oil prices have been quite volatile this past week, dropping almost 4% when the market opened Tuesday, and then later soaring 21% from their Wednesday lows...recall that US crude prices for crude had fallen to 11 year and then to 12 year lows last week, when the contract price for February delivery started the week at $33.55 a barrel and fell to $29.42 by the Friday close, breaching $30 for the first time since 2003...US markets were closed Monday in observance of the MLK memorial holiday, but that oil contract price continued falling when the markets opened Tuesday, and ended the day at $28.46...at the same time, Brent oil, the international price benchmark which had fallen 6.3% on the prior Friday to close 48 cents a barrel below US prices, continued falling on Monday to close at $28.55, but rebounded to $28.76 a barrel on Tuesday...on Wednesday, as trading in the February contract for US crude was expiring, that price fell nearly 7% more to close at $27.55 a barrel, when global markets crashed as the greed sentiment indicator swung all the way to fear...meanwhile, while trading in February futures was closing out, the contract price for March delivery of US crude fell more than 4% to close Wednesday at $28.33 a barrel...with the March WTI contract now being quoted as the US price of oil, prices rose slightly to close at $27.88 a barrel on Thursday, and then rallied on Friday to close at $32.19 a barrel after citibank called oil "the trade of the year"...meanwhile, quotes for Brent oil rose over those same two days, rising to close at $29.25 a barrel on Thursday and to $32.18 at the end of the day on Friday, and hence the gap between the US price and the international price had closed to just a penny by the end of the week...so, to once again put this week's oil price changes in perspective, here's a graph of the March WTI contract oil price over the last three months:
once again, the above graph shows the daily closing contract price per barrel over the last 3 months for March delivery of the US benchmark oil, West Texas Intermediate (WTI), as traded on the New York Mercantile Exchange...as we explained last week, this market is where US oil prices are set, since the daily electronic trading of oil on this exchange is more than 100 times the total volume of physical oil produced in the US…looking at the current end of the graph, you can see all the sturm und drang over the past week has amounted to very little in the end, as oil prices have gone full circle and returned to their level of Thursday the 14th...
as we suggested last week, the primary driver for the dive in oil prices over the past few weeks has been the prospect that oil output from Iran would soon be returning to the global markets, exacerbating the ongoing oil glut...it so happens that the deal to end the sanctions on Iran that would allow its exports to flow was consummated last Saturday evening, probably while we were writing about it a week ago...in the immediate consequence of that, Iran will be increasing its crude output by 500,000 barrels per day over the next few months, which would add another half percent to total global oil supply each day....while that doesn't sound like much in the overall scheme of things, it would be adding substantially to the million and a half excess barrels of oil that producers currently need to find buyers for...facing this oil glut on Tuesday, the International Energy Agency warned that oil markets “could drown in oversupply” after three consecutive years over which oil production exceeded demand by more than 1 million barrels per day...to attempt to put that possibility in perspective, we'll include a few graphics from an oilprice.com article entitled "The World Is Not Running Out Of Storage Space For Oil", which, by the way, isn't very convincing in making the point it's headline asserts...
the above graph shows quarterly levels of global oil production in millions of barrels per day (mb/d, left margin) in green and global oil consumption of that oil in yellow, over the period starting in the first quarter of 2009 (1Q09) to the present, with estimates for both metrics going out to the 4th quarter of 2016 (4Q16)…then behind those ascending supply and demand lines are blue bars essentially showing the difference between the two, or the implied stock change, also in millions of barrels per day (mb/d, right margin); this is the amount of oil that was added to storage for each quarter when the bars pointed up, or the amount of oil that needed to be taken out of storage to meet demand when the blue bars pointed down…you can see that the green supply line has been rising fairly steadily till the recent quarters (end of 2015 is 5th from the right) when it began to turn down…but after the 1st quarter of 2016, green supply begins to rise again as Iranian output is added (as the note at the top of the graph says, they’re assuming Iran’s output will build up to an extra 600,000 barrels per day (600 kb/d) by June, adding to the 32.3 million barrels per day that OPEC countries are already producing)…demand for oil in yellow exhibits quite a seasonal pattern, up in the summer and down in the winter, and hasn’t been rising quite as fast as supply, leading to increases in the quantity left over that needs to be stored, as shown in the blue bars, over the past year and a half, which is projected to continue until the end of 2016…
the next graph we have shows the total amount of oil in storage in the OECD countries (the club of developed countries that are mostly oil importers) over the last two years, as compared to the 5 years prior to that:
in the graph above, the black line shows the track of total stored supplies of crude oil in millions of barrels held monthly by OECD countries during 2015, while the light blue line shows the track of total inventories of crude oil in millions of barrels held by those countries during 2014...the light blue shaded area represents the range of oil inventories held by those same countries over the prior 5 years for the same time of year, essentially showing us the normal range of oil inventories held by the developed capitalist countries as they fluctuate from season to season, while the red line is the average amount of oil that was held in storage by those countries over the same 5 years, from 2010 to 2014...thus we can see that over the past year, a surplus of stored oil has built up in these developed countries that amounted to over 300 million barrels more than normal as of November, apparently the last date where such global data is available..also notice that this year oil supplies continued to build up slowly during the summer and fall, a time of year when oil inventories would normally be drawn down...
This Week's Stats from the EIA
this week's reports from the US Energy Information Administration showed still another small increase in our production of crude oil, a comparatively large drop in our oil imports, and another modest drop in refining of that crude, which nonetheless ended with a much larger surplus of unused oil left over than last week....our field production of crude oil inched up by another 8,000 barrels per day to 9,235,000 barrels per day during the week ending January 15th, up from 9,227,000 barrels per day the prior week, and once again our highest output of crude oil in any week since the 3rd week of August...that's now the 6th week in row that we've seen our oil output increase, even if only incrementally, as US oil wells continue to produce 1.2% more than the 9,121,000 barrels per day average they produced during September, and 0.5% more than 9,186,000 barrels per day than they produced in the same week a year ago, despite a 70% drop in active drilling rigs from the peak of October 2014 since then...
at the same time, our imports of crude oil fell by 409,000 barrels per day to a 7,779,000 barrels per day pace, partially reversing the 678,000 barrels per day increase in imports we saw during week ending January 8th...the pace of imports for the week ending January 15th was still 7.2% more than the 7,218,000 barrels per day we imported in the same week of 2015, and still left our 4 week average of our imports over 7.8 million barrels per day, which the EIA's weekly Petroleum Status Report (62 pp pdf) tells us is 9.6% higher than our oil imports over the same four-week period last year...
meanwhile, the amount of that crude used by our refineries fell by 233,000 barrels per day to an average of 16,190,000 barrels per day during the week ending January 15th, down from an average of 16,423,000 barrels per day during the week ending January 8th...though that was the 4th consecutive drop in refinery throughput, it was still 8.6% more than a year ago, when refineries processed 14,909,000 barrels per day, and a record for refinery throughput in mid-January, when refineries are normally slowing down for the winter...hence it was no surprise that our refinery utilization rate also fell from 91.2% to 90.6%; by the 16th of January last year, it had already fallen to 85.5%...even so, our gasoline production rose for the 2nd week in a row, surging by 633,000 barrels per day to 9,453,000 barrels per day during week ending January 15th, 2.6% more than the 9,215,000 barrels per day production of gasoline a year earlier...meanwhile, our output of distillate fuels (ie, diesel fuel and heat oil) fell by 208,000 barrels per day to 4,552,000 barrels per day during week ending the 15th, which was also down by 216,000 barrels per day from the same week a year ago...with the increase in gasoline production, our end of the week supply of gasoline in storage rose for the 9th week in a row, increasing from 240,434,000 barrels last week to 244,997,000 barrels as of January 15th...that 4,563,000,000 barrel increase, combined with increases of 10,576,000 barrels and 8,438,000 barrels in each of the last two weeks, made for the largest 3 week increase in our stored gasoline in our history, and left our gasoline inventories well above the upper limit of the average range for this time of year....on the other hand, our distillate fuel inventories finally fell after 3 weeks of mid-winter increases had added 13 million barrels to our distillate stocks, as those inventories fell by 1,025,000 barrels to 164,529,000 barrels, down from 165,554,000 barrels on January 8th…that was still 20.6% higher than last January 16th's 136,579,000 barrels, also putting distillate fuel supplies well into the upper half of their normal range for this time of year...
finally, in what is slowly becoming an anomalous metric, this week saw a large increase in our inventories of crude oil despite the much lower imports, whereas last week’s surge in imports barely nudged these supply figures at all...the EIA reported that our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose by 3,979,000 barrels to 486,537,000 barrels on January 15th, up from 482,558,000 barrels as of January 8th...that was largely because the "adjustment" on line 13 of the U.S. Petroleum Balance Sheet for the Week Ending 1/15/2016, which is Table 1 in the EIA's weekly Petroleum Status Report (pdf) swung from a deficit of -459,000 barrels of oil per day last week to a surplus of 244,000 barrels per day this week, continuing the ongoing need to use an increasingly large fudge factor to balance this important market moving metric...nonetheless, the 482,558,000 barrels we have stored as of this report is still 22.3% higher than the 397,853,000 barrels we had stored the same week last year (when the adjustment was -87,000 barrels per day), and obviously the most we had stored any time in January in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before January 23rd of last year...
The Latest Active Rig Counts
there was just a modest drop in the number of active rigs drilling for oil and gas in the US the week ending January 22nd, as Baker Hughes reported that their count of active oil rigs fell by 5 to 510, and their count of active gas rigs fell by 8 rigs to 127, leaving a total of 637 rigs working at the end of the week, which was down from a total of 1663 rigs that were in use in the same week a year ago, with oil rigs down by 807 from 1317, and gas rigs down by 189 from 316 from that time...those year ago totals from last January 23rd were already well off their peaks; active oil rigs had been as high as 1609 on October 10, 2014, while the recent high for gas drilling rigs was the 356 that were running on November 11th of that same year...
despite the overall decrease, a net of three Gulf of Mexico rigs were added this week, pushing the offshore count back up to 29, which was still down from 54 offshore rigs, and 53 in the Gulf, a year earlier...a net of 11 rigs that had been doing horizontal drilling were removed, leaving 500 rigs still drilling horizontally active in the US, down from 1229 a year ago...2 directional rigs were also removed, leaving 60, down from the 146 directional rigs that were in use a year ago...the count of active vertical drilling rigs, however, was unchanged from last week at 77, still down from the 258 rigs that were drilling vertically on January 23rd of 2015...
of the major shale basins, Haynesville shale of the Louisiana-Texas border region got rid of the most rigs this week, as they were down by 5 rigs to 18, which was down from the 42 rigs that were deployed in the Haynesville a year earlier...next, the Eagle Ford of south Texas was down 4 rigs to 64 this week, which was down from the 181 rigs deployed there last year at this time..both the Permian basin of west Texas and the Marcellus shale of the northern Appalachian region saw three rigs pulled out; that left the Permian with 199 rigs, down from 481 rigs a year earlier, and left the Marcellus with 35, down more than half from the 76 rigs deployed in the Marcellus the same week last year...two rigs were removed from both the Williston basin of North Dakota and the Mississippian of southwest Kansas; that left the Williston with 45, down from 153 rigs a year earlier, and the Mississippian with 10, down from 63 rigs at the end of the same week a year ago...single rig reductions were seen in the Arkoma Woodford of Oklahoma and the Barnett shale of the Dallas area of Texas, leaving the Arkoma Woodford with 7, still up from 5 a year earlier, and the Barnett with 4, down from 25 a year earlier...basins that saw drilling rigs added this week included the Cana Woodford of Oklahoma, where 2 rigs were added to bring their total to 39, still down from the year earlier 44, and the Utica shale of Ohio, where the addition of one rig brought the count up to 14, which was still down from the 46 rigs deployed in the Utica the same week a year ago..
the Baker Hughes state count tables show that Texas got rid of another 7 rigs this week, leaving 294 still drilling, down from 753 at the end of the same week last year...Pennsylvania saw 3 of its rigs removed, leaving 23, down from 53 rigs working on the 23rd of January last year...Kansas, New Mexico, and North Dakota each saw 2 rigs pulled out and stacked; that left Kansas with 10 rigs, down from 23 a year earlier, New Mexico with 30 rigs, down from last year's 89, and North Dakota with 45 rigs, down from the 147 that were drilling in the state in the same week a year ago...Alabama saw an offshore drilling rig removed from its waters; that left Alabama with a single rig on land, down from 7 land based rigs working in the state a year ago...and California also got rid of a rig this week, which left the state with 7, down from 15 a year ago...meanwhile, Alaska added 2 rigs, bringing their count back up to 11, the same as a year ago, and Illinois, Ohio and Mississippi all saw the addition of one rig...for Illinois, the new rig was the only rig, although they also had one working in the state a year earlier; Ohio's count was back up to 14 rigs, but still down from 44 a year ago, while Mississippi ended the week with 6 rigs, down from 9 on January 23rd of 2015....finally, in Louisiana, 4 drilling platforms went into operation offshore in the Gulf at the same time 4 land based rigs, two in the north and two in the south of the state, were removed; that left the Louisiana rig count unchanged at 54 rigs for the week, but still down from the 110 rigs that were working the state during the same week a year ago...
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Excess amount of lead found in water in Youngstown-area community - Excessive levels of lead have been found in the water in a Youngstown-area community. The Sebring school district in western Mahoning County, just east of Alliance, canceled classes Friday and Sebring village leaders said children and pregnant women should not drink water from its system after tests found lead levels that exceed federal standards. WFMJ-TV in Youngstown reports Sebring village manager Richard Giroux issued an alert Thursday night after tests found lead levels of 21 parts per billion at seven homes. The U.S. Environmental Protection Agency requires alerts to water customers when lead levels exceed 15 parts per billion. At least 10,000 Cleveland-area children over the past five years have been poisoned in their homes by exposure to lead. Even at low levels, lead poisoning in young children diminishes intelligence, reduces reading and math test scores, causes lifelong health problems, and increases the likelihood of arrest for violent crime.The Sebring school district canceled classes on Friday for its 650 students.Sebring Water Superintendent Jim Bates told WKBN-TV in Youngstown tests of the water were conducted in August and September, and the results that recently came back showed lead levels above those recommended by the EPA. "Some of those samples were a little bit too high, but it was not a violation. It was higher than they'd like to see it," he said.
Here’s everything said about climate change at the GOP debate - Surprise! That was a trick. The Republican presidential candidates didn’t say anything about climate change at Thursday night’s debate. The closest moment came when Ohio Gov. John Kasich, who is apparently still running, mentioned America’s need for energy independence. And how does Kasich suggest we achieve this energy independence? Investment in solar and wind, perhaps? Energy efficiency, maybe? Training gerbils to run on a massive wheel? Nope! Kasich thinks the answer is fracking. That’s right — fracking, the earthquake-making, water-polluting, cancer-causing, testes-enlarging natural-gas extraction process that releases more methane into the atmosphere than a herd of gassy cows. Back to the drawing board, Kasich. As for the rest of the debate, just imagine Punch and Judy with flag pins and you’ve pretty much got it.
A different kind of ash-hole problem: Does the distribution of costs matter to economists? - Coal-ash is a by-product of coals fired electricity production. The ash from burning coal is stored in big lagoon-like ponds called ash-impoundments, or as I like to call them, ash-holes. Beyond the obvious yuck factor and potential standard externality problems associated with leakage and breeches of the lagoons, location of these ash-holes near low-income populations creates concerns over environmental justice. A federal civil rights commission is holding a hearing this week about whether coal ash disproportionately affects low-income and minority populations. Ohio's coal-ash containment areas are mainly in rural, low-income areas, and most are along the Ohio River...Economists are often bad at considering the distributional impacts of policies: To the point that we often ignore issues of equity in favor of the more objective measure of efficiency. If two policies were to result in the same net benefits to society, but different distribution of those benefits within society, the efficiency-oriented economist would have trouble distinguishing between the policies. But what if one distribution of benefits (or costs) is socially preferred to another. Or put a different way, what if society were willing to forego resources (willing to pay?) to ensure a different distribution of benefits (or costs)? In that case, the distribution of resources might fit within the realm of the efficiency paradigm as now society can be viewed as better or worse off depending on the distribution of resources.Of course this raises all kinds of questions about morals, ethics, social welfare, interdependent utility...but it is at least a recognition that the distribution of resources has real and tangible benefits and costs and might be considered within the neoclassical economic framework. Just a thought.
Trustees weigh in on state fracking bill - Star Beacon — Local officials expressed concerns this week that a proposal to regulate the fracking industry in Ohio doesn’t go far enough. State reps. John Patterson and Sean O’Brien heard impassioned feedback from township trustees on the legislation they introduced earlier this month seeking middle ground between the advance of the fracking industry and protection against potential environmental dangers. O’Brien, ranking member of the state House’s Energy and Natural Resources Committee, to which House Bill 422 has been assigned, said the bill — which he and Patterson summarized for trustees during a county Township Association meeting Thursday — is still “fluid,” and the lawmakers have been touring the district and taking notes from constituents. O’Brien said he expects sponsored testimony at the capital in the coming weeks. Some of the proposals addressed county recorders’ and some homeowners’ need to have “a direct line to the deeds” for oil and gas wells, as Patterson put it. Often, interested parties aren’t notified when well ownership changes hands, or they have no recourse if the owner dies and the well’s paperwork falls into limbo.O’Brien said the bill also draws attention to distance setback requirements already in place for oil and gas extraction wells, but not for frackwater injection wells.The proposed regulations would dictate wells may only be installed between 150 to 200 feet from unconsenting properties in urbanized areas. In rural areas, that becomes 2,000 feet from any occupied private home or a body of water, unless the Ohio Department of Natural Resources — fracking’s sole regulatory entity in the state — considers otherwise.
Small Progress with Drilling in Ohio’s Wayne National Forest - There’s been some progress on the now nearly 10-year delay in drilling in the Wayne National Forest (WNF) in Ohio. WNF is the only national forest in Ohio and portions of it are found in Athens, Gallia, Hocking, Jackson, Monroe, Morgan, Noble, Lawrence, Perry, Scioto, Vinton, and Washington counties. WNF is a “patchwork” of public land scattered among private land. Some 60% of the mineral rights below WNF are privately owned. Those mineral rights owners have been denied the use of their property rights going on a decade. It’s a travesty. The federal Bureau of Land Management (BLM) controls drilling on federally-protected lands like WNF. Last November the BLM held a series of hearings about finally beginning to drill in WNF. The hearing held in Marietta (Washington County) was civil and orderly, with landowners respectfully asking questions and getting answers (see Overwhelming Support for Wayne Natl Forest Drilling @ BLM Mtg). The hearing held in Athens, OH, a hotbed of lefty lunatics, got out of control when they didn’t have a microphone to throw up on (see Anti-Frackers Out of Control at Athens Mtg on Wayne Natl Forest). Athens antis can breathe easy. The BLM has decided to wait on pursuing drilling in the “Athens Unit” until 2017. However, the BLM is taking the next step in the “Marietta Unit” now… The federal Bureau of Land Management (BLM) announced that it’s now preparing an environmental assessment (EA) “to consider whether or not to lease parcels for the purpose of oil and gas exploration and development.” Parcels under consideration, as a result of the BLM receiving “dozens of Expressions of Interest from industry operators,” total 18,800 acres on the Wayne National Forest in Washington and Monroe counties, the news release said. While the BLM and U.S. Forest Service previously said that 3,150 acres in Athens and Perry counties, and another 9,975 acres in Lawrence County, also were being considered for oil and gas leasing, the current EA is limited to the listed acreage in the national forest’s Marietta Unit, far to the northeast of Athens.
Chesapeake Suspends Preferred Stock Dividends - With Chesapeake Energy hitting its lowest stock price since 2000 earlier this week, it was only a matter of time before US gas giant Chesapeake halted all "discretionary" cash payments, which it did moments ago when it announced it would halt dividend payments on its preferred stock. From the release: Chesapeake Energy Corporation (CHK) announced today that it has suspended payment of dividends on each series of its outstanding convertible preferred stock effective immediately. Doug Lawler, Chesapeake's Chief Executive Officer, commented, "The board and management believe this decision is in the best long-term interest of all Company stakeholders. Today's decision to suspend our preferred stock dividends will allow the company to retain approximately $170 million of additional cash per year and use these funds to purchase debt at significant discounts in the near term. Given the current commodity price environment for oil, natural gas and natural gas liquids, we believe that redirecting this cash toward debt retirement provides better returns for the Company. We currently have senior debt securities trading at significant discounts, and we will continue to take advantage of that within the coming year." Suspension of the dividend does not constitute an event of default under the Company's revolving credit facility or outstanding bond indentures. We expect many more energy companies to follow in CHK's shoes.
