Sunday, October 11, 2015

house votes to export oil, TPP trade deal finalized, oil inventories still growing, global rig counts, etc

although the full House passed a bill to remove 40-year-old U.S. ban on crude oil exports on Friday by a 261-159 count, with 26 Democrats joining the Republicans in favor of it, the most important news affecting the future of oil and gas fracking in the US this week was the early Monday morning finalization of the Trans Pacific Partnership by the US and 11 other Pacific region nations, ranging from Canada and Chile to Japan and Australia...admittedly, we were once somewhat hysterical about the passage of a bill overturning the export ban, and even started a petition against it, but Obama has since come out opposed to that congressional initiative, saying that such a decision is the prerogative of the Commerce Department, and on Wednesday, before the congressional vote, the White House issued a statement saying that bill would be vetoed should it reach Obama's desk...

so that leaves us with the trade agreements with the Pacific and Europe as the primary threats to unleash a major round of oil & gas exports overseas, and in so doing, reignite the dying fracking boom...the 12 countries who are signatories to the Trans Pacific Partnership supposedly represent 40% of the nominal global economy, although that widely quoted percentage is largely due to the inflated value of the US dollar, which makes our economy vis a vis the others appear larger than it is in real terms, and this agreement will mandate free trade in oil and gas with all of them, giving the signatories equal claim to our resources as our own citizens, and will supersede all domestic energy policy and protections currently in place (the extra-legal provisions of such treaties were endorsed by the Supreme Court last year)...according to the provisions of the trade promotion authority which was granted to the President earlier this year, Obama must wait at least 90 days before he can sign it and send it to Congress, which then has 30 days to sign it, and the full text of the agreement must be made public for at least 60 of those days...so we'll have at least 90 days to pass petitions against it back and forth among ourselves, pretending democracy, while the corporate interests will be quietly buying off the Senators and Congresscritters they need to get it passed....the treaty will become binding when 6 of the signatories, representing 85% of the GDP of the total, have ratified it, something that can't happen without the US, but which should be in place as soon as the US ratification process is complete...

with the completion of this trade deal, US oil prices saw their largest one week jump since 2009...after closing last week at $45.54 a barrel, oil prices rose quickly early in the week after the treaty announcement, to close Tuesday at $48.53 a barrel, and while they were back down to $47.81 on Wednesday on news of a production and inventory surge, they recovered to rise to $49.43 a barrel on Thursday, and briefly saw $50 a barrel on Friday before closing the week at $49.63, up nearly 9% for the week...meanwhile natural gas prices moved up every day this week, albeit at a more measured pace, rising from 2.45 per mmBTU last Friday and on Monday to $2.470 per mmBTU on at the close on Tuesday, $2.474 on Wednesday,  $2.498 on Thursday, finally closing the week at $2.502 per mmBTU on Friday...

This Week’s EIA Reports

as we mentioned, our oil output increased for the 2nd week of the past 3 weeks, despite the ongoing pullback in US oilfield activity that is now approaching a year in duration...and while there was a sizable decrease in the amount of oil we imported this week, their was an equally sizable drop in demand for that oil from refineries, and hence there was quite a bit of unused oil left over at week end, which led to another large jump in our stored oil inventories....

the EIA weekly data indicated that US field production of crude oil rose by 76,000 barrels a day, from 9,096,000 barrels per day during the week ending September 25th to 9,172,000 barrels per day during the week ending October 2nd, for the highest weekly output of domestic crude since August...that was more than 3.3% above our production rate of 8,875 ,000 barrels per day in the 1st week of October a year ago, and more than 66.3% higher than our 5,514,000 barrel per day production of early October five years ago,  but still about 4.6% below the modern record production of 9,610,000 barrels per day that was set in the first week of June this year ...

meanwhile, our crude oil imports, the other primary source of domestic supply, fell by 486,000 barrels per day from last week, and at 7,068,000 barrels per day during the week ending the 2nd was 8.4% below the import rate of the 1st week of October last year...checking the 4 week average of imports carried in the weekly Petroleum Status Report (62 pp pdf), we find that U.S. crude oil imports averaged 7.2 million barrels per day over the last 4 weeks, 3.3% below the same 4 weeks last year, so it appears imports may actually be falling again...but US refineries, hit with a wave of maintenance in the Midwest at the same time as they slow down seasonally, saw crude oil usage drop by more than 400,000 barrels per day, as their crude oil inputs averaged 15,559,000 barrels per day in the week ending October 2nd, down from 15,962,000 barrels per day in the prior week, as US refineries operated at 87.5% of their capacity last week, down from 89.8% the prior week and down from running at 96.1% of capacity just two months earlier...

so with the ongoing slowdown in our oil refining, we once again added oil to our storage depots this week, as our commercial crude oil inventories in storage rose to 460,997,000 barrels, up from the 457,924,000 barrels we had stored as of September 25th....that jump means we now have 29.3% more oil in storage than the 356,635,000 barrels of oil that we had stored in the same week last year, and it’s also the most oil stored anytime in any October in the 80 years that such records have been kept...since it appears that oil inventories are once again rising, we'll revisit a graph of crude oil inventories over the last 5 years that we haven't looked at for several months...

October 9 2015 crude oil inventory for Oct 2

in the graph above, copied from the weekly Petroleum Status Report (62 pp pdf), the blue line shows the recent track of US oil inventories over the period from January 2014 to October 2, 2015, while the shaded area represents the range of US oil inventories as reported weekly by the EIA over the prior 5 years for any given time of year, essentially showing us the normal range of US oil inventories as they fluctuate from season to season....you can see that crude oil inventories typically fall through the summer, when refineries are running flat out, just as they did this year, but we're now heading into the fall period where oil inventories typically rise...but if you look close you can see what we've been documenting in covering this surplus over the past several months; in the spring, our oil inventories were running 20% to 22% above the top of the normal range; that gap has gradually widened to 25% to 28% above the highest previous level over the late summer, and as of the past two weeks, it's now approaching 30%, more above the range than it's ever been...so even though the glut of oil we now have stored has fallen since March, the amount relative to what's normal has risen, and hence the surplus of oil we have stored is still expanding...

Latest US & Global Rig Counts

the number of rigs drilling for oil fell for the 6th straight week during the week ended October 9th, while the total rig count was down for the 7th month in a row...Baker Hughes reported that their count of active drilling rigs in the US fell by 14 to 795 in the week just ended, with rigs targeting oil down by 9 to 605, rigs drilling for gas down by 6 to 189, while one rig classified as miscellaneous was added...that's down by 1,135 rigs from the year ago total of 1,930 working rigs, with oil rigs down 1,004 from last year's record 1609, gas rigs down 131 from last year's 320, and miscellaneous rigs unchanged at 1...2 rigs were added in the Gulf of Mexico this week, so we now have 32 offshore, which is still down from 58 offshore rigs a year ago...

rigs designed to drill horizontally were down by 11 to 598; that's now down from the 1353 horizontal rigs that were drilling a year ago...vertical drilling rigs were down 3 to 114 this week; that was down from 370 in the same week last year...meanwhile,directional drilling rigs were unchanged at 83 this week, but were down from 207 directional rigs that were operating a year ago...

the Permian basin of west Texas again saw the largest reduction of rigs, as the count of active rigs there fell by 10 to 235, which was down from 562 rigs in the Permian a year earlier...the Eagle Ford Shale of south Texas saw two rigs stacked this week, leaving 80, which was down from 211 rigs that were working that play last year at this time...the Haynesville shale, mostly underlying northwestern Louisiana, also saw 2 rigs idled; they now have 24, down from last year's 43...other shale basins seeing single rig reductions included the Granite Wash, which now has 11, down from 64 a year ago, the Marcellus, which now had 46 rigs still working, down from 81 last year, the Mississippian, which is now at 13 rigs, down from 79 a year ago, the Williston, which was down to 65 rigs this week and down from 194 a year ago, and the Utica, which is back down to 20, and down from 46 rigs a year ago...the only basin to see a rig increase this week was the Niobrara Chalk of the Rockies front range; they added 1 rig and now have 27, but that's still down from the 63 they had the second weekend of October last year...

as a result of that, Colorado was the only state to see an increase in active rigs this week, as they now have 31, down from 76 last year at this time...Oklahoma saw the largest decrease, as they were down 6 rigs to 91, which was down from 211 last year...Texas only saw a net decrease of 4 rigs, despite losing 12 in shale plays, as 6 of their other oil districts saw added rigs; they ended the week with 353 working rigs, down from 896 a year earlier...otherwise, states seeing a 1 rig reduction this week included Kansas, now with 9, and down from 25 rigs a year ago, Louisiana, with 65, down from 111 a year ago; North Dakota, now with 64 rigs, down from 182 a year ago, Pennsylvania, which now has 29 rigs, down from 55 a year ago, and Ohio, which has 19 rigs remaining, down from 42 a year ago...

this week also saw the monthly release of the global rig count for September, which unlike the weekly count, is an average of the number of rigs running in each country for the month, rather than the month end total...September saw an average of 2,171 rigs drilling for oil and natural gas around the globe, which was down from 2,226 in August and down from 3,659 rigs that were in use in September of last year...except for North America, which saw a total reduction of 58 rigs - 35 from the US and 23 from Canada, the aggregate international total of active rigs was little changed from August, rising by 3, from 1137 rigs in August to 1140 in September, with the international offshore rig count dropping by 2 over the same time, from 270 to 268...those totals were down from 1,323 rigs that were active internationally in September of last year, of which 333 were drilling offshore..

the Middle East region saw an increase of 3 rigs for the month, as their count rose from 393 in August to 396 in September, with 47 of those offshore in the Gulf region, down from 52 offshore in August...that brings their total active rig count back to the same level as a year ago, albeit they have 3 more working on land and 3 less drilling offshore than they did at that time....most notably, the Saudis saw the largest increase, as they had 125 rigs working in September, up from 120 in August and up from 119 a year ago...the Pakistanis averaged 27 active rigs in September, up from 23 in August, and up from 22 a year earlier...Abu Dhabi added 2 rigs to the 38 they had running in August, and the 40 they ran in September is up from 35 a year earlier...meanwhile, the Egyptians cut their working rigs from 41 to 38, which is down from 51 a year ago, and the Kuwaitis idled 3 rigs, leaving them with 43 drilling, down from the 48 they were running in September of 2014...

a net of 2 rigs were added by Latin American countries, bringing the regional total to 321, which was down from 402 a year earlier...Venezuela added 3, and they now have 75 drilling rigs active, up from 64 a year ago; other notable changes in the region included Argentina, up 2 to 110, Mexico, down 2 to 39 and down from 69 a year ago, and Columbia, who idled 4 rigs, leaving 26...

elsewhere, the Asia-Pacific region had 218 drilling rigs working in September, 2 fewer than in August and down from 260 last September...notable changes in the region included Thailand, who added 3 rigs and now are running 18, China offshore, also up 3 rigs to 28, and Vietnam, who cut their rig total from 6 to 3...the total count of rigs drilling in Africa was unchanged at 96 in September, which was down from 117 rigs that were working there a year earlier...Nigeria added a rig while Angola idled one for the only changes on the continent...and the rig count in Europe was also unchanged at 109, and down from 148 a year ago, with the addition of 2 offshore rigs in the UK, where they have 14 active, while the Netherlands stacked two rigs, leaving 5 Dutch rigs still operating in September...

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

From Ohio University student: How fracking saved my family - Drilling - Ohio:  My name is Madison Roscoe and I’m currently a freshman at Ohio University studying political science. I wouldn’t be where I am today if it hadn’t been for the Ohio oil and natural gas industry and the opportunities it brought to my family. There’s one major factor that is often ignored in discussions about hydraulic fracturing. Most of the time, the emphasis is on the environment. But what about the fact that this industry has helped to financially stabilize many families, including my own? Some people seem to think that banning fracking would only impact “Big Oil.” But it would be people like me and my family would be harmed the most from shutting down this source of economic opportunity. My father worked two full time jobs for the majority of my life. This meant that I didn’t get to see him very often. He worked during holiday celebrations, vacations, and sporting events. This was just so we could get by as a family. My mother went to college later in her life to become a nurse. That helped, but my dad continued to work a heavy schedule so he could make sure our family was financially stable. In 2011, my dad made a decision that changed our lives for the better. He enrolled at the New Castle School of Trades to get his commercial driver’s license (CDL). He took money from his 401(k) to pay for our bills and his tuition. After only six weeks, he completed the course.  In November 2011, he began his first job in the oil and natural gas industry at Keane and doubled his salary from when he worked two full time jobs. After six months, he went to work for Multi-Chem, a Halliburton owned company. This increased his pay even more.

Oil and gas company threatens to sue speakers at Akron council meetings over fracking comments - The two retired, gray-haired men often speak during Akron City Council meetings about their favorite topic: fracking. Their comments at a recent meeting, though, landed them in hot water with an oil and gas well company whose representatives were in the audience. The company’s attorney sent letters to the men warning that they had made untrue statements, and they could be sued if they do it again. John Beaty, a retired pastor, and Steve Postma, a retired postal worker, were surprised — and somewhat frightened — when a Fed­Ex driver delivered the cease-and-desist letters to the doorsteps of their Akron homes. “When you get an oil and gas company after you, it gets your attention,” The cease-and-desist letters have caused Beaty and Postma to watch what they say, adding phrases like “I believe” and “in my opinion,” but haven’t stopped either from commenting at the meetings. In fact, both again spoke against oil and gas wells at last week’s council meeting, three days after they received the letters from Pennsylvania-based Discovery. “We’re fighting for the Constitution, for the environment and for citizens’ rights to live in a neighborhood not threatened by wells like this,” Beaty said, gesturing at the well on East Park Boulevard in Goodview Park. “We can’t stop fighting.” The comments that Beaty and Postma made — and that prompted letters from Discovery — were in reference to legislation granting Discovery lease agreements for two new wells on city-owned land. The wells will be built on the east side of 25th Street Southwest, north of U.S. 224, and at 1023 W. Waterloo Road. Council members voted 9-2 last week to approve the legislation for the new wells. In his comments, Beaty said water and fumes from a waste pond that was at one time next to the East Park Avenue well killed surrounding trees. Postma questioned whether the drilling of the well damaged a nearby water line. Both men received a letter Sept. 25 from Vorys, Sater, Seymour and Pease, a Columbus law firm for Discovery, that said their statements are untrue.

