the movement of oil prices was again the overriding story affecting the fracking patch this past week, as they fell by more than 6% from last week on Monday, hit the same 6 and a half year lows on Wednesday, only to rise over 17% over Thursday and Friday to close higher for the first time in the last 9 weeks...after falling nearly 5% to $40.45 a barrel last week, oil prices crashed with the rest of the global markets on Monday, with the near term contract briefly trading with a 37 handle before steadying and closing at $38.24...oil prices then recovered Tuesday when the western stock markets rallied, closing at $39.31, only to slip back to close at $38.60 on Wednesday...with word of a Chinese stimulus and rising global markets continuing on Thursday, oil prices jumped 10% as "the shorts", or those who had sold oil that they didn't own earlier in the week, were forced to cover their positions (ie, buy oil to cover what they sold) at increasingly higher prices...the short covering rally continued on Friday, adding another 6% to oil prices, as the media attributed the price increase to Saudi military action in Yemen and a tropical storm approaching Florida as a threat to the Gulf of Mexico...
so you can all see what that price swing looked like in relationship to the recent collapse in oil prices, we'll include a chart below that tracks the price of the current oil contract on the NY Mercantile Exchange over the past 3 months…at the beginning of that period, you can see that oil had been trading around $60 a barrel, a price it had reached and stabilized at in early April, after dropping into the 40s in both January and March, which precipitated the shutdown of half the oil rigs that had been working in the US before the OPEC meeting that started the oil price crash...you can see that the $60 price level broke down in early July, when a confluence of issues in Europe and Asia made a global slowdown appear likely, and that oil prices have fallen steadily since...while we're looking at that, also note the little red and green rods at the bottom of the chart, which show the volume of trading on up (green) or down (red) days for each day for this contract (for delivery of oil in October)...notice that the volume of oil contracts traded spiked in early August, indicating a large number of contracts changing hands near the $45 a barrel price...that was the same price that oil had bottomed at in January and March, and apparently a lot of traders were betting that the same would happen here in August, but they were overwhelmed by those selling this paper oil...
now, although the media will attribute every move in the price of oil to some fundamental change, such as a buildup of oil inventories or a tropical storm threatening oil platforms in the Gulf, it seems pretty clear that the recent action on oil prices has largely been driven by bets placed by traders, which include those working the trading desks in the banks and commodity houses, rather than any fundamental change in the physical commodity or the demand for it....according to data from the Commodity Futures Trading Commission and NYMEX, hedge funds had accumulated one of the largest short positions in U.S. crude on record over the last two months, selling the equivalent of almost 160 million barrels of oil that they didn't own, in the hopes that they could buy oil back cheaper at some date in the future and deliver on their commitment to sell with a profit...once the price of oil started rising with the other global markets, they were on the wrong side of that trade and forced to buy oil to cover their positions, driving the price up farther than it would have otherwise risen...this short covering may not be over yet (there's no clear data on current positions) so we may see another few days or even weeks of volatile oil prices before they settle into a price range that is more representative of supply and demand factors rather than of gambling strategies...
nonetheless, even though the current oil prices are driven by market gamblers, it is those prices that the drillers must sell their oil at and the refineries must buy theirs at, except insofar as either drillers or users had already entered into a contract to buy or sell oil at an earlier price...at these prices, there is no doubt that the frackers are losing money on each barrel of oil that they produce, once all their overhead and expenses are accounted for...but stopping drilling and/or stopping production is not an option for them; they need to keep pumping out oil and selling it at whatever price they can get just to pay the interest on their debts; ie, whatever bank loans and or bond issues they had floated to finance their operations...at least 10 of them have gone bankrupt already, no doubt most of the rest of them are already zombies, virtually dead but still drilling and pumping out oil nonetheless...when we looked at 2nd quarter reports a few weeks back, most were already posting losses with oil at $60 a barrel; no doubt they're all operating in the red with oil prices at $45...
furthermore, their finances can only get worse from here...data compiled by Bloomberg this week indicates that the oil industry has $550 billion in bonds and loans that are due for repayment over the next five years, with bonds from 168 of those companies in North America, Europe and Asia now yielding more than 10%...of that, $72 billion in oil-related debt is maturing this year, $85 billion is due in 2016 and $129 billion matures in 2017...many of those bonds were originally sold to yield 3% or 4% when the oil patch was booming; so when they come due and must be reissued, the interest that they're paying on their bond principal will triple...in addition, many have borrowed money from banks based on the value of their recoverable reserves when last reviewed in October, when oil prices were still above $80 a barrel...if oil prices are still this low when the banks do their nextreview of oil company economically recoverable reserves two months from now, their bank lines of credit will be withdrawn...
it appears there was little in the oil production or throughput stats that influenced this week's price swings, because although a few key metrics reversed last week's changes, they generally moved back into the range we'd seen them in all summer, when oil prices first began to fall...US field production of crude oil fell slightly, from 9,348,000 barrels per day in the week ending August 14th to 9,337,000 barrels per day in the week ending August 21st...although that's about 3% off the early June peak, it's still 8.9% higher than our output during the same week last year, when our overproduction first started putting downward pressure on oil prices...meanwhile, our imports of crude oil fell by 839,000 barrels per day from their 18 week high of last week to 7,199,000 barrels per day in the week ending August 21, which brought the 4 week average of imports down to 7.5 million barrels per day, 1.7% below the same four-week period last year...with the Whiting Indiana refinery still down, US refinery inputs of crude oil fell for the 3rd week in a row, dropping from 16,775,000 barrels per day in the week of August 14th to 16,658,000 barrels per day in the current report; still, that's 1.5% higher than the 16,418,000 barrel per day refinery inputs of the same week in August last year, so total output isn't suffering ...the weekly Petroleum Status Report (62 pp pdf) reports our refineries were operating at 94.5% of their operable capacity last week, which was down from the post recession record 96.1% of their capacity they were running at in the last week of July...
with production and imports down much more than refineries operations, oil companies made up the difference by drawing oil out of storage; our commercial crude oil inventories in storage, which doesn't include the federal Strategic Petroleum Reserve, fell from 456,213,000 barrels on August 14th to 450,761,000 barrels as of August 21st...that's still more than 24.3% higher than the 362,545,000 barrels of crude we had stored in the same week last year, and as you all know by now, the highest for this time of years in the 80 years that such records have been kept, a span that had never seen more than 400 million barrels of oil in storage before this year....
the price of oil has yet to put a major dent in the number of rigs the frackers have been operating....although Baker Hughes reported that the total rig count fell by 8 rigs to 877 in the week ending August 28th, the largest drop in their count since June 12th, it was gas rigs that were idled; total oil rigs rose for the 6th week in a row, as rigs drilling for oil increased from 674 last week to 675 this week, while rigs drilling for gas fell by 9 to 202....active oil rigs are now up by 37 from the 5 year low of 628 which they fell to on June 26th, but down 900 from the year ago count of 1575 and down 934 from the high of 1609 hit on October 10th of last year, while active gas rigs are down by 136 from a year ago and down by 154 from the recent peak of 356 gas rigs that were operating during the week of November 11th....
two more offshore platforms were idled this week, after 6 were shut down over the last two weeks, leaving 30 active, down from 66 offshore rigs that were operating a year ago....a net of 5 horizontal rigs were idled this week, bringing the fracking rig total down to 672, down from 1330 a year ago....including those offshore, 5 vertical well drillers were stacked, leaving 125 vertical rigs operating, down from 374 in the same week last year...meanwhile, 2 additional directional well drillers were put into operation, bringing the directional rig count up to 80, which was still down by 130 from the 210 directional rigs in use a year ago...
the major shale basins saw little change in total activity this week, as only the Eagle Ford in southeast Texas had two rigs idled, which dropped the count in that basin to 97, down from 203 a year earlier...on the other side of the state, drillers added 2 rigs in the Permian basin, which now has 255, down from 557 a year ago...but a total of 3 rigs were added in Texas oil & gas districts 5,and 10, which aren't demarcated by a major shale basin, so Texas ended the week up 3 rigs to 386, but still down from 900 rigs a year ago...outside of Texas, only 3 of the major shale basins tracked by Baker Hughes saw changes this week, with the Marcellus and Niobrara each dropping a rig, and the Haynesville adding one...
other than Texas, no state saw their rig count increase...the Louisiana rig count was down 6 to 71, which was also down from 117 a year ago...that included the 2 offshore, 2 on southern inland lakes, and 3 more on land in the southern part of the state, while one land rig was added in the north...other states shedding rigs included New Mexico, down 3 to 50, and down from 94 a year ago, Colorado, down 1 to 36 and down from 75 a year ago, Oklahoma, down 1 to 105, and down from 212 rigs a year ago, and Pennsylvania, down 1 to 35, and down from 55 a year ago...with 19 rigs, the rig count in Ohio was unchanged, as was the count in other states that weren't mentioned here...
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Corporate Rights Trump Democracy in Ohio Fracking Fight - People who oppose having their communities transformed into corporate resource colonies are familiar with the Halliburton Loophole, a secretly drafted edict that places the oil and gas industries above the law, exempting them and no one else from obeying the clean water act, the clean air act, the safe water drinking act, and others. Now, Ohio Sec. of State Jon Husted has unilaterally placed those same corporations above the Ohio State Constitution. On Aug. 13, Husted declared that the people’s right to change their government, ensconced since 1851 in Article 1, Section 2 of the Ohio Constitution, is null and void when it interferes with the profit interests of these industries. Under that Section’s title “Right to alter, reform, or abolish government, and repeal special privileges,” Ohio’s highest law declares: All political power is inherent in the people. Government is instituted for their equal protection and benefit, and they have the right to alter, reform, or abolish the same, whenever they may deem it necessary; and no special privileges or immunities shall ever be granted, that may not be altered, revoked, or repealed by the general assembly. Clearly, the general assembly has no intention to subordinate the special privileges of giant energy corporations to the right of the people to govern in their own communities. And when citizens, in whom “all political power is inherent,” attempt to alter their county governments by asking the voters to consider a home rule style of government, the state, represented by Husted, steps in to block them from exercising that right.
Supreme Court to rule on anti-fracking measures - Representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Ohio Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties. The 10 plaintiffs in the complaint for a writ of mandamus (court order) filed it as an expedited election case, meaning a relatively accelerated schedule for briefs and evidence goes into effect. In a decision Aug. 13, Secretary of State Husted rejected petitions for the charter/bill of rights proposals in Athens, Medina and Fulton counties, finding that the provisions in each of the charters relating to oil and gas development represented an attempt to circumvent state law in a manner Ohio courts already have found to violate the state constitution.
Case before state Supreme Court could allow communities to restrict drilling activities with zoning - The recent debate over Ohio cities and counties’ efforts to ban or regulate oil and gas drilling, fracking and/or waste disposal has mainly involved proposed community bills of rights that assert an innate right of local citizens to pass laws to protect their environment. So far, those efforts haven’t won success with Ohio courts, including the Supreme Court. The courts have backed up state officials and the oil and gas industry’s contention that only the state, not local government, has the authority to regulate oil and gas. However, the Ohio Supreme Court is currently considering a case involving a different question – whether traditional zoning in cities and towns can dictate where oil and gas activities can go, just as it does with other industrial, commercial and residential activities. This case, if it goes against the industry, could be the lifeline that municipalities in Ohio have been seeking when it comes to asserting some control over oil and gas activities within their borders. The industry, however – in this case, specifically Beck Energy Corp. of Ravenna, Ohio – hopes for a different outcome. Beck, a key player in a landmark Ohio case involving local oil and gas regulations, Morrison (Munroe Falls) vs. Beck Energy, is now seeking an order from the Ohio Supreme Court stating that the small northeast Ohio city cannot use its zoning ordinance “to prohibit drilling for oil and gas in 99.06 percent of the city’s territory.” THE BECK ENERGY CASE ISN’T the only one involving local oil and gas regulations that the Supreme Court is considering. In the other case, representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties.
Ohio Organizers Still Pushing Anti-Fracking Petitions Despite Ruling Against Them - The city council in Youngstown, OH, will vote to again to put an anti-fracking initiative on the November ballot, despite a recent decision by Ohio Secretary of State Jon Husted to invalidate three similar petitions at the county level. The city council was expected to vote on the issue at a special meeting late Monday. The Mahoning County Board of Elections is expected to do the same in the coming weeks. Earlier this month, Husted invalidated petitions in Athens, Fulton and Medina counties that sought to ban oil and natural gas development, underground injection wells or both (see Shale Daily, Aug. 14). He said they were an attempt to circumvent state law in a way that the courts have already found to be a violation of the Ohio Constitution. Organizers in those counties have filed a lawsuit in the Ohio Supreme Court against Husted, saying their rights as citizens were violated (see Shale Daily, Aug. 21). But Youngstown officials said Husted's decision did not apply to municipal initiatives and added that the time to explore the legality of the issue would be after it's been approved for the ballot. FrackFree Mahoning Valley received more than 1,500 signatures for its latest effort to have voters decide on a charter amendment that would ban oil and gas development within city limits. While they've tried and failed four times before, including three rejections at the ballot box, the organizers have vowed to keep pushing for the amendment (see Shale Daily, May 7, 2014).