Wolf administration to tighten methane rules for drillers- A proposal to require natural-gas drillers to reduce methane emissions will help make Pennsylvania a “national leader” in efforts to combat global warming, the Wolf administration said on Wednesday. Requiring the industry to reduce methane leaks at well pads, compressor stations and processing facilities in the Marcellus Shale could result in a 40 percent reduction in emissions, Environmental Secretary John Quigley told reporters. “We’ve looked at how the nation’s second-largest natural gas producing state can minimize its contributions to climate disruption in ways that make economic sense,” he said. The Department of Environmental Protection said it will develop a new general permit for operators that would require them to use “best available technology” to detect and plug leaks of methane, a powerful greenhouse gas that contributes to warming. An emissions inventory shows that unconventional gas wells, compressor stations and pipelines in Pennsylvania leaked 115,000 tons of methane in 2014, a number that Quigley said is almost certainly far higher because fugitive emissions are so difficult to quantify.
'Corbett's office cooked the books,' Gov. Tom Wolf's policy secretary says - Industry advocates say Gov. Tom Wolf’s office played political games when it lowered the number of jobs created by Marcellus Shale development. The state Department of Labor & Industry last year revised Gov. Tom Corbett’s count from 250,000 jobs created during the drilling boom to about 29,000. That figure grows to about 80,000 when calculations include suppliers and service providers, such as architects, engineers, restaurants and physicians who care for workers. Frack Job Losses That decrease of about 170,000 removes several positions previously included by Corbett, such as every job in trucking, highway construction, hookers, steel mills, coal-fired power plants, bartenders, sewage treatment plants, man-camp operators and others. “Governor Corbett’s office cooked the books. Everyone knows Corbett was in bed with the Marcellus Shale industry,” said John Hanger, Wolf’s policy secretary. How many jobs has Marcellus Shale drilling really created? The state labor department during Gov. Ed Rendell’s leadership counted six core industries as Wolf is doing now, according to department spokeswoman Sara Goulet. Those core industries focus on jobs involved in drilling, extraction, support operations, and pipeline construction and transportation.
PA Gov Wolf’s Pathological Need for a Severance Tax - We suspect that Pennsylvania Gov. Tom Wolf may suffer from OCD–obsessive compulsive disorder. What else could explain the fact that even though PA doesn’t have a completed 2015 budget, he’s about to introduce a 2016 budget that once again calls for a severance tax on oil and gas–when the industry in his state has gone nearly dormant because of low prices? Shale drillers are struggling to stay solvent and to keep drilling at least a few new wells. And Wolf is, once again, insisting on a severance tax, that will essentially stop all drilling. Perhaps a better word for it is pathological… Pennsylvania’s natural gas industry and lawmakers in Harrisburg are preparing for another battle over a severance tax on production, even before the current state budget is settled. “It’s going to return in a big way as the budget situation remains completely unresolved,” Muhlenberg College political scientist Christopher Borick said about the debate that has lingered since Gov. Tom Wolf campaigned on the promise of a tax in 2014. “It’s a sore point out there for the governor. It’s a complicated issue for some of the Republicans in the state. It’s not going away.” Wolf intends to take another shot at imposing the tax when he introduces his next budget package in a speech Feb. 9, said his spokesman, Jeffrey Sheridan. “Our position on that has not changed,” he said. Nor has opposition from the industry, which has spent the past year arguing that low prices and a slowdown in drilling make this the wrong time to increase taxes.
Energy slump bleeds into housing market in Western Pennsylvania - Foreclosures increased last year in energy-producing regions, including Washington County, suggesting that the struggles of oil and gas drillers are beginning to be felt in the housing market. Foreclosure filings in Washington County jumped 11 percent in 2015, more than any other county in the Pittsburgh metro area, according to data released by RealtyTrac. Energy-rich states such as Texas, Oklahoma and North Dakota also had more foreclosures last year. The trend highlights the impact that the energy industry's downturn is having on otherwise stable housing markets even as foreclosures decline nationwide, said Daren Blomquist, RealtyTrac's vice president. “Markets that were relatively unscathed by the last housing crisis are seeing increases in 2015 in foreclosure activity,” Blomquist said. “We do believe that's very likely related to the weakness in the oil industry.” Pittsburgh home prices didn't skyrocket like other markets in Florida or Nevada, and didn't fall as hard when the bubble burst in 2007 and 2008. But volatility in oil and gas markets is starting to be felt in the broader regional economy. Natural gas prices have declined about 50 percent over the past year, recently reaching a 16-year low. Companies in the Marcellus shale have responded by laying off workers, among other cuts, as their revenue is crimped by low prices.
W.Va. Production Numbers ‘Shocking’ - A single Ohio County Marcellus Shale well yielded enough natural gas in 2014 to provide electricity for 24,315 homes, according to new numbers released by the West Virginia Geological & Economic Survey.There's also plenty of what industry leaders term "light crude" oil being produced right here in the local region, including 45,260 barrels of oil from a well in the name of the Ohio County Commission in 2014. Overall, with traditional vertical drilling included with horizontal fracking, West Virginia produced more than 1 trillion cubic feet of natural gas in 2014. Drillers also extracted more than 8.3 million barrels of natural gas liquids (consisting of ethane, propane, butane, pentanes and other liquids) in 2014, according to the most recent data available from the state's Geological & Economic Survey, an arm of the Department of Commerce. The state also produced another 5.2 million barrels of oil."They are remarkable. They are shocking," Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, said of the numbers. "We were at about 260 billion cubic feet in 2008. Now, it just keeps going up because of fracking and horizontal drilling." One billion cubic feet of natural gas can provide electricity to 24,315 homes for an entire year. Therefore, a single EQT Corp. well in Wetzel County provided sufficient fuel in 2014 to generate power for 77,322 homes for one year with its 3.18 Bcf. This was the most prolific well in the entire Mountain State in 2014, and serves as an easy example as to why natural gas prices are currently about $2 per Mcf.
Natural gas prices expected to rise - Natural gas prices are expected to rise in the coming months as a national supply glut is drawn down, according to the US Energy Information Administration. Although prices have been low during the first few months of this year’s winter, lower production volumes and cooler weather are anticipated to bring them up slightly in 2016. As of January 1st of this year, over 3.6 billion cubic feet of gas were stockpiled in the US, which is about 15% higher than average inventories in the past five years. The large amounts of gas in storage, combined with a record amount of natural gas in the ground and technologically advanced, highly efficient extraction techniques, have created a supply overhang. The low natural gas prices were further compounded by El Nino, which triggered abnormally warm weather throughout much of the East Coast and caused demand for heating and natural gas to drop towards the end of 2015. 75.5 billion cubic feet per day was consumed on average last year, which is somewhat lower than anticipated future consumption averages. Due to the abundant gas supply and depressed heating demand, natural gas prices and futures have been falling for the past few weeks, dropping to their lowest point in a decade around mid-December. However, gas prices are expected to begin rising again within the next few weeks and months. The peak heating season in the United States (November to March) is only half over, and cooler weather is anticipated in many areas during the rest of the winter, especially in the southern half of the U.S. A recent cold snap has helped draw down some of the excess gas supply; during the last week of December, natural gas supplies fell more than expected, outstripping the forecasts by over 28%. This led to a surge in prices which was further boosted by speculators, counting on cooler weather to increase demand.
Radioactive Fracked Gas - FYI – Ionizing Radiation has a cumulative effect on living things, so even a little bit can add up to a large exposure if spread though-out the environment where daily contact/exposure is unavoidable for animals and humans alike. Radioactivity is a special kind of energy that is given off when unstable atoms release particles from their nucleus. Our natural surroundings, including the air, water, rocks, and even many foods contain various radioactive elements, producing a low level of background radioactivity. Our bodies can easily handle such low doses of radioactivity. However, exposure to levels of radioactivity much higher than background can harm our bodies, especially by causing cancer. Does Marcellus shale pose a radioactivity risk? Marcellus shale deposits contains natural radioactivity due to the presence of a few elements. They include the elements uranium and thorium, and their radioactive decay products – notably radium-226. Moreover, radioactive varieties – called radioisotopes – of the element potassium also contribute to Marcellus Shale’s radioactivity5. Marcellus has particularly high levels of natural radioactivity compared to those of other shales, It contains emissions that are 20 times higher than the typical background radiation due to high uranium content. In fact, because of this characteristic, drilling companies and geologists use radiation detection to identify the location of the Marcellus Shale deposit. Natural gas drilling in the Marcellus Shale can result in NORM being brought to the surface as rock cuttings from drilling operations, as well as flowback of hydraulic fracturing fluid. Because gas companies are now recycling their fracing water multiple times, its resulting radioactivity may continue to increase with reuse.
TENORMS in Fracked Natural Gas: The Role of Lead & Polonium FYI – Pb-210 and Po-210 can be a problem for the maintenance workers who access the internals of equipment without monitoring or protection. The lead and polonium levels can be very significant (> million dpm/100 cm2 was reported at the NORM North America Conference in 2013 at a petrochemical plant turnaround (Halter). There is a direct pathway for ingestion and inhalation of Po-210 as well as the Pb-210. There are similar problems with pigging operations (rouge). The major companies have good health and safety practices, but smaller firms may not. The workers are often not rad trained and subject to public dose limits. The maintenance facilities may or may not be licensed by the State. NRC does not have authority to license those facilities as the progeny are TENORM and not source, byproduct or special nuclear material. The attention with TENORM in oil and gas usually centers around radium, but the lead and polonium cannot be ignored . . . While these are not new issues, the relatively new practice of horizontal drilling into host formations (as opposed to reservoirs) using enhanced stimulation (fracking shale deposits) has changed the profile of the TENORM residuals. There are larger volumes of cuttings, produced water, sludges, and spent filters to manage, and radium levels can be significant. USGS reported > 20,000 pCi/L in some produced water samples in 2011 in the Marcellus shale in PA. SEE: http://pubs.usgs.gov/sir/2011/5135/
Toxins in Fracking Wastewater Could Harm Human Health, Study Says - More recent signs are echoing what environmentalists have been asserting for years: fracking isn’t a good idea. In less than a week, there were 12 earthquakes in frack-happy Oklahoma. Even the EPA’s own scientists went rogue by going against the agency’s pro-fracking propaganda that fracking doesn’t contaminate drinking water. Now a new study from Yale University and published in the Journal of Exposure Science and Environmental and Epidemiology suggests that fracking can also be detrimental to human health. Over 1,000 toxins — some of which are linked to reproductive and developmental health problems — were found in fracking fluids and wastewater. As reported in Science Daily, the 1,000 plus chemicals are used in and produced by hydraulic fracturing (fracking), a chemical intensive process where oil and natural gas are extracted from deep in the ground. As a result of the wastewater created and the fractured bedrock, there’s “a potential threat to both surface water and underground aquifers that supply drinking water.” And the wastewater and fracking by-products could be more hazardous than the fracking fluids themselves. The researchers specifically looked at 240 substances and found that 157 of them are linked to either developmental or reproductive toxicity. Some of the most alarming substances that they found include: arsenic, benzene, cadmium, lead, formaldehyde, chlorine, and mercury. And 67 of these substances had federal health-based standards or guidelines, but the researchers couldn’t determine whether these levels were in compliance or not. Overall, the researchers didn’t have enough information to go on, and that’s why they’re making an urgent plea for more studies that will assess threats to human health from these toxins. More specifically, Nicole Deziel, the senior author of the study and an assistant professor of public health, explains what future studies are needed: Quantification of the potential exposure to these chemicals, such as by monitoring drinking water in people’s homes, is vital for understanding the public health impact of hydraulic fracturing.
NY attorney general objects to Constitution pipeline tree-cutting request — New York’s attorney general filed objections Thursday to the Constitution Pipeline Company’s request to cut trees along the proposed route of its 124-mile natural gas pipeline, citing the lack of a state water quality permit and pending requests for a rehearing of the federal agency order that cleared the way for the project. The Federal Energy Regulatory Commission approved the pipeline in 2014 with certain conditions, including a water quality permit from the New York state Department of Environmental Conservation. No timetable has been given for a decision on a water permit. In objecting to the company’s request, Attorney General Eric Schneiderman asked FERC to deny permission to start any work until a state water quality permit is issued and the commission decides on numerous motions on rehearing its 2014 decision. Several of those requests argue that FERC failed to conduct an adequate environmental review. Schneiderman also said the planned clearing of trees could cause irreparable harm to thousands of acres in New York. Constitution Pipeline Company, a partnership formed by Cabot Oil & Gas, Williams Partners and Piedmont Natural Gas Company, asked FERC last week for permission to cut trees along the pipeline right-of-way from Pennsylvania’s shale gas fields to upstate New York.
Officials Reject Gas Pipeline Route That Would Have Run Through National Forests - A massive interstate natural gas pipeline proposed to run through two national forests suffered a setback Thursday, as the proposed route was rejected following concerns about endangered wildlife. The U.S. Forest Service said in documents that the $5 billion Atlantic Coast Pipeline and its 550-mile route lacks “minimum requirements” to safeguard wildlife. The now-rejected route would have crossed the Monongahela and George Washington national forests, and in doing so, the forest agency said, threaten endangered salamanders, flying squirrels, and red spruce ecosystem restoration areas. “Alternatives must be developed to facilitate further processing of the application,” the letter reads. The Atlantic Coast Pipeline, unveiled in 2014, would transport 1.5 billion cubic feet of natural gas a day, and if approved by the Federal Energy Regulatory Commission (FERC), it would carry gas from the Marcellus Shale basin, one of the largest natural gas reservoirs in the world. For its approval, however, the pipeline needs the support of the U.S. Forest Service.Dominion, Duke Energy, Piedmont Natural Gas, and AGL Resources are all involved in the Atlantic Coast Pipeline, which would supply power stations in Virginia and North Carolina. The pipeline would also fulfill a growing demand among local gas companies in Hampton Roads in Virginia and eastern North Carolina, Dominion told ThinkProgress via email. Critics of the plan hailed the route’s rejection as significant, but a Dominion spokesman said the rejection is not a final decision. The “letter is part of the permitting process as we work cooperatively to find the best route with the least impact,” said Jim Norvelle to ThinkProgress via email. Indeed, the project is still in the early parts of permitting process — it filed for permits with FERC in September 2015.
Texas lawyer files suit in Marathon refinery fire -- A Texas lawyer filed a lawsuit, on behalf of Samuel Salache, against Marathon Petroleum Company, Ray Brooks and Innovative Ventilation Systems Inc. On Jan. 11, 2016, Salache was working as a foreman at the Marathon Refinery in Texas City, Texas, when a fire occurred. A spark ignited fumes causing an intense fire. According to a press release, Salache ensured that his entire crew escaped the fire. However, he suffered severe smoke inhalation and other potential injuries. Salache is suing the defendants on the grounds of negligence in terms of the following:
- Failing to provide plaintiff with a safe place to work, and requiring plaintiff to work in unsafe conditions
- Failing to provide sufficient personnel to perform operations
- Failing to properly follow protocols and policies, proper safety monitoring and control practices
- Failing to exercise due care and caution
- Failing to avoid this incident
- Failing to maintain the plant equipment
- Creating an environment and condition that allowed an explosion and fire at the Marathon Refinery
- Failing to comply with OSHA 1910.119 Process Safety Management regulations
- Other acts of negligence which will be shown more fully at the trial
More quakes rattle Oklahoma but state avoids tough measures - In Oklahoma, now the country’s earthquake capital, people are talking nervously about the big one as man-made quakes get stronger, more frequent and closer to major population centers. Next door in Kansas, they’re feeling on firmer ground though no one is ready yet to declare victory. A year ago, the states had a common problem — earthquakes caused by the disposal of wastewater from oil and gas exploration. They chose different solutions. Kansas, following early scientific studies, decided to restrict how much and how fast the wastewater could be pumped back underground. Oklahoma instead initially concentrated on the depth of the wastewater injections. Developments since then haven’t been reassuring in Oklahoma, where a quake knocked out power in parts of an Oklahoma City suburb several weeks ago and where fears are growing that the worst is yet to come. On Friday, about 200 unhappy residents packed a forum at the state capitol convened by critics of the state’s response. A governor’s task force is studying the problem but officials have so far avoided taking tougher measures.
Fracking Industry-Linked Earthquakes in Oklahoma Crack Political Party Lines - DeSmog (blog) -- Sara Winsted, a resident of Edmond, Oklahoma, an upscale Oklahoma City suburb, won’t be surprised if her house falls down before state legislators take action to stop the earthquakes. Her feeling of hopelessness intensified after she attended two public meetings: a town hall organized by State Rep. Lewis Moore (R-Arcadia) at the University of Central Oklahoma (UCO) in Edmond, and a public hearing at the state capitol in Oklahoma City led by State Rep. Richard Morrissette (D-OKC). Though the U.S. Geological Survey has determined the use of fracking wastewater disposal injection wells is the cause of the state’s earthquakes — and predicted a magnitude 5.5 or greater quake is probable — the use of disposal injection wells continues.Winsted joined the grassroots group Oklahoma Coalition Against Induced Seismicity, which has called on legislators to pass a temporary moratorium on injection wells that are disposing of fracking wastewater. Instead of doing that, state legislators passed SB 809 in May last year. The law limits the ability of local governments to regulate oil and gas operations. Now only the governor and the Oklahoma Corporation Commission (OCC), the agency that regulates the state’s oil and gas industry, can take any meaningful action. The new law follows Texas legislation passed a few months after Denton residents approved a ban on fracking, negating the initiative. Ariel Ross thought it was great that people were finally given a forum to speak out, but was skeptical an event organized by Rep. Moore would lead to any kind of meaningful action. “Moore has publicly asked if the quakes could be caused by drought,” Ross told DeSmog, “but now he is saying that there needs to be more action since his home has damage, and women are calling him concerned about their ‘nests.’” Ross questions his authenticity and fears the meeting was a publicity stunt.
Oil plunge upends state budget session in New Mexico — New Mexico lawmakers conferred with energy market experts and economists about plunging oil prices Wednesday as the Legislature crafts a new state budget that relies heavily on oil and natural gas revenues. The price of U.S. crude sank almost below $27 a barrel Wednesday to its lowest price since 2003 amid a glut in oil global supplies. That’s down from the $100 range in mid-2014. New Mexico legislators are considering whether to put $77 million in planned state salary raises on hold as low oil prices erode the state’s revenue forecast. Oil and natural gas revenues provided about 35 of state general fund revenues in fiscal year 2014 and may shrink to about 21 percent during the current fiscal year, according to estimates from the New Mexico Tax Research Institute. Jim Peach, a professor of economics at New Mexico State University, said the state would be wise to reconsider any spending increase this year because oil prices may remain low and also trigger production cuts at New Mexico rigs. He recommended setting aside greater reserves than currently planned to prevent future revenue shortfalls.
Alaska Faces Budget Deficit As Crude Oil Prices Slide - For decades, Alaska has relied on oil to pay its bills. In recent years, up to 90 percent of state spending came from oil revenue. With crude prices at a 12-year low, the state faces at least a $3.5 billion deficit — or two-thirds of its budget.Lawmakers gathering in Juneau on Tuesday face some unpopular choices, including the first income tax in decades.To understand why Alaska has a budget problem, stop by any gas station. In Anchorage, gas sells for $2.30 a gallon. A year and a half ago, people here were shelling out more than $4 a gallon. And that's the problem.Tour guide Lynne Jablonski stopped to fill up her car."It's a mixed feeling, right? Because it's a great thing when I look at my credit card bill, but it's not so good for the state that the oil prices are so low," Jablonski says.As crude prices have dropped, the state's budget has tanked. So America's most oil-dependent state is trying to figure out what to do.Alaska always knew this day would come. When companies struck oil in Prudhoe Bay in 1968, leaders worried how to manage the windfall."You've got to remove the money. Put it behind a rope where you cannot utilize it for flamboyant expenditures," says Jay Hammond, Alaska's governor, speaking in 1980. Hammond helped create the Permanent Fund. Call it Alaska's retirement account. Each year, a share of oil money is set aside. The fund has grown to about $50 billion — and the state isn't allowed to touch it, just the earnings.Hammond saw it as a source of income for when oil ran out.In the past 40 years, those earnings have been used for pretty much just one thing: Everyone in the state receives an annual share. Last year's check was more than $2,000. If the state wants to use the fund's earnings to cover the deficit, it will reduce that dividend.
