Sunday, March 20, 2016

oil prices now 50% higher on OPEC / Russian freeze talk, record low rigs and record high oil stores again

this week's news is the same as last week's news was, since we beat the two records that we headlined last week's news with, albeit in a somewhat less spectacular fashion...US oil and gas drilling activity, which last week fell to a 150 year low through a reduction of the number of active rigs by 9, was even slower this week, as an additional 4 drilling rigs were idled...and we also added to our record levels of crude oil in storage, thus setting a new record for our oil inventories for the 5th week in a row, as we added another 1.3 million barrels to storage, again a bit less impressive than when we added a near record 10.4 million barrels to storage to set a new record two weeks ago...

otherwise, it was a rather slow week for news from the fracking patch, with little of the news meriting digging for any further details than are included in the links below...oil prices rose once again this week, with international prices topping $42 a barrel on Thursday, a high for 2016, on continuing reports that OPEC and Russia will be meeting in April in an attempt to freeze crude oil output at current levels...prices for US crude, which had closed last week at $38.50 a barrel, initially fell around 2 percent to close at $37.18 a barrel on Monday after Iran refused to join OPEC discussions until its own output reached the pre-embargo levels of 4 million barrels per day...oil prices then fell again to close at $36.34 a barrel on Tuesday, as traders focused on the expected increase in record oil oil prices then rose on the Wednesday announcement that OPEC and other major oil producers would meet in Qatar on April 17 to discuss an oil production freeze, with US crude closing at $38.46 a barrel...prices then added to their gains on Thursday, as the Wall Street Journal reported that the Saudis were open to a freeze without Iran's participation, after which US prices approached $41 a barrel before falling back to close at $40.20, the first US close above $40 since December 4th....crude prices then fell from those highs to close at $39.44 a barrel on Friday after the release of the U.S oil rig count, which showed that despite prices that had been in the $30s, some drillers had even restarted idled oil put that all in perspective, we'll include the weekend graph of oil prices over the last 3 months below..

March 19 2016 oil prices

to explain once again, the above graph shows the daily closing contract price per barrel for April delivery of the US benchmark oil, West Texas Intermediate (WTI), as traded on the New York Mercantile Exchange over the last 3 months...since this graph references the current contract price for April, it doesn't show that when the March contract was the current contract, oil for March delivery had traded as low as $26.02 a barrel on February 11th, which was then the widely cited 13 year low price for oil....hence, at $39.44 a barrel, this weekend's oil price is up more than 50% from that low, partially on speculation that OPEC and Russia will make a deal, not even considering whether they will hold to what terms they might set....although i didn't see the press conference in question, a CNBC oil analyst characterized Saudi oil minister Ali al-Naimi as smirking when talking about such a whether it will come to pass is still seriously questionable, but the market participants still believe it enough to move the price, and al-Naimi is an old fox who knows how to play the media, so it's quite possible that between him and Russian oil minister Alexander Novak, who has also been speaking positively to the media about a possible deal, the two of them could talk the price of oil up to $50 a barrel without touching a drop of their oil output...

The Latest Oil Stats from the EIA

as we mentioned in opening, US supplies of crude oil in storage rose to another new record this week, but less oil was added to storage than in previous weeks, because our imports fell back from the two year highs of recent weeks, while our own production of crude continued to slow slowly....this week's Energy Information Administration data showed that our field production of crude oil fell by 10,000 barrels per day to 9,067,000 barrels per day during the week ending March 11th, from 9,077,000 barrels per day during the week ending March 4th...that's now 3.7% below the 9,419 ,000 barrels per day we produced during the week ending March 13th last year, and the lowest our oil production has been since the 2nd week of November in  2014...

meanwhile, our imports of crude oil, the other major source of our domestic crude supply, fell to an average of 7,693,000 barrels per day during the week ending March 11th, dropping by 355,000 barrels per day from the average of 8,048,000 barrels per day we imported during the week ending March 4th and down by more than 7.2% from the 2 year high of 8,292,000 barrels per day that we imported during the week ending February 26th... however, that was still 2.6% more than the 7,496,000 barrels per day we were importing during the same week of last year, and our 4 week moving average of imports reported by the weekly Petroleum Status Report (62 pp pdf) is still nearly at the 8.0 million barrel per day level, 10.0% above the same four-week period last year...  

while our supply of crude was thus lower this week, refineries increased the amount they used again, as they processed 15,996,000 barrels per day during the week ending March 11th, 85,000 barrels per day more than the 15,911,000 barrels per day the were processing during the week ending ending March 4th, even though the US refinery utilization rate slipped to 89.0%, down from 89.1% during the week of the 4th..still, that was still the highest refinery capacity utilization rate for the 2nd week of March since 2005, so refineries are ahead of schedule on changing over to their summer we're thus using 3.6% more crude than the 15,436,000 barrels per day we were using during the week ending March 13th last year, when refineries were operating at 88.1% of capacity...

with more oil being refined, our refinery production of gasoline rose by 435,000 barrels per day to 10,015,000 barrels per day during week ending March 11th, up from the 9,580,000 barrels per day of gasoline we produced during week ending March 4th, and up 2.7% from the 9,754,000 barrel per day gasoline production we saw last year during the week ending March 13th, which had been, until this week, a record for March gasoline the same time, our output of distillate fuels (ie, diesel fuel and heat oil) also rose, increasing by 37,000 barrels per day to 4,781,000 barrels per day during week ending the 11th, which was still a bit lower than  our distillates production of 4,807,000 barrels per day during the same week of 2015... 

however, even with record levels of gasoline production production for any time in March, and a 151,000 barrel per day increase in gasoline imports to 716,000 barrels per day, we apparently still needed to draw gasoline our of storage to meet this week's demand, as our gasoline inventories fell by 747,000 barrels from last week's report to 249,716,000 barrels as of March, that was still 6.1% higher than the 235,400,000 barrels of gasoline that we had stored at the same time last year, which was then the highest in years, and still what the EIA characterizes as "well above the upper limit of the average range" in the weekly Petroleum Status Report...but it's been a puzzle that we'd be drawing down our supplies now, that our gasoline production is hitting records, whereas as recently as 3 weeks ago we were still adding to those supplies with considerably less production; in fact, we had added to our gasoline supplies 14 weeks in a row until then, setting records for gasoline supplies each of the last 4 of those weeks...the next graph from the EIA goes a long way in explaining why that happened:

March 15 2016 gasoline demand

the above graph comes from “This Week in Petroleum – Gasoline Section” published by the EIA on March 16th and it shows the 4 week average of US demand for gasoline in millions of barrels per day each week over the past year in blue, and over the preceding year in brown…what you'll notice there is that our demand for gasoline, which had generally been running several hundred thousand barrels per day ahead of last year's, slipped below last year's demand in November, and then fell well below January 2015's demand in January 2016, at which time i endeavored to attempt to explain "why our consumption of gasoline is falling" sooner than the pixels were dry on that post than our demand for gasoline started rising again, and is now approaching 500 thousand barrels per day more than it was a year ago at this time...i have no special insight as to why this happened, but just thought pointing it out was necessary for anyone who had been puzzled by the shift in the gasoline storage metrics as i was...

at any rate, our inventories of distillate fuels also fell, decreasing by 1,135,000 barrels end the week of March 11th with 161,343,000 barrels in storage.....but because of the unseasonably mild winter, the drawdown of heating oil has been much less than normal, and our stocks of distillates remained above the upper limit of the average range for this time of year, measuring 28.2% greater than the 125,883,000 barrels of distillates we had stored during the same week last year.. similarly, our inventories of other major petroleum products are also running above well their normal range; residual fuel inventories are at 45,274,000 barrels, 20.7% higher than the 37,495,000 barrels we had stored at the end of the 2nd week of March last year; jet fuel inventories, at 44,390,000 barrels, are 16.0% higher than the 38,240,000 barrels we had stored a year ago; and inventories of propane and propylene feedstocks are at 62,500,000 barrels, 15.1% higher than the 54,284,000 barrels we had stored at the end of the same week a year earlier...

finally, even with the lower imports and the pickup in refining,  we still had 1,317,000 barrels of unused crude oil left over at the end of the week, and hence our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose once again to a new record of 523,178,000 barrels as of March 11th, up from the record 521,861,000 barrels of oil we had stored on March 4th..that was 14.1% higher than the then record of 458,508,000 barrels of oil we had stored as of March 13th, 2015, and 39.2% higher than the 375,852,000 barrels of oil we had stored on March 14th we've now increased our inventories of crude oil by 40.6 million barrels over the last 9 weeks, setting new records for the amount oil we had in storage in the US in 7 of them... 

This Week's Rig Count

as we mentioned, the past week also saw another net decrease in the number of rotary rigs actively drilling for oil and gas in the US, and that meant we had another record low for the rig count in the history of such records, and likely for the history of the oil and gas industry in the US...Baker Hughes reported that the total count of active rigs fell by 4 to 476 as of March 18th, as rigs targeting natural gas fell by 5 to 89, while the oil rig count rose by 1 to 387 in the first increase in oil rigs since December...those net totals were down from the 242 natural gas rigs, 825 oil rigs, and 2 miscellaneous rigs that were in use a year earlier, and well off the records of 1609 working oil rigs set on October 10, 2014 and the recent gas rig record of 1,606 that was set on August 29th, 2008... 

breaking down the changes by type of rig, the week ending March 18th saw a net of 6 horizontal rigs stacked, leaving the count of horizontal rigs at 369, which was down from the 826 horizontal rigs that were in use the same week last year, and down from the recent record of 1372 horizontal rigs that were drilling on November 21st of the same time, a single directional rig was also removed, dropping the directional rig count down to 49, which was down from the 92 directional rigs that were in use on March 20th of last year...meanwhile, a net of 3 vertical rigs were added, bringing the vertical rig count back up to 58, which was still down from the 148 vertical rigs that were in use the same week a year earlier...

of the major shale basins, the Cana Woodford of Oklahoma was down 3 rigs to 34, which was down from the 40 rigs working that basin on March 20th last year...meanwhile, the Arkoma Woodford of Oklahoma, the Haynesville of Louisiana, the Mississippian of southwest Kansas and bordering states, the Utica of eastern Ohio and the Williston of North Dakota all saw single rig reductions; that left the Arkoma Woodford with 3 rigs running, down from 6 a year earlier, left the Haynesville with 14 rigs, down from 34 a year earlier, left the Mississippian with 7 rigs, down from the 44 rig drilling there last year at this time, left the Utica with 10 rigs, down from 30 a year ago, and left the Williston with 31 rigs, down from 99 a year the same time, a net of two rigs were added in the Eagle Ford of southern Texas, where the rig count stood at 45 at the weekend, down from 138 a year earlier...

hence, the state count tables also showed that Texas had added two rigs over the past week, and they now have 217 rigs deployed, which is still down from the 465 rigs that were working the state on March 20th last year…at the same time, 2 rigs were pulled out of New Mexico, where 13 rigs remain, down from 53 a year earlier...the 4 states losing one rig each line up pretty well with the basin counts; the Kansas rig count was down 1 to 8, and down from 12 a year earlier; North Dakota was down 1 rig to 31, and down from 98 rigs a year earlier; the Ohio count was down 1 to 10 rigs and down from 28 rigs a year earlier, and the Oklahoma rig count was also down 1 rig to 66 and down from 136 rigs working a year earlier...


Another Ohio court slaps down anti-fracking ‘bill of rights’ - Another Ohio court case has gone against community activists seeking local restrictions on oil and gas drilling. The appeals court’s decision in this Cuyahoga County civil case is especially noteworthy in that it directly addresses – and dismisses – the legal underpinnings of “community bill of rights” laws that voters have passed in the city of Athens and other communities around the state. A similar anti-fracking “bill of rights” is part of a charter amendment that local fracking opponents hope to place on the Athens County ballot next November.  In its decision in a case pitting Mothers Against Drilling in Our Neighborhoods (MADION) against the state of Ohio, Gov. John Kasich, the city of Broadview Heights and two oil and gas businesses, the Eighth District Court of Appeals voted 3-0 to uphold a Cuyahoga County trial court’s dismissal in July 2015 of a complaint brought by MADION. The local activist group, part of a statewide network of community organizers and supported by the Pennsylvania-based Community Environmental Legal Defense Fund (CELDF), had asked the court to uphold an anti-drilling bill of rights that voters passed in Cleveland suburb of Broadview Heights in November 2012.  In the main opinion in the Eighth District Court of Appeals decision of March 3, two of the appellate judges cite the majority decision in the Supreme Court’s Morrison (Munroe Falls) vs. Beck Energy Corp. decision from February 2015. That high-court ruling, based on ORC 1509, upheld the primacy of state law in oil and gas regulation, generally finding that what the state allows, in this case oil and gas development activities, local government and voters can’t prohibit. However, in its March 3 decision, the appellate court also addressed MADION’s claims regarding local community rights. The anti-fracking group had argued that the Morrison case cited as a precedent only addressed home-rule powers of “municipal corporations,” which “are distinct and apart from the people’s inalienable and fundamental right to local community self-government.” The appellate court decision, however, notes that “while MADION concedes that there is no case law to support its position, it maintains that the people’s right to local community self-government is deeply rooted in our nation’s history and tradition.”

Bill of Rights group hopes to get charter on November ballot - The Athens Bill of Rights Committee will be back in action this week to collect signatures to again try to get a charter ballot initiative on the November ballot. The measure would ban injection wells and use of the county’s water supplies in the practice of hydraulic fracturing. The group had submitted a ballot initiative to the county elections board last year, but Secretary of State Jon Husted rejected the petitions. The matter was sent to Husted for consideration because of a protest filed by Joanne Prisley of Athens. The matter was then considered by the Ohio Supreme Court, which ruled that Husted shouldn’t be forced to put the issue on the ballot. One of Husted’s reasons for disqualifying the proposed charter from the ballot was that it did not meet a threshold requirement for charter initiatives because it did not create an alternative form of government. Husted also had rejected the charter petition on grounds that the charter unconstitutionally interfered with the state’s exclusive authority to regulate oil and gas operations. The Supreme Court ruled that Husted lacked authority to invalidate the petitions for that reason. Now the Bill of Rights Committee is back with a revised charter initiative. Committee Chairman Dick McGinn said that the new version actually specifies the structure of the county government and allows for a charter review process. He said the language doesn’t actually change how the county government currently functions. What the language does do is make it unlawful for any corporation or government to “deposit, store, treat, inject, dispose of, transport or process wastewater, produced water, ‘frack’ water, brine or other substances, chemicals or by-products that have been used in, or result from, the unconventional extraction of gas and oil, including but not limited to high volume hydraulic fracturing, acidification and other techniques on or into the land, air or waters of the county of Athens.”