Anti-fracking backers question accuracy of vote count in Nov. 2014 - Two supporters of a Youngstown anti-fracking charter amendment on the Nov. 3 ballot questioned the legitimacy of the results of the last time the proposal was on the ballot, losing by 15.4 percent. The accusations drew a quick response from David Betras, vice chairman of the Mahoning County Board of Elections, who said: “You just basically accused this board of elections of election fraud. I can’t help it if some rinky-dink polling company did a poll for you and the results are different. This is just ridiculous. I’m not going to let you impugn the integrity of this board and our staff. I’ve got news for you: Mitt Romney’s poll said he’d win on Election Day [in 2012] and he didn’t. I find it highly offensive you’d accuse me of a crime.”  The Community Bill of Rights amendment had its largest defeat in the November 2014 election. Youngstown voters rejected it three other times: May and November 2013, and May 2014. During Tuesday’s board meeting, Ray Beiersdorfer, a Youngstown State University geology professor, claimed there had to be something questionable about the November 2014 election results because a poll taken of voters by phone after the vote showed it won by 2.1 percent. “That is such a big discrepancy that something wasn’t right,” he said. “I demand a public hand count of this issue so everyone can see the results,” he said.

Pipeline project to start | marcellus.com: — Construction is expected to start next week on a natural gas pipeline improvement that will disrupt traffic along a 10,000-foot length of Route 20 on Conneaut’s west side. A pre-construction meeting is scheduled for today with the contractor, Roese Pipeline Co., of Kawkawlin, Mich., City Manager James Hockaday said. A five-foot trench will be dug in the westbound passing lane of the four-lane highway that will house a 12-inch gas pipeline. The work site stretches between Parrish and Amboy roads. Hockaday, at Monday night’s City Council work session, said Roese brings a “good reputation” and “very responsive” attitude to the project, which has been estimated to cost about $2 million. Workers will dig, install and then fill the trench sections at a time, creating a “moving work zone” designed to help minimize traffic tie-ups, Hockaday said. The process will result in a “usable road once it’s backfilled,” he said. Signs and other traffic control methods will be in play to help drivers navigate construction areas, Hockaday said. Work should be complete by the end of the year.

Ohio report On Fracking Tax Misses Deadline, Work Continues - A group studying Ohio's oil-and-gas severance tax will miss a state budget-imposed deadline for releasing its report even after the state Senate president initially called it a "hard deadline" and told reporters it was likely coming this week. Ohio Senate spokesman John Fortney said Thursday that work continues on the report and the group is making progress. He didn't know when a report would come, but cited a desire to "get this right." The tax increase has been a priority of Gov. John Kasich for years. Kasich says Ohio's tax on oil, natural gas and natural gas liquids is too low, and proceeds of an increase could help cut income taxes. In June, Senate President Keith Faber  described Oct. 1 as a "hard deadline" for striking "meaningful compromise."

Most Ohioans left out of fracking bonanza - Columbus Dispatch - Ohio’s fracking industry has been a boon to oil and gas companies, their employees and to local economies in eastern Ohio where fracking is concentrated. And to state lawmakers, who have enjoyed $1.2 million in campaign contributions from oil and gas interests. The only ones not benefiting are the 11 million other people who live in Ohio. While the precious oil and gas in Ohio’s underground shale deposits is being sucked out of the state never to return, frackers are paying ridiculously low state severance taxes for this bounty.  State lawmakers, who already are getting their cut, have shown no interest in increasing Ohio’s severance taxes to ensure that taxpayers get some benefit from the exploitation of the state’s mineral resources. They continue to find ways to delay and dodge, most recently by missing last Thursday's deadline to produce a report about how to modify the state’s severance taxes. Neighboring states impose higher taxes on frackers than does Ohio, so Ohio could raise its rates without hurting its competitiveness. After all, drillers can make money only where there is something to drill for. And Ohio has something to drill for. The industry continues to poor-mouth, saying that low energy prices are depressing the market, yet quarterly report after quarterly report shows production increasing. And severance taxes apply only when drillers actually produce something. If low prices force them to idle drilling rigs, they pay no tax.

Great Lakes face threat from another Enbridge line - The 62-year-old segment of Canadian oil transport giant Enbridge’s Line 5 pipeline underwater, at the bottom of the Straits of Mackinac, has been generating the most buzz and concern lately over how a spill from it would harm the Great Lakes. But it’s another segment of that same pipeline, out of the water and running through the Upper Peninsula along U.S.-2 highway for nearly 90 miles between Manistique and St. Ignace, that poses a more immediate — and just as dire — threat to the lakes, according to a U.S. Coast Guard oil spill contingency specialist. The 30-inch-diameter transmission line runs under at least 20 rivers and creeks that feed into northern Lake Michigan, and at points is within a half-mile of the lake. “Quite frankly, we see a spill in the straits as a very low probability,” said Steven Keck, who’s based at the Coast Guard’s Sault Ste. Marie station. “But that corridor along U.S.-2 we see as a much higher probability.A joint team of the Coast Guard; other federal, state, and local agencies; Enbridge officials, and representatives of Marine Pollution Control, an oil spill response contractor for Enbridge, conducted a walking line survey of Line 5 where it crosses streams, creeks and rivers along the U.S.-2 corridor earlier this year. The areas were plotted into a Geographic Information System mapping program, with priorities, objectives, and strategies in the case of a potential oil spill in that area identified, he said. “It’s very rural. And where you would stage equipment, place a command center and run operations is an additional challenge,” Keck said. “It’s a whole different ballgame in areas where you don’t even have Internet access. That’s a concern for us.”

Study Links Fracking To Premature Births, High-Risk Pregnancies -- A new study from the Johns Hopkins Bloomberg School of Public Health has linked hydraulic fracturing — the process of pumping chemical-laced water into shale to extract the oil or gas embedded within — to premature births and high-risk pregnancies.  Preterm births were 40 percent higher among women who lived in areas of intense drilling and fracking operations, and these women’s pregnancies were 30 percent more likely to be considered “high-risk,” the authors found.  Preterm birth — when a baby is born earlier than the 37th week of pregnancy — is associated with a range of medical problems, according to the Centers for Disease Control and Prevention. Being born premature is linked to breathing problems, cerebral palsy, and hearing and vision impairments. In addition, preterm-related causes of death are the single leading cause of infant deaths, the CDC reports, accounting for 35 percent of infant deaths in 2010. Preterm birth can cause long-term neurological disabilities.  “The growth in the fracking industry has gotten way out ahead of our ability to assess what the environmental and, just as importantly, public health impacts are,” study leader Brian S. Schwartz, MD, a professor in the Department of Environmental Health Sciences said.  “More than 8,000 unconventional gas wells have been drilled in Pennsylvania alone,” Schwartz said. “We’re allowing this while knowing almost nothing about what it can do to health. Our research adds evidence to the very few studies that have been done in showing adverse health outcomes associated with the fracking industry.”

Frack Zones – Home Rule in Pennsylvania --  Pennsylvania municipalities can zone where fracking is allowed and where it is prohibited. Although the town needs to do now is act on that ability. On September 24, 2015, the Municipality of Murrysville made public a draft of a proposed ordinance amending the provisions of Section 220-31(CC) of the Murrysville Zoning Ordinance No. 833-11 addressing surface operating standards for unconventional oil and gas development. The proposed ordinance would provide for new zoning standards to control oil and gas development. Following the Robinson Township Supreme Court decision, the Murrysville Council commissioned the Marcellus Task Force in April 2014 to review Section 220-31(CC) in the light of said decision. The Marcellus Task Force released a report in June 2015 offering regulatory options to the Council in order to revise the Zoning Ordinance. The report is entitled “Report of the Murrysville Marcellus Task Force on Revisions to Section 220-31(CC) of the Zoning Ordinance of the Municipality of Murrysville in Response to the Robinson Township Supreme Court Decision.” The report is available at www.murrysville.com/marcellus-task-force-report/ The proposed ordinance, among other requirements, provides for new setbacks and requires the drafting of a comprehensive gas development plan for all applications relating to proposed drilling operations. The minimum public review period for the proposed ordinance is 45 days.

Dreaming of a White Christmas – Could U.S. Natural Gas Production See Surprise Winter Uptick? -- U.S. natural gas production has been essentially flat this summer as many producers curtailed, deferred or delayed drilling and well completions earlier in the year. However, some of the same producers, particularly in the Northeast, in their most recent earnings calls, indicated they expect to meet their 2015 production targets by increasing output this winter. In today’s blog, we look at how and why producers defer production and the potential impacts on the market in Q4.  It’s not surprising that some gas producers deferred well completions this summer. Rates of return have been squeezed all year by a combination of low oil, liquids and gas prices. In response to lower prices, producers have made significant capital budget cuts (see Free Fallin’). And besides low prices and returns, Northeast producers in particular have faced midstream capacity constraints that push down prices to bargain basement levels and make it harder to find economically viable routes to market for new production. Producers responded by laying down rigs (Rig Cuts Deep, Output High!) and shifting their drilling activity and spending towards their most productive acreage (thereby cutting costs and increasing rig efficiency). Additionally, those producers that can afford to hold off production (losing cash flow in the short term – something not all have deep enough pockets to do) have used numerous tools and tricks for delaying production while they weather this tough market environment. These include drilling the minimum required to hold on to leases for future development (see Hold On Tight By Production), not completing (i.e. fracking) already drilled wells and choking back big initial production (IP) rates to restrain output until a pipeline tie-in or better pricing becomes available. Producers typically prefer to defer new production volumes in these ways rather than to shut-in existing wells that are producing, because (as we explained in You Can Pay Me Now, Or Pay Me Later) shut-in economics rarely make sense long term.

CNY heating prices drop low this winter, depressed by fracking glut - Syracuse.com Winter heating prices are expected to fall to their lowest level in years, thanks in part to a glut of natural gas from fracking. The cost of natural gas is at its lowest point in perhaps 15 years. And wholesale prices in Central New York are even lower than the national average, thanks to a regional glut from fracking. That's good news for heating customers. National Fuel Gas, the utility that supplies gas in Western New York, estimates that customers will pay 29 percent less for heat this winter than last year, assuming normal weather, according to a report in the Buffalo News. Gas rates in Central New York might not plummet like that. National Grid won't release its estimate of winter heating prices until Wednesday, and officials declined to comment on their forecast Friday. But signs are already emerging that prices this winter will be low -- and not just for natural gas.  The price of home heating oil is 35 percent lower than it was last year, and propane is 26 percent cheaper, according to the New York State Energy Research and Development Authority.  For the month of October, National Grid's gas supply price is 23 cents per therm, more than 20 percent lower than the October 2014 price. (By comparison, the price 10 years ago was $1.29 per therm.) Increased gas production from Marcellus shale reserves in nearby Pennsylvania and Ohio, combined with a shortage of pipeline capacity to transport gas out of the region, creates a glut that keeps local prices extremely low, said Phil Van Horne, CEO of BlueRock Energy, a Syracuse-based energy marketer.

Two recent studies won't reverse New York fracking ban - Two studies showing no damage to water quality in the Marcellus Shale formation won’t change the fracking ban imposed by the Cuomo administration in New York state.  For officials in the economically depressed region of New York state known as the Southern Tier, two recent hydraulic fracturing studies gave them the slightest glimmer of hope the administration of Gov. Andrew Cuomo would reverse the state’s ban on hydraulic fracturing. But in a brief email to Watchdog.org, the state’s Department of Environmental Conservation shut the door on that. “New York’s thorough review supports DEC’s conclusion that fracking should not be allowed to occur in New York state at this time,” DEC public information officer Lori Servino said. The studies — one from Syracuse University and the other from the Susquehanna River Basin Commission — turned up no evidence thus far of water quality problems associated with large volumes of hydraulic fracturing, the process known as “fracking” that sends pressured liquids that breaks rock formations below the earth’s surface to extract oil and natural gas deposits. “The science shows it can be done in a way that’s responsible and not causing major problems,” said Carolyn Price, town supervisor for Windsor and president of the Upstate New York Towns Association.  But the DEC email to Watchdog.org put the kibosh on any possibility the Cuomo administration is going to budge. “This study does not remove the increasing scientific uncertainty surrounding significant environmental impacts” from high-volume hydraulic fracturing, Severino said.

Activists: Stop gas terminal off New York, New Jersey coasts — Environmentalists and some elected officials are calling on the governors of New York and New Jersey to oppose a proposal for a liquefied natural gas import terminal off both states’ coasts. An application by Liberty Natural Gas to build the facility in federal waters 19 miles off Jones Beach, New York, and 29 miles off Long Branch, New Jersey, is due to be considered by federal regulators this fall. It can be vetoed by the governor of either state. Environmentalists say it’s a dangerous potential terrorist target and is unneeded given that the United States is awash in cheap, domestic natural gas, much of which is produced in the Marcellus Shale formation just west of New York. Liberty says the project would bring additional natural gas into the New York area during times of peak demand, thereby lowering home heating prices. “After seven years of opposing this zombie-like proposal, the final battle begins,” Cindy Zipf, executive director of the Clean Ocean Action environmental group, said at a news conference held Tuesday to urge New Jersey Gov. Chris Christie to veto the project. Business and labor groups support the plan, which was first proposed in 2008 and is projected to generate 800 construction jobs.

Study refutes positive local effects of natural gas pipeline -- An 18-page study released this week by the Greenbrier River Watershed Association says that economic benefits of the Mountain Valley Pipeline, a natural gas pipeline slated to bisect Nicholas County and cut through portions of Summers, Greenbrier and Monroe counties, have been inflated by gas companies anxious to get their product to a market. Dr. Stephen Phillips of Key-Log Economics, Charlottesville, Va., firm, wrote the study. Key-Log provides research “supplying rigorously developed ecological-economic information to shape and advance policy campaigns, as part of expert testimony, and for public education efforts,” according to its Linked-In account. EQT, the pipeline’s owner, released its own study in December 2014. The study says expenditures on goods and services during construction would “translate into job creation; economic benefits to West Virginia suppliers, their employees and the overall economy.” Further, the FTI said the MVP would bring operational benefits, requiring a skilled workforce for continued maintenance and generate annual property tax revenues. FTI’s study said both the state and the MVP passes through would be benefited from the “potential direct use of gas from the MVP project.”

