Sunday, October 9, 2016

oil tops $50, natgas prices at 21 mo high, gasoline imports hit 41 mo high, global rigs for Sept, et al

oil prices rose to a four month high on Thursday before falling back on Friday, while natural gas prices rose nearly 15 cents on Friday alone to end the week at $3.198, a 21 month high...underpinned early in the week by last week's OPEC agreement to make an agreement, US oil price rose 76 cents on Monday to close at 48.81 a barrel...then, after a flurry of negative articles about OPEC's deal, oil prices fell by more than 50 cents on Tuesday morning, only to rally to close at $48.69 a barrel after the American Petroleum Institute reported yet another "shockingly large" drop in US crude oil supplies, when markets were expecting an increase...prices continued to rise on Wednesday, then closed at $49.83 a barrel after government data showed that U.S. crude stockpiles had indeed dropped last week, though not quite as much as the API had reported...that rally on falling supplies carried through to Thursday, when U.S. oil prices closed at $50.44 a barrel, the first close above the $50 level since June...US crude then slid 63 cents to $49.81 on Friday, as oil traders reportedly cashed in their quick profits, with oil prices by that point up more than 12% in the prior 7 trading sessions...

natural gas prices, meanwhile, had been riding near the upper end of their 4 month $2.60 to $3.00 per mmBTU range over the last 2 weeks on continued forecasts of above normal temperatures for most of the US, as traders interpreted those forecasts to indicate greater than normal power consumption for air conditioning...after closing at $2.923 per mmBTU on Monday and $2.964 per mmBTU on Tuesday,  natural gas prices rose to $3.041 per mmBTU on Wednesday, after the winter outlook from the Natural Gas Supply Association forecast this winter to be 12% colder than a year-ago and otherwise made a bullish case for gas prices....after inching up less than a penny to close at $3.049 on Thursday, natural gas prices then rose to close the week at 3.198 per mmBTU on forecasts of unseasonably warm weather in the US from October 12th to the 21st, and expectations that power outages from Hurricane Matthew would not be as great as feared...

The Latest Oil Stats from the EIA

the oil data for the week ending September 30th from the US Energy Information Administration once again showed cutbacks in both oil imports and refining activity, and unusually large drawdowns in supplies of crude oil and distillates for this time of year, leading to the largest drop in aggregate supplies of oil and products since hurricane Hermite disrupted transportation in the Gulf 5 weeks ago...that was as the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to -130,000 barrels per day, from last week's +240,000 barrels per day, which means that 130,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final oil consumption or inventory figures, meaning one or several of this week's metrics were off by that amount...however, the 4 week average of this statistical adjustment remained at a modest +23,000 barrels per day, so at least most of the oil that disappears from the statistics one week seems to be finding its way back into the data in subsequent weeks...

for the week ending September 30th, the EIA reported that production of crude oil from US wells fell by 30,000 barrels per day to an average of 8,467,000 barrels per day, as output from Alaskan oil rose by 8,000 barrels per day while production from the lower 48 states was 38,000 barrels per day lower, the first decrease in continental US production in 4 weeks....that left the week's domestic oil production 7.7% lower than the 9,172,000 barrels we produced during the week ending October 2nd of last year, and 11.9% below the record 9,610,000 barrels  per day of oil production that we saw during the week ending June 5th last  year...our oil production for the week ending September 30th is now 752,000 barrels per day lower than what we were producing at the beginning of this year, an interim peak after our production had general been rising in the last few months of 2015...

meanwhile, the EIA reported that our imports of crude oil fell by an average of 125,000 barrels per day to an average of 7,710,000 barrels per day during the week ending September 30th, which was a 9.1% increase from the 7,068,000 barrels of oil per day we imported during the corresponding week a year ago...oddly, that decrease actually increased the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) to  an average of 8.0 million barrels per day, 10.1% higher than the same four-week period last year, because the year's low for oil imports that had occurred as Hermine moved through the Gulf and up the coast dropped out of the average... meanwhile, our exports of crude oil were also down, dropping by an average of 67,000 barrels per day to an average of 440,000 barrels per day for the week,16.4% less than last year's exports of 526,000 barrels per day in the same week, at a time when these volatile weekly export estimates were less reliable..

at the same time, the amount of crude oil used by US refineries fell by an average of 302,000 barrels per day to an average of 16,032,000 barrels of crude per day during the week ending September 30th, the fourth significant refining cutback in a row and the largest since April, as the US refinery utilization rate fell to 88.3% for the week, down from 90.1% of capacity the prior week, but up from the refinery utilization rate of 87.5% seen during the week ending October 2nd last year...US oil refining is now down by 896,000 barrels per day, or 5.3%, in the 4 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the crude refined this week nationally was still 3.0% more than the 15,559,000 barrels of crude per day US refineries used during the week ending October 2nd last year, and 3.1% more than was refined during the equivalent week in 2014 ...    

oddly, even with that large reported drop in the amount of oil used by refineries, their output of both gasoline and distillates was reported higher during the week ending September 30th, following reports for the week ending September 23rd when the drop in both gasoline and distillates output was far in excess of the drop in oil used...that suggests to me that the output of some of last week's refinery runs got shifted into this week's data...whatever the case, the EIA reported that refineries’ production of gasoline rose by 433,000 barrels per day to 9,988,000 barrels per day during the week ending September 30th, the largest increase in gasoline output since the week ending June 17th...our gasoline output was also 7.3% higher than the gasoline output of 9,306,000 barrels per day during the week ending October 2nd last year, and 12.6% higher than the gasoline production during the equivalent week of the same time, refinery output of distillate fuels (diesel fuel and heat oil) also rose a bit, from 4,709,000 barrels per day during the week ending September 23rd to 4,713,000 barrels per day during the week ending September 30th....however, that still left our distillates output 7.1% less than the 5,071,000 barrels per day that was being produced during the same week last year, and 0.7% less than the 4,748,000 barrels per day of distillates production during the equivalent week of 2014...  

with the increase in gasoline production, our gasoline supplies rose by a modest 222,000 barrels to 227,405,000 barrels as of September 30th, as our domestic demand for gasoline rose by 510,000 barrels per day to 9,390,000 barrels per day and our gasoline imports rose by 225,000 barrels per day to a 41 month record of 1,003,000 barrels per day...probably contributing to both of those unusual increases was the shut down of the leaking Colonial Pipeline during that week, which normally delivers gasoline from the Gulf Coast to the east coast states...fearing shortages of gasoline, drivers in Tennessee, Virginia, Georgia, South Carolina, Alabama and North Carolina were reported lining up for extra gasoline, while the gasoline wholesalers turned to imports from Canada and overseas to meet the shortage...the result left the week's gasoline inventories 1.6% higher than the 223,920,000 barrels of gasoline that we had stored on October 2nd last year, and 8.5% higher than the 209,668,000 barrels of gasoline we had stored on October 3rd of 2014... meanwhile, our distillate fuel inventories fell by 2,359,000 barrels to 160,718,000 barrels by September 30th, which nonetheless still left our distillate inventories 7.8% above the distillate inventories of 149,150,000 barrels of October 2nd last  year, and 27.4% above the distillate inventories of 126,140,000 barrels of October 3rd 2014....

lastly, even though the drop in oil demand from refineries exceeded the drop in supply, our inventories of crude oil still fell by 2,976,000 barrels to 499,740,000 barrels as of September 30th, the 5th consecutive drop in our oil supplies and the first time our oil inventories fell below a half billion barrels since the end of January (NB they'd never been above a half billion barrels before this year)...our oil supplies have thus fallen 5.0% over 5 weeks at a time of year when supplies usually rise, and are down 9.0% from their April 29th peak of 543,394,000 barrels...nonetheless, we still ended the week with 8.4% more crude oil in storage than the 460,997,000 barrels we had stored as of the same weekend a year earlier, and 38.2% more crude oil than the 361,650,000 barrels we had stored on October 3rd 2014... 

This Week's Rig Count

US drilling activity increased for the 3rd week in a row during the week ending October 7th and has now increased 16 out of the last 19 weeks, after a 39 week stretch that hadn't seen any increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 2 rigs to 524 rigs by Friday, which was still down from the 795 rigs that were deployed as of the October 9th 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 rose by 3 rigs to 428 rigs this week, and oil rigs have now been rising for 16 weeks without a retreat, but they're still down from the 605 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, the same time, the count of drilling rigs targeting natural gas formations fell by 2 rigs to 94 rigs, which left gas directed rigs down from the 189 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...a single rig that was classified as miscellaneous was also added this week, and now there are two such, up from the single miscellaneous rig that was deployed a year ago..

of the water based rig changes this week, an offshore rig was started on a drilling platform offshore from Louisiana, which brought the Gulf of Mexico rig count up to 22, which was still down from the 31 rigs that were working in the Gulf of Mexico last year at this time, and which brought the total US offshore count up to 23 rigs, down from 32 offshore rigs a year ago, as we still have a rig offshore from the same time, 2 rigs which had been drilling through inland lakes in southern Louisiana were shut down, which left just one rig drilling through inland waters, down from 3 such inland waters rigs a year ago..

the number of working horizontal drilling rigs rose by 6 rigs to 413 rigs this week, which was still down from the 598 horizontal rigs that were in use on October 9th 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 fell by 3 rigs to 61 rigs this week, which was down from the 114 vertical rigs that were drilling in the US during the same week last the same time, a single directional drilling rig was also pulled out, leaving 50 directional rigs still working, which was also down from the 83 directional rigs that were deployed during the same week last year...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas both tables, the first column shows the active rig count as of October 7th, the second column shows the change in the number of working rigs between last week (September 30th) and this week (October 7th), the third column shows last week's September 30th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday 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 week's case was for October 9th of 2015:         

October 7 2016 rig count summary

once again, we have a week with very little changed in drilling activity; only Texas and Oklahoma saw the addition of as many as 2 rigs, and only the Barnett shale of the Dallas-Ft Worth area saw that large of an increase, while no state or basin saw a rig count reduction greater than 1...we should note that of the states not shown above, both Alabama and Mississippi also saw one rig shut down this week, which left Alabama with 1 rig still working, down from 3 rigs a year ago, and left Mississippi with 2 working rigs, down from 5 rigs last October addition, Indiana saw a rig start operating in the state for the first time since June; except for the 5 week period entailed by that occasion, Indiana had not seen drilling over the 17 months prior to this week...

International Rig Counts for September

Baker Hughes also released the international rig counts for September this week, 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 1,584 rigs were drilling for oil and natural gas around the globe in September, which was up from the 1,547 rigs that were drilling around the globe in August, but down from the 2,171 rigs that were working globally in September of last year...increased North American drilling again accounted for the global increase, as the average US rig count rose from 481 rigs in August to 509 rigs in September, which was still down from the average of 848 rigs working in the US in September a year ago, while the average Canadian rig count rose from 129 rigs in August to 141 rigs in September, again still down from the 183 Canadian rigs that were deployed in September a year earlier....outside of Northern America, the International rig count fell by 3 rigs to 934 rigs in September, which was also down from 1,140 rigs a year ago, as increases in drilling in the Middle East and Latin American regions were more than offset by decreases elsewhere.. 

drilling activity in the Middle East rose for just the 3rd time in the past 9 months, as countries included in this region added a net of 7 rigs, bringing their average up to 386 rigs for the month, which was still down a bit from the 396 rigs deployed in the Middle East a year earlier....the largest regional drilling increase was in Qatar, where their active rig count rose from 5 rigs in August to 9 rigs in September, which was also up from the 6 rigs they had deployed in Qatar in September a year ago...both Iraq and Dubai added two rigs in September; that brought the Iraqi count up to 40 rigs, which was still down from last year's 49, and brought Dubai's count up to 4 rigs, which was up from 2 rigs last September...other countries seeing changes in activity in the Middle East included Kuwait, where their count rose by 1 rig to 48, which was up from the 43 rigs they had deployed last year at this time, Egypt, where they idled a rig, leaving 26 rigs, also down from last year's 38 rigs, and Oman, where they also idled a single rig, leaving 64 rigs active in September, down from the 66 rigs they were runnng in September a year ago...the Saudi rig count, meanwhile, was unchanged at 124, which was down from 125 rigs a year ago...the Saudi count has averaged ~125 rigs since early 2015, which was up from their average of around 105 rigs in 2014, so they really did make an effort to increase their production after the November 2014 OPEC meeting, as they said they would...

meanwhile, the Latin American countries netted an increase of 2 rigs, thus increasing their activity by 11 rigs over the past 3 months, after the region had idled 92 rigs over the first 6 months of 2016…in September, Latin America drillers averaged 189 active rigs, which included 38 offshore, down from their average of 321 rigs, which included 55 offshore rigs, that were active in Latin America in September of 2015...once again, the small net increase masked a number of changes in the individual countries, however, as Argentina increased their active drilling by 5 rigs to 70 rigs, after they had idled 7 rigs in August, which thus left them down from the 110 rigs they had deployed in September of 2015...Ecuador added 2 rigs, bringing their count up to 6 rigs, which was still down from 11 rigs a year earlier...Bolivia also added a rig; they now have 5 active, still down from last year's 6 rigs...Latin American countries cutting rigs in September included Venezuela, where they were down 2 rigs to 51 rigs, also down from 75 rigs a year earlier; Columbia, where they also cut 2 rigs, leaving 6 rigs, down from 26 rigs a year earlier; Mexico, where they were down 1 rig to 25, which was also down from 38 rigs a year earlier, and Chile, where their current 2 rig count matches their year ago activity..

at the same time, the Asia-Pacific region had 190 rigs working in September, down from the 194 rigs they had deployed in August, and down from the 218 rigs working the region a year earlier, as the Asia-Pacific offshore rig count also fell by four rigs to 88....Australia idled 2 of the 3 rigs they added in August and hence are back to 4 rigs, down from the 16 rigs they had working a year earlier...Thailand also idled two rigs in September, leaving 11 still working, down from 18 rigs a year ago...Vietnam, Malaysia, and the Philippines each stacked 1 rig; that left Vietnam with 4 rigs working, up from 3 a year earlier, left Malaysia with 3 rigs, down from last year's 9 rigs, and left the Philippines with 2 rigs, still up from the single rig they had deplored last the same time, the rig count offshore from China increased from 26 rigs to 29, which was also up from the 28 platforms sited offshore of China in September of 2015...

elsewhere, countries in Africa also reduced their net activity by 4 rigs, leaving 77 rigs still drilling, down from the 96 rigs working the African continent last year at this time...Algeria shut down 3 rigs, leaving 53 rigs still working, which was nonetheless up from the 51 rigs that they had active a year addition, both Congo and Nigeria idled rigs; that left Congo with none, down from 1 rig a year earlier, and cut the Nigerian count back to 5 rigs, down from 10 rigs a year the same time, Morocco set up a single rig, their only one for now, down from 2 a year earlier..

and lastly, the net rig count in Europe also dropped by 4 rigs to 92 rigs in September, which was down from the 109 rigs working in Europe a year ago at this time...Germany and Turkey both stopped 2 rigs; in Germany, that left them with 1 rig active, same as a year ago, and in Turkey, it left 29 rigs still running, up from 28 in September of addition, Italy and Norway each idled one rig, that left Italy with 3 rigs active, down from last year's 4 rigs, and left Norway with 16 rigs running, down from 17 last September...meanwhile, both Romania and Denmark added a rig in September, for Romania, that brought them up to 6 rigs, down from 8 rigs a year earlier, while for Denmark, it was their first rig after 2 months without drilling; a year ago, Denmark had 4 rigs working....finally, note that Iranian, Russian, and Chinese rig counts are not included in Baker Hughes international data, although you might have noted that China's offshore area, with an average of 29 rigs active in September, up from 26 in August, were included in the Asian totals here...   


Great Lakes wind energy plans cause concerns about risks to birds | WBFO: The birds at the Tifftt Nature Preserve are very active. The preserve is about a mile away from a row of wind turbines lined up along Lake Erie. Officials in Lackawanna say it has been generating clean energy with little impact on birds. But, as attention turns to the Great Lakes for wind power, activists and environmental officials are becoming increasingly concerned about the effect it could have on migratory birds. "Anytime we put any sort of infrastructure on the landscape whether it's a tall building, whether it's a communications tower or wind turbine," said Stephen Earsom of the US Fish and Wildlife Service. "It's something those birds didn't evolve with and they have to learn to maneuver around." The US Fish and Wildlife service recently published a study where they used radar to track bird flight around the Great Lakes. It showed heavy migration patterns near Lake Ontario, and areas near Lake Michigan and Lake Huron. How many birds actually die from wind turbines in the U.S.? No one really knows for sure. The fish and wildlife service doesn’t have exact figures. But, it is estimated that anywhere from 20,000 to 573,000 birds are killed every year from wind turbines. Those estimates came from data generated from national industry reports, and the American Bird Conservancy says that's a problem.

Proposed legislation would further weaken Ohio clean energy standards | Midwest Energy News: An Ohio lawmaker says he’s no longer pushing to continue a freeze of the state’s clean energy and efficiency standards, but legislation he’s proposing would effectively do the same thing. If the legislature does not act before the end of this year, the state’s renewable energy and energy efficiency standards will kick back in, as revised in 2014. State Sen. Bill Seitz (R-Cincinnati), a longtime opponent of the standards, is circulating the new draft bill despite indications that Gov. John Kasich would not approve any plan to further weaken the policy. Seitz’s bill would delay any enforcement of increases in renewable energy and energy efficiency for at least three years. It would also weaken the standards further, restrict Ohio’s ability to comply with federal regulations, increase utilities’ potential for profits, and blur the lines of corporate separation between utilities and their generation affiliates. “It’s just more of the same from Sen. Seitz, and we don’t consider it a way forward,” said Ted Ford of Ohio Advanced Energy Economy. “We think the governor is right in saying we need to let the standards come back.” As introduced by Seitz this spring, SB 320 would have maintained the current freeze on requirements for renewable energy and energy efficiency until 2022 and 2021, respectively. Final compliance would have been pushed out until 2029. Under the draft bill, targets would resume next year. But companies that don’t comply would not face any penalties for several years – until 2020 for the energy efficiency provisions and until 2021 for the renewable energy provisions. After those dates, enforceable targets would only kick in every few years. “There is no more freeze in the revised bill that I’m preparing,” Seitz said last week on WOSU radio. But, he admitted, utilities and generation suppliers will have no enforceable duty to meet any additional requirements for either renewable energy or energy efficiency. “We will have a goals-based plan for the next three years,” Seitz said. As critics see it, the draft bill would effectively continue the current freeze.

