Sunday, August 7, 2016

oil imports at 45 month high, gas drilling at all time low, DUC wells at 2300, global rig count rising again

contract prices for US oil fell by more than 5% the first two days of this past week, then rallied by 5.8% over the next two, and finally slipped a little on Friday to end the week up less than a half percent from where they started...after closing last week at down nearly 6% to $41.60 a barrel, oil prices extended their slump on Monday on news of record production from the OPEC countries, falling hourly to below $40 a barrel by mid-afternoon, only steadying in the last hour to close the day at $40.06 a barrel...prices seemed to be in a freefall on Tuesday morning as they fell below $39.30 a barrel before noon, but rebounded a bit to close at 39.51 a barrel after the American Petroleum Institute reported an unexpected 1.3 million barrel drawdown of inventories at Cushing Oklahoma, the storage depot on which US oil contract prices are based...prices were then up by 3% to close at $40.83 a barrel on Wednesday after the EIA reported a larger than expected 3.3 million barrel draw of gasoline inventories...then on Thursday, short covering kicked in push oil $1,10 higher, or 2.7%, to close at $41.93 a barrel, as those who sold oil they didn't own on Tuesday were forced to buy oil to cover their commitments...prices then opened lower on Friday, but pared losses to close the week at $41,80 a barrel, after Baker Hughes reported the number of U.S. oil rigs rose for a sixth straight week....

The Latest Oil Stats from the EIA

as mentioned, the oil data for the week ending July 29th from the US Energy Information Administration showed an unusually large draw from our stored supply of gasoline, which was offset by additions to inventories of most other refined products as well as crude, which couldn't help but increase in the face of oil imports that were near a 4 year high, even though refineries returned to operating at a more seasonable level...however, this week's crude oil fudge factor included to make the weekly U.S. Petroleum Balance Sheet (line 13) balance was again positive, at +533,000 barrels per day, which meant that 533,000 more barrels per day showed up in our final consumption and inventory figures this week than were accounted for by our production or import figures, meaning one or several of this week's metrics were off by that amount, so we have to again take this week's data with a large grain of salt...that's now the 6th week in a row that we've seen a large positive adjustment, and as a result this year's cumulative daily average of that weekly statistical adjustment is now up to a positive 53,000 barrels per day, a reversal of the negative adjustment we saw through the first 6 months of this year, when much of what we had appeared to have produced or imported did not show up in the final consumption or inventory figures...

the EIA reported that our imports of crude oil rose by an average of 301,000 barrels per day to an average of 8,738,000 barrels per day during the week ending July 29th, the most oil we've imported in any week since the week ending October 19th of 2012....this week's imports were more than 1.5 million barrels per day, or 21.7%, more than the 7,180 ,000 barrels of oil per day we imported during the week ending July 31st a year ago, and the 4 week average of our imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) rose to an average of 8.3 million barrels per day, 10.4% higher than the same four-week period last year...

at the same time, our field production of crude oil fell for the first time in four weeks, as oil output from US wells was down by 55,000 barrels per day to an average of 8,460,000 barrels per day during the week ending July 29th, entirely on a 55,000 barrel per day drop in production from Alaska (oil production from the lower 48 states did not decrease for the first time since January)...however, the overall drop in output still left the week's oil production down by more than a million barrels per day, or down by 10.6% from the 9,465,000 barrels we produced during the week ending July 31st of 2015, and 12.0% lower than the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year...our oil production for the week ending July 29th was thus 759,000 barrels per day lower than we what were producing at the beginning of this year... 

meanwhile, the amount of crude oil used by US refineries rose by 266,000 barrels per day to an average of 16,852,000 barrels of crude per day during the week ending July 29th...that was as the US refinery utilization rate rose to 93.3% during the week, up from 92.4% of capacity during the week ending July 22nd but down from the refinery utilization rate of 96.1% logged during the week ending July 31st 2015, the high for the year...crude oil refining on the product glut bound east coast rose by 83,000 barrels per day as their utilization rate rose to 84.9%, but their throughput was still 10.4% below a year ago, when east coast refineries were being operated at 97.1% of capacity...nationally, crude oil refined this week was still 1.3% less than the 17,075,000 barrels of oil per day US refineries processed during the week ending July 31st last year, but was 2.8% more than the equivalent week in 2014... 

even with the increase in refining, however, our refineries’ production of gasoline slipped from the levels of last week, dropping by 76,000 barrels per day to an average of 9,992,000 barrels per day during the week ending July 29th...that was still a few barrels per day higher than the 9,984,000 barrels per day of gasoline produced in the same week last year, but still the lowest in 5 the same time, refinery output of distillate fuels (diesel fuel and heat oil) increased, rising by 22,000 barrels per day to 4,940,000 barrels per day during the week ending July 29th....that still left distillates output 1.7% below the 5,025,000 barrels per day that was being refined the same week last year, which itself was the lowest distillates output for that month...production of jet fuel was higher, however, rising from 1,688,000 barrels per day last week to 1,759,000 barrels per day during the week, in keeping with news reports that east coast refineries were switching production to such products for which the margins were more profitable...

with the modest drop in our output of gasoline we might expect a small drop in gasoline supplies at this time of year, but the EIA reported that our gasoline inventories fell by 3,262,000 barrels to 238,190,000 barrels as of July 29th, the first drop in 5 weeks and the largest drop since the 2nd week in April...partially precipitating the drawdown from gasoline inventories was a 232,000 barrel per day decrease in our gasoline imports to 637,000 barrels per day, our lowest gasoline imports since March, and also 22.5% less than the 822,000 barrels of gasoline we imported during the same week a year earlier...rumor has it that the gasoline tankers which were backed up in New York harbor waiting to unload have moved on down the coast, so we may see a surge in gasoline imports shortly....nonetheless, this week's gasoline inventories were still 9.9% higher than the 216,733,000 barrels of gasoline that we had stored on July 31st  last year, and also 11.4% higher than the 213,849,000 barrels of gasoline we had stored on August 1st of 2014... so our gasoline supplies still remain categorized by the EIA as "well above the upper limit of the average range" for this time of year..    

even as our gasoline inventories dropped, our distillate fuel inventories rose by 1,152,000 barrels to 153,155,000 barrels on July 29th, now well above our distillate inventories of 148,939,000 on the 1st of July...since our distillate inventories have continued to run far above the normal level since this winter, our distillate inventories as of July 22nd are now 5.8% higher than the 144,812,000 barrels of distillates we had stored as of July 31st last year, and 22.6% higher than our distillates supplies as of August 1st 2014, and thus they are also considered "above the upper limit of the average range" for this time of year...     

finally, with the big jump in imports being more than our refineries could use, we ended up with 1,413,000 more barrels of oil than we needed this week, which was subsequently added to our stocks of crude in storage, and hence our crude oil inventories rose to 522,546,000 barrels as of July 29th, the 2nd sizable increase in a row....thus we ended up with 14.8% more oil in storage than the 455,275,000 barrels we had stored as of the same weekend a year earlier, and 42.9% more oil than we had stored on August 1st of 2014....since our oil supplies first topped 500 million early this year, and first topped 400 million in January of 2015, it goes without saying that our crude oil supplies also remain "well above the upper limit of the average range" for this time of year..."    

This Week's Rig Count

US drillers netted an addition of just one rig in the week ending August for the 2nd week running, but that still meant the total rig count has risen 9 out of the last ten weeks, following a prior string of 39 weeks where the rig count had not risen at all...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 1 to 464 rigs as of Friday, which was still down from the 884 rigs that were deployed as of the August 7th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the number of rigs drilling for oil this week rose by 7 rigs to 381, which was still down from the 670 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014, while the count of drilling rigs targeting natural gas formations fell by 5 rigs to 81 rigs this week, which breaks the previous record for the all time low for natural gas rigs set on June 3rd....gas rigs were also down from the 213 natural gas rigs that were drilling on August 7th year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas on August 29th, 2008; prior to this year, there is no record of less than 150 natural gas rigs deployed in the US in any week...there were also two rigs drilling this week that were classified as miscellaneous, down by 1 rig from last week but up from the single miscellaneous rig that was drilling the same week a year ago....  

two of the platforms that had been drilling offshore of Louisiana in the Gulf of Mexico were shut down this week, leaving 17 still active in the Gulf of Mexico and offshore nationally at week end, down from 37 rigs drilling in the Gulf and a total of 38 rigs offshore nationally a year ago...the number of working horizontal drilling rigs rose by 8 rigs this week after falling by 3 last week, as the count of active horizontal rigs rose 362 rigs, which was still down from the 672 horizontal rigs that were in use on August 7th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count dropped by 3 rigs to 58 rigs this week, which was down from the 129 vertical rigs that were drilling in the US during the same week last year, and the directional rig count fell by 4 rigs to 44 rigs, which was down from the 83 directional rigs that were deployed during the same week last year...      ...      

for the details on which states and which shale basins saw changes in drilling activity this past week, we'll again include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes...the first table below shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas both tables, the first column shows the active rig count as of August 5th, the second column shows the change in the number of working rigs between July 29th and August 5th, the third column shows the July 29th rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday in August a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was August 7th of 2015:  

August 5 2016 rig count summary

here we can see that we can practically account for the entire increase in horizontal drilling by the increases in the Permian and the Eagle Ford, the two major shale basins in Texas...that Permian increase might also account for the 2 rig increase in New Mexico, as that basin straddles the state border...note that the 4 rig drop in Louisiana includes the two rigs that were pulled out of the Gulf of Mexico...otherwise, the rest of the country was fairly stable, with no more than one rig added or taken down any where else...not shown above was the increase from 1 rig to 2 in Alabama, which brings them back to the same level of drilling activity as they saw a year ago…

as you've probably noticed, we've been including the highs for drilling as we cover this report weekly, since the Baker Hughes reports only show the year ago data, and a year ago the rig count was already cut in half from the prior year...but even as our rig count has risen 9 out of the last ten weeks, at 464 rigs it's still less than one quarter of the 1929 rigs that were in use the week before the 2014 Thanksgiving OPEC meeting that precipitated this oil bust...still, oil production is down less than 10% from then, and only down 12% from the peak, and this week we saw the national oil output stabilize, which one wouldn't have thought would happen with only a quarter as many new wells being drilled...moreover, a lot of the wells that have been drilled over the past year haven't even been completed, and hence aren't yet even producing, as we can see in this bar graph below...

July 2016 DUC inventory

the above graph comes from a press release from Rystad Energy, a Norwegian company that bills themselves as "an independent oil and gas consulting services and business intelligence data firm" the graph above, each bar represents the number of "drilled but uncompleted" or DUC oil wells in the US, which you can see has been clearly rising….this is happening because fracking, the most expensive part of the operation, is being held off until prices rise...within each bar, the number of DUC wells or the given month from each major oil shale basin in color coded, with red representing the number of Eagle Ford DUC wells, beige representing the number of Bakken DUC wells, grey representing the drilled but not fracked wells in the Permian basin, pink representing the DUC well inventory in the Niobrara of the Rockies, and silver representing the DUC oil wells in the rest of the US...what we can see here is that the number of uncompleted wells has grown monthly through this entire period of record low drilling levels, meaning that some number of the low level of wells drilled we've seen in recent weeks are not going to the fracking stage where additional production would be forthcoming...thus we now have roughly 2300 oil wells, with over 600 in each of the major oil shale plays, waiting for such time as the drillers feel the price is right, when the wells will be completed and production will begin, almost certainly adding to the oil glut when that happens...thus, this is a shadow oil inventory that can be brought forth in as little as a few weeks, depending on the availability of equipment and fracking crews...and with this much of a backlog of drilled but incomplete wells, it's not likely many drillers will feel pressure to increase the number of new wells they'd be drilling anytime soon..

International Rig Counts for July

Friday also saw the monthly release of the international rig counts for July, which unlike the weekly count, is an average of the number of rigs running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1481 rigs were drilling for oil and natural gas around the globe in July, which was up from the 1,407 rigs that were drilling around the globe in June but down from the 2,167 rigs that were working globally in July of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 417 rigs in June to 449 rigs in July, which was still down from the average of 866 rigs working in the US in July a year ago, while the average Canadian rig count rose from 63 in June to 94 rigs in July, again still down from the 183 Canadian rigs that were deployed in July a year earlier....outside of Northern America, the International rig count rose by 11 rigs to 938 in July, which was also down from 1,118 rigs a year ago, as every region of the globe except Africa saw an increase in drilling activity for the month...

drilling in the Middle East increased for only the 2nd month this year, as the region's activity was up by a single rig to an average of 390, which nonetheless was only down by 1 rig from the 391 rigs deployed in the Middle East a year earlier...288 of the rigs working in the region were targeting oil, up from 284 in June, while the regional gas rig count fell by 3 to 102...the Middle East did see the addition of 3 rigs working offshore, increasing the offshore count to 52, which was also up from the 49 rigs the region had working offshore in July a year ago....the largest drilling activity increase was in Kuwait, where their active rig count rose by 3 rigs, from 44 to 47 rigs, which was also up by 3 from the 44 rigs working in Kuwait last year at this time....both Egypt and Saudi Arabia also added a rig in July; for Egypt, that gave them 27 working rigs, down from 42 rigs a year earlier, while for the Saudis, the increase brought them up to 125 active rigs, which was also up from the 123 rigs the Saudis had deployed last July...the Saudis have been averaging a deployment of 125 rigs over the past year, which is up from their average of 105 rigs in 2014, but roughly 2/3rds of their new drilling has been for natural gas; they now have 56 rigs targeting that resource...Middle East countries seeing a drilling pullback in July included Iraq, where their active rig count fell by 2 to 39, which was also down from the 44 rigs active in Iraq a year ago, and Oman and Pakistan, which each saw one rig idled...that left Oman with 65 rigs, down from 67 a year earlier, and left Pakistan with 29 rigs, which was up from the 23 rigs working there last year...

meanwhile, the Latin American countries added 8 rigs in July in the region's first increase this year; previously, the region had idled 92 rigs over the prior 6 months…Latin America drillers averaged 186 rigs in July, which included 33 offshore, down from the total of 313 rigs, which including 54 offshore rigs, that were active in Latin America in July of 2015....Argentina alone accounted for the regional increase, as they added 9 rigs to give them an average of 72 active rigs, which was nonetheless down from the 106 rigs that were in use in Argentina a year addition, Mexican drillers added 3 rigs to give them 23, down from 45 a year ago, and Brazil also added one rig, giving them 15 active in July, down from 37 rigs a year earlier...on the other hand, Venezuela idled 3 more rigs, after shutting down 7 rigs in June and 9 in May, and they're thus down to 50 active rigs, from the 70 rigs that were deployed in Venezuela in July of last year...other Latin American countries shutting down a single rig each included Bolivia, now with 5 rigs, Columbia, now with 6 rigs, Ecuador, now with 4 rigs, and Trinidad, which now has 4 rigs, down from 8 a year ago..

at the same time, the Asia-Pacific region had 186 drilling rigs working in July, up from the 182 rigs working in June, but down from the 214 rigs working the region a year earlier, with the Asia-Pacific offshore count rising by two rigs to increase of 5 rigs to 113 rigs in India accounted for the regional increase, while India's count is still down from 116 rigs a year ago...Indonesia also added a rig, but at 17 they're still down from 22 rigs a year earlier, while the addition of a rig in the Philippines brought them up to 2, still down from 3 rigs last July...Malaysia idled 2 rigs and now has 3 active, down from 6 rigs a year ago, and Thailand cut back one rig, leaving 11 active, down from 18 a year earlier...

elsewhere, countries in Africa shut down 5 rigs in July, leaving 82 still in drilling, down from the 94 rigs working the African continent last year at this time...Angola accounted for 4 rigs of that decrease, as they were down to 5 rigs in July, which was also down from the 8 rigs that they had active a year earlier...Kenya shut down 1 rig, leaving 10, also 1 rig fewer than they were running a year earlier...the Congo and the Ivory Coast also shut down one rig each, leaving both countries with one rig remaining, essentially unchanged from a year earlier...meanwhile, two rigs were added in Algeria, which now has 55 rigs deployed, up from 50 last July....

lastly, the rig count in Europe increased by 3 to 94 rigs in July, which was down from the 108 rigs working in Europe a year ago at this time...Norway, with an increase of 4 rigs to 20, more than accounted for the continent's increase, as their rig count is now the same as last July...the UK also added an offshore rig, bringing their offshore count up to 10, which was down from 12 rigs a year earlier, and Iceland also set up a lone rig; a year ago, they had none...meanwhile, Denmark, Germany and Italy each shut down a rig, leaving Denmark without any, down from 3 working rigs a year earlier, leaving Germany with 2 rigs, up from none last July and leaving Italy with 3 rigs, still up from 4 a year ago....finally, note that Iran, Russia, and China rig counts are not included in Baker Hughes international data, although China's offshore area, with an average of 28 rigs active in July, down 1 from June, is included in the Asian totals here...   


Protest filed in Meigs election board's rejection of charter proposal - — A committee seeking to put a proposed Meigs County charter on the November ballot has filed a protest against the county election board’s rejection of the ballot issue. The protest, which was filed with the Meigs County Board of Elections, will go to Ohio Secretary of State Jon Husted to decide, but one of the protest’s arguments is that Husted gave bad advice that might have misled the elections board. The proposed charter seeks to prohibit the use the county’s water for high-volume hydraulic fracturing (fracking) for extraction of shale gas and oil, and prohibit the disposal of fracking waste in the county. The Meigs County board initially voted on the charter petition on July 8, with the two Republicans voting that the petition seeking to put the charter on the ballot was invalid, and the two Democrats abstaining. The board then sought advice from Husted, who told them the board had to make a decision by majority vote. However, Husted also advised the board that an Ohio Supreme Court decision last year stated the board must decide if the charter petition satisfies the threshold requirements for a charter initiative and that the court stated that the Ohio Constitution requires that county charters must provide a form of government. Husted then cited a section of Ohio law (302.02) that requires an alternative form of county government to have a county executive. The proposed Meigs County charter does not have that position.

