Sunday, January 1, 2017

an 18 mo high for oil, a 2 year high for nat gas; record gasoline production, but gasoline and distillates supplies fall on record exports

prices for both oil and natural gas reached interim highs on Wednesday of this week before sliding lower, in trading volume that was about one-third of normal....after closing last week at $53.02 a barrel, prices for US oil rose steadily after the markets opened on Tuesday, closing 1.7% higher at $53.90 a barrel, as traders focused on the OPEC and non-OPEC production cuts that are set to begin next week...the OPEC inspired rally continued into Wednesday, with prices hitting $54.33 a barrel before getting knocked back when the American Petroleum Institute’s weekly report showed a 4.2 million barrel increase in commercial crude oil inventories, instead of the expected 1.5 million-barrel drawdown, but oil still closed at an 18-month high of $54.06 a barrel...prices continued to slide on Thursday, even though the EIA reported a much smaller 614,000 barrel increase in oil supplies, and ended the day down 29 cents at $53.77 a barrel...prices slipped again on Friday, amid profit taking before the long weekend, closing at $53.72 a barrel, and thus ended the year up 45%, in the largest annual increase since 2009...

prices for natural gas, meanwhile, rose from last week's close of $3.662 per mmBTU (million British thermal units) to $3.761 per mmBTU on Tuesday, as cold weather consumption continued to eat into inventories, with heating degree days running 11 percent above average and seasonal natural gas consumption up 21 percent from last year's levels...gas prices rose sharply again Wednesday, as forecasts called for even colder weather, with the expiring contract for January gas delivery increasing 16.9 cents, or 4.49%, to settle at a two year high of $3.93 per mm-BTU, while the more actively traded February contract rose 13.2 cents, or 3.51%, to close at $3.898 a trading for February delivery, natural gas prices wobbled on Thursday, even though the EIA's Weekly Natural Gas Storage Report showed that natural-gas stockpiles shrank by 237 billion cubic feet to 3360 billion cubic feet last week, which left our natural gas supplies 10.9% below the level of a year earlier, and 2.3% below the 5 year average for this time of year…prices then went on to close down 9.6 cents, or 2.5% lower, at $3.802 per mmBTU, as moderating weather forecasts had traders pulling back from prior price highs...natural gas prices then extended their decline on Friday, closing down roughly 1.4% at $3.743 per mmBTU, but were still up 59% for the year, in their largest annual increase since 2005..

The Latest Oil Stats from the EIA

this week's reports on oil for the week ending December 23rd from the US Energy Information Administration indicated a modest drop in our imports of crude from last week's elevated levels, while refining also fell back to below seasonal levels, which still left us with a small surplus of crude at the end of the week...our imports of crude oil fell by an average of 304,000 barrels per day to an average of 8,167,000 barrels per day during the week, after rising by 1,111,000 barrels per day the prior the same time, our exports of crude oil rose by an average of 70,000 barrels per day to an average of 627,000 barrels per day, which meant that our effective imports netted out to 7,540,000 barrels per day for the week...meanwhile, our crude oil production fell by 20,000 barrels per day to an average of 8,766,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled 16,306,000 barrels per day for the week...

refineries reportedly used 16,557,000 barrels of crude per day during the week, a decrease of 101,000 barrels per day from the week ending the 16th, while at the same time, 88,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA figures seem to indicate that we ended up with 339,000 more barrels of oil per day than were accounted for by our oil imports and production, and therefore the EIA inserted that 339,000 barrels per day number into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance out...the EIA footnote to that line 13 calls it "unaccounted for crude oil", which is further described on page 61 in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil." you know, we've been calling that number the EIA's weekly fudge factor...

that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports rose to an average of 8.075 million barrels per day, now 2.4% higher than the same four-week period last year....our crude oil production for the week of December 23rd was 4.7% lower than the 9,202,000 barrels of crude we produced during the week ending December 25th of last year, and 8.8% below our record oil production of 9,610,000 barrels per day that we saw during the week ending June 5th 2015...

US refineries operated at 91.0% of capacity in using those 16,557,000 barrels of crude per day, down from 91.5% of capacity the prior week and down from 92.6% of capacity during the same week a year ago, as they also refined 125,000 less barrels of crude per day than they did during the same week last year...nonetheless, gasoline production from those refineries rose by 387,000 barrels per day to a record high of 10,537,000 barrels per day during the week ending December 23rd, which was 6.2% more than the 9,921,000 barrels per day of gasoline produced during the week ending December 25th a year ago, and 3.4% more than the 10,195,000 barrels per day of gasoline produced during the week ending December 26th, 2014, which was also an all time record for gasoline output at that the same time, refineries' output of distillate fuels (diesel fuel and heat oil) fell by 165,000 barrels per day to 4,957,000 barrels per day during the week ending December 23rd, which was still up a bit from the 4,927,000 barrels per day that was being produced during the week ending December 25th last year, but 6.6% lower than the 5,307,000 barrels per day of distillates produced during the same week of 2014...     

however, even with the record high in our gasoline production, the EIA reported that our gasoline supplies fell by 1,593,000 barrels to 227,143,000 barrels as of December 23rd, even as our domestic consumption of gasoline was little changed at 9,278,000 barrels per day...while our gasoline imports fell by 13,000 barrels per day to 434,000 barrels per day, our gasoline exports rose by 354,000 barrels per day to a record high of 1,149,000 barrels per day, which was only the 3rd time in history that our gasoline exports topped 1 million barrels per day...nonetheless, our gasoline inventories as of December 23rd were still 2.6% higher than the 221,420,000 barrels of gasoline that we had stored on December 25th of last year, but 0.8% lower than the 229,048,000 barrels of gasoline we had stored on December 26th of 2014...since our gasoline exports have suddenly jumped to heretofore unheard of levels, we'll include a graph of what that looks like below...

December 30 2016 gasoline exports for December 23

the above graph was taken from an article on this week's EIA report at Zero Hedge, and it shows weekly gasoline exports since late August and a staggered monthly estimate of our gasoline exports before that time, as the EIA itself only reported monthly estimates before can see that for most of this year, our gasoline exports were in the 400,000 barrel per day range, never exceeding 500,000 barrels per day....however, as of September, our gasoline exports began to rise in a volatile manner, ultimately topping and remaining above 800,000 barrels per day since we've topped 1,100,000 barrels per day of gasoline exports in two out of the last three weeks, and as a result our domestic supplies of gasoline continue to be drawn down, even as our refineries are producing gasoline at record levels...

moreover, at the same time as our gasoline supplies were being drawn down for export, so too were our supplies of distillate fuels, which fell by 1,881,000 barrels to 155,935,000 barrels by December 23rd, as our exports of distillates rose by 284,000 barrels per day to a record high of 1,416,000 barrels per, unlike gasoline, exports of distillates over 1 million per day is not uncommon, as we've typically exported large quantities of distillates to Europe, where they use diesel powered automobiles, while importing gasoline from them, which European refineries had produced in excess of their needs...but still, we are now exporting distillates at record levels, and as a result what was once our large surplus of distillates has fallen 1.0% below the distillate inventories of 153,110,000 barrels of December 25th last year, while they still remain 20.6% above the distillate inventories of 125,721,000 barrels of December 26th, 2014…

finally, even though our oil imports fell from the prior week's elevated level, with the pullback in refining they were still enough to boost our inventories of crude oil by 614,000 barrels to 486,063,000 barrels by December 23rd,which was still 5.1% below the April 29th record of 512,095,000 barrels...but we still ended the week with 6.8% more crude oil in storage than the 455,106,000 barrels we had stored as of the same weekend a year earlier, and 37.7% more crude than the 352,979,000 barrels of oil we had in storage on December 26th of 2014...   

This Week's Rig Count

US drilling activity increased for the 9th week in a row and for the 14th time in the past 15 weeks during the week ending December 30th, although the pace of increase slowed from the double digit rig gains we saw in the prior three weeks....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 658 rigs by this Friday, which was still down from the 698 rigs that were deployed as of the December 31st report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014... 

rigs drilling for oil increased by 2 rigs to 525 rigs during the week, which was the most oil drilling rigs that have been in use since December 31st last year, as oil drilling activity has only retreated once in the past 26 weeks...but oil drilling was still down from the 536 oil directed rigs that were working in the US on that date last year, 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 increased by 3 rigs to 132 rigs, which still left active gas rigs down from the 162 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008... one rig that was classified as miscellaneous also remained active, in a change from a year ago, when no such miscellaneous rigs were deployed...

two offshore platforms that had been drilling in the Gulf of Mexico last week were shut down this week, leaving the Gulf of Mexico rig count at 25 rigs, down from 22 Gulf rigs a year ago...another drilling operation was still ongoing in the offshore waters of Alaska, which means our total offshore count for the week was 23 rigs, also down from last year's offshore total of 25...the number of working horizontal drilling rigs increased by 6 rigs to 532 rigs this week, which was still down from the 549 horizontal rigs that were in use in the US on December 31st last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of the same time, a single vertical rig was added to those active, increasing the vertical rig count to 70, which was down from the 89 vertical rigs that were deployed during the same week last year...meanwhile, the directional rig count fell by 2 rigs to 56 rigs as of  December 30th, which left the directional rig count down 4 rigs from last December 31st's deployment of 60 directional rigs...

once again, 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 that 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 December 30th, the second column shows the change in the number of working rigs between last week's count (December 23rd) and this week's (December 30th) count, the third column shows last week's December 23rd active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this case was for December 31st  of 2015...      

December 30 2016 rig count summary

obviously there were few changes this week, with oilfield activity probably slowed down by the holiday week...of the major producing states, only Kansas saw its lone rig shut down, while all the increases in drilling occurred in the states where most of the drilling was already taking place…note that Louisiana only netted zero because the two rigs that were pulled out of the Gulf of Mexico offset 2 land based rigs that were added in the southern part of the state...the basins seeing drilling increases were mostly the usual suspects, the Permian and Eagle Ford of Texas, the Granite Wash of the Texas-Oklahoma panhandle region, the Williston basin or Bakken shale in North Dakota, and the Cana Woodford of Oklahoma, home of the newer STACK and SCOOP plays...and other than what's shown in the table above, only Alabama saw its rig count drop from 2 rigs last week to 1 rig this week, unchanged quantitatively from a year ago, even though a year ago the only rig active in Alabama was offshore from the state, in its Gulf waters...


What The Frack Will Kasich Do With Oil-Gas Benefits Giveaway Bill? –  Gov. John Kasich is learning that he may still be governor, but that’s a office that doesn’t hold the power it once did, now that majority Republicans in the General Assembly can dismiss his agenda or override his veto pen at will.  They don’t need him anymore. He needs them if he wants his last two years as state chief executive to be something other than a Medieval-style bleeding session where he’s the anemic patient voodoo doctors have their way with. The petulant lame-duck governor has been able to command deference from his own party members whose love for him these days isn’t as deep as it once was, when he thought he’d be the next leader of the free world. He’s getting a taste of his own bitter medicine as the GOP majority buddies up again with oil and gas frackers who asked for and received hundreds of millions in Santa-like gift giveaways from lawmakers who radically altered a bill that will cost state and local governments about $264 million combined, if a bill passed passed in the recently concluded lame-duck session becomes law with or without his signature.As predictable as night following the day, it was basic Kasich for the governor’s office to decline comment on what he will do with the bill, that opens the sluice gate of funds flowing from the state to oil-gas companies at a time when state revenues have fallen by almost 5 percent, causing Kasich to panic as he forecasts recession is coming. John Kasich has always looked for new revenues to cover the cost of his income tax cuts. One source of revenue he’s pursued without success has been to call for more taxes on shale fracking in Ohio. But Republican legislators have opposed Kasich in the past and could do the same thing again if he vetoes Senate Bill 235, this year’s vehicle of largess to the industry’s Christmas wish list. Kasich loved to label Ohio’s low severance-tax rate “a big fat joke,” knowing statehouse media scribes would eat up his rhetoric. But that big fat joke may be on him now, as he’s confronted with what to do with it in light of the state’s unraveling budget situation. One House committee chairman said the bill represents a clarification of current law, adding that any refunds from the state to industry players represents taxes that never should have been collected.

Ohio Gov. Kasich Vetoes Renewable Energy Freeze - Ohio Gov. John Kasich vetoed House Bill 554 Tuesday, a bill that would have effectively extended the freeze on the state's clean energy standards. Ohio's renewable energy and energy efficiency standards have been frozen for the past two years, ever since Gov. Kasich signed SB 310 on June 13, 2014. According to the Environmental Defense Fund , the freeze cost the state its place as a national leader in the clean energy economy by hampering innovation, investment and jobs.  A 2015 survey by Environmental Entrepreneurs (E2), a national, nonpartisan group of business owners and investors, showed that job growth in the clean energy sector in Ohio slowed to just 1.5 percent. Moreover, those firms that did grow had to find business out of state.  The state's original Renewable Portfolio Standard , SB 221 , was passed in 2008. It set a target for the state to get 25 percent of its electricity from "advanced energy sources" by 2025, with a requirement that at least half (12.5 percent or more) to be generated from "renewable energy resources," including one-half of one percent from solar and 50 percent of the energy to be generated within the state.

Ohio voters have spoken: A fracking ban would be a disaster: Jackie Stewart (Opinion) - - The U.S. Chamber of Commerce recently released a report that explains what would happen if fracking were to be banned in Ohio and across the nation - and the results are not pretty. The report found that Ohio would lose 397,000 (predominantly union) jobs, $33 billion in GDP, and Ohio households would be hit with an extra $3,956 per year in cost-of-living expenses. Ohioans have a lot to lose with a ban on fracking, so it's really no surprise that they made their voices heard at the polls. In Youngstown, for example, voters rejected an anti-fracking ballot measure for the sixth time in a row on Election Day. Not only that, but due to a Democratic platform that threatens to reject fossil fuel development, Ohio's union households voted Republican in the presidential election by a margin of 52 percent, a major shift from 2012 when 37 percent voted Republican. In other words, Ohioans voted overwhelming for energy production and all the benefits that come with it. One area of production that will bring some of those benefits is infrastructure. The building trades are anxiously awaiting their opportunity for the thousands of jobs tied to $8 billion in pipelines that are under construction or currently pending for approval. Not only will these pipelines create jobs, they'll also provide millions in tax revenues that are slated to go to our schools. Medina, Lorain, and Erie schools will see over $116 million from one pipeline alone. Elected officials in Harrison County have said there are already millions in tax revenues coming in from these projects. The very small towns in southeastern Ohio have watched their tax coffers swell by millions. Even though drilling may not be occurring around Cleveland, infrastructure--pipelines, natural gas compressor stations, and power plants--are in the works all over the state, which in turn will revitalize the entire state's economy.

A Last Resort That Might Work: Small Town Votes in Community Bill of Rights to Ban Fracking - At issue was the NEXUS pipeline, a 255-mile transmission system that would bring fracked natural gas from eastern Ohio to southeastern Michigan. A project of Spectra Energy, a company based in Houston, the pipeline would run under the Maumee River and through several Waterville neighborhoods. The company also wants to build a compressor station there that would move gas along the pipeline. "The [supporters of the pipeline had] way more money," says Jacobs. "They tried to paint us as out-of-state radicals that are bad for business." But Jacobs' side scored a win on November 8, when residents passed the community bill of rights, amending the town's charter. It's an unconventional strategy, and it was not residents' first choice. But, like many other cities and towns that have passed similar laws against extractive industries, they chose it as a last resort -- and it just might work.Concerned about the pipeline's potential effects on air and water, residents appealed in March to local elected officials, who said it was up to state and federal agencies to approve or deny the project. Then they turned to the Federal Energy Regulatory Commission (FERC) and the Ohio Environmental Protection Agency (EPA). Finding little support at either, they finally enlisted the help of the Community Environmental Defense Fund (CELDF), a public interest law firm that advocates for local control over environmental issues. CELDF helped residents draft the new amendment, which, among other things, bans "the siting or operation of equipment to support extraction of hydrocarbons." […] According to ProPublica, there have been 197 incidents with Ohio oil and gas pipelines since 1986. With causes ranging from corrosion to storm damage, these failures have caused 17 deaths and nearly 100 injuries.

Oil, Gas Companies Seek Permission to Kill, Harm Imperiled Bats for 50 Years - Center for Biological Diversity (press release) — The U.S. Fish and Wildlife Service is considering an application from nine oil and gas companies that would allow them to avoid liability under the Endangered Species Act for killing and harming protected bats in Ohio, Pennsylvania and West Virginia over the next 50 years. The proposal would cover not only exploration and well development through fracking, but also pipeline construction.  “Oil and gas companies are trying to pull a fast one here by getting a 50-year free pass to kill bats,” said Jared Margolis, an attorney at the Center for Biological Diversity, which filed comments opposing the proposal on behalf of several national and local environmental groups. “As these bat species continue to decline, more must be done to protect their habitat, yet this proposal would authorize companies to do no more than the minimum to mitigate the extremely harmful impacts of their fossil fuel extraction activities.”The bats at issue include the endangered Indiana bat, the threatened northern long-eared bat and three species that have been proposed for Endangered Species Act protections — the little brown bat, the eastern small-footed bat and the tri-colored bat. These species have been decimated in recent years by white-nose syndrome, a fungal disease that has spread rapidly across the eastern half of the United States, and is estimated to have killed more than 6 million bats in the Northeast and Canada. “Bat populations are plummeting, and any additional stress or harm to these species and their habitat only exacerbates the risk that they will be lost forever,” said Ryan Talbott, attorney for Allegheny Defense Project. “It’s simply not possible to develop a plan that adequately predicts what management actions may be necessary to protect these species and their habitats over the course of 50 years of oil and gas exploitation.”

