Sunday, May 21, 2017

US oil & gas drilling at a 2 year high, but April saw another big increase in uncompleted wells

oil prices moved up fairly steadily this week, finishing 5.2% higher, propelled mostly by the likelihood that OPEC and Russia will be extending their production cut agreement by up to 9 months...the initial rally began early in overseas markets on Monday, as US crude for June delivery rose $1.01 a barrel to $48.85 a barrel, after the energy ministers of Russia and Saudi Arabia issued a joint statement saying that the oil output cut needed to be extended until the end of March 2018...prices backed off their highs on Tuesday, however, after the American Petroleum Institute unexpectedly reported an increase in both crude oil and distillates supplies, with oil falling to $48.66 a barrel by the close, and then extending the drop to below $48 in after hours trading...the rally resumed on Wednesday after the EIA figures contradicted the API report and showed drawdowns of oil, gasoline and distillates inventories, with June crude adding 41 cents, or 0.8% for the day, to settle at a three week high of $49.07 a barrel ...oil prices rose again on Thursday after other key producing countries suggested they would also adhere to the agreed to production cuts, with June oil closing at $49.35 a barrel....even with the OPEC supply cuts priced in, further OPEC comments ahead of their May 25th meeting drove oil past $50 on Friday, and despite the Baker Hughes report that U.S. drillers added oil rigs for an 18th week in a row, US crude oil rose another 98 cents to $50.33 a barrel, for the highest close since April 19th...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending May 12th, indicated that our refining of crude oil returned to near record levels, while our imports of oil increased to the highest rate in three months, but because of an accompanying increase in our oil exports, oil needed to be withdrawn from US storage for the 6th week in a row....our imports of crude oil rose by an average of 970,000 barrels per day to an average of 8,590,000 barrels per day during the week, while at the same time our exports of crude oil rose by 393,000 barrels per day to an average of 1,086,000 barrels per day, which meant that our effective imports netted out to 7,504,000 barrels per day during the week, 577,000 barrels per day more than during the prior the same time, our field production of crude oil fell by 9,000 barrels per day to an average of 9,305,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,809,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,122,000 barrels of crude per day, 363,000 barrels per day more than they used during the prior week, while 354,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, production and from storage was 41,000 more barrels per day than what refineries reported they account for that discrepancy, the EIA inserted a (-41,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as "unaccounted for crude oil"

details from the weekly Petroleum Status Report show that the 4 week average of our oil imports rose to an average of 8,347,000 barrels per day, now 9.3% above the imports of the same four-week period last year...the 354,000 barrel per day decrease in our total crude inventories came about on a 250,000 barrel per day withdrawal from our commercial stocks of crude oil and a 104,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago...this week's 9,000 barrel per day crude oil production decrease resulted from a 21,000 barrel per day decrease in oil output from Alaska, which was only partially offset by a 12,000 barrels per day increase in oil output from wells in the lower 48 states...the 9,305,000 barrels of crude per day that we produced during the week ending May 12th was still up by 6.1% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 5.8% from the 8,791,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.4% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 91.5% of capacity the prior week, but down from the year’s high of 94.1% three weeks earlier...the 17,122,000 barrels of crude per day that refineries used during the week ending May 12th was the third most in US history, 4.6% more than the 16,179,000 barrels of crude per day.that were being processed during week ending May 6th, 2016, when refineries were operating at 90.5% of capacity, and about 13% above the 10 year average for the 2nd week in May of 15.2  million barrels of crude per day....

even with the week's increased refining, gasoline production from our refineries slipped by 32,000 barrels per day to 10,020,000 barrels per day during the week ending May 12th, still the third highest gasoline production this year...gasoline production for the week was also still fractionally higher than the 9,997,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 86,000 barrels per day to 5,042,000 barrels per day, which was 5.7% more than the 4,770,000 barrels per day of distillates that were being produced during the week ending May 13th last year.....

even with the ongoing elevated level of gasoline production, our gasoline inventories decreased by 413,000 barrels to 241,232,000 barrels as of May 13th, even as they are up by more than 4 million barrels from 5 weeks ago....gasoline supplies were reduced this week because our domestic consumption of gasoline rose by 44,000 barrels per day to 9,452,000 barrels per day while our imports of gasoline fell by 257,000 barrels per day to 696,000 barrels per day, even as our gasoline exports fell by 208,000 barrels per day to 508,000 barrels per day....since some market commentary seems to be reading the decrease in gasoline inventories as a bullish signal, we'll include a graph here to put this week's decrease in perspective..

May 17 2017 gasoline inventories for May 12

the above graph comes from a weekly emailed package of oil graphs from John Kemp, senior energy analyst and columnist with Reuters...this graph shows US gasoline inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our gasoline supplies on any given day of the year shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of barrels of gasoline we had stored for each week in 2016 traced weekly by a yellow line, with our 2017 year to date gasoline supplies represented in red...from this we can there is an obvious seasonality to gasoline supplies, as they're built up during the winter when few are driving, then start to decline when refineries slow down for spring maintenance and blend readjustment...thus early May is at a time of year when gasoline supplies are typically falling, and in fact, typically falling at a greater pace than they are this a result, this week's gasoline supplies, by virtue of their smaller drop, popped up to a record level for the 132nd day of the year, which we can see by noting that the red graph has risen above last year's record for the same even with the decrease in our gasoline supplies, they are now 1.1% higher than the record 238,068,000 barrels that we had stored on May 13th a year ago, 7.5% higher than the 223,936,000 barrels of gasoline we had stored on May 15th of 2015, and 12.8% more than the 213,378,000 barrels of gasoline we had stored on May 16th of 2014…

even with the increase in distillates production, our supplies of distillate fuels fell by 1,944,000 barrels to 146,824,000 barrels during the week ending May 12th; contributing to the drop in distillates supplies was a 107,000 barrel per day increase to 1,266,000 barrels per day in our exports of distillates, and a 86,000 barrel per day increase to 4,215,000 barrels per day in the amount of distillates supplied to US markets, while our imports of distillates rose by 46,000 barrels per day to 161,000 barrels per day... even though our distillate supplies are still 3.5% below the 152,162,000 barrels that we had stored on May 13th, 2016, during the glut of heat oil that persisted after last year's warm El Nino winter, they remain 15.0% higher than the distillate inventories of 127,724,000 barrels that we had stored on May 15th of 2015, following a more normal winter…  

finally, the elevated level of oil refining, even when combined with increases in both oil imports and oil exports, meant that our commercial inventories of crude oil decreased by 1,753,000 barrels to 520,772,000 barrels as of May 12th, the sixth weekly decrease in a row....but even though our crude supplies are down by nearly 15 million barrels over that 6 week span, we still finished the week with 8.7% more crude oil in storage than the 479,012,000 barrels we had stored on December 30th, and 2.2% more crude oil in storage than the 509,797,000 barrels of oil in storage on May 13th of 2016...compared to equivalent dates in prior years, we ended the week with 15.9% more crude than the 449,214,000 barrels in of oil in storage on May 15th of 2015, and 44.8% more crude than the 359,725,000 barrels of oil we had in storage on May 16th of 2014... 