U.S. says CSX missed rail defect blamed for oil train derailment -- – A fiery oil train derailment that forced the evacuation of hundreds of people in West Virginia last February was caused by a rail defect that railroad inspectors from CSX Corp missed twice in the preceding months, U.S. regulators said on Friday. Twenty-seven of the train’s 109 cars derailed near Mount Carbon, West Virginia, on Feb. 16. At least nine cars caught fire and burned for days, strengthening support for tougher oil train safety standards for trains carrying U.S. crude from North Dakota’s Bakken region. Tighter federal regulations were published in May. The Federal Railroad Administration fined CSX and its contractor, Sperry Rail Service, $25,000 each for failure to properly verify a potential rail defect. An FRA spokesman said the sum is the maximum allowed under federal law for such a violation.

Fracking provision placed in early-morning 'technical' bill  — People unhappy with a new law making clear North Carolina cities and counties are handcuffed in passing fracking restrictions also don’t like how the legislation passed in the final minutes of this year’s General Assembly. It was contained in the final “technical corrections” bill disclosed publicly about 4 a.m. last Wednesday. Previous Senate and House versions of the bill never contained the provision that surfaced after early-morning negotiations. The omnibus bill passed with little debate. The fracking provision was never heard in an open committee. Chatham County Commissioner Jim Crawford says that’s not the way democracy should work. Mecklenburg County Sen. Bob Rucho backed the provision. He says it met the definition of a “technical correction” by clarifying what he called the original intent of a 2014 fracking law.

North Carolina legislation answers local fracking moratoria - (AP) — The last bill the North Carolina General Assembly approved before adjourning this year was designed to stop local governments from trying to delay or restrict fracking in their own backyards. Last week’s legislation, inserted into a 41-page “technical corrections” bill approved in the middle of the night and that Gov. Pat McCrory later signed, is supposed to reinforce a 2014 ban on cities and counties from ordinances that prohibit hydraulic fracturing directly or indirectly. The updated law now says all provisions of local ordinances that “regulate or have the effect of regulating” oil and gas exploration “are invalidated and unenforceable.” Longtime fracking supporter Sen. Bob Rucho, R-Mecklenburg, said the language attempts to address any misunderstanding local governments may have about the legislature’s purpose. Rucho said the recast law was in response to recent local government ordinances. The original intent of the law is that “no local ordinance should restrict the ability of being able to have shale gas exploration or development,” Rucho said

Frack Me First: NC Lawmakers Ban Local Anti-Fracking Ordinances   After a a number of local communities enacted temporary moratoriums on oil and natural gas development, including fracking, the Republican-led North Carolina government issued a resounding response: Drillers welcome!A last-minute markup passed by the legislature and signed into law by Governor Pat McCrory last week “renders ‘invalidated and unenforceable’ local ordinances that place conditions on fracking that go beyond those restrictions drafted by state oil-and-gas regulations,” the Winston-Salem Journal reportedon Monday. The vote occurred just days after a local body in Stokes County, N.C. passed a three-year fracking moratorium, following the lead of a number of other municipalities that are hoping to stave off exploration into their oil and gas reserves.  Brooks Rainey Pearson, a staff attorney with the Southern Environmental Law Center, said the provision was “passed in the dead of night, having never received a committee hearing or vetting of any kind.” “This is yet another example of the state attempting to lure the fracking industry to North Carolina over the objection of those who would be most directly impacted,” Pearson added. The argument as to whether a community has the right to protect itself from potentially dangerous and toxic industries is also being waged in Colorado, where state lawmakers have attempted to ban local fracking ordinances.

More sections of national forest to be surveyed for pipeline — The developer of a proposed natural gas pipeline plans to survey additional sections of the Jefferson National Forest for a possible route. The Roanoke Times reports that the U.S. Forest Service has authorized Mountain Valley Pipeline LLC to survey two sections of the forest in Giles County and one in Montgomery County. Jefferson and George Washington national forests supervisor Tom Speaks previously authorized surveying in other sections of the Jefferson National Forest. Speaks says authorization of the additional surveying doesn’t mean he’s allowing construction of a pipeline. The Federal Energy Regulatory Commission will decide whether construction of the $3.2 billion pipeline should proceed. The pipeline would transport natural gas from Wetzel County, West Virginia, to another pipeline in Pittsylvania County.

2 of 3 workers killed in pipeline explosion identified  — A maintenance company has released the names of two of the three people killed in a pipeline explosion in Terrebonne Parish. Danos, an oil and gas service company, says two of their contract employees, 40-year-old Samuel Brinlee, of Berwick, and 36-year-old Casey Ordoyne, of Larose, died in Thursday’s accident at the Transcontinental Gas Pipeline Co. facility in Gibson. Transcontinental is a subsidiary of major natural gas supplier Williams Partners. Danos CEO and President Hank Dano identified the workers in a news release on Friday. The third victim, a contract employee for Furmanite, an oilfield maintenance company, has not been identified. Danos says eight of his employees were working at the plant when the explosion occurred. Two are being treated at Terrebonne General Medical Center for minor injuries.

Texas A&M Study's Super Obvious Conclusion: Busy Oil Fields Mean More Traffic Accidents (infographic) Well, Texas A&M has gone and put out what is possibly the most obvious "finding" ever issued by government-funded researchers: When oil fields start booming, there are more traffic accidents and they're more expensive. Right now, oil prices are in the toilet and the big oil booms that were fueled by the the explosion of drilling in shale plays, including the Eagle Ford Shale in South Texas, the Barnett Shale in North Texas and the Permian Basin in West Texas, are drying up the way most oil fields do when a boom goes bust. So, of course, this was the perfect time for the Texas A&M Transportation Institute to come out with a study called "New Findings: More New Oil and Gas Wells, More Crashes and Injury Costs."   Now some might argue that these facts on their own preclude any need to actually study things to find out what happened in the Barnett, the Eagle Ford and the Permian Basin when a whole bunch of traffic comprised of impatient people driving trucks and 18-wheelers (aka the oil field) started flooding into each of these areas, but just in case anyone needed hard answers about this now we have them. So what happened? Well, according to Texas A&M, when the number of new wells increased in each area the number of rural crashes involving commercial vehicles also shot up, as did the total cost of crash injuries. When the number of wells dropped, the number of commercial vehicle crashes and the total cost of crash injuries also dropped.

Congress-backed Interstate Oil Commission Call Cops When I Arrived To Ask About Climate Change - Steve Horn - On October 1, I arrived at the Oklahoma City headquarters of the Interstate Oil and Gas Compact Commission (IOGCC) — a congressionally-chartered collective of oil and gas producing states — hoping for an interview.  There to ask IOGCC if it believed human activity (and specifically oil and gas drilling) causes climate change and greenhouse gas emissions, my plans that day came to a screeching halt when cops from the Oklahoma City Police Department rolled up and said that they had received a 9-11 call reporting me and my activity as “suspicious” (listen to the audio here). What IOGCC apparently didn't tell the cops, though, was that I had already told them via email that I would be in the area that day and would like to do an interview.  That initial email requested an opportunity to meet up in-person with IOGCC's upper-level personnel, a request coming in the immediate aftermath of its Oklahoma City-based annual meeting, which I attended. After the cops came to the scene and cleared me to leave, I sent a follow up email to IOGCC outlining the questions I would have asked if given the opportunity to do so.  Days later, IOGCC finally responded to those questions and told me its climate change stance. Well, as you'll see later, they kind of did.

Keystone XL developer seeks route approval in Nebraska  — Nearly three years after Nebraska’s governor approved a route for the Keystone XL pipeline, the project developer is once again seeking state authorization for the same proposed path. TransCanada filed an application Monday with the Nebraska Public Service Commission, taking a new approach in a state where opponents have repeatedly thwarted efforts to complete the Canada-to-Texas oil pipeline. Former Gov. Dave Heineman approved the project route in January 2013, but opponents sued to overturn the pipeline-siting law that allowed him to do so. Their lawsuit and company efforts to use eminent domain have mired the project in the courts. TransCanada spokesman Mark Cooper says the Canadian company is applying through the commission because it now provides the clearest path for the project. Opponents say the project could still face delays.

Bakken Economy Drives $326 Million BNSF Capital Projects In Minnesota --   --The StarTribune is reporting: The number of trains carrying oil from North Dakota and traveling through the west metro and downtown Minneapolis has temporarily been increased. More Bakken oil trains are entering the Twin Cities via the western suburbs, a route that sends an increasing amount of the hazardous cargo through downtown Minneapolis.  BNSF Railway, in reports filed with state officials, said the number of trains carrying at least 1 million gallons of crude oil is increasing through this rail corridor, starting with a modest gain in July followed by a larger bump in September.  Now, 11 to 23 oil trains each week pass through the western suburbs of Wayzata and St. Louis Park on their way to Minneapolis, up from a nominal number a year ago, according to BNSF reports obtained by the Star Tribune. This route takes trains past Target Field, through the North Loop and across the Mississippi River at Nicollet Island. The oil trains are destined for eastern refineries. Meanwhile, the Sandpiper (which would relieve some of this rail congestion) has been keystoned.

Environmental groups seek enhanced studies of planned crude oil pipelines across Minnesota -- Opponents of two crude oil pipelines proposed in northern Minnesota are pushing for deeper, more sweeping studies of their environmental risks in the wake of an appeals court ruling rejecting the process begun by state regulators. The Minnesota Public Utilities Commission on Thursday decided to stay, or put on hold, its June decision granting a certificate of need to the proposed $2.6 billion Sandpiper pipeline to carry North Dakota oil across Minnesota on its way to refineries in other states. But the five-member commission left open what happens next with the project, which is entering a second stage of state review that focuses on its route. What ultimately happens with the Sandpiper project also could affect another proposed pipeline, Line 3, which has overlapping environmental issues because it’s proposed on the same route by the same pipeline company. “The hope is the commission will take this opportunity to take a broader look at pipelines in Minnesota,” said Kathryn Hoffman, an environmental attorney in St. Paul who successfully argued before the Minnesota Appeals Court that state utility regulators were required to do an environmental impact study of Sandpiper before deciding whether the project is needed. Calgary-based Enbridge Energy, which is proposing the two pipelines, still has the option of appealing the Sept. 14 ruling, as does the utilities commission. Neither has decided whether to take that step, which could mean a lengthy delay. In the meantime, the five-member commission asked Enbridge and its supporters and critics to comment on what to do next in the wake of the ruling.

U.S. oil-rail flux means no retrofit bonanza for tank car makers -  When U.S. regulators adopted new rules last May to make hauling crude by rail safer, shippers anticipated relatively moderate costs and adjustments while rail tank car makers geared up for a retrofitting bonanza. It has not worked out that way. Months later, oil companies are learning that meeting the new standards is more expensive and complicated than they thought while tank car producers have yet to see the windfall from the fleet’s overhaul. Blame the reality of dealing with railway operators’ own technical requirements and an oil price rout that has radically changed the economics of the once-booming business. In the U.S. Northeast, which accounts for half of the nation’s crude rail shipments, Amtrak is warning that some of the cars modified or built to new specifications will be too wide for the busy corridor. Rail operators are also signaling they may impose new surcharges for certain older cars. Industry officials also say that the new safety features, such as thicker walls, thermal protection and front and rear shields, go further than many had expected. “No one anticipated the new rules would require all these bells and whistles,” Robert Pickel Jr., a senior vice president at Canadian rail car builder National Steel Car, said. “Some of the retrofits cost more than the actual car.”

'Blood & Oil', North Dakota, and dreams not exactly fulfilled -- Last week a new television series set amidst the North Dakota oil boom debuted. Blood & Oil tells the story of locals and newcomers striking it rich in The Bakken, an oil formation that has been heralded as containing more oil than Saudi Arabia--a wildly misleading* but understandably alluring slogan. Based on the first episode we can conclude that this program is not actually a contemporary drama, but rather a period piece--specifically the period when North Dakota was booming from about, say, 2009 to sometime in mid-2014. And, therein lies the story. For Blood & Oil, above all, must be a tragedy of broken dreams if it is to live up to its realism credentials. We must look beyond the fact that the show is shot in Utah to the substance of the series. When we do, we see the ever-present gambler's mentality that dominates the American mind. It did not go unnoticed that America was a land of plenty from the very beginning of European settlement. With the coming of the Bakken oil boom we modern Americans have recreated that journey. Those needing work and with only minimal skills or possessed of a restless spirit found a new life in North Dakota, a booming oil province, that--when it came to oil--seemed like the limitless wilderness first encountered by Europeans landing on the American continent. In Blood & Oil Hap Briggs is a poor farmer's son who has built up large holdings of ranch land which, of course, have oil under them. He gets into the oil business himself and can't get enough of it.

One Thing Leads to Another—Sweet-spot Bakken Oil Means More Gas -- Crude oil producers in the Bakken region responded to the oil price collapse with drilling cutbacks and a laser-like focus on sweet-spot areas with high initial production rates. It turns out those oil sweet spots also produce a lot of associated natural gas. But there’s not enough infrastructure in place to deal with the extra gas, and that’s slowing North Dakota’s efforts to reduce flaring (burning gas that can’t be utilized for various reasons). Today, we consider the multiple, domino-like effects that low oil prices are having on one of the U.S.’s most important tight oil plays. By almost any measure, the Bakken region has been a super-success story. In 2008, before the shale revolution, the Bakken was producing less than 200 Mb/d of crude and about 250 MMcf/d of natural gas, on average; the latest (July 2015) data from the North Dakota Pipeline Authority (NDPA) showed crude production is 1.2 MMb/d and gas production has soared past 1.6 Bcf/d--six-fold increases for both hydrocarbons. With that kind of upstream growth, it’s not surprising that the midstream sector struggled to keep up. As we’ve blogged about often, the lack of oil pipeline capacity in 2011 led to the frenetic development of rail loading terminals, and the dearth of gas pipeline capacity resulted in a significant amount of wasteful gas flaring—and a push to quickly develop new gas processing plants and gas pipeline capacity. Flaring usually happens when infrastructure to capture the gas and transport it to market haven’t yet been developed.

