Sunday, December 14, 2014

oil prices fall below $60, oil rig count drops by most in 2 years, fracking bond market freezes...

the drop in oil prices continued at a rapid and unsustainable pace this week, hitting a new five year low every day except Tuesday on the way to a closing price at less than $58 a barrel for the benchmark US crude...we'll start by including an updated chart of those prices over the past 6 months which hopefully will be correctly formatted for mailing this time...

December 13 2014 WTI oil

again, these are the end of the week prices for oil at the Cushing, Oklahoma depot, the oil known as "West Texas Intermediate", often just called WTI, and this benchmark is what prices for other grades of US oil are based on...just looking at that graph, we know this price collapse can't continue indefinitely; because at the rate prices have been dropping since Thanksgiving, they'd be giving oil away free by the end of these prices, analysts figure that 80% of the horizontally fracked wells are unprofitable, but that fact wont necessarily shut them down, because most of the drillers currently operating have already bought contracts to sell their output at higher prices, and it will be the speculators who sold those contracts who'll be taking the first loss on the drop in oil prices....those few oilmen that didn't hedge, thinking they'd keep all the profits for themselves, are in real trouble; especially if they borrowed based on a return of over $100 a barrel for their oil that is now worth less than $60; they are in worse trouble than homeowners who owe more on their mortgage than their home is worth, because the lower oil prices not only reduces their ability to meet their long term obligation, but it reduces their current income and cash flow as well..

where we'll see the impact of this price crash is on future plans, as very few companies will contract to drill for oil at these prices, even if they could get financing; interest rates on speculative energy bonds rose to a more-than-five-year average high of 9.5% early this week, from 5.7% in June, and by the end of the week it was said the market for them had nearly shut down, with some issues being quoted at 1000 basis points (10%) over Treasuries....companies that announced cutbacks this week include Goodrich Petroleum and Oasis Petroleum, who both cut their capital spending plans for next year in half, and major producers including Apache, ConocoPhillips and BP...after an inexplicable increase of three rigs operating last week, the total count of drilling rigs operating nationally fell by 27 this week to 1,893...oil rigs in operation fell by 29 to 1546, which was the largest weekly drop in 2 years; tellingly, most of those throwing in the towel were Texas oilmen, who have been through such boom and bust cycles in the oil patch before…

there are, of course, some downsides to oil prices as low as they've been...with the price of gasoline no object, many people will tend to purchase larger vehicles and drive more, just as they did when oil prices fell by more than half in the mid 80s and again in the late 90s...moreover, car sales in China have been running higher than US car sales since at least 2010, and with the massive build out of highways in the PRC, the prospect of cheap gas will encourage the Chinese to take to the highways just as Amercans did in the 50s, ultimately raising the demand for even more oil, and ultimately even more addition, low gas and oil prices will reduce the incentive for countries and companies to switch to renewable energy...

this week's batch includes links to an unusually large number of studies on the health impacts of fracking, most of them in advance of a NY Department of Health release on the same which may influence the state's decision whether or not to lift its moratorium on of those studies looks at roughly 400 peer-reviewed fracking and health studies conducted over the last several years and finds that 96% found deleterious health effects from fracking operations, and 95% found elevated level of other news, Steve Horn informs us that the keystone end run is now up and running and that tar sands crude oil is now being pumped clear through to the Gulf of Mexico through the Alberta Clipper and Flanigan South, a combination of Enbridge pipelines we've discussed previously..

also from articles you'll see this week, it appears that West Virginia will go ahead with its controversial deal to sell the fracking rights under the Ohio river; apparently Ohio has no say in the matter, because the border between the two states is on the Ohio side of the another Ohio river related article, we learn of opposition growing to the plans to barge toxic, radioactive fracking wastewater from Pennsylvania down the Ohio river to be offloaded and injected in southern Ohio injection wells; that same article provides a state map of all the Class 2 injection well sites in Ohio here:  this shows the 6 injection wells on the Geauga/Ashtabula county line that this group has often discussed, and two others in northern Geauga that have not come under much scrutiny, including one very near to the site of the 1986 5.0 earthquake that shut down Perry Nuclear...and speaking of injection wells, a Pennsylvania congressman is investigating that dumping of the same toxic and radioactive waste from his state into unregulated injection wells in Ohio, expressing concern that Ohio does nothing to protect its environment of the health of its citizens...which of course begs the question why aren't any Ohio congressmen concerned enough about the impacts of that waste on Ohioans to ask questions? why do we need a Pennsylvania congressman to initiate action to protect us? and speaking of Ohio politicians, we find that Ohio's Mike DeWine is included in a group of state attorneys general who were implicated in a New York Times expose for taking millions of dollars from energy corporations in exchange for sabotaging environmental regulations that would interfere with their profits...

again this week, we'll start with Ohio and US fracking news, and then get into oil prices and their impacts on the companies and the economy..

Fracking waste will yield toxic future | The Columbus Dispatch: Our state legislators and the Ohio Department of Natural Resources have welcomed with open arms highly toxic “produced fluids” from gas and oil fracking. In 2011, more than 2.8 million barrels of fracking waste were put into Ohio’s injection wells. Half of that waste came from West Virginia and Pennsylvania. These wastes contain myriad industrial chemicals used to frack gas and oil wells. Because of nondisclosure agreements, many of the chemicals remain unknown; some are carcinogenic, while others are endocrine disruptors. Additionally, because these chemicals come into contact with radioactive particles deep in the ground, they also harbor water-soluble radionuclides. Samples of fracking waste have contained levels of radiation over 3,600 times what experts say is safe for drinking water, according to Environment Ohio. According to Ohio Revised Code 1509.226, these radioactive wastes can be applied to land surfaces as a dust control or road de-icer or dumped into landfills. Drill cuttings, wastes created during the fracking process, are finding their way into Ohio landfills. These materials are referred to as TENORM, or technically enhanced naturally occurring radioactive materials. Ohio’s landfills are not equipped to handle radioactive materials. Long after Ohio’s oil and gas boom has ended, we will be dealing with this toxic legacy.

W.Va. OKs fracking under Ohio River; critics leery - The Columbus Dispatch: West Virginia has opened the Ohio River to fracking. The state government announced that companies can ask to drill beneath the Ohio River for natural gas and oil. Those companies would pay the state a per-acre fee as well as royalties on the oil and gas. It is a move that could bring millions of dollars into West Virginia, which has tapped into its rainy-day fund to prop up its budget. But environmental activists say that cash infusion could come at the expense of clean drinking water for thousands of people on both sides of the river. West Virginia has made initial awards to three oil and gas companies — Triad Hunter, StatOil USA Onshore and Gastar Exploration — to frack beneath 12 miles of the Ohio River next to southeastern Ohio and has received requests from companies to frack beneath an additional 9 miles. The drilling would occur from Marshall, Wetzel and Pleasants counties. The first three deals are still being negotiated, and nothing has been signed yet, said Josh Jarrell, deputy secretary and general counsel of the West Virginia Department of Commerce. But they include a cash fee of as much as $9,000 per acre in some cases and a 20 percent royalty on oil and gas produced at each well. “That revenue infusion will go right back into our state parks,” Jarrell said. “There’s been a tremendous amount of pressure on our state budget lately, so it’s going to help everyone enjoy those resources even more.”

West Virginia To Allow Fracking Underneath The Ohio River - West Virginia is selling hydraulic fracturing or fracking rights under the Ohio River, and the effects of that decision will be monitored by the other states in the Ohio River Valley. The Ohio River isn’t actually in Ohio—the state line is mostly the western and northern bank, which means West Virginia controls what’s underneath the river. The state is now leasing drilling rights, and West Virginia spokesman Josh Jerrall tells the Columbus Dispatch his state needs the money. Jerrall, citing successful under-river drilling elsewhere, says the practice is safe. Should something go wrong, there is a water testing system on the river from Pittsburgh to the Mississippi that uses chemical signatures to find pollutants. “The system is locations where we monitor water for unanticipated organic compounds that might be related to a spill,” said Lisa Cochran of the Ohio River Valley Water Sanitation District, a consortium of the states in the Ohio River watershed. West Virginia is negotiating with three companies for drilling rights under the Ohio. Horizontal fracking technology has opened up the U.S. oil and gas industry to new profits by allowing companies to drill down, and then turn and drill horizontally beneath the ground in a single well.

Groups Coalesce Against Fracking Activity in Ohio River Valley | Huntington News: — Late in November, representatives of citizen groups from West Virginia and Ohio gathered in Huntington, W.Va., to discuss the growing threats to the Ohio River Basin, which provides drinking water for five million people. The impetus for the meeting came from the dramatic rise in the oil and gas industry’s activities and proposals slated for the Ohio River Basin. The industry is proposing to build docks and barge toxic, radioactive waste along the Ohio River. The waste is generated by the deep shale hydraulic fracturing (fracking) method of extracting natural gas. Millions of gallons of liquid waste would be unloaded at dock sites for transport to injection wells in Southeast Ohio. The Coast Guard has yet to announce approval of barge transport for this kind of industrial waste, but such facilities are already being permitted and built along the river. “Alarmingly, Ohio already has more than two hundred injection wells, most of which are within the Ohio River watershed,” said Andrea Reik of ACFAN (Athens County (Oh.) Fracking Action Network), who was present at the meeting. “According to a Government Accountability Office report on Class II injection wells released this summer, Ohio is the least regulated state for these hydraulic fracturing waste disposal wells.” (A map of the injection wells so far permitted and/or active in Ohio can be found here.) “It is alarming how many of these wells are located near, or in the Ohio River watershed,”

What's America's fastest shrinking city?: The better days in Youngstown were in the first half of the 20th century, when as many as 170,000 called the city home, and it was the third-largest steel producer in the nation.  But now some of the same advantages that made Youngstown a steel powerhouse in the 1930s are fueling the early stages of a rebirth. The city still sits in an area rich with resources, strategically located almost exactly midway between Cleveland and Pittsburgh. It is also adjacent to two giant oil and natural gas deposits—the Utica and Marcellus Shales, which cover much of Eastern Ohio and Pennsylvania. Extracting all that energy, through the process known as fracking, requires lots of steel. Now, you're talking Youngstown's language. Vallourec Star, a unit of French steel giant Vallourec, has spent more than $1 billion to expand its steel pipe plant in Youngstown, adding 350 jobs. Another subsidiary, VAM USA, is spending more than $80 million on a steel pipe threading plant nearby, adding another 80 jobs.  Unemployment in Youngstown, which topped out at 12.7 percent during the recession, is now 5 percent—well below the national average. But just as the resurgence of Youngstown gains steam, there is a potential roadblock. Plunging oil prices are changing the economics of fracking, practically on a daily basis. While there has been no official talk about scaling back the steelmaking expansion, officials are watching the situation closely.  

Congressman Widens Inquiry Into Fracking Waste in Northeast and Midwest - A Congressional investigation into the way states regulate the disposal of the often toxic waste generated during the fracking of oil and gas has expanded.  Rep. Matthew Cartwright, a Democrat from eastern Pennsylvania, launched the investigation in October by singling out his home state for the inquiry.  Now Cartwright, a member of the House Subcommittee on Economic Growth, Job Creation and Regulatory Affairs, has broadened the probe to include Ohio and West Virginia. Those states generate waste from hydraulic fracturing as well as accepting waste from other states, including Pennsylvania. Cartwright's growing inquiry mirrors the increasing national concern about the disposal of oil and gas waste left over from hydraulic fracturing, or fracking.  In letters to the heads of the environmental protection agencies for Ohio and West Virginia, Cartwright said fracking waste can "cause harm to human health and the environment" if not properly handled.  Consequently, Cartwright wants the two states to explain how their inspection procedures of oil and gas waste disposal facilities protect human health and the environment. The representative also is seeking answers to more than a dozen other questions, including the number of inspections or investigations of disposal facilities receiving fracking waste. He also wants to know how the states' regulators monitor the accuracy of reporting and compliance requirements for handling and disposing  of fracking waste.

Abandoned Oil and Gas Wells ‘High Emitters’ of Methane Gas - Natural gas has been sold to us as the environmentally friendly fossil fuel compared to gas or coal since it doesn’t release carbon emissions. We’ve learned that’s not true, since drilling for natural gas can release methane, a far more potential greenhouse gas in contributing to climate change. Now there’s some more bad news regarding the methane that’s a byproduct of oil and gas drilling operations, including fracking operations. Two studies found that the amount of methane leaked by oil and gas operations is probably being underestimated. Both hoped to provide information to make wells safer. A study published in the Proceedings of the National Academy of Sciences of abandoned gas and oil wells in western Pennsylvania found that they continue to leak methane into the atmosphere long after their productive life has ended. In fact, millions of old wells could be leaking methane that’s not being included in any emissions data base, with an estimated 300,00 to 500,000 disused wells in Pennsylvania alone. “Millions of abandoned wells exist across the country and some are likely to be high emitters,” the group of researchers from Princeton University wrote. “Additional measurements of methane emissions from abandoned wells and their inclusion in greenhouse gas inventories will aid in developing and implementing appropriate greenhouse gas emissions reduction strategies.”

Methane still belches from USA ‘s old oil and gas wells - Two studies out this week focus on unintentional emissions of methane — a potent greenhouse gas — into the air.   One study found that millions of abandoned oil and gas wells across the USA could release a significant quantity of methane into the atmosphere but are not included in total emission counts. A second study found that only a few active natural gas wells produce the majority of known methane emissions. Methane is a greenhouse gas 30 times more potent than carbon dioxide at trapping atmospheric heat and thus is a prime contributor to global warming. Methane accounts for nearly 9% of all greenhouse gases emitted as a result of human activity in the USA . The Environmental Protection Agency said the oil and gas industry is the largest source of methane in the atmosphere in the USA , followed by livestock emissions and landfills. 

Direct measurements of methane emissions from abandoned oil and gas wells in Pennsylvania: Recent studies indicate that greenhouse gas emission inventories are likely missing methane emission sources. We conducted the first methane emission measurements from abandoned oil and gas wells and found substantial emissions, particularly from high-emitting abandoned wells. These emissions are not currently considered in any emissions inventory. We scaled methane emissions from our direct measurements of abandoned wells in Pennsylvania and calculate that they represent 4–7% of current total anthropogenic methane emissions in Pennsylvania. Millions of abandoned wells exist across the country and some are likely to be high emitters. Additional measurements of methane emissions from abandoned wells and their inclusion in greenhouse gas inventories will aid in developing and implementing appropriate greenhouse gas emission reduction strategies.

Upcoming Webinar Explores Methane Emissions Associated with Shale Gas Production - Methane emissions from natural gas production sites have been heavily scrutinized in past years. Dr. Kenneth J. Davis, professor of Meteorology, Penn State University , will be presenting this month’s webinar on, “What We Know and Don’t Know about Methane Emissions Associated with Shale Gas Production.” Davis will briefly review the role of greenhouse gases in the earth’s climate system and then discuss the methods used to measure methane emissions from gas production, the current state of knowledge of these emissions, and current research led by Penn State to improve our knowledge of methane emissions from gas production activities. The live webinar will be Thursday from 1 p.m. – 2 p.m.  While free, registrations for the webinars are necessary.  All can go to the Penn State Extension Natural Gas Events page to register and to find out more information for each upcoming webinar. For more information, contact Carol Loveland at 570-320-4429 or by e-mail at  Penn State Extension’s Marcellus Education Team provides monthly webinars on a variety of topics. Upcoming webinars include:

  • ¶        Jan 22, Underground Injection Wells, Karen D. Johnson, UIC Program Manager, EPA
  • ¶        Feb 19, Residual Treatment Water in Gas Shale, Dr. Terry Engelder, professor of Geosciences, Penn State University
  • ¶        Mar 19, Natural Gas Liquids: From Wellhead to Fractionation, Dan Brockett, Educator, Penn State Extension Marcellus

                     Previous webinars, publications and information also are available on the Penn State Extension natural-gas Web site, covering a variety of topics such as shale production analysis, world oil and gas production, air pollution from gas development; water use and quality; natural gas liquids regional development, natural gas reserves; gas-leasing considerations for landowners; legal issues surrounding gas development; and the impact of Marcellus gas development on forestland.