This Week's Rig Counts

US drilling activity increased for the 28th time in the past 29 weeks during the week ending May 19th, as total active rigs hit a 2 year high....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 16 rigs to 901 rigs in the week ending Friday, which was 497 more rigs than the 404 rigs that were deployed as of the May 20th report in 2016, and the most drilling rigs we've had running since May 1st, 2015, while it was still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 8 rigs to 720 rigs this week, which was more than double the 318 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half from the recent high of 1609 rigs that were drilling for oil on October 10, the same time, the count of drilling rigs targeting natural gas formations also rose by 8 rigs to 180 rigs this week, which was more than double the 85 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...

three more of the idled offshore drilling platforms in the Gulf of Mexico offshore from Louisiana were started back up this week, which bought the the Gulf of Mexico active count back up to 23 rigs, the same number that were working in the Gulf of Mexico a year earlier....however, the rig that had been drilling offshore from Alaska was shut down this week, so our total offshore count is also at 23 rigs, down from a total of 24 offshore rigs a year ago...

the number of rigs that were set up to drill horizontally increased by 17 to 759 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 20th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....however, a net of one vertical rig was pulled out this week, reducing the vertical rig count down to 76 rigs, which was still up from the 48 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was unchanged at 66 rigs this week, which was still up from the 42 directional rigs that were deployed during the same week last year...

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf 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 May 19th, the second column shows the change in the number of working rigs between last week's count (May 12th) and this week's (May 19th) count, the third column shows last week's May 12th active rig count, the 4th column shows the change between the number of rigs running on 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 week’s case was the 20th of May, 2016...         

May 19 2017 rig count summary

as you can see, the increases in drilling were fairly widespread, although Texas, where all or part of 5 of the basins listed are located, did see an increase of 8 rigs, half the total for the week...the only basin to see a slowdown was the Denver-Julesberg Niobrara chalk of the Rockies front range, where two rigs were shut down, accounting for the decrease in Colorado by the same number...part of the 8 rig increase in natural gas directed rigs is fairly obvious, with a 2 rig increase in the Marcellus in Pennsylvania, and a rig increase in both the Utica of Ohio and the Haynesville of Louisiana...discerning the disposition of the other gas wells is more difficult, however, because we first find that the Arkoma Woodford, usually seen as a gas basin, actually saw a net decrease of 2 gas wells, as two oil rigs were started in the basin as two gas rigs were shut down...the "other basins" column does show an increase of 5 natural gas rigs, but that still leaves us one gas rig short...turns out that is also in the Haynesville, where one oil rig was shut down as two gas rigs were added...of the states not shown among the largest producers above, Alabama saw one rig added this week; they now have 4 rigs working the state, up from none a year ago...on the other hand, the only rig drilling in Michigan was shut down this week; it had just started work just two weeks ago, in the first drilling in Michigan in nearly 4 years..

DUC well report for April

Monday of this past week saw the release of the EIA's Drilling Productivity Report for May, which includes the EIA's April data for drilled but uncompleted oil and gas wells in the 7 most productive US shale basins...once again, this report showed a large increase in uncompleted wells nationally, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the two Texas oil basins, the Permian basin of west Texas and the Eagle Ford in the south.... for all 7 basins covered, the total count of DUC wells rose from 5,534 in March to 5,721 wells in April, the sixth consecutive monthly increase in uncompleted wells....what appears to be happening is that as horizontal drilling has rapidly expanded over the past 9 months, more than doubling over that period, a shortage of competent fracking crews has developed, such that in the most active areas, independent U.S. drillers underspent their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned crews are even being hired away from jobs they're already working on to take offers of higher paying frack jobs elsewhere...since the oil field layoffs started in early 2015, most frackers had gone nearly two years with just skeleton fracking crews still working in most basins around of the country, and many of those who had had been working in the oil fields before the bust have since found work elsewhere...fracking has also gotten much more complex over that period, with 50 stage fracks explosively driving several hundred pounds of proppant per foot of lateral not uncommon, so putting together a fracking crew even vaguely familiar with the latest techniques has become that much harder...

a total of 941 wells were drilled in the 7 basins covered by this report in April, but only 754 wells were completed, thus accounting for the 187 DUC well increase for the in most recent months, most of the April DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in that broad basin, saw its total count of uncompleted wells rise by 126, from 1,869 in March to 1995 in April, as 446 new Permian wells were drilled but only 320 wells in the region were the same time, DUC wells in the Eagle Ford of south Texas rose by 32, from 1283 in March to 1,315 in April, as 167 wells were drilled in the Eagle Ford in April but only 136 were addition, DUC wells in the Haynesville of Louisiana increased by 17 wells to 191, as 46 wells were drilled but just 29 were fracked, and DUCs in the Bakken of North Dakota increased by 12 to 821, as 84 wells were drilled but just 72 wells were addition, the Niobrara chalk of the Rockies front range saw a 4 DUC well increase to 644, and the Marcellus DUC count rose by 2 to 664 uncompleted wells...on the other hand, Ohio's Utica shale showed a decrease of 6 uncompleted wells and thus had only 87 DUCs remaining at the end of April, as 18 wells were drilled in the Utica during the month while 24 were completed...for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 174 to 4,792 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 13 to 929 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...


Ohio Drillers Setting Utica Shale Production Records - Wheeling Intelligencer — Eclipse Resources officials left a “Purple Hayes” with their 3.5-mile-long horizontal well last year, but their “Great Scott” operation now stretches almost 1,000 feet farther into the Utica Shale beneath in Guernsey County in eastern Ohio. As Eclipse drills deeper and farther into the shale, fellow operators Gulfport Energy and Rice Energy continue increasing production and adding new acreage for future fracking.“In the Utica condensate area, I am extremely happy to announce that we successfully drilled what we believe is the world’s longest onshore lateral ever drilled with a total measured depth of 27,400 feet and completable lateral extension of 19,300 feet, almost 1,000 feet longer than the previous record held by our ‘Purple Hayes’ well,” Eclipse Chairman, President and CEO Benjamin W. Hulburt said.According to the Ohio Department of Natural Resources, the Great Scott well is located in Guernsey County, west of Barnesville and south of Cambridge. Industry leaders consider condensate as light form of crude oil.   Eclipse, which also has operations in Belmont and Monroe counties, is benefiting from the recovery in the industry. The company posted net income of $26.8 million for the first three months of this year, which compares to a net loss of $45.5 million during the same time period in 2016. “This was another tremendous quarter for us as we continued our track record of exceeding production expectations, while expanding our operating margin by keeping our per unit operating expenses and our general and administrative expenses low,” Hulburt added.

118 Groups Demand FERC Halt Construction of Rover Pipeline -- Community activists and organizations sent a letter to the Federal Energy Regulatory Commission (FERC) Wednesday, signed by 118 groups, demanding the agency halt all construction of the Rover gas pipeline and embark upon an extensive review of its approval policies.   The letter, signed by groups along the Rover pipeline route in West Virginia, Pennsylvania, Ohio and Michigan as well as across the country, comes on the heels of massive construction accidents and spills by Energy Transfer Partners as it began construction of the fracked gas pipeline in recent weeks. Already, Energy Transfer Partners has been fined by the state of Ohio and FERC has taken action to pause a portion of their construction activities. "In just the first few weeks of building the Rover pipeline, Energy Transfer Partners has shown themselves to be simply reckless in their construction practices. But just as importantly, they've exposed glaring flaws in FERC's approval processes for pipelines like Rover," said David Turnbull, campaigns director with Oil Change International . "FERC needs to take immediate action not only to protect people and ecosystems along the Rover pipeline route from Energy Transfer Partners' reckless ways, but to improve their own processes to ensure this never happens again."  The letter has been endorsed by community-based groups in the states impacted by Rover, like the Ohio River Citizens' Alliance , FreshWater Accountability Project , Buckeye Environmental Network , and Sierra Club Ohio Chapter , along with national groups like Oil Change International, Earthworks , Greenpeace USA , and the Sierra Club . It calls upon FERC to take two discrete actions:  First, the groups demand that FERC halt all construction of the Rover pipeline, with the only exception being any activity necessary to ensure the structural integrity of construction to date. This construction should be halted so that the environmental impact statement can be re-opened to reassess the risks the pipeline construction imposes.  Second, the groups demand that FERC initiate an immediate review of horizontal directional drilling plans and procedures on all open pipeline dockets under their jurisdiction, halting all new approvals of projects while the review takes place.