Negative Oil Prices Arrive: Koch Brothers' Refinery "Pays" -$0.50 For North Dakota Crude - Do you have some extra space in your garage or attic? Or perhaps you own an oil tanker you aren’t currently using. Or maybe you have a storage unit that’s got a little extra room next to an old mattress and box springs. If so, you may want to call up oil producers in North Dakota and ask if they’d care to send you some free oil, because the crude glut is now so acute that the Koch brothers are actually charging $0.50/bbl to take low grade oil at their Flint Hills Resources refining arm. North Dakota Sour is a high-sulfur grade of crude and “is a small portion of the state’s production, with less than 15,000 barrels a day coming out of the ground,” Bloomberg notes, citing John Auers, executive vice president at Turner Mason & Co. in Dallas. “The output has been dwarfed by low-sulfur crude from the Bakken shale formation in the western part of the state, which has grown to 1.1 million barrels a day in the past 10 years. High-sulfur grades are more expensive to refine and thus fetch lower prices at market. As Bloomberg goes on to note, “Enbridge stopped allowing high-sulfur crudes on its pipeline out of North Dakota in 2011, forcing North Dakota Sour producers to rely on more expensive transport such as trucks and trains [and] the price for Canadian bitumen -- the thick, sticky substance at the center of the heated debate over TransCanada Corp.’s Keystone XL pipeline -- fell to $8.35 last week, down from as much as $80 less than two years ago.” So there you have it. The global deflationary supply glut has now reached the point that the market is effectively forcing producers to pay to give their oil away or else see it sit in bloated storage facilities until Riyadh decides enough is enough and until the world comes to terms with the return of Iranian supply. In other words, for some US producers the business isn't just loss making, it's an exercise in sadomasochistic futility.
Worthless North Dakota Sour priced less than zero dollars --With the oil market still awash with bounties of cheap crude oil, one buyer is asking producers to pay them to take shipments of a particular low-grade Bakken crude, reports Bloomberg. On Friday Koch Industries’ refining branch Flint Hills Resources offered a list price of -$0.50 a barrel for high-sulfur North Dakota Sour crude blends. One year ago that price was $13.50, and in January 2014 it was $47.60, according to Bloomberg. Low grade crudes such as the high-sulfur North Dakota Sour are priced differently than their higher quality counterparts to compensate for poor quality and transport costs. The negative price offered by Flint Resources can mostly be attributed to inadequate pipeline infrastructure, and capacity, for low quality blends. In 2011 Enbridge actually stopped allowing high-sulfur crudes in its North Dakota pipelines. The president of a Houston-based oil consulting firm told Bloomberg, “Telling producers that they have to pay you to take away their oil certainly gives the producers a whole bunch of incentive to shut in their wells.” The vice president of a Texas-based petroleum consulting company said, “You don’t produce stuff that’s a negative number. You shut in the well.” Although the high sulfur blend of North Dakota crude only accounts for less than 5 percent of daily production levels in North Dakota, it illustrates the acute pain oilfields are experiencing. On Monday oil prices dipped below $28 per barrel on anticipation of Iran sanctions being lifted and the country’s intent to increase production by 500,000 barrels per day. Securities analyst Bart Melek told Reuters, “You can’t say this was unexpected but the Iran news is an additional factor that’s working against oil prices.”
Oil That's Worth Less Than Nothing - Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude. Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014. While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch. U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years last week. West Texas Intermediate traded as low as $28.36 in New York. Brent, the international benchmark, settled at $28.55 in London. “Telling producers that they have to pay you to take away their oil certainly gives the producers a whole bunch of incentive to shut in their wells,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said of the price that was posted as negative until Flint Hills revised it on Monday. Jake Reint, a Flint Hills spokesman, said the price was fixed on the website after the firm incorrectly posted it as negative. The prices reported by Flint Hills Resources and rivals such as Plains All American Pipeline LP are used as benchmarks, setting reference prices for dozens of different crudes produced in the U.S. Plains All American quoted two other varieties of American low quality crude at very low prices: South Texas Sour at $13.25 a barrel and Oklahoma Sour at $13.50 a barrel.
North Dakota's Steady Production Shows Why Market Rebalancing Is Hard North Dakota's oil production has been flat for more than a year, but it hasn't fallen despite the sharp drop in prices, illustrating the challenges of rebalancing the oil market. Output first hit this level September 2014 and has been essentially unchanged for the last 15 months, the longest and deepest pause in growth since the shale boom began. The reduction in actual output of around 450,000 bpd compared with the previous trend is a measure of how far lower oil prices have already gone towards rebalancing the market. But most analysts and forecasters expected the state's crude output to have fallen sharply by now rather than just to have levelled off. Shale production was supposed to respond much faster to declining prices because it required the drilling of a large number of new wells to offset rapid decline rates from old ones. Instead, shale output has proved unexpectedly resilient, as producers have found ways to maintain output while slashing drilling and costs
North Dakota sour crude wells could stop with poor prices — Decades-old oil wells that pump low-grade North Dakota sour crude are in danger of being shut down if prices hold at near worthless levels, the state’s oil industry group said Tuesday. Sour crude is oil that’s high in sulfur and more difficult to refine than low- or no-sulfur sweet crude. Sour crude represents about 0.5 percent of North Dakota’s oil production and most of the 754 wells pumping it are in aging fields on the northern edge of the state’s oil patch in Bottineau and Renville Counties, near the U.S.-Canada border. Sour crude prices slipped to $1.50 a barrel on Friday but rebounded to $8.50 a barrel on Tuesday. North Dakota sour crude fetched about $14.80 in January 2015. North Dakota Petroleum Council President Ron Ness said if sour crude prices were to hold at just a couple of dollars a barrel, the wells will likely be shut down until prices rebound. Some of the wells have been producing since oil was first discovered in North Dakota in the 1950s, he said. “It would be a horrible deal for producers and mineral owners but those wells would be shut in, waiting for a better market,” Ness said. North Dakota’s Department of Mineral Resources said the state produced an average of 1.1 million barrels of oil daily in November, the latest figures available. Agency spokeswoman Alison Ritter said sour crude make up only 7,400 barrels of that daily production.
North Dakota to make decision on Dakota Access Pipeline — North Dakota regulators are slated to consider the approval of the biggest-capacity pipeline proposed to date to move crude from the state’s oil patch. The North Dakota Public Service Commission is slated to decide the permit for the Dakota Access Pipeline on Wednesday. Dallas-based Energy Transfer Partners wants to build the $3.8 billion, 1,130-mile pipeline to move crude from North Dakota to Illinois. The North Dakota portion is the longest leg of the pipeline. The company says regulators in South Dakota and Illinois already have approved permits for the project. The company says it expects regulators in Iowa to make a decision on the pipeline next month.
Utility may have understated health threat from gas leak — The utility whose leaking natural gas well has driven thousands of Los Angeles residents from their homes has publicly understated the number of times airborne levels of the cancer-causing chemical benzene have spiked over the past three months, the company’s own data suggests. In trying to reassure the public there’s no long-term health risk from the leak, Southern California Gas Co. has said in news releases and FAQs on its website that since the crisis began, just two air samples briefly showed elevated concentrations of the substance. But a closer look at the online data by The Associated Press and outside experts actually shows that a dozen samples from the Porter Ranch community contained at least twice the amount of benzene that Southern California air regulators consider the normal background level. The possible reason for the discrepancy: SoCalGas apparently uses a different background level. The company was given repeated opportunities to explain its conclusions but couldn’t. “I don’t know what would explain it,” spokeswoman Melissa Bailey said.
Utility may have understated health threat from gas leak - – The utility whose leaking natural gas well has driven thousands of Porter Ranch residents from their homes acknowledged Thursday that it understated the number of times airborne levels of the cancer-causing chemical benzene have spiked during the crisis. Southern California Gas Co. had been saying on its website and in emails to The Associated Press that just two air samples over the past three months showed elevated concentrations of the compound. But after the AP inquired about discrepancies in the data, SoCalGas said higher-than-normal readings had been found at least 14 times. SoCalGas spokeswoman Kristine Lloyd said it was “an oversight” that was being corrected. The utility continued to assert that the leak has posed no long-term risk to the public. The World Health Organization and U.S. government classify benzene as an undisputed cause of leukemia and other cancers. “No safe level of exposure can be recommended,” WHO has said. For noncancerous ailments, California has said repeated exposures of 1 part per billion is unsafe. In the Los Angeles area, benzene is typically between 0.1 and 0.5 parts per billion, according to the South Coast Air Quality Management District. Tests showed that, at least 10 times in November, it exceeded 1 part per billion in Porter Ranch; one reading showed 5.6 parts per billion.
Fracking may be linked to Porter Ranch gas leak - Did fracking play a role in the Porter Ranch natural gas leak, one of the biggest environmental disasters in recent California history? In October, a ruptured storage well in the Aliso Canyon oil field began spewing hundreds of thousands of tons of noxious gas into Los Angeles neighborhoods. Three months later, this massive leak still hasn’t been stanched. Thousands of people in the Porter Ranch area have been driven from their homes, schools and businesses by horrible smells and spiking levels of cancer-causing benzene. State regulators don’t seem to know what caused the leak, or how to stop it. But newly uncovered documents show that hydraulic fracturing was commonly used in the Aliso Canyon gas storage wells – including a well less than a half-mile from the leak. Gov. Jerry Brown should immediately halt fracking in gas storage facilities throughout California. This technique – injecting fluids, including toxic chemicals, at enormous pressures into the wells – poses a huge threat to public safety. The facts about this little-known practice were buried in a recent California Council on Science and Technology report. “Hydraulic fracturing facilitates about a third of the subsurface storage of natural gas in the state,” and is especially common in Aliso Canyon, the report says. Operators frack storage wells to increase gas production, which decreases by about 5 percent a year, according to a U.S. Department of Energy report.
Air regulators considering methane burn-off from gas leak — Southern California air regulators delayed making a decision Saturday on whether to trap and burn leaking natural gas that has persisted for 12 weeks and driven thousands from their Los Angeles homes. The South Coast Air Quality Management District postponed voting on an order of abatement requiring Southern California Gas Co. to stop the leak until concluding the final phase of the hearing process Wednesday, agency spokesman Sam Atwood said. Its board members must also consider a plan to bring residents more immediate relief by capturing leaking methane and disposing the gas — either by burning it or by using carbon filters — and a proposal by many residents to permanently shut down the massive gas storage field once the leak is stopped. Atwood said air regulators would approve the plan to trap and burn the gas if it is deemed safe to do so. This past week, the state Public Utilities Commission expressed concerns that the damaged well could be vulnerable to an explosion, and the U.S. Environmental Protection Agency said it would assess the safety of burning the gas. Residents of Porter Ranch have complained about nausea, headaches, nosebleeds and other symptoms that have persisted since the leak at the Aliso Canyon storage field, the largest facility of its kind west of the Mississippi River, was reported Oct. 23.
Alert: LA gas well has ‘destabilized’, large crater develops in area — Officials: “Could be catastrophic” — TV: Risk of massive fire, possible explosion — Expert: “If wellhead fails, the thing is just going to be full blast… a horrible, horrible problem” — Company refuses to provide photos or media access (VIDEO): Efforts to plug Porter Ranch-area gas leak worsened blowout risk, regulators say — Southern California Gas Co… is trying to avoid a blowout, which state regulators said is now a significant concern after a seventh attempt to plug the well created more precarious conditions at the site. If a blowout occurs, highly flammable gas would vent directly up through the well… rather than dissipating as it does now… State officials said a blowout would increase the amount of leaked gas… That natural gas also creates the risk of a massive fire… The risk of fire already is so high that cellphones and watches are banned from the site… [The gas company's attempts to stop the leak] expanded a crater around the wellhead, state and gas company officials said. The crater is now 25 feet deep, 80 feet long and 30 feet wide, those officials said… [The gas company] declined repeated requests from The Times… The gas company would not provide current photos of the site or allow media access… In one internal state report obtained by The Times, an agency official described [one] kill effort as a “blowout to surface.” “A large column of gas, aerated mud, and rock formed a geyser around the wellhead,” the state observer wrote. Scott McGurk, senior oil and gas field regulator assigned to daily watch at Aliso Canyon, Jan 15, 2016: The site and wellhead were made more unstable by the gas company’s attempts to stop the leak by pumping a slurry directly into the well… The wellhead sits exposed within the cavernous space, held in place with cables attached after it wobbled during the plugging attempt… During one of [the plugging] attempts Nov. 13, a hole in the ground opened 20 feet north of the well… Gas that had seeped through diffuse rock fissures on the western side of the narrow ridge began streaming instead from the new vent… the vent allowed a “serious amount of gas” to escape. Gene Nelson, a physical sciences professor at Cuesta College, Jan 15, 2016: “If the wellhead fails, the thing is just going to be full blast… It will be a horrible, horrible problem. The leak rates would go way up.”
Gas company forced to resume offering rental houses to Porter Ranch families - The Los Angeles city attorney has forced the Southern California Gas Co. to back down from a plan the utility quietly put in place this week to stop offering rental houses to Porter Ranch families dislocated by the nearby gas leak. The company instructed its relocation specialists on Tuesday to no longer place residents in rental houses because they are increasingly hard to find and expensive for short-term lease. The utility, noting that it expects to plug the leak in four to five weeks, told agents to put families in hotels and motels instead. The utility reversed its decision after City Atty. Mike Feuer threatened legal action under a court order his office won last month establishing rules governing the relocations. “It would be totally unacceptable for SoCal Gas to harm residents further by rolling back its relocation policy,” said Feuer, who learned of the gas company’s action from The Times. “My office spoke to SoCal Gas on Wednesday, putting it on notice that such a change would violate the court’s order.” On Thursday, Stephanie Donovan, a spokeswoman for the company, said it had asked its relocation agents to “focus attention on short-term accommodations such as hotel rooms to quickly accommodate the greatest number of residents given the difficulty of finding homes available for short-term rentals.” “The city attorney did not agree with our approach and we agreed to continue to look for houses for residents who request those accommodations,” Donovan said. But some effects had already been felt. On Tuesday and Wednesday, some residents seeking relocation were told houses were no longer available. Some landlords saw the utility cancel plans to lease their residential units.
Do Hundreds of Other Gas Storage Sites Risk a Methane Leak Like California's? - Earlier this week, the massive methane leak spewing from an underground natural gas storage facility in California’s Aliso Canyon passed a symbolic milestone: its duration exceeded BP’s 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Now, a growing number of environmentalists, engineers and industry watchdogs say the disaster on the outskirts of Los Angeles could happen elsewhere. There are more than 400 underground natural gas storage sites spread across 31 states, and, like Aliso Canyon, decades-old equipment is deteriorating at many of them. There is little federal oversight for the storage of trillions of cubic feet of potentially explosive fuel that is also a potent greenhouse gas. More than 100 facilities like Aliso Canyon that are owned and operated by local utility companies are subject to a patchwork of state regulations, which vary significantly from state to state. In California, multiple agencies have some responsibility for underground gas storage, with no designated lead authority, according to state lawmakers. More than 200 other storage sites are part of an interstate natural gas pipeline network and fall under the jurisdiction of U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA). That agency, however, does not inspect or regulate these storage units, deferring instead to state regulators. After a storage leak in Kansas led to a fatal explosion in 2001, a federal court barred Kansas regulators from imposing tougher standards, leaving the state’s storage facilities without any regulatory oversight. “The issue of gas storage facilities is a classic example of an important piece of the natural gas supply chain that has just fallen through the cracks,”
Oil below $30 fans wipeout fears among U.S. shale survival artists - Across oil fields from Texas to North Dakota fears are growing that crude's plunge below $30 a barrel is more than just another market milestone and marks a countdown to an endgame for many shale producers that so far have braved the 18-month downturn. Oil prices tumbled by more than a fifth this month to 12-year lows 70 percent below mid-2014 levels and traders brace for more declines as world production keeps outpacing demand. Yet many of around 50 listed U.S. independent oil producers and scores of smaller ones need $40-$60 a barrel to break even, according to several analysts. A longer spell of $30 oil will confront them with stark choices: bankruptcy, debt writedowns in return for deep concessions to creditors or fire sales of assets at a time when potential buyers are skittish."There's no place to make cuts anymore. There's not much else you can do now. Companies are losing money on a monthly basis. It's bad everywhere," "I went through the bust in the 1980s and it's beginning to feel like that again." The deepest downturn of the pre-shale era lasted five years and it took two decades for prices to fully recover. In the heart of the Eagle Ford formation in south Texas, where the fracking boom unlocked vast supplies, contributing to the global abundance that is now sinking prices, some say the latest plunge may be just too much. "We're going to reach a breaking point here," "If anybody says they are making money in the oilfield they are lying," Potts said. The once crowded trailer parks housing workers are nearly deserted, stacks of drill pipes rust and idled rigs spread over acres lay down on their sides.
How The Banks Are Tightening The Noose On U.S. Oil Firms -- Two weeks ago, we reported that even as U.S. lenders were professing to their investors that there is no risks with their energy exposure and that they are comfortably reserved for any potential losses, they were reducing their unfunded (and total) exposure to oil and gas exploration companies due to balance sheet, default and contagion concerns. We showed a list 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners. Following up on this distrubing development, here is Markit with its take on how "Leverage is tightening the noose on US oil firms." Evaporating credit lines are set to finally squeeze US energy firms as oil prices break through $30 a barrel and US banks sound the alarm on rising bad loans in the sector.
- US oil firms more levered than at the start of 2015 according to Markit Research Signals
- Geared energy names underperform peers by 24% over the last 12 months
- Shorts clamour for Chesapeake Energy as cost to borrow surges; third of shares sold short
Half of U.S. Fracking Industry Could Go Bankrupt as Oil Prices Continue to Fall -- As expected this morning, the oil price has fallen below $28 a barrel on the back of the historic news over the weekend of sanctions being lifted on Iran. This is the lowest level for oil since 2003. The markets are spooked that the lifting of sanctions means the imminent introduction of half a million or so more barrels of oil per day from Iran into an already oversupplied market. The country has the world’s fourth largest reserves of oil. “Major producers are currently delivering 2-2.5 million barrels per day more than demand, so the question is how long they can continue to overproduce for at that level.” Already struggling with oversupply from various countries, the market now has Iran to contend with too. Analysts from Barclays said simply: “Iranian exports come at a very bad time.” That can only mean one thing: a market awash with oil, which will only add a downwards pressure on the already low oil price. And there is no respite in store. HSBC chief executiveStuart Gulliver said he predicted the price of oil to be somewhere between $25 and $40 in a year’s time. The American shale industry needs oil at about the 60 to 70 dollar a barrel level in order to survive. Having limped along last year hoping for a rebound in prices this year, the industry is heading for deep trouble.
Some Bankrupt Oil and Gas Drillers Can't Give Their Assets Away -- In mid-2014, when the crude price topped $100 a barrel, Terry Clark made an offer to buy properties from Dune Energy Inc., a small driller with money trouble. Dune turned him down. A year later, as oil plunged to $60 a barrel, Dune filed for bankruptcy and Clark picked up the assets at auction at a deep discount. “What we offered versus what we got it for, it’s a great price,” Clark said. Winners and losers are emerging from the energy bust. What’s a meal for Clark is indigestion for banks that financed the boom using oil and gas properties as collateral. The four biggest U.S. banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- have set aside at least $2.5 billion combined to cover souring energy loans and have said they’ll add to that if prices stay low. There’s plenty to keep Clark bargain-hunting. Last year, 42 U.S. energy companies went bankrupt, owing more than $17 billion, according to a report from law firm Haynes & Boone. Dune went belly up owing $144.2 million. Its assets sold for $20 million. In May, American Eagle Energy Corp. filed for bankruptcy with debts of $215 million. Its properties sold for $45 million in October. BPZ Resources Inc. owed $275.2 million. Its assets fetched about $9 million. Endeavour International Corp. went into bankruptcy owing $1.63 billion. The company sold some assets for $9.65 million and handed over the rest to lenders. ERG Resources LLC opened an auction with a minimum bid of $250 million. Response? No takers. “A lot of people got into this business and didn’t really understand the ups and downs of price cycles,” “They’re getting a very bad dose of reality right now.” More pain will come, according to Roof’s firm. Crude prices, down more than 70 percent since June 2014 and sinking below $30 a barrel, could head down further, according to an AlixPartners report.
