Sunday, March 6, 2016

oil rallies despite record glut, imports at a two year high; natural gas hits record low, rig count nears all time low, et al

oil prices have been moving up over the past few weeks and added another 10% to their prior gains this week, as traders are apparently looking past news of record inventories that would normally send prices lower, to a time when supplies are reduced enough to merit prices closer to the marginal cost of production, which we have certainly been below over the past few we saw last week, major frackers have finally thrown in the towel on completing wells, and that's sending the signal to market makers that prices had fallen far enough to dent the glut...prices for US crude, which closed the prior week at $32.78 a barrel, moved up every day this week until Thursday, when they briefly fell back 9 cents to close at $34.57, and then rallied again on Friday to close the week at $35.92 a barrel, the highest front month closing price for oil since the 5th of January....also contributing to the upward pressure on prices were repeated comments from Russian officials and OPEC that a global agreement to cap oil output is close...Russian Energy Minister Alexander Novak reportedly said countries producing 73% of the world’s oil had tentatively agreed to such a freeze...that they'd be freezing their output at a level that's been around 2 million more barrels per day than consumers have been using has, at least for now, escaped market participants...we’ll include below a chart of oil prices over the last 3 months, so you can visually see what this recent price rally has looked like…

March 5 2016 April WTI oil

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’s fairly obvious that oil prices are up over the last 3 weeks, but since the spread between contract prices for each month has become so extreme of late, it’s not even apparent from this chart how low prices crashed during that early February selloff….our records show that oil for March delivery traded as low at a 13 year low of $26.02 a barrel on Thursday, February 11th, before the unwinding of a $600 million triple short forced covered buying and drove oil prices up to close that week at $29.44 a barrel…since the April oil contract was not involving in that trading, charts such as the above show no sign of that price dive…still, when the media refers to historical oil prices, they’ll be referring to whichever month’s contract was active traded at the time, and hence in reporting on this week’s oil prices, the Wall Street Journal says Friday’s prices were up 37% from the low near $26 a barrel in February..

a different dynamic is influencing natural gas prices, however, as they matched their 17 year low of last week early and kept on falling until Thursday, when they closed at a record low of 1.639 per mmBTU, before they recovered a bit on Friday to close the week at $1.666 per mmBTU, down from last week’s closing price of $1.791 per mmBTU….the problem with natural gas is that domestic natural gas inventories are at seasonally record levels due to the combination of overproduction and a mild winter, and now the now the extended forecast is for well above normal temperatures in the Midwest and Northeast for the next two weeks, meaning even less consumption…the Weekly Natural Gas Storage Report released Thursday showed 2,536 billion cubic feet of working gas remained in underground storage in the lower 48 states, 45.6% more than the 1,742 billion cubic feet we had in storage last year at this time, and weather prospects are now that we might get through March without any normal winter consumption…that could mean that regional gas producers will be heading into summer with much of their storage capacity nearly full, with inadequate space to put what they produce in the summer months…the effect that such a prospect has had on natural gas prices is clear in the graph below, which shows prices for April delivery of natural gas at Henry Hub, a pipeline connection in Louisiana, on which other US gas prices are put $1.66 gas in perspective, the long term price graph we featured last week showed that natural gas prices ranged between $6 and $14 per mmBTU during the 5 years before fracking for gas became the norm..

March 5 2016 April natural gas

The Latest Oil Stats from the EIA

even though output of crude from US wells slipped again this week, our imports of crude jumped to their highest level in 2 years, and as a result this week saw the second largest jump in crude oil inventories in 15 years, as our inventories of crude hit yet another record....this week's Energy Information Administration data showed our field production of crude oil fell by another 25,000 barrels per day, from 9,102,000 barrels per day during the week ending February 19th to 9,077,000 barrels per day during the week ending February 26th...that was 2.6% below the 9,324,000 barrels per day we produced during the fourth week of February last year, the largest year over year drop since August 2012, and the lowest our oil production has been since November 2014...nonetheless, it’s still holding up, considering the drought of drilling and well completion…

at the same time, however, our imports of crude oil jumped by 490,000 barrels per day from the previous week to their highest level in two years, as we imported oil at the rate of 8,292,000 barrels per day during the week ending February 26th, up from the average of 7,802,000 barrels per day we were importing during the week ending February 19th, and 12.5% more than the 7,368,000 barrels per day we were importing during the last week of February last year...our imports of crude have now averaged 7.9 million barrels per day over the first two months of 2016, 7.5% higher than our imports during the first two months of 2015...although we've often mentioned the contango trade, wherein an oil trader will buy an imported cargo of oil and pay to have it stored while simultaneously entering into a contract to sell that oil at a higher price at some future date, as a factor in our higher crude imports this past year, an element that has come into play more recently is the spread between the prices of US crude, which closed at $33.07 a barrel on February 26th, and Brent crude, which closed at $35.10 a barrel the same day...apparently US Gulf Coast refineries would rather import cheap crude from overseas than pay shipping from the central US fields, such as the Bakken or Niobrara, when the prices are that the lifting of the oil export ban has had the perverse effect of pushing US oil prices closer to the international price, and thus creating incentives for more imports...

US refineries did pick up a bit of the slack this week, as they processed 15,852,000 barrels per day during the week ending February 26th, 167,000 barrels per day more than the 15,685,000 barrels per day they processed during the week ending February 19th, as the US refinery utilization rate rose to 88.3%, from 87.3% during the week of the 19th...that was 4.9% more oil than they processed during the last week of February last year, when US refineries were operating at 86.6% of fact, even though it's seemed like our refineries have slowed down in the face of the glut in products, they're really running at a pace somewhat above what they'd normally be running at at this time of year, which we can see from the chart below...

March 3 for February 26th 2016 refinery throughput

the above graph comes from Jack Kemp, oil analyst at Reuters, and as the heading says, it shows the amount of crude processed by US refineries at different times of year over the past ten years...the light blue shading shows the range of refinery throughput for each calendar week over the previous 10 years, and the blue dashed line shows the average amount of oil that US refineries use in any given calendar week...then, tracked in yellow, is the amount of oil US refineries consumed each week last year, obviously at the upper bound of what they had consumed previously, meaning their throughput each week last year had to be at least as high as the previous record high....crude processing this year to date is then shown in red, and it's pretty obvious that this year's refinery throughput has now been well above normal every week this year...

even with this week’s higher throughput, however, US gasoline production fell from it's near record high of 10,009,000 barrels per day during week ending February 19th to 9,335,000 barrels per day during week ending February 26th; that was even 2.0% below the 9,522,000 barrels per day of gasoline production we saw during the same week last year...however, our output of distillate fuels (ie, diesel fuel and heat oil) saw a corresponding increase, rising by 363,000 barrels per day to 4,801,000 barrels per day during week ending the 26th, which was also up by 3.3% from our distillates production of 4,645,000 barrels per day during the same week a year ago....with lower gasoline production, it wasn't a surprise to see our end of the week supply of gasoline in storage fall for the 2nd week in a row, after 14 consecutive increases, as our gasoline stockpiles fell by 1,468,000 barrels from 256,457,000 barrels as of February 19th to 254,989,000 barrels as of this week's report...however, those 254,989,000 barrels of gasoline were still 6.2% more gasoline than the 240,060,000 barrels we had stored on February 27th last year....and lest you think that the 2 week draw down of gasoline supplies might mean that we're in some way running short, we'll include a graph showing the recent history of gasoline inventories as tracked by the EIA...

March 3 for February 26th 2016 gasoline stocks

in the graph above, sourced from the weekly Petroleum Status Report (62 pp pdf), the blue line shows the recent track of US gasoline inventories over the period from June 6th 2014 to February 26th, 2016, while the grey shaded area represents the range of US gasoline inventories as reported weekly by the EIA over the prior 5 years for any given time of year, essentially showing us the normal range of US gasoline supplies as they fluctuate from season to season....notice that gasoline supplies are normally built up in early winter, just as they were this year, and typically start to fall during the late winter, as they are now doing, when refineries begin the process of switching over to their summer blends...then they run down throughout the summer driving season and finally bottom in September, when the cycle's also clear from that picture that our gasoline supplies first pushed into record territory at the end of 2014, where they stayed at seasonal highs until May of 2015, and that this year's records are now taking out last year's records by some margin...

now, while our gasoline supplies were slipping as they normally do during the last week of February, our inventories of distillate fuels, which also normally fall during the winter as stored heat oil is consumed, rose instead by 2,882,000 barrels to 163,597,000 barrels, up from 160,715,000 barrels as of February 19th...that puts our supplies of distillate fuels 33.0% higher than the 122,976,000 barrels we had stored at the end of February last year, and now distillate our fuel inventories are also well above the upper limit of the average range for this time of year - as are our inventories of residual fuel oil and our inventories of propane propylene...only our inventories of jet fuel aren't at seasonal record highs, but after 424,000 barrels of jet fuel were added to our supplies this week, the 42,430,000 barrels of jet fuel we have stored now is less than 100,000 short of the recent February high for jet fuel stocks set in 2012...

so, with only a modest increase in refining against the large jump in imports, we ended the week with even more excess crude in the country than the record level that we had last week, as our total inventories of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose by nearly 10.4 million barrels, increasing from 507,607,000 barrels on February 19th to 517,981,000 barrels on February 26th, the largest increase in our oil inventories in 11 months and 2nd largest increase in history...that left our stockpiles of crude oil 16.6% higher than the record for February set a year ago, and perhaps even more telling, 42.2% higher than our surplus oil stocks were on February 28th two years ago, before the oil glut really started building up....once again, so we can see what this looks like compared to recent history, we'll include a graph showing our recent oil stocks as compared to the prior 5 years...

March 3 for February 26th 2016 crude oil stocks

in this 2 year graph, copied from “This Week in Petroleum” from the EIA, the blue line shows the recent track of US oil inventories over the period from June 2014 to February 26th, 2016, while the grey shaded area represents the range of US oil inventories as reported weekly by the EIA over the prior 5 years for any given time of year, thus showing us the normal range of our oil inventories as they fluctuate from season to season....we can see that crude oil inventories typically fall through the spring and summer, when refineries are running flat out, much as they did this year, but we're now into the mid-winter period when oil refineries have cut back on operations, and when oil inventories typically rise, at least till mid April...note that the large grey wedge on the right now includes the oil inventory records that we were setting last year at this time (ie, it includes the image of the early 2015 blue line) which we are now exceeding by more than 15% each week...reports this week indicate that due to lack of regular storage space, oil traders have already taken to storing surplus crude in empty rail cars...between the end of February and the end of April last year we added 45 million barrels to our oil stockpiles...the question thus becomes can we find or build adequate storage facilities for the oil that we're importing and producing, or will it come down to filling every tank and swimming pool in the world with oil before fundamentals kick in, as BP CEO Robert Dudley warned would happen three weeks ago..

    This Week's Rig Count

    the past week saw another modest decrease in the number of rotary rigs actively drilling for oil and gas in the US that took the Baker Hughes rig count down to within a single rig of a record low... Baker Hughes reported that the total count of active rigs fell by 13 to 489 as of March 4th, as oil rigs fell by 8 to 392, the first time the oil rig count fell below 400 rigs in 7 years, while working natural gas rigs fell by 5 rigs to 97, another record low...this week's count was down from the 922 oil rigs and 268 gas drilling rigs that were deployed on March 5th of last year, 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...

    three of the rigs that were pulled out this week had been drilling in the Gulf of Mexico last week, so the offshore rig count is now down to 24, and down from 49 in the Gulf and a total of 51 offshore a year ago...a net of 8 horizontal rigs were stacked this week, cutting the count of horizontal drilling rigs down to 389, which was also down from the 895 horizontal rigs that were in use the same week last year, and down from the recent high of 1372 horizontal rigs that were drilling on November 21st of 2014.....5 directional rigs were also removed, dropping the directional rig count down to 42, which was down from the 120 directional rigs that were in use on March 5th of last year...meanwhile the vertical rig count remained unchanged this week at 58, which was still down from the 177 vertical rigs that were drilling a year ago...

    of the major shale basins, the large Permian basin of west Texas and eastern New Mexico saw 6 rigs pulled out, leaving 158, which was down from 333 rigs working the Permian last year at this time...3 more rigs were also stacked in the Williston of North Dakota, where 33 rigs remained, down from 108 a year ago, and down from the 198 rigs that were working the Bakken in October of addition, the DJ-Niobrara chalk of the Rockies front range, the Eagle Ford of south Texas, the Marcellus of the northern Appalachians, and the Mississippian shale of southwest Kansas and bordering states each had one rig pulled out; that left the Niobrara with 15 rigs, down from 34 last year at this time, left the Eagle Ford with 46, down from 149 a year earlier, left the Marcellus with 28 rigs, down from 62 rigs a year earlier, and left the Mississippian with 7 rigs, down from the 44 rigs deployed there last March 5th...single rigs were added in three basins this week; the Cana Woodford of Oklahoma, which now has 37 rigs active, same count as a year ago, the Granite Wash of the Oklahoma-Texas panhandle region, where they're back up to 10 but still down from 32 a year ago, and Haynesville of Louisiana, where they now have 15 rigs deployed, down from 38 a year ago....

    the state count tables show that Texas got rid of 4 rigs, leaving 227, down from 538 a year ago...March 4th also found North Dakota with 33 rigs, 3 fewer rigs than last week and 72 fewer than a year ago, and found Oklahoma also down 3 rigs to 70, down from the 139 rigs working the Sooner state last year at this addition, there were two rigs stacked in Colorado, which now has 17 rig still drilling, down from 39 a year ago...there were also single rig reductions in Louisiana, New Mexico, and West Virginia; those left Louisiana with 46 rigs, down from 100 at the same time last year, left New Mexico with 17 rigs, down from 61 a year earlier, and left West Virginia with 12 rigs, down from 17 rigs a year earlier....two states had rigs added; Alaska was up by 1 rigs to 12, bringing them back to the same number as a year ago, and Nebraskans also saw 1 rig added and now have 2, which is down from the 3 rigs that were drilling in Nebraska the same week a year ago...


    Politicians optimistic about future of oil and gas in the Ohio Valley - WTRF  - Hundreds were at Barnesville High School on Saturday for the National Association of Royalty Owners, or NARO, conference. The day-long event provided support and information for people who work or own land in the oil and gas industry. "You can't go anywhere in the world today and talk about energy and talk about oil and gas that you don't see a map of Eastern and Southeastern Ohio on the wall," Ohio Congressman Bill Johnson said. Oil and gas in the Ohio Valley is the resource that helps many put a roof over their head and food on the table. But times have been hard in the industry in the past few years. "No one has a crystal ball, but I am still optimistic long term about the future in Eastern Ohio when it comes to energy production," Ohio Senator Lou Gentile said. Legislation in Washington has caused coal mines to fold and miners to lose their jobs. "I'd just like to see a lot of our coal miners get back to work there has been a lot of lay off lately," Ohio State Representative Jeff Thompson said. The general public is just asking for money and jobs to come back into the region. "This is a resource that belongs to the people here," Johnson said. The elected officials and the people making policy decisions they need to understand that."

    Ohio Group Still Calling For Increased Fracking Tax - WOSU --Natural gas closed at a 17 year price low Thursday, and low prices have led to worry among lawmakers about the nature of Ohio’s oil and gas industry—but one group is still calling for an increase to the drilling tax.  A struggling market for natural gas has led top Republican and Democratic leaders to hold back on increasing the so-called fracking tax. But the liberal leaning think tank, Policy Matters Ohio, says data shows that companies pumped more natural gas from the state’s shale last year than the year before. "Every year that we wait and we don’t impose an adequate severance tax on growing production we lose an opportunity to invest in our own state," says Wendy Patton of Policy Matters.  Republican Senate President Keith Faber has suggested drawing up an increased tax plan now and put it into effect once the market rebounds.

    Environmental group appeals decision related to injection well - Athens County Fracking Action Network is appealing a court decision that rejected ACFAN’s effort to have the Ohio Oil & Gas Commission hear its objections to a permit issued for an injection well. The Messenger previously reported that ACFAN tried to challenge before the commission a 2013 state permit issued for K&H Partners’ second injection well in Troy Twp. However, the commission ruled it lacked jurisdiction, a position upheld last month by Judge Patrick Sheeran of Franklin County Common Pleas Court. Athens County Fracking Action Network has filed notice it is appealing Sheeran’s ruling to the 10th District Court of Appeals in Franklin County. The Ohio Department of Natural Resources and K&H Partners argued that the 2013 permit was not an injection permit, but instead was a drilling permit that by state law could not be taken to the Oil & Gas Commission. ACFAN had argued that the commission could consider the matter because the 2013 permit was actually an injection permit, based on an administrative rule governing injection wells. In agreeing that the commission lacked jurisdiction, Sheeran relied on written arguments that were filed in the case. He had denied ACFAN’s request for oral arguments to be made in court. Although the case is headed to the appeals court, ACFAN has another case pending in Franklin County Common Pleas Court before Judge Richard Frye. The second involves the same issues, but concerns a permit issued for K&H Partner’s third injection well in Troy Twp.