FERC quorum concerns increase uncertainty for gas pipeline projects, rates - The White House late Monday announced its intent to nominate two commissioners to the US Federal Energy Regulatory Commission, but the timing and politics of confirmation are still uncertain. Meanwhile, FERC is without the quorum needed to conduct its full range of business. Maya Weber examines how many backlogged orders could await newcomers and what impact FERC's current state is having on gas pipeline projects. A major trade group andSenate energy panel leaders are concerned about delays; will the commission be back at full speed soon?

Pipeline Route Lands This Virginia Town on List of State's 'Most Endangered' Historic Places - Opponents of the Mountain Valley Pipeline were dealt a blow after the West Virginia Department of Environmental Protection (WVDEP) denied a hearing request to appeal the state's water quality certification for the controversial project. The Charleston Gazette-Mail reports that WVDEP secretary Austin Caperton signed a letter addressed to the environmental law firm Appalachian Mountain Advocates denying its request for the hearing. The brief letter did not state a reason for denial. Appalachian Mountain Advocates senior attorney Derek Teaney said individuals and groups he represents will likely appeal Caperton's decision in the 4th U.S. Circuit Court of Appeals.  The proposed Mountain Valley Pipeline will carry fracked gas 300 miles from northwest West Virginia to southern Virginia, crossing streams and wetlands in the 195-mile project area in West Virginia.  Appalachian Mountain Advocates contends that the WVDEP acted prematurely in issuing the permit. As the Roanoke Times detailed, the Lewisburg, West Virginia-based nonprofit has a slew of concerns over the department's approval of the natural gas pipeline, including:

  • • The department had not established current water quality baseline data for streams that the pipeline would cross.
  • • The department had failed to adequately consider impacts to water quality from land disturbance and subsequent erosion and sediment unrelated to stream crossings.
  • • Because the pipeline's route is not yet final and property surveys are incomplete, the "locations and effects of discharges associated with the construction and operation of the Mountain Valley Pipeline [are] ill-defined and impossible to fully evaluate."
  • • The department had not adequately evaluated the effects on public drinking water supplies of the pipeline's construction and operation.

The project has sparked further outcry in Virginia. For instance, Preservation Virginia has put the village of Newport in Giles County on its 2017 list of the state's most endangered historic places : "One specific example is in Giles County, where two existing historic districts are threatened by the [Mountain Valley Pipeline] ... The covered bridges and historic structures that lend the district integrity and the continued agricultural pattern of land use in this area would be permanently and irrevocably impacted by the pipeline."

6 Banks Behind the Mountain Valley Pipeline -- Residents of Virginia and West Virginia opened up a new front Thursday in their fight to stop the 301-mile Mountain Valley Pipeline : targeting the major U.S. "main street" banks on tap to finance the fracked-gas project's $3.5 billion price tag.  Landowners along the pipeline route are calling on customers to move their money out of the top six U.S. banks behind the pipeline—led by Bank of America and Wells Fargo. The banks are identified in a new analysis released today by Oil Change International that examines how the pipeline will be financed. The landowner and citizens' groups Bold Appalachia and Protect Our Water, Heritage, Rights (POWHR)launched Thursday's call to action and are planning an upcoming "Defund MVP" week of action in Virginia and West Virginia from June 19 to June 23. "Now is the time to pull out our pocketbooks, put our money where our mouth is and divest from the banks financing this pipeline," said Carolyn Reilly, a regional pipeline fighter with Bold Alliance whose farm is in the path of the proposed pipeline in Rocky Mount, Virginia. "The Mountain Valley Pipeline is focused solely on making money, setting private financial interest as the top priority. As farmers and landowners, we say 'no' to a greedy system that supports eminent domain for private gain while threatening our clean water and land." The "Defund MVP" campaign joins a growing movement of communities, tribes and cities across North America that are targeting the financing behind dirty pipeline projects, from Dakota Access toKeystone XL , and putting increasing pressure on major banks to move money flows away from risky fossil fuel projects that threaten the climate and communities.  The Oil Change analysis draws a direct link between the banks providing corporate-level financing to pipeline company EQT Midstream Partners (EQM) and the money that will fuel the Mountain Valley Pipeline. EQM, the main driver of the project and the largest investor in it, plans to rely on corporate-level financing, rather than direct loans, to fund the pipeline.

New Northeast US gas pipelines will be hard to fill: Platts Analytics – Platts snapshot video - A wave of new gas pipeline capacity is set to come online in the Northeast US before the end of 2017, but current drilling and output in the area suggests that producers are unlikely to meet transportation obligations. Luke Jackson evaluates the Rover, TCO Leach Xpress and TETCO Adair/Southwest/Lebanon projects and the chances that they will fill with new supply — before even more pipeline capacity is expected in the area in 2018 and 2019.

US Northeast states are devouring natural gas for electricity, and that's a problem for coal -  The Northeast U.S. states — a vast market that generates and consumes much of America's annual electricity — is gradually using less coal to fire up its electricity plants. In part of what the Energy Information Administration called a dramatic 10-year shift, the nine states that comprise the Northeastern U.S.'s energy grid have collectively doubled the share of natural gas used to generate electricity—even as the region churned out slightly less power from 2006-2016. Simultaneously, coal-fired power tumbled from 31 percent to 11 percent, the EIA said in a report. "Increased access to low-cost natural gas from the Marcellus Shale and other regional shale plays has driven the switch away from coal in the Northeast United States," the EIA said in a study last week. Analysts note that the cheaper and more plentiful natural gas becomes, the more incentive there is for producers to abandon coal. "Environmental policies at the federal and regional level, such as production tax credits, the Regional Greenhouse Gas Initiative, and renewable portfolio standards, have also contributed to the decline in coal generation," the agency added.On a global scale, coal is still king, but its reign has become increasingly tenuous. The fuel source accounts for 41 percent of electricity generation worldwide, according to the World Coal Association, and in some countries that share is even higher. Massive demand from China — the world's largest energy consumer — has kept coal prices propped up higher.Yet the Northeast's gradual migration to abundant natural gas — whose prices surged by more than 4 percent last week — is a reflection of its relative cheapness and comparatively beneficial environmental impact. Gas prices ended just shy of $3.50 last week.The shift away from coal and oil to natural gas has been credited with helping to reduce carbon emissions."Northeast states have been at the vanguard of the changes that are transforming how electricity is produced and delivered in the U.S.," noted a 2016 report by M.J. Bradley and Associates, an environmental consulting firm. "The region has already experienced a major shift in the mix of resources used to produce electricity, with natural gas and renewables displacing older coal- and oil-fired power plants."The EIA report left little doubt about coal's inexorable downward trend: Pennsylvania remains a key hub of coal-fired power, but its capacity has tumbled by 31 percent over the last decade.