Bat Out of Hell - Bat-related Delay in Rover Pipeline A Godsend for Canadian Gas? - The build-out of incremental natural gas takeaway capacity out of the Marcellus/Utica region has come in fits and starts, with new pipelines—as opposed to the reversal or expansion of existing pipes—proving to be the most troublesome. Energy Transfer Partners and Traverse Midstream Holdings’ long-planned 3.25-Bcf/d Rover Pipeline to southern Michigan is a case in point. The latest challenge for the $4.2 billion project is getting final federal approval in time to allow tree clearing along the pipeline’s 711-mile route to be completed before federally protected bats start roosting in early April. If that timeline’s not met, Rover’s planned completion later in 2017 may be delayed a full year, enabling Western Canadian gas producers to sell more gas to Ontario and the Upper Midwest. Today we assess what’s at stake for ETP, Traverse, and producer-shippers in the Marcellus/Utica and Western Canada. The adjacent and over/under Marcellus and Utica shale plays in Pennsylvania, northern West Virginia and eastern Ohio have had a profound effect on the U.S. energy sector. Natural gas production in the Marcellus took off about seven years ago, rising from ~2 Bcf/d in early 2010 to ~18 Bcf/d now. Utica production’s meteoric ascent started in mid-2013; since then the play’s output has increased from ~300 MMcf/d to ~4.2 Bcf/d. In addition to giving the U.S. an entirely new gas-production epicenter, the development of the Marcellus/Utica is forcing a major reworking of the nation’s gas pipeline delivery network. That network was once geared to moving vast quantities of Gulf Coast gas to the Northeast and Midwest, but now it is focused on moving gas out of Pennsylvania, West Virginia and Ohio in just about every direction—to New England, the Mid-Atlantic states, the Southeast, the Gulf Coast, the Midwest and Ontario/Quebec. We discussed this extensive re-plumbing at length in our 50 Ways to Leave the Marcellus Drill Down Report, and more recently in I Saw Miles and Miles of Texas/Part 1, our series of Drill Down reports on transporting Marcellus/Utica and other gas to LNG export terminals along the Gulf Coast (and to Mexico) and in our Too Much Pipe On Our Hands? blog series.

Steam cracker feedstock selection in changing times. The Shale Revolution has had a profound impact on U.S. NGL markets by vastly increasing production and by lowering NGL prices relative to the prices of crude oil and natural gas. That has been good news for the nation’s steam crackers, the petrochemical plants that have enjoyed low NGL feedstock prices since 2012. Today we begin a series on how steam cracker operators determine day-by-day which feedstocks are the most economic, and on the factors driving the value of ethylene feedstock prices. NGL production, the pricing of NGL “purity” products (ethane, propane, normal butane, isobutane, and natural gasoline), and steam cracker economics are frequent topics in the RBN blogosphere. Nearly five years ago, when U.S. NGL production was just beginning to take off, we ran a series on feedstock economics (Let’s Get Cracking) that provided a primer on ethylene production and discussed this underlying principal of feedstock acquisition in the steam cracker industry: The best cracker feedstock is the one that will produce the highest ethylene margin possible, after deducting byproduct credits. Two years later, in the midst of the biggest run-up in NGL production in U.S. history, we took an even deeper dive into the NGL/steam-cracker world with our What’s Crackin’ With Steam Crackers Drill Down Report (available to RBN Backstage Pass members). In that report, we discussed the fact that the margin for producing ethylene with ethane (the lightest and most prolific NGL) had just hit an all-time high (~70 cents/lb—a record that still stands today) due to the combination of a low ethane price (~24 cents/gal) and a high price for ethylene (76 cents/lb). Well, a lot’s changed since then. NGL production volumes remain high and ethane prices are still on the low end, averaging only 19.5 cents/gal in 2016 (although just last week ethane prices hit a two-and-a-half-year high of 28 cents/gal).  However, ethylene prices have tumbled (to about 25 cents/lb) and so has the margin for producing ethylene with ethane––that margin averaged ~19 cents/gal for 2016, and now stands at only ~15 cents/lb, down nearly 80% from the September 2014 pinnacle

Pennsylvania gas-related employment doubles in nine years - Natural gas-related employment in Pennsylvania has more than doubled in the last nine years, due to the development of the Marcellus Shale play, according to a report by the Pennsylvania Department of Labor and Industry. "Direct employment in gas development grew from 9,017 to 19,623 over the past nine years of the Marcellus boom," the quarterly Marcellus Shale Update reports. The department began tracking the impact of Marcellus Shale gas development on the number of jobs in key industries in early 2015, although the employment impact of shale gas drilling in the play had begun making itself felt much earlier than that, James Martini, a Pennsylvania labor department economist, said in an interview on Wednesday. "This was really started about 2008; employment really started to grow among those industries," he said. Job growth in the state "peaked probably sometime toward the end of 2014, the beginning of 2015," as a result of the price-related downturn in the oil and gas industry."It's just not as profitable to drill wells right now, due to the price," Martini said. "There's been a slowdown and a job loss in those industries in the last couple of years." Data from the labor department, which tracks employment levels in the second quarter of each year, show employment in the state in six core industries rose to an estimated high point of 31,189 estimated jobs in the second quarter of 2012, then fell slightly to 29,839 in the same quarter of 2013 before rising again in the second quarter of 2014 to almost the exact same level as two years earlier.

A new front emerges in the battle against eminent domain - Eminent domain attorneys and their clients battling new pipelines in Pennsylvania courts feel they may have a new weapon in the fight against controversial projects like Sunoco’s Mariner East. The recent decision by the Pennsylvania Supreme Court to toss out industry-friendly provisions of the state’s oil and gas law included eminent domain for gas storage.All across the state, private landowners have fought eminent domain takings for pipelines, arguing that the lines do not serve the public good. But they haven’t had much luck in convincing county judges, who have in all but just a few cases, ruled against landowners.In September, a majority of the Supreme Court ruled that using eminent domain for underground gas storage violated both the federal and state constitutions. The court wrote that the public was not the “primary and paramount” beneficiary, as the state had claimed. “Instead, it advances the proposition that allowing such takings would somehow advance the development of infrastructure of the Commonwealth. Such a projected benefit is speculative, and, in any event, would be merely an incidental one and not the primary purpose for allowing these takings,” wrote Justice Debra McCloskey Todd for the majority. The decision was cheered by lawyers like Alex Bomstein, an attorney for the Clean Air Council challenging eminent domain takings by Sunoco Logistics for the Mariner East 2 pipeline. Mariner East 2 will carry natural gas liquids from western Pennsylvania to Delaware County where it will be shipped to Scotland to make plastics.  “Mere economic benefit is not enough,” said Bomstein. “Right now in Pennsylvania nobody is starving from lack of ethane. Nobody is crying in the streets for more butane. There is no apparent public need for these things and that’s demonstrated by the fact that [the gas products] are being exported.”

Another Native-led pipeline battle bubbles up in New Jersey - The Ramapough Lunaape Nation has spurred the charge against the proposed 178-mile Pilgrim pipeline, which would transport Bakken crude oil from Albany, New York, to New Jersey’s Linden Harbor. The pipeline would cut through forests and a critical drinking water reservoir.Last week, the town of Mahwah, New Jersey, issued summonses against the Ramapough Lunaape for establishing a campground and protest signs without permits — even though they’re on tribal land.Unlike the federally recognized Standing Rock Sioux Tribe, the Ramapough Lunaape Nation is only recognized by New Jersey and New York. The federal government isn’t bound by the same obligations to non-recognized tribes, meaning this fight is more complicated than the Dakota Access Pipeline resistance.In 1993, the nation’s bid for federal recognition crumbled — thanks in part to Donald Trump, who campaigned against the Ramapough Lunaape to stamp out potential casino competition in Atlantic City. This isn’t the nation’s first brush with environmental racism by a long shot. In the mid-20th century, Ford Motor Company dumped thousands of tons of toxic paint sludge on Ramapough ancestral land — the same land Pilgrim could trespass. The area became a Superfund site after years of soaring cases of cancer and birth defects within the community.

Is the Pilgrim Pipeline Protest the Next #NoDAPL?  Is this the next #NoDAPL ? The Ramapough Lunaape tribe in the township of Mahwah, New Jersey are protesting the interstate Pilgrim Pipeline , a proposed 178-mile dual pipeline that would carry fracked Bakken shale oil from Albany, New York to the Bayway Refinery in Linden, New Jersey.  While it is not yet finalized, the preliminary route crosses five counties and 30 municipalities in New Jersey and five counties and 25 municipalities in New York, as well as the Highlands region, where the groundwater and surface water are the direct source of water for more than 4.5 million people in both states, according to the Coalition Against Pilgrim Pipeline . The pipeline would also run through a portion of the Ramapo Valley Reservation. Similar to the Standing Rock Sioux, the Lunaape worry that a potential pipeline leak would pollute drinking water and sacred sites.  "The Pilgrim Pipeline is another of the many needless pipelines running through the Lunaape homeland which is endangering the water of millions, while it appears to be criminally circumventing federal law," Ramapough Lunaape Chief Dwaine Perry told MintPress earlier this month.   The $1 billion project, operated by Connecticut-based Pilgrim Pipeline Holdings , consists of two parallel pipelines so crude and refined products can be sent in both directions. The pipeline is capable of carrying 400,000 barrels of oil per day.  Members of the Lunaape want others in New Jersey to join their fight against the project. NBC New York reports that the Lunaape have displayed anti-Pilgrim pipeline signs alongside teepees that were initially erected to recognize the efforts of the Standing Rock Sioux, who are protesting the heavily contested Dakota Access Pipeline in North Dakota.

Gas company wants new ruling on West Virginia royalties: (AP) — A Pittsburgh-based natural gas producer has asked West Virginia's top court to reconsider its recent ruling that gas companies cannot take deductions for post-production costs from royalty payments to the state's landowners for mineral rights. The State Journal ( reports EQT Production Co. wants the Supreme Court to withdraw its November ruling and rehear the case. The ruling was requested by the U.S. District Court for the Northern District of West Virginia, where Patrick Leggett and several other mineral rights owners sued EQT, arguing the company was improperly deducting fees from royalty payments. Leggett owns a farm in Doddridge County where EQT has about 20 wells. He says the company deducted 25 to 30 percent from royalty payments for years. EQT's lawyers argue the court misinterpreted state law.

FuelFix Not Fooled By New Fracking Study … Were You? -- The University of Chicago is out with a new study titled “The Local Economic and Welfare Consequences of Hydraulic Fracturing,” which compares the costs and benefits of fracking in nine shale regions in the US. According to the school’s press release, the new study has some great news for the oil and gas industry. And yet, the oil and gas industry has so far responded with cricket chirps. Now, why is that? Part of the problem could have to do with timing. The results of the study were publicly announced in a press release issued on December 22 by the Energy Policy Institute at the University of Chicago (EPIC) with this headline… Study suggests hydraulic fracturing boosts local economies…and this subheading:On average, benefits such as employment and income gains have exceeded costsThat looks like some serious pie on the windowsill for oil and gas fans, but so far no-one has bothered to swipe it. As of this writing, the American Petroleum Institute has not issued a statement of cheer for the findings, and a quick check of the Intertubes hasn’t turned up anything from other major stakeholders.Our friends over at FuelFix ran with the press release on December 22, but they didn’t just repost it. Their headline was this… Fracking benefits local economies, but drives up crime rates, study finds…and their lede (fancyspeak for first paragraph) was this: Hydraulic fracturing and the shale boom have provided  many benefits for communities around the country, but the boom has also driven up local crime rates and decreased residents’ quality of life, according to a University of Chicago study released Thursday. That’s much closer to the study’s actual content than the EPIC headline expresses. Here’s a snippet from the abstract for the full study: …estimated willingness- to-pay (WTP) for the decrease in local amenities (e.g., crime and noise) is roughly equal to -$1000 to -$1,600 per household annually (-1.9% to -3.1% of mean household in-come). Overall, we estimate that WTP for allowing fracking equals about $1,300 to $1,900 per household annually (2.5% to 3.7%), although there is substantial heterogeneity across shale regions.

'Fracking' debate lacks basic groundwater research - On Dec. 13, the U.S. Environmental Protection Agency released a long-awaited final report on the effects of hydraulic fracturing on drinking water resources in the United StatesThe report identifies risk factors based on a review of available data and studies. But it is short on definitive statements.  The EPA has struggled with its messaging, which was summarized in an earlier draft as there is "no evidence for widespread, systemic impacts" and in the final report as "hydraulic fracturing activities can impact drinking water resources under some circumstances."  Although consistent with one another, these statements convey different overarching messages in media reporting. The messaging problems arise in large part because the U.S. government has funded little fundamental research to address key unanswered questions. The  EPA report notes insufficient pre- and post-fracturing data on the quality of drinking water resources and the paucity of long-term, systematic studies.  Unfortunately, studies to date for hydraulic fracturing have relied almost exclusively on wells of convenience — domestic wells that are sampled to address questions of liability.  Such wells are a poor substitute for specially-designed monitoring wells. They also lead to a false sense that the issue of groundwater contamination is being addressed in a comprehensive way. Groundwater moves slowly, and contaminant occurrence in aquifers used for drinking water can significantly lag behind oil and gas well installation and hydraulic fracturing. This time lag complicates the true picture of groundwater contamination and supports the need for long-term monitoring. Groundwater supplies more than 40 percent of U.S. drinking water and virtually all of the drinking water in rural areas, where most oil and gas operations are underway. Once contaminated, groundwater is exceedingly difficult and expensive to clean up.

EPA says fracking study's data gaps are an important contribution to science - The EPA says its fracking study, published this month, is the most comprehensive look so far at all the science available on whether or not fracking pollutes drinking water. Critics have pointed to a lack of data in the report, which led to limitations in the agency’s conclusion that fracking “impacts drinking water under some circumstances.” The EPA’s science advisor Tom Burke says the gaps in data represent the “state of the science.” “The identification of data gaps is actually an important contribution to the science and not a failure,” said Burke. “We are really just beginning to understand fracking,” he said.   Burke says that in addition to lack of information about all the shale gas wells, there is a lack of information about locations of groundwater aquifers, and the quality of the water. For a decade, Pennsylvania residents living in shale gas areas worried that fracking could pollute their water. The state has found more than 250 cases where shale gas drilling and production did contaminate drinking water. In 2010 Congress ordered the EPA to investigate.  The agency used the northeastern Pennsylvania town of Dimock as one of its case studies. Dimock had garnered international headlines and drew visitors and protestors from around the world after gas drilling led to dangerous levels of methane migrating into some resident’s drinking water. Residents also suspected other toxic chemicals from the gas operations had leaked along with the methane. Back in 2012, Dimock resident Victoria Switzer described her experience to StateImpact. Like a lot of people who live near fracking in rural areas, Switzer got water from a well in her backyard. But soon after the gas wells went in, she said her water turned black, then orange. Then one day it was soapy. “It was foamy and grey and it smelled,” she said. “Richie the neighbor thought it was turpentine, I thought it was perfume like.” But here’s the thing, there was no baseline water testing done at her home before gas drilling. Without that, it was difficult to prove the gas company polluted her water. Cabot Oil and Gas denied responsibility. The residents relied on donated water and struggled to figure out what was in their well water, and how it got there.

Meet the New EPA Fracking Report, Same as the Old EPA Fracking Report - Triple Pundit (registration) (blog) -- The US Environmental Protection Agency touched off a virtual tsumani of criticism from environmental stakeholders in June 2015, when it released a major oil and gas fracking study that seemed to downplay the risk to the nation’s water resources. The drilling industry welcomed the report as vindication but it looks like both sides should have taken a deep breath and waited, because the 2015 report was only a draft version. Earlier this month EPA released the final results of its fracking study. Although the final report was based on essentially the same data as the draft version, it elicited exactly the opposite set of responses. So, what changed? The main problem with the draft version of the fracking study seems to have been rooted in the way that EPA chose to present it to the public, not in the report itself.EPA issued a press release for the draft report on June 4, 2015. Right under the headline, “Potential Impacts to Drinking Water Resources from Hydraulic Fracturing Activities,” the press release provided a one-sentence summary that sparked waves of dismay among environmental groups and scientific organizations: Assessment shows hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources… That was actually not the entire one-sentence summary. The full sentence contains an important caveat:  Assessment shows hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources and identifies important vulnerabilities to drinking water resources. That “important vulnerabilities” caveat was repeated in the first paragraph of the press release.  The press release is also pretty clear that those risk factors do exist, and they do cause problems in specific cases: EPA’s review of data sources available to the agency found specific instances where well integrity and waste water management related to hydraulic fracturing activities impacted drinking water resources, but they were small compared to the large number of hydraulically fractured wells across the country.  That brings us to the final version of the report, released on December 13 under the title, “Hydraulic Fracturing for Oil and Gas: Impacts from the Hydraulic Fracturing Water Cycle on Drinking Water Resources.”  The New York Times greeted the final version with the headline, “Reversing Course, E.P.A. Says Fracking Can Contaminate Drinking Water,” which is clearly not what happened. EPA already included specific instances of contamination in the draft report, and it also referred to them in last year’s press release. So, there was no course reversal. What EPA did do was revise its press release. In the final version, the headline is “EPA Releases Final Report on Impacts from Hydraulic Fracturing Activities on Drinking Water,” and the new one-sentence summary is this: EPA’s report concludes that hydraulic fracturing activities can impact drinking water resources under some circumstances and identifies factors that influence these impacts.