    Shipping Fracking Wastes by Barge - When GreenHunter Water LLC proposed shipping fracking wastes by barge, a lot of folks objected. The USCG decision last week to evaluate permits to barge fracking wastes case-by-case has not quelled public concern.  High volume hydraulic fracturing uses million and millions of gallons of water per well to extract natural gas from shale. During shale gas extraction, the water used is exposed to process chemicals plus metals and radon from the earth. GreenHunter was transporting oil and gas wastes using its over 400 truck fleet and the company needed permission from USCG and COE in order to shift transport from trucks to barges. In 2011, GreenHunter sought permission from the USCG to transport Appalachian fracking wastes by barge over the Ohio River. In 2013, GreenHunter made a parallel application to the COE to build a barge offloading facility on the Ohio River.  USCG expected the GreenHunter request to be the first of many to barge fracking wastes. Hence, USCG proposed a policy change in 2013 designed to standardize both the process for barge owners seeking to transport wastes from shale gas extraction as well as the information submitted to USCG. Public response to the proposals before both COE and USCG was robust and overwhelmingly negative. 70,094 comment letters were sent to USCG opposing transport of fracking wastes by barge; only 21 supported the USCG proposal to allow shipping of fracking wastes by barge. Of the 460 comments COE received, 447 asked COE not to grant the permit to build a barging facility.  On February 23, 2016, one year after COE permit was issued, USCG withdrew its proposal. Rather than issue a blanket policy, USCG said it would evaluate requests to barge fracking waste on a case-by-case basis under the existing decades old USCG regulations. 

    University of Cincinnati study finds fracking's bad rap is not supported - A three-year study by the University of Cincinnati in Carroll and surrounding counties determined hydraulic fracturing, or fracking, has no effect on groundwater in the Utica shale region, is not being released to the public. Dr. Amy Townsend-Small, the lead researcher for the University of Cincinnati Department of Geology, released the results during the Feb. 4 meeting of the Carroll County Concerned Citizens in Carrollton. During her presentation, which was videotaped and is available for viewing on YouTube, Townsend-Small stated, “We haven’t seen anything to show that wells have been contaminated by fracking.” When asked at that meeting if the university planned to publicize the results, Dr. Amy Townsend-Small, an assistant professor at the University of Cincinnati Department of Geology and the leader of the study, said there were no plans to do so. “I am really sad to say this, but some of our funders, the groups that had given us funding in the past, were a little disappointed in our results. They feel that fracking is scary and so they were hoping this data could to a reason to ban it,” she said. Rep. Andy Thompson, R-Marrietta, whose district includes Carroll, Harrison and Belmont counties, is calling for the university to release its findings. Thompson noted the study received state funding in the form of an $85,714 grant from the Ohio Board or Regents and federal funding from the national Science Foundation for an isotope ratio mass spectrometer.

    Fracking unsustainable as Chesapeake Energy closes -- For nearly a decade, government government officials in Pennsylvania have allowed fracking companies to exploit our land, our water and our people.. We couldn’t tax this industry at the state level, they said; that might drive the fracking companies away.  Chesapeake’s move isn’t the result of any government overreach, regulation or taxation. It’s simply the result of an industry that isn’t living up to expectations, that is unsustainable and that was a bad bet for Pennsylvania from the very beginning. It’s not just Chesapeake that’s down on it’s luck, though; it’s the entire industry that’s in a tailspin. So, the fracking companies are packing up and leaving Pennsylvania. And what are we left with?We’re left with patches of our state forests and other public lands clear cut to make way for fracking rigs and roads to allow heavy truck traffic in and out. We’re left with communities that lack access to clean drinking water and with residents of those communities who will suffer from the health effects of using contaminated water for years to come. We’re left with small towns that were destroyed in the wake of the fracking boom by rapid population growth that couldn’t be supported, causing rents to rise so much that lifetime residents were forced to leave, and causing crime rates to skyrocket higher than small police forces were able to handle.  State lawmakers encouraged fracking companies to come to Pennsylvania and wreak havoc while posting record profits for a few years, and —despite efforts by Democratic lawmakers in recent years—the state received no additional revenue in return. That’s a bad deal for Pennsylvanians.

    Inside the Fight to Frack Pennsylvania Township - Since the community began changing its zoning laws in late 2014, the pad, if approved, would be only the second shale gas site in Penn Township - a rural-residential suburb about 20 miles east of Pittsburgh in Westmoreland County.Penn Township hosts a mix of cookie-cutter single family homes in subdivisions and sprawling farms - some of which have been in families for generations. You can get away from city lights out here. Find a nice home and good school districts among picturesque rural scenery.But not for long, some fear.It's been nearly a decade since the shale industry planted roots in Pennsylvania, and this community is just experiencing its first shale development.It's this mix of suburbia-meets-rural landscape that's at the heart of the drilling debate in Penn Township: Many residents who live in residential areas don't want drilling near their homes - fearful of what the activity could mean for their health, property values and way of life.  Other residents want to lease their land to drillers. Editor's note: This is the first story in our Clearing the Air series about shale gas drilling in Penn Township. PublicSource has followed the events there since April 2015. We placed air quality sensors at five homes to monitor pollutants near the contested well pad for two months. The data collected are being analyzed. PublicSource will share the results with residents and report on what we found.

    First US Overseas Ethane Exports Ready to Set Sail. -- Just a few years ago, the possibility of overseas ethane exports was almost incomprehensible. Lack of infrastructure, high handling costs, no suitable ships and minimal market demand made ethane exports seem extremely unlikely.  But then the shale gas boom transformed the ethane market.  Now U.S. ethane production greatly exceeds demand and each day hundreds of thousands of barrels of ethane are being rejected into the natural gas stream.  Consequently a few pioneers are hammering through the challenges associated with overseas ethane exports, including the construction of specialized tankage, loading facilities, ships and unloading facilities.  And international chemical companies are spending hundreds of millions of dollars to modify olefin crackers to use the cheap feedstock.  Now the first of those pioneers has made it to the new ethane frontier. In today's blog we examine the impact of imminent ethane exports from the Energy Transfer/Sunoco Terminal at Marcus Hook, PA.

    West Virginia kills bill allowing private property survey (AP) — The West Virginia Senate has voted down a bill that would have let surveyors for natural gas pipelines enter people’s private property without permission. Senators voted 23-11 to kill a bill Monday that says letting surveyors for natural gas companies on people’s property is in the public interest. The legislation would have required trying to get consent to go on someone’s property. Companies would also have to send a notice of their intent to perform studies on someone’s property. The bill would not have required or prevented landowners from being present when surveyors were on site. The bill was one of several aiming to help natural gas companies in West Virginia.

    Coal, natural gas to get tax break in West Virginia (AP) — Gov. Earl Ray Tomblin has approved tax breaks for West Virginia’s coal and natural gas industries. The Democrat signed a bill Monday dropping additional severance taxes of 56 cents per ton of coal and 4.7 cents per thousand cubic feet of natural gas. The surtaxes have helped pay a workers’ compensation debt for years. Tomblin proposed dropping the two levies, and the Republican-led Legislature passed Tomblin’s bill. They would disappear July 1. Tomblin also can eliminate them earlier. The bill permits using the money until July 1 to help balance this year’s $384 million budget gap. Tomblin’s administration expects it would cost $51.5 million in lost coal revenue and $58.1 million lost from natural gas in the 2017 budget year. Standard severance taxes on coal and natural gas aren’t affected.

    Radioactive waste fuels calls for dump closure - A crowd of at least 300 people broke into loud applause Tuesday night when residents called on Estill County's top elected official to shut down a dump that state officials say accepted illegal radioactive waste from outside Kentucky for five months last year.Florida-based Advanced Disposal, which operates the landfill, "breached the community trust" not only by accepting the low-level nuclear waste from out-of-state oil and gas drilling operations, but also by accepting any waste at all from another state in violation of an agreement with Estill County, said Michael Wilson."Give them a cease and desist order," said Wilson, a banker in the Appalachian foothills community of Irvine."I have no problem shutting them down." said Estill County Judge Executive Wallace Taylor, adding later that such a decision "was for another day." But he said county officials had identified four violations of its agreement with the county, and "if we can verify they knowingly done something wrong, (company officials) will be locked up, and I will do it myself."For their part, the company blamed those who sent or delivered the waste, called TENORM, which officials said could cause lung cancer."It appears they misrepresented the waste," said Dave Retell, a senior manager with Advanced Disposal. "They told us one thing, and it seems it was something else."

    Kentucky to look at new fracking rules - Kentucky is making a bid for its own fracking boom, the sort of which has fueled economic growth and environmental concerns in Ohio, Pennsylvania and West Virginia – and the radioactive waste sent to two Kentucky landfills. While state officials investigate what they have called illegal dumping in Estill and Greenup counties, there's a new call for tightening rules on TENORM, as the drilling waste is called, before any big score in the Rogersville Shale formation of Central Kentucky. "We need a cradle to grave program that says here is where these wastes are being generated, here is who is managing them, and where they are being disposed," said Louisville attorney Tom FitzGerald, director of the Kentucky Resources Council. The Kentucky Oil and Gas Association "continues to be committed to the modernization and responsible regulation of the Kentucky's oil and gas industry," said Bob Barr, a board member of the industry group. A working group charged with making recommendations to modernize state oversight of oil and gas drilling needs to resume its deliberations, FitzGerald said. Kentucky Energy and Environment Secretary Charles Snavely said that group will begin work again and is being charged with evaluating potential remedies for harmful substances.

    Natural Gas Prices Fall Near 17-Year Low - WSJ: —The U.S. natural gas market faces another year of ultralow prices as winter comes to an end and the start of liquefied natural gas exports has failed to boost prices. Natural gas prices plunged 26% in February and briefly dropped to their lowest level since the 1990s Monday as weather forecasts for the next two weeks turned warmer. Winter typically marks the peak of natural gas demand as homes and offices turn up the heat. About half of U.S. households use natural gas as their primary heating fuel. But the El NiƱo weather phenomenon has kept temperatures warmer than normal across much of the U.S. this year, reducing natural-gas demand. Weather forecasts released Monday called for warmer weather in the next two weeks than previously expected, squashing any expectations that a late-winter cold spell could help shrink the oversupply of natural gas. Natural gas futures for April delivery settled down 8 cents, or 4.5%, to $1.711 a million British thermal units on the New York Mercantile Exchange. Prices settled at the same level last Thursday, when it was the lowest closing price reached since March 1999. Output remains high, even as companies have sharply cut spending on new drilling due to plummeting oil prices. The Energy Information Administration said Monday that natural-gas production in December was 0.3% lower than the prior month but 2% higher than a year before.

    Shale gale crushing natural gas prices: Natural gas is the cheapest it's been in nearly two decades, and it could get even cheaper, thanks to U.S. shale drillers. The U.S. is producing at a near-record pace, but the warm winter has only resulted in more oversupply as the industry heads into the time of year when it starts to store fuel for the next winter. Natural gas futures for April were trading at $1.66 per million BTUs Thursday, the lowest level since late February 1999. "The Northeast has been the main driver of the growth this winter, really contributing to those record highs. It's also been the driving force of the entire shale revolution of the past five years," said Thad Walker, Platts Bentek energy analyst. In the last decade, the U.S. was looking to import natural gas, but the "shale gale" has resulted instead in massive oversupply. The latest government data aren't helping. Natural gas futures sank even further after the weekly storage report showed demand for natural gas last week was well below normal. The U.S. Energy Information Administration said domestic inventories fell by 48 billion cubic feet last week, a shocker when compared to the normal 137 bcf decline usually seen at this time of year. "Demand hasn't been there and production is so high, and that's a nasty combination," "We're still getting a lot of stuff out of the Marcellus. Low prices aren't a deterrent." The Marcellus shale stretches from Upstate New York, down to Pennsylvania to West Virginia and over to Ohio. According to December data, drillers in Texas and New Mexico saw a decline in production but Ohio and Pennsylvania continued to add production.

    The Scariest Chart For NatGas Bulls -- With analysts calling NatGas's glut even bigger than crude's, the following 'chart' has just become the scariest in the world for the energy complex. As Bloomberg warns, if you live in the eastern U.S., it’s almost time to put that snow shovel away and get out the gardening tools, as March temperatures are expected to be considerably higher than expected across the entire US (except Florida, sorry). As Bloomberg continues, after a slight hiccup later this week -- which could bring a little sleet and even a few snowflakes -- the warmth that has dried out the West Coast and drought-stricken California during most of February will shift east. Temperatures may reach 8 degrees Fahrenheit (4 Celsius) above normal by mid-month from the Midwest to the Atlantic, and even higher across the Great Lakes and parts of Ontario and Quebec, said Commodity Weather Group LLC in Bethesda, Maryland. “The pattern is going to change,” March is expected to be considerably hotter than expected everywhere (except Florida)

    Report: Cheap natural gas leads to more plants and pollution (AP) — The nation’s boom in cheap natural gas — often viewed as a clean energy source — is spawning a wave of petrochemical plants that, if built, will emit massive amounts of greenhouse gases, an environmental watchdog group warned in a report Monday. The Washington-based Environmental Integrity Project said hydraulic fracturing of shale rock formations and other advances, such as horizontal drilling, have made natural gas cheap and plentiful — so plentiful that the United States has begun exporting gas. The watchdog nonprofit, which says its mission is to hold polluters accountable and champion environmental laws, is led by Eric Schaeffer, former director of the U.S. Environmental Protection Agency’s Office of Civil Enforcement. Thanks to this energy boom, the group calculated that if 44 large-scale petrochemical developments proposed or permitted in 2015 were built they would spew as much pollution as 19 new coal-fired power plants would. The report said all these projects potentially could pump about 86 million tons of greenhouse gases into the atmosphere each year. That would be an increase of 16 percent for the industry’s emissions in 2014, the report found. The report combined new natural gas, fertilizer and chemical plants and petroleum refinery expansions projects.

    Trees Cut as Maple Syrup Farmers Lose Eminent Domain Battle Over Constitution Pipeline  -- Guarded by heavily armed U.S. marshals, a Constitution Pipeline tree crew began felling trees in the Holleran family’s maple sugaring stand Tuesday while upset landowners and protesters looked on. The cutting began 11 days after Federal Judge Malachy Mannion dismissed charges of contempt against the landowners for allegedly asking a tree crew that had arrived on the property not to cut the trees. The charges were dismissed due to the prosecution’s inability to show enough evidence of violation of the February 2015 order that cited eminent domain in giving Constitution Pipeline Company permission to cut on the property without landowner permission. The judge expanded on the original order, adding a 150-foot “safety buffer” to be maintained around all tree-cutting activity, effectively extending the size of the Right of Way. All visitors and family members are remaining outside of the buffer while trees are being felled this week.  North Harford Maple is a family business owned by Cathy Holleran that produces maple sap and syrup utilizing their sugarbush, which includes 1,670 linear feet of the proposed 125-foot-wide right of way. “I have no words for how heartbroken I am,” Megan Holleran, a family member and field technician for North Harford Maple, said. “We’ve been preparing for this for years, but watching the trees fall was harder than I ever imagined it would be.”

    A Proposed Natural Gas Pipeline is Next to a Nuclear Power Plant. What Could Go Wrong?  - What’s scarier than an aging nuclear power plant? An aging nuclear power plant next to a natural gas pipeline. That could be the new reality for the Indian Point Energy Center, a nuclear power station located in Westchester County, just 45 miles north of Manhattan. A proposed expansion of a natural gas pipeline across the power station’s property has environmentalists and other groups concerned that an accident could turn the power plant into an unrivaled disaster. It’s a bit like smoking next to a gas tank — a gas tank filed with nuclear fuel near one of the densest population centers on the planet. Despite how ill-advised this sounds, the pipeline has already been approved by the Federal Energy Regulatory Commission. Why would they allow such a thing? Well, as the New York Times notes, approval was partly based on reviews carried out by the Entergy Corporation — which happens to be the same company that owns the plant. New York Gov. Andrew Cuomo, a resident of Westchester County, is not having any of it. Cuomo recently directed his administration to conduct an independent safety analysis of the pipeline project after hearing that radioactive water had leaked from the aging plant and into the groundwater. This is just the latest strike against Indian Point by the Cuomo administration, which called for the plant’s closure last year. “The safety of New Yorkers is the first responsibility of state government when making any decision,” said the governor in a statement.  The Nuclear Regulatory Commission, however, seems unconcerned. “Our expert confirmed that both units could safely shut down, even if the pipeline were to rupture and a blast of flame were to come from that line,” said Neil Sheehan, spokesperson for the commission.

    Cuomo administration requests halt on natural gas pipeline — The Cuomo administration has asked the Federal Energy Regulatory Commission to halt construction of a natural gas pipeline near the nuclear power station in New York City’s suburbs. State health, environmental, utility and security agencies say they are launching an analysis at Gov. Andrew Cuomo’s direction of the safety risks from Spectra Energy’s Algonquin pipeline that would run from Pennsylvania to New England.  Their analysis includes recent unplanned shutdowns at Entergy’s aging Indian Point nuclear plant, which Cuomo has questioned keeping open. It’s 25 miles north of New York City and its nearly 9 million inhabitants. Assembly members Sandra Galef and David Buchwald, both Westchester County Democrats, say they asked the governor last year for a safety assessment.  A call to FERC was not immediately returned Monday.

