Sunday, December 27, 2015

US oil prices reach parity with global prices, and then some, et al

several times over the past year we warned that if the ban on exports of crude oil from the US was lifted, US oil prices would rise to the level of the international benchmark price, and we'd all end up paying higher prices for all the oil based products we use...at most of those times, US prices had been averaging between $5 and $10 less than global prices, which would have indicated a 10% to 20% increase from the $50 dollar a barrel oil we were then seeing...what we certainly didn't expect is that both US and international prices would be near $35 a barrel when that parity was reached, and that it would come about as international oil prices crashed, instead of while US prices were rising, but that's what happened this week...

last week we posted side by side graphics of the prices for the US benchmark oil, WTI (West Texas Intermediate), and the international benchmark of Brent oil...as Obama was signing the budget bill with the oil export clause last Friday afternoon, WTI oil prices were closing at $34.73 a barrel, down less than 50 cents for the week, while Brent prices had fallen more than a dollar to $36.88 on the same day...on Monday, after it was clear to all market participants that the US would be exporting crude, WTI contract oil prices rose more than a dollar to $35.81 a barrel, while Brent prices fell 50 cents to $36.38 a barrel...on Tuesday, prices of US oil reached parity with international prices, and then went on to close a bit higher, with WTI up to $36.14 a barrel while Brent fell to $36.11....the spread between US and global prices then widened the rest of the week, with US oil prices rising to $37.50 a barrel on Wednesday, while Brent had closed at $37.36, and then with US prices closing at $38.10 a barrel on Christmas eve after a half day's trading, after Brent had closed for the holidays at $37.89 a barrel...

so as of today, US oil prices are now 21 cents a barrel more than international prices, having increased more or decreased less each day of the past two weeks, while the prospect of US oil exports was in the news...that has wiped out the discount American refineries were seeing a year ago, when international oil prices were more than $6 a barrel higher than US prices, and it's a swing of more than $28 a barrel since the Spring of 2011, when US oil was $27.88 a barrel cheaper than Brent....now, as we pointed out last week, with oil prices more than $10 or as much as $25 lower than what the frackers need to break even, we aren't gonna see a rush to drill new wells to supply that international market anyhow, but with US prices now the same as what they're seeing overseas, oil refining companies are even more unlikely to be willing to pay the estimated extra $2 a barrel for a transoceanic shipment....that isn't to say it isn't going to happen at all; a Swiss company has already announced they'd be loading a 600,000 barrel cargo of South Texas Sweet crude in Houston next week for shipment to Europe after the first of the year...that would be a very light crude from the Eagle Ford shale, lighter than WTI, and like Bakken crude, said to be of a grade of oil preferred by some European refineries...but except for such special cases, or perhaps when a Latin American refinery would choose an American crude over say Bonny Light from Nigeria, we should not see a whole lot of oil exporting starting up just yet...so the additional 26,385 new oil wells that the Center for American Progress forecast would be drilled in the U.S. each year with the end of the export ban will likely be deferred until such time as the global oil pricing structure changes...

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although it was a slow news week, the Columbus Dispatch ran an important four part investigative series titled "Wrong Track" on trains carrying volatile crude oil, a series which was also carried by several other Ohio newspapers...such train transport of explosive oil will eventually become more common with North Dakota's Bakken crude targeted for export through both Atlantic and Pacific ports... the Dispatch found that while Federal regulators are focused on improving the safety of the oil tanker cars, most crude oil train derailments are caused by human error or defective track; ie, an oil tanker car, even if it's defective, isn't going to explode into a fireball if it stays on the tracks...but even as crude by rail more than doubled over two years, there has been no increase in Federal rail inspectors since 2006...and although the railroads do hire their own inspectors, what they find is often not acted on; ie, the fiery derailment and explosion in Mount Carbon, W.Va, which forced 1,100 from their homes for 10 days, was caused by a split rail, which a CSX-hired inspector had known about beforehand...moreover, once a train goes off the rails and a fire starts, emergency first responders are woefully unprepared to deal with such derailments along the roughly 138,000 miles of track in the US, including 5,300 miles in Ohio....finally, to wrap up the series, the Dispatch explains how difficult it was to complete the series, as Federal and state regulators often collaborate with the railroads to keep the public in the dark; reports the Dispatch obtained from Illinois had the names of the railroads blacked out, while West Virginia authorities even redacted the names of the counties through which the oil bomb trains were rolling...

The Latest Oil Data from the EIA

this week's reports from the US Energy Information Administration indicated that our production of crude oil was virtually unchanged from last week, that we imported nearly a million barrels per day less than last week, that our refineries processed somewhat less crude, and that our crude oil inventories fell by almost 5.9 million barrels from the prior week... our field production of crude oil increased by just 3,000 barrels per day to 9,179,000 barrels per day in the week ending December 18th, up from 9,176,000 barrels per day during the week ending December 11th...that's nearly 0.6% above the 9,127,000 barrels per day output during the week of December 19th last year, a time when nearly 3 times as many oil drilling rigs were deployed than have been currently....our output of of shows no sign of letting up; field production over the last 8 weeks has stayed in a range roughly 50,000 more barrels per day than than we saw during the prior 8 weeks... 

however, our imports of crude oil were down by 986,000 barrels per day from last week, when they were at a 2 year high, as we imported 7,326,000 barrels per day during the week ending the 18th, down from 8,312,000 barrels per day during the week of the 11th....as a result, our imports this week were 11.6% below the 8,292,000 barrels per day we imported in the third week of December a year ago, a reversal of last week's imports, which were 17.0% above last year's second week in December...that weekly volatility in oil imports is why the EIA's weekly Petroleum Status Report (62 pp pdf) reports a four-week moving average of oil imports, which averaged about 7.9 million barrels per day in this week's report, 3.4% above the same four-week period last year...

meanwhile, the amount of that crude used by our refineries fell by another 143,000 barrels per day to an average of 16,468,000 barrels per day during the week ending December 18th; the third such weekly drop in a row, as the US refinery utilization rate fell to 91.3%, down from 91.9% last week and from a utilization rate as high as 94.5% four weeks ago...however, we still managed to process 0.8% more crude this week than 16,341,000 barrels per day we used the same week a year ago, when the refinery utilization rate was 93.5%....both production of gasoline and production of distillate fuels (diesel fuel and heat oil) decreased from last week, with gasoline output down by 617,000 barrels per day to 9,346,000 barrels per day, and output of distillates down by 169,000 barrels per day to 4,938,000 barrels per day...even with that large production shortfall, however, our week ending supplies of gasoline rose by 1,111,000 barrels, from 216,867,000 barrels as of December 11th to 220,495,000 barrels of gasoline in storage as of December 18th, which nonetheless meant that gasoline inventories slipped into the lower half of the average range for this time of year, as last year we were adding an average of 4 million barrels a week to our gasoline stocks during December...but even with reduced consumption of heat oil, distillate fuel inventories fell by 661,000 barrels, from 151,976,000 barrels as of December 11th to 151,315,000 as of December 18th, although distillate fuel supplies remained in the upper half of their normal range for this time of year...

however, even with refinery throughput lower, that big drop in our oil imports meant the refineries had to take oil out of storage to meet demands...our total inventories of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, fell by nearly 5.9 million barrels, dropping from 490,657,000 barrels on December 11th to 484,780,000 barrels on December 18th, which was still only the 2nd drawdown of our oil supplies in the last 13 weeks...that means we still had 30.8 million, or 6.8% more barrels in storage than the 453,969,000 barrels we had stored on September 18th of this year, and leaves us 25.2% above the 387,209,000  barrels we had stored on December 19th last year...so we still have the most oil we ever had stored in the 3rd week of December in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year....

finally, you might recall that a few weeks ago i complained that the weekly EIA totals we had for that week didn't add up...there was a bit of that sense again this week, so i tried sorting through the U.S. Petroleum Balance Sheet for the Week Ending 12/18/2015, which is Table 1 in the EIA's weekly Petroleum Status Report (pdf)...in that table, under the heading "Crude Oil Supply", on line 13 they include "Adjustments", which the footnote tells us is "Unaccounted-for Crude Oil" which their glossary tells us is "the arithmetic difference between the calculated supply and the calculated disposition of crude oil."...in other words, the weekly "Adjustments" are a fudge factor used by the EIA to make the week's new supply of crude balance with the week's disposition of that crude...this week the adjustment was a rather large -377,000 barrels per day, meaning, in effect, that 377,000 barrels per day were unaccounted for...in contrast with that, last week the adjustment was +254,000 barrels per day, or that the figures showed that we ended up with 254,000 barrels per day more than was apparently supplied...together, those adjustments give us a week to week swing amounting to 630,000 barrels per day in our oil supply, certainly enough to make virtually all the weekly figures suspect...interestingly, the large number of barrels unaccounted for comes near year end, when 2 of the largest states for oil storage, Texas and Louisiana, are going to be assessing crude oil and products in storage for their annual inventory tax...

Latest US Rig Counts

with the holiday, Baker Hughes reported the US and Canadian rig counts on Wednesday (December 23) instead of the usual Friday, so this week's rig count represents the change in drilling activity over just 5 days...over that period, the total count of rigs drilling for gas and oil in the US was down by 9 from December 18th to 700 rigs as of the 23rd, with active oil rigs down 3 to 538, and working gas rigs down 6 to 162...that was down from a total of 1,840 drilling rigs that were deployed on December 26th last year, of which 1499 were rigs drilling for oil, 340 were rigs targeting gas, and one was classified as miscellaneous...oil rigs had hit their fracking era high at 1609 on October 10, 2014, while the recent high for gas drilling rigs was 356, and occurred on November 11th last year...

all types of drilling rigs were shut down this week...there were 554 horizontal rigs in use this week, 5 fewer than last week, and down from 1350 horizontal rigs that were deployed in the the same week last year....the vertical rig count was down 1 to 86, and down from from 309 a year ago, while the directional rig count was down by 3 to 60, down from the 181 directional rigs that were in use as of the 4th weekend of December last year...24 drilling platforms remained in use offshore, all in the Gulf of Mexico, which was unchanged from last week but down from 56 in the Gulf and a total of 58 offshore last year at this time...

of the major shale basins, the Permian of west Texas again saw the largest change, as they added 6 rigs to bring their total to 212, which was nonetheless still down more than 60% from last year's 536...three other basins saw additions of a single rig: the Cana Woodford of Oklahoma, the Mississippian of southwest Kansas, and the Granite Wash of the Oklahoma-Texas panhandle region; the Cana Woodford was up to 39 rigs, but still down from 48 rigs working a year earlier, the Mississippian was up to 12, but down from 72 rigs a year ago, while the Granite Wash was up to 15 rigs, but down from the 52 rigs deployed there the same week last year....meanwhile, the Williston basin, centered in North Dakota, saw 3 rigs pulled out, leaving 55, down from 179 a year ago, and both the Fayetteville of Arkansas and the Haynesville of northwest Louisiana were down 2 rigs; the Fayetteville was left with 1 rig standing, down from 9 a year ago, while Haynesville still had 24 rigs deployed, down from 40 in the same week last year...in addition, the DJ-Niobrara chalk of the Rockies front range saw one rig stacked, leaving 23, down from 60 rigs as of a year ago...lastly, the always mysterious "other basins" saw a net reduction of 10 rigs, 6 oil and 4 gas, leaving these other basins with 167 rigs still deployed, down from 477 rigs working those basins on December 26th of last year..

the Baker Hughes state count tables show that both North Dakota and Wyoming saw their net rig count down by 3, with North Dakota's 55 rigs down from 169 a year ago, while Wyoming's 17 rigs was down from last year's 57...then both Louisiana and Arkansas saw 2 rigs taken out; that left Louisiana with 56 rigs working, down from last year's 111, while Arkansas was left with just 1 rig, down from 12 a year earlier...in addition, Alaska, Colorado, and Texas each saw their net rig count reduced by 1; in Alaska, they still had 11 rigs working, which was up from 10 a year earlier, while Colorado's count was down to 24 rigs from last year's 69, and Texas still had 319 rigs, down from 852 a year earlier...meanwhile, 2 additional rigs were deployed in Oklahoma, and both New Mexico and Kansas saw 1 rig added; those additions brought Oklahoma back up to 88, which was still down from 209 a year ago, while New Mexico had 38 rigs working as of the 23rd, down from 102 a year earlier, and Kansas had 12 rigs, down from the 29 drilling rigs that were deployed on December 26th of 2014...

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Judge throws out challenge to fracking on public land in Ohio - A federal judge in Ohio has derailed a suit accusing the Muskingum Watershed Conservancy District of defrauding the federal government by allowing hydraulic fracturing on land it acquired from the U.S. Army more than 65 years ago.U.S. District Judge Sara Lioi of Akron ruled that the challengers failed to provide evidence that the conservancy district acted fraudulently when it leased natural gas, oil and mineral rights to energy businesses.And she rejected the challengers’ argument that land transferred from the U.S. Army to the district should automatically revert to federal ownership because it’s no longer used exclusively for “recreation, conservation and reservoir development purposes” as the deed states.An appeal is likely, according to the challengers’ lawyer, Thomas Connors of Akron.The Muskingum Watershed covers about 8,000 square miles in 32 counties and is the largest watershed fully within the state.At issue are four leases for oil and natural gas rights that the conservancy district awarded between 2011 and 2014. The leases with “horizontal drilling companies” are worth more than $173 million to the district, plus royalties, according to the court decision.

Fracking opponents place holiday spin on protest -- Ten anti-fracking carolers sang altered versions of Christmas tunes at the Wayne National Forest headquarters near Nelsonville Monday afternoon, presenting officials with a letter in opposition to opening up area national forest land to fracking activity. “Fire bells ring, are you listening,” the carolers sang to the melody of a Christmas classic. “In the lane, oil is glistening. A terrible sight, the gas drills at night. Walking in a fracked-up wonderland.” Wayne National Forest officials are currently working with the federal Bureau of Land Management to consider whether to lease 31,900 acres of mineral rights for oil-and-gas development in the 241,000-acre Wayne forest. Most of the land considered for leasing is in Washington and Noble counties, though about 3,150 acres is located in far northern Athens County and adjoining Monroe County, with 10,000 acres to the south in Lawrence County.  A public meeting held in Athens last month on the matter was shut down early after protesters and counter-protesters clashed and the informational session was overtaken by activist activity. The Wayne National Forest boundaries contain 834,000 acres, though actual federally owned land is about 241,000 acres. It’s interspersed with private land, and in some cases, those landowners have been advocating for national forest oil-and-gas leasing, which would allow them to lease their own land as well. It remains uncertain, however, whether there’s any developable oil and gas underlying the Wayne sections in Athens County. 