Farmers poised to attack oil permitting plan -- A clash is brewing between Kern’s petroleum industry and members of the county’s agriculture sector over a plan to streamline local oil and gas permitting. Despite a compromise proposed to smooth relations between the two industries in cases of split ownership of farming properties, growers have mounted a vigorous challenge to a county environmental review at the heart of the permitting plan, which is backed financially by oil interests. That the environmental document is being carefully scrutinized by lawyers is no surprise: County Planning Director Lorelei Oviatt predicted the permitting plan would spark lawsuits when the Board of Supervisors ordered the review in early 2013. But it was unclear then that a Wasco farming company, Pacific Ag Management Inc., would attack the project with an intensity equal to or greater than that of environmental activists the oil industry is accustomed to battling in court. The conflict will likely spill over into public debate in coming weeks as the permitting plan undergoes review by the county Planning Commission and the Board of Supervisors. The commission is scheduled to discuss the matter at its 5 p.m. Monday meeting at the board’s chambers, 1115 Truxtun Ave. Both bodies are expected to vote on the plan as soon as next month. Pacific Ag’s opposition, detailed in more than 100 pages of legal arguments by San Francisco law firm Shute Mihaly & Weinberger LLP, suggests Oviatt and her staff have been unable to appease both sides of a dispute that lawmakers have left mostly unresolved at the state level.

What oil spill? Company responsible for Yellowstone River spill gets Bakken pipeline approval -- The pipeline company responsible for the oil spills in the Yellowstone River and California Coast earlier this year has been granted permission from North Dakota state regulators to build a new crude oil pipeline in the southwest region of the state, reports the Forum News Service (FNS). An in-depth discussion was held with Bridger Pipeline LLC and the Public Service Commission’s three-member panel regarding the January 17 pipeline rupture. The spill released an estimated 30,000 gallons of crude into the Yellowstone River and temporarily tainted the drinking water of Glendive, Montana. In May, a pipeline operated by the Texas-based company spilled as much as 143,000 gallons of crude along the Santa Barbara Coast. PSC Chairwoman Julie Fedorchak told the FNS, “We had a really thorough discussion about how they plan to operate this and monitor it and the latest and greatest technology they’ll be using, the newest pipe materials and monitoring systems, and I felt comfortable with the company … walked away with some good lessons learned on that spill and will be incorporating that in this line.” Fedorchak added that this pipeline is “a key piece of infrastructure” that will relieve a bottleneck in the system which serves the Midwest region. The new 16-inch diameter line will stretch 15 miles across Billings and Stark Counties, running alongside an existing 8-inch Bridger pipeline. The new pipeline will increase the system’s capacity by 125,000 barrels per day from the Skunk Hills station to the Fryburg station, which then connects to a 12-inch line leading to Baker, Montana.

Bakken and Canadian crude trade higher on pipeline approval - Prices for North Dakota Bakken crude and Canadian light synthetic crude scheduled for November delivery strengthened last week after Enbridge was granted approval to open its Line 9 crude pipeline,according to Reuters.  It is currently unclear when the pipeline will begin operations, but traders reported a growing demand for light crude in preparation of the line going online within the next couple months. The Enbridge Line 9 is an existing pipeline in which flow will be reversed to carry product from west to east. It will carry 300,000 barrels per day from western Canada and the U.S. Bakken to Quebec, reports The Globe and Mail. Although the project will add no new pipeline, the line will provide much needed transportation capacity for both Canadian and U.S. oil producers, which are struggling amidst low oil prices and the pending approval of new pipelines which would transport oil to new markets. Enbridge had planned to start the line last fall, but was delayed due to new safety conditions required by Canada’s National Energy Board. Last week the project passed the NEB’s last pre-operational hurdle after a series of hydrostatic tests. Following the news, light synthetic crude from the oil sands traded above the West Texas Intermediate benchmark while Bakken crude traded slightly below WTI prices, but at an increase from the day prior.

Just Say #ShellNo to the Master Plan for the Northwest: Connecting the Dots on the Anacortes Oil Train Proposal - Shell Oil recently threw in the towel on the Arctic, but they haven’t walked away from their master plan to turn Puget Sound into an extreme oil throughway. With the Artic plan on ice, Shell is turning their full attention to an oil train terminal they want to build at their Anacortes, WA, refinery. This plan would bring six oil trains a week from North Dakota and Alberta, Canada, filled with toxic, explosive crude. Shell tried to keep the proposal secret because they know that no one else wants this master plan to work. But ForestEthics and our allies fought to make sure that the project gets the scrutiny, and opposition, that it deserves — and we won. Now it’s time for citizens to speak up for safety, for climate, and for Puget Sound and Say Shell No to this dirty, dangerous oil train plan. Since they’ve pulled out of the Arctic, their proposal to move crude by rail is even more critical.  In February a judge rejected Shell’s claim that they would not need an environmental review of the terminal. County officials might have been fooled, but we were not. The judge agreed and required a full environmental review of the plan and the comment period is now ON. The review is an important step to engage the public, hold officials accountable, and demand transparency from the oil company. But transparency, accountability and public scrutiny are the last thing that Shell wants.  The 100-plus car oil trains that Shell wants to bring to Anacortes carry as much as three million gallons of explosive, toxic Bakken or tar sand crude. This is extreme oil. That means more carbon pollution, more air pollution at the refinery and everywhere along the tracks, and millions more people, wildlife, and wild places in harm's way. The nation has watched five major oil train derailments and fires in 2015 alone. Oil trains are simply too dangerous for the rails.

Oasis Petroleum's credit line cut by Wall Street banks - Credit lines for Oasis Petroleum have been reduced by about $170 million by Wall Street banks due to the persisting oil price slump. As reported by Reuters, this is the largest reported reduction of an oil producer’s “access to debt markets” this fall, prompted of course by low oil prices. Oasis, operating exclusively in the North Dakota Bakken oil patch, said its lenders reduced its borrowing base to $1.52 billion, or by roughly 10 percent. For smaller oil and gas companies, banks will usually review credit lines twice a year, with fall negotiations generally happening in October. Oasis’ next review will take place in April of next year. The company still has about $155 million drawn on its loan revolver, though, providing a decent buffer to help weather the low prices. As collateral for loans, Oasis has, like other small producers, used the value of oil still in the ground held in leases. Wall Street has placed some long term bets, however, and has actually increased the borrowing base of some companies in anticipation of what companies will be strong players in the event that oil prices rebound. Meanwhile, Oasis is trying to sell a stake in its saltwater disposal business, a deal which could add over $100 million in cash to the company’s coffers.

Cannibalizing the oilfield: Idle rigs scavenged for parts - In the ongoing effort to save money amidst the oil price slump, rig owners have taken to “cannibalizing” parts like motors and drill pipe from stacked rigs, according to Reuters. To make repairs on the 800 some drilling rigs active in the U.S., equipment is being scavenged from the 1,100 rigs which were idled due to the price crash. The practice has become so widespread during this downturn that services companies and others are saying that even if prices were to make a significant rebound, it would be over six months before drilling and production would increase, an idea which has quelled concerns about another surge of activity driving prices down again. As reported by Reuters, in a stable and high oil price environment, spare and replacement parts are typically purchased new from companies such as National Oilwell Varco (NOV) and Premium Oilfield Technologies, a small operation which makes equipment and spare parts for drilling rigs active in North Dakota to Texas. NOV said there are currently enough rigs stacked that drill pipe could be cannibalized for up to a year before needing to place new orders. An oilfield services analyst told Reuters, “[Cannibalization] will slow the industry’s ability to ramp the rig count back up so it will delay the production response from oil prices.” Although there is no hard data for the extent of cannibalization, the practice has become so commonplace that experts say there is a high possibility that the majority of the 1,100 inactive rigs have already been harvested for parts. Spare parts from idled drilling rigs have become so readily available due to an almost 15-year record high before oil prices began to plummet.

Fracking Boom Goes Bust as Companies File for Bankruptcy - (audio) U.S. shale production is in deep, deep trouble as the fracking boom bursts in the face of low oil prices. The September report from the oil cartel, OPEC, shows the writing on the wall.  “Crude oil prices have declined more than 50 percent since last year,” says Nova Safo of NPR’s Marketplace. “Fracking companies in places like North Dakota, West Texas, parts of Oklahoma and Kansas have all taken a big hit. Many are filing for bankruptcy protection or going out of business.” “There were a large number of new entrants into the fracking business during the last four to five years,” industry analyst James West of Evercore told NPR. “These are very small … they were building out their fleet. And now they’re finding there’s no work out there, and so they’re having to close their doors.” Listen here:

US shale oil stares into abyss with Opec ready push it over - Telegraph: After hanging on for almost a year, the US shale oil industry is on the brink of complete capitulation. The reason for its impending downfall is simple: the lowest cost producer always wins. In this instance the most profitable producers are Saudi Arabia and its close Gulf Arab allies, who effectively control the Organisation of the Petroleum Exporting Countries (Opec). To their credit, shale drillers and operators in Texas and North Dakota have hung on for far longer than anyone expected after Opec launched its pre-emptive oil price war last November. However, a year of oil prices trading at an average of around $50 per barrel is finally succeeding in reversing the dramatic increases in US production that had been so troubling the Gulf’s oil-rich sheikhs. Total US output has fallen by almost 600,000 barrels per day (bpd) since the end of the first quarter, with the biggest declines occurring recently as operators begin to crack under the financial pressure caused by Opec’s squeeze on prices. By next year, the US government expects output to decline to an average of 8.6m bpd, down from an average of 9.3m bpd in 2015. According to Mark Papa, the former head of US shale oil specialist operator EOG Resources, this is just the beginning of the downturn in North America. Speaking at the annual Oil and Money conference in London this week, Mr Papa said: “We are about to see a pretty dramatic decline in US production growth.”

The US Shale Oil Industry Will Simply Vanish -- Via GEFIRA, After many years of prosperity, the tough time has come for the US shale industry. Dramatic US oil production decline is inevitable and many shale companies face bankruptcy. Their assets can end up to larger producers, reinforcing market concentration. US energy independence can only be saved by government intervention. US government will remove exports limitation and FED September rate hike suspension is related to the unsustainable debt levels US oil industry is keeping afloat. But that is simply not enough to prevent a collapse of the US oil industry.From our research we learn that cost per barrel declined slightly but decreasing production cost is not enough to compensate for lower oil price. US oil production already declined 400K barrels per day from its April peak. We estimate an other 2 to 3 Million barrels can be wiped out the coming year. A few months ago, when the oil price rise again before the June crush, the US oil industry seemed to be able to go through the difficult times. "It is too late for OPEC to stop the shale revolution", "OPEC can’t stop the shale industry" – roared the headlines. However, after last publications of Energy Information Administration (EIA) the OPEC and Saudi Arabia are the only one to triumph. In July, the EIA projected the expand of US shale supply in 2016, but it had to adjust its estimates to new conditions. Comparing to the first-half of 2014, the US crude oil prices declined by 47%, despite the fact that they passed 60$ in June and were up 40% from their lowest from March’s 43$. The nearest future looks worrying, as EIA forecasts the Brent crude oil average price will rise in 2016 scarcely to 59$ from average 54$ in 2015. Nowadays, the main oil price factors are the economic condition of China and expectations of demand growth in emerging markets. The oil price seems to be closely correlated in recent months to China’s Purchasing Managers’ Index (PMI), which declined in August to 47.3, the lowest level in last six years.

Senate panel votes to lift 40-year-old US ban on oil exports  — The Senate Banking Committee endorsed a bill Thursday to lift the four-decade-old ban on crude oil exports, the latest sign of congressional support for legislation that President Barack Obama opposes. The banking panel endorsed the bill, 13-9, on a largely party-line vote. Sen. Heidi Heitkamp of North Dakota sponsored the bill and was the only Democrat to support it. Heitkamp said the bill would lower or stabilize gas prices, support jobs and increase U.S. influence abroad. Despite the largely partisan committee vote, Heitkamp said she is optimistic that some Senate Democrats will support efforts to lift the export ban, which was imposed in the 1970s amid an energy shortage. Heitkamp’s bill is expected to be merged with larger legislation sponsored by Sen. Lisa Murkowski, R-Alaska, before a vote in the full Senate. “Putting an end to (the export ban) is a discussion we need to have by working together, and it shouldn’t be a partisan exercise or get bogged down by political poison pills,” Heitkamp said. “We have many options to move this policy forward and growing support for it. That’s good news for a common-sense, bipartisan policy.” GOP leaders in the House and Senate support lifting the export ban, and the House Energy and Commerce Committee endorsed a bill to do so last month.

Why lifting oil export ban can help US foreign policy - A House of Representatives bill is due to go to the floor this week, one step closer to lifting the 40-year-old ban on the export of U.S. crude oil. The window of opportunity was opened by the continuing plunge in oil prices, now at a six-year low, as falling demand and booming production have created an overabundance of global supply.Congress must seize this opportunity: Lifting the ban on crude oil export would not only be good for the economy, it could also benefit U.S. foreign policy.U.S. firms have been unable to export crude oil since 1974 — a legacy of the energy security fears in the wake of the Arab oil embargo. The only exceptions are crude oil exports to Canada, and oil produced in Alaska. There are similar, if less draconian, export restrictions on natural gas, which requires a Department of Energy waiver.These restrictions were an overreaction. But recent changes in the global oil market have made matters worse. Over the past decade, new technologies — particularly hydraulic fracturing or “fracking” — have enabled the extraction of oil and natural gas in previously inaccessible areas. The result has been a shift away from some traditional energy-producing countries — such as Russia or members of the Organization of Petroleum Exporting Countries – and toward newer producers.The biggest beneficiary of these technological advances has been the United States, now the world’s largest producer of oil and natural gas. Even under current restrictions, U.S. crude exports to Canada have risen dramatically, from essentially zero in 2007 to more than 100,000 barrels a day by March 2013. U.S. producers could contribute far more globally, but are largely prevented from doing so under the current bans.