Wells Fargo's Problem Emerges: $17 Billion In Junk Energy Exposure --When Wells Fargo reported its Q4 earnings last week, the one topic analysts and investors wanted much more clarity on, was the bank's exposure to oil and gas loans, and much more color on its energy book over concerns that Wells, like most of its peers, was underestimating the severity of the upcoming shale default wave. And while the company's earnings call indeed reveals that things are deteriorating rapidly in Wells energy book, perhaps an even bigger concern for Wells investors, which just happens to be the largest US mortgage lender, should be what is going on with its mortgage book. The answer: nothing. In fact, at $64 billion in mortgage applications in the quarter, this was not only a major drop from Q3, but also the lowest since the first quarter of 2014. Needless to say, without significant growth in Wells' mortgage pipeline and originations, there can be no upside to Wells Fargo stock, meanwhile one can kiss the so-called housing recovery goodbye for the final time, because now that the US Treasury is cracking down on criminal and money laundering "all cash" buyers, we fully expect the housing industry to grind to a near halt in the coming 2-3 quarters. That covers the lack of upside. As for the substantial downside, here are the key parts from Wells Fargo's conference call discussing the bank's energy exposure. First: how big is Wells' loan loss allowance for energy: We've considered the challenges within the energy sector and our allowance process throughout 2015 and approximately $1.2 billion of the allowance was allocated to our oil and gas portfolio. It's important to note that the entire allowance is available to absorb credit losses inherent in the total loan portfolio.Then, from the Q&A, how much is Wells' total loan exposure, its fixed income and equity exposure toward energy: I would use $17 billion as outstandings for energy loans. And for securities, I would use, call it, $2.5 billion which is the sum of AFS securities and non-marketable securities. In other words, a 7% loan loss reserve toward energy, perhaps the highest on all of Wall Street.
More Banks Take Hits on Energy Loans. Months of low oil prices are starting to take a toll on banks. Large U.S. banks reporting earnings Friday said they saw more energy loans go bad in the fourth quarter. Many lenders also added millions of dollars to reserves in anticipation that more oil-and-gas loans will sour. Credit issues from low energy prices are affecting “anybody who was in the game as the oil boom started,” Citigroup Inc. added to its rainy-day reserves for soured loans for the first time since 2009, adding $250 million specifically for energy and $494 million overall. “Obviously there is some pressure in the energy-related markets at this point in time,” As many as one-third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50 a barrel, many analysts say. Concerns about oil and gas exposure have battered the stocks of banks with big energy portfolios. Zions Bancorp shares are down 18% since the beginning of the year, while BOK’s are down 20% and Cullen/Frost Bankers Inc. shares are down 22% during that period. The KBW Nasdaq Bank Index is down 13% amid a broad market decline. Still, banks continue to maintain that any energy losses remain manageable. Wells Fargo & Co. had $90 million in higher losses in its oil-and-gas portfolio during the fourth quarter, and the bank said it boosted its commercial-loan reserves as a result. Wells Fargo played down the potential impact of the energy problems, noting that oil and gas loans remained around only 2% of its total loans, and that more than 90% of the problem oil-and-gas loans in its portfolio were current on their interest payments as of the end of 2015.
Oil Market Tests Banks’ Ability to Weather Losses -- Low oil prices are rattling global markets and destabilizing economies around the world. They are also posing one of the first big tests to the United States banking system since the financial crisis. Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oil producers struggle to pay their debts. On Tuesday, Bank of America said provisions for credit losses increased $264 million in the fourth quarter, driven by the downturn in the energy sector. Citigroup, Wells Fargo and JPMorgan Chase reported last week that oil issues also weighed on fourth-quarter earnings. While the energy downturn is cutting into profits, it is not threatening the big banks’ capital cushions, a testament, analysts say, to the rigorous regulations put in place to protect the financial system after the collapse of the mortgage market in 2008. Still, the worst pain for the banks may lie ahead. While many banks have reduced credit lines to oil producers, some lenders are loath to cut off financing entirely for fear of forcing energy companies into bankruptcy, according to energy lawyers and consultants.The banks — and their regulators — are also trying to determine loan values and forecast future losses amid great uncertainty about the direction of oil prices, which have dipped below $30 a barrel. Some analysts and energy executives say prices could rebound in a few months if the global oil glut eases. Others say it could take years for prices to rise again as the global economy slows and new supply comes online from countries like Iran.
Big banks brace for oil loans to implode: - Firms on Wall Street helped bankroll America's energy boom, financing very expensive drilling projects that ended up flooding the world with oil.Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs. Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20 or even $10 oil play out. For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector." JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months. " Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that "oil prices are likely to remain low for a longer period of time." If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It's only likely to get worse. Standard & Poor's estimates that 50% of energy junk bonds are "distressed,"meaning they are at risk of default.
Moody’s puts 175 energy and mining companies on downgrade watch FT - Several of the world’s biggest oil and gas groups — including Royal Dutch Shell, Total and Chesapeake Energy — are among 175 energy and mining companies at risk of rating downgrades following a collapse in crude and other commodities markets, Moody’s warned on Friday. Downgrades that could increase financing costs are seen as most likely for exploration and production companies in North America, where the sharp fall in oil prices is putting pressure on many groups that led the US shale boom. Moody’s has put on review for downgrades 69 US-based companies — including Schlumberger, the oil services group which on Thursday announced 10,000 job losses, and Chesapeake, the gas producer. “Multi-notch downgrades are particularly likely among issuers whose activities are centred in North America, where natural gas prices have declined dramatically along with oil prices,” said the rating agency. In a review of the natural resources industry, Moody’s blamed China’s economic slowdown for its gloomy outlook and pointed to a “substantial risk” that oil prices will recover only slowly from 12-year lows this week of less than $30 a barrel. “Oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade,” said Moody’s. “Even under a scenario with a modest recovery from current prices, producing companies will experience much lower cash flows.” Moody’s notice for 120 energy companies and 55 miners is its largest single warning of potential corporate downgrades since the financial crisis.
Default risk in energy debt seen as higher than Great Recession - The market has less faith in energy companies than in the peak of the financial crisis. ByEllieIsmailidou Markets reporter Markets are pricing in a higher default risk for the energy sector than they did at the peak of the Great Recession, according to data from Schwab Center for Financial Research and Barclays. As continued concerns about oil’s global supply glut pushed crude futures below $27 a barrel, sparking a global stock selloff, energy spreads surpassed their 2009 peak. A spread is a yield differential between the index and comparable risk-free Treasurys. Widening spreads mean investors are pricing in more risk for the energy sector and require a higher yield as compensation for their risk. As the following chart shows, the spread on the energy sector of the Barclays U.S. Corporate High-Yield Bond Index, a widely followed gauge of market-priced risk, reached 1,530 basis points as of Tuesday’s close, compared with 1,420 basis points reached during the height of the financial crisis seven years ago. Credit-market spreads are often viewed as a leading indicator for equity markets. Spreads in the energy sector have been widening since the summer of 2014, and spiked over the past few months amid the recent rout in oil prices. Widening credit spreads imply that “the market is clearly expecting the default rate to pick up, as the balance sheets of some of the riskier energy companies won't be able to sustain this drop in oil prices”
The great condensate con: Is the oil glut just about oil? -- My favorite Texas oilman Jeffrey Brown is at it again. In a recent email he's pointing out to everyone who will listen that the supposed oversupply of crude oil isn't quite what it seems. Yes, there is a large overhang of excess oil in the market. But how much of that oversupply is honest-to-god oil and how much is so-called lease condensate which gets carelessly lumped in with crude oil? And, why is this important to understanding the true state of world oil supplies? . Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This condensate is less dense than oil and can interfere with optimal refining if too much is mixed with actual crude oil. Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con. Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December, according to the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy. U.S. statistics for crude oil imports include condensate, but don't break out condensate separately. Brown believes that with America already awash in condensate, almost all of those imports must have been crude oil proper.Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude oil, if they didn’t have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate] inventories?" Part of the answer is that U.S. production of crude oil has been declining since mid-2015. But another part of the answer is that what the EIA calls crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's condensate-rich tight oil fields--the ones tapped by hydraulic fracturing or fracking--the United States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.
Southwestern Energy to shed 1,100 jobs - Southwestern Energy Co. announced layoffs Thursday as drilling activity stalls. The Houston-based company will reduce its workforce by more than 40 percent, according to filings with the Securities and Exchange Commission. The oil and natural gas driller expects to shed 1,100 jobs as it copes with falling natural gas prices. About 300 of those laid off are part of Southwestern’s Houston headquarters, according to Fuel Fix. Employees were notified of a workforce reduction plan Thursday. Affected employees are being offered a severance package, which includes a one-time cash payment depending on length of service and, if applicable, amendments to outstanding equity awards to modify forfeiture provisions on separation from the company. Some affected employees are being offered the opportunity to accept reduced roles with the company. The company expects the plan to be substantially implemented by the end of the first quarter this year.
Oklahoma-based Devon Energy plans layoffs over next few months — Oklahoma City-based Devon Energy Corp. has announced that it is planning employee layoffs over the next few months. Company executives made the announcement during a town hall meeting with employees Wednesday morning. Spokesman Tim Hartley said that the layoffs are a necessary part of cost management efforts for Devon as oil and natural gas prices remain weak. Hartley said that it has not been determined how many employees will lose their jobs, but that a majority of the layoffs will happen by the end of March. According to a document filed with the Securities and Exchange Commission last year, Devon had about 5,500 employees as of Dec. 31, 2014.
Layoffs to Hit 10K in Shell BG Group Merger - Royal Dutch Shell and BG Group will continue layoffs this year. The companies estimate a total of 10,000 employees and direct contractors will be let go, dating back to last year.The cuts come as the companies slash operating costs and try to extract synergies from their upcoming merger. In a preliminary four-quarter earnings report, Shell announced it reduced operating costs by $4 billion last year and expects to trim another $3 billion in costs this year. According to Royal Dutch Shell CEO Ben van Beurden, Shell is taking steps to refocus and reduce capital spending. The company’s capital investment is projected to be $29 billion, or 20 percent less than 2014 levels. Shell plans to be more efficient and selective of new investments. No other details were provided about its job cuts. The company announced approximately 7,500 layoffs in 2015. Shell’s acquisition of BG Group is subject to shareholder approval, but is expected to close in the coming weeks. The transaction was originally valued at more than $70 billion, but the price fell as Shell’s shares declined with falling oil prices.
Schlumberger Fires 10,000 As It Announces A $10 Billion Stock Buyback - When your organic growth is over, your revenue just missed consensus expectations once again ($7.74Bn vs $7.77BN expected), your stock is trading near 4 years lows and and you are stuck in the imploding energy sector, what do you do? Why you announce a $10 billion stock buyback, but since you will have to fund it with more debt (whose cost in recent weeks has soared) you have to get rid of "overhead." How do you do that? Simple: you announce you are firing 10,000 workers. The commentary: “In anticipation of an extended activity weakness in the first half of 2016, we implemented another significant adjustment to our cost and resource base during the fourth quarter. This included a further workforce reduction of 10,000 employees, as well as greater streamlining of our overhead, infrastructure and asset base. This led us to recognize in the fourth quarter $530 million in pretax restructuring charges for expanding the incentivized leave of absence program and reducing our workforce, as well as a largely non-cash $1.6 billion pretax impairment charge for fixed assets, inventory write-downs, facility closures, contract terminations, and other asset impairments. So sorry for the pink slips, but they were instrumental to make sure the shareholders enjoy at least a few more weeks of higher stock prices at which they can sell, ideally back to the company (and its latest bondholders):
Schlumberger Lays Off 10,000 More People; U.S. Land Activity Decline 'Sharpest' Since 1986 -- Schlumberger Ltd. lost more than $1 billion in the fourth quarter and reduced its workforce by another 10,000 as tight exploration budgets slammed profits for the world's largest oilfield services company. With the United States continuing to be the No. 1 region for its business, the earnings report foreshadows what’s ahead for the rest of the services sector as well as exploration and production (E&P) results. To cope with the poor environment and likely downturn through at the least the first half of this year, Schlumberger laid off another 10,000 people during the fourth quarter. The company had indicated in December it was reducing the workforce, but it had not indicated how many people would lose their jobs (see Shale Daily, Dec. 1, 2015). In January 2015 the company laid off close to 11,000 employees, or 15% from 3Q2014 levels (see Shale Daily, April 17, 2015). At least 20,000 jobs were cut by Schlumberger prior to the December layoffs (see Shale Daily, Oct. 16, 2015). The company currently employs about 105,000 people. The "extended activity weakness" is seen persisting through June, CEO Paal Kibsgaard said. Reducing the workforce led to pretax restructuring charges in 4Q2015 of $530 million. The number of land rigs exploring for oil and gas in the United States was down 68% in the fourth quarter from its 2015 peak, he said. "The decrease in land activity was the sharpest seen since 1986," and "massive overcapacity in the land services market offers no signs of pricing recovery in the short to medium term."
Warren Buffett Buys Phillips 66 For Fourth Consecutive Day - Warren Buffett continues to build his stake in Phillips 66 PSX, reporting Monday his third purchase filing this month. Buffett’s company Berkshire Hathaway said it bought 1,645,887 shares of the company on January 7, 2016, at prices ranging from $76.45 to $78.01 per share. This represents a 2.64% increase from the number of shares Buffett owned the day before. The purchase also shows Buffett’s growing interest in the company. It follows a 107% increase to his holding in the third quarter, a total 0.08% increase January 4 and January 5, 2016, and 1.23% increase January 6, 2016. His Phillips 66 holding now totals 63,940,380 shares. A spin-off from ConocoPhillips, Phillips 66 is a midstream energy company that operates chemicals, oil refining and market businesses. Oil refiners tend to benefit when oil prices drop, and the price per barrel fell to a 12-year low near $30 Tuesday. Buffett, however, has said the refinery business was not the primary appeal for him. “We’re buying it because we like the company and we like the management very much,”
Buffett's firm buys another 1.6 million Phillips 66 shares -- Berkshire Hathaway is continuing this month string of Phillips 66 stock purchases, and Warren Buffett’s conglomerate now controls 12.9 percent of the oil refiner. Berkshire filed documents with the Securities and Exchange Commission on Friday that disclosed purchases of another 1.6 million Phillips 66 shares. Buffett’s company has now bought nearly 7.5 million shares of Phillips 66 this month. It’s possible the buying may continue because Phillips 66 share prices haven’t increased above the range where Berkshire has been buying. Berkshire first revealed owning over 10 percent of Phillips 66 stock in August when it disclosed a stake of 55 million shares. This month’s purchases are the first Berkshire made since September.
Hillary Clinton’s Complicated Ties to Big Oil -- This week, Greenpeace and more than 20 partners called on all 2016 presidential candidates to commit to a people-powered democracy. That means their potential administrations would prioritize reforms to get money out of politics and protect voting rights. To prove they mean business, we’re asking all candidates to start off their pledge with a commitment to refuse all campaign donations from fossil fuel companies. Already, presidential candidate Bernie Sanders has signed the pledge and vowed to reject dirty energy money. Now our sights are set on candidates Hillary Clinton and Martin O’Malley. Secretary Clinton has already said that she believes Exxon should be prosecuted for misleading the public on what it knew about climate change going back to the 1970s. New evidence has surfaced showing that other fossil fuel companies, including Shell and Chevron, also knew. But when asked last month whether her campaign would stop taking money from the fossil fuel industry, Clinton wavered, saying that she wasn’t aware if her campaign had taken money, but would look into it. Well, we looked into it. While it’s true that Clinton’s campaign committee has not taken any money from Exxon or Exxon’s political action committee, it has taken money from fossil fuel lobbyists. Analyzing just Exxon, seven of the company’s lobbyists gave the maximum allowable amount to Clinton’s presidential campaign. Clinton’s campaign bundlers also have strong ties to the fossil fuel industry. Bundlers act as lobbyists for campaigns, recruiting other people they know to make individual donations. Outside analysis showed that nearly all of the Clinton campaign’s registered bundlers have worked for the fossil fuel industry.
Company sues feds over funds for Gulf oil leak -- The company responsible for a continuing oil leak that began a decade ago in the Gulf of Mexico is suing the federal government to recover more than $400 million that the company set aside for work to end the leak. New Orleans-based Taylor Energy Company’s lawsuit, filed Monday in the U.S. Court of Federal Claims, says the government violated a 2008 agreement requiring the company to deposit approximately $666 million in a trust to pay for leak response work. The company says the government must return the remaining $432 million. Taylor Energy claims nothing can be done to completely eliminate chronic sheens at the site off Louisiana’s coast. Regulators warn the leak could last a century or more if left unchecked. Taylor Energy has lobbied to recover at least a portion of the remaining money. Since December 2014, at least four members of Louisiana’s congressional delegation have sent letters urging the Obama administration to take up a settlement proposal by Taylor Energy. But federal authorities rebuffed the company’s settlement overtures last year and ordered it to perform more work at the site, where a Taylor Energy-owned platform toppled during Hurricane Ivan in 2004. An underwater mudslide triggered by waves whipped up by Ivan also buried a cluster of oil wells under treacherous mounds of sediment, preventing the company from using conventional techniques to plug its wells.
Company: "Act of God" caused decade-old oil leak - The president of a New Orleans-based company responsible for a decade-old oil leak in the Gulf of Mexico says it was caused by “an act of God event.” Taylor Energy Company President William Pecue also told a gathering of industry experts and environmental advocates on Wednesday that the company cares “very deeply” about the environment. Oil slicks often stretch for miles at the site where a Taylor Energy-owned platform toppled off the coast of Louisiana during Hurricane Ivan in 2004. Federal regulators estimate the leak could last a century or more if left unchecked. Wednesday’s forum in Baton Rouge is a requirement of a court settlement that Taylor Energy reached in September with environmental groups, which accused the company of withholding information about the leak. Taylor Energy Company agreed to hold Wednesday’s forum in Baton Rouge when it reached a court settlement in September with environmental groups that accused the company of withholding information about the leak. . Taylor Energy has said nothing can be done to completely eliminate the chronic sheens that frequently stretch for miles off Louisiana’s coast at the site where one of its platforms toppled during Hurricane Ivan in 2004.
Looming environmental disaster in Quebec as discarded ship could break up - Local authorities in Quebec are warning of a looming environmental disaster if nothing is done to salvage a discarded bulk carrier. The Kathryn Spirit was abandoned by its Mexican owners four years ago at the city of Beauharnois near Montreal and the St Lawrence River. The Mexican firm has since declared bankruptcy and all pumping operations to keep the ship upright have come to a halt. Beauharnois mayor Claude Haineault has warned rain and snow are accumulating in the hold of the ship, and with the pumping operations stopped, he is concerned the open hatch ship could begin to list and eventually capsize. “I think it will be a very big environmental disaster very soon,” Haineault said, suggesting oil could leak into the river and affect Montreal’s access to drinking water. The mayor has asked both federal and provincial governments to help salvage the 1967-built vessel.
Fracking in Alberta: Daily quakes and thirsty residents: One earthquake is recorded on average each day in a western Canadian region where companies extract oil by fracking, according to statistics published by the Canadian province's energy regulatory agency. The Alberta Energy Regulator (AER) said Friday that in the last year alone, there were 363 tremors in and around Fox Creek, a small town of 2,000 inhabitants located 260 kilometers (160 miles) northwest of Edmonton. Some days, seismic activity is higher, such as on September 11, 2015, when a record 18 earthquakes were felt. On Tuesday, a 4.8-magnitude quake on the Richter scale was recorded 30 kilometers west of Fox Creek, where Spanish firm Repsol SA is injecting liquids at high pressure into subterranean rocks to create fissures and extract oil and gas -- the process known as fracking. Repsol confirmed it had been conducting fracking operations "at the time of the event." The AER has not confirmed a link between Tuesday's small quake and fracking in the region. Spokeswoman Carrie Rosa told AFP the agency is investigating. Meanwhile, Repsol has halted operations and is awaiting an AER go-ahead before resuming fracking -- which is required for all seismic events of 4.0 or higher under new rules. The company said it didn't know when operations will restart. Local municipal authorities have warned of the environmental costs of large-scale oil extraction in this region rich in hydrocarbons. "Industry and the provincial government (of Alberta) have been turning a blind eye to what has been going on in our area," Fox Creek Mayor Jim Ahn said in a letter to the AER. "We have industry pulling water from our rivers, streams and lakes at rates we feel far exceed their capabilities to replenish themselves." Water shortages have become a persistent problem, he said, adding that the municipality had to spend more than Can$300,000 (US$206,000) to bring in potable water for its residents.
Scientists still studying link between earthquakes and fracking - A record-breaking earthquake this week in the middle of an Alberta oilfield heavily subject to hydraulic fracking is one of a growing number of such events across the continent, scientists say. But while the amount of research on "induced seismic activity" is growing, the link between fracking and quaking is still a mystery. "If we look at tens of thousands of wells that have been stimulated with hydraulic fracking in Western Canada, less than half a per cent are associated with induced earthquake activity," said David Eaton, a University of Calgary geophysicist. "What are the factors that make it prevalent in some areas and entirely absent in most other areas?"On Tuesday, an earthquake variously reported as measuring between 4.2 and 4.8 on the Richter scale shook pictures on the walls of homes in Fox Creek, a community in the centre of the Duvernay oil and gas field.The quake was the latest -- and largest -- of hundreds of similar shakers around the community since 2013.Scientists agree that fracking or injecting waste water into wells can cause earthquakes. "Among the earth science community, I don't think there's any doubt," said Arthur McGarr of the United States Geological Survey. "The scientists are all on the same page."
