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, January 10, 2022

US oil supplies near a 10 year low; biggest hit to gasoline output & demand since 2020 lockdown, fuel inventories jump

Strategic Petroleum Reserve at a new 19 year low; total crude supplies near a 10 year low; gasoline production & gasoline demand fall by most in 21 months; gasoline supplies rise by most in 21 months; distillate supplies rise by most in a year

oil prices rose for the third consecutive week on political unrest and/or production difficulties among several OPEC allied producers....after rising 1.9% to $75.21 a barrel last week as oil traders became convinced that Omicron posed little risk to oil demand, the contract price for US light sweet crude for February delivery opened 47 cents higher on Monday amid reports that OPEC and Russia-led producers expected that the​ omicron disruption to global oil demand would be isolated to the first quarter​,​ and​ later​ settled 87 cents higher at $76.08 a barrel on hopes of​ a​ further demand recovery in 2022, despite the cartel's readiness to agree to another output increase, amid skepticism about whether OPEC and its allies c​ould successfully raise output as much as they intended...oil prices continued higher early Tuesday after the technical committee for OPEC signaled tighter supply-demand fundamentals for the first quarter, and as unplanned supply disruptions in a number of smaller oil producers, including Libya and Ecuador, offset a tsunami of Omicron infections in major oil-consuming countries. with oil finishing 91 cents higher at a six week high of $76.99 a barrel as OPEC and Russia agreed to stick with their planned production increase for February​,​ based on indications that the Omicron​ variant would have only a mild impact on demand....oil prices opened higher again on Wednesday and rallied to $78.58 a barrel after the American Petroleum Institute reported a larger-than-expected drop in U.S. commercial crude oil inventories during the final week of 2021 accompanied by massive builds in gasoline and distillates fuel supplies, signs of Omicron-led destruction to domestic fuel demand, but then slipped back below $78 after the EIA reported the biggest build in gasoline inventories since April 2020 amid plunging fuel demand, but still settled with a gain of 86 cents on the day at $77.85 a barrel, extending gains even after OPEC+ producers stuck to an agreed output target increase for February output....oil slipped from that 6 week high in early Thursday trading, as fuel supplies had surged amid declining demand​,​ while the draw in U.S. crude inventories was smaller than expected, but rallied on escalating unrest in major oil producer Kazakhstan and supply outages in Libya to settle $1.61, or 2.1%, higher at $79.46 a barrel, after earlier touching a session high of $80.24....oil prices rose again early Friday and briefly traded a dollar higher, as ongoing protests in Kazakhstan prompted fears of a disrupted crude supply from the OPEC and its allies (OPEC+), along with decreased production in Libya, where the political situation continued to deteriorate, but turned downward following a disappointing employment report in the US that heightened concerns over a laggard recovery in the world's largest​ consuming​ economy to finish trading 56 cents lower at $78.90 a barrel, but still finished with a gain of 4.9% on the week, and at the highest level since late November...

natural gas prices also finished higher in seesaw trading this week amid vacillating weather forecasts....after rising 2.8% to $3.730 per mmBTU last week on an outbreak of polar air, the contract price of natural gas for February delivery rose 8.5 cents, or 2.3%, to $3.815 per mmBTU on Monday after production fell over the New Years weekend because cold weather had frozen some production wells in Texas, New Mexico and ​in ​Colorado, reminding traders of what can happen when temperatures drop...but that gain was more than reversed on Tuesday as prices tumbled 9.8 cents to $3.717 per mmBTU after midday forecasts called for less cold weather and lower heating demand over the next two weeks than had previously been expected...however, strength in cash prices and expectations for ongoing blasts of frigid air over swaths of the Lower 48 pushed natural gas prices upwards on Wednesday, as the February contract settled 16.5 cents higher on the day at $3.882 per mmBTU...however, natural gas prices stumbled again on Thursday, after the EIA's weekly inventory report showed ample supplies and relatively modest early-winter heating demand, with gas shedding 7.0 cents to finish at $3.812 per mmBTU...but prices were rising again on Friday and finished 10.4 cents higher at $3.916, as a major winter storm blanketed the Northeast in snow, driving overall gas demand to its highest in a day since hitting a record in 2019 and left natural gas prices 5.0% higher on the week..