Marcellus Shale region workers to receive more than $4M in back - An ongoing investigation conducted by the U.S. Department of Labor's Wage and Hour Division has found significant violations of the Fair Labor Standards Act, resulting in employers agreeing to pay $4,498,547 in back wages to 5,310 natural gas extraction industry employees in the Marcellus Shale region in West Virginia and Pennsylvania. The majority of violations were due to improper payment of overtime. Under the FLSA, all pay received by employees during the workweek must be factored when determining the overtime premium to be paid. In some cases, however, employees' production bonuses were not included in the regular rate of pay to determine the correct overtime rate of pay. Investigators also found that some salaried employees were misclassified as exempt from the FLSA overtime provision, and were not paid an overtime premium regardless of the number of hours they worked. Wage and Hour Division investigators attribute the labor violations in part to the industry's structure. “The oil and gas industry is one of the most fissured industries. Job sites that used to be run by a single company can now have dozens of smaller contractors performing work, which can create downward economic pressure on lower level subcontractors,” said Dr. David Weil, administrator of the Wage and Hour Division. “Given the fissured landscape, this is an industry ripe for noncompliance.” Large energy providers are engaged in site exploration and production. The providers then use subcontractors for the majority of the work performed on the well site. Secondary subcontractors are also often hired for more specialized work and ancillary support services, such as welding, laboratory services, landscaping, pipeline maintenance, safety and traffic control, and water treatment. Frequently, this level of services does not take place directly at the well sites.

Energy Firms in Secretive Alliance With Attorneys General - The letter to the Environmental Protection Agency from Attorney General Scott Pruitt of Oklahoma carried a blunt accusation: Federal regulators were grossly overestimating the amount of air pollution caused by energy companies drilling new natural gas wells in his state.But Mr. Pruitt left out one critical point. The three-page letter was written by lawyers for Devon Energy, one of Oklahoma’s biggest oil and gas companies, and was delivered to him by Devon’s chief lobbyist.“Outstanding!” William F. Whitsitt, who at the time directed government relations at the company, said in a note to Mr. Pruitt’s office. The attorney general’s staff had taken Devon’s draft, copied it onto state government stationery with only a few word changes, and sent it to Washington with the attorney general’s signature.  Attorneys general in at least a dozen states are working with energy companies and other corporate interests, which in turn are providing them with record amounts of money for their political campaigns, including at least $16 million this year. They share a common philosophy about the reach of the federal government, but the companies also have billions of dollars at stake. And the collaboration is likely to grow: For the first time in modern American history, Republicans in January will control a majority — 27 — of attorneys general’s offices. The Times reported previously how individual attorneys general have shut down investigations, changed policies or agreed to more corporate-friendly settlement terms after intervention by lobbyists and lawyers, many of whom are also campaign benefactors.  But the attorneys general are also working collectively. Democrats for more than a decade have teamed up with environmental groups such as the Sierra Club to use the court system to impose stricter regulation. But never before have attorneys general joined on this scale with corporate interests to challenge Washington and file lawsuits in federal court.

Fossil Fuel Industry Funds State Attorneys General to Sabotage Environmental Regulations --The job of a state attorney general is to enforce the state’s laws and look out for the interests of its citizens. A large part of that involves oversight of corporate special interests and protecting the state’s citizens against them. He or she is in theory the “lawyer for the people.” But a story in the New York Times this weekend laid out how many state attorneys general are serving as little more than errand boys and mouthpieces for the fossil fuelindustry. “Never before have attorneys general joined on this scale with corporate interests to challenge Washington and file lawsuits in federal court,” wrote reporter Eric Lipton. It’s the second part of a series the paper is doing to “examine the explosion in lobbying of state attorneys general by corporate interests and the millions in campaign donations they now provide.” It follows up on part one which ran in late October, revealing how some attorneys general shut down investigations or settled lawsuits with terms highly favorable to corporations. Part two, Energy Firms in Secretive Alliance With Attorneys General, contains even more egregious examples of how partisan and special interest-driven these theoretically independent elected officials have become. During the 2014 campaign, attorneys general candidates such as Texas’ Ken Paxton, Ohio’s Mike DeWine and Alabama’s Luther Strange received massive infusions of cash from the energy industry. The article provides evidence of just how far some of these attorneys general are willing to go to virtually serve as free counsel for big gas and oil companies.

Fueling Corporate Welfare - Getting something for nothing is a pretty sweet deal — at least if you’re the one getting something. Not so much if you’re the one receiving nothing in exchange. Oil and gas companies are extracting gas from federal lands and paying nothing for much of it, according to a new Taxpayers for Common Sense report. One of our most troubling findings was that gas companies drilling on federal lands have avoided paying over $380 million in royalties on the fuel they’ve extracted over the past eight years. That’s a lot of money — and it could be a lot more, because it’s based on self-reported data provided by the oil and gas industries. And it’s a lot of gas. By the American Natural Gas Alliance standards, the amount of royalty-free gas either consumed as fuel or lost by operators since 2006 would be enough to meet the needs of every household in New York State for a year. Like most subsidies for the oil and gas industry, the provision that allows companies to avoid paying royalties on gas they use as fuel for their drilling rigs is decades old.

New Study Claims US Shale Gas Quantities Grossly Exaggerated: US government estimates of the amount of natural gas that can be extracted by fracking may be far too optimistic, according to a new study by the University of Texas (UT) at Austin. In 2013, the US Energy Information Administration (EIA) issued a report saying that, according to its analysis, shale wells, which require fracking to release their gas, would be productive at current levels for “over 30 years,” that is, at least until 2040. But researchers from UT’s Department of Petroleum and Geosystems Engineering say shale gas production may peak 20 years earlier, followed by a rapid decline in output. Their findings were reported in a feature story published Dec. 3 in the scientific journal Nature. The problem, according to the UT researchers, goes far beyond merely running out of natural gas. The researchers warn that the US and many other countries, relying on a long-term availability of inexpensive gas, are investing billions of dollars in vehicles, factories and power plants that depend on gas. Major proponents of fracking are President Obama in the US and Prime Minister David Cameron in Britain. Obama has boasted that “our 100-year supply of natural gas is a big factor in drawing jobs back to our shores.” And Cameron has dismissed fracking opponents as “irrational.” But if the UT scientists are right and gas production begins to fall off around 2020, all those billions of dollars put into gas-based vehicles and infrastructure will have been wasted.

Shale gas projections are in decline – and we shouldn’t be surprised --The recent confidence in shale gas was likely premature, according to several new reports published in the US. In particular a study from the University of Texas claims the US boom will tail off by 2020 and not keep going to 2040 as previous less thorough analyses have predicted. To anyone who has been closely following the industry in recent years, this difference in predictions will not be surprising, of course. In 2013 the US Energy Information Administration (EIA)already noted that Norway’s assessment of its shale gas potential went from 83 trillion cubic feet (tcf) (2011) to zero (2013) due to results obtained from test wells in the alum shale, and how Poland’s estimates went from 44tcf to 9tcf due to stricter application of requirements for successful shale formations. But at that time the EIA did not comment as strongly or publicly on similar concerns about the accuracy of the US shale data.  Likewise concern about overestimates of shale potential is becoming louder in Britain, which is at a much earlier stage in terms of shale gas exploration but has a similarly enthusiastic government. Last month scientists from the UK Energy Research Council suggested that promises by ministers about greater energy security and lower energy prices through shale gas were premature and unlikely to be deliverable. Additionally there are concerns over whether investment in shale gas is still profitable, while numerous potentially costly environmental concerns have not yet been dispelled either. What then are the reasons for these unreliable calculations? And why do governments promote shale gas with such conviction when it is surrounded by such uncertainty? One possible factor behind inaccurate judgement of shale gas potential is that both official organisations like the EIA and industry specialists rarely release the data behind their forecasts.The terminology is also surely to blame: there are resources, and then there are reserves. While this is clear to experts, the distinction is not made consistently in the media.

Shale gas pipeline developer threatens to seize land - The developer of a $750 million natural gas pipeline from Pennsylvania into New York has threatened to seize land from reluctant landowners through eminent domain. A letter obtained by the Albany Times Union ( ) tells landowners who have refused to sell rights of way for the Constitution Pipeline that they have until Wednesday to accept offered prices. After that, developers will take them to court to force such sales for possibly less money. The letter was sent from the law firm Saul Ewing. Project opponents filed a complaint against the letters with New York State Attorney General Eric Schneiderman. His office declined comment but confirmed receipt of the complaint. Lawyer Daniel Estrin of the White Plains-based Pace Environmental Litigation Clinic said the letter is meant to "bully landowners ... into waiving their property rights." Asked about the legality of invoking eminent domain prior to meeting conditions outlined in the FERC approval, Constitution Pipeline Company spokesman Tom Droege told the Times Union, "We continue to communicate with landowners along the route to seek easement agreements ... We continue to work closely with other state and federal permitting agencies and remain optimistic that we will receive necessary clearances." U.S. energy regulators approved the pipeline project last week. It's designed to bring cheap shale natural gas from Pennsylvania into high-priced markets in New England and New York.

CONSTITUTION PIPELINE PREMATURE WITH EMINENT DOMAIN -- Copy/paste articles about the eminent domain proceedings with regards to the Constitution Pipeline have appeared in “mainstream media”.   I call them copy/paste articles because they originate from skimpy coverage by the Associated Press (AP) with no reporter cited.

See: Constitution Gas Pipeline Threatens Landowners With Condemnation | by Chip Northrup on December 5, 2014 for what reporting should look like.The AP article fails to mention the FERC approval for the Constitution Pipeline was CONDITIONAL APPROVAL. There are things that must be done by Williams prior to the final approval, these conditions also mean the FEDEXing of letters threatening property owners with eminent domain was premature. Given William’s long history and experience of constructing interstate pipelines, they should know this. Witmer’s credentials include 20 years experience and being lead counsel in more than 70 condemnation suits (eminent domain) filed in Pennsylvania in connection with interstate pipeline projects.Saul Ewing firm is clearly not an outfit with a handmade shingle dangling from a doorknob; they have attorneys with experience in these matters.   Therefore you would expect Saul Ewing to also know the FEDEXing of eminent domain threats is also premature.

Zoning Changes required for fracking: Even if Gov. Andrew Cuomo approves shale gas development, natural-gas drilling probably won't begin until towns update zoning laws to allow hydraulic fracturing, according to lawyers and planners. Towns that want fracking — the controversial process to free natural gas from shale — may face a lengthy, complicated and contentious process involving public hearings, deliberation and resolutions. The outcome likely will vary from town to town, even in regions pegged "fracker friendly" by industry proponents and landowner groups. The fallout comes from a decision from the state's high court last July that upheld fracking bans in the towns of Dryden in Tompkins County and Middlefield in Otsego County. Conventional wisdom held that the decision prevented fracking only in towns with bans. But the decision set a precedent that would discourage fracking in most zoned areas unless it is explicitly written into zoning laws, according to lawyers and planners. Towns without zoning — and there are only a handful in the Southern Tier and Finger Lakes region — are exceptions. "People think in terms of bans or no bans. But what Dryden and Middlefield told us is, your current zoning law matters," said Cheryl Sacco, a partner who specializes in municipal law for the Binghamton law firm of Coughlin & Gerhart. "If they [towns with zoning] want drilling, they're going to have to review their zoning laws.""You can't just stick an unconventional gas well — and all the industrial activity that goes with it — in an area zoned as agricultural, even if there is no ban." If that happens, she said, "it will be subject to legal challenge as incompatible with the comprehensive plan."

There is clear scientific evidence of fracking’s harm - On Oct. 22, Gov. Andrew Cuomo stated that academic studies come out all different ways, and more recently, that there are credentialed academics on both sides. It is simply not the case that academic researchers or academic studies are split on whether drilling and fracking are safe. There are no academic studies finding that drilling and fracking are safe or good for public health. Cuomo would have been right if he said that academic studies show all different types of harm from drilling and fracking. Indeed, there are now hundreds of peer-reviewed studies raising many areas of concern. Moreover, the pace at which new studies are emerging has accelerated. Since the end of the state’s last public comment period on fracking, the body of scientific studies has more than doubled in size. This summer, Concerned Health Professionals of New York released a compendium of scientific, medical and other key findings demonstrating risks and harms of fracking. It is organized into fifteen areas of concern that include air pollution, water contamination, inherent engineering problems, radioactive releases, noise and light pollution and occupational hazards. Science is deciding. Studies show that permitting fracking in New York would pose significant threats to the air, water, health and safety of New Yorkers.

The Evidence Against Fracking - Speculation is mounting that the long-awaited state Health Department study on fracking’s potential public health risks could be released soon, and the governor roiled some anti-fracking groups recently when he suggested that there were “credentialed academics” on both sides of the politically contentious issue. In response, two groups — Concerned Health Professionals of New York and Physicians, Scientists and Engineers for Health Energy — pulled together information on a growing body of health studies that have been issued since 2009, when the state Department of Environmental Conservation first issued its potential environmental roadmap for fracking.That year, there were six peer-reviewed studies on how fracking, which uses a high-pressure mix of water, chemicals and sand to break up gas-bearing underground rock formations, could affect air and water quality. Another six such studies were added in 2010, when then-Gov. David Paterson issued an executive order imposing a fracking moratorium. There were 32 more fracking health studies in 2011, 66 more in 2012, and 139 more in 2013, when the state Health Department was ordered to conduct its health fracking study. By the end of November 2014, there were another 154 such peer-reviewed studies, according to the PSE study. Of health-related papers, 96 percent cited potential health risks from fracking, according to the study. For air-quality related papers, 95 percent found elevated pollution from fracking; for water-quality related papers, three-quarters found evidence of water pollution.The growth in science examining fracking is exponential. We are adding roughly a study a day. And three-quarters of all these scientific papers have been done within the last two years,” said Sheila Bushkin-Bedient, a health researcher with the Institute for Health and Environment at the University at Albany, and member of Concerned Health Professionals of New York.

New Studies Expose Public Health Risks From Fracking - As New York state ponders whether to lift its moratorium on fracking, in place since 2009, two new reports were released which compiled the results of numerous studies on its potential health and environmentalimpacts. The evidence was overwhelming, as the health care professionals and scientists involved urged Governor Andrew Cuomo to enact a three-to-five-year extension of the moratorium.  The studies offered a response to statements from Cuomo such as “You can have credentialed academics on both sides—one side says they have more credentialed experts than the other side” and “I’m not a scientist. Let the scientists decide. It’s very complicated, very controversial, academic studies come out all different ways. Let the experts decide.” The experts have largely decided that evidence of risks to citizens and communities from fracking are compelling.  One study, released by PSE Healthy Energy, pointed out that, with the fracking boom still young, “research continues to lag behind the rapid scaling of shale gas development.” It points to an enormous increase in the amount of scientific research and surge in peer-reviewed scientific papers in just the last two years. It reviewed about 400 of those papers.