U.S. Military Is World’s Biggest Polluter -- Last week, mainstream media outlets gave minimal attention to the news that the U.S. Naval station in Virginia Beach had spilled an estimated 94,000 gallons of jet fuel into a nearby waterway, less than a mile from the Atlantic Ocean. While the incident was by no means as catastrophic as some other pipeline spills , it underscores an important yet little-known fact—that the U.S. Department of Defense is both the nation's and the world's, largest polluter. Producing more hazardous waste than the five largest U.S. chemical companies combined, the U.S. Department of Defense has left its toxic legacy throughout the world in the form of depleted uranium, oil, jet fuel, pesticides , defoliants like Agent Orange and lead, among others. In 2014, the former head of the Pentagon's environmental program told Newsweek that her office has to contend with 39,000 contaminated areas spread across 19 million acres just in the U.S. alone. U.S. military bases, both domestic and foreign, consistently rank among some of the most polluted places in the world, as perchlorate and other components of jet and rocket fuel contaminate sources of drinking water , aquifers and soil. Hundreds of military bases can be found on the U.S. Environmental Protection Agency's (EPA) list of Superfund sites , which qualify for clean-up grants from the government.  Almost 900 of the nearly 1,200 Superfund sites in the U.S. are abandoned military facilities or sites that otherwise support military needs, not counting the military bases themselves.

Shale Play 'Left for Dead' Gets Some Love as US Gas Rises -- A natural gas basin that helped kickstart the shale boom a decade ago is getting a new lease on life as the market recovers. Production in the Haynesville reservoir will climb for the seventh straight month in June, reaching the highest since October 2014, government data show. Output in the play, located in Louisiana and east Texas, fell to a six-year low last March, pressured by tumbling gas prices and competition from gushier, more profitable wells in Pennsylvania and West Virginia. As pipeline bottlenecks strand gas supplies in the eastern U.S., the vast network linking the Haynesville to the rest of the country -- along with a new export terminal shipping American gas overseas -- has made production in the play more valuable. Drillers from Exco Resources Inc. to Chesapeake Energy Corp. have refocused resources there to slash production costs, while private-equity backed companies bought assets to do the same. “Once left for dead, the Haynesville Shale in Louisiana and East Texas is in the midst of a resurgence as new well designs bring natural gas gushers to life,” William Foiles, a New York-based analyst for Bloomberg Intelligence said in a May 12 report. “Redesigned wells have since expanded the Haynesville’s untapped potential, with output expected to rise as capital and rigs return.” Chesapeake has boosted well productivity by using “massive amounts” of sand to extract gas from deeply-buried shale, according to Foiles. Exco has drilled longer horizontal well sections and is fracturing the rock in more places. The gas market’s rebound has created strong economics to drill in the Haynesville, Hal Hickey, Exco’s chief executive officer, said on a call May 10. Gas futures on the New York Mercantile Exchange have jumped 61 percent over the past year. While Pennsylvania and West Virginia have “some really good reserves,” the need for more pipelines and processing plants is “really restricting us at this point relative to our opportunities down in the South,” Hickey said.

Sand industry back in business in western Wisconsin - Like the ghost towns left behind after the California gold rush fizzled, many of the frack sand mines dotting western Wisconsin sat dormant a year ago. Piles of golden sand sat untouched next to stationary rail cars, with skeleton crews stopping by only occasionally to check on the idle facilities, the Leader-Telegram ( ) reported. It was a far cry from the boom times of a few years ago, when sand mines and processing facilities popped up constantly across the landscape.  Through the slump, company officials insisted the frack sand industry would bounce back. "The big question is when," industry consultant Kent Syverson, chairman of UW-Eau Claire's geology department, said last May. He now has the answer: 2017. "The industry was fairly dormant for a while, but now it has reawakened," Syverson said last week. "These mines are going full out again." Representatives of several companies with regional frack sand mining operations confirmed Syverson's assessment. "We are running pretty much full time, back to 24 hours a day," said Sharon Masek, manager of mine planning and industrial relations for Superior Silica Sands in Wisconsin. "We're pretty much back to our peak levels of employment." That means employment at Superior Silica's five mines in Barron and Chippewa counties has reached close to 200, up from about 70 last year when two of the facilities operated part time and two were completely shut down, Masek said. 

U.S. companies push hard for lower tax rate on offshore profits | Reuters: Major U.S. multinationals are pushing the Trump administration to deepen the tax break it has already tentatively proposed on $2.6 trillion in corporate profits being held offshore, a key piece in Washington's intricate tax reform puzzle. As President Donald Trump tries to deliver on his campaign promise to overhaul the tax code, lobbyists for technology, drug and other manufacturers are working with officials behind closed doors, six lobbyists working with various industries told Reuters. In line with tax cuts already embraced by Republicans in the House of Representatives, the lobbyists said they are telling the White House and Treasury Department that if companies are forced to bring home, or repatriate, foreign earnings, they want a sharply reduced tax rate. The lobbyists are making an aggressive case that cutting the tax rate on offshore profits to 10 percent from 35 percent, as the administration has indicated it may favor, is not enough. Rather, the lobbyists said they want a lower, bifurcated rate of 3.5 percent on earnings already invested abroad in illiquid assets, such as factories, and 8.75 percent on cash and liquid assets. During the 2016 presidential campaign, Trump proposed setting the rate at 10 percent, and argued it could be used to raise tax revenue to pay for tax cuts or infrastructure. Discussion of hard numbers in the long-running repatriation debate may indicate tax reform is advancing on Trump's slow-moving domestic policy agenda. Or it may just be lobbyists trying to set the early framework for a long slog ahead, which could be adjusted if they get concessions elsewhere.

Lawmakers push back against Trump offshore drilling review | TheHill: More than 100 members of Congress are urging the Trump administration not to open up the Atlantic or Pacific oceans for oil and gas drilling as part of the Interior Department’s review of federal offshore policies. In a letter released on Monday, the members said drilling in the Atlantic or the Pacific would imperil local economies based on fishing and tourism, which they said would both be threatened by the effects of a potential oil spill. “We do not believe that new oil and gas exploration or production activity in the Atlantic and Pacific Outer Continental Shelf (OCS) is compatible with the sustainable coastal economies on which so many of our constituents and communities depend,” the members wrote.  “As you conduct a review of our nation's existing oil and gas leases, we again strongly urge you to reject proposals to open the Atlantic and Pacific OCS Regions to new offshore drilling and exploration." Democrats make up the bulk of the members signing the letter, though a handful of Republicans joined as well, including co-lead authors Reps. Frank LoBiondo (R-N.J.), Dave Reichert (R-Wash.) and Mark Sanford (R-S.C.).

Assessment of Undiscovered Oil and Gas Resources in the Spraberry Formation of the Midland Basin, Permian Basin Province, Texas, 2017 – USGS pdf - Using a geology-based assessment methodology, the U.S. Geological Survey estimated mean resources of 4.2 billion barrels of oil - and 3.1 trillion cubic feet of gas in the Spraberry Formation of the Midland Basin, Permian Basin Province, Texas.

