Sunday, February 14, 2016

oil bounces off 13 year low, the coming Chesapeake bankruptcy, another record for gasoline stores, et al

it was yet another volatile week for oil prices, as the price swings we saw last week continued in heavy trading that saw an average of 1.5 million thousand barrel contracts change hands daily on the New York Mercantile Exchange (NYMEX) alone...after closing last Friday at $30.89 a barrel, March contract prices for the benchmark US crude fell to close at $29.69 a barrel on Monday and $27.94 a barrel on Tuesday under a barrage of stories that we were running out of space to store all the oil we've been producing and importing; even BP warned that "Every Oil Storage Tank Will Be Full In A Few Months", which would imply that producers would be forced to either shut down production or bid down prices to get someone to take what they'd produced (three weeks ago, prices for one grade of Dakota crude went negative, meaning the producer would have to pay to have it hauled away)...selling pressure became even more pronounced Wednesday, when the story broke that Phillips 66, the nations fourth largest oil refiner, was forced to pay $2.50 and $2.75 a barrel to delay delivery of oil that they had contracted for, unusual in that such a "forward roll" of contract dates usually takes place when trading for the contract expires, which in this case was three weeks ago, meaning that Phillips must have had been unable to move product as fast as they had anticipated then...that news, plus EIA reports of large increases in both gasoline and distillates surpluses, drove oil prices down to a $27.45 a barrel close on Wednesday and then to a 13 year low of $26.21 a barrel on Thursday...but on Friday, the rumors that OPEC, Russia, and other large producers might cut a deal to reduce production resurfaced, and crude prices jumped 12.3% in their largest one day increase since February 2009, closing the week at $29.44 a barrel...obviously it hasn't been lost on Russian and OPEC energy officials that all they need to do to move oil prices is to talk about a deal, even if the principle parties are unwilling to meet..

instead of our regular long term chart, which really doesn't show us much more than an extended downward slope in oil prices, today we'll include a chart below that shows the hourly prices that oil traded at over the past two weeks: 

February 13 2016 60 minute oil prices

the above graph comes from FXCM, a "provider of online foreign exchange (forex) trading, CFD trading, spread betting and related services" and it shows the prices that US WTI crude exchanged at through their online exchange, every hour, 24 hours a day, over the past two weeks...since they're providing the trading service, the prices aren't to the penny the same as those seen at the NYMEX, but they track them pretty closely (otherwise traders would play one exchange against the other), and they also trade oil after the regular exchanges are this candlestick style graph, there's a bar for every hour over the past two weeks, and each bar shows the price of oil at the start and end of the hour indicated; when the price of oil went down in the given hour, the bar is red, and when the price closed higher at the end of the hour, the bar is green...most of these red and green "candlesticks" also have light grey "wicks" on either end, which represent the range of prices outside of the beginning and ending price that oil traded at over that one hour period...thus we can see that oil traded as low at $26.02 a barrel in the 2 PM hour on Thursday of this week, and as high as $33.55 a barrel after 9 AM on Thursday of last week (if you go to the original chart, it's interactive and shows the time and price, and the blue button with the arrow in it will launch a full screen popout)...of the ten trading days shown above, only two saw the price of oil rise; Wednesday of last week, when we saw the unwinding of a $600 million triple short that forced covered buying, and Friday of this week, when the OPEC Russia deal rumors brought out the bargain hunters...but if you take a close look at that chart, you can see that even on Friday, after the regular markets has closed with oil at $29.44 a barrel, oil traded lower and ended at $29.06 on this online electronic exchange…

Chesapeake Energy headed for bankruptcy

one piece of news of particular interest to us here in Ohio this week is that Chesapeake Energy, the 2nd largest US natural gas producer and operator of more than half of Ohio's wells, leasing more than a million acres of the Utica, is likely headed for bankruptcy...on Monday, news broke that they had retained restructuring and bankruptcy attorneys Kirkland and Ellis, leading to a 50% collapse in their already low share price...of course, Chesapeake denied the bankruptcy rumors, saying something to the effect that Kirkland & Ellis & they were just old buddies and they were just getting together for an afternoon tea party, but it's clear the market didn't believe Wednesday their bonds maturing March 15, 2016 were trading at 80 cents on the dollar, meaning that they would be paying 299% to maturity if they were honored, so it looks like no one expects them to survive as a going concern past that date...if they file for bankruptcy, they wont be the first fracker to do so, but they may be the largest; at least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, and five more energy producers went bankrupt in the first five weeks of this year, but the best i can tell is that Samson Resources, who filed for Chapter 11 protection on September 16, was the largest energy bankruptcy so far, and at the time of their filing their revenues had been cut in half, to $53 million in the first three months of 2015....Chesapeake, by comparison, last reported third quarter revenues of $2.89 billion...Chesapeake is expected to report 4th quarter results next Wednesday, so we should know more then; by then we'll also have the results for a host of other frackers, so we should be able to take a look at the prospects for survival of the lot of them then...

The Latest Oil Stats from the EIA

due to a rather large one week drop in our imports of crude, we didn't see another record for oil inventories this week, but despite the fact that refineries are on a reduced winter schedule, inventories of both gasoline and distillates saw rather large increases, with gasoline stores once again at a new record start with, Energy Information Administration data showed our field production of crude oil fell by 28,000 barrels per day, from 9,214,000 barrels per day during the week ending January 29th, to 9,186,000 barrels per day during the week ending February 5th, which was our lowest production since the week ending in Christmas, and only the first time US crude production fell below year ago levels this year, even though oilfield drilling activity has dropped 70% over the same period...while that's the lowest production we've seen this year, it's still above our output of any week during September and October, when we believed that oil production turning give you a picture of how our oil production has only slowly pulled back, we'll include a few graphs of our long term and recent oil production history:

February 13 2016 crude production history

the first graph above, taken from the Weekly US Field Production page at the EIA, shows our crude oil production in thousands of barrels per day weekly over the past 21 years (the original graph is interactive and covers 35 years) can see how our conventional oil production gradually decreased in the years prior to 2008 despite high prices, as the old oil fields we were relying on at the time were gradually depleted, and then how our domestic oil production rose from around 5 million barrels per day to top 9 million barrels per day in November of 2014, a level which it has held since the changes in our output over the past weeks arent very apparent on such a long term graph, we'll next include a graph of our crude oil production over the past year:

February 13 2016 crude production

the above graph is from the Zero Hedge coverage of these same EIA reports and it shows in blue the weekly volume of our oil output from September 2014 to and through the current EIA report for the week ending February 5th...the red bars at the bottom correspond to the blue graph above and represent the weekly change in production, with bars pointing up representing an increase in oil output, and bars pointing down indicating a we can more clearly see how our oil production climbed above 9 million barrels per day at the end of 2014, and showed no sign of slowing even as drilling began to be curtailed after the Thanksgiving 2014 OPEC meeting that maintained their production and sent oil prices crashing...our production hit 9,422,000 barrels per day by mid March, and first looked like it was on the way down when it fell to 9,262,000 barrels per day during the week ending May 15th, but recovered and went on to set a record with production at 9,610,000 barrels per day during the week ending June 5th...after July, our output fell quite abruptly and we believed at the time that the cutback in drilling was finally affecting output...but our output steadied above 9.096,000 barrels per day during September and October and inexplicably began to rise again going into the end of the year, hitting an interim high at 9,235,000 barrels per day during the week ending January 15th, before slowly falling to the current level of 9,186,000 barrels per day during the week ending February 5th…the red arrows above are to point out that this week’s production was at the lowest level since December 25th, and to note the magnitude of the decrease…

meanwhile, our crude oil imports, the other major source of our domestic crude supply, fell to an average of 7,124,000 barrels per day during the week ending February 5th, falling by 1,132,000 barrels per day from an average of 8,256,000 barrels per day during the week ending January 29th...while this week's imports were 2.2% below the 7,286,000 barrels per day we were importing during the week ending February 6th last year, imports are too volatile on a weekly basis to get a good sense of the year over year change, so the weekly Petroleum Status Report (62 pp pdf) reports a 4 week moving average of imports, which showed our oil imports over the last 4 weeks have averaged 7.7 million barrels per day, 5.0% above the same four-week period last year...

in addition, refineries slowed down once again during the period, processing 15,510,000 barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the 15,615,000 barrels per day they were processing during the week ending January 30th, as the US refinery utilization rate fell to 86.1%, down from 86.6% last week and down from a refinery utilization rate as high as 94.5% at the end of November...that was the 6th consecutive weekly drop in refining this year, but we're still within a half a percent of the 15,564,000 barrels per day we were processing the same week a year earlier (note that this report is for the week ending February 5th and hence does not include the problems with surplus crude oil that Phillips and at least one other refiner ran into on Wednesday this week) 

but even with less crude refined, our gasoline production surged by 911,000 barrels per day to 9,553,000 barrels per day during week ending February 5th, the most gasoline we've produced in any week this year and 9.7% more than the 8,708,000 barrel per day gasoline production of the week ending February 6th last year....meanwhile, our output of distillate fuels (ie, diesel fuel and heat oil) fell by 78,000 barrels per day to 4,357,000 barrels per day during week ending the 5th, which was also down by 349,000 barrels per day from the same week a year ago...with the outsized increase in gasoline production, our end of the week supply of gasoline in storage rose for the 13th week in a row, increasing from  254,399,000 barrels last week to 255,657,000 barrels as of February 5th...that is of course, another record for the amount of gasoline put into storage in the US and leaves our gasoline stockpiles 5.4% higher than the 242,647,000 barrels we had stored at the same time last year, which was at that time also a record for gasoline inventories...oddly, our distillate fuel inventories also rose, increasing by by 1,281,000 barrels to 160,976,000 barrels, when everyone was expecting them to continue dropping in the depth of winter...while not a record, that left our distillate inventories nearly 30 million barrels, or 22.7% higher than the same week last year, near the upper limit of their average range for this time of year...btw, the reduced demand for distillates led to a note from Barclay's warning of a recession in the US which made the rounds this week, but i'd be more likely to attribute it to the weather..

finally, with the large drop in imports, there wasn't so much surplus oil sloshing around the country as there was in previous weeks, and as a result our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, fell for the first time this year, dropping by 754,000 barrels to  501,958,000 barrels on February 5th, down from the record high 502,712,000 barrels we had stored on January 30th...but other than that week, it's only the 2nd week we've ever had more than a half billion barrels of oil in storage, and it's still 20.1% more than the 417,928,000 barrels of oil we had stored in the same week last year, which at that time was itself an all time record for crude oil in this one week drop in stored oil is small potatoes in the greater scheme of the oil glut, as inventories typically build every week until the end of April, and we're certainly still in a position to exceed our storage capacity, either at the central depot in Cushing, or nationally, before this late winter build up of crude oil plays out..

This Week's Rig Counts

with the ongoing low prices, US energy exploitation companies shut down another 5.5% of their active drilling rigs this past week, following on the heels of last weeks cutback by a record 7.8%Baker Hughes reported that the total active rig count fell by 30 rigs to 514 as of February 12th, as their count of active oil rigs fell by 28 to 439 while their count of active gas rigs fell by 2 to 102...a year ago, there were a total of 1358 rigs deployed in the US, with 1056 drilling for oil, 300 drilling for gas, and 2 classified as miscellaneous, whatever that means...of course, by a year ago, the frackers had already started tearing out their rigs as oil & gas prices were collapsing; the total rig count peaked on September 26th of 2014, when 1931 rigs were drilling in the US, while oil rigs hit their fracking era high at 1609 working rigs on October 10, 2014, and the high for gas drilling rigs was the 356 gas rigs that were deployed a month later, on November 11th, 2014...

of the rigs pulled out this week, one of them was a offshore platform drilling in Texas waters in the Gulf of Mexico, so the Gulf rig count is now down to 25, and down from 50 in the Gulf and a total of 52 offshore a year ago...25 more horizontal rigs were stacked this week, after 29 were stacked last week, cutting the count of active horizontal rigs down to 433, which was down from the 1025 horizontal rigs that were deployed the same week last year, and down from the recent high of 1372 horizontal frackers that were drilling on November 21st of 2014....a net of 4 directional rigs were also pulled out, leaving 49, down from the 123 directional that were in use last February addition, a single vertical rig was taken out of service, leaving 59 on February 12th, down from the 210 vertical rigs that were deployed a year earlier...

of the major shale basins, the large Permian basin of west Texas and eastern New Mexico saw the greatest reduction with 8 rigs pulled out, still leaving 172 rigs working there, which was still down from 368 rigs working in the Permian a year addition, the Cana Woodford of Oklahoma, the DJ-Niobrara of the Rockies front range, and the Williston basin of North Dakota each saw 3 rigs pulled out and stacked; that left the Cana Woodford with 34, down from 43 a year earlier, the Niobrara with 18, down from 42 a year earlier, and the Williston with 39, down from 128 a year earlier....2 rigs were also removed from both the Eagle Ford of south Texas and the Marcellus of the northern Appalachians; that left the Eagle Ford with 58 rigs, down from 164 a year earlier, and the Marcellus with 29 rigs, down from 69 a year earlier...the Ardmore Woodford of Oklahoma also got rid of a rig, leaving 2, down from 6 rigs on February 13th of last year...

the state count tables show that Texas was lighter by 14 rigs, leaving 248 rigs remaining active in the state, down from 598 a year ago...both New Mexico and Oklahoma saw 4 rigs stacked; that left New Mexico with 22 rigs, down from 66 on the same weekend of 2015, and left Oklahoma with 76, down from 171 from a year earlier...North Dakota was down 3 rigs to 39, and down from 123 a year earlier, while Colorado, Pennsylvania, and Wyoming each saw 2 more rigs pulled out...that left Colorado with 20 rigs, down from the year ago 49, left Pennsylvania with 17 rigs, down from 54 rigs a year earlier, and left Wyoming with 11 rigs, down from 39 on February 13th of 2015...Kansas also saw a rig stacked this week; they now have 8 rigs, down from 18 a year ago...meanwhile, drillers in both California and Louisiana started an additional rig this week, even with oil prices below $30 and gas prices below $2 mmBTU...that brought the California count back up to 8, down from 16 last year, and brought Louisiana's count back up to 47, still down from 108 a year earlier...


Study: FirstEnergy’s Ohio Plan Would Cost Ratepayers $4 Billion; Proposal Aims to Protect Company Shareholders and Outdated Plants - — A proposal by Akron-based FirstEnergy Corp. to keep four aging electricity generation plants alive will cost ratepayers in Ohio almost $4 billion through 2024, a new study by the Institute for Energy Economics and Financial Analysis concludes. The report, A $4 Billion Bailout in the Buckeye State,” is an independent analysis of FirstEnergy’s proposal, which is being considered by the Public Utilities Commission of Ohio (PUCO). The study details energy market trends that put coal-fired and nuclear-powered electricity generation plants at a growing disadvantage to other energy sources. It also shows how FirstEnergy is pursuing approval of the plan as part of a larger corporate strategy to shift risk to ratepayers and how the proposal before the PUCO would guarantee shareholders a 10.38 percent return on the plants regardless of their performance. “The goal of FirstEnergy in putting forth this ratepayer-subsidized plan is to prolong the life of outdated plants in Ohio, put customers on the hook for the escalating costs of these plants and ensure future profits for FirstEnergy shareholders,” said Sandy Buchanan, IEEFA’s executive director. “The PUCO should reject it.”