    NY inspectors find defects in rail line used by oil trains - (AP) — Rail inspectors report examining 215 crude oil tank cars, 190 miles of track and 26 switches, finding four critical defects and 16 others in the latest round of New York inspections. Targeted inspections began in 2014 following deadly derailments the year before in Canada and the U.S. and fires from volatile oil. Inspectors examined cars at the CSX yard in Selkirk, south of Albany, and at the Canadian Pacific yard in Albany, and tracks in the Adirondacks, central New York and Hudson Valley. The report shows four critical defects found along 29 miles of CSX mainline tracks between Rome and Syracuse. They were immediately repaired.

    Lawmakers: Delay permit for piping oil beneath St. Clair River — Two members of Congress want the Obama administration to put the brakes on a move to allow piping of crude oil beneath the St. Clair River through lines that are nearly a century old. Houston-based Plains LPG is applying to move the oil through two pipelines that run from Marysville, Michigan, to Canada. Because they cross an international border, the U.S. State Department has jurisdiction over the matter. The lines were constructed in 1918. A 30-day public comment expired quietly last week with very little feedback. In a letter to Secretary of State John Kerry, Reps. Candice Miller and Debbie Dingell say the proposal has caught many Great Lakes advocates by surprise. They ask him to suspend the permitting process and give more people time to comment.

    Forest Service seeks public comment on pipeline survey  (AP) — The U.S. Forest Service says the public can weigh in through March 21 on whether to allow surveys through the George Washington National Forest for a proposed natural gas pipeline. The energy companies behind the Atlantic Coast Pipeline are proposing a 14.3-mile route through the national forest for the $5 billion energy project. The pipeline would run from West Virginia, through Virginia and into North Carolina. The Forest Service is seeking comment on a revised pipeline path through the national forest. It rejected an initial proposal because of its potential impact on a rare salamander. Foresters say they’ll use the public comments and an environmental review to decide whether to issue a permit for the pipeline survey. Dominion Resources is partnering with other energy companies on the proposed pipeline.

    Cheniere Energy showcases first LNG export (VIDEO) - Cheniere Energy released a video highlighting the first ever export of liquefied natural gas from the continental United States. Aerial shots show tugboats guiding the tanker to Cheniere’s Sabine Pass LNG Terminal and workers pumping LNG into vessel tanks. The cargo was loaded onto the tanker Asia Vision on Feb. 24. Brazil’s Petrobras purchased the 160,000 cubic meter shipment, which will be taken to the company’s regasification plant in All Saints’ Bay, Bahia. The exported LNG will supply Brazil’s domestic market. Most of the cargo is expected to be used by thermal power plants. The Sabine Pass LNG Terminal is located on the border between Texas and Louisiana in Cameron Parish, La. The terminal has two docks deep recessed far enough so that no LNG vessel will protrude into the open waterway while docked. As of Wednesday afternoon, Asia Vision was located south of Barbados.

    Update Of Existing And Proposed US LNG Export Terminals -- March 4, 2016; Introduction Of The CAVE Dwellers  -- EIA map of existing and proposed LNG export terminals in the US at this link.

    • Four LNG export terminals are currently under construction: Dominion Energy's Cove Point LNG facility in Cove Point, Maryland, is scheduled to bring one train totaling 0.82 Bcf/d online near the end of 2017.
    • Corpus Christi LNG, another Cheniere project, is under construction in Corpus Christi, Texas. The terminal is scheduled to begin service in 2018, with total permitted capacity at 2.14 Bcf/d.
    • Sempra Energy's Cameron LNG terminal, located in Hackberry, Louisiana, is under construction and is scheduled to bring three trains online in 2018. A total of 1.7 Bcf/d has been permitted.
    • Freeport LNG's terminal planned for Freeport, Texas, has three trains under construction totaling 1.8 Bcf/d. The first two are scheduled to begin service in 2019, and the third in 2020.
    • Another terminal, Southern Union's Lake Charles (Louisiana) LNG facility, has been approved by FERC but is not yet under construction. Lake Charles also has an LNG import terminal. Several more LNG export terminals, mostly on the Gulf Coast, have been proposed or have pending applications with FERC.
    One can, of course, scratch off the two proposed LNG export terminals in the Pacific Northwest and the one in Maine, both part of the "no-growth sanctuary regions" of the US where CAVE dwellers now reside. The Citizens Against Virtually Everything have strongholds in several regions across the US, but are probably most prominent in the heartland of America, the Pacific Northwest, northern California, and the New England states.

    Drillers: Oil well rules dire for business; others disagree (AP) — An industry-funded study warns of dire consequences if pending rules to prevent another catastrophic oil spill in the Gulf of Mexico go into effect, but critics questioned that claim. The dire economic analysis was done by Wood Mackenzie, a business research firm, and commissioned by the Gulf Economic Survival Team, a Louisiana-based industry group. The study was released Monday. Drilling companies and their supporters in Congress have blasted the safe-drilling regulations, known as the “well control rules.” They’re an outgrowth of BP’s catastrophic oil spill in 2010, which spewed millions of gallons of oil into the Gulf. Supporters say the rules are vital in making the industry safe. According to Wood Mackenzie, the regulations could raise drilling costs by 20 percent or more. In worst-case scenarios, the analysis said exploration could drop by as much as 55 percent; less drilling could translate to $70 billion in lost state and federal tax revenues by 2030 and up to 190,000 lost jobs. Critics called this forecast unrealistic. Regulators have estimated the safety measures won’t be a major burden and would save money by preventing costly oil spills and saving lives.

    Bill Banning Fracking Bans Gets Shut Down In Florida Senate - It wouldn’t have been the first time something like this happened. People in small towns and counties get together, vote, and agree to ban fracking. And then the state legislature comes in and passes a ban on bans.  But not this time.  The Florida Senate’s Appropriations Committee has finally killed a bill that would have stopped towns from banning fracking, a week after the committee voted the measure down by a 10-9 vote. The bill’s sponsor, Sen. Garrett Richter (R) made a motion Tuesday to not consider the bill.  “This is a controversial subject. The controversy will continue, and I daresay it will draw even more concerns,” Richter said. “I can pretty much assure you demand (for oil and gas) is not going to go away, but Senate Bill 318 is going away.” Every senator on the committee represents a county that has opposed the bill, numerous sources reported.  A House version of the bill passed that chamber in January. And, in fact, this is the second time a bill to ban fracking bans has passed the House and then died in the Senate.  Environmentalists in the Sunshine State celebrated the decision Tuesday and called for more protections of Florida’s water. “Today’s decision is a victory for the health and safety of families throughout the state as well as everything that makes Florida run — tourism, agriculture and fishing,” Wenonah Hauter, executive director of Food & Water Watch, said in a statement. “However, the legislature’s job isn’t done. Even today, dangerous practices like acid fracking could still move forward in the future and threaten the health and safety of countless Floridians.”

    Public outcry spurs Florida to drop Everglades fracking bill: Florida environmentalists have had a bit of good news after state lawmakers, bowing to public outcry, unexpectedly dropped a bill backed by the oil industry that would have promoted fracking in the ecologically sensitive Everglades. At least 40 local authorities statewide had already passed ordinances and resolutions banning fracking for oil and natural gas on their lands, and they would have been forced to cede this to a single state agency if the bill had become law, The Guardian reports. Today was a good day for democracy and the Florida Everglades, said Kim Ross, of Floridians Against Fracking. This grassroots group of activists organized scores of rallies in recent months, including one in which 100 people protested at the capitol building on Tuesday. "The people of Florida voted close to 80 percent to say they didn't want frack," she said, noting that the bill "really awakened a sleeping giant." "This is only a small part because the Everglades needs so much more," she said. "There are all kinds of water and pollution issues. But for today at least this is a great and wonderful moment.

    Oil pipeline protesters interrupt Minnesota water summit (AP) — Gov. Mark Dayton asked more than 800 people attending his inaugural Water Summit on Saturday to brainstorm ideas for solving Minnesota’s water quality challenges, but not before opponents of the proposed Sandpiper crude oil pipeline interrupted his remarks to urge him to play a greater role in scrutinizing the project. Just after Dayton took the stage in a downtown hotel ballroom, the megaphone-wielding protesters joined him on the stage, holding banners that said, “Love Water Not Oil.” They also said tribes should have been given a more prominent role in the summit, since the pipeline would cross sensitive lands and wetlands that are important to Minnesota’s Ojibwe Indian bands. The 616-mile Sandpiper would carry North Dakota crude oil across northern Minnesota to Enbridge’s terminal in Superior, Wisconsin. Dayton agreed to meet with the protesters after his speech and they quietly left the stage after a couple of minutes. But the incident illustrated how deeply many Minnesota residents treasure their water in the Land of 10,000 Lakes.

    BLM proposes flaring rule that could have big impact state revenues, royalty owners -- A new rule will be presented by the Bureau of Land Management Thursday in Dickinson that could have a big impact on state tax revenues and royalty owner income. The proposed rule, which is aimed at curbing emissions and flaring, would seek to limit flaring from wells with mineral leases, but industry representatives warn the rule is duplicative to existing state regulations and could cost North Dakota taxpayers and royalty owners a total of $62.9 million in lost revenues and income if it is implemented. “The industry supports the goals of capturing greater quantities of associated gas and reducing waste but this one-size-fits-all federal process could come at a cost to North Dakotans and infringes upon the states’ rights,” said Tessa Sandstrom, spokesman for the North Dakota Petroleum Council. According to the North Dakota Department of Mineral Resources, about one-third of North Dakota’s spacing units would be impacted by the proposed rule. These units would also contain leases held by private mineral owners. The limits could make it difficult for industry to produce new wells, the Director for the Agency told KX News in a recent interview. “So about 1/3rd of our spacing units would get all of our attention so all of the investment, all the capital, all the pipelines and compression and gas plants would have to be focused on getting pipes to those federal leases at the expense of gathering gas from our private and state leases.” says Helms.

    Rail still moves crude from the Midwest to coastal regions, but in smaller volumes – Today in Energy – EIA - The movement of crude by rail (CBR) within the United States, including intra-Petroleum Administration for Defense Districts (PADD) movements, reached 928,000 barrels per day (b/d) in October 2014, with most of the shipments originating in the Midwest (PADD 2) and going to the East Coast (PADD 1), West Coast (PADD 5), and Gulf Coast (PADD 3). Since October 2015, CBR volumes have declined as production has slowed, crude oil price spreads have narrowed, and pipelines have come online. The economics of CBR flows depend largely on significant domestic crude discounts compared with international crudes. As domestic crudes that price in the Midwest, such as West Texas Intermediate (WTI) and Bakken, are no longer at large discount to waterborne crudes such as North Sea Brent, there is less of a cost advantage for costal refineries to run the domestic crudes. The Bakken crude oil spot price discount to Brent averaged $8 per barrel (b) in August 2015. It narrowed to average only $2/b in November 2015, and by January 2016 averaged $1.69/b (Figure 1). The narrower the spread between domestic and imported international crude, the more likely costal refineries will choose to run imported crudes rather than domestic supplies shipped via rail.

    Some Colorado officials support rules on natural gas burning (AP) — More than two dozen elected officials from western Colorado cities and counties have endorsed a federal crackdown on oil companies that burn off natural gas on public land. They sent a letter to federal officials Monday saying the practice causes pollution and robs taxpayers of royalties they could have earned on the gas. The Obama administration proposed new rules last month. The Bureau of Land Management is holding a public meeting on the proposals Monday in Lakewood. Energy companies frequently burn off vast supplies of natural gas at drilling sites because it doesn’t earn as much as oil. Twenty-six officials signed the letter. They’re from Archuleta, Eagle, Gunnison, La Plata, Pitkin, Routt, San Miguel and Summit counties and the communities of Aspen, Basalt, Carbondale, Glenwood Springs, Grand Junction and Paonia.

    Feds: pipe corrosion led to Santa Barbara coast oil spill (AP) — External corrosion on an oil pipeline was the root cause of a leak that spilled more than 140,000 gallons of crude on the Santa Barbara coast in May, federal regulators reported. The spill occurred after pumps on the Plains All American Pipeline were shut down and restarted, sending a larger volume of oil surging through the 2-foot-wide pipe at higher pressure, the Pipeline and Hazardous Materials Safety Administration said in preliminary findings. After the leak occurred, however, and plunging pressure in the pipeline triggered an alarm, it wasn’t shut down for more than 30 minutes.The spill two weeks before the popular Memorial Day weekend forced the state to close popular beaches as the oil fouled a pristine stretch of coastline and an oil sheen spread over miles of the Pacific Ocean. More than 300 dead animals, including pelicans and sea lions, were recovered after the spill that sent tar balls drifting more than 100 miles away to Los Angeles beaches. The report said the leak in Line 901 happened after a pump unintentionally shut down at the pumping station on nearby Line 903 while a technician was removing a non-working pump. Pressure increased in Line 901 and its pump was stopped remotely from the company’s control room in Midland, Texas. The leak happened just before 11 a.m., about two-to-three minutes after the pump was restarted. Pressure jumped to 721 pounds per square inch — from the 677 psi it had been operating at before the shutdown. About two minutes later, pressure dropped below 200 psi and a low-pressure alarm was triggered in the control room. An oil company that wanted to pump oil through the pipeline reported to the controller that there wasn’t enough pressure in pipeline to deliver its product. The pump on Line 903 exceeded a high temperature limit and then shutdown. The controller tried to restart it several times, but didn’t shut off the pump on Line 901 until about 11:30 a.m. A pipeline leak monitoring system had been turned off at the control center, the report said, though it noted that was still under investigation.

    Murkowski presses Corps of Engineers on Arctic port — U.S. Sen. Lisa Murkowski is again asking the Army Corps of Engineers to advance a northern deep-water Alaska port to serve vessels in Arctic waters. The Alaska Republican at a budget hearing Wednesday questioned the assistant secretary of the Army for civil works, Jo-Ellen Darcy, on why the corps is not seeking funding a proposed port expansion in Nome. The corps in October suspended a study of a deep-water port for large oil and gas support ships in the Arctic Ocean after Royal Dutch Shell ended exploratory drilling off Alaska’s northwest coast. Darcy says the agency is looking at expanding the scope of the study. Murkowski in a release says developing a port for the Arctic is about more than just oil and gas exploration

    Calfrac Well Services job cuts deepen; 1,700 fewer staff in North America - Calgary Herald: More cuts in its U.S. division have reduced the North American workforce of Calfrac Well Services Ltd. by about 1,700 since the end of 2014, the company said Wednesday, as it unveiled a fourth-quarter net loss of $141 million. In a news release, Calfrac said its U.S. workforce has now been slashed by 60 per cent since the end of 2014, an increase from the 50 per cent it disclosed in October. It said its Canadian workforce is 40 per cent smaller, the same percentage as in October. Spokeswoman Ashley Connolly later said the Canadian workforce has fallen by 643 positions, from 1,565 to 922, and Calfrac’s corporate workforce is off by 14 jobs, from 143 to 129. Its U.S. head count is 694, down 1,042 from 1,736 at the end of 2014. “Retaining key employees has always been a keen focus for the company but, unfortunately, with the current downturn shaping up to be the worst in decades, the company has had to make some difficult decisions in order to position itself to survive in this environment, and has been forced to let go of some of its long-standing employees,” president and chief executive Fernando Aguilar said on a conference call. Later, he said the company will continue to “aggressively” control costs. “Where we don’t see activity happening in front of us, we will park equipment, for sure,” he said in response to an analyst’s question. “If activity is not happening, as we know, then more people will have, unfortunately, to leave the company.”

    Growth in domestic natural gas production leads to development of LNG export terminals - Today in Energy - U.S. Energy Information Administration (EIA)  The first export shipment of liquefied natural gas (LNG) produced in the Lower 48 states on February 24 is a milestone reflecting a decade of natural gas production growth that has put the United States in a new position in worldwide energy trade. With the rapid growth of supply from shale gas resources over the past decade, U.S. natural gas production has grown each year since 2006. The resulting decline in domestic natural gas prices has led to rising natural gas exports, both via pipeline to Mexico and, since last week, to overseas markets via LNG tankers.  The United States is currently a net importer of natural gas, and gross imports represented nearly 10% of total supply in 2015, based on data through November. The United States imported 7.5 billion cubic feet per day (Bcf/d) of natural gas, mostly from Canada by pipeline, and exported 4.8 Bcf/d, mostly to Mexico by pipeline. For years, Alaska has exported LNG, mostly to Pacific Rim countries, but these volumes have been small. In addition to the Sabine Pass terminal that was the source of last week's LNG shipment, four other LNG export terminals are currently under construction.  When natural gas is cooled to -260 degrees Fahrenheit, it becomes a liquid that is 1/600th of its gaseous volume, making it easier to transport via vessel. The U.S. Gulf Coast has a large existing pipeline network, which makes the area attractive for developing export terminals. Many of the LNG export terminals now under construction or proposed are at sites that have functioned, and may continue to function, as LNG import terminals. Several LNG import terminals were built in the 1970s, and a new wave of terminals was constructed in the mid- to late-2000s. As domestic production increased, LNG imports declined, as many new terminals were barely used and the utilization rates of older terminals declined.