Another elections board vetoes charter - The Portage County Board of Elections on Monday became the third Ohio elections board to reject a charter proposal for the November ballot. Boards in Athens County and Meigs County had done so earlier. The reason cited by the Portage County board was the same as that cited by the Meigs board — that the proposed charter failed to meet the requirement of Ohio Revised Code 302.02 that a charter provide for a county executive. In Meigs County, a protest was filed asserting that the board there exceeded its authority by delving into the content of the charter and asserting that there is no requirement that the proposed charter have a county executive. The Athens County Bill of Rights Committee also filed a protest over the local elections board decision declaring the proposed Athens County charter invalid. The elections board ruled that the proposed charter does not alter the county’s form of government, does not take powers of the municipalities and townships and vest those in the county and relies on the Ohio Revised Code to determine qualifications and salaries of officials. Gwen Fischer, of the Portage Community Rights Group, said a protest will be filed there, possibly by Tuesday morning. If that happens, it means that Secretary of State Jon Husted will have three charter protests to decide, as well as breaking a 2-2 tie vote by the Medina County Board of Elections on a charter issue.

Q2 earnings: Rex Energy started Carroll County production -Rex Energy had a positive balance sheet and started production from two well pads in Carroll County’s Harrison Township during the second quarter.  The company closed the quarter with a profit of $16 million, or 22 cents per share, according to a press release. Rex lost $46 million during the same quarter last year.  The positive earnings were due to a stock conversion that raised $72.3 million. Rex also announced the sale of Illinois Basin assets for $40 million.   The company’s operating revenue was $31.3 million, down 13 percent from the same quarter last year.  Rex spent $23.3 million to drill eight wells, frack four wells and begin production from three wells. The company expects its joint-venture partners to reimburse $11 million for capital spent during the quarter. In Carroll County, Rex started production from its three-well Goebeler pad. The wells were drilled to an average lateral length of 7,360 feet and fracked in 41 stages. Each well had an average 24-hour sales rate equal to 2,100 barrels of oil, with 72 percent of the production from liquids.  Rex also began production from its two-well Perry pad, which was drilled to an average lateral length of 6,350 feet and fracked in 36 stages. The company didn’t provide production figures.  Rex is currently drilling its four-well Vaughn pad in Washington Township with average lateral lengths of 7,200 feet and expects production to start in the first quarter of 2017. The company projects production growth of 5 percent this year. Rex is based in State College, Pa. The company has drilled 42 Utica Shale wells in Ohio, according to the Department of Natural Resources.

Waste from test fracking wells safe to be on highways, research concludes -- Researchers at West Virginia University studied drilling wastes produced at two research wells near Morgantown and found they are well below federal guidelines for radioactive or hazardous waste. Paul Ziemkiewicz, director of the West Virginia Water Research Institute at WVU, will present these and other findings from the Marcellus Shale Energy and Environmental Laboratory, or MSEEL, at the Appalachian Basin Technology Workshop in Canonsburg, Pennsylvania. Dr. Ziemkiewicz and his research team are studying the solid and liquid drilling wastes that are generated during shale gas development. These include drill cuttings, muds and produced water. Drilling a horizontal well in the Marcellus Shale produces about 500 tons of rock fragments, known as cuttings. WVU researchers have been studying the radioactivity and toxicity of the drill cuttings, which are trucked on public roads to county landfills. MSEEL scientists found that using the "green" drilling mud BioBase 365 at the well site resulted in all 12 cuttings samples passing the U.S. Environmental Protection Agency's test for leaching toxicity, allowing them to be classified as non-hazardous for non-radiological parameters like benzene and arsenic. They determined that the drilling mud exerted a strong influence over the environmental risks associated with handling and disposing of drill cuttings.

14 states sue EPA over 'job-killing' oil and gas rules - A coalition of 14 states, led by West Virginia, sued the Environmental Protection Agency on Tuesday over its far-reaching regulations for the oil and gas sector, calling the rules a "job-killing attack" on the nation's oil and natural gas workers. The lawsuit asks the D.C. Circuit Court of Appeals to review the EPA's rule regulating methane emissions from new, reconstructed and modified oil and gas wells that use fracking, saying that the agency is exceeding its statutory authority. The states argue that the regulations impose an "unnecessary and burdensome" standard on the oil and natural gas industry, "while setting the stage for further limits on existing oil and gas operations before President Obama leaves office." "This is yet another example of unlawful federal overreach jeopardizing West Virginia jobs and working families," said state Attorney General Patrick Morrisey. "The rules are a solution in search of a problem and ignore the industry's success in voluntarily reducing methane emissions from these sources to a 30-year low."The states argue that the regulations "would raise production and distribution costs and, in turn, force an increase in consumer utility bills" by making fuel costs higher for power plants that are increasingly dependent on low-priced natural gas. "The EPA itself predicts its regulations will cost $530 million in 2025, while other studies project the annual price tag may hit $800 million."

PA Natural Gas Production Increased In 2015 --  Pennsylvania’s natural gas production volume trended upward in 2015, according to the newly released Department of Environmental Protection (DEP) 2015 Oil and Gas Annual Report. In 2015, more than 4.6 trillion cubic feet of natural gas were produced in Pennsylvania compared to about 1 trillion cubic feet of natural gas produced in 2011. Currently, Pennsylvania is the second largest supplier of natural gas in the nation. “As our report shows, despite the reduction in the number of natural gas wells that were drilled in PA during 2015, the overall volume of natural gas produced continued to increase to a record level,” said Acting Secretary Patrick McDonnell. “We will continue to work with all of our stakeholders to balance the needs of our new energy economy with the imperative that we protect our resources.” The 2015 Oil and Gas Annual Report was created to provide information about DEP’s oil and gas permitting, inspection and compliance programs. In addition, the annual report provides insights of ongoing data trends, outlines significant accomplishments and provides a view of what to expect from DEP during this coming year. To read the full report, click on 2015 Oil and Gas Annual Report.

Shale drillers produce more gas with less wells in 2015 -- Natural gas production in Pennsylvania is up despite a drop in the number of new wells. The Department of Environmental Protection released its 2015 annual oil and gas report on Monday, detailing such things as the number of wells drilled, locations, and inspections. The state’s shale wells produced 4.6 trillion cubic feet of natural gas in 2015, marking a continued increase since the start of the shale gas boom. This happened despite a drop in newly drilled wells. In 2015, shale producers drilled 785 wells, about half the number developed in 2014, which was 1,372. The top three producers included Chesapeake Energy, Cabot Oil and Gas, and Range Resources. The top counties for shale gas production include Washington, Susquehanna and Greene counties. The report also detailed the drilling activity for the Utica and Point Pleasant Shale Plays, which the DEP says could expand should the market for shale gas improve. Both of those formations lie beneath the Marcellus, and just 55 wells were drilled into those formations in 2015. DEP also reports that while both conventional and unconventional well inspections have increased since 2008, the number of violations has decreased. For shale gas wells, 404 violations were issued by inspectors in 2015, compared to 1,280 in 2010. The number of conventional natural gas well violations more than double the number for shale gas wells, this despite far more unconventional than conventional wells.

Ramping up is a different formula for each driller - Oil and gas companies are ramping up again. It’s not a feverish pace. The handful of Marcellus Shale drillers that discussed their plans with analysts last week described a cautious return to the fields of Pennsylvania, Ohio and West Virginia predicated on the recent rise in natural gas prices, the long-awaited dip in oil and gas production, and the promise of rising demand from industrial projects and exports.  They all vowed to be swayed not by growth targets but by economics; as the market is finding its footing, they’ll drill where it’s the biggest bang for the buck.  The “where” isn’t necessarily a place but a bucket of conditions unique to each company.  For Downtown-based EQT Corp., it’s in the Marcellus and Upper Devonian shales in Greene, Southern Allegheny and eastern Washington counties.  For Consol Energy Inc., it’s mostly in the dry Utica Shale in Monroe County, Ohio, and some in the Marcellus in Washington County.  For Texas-based Southwestern Energy Corp., it’s split among West Virginia, northeastern Pennsylvania and the Fayetteville Shale in Arkansas. When an analyst asked Southwestern’s CEO why the company isn’t steering all of its activity to West Virginia, where, all things being equal, Southwestern has many more economic locations at current gas prices, Bill Way replied, essentially, that all things aren’t equal. First, there’s natural gas liquids prices to consider. Southwestern’s wells in northeastern Pennsylvania and Arkansas yield dry gas while its West Virginia holdings have wet gas — rich with ethane, propane, butane, and other heavier hydrocarbons. When natural gas liquids prices are good, it justifies the cost of processing them and selling them separately.  And, there’s the practical matter of where the company currently has the permits to drill.  Texas-based Range Resources Corp. said it has permits to drill 42 horizontal wells from pads it has already built, which allows the company to cut down on time and costs when choosing its next targets.

Chesapeake Energy drops after earnings miss, asset sale plan - Shares of Chesapeake Energy fell more than 3 percent Thursday after its earnings were worse than expected and it raised its asset sales target. Chesapeake now expects to sell more than $2.0 billion in assets this year, well above the upper end of the prior $1.2 billion to $1.7 billion range. The firm said that it plans to sell "selected" Haynesville Shale acreage, located in northwest Louisiana, according to Reuters. The second-largest producer of natural gas posted a bigger-than-expected adjusted quarterly loss of 14 cents a share. Total revenue fell more than 50 percent from the same period last year to $1.62 billion and missed estimates of $1.93 billion, according to Reuters. The energy company also raised its full-year production forecast by about 3 percent. As of Wednesday's close, shares were up 17.5 percent year-to-date but nearly 34 percent lower over the last 12 months.

Inside FERC Henry Hub August index down 25 cents to $2.67/MMBtu - Natural Gas | Platts News Article & Story: The August bidweek natural average price fell 26 cents to $2.42/MMBtu, as prices in the Northeast made the largest moves lower, data from Inside FERC's Gas Market Report showed Monday. The August bidweek price at the benchmark Henry Hub point fell 25 cents to average $2.67/MMBtu. That came as the NYMEX August futures contract settled at $2.672/MMBtu, down 24.5 cents from the July contract's close of $2.917/MMBtu. In the Upper Midwest, the Chicago city-gates bidweek price fell 13 cents to average $2.67/MMBtu. Elsewhere in the region, Consumers Energy and Michigan Consolidated city-gates both gave up 27 and 28 cents to average $2.62/MMBtu and $2.59/MMBtu, respectively. In Northeast markets, Transcontinental Gas Pipe Line Zone 6 New York traded lower, declining 47 cents to average $1.92/MMBtu.In New England, Algonquin Gas Transmission city-gates fell 46 cents to average $2.66/MMBtu. Elsewhere in the region, Tennessee Zone 6 delivered saw similar move to the downside, also sliding 46 cents to average $2.62/MMBtu. Upstream in the Northeast producing regions, Dominion, Appalachia, declined 70 cents to average $1.28/MMBtu. To the west, prices saw smaller moves lower, as Northwest Pipeline-Rockies averaged $2.51/MMBtu, a 1-cent reduction over last month. Cheyenne Hub also saw a similar move, giving up 4 cents to average $2.48/MMBtu. Along the West Coast, SoCal Gas fell 10 cents to average $2.75/MMBtu. Elsewhere in the region, El Paso, Permian Basin held flat to average $2.56/MMBtu.

Thanks to high regional prices, South America emerges as key US LNG market - High regional gas prices in South America, most notably Argentina, are attracting US exports of domestically produced LNG, with more than 70% of landed cargoes arriving on the continent so far this year, according to new data compiled by Platts Analytics' Eclipse Energy. The average FOB price of cargoes shipped to South America through May was $3.42/MMBtu, new DOE data shows. At that price, South America has offered the most profitable destination for US exports compared with Europe, the Middle East and Asia where US volumes, less the cost of shipping, have yielded an average price of $3.00, $2.87 and $2.69/MMBtu, respectively. The higher price paid for US LNG in South America comes as regional gas markets, particularly in Argentina, are experiencing elevated prices.Under the recently elected conservative government of Mauricio Macri, Argentina’s domestic gas prices have risen by as much 500% this year. In an effort to stem the decade-long decline in gas production, the Argentine president cut domestic subsidies in December allowing consumer prices to rise to $5.20/MMBtu. Macri also extended a $7.50/MMBtu incentive price for output from newly drilled wells. Last week, Argentina’s government vowed to keep natural gas prices flat through the balance of the year amid a revolt from consumers over increases as high as 1000% on their utility bills.

Price Tag! - Price Reporting Agencies and the Shrinking World of Fixed-Price Deals -- The latest natural gas transaction data from the Federal Energy Commission (FERC) shows the natural gas market is increasingly relying on published index prices for transacting physical volumes for day-ahead and month-ahead deliveries. Index prices — volume-weighted averages of all eligible prices reported to index publishers by location — are considered representative of the market and mitigate some of the perceived price risk associated with “fixed-price” deals, in which the price is independently negotiated between counterparties. But in order to make their indices representative and grounded in market reality, publishers — or price reporting agencies (PRAs) — rely strictly on prices from those independent fixed-price deals to set the index in the first place. As more of the deals done are based on index, what happens to the index itself? Today, we continue our review of natural gas transactional data and what it says about how the market is evolving.

Natural Gas Prices Spike, Ending Lower, After Inventory Report - WSJ: Natural gas prices jumped but ended slightly lower on Thursday, despite a government report showing inventories declined for the first time in a summer week in a decade. The U.S. Energy Information Administration said storage levels shrank by 6 billion cubic feet of gas in the week ending July 29, an unexpected result for many analysts who had expected to see inventories grow slightly. It was the first drawdown in a summer week since the period ending Aug. 4, 2006, according to the EIA, and showed a significant decline from the same week last July, when inventories grew 41 bcf. Contracts for September delivery on the New York Mercantile Exchange rose to as high as $2.853 a million British thermal units after the report, before sliding to settle down 0.50 cent, or 0.18%, from a day earlier at $2.834/mmBtu. Some analysts had said they weren’t surprised to see only a brief spike in gas prices following the data. Any rally in natural gas prices would likely be limited, because of the impending end of summer, when demand for natural gas tends to peak, . “There is no summer after September,” Mr. Woods said. “It’s a pipe dream to think we’re going to see this market run for the long haul.” Increased production and high levels of imports from Canada could also pressure prices, analysts said.  Forecasts of warmer weather across large swaths of the country could elevate natural gas prices in coming days, as more gas is used to power air conditioning in homes and businesses.

BP working to halt excessive waste flow into Lake Michigan from refinery — An operational issue has caused BP’s large northern Indiana refinery near the southern shore of Lake Michigan to discharge about five times more industrial waste into the lake than allowed. The refinery has been dealing with the problem at its wastewater treatment plant since Friday, The Times of Northwest Indiana reported. Problems at the BP Whiting Refinery often cause gas prices to increase because it’s the largest refinery in the Midwest. The company told the Indiana Department of Environmental Management that it discharged more than 8,900 pounds of total suspended solids Monday. It’s allowed to discharge nearly 5,700 pounds per day. BP discovered in another test Tuesday that the total suspended solids discharged rose to more than 26,600 pounds. BP spokesman Michael Abendhoff said the discharge involved wastewater solids, not hydrocarbons. He says the company is working to return the refinery to normal operations as soon as possible. IDEM spokeswoman Courtney Arango said the discharge doesn’t affect people, drinking water or marine life and that it shouldn’t be a concern for visitors of the nearby Whihala Beach County Park.

Deliberate Toxic Waste Dumping Into Florida Drinking Water Supply Is Approved By Lawmakers -- The Florida Environmental Regulatory Commission, which was entirely appointed by Gov. Rick Scott, raised the limits on the amount of known carcinogens and toxic waste allowed to be dumped into waterways that feed the Florida drinking water supply. The move could poison just about everyone in the state, which is more than 17 million people. Florida’s new pollution guidelines are expected to increase the cancer rate from 1 in 100,00 to 1 in 10,000, for anyone in America who dares to eat Florida seafood more than once a week.Other types of cancer are also likely to increase, due to the fact that the new rules, approved on Tuesday, will permit the dumping of more than two-dozen additional known carcinogens. Among them are benzene, dioxins, pulp manufacturing discharges, and toxic chemicals related to fracking.The inclusion of fracking chemicals suggests that the new rules are a precursor to opening up the state to natural gas exploitation by Big Oil and other ‘dirty’ energy polluters. Fracking pollutes massive amounts of fresh water supplies with hundreds of toxic chemicals that are exempt from the Safe Drinking Water Act, due to the Halliburton Loophole. Since Floridians are almost entirely dependent on underground water for their drinking water supplies, the result of contaminating it would be nothing short of catastrophic.