B.C. commission confirms 4.6-magnitude quake in August caused by fracking -- The British Columbia Oil and Gas Commission has confirmed that fracking caused a 4.6-magnitude earthquake in August -- the largest linked to the industry in the province to date. The commission says an investigation has determined that the Aug. 17 quake in northeastern B.C. was caused by fluid injection from hydraulic fracturing, also known as fracking. It says 4.6-magnitude seismic events typically cause brief shaking felt at the surface but aren't a risk to public or environmental safety. Progress Energy, which is owned by Malaysia's Petronas and would supply gas to the planned Pacific NorthWest LNG terminal, paused its operations after the quake struck about 114 kilometres outside of Fort St. John. The company held the previous record for the largest known fracking-caused quake in B.C. with a 4.4-magnitude tremor in 2014. A statement from Progress Energy says it takes the incident very seriously and it has 17 monitoring stations in its operating area to accurately detect seismic activity
US$4.5 Billion Deal Reached: Suncor to Acquire Canadian Oil Sands - After months of posturing and wrestling for shareholder approval, the boards of Suncor (ticker: SU) and Canadian Oil Sands (ticker: COS) have reached a merger agreement. The joint announcement, released on January 18, 2015, includes a sweetened transaction value of CN$6.6 billion (about US$4.5 billion) for COS, inclusive of an estimated CN$2.4 billion (about US$1.6 billion) in debt. The transaction is a straight stock-for-stock exchange and each COS shareholder will receive 0.28 SU shares (CN$8.74/share) in exchange for each COS share, a 12% increase compared to the initial offer of 0.25 SU shares (CN$7.81/share) in exchange for a full COS share. Once the merger is complete, the Suncor will own nearly half the interest in Alberta’s massive Syncrude oil sands project. COS estimates the project will average 2016 gross production of 260 to 301 MBOPD in a guidance document. Completion of the transaction is still dependent on feedback from COS shareholders. The offer expires on February 5, 2016 and needs at least 51% approval. COS owes Suncor a breakup fee of $130 million if the deal is not completed.
Forget $20 - Oil Prices At $8 Per Barrel In Canada --Where is the cheapest crude oil in the world? And how low can you get that barrel of oil? WTI has declined to $30 per barrel, the lowest level in more than 12 years. But heavy oil producers in Canada would love to have $30 oil. The price for a barrel of bitumen, the tar-like oil sands that comes from Alberta, fell to just over $8 per barrel this week. That is not a typo. Bitumen traded at $8.35 per barrel on Tuesday. In fact, Amazon.com sells oil drums – just the barrel, not the oil – for $78, almost ten times the cost of the actual bitumen. To be fair, that drum holds 55 gallons instead of the industry-usual 42 gallons. But even a 30-gallon barrel – again, an empty barrel – costs 7 times more than the oil sands that would go in it. Single-digit oil prices for oil sands is not just a problem, it is an existential crisis. That is because heavy oil is some of the costliest stuff around. Bitumen production is way more expensive than oil from shale. Heavy oil producers are now losing money on every single barrel that they sell, even from facilities that are already up and running. Forget the fixed costs of development; just the operating costs of keeping a project online are significantly higher than the revenue that an oil sands producer would earn from selling their bitumen.
Alberta Hit With Debt Ceiling Warning, Pipeline Snub: — Beleaguered Alberta took two more gut punches Thursday as a credit-rating agency reported the province is close to its debt ceiling and Quebec mayors slammed a critical pipeline project. "Today has been a very tough day indeed for Alberta,'' said Wildrose Opposition Leader Brian Jean. Toronto-based agency DBRS affirmed Alberta's top-drawer triple-A credit rating, but downgraded the province's fiscal outlook from stable to negative. It said with oil prices so low and the government's borrowing plans so high, Alberta will exceed its own self-imposed legislated debt limits this fiscal year. Alberta, under a law passed last year by Premier Rachel Notley's NDP government, cannot borrow more than 15 per cent of its gross domestic product. Finance Minister Joe Ceci has said the limit is critical to ensure future generations of Albertans are not saddled with crippling debt payments. DBRS is the third major credit agency to downgrade Alberta's prospects since the new year. Free falling oil prices over the last year and a half have removed billions of dollars from Alberta's economy and plunged the government deep into the red. To rectify that imbalance, the province is trying to drum up support for pipeline construction to get its crude to ports and transport it to emerging markets such as Asia. One pipeline project, Energy East, would take Alberta crude through central Canada to refineries and ports in New Brunswick. But on Thursday, Montreal Mayor Denis Coderre, speaking for the region's mayors, rejected the pipeline as too risky environmentally against limited profit for the area.
TransCanada, First Nations groups sign deals for Coastal GasLink project - Oil & Gas Journal - 
3 ‘Knitting Nannas’ Arrested Protesting 850 Proposed Gas Wells --Three women from Knitting Nannas Against Gas, an anti-coal seam gas group, have been arrested after locking themselves by their necks to the gates of a wastewater treatment plant in New South Wales, Australia.The three women were detained, charged and then released from the Narrabri police station. The women—Angela Dalu, 70, Dominique Jacobs, 51, Theresa Mason, 48—chained themselves this morning to the gates of the Santos Leewood Water treatment plant south of Narrabri. The plant is the proposed site of 850 coal seam gas wells. “The action today has seen three ladies from the Knitting Nannas Against Gas lock themselves to the Santos gates to prevent workers gaining access to the controversial Leewood evaporative ponds,” the group posted to its Facebook page. “This is where almost 600 million liters of toxic CSG [coal seam gas] waste is stored. Santos are trying to build a reverse osmosis plant on this site to concentrate the waste and use treated water for neighboring crops.” The Knitting Nannas, who were joined by some 60 other anti-coal seam gas activists, were charged with obstructing traffic and failure to comply with police direction, The Guardian reported. They did not resist arrest, local police said
Activists oppose oil drilling around Congo protected area — Conservation groups want Uganda’s government to end plans to drill for oil in a lake on Uganda’s western border with Congo, saying oil exploration there threatens Africa’s oldest national park. All six new oil licenses being offered by Uganda’s government are for exploration in protected areas, including one that borders Congo’s Virunga National Park. Oil activity in the Lake Edward basin may have a devastating impact on Virunga, more than 60 conservation and tourism groups, including Global Witness and the Zoological Society of London, said Thursday. Lake Edward, which lies across Uganda’s border with Congo, “is at the heart of Virunga’s precious ecosystem,” the groups said in a statement, adding that oil exploration there will also be harmful to Uganda’s growing tourism sector. “Oil activity in one part of the lake will affect all of it – the wildlife who call the lake home aren’t aware of these national borders,” said George Boden, a campaigner with Global Witness. “There are also over 200,000 people who are dependent on Lake Edward for food. UNESCO and the governments of Uganda and Congo need to act urgently to stop oil exploration in the entire lake for good.” The Ugandan government said the licensing of new oil blocks would proceed next week despite the criticism.
How the Shale Revolution Has Reduced Geopolitical and Price Risk - Despite America’s recent re-emergence as an energy superpower, thanks to revolutionary, Made-in-the-USA extraction technologies, we are still coming to grips with how U.S. shale production has completely rearranged the world’s energy order. As the price of oil plummeted below $30 per barrel, explanations for the collapse have focused on Saudi market strategy and concern about China’s jittery economy, not on the emergence of shale in America.Even as the U.S. rig count has retreated (see chart above), shale remains the key to understanding the global oil landscape. The lack of geopolitical risk in the oil marketplace is an important clue. Consider that despite all of the turmoil in key oil-producing regions, namely the Middle East, oil prices have not spiked. They have only continued to slide. Geopolitical risk, which tends to wreak havoc on oil prices at the most inopportune times, is nonexistent. Nothing — not Russian intervention in Syria, not ISIS attacks on Libyan oil infrastructure, not the torching of the Saudi Embassy in Tehran — has been able to stop the oil price collapse. It’s tempting to dismiss the lack of risk considerations as simply a reflection of the size of the oil glut or the concerns about China’s economy. But that would be wrong. The prices for oil futures contracts get us closer to the real story. Contracts for Brent crude oil futures don’t rise above $50 per barrel until mid-2020. Geopolitical risk hasn’t just been removed from the oil marketplace for the next few months or year, but for the next five years.
Drowning in a Sea of Oil: Oil prices could fall further this year as the market faces an “enormous strain” on its ability to absorb new supplies from producers such as Iran, a top world energy monitor said Tuesday. “The oil market faces the prospect of a third successive year when supply will exceed demand by 1 million barrels per day and there will be enormous strain on the ability of the oil system to absorb it efficiently,” said the International Energy Agency in its first monthly report of the year. The oil markets could be left with a surplus of 1.5 million barrels a day in the first half of 2016, and “unless something changes, the oil market could drown in oversupply,” it said. Crude oil prices have plunged over the last 18 months on vast new oil supplies from inside and outside the Organization of the Petroleum Exporting Countries. On Monday Brent crude touched its lowest level since 2003 . The low price of crude has seen oil companies laying off thousands of workers and cutting their capital spending. A report by energy consultancy Wood Mackenzie published on Thursday found oil companies had delayed making decisions on 68 major projects world-wide last year. This accounts for some 27 billion barrels of oil and equivalent natural-gas volumes, the report said, and brings total industry-wide deferred spending for 2015 to $380 billion.
Shell Fires Another 10,000; Energy Layoffs Top 250,000; Oil Breaks $28 Again; In Search of Jobs --As reflective of trends in the industry Shell Fires 10,000 Workers As its fortunes collapse due to falling oil prices, Royal Dutch Shell PLC will fire 10,000 people in an effort to bolster margins. Operating costs have reduced by $4 billion, or around 10% in 2015, and the company expects Shell’s costs to fall again in 2016 by a further $3 billion. Synergies from the BG combination will be in addition to that. Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue. The "BG combination" mention above but not explained refers to the Shell Takeover of BG announced in December. Royal Dutch Shell is pressing ahead with its $60bn (£40bn) takeover of BG Group despite doubts among some shareholders about the deal’s viability given the falling oil price. Some Shell shareholders believe the company is paying over the odds for BG because the deal was agreed in April on the assumption that oil prices would recover to $90 a barrel by 2020. The price of oil has slumped from $115 a barrel in summer 2014 to less than $40. On Monday it dropped to an 11-year low of $36.17. David Cumming, head of equities at Standard Life Investments, called on Shell’s boss, Ben van Beurden, to pay a $750m break fee to scrap the deal or renegotiate the terms. The only other option is for shareholders to vote against the takeover, he said. Management is never fired for questionable, even outright bad, corporate decisions. Employees, not management takes the hit. In this case, chalk up another 10,000 employee synergies.
Oil Speculators Raise Bets on Falling Prices to All-Time High -- Hedge funds increased bearish oil wagers to a record as global equities fell and Iran was poised to add to the crude supply glut. Oil dropped below $30 a barrel in New York for the first time in 12 years on Jan. 12 amid concern that turmoil in China’s markets will curb fuel demand. Prices dropped further as the week progressed on signs that sanctions against Iran would be lifted, allowing a boost in crude shipments from OPEC’s fifth-biggest member. Speculators’ short position in West Texas Intermediate crude rose 15 percent in the week ended Jan. 12, data from the U.S. Commodity Futures Trading Commission show. It’s the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years. WTI slumped 15 percent to $30.44 a barrel in the report week on the New York Mercantile Exchange. Prices on Monday dropped as much as 3.6 percent to $28.36 a barrel, the lowest in intraday trade since October 2003, and changed hands at $29.38 as of 12:32 p.m. London time. Iran is targeting an immediate increase in shipments of 500,000 barrels a day, Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, said on Sunday. It plans to add another half-million barrels within months. Analysts and economists surveyed by Bloomberg said it can only add 400,000 barrels after six months. U.S. crude inventories climbed in the week ended Jan. 8, adding to the glut, Energy Information Administration data show. Supplies at Cushing, Oklahoma, the delivery point for WTI, rose to a record. Speculators’ short position in WTI rose by 25,899 contracts to 200,975 futures and options, CFTC data show. Longs, or bets that prices will rise, climbed 7.4 percent, the biggest gain in a year. Net longs dropped 9.3 percent. “There are a lot of people who thought oil can’t go down much further and tried to call a bottom,” “When we have monster pullbacks, things don’t end politely. I think we’ll drop to $24 or $25 and then have a sharp V-shaped rally.”
Why crude oil prices keep falling and falling, in one simple chart - For the last two years, global oil prices have been in free-fall, and no one seems to know when the bungee cord will catch. In June 2014, you had to plunk down $110 to purchase a barrel of Brent crude. By early 2015, that had dropped to $60. Today, it costs less than $30 to buy a barrel of oil — a level not seen since 2004. It's a breathtaking decline. I've written a longer explainer of the rise and fall of oil prices, but the basic dynamic can be seen in the chart below, from the International Energy Agency's Oil Market Report. Since mid-2014, the world has been producing far more oil than anyone needs: Oil supply* (in green) remains much higher than demand (yellow) — about 1.5 million barrels per day higher — with the excess getting saved for later in stockpiles. And, according to the IEA, that glut is currently expected to persist for the rest of 2016: "Unless something changes, the oil market could drown in over-supply." Between 2010 and 2014, as you can see above, oil demand was soaring around the world, as countries recovered from the financial crisis but global production was struggling to keep up, and prices soared to around $100 per barrel. Those high prices, however, spurred drillers in the United States to use innovative hydraulic fracturing and horizontal drilling techniques to unlock vast quantities of oil from shale formations in places like North Dakota and Texas. It's hard to overstate the impact of the fracking boom: US crude oil production has nearly doubled since 2010. Eventually, supply caught up with demand — and then surpassed it. That's when the crash came.
IEA: Oil prices may fall further this year — The International Energy Agency says oil prices may fall further this year due to low demand, warm winter weather and an oversupply of crude. The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 1.5 million barrels per day during the first half of the year. “Unless something changes, the oil market could drown in over-supply,” the IEA said. U.S. crude prices have fallen 24 percent since the beginning of the year. Benchmark U.S. crude fell $1.03, or 3.5 percent, to $28.39 a barrel in New York on Tuesday. Many oil companies, including Chevron and BP, have cut jobs and reduced spending to save money. The IEA noted mild temperatures at the outset of winter in the U.S., Japan and Europe lowered demand for oil. Meanwhile, more oil from Iran could boost global supplies further. Iran has said it is aiming to increase its oil production by 500,000 barrels per day now that sanctions have been lifted under a nuclear deal with world powers. “There will be enormous strain on the ability of the oil system to absorb it efficiently,” the IEA said, referring to the overall excess supply.
Oil tumbles under $28 on February contract’s expiration day - Oil futures traded sharply lower on Wednesday, as a fresh slide in the global financial markets and continued concerns about the glut of crude pushed the February West Texas Intermediate crude contract below $28 a barrel ahead of its expiration. The International Energy Agency said in a report released Tuesday that the world may soon drown in oversupply. There is also “a record short position in hedge funds and we have the promise of more Iranian oil on the world market,” said Phil Flynn, senior market analyst at Price Futures Group. “Add it all up and it’s causing the crude-oil market to crater around the globe,” he said in a note Wednesday. On the New York Mercantile Exchange, February WTI crude fell $1.19, or 4.2%, to $27.27 a barrel ahead of the contract’s expiration at Wednesday’s settlement. March crude which will become the front-month contract, dropped $1.11, or 3.8%, to $28.46 a barrel. WTI prices continue to trade at their lowest levels since September 2003. Brent crude for March delivery, the global oil benchmark, was down 93 cents, or 3.8%%, to $27.68 a barrel on London’s ICE Futures exchange, after trading as low as $27.70.
Oil Slides After API Reports Another Large Crude, Gasoline Inventory Build -- With December's seasonal shenanigans out of the way, and following 2 record-breaking weekly builds in gasoline stocks, with expectations of a 2.3mm barrel build API reported a large 4.6mm inventory build (double expectations) . Cushing inventories built 63k, rising for the 12th week in a row. Gasoline stocks rose once again (+4.7mm) and Distillates also (+1.5mm). December is over... Charts: Bloomberg
Oil — ‘Almost as cheap as the world has seen in 50 years’ - Consider this chart from Charles Robertson at Renaissance Capital. Click to enlarge…Rather than waste his time with nominal price comparisons or eat far too much time trying use suitable inflation stats, Robertson simply compares the oil price to global GDP. The peak was 1979, when the world spent 7.5 per cent of total GDP on oil — more than education and defence spending globally, combined.The low came in 1998, when spending on oil amounted to 1.1 per cent of global GDP — and pretty much the entire emerging world was ins some sort of crisis.And now? If oil AVERAGES $23 in 2016 – then it comes in at 1.0% of GDP vs the IMF GDP estimate for 2016. That price would be a 50 year low. WTI at pixel: $26.88 for Feb.
US Oil Futures Plunge by Nearly 7%, to $26.55 a Barrel; Stocks Swoon -- Yves Smith - “I love the smell of deflation in the morning” doesn’t have quite the right ring to it. But that’s the sort of carnage we are seeing. From the Wall Street Journal: The selloff in oil prices accelerated Wednesday, intensifying a slide in global financial markets as investors worried that oil’s relentless downdraft signaled global economic gloom.The front-month U.S. oil contract settled down 6.7%, posting the biggest one-day loss since September. Oil prices have dropped more than 25% this year. Much of the 19-month oil-market selloff has been driven by concerns about ample supplies. What’s increasingly weighing on investors is the fear that demand growth is wilting, particularly in China, which could reflect deeper economic woes….Oil investors fear that demand in China, which consumes about 12% of world’s crude, may falter as the country shifts to a less energy-intensive economic model. On Tuesday, the Chinese authorities announced the country’s gross domestic product rose 6.9% in 2015, its slowest pace in 25 years. ESAI Energy LLC said Wednesday that the pace of demand growth in China from 2015 to 2030 will be 60% slower than the pace of demand growth from 2000 to 2015. Brent was not hit as hard. Again from the Journal:Brent, the global benchmark, fell 82 cents, or 2.9%, to $27.94 a barrel on ICE Futures Europe, also on track for the lowest settlement since 2003.From Bloomberg: Crude sank the most in more than four months, dragging down shares of oil and gas producers to the lowest in almost seven years. Futures fell as much as 8 percent to the lowest since May 2003. Royal Dutch Shell Plc, the first global major oil company to report fourth-quarter earnings, said Wednesday it expects profit to drop at least 42 percent. Markets could “drown in oversupply,” sending prices even lower as oil demand growth slows and Iran boosts exports, the International Energy Agency said Tuesday. “At this point things are ugly and there’s no reason to buy into this market,”
Spread Between Low- And High-Sulfur VGO Is At Widest Point In More Than Six Months -- January 20, 2016 -- Platts is reporting: The spread between low- and high-sulfur VGO barges in the US Gulf Coast cash market stood Wednesday at its widest point in more than six months as cargoes of the more sour product from Northwest Europe, Scandinavia and the Baltic states head for US shores. High-sulfur VGO at maximum 2% sulfur was heard traded late Tuesday at the equivalent of cash February WTI plus $4.50/b, compared with a trade of low-sulfur VGO at maximum 0.5% sulfur at the equivalent of $7.35/b over crude. The spread of $2.85 is the widest since low-sulfur VGO was also $2.85 over the sour product July 8. It points to the balance of product recently shipped from Europe tilting toward higher-sulfur VGO. About 10 VGO cargoes have been dispatched to the Gulf and West Coast markets in recent weeks from European ports, and market sources said one cargo of VGO from Colombia also is expected in the Gulf Coast early next month. "There is no doubt at the moment that there are too many cargoes either in the USG or on the way there for the market to absorb," a European feedstocks trader said Wednesday. High-sulfur VGO is fed into a refinery hydrocracker to make gasoline and diesel, while low-sulfur VGO goes into a fluid catalytic cracker to produce naphtha for reforming into gasoline, according to energy consultant RBN Energy. Early Wednesday, high-sulfur VGO was heard traded at March cash WTI plus $3/b, the equivalent of February cash WTI plus $4.10/b and suggesting further weakness in sour product. No trades were heard in low-sulfur VGO, implying that the $2.85 spread is unchanged.
Oil Rallies Despite Surge in Inventories, Demand Drop, And Production Pop -- WTI Crude has ramped into this morning's DOE data back to the scene of the crime from last night's API ugly data dump. With API reporting a build that doubled expectations, DOE reports a 3.6mm build but worse still yet another major (4.6mm barrel) build in gasoline stocks for the largest 3-week build in history. Crude initially tumbled but the algos took over and ramped to yesterday's highs...running stops (but how long will that last?)