Medina, Portage counties seek community bill of rights votes - Grass-roots groups in Medina and Portage counties are trying to get community bill of rights charters approved by voters on Nov. 8. Sustainable Medina County is circulating petitions to put the issue before voters in a grass-roots campaign to block the Nexus natural gas pipeline and a pipeline compressor station west of Wadsworth in Guilford Township. The current structure of Medina County government would remain intact under the proposed charter, but the charter would give the county’s elected officials the authority to protect residents from “corporate harm.” In addition, the people’s right to initiative and referendum would be codified under the plan to give them more control. It is the second time that such an effort has been undertaken in Medina County. “This charter will empower the people of our county to say no to Nexus and its threats to the health and safety of our families and the environment,” said spokeswoman Kathie Jones of Wadsworth Township. The goal is to give the people a voice in whether the pipeline project across northern Ohio is in the best interest of Medina County and whether local residents are willing to expose their families and neighborhoods to the risk, she said. The $2 billion pipeline project running through Medina, Wayne, Summit and Stark counties needs approval from the Federal Energy Regulatory Commission. In order to block the pipeline, Medina County’s community bill of rights would have to be approved by voters and go into effect before the pipeline wins federal approval, expected in late 2016. The major concern in Portage County is injection wells for drilling wastes that threaten drinking water and the goal is “to legitimize democracy,” said Gwen Fischer of Hiram, a spokeswoman for the Portage Community Rights Group.The new petition-signing efforts got under way this week and are among five community bill of rights efforts under way in Ohio to protect communities from drilling. Similar initiative have begun in Athens County plus in the cities of Columbus and Youngstown.

Attorney general joins investigations into illegal dumping of radioactive waste -- Kentucky Attorney General Andy Beshear announced Wednesday that his office is investigating radioactive waste disposal in landfills in Boyd and Estill counties. “I am deeply troubled by allegations involving the transporting and illegal disposal of radioactive waste in Boyd and Estill counties,” Beshear said in a statement. “As attorney general, protecting Kentucky families is my top priority, so I am particularly troubled that the Blue Ridge Landfill in Irvine allegedly containing these hazardous materials is located across the road from two schools. To the concerned parents in the community, I promise we are giving this investigation our full attention, and we share your concerns.” Beshear said his office is working closely with the Cabinet for Health and Family Services, and other state, local and federal officials. Landfills in Estill and Boyd counties were cited last week for accepting low-level radioactive waste, according to the Kentucky Energy and Environment Cabinet. The Estill County landfill is across the road from the county’s only high school and middle school. Advanced Disposal Services Blue Ridge Landfill Inc. in Estill County and Green Valley Landfill General Partnership in Boyd County each received a notice of violations from the cabinet.  Blue Ridge Landfill was accused of using inaccurate reporting in a quarterly report, disposing of unpermitted waste and failure to document the source of radioactive waste, according to the cabinet.

Dimock Fracking Water Pollution Case Rains More Pain On Oil And Gas Industry : After six years and many reams of legal papers, two couples have just won a rare — and huge — $4.24 million jury verdict against a fracking company. The jury agreed with the evidence that Houston-based Cabot Oil & Gas Corp. contaminated their water wells in Dimock, Pennsylvania, with methane leaching underground from natural gas fracking sites. The case is significant because the two couples fought in court rather than go the usual route in fracking water pollution cases, which consists of reaching a financial settlement conditional on consenting to a gag order. The gag order practice has been known to impose a lifelong vow of silence on children as young as 7 and 10, and along with trade secrets protection it is one of the reasons why fracking critics and regulatory agencies have had quite a bit of difficulty assembling a complete picture of the risks and impacts of fracking on the nation’s water resources. Our friends over at DeSmogBlog have been tracking the Dimock fracking case closely: The case, Ely v. Cabot Oil and Gas Corp., is especially noteworthy because most of the 44 original plaintiffs in the case signed settlement agreements that included a “non-disparagement clause” that bars them from speaking about their experiences or the role that Cabot may have played in causing water in the region to become polluted… According to DeSmogBlog, a big breakthrough in the case occurred when the court granted permission to testify for other nearby homeowners who had signed the gag order with Cabot. The Associated Press has also been doing some notable reporting on the impacts of fracking. An account of the new $4.24 million verdict by Michael Rubinkam describes Cabot’s argument, that the “methane was naturally occurring” and predated the fracking operation. That argument highlights one of the critical obstacles for bringing a water pollution case against fracking operations. At the time of the drilling, state regulations in Pennsylvania and elsewhere did not require drillers to benchmark water quality in nearby wells, leaving those impacted without the benefit of a before-and-after comparison.

Dimock Water Contamination Verdict Prompts Calls for Federal Action on Fracking: Last week, in a historic verdict, a Pennsylvania jury awarded $4.24 million to two families in Dimock, PA who sued a shale gas driller, Cabot Oil and Gas Corp., over negligent drilling that contaminated their drinking water supplies. Dimock has for years been one the nation's highest-profile cases where shale gas drilling and fracking was suspected to have contaminated water, a claim the oil and gas industry strenuously denied. Controversy over the water quality swirled as state and federal regulators repeatedly flip-flopped over who was responsible for the water contamination — and whether the water might even be safe to drink. For years, Cabot Oil and Gas has maintained that the problems with the water were simply cosmetic or aesthetic, and that even if the water was not good, their operations in the area had nothing to do with it. The federal jury's verdict last Thursday represents a legal conclusion that the water was in fact contaminated because of the negligence of the drilling company — no small matter for those who spent years living in a deeply fractured community where emotions over the shale rush have run high and pitted neighbor against neighbor. The verdict also has broader ramifications for the national debate over shale drilling and water contamination.The U.S. Environmental Protection Agency is currently reviewing the risks to American drinking water supplies from unconventional oil and gas drilling and fracking. And while the Ely v. Cabot case did not center directly on hydraulic fracturing, the wells surrounding the Ely property suspected of causing the contamination were mostly fracked shale gas wells. The jury's newly announced verdict in the case has community advocates in the region calling for EPA to reopen its investigation into the broader problems in Dimock and the broader region — and to include Cabot's negligence in contaminating Dimock's water in its national study of the potential for drilling and fracking to contaminate American drinking water supplies.

Efforts under way to find abandoned Pa. gas, oil wells - Officials estimate as many as 200,000 abandoned gas and oil wells dating to the 1860s dot the state's landscape, many uncataloged with no surviving record of ownership. Most are conventional vertical wells drilled before unconventional drilling took off in the shale play during the past decade, and before regulations required better reporting. Abandoned and unmapped wells pose dangers to people living or working nearby, especially shale drillers. Crews fracking wells have come into contact — or “communicated,” in engineering parlance — with abandoned wells, causing liquids and gas to shoot from the surface. Numerous efforts among federal, state, university and industry groups are under way to locate, map, assess and plug the wells. The challenge of finding them — combined with the high cost of plugging them — threatens to slow the push.  When the drilling industry was most active, permit surcharges flowed, allowing hundreds of plugging operations a year, Pelepko said. Thirty-three were plugged last year, though, as drilling slowed. Depending on the depth of an oil or gas well and other factors, plugging it safely costs $5,000 to $200,000, DEP said. A well that poses an immediate risk to nearby structures or people will be plugged quickly, Pelepko said. Otherwise, the wells are ranked and addressed in order of need. Less known is the risk abandoned wells pose to air and water from escaping methane. The EPA does not include the wells in its annual inventory of emissions sources.  

In Drive to Deflate Natural Gas Surplus, US Pounces on Canada -- U.S. gas drillers battered by the lowest prices in 17 years have found another release valve for their output: Canada. Over the past five years, the shale boom that unlocked vast supplies of natural gas across North America has tripled pipeline shipments from the U.S. to Mexico, and spurred the first seaborne exports from the lower 48 states. Now, pipeline companies led by Spectra Energy Corp., TransCanada Corp. and Energy Transfer Partners LP are gearing up to more than double the flow into Canada by 2027. The push begins next year, with plans to open or expand at least three major pipelines and reverse the flow northward on a fourth. Meanwhile, TransCanada may be going a step further, engaging in acquisition talks with Columbia Pipeline Group Inc., a company with a direct route into the U.S.’s prolific Marcellus shale play. The efforts come as gas stockpiles have reached historic highs, prices have fallen almost 40 percent since the end of 2011 and the fuel has established itself as the Bloomberg Commodity Index’s worst performer. All of that has spurred a desperate drive by drillers to expand their markets. “There’s so much supply growth in the eastern U.S. that producers are seeking any and all outlets to get the gas to market,” . “It’s another obstacle for Canadian producers.” Home-grown Canadian drillers such as Calgary-based Birchcliff Energy Ltd. and Encana Corp., are already feeling the heat. Nine years ago, supplies piped from Canada met 16 percent of U.S. demand for natural gas. By 2014, as U.S. output rose to a record for a fourth straight year, Canadian supplies had slipped under 10 percent. Some Canadian producers will hurt more than others. Those who keep their costs down and sell to markets that don’t vie with supplies from the eastern U.S. will remain competitive, . Meanwhile Encana, one of Canada’s largest gas producers, has said it was cutting spending this year by 55 percent amid the slide in oil and gas prices. The company is also reducing its workforce another 20 percent, which means that Encana will have more than halved its number of employees and contractors since 2013.

TransCanada to buy Columbia Pipeline Group for $9.92 billion(AP) — TransCanada Corp., the Canadian company behind the Keystone XL pipeline, has agreed to buy Columbia Pipeline Group for nearly $10 billion as it expands in the U.S. Houston-based Columbia Pipeline owns 15,000 miles of interstate natural gas pipelines that extends from New York to the Gulf of Mexico. With the acquisition, TransCanada will have about 57,000 miles of pipeline in North America.  The acquisition comes after President Barack Obama in November quashed the Keystone XL after seven years of political wrangling, saying it would have undercut U.S. efforts to clinch a global climate change deal at the center of his environmental legacy.

South America Emerging as Market for U.S. LNG. -  Lately, it’s not just liquefied natural gas (LNG) prices that are headed south, it’s LNG cargoes too. A few days ago, the first LNG shipment from Cheniere Energy’s Sabine Pass liquefaction/export terminal was sent to Brazil, where a drought has slashed hydroelectric production and boosted the need for natural gas-fired power. Today we consider what’s driving LNG and natural gas demand in Brazil, Argentina and other countries in the southern half of the Americas, and what that may mean for U.S. LNG exporters and gas producers. Given the impact that LNG exports are expected to have on U.S. natural gas production over the next 15 to 20 years, it’s not surprising that the recent buzz about the destination of the initial LNG shipment from Sabine Pass in southwestern Louisiana rivaled interest in Kanye West’s self-promotional feud with Taylor Swift (well, almost). As we all know, the Kanye vs. Taylor brouhaha continues, and—more relevant to today’s blog—Chevron Transport’s 160,000 cubic meter Asia Vision LNG tanker left Sabine Pass on February 24, 2016 (see Commencing Countdown) and is, by now approaching the Salvador da Bahia Regasification Terminal (photo below), a floating storage and regasification unit (FSRU) moored at BaĆ­a de Todos os Santos (Bay of All Saints) at Salvador, in Brazil’s state of Bahia. (Golar LNG Partners owns the FSRU, which is also known as Golar Winter; Petroleo Brasileiro—Brazil’s state-owned energy company, also known as Petrobras—charters it.)

Go West, Young Molecule – Natural Gas Flows on REX’s Zone 3 East-to-West Expansion -- Tallgrass Energy’s Rockies Express Pipeline (REX) last week received final approval to begin construction on its Zone 3 Capacity Enhancement expansion project (Z3CE), which would expand east-to-west capacity out of the Marcellus/Utica shale production area to a record 2.6 Bcf/d. This project comes on the heels of REX’s East-to-West expansion (E2W), which came online last August and in one fell swoop gave Northeast producers their first substantial westbound firm forward-haul transportation capacity, totaling a full 1.8 Bcf/d. The upcoming Z3CE capacity (0.8 Bcf/d) will mark yet another milestone in the Great Pipeline Reversal that’s expected to ease supply congestion in the Northeast and support beleaguered Marcellus/Utica pricing points. That new capacity is not due in-service until late 2016. But now with nearly a full winter’s worth of pipeline flow data for the first E2W expansion, we can get a preview of potential impacts of the additional capacity on flows and pricing. Today we look at winter-to-date gas flows on REX and what they tell us about the Marcellus/Utica market.

Virginia lawmakers back natural gas pipeline — (AP) — A coalition of Hampton Roads state legislators is lining up behind the Atlantic Coast Pipeline. The 33 members of the General Assembly collectively known as the Hampton Roads Caucus expressed their backing for the massive natural gas project in a letter to Virginia’s U.S. senators, Democrats Mark Warner and Tim Kaine. The pipeline would deliver natural gas from West Virginia and through Virginia and into North Carolina, covering more than 550 miles. The $5 billion energy project is backed by Dominion Resources and other energy companies.  In the letter, the caucus says the region’s natural gas transportation system has “reached a tipping point.” Members describe the pipeline as necessary for the region’s economy. The Federal Energy Regulatory Commission is reviewing the project.

Pushed hard by opponents, Obama administration reverses, says no new drilling off SE Atlantic Coast: “Back in January 2015, the Obama administration pleased oil companies and kindled fierce opposition when it announced the Bureau of Ocean Energy Management’s five-year plan for offshore oil development off the southeast Atlantic Coast. Tuesday, Secretary of Interior Sally Jewell announced a surprising retreat:"We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast," Interior Secretary Sally Jewell said. "When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn't make sense to move forward with any lease sales in the coming five years." "With this decision coastal communities have won a 'David vs. Goliath' fight against the richest companies on the planet, and that is a cause for tremendous optimism for the well-being of future generations," said Jacqueline Savitz, environmental group Oceana's vice president for U.S. oceans. At the same time the department announced that 10 potential lease sales in the Gulf of Mexico and three off the Alaskan coast would be evaluated. The area off the southeast coast is estimated to have at least 3.3 billion barrels of recoverable oil 31.3 trillion cubic feet of natural gas. Even though governors and other leaders in Virginia, North and South Carolina, and Georgia supported drilling off their coasts, opposition

Brevard County approves fracking ban: Brevard County commissioners voted unanimously Tuesday to ban fracking within the county's borders. Under the ordinance, oil and gas exploration or production that uses "well stimulation" will be prohibited in Brevard, "including hydraulic fracturing, acidizing and acid fracturing." The ordinance also bans any well stimulation techniques originating outside Brevard "that in any way enters onto, into or under the ground within the boundaries of Brevard County." Speakers warned commissioners of the potential for water and air pollution, accidents, spills and methane leaks. Fracking is a controversial method of extracting oil and gas from deep underground. The drilling method involves injecting water, sand and chemicals underground to create fractures in rock formations, allowing natural gas and oil to be released. The process uses chemicals that the Centers for Disease Control and Prevention lists as cancer-causing or which could otherwise pose a public health risk.  On March 1, commissioners had unanimously passed a resolution opposing a Florida Senate bill that opponents of fracking fear would clear the way for the process in Florida. Senate Bill 318 died earlier this month in committee, but legislators have vowed to reconsider the bill in the future. Among Florida Senate Bill 318's most-controversial provisions was that it would have allowed only the state — and not counties or cities — to impose a ban on fracking.