Ohio's oil and gas industry is ready to boom once prices improve, analyst says - cleveland.com —While slumping energy prices are devastating Pennsylvania's once-booming shale drilling industry, Ohio's nascent fracking industry could be primed to take off once the market improves, according to a prominent industry analyst. Oil and gas drilling activity this year has fallen off across the Marcellus and Utica shale formations that lie underneath eastern Ohio and much of Pennsylvania, according to DrillingInfo, a Texas-based energy analytics firm. That has led to economic problems in Pennsylvania. But in Ohio, which last year produced about one-eighth as much natural gas as the Keystone State, there haven't been nearly as many jobs to lose. As of June – the most recent time that statistics are available – Ohio's oil and gas industry directly employed 2,085 people, down from 2,367 at the same time last year, according to the U.S. Bureau of Labor Statistics. In Pennsylvania, oil and gas employment nudged up slightly from 6,422 in June 2014 to 6,486 last June, though Pennsylvania Department of Labor and Industry spokeswoman Sara Goulet said there's been a dropoff in jobs to set up new drilling sites. Local businesses that cater to drillers have also seen sales drop off recently. But when prices inevitably rebound, Ohio will be in an enviable position, said DrillingInfo CEO Allen Gilmer. It's already been proven that Ohio sits atop a world-class reservoir of oil and gas, he said, but unlike Pennsylvania, it still hasn't been heavily exploited. "I'd say it's about different expectations," Gilmer said. "In a recovery, Ohio's actually in a position to benefit better than anybody else."

On the wrong track: Regulators miss real problem in rail-car explosions – 1st of three parts - Track defects caused fiery crude-oil derailments that forced 1,100 people from their homes in the Appalachian village of Mount Carbon, West Virginia, this year and killed 47 people in a Canadian town in 2013. In fact, a Dispatch analysis of federal records shows that track defects and human error are to blame for most railway incidents.Yet U.S. regulators continue to focus on tanker cars instead of the rails that support the cars and millions of gallons of Bakken crude, a type of highly volatile oil from North Dakota and Montana that crisscrosses the country on the way to refineries each week. Bakken trains pass through the hearts of hundreds of cities and towns and past millions of their residents, among them neighborhoods in Stark County. After dozens of crashes and spills in the past five years, U.S. rail authorities have zeroed in on tanker cars, propelling regulations that will cost an estimated $1.7 billion in upgrades designed to make those cars safer. But a Dispatch analysis of rail incidents shows that cars cause relatively few derailments and other rail incidents. Two-thirds of rail problems occur because of human error and track defects. “The first question you always ask is not how to reduce the consequences of the accident, but how do you keep the accident from happening in the first place. That means looking at what causes the derailments.” Reports that railroads have fought to keep secret show that 45 million to 137 million gallons of Bakken crude roll through Ohio each week. Trains carrying Bakken crude have derailed in cities across North America, dangling over a bridge in downtown Philadelphia, contaminating water in Lynchburg, Virginia, and, in one case, killing 47 people and incinerating the downtown in Lac-Megantic, a small town in Quebec. After several train derailments, The Dispatch began analyzing federal records and reviewing hundreds of reports about crude-train incidents.

Derailments more dangerous, but no increase in inspectors - Columbus Dispatch: Months before a CSX train carrying crude oil derailed and exploded in Mount Carbon, W.Va., polluting the air and water and forcing more than 1,100 people from their homes, inspectors missed a problem with the track there. Inspection reports compiled by a railroad contractor and CSX showed evidence of the defect, but the track wasn’t repaired or replaced. In fact, CSX officials and federal regulators didn’t find out about the defect until it was too late. About 140,000 miles of train tracks crisscross the nation, carrying hazardous cargo past houses, hospitals and schools every day. And hundreds of trains derail or crash each year because of problems with those tracks. One-third of all incidents — about 17,000 since 1995 — are blamed on problems with track.For the most part, railroads are responsible for inspecting their own tracks, but they don’t report those inspections to regulators. Federal inspectors see those reports only if they audit railroads or investigate a crash. And as trains have gotten longer, heavier and started carrying more Bakken — the most volatile crude oil in the world — the number of federal inspectors conducting those audits and their own checks has remained nearly the same. In 2006, before hydraulic fracturing opened up new shale-oil fields, the Federal Railroad Administration employed 344 inspectors. Today, it has 346 — one inspector for every 400 miles of track in the United States. States also employ their own inspectors, but it’s unclear how many monitor tracks. Some estimates peg the total number of state inspectors nationwide at about 180. Ohio has three. “It’s clear that (the Federal Railroad Administration) does not have the manpower, nor do they really have the charge to go out and do the inspection,” said Rick Inclima, safety director for the Brotherhood of Maintenance of Way Employees Division, the union that represents track inspectors. Federal railroad officials declined an interview for this series.

First responders often unprepared for derailments - Columbus Dispatch  - Flames licked the tanker just outside the state fairgrounds on July 11, 2012. Thousands of gallons of ethanol heated up inside the car. As pressure mounted, the intense heat weakened its shell, less than an inch thick.  The Norfolk Southern train had derailed in the right place at the right time. Few people were out at 2:04 a.m. when the first 911 calls about a plane crash or a trash fire were reported. The Ohio State Fair wouldn’t begin for a month, and the nearby Central Ohio Transit Authority garage was quiet.  Trains carrying hazardous materials — from chlorine and hydrochloric acid to ethanol and crude oil — roll through neighborhoods and business districts nationwide every day. Most of them go unnoticed, and nearly all reach their final destination without incident. But when they crash, the consequences can be dire. About 1.4 million Ohioans live within a half-mile of rail lines where Bakken crude is transported.   A broken rail also was to blame for a Bakken crude-oil derailment this year in Mount Carbon, W.Va., near a bend in the Kanawha River, which incinerated a house, forced about 1,100 people out of their homes and tested first responders.Inspections two months before the Mount Carbon derailment revealed a track defect that was not repaired before it broke under the weight of the 107-car CSX train that had earlier rolled through Downtown Columbus.Some of the firefighters who rushed to the derailment site had been trained in how to deal with crude-oil derailments: Just five months earlier, firefighters from the nearby Montgomery Fire Department had undergone CSX training on Bakken crude oil.But that didn’t make it any easier. Smoke and fire blocked one major road, making it impossible for some firefighters to reach the scene.Those who did make it through the heavy snow and thick, toxic smoke had another problem: Oil fires must be treated with foam, and this fire was huge.“The amount of foam we’d have needed — there’s not enough in West Virginia,”

States, feds keep train-derailment reports from public - Columbus Dispatch: Information that state and federal government agencies collect about train derailments, particularly those that cause crude-oil spills, is hard to find. Huge amounts of data about collisions, derailments and other accidents that happen along railroads in the United States are collected every year. Some of it is compiled by the industry and distributed directly to the public upon request. But some is buried in databases that government officials are slow to release, if at all. For example, the U.S. Department of Transportation requires railroads to submit annual reports to state emergency-response officials estimating how many trains carrying crude oil from the Bakken shale region pass through each county. Yet in many states, the public is not allowed to see those reports. A request by The Dispatch to see reports for Ohio went unanswered for months. When the request was answered, only reports from two of three railroads that move crude oil from the Bakken oil fields were provided by the State Emergency Response Commission. The third was supplied only after The Dispatch pointed out the discrepancy. In some instances, railroads have sued to try to keep reports secret. Some states allow the public to review only limited information from those reports. In Illinois, for example, the state emergency-response commission provided to The Dispatch railroad reports that included the number of crude-oil trains traveling through each county but redacted the specific rail lines. In the report West Virginia officials released, counties where crude oil moves by rail were blacked out, as were specific rail lines, and amounts of crude oil hauled. Melissa Cross, coordinator of West Virginia’s State Emergency Response Commission, said the state lets the railroad decide what information should be made public.

Fracking brings steep drops in some home values -- Home values decline steeply when fracking occurs in neighborhoods that use well water, says new research from Duke University. But the outcome differs in neighborhoods that rely on piped water, where home values rise slightly after shale-gas drilling occurs. The study, conducted in Pennsylvania, found that in areas using well water, home prices dropped by an average of $30,1676 when shale drilling occurred within a distance of 1.5 kilometers. Meanwhile, homes using piped water gained an average of $4,800 in value after shale wells opened nearby. Hydraulic fracturing, or “fracking,” is a relatively new technology in which gas is extracted by drilling into a shale formation and then applying a high-pressure mixture of water, sand and chemicals to create cracks from which the underground gas stores are released.The paper is among the first to quantify the impact of fracking on property values in a wide geographic area, said lead author Christopher Timmins, a Duke economics professor who specializes in environmental economics. It appears online in the December issue of the American Economic Review. “Our results show clearly that housing markets are responding to homeowners’ concerns about groundwater contamination from shale gas development,” Timmins said. “We may not know for many years whether these concerns are valid or not. However, they are creating a real cost to property owners today.” The study comes at a time when shale gas development is expanding across the country. The research was conducted in Pennsylvania, which is home to one of the nation’s largest natural gas reserves and where fracking activity has greatly increased in recent years.

Grandparents take to rocking chairs to protest fracking near schools - Monday, six Butler County grandparents tried to prove you're never too young, or old, to try and make a difference. "We're all grandparents, and we're worried about our grandchildren," said Ping Pirrung, a protester. The group tried to block Rex Energy's access to its own drilling operation off Route 228 in Adams Township. • A Rex Energy spokesman says the company has already completed the first phase of its drilling operation and will start work on the second phase in the coming weeks and months. Rex has already gotten all the local, state and federal permits necessary for its operation and placards indicating as much are at the entrance to the well.At issue with the grandparents protesting Monday; the proximity of the drilling to nearby schools. "We oppose this activity completely; fracking in general, but especially by the schools," said Laurel Colonello, another protester. The Mars Area Middle and High schools are both within a half mile of the Geyer Well Pad. "Fracking is not appropriate near schools. At all. Period," Pirrung said. Pat Creighton is a spokesman for Rex Energy. "Rex has no higher priority than the safety of our employees and the communities where we operate. At this specific site, Rex has provided regular operational updates to the Mars Area School Board," Creighton said.

Pipeline review to be co-led by NY environmental agency — Oversight of a new oil pipeline between the Port of Albany and New Jersey refineries will be led jointly by New York’s Department of Environmental Conservation and Thruway Authority, the agencies announced Monday. The announcement followed weeks of letters and resolutions from local officials and environmental groups opposing the Thruway Authority’s request for sole lead agency status. In a Dec. 16 letter to DEC, Scenic Hudson, Riverkeeper, Catskill Mountainkeeper, Sierra Club and Environmental Advocates of New York said DEC “is in the best position to conduct the necessary and thoroughgoing environmental review that this project demands.” Four counties, three cities and 21 towns and villages in the project’s path also objected to the Thruway Authority’s request for lead status in the review. Pilgrim Pipeline Holdings LLC, based in Canton, Connecticut, is developing a 178-mile project with two parallel underground pipelines between supply and distribution terminals in Albany and Linden, New Jersey. Crude oil will be delivered south to refineries, and gasoline and home heating oil will be shipped north to consumers. The project will occupy 116 miles of Thruway right of way through the Hudson Valley. Scenic Hudson objected to the decision to give the Thruway Authority joint lead agency status with DEC, saying that could undermine the thoroughness of the environmental and public health impact review. Environmental groups said the Thruway Authority stands to benefit from fees it would collect from the pipeline, creating a conflict of interest in the environmental review.

National Grid seeks to build 85-foot wall around Providence gas tank — As it moves forward with a plan to install a system to liquefy natural gas at its existing gas storage tank on the Fields Point waterfront, National Grid is preparing to file a proposal with federal regulators to build a giant wall around the steel tank as protection from spills. The concrete wall would stand 85 feet tall, about half the height of the 172-foot-high storage tank, and would extend approximately 754 feet around it in a full circle. There is an earthen berm around the tank already but the wall would be much higher. A spokesperson for National Grid said the wall is not required under federal or state laws and described it as a “voluntary safety enhancement.” “We are going above and beyond existing requirements to ensure that our facilities are using the most up-to-date safety infrastructure available,” Darlene Masse said. “The planned enhancements at Fields Point are part of National Grid’s commitment to continuously improve the safety and reliability of its infrastructure so that we can continue providing our customers with the level of service they deserve and expect.” The project, she said, is in the early stages of engineering, and National Grid has yet to finalize a cost estimate or calculate how much ratepayers in Rhode Island and Massachusetts would pay for the proposed wall.

What It Will Take to Balance the Gas Market in 2016 --The U.S. natural gas market is facing an ultimatum. Natural gas storage inventories are carrying such a daunting surplus, that prices already at 21-year lows for December, seem primed to go even lower should supply or demand fail to cooperate and balance the market. A warm winter so far and the very real prospect of hitting a storage celling before next winter mean that something has to give.  Today we wrap up our series on the gas supply/demand balance with a look forward to how 2016 could pan out.  Total U.S. storage inventory reached an all-time record high of 4,009 Bcf on November 20, 2015, and has been racking up an ever-growing surplus versus year-ago and five-year average levels ever since because warmer weather so far this winter has meant lower withdrawals than usual. The latest Energy Information Administration (EIA) weekly storage report for the week ended Dec. 11 showed inventories at 3,846 Bcf, 541 Bcf higher than last year, and weather forecasts suggest that could keep growing over the next few weeks to over 600 Bcf. If the market were to carry that surplus forward, inventories would theoretically be upwards of 4,500 by November 1, 2016. However, that can’t happen realistically because the known physical capacity limit for storage is lower than 4,500 Bcf. True, the total working gas design capacity for U.S. storage is around 4,665 Bcf, according to the EIA. But if you take the highest observed inventory level for each individual storage facility as reported to the EIA over the last five years and add them all up, it comes to a total of only 4,336 Bcf. That number represents the demonstrated maximum working gas storage capacity in the U.S. However, those facility-specific peak inventory levels are non-coinciding, meaning they have never before all peaked simultaneously in order to reach that total. So in reality the actual demonstrated storage capacity is much less than 4,336 Bcf. In other words if the current surplus of production (supply) over demand continues we would hit the theoretical storage “ceiling” sometime before next winter.  That is pretty unlikely.  In reality, the market will  find some other way to balance apart from storage.

Local officials from six states want local control of fracking - – As state legislatures and state supreme courts around the country are barring local governments from preventing or even regulating drilling in their communities, Environment America announced broad support for local control of fracking from more than 250 mayors, county commissioners, city councilors, state legislators and other local elected officials from six states.  Many of fracking’s impacts – from air and water pollution to earthquakes and ruined roads – are felt most heavily at the local level, prompting communities from Texas to North Carolina to seek to restrict the practice. But the oil and gas industry and their allies in state governments are fighting back.

  • Fort Collins and Longmont, Colorado are the latest communities in the spotlight, with the state supreme court hearing oral arguments on the towns’ fracking restrictions last week.
  • In Ohio, state law hands exclusive authority to the Ohio Department of Natural Resources to regulate and permit oil and gas wells, and attempted bans by local communities were rejected in the state courts earlier this year.
  • In Texas, the legislature adopted a law in May to bar local regulations of fracking, invalidating measures in Denton and other Texas communities.
  • In North Carolina, the General Assembly has prevented municipalities from placing any permanent regulations on fracking, prompting more than half a dozen local governments to pass temporary restrictions.

“In the rush to attract gas drillers to North Carolina, the State Legislature has ruled that this one industry is more important than a local government’s responsibility to protect the health and welfare of citizens,” said Chatham County commissioner Diana Hales.