Big-Picture Study Of Fracking Operations Suggests Even Small Chemical Exposures Pose Risks -- A paper published Friday in Reviews on Environmental Health suggests that even tiny doses of benzene, toluene and other chemicals released during the various phases of oil and natural gas production, including fracking, could pose serious health risks -- especially to developing fetuses, babies and young children. "We hear a lot of anecdotal stories all the time," said Dr. Sheila Bushkin-Bedient, of the Institute for Health and the Environment at University at Albany-SUNY and co-author on the paper, "but now that we've had a decade of opportunity to observe the ill effects from these chemicals on people and animals, the evidence is no longer just anecdotal." The boom in the extraction of oil and natural gas continues across large swaths of the U.S., but not without resistance. Many environmental groups oppose fracking -- which uses a mix of pressurized water, sand and chemicals to unlock hydrocarbon reserves in shale rock -- even as the industry maintains that processes like fracking are safe. Still, more than 15 million Americans now live within one mile of such oil and gas operations.  The research paper pulls together findings from studies that have investigated links between exposures to chemicals associated with fracking -- and, in some cases, proximity to fracking operations -- and developmental and reproductive problems in animals and humans, including reduced semen quality and increased risk of miscarriage, birth defects and infertility. While the report doesn't provide any new data, the authors say the compilation builds a more compelling case for such connections.  

Fracking Linked to Miscarriages, Birth Defects and Infertility -As the level of concern about fracking rises—what chemicals are being used in these “unconventional oil and gas (UOG) operations, whether they are getting into the water and air, and whether information on them is being withheld from communities—a new study adds more evidence that the concern is justified. It asserts that fracking increases the rate of miscarriage, as well as other reproductive and developmental problems.  “In this work,” the six researchers from theCenter for Environmental Health (CEH), the University of Missouri and the Institute for Health and the Environment say, “we review the scientific literature providing evidence that adult and early life exposure to chemicals associated with UOG operations can result in adverse reproductive health and developmental effects in humans.”  “Children, developing fetuses, they’re especially vulnerable to environmental factors,” said CEH’s Ellen Webb, the study’s lead author. “We really need to be concerned about the impacts for these future generations.” The study points out that fracking operations have the potential to pollute the air and water of nearby communities, and “every stage of operation from well construction to extraction, operations, transportation and distribution can lead to air and water contamination” from hundreds of chemicals. It looks at what chemicals are used in fracking, the ways in which they can find their way into the air and water, and the adverse reproductive and developmental effects they are associated with.

Report: Fracking chemicals threaten reproductive health =— Public health experts today painted a vivid connect-the-dot picture of the risks associated with exposure to toxic fracking chemicals and called for more testing of people and animals in gas patch communities.  The in-depth review, which appeared in the journal “Reviews of Environmental Health” and co-authored by researchers working in public and reproductive health and biological sciences based mainly at the University of Missouri, raised red flags about impacts to reproductive and developmental health, based on the results of existing peer-reviewed studies. One of the authors of the new paper said their conclusions refute industry assertions that oil and gas operations don’t present a health risk to nearby communities. To the contrary, the systematic review of scientific studies should set off alarm bells among medical professionals in gas patch communities. A spokesman for the Western Energy Alliance, an industry trade and lobbying group, said the review doesn’t offer any new scientific data. “There does not appear to be anything new on actual exposure and health risks,” said WEA’s Aaron Johnson, adding that many of the existing studies on the health risks of oil and gas drilling and fracking are hampered by the same fundamental flaw — the “lack of direct identification of fracking chemicals.”

To Frack or Not to Frack: Piling on the Fracking Evidence - Before the verdict on To Frack or Not to Frack is announced in New York, the scientists have been piling on the evidence; the latest salvo being a double-barrel blast of studies. On Thursday, two new scientific summations on the risks and harms of fracking were released at a press conference in Albany. First, Physicians Scientists & Engineers for Healthy Energy released a working paper analysis, in the form of a statistical evaluation of the approximately 400 peer-reviewed studies to date on the impacts of shale gas development. In short, this team examined what percentage of papers indicated risks/adverse impacts versus no indication of risk. Key highlights: 96% of all papers on health indicate risks/adverse health outcomes; 95% of all original research studies on air quality indicate elevated concentrations of air pollutants; 72% of original research studies on water quality indicate contamination or risk thereof. Second, my own group, Concerned Health Professionals of New York, released a second edition of the Compendium of scientific, medical, and media findings of risks and harms of fracking. At 103 pages and with 448 citations, the Compendium compiles and concisely summarizes the most important findings. Although the second edition comes only 5 months after the first, it’s about 30% longer now with more than 80 new entries.Together, these two make a very decisive scientific case against fracking. See the joint press release, with quotes from PSE and doctors and scientists from CHPNY, and good summaries.

WATCH: 'Fracking 101' Narrated by Edward James Olmos » Chances are you’re already up in arms about fracking and its impact on people’s health, the environment and our climate. It’s also likely you know some people who don’t know a lot about it, but they may have heard a newscaster say that it’s behind dropping gas prices and they think “That’s great!” You may have also seen some polls that show a lot of Americans approve of fracking—but they’ve also shown that people don’t know very much about its impacts, and once they do, they’re likely to oppose it. The Sierra Club has put together a two-and-a-half minute animated video called Fracking 101 that’s simple enough for a kindergartner to understand and short enough so that even the most attention-challenged will get it. Cancer-causing poisons? Check. Polluted aquifers? Check. Climate change-causing methane-emissions? Check. It’s all here in digestible and entertaining form.  The video, which features narration by actor Edward James Olmos (Battlestar Galactica, Stand and Deliver, Blade Runner), depicts how methane gas escapes from fracking operations to drive climate change, how the toxic chemicals used in the process find their way into our water and air, and what kind of health impacts those chemicals have.

North Texas Fracking Zone Sees Growing Health Worries: Propped up on a hospital bed, Taylor Ishee listened as his mother shared a conviction that choked her up. His rare cancer had a cause, she believes, and it wasn’t genetics. Others in Texas have drawn the same conclusions about their confounding illnesses. Jana DeGrand, who suffered a heart attack and needed both her gallbladder and her appendix removed. Rebecca Williams, fighting off unexplained rashes, sharp headaches and repeated bouts of pneumonia. Maile Bush, who needed surgery for a sinus infection four rounds of antibiotics couldn’t heal. Annette Wilkes, whose own severe sinus infections were followed by two autoimmune diseases. “I’ve been trying to sell my house,” said Williams, a registered nurse, “because I’ve got to get out of here or I’m going to die.” Texas regulators and politicians have shrugged off such complaints for years. But scientific research — coming out now after years of sparse information — suggests that proximity could pose risks. Measurements taken near sites that residents identified as problematic in five states found spikes in air toxics such as benzene, which can cause leukemia. A Colorado study found more babies born with congenital heart defects in gas-well-intensive areas than in places without wells. Yale University researchers surveying Pennsylvania residents — without mentioning gas — determined that those living close to wells were significantly more likely to report having skin and upper-respiratory problems than those farther away. This year a 16-university grouprecommended substantially more research given the potential problems.

Benzene and Worker Cancers: “An American Tragedy” -- Thompson never figured the chemical could do him harm.  But after being diagnosed with a rare form of leukemia in 2006, relatives say, he came to believe his exposure to benzene had amounted to a death sentence. Oil and chemical companies knew about the hazard, Thompson felt, but said nothing to him and countless other workers. Thompson died before a lawsuit filed by his family against benzene suppliers could play out in court, where science linking the chemical to cancer could be put on display. Over the past 10 years, however, scores of other lawsuits, most filed by sick and dying workers like Thompson, have uncovered tens of thousands of pages of previously secret documents detailing the petrochemical industry’s campaign to undercut that science. Internal memorandums, emails, letters and meeting minutes obtained by the Center for Public Integrity over the past year suggest that America’s oil and chemical titans, coordinated by their trade association, the American Petroleum Institute, spent at least $36 million on research “designed to protect member company interests,” as one 2000 API summary put it.

Shale oil gluts, 1980s Dynasty and Dallas edition - If history really does repeat itself, then the upside of the oil glut of 2014 could be some top quality kitsch TV drama moments in the not too distant future. We’re going by Season 3, episode 7 of Dynasty, which first aired December 8, 1982.  The episode features Blake Carrington, CEO of Denver-Carrington, despairing about the prospect of becoming an oil tycoon in distress due to the 1980s oil glut and having to rely on ex-wife Alexis Colby (Joan Collins) for a bailout if his loans go bad.  Check out the opening two minutes and later at 24.30 for the scene between Carrington and the chairman of the subcommittee on energy policy and technology.  (transcript)  Though, this being the reality TV generation, we guess the 2014 version will more likely consist of a “Real Housewives of North Dakota” edition or some such.

More municipal bans on fracking pose setback to domestic energy boom | Fox News: The surge in domestic-energy production that has created millions of new jobs and abundant natural gas and oil is now facing a potential setback, cities across the country imposing bans on the widely-used deep-drilling process known as fracking. At least three U.S. cities and two counties in the November elections voted in favor of such a ban. And courts in Pennsylvania and New York have recently ruled in favor of letting cities have some control over the drilling.  There is little surprise that Texas is at the forefront of the fight between energy companies and other fracking supporters and critics who say the drilling process is noisy, pollutes water supplies and triggers earthquakes. Most of the attention in Texas is now on Denton, a college town near Dallas that sits on the Barnett shale formation that is full of natural gas. The city became the first in Texas to impose the ban and has emerged as a test case for municipalities across the state trying to halt the drilling -- particularly in the face of the powerful energy industry and the Texas General Land Office, which owns 13 million acres of land across Texas and uses revenue from the mineral rights to fund public education.

Plant Expansions Fueled by Shale Boom to Boost Greenhouse Gas, Toxic Emissions -- Motivated by an abundance of gas, at least 120 petrochemical facilities are planned around the U.S. —equivalent in CO2 emissions to 28 coal plants. Sasol North America, the domestic division of a South Africa-based energy and chemical company, has begun buying out many of the 300 or so remaining inhabitants of Mossville, offering cash for the homes they grew up in and their parents built. Those it hasn’t bought may be expropriated come February. The state of Louisiana says it will allow the facility to release up to 10.6 million tons of greenhouse gases and 3,275 tons of volatile organic compounds such as benzene, a carcinogen, into the atmosphere each year. This is on top of the 963 tons of pollutantsthat were discharged into the air by Sasol and other companies within the 70669 ZIP code last year, according to the U.S. Environmental Protection Agency. The Sasol project is among at least 120 of its type planned around the United States , according to data compiled and analyzed by the Environmental Integrity Project, a research and advocacy organization. Motivated by an abundance of cheap natural gas unleashed by hydraulic fracturing—fracking—companies like ExxonMobil and Shell want to build or add on to petrochemical plants, oil refineries and fertilizer plants in places like Mont Belvieu, Texas, and Monaca, Pennsylvania. They have asked state regulators for permission to release a collective 130 million tons per year of carbon dioxide equivalent, a measure of the global-warming potential of certain emissions

Texas Inspectors Fired for Enforcing the Rules  The dismissals of two Railroad Commission inspectors help tell the story of oil and gas regulation in Texas. Former Railroad Commission inspector Fred Wright, who is suing the agency for a wrongful termination, said he was asked to bend the rules to allow wells to begin operating before they met all the regulatory standards for safety. This is a document related to the case. Two former oil and gas inspectors for the Texas Railroad Commission, Fred Wright and Morris Kocurek, were fired within months of each other in 2013. They say they were fired because they demanded that the oil and gas industry strictly abide by state regulations designed to protect the public and the environment. The inspectors’ responsibilities included keeping old and new wells safe and making sure the industry’s often-toxic waste didn’t become a hazard. Below are links to some of the hundreds of pages of commission records that InsideClimate News used to document the praise, promotions, censure and exile that marked the men’s careers. The documents were obtained by filing requests under the Texas Public Information Act.

FIRED: — During their careers as oil and gas inspectors for the Texas Railroad Commission, Fred Wright and Morris Kocurek earned merit raises, promotions and praise from their supervisors.They went about their jobs—keeping tabs on the conduct of the state’s most important industry—with gusto.But they may have done their jobs too well for the industry’s taste—and for their own agency’s.Kocurek and Wright, who worked in different Railroad Commission districts, were fired within months of each other in 2013. Both say their careers were upended by their insistence that oil and gas operators follow rules intended to protect the public and the environment.The incidents Kocurek and Wright describe offer an inside look at how Texas regulates the oil and gas industry, a subject InsideClimate News and the Center for Public Integrity have been investigating for more than a year and a half.The investigation has found that the Railroad Commission and its sister agency, the Texas Commission on Environmental Quality, focus more on protecting the industry than the public, an approach tacitly endorsed by the state’s political leaders. The Railroad Commission is controlled by three elected commissioners who, combined, accepted nearly $3 million in campaign contributions from the industry during the 2012 and 2014 election cycles, according to data from the National Institute on Money in State Politics. Gov. Rick Perry collected a little less than $11.5 million in campaign contributions from those in the industry since the 2000 election cycle. The governor-elect, Attorney General Greg Abbott, accepted more than $6.8 million.

Earthquakes + Massive Water Consumption = Consequences of Fracking  - Earthquake! We must be in California, right? Wrong. As of mid-2014, Oklahoma surpassed California in number of 3.0 or higher magnitude earthquakes. How? Scientists are beginning tospeculate that hydraulic fracturing, or “fracking,” is the cause behind this phenomenon. Currently occurring in more than 25 states, the process uses “massive amounts of water” which “could be responsible for creating a wave of pressure … that triggered the earthquakes.” These “frackquakes” are not the only effect this water-intensive practice of retrieving natural gas has on our environment. In recent years, the U.S. Environmental Protection Agency has reported this method to annually deplete between 70-140 billion gallons of water in the U.S. That’s equal to the water consumption of approximately eighty 50,000-person cities! So why is such an exhaustive system gaining popularity?

Shell Oil May Nix $90M Settlement With Polluted Town Because It Wasn't Kept Secret - Shell Oil Co. is reportedly reconsidering its offer to pay $90 million to residents of a California town with widespread soil contamination, saying they had wanted the settlement to be kept confidential. According to a Law360 report, Shell attorney Deanne Miller told Los Angeles Superior Court Judge William Highberger on Friday that his refusal to keep the terms of the agreement secret left the case unsettled. On Thursday, Shell withdrew its application for a “good faith” settlement with the plaintiffs in Carson, California, who claim they’ve been plagued with cancer, blood disorders, and other illnesses from exposure to benzene, methane, and other hazardous chemicals in petroleum. Shell had announced in November that it would pay $90 million to 1,500 current and former Carson residents, specifically those living in a neighborhood called the Carousel Tract. The houses in Carousel were built in the 1960s, directly on top of a former Shell oil tank farm that had been buried. In 2008, the Los Angeles Regional Water Quality Control Board found that the soil in Carousel was widely contaminated with unhealthy levels on benzene, a known human carcinogen that can cause blood disorders and birth defects. The Board deemed Shell the responsible party, and residents who claimed they had been harmed — either with illnesses or declining property value — sued the company in 2009.