- *CRUDE OIL INVENTORIES ROSE 3.98 MLN BARRELS, EIA SAYS
- *GASOLINE INVENTORIES ROSE 4.56 MLN BARRELS, EIA SAYS
The data breaks down as follows...
- Crude +2.2m estimate (BBG users est 3.75mm) vs +4.6m API
- Cushing crude +400k estimate vs +63k API
- Gasoline +1.9m estimate vs +4.7m API
- Distillates +800k estimate vs +1.5m API
As the following chart shows, Gasoline and Crude saw major builds and Cushing the 12th weekly build in a row... And as inventories surge, Proroduction rises for the 6th week in a row.... And Demand collapses... The reaction in crude is clear - after the algos ramped to run stos at the API ledge from last night... but the algos then took over again and ramped us...Don't hold your breath! And credit risk signals today's bounce is overdone... So to sum up, demand is plunging, supply is surging, inventories are rising at a record pace and credit is collapsing... so oil rallied!?
The World Is Not Running Out Of Storage Space For Oil -- The IEA struck a dour tone on the state of the global economy in 2016 in its latest monthly Oil Market Report, and even included a stark warning that the markets could “drown in over-supply” because of rising storage levels around the world. Oil analysts have closely watched storage levels as an important barometer of where the markets were heading. The thinking was that inventories would rise as the supply overhang persisted, but storage facilities would then drawdown relatively quickly as production slowed. But in early 2015 a funny thing happened: Inventory levels surged to their highest levels in 80 years in the U.S., pushing oil prices down into the $40s per barrel. By April, oil stocks began drawing down. But by the end of the summer, inventories began rising again and prices crashed. As of early 2016, there is a lot more pessimism as storage levels have barely declined from their 80-year highs of 490 million barrels in the United States. Around the world things do not look much better. The IEA says that the world added 1 billion barrels of oil into storage in 2015. Worse yet, global inventories could climb by another 285 million barrels this year before all is said and done. The stock build will likely “put midstream infrastructure under pressure and could see floating storage become profitable,” the Paris-based energy agency concluded. Last year the IEA warned that available storage could entirely run out.OECD oil inventories are just shy of 3 billion barrels. In the fourth quarter of 2015, oil storage levels increased by 1.8 million barrels per day (mb/d), a record high for the time of year. In fact, the fourth quarter is normally a time that stocks are drawn down, not added, and there have only been four other times in which inventories climbed at the end of a given year. The IEA cautioned that the lack of transparency and good data on storage capacity levels in most parts of the world make it difficult to “assess whether there is currently additional spare storage capacity outside of the US.” In fact, oil tankers at several key trading hubs have had some difficulty unloading their volumes because of a lack of onshore storage capacity. In Europe, one important area to watch is the Amsterdam-Rotterdam-Antwerp (ARA) hub, an area that has seen tankers back up because storage onshore has “remained at close to full capacity amid difficulties moving product into central Europe.”Adding to the storage woes will be the nearly two dozen tankers from Iran that have been sitting offshore holding Iranian crude that were trapped because of sanctions. They could soon set sail.
Saudi Arabia says $30 oil is ‘irrational’ Saudi Arabia has described the collapse in oil prices to below $30 as “irrational” and expects the market to recover in 2016 even as the country continues to keep production high. Khalid al-Falih, chairman of state oil company Saudi Aramco, told the World Economic Forum in Davos that current prices could not last, with many smaller producers facing financial difficulties. “The market has overshot on the low side and it is inevitable that it will start turning up,” said Mr Falih, predicting higher prices by the end of the year. He reiterated that Saudi Arabia, the world’s biggest oil exporter, would not cut supplies unilaterally or make way for rival producers. A surge in US shale output over the past five years has contributed to a global supply glut that has pushed oil prices down 75 per cent in 18 months. The sell-off has accelerated this year, with crude dropping 30 per cent as Iran, Saudi Arabia’s regional rival, prepares to re-enter the market after the lifting of sanctions. The latest downward lurch in oil prices comes as fears of a wider global economic slowdown have rattled financial markets and placed further strain on the budgets of Opec’s financially weaker members. While he called the short-term oil outlook “bleak”, Mr Falih said Saudi Arabia, which is considering a stock market flotation of part of Saudi Aramco, would weather the downturn better than many of its rivals. US shale producers are pumping flat out in an attempt to generate enough cash to pay down large debts built up during rapid expansion, as prices averaged near $100 a barrel between 2010 and 2014. Many are predicted to go bankrupt this year if prices do not rise $30 a barrel.
Kero-Jet Prices Plummet Toward Earth. Crude oil prices staged a recovery of sorts yesterday (January 21, 2016) after a crushing first two weeks of the year. But even if this proves to be the turning point, a lot of damage has been done to crude and refined product prices along the way. Jet fuel is a case in point. The U.S. Gulf Coast spot price for kerosene-type jet fuel closed on Wednesday (January 20, 2016) at $0.78/Gal - the lowest it’s been since September 2003, and barring a dramatic recovery in crude oil prices, the refined petroleum product, that is mostly used for aviation and by the military, will remain cheap this year. That’s good news for the airlines and, one would hope, for air travelers too. But it’s bad news for refiners because of narrowing jet margins over crude oil. Today, we examine the global market for jet fuel, and how it’s affecting U.S. refiners. Several major airlines have been highlighting their efforts to develop alternative fuels for powering jets. Many of them are “biofuels” derived from organic waste, woody biomass or cooking oil; another (backed by Sir Richard Branson, founder of Virgin Atlantic) is produced by using a microbe to ferment captured carbon-monoxide and carbon-dioxide waste gases into ethanol and upgrading the ethanol into jet fuel. (You’ve got to admire the guy’s outside-the-box thinking. Don’t forget, his Virgin Records signed the Sex Pistols when no one else would touch them.) But at best these efforts over the next few years are likely to garner only a tiny sliver of the total jet fuel market, which from the beginning of the jet era 70-odd years ago has been the sole domain of kerosene-based jet fuel, also known as kero-jet or jet-kero. Kero-jet is produced from crude oil at refineries primarily through atmospheric distillation (see Complex Refining 101 Distillation). It then goes through various treatments to remove unwanted elements such as sulfur, nitrogen and metals, resulting in a pure, clean-burning fuel. Data from the Energy Information Administration (EIA) shows that average U.S. refinery yields of jet-kero have been between 9 and 10% of refined product output consistently since the early 1990’s.
$20 Oil No Longer Seen As Good For The Economy - The reasons for the 20 percent decline in oil prices since the start of the year range from rapidly growing concerns over the Chinese economy, fears of a persistent glut in oil supplies, and most recently the removal of sanctions on Iran. While low energy prices are thought to provide a boost to the global economy as consumers benefit from lower costs, there are growing signs that the dramatic collapse in oil prices – so sudden and so severe – is actually creating economic headwinds. The oil and gas industry spent $200 billion on drilling, refining, and new equipment in 2013, and the sharp cutback in spending is being felt beyond just the oil patch. Last week Wood Mackenzie estimated that $380 billion worth of oil and gas projects were scrapped by the industry. In The New York Times on January 16, Paul Krugman explored the issue. Oil and gas companies start to have liquidity problems when oil prices crash by 70 percent in less than two years. The drop off in spending hurts broader industrial activity. Meanwhile, oil-producing countries like Saudi Arabia have to undertake painful austerity. The effects show up in a variety of ways. A slowdown might be felt in demand for drilling-related materials such as engines, trucks, steel, and rail capacity. But the effects can also be financial. As the FT reports, big banks are feeling the pain. Citigroup reported a 32 percent increase in non-performing corporate loans in the fourth quarter, compared to the same period in 2014. Wells Fargo also reported an increase in charges, largely due to the decline in oil and gas. JP Morgan said it might have to add more money to its reserve base because of its deteriorating energy portfolio.
Why cheap oil is not an economic blessing - When the price of a key input such as oil comes down as much as it has in recent months, supply-side theory would tell you this is pro-growth, especially in a country like ours that is still a net importer of energy. And yet … let us count the ways this simple insight — cheaper inputs lead to more output — requires a much more nuanced understanding.
- — Global financial markets: The larger-than-expected decline in the price of oil — it was more than $90 a barrel before it started falling and was last seen breaking $30 a barrel — has rippled through financial markets, generating losses in share prices and higher volatility both here and abroad. The finance channel is another supply-side channel, and the negative impact of oil’s sharp falloff has the potential to hurt growth through negative wealth effects (declining asset values, even just on paper, make people feel poorer, so they spend less).
- — “Sheiks and shale:” Why has the price of oil fallen so much? Scott Tinker of the University of Texas at Austin compactly summarized it as “sheiks and shale.” . A market response to the sharply negative price signal would have been to reduce production, but the Saudis et al. have not done so. That has led to a much larger drop in price than expected and generated some of the destabilizing outcomes that we don’t typically associate with cheaper inputs on the supply side.
- — Industry mix: The simplest story about cheap oil is that how it affects your macroeconomy depends on whether you’re a net importer (helps you) or exporter (hurts you). “True dat,” but here again, nuance is required. That shale boom noted above has made us more of a global player, as the United States has doubled its domestic oil production since 2008, with the boom adding 3 million barrels per day to a global market that consumes 94 million per day. So although we’re still a net importer, a lot more jobs, families and towns are now engaged in energy extraction.
This Time, Cheaper Oil Does Little for the U.S. Economy — It has been a truism of the American economy for decades: When oil prices rise, the economy suffers; when they fall, growth improves. But the decline of oil prices over the last two years has failed to deliver the usual economic benefits. As oil prices have fallen to levels not seen since 2003 — sagging below $27 a barrel on Wednesday before rebounding to about $30 on Thursday — many experts now say they do not expect lower prices to bolster the domestic economy significantly in 2016. “We got this wrong,” John C. Williams, president of the Federal Reserve Bank of San Francisco, told an audience in Santa Barbara, Calif., this month. Lower oil prices historically were a cause for celebration in the developed world, including the United States. The effect was akin to a tax cut for consumers who could fill their gas tanks for less money. And since much of that oil was imported, the windfall was generally larger than the damage to domestic oil producers. Every dollar gained by consumers was a dollar lost by producers, but when the dollars were lost by foreign producers, the American economy should have benefited. But this time is different. The losses from lower prices are larger and quicker than expected as energy companies cut back on investment and lay off workers, while the gains are smaller and slower to materialize, as consumers save some of their windfalls. Economists at JPMorgan Chase, who predicted last January that lower oil prices would add about 0.7 of a percentage point to the economic growth rate in 2015, now estimate that lower prices might have shaved 0.3 of a percentage point off the growth rate. This year, JPMorgan predicts that lower prices will help expand economic activity by just 0.1 of a percentage point, while economists at Goldman Sachs said they expected an impact “around zero.”
10 Reasons why Sub $30 Oil Is A Major Problem -- A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:
- 1. Oil producers can’t really produce oil for $30 per barrel. A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren’t many countries extracting oil for under $30 per barrel–only Saudi Arabia, Iran, and Iraq. We wouldn’t have much crude oil if only these countries produced oil.
- 2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.
- Oil can only be extracted within a broader system. Companies need to pay taxes. These can be very high. Including these costs has historically brought total costs for many OPEC countries to over $100 per barrel.
- 3. When oil prices drop very low, producers generally don’t stop producing. There are built-in delays in the oil production system. It takes several years to put a new oil extraction project in place. If companies have been working on a project, they generally won’t stop just because prices happen to be low.
- 4. Oil demand doesn’t increase very rapidly after prices drop from a high level. People often think that going from a low price to a high price is the opposite of going from a high price to a low price, in terms of the effect on the economy. This is not really the case.
Don't fear the oil price crash - unless it heralds the beginning of a global downturn - No one watching the past week’s oil price moves could be more smug than a Scottish unionist. As the price of Brent has plunged, many will be glad that Scotland did not decide to go it alone. Economic predictions by the Scottish government formed the backbone of the case for independence. They rested on the assumption that a barrel of crude would fetch $110, which it had in the summer of 2014. The commodity’s price has since crumbled, falling below $30 over the past week. Nicola Sturgeon, Scotland’s First Minister and SNP leader, has admitted the party got it wrong. If Scotland was now an independent economy, it would be facing the same kind of fiscal threat as many oil-exporting nations. Already, the Scottish economy has begun to reel. GDP grew just 0.1pc in the third quarter of last year, against growth of 0.4pc across the UK as a whole, according to the latest figures. However, Sturgeon noted that, while the Scottish government’s predictions came undone, so too did those of practically other forecaster. When the SNP was talking about $110 a barrel, the UK Government’s Department of Energy and Climate Change had pencilled in a price above $120. “Everybody’s projections about oil were wrong,” Sturgeon concluded. Forecasting oil’s movements is notoriously difficult, but it is a variable that cannot be ignored. Its recent moves have already reverberated through financial markets, driving stock and bond prices. Changes in the price of oil will force governments to reassess their spending plans, and central banks to re-examine their plans for interest rates.
Oil Spikes As Citi Calls It "Trade Of The Year" Even As OPEC Oil Basket Price Near Lowest On Record - With all eyes on the overnight spike in crude oil prices (up 5% and back over $30, this must be the bottom right?), OPEC remains far from impressed with its basket price hovering at (or near) record low levels at $22.48. In fact, the collapse of the OPEC basket price in the last 3 weeks has been the fastest drop since October 2008. However, no matter the chaos occurring various oil instruments (OIL 40% premium to NAV), Citi has decided this is it and dubbed being long oil from here "the trade of the year." WTI Crude Oil is spiking (back to critical stop-run high volume nodes)...
U.S. Oil Rig Count Declines by 5 - WSJ: The U.S. oil-rig count fell by 5 to 510 in the latest week, according to Baker Hughes Inc., BHI 3.22 % extending a recent streak of declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude. There are now about 68% fewer rigs from a peak of 1,609 in October 2014. According to Baker Hughes, the number of gas rigs declined in the latest week by 8 to 127. The U.S. offshore-rig count was 29 in the latest week, up three from the previous week and down 25 from a year earlier. Oil prices rebounded from depressed levels Friday, helping boost shares of energy companies. U.S. crude oil surged 6.5% to $31.44 a barrel, on track for its second straight day of gains.
Crude Unmoved As Rig Count Extends Decline To New 6 Year Lows -- With crude soaring despite DOE showing inventories surging, production up fgor the 7th week in a row, and demand plummeting, Baker Hughes oil rig count dropped 5 more to 510 this week - the lowest since April 2010 (after a de minimus 1 rig drop last week). Crude had ripped higher into this print but was thoroughly unimpressed in its unchangedness. The lagged crude price suggests rig count declines are about to accelerate...
Oil Rises in Biggest Rally in Seven Years Amid Volatility Surge - Oil rallied, capping the biggest two-day advance in more than seven years after a slump to a 12-year low prompted some investors to buy back record bearish bets. Front-month futures jumped 21 percent after the February contract expired Wednesday at $26.55 a barrel, the lowest settlement since 2003. Speculators this month amassed the biggest-ever short position in U.S. crude amid concern that turmoil in China’s markets would curb fuel demand at a time when fresh exports from Iran exacerbate a global glut. Pierre Andurand, the founder of the $615 million Andurand Capital Management who correctly predicted the slump in oil prices, said the commodity will end the year higher. "Oil is going to rally into the spring," . "It’s a short-covering rally, but we do think it has legs to continue." Oil is down about 13 percent this year as turbulence in global markets adds to concern over brimming U.S. stockpiles and the prospect of additional Iranian barrels. Markets could “drown in oversupply,” sending prices even lower, according to the International Energy Agency. The energy industry is facing “very sharp shocks” as it struggles to deal with a “flood of oil,” BP Plc Chief Executive Officer Bob Dudley said at the World Economic Forum in Davos, Switzerland. West Texas Intermediate for March delivery gained $2.66, or 9 percent, to $32.19 a barrel on the New York Mercantile Exchange. The 21 percent gain in two days is the most since Sept. 2008. The volume of all futures traded was 36 percent above the 100-day average. Brent for March settlement climbed $2.93, or 10 percent, to $32.18 a barrel on the London-based ICE Futures Europe exchange. Oil may be the “trade of the year” if it can weather the surge in the Middle East producer’s shipments, according to Citigroup Inc.
Pepe ESCOBAR - Planet of Fear - -- The Davos annual talkfest is about to begin; that’s one of those occasions when the Masters of the Universe – who usually decide everything behind closed doors – send their minions to «debate» the future of their holdings. The current debate centers on whether we are still in the midst of the Third – digitalized – Industrial Revolution and the Internet of Things or whether we’re already entering the Fourth. In the real world though all the cackle is about the age of old-fashioned oil. Which brings us to the myriad effects of the cheap oil strategy deployed by the House of Saud under Washington’s command. Persian Gulf traders, off the record, are adamant that there is no longer any real global oil surplus of consequence as all shut-in oil has been dumped on the market based on that Washington command. Petroleum Intelligence Weekly estimates the surplus is at a maximum 2.2 million a day, plus 600,000 barrels a day coming from Iran later this year. The US consumption of oil – at 19,840,000 barrels a day, 20% of world production – has not increased; it’s the other 80% that have been mostly absorbing the dumped oil. Some key Persian Gulf traders are adamant that oil should be surging by the second half of 2016. That explains why Russia is not panicking with oil plunging towards $30 a barrel. Moscow is very much aware of the «partners» that are carrying oil market manipulation against Russia, and at the same time is anticipating this won’t last too long. That explains why Russia's Deputy Finance Minister Maxim Oreshkin issued a sort of «keep calm and carry on» message; he expects oil prices to remain in the $40-60 range for at least the next seven years, and Russia can live with that.
The trade consequences of the oil price | VOXEU - The price of oil rose to unprecedented highs in the 2000s, and its recent plunge took many by surprise. Although there are many consequences of such price fluctuations on the world economy, they are notoriously difficult to pin down. This column examines the trade consequences of varying shipping costs caused by oil price fluctuations. High oil prices are found to increase the distance elasticity of trade, making trade less global. The recent drop in oil prices could thus be a boon for globalisation.
Nuclear sanctions lifted as Iran, U.S. agree on prisoner swap - Reuters: Iran emerged from years of economic isolation on Saturday when world powers lifted crippling sanctions against the Islamic Republic in return for Tehran complying with a deal to curb its nuclear ambitions. In a dramatic move scheduled to coincide with the scrapping of the sanctions, Tehran also announced the release of five Americans including Washington Post reporter Jason Rezaian as part of a prisoner swap with the United States. Together, the lifting of sanctions and the prisoner deal considerably reduce the hostility between Tehran and Washington that has shaped the Middle East since Iran's Islamic Revolution of 1979. Tens of billions of dollars worth of Iranian assets will now be unfrozen and global companies that have been barred from doing business there will be able to exploit a market hungry for everything from automobiles to airplane parts. The U.N. nuclear watchdog ruled on Saturday that Iran had abided by an agreement last year with six world powers to curtail its nuclear program, triggering the end of sanctions. "Iran has carried out all measures required under the (July deal) to enable Implementation Day (of the deal) to occur," the Vienna-based International Atomic Energy Agency said in a statement.
Iran’s Sanctions End as Deal Takes Effect - WSJ: July’s nuclear deal between Iran and six world powers came into effect Saturday evening, triggering an end to years of sweeping economic and financial sanctions on the Islamic Republic over its nuclear work. In a joint statement, the European Union and Iran said many of the nuclear-related U.S., EU and United Nations sanctions were immediately coming off Iran after it had completed the steps needed to implement July’s deal. The U.N. atomic agency minutes earlier confirmed it had issued a report verifying that Iran carried out those steps, which significantly scale back its nuclear infrastructure. “The EU has confirmed that the legal framework providing for the lifting of its nuclear-related economic and financial sanctions is effective. The United States today is ceasing the application of its nuclear-related statutory sanctions on Iran,” said EU foreign policy chief Federica Mogherini, reading the joint statement. “All sides remain firmly convinced that this historic deal is both strong and fair, and that it meets the requirements of all; its proper implementation will be a key contribution to improved regional and international peace, stability and security. Under July’s deal, Iran’s nuclear activities will be severely constrained and remain under strict oversight for the next decade, but Tehran will then be able to scale up its production of nuclear fuel.