Congress Is Trying To Lift The Oil Export Ban. This Is Why They Will Fail. - This week, the House of Representatives will consider — and likely pass — a bill to repeal a 40-year-old ban on exporting crude oil.  But some environmental groups say the repeal is a giveaway to oil companies that will bolster production and increase carbon emissions worldwide.  “This is definitely heading in the wrong direction,” Radha Adhar, a federal policy representative for the Sierra Club, told ThinkProgress.  While it seems to have sprung from nowhere, the repeal is the product of heavy campaigning from the oil industry, low oil prices, and an American fracking boom. The crude oil export ban has its roots in oil prices. When it was enacted in the 1970s, America was reeling from an oil embargo, and protecting every drop of our precious fuel from the global market seemed like a good idea. Now, the global price of oil has plummeted — and economists don’t see it bouncing back anytime soon. Meanwhile, due to developments in hydraulic fracturing, or fracking, oil producers have flooded the market, pushing U.S. prices even lower than the global price.  Supporters, such as Sen. Heidi Heitkamp (D-ND) and Sen. Lisa Murkowski (R-AK), who co-sponsored the Senate bill and have ties to the oil industry, say it will lower prices for consumers and benefit the economy.  But that’s not quite what the federal Energy Information Administration found in its study on the ban released this month. According to EIA analysis, if the ban were repealed, petroleum prices for the general American public would either slightly decrease (at higher domestic production levels) or remain the same (at current levels).   Margins for domestic oil processing would decline, in the face of competition from overseas refineries.

White House issues veto threat for U.S. House oil export bill – The White House issued a veto threat on Wednesday for a U.S. House of Representatives bill that would lift a four-decade-old ban on crude oil exports, saying the legislation was “not needed at this time.” Congress should instead end “the billions of dollars a year in federal subsidies provided to oil companies” and invest in wind, solar and other renewable energy projects, the White House said in a statement about the bill, which is expected to face a vote in the full House on Friday. Two similar bills have passed committees in the Senate, but backers are struggling to find enough Democrats for the legislation to pass the full chamber. Oil company interests and other backers of repealing the ban say the domestic drilling boom will eventually choke on a glut of crude if it is not lifted. George Baker, the head of Producers for American Crude Oil Exports, or PACE, said that lifting the ban “will help level the playing field and allow America to compete on the international stage,” and that it would create jobs and aid trading partners abroad. Opponents of lifting the ban say increased drilling would harm the environment and that it would hurt jobs in refining and ship building.

5 Things to Know About the U.S. Oil-Export Fight in Congress -- Lifting the ban has enough support to clear the U.S. House, but ...

  • 1 It takes both houses of Congress, plus the president’s signature, to change U.S. law. Navigating successful passage of a bill through the Senate is likely to be much trickier than winning House support.
  • 2 The White House doesn’t support lifting the ban -- for now. The White House has threatened to veto the House bill if it reaches the president’s desk, saying “legislation to remove crude export restrictions is not needed at this time.” That bodes ill for proponents of lifting the ban, but the statement wasn’t as critical as some observers expected and leaves open the door to relaxing restrictions later.
  • 3 A lot of American oil is already flowing out of the country. One exception to the ban is American oil sales to Canada. The U.S. exports 10 times as much crude to its northern neighbor as it did five years ago, thanks to the American drilling boom. The Commerce Department recently approved U.S. crude swaps with Mexico and has also rewritten rules governing exports to make ultralight oil called condensate legal to sell abroad.
  • 4 Everybody’s worried about gasoline prices. Several studies, some industry-funded and others from the U.S. government and academics, concluded allowing U.S. oil exports would lower prices at the pump, but skeptics abound. Politicians on both sides of the aisle worry that if they vote to lift the oil export ban and then gas prices rise, they will be blamed.
  • 5 The U.S. still imports a lot of foreign oil. The amount of foreign petroleum sloshing into U.S. ports has plunged in recent years as American companies pumped more oil at home. Even so, nearly 1 out of every 2 barrels that U.S. refineries process into fuel comes from overseas. Canada is America’s biggest oil supplier by far, followed Saudi Arabia, Venezuela and Mexico.

House OKs lifting 40-year-old US ban on oil exports -— Defying a White House veto threat, the Republican-controlled House on Friday approved a bill to lift a 40-year-old U.S. ban on crude oil exports. Supporters argued that an ongoing boom in oil and gas drilling has made the 1970s-era restrictions obsolete.  The bill was approved, 261-159, with 26 Democrats joining Republicans in backing the measure that now heads to the Senate, where prospects are uncertain. House Speaker John Boehner, R-Ohio, said lifting the export ban would lower prices at the pump, create jobs and boost the economy. “In my view, America’s energy boom has the potential to reset the economic foundation of our economy and improve our standing around the world,” Boehner said.  Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said times have changed and that U.S. policy should embrace a new reality of energy abundance. “While the (Obama) administration claims to support an all-of-the-above energy policy, their actions don’t match the rhetoric,” Upton said. Lifting the export ban also would strengthen national security and weaken economic and political rivals such as Russia, Iran and Venezuela, supporters said. The measure includes a Republican-sponsored amendment blocking crude exports to Iran.

The House Just Did The Oil Industry A Huge Favor - The Republican-led House of Representatives voted Friday afternoon to lift the oil export ban, setting up a potential fight in the Senate and eventual veto from the White House.  Big Oil has been campaigning heavily for a repeal, as oil and gas prices have fallen globally, but opponents say that in fact lifting the ban will increase America’s dependence on foreign oil — and encourage more drilling and fracking in the United States. Environmentalists said Friday that the House move was simply kowtowing to fossil fuel interests during a time of political upheaval.  “The Republican party is in chaos right now,” Radha Adhar, a federal policy representative for the Sierra Club, told ThinkProgress, referring to the ongoing deliberations for a House speaker. “It appears that the only thing they can get unity on among their membership is that they support big polluter giveaways.”  The bill passed the House 261-169, with the support of only 26 Democrats.  During deliberations, Rep. Jack Pallone (D-NJ) called the repeal “a poorly crafted bill that needlessly and recklessly sweeps away 40 years of critical energy protections for national security, our economy, consumers, and the environment.”  Most Americans, according to polls, do not want the oil export ban to be lifted. While it’s considered a step in the wrong direction on the development of fossil fuels, it also raises concerns for many consumers that oil and gas prices will go up once the American product hits the global market.

Moniz: Strategic Petroleum Reserve is too valuable to sell its stockpiles - Fuel Fix: — The Senate Energy and Natural Resources Committee on Tuesday examined the future of the nation’s emergency oil stockpile, amid calls to sell off some of the stored supplies as a revenue-raiser and an Obama administration push to stash more refined petroleum products alongside raw crude. Energy Secretary Ernest Moniz broadly agreed with senators and expert witnesses that changes are needed to ensure the Strategic Petroleum Reserve remains a valuable insurance policy against global crude supply disruptions. That includes bolstering some of the infrastructure surrounding the salt caverns in southwest Louisiana and southeast Texas that make up the reserve, so that 4.4 million barrels per day can be pulled out of in an emergency and delivered to the market. A test sale in March 2014 revealed that while the SPR actually can hit that target drawdown rate, there isn’t enough takeaway pipeline capacity to keep up with it. “The SPR remains an extremely powerful and valuable energy security tool,” Moniz told the Senate panel. But, 40 years after the reserve’s creation in the wake of the OPEC oil embargo, its facilities “are currently due for major life extension improvements.” “Basically, it’s old, and we need to extend its life,” Moniz said. A broad government analysis of U.S. energy infrastructure, released in April, suggested modernizing the SPR, including changes to the triggers for tapping it, and some $2 billion in projects to improve marine distribution capability and extend the life of the storage facilities.

With increased regulation, continued decline in residual fuel oil demand is expected - Today in Energy - U.S. EIA - Health and environmental concerns related to the high sulfur content of residual fuel oil (RFO) have led to new policies and regulations that have significantly lowered expectations for future RFO use globally. As the demand for RFO declines, the need for the refining upgrades to convert residual material to lighter, cleaner products will increase. As its name implies, RFO is one of several residuals that remain after lighter material, like gasoline and distillate, are distilled out of crude oil. RFO contains a large amount of contaminants, including sulfur, nitrogen, and heavy metals. Because of its high viscosity, RFO is either blended with lighter streams or heated to ensure that it can be pumped. Throughout the world, RFO is used in many sectors, including marine transportation, power generation, commercial furnaces and boilers, and various industrial processes. In some areas, RFO is a relatively low-cost fuel for space heating. RFO plays an important role in the global liquids fuel market, as its price is normally below that of other liquid fuels. Large reductions in RFO demand will likely come from decreased use of RFO for power generation and space heating. In the power sector, the cost of pollution controls, maintenance, and RFO heating often offset the lower cost of RFO when compared to natural gas and other more expensive fuels. Consequently, power sector demand for RFO, especially in industrialized countries, is expected to decrease. However, RFO will serve as a transitional fuel in the power sector of developing countries that may be more sensitive to price and less sensitive to environmental and health implications.

B.C. lowballing fugitive methane emissions from natural gas industry: The push by British Columbia to develop a new liquefied natural gas (LNG) export industry raises questions about the impact such activities would have on greenhouse gas emissions, both within the province and globally. One of the single most important factors relates to the amount of methane and carbon dioxide that gets released into the atmosphere, either deliberately through venting or by accident as so-called fugitive emissions. Fugitive emissions are the result of valves and meters that release, by design, small quantities of gas. But they can also come from faulty equipment and from operators that fail to follow regulations.  According to the B.C. Greenhouse Gas Inventory Report 2012, there were 78,000 tonnes of fugitive methane emissions from the oil and natural gas industry that year. B.C. produced 41 billion cubic metres of gas in 2012. This means about 0.28 per cent of the gas produced was released into the atmosphere. By North American standards, this is a very low estimate. The U.S. Environmental Protection Agency (EPA) uses a figure of 1.5 per cent leakage, more than five times higher. Recent research led by the U.S. non-profit group, Environmental Defense Fund (EDF), shows that even the EPA estimates may be too low by a factor of 1.5. B.C.’s estimate, in other words, would be about one-eighth of what has been estimated for the American gas industry.

Suncor launches hostile bid for Canadian Oil Sands - Suncor Energy Inc launched a hostile bid for Canadian Oil Sands Ltd on Monday as the slump in oil prices encourages consolidation in Canada’s oil sands industry, which has some of the world’s highest operating costs and lowest prices. Canadian Oil Sands and Suncor are among stakeholders in Canada’s largest synthetic crude project, Syncrude, in northern Alberta. Alberta’s oil sands are the world’s third-largest crude reserves after Saudi Arabia and Venezuela and a leading source of U.S. crude imports. Suncor’s all-stock offer for Canadian Oil Sands is valued at about C$4.3 billion ($3.29 billion). Suncor shares were down 2 percent at C$34.67 and Canadian Oil Sands shares were up 48 percent at C$9.15 on the Toronto Stock Exchange on Monday morning. Canadian Oil Sands was not immediately available for comment.

Despite Shell’s about-face, interest in Arctic oil grows -- After billions of dollars invested over several years, Royal Dutch Shell said September 28 it would end oil exploration offshore Alaska after “disappointing” results. But industry efforts to drill for oil and natural gas in the Arctic are unlikely to end with Shell’s decision to abandon the Chukchi Sea. Indeed, momentum to exploit fossil fuel reserves in the Arctic has been building for decades. This week, in fact, political and industry leaders will converge on Fairbanks, Alaska for the 2015 Arctic Energy Summit, where they will consider options and opportunities for energy development, despite some of the lowest gasoline prices in years and a glut of natural gas in the US. The trends pushing for oil and gas in the Arctic run counter to the efforts of a growing number of advocates who argue some fossil fuel resources need to remain untapped to slow the rate of carbon emissions. The prospect of oil and gas drilling also opens fresh questions over how such development would impact the local wildlife and cultures and the influence of environmental activists. As Shell’s decision to abandon its exploration well about 150 miles from Barrow, Alaska shows, energy development in the Arctic environment entails significant technical challenges. However, it remains an enticing resource: geologists know that the Arctic region’s 19 geological basins contain nearly 90 billion barrels of technically recoverable oil – roughly 13% of the undiscovered oil in the world!

UK Gov Sees Fracking As Better Option Than Clean Energy | OilPrice.com: UK Energy Secretary Amber Rudd says Britain’s Conservative government is determined to cut subsidies to companies developing clean energy alternatives to oil and gas, and argues that hydraulic fracturing, or fracking, to extract oil from shale is a less expensive option. Addressing her party’s conference in Manchester on Oct. 5, Rudd dismissed subsidies as a path to cleaner energy for her country, saying there is “no magic money tree” to finance such an effort. “I support cutting subsidies,” she said, “not because I am an anti-green Conservative, but because I am a proud green Conservative on the side of the consumer. We must be tough on subsidies. Only then can we deliver the change we need.” Rudd also repeated the Tories’ support for fracking. She said evidence from the United States demonstrates that the technology is “cheaper, without subsidy, than the alternative” for generously providing Britons with energy.  "The kind of transformation we need of our global energy system will only happen if low-carbon energy becomes cheaper than the alternative,” Rudd said. “The only long-term way to solve the real tension between affordability, security and low carbon is to discover low-cost, low-carbon technologies.”

Royal Dutch Shell warns of risk of oil price spike - Royal Dutch Shell on Tuesday warned of the risk of a “spike” in oil prices should Opec keep pumping flat-out in the face of an expected decline in output after spending cuts by energy groups outside the producers’ cartel. Ben van Beurden, Shell’s chief executive, said he saw “the first mixed signs” of a recovery in oil prices, which have more than halved to just above $50 a barrel since the summer of last year. Prices fell particularly sharply after Saudi-led Opec last November decided against reducing production in response to a US supply glut. The unexpected resilience of US shale producers meant that it would take “more time” to rebalance supply and demand, said Mr van Beurden, who identified Saudi strategy and Opec cohesion as “key uncertainties”. “If they get it right and find a new balance, prices will recover,” he told delegates at the Oil and Money conference in London. “­But what if Opec doesn’t get it right and prices remain low for much longer? “Then, the world may find itself in a tight corner at some stage, when stocks are rebalanced, growth of US shale oil is stalled, oil production outside Opec and the US is starting to decline due to cuts to capital expenditure, and when — by that time — there is unlikely to be any significant spare capacity in the system. “This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility.”