Study says drill noise can cause health problems — Forget about breathing silica dust or drinking methane-infused water: A new study suggests merely hearing the noise associated with natural gas fracking operations can jeopardize human health. Industry leaders, however, maintain their operations are safe, while highlighting declines in carbon dioxide pollution due to electricity producers switching their fuel sources from coal to natural gas. The study, in which West Virginia University occupational and environmental health professor Michael McCawley participated, suggests those living near fracking operations can experience “sleep disturbance, cardiovascular disease and other conditions that are negatively impacted by stress.” “People living near oil and gas development may bring up concerns like air pollution, traffic and groundwater safety, but many also complain about noise,” said Jake Hays, director of the Environmental Health Program at PSE Healthy Energy, a nonprofit research institute based in Oakland, Calif. “But until now, most of the research relevant to public health has focused on the impacts of air and water pollution.” In addition to methane, natural gas producers have confirmed the potential to discharge various amounts of pollutants into the air from the operations at well sites, compressors and refineries. These include benzene, carbon dioxide, nitrogen oxides, carbon monoxide, sulfur dioxide, carbon dioxide equivalent, xylenes, toluene and formaldehyde. However, environmental researchers now are concerned with the noise drilling and fracking operations create. Indeed, the noise generated at the sites is such that some companies working in the Upper Ohio Valley establish sound barrier walls around their operations to mitigate the public disturbance. “Oil and gas operations produce a complex symphony of noise types, including intermittent and continuous sounds and varying intensities,” Researchers claim fracking noise negatively impacts human health in three areas: Annoyance, sleep disturbance and cardiovascular health. They claim sustained, low-decibel sounds can be as disruptive as high-decibel sounds.

Court tells EPA to review its rules on oil and gas waste - A federal court directed the U.S. Environmental Protection Agency to review and possibly update its regulations on oil and gas waste, in a decision that was welcomed by environmental groups who had sued the agency, claiming its rules have failed to keep pace with the fracking boom. The U.S. District Court for the District of Columbia issued a consent decree late Wednesday saying the EPA must review the regulations, and if necessary issue a new rulemaking if it deems an update to be appropriate. The actions must take place by March 2019, the court said. The consent decree, which is designed to settle a dispute between two parties without either admitting guilt or liability, is the outcome of a lawsuit against EPA by seven environmental groups who claimed that the agency has failed to review oil and gas waste regulations, as required every three years under the Resource Conservation and Recovery Act of 1976. In the suit, filed in May, the plaintiffs said existing regulations are too weak to stop the escape of toxic materials such as benzene and mercury that have been used in the fracking boom since the mid-2000s. The environmental groups including the Natural Resources Defense Council and the Environmental Integrity Project argued that EPA should use the law to stop drillers spreading fracking waste on fields and roads, and require landfills and pond that receive fracking waste to install liners that prevent leakage. The suit also urged EPA to use the rules to address the disposal of waste water in underground injection wells, a practice that has been linked to earthquakes in several states.

U.S. refiners cash in on Mexico's record fuel imports -(Reuters) - U.S. Gulf Coast refiners are cashing in on rising fuel demand from Mexico, shipping record volumes to a southern neighbor that has failed to expand its refining network to supply a fast-growing economy. The fuel trade could top a million barrels per day (bpd) at times in 2017 as Mexico becomes increasingly dependent on the United States for strategic energy supplies and providing business worth more than $15 billion a year to refiners such as Valero, Marathon Petroleum and Citgo Petroleum. The rise in Mexico's fuel imports reflects an economy that, after expanding for 27 quarters in a row even amid a public austerity plan, has been unable to increase its refining output to satisfy the consistent growth of its energy demand. It has led to rapid reversal in energy trade between the two countries. In 2016, crude exporter Mexico will be a net oil importer from the United States for the first time as shipments of refined fuel heading south outnumber shipments of crude to the north, according to the U.S. Energy Information Administration (EIA). Just ten years ago, the United States' net oil imports from Mexico stood at 1.45 million bpd. Profit margins for the exports are strong for U.S. Gulf Coast refiners, said a source at a refiner involved in the trade.Mexico constitutes a bright spot in what has otherwise been a dark year the U.S. refining industry with profits at a five-year low in 2016. The exports also help to ease a supply glut in the U.S. market, said Barclays equity analyst Paul Cheng. That boosts profit margins industry-wide, even for refiners that are not directly involved in the trade, he added.Mexico's fuel demand is around 2.04 million bpd and the government expects growth of 2-3 percent per year in coming years. The country is the world's fourth-largest consumer of gasoline. Car sales through September increased 18 percent on the year, to a record of 1.12 million units, pointing to continued strong demand growth.

US refiners export record amounts of gasoline, diesel - The U.S. last week exported a record 8 million barrels of gasoline and nearly 10 million barrels of distillates, or diesel, according to weekly government data released on Thursday. U.S. refined product exports have been growing as refineries run at high levels and the U.S. has been oversupplied with gasoline and crude oil. Analysts said a big chunk of the exported fuel probably went to Mexico and destinations in South and Central America."We have never exported more gasoline and distillates than we did last week. ...The total amount of exports is huge. There's no doubt about it that it's a record," said Tom Kloza, head of global energy analysis at Oil Price Information Service.The 1.1 million barrels of gasoline exported per day, rose from 795,000 barrels a day the week earlier and 472,000 barrels a day at the same time last year, according to weekly data from the Energy Information Administration.Final detailed data on December exports will not be available for several months. October data should be available next week. Distillate exports totaled 1.4 million barrels a day last week, up from a four week average of about 1.2 million barrels a day."The export markets are taking what the domestic demand doesn't need, and it's good for refiners on the Gulf Coast…from that stand point it's helping refining margins," said Andrew Lipow, president of Lipow Oil Associates. He said there is strong demand in Mexico and the Caribbean at this time of year.Kloza said Mexico has increasingly become a destination for U.S. gasoline exports, as refineries there are far less efficient and run at about 50 percent capacity compared to closer to 90 percent in the U.S."They're just across the Gulf of Mexico. We've added two million barrels a day of [refining] capacity to the U.S. in this century," he said. "If it weren't for gasoline exports - and the highest months for exports can be December and January - we'd be looking to match that big inventory buildup we had last January." Kloza said supply peaked last winter at about 258 million barrels.Mexico exports its heavier crude to the Gulf Coast for refining. In September, just over 500,000 barrels a day of Mexican crude was sent to the U.S.  "There's clearly a lot of demand for Gulf Coast gasoline. The difference maker is exports. I think Mexico is probably 40 to 50 percent of it."

Massive ethane shipment launches out of Port of Houston -- The world's largest ethane carrier has officially departed the world's largest ethane terminal, naturally. The Ethane Crystal vessel set sail from Houston-based Enterprise Products Partners LP's new terminal at Morgan's Point,  the Houston Chronicle reports. The carrier is the first of its kind to be classified as a VLEC, or a very large ethane carrier. According to multiple trade reports, the Ethane Crystal is the first of six VLECs that South Korea’s Samsung Heavy Industries Co. Ltd. is building for India’s Reliance Industries Ltd. Meanwhile, Enterprise's terminal is the largest of its kind in the world and has been in the works since 2014. The first ethane export out of the terminal occurred this fall. The VLECs can transport more than three times as much ethane as the vessels that carried the terminal's initial shipments, the Chronicle reports. The cost of the terminal was not disclosed in 2014, but in Enterprise’s second-quarter 2016 earnings report, the company said the ethane export facility was part of $1.4 billion worth of projects expected to be completed by the end of this year.

OKOGA responds to new guidelines for fracking - – The Oklahoma Oil & Gas Association (OKOGA) today said its member companies are ready to immediately implement the Oklahoma Corporation Commission’s new guidelines for hydraulic fracturing that are intended to help manage and mitigate anomalous seismic activity that has occurred near oil and natural gas completion operations. The Commission in a joint release with Oklahoma Geological Survey (OGS) said preliminary research indicates that the anomalous seismic events have been “small” and “less frequent.” The Commission stressed that these guidelines are a proactive approach to address these anomalous events and that its primary focus continues to be on disposal activities in the state-designated Areas of Interest where there remains a higher risk of induced seismicity. “The Commission’s announcement is another example of states being in the best position to move quickly and effectively to properly regulate oil and natural gas activities using transparent data and sound science,” said OKOGA’s President Chad Warmington. “The new guidelines to manage and mitigate anomalous seismic events will help to protect and maximize the development of Oklahoma’s abundant natural resources for years to come. As the data indicates, these seismic events have been small, rare and manageable. OKOGA operators in Oklahoma are actively monitoring their operations and adjusting in real time if they identify geologic risk factors, using methods that have proven effective in Ohio and British Colombia. The OCC’s new guidelines will compliment these efforts. “Seismic activity in Oklahoma is down more than 20 percent since last year, thanks to measures taken by the state in collaboration with the Oklahoma oil and natural gas industry and the scientific community. We remain committed to being an active partner and working together to understand and further reduce the number of seismic events in Oklahoma.”

More work needed to combat ozone pollution, climate change  - Two years ago, NASA discovered a methane plume the size of Delaware stretching into southwestern Colorado from northern New Mexico. At the time, we suspected this methane cloud was caused in large part by emissions from the oil and gas industry. And thanks to NASA’s recently released follow-up report, we know that oil and gas-related emissions are a driving force behind the Four Corners methane cloud. The vast infrastructure of natural gas “processing facilities, storage tanks, pipeline leaks and well pads” are contributing to methane leaks in the Basin. Interestingly, only a small percentage of sites are driving emissions. NASA’s data found that just 10 percent of sites contributed more than half of the observed emissions. These sites known as “super emitters” are not an uncommon problem within the oil and gas industry and have been observed in other studies.   Interior Secretary Sally Jewell recently announced new rules to cut methane waste and pollution that are set to take effect in January.  Methane is a powerful greenhouse gas contributor that is 80 times more powerful than carbon dioxide in the near term. It is crucial to make cuts now to slow down the effects of climate change that we are already seeing; such as higher temperatures, drought and longer, more intense wildfire seasons in Colorado that are worsening our air quality. When methane is released, oil and gas operations also emit toxic chemicals, such as benzene, that can harm the health of oil and gas workers and families living near drill sites, as well as ozone-formingvolatile organic compounds. Ozone can trigger asthma attacks and worsen COPD, and is especially harmful for at-risk populations such as children, seniors, low-income populations and minorities.

Oil companies hiring fracking crews in Bakken — Oil companies are hiring in the Bakken, and more jobs are expected to open up next year. Job Service North Dakota announced six oil companies are looking for workers to man fracking crews in the new year, said Cindy Sanford, customer service office manager of Job Service’s Williston branch. She said she couldn’t reveal the names of the companies due to confidentiality clauses, but she said the companies are looking to hire 45 to 65 workers per crew. On the low end, that could bring 300 hires to the Bakken, she said. “It’s getting busier in our offices, as far as not only with job seekers but also the companies,” said Phil Davis, the agency’s western area director. “We are seeing more of the service rigs — not so much the drilling rigs — but our service rigs and workover rigs, jobs are coming back there, which is a great thing.” Oil companies announced in October they would post positions for workers in the Bakken as oil prices climbed to an 18-month high in December. Oil on the New York Mercantile rang out Thursday at $53.83, almost a 50 percent increase over last year. That’s down from an all-time high of $136.29, which was set July 3, 2008, but almost double the 10-year low — barrels of oil went for less than $27 in early 2016. After peaking in June 2014, oil prices started to fall off, causing oil companies to lay off workers and take rigs offline. As of Thursday, North Dakota’s rig count was 39. That’s down from its all-time high of 218 in May 2012, but the count has been on a slight increase over the past several months. The recent job postings in western North Dakota mostly are for service or workover rigs, which are used to complete a well and install the pump after drilling is done. As of Thursday, almost 500 jobs posted on Job Service North Dakota mentioned oil.

Shale Spending Is Set To Soar - Oil prices are rising and the worst of the downturn appears to be over. After two years of spending cuts, 2017 could mark the first time in several years that spending levels across the oil and gas industry increase. North American oil and gas companies could ratchet up spending by as much as 30 percent, according to Raymond James. That will be possible because banks are finally showing signs of loosening credit once again, after two years of slashing lending.  The credit redetermination period, which occurs twice a year in the spring and fall, has been a closely watched event since the start of the oil price downturn in 2014. Every six months, oil analysts and investors pay close attention to see if banks will cut off drillers, hoping to reduce their exposure to a risky industry. Over the course of 2015, banks showed surprising leniency, considering the magnitude of the downturn and the extraordinary debt levels across the sector. But as the oil bust stretched into 2016, touching new lows, credit became increasingly hard to come by for the most indebted drillers. Still, the latest credit redetermination period illustrated some evidence that the industry is already passed an inflection point – the oil market is already beginning to rebound. According to Reuters, 34 oil and gas companies saw their credit lines raised by an average of 5 percent, providing an additional $1.3 billion in lending. That is a dramatic turnaround from the 40 percent reduction in credit witnessed over the past three redetermination periods, stretching back to early 2015. Not all companies received more favorable treatment – 10 companies surveyed by Reuters saw their credit lines cut and 12 more were left unchanged. A major variable in determining the amount of credit offered to drillers is the oil and gas reserves on a company’s books. When oil prices collapse, more of the reserves become economically unviable, leading to a reduction in lending. But, with oil prices rising, the reverse is happening: exploration companies are finding that more oil and gas reserves under their possession are now deemed to be profitable, opening up the lending taps. For example, Diamondback Energy, a Midland, Texas oil and gas company, saw its credit line increased from $700 million to $1 billion.

Freezing Winter Sees Natural Gas Prices Surge - Natural gas prices are surging as cold weather eats into U.S. inventories, tightening the market much more quickly than many analysts had expected. The blast of Arctic weather in December put a strain on natural gas markets, with millions of people cranking up the heat to keep warm. The EIA reported a surprise dropin storage levels in the week ending on December 16, falling by 209 billion cubic feet. That decline puts total storage levels at 3,597 Bcf, or just a small 78 Bcf above the five-year average. Such a scenario was difficult to imagine earlier this year, when the U.S. was emerging from peak winter demand season with record levels of gas sitting in storage. Flush with supply, prices crashed below $2/MMBtu. But natural gas production suddenly started to fall after years of blistering growth, upending forecasts calling for years of oversupply. Meanwhile, demand continues to rise as gas-fired power plants replace coal, so while natural gas consumption is highly seasonal, the seasonal peaks are getting taller and the valleys are getting shallower. Structural demand will continue to rise.By mid-December, Arctic weather descended on much of the U.S., pushing temperatures to extremely low levels. As a result, the heating degree days (HDD) – a measure of demand for gas pertaining to home heating – was 11 percent above average.But seasonal shifts still matter. In the first three weeks of December U.S. natural gas consumption averaged 92 billion cubic feet per day (Bcf/d), up 21 percent from year-ago levels and also 17 percent above the five-year average. In other words, the U.S. is consuming natural gas at record levels, leading to a much faster drawdown in inventories than had been predicted earlier this year. The end result is that natural gas prices are surging, topping $3.70 per million Btu (MMBtu), the highest price in years. The tightening of the market and the rise in prices is a godsend for struggling gas drillers, which had fallen out of favor with investors in recent years because of persistently low prices. Chesapeake Energy, one of the largest natural gas producers in the U.S., has seen its share price spike by more than 300 percent this year, and it’s also up by more than a third in just the past few months, reflecting the rise in gas prices.

Natural Gas Prices Rise on Cold Weather Forecasts - WSJ: Natural gas prices rose sharply Wednesday as forecasts called for colder weather and as futures’ expiration likely forced sellers to buy and close out their positions. Natural gas has been on a tear as weather forecasts have shifted colder. The rally had paused earlier Wednesday as market participants took profits and awaited more information about January temperatures, but prices surged at the end of the session as traders scrambled to close out positions, brokers and analysts said. Natural gas for January delivery gained 16.9 cents, or 4.49%, to settle at $3.93 a million British thermal units on the New York Mercantile Exchange, the highest settlement value in more than two years. The more actively traded February contract rose 13.2 cents, or 3.51%, to $3.898 a million British thermal units. “It’s not the most liquid of times for the markets,” said Scott Shelton, a broker at ICAP, noting that jockeying ahead of the contract expiration could have an outsize effect on prices amid otherwise light holiday trading. Forecasts of colder weather as natural gas stockpiles shrink are also lifting prices, analysts said. “Bullish sentiment could push people out of short positions and cause short covering. I think that’s what we saw today in the expiration of the January contract but it’s probably true in some of the other contracts as well,” Weather models are suggesting that a blast of cold Arctic air will lower temperatures across the U.S. in January, ending a spate of mild weather that weighed on prices in recent weeks. Winter weather is the biggest driver for natural gas demand and often for prices, since about half of U.S. homes use natural gas for heat. Low temperatures in December have already led to high demand. Analysts and traders are expecting the U.S. Energy Information Administration to report Thursday that stockpiles shrank by 221.5 billion cubic feet in the week ended Friday, nearly three times the usual withdrawal from storage this time of year, according to the average forecast of analysts, brokers and traders surveyed by The Wall Street Journal. That would bring the amount of natural gas in storage below the five-year average.

Natural gas prices flare up to 2-year high on cold weather, lower supply  -- Natural gas futures surged to the highest price in two years on expectations a blast of cold air next month will boost demand as stockpiles decline.The January natural gas futures contract gained 4.5 percent to settle at $3.930 per million British thermal units, the highest since December 2014. The contract expired Wednesday afternoon, and the new front-month contract for February was also up sharply, at $3.89 per mmBtus.Traders said natural gas futures also moved higher on expectations for a big drawdown in supply for a second week, when the government releases data at 10:30 a.m. ET Thursday. The Energy Information Administration is expected to report that storage shrank by about 220 billion cubic feet of gas for the week ended Dec. 23.That would mean that gas in storage — at an estimated 3.375 trillion cubic feet — would be more than 10 percent below last year's level and 1.8 percent under the five-year average for last week, according to Dow Jones. Natural gas has gained 11 percent in three sessions and is up 68 percent for the year. It hit a low of $1.61 per mmBtus in March. "We're up 65 cents in less than two weeks, all on that call for the return of colder weather. I think the market might have gotten ahead of itself," said Gene McGillian, manager of market research at Tradition Energy. John Kilduff of Again Capital said the market got a push from the latest forecast from the government that showed colder temperatures for most of the country in January.