New Report Confirms FirstEnergy’s $4-Billion Boondoggle: FirstEnergy’s plea to keep four aging power plants alive will cost Ohio customers almost $4 billion, according to a new study out today by the Institute for Energy Economics and Financial Analysis (IEEFA). The proposal is currently in front of the Public Utilities Commission of Ohio (PUCO). The report, entitled A $4 Billion Bailout in the Buckeye State, outlines in clear terms how the utility giant hopes to force Ohioans to subsidize the continued operation of its outdated power plants, put customers on the hook for those plants’ escalating costs, and ensure future profits for FirstEnergy executives and shareholders.FirstEnergy executives know economics are not on their side Specifically, FirstEnergy’s Ohio utilities have proposed what they call a Retail Rate Stability Rider (otherwise known as a “bailout”) through which the costs and risks of three coal-fired plants (named Sammis, Clifty Creek, and Kyger Creek) and one nuclear reactor (named Davis-Besse) would be passed on to the utility’s captive customers. According to the IEEFA report, These plants were all spun off to a deregulated affiliate created in 2000, when FirstEnergy expected that it would be able to earn substantial profits by selling energy and capacity into the competitive wholesale PJM markets. However, FirstEnergy clearly does not believe that the units are currently profitable. Nor does it believe that expected market conditions will make the units profitable in the coming years.”

Ohio fracking tax not on legislative leaders' agenda: Republican and Democratic leaders of the state legislature say now is the not the time to change Ohio's tax on oil and gas drillers, saying it could be problematic to the industry. A severance tax increase has been a priority of Republican Gov. John Kasich (KAY'-sik) for years. He contends the tax is too low, and he's wanted to use proceeds of a tax hike on hydraulic fracturing, or fracking, to help cut the state's income-tax rate. Speaking Thursday at a forum in Columbus hosted by The Associated Press, Republican House Speaker Cliff Rosenberger said his chamber would not be taking up a severance tax adjustment this year. Republican Senate President Keith Faber also says revisions to the tax aren't a good idea until market conditions improve.

Ohio legislators say no immediate plans to raise gas, oil severance tax: -- Ohio's legislative leaders said Feb. 11 they won't increase taxes on oil and gas produced via horizontal hydraulic fracturing, or fracking, while oil prices remain low. "Until market conditions improve, it's something that we should stay away from," said House Speaker Cliff Rosenberger (R-Clarksville), paraphrasing a study released by lawmakers last year on the subject. "I'll just be pointed: North Dakota and Oklahoma are two great states to point out. I've talked to the legislative leaders in both states. North Dakota's decreasing their severance tax And Oklahoma is having issues huge issues with the fact that they've tied their severance tax to [the state general revenue fund] and now [they're] facing a structural imbalance." Rosenberger and others offered comments on the severance tax issue during an Ohio Associated Press forum in Columbus. The severance tax increase has been a point of contention between Republican legislative leaders and Gov. John Kasich, who has pushed for an increase in rates for several sessions. The governor reiterated his support for an increase in December, saying an outside group could opt to place an even larger rate increase before voters. But Rosenberger and Senate President Keith Faber (R-Celina) said now is not the time to raise rates, with Ohio's fracking industry facing a downturn due to declining oil and natural gas prices.

Ohio groups rally against injection wells, schedule screening -   Frackfree Mahoning Valley has learned, as of February 9, 2016, the Ohio Department of Natural Resources (ODNR) has not yet given permission for fracking waste injection to begin at a newly drilled injection well located in Vienna, Ohio, near family homes and the airport. This new information came to Frackfree Mahoning Valley from Teresa Mills of Buckeye Forest Council, who received it as a result of a public records request.  Teresa Mills also uncovered, via a public records request dated January 29, 2016, that it seems that Oklahoma-based KTCA Holdings LLC is the new owner of the airport-area Vienna injection well, previously listed as owned by KDA. KDA’s Vienna, Ohio injection well operation is associated with an April, 2015 toxic waste release that resulted in destruction of two wetlands and other adverse impacts.  Saying that the injection well is close to an “ area of known seismic activity,” Buckeye Forest Council and Frackfree Mahoning Valley are calling for the Ohio Department of Natural Resources (ODNR) to deny the injection permit for the Vienna, Ohio injection well near Vienna residences. The groups are also calling for two Weathersfield/ Niles injection wells to remain closed. One of these wells has been linked in news reports and a scientific study with man-made earthquakes.

Court rejects appeal filed on K&H injection well - A Franklin County judge has ruled against Athens County Fracking Action Network’s appeal of an earlier decision related to a K&H Partners injection well in Troy Twp. Judge Patrick Sheeran of Franklin County Common Pleas Court filed his decision Tuesday. After the Ohio Division of Oil and Gas Resources Management issued a permit in 2013 for K&H Partners’ second injection well in Troy Twp., the Athens County Fracking Action Network (ACFAN) took the matter to the Ohio Oil and Gas Commission in an effort to overturn the permit. Injection wells are used to dispose of brine and other waste from oil and gas production wells. The commission, however, agreed with the division and K&H that the permit was a drilling permit, not an injection permit, and therefore the commission  lacked jurisdiction to hear the matter. That decision was appealed by ACFAN to the Franklin County court. In his ruling, Sheeran agreed that the permit ACFAN appealed was a drilling permit over which the commission lacks jurisdiction. He said the commission only has powers given it by the General Assembly, and the legislature has not given authority for the commission to hear drilling permit cases.

Drillers using more water to frack Ohio shale - The amount of water that companies use to drill for oil and gas in Ohio shale increased steadily from 2011 to 2015, according to a Dispatch analysis.  The numbers show that water use in Ohio increased by about 10 percent from 2013 to 2014, according to the analysis of the FracFocus Chemical Disclosure Registry, a website sponsored by the oil and gas industry that collects information about drilling and the hydraulic fracturing of shale to release oil and gas. Companies used nearly 36 million more gallons to frack wells in 2015 than they did in 2014, the Dispatch analysis shows. The average amount of water used per well also increased. Environmental advocates and some villages and cities in eastern Ohio were concerned when the fracking boom started several years ago that drillers would use excessive amounts of water from area watersheds.  The Ohio Department of Natural Resources, the state agency that regulates oil and gas activity, analyzed FracFocus data and found that the average volume of water used per well also increased from 2014 to 2015. But the department's analysis shows that the overall amount of water used decreased. The agency could not explain the discrepancy. Matt Eiselstein, a spokesman for the Ohio Department of Natural Resources — the state agency that regulates the oil and gas industry — said in an email that companies have gotten more efficient as fracking has grown in Ohio. That efficiency, he said, allows companies to drill fewer wells while creating longer laterals — the horizontally drilled holes that allow companies to access oil and gas in shale deep below ground. "In Ohio, we are fortunate to have abundant water resources," Eiselstein said

Ohio anti-fracking activists miss the mark on climate change, methane regulations: Jackie Stewart, Energy In Depth-Ohio -  -- Ohio's anti-fracking activists, inspired by December's Paris Climate Conference, have been eager to push misinformation about fracking and greenhouse gas emissions and champion increased regulations on the oil and gas industry. But what they fail to acknowledge is that it's precisely because of fracking, and the increased use of natural gas, that the United States has achieved dramatic reductions in greenhouse gas emissions. Even the Intergovernmental Panel on Climate Change, which activists have called the "gold standard" for climate science, has said, "the rapid deployment of hydraulic fracturing and horizontal drilling an important reason for a reduction of GHG emissions in the United States." In fact, thanks to natural gas, carbon emissions from electricity production have declined to a 20-year low in the United States. Natural gas has reduced nearly 60 percent more carbon dioxide emissions than renewables since 2005. It's no surprise that Environmental Protection Agency (EPA) administrator Gina McCarthy said, "Responsible development of natural gas is an important part of our work to curb climate change." Activists have tried to push the claim that methane emissions during oil and gas production cancel out the climate benefits of natural gas, but that's not what the science tells us. Dozens of recent reports have found that oil and gas methane emissions are very low – far below the threshold for natural gas to have significant climate benefits.

Chesapeake Plummets Over 20% On Report It Has Hired Bankruptcy Attorneys -- The saga of the gas giant Aubrey McClendon's built, Chesapeake Energy, enters its endgame, when moments ago following a Debtwire report that the company has hired Kirkland and Ellis as its restructuring/bankruptcy attorney - typically a step taken just weeks ahead of a formal Chapter 11 filing - the stock has plunged 22% to $2.40, the lowest price in the 21st century, and for all intents and purposes, ever.  In a few weeks we will see just how many banks were properly "provisioned" for this now imminent bankruptcy that may just unleash the default wave so many have been waiting for.

Chesapeake’s Stock Plunges on Bankruptcy Fears - Chesapeake Energy, the second largest natural gas producer in the United States, came under severe pressure on Monday after rumors surfaced that the company was near bankruptcy. Over the weekend, the publication Debtwire reported that Chesapeake sought the help of Kirkland & Ellis to help it with its debt, fueling speculation that Chapter 11 bankruptcy was not far away. When the markets opened on Monday, Chesapeake paid the price. Its share price tumbled by more than 50 percent. Trading was briefly halted, but by midday, the company’s stock was down 33 percent. Chesapeake dismissed the concerns, saying that it "currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders." Chesapeake has $10 billion in debt and only $1.8 billion in cash on hand. The company’s stock is down by more than 93 percent over the past 12 months.

If Chesapeake Does Not Go Bankrupt In Just Over One Month, This Could Be The Trade Of The Year - Back in March 2013, when nat gas, and pretty much everything else, was trading far higher than where it is today, investors who believed in the vision of Chesapeake's now long gone CEO Audrey McClendon had no problem writing a check for $500 million of other people's money to the Oklahoma gas giant, hoping to generate a "whopping" 3.25% return by the time the bonds matured on March 15, 2016.  Sadly, since then things changed.  Chesapeake - as we previously reported - is now on the verge of bankruptcy having hired K&E as a restructuring advisor, and these bonds (maturing March 15, 2016) are currently trading at 80.5 cents on the dollar.  As the chart below shows, this results in a yield that is about 100 times where it was at issue, or just shy of 300%.Which brings up an interesting trade opportunity: yes, Chesapeake will default, but the question is when. For those who think the company will somehow survive for a more than a month without filing Chapter 11 or arranging some prepackaged bankruptcy, and actually repays the $500 million issue, this could be the trade that makes someone's full year, because with a yield of 299%, and a cash on cash return of 25% (being paid par on March 15 for a bond that can be purchased today for 80 cents), it does look somewhat attractive, especially if hedged with a short on CHK stock, which at last check was trading at an implied market cap of $1.3 billion.

Bills would halt Michigan fracking, require chemical cocktail disclosure | House Democrats want Michigan to dump high-volume hydraulic fracturing, or fracking, a controversial oil and gas extraction practice that some lawmakers want to temporarily halt until updated regulations are passed in the wake of a failed petition drive last year to place a statewide ban on the 2016 ballot. Democrats say that, while vertical fracking has been used for years in Michigan, the newer technique of horizontal fracking requires updated regulations that better address the chemicals and massive volumes of water used in the process. In a tongue-in-cheek press conference on Thursday, Feb. 11, bill sponsor Sarah Roberts, D-St. Clair Shores, framed the state's relationship with fracking as something akin to a thrill-is-gone romance in need of a Valentine's Day break-up. Fracking "has become needy, sucking up a lot of resources and has taken too much control," said Roberts. "We think its time to take a break, re-evaluate our relationship and start fresh with some new rules." The eight-bill package introduced Thursday afternoon would place a moratorium on new fracking permits, require fracking wells be at least 5,000 feet from "sensitive" locations like schools, hospitals, homes, and public parks, and require full disclosure of all chemicals used in the process.

New Pennsylvania drilling regulations up for review | On Feb. 3, the Environmental Quality Board (EQB) passed oil and gas drilling regulation revisions, according to . The new regulations will be sent to the Independent Regulatory Review Commission, the State House and Environmental Resources and Energy Committees for review. Amendments to the regulations include improved transparency, protection of water resources, protection of public health and safety, as well as additional public resource and landowner considerations. Specifically, open-air waste storage pits would require minimum distances from schools and playgrounds, as well as rules for monitoring and cleaning up spills. According to an article by, “Unconventional” operations such as hydraulic and horizontal drillers would face their own separate rules, which would cost $73.5 million initially and $31.1 annually, according to Scott Perry, Department of Environmental Protection (DEP) deputy secretary for oil and gas. Alternatively, conventional drillers would pay $28.6 million annually to meet the new regulations. These costs come at a time when oil prices are low, the industry is fighting to survive and the state could use the income tax revenue to fund their newly increased proposed budget. The Oil & Gas Journal also reports allegations that the Wolf administration is deceptive in their refusal to vote separately on the regulations for conventional and unconventional drilling. Also, the administration claims that calls for a severance tax on oil and gas will only result in more unemployment, a reduction of tax revenue for the state and will smother the industry with costs it cannot afford. In the meantime, EE Publishing reports that Democratic Pennsylvania Senate candidates routinely argue about hydraulic fracking and have used energy campaign contributions against each other.

Antero Resources files permit with DEP to build landfill in Doddridge County - Antero Resources filed a permit Thursday to build a Class F landfill in Doddridge County, said Kelley Gillenwater, communications director for the state’s Department of Environmental Protection. The landfill will be built next to the company’s new wastewater treatment facility on 635 acres of Antero property located just off the Greenwood/Sunnyside exit of U.S. 50.That’s according to Al Schopp, the company’s vice president of finance and administration. The wastewater facility will take up about 11 acres, and the first phase of the landfill about 37 acres. Schopp said no radioactive sludge will be placed in the landfill. “It’s going to be benign commercial salt,” Schopp said. “Our permit is 100 percent for salt.”Flowback and produced water are two common names industry professionals apply to the mixture of water, salt and radioactive particles left after the fracking process. Antero’s new wastewater treatment facility — slated to become operational in late 2017 — will separate the three components of that mixture. The plant is designed to process 60,000 barrels of produced water each day, creating 45,000 barrels of freshwater, 2,000 tons of salt and 180 tons of radioactive sludge,

Sourcewater – Helping SWDs stay afloat in turbulent times - Among the many challenges operators face in this down-market, produced water management remains their single largest operating expense. Across the board, onshore E&P’s have significantly reduced capital investment – rig counts are down and operators have high-graded assets. Yet, while ongoing declines in the price of oil further suppress drilling and completion activity, the constant stream of produced water from continuing operations may be sufficient to sustain some players in the water-services ecosystem. In times like these, only the lean will survive.  While the Marcellus is well known for regulatory constraints that limit saltwater disposal options within Pennsylvania, market forces have driven a very competitive landscape for hauling and disposal within the neighboring state of Ohio. However, today only 31 rigs are operating in the Marcellus, down almost 60% from last year. As a result, the total volumes of drilling muds, flowback and produced water generated in this region is significantly lower, creating an unprecedented over-supply of water-management, hauling and disposal services. In this corner of the Marcellus, the future growth potential for produced water management remains inextricably linked to the price of crude oil and natural gas. At the time of print, oil prices settled below $28 per barrel, and natural gas is stable around $2.10 per million cubic feet. With most wells in the play reporting break-even prices around $3.00 per million cubic foot of natural gas, many operators have shut-in wells or wells awaiting completion. Driven primarily by the need to maintain leasehold agreements, a handful of operators have maintained some drilling and completion activity. However, recently Cabot Oil & Gas Corporation, Consol Energy, EQT Corporation, Seneca Resources and Southwestern Energy Company have all indicated plans to either halt new drilling or at a minimum further reduce active rigs. The impact of this on the water service sector in SW Marcellus is, quite frankly, devastating.

Bluegrass Pipeline loss big win for landowners - The Kentucky Supreme Court has let an appeals court decision stand that only regulated utilities can use the power of eminent domain to get land for pipelines. "Today is a good day for Kentucky landowners and for freedom," Louisville attorney Tom FitzGerald posted on his Facebook page. The decision deals another blow to efforts by companies seeking to move natural gas liquids in pipelines through Kentucky from oil and gas fields in Ohio and western Pennsylvania to the refineries and ports along the Gulf Coast. The case involved the Bluegrass Pipeline, which was to be developed by the Williams company. That pipeline would have snaked across nearly 200 miles of Kentucky, but the company put it on indefinite hold in April 2014, saying that it did not have enough customers for the liquids it sought to move. A legal battle continued, however, in the case of Kentuckians United To Restrain Eminent Domain v. Bluegrass Pipeline.  The Court of Appeals ruling last May was by a unanimous three-judge panel of James H. Lambert, Janet L. Stumbo and Jeff S. Taylor. They agreed with Franklin Circuit Judge Phillip Shepherd that only pipeline companies that are or will be regulated by the state's Public Service Commission can use the courts to force a purchase of property or easements.