U.S. oil output on brink of "dramatic" decline, exec says -- Oil executives warned on Tuesday of a “dramatic” decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases. Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. “We are about to see a pretty dramatic decline in U.S. production growth,” the former head of oil firm EOG Resources Mark Papa, told the conference. Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments. Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year. Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

Supply, demand and the price of oil -- Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year. Suppose for illustration that even at a price of $40, there would be enough producers with sunk costs on projects already begun who would be willing to bring sufficient oil to the market to fully meet current consumption. But suppose further that at a price of $40, few new investments are undertaken, so that next year supply is much lower than it is this year, such that next year’s production would equal next year’s demand at a price of $60. What’s wrong with this picture? Under the above scenario, if you were to buy oil today at $40, store it for a year, and sell it next year for $60, you’d make a huge profit. And if right-minded capitalists tried to do exactly that in huge volumes, the price of oil today would be bid up above $40, as the inventory demand is added to current consumption demand. As that oil is sold next year, it would bring the price next year below $60. In equilibrium, the difference between this year’s price and next year’s expected price should be close to the storage cost. That arbitrage is clearly an important aspect of what has been going on over the last year. In response to lower prices, capital expenditures in the oil patch are being slashed. The number of drilling rigs active in the U.S. areas associated with tight oil production is only 43% of its level a year ago. U.S. oil production is falling, though so far the decline in production has been relatively modest. U.S. tight oil production is only down about 7% from a year ago.

Low Oil Prices - Why Worry? - Gail Tverberg - Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit. In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy. What Janet Yellen is seeing in Figure 1, even though she does not recognize it, is evidence of a slowing world economy. The economy can no longer support energy prices as high as they have been, and they have gradually retreated. Currency relativities have also readjusted, leading to lower prices of imported goods for the United States. Both lower energy prices and lower prices of imported goods contribute to lower inflation rates. Instead of reaching “Peak Oil” through the limit of high oil prices, we are reaching the opposite limit, sometimes called “Limits to Growth.” Limits to Growth describes the situation when an economy stops growing because the economy cannot handle high energy prices. In many ways, Limits to Growth with low oil prices is worse than Peak Oil with high oil prices. Slowing economic growth leads to commodity prices that can never rebound by very much, or for very long. Thus, this economic malaise leads to a fairly fast cutback in commodity production. It can also lead to massive debt defaults. Let’s look at some of the pieces of our current predicament.

Oil hits month-high on output forecast, OPEC comments: Crude prices hit one-month highs on Tuesday after a new U.S. forecast showed tighter oil supplies next year, while Russia, Saudi Arabia and other big producers hinted at further talks to support the market. Global crude benchmark Brent returned to above $50 a barrel, breaking range-bound trades since early September that have largely seen the market trade in a $5 band. A weakening dollar added support for oil, as did bets that the U.S. oil rig count could tumble again this week after last week's unexpectedly sharp decline of 26 rigs.  Brent crude, the global oil benchmark, was up $1.95, or 4 percent, at $51.20 a barrel by 1:57 p.m. EDT (1757 GMT), after rising as high as $51.99, it's strongest level since Sept. 3. Traders also cited technical buying for Brent at above $50 a barrel as it headed for its first three-day gain in a stretch after Monday's rise of more than 2 percent and Friday's climb of nearly 1 percent. U.S. benchmark West Texas Intermediate crude rose $1.77, or 3.8 percent, at $48.03 a barrel, after touching a one-month high of $48.63.

Oil jumps $2, breaking range as supply seen ebbing  (Reuters) - Oil prices jumped more than $2 a barrel on Tuesday, breaking out of a month-long trading range on a mix of technical buying and industry talk as well as U.S. government data suggesting the global supply glut could be ebbing. Global benchmark Brent crude rallied for a third straight day and settled above $50 a barrel for the first time in a month. This convinced some dealers that there was little chance prices would slide back to the 6-1/2-year lows touched in August. Early gains were fueled by a U.S. government forecast for tighter oil supplies next year, and indications that Russia, Saudi Arabia and other big producers might pursue further talks to support the market. The rally accelerated above $50 on chart-based buying and a weakening dollar. Brent settled up $2.67, or 5.4 percent, at $51.92 a barrel, breaking out of the $47 to $50 band it had traded since early September. Its session peak, a penny shy of $52, was the highest since Sept. 3, and took three-day gains to more than 7 percent. West Texas Intermediate (WTI), the U.S. crude benchmark , settled up $2.27, or 4.9 percent, at $48.53. "We have reduced the probability of a return to the $37 to $38 area per nearby WTI,"  "We will maintain a longstanding view that price declines below this support level are virtually off of the table."

Oil up to $50 on speculation producers getting together - Oil prices rose on Tuesday, heading for the first three-day gain in five weeks, on signals that the world’s biggest producers of crude may act jointly to support prices, which have halved over the past year. Brent crude, the global oil benchmark traded up 75 cents at the $50.00 a barrel milestone for the first time in two weeks by 1243 GMT, or 1.4 percent day on day. It rose 2.3 percent on Monday. The U.S. benchmark, West Texas Intermediate crude, was up 36 cents at $46.62 a barrel. The contract gained 1.6 percent in the previous session. “The market is possibly moving on speculation that OPEC and non-OPEC countries will find an agreement to cooperate,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. Russia’s energy minister said Russia and Saudi Arabia had discussed the oil market in a meeting last week and would continue to consult each other. This was in line with comments made by OPEC Secretary-General Abdullah al-Badri at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut. “There is one problem we are facing: the overhang,” he said, adding there were already signs of higher crude demand and of a drop in supply growth from non-OPEC members.

Oil up as U.S. production falls, stockpiles draw  – Oil prices rose on Wednesday after data showed the market was beginning to tighten, with falling supply, higher demand and lower inventories after two years of heavy surplus. The U.S. government’s Energy Information Administration (EIA) said in a monthly report global oil demand should increase by its fastest rate in six years in 2016, suggesting a surplus of crude is easing more quickly than expected. That view was reinforced by industry group the American Petroleum Institute (API), which said U.S. crude oil stocks decreased by 1.2 million barrels last week and distillate stockpiles also fell. Global benchmark Brent crude oil has dropped to around $50 from a high above $115 a barrel in June 2014 and many oil companies are losing money with oil prices so low. Brent rose $1.07 a barrel, or more than 2 percent, to a high of $52.99 on Wednesday before easing to $52.90. It jumped as much as $3 on Tuesday to close above $50 for the first time in a month. U.S. light crude rose $1.18 to high of $49.71. “The market has just realised the extent of the U.S. crude oil production decline and is pricing this in,” said Daniel Ang, oil analyst at brokerage Phillip Futures. Tuesday’s jump in oil prices pushed both crude benchmarks out of narrow trading ranges that had held for more than a month and chart analysts said prices could now rise further.

Jack Kemp's Weekly Data Points -- October 7, 2015

U.S. commercial crude oil inventories week ending 10/2/2015 UP 3.1 MMbbl, refinery utilization = 87.5%
US commercial crude stocks rose +3.1 million bbl last week, up +10.2 million bbl in last 6 weeks
Price of WTI is still holding, at least for the moment; flirting with $50/bbl threshold.
US refineries cut throughput -403,000 b/d, exactly in line with 2014, but fuel consumption higher so tighter overall
US crude oil imports eased down to 7.1 million b/d, from 7.6 million b/d the prior week, slightly below avg for 2015
US gasoline consumption averaged +350,000 b/d above 2014 in last four weeks, tracking normal post-summer slowdow
US gasoline stockpiles continued to rise (+1.9 million bbl) and seasonal stocks are now the highest for over 10 yrs -- what peak oil?
US gasoline stocks stand at 24.76 days of current consumption, up from 23.99 days this time in 2014
US distallate stocks fall for 3rd consecutive week, down -2.5 million bbl, but still +23.0 million above prior-year

Crude Oil Price Dives After EIA Storage Report - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 3.1 million barrels last week, maintaining a total U.S. commercial crude inventory of 461 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 slipped by 1.2 million barrels in the week ending September 25. For the same period, analysts had estimated an increase of 2.5 million barrels in crude inventories. Total gasoline inventories increased by 1.9 million barrels last week, according to the EIA, and are now above the upper limit of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged about 9 million barrels a day for the past four weeks, up by 4% compared with the same period a year ago. On Monday the EIA released its latest version of the Short-Term Energy Outlook. The agency estimated that U.S. crude oil production fell by 120,000 barrels a day month-over-month in September. For the current year, the EIA projects average daily U.S. production of 9.2 million barrels; for 2016 EIA projects 8.9 million barrels a day. The agency also forecasts retail gasoline prices to tumble from an average of $2.37 a gallon for regular gas to $2.03 in December. For 2016, the EIA projects an average price of $2.38 a gallon.

Crude Plunges After Bigger-Than-Expected Inventory Build & Production Surge -- In the face of a modest inventory drawdown (reported last night by API), DOE reports a major 3.073 million barrel inventory build (for the 2nd week in a row). As EIA reports, oil stocks remain at their highest in at least 80 years. Rubbing salt into the wounds, Crude production rose 0.84% WoW, the biggest surge in 5 months. WTI Crude's initial reaction is a significant sell-off... Biggest 2-week build since May...And production surged by the most in 4 months... (with a 0.7% rise in the Lower 48's production) And so Crude gives back all its post-API gains... Charts: Bloomberg

WTI Crude Surges Back Above $49 After OPEC Comments  -- WTI Crude has recovered the losses following yesterday's DOE-reported inventory and production rise as it appears comments from OPEC Secretary-General Al-Badri told The IMF that demand will climb more this year than previously projected (coming on the heels of EIA's comments that oil companies worldwide will cut investments in oil exploration and production by a record 20 percent this year.) USD weakness is also helping drive algos to run stops in crude.Charts: Bloomberg Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. There is a supply overhang of about 200 million barrels in the market, El-Badri said at a conference in London on Oct. 6.

Oil extends gains, set for biggest weekly rise since 2009 | Reuters: Oil extended gains on Friday and was set for its biggest weekly rise in over six years after U.S. Federal Reserve minutes suggested it was in no hurry to raise interest rates and an influential forecaster predicted a price rally. Brent crude, the global benchmark, was up 75 cents at $53.80 a barrel at 1211 GMT, 1.3 percent above the previous close and on track to rise 12 percent this week alone. U.S. crude was up $1, or 2 percent, at $50.43 a barrel, the highest level in more than two months. The U.S. central bank's meeting minutes showed more policymakers than expected agreed to keep the first interest rate hike in a decade on hold. The news also supported equity markets on Friday, with top European stocks climbing to a one-month high. Forecaster PIRA Energy Group issued a bullish oil price prediction on Thursday, saying oil would hit $70 a barrel by the end of next year and trade at $75 in 2017. "The Fed minutes and the PIRA price forecast are driving prices today," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates. "The rally may sustain for the short term but it should run out of steam some time next week because we are in a generally oversupplied market."

WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Ain't Buying It) - WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world’s biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.Following the 2nd biggest week in crude since January 2009... WTI Crude broke above $50 for the first time since July... “The stocks have been oversold over the past year and that’s helping the rally now,”  “Question is where will oil prices settle now? Investors think oil companies can weather the storm because they’ve got so many levers to pull.” However, Credit markets remain notably unimpressed (and given their focus on cashflows, we suspect at this level of risk, they are less momo and more fundamentally driven)... As Bloomberg reports, Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June. Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.

U.S. Oil Rig Count Slides Again - WSJ: The U.S. oil-rig count dropped by nine to 605 in the latest week, extending a recent string of declines, according to Baker Hughes Inc. BHI -1.55 % The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year. After a streak of modest growth, the rig count has now declined for six consecutive weeks. U.S. oil prices recently were up 0.4% to $49.61 and have been hovering around the $50 mark. There are now about 62% fewer rigs from a peak of 1,609 last October. According to Baker Hughes, the number of gas rigs fell by six to 189. The U.S. offshore rig count was 32 in the latest week, up two from last week and down 26 from a year ago. For all rigs, including natural gas, the week’s total declined by 14 to 795.

US rig count declines by 14 this week to 795 (AP) — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. this week declined by 14 to 795. It was the sixth consecutive week of declines. Houston’s Baker Hughes said Friday that 605 rigs were seeking oil and 189 explored for natural gas. One was listed as miscellaneous. A year ago, with oil prices about double the prices now, 1,930 rigs were active. Among major oil- and gas-producing states, Oklahoma lost six rigs, Texas declined by four and Kansas, Louisiana, North Dakota, Ohio and Pennsylvania each dropped by one. Colorado gained one rig. Alaska, Arkansas, California, New Mexico, Utah, West Virginia and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. oil drillers cut rigs for 6th week on weak crude prices - Baker Hughes --U.S. energy firms cut oil rigs for a sixth week in a row this week, the longest streak of weekly declines since June, data showed on Friday, a sign low prices continued to keep drillers away from the well pad. Drillers removed nine oil rigs in the week ended Oct. 9, bringing the total rig count down to 605, oil services company Baker Hughes Inc said in its closely followed report. That total was the least since July, 2010. Drillers had cut a total of 61 rigs over the prior five weeks. Since hitting an all-time high of 1,609 during this week a year ago, weekly rig count reductions have averaged 20. Baker Hughes also reported a reduction in natural gas rigs, bringing total U.S. oil and gas rigs to a 13-year low. Gas rigs were down six this week to 189, the lowest level in at least 28 years, according to Baker Hughes data going back to 1987. The oil rig reductions over the past month erased the 47 rigs added over the summer when drillers followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel. U.S. oil futures this week averaged $48 a barrel, up from a $45 average last week, on concerns over Russia’s entry into the Syrian conflict and a rising Chinese stock market. Drillers reduced the number of oil wells in three of the four major U.S. shale oil basins this week. Ten were cut in the Permian in West Texas and eastern New Mexico; two in the Eagle Ford in South Texas; and one in the Bakken in North Dakota and Montana. They added one in the Niobrara in Colorado and Wyoming.