Natural Gas Drillers Rush To Hedge Production As Prices Soar - Natural gas prices are soaring on cold weather and falling production, spreading optimistic conditions for gas producers for the first time in years. Natural gas spot prices are at their highest point since 2014, boosting share prices for drillers across the industry. Because natural gas prices are notoriously volatile, many companies are not taking any chances, locking in hedges for future production. According to S&P Global Market Intelligence, many top U.S. natural gas producers have already started to secure hedges for their production at $3 per MMBtu, which stands in stark contrast to how they approached 2016.  For example, at the start of the year, Chesapeake Energy and Southwestern Energy Co. had no hedges for their 2016 production, a decision that likely haunted them as natural gas prices fell below $2/MMBtu for large stretches of the first and second quarters of this year. Having been burned by the market, Chesapeake and Southwestern seemed to have learned their lesson, with both companies recently moving to secure hedges for next year. Both companies have more than half of their estimated production locked in at $3/MMBtu, S&P Global Market Intelligence says.  Other companies are following suit, even drillers that are not exclusively focused on gas. "We've been hedging significantly more, so that's helped underpin and provide more comfort to the cash flows that we'll have in 2017, but the opportunities are there to add more hedges and more rigs if prices go high enough,” Devon Energy’s CEO David Hager said on Devon’s quarterly earnings call in November. Devon, an Oklahoma and Texas-focused oil and gas producer, had 29 percent of its 2017 gas production hedged at $2.98, S&P said.  Locking in hedges at $3/MMBtu and above will provide a good bit of breathing room for natural gas producers, which have had a tough time over the past few years. Natural gas prices have not been this high since late 2014, and with NYMEX futures prices averaging above $3/MMBtu throughout 2017, a dose of optimism is spreading throughout the industry. Share prices for many natural gas producers likely have huge upsides heading into the New Year.

Natural Gas Price Wobbles Following Massive Inventory Drawdown -  The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks decreased by 237 billion cubic feet for the week ending December 23. Analysts were expecting a storage decline of between 220 billion and 230 billion cubic feet. The five-year average for the week is a withdrawal of around 80 billion cubic feet, and last year’s storage decline for the week totaled 58 billion cubic feet. Natural gas inventories fell by 209 billion cubic feet in the week ending December 16. Natural gas futures for February delivery traded down by around 2% in advance of the EIA’s report, at around $3.82 per million BTUs, and traded around $3.84 immediately after the data release. Natural gas closed at $3.90 per million BTUs on Wednesday, a five-day and 52-week high. The 52-week range for natural gas is $2.49 to $3.90. One year ago the price for a million BTUs was around $2.86. Demand for natural gas was nearly four times higher last week than in the same period a week ago and nearly three times higher than the five-year average. In case you’re wondering, yes, it’s really cold out there. For the coming week, demand is expected to be moderate for the first part of the week as temperatures warm up along the East Coast and in the central and southeastern parts of the country. But another Arctic blast is expected to hit the northwest and northern Plains early next week, sending temperatures plunging again as the weather system moves east. Frigid weather is expected to drive demand very high by the end of next week. Stockpiles have now dropped to 10.9% below their levels of a year ago and 2.3% below the five-year average. The EIA reported that U.S. working stocks of natural gas totaled about 3.360 trillion cubic feet, around 79 billion cubic feet below the five-year average of 3.439 trillion cubic feet and 413 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 3.773 trillion cubic feet for the same period a year ago.

Natural Gas Retreats Despite Major Stockpile Drain -- Natural gas prices retreated Thursday as moderating weather forecasts had traders pulling back slightly from a strong rally despite a larger-than-expected withdrawal from stockpiles. Natural gas for February delivery settled down 9.6 cent, or 2.5%, to $3.802 a million British thermal units on the New York Mercantile Exchange. The retreat comes a day after prices rallied to nearly $4/mmBtu for the first time in two years on expectations for a heavy drain from stockpiles and weather forecasts that have suggested extreme cold destined for parts of the country in January. Thursday’s weather updates showed colder-than-normal weather patterns breaking up or retreating more quickly than expected and warmer-than-normal weather sticking around in some big East Coast markets a little longer and more strongly than previously forecast. About half of U.S. homes use natural gas for heat, making winter weather the biggest driver for demand and often for prices. “There’s some thinking that the cold’s going to be short lived,” said Kyle Cooper, a consultant for Ion Energy Group in Houston. Futures did pare some losses after the federal government’s weekly storage update showed last week’s drain from storage went far beyond expectations. The U.S. Energy Information Administration said natural-gas stockpiles shrank by 237 billion cubic feet last week, compared with the 222 bcf expected by forecasters surveyed by The Wall Street Journal. But weather forecasts have been even more important than storage updates in recent weeks because traders are trying to anticipate how cold the heart of winter will be and how much heating demand might drain stockpiles that are still near record highs. Some also expect cold weather to be even more impactful than usual after several years of the country’s power grid shifting to use more natural gas, potentially making winter demand spikes much larger than historical norms.

NYMEX February gas settles 9.6 cents lower at $3.802/MMBtu -  The NYMEX February natural gas futures contract settled at $3.802/MMBtu Thursday, down 9.6 cents from Wednesday, after trading in negative territory for the entire session. The NYMEX January contract surged nearly 17 cents before expiring Wednesday, however, the February contract has not followed suit, tumbling ahead of and then on the heels of the weekly storage report release by the US Energy Information Administration. The amount of gas in US storage facilities fell 237 Bcf to 3.360 Tcf in the week that ended December 23. The withdrawal was slightly larger than the 236-Bcf pull expected by an S&P Global Platts survey of analysts. It was also almost five times larger than the pull reported in the corresponding week last year and nearly triple the five-year average. It registers as the largest withdrawal of the ongoing heating season and the largest since a 240-Bcf draw was reported for the week that ended January 24, EIA data show. "With a bullish storage report and colder-than-normal weather outlook, the likely explanation for this pullback in the contract is that the market is taking a breather, but we're likely to head higher from here," .. In the corresponding week in 2015, the EIA reported a 50-Bcf draw, while the five-year average is a withdrawal of 80 Bcf. The pull finally flipped the surplus to the five-year average to a deficit for the first time in 2016 and put stocks further below levels at this time last year. It was also only the third time the EIA has reported a pull of greater than 200 Bcf during the month of December, although it was the second such draw in a row. As a result, stocks were 413 Bcf, or 10.9%, below the year-ago level of 3.773 Tcf, and 79 Bcf, or 2.3%, under the five-year average of 3.439 Tcf.

Natural Gas Prices Extend Thursday's Decline, However Broader Bias Remains to the Upside  - Economic Natural gas prices are down roughly 1.4% in today’s trading, falling to $3.743. This follows a decline by the contract for February delivery on the New York Mercantile Exchange of over 2% on Thursday. For the week overall, the contract is up 1.3% and, for the year, natural gas prices are up 30%. In yesterday’s trading, the weekly Energy Information Administration natural gas storage report showed a decline of 237 Billion Cubic feet (Bcf) for the week ending December 23rd, the sixth successive draw. The decline was larger than the 209 Bcf last week and above consensus expectations of a 219 Bcf draw. This was the largest draw since February 2014 and over three times the average decline at this time of the year. However, natural gas futures still declined due to short term weather forecasts. According to, high pressure will return this weekend over the East to ease national demand back below normal. It will be mild over the central and southern US into next week while the West has weather systems return with valley rains and mountain snows. Most importantly, however, early next week an Artic outbreak is expected into the Northwest and Northern Plains, then spreading south and east Wednesday through Friday. Overall, natural gas demand will be moderate increasing to high-very high late next week. Thus, natural gas prices are expected to stabilize as resume the move to the upside in next week’s trading. Resistance is at the latest rally high at $3.902. The next target is at the upper boundary of the gap formed in late 2014 at the $4.062 level, as can be seen on the weekly chart. On the downside, support has been found in the vicinity of the December 9 corrective top at $3.758. Although today’s price action broke below this level, the break was minimal and additional downside follow through is required in order to confirm a solid breakdown and suggest natural gas prices are heading lower.

Natural Gas: Still Far From A 'Long Bubble' - (6 graphs) The latest Commitments of Traders report by the CFTC shows Money Managers continued to reduce their short exposure at a rapid pace. Aggregate short position in Henry Hub financial futures-plus-options dropped by another ~0.2 Tcf, a third major weekly decrease in a row (the graph below). In the meantime, Money Managers' aggregate long position in Henry Hub financial futures-plus-options was little changed week on week. On a net basis, Money Managers' aggregate net length increased by a staggering 1.5 Tcf in just six weeks, an abnormally wide fluctuation in the context of the metric's historical volatility. At 3.0 Tcf, Money Managers' current net length in Henry Hub futures-plus-options represents a major positioning turnaround relative to the net short position of as much as 0.6 Tcf as recently as in March of this year.

U.S. Shale Is Now Cash Flow Neutral - Oil prices are probably already high enough to spark a rebound in shale production.  The IEA says that in the third quarter of 2016, the U.S. shale industry became cash flow neutral for the first time ever. That isn’t a typo. For years, the drilling boom was done with a lot of debt, and the revenues earned from steadily higher levels of output were not enough to cover the cost of drilling, even when oil prices traded above $100 per barrel in the go-go drilling days between 2011 and 2014. Even when U.S. oil production hit a peak at 9.7 million barrels per day in the second quarter of 2015, the industry did not break even. Indeed, shale companies were coming off of one of their worst quarters in terms of cash flow in recent history. That all changed around the middle of 2015 when the most indebted and high-cost producers went out of business and consolidation began to take hold. E&P companies began cutting costs, laying off workers, squeezing their suppliers and deferring projects that no longer made sense.  By 2016, oil companies large and small had shed a lot of that extra fat, running leaner than at any point in the last few years. By the third quarter, oil prices had climbed back to above $40 and traded at around $50 per barrel for some time, replenishing some lost revenue. That was enough to make the industry cash flow neutral for the first time in its history.  That suggests that moving forward, the shale industry could move into cash flow positive territory. Oil prices seem to be trading safely above $50 per barrel for the time being, and OPEC cuts could induce more price gains. The industry is now focusing on shale plays that have lower breakeven prices, namely, the Permian Basin and some parts of the Bakken. Wood Mackenzie suggests that $55 per barrel is a sweet spot for the oil and gas industry to rebound, a level that is only slightly above today’s prices. At $55 per barrel, the shale industry is cash flow positive and will grow accordingly.

U.S. Prepares To Sell Off Its Oil Reserves --The U.S. is beginning to wind down one of the core energy security policies of the past half century as the boom in domestic drilling eases concerns about supply. The U.S. Department of Energy could begin to sell off some of its strategic petroleum reserve (SPR) as soon as January, the beginning of a multi-year process to shrink the nation’s stockpile of oil. Congress has authorized DOE to sell off $375.4 million worth of oil in its recent budget resolution. The DOE said that such a sale could be held in January 2017. To be sure, part of the motivation to sell crude is to finance upkeep for the SPR itself.The reserves are held in salt caverns in Louisiana and Texas, setup decades ago in the aftermath of the Arab Oil Embargo in 1973. The SPR system can hold more than 700 million barrels of oil, the largest strategic stockpile in the world. The idea is that the SPR holds 90 days’ worth of oil supplies, which could be released in the event of a global outage. A release has only occurred a handful of times, such as the Persian Gulf War, Hurricane Katrina and the Arab Spring.mSome of the storage systems are rusting and corroding after decades of use. In September, the DOE issued a report to Congress, which came to a dire conclusion about the condition of the reserve. “This equipment today is near, at, or beyond the end of its design life,” the report said. The sale "will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve, a DOE spokesperson said in December after the budget resolution was passed. It is hard to overstate the significance of the SPR to U.S. energy policy. In fact, some analysts would argue the U.S. does not really have a comprehensive energy security policy. There is no coherent theory, policy or philosophy driving U.S. energy security concerns, other than the U.S. military policing the world to ensure the security of supply, a mission that has governed American actions abroad since the Carter administration at least. The one cornerstone of energy security policy has been the SPR. As long as the U.S. had 3 months’ worth of supply, it could weather unexpected disruptions. The International Energy Agency was setup in the 1970s as well, and participating members – in addition to the U.S., the group includes Europe, Japan, Korea, Australia and New Zealand – also have pledged to hold a 90-day supply. But U.S. policymakers no longer view the SPR is all that important. Even the more hawkish members of Congress have been lulled into a sense of security from the surge in U.S. oil production and the resulting crash in oil prices. The world is awash in oil, so why does the U.S. need to stockpile such a massive volume of oil at great expense? The ostensible reason of selling off oil from the SPR is to finance its maintenance to ensure its existence over the long-term, but if the Congress still truly believed in the importance of the SPR, they would have found funding elsewhere instead of reducing the stockpile.

US Russia Relations: Rex Tillerson's ExxonMobil Could Restart Russia Operations If Trump Cancels Sanctions: Oil giant ExxonMobil successful lobbied against a bill that would have made it difficult for President-elect Donald Trump to lift sanctions against Russia, Politico reported Sunday. The Texas-based corporation can now restart its billion-dollar program in the country if Trump decides to ease restrictions against Moscow. The bill, called STAND for Ukraine Act, would have extended sanctions imposed against Russia by the Obama administration in 2014 — in response to Moscow’s annexation of Crimea — for five years, making it difficult for his successor to repeal the sanctions. The bill, which passed the House was introduced in the Senate on Dec. 9 with only Democratic cosponsors. However, the Senate adjourned earlier this month without discussing the Russian sanctions making it easy for Trump to do away with the restrictions, should he choose to do so when he assumes office. Trump’s pick for secretary of State, ExxonMobil CEO Rex Tillerson, is expected to play a key role in influencing Trump’s decision on the sanctions. The restrictions imposed in 2014 reportedly forced ExxonMobil to abandon its oil drilling project in Russia’s Arctic, which cost the company nearly $1 billion. Exxon collaborates with Russia’s state-owned Rosneft on 10 ventures in the Russian Arctic, the Black Sea and western Siberia.

Canada’s Trudeau says Trump very supportive of Keystone XL pipeline - Canadian Prime Minister Justin Trudeau said on Wednesday that U.S. President-elect Donald Trump was “very supportive” of TransCanada Corp’s proposed Keystone XL crude oil pipeline in their first conversation after the U.S. election. “He actually brought up Keystone XL and indicated that he was very supportive of it,” Trudeau told an event in Calgary, Canada’s oil capital. “I’m confident that the right decisions will be taken.” Trudeau, who too supports Keystone XL, said also he saw “extraordinary opportunities” for his country if the United States under Trump steps back from tackling climate change, a move that would make Canada relatively more attractive for green-technology investment. Trump has said he would approve the 830,000-barrel-per-day Alberta-U.S. Midwest Keystone XL which the Obama administration rejected over environmental concerns. Trump’s election heartened investors in Canada’s battered energy industry, which has struggled with two years of low prices and long-running concerns about market access. Critics of Trudeau’s Liberals say Canada’s environment policies will make the country less attractive to resource-based investment compared to the United States.

Canada’s pipeline plans compromise its climate goals - Last October, many environmentalists let out a sigh of relief at the news that Canadians had elected a new prime minister: Justin Trudeau. For nearly a decade, they had watched in dismay as his predecessor, Stephen Harper, muzzled climate scientists and gutted environmental laws. With Trudeau in charge, the whole country looked greener. There were plans for a new nationwide carbon tax, an end to fossil fuel subsidies, and a goal of achieving net zero emissions by 2050. Just this week, Trudeau announced a freeze of offshore leasing in Canada’s Arctic waters for at least five years. During last year’s Paris climate negotiations, the new prime minister boasted, “Canada is back, my friends.” But a rash of approvals for new fossil fuel projects has left many of those hopes dashed—alongside doubts about Canada’s ability to meet its climate goals. In late November, the Canadian government announced long-awaited decisions on three major oil sands pipelines, approving two of them. For Trudeau, the mixed pipeline decisions reflect an effort to find balance between environmental protection and economic growth. Alberta’s tar sands account for roughly three percent of Canada’s economy and a large chunk of its exports, helping fund programs such as government provided health care. Though the new pipelines will allow Canada’s carbon-intensive oil industry to expand, they will not, Trudeau insisted, compromise its commitment to reducing greenhouse gas emissions under the Paris Agreement.