Fifth oil-field waste dumping defendant gets three years' probation - Youngstown Vindicator - A federal judge has sentenced the fifth defendant in the dumping of oil-field waste into a Mahoning River tributary in Youngstown to three years’ of probation and ordered him to complete 150 hours of community service. David N. Jenkins, 34, of Warren, who pleaded guilty in July to violating the Clean Water Act, drew the sentence Tuesday from U.S. District Court Judge Christopher A. Boyko in Cleveland, who imposed no fine on him.  Jenkins was sentenced a week before the scheduled release next Tuesday of his boss, Ben Lupo, 66, from the Federal Medical Center, Devens, in Ayer, Mass. Lupo is completing the 28-month prison term he received after pleading guilty to violating the act. He was fined $25,000.In a sentencing memorandum, Jenkins’ lawyers – Attys. John McCaffrey and Adrienne B. Kirshner of Cleveland – asked Judge Boyko to consider Jenkins’ acceptance of responsibility for his crime, and the probation sentences two co-defendants received for the same crime.The memorandum says Jenkins was unaware the storm drain into which the waste was emptied flowed into an unnamed Mahoning River tributary.It also says Jenkins feared losing his job if he didn’t follow Lupo’s orders concerning waste dumping. Jenkins admitted violating the act by directing Michael P. Guesman, another employee of Hardrock Excavating LLC, 2761 Salt Springs Road, to dump fracking waste into a storm drain flowing into that unnamed tributary without a permit.

Utica’s 2nd Biggest Driller, Gulfport Energy, Floats $650M in IOUs - Marcellus Drilling News - Gulfport Energy is an Oklahoma City-based independent oil and natural gas exploration and production company (“driller”) with its main operations in the Utica Shale of eastern Ohio and along the Louisiana Gulf Coast. In August MDN ran an article looking at the top 5 drillers in the Utica Shale (see Which 5 Drillers Dominate in the Utica Shale?). Gulfport was #2 in that list, only behind Chesapeake Energy. Gulfport owns 223,000 net acres in the Utica, produced 2/3rds of a Bcf (billion cubic feet) of natural gas and equivalents per day in 2015, and drilled 165 wells in 2015. Yesterday Gulfport announced a program to swap out old debt for new debt–offering $650 million in “senior notes” (we call them IOUs) in a program to repurchase other notes coming due in 2020. Yes, it’s all financial mumbo jumbo as far as we’re concerned. What it points out is the extraordinary lengths drillers will go to stay afloat during this time of low natgas prices..

Workshop held to educate public on injection wells – Sharonherald – The leaders of Grant Township in Indiana County continue to fight a proposed injection well, despite setbacks including lawsuits.  If the town of 700 people can stand up to the gas and oil industry, so can everyone else, said Stacy Wanchisn Long, vice chairwoman of the board of supervisors. She was one of six panelists who spoke Thursday at Westminster College, New Wilmington, to a crowd of about 40 on “Shale Waste Disposal Workshop: Community Concerns on Injection Wells.” The workshop focused on safety, health, environmental and other issues surrounding liquid waste created by the extraction of gas and oil through hydraulic fracturing, or “fracking.” The event was presented by the Lawrence and Mercer Alliance for Aquatic Resource Monitoring (ALLARM) program, which is based at Westminster; and and the League of Women Voters of Pennsylvania’s “Straight Scoop on Shale” initiative, supported by a Colcom Foundation grant. Dr. Helen Boylan, a Westminster chemistry professor who oversees ALLARM, showed a short video produced by the gas and oil industry, which said that fracking fluid is safe and contains mostly water and sand. The message they’re trying to send is that there is no concern about the chemical additives, said Boylan, who is also the coordinator of Westminster’s environmental science program. Those chemicals still make up a significant amount of fracking fluids and include known carcinogens and hazardous air pollutants, she said, encouraging folks to do their own research and examine fracking from all angles. “You need to get the whole story and not just one side,” she said.

Utica And Marcellus Natural Gas Production Defying The Skeptics --The Utica and Marcellus are the basis of some 800 Tcf that can be produced at a break-even price of $3/MMBtu or less. These plays are the primary reason why EIA projects that total U.S. natural gas production will boom nearly 25% by 2025 alone to 96 Bcf/day – a colossal 85% surge since 2005 when Exxon CEO Lee Raymond infamously declared that our gas production had peaked. U.S. gas production has INCREASED EVERY SINGLE YEAR since 2006. The Utica and Marcellus are why we are talking about a U.S. manufacturing renaissance built on a huge supply of affordable natural gas, are why we are talking about lowering CO2 emissions by using more natural gas, are why we are talking about a wind and solar buildout with gas as the integral backup, and why we are talking about exporting U.S. energy to a mostly energy-deprived world that could surely use it. Given the importance of shale gas and fracking in the critical battleground voting states of Ohio and Pennsylvania, I was shocked and disappointed to not even hear the natural gas subject mentioned during the first presidential debate. Mr. Trump and Secretary Clinton must talk about whether they plan to advance or hinder the industry – and how. Ohioans and Pennsylvanians should know that fracking for oil and gas will be a crucial economic growth engine for them for decades. The surge in natural gas production in the Northeast shows how quickly states can lower prices by producing more energy. California and New York, for instance, have refused to develop their shale and not coincidentally have the two highest electricity prices in the continental U.S. In contrast, gas producing giants Ohio and Pennsylvania have reversed a previous trend that had them with higher gas for power prices than the U.S. average.  As the U.S. continues to move toward using more gas, development of low cost shale is essential because it cuts costs for our businesses and gives them a competitive advantage globally. This is why the incessant talk on more and more regulations is so problematic from an energy security, environmental, and economic perspective, especially since methane emissions from fracked oil and natural gas wells have fallen 80%, even as production has surged (here).

NGSA winter outlook sees colder temperatures, demand pushing US natural gas prices higher - Colder temperatures this winter are likely to drive up residential and commercial demand for natural gas and provide support for wholesale prices, compared with 16-year lows seen last winter, the Natural Gas Supply Association said in its winter outlook released Wednesday. NGSA projects overall demand will rise 3.2 Bcf/d, or 3.6%, to a record average of 92.3 Bcf/d in the coming season as a winter that is forecast to be 12% colder than the year-ago period boosts demand from the residential and commercial sectors by a combined 4 Bcf/d, the group said in its winter 2016-17 outlook. The trade association's outlook evaluates impact of weather, economic growth, customer demand, storage inventories and supply on prices. It expects support from weather and overall demand, while seeing a "neutral" impact from the economy, storage and winter supply. The projection is based on published data from independent and government sources including the US Energy Information Administration and National Oceanic and Atmospheric Administration. NGSA used to Energy Ventures Analysis and EIA data for its demand and supply projections, and IHS Economics data for its economic projections.The projected demand increase in the outlook is tempered by a decline in power sector consumption, as the expected rise in gas prices will lead to reduced coal-to-gas switching. "NGSA anticipates temporary fuel switching to natural gas to continue this winter, but at about half the volumes that took place during last winter's record-setting fuel switching," said Bill Green, chairman of NGSA and vice president, downstream marketing for Devon Energy, in a statement. EVA projected the decline in the power sector demand to be 3.3 Bcf/d, or 13%.

U.S. Natural Gas Futures Reach 21-Month Peak | Natural gas futures in the United States (US) on 7 October rose to its highest point since June 2015 as investors anticipate a boost in demand for the commodity. Gas futures for November delivery spiked by 14.4 cents to $3.193 per million British thermal units on the New York Mercantile Exchange. The climb in price of natural gas of 4.7 percent allowed futures to increase for the fifth straight day. As a result, the week of 3 October posted the biggest weekly gain since last August. Traders were reportedly buoyed on predictions from meteorologists of unseasonably warm weather in the forty-eight contiguous states from 12 October to 21 October, which is expected to increase demand and trim the fat off the supply glut, which stand at 3.68 trillion cubic feet—74 billion cubic feet above that of a year ago.  Hurricane Matthew’s northward journey through the Caribbean caused extensive damage, as well as a death toll in the hundreds. Yet analysts like Phil Flynn of the Price Futures Group do not believe that the storm will significantly hurt natural gas demand due to outages in the southeastern US. “The latest forecasts seem to suggest the amount of power outages are not as big as feared from Hurricane Matthew, Flynn said in an interview with Bloomberg.“The warmer temperatures are adding cooling demand,” he added. Another possible factor behind the rise in futures might come from the growth of the US natural gas market, which was discussed on on 7 October. Data from the Energy Information Administration’s 2015 Natural Gas Annual show an increase of natural gas production and consumption, though prices have generally been on a downward slide since 2014.

Colonial leak's impact minimized by imports, use of line 2. -- The increase in waterborne flows to the East Coast in response to the recent Colonial Pipeline outage illustrated the flexibility of supply in the U.S. motor gasoline market. At the same time, the lack of a lasting impact from the loss of 8.3 million barrels of gasoline to a key U.S. demand region highlighted the degree of oversupply in the market. Today we look at how waterborne flows helped to mitigate the effects of the Colonial Pipeline outage, and how flexibility in the East Coast motor gasoline market enabled it to handle unexpected supply constraints with minimal disruption.  Colonial Pipeline is the largest source of refined product supply for the U.S. East Coast. As we said in Move It On Over, Colonial’s primary route (from Houston to Linden, NJ) consists of four distinct segments, which, like the “arms” and “legs” of an X, meet at Greensboro, NC. One of the two Houston-to-Greensboro lines is dedicated to moving motor gasoline (Line 1 on the map in Figure 1; capacity, 1.37 MMb/d), and the other line (Line 2; capacity, 1.16 MMb/d) can be used to ship either distillate (diesel and heating oil) or gasoline, each of which can be move sequentially through Line 2 in “batches”. (See Refined, Piped, Delivered–They’re Yours for a primer on batching.) At Greensboro, these products go into breakout tanks; from there, gasoline and distillates are sent further north (again in batches) on two mainline pipes. Line 3 (capacity, 885 Mb/d) runs from Greensboro to Linden––where it connects with the Intra Harbor Transfer (IHT) system, which facilitates deliveries to terminals across the New York and New Jersey area. Line 4 is a 32-inch-diameter pipe (capacity, ~700 Mb/d) that runs from Greensboro to Colonial’s Dorsey Junction terminal near Baltimore, MD.

You Can't Always Get The Term Charter Rate You Want - The Jones Act Rate Crash - Term charter rates for medium-range Jones Act tankers have fallen by two-thirds since they peaked at $120,000/day in mid-2014, to only $38,000/day done in September 2016, which is good news for producers but a punch in the stomach for ship owners. A sharp rise in the number of vessels being added to the Jones Act fleet has surely contributed to the charter-rate collapse. Less obvious are the degrees to which the rate drop may have been influenced by the decline in superlight Eagle Ford crude oil production, or by the lifting of the ban on U.S. crude oil exports. Today, we examine the evidence. The Jones Act (see The Sea and Mr. Jones) is a federal statute requiring that all goods transported by water between U.S. ports be carried in U.S.-flagged ships, constructed in the U.S,, owned by U.S. citizens, and crewed by U.S. citizens and/or U.S. permanent residents. The Jones Act fleet used by the petroleum industry consists of three main categories of vessels: smaller barges that typically carry either 10 MBbl or 30 MBbl of crude or refined products and operate on inland waterways as well as coastal canals; coastal barges, including larger articulated tug barges (ATBs); and self-propelled tankers that operate in both coastal and international waters and generally carry over 300 MBbl of crude oil or refined product.  We’ve discussed developments in the Jones Act fleet a number of times here in the RBN blogosphere, including Flirtin' With Disaster, Old and In The Way, and Rock the Boat.  Our focus today is on large ATBs and a subset of the self-propelled tanker category, namely medium-range (MR) or “Handy” size tankers that carry about 330 Mbbl and that are largely engaged on term charters by oil companies to move crude or refined products between U.S. ports.

US' Permian oil rig count keeps climbing as analysts await activity pickup -  US oil rigs rose by three to 204 in the Permian Basin last week, as analysts watched all corners of industry for signs of an activity pickup next year. The 204 rigs now working in the West Texas/New Mexico basin represents the highest number since last December, Baker Hughes said in its weekly rig count Friday. Total US oil rigs increased by seven to 425. The 72 rigs added to the Permian by industry since late April has largely occurred at oil prices below $50/b. But it could take higher oil prices to push on to the next major sustained activity increase in that region as larger operators accelerate the momentum begun by their smaller counterparts, Paul Horsnell, head of commodities research for Standard Chartered Bank, said. "The pace of the upwards move looks a bit more sluggish than it was six or so weeks back, so the question is what gets [the Permian rig count] to 250 or 300?" Horsnell said. "I think that we might be getting pretty close to as far as it can rise at $45" oil prices, he added, since larger operators are insistent about not wanting to grow output at current price levels.

Oklahoma Governor Wants You to Pray for the Oil Industry (No Joke) - This is not us trying to be The Onion . Oklahoma Gov. Mary Fallin has officially proclaimed Oct. 13 "Oilfield Prayer Day" to raise awareness for the state's declining oil industry . Here's her official signed proclamation . The document states: "Whereas Oklahoma is blessed with an abundance of oil and natural gas; and ... Christians acknowledge such natural resources are created by God ... Christians are invited to thank God for the blessings created by the oil and natural gas industry and to seek His wisdom and ask for protection."  A series of "Praying for the Patch" breakfasts will take place in other cities before culminating at the sixth annual Oilfield Prayer Breakfast on Oct. 13 in downtown Oklahoma City, an event that Fallin has made preliminary plans to attend .

US Justice Department subpoenas Chesapeake over acquisition accounting - The US Department of Justice is investigating Chesapeake Energy's methodology for acquiring and classifying oil and gas properties, the Oklahoma City-based producer has said in a filing with the Securities and Exchange Commission. "We have received a DOJ subpoena seeking information on our accounting methodology for the acquisition and classification of oil and gas properties and related matters," Chesapeake said in the Thursday filing. A Chesapeake spokesman Friday declined comment beyond the filing, while a DOJ spokesman declined to discuss the subpoena. "As a matter of policy, the Justice Department generally neither confirms nor denies whether a matter is under investigation," spokesman Peter Carr said in an email.The DOJ subpoena marks the latest investigation into the company's financial affairs by federal and state agencies. In its SEC filing, Chesapeake notes that it has previously disclosed "subpoenas and demands for documents, information and testimony in connection with investigations into possible violations of federal and state antitrust laws," from the DOJ and "state governmental agencies and authorities" relating to its purchase and lease of oil and gas rights in various states. The company said it had "received DOJ, US Postal Service and state subpoenas seeking information on our royalty payment practices."

Murphy Energy Corp. Files for Chapter 11 - WSJ: Murphy Energy Corp., an oil and natural gas transporter with terminals in Texas and Oklahoma, filed for chapter 11 protection, with a plan to look for buyers. Lawyers who put Tulsa, Okla.-based Murphy Energy’s operations into bankruptcy proceedings on Tuesday said the company ran low on cash after completing its Port Hudson natural gas terminal in Louisiana. The chapter 11 filing makes Murphy the latest energy company to file for bankruptcy since fuel prices plummeted. Founded in 1993, Murphy Energy owns 10 truck-to-pipeline crude oil terminals in north Texas and Oklahoma that buy crude oil from producers and transport it to customers, according to documents filed with the U.S. Bankruptcy Court in Dallas. Its Louisiana operations include the Port Hudson terminal as well as Port Allen, which is under construction. Through an affiliate, the company also operates a fleet of more than 140 trucks and 200 crude or natural gas trailers. In court papers, the 210-worker company said it owes more than $75 million in debt, including roughly $57 million to lenders led by Bank of America BAC 0.68 % N.A. Murphy Energy officials said they had a purchase offer in late 2015 that would have paid all of its debts and pay out its owners, but the unidentified buyer backed out at the last minute. “Even in the weeks leading up to the bankruptcy, various parties continued to express interest in the [company’s] businesses at a level that would have produced meaningful, if not complete, recovery for creditors,” Chief Restructuring Officer Steven List said in court papers. The purchase offer’s sudden termination last year left the company with little time to negotiate extensions to forbearance agreements with Bank of America and other lenders, Mr. List said in court papers. It also owes about $7 million to Mabrey Bank, which it borrowed in 2014 to build the Port Hudson project.