County Strikes Down Youngstown Anti-Fracking Petition - Another petition to ban oil and natural gas development in Ohio has been invalidated, this time in Youngstown, where the local county board of elections voted unanimously Wednesday not to certify it for the Nov. 3 ballot. In its decision, the Mahoning County Board of Elections cited an Ohio Supreme Court ruling in February that found municipalities could not prohibit oil and gas development in a way that conflicts with the state's regulatory authority. "I think a great deal of consideration went into [the vote], particularly in light of the supreme court decision that came down early this year that basically said state law preempts the authority of a local municipality to impede, oppose or regulate these things," Board Chairman Mark Munroe told NGI's Shale Daily. "My own take was the petitions being circulated to put the issue on the ballot were flawed. They were proposing to do something that had been ruled illegal under the constitution."FrackFree Mahoning Valley needed to secure 1,270 signatures to be certified for the ballot, and it received 1,534 valid signatures. It was the fifth time that the group had tried to put the issue before voters. Similar efforts failed at the ballot box in 2013 and 2014 (see Shale Daily, May 7, 2014). The proposal would have banned exploration, drilling and production in addition to oil and gas infrastructure, among other things, within the city's borders.
Elections board won't put anti-fracking amendment issue before Youngstown voters - As it stands now, people in Youngstown this fall will not be voting for a fifth time on a city charter amendment that would ban hydraulic fracturing within city limits. The Mahoning County Board of Elections, by a unanimous 4-0 vote, decided on Wednesday evening to keep the Community Bill of Rights off the November ballot. Board members say the proposal is unconstitutional because state law gives the Ohio Department of Natural Resources sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations of Ohio’s oil and gas industry. "this community bill of rights attempted to regulate oil and gas activity. Therefore, in my opinion, it was clearly an unconstitutional attempt to make the people of Youngstown vote on something that was unconstitutional." said Elections Board member David Betras. Although Youngstown City Council approved putting the issue on the ballot, the Mahoning County prosecutor's office felt the board needed to vote to certify the issue. Over a two year period, the amendment has been rejected four times by voters.
State says Ohio oil, natural gas production at historic high | marcellus.com: — The state Department of Natural Resources says historic amounts of oil and natural gas are being produced by Ohio shale wells. Statistics released by the department Thursday show more than 10 million barrels of oil and 405 billion cubic feet of natural gas were produced during the second quarter of the year. The department says those amounts were more than in any previous three-month reporting period. During the same period in 2014, the state’s wells produced about 4.4 million barrels of oil and 156 billion cubic feet of natural gas. The state says oil drilling production increased 126 percent and gas drilling production by 160 percent in the first half of this year compared with the first half of 2014. The report listed 978 wells producing oil and gas.
Utica and Marcellus activity in Ohio, August 16th through August 22nd - Permit activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to the last well activity update, but when it comes to fracking-related issues on ballot proposals, things are getting very heated. Last week, the Associated Press (AP) reported that residents of Fulton, Medina and Athens Counties in Ohio are filing a lawsuit again Ohio’s Secretary of State Jon Husted. Husted allegedly invalidated ballot proposals that are related to the oil and gas drilling technique called fracking. The filing states Husted has violated the right to initiative of the residents of the three Ohio counties. The following information is provided by the Ohio Department of Natural Resources (ODNR) and is for the week of August 16th through August 22nd. The ODNR reported 998 horizontal wells in production, 1586 horizontal wells drilled and a total of 1997 horizontal permits. Twelve horizontal permits were issued this week, and there are 21 rigs in the Utica. Activity in the Marcellus Shale in Ohio remains unchanged from last week’s well report. The area is still sitting at 15 wells permitted, 11 drilled, 17 wells in production and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.
Marcellus permit activity in Pennsylvania, August 18th through August 23rd - The Marcellus Shale formation in Pennsylvania created a little buzz with the addition of 21 new permits last week. The following information is provided by the Pennsylvania Department of Environmental Protection and covers August 18th through August 23rd. New: 21 - Renewed: 0 - Top Counties by Number of Permits: Susquehanna: 15 - Warren: 3 - Lycoming: 2 - Washington: 1 Oil goes down and takes gas with it - It’s not like oil and gas were doing all that well to begin with, but Monday’s stock market selloff hit the sector unsparingly, tossing all related fuels into the same sinking barrel. Oil future prices at West Texas Intermediate hub were at $38.20 per barrel on Monday, just before market close, a level not seen since 2009. “You’re certainly testing new lows there,” said Mark Hanson, an equity analyst with Morningstar. “Just psychologically, once you’ve gone through the [$40] floor, it probably induces some panic.” The list of industry stressors goes on: global oversupply of oil unleashed by successful shale fracking, potential for more Iranian oil to enter the picture, weakening Chinese demand. “Everything has kind of coalesced here,” Mr. Hanson said. Natural gas, whose precocious descent began three years ago, ended at $2.67 per million British thermal units at 4 p.m. on Monday, a six-week low but still not far from the range it has occupied all year. And while the Marcellus Shale that underlies much of Western Pennsylvania is consistently ranked at the top of the most economic shale plays in the country, companies with operations here also came out bruised. Cabot Oil & Gas, the largest producer of natural gas in Pennsylvania, fell by 10 percent, closing at $22 per share. Range Resources lost 7 percent, settling at $33.20 per share, while Antero Resources plunged 8 percent to $22.31. Consol Energy Inc. and Rice Energy Inc. and Southwestern Energy Co. were down 7 percent, with Consol closing below $12 per share for the first time in more than a decade.
Regulators expect lawsuit over oil, gas rules process - State regulators expect a judge eventually will decide whether they followed the proper process in writing environmental rules for the conventional oil and gas industry. “You’re going to sue us,” Pennsylvania Department of Environmental Protection Deputy Secretary Scott Perry told industry members during an advisory committee meeting Thursday in Harrisburg. He and the Conventional Oil and Gas Advisory Committee agreed to continue working on the latest draft of the rules because the department intends to enact them in some fashion. “I appreciate the members … think the process is fundamentally flawed. But it’s still useful to have a conversation on it,” Perry said. Gov. Tom Wolf directed the DEP to form the advisory group when it reworked an existing Technical Advisory Board that now focuses only on shale gas drilling. The conventional board, whose members work in or around the older industry devoted to traditional oil and gas drilling, is opposed to new rules they say are too burdensome for small operators. The committee wrote a letter to DEP in July saying it would not support the rules. Tension between members and DEP staffers was evident during the committee meeting from the start. The two sides could not agree on approving minutes from their first meeting in March.
US natural gas glut prompts price warning - FT.com: Hot summer weather has done little to burn off an impending US natural gas glut, prompting warnings of record-breaking inventories and lower prices for the fuel in the year to come. By the onset of winter, gas banked for the heating season is likely to approach or exceed 4tn cubic feet, surpassing a previous high set in 2012, analysts believe. The forecasts are surprising, because this summer has been warmer than the last two and the 10-year norm, according to Commodity Weather Group. Power plants have consumed 4bn cu ft per day more gas than in 2014 as they meet air conditioning needs and turn away from coal as an energy source, according to Bentek Energy. But robust output from shale formations has more than compensated for this demand, with states such as Ohio emerging as important suppliers. Bentek, an analysis and forecasting unit of commodities information service Platts, warned in a report that benchmark US gas prices could fall below $2.50 per million British thermal units by autumn, with regional prices around northeastern wells dropping to record lows. Nymex September gas settled at $2.685 per mBtu on Tuesday. “Not much stands in the way of US gas storage inventories reaching record high levels this fall of about 4tn cu ft,” Bentek said in the report, to be issued at an industry conference this week. “And that strong likelihood points to a winter of relatively weak gas prices, perhaps carrying deep into 2016.” In the US gas market, producers inject gas into underground storage reservoirs from spring to autumn, banking fuel for the winter heating season. Design capacity of these facilities, consisting of salt domes, depleted gasfields and aquifers, is 4.665tn cu ft, according to the Energy Information Administration. The record for stocks held at the end of injection season was 3.929tn cu ft in November 2012. Because storage capacity is ample, some analysts do not expect a fire sale in which producers unload gas they cannot store. However, Bentek said that some storage reservoirs, especially salt domes along the US Gulf of Mexico coast, would approach physical limits by late autumn.
Whose Capital Is Getting Destroyed in US Natural Gas? -- Chesapeake Energy, the second largest natural gas producer in the US, after Exxon, is the biggest exclamation mark in a special Fed-designed phenomenon: for years, QE-besotted, ZIRP-blinded, yield-hungry investors kept funding an industry that dished out nothing but hype, false hopes, and losses. Two natural gas producers have already thrown in the towel: Quicksilver Resources filed for Chapter 11 bankruptcy in March, listing $1.21 billion in assets and $2.35 billion in debts. Much larger Samson Resources has scheduled its date with bankruptcy court for September 15. In 2007, the hype around fracking for natural gas got started in earnest, and billions poured into the industry month after month. By September 2009, natural gas was below $3 per million Btu at the Henry Hub, and that’s where it is today ($2.67). No one can profitably frack for dry natural gas at these prices, regardless of what they claim. The most productive US natural gas field, the miraculous Marcellus Shale, where Chesapeake is a big player… well, there are pipeline constraints and other issues, and the gas is traded at local hubs, not at the Henry Hub, and prices are even lower. At Tennessee’s Zone 4 Marcellus hub, gas traded for $0.78 per million Btu last week, according to the EIA. On the Transco Leidy Line, prices fell to $0.77 per million Btu. At Dominion South, prices fell to $1.22 per million Btu. Marcellus hubs service the densely populated East Coast areas from New England down to Virginia. Regardless of what the hype is, no driller can survive for long at these prices.The Marcellus Shale is where money went to die the fastest.Especially the “smart money” got fooled by the hype and false hopes of natural-gas fracking. Private equity firm KKR made two big bets on natural gas and lost $5 billion.
Marcellus: Methane and water do not mix -- According to state environmental regulators, three natural gas drilling companies have found out the hard way as to what happens when methane and drinking water mix together. Regulators shared that the three companies together contaminated 17 different drinking water wells in Bradford, Lycoming and Tioga Counties in north central Pennsylvania. Combined, the companies so far have paid nearly $375,000 in fines for the water contamination. The Department of Environmental Protection (DEP) has pointed the finger of blame to poor well construction which allowed methane to migrate into the water wells. The incidents date back to 2011 and 2012. If methane is allowed to build up in an enclosed space, such as a house, the gas, which is odorless, can explode. The DEP’s Director of District Oil and Gas Operations John Ryder commented on the investigation that took place regarding the drinking water well contamination: These were complex and lengthy investigations that took a considerable amount of time to resolve … But the department was able to conclusively determine that methane gas from natural gas wells had migrated off-site and impacted private wells serving homes and hunting clubs. However, Ryder was unable to explain why the investigation regarding the wells took over three years to conduct.
Feds expect decline in shale gas production - A new federal government study released Wednesday predicted the nation’s shale gas production will begin to wane starting next month. The U.S. Energy Information Administration’s monthly “Drilling Production Report” projected a nearly 1.5 percent production decrease at the country’s seven major sale regions. This should not come as a shock to industry watchers. In April, the administration warned that the domestic drilling industry was facing significant headwinds as plummeting prices and oversupply have prompted companies to scale back spending, backtrack on production and lay off workers. Wednesday’s report, stated natural gas-rich Marcellus shale production in Pennsylvania and West Virginia, is expected to decrease to 44.9 billion cubic feet daily from a high of 45.6 bcf/d in May. The Marcellus basin, which is centered in the north central part of West Virginia, is expected to lose an estimated 60 million cubic feet per day during the projected periods, the report states. Southern Ohio’s Utica basin is expected to see the smallest declines of about 3 million cubic feet a day. The Eagle Ford basin is Texas is expected to experience the hardest hit during the decline, witnessing a 112 million cubic foot loss daily, the report predicts. “Several external factors could affect the estimates, such as bad weather, shut-ins based on environmental or economic issues, variations in the quality and frequency of state production data, and infrastructure constraints,” the report reads. The report also found net natural gas production from new wells drilled in the nation’s shale reserves is not enough to counter the expected decline from legacy wells. The EIA attributed that phenomenon to the decline in the number of drilling rigs deployed across the country.