LOOP storage auction sees high participation, prices as storage demand intensifies - The August Louisiana Offshore Oil Port storage auction on Tuesday saw high trader participation combined with higher prices versus a month ago, according to industry sources familiar with the Gulf Coast market. During the August event, 6.6 million barrels of storage space for September, October, November, December, the first-quarter 2017 strip, the second-quarter 2017 strip and the third-quarter 2017 strip. Compared to the July auction, the August event sold 250,000 more barrels of storage space for forward months. A widened spread between the spot price and forward delivery months for sour crudes has added upward support for crude storage demand. The front-month/third-month Mars sour crude outright spread closed at minus $1.26/b Tuesday, widening from its close of minus $1.01/b July 5. Moving into fall refinery maintenance season, anticipated seasonal declines in regional refinery runs are driving demand for crude storage, according to a Gulf Coast market source. The auction, which operates on the Dutch auction model, saw an increase in final prices for storage. The August auction offered 4,200 block futures contracts ranging between 20 cents/b and 50 cents/b versus the July auction, which offered 3,300 block futures contracts ranging between 20 cents/b and 35 cents/b.

Texas Commissions Its Own Study After Report Links Fracking to Quakes | Dallas Observer: Southern Methodist University seismologists recently revealed human-induced earthquakes in North Texas are not only caused by oil and gas operations but also have been occurring since the 1920s across Texas. Oil and gas industry professionals were quick to denounce seismologists findings, and the Texas legislature was quick to take action by calling for its own study, to be conducted by a team of experts appointed by the governor. In their May 2016 report, titled "A Historical Review of Induced Earthquakes in Texas," the study's lead author Cliff Frohlich, an associate director at the Institute for Geophysics at the University of Texas at Austin, pointed out that while earthquakes are caused by oil and gas operations, the specific reasons for these quakes have differed over the decades.“I think we were all looking for what I call the silver bullet, supposing we can find out what kinds of practices were causing the induced earthquakes, to advise companies and regulators,” Frohlich noted in the study. “But that silver bullet isn’t here.”Still, Frohlich said the evidence presented in the study should finally silence the naysayers among state officials. But oil and gas industry officials and think tanks say they doubt the study's conclusions.

States show they can sometimes stop earthquakes - Kansas and Oklahoma, which acknowledge that humans are causing earthquakes, have shown they can stop them. After restricting oil and natural gas operations in certain hotspots, Oklahoma has an average of two earthquakes a day, compared with about six a day last summer. Kansas is getting about a quarter of the quakes it once did.  Using a growing body of research –– and trial and error –– scientists and state regulators are gradually getting closer to pinpointing the cause of the startling increase in earthquakes in the Central and Eastern U.S., and preventing them. The general cause, scientists have found, is not drilling, but what happens after, when operators dispose of wastewater that comes up naturally during oil and gas extraction. The operators inject the wastewater into disposal wells that go thousands of feet underground, which can increase fluid pressures and sometimes cause faults underneath or nearby to move. Since March 2015, Kansas and Oklahoma have limited how much wastewater each operator in certain areas can dispose of at a given time. To gather more data, Oklahoma, Pennsylvania and Texas are expanding their seismic monitoring systems this year, placing permanent stations across the states and moving temporary stations to new hotspots. And Oklahoma and Texas hired more staff or are contracting with scientists to study the geology of areas where earthquakes are occurring, the details of the quakes that happen, and the oil and gas activity that may be associated with them. About 7 million people in the Central and Eastern U.S. are at risk of man-made earthquakes powerful enough to crack walls, according to a one-year United States Geological Survey forecast released in March. The report outlined the risk from man-made earthquakes for the first time, listing the states with the highest risk in order as Oklahoma, Kansas, Texas, Colorado, New Mexico and Arkansas. The USGS tallied 1,010 earthquakes in the region last year, a number that has increased steadily from 318 in 2009. Parts of the historically aseismic region, such as northern Oklahoma and southern Kansas, are now as seismically active as California. “Every scientist working in the midcontinent of the U.S. is pretty confident that the vast majority of these earthquakes are induced,” said Tandis Bidgoli, assistant scientist and geologist for the Kansas Geological Survey. “Especially where you are having swarms of earthquakes.”

Trump indicates towns, states should be able to ban fracking | TheHill: Donald Trump seemed to support state and local bans on fracking in a Colorado interview Friday. In a departure from the usual position of Republicans and the wishes of the oil and natural gas industry, the GOP nominee for president said he thinks voters should be able to ban fracking at the state and local level, despite his personal support for the practice.  “I’m in favor of fracking, but I think that voters should have a big say in it,” Trump told Denver television station KUSA in an interview, a portion of which was posted Friday. “I mean, there’s some areas, maybe, they don’t want to have fracking. And I think if the voters are voting for it, that’s up to them.” He went on to say that while fracking is needed, “if a municipality or a state wants to ban fracking, I can understand that.” Republicans around the country have fought fiercely against local and state fracking bans. Localities in both Texas and Colorado have passed bans on fracking within their boundaries. Texas’ legislature voted last year to prevent local fracking bans, and Colorado’s highest court ruled this year that that state’s laws prohibit such bans. Republicans in New York tried for years to get that state to allow fracking, but Gov. Andrew Cuomo (D) banned it in 2014. Trump in April criticized New York’s fracking ban.

In Colorado, Donald Trump sides with Democrats and environmentalists on fracking - -- Donald Trump waded into Colorado's fracking debate this week, siding with a position popular among Democrats and environmentalists in the state, while leaving many Republicans dismayed.   Trump, who held rallies on Friday in Colorado Springs and Denver, said that while he supports fracking, he believes voters should have a say in whether they want to ban it.   "I think that voters should have a big say in it," he told a local Denver television station. "I mean, there's some areas, maybe, that don't want to have fracking, and I think if the voters are voting for it that's up to them."   Steve House, Colorado’s Republican Party chairman, said the comment from Trump amounts to a misunderstanding of the issue. “While we want the state to be able to control its destiny, we don’t want voters to be able to take mineral rights away from people who own them,” House, who said Saturday, “dozens” of local Republicans have called to express concern over Trump’s comments. .  In recent years, several Colorado towns – mostly in liberal pockets of the state – have either placed bans or moratoriums on fracking. Still, those efforts have not always held up. In May,  the Colorado Supreme Court overturned a five-year fracking moratorium imposed by voters in Fort Collins, Colo., in 2013. Moreover, a ban on fracking supported by voters in Longmont, Colo., about 40 miles north of Denver, was also overturned. In  both cases, the court ruled the efforts “materially impeded” state power.

Colorado Governor says Trump doesn't understand fracking issue: Denver Post | Reuters: Governor of Colorado John Hickenlooper on Monday criticized Donald Trump's comments about fracking, saying the Republican presidential candidate does not completely understand the issue, the Denver Post reported. Trump, during a campaign in Colorado, said that while he supports fracking, he also believes state and local governments should be able to ban fracking, the Denver Post reported. ( Hickenlooper, a former geologist, called the issue a "tricky thing" when asked why he thought Trump was wrong to support locals' ability to ban fracking, the publication wrote. He also added that if total responsibility is given to local authorities, any oil and gas activity would be voted to be banned, and people who own these private properties with the minerals would lose out, the publication reported. The Colorado Supreme Court has a ruling in force which does not allow local governments to ban fracking.

Trump rattles industry with fracking position | TheHill: Republican presidential nominee Donald Trump is stirring unease in the oil and natural gas industry with his remarks about hydraulic fracturing. Trump supports fracking but says towns and states should be allowed to ban the drilling practice. That position is at odds with industry groups and congressional Republicans, who say the practice is safe and should be permitted nationwide. Oil industry representatives remain behind Trump, arguing he would be better for energy development than Democratic nominee Hillary Clinton, but his remarks about fracking have raised eyebrows. “It does show that although there’s all this talk about being a businessman, there is a lot of nuance when you’re talking about an industry that he’s not familiar with,” said one lobbyist who requested anonymity to speak freely about the Republican nominee. “I think that there is an education process that the candidate still needs to understand.” Trump’s comments on fracking came in an interview with the Denver television station KUSA. “I’m in favor of fracking, but I think that voters should have a big say in it,” Trump said in the interview. “I mean, there’s some areas, maybe, they don’t want to have fracking. And I think if the voters are voting for it, that’s up to them.” He said the country needs fracking, “but if a municipality or a state wants to ban fracking, I can understand that.”

Trump Adviser Stephen Moore Compares Fracking To "The Cure For Cancer" - While GOP presidential nominee Donald Trump recently suggested that voters should be allowed to ban fracking at a local or state level, one of Trump’s economic advisers believes that “to be against fracking is like being against a cure for cancer.” During the August 1 edition of C-SPAN2's Book TV, while discussing his new book Fueling Freedom: Exposing the Mad War on Energy, conservative economist Stephen Moore stated that opposing fracking “is like being against a cure for cancer” because it is “one of the great seismic technological breakthroughs” that is “giving us huge amounts of energy at very low prices.” He criticized Florida high school students who oppose fracking, claiming they were “indoctrinated in their high school classes” to think that “somehow fracking is a bad thing.” Moore also dismissed the widespread concerns about fracking contaminating drinking water supplies by claiming that the U.S. Environmental Protection Agency (EPA) “said there were no findings of water contamination from fracking.” But the EPA’s report actually found multiple instances of water contamination from fracking, and that the EPA itself emphasized that its data was “insufficient” to evaluate how often fracking impacts water “with any certainty,” leading its own scientists to call its conclusions into question. Days before C-SPAN2 aired the discussion, Trump told a local Denver television station that “voters should have a say" in whether to allow fracking, adding, "[I]f a municipality or a state wants to ban fracking I can understand that.” Many towns in Colorado have placed local bans or moratoriums on fracking, and Democrats are currently working to place an initiative for a statewide ban on fracking on the November ballot, the Los Angeles Times reported.

Republican Party : In Denver, Clinton's Stance On Fracking Contradicts Colorado's Interests - Clinton Has Promised That Under Her Presidency There Wouldn't 'Be Many Places In America Where Fracking Will Continue To Take Place' During A March 2016 Democrat Debate, Clinton Said Fracking Was 'Not Sufficiently Regulated,' And Under A Clinton Presidency, There Wouldn't 'Be Many Places In America Where Fracking Will Continue To Take Place.' CLINTON: 'So by the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place. And I think that's the best approach, because right now, there are places where fracking is going on that are not sufficiently regulated. So first, we've got to regulate everything that is currently underway, and we have to have a system in place that prevents further fracking unless conditions like the ones that I just mentioned are met.' (Hillary Clinton, CNN Democratic Primary Debate, Flint, MI, 3/6/16)   The Wall Street Journal Editorial: By Opposing Fracking, Clinton Wants To 'Regulate Out Of ExistenceThe Livelihoods Of Tens Of Thousands' Of American Workers. 'This is a new look for Mrs. Clinton, who promoted fracking around the world as Secretary of State. In 2010 she popped into Krakow to announce a global shale initiative, and in 2012 she dropped by Bulgaria to encourage the parliament to end a fracking moratorium. But now that she wants to be President she would regulate out of existence the livelihoods of tens of thousands in Ohio, Pennsylvania, Texas, Arkansas, and across the U.S.A.' (Editorial, 'Clinton Against American Energy,' The Wall Street Journal, 3/7/16) , Clinton's Position On Fracking Is In Direct Opposition To Gov. John Hickenlooper's Position, Her Top Advocate In Colorado

Study finds communities need to be proactive about fracking -- What are communities doing to address the potential adverse effects of fracking? Not a lot, according to the results of a new study. Fracking, horizontal high-volume hydraulic fracturing has allowed the United States to become a net energy exporter, but has created substantial problems for local communities hosting fracking operations. Authors surveyed 140 local governments in four states with very active fracking: Colorado, Louisiana, North Dakota and Pennsylvania. The authors set out to determine the kinds of policies these local governments adopted to address the negative impacts of fracking and the role organizational capacity had on how local governments deal with fracking. In “Local Land Use Planning Responses to Hydraulic Fracturing,” Loh and Osland found that the most common local government response was no response at all. Fifty-four of the communities surveyed had not adopted any regulations to address any of the problems caused locally by fracking activities. Of survey respondents that have adopted regulations, the five most common local policies were:

  • – Restricting the location of industrial activities;
  • – Mandating fencing and landscaping around fracking sites;
  • – Preventing vehicles used in fracking operations from traveling on certain roadways;
  • – Requiring special use permits for drilling sites; and
  • – Establishing setbacks for the compressor stations associated with fracking options.

Pros and cons aside, fracking operations can create substantial management problems for local governments and expose local residents to serious health, safety, and environmental hazards. This leaves local communities that might or do host such operations “scrambling” to address fracking, not trusting the state or federal government to protect them. The authors found that communities could use existing land use, noise and zoning restrictions to regulate fracking operations to some degree, even though survey respondents reported concern there was little they could do to address local fracking impacts.

Two Towns Battle Colorado for Freedom to Ban Fracking: Two of Colorado's leading critics of natural gas drilling say they didn't know much about fracking until it arrived in their towns. "If you had asked me about community rights or fracking, you would have drawn a blank stare," said Clifford Willmeng, board member of the Colorado Community Rights Network and a resident of Lafayette, a town just outside of Boulder. Tricia Olson agrees. Founder and executive director of the grassroots group Coloradans Resisting Extreme Energy Development, Olson began looking into fracking when she learned that it was coming to her neighborhood. She didn't like what she found. So Olson and Willmeng did some organizing in their communities and achieved some victories. In 2012, the town of Longmont banned fracking. The following year, nearby Fort Collins put a five-year moratorium on it. But oil and gas companies, along with the state government, disputed the decisions, and the Colorado Supreme Court ruled in May that municipalities lack the authority to stop fracking. "A local community can do almost nothing about any oil and gas development that comes into that community," Olson said. That's why she and Willmeng have been leading separate efforts to get initiatives on the ballot this year that give local groups the control they need. These efforts are part of a larger movement to increase the power of local governments, at a moment when many see state-level governments as beholden to business interests.

Bakken Pipeline financing complete, share sold to pay debt(AP) — Companies building an oil pipeline from North Dakota across the Midwest into Texas say they’ve completed project financing and sold a share of the pipeline to another company to pay down the debt. Energy Transfer Partners, Sunoco Logistics Partners and Phillips 66 said Tuesday they completed borrowing the remaining $2.5 billion needed to complete the Bakken Pipeline project. The project includes the $3.7 billion Dakota Access Pipeline to carry oil from North Dakota to Illinois. A second leg, the $1 billion Energy Transfer Crude Oil Pipeline, will carry oil from Illinois to Texas terminals. The companies say they’ve sold nearly 37 percent of the project to Enbridge Energy Partners and Marathon Petroleum Corp. The $2 billion cash from that deal will help pay down the project debt.

Enbridge, Marathon Petroleum to buy $2B Bakken pipeline stake - Enbridge, Inc. -

  • Enbridge Energy Partners (ENB, EEP) and Marathon Petroleum (NYSE:MPC) agree to pay a combined $2B for a 49% stake in the Bakken pipeline system from an affiliate of Energy Transfer Partners (NYSE:ETP) and Sunoco Logistics Partners (NYSE:SXL).
  • EEP says it is paying $1.5B for its share in the deal, while MPC says it is contributing $500M in the joint venture project to acquire the stake in the holding company that owns 75% of the pipeline network.
  • The deal follows the startup earlier this year of the Southern Access Extension, linking Enbridge’s mainline terminals near Chicago to the storage hub in Patoka, Ill.
  • The deal gives EEP the ability to move shale oil from the Bakken to refineries along the U.S. Gulf Coast, through connections to its mainline; EEP will seek to set joint tolls to the Gulf.

Energy Transfer, Sunoco Sell Pipeline Stake to Marathon and Enbridge for $2 Billion --Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL) said late Tuesday that they agreed to sell 36.75% of their Bakken pipeline project in the Rockies to MarEn Bakken Co. LLC, a unit of Enbridge Energy Partners (EEP) and Marathon Petroleum (MPC) , for $2 billion in cash. ETP expects the sale to close in the third quarter, when it will receive $1.2 billion and SXL will get $800 million. The Bakken pipeline entities already arranged a $2.5 billion financing facility to fund the remaining capital needed to complete the project, so ETP and SXL plan to use the proceeds to pay down debt and help fund their current growth projects. All the owners of the project will contribute whatever capital is needed to complete the project based on the size of their stakes, they said. A unit of MPC has committed to participate in a forthcoming Dakota Access/Energy Transfer Crude Oil Pipeline open season and make a long-term volume commitment on the Bakken project. A new open season is expected to be launched in the third quarter. Bakken Holdings Co. LLC, a joint venture between ETP and SXL, owns a 75% interest in Dakota Access LLC and Energy Transfer Crude Oil Co. LLC, or ETCO, which are developing and will own and operate the project. The project consists of 1,172 miles of new 30-inch diameter crude oil pipeline from North Dakota to Patoka, Ill., and more than 700 miles of pipeline converted to crude service from Patoka to Nederland, Texas. Bakken Holdings is selling 49% of its 75% interest in Dakota Access and ETCO. The remaining 25% of Dakota Access and ETCO is owned by units of Phillips 66 (PSX) . ETP and SXL will end up with 38.25% of the project while MarEn will hold 36.75% and PSX will have 25%. ETP continues to oversee construction, which is expected to be completed by year-end, and SXL will operate it.    MPC added that it and Enbridge agreed to cancel MPC's transportation services agreement related to the Sandpiper project and liquidate MPC's indirect ownership interest in North Dakota Pipeline Co. LLC. The move would cancel MPC's commitment to fund any more construction costs for that project, for which it's already contributed $301 million, resulting in an impairment review of the carrying value of the investment in the third quarter.