East Coast blizzard raised gas inventory withdrawals, spot prices: EIA - Natural Gas - The massive blizzard that hit the East Coast in late January prompted the largest withdrawal of natural gas inventories from storage this winter but had little impact on electricity demand, the US Energy Information Administration said Tuesday. People generally battened down at home during and after the storm so many businesses were closed. While this increased residential electricity usage, total electricity demand was offset by lower commercial consumption, EIA explained in its February Short-Term Energy Outlook. There were also power outages, most notably in North Carolina and New Jersey, that had a limited effect on demand as well, EIA said. But the agency noted that despite the snowstorm, average heating degree days for the first quarter of 2016 are projected "to be 12% lower than in the same period last year, contributing to first-quarter electricity sales to the residential sector that are 6% lower." Total US electricity generation is expected to edge up by 0.3% in 2016 and then by 1.6% in 2017, but the generation mix will continue to shy away from coal as market dynamics and environmental regulations make less carbon intensive resources more appealing.

Warm Winter and Surging Production Push Gas Storage Surplus Higher (And Prices Lower). As of the weekly EIA natural gas storage report due out today (Thursday) for the week ending February 5, 2016, the U.S. gas inventory surplus is likely to grow to near 600 Bcf above levels at the same time last year. Current weather forecasts suggest the surplus over 2015 will soar to near 800 Bcf by the end of February. With outright inventory levels already exceptionally high, this surplus growth kicks the market’s oversupply problem further down the futures curve – meaning prices could stay lower for longer. Today we look at the winter 2015-16 fundamentals leading to this surplus and what it means for the rest of 2016.  The gas market started this winter (November 2015 to March 2016) oversupplied, with a record high inventory and a surplus of nearly 400 Bcf versus the previous year. At the time a cold hard winter presented the best chance to correct the supply/demand imbalance through increased heating demand. But weather forecasters instead predicted an exceptionally warm winter due to the effects of El Nino. And sure enough, winter has been largely a no-show so far. Meanwhile, on the supply side, gas production has not given up any ground, and in fact, has even experienced another surge to record levels in recent weeks. This mixture of lower demand and higher supply has meant not as much gas has been withdrawn from storage to meet winter peak needs as usual this year.  As a result, the storage surplus has continued to grow.

NatGas, Oil Production Slipping in Big Seven Shale Plays, EIA Says  -- Total natural gas and oil production from the nation's seven largest unconventional plays will continue to decline at least through next month, the Energy Information Administration (EIA) said.  Total natural gas production from the plays will be an estimated 44.23 Bcf/d in March, a 451 MMcf/d decline from 44.71 Bcf/d this month, EIA forecast in its latest Drilling Productivity Report (DPR), which was released Monday. The Marcellus and Eagle Ford shales will be responsible for the bulk of the decline, according to EIA estimates. The agency expects 15.70 Bcf/d to come out of the Marcellus in March, compared to 15.90 Bcf/d in February, and 6.44 from the Eagle Ford in March, compared to 6.60 this month. EIA also expects to see month-to-month declines out of the Bakken (1.58 Bcf/d, compared to 1.60 Bcf/d in February), the Haynesville (6.20 Bcf/d, compared with 6.23 Bcf/d), and the Niobrara formation (4.15 Bcf/d, compared to 4.22 Bcf/d). The Permian Basin will experience a marginal decrease while the Utica should see a 32 MMcf/d increase, according to the DPR. EIA also expects slight declines in oil production, with the seven-basin total for March estimated at 4.92 million b/d, compared to 5.02 million b/d in February. Oil production will be lower in five basins: the Bakken (1.10 million b/d, from 1.13 million b/d in February), Eagle Ford (1.22 million b/d, compared to 1.27 million b/d), and Niobrara formation (389,000 b/d, compared to 404,000 b/d), along with marginal declines in the Haynesville and Marcellus. Oil production is expected to increase slightly in the Permian Basin and will be unchanged in the Utica, EIA said. EIA released the first DPR more than two years ago (see Shale Daily, Oct. 22, 2013) but didn't forecast month-to-month declines until September (see Shale Daily, Sept. 15;April 13).

EIA sees 2016 U.S. natgas production, consumption at record highs | Reuters: The U.S. Energy Information Administration on Tuesday said domestic natural gas production in 2016 was expected to reach 79.69 billion cubic feet per day, up a shade from the 79.68 bcfd it forecast last month. That forecast production would top 2015's record high of 79.13 bcfd and would be the sixth consecutive annual record high for U.S. gas production, according to the EIA's Short Term Energy Outlook (STEO) in February. The EIA forecast U.S. gas consumption meanwhile will ease to 76.44 bcfd in 2016, down a bit from the 76.57 bcfd it forecast in January. That would top the 2015 record high for gas demand of 75.38 bcfd and would be the seventh annual record high in a row. For 2017, the agency forecast more record highs with production expected to rise to 81.26 bcfd and consumption up to 77.29 bcfd. Consumption will rise in 2016 and 2017 primarily as industrial demand increases as new fertilizer and chemical plants enter service. Growth in production will slow in 2016 as low gas prices and declining rig activity begin to affect output. In 2017, the EIA forecast production growth will increase as prices rise, industrial demand grows and liquefied natural gas (LNG) exports increase. The EIA projects LNG gross exports will increase to an average of 0.5 bcfd in 2016, with the start-up of Cheniere Energy Inc's Sabine Pass LNG liquefaction plant in Louisiana planned for late February or early March.

Fracking gas leaks are no worse than conventional wells - Fracking, enabled by the technology to drill oil and gas wells that turn horizontal to follow specific layers of rock, has driven a boom in US natural gas production. But how much of that natural gas (which is mainly the potent greenhouse gas methane) is leaking into the atmosphere before making it to a power plant or your furnace? It's not just an idle question. When natural gas displaces the use of coal, it results in significant reductions in CO2 and other pollutants. Leak enough, however, and that climate benefit might just disappear. Despite its problems, the fracking boom is still better than burning coal.The public debate has treated this leakage issue as specific to the process of fracking. But “conventional” natural gas wells—vertical wells drilled through porous rocks that give up natural gas without the need for new fractures—have always leaked. A study by a Carnegie Mellon University group led by Mark Omara measured leakage at both conventional and fracked wells in Pennsylvania and West Virginia. The results are a little complicated. The researchers visited 18 conventional natural gas sites and 17 fracked sites (including 88 fracked wells, which are commonly drilled down from a central pad before splaying out horizontally). Between 100 meters and a kilometer downwind, they made methane and ethane measurements. To control for the dilution of the leaked gas as it spread and swirled in the wind, they added a leak of their own. Right next to the gas wells, they set up tanks of nitrous oxide and acetylene and opened the valves to leak at a constant rate. By checking their measurements of those gases downwind, they could calculate the true natural gas leak rate.

Connecticut towns raise concerns about fracking waste; Branford could become 4th to ban it - The Connecticut Department of Energy and Environmental Protection has more than a year to re-write regulations concerning the possible import of waste from hydraulic fracturing for natural gas that takes place in neighboring states, but some Connecticut municipalities are taking action ahead of schedule.  Branford officials discussed a proposed ordinance earlier this month that would ban any waste generated in the process of hydraulic fracturing — either liquid or solid — from being used for any purposes within town limits. If the ordinance were to pass, Branford would be the fourth municipality in Connecticut, joining Washington, Coventry and Mansfield, to impose its own law about a substance that the federal government does not classify as a hazardous waste. The General Assembly’s moratorium banning fracking waste in Connecticut defines fracking as the use of drilling and injection of materials to extract natural gas. Fracking waste generated from oil extraction is not included in the moratorium.  The proposed Branford ordinance seeks to ban wastewater from “manmade fluid-driven techniques for the purpose of stimulating oil, natural gas, or other subsurface hydrocarbon production.”  Fracking, while contributing to domestic energy production, has also caused concerns about toxicity of waste generated during the process, whether it is the resurfacing of the water that was injected or other ground water that surfaces with the natural gas. A recent Yale School of Public Health study found that most of the more than 1,000 chemicals often used in fracking have been known to cause developmental and reproductive health problems. The study also found that the leftover chemicals in fracking waste include arsenic and lead.

Florida Senate could derail fracking bill - Industry backed bills introduced by Southwest Florida legislators that would create regulations around fracking in Florida may have sailed through the House, but they’re facing more scrutiny, if not outright opposition, in the Senate. And it’s not just coming from Democrats. Sen. Charlie Dean, R-Inverness and chairman of Senate Committee on Environmental Preservation and Conservation, voted against the Senate bill earlier in the session. Sen. Anitere Flores, R-Miami, recently tweeted “fracking isn’t the way. #BanFracking #FrackIsWhack.”  Sen. Tom Lee, the powerful chairman of Senate Appropriations, told reporters he has questions about how fracking would work in Florida given its unique limestone geology. He also expressed concern over a provision in the bill that would override local government control of fracking.  Lee complained the Florida Department of Environmental Protection was “nowhere to be seen” when the Senate bill, sponsored by Sen. Garrett Richter, R-Naples, came up earlier in the session. Lee supported the bill at the time, with reservations, he said. But he vowed his committee will not hear the bill until DEP appears before it to provide on-the-record testimony. “I think that’s the appropriate way for this institution to be backed up,” he said Wednesday. “And we want credible, scientific responses to questions, not special interest responses. But I suspect that we will ultimately agenda the bill here in committee and we’ll hear it."

$30 oil? Texas says bring it on -  Some parts of the Eagle Ford and Permian Basin are profitable with oil below $30 a barrel, according to analysis by Bloomberg Intelligence. Wells in DeWitt County can be profitable with benchmark crude at a price as low as $22.52, which is $4 below its lowest price this year. Crude oil settled at $26.55 on Jan. 20, its weakest price since May 2003. The reports show seven Texas counties that can break even with oil at or below $30 per barrel: Martin, Midland, Howard, Reeves, Loving, Ward and DeWitt. Wells that have already been drilled, but not yet hydraulically fractured, can be profitable at even lower prices. Hydraulic fracturing, or fracking, is the last step before production begins. In Reeves County, fracking an already-drilled well can be profitable with oil prices hovering near $14 a barrel. But not all producers can weather the storm. According to the report, drillers in Dimmit County need $58 oil to break even. On Monday, West Texas Intermediate crude oil traded at $29.87. Since the price of oil began falling in June 2014, oil producers have cut costs any way they can to keep business afloat. Two-thirds of all drilling rigs in the country have been idled. Thousands of oilfield workers have been laid off, and companies continue experimenting with new techniques to boost output and keep wells competitive. Even with low prices, crude output remains high. Oil companies produced 9,214,000 barrels of oil in the week ending Jan. 29. That’s the highest level of output since 1971 and just 5 percent below last year’s peak, according to the Energy Information Administration.

Many chemicals used in Texas fracking remain a mystery - For the past five years, biochemist Zac Hildenbrand has investigated potential links between unconventional drilling and water quality, collecting thousands of samples throughout the major shale plays in Texas. Some of the results, he said, are worrisome. As part of a collaboration with researchers at the University of Texas at Arlington, Hildenbrand has identified water wells with high levels of chlorinated solvents, alcohols and compounds commonly found in petroleum products.Hildenbrand also has come across more “exotic” molecules in his research, he said. But his efforts to identify some of them have been hampered by what critics describe as a “loophole” in a state law requiring companies to publicly disclose the ingredients in their hydraulic fracturing fluid. The Texas law allows companies to withhold specific chemicals by labeling them as proprietary. Operators in Texas have invoked the exemption to shield, at least partly, the identities of more than 170,000 ingredients from when the law took effect in February 2012 through April, an analysis of the disclosure records shows. Hydraulic fracturing involves injecting a cocktail of fluid, typically about 99 percent water, down a wellbore and into tight rock formations to help release oil and gas. The practice has revolutionized the American energy industry, but some environmentalists and public health officials have expressed concern about potential public exposure.A provision in Texas law requires the disclosure of chemicals listed as trade secrets to emergency personnel, but not to toxicologists or academics. That has left researchers like Hildenbrand frustrated with FracFocus, the Internet clearinghouse used by Texas and at least 20 other states for public disclosure of ingredients in fracking fluid. “More often than not, the information is either labeled as a ‘trade secret’ or ‘proprietary,’ ” he told the Houston Chronicle ( ). The law leaves researchers like Hildenbrand powerless to challenge exemptions.

Arlington Gaswells SPEW Ave 14 lbs of Benzene per DAY city-wide! - If someone told you “sign here to be exposed to 5,000 pounds of Benzene per year city-wide (not including the 10-20 years worth of truck traffic emissions nor the two compressor stations emissions, nor the other town’s fracking emissions blowing to us)” would you have signed? Averaging a quarter pound of Benzene per day per padsite times 55 padsites here in Arlington gasland Texas is 14 lbs day/city-wide. Note like radionuclides, there is no “safe” amount of exposure to Benzene…. and granted we drive stinky Benzene spewing cars and trucks…did we really need to industrialize our neighborhoods with gas mining production sites? These BenZene emission estimates whiling including compressor engine blowdowns (planned MSS maintenance), they do NOT include new activity (like workovers or new wells being added which fall under the NSPS quad o rules) and they do not include the Truck Fracking Traffic emissions daily coming and going from these sites to take away that toxic produced (flashing water) liquids to injection wells (that can later frack up our property & drinking water with frackquakes) …we didn’t sign up for that ya’ll!

EIA revises Oklahoma oil production up 100,000 barrels a day - Fuel Fix: – The U.S. Energy Information Administration has found a “significant discrepancy” between the oil-production data provided by the state of Oklahoma and the results of its new approach to gauging production, surveys of the state’s biggest oil producers. The EIA said Friday it has revised its estimate of Oklahoma oil production up by 100,000 barrels a day after an in-depth review of how it collects data from drillers in the state and the state data it previously relied on to estimate production. That has increased the EIA’s estimate of Oklahoma’s oil production by a quarter to about 400,000 barrels a day. It’s not an insignificant amount of crude given the belief that sinking U.S. shale oil production could be the key this year to realigning global oil demand and the oversupply. Domestic output has already proven more resilient than investors expected. U.S. crude production has fallen less than 5 percent as the nation’s rig count has plunged about 70 percent since the downturn began, according to data compiled by the Federal Reserve Bank of Dallas on Friday. The Organization of Petroleum Exporting Countries recently said it believes crude production outside its 13-member cartel will decline by 700,000 barrels a day, led by a drop in U.S. production, while the International Energy Agency says the decline will be closer to 600,000 barrels a day. The EIA, which had relied on state data for years, now surveys the top oil producers in 15 major energy states. “After review of these data and discussions with other operators, purchasers, Oklahoma state officials, and commercial data vendors,” the EIA decided its new method was more accurate, it said.

Even President Obama is freaking out about these fracking earthquakes - President Obama signed an executive order last week that has gone largely unnoticed by the mainstream media. The order amended the Earthquake Hazards Reduction Act of 1977 which was originally intended “to reduce the risks of life and property from future earthquakes” in all 50 states. This was before hydraulic fracturing or “fracking” became a common practice for oil and natural gas drilling. Since fracking has become more popular, earthquakes have increased from single digits in the early 2000s to 584 quakes in 2015 alone. Cushing, Oklahoma might be home to fewer than 10,000 people but it has an exponentially higher quantity of gallons of oil. The only place in the United States that has a larger supply of oil is the U.S. Strategic Petroleum Reserve. The massive tanks are so large that some can fit a Boeing 747 inside of them. The city has so much oil that it “props up the $179 billion in West Texas Intermediate futures and options contracts traded on the New York Mercantile Exchange,” according to a Bloomberg Business report. While the area has always been a potential threat for terrorism, as any federal facility, the oil tanks in Cushing face another major threat: earthquakes. While the earthquakes in Oklahoma rarely spike above 5.0 on the Richter scale, the frequency and increase in severity could lead to instability in the structures that store and help transport oil. That presents an entirely new threat to these federal facilities. President Obama’s executive order gives these federal buildings “owned, leased, financed, or regulated by the Federal Government” 90 days to comply with heightened structural requirements. The order acknowledges minimum standards that are already in place, but seems to believe they aren’t sufficient.