In America's largest oilfield, whir of activity confounds OPEC | Reuters: Lilis Energy aims to expand production sevenfold this year in America's most active oilfield. The whir of activity is all the more impressive after the small firm nearly collapsed in late 2015 - amid unrestrained production from the Organization of the Petroleum Exporting Countries (OPEC). As per-barrel prices plummeted, Lilis piled on debt and struggled to pay workers. Now - with prices higher after a November OPEC decision to cut output - Lilis can't grow fast enough. Such resurrections are common these days in the Permian, which stretches across West Texas and eastern New Mexico. They tell the story of the U.S. shale resurgence and the quandary it poses for OPEC as it struggles to tame a global glut. Surging U.S. production has stalled OPEC's effort to cut supply. Inventories in industrialized nations totaled 3.05 billion barrels in February - about 330 million barrels above the five-year average, according to the International Energy Agency. The Permian boom will be high on the agenda as OPEC oil ministers begin gathering in Vienna ahead of a May 25 policy meeting to decide whether to extend output cuts. In the long term, too much U.S. output could spur OPEC to open the spigots again - setting off another price war - but for now its member nations' need for revenue makes that unlikely. On Monday, the world's top two oil producers - OPEC heavyweight Saudi Arabia and Russia, a non-OPEC nation - said they had agreed in principle on the need to continue output cuts for an additional nine months, through March 2018.That would extend the initial agreement, which took effect in January and reduced production by 1.2 barrels per day (bpd) from OPEC nations and another 600,000 bpd from non-OPEC producers, including Russia. 

Permian growth to test capacity of Corpus Christi's crude oil infrastructure - Rising crude oil production in the Permian and the desire of many producers to get that oil to refineries and marine terminals in Corpus Christi has spurred interest in developing more than 1 million barrels/day (MMb/d) of new Permian-to-Corpus pipeline capacity by 2019. That raises the question of whether the Sparkling City by the Sea is prepared to receive and store all that crude — plus oil from the rebounding Eagle Ford play — and either refine it or load it onto ships. Today we begin a blog series on the potential flood of crude oil from the Permian’s Delaware and Midland basins into South Texas’s largest port and refining center, and how refiners and midstream companies are planning to deal with it.

Halliburton's incoming CEO sees significant price hike | Reuters: Halliburton, the No. 2 oilfield service provider, expects to raise prices at least 10 percent and in some cases 20 percent or more this year, higher increases than many customers expect but ones that company executives said were crucial to fuel the oil industry's nascent growth. The rising business activity comes as Jeff Miller prepares to become the 98-year-old company's chief executive officer next month, taking over from Dave Lesar, CEO since 2000. "We will continue to implement our strategy," Miller said in an interview at the company's Houston headquarters just outside George Bush Intercontinental Airport. "North America is absolutely our growth story today." Miller, Lesar and other executives have been in talks with customers for months about raising rates for Halliburton's myriad services, highlighting not only the company's scale but its experience. Halliburton was the first company to hydraulically fracture, or frack, a well, pioneering the process in 1949. Many customers had locked in service rates during the two-year price downturn when Halliburton laid off more than 35,000 employees. Today, with the American shale oil industry whirring again, Halliburton is at max capacity for many services and itching to charge more. Like peers, Halliburton has said it will not refurbish old equipment for field use until prices rise and has no North American fracking crews available until at least the fall. That limits the ability of customers to bring new wells online. 

Fracking crew shortage may push oil's biggest bubble to 2018: Shale explorers pushing to expand oil production are struggling to find enough fracking crews after thousands of workers were dismissed during the crude rout. Independent U.S. drillers underspent their first-quarter budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work. If the scarcity holds, output increases planned for this summer may get pushed into 2018, creating an unanticipated production bulge with “scary” implications for oil prices, In some cases, active crews are walking away from jobs they signed up for months ago -- and paying early-termination penalties -- to take higher-paying assignments with other explorers. Workers earn anywhere from $29,000 to $72,000 a year before overtime, depending on the company and the region. The tight fracking market “means U.S. oil production growth this year will be back-half weighted, and we may not understand the full extent of U.S. production growth until early 2018,” “This point is particularly scary if you are rooting for higher oil prices.”Oilfield-service companies contributed the largest chunk of more than 441,000 jobs slashed globally as prices plunged from more than $100 a barrel over the last three years, Now, with the price of oil settling at around $50 a barrel, shale drillers are once again gearing up in areas such as the Permian Basin, where break-even costs are as low as $30 a barrel. The result: rising competition for workers and equipment, which means higher costs. Fracking companies are now charging 60 percent to 70 percent more than a year ago as explorers engage in bidding wars to lock up crews, according to Infill data. In response, servicers are scrambling to re-hire hands and retrieve gear from storage.  A crew typically consists of 25 to 30 workers who operate a huge array of powerful truck-mounted pumps, storage tanks for fluids and sand, hoses, gauges and safety gear. Fracking, which involves pumping tons of water, sand and chemicals into a well to smash open the surrounding oil- and gas-soaked rock, is the most expensive part of drilling a well, usually accounting for about 70 percent of the total cost.

Natural Gas Projects Vie to Provide SCOOP/STACK Takeaway Capacity -- Rising crude oil production in the SCOOP and STACK oil and NGLs shale plays is driving the development of processing and natural gas pipeline capacity for associated natural gas volumes from the region. Earlier this month (Wednesday, May 3), Enable Midstream announced Project Wildcat, a 400-MMcf/d rich gas takeaway project. On the same day, SemGroup Corp. announced the Canton Pipeline to provide an initial 200 MMcf/d (and up to 400 MMcf/d) of capacity between the STACK play and its processing facility in northern Oklahoma. Enable last month also announced a firm shipper commitment on another of its takeaway projects — the Cana and STACK Expansion (CaSE). At the same time, late last month (on April 27), NextEra withdrew plans for its 1.2-Bcf/d Sooner Trails Pipeline. Today, we provide an update of the various projects vying to move associated gas from the SCOOP/STACK to downstream demand markets. The South Central Oklahoma Oil Province and Sooner Trend Anadarko Canadian Kingfisher shale plays in central Oklahoma –– better known as SCOOP and STACK –– are attracting increasing amounts of investment dollars from producers and midstreamers. The plays sit in an 11-county geographic area in central Oklahoma where drilling is targeting the oil-rich Woodford and Meramec shale formations of the Anadarko Basin (see Scoop-y Doo and All Come to Look for a Meramec).  The SCOOP play is a 3,300-square-mile area in the southern extension of the Woodford Shale’s Cana field in south-central Oklahoma across six counties:  Grady, Stephens, and Garvin Caddo, McClain and Murray. The STACK play sits just north of there (northwest of Oklahoma City), with activity centered around Kingfisher, Blaine, Dewey and Custer counties, plus some activity in portions of Canadian county (see Stardust Part 1 for a map).

Warning: Oil and gas development may be hazardous to your health - Boulder Weekly: Every medical student learns this much Latin: primum non nocere: “First, do no harm.” It appears to some scientists, politicians and residents that Colorado’s top medical officials, tasked with protecting residents’ health, never received the memo. Many residents on the Front Range fear that the Colorado Department of Public Health and Environment (CDPHE), especially Dr. Larry Wolk, the department’s executive director and chief medical officer, are violating this fundamental pillar of the medical profession when it comes to protecting the public from the known and potential health impacts of oil and gas development. Some scientists who study air emissions and health impacts associated with living near unconventional oil and gas operations also question whether the health department is following basic principles of scientific integrity.A recent case in point highlights both concerns. In February, the CDPHE released a controversial report, which concluded that the risk of harmful health effects is low for people living at least 500 feet from oil and gas activities. It said that concentrations of some substances, including benzene, a well-known carcinogen, were four to five times higher than standard health limits set for short- and long-distance exposure. In its report, which combined a health-risk assessment and a review of 12 previous epidemiological studies, the health department did not recommend immediate public health measures. Rather, it called for more research. Industry advocates and their political allies quickly seized on the study and trumpeted that it proved that oil and gas development was safe to Colorado residents. 