Four Ways the Oil Price Crash Is Hurting the Global Economy - Lower oil prices were roundly celebrated as a tailwind for global growth. In theory, the movement of wealth from commodity producers, which often stow away oil revenue in sovereign wealth funds, to consumers, which spend a far larger portion of their income, is a positive for economic activity. But strategists at Credit Suisse believe that so far, the global economy has seen only the storm from lower crude, not the rainbow that follows. "The fall in the oil price was considered by many investors, and ourselves, to be a significant positive for global GDP growth," a team led by global equity strategist Andrew Garthwaite admitted. The net effect of this development, according to their calculations, has turned out to be a 0.2 percent hit to the global economy.The negative effects of lower oil—namely the large-scale cuts to capital expenditures—are having a large and immediate impact on global gross domestic product. "The problem is that commodity-related capex accounts for circa 30 percent of global capex (with oil capex down 13 percent and mining capex down 31 percent in the past 12 months)," wrote the strategists, "and thus the fall in U.S. and global commodity capex and opex has taken at least circa 0.8 percent off U.S. GDP growth in the first half 2015 and circa 1 percent off global GDP growth over the last year." Garthwaite and his group highlight three other channels through which soft oil prices have adversely affected the American economy: employment, wages, and dividend income. Employment in oil and oil-related industries has declined by roughly 8 percent since October 2014, with initial jobless claims in North Dakota, a prime beneficiary of the shale revolution, at extremely elevated levels. During this period, average hourly wages for those employed in oil and gas extraction shrank nearly 10 percent after growing at a robust clip in the previous two years. And the payouts to investors who own oil stocks have also been cut, which Credit Suisse deems to be a modest negative for household income.

Total Collapse In Interest For Oil Assets: Brazil Oil Auction Is Near Complete Failure - Brazil, which is caught in a vicious recessionary spiral which is only set to get much worse before it gets better, tried to obtain some much needed cash when earlier today it conducted an auction to sell exploration rights for of its oil and gas. It was, in short,  a disaster. According to Reuters, by midday Brazil had only sold 17 of 119 blocks offered. Companies made no bids at all for blocks offered in four of six basins, including areas in the prolific Campos Basin, Brazil's top producing region, and the offshore Camamu-Almada and Espirito Santo basins. Worse, the auction sold just 2 of the 10 blocks for sale in the Sergipe-Alagaos basin, which had been expected to be one of the most fiercely contested. The winning bidders had no competition. Traditionally, a key bidder for such rights has been Brazil's state-run energy giant, Petrobras, which however as a result of an ongoing giant price-fixing, bribery and political kickback scandal, has so far not bid for any blocks. With $130 billion in debt and a backlog of existing projects, Petrobras has not said if it will bid. In all previous auctions Petrobras, alone or in a group, was responsible for at least half of sales. Not this time. A total of 36 companies from 17 countries - including Petrobras, ExxonMobil Corp, BP Plc and Royal Dutch Shell Plc - registered for the auction. None of the majors have bid so far. Only a handful of sold blocks were even contested.

Brazil's Petrobras cuts spending plan for 2nd time in 3 months (Reuters) - State-led PetrĂ³leo Brasileiro SA , struggling with the biggest debt load among global oil firms, on Monday cut $11 billion from capital spending plans for this year and next as Brazil's currency and oil prices slump. Petrobras, as the company is commonly known, plans to cut 2015 investment by 11 percent to $25 billion from the previous $28 billion, according to a statement. Investment for 2016 will be cut 30 percent to $19 billion from $27 billion. Budgeted costs plus operating expenses excluding purchases of raw materials were also trimmed for this year and next. The company is being battered by a whirlwind of bad news. In the last year, oil prices dropped nearly 50 percent and Brazil's currency, the real, slipped by a third against the U.S. dollar, causing revenue to fall and debt to soar. Meanwhile, the downgrade of its debt rating to junk status has raised the cost of borrowing, and a giant corruption scandal has tarnished its reputation with investors. "The company's uncertain future is the consequence of terrible governance," said Fabio Fuzette of Antares Capital, a Sao Paulo investment fund. "Debt is so high that they've sacrificed capital investment to preserve cash."

Mexican crude oil output may only return to 2012 levels in 2018 – Mexico may succeed in bringing oil production only back to where it was three years ago by the time the current administration ends in 2018 despite a major reform to open up the industry, a senior government official said on Wednesday. In December 2012, the month President Enrique Pena Nieto took office, Mexican crude output was 2.56 million barrels per day (bpd), well down from peak production of nearly 3.4 million bpd in 2004. By this August, it had fallen to 2.25 million bpd. Deputy Energy Minister Lourdes Melgar said that with output declining at aging fields and international crude prices down sharply since last year, it would take time for new projects to make up the shortfall. “The situation has obliged us to make adjustments,” she said in an interview. “Just now, the most important thing is to arrest the decline in output and get back” to the 2.5 million bpd. Asked whether that figure was the best Mexico could hope for by 2018, Melgar said, “At this point in time to 2018, taking into account the time it takes to produce, yes.” That would be well below the target of 3 million bpd the government first set itself when Pena Nieto launched an overhaul of the oil and gas industry, which from last year opened up crude production and exploration to private companies.

Huge oil discovery on Golan Heights - After more than a year of round-the-clock drilling, large amounts of oil have been found on the Golan Heights. Estimates are that the amount of oil discovered will make Israel self sufficient for very many years to come. Afek Oil and Gas chief geologist Dr. Yuval Bartov told Channel 2 News, “We are talking about a strata which is 350 meters thick and what is important is the thickness and the porosity. On average in the world strata are 20-30 meters thick, so this is ten times as large as that, so we are talking about significant quantities. The important thing is to know the oil is in the rock and that’s what we now know.” Three drillings have so far taken place in the southern Golan Heights which have found large reserves of oil. Potential production is dramatic — billions of barrels, which will easily provide all Israel’s oil needs. Israel consumes 270,000 barrels of oil per day. Although the existence of the oil in the ground is a fact, the critical phase now is to check how easily it can be extracted and whether it involves high production costs. In a period of very low oil prices, extraction will have to be relatively cheap to make exploitation of the field profitable. Just as Israel’s offshore Mediterranean gas discoveries have created an entire energy industry, so the Golan oil find could also generate a new industry around it. But while the gas has been found dozens of kilometers from Israel, the Golan find is much closer.

Cheap oil shrinks Gulf bond sales as liquidity tightens (Reuters) - Low oil prices are stifling new corporate bond issuance in the Gulf as governments get less energy revenue, leaving banks and other institutional investors with less money to buy debt. International bond issues from the six-nation Gulf Cooperation Council, including both corporate and sovereign issues, dropped 33 percent from a year earlier to $22 billion in the first nine months of 2015, Thomson Reuters data shows. That is the lowest nine-month total since 2008, during the global financial crisis, when issuance totalled $15 billion. Economic growth has stayed robust, so companies still want to raise money. But investors have become less willing to buy bonds at ultra-low yields. Facing higher costs, some companies are cancelling issues. While some bankers cite geopolitical tensions in the Middle East and the approach of monetary tightening by the U.S. Federal Reserve, both factors have existed for many months. Now liquidity is tightening as governments deposit less oil earnings with banks. Last year, banks were so flush with cash that they bought regional bonds almost indiscriminately; that is no longer the case. "Wider spreads being demanded by bond investors, significant deterioration in the liquidity in the banking sector and the implication for the loan market, and of course the looming rate hike from the Fed are collectively making chief financial officers' funding strategy more difficult,"

Saudi Petrodollar Reserves Fall To 32 Month Low Amid Crude Carnage, Proxy Wars, Budget Bleed -- Two weeks after Beijing shifted to a new currency regime in an effort to bring about a managed yuan devaluation, we explained why it really all comes down to the death of the petrodollar. When China began to burn through its FX reserves in a frantic attempt to put the deval genie back in the bottle, the world suddenly awoke to what it means when emerging markets begin burning through their rainy day funds.  Of course the reserve burn had been unfolding for quite sometime. That is, China’s epic UST liquidation was simply the most dramatic example of a dynamic that was already at play. As Deutsche Bank noted, the “Great Accumulation” ended months ago, as the world’s emerging economies began to dip into their USD war chests to defend against commodity currency carnage and the attendant capital outflows.  Nowhere is this more apparent than in Saudi Arabia, where Riyadh has been forced to tap the SAMA piggy bank amid the largely self inflicted pain from slumping crude, the war in Yemen, and the necessity of maintaining social order by preserving the lifestyle of everyday Saudis. Now, as the fiscal deficit balloons to 20% of GDP and falling crude prices put the kingdom on the path to a current account nightmare, reserves have fallen to their lowest levels in 32 months. Here’s Bloomberg: Saudi Arabia’s net foreign assets fell to the lowest level in more than two years in August and demand for loans among private businesses slowed, as the kingdom grappled with oil prices below $50 a barrel. Falling for a seventh month in a row, net foreign assets held by the central bank dropped to $654.5 billion, the lowest since February 2013. That compares with $661 billion in July, the Saudi Arabian Monetary Agency said in its monthly report. Credit to private businesses grew 8.4 percent, the slowest rate since 2011.

On the actual reality of no more petrodollars -- - Isabella Kaminska -- About a year ago — a few days before Opec spooked the world with its decision to wage war on shale producers with an oil production race to the bottom, but following a few months of steady oil declines post the Fed’s decision to start signaling an upcoming tightening path — we speculated regarding a what if scenario based on the hypothetical eventuality of no petrodollars : For us — promoters of the view that commodity financialisation is a bigger deal for global flows, demand and output than most people appreciate — this was a major development. The theory loosely goes as follows. For as long as the US — the global superpower and added-value power house of the world — had a dependency on oil imports, it had no choice but to monetise imports with dollar outflows, or more specifically dollar IOU claims against its own economy issued to oil producers. Purchasing oil in IOUs, however, is unlikely to be tolerated by oil producers if such IOUs don’t keep their value over time. Indeed, if there’s too much inflationary debasement such relationships would soon grow hostile and void. Cue an oil selling embargo. Or some such. So, what we’re saying, essentially, is that the natural leverage oil producers have in the global economy is directly related to their ability to keep the US short of oil. Any sniff of inflation and, oops, there’s less crude for you United States, or the same exact amount of crude but for a much higher price to compensate for the inflation.

Russia ready to meet OPEC to talk oil prices: Russia is ready to meet with members of the Organization of Petroleum-Exporting Countries (OPEC) -- as well as non-member oil producers -- to discuss the situation facing global oil markets, according to the country's oil minister. Alluding to a possible meeting with the 12-member oil producer group OPEC, Energy Minister Alexander Novak said Saturday "if such consultations are to happen, we are ready to take part," Reuters reported, although he did not say when and if such a meeting may take place. In addition, he told reporters that a meeting between officials from Russia and Saudi Arabia was being planned for the end of the month to discuss energy issues and other projects. Following the report, oil prices rose on Monday. Benchmark Brent crude was trading 70 cents higher at $48.72 a barrel Monday morning after ending up 44 cents on Friday. U.S. crude was 57 cents higher at $46.11 a barrel after settling up 80 cents.

Russia, Saudi Energy Ministers Discussed Oil Demand, Production, Shale  (Reuters) – Russia and Saudi Arabia discussed the situation on the oil market last week and agreed to continue consultations, exchanging views on demand, production and shale oil, Russian Energy Minister Alexander Novak told reporters on Tuesday. Even though the oil price has halved since last year on oversupply, Russia, the world's top oil producer, has refused to cooperate with OPEC, where Saudi Arabia is the leading producer. Both OPEC and Russia are instead increasing production in a move to defend market share. Novak did say on Saturday that Russia was ready to meet with OPEC and non-OPEC producers to discuss the market and his comments have supported prices, although analysts have warned that relations may suffer over the two sides' different positions on Syrian President Bashar al-Assad's future.

This Month Could Make Or Break The Oil Markets -- Saudi Arabia announced price cuts to its oil that it is exporting to Asia, in a bid to hold onto market share. Saudi Arabia’s competitors from the Gulf cut their prices last month, forcing the largest OPEC producer to follow suit. Saudi Arabia slashed prices by $1.70 per barrel, opening up a discount of $1.60 per barrel below the Dubai benchmark.  Although there was little expectation of a shift in strategy, the price cut highlights Saudi Arabia’s determination to continue to pursue market share by keeping production volumes elevated. And if there was any question about Saudi Arabia wavering as prices have failed to recover, the country’s top oil official put to rest any notion that the OPEC leader would alter course. “Since the 1970s this industry has been experiencing sharp fluctuations in prices—up and down—which have impacted investments in the field of oil and energy, and its continuity,” Saudi Arabia’s oil minister Ali al-Naimi, said. In other words, al-Naimi was calling upon non-OPEC producers to cut back production.While not specifically saying so, his comments suggest that Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States.But Russia is unable to cut production, even if such a move contributed to an increase in crude prices. Russia is already in deep recession, with the economy expected to contract by 3.8 percent this year. Russia is also producing at the highest level in decades, hitting 10.74 million barrels per day in September, according to the Russian government, a jump of 0.4 percent from a month earlier. While there has been a lot of speculation in the media about the possibility of Russia and OPEC coordinating production cuts in order to boost prices, the fact that Russia is producing themost oil since the Soviet era suggests that Russia is not considering collaborating with OPEC.That leaves few other options for major cut backs in production from market producers around the world, with a lot of attention on North America.