Minimizing the risk of bankruptcy with efficient oilfield water management - For many years the industry has discussed the importance of the Energy-Water Nexus. This term highlights the interconnection and critical nature of water in energy production and conversely the requirement of energy for water production. Professionals in the upstream energy sector live and work within this Nexus on a daily basis. Water is both the largest input and output within oil and gas operations, and therefore optimization of water management has one of the biggest potential impacts on fiscal performance. According to Xylem, a global water technology company, “…for an industry focused on improving margins, solving water challenges may be the best opportunity to reduce costs [and] improve profitability…” A recent review of 59 North American-focused Independent E&Ps by Oil Pro highlighted the massive $200 billion debt that the industry has accrued in pursuit of tight-oil and shale-gas resources over the past 10 years. In recent months, oil prices have dropped to historically low values, creating a significant financial burden on many operators. Some operators have cut capital budgets, high-graded assets and pushed for efficiencies throughout all components of their supply chain. Others have not – and as many as 38 E&Ps have subsequently filed for Chapter 11 bankruptcy protection. As water often accounts for as much as 80 percent of a producer’s operating cost, the continued evolution of more efficient water management practices is critical to surviving this economic downturn.

California Farmers Irrigate Crops With Chevron’s Oil Wastewater in Drought-Stricken Central Valley - A new documentary web series, Spotlight California, wants to show viewers the California you don’t see on postcards.  The five-part series, hosted by actress and comedian Kiran Deol, is investigating the impact of drought, water and air pollution, and gas price gouging in California. The goal is to “raise awareness of these issues, give voice to the Californians being directly impacted and create an opportunity for people to join together and to take positive actions in communities across the state,” explained NextGen Climate, which is funding the project.“With this project, I want to shed some light on the powerful players who have tilted the economic tables in their favor, profiting at the expense of our families,” Tom Steyer, president of NextGen Climate, said. “But I also want to highlight stories from people working hard to balance the scales; folks who maintain a positive attitude during tough times, while making a big difference.”The first episode, which aired Jan. 26, took viewers into the heart of the drought, where half the residents of the low-income community of East Porterville in the Central Valley struggle to find fresh water.  Watch here: The second episode, which aired last week, highlighted another aspect of the drought. It shows how farmers are using treated oil wastewater to irrigate their crops, despite the fact that nobody has tested the wastewater to see if it’s safe.

Confirmed: California Aquifers Contaminated With Billions Of Gallons of Fracking Wastewater - The problems with California's underground injection control program are far worse than originally reported. It has now been revealed that California regulators with DOGGR permitted hundreds of wastewater injection wells and thousands more wells injecting fluids for “enhanced oil recovery” into aquifers protected under the federal Safe Drinking Water Act. Original post: After California state regulators shut down 11 fracking wastewater injection wells last July over concerns that the wastewater might have contaminated aquifers used for drinking water and farm irrigation, the EPA ordered a report within 60 days. It was revealed yesterday that the California State Water Resources Board has sent a letter to the EPA confirming that at least nine of those sites were in fact dumping wastewater contaminated with fracking fluids and other pollutants into aquifers protected by state law and the federal Safe Drinking Water Act.  The letter, a copy of which was obtained by the Center for Biological Diversity, reveals that nearly 3 billion gallons of wastewater were illegally injected into central California aquifers and that half of the water samples collected at the 8 water supply wells tested near the injection sites have high levels of dangerous chemicals such as arsenic, a known carcinogen that can also weaken the human immune system, and thallium, a toxin used in rat poison. Timothy Krantz, a professor of environmental studies at the University of Redlands, says these chemicals could pose a serious risk to public health: “The fact that high concentrations are showing up in multiple water wells close to wastewater injection sites raises major concerns about the health and safety of nearby residents.”

Oil Drillers Exposed in Three-Way Hedges as Crude Dips Below $30  -  Rigzone -- Oil at $30 a barrel is blowing a hole in the insurance that U.S. shale drillers bought to protect themselves against a crash. Companies including Marathon Oil Corp., Noble Energy Inc., Callon Petroleum Inc., Pioneer Natural Resources Co., Rex Energy Corp. and Bonanza Creek Energy Inc. used a strategy known as a three-way collar that doesn’t guarantee a minimum price if oil falls below a certain level, company records show. While three- ways can be cheaper than other hedges, they leave drillers exposed to sharp declines. "At the time people hedged, they did it without thinking that oil would go to $28," said Thomas Finlon, director of Energy Analytics Group LLC in Jupiter, Florida. "They didn’t have a realistic view about whether the market would crumble or not." The three-way hedges risk worsening a cash shortfall for companies trying to survive the worst oil crash in 30 years. The insurance is all the more important after oil plummeted 43 percent in the past year to $26 a barrel in January, exacerbating the pressure on debt-burdened producers. "In 2015, everyone was given a hall pass and had a little protection from hedges," said Irene Haas, an analyst with Wunderlich Securities. "But as we roll into 2016, the hedges aren’t as attractively priced anymore and the hedges aren’t going to exactly bail you out." The U.S. shale boom was built on high oil prices and low- cost financing, which enabled drillers to spend more than they earned while making up the difference with debt. With oil at a 12-year-low, financing is much harder to come by. Locking in a minimum price for crude reassures investors and lenders that companies will have the cash to pay their debts.

New Mexico officials support proposed methane rules (AP) — A group of local and state elected leaders is supporting a federal proposal that would clamp down on oil and gas companies that burn off natural gas on public land. The 40 elected officials sent a letter Friday to the head of the Bureau of Land Management. They say New Mexico is among the states with an economy tied closely to the taxes, royalties and other fees earned from oil and gas development and the proposed rules would allow local governments to recoup what would otherwise be lost revenue. They also say the rules would help reduce methane emissions and pointed to a methane hot spot identified over the Four Corners region. Those who signed the letter include 19 Democratic state lawmakers, county commissioners and mayors from around New Mexico.

17 House Democrats Introduce ‘Keep It In the Ground Act’ to Prohibit New Fossil Fuel Extraction on Public Lands  - Congressman Jared Huffman (D-San Rafael) and 16 other members of Congress introduced today the Keep it in the Ground Act. If passed, the bill would reduce carbon emissions by permanently barring new fossil fuel leases on all federal public lands and in federal waters. “Our nation’s capacity to transition towards clean  energy sources is expanding at a record pace,” said Rep. Huffman. “However, there is still much to be done to break our unhealthy dependence on fossil fuels. Our oceans and our public lands—including the fossil fuel deposits beneath them—belong to the American people, not to the oil and gas industry, and it’s time that the law reflects that fact.” Specifically, this legislation would:

  • Stop new leases and end nonproducing leases for coal, oil, gas, oil shale and tar sands on all federal lands.
  • Stop new leases and end nonproducing leases for offshore drilling in the Pacific and Gulf of Mexico.
  • Prohibit offshore drilling in the Arctic and the Atlantic.

“Anyone who does the math of climate change knows we need to keep most fossil fuel underground,” co-founder of Bill McKibben said. “Public lands—as multiple presidential candidates have pointed out—are the logical place to start, and this is even more obvious in the wake of the Supreme Court stay on the president’s Clean Power Plan. In a record hot world, let’s hope Congress acts on this at record speed; we will do all we can to make it happen.”

Company slows work on controversial Utah tar sands project  — Environmentalists are celebrating after the Canadian company behind a controversial tar sands development in eastern Utah announced it is scaling back work on its project. Calgary-based U.S. Oil Sands Inc. announced plans Thursday to cut back on construction on its PR Spring project, which is located in the Book Cliffs about 170 miles from Salt Lake City and is 85 percent complete. The company said low oil prices forced two of its major contractors to shutter operations in Utah, and said it didn’t have all the financing it needed. “The oil industry is facing one of the most challenging environments it’s ever seen and it is prudent for us to adjust our construction plan accordingly,” said US Oil Sands CEO Cameron Todd, adding that the cutback would be designed so it can restart quickly when conditions improve. “The company’s actions today help ensure US Oil Sands will be a future industry leader.” While companies extract petroleum from sand in Canada and Venezuela, the $60 million Utah project would be the first commercial effort of its kind in America. U.S. Oil Sands says it uses natural citrus extract to safely process the sand, but opponents say it will contaminate water and destroy wildlife habitat. Conservation groups have challenged the permits authorizing the project and have been arrested for chaining themselves to equipment in an effort to thwart construction. But the biggest obstacle appears to be crude oil prices that have tumbled to about $31 a barrel, down from a peak of $147 a barrel in 2008.

Wyoming regulators approve tougher well flaring rules (AP) — Wyoming oil and gas regulators approved new rules Tuesday to limit how much and for how long natural gas petroleum developers may vent or burn off gas from newly drilled wells. Companies would need approval to vent or flare longer than six months under the rules approved by the Wyoming Oil and Gas Conservation Commission in Casper. Lower volumes of gas could be vented, or released without burning. Higher volumes would need to be burned off for safety and to limit air pollution. Gas vented or flared from a well couldn’t exceed 45 million cubic feet, or 600 times more gas than an average U.S. household uses in a year, without commission approval. The commission made up of the governor, state lands director, state geologist and two others oversees a state oil and gas regulatory agency also known as the state oil and gas commission. Petroleum developers routinely vent or flare gas before they install pipelines that can move the gas to market. The practice was much more common in eastern Wyoming before last year’s oil bust, which has only deepened amid low oil prices.

Keystone XL May Be Dead, But Oil Companies Are Still Trying To Seize Americans’ Land For Pipelines --  The thought of a massive pipeline moving crude oil some 60 inches underneath his farmland troubles Richard Lamb.  That’s why Lamb said he’s declining an offer of about $175,000 from Dakota Access, a subsidiary of Dallas-based Energy Transfer Partners, to gain access to a strip of his land. As it first announced in 2014, the company wants to build a pipeline that would transport oil from North Dakota’s oil-rich Bakken Formation, to a market hub located near Patoka, Illinois. The project, commonly called the Bakken Pipeline, would cross four states and 50 counties, cutting the Midwest with an almost straight diagonal line. Most of the affected land is farmland, but the project does run through wildlife areas and major waterways like the Mississippi, and the Missouri, the longest river in North America.  But before Dakota Access can build it needs the approval of various state and federal agencies, including the Army Corps of Engineers. The U.S. Fish and Wildlife Service is involved, too, and it’s now working on an environmental assessment of the project. A draft report so far says the Bakken Pipeline avoids “critical habitat.” Meanwhile, the company has sought to buy out landowners along the pipeline’s path. It is widely known that the company has been largely successful in this endeavor, yet in Iowa, as well as in other states, some property owners have pushed back.  Knowing this could happen, the company early on requested the use of eminent domain, arguing that the project will benefit the public in myriad ways. This isn’t unprecedented. Other major projects like the Keystone XL, which President Obama rejected, followed similar measures that put landowners in a tough situation: take the money and hope for the best on the risks, or challenge the industry and potentially the state.

Iowa meets for 4th day on Bakken crude pipeline permit — Iowa utilities regulators are meeting for the fourth day to consider whether to allow a Texas company to bury 346 miles of crude oil pipe under Iowa farmland and whether to give the company authority to force unwilling landowners to sign easements using eminent domain laws. The three-member Iowa Utilities Board is considering a hazardous pipeline permit for Texas-based Dakota Access to build the so-called Bakken pipeline. The 2½-foot diameter pipe would carry a half-million barrels of oil per day from North Dakota across South Dakota and Iowa into Illinois. Environmental and property rights groups oppose it. Owners of 296 land parcels refusing to sign easements could sue to challenge the use of eminent domain. Pipeline advocates say it’s the safest way to transport oil, and it will create jobs.

Eminent domain possible issue in pipeline's passage in Iowa (AP) — Iowa utilities regulators are considering whether to allow a Texas company to bury 346 miles of a crude oil pipeline under farmland and give it authority to use eminent domain to force unwilling landowners to sign easements. Iowa is the only state yet to approve the permit for the $3.78 billion Bakken pipeline, which will carry about a half-million barrels of oil per day from North Dakota to Illinois, crossing through Iowa and South Dakota. The pipeline, to be built by Dakota Access, would stretch diagonally across 1,300 parcels of land and 18 counties in Iowa at a cost of $1 billion. Thursday was the fourth day of meetings for the three-member Iowa Utilities Board, and it has set additional meetings for next week and into March. Environmental and property rights groups have spoken out against the pipeline, coordinating most of the 3,700 letters to the board opposing the project. Among the concerns are that pipeline leaks could harm farmland and waterways, hurt land values, disrupt land productivity and damage timber areas. Dakota Access also wants to use eminent domain for 296 parcels, but a 2006 Iowa law prohibits agricultural land from being taken by eminent domain for private projects or private development, which raises legal questions about whether Dakota Access — owned by Phillips 66 and Energy Transfer Partners, both publicly traded companies based in Texas — can force landowners to sign easements. If the pipeline is approved by the utilities board, it’ll certainly lead to lawsuits, said Wallace Taylor, a Cedar Rapids attorney who represents the Sierra Club, an environmental group that opposes the project.

Iowa board struggles with pipeline decision: The Iowa Utilities Board concluded its fourth day of deliberations Thursday without reaching a decision on a request for a state permit to construct the Bakken pipeline, which would transport North Dakota crude oil through 18 Iowa counties en route to an Illinois distribution hub. Chairwoman Geri Huser said deliberations will resume Feb. 19, and the board has reserved March 9 and March 10 for additional meetings if necessary. The three-member state panel appeared to struggle at times this week as it weighed evidence in what a board lawyer described as a first-time regulatory case. Dakota Access LLC, a unit of Dallas-based Energy Transfer Partners, is seeking permission to construct a 30-inch diameter oil pipeline stretching 346 miles across Iowa. The company also wants eminent domain authority to take 296 parcels of land from private property owners, mostly Iowa farmers, in exchange for fair market compensation. The board members debated issues Thursday ranging from global climate change to whether they should consider the pros and cons of the pipeline in states outside of Iowa. They also examined specific parcels of land along the proposed route where property owners have refused to voluntarily grant easements to Dakota Access.Another topic focused on the pipeline's potential contribution to U.S. energy security.

BP: US Shale Oil Output To Double By 2035  (Reuters) - U.S. shale oil production will double over the next 20 years as drillers that became more efficient amid a slump in oil prices unlock new resources, British energy giant BP said on Wednesday. In its industry benchmark 2035 Energy Outlook, BP forecast global demand for energy to increase by 34 percent, driven by growth in the world population and economy, with the share of oil declining in favour of gas and renewables. U.S. shale or tight oil production using fracking technology was a key driver behind global supply growth in recent years. The sector, with relatively expensive production costs, has nevertheless been hard hit by a 70 percent decline in oil prices over the past 18 months to around $30 a barrel. But in the longer term, shale production is set to grow from around 4 million barrels per day (bpd) today to 8 million bpd in the 2030s, accounting for almost 40 percent of U.S. production, according to the report. "We see U.S. tight oil falling over the coming years but thereafter tight oil picks up," BP Chief Economist Spencer Dale said. U.S. onshore production in the lower 48 states has declined by around 500,000 bpd since last spring and is expected to fall further in the near term as the global market readjusts before rebounding, Dale said. According to the report, "technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for U.S. production successively higher".