Methane rule survives Congress but its future is dim | TheHill: The Senate’s recent failure to reject a regulation targeting emissions from natural gas drilling sites under the Congressional Review Act signals the likely end of the CRA to overturn Obama-era rules. But for the venting and flaring rule, as it is known, the future is certainly fleeting. The Bureau of Land Management (BLM) rule focused on reducing waste of natural gas from flaring, venting and leaks from oil and gas production on federal lands. Though part of the Obama administration’s plan to reduce levels of the potent greenhouse gas methane, the rule also focused on curbing waste of a valuable resource and ensuring a fair return to the public. An initial compliance phase began in 2017, with stricter phases scheduled in 2018 and 2019.The oil and gas industry alleged that compliance costs went far beyond BLM’s annual upper estimate of $279 million and that the agency went far beyond its authority to regulate air emissions, a province for the states and the Environmental Protection Agency. Not surprisingly, these groups, joined by several states, filed a challenge to the rule that is now pending in Wyoming federal court. Because the rule was finalized within the required 60-legislative-day “look-back” window, it was subject to the CRA’s expedited procedure for congressional disapproval. The House passed its resolution in February 2017, but the Senate failed to pass its resolution at the very end of its statutory review period. Had it passed, President Trump would have signed quickly, immediately killing the rule. The Senate resolution failed by a handful of votes, likely because using the CRA procedure would have prevented BLM, under Trump or future presidents, from promulgating a “substantially similar” rule. The rule replaced 30-year-old regulatory and royalty provisions, and freezing those in place could have had significant financial impacts. While the rule contained a major climate component — making it a target — it also allowed BLM to raise royalties and ensure more gas was put to productive use to ensure taxpayer return. 

Signs of oil boomlet in North Dakota after pipeline finished - ABC News: There are hundreds more jobs than takers in the heart of North Dakota's oil patch. Finding a hotel room, parking space or table at a restaurant is no longer easy. More than two years after the state's unprecedented oil bonanza fizzled to a lull, North Dakota — the nation's No. 2 oil producer behind Texas — is experiencing a sort of boomlet that has pushed daily production back above 1 million barrels daily. "There is a long-term optimism that was not here just a year ago," said Williston Republican Sen. Brad Bekkedahl, whose western North Dakota district is in the epicenter of the state's oil-producing region. Industry officials and others say the uptick comes from a bump in crude prices, regulatory certainty with the more drill-friendly Trump administration, better technology, and the prospect of nearly half of the state's crude coursing through the disputed Dakota Access Pipeline, which could open markets abroad where top prices are typically fetched. Though the pipeline still faces opposition from American Indian tribes and environmentalists who fear it threatens cultural sites and drinking water, Ron Ness, president of the North Dakota Petroleum Council, calls it a "game-changer that opens up everything." The $3.8 billion pipeline — expected to be fully operating next month — opens up the possibility for North Dakota oil to be sold on the world market, where industry officials say it could earn several dollars more per barrel. Shippers also can save about $3 per barrel moving the oil by pipeline rather than using the mile-long trains that have carried North Dakota crude to the Gulf Coast since 2008, industry officials say.

Moving Bakken and Other U.S. Crude on VLCCs from the Gulf to Asia  -- For the first time ever, a Very Large Crude Carrier (VLCC) carrying Bakken crude has sailed from the Gulf of Mexico to Asia, and more may follow. With the startup of the Dakota Access Pipeline set for June 1, Bakken producers are only days away from gaining easier, cheaper pipeline access to the Gulf Coast, and are looking for new markets. Asian refineries are willing to pay a premium for Bakken-type crudes, and want other types of U.S. crude as well. And every 18 hours or so, a VLCC arrives at the Louisiana Offshore Oil Port—the only U.S. port capable of handling the mammoth vessels—offloads crude and leaves LOOP empty because the port is currently an import-only facility. Today we consider the potential for transporting more light, sweet crude to Asian refineries on VLCCs, either via ship-to-ship transfers or by reworking LOOP to enable exports.

US Government Is Trying To Imprison These Six Water Protectors - In February, a federal grand jury issued indictments of four Standing Rock water protectors on charges of Federal Civil Disorder and Use of Fire to Commit a Federal Crime. The federal investigators accused the four men—James White, Brennan Nastacio, Dion Ortiz, and Brandon Miller-Castillo—of involvement in setting three highway barricades on fire, which obstructed police during a highly-militarized October 27 raid of the “Front Line Camp” just north of the Standing Rock Sioux reservation. Another water protector, Michael Markus, was indicted on identical charges on January 24, and his case has been combined with those of the other four men. Prosecutors are also pursuing three federal felonies against a 38-year-old Oglala Sioux woman named Red Fawn Fallis. They accuse her of firing a gun during her arrest, even as multiple police officers had her pinned face-down on the ground. Fallis’ arrest also occurred on October 27. These cases likely mark the first time that United States authorities have pursued felonies against individuals involved in demonstrations against fossil fuel infrastructure. All six people facing the charges are indigenous. Under sentencing guidelines, Red Fawn Fallis faces 25 years or more in prison. The other federal defendants—Markus, White, Nastacio, Ortiz, and Miller-Castillo—face up to fifteen years.

US, Canada tribes to declare Keystone opposition | TheHill: Indigenous tribes on either side of the United States-Canada border are planning to sign a declaration opposition the controversial Keystone XL oil pipeline. Leaders of Canada’s Blackfoot Confederacy the Great Sioux Nation and Ponca tribe in the United States will gather in Calgary, Alberta, Wednesday to sign the 16-page declaration, the Associated Press reports. The tribes are calling the declaration historic, representing long-standing bonds among the groups, with together represent tens of thousands of indigenous people. “There is a historic union between first Americans in Canada and Native Americans in the United States,” Casey Camp-Horinek, Ponca councilwoman, told AP. “Long before a border ever existed on a map, a fictitious line on a map, we were a united peoples in our approach to care of Mother Earth,” she said. “Greed knows no limits, and those in the way are simply collateral damage to corporate profits," said Brandon Sazue, chairman of the South Dakota-based Crow Creek Sioux, said in a statement. The declaration will reinforce the longstanding beliefs of some tribes that Keystone would violate their treaty rights. The pipeline would not cross any reservation land, but much of its route would be in areas that the tribes had historically claimed.

Pipeline Protesters Call Out Trudeau Outside Meeting With Washington Governor: Prime Minister Justin Trudeau continued his efforts to promote Canada's technology sector to officials in Washington state on Thursday, meeting with Gov. Jay Inslee a day after attending the secretive Microsoft CEO Summit. Trudeau and Inslee discussed, among other issues, the development of the Cascadia Innovation Corridor, an initiative that aims to strengthen technology industry ties between British Columbia and Washington. The pair also spoke about trade and investment opportunities and innovation in the energy sector, said Trudeau's office. In brief remarks before the meeting, the prime minister said Washington and Canada share a lot in common."We're both strongly engaged on issues of climate change, on issues of openness to trade, on leadership on refugees as well and an understanding that diversity can be a real source of strength," he said. Inslee said the state and country share an "incredible commitment" to defeating climate change and a recognition that they can grow their economies at the same time. But protesters clad in yellow hazardous material suits that read "Keystone XL Toxic Cleanup Crew" gathered outside the hotel to criticize Trudeau's environmental record, arguing his support of pipelines is at odds with any global warming promises he has made. Chanting "Tar sands or clean lands, Trudeau you have a choice," the group of about a dozen people demanded that the prime minister rescind his support of Keystone XL and the Trans Mountain expansion, two pipelines that have generated considerable debate in the U.S. 