Space Oddity – Congestion On The Colonial Refined Products Pipeline -- While recent analysis has raised concerns crude oil pipelines are running half empty the opposite is true for many of the nations’ refined product distribution pipes. Take the huge Colonial Pipeline system that delivers as much as 2.7 MMb/d of refined products from Gulf Coast refineries to destinations up the East Coast as far as New York. The southern stretch of the pipeline from Pasadena near Houston to Greensboro, NC has been running full since 2012 - meaning that shipper volumes are subject to rationing or apportionment. Today we start a two-part series explaining why the Colonial pipeline is so congested and how it operates.  We previously detailed the woes of East Coast refineries back in June of 2012 when plants had been shuttered due to poor refining margins (see Don’t Let The Sun Go Down On Me). Since then refinery fortunes in the region that the Energy Information Administration (EIA) calls Petroleum Administration for Defense District (PADD) I - have recovered somewhat – starting with the “rescue” purchase by Philadelphia Energy Solutions of a former Sunoco refinery in Philadelphia (see Beginning To See The Light). This refinery renaissance was in large part due to processing cheaper domestic crude railed from the Bakken instead of more expensive imports. In the case of two refineries in Delaware City and Paulsboro, NJ owned by PBF Energy – the revival formula also involved railing in heavy crude from Canada (see Masterpiece Refining). But despite the fact that refiners have done well in the shale era because of access to cheaper “advantaged” crudes (see Living With A Material Surge), East Coast refineries still don’t produce enough refined product to meet local demand – particularly heating oil during the peak winter season (see New York State of Contango) and gasoline in the summer. The shortfall is made up by a combination of shipments from the nation’s largest refining center – the Gulf Coast (PADD III - which hosts just over 50% of U.S. refinery capacity – 9.4 MMb/d) and imports, mostly from overseas.

St. Tammany Parish fracking opponents lose another round in court - St. Tammany Parish fracking opponents lose another roun: Fracking foes in St. Tammany Parish have lost another round in court. A federal judge rejected the town of Abita Springs' assertion that the Army Corps of Engineers improperly awarded a wetlands permit for a controversial oil drilling project northeast of Mandeville. U.S. District Court Judge Carl Barbier ruled Wednesday (Dec. 23) in favor of the corps and Helis Oil & Gas Co. The company received a wetlands permit in June to drill an exploratory vertical well on undeveloped land just north of Interstate 12. "Helis is very pleased with this ruling, which soundly rejected all of the town's legal arguments and attempts to stonewall the drilling of our conventional vertical well," Helis spokesman Greg Beuerman said. "We look forward to the next steps in the process and to drilling this well as proposed." Abita Springs' attorney, Lisa Jordan of the Tulane University Environmental Law Clinic, could not be immediately reached for comment Thursday. Though Helis scored a victory in federal court, the proposed project, which many residents oppose because of environmental concerns, remains on hold while a state appeals court considers a separate lawsuit. The federal case began when Abita Springs sued the corps in February. The town said the corps failed to follow federal regulations in issuing the permit. The suit alleged the corps erred in refusing the town's request for a public hearing and a new public comment period to respond to about 500 pages of information that Helis submitted to the corps on Jan. 2 — after the comment period closed. It also maintained Helis' application did not meet a requirement that the company study and consider other sites that don't include wetlands.

Just About Every Part Of The Permian Basin Is Unprofitable At $30 Per Barrel - Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices. Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief. To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the U.S. is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen. The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.

Fracking Earthquake Injury Lawsuit Allowed to Move Forward in Oklahoma - An Oklahoma judge has rejected another attempt by energy companies to dismiss a fracking lawsuit filed by a woman who alleges she was injured by an earthquake caused by the controversial drilling technique. The complaint was filed by Sandra Ladra has against Spess Oil Co., New Dominion, LLC and 25 other unnamed defendants for injuries suffered in a 2011 earthquake in Prague. The 5.6-magnitude quake was the largest in Oklahoma history, and has been linked to hydraulic fracturing injection wells associated with oil and gas production. Last week, Lincoln County District Judge Cynthia Ferrell Ashwood denied a motion to dismiss the lawsuit based on the statute of limitations. Judge Ashwood previously threw out the case in 2014, but the decision was overturned by the Oklahoma Supreme Court.  Recent research has linked fracking wells to an unprecedented increase in powerful earthquakes across the South and Midwest. U.S. government geologists now say that Oklahoma suffers more earthquakes than California, due entirely to fracking and oil and gas wastewater disposal wells. Ladra first attempted to sue the companies in district court, but the companies filed a motion to dismiss, arguing that the case should be decided by the Oklahoma Corporation Commission (OCC), which is seen as highly favoring oil and gas industry in that state. The case made its way to the highest court in the state, which shot down the industry’s attempt to bar the fracking lawsuit.

Intensity of man-made earthquakes from fracking is on the rise - - It may only be a matter of time before we cause a 'mega-quake'.  This is according to a new study that claims fracking is increasing the intensity of tremors.  Pumping millions of gallons of wastewater increases pressure in the basement rock layer, which sits below a sedimentary cover and often contains oil and other exploitable gas reserves. The longer wastewater is injected into a site, the higher the magnitude of the resulting quake, it claims. Pumping millions of gallons of wastewater increases pressure in the basement rock layer, which sits below a sedimentary cover and often contains oil and other exploitable gas reserves WHAT IS FRACKING? Stanford University geophysicists created a reservoir simulation model, and found a linear relationship between frequency and magnitude of manmade quakes. They analysed a sequence of earthquakes in Guy, Arkansas. These quakes ran along an unmapped basement line between 2010 and 2011. Over a nine-month span, 94.5 million gallons of wastewater were injected into two nearby Arkansas wells, which extended into the basement layer. Injecting such high amounts of water increases pressure and adds stress to fault lines, triggering an earthquake when a stress fault slips and releases seismic waves. 'It's an indication that even if the number of earthquakes you experience each month is not changing, as you go further along in time you should expect to see larger magnitude events,'

Porter Ranch Methane Leak Does Not Bode Well for Climate - (video) Have you ever seen methane? What about benzene? Or the chemical the gas company adds to make your stovetop gas stink, mercaptan? I asked residents at a Save Porter Ranch meeting in northwest Los Angeles if they had seen the pollution they knew was in their community, pouring down from the SoCal Gas storage facility on the hill behind town. No one responded. For months now, methane pollution has been billowing from the breached facility into their community. Families have reported bad odors resulting in headaches and nosebleeds. Over 1,000 families have already chosen to relocate and the school district recently authorized the two local schools to move out of the area. But no one had actually seen the pollution. When an oil spill happens, you see it. At a coal fired power plant, you can often see the pollution blowing in the wind. But when a natural gas storage facility pollutes, what do you see?  Until now, you saw nothing. That's because much oil and gas air pollution is normally invisible. My colleague Pete Dronkers and I traveled to the community of Porter Ranch to show them the pollution they knew was there, but couldn't see. Earthworks uses a FLIR (Forward Looking InfraRed) Gasfinder 320 camera that is specially calibrated to expose otherwise invisible air pollution from oil and gas operations. Methane, the primary component of natural gas, is one of about 20 gases it can detect. It also recognizes known carcinogens like benzene and other toxins like volatile organic compounds.

Erin Brockovich: Porter Ranch Gas Leak Is Worst Environmental Disaster Since BP Oil Spill --Since October, residents of Porter Ranch, California, have been exposed to dangerous contaminants from a massive natural gas leak that continues to seep into the air, causing a catastrophe the scale of which has not been seen since the 2010 BP oil spill. After only a week of visiting families in Porter Ranch, I am already experiencing the headaches, nausea and congestion that have plagued this community living at the center of one of the most significant environmental disasters in recent history. Southern California Gas Co. or SoCalGas, has essentially ignored the impact to victims and its actions have instead added to their suffering. The company has refused to release air quality data that could be used to protect its residents, it has made relocation very difficult and it has forged ahead with plans to expand its facility before the leak has even been contained. The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground and it shows no sign of stopping. As the pressure from weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area. According to tests conducted in November by the California Air Resources Board, the leak is spewing 50,000 kilograms of gas per hour—the equivalent to the strength of a volcanic eruption. At this rate, in just one month, the leak will have accounted for one-quarter of the total estimated methane emissions in the state of California.

"Unstoppable" California Gas Leak Now Being Called Worst Catastrophe Since BP Spill --Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes,"the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane - a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide - has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. New infrared footage exposes the massive leak..  Infographic of leak (and potential solution)  As TheAntiMedia.org's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site — at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.    This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it. This methane disaster is worse than can be sufficiently described in words, because while it’s estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can’t be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix — which remains a dubiously open question. According to the California Air Resources Board, methane — a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide — has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons — adding “approximately one-quarter to the regular statewide methane emissions” during that same time frame.

California gas leak forces relocation of thousands since October - A massive natural gas leak has forced the relocation of more than 2,000 families in a California community, with many reportedly falling ill from the noxious fumes spewing into the air since October.Under a court-ordered settlement reached this week between the gas company and Los Angeles city attorneys, Southern California Gas (SoCal Gas) must find temporary housing within 72 hours for any residents of Porter Ranch who ask to be relocated. As of Wednesday, the company said it had relocated 2,147 families in temporary housing, while hundreds more have left the area on their own. The gated community, located some 30 miles (48 kilometers) northwest of downtown Los Angeles, sits near one of the largest natural gas storage fields in the United States, where a leak was detected on October 23. SoCal Gas says it would take several more months to repair the leak at its Aliso Canyon site, while insisting that it poses no danger to human health as methane dissipates quickly into the air. But many families report falling ill from the fumes -- with symptoms including nose bleeds and nausea -- and have filed a class action suit against the company and pulled their children from area schools.  The Los Angeles city attorney earlier this month filed suit against SoCal Gas saying that no community "should have to endure what the residents of Porter Ranch have suffered from the gas company's continued failure to stop the leak." "It's not only the odor, it's the potential health consequences from the long-term exposure to chemicals like benzene," attorney Mike Feuer added. According to the California Air Resources Board, the leak is releasing between 44,000 and 58,000 kilograms (97,000 and 127,000 pounds) of methane into the air per hour.

New infrared video reveals growing environmental disaster in L.A. gas leak - A runaway natural gas leak from a storage facility in the hills above Los Angeles is shaping up as a significant ecological disaster, state officials and experts say, with more than 150 million pounds of methane pouring into the atmosphere so far and no immediate end in sight. The rupture within a massive underground containment system — first detected more than two months ago — is venting gas at a rate of up to 110,000 pounds per hour, California officials confirm. The leak already has forced evacuations of nearby neighborhoods, and officials say pollutants released in the accident could have long-term consequences far beyond the region. Newly obtained infrared video captures a plume of gas — invisible to the naked eye — spouting from a hilltop in the Aliso Canyon area above Burbank, like smoke billowing from a volcano. Besides being an explosive hazard, the methane being released is a powerful greenhouse gas, more potent than carbon dioxide in trapping heat in the lower atmosphere. Scientists and environmental experts say the Aliso Canyon leak instantly became the biggest single source of methane emissions in all of California when it began two months ago. The impact of greenhouse gases released since then, measured over a 20-year time frame, is the equivalent of emissions from six coal-fired power plants or 7 million automobiles, environmentalists say. “It is one of the biggest leaks we’ve ever seen reported,” said Tim O’Connor, California climate director for the Environmental Defense Fund, a nonprofit group that obtained the video. “It is coming out with force, in incredible volumes. And it is absolutely uncontained.”

Fracking, wastewater take center stage at hearing - Nebraska lawmakers are examining the Nebraska Oil and Gas Conservation Commission and its monitoring of a salt wastewater injection well in the northwestern corner of the state. Researchers, residents and drilling company representatives testified Tuesday before the state's Natural Resources Committee. Discussion centered on a Colorado company's controversial proposed salt wastewater injection well in Sioux County. Gering Sen. John Stinner estimated 80 trucks carrying more than 10,000 barrels of wastewater could be disposed at the site daily. The dry well could become the state's largest disposal site. Disposed wastewater would come from Wyoming, Colorado and Nebraska, according to the resolution. Such wastewater could contain chemicals from fracking, a process of injecting liquids under high pressure into rocks to release oil and gas. The committee invited representatives from the Environmental Protection Agency and the Groundwater Protection Council to testify. Both representatives expressed some level of trust in the Oil and Gas Conservation Commission's efforts.  Mike Nickolaus of the Groundwater Protection Council said the Oil and Gas Conservation Commission often exceeds federal minimum environmental standards, including its decision to review conditions a half-mile around wastewater sites rather than the required quarter-mile. A handful of people opposed fracking and the commission's dual role as the state's industry oversight agency, and promoter.

Shale gas hit a few peaks in 2015, but drillers mostly pulled back -  Shale gas companies pumped the brakes in 2015 after years of rapid increases in the amount of natural gas they pulled from Pennsylvania’s Marcellus and Utica shales, new production data released by the state shows. Unconventional gas production in Pennsylvania this year hit its highest point in March then dipped to its lowest point in June during a three-month slide, according to monthly figures that shale operators reported to the Department of Environmental Protection. Production rose in July, August and September before dropping off again in October. The October figures, the most recent available, were released by DEP last week. Average gas production in October — 12.5 billion cubic feet per day (Bcf/d) — was 1 percent lower than September and roughly on par with January. The stuttering production volumes are evidence of companies drilling and completing fewer wells, and choking back the flow of gas at wells already connected to pipelines. Several companies announced their intentions to curb production in response to low prices, oversupply and tepid demand amid warmer-than-normal temperatures. “By our estimates, there is up to almost 1.5 billion cubic feet of choked production in the Northeast alone,”“A lot of producers are saying, we’re going to wait until the first quarter of 2016 to come back into the game. They are just waiting for better demand, better prices to bump it out again.” Chesapeake Energy, Cabot Oil and Gas, and Southwestern Energy — shale operators focused on the dry gas region in Pennsylvania’s northeastern counties — led production for the first 10 months of 2015, although Chesapeake and Cabot both showed signs of pulling back after years of nearly uninterrupted production increases. Both companies reported producing less gas in October than they did in January.

Hoping for a Price Surge, Oil Companies Keep Wells in Reserve - —  This well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado’s Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly.Many constitute a new form of underground storage, a new well inventory strategy for an industry in distress, one that has been forced to lay off tens of thousands of workers, decommission most of its rigs and write down assets.For individual companies like Anadarko, the deferred completions — known in the oil business as D.U.C.s (an acronym for drilled but uncomplete) — are a bet on higher oil prices than the current level of about $38 a barrel, which is about 60 percent lower than in summer 2014. They are viewed by oil executives as a way to hoard cash as service costs plummet and are a flexible lever to rapidly increase production whenever oil rises again.  But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, about the same amount of oil that Iran is expected to add to the glutted global market after it complies with the recent nuclear deal by the end of next year. Some analysts say oil companies like Anadarko, EOG Resources and Continental Resources may collectively risk suffocating the very price revival they anticipate by releasing abundant new supplies once prices inch up. Others say the eventual impact would be small and short-lived, but since the industry has never used this strategy before, no one can be sure. Today there are 1,300 horizontal wells — typically the most productive drilled in shale fields that will offer the biggest output their first year — that were drilled at least six months ago that remain incomplete in the nation’s major shale oil fields. That is more than three times last year’s average, according to Rystad Energy, a Norwegian consultant firm that tracks world oil fields.

