total US inventories since January 23rd, 2015, just up fractionally from last week's a 82 month low...

This Week's Rig Count

The number of drilling rigs active in the US were unchanged in this week's report, which covers the nine days ending Friday, December 3rd, because last week's report was released 2 days early due to the Thanksgiving holiday....Baker Hughes reported that the total count of rotary rigs running in the US increased was unchanged at 569 rigs over that period, which was also 246 more rigs than the pandemic hit 323 rigs that were in use as of the December 4th report of 2020, but was also still 1,360 fewer rigs than the shale era high of 1,929 drilling rigs that were deployed on November 21st of 2014, a 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 unchanged at 467 oil rigs during this period, after they had increased by 6 oil rigs the prior week, but there are now 221 more oil rigs active now than were running a year ago, even as they still amount to just 29.0% of the 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 ​also ​unchanged at 102 natural gas rigs, which was still up by 27 natural gas rigs from the 75 natural gas rigs that were drilling during the same week a year ago, but still only 6.4% of the modern era high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….in addition, last year's rig count also included 3 rigs that Baker Hughes had classified as "miscellaneous', while there are no such "miscellaneous' rigs deployed this week...

The Gulf of Mexico rig count was down by 2 rigs to 13 rigs this week, with ​eleven of this week's Gulf rigs drilling for oil in Louisiana waters and two more drilling for oil in Alaminos Canyon, offshore from Texas...that equals the count of 13 rigs in the Gulf a year ago, when 1​2 Gulf rigs were drilling for oil offshore from Louisiana and one was deployed for oil in Texas waters…since there is now no drilling off our other coasts, nor was there a year ago, the Gulf rig count is equal to the national offshore totals..

In addition to those rigs offshore, we continue to have two water based rigs drilling inland; one is a directional rig targeting oil at a depth of over 15,000 feet, drilling from an inland body of water in Plaquemines Parish, Louisiana, near the mouth of the Mississippi, and the other is drilling for oil in the Galveston Bay area, and hence the inland waters rig count of two is up from one from a year ago..

The count of active horizontal drilling rigs was unchanged at 513 horizontal rigs this week, which was still 77.5% more than the 289 horizontal rigs that were in use in the US on December 4th of last year, but was 62.7% less than the record 1,374 horizontal rigs that were deployed on November 21st of 2014...however, the directional rig count was down by three to 31 directional rigs this week, but those were still up by 13 from the 18 directional rigs that were operating during the same week a year ago….on the other hand, the vertical rig count was up by 3 to 25 vertical rigs this week, and those were up by 9 from the 16 vertical rigs that were in use on December 4th 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 December 3rd, the second column shows the change in the number of working rigs between last week’s count (November 24th) and this week’s (December 3rd) count, the third column shows last week’s November 24th 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 4th of December, 2020...

this week saw a five rig increase in New Mexico, which was offset by rig decreases elsewhere...to determine what happened in New Mexico, we first check the Rigs by State file at Baker Hughes for changes in the Texas Permian basin...there we find that one rig was pulled out of Texas Oil District 8, which is the core Permian Delaware, and that another rig was pulled out of Texas Oil District 8A, which covers the northernmost Permian Midland, thus indicating an overall two rig decrease in the Texas Permian...since the national Permian rig count was up by 3, that means that all five rigs that were added in New Mexico had to have been set up in the westernmost reaches of the Permian Delaware, to account for the national Permian basin increase... elsewhere, the two rigs removed from Louisiana had been drilling in the state's offshore waters; counts in all other regions of Louisiana were unchanged...the rig that was pulled out of California came from a basin that Baker Hughes doesn't track, while the rig that was removed from Oklahoma's Cana Woodford had to have been offset by a rig addition elsewhere in the state, also in a basin that Baker Hughes doesn't track, for the state's rig count to remain unchanged..

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