Oil glut dampens Iran’s hopes for big cash flows as sanctions lift - When U.S. and other international sanctions were tightened in 2012 and took nearly 700,000 barrels a day of Iranian crude oil off world markets, the price of an average barrel of OPEC oil ran $109.45. But with the easing of those sanctions today, Iran is poised to boost its sales of oil in the middle of a massive glut, with the OPEC benchmark average barrel selling for just $25, less than a quarter of the 2012 level. The result will be sharply lower revenue for Iran than its leaders anticipated two years ago when they began negotiations to end sanctions linked to the Iranian nuclear program. The oil glut will force a slower ramping up of Iran’s oil fields and exports than Iran had planned, and it could make international oil companies more wary and tight-fisted about making new investments. “In many respects, this could not come at a worse time for Iran, because oil is at 11-year lows and the International Monetary Fund has recently offered quite dismal remarks about Iran’s banking system, economic growth prospects and tepid recovery,” Moreover, the lifting of sanctions on Iran could heighten tension over reestablishing production quotas in OPEC — especially between Iran and Saudi Arabia, the cartel’s co-founders and longtime rivals. Eager to protect its market share, Saudi Arabia has been pumping at high levels despite calls by some OPEC members that the kingdom rein in output to prop up falling prices. The return of production in Iran would further fuel simmering tensions. The Iranian’s hinted that they might hold back. “We don’t want to start a sort of a price war,” Mohsen Qamsari, director general for international affairs at the National Iranian Oil Company (NIOC), told Reuters on Jan. 6. “We will be more subtle in our approach and may gradually increase output,”
Iran's Oil Will Just Make Life Worse for Gulf Rivals - Governments across the six-nation Gulf Cooperation Council are taking unprecedented measures to counter the slump in oil prices, curtailing some of the world’s most generous welfare systems to plug widening budget deficits. In some countries, contractors are facing delays in government payments, while companies are reducing their workforces to trim costs. Every major stock index in the Middle East, with the exception of Tehran’s, plunged on Sunday as the prospect of Iran adding to an oil supply glut pummeled markets already reeling from falling crude prices and a global sell-off in equities. With oil priced below $30 a barrel, governments may have to eat further into benefits that citizens have enjoyed for decades -- at a time of growing regional turmoil and a proxy confrontation with Iran from Syria to Yemen. The Saudi Arabian central bank’s net foreign assets fell by $96 billion in the first 11 months of 2015 to $628 billion, and the government sold bonds for the first time since 2007 to finance a budget deficit of about 15 percent of economic output. “The political contract between the rulers and the citizens is based on a provision of wealth to the citizens, so any adjustment of the subsidies or of the other services will have some political risk,”
Oil Industry Braced for Re-Entry of Iran - The oil industry is braced for an increase in Iranian production after western powers lifted many of the sanctions linked to its nuclear programme, paving the way for Tehran’s full return to the international market. The re-emergence of Iran, which claims it can swiftly boost production and exports by 500,000 barrels a day, threatens to add to the glut of oil that has pushed prices to a 12-year low of less than $30 a barrel. It comes as relations between Iran and Saudi Arabia, Opec’s largest producer and de facto leader, have soured. UN inspectors said on Saturday that Iran had dismantled significant elements of its nuclear programme, paving the way for the country to increase exports of its crude to global markets after nearly four years under economic and financial sanctions. Hassan Rouhani, Iran’s president, on Sunday announced “we have started selling more oil as of today”. But a senior oil official told the Financial Times that there had been no rise in sales yet. “When we say we sell more crude, we mean we already have the capacity to increase exports by 500,000 bpd almost immediately,” he said. “Now, we have customers to buy about 300,000 more barrels per day and will do it as soon as financial restrictions are removed which may take one more week.”
Iran to boost oil output by 500,000 barrels — Iran is aiming to increase its oil production by 500,000 barrels per day now that sanctions have been lifted under a landmark nuclear deal with world powers, a top official said. In comments posted on the Oil Ministry’s website Monday, Deputy Oil Minister Roknoddin Javadi said Iran is determined to retake its share of the oil market, which plunged after crippling sanctions were imposed in 2012. The U.N. nuclear agency certified Saturday that Iran has met all its commitments under last summer’s agreement, prompting the lifting of a broad range of economic sanctions, including those covering the oil industry. Other sanctions unrelated to Iran’s nuclear program remain in place. Iran used to export 2.3 million barrels per day but its crude exports fell to 1 million in 2012. Iran’s total production currently stands at 3.1 million barrels per day. “In the wake of removal of sanctions, Iran is prepared to increase its crude output by 500,000 barrels per day. Today, a government order was issued to increase production,” Javadi said, adding that it will take a year to return to pre-sanctions production levels.
Prospects for Iran as the Next Investor's Darling -- Capital goes to where profits are to be made. Is this place one of them for foreign investors?Even in these rather blah economic times, there lie opportunities...for those brave enough to take them on, I suppose. With the rest of the world economy becoming rather stagnant, where is the smart money supposed to go? How about a country with a population of 77 million that has been locked out of the international community for years on end due to sanctions? With normalized economic relations set to resume this week (with the major exception of the United States), Iran looks like the destination country of choice for any number of multinational corporations. Starved of modern capital and consumer goods, Iran certainly will have some appetite for them: With global growth moribund, multinational firms have been waiting with bated breath for the lifting of international sanctions against Iran for access to a country in desperate need to modernise. After nearly a decade of limited access to the outside world, many sectors of the Iranian economy need new equipment including the oil and gas industry, railways, and airlines. Plus there are 80 million Iranian consumers, many of them keen to buy cars and other goods. Access is expected to begin opening up, now that the International Atomic Energy Agency has issued a report concluding that Iran has fulfilled its obligations under a nuclear deal reached last year with world powers. Yes, oil prices are at near-historic lows, but still, Iran's energy sector needs to modernize rather quickly to keep up with the others. So, oil services companies certainly have Iran in their sights: "The infrastructure and energy sectors offer the best opportunities for our firms", Italy's economic development ministry said recently.
Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016 - On Saturday, Iran marked what President Hassan Rouhani called a “golden page” in the country’s history when the IAEA ruled that Tehran had stuck to its commitments under last year’s nuclear accord. Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion. In addition to the never-ending feud with the Israelis, Tehran is embroiled in a worsening conflict with Riyadh triggered by Saudi Arabia’s execution of prominent Shiite cleric Nimr al-Nimr and subsequent attacks on the Saudi embassy and consulate in Iran. The argument has raised the specter of an all-out conflict between the Sunni and Shiite powers and stoked sectarian discord across the region. With sanctions lifted, Iran will now have access to some $100 billion in frozen funds and will be able to increase its oil revenue exponentially even as prices remain suppressed. It’s easy to see why the Saudis and other Gulf Sunni monarchies are nervous. Iran plans to immediately boost output by 500,000 b/d with an additional 500,000 b/d coming online by year end. “The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs. “Iran could haul in more than five times as much cash from oil sales by year-end as the lifting of economic sanctions frees the OPEC member to boost crude exports and attract foreign investment needed to rebuild its energy industry,” Bloomberg reports, adding that “the lifting of sanctions means Iran can immediately boost oil revenue to about $2.35 billion a month, based on the country’s estimated current output of 2.7 million barrels a day and oil at $29 a barrel.”
With wave of Iranian oil imminent, a shudder in Saudi Arabia — A new wave of oil from Iran will flow into a global market awash in oil where prices are plunging to depths not seen in a dozen years. With a historic nuclear deal between Iran, the U.S. and five other world powers set into place this weekend, a European oil embargo on the world’s seventh-largest oil producer will end. The impact may be felt widely when crude begins trading in Asian markets Monday, but the return of Iranto global energy markets created tremors even before the first trade was made. Saudi Arabia’s stock market plunged more than 5 percent Sunday. Saudi Arabia is the biggest oil producer within OPEC, the oil cartel with waning influence to which Iran also belongs. Saturday was dubbed Implementation Day, when Iran was freed from international sanctions after being deemed as having dismantled most of its nuclear program under the deal established last summer. “Implementation Day for the nuclear agreement means a new oil day for Iran,” Daniel Yergin, vice chairman of research firm IHS and author of a Pulitzer Prize-winning book on the history of oil, said Sunday. The oil market has anticipated the unchained tide of Iranian oil for months, and some of that may be reflected in new lows for oil prices in the past week. U.S. crude oil prices have trended down for a year and a half, and have fallen almost 40 percent in just the past three months. On Friday, the price slid 6 percent to $29.42 a barrel. That compares with a high of over $100 a barrel in the summer of 2014, and close to $150 per barrel before the U.S. recession. There are predictions of barrels going for $20 soon.
Oil market could ‘drown in oversupply’ — IEA -- The oil market “could drown in oversupply” as a rise in Iranian output offsets production cuts elsewhere, threatening a further price collapse, the world’s leading energy forecaster has said. In a stark assessment of the challenges facing the global oil industry, the International Energy Agency warned on Tuesday of an overhang of at least 1m barrels a day for a third consecutive year in 2016. Production outside the Opec cartel would decline this year, the IEA said. But that would be offset by slower demand growth and higher production from Iran now that sanctions linked to its nuclear programme had been lifted. “Unless something changes, the oil market could drown in oversupply,” the wealthy nations’ energy watchdog said in its closely watched monthly oil market report. It said if Iran — a powerful member of the producers’ group — moved quickly to offer its oil under attractive terms and its Opec peers such as Saudi Arabia refused to “stay on the sidelines”, prices could lurch lower. In this scenario the Paris-based agency said there would be enormous strain “on the ability of the oil system to absorb” the glut. “The exact pace of the flow is hard to tell, but Iran is showing they are back in the game,” said Neil Atkinson, the new head of the IEA’s oil market division. “Saudi Arabia and others are going to ensure they don’t lose out. They are not going to give up the fight and say ‘welcome back’. For all intents and purposes, this is a free market.”
OilPrice Intelligence Report: IEA Says World Might “Drown” in Oil - The big news from the past week is the removal of international economic sanctions on Iran following the implementation of the July 2015 nuclear agreement. Iran’s oil ministry immediately ordered the ramp up of 500,000 barrels per day in production. It is unclear how quickly this will happen, although Iran says it can achieve the target almost immediately. Iran has oil tankers loaded with 50 million barrels of crude ready to depart, although the FT reported that satellite imagery showed that none had departed as of January 18. Still, Iran’s assertive approach to returning to the oil market is straining relations between Iran and Saudi Arabia further, if that is possible. OPEC members warned Iran would sink oil prices further. “Anyone who will introduce more supply in current situation will make it worse,” UAE energy minister Suhail bin Mohamed said. Iranian officials responded that prices will remain low until a “logical consensus to manage the oil market” emerges, a dig at Saudi Arabia’s current strategy. Iran has every incentive to sell more oil, just like any other producer who is trying to make up for falling revenue by shipping more volume. But Iran also appears aware of the dangers. “Iran is not interested in entering the market in a disorderly manner, which is self-defeating. However, it is also not interested to sacrifice further, to benefit those who gained from its absence,” a former Iranian oil official told the FT. “It is a delicate balance.” Oil prices sank below $29 per barrel on Monday following the news. The IEA and OPEC each released their monthly oil market reports this week. Not much changed from OPEC’s perspective, as the cartel expects the markets to continue to rebalance later this year. The IEA took a more somber tone. The Paris-based energy agency said that oil demand slowed dramatically in the fourth quarter due to weak economic conditions in China, Brazil, Russia and other commodity exporters. Also, crude oil inventories could add another 285 million barrels to storage this year before drawing down, which will come on top of the notional 1 billion barrels in storage increases in 2015. IEA warned of the implications of rising storage: “While the pace of stock building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply.”
World oil supply and demand -- According to the Energy Information Administration’s Monthly Energy Review database, world field production of crude oil in September was up 1.5 million barrels a day over the previous year. More than all of that came from a 440,000 b/d increase in the U.S., 550,000 b/d from Saudi Arabia, and 900,000 b/d from Iraq. If it had not been for the increased oil production from these three countries, world oil production would actually have been down almost 400,000 b/d over the last year. But the U.S. situation will be very different in 2016. The number of active U.S. oil rigs today is about a third of the levels reached in 2014. JODI’s separate database estimates that U.S. oil production was already down year-over-year by October 2015. And the EIA’s drilling productivity model estimates that production from the U.S. counties associated with the tight oil boom will have fallen another 500,000 b/d from the September values by the end of next month. Still, it is hard to see prices increasing until U.S. inventories begin to come down. The much-discussed increase from Saudi Arabia only puts the kingdom’s oil production back to where it had been in August 2013. It’s worth noting that also leaves Saudi exports of crude oil significantly below their recent peak. One important factor in the increased Saudi crude production since last year was the need to supply its greatly expanded refinery capacity. As a result, Saudi Arabia is now exporting more refined products in place of crude oil. The big story up to this point has been Iraq. The country continues to log impressive increases in production despite ongoing turmoil in the region. And next up will be Iran, whose production has been depressed as a result of international sanctions that are now being lifted. Iran intends to increase oil exports by 500,000 b/d right away, in addition to the 30 million barrels Iran has stored in oil tankers in the Persian Gulf. If Iranian production is about to surge, Iraqi production remains high, and the Chinese economy is stumbling, that can only mean that even bigger drops in U.S. oil production are inevitable.
Iranian Oil Production -- Another Drop In The Bucket? -- Rigzone, January 23, 2016 -- From Rigzone today:The world is awash in crude and overwhelming dwindling consumer demand. And just this week, the Western world responded by unleashing half a million barrels every day of Iranian oil, threatening to crush dismal commodities prices to stupefying lows. Or so many theories go. But the energy sector in 2016 is in a different world than the one that existed in 2012, when those sanctions restricted Iran’s participation in the world market. Despite the vast volumes of hydrocarbons beneath Iran’s salty deserts, its production was weakening. Since that time, capital and technology have abandoned the country. David Pursell, managing director and head of macro research at Tudor, Pickering Holt and Co. in Houston, said some estimates suggest Iran produced half of its fields years ago. Resuscitating them would require an influx of expensive technology when cash is in short supply. “If Iran was on a decline before sanctions, and all of a sudden, it’s pulling the fields less hard, but also underinvesting in both capital and technology, we would argue there’s a chance that 500,000 barrels a day might be a stretch,” Pursell told Rigzone. “The market is worried, if not scared, that it could be more than half a million barrels a day.”
US Treasury imposes new ballistic missile sanctions on Iran - The US Treasury says it is imposing new ballistic missile sanctions on Iran after Tehran released five American prisoners. The move also comes less than a day after some of the sanctions imposed on Iran over its nuclear program were removed by the US and EU. Washington has imposed sanctions on 11 companies and individuals for helping to supply Iran’s ballistic missile program, the Treasury Department stated.“Iran’s ballistic missile program poses a significant threat to regional and global security, and it will continue to be subject to international sanctions,” Adam J. Szubin, acting Under Secretary for Terrorism and Financial Intelligence, said in a press release.“We have consistently made clear that the United States will vigorously press sanctions against Iranian activities outside of the Joint Comprehensive Plan of Action – including those related to Iran’s support for terrorism, regional destabilization, human rights abuses, and ballistic missile program.”The Treasury’s Office of Foreign Assets Control says it will also block the assets of Mabrooka Trading, a company based in the United Arab Emirates, for providing Iran with parts used in their ballistic missiles. Others sanctioned include companies and individuals involved in the program, which supervised the testing of two ballistic missiles in 2015. President Barack Obama’s administration delayed implementing the sanctions for more than two weeks, while negotiations to release two US prisoners being held in Iran were taking place, Reuters reported, citing its sources.
Why is the US so Anti Shia/Iranian ? - On the occasion of the implementation of the nuclear deal with Iran it is important to remember a few things: - It remains unclear as to whether the Iranians have had an active nuclear weapon development program since 2003 when they are thought by many to have ended it when the putative Iraqi threat was removed by the US. - The 9/11 attackers/plotters/funders were all Sunni. This is a a list of Muslim Groups presently actively hostile to the US: - The Islamic State (Sunni) - The Al-Nusra Front (Sunni) - Al-Qa'ida Central (Sunni) - Al-Qa'ida in Magheb (Sunni) - Al-Qa'ida in Arabian Peninsula (Sunni) - Boku Haram (Sunni) - Al-Shabbab (Sunni) - Khorassan Group (Sunni) - Society of the Muslim Brothers (Sunni) - Sayyaf Group in the Philippines (Sunni) - Taliban in Pakistan and Afghanistan (Sunni) - Lashgar i Taiba (Sunni) - Jemaa Islamiya (Sunni) - Houthis (Shia) ------------- Shia forces bombed US and French facilities in Beirut in 1983. That was 33 years ago. Shia militias fought the US COIN campaign in Iraq. So did Sunni forces. Shia forces are now fighting IS in Iraq and Sunni jihadis in Syria. So, why is it that US media consistently describe the Shia as a malevolent force throughout the Islamic World? Could it be because Israel/AIPAC and the Gulf Arabs want Iran contained as a geopolitical rival in the region?
Why the US Should Withdraw From the Middle East --Peter Van Buren: How can we stop the Islamic State? American actions against terrorism — the Islamic State being just the latest flavor — have flopped on a remarkable scale, yet remain remarkably attractive to our present crew of candidates. (Bernie Sanders might be the only exception, though he supports forming yet another coalition to defeat ISIS.) Why are the failed options still so attractive? In part, because bombing and drones are believed by the majority of Americans to be surgical procedures that kill lots of bad guys, not too many innocents, and no Americans at all. As Washington regularly imagines it, once air power is in play, someone else’s boots will eventually hit the ground (after the U.S. military provides the necessary training and weapons). A handful of Special Forces troops, boots-sorta-on-the-ground, will also help turn the tide. By carrot or stick, Washington will collect and hold together some now-you-see-it, now-you-don’t “coalition” of “allies” to aid and abet the task at hand. And success will be ours, even though versions of this formula have fallen flat time and again in the Greater Middle East. Since the June 2014 start of Operation Inherent Resolve against the Islamic State, the U.S. and its coalition partners have flown 9,041 sorties, 5,959 in Iraq and 3,082 in Syria. More are launched every day. The U.S. claims it has killed between 10,000 and 25,000 Islamic State fighters, quite a spread, but still, if accurate (which is doubtful), at best only a couple of bad guys per bombing run. Not particularly efficient on the face of it, but — as Obama administration officials often emphasize — this is a “long war.” The CIA estimates that the Islamic State had perhaps 20,000 to 30,000 fighters under arms in 2014. So somewhere between a third of them and all of them should now be gone. Evidently not, since recent estimates of Islamic State militants remain in that 20,000 to 30,000 range as 2016 begins.
UK’s soft diplomacy approach to Saudi Arabia is not enough, say families of juveniles still on death row - Britain’s soft approach to diplomacy with Saudi Arabia is not working – according to the families of three juvenile offenders held up by the UK as examples of its success. Ali al-Nimr, Abdullah al-Zaher and Dawoud al-Marhoon were all children when they were arrested by the Saudi authorities for attending protests, and yet they were sentenced to death after a secretive court process. When he defended the Government’s meek response to the mass execution of 47 people in the kingdom on 2 January, Philip Hammond said the three juveniles showed Britain could get results in Saudi Arabia when it intervened in specific cases. But The Independent can reveal that almost exactly three months after the Foreign Secretary told Parliament “private” UK diplomacy had secured clemency for the child offenders, nothing has really changed. This newspaper understands Mr al-Zaher, the youngest of the boys who was just 15 when he was arrested, has been transferred to a prison in Riyadh where a number of the 47 executions were carried out at the start of the month. Mr al-Nimr and Mr al-Marhoon have also been moved since the mass executions from Riyadh to the infamous Dammam prison in the Eastern Province, a facility known for housing death row inmates in the past. According to Reprieve, a human rights organisation which is campaigning on behalf of the juveniles, sudden prison transfers are often a precursor to sentences being carried out, and the families say all three could be executed any day. “Our son – who was just 15 when he was arrested and tortured – is awaiting execution in solitary confinement and being held miles away from his home,” they said in a statement. “We are in agony wondering what will happen to him. Other governments keep saying they 'do not expect' him and the other juveniles to be executed, but where is the proof? “We sincerely hope that the international community will demand the release of Abdullah and the other juveniles arrested at protests.”
Saudi Aramco – the $10tn mystery at the heart of the Gulf state - Along the King Fahd highway in downtown Riyadh, signs of the country’s wealth glitter and dazzle. On nearby Tahliya Street, lined with young Saudi men watching black-robed, headscarfed women saunter past, crowds throng into American-style shopping malls flaunting the world’s priciest and most luxurious brands. Saudi wealth – whether in downtown Riyadh or Knightsbridge – is highly conspicuous. And they have the colossal Saudi Aramco oil corporation to thank for it. Locals were stunned by the sudden news of the possible sale of part of the company that has been synonymous with their country’s history almost since its foundation. Uncertainty about exactly what it would mean has not been laid to rest by the cautious statement confirming the impending plan to float the business later issued from Aramco’s headquarters in the eastern province of Dammam. There was also concern that news of the momentous decision was first aired in an interview given by the powerful deputy crown prince, Mohammed bin Salman, to foreign media. “Aramco is our spine and they suddenly announce this!” exclaimed Professor Fawziah al-Bakr, an education expert and women’s activist. Aramco’s history is the story of the “discovery and development of the greatest energy reserves the world has ever known and the rapid transformation of Saudi Arabia from desert kingdom to modern nation state,” the company says. Its pledge has always been to “maximise the value of the country’s petroleum reserves for the benefit of the kingdom’s citizens”. Exactly how that will be done if foreign investors can buy shares is a troubling and unanswered question, say critics.