Oil Bankruptcies Hit Highest Level Since Crisis And There's "More To Come", Fed Warns - “Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.  This week’s gains notwithstanding, and a likely misguided assumption about the impact the lifting of America’s crude export ban will have on WTI aside, the fundamentals here are a nightmare. Iraq is pumping at record levels, Iranian supply is set to ramp up starting next month, once sanctions are lifted, and OPEC is completely disjointed. Furthermore, producers are bumping up against the limits of how many jobs they can cut and how much capex can be slashed (ultimately, you have to retain enough human capital and capacity to remain operational). The takeaway: the bankruptcies are coming.  As the Dallas Fed notes in its latest quarterly energy outlook, bankruptcies in the space are now at their highest levels since the crisis and things look bleak going forward. Below, find excerpts from the report. From The Dallas Fed West Texas Intermediate (WTI) crude oil prices have fallen around 23 percent so far in the fourth quarter. Expectations have shifted toward a weaker price outlook because sanctions against Iran are likely to be lifted in early 2016, the Organization of the Petroleum Exporting Countries (OPEC) has scrapped any pretense of a production ceiling, and U.S. production declines have slowed. Supply Glut Drives Oil Prices to 10-Year Lows The imbalance in global supply and demand has led oil prices to slump to levels last seen over 10 years ago. World petroleum production will exceed consumption by an average of 1.7 million barrels per day (mb/d) in 2015, according to December estimates by the Energy Information Administration (EIA). This excess supply is higher than during the Asian financial crisis and the Great Recession. OPEC supply has bloated markets with nearly 1 mb/d more this year than what the EIA initially predicted in November 2014. In 2016, global supply is expected to exceed demand by 0.6 mb/d on average (Chart 1).

Federal Court Gives Blessing to Covertly Approved Enbridge Cross-Border Tar Sands Pipeline Expansion -  DeSmogBlog -  A federal court has ruled that the Enbridge Alberta Clipper (Line 67) cross-border tar sands pipeline expansion project,permitted covertly and behind closed doors by the Obama Administration, got its greenlight in a legal manner.  The ruling  comes just over a year after several environmental groups brought a lawsuit against the U.S. Department of State for what they said was a violation of the National Environmental Policy Act (NEPA). President Barack Obama and the State Department gave Enbridge its initial Alberta Clipper permit in August 2009, during congressional recess. In November 2012, Enbridge requested an expansion of that pipeline from its initial 450,000 barrels per day capacity to 880,000 barrels per day. Seeing TransCanada's sordid experience with Keystone XL in action, Enbridge decided that a year into the expansion permitting project, it would do what environmental groups have coined a “switcheroo.” That is, they dreamt up the idea to add pump stations on each side of the border to two different pipelines (in name only, but part of the same pipeline system) — Line 3 and Alberta Clipper, respectively — and avoid having to go through the conventional State Department presidential permit process for border-crossing projects. The public did not learn of this “illegal scheme” until it was published in the Federal Register in August 2014,  Alberta Clipper is one piece of the broader Enbridge-owned multi-part pipeline system that DeSmog has called the “Keystone XL Clone,” which does what TransCanada's Keystone Pipeline System does: shuttle diluted bitumen (“dilbit”)from Alberta down to U.S. Gulf coast refineries and in part to the global export market. 

South Dakota regulators reject requests to toss out Keystone XL = — State regulators could make a decision as early as next month on whether to again approve the South Dakota portion of the Keystone XL pipeline. The state Public Utilities Commission denied requests Tuesday to throw out the pipeline project. Opponents argued that President Barack Obama killed the pipeline in November. William Taylor is an attorney for TransCanada Corp. He says TransCanada remains committed to the project, which could be revived under the next president. Critics fear the pipeline could pollute the environment. The pipeline would transport oil from Canada to Nebraska, where it would connect with existing pipelines headed to the Gulf Coast. It also could transport some crude from the Bakken oil field. Commission Chairman Chris Nelson says the panel could decide on the project at its January meeting.

Canadian regulator: 4.6 magnitude quake caused by fracking: British Columbia's energy regulator has confirmed that a 4.6 magnitude earthquake in northeast British Columbia in August was caused by fracking and is likely to be the largest fracking-induced seismic event ever recorded. The earthquake struck on August 17, 2015 about 110 kilometers northwest of Fort St. John in British Columbia. Its epicenter was close to a fracking site operated by Progress Energy Canada Ltd. Workers at the drill site reported their pick-up trucks shook and power poles swayed by the quake prompting the natural gas production company to temporarily halt operations. British Columbia Oil and Gas Commission, which regulates the fracking industry, had launched an investigation into the cause of the quake. It released a report last week stating that the 4.6-magnitude earthquake was caused by fluid injection during hydraulic fracturing from an operator in the area. Ken Paulson, chief operating officer of the OGS, said: Progress Energy Canada Ltd., followed regulations and stopped operations as soon as the magnitude was known.We allowed them to continue operations with a reduced pump rate, but if another event were to occur of 3.5 or greater, you have to shut in again and we’ll try something different.  Honn Kao, a research scientist with Geological Survey of Canada, said that the quake could very likely be the largest fracking-caused earthquake in the world.

Despite Lifting Of Export Ban, Moody's "Bombshell" Sparks Panic In Energy Credit Markets --The Senate and House passed the spending bill this week, which the President signed into law on the same day. Embedded in the law is a provision to lift the 40-year old crude export ban. The lifting of the crude export ban is a historic milestone, but seemingly less relevant for US E&Ps, Midstream and Oilfield Services as compared to a year and a half agowhen WTI-Brent spreads were close to $9.00/bbl vs. the current spread of $0.80/bbl.Nevertheless, there is still a negative long-term impact on refiners should spreads re-widen. As BofAML notes, Moody’s dropped a bombshell on the market this week as it lowered its oil and natural gas price deck and subsequently placed 29 investment grade and BB rated US E&P companies under review for possible downgrades. The review reflects Moody’s expectations that industry fundamentals will remain weak through at least 2017. Moody's expects to conclude most reviews over the next several months. Companies may be downgraded 1-2 notches and some ratings could be confirmed as well. Moody's continues to assess single B and lower rated companies. We believe the price deck outlook will also have ramifications for Oilfield Service Ratings. Looking into 2016, we expect additional downgrades, which could lead to $30bn+ of Investment Grade Energy bonds falling into the High Yield Index if prices remain weak. Notably S&P and Fitch would have to take similar actions for falling angel scenario to play out.

US banks hit by cheap oil as Opec warns of long-term low -- US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector. The Organisation of the Petroleum Exporting Countries on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest. In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand. Crude oil's price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books. The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system. 

Oil Traders Set to Pounce as U.S. Prepares to Lift Export Ban -- Collapsing crude prices, whipsaw volatility and the ability to store and sell oil forward for delivery at higher future prices made 2015 a banner year for the world’s biggest traders. Now things could get even better. The proposed lifting of the 40-year-old U.S. ban on crude exports will be a boon for trading houses as it will open a major new market and create a host of opportunities for the companies that buy, ship, store, blend and sell oil around the world. “Oil traders will love it,” . “It means those flows will be accessible to everybody and traders can apply their expertise to benefit.” Shale oil production has already transformed the U.S. market and in response, the largest independent trading houses, from Vitol Group and Trafigura Pte Ltd. to Mercuria Energy Group Ltd., have been bulking up their trading desks and investing in ports, pipelines and export facilities. Some, including Vitol and Trafigura, are already exporting lightly refined crude oil known as condensate under special licenses.“It provides a bunch of new trading opportunities and it is also a market with lots of access to capital,” Jakob said. “For the traders, it is a very significant new development and opportunity for them.” West African crude bound for Latin America, for example, could be replaced with U.S. oil, reducing shipping costs, said Jakob.

Lifting Oil Export Ban Is Like ‘100 Keystone Pipelines’ - Speaker of the House Paul Ryan (R-WI) said Monday that lifting the oil export ban, which was included in the $1.1 trillion omnibus bill, “is like having 100 Keystone pipelines.”  Unlike the oil export ban repeal, the Keystone proposal finally died this fall.“We hope the speaker is not bragging about making the climate worse,” “Both of those things are bad news for the climate, bad news for people who care about the environment.” By exposing producers to the global economy, lifting the oil export ban is expected to drive investment in domestic oil extraction, particularly in the Bakken oil fields of North Dakota. That, in turn, will increase carbon emissions. It will also continue the devastation some in North Dakota are seeing from widespread flaring, increased truck traffic, and water overuse and pollution. We’re already seeing huge impacts on public health and natural resources “We’re already seeing huge impacts on public health and natural resources,” Jessica Ellis, a senior legislative representative for Earthjustice, told ThinkProgress.  “The air side of things is pretty bad in North Dakota. There is so much flaring going on,” she said. “You also will have oil trains running across the country… I think there will be a lot of other impacts where we don’t know how it will play out.” Exploding oil trains has increasingly become a concern across the United States, as the oil boom outpaced infrastructure to transport petroleum.

The Impact On Corpus Infrastructure Of Lifting Crude Export Restrictions -- Until last week (December 13, 2015), the infrastructure being built to handle crude and condensate in the South Texas Port of Corpus Christi was planned on the assumption that crude exports were restricted to specific locations like Canada and condensate exports required special processing in a stabilization unit. Now that Congress has lifted restrictions on crude exports - the floodgates would appear to be open for surplus Eagle Ford and Permian crude to ship to overseas markets – provided the economics justify such movements (which they don’t at the moment). In the longer term though, exports could be the key to Corpus’ future. Today we continue our look at Corpus’s emerging role as a crude oil/condensate hub in a new world without export regulations.

100% Renewable Bribery : Oil and Solar Lobbyist Both Win in DC - Who drove the harder bargain in the federal budget compromise this week: Republicans who ended the ban on exporting crude oil from the United States, or Democrats who extended tax breaks for wind and solar power?As news of the quid-pro-quo spread, celebration and remonstrance broke out on both sides of the partisan Congressional schism on climate questions.And when neither side is wholly satisfied, it is usually a sign of a square deal. But this time there is good reason to believe that the green side gained more than it gave, assuming the package goes through as expected.“There is a lot to be said, pro and con, about this agreement, but I believe the extension of tax credits for solar and wind energy ‎is a game-changer,” said Sen. Barbara Boxer of California.“Extending the wind and solar tax incentives for 5 years would eliminate over 10 times more carbon emissions than lifting the oil export ban would create.”Her fellow Democrat, Sen. Ed Markey of Massachusetts, saw it differently, as did many environmental campaigners.“Today is a great day to be an oil company in America,” he said scornfully on the Senate floor. “It will be a disaster for our economy, for the climate, for our national security, for our consumers.”Environmentalists have a hard time swallowing the end of the oil export ban, because it is antithetical to the latest climate science that decrees most fossil fuels ought to be left in the ground.

Scant benefit expected from lifting oil export ban - The federal government is preparing to lift its ban on crude oil exports for the first time in 40 years, but most producers and industry analysts expect little benefit, at least in the short to medium term. Congress agreed to suspend the ban in its new omnibus spending bill approved on Friday and since signed by the president. That could pave the way for the first crude exports since 1975, when the federal government originally imposed restrictions to shore up domestic supplies in response to the Arab oil embargo that decade. U.S. producers have lobbied heavily to eliminate the ban, given that modern drilling technologies have opened up vast new U.S. crude reserves. That has pushed domestic output to its highest levels since the early 1970s, contributing to global oversupply and a fierce price war with the Organization of Petroleum Exporting Countries that began last year. To sustain U.S. production, oil companies want to access foreign markets where prices are higher than that paid by domestic refineries. But the battle with OPEC has sharply cut prices across the board, greatly narrowing the gap between what foreign refineries now pay for Brent oil — the international benchmark — and what domestic ones pay for U.S. benchmark West Texas Intermediate. The price differential has shrunk to less than $3 per barrel, down from $20 or more a few years ago, said Tom Kloza, chief petroleum analyst with the Oil Price Information Service in Maryland. As a result, the benefits for accessing foreign markets are now minimal for U.S. producers.

Market won't respond immediately to lifting of export ban - The oil industry received a psychological lift when President Barack Obama last week signed a $1.1 trillion spending bill that also included a provision to allow the U.S. to export crude oil after a four decade ban, but it’s going to take a while for the black gold to begin flowing to the coast and abroad. Petroleum economist Karr Ingham said infrastructure along the Gulf Coast is set up for importing oil, not exporting. It will take some time, he said to get facilities set up to start sending crude oil to the open market. The first thing that needs to happen that would be a game changer in the market, he said, is to start releasing excess crude from the world’s large oil storage facility in Cushing, Oklahoma. Ingham said about 60 million gallons of crude oil is stored at the facility between Oklahoma City and Tulsa. “What this export ban has been is an artificial restriction on the movement of a legitimately produced U.S. domestic product, which is to say we’ve produced it, we’re not using all of it, which means it just goes into storage, which means it pushes prices downward and that’s what’s been going on,” he said. “There is a market for this stuff (oil) out there.” Ingham predicted the stored-up crude should begin to hit the open market by the second half of 2016.  “Most of the producers in Texas are not going to be able to export crude oil. That’s going to be done by a lot of bigger companies and companies that have the expertise to do those type of things to shop it around internationally,” he said. “How we think it’s going to impact the smaller producers in Texas is that we’re hoping this huge oversupply of crude oil that we have will be reduced by being able to export some of that oversupply to other parts of the world to be refined.”

Vitol Said to Plan U.S. Oil Export to Europe After Ban Lifted - - The U.S. restricted most exports of unrefined crude as part of its response to the Arab oil embargo that caused fuel shortages in the earlier 1970s. For decades it didn’t much matter, as declining U.S. oil production and rising demand put the focus on imports. That started changing five years ago, when companies like Continental Resources Inc. and ConocoPhillips began ramping up oil production from shale rock in Texas and North Dakota, raising U.S. output by 65 percent and creating supply gluts that forced producers to offer steep price discounts. U.S. companies were already allowed to export oil to Canada, and boosted shipments to almost 500,000 barrels a day this year. That’s more than some members of the Organization of Petroleum Exporting Countries export. West Texas Intermediate, the U.S. benchmark crude, settled at $37.50 a barrel Wednesday, 14 cents higher than Brent, the international marker. Brent has been more expensive than WTI for most of the past five years, reaching a premium of $27.88 a barrel in 2011.

ConocoPhillips works the system - -  In February, the Obama administration gave oil company ConocoPhilips the right to drill in a formerly pristine part of the Alaskan arctic coast called NPR-A. The area had been protected for 15 years by a deal struck by Bill Clinton-era Interior Secretary Bruce Babbit to allow limited, roadless drilling along with protections for wildlife and the environment there. A POLITICO Magazine story today by Pro Publica's Alec MacGillis goes in detail about how the oil company applied slow, steady pressure to the federal bureaucracy to win a decision that will allow it to start drilling in the area early next year. To reach that point, the company deployed well-connected lobbyists to lean first on the Army Corps of Engineers to overrule a decision by the Bureau of Land Management that was supported by conservationists and native tribes living in the region. “It was so disappointing for the Obama administration, for Sally Jewell, to go down this road,” said Lon Kelly, who has since retired from the BLM office in Fairbanks.