Enbridge, Marathon buy into Bakken Pipeline System --Enbridge Energy Partners LP and Marathon Petroleum Corp. this week announced the formation of a new joint venture with Energy Transfer Partners LP and Sunoco Logistics Partners LP to acquire an equity interest in the Bakken Pipeline System. The Dakota Access Pipeline—which will carry about 470,000 barrels of Bakken crude per day from western North Dakota to a terminal in Illinois—and the Energy Transfer Crude Oil Pipeline (ETCOP)—which transports the oil from Illinois to the Texas Gulf Coast—are collectively known as the Bakken Pipeline System. Marathon and Enbridge acquired a 49 percent equity interest in the holding company that owns 75 percent of the Bakken Pipeline System from an affiliate of Energy Transfer and Sunoco Logistics. Under this arrangement, Enbridge and Marathon will indirectly hold 75 percent and 25 percent respectively of the joint venture's 49 percent interest in the Bakken Pipeline holding company. The purchase price of Enbridge’s 27.6 percent interest in the pipeline system is $1.5 billion. The transaction is expected to close in the third quarter of 2016. Construction on the 1,168-mile-long, $3.78 billion Dakota Access Pipeline began in May and is expected to be ready for service by the end of 2016. ETCOP—an existing natural gas pipeline—is being converted by the Energy Transfer Crude Oil Co. to transport oil and is also expected to be in service by the end of the year. Also this week, Energy Transfer, Sunoco Logistics and Phillips 66 announced the successful completion of project-level financing for the Dakota Access Pipeline and ETCOP projects. The $2.5 billion facility is anticipated to provide most of the remaining capital needed to complete the projects.

Dakota Access Pipeline foes gather at North Dakota Capitol (AP) — Opponents of the Dakota Access Pipeline have gathered on the grounds of the North Dakota Capitol to protest. The Capitol this week is the site of a special session of the Legislature that was called by Gov. Jack Dalrymple to address state budget woes. The opponents are calling for Dalrymple and legislators to put a halt to construction of the pipeline until tribal lawsuits are addressed. The $3.8 billion pipeline being built by Dallas-based Energy Transfer Partners will move oil from North Dakota to Illinois, passing through South Dakota and Iowa. The pipeline has received strong opposition from environmental and landowner rights groups. Energy Transfer Partners maintains the pipeline will be a safe, cost-effective way to transport oil and will create jobs.

Pipeline construction equipment damage in suspected arson (AP) — Machinery located at three oil pipeline construction sites in central Iowa was found extensively damaged by fire Monday in what the company building the pipeline called a shameful act. There’s little doubt the fires were intentionally set along the Dakota Access pipeline, said Jasper County Sheriff John Halferty. Damage to a bulldozer and other large tracked equipment was estimated at $1 million, he said. The sheriff’s office was alerted around 6 a.m. Monday to a fire in a farm field 4 ½ miles west of Newton. Later, deputies learned of a second pipeline equipment blaze about 2 ½ miles southeast of Reasnor and a third site where four machines were damaged north of Oskaloosa, the Newton Daily News ( ) reported. In a statement, Texas-based Dakota Access said “it’s a shameful act by a group of people trying to disrupt our energy security and independence.” “We have increased security along the route and are actively pursuing the situation with law enforcement. If caught, we will prosecute to the maximum extent allowed by law, both criminally and civilly,” spokeswoman Lisa Dillinger said in a statement. “We will not tolerate this kind of activity.” Environmental, American Indian and landowner rights groups have vigorously fought approval of the pipeline and have vowed to continue protests and acts of civil disobedience. “I’ve made lots of statements on this pipeline over the last two years and I’ve encouraged people to get ready for any nonviolent action possible but torching construction equipment was not on the list,” said Ed Fallon, director of Bold Iowa, a group that promotes renewable energy and fights fossil-fuel expansion projects.

Is Iowa The Next Nigeria? Arson Suspected in Pipeline Fire -  Attacks against oil infrastructure are all too common in areas like the Niger Delta of Nigeria or Iraq’s northern Kurdish region. But authorities in the United States believe unknown assailants deliberately targeted a pipeline under construction in central Iowa.  According to the Insurance Journal, around US$1 million in equipment at three building sites of the Dakota Access pipeline including heavy machinery were damaged in a series of fires. The Jasper County Sheriff’s Office reported that they were alerted to the first blaze on 1 August at approximately 6:00 AM at a farm field 4.5 miles west of the town of Newton. Deputies were subsequently informed of a second pipeline equipment blaze about 2.5 miles southeast of Reasnor, followed by a third fire where four machines were damaged north of Oskaloosa. Dakota Access of Texas, a subsidiary of Dallas-based Energy Transfer Partners, issued a statement condemning the suspected arson and pledging to reinforce security along the 1168-mile project. “Americans burning American-made equipment, which is owned and operated by American companies, employing American union workers, working on a pipeline owned and operated by an American company for transporting crude oil produced in America for American consumers, is a shameful act by a group of people trying to disrupt our country’s energy security and independence… We will not tolerate this kind of activity, which is a safety hazard to all concerned,” said the communiqué from Dakota Access and cited by the Des Moines Register.

Enbridge's Sandpiper looks to be latest victim of pipeline overbuild | Reuters: The long-planned and oft-delayed Sandpiper pipeline through the U.S. Midwest may not be dead, but it appears to be on life support, a likely casualty of the oil-and-gas industry's infrastructure overbuild amid a two-year global oil rout. After years of delays, refiner Marathon Petroleum Corp and midstream giant Enbridge Inc on Tuesday announced they would scrap their joint venture agreements and transportation services for the 450,000 barrels per day Sandpiper project, instead agreeing to acquire a portion of the rival Dakota Access Pipeline. That $1.5 billion deal, if successful, will leave Sandpiper without Marathon as its main anchor, even though an Enbridge spokesman said plans for the line are still being evaluated. The project involves two pipeline legs stretching from North Dakota through Minnesota to Wisconsin. Outgoing pipeline capacity from the Bakken is currently at around 641,000 bpd, according to Genscape. Once Dakota Access becomes operational, capacity will rise to 1.21 million bpd. That projected increase comes against the backdrop of a dramatic decline in oil prices that has weighed on production in North Dakota's Bakken play, one of the biggest beneficiaries of the boom in U.S. shale production over the last several years. The Dakota Access Pipeline, slated to stretch from North Dakota to Illinois, is expected to come online in the fourth quarter. With global oil futures down by 70 percent in the last two years, traders and analysts say there just is not enough crude in production in the U.S. Midwest for both pipelines. According to the North Dakota Industrial Commission, the state's oil production fell to 1.05 million bpd in May, down from a peak of 1.23 million bpd in December 2014. Drillers have cut the number of rigs operating in North Dakota to 27, according to Baker Hughes, down from a peak of 203 in June 2012.

Bakken Update: U.S. Well Costs, Production Improve While One Permian Operator Uses 30 Million Pounds Of Proppant – Summary:

  • The Permian and Anadarko Basins have the lowest breakevens in the US, which is why the most activity is located there.
  • Well economics continue to improve in all basins with lower well costs and higher initial production numbers.
  • Better source rock stimulation creates more fracs per foot, which increases initial production and requires additional proppant and fluids.
  • Matador's most recent Permian wells use 3,000 lbs of proppant per foot, or the equivalent of 30,000,000 lbs of proppant per 10,000 foot lateral.

Low oil prices have been difficult for the industry, but it has also been positive. Operators have moved to decrease costs. Challenging economics have pushed E&Ps to improve well design. Sliding sleeve completions have decreased in number. A move to cement liners has provided completions crews with more points to frac shale. Fractures are now focused closer to the well bore, which has improved production from induced fracs.  The oil glut has become a refined product glut. This could push refiners to decrease throughput or move to seasonal maintenance early. Refiners have already reported crack spreads tightening even with some reporting record exports of gasoline and diesel. Just five years ago West Texas Intermediate was trading over $100/bbl. As a general rule, oil prices pull back quickly and can rebound the same way. Gluts can also be drawn out like this one. Gluts can be caused by over supply or a drop in demand. Sometimes both occur. Demand based oil gluts can be caused by recessions, or decreased world growth. Demand can wane due to technology. If an engine is developed that increases miles per gallon or uses a different fuel source can cause issues.. Supply gluts are more difficult. When a large, new supply source is introduced prices may drop. When the drop occurs, countries will increase production to make up for lost revenues. The lowest cost producers can drag down the market further. The hope is lower prices will increase demand. Natural demand increases will balance supply and demand at some point. [...] The above slide shows the number of rigs in each of the top four US basins. The 125 rigs in the Permian, 49 in the Anadarko, 30 in the Eagle Ford (Western Gulf), and 24 in the Bakken (Williston). The number of rigs is a general representation of economics. The better the economics, the more operators are motivated to put capex to work in that play. This is also why daily production has surged by 83% in the Permian and 75% in the Anadarko since 2012. The jump in Anadarko production has been quite large from late 2015 to year end. When an operators high-grades, it can either be to better acreage in the same play or another. Operators with acreage in other plays are focusing on the Permian and STACK.

Mega-Fracks In The Bakken -- Mike Filloon -- August 6, 2016 -- Summary

  • well costs continue to decrease while well designs improve.
  • as operators get better at creating induced fractures, more proppant is required.
  • mega-fracs have shown a significant improvement in recoveries and this is why we are seeing operators complete more wells like this
  • from 2004 to 2013 operators increased proppant usage by 636% in ND
  • in 2011 only one mega-frac was completed, but this increased to 78 in 2014
First, the definition of a mega-frack. Filloon's 200 hundred biggest fracks by proppant volume in the Bakken/Three Forks:
  • proppant: a range of 8 million to 28 million lbs
  • fluids: a range of 50,000 to 460,000 bbls
  • average amt of proppant: 11 million lbs; weighted toward sand
  • average amt of frack fluids: 166,000 bbls
The best well design in the Bakken may be: hybrid fracks (large volumes of proppant in concert with slickwater).

Over 600 DUC wells are intentionally delayed in each of the largest shale oil plays: By looking at the intentionally postponed (abnormal) part of DUC inventory, Rystad Energy observes that all major liquid basins are exposed to completion delays. Bakken was the first play where completion delays became visible already in early 2015. Since then, the abnormal inventory in this play has increased from 150 to 600 wells, thanks to the North Dakota Industrial Commission’s incentive to extend completion delay allowance from 12 to 24 months. The Eagle Ford and the Permian Basin followed the trend in H2 2015 and more than 600 abnormal DUCs have been observed in these plays recently.

NOG Reports Earnings; NOG Cut CAPEX By 50% Year-Over-Year -- August 5, 2016 -- From their press release:

  • production increased 2.8% sequentially and averaged 13,933 barrels of oil equivalent per day, for a total of 1,267,860 boe 
  • oil and gas sales, including cash from settled derivatives, totaled $62.5 million
  • production expenses, including production taxes, for the second quarter declined 11% per boe compared to the second quarter of 2015
  • capital expenditures totaled $16.5 million during the second quarter, a reduction of 50.5% compared to the second quarter of 2015 
  • quarter-end liquidity totaled $221.7 million, composed of $3.7 million in cash and $218.0 million of revolving credit facility availability

Across the board, Bakken CAPEX has been cut about 50% year-over-year. 

Crude Slump Sees Oil Majors’ Debt Burden Double to $138 Billion - When commodity prices crashed in late 2014, oil executives could look at their mining counterparts with a sense of superiority. Back then, the world’s biggest oil companies enjoyed relatively strong balance sheets, with little borrowing relative to the value of their assets. Miners entered the slump in a very different state and some of the world’s largest -- Rio Tinto Plc, Anglo American Plc and Glencore Plc -- had to reduce dividends and employ draconian spending cuts to bring their debt under control. Two years on, you could excuse mining executives for feeling smug. As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they’ll need to keep slashing capital spending and that dividend cuts may eventually be necessary. Worse, the mountain of debt, which has grown tenfold since 2008, is likely to increase further in the third and fourth quarters, executives and analysts said. “On the debt, it may go up before it comes back down,” Shell Chief Financial Officer Simon Henry told investors last week. “And the major factor is the oil price.”The main concern is that companies have so far failed to stop the increase in debt load,"  “In the absence of an oil price uptick or sizable asset sales, commitments to maintain the dividend will face even more pressure.” The problem for Big Oil is simple: Companies are spending a lot more than they’re earning. Both West Texas Intermediate and Brent crude, the two most prominent benchmark grades, slid into bear markets this week after falling more than 20 percent since early June. The first-half results indicate that oil companies “are likely to generate large negative free cash flows for the full year,”

Continental Resources Reports Second Quarter 2016 Results - KFDA - Continental Resources, Inc. (NYSE: CLR) (the "Company") today reported a net loss of $119.4 million, or $0.32 per diluted share, for the quarter ended June 30, 2016.  The Company's net loss includes certain items typically excluded by the investment community in published estimates, the result of which is often referred to as "adjusted net loss." In second quarter 2016, these typically excluded items in aggregate represented $53.5 million, or $0.14 per diluted share, of Continental's reported net loss. EBITDAX for second quarter 2016 was $528.1 million. The Company has defined and reconciled adjusted net loss, adjusted net loss per diluted share and EBITDAX to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures in supporting tables at the conclusion of this press release under the header Non-GAAP Financial Measures. "Continental once again outperformed production guidance in the second quarter thanks to the exceptional quality and performance of our Bakken, SCOOP and STACK assets, as well as exceptional execution by our teams," commented Harold Hamm, Chairman and Chief Executive Officer. "We are also on track to reduce long-term debt with our agreement to sell a second

EOG Resources Announces Second Quarter 2016 Results; Increases Premium Well Inventory by 34% - EOG Resources, Inc. (EOG) today reported a second quarter 2016 net loss of $292.6 million, or $0.53 per share. This compares to second quarter 2015 net income of $5.3 million, or $0.01 per share. Adjusted non-GAAP net loss for the second quarter 2016 was $209.7 million, or $0.38 per share, compared to adjusted non-GAAP net income of $153.1 million, or $0.28 per share, for the same prior year period. Adjusted non-GAAP net income (loss) is calculated by matching hedge realizations to settlement months and making certain other adjustments in order to exclude non-recurring items. For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables. Lower commodity prices more than offset significant well productivity improvements and cost reductions, resulting in decreases in adjusted non-GAAP net income, discretionary cash flow and EBITDAX during the second quarter 2016 compared to the second quarter 2015. For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables. Operational Highlights In the second quarter 2016, EOG increased its inventory of net premium drilling locations from 3,200 to 4,300. Premium inventory is defined by a direct after-tax rate of return hurdle rate of at least 30 percent assuming $40 flat crude oil prices. Total premium net resource potential increased from 2.0 billion barrels of oil equivalent (BnBoe) to 3.5 BnBoe. These additions were the result of advances in completion technology, precision targeting, longer laterals and cost reductions.

EOG boosts fracking plans even with oil price at $40 | Reuters: Shale oil bellwether EOG Resources on Thursday boosted this year's fracking plans by 30 percent, saying it expected big returns on new wells even as oil dipped back to $40 a barrel. The plans are the boldest yet among U.S. shale oil companies, many of which have raised their production forecasts in recent days after posting second-quarter results. The upward revisions highlight how the fittest shale companies, mainly those with the oiliest land, are surviving at a time when dozens of others are filing for creditor protection in the biggest wave of bankruptcies since the telecom meltdown in the early 2000s. Houston-based EOG raised the number of wells it plans to bring online this year to 350 from 270, and lifted by 50 to 250 the number of wells it would drill, while keeping its budget stable around $2.5 billion. Since the start of the worst price crash in a generation in mid-2014, when oil was still above $100 a barrel, many shale producers have cut costs and lifted well productivity by 50 percent or more. Wall Street has also demanded they focus more on capital efficiency rather than just raising output. "The benefits of EOG's premium drilling strategy are beginning to show in our operating performance," CEO Bill Thomas said in a statement. "We are committed to focusing capital on our premium assets." EOG, best known for its South Texas operations, said that greater efficiencies have allowed it to do more for less and earn an after-tax rate of return of more than 30 percent on what it called premium wells, assuming oil prices stay at multi-year lows.

US Frackers Surprise Themselves As Tweaks Keep Adding Barrels  |  Rigzone Nimble U.S. shale oil producers continue to show an uncanny ability to squeeze more and more crude from new wells, allowing them to do more with less as they try to weather another dip in oil prices to $40 a barrel. Comments from Noble Energy, Devon Energy and Occidental Petroleum on Wednesday were significant because only six months ago many analysts were fretting that shale producers had hit a wall after slashing costs and lifting well output by as much as 50 percent since the steepest price crash in a generation started in mid-2014. Now, while acknowledging that most oilfield services costs cannot fall further, these companies say they are still seeing output gains from improved well designs and fracking techniques. The rising well output means they can produce more oil with each dollar spent. This could help them survive the latest slump in oil prices back to multi-year lows after a partial recovery brought crude back up to about $50 a barrel. Initially, Noble expected to get 390,000 barrels of oil equivalent per day (boe/d) this year on spending of $1.5 billion. Now it expects to spend less and produce 415,000 boe/d. Lately the company has experimented with fracking wells using 3,000 pounds of sand per foot, several orders of magnitude greater than frack jobs a decade ago. Companies have also been fracking even more parts of rock around a wellbore, boosting output. At Occidental, Chief Executive Vicki Hollub said 2016 production would now be at the high end of its forecast for a 4 to 6 percent increase from 2015 levels of 652,000 boe/d - without raising budgeted spending of $3 billion.