Call For Crude-By-Rail Moratorium In California After Train Derailment -- A train derailment last week has prompted a California state legislator to call for a moratorium on crude-by-rail shipments through the state’s “most treacherous” passes.  Twelve cars  derailed on a Union Pacific rail line along the Feather River northeast of Oroville, CA in the early morning hours of November 5th. The state Office of Emergency Services responded by saying “we dodged a bullet” due to the fact that the train was carrying corn, some of which spilled into the river, and not oil.  State Senator Jerry Hill (D-San Mateo), a vocal critic of the state’s emergency preparedness for responding to crude-by-rail accidents, does not think California should wait around for a bullet it can’t dodge before taking action. Hill sent  a letter to Governor Jerry Brown calling for a moratorium on shipments of volatile crude oil from North Dakota’s Bakken Shale and other hazardous materials via the Feather River Canyon and several other high risk routes throughout California.  “This incident serves as a warning alarm to the State of California,” Hill wrote in the letter. “Had Tuesday’s derailment resulted in a spill of oil, the spill could have caused serious contamination in the Feather River, flowing into Lake Oroville and contaminating California’s second largest reservoir that supplies water to the California Water Project and millions of people.”

Activists protest Nevada public land auctions for fracking - A coalition of activists on Tuesday protested outside the office of the federal Bureau of Land Management in Reno to decry an auction of huge tracts of public land for private oil and gas exploration that they claim damages the environment and guzzles water in a time of drought. Wearing blue and carrying empty jugs to signify the loss of water, protesters said that auctioning leases on 189,000 acres of public lands in the state’s eastern reaches had angered Nevadans of all social stripes and politics to speak out against fracking, which they say threatens public health, wildlife and quality of life.   The precise formulations and types of chemicals used inn fracking have been mostly kept secret by the industry, which says the information is proprietary. Activists say the process pollutes the aquifer beneath the drill sites, harming precious groundwater in a desert state. In September, BLM officials announced they will begin auctioning off parcels in eastern Nevada for fracking leases. On a cold Reno Tuesday, several dozen activists waved signs that showed their diversity, including ranchers, real estate agents and Native American leaders: “Nevada is Not for Sale,” one read, while another boasted “Realtors against Fracking.” One animal lover posted a sign on a pet that read “Dogs against Fracking.”

Sage grouse scares off BLM oil, gas bidders in Nevada - (AP) — Concerns about potential future protection of the sage grouse scared off bidders for all but one of 97 oil and gas leases the U.S. Bureau of Land Management offered at auction Tuesday for energy exploration across about 300 square miles of northeast Nevada. Two dozen anti-fracking protesters rallied outside BLM headquarters in Reno against the drilling that likely would utilize underground hydraulic fracturing that critics say threatens fish, wildlife and Nevada's limited supply of groundwater. But Patricia LaFramboise, chief of BLM's minerals adjudication branch, said concern about the potential federal listing of the greater sage grouse under the U.S. Endangered Species Act was the main reason only one of the six representatives of the oil and gas industry offered the lone bid for the single 473-acre parcel in Nye County at the minimum $2 per acre. The 97 leases that went on the auction block covered more than 186,000 acres of northeast Nevada, from north of Austin to near the Utah border.

Leaking wells a burning issue: Serge Fortier has been trying for years to raise awareness about leaking wells along the St. Lawrence River. Nothing has been quite as effective as setting them on fire. "The reaction came very rapidly," says Fortier, an environmental activist whose fiery demonstration near Ste-Francoise has prompted the Quebec government to acknowledge it has a problem - one that regulatory officials are often not keen to discuss. In Alberta, where old wells have been uncovered in schoolyards, backyards and at shopping malls, officials are saying little about a well that has now turned up at Calgary's airport, which is in the midst of a $2-billion expansion. "There is an investigation right now with respect to an abandoned well at the airport," Brenda Cherry, vicepresident of closure and liability at the Alberta Energy Regulator, told Postmedia News. She would not comment on whether the airport well is leaking or if it's under the new 4.2-kilometre runway, saying details are "confidential" until the investigation is complete. And in British Columbia, where it's estimated as many as 10 per cent of oil and gas wells leak, one leak reportedly cost $8 million to repair. More than 550,000 holes have been drilled in Canada since North America's first well gushed "black gold" in southern Ontario in 1858. And industry is boring another 10,000 wells a year as controversial fracking operations in Western Canada extend their reach. As the wells proliferate, so do concerns about the way many of the kilometresdeep holes in the ground are leaking because of cracked, poorly formed and decaying plugs and seals.

Why US Shale May Fizzle Rather Than Boom -- The Shale Revolution may not really end up being a revolution after all. A new study in Nature finds that the estimates for shale gas production could be vastly overblown, and production could peak within the next decade. It is first important to note that forecasting energy production years into the future is always difficult and pinpointing the trajectory of oil and gas production years out is an impossible task. However, many forecasters, including the closely-watched Energy Information Administration (EIA), have highly bullish projections on the ultimate recoverability of natural gas trapped in American shale.For example, in its latest Annual Energy Outlook, the EIA predicts that shale gas production will continue to climb upwards over the next several decades. By 2040, the agency forecasts, the U.S. will be producing 56 percent more natural gas than in 2012, largely driven by a doubling of natural gas production from shale. Writing in Nature on December 3, Mason Inman reports that such predictions could be wildly optimistic. Using data from a team of researchers from the University of Texas, which studied the topic for three years, Inman concludes that the shale story is not nearly as revolutionary as everyone thinks. Inman says that shale gas production from the big four shale plays – the Marcellus, Barnett, Fayetteville, and Haynesville – which account for two-thirds of the country’s shale gas output, will peak in 2020, declining thereafter. If that is true, even the EIA’s most downbeat scenario for shale gas production could be overly optimistic.

The American Miracle Idea Of Energy Independence Is Crumbling - And on the Seventh Day, God sold his shares? What do you think, is He short the market? Short oil? Oil does look up a tad, but then the dollar lost about a percent vs the euro, so that definitely feels like a headfake from where I’m sitting. The dollar lost more vs the euro than oil gained against the dollar. Gold and silver have somewhat more solid looking gains, but that’s against the same feverish buck, so what does it really mean? We’ll have to wait and see. Now, be honest, who’s getting nervous yet? WTI oil yesterday fell 4.5% and tumbled through $63. $63, brother, you remember when it was $80 and you were thinking wow, that’s a long way down? That’s when you took that suit to the cleaners, and that feels like just yesterday, don’t it, and here we are, it’s down another 20%+. Anyone worried about their Christmas bonuses yet? New Year’s? The central-bank-propped-up stock exchanges didn’t even like what they saw anymore either yesterday, let alone today. Greece down -13%, Shanghai -5.4%, Argentina -7.1%, Europe on average -2.5%. And that’s on a weak dollar day… Think we’ll have a lot of those days? Think God is short the greenback? Is oil going to break the whole facade? What do YOU think? You think that maybe we’ve had enough of this charade? Is this the one God, let alone the Yellens and Draghis on this planet can’t manipulate from their comfy seats? The Fed can buy Exxon and Conoco, and Draghi can try and support Shell and BP, or maybe the Bank of England should, but oil is a global thing, it’s not like Treasuries or Greek debt that you can just buy a $1 trillion handful of every week or so. But maybe God found a way to keep some more of the stuff in the ground. Who was it again that said nature developed man only to get rid of a carbon imbalance on the planet, to get it out of the soil and back into the atmosphere?

Oil falls more than $1 as rout extends, Morgan Stanley cuts forecast (Reuters) - Oil prices fell by more than a dollar on Monday to near their lowest levels since 2009 after Morgan Stanley cut its price forecast for Brent, saying oversupply will likely peak next year with OPEC deciding not to cut output. "Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley said in a report. Brent crude for January delivery dropped to a low of $67.73 a barrel, near last week's trough of $67.53 which was its weakest since October 2009. It was down 97 cents at $68.10 by 0051 GMT. Morgan Stanley slashed its 2015 base case forecast for Brent to $70 from $98 and for 2016 to $88 from $102. In its bear-case scenario, the bank sees the crude benchmark falling to a low of $43 in the second quarter of next year. Top oil exporter Saudi Arabia blocked calls from poorer members of the Organization of the Petroleum Exporting Countries to reduce production at the group's meeting on Nov. 27, fueling a further slide in oil prices which have lost more than 40 percent since June. "With OPEC on the sidelines, oil prices face their greatest threat since 2009, but we expect a volatile 2015 rather than a one-way trade," Morgan Stanley said in a report. U.S. crude fell 96 cents to $64.88 a barrel, after hitting a session low of $64.63. West Texas Intermediate crude dropped to $63.72 last week, its lowest since July 2009.

Crude oil drops to 5-year low on oversupply forecasts - Brent crude oil fell almost $2 a barrel on Monday to a new five-year lows on predictions that oversupply would keep building until next year after OPEC decided not to cut output. "Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley analyst Adam Longson said. In a report dated December 5, the US investment bank said oil prices could fall as low as $43 a barrel next year. The bank cut its average 2015 Brent base case outlook by $28 to $70 per barrel, and by $14 to $88 a barrel for 2016. Brent crude for January was down $1.45 cents at $67.62 a barrel by 1000 GMT, having fallen $1.72 to $67.35 - its lowest since October 2009. US crude was down $1.16 cents at $64.68 a barrel, after hitting a session low of $64.63. The US contract, also known as West Texas Intermediate, touched $63.72 last week, its lowest since July 2009.

Oil Slumps to Five-Year Low Amid Concern Funds May Start Selling -  Brent crude slumped to a five-year low amid concern that hedge funds and other money managers bet too much on rising prices. West Texas Intermediate also fell. Futures dropped as much as 3.3 percent in London and 2.6 percent in New York. Net-long positions on Brent rose to the highest in four months in the week to Dec. 2, according to data from the ICE Futures Europe exchange, while bullish bets on WTI climbed the most in 20 months. Brent declined 9.9 percent in the period while WTI slumped 9.7 percent. “The near-term risk is for additional long-liquidation,” “The belief is spreading that we could hit $60 or even lower before this stabilizes.” Oil is trading in a bear market as the U.S. pumps at the fastest rate in more than three decades and global demand growth slows. Explorers in the U.S. increased the number of operating rigs last week, defying predictions of a drilling slowdown as price plunge, data from Baker Hughes Inc. show. Brent for January settlement declined as much as $2.30 to $66.77 a barrel on the London-based ICE Futures Europe exchange, the lowest since Oct. 7, 2009. It declined $1.84 to $67.23 at 1:38 p.m. local time. The European benchmark crude traded at a premium of $2.65 to WTI.   WTI for January delivery dropped as much as $1.74 to $64.10 a barrel in electronic trading on the New York Mercantile Exchange. It slid 97 cents to $65.84 on Dec. 5, the lowest close since July 2009. The volume of all futures traded was about 3 percent above the 100-day average for the time of day. Prices decreased 34 percent this year.

Signs Of Peak Oil Starting To Emerge: What caused the recent crash in the oil price from $110 (Brent) in July to $70 today and what is going to happen next? With the world producing 94 Mbpd (IEA total liquids) $1.4 trillion has just been wiped off annualized global GDP and the incomes of producing and exporting nations. Energy will get cheaper again, for a while at least. The immediate impact is a reduction in global GDP and deflationary pressure. There is a lot of information to review and summarize and so this week and next we will present the story in stages culminating we hope with an oil market forecast scenario. The concept of peak oil remains controversial. One school observes that the Olympic Peak of July 2008 (87.9 Mbpd, total liquids IEA) has been swept away by successive production records, the latest data from the IEA showing 94.2 Mbpd. In a recent post I showed that all of the growth in total liquids since May 2005 has come from either low quality (NGL) or expensive supply (light tight oil [LTO] and tar sands) (Figure 2). And most of this growth is located in the USA and Canada.  But while the USA and Canada have been bathed in the warm glow of growing supplies of expensive oil, the RoW has seen their supplies stagnate and fall (Figure 1). The importing countries like most of Europe, China, India, Japan and S Korea are all competing for finite supplies from OPEC. Since oil is often seen as the lifeblood for the global economy, not managing to access enough of it at the affordable price you want inevitably strangles growth out of the economy. It is this competition for supplies that has underpinned $100+ oil and undermined economic growth for so long.

3 Things to Keep in Mind About Falling Oil Prices - Ten years ago, the kind of steep drop in oil prices we’ve seen in recent weeks would have been cause for unmitigated celebration. Economists almost universally analogized higher oil prices to a tax, with the proceeds largely going abroad to OPEC oil-producing countries. So any reduction in oil prices was viewed like a taxcut. Who could be against that?  It’s an indication of how much has changed in energy markets over the past decade that fallen oil prices are viewed with mixed feelings. Yes, some consumers are understandably happy that gas prices almost everywhere have dropped below $3 a gallon. But others worry that the falling oil prices, now down to the mid-$60s per barrel, and possibly falling to about $60 per barrel, will crimp efforts by U.S. shale oil producers to pump more oil out of existing wells and, worse, induce them to quit looking for more. Some environmentalists worried about fracking, which has made shale oil (and gas) economic relative to renewable fuels, might be happy that it could be curtailed. But other environmentalists worry that lower oil prices will yet again stifle efforts to wean U.S. consumers off of alternative fuels that are more expensive but more environmentally friendly–solar and wind, in particular. So what to expect from the decline in oil prices? For a thoughtful answer, I suggest reading experts at Resources for the Future, one of the most balanced energy-environmental think tanks around. A recent post by RFF scholar Alan Krupnick provides some words of wisdom. For one thing, the price drop hasn’t yet curtailed domestic oil production, which is running at 9 million barrels a day, a high.  Second, if prices remain low, it could induce mergers among some of the smaller shale oil producers, which Mr. Krupnick thinks is not all bad: Larger companies buying them out are more likely to have the resources and skills to take precautions necessary to preserve the environment when fracking. Third, low prices are temporary, so enjoy them while you can. Over the long run, a growing world economy will put upward pressure on prices.

Saudis Cut Oil Prices Again In Bid To Maintain Market Share --Saudi Arabia may have led the move to keep OPEC’s crude production high and thereby keep prices low, but that doesn’t mean it isn’t concerned about keeping its share of the global oil market.  Riyadh evidently demonstrated that on Dec. 4 when it dramatically cut oil prices for Asian and US customers. Saudi Aramco lowered the price of all its oil grades for Asian customers in January by between $1.50 and $1.90 per barrel below December prices. For US customers, prices for all grades will decline by between 10 cents and 90 cents.  At the same time, Saudi Aramco raised prices for all its grades of crude for clients in the Mediterranean and in northwestern Europe by between 20 cents and 50 cents per barrel.  The Saudis haven’t explained their reasoning, and some analysts told Reuters that the pricing change is merely a reflection of the oil market. But others note Saudi Arabia has been cutting prices to certain customers, especially in the US, since before it steered the cartel to maintain production levels at the OPEC summit in Vienna on Nov. 27.  Now, with world oil prices falling daily – they’re down by nearly 40 percent since mid-June – some observers and some OPEC members believe the Saudis aim to maintain their market share, especially in the US. The American oil industry has been experiencing a domestic boom, but it’s predicated on expensive hydraulic fracturing. Cheap Saudi oil, they reason, could undercut that boom.