How Obama Let Big Oil Drill in the Pristine Alaska Wilderness - In February, the Obama administration granted the ConocoPhillips oil company the right to drill in the reserve. The Greater Mooses Tooth project, as it is known, upended the protections that Babbitt had engineered, saving the oil company tens of millions of dollars and setting what conservationists see as a foreboding precedent. How ConocoPhillips overcame years of resistance from courts, native Alaskans, environmental groups and several federal agencies is the story of how Washington really works. It is a story that surprised even a veteran of the political machine like Babbitt. As environmentalists, energy companies and politicians brawled over big symbols like the Keystone XL pipeline and offshore drilling in the Arctic Ocean, the more immediate battles over climate change and fossil fuels were being waged over projects like Greater Mooses Tooth—out of the public eye, away from the cable-news shoutfests and White House protests. The fight was unfolding in the real Washington—where influence accrues across election cycles almost without regard to who’s in power. In this Washington, companies bend decisions of major import in their direction by overwhelming a bureaucracy that, after years of budget cuts, outsourcing and inattention, lacks the resources and morale to hold its own. Increasingly, industry spins the revolving door. It brings in people who learn there’s serious money to be made after leaving government jobs by sticking around the capital and making it their career.

Govt opens Mauis dolphin area for oil drilling - The Government has opened up more than 3000 square kilometres of a marine mammal sanctuary for oil and gas drilling, home to the critically endangered Maui's dolphin. It comes less than a week after the International Whaling Commission urged our Government to do more to save the species. The Maui's dolphin is the world's rarest. It is estimated there are only 55 left. "I think primarily once you go from exploration right through to production, you're not jeopardising the wildlife," says Minister of Energy and Resources Mr Bridges. In April, the Government signed off a block offer – the biggest area ever of sea and land for oil and gas exploration. Now official documents obtained by the Green Party reveal the Department of Conservation pointed out that this is the home of the Maui's dolphin, known as the West Coast North Island Marine Mammal Sanctuary. The area the Government has opened up for potential drilling overlaps 3000 square kilometres into the sanctuary, including large areas off the Taranaki coast.

Lender Versus Lender Rears Its Head Again in Canada's Oil Patch -- With crude prices plunging anew, the specter of lenders having to fight each other to get repaid is rearing its head again in Canada’s oil patch. As oil fell below $35 per barrel last week Calfrac Well Services Ltd., which provides rigs to pry crude from shale rock, announced that its banks and its largest shareholder had taken steps to help it avoid a technical default. Normally that would be good news for creditors. But the bond market barely reacted. That’s because the company left open the possibility that it could raise new debt that would rank ahead of the notes and dilute their claim on the company’s assets. Similar tactics, already used by U.S. oil companies to raise capital in the wake of oil’s first leg down at the beginning of the year, have triggered a pair of lawsuits from disgruntled lenders when Lightstream Resources Ltd. brought them to Canada in July. Now with the chances of a rebound in crude prices fading, bond investors are getting wary more companies will seek to set lenders against each other to escape default. "When you’re desperate to survive as a company you’re going to do whatever you can right?" "There will be more of these situations because there’s a lot of unsecured high-yield” debt issued by commodities firms. Calfrac’s $600 million of unsecured bonds traded at about 40 cents on the dollar in the wake of the firm’s announcement last week that its largest shareholder, Matco Investments Ltd., will participate in a C$27.5 million ($19.8 million) share sale.

MPs clear the way for fracking to start under National Parks - Fracking will be allowed under the most beautiful parts of the country after the controversial measures were cleared by a vote of MPs in Parliament. The controversial method of extracting gas can now take place three-quarters of a mile below national parks, areas of outstanding natural beauty and world heritage sites in England. However similar protection is not afforded to sites of special scientific interest and other wildlife conservation sites by the plan. The news came ahead of a new round of fracking licences which are due to be awarded on Thursday. The Government had tried to appease concerns by ruling out fracking in national parks, and straight through drinking water aquifers, but has been criticised for still allowing fracking in the protected areas that feed water into aquifers and under national parks. MPs approved the measure by 298 votes to 261, a majority 37. Four Conservative MPs, including Tory London mayoral candidate Zac Goldsmith and Sarah Wollaston, the chairman of the Health select committee, opposed the plans. Labour and the Liberal Democrats have complained that the measures were not allocated any time for debate in the Commons chamber and the regulations were passed after a deferred vote away from the main proceedings.

Environmentalists hit out over plans for fracking in Barnsley - Thorne and District Gazette: Environmentalists have spoken out against a decision to allow fracking in Barnsley and expressed fears it could leave behind a “trail of environmental damage.” The Government has granted an exploratory fracking license to energy firm Cuadrilla, which covers an area that includes Barnsley town centre, Cudworth, Barugh Green, Dodworth, Hood Green, Worsbrough, Birdwell, Ardsley and Elsecar. It could bring the controversial drilling process to release gas from deep below the earth’s surface to Barnsley for the first time. Both the Barnsley Green Party and Frack Free South Yorkshire condemned the Government for making the decision.A spokesperson for the Greens said: “When fracking moves into an area there may be a promise of quick benefits for local communities, but the reality is often that the few local jobs that are created dry up once the fracking is finished and communities are left to live with the consequences.”

High Levels of Toxic Chemical Found in UK Fracking Site: High levels of a toxic chemical substance have been found in rock samples in an area earmarked for fracking in England. Scientists from the University of Aberdeen's School of Geosciences discovered the element, selenium, in rock samples targeted for shale gas extraction. Fracking involves blasting rocks underground with powerful injections of water, sand and chemicals to fracture the rock in the shale strata to release a gas that can be collected from a well. The British government is behind the controversial technique, while many conservationists, residents and members of the Green Party remain firmly against fracking. UK shale has lots of poisonous selenium scientists warn.    In 2011, it emerged that fracking tests near Lancashire in the north west of England were the likely cause of earthquakes in the area. Energy firm Cuadrila said that shale has test drilling had triggered the earth tremors, which didn't go down well with people living in Blackpool.  In July 2015, the British government was forced to release a heavily redacted report into the impact of fracking in the UK after the Information Commissioner ordered the British government to publish it accusing the Department for Environment, Food and Rural Affairs (DEFRA) of withholding the information. The report divulged that people living close to fracking sites could suffer poor health, financial hardship and pollution. "Noise and light noise and light have also been cited in the US as environmental and health concerns for residents and animals living near drilling operations. Excessive and/or continuous noise, such as that typically experienced near drilling sites, has documented health impacts."

BP Buys New Mexico Oil And Gas Assets From Devon Energy  (Reuters) - BP Plc on Friday said its U.S. onshore unit has acquired all of Devon Energy Corp's oil and gas properties in the San Juan Basin in New Mexico for an undisclosed price. BP expects to take over operation of the 480 wells spread across 33,000 acres in the first quarter of 2016 after receiving required government agency approvals, it said. Battered by a crude downturn that has stretched for more than a year, many independent oil and gas companies are selling assets or contemplating selling assets they no longer consider essential as a way to raise cash. BP, which started operating its Lower 48 onshore unit as a separate business in early 2105, already holds 550,000 acres and has average output of 100,000 barrels of oil equivalent per day in the San Juan Basin which spans New Mexico and Colorado. Shares of Oklahoma City, Oklahoma based Devon rose 4 cents to $29.02 in midday New York Stock Exchange trading. So far this year the stock is down 53 percent. U.S.-listed shares of BP fell 6 cents to $30.29.

Pemex oil production hampered by accidents, budget cuts - Petroleos Mexicanos’s oil production in 2015 will drop to the lowest in 25 years as a series of accidents and budget cuts curbed supply. Pemex, as the company is known, reported preliminary oil output Tuesday of 2.28 million barrels a day through Dec. 20, on pace for a 6.7 percent drop from 2014. Mexico’s 2015 oil production is the lowest since at least 1990, when the government began recording output, and is more than 100,000 daily barrels below the original 2.4 million daily barrels forecast for the year by Chief Executive Officer Emilio Lozoya. Pemex’s output is falling for an eleventh straight year, hampered by a series of accidents. April production sank to a low of 2.2 million barrels a day following a deadly platform blast earlier in the month. The world’s eighth-largest oil producer, which had $87 billion in debt as of September, also had its spending on exploration and production trimmed by $4.1 billion by the Finance Ministry .

Dozens Killed In Huge Nigeria Gas Plant Explosion -- A massive explosion has occurred at an industrial gas plant (owned by Inter Corp Oil) in the southeastern Nigeria town of Nnewi. Local media reports the blast occurred while a truck was discharging its contents, and the ensuing fireball has left over 100 people burned to death. Nigeria's Vanguard reports, Tragedy occurred, Thursday in the industrial town of Nnewi, Anambra state when an industrial Gas plant suddenly exploded and with over 100 persons burnt to death. The explosion rocked the Inter Corp Oil limited(LPG Gas Plant), an subsidiary of Chikason Group. According to an eye-witness, the fire incident which started at about 11am, was caused by an explosion when a truck was discharging its contents. The source hinted that all the customers who went to the gas plant to get a refill were allegedly burnt to death while some of the victims who were in the neighborhood and passers-by also got caught in the inferno. At the scene of the incident, the charred bodies of the victims and other severely burnt persons were taken to Nnamdi Azikwe University Teaching Hospital, NAUTH, Nnewi. It was gathered that the inferno did not allow rescue workers into the factory where hundreds were allegedly trapped.

Steady Eddy -- Refinery Utilization -- Among all the oil and gas data tracked, this has to be the most boring, unchanging, "steady Eddy" graph I've ever seen, weekly US percent utilization of refinery operable capacity: On the other hand, this data shows a significant trend in the amount of crude oil throughput in US refineries over the same period of time:  At the same time US gasoline demand:  Three observations:

  • since around 2000, US gasoline demand has flattened, after reaching a peak in 2006 and 2007
  • crude oil refinery throughput has increased -- on the eye of the beholder, I think -- significantly
  • meanwhile, refinery utilization has remained incredible stable

I realized that I had failed to note one of the top stories this past week. I think the most un-reported or under-reported story this past week was something picked up by Jack Kemp: the surge in US oil imports. With the glut of oil in the US it's absolutely counterintuitive that imports are surging. There is a lag in reporting so we won't know whether it's heavy oil or light oil or both that is contributing to the surge. The most recent import data is from September, 2015: From Reuters, written by Jack Kemp: Crude imports surged to 8.3 million barrels per day (bpd) last week, up from 7.0 million bpd four weeks earlier, according to the U.S. Energy Information Administration (tmsnrt.rs/1NV47Y4). Imports are running at the fastest rate since September 2013, with almost all the extra crude arriving at ports along the U.S. Gulf Coast. (tmsnrt.rs/1NV4dyW) Both the timing and the location are unusual because refineries and traders try to minimize stocks held along the Gulf Coast at year-end to avoid storage taxes imposed by Texas and Louisiana.  Faster imports have pushed crude stocks higher even as refiners have boosted the amount of crude they process to a seasonal record 16.6 million bpd.

More Movement In The Global Oil And Gas Industry -- December 22, 2015 -- Yesterday it was announced that BP would buy all of Devon's assets in the San Juan Basin in New Mexico. Today is it being announced the COP is leaving Russia after 25 years. From Seeking Alpha:

  • ConocoPhillips is exiting Russia after more than 25 years as foreign investors are hit by Russian political tensions and the tumble in oil prices, Financial Times reports
  • COP confirms it sold its 50% stake in its Polar Lights JV with Rosneft, which also sold its stake in a deal that valued the business at $150M-$200M
  • Polar Lights, registered in 1992, made COP the largest foreign investor in the Russian energy sector in the early 1990s, but the venture became ensnared in domestic Russian politics, and its tax bill increased sharply; COP first announced it would seek a buyer for its stake last year

Meanwhile, Gazprom Neft is tweeting:  Russia to stand by flat crude oil output strategy; 'ready for battle', according to Gazprom Neft CEO.More and more pressure on President Putin, which takes us to this next article sent in by a reader.  From oiljobsnd: It won’t be long now, until the U.S. Shale Oil Industry will bankrupt Saudi Arabia, and claim victory against OPEC. The war isn’t over yet, but America has already won, it’s just a waiting game now. On Friday, December 18th 2015, President Barack Obama officially signed off on ending the 40 year ban on the export of crude oil. President Obama basically signed the death certificate of OPEC. By passing this new law, the US Shale Oil Industry will crush OPEC in the long-term.

Chevron Agrees Deal to Sell Australian Gorgon LNG to Chinese Firm -  Rigzone: (Reuters) - Chevron Corp on Tuesday said it has agreed to sell up to 1 million tonnes a year of liquefied natural gas (LNG) from its Australian Gorgon project to China Huadian Green Energy Co over 10 years starting in 2020. The non-binding heads of agreement comes amid a deterioration in Asian LNG prices , aggravated by mounting supply from Australia, which aims to overtake Qatar as the world's top producer in coming years. The price has slid two-thirds since 2014 to under $7 per mmBtu. "This is an important step in the commercialisation of Chevron's natural gas holdings in Australia," Pierre Breber, executive vice president of Chevron Gas and Midstream, said in a statement. Chevron in January signed a contract with South Korea's SK LNG Trading Pte Ltd to supply 4.15 million tonnes of LNG from Australia over a five years starting in 2017. The Gorgon Project combines the development of the Gorgon field and the nearby Jansz-Io field and is capable of producing 15.6 million tonnes of LNG a year.

Siberian Surprise: Russian Oil Patch Just Keeps Pumping - In the fight for market share among the world’s oil producers this year, Russia wasn’t supposed to be a contender. But the world’s No. 3 producer has been pumping at the fastest pace since the collapse of the Soviet Union, adding to the flood on an already-swamped market and helping push prices to the lowest levels since 2009. Russia’s unexpected oil bounty this year is the result not of a new Kremlin campaign but of dozens of modest productivity improvements across the sprawling sector.  With a rise of 0.5 percent in the first nine months of 2015, Russia hasn’t boosted production as much as its larger rivals, the U.S. (up 1.3 percent) and Saudi Arabia (up 5.8 percent), according to Citigroup Inc. But having ignored OPEC’s calls earlier this year to join efforts to support prices by pumping less, Russia is keeping up with the cartel. “I know of no one who had predicted that Russian production would rise in 2015, let alone to new record levels,” said Edward Morse, Citigroup’s global head of commodities research. As recently as April, not even the Russian government thought 2015 would break the record.One side effect of falling oil prices -- the 52 percent plunge in the ruble over the last two years -- has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.“I don’t know what the oil price would have to fall to for things to change dramatically,” Stavskiy said. “We’ve been through $9 a barrel and production continued, so if something like that happens, we know what to do.” Relatively high taxes on oil have actually sheltered the industry from much of the impact of the drop in prices. The government takes nearly on crude exports everything above $30-$40 a barrel, so companies don’t feel much impact until prices fall below that.

"I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails -  In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China. Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here's a look at the longer-term trend: You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise. On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China's largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.” This is an annoyance for Riyadh. China was the world's second-largest oil consumer in 2014and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran.