Can The Canadian Oil Industry Recover In 2017? --Even with oil barely over half of what it fetched in June of 2014 and the active drilling rig count doing better than (December 20, 2016 – 257, December 16, 2014 – 420; source JWN Rig Locator) compared to two years ago, it is obviously reckless to declare next year a success while it hasn’t even started yet. However, it appears 2017 will provide significantly better times than the two previous years perhaps not by design but by exception. It won’t be as bad as 2016 because oil and gas prices are higher and it looks to be headed in an opposite direction from 2015 which was characterized by continuous contraction. Historically, most times this industry looks forward with even modest optimism it has been incorrect. The herd always seems to be going in the wrong direction. Super. However, the recent OPEC and non-OPEC cooperation meetings have placed a floor under oil prices. Bloomberg News ran a headline December 18 declaring, “OPEC Deal Makes Oil Investors Most Bullish Since Slump Began”. It reported about the weekly data from the U.S. Commodity Futures Trading Commission where speculators report trading positions. The last time this many traders were going “long” on crude was July of 2014. Meanwhile, the shorts continue to retreat. One New York hedge fund manager said, “There’s been a full embrace of the OPEC, non-OPEC deal. They are being given the benefit of the doubt. The consensus is supplies will tighten quickly and as a result investors are positioning for higher prices in the near term.”Since oil prices began their freefall in late November of 2014 there has been mountains written about what crude will or won’t do. Every modest gyration in the U.S. rig count or storage levels has caused prices to move one way or another. In the end what causes prices to rise is when more commodity traders think it should go up than down. This is why the CFTC data is comforting, at least for this week. After all this has happened before.The easiest explanation of why 2017 looks materially different than the past two years comes from the December mid-month report from the International Energy Agency (IEA). Analyzing the news from the two supply management meetings, the IEA redrew its main chart through to mid-2017 which is reproduced below. 

Christmas gas shortages weaknesses in Mexico's oil industry - Drivers in parts of Mexico have found themselves mired in long lines or turned away from gas stations in the days and weeks before Christmas, as fuel shortages hit cities and towns in the state of Michoacan. The shortages have been attributed to a number of factors, including pipeline theft, pricing and maintenance issues for state oil company Pemex, and speculation ahead of a shift to competitive-pricing model slated for January. These challenges and the resultant shortages come at a time when Pemex’s refining and transport capacity is lagging the strong growth in demand. In the days before Christmas, at least 50 gas stations in Morelia, a city in northeastern Michoacan state, and surrounding communities were facing shortages. Gasoline and diesel were hard to find in many places, with long lines at some stations and others displaying “no gasoline” signs. “There’s been a lot panic buying with lines 40 cars long at gas stations and many closed in Morelia,” . In other parts of the state, drivers were gathering in lines at 7 a.m. at stations where sales began at 10 a.m. Gas shortages have been reported in at least 12 Mexican states, including San Luis Potosí, Guanajuato, Aguascalientes, Chiapas, Nuevo Leon, and Oaxaca. In San Luis Potosí there were reports of lines with more than a 100 cars and tens of people on foot with tanks and containers.Shortages appeared in parts of Michoacan two months ago, and gas-sector officials in the region indicated that shortages of some types of gas and in some areas would continue well into 2017.  Pemex authorities have asked consumers not to make "panic buys" of gasoline so that the company could restore supplies as soon as possible. The firm also said it was stepping up its resupply efforts.

US gasoline exports to Mexico hit record high on refinery issues, strong demand - Mexico's record-low refinery production and growing consumer demand helped push US gasoline exports there to a new high in October, a trend that has boosted prices in both countries. Gasoline exports to Mexico climbed 1.86 million barrels to 12.08 million barrels in October, according to US Energy Information Administration data released Friday, the highest total since that data started being tracked in 1993. The previous peak was 11.42 million barrels in December 2010. Mexico is by far the largest importer of US gasoline, taking in 45.8% of the 177.4 million barrels of finished gasoline the US exported through October of this year. That export demand has pushed prices to unseasonably strong levels in the US Gulf Coast, which typically sees demand weaken during the fall and winter months.The outright price for Gulf Coast pipeline-delivered conventional gasoline was assessed at $1.7098/gal Thursday, its highest price since August 18, 2015. Conventional gasoline is the main grade exported to Mexico, as it does not require ethanol blending. "I think [Mexico has] come to accept the fact that it makes more sense to import products from more efficient refineries right next to them on the Gulf Coast than to keep wasting money on their own inefficient system," The main issue plaguing Mexico's 1.6 million b/d refining capacity is "chronic underinvestment in downstream investments over the years," Another hurdle is the difficulty in processing the heavy sour crude the country produces.

High Court rules fracking can go ahead in North Yorkshire -- Anti-fracking campaigners have lost their legal challenge to a decision to allow fracking to take place in North Yorkshire. Third Energy was granted planning permission to extract shale gas at Kirby Misperton in Ryedale in May. Friends of the Earth and residents had challenged North Yorkshire County Council’s decision in the High Court. Planners had voted 7-4 in favour of the application, despite more than 4,300 objections and only 36 representations of support. It was the first fracking operation to be approved in England since a ban was lifted in 2012. Campaigners had claimed in court the county council had not considered the impact on climate change and had not put provision in place for money to fund any remedial works.

US LNG makes negligible impact on European gas market - The startup in February this year of US LNG exports based on cheap American shale gas had been expected to see a good proportion of cargoes heading across the Atlantic to Europe given the relatively short shipping route and Europe's massively underused LNG import capacity. But with European gas prices staying stubbornly low for most of the year and the margins for US LNG having been largely eroded due to the slump in global LNG prices, in the end only a handful of cargoes ended up in Europe. As 2016 nears its end, more than 50 cargoes have left the Cheniere Energy-operated Sabine Pass terminal in the Gulf of Mexico for international markets. But of those cargoes, just three landed in mainland Europe -- one in Portugal, one in Spain and one in Italy -- while another two shipments were made to Turkey. According to industry sources, the two to the Iberian Peninsula were considered to be "test" cargoes given that they were not followed up by any new cargoes, while the shipment to Italy was seemingly a one-off as it was procured by Uniper to meet its obligations under the country's "peak-shaving" tender program. Italy's economy ministry holds tenders several times a year for companies to provide gas that can be used during periods of unexpected peak demand. Uniper won Italy's latest peak-shaving tender held in October and opted to supply 105,000 cu m of LNG (63 million cu m of gas) from Sabine Pass to be stored "until needed" at the Toscana FSRU off the coast of Livorno. So the evidence so far suggests that southern Europe has been able to attract some US LNG -- though in limited volume -- but the appeal of US LNG in northwest Europe has yet to emerge where competition from pipeline suppliers Norway and Russia is fierce.

Who Wants To Keep Gas Flowing Through Ukraine And Why?  --This past year of 2016 set a new record for the export history of Gazprom, Russia’s biggest gas company. Its chairman, Alexey Miller, has claimed that by the end of the year Gazprom will have shipped a total of 180 billion cubic meters to non-CIS countries.Gazprom had only planned to export between 166 and 170 billion cubic meters of gas in 2016 (in 2015, 158.56 billion cubic meters of gas were delivered to non-CIS countries).But even this new high is not the limit. Gazprom’s latest calculations envision a further uptick in shipments in 2017, and those will primarily be to the European Union. The key factors here are, first and foremost, the weather conditions (this winter promises to be a more severe one in Europe than last year), and second - the jump in demand for gas in Europe that has been seen in recent months in the face of lower domestic production in EU countries.The biggest consumers of Russian gas are still Germany (47.4 billion cubic meters in 2015), Turkey (27 billion), Italy (24.4 billion), Great Britain (22.5 billion), and France (10.5 billion). And Russian gas shipments play a very important role in ensuring the energy security of Southeastern Europe. In 2015 Bulgaria purchased 3.1 billion cubic meters of gas from the companies that make up the Gazprom Group, while Greece bought 2 billion cubic meters, Serbia - 1.9 billion cubic meters, and Croatia - 0.6 billion cubic meters.The market price for Russian gas has taken some interesting twists and turns. It is worth noting that that figure has risen right along with the increase in supply. This proves once again that the close interdependence of European consumers and Russian energy suppliers is «overriding» the market formula: simultaneous growth in both supply and price is an atypical phenomenon in a market environment, however, it proves once again that any moves aimed at «replacing» Russian gas or «displacing» Russia from the EU gas market might be disruptive for Europe’s energy sector.The attempts by some countries to block Russian gas supplies look particularly irrational in this context. This primarily applies to Poland, which rushed to the European Court to appeal the European Commission’s decision to allow Gazprom greater access to the OPAL pipeline that links Nord Stream with the gas-transit system of Central and Western Europe.

Platts: Will India Become The New Engine Of Growth In Asia? -- Platts tweeted this about two hours ago, "Will India become the new engine for Asian demand growth?" And then a link to their video snapshot titled "five commodity themes to watch closely in 2017." Here they are:

  • OPEC production: OPEC's agreement to cut production and then non-OPEC producers also agreed to cut production; tough implementation is just beginning
  • US production: US oil production: under Obama, US crude oil production grew "breathtakingly" from less than 5 million bopd to 9.5 million bopd (no comments, please); Trump is pro-US crude oil growth; at $65 WTI, IRR for US operators is estimated to be between 35 and 40%; plenty of capital available; watch for lots of hedging; how will that affect OPEC's plans to cut production
  • Asian demand: will India become the new engine for growth in Asia
    • for the 3rd year in a row, 2017 is likely to see a larger percentage rate for growth in oil demand in India than in a slowing Chian
    • current Indian demand is similar to that of China in the 1990s
    • Indian govt likely to increase crude oil demand; Make In India initiative (see link)
    • India's initiatives have caught the interest of Saudi Aramco and Rosneft
    • see graphic below
  • Global gas market: is 2017 the year in which we see the emergence of a global gas market?
    • could global prices for natural gas converge? this is a huge story
    • see graphic below
  • EVs: could 2017 be the year that economic reality hits the electric car market (at 4:13 in the video)

Oil Rally Gains Momentum Ahead Of OPEC Cuts - OPEC and non-OPEC cuts set to begin next week. The oil production cuts that OPEC and a handful of non-OPEC countries agreed to will take effect on January 1. The deal calls for a six-month average, so even leaving aside the possibility of cheating, participating countries are not exactly obliged to start cuts immediately. The cuts could take place at a later date so that average levels hit the targeted range by June. Moreover, data on what exactly is happening at the ground level will come in on a delay, with January output levels not published until February. As a result, while the oil markets are optimistic that OPEC and non-OPEC countries are accelerating the move towards a balance, we may not get a clear picture if that is indeed the case for a few months. In the most bullish case, OPEC and non-OPEC take a combined 1.8 million barrels of oil per day off the market by mid-year, which would likely push the supply/demand balance into a deficit. Presumably that would lead to a rise in oil prices, but analysts are skeptical that such a scenario will truly play out. “To go above $60 is going to be difficult. We’re already close to the top rather than the bottom of the range right now,” Olivier Jakob, oil analyst with Petromatrix, told Reuters. “From January, we’ll start to have a better idea about the level of OPEC production. That is going to be more and more of a focus.” A survey of oil analysts puts oil at $58 per barrel over the course of 2017, fueled by tighter conditions after the OPEC cuts. The prices would be up roughly a quarter from this year’s average. The big question, however, is how quickly and how substantially U.S. shale output comes roaring back. Citigroup estimates an increase of 500,000 barrels per day if oil prices average $60 per barrel. Macquerie largely concurs, with the firm predicting a 1 mb/d increase if oil prices rise above $60. “It’s going to take them a while to gear up,” Mike Wittner, head of commodities research at Societe General, told Bloomberg. “The investment’s got to gather pace, the drillers and the fracking contractors also need time. It’s a gradual process.”

Oil Is Going To $10 Or $90 In 2017, Depending On Who You Ask --In a Reuters poll of 29 analysts and economists carried out after the OPEC deal, Raymond James had the highest 2017 forecast for Brent price, at US$83 per barrel, while the poll saw Brent averaging US$57.01 next year. On the opposing side is Shawn Driscoll, portfolio manager at the T. Rowe Price New Era fund, who told earlier this month that “we’re in a secular bear market for oil”, expected to go on for 10 to 15 years. Other analyst projections are “massively” underestimating how quickly and how big the U.S. shale comeback will be, Driscoll said, adding that he sees oil at below US$50 at the end of 2017, and a “dip below $40 a barrel” at some point in 2018. Most of the other projections in the past month or two — prompted by the pending OPEC deal and then the cartel’s agreement to cut output–have not only talked oil prices up, but made more analysts optimistic that an agreement would speed up the drawdown of the global oil glut. The market is likely to move into deficit in the first half next year by an estimated 600,000 bpd, said the International Energy Agency (IEA), as long as OPEC and non-OPEC producers manage to (and are willing to) stick to promised cuts. More than a month before the deal was announced, the World Bank raised its oil price forecast for 2017 to average US$55 next year, or US$2 more than its earlier forecast. At oil above US$55 next year, energy consultancy Wood Mackenzie sees the oil and gas industry turning cash flow positive for the first time since the downturn, and expects 2017 will be a year of “stability and opportunity” for the sector. In its latest Short-Term Energy Outlook from December 6, the U.S. Energy Information Administration (EIA) expects Brent Crude prices to average US$51.66 in 2017, with WTI Crude prices averaging US$50.66 next year. However, EIA warned: “The values of futures and options contracts indicate significant uncertainty in the price outlook.”

OPEC Production Cuts Have Already Failed – New Supply Rapidly Offsetting Quotas -- Once the again the decision by OPEC to manipulate the price of oil by cutting production is proving to be totally futile, with the reopening of pipelines in Libya reinforcing the idea it was a bad decision from the beginning. OPEC members were correct on one thing. Unless all the members cooperated, along with key producers outside the cartel, the initiative would fail. With U.S. production starting to climb once again, Libya and Nigeria adding supply, and Russia strategically taking its time to comply with the quotas it agreed to, this deal is rapidly falling apart as to its effect on the oil market. It’s going to get worse with output from the U.S., Libya and Nigeria expected to continue to climb.   Even if all the participants in the cuts were to adhere to quotas - which isn't going to happen - it wouldn't matter any longer with the new supply quickly coming to the market.

Goldman Flip Flops Again, Now Sees High OPEC Compliance -- In just five days, Goldman Sachs has changed its mind about the expected OPEC cuts compliance, now seeing cartel members—especially Saudi Arabia—as having a “strong” incentive to stick to promised cuts, which prompted the bank to raise on Friday its WTI price forecast for the second quarter next year to US$57.50 from US$55. The forecast for WTI price for the first quarter of 2017 was left unchanged at US$55. Goldman Sachs also lifted its Brent Crude price forecast to US$59 from US$56.50 for the second quarter, and now expects Brent price to average US$57.40 next year, up by US$3.40 compared to previous estimates. Five days ago, Goldman was expecting low compliance to the cuts, and kept its WTI price forecast at US$55 for the first half of 2017. Having analyzed Saudi Arabia’s fiscal revenue expectations and outlook for next year, Goldman now sees the compliance at 84 percent. “Ultimately, our work on Saudi Arabia’s fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories, even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister,” Goldman Sachs said in a note today, as quoted by Platts.

US crude settles at $53.90, up 1.7%, just days before producer output cuts take effect -  Oil jumped 1.7 percent Tuesday, continuing its year-end rally with support from expectations of tighter supply once the first output cut deal between OPEC and non-OPEC producers in 15 years takes effect on Sunday. U.S. crude prices have surged 25 percent since mid-November, helped by expectations for OPEC's supply cut and generally solid U.S. economic figures that have also bolstered equity prices. Trading was thin on Tuesday, with less than one-third of the usual volume in futures contracts in West Texas Intermediate crude oil. With oil near $54 a barrel, U.S. crude futures are not far from the year's high of $54.51 high reached on December 12. "Some of the doubts (in OPEC) people are showing are going to have to be put to rest," said Phil Flynn, analyst at Price Futures Group in Chicago. "There's a strong possibility that we're going to rally into the end of the year."  Jan. 1 brings the official start of the deal agreed by the Organization of Petroleum Exporting Countries and several non-OPEC producers to lower production by almost 1.8 million barrels per day (bpd). Brent crude was up 87 cents, or 1.6 percent, at $56.03 a barrel by 2:35 p.m. ET (1935). The global benchmark reached $57.89 on Dec. 12, the highest since July 2015. U.S. West Texas Intermediate crude settled up 88 cents, or 1.7 percent, to $53.90. Crude may struggle to rally much further before evidence is available of OPEC's compliance with the cuts, analysts said.

Oil rises for 4th day on optimism over production cuts - Oil futures rose for a fourth straight session on Wednesday, trading at nearly 18-month highs on expectations the Organization of the Petroleum Exporting Countries and other major producing nations will make good on promises to cut output in the new year.  On the New York Mercantile Exchange, light, sweet crude futures for delivery in February gained 16 cents a barrel, or 0.3%, to finish at $54.06—their highest close since July 2, 2015. February Brent crude on London’s ICE Futures exchange climbed 13 cents, or 0.2%, to $56.22 a barrel—the highest finish since July 22, 2015. “Remember it was a year ago almost to the day when Saudi Arabia said they would continue to flood the market with oil. Now we have the first OPEC and non-OPEC cut since 2001. Energy has made an incredible comeback and the new year looks bullish and bright,”   Most market participants are waiting to see if major oil producers inside and outside the Organization of the Petroleum Exporting Countries will deliver on pledges to curtail production beginning next month. The deal, if carried out as planned, should reduce global supply by about 2%. Venezuela, an OPEC member whose economy has suffered greatly due to low oil prices, on Tuesday committed to cutting 95,000 barrels a day in line with the pact. While market participants are at present optimistic that participating nations will abide by the pact, there is still a degree of skepticism about how closely and for how long producers will comply with individual quotas.  “We may see some reduction in output as production is ramped down toward the lower targets, although others could also be take the opportunity to push a few more barrels into the market at the most attractive price,”  Aside from quota cheating, U.S. shale production could also frustrate OPEC’s plan to shrink the supply overhang.