TransCanada takes 4Q hit after Obama blocks Keystone XL — Energy company TransCanada Corp. says it lost US$1.79 billion (CA$2.5 billion) in the fourth quarter, mostly because of its stalled Keystone XL pipeline proposal. The Calgary-based company reported Thursday that it took a US$2.08 billion (CA$2.9 billion) non-cash charge related to Keystone XL, which President Barack Obama blocked late last year. The loss amounted to US$2.48 (CA$3.47) per share for the quarter. TransCanada has launched a challenge to the U.S. government’s rejection of Keystone XL. The company says it intends to file a claim under Chapter 11 of the North American Free Trade Agreement in response to the decision, which it called arbitrary.

Refined Product Pipelines Secure U.S. Supplies As Mexican Refinery Upgrades Begin -- Mexican production of gasoline, diesel and jet fuel continues to fall and Mexico’s imports of these refined petroleum products from the U.S. are rising fast to keep pace with increasing demand. Longer term upgrade projects to increase Mexican refinery transport fuel are finally underway. But before refinery upgrades make a dent in imports, two ambitious refined-products pipeline/terminals projects will make it easier and more efficient to move large volumes of gasoline, diesel and jet fuel from Texas refineries into Mexico.  Today, we update our coverage of fast-moving developments in Mexico-U.S. hydrocarbon trading.   In the past few months we’ve talked a lot about Mexico’s energy sector, particularly it’s evolving relationship with the U.S. regarding oil, natural gas, natural gas liquids (NGLs) and refined petroleum products. In several blogs—including The Gas All Went to Mexico and As We Send Gas Through the Streets of Laredo—we discussed Mexico’s growing dependence on U.S.-sourced natural gas, which is fueling more and more of the country’s power plants and industries. We also considered all the gas pipelines being built to move that gas south. In our Enciende Mi Fuego (Light My Fire) series, we described Mexico’s need for increasing amounts of liquefied petroleum gas (LPG, e.g., propane/butane) from the U.S., and again we looked at the pipelines being installed to move LPG to Mexican consumers. And then, in our With a Little Help From My Friends series and Drill Down report, we looked at the big picture, namely the growing energy interdependence of Mexico and U.S. in everything from oil to natural gas and NGLs.  In the past few weeks though, three significant developments have occurred, giving us an opportunity to revisit the topic.

Fighting Fracking in Brazil: Images From an Ongoing Struggle - Last December, the anti-fracking movement celebrated an important victory in Brazil. A federal judge in the city of Cruzeiro do Sul, State of Acre, ordered the suspension and cancellation of all oil and gas exploration activities, including fracking, in Juruá Valley, a region recognized as the most important stronghold of the last uncontacted indigenous peoples in the planet. The following photo series was made during a visit activists from the Não Fracking Brasil campaign made to the Juruá Valley in 2015 to share with indigenous and non-indigenous people the risks that fracking represents to their traditional way of life and the environment they rely on to thrive. The judge’s decision concludes the Public Civil Action initiated last October against the Brazilian Federal Government, IBAMA (Brazilian Institute of Environment), ANP (National Petroleum and Gas Agency) and PETROBRAS, one of many legal battles brought about by the efforts of the Não Fracking Brasil Campaign. This ruling also clears all the projects already implemented and in operation, ensuring the preservation of the environment and security of indigenous peoples and the region’s population.

Friends of the Earth defends its record on lobbying against fracking - Friends of the Earth (FoE) has defended its record on lobbying against shale gas fracking, after accusations from one of the companies involved in drilling that it had acted contrary to its charitable status. The green campaigning organisation sent out a press release last December, applauding the Labour party’s decision to call for a moratorium on fracking, which was posted automatically through its systems to its website. Subsequently, the organisation said, this was discovered to be a mistake. The press release was understood as coming from the charitable arm of FoE, whose ability to lobby on political issues is restricted by government rules, rather than the separate arm, a limited company, which is permitted to do so. Friends of the Earth said it had amended the misattribution after being alerted by the Charity Commission. The Times newspaper on Tuesday quoted the chief executive of the fracking company Cuadrilla, Francis Egan, claiming that FoE had “misled” the Charity Commission. “We have long been concerned about the myth-peddling and scaremongering by Friends of the Earth on shale gas and fracking. Now we discover they have misled their own regulator,” he was reported as saying. Mike Childs, head of policy at FoE, said: “These repeated attempts to silence and discredit those opposed to fracking is a ploy to distract from the well-documented risks of fracking to our beautiful countryside, to the health of local people and to our climate.”

84 per cent fear fracking - AN overwhelming majority of voters in Darwin hold concerns about the risk of fracking on water supplies and pastoral stations, according to a new ReachTel poll obtained by the NT News. It also showed nearly 70 per cent of respondents support a ban on fracking in the NT while more research is done. The poll of 634 respondents across Darwin shows 83 per cent of respondents were ­either “very concerned” or “somewhat concerned” about the effect of fracking on the Territory’s water resources. Lock the Gate Northern Territory, who commissioned the poll ahead of a crucial debate at the Labor Territory conference, said yesterday the results show it the issue will become a major campaign matter in the lead up to this year’s Territory election. “The poll delivers a clear message for all candidates hoping to win a seat this ­August: ban gas fracking in the Territory,” said Naomi Hogan. “There is an avalanche of concern about risks to water supplies and pastoral stations if gas fracking goes ahead.”

Anadarko Slashes Dividend By Over 80% -- Just days after ConocoPhilips became the first major to slash its dividend, moments ago Anadarco followed suit and announced, just one week after it reported earnings that, it too would virtually halt distribution to shareholders, when it said that it would cut its dividend - the first such action in decades - from 27 cents to just 5 cents per share, an 81% cut, and far above the more modest expected reduction of 14 cents. The Board of Directors of Anadarko Petroleum Corporation (APC) today declared a quarterly cash dividend on the company's common stock of 5 cents per share, payable March 23, 2016, to stockholders of record at the close of business on March 9, 2016. The quarterly dividend represents a 22-cent reduction from the prior level of 27 cents per share. "We believe this adjustment to our dividend is the appropriate action to take in the current environment," said Al Walker, Anadarko Chairman, President and CEO. "On an annualized basis, this action provides approximately $450 million of additional cash available to enhance our operations and financial flexibility. Our Board will continue to evaluate the appropriate dividend on a quarterly basis." Expect most other energy companies to follow suit, citing the "current environment" as the reason for halting distributions to shareholders.

Obama's $319 Billion Oil Tax Plan Raised to $10.25 a Barrel  |  Rigzone-- President Barack Obama proposed Tuesday to raise $319 billion over the next decade for transportation and other needs with a $10.25-per-barrel tax on crude - up from $10 that was announced last week. The higher amount, along with other details, were released Tuesday as part of the president’s $4.1 trillion budget request to Congress, including a proposed increase in the oil tax that Republicans swiftly rejected. While major questions still remain unanswered, including how and when the fee would be charged, the White House envisions collecting the tax from an estimated 4 billion barrels of domestic and imported oil in 2022, once it is fully phased in. The money would be steered to a "21st Century Clean Transportation Plan to upgrade the nation’s transportation system, improve resilience and reduce emissions," according to budget documents released Tuesday. Exported petroleum products would not be subject to the fee, and home heating oil would be temporarily exempted. After a five-year phase in, the fee would apply to all petroleum produced or imported beginning Oct. 1, 2021. The White House Office of Management and Budget did not explain the higher fee or share details on the modeling and assumptions it used to estimate money it would raise - as much as $319 billion from fiscal 2017 to fiscal 2026. But the $41 billion estimated to come in during fiscal 2022 would reflect about 10.9 million barrels per day of oil.

Is Oil Becoming Stranded?    – The conventional wisdom regarding the recent plunge in the price of oil is that we are seeing a repeat of the 1985-1986 collapse, when Saudi Arabia ramped up production as part of a dispute with other members of the OPEC cartel. This time, the thinking goes, Saudi Arabia is doing the same in response to its loss of market share to shale-oil production in the United States. But there is another parallel that is even more relevant – with important implications for the long-term price of oil. The recent collapse is reminiscent of a similar dive in the price of coal – which crashed from a brief high of $140 a ton in 2008 to about $40 a ton today – which led some deposits to become “financially stranded,” meaning that the cost of developing them outweighs potential returns.  The drop was the result of long-term environmental policies, including programs aimed at mitigating climate change, which undercut demand for coal. Efforts to improve air quality in China, US carbon and mercury emissions standards, cheaper natural gas, and growing investments in renewable energy have all eroded coal’s share of the energy market. A similar mechanism may be at work in the oil market. As pressure grows on governments to take action to combat climate change, demand for fossil fuels is likely to drop, which could result in prices remaining depressed for longer than the industry anticipates – perhaps forever.

U.S. running out of space to store oil - The U.S. now has nearly 503 million barrels of commercial crude oil stockpiled, the Energy Information Administration said on Wednesday. It's the highest level of supply for this time of the year in at least 80 years.  The sky-high inventories are the latest sign that the U.S. oil boom is still alive and kicking. U.S. oil production is near all-time highs despite the epic crash in oil prices from $107 a barrel in June 2014 to just $30 a barrel now. Sure, domestic oil production has slowed -- but just barely. Oil stockpiles are so high that certain key storage locations are now "bumping up against storage and logistical constraints," according to Goldman Sachs analysts. In other words, these facilities are nearly overflowing. Cushing, Oklahoma is the delivery point for most of the oil produced in the U.S. This key trading hub is currently swelling with 64 million barrels of oil. That represents a near-record 87% of the facility's total storage capacity as of November, according to the EIA. "There is a fear of tank topping in Cushing. We're seeing it get to its brims," said Matthew Smith, director of commodity research at ClipperData. Cushing has had to ramp up its storage capabilities in recent years just to deal with all this oil. If this key hub ran out of room to stockpile oil, that crude would have to be diverted elsewhere -- and that would hurt oil prices. "There would be a ripple effect across the U.S. that would impact prices everywhere,"

How Full Is Cushing Crude Oil Storage Capacity, Really? - The Mid-Continent trading and storage hub at Cushing, OK is the nation’s largest commercial crude tank farm – with an estimated 73 MMBbl of working storage capacity according to the Energy Information Administration (EIA). The latest weekly EIA Petroleum Supply report (January 29, 2016) indicated inventory levels at Cushing just over 64 million barrels – 24 thousand barrels below the all-time high set two weeks previously. That is only 88% of working capacity by some calculations that indicate there is still room in the tanks for more crude. Yet market sources report that some storage operators are turning away incoming barrels. Today we examine what may be happening. {...} So with less heavier Permian crude available at Cushing to help blend the rising volumes of light shale crudes from the Rockies, the Williston Basin and shale production in Oklahoma and Kansas – many storage operators may be turning prospective customers away. Not because they don’t have available capacity but because they don’t have enough heavier crude to make WTI lookalike blends with incoming light shale grades. The long-term consequences of this blending congestion at Cushing are unclear. Even if commercial storage at Cushing is not actually full the congestion issue is making it look that way. With the crude market still in contango there is an incentive to store crude today and sell it for higher prices later. If Cushing storage is not available then the contango should increase – meaning today’s spot prices could be squeezed lower to pay for more expensive alternative options. None of which is good news for long suffering producers.

Excess Oil Supplies Lead to Rising Crude Oil Storage Capacities - Record supplies in the global market lead to the need for more storage because of the normal demand. We covered how lower oil prices influence the gasoline market in the last part of the series. Lower demand for refined products leads to a fall in the refinery demand. So, it leads to a fall in the crude oil demand. It also leads to a rise in the crude oil inventory due to rising US production despite lower oil prices. As production rises and demand is normal or less, oil markets need large oil storage hubs or increased storage hub capacity. Cushing, Oklahoma, is the largest crude oil storage hub in the US. It’s also the futures delivery point for NYMEX-traded crude oil futures contracts. Cushing contains 13% of the total US crude oil inventory capacity. The US Gulf Coast region contains 55% of the US storage capacity. The long-term oil oversupply and record production from the US led to the rise in Cushing and Gulf Coast’s storage capacities by 56 MMbbls (million barrels) and 25 MMbbls, respectively, since 2011. The current US crude oil inventory is at record levels.

BP's Stunning Warning: "Every Oil Storage Tank Will Be Full In A Few Months" -- It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut. “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.  Finally, we went on to present two alarm bells that offer the best evidence yet that inventories are reaching nosebleed levels: 1) some counterparties are experiencing delays in delivering crude due to unspecified "terminalling and pump" issues (basically, it’s hard to move barrels around at this point because there’s so much oil sitting in storage); 2) the cash roll is negative. On Wednesday, BP CEO Robert Dudley - who earlier this month reported the worst annual loss in company history - is out warning that storage tanks will be completely full by the end of H1. "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.” Maybe. Or maybe excess supply will simply be dumped on the market once all the "swimming pools" are full. If that happens, don't be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market. Earlier this week, the IEA called any respite for crude prices "a false dawn." Here's why (via The Guardian):

  • a deal between Opec and other oil producing countries to cut production is unlikely
  • with Iran increasing production in preparation for the lifting of sanctions, Opec’s production could rise as strongly this year as in 2015
  • there is little prospect falling prices encouraging a pick-up in the rate of demand for oil
  • the US dollar is likely to remain strong, limiting the scope for falls in the cost of imported oil
  • the predicted large fall in US shale production is taking a long time to materialise

Whatever Happened to Peak Oil? - John Michael Greer - To understand what happened instead, it’s necessary to keep two things in mind that were usually forgotten back when the peak oil scene was at white heat, and still generally get forgotten today. The first is that while the supply of petroleum is ultimately controlled by geology, the demand for it is very powerfully influenced by market forces. Until 2004, petroleum production worldwide had been rising steadily for decades as new wells were brought on line fast enough to more than offset the depletion of existing fields. In that year, depletion began to catch up with drilling, and the price of oil began to rise steadily, and two things happened as a result.   The first of these was a massive flow of investment money into anything that could make a profit off higher oil prices. That included a great many boondoggles and quite a bit of outright fraud, but it also meant that plenty of oil wells that couldn’t make a profit when oil was $15 a barrel suddenly looked like paying propositions when the price rose to $55 a barrel. The lag time necessary to bring oil from new fields onto the market meant that the price of oil kept rising for a while, luring more investment money into the oil industry and generating a surge in future supply.   The problem was that the same spike in oil prices that brought all that new investment into the industry also had a potent impact on the consumption side of the equation. That impact was demand destruction, which can be neatly defined as the process by which those who can’t afford something stop buying it. Demand destruction also has a lag time—when the price of oil goes up, it takes a while for people to decide that higher prices are here to stay and change their lifestyles accordingly The result was a classic demonstration of one of the ways that the “invisible hand” of the market is a good deal less benevolent than devout economists like to pretend. Take the same economic stimulus—the rising price of oil—and factor in lag times on its effects on both production and consumption, and you get a surge in new supply landing right about the time that demand starts dropping like a rock. That’s what happened in 2009, when the price of oil plunged from around $140 a barrel to around $30 a barrel in a matter of months. That’s also what happened in 2015, when prices lurched down by comparable figures for the same reason: surging supply and plunging demand hitting the oil market at the same time, after a long period when everyone assumed that the sky was the limit.

Oil supply seen outpacing demand, capping price (AP) — The International Energy Agency says oil supply is set to outpace demand this year, keeping a lid on any expected price increases. The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 2 million barrels per day during the first quarter, and a further 1.5 million barrels a day in the second quarter. Further stock-building of 300,000 barrels a day is forecast in the second half of the year. The IEA said “if these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term.” After heavy losses Monday, the U.S. benchmark for crude was up 61 cents at $30.30 a barrel.