Different Strokes By Different Folks - Investment In Unconventional Plays Rises Among Diversified U.S. E&Ps - A group of 15 diversified exploration and production companies we have been tracking collectively has slashed capital expenditures by 70% since 2014, but so far the cumulative effect of these spending cuts has been only a 5% decline in production. Now, several of these E&Ps––especially those targeting the Permian Basin and the SCOOP/STACK plays––are planning capex increases and/or expecting production gains. Today we discuss 2016 capital spending and production for a representative group of E&Ps whose operations are roughly balanced between oil and natural gas. RBN has been analyzing U.S. upstream capital spending and production trends for the past two years. In August, we reviewed the second quarter 2016 capex and production guidance for 46 of the top U.S. E&Ps (our “universe”, seeBeen Down So Long). We segregated these companies into three peer groups––Oil-Weighted E&Ps, Diversified E&Ps, and Gas-Weighted E&Ps––and showed that for the three groups as a whole, capital spending in 2016 was expected to be 50% lower than in 2015 after a 40% reduction from 2014 to 2015. We also noted that second quarter 2016 capex guidance for the 46 companies was only 2.5% lower than original 2016 estimates, indicating that the rate of capital spending cuts was slowing, and that second quarter 2016 production guidance was stronger than original 2016 estimates because of an increase in oil prices from the lows in early 2016. Next, we took a deep dive into the Oil-Weighted E&Ps (see You Go Your Way, I'll Go Mine). In that analysis, we noted that while capital spending for the group was expected to be down 51% in 2016, there was a new feeling of optimism driven by the reduction in drilling and completion costs and lease operating expenses and a slightly more bullish price outlook. This positive attitude resulted in a 20% increase in the U.S. rig count in late May 2016 and, in particular a 43% gain in the Permian. The Permian Basin-focused E&Ps were the most aggressive, cutting capex only 19% in 2016 compared to a roughly 50% decline for our entire universe of companies.

How A Former Reporter Is Helping Big Oil And Gas Frack The News - -- Oil and gas industry officials and regulators looking to influence media coverage of fracking, a controversial method for extracting natural gas, have received advice from someone who really knows how newsrooms work: a former Denver Post investigative reporter. Karen Crummy, the onetime reporter, moved on to a new role as spokeswoman for two pro-fracking groups in Colorado. This past May, when industry insiders gathered in a Denver Marriott ballroom for a meeting of the Interstate Oil and Gas Compact Commission, she offered suggestions on how to discredit her former colleagues: Dig into their pasts, call them out on social media and complain to their editors. An attendee provided a recording of the talk to The Huffington Post as well as a partial list of those at the meeting, which included state regulators and lawyers who work for the oil and gas industry. Crummy suggested that her listeners should comb the web for any evidence of potential “bias” that could be used to undermine a journalist’s reporting. “If you are really having a problem with a certain reporter or something, go do some oppo[sition] research on them,” she said. “Are they contributing to campaigns? Are they a member of, you know, a business group or environmental group?” A year and a half earlier, Crummy bragged, she had found something she felt was incriminating on a reporter’s Facebook page, which she printed it out and took to the Denver Post’s editor-in-chief. She wanted attendees to feel similarly empowered.

Just An Observation -- Some Great Whiting Wells Being Taken Off-Line -- October 3, 2016 --Tonight I was in the process of updating some production numbers for wells drilled back in 2010 and 2011. First I noticed one well, and then another, and before I knew it, I had several great Whiting wells that were on-line "every day" (with the usual trivial exceptions) through July, 2016, and then abruptly taken off-line in August, 2016 -- not one day on-line in August, not one barrel of oil produced in August, 2016. I was updating wells with good production numbers. I probably updated 30 wells, and the following popped up:

  • October 3, 2016: a great well taken off line in August, 2016:  18988, 1,835, Whiting/KOG, Two Shields Butte 14-21-33-15H, Heart Butte, Bakken, t12/10; cum 425K 7/16; taken off line 8/16; 
  • October 3, 2016: a great well taken off line in August, 2016:  18990, 1,054,WLL, Knife River State 21-16H, Sanish, Bakken, t9/10; cum 270K 7/16; taken off line 8/16;
  • October 3, 2016: a great well taken off line in August, 2016: 18724, 1,251, WLL, Foreman 11-4TFH, Sanish, Bakken, t6/10; cum 247K 7/16; taken off-line 8/16;
  • October 3, 2016: a great well taken off line in August, 2016: 18639, 2,309, WLL, Iverson 21-14H, Sanish, Bakken, t6/10; cum 419K 7/16; taken off-line 8/16; 
  • October 3, 2016: a great well taken off line in August, 2016: 18295, 1,260, Whiting/KOG, Moccasin Creek 16-3-11H, Moccasin Creek, 1 sec, t2/10; cum 435K 7/16; taken off-line all of 8/16;

Just an observation. I will follow up on them in a few months.

Look At These Fracks; High-Proppant Fracks -- October 7, 2016 --Coming off today's confidential list, look at the amount of proppant Oasis used in this 36-stage frack:

  • 31121, 1,374, Oasis, Hysted 5200 12-30 10B, Camp, 36 stages, 20 million lbs, t4/16; cum 67K 8/16;

And then look at the number of stages EOG used in this frack:

  • 32320, 583, EOG, EN-Freda-154-94-2635H-8, Alkali Creek, 50 stages, 3.5 million lbs, t9/16;cum 4K over first 5 days;

The number of frack stages has increased several-fold over the past couple of years, and the "standard" frack in the Bakken now seems to be between 24 and 36 stages, but there is more talk of more 50-stage fracks (Filloon has several articles on this; see "Filloon" tag at bottom of blog.)
When the boom began, most fracks were well below one million lbs proppant total (sand, ceramic, or some combination) but began to increase over time. BEXP (now Statoil) seemed to jump to much larger amounts of proppant early in the game, routinely going to 4 million pounds to frack a single well.
Then EOG pushed the envelope with testing new fracks using between 10 million and 20 million lbs of sand. And remember: EOG wells were generally one mile long (short laterals, one section) vs the more common two-mile laterals (long laterals, two section horizontals) being drilled by most other operators.
I think this is the first time I've seen Oasis using this much proppant. I check very few file reports so I assume there are several other examples.

Report shows Bakken production increases for July recently reported Bakken oil production was up 3,046 barrels per day in July, despite an overall down trend. The report shows a preliminary total of 13,255 producing wells and a current (September) rig count of 33. This compares to an all-time high of 218 in May 2012. The rig count continues to slowly increase. Oilprice noted that over 98 percent of drilling now targets the Bakken and Three Forks formations, with little activity in other areas of North Dakota. The price of WTI benchmark crude oil today sits at $48.94, inching back up towards that magic $50 mark when some companies say they can begin to increase drilling. Low prices, as we know, have forced producers to cut back. The low price environment can be attributed to a number of factors, including lifting Iran sanctions, a weak Chinese economy, Brexit and production both domestically and by OPEC producers. United States production has nearly doubled in the last few years, and OPEC producers have been slow to cut production, too, leaving the market flooded with oil. OPEC came to a tentative agreement to slowly cut back on production later in the year, although the terms of the agreement are somewhat vague.

The Next Story To Come Out Of The Bakken -- DUCs Won't Be Completed -- October 6, 2016 Wells coming off confidential list Friday:  31121, see below, Oasis, Hysted 5200 12-30 10B, Camp, producing,  32320, conf, EOG, EN-Freda-154-94-2635H-8, Alkali Creek, producing,  Four new permits: Operator: XTO  Field: Lost Bridge (Dunn)   Comments: permits for a 4-well pad in SESE 5-148-96; unless I'm reading this wrong, the four wells will be in almost exactly the same location as the five wells permitted yesterday by XTO;  these will be Deep Creek Federal 44 wells;  No DUCs reported as completed; I don't see how the 900+ DUCs can be completed within two years; granted, they are not all coming due at the same time, or even the same year, but DUCs started appearing in 4Q14, and we are now in the 4Q16, and I just haven't seen that many DUCs completed; I don't track actually numbers (I tried, but just too difficult/time consuming) but there area days and days when no DUCs are repeated as being completed, and when DUCs do get reported, it is generally less than a handful (less than three or four); meanwhile, they keep drilling as fast as ever. It is interesting that both wells coming off confidential list tomorrow do seem that they will be completed, and not go to DUC status.

Caught On Tape: Militarized Police Turn Peaceful Native American Protest Into War Zone -- Following the activation of the North Dakota National Guard on September 8, peaceful Dakota Access Pipeline protests quickly became flooded with militarized law enforcement. Native American activists, or “water protectors,” have been standing in the way of the pipeline’s construction for months, successfully blocking it at the Sacred Stone campnear the Missouri River. When the situation initially took a turn for the worse earlier this month, journalists on the ground who were broadcasting live video complained Facebook was blocking their streams. Now, videos and images from Wednesday are emerging that show an overwhelmingly militarized response to the peaceful prayer and protest.   (video) Water Protectors Prayed at #DakotaAccessPipeline site Police arrived with Armored Vehicles & Assault Rifles   This is what it looks like when corporations' interests are at stake. #NoDAPLprotestors are being accosted by ND police, & "sprayed by air"  This is outrageous!! Police in #NoDAPL using loaded guns on Protectors. There are Elders and children there!  The protests are rooted in the Standing Rock Sioux tribe’s concerns that the Dakota Access Pipeline would pollute the area’s water supply and violate tribal treaties. Hundreds of Native American tribes have joined the blockade in solidarity. Landowners also joined the ongoing demonstrations after their land was seized through eminent domain to build the pipeline. The protests received mainstream news coverage after the Department of Justice ordered a halt to construction on land owned by the Army Corps of Engineers. However, construction continues outside that area, and protests are growing more frequent and direct.

North Dakota taps Wisconsin deputies for Dakota Access help (AP) — North Dakota officials say Wisconsin is lending law enforcement resources to authorities responding to the Dakota Access pipeline protests. Officials said Friday that Wisconsin will provide up to 40 sworn sheriffs’ deputies from Dane County and the surrounding area to support the Morton County Sheriff’s Office in North Dakota. Officers will assist for up to 21-day rotations. The deputies come through an interstate mutual aid compact. Morton County Sheriff Kyle Kirchmeier says the deputies will provide the manpower necessary to respond to multiple protest locations. Thousands of people have joined the Standing Rock Sioux Tribe encampment in what’s been called the largest gathering of Native American tribes in a century. Some of the protests have expanded to other construction sites along the pipeline route, which crosses through the Dakotas, Iowa and Illinois.

Judges ask tough questions in Dakota Access pipeline appeal (AP) — A federal appeals court panel had tough questions Wednesday for opponents of the $3.8 billion, four-state Dakota Access oil pipeline who are arguing to keep a temporary stop of construction in place for a small stretch in North Dakota. A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit already had stopped work for 20 miles on either side of the Missouri River at Lake Oahe while The Standing Rock Sioux Tribe appeals a lower-court ruling from September that let work on the entire pipeline go forward. Both the U.S. government and the pipeline’s backers oppose the tribe’s request for a continuation of the work stoppage; the pipeline is otherwise nearly complete. However, government agencies said last month they won’t allow construction on government land bordering or under Lake Oahe until they re-evaluates their own decision-making surrounding the pipeline, which is expected to take weeks. The tribe says the pipeline impacts sites of historic, religious and cultural significance and threatens the water supply for its reservation and millions of people downstream. Its fight has spurred scores of people to join a protest encampment in southern North Dakota that’s on government land, which has been called the largest gathering of Native American tribes in a century. Protesters have said they won’t leave until the pipeline is defeated and plan to stay into the winter. The panel had a range of questions Wednesday for government, pipeline and tribal lawyers. Judge Cornelia T.L. Pillard wanted clearer answers about the required consultation the government did with the tribe as well as the boundaries of where the tribe wants work stopped. “If we’re going to issue an injunction we need to say where it stops,” said Pillard, who told the tribe’s lawyer she was “flummoxed” trying to understand his argument.Judge Thomas B. Griffith questioned why the pipeline company wouldn’t halt work near the lake before seeing whether they get the government’s permission to continue construction on government land bordering and under the lake.

Major work planned on leaky Wyoming gas pipeline  (AP) — A pipeline company plans to replace sections of a Wyoming natural gas pipeline that has had two leaks since August. The 16-inch-wide pipeline sprung a major leak 14 miles north of Douglas on Sept. 6. Authorities closed Wyoming Highway 59 for more than two hours while workers shut off the flow. The leaking gas didn’t ignite. DCP Midstream spokeswoman Rosslyn Elliott says the pipeline was carrying 40 million cubic feet of gas a day to a gas-processing plant near Douglas. Elliott says an inspection in late August revealed a pinhole leak in the same pipeline but about 40 miles north of the leak in September. She says the company is still investigating the leaks and has been planning to replace sections along a 60-mile stretch of the pipeline.

Shell halts proposed oil-by-rail project at its Anacortes refinery | The Spokesman-Review: – Shell Puget Sound Refinery has terminated plans for a proposed oil-by-rail project at its refinery near Anacortes. Under the plan, trains would have brought crude oil from the Bakken fields of North Dakota to replace some of the supply Shell currently gets from Alaska’s North Slope. Refinery general manager Shirley Yap told the Skagit Valley Herald on Thursday that recent low oil prices and abundant production elsewhere have slowed Midwest production, making it less of a good investment. State and local officials had been in the midst of a full environmental review of the project. Yap said she was confident the facility could have been built following their guidelines. Kristen Boyles, an attorney at Earthjustice who represented conservation groups in their legal challenge of the project, called the decision an extraordinary victory for the people of Skagit County and Washington state.

Cancer-Causing Chemicals Found in Oilfields Supplying Wastewater to Irrigate Food Crops -- People in California's Central Valley could be drinking water tainted by cancer-causing chemicals used in oilfields, and current water-testing procedures would not detect these substances, according to a scientific report released Tuesday by researchers at PSE Healthy Energy, Lawrence Berkeley National Laboratory, the University of California and the University of the Pacific. The report identified dozens of hazardous chemicals used in oilfields that supply waste fluid used to irrigate food crops and recharge underground water supplies in California. Researchers note that produced fluid from these oilfields is recharging regional aquifers used for agriculture that "can also be used for domestic water supply (including drinking water)." "Many of the chemicals used on oil fields do not have standard analytical protocols for their detection in water, so current water quality monitoring programs are mainly focused on naturally occurring contaminants," the report noted. "Given these shocking findings, California regulators should immediately halt the use of oil-waste fluid in any procedure that could contaminate the water we drink or the food we eat," said John Fleming, a staff scientist with the Center for Biological Diversity and member of the Protect California Food coalition and Californians Against Fracking. "It's absolutely unacceptable that people in the Central Valley could be drinking dangerous oil-industry chemicals right now without even knowing it."Oilfield wastewater has been used to irrigate food crops in the Cawelo Water District since the mid-1990s, the report noted. The practice recently spread to the North Kern Water Storage District, and state officials have said they hope to further expand it. But there has been little evaluation of risks posed by the threat of chemicals in such fluid.  Researchers noted that many chemicals used in these oilfields cannot be evaluated for hazards because oil companies have withheld key information. But more than 40 percent of those substances that can be identified can be classified as potential threats to human health or the environment.

Report: Fracking took 5.3 million gallons of water per well last year - Hydraulic fracturing is a water-intensive business: Bursting open just one shale gas well can require pumping millions of gallons of water underground. Yet much of the United States' fracking activity takes place in areas that are suffering from high or extremely high water stress, according to Ceres, an advocacy group for sustainable investment.About 57 percent of the nearly 110,000 wells that were hydraulically fractured in the last five years are in these highly stressed regions, including basins in Texas, Colorado, Oklahoma and California, Ceres found in an interactive map and report published Thursday. Companies used 358 billion gallons of water from Jan. 1, 2011, to Jan. 31, 2016, to frack shale oil and gas wells — an amount equal to the annual water needs of 200 mid-sized cities, the report said.As prolonged droughts and population growth continue to strain U.S. water supplies, oil and gas companies could soon find themselves competing with local communities, farmers and other water-guzzling industries. "This remains a very high-risk area for investors [in energy companies]," Monika Freyman, the report's author and director of Ceres' water program, told Mashable. Oil and gas companies aren't just operating in water-stressed areas. They're also using substantially more water in fracking operations. The average water use in each fracked well more than doubled in recent years, from 2.6 million gallons per well in 2011 to 5.3 million gallons per well in 2015, according to Thursday's report. The research is based on national shale well data from, via the consulting firm IHS, and water-stress data provided by the World Resources Institute's Aqueduct Water Risk Atlas. Freyman said it was not entirely clear why the water-per-well rate was rising, but she said it could be because companies are drilling longer horizontal wells to tap oil and gas deposits in shale formations, and thus need more water to travel longer distances.

DUC, DUC, Produce - The New EIA DUC Estimates and U.S. Oil & Gas Production, Part 2 -- The inventory of drilled-and-uncompleted wells (DUCs) in the U.S. Lower 48 grew by nearly 1,900 between the months just before oil prices and rig counts collapsed and early 2016—a 50% increase in a roughly two-year period, according to new DUCs data in the Energy Information Administration’s (EIA) September Drilling Productivity Report (DPR—See the DPR DUC report here.). Since January’s peak of nearly 5,600 DUCs, producers have been working down the national inventory of DUCs, with the DPR showing the overall count closer to 5,000 as of August (2016) ––but that is still up more than 1,300 from the December EIA’s 2013 baseline. This incremental growth in the number of “dormant” wells is key to understanding and predicting how long production can remain supported or grow in a low-rig count environment. Moreover, there are regional differences in the DUCs inventory counts and trends that provide critical insights on how various market factors are impacting drilling activity. Today, we walk through the EIA DUCs data for each of the producing regions. This is Part 2 of our “DUC, DUC, Produce” blog series. In Part 1, we defined DUCs, explained why DUCs are important, and discussed the various reasons they can accumulate, in addition to explaining the EIA’s methodology for measuring them.