W. Virginia is getting a wastewater treatment complex -- A Denver-based company is teaming up with Veolia Water Technologies Inc. and Veolia North America to construct a wastewater treatment complex in West Virginia. Antero Resources Corporation shared last Wednesday it will be partnering up with the two companies and designing and building a “state-of-the-art advanced wastewater treatment complex in Doddridge County, West Virginia,” states the company’s press release. The treatment complex consists of a 60,000 barrel per day facility, which will allow Antero to treat and reuse flowback, along with produce water, rather than dispose of the water the in injection wells. The complex assets will be owned by Antero; this includes any related facilities. The location of the complex is in the heart of Antero’s Marcellus Shale formation footprint and will serve the company’s shale developments in the Marcellus Shale and Utica Shale formations.
New Jersey Is Letting Exxon Pay $225 Million For $8.9 Billion Worth Of Pollution A state supreme court judge approved a settlement between Exxon and New Jersey on Monday, despite the fact that the settlement was $8.68 billion less than the $8.9 billion the state had originally requested. Environmentalists are calling foul on the agreement, which they say falls dramatically short of the amount needed to clean up and restore 1,500 polluted acres of wetlands and surrounding natural environment in northern New Jersey, where Exxon operated a petrochemical operations for decades. Exxon was found responsible for the pollution in 2008. “It’s certainly really disappointing and a little hard to understand from the outside,” Margaret Brown, an attorney with the Natural Resources Defense Council (NRDC) told ThinkProgress. Brown said that up until the closing arguments last November, the state was saying that it needed $2.5 billion to clean up the site and was asking for $8.9 billion in costs for clean up and restoration. NRDC and a group of environmental advocates applied to be named as intervenors in the case in June, but the judge turned them down. “Once Exxon and the state agreed to the settlement, there was no one arguing the other side,” Brown said.
Study: Lack of energy infrastructure would cripple New England -- A study funded by trade groups representing the oil and natural gas industries is predicting dire consequences for New England if the region doesn’t improve its energy infrastructure by the end of the current decade. The 68-page report released Thursday was prepared for the New England Coalition for Affordable Energy, a Boston-based advocacy group. But it was sponsored by two energy trade groups, the American Petroleum Institute and America’s Natural Gas Alliance. The report predicts that homes and businesses across the region could collectively pay $5.4 billion more than what they are paying now for energy costs. It also claims the region could be facing 167,000 jobs lost or not created as a result of higher energy costs. The combination of higher energy costs and lost jobs would reduce the amount of disposable income available to New England by more than $12 billion. Alvaro Pereira, principal consultant at La Capra Associates, one of the study’s authors, said in a conference call that the report examined “multiple types of infrastructure to reduce energy costs including natural gas pipelines, electricity transmission lines, renewable and non-renewable electricity generation.” “We looked at that and compared it with the cost impact of continuing to rely on existing infrastructure,”
Cooling tower tumbles at refinery — There were no reported injuries Tuesday evening after a cooling tower collapsed in what refinery officials call an “operational upset.” The cooling tower was used in the day-to-day operations at the refinery. While production was impacted, officials at the refinery said they were still meeting all of its product supply commitments to customers in the area Wednesday morning. The incident caused the refinery to utilize additional flaring, which required contacting regulatory authorities. “Notifications were made to appropriate agencies in compliance with permits due to some flaring associated with the process upset,” refinery spokesperson Melissa Erker said Wednesday. “Anytime we have a flaring incident, we send it to the agencies moments after it happens. We can’t just do it randomly.” Erker said the facility is currently working to resupply cooling water to the impacted units using “redundant cooling water supply from other towers.” She said the redundancy systems in the refinery assure such incidents can have as low of an effect on refinery operations as possible. The Wood River Refinery is operated by Phillips 66. Erker said she could not speculate on what the incident could do to regional gasoline prices citing the sheer amount of factors coming into play when gas prices are calculated including oil prices and refining capabilities of other facilities.
A Broken Well Has Been Leaking Oil Into The Gulf Of Mexico For The Last 10 Years -- For more than a decade, oil has been continuously leaking into the Gulf of Mexico. On Thursday, the Associated Press reported that environmental groups and the New Orleans energy company responsible for the spill had finally reached a settlement ahead of a trial slated to begin in October. According to the AP, under the terms of the settlement, Taylor Energy agreed to make a $300,000 donation to a Louisiana marine research consortium — to purchase vessels, electronics and other equipment — as well as fund $100,000 worth of research into the ecological effects of long-term oil leaks in the Gulf. According to Waterkeeper Alliance, however, there has been no final agreement on a settlement or terms. “We are very pleased about the progress of negotiations with Taylor, and have come to a conceptual agreement that has not yet been finalized,” Waterkeeper Alliance said in a statement. The leak first began in 2004, when Hurricane Ivan struck the Gulf Coast, triggering an underwater mudslide that knocked over an offshore well platform owned by Taylor Energy. The mudslide essentially buried 28 wells beneath the Gulf, some 10 miles off the coast of Louisiana. Because the wells were buried some 475 feet under water in sediment up to100 feet deep, traditional plug methods did not work to staunch the flow of oil.
160000 Californians call for statewide ban on fracking --- On Tuesday, August 25th, as the California legislature holds a joint oversight hearing on a new report by the California Council on Science and Technology on the risks and dangers posed by fracking, State Sen. Ben Allen and State Asm. Das Williams will join with anti-fracking activists in a press conference on the steps of the Capitol calling for a statewide ban on fracking. At the press conference, members of the California-based Courage Campaign joined by members of California Against Fracking, Rootskeeper and local Sacramento activists will deliver a petition signed by nearly 160,000 Californians backing a permanent ban on oil and natural gas fracking in the State. Earlier this Summer, a newly released independent scientific studyby the California Council on Science and Technology (CCST) identified serious risks associated with oil development processes and concluded that state regulatory officials lack data to adequately protect the public or even to propose effective mitigation strategies to avoid associated health risks. “Right now we’re in the midst of critical moment when California could decide to turn away from extreme extraction and toward clean energy. Every time we’ve confronted Governor Jerry Brown and asked him to halt fracking over the past few years, he’s insisted that we wait until the release of an independent scientific report,” explained Tim Molina, of the California-based Courage Campaign. “When the report came out, it rang emphatic alarm bells about the dangers extreme energy poses to our air, water, ecological and geological security, and public health. It’s now clear that lives are at risk. With Jerry Brown refusing to act, we need the our State Senate and Assembly to step in and protect California and the planet.”
Activists Take to the Sea to Demand an End to Offshore Drilling --Activists in Santa Barbara, California took to the sea this past weekend to “raise awareness and generate action in support of four critical bills currently moving through the State Assembly” to help stop future offshore oil spills. The kayaktivists paddled out five miles and unfurled a 70-foot floating banner that read: #CrudeAwakening. The groups involved said the Refugio Oil Spill off the coast of Santa Barbara this past May was a “rude awakening” for them. The spill ended up blanketing the shore and coastal waters with 140,000 gallons of crude oil. “It shut down beaches, greased marine protected areas and killed or injured several hundred birds and marine mammals,” said Patagonia. “The effects continue to linger and likely will for some time. If there’s any upside to this horrible mess, we now have a good opportunity to stop future spills.” The event was organized by the Surfrider Foundation, in collaboration with Patagonia, Environmental Defense Center and Santa Barbara Channelkeeper. According to the groups, the bills currently moving through the State Assembly would:
- stop new oil drilling in the Marine Protected Area at Tranquillon Ridge, in the Santa Barbara Channel.
- improve oil spill response off our coast.
- require oil companies to use “best available technology” on their pipelines.
- improve requirements for pipeline inspection.
Which Pipeline Inspired Protesters To Stage A Sit-In At John Kerry’s House? Hint: It Wasn’t Keystone -- On Tuesday morning, over 100 protesters gathered front of Secretary of State John Kerry’s Georgetown home, urging him to stop a pipeline that would carry thousands of barrels of tar sands from Canada into the United States. But the pipeline in question wasn’t Keystone XL — it was the Alberta Clipper, an expansion project that would increase the capacity of an Enbridge-owned pipeline from 450,000 barrels of tar sands oil per day to over 800,000. Environmentalists have accused the State Department of allowing Enbridge — the Canadian company responsible for the largest inland oil spill in U.S. history, the Kalamazoo River Spill — to push forward with expanding the Alberta Clipper pipeline without undergoing necessary regulatory process, including presidential approval required for all cross-border pipelines. Pipelines spill. It happens. Everyone knows that “This expansion is going to be expanding this pipeline to 880,000 barrels of tar sands a day, whereas the Keystone pipeline is proposed to 830,000 barrels a day,” Kieran Williams, a protester and student at Kalamazoo College in Michigan, told ThinkProgress. “We think it’s absolutely absurd that there has been the environmental review and delay of the Keystone pipeline, but that Enbridge can continue this illegal expansion.” Enbridge applied for a presidential permit to expand the pipeline, which runs from Hardisty, Alberta to Superior, Wisconsin, in 2012. But obtaining a presidential permit from the State Department is a lengthy process — it involves parties at a local, state, and federal level, and requires assessment of a pipeline’s environmental impact, among other things.
Fate Of U.S. Fracking Could Rest With Colorado Supreme Court --The oil and gas landscape is changing fast these days. And a big item this month suggests the courts may have a major impact on shaping the sector over the coming months. Especially issues like fracking. An area where a precedent-setting lawsuit was sent last week to the highest court possible in order to resolve a long-running issue over who can regulate oil and gas activity. That's happening in Colorado. Where the state oil and gas association is suing two cities -- because of frack bans imposed by lawmakers within their municipal limits.Oil and gas proponents argue that, under the Colorado state constitution, municipalities do not have the right to regulate drilling. With that area being the sole responsibility of the Colorado Oil and Gas Commission. But judges at the Colorado Court of Appeals failed to return a clear verdict on the matter. Instead referring the case to the Colorado Supreme Court for a final decision. In doing so, the judges noted that the matter of municipal control over fracking is becoming an issue in several states across the U.S. And said that the Colorado lawsuits are "test cases for determining whether county and local governments may regulate or prohibit fracking and related activities". That puts a lot of weight on a decision here. With the verdict likely becoming precedent for similar cases in other parts of the country -- and thus potentially affecting the entire American oil and gas sector.
Quakes shaking up New Mexico -- Has oil and gas drilling claimed another state as an earthquake victim? Scientists at the U.S. Geological Survey have linked the quakes in Kansas and Oklahoma to oil and gas activity, but KRQE reports fossil fuel development may be to blame several small quakes near Raton and Dagger Draw in New Mexico. “[There have] been very intense reviews of the models and earthquakes over the past couple years for the USGS,” Geophysicist Robert Williams told KRQE. “Most of them that people are feeling are magnitudes 2.5 and greater range.” Researchers have linked earthquakes to man-made sources for years, but they attribute recent spikes in seismic activity to wastewater injection, which they say loosens faults in the ground. The largest of these man-made quakes, they say, hit a magnitude of 5.2 in 2011 near the Colorado state line. “We’re taking another step to inform the communities that might need to make decisions about wastewater disposals,” Williams said. Researchers believe the state’s quakes will increase along with its oil and gas industry. Representatives from the New Mexico Oil and Gas Association told KRQE that, while the issue of earthquakes is important, much of the state’s economy relies on the industry.
Green groups threaten to sue US watchdog over fracking quakes - FT.com: Green groups are threatening to sue the US environmental regulator, alleging it is failing in its duty to tackle a surge in earthquakes that they blame on the American shale revolution. The groups on Wednesday said they were preparing a lawsuit against the Environmental Protection Agency for not curbing the disposal of wastewater by oil companies, a practice that scientists say has triggered a spike in seismic activity. Earthquakes linked to oil and gas production have unnerved residents in Oklahoma, Texas and elsewhere, and become an unexpectedly pressing problem for the US fracking boom that has upended energy markets. The groups threatening to sue the EPA, their usual ally, say it has a legal obligation to update rules on the disposal of wastewater from oil production, which have not changed since 1988. “We think EPA’s failure to act is particularly egregious in light of the shale boom and the vast amount of waste it has generated,” said Adam Kron, a lawyer at the Environmental Integrity Project, which is part of the coalition. “We’re flying blind here. We need to have some rules in place.” The EPA would not comment on the lawsuit threat. But it said existing rules include requirements related to seismicity and that it would continue to work with states to address potential concerns. The oil and gas industry is trying to fend off regulations that would require it to overhaul its practices or spend more money, as it buckles under the strain of sub-$40 a barrel US crude. “Anything that raises costs right now is a problem,”
Groups to sue EPA in effort to better regulate disposal of fracking waste - Eight environmental organizations announced today they intend to sue the U.S. Environmental Protection Agency to force it to set new and tighter standards for disposal of oil and gas drilling and fracking waste that they say threatens public health and the environment. The groups, in a notice of intent to sue filed in U.S. District Court in Washington, D.C., allege that the EPA has failed for 27 years to update and tighten baseline drilling and waste disposal regulations, as required by the Resource Conservation and Recovery Act, the federal law that governs waste disposal. Adam Kron, an attorney at the Environmental Integrity Project, a D.C.-based environmental group and one of those that filed the notice, said the EPA should “do its legal duty” and follow its own 1988 determination that concluded changes were needed in federal regulations for oil and gas waste. “The oil and gas industry has grown rapidly since then, and yet EPA has repeatedly shirked its duties for nearly three decades,” Mr. Kron said. “The public deserves better protection than this.” The official court filing of a notice gives the EPA 60 days to review and revise the regulations for disposal of the waste, which includes carcinogenic chemicals and radioactive waste found in drilling muds, drilling waste water and fracking flowback water. If EPA does not begin to revise its rules and commit to a schedule for completing those revisions within the next two months, the groups plan to ask the federal court to set tight deadlines for a regulatory update.