    Pipe dreams  - The European Commission's energy security package lays out the EU's commitment to the Energy Union but leaves some doubt about its commitment to the clean energy transition. February saw the launch of the European Commission's energy security package (, which consists of a number of measures designed to bolster the EU's Energy Union strategy and increase its energy security, while aiming to meet climate change commitments. The package has four main elements: security of gas supply regulation across member states, increased intergovernmental agreements on energy, a strategy for internal sharing and storage of liquefied natural gas (LNG), and a heating and cooling strategy to aid the decarbonization of buildings and industry. Gas, as far as the Commission seems to be concerned, is a top priority.  Natural gas already accounts for about one-quarter of EU energy consumption, but more than half of it must be imported. The gradual shutdown of coal power stations means gas was always likely to pick up the slack. The EU's reliance on gas has been a continuing source of uncertainty for the region, in part because of geopolitical factors, like the Ukraine–Russia conflict. It is understandable, then, that gas would be a focus as the EU attempts to reduce the impact that international instability has on crucial energy supplies. Indeed, the bulk of the security package is directed towards gas supply and distribution across the Union, providing additional resilience and flexibility for member states in the event of disruption by increasing transparency around contracts and by thinking more regionally instead of nationally. Unfortunately, the proposals still leave the EU fundamentally reliant on imports of natural gas. The strategy around LNG and storage will go some way towards providing additional strength, if sufficient storage can be developed, by also offering flexibility for gas supply management to accommodate the expected increase of intermittent renewable energy generation. Overall, though, there seems little concrete in the proposals in terms of considering diversity of source as a route to energy security — beyond adding more LNG to the mix.

    Ex-Chesapeake CEO McClendon Indicted Over Lease Bid Rigging -- Aubrey McClendon, the co-founder and former chief executive officer of Chesapeake Energy Corp., was indicted on charges that he conspired to rig bids for the purchase of oil and natural gas leases in northwest Oklahoma, the U.S. said. McClendon is accused of orchestrating a scheme between two “large oil and gas companies” to not bid against each other for leases, the U.S. Justice Department said Tuesday in a statement. From December 2007 to March 2012, the conspirators decided ahead of time who would win the leases and the winning bidder would then allocate an interest in the leases to the other company, the government said. The companies, which aren’t defendants in the case, are identified in the indictment as Company A and Company B. During his almost quarter-century at the helm of Chesapeake, the 56-year-old McClendon embraced drilling and fracking innovations that unleashed the shale revolution ignored by the world’s biggest energy producers, building the company into what was for a time the largest U.S. source of gas. McClendon was in the vanguard of the shale revolution that upended U.S. gas markets and paved the way for the renaissance in American crude oil production. At Chesapeake, he amassed a shale empire that rivaled Exxon Mobil Corp.’s before he was dismissed in 2013 amid conflict-of-interest probes and a shareholder revolt led by billionaire Carl Icahn. According to the indictment, McClendon was the chief executive officer, president and a director of Company A until at least March 2012. Company B was a corporation with its principal place of business in Oklahoma City, according to the charging document.

    DOJ indicts ex-CEO of Chesapeake Energy on conspiracy charges: Former Chesapeake Energy CEO Aubrey McClendon was indicted Tuesday on federal charges of conspiring to rig bids for oil and natural gas leases. The indictment, filed Tuesday in Oklahoma, alleges that McClendon led a conspiracy between two companies not to bid against one another for purchases of some leases in Oklahoma. The leases give a company the right to draw oil and natural gas from the land for a certain period of time. The alleged conspiracy took place between December 2007 and March 2012, the indictment said. The companies are accused of deciding who would win the bids, then giving an interest in the leases to the other company. The Justice Department did not say which other company it believes was involved in the alleged scheme. "While serving as CEO of a major oil and gas company, the defendant formed and led a conspiracy to suppress prices paid to leaseholders in northwest Oklahoma," said U.S. Assistant Attorney General Bill Baer in a statement. "His actions put company profits ahead of the interests of leaseholders entitled to competitive bids for oil and gas rights on their land."

    America’s Biggest Gashole Indicted for Fracketeering! - What a fracking surprise. The Justice Department said McClendon’s indictment is “the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging and other anti–competitive conduct in the oil and natural gas industry.” Aubrey McClendon, the former CEO of Chesapeake Energy, was indicted Tuesday for rigging bids to buy oil and gas leases.The scheme occurred in northwest Oklahoma from December 2007 to March 2012, according to the U.S. Department of Justice.The Justice Department said McClendon’s indictment is “the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the oil and natural gas industry.”McClendon, who is also the co-owner of the Oklahoma City Thunder, is accused of leading the conspiracy between two large energy companies, deciding ahead of time which one would win the bids. The winner would then allocate part of the leases to the other company, according to the indictment.Chesapeake Energy accused of reducing royalty paymentsThe suit filed in U.S. Middle District Court by Edward M. and Kathleen Ostroski of the Athens area in Bradford County seeks to become a class action to include more than 2,000 others whose aggregate damages they say exceed $5 million.When landowners signs leases with an oil and gas company, they give permission for drillers to extract oil and gason their properties for a certain period of time.In Pennsylvania, the leases are usually good for several years, and many state residents accused Chesapeake of fraud, claiming they were being shortchanged on royalty payments. State law requires a minimum 12.5 percent royalty payment, but landowners said they were being charged too much for post-production costs and other fees. Former Gov. Tom Corbett, who received nearly $500,000 in campaign contributions from McClendon, asked Attorney General Kathleen Kane in February 2014 to investigate the allegations

    Exclusive: Texas fund EMG halts new deals with indicted McClendon | Reuters: Private equity fund Energy & Minerals Group told investors on Wednesday it will stop entering new deals with Aubrey McClendon, the former chief executive officer of Chesapeake Energy Corp (CHK.N), a day after the U.S. government charged him with breaking antitrust laws. In a letter to investors seen by Reuters, EMG's Managing Partner John Raymond said his fund would "cease any and all new business activities" with McClendon, a legend in the U.S. energy industry. The comments mark another reversal of fortune for McClendon, removing EMG as one of his main sources of capital to find and develop land in Ohio, Pennsylvania and other shale-rich states, as well as overseas. The U.S. Justice Department charged McClendon on Tuesday with rigging bids for oil and gas acreage. McClendon has denied the charges and was not immediately available for comment on Wednesday. Houston-based EMG, which has invested some $3 billion in ventures with McClendon since he left Chesapeake in 2013 after investors questioned his leadership, said the allegations will not affect any of its portfolio companies.

    Ex-Chesapeake CEO McClendon dies in car wreck -  Aubrey McClendon, a founder and former chief executive of Chesapeake Energy (CHK), died in a fiery single-car crash Wednesday, a day after he was charged with conspiring to rig bids for oil and natural gas leases. McClendon, 56, crashed into an embankment while traveling at a "high rate of speed" in Oklahoma City just after 9 a.m., said Capt. Paco Balderrama of the Oklahoma City Police Department. Flames engulfed McClendon's vehicle "immediately," Balderrama said. "He pretty much drove straight into the wall," Balderrama said. He added that police determined McClendon was not wearing a seatbelt after earlier being unable to tell. Police said they still needed to determine an exact cause of the crash. McClendon — a key player in the U.S. shale boom — co-founded Chesapeake in 1989 and stepped down from the company in 2013. Chesapeake is the second-largest natural gas producer in the United States. He also founded American Energy Partners, where he had been chief executive.

    How Chesapeake CEO Aubrey McClendon Helped Push Coal to the Brink -- Aubrey McClendon, the former Chesapeake Energy CEO, died March 2 in a car wreck the day after being indicted for conspiracy to rig bids on oil and natural gas leases. He will likely be remembered for two things: being a pioneer of the shale gas boom and a possible criminal who, in death, may have eluded a prison sentence. But McClendon may have had one other lasting legacy: he helped hasten the collapse of the coal industry in the United States. Between 2007 and 2012, McClendon and his associates contributed around $26 million to the Sierra Club to oppose the building of new coal-fired power plants. McClendon’s motivations were hardly pure; he knew that preventing new coal plants meant more demand for his company’s product, natural gas. And the contributions led to a scandal for the environmental group, whose well-funded “Beyond Coal” campaign has been instrumental in not only preventing new plants, but also shutting down aging ones. Executive director Michael Brune had a simple explanation for accepting money from a big gas company that was drilling hundreds of wells using hydraulic fracturing: the enemy of our enemy is our friend. “The Sierra Club board of directors … determined that natural gas, while far from ideal as a fuel source, might play a necessary role in helping us reach the clean energy future our children deserve,” Brune wrote in a 2012 blog post. “The idea was that we shared at least one common purpose [with Chesapeake]—to move our country away from dirty coal." The Sierra Club turned down further contributions from McClendon and his Chesapeake colleagues as it began to worry about the boom in natural gas fracking. That didn’t affect the outcome: McClendon’s philanthropy helped make it very unlikely that any new coal plants will be built in the U.S.—and helped push coal, the backbone of America’s power sector for more than a century, into a sudden and dramatic twilight.

    Landowner’s lawyers sue Oklahoma City energy giants - Attorneys for a northwest Oklahoma landowner have filed a lawsuit against Oklahoma City energy giants Chesapeake Energy and Sandridge Energy in connection to a federal indictment against ex-Chesapeake CEO Aubrey McClendon. The federal class-action lawsuit was filed Thursday in Oklahoma City on behalf of an Alfalfa County landowner who signed a lease agreement with Chesapeake Energy in 2011. The indictment against McClendon alleged he and unnamed co-conspirators orchestrated a conspiracy to rig bids for landowner leases in northwest Oklahoma. Federal prosecutors sought to withdrew the indictment after McClendon died Wednesday in a single-car crash. The lawsuit also names ex-Sandridge CEO Tom Ward, a longtime friend of McClendons and co-founder of Chesapeake. Neither Ward nor Sandridge officials immediately returned messages seeking comment on the lawsuit. Chesapeake has said it’s cooperating with federal investigators.

    Top Drillers Shut Down U.S. Fracking Operations as Oil Prices Continue to Tank - Steve Horn - It was a tumultuous week in the world of hydraulic fracturing (“fracking”) for shale oil and gas, with a few of the biggest companies in the U.S. announcing temporary shutdowns at their drilling operations in various areas until oil prices rise again from the ashes. Among them: Chesapeake Energy, Continental Resources and Whiting Petroleum. Chesapeake formerly sat as the second most prolific fracker in the U.S. behind ExxonMobil, while Continental has been hailed by many as the “King of the Bakken” shale basin located primarily in North Dakota. Halliburton too, the drilling services goliath and namesake of the “Halliburton Loophole” exempting the industry from U.S. Environmental Protection Agency (EPA) enforcement of the Safe Drinking Water Act as it applies to fracking operations, has recently announced it will cut 5,000 drilling jobs globally (8 percent of its workforce). “Continental Resources Inc., the shale oil pioneer controlled by billionaire wildcatter Harold Hamm, halted all fracking in the Bakken shale formation in the U.S. Williston Basin after posting its first annual loss since the company’s public debut in 2007,” wrote Bloomberg. “Continental said it has no fracking crews currently working in the Bakken. The company continues to drill there, focusing on areas with the highest returns, but will leave most wells unfinished this year.” Chesapeake's immediate future is just as bleak, if not more so, and it will halt drilling in the Marcellus Shale, Utica Shale, Eagle Ford Shale and elsewhere. The company sits as the top-producing driller in both the Utica and the Marcellus. Whiting, the most prolific shale oil producer in the Bakken, will halt all of its fracking in the near-future. The company, 83 percent of whose produced oil comes from fracking the Bakken, will simultaneously slash its spending budget by 80 percent.  North Dakota and Oklahoma, with economies largely dependent on revenues generated from oil and gas drilling, have both projected $1 billion budget shortfalls for the forthcoming budget cycle. Things are even worse in Alaska, with a pending $3.5 billion budget shortfall.

    Bond Markets Losing Faith Even In Large Oil Companies -  Energy bonds have become so beaten down that the yields on bonds from some investment grade energy companies are spiking above the yields on junk-rated U.S. debt, a very rare event that highlights the growing unease with which investors are viewing even the relatively strong oil producers. In fact, the spiking bond yields on investment-grade energy debt show that even solid oil drillers “with the best of intentions can still just run out of room to move and run out of time. Things could get very bad,” Matthew Duch, a money manager at Calvert Investments Inc., told Bloomberg in an interview. The magnitude of the crisis facing the oil and gas sector is illustrated by the fact that broader U.S. corporates with credit ratings in junk territory are seen as less risky than investment-grade oil and gas companies. Such a situation isn’t sustainable – the ratings agencies are now catching up to a rapidly deteriorating business climate for these oil drillers. In February, Devon Energy, Anadarko Petroleum, Hess Corp., and Murphy Oil – all sizable oil companies once thought to be safe – lost their investment-grade ratings from Moody’s. The bond markets, in other words, are no longer confident that even large oil and gas companies are creditworthy. The net debt levels across the U.S. energy sector ballooned in 2015, quadrupling from the year before. Net debt is now eight times EBITDA.

    Refining Outlook Shaped by Regulation And Economic Growth - The U.S. refining industry appears to be transitioning from an era of high margins and record throughputs. Falling crude prices at first increased refining margins – especially as demand for cheap refined products like gasoline expanded. Now product inventories are brimming and margins are squeezed. As we explain today the industry can look forward to an extended period of low crude prices while regulatory requirements and the pace of economic growth largely drive refined product trends.  We have previously covered Turner, Mason & Company’s analysis of the world refining market.  (see A New World Order). Turner, Mason has a deep understanding of refining and refining technology worldwide as well as the impact of changes in crude feedstock bought about by the U.S. shale revolution (see Here Comes The Reckoning Day). The company also produces a biannual review of industry fundamentals and key drivers – the latest version of which is titled “The 2016 Crude and Refined Products Outlook” (February 2016). The 160 page report covers a range of key topics for the refining industry including the current low crude price environment, refined product trends, regulatory issues impacting refiners and anticipated changes in infrastructure. The report contains an updated price and petroleum demand forecast from 2016 through 2030 that incorporates the impacts of crude production breakeven costs, price elasticity for petroleum demand and effects of regulatory initiatives and geopolitical events. The outlook starts where everyone is focused these days – with crude prices and supply/demand. We’ll provide a glimpse of Turner, Mason’s view on that topic first and then hone in on a couple of important trends that the report highlights in the refined product markets – impacting gasoline and diesel.

    Anadarko cutting spending almost in half, selling assets (AP) — Anadarko will sell more assets and reduce by nearly half its spending on oil and natural gas exploration this year. One of the world’s biggest independent oil and natural gas exploration and production companies, Anadarko said Tuesday it will cut capital expenditures this year to between $2.6 billion and $2.8 billion, from about $5.5 billion last year. “Nearly all of the reduction is being taken out of our U.S. onshore activities,” company spokesman John Christiansen said in an interview. Cutbacks by Anadarko and other U.S. producers have played out throughout the year in rig counts, the number of active U.S. drilling sites. Oilfield services company Baker Hughes said last week that the number of rigs exploring for oil and natural gas declined again to 502, less than half the 1,267 rigs that were active last year. Anadarko expects to operate about five rigs in 2016, only a quarter of the rigs it had in play last year. Of the capital expenditure cuts, $2.5 billion will be in the U.S. Anadarko Petroleum Corp. said in a printed statement Tuesday that it plans to reduce its debt while it awaits opportunities that will emerge in a “more compelling price environment.” Oil, which had traded for more than $100 in the past year, costs around $30 now. Prices for natural gas are already down close to 30 percent just this year.

    Anadarko Slashes 80% Of Onshore Rigs, To Lay Off 95% Of Contractors -- Anadarko Petroleum Corp. will not only be slashing its capital budget this year by 50 percent and its rig count by 80 percent in order to weather the oil price slump, forecasting a 3-percent fall in production, but it’s also reportedly planning to cut over a thousand jobs and get rid of almost all of its contractors. On Tuesday, Anadarko unveiled plans to lower capital spending, lower dividends and monetize non-core assets to improve its cost structure, including a 50-percent budget reduction from last year and an onshore 80-percent rig-count slash that would bring its rigs down to five from 25 last year. According to an “exclusive” report by Benzinga, Anadarko has also let 95 percent of its contractors go and is planning to lay off 1,200-1,500 workers next week. Benzinga cited an unnamed source for this information on Thursday. If true, that would reduce the 5,800 workers Anadarko had as of December by as much as one-quarter.  In its earnings result on Monday, Anadarko reported $0.57 earnings per share for the quarter, which come in above the consensus estimate of $0.52. The company earned $2.05 billion for the quarter, which was below analysts’ expectations of $2.22 billion. The company says it should have $3 billion in cash by the end of this year, and it’s progressing on asset sales, having divested $1.3 billion already and targeting a similar amount through 2016. Anadarko shares were up a bit on the news. On Monday, the company closed at $37.95 per share, but was up to $40.11 at close on Tuesday, and $42.65 on Wednesday. By early trading on Thursday it was over $43.00.