Court Decision Could Accelerate Oil And Gas Bankruptcies -- Oil and gas data experts Evaluate Energy showed yesterday that U.S. E&Ps took a huge hit in 2015. With the value of total proved reserves in the sector declining by an astounding $515 billion dollars.  The chart below shows just how great the damage is, compared to reserves valuations the last few years.  Factors like that have caused an increasing number of high-profile E&Ps to file for bankruptcy in America. And a critical court decision this week could mean even more coming. That ruling came Tuesday in the bankruptcy proceedings of Sabine Oil & Gas, detailed by Energy Law360. Where a New York judge ruled that bankruptcy allows Sabine to cancel contracts it holds with midstream firms on the company’s petroleum licenses in Texas. Here’s why this is a sea change for oil and gas law. Sabine held three separate contracts with pipeline firms in Texas, for the transport and sale of oil and gas that the company produced. These contracts came with clauses like “deliver or pay” features — where Sabine was obligated to send minimum volumes of production through the pipeline, or pay financial penalties to the pipeline operators. Such contracts could have been a stumbling block in bankruptcy — requiring the company to deliver production or cash at a time when its operations have slowed or stopped. And so Sabine had challenged in bankruptcy court to have the agreements nixed. And the judge in the case agreed. Ruling that the midstream contracts are not “running with the land” — in essence, saying that the contracts are not inextricably tied to the land assets that underlie Sabine. The decision opens the door for Sabine to sever the contracts as it restructures in bankruptcy. A strategy that other E&Ps immediately jumped on — with bankrupt producer Magnum Hunter Resources yesterday striking a deal to cancel four midstream contracts as it restructures.

Pipeline officials work to contain gas spill in Sioux City (AP) — Iowa Department of Natural Resources officials say a pipeline company is working to contain a gasoline spill in Sioux City that reached a drainage ditch. Magellan Pipeline officials reported the spill Friday morning after finding a leaking pipe between tanks at their Sioux City bulk petroleum facility. They estimate that nearly 30,000 gallons of gasoline was released. It is unknown how long the pipe leaked. The company contained the spill before it could reach the Floyd River, but some fuel soaked into the ground and flowed into a tributary of the river. Magellan plans to excavate the contaminated soil. The company has set up booms to recover gas that spilled into a creek.

Proposed waste site in Nordheim sits over natural gas pipeline - -- Residents of the small DeWitt County town of Nordheim have been putting up a big fight for more than 3 years.They're trying to stop the approval of a permit application for a fracking solid waste disposal site, that if approved will be built directly over a natural gas pipeline."The disposal cell they want to put in is approximately 200 feet from my back porch and 240 feet from my water well," said Nordheim rancher Paul Baumann.It is too close for comfort for Baumann.If Pyote's permit is approved by the Railroad Commission, Petro Waste Environmental will construct and operate a waste treatment facility where much of the oil and gas solid waste from fracking sites all over the Eagleford Shale will be disposed."Let me go back to where I heard they've said, it's an ideal location for this type of facility. It's far from ideal," said environmental engineer Ed Von Dran.Von Dran, who has been hired by the Citizens Against Pollution group as a consultant, said the fact that the site is elevated won't be good for drainage.He also said the fact that it sits on top of a natural gas pipeline presents another set of issues."It's not structured to allow for trucks to be driven over it daily," Von Dran said.On the proposed plan, a Southcross Energy pipeline runs diagonally across the property.Petro Waste Environmental CEO, George Wommack confirms if the plan is approved, they will be driving trucks across the pipeline easement on a regular basis."You start driving these big trucks and heavy equipment around it, it's gonna shift," Baumann said.

Will Oklahoma Fracking Induce "The Big One"? - The “earthquake capital” title is one that Oklahoma’s state geologist, for his part, says the state doesn’t deserve. “We’re not the earthquake capital of the U.S.,” said Gerry Boak, director of the Oklahoma Geological Survey. If anything, he said, “we’re the minor league capital of the U.S.” Most of the Oklahoma quakes registered in 2015 were below 4.0-magnitude. Alaska registered a 7.1-magnitude earthquake in January —roughly equal to 1 million 3.1- magnitude quakes. That one quake alone was more powerful than all of Oklahoma’s earthquakes from last year combined, Boak says. California, too, tends to see more large (over 5.0-magnitude) quakes than Oklahoma, and seismic activity is spread throughout the state. In Oklahoma, the activity is concentrated in only about 16% of the state. That’s no coincidence: areas where quakes are happening are the same ones that have seen a boom in oil and gas production. Oklahoma may not be the earthquake capital, but Boak says, when it comes to earthquakes that have been induced by human activity, “there’s no place that can match Oklahoma.” The state is the largest example of induced seismicity in the U.S., probably the world. A recent post over at the data visualization site Metrocosm includes two graphics that bear out the connection. Here is a map showing the region where most of Oklahoma’s oil and gas production happens. All of Oklahoma’s injection wells, each one sized proportional to its annual injection volume. And here’s an animated graphic showing quakes over 3.0-magnitude since 2010 with that same area of Oklahoma outlined. Watch what happens in 2014 and 2015:

Fracking ballot initiative gets state OK for petition drive (AP) — Backers of a proposal that would let local governments regulate or ban fracking have won approval to circulate petitions to put it before voters. The (Colorado) Secretary of State’s Office said Thursday supporters have until Aug. 8 to gather more than 98,000 signatures. If they succeed, voters would approve or reject the proposal in the Nov. 8 general election. The proposal would amend the state constitution to give cities and counties more power to regulate environmental issues, including oil and gas development. It’s called Initiative 40.   At least three other proposals that could limit oil and gas drilling are awaiting approval from elections officials before proponents can gather signatures.

Idaho oil and gas commission starts rulemaking process (AP) — The Idaho Oil and Gas Conservation Commission on Thursday began the process of writing new rules for the oil and gas industry with input from the public under a new law aimed at speeding up energy production. The commission on a 4-0 vote set in motion a process known as negotiated rulemaking that will take months and is needed to align current rules with an industry-backed bill signed into law by Gov. C.L. “Butch” Otter on Wednesday. The new law makes the Idaho Department of Lands responsible for initial drilling decisions and the five appointed members of the commission more of an appellate body that approves or reverses those decisions. After the meeting, commission chairman Chris Beck said the change means experts will handle technical aspects and “we’ll be given the opportunity to make a decision if someone appeals it, and I think that’s appropriate.” Commissioners also voted 3-1 to approve a plan that outlines the overall strategy for the commission, which was formed in 2013.

North Dakota Oil Production Drops for Second Month - WSJ --North Dakota on Friday said crude-oil production fell 2.65% in January to the lowest level in 18 months, reflecting a sharp drop in prices, as the number of drilling rigs active in the state fell to the lowest level in more than a decade. Oil production in January, the latest data available, fell to 1.12 million barrels a day, down from 1.15 million barrels a day the previous month, according to the North Dakota Department of Mineral Resources. That was the lowest level since the 1.11 million barrels a day produced in July 2014, and a second straight month of declines. “We’re losing altitude pretty rapidly,” North Dakota Department of Mineral Resources Director Lynn Helms said at a news conference in Bismarck. “February and March production declines could be equal to or greater than what we’ve seen in December and January,” he said.  After remaining resilient in the face of lower crude prices for much of last year, crude output in the state’s Bakken Shale formation has begun to drift down toward the million-barrel-a-day mark as operators cut the number of new wells drilled.

Eagle Ford, Bakken production continues to drop — Two of the nation’s most-prolific shale plays continue to see production numbers drop slightly. The Eagle Ford Shale and Bakken formation produced less oil in January than in December, according to analytics and consulting group Platts Bentek. In fact, oil production from both Eagle Ford and Bakken formations reached their lowest levels since Platts Bentek started tracking them in October 2012. Eagle Ford production dropped by nearly 11,000 barrels per day in January. The shale play averaged a total of 1.4 million barrels per day. The Bakken produced 1.2 million barrels per day — a 3 percent decline from 2015 levels. An estimated 1,022 wells in the Eagle Ford Shale and 831 in the Bakken have been drilled, but not completed. Wells drilled after October 2015 were not included in the figure. Companies typically wait to hydraulically fracture existing wells in a better price environment.  West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, closed at $37.18 per barrel on Monday. In June 2014, a barrel of oil sold for $107. “Current internal rates of return in both the Eagle Ford and Bakken shales are weak, under 10 percent,” Platts Bentek analyst Sami Yahya said. “And producers need to continue generating cash flow for their operations. The number of active rigs in those basins has gotten so low that it is almost a certainty that producers are dipping into their inventory of drilled but uncompleted wells.” Existing wells are cheaper to complete because there are no additional drilling costs.

Slow Train Coming – The Decline and Fall of East Coast Crude By Rail -- If East Coast refiners bought their crude at the wellhead in North Dakota during February 2016 they would have paid average prices of about $4.90/Bbl below U.S. Benchmark West Texas Intermediate (WTI) at Cushing, OK – which works out at about $26.25/Bbl (price estimates from Genscape). If they shipped that crude by rail to refineries in Philadelphia, PA on the East Coast they would have paid about $14/Bbl rail freight - meaning the delivered cost of crude would be $26.25 + $14 or $40.25/Bbl. Alternatively they could have simply imported Bakken equivalent light sweet crude priced close to international benchmark Brent for an average $34/Bbl – saving a minimum of $6.25/Bbl. Today we describe how these economics have had a detrimental impact on crude-by-rail (CBR) shipments to the East Coast.

Cargo ship leaks unknown amount of oil in LA Harbor — Cleanup efforts are under way after a large cargo ship leaked an unknown amount of oil in Los Angeles Harbor. The Coast Guard says the leak was reported Sunday evening, where an oily sheen was visible near the vessel Istra Ace. Officials didn’t immediately know Monday how much fuel entered the water. Los Angeles Fire Department spokeswoman Margaret Stewart said late Sunday that the leak had stopped and a private cleanup company placed booms in the water to contain the oil. The Coast Guard, the California Department of Fish and Wildlife, Los Angeles Port Police and fire officials are investigating the leak.

Alaska included in future offshore lease sale schedule (AP) — The Obama administration’s five-year offshore drilling plan announced Tuesday includes three future lease sales off Alaska and six areas in state waters that will be closely reviewed for possible environmental and other conflicts with oil and gas activities. The plan by Interior Secretary Sally Jewell covers all potential federal offshore lease sales from 2017 through 2022. The public will have 90 days to comment. Most of the attention at Jewell’s news conference was directed at the elimination of potential drilling off the Atlantic Coast. Environmental groups were hoping there would be no lease sales in Arctic waters. The plan for Alaska includes potential sales in the Beaufort Sea in 2020, Cook Inlet in 2021, and Chukchi Sea in 2022. It calls for close review of a handful of areas important to migrating beluga, bowhead and gray whales and possible protections for hunting areas used by villages sprinkled along Alaska’s north coast.Cindy Shogun, director of the Alaska Wilderness League, said her group was disappointed that Arctic sites remain in the plan but appreciate that the locations could receive additional protection. “With the high risk of a large oil spill, drilling in America’s Arctic is irresponsible and risky,” she said in a prepared statement.

The Terrible Oil News Nobody Noticed - A terrible bit of news went unnoticed in the commotion amid the modest rebound in oil prices over the past two weeks. While every news outlet shouted about Iran and OPEC, a U.S. energy icon quietly announced news that could potentially shatter the industry. As I’ve explained recently, many oil companies are teetering on the brink of bankruptcy. But news out of Alaska could lead to disaster. BP Prudhoe Bay Royalty Trust (BPT) – operated by the Alaskan division of oil giant British Petroleum (BP) – sells oil from the Prudhoe Bay oilfield. It just announced a 65% drop in its economic oil reserves.   From 1968 to 2015, Prudhoe Bay was the most prolific oilfield in the country, according to the U.S. Energy Information Administration (EIA).  Even though an oilfield can hold a tremendous amount of oil, only some of that oil is profitable at certain prices. Those barrels are called economic reserves. And that’s where the problem lies. The U.S. Securities and Exchange Commission requires publicly traded oil companies to calculate economic reserves using an average oil price from the previous year. Here’s what BP Prudhoe Bay Royalty Trust’s price and reserve calculation look like…Prudhoe Bay is a giant legacy field, with a vast network of pipes and wells already in place. So production costs are lower there than in most shale fields. So if Prudhoe Bay’s economic reserves fall 65%, the rest of the industry is in big trouble.

Turning to frack tech, stricken U.S. oil drillers test new limits - (Reuters) - Fifty-stage frack jobs. Fifteen-foot cluster spacing. More than 2,000 pounds of proppant concentrate per foot. Top U.S. shale producers are pushing fracking technology to new extremes to get more oil out of their wells, as they weather lower-for-longer oil prices. While the impact of the techniques may be scarcely noticeable on current U.S. output with so few wells in operation, it could mean drillers are able to accelerate production more fiercely than ever once prices recover. The hunt for the next big technology to transform the process of fracking is still on, with companies looking at methods such as using carbon dioxide to coax more oil out of wells that have already been hydraulically fractured. Commentary from executives in recent weeks suggests they are doubling down on existing accomplishments and innovations to boost production. Pioneer Natural Resources is increasing the length of stages in its wells, Hess Corp is raising the total number of stages, EOG Resources is drilling in extremely tight windows, while Whiting Petroleum Corp and Devon Energy Corp have loaded up more sand in their wells, fourth-quarter earnings call comments show. Sector experts say these techniques could boost initial output per well by between 5 and 50 percent, demonstrating the resilience of the industry.

Many Shale Companies Are Unable to Ramp Up Oil Output - WSJ: The U.S. was supposed to be the world’s new swing oil producer, able to nimbly open and close the taps in response to market forces, thanks to its bounty of shale fields. But as oil prices show some signs of stabilizing, American producers and oilfield-services companies are warning that they may not be able to jump-start drilling. The reason: Many independent companies are too financially strapped, have let go too many workers, or have idled too much equipment to immediately ramp up again. “The balance sheets of these shale-only producers have to be repaired for them to get back to drilling,” said John Hess, the chief executive of Hess Corp. HES 0.42 % “That’s going to curb any recovery.” Just as U.S. output fell more slowly than predicted—even as oil plunged from around $100 a barrel in 2014 to $30—it is likely to be slower in recuperating, even if prices rebound to $50 a barrel or more, some oil executives and analysts now say. More than three dozen U.S. oil and gas producers plan to cut their capital spending for 2016 by nearly half, on average, compared with last year, according to a Wall Street Journal analysis of company financial filings. Some of the largest U.S. oilfield-services firms have laid off 110,000 people in the past year, Evercore ISI analysts estimate, and many of those workers have no plans to return to the industry. Close to 60% of the fracking equipment in the U.S. has been idled during the downturn, according to IHS Energy, which estimates it would take two months for some of that equipment to return.

Shale Sector Hampered in Role of Swing Producer — American oil producers and oilfield-services companies are warning that they may not be able to jump-start drilling despite their bounty of shale fields, Alison Sider, et al report. Many independent companies are too financially strapped, have let go too many workers or have idled too much equipment to immediately ramp up again. Some shale drillers are tempered by what occurred last spring, when producers jumped back into drilling new wells after oil prices briefly rose, inadvertently worsening a supply glut that ultimately made prices worse. “We have lost a lot of good people. They won’t be back,”  Meanwhile, hedge funds that own poorly performing high-yield debt issued by energy producers such as Continental Resources Inc. and Chesapeake Energy Corp. have been shorting the market as a way to hedge against further declines in the bonds, Christian Berthelsen reports. The paradoxical result is that these big investors are betting against themselves. Big oil producers have been negotiating for weeks on a deal to limit crude production in the hope of raising prices, but their talks are hitting obstacles, Benoit Faucon and Summer Said report. Separately, India wants to attract $25 billion in natural-gas and crude investment through reforms in the next few years, the Financial Times reports.