Eco-groups file notice with EPA for new federal regulations on disposing of drilling wastes -- A coalition of environmental organizations on Wednesday filed a legal notice with the U.S. Environmental Protection Agency demanding regulations to stop oil and gas companies from dumping drilling and fracking waste in ways that threaten public health and the environment. That includes Ohio injection wells for liquid drilling wastes that have triggered earthquakes and low-level radioactive waste from drill cuttings going into Ohio landfills. The groups filing the 20-page notice were the Environmental Integrity Project, Natural Resources Defense Council, Earthworks, Responsible Drilling Alliance, San Juan Citizens Alliance, West Virginia Surface Owners Rights Organization and the Center for Health, Environment and Justice with an Ohio office. In a teleconference, they called on the EPA to comply with its long-overdue obligations to update waste disposal rules that should have been revised 27 years ago. Toxic and radioactive drilling wastes should not be treated like household garbage, they said. For example, the EPA should institute stricter controls for underground injection wells, which accept 2 billion gallons of oil and gas wastewater every day and have been linked to earthquakes in Ohio, Oklahoma and Texas. The federal EPA should also ban spreading fracking wastewater onto roads or fields and should order landfills and ponds that get drilling wastes to be built with adequate liners to prevent leaks and spills, the eco-groups said.
Bakken, Eagle Ford output continues rise despite prices -- Oil prices have continued on a downward slide, but production in the Bakken and Eagle Ford Shale formations increased slightly between June and July, reports the Houston Chronicle. According to Bentek Energy, an energy market analytics company, oil production in North Dakota’s Bakken continued to pump over 1.2 million barrels per day in July, up by about 500 daily barrels compared to June figures. From the same time last year, production in North Dakota has increased by roughly 90,000 barrels per day. Production in the Eagle Ford averaged about 1.6 million barrels per day for the month of July, an increase of roughly 10,000 barrels per day when compared to June production. In a press release, Bentek Energy Analyst Sami Yahya said, “Initial production rates have been improving, especially in the oily window of the Eagle Ford Basin.” Yahya continued, “As well, producers in the Eagle Ford are currently drilling 2.5 wells per rig per month, which is higher than the national average of 1.5 wells. Drill times have been improved from an average of 15 days per well in 2014 to roughly 11 days per well in 2015.” The timeframe for drilling new wells in the Bakken has also improved, dropping from the 15 days per well late 2014 to about 13 days per well during the second quarter of this year.. “Substantial cost savings protocols alongside reduced drill times have kept internal rates of return in the Bakken shale formation among the best in the country. Current rates of return in the Bakken shale formation are around 15 percent, which is comparable to the 18 percent found in the Eagle Ford Basin.”
No more Bakken crude: Canada's largest refinery heads overseas for supply - Bakken Shale oil produced in the U.S. is no longer being shipped to Canada for use in the nation’s largest crude oil refinery, reports the Wall Street Journal (WSJ). Rather than importing Bakken shale oil from the U.S., the refinery’s operator, Irving Oil LTD, has opted to use more inexpensive crudes from producers such as Saudi Arabia. The change is the latest indicator of shifting crude costs, which are affecting East Coast refiners as the global oil price slump persists. As reported by the WSJ, the refinery located in Saint John, New Brunswick, and one of the largest by volume refineries in North America, will be feeding zero barrels of Bakken crude into its 320,000-barrel-per-day refining capacity. Irving President Ian Whitcomb told the WSJ that purchases of Bakken crude shipped by rail have been reduced from a high of roughly 100,000 barrels a day two years ago to zero. He said, “We’re not importing any Bakken crude right now.” The change is indicative of the energy industry’s globally shifting economics as the price of oil, Bakken crude included, recently sank to a low not seen in six years. As a result of the price decline and persistent global oversupply, the disparity between North American and overseas crude, priced with the Brent global benchmark, has lessened. American East Coast refiners are now able to import crude shipped from overseas for less than the cost of hauling it via railway from producers in North Dakota’s Bakken and elsewhere.
BNSF asks for delay in lawsuit over Casselton derailment — A civil lawsuit against BNSF by an engineer who was at the helm during a train derailment near Casselton nearly two years ago should be put on hold until it can be determined whether a broken axel was the cause of the fiery crash, a lawyer for the railway said Monday. The suit by Bryan Thompson of Fargo accuses BNSF of negligence and says the railway failed to properly inspect and maintain its equipment and failed to warn him of the dangers of hauling explosive oil tank railcars. Thompson says he suffers from post-traumatic stress disorder and isn’t capable of returning to work. BNSF lawyer Timothy Thornton asked Judge Norman Anderson during a hearing Monday to delay the proceedings until the National Transportation Safety Board comes out with detailed findings on the crash. Without that information, Thornton said, BNSF officials won’t be able to testify completely and will have “at least one hand tied behind their backs and maybe two hands.” The broken axel wasn’t pinpointed as the cause of the crash, but the NTSB said the derailment might have been prevented if BNSF railroad had inspected it more carefully and found a pre-existing flaw. The final report isn’t due for at least six months.
ND regulator: Industry unlikely to meet flaring target — North Dakota’s oil industry likely won’t meet a Jan. 1 target set by new self-imposed rules that require reducing the amount of natural gas burned off as a byproduct of oil production, the state’s top energy regulator said Wednesday. Problems with federal permits, land access permission for planned pipelines, stalled processing plants and increased natural gas production will make reaching new capturing goals “essentially impossible,” state Mineral Resources Director Lynn Helms told North Dakota’s Industrial Commission, which regulates the oil and gas industry. The three-member panel headed by Gov. Jack Dalrymple adopted the rules last year to reduce flaring to 90 percent in incremental steps through 2020. The new rules, which were drafted by the oil industry, allow regulators to set production limits on oil companies if the targets are not met. The rules also require oil companies to craft a natural gas capturing plan before a well is drilled. North Dakota, the nation’s No. 2 oil producer behind Texas, is producing about 1.2 million barrels daily. The state also is producing a record 1.6 million cubic feet of natural gas daily that comes when an oil well is drilled. Until the new rules were imposed, North Dakota drillers burned off, or flared, about a third of the gas because development of pipelines and processing facilities to capture it didn’t keep pace with oil drilling. Less than 1 percent of natural gas is flared from oil fields nationwide, and less than 3 percent worldwide, the U.S. Energy Department said.
In downturn, North Dakota's oilfield firms jostle for tiniest of jobs – Oilfield service companies eager for work amid plunging crude oil prices have until the end of Wednesday to bid for a guaranteed job: plugging a North Dakota well abandoned by a producer closing up shop in the No. 2 U.S. oil patch. Whichever oilfield service company does the plugging, be it Halliburton Co , Schlumberger NV or another firm, the job could bring in more than $20,000. While that’s far less than the millions they have received to drill and fracture wells in years past, the more-than 70 percent drop in oil prices since last summer means no job is too small. Oil producers are delaying fracking jobs at roughly 850 wells throughout the state, according to data from regulators, harming profitability throughout the oilfield service industry and fueling layoffs. Amid that slump, North Dakota officials last year confiscated Rio Petro Ltd’s Sundhagen #1 well in Williams County, near the state oil capital of Williston. The reason: Rio Petro did not notify regulators about work done on the well, a violation of state law. Nor did it increase the required bonding on the well, aimed at covering the cost of its reclamation, to $50,000 from the previously required $20,000. The privately held company also did not respond to the state’s inquiries. “Since they did not respond, we are basically confiscating the well,” said Alison Ritter, spokeswoman for the state’s Department of Mineral Resources. The well has never been prolific, producing only 55,569 barrels since it first came online in 1980, according to state data.
Government lab researchers develop radioactive waste tracker — Two government lab researchers are in the process of licensing technology that could improve disposing of and tracking radioactive waste. Idaho National Laboratory physicist Doug Akers and software engineer Lyle Roybal started developing the Integrated Waste Screening System last year when they realized similar INL-produced technology that tracks nuclear waste could be tailored to apply to the oil and gas drilling industry, the Post Register reported. The project is focused on North Dakota and is funded by $550,000 in North Dakota Oil and Gas Research Council grants. State health officials recently indicated they are in favor of the technology. A truck equipped with a screener will take oil field waste readings to determine radiation levels and appropriate dump sites. Akers said the device is intended to reduce waste that disappears or is improperly disposed of. “It’s the Wild West out there,” he said. “Waste sites are taking the wrong stuff, or they’re dumping it in fields. Nobody really knows what’s going on.”
EPA Urged by Nearly 100,000 Americans to Redo Highly Controversial Fracking Study -- The public comment period for the highly controversial U.S. Environmental Protection Agency’s (EPA) fracking study ends today. Food & Water Watch, Environmental Action, Breast Cancer Action and other advocacy groups delivered nearly 100,000 comments from Americans asking the U.S. EPA to redo their study with a higher level of scrutiny and oversight. The study produced significant controversy due to the discrepancy in what the EPA found in its report and what the agency’s news release title said. The study stated that “we did not find evidence” of “widespread, systemic impacts to drinking water resources,” but the title of the EPA’s news release said, “Assessment shows hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources”—a subtle but significant difference that led to most news coverage having headlines like this one in Forbes, “EPA Fracking Study: Drilling Wins.” In addition to the misleading EPA headline, the groups were also quick to point out that the study had a limited scope and was conducted with a lack of new substantive data. “Concluding that fracking is safe based off a study with such a limited scope is irresponsible,” said Wenonah Hauter, executive director of Food and Water Watch. “How many more people must be poisoned by the oil and gas industry for the EPA to stand up and protect people’s health? It’s time for the agency to do its job and stop letting industry shills intimidate it.” The groups emphasize that despite the limitations of the report, the agency still found numerous harms to drinking water resources from fracking. For instance, the EPA found evidence of more than 36,000 spills from 2006 to 2012. That amounts to about 15 spills every day somewhere in the U.S. “By downplaying its findings of water contamination from fracking, the EPA ultimately provided cover for the fracking industry to continue to poison our drinking water with chemicals linked to a variety of health problems, including breast cancer,” said Karuna Jaggar, executive director of Breast Cancer Action. “When the EPA finalizes its study, they need to focus on protecting public health—not the fracking industry—by highlighting and condemning drinking water contamination from fracking.”
Plunge in Oil Prices Causes Junk-Debt Bloodbath for Drillers - The latest rout in crude prices is coming at about the worst time possible for energy producers that have been relying on credit markets to keep drilling. That’s because banks that extended credit lines tied to the value of the companies’ oil reserves are preparing to recalculate how much they’re willing to keep lending. With crude prices more than 60 percent below their peak last year, lenders are poised to reduce those lines by 10 percent to 15 percent on average -- a move that could wipe out $15 billion of credit, according to estimates from CreditSights Inc. analyst Brian Gibbons. Unlike earlier this year, when drillers in need of fresh capital found debt investors anxious to capitalize on high yields, there’s little appetite for such deals this time around. About $7 billion of junk bonds issued by oil and gas producers in the first quarter to refinance debt have since lost 17 percent, data compiled by Bloomberg show. “Nobody is in good shape with oil at $39,” Gibbons said. “Most energy companies are shut out of the debt markets. There are few companies that can get a deal done right now.” The bank reviews may spell trouble for companies such as Swift Energy Co., which abandoned a $640 million loan offering in July that was to be used to repay borrowings under its credit line. Its $375 million borrowing base is likely to be cut when the company’s lenders review it in November, Penn Virginia Corp. told its investors in July that it’s expecting the $425 million borrowing base on its credit line to be reduced. Standard & Poor’s last week cut its credit rating on the company to six levels below investment-grade after lower-than-expected production resulted in weakened “financial and liquidity measures.” “It’s too early to know exactly what will happen in the fall re-determination in October, but I expect it will come down,” Steven Hartman, the company’s chief financial officer, said of the credit line during a July 30 earnings call.