Saudi Arabia's Secret Holdings of U.S. Debt Are Suddenly a Big Deal -- It’s a secret of the vast U.S. Treasury market, a holdover from an age of oil shortages and mighty petrodollars: Just how much of America’s debt does Saudi Arabia own? But now that question -- unanswered since the 1970s, under an unusual blackout by the U.S. Treasury Department -- has come to the fore as Saudi Arabia is pressured by plunging oil prices and costly wars in the Middle East. In the past year alone, Saudi Arabia burned through about $100 billion of foreign-exchange reserves to plug its biggest budget shortfall in a quarter-century. For the first time, it’s also considering selling a piece of its crown jewel -- state oil company Saudi Aramco. The signs of strain are prompting concern over Saudi Arabia’s outsize position in the world’s largest and most important bond market. A big risk is that the kingdom is selling some of its Treasury holdings, believed to be among the largest in the world, to raise needed dollars. Or could it be buying, looking for a port in the latest financial storm? As a matter of policy, the Treasury has never disclosed the holdings of Saudi Arabia, long a key ally in the volatile Middle East, and instead groups it with 14 other mostly OPEC nations including Kuwait, the United Arab Emirates and Nigeria. For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed breakdown of how much U.S. debt each holds. “It’s mind-boggling they haven’t undone it,” said Edwin Truman, the former Treasury assistant secretary for international affairs during the late 1990s, and now a senior fellow at the Peterson Institute for International Economics in Washington. Because relations were rocky and the U.S. needed their oil, the Treasury “didn’t want to offend OPEC. It’s hard to justify this special treatment for OPEC at this point.”
Gulf sovereign bond issues to surge as governments plug deficits | Reuters: Governments in the wealthy Gulf Arab oil exporting countries look set to borrow from the international bond market at a record pace this year, putting fresh pressure on bond prices, as they cover budget deficits created by low oil prices. For the first 18 months after oil began tumbling in mid-2014, governments largely held off from borrowing abroad, preferring to draw down their fiscal reserves and in some cases borrow domestically. That strategy is reaching its limits as the drawdown begins to alarm financial markets and push up local market interest rates. So governments in the six-nation Gulf Cooperation Council will turn to the foreign debt market to help cover deficits which are expected this year to near $140 billion, or 11 percent of gross domestic product (GDP), Moody's estimates. Sharjah, one of the seven United Arab Emirates, may issue a U.S. dollar Islamic bond after investor meetings that started last week. "This year I expect a meaningful uptick in GCC sovereign fund-raising," said Andy Cairns, global head of debt origination and distribution at National Bank of Abu Dhabi (NBAD). "From the capital markets side it is not inconceivable that we see $20 billion of GCC sovereign supply." That would be an eight-fold jump in supply; last year, the emirate of Ras Al Khaimah raised $1 billion in the international bond market and Bahrain raised $1.5 billion
Saudi central bank warns banks against riyal speculation | Reuters: The Saudi Arabian central bank has warned commercial banks against betting on depreciation of the riyal as tumbling oil prices put pressure on the Saudi currency, several bankers operating in the market said. The riyal, pegged in the spot market at 3.75 to the U.S. dollar since 1986, hit a record low against the dollar in the one-year forwards market last week as some banks and funds hedged against the risk that low oil prices might eventually prompt Riyadh to scrap the peg. But the bankers, declining to be named because of commercial sensitivities, said the Saudi Arabian Monetary Authority (SAMA) had now contacted them privately and urged them not to conduct derivatives trades that would pressure the riyal. "SAMA has ordered banks to stop giving structures for FX swaps. I mean banks can quote for straight forwards and FX swaps, but can't price for swap options," said one banker. They said the central bank's action had so far succeeded in supporting the riyal in the forwards market; one-year dollar/riyal forwards have dropped back to 690 points from a record 1,020 points last week, even though the Brent oil price has hit fresh 12-year lows below $30 a barrel.
Saudi Arabia Is Doomed - Sometimes the biggest market indicators aren’t written on the charts. Sometimes, they’re written in the skies — with concrete, glass and steel. It’s a story as old as the Bible. In a moment of supreme confidence, someone decides the time is right for constructing a “world’s tallest building” to serve as a permanent monument, a statement of importance in the world. But by the time they turn on the air-conditioning, reality bites. It’s a monument all right — to sheer arrogance, overconfidence and failure to see the shifting economic tides. The Tower of Babel might have been the first example, but there have been plenty of others in the last century. And it’s playing out once more, right now — this time in Saudi Arabia. Remember the name of the project: Jeddah Tower. Right now, the structure is a stubby concrete skeleton rising from the desolate sands outside the Red Sea port city of the same name. The Saudis created an investment fund worth $2.2 billion to build the tower, plus another $20 billion to develop the larger project, “Jeddah Economic City,” at the base of the tower. When it’s completed in 2018 (or perhaps less optimistically, if it’s completed, given the price of oil and the country’s more intractable challenges), the Kingdom’s royal family will have built a 252-story glass tower, rising nearly 3,300 feet into the sky. At that height, it would be more than 500 feet higher than the current tallest building in the world, Dubai’s Burj Khalifa. And that’s what raises my point about “mega-tall structures” (the word architects like to use) as an all-too-obvious sign of an economy heading off (or about to head off) the rails…
Kuwait's emir urges management of spending, budget cut over oil price drop | Reuters: Kuwait's emir has called for better management of spending and for budget cuts to cope with declining revenues due to lower oil prices, state news agency KUNA said on Wednesday, in the second such call by the head of state since October. The remarks by Sheikh Sabah al-Ahmed al-Sabah, at a meeting with newspaper editors, appeared part of a drive to prepare the ground for politically difficult economic measures such as cuts in energy and food price subsidies, which could occur next year. "We are required to start with treatment and economic steps and programmes aimed at managing and reducing the budget articles, to deal with the shortages in the state financial revenues," Sheikh Sabah said, according to KUNA. He added that any such measures must ensure that the basic needs of Kuwaitis were addressed.
Azeri protests flag political risks of falling oil price | Reuters: Oil money and well-equipped security forces have long ensured public loyalty to President Ilham Aliyev in the Azeri town of Quba, but after months of rising prices people turned out on the streets last week to protest. Dragged down by the slump in world crude prices, Azerbaijan's manat currency has fallen by about a third against the dollar in the past 30 days, sparking public protests that could be a taste of unrest to come for other oil-funded economies. It has prompted Aliyev to consider such measures as tightening currency controls, helping banks, and selling off state assets. But the anger is mounting. "Prices are rising, officials are corrupt, there are no jobs, we can't pay off credits," said 28-year-old Afqan, sitting in an empty tea shop in the centre of Quba, in the foothills of the Caucasus mountains. Police have mobilised police in large numbers to stop such protests spreading in a year when Aliyev has courted publicity by securing the right to host the international Formula 1 motor race. "Our protest was not organised ... We did not have a leader, but about 5,000 people came and protested, because we could not tolerate it any more,"
Attacks on oil installations is costing Nigeria $2.4M a day - Multiple attacks on strategic oil and gas installations is costing Nigeria $2.4 million daily, a Cabinet minister said Tuesday as the military launched a manhunt for a militant and warned it will hold community leaders responsible for the “economic sabotage.” The attacks began Friday in the southern Niger Delta after a court issued an arrest warrant for former warlord Government “Tompolo” Ekpemupolo in connection with $17.4 million that has gone missing from government coffers. Explosions on a Nigerian Gas Company pipeline connected to the Escravos facility of Chevron Nigeria is costing the country $1.98 million daily in lost power and $400,000 in gas, Power Minister Babatunde Fashola said, adding repairs would cost another $600,000. Hundreds of people are fleeing the area and companies are evacuating workers for fear of a harsh military crackdown, community chieftain Elekute Macaulay told The Associated Press. Tompolo has denied involvement in the theft and the attacks, centered around his hometown of Gbaramatu. Residents said the military has launched a manhunt for Tompolo in the creeks and mangrove swamps and that militants are patrolling in home-made gunboats.
Nigeria’s oil fields face shutdown amid price slump: This is an uncertain period for the Nigerian economy due to the continuing fall in the price of crude oil, the nation’s main revenue earner, and projections for the petroleum industry are indeed grim, ’FEMI ASU writes With crude oil trading around $30 per barrel in the international market from a peak of $114 in June 2014, production from Nigeria now faces a decline as some fields face an imminent shutdown if the low oil price persists. Industry players say operating some of the fields in the country is becoming uneconomic, with the selling price of oil being driven down close to the production cost level. The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria. “When oil price drops, we are all in serious trouble, because if the oil price and your unit operating cost are almost the same, it means that when you sell the oil, there is little profit or you are at a loss. Many companies are not far from there,” the Project Director for the Uquo gas field told our correspondent. “The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,”
China wades into the Iran-Saudi swamp - Pepe Escobar - Iran is back with a bang. And what a bang. The simplistic Western narrative rules that after the end of UN, US and EU sanctions – in fact a few still remain in place – Iran is rejoining global markets. That may be the case – from Tehran clinching a deal to buy 114 planes from Airbus to Iranian oil soon hitting Western markets. But the key question is actually how, at what pace, and with what partners Tehran plans to rejoin global markets. All the commotion, at the moment, predictably revolves around oil. Iran’s Deputy Oil Minister for Commerce and International Affairs, Amir Hossein Zamaninia, said the new oil export target is an extra 500,000 barrels a day within a few months. Tehran may indeed boost production by 600,000 barrels a day in six months, and add up to 800,000 barrel. Not even the sharper oil analysts really know what this will mean in terms of an all-out, open market-share battle between Iran and Saudi Arabia. What even some sections of Western corporate media are not buying anymore are Saudi diversionist tactics about their cheap oil strategy – which has been essentially designed to hurt Iran, and Russia. The fact is Iran is already selling more oil as we speak. Over 1,000 lines of credit have been opened for banks, according to President Hassan Rouhani. Energy-hungry Europeans are predictably going nuts. Meanwhile, Iran’s oil tankers are already sailing under Lloyd’s insurance. Into this frenzy steps in none other than the aspiring ‘New Master of the Universe’; Chinese President Xi Jinping, currently on a ultra high-profile Middle East tour of Saudi Arabia, Egypt and, of course, Iran. This is Beijing’s cool, calculated way of laterally selling One Belt, One Road – or the New Silk Roads project – by carefully increasing “strategic cooperation” in the energy sphere.
China Wades Into Mid-East Melodrama As Xi Makes First Presidential Trip To Saudi Arabia, Iran - China is “at the center of a clash between Saudi Arabia and Iran,” WSJ wrote on Tuesday, as Xi Jinping marks his first visit to Riyadh as President. Going into the new year, the Saudis find themselves in a tough spot. The kingdom’s move to bankrupt the US shale space by deliberately suppressing crude prices has blown a giant hole in the kingdom’s budget. For 2016, the Saudis expect to run a deficit that amounts to some 13% of GDP. The financial strain has forced Riyadh to rollback popular subsidies, a move that won’t go over well with everyday Saudis. Meanwhile, financing the war in Yemen is becoming expensive. March will mark a year since the Saudis initially intervened to rollback the Iran-backed Houthis and the fighting is still just as fierce today as it was then. Iran, on the other hand, is now playing from a position of strength. The implementation of the nuclear accord will result in an immediate $100 billion windfall for Tehran and by the end of the year, the country could be raking in as much as $4 billion a month in crude sales. Additionally, Russia’s involvement in Syria’s protracted conflict has tipped the scales back in favor of Hezbollah and the IRGC forces fighting alongside Bashar al-Assad’s depleted army thus ensuring that Damascus won’t be falling to a puppet government of the US and the Saudis anytime soon. In short, the regional balance of power is shifting in Iran’s favor and the return of Iranian supply to an already oversupplied global oil market means the economic rivalry between Riyadh and Tehran may soon become just as tense as the ideological rift. As WSJ notes, “China has a strong interest in seeing the regional rivals tamp down their recent war of words [as] the countries accounted for nearly one-quarter of Chinese total imports in the first 11 months of 2015.”
Full Text of Chinese President's Signed Article on Iranian Newspaper - Chinese President Xi Jinping published a signed article titled "Work Together for a Bright Future of China-Iran Relations" on Iranian newspaper Iran on Thursday, ahead of his state visit to the country. The following is the English version of the article:
Saudis Line Up Chinese Energy Deals As Competition For Asian Market Heats Up -- On Tuesday evening we checked in on Xi Jinping as he makes his first visit to the Mid-East as President. As we detailed extensively, the trip comes at a critical time for the region. Saudi Arabia and Iran are at each other’s throats following a series of unfortunate events that began with the execution of a prominent Shiite cleric and quickly escalated into an all-out diplomatic firestorm. Now, the spat is on the verge of triggering a wider sectarian conflict that could further destabilize an already precarious security situation. But it’s not all about the long-running ideological divide. The two regional powers are also at odds economically. The lifting of international sanctions against Tehran triggered a $100 billion windfall for the Iranians and increased access to global markets means Iran will be able to pull in as much as five times more per month from crude sales than it did under sanctions.
Vietnam demands that China remove oil rig - Vietnam said China has moved an oil rig into disputed waters in the South China Sea, in a possible repeat of a 2014 stand-off between the communist neighbors. Foreign Ministry spokesman Le Hai Binh said in a statement posted on the ministry’s website late Tuesday that Vietnam has raised concerns with China over the movement of Haiyang Shiyou oil rig, and has demanded that China stop any drilling and remove the rig from the area where the two countries’ continental shelves overlap and have not been demarcated. “Vietnam demands that China not conduct any drilling activities and withdraw Hai Duong 981 oil rig from this area,” he said, using the Vietnamese name for the oil rig. “Vietnam reserves all its legal rights and interests in the area in accordance with international law,” he said. Chinese Foreign Ministry spokesman Hong Lei defended China’s action at a regular news briefing in Beijing on Wednesday. “As far as I know, the operation of the HYSY 981 oil rig is being carried out in completely uncontested waters under China’s jurisdiction,” he said. “We hope the Vietnamese side will see this operation calmly and make joint efforts with China to properly handle maritime issues.” The oil rig was at the center of a stand-off between the countries in May 2014 when China placed it off Vietnam’s central coast. It was towed away more than two months later, but the incident sparked deadly anti-China riots in Vietnam and plunged bilateral relations to their lowest point in years.
It Is Now Cheaper To Rent A Dry Bulk Tanker Than A Ferrari - China’s slowing growth has crushed shipping rates to such an extent that hiring a 1,100-foot merchant vessel would set you back less than the price of renting a Ferrari for a day. As Bloomberg reports, Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, according to Nick Hardwick, founder of supercarexperiences.com. The Baltic Exchange’s rates reflect the cost of hiring the vessel but not fuel costs. Ships burn about 35 metric tons a day, implying a cost of about $4,000 at present prices, data compiled by Bloomberg show. * * * Of course, it is hard to drive a 1,100-foot dry bulk tanker down The Vegas Strip or through midtown but still...
The Price of Oil, China, and Stock Market Herding -- Olivier Blanchard -- The stock market movements of the last two weeks are puzzling. Take the China explanation. A collapse of growth in China would indeed be a world changing event. But there is just no evidence of such a collapse. ... Take the oil price explanation. It is even more puzzling. Traditionally, it was taken for granted that a decrease in the price of oil was good news for oil importing countries such as the United States. ... We learned in the last year that, in the short run, the adverse effect on investment on energy producing firms could come quickly and temporarily slow down the effect, but this surely does not undo the general conclusion. Yet the headlines are now about low oil prices leading to low stock prices. ... Maybe we should not believe the market commentaries. Maybe it was neither oil nor China. Maybe what we are seeing is a delayed reaction to the slowdown in the world economy... Maybe… I think the explanation is largely elsewhere. I believe that to a large extent, herding is at play. If other investors sell, it must be because they know something you do not know. Thus, you should sell, and you do, and so down go stock prices. Why now? Perhaps because we have entered a period of higher uncertainty. ...
Oil Claims Another Victim as Cheap Fuel Keeps Metals Glut Going -- The collapse in oil and coal prices isn’t just bad news for the energy industry. It’s also compounding a global surplus in metals. Ores are extracted with diesel-engine diggers and trucks, while smelters that process metal run on electricity from coal-fired power plants. Energy accounts for as much as a third of the industry’s costs at a time when everything from aluminum to zinc is mired in a prolonged slump and more mines are losing money. With oil tumbling about 70 percent in the past two years to less than $30 a barrel, cheaper fuel is allowing metals companies to delay production cuts needed to halt their own slide in prices. “There is an incredibly powerful link between base metals and oil prices,” . “If we see oil going down to $20 or even lower, it’s going to mean lower metals prices. Short-term, things look pretty tough.” The biggest commodity rout in seven years has forced mining companies like Glencore Plc to trim operating costs and output, sell assets and shares, and reduce their debt. BHP Billiton Ltd. and Rio Tinto Group, the two largest producers, said in August that lower energy bills aided profits, as did weaker currencies in countries where they operate mines. Since then, Brent oil has tumbled about 50 percent.
Hoarding in plain sight 2016: the importance of Chinese stockpiling - Back in 2008, I wrote an article called Hoarding in Plain Sight, making the argument that the tightness in oil supplies was crucially augmented by the decision of the Bush Administration to double the amount of Oil secreted in the Strategic Reserve, at the same time as other countries such as China also decided to start their own such storage facilities. I suspect an opposite trend is in play now. After all, very few analysts are taking the position that China's economy is actually contracting, rather than just growing at a lower rate. If it's still growing, why wouldn't it be using even more commodities, increasing global demand? A change in stockpiling behavior is an answer that fits the data. From 2009 through 2013, China wasn't just growing strongly, it was stockpiling all sorts of commodities. Here are some examples: Metals When metals warehouses in top consumer China are so full that workers start stockpiling iron ore in granaries and copper in car parks, you know the global economy could be in trouble.....China's refined copper imports have surged over 70 percent so far this year to 1.1 million metric tons, while demand from Chinese manufacturers was forecast to rise by up to 7 percent. Meanwhile, iron ore shipments have risen 6 percent, with traders reckoning that local demand growth is much lower. Coal If you are looking for an example of China's economic slowdown, visit the country's biggest coal port.The huge stockpiles of coal are growing ever higher as factories and power plants cut back. Fuel CHINA, the world's largest coal producer and consumer, plans to build stockpiles of the fuel in the eastern province of Shandong to ensure supplies and help stabilise prices, the nation's top economic planner says.The province would complete the construction of four to six coal stockpile bases within the next three to five years, Aluminum Rumours about stockpiling have been circulating widely in the market, with some saying that 2 million tonnes of aluminium will be stockpiled this time. According to the market talk, major aluminium producers, as well as some large-scale state-owned trading...
Oil Pain Hits China as MIE Debt at New Lows After Rating Cut - Chinese oil producer MIE Holdings Corp. fell to record lows in the bond market after Fitch Ratings downgraded it further into junk territory citing uncertainty it will be able to renew bank facilities. The firm’s notes due in 2019 were quoted at a mid-price of 33.50 cents on the dollar and those due in 2018 were at 36.00 as of 09:57 a.m. in Hong Kong, Citic Securities International Company Ltd. prices showed. Fitch cut its rating to B- from B on Jan. 15, and kept it under negative watch, indicating the rating firm could move it into CCC if new bank loans aren’t secured within six weeks. Fitch said MIE has 300 million yuan ($45.6 million) of debt payments due this year. A 41.5 percent drop in the price of oil over the past year has sparked defaults by oil producers from Colombia to the U.S. and Norway. Other Chinese oil companies have also taken a beating, with dollar notes of Anton Oilfield Services Group sliding to record lows around 27.6 cents. “Seemingly, time is running out for MIE, which could face serious liquidity issues if its banking facilities are reduced or indeed withdrawn in a couple of months,” "The company expects to meet our financial obligations for the year based on our cash, operation performance and access to capital," Kenneth Wong, an investor relations official at MIE, said by e-mail. "We are in the midst of renewing our credit facility with China Construction Bank Corp. and are in discussions with other financial institutions."
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