A Saudi-Russian oil splash? - Pepe Escobar - Russia will keep its 2016 oil production level at a staggering 533 million tons – which will translate as an average of 4.76 million barrels a day in exports. Profiting from a stream of more efficient refineries, domestic demand is down and exports are up. Russian oil companies, compared to Western majors, suffer less with low oil prices because of the ruble devaluation and because taxes go down as the oil price goes down. Igor Sechin, president of Rosneft, famously brags that Russian costs are «the lowest in the world» – especially from oil fields in West Siberia. Russia is the top global oil producer alongside the Saudi oil hacienda. And at least three times in 2015 Russia has exported more oil to China than Saudi Arabia. That fits into the key energy angle of the Russia-China strategic partnership in Eurasia. Curioser and curioser, this process is now running in parallel to Russia and Saudi Arabia set to – maybe – become potential allies, even as their oil strategy frontally clash. Russian President Vladimir Putin has alluded to a «multibillion-dollar program» in the military-technical spheres. This may be a sign that the House of Saud has seen the light – as in being seriously hurt by its own strategy of forcing low oil prices. That would imply in the long run a House of Saud more closely aligned with the Russia-China strategic partnership – as China is the Saudi’s top trading partner and, on and off, top oil customer. The House of Saud’s key motivation to force oil prices down in 2014 was to bend Russia’s will over Syria. Now the economic verdict is in – and it boils down to an absolute disaster, featuring a budget deficit of 16% of GDP in 2015 and sovereign credit rating cut to «A+/A-1» from «AA-/A-1+» by Standard and Poor's.  Russia, for its part, kept pumping. And to top it off Moscow sent the Air Force in style to protect Damascus.

Oil Prices Slump to 11-Year Lows in Asia and Europe - — Oil prices hit 11-year lows in Asia and Europe on Monday, as a glut of crude on world markets and the recent global climate accord continue to depress fossil-fuel prices.Brent crude oil, the international benchmark, was trading at $36.50 per barrel in late European trading.Analysts say there is little to restrain continued price declines in the near term. Prices are down about 15 percent so far in December, after an OPEC meeting failed to produce measures to restrain record-high production. That meeting was quickly followed by the United Nations climate accord in Paris, which aims to reduce the world’s reliance on oil and other carbon-emitting fuels.The latest factor weighing on prices has been unusually warm weather in the United States and Europe, which is reducing winter demand for heating oil and leading to rising stockpiles of oil products. The expectation that the American government may soon lift a decades-old ban on exports of crude from the United States may also be affecting prices.“We are probably going to see the weakness run at least through January,” Analysts say that crude oil prices are likely to remain under pressure in the spring, when refineries typically shut down for maintenance, weakening demand. While few analysts had expected OPEC to decide to cut production when the group met in Vienna this month, the signals from the meeting appeared to show that the cartel, which accounts for about 30 percent of world oil production, was not even close to coming up with a plan to try to manage the market.

Crude oil plumbs new post-crisis lows - Brent crude has dropped to its lowest level in more than a decade, surpassing the lows hit at the depths of the financial crisis, as the market groans under the weight of over-abundant supply. The international oil marker dipped 2 per cent to $36.17 a barrel overnight, its lowest level since 2004 and below the $36.20 reached on Christmas Eve in 2008. West Texas Intermediate, the US oil benchmark, was down 1 per cent to $34.37, but still above its financial crisis low of $32.40 hit almost seven years ago. Oil prices have dropped more than 15 per cent since a rancorous Opec meeting earlier this month that exposed the organisation’s inability to tackle a global oil glut, which is growing by as much as 2m barrels a day, according to some estimates. Saudi Arabia and Iran both resisted calls for production restraint and vowed to keep pumping, intensifying a battle for market share that has contributed to record oil inventories and a halving of the oil price over the past 18 months. Data released by the US Energy Information Administration last week showed crude stockpiles across the country increased by 4.8m barrels to 491m barrels. “The unexpected surge in stocks is a worry considering inventories typically fall at this time of year,” said ANZ. An increase in US interest rates and a strengthening dollar have heaped further pressure on oil. Last week’s deal to lift the tight restrictions on US crude oil exports, which have been in place for 40 years, has been another headwind. “The imbalance in the global oil market has been diminishing in the second half of 2015 but the hope for a rebalancing in 2016 continues to suffer serious setbacks,” Higher Opec production, including additional barrels from Iran, is one of the main risks for next year, according to Mr Longson. Higher-than-expected US production is another. In spite of the weakening oil price the US oil rig count increased by 17 to 541 last week, putting an end to a month of declines.

WTI Crude Plunges To $33 Handle Ahead Of Futures Expiration -- While contracts have rolled, we thought it worth noting that January WTI Crude just flushed to a $33 handle for the first time this cycle. Feb crude (the current front-month) is down almost 2% to its series lows around $35.35...The January contract expires today.

Crude oil sinks to 11-year low as oversupply fears intensify - Brent crude dropped to its lowest level in more than a decade on Monday, surpassing lows reached in the depths of the financial crisis, hit hard by a relentless rise in global production that looks set to swamp the market again in 2016. Even though demand has been robust this year crude inventories have continued to rise at more than 1m barrels a day, with storage tanks filling quickly and long lines of ships forming at key ports around the world. Oil stocks in the developed world have ballooned to almost 3bn barrels — or more than a month of global oil supplies, according to the International Energy Agency.  They are expected to keep rising in 2016 with higher exports expected from Iran, once Opec’s second-largest producer, when sanctions linked to its nuclear programme are lifted. At the same time demand growth is likely to slow from this year’s fevered pace.“The hope for a rebalancing in 2016 continues to suffer serious setbacks,”  Brent, the international oil marker, fell by as much as 2 per cent to $36.04 per barrel on Monday, its weakest since 2004 and below the financial crisis low of $36.20 reached on December 24 2008. It settled at $36.35, down 1.4 per cent.On the other side of the Atlantic, West Texas Intermediate, the US oil benchmark, settled up one penny at $34.74 a barrel, still more than $2 above its 2008 intraday low.The number of put options giving holders the right to sell WTI crude below $30 a barrel by June has risen by almost half this month to the equivalent of 12m barrels. Traders also hold about 4m barrels equivalent of puts to sell WTI below $20 by June.On Tuesday in Asia oil prices ticked higher after a pledge by Chinese economic planners of more “proactive” and “flexible” growth policies, with Brent adding 0.2 per cent to $36.43 a barrel and WTI climbing 3.8 per cent to $36.06. But oil prices have dropped more than 15 per cent since a rancorous Opec meeting earlier this month that exposed the organisation’s inability to tackle a global oil glut.

Oil's Road Toward Rebalancing Could Take a Detour in 2016: Morgan Stanley - The year 2016 may prove a time in which the theoretical underpinnings of the old adage that "the best cure for low prices is low prices" is challenged, according to Morgan Stanley.Amid firming demand and plateauing production from nations outside the Organization of Petroleum Exporting Countries, the oil market has made strides toward rebalancing in the second half of 2015 despite hitting fresh 11-year lows: Conventional wisdom holds that low prices spur a pickup in demand and push producers to shutter unprofitable projects. But Morgan Stanley analysts see slower demand growth and risks that supply will rise rather than peter out in 2016. Their view stands in stark contrast to that of such banks as Credit Suisse, whose analysts see improving fundamentals in the crude market driving a more expedient recovery in prices.  Morgan Stanley's duo pointed to continued resilience of U.S. production and the slew of supply from OPEC members in the Middle East as forces that could keep the market from balancing from the supply side. "Most of the U.S. declines thus far have come from legacy production, stripper wells or low tier shale plays, not the core plays," . "Efficiency gains, bad behavior, and a struggle for survival should all help to support U.S. production." Meanwhile, the market will have to digest another 500,000 barrels per day of Iranian oil in the first three months of the new year, with the possibility of production increasing soon thereafter. The potential for peace in Libya could also see more of that nation's output—which is less than one-quarter of its post-recession peak—unleashed in the near future.

Oil getting to be cheaper than dirt - As the price of U.S. crude oil plummets toward its lowest price in the recent past, it may become, as the adage goes, cheaper than dirt. On Monday, U.S. crude futures had fallen to $34.20 a barrel, an apparent result of an oversupply of oil and limited demand. For comparison, the price of U.S. crude two years ago, in December 2013, was $98.42. Dwight DeMeers, a Burkburnett oilman, said the recent plunge in prices has got him concerned. He did a quick calculation showing oil prices may be lower than prices for plain ol’ dirt, after adjusting for production taxes, and presented those findings to the Times Record News. “It’s the oddest business: oil goes through the roof, everybody drills, then they oversupply the market and it crashes,” DeMeers said. An oil barrel measures 5.6 cubic ft., and Smith’s Gardentown sells a cubic foot of topsoil for $4.99. That calculates to $27.94 for the amount of soil needed to fill an oil barrel. At $34.20 a barrel, oil would still appear to be more expensive than dirt, but, according to DeMeers, producers only collect on about 80 percent of a barrel’s sale price once severance taxes and royalty payments are made. DeMeers recalled a recent conversation with a friend in which he joked about switching from oil to dirt. “I told him I was about to have to start sacking up dirt and selling it. It’s a lot easier to find,” he said. “It’d be a hell of a lot better business to sack dirt — if you spill it you don’t get in any trouble. You just shovel it back up.”

Brent-WTI Spread Eliminated; Parity Accomplished - Our good friends in OPEC have finally accomplished the hard fought task of pushing down the price of Brent crude to parity with WTI. This, of course, is bearish for domestic refiners and even worse for producers, as the cheap price of Brent lures our refiners into importing Brent, as opposed to buying domestically. Market “experts” feel this relationship will resolve itself, once WTI supply builds at Cushing, OK, forcing WTI lower. What these experts aren’t concerned about is the pervasive and concerted effort of foreign producers to break the backs of U.S. producers, specifically in the shales. The only way to accomplish a glut in WTI supplies is for our refiners to opt for Saudi oil over domestic. How very joyous.

WTI Crude Trades At Premium To Brent For First Time In Over 11 Months - Just as we warned, since the US export ban 'lift' loomed, so WTI prices have shifted notably, having today converged to Brent's price for first time since January. It may have a lot further to fall as some analysts suggest the lifting of the export ban "is going to end up ultimately being bearish everything." As commented last week, As for the impact on global markets, OPEC’s Secretary-General Abdalla El-Badri said Tuesday that "any change in U.S. oil policy will have 'zero' impact on global mkts because the country remains an importer."  In the grand scheme of things, you're really just shifting inventory around, Virendra Chauhan at Energy Aspects in Singapore says: “The deal to lift the crude ban is a significant change in U.S. policy, but in terms of the near-term impact on prices, we expect that to be blotchy and sentiment driven. All that you’re doing is transferring the glut from the U.S., where most of the storage capacity is, to elsewhere in the world.”  "Large volumes of crude are unlikely to flow out of the US as soon as the restrictions are lifted," FT writes. "The spread between the price of West Texas Intermediate crude, for delivery in Oklahoma, and internationally traded Brent is only about $1.25 per barrel, meaning that any benefit for US producers from selling in world markets would be swallowed up in transport costs."  "WTI would have to be at least $4 below Brent for exports to work, depending on the cost of shipping," Bloomberg wrote earlier this week, citing Energy Aspects analysts. That means spreads would have to widen to make exports economical. "This is going to end up ultimately being bearish everything," Citi's Seth Kleinman says. "You’re losing on the Brent side, and it’s not clear to me what you’re gaining on the WTI side. In oversupplied market, opening up the export arb changes not exactly nothing, but not far off from nothing."

API sees U.S. oil inventories down 3.6 million barrels: reports - The American Petroleum Institute, an industry group, on Tuesday said U.S. crude-oil inventories fell 3.6 million barrels in the latest week, news reports said. API said inventories at the New York Mercantile Exchange delivery point in Cushing, Okla., rose by 1.5 million barrels, according to reports. Traders look to the API data for clues to the closely watched weekly inventory data released by the U.S. Energy Department on Wednesday morning. Analysts surveyed by The Wall Street Journal have forecast a 600,000 barrel rise in oil inventories.

Crude Extends Gains After API Reports Unexpectedly Large Inventory Draw -- Following last week's huge build reported by DOE, crude inventories reported by API tonight dropped 3.6 million barrels (drastically different from the 2.3mm build expected). WTI is rallying on the news, despite a 1.5 million barrel build at Cushing (up notably from last week's 847k) - the 7th weekly build in a row. Total Inventories saw a drawdown... But Cushing saw the 7th weekly build in a row... The reaction was modest as algos came to terms with the 'build' at Cushing, the 'draw' overall, and the strength of the Brent 'arb' Charts: Bloomberg

Twitter Energy Tweets -- Platts, Jack Kemp, EIA -- December 23, 2015; US Natural Gas Reserves Staggering - The tweets:

  • North Sea Brent Blend crude oil loadings down 7,976 b/d at 173,301 b/d in week to Dec 22
  • Global oil market balance will be restored in 2016, says UAE energy minister Mazrouei
  • OPEC assumes average 2015 crude oil price will be $55/b, gradually rising $5/b each year to $80/b in 2020
  • E. Canadian crude oil production doubles, reach highest output since early spring following turnarounds
The East Canadian crude oil story: some data points --
  • 6 million bbls/month of November vs 3 million bbls/month of October (two of the four fields down for maintenance)
  • the four offshore Canadian fields produced 56 million bbls in first 11 months of 2015, vs 72 million bbls in same period of 2014
  • For newbies: North Dakota produced 1.2 million bbls/day; and, unfettered, could produce 2 million bopd

Black box hedge funds lead winners from oil drop  – To make money from the sharp fall in oil prices this year, it helped if you weren’t human. While a handful of big name traders have profited from some of oil’s 35 percent plunge, it has been computer-based or “systematic” funds which have captured much of the spoils. These black box funds use programs to follow various asset classes and look to latch on to market trends. So after crude lost 46 percent in 2014, they were already betting strongly at the start of this year that the trend would continue, largely through oil futures and other energy derivatives markets. Apart from a modest recovery early this year, crude prices have mostly been a one-way bet and now languish 66 percent below their levels around $115 a barrel 18 months ago. “The main beneficiaries have been the systematic, or trend-following guys,” said Anthony Lawler, head of portfolio management at investor GAM. “The stronger the trend, the bigger the position … Since the middle of 2014, oil’s been trending lower, so that’s quite a long trend. As a result, they have meaningful exposure in energy.”

Someone Bets Big On $15 Crude As OPEC Forecasts Oil Demand Slumping Until 2020 -- In OPEC's latest annual World Oil Outlook released on Wednesday, the now defunct cartel said that demand for its crude will slide to 2020, as rival supplies continue to grow. On the supply side, OPEC said it would need to pump 30.7 million barrels a day by the end of the decade, which is 1.7 million barrels more than it projected a year ago but well below, or some 1 million barrels less than the group pumped in November. As Bloomberg notes, this latest forecast underlines the struggle faced by OPEC as it seeks to defend market share against a surge in output from rivals such as the U.S. and Russia. As a reminder, one of the most unexpected outcomes of the recent collapse in oil prices is that while the Saudis had hoped non-OPEC production would plunge, the opposite has happened in the race to the bottom in which Russian oil production just hit a record while US shale production has remained steady even as the number of oil rigs has plunged to multi-year lows. Perhaps it is as a result of "cloudied uncertainty" and ongoing race to the bottom by all oil producers, OPEC and non-OPEC alike, that someone is betting that OPEC will be woefully wrong in its price forecasts, and is buying puts that see oil plunging as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices. The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut. This ties in with the recent forecast by Goldman Sachs which has said $20 oil is not impossible: "We view the oversupply as continuing well into next year," Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.  As the chart below shows, the bearish outlook on oil prices has prompted investors to buy put options at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp. With WTI currently trading at about $36 a barrel, this means someone is wagering on a drop which could be greater than 50% in the coming months. As Bloomberg points out, investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year. The largest open interest across options contracts - both bullish and bearish - for December 2016 is for puts at $30 a barrel.