    NOG Reports 4Q15 And Full Year (2015) Results: For The Year A Loss Of $16.08/Share; Adjusted: Net Income 78 Cents/Share --From the press release:

    • Oil and gas sales, including cash from settled derivatives, totaled $363.7 million for 2015 and $86.5 million for the fourth quarter of 2015
    • Reduced capital expenditures by 76% compared to 2014, while still growing total production by 3% year-over-year to 16,285 barrels of oil equivalent ("Boe") per day, above stated guidance
    • Reduced cash general and administrative expenses by $2.1 million or 14% compared to 2014
    • Ended the year with $403.4 million of liquidity, composed of $3.4 million in cash and $400 million of revolving credit facility availability
    • Participated in the completion of 292 gross (18.6 net) wells
    • 1.8 million barrels of oil are hedged for 2016 at an average price of $77.50 per barrel

    Northern's adjusted net income for the year was $47.6 million , or $0.78 per diluted share.  GAAP net loss for the year, which was impacted by a $1.2 billion non-cash impairment charge, was $975.4 million, or a loss of $16.08 per diluted share.  Adjusted EBITDA for the year was $277.3 million. 

    As Exxon Slashes 2016 CapEx Forecast By 25%, US Faces Big Hit To GDP -- And the CapEx hits just keep on coming. Two weeks after Goldman reported something troubling, namely that there is a massive gap of nearly 20% between sellside CapEx estimate for what US oil companies will spend on CapEx and what implied guidance suggests as shown in the table below... ... moments ago Rex Tillerson, the CEO of world's formerly biggest by market cap company, Exxon, confirmed that the great CapEx drought of 2016 will be a definite reality, one which will subtract billions from U.S. 2016 GDP in the form of fixed investment, also known as Capital Expenditures, when it announced that it now expected full year 2016 capex to decline by 25% from 2015 to just $23 billion. To be sure, Tillerson tried to spin the attempt to preserve some $7 billion in cash in a positive light: “We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on market demand fundamentals.” The confirmation: ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015. The company continues to selectively advance its investment portfolio, building upon attractive longer-term opportunities. “We are focused on maximizing benefits across the energy value chain,” Tillerson said. The company captures unique value from its diverse, high-quality resource base from exploration, development and production all the way through to the fuels, lubricants and petrochemical products used by consumers. Among the other noted highlights, is that "ExxonMobil generated $33 billion of cash flow from operations and asset sales and $6.5 billion of free cash flow in 2015." Of course, the company wants to keep generating billions in cash, hence the need for dramatic capex cuts.

    CEO says Exxon ready for acquisitions, investing in business (AP) — Exxon is interested in acquisitions while oil prices are low, but CEO Rex Tillerson says sellers have unrealistic price expectations. Tillerson said Wednesday that Exxon Mobil Corp. is in financial position to pursue acquisitions or change its spending plans depending on what happens to the oil market. Earlier this week Exxon raised $12 billion from a bond sale, increasing speculation that it could seek to scoop up competitors. Tillerson said Exxon hasn’t made any deals yet because potential sellers are acting like homeowners who think their house is worth more than it is. Those other companies, he said, have burdened themselves with debt during the oil slump, making them less attractive takeover targets. “Some of the value has been destroyed and the expectation (of sale price) hasn’t changed,” he said at Exxon’s annual meeting with investors in New York. Asked about oil prices, Tillerson said they could still fall. U.S. benchmark crude has rallied since late January and gained 23 cents to $34.64 a barrel in New York on Wednesday afternoon, but it is still nearly 70 percent below its price in June 2014. “We’re still overproducing, oversupplying a market that doesn’t need it, doesn’t want it,” and the global economy is too weak to boost demand much, he said.

    As A Frenzied Wall Street Buys Shale Equity Offering At A Record Pace, Exxon's CEO Has A Stark Warning - If Saudi Arabia is shocked at the relentless ability of the U.S. shale "marginal producers" to continue pumping even with oil prices below breakeven costs for many (which as reported recently have mysteriously tumbled from $70 to $40) at a time when the junk bond market - the traditional conduit of how energy companies have financed themselves - it should thank Wall Street, for one simple reason: investors have pumped a whopping $9.2 billion in new equity into energy companies year to date, the most since Bloomberg records began in 1999. Some examples:

    • Hess Corp. and Devon Energy Corp., have each offered more than $1 billion in new equity, while smaller companies like QEP Resources Inc. and Synergy Resources Corp. have also managed to successfully raise funds.
    • Diamondback and Marathon both said their equity issuances would help provide liquidity to fund their capital programs. John Hess, chief executive officer of Hess, said he wanted extra cash to maintain a strong balance sheet, and equity offerings are more receptive than debt with the Bank of America/Merrill Lynch High Yield Energy Index rising to a record effective yield of 21 percent on Feb. 11.
    • Pioneer Natural Resources Co.’s $1.6 billion offer on Jan. 5 was followed a week later by Diamondback Energy Inc.’s announcement of a $250 million sale. Pioneer Chief Executive Officer Scott Sheffield said he raised equity fearing lower oil prices. "
    • Weatherford, the world’s fourth-largest oilfield services provider, was the latest to throw its hat in the ring, offering 100 million shares at $5.65 a share, giving the underwriters a 30-day option for up to 15 million more.

    The euphoria won't last, and the equity issuance window is already closing: confirmation of this comes from none other than Exxon CEO Rex Tillerson who moments ago said that the "wave of oil equity issuances is destroying value", adding that "global economic conditions are not inspiring", that "demand won't solve it quickly" and that "we're still oversupplying the market." Translated: everyone who bought the record amount of stock sold by shale will soon be starting at a partial or total loss.

    Fracking Fracas: Sanders Attacks Clinton on Environment: he environmental policy debate between Democratic contenders Bernie Sanders and Hillary Clinton could soon become much more heated. Leading up to Super Tuesday, a slew of contests that could make or break Bernie Sanders’s candidacy, the Vermont senator has gone on the offensive on the surprising issue of fracking—the controversial method of drilling for natural gas. The campaign last week made several media buys in Minnesota and Colorado for a new ad that touts Sanders as the only candidate who firmly opposes fracking. The fracking ads look like a last-ditch effort by Sanders, who was badly beaten by Clinton in the recent South Carolina primary, to differentiate himself from the former secretary of state. The ads tout Sanders as “the only candidate to oppose fracking.” Fracking is the process of drilling into shale formations and injecting a cocktail of water, sand, and chemicals to create tiny fractures that access pockets of oil and natural gas. The process has helped fuel a natural gas extraction boom in the United States and made the nation the largest natural gas producer in the world. But it has also become a flashpoint for environmental outrage, due to research that links fracking with contamination of local water and air, and even with abnormal earthquakes. Sanders’s fracking ads appear designed peel away liberal support from Clinton, particularly in such states as Colorado and Minnesota, where fracking is hotly debated and which experts have said are must-wins for Sanders.

    Fossil Fuel Donations Fuel Presidential Super PACs  - Fossil fuel heavy hitters pumped more than $100 million into Republican presidential campaigns last year, more money than ever before, according to campaign filings compiled by Greenpeace.  Fossil fuel funds comprised 57 percent of Texas Senator Ted Cruz’s Super PAC. “Ted Cruz’s complete denial of climate change science is perfectly in line with the business interests of his biggest funders,” said Jesse Coleman, a Greenpeace oil and gas campaigner. Chris Christie, Jeb Bush and Marco Rubio all received significant fossil fuel contributions and Democratic candidate Hillary Clinton received seven percent of her Super PAC money from oil and gas interests.   For a deeper dive: The Guardian, GreenWire

    Some charts and updates on America’s amazing shale revolution, it’s not over yet…The Energy Information Administration released a lot of year-end production and other energy-related data this week, and there’s been a lot of shale energy-related news recently, so I present below 10 items (including 6 charts) highlighting America’s Amazing Shale Revolution.  US Crude Oil Production (above). According to new data from the Energy Information Administration (EIA), the US produced an average of 9.43 million barrels of crude oil per day (bpd) last year, which was the fourth highest year for domestic crude oil output in history (see chart above). Slightly higher crude oil production took place in 1970 (9.6 million bpd, the highest amount ever), 1971 (9.5 million bpd) and 1972 (9.44 million bpd). More than maybe any other chart, I think the one above of US oil production over more than a century captures the “Great American Shale Oil Revolution in One Chart.” From the previous peak US oil production in the early 1970s, there was a gradual decline over more than three decades from nearly 10 million bpd to only 5 million bpd by 2008. And then, thanks to revolutionary, “Made in the USA” drilling and extraction technologies, America’s petropreneurs unlocked the oceans of oil trapped in tight shale rock formations miles below the ground. Amazingly, it only then took 7 years of shale oil production to completely reverse the previous 36-year decline in America’s crude oil output, bringing the country’s oil production to 9.7 million bpd last April, before falling gradually to bring the annual average last year down to 9.43 million bpd. Carpe oleum.

    U.S. shale's message for OPEC: above $40, we are coming back - (Reuters) - For leading U.S. shale oil producers, $40 is the new $70. Less than a year ago major shale firms were saying they needed oil above $60 a barrel to produce more; now some say they will settle for far less in deciding whether to crank up output after the worst oil price crash in a generation. Their latest comments highlight the industry's remarkable resilience, but also serve as a warning to rivals and traders: a retreat in U.S. oil production that would help ease global oversupply and let prices recover may prove shorter than some may have expected. Continental Resources Inc , led by billionaire wildcatter Harold Hamm, is prepared to increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by more than 10 percent, chief financial official John Hart said last week. Rival Whiting Petroleum Corp , the biggest producer in North Dakota's Bakken formation, will stop fracking new wells by the end of March, but would "consider completing some of these wells" if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts. Less than a year ago, when the company was still in spending mode, Volker said it might deploy more rigs if U.S. crude hit $70. While the comments were couched with caution, they serve as a reminder of how a dramatic decline in costs and rapid efficiency gains have turned U.S. shale, initially seen by rivals as a marginal, high cost sector, into a major player - and a thorn in the side of big OPEC producers. Nimble shale drillers are now helping mitigate the nearly 70-percent slide crude price rout by cutting back output, but may also limit any rally by quickly turning up the spigots once prices start recovering from current levels just above $30.

    What crash? U.S. oil output rises to 43-year high - Mar. 1, 2016: The U.S. pumped an average of 9.43 million barrels per day last year, according to new government figures. That's the highest level since 1972 and represents an impressive growth of 89% since 2008. The crash in oil prices has caused production to slow a little in recent months. But shale oil producers have held up far better than many feared. "The U.S. oil industry has demonstrated remarkable resilience," said Jason Bordoff, a professor at Columbia University and a former energy adviser to President Obama. The shale oil revolution has given consumers a big boost in the form of cheap gasoline prices, which are now below $2 a gallon nationally. It's also made America one of the planet's biggest oil players behind Saudi Arabia and Russia.It's also fueled the epic oil supply glut.  OPEC, led by the Saudis, decided to fight back in November 2014 by deciding to pump oil aggressively -- despite the oversupply issue. The thinking was that strong OPEC output would cause prices to drop to uncomfortably low levels which U.S. shale producers would struggle to cope with.  Prices did drop, even more than OPEC members were prepared for. Oil touched $26 a barrel last month, down 75% from its mid-2014 peak.  However, OPEC's strategy has failed to kill off the U.S. oil boom. At least so far. Despite the drop in prices, domestic production rose 8% last year and is now up 45% since 2012.  Strong U.S. output has been fueled by a wave of innovation that has improved companies' productivity and efficiency. The oil companies have also benefited from lower service costs due to the downturn.

    Slow Train Coming –Canadian Crude Rail Load Terminals Overbuilt and Underutilized --In Part 1 of this series we noted that CBR volumes are falling across the U.S. and Canada. The decline is mostly in response to narrower spreads between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent. The lower spreads reduce the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines (which mostly transport crude to the Midcontinent and Gulf Coast). When WTI was discounted to Brent by upwards of $25/Bbl in 2011 and 2012 because of congestion caused by a lack of pipeline capacity, it made sense to use rail to get stranded crude to market. We described the resulting increase in U.S. CBR shipments from 33 Mb/d in January 2010 to a peak of 928 Mb/d in October 2014 (according to EIA). As new pipelines have been built out to provide less expensive options to get stranded crude to market so the WTI discount has narrowed dramatically and CBR traffic has declined. Primarily in response to the narrowing spread - CBR volumes fell during 2015 but not as fast as you might expect – dropping only 20% between January and November 2015 (latest EIA data) even though the spot market economics often made no sense. As we discussed in Part 2 – looking at the epicenter of the CBR boom in North Dakota – the slower than expected decline in rail shipments is mostly because committed shippers and refiners continue to use rail infrastructure that they invested in and because some routes still do not have pipeline access. In Part 3 we looked at CBR traffic out of the Niobrara shale region in the Rockies. Rail load terminal infrastructure there was built in Colorado and Wyoming in response to increased crude production from the Niobrara shale over the past 4 years. Now although crude production in the region is down from 2014 peaks and expected to only grow slowly in the next 5-years if oil prices stay low – midstream companies continue the build out and expansion of rail terminals as well as new pipelines. This time we look at the fate of CBR load terminals built out in Western Canada in today’s low crude price environment.

    Railcars Are The New Oil-Storage Space — The U.S. is so awash in crude oil that traders are experimenting with empty railcars as new places to store it, Nicole Friedman and Bob Tita report. Thousands of railcars ordered to transport oil are now sitting idle because low crude prices have made shipping by train unprofitable. At the same time, traditional storage tanks are running out of room as U.S. oil inventories swell to their highest level since the 1930s. So the railcars provide a form of “rolling storage.”  Still, the use of railcars for storage could be limited by the cost of track space and safety and liability concerns that have followed a string of high-profile transport accidents. Railroads and users face responsibility for leaks, collisions or other mishaps.  The tumble in oil prices continues to cause producers to cut back operations, but investors are wondering when those cuts will lead to a significant oil output decrease, Christian Berthelsen reports. The U.S. Energy Information Administration’s estimates of U.S. oil production have fallen only 6% since their peak last April.

    Exporting America’s Gas Reserves to Brazil. Cheap -- Not to Europe to counter the Russians! Surprise. That was just $hillary’s cover story at the State Department to get LNG export terminals approved for her benefactors. You knew that, right ? Next shipments will go to China – not Europe – as soon as the Chinese cut a ditch through Nicaragua. How to Get Fracked Gas to China via Upstate New York And Nicaragua.  The United States has exported its first liquefied natural gas (LNG) cargo from the lower 48 states, after a tanker set sail from Cheniere Energy’s Sabine Pass export terminal in Louisiana.The Asia Vision LNG tanker left the dock at the Sabine Pass terminal at 0139 GMT (7.39 p.m. on Wednesday local time), shipping data on Reuters showed.Expected to become an importer of LNG just a decade ago, the shale gas revolution in the United States unlocked cheap, abundant gas supplies, allowing the country to become an exporter instead. Up yours AmericaThe first U.S. exports come just days before production begins at the Chevron Corp-led Gorgon LNG project in Australia, the world’s most expensive LNG terminal at $54 billion, and will add to a wave of supply at a time when demand is faltering in major consuming countries and prices plummeting in line with oil.The first cargo of about 3 billion cubic feet (bcf) of gas will go to Petrobras in Brazil, Meg Gentle, executive vice-president of marketing at Cheniere said on the sidelines of the CERAWeek conference in Houston.U.S. Henry Hub natural gas prices for January GT-HH-IDX fell to the lowest for the month since 1999 with near-record production of shale gas outpacing demand growth. Spot LNG prices in Asia, where the bulk of LNG is consumed, were down about three-quarters from their peaks in 2014

    Natural gas crashes as Japan demand wanes, Australia supply takes off: Natural gas prices have crashed to 17-year-lows in the past week, underscoring burgeoning supply in the global market just as U.S. exports its first ever shale gas cargo. On Monday, natural gas prices on the New York Mercantile Exchange settled 4.5 percent lower to their lowest level since 1999 after U.S. weather forecasts signaled warmer weather in the weeks ahead, curbing demand for natural gas used for heating. The decline brought February losses in natural gas to 26 percent. Prices recovered on Tuesday but the outlook remains depressed. Japan, the world's largest importer of natural gas, is restarting its nuclear reactors six years after the 2011 Fukushima disaster, with three out of 43 nuclear reactors brought back online since August and more expected to come. Japan is likely to bring back more reactors online, which will make the country less dependent on liquefied natural gas (LNG, the super-cooled version of natural gas made for easier storage and shipping) for electricity generation.

    Mexico will defer oil exploration projects to slash spending (AP) — The state-run oil company, Petroleos Mexicanos, said Monday it will slash spending 22 percent and cut unprofitable production about 100,000 barrels a day as it struggles with liquidity problems and past-due payments to suppliers. The company, known as Pemex, said it will cut $5.5 billion from its 2016 budget, delay deep-water exploration and decrease production of super-heavy crude because of low world oil prices. Delaying production and exploration projects will account for about two-thirds of the $5.5 billion spending cut. Pemex still faces a serious issue: It owes suppliers almost $7 billion, a debt the company acknowledges is a problem. “Pemex is facing liquidity problems, but not one of solvency,” said company general director Jose Antonio Gonzalez, who estimated daily production will fall about 4.5 percent from the current level of 2.23 million barrels a day to about 2.13 million by the end of the year. He said Mexico’s crude oil mix is selling for about half as much — $25 a barrel — as the $50 estimate included in last year’s 2016 budget plan. Gonzalez refused to say how many jobs might be cut. He said some of the delayed projects could be revived if partners were found who could lower production or exploration costs.