Large-Scale Fracking Comes to the Arctic in a New Alaska Oil Boom --Arctic lands and waters hold irresistible allure for global oil companies. Despite opposition from environmental groups and President Obama’s 2016 ban on drilling in federal Arctic waters, exploration in Alaska has revealed massive new volumes of oil.  This comes at a time of low oil prices, when many observers felt the Arctic would remain off limits. Alaska has proved precisely the opposite. Although it has gone largely unnoticed outside the industry, foreign firms are partnering with American companies to pursue these new possibilities. I expect this new wave of Arctic development will help increase U.S. oil production and influence in world oil markets for at least the next several decades. Over the past year oil companies have discovered volumes on Alaska’s North Slope totaling as much as five billion barrels or more of recoverable oil. This is a 14 percent increase in U.S. proven reserves, based on recent estimates, which is no small thing.One discovery, “Horseshoe,” made this year by the Spanish company Repsol in partnership with Denver-based Armstrong Oil and Gas, is the largest new U.S. find in more than 30 years. It is estimated at 1.2 billion barrels, and comes just after a find by ConocoPhillips in January, called “Willow,” evaluated at 300 million barrels.Both of these are dwarfed by “Tulimaniq,” a spectacular discovery drilled by Dallas-based Caelus Energy in the shallow state waters of Smith Bay, about 120 miles northwest of Prudhoe Bay, in October 2016. Caelus has confirmed a total accumulation of as much as 10 billion barrels of light, mobile oil, with 3-4 billion barrels possibly recoverable at current prices of about US$50 per barrel.

Canada's Permian of the North Roused by Cheap Gas Drilling | Rigzone-- Drilling rigs and roughnecks are hot commodities once again across the Montney shale formation in northern British Columbia and Alberta, and companies like Grimes Well Servicing Ltd. are having a hard time keeping up with demand. That’s because the Montney, unlike many parts of Canada’s oil and gas region, is seeing a surge of investment three years after the worst energy slump in decades. During the first four months of 2017, the number of wells drilled jumped 80 percent from a year earlier to 277, according to Calgary-based Grobes Media Inc.’s BOE Report. It’s the most for the period since 2014, when oil prices were twice what they are now and natural gas was 50 percent higher. Grimes started noticing a pickup in orders back in November and December -- the start of the winter drilling season -- as more customers put in urgent orders for equipment. Demand hasn’t let up. “By January, it was getting pretty crazy,” Derek Mackey, the company’s accountant, said by telephone from Edmonton. “Some people called saying: Can we get a rig in a couple days?” Exploration is roaring back because energy prices stabilized, halting the slide at levels that remain profitable. The slump also left idle equipment, making it cheaper to drill. A new well now costs about C$5 million ($3.7 million), down from C$8 million in 2014, according to Wood Mackenzie Ltd. The deposit straddles the northern border of Alberta and British Columbia. It was dubbed the “ Permian of the North” by Vancouver-based Blackbird Energy Inc. because the Montney has the same layered, stratified geology as the Texas shale formation that has led a resurgence in U.S. oil production. But unlike the Permian, which yields mostly crude, the Montney is rich in gas and associated liquids such as condensate.

BlackRock switch helps pass 'historic' climate measure at Occidental | Reuters -- BlackRock Inc said on Friday that it voted in favor of a successful shareholder proposal calling for more climate change reporting by Occidental Petroleum Corp, in the first sign the world's largest asset manager was backing up its tough new talk on environmental matters. Backers of the resolution called its passage a major victory, the first time such a measure succeeded at a major U.S. oil and gas company. Proponents said they were pleased by BlackRock's support, which they had sought. "Today’s historic vote puts the oil and gas industry on notice – the climate is changing and so are investor expectations of how companies should respond," said Laura Campos, a director at the Nathan Cummings Foundation, one of the resolution's proponents. BlackRock (BLK.N), which has $5.4 trillion under management, traditionally has given few details of its reasoning behind specific proxy votes. On Friday, however, it said it was concerned about Occidental’s pace of disclosure to date. It also gave details about its talks with other companies such as Chevron Corp, which BlackRock said has provided more detail on climate risks it faces such as a recent report it published. A Chevron representative said the company would continue speaking with investors, and that it had held “extensive dialogue with proponents and other stockholders." BlackRock spokesman Ed Sweeney said BlackRock would not explain every vote it casts in such detail but wanted to underscore how it promotes its corporate governance priorities in talks with companies. "We want to highlight our engagement and articulate our voting decisions," he said.

Bad news for Opec as US shale drillers gear up for $84bn spree - US shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices. Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014. That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44 percent of the reductions announced by the Saudi- and Russia-led group. Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.

Saudis Panic As Fracking Soars For Sixth Month In A Row - American oil production from hydraulic fracturing, or fracking, will rise for the sixth consecutive month, government data revealed Monday. U.S oil production will rise to 5.4 million barrels per day by June and result in the highest levels of domestic oil production since May 2015, according to the U.S. Energy Information Administration’s drilling productivity report. Soaring U.S. oil production is due to a new agreement between the Organization of the Petroleum Exporting Countries (OPEC) and Russia to reduce their oil production with the goal of increasing global prices. With the deal in place, OPEC and Russia have effectively surrendered control of the lucrative U.S. oil market to fracking.OPEC began flooding the global marketplace with oil in 2014 in an attempt to depress prices and counter new competition from U.S. fracking, causing oil prices to fall from $108 per barrel in June 2014 to only $29.04 per barrel in January 2016. The price of oil then went too low, however, forcing OPEC to slash oil production to boost prices. OPEC member nations require the price of oil to average $75 a barrel to balance their national budgets. Industry experts believe that most new American fracking will be profitable at around $40 a barrel. Such a setup means that the price of oil will be permanently locked in at prices favorable to American fracking.The Energy Information Association (EIA) estimates that in 2016, OPEC earned $76 billion less than the cartel earned in 2015, resulting in the lowest earnings posted by OPEC since 2004.OPEC’s strategy was not able to kill fracking and only forced the process to become less costly and more efficient. U.S. oil production levels remained relatively constant despite low oil prices and declining investment. Companies, such as ExxonMobil and Royal Dutch Shell, were already investing $20 billion into fracking technology in August.