How the U.S. could fight OPEC and win (and why it won't) -- OPEC has declared war on American oil production with the intention of making the country more dependent on imported oil and on oil in general. By refusing to cut production in the face of weakening world demand, the cartel has allowed oil prices to fall more than 35 percent since mid-year to levels that are likely to make most new oil production in America's large shale deposits unprofitable. That could not only halt growth in U.S. production, but may lead to an actual drop because production from already operating deep shale wells declines about 40 percent per year. The United States could chose to fight back and possibly win this war with OPEC by employing one simple, big move. But, I can confidently predict that the country will not do it. Why? Because it involves a tax, a tariff actually. Back in 1975 then-Secretary of State Henry Kissinger proposed that the world's oil importers adopt a floor price for oil. The purpose was threefold: 1) encourage domestic oil production, 2) accelerate the development of alternative energy sources by making their price more competitive with oil and 3) encourage conservation of oil and oil-derived products such as gasoline and diesel fuel. The easiest way to achieve the floor price, of course, would be to slap a sliding tariff on imported oil. The formula for such a tariff would be simple: The floor price minus the price of imported oil unless the price of imported oil equals or exceeds the floor price, in which case, the tariff would be zero. Imposing a tariff that keeps U.S. oil prices above, say, $100 per barrel would only return the domestic price of gasoline and other refined products to their level of just six months ago. Presumably, that wouldn't be much of a shock to consumers.

Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50 -- The crude carnage continued overnight with oil prices across the entire complex crashing through support to new cycle lows. Despite recent strategic reservce demand in China, the world's oil glut continues as global growth expectations plunge leaving WTI trading as low as $64.10, Brent $66.77 (narrowing the Brent-WTI spread to $2.68 from $3.23 on Friday), and most stunning of all, Canada Heavy as low as $49.24. Speculators and money managers appear to be BTFD as they increased net long positions last week (amid the price slump) but comments from Kuwait Petroleum's CEO and Iran officials suggest 'lower for longer' on prices will be the norm. As Morgan Stanley notes, "with OPEC on the sidelines, oil prices face their greatest threat since 2009 and appear on track for an extremely volatile 2015"

Here's why oil companies should be a lot more profitable than they are (Reuters) - The  shareholders of oil majors such as Exxon, Chevron, Shell, BP and Total could be among the biggest beneficiaries of the price slump, if it forces their corporate managements to abandon some of the bad habits they acquired in the 40-year oil boom when OPEC first established itself as an effective cartel in January, 1974. If this period of cartelized monopoly pricing is now ending, as Saudi Arabia has strongly hinted in the past few weeks, then it is time to re-focus on some basic principles of resource economics that Big Oil managements have ignored for decades, to their shareholders’ enormous cost. The most important of these principles is “diminishing returns”: The more oil that corporate geologists discover, the lower the returns their shareholders can hope to achieve, because new reserves will almost invariably be more expensive to develop than the ones discovered earlier that were, almost by definition, more accessible. This inherent flaw in the oil companies’ business model was disguised for the past 40 years by the fact that oil prices rose even faster than the costs of exploration and production. But this is where a second economic principle now starts to bite. Unless a market is totally dominated by monopoly power, prices will be set by the most efficient supplier’s marginal costs of production – in layman’s terms, by the cost of producing an extra barrel from oil reserves that have already been discovered and developed. In a fully competitive market, the enormous sums of money invested in exploring for new oil fields could not be recovered until all lower-cost reserves ran dry and there would be no point in exploring for anywhere outside the Middle Eastern and central Asian oilfields where the oil is easiest to pump.

Oil Falls to 5-Year Low, and Energy Companies Start to Retrench -  The price of crude oil continued to collapse on Monday, plunging to a five-year low, as oil giants began to scale back their drilling ambitions and pare the ranks of their workers.On the same day that the American oil benchmark traded around $63 a barrel, down more than 4 percent, ConocoPhillips announced it would cut investment spending in 2015 by 20 percent, the biggest sign yet that major oil companies are contracting.The announcement came on the heels of BP’s notice that it would cut middle management and other jobs in the months ahead.Both moves suggested that the 40 percent drop in oil prices since July had spread pain beyond small exploration companies that were highly leveraged and most vulnerable to oil price swings.“We are setting our 2015 capital budget at a level that we believe is prudent given the current environment,” said Ryan Lance, ConocoPhillips’s chairman and chief executive.But even with the sharp cut in investments, the company projected that its oil and gas production would grow 3 percent next year because of recent start-ups of major projects in Canada, Europe and Asia, as well as increasingly productive wells being drilled in the Eagle Ford and Bakken shale fields of Texas and North Dakota.That forecast, combined with the slow decline in drilling rigs deployed in fields worldwide, indicates that whatever hopes Saudi Arabia and other OPEC producers have that lower prices will lead to quick production declines are unlikely to happen before late 2015. The cartel decided last month to keep its 12 members’ production quotas steady, in a move that accelerated the oil price drop.

Oil Price Drop Not Affecting US Drilling --The drop in oil prices caused by a supply glut hasn’t daunted US drillers. Oil companies are still drilling in the United States at the highest rate in more than 30 years even as demand in China and Europe sags. In fact, the Houston-based oilfield-services giant Baker Hughes is reporting that the number of active US rigs saw a net increase of three to 1,575 the week ending Dec. 5.  This defies predictions that drilling, much less exploration, would decline because of OPEC’s decision on Nov. 27 not to reduce its production limit of 30 million barrels of oil per day. The move was orchestrated by Saudi Arabia and other extremely wealthy Persian Gulf oil producers despite the pleas of poorer members such as Venezuela and Libya. The wealthier OPEC members are defending their market share and apparently challenging American shale oil producers, whose methods, including hydraulic fracturing and horizontal drilling, are more expensive than conventional extraction methods and unsustainable if prices drop too low.It’s too early to say whether this modest increase is a signal that US producers are fighting back against OPEC. Although the American rig count reached a record 1,609 in mid-October, the number has receded in five of the past eight weeks, according to the Baker Hughes report, issued on Dec. 5. Still the count is more than 200 rigs higher than in December 2013 when 1,397 rigs were drilling. In the week ending Dec. 5, the oilfields with the most new rigs were the Granite Wash in Texas and Oklahoma, according to the Baker Hughes report. At the same time, some rigs were removed from the Cana Woodford field in Oklahoma, Eagle Ford in Texas and Williston, spanning areas of North Dakota and Montana. Meanwhile, Baker Hughes reports that the number of vertical gas-drilling rigs remained static at 344, down by 11 from the same week in 2013. The number of these rigs had peaked at 1,606 in 2008. And the net number of horizontal rigs for both shale oil and gas dropped by three to 1,368 after peaking at 1,372 in mid-November.

Oil Price Drop Not Affecting US Drilling Much - Yves Smith - There have been two view of how the sudden plunge in oil prices would affect US oil production. Yet it is instructive to see how different reporters are reading the same data sources. The Financial Times in a story tonight that also looked at oil production levels, pointed to a decline in rig count and in filing new drilling permits:  Last Friday Baker Hughes, the energy services group due to be bought by rival Halliburton, published data which showed the number of rigs drilling for oil in the Eagle Ford shale of south Texas had fallen by 16 since October to 190. The number of rigs in the Bakken shale and related North Dakota formations had meanwhile dropped by 10 to 188. Also last week Drillinginfo, a consultancy, published figures showing that the number of applications for permits to drill new wells had fallen by about 30 per cent in both the Bakken and the Eagle Ford areas last month compared with October. That may overstate the likely drop in activity, because companies will have a backlog of permits they can use, but it is clear the industry is responding to a steep drop in the oil price. The Financial Times also points out that areas that will be hardest hit are the marginal ones, and contends that good assets in the hands of overlevered drillers will move to stronger owners. It ends on an upbeat note:. “Even at $50 oil, though, US production probably plateaus, but it doesn’t start going down.” However, keep in mind that these comparatively sunny views are based on the assumption that oil prices next year average $70. If they are sustained below that level, the picture starts to change. Note this contrasting view from Bank of America, via Ambrose Evans-Pritchard:The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned. Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a mucher cheaper source of gas for Europe…

Where U.S. Factories Have the Most to Gain From Cheap Oil - Anyone who drives a car or truck that isn’t a plug-in electric benefits from cheaper oil every time they pull up to the gas pump. But for manufacturers, the benefits are far more unevenly distributed. Consider tiremakers and steel plants. Both use lots of petroleum-derived raw materials and are already counting big savings from this year’s rapid fall in oil prices. U.S. oil prices continued to swoon on Thursday, nearing $60 a barrel for the first time in five years. The slide is driven by a glut of supply that’s expected to endure well into next year. Cheaper oil is usually good for the economy—and for domestic manufacturers. But not everyone gets the same boost and some are outright burned when oil falls. For those who don’t use much oil, such as apparel or computer makers, the benefits are more muted. And at the other extreme are producers of the valves, pipes and other equipment used to explore and process oil, who are feeling the squeeze as customers cut back investments. To be sure, the global economy and its manufacturers aren’t as dependent on oil as they used to be. Oil consumption by the 34 members of the OECD in 2013 was roughly equal to its 1996 level. But real GDP for the group was 40% higher. A recent report by UBS notes that means it “takes almost 30% less oil to produce a dollar of OECD GDP today than was the case in 1996, and all things being equal this means that the economic impact of an oil price change today is 30% less than was the case in 1996.”

Oil Prices Pushing Down Business Costs, Not Just for Airlines, Shippers - Businesses are paying less for everything from air freight to lubricants, showing that the steep drop in global oil prices is benefiting more than just consumers at the gas pump.The savings have the potential to bolster profits and could eventually trickle down to consumers. For now, energy-related costs are posting the largest drops. The price one business charges another for gasoline fell 14% from a year earlier in November, the Labor Department said Friday. Jet fuel is down 10% and diesel fuel has fallen 11%. That’s a positive sign for airlines, shipping firms and other companies that depend heavily on fuel.“These oil prices, if they continue…our operating costs will be lower than we thought,” Prices for certain business services are also easing.Air freight costs are down 2.6% from a year earlier. Truck transportation costs fell the past two months, offsetting gains earlier in the year. Airline passenger prices have fallen for three straight months, though were still up 2.6% from a year earlier.Prices of several commodities derived from oil are down from a year ago. Lubricating oil base stocks have fallen by 21%, synthetic rubber costs are down 2.7% and plastic packing prices fell 1.2%. How much of those savings will be passed along to consumers is difficult to judge given that labor costs, customer preferences and competition have a greater sway on most consumer goods—including airfares, clothing and tires—than on gasoline.

Cheaper Oil Will Actually Hurt Factory Sector’s Growth, Manufacturers Say - Low oil prices are going to end up costing U.S. factories some of their growth next year. Cheaper oil is a two-edged sword for manufacturers. On one hand, factories that use oil and products derived from it save big money and it’s good for consumers, who end up with more cash to spend on things other than gasoline. But it also means big cutbacks in U.S. oil development that will reverberate back to makers of everything from steel pipes to earthmovers. Those companies are already feeling the squeeze. The upshot is going to be less manufacturing growth next year, according to new projections from the MAPI Foundation, the research arm of the Manufacturers Alliance for Productivity and Innovation. The group, based in Arlington, Va., says factory output will grow by 3.4% in 2015, rather than the 3.8% projected in early November. “It’s kind of surprising,” because you’d expect cheaper oil to be a net positive, says Don Norman, MAPI’s director of economic studies. The problem is investments in shale development have grown so large that cutbacks there will overwhelm the gains. Mr. Norman estimates a quarter of the $1.02 trillion U.S. businesses poured into capital equipment this year went into oil and gas. This is only the second time MAPI has revised a quarterly growth estimate since it began doing them in 2004.

Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets - The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year. “Anything that becomes a mania -- it ends badly,” . “And this is a mania.” The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis. Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44 percent to $60.46 a barrel since reaching this year’s peak of $107.26 in June. Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7 percent in June, according to Bank of America Merrill Lynch index data.

Oil Pressure Could Sock It To Stocks - With crude sliding through the key $60 level, oil pressure could stay on stocks Friday. West Texas Intermediate futures for January closed at $59.95 per barrel, the first sub-$60 settle since July 2009. The $60 level, however, opens the door to the much bigger, $50-per-barrel level. Besides oil, traders will be watching the producer price index Friday morning, and it’s expected to be off 0.1% with the fall in energy. “The big level is going to be $50 now in terms of psychological support. Much as $100 is on the upside,” said John Kilduff of Again Capital. Oil stands a good chance of getting there too. Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does. It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.” “Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday. “In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

Junk-Bond Well Runs Dry as Oil Shock Quells Debt Supply - The market for new junk bonds has all but shut as plunging oil prices and borrowing costs at an 18-month high deter issuers. Even as sales of high-yield, high-risk notes in the U.S. reached a record $353.1 billion this year, offerings have stalled this month with the slowest pace for a December since 2011. Junk is on track to deliver its second straight quarterly loss, the first time that’s happened since 2008, and trimming gains for the year to 1.47 percent, according to Bank of America Merrill Lynch index data. Issuers see little reason to test investor appetite as markets get whipsawed by a tumble in commodity prices led by oil falling below $60 a barrel for the first time since 2009 and a slowdown in global economic growth. The pain is being felt most by energy companies, which make up 17 percent of the high-yield bond market. “Momentum in high-yield is coming to a halt,” . “We are still seeing the results of oversupply, most of which comes from the sector that has been disproportionately impacted by big changes in energy prices, along with global growth worries that have caught the market wrong-footed.”

Oil Rot Spreading in Credit  - Credit investors are preparing for the worst. They’re cleaning up their portfolios, selling riskier debt that’s harder to trade in bad times and hoarding longer-term government bonds that do best in souring markets. While investors have pruned energy-related holdings in particular as oil prices plunge, they’re also getting rid of other types of corporate bonds, causing yields to surge to the highest in more than a year. “We believe the pervasive nature of the sell-off is more reflective of overall liquidity concerns in the cash market than of fundamental deterioration,” Barclays Plc (BARC) analysts Jeffrey Meli and Bradley Rogoff wrote in a report today. “The weakness, while certainly most pronounced in the energy sector, has been broad based.” Rather than waiting around for a trigger to escalate this month’s selloff, investors are pulling out of dollar-denominated corporate debt now, causing a 0.8 percent decline in the notes this month, according to a Bank of America Merrill Lynch index that includes investment-grade and junk-rated securities. This would be the first month of losses since September. Yields on the debt have surged to 2.21 percentage points more than benchmark rates, the highest premium in 14 months.

Ilargi: Will the Oil Collapse Kill Energy Junk Bonds?  - naked capitalism -  Yves here. Some ahead-of-the-curve analysts have warned of the magnitude of energy debt, mainly junk bonds issued to fund shale gas projects, that are now at risk thanks to plunging oil prices whacking the entire energy complex. We've heard over the last few weeks sunny proclamations of how many shale players have lower cost structure than commonly thought and could ride out weak prices. The supposedly super bearish Bank of America report published earlier in the week called for oil prices to drop to a scary-sounding $50 a barrel. But the document sees that aa a short-term phenomenon. As supply and demand equilibrates (shorthand for "of course some people will drive more, and a lot of wells will get shut down"), it anticipates that oil prices will rebound to $80 to $90 a barrel in the second half of 2015.  The problem with conventional wisdom, even pessimistic-looking conventional wisdom, is that the noose of a lot of borrowings is likely to change the decision-making process of those producers. As  the Financial Times’ John Dizard pointed out, companies with a lot of debt are likely to keep pumping, profits be damned, until the money guys choke them off. Banks are already signaling that they will be lenient, but that’s not the same as extending new loans. Nevertheless, the perverse incentive for producers with high debt levels is to keep pumping, even at a loss, in order to generate enough cash flow to keep servicing the debt. That means that wells won’t be shut off as soon as a P&L calculus would indicate, which in turn means the energy oversupply is likely to continue longer than many experts anticipate. Whether that is a mere couple of months or a more dislocating six months plus remains to be seen.