Is Fracking Industry Too Wounded to Respond as Oil Prices Bottom Out? - Eventually what goes down, must come up. And to the relief of everyone in the oil industry, the global energy watchdog, the International Energy Agency (IEA) believes that there are signs that oil prices “might have bottomed out.”   The oil price is certainly showing signs of recovery. Indeed, in its latest monthly report, the IEA notes that oil prices have risen by a whopping forty percent since early February. But as the OilPrice website notes, much of this rise has nothing to do with the fundamentals of the oil market—supply and demand—it is due to the fact that speculators believe the price could go no further down. Whether this recent rise is actually good for the oil industry is open to debate. Some analysts believe that the rise could become “self-defeating” as it will allow some American shale producers to ramp up production, after moth-balling certain operations due to the price plunge. One such analyst Jeffrey Currie, the head of commodities research at Goldman Sachs, argues“My concern is if the market surges right back to $50 a barrel … we just end up with another problem six months from now.” But whether the U.S. shale industry can just crank up production and act as what is known as a “swing producer,” is now open to debate. Restarting production overnight is just not going to happen. The shale industry may have cut itself too close to the bone to be able to start running again.  The industry has shed more than 100,000 jobs in the last year and these cannot be replaced at a click of the fingers. Some 60 percent of fracking equipment is idle or offsite. Alex Beeker, a Wood Mackenzie analyst says simply: a recovery “doesn’t happen overnight.” Others agree. According to today’s Wall Street Journal “As oil prices show some signs of stabilizing, American producers and oilfield-services companies are warning that they may not be able to jump-start drilling.”

Rex Energy lost $373 million last year - Utica driller Rex Energy lost $373 million last year in a glutted oil and natural gas market but expects to produce more this year. The company released its fourth-quarter and annual earnings report Tuesday. Rex Energy, based in State College, Pa., has the ninth most Utica Shale permits in Ohio and has 31 producing wells. The company’s annual loss works out to $6.85 per basic share. During the fourth quarter, Rex lost $100.5 million or $1.85 per basic share, according to a press release. During 2015, Rex produced 195.8 million cubic feet of natural-gas equivalent per day, an increase of 27 percent over 2014. Oil and natural-gas liquids accounted for 38 percent of annual production. The company spent $171 million on Marcellus and Ohio Utica operations in 2015. The company drilled 34 gross wells, fracked 39 gross wells and placed 33 gross wells in production. Gross wells are wells in which a driller has full or partial ownership. Rex expects to be reimbursed $18.5 million from ArcLight and $20 million from Benefit Street Partners under the terms of a joint exploration and development agreement announced March 1. In Carroll County last year, Rex drilled six gross wells and fracked three gross wells. The company placed four wells into sales during the first quarter Rex said it expects to produce approximately 200 million cubic feet of natural-gas equivalent per day during the first quarter of 2016. Annual production is expected to grow by 5 to 10 percent. The company expects to spend between $15 million and $40 million in operational capital in 2016.

Aramco, Shell to divide Motiva JV’s refining assets - Saudi Aramco and Royal Dutch Shell PLC have entered a preliminary agreement to separate assets of Motiva Enterprises LLC, the Houston-based refining and marketing joint venture equally owned and operated by the companies since 2002 (OGJ Online, Feb. 13, 2002).  Aramco subsidiary Saudi Refining Inc. (SRI) and Shell’s US downstream affiliate signed a nonbinding letter of intent (LOI) to divide the assets on Mar. 16, the companies said in a joint statement. Under the LOI’s terms, the partners have agreed to evaluate options and select an optimal deal structure in order to form a definitive agreement to divide and transfer Motiva’s assets, liabilities, and employees. As part of the proposed agreement, SRI will retain the Motiva name, assume 100% ownership of the 600,000-b/d Port Arthur, Tex., refinery, retain 26 distribution terminals, as well as maintain an exclusive, long-term license to use the Shell brand for gasoline and diesel sales in Texas, the majority of the Mississippi Valley, the US Southeast, and US Mid-Atlantic markets. In exchange, Shell will assume sole ownership of the 235,000-b/d Norco refinery—where subsidiary Shell Chemical LP already operates a petrochemical plant—and the 242,250-b/d Convent refinery, which Motiva previously announced will be integrated to create the Louisiana Refining System (LRS) (OGJ Online, Mar. 26, 2015).  Shell also will retain nine distribution terminals, as well as Shell-branded markets in Florida, Louisiana, and the US Northeast.

Shell, Saudi Aramco split assets, including big US refinery (AP) — Royal Dutch Shell PLC and Saudi Arabian Oil Co. will split up the assets of their joint U.S. venture, which will see the kingdom’s state-owned producer take full ownership of America’s biggest oil refinery, the companies announced late Wednesday. The Port Arthur, Texas, refinery, located about 90 miles (140 kilometers) east of Houston, produces some 603,000 barrels of oil a day, according to the U.S. Energy Information Administration. It had been part of a 50-50 joint venture between the two companies called Motiva Enterprises LLC, which formed in 1998. Under terms of the deal announced in a statement, a Saudi Aramco affiliate will retain the Motiva name and full control of the Port Arthur, Texas, refinery. It also will keep 26 distribution terminals and will have exclusive rights to sell gasoline and diesel under the Shell brand in Texas, the majority of the Mississippi Valley, the Southeast and Mid-Atlantic markets.   For its part, Shell will get sole ownership of refineries in Norco and Convent, Louisiana, as well as nine distribution terminals and Shell-branded markets in Florida, Louisiana and the Northeastern U.S. The companies did not disclose any preliminary financial details of the deal. Between the three refineries, Motiva said it produces some 1.1 million barrels of oil per day.

Energy Wars Of Attrition - The Irony Of Oil Abundance -- With the advent of North American energy abundance in 2012, petroleum enthusiasts began to promote the idea of a “new American industrial renaissance” based on accelerated shale oil and gas production and the development of related petrochemical enterprises.  Combine such a vision with diminished fears about reliance on imported oil, especially from the Middle East, and the United States suddenly had -- so the enthusiasts of the moment asserted -- a host of geopolitical advantages and fresh life as the planet’s sole superpower. “The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere,” oil industry adviser Daniel Yergin proclaimed in theWashington Post.  “The new energy axis runs from Alberta, Canada, down through [the shale fields of] North Dakota and South Texas... to huge offshore oil deposits found near Brazil.”  All of this, he asserted, “points to a major geopolitical shift,” leaving the United States advantageously positioned in relation to any of its international rivals. If the blindness of so much of this is beginning to sound a little familiar, the reason is simple enough.  Just as the peak oil theorists failed to foresee crucial technological breakthroughs in the energy world and how they would affect fossil fuel production, the industry and its boosters failed to anticipate the impact of a gusher of additional oil and gas on energy prices.  And just as the introduction of fracking made peak oil theory irrelevant, so oil and gas abundance -- and the accompanying plunge of prices to rock-bottom levels -- shattered the prospects for a U.S. industrial renaissance based on accelerated energy production.

Propane Stocks – Spinning Wheel - What Goes Up, Must Come Down -- Blood, Sweat & Tears 1969 hit, Spinning Wheel tells us: “What Goes Up, Must Come Down”, and U.S. propane stocks are no exception. Having built to a record 106 MMBbl the week of November 20, 2015, (according to the Energy Information Administration – EIA), storage congestion became the topic of the day, but while this record is noteworthy, what is far more significant is the rapid descent propane stocks have taken since late November in spite of the 2015-16 El Nino “winter of no winter”. This is the second non-winter that the U.S. has experienced over the past five years, the last one occurring in 2011-2012. However, there are big differences in today’s market dynamics relative to 5 years ago, namely propane exports to the tune of 850 Mb/d. In today’s blog, we’ll walk through the market dynamics that have resulted in extremely steep propane stock draws since late November 2015. It is no secret that propane production has been running strong as a result of the shale gas boom and we’ve previously detailed the implications of growing supply from gas processing plants which has more than doubled from 565 Mb/d in January 2010 to 1,135 Mb/d in December 2015 (down slightly from the peak of 1,167 Mb/d in October 2015). We covered the growing supply of propane, falling prices and increasing export volumes in Sail Away, the impact weather has on propane markets in A Perfect Storm, and how prices impact propane as a petrochemical feedstock in Beyond Hypothermia.  In addition, RBN produced a comprehensive study for the Propane Education and Research Council (PERC) in 2015 to assess how propane market developments could impact the prospects for disruptions similar to those that occurred during the “Perfect Storm” winter (2013-14), a summary of which was published in our Drill Down Report: Next To You and an extensive blog series including Can’t Get Next To You.

Fracking accounts for about half of U.S. oil production - Hydraulic fracturing accounts for about half of the crude-oil production in the U.S., the Energy Information Administration said in a report Tuesday. Hydraulic fracturing, also known as fracking, involves using a mix of water, sand, and other additives to coax oil and gas from dense rock formations, and has unlocked huge oil and gas deposits previously trapped in shale rock.  The technique has been around for more than 60 years, but only recently has been used to produce a significant portion of oil in the country, the EIA said. By 2015, the number of hydraulically-fractured wells grew to an estimated 300,000, and production from those wells grew to more than 4.3 million barrels a day, the government agency reported, using well completion and production data from DrillingInfo and IHS Global Insight. That output makes up about 50% of the country’s total oil output. Shale production had helped the U.S. surpass Saudi Arabia and Russia to become the world’s largest producer of oil in 2014, according to Platts. But the output growth contributed to a glut of oil supplies-- and a slump in prices that saw the U.S. benchmark CLJ6, +1.49% fall more than 70% from its mid-2014 peak.

Fracking and Oil Production Sources in the United States -- Even though hydraulic fracturing has been in use for more than six decades, it has only recently been used to produce a significant portion of crude oil in the United States. This technique, often used in combination with horizontal drilling, has allowed the United States to increase its oil production faster than at any time in its history. Based on the most recent available data from states, EIA estimates that oil production from hydraulically fractured wells now makes up about half of total U.S. crude oil production. Hydraulic fracturing involves forcing a liquid (primarily water) under high pressure from a wellbore against a rock formation until it fractures.  This injected liquid contains a proppant, or small, solid particles (usually sand or a manmade granular solid of similar size) that fills the expanding fracture. When the injection is stopped and the high pressure is reduced, the formation attempts to settle back into its original configuration, but the proppant keeps the fracture open. This allows hydrocarbons such as crude oil and natural gas to flow from the rock formation back to the wellbore and then to the surface. Using well completion and production data from DrillingInfo and IHS Global Insight, EIA created a profile of oil production in the United States. In 2000, approximately 23,000 hydraulically fractured wells produced 102,000 barrels per day (b/d) of oil in the United States, making up less than 2% of the national total. By 2015, the number of hydraulically fractured wells grew to an estimated 300,000, and production from those wells had grown to more than 4.3 million b/d, making up about 50% of the total oil output of the United States. These results may vary from other sources because of the types of wells included in the analysis and update schedules of source databases.

Methane Emissions Are Spiking, But Don’t Blame Fossil Fuels Just Yet - Since 2006, atmospheric levels of methane — a greenhouse gas 86 times more potent than carbon dioxide over a 20-year period — have steadily been on the rise. For years, scientists weren’t sure what was behind the rising levels of methane, but they had a few ideas: namely an increase in fossil fuel-related emissions. Now, a new study is pointing to a different culprit: agriculture-related methane emissions, especially from livestock and rice production.  Published last week in the journal Science, researchers from New Zealand’s National Institute of Water and Atmospheric Research (NIWA) found that the majority of methane released into the atmosphere since 2006 was produced by bacteria, pointing to sources like agriculture — rather than sources like fossil fuel production or the burning of organic material — as the culprit behind the increase in methane levels. The researchers were able to discern agricultural methane from other sources of methane by looking at the gas’ isotopic signatures — or the ratio of various carbon isotopes — using data from atmospheric monitoring stations around the world. By looking at the distinct isotopic signatures, the researchers could differentiate between methane produced from fracking, for instance, and methane produced from agriculture, because they each have different signatures.  The data also suggested that the increase in methane came from regions including India, China and Southeast Asia, suggesting that the rise was due to agriculture, not the growth of fracking in North America.

Hydraulic Fracturing Market Size, Share, Trends, Growth, Analysis and Forecast to 2022: Brisk Insights - - According to a recent research report published by, the Global Hydraulic Fracturing Market is expected to grow at the CAGR of 12% during 2015-2022 and it estimated to be $75 billion by 2022. The Global Hydraulic Fracturing Market is segmented on the basis of industry type and geography. The report on Global Hydraulic Fracturing Market Forecast 2015-2022 provides detailed overview and predictive analysis of the market. The Global Hydraulic Fracturing Market is expected to grow exponentially due to huge adoption of shale type such as Antrim Shale, Bakken Shale, Barnett Shale, Eagle Ford Shale, Fayetteville Shale Haynesville Shale Marcellus Shale and so on. The increasing demand for Global Hydraulic Fracturing Market by type such as Perf-and-Plug, Sliding Sleeve is major driver for the market. Global Hydraulic Fracturing Market is expected to contribute highest in North America followed by Europe. The global rise in exploration and production of shale in Global Hydraulic Fracturing Market products are expected to create huge scope in emerging economies. The rise in production and consumption of shale products are expected to boost the market significantly in the next few years.

The U.S. Is Exporting Its Oil Everywhere - Three months since the U.S. lifted a 40-year ban on oil exports, American crude is flowing to virtually every corner of the market and reshaping the world’s energy map. With American stockpiles at unprecedented levels, oil tankers laden with U.S. crude have docked in, or are heading to, countries including France, Germany, the Netherlands, Israel, China and Panama. Oil traders said other destinations are likely, just as supplies in Europe and the Mediterranean region are also increasing. One reason behind the rise in exports is cheap pipeline and railway fees to move crude from the fields in Texas, Oklahoma and North Dakota into the ports of the U.S. Gulf of Mexico. Another is that U.S. oil prices have been trading at a discount to Brent crude, allowing traders to move oil from one shore of the Atlantic to another at a profit. Exxon in early March became the first major U.S. oil company to ship American crude from elsewhere, sending the Maran Sagitta tanker from Beaumont, Texas, into a refinery it owns in Sicily, Italy. Days later, Sinopec lifted on the Pinnacle Spirt tanker a cargo of U.S. crude, a first for a Chinese oil group. Oil traders are starting to export American crude to store it overseas and profit from a market condition called contango. That’s where prices of oil for delivery today are lower than those in future months. Buyers with access to storage can fill up their tanks with cheap crude and sell higher-priced futures contracts to lock in a profit.

The "Surprising" Answer What Energy Companies Have Spent Their Newly Issued Equity Proceeds On - One week ago, as confirmation that the recent oil rally is merely being used by banks to force debtor companies to sell equity and to repay as much secured loans as possible, we showed the case study of Weatherford International and its primary banker, JPMorgan. As we laid out, Weatherford had been in talks with JP Morgan Chase, its key lender, to re-negotiate its revolving credit facility - the only thing keeping the company afloat. "However, in a move that shocked the financial markets, JP Morgan led an equity offering that raised $565 million for Weatherford. Based on liquidation value Weatherford is insolvent. The question remains, why would JP Morgan risk its reputation by selling shares in an insolvent company?" "According to the prospectus, at Q4 2015 Weatherford had cash of $467 million debt of $7.5 billion. It debt was broken down as follows: [i] revolving credit facility ($967 million), [ii] other short-term loans ($214 million), [iii] current portion of long-term debt of $401 million and [iv] long-term debt of $5.9 billion." But the biggest surprise was that JP Morgan is also head of a banking syndicate that has the revolving credit facility. It was a surprise because JP Morgan also happened to be the lead underwriter on Weatherford's equity offering.The punchline: the proceeds from the offering are expected to be used to repay JP Morgan's revolving credit facility.