Operators add DUCs as Service Companies Adapt Changes in capital budgets from 2014 to 2016 were staggering with an average decline of 57 percent across public E&P (exploration and production) companies. Seven E&Ps have CAPEX spending over $1 billion year-to-date with many spending below $1 billion, as of 2Q 2016 earnings releases. These changes caused a dramatic reduction in the scope of operations for many E&Ps, including:

  • Rig contracts terminated or expired
  • Frac crew contracts cancelled
  • Materials were bid, but not sold
  • Employees and contractor layoffs

With WTI remaining in the $40s, expect very few operators to increase budgets in 2017. Limited budgets will continue to restrict the drilling and completions activity for key shale operators. The Permian, Bakken, Mid-Con, DJ-Niobrara and Eagle Ford hold the majority of uncompleted wells. The uncompleted well count ramped up into 2014 and 2015 hitting almost 6,500 wells within five of the major oil plays alone.   From the perspective of the pressure pumper who is vying to complete the inventory of DUC wells, there will be impacts to pricing. As noted by the ND Industrial Commission (March 2016), there are about 20 frac crews in the state. Based on Energent Group data and conversations with Bakken operators, the active number of frac crews is likely around eight currently. The equipment in some cases is still available; however, the crews have been laid off. Trican, for example, sold the U.S. pressure pumping business to Keane. Sanjel, once a top pressure pumper in the Bakken, is now bankrupt and sold off their assets to Liberty Oilfield Services. Liberty, like other pressure pumpers, is advancing technology during this downturn to frac wells with reduced budgets and halted drilling programs. Liberty Oilfield Services, the top pressure pumper in the Bakken in 2016, introduced a new “Quiet Fleet” that reduces noise by three times compared to other frac fleets. With fewer frac crews available, pressure pumpers will likely continue to consolidate and find new ways to pump more stages in less time.

Signs Of Recovery Emerge In The U.S. Oil Market -- from the Dallas Fed - Signs of recovery have appeared in the U.S. energy sector over the past quarter, most notably in the Permian Basin, where drilling activity picked up modestly and oil production appears to have bottomed out. A significant rebound in U.S. drilling activity requires more time, however, as oversupply persists in the oil market and prices remain below $50 per barrel. The recent Organization of the Petroleum Exporting Countries (OPEC) announcement of its agreement to cut production increased uncertainty about when the global oil market will rebalance. Drilling Activity Resuscitated After experiencing a nearly 20 percent plunge in July, oil prices recovered in mid-August and hovered in the mid to upper $40s per barrel through September. West Texas Intermediate crude averaged about $46 per barrel in the third quarter, very close to the second-quarter average. Although volatile, prices have remained high enough to convince some companies to return to the oil patch. The number of rigs drilling for oil in the U.S. has increased by 95 since late June to 425 rigs at the end of September. Much of the increase has been in the Permian Basin, where the rig count has risen since the end of May, approaching where it began the year (Chart 1). In addition to more rigs operating in the area, a flurry of mergers and acquisitions during the summer suggests a nascent recovery. Increased activity in the Permian Basin and elsewhere has affected employment in the Texas mining sector, which rose slightly in August - its first increase since late 2014(Chart 2). While drilling activity has edged up, industry participants believe it will be awhile before activity significantly increases. When queried in the third quarter 2016 Dallas Fed Energy Survey, most respondents said prices need to exceed $55 per barrel for solid gains to occur, with a ramp-up unlikely until at least second quarter 2017.

US shale oil recovery underway - From Deutsche: As a response to a both (i) a stronger oil-price environment and just as importantly (ii) a more reliably stronger oil-price environment, we believe a steeper increase is likely in US onshore rig activity in 2017 than we previously assumed. While our previous assumption (+5 rigs per week) have proven too aggressive relative to the recent slow-down, a resumption of this rate of increase now appears likely at some point. In our revised base-case scenario, we assume that additions currently running at +10 per month double to +20 per month from December 2016 through June 2017 and then level out. We also assume that rig productivity growth slows almost to a plateau instead of rising along the current trajectory as the effect of high-grading reverses. The cumulative contribution of maintaining a larger number of active rigs over a longer period of time turns into a much larger effect in 2018 than 2017. The result is that while we would see only a 60 kb/d increase in 2017 average production (from US tight oil decline of -357 kb/d to -297 kb/d) we would expect a much more significant 459 kb/d increase in 2018 average production (from US tight oil growth of +200 kb/d to +659 kb/d). Capture After including our assumptions for other US production After adding growth in NGLs (+240 kb/d) and the Gulf of Mexico (+90 kb/d) this still leaves headline US liquids production roughly flat in 2017 (-30 kb/d), and up +750 kb/d in 2018. The summarized inputs and resulting production forecasts are seen in Figure 6 to Figure 9.

How Actual Nuts and Bolts Are Bringing Down Oil Prices -  Last spring, Statoil ASA announced it had used the same oil well design and components to drill three reservoirs for the price of one. While the specs for Norwegian Sea drilling might provoke reactions akin to the oil field’s name—the Snorre—such standardized pipes and casings could hold the key to a pervasive mystery about today’s energy market: Why is everyone still drilling when prices are in the basement? Even as oil producers have planned $1 trillion worth of spending reductions between 2015-to-2020—cutting staff, delaying projects, and squeezing contractors—they’ve continued to green-light new wells from the Norwegian Sea to Brazil, and from Uganda to the Gulf of Mexico. Those initiatives mean oil production will continue to grow, adding to the supply glut and putting downward pressure on prices. It’s a development that has both baffled and frustrated the world’s biggest producers of crude, who have been waiting for lower prices to force a rollback of global production. They have largely blamed the resilience of the world’s oil drilling on U.S. shale producers, as well as efforts to maintain market share, but the Snorre and other projects like it suggest there may be another–much more boring–culprit at fault. That's because oil majors' urgent mission to slash costs includes standardizing the components used in drilling for oil–a development that has helped turn unprofitable wells into moneymakers, protected bottom lines, and allowed companies to keep pumping even in the face of crude prices that have more than halved over the past three years.

Clinton's plan to reduce US oil consumption probably won't work: Hillary Clinton has vowed to slash U.S. oil consumption in the next decade as part of an overall plan to shift the country to clean, renewable energy, but experts say her goal is probably impossible. The target — to cut U.S. oil consumption by a third by 2027 — is an example of Clinton's hard line on fossil fuels during the Democratic primary and the general election. But some of her tough talk leaves her considerable wiggle room and contrasts with her record while serving as America's top diplomat. That record includes a program to promote natural gas development overseas through the use of hydraulic fracturing, a method of unlocking oil and gas from rock formations by pummeling them with water, minerals and chemicals. "Fracking" is widely opposed by environmentalists. CNBC asked experts to assess Clinton's energy proposals after carrying out a similar evaluation of Donald Trump's claims that he would boost economic growth by rolling back regulations and expanding drilling.   Clinton says she would extend standards for vehicle fuel efficiency, methane emissions, building codes and appliance standards that President Barack Obama implemented or supported, according to a campaign spokesperson. Clinton supports Obama initiatives like the Clean Power Plan and new Environmental Protection Agency regulations on oil and gas drilling, which have drawn the ire of the energy industry and legal challenges. She also backs raising the royalty rates for drilling on federal land and cutting tax breaks for oil and gas firms, and she opposes offshore fossil fuel development in the Arctic and Atlantic oceans.

Caelus claims offshore Arctic oil discovery that could rank among Alaska's biggest ever -Caelus Energy Alaska said Tuesday it has made a "world-class" oil discovery that, if estimates prove true, could be one of the largest finds ever in Alaska. The Smith Bay site, in shallow waters about 50 miles southeast of Barrow, could "provide 200,000 barrels per day of light, highly mobile oil," the company said in a press release Tuesday. If correct, that production level would make the field more prolific than ConocoPhillips' Alpine unit, which began production in 2000 and reached a production peak of 139,000 barrels in 2007. The statement from Caelus does not indicate analysis by a third-party engineering firm. The estimates are the company's internal numbers, a spokesperson said Tuesday morning. The statement also notes that flow-tests, a step in verifying a well's capabilities, were not conducted "due to seasonal time constraints." It said, however, "extensive sidewall coring and subsequent lab analyses confirm the presence of reservoir-quality sandstones containing light oil." If the project is developed, it could take five to 10 years before oil flows, with permitting requirements, limited work seasons and other challenges, he said.The company said its discovery comes after two wells were drilled early this year, and after it conducted 3-D seismic exploration across 126 square miles."Caelus estimates the oil in place under the current leasehold to be 6 billion barrels," the statement said. "Furthermore, the Smith Bay fan complex may contain upwards of 10 billion barrels of oil in place when the adjoining acreage is included."Light oil can flow like water or corn oil, and is easier to extract than viscous or heavy oil."Caelus expects to achieve recovery factors in the range of 30-40 percent," the statement said. "Additional drilling and seismic should improve estimates of oil in place via delineation of undrilled fan lobes and channel complexes imaged on the original 3D seismic."

Oil Explorer Claims Major Alaskan Find – WSJ --A little-known energy exploration company said on Tuesday that it has made a world-class oil discovery in remote Alaska, potentially breathing new life into the state’s declining North Slope. Caelus Energy LLC, a closely-held firm backed by private-equity fund Apollo Global Management APO -0.27 % LLC, said it made the oil find in the shallow waters of Smith Bay, about 300 miles north of the Arctic Circle. The company says it expects to be able to extract between 1.8 billion and 2.4 billion barrels from the discovery, probably using barges built along the Gulf Coast, then towed to Alaska and permanently sunk in the bay to create man-made drilling islands. If those initial estimates prove to be correct, the discovery would be substantial—larger than Exxon Mobil Corp’s 2015 discovery off the coast of Guyana in South America. “It is not going to be easy, but we’ve had projects like this around the world,” said Caelus Energy Chief Executive James Musselman. He previously led Kosmos Energy Ltd. and the former Triton Energy, exploration firms that made giant finds off the west African coast. Caelus said it planned to build an $800 million, 125-mile pipeline that will carry the oil underneath state-owned waters to connect with existing pipelines. That idea likely will generate strong support from a state grappling with plummeting oil revenue. If Alaska can’t find a way to reverse steep declines in its oil production, which are putting the Trans Alaska Pipeline in jeopardy of freezing up, it could face a near-total collapse of the oil industry and its entire economy. Adding new barrels from Smith Bay could extend the pipeline’s life.

Alaska Oil Known Reserves May Have Just Grown 80% on Discovery -- Alaska’s oil reserves may have just gotten 80 percent bigger after Dallas-based Caelus Energy LLC announced the discovery of 6 billion barrels under Arctic waters. The light-oil reserves were found in the company’s Smith Bay leases between Prudhoe Bay and Barrow along the Arctic shore, according to a statement from Caelus on Tuesday. As much as 40 percent of the find, or 2.4 billion barrels, is estimated as recoverable, the company said. That compares with the state’s proved reserves of 2.86 billion barrels in 2014, almost 8 percent of the U.S. total, Energy Department data show. Alaska’s oil output has been gradually declining, to 483,000 barrels a day last year from a peak of more than 2 million barrels a day in 1988, Energy Department data show. The last major field brought online was Alpine in 2000, which averaged 62,000 barrels a day in September, Alaska Department of Revenue data show. Musselman, the man who engineered the $3.2 billion sale of Triton Energy Ltd. to Hess Corp. in 2001, founded Caelus in 2011 to explore and develop petroleum resources on the North Slope. In 2014, the company formed a partnership with affiliates of Apollo Global Management LLC to invest in oil and gas properties in Alaska. The development will cost between $8 billion and $10 billion over the life of the project, which could be brought into operation by the fall of 2022, Musselman said. Located about 125 miles from any other facilities, the company will need to build pipelines and roads. An oil price of about $65 a barrel and greater certainty on state tax policy and incentives is needed to develop the field, he said. “A lot of the investment decision is going to revolve around what happens within the state from a regulatory standpoint,” he said.

New Mega Oil Discovery In Alaska Could Reverse 3 Decades Of Decline | A small company just announced that it has made a “world-class” oil discovery in Alaska, which could be the largest find in the state in years. Caelus Energy LLC, a small company backed by private equity, says that it has discovered oil on Alaska’s northern coast. The field could hold as much as 6 billion barrels of oil, with about 1.8 to 2.4 billion barrels considered to be recoverable. If that is the case, the discovery would instantly raise Alaska’s statewide recoverable oil reserve base by about 80 percent. But producing the oil will not be easy. Drilling must take place in the winter. To drill the field, the tentative plan would be to build manmade islands to drill through. Oil produced in the shallow water of Smith Bay will need to be moved somehow. Caelus will have to build an $800 million pipeline that travels 125 miles, connecting to an existing pipeline system in Prudhoe Bay. “It is not going to be easy, but we’ve had projects like this around the world,” Musselman told The Wall Street Journal. He formerly led Kosmos Energy when it recorded a massive oil discovery of the coast of Ghana about a decade ago. The one thing that Caelus has in its favor is strong support from the state of Alaska. Desperate to halt declining output and cratering state revenues, the Alaskan government has been frantically searching for ways to increase oil production. Output has been falling from Alaska’s aging North Slope, with production down below 500,000 barrels per day from a peak in the late 1980s at over 2 million barrels per day.

Oil Glut? Here Comes Some More! - The New York Times: — Global oil markets are flooded with cheap crude, and concerns about climate change are growing louder. The last thing the world seems to be craving is the discovery of new large oil and natural gas fields.But such fields have been found in the last month. And two of them are in the United States — one in Texas and the other off Alaska.The new finds, while still preliminary and in need of more testing, could further cement two realities of the energy business: oil prices could stay low for a long time, and oil companies will keep seeking to increase their reserves for future production.The discoveries have been hailed by the oil industry, even though companies have largely cut back on exploration over the last two years in an effort to reduce costs as oil prices fell from over $100 a barrel to roughly $50 a barrel. Along with that enthusiasm is the view that prices will recover by the end of the decade.Ad Yet that view contradicts the opinions of many environmentalists and independent energy experts. They say that the world needs to keep most of the remaining hydrocarbons in the ground to meet the broad targets of the Paris climate conference last December, unless extraordinary technical breakthroughs are made to capture carbon emissions from fossil fuels. In addition, some of those experts say demand for oil will never fully recover because of the emergence of electric cars and conservation measures.Together, the discoveries are relatively modest compared with the new-field production earlier in the decade from shale fields opened up by hydraulic fracturing — the high-pressure mix of water, sand and chemicals that blasts hard oil-bearing rocks. But some analysts say they could well be precursors to more discoveries in West Texas and Arctic Alaska.

In Canada, oil sands cost cutting 'close to bone' as crude recovery stalls --Canadian oil-sands producers are running out of tricks to buoy their share prices as crude prices keep bumping up against a $50 ceiling. After two years of slashing costs to cope with plunging oil prices, shares began rebounding as the market appeared to hit a bottom earlier this year. Now, with the commodity recovery taking longer than expected -- even with this week's agreement by OPEC to limit supply -- and the pace of reductions slowing, a correction could be in store for oil-sands shares."We're getting close to the bone" with cost-cutting, said Martin Pelletier, a fund manager at TriVest Wealth Counsel in Calgary, in an interview. He pointed to a "huge gap" between companies' valuations and the price of oil. Without a solid recovery kicking in soon, companies are "going to go lower." It's a lot harder for oil-sands producers to cut costs than it is for their shale-rock drilling brethren. Shale producers can just stop drilling wells, idling rigs and dispensing with all the equipment and labor that goes along with them. Canadian oil-sands companies such as Suncor Energy Inc. and Cenovus Energy Inc., with the massive facilities required to mine and process tar-like bitumen, can't scale down so easily.Shale drillers also deploy new technology more regularly, boosting efficiency with each new well. Oil-sands developments take years to plan and build and cost billions of dollars. With the low commodity prices, new projects have been canceled or delayed, hampering companies' ability to introduce the latest, cost-saving equipment. That's left oil-sands producers to rely mainly on slashing operating costs such as labor, non-essential maintenance and spending on garbage trucks and road repairs, to cope with low oil prices in the near term, according to consulting firm Wood Mackenzie Ltd. In the future, new projects will take advantage of technology advances to help reduce capital costs, but that's an unlikely scenario for the next few years, Pelletier said.

Big Oil Abandons $2.5 Billion in U.S. Arctic Drilling Rights - After plunking down more than $2.5 billion for drilling rights in U.S. Arctic waters, Royal Dutch Shell Plc, ConocoPhillips and other companies have quietly relinquished claims they once hoped would net the next big oil discovery. The pullout comes as crude oil prices have plummeted to less than half their June 2014 levels, forcing oil companies to cut spending. For Shell and ConocoPhillips, the decision to abandon Arctic acreage was formalized just before a May 1 due date to pay the U.S. government millions of dollars in rent to keep holdings in the Chukchi Sea north of Alaska. The U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, but energy companies have struggled to tap resources buried below icy waters at the top of the globe. Shell last year ended a nearly $8 billion, mishap-marred quest for Arctic crude after disappointing results from a test well in the Chukchi Sea. Shell decided the risk is not worth it for now, and other companies have likely come to the same conclusion, said Peter Kiernan, the lead energy analyst at The Economist Intelligence Unit. "Arctic exploration has been put back several years, given the low oil price environment, the significant cost involved in exploration and the environmental risks that it entails," he said.All told, companies have relinquished 2.2 million acres of drilling rights in the Chukchi Sea -- nearly 80 percent of the leases they bought from the U.S. government in a 2008 auction. Oil companies spent more than $2.6 billion snapping up 2.8 million acres in the Chukchi Sea during that sale, on top of previous purchases in the Beaufort Sea. Shell relinquished 274 Chukchi leases and others in the neighboring Beaufort Sea. In doing so, the company forfeits what it paid the U.S government for the rights to drill in those tracts -- and the millions of dollars it spent on annual rent since then.