Hilsenrath’s Take: Rising Dollar and Falling Oil Could Be Recipe for a U.S. Asset Boom - The shifting global economic landscape has important implications for how the U.S. recovery – and the trajectory of U.S. dollar asset prices – will evolve in 2015. A strong dollar and weak growth overseas portend downward pressure on U.S. exports. At the same time, these forces combined with falling commodities put downward pressure on domestic inflation. That could restrain interest rates even if the Federal Reserve wants to start nudging them higher. A strong dollar also points to increased capital flows into the United States. Capital flows and low interest rates, in turn, could be a formula for more consumer spending and asset price appreciation in stocks, real estate and other investment markets. Some evidence of these trends is already accumulating, such as this WSJ story detailing a surge of Chinese investment in the New York real estate market.Could that be the start of a new asset boom in the U.S. and a source of future financial instability? It is too soon to say, but it’s something Fed officials will likely be watching for.Though this is surely no return to the booming 1990s, there are some echoes. In the late 1990s,  during the Asian financial crisis, oil prices tumbled, the dollar rose, and the U.S. economy and stock prices accelerated.

"Massive Correction" In Energy Stocks Coming; Why The US Won't Bail Out Its Oil Industry -- Having predicted oil prices below $80 in 2014 at the beginning of the year, Saxobank's Steen Jakobsen has a leg or two to stand on when he warns of a "massive correction" in energy stocks andthe drop in prices will rapidly become a headwind for the US economy, adding that "it will subtract 0.5% from GDP, bare minimum." He further notes that due to the strategic importance of the oil industry to America, he suspects the government will attempt (a likely highly unpopular) bailout of the Shale sector. However, as Raul Ilargi Meijer notes, there is a problem for any bailout (aside from public angst), in that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil...And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.

Non-fundamental factors drag crude oil prices - The precipitous fall in crude oil prices has spawned a whole lot of discussion on the causes of the price action and the desirability or otherwise of low prices in the long-term interest of the industry as well as the consumers. Current rates hover slightly above $60 a barrel, down from around $85 a barrel two months ago and $95/barrel a year ago. Most analysts attribute the price collapse to a combination of factors on the demand and supply side. They assert that market fundamentals have undergone a change — rising supplies and weak demand growth. Expanding shale oil production in the US together with reluctance of most OPEC members and non-OPEC producers to cut production is cited as a reason for robust supplies. That demand-supply fundamentals have impacted crude prices is only a part of a bigger story and hardly helps explain the current price situation. If anything, reasons for the price fall are non-fundamental in nature covering geo-political developments, monetary policy, currency movements and speculation.  Quantitative easing by the US Fed meant availability of ‘easy money’ at nearly no cost for an extended period of time. Slowdown in the US economic activity including high unemployment rates pushed the value of dollar lower. At some stage, an euro could buy $1.38. A weak dollar props commodity prices up. As for crude, geopolitical instabilities exacerbated the situation in different parts of the world and raised apprehensions of supply shock. So, a combination of easy money, weak dollar and geopolitical tensions created an ideal situation for speculative capital to rush in. In a commodity market with fairly balanced demands-supply fundamentals, flow of speculative capital exerts an exaggerated impact on prices. By the market’s very nature, the price action is disproportionate to the flow of funds.

Winter demand to provide floor for crude oil prices: Platts expert - Higher winter demand may provide the necessary floor to crude oil prices in the short-term, even as Russia looks to India to fill the gap post the western sanctions, a senior official at Platts told Gulf News. On Friday, Brent for January settlement fell 57 cents to end at $69.07 per barrel, the lowest close since Oct. 7, 2009. Prices have slipped 38 per cent in 2014. Market has been on a decline mode as traders eye surplus oil supplies to meet weak oil demand post the Opec decision to maintain output. But after a free fall in prices, “the expectations are the higher winter oil demand in the northern hemisphere might provide a temporary floor, with a downward drift resuming in Q2 next year,”  The May quarter has been the traditional slow demand season, when 5-6 million barrels per day of refining capacity worldwide is expected to go offline for seasonal maintenance, she said.  Platts' expert feels weak demand for crude oil to continue from Europe, which is still reeling under recession. Factored into the current market bearishness is expectation of European demand continuing to drift sideways or even slide lower in the coming months, as the economic headwinds remain in place, said Hari.

Energy Quote of the Day: ‘Oil Prices are Expected to Remain High Enough in 2015…’ - Breaking Energy - Energy industry news, analysis, and commentary: Today the US Energy Information Administration slashed its 2015 oil price forecasts, but the statistical arm of the DOE still expects total oil output to increase to volumes not seen since 1972.  As we reported last week, it will take some time before current lower oil price levels manifest in lower US oil production volumes. And while most analysts have cut their average 2015 oil price forecasts, many see prices strengthening again toward the end of next year. For example, Barclays expects quarterly average WTI prices of $58 per barrel in Q1, $61/bbl Q2, $68/bbl Q3 and $76/bbl in Q4. For its part, the EIA forecast WTI to average $63/bbl next year and the “discount of WTI to Brent crude oil is forecast to widen slightly from current levels, averaging $5/bbl in 2015. “U.S. oil production growth is expected to slow next year in response to lower crude prices, but annual output is forecast to still increase to the highest level since 1972.” “Continued lower oil prices will make some drilling activity less profitable in both emerging and mature U.S. oil production areas. However, oil prices are expected to remain high enough in 2015 to support new drilling in the major shale areas in North Dakota and Texas, which account for most of the growth in U.S. oil production.”latest Short-Term Energy Outlook

OPEC Sees Weakest Demand for Its Crude in 12 Years in 2015 - - OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and lower demand estimates. Brent fell below $65 a barrel for the first time since 2009. The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. “The fundamentals outlined in the report look quite bearish,” Abhishek Deshpande, oil markets analyst at Natixis SA in London, said by e-mail. “Fiscal balances are a huge problem for weaker OPEC members, so I won’t be surprised if they call for an emergency meeting early next year.” Prices now are below what 10 out of OPEC’s 12 members need for their annual budgets to break even, according to data compiled by Bloomberg. Kuwait and Qatar are the exceptions. Saudi Arabia, OPEC’s biggest member, has $742.4 billion of reserve assets, data from the country’s monetary agency show. OPEC’s next meeting is due to take place on June 5. Brent crude, the global benchmark, fell as much as 4.2 percent to $64.04 a barrel, the lowest since July 2009. It traded at $64.30 at 3:39 p.m. in London.

Oil Price Tumbles After OPEC Releases 2015 Forecast - The demand for oil in 2015 will drop to its lowest level since 2002 because of an oversupply of crude and stagnant economies in China and Europe, according to OPEC’s latest forecast. And that’s just one of several sour estimates.  OPEC’s monthly report said demand for the cartel’s oil will fall to 28.9 million barrels per day next year, 280,000 barrels lower than its previous forecast and the lowest in 12 years. Add to that a new report from the US government’s Energy Information Administration (EIA), which also cut its 2015 forecast for growth in global oil demand by 240,000 barrels per day, down to 880,000 barrels per day.  For 2014, the EIA expects demand will be about 960,000 barrels per day. And yet on Nov. 27, OPEC refused to lower its production levels below 30 million barrels a day, adding to the oil glut that started with the US boom in high-quality shale oil. As a result, the price of Brent crude has plunged more than 40 percent since June. Futures for US crude also are down dramatically. “There is a growing realization that the first half of next year is going to look very weak,” Gareth Lewis-Davies, a strategist at the Paris-based bank BNP Paribas, told Reuters. “You start to price that in now.” On Dec. 9, meanwhile, the American Petroleum Institute (API) reported that inventories of US crude rose during the week ending Dec. 6 by 4.4 million barrels to 377.4 million barrels. The increase was twice as large as had been expected. US backlogs of gasoline and distillates also were up, according to the API.

Oil price falls below $65 for first time in 5 years - The price of internationally traded oil fell below $65 for the first time in more than five years on Wednesday after Opec lowered forecasts of demand for its crude to their lowest level in a decade. The report by Opec, the producers’ cartel, underlined the looming supply glut facing oil markets amid surging US shale output and weakening global demand, raising hopes of a boost for consumers but piling further pressure on to oil companies. It worsened the already bearish outlook for oil, which has fallen 43 per cent since mid-June. Brent, the international benchmark, fell as much as 4.9 per cent to $63.56, the lowest level since July 2009. West Texas Intermediate, the US benchmark, also fell after US crude stocks unexpectedly rose. “For prices, the path of least resistance is down,” said Michael Wittner, analyst at Société Générale The price slide battered energy stocks, with shares in ExxonMobil slipping 3 per cent, Chevron dropping 3.4 per cent and Petrobras, the Brazilian state-controlled energy group, falling 4.9 per cent. As the price rout continued, there was further evidence on Wednesday that cheaper crude was forcing oil companies around the world to rethink their spending plans. BP announced a sweeping cost-cutting programme that will lead to $1bn in restructuring charges over the coming year and the loss of several thousand jobs across the group. It also signalled it would trim its guidance for capital expenditure for 2015.

Why OPEC still has oil markets over a barrel - The oil-importing world has long hoped that the Organization of Oil Exporting Countries — a union of countries often at odds with each other — will fall apart and usher in an era of free-market oil. OPEC’s decision at its November meeting to maintain output at 30-million barrels per day has once again raised the age-old speculation that the 12-member group featuring Saudi Arabia, Iran, Venezuela and Iraq, among others, has become ineffective. “With oil having to ‘balance itself’ going forward, OPEC has given up on its traditional role of keeping supply and demand in check,” said Bank of America Merrill Lynch in a report. . “The cartel is now effectively dissolved.” Hold the champagne. Since the 1970s the group’s recalcitrant members have lurched from one oil episode to the next and have a long tradition of holding acrimonious meetings that seem to be their last. Often those meetings have not yielded the desired results, either.The dysfunctional group has survived bloody wars between member countries (Iraq and Iran; Iraq and Kuwait), overcome US$9 per barrel oil in the late 1990s, and managed to hold regular meetings even as Saudi Arabia and Iran engage in proxy wars for regional influence. Saudi Arabia’s latest feat of muzzling dissent from Iran and Venezuela in November is also nothing new, as Riyadh has long held sway over the group with the help of allies protecting its interest against a cabal of other member countries. But it’s also true that the recent US$50 drop in Brent crude prices from its summer high is uncomfortable for most OPEC producers.  OPEC’s proceeds from oil exports will no doubt be affected, but the group will still rake in revenues of $760-billion this year alone, to add to the trillions of dollars already parked in sovereign wealth funds and global assets, and giving it the fiscal cushion to ride out the oil decline.

Oil Drops Below $60 After Saudis Question Need to Cut - Benchmark U.S. oil prices dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share. West Texas Intermediate crude slid 1.6 percent in New York. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted yesterday. Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.

World Oil Prices Slide to Lowest Since 2009 - Another day, another five-year low.As of today a barrel of oil (should you need one delivered in January) will set you back less than $60. The last time it was that cheap was in May 2009, just after the Federal Reserve launched its quantitative easing program to stop the U.S. economy imploding.The trigger for Friday’s tumble was a new report from the International Energy Agency on the outlook for the world market in 2015. The Paris-based organization cut its forecast for demand growth next year by 230,000 barrels a day to 900,000 b/d. That’ll mean that the planet is “only” burning an average of 93.3 million b/d next year, up from 92.4 million this year.The irony in the IEA’s report is that it’s oil-producing countries that will be using less oil than expected next year, a stark illustration of how the 40% drop in prices this year has transferred billions of dollars of spending power from those countries to consumers elsewhere. Economists might be cooing over how lower oil prices are acting like a tax cut in the West, but from Angola to Iran and Russia, it’s like a tax increase, as there are few tax dollars available to recycle into public-sector investment, wages or pensions.

WTI Crashes To $57 Handle; 80% Of Shale Production Non-Economic - WTI Crude just burst below $58 and is now over 46% below the peak in June. Since the initial leaks of no production cuts at OPEC, WTI is down 25% (gold and silver are up 2-4%). At these levels only 4 of the US 18 Shale Oil regions remain economic... 61...60...59...58...57... Down 25% from the initial OPEC leaks... Which leaves only 20% of US Shale regions economic...(graphs)

$60 oil will be norm for next 5 years: Economist - $60 oil will be norm for: Oil prices will stay around $60 a barrel for the next five years as China's economy cools down, economist Andy Xie told CNBC on Thursday. Oil prices had risen so high because of China's boom, the former Morgan Stanley and IMF senior economist said in a "Squawk Box" interview. China is now transitioning from a 15-year super cycle that built up a massive industrial machine, and the economy must cool down to digest overinvestment, which will drag down commodity prices, he said. "When China goes into normal situation, I think that the oil price will become normal, too, so $60 would be the normal price for the next five years or so," he said. Xie predicted the oil price plunge to $60 in September as China's energy demand tapered off. He said oil price declines are trailing the slide in coal, but he expects the gap to narrow. "Coal is down 60 percent, so eventually I expect oil to come down 60 percent, too," he said.  Over the next four to five years, China will experience deflation and sluggish demand, Xie said. Consumption will remain healthy, he added, with households continuing to spend and exports performing well. As a result, Xie sees the China story hitting raw material and equipment providers such as Australia, Japan and Germany, while consumer products providers like France and Switzerland will feel much less impact. Geopolitical analyst Richard Mallinson from Energy Aspects disagreed with Xie's forecast, saying the longer the low-price period persists, the more likely that demand will grow. "China isn't going to be the main center of demand growth anymore. It's economy is rebalancing and the growth rate is slowing, but there are other Asian economics, there are other parts of the world, and lower prices will unlock that demand growth. It will just take a bit of time to emerge,"

Overstated Tight Oil Reserves and a False Sense of Energy Independence -- A recent publication, "Drilling Deeper", by J. David Hughes on behalf of the Post Carbon Institute has proven to be a most interesting resource in this current low-oil price environment.  As a geoscientist, I found this report to be extremely well written and the authors analysis was both compelling and very thorough.  The report looks at the top seven tight oil and top seven tight gas plays in the United States that account for 89 percent of America's tight oil production and 88 percent of shale gas production and then projects when production from those plays will peak and then begin to decline.  It is these plays which have been made viable through the use of multi-stage hydraulic fracturing (aka fracking) that have brought the United States to the position where it is now one of the world's premier oil and natural gas producers.  The author, a geoscientist, then compares his production calculations to those of the Department of Energy's Energy Information Administration (EIA) which gives us a sense of whether or not production from non-conventional shale plays will be robust over the long-term and how long the United States economy can exploit its rediscovered energy independence.   For those of you that are non-oil industry people, when an oil or natural gas well is drilled, its production gradually declines over time.  The rate of decline can be very steep or it can be very shallow depending on the reservoir.  Here is a well production profile showing what the production history looks like for a typical Eagle Ford non-conventional oil well:

Oil Crash Comes Home To Roost: ConocoPhillips To Slash 2015 CapEx By 20% -- With every single hollow chatterbox repeating that crashing oil prices are "unambiguously good" it is clearly the case that the opposite is true.  And sure enough, the first indications that the crude price crash is about to lead to some serious pain in the US came first yesterday from BP, which announced over the weekend that it would "slash 100s of mid-level supervisor jobs" around the globe, and moments ago, from ConocoPhillips, which added that as a result of plunging oil prices, it would slash its 2015 spending budget by a whopping 20%, cutting off some $3 billion in capital spending mostly involving "less developed project: spending which for those who remember their GDP calculation, means a proportional reduction in the US Gross National Product.