    Liberal Democrats' fracking U-turn 'massively disappointing' - The Liberal Democrats have backed the lifting of the moratorium preventing fracking for gas in Scotland. Party members supported an amendment which called for the temporary halt to be ended by the next Scottish Government, "providing the potential for Scottish-sourced unconventional gas to supply our important petrochemical industry". Environmental campaigners at WWF Scotland branded the move "massively disappointing". Liberal Democrat activist Ewan Hoyle claimed expert advice shows unconventional oil and gas extraction, also known as fracking, could be done safely. In January 2015, the Scottish Government announced a moratorium on granting planning consents for such developments, to allow for a full public consultation on the controversial process. Mr Hoyle argued the report from the Independent Expert Scientific Panel on Unconventional Oil and Gas was "really quite reassuring" and "suggests we can extract these unconventional reserves safely if we regulate the industry appropriately". He told the party conference in Edinburgh: "I joined this party coming from a scientific background, partly because I felt the Liberal Democrats held evidence and expert advice in high regard." Mr Hoyle also said with the Ineos petrochemical plant in Grangemouth having built "enormous storage tanks in order to accept imported fuel from the US", he believes it would be "more environmentally friendly to manufacture our own petrochemicals and drive a resurgence in Scottish manufacturing from locally sources methane".

    World outside US and Canada doesn’t produce more crude oil than in 2005:  After a delay of several months the US Energy Information Administration has published the latest international energy statistics for October 2015 This is an opportunity to update crude oil graphs How Fig 1 is created: for each country, the minimum production in the period Jan 2001 (original IPS start month) to October 2015 is taken (=base production) and deducted from the country’s total production, giving the incremental production which is then stacked in a way that allows to interpret which changes occurred. The stacking order is:

    (a)    Base production
    (b)   Countries with growing production
    (c)    Countries with flat, peaking or declining production
    (d)   OPEC and Middle East countries
    (e)    Canada (mainly tar sands)
    (f)    United States (mainly shale oil)

    The red horizontal line is the maximum crude oil production level in May 2005 (the Katrina year). We can see that almost all additional oil produced now above that level is US shale oil. In other words: without US shale oil (which required cheap money from quantitative easing), the world would be in a deep oil crisis. The grey line shows the September 2005 production level outside the US and Canada. The graph shows that the October 2015 production level is only slightly higher than in 2005, possibly within the accuracy of statistics.

    Don’t stop worrying about oil --The collapse in oil prices has come after a surge in U.S. production. This has led many to theorize that the U.S. has finally dislodged the Organization of the Petroleum Exporting Countries (OPEC) from its position of dominance. Historically, the OPEC cartel has managed production to keep prices high, even when, as is happening today, a weaker global economy exerts downward pressure on them. Its apparent failure to do so at this moment has led some to forecast low energy prices as far as the eye can see. According to this line of reasoning, U.S. production will undercut any attempt by OPEC to raise prices, as American oil will flood the market and drive the price down when OPEC attempts to raise it. As the nearby chart illustrates, such optimism is poorly grounded. For each of the years, the chart shows the share of world oil produced by OPEC, the U.S., and the countries that were members of OPEC during the 1973 OPEC oil embargo. While there is an uptick in the U.S. share near the end, the chart casts doubt on the notion that American oil now captures a share of the world oil market so large as to undermine OPEC’s ability to influence the price of oil. America produced 13.1 percent of the world’s oil in 2014. In 1973, when the first OPEC oil embargo sent the American economy into a tailspin, the U.S. produced 18.7 percent of the world’s oil. If OPEC could send oil prices through the roof when the U.S. controlled more of the world’s oil supply than the U.S. does at present, it seems difficult to believe that OPEC could not similarly send prices back up if it chose to do so. So what gives? Why is OPEC playing along with low prices now?

    Cushing, Oklahoma is the center of the oil universe - Berman - World oil prices are controlled by the amount of crude oil stored at Cushing, Oklahoma. That’s because Cushing is the pricing point for WTI (West Texas Intermediate) oil prices, the most-traded oil futures contract in the world.   It has 73 million barrels of working capacity, about 13 percent of total U.S. storage. Several important oil pipelines converge there as oil moves from production sites to refineries on the Gulf Coast (Figure 3) WTI and Brent oil prices have good negative correlation with the volume of crude oil stored at Cushing. Comparative inventory, the present volume of oil compared with the 5-year average, and oil-price volatility, the rate at which the price of oil moves up and down, are shown in Figure 1. From the beginning of 2014 until the end of July, comparative inventory fell and world oil prices were high averaging more than $100 per barrel. From August to the time of the November 28 OPEC meeting, Cushing inventories rose and oil fell below $70. OPEC’s decision not to cut production caused a spike in volatility and prices dropped to $46 per barrel by the end of January 2015. Cushing storage fell from mid-April to mid-June 2015 and oil prices rallied to $60 per barrel. Concerns about China’s economic growth and the lifting of sanctions on Iran added to flattening Cushing inventories and oil fell to near $38 per barrel by mid-August. When inventories fell again in late August, prices increased to almost $50 per barrel and then plateaued until the end of October. Storage had flattened but the outlook for Chinese growth had improved as the People’s Bank of China announced stimulus measures. From the beginning of November to the end of 2015, comparative inventories increased again and oil prices plunged below $30 per barrel with the near-collapse of China’s stock markets. Flattening comparative inventories in early 2016 and rumors of an OPEC production cut and then, a partial OPEC production freeze moved oil prices back above $30 per barrel where they have remained through February. Expectation and reality both influence oil prices but Figures 1 and 2 show that the reality of Cushing comparative inventory change is the dominant factor. World economic and political events have the power to affect oil prices but without support from Cushing storage levels, these changes are relatively short-lived.

    The Cushing Spillover "Domino Effect" Has Arrived -- A little over a week ago, before we described the increasingly more perilous situation facing US refiners, we summarized the oversupply threat facing the biggest U.S. commercial hub located in Cushing, OK as follows: "when looking specifically at Cushing, the storage facility is virtually operationally full (or at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades being denied however the silver lining is that there is a lot of open pipeline space from Cushing to gulf coast .. It is this capacity that is currently being filled because if looking at today's DOE breakdown, while PADD 2 saw inventories rise by 2.25 million barrels to a new record high 155 million, the Midwest storage hub at Cushing was up only 36,000 - a divergence which confirms that Cushing is now routinely denying storage requests, something we noted first two weeks ago." Today, we return to this so critical (if not now then certainly in the next few months) hub with a blog post by Genscape which looks at the troubling domino effect of an operationally full Cushing (and by extensions PADD2), and how this is starting to spill over into PADD3, aka the Gulf Coast storage, where things are likewise about to go from bad to much worse. From Genscape: U.S. Gulf Coast storage inventories have increased nearly 7mn bbls so far in 2016, and could continue to build as market participants seek storage there as an alternative to Cushing, OK, where stocks are near maximum capacity. As of February 19, 2016, Gulf Coast stocks, including those in Houston, Beaumont-Nederland, TX, and Corpus Christi, TX, reached near 75mn bbls, only 739,000 bbls shy of the record high level reached in October 2015. On January 5, 2016, Cushing inventories surpassed a previous record high level by 125,000 bbls. Due to extensive storage expansion, capacity utilization at Gulf Coast storage locations was lower the week ending February 19, 2016 at 58 percent compared with capacity utilization during the October 2015 high. At that time utilization was 62 percent. The inventory peak in October 2015 also followed a record-high at Cushing.

    Shale Just Set The Oil Price Ceiling: "Above $40 And We Start Pumping Again" -- Last week we reported that in what has been Saudi Arabia's biggest victory to date in its war against U.S. oil and gas producers, both Whiting Petroleum, which is North Dakota's largest oil producer, and Continental Resources would indefinitely suspend fracking operations for the foreseeable future. The reason was simple: oil prices are too low to make incremental drilling and pumping profitable, and instead most shale companies are now entering hibernation, limiting cash outlays in the form of dividends and capex spending, in hopes of weathering the crude oil storm, which has already gone on far longer than even the most pessimistic mainstream pundits expected it would.  Which, of course, is the right response: as the saying goes the cure for low oil prices is low oil prices, and as more shale companies halt drilling, exploring and production, the 3 mmb/d oversupplied oil market will slowly return to equilibrium. There is logically a flipside to that as well: as those companies which have recently mothballed operations either voluntarily or because they had to when they went bankrupt when oil was at $30, return to market the previously oversupplied market condition will promptly return as well, thereby pressuring oil lower yet again. question is at what "breakeven" price does it make sense for US shale companies to return. As Reuters reports, less than a year ago major shale firms were saying they needed oil above $60 a barrel to produce more; however in just one year this number has changed and quite drastically at that. We hinted at this three weeks ago in an article which many readers had a hostile reaction to: specifically we warned of "Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens." As we reported then, "what many thought would be the "breaking" price point for virtually every shale play has just been lowered, and quite dramatically at that. It also means that algos and traders who had reflexively bought any dip below $30 on expectations this is close to the "sweet spot" and where the Saudis would relent, will have to drop their support levels by as much as a third."

    OilPrice Intelligence Report: Oil Finds Some Support As U.S. Output Falls - More and more U.S. shale companies have conceded that their production levels are set to fall this year, which brings cuts in U.S. output into clearer focus. Last year, although all companies were hurting from the crash in prices, there was also a sense of triumphalism in the face of the bust, a confidence in the fact that OPEC was unable to break American shale. However, while the magnitude of cost cutting and resilience was impressive, reality is setting in this year. Several companies have already announced that production would fall amid a sharp reduction in upstream spending this year. The EIA released its most up to date monthly production figures, which showed that overall U.S. oil production fell to 9.26 million barrels per day in December, a decline of 50,000 barrels per day from the month before. Output is now more than 400,000 barrels per day lower than the April 2015 peak. Oil prices inch up. The declines are starting to create a little bit of bullishness in the oil markets, with prices surging to the mid-$30s per barrel, up dramatically from their January lows. Investors are starting to become more confident that the worst is over. With U.S. output now solidly in decline – a trend that will likely accelerate in the months ahead as drilling slows even further – the supply glut will start to ease, albeit slowly. Hedge funds and other major investors are starting to reduce their short positions and take stronger net-long positions, an indication that speculators think that oil prices have bottomed out. It is not hard to imagine $40 oil just around the corner. Rail cars for oil storage. Production is slowing but storage is still at a premium. The glut in oil supply and the shrinking availability of storage is leading to the growing practice of storing oil in rail cars. The Wall Street Journal reported that delivering crude by rail is starting to decline because it is no longer profitable with oil prices down in the mid-$30s per barrel. But with rail cars sitting idle, many are starting to be used to store oil, a practice that the industry has dubbed “rolling storage.” The practice will likely remain limited on a permanent basis, however, as storing oil on railcars is subject to safety regulations, liability concerns and a need for track space.

    Crude Crushed After API Reports Biggest Inventory Build In 11 Months -- Following last week's builds overall and at Cushing, and Genscape's Cushing build warnings, expectations were for a 3.3m build overall (and 700k build at Cushing). API reported a massive 9.9mm build - the largest since April 2015; and a yuuge build at Cushing of 1.8mm (most in 3 months). Gasoline saw a draw but Distilates a notable build. Following today's v-shaped recovery in WTI, and NYMEX close ramp, the API data has sent crude reeling. Charts: Bloomberg.  API:

    • Crude +9.9mm (+3.3mm exp)
    • Cushing +1.8mm (+700k exp)
    • Gasoline -2.2mm (-1.1mm exp)
    • Distillates +2.7

    Russia's Putin says global deal to cap oil output is close (AP) — Russian President Vladimir Putin says the country is close to an international deal to cap oil output and that any agreement will have the backing of Russia’s oil sector. Saudi Arabia, Russia, Venezuela and Qatar floated a production cap last month, but it was conditional on other producers joining in. Addressing top state and private sector oil executives, Putin said Energy Minister Alexander Novak “is agreeing and practically has agreed with his partners in the global market” to cap oil output, in comments reported by state news agency Tass. Putin told the oil executives that “as the minister has reported, you are all in agreement with this proposal.” The Russian economy is in recession after being hit hard by the low price of oil, which has also hammered government revenue.

    Art Berman Sees Oil Heading To $16, Will Lead To "Banking Bloodbath" - As Nate Hagens noted, "people think that the economy runs on money but it runs on energy," and as Art Berman details in the following interview how the current oil price collapse represents devaluation from over-investment in unconventional oil - and most commodities - because of cheap capital, and is simply a classic bubble. "Continued oil prices of $30 per barrel or less are the only reasonable path to higher growth and a balanced oil market," Berman contends, adding that he expects $16.50/bbl - "I think we're gonna get there." Berman concludes ominously, we're not going 'back' to anything - "Normal is over, and there is no new normal yet." Full Art Berman interview below (via Macro Voices): Breakdown:

    • 18:25 - OPEC will cut production in 2016
    • 19:05 - OPEC’s objective is to kill shale drillers’ source of funding
    • 24:00 - He doesn’t believe recent EIA figures saying consumption has fallen dramatically
    • 24:40 - US production must drop in a more meaningful way before OPEC can affect crude price
    • 27:00 - Baker Hughes Rig Count is only focused on by traders because it’s available data, not because it matters
    • 33:15 - As long as storage numbers are 80% of capacity or more, prices will remain “crushed”
    • 38:40 - These shale operators “have no money”
    • 44:40 - Very few options beyond increasing Cushing storage capacity, which takes time
    • 53:00 - Future investments in the Oil Sands are dead

    ‘Critical Mass’ of Oil-Producing Countries Agree to Freeze Production - WSJ: —A “critical mass” of oil-producing countries have agreed to freeze oil production, Russia’s energy minister said Tuesday, as African, Latin American and Persian Gulf producers expressed optimism about joining the deal. After meeting with President Vladimir Putin and top Russian oil executives, Energy Minister Alexander Novak said countries producing 73% of the world’s oil had agreed to the tentative deal, according to state news agency TASS. Mr. Novak said capping oil production would prove effective even without Iran, which hasn’t said it would take part. The deal was brokered in February in Doha among Russia and members of theOrganization of the Petroleum Exporting Countries: Venezuela, Qatar and Saudi Arabia. Russia and Venezuela said last week they were planning a broad meeting of producers in mid-March to expand the agreement to freeze their production. Mr. Novak said talks were continuing on how to monitor implementation of the production freeze. He said the aim was to stabilize the price of oil around $50-$60 per barrel, as any higher price would again create excess supply.  Oil producers have turned to the concept of limiting their output to January levels as a form of action to boost prices that have fallen more than two-thirds since the middle of 2014. Saudi Arabia’s oil minister Ali al-Naimi, the de facto leader of OPEC, has said outright supply cuts aren’t on the table because producers don’t trust each other.

    Oil ends up on Wall Street, but pulls back on U.S. crude builds | Reuters: Oil markets closed up as much as 2 percent on Tuesday, before giving back most of their gains in post-settlement trade after data suggesting a huge build in U.S. crude stockpiles already at record high levels. The American Petroleum Institute, an industry group, said domestic crude inventories rose by 9.9 million barrels last week, way above a 3.6 million barrels increase expected by analysts in a Reuters poll. [API/S] [EIA/S] API's numbers often vary to official supply-demand figures for oil released each Wednesday by the U.S. Energy Information Administration (EIA). Even so, some traders braced for the possibility of the EIA reporting a large build as well in crude inventories for last week that could cut short the oil market rebound of the past two weeks. Crude prices rose in eight of the last 13 sessions, gaining 22 percent in all. "This is a big build that surprised even me," said Tariq Zahir, an oil bear who has bet on weaker U.S. crude oil prices for more than a year now. "If the EIA has equally bearish numbers tomorrow, we can really see pressure come on to this oil rally." U.S. crude was up 14 cents, or 0.4 percent, at $33.89 a barrel by 5:17 p.m. EST (2217 GMT). It had settled up 65 cents, or 2 percent, at $34.40 a barrel. Brent, the global benchmark for crude, was up 4 cents at $36.61, after trading in the negative earlier. It had settled up 24 cents, or 0.6 percent, at $36.81.

    Crude Inventory +10.37M Barrels vs +2.5M Expected- U.S. crude oil refinery inputs averaged about 15.9 million barrels per day during the week ending February 26, 2016, 167,000 barrels per day more than the previous week’s average. Refineries operated at 88.3% of their operable capacity last week. Gasoline production decreased last week, averaging over 9.3 million barrels per day. Distillate fuel production increased last week, averaging 4.8 million barrels per day. U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 490,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, 7.2% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 454,000 barrels per day. Distillate fuel imports averaged 306,000 barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.4 million barrels from the previous week. At 518.0 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories increased by 2.9 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.7 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 9.9 million barrels last week. Total products supplied over the last four-week period averaged about 19.7 million barrels per day, down by 1.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.3 million barrels per day, up by 6.9% from the same period last year. Distillate fuel product supplied averaged over 3.4 million barrels per day over the last four weeks, down by 18.8% from the same period last year. Jet fuel product supplied is up 6.1% compared to the same four-week period last year.