The EIA's natural gas storage report for the week ending December 31st indicated that the amount of working natural gas held in underground storage in the US fell by a modest 31 billion cubic feet to 3,195 billion cubic feet by the end of the week, which left our gas supplies 154 billion cubic feet, or 4.6% below the 3,349 billion cubic feet that were in storage on December 31st of last year, but 96 billion cubic feet, or 3.1% above the five-year average of 3,099 billion cubic feet of natural gas that have been in storage as of the 31st of December over the most recent five years....the 31 billion cubic foot withdrawal from US natural gas working storage for the cited week was quite a bit less than the average forecast for a 50 billion cubic foot withdrawal from a S&P Global Platts' survey of analysts, and was far less than the 127 billion cubic feet that were pulled from natural gas storage during the corresponding week of 2020, and also far less than the average withdrawal of 108 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 December 31st showed that despite a major shift of “unaccounted for crude oil” from demand to supply, a concurrent drop in our oil imports meant we still needed to pull oil out of our stored commercial crude supplies for the sixth week in a row and for the 22nd time in the past thirty-two weeks….our imports of crude oil fell by an average of 875,000 barrels per day to an average of 5,884,000 barrels per day, after rising by an average of 565,000 barrels per day during the prior week, while our exports of crude oil fell by an average of 375,000 barrels per day to an average of 2,554,000 barrels per day during the week, which together meant that our effective trade in oil worked out to a net import average of 3,330,000 barrels of per day during the week ending December 31st, 500,000 fewer 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 unchanged at 11,800,000 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 15,130,000 barrels per day during the cited reporting week…

Meanwhile, US oil refineries reported they were processing an average of 15,867,000 barrels of crude per day during the week ending December 31st, an average of 163,000 more barrels per day than the amount of oil that our refineries processed during the prior week, while over the same period the EIA’s surveys indicated that a net of 499,000 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 238,000 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 inserted a (+238,000) 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 (-631,000) barrels per day, that means there was a 869,000 barrel per day difference between this week's error and 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 just about 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 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 499,000 barrel per day decrease in our total crude oil inventories left them at 1,011,533,000 barrels, the lowest level since February 17th 2012, or nearly at a 10 year low....this week's oil inventory decrease came as 306,000 barrels per day were being pulled out of our commercially available stocks of crude oil, while 192,000 barrels per day of oil were pulled out of our Strategic Petroleum Reserve, part of the first installment from Biden's plan to release 50 million barrels from the SPR, in order to incentive continued use of US gas guzzlers....including the drawdowns from the Strategic Petroleum Reserve under such politically motivated programs, a total of 57,980,000 barrels have been removed from the Strategic Petroleum Reserve over the past 18 months, and as a result the amount of oil in our Strategic Petroleum Reserve has fallen to an 19 year low of 593,682,000 barrels per day, or to the lowest since November 29, 2002, as repeated tapping of our emergency supplies for political expediency or to “pay for” other programs had already drained those supplies over the past dozen years...based on an estimated prepandemic consumption level of 18 million barrels per day, the US will have roughly 30 1/2 days of oil supply left in the Strategic Petroleum Reserve when the Biden program is complete...