Crashing Crude's First Casualty: One-Time Commodities Giant Phibro Liquidating -- While we were expecting that one-time "god of crude oil trading" would have a poor year as a result of his consistent bullishness on the crude space, we were quite astounded to learn, as Bloomberg first reported yesterday, that Andy Hall - the man whose name was for a decade legendary in the commodity space - would call it a day. And yet that pales in comparison to the WSJ report overnight than Phibro itself, Andy Hall's 113 year old employer currently owned by Occidental Petroleum after its sale by Citigroup, would liquidate in the US after it failed to buy a buyer, marking the end of an era.  As the WSJ reports, "the 113-year-old company, founded in Germany by two scrap-metal dealers, is winding down its U.S. operations after it failed to find a buyer, according to a person familiar with the situation. The sale process for units in London and Singapore continues, the person said. Phibro specialized in physical trading of oil and other raw materials, seeking to profit by moving actual barrels and acting as an intermediary between producers and consumers. The pool of potential buyers for these kinds of operations has dwindled in recent years amid a regulatory crackdown on Wall Street banks’ involvement in these markets." As for Hall, while he will sever his relationship with Phibro, he will continue working for his $3 billion hedge fund Astenbeck, of which Occidental owns 20%.

Goodrich, Oasis Petroleum cut spending for 2015 as oil slides (Reuters) - Goodrich Petroleum Corp and Oasis Petroleum Inc said they expect to spend much less on exploration and production next year, joining a list of U.S. oil and gas companies cutting capital spending as oil prices plunge. Goodrich shares fell as much as 14.7 percent to $3.57 in early trading. Oasis' shares fell as much as 13.3 percent to a record low of $11.01. Both stocks were among the top losers on the New York Stock Exchange on Wednesday. Several large oil producers, including ConocoPhillips and Apache Corp, have set lower capital spending budgets for 2015, rattled by a near 40 percent drop in global crude prices since June. Some have said they will deploy fewer drilling rigs next year. Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold in 2015, according to Norwegian consultancy Rystad Energy. Goodrich lowered its capital spending budget for 2015 to $150 million-$200 million. The company has budgeted spending of $325-$375 million for 2014, but said spending would likely be at the lower end of that range.

Big Oil Slashing Spending Amid Low Prices -- Oil prices continue to slide in mid-December, slumping towards another key threshold of $60 per barrel.  Oil prices hit a five-year low on December 10. While many major oil players have gone to lengths to assure markets that they can weather the price downturn – and indeed it is far from clear how long the current price collapse will last – low prices are clearly starting to have an impact on major investment decisions. Drilling permits dropped by 36 percent between October and November, and the number of rigs in operation continues to fall.  Many oil companies are beginning to pare back capital expenditures, reconsidering pouring billions of dollars into expensive projects that may or may not be profitable in the current environment. ConocoPhillipsannounced on December 8 that it would slash capital expenditures in 2015 by 20 percent, dropping its spending budget to $13.5 billion. And in a sign that the oil price slump is starting to take a major toll on future investments,  BP is also hoping to cut costs. It expects to lay off workers and trim spending, perhaps by as much as $2 billion. Chevron decided to delay the release of its budget, perhaps because of how volatile the oil markets have become in the fourth quarter of this year. According to an average of analyst predictions, market watchers think Chevron will slash its budget by 11 percent next year.Oil majors Royal Dutch Shell and Total are ahead of the curve, having implemented cost cutting and divestment measures earlier this year before oil prices dropped. Total may further put off investment in the North Sea over the next two years.

Rig count falls as oil prices continue slide: U.S. producers laid down a large number of rigs last week, as crude prices that fell below $60 on Friday finally appeared to take their toll on the pace of drilling. The drilling slowdown hit oil rigs the hardest, where producers idled 29 rigs and brought the total to 1,546, according to Baker Hughes’ weekly count. Rigs drilling for gas were up two to 346. The total count fell 27 to 1,893. One rig was classified as miscellaneous. This week’s slowdown in rigs is one of the first significant drops seen in the count since oil began to tumble from highs at more than $100 a barrel this summer. The U.S benchmark crude, West Texas Intermediate, fell below $58 a barrel on the New York Mercantile Exchange Friday. The slide has prompted some exploration and production companies to cut back capital spending in 2015. Almost all of the idled oil rigs were in Texas, bringing the state’s total down 24 to 872 from 896 last week. Arkansas posted the second largest loss of three rigs, bringing that state’s total to nine from 12 the week prior. The Permian Basin saw the most rigs idled when broken up by basin. The play lost 20 rigs, bringing the total to 548 from 568 the week before. The Texas Panhandle’s Granite Wash play was the second biggest loser, as drillers laid down six rigs bringing the total to 57. The Eagle Ford lost two for a total of 204 and the Marcellus gained one to reach 83 rigs.

US Oil Rig Count Tumbles Most In 2 Years - Zero Hedge: We warned just a week ago that the lag between initial price declines in oil and the closure of rigs was between 4 and 6 months and just as we warned of the deja-vu all over again, Banker Hughes reports that the Rig Count this week dropped the most since March 2013 (oil rigs dropped 29 to 1546 - biggest weekly drop in 2 years). The biggest drop was seen in the Permian Basin (down 20 to 548). Of course, it's being ignored for now, just as it was in 2008... Worst weekly drop in rig count since March 2013... With Oil Rigs down 3rd most in 5 years... And as a reminder, what happened last time... (graphs)

Canadian energy firms struggle with debt, survival as oil prices plummet: The rapid decline in global oil prices is setting the stage for a long dance between buyers and sellers in Canada’s energy industry. The rout put a chill on an oil and gas acquisition market that saw about $39 billion of deals this year and is leading sellers like Penn West Petroleum Ltd. to consider waiting for a rebound. Highly indebted Canadian oil and natural gas producers may not be able to afford that luxury, and suiters such as Crescent Point Energy Corp. Chief Executive Officer Scott Saxberg are circling for bargains. “When oil was $100, there were companies that were struggling with their balance sheets and now oil is 60-some-odd dollars and they’re in trouble,” Saxberg said of the price for a barrel in an interview. “There will be a few of those companies that will disappear and have to be consolidated.” Oil at a five-year low is making cash more scarce for producers that may have no choice but to sell assets or seek outright takeovers. The challenge will be finding investors willing and able to pay the price they want, Macquarie Group Ltd. analyst Chris Feltin said. “There’s going to be lots for sale and not a lot of buyers,” Feltin said by phone from Calgary. “Asset valuations might not be what the sellers would like to sell for but in this scenario there are few other options available.”

Is The Canadian LNG Export Dream Dead?  -- Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast. On December 2 the state-owned oil company of Malaysia, Petronas, decided to shelve plans to build an enormous LNG export terminal in British Columbia, citing the falling price of oil. It is common for LNG contracts to be priced using a formula linked to the price of crude oil, so declining oil prices pushes down prices for LNG.Petronas’ Pacific NorthWest LNG, as it was known, was a proposed $32 billion export terminal that would send LNG to Asia. The decision highlights how competitive global LNG trade has become, despite growing demand. Greenfield projects, such as Pacific Northwest LNG, face steep startup costs that become prohibitive when oil prices fall.Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted. There is stiff competition from a slew of LNG projects already under construction in the U.S. and Australia, which will come online much earlier than anything from British Columbia. Several LNG export facilities in the U.S. are not starting from scratch, for example. The Sabine Pass terminal on the Gulf Coast and the Cove Point facility on the Chesapeake Bay were both originally constructed to import LNG rather than export. The original facilities were put on ice when the U.S. no longer needed LNG imports. Now, companies are retrofitting them to handle exports – a much cheaper process than building a new facility.

Plummeting oil prices driving Alberta into $6 billion shortfall: premier: -- Albertans should prepare for pain in next year's budget, says Premier Jim Prentice, as the continued nosedive of oil prices will force provincial politicians to consider big program cuts and new revenue-generating taxes over the holiday season. In a speech to over 700 business leaders, politicians and not-for-profit groups with the Edmonton Chamber of Commerce on Tuesday, Prentice said Alberta's government faces a roughly $6-billion revenue shortfall due to low oil prices and will be making "tough decisions" over the holiday break as ministers prepare their wish lists for Budget 2015. Prentice said the government recently revised its oil price forecast down to $75 US per barrel for the rest of the fiscal year but with West Texas Intermediate (WTI) prices hitting a five-year-low at $63, the balanced budget for 2014-15 is in jeopardy. "We're wrestling with that, trying to make sure we understand the implications at this point but clearly it makes it more challenging to balance the budget, even this fiscal year let alone the fiscal year we're facing," Prentice told reporters. Prentice promised government "belt-tightening" before asking Albertans to pay more. He repeatedly signalled "tough decisions" and "changes" in the 2015 budget that could mean deep program cuts and new taxes for Albertans, but not a sales tax. "I've been very clear about the scale of the financial challenges we face and we are in the budgeting process now," he said. "Once we have wrestled it to the ground and dealt with the implications and the recommended changes, I'll be very clear about that but at this point, we're finishing off this fiscal year."

Obama Signals Keystone XL "No" on Colbert Report As Enbridge "KXL Clone" He Permitted Opens -- In his December 8 “Colbert Report” appearance, President Barack Obama gave his strongest signal yet that he may reject a presidential permit authorizing the Alberta to Cushing, Oklahoma northern leg of TransCanada's Keystone XL tar sands pipeline.   Yet just a week earlier, and little noticed by comparison, the pipeline giant Enbridge made an announcement that could take the sails out of some of the excitement displayedby Obama's “Colbert Report” remarks on Keystone XL North. That is, Enbridge's “Keystone XL Clone” is now officially open for business.   “Keystone XL Clone,” as first coined here on DeSmogBlog, consists of three parts: the U.S.-Canada border-crossing Alberta Clipper pipeline; the Flanagan, Illinois to Cushing Flanagan South pipeline; and the Cushing to Freeport, Texas Seaway Twin pipeline.   Enbridge announced that Flanagan South and its Seaway Twin connection are now pumping tar sands crude through to the Gulf of Mexico, meaning game on for tar sands to flow from Alberta to the Gulf through Enbridge's pipeline system.   Alberta Clipper, now rebranded Line 67, was authorized by Hillary Clinton on behalf of the Obama State Department in August 2009 and got a quasi-official permit to expand its capacity by the State Department over the summer. That permit is now being contested in federal court by environmental groups.   Flanagan South, meanwhile, exists due to a legally contentious array of close to 2,000 Nationwide Permit 12 permits handed out by the U.S. Army Corps of Engineers, which — as with Alberta Clipper expansion — has helped Enbridge usurp the more democratic and transparent National Environmental Policy Act (NEPA) review process

Former Halliburton Subsidiary Managing Construction of First US Tar Sands Mine - The debate over the Keystone XL pipeline has launched Canadian tar sands into mainstream American discourse, but few people seem to know that a tar sands mine is now being constructed in the United States. The project is being managed by former Halliburton subsidiary Kellogg Brown and Root. The mine will be excavated in PR Spring, a remote piece of wilderness on the Tavaputs Plateau in eastern Utah. Facing northeast from Arches National Park, 109 miles away, one can see the plateau stretching along the horizon. The mine will sit just above the spring that the area is named for; a BLM-managed campground is nearby.The area is part of the Colorado River watershed, which supplies water to more than 30 million people. The land is owned by US Oil Sands, Inc., a Calgary-based company with a 100 percent interest in 32,005 acres of Utah tar sands leases. According to the company's website, their leases comprise the largest commercial tar sands stake in the United States. The company boasts of its "unique and environmentally friendly extraction process," which uses a citrus-based solvent called d-Limonene to separate oil from the rest of the material brought up in extraction. But a 2012 report by InsideClimate Newsquestioned the safety of the technique, noting that while the FDA lists small amounts as generally safe, "in large doses, laboratory rats got sick when exposed to the chemical."

Oil Company Agrees To Pay $7M Over 800,000-Gallon Tar Sands Pipeline Spill - A four-year class action lawsuit over the largest and most expensive inland oil spill in U.S. history has reached a tentative settlement, with the company responsible agreeing to pay $6.75 million to those who lived and owned property near the spill.  The lawsuit was brought by thousands of plaintiffs who claimed they were subject to toxic fumes, noise, and general degradation of life following the July 2010 oil spill, which saw more than 800,000-gallons of thick Canadian tar sands crude oil flow out of a ruptured pipeline and into Michigan’s Kalamazoo River. The pipeline, called Line 6B, is owned and operated by a company called Enbridge Inc., based in Calgary, Alberta.  Under the agreement with Enbridge, plaintiffs who lived or owned property within 1,000 feet of the river will split a total of $2.2 million, meaning each plaintiff stands to get anywhere from a couple thousand to a couple hundred dollars depending on the size of the class. In addition, a $1.5 million fund will be set up for people who can show they made out-of-pocket expenses — stayed in hotels, bought meals, etc. — during the time the spill was at its worst. Enbridge will also be required to implement a $50,000 testing program for well water, and has agreed to donate $150,000 to local environmental conservation organizations.

BOOM: North America’s Explosive Oil-by-Rail Problem : U.S. regulators knew they had to act fast. A train hauling 2 million gallons of crude oil from North Dakota had exploded in the Canadian town of Lac-Megantic, killing 47 people. Now they had to assure Americans a similar disaster wouldn’t happen south of the border, where the U.S. oil boom is sending highly volatile crude oil every day over aging, often defective rails in vulnerable railcars.On the surface, the response from Washington following the July 6, 2013 explosion seemed promising. Over the next several months, the U.S. Department of Transportation issued two emergency orders, two safety alerts and a safety advisory. It began drafting sweeping new oil train regulations to safeguard the sudden surge of oil being shipped on U.S. rails. The railroad industry heeded the call, too, agreeing to slow down trains, increase safety inspections and reroute oil trains away from populous areas.But almost a year and a half later—and after three railcar explosions in the United States—those headline-grabbing measures have turned out to be less than they appeared. Idling oil trains are still left unattended in highly populated areas. The effort to draft new safety regulations has been bogged down in disputes between the railroads and the oil industry over who will bear the brunt of the costs. The oil industry is balking at some of the tanker upgrades, and the railroads are lobbying against further speed restrictions.And rerouting trains away from big cities and small towns? That, too, has been of limited value, because refineries, ports and other offloading facilities tend to be in big cities.

BP's oil spill settlement appeal rejected by U.S. Supreme Court -- The U.S. Supreme Court on Monday rejected BP's appeal of its oil disaster settlement, ending the British oil giant's two-year fight over interpretation of the agreement. The decision affirms lower court rulings that, under the settlement terms, businesses claiming damages from the 2010 Gulf of Mexico oil disaster need not prove direct harm.  The justices did not comment on their decision not to review the case. But they approved several requests from outside parties with interests in the dispute to file briefs.  BP sought to have its settlement overturned. It argued that the agreement was being misinterpreted to allow millions of dollars in payments to businesses that were not directly harmed by the disaster. BP originally estimated the settlement would cost $7.8 billion. Now it estimates that figure could exceed $9.7 billion.