Fracking's Unsung Hero: Sand - One of the many wonderful things about America's shale revolution is the way resilient producers keep refining their methods: the EPA doesn't like wastewater? Fine, we can dispose of it differently. Oil price drops below $50 (er...and $40)? Ok, we can do this cheaper. Today Bloomberg discusses the growing importance of sand in the fracking process, specifically the growing understanding that sand "is a much greater tool in hydraulic fracking than drillers had understood it to be." "Time and again, they’ve found that the more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out." "The message from drillers is 'more, more, more sand,' said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. 'All of the numbers are going up and they’re going up dramatically.' " The bottom line?: “ 'People are uber uber bullish on sand,' said Matthew Johnston, an oil-services analyst at Nomura Securities. 'I get it. I understand where all the euphoria is coming from.' ”

Alaska North Slope crude shipment leaves Valdez bound for South Korea: cFlow   A shipment of Alaska North Slope crude is making a rare voyage across the Pacific Ocean to South Korea, according to cFlow, Platts trade flow software. The Bahamian-flagged Suezmax, Tianlong Spirit, which was chartered by BP, first entered Valdez, Alaska, on July 28 and set sail on Saturday. On Monday, the tanker was located in the North Pacific Ocean off the coast of Alaska. The ship's destination is listed as Gwangyang, South Korea, and it is set to arrive there around August 12, according to cFlow data. A BP spokeswoman declined to comment on the individual cargo or the destination of the tanker Monday. However, in July she confirmed that the company had chartered the Tianlong Spirit to move ANS out of Valdez.Shifts in global crude benchmark spreads have made it feasible to export crude to Asian markets. Aribitrage opportunities are created with a narrowing of the WTI-Dubai crude swaps spread. The WTI-Dubai swaps spread has been narrowing over the past month.  However, some traders and industry analysts were surprised about the ANS shipment to Asia, noting that despite a narrower WTI/Dubai spread, the economics still are not optimal for exports.

Costs of new US Arctic regulations may cool offshore oil production plans: The Obama administration unveiled final regulations for drilling in US Arctic waters, but questions remain about the future of oil production there. Will the Arctic be pulled out of the administration's upcoming five-year leasing plan, and will environmental opposition and unfavorable economics hinder development offshore Alaska for a decade or more? And how will the outcome of the US presidential election effect the Arctic’s oil and gas future? Senior editor Brian Scheid interviews Mike Levine, Pacific senior counsel at Oceana, and David Holt, president of Consumer EnergyAlliance, for answers to these questions and more.

Back in the High Life Again - The Oil Sands Rebound from May 2016 Wildfires - Three months after a series of devastating wildfires wreaked havoc in Alberta’s oil sands region, production is essentially back to normal. The series of wildfires that swept through parts of Fort McMurray, AB and nearby oil sands production areas in early May 2016 caused damage totaling an estimated Canadian $3.6 billion (the equivalent of more than U.S. $2.7 billion), making the event the most expensive natural disaster in Canada’s history (by far, according to a July 2016 report by the Insurance Bureau of Canada). As we said in our initial look at the wildfires’ impact on oil sands production in mid-May (Over the Hills and Far Away), the wildfires consumed hundreds of thousands of acres (ultimately, more than 1 million acres had burned by the time the last, spotty fires were put out the first week of July) and forced tens of thousands of people from their homes. Temporary shutdowns at several production sites initially reduced the oil sands’ output by more than 1 MMbbl/d –– or about one-third the area’s pre-fire production level –– which trimmed inventories and goosed world oil prices. But the short-term closures appear to have had little effect on the Canadian and U.S. refineries that process oil sands-sourced crude. Now, oil sands producers (stung more than many by the collapse in oil prices) are focused again on reducing production costs in an effort to stay profitable in a low-oil-price era. Today, we summarize the current, post-wildfires state of oil sands production and consider the region’s future in the new, tight-oil/Shale Revolution world.

"Hot Lesbian" Ad Gets Canadian Oil Sands More Publicity Than It Deserves -- Canadian OilSands is lashing out. As's Julieanne Geiger details, in possibly one of the biggest marketing blunders of the millennium, a Canadian Oil Sands group has managed to alienate groups from almost every walk of life with their recent Facebook meme that prompted people to choose Canadian oil over Saudi oil—because, as the meme read, “In Canada, lesbians are considered hot! In Saudi Arabia, if you’re a lesbian, you die!”  The ad went on to query, “Why are we getting our oil from countries that don’t think lesbians are hot?”   You might be thinking that the Coke/New Coke marketing blunder was bad, but the hot-lesbian ad, particularly in today’s politically correct day and age, is sure to bump some of the worst marketing blunders off their top spot. Robbie Picard, the Canadian Oil Sands Community Manager, published an apology for the ad, but that bell is hard to unring. “(We used) a random stock image, but the point was to draw attention to the bigger issue. I was surprised there was so much response to it,” Picard told the National Post—a response could be construed by some as an apology, while proving for others Picard’s disconnect from today’s politically correct culture. The Canadian Oil Sands Community was actually trying to draw the attention to the fact that despite Canada’s huge oil reserves, eastern Canada imports oil from Saudi Arabia (as well as other OPEC members and the US), but failed miserably in their attempt—managing to instead offend almost every group across the globe—from Canada to Saudi Arabia, from Evangelical Christians to the LGBTQ community, to females in general.

US exported 662,000 b/d of crude in May, highest on record: EIA - Oil | Platts US crude exports jumped to their highest level on record in May, coming in at 662,000 b/d, monthly data from the US Energy Information Administration showed Friday. Exports are up from 591,000 b/d in April and have been up steadily from the 392,000 b/d exported in December, when the US lifted all restrictions on the export of crude oil. A tight ICE Brent/NYMEX WTI spread through May likely didn't stand in the way of exports, despite a strong NYMEX discount often making exports more attractive. That spread averaged just 26 cents/b in May, compared with $1.33/b in April. While exports to Canada -- typically the biggest market for US crude -- remained strong at 308,000 b/d, that represents under half of the total. In May 2015, Canada took 524,000 b/d of the 531,000 b/d total from the US.The Netherlands -- home to the massive Rotterdam port -- imported 110,000 b/d from the US in May, up from 29,000 b/d in April, 20,000 b/d in March and 36,000 b/d in February. While it is unclear which grades make up the export cargoes, S&P Global Platts data shows WTI still delivers into Rotterdam at a sizable premium to Russian Urals and North Sea grades like Forties and Ekofisk. However, Platts yield data shows WTI should be attractive for European refiners. Light Houston Sweet -- essentially WTI ex-Houston -- cracking yields in Northwest Europe have averaged $49.23/b since July 1, compared with $48.60/b for Urals and $48.47/b for Forties. Ekofisk has averaged $50/b.

Big Oil and the Battle for Our Future - (Real News Network, interview and transcript) ExxonMobil is under investigation in New York and Massachusetts by the state attorney generals for misleading the public and shareholders about what it knew about the link between climate change and fossil fuels some 30 years ago. This week we learned that the oil companies didn't borrow from the big tobacco's playbook about misleading the public on scientific data. It was more the other way around: big oil wrote the playbook. On Wednesday, July 20, the Center for International Environmental Law released a trove of documents that demonstrate proof of collaboration between the tobacco and oil industries as early as 1956. Our next guest, Wenonah Hauter, author of Frackopoly: The Battle for the Future of Energy and the Environment, says that corruption and collusion of the oil industry and the government against the better interests of the public goes back as far as the beginning of the oil industry, and this continues today. So Wenonah Hauter is also the founder and executive director of Food & Water Watch. Wenonah, good to have you with us today.

Oil giants can’t hide from doomsday market: Exxon Mobil Corp.and Royal Dutch Shell Plc this week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years. Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating. Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline.Chevron  posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes. “What we’re seeing is that there’s just no place for the supermajors to hide,” . “Oil prices, natural gas, refining, it all looks very bad right now.” Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices. Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 percent amid the lowest refining margins for the second quarter since 2010. U.S. margins, based on futures contracts, plunged 30 percent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier. Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.

Growing Oil Glut Shows Investors There’s Nowhere to Go But Down -  They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil Corp. and Chevron Corp. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week. “The rise in supplies will add more downward pressure,”  “It will be a long time before we can drain the excess.” Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9 percent to $42.92 a barrel in the report week, and traded at $40.23 at 12:02 p.m. WTI fell by 14 percent in July, the biggest monthly drop in a year. The decline since early June was 21 percent in intraday trading. A settlement more than 20 percent off the high would characterize a bear market. U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Gasoline inventories expanded for a third week to 241.5 million barrels, the most since April. “The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.” Exxon and Chevron missed profit and production estimates last quarter, earnings data showed July 29. The biggest U.S. energy companies followed Royal Dutch Shell Plc and BP Plc in posting lower profits as crude’s collapse continued to weigh on the industry.

The End Of A Trend: Oil Prices And Economic Growth | It used to be that the received wisdom was that low oil prices are good for the overall economy even if they are bad for the oil industry and for countries that are heavily dependent on oil for their revenues. That's what many believed when suggesting that even though high oil prices and an attendant oil boom had underpinned economic recovery in the United States after the 2008 financial crash, low oil prices would now somehow on balance deliver even more recovery. And, low prices would also benefit the rest of the world as well.Nowadays, as the oil price dips into the low $40 range again and economic growth weakens simultaneously, we must re-evaluate. U.S. economic growth declined significantly after oil prices began to fall in 2014. Only last week, U.S. growth for the second quarter of 2016 came in at 1.2 percent (annualized), less than half the forecast of 2.5 percent. First quarter growth was revised down to 0.8 percent from a previous estimate of 1.1 percent. That's down significantly from a peak of 5 percent growth for the third quarter of 2014, the last quarter during which the price of oil was over $100 per barrel.World economic growth instead of speeding up, slowed down slightly from 2.6 percent in 2014 to 2.5 percent in 2015 according to the World Bank. There are many reasons for the subpar growth of the world economy since the Great Recession. Record average daily prices for oil four years running from 2011 through 2014 helped sap the world economy of its strength by siphoning funds from the non-energy economy. Of the other causes, chief of among them is the heavy buildup of private and public debt which may be hindering growth by siphoning funds from consumption and investment into debt service. In the first quarter of this year, U.S. credit growth was $644.9 billion. U.S. gross domestic product growth was $64.7 billion. It took $10 of credit growth for every $1 of GDP growth.

As Oil Tumbles, Just How (Massively) Overpriced Are Energy Companies? Here Is One Answer -- Back in March, when oil was aggressively rising from its February lows and the market was happily extrapolating a rebound to more traditional levels, around $60-70bbl on hopes of a supply reduction from OPEC, we showed a dramatic chart of the energy sector's forward PE, which had risen to never before seen levels. Since then oil has plateaued and has resumed its descent, recently sliding in a new bear market, and as of this moment flirting with $40/bbl as the realization of an unprecedented gasoline glut, together with ongoing excess supply and weaker than expected demand, pushed back the supposed "equilibrium" date from late 2016 to sometime in 2017 if not later. But while oil has seen a steep pullback, this has not yet impacted junk bonds which have been surprisingly resilient on the back of the ECB's launch of the CSPP program in June at which point the oil-HY correlation broke down, nor has it truly hit energy stocks. That may change soon: as BofA's Michael Hartnett writes, "traders should wait to see if oil can hold $40/bbl before adding risk here. Should oil slice through $40/bbl, attention will quickly switch to weak oil, weak Chinese renminbi and weak credit in a repeat of last summer. EM debt could also be pressured given the massive recent inflows into the asset class. Note that energy stocks have jumped far higher than EPS expectations would justify."

Slippery Oil Prices Plunge Over Cliff into Bear Market - Oil today plunged unrestrained below $40 per barrel, taking oil prices down more than 20% from their high a little over a month ago. That officially defines a bear market in oil. As of today, oil has also moved below its 50-day, 100-day and 200-day moving averages. July has again turned out to be a huge disappointment for oil producers who mistakenly thought price recovery had come to stay. In addition to the dark clouds I presented last week, here is a list of newly developing reasons and ways that oil prices are continuing to slide toward $30 per barrel … as I’ve predicted all along:

  • Saudi Arabia today lowered its price of oil to Asia in order to compete more fiercely for market share, offering its biggest discount in almost a year … because the kingdom is now backed up with oversupply in its own tanks that it has to move.
  • Asian refineries are lowering their production. According to Bloomberg, some are cutting refinery production by as much as 50%.
  • Short positions for West Texas Intermediate crude (WTI) increased last week by their largest volume on record. Likewise with short positions on gasoline. Hedge funds in particular are betting on a gasoline glut. Summarized Newsmax, “Money managers have never been more certain that oil prices will drop.”
  • The global economy is simply exhausted. Growth in global demand for oil continues slowing, and many nations and people simply cannot afford high oil prices any longer.
  • Thanks in part to Brexit, the global petrodollar continues to rise in value, meaning it takes fewer dollars to buy a barrel of oil.
  • Iran is expected to approve new oil contracts this week that will substantially open the doors to foreign investors in its oilfields, which will improve its supply capacity in years to come.
  • OPEC’s production is expected to reach its highest output in recent history. Throughout 2016, the experts talked about how Saudi Arabia and Russia would reach a deal, how OPEC would soon start tapering back its supply. All along, I said “baloney! There will be no such agreement and no cutback by OPEC.”
  • Libya is now back in the oil business.
  • Gasoline inventories increased yet another week, now five out of six weeks during the busy summer season when gasoline inventories should decline. Soon seasonal driving will start to fall off, increasing the rate at which gasoline inventories build.

Oil Prices Fall Below $40 As OPEC Ramps Up Output - Global oil prices fell below $40 a barrel on Monday, after Reuters’ new survey tallying oil output from OPEC countries showed outputs for the 13-member bloc at record highs when compared to figures in recent history. The overall increase in global crude output has dragged oil prices down 20 percent since they broke above $50 in June. Friday’s survey found that Iraq increased oil output in July, as the national army made gains against the Islamic State’s (ISIS) oil production and supply network. The former Gulf country’s oil officials confirmed on Monday an increase in crude production from 3.175 million barrels in June to 3.2 million barrels in July.Nigeria - a country that has been inundated by separatist attacks on oil facilities by the Niger Delta Avengers and related groups - upped outputs despite militant efforts.To meet an uptick in seasonal demand for oil, Saudi Arabia - OPEC’s de facto leader and top exporter - kept production levels close to record highs in order to limit Iran while it attempts to regain lost market share. The Wall Street Journal reported that Saudi Aramco had also cut its price per barrel to Asia by sizable margins over the weekend. The Iranian oil minister confirmed the oil glut in a statement to Iranian state television on Monday, but insisted that the balance between supply and demand would be restored in due time.

Here we go again: Oil plunges back below $40 - Aug. 1, 2016: The era of cheap oil isn't over.  Crude oil prices plunged 4% on Monday, sliding to $39.86 a barrel Monday. It's the first time the price has been below $40 a barrel in nearly four months.  Oil prices are now down more than 22% since topping out above $51 a barrel in early June. That means the closely-watched commodity is officially back in a bear market.  It's the latest setback for oil bulls who thought crude was on a straight shot back to $60 and higher following the crash that began in late 2014. The price had peaked at $107 in June 2014.  The recent selling has been driven by a realization that the epic oil glut remains largely intact -- and some U.S. oil companies may make it worse by starting to drill more. Not only is there an historic oversupply of crude, but gasoline inventories are now at record highs, despite the fact that it's summer driving season. The fear is that the backlog will force refiners to dial back their demand for oil, deepening crude stockpiles. "Crude prices are charging lower to start the week as a plethora of bearish indicators emerge,"

Crude Oil May Rebound to $57 Next Year, Analysts Say - Oil closed in a bear market Monday, but don’t abandon hope. Analysts are looking beyond the current slide to next year for a rebound. Crude has plunged by more than a fifth in less than two months as refineries created a glut of gasoline while failing to eliminate excess supply of crude. That wrecked refining margins and hurt the earnings of Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc. Yet, global oil prices will average $57 a barrel in 2017, according to the median of at least 20 analyst estimates compiled by Bloomberg. Progress will be slow. The crude glut will take a long time to dissipate, meaning only gradual price gains, said Michael Hsueh, a strategist at Deutsche Bank AG. West Texas Intermediate, the U.S. benchmark, will average $49.50 in the fourth quarter before breaking decisively above $50 next year, the analysts say.  “We’re looking at a market that’s still in a very slow process of rebalancing and we don’t think that you’ll get a sustainable deficit until the second quarter of 2017,” said Hsueh, who sees oil at $53 next year. “Those deficits are necessary to draw down global inventories, but that will still take until the end of 2018, it appears.”