Oil Leak Forces BP To Shut Platform In North Sea - BP has shut down its Clair platform in the North Sea after a still unknown quantity of oil leaked into the sea as a result of a “technical issue” on Sunday morning UK time. “The Clair platform, which is located 75km (46 miles) west of Shetland, has been shut down and the release has been stopped. All personnel have been accounted for and there are no injuries. We are investigating the cause of the technical issue and monitoring the situation. All relevant authorities have been informed,” the BBC quoted a BP spokesman as saying. Lang Banks, director of environmental charity at WWF Scotland, said that it’s important to know how much crude oil has leaked in the interest of protecting marine environment. “The total oil in water volume that was released has yet to be accurately assessed and work to determine this is ongoing,” BP has said and added: “At present, we believe the most appropriate response is to allow the oil to disperse naturally at sea, but contingencies for other action are being prepared.” According to Scotland’s Environment Secretary Roseanna Cunningham, as quoted by the BBC: “Marine Scotland have advised that allowing the oil to weather naturally is the least harmful option for this internationally important marine habitat.” Industry, government and BP officials, as well as and environmentalists, will be keeping a close eye to the oil spill off Shetland, given the notoriety BP has gained with the Deepwater Horizon disaster in 2010.

BP Platform Leaks Oil Into North Sea With No Plans to Clean It Up -- About 95 metric tons of oil leaked into the North Sea on Sunday from BP 's Clair platform, and it will be left in the ocean. BP says the oil is moving away from land and dispersing naturally, but the spill is a reminder that accidents happen as more oil development is eyed for the Arctic. In what BP called a "technical issue," oil was released into the North Sea, located about 46 miles, west of the Shetland Islands. BP shut down the oil rig and said it is investigating the accident.  The oil company said it had conducted five aerial surveys with three more planned for Tuesday to monitor the oil slick.  "It is considered that the most appropriate response remains to allow the oil to disperse naturally at sea, but contingencies for other action have been prepared and are available, if required," BP said.  From 2000 to 2011, there were 4,123 separate oil spills in the North Sea, according to an investigation by The Guardian. Oil companies were fined for just seven of them. No single fine was greater than about $25,000.  There have been a number of major oil spills in the North Sea—the largest of which was the 1977 Bravo blowout that released an estimated 80,000 to 126,000 barrels of oil. The well spewed oil for seven days. In 2011, Shell spilled more than 200 metric tons from the Gannet Alpha platform, and a 2007 mishap while a tanker was loading oil resulted in a spill of 4,000 metric tons, or about 25,000 barrels of oil. None of these spills were alleged to have any ecological impact, and all but the Bravo blowout were allowed to disperse, unchecked, by the sea. As the Arctic Ocean warms , oil giants are eyeing the northern seas for more oil exploration and development. It is a dangerous environment in which to drill. As Greenpeace stated, "The long history of oil spills around the world has made one thing clear: the only way to prevent an oil spill is to keep oil in the ground."

UK Shocks All, Allows Fracking For The First Time In 5 Years - In a landmark decision, the UK Department of Communities and Local Government upheld on Thursday an appeal by gas exploration company Cuadrilla Resources, allowing it to plan for exploratory horizontal fracking at a site in Lancashire in northwestern England. Cuadrilla had said in July of last year that it would appeal the Lancashire County Council’s decision to refuse it planning permission to drill, hydraulically fracture, and test the flow of gas from up to four exploration wells on each of two sites, Preston New Road and Roseacre Wood. On Thursday, the department overturned the Lancashire County Council decision to refuse Cuadrilla applications for planning permission to frack at the Preston New Road site. The department also deferred a decision on the Roseacre Wood site to give more time to the company to provide further analyses and to allow other parties to express their opinion. “It is clear that the government supports the development of a shale gas industry, but I would ask them to do more to address the concerns of local communities and the councilors who represent them by supporting the best environmental controls,” County Councilor Marcus Johnstone, Lancashire County Council cabinet member for environment, planning and cultural services, said in a statement. Local community organizations said they were ‘disgusted’ at the decision, according to a statement by Residents Action on Fylde Fracking.

It's not just environmentalists who think fracking is wrong: Just hours after a speech in which Theresa May expounded the values of “good” government and “ordinary working-class” voters, her government has jumped straight back into the pockets of big business. This morning, the communities secretary Sajid Javid announced that the shale company Cuadrilla had won its appeal to frack for gas at Preston New Road – overturning an earlier ruling by Lancashire county council. Howls of hypocrisy have risen from opposition parties, who accuse the government of being democratic only when it suits. “Today’s decision shows the yawning gap between the Government’s rhetoric and the reality of their policies”, said Green MP and co-leader Caroline Lucas. So, is this a brave rejection of Nimbyism by the government, in favour of providing cheaper, cleaner energy to the masses? Or is May stumbling down an expensive and dirty path that could leave the wider public – and perhaps even her own government - out in the cold? Cuadrilla’s planning application was rejected by the council back in June, on the grounds of noise and visual impact. Complaints of local disruption echo many of the concerns raised about windfarms. But in the case of fracking, local communities have been backed up by the wider environmental movement. Just this week, the Paris Agreement on Climate Change reached the requisite level of international support to enter into force. May’s promise to sign the UK up to its targets “by the end of the year” will entail levels of carbon emissions reduction that are currently incompatible with full-scale fracking. This will be especially true, according to the independent Committee on Climate Change, if we continue to import gas and fail to reduce the amount of methane currently released during the fracking process.

Venezuela makes new attempt to arrest oil production fall with new ventures - Oil | Platts News Article & Story: In a fresh attempt to contain a fall in oil production, Venezuela's state-owned PDVSA announced two alliances with Chinese and Bulgarian companies to reactivate 931 wells in Lake Maracaibo, with the objective of adding 50,600 b/d and 43 MMcf/d of natural gas to output in the short term. "China-based Shandong Kerui Group Holding Co. will repair 624 wells, with financing of $30 million provided by the Chinese company," PDVSA said Thursday. "Also, PDVSA and the Bulgarian-Venezuelan Consortium Aleco are discussing reactivating 307 wells in Lake Maracaibo, with financing of $100 million that would come from the Bulgarians," PDVSA added. In September, PDVSA President Eulogio Del Pino, who also is oil and mining minister, said the company will drill 480 wells in the Orinoco Belt in the next 30 months, with the participation of international companies such Schlumberger and Horizontal Well Drillers, as well as Venezuela's Y&V, Halliburton and Baker Hughes."The goal is to increase production by 250,000 b/d with an investment amounting to $3.2 billion," Del Pino said in September. On Monday during an interview broadcast by state television, Del Pino said that the 'well drilling and rehabilitation projects in Lake Maracaibo as well as in the Orinoco Belt are structured with a contract scheme so that financing is paid with future crude output." PDVSA's growing debts with its oil field service providers is paralyzing upstream development. Of the 373 wells drilled last year, 51% were contracted to international service companies, which have gradually been halting work due to non-payment.

Russian pipeline gas exports back above 10 Bcm in September -  Combined natural gas exports from Russia via the Nord Stream, Yamal, and Brotherhood pipelines rose back above the 10 Bcm mark last month, climbing to a six-month high, data from Platts Analytics' Eclipse Energy showed. Total pipeline gas exports through Nord Stream, Yamal, and Brotherhood rose 13% month on month and 7% year on year to 10.108 Bcm in September, the highest monthly flows seen since March and the fifth-highest total recorded for a calendar month. Flows breached the 350 million cu m/d mark on several occasions last month, with gas throughput via the Brotherhood pipeline -- transiting Russian gas to Slovakia via Ukraine -- rising to their highest in over two years early last month due to Nord Stream maintenance. Brotherhood flows in September were steady month on month at 4.260 Bcm, but were well up on September 2015 levels of 3.498 Bcm.Flows via the Nord Stream pipeline -- transiting Russian gas direct to Germany via the Baltic Sea -- rose to 3.368 Bcm last month, higher than the 2.488 Bcm seen during August due to a lighter maintenance schedule in September compared to the previous month. Flows via the Yamal pipeline -- transiting Russian gas to Germany via Poland and Belarus -- were again steady at 2.480 Bcm in September, with the pipeline typically used at the full 84 million cu m/d full capacity. Total Russian flows via these pipelines for the first nine months of the year stood at 85.603 Bcm, 13% higher when compared to the January-September, 2015, period and over 12 Bcm up on the same time in 2014. Moreover, after Norwegian pipeline gas exports fell to their lowest in over five years in September, Russian gas supplies stand nearly 9 Bcm higher than Norwegian gas supplies during the first nine months of 2016.

LNG exports from Australia's Gladstone port to rise 30% on year in fiscal 2017: GPC -  Exports of LNG from Gladstone port in the Australian state of Queensland are expected to rise by 30% year on year in fiscal 2016-17 (July-June) to 15.80 million mt, the Gladstone Ports Corporation said on Tuesday. The port -- which is home to the Santos-led Gladstone LNG, the Origin and ConocoPhillips Australia Pacific LNG joint venture, and BG Group's Queensland Curtis LNG -- saw LNG exports of 12.20 million mt in fiscal 2015-16, up from 1.60 million mt the year prior, GPC said.The 12.20 million mt of LNG exported from Gladstone in fiscal 2016 was made up of 7.97 million mt from QCLNG, 1.77 million mt from APLNG, and 2.41 million mt from GLNG, GPC said. The lion's share of LNG exported from the Port of Gladstone has been sent to China. From January to August, 4.65 million mt of LNG was sent to China from Gladstone, with South Korea and Japan the second and third largest recipients of the fuel with 1.84 million mt and 1.33 million mt during the period, respectively, data collected from GPC showed. India, Malaysia, Singapore, Kuwait, Argentina, Egypt, Jordan, Mexico, Pakistan and the UAE, have also been sent LNG from Gladstone, according to the data. QCLNG began exporting in January 2015, and GLNG and APLNG commenced exports in September 2015 and January 2016, respectively. "The LNG trade is forecast to grow significantly in 2016-17 with all LNG proponents ramping up their exports as additional trains come on line," GPC said.

Indonesia's refinery buildup to hit Asia's oil product exporters --  Backed by top oil producers Saudi Arabia and Russia, Indonesia’s refining sector development has finally picked up pace and this does not bode well for Asia’s oil product exporters. Indonesia is the region’s largest gasoline and gasoil importer. The country has been notorious for planning a spate of refining projects over the last two decades with no result. Indonesia last built a new refinery in 1994. But momentum has picked up since late 2015 when President Joko Widodo signed a decree declaring the upgrade and expansion of the refining industry a top national priority. The decree ensures refining projects enjoy benefits such as preferential tax rates and easy access to land. The decree has given Indonesia’s state-owned energy company Pertamina the ammunition it needs to go all out and get partners for refining projects. Pertamina and Saudi Aramco in May this year awarded the engineering and project management services contract for the upgrade of the Cilacap refinery, Indonesia’s largest. The Cilacap upgrade will hike its total nameplate processing capacity to 370,000 b/d from 348,000 b/d by late 2022. The two companies are also in talks to upgrade and expand the 170,000 b/d Dumai refinery and 125,000 b/d Balongan refinery but details are still to be finalized. Pertamina is, meanwhile, pursuing a revamp and expansion of the 260,000 b/d Balikpapan refinery and plans to boost its capacity by 100,000 b/d by late 2019. The state-owned company has also joined hands with Russian state oil giant Rosneft to build a 300,000 b/d greenfield refinery in Tuban, East Java. This refinery is expected to be ready by end-2021.

How Hillary Clinton’s state department fought for Ghana’s oil -- During her campaign for president in 2008, Hillary Clinton bashed Big Oil and its hefty profits. But in her new position as America’s top diplomat, she found herself in a very different role: defender of those same US oil companies abroad. Thanks to messages released during the investigation of Clinton’s work email, as well as diplomatic cables published by WikiLeaks, BuzzFeed News has learned how her State Department advocated behind the scenes on behalf of Kosmos and other US oil firms in Ghana. This sort of maneuvering in West Africa and elsewhere followed the lead of previous administrations, and shows an overlooked side of American diplomacy: pushing for US commercial interests in the developing world.  By 2010, for example, Clinton’s State Department was encouraging the governments of Bulgaria, Poland, Romania, and Ukraine to open their doors to US energy giants like Chevron and ExxonMobil to chip away at the long-standing influence of Russia in Eastern Europe. And in Ghana, the arrival of US oil companies in the last decade undercut the growing economic clout of China.  “Helping American businesses interact with foreign governments and advocating for the American economy is an important responsibility of the State Department,” Josh Schwerin, Clinton campaign spokesperson, told BuzzFeed News.  Now on the campaign trail again, Clinton does not tout this work on behalf of US oil companies. Instead, she talks about her role in negotiating the Paris climate agreement, and has called for the US Department of Justice to open an investigation into ExxonMobil for misleading investors about climate change. And she wants the US to reduce oil consumption by one-third.  But executives from ExxonMobil and the Blackstone Group, a Wall Street private-equity firm that backed Kosmos Energy and stood to profit from the sale, have bundled donations and hosted fundraisers for her campaign in 2016.

For OPEC, a Production Cut Aims to Head off Further Price Cuts - OPEC has finally reached a tentative deal to cut crude oil production, but it does not mean much yet. OPEC members settled on the outline of an agreement Sept. 28 on the sidelines of the International Energy Forum in Algiers. Terms include cutting crude oil production from roughly 33.24 million barrels per day to between 32.5 million and 33 million bpd. The cut is marginal, but if enacted, it would be the first for the group since the height of the global financial crisis in 2008. It would also mark the cartel's first coordinated response since oil prices began tumbling in June 2014 from their peak of more than $110 per barrel, bottoming out just above $25 per barrel in January 2016. Negotiations over how to enact the production cut lie ahead, leaving a chance that the deal could fall apart between now and the next OPEC summit Nov. 30 in Vienna, where the group hopes to finalize the agreement. For the deal to go through, OPEC members must agree on answers to many of the questions that have scuttled previous coordinated responses. Those include who will shoulder the brunt of the cuts, how to handle rising production from Iran and how to navigate political spats among oil producers. The deal does not necessarily represent a concerted effort by OPEC to push up crude oil prices — the Gulf Cooperation Council (GCC) countries, OPEC's heart, have not fundamentally changed their position to let the markets solve the oversupply problems. Instead, the group is reacting to market conditions that point to even more oil production coming online in a short amount of time despite oil prices' remaining below $50 per barrel. So while OPEC may have finally come to an agreement on policy, that policy might ultimately not even matter.

Is The Oil Price War Finally Over?-- Let’s just hope it sticks. You see, chaps, the devil’s in the detail and the detail isn’t going to be agreed on until November 30th. As The Guardian put it, “OPEC seems to have been taking lessons from EU summits. It has agreed that something needs to be done but has put off until another day the rather more difficult task of getting its fractious membership to decide what they should be.” But until it’s un-done, it’s done and the markets are a much happier place to be. Oil prices settled up nearly 6 percent when the announcement was made. The infectious good spirit was enjoyed in Wall Street too where its index of U.S. energy stocks rose 4 percent – the best one-day gain since the start of the year. Brent crude rose 5.9 percent per barrel and WTI leapt about the same to $47.05 following the two-day meeting. It’s an important deal as the Telegraph says, particularly for the energy companies left reeling after prices collapsed from a June 2014 high of $115 per barrel to $27.88 in January. The agreement in principle is that output would be limited to between 32.5m bpd and 33 million bpd. Current output is 33.24 million bpd. “This is the end of the production war – OPEC claims victory!” cheered Phil Flynn, an analyst at Price Futures Group in Chicago. He told Reuters, “The cartel proved that it still matters, even in the age of shale.”It’s more likely, however, a reluctant acknowledgement of a very simple truth – Saudi Arabia’s oil policy isn’t working. The Wall Street Journal says people ‘familiar with this matter’ (sounds deliciously creepy doesn’t it?) reported that the Kingdom’s energy minster Khalid al-Falih’s attention was drawn to an OPEC prediction that a global glut was likely to remain throughout 2017. Faced with the consequences of its policy to date – introducing unpopular domestic austerity measures and a decision by the U.S. Senate to allow 9/11 victims to sue the Kingdom for its potential involvement which saw Saudi’s currency plunge to its lowest level in four months – perhaps it decided to lick its wounds and live to fight another day.

Smoke And Mirrors: What Did OPEC Really Agree On? --Oil prices shot up more than 6 percent this week on the news that OPEC reached a deal to cut oil production, but by Friday the rally seemed to be already running out of steam as the markets grew skeptical of the group’s ability to implement the deal.  Previously, I noted how there were reasonsto question how serious the production cut actually might be. This was due to the difficulty in actually agreeing on the details of the reduction, rising oil production within OPEC that could offset the cut, and the small size of the planned cut itself (200,000 to 700,000 barrels per day).But in the days that followed Wednesday’s deal, a few more wrinkles emerged that could complicate OPEC’s chances of having a meaningful impact on the global oil supply surplus. First, even as the ink was drying on OPEC’s announcement, Iraq’s oil minister disputed the data used to calculate his country’s total oil production. In OPEC’s monthly reports, the group lists production totals using both direct and secondary sources. The discrepancy matters because if Iraq’s production is actually higher than OPEC says it is, then Iraq should be allowed to produce more under any hypothetical allotment apportioned to it after November’s meeting.  Indeed, Russia remains a big question mark as well. Heading into the Algiers meeting, it was thought that Russia would participate in an OPEC/non-OPEC freeze. Positive comments from top Russian officials suggested that they would go along with market intervention, if only because freezing Russian oil production at record levels would not involve much sacrifice.But Russia, the world’s largest oil producer (though not an OPEC member), was not part of the closed-door negotiations in Algeria. And Russia’s Energy Minister Alexander Novak said that there were no plans to change output, which currently exceeds 11 million barrels per day, the highest volume in the world and a post-Soviet high. When asked about OPEC’s announced deal, Russia’s Finance Minister said that his ministry was maintaining its assumptions that oil prices would average $40 per barrel over the next three years. “You think it’s stabilized?” Russian Finance Minister Anton Siluanov said to reporters, referring to the oil markets. “We need to see how realistically the decisions will be implemented.” That all sounds like Russia is not all that interested in coordinated with OPEC. With so many crucial oil producers not asked to actually cut production, the question remains how significant the OPEC cuts can possibly be? Given the fact that Iran, Nigeria and Libya are already exempt from any cuts, and Iraq is angling for a higher allotment ahead November’s meeting, the efficacy of any deal will have to come down to what Saudi Arabia alone is willing to cut.  If a deal is actually agreed to in November, it will be because Saudi Arabia has chosen to do the heavy lifting all by itself.