Aubrey McClendon was driving 90 mph when he crashed - Oklahoma oil tycoon Aubrey McClendon was driving close to 90 mph just seconds before the fiery crash that killed him a day after his indictment on bid-rigging charges, Oklahoma City police said Monday. Based on black box data, investigators have determined that the former Chesapeake Energy Corp. CEO did not make any real attempt to brake before his natural gas-powered Chevy Tahoe slammed into an underpass in the March 2 crash. Oklahoma City Police Chief Bill Citty told reporters during a Monday press conference that McClendon “went left of center approximately 189 feet prior to that point of impact.” The 56-year-old fracking tycoon was not wearing his seatbelt before the wreck and, though he tapped his brakes repeatedly, “it’s not really enough to consider brakeage,” Citty said.“It didn’t really slow the vehicle.” In the last 31 feet before impact, the energy magnate let off the brakes altogether. Investigators believe the brakes were functioning properly. When he smashed into the bridge underpass, McClendon’s vehicle rotated about 7 feet counterclockwise and three wheels went airborne, causing the Tahoe to slow down to about 78 mph by the point of impact. McClendon suffered blunt force trauma and was probably dead before the flames scorched his body, Citty said.

Special Report: The final days and deals of Aubrey McClendon - Reuters -- A Reuters review of records and interviews show:

  • * McClendon no longer controlled the bulk of his most bankable venture, the one that helped make him a billionaire while he was CEO of Chesapeake: his stake in thousands of company oil and gas wells awarded to him during his tenure. Records show he was in the process of transferring the last of these interests to a company controlled by a close friend, Clayton Bennett of Dorchester Capital.
  • * His largest investor was halting all new business with him. The backer, Energy & Minerals Group of Houston, informed its investors just before his death that McClendon no longer held any leadership roles in related firms.
  • * McClendon had recently reached an undisclosed, tentative agreement to pay at least $3 million to Chesapeake to settle a legal dispute in which his former company had accused him of taking confidential data with him when he left in 2013 to set up his new company.
  • * By fighting the U.S. criminal indictment, he faced a potential public airing of his business tactics. McClendon’s own emails were expected to represent the bulk of the government’s evidence against him, say two people familiar with the matter.

Aubrey McClendon Left His Biggest Backer With Billions to Lose - The late Aubrey McClendon thrived on risk. John Raymond, his biggest backer, not quite as much. But with McClendon gone, the price of oil so low and debts piling up, Raymond could be in a tight spot. McClendon, who died March 2 in a car crash, had recently been ousted from Chesapeake Energy Corp. when he invited a handful of private equity firms to bankroll what he called “the second half of my career.” The terms outlined in the April 2013 pitch, obtained by Bloomberg, were so favorable to McClendon, however, that most investors turned him down, according to people familiar with the response. After some haggling, one of the few that accepted was Energy & Minerals Group, the firm led by Raymond, son of the former Exxon Mobil Corp. Chief Executive Officer Lee Raymond. Though there’s still time to salvage the bets, much if not all of the estimated $2.6 billion that an EMG fund put into a half-dozen enterprises set up by McClendon’s American Energy Partners LP could be lost, according to Carin Dehne-Kiley, a Standard & Poor’s credit analyst, who tracks three of the four biggest ventures. Side bets by EMG investors added hundreds of millions of dollars to that figure, said two people familiar with the matter who asked not to be identified because the information is confidential. That, too, is at risk. “There’s a good chance these guys will default in the next 12 months,” barring an oil-price rebound, Dehne-Kiley said of the EMG-backed American Energy Partners ventures that she tracks.

Short-sighted Clinton opposes fracking - Columbus Dispatch -- To my amazement, I watched Democratic presidential hopeful Hillary Clinton this past Saturday say that she would impose burdensome regulations on hydraulic fracturing. “By the time we get through with all of my conditions, I do not think there will be many places in America where fracturing will continue to take place.” Her words. As a landowner’s advocate, I have watched firsthand how the advent of hydraulic fracturing into shale has transformed Ohio. Every Ohioan has benefited from the shale boom. Huge sums of money have been shifted from the Wall Street “elites” to landowners in eastern and southeastern Ohio in the form of bonuses, royalties and pipeline fees. Local businesses have been invigorated by the influx of oil-field workers. Ohio’s tax base has broadened substantially. Every person who heats their home with natural gas enjoys remarkably low prices thanks to the near-unlimited supplies of methane released by the hydraulic fracturing of shale. I cannot fathom how a candidate for President, campaigning on promises of prosperity, would threaten to kill the golden goose that has blessed Ohio, Pennsylvania and West Virginia. “Fracking” is the very method by which the United States has become an oil exporter for the first time in two generations and has unlocked more proved, obtainable natural-gas reserves than any other country.

Hillary Clinton's Mistake on Fracking for Natural Gas - Hillary’s strong anti-fracking statement is, at the very least, politically unsavvy: battleground states Ohio and Pennsylvania are our key incremental natural gas producers, and fracking is their primary means to extract more gas. Ohio has the Utica shale gas play and Pennsylvania has the Marcellus gas shale play, and fracking is instrumental to energy and economic development in both states – crucial investments worth many tens of billions of dollars (here, here). Hillary should know that Ohio, Pennsylvania, and Florida (the last being increasingly a gas-based state that wants more fracked gas from the first two, here) remain the battleground states to focus on most because “since 1960 no candidate has won the presidential race without taking at least two of these three states.” And Hillary’s anti-fracking position appears highly hypocritical and illogical: she has been promoting fracking in other countries (see the facts on that from left leaning sites here, here). What’s even more strange for Hillary is that her former boss, President Obama, has been a supporter of fracking for natural gas (here, here, here)…not to mention California Governor Jerry Brown’s, a leading progressive on climate change policy, support of fracking (here). In fact, anti-fracking positions are a threat to the energy security of our entire nation, and will just make other states unfairly over reliant on Ohio and Pennsylvania gas (just ask New York how anti-fracking positions simply mean greater reliance on Pennsylvania’s fracked natural gas) – gas is just that much more reliable.

Oil industry dreads Trump-Clinton choice - Politico -- The staunchly GOP-aligned oil industry that championed George W. Bush and Mitt Romney isn’t yet willing to embrace Donald Trump — and some of its lobbyists wonder if they could stomach seeing Hillary Clinton in the White House instead.  It’s yet another sign of how Trump’s unconventional campaign and bombastic rhetoric have upended many of the traditional assumptions of presidential politics. For oil and gas supporters, the industry’s traditional allegiance to the Republican Party is bumping up against the GOP front-runner’s support for ethanol, his puzzling remarks about grabbing “a chunk” of the Keystone XL pipeline and his attacks on oil as just another “special interest.”  Among those expressing uncertainty is the industry's top lobbyist, American Petroleum Institute CEO Jack Gerard, who told POLITICO this month that he doesn't know whom he will vote for in November. "It's probably premature for me to judge," said Gerard, a former Bush campaign bundler who in 2012 was widely viewed as a potential White House chief of staff or energy secretary if Romney won.   Another oil industry source was even blunter about the prospects of a match-up between Clinton, who promises to crack down on oil and gas pollution, and Trump, who has accused Republican rival Ted Cruz of being "totally controlled by the oil companies." "Is there a Door Number Three?" the source asked by email.

Big Oil Is Scared of Trump for Terrible Reasons -- The Republican Party has few constituencies more loyal than the oil industry. Over the last two election cycles, the American Petroleum Institute has given 80 percent of its donations to GOP candidates. But with the party on the verge of nominating a reality star turned pseudo-fascist demagogue, even Big Oil’s eye is starting to wander across the aisle, Politico reports: The staunchly GOP-aligned oil industry that championed George W. Bush and Mitt Romney isn’t yet willing to embrace Donald Trump — and some of its lobbyists wonder if they could stomach seeing Hillary Clinton in the White House instead.They aren’t scared of Trump because he might destroy what’s left of our crumbling republic — they’re scared because he might not be committed to destroying the climate.“Would he take a carbon tax as part of a tax reform deal? Of course, because he cares about tax reform," said McKenna, the Republican energy lobbyist. "You start asking yourself policy questions, ‘Would he do X?’ The answer is usually yes."The lobbyists are also concerned by an interview the Donald gave to Field & Stream in which he came out against returning federal lands to the states. The oil industry believes those lands are best managed by local authorities who know their regions and are much easier to lobby for drilling rights.  “I don’t like the idea because I want to keep the lands great, and you don’t know what the state is going to do. I mean, are they going to sell if they get into a little bit of trouble?” Trump told the magazine. “And I don’t think it’s something that should be sold. We have to be great stewards of this land. This is magnificent land.”

Judge: BP not to pay oil industry losses from moratorium (AP) — A federal judge ruled that BP does not have to pay for economic losses other businesses suffered when the federal government shut down deep-water drilling in the wake of BP’s catastrophic 2010 oil spill in the Gulf of Mexico. U.S. District Judge Carl Barbier in New Orleans issued his ruling late Thursday. The Obama administration imposed a six-month drilling ban in the Gulf to prevent another disaster. The offshore industry called the moratorium a costly mistake. Barbier’s ruling came in a lawsuit brought by six companies involved in offshore drilling, but plaintiffs’ lawyers said thousands of similar claims worth billions of dollars would be affected by the ruling.

Obama Reverses Course on Drilling Off Southeast Coast - The Obama administration is expected to withdraw its plan to permit oil and gas drilling off the southeast Atlantic coast, yielding to an outpouring of opposition from coastal communities from Virginia to Georgia but dashing the hopes and expectations of many of those states’ top leaders.  The announcement by the Interior Department, which is seen as surprising, could come as soon as Tuesday, according to a person familiar with the decision who was not authorized to speak on the record because the plan had not been publicly disclosed.  The decision represents a reversal of President Obama’s previous offshore drilling plans, and comes as he is trying to build an ambitious environmental legacy. It could also inject the issue into the 2016 presidential campaigns, as Republican candidates vow to expand drilling.   In January 2015, Mr. Obama drew the wrath of environmentalists and high praise from the oil industry and Southeastern governors after the Interior Department put forth a proposal that would have opened much of the southeastern Atlantic coast to offshore drilling for the first time.  The proposal came after governors, state legislators and senators from Virginia, North Carolina, South Carolina and Georgia all expressed support for the drilling. Lawmakers in the state capitals saw new drilling as creating jobs and bolstering state revenue. But the offshore drilling proposal, which was still in draft form and was not to be finalized until later this year, provoked a backlash from coastal communities including Norfolk, Va., which supports the world’s largest naval base; Charleston, S.C.; and tiny tourist towns around Myrtle Beach, S.C., and on the Outer Banks of North Carolina. Over 106 of those coastal cities and towns signed resolutions asking Mr. Obama to shut down plans for new drilling.

Obama bans oil drilling along Atlantic seaboard  - The Obama administration abandoned its plan for oil and gas drilling in Atlantic waters on Tuesday, after strong opposition from the Pentagon and coastal communities. The announcement from Sally Jewell, the interior secretary, to bar drilling across the length of the mid-Atlantic seaboard reverses Obama’s decision just a year ago to open up the east coast to oil and gas exploration, and consolidates his record for environmental protection. In a conference call with reporters, Jewell said Virginia, North Carolina, South Carolina, Georgia and Florida would remain off-limits for drilling until 2022 because of coastal communities’ concerns about risks to their fishing and tourist industries from an oil and gas spill, and warnings from the navy about interference with its systems. “We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast,” Jewell said. “When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn’t make sense to move forward with lease sales in the coming five years.” Jewell left open a small possibility for future drilling in the Arctic, saying officials would still consider leases at three locations within the Chukchi and Beaufort seas, and Cook inlet. “We know the Arctic is a unique place of critical importance to many – including Alaska Natives who rely on the ocean for subsistence,” Jewell said. “We want to hear from the public to help determine whether these areas are appropriate for future leasing and how we can protect environmental, cultural and subsistence resources.”

Near-Record Cash `Comfort' for Canada Oil Firms Amid Price Rout -- Canada’s biggest oil producers are sitting on a near-record pile of cash, giving them the resources to keep investing and manage debt while weathering the worst price rout in a generation. The five largest oil producers including Suncor Energy Inc. and Cenovus Energy Inc. have a combined C$8.5 billion ($6.4 billion) in cash and cash equivalents, an increase of 7.6 percent from a year earlier and more than twice the levels seen during 2009 downturn. The figures, which are little changed from a record C$9 billion in 2014, don’t include the proceeds from Imperial Oil Ltd.’s recent sale of its Esso-brand gas stations for C$2.8 billion. “Sitting on cash and a healthy balance sheet has become a competitive advantage,” . “These guys still have a lot of capital they need to spend.” Divestitures, cost cutting, equity raises, and dividend cuts have helped bolster balance sheets as Canadian oil producers buckle down for the “lower for longer” prices Suncor Chief Executive Officer Steven Williams has described. Compared with the last downturn when commodity prices made a quick recovery, the industry isn’t betting on a return to high prices and needs the money to keep their operations expanding. Having cash is an important survival tactic as commodity markets remain volatile despite the recent recovery that saw oil prices rebound toward $40 from more than a 12-year low of about $26 a barrel in February. West Texas Intermediate is expected to average C$39.50 this year, according to the estimates compiled by Bloomberg.

Fracking review: Companies not required to negotiate land access under WA Government reform - Oil and gas companies that want to carry out fracking on West Australian land will not be obliged to negotiate with landowners, despite recommendations to Government to make it mandatory. The WA Government has announced it will adopt 10 of 12 recommendations made to them in November by an Upper House parliamentary committee and designed to beef up the regulation of the state's growing onshore oil and gas industry. The committee spent two years conducting a public inquiry into the implications of fracking, the practice used to extract onshore shale gas. The recommendations include increased fines for oil and gas companies that commit offences. The State Government argued a voluntary land access agreement that was brokered by the petroleum industry and agricultural groups in 2015 already existed, and hence did not need to be made compulsory. But the WA National's Member for Moore Shane Love said the agreement must be mandated to "give it real teeth". The State Government has also rejected a recommendation to form a statutory body to act as an independent arbiter for land owners and resource companies in land access negotiations.