    Crude Tumbles After DOE Confirms Biggest Inventory Build In 11 MonthsFollowing last night's yuuge inventory build reported by API (+9.9m) and large rise in Cushing levels (+1.8m), DOE reported a crude build of even yuuger 10.37mm barrels (against the 7.1mm expectation) - the largest since early April 2015. Cushing saw a 1.2mm build - the most in 3 months. On the other side of the ledger, production fell for the 6th week in a row (-2.6% YoY to lowest since Nov 2014). Crude prices recovered from API's losses as algos ran stops on the back of headlines about Saudi increases prices to Asia but DOE's headline sent WTI back to its lows. API:

    • Crude +9.9mm (+3.3mm exp)
    • Cushing +1.8mm (+700k exp)
    • Gasoline -2.2mm (-1.1mm exp)
    • Distillates +2.7


    • Crude +10.37mm (+7.1m exp)
    • Cushing +1.19mm
    • Gasoline -1.468mm
    • Distillates +2.88mm

    Which means Cushing has seen inventory builds in 16 of the last 17 weeks...As storage concerns are becoming extreme... As we detailed previously....Genscape joins the ever louder chorus that the US is approaching the capacity tipping point: Production is at its lowest level since Nov 2014, and is now down 2.6% YoY (the biggest YoY drop since Aug 2012) But while US production is down, US imports (of cheap Iranian oil?) are at their highest in 2 years... As refinery throughput is at a seasonal record... (ready for another glut in gasoline?)

    Oil up, shrugs off big U.S. crude build and erases early dip - (Reuters) - Oil traded higher again on Wednesday, erasing a brief dip that followed data showing a huge build in U.S. crude stockpiles to record highs. Global benchmark Brent crude was up 30 cents at $37.11 a barrel by 11:15 a.m. EST. Earlier, Brent had fallen 71 cents to a session low of $36.10 after the U.S. government said crude inventories rose 10.4 million barrels to 518 million in the week to Feb. 26. That build reported by the U.S. Energy Information Administration was almost triple the 3.6 million-barrel increase expected by analysts in a Reuters poll. U.S. crude was up 40 cents at $34.80, after sliding to an intraday low of $33.55. Traders were hopeful that prices will not sink back to lows hit in mid-February, when U.S. crude fell to a 12-year low of around $26, and Brent just above $27. The selloff in oil began in mid-2014 when prices were above $100 a barrel. "It seems more likely that $26 is in the rear view mirror at the moment," said Anthony Headrick, energy market analyst at CHS Hedging. "Fundamentals remain bearish but prospects of OPEC freeze and downward cycle in U.S. output will likely limit a retest of the recent lows." Bulls in the oil market have pushed for price gains over the past two weeks after Saudi Arabia and fellow OPEC members Qatar and Venezuela joined Russia in proposing a production freeze at January's highs.

    Bakken-Brent Spread And US Crude Oil Imports -- March 2, 2016 -- Two connecting dots. First, this from the weekly EIA report: The Bakken crude oil spot price discount to Brent averaged $8 per barrel (b) in August 2015. It narrowed to average only $2/b in November 2015, and by January 2016 averaged $1.69/b (Figure 1). The narrower the spread between domestic and imported international crude, the more likely costal refineries will choose to run imported crudes rather than domestic supplies shipped via railSecond, from John Kemp's tweets earlier today:  US weekly crude oil imports were running at some of the highest rates in two years this past week. 

    U.S. Has Too Much Oil. So Why Are Imports Rising? - Despite domestic production declining and demand surging, the EIA reported oil inventories surge by more than 10 million barrels, or more than three times what was expected. The 10.4 million barrel increase was mostly due to a near record increase in imports of 490,000 b/d (3.4 million barrels weekly) and an adjustment swing of 352,000 b/d (2.5 million barrels weekly) by the EIA. The latter has been a repeated pattern to exaggerate the levels of inventory, a pattern going back to 2015. Thus, over half of the said increase in inventory was driven by higher imports and an arbitrary adjustment that seems routine by the EIA. Domestic production actually fell by 25,000 B/D in the week ending on February 26. Also gasoline inventories fell 455,000 barrels, or nearly 5 percent, as capacity utilization rose 1 percent. Total gasoline supplied, which is a gauge of demand over last 4 weeks, has risen a whopping 7 percent. Now the real question is with U.S. production declining and inventories at record levels, why are refiners still importing at such heights? The 8.2 million barrels per day imported in the week came very close to the record in December, missing by some few percentage points. U.S. commercial domestic crude oil stocks are now nearly 17 percent above last year levels. None of this adds up: We are producing less, inventories are rising, while demand is at records and yet we are using more imported oil? The chart below depicts these very odd phenomena. Moreover, most incremental U.S. output is light sweet crude from shale regions, as is the imported oil. The only logical answer that seems possible is that OPEC is undercutting light sweet U.S. crude pricing, so as to incentivize refiners to use imports. So are we then to believe Saudi Arabia that it isn’t at war with U.S. shale?

    Expect Large Builds in Oil Inventories For Next 7 Weeks (Video) - Starting this time last year we added over 40 Million Barrels to US Oil Stockpiles. The question is can storage facilities handle another 40 Million Build in Oil Stocks over the next 7 weeks?

    Another Very Strange Morning For Oil - Following yesterday's modest drop in US crude production and yuuge build in inventories, headlines about possible Venezuela meetings sent algos into panic-buying mode. This morning the headlines are from Nigeria, whose Petroleum Minister "expects a dramatic price move"claiming a meeting between OPEC and NOPEC will happen on March 20th. Combine that idiocy with significant US Dollar weakness this morning and the surge in Oil ETF share creation and the perfect storm of higher prices in oil (as hedgies pile in). Nigeria’s Petroleum Minister Emmanuel Kachikwu anticipates dramatic price move after meeting between OPEC and non-OPEC producers, he says at conference in Abuja, the capital. “Both the Saudis and the Russians, everybody is coming back to the table” “We’re beginning to see the price of crude inch up very slowly. But if the meeting that we’re scheduling, it should happen in Russia, between the OPEC and non-OPEC producers happen about March 20, we should see some dramatic price movement” Later confirmed mtg planned to take place on March 20.  Producers target recovery to $50 a bbl

    OPEC Ministers Now Resorting To Outright Lies In Desperate Attempts To Push Oil Higher - The key (recurring) catalyst for today's early spike in oil, was the latest desperate attempt by an imploding OPEC member, this time Nigeria to push oil higher when overnight its petroleum minister Emmanuel Kachikwu said that key members of OPEC intend to meet with other producers in Russia on March 20 to renew talks on an agreement to cap oil output, Nigeria’s petroleum minister said. The headlines in question:


    As Kachikwu hopefully added, "there will be a dramatic price movement” when the meeting takes place. As a reminder, oil-exporter Nigeria recently saw its dollar reserves dry up, forcing it to beg for a massive loan from the World Bank as the current price of oil dooms this particular nation to a very painful economic collapse. Sure enough, the algos bought this hook, lie and sinker and proceed to force another attempt at squeezing near record shorts. The only problem is that moments ago, we got confirmation that not only are such desperate attempts to prompt "dramatic price movements", higher of course, laughable, they just suffered a spectacular loss of credibility when moments ago Reuters reported that no decision on the date or venue of a possible meeting between OPEC and non-OPEC producers has been made yet, a Gulf OPEC delegate said on Thursday. "There has been no decision made regarding the meeting yet. No date or location decided yet. The Gulf countries prefer that it would be held in the first half of April, and preferably in Doha, or some other Gulf city," the delegate told Reuters.

    Dallas Fed Unplugs Oil Bulls, Warns of Liquidity Crunch, Contagion - Wolf Richter -The rally in crude oil has been red hot. In the three weeks since February 11, WTI shot up a short-crushing 34% to $34.69 a barrel at the moment. Now the talk in the oil patch is at what price these desperate shale oil drillers will once again increase production. Continental Resources CEO John Hart and Whiting Petroleum CEO Jim Volker told analysts this week that they’d step on the accelerator once oil reaches the $40 to $45 range. After all, drillers have to produce oil to be able to service their mountain of debts. They can’t just switch to selling T-shirts. Alas, that looming increase in production won’t help deal with the glut. And a glut it is. Dallas Fed President Robert Kaplan hammered this home as part of a wide-ranging speech today. The Dallas Fed, whose district in addition to Texas includes northern Louisiana and southern New Mexico, figured that global oil production in 2016 will exceed consumption by an average of 1 million barrels per day. So that would amount to adding another 300 million barrels by year-end to the already ballooning crude oil inventories around the world. In OECD countries, inventories continue to rise, he said, and are now at “roughly 400 million barrels above the historical five-year average.” But the excess of production over consumption is coming down to 500,000 barrels per day by the end of the year, not because production will decline, but because consumption in 2016 is expected to grow by about 1.2 million barrels per day: These excess inventory levels will increase through 2016, and there is now some discussion in the industry about potential limits in storage capacity. We estimate that the market will not find some degree of daily production/consumption balance until mid-2017 and, at that point, excess inventories will begin to decline. Several factors and assumptions, based on data over the past several months, underlie this outlook, he said:

    • The official return of Iran to the world oil markets
    • Increased supply from OPEC nations
    • Slower-than-expected supply declines from US producers despite substantial cuts in drilling and capital spending
    • And slower-than-expected demand from emerging-market countries.

    But he added that the outlook would be “meaningfully impacted by a change in OPEC production strategy” – in one direction or the other.

    OilPrice Intelligence Report: Oil Up On OPEC Rumors, U.S. Shale Shutdowns: We start today's newsletter with this week’s key figures for the oil and gas industry from which we see that oil has rallied and U.S. production has experienced a slight decline. While we continue to see rising U.S. crude inventories, it seems that a production decline has kept oil prices from falling. Oil prices have had a relatively quiet week, posting a handful of less volatile trading sessions compared to what we have become used to. WTI moved up to about $35 per barrel this week and Brent rose to nearly $38. Oil prices have gained more than 30 percent since early February. . Oil storage levels in the U.S. continue to break records. For the most recent data available, the EIA says that crude inventories surged by 10.4 million barrels to a record high of 518 million barrels. The ongoing gains in storage levels will continue to act as a drag on oil prices, a sign that the glut still is not over. On the bullish side of things, more and more companies are reporting expected declines in production, signaling that the supply overhang will ease with time. These two forces seemed to have cancelled each other out this week as oil prices rallied and then flattened out.  The U.S. Supreme Court denied a request to issue a stay on the EPA’s mercury emissions rule. The request was brought by a coalition of 20 states, who were no doubt encouraged by the Court’s decision to put a hold on the EPA’s greenhouse gas rule just before the death of Justice Antonin Scalia. However, the Supreme Court rejected the mercury rule request and did not issue a comment, suggesting it did not think there was a serious case for it. The mercury rule limits mercury emissions from power plants, and it went into effect in 2015.

    US rig count drops 13 this week to 489; Texas down 4: (AP) — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 13 this week to 489, a near record low. The Houston company said Friday that 392 rigs sought oil and 97 explored for natural gas amid depressed energy prices. A year ago, 1,192 rigs were active. Among major oil- and gas-producing states, Texas declined by four rigs, North Dakota and Oklahoma dropped by three, Colorado declined by two, and Louisiana, New Mexico and West Virginia each lost a rig. Alaska gained a rig. Arkansas, California, Kansas, Ohio, Pennsylvania, Utah and Wyoming all were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999

    U.S. Oil Rig Count Falls to 2009 Levels - WSJ: The U.S. oil-rig count fell by eight to 392 in the latest week, according to Baker Hughes Inc., reaching levels last seen in late 2009. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. The latest total of 392 active oil rigs marks the first time it has fallen below 400 since late 2009. There are now about 69% fewer rigs of all kinds from a peak of 1,609 in October 2014. According to Baker Hughes, the number of U.S. gas rigs dropped in the latest week by five to 97, a fall to levels unheard of in Baker Hughes’ current format, which dates back to 1987. The U.S. offshore-rig count was 24 in the latest week, down three rigs from last week and down 27 rigs from a year ago. In total, the U.S. rig count is down 13 from last week at 489. Oil prices rose Friday on a weaker dollar and expectations of another large drop in U.S. drilling. Prices held their gains after U.S. data showed stronger-than-expected job growth in February. Recently, U.S. crude oil climbed 3.6% to $35.83 a barrel.

    US rig count one away from historic low — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 13 this week to 489, a near record low. The Houston company said Friday that 392 rigs sought oil and 97 explored for natural gas amid depressed energy prices. A year ago, 1,192 rigs were active. Among major oil- and gas-producing states, Texas declined by four rigs, North Dakota and Oklahoma dropped by three, Colorado declined by two, and Louisiana, New Mexico and West Virginia each lost a rig. Alaska gained a rig. Arkansas, California, Kansas, Ohio, Pennsylvania, Utah and Wyoming all were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

    Oil ends sharply higher, logs 10% weekly gain as output draws focus - The U.S. oil benchmark closed at its highest level since early January as traders turned their focus toward signs of falling U.S. production and continued talk of a potential output freeze by other major producers. A drop in the number of active U.S. oil-drilling rigs for the 11th straight week helped cement those gains, with both the U.S. and global benchmark posting weekly advances of more than 9%. On the New York Mercantile Exchange, April West Texas Intermediate crude added $1.35, or 3.9%, to close at $35.92 a barrel—the highest finish since Jan. 5. For the week, WTI rose 9.6%. May Brent crude, the global oil benchmark, added $1.65, or 4.5%, to finish at $38.72 a barrel on London’s ICE Futures exchange. That marked the highest finish since Dec. 10 and a weekly advance of 9.3%. The number of active rigs drilling for crude in the U.S., viewed as a rough proxy for activity in the oil industry, fell by 8 to 392 rigs as of Friday, according to data from Baker Hughes Inc. BHI, -0.75% The total number of active U.S. drilling rigs fell 13 to 489. The total tally was the lowest since the 488 count recorded on April 23, 1999, which was the lowest number since records began in the late 1940s. The fall in oil rigs “supports the idea that U.S. oil output is going to continue to decline in coming weeks,”  While the number of U.S. oil rigs has fallen for 11 weeks straight, oil output hasn’t fallen by as much as some expected because drillers have increased their efficiency and employed new technologies. Still, domestic output has seen a 2.6% year-over-year drop in the week that ended Feb. 26. Futures also continued to find support on talk of a planned meeting later this month between major oil producers who are expected to discuss a possible freeze in crude production.

    WSJ: Oil Prices up 37% since Low in February  - From the WSJ: Oil Prices Jump as Drilling Drops Light, sweet crude for April delivery settled up $1.35, or 3.9%, Friday at $35.92 a barrel on the New York Mercantile Exchange, the highest settlement since Jan. 5. Prices are up 37% from the 13-year low reached last month. For the week, U.S. crude was up 9.6%.... U.S. oil output has fallen from a peak in April as companies sharply cut spending on new drilling, but it hasn’t declined as much as some investors expected because producers increased their efficiency and lowered drilling costs. Some analysts say U.S. production is due to drop more quickly this year because companies have announced new budget cuts in recent weeks.

    Iraq's oil exports in February fall below planned levels (AP) — Iraq’s Oil Ministry said Tuesday that crude exports averaged 3.225 million barrels a day in February, far below levels planned to provide the nation with badly needed cash for ongoing military operations against Islamic State extremists. Last month exports grossed about $2.2 billion, based on an average price of about $23 per barrel, ministry spokesman Assem Jihad said in a statement. Iraq’s 2016 budget is based on an expected price of $45 per barrel with a daily export capacity of 3.6 million. January’s daily exports averaged 3.283 million barrels, bringing that month’s revenues to $2.261 billion. The figures do not include oil being independently exported from Iraq’s self-ruled northern Kurdish region since mid-2015, preventing the government from reaping revenues of nearly 600,000 barrels a day. Iraq holds the world’s fourth largest oil reserves, some 143.1 billion barrels, and oil revenues make up nearly 95 percent of its budget. But like other oil-reliant countries, Iraq’s economy has been severely hit by plummeting oil prices since 2014. This year’s budget stands at nearly 106 trillion Iraqi dinars, or about $89.7 billion. It runs with a deficit of over 24 trillion dinars (about $20.5 billion) that are planned to be relieved through loans from local and international lenders.