OilPrice Intelligence Report: Oil In Freefall On Bearish News From OPEC -- July saw the worst monthly loss for oil prices so far in 2016 and crude started off August right where they left off in July: oil prices sank 4 percent on Monday. WTI and Brent sank on Monday, briefly dipping below $40 per barrel before closing just above that key psychological threshold. The price declines technically pushed oil into bear market territory.  The oil majors took a beating last week, reporting disappointing earnings for the second quarter as low oil prices combined with shrinking refining margins inflicted damage on everyone’s balance sheets. The energy industry saw share prices drop once again on Monday as WTI and Brent sold off amid fears of ongoing oversupply issues. Energy stocks in the S&P 500 dropped by 3.4 percent, the worst single-day performance since June. Iraq reported high oil exports rose to 3.2 million barrels per day in July from its southern port in Basra, up from 3.175 mb/d in June. That might help OPEC report its highest level of oil production on record, a fact that added momentum to the selloff. Saudi Arabia also slashed the price for its oil heading to Asia. And in the U.S., the glut persists – at a time when oil and refined product inventories are supposed to be rapidly falling because of soaring summer demand, they are holding steady, sparking fears of another downturn.  Hedge funds and money managers increased their short bets on crude oil, and sold off their long positions. In fact, hedge funds increased their short bets for the week ending on July 26 by the most ever. “The flow is solidly bearish,” Tim Evans, an energy analyst at Citi Futures Perspective, told Bloomberg. “It reflects a recognition that the market is, at least for the time being, oversupplied.” John Kilduff, founding partner of Again Capital, says oil is going to $35.   Bloomberg reports that despite the nascent rebound in the rig count, many top shale drillers won’t return to the shale patch in a big way until oil prices rise to $60 per barrel. That is a safer price zone than the $50 per barrel that many had signaled they would be willing to live with. Bloomberg cites Pioneer Natural Resources as a prominent example of a company that was previously waiting for $50 per barrel before deploying rigs, who has now said they actually are going to wait until oil rebounds to $60. Other companies targeting $60 per barrel include Anadarko Petroleum and Hess Corp. (NYSE: HES).

Oil falls, U.S. crude ends below $40 on nagging glut worry | Reuters: Oil prices fell again on Tuesday, erasing early gains and dragging U.S. crude below $40 a barrel as persistent worries of a glut offset the boost from a weak dollar early in the session. U.S. crude futures settled down more than 1 percent after initially rising over 2 percent, traders said. A slide in U.S. equities also weighed. "There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand,"   U.S. West Texas Intermediate (WTI) crude settled down 55 cents, or 1.4 percent, at $39.51 a barrel. It had rallied to $40.91 earlier. On Monday, it slid below $40 for the first time since April. Brent crude fell 34 cents, or 0.8 percent, to settle at $41.80, after touching a session high at $43.18. The dollar hit a six-week low, which buoyed oil in early trade, but then U.S. stocks .DJI fell to a three-week trough. "I am bullish here overall but worry about being too early," said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina. "I also wonder if the market is going to chop around a bit first, like it did in late May to June before dropping after many threw in the towel."

As Oil Crashes Under $40, How Much Further Can It Drop - Well that escalated quickly. Having toyed with the $39-handle yesterday, this morning's plunge has erased those stops: ... and WTI is set to test the early April lows on the way back to 2016 lows... What is next for oil now that key support is broken?: some thoughts from BofA's chief technician, Paul Ciana: Oil has reached the triangle top target (40.80) we reported on in early July. Today oil is extending its decline, breaking the 200d SMA and testing support at the round number of $40. Short term measurements shown in Table 1 and Table 2 suggest oil could bounce this week (as much as a 65% possibility) and test resistance at $43.18 or $44.50. However that bounce may be short lived and we think sold. The weekly chart shows momentum isn’t oversold yet and deeper Fibonacci retracement levels at $38.86 and $35.84 could be reached as a larger oil market bottom pattern forms. Oil in the mid $30’s which is near the 61.8% retracement and bottom of the weekly Ichimoku cloud would be a more technically convenient long trade scenario. Price action has moved to the center of the weekly Ichimoku cloud. The cloud offers support as low as $35.40 and resistance at $44.32. If price were to reverse higher between here and the bottom of the cloud then we could see a potential head and shoulders bottom forming. If the decline were to accelerate lower and break the bottom of the cloud, then a double bottom pattern could form. The below chart shows crude oil’s five, ten and thirty year average trend normalized to the start of the year and compares it to the current year in black. The pressure on crude oil prices is generally down from August through early December giving plenty of time for a right shoulder or double bottom to develop. * * * Finally, why is the breach of $40 important? We go back to what Marko Kolanovic said in the remainder of his note earlier today: While US momentum is positive across the board—and S&P 500 exposure of CTAs likely is at record level—negative momentum in Europe and Japan require a short position in these equity markets. CTA signals for oil recently turned from strongly positive to moderately negative. This has contributed to past-month divergence between S&P 500 and oil (~1.5 standard deviations) and is closely monitored by equity and high yield credit investors. It is our view that the risk of CTAs significantly increasing oil shorts over the next 1 month is low. For oil momentum to further deteriorate, oil would need to drop to ~$30 at which point the medium term momentum (strongest signal) would turn negative and trigger selling.

Kemp: Why Is Oil Market Rebalancing Taking So Long?  (Reuters) - Rebalancing the oil market is proving a long and frustrating process because the oil-exporting countries hit hardest by the slump were the themselves some of the fastest growing oil consumers before prices tumbled. As oil revenues have shrivelled, their economies have slowed or gone into recession, removing one of the most dynamic drivers of oil demand, and leaving the rest of the world economy to fill the gap. The slowdown in demand from oil-exporting countries has worsened the oversupply situation and prolonged the market rebalancing process ("Commodity slump intensifies risks to emerging markets", Reuters, Oct. 8). Rebalancing has come to rely on production cuts, and stimulating additional demand from China and India, as well as the advanced economies which had showed little or negative growth prior to 2014. The first stage of the rebalancing process is therefore proving exceptionally difficult and slow because it is fighting the headwinds caused by the drop in oil prices. Once prices start rising significantly, however, the market is likely to tighten faster than many analysts expect because oil consumption in emerging markets is likely to accelerate again with the extra oil revenues. Oil-exporting countries accounted for more than one-third of the global increase in oil consumption outside the United States between 2004 and 2014, as rising oil revenues fuelled a boom in their domestic economies. Between 2004 and 2014, oil consumption outside the United States increased by 11.4 million barrels per day (bpd) Fifteen oil-exporting countries identified separately in the BP Statistical Review accounted for 4.2 million bpd of extra demand (Canada, Mexico, Colombia, Ecuador, Venezuela, Norway, Azerbaijan, Kazakhstan, Russia, Algeria, Iran, Kuwait, Qatar, Saudi Arabia and United Arab Emirates). Consumption growth was especially rapid in Saudi Arabia (+1.7 million bpd), Russia (+0.6 million bpd), Iran (+0.5 million bpd) and the United Arab Emirates (+0.3 million bpd). But with the exception of Mexico, every one of the 15 oil exporting countries analysed separately in the review reported increased domestic oil consumption during the decade to 2014. All the rest of global oil consumption growth was attributable to China (+4.4 million bpd), India (+1.3 million bpd) and Brazil (+1.2 million bpd).

Oil Bounces On Unexpected Cushing Inventory Draw -- Following last week's surprise build in overall crude inventories (after 9 weeks of draws), API reported a smaller than expected drawdown (-1.34mm vs -2mm exp). However, oil prices are extending late-day gains as Cushing reported a major 1.3mm draw (against expectations of a 1mm barrel build). Gasoline drew down but Distillates built. API:

  • Crude -1.34mm (-2mm exp)
  • Cushing -1.3mm (+1mm exp)...Genscape reported a small (<100k) draw for Cushing.
  • Gasoline -450k (-1mm exp)
  • Distillates+593k

10th weekly draw of last 11 in crude but it was the Cushing draw that was the biggest driver...

Oil up 3 percent on big U.S. gasoline draw; WTI back above $40 | Reuters: Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer. U.S. crude inventories rose for a second week in row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, the Energy Information Administration (EIA) reported. [EIA/S] Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. U.S. West Texas Intermediate (WTI) crude CLc1 jumped $1.44, or 3.6 percent, to $40.95 a barrel by 12:10 p.m. EDT (1610 GMT). On Tuesday, it settled below $40 a barrel for the first time since April. Brent crude LCOc1 rose by $1.30, or 3.2 percent, to $43.10. It hit a more than three-month low of $41.51 the previous day. "We are not surprised to see spot prices rebounding on the gasoline draw. But I think this will be shortlived," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York. "The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up."

Oil Dumps'n'Pumps After Unexpected Crude Inventory Build Offset By Production Cut -- A surprisingly large draw at Cushing (according to API) overnight sparked buying in crude ahead of today's DOE data (despite USD strength). Despite API's 1.34mm draw, DOE reported a 1.4mm build in Crude inventories (with a 2mm draw expected). Crude plunged on the data despite a big draw in gasoline (but build in Distillates). But, after 3 weeks of production rises, US crude output slowed this week... sending crude higher once again... DOE:

  • Crude  +1.41mm(-2mm exp)
  • Cushing -1.12mm (+1mm exp)
  • Gasoline -3.2mm (-1mm exp)
  • Distillates +1.15mm

Crude surprised with a 2nd build in a row:

How Moving Gasoline Tankers From New York To Florida Fooled Oil-Trading Algos -- One month ago, before the commodity trading world's attention turned to the unprecedented glut in gasoline stocks, we wrote "PADD 1 Is A Holy Mess" - Is This What Finally Drags Crude Oil Lower, in which we showed the historic excess of gasoline stocks on the US East Coast, known as the PADD 1 region. A week later, in a follow up article we explained that as a deluge of Chinese gasoline exports had flooded the world, the PADD1 glut was only getting worse, leading to a pile up of tankers in New York harbor. It got so bad, that gasoline stockpiles in PADD 1 rose to a record 72.5 million barrels in the week ended July 22. Meanwhile, as crack spreads collapsed, concerns about both gasoline and oil demand emerged, leading to a sharp selloff in oil, and the recent bear market in WTI.  However, over the past week, gasoline inventories finally drew down, and as we reported yesterday, commercial gasoline stocks decline by 3.3 million barrels according to the DOE (if a far smaller 450K according to API).To be sure, on one hand, some refiners have indeed curbed or even shut down production. AsBloomberg reports, "facing the region’s worst-ever glut of gasoline, suppliers are beginning to turn off the taps in response to low margins. Profits are gradually starting to rebound, though they remain at a five-year seasonal low."  But as it turns out, the biggest reason why there was a very "bullish" - for oil - gasoline draw is also the simplest: the excess gasoline was simply moved from one, massively overstocked place, to another. Remember that pile up of tankers in NY harbor we wrote about a month ago? Well, they're gone. But not because there is demand for their product - they simply found a different place where to store their excess inventory. From Bloomberg: Gasoline has also shifted south amid cargo diversions and deviations. A 330,000-barrel tanker usually on the Houston-to-Jacksonville, Florida, run last month moved two products cargoes to Florida from New York Harbor, according to vessel tracking data compiled by Bloomberg. Since June, at least eight foreign import cargoes originally booked to supply New York were sent instead to the U.S. Gulf Coast and Mexican West Coast.

US oil settles 2.7 pct higher, or $1.10, at $41.93 a barrel: Oil prices closed more than 2 percent higher on Thursday on short-covering and after a modest stockpile drop at the delivery hub for U.S. crude futures. The benchmark rose out of technical bear market, after sinking more than 20 percent from its June high in recent days as overproduction and large stockpiles of crude and refined products around the world weighed on markets. Oil prices had seesawed throughout the morning, but moved decisively higher at midday, bouncing off technical levels as crude broke above its 200-day moving average, Again Capital founding partner John Kilduff told CNBC. U.S. West Texas Intermediate (WTI) crude futures settled 2.69 percent higher, or $1.10, at $41.93 a barrel. International Brent crude futures were trading at $44.25 a barrel, up $1.15. or 2.67 percent. "With WTI testing $40 lately and without follow through selling, short positions are likely booking profits and we could see range bound prices after this,"

OilPrice Intelligence Report: Oil Correction Stalls On Strong Dollar, Rising Rig Count -- Oil briefly dropped below $40 per barrel this week but rebounded following the surprise drawdown in gasoline inventories, a robust decline of 3.3 million barrels. Oil traders were more than happy with that result, ignoring the 1.4 million barrel build in crude oil stocks. As a result, oil traded up 3 percent on Wednesday and posted an additional 2.5 percent gain on Thursday. Some of those gains could have been the result of speculators closing out short positions and pocketing profits, however. "With WTI testing $40 lately and without follow through selling, short positions are likely booking profits and we could see range bound prices after this," Chris Jarvis, analyst at Caprock Risk Management, told Reuters.  Citigroup, Bank of America Merrill Lynch, Wood Mackenzie, and other investment banks predicted that the bear market will be over quickly, citing a dearth of oil supply that is profitable below $40 per barrel. Some analysts are even concerned that today’s cutbacks are too severe, setting up the market for a supply crunch down the line. "We think what's happening in the market is very seasonal. Supply is actually going down pretty quickly, demand is moving higher, and this is going to move the market into a deficit,” said Francisco Blanch, the head of global commodities and derivatives research at Bank of America Merrill Lynch. He says the supply drop off will lead to a “multi-quarter deficit,” which means oil prices will move “quite a lot higher.” But in the short-term, oil traders are not optimistic. On top of the massive volumes of oil and gasoline sitting in storage, the consistent gains in the rig count in recent weeks is giving the market some reason to worry. . In a worrying sign that the oil markets are still oversupplied, the economics of stashing oil at sea to sell at a later date are improving. The contango has widened sufficiently in recent weeks to make floating storage profitable. Bloomberg reports that cargoes for delivery at a later date sell for $2.78 per barrel higher than front-month contracts, enough to pay for storage for half of a year. This market contango is indicative of too much near-term supply, and it is a bearish signal for oil prices.

Six Weeks In A Row – Rising Rig Count Pushes Oil Down - The US oil and gas rig count, as reported by Baker Hughes on Friday, was up one over last week, bringing the total number of oil and gas rigs to 464. The US oil rig count was up 7 from last week, while the gas rig count fell one, with miscellaneous rigs also losing a rig. Eagle Ford and the Permian saw the strongest rig count increases. Eagle ford was up 4 oil rigs, while The Permian added an additional 5 oil rigs. The Barnett and Niobrara both lost one oil rig over the last week. Although a total increase of one rig is fairly insignificant, and oil rig increase of seven—and an increase to the oil rig count for six straight weeks—may add further worries to an already shaky oil market. Ahead of the rig count data, oil futures stabilized earlier today after whiplash-inducing swings were seen throughout the week as anxious investors lose confidence after agencies such as the API and EIA reported varying figures on US stockpiles. On Tuesday, the API estimated that crude inventories fell by 3.9 million barrels. The following day, the EIA published significantly contradictory information, reporting that crude inventories had increased by 1.4 million barrels—which added to the 1.67 million barrel increase the week prior. Despite the news that crude stockpiles were still increasing, WTI rose both Wednesday and Thursday as gasoline inventory drew drown 3.3 million barrels. But inventory is not the only metric that holds sway in today’s volatile oil market. Last week, the oil and gas rig count, as reported by Baker Hughes, increased by a single rig, with oil rigs up by three and natural gas rigs down by two. Last week was the fifth week in a row to see an increase in the oil rig count, although of the five weeks, last week was the smallest gain.

Permian spearheads current, planned US rig count increases - The overall US rig count inched up a single unit for the second consecutive week during the week ended Aug. 5, again bolstered by increased drilling activity in the Permian basin of West Texas and New Mexico (OGJ Online, July 29, 2016). The US tally of active rigs now stands at 664 after rising in 9 of the last 10 weeks, according to Baker Hughes Inc. data. The count is now up 60 units since May 27, the week before it recorded its first increase in 41 weeks. Two thirds of that total has come in the Permian alone. While many US exploration and production firms this week continued to report plans to deploy rigs during the second half, light, sweet crude oil prices dipped below $40/bbl for the first time since April. In its North American Shale Report, oil and gas consulting service Rystad Energy noted last week that most commercial wells’ breakeven prices are currently $25-30/bbl, reflecting an average 22% year-over-year drop in the average wellhead breakeven price during 2013-16. Among the major shale regions, the biggest drop is seen in the Permian’s Midland basin, down 33% year-over-year on average during 2014-16. Capital investment has recently poured into the Midland basin, as well as the nearby Delaware basin and Oklahoma STACK play. The US oil-directed count also increased this week for the ninth time in 10 weeks, gaining 7 units to 381—a rise of 65 units since May 27. Compared with its peak in BHI data on Oct. 10, 2014, the count is now down 1,228 units. Gas-directed rigs, meanwhile, fell 5 units to 81. One rig considered unclassified halted operations, bringing that tally to 2.  Land-based rigs rose 3 units to 443, reflecting an 8-unit jump in horizontal rigs to 362, up 48 units since May 27. Directional drilling rigs dropped 4 units to 44. Rigs drilling in inland waters were unchanged at 4. Rising 3 units this week to 217, Texas made up the ground it lost last week after recording its first decrease in 9 weeks. Compared with its May 27 total, the state's count is up 43 units. More than offsetting losses elsewhere around the state were increases from the Permian and Eagle Ford. The Permian’s 5-unit rise to 177 marked its eighth straight weekly increase. The Eagle Ford’s 4-unit jump brought the South Texas play’s count to a 3-month high. In North Texas, meanwhile, the Barnett lost a unit to 4.