In oil price plunge, North Sea industry faces perfect storm - The North Sea oil industry, the biggest and oldest in Europe, is struggling with a toxic combination of aging, drying wells and the recent plunge in oil prices, which is forcing companies to rethink investments and putting thousands of jobs at risk. Estimates suggest more than a third of some 330 oil fields in the U.K. North Sea will close in the next five years. “There is a sort of perfect storm,” “Those cumulative factors are going to negatively impact on the North Sea unless there is a fairly significant upsurge in the price of oil.” For the North Sea, each new bust accelerates its downward spiral, hurting the countries that tap it — Britain, Norway and to a lesser extent the Netherlands. Norway on Thursday slashed interest rates in a bid to help the economy manage the oil sector’s drop. In Britain, the government this week offered tax relief to oil companies to protect jobs and stem a decline in government income. Tax revenue from the industry dropped to 2.1 billion pounds ($3 billion) last year from 10.9 billion pounds in 2011-12. Some of the biggest platforms are being dismantled as the industry forecasts production will drop to 45 million tons of oil equivalent this year, less than a third of the 150 million tons produced in 1999. Shell, for example, has started the process of decommissioning the Brent oilfield — which has produced 3 billion barrels of oil equivalent since 1976 and gave its name to the international crude oil benchmark. Oil companies are expected to invest about 1 billion pounds ($1.4 billion) in new projects this year, compared with a recent average of 8 billion pounds, industry association Oil & Gas U.K. says. And it is hitting workers hard. Some 5,500 people have lost their jobs, or 15 percent of the 36,600 directly employed in the industry at the end of 2013, according to Oil & Gas U.K. The group estimates that total direct and indirect employment supported by the industry has fallen to 375,000 from a peak of 440,000.

Oil will be over $100 a Barrel in 3 Years (Video) - Here is the Oil Equation: Existing Supply minus Shale Destruction, minus Cap Ex Reductions, minus Depletion Rates Globally, minus Demand Growth versus Iranian New Supply. Oil will be above $45 a barrel by April, above $70 a barrel in fifteen months, and over $100 a barrel in 3 years once you start plugging in the numbers in the aforementioned oil equation. The scary thing is we now know what Russia, Saudi Arabia and OPEC have in terms of Spare Capacity - and it is much less than we thought five years ago.

Why Oil Producers Don't Believe The Oil Rally: Credit Suisse Explains - For the past month, the price of oil has soared by a 50% on no fundamental catalyst; in fact, the "fundamental" situation has gotten progressively worse with the record oil inventory glut increasing by the day even as US crude oil production posted a modest rebound in the past week after two months of declines, while the much touted OPEC/non-OPEC oil production freeze has yet to be discussed, let alone implemented. With or without a valid catalyst, however, the short squeeze price action has drastically changed not only investor psychology, but that of the IEA as well, which on Friday announced that oil may have bottomed (if the agency's predictive track record is any indication, oil is about to crash). But while traders, algos and CNBC guest "commodity experts" may be certain that oil will never drop to $27 again, someone else is not at all convinced that oil prices will not drop again: oil producers themselves. We first noted this earlier this week,since January, the spread between Brent for delivery on the 2020 end of the curve and crude for prompt supply has dropped by nearly $8 to around $10.71 a barrel. "Brent's flattening contango since January comes as many producers want to cash in immediately on recent price rises. They've been heavily selling 2017/2018 and beyond, and it shows that they don't quite trust the higher spot prices yet," said one crude futures trader."This means that even the producers don't really expect a strong price rally until well into 2017 or later," he said. The companies that explore for oil and pump it out of the ground have been locking in price gains by selling off future output as a financial hedge, pulling down prices for those contracts, said sources with some of the producers and traders who had been counterparty to deals.

Oil Prices Should Fall, Possibly Hard -- Art Berman - Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.  Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s. An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today. In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.” Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37% from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market. The problem is that neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful. Saudi Arabia and Russia are two of the world’s largest oil-producing countries. Yet in January 2016, Saudi liquids output was only ~110,000 bpd more than in January 2014 and Russia was actually producing ~50,000 bpd less than in January 2014. The present world production surplus is more than 2 mmbpd. By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”

Oil Plunges Back To Draghi Lows - Just as we saw with the stock market following Draghi's December disappointment dead-cat-bounce, WTI Crude has collapsed back topost-Draghi lows, erasing all the WTF bounce from Friday. The driver - aside from the fact that there was no driver of the ramp - appears to be comments from Emirates Bank on the resilience of US shale (and the surprising lack of production drops for now). US shale-oil producers could decide to stay in the game with prices currently hovering around $40/barrel, according to Edward Bell at Dubai-based bank Emirates NBD. Market participants expected some shale producers to be pushed out as they struggled to compete in the low-price environment, and while US production is falling, it's not been happening at a rapid rate. With prices well off their recent lows, shale producers could decide to weather the storm and try to keep output high. US production has dropped around 120K/day so far this year, but still remains above 9M barrels. Finally, given the total lies that were spewed about a March meeting of OPEC/NOPEC, it appears April is the new March... OPEC and non-OPEC producers are likely to hold their next meeting on a plan to freeze output levels in a bid to support prices in mid-April in Doha,three OPEC sources said on Monday. An earlier plan was to meet on March 20 in Russia, but sources familiar with the matter said last week this was unlikely to take place.

Oil Plunges Back To $36 Handle As Short-Squeeze Ends -  Remember last week when oil prices spiked despite a rise in crude production, inventory builds, continuing storage concerns at Cushing, and the admission that there is no March OPEC/NOPEC "freeze" meeting. Well that's all over. April WTI just broke back to a $36 handle - erasing all of those algo gains... Strong USD, weak Oil... Rinse. Repeat. As we noted previously, catching a falling knife is hard, especially when it’s covered in oil. The International Energy Agency today said oil prices may have bottomed out. Several people have tried to call the oil’s floor since prices started falling in the summer of 2014. So far nobody has been right. Of course it's different this time, this really is the bottom. Except, with ETF shorts having collapsed to "norms" the buyers of last resort will have their work cut out maintaining the dream with no one left to squeeze... Charts: Bloomberg

Why Oil Prices May Not Move Higher - Arthur Berman - The oil-price rally that began in mid-February will almost certainly collapse. It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long. WTI prices have increased 47 percent over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1). A year ago, WTI rose 41 percent in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally. Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing. International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are U.S. (1.35 billion barrels of liquids). For 2015, U.S. liquids consumption shows a negative correlation with crude oil storage volumes (Figure 3). During the 2015 false price rally, consumption began to increase in April and May following the lowest WTI oil prices since March 2009–response lags cause often by several months. Oil is accumulating in storage because of low demand and low prices. It makes more sense to pay the monthly storage cost (~0.65 per barrel) and sell the oil forward with ongoing futures contracts until the spot price increases and, hopefully, demand also increases. Many people think that the strip of futures contract prices are a reasonable guide to future prices. They are not. Futures prices mostly reflect the supply and demand of futures contracts. That in no way discounts the profound effect that futures trading has on oil prices. The WTI futures market is one of the biggest gambling casinos in the world. Bets are often made on sentiment that in turn is related to world events. Price fluctuations that are based primarily on sentiment, however, have little chance of lasting longer than the sentiment or related events that produced them.

Oil back below $40 as Iran dashes hopes for quick deal on output: (Reuters) - Oil fell around 2 percent on Monday after Iran dashed hopes that there would be a coordinated production freeze any time soon, returning bearish sentiment to the market over a supply glut that has sent prices crashing. Global benchmark Brent crude futures fell back below $40 a barrel, trading at $39.69 at 0903 GMT, down 70 cents on Friday's close. Brent hit a 12-year low of $27.10 in January. U.S. crude was down 79 cents at $37.71 a barrel. "Oil is down because Iran said they would only join the output freeze group once they reached production of 4 million barrels a day (bpd)," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates. Iran's oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, Iran's oil minister Bijan Zanganeh said on Sunday. Zanganeh poured cold water over hopes for a quick deal on freezing production, saying the OPEC member would join discussions only once its own output reached 4 million bpd. Zanganeh is to meet his Russian counterpart Alexander Novak in Tehran on Monday, according to news agency reports. Saudi Arabia appeared to have stuck to a preliminary deal with some other producers to freeze output as its crude production held steady in February at 10.22 million bpd, an industry source told Reuters. Worries about demand fundamentals also moved back into the spotlight as investment bank Morgan Stanley warned that a slowing global economy and high production would prevent any sharp rises in oil prices.

Oil ends down 2 percent on technical pressure, stockpiles worry | Reuters: Oil settled 2 percent lower on Tuesday, extending losses for a second straight day, as the market yielded to technical resistance after running above $40 a barrel and worry that U.S. crude stockpiles were rising despite falling production. Uncertainty over how the U.S. Federal Reserve will word its policy statement on Wednesday also fed jitters in financial markets.  The oil market will be on the look out later on Tuesday for preliminary data on U.S. crude stockpiles, due at 4:30 p.m. EDT from industry group American Petroleum Institute (API). The government-run Energy Information Administration (EIA) will issue official inventory numbers on Wednesday, forecast to show U.S. crude stockpiles at record highs for a fifth straight week. Crude had rallied about 50 percent over the past six weeks after talk that major oil producers planned to freeze output at January levels boosted a market that sank to 12-year lows on a supply glut.

Oil Pops After Lower-Than-Expected Crude Build -- Against expectations of a 3.2mm build, API reported a 1.5mm build after-hours today which sparked a modest pop in crude prices. Cushing saw its 7th weekly build (471k) as Gasoline extended its run of draws to the 4th week. API:

  • Crude +1.5m
  • Cushing +471k
  • Gasoline -1.2m

5th weely crude build, 7th weekly Cushing build, but 4th weekly Gasoline draw..

OilPrice Intelligence Report: Is The Latest Rally Yet Another False Start?: Oil prices lost some of their shine over the past week, as reality set in. Oil markets remain oversupplied, inventories are still rising, and hopes have faded surrounding OPEC’s ability to negotiate some kind of production cut. Iran punctured bullish sentiment when it said that it would not accept the OPEC-Russia production freeze deal until it had returned output to pre-sanctions level, which means that it has no intention of choking off output until it ramps up production by an additional 1 million barrels per day. Rally is too early. Even leaving aside Iran and the record high levels of oil sitting in storage, there could be a ceiling to the oil price rally due to the responsiveness of U.S. shale. A rally above $40 or $50 would bring U.S. shale production back online, due to the short lead times between new drilling and production. That would send prices back down. The key to a sustained rally is a more substantial cut back in production, which can only be possible if drillers are starved of capital, Goldman Sachs concluded recently. “An early rally in prices before a deficit materializes would prove self-defeating,” Jeffrey Currie, head of commodities research at Goldman Sachs, wrote in a March 11 report. A reaction from the shale industry could take longer than expected, others argue. With battered balance sheets, thousands of laid off workers, idled equipment, and depleted access to capital, it is not as if oil drillers can spring into action immediately. For example, North Dakota’s Director of Mineral Resources, Lynn Helms, thinks it could take oil prices rising above $60 per barrel before drilling picks up. “If you’ve been on a strict diet for a long period of time, it takes a while to put the weight back on,” Helms told reporters last week. As a result, even if oil prices rise, it will take time for damaged drillers to repair their balance sheets.

Why a Serious Oil Rebound is Not Coming Soon -- Oil prices have shown signs of life over the past few weeks, as production declines in the U.S. raise expectations that the market is starting to adjust. As a result, Brent crude recently surpassed $40 per barrel for the first time in months. The energy world has been speculating about declines from U.S. shale, and the declines are finally starting to show up in the data.  Despite the newfound optimism that oil markets are balancing out, crude oil sitting in storage is at a record high in the United States. Energy investors may have preferred to focus U.S. production declines, or the fall in gasoline inventories in early March, but meanwhile crude oil stocks continue to signal that oversupply persists.  Crude stocks rose once again last week, hitting yet another record of 521 million barrels. Storage levels at Cushing, Oklahoma, an all-important hub where the WTI benchmark price is determined, have surpassed 90 percent of capacity. U.S. output may be starting to decline, but it is doing so at a painfully slow rate.  It isn’t just a U.S. problem. Crude oil storage levels continue to climb around the world. Commercial stocks in the OECD surpassed 3 billion barrels in 2015. The EIA sees oil storage in the OECD rising to 3.24 billion barrels by the end of this year. It doesn’t stop there. Storage levels rise a bit more next year, hitting 3.30 billion barrels by the end of 2017. That is a staggering forecast that should scare any oil investor. It also suggests that the price rally over the past few weeks, which has pushed oil prices up around 40 percent since early February, could be fleeting. There is evidence that suggests the rally was driven by speculators closing out short bets on oil, after accruing net-short positions at multiyear highs in recent months. The underlying fundamentals, however, have not appreciably changed in recent weeks. U.S. oil production is declining, but more or less at the same pace that it has for months. On the other hand, rising inventories undercut the notion that the market is adjusting. As a result, as the short-covering rally reaches its limits, and the markets digest the fact that the world is still oversupplied with oil, prices could fall once again.

Major oil producers to talk output freeze in Qatar in April — (AP) — OPEC member states and other major oil producers plan to meet next month to discuss a freeze in oil output levels, Qatar’s top energy official said Wednesday. The gathering, which will build on earlier talks that included major suppliers Russia and Saudi Arabia, reflects a growing sense of urgency among producers to try to shore up crude prices following a steep drop that is straining their domestic budgets. Qatar holds the rotating presidency of OPEC and will host the upcoming talks, which are scheduled to take place the capital, Doha, on April 17. Some 15 oil-producing nations representing about 73 percent of world output have agreed to take part, according to a statement from Mohammed bin Saleh al-Sada, Qatar’s energy and industry minister. “The continuous efforts of the Qatari government have been instrumental in promoting dialogue among all oil producers to support the Doha initiative, helping the stabilization of (the) oil market to the interest of all,” al-Sada said in the statement,  Energy ministers from Russia and OPEC members Saudi Arabia, Qatar and Venezuela pledged to cap their output levels if others do the same in an effort to bolster oil prices during a meeting in Doha last month. Other major producers, including OPEC members Kuwait and the United Arab Emirates, have since expressed support for the initiative. The countries are seeking coordinated action because they are reluctant to give up market share to other producers.

Crude Slides After Cushing Build, Smaller-Than-Expected Gasoline Draw -- For the 7th week in a row, Cushing inventories saw a build (+545k) pushing to new record high stockpiles but that was offset by a smaller-than-expected build in overall crude (+1.3m vs +3.2m and less than API overnight). Smaller-than-expected draws in Gasoline and Distillates are helping to fade the early gains in crude. DOE:


Art Berman Clarifies Whatever Happened to Peak Oil -- KunstlerCast 275 — Kunstler - Original audio source

Crude Mystery: Where Did 800,000 Barrels of Oil Go? - WSJ: There is mystery at the heart of the oversupplied global oil market: missing barrels of crude. Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. Some analysts say the barrels may be in China. Others believe the barrels were created by flawed accounting and they don’t actually exist. If they don’t exist, then the oversupply that has driven crude prices to decade lows could be much smaller than estimated and prices could rebound faster. Whatever the answer, the discrepancy underscores how oil prices flip around based on data that investors are often unsure of. Barrels have gone missing before, but last year the tally of unaccounted-for oil grew to its highest level in 17 years. At a time when the issue of oversupply dominates the oil industry, this matters.“If the market is tighter than assumed due to the missing barrels, prices could spike quicker,” . Here’s how a barrel of crude goes “missing” in the data. Last year, the IEA estimated that on average the world produced around 1.9 million barrels a day more crude than there was demand for. Of that crude, 770,000 barrels went into onshore storage while roughly 300,000 barrels were in transit on the seas or through pipelines. That left roughly 800,000 barrels a day unaccounted for in the data. Global oil supply is about 96 million barrels a day.