Worst Junk-Bond Bet Wipes Out Junior Lenders of KKR's Samson - Few investors in the beleaguered energy industry have suffered more this year than those who purchased Samson Resources Inc.’s bonds. Owners of Samson’s $2.25 billion of unsecured notes maturing in February 2020 have seen the value of their investments shrink 95 percent in 2015 through Friday to half a cent on the dollar. That’s the worst performance among issues in the Bloomberg High-Yield Corporate Bond Index, which is up 0.5 percent. For distressed-debt investors Blackstone Group LP’s GSO Capital Partners and Oaktree Capital Group LLC, which bought the bonds at the beginning of the year, plunging oil prices not only took their toll on the securities, but they foiled a plan to profit from Samson’s woes. Samson, majority-owned by private-equity firm KKR & Co., announced Aug. 17 it will file for bankruptcy by Sept. 16. The company will propose a reorganization that would leave the GSO-led bondholders with almost nothing and hand over control of the restructured business to a group of senior lenders including hedge fund Silver Point Capital LP and private-equity firm Cerberus Capital Management LP. The junior bondholders were pummeled after Samson rejected their April proposal to help the company cut its total borrowing by exchanging some of its debt for equity, according to two people with knowledge of the matter. The bondholders, in return, would have been allowed to exchange the rest of their holdings for higher-ranking securities that would put them in the driver’s seat should Samson have to restructure in the future. This plan did not propose a bankruptcy filing. Samson will join at least 10 companies in the sector to file for Chapter 11 this year. The oil plunge has already sent Hercules Offshore Inc., Sabine Oil & Gas Corp. and Quicksilver Resources Inc. to bankruptcy court.
US crude oil prices hit lowest since 2009, eliminating thousands of jobs -- America’s oil boom is faltering, and with US crude oil prices hitting lows unseen since 2009 this week, experts believe the fall may continue taking thousands of jobs with it. Consumers may cheer the lower prices at the pump, but jobs are being lost in the energy industry across the world. In June, the Energy Information Administration said the US petroleum industry lost about 6.5% of its jobs from October to April, or about 35,000 of its 538,000 workers, citing US Bureau of Labor Statistics data. On Wednesday, Royal Dutch Shell said it would eliminate 6,500 jobs worldwide as the company tries to reduce costs because of the lower oil prices. Declines in oil and natural gas extraction and support employment tend to lag declines in crude oil prices, so given the recent return to lower prices, more job cuts could be on the way. Global stock markets have been rattled by the fall and continuing woes in China. The Dow Jones Industrial average hit a low for 2015 on Thursday and is expected to come under renewed pressure on Friday. “Globally there’s probably been approaching a quarter-million layoffs from the oil industry. And hundreds and billions in cancelled projects,” said Walter Zimmermann Jr, vice president and chief technical analyst at United-ICAP. “Houston is getting hit especially hard. You go to Houston and nobody talks about the economic benefit of lower oil prices. And certainly no one is talking about that in the Bakken Field [North Dakota].” So far, he added, the impact on consumers is limited. “The problem is when people think of consumers saving a few pennies at the pump, they’re not going to take that money and buy a new house or a new car or send their child to college. They’re probably going to buy extra socks and potatoes,” Zimmermann said.
For Oil Producers Cash Is King, and That's Why They Just Can't Stop Drilling - Investors sent a surprising message to U.S. shale producers as crude fell almost 20 percent in August: keep calm and drill on. While most oil stocks have fallen sharply this month, the least affected by the slump share one thing in common: they don’t plan to slow down, even though a glut of supply is forcing prices down. Cimarex Energy Co. jumped more than 8 percent in two days after executives said Aug. 5 that their rig count would more than double next year. Pioneer Natural Resources Co. rallied for three days when it disclosed a similar increase. Shareholders continue to favor growth over returns, helping explain why companies that form the engine of U.S. oil -- the frackers behind the boom -- aren’t slowing down enough to rebalance the market. U.S. production has remained high, frustrating OPEC’s strategy of maintaining market share and enlarging a glut that has pushed oil below $40 a barrel. “These companies have always been rewarded for growth,” “the balance sheets of this sector are so challenged that investors are going to have to look at other factors,” he said. Output from 58 shale producers rose 19 percent in the past year, according to data compiled by Bloomberg. Despite cutting spending by $21.7 billion, the group pumped 4 percent more in the second quarter than in the last three months of 2014. That’s buoyed overall U.S. output, which has only drifted lower after peaking at a four-decade high in June. The government estimates production will slide 8 percent from the second quarter of this year to the third quarter of 2016. Growth has been a key pillar of the revolution that helped transform the U.S. into the world’s largest producer of oil and gas. Frenzied drilling often distinguished the new technology’s winners, while profits or free cash flow were less important. Even amid the worst price crash in a generation, that continues to be true for some companies.
Oil Industry Needs to Find Half a Trillion Dollars to Survive -- At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it. The number of oil and gas company bonds with yields of 10 percent or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades. If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood, a partner for oil mergers and acquisitions at Norton Rose Fulbright LLP in London. “The look and shape of the oil industry would likely change over the next five to 10 years as companies emerge from this,” Wood said. “If oil prices stay at these levels, the number of bankruptcies and distress deals will undoubtedly increase.” Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent. < In the U.S., the number of bonds yielding greater than 10 percent has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. Twenty-six European oil companies have bonds in that category, including Gulf Keystone Petroleum Ltd. and EnQuest Plc.
The Scariest Number For The Oil Industry: $550 Billion -- Just over half a trillion dollars: that's how much cash oil industry companies will need to repay in maturing debt over the next 5 years. Specifically, according to BMI Research cited by Bloomberg, there is $72 billion in oil-related debt maturing this year, $85 billion in 2016 and $129 billion in 2017, and a total of $550 billion in bonds and loans through 2020. This is a problem because while paying annual interest is one thing and easily manageable, rolling over debt when it is yielding over 10% - as is the case for over 168 global companies, or triple last year's number - is virtually impossible. It is an even bigger problem when considering the recent surge in energy company net debt/EBITDA (shown below in red) which has recently hit an all time high, surpassing the oil sector crisis of 1999, dragging energy sector credit risk and spreads with it to all time highs. In fact, unless oil soars higher and miraculously concludes a second dead cat bounce, there will be hundreds of companies which are simply unable to refinance, and have no choice but to default. Considering that 20% of total debt due in 2015 belongs to US drillers (with Chinese companies coming in second with 12%), what was until last week perceived a junk bond crisis, and has been largely forgotten this week following the artificial, central-bank inspired price-action euphoria when in reality absolutely nothing has changed on the cash flow scene, expect the hangover of the post month-end window dressing orgy to come down like a ton of bricks. The reason: fundamentals continue to go from bad to worse, and its not just the fwd P/E chart we won't tire of showing...... as Bloomberg adds, some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available.
Lifting of oil-export ban urged - New Mexico oil-industry leaders urged the federal government on Tuesday to lift its four-decade-old ban on oil exports at a forum at Albuquerque’s Crowne Plaza Hotel. A five-member panel, organized by the New Mexico Association for Commerce and Industry, discussed the impact of plummeting oil prices on local industry and the need for producers to gain access to international markets to sustain production and jobs in the state’s two oil-and-gas basins in northwestern and southeastern New Mexico. The federal government has prohibited crude-oil exports by domestic producers since the 1970s to ensure adequate national supplies in the face of shortages from an Arab oil embargo that decade that caused gas rationing and huge bottlenecks at pumping stations. But the ban is no longer needed in today’s world, given the huge surge in U.S. production thanks to modern drilling technologies, panelists said, and is instead harming the local and national economies. “In Hobbs, we produce a good, and we want it treated like any other good to reach international markets,” said Hobbs Chamber of Commerce President and CEO Grant Taylor. “We thought Congress would lift the ban in 2015, but we’re now two-thirds of the way through the year, the clock is ticking, and the urgency is mounting.” About 1,000 rigs have been idled nationwide since last year, said Craig Mayberry, a manager with Process Equipment Service Co. in Farmington. About 244 jobs are directly connected to each rig, meaning more than 200,000 people have been laid off in oil-producing regions around the country.
Boehner: Oil export ban thwarts success - (UPI) -- U.S. House Speaker John Boehner wrote in a Pennsylvania newspaper the nation's oil sector is headed for a "brick wall" in the form of a crude oil export ban."For all its success, this energy boom is currently running into a brick wall in the form of ... federal government policies that date back to the 1970s," Boehner wrote in the (Pittsburgh) News-Tribune-Review.Boehner, his Republican colleagues, led by Sen. Lisa Murkowski, R-Alaska, and some Democrats, notably Sen. Heidi Heitkamp, D-N.D., have moved several pieces of legislation aimed at overturning the 1970s ban on the export of domestic crude oil.The ban was enacted after Arab members of the Organization of Petroleum Exporting Countries stopped exporting oil to the United States in response to U.S. policies on Israel.Last year, the U.S. Bureau of Industry and Security, a division of the Commerce Department, authorized two U.S. companies, Pioneer Natural Resources and Enterprise Products Partners, to ship an ultra-light form of oil called condensate from the U.S. market. Processing steps mean condensate doesn't qualify as crude oil under the terms of U.S. law.In early August, the Commerce Department granted a request from Mexican energy company Petroleos Mexicanos, known also as Pemex, to swap as much as 100,000 barrels of U.S. crude oil per day for Mexican refining. The deal forbids the re-export to other nations. In Pennsylvania, Boehner said the oil sector has supported a wage increase of nearly 79 percent. Supporters of lifting the ban say those benefits could spread nation-wide. Meanwhile, overseas leverage would increase if U.S. oil pushed aside supplies sources from adversaries Russia and, eventually, Iran.
Lessons from the oil market’s “lost decade” – Saudi Arabia and its OPEC allies are counting on strong growth in demand coupled with slower growth in non-OPEC supply to rebalance the oil market in 2016. But the experience of the “lost decade” after prices slumped in 1986 suggests rebalancing could take longer than some OPEC members and market analysts expect. Following the price slump in 1985/86, the oil market struggled with persistent surpluses for much of the next 17 years. In real terms, oil prices did not rise above the 1986 crisis level on a sustained basis until 2003. Lower prices led to consistent strong growth in oil consumption after 1986, reversing the decline in demand that had occurred in the first half of the 1980s. Non-OPEC supplies were flat between 1985 and 1989, as lower prices halted the exploration and production boom that had caused non-OPEC production to surge since 1976. But non-OPEC oil supplies did not fall, disappointing expectations of some oil ministers that lower production outside the organization would make way for increased production by its members.From 1991 onwards, non-OPEC began growing rapidly again, and generally kept pace with the growth in the organization’s output until 2003. OPEC’s own output grew strongly after 1986 even though prices failed to rise. Real prices were essentially unchanged between 1986 and 1997 while the organization’s output rose from 18.5 million barrels per day to 29.5 million bpd. Saudi Arabia, Iraq, Iran, Kuwait and the United Arab Emirates all boosted production and invested in extra capacity in pursuit of a higher share of the oil market. It was not until the early 2000s, almost two decades later, that falling non-OPEC supplies and surging fuel demand from China and the rest of East Asia, resulted in sustained price increases.
Cheap Oil and Global Growth -- Violent swings in oil prices are destabilizing economies and financial markets worldwide. When the oil price halved last year, from $110 to $55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks – to lows last seen in the immediate aftermath of the 2008 global financial crisis – and how will it affect the world economy? The standard explanation is weak Chinese demand, with the oil-price collapse widely regarded as a portent of recession, either in China or for the entire global economy. But this is almost certainly wrong, even though it seems to be confirmed by the tight correlation between oil and equity markets, which have fallen to their lowest levels since 2009 not only in China, but also in Europe and most emerging economies. The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: Falling oil prices have never correctly predicted an economic downturn. On all recent occasions when the price of oil was halved – 1982-1983, 1985-1986, 1992-1993, 1997-1998, and 2001-2002 – faster global growth followed. Conversely, every global recession in the past 50 years has been preceded by a sharp increase in oil prices. Most recently, the price of oil almost tripled, from $50 to $140, in the year leading up to the 2008 crash; it then plunged to $40 in the six months immediately before the economic recovery that started in April 2009.
WTI Crude Jumps After 'Another Huge Surprise' API Inventory Draw -- In a deja-vu-all-over-again echo of last week, API reported a huge 7.3 million barrel drawdown in oil inventories this week (against expectations of a build) and sparked a headline-driven jerk higher in crude prices. Last week the same happened and the next day DOE reported a huge build (consensus for tomorrow is a 345k draw), crushing oil prices... Trade Accordingly... Biggest inventory draw sicne July 2014... The reaction is clear (for now)... but remember last week we saw same and it faded fast...