    'Even God Forgot This Place': Welcome to the Oilfields of Azerbaijan -- In the late 13th century, the explorer Marco Polo travelled to the region that comprises modern-day Azerbaijan and reported seeing gushing oil geysers, some of which ignited and lit up the night sky. These days, the sky above the capital Baku is more likely to be illuminated by spotlights from stadiums or skyscrapers paid for by the country's black gold. The city just hosted the inaugural European Games, an Olympics-style multi-sport tournament for athletes from 50 countries, and Azerbaijan's government has spent billions on glittery decorations and lavish ceremonies. Yet rumors of a further devaluation of the country's currency, dipping oil prices, and discontent over the Games' ballooning costs are exposing the vulnerability of a nation whose economy is one of the most oil-dependent in the world.  But the precipitous decline in the price of oil from $110 to a low of $50 has caused some panic in the Azerbaijani government, including a recent 30 percent devaluation of the Manat currency. It is abundantly clear, however, that nation's vast wealth from hydrocarbons has never truly touched the neighborhoods around the oilfields. A few houses in Balakhani stand clean, bright and proud behind metal gates fringed with vines, while others are clustered in areas with an appearance that verges on post-apocalyptic. The wind whips up putrid fumes of burning plastic next to an oil-slicked lake entirely ringed with a crest of blackened bottles, tires, ossified birds, and children's clothes. Some shacks sit in the shadow of the hypnotic Soviet-era "nodding donkey" pumps, which oscillate metronomically, squeaking as they suck the ground dry. Villagers are not accustomed to seeing foreigners, yet welcoming hand signals, offers of tea, and requests for selfies are numerous. "What are you doing here? Even God forgot this place!" a young man told VICE News.

    Peruvian president investigated in Brazil Petrobras probe (AP) — Brazilian police investigating a massive kickback scheme at state-run oil company Petrobras are now looking closely at Peruvian President Ollanta Humala and a former Argentine transportation minister, according to an internal document obtained by The Associated Press. The 44-page federal police report dated Feb. 5 now moves the sprawling corruption probe beyond Brazil’s borders, saying investigators suspect Humala received $3 million in bribes from the large Brazilian construction company Odebrecht in exchange for contracts in Peru. Humala’s press office did not respond Friday to repeated requests for comment. It tweeted that the president had called Brazil’s ambassador in Peru to deny the allegations. Attempts to find a lawyer representing the former Argentine minister, Ricardo Raul Jaime, were unsuccessful. The document is being reviewed by Brazilian Judge Sergio Moro, who is presiding over the sprawling Petrobras case that has brought down top Brazilian politicians and company executives. Moro’s office declined to comment. Legal experts say the judge could ask Brazil’s foreign minister to ask Peruvian authorities for an investigation or order prosecutors to go after Humala in Brazilian courts.

    Arab States Face $94 Billion Debt Crunch on Oil Slump, HSBC Says -  Gulf Cooperation Council countries may struggle to refinance $94 billion of debt in the next two years as the region faces slowing growth, rising rates and rating downgrades, according to HSBC Holdings Plc. Oil-rich GCC states have to refinance $52 billion of bonds and $42 billion of syndicated loans, mostly in the United Arab Emirates and Qatar, HSBC said in an e-mailed report. The countries also face a fiscal and current account deficit of $395 billion over the period, it said. Expectations that these funding gaps "will be part financed through the sale of sovereign U.S. dollar debt will complicate efforts to refinance existing paper that matures over 2016 and 2017," Simon Williams, HSBC’s chief economist for the Middle East, said in the report. "With the Gulf acting as a single credit market, the refinancing challenge will likely be much more broadly felt" and "compounded by tightening regional liquidity, rising rates and recent downgrades," he said. GCC states, which collectively produce about a quarter of the world’s oil, are taking unprecedented measures to shore up their public finances as crude prices struggle to rebound from the lowest levels in 12 years. The countries, which include Saudi Arabia and Oman, have also been hit by a series of rating cuts, while billions of dollars have been drained from the region’s banking system.

    Saudi Cash Reserves Drop To Lowest Level In 40 Months Amid Crude Carnage - The trend we flagged in November of 2014 continues unabated. When the Saudis moved to artificially suppress crude prices in an effort to preserve market share by bankrupting the cash flow negative US shale space, Riyadh was gambling. Gambling on how long US producers could rely on wide open capital markets to keep them afloat. Gambling on how tolerant everyday Saudis would be should it become necessary to cut subsidies to shore up the budget. Gambling on the extent to which the market would test the riyal peg. And on and on. In short, the kingdom was betting that it could ride out the price storm without essentially going bankrupt. But the downturn has lasted longer than the Saudis might have expected, and now that some 1,000,000 b/d of Iranian supply is set to come back online by year end, Riyadh has to a certain extent lost its ability to control the situation. Complicating matters is the war in Yemen, which next month will drag into its second year. Not only has the conflict been costly, it's also put Riyadh in a bad spot from a reputational perspective. Last week, the European Parliament recommended a wholesale embargo on arms sales to the Saudis in light of the 3,000 civilians the kingdom has "accidentally" killed over the course of the campaign to rout the Iran-backed Houthis. All of this costs money. Lots of it. The war, the 16% budget deficit, maintaining the riyal peg - it's all costly and it's showing up in the depletion of Saudi reserves which in January fell 2.4%, or $14.3 billion, falling below $600 billion for the first time since the summer of 2012.

    We just got another massive sign of how badly Saudi Arabia is suffering from the oil price crash - Saudi Arabia, whose economy has taken a beating in recent months thanks to the crash in oil prices, just got another terrible piece of news. On Monday, HSBC economists Simon Williams and Razan Nasser dropped a note on the country's foreign-exchange holdings, and things look pretty dire for the oil-reliant nation. It shows that FX reserves dropped by more than $14 billion (£10.1 billion) in January, falling to their lowest level in nearly three years. The amount of reserve assets held by the Saudi government now stands at $602 billion (£434.5 billion), nearly $150 billion (£108.3 billion) down from its recent peak in late 2014, just before oil prices started plummeting. Here's the chart:

    "There Is A Dollar Shortage": Abu Dhabi Warns On Decreased Dollar Supply -- It’s not entirely clear whether Saudi Arabia knew what they were setting in motion when the kingdom moved to deliberately suppress crude prices at the end of 2014. The idea (of course) was to preserve market share by bankrupting the US shale space and if there were “ancillary benefits” - like say forcing Moscow to give up its support for Bashar al-Assad - well then all the better. Unfortunately for Riyadh, things didn’t really go as planned. The kingdom’s budget deficit ballooned to 16% of GDP (which, for the uninitiated, is an unmitigated disaster) and this year’s target of 13% will invariably prove to be elusive unless the Saudis decide to either drop the war in Yemen, drop the riyal peg, or (preferably), both. In any event, the demise of the petrodollar has predictably created a shortage of, well, petrodollars, and it’s starting to show up in the UAE. “National Bank of Abu Dhabi PJSC, the United Arab Emirates’ largest bank, said there’s a reduced supply of dollars in the country as the region grapples with the impact of oil trading around $30 per barrel and credit downgrades,” Bloomberg reported, earlier today, adding that “banks in the U.A.E., holder of the world’s sixth-largest oil reserves, are facing deteriorating conditions as lower crude leads to a decline in government spending, slower economic growth and falling asset quality.” “There is a dollar shortage,” PJSC CEO Alex Thursby told reporters in Abu Dhabi on Wednesday. “It’s not a crisis, but it is tightening." As Bloomberg goes on to note, "the U.A.E.s’ banking sector has lost 56 billion dirhams ($15.25 billion) in government deposits since September 2014."

    OPEC watching Iran, Russia, unlikely to cut output in June | Reuters: OPEC is very unlikely to cut output at its next meeting in June, even if prices remain extremely low, according to OPEC sources and delegates, as it will be too early to say how fast Iranian output is rising. The sources, which include officials from the Middle East, say OPEC countries such as Saudi Arabia also want to test Russia's commitment to freezing output before taking any further steps to stablize prices. More than 18 months after oil prices began a steep slide due to excess supply, Saudi Arabia, Qatar, Venezuela and non-OPEC Russia agreed last month to freeze output at January levels in the first global oil pact in 15 years. Saudi Arabian Oil Minister Ali al-Naimi said last week a supply cut was not on the cards although adding that the production freeze was only the first step to balance the market after prices fell to their lowest since 2003. "Maybe by the end of the year (a cut could be possible) when it is really clear that Iran is actually producing the volumes they are talking about. But not in June," a source from one of OPEC's Middle Eastern producers said. January was peak or near-peak production for Russia and Saudi Arabia, the world's two top oil exporters, but Iran - OPEC's No.3 producer - is the key supply uncertainty for 2016 as it is raising output after the lifting of Western sanctions in January, adding barrels to the already saturated market.

    Deepening default fears cast shadow over Venezuela's oil flows - (Reuters) - As Venezuela grows closer to exhausting nearly every means of paying its debt, some oil market participants are seriously pondering the possible implications of an unprecedented event: the default of a major crude producing company. State-run firm PDVSA faces around $5.2 billion in payments to bondholders in 2016, much of it in October and November, a sum that some experts say it will be hard-pressed to meet after the government used nearly all of its available cash reserves to pay $1.5 billion in maturities last week. A default could curtail some of the OPEC member's exports by crippling its ability to import crude and fuels used to blend its extra heavy oil, experts and sources say. It could also degrade the quality of domestic gasoline by limiting purchases of necessary components. With the risk growing and payment delays to suppliers already emerging, some firms that sell to PDVSA have begun hedging their bets by using intermediaries or seeking higher prices, fearful they might never get paid, according to sources who deal with the firm. "A possible PDVSA default is worrying for everybody," a source from a U.S. oil company that buys from PDVSA told Reuters. And if they scrape together enough funds to pay off bondholders, "they will not be able to pay suppliers." The implications of a default for global oil supplies swamped by the biggest glut in decades are difficult to divine, but experts are closely watching the deteriorating finances of exporters for anything that could jolt markets.

    A New Libya, With ‘Very Little Time Left’ -- It was a grisly start to the new era for Libya, broadcast around the world. The dictator was dragged from the sewer pipe where he was hiding, tossed around by frenzied rebel soldiers, beaten bloody and sodomized with a bayonet. A shaky cellphone video showed the pocked face of Col. Muammar el-Qaddafi, “the Leader” who had terrified Libyans for four decades, looking frightened and bewildered. He would soon be dead. The first news reports of Colonel Qaddafi’s capture and killing in October 2011 reached the secretary of state in Kabul, Afghanistan, where she had just sat down for a televised interview. “We came, we saw, he died!” she exclaimed.  Two days before, Mrs. Clinton had taken a triumphal tour of the Libyan capital, Tripoli, and for weeks top aides had been circulating a “ticktock” that described her starring role in the events that had led to this moment. The timeline, her top policy aide, Jake Sullivan, wrote, demonstrated Mrs. Clinton’s “leadership/ownership/stewardship of this country’s Libya policy from start to finish.” The memo’s language put her at the center of everything: “HRC announces … HRC directs … HRC travels … HRC engages,” it read.  And Mrs. Clinton would be mostly a bystander as the country dissolved into chaos, leading to a civil war that would destabilize the region, fueling the refugee crisis in Europe and allowing the Islamic State to establish a Libyan haven that the United States is now desperately trying to contain.

    Iran Pivots Toward Democracy As Moderates Sweep Elections -- In what amounts to a referendum on President Hassan Rouhani’s leadership, voters in Tehran turned out overwhelmingly for moderates in closely watched parliamentary elections that may serve as an important signal for where Iran is headed. Pro-Rouhani candidates are set to sweep all 30 of Tehran’s parliamentary seats. The 290-member body is dominated by hard-liners, but that looks set to change under the President, whose decision to negotiate with the US over the country’s nuclear program was an enormous political gamble. “The early victories and reports of a high turnout spurred claims of victory on social media by activists and media who share Rouhani’s ambition of overhauling the post-sanctions economy with the help of foreign investment and perhaps easing some social restrictions,” Bloomberg notes. “Yet to secure control of the legislature and confront entrenched conservative power in other governing institutions like the judiciary, the president will need similar wins nationwide.” Turnout was high, which would seem to indicate that younger voters came out en masse to support the President’s agenda. The vote comes a year ahead of Presidential elections where Rouhani might well seek a second term. Iran should “use international opportunities to start a new chapter in the growth and blossoming of the national economy,” the President said on Saturday.

    Iran, South Korea seal € 5bn pact - Iran said on Sunday that it had signed a basic agreement with South Korea to attract funds worth a total value of €5 billion for its development projects. The agreement was signed between Iran’s Finance Minister Ali Tayyeb-Nia and the visiting South Korean Minister of Trade, Industry and Energy Joo Hyung-hwan. Tayyeb-Nia told reporters that similar agreements have been previously signed with South Korea including one with the country’s Exim Bank to provide a total of €8 billion to Iran to implement its development projects. The Iranian minister further emphasized that South Korea is expected to provide Iran with loans worth a total of $15 billion based on the agreements that have been sealed so far. Tayyeb-Nia also said Minister Joo had told him that South Korean wants to invest in Iran’s auto industry as well as its tourism sector and its oil and gas projects. In a separate development, Valiollah Seif, the governor of the Central Bank of Iran (CBI), has been quoted by the media as saying that Iran and South Korea have agreed to create a joint bank account to settle the outstanding payments for Iran’s oil sales to South Korea. Seif said the agreement was reached during a meeting with South Korea’s Minister of Trade, Industry and Energy Joo. The joint account, he added, will be created in the central banks of the two countries.

    South Korea plans to boost Iran oil imports, especially condensate | Reuters: South Korea plans to boost imports of Iranian oil, especially condensate, this year to meet growing demand after sanctions on the Islamic nation were lifted in January. The world's fifth largest importer of crude is also a big buyer of condensate, a super light oil that can be processed into fuels and petrochemicals. Iran's return would help ease tight condensate supply in a market dominated by fellow OPEC producer Qatar. "We will increase oil and natural gas (liquids) imports from Iran, especially Iranian condensate," South Korea's trade and energy ministry said on Tuesday. Iran is exporting 100,000 barrels of oil a day to South Korea, one of its main crude customers, and hopes to double that figure by the end of 2016, Oil Minister Bijan Zanganeh was quoted as saying on Monday. The Islamic Republic on Jan. 17 emerged from years of economic isolation as sanctions over its disputed nuclear program were lifted. That encouraged a tripling of South Korea's oil imports from Iran in January, but shipments remained far below pre-sanction levels. South Korea's trade ministry said the two countries would establish a payment system to facilitate smooth trade of crude and condensate between National Iranian Oil Company and South Korea's SK Energy and Hyundai Oilbank

    Japan's oil import prices rise as glut looks to ease- Nikkei Asian Review: -- Japanese oil companies will pay more for imported crude on the back of a potential output freeze. Japan imports about 80% of its crude from Saudi Arabia and other major oil-producing nations under long-term contracts. Prices are reviewed monthly, with adjustments to the average for Dubai crude -- the benchmark for Asia -- and Oman crude. The long-term contract price for Arabian light crude oil, from Saudi Arabia, rose to $28.92 a barrel for February, up 13% from January, when the price hit the lowest in more than 12 years. As signs emerged that oil exporters may cap output, Dubai crude in the spot market climbed to a two-month high Tuesday. Output by OPEC members likely edged down to around 32 million barrels a day for February. Iran boosted production after Western sanctions were lifted, but countries such as Nigeria and Iraq recorded declines. As export heavyweights including Saudi Arabia and Russia have moved to freeze output, the market share war that had been overheating appears to be running its course. Because Iran's oil field infrastructure is aging, an increase in the country's exports this year will be limited to 400,000 barrels a day, below the government target of 1 million barrels, said Sushant Gupta, research director at Wood Mackenzie, a U.K. energy consultancy.

    China crude oil imports fall in January from record high | Reuters: China's crude oil imports fell 20 percent in January from record high volumes the previous month to their lowest level since October, official customs data showed on Monday. January crude oil imports were also down 4.6 percent on a year earlier at 26.69 million tonnes, or 6.29 million barrels per day. China's imports reached a record 7.81 million bpd in December to close out 2015 with an average 6.71 million bpd - a figure well above China's still growing demand for oil. China took advantage of low global oil prices last year to add up to 185 million barrels to its reserves, Reuters calculations show, while oil demand - refinery throughput plus net imports of oil products - grew 3.1 percent. In January, fuel exports rose 45.2 percent to 3.01 million tonnes, or 679,700 bpd, after hitting a record 975,500 bpd in December, as China continued to export more diesel amid weakening demand for the industrial fuel. Diesel exports in the first quarter of 2016 may high a record high for that period, flooding Asia with supply at a time when profit margins are close to six-year lows, industry sources have said.

    Crude Oil Prices Fall as China Manufacturing Data Disappoint - WSJ: Crude-oil prices were lower in early Asia trade Tuesday, after China’s official manufacturing data showed a seventh consecutive contraction in February, deepening concerns that oil demand from the world’s second-largest economy will slow. On the New York Mercantile Exchange, light, sweet crude futures for delivery in April traded at $33.61 a barrel at 0219 GMT, down $0.14 in the Globex electronic session. May Brent crude on London’s ICE Futures exchange fell $0.22 to $36.35 a barrel. China’s official manufacturing purchasing managers’ index, a gauge of the nation’s factory activity, fell to 49.0 in February from 49.4 a month earlier, official data from the National Bureau of Statistics showed. A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 points to a contraction. However, some economists cautioned that seasonal factors were likely in play as most factories were closed for a week in February during the Lunar New Year break. “Slowing manufacturing activities in China will definitely weigh on sentiment,” China’s aggressive consumption of oil has been a bright spot in the gloomy oil market. But as China moves gradually from a heavy industry-based economy to a more service-oriented one, analysts say the country’s oil-demand growth will weaken.  

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