US crude settles at $54.06, setting a fresh 18-month high as the market awaits OPEC cuts  -- Crude oil prices edged up for a fourth consecutive session on Wednesday, close to their highest levels since mid-2015, ahead of U.S. oil inventory figures and as the market awaits evidence of OPEC supply reductions in the new year. U.S. benchmark West Texas Intermediate (WIT) crude oil prices settled up 16 cents at $54.06 for the best close since July 2, 2015. The intraday peak fell just short of the year's high of $54.51 reached on Dec. 12. Prices fell after the settle in light of data from industry group the American Petroleum Institute, which showed a surprise build of 4.2 million barrels in U.S. crude inventories. Five analysts polled ahead of weekly inventory reports from API and the U.S. Department of Energy's Energy Information Administration (EIA) estimated, on average, that crude stocks declined by 1.5 million barrels in the week to Dec. 23. The EIA report has been rescheduled to Thursday at 11 a.m. EST (1600 GMT), following the federal holiday on Monday because of the Christmas holiday.   International Brent crude futures crude futures fell 15 cents to $55.94 a barrel by 4:41 p.m. ET (2141 GMT). The international benchmark hit $57.89 on Dec. 12, its highest since July 2015. Trading was thin on Wednesday, with just 189,000 front-month futures contracts changing hands in WTI by 11:07 a.m. ET (1607 GMT), compared with a daily average of 525,000 over the last 200 days. It is expected to remain quiet for the balance of the week.

Oil Slides After Biggest Inventory Build In 6 Weeks - Having risen for the 8th straight day - the longest stretch in 7 years - oil prices kneejerked lower after API reported a surprisingly large 4.8mm inventory build (1.5mm draw expected) - the largest in 6 weeks. Gasoline and Distillates saw draws but Cushing built for the 4th week of the last 5. API

  • Crude +4.2mm (-1.5mm exp) - biggest in 6 weeks
  • Cushing +528k (+500k exp) - 4th build in last 5 weeks
  • Gasoline -2.8mm (+1mm exp)
  • Distillates -1.7mm (+1mm exp)

Following last week's surprise build, API reported another surprise build this week in overall crude inventories... And the reaction was a kneejerk lower holding below $54...

Oil Falls After API Reports The Biggest Crude Inventory Build In 6 Weeks - Oil prices fell on Wednesday after having to 18-month highs as oil markets are anticipating OPEC cuts that are expected to be made starting January 1 next year. The American Petroleum Institute’s (API) weekly report showed build of 4.2 million barrels to the United States’ commercial crude inventories, instead of an expected 1.5 million-barrel draw.The build comes after last week’s report from the Energy Information Administration (EIA) that showed a build of 2.3 million barrels of crude oil in inventories the week prior. Gasoline inventories have seen several weeks of strong additions consumption started to fall because the winter weather has caused a bit of a lull in demand while refineries continue to churn out gasoline. API data this week shows a 2.8 million barrel draw to gasoline stockpiles whereas a one million barrel draw was predicted.Crude levels at the Cushing, Oklahoma continue to increase, and are rising in line with analyst expectations, 528,000 barrels were added. Crude storage levels at this key site have been rising rapidly since October, and this week’s report confirms the fourth build in five weeks according to Zerohedge.Lastly, API data sees a bullish 1.7 million barrel draw to distillate inventories.Today’s API projections are expected to be confirmed by tomorrow’s EIA data. Markets in the meantime remain optimistic about OPEC's willingness to stick to the output cut deal and CFTC data now show that the OPEC bears are feeling the squeeze and have now cut back bearish bets on WTI to levels not seen since August 2014. While oil traders seem extremely bullish, storage fundamentals indicate larger crude stockpiles than one year ago around this time of the year. The price of WTI was down 0.45% to $53.66 at 3:55 PM CST, while Brent traded 0.25% lower at $55.95. Gasoline prices were up 0.80% to $1.6750.

Has The OPEC Rally Gone Too Far? -- Oil prices continue to edge up as 2016 comes to a close, a dramatic turnaround for the industry compared to the start of the year.  In January, oil prices were melting down, dropping below $30 per barrel. The industry was panicking, slashing spending and jobs, and it was hard to see any evidence of a rebound. By December, things look much different. The industry is adding rigs back to the shale patch, oil prices are rising, the market is moving closer to balance, and the OPEC deal could accelerate that adjustment. The consensus is that oil prices will post further gains in 2017. But even as WTI trades above $54 per barrel – the highest price since the summer of 2015 – there are several reasons why oil should be trading much lower.

  • 1. Doubts over OPEC deal. The OPEC deal is set to take effect in a few days, but the promised cuts are not inevitable. First, the cuts are an average over a six-month period, and won’t be delivered immediately in January. Second, some cheating is to be expected, as OPEC has a long track record of non-compliance. Third, non-OPEC cuts, particularly from Russia, are also not a given. It will take time to see if participating countries actually deliver reductions, but the oil markets should be more skeptical than they have been to date.
  • 2. Libya and Nigeria will add output in 2017. Two key OPEC members – Libya and Nigeria – are exempted from the OPEC deal, and they have every intention of ramping up production. Together, Libya and Nigeria could offset roughly half of the entire promised OPEC reductions.
  • 3. U.S. shale comeback. Everyone is watching to see how quickly U.S. shale will rebound. Output is already back up by more than 300,000 bpd from a low point in July, according to EIA data. But that is just the beginning. The oil and gas rig count is already up by more than 60 percent since bottoming out in May. Estimates vary on how much additional production can be added in 2017, ranging from 500,000 bpd to 1 mb/d of new output.
  • 4. Dollar strength. The U.S. dollar has strengthened by more than 20 percent in the past two years and is now at its highest level in more than a decade.  OPEC will be more likely to cheat to take advantage of dollar-denominated sales because the upside of doing so will be larger. That would be bad news for prices if the deal starts to fall apart.
  • 5. Demand growth slows. The IEA projects oil demand climbing by just 1.3 million barrels per day (mb/d) in 2017, the lowest level in years. China, in particular, is seeing its demand growth slow as its strategic petroleum reserve starts to fill up. Weak demand will stretch out the time it takes for the market to balance.
  • 6. Inventories still elevated. Crude oil inventories are still at very high levels, well above long-term averages in both the U.S. and around the world.
  • 7. Oil speculators already stretched. Hedge funds and other money managers have already built up the most bullish position on crude oil since 2014, which has helped push up oil prices in recent weeks. The mass accumulation of net-long positions raises the risk of a snap back in the other direction should bearish news arise.

Oil Price Roulette: Investors Bet On $100 Oil  -- Oil prices are rising and speculators are already staking out bullish positions on futures for the next few months, but some traders are rolling the dice on a much bigger price spike in the next two years. Some contracts that pay off big time if oil prices hit $100 per barrel by December 2018 just saw a spike in interest, according to Bloomberg. The $100 December 2018 call option, Bloomberg says, “was the most traded contract on Tuesday across the whole ICE Brent market.” That contract gives the owner the right to buy Dec. 2018 futures at $100 per barrel. Few oil analysts expect oil prices to rise that high within the next two years. The oil market is still oversupplied, and even with the OPEC deal – which will take 1.8 million barrels per day off the market if fully fulfilled – the world is still flush with oil sitting in storage. It will take time to work through those inventories, providing a cushion to a tightening market. However, the sudden interest in such a remote possibility of a large price spike suggests that investors are growing more confident that the market is on the upswing. “That’s a relatively cheap lottery ticket,” “It’s clearly not the consensus in the market that we’re going to see a return to those prices any time soon, so it’s more likely a hedge against unforeseen geopolitical events during that time.” Purchasing these options may not be such a huge risk – Bloomberg says they could cost a bit more than $1 million while the payoff would be multiples of that if prices happened to go that high. It is similar to going to Vegas and playing roulette, putting some money on a single number or a few numbers, which have long odds but huge payouts. On the other hand, the spike in interest in the $100 options could also just be a small part of a broader hedging program from some companies, cropping up now since the contracts are two years out. With oil back above $50 per barrel, money managers have become much more bullish on crude. In fact, collectively, hedge funds and other investors have sold off short bets and purchased long positions, building up the most bullish net-long position in more than two years. OPEC has not yet cut back by a single barrel, but its Nov. 30 deal in Vienna has succeeded in sparking a bull run for oil.

Can U.S. Shale Add 1 Million Bpd In 2017? | Oil prices are up on expectations that OPEC will contribute to a faster balancing in 2017, with up to 1.8 million barrels per day in cuts along with some non-OPEC countries. That has put a floor beneath prices, with fears of another downturn largely dissolved after OPEC’s announcement. But what if U.S. shale comes roaring back and ruins the price rally? Estimates run the gamut on how quickly U.S. shale production can rebound and by what magnitude. Citigroup sees output rebounding by 500,000 barrels per day if oil prices average $60 per barrel. A December 12 report from Macquarie said that oil prices above $60 could spark a 1 million barrel-per-day revival. U.S. shale is already up about 300,000 barrels per day from a low point in the summer of 2016, at least according to preliminary data. The gains are expected to continue. The industry is producing about as much oil as it was two years ago, with only one-third of the more than 1,700 rigs in 2014. Drillers are producing just as much oil with a lot less effort. If U.S. shale surges back by 1 mb/d as Macquarie suggests, it would offset most of the cuts from OPEC and non-OPEC countries. Additionally, one would have to assume some degree of non-compliance and/or “cheating” on the cuts from participating countries, plus an expected increase in supply from Libya and Nigeria. Altogether, a rise in oil prices could be self-defeating, leading to prices falling once again later in the year.Then there are also the implications on oil demand to consider. Higher prices might cut into demand growth, leading to an expansion in consumption at a much slower rate. The IEA already thinks oil demand will grow by 1.3 million barrels per day in 2017, one of the weakest in years. An initial price spike might throw off those figures, causing estimates to end up being more optimistic than reality. Again, a price surge could be self-defeating, causing prices to fall right back down.

Caught Red-Handed? Iraq Is Talking Down Its Oil Exports - Even though crude prices may be subdued amid thin trading over the holiday period, there is always a thing (or five) going on in the oil markets. Henceforth, are five things to consider in oil markets today:

  • 1) SOMO, Iraq's state oil marketing company, has issued a statement saying it has firm plans to 'cut daily crude oil exports by specified percentages' as it looks to comply with its agreed production cut of 210,000 bpd. One thing it doesn't mention, however, is whether it will cut output by January 1, as agreed.
  • 2) According to our ClipperData, crude waiting offshore in the Gulf of Mexico has risen to a four-month high at just under 25 million barrels, amid strong arrivals from the Arab Gulf last week. There is still a backlog of large vessels in the US Gulf after inclement weather slowed imports in the week before last, while a modicum of ad valorem tax strategizing is also likely underway - bolstering volumes offshore.
  • 3) While Iran has entered into agreements relating to its natural gas - with deals with Total and CNPC - the country is yet to sign any oil deals with international companies - despite oil minister Bijan Zanganeh outlining 50 potential projects late last year.
  • 4) In recent days, BP has announced two deals - a $2.2 billion expansion of output in Abu Dhabi, and a $916 million investment in fields in Mauritania and Senegal. BP this year has also bought a 10 percent stake in Eni’s Egyptian gas field, Zohr, for $375 million, and part of Indonesia’s Tangguh LNG project for $313 million. Key takeaway? As oil prices rise, so doth the fortunes of the whole industry.
  • 5) Finally, according to Wood MacKenzie, a net 450,000 bpd of crude processing capacity will be added next year in Asia. This is the most since 2014, as refinery expansions from China to India will offset closures in Japan. This increase equates to a ~1.5 percent rise in Asian refining capacity; it is currently nearly 29 million bpd.

Oil Slides After Bigger Than Expected Inventory Build -- Oil prices were back to unchanged ahead of DOE data, after falling on last night's surprise API inventory build. Prices jumped higher however as DOE reported a much smaller build than API (+614k vs +4.2mm), though admittedly a build (expectations were for a draw). Cushing built for the 4th week of the last 5 but gasoline and distillates saw significant draws. Production dipped very modestly. DOE:

  • Crude  +614k (-1.5mm exp)
  • Cushing  +172k (+500k exp)
  • Gasoline  -1.593mm (+1mm exp)
  • Distillates -1.881mm (+1mm exp)

Product Inventory draws continue... Notably, as Bloomberg details, total product inventory outside the Strategic Petroleum Reserve took a big drop for the second week in a row, falling 12.9 million barrels. The total of 1.32 billion is the lowest level since March. The demand picture is mixed...

  • U.S. Fuel Demand Rose 0.51% in Past Four Weeks
  • Gasoline Demand Rose 0.56% in Past Four Weeks
  • Jet Fuel Demand Rose 2.41% in Past Four Weeks
  • Residual Fuel Demand Fell 25.70% in Past Four Weeks
  • U.S. Gasoline Demand Rose 9,000 B/D Last Week
  • U.S. Distillate Demand Fell 582,000 B/D Last Week

Gasoline exports also hit a fresh record as they rose 354,000 barrels a day to 1.149 million. This is the third week this year that exports have surpassed 1 million barrels a day.

Oil prices edge up despite unexpected U.S. crude inventory build -  (Reuters) - U.S. oil prices rose in early Asian trade on Friday shrugging off a second consecutive week of crude oil inventory builds, with a U.S. Energy Information Administration (EIA) report late on Thursday indicating an unexpected rise in crude stocks. U.S. benchmark West Texas intermediate (WTI) crude futures were up 18 cents or 0.33 percent to $53.95 at 0021 GMT after settling 29 cents lower at $53.77 per barrel in the previous session. Brent crude oil futures had yet to trade after settling 8 cents lower at $56.14 in the previous session. Crude inventories were up 614,000 barrels in the week to Dec. 23, the EIA data showed, compared with analysts' expectations for a decrease of 2.1 million barrel. Despite the unexpected rise in crude stocks, the EIA data published on Thursday showed a significantly smaller rise in crude stocks compared with Wednesday's American Petroleum Institute (API) data that indicated a 4.2 million barrel build in U.S. crude oil stocks in the same period. "Today's Department of Energy report was positive for light products due to draws in gasoline and distillate inventories compared to consensus' build expectations," British bank Barclays said in a note. Gasoline stocks fell 1.6 million barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel rise. The market is likely to have focused on the surprise draw in product stocks and taken on a slightly more bullish view toward the WTI contract, traders said. Oil prices will gradually rise toward $60 per barrel by the end of 2017, a Reuters poll showed on Thursday, with further upside capped by a strong dollar, a likely recovery in U.S. oil output and possible non-compliance by OPEC with agreed cuts.

Oil complex nearly flat after US crude build, product draws - Oil futures were little changed Thursday after US Energy Information Administration data showed a build in crude stocks, but draws in gasoline and distillate inventories. US crude inventories rose 614,000 barrels to 486.063 million barrels in the week that ended December 23, according to the EIA. Analysts S&P Global Platts surveyed Tuesday were looking for a draw of 1.5 million barrels. NYMEX January crude settled down 29 cents at $53.77/b. ICE February Brent expired 8 cents lower at $56.14/b. The March contract settled down 11 cents at $56.85/b. The main driver behind last week's build was a slowdown in refinery activity. Crude runs fell 101,000 b/d to 16.557 million b/d, lowering the refinery utilization rate by 0.5 percentage point to 91% of capacity.Analysts were looking for an increase of 0.5 percentage point, which was consistent with seasonal trends as refiners tend to ramp up activity in December after completing autumn maintenance. A decline in US crude imports helped mitigate the size of last week's crude build. Crude imports dropped 304,000 b/d to 8.167 million b/d. Imports have averaged 7.9 million b/d so far in 2016. A weaker dollar, which makes crude and fuel imports less expensive for holders of other currencies, helped support crude prices Thursday. The US Dollar Index was down 0.6 point at 102.69 in the afternoon. On Wednesday, that index approached last week's mark of 103.63, which represented a 14-year high.

OilPrice Intelligence Report: Oil Ends 2016 On A Bullish Note: Oil prices posted incremental gains at the start of this week on the eve of scheduled OPEC cuts, but had stalled by Thursday after the EIA reported a surprise uptick in oil inventories. Oil ends the year nearly twice as high as where it started, pointing to a more balanced market in the months ahead. U.S. shale promises discipline. By most accounts, U.S. shale is poised for growth in 2017. A tightening oil market could push prices up: Should crude hit $60 per barrel, shale output could rise by 500,000 bpd, according to Citigroup. At $70 per barrel, production would grow by 1 million barrels per day. That of course, could merely induce another downturn as the world becomes once again flush with supply. Some shale companies are expanding operations, but cautiously. “There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development," Harold Hamm, CEO Continental Resources, told Bloomberg. “They’re going to be disciplined going forward." The EIA reported another drawdown in natural gas stocks, with inventories falling 237 billion cubic feet in the week ending on December 23. That puts total stocks at 413 Bcf lower than last year’s levels at this time and also 79 Bcf below the five-year average. It is hard to overstate the significance of this development – inventories had been running well above the five-year average since late 2015, but are now back in normal territory. In other words, the gas market is no longer in a glut, which helps explain why prices are up above $3.81/MMBtu, the highest price in more than two years. Production has fallen this year while demand has climbed. If inventories continue to fall, prices will rise even further, potentially surpassing $4/MMBtu for the first time since 2014. That is good news for natural gas drillers, who are already adding rigs back to the shale patch. It is also good for coal-fired power plants, which are being called upon more than they have in the recent past to generate electricity. Oil prices often gain much more traction in the media, but the ongoing rise in natural gas is a huge untold story.  Hedge funds and other money managers have built up such a speculative position on rising oil prices that they risk sparking a liquidation if OPEC does not delivery on their promised cuts. "The boat is loaded to one side in the market right now. Shorts have covered. People have piled in from the long side, waiting for these cutbacks to come through. If they don't, there's going to be big punishment in this market," John Kilduff, founding partner of Again Capital, told CNBC's "Squawk Box." He also said that China could be the oil market’s Achilles’ heel, as growth continues to slow. Oil demand could disappoint if China fails to come through. “That's the real demand center. That's the swing place, and I still see issues there," he said.