OilPrice Intelligence Report: Can Oil Hold Onto OPEC Deal Gains? - There are plenty of reasons OPEC won’t reach a deal. The group did not allocated production limits to each of its members, so it is still unclear who will be cutting. Also, some of the members could cheat, even if they do seal the deal in Vienna in November. Moreover, if the cap is placed at the high end of the range – 33.0 mb/d – it would amount to a very unimpressive cut of just 200,000 barrels per day. On top of that, Nigeria, Iran, and Libya are exempt from the limits. They are allowed to produce at “maximum” levels, and combined they are hoping to bring back 1.5 mb/d. The psychological effect on the oil market has been enormous, with oil prices up big on the week. But with oil traders starting to question the viability and the significance of the deal, the rally came to a temporary halt on Friday.   Another unexpected sticking point could be Iraq, which is no longer exempt from OPEC limits after years of special treatment as it recovered from war. Iraq’s oil minister questioned the data that OPEC was using – the minister argued that Iraq was producing much more than OPEC was giving it credit for. The discrepancy would potentially limit Iraq’s production more than it should, Iraqi officials say. The conflict poses another stumbling block for the November meeting. The OPEC production cut only came because Saudi officials did an about-face, a 180-degree turn from its position over the past two years of letting the market sort out the surplus. The Wall Street Journal reports that Saudi officials, including energy minister Khalid al-Falih, grew concerned about the economic toll on the kingdom from persistently low oil prices. The minister reportedly became alarmed from the latest forecast for oil prices remaining low through 2017, and the revelation was enough to lead the Saudis to reverse course. “I’m not convinced they have changed from the market-share policy but I have to think they have erased the ‘We don’t care if it goes to 20 $/bbl’ policy,” Olivier Jakob of Petromatrix told the WSJ. “They seem less idealistic, a little more realistic.” The surge in oil prices will be welcome by producers, but not by refiners. The BI North America Refining & Marketing index, an index of refiners, dropped by 4.6 percent on Thursday. Higher oil prices is bad news for refiners, which need to purchase crude in order to process it into refined products. Gasoline inventories are still high, and margins are low, Moody’s said, a problem that could persist for some time.

Analysis: Higher US crude stocks could hold rallying prices at bay -- The oil complex faces a wave of hurdles that will likely keep prices in check this week, even after last week’s decision by OPEC members to cap production, a Platts analysis showed Monday. Prompt NYMEX WTI jumped around $3/b last Wednesday in the wake of the OPEC deal, and even though the rally was short-lived, prices have largely held up since, trading around $48.58/b early Monday afternoon. But run cuts at many US refineries in addition to strong imports likely kept US crude stocks well-supplied last week, and gasoline stocks are expected to rise as well, despite issues plaguing multiple US Gulf Coast fluid catalytic crackers. These fundamentals — if borne out by US Energy Information Administration data set to be released Wednesday — should help keep exuberant traders at bay. Analysts surveyed Monday by Platts expect US crude stocks to have risen 2 million barrels last week, in line with the five-year average of EIA data. Gasoline stocks are expected to have risen 500,000 barrels, while distillate stocks are likely to have fallen 1.7 million barrels. Imports will likely play a big role, with weekly figures besting year-ago levels by more than 700,000 b/d over the past six weeks. Last week the US imported 7.84 million b/d. While down from a massive 8.31 million b/d the week prior, it is up from just 7.55 million b/d for the same week a year ago. Refining margins can also been seen as favoring imports, particularly on the US Atlantic Coast.

Despite OPEC Cut, U.S. Oil May Not Top $50 Ceiling Until Next Year  -  IBD --  Oil prices are likely to remain volatile for the rest of the year, but some analysts believe U.S. crude will finally rise above $50 per barrel in 2017. Since the spring, West Texas Intermediate has topped the $50 mark repeatedly only to drop back below that level soon after. The price surged last week after the Organization of the Petroleum Exporting Countries agreed to curb production, raising hopes for a more sustained price rally. Despite some doubts about whether the OPEC deal will hold, oil prices crept higher Monday, with WTI settling up 1.2% to $48.81, the highest in three months, and Brent up 1.4% to $50.89. Brian Youngberg, an energy analyst at Edward Jones, said via email that his company expects to see oil prices staying in the mid-to-high 40s before rising above the $50 ceiling next year. But he doesn't see shale companies increasing spending until oil is solidly in the mid-50s, and even then the ramp-up will be modest as firms remain conservative.

Oil Holds Gains After OPEC Deal | Oil prices rose to a three-month high as the markets took a more optimistic view of the OPEC deal announced last week. Hedge funds and money managers made highly bullish bets on oil in the lead up to the meeting in Algiers, and while the rally has slowed, oil prices are holding onto their gains. Brent closed above $50 per barrel for the first time in weeks.   Category 4 Hurricane Matthew is threatening small islands in the Caribbean, with Haiti expected to bear the brunt of the storm’s carnage. In addition to the pending humanitarian disaster in the region, the storm could also disrupt petroleum trade. The hurricane could shut in about 33 million barrels of oil in storage in the Bahamas, and could disrupt gasoline shipments along the Atlantic seaboard, potentially delaying cargoes into New York Harbor, for example. A few weeks ago, a major storm in the Gulf of Mexico interrupted shipments, leading to huge drawdowns in oil inventories in the weekly EIA data, which led to higher prices. Hurricane Matthew could also have unpredictable effects on short-term prices for crude and refined products. The Canadian government unveiled a plan to implement a carbon price beginning in 2018. The carbon tax plan from Prime Minister Justin Trudeau calls for a C$10 per tonne charge beginning in 2018, rising C$10 each year until it tops off at C$50 per tonne in 2022. The government in Alberta, home to the vast majority of Canada’s oil production, demanded that in exchange for its support, it demanded the federal approval of a major pipeline, which would help open up new markets for Canada’s oil sands.. After years of outages, Libya is finally poised to breathe new life into its oil sector. The war-torn North African country has succeeded in bringing some key oil ports back online, and production has jumped to 500,000 barrels per day (bpd), up from 260,000 bpd as recently as this August. The National Oil Company says that is just the beginning. It expects to see output rise to 600,000 bpd by the end of October, and is ultimately targeting 950,000 bpd by the end of the year. Libya is exempt from the recently announced OPEC production cut, and if it succeeds in ramping up production, it could potentially overwhelm the cartel’s planned cutbacks.

Interview: EIA's Sieminski calls US shale response key to OPEC freeze deal's sucess - Oil | Platts News Article & Story: The response of US shale production over the next two months may well impact how OPEC decides to finalize the tentative production freeze it announced last week in Algiers, the head of the US Energy Information Administration says. "Shale has dramatically changed the kind of strategy that OPEC was employing," Adam Sieminski told S&P Global Platts on Wednesday. "OPEC will be looking at our production statistics and if they saw US production beginning to recover, would make difference to what they were doing," Sieminski said an energy seminar at Japan's Institute of Energy Economics.Amid recovering oil prices, Sieminski said "there is still financing available in the US oil drilling activities and upstream investments." Sieminski's comments came after OPEC agreed on a blueprint for its first production cut in eight years at an extraordinary meeting in Algiers on September 28. OPEC ministers agreed to cut production to between 32.5 million b/d and 33 million b/d. The deal would mean a total cut of 200,000-700,000 b/d, when compared with OPEC's 33.2 million b/d August production, based on OPEC secondary sources. Final details of the freeze -- including individual country allocations and which production estimates are used to verify compliance--are to be decided by OPEC's next formal meeting, November 30 in Vienna. OPEC has also said it will seek support for the cut from non-OPEC producers.

OPEC targeting $55/b oil, to meet non-OPEC exporters in Istanbul: Algerian minister - Oil | Platts News Article & Story: OPEC is aiming for an oil price of $55/b, Algerian energy minister Noureddine Boutarfa said Thursday, adding that the producer group could set its output ceiling lower than the tentative deal reached last week, if needed. OPEC ministers agreed in Algiers last Wednesday to freeze their crude production between 32.5 million to 33 million b/d, which would be a cut of between 240,000 to 740,000 b/d from current production levels, according to OPEC estimates.He said OPEC would meet informally with key non-OPEC producers on the sidelines of the World Energy Congress in Istanbul next week. In particular, Russia has indicated it is keen to cooperate with OPEC on a production freeze. Russian energy minister Alexander Novak is scheduled to speak on a panel with Saudi energy minister Khalid al-Falih and OPEC Secretary General Mohammed Barkindo at the World Energy Congress. Boutarfa said that the Algiers meeting proved that OPEC is unified in its mission to stabilize oil markets. Final details of the plan, including individual country allocations, will be decided at OPEC's next formal meeting on November 30. "During the next meeting in Vienna at the end of November we will study the market," Boutarfa told local television station Ennahar. "If 700,000 barrels are not enough, it will be possible to raise the level of reduction." "The first goal of OPEC is a barrel at $55," he added.

WTI Spikes Above $49 After Shockingly Large Crude Inventory Drawdown --After four weeks of draws, expectations were for a 1.5mm inventory build this week but API reported yet another shockingly large draw of 7.6mm barrels. A surprisingly large build in Gasoline last week briefly confused traders but was confirmed by API with a 2mm barrel build (against exp of +500k). WTI crude spike back above $49 on the news... API:

  • Crude -7.6mm (+1.5mm exp)
  • Cushing +400k (+100k exp)
  • Gasoline +2mm (+500k exp)
  • Distillates -1.3mm

5 Weeks of Crude draws at a seasonally 'building' time of year...

Oil ends down, then jumps on chance of another U.S. crude draw | Reuters: Oil settled down on Tuesday after a surging dollar offset optimism over planned OPEC output cuts, before a report suggesting another weekly drop in U.S. crude stocks took prices up again post-settlement toward four-month highs. The American Petroleum Institute (API), a trade group, reported that domestic crude inventories likely fell for a fifth straight week, declining by 7.6 million barrels. [API/S] The U.S. government's Energy Information Administration (EIA) will report official stockpile numbers on Wednesday. Analysts polled by Reuters expect the EIA to report a stock build of 2.6 million barrels for the week ended Sept. 30. [EIA]. If the EIA reports another drawdown, "it means we can't take for granted that we're going to be seeing builds for this time of year, even though it's traditionally what we see", said Matt Smith, analyst at Clipperdata, a New York-based firm that tracks oil shipments into the United States. "Refinery runs are higher than they were this time last year and so, we are still seeing more crude being consumed on a relative basis," Smith added. Brent crude settled down 2 cents at $50.87 a barrel, after rising to $51.37 during the session, its highest since June 10. U.S. West Texas Intermediate (WTI) crude closed down 12 cents at $48.69, after hitting $49.13 earlier, a peak since July 5. The two benchmarks rose about 40 cents each on the API data, with Brent at $51.25 and WTI at $49.19 by 5:00 p.m. (2100 GMT)Oil has risen more than 10 percent over the past five sessions since the Organization of the Petroleum Exporting Countries revived expectations that it would limit output at its policy meeting in Vienna on Nov. 30.

Oil Climbs Near $50 After U.S. Stockpiles Decline for Fifth Week - Bloomberg: Oil climbed, approaching $50 a barrel in New York, after government data showed that U.S. crude stockpiles dropped last week. Inventories slipped 2.98 million barrels in the week ended Sept. 30, according to the Energy Information Administration. That contrasts with the 1.5 million barrel increase forecast by analysts surveyed by Bloomberg and a 7.6 million decrease reported Tuesday by the industry-funded American Petroleum Institute. Production and imports slipped for a second week as refineries idled units for seasonal maintenance."This is the fifth-straight weekly decline in crude supplies, which is very supportive," said Chip Hodge, who oversees a $12 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "It’s good to see crude supplies come off, especially given how high they’ve been recently." Oil has advanced more than 10 percent since the Organization of Petroleum Exporting Countries agreed last week to cut production for the first time in eight years. OPEC, which pumped at a record in September, will decide on quotas for the group’s members at an official meeting in Vienna on Nov. 30. Hurricane Matthew is heading for the U.S. and may disrupt East Coast fuel shipments. West Texas Intermediate for November delivery rose $1.14, or 2.3 percent, to $49.83 a barrel on the New York Mercantile Exchange. It was the highest close since June 29. Prices reached $49.97 earlier. Total volume traded was 13 percent above the 100-day average at 2:38 p.m. Ample Stockpiles Brent for December settlement increased 99 cents, or 1.9 percent, to $51.86 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since June 9. The global benchmark ended the session at a $1.48 premium to WTI for December delivery. "We closed just short of $50 and are still on track for a retest of the June peak,"

WTI Tests $50 On Another Surprise Inventory Draw, Production Cut --Following last night's surprisingly large draw from API (-7.6mm vs +1.5mm exp), DOE reported a smaller 2.976mm draw (but still a draw). Cushing saw a bigger than expected (and API) build but Gasoline stocks rose less than expected (and API). Crude production fell modestly week-over-week, but hoveres around 8.5mm b/d. Crude prices dropped, then ramped towards $50...DOE:

  • Crude -2.976mm (+1.5mm exp)
  • Cushing +569k (+100k exp)
  • Gasoline +222k (+500k exp)
  • Distillates -1.915mm

This is the 5th weekly draw in a row for Crude... at a time seasonally when inventories build... And on a week in which OPEC claimed to have agreed to a deal to cap production at some point in the future, US production slipped 0.35% on the week but remains stuck at around 8.5mm b/d...

U.S. Crude Closes Above $50 a Barrel for the First Time Since June - WSJ: U.S. oil prices closed above the $50 level for the first time since June, as declining U.S. inventories have helped boost a rally that began when OPEC reached a preliminary agreement to cut output last week.Light, sweet crude for November delivery settled up 61 cents, or 1.2%, at $50.44 a barrel on the New York Mercantile Exchange. Its sixth gain in seven sessions put U.S. oil at its third highest settlement this year. Brent, the global benchmark, gained 65 cents, or 1.3%, to $52.51 a barrel, its second-highest settlement this year. The oil market has been largely focused on the Organization of the Petroleum Exporting Countries’ tentative plan to cut production, a deal that could help reduce the global supply glut and bring the market more into balance. But even as analysts have expressed skepticism that OPEC members could reach a final agreement—or be able to enforce it after their November meeting—some traders are pointing to the surprising drawdown in U.S. inventory as another reason why crude prices could continue to climb. Oil stockpiles in the U.S. are falling at their fastest rate since the oil market began its big descent two year ago that took prices from more than $100 in 2014 to less than $30 earlier this year. U.S. inventories fell by 14.5 million barrels at the start of September, more than any other week since 1999. Some traders dismissed that initial decline as anomalous, blaming the big falloff on a tropical storm that had interrupted shipping routes. But that began a five-week run of declines, and crude stocks are down 5% over that span, government data show.

Distillates Need a Cold Winter given the Supply Overhang (Video) - Year over year the Distillate numbers from production, demand and supply appear the weakest in the Petroleum complex. A mild winter will be a headwind for Distillate prices in 2017 given current supply levels.

OPEC says its Aug crude oil output 33.24 mil b/d as market balance improves - Oil | Platts News Article & Story: OPEC crude oil production in August fell from its record July levels, with the producer group reporting Monday that secondary sources had pegged its output for the month at 33.24 million b/d. Meanwhile, non-OPEC production will be far more robust in both 2016 and 2017 than had been expected, OPEC said in its closely watched monthly oil market report, due to increases in output from Kazakhstan, Norway, the UK and Canada. For 2016, non-OPEC supply has been revised upward by 190,000 b/d from the organization's August forecast to 56.32 million b/d, and 2017 supply revised upward by 540,000 b/d to 56.52 million b/d.The projection indicates that the market's lingering oversupply is likely to extend into next year, as OPEC said it expects the call on its crude for 2016 to average 31.7 million b/d, more than 1.5 million b/d below what it produced in August. For 2017, if OPEC crude output remains at August levels, that gap would remain about 740,000 b/d, as the producer group expects the call on its crude next year at 32.5 million b/d. The organization slightly revised upward its expectations of world oil demand for 2016, which it pegged at 94.27 million b/d. In 2017, world oil demand will grow a further 1.15 million b/d to hit a new record of 95.42 million b/d, OPEC said in its report. Still, OPEC sounded an optimistic tone about supply and demand balances, as it said it expects growing demand to draw down global inventories. "Despite moderate global economic growth, recent data shows better-than-expected oil demand in some of the main consuming countries," OPEC said. "This, along with a potentially improving oil supply picture, would contribute to a reduction in the imbalance of market fundamentals in the coming months."