IEA Warns Oil Prices Could Fall Further as Oversupply Worsens - WSJ: Crude-oil prices could fall even further as the world’s vast oversupply of petroleum is only getting worse with a surge in production from OPEC, according to some of the world’s top oil-market observers. The past month featured the return of Iranian oil after European sanctions were lifted and the failure of the Organization of the Petroleum Exporting Countries to agree on production levels. The cartel flooded the market with an additional 280,000 barrels a day last month, said the International Energy Agency, which tracks oil and gas data for industrialized countries. The new oil from OPEC almost offset significant declines in production around the rest of the world in January, the IEA said. Non-OPEC supplies slipped by 0.5 million barrels a day, the IEA said, as lower oil prices forced North American producers to shut down some of their productionCrude prices plunged on Tuesday, with the U.S. benchmark hitting $28.25 a barrel and Brent crude, the international benchmark, falling more than 7% to $30.57. Overall, prices have fallen more than 60% since November 2014, when OPEC first said it wouldn’t pull back its own production in response to a surge in output from the U.S. “It is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its closely watched monthly oil-market report. The IEA’s report was released as a host of oil traders converged on London for a conference this week, where the outlook was bleak. Ian Taylor, the chief executive of the world’s largest oil trader, Vitol Group PLC, told Bloomberg TV Monday that prices would likely never reach $100 a barrel again, staying between $40 and $60.

How Much Global Oil Output Halted Due to Low Prices? Just 0.1% - After a year of low oil prices, only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience. The analysis suggests that oil prices will need to drop even more -- or stay low for a lot longer -- to meaningfully reduce global production. OPEC and major oil companies are betting that low oil prices will drive production down, eventually lifting prices. That’s taking longer than expected, in part due to the resilience of the U.S. shale industry and slumping currencies in oil-rich countries, which have lowered production costs in nations from Russia to Brazil. The Wood Mackenzie analysis provides an estimate for the amount directly impacted by low prices -- to the tune of 100,000 barrels a day since the beginning of 2015 -- rather than output affected as new projects build up and aging fields decline. Canada, the U.S. and the North Sea have been affected the most by closures related to low prices.  “Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report. The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.” For major oil companies, a few months of losses may make more sense than paying to dismantle an offshore platform in the North Sea, or stopping and restarting a tar-sands project in Canada, which may take months and cost millions of dollars. “There are barriers to exit,”

Video: Greenpeace opens fracking site in Parliament Square - Anti-fracking campaigners Greenpeace have installed a ten-metre high mock drilling rig in Parliament Square, in protest at the Government's support for the controversial process. The rig, complete with a 'flare' that fires up every hour, was erected to a public inquiry into Cuadrilla's proposals to frack for shale gas at two sites in Lancashire. .  The plans were thrown out by councillors last summer but Cuadrilla appealed against the decision and Greg Clark, the communities secretary, has said he will intervene to take the final decision on the applications. A Cuadrilla drilling rig in Lancashire (Cuadrilla) Research conducted by Populus for Greenpeace shows that 62 per cent of people think local councils should decide on fracking applications in their area. Interactive: Fracking NEW But ministers have defended intervening in order to speed up the search for shale gas, which they argue is in the national interest. Hannah Martin, a campaigner at Greenpeace, said: "Ministers are pushing aside local democracy to bulldoze through their unpopular fracking plans. We have installed a life-like fracking rig and drill at Parliament Square to show them what people in Lancashire and beyond will have to endure if so-called communities minister Greg Clark forces fracking on a reluctant nation." A rally is also taking place outside Blackpool Football club where the inquiry is being held.

UK North Sea could lose 150 oil platforms within 10 years: Report -  With oil price plummeting, nearly 150 uneconomic oil platforms in the UK North Sea are expected to be scrapped over the next 10 years, according to industry analysts. Of all the decommissioning over the next 25 years, more than half is likely to take place between 2019 and 2026. The estimate, from Douglas-Westwood, takes account of the fall in the price of oil. Crude prices have plunged around 70 per cent over the past 18 months to around $ 35 a barrel. The estimate said this will result in many oil fields in UK waters, including the North Sea, becoming uneconomic. Another consultancy, Wood Mackenzie, reported on Friday that, at recent prices, one in seven barrels of oil being produced in UK waters is at a cash loss. It said the UK is the country third most likely to see oil fields permanently shut down as a result of low prices, the BBC reported. Canada and Venezuela have more production at a cash loss.The estimate for decommissioning 146 offshore platforms in the seven years to 2016 is part of forecast  expenditure of nearly 35 billion pounds over the next 25 years. Wood Mackenzie's report drew on data from 10,000 oil fields around the world. It found that one barrel in every 30 is being produced at a loss - in that production is more expensive than revenue. That rises to one in seven for the UK offshore sector. Wood Mackenzie calculates that some 220,000 barrels per day are produced at a loss, out of around 1.5 million in total. It says the global picture is of a low level of oil field shut-ins, despite the low oil price. Only around 100,000 barrels of oil per day have been lost due to such decisions.

A quarter of North Sea oil platforms 'could be scrapped in 10 years' - Almost 150 oil platforms in UK waters could be scrapped within the next 10 years, according to industry analysts. Douglas Westwood, which carries out market research and consultancy work for the energy industry worldwide, said it anticipated that “146 platforms will be removed from the UK during 2019-2026”, around 25% of the current total. The North Sea has been hit hard by plummeting oil prices, with the industry body Oil and Gas UK estimating 65,000 jobs have been lost in the sector since 2014. But Douglas Westwood said that decommissioning could provide an opportunity for the specialist firms involved in the work. Later this month, it will publish its decommissioning market forecast for the North Sea – covering Denmark, Germany, Norway and the UK – over the period 2016 to 2040. Ahead of that, a paper on its website predicted that the “UK will dominate decommissioning expenditure”. This is due to the “high number of ageing platforms in the UK, which have an average age of over 20 years  and are uneconomic at current commodity prices, as a result of high maintenance costs and the expensive production techniques required for mature fields”.

US oil production to fall 92,000 b/d in March in key plays: EIA - Oil production will fall by 92,000 b/d from February to March in key US onshore plays, the US Energy Information Administration said Monday. The biggest forecast drop will be in the Eagle Ford, where EIA sees supply falling 50,000 b/d to 1.222 million b/d in March from 1.272 million b/d in February. The Bakken, where EIA expects production to fall to 1.1 million in March from 1.125 million b/d in February, and the Niobrara, where production is forecast to fall to 389,000 b/d in March from 404,000 b/d in February, are also expected to see substantial drops. In addition, production in the Permian will climb to 2.04 million b/d in March, just 1,000 b/d more than the play's estimated production this month. Permian supply, which has grown despite declines in other US plays, appears to be nearing its first month-to-month decline since the EIA began tracking drilling productivity in late 2013. The EIA has forecast month-to-month production declines in the Bakken, Eagle Ford and Niobrara since March 2015, but the projected drops appear to be more modest than those forecast by EIA late last year, despite persistent low prices and planned spending cuts by US producers.In November, EIA forecast Eagle Ford production would fall by 78,000 b/d from November to December and in May EIA forecast Bakken production would fall by 31,000 b/d from May to June. The new estimates Monday were included in the EIA's monthly Drilling Productivity Report, which looks at supply in seven onshore regions that have seen the most prolific growth recently. The report does not, for example, look at Gulf of Mexico or Alaska production.

EIA: Record Oil Inventories, Gasoline Prices expected to average $1.98/gal in 2016  -- Oil prices are down today, with Brent at $30.51 per barrel, and WTI at $28.08. Here is an excerpt from the EIA Short-Term Energy Outlook (STEO) released today. Brent crude oil prices are forecast to average $38/b in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in both years. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook. ... The U.S. retail regular gasoline price is forecast to average $1.98/gallon (gal) in 2016 and $2.21/gal in 2017, compared with $2.43/gal in 2015. In January, the average retail regular gasoline price was $1.95/gal, a decrease of 9 cents/gal from December and the first time monthly gasoline prices averaged below $2/gal since March 2009. EIA expects the monthly average retail price of U.S. regular gasoline to reach a seven-year low of $1.82/gal in February 2016, before rising during the spring. ... U.S. crude oil production averaged an estimated 9.4 million b/d in 2015, and it is forecast to average 8.7 million b/d in 2016 and 8.5 million b/d in 2017. EIA estimates that crude oil production in January was 70,000 b/d below the December level, which was 9.2 million b/d.

Vitol sees weak demand, stock limits prolonging oil price pressure - Vitol, the world's biggest independent oil trader, sees further downward pressure on global oil prices this year amid signs of weaker than expected demand for oil and as storage tanks fill to the brim. Due to a relatively muted demand response to the lower oil price last year, Vitol sees oil demand growing by 800,000-1 million b/d this year, down from an "exceptional" 2015 when demand grew by 1.7 million b/d, Vitol executive member Christopher Bake said Tuesday. "Where we all thought that pricing would hasn't and going forward, the effect of lower prices is not totally clear what that is going to do to incremental demand," Bake told an oil conference in London. "I don't think we can rely on low prices driving much incremental demand at this point," Bake said. Vitol's latest estimate is much lower than the International Energy Agency which Tuesday left its key estimated for oil demand growth unchanged from the previous at 1.2 million b/d this year. As a result of weak demand growth, Bake estimated that some 1.8-2 million b/d of surplus supply is likely to come into the world oil market this year. The supply, partly from Iran's post-sanctions return to the market, is set to add additional price pressure as global stocks are nearing record levels, he said. Some 450 million barrels of crude and products are currently being held in commercial stocks, he said, noting that stocks will build by a further 360 million barrels over the next six months unless the demand/supply balance returns. "It's probably a good time to be a vessel owner because primary and secondary storage now is pretty much full," Bake said referring to the likelihood of additional floating storage being sought out by some producers and market participants.

Expecting the unexpected: Why the oil price keeps surprising us | VOXEU -- Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission.

Today, it begins: The reasoning is clear: We know you can’t hold back production to get higher prices later if you have debt to service. Only equity financed production has that luxury. The process is also clear: The highly leveraged producers drown each other with supply in an attempt to be the last man floating, but ultimately all sink. The equity holders get wiped out and the bond holders become the new equity holders in exchange for writing off their debt claims. Sometimes the new equity holders sell their claims to others in the process. Sometimes they hold on. But either way the new owners have made time their friend instead of their enemy. This debt for equity swap is the sine qua non for swing production to begin the long awaited, over forecast pull back in supply. Did you see what just happened to the stock prices of Chesapeake Energy and others producers of its ilk? The process started today. NB: I am not saying buy oil today, that oil will be a moon shot, or that the process will be rapid or clean. In fact, the ability of shale producers with today’s technology to ‘turn the spigots back on’ very quickly should dampen any large upward thrust in the price of crude. ‘L’ is still more likely than ‘V’. But at least it begins the process. And maybe with it we can hope against hope that the correlation between crude oil and other risk assets can begin their process of reverting to their means.

WTI Plunges Back Below $30 After Goldman "Teens" & IEA Excess-Supply Warning -  WTI keeps dead-cat-bouncing thanks to the algos and crashing thanks to reality. This morning's reality check on the overnight ramp comes courtesy of a double-whammy from Goldman ("wouldn't be surprised to see WTI in the teens") and The IEA which increased its estimate of excess-supply drastically. This has dragged WTI back below $30 once again and where oil goes, stocks go...Goldman Sachs Says No Surprise If Oil Price Drops Below $20/Bbl“I wouldn’t be surprised if this market goes into the teens,” Head of Commodities Research Jeff Currie says in interview on Bloomberg TV. “Once you breach storage capacity, prices have to spike below cash costs” And IEA piled on... The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the International Energy Agency. Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand. Oil volatility remains extremely elevated...

Crude Confused After API Reports Across-The-Board Inventory Builds - WTI crude had tanked into the NYMEX close (by the most in 5 months) but managed to get back above $28 before fading into inventory data. Against expectations of a 3.6mm build, API reported a 2.4mm barrel crude build (the 5th weekly build in a row). Even more critically, API reported a 3.1mm Gasoline build (notably above the expected +400k build) and Cushing saw a 2nd weekly build of 715k. WTI ignored it initially but then decided to rally modestly before fading to unch.  Builds across the complex..  The reaction... lower...  Charts: Bloomberg

U.S. crude oil inventories fall unexpectedly as imports slump - EIA: (Reuters) - U.S. crude stockpiles fell unexpectedly last week as imports slumped, while gasoline inventories hit a record high for a second week, data from the Energy Information Administration showed on Wednesday. After two consecutive weeks of record highs, crude inventories fell 754,000 barrels in the week to Feb. 5, compared with analysts' expectations for an increase of 3.6 million barrels. The decline was only the fourth decrease since the end of September. U.S. crude imports fell by 1.1 million barrels per day, the biggest weekly decline since December 2014, to 7.1 million bpd. Crude stocks at Cushing Oklahoma, delivery hub for crude futures, however, rose 523,000 barrels to record 64.7 million barrels, EIA said. "It looks like the unexpected crude draw was due to lower imports," said Scott Shelton, broker and commodities specialist with ICAP. "This is a slight improvement in the oil inventory data, but I don't think this is enough to make people think the lows are in." U.S. crude futures initially rose on the news, topping $29 a barrel, but quickly retreated, and was at $27.85, down 9 cents on the day by 11:03 a.m. EST (1603 GMT). Brent crude rose above $31.70 a barrel, and then pared gains, retreating to $31.06.

Oil Retreats as Total Stockpiles Keep Growing - WSJ: Oil’s sharp rally quickly deflated Wednesday after traders focused on growing stockpiles of gasoline and distillates as evidence of the stubborn glut in oil markets. Oil prices shot up more than $1 in about two minutes late Wednesday morning after U.S. government data showed domestic crude stockpiles unexpectedly shrank last week. But total stockpiles still grew for the 11th time in 14 weeks, buoyed by unexpectedly large additions to product stockpiles, causing prices to retreat almost as quickly as they rose. Light, sweet crude for March delivery settled down 49 cents, or 1.8%, at $27.45 a barrel on the New York Mercantile Exchange. It has lost 15% in five straight losing sessions, falling to its second-lowest settlement since the 14-year low it landed at Jan. 20. Brent, the global benchmark, held on to gains of 52 cents, or 1.7%, to $30.84 a barrel on ICE Futures Europe. Gasoline posted even bigger gains, its largest in nearly two weeks, settling up 4.36 cents, or 4.9%, at 94.25 cents a gallon. Gasoline surged from the start of trading because of more refinery slowdowns, brokers and an analyst said. Bloomberg reported late Tuesday that Irving Oil shut its St. John refinery in Canada, citing Genscape. Reuters reported Delta cut production rates at its refinery outside Philadelphia, citing an unnamed source.

Oil Pumps On Unexpected Crude Inventory Draw, Dumps On Building Storage Concerns -- Following last night's across the board build in inventories from API, DOE reported a surprising 750k drawdown (much less than the 3.2mm build expected). However, across the rest of the complex - inventories rose: Cushing +523 build (13th week in a row), Gasoline +1.26mm build, and Distillates +1.28mm build (first in 4 weeks). Having tumbled early on from Yellen's undovishness, crude spiked on the headline draw (back above $29) but is struggling to hold gains. From API:

  • Crude +2.4mm
  • Cushing +715k
  • Gasoline +3.1mm

From DoE:

  • Crude -754k
  • Cushing +523k
  • Gasoline +1.26mm
  • Distillates +1.28mm

The minor crude inventory draw is considerably outweighed by the build across products and storage concerns (echoing BP's earlier warnings)...

As U.S. refiner Phillips 66 dumps Cushing crude, traders spy output cuts | Reuters: U.S. refiner Phillips 66 dumped crude for immediate delivery in Cushing, Oklahoma on Wednesday, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories. The unusual sales of excess oil added pressure to the March/April WTI futures spread, with the front-month discount widening to as much as $2.37 a barrel on Wednesday, the most since November. It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed. A company spokesman said that it does not comment on market rumors or speculation. These deals drew notice among traders, who said the prices were distressed and the timing unusual. The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago. Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.

For the oil traders - 3 traders confirm deals at negative $2.50 and $2.75 /bbl:  The headline is truncated, they often are. More:

  • U.S. refiner Phillips 66 dumped crude for immediate delivery in Cushing on Wednesday
  • The unusual sales of excess oil added pressure to the March/April WTI futures spread, with the front-month discount widening to as much as $2.37 a barrel on Wednesday, the most since November
  • It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.