Israel Nature Reserve Oil Spill "One of the Country's Worst Environmental Disasters" -- Millions of litres of oil gushing out of a breached pipeline flooded a desert nature reserve in Israel overnight, causing one of the country’s worst environmental disasters, officials and media said. Three people were hospitalised after inhaling fumes released by an accidental rupture in the Eilat-Ashkelon pipeline near the Evrona reserve, on the Jordanian border, police said. Israel Radio reported Wednesday night’s breach happened during maintenance work. The main road leading to Eilat, a Red Sea resort, from central Israel was closed intermittently as emergency teams contained the leak. Evrona is known for its deer population and douma palms. “Crude oil flowed throughout the reserve, causing serious damage ... to flora and fauna,” Environment Ministry official Guy Samet told Israel Radio on Thursday. He estimated the spillage at millions of litres. “Rehabilitation will take months, if not years ... This is one of the State of Israel’s gravest pollution events. We are still having trouble gauging the full extent of the contamination.”

Israel Oil Spill Four Times Worse Than Initially Thought - The company responsible for what many are calling Israel’s worst-ever environmental disaster has admitted that the amount of oil it spilled in the Arava desert is about four times larger than it initially estimated,Haaretz reported on Sunday.  In a new report to Israel’s Environmental Protection Ministry, the Eilat Ashkelon Pipeline Company said that 5 million liters, or 1.3 million gallons of crude oil spilled from the southern tip of the 153-mile Trans-Israel pipeline on Thursday night. The company’s first estimate on Thursday was that 1 million liters, or about 260,000 gallons of oil had spilled. It quickly raised its estimate to around 600,000 gallons on Friday.  According to Haaretz, the new figures raise questions about the company’s initial assurances that it had stopped the flow of oil from the pipeline as soon as the leak was found.  Even before the larger estimate, the spill had already been called “one of the gravest pollution events in the country’s history,” according to Israel Environmental Protection Ministry official Guy Samet, who also said the spill could take months, maybe years, to fully clean up. The breach — the cause of which is still unknown but has been so far attributed to “mechanical failure” and not foul play — took place near Eilat, a southern Israel city with a population of about 50,000 people.  At first, the city itself was not said to be in immediate danger. But now, Haaretz reports that makeshift dams are being built to stop the flowing river of oil from making its way to the city in the event of a rain storm.

Norway’s Oil Decline Accelerating - New oil projects are being scrapped in Norway amid falling production and low oil prices. The early cracks in Norway’s petrol-based economy are beginning to show, perhaps quicker than many predicted. Energy analysts have explored in detail how the ongoing decline in oil prices – down 40 percent since June – might affect oil exporting countries like Russia, Iran, Venezuela, and other OPEC members. But even Norway, the model for using natural resources to build a modern wealthy economy, is not immune to the price fall.  Statoil, the mostly government-owned oil company, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs – the COSL Pioneer, Scarabeo 5, and Songa Trym – will besuspended until the middle of 2015 because of lower profitability. “These measures are necessary due to the overcapacity of rigs compared to the assignments we are prioritising. This situation is unfortunate, and we are doing what we can to minimise the extent of the suspensions,” Statoil procurement head Jon Arnt Jacobsen said in a statement. To make matters worse, costs of developing new fields have been steadily rising. “The boom is probably over. But we’re not looking at a steep decline in investment or production,” Norway’s oil minister Tord Lien told Reuters in May 2014. “The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere.” Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment.

IEA Cuts Global Oil Demand Forecast for 4th Time in 5 Months - Global oil demand next year will be weaker than previously estimated and supply from non-OPEC producers will be bigger, the International Energy Agency said. Consumption will expand by 230,000 barrels a day less than estimated in November, the Paris-based adviser to 29 nations said in a report today. Output from nations outside of the Organization of Petroleum Exporting Countries will grow at a faster pace than the agency predicted last month. Production rising faster than demand could strain some nations’ ability to store oil by the middle of next year, it predicted. The agency cut projections because the economies of producer nations are being hurt by tumbling prices, according to the report. Most of the reduction in next year’s estimate is attributable to Russia, where sanctions are hobbling growth, it said. Brent crude costs that collapsed 43 percent this year are too low for 10 of OPEC’s 12 members to balance their budgets, data compiled by Bloomberg show.

150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy - While the clear narrative forced upon the investing (and consuming) public is that lower oil prices are great for the economy - which is utter crap (as we have explained here and here) - the fact of the matter both primary and secondary effects are extremely significant... and already occurring. As Reuters reports, global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic as the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil. As one analyst notes, "at $70 a barrel, half of the overall volumes are at risk." As Reuters reportsGlobal oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.  As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil./..Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

Big winners and losers in oil price crash -Few commodities are as powerful as oil. Its value can make or break governments, causing growth or economic hardship, depending on which way the price swings. The plunging value of crude is having a negative impact on a few, but is a positive shift for the majority, China prominent among them. But it is wrong for medium or long-term planning to be based on the drop: any number of factors, political, social and technological among them, makes predicting the value futile.The price of benchmark Brent light crude has fallen more than 40 per cent since June, when it was US$115 a barrel.  The oil cartel Opec, with Saudi Arabia in the driving seat, has maintained high levels of output to counter the impact of the boom in American shale oil and protect market share. There are winners, but also big losers. The IMF estimates that global GDP grows by 0.2 per cent for every 10 per cent fall in the oil price; a drop puts more money in the pockets of governments and consumers, boosting spending. China, the world's second-biggest net importer, saves US$2.1 billion for every US$1 decline, while there will be hefty budget gains for Indonesia and India, countries that heavily subsidise oil. That should make imports cheaper, foreign currency go further and, over time, living standards rise. Chief among the losers are oil producers, which have relied on high prices to drive their policies, Iran, Russia and Venezuela being the most vulnerable. Iran's budget is based on oil being priced at US$140 a barrel and Venezuela's at US$120, worsening inflation and exacerbating shortages of everyday goods. Russia is less vulnerable due to its hefty fiscal reserves, but should oil prices remain low for two or more years, the economic consequences would be dire.

Oil Price Winners and Losers Around the Globe - As the world’s top policy makers rewrite their forecasts for global growth on oil’s price-plunge, who are the biggest winners and losers?  The Republic of Congo, Equatorial Guinea, and Angola–three West African nations that rely on oil to fund the lion’s share of their economy and state revenues–will likely be hit the hardest. The near-$40 a barrel fall in crude prices represents billions of dollars in lost revenue equivalent to roughly 20% of their gross domestic product.  For Djibouti, Seychelles and Kyrgyzstan, whose net oil imports take a huge chunk out of their economies, the decline in prices is a boon worth up to 11% of their GDP, allowing consumers to spend on goods and services that can fuel economic growth.In dollar terms, the price drop translates into a $117 billion loss in revenues for Saudi Arabia if oil prices hold for another six to eight months, based on that country’s massive exports of crude. Russia, already in recession, could lose nearly $100 billion in revenues, almost 5% of the country’s GDP. Iran’s also in similar straits, maimed by international sanctions and a falling currency, with the price drop slicing off 5% of its GDP in revenues. And Kuwait could see its oil income fall by $32 billion, almost one-fifth of the country’s GDP.  For U.S. consumers, it’s an aggregate windfall worth $90 billion. It’s also a benefit equivalent to nearly a percentage point of GDP for China, Germany and France.

How cheap oil changes the world - As oil prices hit their lowest point in five years, the ripple effects are being felt around the world – from big-producing nations such as Russia and Saudi Arabia, to big-consuming nations such as the United States and China, to billions of people’s wallets. The plunging prices are affecting the geopolitics of the Middle East, the cohesiveness of the Organization of the Petroleum Exporting Countries (OPEC), the number of drilling jobs in North Dakota, and the cost of airline tickets for the holidays. On one level, there is nothing unusual about this. It reflects the never-ending undulation of oil prices that has been going on since the dawn of the fossil fuel era. Prices rise, and prices fall. Oil markets self-correct. But this time around, something fundamentally different may be happening. New oil is flowing from unexpected corners, while longtime petro states watch their grasp on markets slip. Traditionally oil-hungry countries have curbed their appetite, but once-sleepy economies now guzzle vast amounts more crude than they used to. Meanwhile, growing global alarm over the threat of unchecked greenhouse gas emissions has accelerated the development of alternative fuels and efficiency measures that displace oil demand across the board. These and other structural shifts make it “increasingly clear that we have begun a new chapter in the history of the oil markets,” the Paris-based International Energy Agency (IEA) wrote in its November Oil Market Report. Barring any unforeseen disruption in supply, most analysts believe short-term oil prices will remain well below the $100 to $110 per barrel range, around which prices had consistently hovered for three years. Depending on whom you ask, the world may continue to see oil at $60 to $50 per barrel, or lower, for months, a year – or even a decade.

Reasons Why A Severe Drop in Oil Prices Is A Problem -- Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem?  Let me explain some of the issues: Issue 1. If the price of oil is too low, it will simply be left in the ground. The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics. If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price leads to a whole series of secondary effects (debt defaults resulting from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank failures) that indirectly lead to a much quicker decline in oil production. The view is sometimes expressed that once 50% of oil is extracted, the amount of oil we can extract will gradually begin to decline, for geological reasons. This view is only true if high prices prevail, as we hit limits. If our problem is low oil prices because of debt problems or other issues, then the decline is likely to be far more rapid. With low oil prices, even what we consider to be proved oil reserves today may be left in the ground.

The basic reason oil keeps getting cheaper and cheaper - Oil prices continued their slump even lower today, with West Texas Intermediate crude -- a U.S. benchmark -- now well below $60 per barrel. This is part of a momentous decline of over $40 per barrel since late June. One catalyst today is the International Energy Agency's release of its latest Oil Market Report, which lowered the agency's forecast for global oil demand growth in 2015 by 230,000 barrels per day. This means that demand in 2015 is only expected to exceed demand this year by .9 million barrels per day, a sluggish 1 percent rate of growth. The report could not be more plain that the fundamental cause of the sharp oil price decline -- whose knock-on effects include markedly lower gas prices in the U.S., and soon, perhaps,lower airfares -- is an imbalance between supply and demand. Or as IEA puts it: "Several years of record high prices have induced the root cause of today’s rout: a surge in non‐[Organization of Petroleum Exporting Countries] supply to its highest growth ever and a contraction in demand growth to five‐year lows." The report provides this telling figure -- showing a gulf opening between levels of global oil supply, and global demand to consume that oil:

Oil price fall sparks market turmoil - An accelerating slide in oil prices triggered broader turmoil across international financial markets on Friday, capping a turbulent week for energy that has compelled investors to sell shares and corporate bonds. The International Energy Agency cut its demand growth forecasts for 2015 on Friday, saying the rout in prices had so far failed to stimulate buying. Its comments sent crude prices to fresh five-and-a-half-year lows and brought the decline for the week to more than 10 per cent.  Brent crude, the international oil marker that has plunged 45 per cent since mid-June, fell $1.95 to $61.73 a barrel. West Texas Intermediate, the US benchmark, dropped $2.23 to $57.72 — a level it last reached in May 2009. WTI’s slide below the $60-a-barrel barrier has left investors increasingly worried that prices could decline much further before they stabilise, with ramifications for consumers, industry and central banks. “Oil is a hugely traded financial asset. It links through the financial system and as it breaks down it becomes a huge tipping point,” While lower oil prices are seen being a boon for consumer spending, a broader concern is that the sharp decline from above $100 a barrel in June, may not just reflect excess supply, but rather signal less demand, suggesting the global economy is decelerating. Slumping inflation expectations also suggest the global economy faces a worrying one-two punch of weakening growth and disinflation, a scenario that has rattled investors preparing for the end of the year.

Why investors’ view of falling oil prices has just pivoted - Oil prices are falling, at a historic rate. Crude prices have more than halved since their post-crisis high, with almost all of that fall coming in the last five hectic months, and their descent is accelerating. This is a huge economic readjustment. And it prompts the question — in line with the old English history textbooks — of whether this is a Good Thing, or a Bad Thing. Even though oil is far less critical to the developed world’s economies than it was in the 1970s, cheaper oil should be a net benefit. It reduces costs for most businesses, while freeing up consumers to spend more. That is why falling oil prices have been accompanied usually by rallying stock prices, particularly in the US, where most Americans are still wedded to the automobile. This week, however, investors’ attitude has pivoted. Oil prices are still falling, but now that is viewed as a Bad Thing. The critical moves are in bond markets. In the US, 10-year treasury yields have dropped well below 2.2 per cent once more, and below the level at which they closed on October 15 — the “flash crash” day in the bond market when yields suddenly dropped below 2 per cent, triggering consternation. In the eurozone, German five-year inflation break-evens — the inflation forecast that can be taken from subtracting the yield on fixed income bonds from the yield on inflation-linked bonds — dropped below zero this week. Traders expect deflation in the eurozone for the next five years. In the US, inflation break-evens for the next 10 years have dropped to 1.62 per cent, their lowest since the autumn of 2010 — when falling break-evens prompted the Federal Reserve to launch the “QE2” round of bond purchases. Until now, a falling oil price has been regarded as a function of strong supply. But this week brought evidence that weak demand is also part of the equation. Opec announced that it expected demand for its oil to hit a 12-year low next year. And Chinese imports fell 6.7 per cent year-on-year in November; for the year as a whole, imports seem totally flat. Chinese production is now growing more slowly, when viewed as a 12-month moving average, than at almost any time since 1990.

The Financialized-Oil Dominoes Are Toppling - Oil is not just something that is refined into fuel--it is capital, collateral, debt and risk. In other words, it is intrinsically financial. As I noted in The Oil-Drenched Black Swan, Part 2: The Financialization of Oil, oil has been financialized to the point that few outside the industry understand the dominoes that are currently toppling.Let's start with the obvious fact that the impact of lower oil is financial, political and geopolitical. Lower oil revenues are negatively impacting:

  • 1. Oil-exporters’ revenues
  • 2. Monetary policy of central banks
  • 3. Trade flows
  • 4. Global financial markets

Lower revenues are pressuring oil-dependent governments such as Russia, Venezuela and Iran, and destabilizing the geopolitical order as weakened oil exporters sink into recession and political turmoil. Lower revenues are also kicking the financial supports out from under the debt-dependent, enormously capital-intensive oil exploration and development projects in North America. Simply put, the sharp drop in oil revenues has knocked over a line of financial dominoes whose end is not yet in sight. These issues have been addressed by a number of analysts; here is a small selection of recent stories:

Falling oil threatens Canada’s bulletproof banking system - While the U.S. financial system — as well as many international banks — has gotten hopped up on a wide assortment of financial opiates and stumbled through more than a dozen bank-fueled crises through the decades, Canada boasts a stellar track record of banking sobriety.  However, a spectacular death spiral in crude-oil futures — West Texas Intermediate settled Thursday at $59.95, a more than five-year low — threatens to deliver a serious shock to the banking system of the U.S.’s northern neighbor, according a research note published Thursday by Pavilion Global Markets.  Canada ranks as one the world’s five largest energy producers and a net exporter of oil, according to the U.S. Energy Information Administration. So, a big drop in oil would pose several risks to Canada’s oil-dependent economy. “The drop in oil prices, as mentioned above, will have wide-ranging implications on the Canadian economy,” Pavilion strategists Pierre Lapointe and Alex Bellefleur said in the note. It’s not just that Canada’s banks will find themselves saddled with souring loans from underwater energy producers. The problem, Pavilion argues, is that Canada’s employment rate could suffer as oil-related businesses are forced to close.

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