OilPrice Intelligence Report: Can Oil Stay Above $50 Per Barrel?  -- Oil prices held onto their gains this week, adding a bit of momentum to the rally that started in late September following the OPEC deal. On Thursday, WTI broke through the $50 per barrel threshold for the first time since June on a fragile, but growing sense of optimism that oil markets are heading closer to balance. U.S. crude oil stocks fell again this week, adding to the bullish sentiment.  Another bit of positive news came at the end of the week when OPEC’s Secretary-General said he will meet Russia’s energy minister in Istanbul for talks. The “consultations” will take place on the sidelines of an energy conference this weekend, and while there is no guarantee that Russia will coordinate or cooperate with OPEC’s planned production cuts, Russia has been more open to cooperation with OPEC this year than at any point in recent memory. . The Wall Street Journal reports that Saudi’s powerful Deputy Crown Prince Mohammed bin Salman gave the greenlight to negotiators to come to a deal with OPEC countries on production cuts in Algiers last month. However, according to WSJ sources, it does not mark an about-face for the country’s oil strategy of fighting for market share. The Prince gave the space to negotiate a production cut, but only for volumes that the Kingdom had been planning to cut anyway. Production in Saudi Arabia tends to fall after peak summer demand, so the announced cuts for the OPEC deal did not involve much of a sacrifice. The distinction is important because it could offer clues into how far Saudi Arabia will be willing to go to prop up oil prices, which is to say, perhaps not that far.  The world’s largest oil producer plans on publishing details of its finances for the first time ahead of a planned partial IPO in 2018, the FT reports. Aramco’s finances have long been shrouded in mystery, but in order to list shares, the company will need to provide more transparency to investors. It will release data next year, for the years 2015-2017. Saudi Arabia plans on listing about 5 percent of the company, and Saudi officials believe the company will be valued at as much as $2 trillion.   Bloomberg reports that at least 10 oil tankers are waiting in the North Sea, a sign that the oil market for Brent crude is still oversupplied. It is unusual for more than one or two tankers to be anchoring waiting to transfer their cargo. The uptick in what is essentially oil sitting in floating storage, in spite of oil field maintenance in the North Sea, suggests oil markets are still weak.

US rig count up 2 this week to 524 (AP) — The number of rigs exploring for oil and natural gas in the U.S. increased by two this week to 524. A year ago, 795 rigs were active. Depressed energy prices have sharply curtailed oil and gas exploration. Houston oilfield services company Baker Hughes Inc. said Friday that 428 rigs sought oil and 94 explored for natural gas this week. Two were listed as miscellaneous. Among major oil- and gas-producing states, Oklahoma and Texas gained two rigs each while Alaska, Louisiana and Pennsylvania were up one apiece. Colorado, New Mexico, Utah and West Virginia each declined by one. Arkansas, California, Kansas, North Dakota, Ohio and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.

U.S. Oil-Rig Count Climbs by Three - WSJ: The number of rigs drilling for oil in the U.S. climbed three in the past week to 428, continuing a trend of increases, according to oil-field services company Baker Hughes Inc. BHI 1.05 % The U.S. oil-rig count is typically viewed as a proxy for activity in the sector. After peaking at 1,609 in October 2014, low oil prices put downward pressure on production and the rig count fell sharply. The oil rig count has generally been rising since the beginning of the summer. The nation’s gas-rig count fell by 2 to 94 in the past week. The U.S. offshore-rig count rose by 1 rigs at 23, which is 9 fewer than a year ago. On Friday, crude oil prices fell following comments from the Russian energy minister that dampened hopes for a broader agreement on production cuts. Oil traders have been focusing on the Organization of the Petroleum Exporting Countries and its tentative plan to cut production. Despite doubts about the deal, oil has rallied to its highest prices since June.

U.S. oil rig count extends recovery amid crude rally: Baker Hughes | Reuters: The number of rigs drilling for oil in the United States rose this week, extending one of its best recoveries with no cuts for 15 straight weeks, with analysts expecting more additions after crude prices climbed back over $50 a barrel. Drillers added three oil rigs in the week to Oct. 7, bringing the total count up to 428, the most since February, but still below the 605 rigs seen a year ago, according to energy services firm Baker Hughes Inc on Friday. That 15-week streak of not cutting rigs was the third longest since 1987, following 19 weeks in 2011 and 17 weeks in ended in 2010. The oil rig count plunged from a record high of 1,609 in October 2014 to a six-year low of 316 in May after crude collapsed from over $107 a barrel in June 2014 to near $26 in Feb. 2016 in the biggest price rout in a generation due to a global oil glut. But after crude briefly climbed over $50 a barrel in June, drillers have added 112 oil rigs. Analysts said prices over $50 would prompt energy firms to return to the well pad. U.S. crude futures this week climbed over $50 a barrel to four-month highs, spurred by ongoing talks of an OPEC production cut. Prices on Friday eased to just below $50 on profit-taking from the nearly 15-percent rally since the group announced plans to reduce output on Sept. 28. [O/R] Looking ahead, analysts forecast the rig count would jump higher in 2017 and 2018 when prices were expected to rise with publicly-traded energy firms planning to spend more on drilling to increase production.Futures for calendar 2017 were trading at about $53 a barrel, while calendar 2018 was around $54. Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week forecast total oil and natural gas rig count would average 498 in 2016, 656 in 2017 and 866 in 2018.

Saudi Arabia's Post-Oil Plan Off to a Rough Start in Year One -- The first year of Saudi Arabia’s drive to reduce its oil dependence may end with the opposite result. A flurry of cost-cutting measures will likely push the non-oil economy into recession, analysts say. That means that any overall growth in 2016 will be largely due to record crude output. Efforts to manage the fallout from cheap oil gathered steam over the past two weeks. Policy makers have suspended bonuses and trimmed allowances for government employees. Ministers’ salaries were cut by 20 percent. The central bank also said it’s injecting about 20 billion riyals ($5.3 billion) into the banking system to ease a cash crunch. Austerity will help Saudis reduce a budget deficit that reached 16 percent of gross domestic product last year. But it will also likely exacerbate the economic slowdown as consumption falls. A Bloomberg survey shows overall growth at 1.1 percent this year, with Capital Economics and BNP Paribas both predicting the first contraction since 2009. “The hits to households are getting bigger and bigger,” The growing pessimism about Saudi Arabia’s short-term outlook highlights the challenge facing Deputy Crown Prince Mohammed bin Salman, the architect of economic policy, as he seeks to prepare the kingdom for the post-oil era without provoking a backlash from a population accustomed to state largesse. Even before announcing his so-called Vision 2030 in April, the government had raised the prices of fuel and utilities. It’s also weighing plans to cancel more than $20 billion of projects, people familiar with the matter have said. The International Monetary Fund expects the budget shortfall to drop below 10 percent of GDP in 2017.

Meanwhile, Saudi Stocks Crash Near 7 Year Lows --Following demands from officials for banks to reschedule loans to clients affected by last week's decision to cut salaries and bonuses for state employees, Middle-East bank stocks are collapsing and Saudi's Tadawul Index is back near its 2009 lows...  The weakness - despite crude strength - was driven by Saudi Arabia’s central bank decision to direct local lenders to reschedule the consumer loans of clients affected by last week’s decision to scrap the bonuses and allowances of many state employees. As Bloomberg reports,  The Saudi Arabian Monetary Agency, as the central bank is known, said in a statement on its website on Sunday that the step was part of efforts to “reduce pressure on borrowers” whose income was cut by the government’s Sept. 26 package of measures to further trim spending.The agency said local banks must obtain the client’s approval before rescheduling a loan. Borrowers should present proof that their income has been affected by the recent cuts to the nearest bank branch, the regulator said. Loans taken after the cabinet decision to end the payments won’t be rescheduled.Under Deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has already delayed payments owed to contractors and started cutting fuel subsidies as it tries to manage lower oil prices. The measures may help narrow the budget deficit to 13 percent of gross domestic product this year and below 10 percent in 2017, according to International Monetary Fund estimates.The cancellation of bonuses and allowances -- and a simultaneous decision to lower ministers’ salaries by 20 percent -- further spread the burden of shoring up public finances to a population accustomed to years of government largesse. Yet analysts have warned the cuts risk deepening the kingdom’s economic slowdown by damaging consumer confidence. Which collapsed Saudi banking stocks to record lows...

Sept 11 Widow Is First American To Sue Saudi Arabia For Terrorism: Her Full Lawsuit --Two days ago, after the stunning Congressional override of Obama's veto of the Justice Against Sponsors of Terrorism (JASTA), aka the "Sept.11" bill, we wondered how long until the first lawsuit by a Sept 11 victim naming Saudi Arabia as a defendant would emerge. We didn't have long to wait.  On Friday, September 30, a woman widowed when her husband was killed at the Pentagon on Sept. 11, 2001 became the first American to sue the Kingdom of Saudi Arabia in Washington DC District Court, just two days after Congress slammed Obama for siding with Saudi Arabia, overriding his presidential veto only for the first time in his administration, and enacting legislation allowing Americans to sue foreign governments for allegedly playing a role in terrorist attacks on U.S. soil. Stephanie Ross DeSimone alleged the kingdom provided material support to al-Qaeda and its leader, Osama bin Laden. Her suit is also filed on behalf of the couple’s daughter. DeSimone was two months pregnant when her husband, Navy Commander Patrick Dunn was killed. She is suing for wrongful death and intentional infliction of emotional distress, and is seeking unspecified compensatory and punitive damages. In the lawsuit she alleges that "at all material times, Saudi Arabia, through its officials, officers, agents and employees, provided material support and resources to Osama bin Laden (“bin Laden”) and Al Qaeda. The support provided by Saudi Arabia to bin Laden and Al Qaeda assisted in or contributed to the preparation and execution of the September 11th attacks and the extrajudicial killing of Patrick Dunn." She adds that "Al Qaeda was funded, to the tune of approximately $30 million per year, by diversions of money from Islamic charities" and explains"

Iraqis Use 9/11 Bill to Demand Compensation from US for 2003 Invasion -- In light of a bill passed by the US Congress allowing families of 9/11 victims to sue Saudi Arabia, Iraqis have asked their parliament to demand compensation for the US invasion of Iraq.After the US Congress passed the Justice Against Sponsors of Terrorism Act (JASTA), which overrides the principle of sovereign immunity to allow families of 9/11 victims to sue Saudi Arabia, an Iraqi group has requested parliament to prepare a lawsuit seeking compensation from the US for the invasion of Iraq. The "Arab Project in Iraq" lobby group "sees their opportunity to ask for compensation from the United States over violations by the US forces following the US invasion that saw the toppling of late President Saddam Hussein in 2003," the Al-Arabiya news channel reported on Saturday. "It urged for a full-fledged investigation over the killing of civilians targets, loss of properties and individuals who suffered torture and other mistreatment on the hand of US forces." The Iraqi group is the first to take advantage of the precedent set by JASTA in overturning the principle of sovereign immunity.

Iraq Will Use Sept 11 Bill To Sue US Government For 2003 Invasion, Demand Compensation -- As reported on Saturday, a September 11 widow was the first American to take advantage of the recently passed Justice Against Sponsors of Terrorism (JASTA), aka the "Sept.11" bill courtesy of Congress which for the first time in Obama's tenure overrode his veto, by suing the Kingdom of Saudi Arabia. Stephanie Ross DeSimone alleged the kingdom provided material support to al-Qaeda and its leader, Osama bin Laden leading to the death of her husband, Navy Commander Patrick Dunn, who was killed at the Pentagon on Sept. 11, 2009, when Stephanie was two months pregnant at the time with the couple's daughter. Her suit is also filed on behalf of the couple’s daughter. She sued for wrongful death and intentional infliction of emotional distress, and is seeking unspecified compensatory and punitive damages. However, in an unexpected twist, over the weekend following the passage of JASTA, it was citizens of Iraq who asked their parliament to demand compensation for the 2003 US invasion of Iraq.  As Al-Arabiya news channel reported on Saturday, an Iraqi group has requested parliament to prepare a lawsuit seeking compensation from the US for the invasion of Iraq.The "Arab Project in Iraq" lobby group "sees their opportunity to ask for compensation from the United States over violations by the US forces following the US invasion that saw the toppling of late President Saddam Hussein in 2003." While hardly intended to have this effect - where the US itself is sued for alleged terrorist acticity - the Iraqi group is the first foreign entity to take advantage of the precedent set by JASTA in overturning the principle of sovereign immunity. By passing JASTA and allowing 9/11 families to sue Saudi Arabia, the Senate has also made the US vulnerable to legal action seeking compensation for its foreign policy activities across the world. The day after the Senate vote, former Republican Senator Larry Pressler expressed fear that as a veteran of the Vietnam War, he could now face legal action. "As a Vietnam combat veteran, I could almost certainly be sued by the Vietnamese government or by a Vietnamese citizen," Pressler wrote in The Hill.

Fake News and False Flags -- The Pentagon gave a controversial UK PR firm over half a billion dollars to run a top secret propaganda programme in Iraq, the Bureau of Investigative Journalism can reveal. Bell Pottinger’s output included short TV segments made in the style of Arabic news networks and fake insurgent videos which could be used to track the people who watched them, according to a former employee. The agency’s staff worked alongside high-ranking US military officers in their Baghdad Camp Victory headquarters as the insurgency raged outside. Bell Pottinger's former chairman Lord Tim Bell confirmed to the Sunday Times, which worked with the Bureau on this story, that his firm had worked on a “covert” military operation “covered by various secrecy agreements.” Bell Pottinger reported to the Pentagon, the CIA and the National Security Council on its work in Iraq, he said. Bell, one of Britain’s most successful public relations executives, is credited with honing Margaret Thatcher’s steely image and helping the Conservative party win three elections. The agency he co-founded has had a roster of clients including repressive regimes and Asma al-Assad, the wife of the Syrian president.

Pentagon Paid British PR Firm $500mm To Create Fake Al Qaeda Propaganda Videos --Per new discoveries revealed by the The Bureau of Investigative Journalism, the United States government paid over $500mm to a British public relations firm, Bell Pottinger, between May 2007 and December 2011 to create fake Al Qaeda propaganda films aimed at tracking terrorist viewing locations.  According to a Bell Pottinger insider, propaganda films were categorized into three categories with “White" being accurately attributed, “Grey" being unattributed, and "Black" being falsely attributed material.  The media firm created various types of content ranging from TV commercials to news items and "fake Al Qaeda propaganda films." The work consisted of three types of products. The first was television commercials portraying al Qaeda in a negative light. The second was news items which were made to look as if they had been “created by Arabic TV,” Wells said. Bell Pottinger would send teams out to film low-definition video of al Qaeda bombings and then edit it like a piece of news footage. It would be voiced in Arabic and distributed to TV stations across the region, according to Wells. The third and most sensitive program described by Wells was the production of fake al Qaeda propaganda films. He told the Bureau how the videos were made. He was given precise instructions: “We need to make this style of video and we’ve got to use al Qaeda’s footage,” he was told. “We need it to be 10 minutes long, and it needs to be in this file format, and we need to encode it in this manner.”

Iraq Warns Of "Regional War" If Turkey Does Not Withdraw Troops --With much of the public's attention in recent weeks focused on the escalation between the US and Russia over the nearly 6-year-old proxy war in Syria, a reminder that middle-east tensions include virtually all other neighboring countries, came from Iraq's prime minister who on Wednesday warned Turkey that it risked triggering a regional war by keeping troops in his territory, as the neighboring states summoned each other's ambassadors in a mounting diplomatic stand-off.Turkey's parliament voted last week to extend its military operation in Iraq and take on "terrorist organizations", a reference to Kurdish militants and Islamic State. Responding to the Turkish decision, Iraq's parliament condemned the Turkish vote and called for Turkey's 2,000 troops to leave, Reuters reported. An adamant Turkey has refused to comply and insists that its military is in Iraq at the invitation of Masoud Barzani, president of the Kurdish regional government, with which Ankara maintains solid ties. Most of the troops are at a base in Bashiqa, north of Mosul, where they are helping to train Iraqi Kurdish peshmerga and Sunni fighters. Turkey's deputy prime minister, Numan Kurtulmus, said the deployment had become necessary after Islamic State's seizure of Iraq's second city, captured in 2014. "Neither Turkey's presence in Bashiqa nor its operation right now in Syrian territory are aimed at occupying or interfering with the domestic affairs of these countries."

U.S. drone strike kills 15 civilians in Afghanistan, United Nations says | Reuters: At least 15 civilians were killed and 13 wounded in a U.S. unmanned aircraft strike in eastern Afghanistan, the United Nations said, calling for an independent investigation into the incident. The airstrike early on Wednesday morning hit what U.S. officials said was an Islamic State target in the Achin district of Nangarhar province. Government officials said the strike killed some militants, but the U.N. Assistance Mission in Afghanistan (UNAMA) reported the victims were civilians, including students, a teacher, and members of families considered to be "pro-government". "UNAMA reiterates the need for all parties to the conflict to adhere to their obligations under international humanitarian law," the United Nations said in a statement late on Thursday. "UNAMA calls on the government and international military forces to launch a prompt, independent, impartial, transparent, and effective investigation into this incident." All the civilians reported killed were men, it added. The men had gathered in a village to welcome a local elder on his return from completing the Hajj pilgrimage to Mecca and were sleeping when the strike happened, witnesses said.

Russia-US Relations Deteriorate Sharply: Moscow Halts Plutonium Cleanup Accord, Says Syria Contact Suspended -- Following last week's sharp escalation in diplomacy between the US and Russia, when John Kerry warned of not only breaking off diplomatic relations over Syria with Russia, and threatening to use "military force" including potentially US-based ground forces in Syria for the first time, but also slamming Russian strikes over Aleppo as "barbaric", Russia responded Monday when Russian President Vladimir Putin suspended an agreement with the United States for disposal of weapons-grade plutonium because of "unfriendly" acts by Washington, the Kremlin said. A Kremlin spokesman cited by Reuters said Putin had signed a decree suspending the 2010 agreement under which each side committed to destroy tonnes of weapons-grade material because Washington had not been implementing it and because of current tensions in relations. The deal, signed in 2000 but which did not come into force until 2010, was being suspended due to "the emergence of a threat to strategic stability and as a result of unfriendly actions by the United States of America towards the Russian Federation", the preamble to the decree said. It also said that Washington had failed "to ensure the implementation of its obligations to utilize surplus weapons-grade plutonium". The 2010 agreement, signed by Russian Foreign Minister Sergei Lavrov and then-U.S. Secretary of State Hillary Clinton, called on each side to dispose of 34 tonnes of plutonium by burning in nuclear reactors.