Russia Extends Oil, Gas Reach in Asia Post-Ukraine Crisis -- Strained ties with the European Union (EU) and the United States arising from the crisis in Ukraine in 2014, have prompted Russia – one of the world’s largest oil and gas producers – to turn its attention to Asia as it scoured for market opportunities amid Western sanctions. Major Russian oil and gas firms OAO Rosneft and OAO Gazprom have strived to boost their business relations with countries in Asia, both at the company and governmental level. They are searching for new markets for their crude oil and natural gas, while encouraging Asian investments in their upstream assets. “Asia is an important market for Russia, not only due to the sheer size of the expected growth in the region’s energy consumption over the coming years, but also because it allows Russia to diversify away from overly relying on the European market,” Peter Lee, Asia Oil & Gas Analyst at BMI Research, told Rigzone. The Russian firms are looking beyond traditional markets like China and India as they seek to enhance co-operation with other Asian countries, including Vietnam, Thailand, Indonesia and Singapore. Russia needs outlets for its crude production as the country attempts to maximize output to compensate for the steep decline in oil prices. The move is necessary due to the high breakeven costs of its petroleum projects, Rising energy demand in neighboring China has already offered Russia a huge market for its oil and gas sales. “China's importance to Russia is growing. Its Russia's second largest crude oil market [after the Netherlands], and absorbs about 15.5 percent of Russia’s crude exports annually. This could increase further in the coming years though – for instance, the completion of CNPC’s Mohe-Daqing oil pipeline sometime by 2017 will make it easier for refiners in eastern China to procure Russian crude,” Lee said.

The town that reveals how Russia spills two Deepwater Horizons of oil each year -- The Komi Republic in northern Russia is renowned for its many lakes, but sites contaminated by oil are almost just as easy to find in the Usinsk oilfields. From pumps dripping oil and huge ponds of black sludge to dying trees and undergrowth — a likely sign of an underground pipeline leak — these spills are relatively small and rarely garner media attention. But they add up quickly, threatening fish stocks, pasture land and drinking water. According to the natural resources and environment minister, Sergei Donskoi, 1.5m tonnes of oil are spilled in Russia each year. That’s more than twice the amount released by the record-breaking Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The main problem, according to the natural resources ministry, is that 60% of pipeline infrastructure is deteriorated. And with fines inexpensive and oversight lax, oil companies find it more profitable to patch up holes and pour sand on spills — or do nothing at all — than invest in quality infrastructure and comprehensive cleanups, according to activists. “The pipelines are very worn out, they’re left over from the USSR,” said Greenpeace research projects coordinator, Vasily Yablokov. “The oil companies have realised they’re losing a lot of oil and are starting to replace them, but it’s laughable. They need to do much more.”  While Russia’s oil and gas production provides more than half the state budget every year, it exacts a huge price on the environment and local residents. A state energy statistics bureau told Greenpeace it had registered 11,709 pipeline breaks in Russia in 2014. In contrast, Canada reported five pipeline accidents (involving human injury) and 133 incidents involving natural gas and oil pipelines in 2014.

Saudis Slash Oil Prices For Asian Markets; So Much For Solving That Banking Liquidity Crisis -- Shortly after we spoke yesterday about the banking liquidity crisis in Saudi Arabia caused by the "Saudi circ ref" (low oil prices -> budget deficits -> more oil pumping -> even lower oil prices), almost on cue, the state-owned Saudi Aramco, the worlds largest oil exporter, announced the largest price cut for Arab light sweet crude sold into Asian markets in 10 months.  Aramco priced September exports to Asia $1.10 per barrel below regional benchmarks which is a $1.30 cut vs. August pricing.  Oil pricing into Asian markets has come under intense pressure in 2016 as the battle for market share has intensified between the Saudis, Russians and Iranians (a topic we've covered extensively here, here and here). Saudi prices cuts, which we fully anticipate to be matched by the Iranians, come as Iran continues to flood the market with supply in a race to return production to pre-sanction levels of 4 mm barrels per day.  Since international sanctions against Iran were eased in January, 1H16 shipments to Asia have surged with Japan’s purchases up 28%, India up 63%, South Korea up over 100% and China up 2.5%.  Mohsen Ghamsari, director of international affairs at state-run National Iranian Oil Co., said: "Iran is exporting about 2 million barrels of its daily output of 3.8 million.  It has regained about 80 percent of the market share it held before the U.S. and European Union tightened sanctions on its oil industry in 2012."  Iran has already boosted crude production 25% this year and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year.

Shale Production Has Reduced Energy Prices To Levels Where Saudi Arabia Can't Fund Its Welfare State - Saudi Arabia knew that North American shale production could potentially torpedo their hold on the energy market via oil. So, they decided to trounce the natural gas market by opening the floodgates with petroleum. It didn’t work. The Telegraph now reports that shale production has cut prices so low that they can produce at prices that are lower that what’s required to keep Saudi Arabia’s socioeconomic fabric healthy: Opec's worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.  The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is a bitter victory at best. North America's hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.[…]Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week - with some poetic licence - claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel. "Definitely we can compete with anything that Saudi Arabia has. We have the best rock," he said.

Despite Low Oil Prices, Saudi Arabia Stabilizing Economy  -- The Saudi economy is stabilizing after the government implemented pivotal reforms in order to address a fiscal and economic crisis because of plunging oil prices.  Over the past two years, Saudi Arabia cut energy subsidies, slashed public spending, and started to look for new ways to raise revenue outside of the oil sector. The IMF forecasts the Saudi budget deficit to narrow from 13 percent of GDP in 2016 to 9.6 percent in 2017. That is a dramatic improvement from the 16 percent deficit the country posted last year. The improved forecast earned praise from the IMF. “The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Tim Callen, the IMF’s Saudi mission chief, told Bloomberg in an interview. “We’re happy with the progress that’s being made.” Although Saudi Arabia is running a huge deficit, it does not appear to be an emergency. In countries without huge cash reserves, such a deficit would be a major problem. But Saudi Arabia has hundreds of billions of dollars in reserves, allowing it to coast for a while. Saudi Arabia did see its credit rating downgraded earlier this year by Moody’s because of the collapse of oil prices. “A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks,” Moody’s wrote in May. But with the deficit-to-GDP ratio falling, the IMF is not concerned. “We would be worried if the fiscal deficit were to remain at the levels it reached last year for another couple of years, because that would mean there will be large fiscal financing requirements,” he said. But the IMF’s Tim Callen said that balancing the budget by the end of the decade should be “doable.” Oil prices should rebound in the years ahead, which should put cash back into Saudi government coffers.Still, Saudi Arabia is not exactly sitting pretty. GDP growth is still at a moribund 1.2 percent in 2016, with only a modest improvement to 2.25-2.5 percent over the medium-term. That won’t be enough to absorb the bulging population of young people in the country.

Saudi Arabia Said to Have Offered $4 Billion to Banks - Saudi Arabia’s central bank offered lenders short-term loans in late June to help ease liquidity constraints, according to five people familiar with the matter. The Saudi Arabian Monetary Agency, or SAMA, as the central bank is known, offered about 15 billion riyals ($4 billion), two of the people said, asking not to be identified as the information is private. The loans were offered at a discounted rate, two of the people said. SAMA offered individual banks as much as 1.5 billion riyals, based on their balance sheets, four people said. The loans are for up to one year. “We see this move as an immediate support to boost short-term liquidity and for banks’ ability to lend,” Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said by phone. “We expect to see further measures, such as possibly reducing the reserve requirement ratio or increasing the loan-to-deposit ceiling in the coming days.” Banks in the kingdom are facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund the budget deficit. SAMA has already taken steps to try to alleviate liquidity pressures, allowing banks to lend the equivalent of 90 percent of their deposits, up from an earlier limit of 85 percent. An official at the central bank declined to comment. The three-month Saudi Interbank Offered Rate has surged 69 basis points this year to 2.24 percent, near the highest level since 2009, according to data compiled by Bloomberg. The rate has risen nine basis points since the end of May, while Brent crude prices fell 15 percent.

Saudi central bank fights to curb money rate rise | Reuters: Saudi Arabia's central bank is having only mixed success in using money market tools to fight a surge in market interest rates caused by low oil prices, and may need to resort to more radical steps, commercial bankers say. Such steps could include raising the ratio of deposits which commercial banks are permitted to lend out and reducing the amount of reserves which banks must place with the central bank, the Saudi Arabian Monetary Agency (SAMA). By slashing government revenues, low oil prices have cut the volume of petrodollars flowing into the Saudi banking system. Total deposits at commercial banks, which grew continuously for years, were 3.3 percent lower in June than they were a year ago. This has strained liquidity in the banking system, pushing interbank money rates higher. The one-year Saudi interbank offered rate has jumped more than 1.5 percentage points in the past 12 months. That in turn threatens banks' ability to lend to the private sector at affordable rates, a key consideration as the government tries to limit damage to the economy from cheap oil, and raises borrowing costs for the government, which is selling bonds to the banks every month to finance a big budget deficit. "SAMA warned of a liquidity shortage almost a year ago," said a local banker, speaking about central bank policy on condition of anonymity. "Now it is facing such a situation."

Iran plans new model oil contract launch within six months - Officials at the National Iranian Oil Company hope to launch new upstream contracts within the next six months after the government ratified a new upstream model contract Wednesday. Iran's cabinet signed off a new model oil contract, known as the Iran Petroleum Contract, in the hope it will attract much-needed international investment into the oil and gas sector after international sanctions on the country were lifted earlier this year. "After the approval of the IPC by the cabinet, we will try to make the new model operational as a contract within six months," NIOC managing director, Ali Kardor, told state radio. The new technical services contract replaces Iran's buyback formula, which it had been using for years, but has failed to attract investors looking for longer participation in a developed field or a greater interest. The approval covers the "general terms, structure and model of upstream oil and gas contracts", state-run Shana news agency reported. This came after adopting a number of modifications following objections from parliament, where there is opposition over constitutional restrictions on ownership of natural resources. The original version of the IPC was unveiled to oil companies in December with details of more than 50 projects for which Iran wants international partners. More specific terms for each new contract, such as pricing and duration, will have to be approved separately by the oil ministry.

Kuwait raises gasoline prices, following Gulf neighbors - (AP) — Kuwait will raise its subsidized gasoline prices by as much as 83 percent beginning in September, becoming the last Gulf nation to do so as low global oil prices continue to gnaw away at governments across the region. Kuwait’s Cabinet announced the decision on Monday, with the biggest price hike coming for its premium-grade gasoline. As of Sept. 1, that octane will cost 165 fils a liter (53 cents) instead of 90 fils (30 cents). That’s 624 fils ($2.05) a gallon as opposed to 340 fils ($1.12) a gallon previously. Kuwait’s cheapest gasoline will increase in price by 41 percent from 60 fils (20 cents) a liter to 85 fils (26 cents). Its mid-range fuel will go up by 61 percent, from 65 fils (21 cents) to 105 fils (35 cents). That puts the new prices at 321 fils ($1.06) a gallon for the cheapest fuel and 397 fils ($1.30) a gallon for mid-range. There are 1,000 fils to the Kuwaiti dinar. One dinar is worth $3.31. The average U.S. price for a gallon of regular gasoline is $2.12, according to AAA. Subsidized gasoline prices long have been viewed as a national right among citizens of this tiny, oil-rich Mideast emirate and their slashing signals the serious financial pressure it faces. A recent report by the International Monetary Fund estimated that Kuwait’s government budgeted about 2.3 billion Kuwaiti dinars ($7.6 billion) to subsidies energy products and water service. On Tuesday, news of the price increase dominated Kuwaiti newspaper front pages and talk on radio stations. Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates all have increased their fuel prices over the last year as crude prices plummeted. Worldwide oil prices now sit around $40 a barrel as inventories remain high and the global economy remains mired in a malaise.

MENA countries investing $10.3 billion to import LNG - Countries in the Middle East and North Africa (MENA) account for a rapidly rising share of global LNG demand and will invest about $10.3 billion in the “medium term” to meet import needs, says Arab Petroleum Investment Corp. (APICORP). The MENA share of LNG demand will rise to 6.5% by the end of next year from 1% in 2013, according to APICORP Energy Research. LNG imports by MENA consumer countries totaled 10.5 billion cu m in 2015, of which 40% was from Qatar. “But these levels will rise steeply, spurred by the present global supply overhang, which should allow regional buyers to lock in preferential prices and allow them to choose from a wider range of suppliers,” APICORP says. The countries, some of which have problems with creditworthiness, will be cautious about investment in permanent LNG import terminals and increasingly will charter floating storage and regasification units (FSRUs) “as a temporary and lower cost solution.”  Kuwait, the first Gulf Cooperation Council member to import LNG, is an exception. Now using an FSRU, it plans a permanent terminal at Mina Al-Ahmadi with capacity of 15 billion cu m/year, capable of being doubled. In the United Arab Emirates, where LNG imports by Dubai meet peak gas demand during summer, plans for an import facility in Fujairah have been cancelled in favor of a chartered FSRU at Ruwais, Abu Dhabi. APICORP calls that option a “flexible solution” to meeting power shortfalls until four nuclear reactors are completed in the UAE in the early 2020s.

ISIS Oil Revenues Down By Up To 90 Percent | Recent Iraqi military gains over the Islamic State have dried up oil revenues for the terrorist organization by up to 90 percent, according to a report by Iraqi News on Tuesday. Security sources from the ministry of oil said ISIS had been smuggling at least 50 vehicles full of oil everyday from oilfields in Qayyarah and Najma. The two sites stand south of Mosul—the largest ISIS stronghold and the third largest city in Iraq by population. But new offensives against the terrorist organization have reduced the smuggling rate to five vehicles a day. ISIS’ prices for the smuggled oil, which once stood above $6,000 a vehicle, have now been reduced to $2,000. After ISIS lost control of the Alas and Hamrin oilfields near Tikrit last April, the group’s income declined by an additional $1 million every day. Yesterday, news brokethat ISIS fighters may have been responsible for the deaths of five people in an oilfield located in the Kurdish city of Kirkuk, though the organization has not yet claimed responsibility for the attack.  The attackers attempted to take down a gas compression station nearby as well, where they planted bombs after killing four guards. The fifth victim was an engineer working at Bas Hassan, a media report read, citing Iraqi and Kurdish sources. Sources from the Kurdish military forces, the Peshmerga, said that the attack on the gas station was neutralized and that three of the four ISIS terrorists involved in the double hit were killed, one of them managing to blow himself up, causing explosions in oil storage tanks at Bas Hassan

As 'caliphate' shrinks, Islamic State looks to global attacks | Reuters: Islamic State, losing territory and on the retreat in Iraq and Syria, has claimed credit for a surge in global attacks this summer, most of them in France and Germany. The wave of attacks followed a call to strike against the West during the Islamic holy month of Ramadan in June and July, in an apparent shift in strategy by the jihadist group, which has been hammered by two years of U.S.-led coalition air strikes and ground advances by local forces. Instead of urging supporters to travel to its self-proclaimed caliphate, it encouraged them to act locally using any means available. "If the tyrants close the door of migration in your faces, then open the door of jihad in theirs and turn their actions against them," said an audio clip purportedly from spokesman Abu Muhammad al-Adnani, referring to Western governments' efforts to keep foreign fighters from traveling to the join the group. Radicalized followers have responded to that call repeatedly in the past two months, in countries part of the international coalition battling Islamic State, including shooting people at a Florida nightclub, running them over with a truck in the French Riviera, and hacking them with an axe on a train near Munich. The perpetrators had varying degrees of connection to the Middle East-based jihadists. Some had tried to travel to Syria and were on the authorities' radar, while others displayed few outward signs of radicalism until their deadly acts. "There's a growing understanding that the idea of the caliphate is dying and more and more the leadership is calling on foreign fighters not even to come to Iraq and Syria but to go elsewhere or to commit violence locally,"

Have U.S. Officials Given Up on ‘Defeating’ ISIS? - You don’t hear national security leaders speak of ISIS like an enemy to be beaten. They talk about the terror group like a chronic illness in the global body politic.   Officially, the Obama administration is still committed to defeating ISIS. But at the annual gathering of national security chiefs in Aspen, no one was talking about beating the terror army and its adherents. Instead, grim resignation and dark warnings of a long hard fight to come dominated the discussion, with every official predicting a global rise in terror attacks, including in the United States. “Do we expect more attacks? Regrettably we do, both in Europe and the U.S.,” said Rep. Adam Schiff (D-CA), a ranking member on the House Intelligence Committee. While some here held out hope for a military triumph over ISIS in Iraq and Syria, they acknowledged that any such advances would represent the first stage in a years-long battle against a group that’s already spread to unstable parts of the Mideast, Africa, and Southeast Asia—and already inspired attacks from Paris to San Bernardino, Orlando to Istanbul. “If we destroy [ISIS] in Syria and Iraq so they don’t have a territory anymore, of course that reduces their influence. But the virtual caliphate has not been destroyed,” said European Union Counterterrorist Coordinator Gilles de Kerchove in an interview, referring to ISIS’s prodigious online presence. “The capacity to inspire in the west will remain for some time.”

Islamic State calls on members to carry out jihad in Russia | Reuters: Islamic State called on its group members to carry out jihad in Russia in a nine-minute YouTube video on Sunday. "Listen Putin, we will come to Russia and will kill you at your homes ... Oh Brothers, carry out jihad and kill and fight them," a masked man driving a car in the desert yelled while wagging his finger in the last couple of minutes of the video.The video with subtitles showed footage of armed men attacking armored vehicles and tents and collecting arms in the desert. "Breaking into a barrack of the Rejectionist military on the international road south Akashat," read one subtitle. It was not immediately possible to independently verify the video but the link to the footage was published on a Telegram messaging account used by the militant group. It was not immediately clear why Russia would be a target, but Russia and the U.S. are talking about boosting military and intelligence cooperation against Islamic State and al Qaeda in Syria.