The Most Ominous Warning That Oil Storage Is About To Overflow Has Arrived -- It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut. “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages. And now with major US refiners dumping crude, as we detailed overnight, those fears are surging. U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.

An update on oil prices  -- From the WSJ: U.S. Crude Settles at 13-Year Low on Oversupply Fears Oil prices settled at their lowest levels since 2003 as growing stockpiles in the U.S. and continuing worries about falls in the wider financial markets keep oil in the red. Light, sweet crude for March delivery settled down $1.24, or 4.5%, to $26.21 a barrel on the New York Mercantile Exchange, the lowest settlement since May 2003. Brent, the global benchmark, declined 2.5% to $30.06. This graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).  According to Bloomberg, WTI is at $27.08 per barrel today, and Brent is at $30.72 Prices really collapsed at the end of 2014 - and then rebounded a little - and then collapsed again.  Prices are now at the lowest since 2003 (even lower than during the Great Recession). There are many factors pushing down oil prices - more global supply (even as some shale producers cut back), global economic weakness (slowing demand), strong dollar, and warm weather in the US (less heating demand) to mention a few.

Crushing The "Oil's Just A Supply Issue" Meme In 1 Painful Chart -- Day after day we are told that the plunge in oil prices (just like the collapse in The Baltic Dry freight index) is a "supply" issue... it's transitory and global demand is doing fine thank you very much. Sadly, as everyone really knows deep down inside their Keynesian hearts, this is utter crap and as Barclays shows the shocking 18% YoY crash in distillates "demand" - something that has never happened outside of a recession - blows the one-sided argument of the energy complex out of the water…Still gonna claim "it's a supply issue?"

OPEC cut rumor halts oil price decline: Oil prices briefly dipped to new 12-year lows Thursday, but a fresh hope of potential production cuts helped the commodity regain some of those losses later in the day. West Texas Intermediate, the U.S. benchmark crude oil, fell 4.5% to $26.21 on Thursday but rebounded above $27 after the Wall Street Journal paraphased a United Arab Emirates Energy Minister as saying that "OPEC members are ready to cooperate on a cut." The commodity hasn't settled below $26 since May 2003, according to the Oil Price Information Service. Production cuts at the Organization of the Petroleum Exporting Countries would help ease the global glut of crude oil that has crushed the commodity in recent months and tipped U.S. gasoline prices into a downward spiral. But rumors of OPEC cuts are not the real thing. Two weeks ago, oil surged briefly after the Russian news agency TASS reported that OPEC and Russia could meet in February to cut production. That hasn't happened yet. In fact, OPEC increased production in January by 280,000 barrels per day to 32.6 million, according to an International Energy Agency report released Tuesday.

OilPrice Intelligence Report: Oil Rallies Over 12% As OPEC Rumors Reach Markets  It was yet another brutal week for crude oil as global stockpiles continue to build and capital is increasingly looking towards safety.  U.S. Federal Reserve Chair Janet Yellen spoke to Congress on Wednesday, and sounded much less certain about the health of the global economy than she did in December. The downbeat comments contributed to a global sell off on Thursday, with investors increasingly looking to safe-haven investments such as the U.S. dollar, the yen, gold, and other safe bonds.  Meanwhile, in the oil markets, there is little to be excited about. Global stockpiles remain elevated, and U.S. storage levels were unchanged from their 80-year highs. The hub of Cushing in Oklahoma is seeing storage space fill up. The facility’s storage capacity is almost 90 percent full.  The cracks in the economy are helping to push oil down, and WTI fell to $27 per barrel on Thursday. While many market watchers think oil prices will rise later this year, the near-term is still troubling. “We think it’s going to be lousy and nasty for the next three to six months at least,” a trader with TD Securities told the WSJ. Late Thursday and into Friday, oil prices erased some of their losses on yet another round of rumors about an emergency OPEC meeting. The Wall Street Journal reported that the UAE’s energy minister said that OPEC was ready to negotiate. Still, he asserted that the market was taking care of the oil glut by capping production from higher-cost producers. It was unclear if the minister’s comments marked a new commitment from the oil cartel, or if he was reiterating the group’s previously held position. The markets traded up on the news, but as we have noted before, it is better not to trust the OPEC rumors until an actual emergency meeting is announced.  IHS estimates that the industry has cancelled or deferred $1.5 trillion worth of oil and gas investments between 2015 and 2019. At some point figures that large start to lose meaning to the average investor, but it is a staggering sum that will ensure future supplies will be much lower than they otherwise would have been.

U.S. Crude Sinks to New 13-Year Low, Then Rebounds - WSJ: U.S. oil prices hit a new 13-year low, then rebounded to unchanged in late trading as both oversupply and the threat of coordinated output cuts spooked the market in both directions. Oil prices sank early in the day as part of a broader market selloff and then sank further after news of growing stockpiles at a key U.S. hub. But that selloff reversed quickly and oil pared losses late Thursday after The Wall Street Journal posted translated comments from the United Arab Emirates’ energy minister about whether OPEC members are more open to cutting output. The minister, Suhail bin Mohammed al-Mazroueifirst, was asked by a Sky News Arabia broadcaster if it is true that the Organization of Petroleum Exporting Countries members are more open to the idea of a production cut and, if so, that there will be a coordinated cut. “Everyone (in OPEC) is ready to cooperate” on a cut, Mr. al-Mazrouei said. But, he added, OPEC would only cut back if it got “total cooperation from everyone,” something that hasn’t yet happened despite lobbying from several countries that see production cuts as a way to stop a 20-month swoon in oil prices. Several brokers and traders called Thursday’s rebound unfounded speculation, and accused bullish traders of taking Mr. al-Mazrouei’s comments out of context. Additionally, his comments weren’t much different from those several OPEC leaders have made in recent months and several rallies based on those past comments have failed quickly after other members of OPEC said they wouldn’t participate in any effort to slow production and raise prices.  Light, sweet crude for March delivery settled down $1.24, or 4.5%, at $26.21 a barrel on the New York Mercantile Exchange. That is a new low dating back to May 2003 after six-straight losing sessions cut prices by 19%. It is the largest six-day percentage decline since the financial crisis.

Energy sector movers, losers, and news: Oil reaches 12-year low - This week oil is down at $28.95 per barrel from 30.89 last Friday, February 5th, a 6.7 percent change. Oil reached $26.21 Thursday, February 11 which is the lowest oil has been since 2003.   Anadarko Petroleum Corporation (NYSE:APC) announced in a press release to its stockholders a 22 cent and 81% reduction to five cents per share on February 9th. The company justifies the change due to $450 million annual cash this change allows the company for financial stability and flexibility in a tight economy. SolarCity Corp. (NASDAQL:SCTY) also released 4th Quarter earnings Tuesday February 9. This caused a reaction from the market, and the stock fell to $18.48 per share (Weds) from $29.57 per share at its close Friday February 5. Opening price February 12 was $17.30. Reports that Chesapeake Energy Corporation (NYSE:CHK) hired lawyers to restructure their debt was met with a drop in stock prices this week. They issued a statement Monday February 8th after the 50.6 percent stock drop, stating they currently hold no intentions of pursuing bankruptcy, but rather plan to use the restructure to increase shareholder value. Cheseapeake stock closed Tuesday at $1.95 per share. Stock prices opened today at $1.86, down $1.20 from its close last Friday, Feb. 5. Whiting Petroleum Corp. (NYSE:WLL) formerly rated at Ba2 was downgraded to Caa1 rating, a five spot move. In a quote, the Street explains the reason for the downgrade reflect cash flow and other leverage metrics for 2016 and 2017. Whiting has a heavy debt paired with ever falling low oil prices. Whiting Petroleum Corp. opened at $5.12 per share this morning and is currently trading at $4.44 (1:40 pm CST) a 9.57% drop.

Rig Count Plunges Yet Again, Down Another 30 -- The U.S. rig count plunged again this week, falling by an additional 30 rigs for the week ending on February 12. Baker Hughes reported that oil rigs fell by 28 to 439, and the natural gas sector lost 2 rigs, for a total of 102. Combined, there are 541 active oil and gas rigs in the United States.  The dismal numbers follow an even worse report the week before, when the rig count plummetedby 48. Energy analysts have closely watched the active rig count since the beginning of the oil bust more than a year and a half ago. The rig count has fallen by more than 70 percent since a high of over 1,900 rigs in the 3rd quarter of 2014. But the drop off has accelerated once again since oil prices crashed into the low $30s per barrel and below. The U.S. has lost an additional 157 rigs since the start of the year, posting another 20 percent decline in just six weeks. Of course, rig counts are disappearing around the world, it is just that the U.S. has the most reliable data. For example, Ecuador, one of the smallest producers in OPEC, is down to just a single rig. That is a massive problem for a country that depends on oil for 50 percent of its export earnings.

U.S. Oil-Rig Count Declines by 28 - WSJ: The U.S. oil-rig count fell by 28 to 439 in the latest week, according to Baker Hughes Inc., maintaining a recent clip of elevated 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 66% fewer rigs of all kinds from a peak of 1,609 in October 2014. According to Baker Hughes, the number of U.S. gas rigs declined in the latest week by 2 to 102. The U.S. offshore-rig count was 25 in the latest week, down one from the previous week and down 27 from a year earlier. Oil prices rallied on Friday, rebounding from a 13-year low the previous day, on speculation of production cuts among some of the world’s biggest suppliers.  U.S. crude oil climbed 12.29% to $29.43 a barrel.

US Oil Rig Count Plunges By Most In 10 Months -- Following last week's dramatic 31 rig decline, Baker-Hughes reports another major decline of 28 oil rigs (dropping the total oil rigs to 439 - lowest since Jan 2010 - for the 8th consecutive week). The total rig count dropped 30. On the heels of OPEC rumors overnight and then re-rumored bullshit from Venezuela, oil prices had already surged during the day and the biggest 2-week rig count decline in 10 months after initially being sold, is rallying once again.


As the rig count continues to track almost perfectly the lagged oil price... The declines were widespread with Texas dropping the most absolutely...

Oil gains 12.3% in best day since Feb '09: U.S. crude prices jumped as much as 13 percent on Friday after a report once again suggested OPEC might finally agree to cut production to reduce the world glut, while a bounce in stock markets fed appetite for risk. Despite the strong daily gain, oil prices were poised to end the week down with significant losses. But U.S. oil settled up more than 12 percent, for the best one-day gain since February 2009, when WTI gained 14.04 percent. The about-turn came after one of the most volatile weeks for oil, with prices initially falling nearly 14 percent over a four-day stretch before springing back higher. The United Arab Emirates' energy minister said the Organization of the Petroleum Exporting Countries was willing to cooperate on an output cut, the Wall Street Journal reported after Thursday's settlement in U.S. futures. He also said cheap oil was forcing supply reductions that would help rebalance the market. The UAE's comments, coming after vain efforts earlier in the week by Venezuela and Russia to stir Saudi Arabia and other major producers into agreeing to output cuts, was initially greeted with skepticism by many traders.

OPEC Points To Larger Oil Surplus In 2016, Says Low Prices Hurting Economy (Reuters) - OPEC pointed to a larger oil supply surplus on the world market this year than previously thought as Saudi Arabia and other members pump more oil, helping to make up for losses in non-member producers hurt by the collapse in prices. The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report. A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC's 2014 strategy shift to defend market share and not prices helped deepen the decline. OPEC also cut its forecast for world economic growth in 2016 to 3.2 percent from 3.4 percent and said low oil prices were hurting the economy, in contrast to previous price slides that were supportive of global growth. "It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term," OPEC said. "There seems to be a 'contagious' effect taking place across many aspects of the global economy." OPEC cited factors including the financial strain on producers dependent on oil income, the inability of central banks to lower interest rates and impacts on sectors from manufacturing to agriculture. The report added to signs that the price drop is hitting relatively expensive non-OPEC supply. Companies have delayed or cancelled billions of dollars worth of projects, putting some future supply at risk. OPEC now forecasts supply from non-member producers will decline by 700,000 bpd in 2016, led by the United States. Last month, OPEC predicted a drop of 660,000 bpd.

OPEC Will Not Blink First - Arthur Berman - An OPEC production cut is unlikely until U.S. production declines by about another million barrels per day (mmbpd). OPEC won’t cut because it would accomplish nothing beyond a short-term increase in price. Carefully placed comments by OPEC and Russian oil ministers about the possibility of production cuts achieve almost the same price increase as an actual cut.  The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) shook the markets yesterday with news that the world’s over-supply of oil has gotten worse rather than better in recent months. IEA data shows that the global liquids over-supply increased in the 4th quarter of 2015 to 2.24 million barrels per day (mmbpd) from 1.62 mmbpd in the 3rd quarter (Figure 1). Supply increased 70,000 bpd and demand decreased 550,000 bpd for a net increase in over-supply of 620,000 bpd. The sharp decline in demand is perhaps the most troubling aspect of IEA’s report. The agency forecasts tepid demand growth of only 1.17 mmbpd in 2016 compared with 1.61 mmbpd in 2015. The weak global economy is the culprit. EIA’s monthly data showed the same trend. Over-supply in January increased to 2.01 mmbpd from 1.35 mmbpd in December, a 650,000 bpd net change (Figure 2). Supply fell by 370,000 bpd but consumption dropped by a stunning 1.02 mmbpd. Figure 2. EIA world liquids market balance (supply minus consumption). Recent comments about a possible OPEC cut were largely responsible for the late January “head-fake” increase in oil prices (Figure 3). WTI futures increased 27 percent from $26.55 to $33.62 per barrel between January 20 and 29. As hopes for a production cut faded, prices fell 8 percent last week and have fallen below $28.00 as reality regains control of market expectations.

Falling oil prices will bankrupt the likes of Russia, Saudi Arabia - — What might be the next big financial crisis? A bursting of the bubble in tech stocks that has built up over the last two years? A total collapse in the stock market, beyond the selloff that has already marked the start of 2016? Any of those could happen. But increasingly it looks as if it will be national bankruptcies caused by collapsing oil and commodity prices. The International Monetary Fund is discussing a bailout of Azerbaijan, hard hit by tumbling oil prices. Venezuela is out to go bust — again — for the same reason. Ecuador looks about to go the same way. More important countries may follow them — most significantly Russia and Saudi Arabia. Neither of them looks solvent for much longer with commodity prices at these very low levels. We could soon be back in a full-scale sovereign-debt crisis, except this time it will be commodity exporters that are caught up in the maelstrom rather than peripheral eurozone countries. But just like the eurozone crisis, the losses will soon ripple out to the banking system, and before long there may well have to be series of emergency bailouts. The key question will be whether that can be used to drive through reforms — because there is not much point in simply bailing out countries that can’t rely on energy exports any more.

Six OPEC Members, Plus Russia, Now Open to Emergency Meeting  - Oil prices have whipsawed back and forth over the past two weeks, largely due to the rise and fall of expectations that OPEC might call an emergency meeting. Comments from several Russian oil executives and government officials sent oil prices surging at the end of January. Then prices retraced their gains when officials from OPEC dismissed the stories as just rumors. Nothing had changed, OPEC officials argued, even though some people in Russia were hinting at a meeting. But the rumors persist. The latest fuel to the rumor fire is the fact that now six OPEC member states have said that they would be willing to attend an emergency meeting if one was called, the highest total yet. Venezuela has officially requested an emergency meeting, and the oil minister from the South American OPEC member said that six OPEC members plus two non-members are willing to discuss measures to stabilize oil prices. Related The list includes Iraq, Algeria, Nigeria, Ecuador, Iran, and of course Venezuela. Russia and Oman, two non-OPEC members, would also be willing to attend. “The idea is to not just hold a meeting, but for all the countries to attend with the intention of reaching agreements,” Venezuela’s oil minister Eulogio Del Pino said in the statement. “Current prices are below equilibrium, and that encourages the speculators and market instability.”