Crude Oil Price Dips After Inventory Shows Big Decline - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 5.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 450.8 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Tuesday evening, the American Petroleum Institute (API) reported that crude inventories fell by a whopping 7.3 million barrels in the week ending August 21. For the same period, analysts surveyed by Platts had estimated an increase of 1.9 million barrels in crude inventories. Total gasoline inventories increased by 1.7 million barrels last week, according to the EIA, and remain in the middle of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged 9.6 million barrels a day for the past four weeks, up by 5.8% compared with the same period a year ago. Crude oil has gotten pounded over the past week, dropping to below $40 a barrel for the first time in more than six years. And even though prices are low and falling, production in the Bakken shale play in North Dakota and Montana and in the Eagle Ford play in south Texas continues to rise. According Bentek, July production in the Eagle Ford totaled 1.6 million barrels a day, up about 10,000 barrels a day compared with June and about 250,000 barrels a day higher than in July 2014. In North Dakota, Bakken production rose by about 500 barrels a day to 1.2 million barrels, up about 90,000 barrels a day compared with July 2014.
U.S. fuel stocks rise, driving prices lower despite big crude draw - – U.S. crude oil stockpiles fell sharply last week as imports tumbled, while gasoline and distillate inventories rose despite a reduction in refinery runs, data from the Energy Information Administration showed on Wednesday. Crude inventories fell 5.5 million barrels in the week to Aug. 21, the biggest one-week decline since early June and counter to analysts’ expectations for an increase of 1 million barrels. U.S. crude imports fell last week by 740,000 barrels per day. Despite the unexpected fall in crude stocks, which was in line with the industry group the American Petroleum Institute’s report late on Tuesday, oil prices whipped lower following the data. U.S. crude fell more than 1 percent to below $39 a barrel, nearing the 6-1/2-year lows touched earlier this week, and New York gasoline futures tumbled down more than 4 percent at one point as traders focused on rising fuel supplies, a worrying sign for U.S. demand. “The products builds are overwhelming the constructive crude draw,” Gasoline stocks rose 1.7 million barrels, compared with forecasts for a 1.3 million-barrel drop. Gasoline prices spiked earlier this month after the refinery disruptions, although nationwide inventories remain in line or slightly above seasonal norms. Some analysts also said the decline in crude stocks may have been an aberration driven by a brief dip in imports. Most are bracing for a sustained rise in stocks over the coming months as U.S. refiners shut for seasonal work.
Crude Plunges Despite DOE Confirming Major Inventory Draw But Production Slows Only Modestly -- Following last night's huge drawdown in inventories, according to API, The DOE data shows a huge 5.45mm bbl draw (against expectations of a 3.7mm bbl draw). This is the biggest draw since early June and 2nd biggest draw in 13 months. WTI crude's reaction was an initial surge to test API-spike highs but then weakness ensued as Production data showed a 3rd weekly drop in a row (4th of last 5 weeks) but of lesser magnitude. Crude inventory tumbled... And Production continues to slow... though only modestly… The reaction for now... Surge and purge... Charts: Bloomberg
Oil soars over 10 percent, biggest gain in six years as shorts scramble – Oil rocketed more than 10 percent higher on Thursday, posting its biggest one-day rally in over six years as recovering equity markets and news of diminished crude supplies set off a short-covering scramble by bearish traders. Snapping back from a deep two-month slump that knocked U.S. crude to 6-1/2 year lows below $40 this week, oil climbed as world stock markets rose on hopes Chinese government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased. The rally was aided by news of a force majeure on Nigerian oil exports declared by Shell (RDSa.L) and private data indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said. A big upward revision in second quarter U.S. economic growth helped. Front month Brent crude LCOc1 for October more than reversed a week’s worth of losses, rising $4.42 to settle at $47.56 a barrel, marking a 10.25 percent rise. Gains accelerated toward the close, locking in the biggest one-day jump since late 2008, when prices were bouncing back after the financial crisis. The contract traded on Monday at a March 2009 low of $42.23. “Whenever you have a short-covering rally in a bear market they’re always violent. I wouldn’t be surprised to see it continue another day or two,”
U.S. Oil-Rig Count Rises for Sixth Consecutive Week - WSJ: The U.S. oil-rig count ticked up by one in the latest week to 675, marking the sixth consecutive week of increases, according to Baker Hughes Inc. BHI 1.80 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, has fallen sharply since oil prices headed south last year. The rig count dropped for 29 straight weeks before climbing modestly in recent weeks. Oil prices were up 6.9% to $45.49 following the report, as a surprise one-day rally extended to a second day. Oil prices surged Thursday as traders who had bet on lower prices closed out those positions following positive U.S. economic data, news that some Nigerian exports would be halted and a report that Venezuela wanted an emergency meeting of the Organization of the Petroleum Exporting Countries to respond to low prices. The rally comes after concerns about China’s economy, coupled with persistently high oil output from the U.S. and OPEC, the 12-nation oil cartel, has soured investor sentiment recently. Despite recent increases, there are still about 58% fewer rigs working since a peak of 1,609 in October. According to Baker Hughes, gas rigs fell by nine from the prior week to 202. The U.S. offshore rig count fell to 30 in the latest week, down two from last week and 36 a year earlier. For all rigs, including natural gas, the week’s total was down eight to 877.
Drillers added just one oil rig this week - Fuel Fix: — U.S. producers put one oil rig back to work this week, as the number of active oil rigs continued a six-week streak of meager increases. The Baker Hughes rig count, considered a proxy for oil field activity, showed rigs drilling for oil increasing from 674 last week to 675 this week. Over the past six weeks, the number of active oil rigs has risen by 37, though only five have been added in the past four weeks. The oil rig count is down significantly from last October’s high of 1,609. The number of rigs drilling for natural gas fell by nine to 202 this week. Miscellaneous remained at nil, and the combined rig count fell by eight rigs to 877. The rig count began falling in late 2014 as oil prices collapsed amid an oversupply of oil. Drillers found a brief respite at $60 per barrel crude and in May and June and began putting rigs back to work — sending the oil rig count up from a low of 628 in late June. But the pace of the increase has stalled in recent weeks as the price of crude has started falling once again. Though the count continues to rise, the last four weeks have shown gains of two or fewer rigs. Oil production, meanwhile, has remained stubbornly high thanks to lower drilling costs and more efficient production. The Energy Information Administration estimated that domestic oil production declined by just 100,000 barrels per day in July compared with June. Oil prices were up for a second straight day in early New York Mercantile Exchange trading on Friday. Benchmark U.S. oil rose $2.77 or 6.5 percent to $45.33 per barrel.
U.S. crude up 6 percent in second day of short-covering frenzy | Reuters: U.S. crude jumped 6 percent on Friday as a rally in gasoline prices and air raids in Yemen prompted traders to scramble for a second day to cover short positions, while market players also kept an eye on a storm that appeared to be approaching the oil-rich U.S. Gulf. U.S. crude has gained about 16 percent over two sessions, headed for its first weekly rise since mid-June. If the day's gains stick, it would be the second largest two-day rise in 25 years. "A severely oversold and shorted oil market is creating a bid for covering in U.S. crude," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. U.S. crude's front-month CLc1 was up $2.60, or 6.1 percent, at $45.16 a barrel by 11:38 a.m. EDT. It showed a near 12 percent gain on the week. Brent, the global benchmark LCOc1, rose $2.44, or 2.5 percent, to $50 a barrel. It gained 10 percent on the week. Gasoline RBc1 prices surged about 5 percent on the day after Phillips 66 (PSX.N) unexpectedly shut down a 150,000-barrel-per-day fluid catalytic cracker at its 238,000 bpd refinery in Linden, New Jersey, due to a leak. In Yemen, warplanes from a Saudi-led coalition killed 10 people in air raids on Friday, local officials said.
Oil prices surge in short-covering rally: Kemp – Front-month Brent crude futures surged more than 10 percent higher yesterday, one of the largest daily percentage movements on record, as traders raced to cover short positions. U.S. crude futures rose almost as much, with the October contract ending the day up by more than 9 percent. Various fundamentals have been cited as the trigger for the rally, including the rebound in global stock markets and the declaration of force majeure on some Nigerian crude exports. But whatever the initial cause, the main impetus driving the market higher was short-covering of futures and options. A bout of short covering had been expected at some point given the concentration of bearish bets on oil prices over the last two months. Since mid-June, hedge funds have accumulated one of the biggest short positions in U.S. crude on record, equivalent to almost 160 million barrels of oil, up from less than 60 million, according to data from the U.S. Commodity Futures Trading Commission. With so many speculators betting on a further decline in prices, the bearish trade had become crowded and vulnerable to any shift in sentiment that triggered a rush for the exit. But the scale of the one-day move was still unusual. The one-day jump in Brent was more than four standard deviations away from the meanand has only been exceeded on seven days in the last quarter of a century.
Oil extends short-covering frenzy to second day, topping $50 | Reuters: World oil prices roared back to $50 a barrel in the second day of a frenetic short-covering rally on Friday, with violence in Yemen, a storm in the Gulf and refinery outages helping extend the biggest two-day rally in six years. Oil had tumbled in tandem with stocks over much of the past week, hitting 6-1/2-year lows below $40 a barrel as Chinese financial tumult stoked fears of slowing growth. Oil rallied on Thursday as equities rebounded, but on Friday oil kept pushing higher even as equity markets were calm. Dealers said a handful of emerging risks fed oil's gains. Warplanes from a Saudi-led coalition killed 10 people in air raids over Yemen; Tropical Storm Erika moved closer to Florida, prompting worries about oil and gas installations in the U.S. Gulf. Brent, the global oil benchmark LCOc1, closed up $2.49, or 5 percent, at $50.05, after nearly reaching $51 a barrel. It gained 10 percent on the week. U.S. crude's front-month contract snapped an eight-week losing streak, rising $2.66, or 6.3 percent, to settle at $45.22 a barrel. At its session high, it was up more than $3, or 7 percent at nearly $46. For the week, it rose 12 percent. "A severely oversold and shorted oil market is creating a bid for covering,"
Oil markets catch breath after biggest gains in six years – Crude oil futures were largely steady on Friday after posting their biggest one-day rally in over six years the day before led by recovering equity markets and news of diminished crude supplies. Stock markets around the world rallied on Thursday, shaking off a slump related to China growth fears, as strong U.S. economic data boosted investor sentiment, and the dollar advanced for a third consecutive session. Front-month October Brent crude had dipped 20 cents to $47.36 per barrel as of 0046 GMT. It settled $4.42 higher at $47.56 per barrel in the previous session. U.S. crude edged down 3 cents to $42.53 per barrel, after ending up $3.96, or 10.3 percent, at $42.56 per barrel, its biggest one-day percentage gain since March 2009. “A short covering rally, led by crude oil pushed commodities higher across the board. Better than expected U.S. GDP numbers was the main spark, although the force majeure on BP’s exports from Nigeria extended the gains,” ANZ said in a note on Friday morning.
The Continuing Problem with Oil Inventories -- A recent "Today in Energy" posting by the U.S. Energy Information Administration very succinctly explains the reason why oil prices have dropped over the past year and why it is unlikely that the oil market fundamentals will change any time soon. Here is a graphic showing global inventory levels for oil and petroleum liquids in millions of barrels per day since January 2008 along with the price of Brent crude: As you can see on the dark brown bars, oil inventory has been steadily positive since August 2014. This tells us that global production of both oil and hydrocarbon liquids has outpaced the growth in consumption. In fact, for the first seven months of 2015, total global liquids inventories have grown by an average of 2.3 million barrels per day, the highest level since 1998 when oil prices collapsed as shown on this chart: The EIA provides the following data for 2014 and 2015: 2014 Global petroleum liquids consumption growth: 1.1 million BOPD. Global petroleum liquids production growth: 2.3 million BOPD Average global consumption rate: 92.4 million BOPD 2015 (to the end of July 2015) Global petroleum liquids consumption growth: 1.2 million BOPD. Global petroleum liquids production growth: 2.9 million BOPD. Average global consumption rate: 93.3 million BOPD. Here is a graphic showing the same data along with a graphical representation of the buildup in global petroleum liquids inventory: The sources of petroleum liquids supply have changed. In 2014, global liquids production growth was from countries outside of OPEC, including the United States, with OPEC production levels actually dropping. In 2015, increased production levels of petroleum liquids has come from both OPEC nations (up 0.9 million BOPD in 2015) and non-OPEC nations (up 2.0 million BOPD in 2015). Since global liquids inventories started to build in August 2014, there has been a significant change in the difference between futures prices and near-term petroleum liquids contracts, increasing from nearly zero in 2014 to between $5 and $10 per barrel. This reflects the increased cost of growing storage needs and the increased supply of oil.