Paris strikes astonishing partnership with secret Isis sponsor tied to Hillary Clinton [EXCLUSIVE] -- The City of Paris has struck a corporate partnership with French industrial giant, Lafarge, recently accused of secretly sponsoring the Islamic State (Isis or Daesh) for profit. Documents obtained by several journalistic investigations reveal that Lafarge has paid taxes to the terror group to operate its cement plant in Syria, and even bought Isis oil for years. Yet according to the campaign group, SumOfUs, Lafarge is the corporate partner and sand provider to the City of Paris for this summer’s Paris-Plages urban beach event. The project run by Office of the Mayor of Paris, Anne Hidalgo, will create artificial beaches along the river Seine in the centre and northeast of Paris. Lafarge also has close ties to Democrat presidential candidate Hillary Clinton. Apart from being a regular donor to the Clinton Foundation, Clinton herself was a director of Lafarge in the early 1990s, and did legal work for the firm in the 1980s. During her connection to Lafarge, the firm was implicated in facilitating a CIA-backed covert arms export network to Saddam Hussein.

British woman held after being seen reading book about Syria on plane - Free-speech groups have condemned the detention of a British Muslim woman after a cabin-crew member reported her for “suspicious behaviour” while reading a book about Syrian culture on a flight to Turkey. Faizah Shaheen, a psychotherapist in Leeds, was detained by police at Doncaster airport on 25 July, on her return from her honeymoon in Turkey. A Thomson Airways cabin-crew member had reported Shaheen on her outbound flight two weeks earlier, as she was reading the title Syria Speaks: Art and Culture from the Frontline. Police officers questioned Shaheen for 15 minutes under Schedule 7 of the Terrorism Act, under which the police can detain individuals without grounds for suspicion of involvement in criminal activities, including terrorism. Shaheen, whose work in the NHS includes efforts to stop radicalisation among young mental health patients, told the Independent she intends to make formal complaints against the police: “I was completely innocent – I was made to feel like a culprit … I couldn’t understand how reading a book could cause people to suspect me like this. I told the police that I didn’t think it was right or acceptable. I do question if … it would be different if it was someone who wasn’t Muslim.”A collection of essays and writings by more than 50 artists on “challenging the culture of violence” in the country, Syria Speaks was published by British imprint Saqi Books in 2014. It received positive reviews from the likes of musician Brian Eno and author AL Kennedy, who described it as “a wise, courageous, imaginative and beautiful response to all that is ugly in human behaviour.”

‘Western media part of political elite, will never report Syrian massacre by US-led forces’ -- Media in the US and Britain are not independent; they are part of the political elite in Washington and London, and their responsibility is to guide policy makers and shape public opinion, says Marcus Papadopoulos, publisher and editor of Politics First. Syria has appealed to the UN, claiming that 45 civilians were killed and 50 injured in US-led airstrikes outside the city of Manbij near Aleppo on Thursday. Following the strike, US Central Command (CENTCOM) admitted the airstrikes “may have resulted in civilian casualties,” but did not provide a figure, pending an investigation. CENTCOM said the aerial strike had been aimed at hitting ISIS forces concentrated in Manjib. Meanwhile, Western media has been quiet about the alleged strikes that reportedly killed dozens of civilians.

  • RT: Why do you think the western media is staying silent on the story, despite the large loss of civilian life?
  • Marcus Papadopoulos: It’s very important for people to understand the relationship between Western governments and Western media. Media outlets in America and Britain are not independent; they are very much a part of the political elite in Washington and London. Their responsibility, their job, their duty is to guide policy makers in America and Britain, to influence them and then to gather domestic support behind American and British foreign policy objectives wherever they are in the world. Why has Western media barely reported on American strikes against civilians in Syria? Well, it’s very simple. Western media is there to do the PR job of the British and American governments. They are there to project America and Britain as beacons of civilization, as the protectors, the guardians of human rights and democracy… It is therefore no surprise that they are not going to cover what was a blatant massacre by the American air force of civilians in Syria.

US Launches Air Strikes Against ISIS Targets In Libya - In what comes as the most expected geopolitical development in recent years, moments ago the United States announced that it had launched multiple airstrikes against Islamic State militants in Libya on Monday, opening a new, more persistent front against the group at the request of the United Nations-backed government, Libyan and U.S. officials said. The strikes, which allegedly targeted an Islamic State tank and vehicles, come amid growing concerns about the group's increased threat to Europe and its ability to inspire attacks across the region. "The presidency council, as the general army commander, has made a request for direct U.S. support to carry out specific airstrikes," Serraj said. "The first strikes started today in positions in Sirte, causing major casualties." As AP reports, the strikes mark the start of a more intense American role in the fight against IS in Libya, as the U.S. steps in to assist the fragile, U.N.-backed government there. Of course, the government is fragile only because of US involvement 5 years ago (thanks Hillary) to topple Muammar Gadaffi and unleash the political chaos that led to the Arab spring in, according to some, unleashed jihadist organizations such as ISIS.  They were the first strikes by the U.S. on the group in Libya since February.

Iran's Ayatollah: "The US Created ISIS" -- Even as the Obama administration is embroiled in a scandal involving the paradropping of a crate of cash with $400 million in it in non-USD denominated bills to Iran, the same Iran continues to heap scorn upon the US president, culminating yesterday with Iran’s Supreme Leader, Ayatollah Ali Khemenei, accusing the U.S. of creating and supporting ISIS as a means of creating conflict among Muslims and promoting a false form of Islam in the world. In an English language Twitter account affiliated with Iranian Supreme Leader, the country’s highest authority, tweeted: US aim of making & backing DAESH is to sow discord in Islamic Ummah, defame true Islam & promote Wahabbi Islam which is far from true Islam. — (@khamenei_ir) August 3, 2016 He alleged that the US aim of making and backing ISIS is to sow discord in Islamic Ummah, defame true Islam & promote Wahabbi Islam which is far from true Islam, in fact it is the religion of Saudi Arabia, some of the most ardent supporters of the Clintons. The claim is not the first time Khamenei has accused the U.S. and the West of creating the current conflict in Syria and Iraq. Last December, Khamenei accused U.S. officials of sowing discord among Muslims by “creating terrorist groups like Daesh (the Arabic word for the ISIL) and other groups that have been created through the funding of the US affiliates and their political aids," according to Iran’s state-run media outlet, Fars News.

U.S. Sent Cash to Iran as Americans Were Freed -- The Obama administration secretly organized an airlift of $400 million worth of cash to Iran that coincided with the January release of four Americans detained in Tehran, according to U.S. and European officials and congressional staff briefed on the operation afterward. Wooden pallets stacked with euros, Swiss francs and other currencies were flown into Iran on an unmarked cargo plane, according to these officials. The U.S. procured the money from the central banks of the Netherlands and Switzerland, they said. The money represented the first installment of a $1.7 billion settlement the Obama administration reached with Iran to resolve a decades-old dispute over a failed arms deal signed just before the 1979 fall of Iran’s last monarch, Shah Mohammad Reza Pahlavi.The settlement, which resolved claims before an international tribunal in The Hague, also coincided with the formal implementation that same weekend of the landmark nuclear agreement reached between Tehran, the U.S. and other global powers the summer before.“With the nuclear deal done, prisoners released, the time was right to resolve this dispute as well,” President Barack Obama said at the White House on Jan. 17—without disclosing the $400 million cash payment.  Senior U.S. officials denied any link between the payment and the prisoner exchange. They say the way the various strands came together simultaneously was coincidental, not the result of any quid pro quo.

Here’s how Iran could threaten to close the Strait of Hormuz -Iran’s talking tough again, threatening to close the Strait of Hormuz in the event of an attack. This is not the first time such threats have been made. Furthermore, when Iran mined USS Samuel B. Roberts (FFG 58) during Operation Earnest Will, the United States delivered quite the beat-down to the mullahs’ military forces in Operation Praying Mantis. But it raises the question of whether Iran could carry out its threats. Iran’s threat cannot be treated as idle, given that they did try to shut down the Strait of Hormuz during the Iran-Iraq War. Currently, the Iranian Navy has at least five frigates, three Kilo-class submarines, fifty-four guided-missile patrol boats, and at least sixteen mini-submarines. It is a force that could be beaten by the United States Navy – much as was done in 1988 – but that task may be tougher now than it was back then. To understand why just take a look at the map.At less than sixty miles wide for most of its length, Iran can not only count on its naval forces to attack tankers in the Strait of Hormuz, but also truck-mounted and fixed-position anti-ship missile batteries on the coast, primarily consisting of the C-802 and C-201 missiles. Iran’s control of Qeshm and Larak Islands adds further reach to shore-based missiles as well. These bases could also be protected with surface-to-air missiles like the SA-10 “Grumble” that Iran has been trying to buy from Russia for years.  With missiles flying in at 685 miles per hour, even an Aegis vessel will have some problems protecting a supertanker from being hit by an anti-ship missile. The good news is that supertankers are very big, and as a result, they are very tough. Even an 1100-pound warhead from a C-201 won’t sink a supertanker. But it will create one hell of a mess. The hit will cause a fire, and it will send oil spilling out. In the “Tanker War” that took place during the Iran-Iraq War, over 500 commercial vessels were hit.

Weak crude drags Republic of Congo into default - Plunging oil prices have forced the Republic of Congo to skip a $478 million payment for bonds due at the end of June. As the one-month grace period has passed, the country is officially in default on its debt.The country sometimes referred to as Congo-Brazzaville to differ from its neighbor the Democratic Republic of Congo, had its sovereign credit rating downgraded by S&P to 'SD/D’ (selective default). We are therefore lowering our long- and short-term foreign currency sovereign credit ratings on the Republic of Congo to 'SD/D' (selective default) from 'B-/B', indicating that the Republic of Congo has defaulted on some of its foreign currency obligations,” said a statement from the rating agency. “If and when the Republic of Congo cures the payment default on the notes, we will revise our ratings on the sovereign debt depending on our assessment of residual litigation risk, access to international debt markets, and the sovereign's overall credit profile,” added the agency. According to S&P, the 'SD/D' mark does not carry an outlook because it displays a condition, default, and not a forward-looking opinion of default probability. S&P added the Republic of Congo faces balanced risks, specifically on its local currency debt. In 2014, oil production made up about 70 percent of the country’s total revenue. Crude prices have plummeted from $114 per barrel in mid-July 2014 to slightly over $40 in August 2016.

Plunging Oil Prices Create Bad-Loan Pain for Singapore Banks - Last week, Swiber Holdings Ltd., a small Singapore company that provides construction services for international oil and gas projects, filed a petition to liquidate its operations, after facing payment demands from creditors at a time when its business was under pressure. DBS Group Holdings Ltd., one of Swiber’s largest lenders, said it only expects to recover about half of the S$700 million ($522 million) it loaned to the firm and its units. Swiber subsequently said it’s dropping the liquidation in favor of a restructure plan. DBS and Singapore’s two other large banks, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., are exposed to the downturn in the energy sector as a result of their lending to local companies which provide construction, shipping and maintenance services to the oil and gas industry. Many of those companies are suffering as the plunge in crude prices since 2014 curtailed exploration and other activity by oil and gas producers. The financial health of the energy-services companies is the “key concern” for UOB over the next one or two years, Chief Executive Officer Wee Ee Cheong said at a media briefing Thursday on the bank’s second-quarter results. The bank’s exposure to Swiber is “manageable,” Wee said, though he noted that the wider difficulties in the oil and gas services industry were a factor behind the 17 percent climb in UOB’s nonperforming assets for the second quarter.  Swiber said it will drop its liquidation application in a statement on Friday. Instead, the company plans to operate under a judicial management, which would allow it to continue operating under court supervision while it attempts to turn its business around. Some of its lenders had sought judicial management to recover more of their loans, according to people familiar with the talks who asked not to be identified because the discussions were private.

Cheap Oil Squeezes South Asia’s Cash Lifeline - WSJ: Chronically low oil prices are disrupting a critical financial lifeline across Asia and depriving economies of much-needed hard currency. The flow of cash, or remittances, from Asian citizens working in the Gulf soared when the price of oil was high, boosting growth across the board. The billions of dollars in annual inflows paid for necessities such as schooling and health care and helped propel families into the middle class for the first time. Now that money is disappearing, perhaps permanently, as laborers lose work in oil-driven Mideast countries. That’s adding a new threat to growth in some Asian nations and depriving them of currency inflows they need to balance their national accounts and keep their currencies from depreciating too quickly. A barrel of Nymex crude is now trading at around $41, up from below $30 earlier this year. But prices are a long way from the peak of the boom and aren’t expected to return to previous highs soon. In February 2014, a barrel of crude cost more than $100.  Demonstrating the pressures of sustained low prices, thousands of Indian workers protested in Saudi Arabia on Saturday at being left without jobs, pay and food after they were laid off. The Indian government stepped in over the weekend to hand out food to hungry workers. A drop-off in funds from migrant workers contributed to a crisis in Sri Lanka that forced the government to take a $1.5 billion emergency loan from the International Monetary Fund earlier this year. Falling inflows to Nepal, where transfers from overseas workers are equivalent to about 28% of annual national economic output, are undercutting the impoverished Himalayan country’s ability to rebuild from earthquakes last year.  Weaker remittances are also making it tougher for India to provide jobs for the millions of youngsters that join the workforce each year.

Analysis: China's record gasoline exports signal worsening domestic glut - Oil | Platts -- China's gasoline exports more than doubled on the year in June to surpass 1 million mt for the first time ever, highlighting growing oversupply due to faltering domestic demand, a trend that is likely to continue in coming months. Chinese gasoline exports in June also rose 46% from May to 1.1 million mt, or 312,000 b/d, the latest data from the General Administration of Customs showed.With the refining sector producing 11 million mt of gasoline in June, it meant that 10% of domestic output was exported, the highest proportion since April 2010, according to S&P Global Platts calculations based on data from the National Bureau of Statistics. Gasoline output has been rising steadily as Chinese producers have altered their production slate, moving away from gasoil, demand growth and output of which have fallen on sluggish economic growth. Refiners lifted gasoline yields to 28.3% in June, from 26.9% a year earlier, with a year-on-year output growth of 8.9%, Platts calculations show. Market participants said domestic gasoline supply was more than just the output from refiners if blended gasoline is also taken into account. Imports of mixed aromatics, a gasoline blending feedstock, remained unusually high at 1.17 million mt in June, more than double year on year, but down from 1.21 million mt in May, customs data showed. Almost all of China's mixed aromatics imports go into the gasoline blending pool.

Analysis: After a long slide, China's oil demand shows signs of steadying - After a long period of dwindling demand, China's oil consumption showed first signs of stabilizing in June as a rebound in industrial activity helped the country's appetite for fuels such as gasoil recover from previous month's multi-year lows. Total apparent oil demand in the world's second-largest oil consumer averaged 11.32 million b/d in June, up 4% from May and more or less flat with June 2015 levels, down just 0.1%. China's apparent oil demand has been going downhill since December, with the year-on-year fall widening to 2.7% in May, according to Platts calculations based on official data. Over the first six months of the year, cumulative apparent oil demand edged down 0.6% to 11.15 million b/d, but was higher than the average of 11.10 million b/d for the first five months. Platts China Oil Analytics expects the country's oil demand to grow under 1% year on year in 2016. China's GDP in January-June grew 6.7%, which was higher than the expected growth of 6.6%. "The country's economy stabilized in Q2, which was evident when GDP beat market's expectations, and almost all other data points were ahead of estimates as well," a report from Jefferies Equities dated July 17 said. In June, China's real economic activity growth recovered from May, with value-added industrial production growing at 6.2% year on year, which was higher than the growth rates of around 6% in May and in April. Fixed asset investment growth picked up to 9.8% in the year to date, from 9.6% a month earlier. Growth in fixed asset investment and industrial output is related to energy consumption.

What «Drill, Baby, Drill» Means in the South China Sea - I have examined before how the South China Sea’s history is now colliding with imperatives derived from the Westphalian system, and how the US’s «pivot to Asia» is accelerating conflict. I have also examined how the US Navy’s obsession with «access» actually tramples which sovereign nation is entitled to profit from the surrounding waters of a bunch of islands or «rocks».  And then, there’s that inescapable logic that envelops all energy wars: «It’s the oil, stupid».  The current territorial dispute centered between China and the Philippines – much more than between China and ASEAN – and revolving around what is prescribed by the UN Convention on the Law of the Sea (UNCLOS), will be ultimately solved by a straightforward decision. Manila will have to decide between following The Hague’s ruling to the letter; or to back down, de facto, on sovereignty to the benefit of making gains, sooner rather than later, on energy security – and in partnership with the Chinese. Filipino President Duterte has already given signs that he will opt for pragmatism.  CNOOC and other Chinese oil majors are going no holds barred to exploit oil and gas in the South China Sea. But there’s a huge catch. The absolute majority of geoscientists – for instance, Singapore-based members of the Southeast Asia Petroleum Exploration Society (SEAPEX) – agree that most of the energy resources are actually outside of China’s «nine-dash line», thus nowhere near those disputed rocks, reefs, and «low tide-elevations».  Only a few places in the Spratly islands would qualify as a good deal. Essentially, in the deep, deep water – much deeper, at 6,000 meters, than the «Dragon Hole» – what exists is oceanic crust; no source rock for oil and gas; and worse, no reservoirs in which oil and gas could accumulate.  The US Energy Information Administration estimated three years ago that the South China Sea contains only 11 billion barrels of oil and 190 trillion cubic feet of gas as «commercially viable» reserves.  As a comparison, that would be similar to all the oil that exits in Mexico.  And this applies to the whole South China Sea – including areas that undisputedly belong to some of the littoral nations’ Exclusive Economic Zones (EEZs).  For the Philippines – or even Vietnam – that could be a game-changer. But not for China. Even if all that energy would be shipped in bulk to China in the near future, it would be good enough for only a few years of consumption. 

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