No Agreement on OPEC Meeting After Venezuela Meets With Saudi Arabia -- The prospects for an emergency OPEC meeting to initiate coordinated production cuts took a hit this weekend. Venezuela’s oil minister Eulogio del Pino flew to Riyadh to meet with Saudi officials, which followed a recent trip to Moscow to gin up support from Russia for their cooperation. Venezuela has sent a formal request to OPEC for an emergency meeting, and del Pino has been conducting some shuttle diplomacy to build support to stabilize oil prices. However, after meeting with Saudi Arabia’s oil minister Ali al-Naimi, a very powerful voice in forming OPEC strategy, the meeting adjourned with no agreement. Although al-Naimi said that the meeting was “successful” and had a “positive atmosphere,” the comments were noticeably lacking any mention of an agreed upon strategy or even a confirmation that an emergency meeting would take place. “Nothing really happened at the meeting,” an OPEC official told The Wall Street Journal. That will likely deflate some of the hopes that OPEC would cut production, a possibility that was largely responsible for a brief but sudden rally in oil prices at the end of January. Speculation grew as several major oil producers, including Russia, Iraq, and Iran, gave varying degrees of support for an emergency meeting, all with the caveat that other top oil producers would have to go along for them to do so.

OilPrice Intelligence Report: Hopes Fall on Emergency OPEC Meeting: Oil prices slumped on Monday as news emerged from Riyadh that the meeting between Venezuela’s oil minister Eulogio del Pino did not succeed in bringing Saudi Arabia on board for an emergency OPEC meeting. Venezuela has been pleading with OPEC members to come together for a production cut, and has at least succeeded in generating some buzz. But thus far, the diplomacy of the country’s oil minister has not resulted in getting a meeting on the calendar. Saudi oil minister Ali al-Naimi said the meeting was “successful,” but in reality, the only thing the markets care about is whether or not OPEC will meet to cut production. In that sense, the meeting as not successful. “Nothing really happened at the meeting,” one OPEC official told the WSJ. WTI briefly below dipped below $30 per barrel on Monday following the news, before closing a few cents above $30.  More spending cuts needed. Even if crude oil averages $40 per barrel this year, the oil and gas industry in North America will need to slash more spending in order to correct their balance sheets. According to IHS Inc., who surveyed a group of 44 prominent oil and gas firms in the U.S. and Canada, spending is still too high. IHS says that the 44 companies will need to cut another 30 percent from their planned expenditures, or an additional $24 billion, in order for them to get spending down to 130 percent of cash flow.  “These spending cuts will be particularly troublesome for the highly leveraged companies,” said Paul O’Donnell, principal analyst at IHS Energy, according to Bloomberg. “These E&Ps are torn between slashing spending further to avoid additional weakening of their balance sheets, and the need to maintain sufficient production and cash flow to meet financial obligations.”

The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy  - naked capitalism - Yves here. This is an interesting theory, but I’m not sure I buy it. McEndree’s argument is basically that US shale players weren’t the main target of the Saudis because they haven’t succeeded in lowering their production. The fact that the effort so far has not worked as perhaps planned isn’t proof that it wasn’t the Saudis’ aim, particularly since they said at the very outset that they as the low cost producer, should not be the swing producer.  Note I find the “main target” to be a bit of a straw man, since even at the time of the Saudi refusal to cut production to support prices, many observers (including yours truly) argued the Saudis were targeting not just the US but all higher cost producers, including its geopolitical enemies like Russia and Iran.  The mistake of the Saudis (and most oil analysts) was one not made by John Dizard of the Financial Times. Dizard correctly predicted that the shale players would keep pumping as long as they had access to financing. Indeed, as we’ve seen, they are continuing to pump strictly to keep servicing debt. And the need to produce revenues (which is the motivation for most major oil producing nations, since they need oil income to finance their national budgets) means all the producers are locked into a bad equilibrium: they are all going to keep producing at levels higher than the markets can absorb until either a deal or an external force makes them stop. With the frackers, it will be access to financing. And what I believe McEndree also misses, but I welcome informed criticism if I have this wrong, is that fracking won’t be so easily resumed once fracking companies start hitting the wall and/or defaulting. Their old business model presupposed much higher prices and high leverage. I doubt we’ll see prices above $60 a barrel, nor will we see anywhere near as much gearing of shale gas plays as in the past.

Russia's Biggest Oil Producer Skeptical on Output Deal With OPEC - Russia’s largest oil producer Rosneft OJSC said it will defend traditional markets and expressed doubts over any coordinated action by crude-exporting nations to curb output. “Tell me who is supposed to cut?” Chief Executive Officer Igor Sechin said on the sidelines of a conference in London on Wednesday. “Will Saudi Arabia cut production? Will Iran cut production? Will Mexico cut production? Will Brazil cut production? Who is going to cut?” Venezuela has lobbied Russia, Iran, Saudi Arabia and other producers over its desire for a meeting between OPEC and non-OPEC countries aimed at a global agreement to restore balance to an oversupplied market. Oil prices have collapsed to their lowest levels in 12 years after Saudi Arabia led the Organization of Petroleum Exporting Countries to defend market share rather than cut production amid a global supply glut. “We are working on preserving our traditional markets and we will supply those markets with oil in a competitive battle,” said Sechin, adding that his responsibility is to ensure shareholders don’t lose money as part of any talks on managing global oil markets. Russia, which gets as much as half of its budget revenue from oil and gas, has signaled it would attend any meeting between OPEC and non-OPEC producers, should such a gathering occur. After talks with Venezuelan Oil Minister Eulogio del Pino earlier this month, both Sechin and Russian Energy Minister Alexander Novak agreed to discuss cooperation on global oil markets. Rosneft is taking a wait and see approach, but Sechin said the producers’ policy has played into the hands of financial players willing to test prices even as low as $10 a barrel.

Iran eyeing refinery acquisitions in Brazil: Brazil says it has started talks with Iran about a possible investment in troubled refinery projects controlled by its state-led oil company Petroleo Brasileiro SA. Reuters on Thursday quoted a Brazilian government official as saying that the talks are still in an early stage and that they concern an ambitious scheme based on which Iran will have its crude oil processed at refineries in Brazil's northeastern region and will then sell it in the country’s market. "For this subject to be considered embryonic it will still need to evolve a lot," said the source who has not been named. Iran has shown interest in investing in the construction of the Premium I and Premium II refineries in Brazil's northeastern states of Maranhao and Ceara, the source said. The refineries are designed to produce low-sulfur fuels. Brazil’s oil major Petrobras – embattled by a domestic scandal as well as the impacts of falling oil prices – has suspended work on both projects which are expected to cost more than $15 billion each, Reuters added. Iran is pursuing similar schemes in at least five other countries including Malaysia, South Africa, Sierra Leone, India and Indonesia. This is seen as part of a policy by Iran to use overseas refineries to have its crude processed and bring back strategic products such as gasoline for domestic consumption as well as exports.

Iran lifts currency controls with Russia: Iran said on Friday that it had lifted the currency controls with Russia in a bid which is expected to boost commerce between the two countries. The announcement was made by Masoud Karbasian, the head of Iran’s Customs Administration who said the policy is in line with the government’s push to promote trade ties with other countries. On a related front, the media reported also on Friday that Iran is working over the establishment of a direct commercial flight route to Russia’s southern city of Astrakhan in what is expected to help boost trade between the two countries. The Trade Promotion Organization of Iran said the two-way route will be launched through subsidies that will be provided by the government. The first flight from Iran to Astrakhan is expected to take place on 23 February 2016. Planes from Iran’s Taban airline will travel to the Russian city twice a week for a period of six months. Tehran and Moscow are already working over a plan to enable their merchants to trade in rials and rubles instead of euros and dollars. To the same effect, both are going to establish a joint bank to facilitate this. Ali-Akbar Velayati, a top adviser to Iran’s Leader Ayatollah Seyyed Ali Khamenei, said in early February that Iran and Russia have signed contracts worth a total of around $40 billion over different industrial infrastructure projects. Velayati emphasized that the contracts had been signed with Russia over the past few months and are ready to be implemented.

Iran ready to discuss oil with Saudis: Iran’s Oil Minister Bijan Zangeneh said on Tuesday that Iran is ready to negotiate with Saudi Arabia over the current conditions in international oil markets. “We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia,” Zangeneh told reporters. He said some Persian Gulf countries have announced that they are looking for trying to make economic benefits for themselves by helping to push down oil prices. “But what they want to achieve is not at all for economic gains,” said Zangeneh. “If there were a strong political will, the price of oil would have been balanced within one single week,” IRNA quoted him as saying. The Iranian oil minister had in early January emphasized that the current oil prices harm all producers and certain countries’ insistence on overproduction is politically motivated. “None of the oil producers is happy with the existing prices which will harm suppliers in the long term,” he has emphasized. According to the Iranian minister, “there is a political will behind OPEC indecision over production ceiling in the organization.” OPEC has been producing nearly a million more barrels of oil each day than its 30 million bpd ceiling for the past 16 months. The organization approved a Saudi plan to scrap allocating fixed production quotas to member countries in its December 2011 meeting and introduced output ceiling of 30 million barrels per day (bpd) which does not specify quotas. Zangeneh has described the decision a “historic mistake”, saying “making up for this big mistake and reviving the quota system in OPEC is a very hard task.” 

Amid Low Oil Prices, OPEC's Divisions Deepen - Oil prices hit new lows in January, but the world's biggest producers still can't seem to agree on how to respond. Venezuelan Oil Minister Eulogio del Pino returned home empty-handed after concluding on Feb. 7 a week of visits to major oil-exporting countries. His aim was to organize an emergency meeting between OPEC members and non-OPEC states. The topic they would have discussed, had del Pino been successful, would have been how to coordinate a cut in global oil production. But his failure shows that a bloc of OPEC's key Gulf members — namely Saudi Arabia, Kuwait, Qatar and the United Arab Emirates — is resisting the pleas of other producers to intervene in the market on their behalf. Since November 2014, Saudi Arabia and its allies have made it clear that they prefer to let the market correct itself. In the meantime, they are not willing to unilaterally slash production without other important producers, including Russia, Iran and Iraq, agreeing to do so as well. Of course, pragmatic cooperation among the world's oil exporters becomes more appealing as oil prices sink and financial crises deepen. However, a substantial production agreement — and one that is actually enforced — will probably remain elusive as geopolitical impediments and fundamental disputes among Saudi Arabia, its allies and other oil-producing countries persist. And with no cohesive bloc at its helm, the global oil market will be at the mercy of market forces, promising further price volatility and uncertainty.

Is The US Leading Saudi Arabia Down The Kuwaiti Invasion Road? -- For the first time in a long time I feel concerned and worried about the prospect of war.  The reaction of Saudi Arabia to the Russian intervention in Syria has always been the wild card in the shifting geopolitical power base in the Middle East.  Turkey and Israel, along with Saudi Arabia are the three countries with the most to lose because of a strong alliance between Syria, Iran, Hezbollah, and Russia. These three traditional American allies have been accustomed to Western support in regards to their own specific regional goals and ambitions.  This support has been so staunch and counterproductive to regional stability that the growing comfort and alliance between Iran and the US should be both confusing and worrisome to Saudi Arabia and Turkey. On the one hand the US is making agreements with Iran and lifting sanction while on the other hand it is indirectly supporting Saudi Arabia’s and Turkey’s proxy war against Syria. A war which Iran, along with the support of Russia and Hezbollah, are resisting and countering with massive aerial and ground support. This contradiction is suggestive of another and more complex strategy which may be unfolding in the Middle East.  A strategy which is beginning to look familiar.

The Coming Wave of Oil Refugees– The idea that oil wealth can be a curse is an old one – and it should need no explaining. Every few decades, energy prices rise to the heavens, kicking off a scramble for new sources of oil. Then supply eventually outpaces demand, and prices suddenly crash to Earth. The harder and more abrupt the fall, the greater the social and geopolitical impact. The last great oil bust occurred in the 1980s – and it changed the world. As a young man working in the Texas oil patch in the spring of 1980, I watched prices for the US benchmark crude rise as high as $45 a barrel – $138 in today’s dollars. By 1988, oil was selling for less than $9 a barrel, having lost half its value in 1986 alone. Drivers benefited as gasoline prices plummeted. Elsewhere, however, the effects were catastrophic – nowhere more so than in the Soviet Union, whose economy was heavily dependent on petroleum exports. The country’s growth rate fell to a third of its level in the 1970s. As the Soviet Union weakened, social unrest grew, culminating in the 1989 fall of the Berlin Wall and the collapse of communism throughout Central and Eastern Europe. Two years later, the Soviet Union itself was no more. Similarly, today’s plunging oil prices will benefit a few. Motorists, once again, will be happy; but the pain will be earth-shaking for many others. Never mind the inevitable turmoil in global financial markets or the collapse of shale-oil production in the United States and what it implies for energy independence. The real risk lies in countries that are heavily dependent on oil. As in the old Soviet Union, the prospects for social disintegration are huge.

Iran Says No Thanks To Dollars; Demands Euro Payment For Oil Sales - As regular readers are no doubt aware, Iran is now set to ramp up crude production by some 500,000 b/d in H1 and by 1 million b/d by the end of the year now that international sanctions have been lifted. In the latest humiliation for Washington, Tehran now says it wants to be paid for its oil in euros, not dollars. “Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief,” Reuters reports. "In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," an National Iranian Oil Co. said. Here’s more: Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram. Switching oil sales to euros makes sense as Europe is now one of Iran's biggest trading partners. "Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,"  Iran's insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month's lifting of most sanctions.

Iran Signs Oil Deal With Total, Deal Done In Euros - As Airbus and Peugeot finally return to post-sanctions Iran, the trade-off is Iranian oil, with French Total SA taking the plunge in an agreement to buy up to 200,000 barrels per day of Iranian crude--but the catch is that sales will be in euros. Deals signed just over a week ago when Iranian President Hassan Rouhani met his French counterpart, Francois Hollande, in Paris included some 20 agreements and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet. Carmaker Peugeot—which was forced to pull out of Iran in 2012--also agreed to return to the Iranian market in a five-year deal worth $436 million. In the reverse flow of the new deal, Total has agreed to buy between 150,000 and 200,000 barrels of Iranian crude a day, with company officials also noting that Total would be looking at other opportunities as well in oil, gas, petrochemicals and marketing. According to Iranian media, Total will start importing 160,000 barrels per day in line with a contract that takes effect already on 16 February. Total never really left Iran, though. While it stopped all oil exploration and production activities there in 2010, making it one of the last to withdraw, it still maintained an office there. Since 1990, Total has been a key investor in Iranian energy, playing a role in the development of Iran's Sirri A&E oil and South Pars gas projects. Sanctions also halted its planned involvement in the LNG project linked to Iran’s South Pars Phase 11.

Uncertainty Lingers Over LNG As Chinese Demand Wavers -  Liquefied natural gas (LNG) prices were one of the best performers of the past week. With the Japan-Korea Marker price jumping 17.2 percent in a matter of days — in the wake of a production outage at Russia’s Sakhalin-2 export terminal. But despite that short-term lift, there’s a lot of worry in the LNG sector these days. Which was enhanced by news late last week that the world’s #3 LNG consumer just saw demand drop for the first time ever. That big buyer is China. Where a new report from the U.S. Energy Information Administration showed that LNG imports fell 1.1 percent during 2015 — to 2.6 billion cubic feet per day (bcf/d). As the chart below shows, that’s the first time China’s LNG imports have fallen since the country started bringing in gas, back in 2006. Analysts at the EIA blamed the drop on both a general slowdown in the Chinese economy, and lower prices of competing fuels in the country. They noted for example, that many Chinese factories that use LNG can also run on liquefied petroleum gas (LPG) — a commodity that has become notably cheaper than LNG of late. The new data look to spell trouble for China’s LNG import sector. With EIA pegging the country’s total import re-gasification capacity at 5.4 bcf/d — with another 3.4 bcf/d currently under construction.

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