US Suspends Diplomatic Relations With Russia On Syria -- What last week was just a not-so-thinly-veiled-threat lobbed by John Kerry to the Kremlin has, now that Russia suspended its participation in a Plutonium cleanup accord with the US, become official, and as the State Department announced moments ago, the US has now suspended bilateral discussions, i.e. diplomatic relations, with Russia over Syria, escalating the conflict in the war-torn nation to a level last seen in late 2015. As Reuters adds, the United States said on Monday it was suspending talks with Russia on trying to end the violence in Syria and accused Moscow of not living up to its commitments under a ceasefire agreement. "The United States is suspending its participation in bilateral channels with Russia that were established to sustain the cessation of hostilities," U.S. State Department spokesman John Kirby said in a statement. "This is not a decision that was taken lightly." While we await more, we can't help but note that the drums of (global, non-proxy) war in Syria are beating ever louder. The next escalatory step from the US at this point would be to send US troops in Syria, which would be promptly met with a matched retaliatory response by Russia, and perhaps China too, which as reported several weeks ago, informally joined the conflict on the side of Syria's president Assad when it said it would provide "aid and military training" to Syria's current president.

The Obama Administration’s Suspension of Syria Talks With Russia Is the Most Dangerous Development in a New Cold War -- This afternoon the State Department announced that the Obama administration is suspending bilateral talks with Russia regarding the war in Syria. The statement by State Department spokesman John Kirby read, in part, that the decision to suspend “bilateral channels with Russia that were established to sustain the Cessation of Hostilities” was “not a decision that was taken lightly.” The statement said that the United States “spared no effort in negotiating,” yet “Russia failed to live up to its own commitments.” White House spokesman Josh Earnest told reporters on Monday, “Everybody’s patience with Russia has run out.” Meanwhile, the pressure on the administration to “do something” in Syria is growing. Former general and CIA director David Petraeus, no doubt echoing the establishment consensus on these issues, told Charlie Rose last week that establishing these zones would be “very, very straightforward” and could be achieved “very, very quickly.” The general’s assurances aside, the administration might do well to recall the consequences of a similar operation over Kosovo (which resulted in a bombing campaign that lasted 78 days) or of the more recent imposition of a no-fly zone over Libya.   Unlike in those cases, both the Russians and Iranians have personnel on the ground in Syria, while the Russian and the Syrian Arab Air Forces are executing an air campaign over rebel-held (or more accurately, jihadi-held) east Aleppo. The mainstream media continue to gloss over the rather salient fact that civilians who are trying to flee the Russian-Syrian bombardment are often blocked from doing so by US- and Gulf State–funded “rebels.”   The decision by the Obama administration to suspend talks with Russia, therefore, while alarming in the extreme, is perhaps not so surprising, given a CNN report over the weekend that showed that Secretary of State John Kerry—whom many observers (including this author) wrongly saw as a dove on matters relating to Syria and Russia—has been pushing for a military solution in Syria all along.   Is there any relevant history to which administration officials might turn to guide them, now that it seems we are eyeball-to-eyeball with Russia in Syria?

US Considering Air Strikes On Assad Regime After Top General Warns It Could Lead To War With Russia --Now that the gloves have come off in the faux diplomacy between Russia and the US, which yesterday culminated with Putin halting a Plutonium cleanup effort with the US, shortly before the US State Department announced it would end negotiations with Russia over Syria, the next step may be one which John Kerry warned last week is "back on the table", namely the launch of military strikes on the Assad regime. As WaPo reports, meetings have been going on within US national security agencies for weeks to consider new options to recommend to the president to address the ongoing crisis in Aleppo. A meeting of the Principals Committee, which includes Cabinet-level officials, is scheduled for Wednesday while a meeting of the National Security Council, which could include the president, could come as early as this weekend. As Reuters hinted last week, at a Deputies Committee meeting at the White House, officials from the State Department, the CIA and the Joint Chiefs of Staff discussed limited military strikes against the regime as a "means of forcing Syrian dictator Bashar al-Assad to pay a cost for his violations of the cease-fire, disrupt his ability to continue committing war crimes against civilians in Aleppo, and raise the pressure on the regime to come back to the negotiating table in a serious way." Or, in other words, to cut to the chase and go right back to what the US was hoping to achieve in Syria in the first place: another regime change.

Kerry said he lost argument to back Syria diplomacy with force: NYT | Reuters: U.S. Secretary of State John Kerry, in a meeting last week with a small number of Syrian civilians and others, said he had lost an argument within the Obama administration to back up diplomatic efforts to end the bloodshed in Syria with the threat of using military force, the New York Times reported on Friday. The newspaper said it had obtained an audio recording of the 40-minute discussion that took place at the Dutch Mission to the United Nations on Sept. 22. The approximately 20 participants included representatives of four Syrian groups that provide education, rescue and medical services in rebel-held areas and diplomats from three or four countries, the Times said. The meeting took place days after a ceasefire Kerry had negotiated with Russia had collapsed and rebel-held areas of the Syrian city of Aleppo were coming under heavy air strikes as Moscow and Syrian President Bashar al-Assad's government rejected a U.S. plea to halt flights. The Times said Kerry repeatedly complained that his diplomacy had not been backed by a serious threat of military force. "I think you're looking at three people, four people in the administration who have all argued for use of force, and I lost the argument," Kerry said in an audio clip posted on the Times website./p> ;

Aleppo's largest hospital in rebel-held area is 'destroyed': Russian and Syrian warplanes are accused of bombing two hospitals in Syria as a man blows himself up near Assi Square in Hama.The largest hospital in rebel-held parts of Aleppo has been "completely destroyed" in airstrikes, medics say. Today's bombings on the M10 hospital come two days after barrel bombs and cluster bombs reportedly put the hospital out of action. Adham Sahloul of the Syrian American Medical Society said is has been "completely destroyed... It is gone". It had been hit so badly earlier last week that UN chief Ban Ki Moon described the assault as a war crime. The targeting of the M10 facility came hours before a suicide bomber targeted a Kurdish wedding on the outskirts of Hasaka and a day after another hospital in Syria, which had been dug into a mountain just outside the Hama province, was reportedly taken out of action by airstrikes. The International Union of Medical Care and Relief Organisations said there were minor injuries when the Dr Hasan al Araj hospital, also known as the Cave Hospital, was struck twice on Sunday. The UK-based Syrian Observatory for Human Rights has claimed Russian warplanes carried out the attacks. Meanwhile, a suicide bomber has blown himself up near Assi Square in Hama, causing injuries, according to Syrian state TV.

Covert strikes on Assad back on US table to prevent ‘fall of Aleppo’ – report - Top Washington officials are set to discuss striking positions of the Syrian military without a UN Security Council resolution. Bombing air force runways with missiles fired from coalition planes and ships is being considered, according to a report.  “One proposed way to get around the White House’s objection to striking the Assad regime without a UN Security Council resolution would be to carry out the strikes covertly and without public acknowledgment,” one administration official who is to take part in the discussions told the Washington Post.  A meeting of the Obama administration’s Principals Committee is scheduled for Wednesday, the newspaper reported, adding that a meeting of the National Security Council could follow this weekend.The CIA and the Joint Chiefs of Staff expressed support for “limited military strikes against the Syrian government,” last Wednesday, when the US discussed such “kinetic” options, the official told the Washington Post.“There’s an increased mood in support of kinetic actions against the regime,” one senior administration official was quoted as saying.“The CIA and the Joint Staff have said that the fall of Aleppo would undermine America’s counterterrorism goals in Syria,” he added.

Is Fighting Al-Qaeda In Aleppo Good Or Bad? – U.S. Unable To Decide - There is currently a barrage of propaganda in the "western" media in support of "rebels" in east-Aleppo. It is all about "hospitals" and "children" but the aim is to stop a Syrian army assault on the "rebel" held quarters of the city. U.S. officials are again talking about "intervention", meaning open war, to prevent the Syrian army and its allies from storming the "rebel" held eastern parts. It would not work but that is not the only reason why it is a strange idea.  "It is primarily al-Qaeda that holds Aleppo," said (vid) the spokesperson of the U.S. led 'Operation Inherent Resolve', Colonel Warren. That was back in April and al-Qaeda (aka Jabat al-Nusra) has since strengthen its capacities in the city. The French Syria expert Fabrice Balanche tells Le Monde Le Figaro (translate from French):  [Al-Qaeda's] grip on Aleppo's east has only increased since the spring of 2016, when it sent 700 reinforcement fighters while moderate brigades fighters began to leave the area before the final exit was closed. The provisional opening of a breach of the siege of Aleppo in August 2016 (Battle of Ramousseh) has further increased its prestige and influence on the rebels. So why does the U.S. want to stop the Syrian government forces in their attempt to free the parts of the city which are undoubtedly held by al-Qaeda? The U.S. voted "Yes" on several UN Security Council resolutions that demand to fight al-Qaeda and "to eradicate the safe haven they have established over significant parts of Syria."

The media are misleading the public on Syria - Boston Globe - Coverage of the Syrian war will be remembered as one of the most shameful episodes in the history of the American press. Reporting about carnage in the ancient city of Aleppo is the latest reason why. For three years, violent militants have run Aleppo. Their rule began with a wave of repression. They posted notices warning residents: “Don’t send your children to school. If you do, we will get the backpack and you will get the coffin.” Then they destroyed factories, hoping that unemployed workers would have no recourse other than to become fighters. They trucked looted machinery to Turkey and sold it. Advertisement This month, people in Aleppo have finally seen glimmers of hope. The Syrian army and its allies have been pushing militants out of the city. Last week they reclaimed the main power plant. Regular electricity may soon be restored. The militants’ hold on the city could be ending. Militants, true to form, are wreaking havoc as they are pushed out of the city by Russian and Syrian Army forces. “Turkish-Saudi backed ‘moderate rebels’ showered the residential neighborhoods of Aleppo with unguided rockets and gas jars,” one Aleppo resident wrote on social media. The Beirut-based analyst Marwa Osma asked, “The Syrian Arab Army, which is led by President Bashar Assad, is the only force on the ground, along with their allies, who are fighting ISIS — so you want to weaken the only system that is fighting ISIS?” This does not fit with Washington’s narrative. As a result, much of the American press is reporting the opposite of what is actually happening. Many news reports suggest that Aleppo has been a “liberated zone” for three years but is now being pulled back into misery.

BREAKING: Russia Will Take Down Any American Airplane or Rocket Targeting Syrian Army (Video): Russia’s Defense Ministry has cautioned the US-led coalition of carrying out airstrikes on Syrian army positions, adding in Syria there are numerous S-300 and S-400 air defense systems up and running. Russia currently has S-400 and S-300 air-defense systems deployed to protect its troops stationed at the Tartus naval supply base and the Khmeimim airbase. The radius of the weapons reach may be “a surprise” to all unidentified flying objects, Russian Defense Ministry spokesperson General Igor Konashenkov said. According to the Russian Defense Ministry, any airstrike or missile hitting targets in territory controlled by the Syrian government would put Russian personnel in danger. The defense official said that members of the Russian Reconciliation Center in Syria are working “on the ground” delivering aid and communicating with a large number of communities in Syria. “Therefore, any missile or air strikes on the territory controlled by the Syrian government will create a clear threat to Russian servicemen.” “Russian air defense system crews are unlikely to have time to determine in a ‘straight line’ the exact flight paths of missiles and then who the warheads belong to. And all the illusions of amateurs about the existence of ‘invisible’ jets will face a disappointing reality,” Konashenkov added.

Inside the Shadowy PR Firm That’s Lobbying for Regime Change in Syria - On September 30, demonstrators gathered in city squares across the West for a "weekend of action” to “stop the bombs” raining down from Syrian government and Russian warplanes on rebel-held eastern Aleppo. Thousands joined the protests, holding signs that read "Topple Assad" and declaring, "Enough With Assad." Few participants likely knew that the actions were organized under the auspices of an opposition-funded public relations company called the Syria Campaign.  By partnering with local groups like the Syrian civil defense workers popularly known as the White Helmets, and through a vast network of connections in media and centers of political influence, The Syria Campaign has played a crucial role in disseminating images and stories of the horrors visited this month on eastern Aleppo. The group is able to operate within the halls of power in Washington and has the power to mobilize thousands of demonstrators into the streets. Despite its outsized role in shaping how the West sees Syria’s civil war, which is now in its sixth year and entering one of its grisliest phases, this outfit remains virtually unknown to the general public. The Syria Campaign presents itself as an impartial, non-political voice for ordinary Syrian citizens that is dedicated to civilian protection. “We see ourselves as a solidarity organization,” The Syria Campaign strategy director James Sadri told me. “We’re not being paid by anybody to pursue a particular line. We feel like we’ve done a really good job about finding out who the frontline activists, doctors, humanitarians are and trying to get their word out to the international community.” Yet behind the lofty rhetoric about solidarity and the images of heroic rescuers rushing in to save lives is an agenda that aligns closely with the forces from Riyadh to Washington clamoring for regime change. Indeed, The Syria Campaign has been pushing for a no-fly zone in Syria that would require at least “70,000 American servicemen” to enforce, according to a Pentagon assessment, along with the destruction of government infrastructure and military installations. There is no record of a no-fly zone being imposed without regime change following —which seems to be exactly what The Syria Campaign and its partners want.

New famine fears loom in Yemen | Reuters: Intensive care wards in Yemen's hospitals are filled with emaciated children hooked up to monitors and drips - victims of food shortages that could get even worse due to a reorganization of the central bank that is worrying importers. With food ships finding it hard to get into Yemen's ports due to a virtual blockade by the Saudi-led coalition that has backed the government during an 18-month civil war, over half the country's 28 million people already do not have enough to eat, according to the United Nations. Yemen's exiled president, Abd Rabbuh Mansur Hadi, last month ordered the central bank's headquarters to be moved from the capital Sanaa, controlled by Houthi rebels in the north, to the southern port of Aden, which is held by the government. Trade sources involved in importing food to the Arab peninsula's poorest country say this decision will leave them financially exposed and make it harder to bring in supplies. "Everything is stacked against the people on the brink of starvation in Yemen."The effects of food shortages can already be seen. At the children's emergency unit at the Thawra hospital in the port of Hodaida, tiny patients with skin sagging over their bones writhe in beds. Hallways and waiting rooms are crowded with parents seeking help for their hungry and dying children. Salem Issa, 6, rests his stick-thin limbs on a hospital bed as his mother watches over him. "I have a sick child, I used to feed him biscuits, but he's sick, he won't eat," she said.

Yemen famine feared as starving children fight for lives in hospital -- Dozens of emaciated children are fighting for their lives in Yemen’s hospital wards, as fears grow that civil war and a sea blockade that has lasted for months are creating famine conditions in the Arabian peninsula’s poorest country. The UN’s humanitarian aid chief, Stephen O’Brien, described a visit to meet “very small children affected by malnutrition” in the Red Sea city of Hodeida. “It is of course absolutely devastating when you see such terrible malnutrition,” he said on Tuesday, warning of “very severe needs”. More than half of Yemen’s 28 million people are already short of food, the UN has said, and children are particularly badly hit, with hundreds of thousands at risk of starvation. There are 370,000 children enduring severe malnutrition that weakens their immune system, according to Unicef, and 1.5 million are going hungry. Food shortages are a long-term problem, but they have got worse in recent months. Half of children under five are stunted because of chronic malnutrition. A sea blockade on rebel-held areas enforced by the Saudi-coalition supporting the president, Abd Rabbuh Mansur Hadi, stops shipments reaching most ports. Its effects can be seen in centres such as the Thawra hospital, where parents cram waiting rooms seeking help for hungry and dying children. In April, between 10 and 20 children were brought for treatment, but the centre is now struggling with 120 a month, Reuters reported.

Indonesia's air force held a show of force over a gas-rich area in the South China Sea - Business Insider: (Reuters) - Indonesia's air force is holding its largest military exercise this week, near some of its islands in the South China Sea, in a show of sovereignty over the gas-rich area on the fringe of territory claimed by China, officials said on Tuesday. President Joko Widodo in June launched an unprecedented campaign to bolster fishing, oil exploration and defense facilities around the Natuna island chain after a series of face-offs between the Indonesian navy and Chinese fishing boats. China, while not disputing Indonesia's clams to the Natuna islands, has raised Indonesian anger by saying the two countries had "over-lapping claims" to waters near them, an area Indonesia calls the Natuna Sea. "We want to show our existence in the area. We have a good enough air force to act as a deterrent," said Jemi Trisonjaya, spokesman for Indonesia's air force. More than 2,000 air force personnel were taking part in the two-week long exercise, which includes the deployment of Indonesia's fleet of Russian Sukhoi and F-16 fighter jets, he said.China claims almost the entire South China Sea, where about $5 trillion worth of trade passes every year. Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have claims.

Analysis: As dark clouds fade, China's oil demand outlook seems brighter -- China's oil demand recovered about 2% in August from 10-month lows in the previous month as favorable weather after the rainy season helped industrial activity to gather pace, which also prompted the top Asian oil consumer to boost its net oil product imports. Market players and analysts expect the upward trend to continue at least until the middle of October, after which industrial and consumer activity will start to slow because of the approaching winter season. "Demand in September and October will be better as harvest activity and the fishing season will increase demand for gasoil. The week-long National Day holiday in October will also stimulate gasoline demand as more traveling is expected," a refiner from Shandong said. Total apparent oil demand rebounded to 10.76 million b/d in August from 10.56 million b/d in July, up 1.9% month on month, S&P Global Platts calculations showed.Meanwhile, the year-on-year decline also narrowed to 4.3% in August, from 7.1% in July. The sharp month-on-month rise of 728.3% in net oil product imports to 286,000 b/d also suggested that the country needed more barrels to meet the higher demand in August as throughput fell to a three-month low of 10.47 million b/d because of heavy maintenance. The National Bureau of Statistics said the recent destocking signaled higher demand. 

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