Further details from the weekly Petroleum Status Report (pdf) indicate that the 4 week average of our oil imports fell to an average of 6,327,000 barrels per day last week, which was still 16.7% more than the 5,421,000 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 changed at 11,800,000 barrels per day even as the EIA's rounded estimate of the output from wells in the lower 48 states was 100,000 barrels per day lower at 11,400,000 barrels per day, because Alaska’s oil production was 10,000 barrels per day lower at 459,000 barrels per day and hence added 100,000 barrels per day to the reported rounded national production total (by the EIA's math)...US crude oil production had reached a pre-pandemic high of 13,100,000 barrels per day during the week ending March 13th 2020, so this week’s reported oil production figure was 9.9% below that of our pre-pandemic production peak, but 40.0% 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 89.8% of their capacity while using those 15,867,000 barrels of crude per day during the week ending December 31st, up from a utilization rate of 89.7% the prior week, but still lower than the historical utilization rate for late December refinery operations…the 15,867,000 barrels per day of oil that were refined this week were 10.4% more barrels than the 14,287,000 barrels of crude that were being processed daily during the pandemic impacted week ending January 1st of 2021, but 9.4% less than the 16,897,000 barrels of crude that were being processed daily during the week ending January 3rd. 2020, when US refineries were operating at what was then a more seasonal 93.0% of capacity...

Even with the increase in oil being refined this week, the gasoline output from our refineries was quite a bit lower, decreasing by 1,607,000 barrels per day to 8,506,000 barrels per day during the week ending December 31st, the largest drop in 21 months, after our gasoline output had increased by 171,000 barrels per day over the prior week.…this week’s gasoline production was still 6.2% more than the 8,010,000 barrels of gasoline that were being produced daily over the same week of last year, but 4.2% less than the gasoline production of 8,887,000 barrels per day during the week ending January 3rd. 2020, when gasoline output had also seen a steep drop at year end….on the other hand, our refineries’ production of distillate fuels (diesel fuel and heat oil) increased by 30,000 barrels per day to 4,965,000 barrels per day, after our distillates output had increased by 83,000 barrels per day over the prior week…after those increases, our distillates output was 3.8% more than the 4,785,000 barrels of distillates that were being produced daily during the week ending January 1st of 2021, but 6.5% less than the 5,310,000 barrels of distillates that were being produced daily during the week ending January 3rd. 2020...

Even with the big drop in our gasoline production, our supplies of gasoline in storage at the end of the week rose for the fourth time in thirteen weeks, and by the most in 21 months, increasing by 10,128,000 barrels to 232,787,000 barrels during the week ending December 31st, after our gasoline inventories had decreased by 1,459,000 barrels over the prior week...our gasoline supplies increased this week because the amount of gasoline supplied to US users decreased by 1,552,000 barrels per day to 8,172,000 barrels per day, the largest drop in implied demand in 21 months, and because our imports of gasoline rose by 164,000 barrels per day to 596,000 barrels per day, while our exports of gasoline fell by 144,000 barrels per day to 470,000 barrels per day…after this week’s big inventory increase, our gasoline supplies were still 3.4% lower than last January 1st's gasoline inventories of 241,081,000 barrels, and about 4% 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 sixth time in nineteen weeks and by the most in 51 weeks, rising by 4,418,000 barrels to 126,846,000 barrels during the week ending December 31st, after our distillates supplies had decreased by 1,726,000 barrels 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 312,000 barrels per day to 3,739,000 barrels per day, and because our exports of distillates fell by 481,000 barrels per day to 811,000 barrels per day, and because our imports of distillates rose by 55,000 barrels per day to 217,000 barrels per day....but after twenty-six inventory decreases over the past thirty-nine weeks, our distillate supplies at the end of the week were 19.9% below the 158,419,000 barrels of distillates that we had in storage on January 1st of 2021, and about 16% below the five year average of distillates inventories for this time of the year…

Meanwhile, with the big drop in our oil imports, our commercial supplies of crude oil in storage fell for the 15th time in 22 weeks and for the 34th time in the past year, decreasing by 2,144,000 barrels over the week, from 419,995,000 barrels on December 24th to 417,851,000 barrels on December 31st, after our commercial crude supplies had decreased by 3,576,000 barrels over the prior week…after this week’s decrease, our commercial crude oil inventories fell to about 8% below the most recent five-year average of crude oil supplies for this time of year, but were still around 28% above the average of our crude oil stocks as of year end 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 December 31st were 13.9% less than the 485,459,000 barrels of oil we had in commercial storage on January 1st of 2021, and are now 3.1% less than the 431,060,000 barrels of oil that we had in storage on January 3rd of 2020, and also 5.0% less than the 439,738,000 barrels of oil we had in commercial storage on January 4th of 2018…

Finally, with our inventory of crude oil and our supplies of all products made from oil all 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, and including everything from gasoline and jet fuel to propane/propylene and residual fuel oil, rose by 8,819,000 barrels this week, from 1,779,614,000 barrels on December 24th to 1,788,433,000 barrels on December 31th, but still left our total inventories at the 2nd lowest level since August 29th, 2014.....  