Is Russia Plotting To Bring Down OPEC?  - naked capitalism Yves here. Even with this post giving what looks to be an overly-generous take of the impact of Western sanctions on Russia, the intriguing part is its argument that Russia is well on its way to organizing an anti-Saudi block within OPEC. While Russia has long been allied with Iran and Venezuela, they’ve never been heavyweight international oil players by virtue of the fact that they produce high cost and not terribly desirable heavy sour crude. By contrast, Iraq, which is moving closer to Russia, has the second largest proven oil reserves and they are light sweet crude. The fact that the US spend billions in treasure and lots of American and local lives, only to have Iraq align itself with Russia (even if only on a case-by-case basis) would be a colossal geopolitical own goal. Energy is the foundation of Russia, its economy, its government, and its political system. Putin has highlighted on various occasions the contribution Russia’s mineral wealth, in particular oil and natural gas, must make for Russia to be able to sustain economic growth, promote industrial development, catch up with the developed economies, and modernize Russia’s military and military industry. Even a casual glance at the IMF’s World Economic Outlook statistics for Russia shows the tight correlation since 1992 between GDP growth on the one hand and oil and gas output, exports, and prices on the other (economic series available here). The emergence of the U.S., along with Canada, as powerful crude, NGL, and natural gas producers is also a major concern for the Russian economy.  Putin’s moves in the Middle East could help Russia address the impact of these threats to the Russian energy industry. They potentially enhance the attractiveness of Russian crude and natural gas supplies compared to those from Saudi Arabia and its Gulf Arab allies. In the selection of crude and natural gas suppliers, security is a key consideration for importers. Wary of U.S. naval power, the Chinese, for example, prefer pipeline natural gas supplies over seaborne LNG supplies. Importers therefore must take into consideration the potential threats to transport. In this critical area, Russia enjoys a decided advantage over Saudi Arabia and the Gulf Arab producers, which depend on sea transport through the Persian Gulf and the Red Sea to ship their oil and LNG. Each of the three routes from these two bodies of water passes through a “choke point” (from the Red Sea, through the Suez Canal to Europe and through the Mandeb Strait to Asia, from the Persian Gulf through the Strait of Hormuz). By adding an airbase to their military presence in Syria, the Russians—coordinating with Iran, Syrian President Assad, and eventually possibly Iraq—would have the capability to disrupt shipments from Persian Gulf and Red Sea terminals.

Saudi Aramco Cuts Crude Pricing to Asia, U.S. Amid Weak Demand - Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand. Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg. Brent crude, a global benchmark, tumbled almost 50 percent last year as Saudi Arabia and other OPEC members chose to protect market share instead of decreasing output to boost prices. Brent fell from more than $100 a barrel in July 2014 to less than half that amount six months later and traded below $50 a barrel on average in September. Contracts for November settlement were 40 cents higher at $48.53 a barrel on Monday at 7:19 a.m. in London. “They needed to cut pricing to keep Saudi crude competitive with other grades,” Saudi Arabia will continue investing in oil production even amid the low prices, Ali Al-Naimi, the country’s oil minister said in a speech in Istanbul, in comments reported by state-run Saudi Press Agency Friday. Volatile oil prices affect investments, creating a situation that’s not good for producers or consumers, he said. “We have to do the right thing,” Al-Naimi said   Commercially viable producers “will continue to prevail,” and the Organization of Petroleum Exporting Countries will increase its market share, he said.

Saudi Oil Minister Puts On Brave Face Amid Severe Headwinds: "Eventually, Economic Producers Will Prevail" -- As the EM world looks on helplessly while Saudi Arabia’s war with the US shale complex (and, by extension, with the Fed) serves to keep crude prices depressed putting enormous pressure on commodity currencies and accelerating emerging market outflows, the question is whether Riyadh’s SAMA piggy bank can outlast the various capital market lifelines available to America’s largely uneconomic shale drillers.  It’s tempting to simply say “yes.” That is, with the next round of revolver raids due in days and with HY spreads blowing out amid jittery US markets, it seems unlikely that maligned US producers will be able to survive for much longer, and despite the fact that data out yesterday shows Riyadh’s FX reserves falling to a 32-month low, the Saudi war chest still amounts to nearly $700 billion,  giving the kingdom plenty of ammo. Given the above, some have dared to suggest that in fact, the Saudis could lose this “war” just as they may be set to lose their status as regional power broker to Tehran thanks to Iran’s partnership with Moscow in the ongoing effort to shore up Assad in Syria and wrest control of Baghdad from the US. But don’t tell that to Saudi Arabia's Oil Minister Ali al-Naimi who says that despite all the uncertainty, the economics of oil exploration and production will prevail at the end of the day. Here’s Reuters, citing Economic Times: Saudi Arabia's Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC's share of the market will rise, India's Economic Times newspaper reported on its website on Monday. In comments suggesting Saudi Arabia, the world's top oil exporter, is sticking to its policy of defending market share rather than supporting prices, Naimi told the paper the drop in oil prices was less of a problem than fluctuations.

Saudi pricing shows oil volatility in action amid oversupply -- Saudi Arabia’s decision to lower prices for oil loading in November shows that the battle for market share in an over-supplied Asian crude market is far from over. Saudi Aramco, the kingdom’s state-owned oil company, cut its official selling price (OSP) for its main Arab Light grade to Asia to a discount of $1.60 a barrel to the regional benchmark Oman/Dubai price for November from a premium of 10 cents for October cargoes. While the reduction was at the lower end of expectations of traders surveyed by Reuters ahead of the announcement, it still indicates that the Saudis are willing to accept reduced prices in order to keep their crude competitive. In turn, this shows that there is still likely some distance to go before the end of the current cycle of weak crude prices, especially if one accepts the view that the Saudi pricing strategy reflects their desire to maintain market share over pricing power. A wider contango in the Dubai market structure in recent weeks, with oil for three months out commanding a higher premium than spot deliveries, was always likely to lead to a drop in the Saudi OSPs. The OSPs probably didn’t decline by as much as indicated by the contango because they hadn’t risen by as much in the third quarter, when the contango virtually disappeared amid strong demand for prompt supplies. The Saudi OSPs set the trend for prices from Middle East rivals such as Iran, Iraq and Kuwait, and are thus the bellwether for as much as 12 million barrels per day (bpd) of crude destined for Asian refiners.

Oil market needs an anchor, Saudi adviser says -- The lack of a clear leader or “anchor” in the global oil market is fueling uncertainty and leading to sharp swings in crude prices, but this uncertainty is unlikely to continue for long, a senior Saudi oil adviser said. The comments by Ibrahim al-Muhanna suggest that Saudi Arabia and the rest of OPEC understand that they are unable to manage the oil market alone for the time being, and would like to see some kind of collective mechanism to reduce the current instability in the market. “In the current circumstances, the international oil market could continue in an unstable situation, where there is a lot of uncertainty with the lack of a market anchor,” Muhanna, an adviser to the Saudi oil minister, told a closed-door energy event in Kuwait on Wednesday. His comments were released publicly on Friday. “In the end, this means the inability of investors to find a suitable price in the market currently and in future,” he said in the speech. “This is an unnatural situation and it is difficult to see it continuing.” Top oil exporter and OPEC heavyweight Saudi Arabia was the driving force behind OPEC’s landmark decision, at its meeting in November 2014, not to cut oil output to support prices, and instead seek to defend market share. The decision, which is a shift from OPEC’s traditional role of reducing production to prop up prices, has along with a supply glut helped trigger a sharp drop in crude prices in the last year. The message from Riyadh has been clear: the kingdom is no longer willing to shoulder the burden of reducing production alone and if others want better prices, they should take on their share of output cuts.

Saudi Arabia Said to Order Spending Curbs Amid Oil Price Slump - Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people with knowledge of the matter. The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned the buying of vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said. With oil accounting for about 90 percent of revenue in the Arab world’s largest economy, a drop of more than 40 percent in crude prices in the past 12 months has combined with wars in Yemen and Syria to pressure Saudi Arabia’s finances. While public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2 percent in 2014, that may rise to 33 percent in 2020, according to estimates from the International Monetary Fund.  To help shore up its finances, authorities plan to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year, people with knowledge of the matter said in August. The kingdom’s net foreign assets fell for a seventh month to $654.5 billion in August, the lowest level in more than two years. That’s down from a record $737 billion a year earlier. Economic growth in OPEC’s biggest oil exporter will probably slow to 3 percent this year from 3.6 percent in 2014, according to the median estimate of economists on Bloomberg. Brent, a benchmark for more than half the world’s crude, was trading at $51.73 per barrel at 1:33 p.m. in London, down about 10 percent this year.

Saudi Arabia Declares Spending Moratorium As Oil Rout Bankrupts Kingdom -- As we’ve documented extensively for the better part of a year, the Saudis’ move to “Plaxico” themselves by artificially suppressing crude prices in an attempt to preserve market share by bankrupting the largely uneconomic US shale space has far-reaching implications for global liquidity. When the supply of exported petrodollar capital turned negative for the first time in decades last year, it effectively ushered in a new era wherein the “great accumulation” (to quote Deutsche Bank) of USD-denominated assets by the world’s reserve managers came to an abrupt end removing a decades-old, perpetual bid for DM debt.   But that’s the bigger picture. At a more granular level, the Saudis bankrupted themselves, as slumping crude killed the current account and simultaneously created a budget deficit that amounts to 20% of GDP.  Now, as Bloomberg reports, Riyadh has effectively declared a spending moratorium in the wake of self-inflicted crude carnage: Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people familiar with the matter.The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned buying vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said.

Iran to launch new oil projects, sees post-sanctions supply boost - Iran will introduce more than 50 exploration and production projects to investors in the near future, the country’s chief negotiator for new oil contracts said on Tuesday. Seyed Mehdi Hosseini, head of Iran’s Oil Contracts Restructuring Committee, told the Oil & Money conference in London the contracts would be introduced in Iran this year and at a conference in the British capital in February 2016. Iran is keen to recover the oil market share it lost as a result of international sanctions imposed over its nuclear program. These are due to be lifted following a deal in July with world powers to curb the nuclear program and Iran says it could boost supplies quickly. “Immediately after sanctions are lifted, maybe we within some months we can add at least 500,000 barrels per day (bpd). It does not take that long,” Hosseini told reporters on the sidelines of the conference. “After that we are targeting another 1 million. Maybe in less than a year we can come to our pre-sanction capacity of around 4 million bpd.”

The REAL Reason Saudi Arabia Hates Iran -- Everyone knows that the Saudi Arabia – the center of Sunni Islam – hates Iran because it is the center for the rival Shia Muslim sect. The Saudis – close U.S. allies – also hate Iran because it is allied with Russia. But there is a third, little-known reason why the Saudi government hates Iran. As the Gulf Cooperation Council – the official council for the Arab Gulf States, comprised of the monarchies of Saudi Arabi, Kuwait, Bahrain, the United Arab Emirates, Qatar and Omanwrites: More than any other single factor, the Iranian Revolution helped to coalesce the security concerns of Saudi Arabia and the other monarchies in the Gulf region. As the largest Arab monarchy, Saudi Arabia was in a position to lead the others toward cooperative efforts. The impact of the Iranian Revolution on Saudi Arabia was manifold. The revolution destroyed the most powerful monarchy in the Gulf area. It was the second revolution to send shock waves throughout the Gulf region, the first being the revolution in Iraq that destroyed the monarchy in 1958. The Iraqi revolution had been followed by deteriorating relations between Riyadh and Baghdad, when the Baathist regime tried to subvert the Gulf monarchies. The Iranian example, however, appeared more menacing. The balance of forces seemed to have changed further against the monarchical regimes in the region because Iran, like Iraq, replaced the monarchy with a republic. Whatever course the new Iranian republic took, its very existence would threaten Saudi Arabia and other Gulf monarchies. In other words, the Saudi government hates Iran because it is a republic, while Saudi Arabia and the other Gulf states are monarchies.

Qatar’s Wealth Fund Said Interested in Glencore Agriculture Sale -- The sovereign wealth fund of Qatar has joined investors expressing an interest in buying a minority stake in Glencore Plc’s agriculture business, according to three people familiar with the conversations. The talks are preliminary and a sale would take as long as six months, said the same people, who asked not to be identified because the matter is confidential. Qatar Holding LLC, the direct investment arm of the Gulf state’s sovereign wealth fund, is already the largest investor in the Swiss-based commodities trader-cum-miner, with an 8.9 percent stake, people said earlier this week. Others involved in preliminary talks with Glencore include the sovereign wealth fund of Singapore, Japanese trading house Mitsui & Co. and Canada Pension Plan Investment Board, the country’s largest pension manager. Citigroup Inc., one of the banks hired to run the sale alongside Credit Suisse Group AG, said earlier this month that the whole business could be worth as much as $10.5 billion. Glencore is seeking to sell a minority stake in the unit, which deals in commodities from wheat to cotton, soybeans to sugar. As part of negotiations with potential buyers, the Swiss-based commodities trader is considering a plan that will carve out its agriculture business as a stand-alone company with its own capital structure, incorporating the unit in Singapore, the same people said. Under the island state’s rules, commodity trading houses can benefit from tax rates as low as 5 percent.

Tanker Rates Soar As China Hordes Saudi's "Cheap" Oil Amid Biggest Price Cut Since 2012 -- The oil patch is full of conundra currently... crude price declines globally to near 2009 lows but supertanker day-rates (demand) soaring over $100,000 for the first time since 2008. However, today's news that Saudi Arabia is slashing its price (to a $3.20 discount to the bechmark with the largest price cut since 2012) suggests in an effort to shore up tumbling reserves and capture more market share amid dwindling demand (and excess supply) - a price war has begun led by US ally Saudi Arabia... and China is hording crude at these low-low prices. With crude prices stuck near multi-year lows... Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand.As Bloomberg reports, Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg.

What Will Happen To Oil Prices When China Fills Its SPR? --The available information on China’s Strategic Petroleum Reserve is a mess. The data is sparse, infrequent, and contradictory, which is something one might expect from a strategic sector originating in China. In an apparent attempt to rectify this lack of transparency, in November of 2014 the Chinese government actually stated it would begin regularly releasing official data on its Strategic Petroleum Reserve; however, the data has not been particularly forthcoming, and has been erratic. So, there is still a need to fill information gaps regarding China’s SPR.  The SPR is supposed to eventually hold 500 million barrels, although some are now estimating that figure is meant to rise to 600 million by 2020, based on new demand assumptions and added facilities brought online this year. China has been building its reserve capacity for about a decade, and has been tackling this massive task in three phases, all of which are set to be complete by 2020. Phase 1, which saw four storage facilities constructed, is widely accepted to be complete, and currently holds around 90 percent of capacity, with 91 million barrels of crude stored, out of a capacity of 103 million, covering 9 days of Chinese consumption. China is currently in the middle of phase 2 construction, along with all the complexity and confusion that entails. Several of these facilities came online in 2011 and 2014, with others that have been completed earlier this year, and a couple slated to be completed in Q4 of this year. Originally, phase 2 was supposed to have 8 storage sites, but it is now believed that figure has been increased to 10, which will hold approximately 260 million barrels of crude.. 

No comments:

Post a Comment