Consortium picked to build oil shale plant 'might not secure financing' - Stakeholders in Jordan’s first shale oil-fuelled power plant are facing difficulties securing finance for the project and may seek an extension of the deadline for financial closure, according to a partner in the project. They have until October 1 to secure finance for the $2.2 billion, 470 megawatt (MW) project, while they are facing difficulties at this stage with many entities refusing to finance the project, said Mohammad Maaitah, project partner of Attarat Power Company (APCO). The company a wholly owned subsidiary of Enefit Jordan BV, owned by Enefit (Estonia’s Eesti Energia AS), Malaysia’s YTL Power International Berhad and Jordan’s Near East Investments Limited. “It is unfortunate that many international and regional financing entities have not shown interest in financing this strategic and vital project for Jordan that will help it address one of its main major challenges posed by the bloating energy bill,” said Maaitah in a recent interview with The Jordan Times. “Many agencies including the International Finance Corporation, the European Bank for Reconstruction and Development and the Islamic Development Bank, among others either, have rejected or showed no interest in financing the project, which is likely to create 3,000 direct jobs during the construction phase and 700 jobs for ongoing operations,” said Maaitah. He added that the consortium of companies that owns the power plant may seek an extension for two more months to to be ready for the financial closure for the scheme.
Mideast Stocks Extend Decline Led by Saudi Arabia as Oil Sinks -- Middle Eastern stocks extended their decline amid a global rout and as Brent crude fell below $45 per barrel for the first time since 2009. Saudi Arabia’s Tadawul All Share Index, which entered a bear market on Sunday, led the drop after it fell 5.9 percent at the close in Riyadh to the lowest level since March 2013. Dubai’s DFM General Index closed less than 20 points away from the threshold for a bear market and Israel’s TA-25 Index dropped for a fourth day. Brent sank 4.4 percent to $43.46 per barrel at 3:25 p.m. in London. The MSCI World Index slid for a fifth day to the lowest level since October 2014. Global equities have lost more than $5 trillion in value since China’s shock currency devaluation on Aug. 11, with U.S. shares succumbing to the selloff at the end of last week. The slide in Brent to the lowest in more than six years is piling pressure on Gulf states, which rely on oil income to fund government spending. The six-nation Gulf Cooperation Council is home to about 30 percent of the world’s proven crude reserves. “Oil just can’t stop sliding and local investors are very worried about where the bottom is and how long regional economies can take the battering,” “With China’s currency devaluation and concerns of a global economic slowdown, equities as an asset class are just too risky at the moment and no wonder regional indexes are entering bear territory.”
Oil Surges After Saudi Troops Invade Yemen - For the 3rd day in a row, crude oil prices are spiking as the short squeeze morphs into a war premium. Heberler reports that Saudi ground troops have entered Northern Yemen and seized control of two areas in the Saada province. WTI is now above $44... As Haberler reports, forces seize control of two areas in Yemen’s Saada province. Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said. This is Saudi Arabia's first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions. The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan. "Saudi ground forces seized control of two areas in Saada province and intend to advance toward Houthi positions," sources said. Yemen descended into chaos last September, when the Houthis overran capital Sanaa and other provinces, prompting Saudi Arabia and its Arab allies to launch a massive air campaign against the Shia group. Pro-Hadi forces – backed by Saudi-led air power – have managed recently to retake Aden and Taiz from the Houthis.
Saudi Arabia Faces Another "Very Scary Moment" As Economy, FX Regime Face Crude Reality -- "They are working for their market share, not for the price," Kazakh Prime Minister Karim Massimov told Bloomberg on Saturday, during the same interview in which he predicted that sooner or later, dollar pegs in Saudi Arabia and the UAE would have to be abandoned. The Saudis are essentially betting that their FX reserves all large enough to allow the Kingdom to ride out the self inflicted pain from persistently low crude prices on the way to bankrupting the US shale space. But the battle for market share comes at a cost, especially when ultra easy monetary policy in the US has served to kept capital markets open to heavily indebted drillers, allowing otherwise insolvent producers to remain in business longer than they otherwise would. It is, as we’ve noted before, a fight between the Saudis and the Fed. In the midst of it all, the petrodollar has died a rather swift if quiet death and as we documented on Saturday, the demise of the system that has served to underwrite decades of dollar dominance has left emerging markets in no position to defend themselves in the face of China’s move to devalue the yuan. With Kazakhstan’s decision to float the tenge, we are beginning to see the post-petrodollar world (or, the "new era" as Karim Massimov calls it) take shape. Here’s Bloomberg on why the current situation mirrors a "very scary moment" in Saudi Arabia’s history. The oil price was near its lowest in more than a decade, cash reserves were being depleted, emerging markets were in turmoil and Saudi Arabia was beginning to panic. “And luckily at that point, oil prices started going up. Not by design, by good luck.” That was 1998, and now Saudi Arabia’s fortunes threaten to turn again. This time, luck might not be enough as the government tries to protect the wealth of a nation whose economy has swelled by five times since then. The bastion of conservative Sunni Islam also is paying for an expanding role in regional conflicts in the face of a resurgent Iranand Islamic State extremists who have bombed Saudi mosques.
Something Is Very Wrong In Saudi Arabia... Ever since Kazakhstan stormed onto the radar of market participants who, prior to last week, didn’t know the country existed, the world has awoken to the fact that a sharp and persistent decline in oil, that most financialized of commodities, comes with very real and far-reaching consequences. For producers, crude’s slide strains budgets and pressures FX reserves and as we documented at length on Sunday in "Saudi Arabia Faces Another 'Very Scary Moment' As Economy, FX Regime Face Crude Reality," nowhere is this more apparent than in Saudi Arabia where the country faces a fiscal deficit on the order of 20% and the first current account deficit in a decade. The situation has some betting that Saudi Arabia will not be willing (or able) to retain the riyal’s peg to the dollar and as you can see from the 12-month forwards, it might be time for sellside FX strategists to reconsider their position that the currency regime isn’t likely to change anytime soon.
Why It Really All Comes Down To The Death Of The Petrodollar -- Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge. The currency immediately plunged by some 25%. The rationale behind the move was clear enough. The plunge in crude prices along with the relative weakness of the Russian ruble had severely strained Kazakhstan, which is central Asia’s largest crude exporter. As a quick look at a chart of the tenge’s effective exchange rate makes clear, the pressure had been mounting for quite a while and when China devalued the yuan earlier this month, the outlook for trade competitiveness worsened. What might not be as clear (on the surface anyway) is how recent events in developing economy FX markets following the devaluation of the yuan stem from a seismic shift we began discussing late last year - namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order. In short, the world seems to have underestimated how structurally important collapsing crude prices are to global finance. For years, producers funneled their dollar proceeds into USD assets providing a perpetual source of liquidity, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop. That all came to an abrupt, if quiet end last year when a confluence of economic (e.g. shale production) and geopolitical (e.g. squeeze the Russians) factors led the Saudis to, as we put it, Plaxico themselves and the US. The ensuing plunge in crude meant that suddenly, the flow of petrodollars was set to dry up and FX reserves across commodity producing countries were poised to come under increased pressure. For the first time in decades, exported petrodollar capital turned negative.
Saudi Arabia Is Seeking Advice on Cutting Billions From Its Budget in the Wake of the Oil Crash - Saudi Arabia is seeking advice on how to cut billions of dollars from next year’s budget because of the slump in crude prices, according to two people familiar with the matter. The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money, the people said, asking not to be identified as the information is private. The government is in the early stages of the review and could look at cutting investment spending, estimated to be about 382 billion riyals ($102 billion) this year, by about 10 percent or more, the people said. Current spending on areas such as public sector salaries wouldn’t be affected, the people said. The Arab world’s largest economy is expected to post a budget deficit of almost 20 percent of gross domestic product this year, according to the International Monetary Fund. With income from oil accounting for about 90 percent of revenue, a more than 50 percent drop in prices in the past 12 months has put pressure on the nation’s finances. The country has raised at least 35 billion riyals from local bond markets this year, the first time it has issued securities with a maturity of over 12 months since 2007.
Gulf bonds partly lose safe-haven status in cheap oil era (Reuters) - International bonds from the Gulf's wealthy energy-exporting countries are losing some of their safe-haven status as an era of low oil prices looms. For several years, bonds from the six-nation Gulf Cooperation Council appeared almost immune to global instability, handily outperforming debt from other emerging markets. Unlike most of the world, GCC governments enjoyed big budget surpluses that let them spend their way out of trouble. Current account surpluses and currency pegs to the U.S. dollar protected the GCC from currency devaluation jitters elsewhere. But as oil hits new six-year lows, most of those surpluses have vanished. A Reuters poll last week found economists expect all GCC states to post fiscal deficits this year, and half of them to post current account deficits. So investors are starting to re-examine their assumptions about the Gulf, and during the last two weeks of global market turmoil, GCC bonds have not escaped a general emerging markets sell-off.
Saudi foreign reserves fall slows in July after bond sale (Reuters) - The speed of decline in Saudi Arabia's foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday. The world's largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom's sovereign wealth fund, have been sliding since they reached a $737 billion peak last August. But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year. In July, the government began selling bonds for the first time since 2007, placing 15 billion riyals ($4 billion) of debt with quasi-sovereign funds; this month it sold 20 billion riyals of bonds to banks. The domestic debt sales appear to have reduced the need for the government to cover its deficit by drawing down foreign assets. Authorities have not publicly said how many bonds they will issue in future, but the market is expecting monthly issues of roughly 20 billion riyals through the end of 2015. The foreign assets are held mainly in the form of foreign securities such as U.S. Treasury bonds - securities totalled $465.8 billion at the end of July - and deposits with banks abroad, which totalled $131.2 billion. The vast majority of the assets are believed to be in U.S. dollars.
Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude -- On Friday we explained why the most important chart in global finance may well be the combined FX reserves of Saudi Arabia and China plotted against the yield on the 10Y. Here’s the reason that graphic is so critical: Saudi Arabia and China are sitting on the first and third largest stores of reserves, respectively, and if these two countries continue to liquidate those reserves, it will amount to “reverse QE” or, "quantitative tightening" as Deutsche Bank calls it. The attendant decline in oil revenue has resulted in a fiscal deficit on the order of 20% of GDP which, in the absence of sharply higher oil prices must either be financed by drawing down reserves or else through the bond market because between the war in Yemen (which escalated meaningfully on Thursday) and the necessity of maintaining the status quo for a populace that’s become used to a certain level of stability and comfort, fiscal retrenchment is a decisively difficult task. Here’s more from BofAML on how long the Saudis can hold out under various price points for crude and assuming various mixes of debt financing and spending cuts:Safeguarding Fx reserves will require deep budgetary cuts at current oil prices, in our view. Our dynamic analysis suggested that current low oil prices could rapidly erode the sovereign creditworthiness, even as the sovereign balance sheet is at its strongest on an historical basis. Despite the rapid drawdown over 1H15, SAMA’s Fx reserves still stood at c100% of GDP in June, and government deposits at SAMA represented US$294bn or 42% of GDP. Another way to look at sustainability is a static analysis to calculate the number of years required to exhaust government deposits under various oil, spending and financing scenarios. Based on the narrow definition of resources available to the government, we think that there is no realistic mix of debt financing and spending cuts at US$30/bbl that can decrease pressure on Fx reserves, and pressure on the USD peg would be acute if oil prices were to be sustained at this level.However, at US$40/bbl and US$50/bbl, debt financing and deep capex cuts (to bring spending 25% lower) can keep government deposits at SAMA covering 7 years and 11 years of government spending, respectively. Government spending has historically adjusted to oil prices with a variable lag. It is worth recalling that spending was 50% lower in 1988 compared to its 1981 peak as oil prices tumbled, and government spending in 2000 was at the same levels as that of 1980 in nominal terms.
Saudi Arabia Paying American Lobbyists To Spread Anti-Iran Propaganda -- Though the Saudi Arabian government publicly declared its tentative support for the widely-praised Iran nuclear deal last month, new reports reveal it is secretly funding propaganda efforts to undermine it. A new group called the American Security Initiative has spent over $6 million on advertisements criticizing the deal — using money supplied by the Saudi monarchy. The president of the American Security Initiative Norm Coleman is a former Republican senator who now runs the lobbying firm, Hogan Lovells. He is a registered lobbyist for Saudi Arabia and his firm is on retainer for the Saudi monarchy at a rate of $60,000 per month. According to The Intercept, “In July 2014, Coleman described his work as ‘providing legal services to the Royal Embassy of Saudi Arabia’ on issues including ‘legal and policy developments involving Iran and limiting Iranian nuclear capability.’” Other founders of the American Security Initiative include former Senator Joe Lieberman ( a Democrat) and former Senator Saxby Chambliss (a Republican), who works at DLA Piper, yet another firm hired to lobby on behalf of the Saudi monarchy. Opposition to the deal enjoys bipartisan support. The lobbying effort has run commercials in nine states — Arizona, Colorado, Connecticut, Indiana, Maryland, Montana, North Dakota, Virginia, and West Virginia — and was initiated in partnership with a group called Veterans Against the Deal. One ad features a maimed Iraq War veteran who ominously warns that “Every politician who is involved in this will be held accountable. They will have blood on their hands.”