Oil Is Now Cheaper Than Coffee, Milk, & Water -- While oil may be cheaper... But the rest of these 'staples' still taste a lot better. (infographic)

Crude Oil And Energy Market: Extreme Readings Suggest A Rally Is Coming -- In yesterday’s post about crude oil and energy stocks we showed how both crude oil and energy stocks (represented by XLE) are moving in synch since April of this year. They are both putting in a double bottom (obviously, only if current levels hold). We said that readers would know that “the bottom is in if 57 for XLE holds, as well as 36 for crude oil. If not, we will see another breakdown, although not likely.” Our article triggered quite some interest in social media, so we are following up yesterday’s article with additional data points. According to our methodology, sentiment is key, as well as the futures market structure (only relevant for commodoties), next to one technical indicator (the 90 week moving average). Let’s review those indicators for crude oil and XLE. The long term trend, represented by the 90 week moving average (WMA) on the weekly chart, is down. However, we note extreme readings as evidenced by the deviation from the 90 WMA. Currently, XLE is trading 25% below its 90 WMA. Rarely before have we seen such extremes. Also, from a trend perspective, XLE sits at a huge support area, which was tested several times since 2010, adding value to its importance. Sentiment has also reached extreme readings. As seen on the next chart, crude oil sentiment has been below a reading of 20 ONLY 3 times in the last two decades.  Those extremes do not last long. Although sentiment is not a timing indicator, it tells that current readings are too extreme to hold.

Oil prices edge up from 11-year lows  – Oil prices on Tuesday were just above the lows reached in the previous session, as a bearish outlook for 2016 and weaker profits for refining oil products capped gains. U.S. West Texas Intermediate (WTI) crude futures were 13 cents higher at $35.94 a barrel by 1455 GMT, having touched their lowest level since 2009 at $33.98 in the previous session. Brent futures fell by 19 cents to $36.16 a barrel, rebounding from an 11-year low of $36.04 hit on Monday. “It’s now going to be low-volume days because many market participants are trading less and looking toward the holidays,” Olivier Jakob from Petromatrix consultancy said. Gasoline margins coming off this week and persistently weak middle distillate margins are also weighing on the oil price complex, Jakob added. Expectations of another weekly build-up in U.S. crude stocks are adding to the bearish sentiment. Analysts on average reckon that crude stocks were up 1.4 million barrels in the week ended Dec. 18, according to a Reuters poll taken ahead of weekly inventory reports from industry group American Petroleum Institute (API) and the U.S. Department of Energy’s Energy Information Administration (EIA). Meanwhile Saudi Arabia, the world’s largest oil exporter, said it had shot down a ballistic missile that was heading toward the city of Jizan, where a new refinery and oil terminal are under construction. Saudi Aramco said all its facilities in the area were “in safe and normal operation”.

Oil halts decline as emerging market stocks climb on talk of China stimulus — Oil halted declines as emerging-market stocks gained for a second day and currencies climbed on the prospect of more economic stimulus from China. US equity futures rose after data showed the world’s largest economy expanded at a revised 2 per cent annualised rate in the third quarter. West Texas Intermediate advanced for the first time in five days before weekly US crude inventory and production data, bolstering the currencies of commodity-producing nations. Turkey’s lira weakened after the nation’s central bank unexpectedly left its three main interest rates unchanged. Coffee bounced after reaching the lowest in a month yesterday amid prospects of more supplies from Brazil. China’s government said late yesterday that monetary policy must be more “flexible” and fiscal spending more “forceful” to combat slowing growth in the world’s second-largest economy. The rout in crude prices has pushed oil to the lowest levels since before the financial crisis, damping inflation and boosting the appeal of long-term government bonds. Oil is “slightly higher, partly on some profit-taking”,

Oil up after U.S. crude stocks drop, still close to multi-year lows – Oil prices rose on Wednesday, underpinned by an unexpected fall in U.S. crude inventories, but were still close to multi-year lows as supplies remained abundant and as OPEC lowered the demand outlook for its exports. At 1448 GMT, Brent crude futures were up 87 cents at $36.88 a barrel, while West Texas Intermediate (WTI) futures were up 88 cents at $37.02. A day earlier Brent touched $35.98, its lowest since July 2004. The Organization of the Petroleum Exporting Countries (OPEC) in a report on Wednesday forecast that demand for its crude would be lower in 2020 than in 2016 as rival producers prove more resilient than expected in a low oil price environment. It forecast 2020 demand for OPEC crude at 30.7 million barrels per day (bpd) versus 30.9 million bpd in 2016 and about 1 million bpd less than it is currently producing. OPEC raised its forecast for tight oil output to 5.19 million bpd in 2020, up from 4.50 million bpd in its 2014 report. OPEC failed to agree on a production ceiling at a Dec. 4 meeting in Vienna for the first time in decades. Saudi King Salman said on Wednesday the kingdom was concerned about the stability of the oil market, but added that Saudi Arabia remained committed to further exploration activities in the oil and gas sectors. In a sign of growing competition for market share among OPEC members in Asia, Iraq signed a $1.4 billion deal to supply 160,000 bpd to Indian refiners Reliance and Indian Oil Corp

Crude Holds Gains After Biggest Inventory Draw In 6 Months Offset By Major Build At Cushing -- API's reported huge 3.6mm drawdown in total crude inventories (against expectations of a 2.33mm build) was just the catalyst to send crude prices soaring overnight and DOE just confirmed it with a massive 5.88mm draw - the largest in over 6 months. However, initial exuberance was tempered as Cushing saw a 2.045mm build - its 7th week in a row. And finally, crude production rose for the second week in a row. Huge drawdown overall... But Cushing continues to get more full... Production rose for the 2nd week. Demand is down 0.8% YoY. For now Crude is holding gains...

Oil ends sharply higher as U.S. crude inventories decline -Oil futures continued their rebound off multiyear lows Wednesday, ending sharply higher after data revealed U.S. crude inventories posted an unexpectedly large decline last week. On the New York Mercantile Exchange, light, sweet crude futures for delivery in February rose $1.36, or 3.8%, to end at $37.50 a barrel. February Brent crude on London’s ICE Futures exchange gained $1.25, or 3.5%, to finish at $37.36 a barrel, ending a five-session losing streak. Oil extended gains after the Energy Information Administration said crude stockpiles fell by 5.9 million barrels in the week ended Dec. 18. Analysts surveyed by The Wall Street Journal had penciled in a rise of 600,000 barrels, while the American Petroleum Institute, on Tuesday, reported a 3.6 million barrel decline. At the same time, crude stocks at the Nymex delivery hub in Cushing, Okla., rose by 2 million barrels. Gasoline stocks rose 1.1 million barrels, in line with forecasts, while distillates, including diesel and heating oil, fell by 661,000 barrels versus forecasts for a rise of 2.1 million barrels. Oil maintained gains after Baker Hughes, the oil-field services firm, said the number of U.S. oil rigs fell by three in the latest week. Oil was on the rise ahead of the data. OPEC early Wednesday, in its closely watched World Oil Outlook, said oil prices were set to rise, but that it would be a long slog. The cartel said it expects the price of its basket of crude to recover to $70 a barrel in 2020 and to $95 a barrel in 2040. The “need to develop oil production in more expensive areas will drive long-term oil prices higher,” the cartel said in its report.

US rig count down 9 this week to 700 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by nine this week to 700. The Houston firm said Wednesday 538 rigs sought oil and 162 explored for natural gas amid depressed energy prices. A year ago, 1,840 rigs were active. Among major oil- and gas-producing states, North Dakota and Wyoming each declined by three, Arkansas and Louisiana were down two, and Alaska, Colorado and Texas dropped one apiece. Oklahoma gained two rigs. Kansas and New Mexico were up one each.California, Ohio, Pennsylvania, Utah and West Virginia were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. The count, normally released on Fridays, was early this week because of Christmas.

Rig count tumbles three as oil prices refuse to budge -  Another three rigs went dark this week as producers found little financial incentive to continue chasing crude while prices remain stuck below $40 a barrel. The U.S. oil rig count inched down slightly to 538, resuming a collapse that started more than a year ago when crude first began plummeting, according to data from Baker Hughes. It’s a sudden reversal from the surprise addition of 17 rigs two weeks ago, an announcement that sent oil prices plummeting as traders fretted that U.S. producers would continue flooding the market amid a global crude glut. The latest retreat from the oil patch falls more in line with expectations that extended low oil prices will eventually force drillers to sideline even more rigs and curtail production. After edging higher early Wednesday following a drop in oil inventories, domestic benchmark crude prices slid south again to $37.47 a barrel following the relatively small drop in the rig count. Baker Hughes released the data two days ahead of schedule because of the Christmas holiday. The total rig count now stands at 700, down nine from last week after drillers sidelined three oil rigs and three gas rigs. That’s a 62 percent decline from the same time last year. The losses were spread between four basins — the DJ Niobrara in Northeast Colorado and Southeast Wyoming, the Fayetteville in Arkansas, Haynesville, which is located over Arkansas, Louisiana and East Texas, and the Williston Basin in the Bakken formation. However, the Permian Basin in West Texas remained a stand-out sweet spot for producers, with six new rigs coming online in the past week.

What the Falling Price of Oil Is Telling You - Exactly one year ago today, the headline story here was titled: “Oil Crash: Don’t Believe the Happy Clatter.” We explained that there was a “mushrooming false narrative taking over the business airwaves” predicting that the rapid price decline in oil would lower gas prices at the pump, fueling a healthier consumer with more disposable income and thus a more robust economy for 2015. Our counter prediction was that the oil price collapse “will decidedly not lead to a more robust economy in the United States for very long.” This was our reasoning at the time: “This isn’t a little speed bump in oil prices. This is one of the most dramatic and rapid crashes in a key industrial commodity in history. Since June, the price of West Texas Intermediate (WTI), the domestic crude oil produced in the U.S., is down by 47 percent. The price of the internationally traded crude oil, Brent, is down by a similar figure.“If this price collapse were happening in just crude oil, it could be shrugged off as a supply glut problem attributable to growing shale production in the U.S. and over production among OPEC members. But other industrial commodities are in freefall as well. Iron ore prices are down 49 percent this year while copper has declined 15 percent. The price of natural gas is down 30 percent in just the past month, including a plunge of 9 percent just yesterday. And where are we today in terms of industrial commodity prices? Are prices stabilizing? Surely they must be if the Federal Reserve just hiked interest rates to keep U.S. economic growth from overheating. Unfortunately, according to a report today at the Dow Jones web site, MarketWatch, the U.S. coal industry is in the midst of “serial bankruptcies”; the two major oil benchmarks, West Texas Intermediate and Brent, “have lost more than a third of their value” in 2015; copper is off by over 27 percent, iron ore by over 45 percent, with platinum and palladium each off by over 30 percent. Welcome to the new normal – where the Fed tells us how good things are as the materials used in a growing economy continue to collapse in price from slack demand and growing gluts.

Why Big Oil Should Kill Itself -  Now that oil prices have settled into a long-term range of $30-50 per barrel (as described here a year ago), energy users everywhere are enjoying an annual income boost worth more than $2 trillion. The net result will almost certainly accelerate global growth, because the beneficiaries of this enormous income redistribution are mostly lower- and middle-income households that spend all they earn.  Of course, there will be some big losers – mainly governments in oil-producing countries, which will run down reserves and borrow in financial markets for as long as possible, rather than cut public spending. But not all producers will lose equally. One group really is cutting back sharply: Western oil companies, which have announced investment reductions worth about $200 billion this year. That has contributed to the weakness of stock markets worldwide; yet, paradoxically, oil companies’ shareholders could end up benefiting handsomely from the new era of cheap oil.  Just one condition must be met. The managements of leading energy companies must face economic reality and abandon their wasteful obsession with finding new oil. The 75 biggest oil companies are still investing more than $650 billion annually to find and extract fossil fuels in ever more challenging environments. This has been one of the greatest misallocations of capital in history – economically feasible only because of artificial monopoly prices.  For Western oil companies,the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing (“fracking”) to oil-producing countries. But their ultimate goal should be to sell their existing oil reserves as quickly as possible and distribute the resulting tsunami of cash to their shareholders until all of their low-cost oilfields run dry.

UAE says end of U.S. oil export ban not to affect global market - (Xinhua) -- The United Arab Emirates (UAE) Energy Minister Suhail Al-Mazrouei said Tuesday that the end of an oil export ban in the United States will not affect global oil market, state news agency WAM reported. "As for the decision in the United States, every country has the right to take their own decisions. We don't see this will change the supply and demand balance," Al-Mazroui told WAM in Abu Dhabi after a meeting with ministry officials and strategic partners. The U.S. Congress on Friday voted to repeal the 40-year-old ban on exporting U.S. crude oil. So far, the world's biggest economy was only allowed to export the "black gold" if an oil company received a waiver from U. S. president. For the UAE, a major oil supplier, 29 percent of its gross domestic product is based on the domestic oil industry. Al-Mazrouei stressed the UAE and its partners will carry out a new energy strategy that includes lifting fuel subsidies and rationalising energy consumption. The UAE also plans to cut the use of natural gas in power generation to 70 percent by 2021, down from the current 99 percent, as part of a national strategy to achieve sustainability, the minister said.

Graph of the Day: World oil production, 2002-2015: – I follow the JODI World Oil Database primarily because it is now four months ahead of the EIA international data base. I make some adjustments however. I use the OPEC MOMR “secondary sources” for all OPEC data where JODI also uses the MOMR but uses their “direct communication” data instead. The OPEC portion of the JODI data is “crude only” and will therefore be somewhat less than the EIA reports. I use the Canadian National Energy Base data for Canada instead of the strange numbers JODI has for Canada. And I use the EIA data for the few small producers that JODI does not report. With these Changes I think I have composed an excellent World Oil Database from this composite data. And with the October data just released I have composed the below charts. The data is through October and is in thousand barrels per day. World oil production peaked, so far, in July at 76,702,000 barrels per day and in October stood at 76,128,000 bpd or 574,000 bpd below the peak. [more]

Dubai oil benchmark under growing scrutiny - FT - Royal Dutch Shell has called for tougher regulation of the system that sets the price of crude shipped to Asia as China’s state-owned energy companies exert stronger influence over international markets. During the past decade China has emerged as one of the important forces in the global crude market, vying with the US to be the biggest importer. And Beijing wants a bigger role in pricing the barrels it buys. Several times in the past 14 months the trading arms of PetroChina and Sinopec have dominated the Middle East’s most important pricing mechanism, pushing the region’s oil price up relative to other grades. Traders are concerned about the ease with which the so-called Dubai benchmark can be skewed by one participant amassing a large portion of the three crudes that underpin it. “There need to be safeguards to prevent the risk of distortion and to ensure the Dubai benchmark price mirrors true market supply and demand fundamentals,” said Mike Muller, the top trading executive at Shell, which is one of the world’s biggest oil traders in addition to being one of the largest producer companies. In August Chinaoil, whose parent company is PetroChina, bought more than 90 per cent of all the Oman, Abu Dhabi and Dubai cargoes available in the price-assessment process run by Platts, the price reporting agency. A Dubai benchmark overpriced by $1 a barrel can cost end users — in this case Asian refiners — hundreds of millions of dollars and squeeze margins. Western oil trading companies have come under renewed pressure from regulators in Europe and US, while their freewheeling Chinese counterparts do not have the same obligations.