This Week's Rig Count

The number of drilling rigs active in the US increased for the 57th time over the past 68 weeks during the week ending January 7th, but still remained 25.9% below the prepandemic rig count....Baker Hughes reported that the total count of rotary rigs running in the US increased by two to 588 rigs this past week, which was also 228 more rigs than the pandemic hit 360 rigs that were in use as of the January 8th report of 2020, but was also still 1,341 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 up by 1 to 481 oil rigs during this week, after they had been unchanged during the prior week, and there are now 206 more oil rigs active now than were running a year ago, even as they still amount to just 29.9% of the shale era 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 107 natural gas rigs, which was also up by 23 natural gas rigs from the 84 natural gas rigs that were drilling during the same week a year ago, but still only 6.7% of the modern high of 1,606 rigs targeting natural gas that were deployed on September 7th, 2008….note that last year's rig count also included a rig that Baker Hughes had classified as "miscellaneous', while there are no such "miscellaneous' rigs deployed this week...

The Gulf of Mexico rig count was up by 1 to 16 rigs this week, with fifteen of this week's Gulf rigs drilling for oil in Louisiana waters and another rig drilling for oil in Alaminos Canyon, offshore from Texas....that's one less Gulf rig than the 17 rigs that were active in the Gulf a year ago, when 14 Gulf rigs were drilling for oil offshore from Louisiana and three were deployed for oil in Texas waters…since there is not any drilling off our other coasts at this time, nor was there a year ago, the Gulf rig counts are equal to the national offshore totals for both years....but In addition to those rigs offshore, we continue to have one water based rig drilling for oil inland in the Galveston Bay area, and hence the inland waters rig count of one is down from two a year ago..

The count of active horizontal drilling rigs was up by 2 to 532 horizontal rigs this week, which was also 212 more than the 320 horizontal rigs that were in use in the US on January 8th of last year, but still 61.3% less than the record 1,374 horizontal rigs that were deployed on November 21st of 2014....at the same time, the directional rig count was up by 3 to 33 directional rigs this week, and those were also up by 11 from the 22 directional rigs that were operating during the same week a year ago….on the other hand, the vertical rig count was down by 3 to 23 vertical rigs this week, but those were still up by 5 from the 18 vertical rigs that were in use on January 8th of 2021….

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 January 7th, the second column shows the change in the number of working rigs between last week’s count (December 31st) and this week’s (January 7th) count, the third column shows last week’s December 31st 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 8th of January, 2021..

the Louisiana rig count was up by 3 this week with the addition of two Gulf of Mexico rigs in the state's offshore waters, and another rig in the northern part of the state, in an area we'd usually associate with the Haynesville shale, but apparently not targeting that formation this time...on the other hand, the Texas rig count was down by three with the shut down of a Gulf rig that had been drilling for oil in Alaminos Canyon, offshore from the state, and ​the ​removal of two rigs that ha​d been drilling in Texas Oil District 8, which is the core Permian Delaware....since the Texas Permian rig count was thus down by two while the national Permian rig count was down by just one, the rig that was added in New Mexico had to have been deployed in the western Permian Delaware to balance the national total....while we can see there were two rigs pulled out of the Cana Woodford, the Oklahoma rig count remained unchanged, which means that two rigs were added in an Oklahoma basin that Baker Hughes doesn't track...in addition, the rig added in the Denver-Julesburg Niobrara chalk appears to have been set up in Wyoming, since the Colorado rig count was unchanged...and finally, this week's new natural gas rig was set up in a basin that Baker Hughes doesn't track, and hence doesn't show up in the table above...

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