From Venezuela to Iraq to Russia, Oil Price Drops Raise Fears of Unrest - Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly turning into an ever-cheaper economic curse.A year ago, the international price per barrel of oil was about $103. By Monday, the price was about $42, roughly 6 percent lower than on Friday. In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government’s failure to provide reliable electricity and explain what has been done with all the promised petroleum money. In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency’s plummeting value. In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government’s economic policies. Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades.
Russian oil firms raise profits and output, spurred by rouble weakness Russian oil firms are increasing their rouble profits and raising production as a weak currency protects their business, which has turned into one of the world’s most profitable. Russia has kept its production, which includes gas condensate, near post-Soviet highs as its producers benefit from getting the bulk of their export revenues in dollars while most of their expenditure is in the domestic currency. On Friday, Bashneft, a medium-sized Russian oil producer, posted a 13 percent increase in second quarter net profit to 17.9 billion roubles ($272.7 million), following strong results by Gazprom Neft earlier this month. Bashneft, Russia’s fastest growing oil firm by output, saw its average oil production at 387,500 barrels per day (bpd) in the second quarter, up from 350,900 bpd the same period a year ago. Gazprom Neft, the oil arm of state gas producer Gazprom , had earlier reported a 47 percent increase in the second quarter net profit, also on the weak rouble, and its output jumped 25 percent. Net profit at Surgut was flat in the first half of the year at 135 billion roubles. “In our global energy universe, the Russian oils screen (rank) strongly versus global peers on most metrics: highest free cash flow yields, dividend yields, lowest leverage, and lowest sensitivity to changes in oil prices,” Goldman Sachs said in a report earlier this month.
From Russia to Iran, the consequences of the global oil bust -- While we have been watching the Islamic State and discussing Iran, something much bigger is happening in the world. We are witnessing a historic fall in the price of oil, down more than 50 percent in less than a year. When a similar drop happened in the 1980s, the Soviet Union collapsed. What will it mean now? Nick Butler, former head of strategy for BP, told me, “We are in for a longer and more sustained period of low oil prices than in the late 1980s.” Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years. Leonardo Maugeri, former head of strategy for the Italian energy giant Eni, says, “There is no way to stop this phenomenon.” He predicts that prices could actually drop to $35 per barrel next year, down from more than $105 last summer. A primary reason for the accelerated price decline is that Saudi Arabia, the world’s “swing supplier” — the one that can most easily increase or decrease production — has decided to keep pumping. The Saudis “know it hurts them but they hope it will hurt everyone else more,” says Maugeri, now at Harvard. One of Saudi Arabia’s main aims is to put U.S. producers of shale and tight oil out of business. So far, it has not worked. Though battered by plunging prices, U.S. firms have used technology and smart business practices to stay afloat. The imminent return of Iran’s oil — which markets are assuming will happen, but slowly — is another factor driving down prices. So is the increasing energy efficiency of cars and trucks.
Iran says an OPEC emergency meeting may stop oil price slide - – Iran’s Oil Minister, Bijan Zanganeh, said on Sunday that holding an emergency OPEC meeting may be “effective” in stabilizing the oil price, Iran’s oil ministry news agency Shana reported. Algeria said earlier this month that the Organization of Petroleum Exporting Countries could hold an emergency meeting to discuss the drop in oil prices but other OPEC delegates said no meeting was planned. “Iran endorses an emergency OPEC meeting and would not disagree with it,” Zanganeh told reporters in Tehran, according to Shana. U.S. oil prices fell below $40 a barrel on Friday for the first time since the 2009 financial crisis, pressured by signs of oversupply in the United States and weak Chinese manufacturing data.OPEC is not due to meet until Dec. 4. While OPEC rules say a simple majority of the 12 OPEC members is needed to call an emergency meeting before then, some OPEC delegates say a meeting is unlikely unless Saudi Arabia is in favor. Saudi Arabia, the world’s top oil exporter, and other Gulf states pushed OPEC’s strategy shift last year to defend market share rather than cut output to support prices.
Iran Prepared To Defend Old Market Share "At Any Cost" -- Iran’s oil minister says his country supports calls for an emergency OPEC meeting to explore ways to shore up the price of oil, but even without such an effort, Tehran is willing to regain its market share “at any cost.” Iran once was OPEC’s second-leading producer, after Saudi Arabia, but output has plunged since 2012, when international sanctions forbade any country or energy company to buy, ship, finance and insure its crude because of Tehran’s nuclear program. In 2011, Iran’s output was 3.7 million barrels per day. With the sanctions, production dropped to 1.2 million barrels per day. Iran and six world powers – Britain, China, France, Germany, Russia and the United States –reached an agreement in July on controlling that program and lifting the sanctions, probably by early 2016. Oil Minister Bijan Zanganeh has said repeatedly that his country can quickly boost production by more than 1 million barrels per day within a month after the sanctions are lifted. This could further depress the price of oil, which has dropped precipitously since summer 2014. Already there is a glut of oil, and OPEC members lately have been producing at near-record levels. The group already is exceeding its output cap of 30 million barrels a day by at least 1.5 million barrels per day. Once Iran returns to the market, the price probably will fall further. So be it, Zanganeh said in Tehran on Aug. 23. “We will be raising our oil production at any cost and we have no other alternative,” he was quoted by his ministry’s website, Shana. “If Iran’s oil production hike is not done promptly, we will be losing our market share permanently.”
Why Water Is More Important To Iran's Future Than Oil - Iran is working from a considerably weaker – and more arid – position than the United States. Though economic promise is on the horizon, the crippling effects of international sanctions still handicap the water-poor nation of 78 million. What’s worse, the current drought, which stretches back more than two decades, shows no signs of letting up. The World Resources Institute projects a 20 percent decrease in water supply across much of Iran toward 2040. Conversely, it sees demand rising by as much as 70 percent in that time. The future demand profile – still mostly agricultural with a controversial sprinkle of nuclear power generation – is of little consequence if the nation can’t source water. With reservoirs at 40 percent and several rivers running dry, Iran will have to get creative. In that regard, and with the pending normalization of international business relations, the water sector represents a prime growth engine for both Iran and outside investors. Few concrete deals of any kind have emerged as the Joint Comprehensive Plan of Action finds its footing, but wastewater and sewage treatment, pipeline construction, irrigation, desalinization, bottled water, and general efficiency are all spheres to watch as Iran makes its grand reentrance. Because it’s the water that will determine Iran’s future, and not it’s oil and gas (or nuclear).
OPEC is producing at a loss, Ecuador admits - Member nations with the Organization of Petroleum Exporting Countries (OPEC) are feeling the financial stress created by low oil prices and many, such as Equador, are now pumping oil at a loss. As reported by FuelFix, earlier this week Ecuador President Rafael Correa said that while production costs average about $39 per barrel, the country is fetching as little as $30 per barrel for its crude. The statement, which some might heed as a warning, comes after several OPEC members, including Algeria and Libya, called for an emergency meeting to address the drop in oil prices. In a speech, Correa said, “We are going through a very difficult year economically because the price of oil collapsed.” Following concerns regarding China’s financial sector, the persisting oil price slump and the growing supply glut, international benchmark Brent crude prices fell to a six-year low of less than $45 per barrel. According to OPEC, the average selling price for the group’s crude is $40.47. By output, Ecuador is OPEC’s second-smallest member with production levels of 538,000 barrels per day for last month. On Wednesday, the country’s crude blend sold for $36.32 compared to $43.21 for Brent crude, a higher quality blend. Other OPEC members are also fetching prices below the Brent benchmark due to the crude being a heavier weight or containing more sulfur. According to data compiled by Bloomberg, Saudi Arabia sells several grades of crude at prices from $37 to $39 per barrel to U.S. buyers, and Iraqi blends can sell for as low as $34 per barrel. According to the International Monetary Fund, both Algeria and Libya need about $120 per barrel to cover government spending plans, and Kuwait can make due with less than $50. Saudi Arabia, on the other hand, needs around $100 per barrel to balance its budget. However, the state finds some padding with minimal debt and foreign exchange reserves.
Without Saudi support, talk of OPEC emergency meeting is just noise – Once upon a time, talk of an emergency OPEC meeting would have rippled through oil markets, likely triggering at least a brief rally in prices. The last extraordinary meeting to discuss a price slump, in 2008, resulted in the Organization of the Petroleum Exporting Countries’ largest ever production cut, paving the way for prices to double within a year. Nowadays, however, calls for an unscheduled meeting to address spiraling prices are more a sign of growing friction within the group than a leading indicator of policy action. Although OPEC’s statutes say support from a simple majority of the 12 members can trigger an extraordinary meeting, none will occur without support from Saudi Arabia, which has yet to give its blessing, OPEC delegates say. With oil falling further, support is growing among non-Gulf members for action and even some Gulf officials are concerned about the latest drop in prices. But the top OPEC producer’s policymakers have remained publicly silent. Without the Saudis on board, even some OPEC members who are desperate to shore up prices say an abrupt public gathering is not the way to go and might only make matters worse. “The environment here is not to have any meeting without reaching unity in the position and measures of the majority at least,” said an OPEC delegate.
Oil plunges on China worry, pares losses in volatile trade - – Crude oil futures fell sharply to fresh 6-1/2-year lows on Monday, then pared losses in volatile trading as a dive in Chinese equities sparked more fears of drastically curbed oil consumption even as a supply glut pressures prices. A near 9-percent tumble in China shares roiled global markets and sent the Dow Jones Industrial Average down more than 1,000 points in early trading, before Wall Street pared losses. “China’s drop pushed everything lower and now we’ll see if the bounce by U.S. stocks after the early pull back can stop the slide,” said Phil Flynn, analyst at Price Futures Group in Chicago. Brent October crude was down $2.33 at $43.13 a barrel at 11:37 a.m. EDT (1537 GMT), after plunging to a contract low of $42.51, off 6.5 percent from Friday and the lowest front-month price since March 2009. Off 16 percent in August, Brent is heading for a fourth straight monthly loss. U.S. October crude was down $1.94 at $38.51, after falling to $37.75, off 6.7 percent from Friday and weakest front-month price since February 2009. U.S. crude is on pace for a 17 percent monthly loss posted its eighth consecutive weekly loss on Friday, the longest weekly losing streak since 1986.
Commodities strike six-year lows, set to enter new cycle -- Falling demand, rising production and faltering growth in the world's second-largest economy China have sent many major commodities plummeting to their lowest level since 2009, with some experts predicting the start of a new cycle. Oil prices this week dived to 6.5-year lows as commodities tumbled over concerns that China's slowing economy will curb demand for metals and other vital raw materials which have helped feed its astonishing growth over the past three decades. China's shock devaluation of the yuan two weeks ago stoked fears about its economic expansion, sparking a slump in world equities and sending commodities, as measured by the Bloomberg Commodity Index of 22 raw materials, to a 16-year-low on Monday. Base or industrial metals were among the hardest hit, with aluminium and copper striking six-year lows, while lead and zinc touched their lowest levels in more than five years. Copper prices had already collapsed late last week under the key barrier of $5,000 per tonne for the first time since 2009. "Investor sentiment towards commodities has rarely ?- if ever ?- been more negative. However, the recent sharp falls in prices can largely be seen as the continuation of trends in place since 2011. The main difference is that oil, previously an outlier, has caught up,"
Commodities Slump to 16-Year Low on Mining, Oil Stocks -- A measure of returns from commodities sank to its lowest since 1999 and shares in resource companies tumbled by the most since the financial crisis on concern that a slowing Chinese economy will exacerbate supply gluts. The Bloomberg Commodity Index of 22 raw materials from oil to metals lost 2.2 percent to end the day at 85.8531, the lowest closing since August 1999. Shares in miners and explorers including Glencore Plc, BHP Billiton Ltd. and Exxon Mobil Corp. tumbled while Brent crude fell below $45 a barrel for the first time since 2009. “Sentiment is extremely negative across the commodity complex,” “Markets are plagued by concerns of oversupply.” Raw materials are in retreat as supplies outstrip demand amid forecasts for the slowest Chinese growth since 1990. The largest user of energy, grains and metals was much weaker than anyone expected in the first half of the year, according to Ivan Glasenberg, head of Glencore, the world’s leading commodity trader. The Bloomberg Commodity Index is a measure of returns that takes into account the loss or gain from holding futures contracts as well as the performance of the underlying commodities. A separate gauge that only reflects the change in prices fell 2.2 percent to the lowest since 2009. “It’s being fueled by the large drop in the Chinese stock market today, which is making people nervous about the management of the Chinese economy, which has direct implications for commodities,”
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