Azerbaijan Currency Crashes 50% As Crude Contagion Spreads -- OPEC blowback continues to ripple around the world. With Russia's Ruble pushing back towards record lows against the USD, and Kazakhstan's Tenge having tumbled to record lows, the writing was on the wall for Azerbaijan. As Bloomberg reports, the third-biggest oil producer in the former Soviet Union moved to a free float on Monday and the manat crashed almost 50% instantly to its weakest on record with the second devaluation this year. First the Russian Ruble... Then Kazakhstan's Tenge... While Azerbaijan’s former Soviet allies Russia and Kazakhstan have moved to floating currency regimes in the past year, the Azeri central bank has questioned whether the country was prepared for a similar shift. Governor Elman Rustamov said there was no need for another devaluation of the manat, according to a televised interview broadcast on Sept. 25. And now Azerbaijan's Manat crashes 50%... As Bloomberg reports, “It looks like Azerbaijan’s authorities are following Kazakhstan’s devaluation path,” said Oleg Kouzmin, a former Russian central bank adviser who works as an economist at Renaissance Capital in Moscow. “After devaluing the currency once, some time ago, they concluded that the first move was not enough to tackle all the challenges of a weaker oil price environment.” Azerbaijan relies on hydrocarbons for more than 90 percent of its exports and the manat has lost almost half its value against the dollar this year, the worst performance of currencies globally.

OPEC's market share to shrink by 2020 as rivals keep pumping despite oil's collapse – Global demand for OPEC’s crude will be lower in 2020 than next year as supply from rivals proves more resilient than expected, potentially fueling a debate on the merits of its strategy to let prices fall to hurt other producers. The Organization of the Petroleum Exporting Countries, which a year ago refused to cut supply to retain market share against higher-cost rivals, in its 2015 World Oil Outlook raised its global supply forecasts for tight oil, which includes shale, despite a collapse in prices. Demand for OPEC crude will reach 30.70 million barrels per day (bpd) in 2020, OPEC said, lower than 30.90 million bpd next year. The expected demand from OPEC in 2020 is about 1 million bpd less than it is currently producing. Oil has more than halved its price in 18 months and sank to an 11-year low of $36.04 a barrel this week. The drop has helped to boost oil’s medium-term use, although OPEC said the demand stimulus of low crude prices will fade over time. “The impact of the recent oil price decline on demand is most visible in the short term,” OPEC Secretary-General Abdullah al-Badri wrote in the foreword to the report. “It then drops away over the medium term.” OPEC is increasingly divided over the merits of the 2014 shift to a market-share strategy, which was led by Saudi Arabia and its Gulf allies, and at a Dec. 4 meeting failed to agree a production ceiling for the first time in decades. Nonetheless, the report shows that the medium-term outlook – from OPEC’s point of view as the supplier of a third of the world’s oil – has improved. In the 2014 edition, demand for OPEC crude was expected to fall to 29.0 million bpd by 2020.

Oil back at $95 — but it will take 24 years: OPEC - Oil prices will take decades to recover and will still not reach the peak seen in recent years, according to the latest World Oil Outlook (WOO) from OPEC. In the group's latest outlook on supply, demand and prices to 2020 and 2040, OPEC predicted that a barrel of oil would cost (in real terms) around $70 by 2020 and $95 by 2040, a far cry from a high point of $114 a barrel last seen in June 2014 before prices began to plunge on oversupply. On Wednesday, a barrel of benchmark Brent crude cost $36.51, a shade above WTI at $36.47. Price declines were exacerbated by the decision last year by OPEC, the 12-member producer group led by Saudi Arabia, not to cut production. Still, OPEC's Secretary General Abdalla Salem El-Badri said OPEC had been a bastion of stability amid volatile times for the oil industry. "The supply and demand balance in 2015 has been one of oversupply, with stock levels rising to well above the five-year average. Despite this market instability, OPEC has continued to be an efficient, reliable and economic supplier of oil," El-Badri noted in the foreword of report.

It's now becoming clear: there is no grand Opec strategy - About a year ago, Saudi Arabia turned its oil spigots on full in an attempt to maintain market share, the other Opec countries followed suit, and the world was flooded with cheap crude. The received wisdom is that the club of 13 oil-producing countries is trying to squeeze higher-cost producers like the US shale industry. But that theory is looking increasingly fragile in the face of the facts.The most telling of these is that US oil production has almost doubled in the past four years from around 5.5m barrels a day in 2011 to a peak of 9.7m in April this year. The recent oil glut has merely forced shale producers to become more efficient. The increase in output has been achieved, despite a reduction in the number of rigs, thanks to a startling rise in productivity – up by 30pc a year between 2007 and 2014. It is true that there are some signs of strain. The US energy revolution has been financed with cheap debt: the two biggest months for bond issuance by American oil and gas companies since 2014 were February and March this year. And that party could soon come to an end now that the Federal Reserve has slowly started to extricate the punchbowl. Two-thirds of bank loans tracked by the S&P oil and gas index were trading at distressed levels at the end of November, up from 13pc in May. US shale production has also started to tail off a little in recent months (though nowhere near as much as was expected).

As OPEC Tries to Squeeze Rivals, One of Its Own Feels the Pinch  --- Forget the opposition. OPEC is doing more to ruin the holiday season for Venezuela President Nicolas Maduro than any of his rival lawmakers. Maduro stepped up attacks on his opponents this month after they won enough seats in congressional elections to challenge his government. While bonds initially rallied on optimism the opposition victory could lead to more market-friendly policies, Maduro’s comments quickly killed that euphoria. Now, it’s the rout in oil that’s doing the most damage to the prices of the securities. Oil, by far Venezuela’s biggest export, has plunged 17 percent to an 11-year low since the Organization of Petroleum Exporting Countries abandoned production limits at its Dec. 4 meeting. Venezuela’s benchmark bonds due in 2027 are at the cheapest since August, and traders see a 71 percent probability that the country will default in the next 12 months, credit- default swaps show. That’s up from 61 percent the day before the OPEC decision. “The initial reaction to the election results was positive, but then oil just collapsed,” said Phillip Blackwood, a managing director at EM Quest, which advises Sydbank A/S on its debt holdings. “The bills still need to be paid and that comes from oil.” Oil at these levels could prevent Venezuela from meeting its debt obligations as soon as February, Barclays Plc said Friday. The OPEC member relies on income from oil sales for almost all of its hard currency. It may need to sell $20 billion of gold or other assets to meet next year’s commitments, Alejandro Arreaza, Alejandro Grisanti and Sebastian Vargas, analysts at Barclays, said in a report to clients. Venezuela’s crude basket fell to an 11-year low $29.17 last week. “The latest decline in oil may have undermined government confidence, putting even this payment at risk,” they wrote.

Yemeni rebels target Saudi oil installation with ballistic missile - Houthi rebels have targeted a Saudi oil installation near the city of Jizan, in the southwest of the country. Houthis said that they hit the target while Saudis claimed to have intercepted the missile. “The missile precisely hit Aramco Oil Company on Monday night,” Yemeni Army Spokesman Brigadier General Sharaf Luqman said, reported Iran’s semi-official Fars news agency citing Arabic-language media outlets. He added that the attack came in retaliation to the “Saudi-led aggressors' violation of UN-sponsored ceasefire” but did not give any further details about damages that the plant allegedly suffered. Saudi Arabia confirmed the attack but said the missile had been intercepted by the kingdom’s air defense systems, state media report as cited by Reuters. The Saudi Arabian Oil Company also denied a strike on its compound in Jazan Economic City which is located 80 kilometers north of Jizan and about 150 kilometers from the border with Yemen. All the facilities in the area managing “safe and normal operations”, the company said.

Saudi Arabia: The Source Of Islamic Radicalism - When we look at the phenomena of religious extremism and the consequent militancy and terrorism in the Af-Pak region in particular and the Islamic world in general, it is not a natural evolution of religion, some deleterious mutations have occurred somewhere which have negatively affected the whole of Islamic world. There is no denying of this evident fact that the Pakistani security establishment had wantonly nurtured Islamic radicalism and militancy in the Af-Pak region but the Pakistani military’s support for Islamic jihadism during the Cold War is only one factor in an array of factors in order to reach a comprehensive understanding of the phenomena of Islamic radicalism and the agents that are responsible for it; because the phenomena of Islamic extremism is not limited to the Af-Pak region, the whole of Islamic world from Tunisia, Morocco and Algeria to Indonesia, Malaysia and even the Muslim minorities of Thailand, China and Philippines have also become the victims of this phenomena. In my opinion, the real culprit behind the rise of Islamic extremism and jihadism in the Islamic world is Saudi Arabia. The “Aal-e-Saud” (the descendants of Saud) have no hereditary claim to “the Throne of Mecca” since they are not the descendants of the prophet, nor even from the tribe of Quresh (there is a throne of Mecca which I will explain later.) They were the most primitive and marauding nomadic tribesmen of Najd who defeated the Sharifs of Mecca violently after the collapse of the Ottoman Empire in the First World War. Their title to the throne of Saudi Arabia is only de facto and not de jure, since neither do they have a hereditary claim to the Saudi monarchy nor do they hold elections to ascertain the will of the Saudi people. Thus, they are the illegitimate rulers of Saudi Arabia and they feel insecure because of their illegitimacy, a fact which explains their heavy-handed and brutal tactics in dealing with any kind of dissent, opposition or movement for reform in Saudi Arabia.

Obama’s foreign policy goals get a boost from plunging oil prices -- Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States’ adversaries under greater stress.  After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia’s economic and political calculations, and dampening Iranian leaders’ hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year. At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration’s foreign policy goals: pressuring Russian President Vladi­mir Putin, undermining the popularity of Venezuelan President Nicol├ís Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States. The reason for the deep drop in oil prices continues to be Saudi Arabia’s refusal to cut its oil exports in order to prop up prices. Instead, the kingdom is producing crude at close to record levels, helping it hang on to market share and reduce development of high-cost competitors — such as Arctic oil, Canadian oil sands, ultra-deepwater Brazilian offshore fields and U.S. shale oil. The Saudis are also fighting to keep market share as crude output rises in Iraq and Iran, longtime Saudi rivals in the market.In Iran, cheap oil is forcing the government to ratchet down expectations. The much-anticipated lifting of sanctions as a result of the deal to limit Iran’s nuclear program is expected to result in an additional half-million barrels a day of oil exports by the middle of 2016.  But at current prices, Iran’s income from those sales will still fall short of revenue earned from constrained oil exports a year ago.

Iran delusional about its oil potential -- After 37 miserable years of the so-called Islamic Republic and more than $1.6 trillion of oil income, Iran's oil and gas infrastructure has become ineffective and is suffering from poor management and chronic corruption. As a result, the well-respected healthy national oil company, with a 6.3 million b/d crude production prior to the revolution, plunged to a near bankrupt industry with at best a little above 3 million b/d production.  Iranian output has reached a plateau for some time now, and production has been on the wane by over 200,000 barrels/day/per year for the past decade. Pressure dropping in reservoirs and continuous year-to-year decline in production appear to have been triggered by long periods of technical constraints on operations and by natural aging of the Iranian fields. The lack of regular maintenance and application of new technology, and particularly extensive neglect of the fields in the last several years under sanctions, have resulted in further damage to the Iranian reservoirs.According to U.S. EIA, the National Iranian Oil Company (NIOC) needs to inject at least 260 million cubic meters of gas daily to its matured oil fields. But in recent years, NIOC has never had the capability to inject more than half of this volume per day, and recently, since the production of gas is hardly even equal to domestic consumption, no gas remains to be injected. Therefore, EIA concludes that old Iranian oil fields are naturally losing pressure, which causes 8 to 13 percent oil production to deplete each year.

Iran says Russia to begin building two nuclear plant units next week  (Reuters) – Russia will begin building two nuclear power plant units in Iran next week, Mehr news agency quoted an Iranian nuclear official as saying, under a deal signed in Moscow last year between subsidiaries of the two countries’ state atomic agencies. The Mehr report did not elaborate but the comments by Behrouz Kamalvandi, spokesman for the Atomic Energy Organization of Iran, appeared to be referring to extension of the Bushehr nuclear power station, designed and built by Russia. Iran already runs one Russian-built nuclear reactor at Bushehr, its first. Russia signed a deal with Iran in November last year to build up to eight more reactors in the country. The U.N. nuclear watchdog earlier this month closed a long-running investigation of Iran and issued a report strongly suggesting it pursued a coordinated program to devise a nuclear bomb up until 2003 but that there was no credible sign of bomb-related research and development activity beyond 2009. The Bushehr plant itself was never considered by diplomats and experts to be a serious nuclear proliferation risk. Other aspects of Iran’s nuclear program seen as having potential to develop weapons, such as its uranium enrichment activity and a heavy water reactor, will be curbed under a deal Iran reached with big powers in July including Russia.

China, Iraq establish strategic partnership - (Xinhua) -- China and Iraq agreed Tuesday to establish a strategic partnership during the on-going visit by Iraqi Prime Minister Haider al-Abadi to China. The two countries issued a joint statement to the effect in Beijing, saying that the strategic partnership will help deepen bilateral cooperation in various field and promote development and prosperity in both countries. According to the joint statement, the two sides agreed to strengthen high-level engagement, enhance strategic communication on the bilateral ties and international and regional issues of common concern to increase consensus and consolidate strategic mutual trust. The two countries will continue to support each other firmly on issues concerning national sovereignty, independence, territorial integrity and security, it said. The two countries vowed to take into consideration of each other's core interest and major concerns, and not to interfere in each other's domestic affairs, it said. Iraq will abide by the one-China policy and support China's stance on issues related to Xinjiang. China will support Iraq's unity, territorial integrity, sovereignty and independence, said the joint statement. The two sides condemned terrorism of all forms and pledged to support each other's efforts to maintain national security, stability and to fight against terrorism, it said.

Oil price lows prompt Chinese gas pipeline deal - Chinese state-owned oil company China National Petroleum Corp has concluded a complicated asset shuffle that allows state-owned steel mill Baosteel, two Chinese insurers and a number of funds to acquire stakes in three mammoth pipelines carrying gas across China. CNPC has long resisted plans by bureaucrats in Beijing to force it to open the pipeline network. But a sharp drop in oil prices has hit revenues at both the state-owned CNPC and its Hong Kong-listed unit PetroChina. Income at both entities has dropped “dramatically” this year, PetroChina president Wang Dongjin said in a statement on CNPC’s website this month. The sale is the next in a series of steps through which CNPC and PetroChina are consolidating a sprawling pipelines business. Beijing has indicated it could ultimately form a separate pipeline monopoly to encourage the development of China’s domestic natural gas industry which has so far been limited by CNPC’s stranglehold over the majority of the country’s pipeline network. The total value of the pipelines is Rmb281.4bn ($43bn), PetroChina said. Last month, PetroChina sold a portion of its Trans-Asia Gas Pipeline business to state-owned asset holding company China Reform Holdings, for Rmb15bn-Rmb15.5bn.