Oil Jumps After Latest Output Freeze Meeting "News" --One of the most farcical instances of report-it-then-promptly-deny-it headline hockey since last summer’s Greek bailout drama has been the incessant barrage of “news” surrounding the oft-celebrated oil output freeze deal struck last month by the Saudis, Qatar, Venezuela, and Russia. At the time, the market was hoping against hope for an agreement to cut production. After all, Russia and Saudi Arabia are pumping at record levels. As we put it at the time, “it was not exactly clear how ‘freezing’ output at a record level will ‘stabilize and improve’ the market.” Still, this market will take what it can get at this point and since the “agreement” on February 16, prices have indeed risen and some of the gains have - rightly or wrongly - been attributed to the “freeze.”Casting a pall over the entire thing is Iran who, having just begun to ramp up production after the lifting of international sanctions, isn’t particularly excited about the prospect of taking its foot off the pedal. Asked about participating in the freeze, Oil Minister Bijan Zanganeh said last week that Tehran should “just be left alone,” until production reaches 4 million b/d. At that point, Zanganeh says, “we will join them.”Of course that’s a non-starter for the likes of Kuwait, whose own oil minister Anas al-Saleh recently warned that his country will “go full power” if everyone (and “everyone” includes the Iranians) isn’t on board with the deal. On Monday, Russian Energy Minister Alexander Novak spoke with Zanganeh on the phone and once the call was over, indicated that Moscow “understood” its ally in Tehran’s position. “Since Iran’s production decreased under sanctions, we totally understand Iran’s position to increase production and revive its share in the global markets,” Novak said, adding that “within the framework of major oil producers (OPEC and non- OPEC), Iran is liable to have an exclusive way for increasing its oil production.”

Global Oil Equation (Video) -  Costs for servicing oil projects have pulled back considerably after a nice decade of price spikes, but oil servicing costs are going to rise again, necessitating higher oil prices to justify capital allocation behavior. There is no cure for low prices like low prices when the globe utilizes around 95 million barrels of oil per day. Remember when oil spiked to $147 a barrel, well we were at 89 million barrels per day in global consumption. Global oil consumption is going to outpace the growth of global oil production over the next decade which is going to lead to a really tight oil market in the future.

WTI Crude Slides Back Into Red For 2016 As The Fed And Oil Remain On Unsustainable Paths -- Oil prices have increased 50 percent since the lows exhibited earlier this year, a rise that is largely linked to the positive market reaction to the OPEC output freeze.  But WTI Crude has given up all its early morning "see oil is fixed" gains in a hurry as once again the algo ramps give way to the realization that, as OilPrice's Leonard Brecken via,notes, comes even as for all intents and purposes OPEC has nearly reached its production limits and Iran still plans in increasing output. What started the entire correction, in my view, was the carry trade on buying the Euro ahead of more quantitative easing (QE) and the Fed playing games by talking up a recovery and threatening to raise rates. That created a double whammy on a strong U.S. dollar beginning in the summer of 2014 when oil prices peaked. At the same time, U.S. producers did manage to ramp up output even further in the second half of 2014, at a time of rising inventories. By the first half of 2015 things began to self-correct as inventories began to fall. Oil prices started to make a recovery but reversed as OPEC flooded the market with more oil, which began in late 2014. Meanwhile the nuclear deal with Iran opened up the prospect of a new source of supply, a fact that was overhyped by the media.Demand remained strong for gasoline despite the weakening global economy, much to the media’s surprise. Inventories rose in absolute terms, but in terms of days of supply, storage remained at much more modest levels, only eclipsing the upper end of the historic five-year range in 2016.

Collapsing Contango Means Tankers Full Of Oil Such As This One Will Soon Have To Unload Their Cargo -- One week ago we showed something the oil bulls did not expect: oil producer hedging had started.  As a trader cited by Reuters said "Brent's flattening contango since January comes as many producers want to cash in immediately on recent price rises. They've been heavily selling 2017/2018 and beyond, and it shows that they don't quite trust the higher spot prices yet."  He further explained that "This means that even the producers don't really expecting a strong price rally until well into 2017 or later," and Reuters added that the companies that explore for oil and pump it out of the ground have been locking in price gains by selling off future output as a financial hedge, pulling down prices for those contracts. We will have more to say on the topic of producer oil hedging, and specifically how they do it, in a subsequent post but for now it is worth noting that since last week the contango has flattened further as the spot price rose while the long end declined, suggesting even more hedging has taken place in recent days. One analyst who notes this trend, is Saxo Bank's Ole Hansen who observes that the rally in oil prices to 3 month highs has coincided with narrowing contangos that alter storage economics and threaten oil flooding back into the market. The reason for this is that storing oil, either on the ground or on ships, becomes less profitable the greater the flattening in the contango.  "As we’ve seen both Brent and WTI climb above $40 we have also seen the contango collapse." As examples, Bloomberg observes the WTI M1-M2 contango narrowing to earlier $1.25 today, the tightest since Jan. 22; while the WTI M1-M3 contango has reaches just $2.21, or the smallest in two months.

US rig count, at 476, is lowest in 67 years of record-keeping: Baker Hughes - The total US rig count, which on Friday stood at 476, is now at its lowest point ever in the 67-year history of the Baker Hughes numbers, according to data released by the oilfield service company. That is down by four from last week and down from 1,069 working the same week in 2015 and a recent peak of 1,931 in late 2014. The previous low was 488 in April 1999, Baker Hughes records show. Meanwhile, the US oil rig count posted its first gain in three months, rising by one to 387 amid speculation that a recent rally in crude prices could signal that a long-awaited industry turnaround may be at hand. The 387 oil rigs this week were down 53% from 825 the same week a year ago, and a recent peak of 1,607 in late 2014. Also, the Eagle Ford Shale in south Texas, one of the US' largest oil plays, gained three rigs this week to 40, although this was about a third of the 122 rigs employed there the same week in 2015, Baker Hughes data show. "I think we're close to the bottom" of the down cycle, analyst Kevin Simpson said, although he added he did not expect a pickup in drilling "quite this early." "Companies have obviously scaled their operations to a lower price than we are at now," and are cautiously watching US and international production and demand estimates for signs of market balance, Simpson said.

Crude prices fall from 2016 highs as U.S. oil rig count rises | Reuters: Crude prices settled lower on Friday after the U.S oil rig count rose for the first time since December, renewing worries of a supply glut after an output freeze plan helped boost the market to 2016 highs and multi-week gains. U.S. energy firms this week added one oil rig after 12 weeks of cuts, according to data by industry firm Baker Hughes. The addition, coming after oil rigs had fallen by two-thirds over the past year to 2009 lows, showed crude drilling picking up again after a 50 percent price rally since February. [RIG/U] "The rig count and crude prices have a direct relationship for sure," said Pete Donovan, broker at Liquidity Energy in New York. Brent crude finished down 34 cents, or 0.8 percent, at $41.20 a barrel, having risen $1 earlier to a 2016 high of $42.54. U.S. crude settled down 76 cents, or 1.9 percent, at $39.44, after also gaining $1 to a year high of $41.20.Despite the retreat, oil posted multi-week gains, with Brent up for a fourth straight week and U.S. crude a fifth week in a row. Both benchmarks rose about 2 percent this week. Over the past two months, prices rallied to reach above $40 after the Organization of the Petroleum Exporting Countries (OPEC) floated the idea of a production freeze at January's highs.

US oil closes lower on profit-taking; rig count rises: Crude prices slipped on Friday after the U.S oil rig count rose the first time since December, renewing worries of a supply glut after an output freeze plan helped boost the market to 2016 highs and multi-week gains. U.S. energy firms this week added one oil rig after 12 weeks of cuts, according to data by industry firm Baker Hughes. The addition, coming after oil rigs had fallen by two-thirds over the past year to 2009 lows, showed crude drilling picking up again after a 50 percent price rally since February. "The rig count and crude prices have a direct relationship for sure," said Pete Donovan, broker at Liquidity Energy in New York. Brent crude was down 24 cents at $41.30 a barrel, having risen $1 earlier to a 2016 high of $42.54. U.S. crude for April delivery settled at $39.44 a barrel, was down 76 cents, or 1.89 percent, after gaining $1 earlier to a year high of $41.20. Despite the retreat, oil recorded multi-week gains. Brent was up for a fourth straight week and U.S. crude for a fifth week in a row. Global oversupply in oil pushed crude prices down from mid-2014 highs above $100 a barrel to 12-year lows earlier this year, bringing Brent to around $27 and U.S. crude to about $26.

Rigged: Declining US oil and gas rigs forecast job pain - Brookings Institution - Lower prices mean oil and gas producers have less capital to invest in exploration and production, which means in turn that they employ fewer rigs. Since local employment in oil and gas states is more responsive to changes in rig counts than to oil prices directly, rig counts offer a revealing augury of employment trends.What does the rig tally say? Oil field services company Baker Hughes reports that the number of U.S. oil and gas rigs plummeted from 1,811 in January 2015 to just 489 at the beginning of March—down by 73 percent. North Dakota’s March count was 80 percent lower than in January 2015, while Texas was down 73 percent. A study from Rice University has estimated that the employment impact of putting a drilling rig into service creates 37 jobs immediately and 224 jobs in the long run, once all the relevant multipliers are factored in beginning with oil service company hiring, machinery and fabricated metal work, engineering, and management employment and ending with grocery store and pharmacy spending. Another study has found that the removal of an active rig eliminates 28 jobs in the near-term and 171 jobs in the long run. If this holds true, then the loss of 1,309 working rigs since January 2015 has the potential to lead to the loss of anywhere between 224,000 to 293,000 drilling-related jobs over the long term.

Norway's Oil Minister to Companies: Don't Shut Output - Oil companies operating in Norway should hike recovery rates from mature fields despite falling crude prices, and resist the temptation to shut output earlier than planned, Energy Minister Tord Lien said. "Companies are obliged to maximise the value of each field to prevent profitable resources from being squandered," Lien of the right-wing Progress Party told Reuters on the sidelines of an industry conference. "This is something we must focus on, and it is important to communicate to companies that they have an independent responsibility to follow up," he added. "It's important to be clear on this from the government's side." Lien declined to say whether he was satisfied with the efforts currently made by energy firms in upholding production. Norway's oil output will drop to 1.53 million barrels per day in 2016 and 1.41 million in 2020 from 1.57 million in 2015. The NPD has previously said that if prices stay low it could accelerate a fall in crude production after 2020 if companies quit fields early or cancel the development of new projects. As part of its cost cutting effort, state-controlled Statoil last year postponed a decision on extending the lifetime of its Snorre field to 2040. The upgrade has been estimated to yield an additional 300 million barrels of oil.

"They Should Leave Us Alone": Iran Wants No Part Of Oil Freeze Until Output Higher - On Tuesday, Kuwait's oil minister Anas al-Saleh delivered a rather stark warning to the rest of OPEC when he said the following about the much ballyhooed crude output freeze: "I'll go full power if there's no agreement. Every barrel I produce I'll sell.” That was a response to a question about what Kuwait would do if all major producers failed to agree to the freeze. Of course “all major producers” includes Iran and having just now begun to enjoy the financial benefits of being free to sell its oil without the overhang of crippling international sanctions, Tehran isn’t exactly thrilled about the idea of capping production at the current run rate of around 3 million b/d. As soon as sanctions were lifted, Iran immediately committed to boosting production by 500,000 b/d and said that by the end of the year, it would bring an additional 500,000 b/d of supply online. That would put Iranian production at around 4 million b/d total and, as we noted back in January, would mean the country will be raking in between $3 and $5 billion every month by the end of 2016.On Sunday, we got the latest from Iranian Oil Minister Bijan Zanganeh and the message was unequivocal: “They should leave us alone as long as Iran's crude oil has not reached 4 million. We will accompany them afterwards." So based on January’s ouput of 2.93 barrels, we’ve got a ways to go here. One can hardly blame Tehran. After all, the Saudis are producing at a record pace. So are the Russians. And so are the Iraqis. As Reuters writes, “sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.” There’s a lot of lost time (and money) to recover here and if everyone else gets to “go full power” - to quote Anas al-Saleh - then Tehran thinks they should as well.

Iran petroleum sector says US companies welcome to invest  (AP) — U.S. companies are welcome to invest in Iran’s oil and gas industry, the Iranian oil minister said on Sunday. State-run Press TV quoted Bijan Namdar Zangeneh as saying that “in general, we have no problem with the presence of American companies in Iran.” He said it is the U.S. government that is “creating restrictions for these companies,” without elaborating. Zangeneh also confirmed that Iran’s state-run oil company has held talks with General Electric. “Of course, my deputy conducted these negotiations and when I inquired about them, it was said that the talks were positive,” he said. GE said in a statement responding to questions about the talks that it is considering possibly doing business in Iran. “In line with the easing of sanctions, we have begun looking at potential business opportunities in Iran, while fully complying with the rules laid out by the U.S. government,” the company said. Are you a premium subscriber?…Start your 2 week trial now for just $1.00! The TV report said Zangeneh also asked Siemens executives to invest in Iran’s oil and gas industry. “The German company must come to Iran to build equipment and parts needed in our oil industry and manufacture them here,” he said. All sanctions related to Iran’s nuclear program were lifted in January under a landmark agreement reached with world powers, but the U.S. maintains separate sanctions related to Iran’s ballistic missile program and its support for State Department-designated terrorist groups.

U.S. Judge Orders Iran To Pay $10.5 Billion To 9/11 Victims And Insurers -- A New York City judge has ordered the Islamic Republic of Iran to pay more than $10.5 billion in damages to the estates and families of victims of the September 11, 2001, terrorist attacks on the World Trade Center and the Pentagon. U.S. District Judge George Daniels issued a default judgment on Wednesday, March 9, 2016, ordering Iran to pay $7.5 billion to the estates and families of the people killed in the tragic 9/11 incident. The total of $7.5 billion includes $2 million to the estates of each of the victims for the pain and suffering endured by their relatives and $6.88 million in punitive damages, according to Bloomberg.  Judge Daniels also ordered Iran to pay $3 billion to insurers, including Chubb Ltd., for losses incurred due to the payment of claims, such as property damages and business interruption, following the attacks. NY judge acquits #KSA in 9/11 case, rules against #Iran Read:  Daniels issued the default judgment after Iran failed to respond to the court summons to defend itself against allegations that the country was liable for damages because it helped the 9/11 terrorists. Judge Daniels’ latest judgment comes after he cleared Saudi Arabia of liability to pay billions in damages to the families of the 9/11 victims last year. After attorneys representing Saudi Arabia argued in court that there was no evidence linking Riyadh to the attacks, Daniels ruled that Saudi Arabia had sovereign immunity and agreed that there was no evidence that Saudi Arabia provided “material support” to the al-Qaeda terrorists.

US Government Blames 9/11 On Iran, Fines Iran $10.5 Billion; Iran Refuses To Pay -- On March 14th, Iran announced that it will never pay the $10.5B that a U.S. court demanded it pay for the 9/11 attacks. The same Bill-Clinton-appointed judge who had ruled, on 29 September 2015, that Saudi Arabia has sovereign immunity for 9/11 and so can’t be sued for it, ruled recently, on March 9th that Iran doesn’t have sovereign immunity and fined Iran $10.5 billion to be paid to 9/11 victims and insurers; but, on March 14, Iran’s Foreign Ministry said Iran won’t pay, because, as the Ministry’s spokesman Hossein Jaberi Ansari put it, "The ruling is ludicrous and absurd to the point that it makes a mockery of the principle of justice while [it] further tarnishes the US judiciary’s reputation.”  The United States is allied with Iran’s enemy Saudi Arabia, the largest purchaser of U.S.-made weapons, and also the top influence in the Gulf Cooperation Council of Arabic oil royal families regarding where they buy their weapons. Those purchases, which are crucial to the stockholders in Lockheed Martin and other U.S. weapons-makers, are determined basically by the Saud family, the owners of Saudi Arabia.