Baker Hughes rig count, December 30, 2016 - Business Insider: The US oil rig count increased by two to 525 in the final week of 2016, rising to the highest level in a year, according to oilfield-services company Baker Hughes. The gas rig count increased by three to 132. With one miscellaneous rig remaining in use, the total count rose by five to 658. In 2016, the oil rig count staged a comeback not seen since the most recent oil crash. This week's increase put it just 11 rigs short of where it started the year, but well off pre-crash levels. After oil prices bottomed in February and started rising, producers gained confidence to increase activity. The crash caused demand for oilfield-services equipment to plunge, and forced drillers to find ways to produce more efficiently. US production levels will continue to be closely watched in 2017, especially as OPEC and non-OPEC members implement their agreement to lower output. Crude oil prices were little changed after the rig-count release on a light day of trading. West Texas Intermediate crude oil futures, the US benchmark, were down 0.2% to $53.60 per barrel. Oil was on pace to finish up 46% for the year.

Rising Rig Count Sees Oil Edge Lower On Final Trading Day Of 2016 | Baker Hughes this week reported yet another increase in the U.S. oil and gas rig count, with 5 more rigs coming online. The previous two weeks have seen increases of 16 and 13 rigs respectively, bringing the total number of active rigs to 658. The U.S. is now just 40 rigs below the count this time last year as North-American E&P companies are reacting on the OPEC agreement which has already bumped up oil prices to 18-month highs. More specific, Baker Hughes sees the U.S. oil rig count increasing by just two rigs while the gas rig count added 3 rigs amid rapidly rising natural gas prices. The Permian basin counted 2 more oil rigs this week while the Eagle Ford added one rig. The U.S. rig count is poised to grow further as the last credit redetermination period showed that the industry has already passed an inflection point, meaning that banks are more eager to issue new credit to drillers. While banks were reluctant to open the money tap earlier this year, rising oil prices and an improved outlook for U.S. shale drillers are reason enough for banks to expand credit facilities once again. According to Raymond James, capex in U.S. shale could increase as much as 30 percent as a result of looser credit lines. (Click to enlarge) Oil prices continued to trade slightly lower following the rig count release, with WTI trading 0,37 percent down at $53.57 and Brent trading 0,44 percent down at $56.58 at the time of writing.

Oil down, but ends year with biggest gain since 2009 | Reuters: Oil prices settled slightly lower on Friday, the year's last trading day, but attained their biggest annual gain since 2009, after OPEC and partners agreed to cut output to reduce a supply overhang that has depressed prices for two years. A two-rig rise in the oil rig count in the United States, the ninth weekly increase in a row, as reported by oilfield services provider Baker Hughes Inc (BHI.N), added to bearish sentiments. But the total count of 525 for the week, the last for the year, was still below last year's level by 11 rigs. U.S. benchmark West Texas Intermediate (WTI) crude futures were down 5 cents, or 0.1 percent, at $53.72 a barrel, while Brent fell 3 cents, or 0.1 percent, to $56.82. "Some profit-taking ... very light trading - a lot of people have already done what they needed to do for the year." Brent rose 52 percent this year and WTI climbed around 45 percent, the largest annual gains since 2009, when the benchmarks rose 78 percent and 71 percent respectively. Oil prices have slumped since the summer of 2014 from above $100 a barrel. The price rout, due to an oversupply thanks in part to the U.S. shale oil revolution, was accentuated later that year when Saudi Arabia rejected any deal by the Organization of the Petroleum Exporting Countries (OPEC) to cut output and instead fought for market share. But a historic OPEC agreement struck over three months from September that will reduce production from Jan. 1, marked a return to the 13-country group's old objective of defending prices.

Saudi Arabia will tax expats and hike gas prices again - Saudi Arabia has already been forced to tighten its belt. Now it's preparing for four more years of austerity.Slammed by lower oil revenues, the kingdom's budget deficit swelled to 366 billion riyals ($98 billion) in 2015, and 297 billion riyals this year. It was forced to borrow money from international investors for the first time ever, raising $17.5 billion in October. In response, the government has already slashed energy subsidies and cut wages for officials.But in a new report -- the Fiscal Balance Program 2020, published over the weekend -- it warns of dire consequences if it doesn't press ahead with more dramatic measures. "The government would find itself in a place of needing to cut capital spending by at least 90%, cut government operational spending by at least 30%, cut government wage bill by at least 30%, and substantially cut government retirement benefits," it said, if no further action were taken.   So here are some of the steps the government plans to take over the next few years:

  • 1. Hike gas prices, again. The government is expecting to save 209 billion riyals per year by 2020 by gradually phasing out subsidies.  That will mean Saudis paying much more each year to fill their cars and cool their homes.
  • 2. Raise taxes. From 2017, it will introduce a levy on expat workers and their dependents. The tax will start at 100 riyals per month and rise to as much as 800 riyals ($213) per month in 2020.  From the second quarter of 2017, it will tax harmful products such as sugary drinks and tobacco. And then in 2018, as previously announced, it will introduce a general sales tax as part of a broader initiative by the six Gulf Cooperation Council states.
  • 3. Soften the blow. Cutting subsidies and raising taxes risks damaging the economy and hurting lower income families.  So the government has also set out plans to boost the private sector, including an investment fund worth 200 billion riyals to help diversify the economy. The fund should help companies become more efficient.

Why the Saudis may be preparing for a real war- Last week, I attended an event between senior officials of the Gulf Cooperation Council ("GCC") and members of the Slovenian government. During his opening remarks, Abdel Aziz Abu Hamad Aluwaisheg, Assistant Secretary General of the GCC, candidly discussed Saudi Arabia's central economic problem, which is that energy consumption in the Kingdom had averaged over 8 percent, while economic growth had averaged under 4 percent, for the last few decades. In other words, energy consumption has outstripped economic growth in the Kingdom by over 2X. With the result being that the Kingdom is now being forced to take increasingly drastic measures to keep its position as a leader in the world and maintain domestic stability. Even though Mr. Aluwaisheg suggested that Saudi's consumption problem could, hopefully, be resolved through strong economic reforms, the Kingdom's buildup of arms over the last six years, and lack of specifics regarding its touted "Vision 2030", suggests that more hawkish portions of the Saudi political establishment may be preparing for war as a hedge against state failure.The above chart is the value of Saudi exports over the last five years, with exports projected to be nearly a quarter of what they were in 2012 by the end of the year. The last time that exports were this low was during Saudi's financial crisis in 2009. However, back then, the country was 23 percent smaller. (26 million people then vs. 32 million people now.) In other words, the Saudis currently have far less money coming in, but far more mouths to feed.This downward trend in Saudi's economy is not part of some normal or temporary cycle. It's endemic of a much larger issue that threatens the Saudi state. Namely, energy consumption. The Saudi economy isn't at risk because it is running out of oil, it is at risk because the Saudi domestic consumption of energy (i.e. oil) will soon exceed their export of energy (i.e. they will soon consume over 50 percent of the energy they produce).

U.S. forces embedding more to help Iraqis retake Mosul: commander | Reuters: U.S. forces assisting Iraqi troops to retake Mosul from Islamic State are embedding more extensively, a senior commander said on Friday, a move that could accelerate a two month-old campaign which has slackened after quick initial advances. More than 5,000 American service members are currently deployed in Iraq as part of an international coalition that is advising local forces in a bid to recapture the third of the country the jihadists seized in 2014 when Iraq's army and police dropped their weapons and fled. Coalition advisors were initially concentrated at a high-level headquarters in Baghdad but have fanned out over the past two years to multiple locations to stay near advancing troops. Now, as Iraqi forces controlling around a quarter of Mosul - Islamic State's last major stronghold in Iraq - proceed deeper into the northern city and encounter fierce counter-attacks that render progress slow and punishing, U.S. troops are stepping up their involvement. "We are deepening our integration with them," said U.S. Army Colonel Brett G. Sylvia. "We are now pushing that into more of the Iraqi formations pushing forward, some formations that we haven't partnered with in the past where we are now partnering with them." During a rare interview at the U.S. section of a base for Iraqi army and Kurdish peshmerga forces in Makhmour, 75 km (47 miles) southeast of Mosul, the combat brigade commander would not be drawn on whether his troops were operating inside Mosul proper. But Sylvia, who commands the 1,700-strong Task Force Strike, told Reuters the level of integration resembles that of small special operations teams embedding with larger indigenous forces to help build capacity.

Iraqi Forces Shift Tactics in Mosul as Forces Advance on New Fronts —Iraqi security forces began a dramatic shift in tactics Thursday in their stalled offensive to retake Mosul, Islamic State’s last major stronghold, advancing on new fronts and bringing federal police into the battle after counterattacks inflicted heavy casualties. Iraq’s military announced a multi-sided offensive on the city’s northern, eastern and southeastern neighborhoods in an attempt to choke off supplies of weapons and new fighters. In the past week, Iraq’s military has begun using heavy artillery in the crowded city, in spite of the risk to civilians, and has moved forces from Baghdad and other areas to support the Counter Terrorism Forces. Some 4,000 federal police have been shifted from the capital and south of Mosul to support the fight in the east. The changes follow a series of devastating counterattacks by Islamic State that have raised questions about the battle plan and even the military’s capacity to secure other urban centers, including the capital Baghdad. “The current Mosul fight has turned into a war of attrition,” said Iskandar Witwit, a lawmaker on the security and defense committee and a former army general. “This will negatively affect security in Iraq for sure.” For more than two weeks, Iraqi troops have largely stood pat to re-supply, repair vehicles and rotate forces. They have also tried to secure the areas they have retaken while defending against militant attacks. Much of the tactical reassessment has revolved around the Counter Terrorism Forces. The elite U.S-trained forces are spearheading the drive to reclaim the eastern half of the city and have led nearly every successful effort to win back territory from Islamic State. The units—about one-fifth the total involved in the offensive—have taken unusually heavy losses in Mosul.

Damascus water supply cut after rebels pollute it: authority | Reuters: The Damascus water authority has been forced to cut supplies coming into the Syrian capital for a few days and use reserves instead after rebels polluted the water with diesel, it said on Friday. The al-Fija spring which supplies Damascus with water is in the rebel-held Wadi Barada valley northwest of the capital in a mountainous area near the Lebanese border. The government controls much of the surrounding territory and on Friday carried out aerial attacks and shelled the rebel-held area, the Syrian Observatory for Human Rights said. A military news outlet run by Syrian government ally Hezbollah said the rebels in the Wadi Barada valley had refused to leave the area and as a result the Syrian Arab Army began an offensive against them on Friday morning. Through a series of so-called settlement agreements and army offensives, the Syrian government, backed by Russian air power and Iran-backed militias, has been steadily suppressing armed opposition around the capital.

A Bigger Problem Than ISIS? - On the morning of August 7, 2014, a team of fighters from the Islamic State, riding in pickup trucks and purloined American Humvees, swept out of the Iraqi village of Wana and headed for the Mosul Dam.  A group of Kurdish soldiers was stationed at the dam, and the ISIS fighters bombarded them from a distance and then moved in. When the battle was over, the area was nearly empty; most of the Iraqis who worked at the dam, a crew of nearly fifteen hundred, had fled. The fighters began to loot and destroy equipment. An ISIS propaganda video posted online shows a fighter carrying a flag across, and a man’s voice says, “The banner of unification flutters above the dam.”  The next day, Vice-President Joe Biden telephoned Masoud Barzani, the President of the Kurdish region, and urged him to retake the dam as quickly as possible. American officials feared that ISIS might try to blow it up, engulfing Mosul and a string of cities all the way to Baghdad in a colossal wave. Ten days later, after an intense struggle, Kurdish forces pushed out the ISIS fighters and took control of the dam. But, in the months that followed, American officials inspected the dam and became concerned that it was on the brink of collapse. The problem wasn’t structural: the dam had been built to survive an aerial bombardment. (In fact, during the Gulf War, American jets bombed its generator, but the dam remained intact.) The problem, according to Azzam Alwash, an Iraqi-American civil engineer who has served as an adviser on the dam, is that “it’s just in the wrong place.” Completed in 1984, the dam sits on a foundation of soluble rock. To keep it stable, hundreds of employees have to work around the clock, pumping a cement mixture into the earth below. Without continuous maintenance, the rock beneath would wash away, causing the dam to sink and then break apart. But Iraq’s recent history has not been conducive to that kind of vigilance.

Erdogan Seeks to Join Forces With Trump Against IS in Syria - Turkey’s military deployed tanks and guns on the Syrian border as President Recep Tayyip Erdogan urged joint action with the Trump administration against Islamic State in its de facto capital, Raqqa. The deployment, including long-range guns and armored personnel carriers, followed Erdogan’s remark on Saturday that Turkish troops fighting to capture the jihadists’ stronghold of al-Bab in northwest Syria could move first to the town of Manbij and then to Raqqa. The artillery reinforcements were sent to the border towns of Oguzeli and Karkamis, north of Manbij, state-run Anadolu Agency reported Sunday.  Erdogan reiterated his country’s readiness to extend its fight against the jihadist group in Raqqa if U.S. President-elect Donald Trump agrees to block Kurdish forces from participating. Turkey is concerned that Kurdish territorial gains in Syria could lead to a new state there, emboldening the separatist aspirations of its own Kurds. Kurds have established control over much of Syria’s north during five years of violence, and in doing so, emerged as a favored U.S. fighting force in the ground war against Islamic State.

Erdogan says he has evidence US-led coalition has given support to Isis - The Turkish President Recep Tayyip Erdogan says he has uncovered evidence that US-led coalition forces have helped support terrorists in Syria – including Isis. American-led forces have been working alongside Syrian rebels fighting President Bashar al-Assad but have attempted to avoid helping Isis and other Islamist militant groups.However, speaking on Tuesday in the Turkish capital, Ankara, he said he believed they had given support to a variety of militant groups, including Isis Kurdish outfits YPG and PYD.  “They were accusing us of supporting Daesh [Islamic State],” he told a press conference, according to Reuters. “Now they give support to terrorist groups including Daesh, YPG, PYD. It's very clear. We have confirmed evidence, with pictures, photos and videos.” Mr Erdogan also said on Tuesday that Saudi Arabia and Qatar should join its meeting with Russia and Iran to discuss Syrian peace efforts.  Russia, Turkey and Iran, which helped broker the withdrawal of civilians and militants from the Syrian city of Aleppo, have agreed to hold talks on Syria in Kazakhstan next month.

US Slams Claims of Turkish 'Evidence' Backing Islamic State: — The U.S. Embassy in Ankara in a strongly worded statement Wednesday denied claims by Turkish President Recep Tayyip Erdogan that there is “confirmed evidence” showing U.S.-led coalition forces have given support to Islamic State. “The United States government is not supporting Daesh,” the embassy said, using an Arabic acronym for the Islamic State (IS) group. The United States “did not create or support Daesh in the past. Assertions the United States government is supporting Daesh are not true,” the statement said. Erdogan on Tuesday accused the U.S.-led coalition of not only backing IS but also Kurdish rebel factions operating inside and outside of Turkey. “They were accusing us of supporting Daesh,” Erdogan said. “Now they give support to terrorist groups including Daesh" and Kurdish rebel groups. “It's very clear," he said. "We have confirmed evidence, with pictures, photos and videos.”

The Pathologies of War: Dual Propaganda Campaigns in Reporting on Syria - The travesty of war in Syria represents a defining political issue today. The Pew Research Center estimates that by 2016, as many as six in ten Syrians were displaced from their homes due to the civil war between Syrian and Russian government forces and rebel groups (Connor and Krostad, 10/5/16). This represents an astounding 12.5 million people. Estimates vary, but when taken in total suggest that deaths from the conflict are in the hundreds of thousands, perhaps as large as half a million (Barnard, 10/11/16). But a serious problem that’s emerged is the willful ignorance exhibited by the defenders of the U.S., Russian, and Syrian governments, which is driven largely by political considerations, rather than human rights concerns. On one side, U.S. political officials and pundits eagerly condemn the Russian and Syrian governments for human rights atrocities, but they focus only on heinous crimes committed by officially designated enemies of state. These officials and the journalists who enable them downplay the United States’ own role in funding and arming of radical Islamist groups that have destabilized Syria and are responsible for countless deaths. On the other side, the Putin and Assad governments have no interest in acknowledging their own atrocities, and make numerous attempts to woo naïve western bloggers, celebrities, and other willing dupes in terms of attributing the responsibility for war deaths exclusively at the feet of radical Islamists.  Some critics of U.S. foreign policy reflexively assume that countries opposing U.S. imperialism and military power must represent a valiant, anti-imperialist, revolutionary force for good. At the very least, some on the American “left” insist that such countries should not be criticized or condemned. I’ve had numerous experiences with these individuals, as I begin to speak up with greater frequency about the destructiveness of Syria war.