Saudis Open to Oil-Production Freeze Without Iran —Saudi Arabia, Kuwait and their allies would limit their oil output even if Iran doesn’t follow suit, OPEC officials said, a change in tone that paves the way for curbs on crude production to be set next month. The evolving position emerged after Qatar said Wednesday that it would host a meeting on April 17 in Doha for oil producers both inside and outside the Organization of the Petroleum Exporting Countries, the cartel that controls a third of the world’s crude production. The meeting would be a follow-up to a Feb. 16 pact among Saudi Arabia, Russia, Qatar and Venezuela to freeze their output at January levels in a bid to bring oil supply back in line with demand and raise prices that hit 12-year lows this year. On any given day, global oil supply of about 96 million barrels outstrips demand by almost two million barrels. Oil prices rose on Wednesday’s announcement. Brent crude, the international benchmark, was up 78 cents a barrel, or 2%, at $40.17 in London trading Wednesday afternoon. Saudi Arabia and its allies in the Middle East had said any agreement would be off if Iran refused to participate, but oil prices as low as $27 a barrel this year have hurt the Saudi economy and put domestic political pressure on the kingdom to move forward anyway, OPEC officials said.  Iran’s refusal is “not a deal beaker,” said an OPEC official from a Persian Gulf Arab country.  An agreement would have limited impact if it didn’t include Iran, the world’s seventh-largest oil producer trying to ramp up its output now that international sanctions have ended. Iran’s oil minister, Bijan Zanganeh, has said his country won’t consider joining until its production reaches four million barrels a day, up from about 3.2 million barrels a day currently. Mr. Zanganeh had initially expressed support for the freeze without committing to it. But after Saudi oil minister Ali al-Naimi appeared to insist at a Houston conference last month that Iran join the cap, Mr. Zanganeh publicly attacked the deal as “a joke” and said other producers should “leave us alone.”

Emergency Meeting; Iran Problem Solved; Moving From Production Freeze To Out-Right Cut -- March 17, 2016: one SeekingAlpha contributor is calling this an emergency meeting with this summary:

  • a Saudi source confirms emergency meeting
  • 15 OPEC and non-OPEC producers to attend
  • the Iran "problem" appears to be solved
  • producers' talk can support prices
  • they may even try for a cut to get relief

That was posted yesterday. Two key words. The first "key word" was "emergency." I can't disagree. The Mideast moves extremely slowly; the next regularly scheduled OPEC meeting is this June; they easily could have waited. June is but a few months away and they could always have done things "behind doors" but now, all of a sudden, April 17th.Second "key word": did you all catch that? Up until now it's been all about a "production freeze." All of a sudden we see the word, "cut."  And as noted on the blog the last couple of days, "the Iran problem appears to have been solved." I think the contributor is posting with a bit of hyperbole, along my lines (LOL) but it's getting very, very interesting. 

How Saudi Arabia Turned Its Greatest Weapon on Itself - FOR the past half-century, the world economy has been held hostage by just one country: the Kingdom of Saudi Arabia. Vast petroleum reserves and untapped production allowed the kingdom to play an outsize role as swing producer, filling or draining the global system at will. The 1973-74 oil embargo was the first demonstration that the House of Saud was willing to weaponize the oil markets. In October 1973, a coalition of Arab states led by Saudi Arabia abruptly halted oil shipments in retaliation for America’s support of Israel during the Yom Kippur War. The price of a barrel of oil quickly quadrupled; the resulting shock to the oil-dependent economies of the West led to a sharp rise in the cost of living, mass unemployment and growing social discontent. [...]Then, in 2011, Prince Turki al-Faisal, the former chief of Saudi intelligence, told NATO officials that Riyadh was prepared to flood the market to stir unrest inside Iran. Three years later, the Saudis struck again, turning on the spigot. But this time, they overplayed their hand. When Saudi officials made their move in the fall of 2014, taking advantage of an already glutted market, they no doubt hoped that lower prices would undercut the American shale industry, which was challenging the kingdom’s market dominance. But their main purpose was to make life difficult for Tehran: “Iran will come under unprecedented economic and financial pressure as it tries to sustain an economy already battered by international sanctions,”   All the evidence suggests that Saudi officials never expected oil prices to fall below $60 a barrel. But then they never expected to lose their sway as the swing producer within the Organization of the Petroleum Exporting Countries, or OPEC. Despite wishful statements from Saudi ministers, the kingdom’s efforts last month to make a deal with Russia, Venezuela and Qatar to restrict supply and push up prices collapsed.

Exclusive: Saudi Arabia orders 5 percent cut in contract spending | Reuters: Saudi Arabia's government, its finances strained by low oil prices, is opening a fresh austerity drive by ordering ministries to cut their spending on contracts by at least 5 percent, a document seen by Reuters shows. The spending cuts could further slow economic growth in the world's top oil exporter and hurt the construction industry, where many companies are struggling with deteriorating cash flow and rising labor costs. The document, sent by the central government to all ministries and state bodies, instructs them to reduce the value of outstanding contracts signed to support their operations, as well as construction contracts included in the 2016 state budget, by "not less than 5 percent of remaining obligations". It says these measures were proposed by the minister of economy and planning to "rationalize spending and increase its efficiency", and were approved by the king. Officials of the ministry could not immediately be reached for comment. The document leaves ministries to decide how contracts should be revised to make the required savings. It does not explain how the ministries should renegotiate contracts with their suppliers. Another clause in the document forbids ministries and government bodies from signing any contracts without the approval of the finance ministry. Previously, senior officials could agree small contracts without approval.

Saudi Arabia launches austerity drive to cut public spending - Saudi Arabia’s government, its finances strained by low oil prices, is ordering ministries to cut their spending on contracts by at least 5%, a document seen by Reuters shows. The austerity drive could further slow economic growth in the world’s top oil exporter and hurt the construction industry, where many companies are struggling with deteriorating cash flow and rising labour costs. The document, sent by the central government to all ministries and state bodies, instructs them to reduce the value of outstanding contracts signed to support their operations, as well as construction contracts included in the 2016 state budget, by “not less than 5 percent of remaining obligations”.It says these measures were proposed by the minister of economy and planning to “rationalise spending and increase … efficiency”, and were approved by the king. Officials at the ministry could not immediately be reached for comment. The document leaves ministries to decide how contracts should be revised to make the required savings. It does not explain how the ministries should renegotiate contracts with their suppliers. Another clause in the document forbids ministries and government bodies from signing any contracts without the approval of the finance ministry. Previously, senior officials could agree small contracts without approval. The Saudi government ran a record budget deficit of nearly $100bn last year and has been seeking ways to narrow the gap. It is laying plans to boost non-oil revenues with taxes, but that will take years to have much impact, leaving spending cuts as the main way to bring state finances under control.

The petrodollar fragility is out there  - Izabella Kaminska -  It was not too long ago that analysts and economists were arguing that core petrodollar states, such as Saudi Arabia, would be able to withstand a longstanding reversal in the oil price even as weaker petrodollar states such as Venezuela and even Russia took notable hits. Not so much any more. From Moody’s on Wednesday (our emphasis): We have changed our outlook for the Saudi Arabian banking system to negative, from stable. The change reflects the credit implications of our revised global oil price forecasts, which we expect to be lower for longer. It also captures new fiscal measures initiated in December by the Saudi government to tackle its rising budget deficit. The negative view reflects our expectation that the economic slowdown driven by the plunge in global oil prices and by government spending cuts will weigh on the Saudi banking sector over the next 12-18 months, although we expect banks will remain resilient, given their strong risk metrics. While credit growth will slow, loan performance will soften, and liquidity will tighten, we nevertheless expect the banks to continue to generate solid profits and maintain high capital buffers.  At issue, Moody’s notes, is the 14 per cent reduction in public spending announced by the Saudi government for 2016 and the new spending priorities being put in place: With the prospect of lower oil prices for longer and a fiscal deficit projected at around 15% of GDP in 2016, credit risks associated with a prolonged weakening environment have also risen. We believe the government may become increasingly selective in its spending priorities. This, in turn, would contribute to a more pronounced decline in business confidence and economic growth than currently foreseen in our baseline scenario.Whilst Moodys doesn’t put it this way, the other core issue is access to petrodollar liquidity and a changing perspective on whether distressed banks should always be state supported, meaning the government’s willingness and capacity to support banks in case of need should no longer be taken for granted.

New Guard Rises in Saudi Arabia as Oil Crisis Forces Rethink -- After a year of plunging oil prices, all eyes were on Ibrahim Al-Assaf, Saudi Arabia’s finance minister for two decades, to deliver a budget that could restore confidence in the kingdom’s finances. Yet it was Adel Fakeih, economy minister for just eight months, who strode onto a shiny green television set to announce spending cuts and subsidy reductions. Another familiar face missing that day was oil minister Ali Al-Naimi, whose words continue to move global crude markets as they have since 1995. Changes to domestic energy prices were explained by Khalid Al-Falih, chairman of Saudi Arabian Oil Co. and health minister. The lineup at the end of December was one of the first signs of a shift in power to officials seen closely aligned with King Salman’s influential son, Deputy Crown Prince Mohammed bin Salman, as Saudi rulers confront a harsh new era of lower crude prices. With many of the new policy makers holding private-sector resumes, their mission is to overhaul one of the world’s most generous welfare systems through measures that were unthinkable a decade ago. The world’s largest oil exporter can no longer rely on “the old way of doing things,” said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. “The economic and demographic challenges to the kingdom are too great, and they need to be resolved and confronted and addressed forcefully and quickly.”

Quiet Support for Saudis Entangles U.S. in Yemen— Adel al-Jubeir, Saudi Arabia’s urbane, well-connected ambassador to Washington, arrived at the White House last March with the urgent hope of getting President Obama’s support for a new war in the Middle East. Iran had moved into Saudi Arabia’s backyard, Mr. Jubeir told Mr. Obama’s senior advisers, and was aiding rebels in Yemen who had overrun the country’s capital and were trying to set up ballistic missile sites in range of Saudi cities. Saudi Arabia and its Persian Gulf neighbors were poised to begin a campaign in support of Yemen’s impotent government — an offensive Mr. Jubeir said could be relatively swift. Two days of discussions in the West Wing followed, but there was little real debate. Among other reasons, the White House needed to placate the Saudis as the administration completed a nuclear deal with Iran, Saudi Arabia’s archenemy. That fact alone eclipsed concerns among many of the president’s advisers that the Saudi-led offensive would be long, bloody and indecisive. Mr. Obama soon gave his approval for the Pentagon to support the impending military campaign. A year later, the war has been a humanitarian disaster for Yemen and a study in the perils of the Obama administration’s push to get Middle Eastern countries to take on bigger military roles in their neighborhood. Thousands of Yemeni civilians have been killed, many by Saudi jets flying too high to accurately deliver the bombs to their targets. Peace talks have been stalled for months. American spy agencies have concluded that Yemen’s branch of Al Qaeda has only grown more powerful in the chaos.

United Nations Warns ISIS in Libya Is Growing --The UN Security Council is worried about Libya—and rightly so. As we noted in February, the country has seen a doubling of Islamic State forces in recent months, and ISIS has expanded its control of territory, including Sirte, the home city of deposed leader Muammar al-Qaddafi. In a UN-issued report this week, the Security Council noted the Islamic State’s growing capacity, which has been buttressed by a flow of foreign fighters from places like Sudan, Tunisia, and Turkey. The development hasn’t gone unnoticed by the United States, which last month killed dozens of ISIS fighters (and two Serbian hostages) in airstrikes on a training camp. Ironically, the Libyan branch of ISIS, which grew largely from local militias in the failed state, is now promoting itself as the most credible defenders of Libya from outside forces, even as it absorbs fighters from abroad. “ISIL has been spreading a nationalistic narrative,” the UN report noted, “portraying itself as the most important bulwark against foreign intervention.” In the vacuum left by the U.S.-led intervention, the United Nations and a host of countries have been pushing Libya’s two governments and myriad competing militias to put aside their differences and help stabilize the country and its economy. Earlier this year, the head of Libya’s national oil company estimated the country had lost nearly $70 billion in potential revenue from petroleum exports because of the fighting.

India's Oil Demand On Verge Of "Take-Off" -- Oxford Institute For Energy Studies -- March 15, 2016  --The article: India's Oil Demand: On the Verge of 'Take-Off' -- from The abstract:   In this new era of slower Chinese growth, a new contender has emerged: India, which in 2015 was the main driver of non-OECD oil demand growth.  In this paper we argue that in addition to the boost from low oil prices, structural and policy-driven changes are underway which could result in India's oil demand "taking off" in a similar way to China's during the late 1990s, when Chinese oil demand was at levels roughly equivalent to current Indian oil demand. These changes include: a rise in per capital oil consumption (reflected in rising motorization of the Indian economy), a massive program of road construction (amounting to 30 km/day), and a push towards increasing the share of manufacturing in GDP by 2022 (which could increase oil consumption by at least a third based on a conservative linear estimate). This paper also examines the implications of a take-off in domestic demand for India's recently acquired status as a net petroleum product exporter Some data points:

  • India, not China, is now driving non-OECD oil demand growth
  • world demand growth is at its strongest since 2010 -- remember, this report was released this month; mainstream media would have us believe global demand (because of China) for crude is oil is declining
  • growth demand in 2015 was independent of stimulus (although the 50% fall in oil prices provided a significant boost to consumer demand)
  • China is slowing down; the new kid on the block looking for growth: India
  • India is soon likely to overtake Japan as the 2nd-largest oil consuming economy in Asia
  • India's GDP growth is estimated to have overtaken China's in 2015 (7.2% vs 6.9%)
  • India's history of oil demand for the past decade suggests a pattern consistent with countries at relatively early stages of income and development
  • the upsurge in India's oil demand growth in 2014 and 2015 suggest that "something is going on"

India in driver's seat as fuel demand roars at fastest rate ever | Reuters: Three hours east of New Delhi, in the village of Piplera, recently married Abhilekh Swami has stopped to refuel his first automobile, a Hyundai hatchback, at an Indian Oil filling station. Late model SUVs and Mercedes also ply the potholed roads and dusty lanes of the small gathering of dwellings in Uttar Pradesh. Swami, 28, an accountant with a private company, said he is averaging about 2,000 kilometres a month in the vehicle he bought last August, mostly for commuting to work, shopping and visiting relatives. Hundreds of thousands of Indians, spurred by cheap credit and rising incomes, are buying cars each month to free themselves from creaky, unreliable public transport. This is expected to help push India ahead of China as the energy demand growth leader, with its total fuel consumption rising by a tenth to a record in the fiscal year-to-date. Underpinned by annual economic growth of 7-8 percent, India's fuel demand is seen as a key oil price support over 2016-2017, eating into a supply overhang that has pulled down global crude as much as 70 percent since mid-2014. India has already pipped Japan as the world's third-largest oil consumer. By 2040, India will have more than doubled its current oil use to 10 million barrels per day (bpd), according to the International Energy Agency (IEA), about on par with China's consumption last year.

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