Russia Warns Any Attempt By Obama To Arm Syrian Rebels Will Be Seen As A "Hostile Act" --First, it was China which lodged a protest against the US defense bill, which was signed by Barack Obama late on Friday and which, among other things, contained a provision to establish as US "ministry of truth" and media propaganda. On Sunday, China lodged "stern representations" with the United States after Obama signed the NDAA into law which suggests a plan to conduct high-level military exchanges with self-ruled Taiwan. Part of the $618.7 billion National Defense Authorization Act "expresses the sense of Congress that (the U.S. Department of Defense) should conduct a program of senior military exchanges between the United States and Taiwan". In other words, it appears the Trump team is not the only one jeopardising the "One China" policy: as Reuters adds, in a statement late Sunday, China's Foreign Ministry said it had lodged a protest with the United States over the Taiwan content of the act and expressed its strong opposition. Taiwan is Chinese territory and purely an internal matter, the ministry said.It noted that the part of the defense policy bill referring to Taiwan was not legally binding, but said it was an interference with China's internal affairs that China could not accept."We urge the U.S. side to abide by its promises made to China on the Taiwan issue, stop U.S.-Taiwan military contacts and arms sales to Taiwan, to avoid damaging Sino-U.S. ties and peace and stability in the Taiwan Strait."Then, overnight, Russia also joined the global opposition to the US defense policy bill when itsaid on Tuesday that a U.S. decision to ease some restrictions on arming Syrian rebels had opened the way for deliveries of shoulder-fired anti-aircraft missiles, a move it said would directly threaten Russian forces in Syria. According to Reuters, Foreign Ministry spokeswoman Maria Zakharova said the policy change easing some restrictions on weapons supplies to rebels was set out in a new U.S. defense spending bill signed by Obama while on his last vacation as US president in Hawaii, and that Moscow regarded the step as a hostile act.

Russia Reaches Syria Cease-Fire Pact With Turkey— and the U.S. Had Nothing to Do With It -- Russian President Vladimir Putin said Thursday that after negotiations in Moscow between his administration and its Turkish and Iranian counterparts, an accord regarding the war in Syria has been reached, establishing a fragile truce that, according to The New York Times represents “a potential turning point in a civil war that has lasted nearly six years and claimed hundreds of thousands of lives.” The cease-fire is to start at midnight in Syria (5 p.m. EST) and will be followed by peace talks between Syrian President Bashar Assad and opposing forces—though which rebel groups will be involved is unclear.  And though the United States apparently was not involved in the negotiations, Russia’s foreign minister has said President-elect Donald Trump’s administration will be invited to join the talks, as will Egypt, Saudi Arabia, Qatar and Jordan.   “This is potentially a major change for international politics, anti-terrorism and peace. Give peace a chance!” Truthdig Editor in Chief Robert Scheer wrote in a brief analysis sent to Truthdig staff. “If Trump gets behind this truce, he will start off on an incredibly important shift to a saner world. However, if he rejects it, as many Democrat and Republican leaders will urge, a huge possibility for a more peaceful world will be lost and American imperial hegemony will stay firmly on its destructive course.”  From CBC News[Putin] says [the truce] will be followed by peace talks between Syrian President Bashar al-Assad’s government and the opposition, and that the Syrian parties would take part in talks to be held in Kazakhstan, without specifying a date.“The agreements reached are, of course, fragile, need a special attention and involvement ... But after all, this is a notable result of our joint work, efforts by the Defence and Foreign ministries, our partners in the regions,” Putin said. ... Syria’s military said it had agreed to a nationwide ceasefire. In a statement carried by Syrian state news agency SANA on Thursday, the military command “declares a comprehensive nationwide cessation of hostilities as of midnight.”

Another PR Fiasco For Obama: Russia, Turkey Agree On Syria Ceasefire Plan, Snub Washington - In the latest snub of president Obama and the US State Department, on Wednesday Turkey and Russia reached an agreement for a ceasefire in Syria, Turkey's foreign minister said, and according to Anadolu News Agency, will aim to put it into effect by midnight. Anadolu, citing sources, said the two countries have reached a consensus that will be presented to participants in the conflict on expanding the ceasefire that was established in Aleppo earlier this month. There may be a hurdle however: Ankara would not budge on its opposition to President Bashar al-Assad staying in power. The comments by Mevlut Cavusoglu on Wednesday appeared to signal a tentative advance in talks aimed at reaching a truce, but the insistence that Assad must go will do little to smooth negotiations with Russia, his biggest backer. Not content with isolating the US, Russia, Iran and Turkey also made a mockery of the UN when they said last week they were ready to help broker a peace deal after holding talks in Moscow where they adopted a declaration setting out the principles any agreement should adhere to. Arrangements for the talks, which would not include the United States and be distinct from separate intermittent U.N.-brokered negotiations, remain hazy, butMoscow has said they would take place in Kazakhstan, a close ally.

Russia's Putin says Syrian government, opposition sign ceasefire deal | Reuters: Russian President Vladimir Putin said on Thursday that Syrian opposition groups and the Syrian government had signed a number of documents including a ceasefire deal that would take effect at midnight on the night of Dec. 29-30. Speaking at the meeting with Russian Defence Minister Sergei Shoigu and Foreign Minister Sergei Lavrov, Putin said that three documents which open the way for solving the Syria crisis were signed earlier on Thursday. The documents include a ceasefire agreement between the Syrian government and the opposition, measures to monitor the ceasefire deal and a statement on the readiness to start peace talks to settle the Syrian crisis, Putin said. "The agreements reached are, of course, fragile, need a special attention and involvement... But after all, this is a notable result of our joint work, efforts by the defence and foreign ministries, our partners in the regions," Putin said. He also said that Russia had agreed to reduce its military deployment in Syria. Lavrov said that the ministry has started preparations for the meeting on Syrian crisis resolution in Astana, the capital of Kazakhstan. Putin's announcement followed a statement carried by Syrian state news agency SANA, which said the Syrian army would begin a ceasefire at midnight. The statement said the agreement excluded Islamic State, the group formerly known as the Nusra Front and all groups linked to them.

Syria truce backed by Russia, Turkey, holds but clashes reported | Reuters: A Russian- and Turkish-backed ceasefire that aims to end nearly six years of war in Syria and lead to peace talks appeared to hold on Friday but was tarnished by clashes since it took effect at midnight. Russian President Vladimir Putin, a key ally of Syrian President Bashar al-Assad, announced the ceasefire on Thursday after forging the agreement with Turkey, a longtime backer of the opposition. Monitors and a rebel official reported clashes almost immediately after midnight (2200 GMT Thursday) between insurgents and government forces along the provincial boundary between Idlib and Hama, and isolated incidents of gunfire further south. Less than 12 hours later, Syrian government forces and their allies clashed with rebels in a strategic valley northwest of Damascus, and helicopter gunships carried out air raids in the area, the Syrian Observatory for Human Rights reported. Government warplanes then carried out air strikes in northern Hama, the monitor said. Calm still prevailed in many areas included in the deal, the Observatory and rebel officials said, but the fighting highlighted the fragility of any truce agreement in a country where repeated international efforts towards peace have failed. Russian Foreign Minister Sergei Lavrov said the United States could join a fresh peace process once President-elect Donald Trump takes office on Jan. 20. He also wanted Egypt to join, together with Saudi Arabia, Qatar, Iraq, Jordan and the United Nations. A number of rebel groups have signed the agreement, Russia's Defence Ministry said. Several rebel officials acknowledged the deal, and a spokesman for the Free Syrian Army (FSA), a loose alliance of insurgent groups, said it would abide by the truce.

How Russia and Turkey brokered peace in Syria — and sidelined the US - Call it a pop-up alliance. After spending much of this year berating each other afterTurkey shot down a Russian jet over the Syrian-Turkish border, the two governments are suddenly the "honest brokers" of a ceasefire in Syria -- one that is designed to lead to political negotiations. The United States, which has long championed the stuttering diplomatic process on resolving the Syrian conflict, is nowhere to be seen.The ceasefire -- negotiated between Russia, Turkey and the Syrian government as well as Iran and Syrian rebel groups supported by Turkey -- explicitly excludes factions deemed by the United Nations Security Council as "terrorists." This rules out the Islamic State in Iraq and Syria (ISIS) and Jabhat Fateh al-Sham, the former al Qaeda affiliate in Syria that used to be known as Jabhat al-Nusra.Russian President Vladimir Putin declared that the ceasefire was only the first step, with other documents signed on enforcing the truce and beginning peace talks. The Syrian military promised to cease operations nationwide at midnight Thursday. Russian and Turkey are now driving what had been a UN-led political process.Each is responsible for bringing its own allies into the process: the Russians will bring the Assad regime on board and the Turks as many moderate factions as they can coax or cajole. Both sides envisage a rapid timeline, with the Turkish Foreign Ministry saying the Assad regime and opposition would meet soon in Kazakhstan, according to Turkish state media.Plenty can still go wrong, and recent history gives little cause for optimism. Putin acknowledged that "all the agreements reached are very fragile." Turkish Foreign Minister Mevlut Cavusoğlu said Thursday that details on how to monitor the ceasefire and apply sanctions against those who breached it were still being worked out. And he insisted there would be no direct negotiations between Turkey and the Syrian government.But the intent is clear: peel off moderate rebel groups from the tacit alliances they have formed with radical Islamist groups in parts of Syria. Then crush the militant groups excluded from the process. And this is where, inevitably, things get complicated.

'Stances have shifted': Russia, Turkey, Iran are discussing chopping Syria into zones of influence : (Reuters) - Syria would be divided into informal zones of regional power influence and Bashar al-Assad would remain president for at least a few years under an outline deal between Russia, Turkey and Iran, sources say. Such a deal, which would allow regional autonomy within a federal structure controlled by Assad's Alawite sect, is in its infancy, subject to change and would need the buy-in of Assad and the rebels and, eventually, the Gulf states and the United States, sources familiar with Russia's thinking say. "There has been a move toward a compromise," said Andrey Kortunov, director general of the Russian International Affairs Council, a think tank close to the Russian Foreign Ministry. "A final deal will be hard, but stances have shifted." Assad's powers would be cut under a deal between the three nations, say several sources. Russia and Turkey would allow him to stay until the next presidential election when he would quit in favor of a less polarizing Alawite candidate. Iran has yet to be persuaded of that, say the sources. But either way Assad would eventually go, in a face-saving way, with guarantees for him and his family. "A couple of names in the leadership have been mentioned (as potential successors)," said Kortunov, declining to name names.Nobody thinks a wider Syrian peace deal, something that has eluded the international community for years, will be easy, quick or certain of success. What is clear is that President Vladimir Putin wants to play the lead role in trying to broker a settlement, initially with Turkey and Iran. That would bolster his narrative of Russia regaining its mantle as a world power and serious Middle East player.

A new balance of power in the Middle East - FT - Officials from Russia, Iran and Turkey were preening themselves earlier this month ahead of a trilateral meeting in Moscow of foreign and defence ministers, to discuss Syria after Aleppo. Were they inviting their US counterparts? No. A realpolitik parley is no place for Panglossian procrastinators who, furthermore, would spoil the triumph of Russia and Iran as they savour the destruction of rebel Aleppo and the salvage of a rump state for Bashar al-Assad, their Syrian client. Turkey, to be fair, was more focused on the realpolitik than the triumphalism. Ankara has had to give up its support for Sunni rebels trying to topple the Assad regime, and move towards Russia and Iran to prevent Syrian Kurdish fighters allied with insurgent Turkish Kurds from consolidating a self-governing entity along its borders. In either case, it is not so easy to escape the carnage of Syria. On the eve of the ministers’ meeting, Andrei Karlov, Russia’s ambassador to Turkey, was shot dead by an Ankara policeman, who shouted “Don’t forget Aleppo”. The truck murders in a Berlin Christmas market that same evening highlighted how easily terror can strike. But it is remarkable, given the way Mr Putin’s air force has eviscerated Syria’s Sunni rebels (rather than Isis jihadis), that Russia has suffered little reprisal. Yes, alongside the jihadist atrocities in Paris and Nice, Brussels and Istanbul, a Russian airliner was brought down by a bomb over Sinai shortly after Russia intervened in Syria. European officials say the Russian plane was not the original target. That could now change. Mr Putin said the Karlov murder was aimed at sabotaging the “peace process in Syria” — a breathtakingly cynical remark that makes one suspect Russia, as well as the west, is likely to have more occasions to remember Aleppo. As they look towards 2017, Russia and Iran can, nonetheless, consider they have had a good year confounding their adversaries in the Middle East — and that the west, and its allies in the region, is in exploitable disarray. The Kremlin seems to be getting away with its cyber intervention in the US election. It is having some success in dividing Europe and erecting an illiberal democratic pole inside the EU. And President Putin has a new admirer in US president-elect Donald Trump.

Russia: Mass Graves Full Of Tortured Civilians Discovered In Aleppo - Russian military forces have discovered mass graves in eastern parts of the Syrian city of Aleppo, with many of the bodies reportedly showing signs of torture. Maj. Gen. Igor Konashenkov, a spokesperson for the Russian defense ministry, announced the horrifying discovery on Monday. “Many of the corpses were found with missing body parts, and most had gunshot wounds to the head,” he said, according to RT, a Russian state-owned news network. Until recently, the eastern portion of Aleppo, once Syria’s largest city and industrial and financial center, was under the control of so-called “moderate” rebels, many of whom have received both intelligence and material support from the United States and its allies in the Middle East. Last week, Russian and Syrian military forces oversaw the evacuation of civilians from eastern Aleppo. Prior to that, the rebel-held portion of the city had been controlled by two main factions, Jabhat al-Nusra, a terrorist group with ties to al-Qaeda also known as the Nusra Front, and Ahrar al-Sham, another extremist group that receives U.S. support despite being designated a terrorist organization. In an apparent attempt to court the U.S. government by distancing itself from al-Qaeda, the Nusra Front recently attempted to “rebrand” itself. Despite efforts to market themselves as kinder, gentler terrorists, the group has continued to commit atrocities, including burning buses intended to be used in the evacuation and even blocking food aid from reaching Aleppo’s starving residents. WikiLeaks’ archive of diplomatic cables reveals that the United States, Israel, and Saudi Arabia have sought to overthrow the government of Syrian leader Bashar Assad since at least 2006, and support for extremist fighters remains a key part of that strategy.  Konashenkov promised a full investigation into the war crimes of rebel forces in Aleppo, suggesting in his statement that the results would surprise many people who receive their news from Western mainstream media sources.

Iran Negotiated Boeing Plane Purchases At Half Price - One year ago, the airplane market was spooked by reports of "market tests" for Boeing 777 plane prices, when according to the CEO of Delta the company had acquired a used 777s for a paltry $8 million, a 97% discount from new Boeing 777-ER prices! Boeing's late December decision to cut production of its 777 long-haul jet due to a drop in demand, confirmed that behind the stable industry facade, the underlying economics are far worse than most suspect, and that prices were set to plunge absent implicit government subsidies.  Then, over the weekend, we got a glimpse into the real "price" of airplanes, when Iran said on Sunday it had negotiated to pay only about half the announced price for 80 new Boeing airliners in an order that Boeing had previously said was worth $16.6 billion. The sale includes 50 twin-jet, narrow-body 737 planes and 30 long-range, wide-body 777 aircraft. The first airplanes are scheduled for delivery in 2018, with the entire order being fulfilled over 10 years. "Boeing has announced that its IranAir contract is worth $16.6 billion. However, considering the nature of our order and its choice possibilities, the purchase contract for 80 Boeing aircraft is worth about 50 percent of that amount," said Deputy Transport Minister Asghar Fakhrieh-Kashan, quoted by Iran's IRNA state news agency. Then there is the question of how much funding the Ex-Im bank may have provided to Iran: when all is said and done, it is possible that the Persian nation ended up paying nothing out of pocket, and merely funded its purchase of Boeing airplanes with a generous loan from Uncle Sam.

Officials Count Around 30,000 War Dead in Afghanistan This Year: — Hostilities in Afghanistan have left around 30,000 people dead and as many wounded, mostly insurgents, according to the latest official estimates. As of Sunday, counter-insurgency operations conducted by Afghan police and military forces around the country had left more than 18,500 "enemy" fighters dead and wounded 12,000 more, according to defense and interior ministry officials. Mohammad Radmanesh, the deputy defense ministry spokesman, told VOA that authorities have also captured hundreds of insurgents. He declined to discuss casualties among the Afghan National Security and Defense Forces, or ANDSF, but admitted they "increased by more than 10 percent compared to the previous year." ANDSF suffered around 20,000 casualties, including 5,000 deaths in 2015, according to the United States military. The Special Inspector General for Afghanistan Reconstruction (SIGAR), a U.S. government watchdog, reported in October that more than 5,500 Afghan forces were killed in the first eight months of 2016 while around 10,000 were wounded. The totals for the full year are likely to be much higher because the war has intensified since August.

Are India, Iran and Russia Parting Ways on Afghanistan? -- Iran, Russia and India were the big three powers that acted in unison – in supporting the Northern Alliance – to prevent a complete takeover of Afghanistan by the Taliban between 1996 and 2001. This experience of working together to resist the Taliban has largely shaped their actions in Afghanistan since then.Cooperation between the three states, even in the overt domain, continued over the years and was evident recently as well. In November 2016, India completed the delivery of a batch of four Mi-25 Russian combat helicopters to Afghanistan. Earlier in March 2016, India and Iran signed a bilateral deal to develop the Chabahar port that would provide Afghanistan an alternate access to the sea, bypassing Pakistan. Such instances of collaboration involving Russia, Iran and India have given rise to a belief that these three powers have convergent interests regarding peace and stability in Afghanistan.It is in light of this history of cooperation that Russia’s statements regarding the ISIS in Afghanistan have caused a stir in India. The Russian president’s special representative to Afghanistan, Zamir Kabulov, went on record saying that the ISIS — not the Taliban — is a bigger threat in the region.Similarly, Iran continues to make overtures towards sections in the Taliban. Afghanistan’s former intelligence chief, Rahmatullah Nabil, in November accused Iran of supporting the Taliban in order to counter the Daesh threat. In sharp contrast, India still regards the Taliban and its sponsors as bigger threats to Afghanistan. Earlier this month, the Ministry of External Aaffairs spokesperson said regarding the Taliban, “They have to respect the internationally agreed red lines, give up terrorism and violence, sever all ties with al Qaeda, agree to follow democratic norms and not do anything which will erode the gains of the last 15 years. Ultimately it is for the government of Afghanistan to decide whom to talk to and how.”

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