Flotilla of U.S. crude heads to Asia as OPEC weighs extending cuts | Reuters: Oil tankers carrying around 10 million barrels of U.S. crude are en route to Asia, according to shipping data and trade sources, as U.S. producers take advantage of favorable prices to ship to the region while OPEC ponders further supply cuts next week. At least eight tankers are in transit, sources said and the shipping data in Thomson Reuters Eikon showed, with one of them carrying the first ever cargo of Southern Green Canyon crude purchased by Japanese refiner Cosmo Energy. Another contains the first Alaskan North Slope cargo to arrive in Asia in eight months. OPEC members meet next week to discuss extending a global supply cut, but the possibility of U.S. supply eating into their market share will be a challenge. While member countries have largely restrained their supply, they have remained intensely focused on keeping market share with Asian refiners. But relatively cheap U.S. crude has buoyed exports to Asia. Traders expect that May U.S. crude exports could reach around 1 million barrels per day, with a sizable portion of that going to Asia. Last week, U.S. crude exports touched 1.09 million bpd, the third highest on record, according to U.S. government data. If numbers remain elevated, they could surpass the record 1.2 million bpd seen in February. "We expect that momentum to continue when (Dakota Access Pipeline) opens and as more Permian production hits Corpus Christi docks," said Sandy Fielden, director of oil and products research at Morningstar, of the exports. U.S. oil production has risen by 10 percent to 9.3 million bpd since mid-2016, according to the Energy Information Administration.

In Fight Against U.S. Shale Oil, OPEC Risks Lower for Longer - When Khalid Al-Falih arrived at Davos in late January, the Saudi oil minister was exultant. The output cuts he’d painstakingly arranged with fellow OPEC states and Russia were working so well, he said, they could probably be phased out by June. Almost five months later, U.S. production is rising faster than anyone predicted and his plan has been shredded. In a series of messages late last week, Al-Falih told his fellow ministers more was needed, according to people briefed on the talks, asking not to be named because the conversations are private. In their battle to revive the global oil market, OPEC and its allies are digging in for a long war of attrition against shale. "OPEC is now recognizing they need longer -- and potentially deeper -- production cuts than they have anticipated," From the beginning, Saudi Arabia saw a quick one-off intervention: reduce production for a few months and speed up the recovery. . U.S. shale, the plan assumed, wouldn’t recover fast enough. And yet, shale has defied the naysayers. By the time OPEC meets in Vienna on May 25, U.S. output will be approaching the 9.5 million barrels a day mark -- higher than in November 2014 when OPEC started a two-year price war. The rebound has been powered by turbocharged output in the Permian basin straddling Texas and New Mexico.  Since OPEC agreed to cut output six months ago, U.S. shale production has risen by about 600,000 barrels a day, wiping out half of the cartel’s cut of 1.2 million barrels a day and turning the rapid victory Saudi Arabia foresaw is turning into a stalemate. Al-Falih said this week Saudi Arabia is now pushing to extend the cuts "into the second half of the year and possibly beyond."

Trump strikes deal to export more natural gas to China -   President Trump struck a deal with China last month to begin importing more natural gas from the United States, according to a joint statement issued late last night by the Commerce Department and the Asian power. "The United States welcomes China, as well as any of our trading partners, to receive imports of [liquefied natural gas] from the United States," according to the agreement, which is being called the "100 day plan." The plan said the US "treats China no less favorably" than any of its other partners in authorizing natural gas shipments from the US to Chinese ports. "Companies from China may proceed at any time to negotiate all types of contractual arrangement with US LNG exporters, including long-term contracts, subject to the commercial considerations of the parties," it said. The plan noted that as of April 25, the Department of Energy had authorized 19.2 billion cubic feet per day of natural gas exports to non-free trade agreement countries. The natural gas industry wants to create new markets in the wake of the nation's shale gas and oil boom as a result of fracking. The increased production has made the US a global oil and gas leader. Analysts came out Friday praising the deal as merging the largest energy consumer, China, with largest new energy supplier, the United States. It also helps Trump address trade imbalances with China to create a more equitable arrangement for both countries.

Trump-Xi Deal Could Fuel A U.S. LNG Boom -- When President Trump came into office, he openly resented the major trade deficit with Asia’s number-two economy and vowed to remedy the situation. While his words smacked of economic protectionism to many, the latest news about China-U.S. economic relations reveal a different picture. While back in February the U.S. president talked about trade wars, last week he and Xi Jinping struck a deal that would see China receive more U.S. natural gas, as well as additional beef and poultry.This week, the chairman of the China National Petroleum Corp., the largest state energy company, told Bloomberg in an interview that CNPC would gladly boost its U.S. oil and LNG imports. “The U.S. has very rich oil and gas resources, and as China pursues a diversification of its crude supply the U.S. will of course be one of the sources. We will consider exploring cooperation in areas such as jointly developing liquefied natural gas facilities and gas transport,” Wang Yilin said. China can certainly do with the diversification, as its energy needs are growing inexorably. It is already the biggest buyer of U.S. crude, ahead of Canada, importing a total of 8.08 million barrels of oil in February. China imports this much oil on a daily basis, so in the scheme of things, US oil imports are a relatively small portion of the overall, based on China’saverage daily import rate for the same month, but this figure will certainly grow with Beijing’s diversification drive. The news is even better for U.S. gas. When the Trump-Xi deal was announced, shares in Cheniere Energy, currently the only LNG exporter in the country, jumped by 3.3 percent. The trade deal will likely provide a major boost for other LNG export hopefuls, too. However, not all will be easy. First, China’s diversification is not necessarily focused only on the U.S. On the contrary, Beijing is unlikely to succumb to overreliance on one single source of energy. What’s more, U.S. LNG may find it tough to compete with supply from Australia and Qatar. All that without even mentioning the Power of Siberia gas pipeline that will see China import 38 billion cu m of gas annually, starting in 2025, strengthening ties between Beijing and Moscow. In a recent report, the CNBC quoted analysts as suggesting the competition may prove too stiff. “China is much nearer and much cheaper to ship from Australia, for example, or Qatar,” said S&P Platts’ regional director for energy pricing, Alan Banniser. According to him, Europe is the most logical market for U.S. gas.

Caribbean Dream - Successes and Setbacks in Shifting the Islands from Oil to Gas -- For several years now, power generators and other major energy users in the Caribbean have been working to shift from diesel or fuel oil to alternative fuels — mostly natural gas delivered by ship as liquefied natural gas (LNG), but also propane. A few significant projects have advanced, and new infrastructure to receive LNG and propane has been put in place to support additional fuel imports into the region. But other projects have been delayed or even scrapped because of financial or regulatory troubles. Today we update the laid-back region’s efforts to wean itself off diesel- and fuel-oil-fired power. The islands and Central American countries whose shores are lapped by the waves of the Caribbean Sea are known best for their white-sand beaches, aqua-colored water and umbrella drinks, but they also have a surprising amount of energy infrastructure — and significant energy needs. As we said in A Pirate Looks at Storage, the Caribbean has nine operating crude oil storage facilities that represent a working alternative to onshore storage in the U.S.  In Down to Kokomo, we considered the growing interest in selling U.S.-sourced compressed natural gas (CNG) to the region, and in Feeling Hot, Hot, Hot, we looked at existing and planned use of LNG to run Caribbean power plants.

South Korea LNG demand set to rise on new leader moving against coal -- South Korea's new President Moon Jae-in Monday ordered a temporary shutdown of aged coal-fired power plants in an urgent move to address worsening air pollution, which will likely boost LNG demand for power production. Under the order, eight coal-fired power plants aged 30 years or older will be closed for 30 days starting June 1, the presidential office said in a statement. The plants include Yeongdong 1 with a capacity of 125 MW, Yeongdong 2 with 200 MW, Seocheon 1 and 2 each with 200 MW, Samcheonpo 1 and 2 each with 560 MW, and Boryeong 1 and 2 each with 450 MW. They are all owned by the country's state-run electricity monopoly, Korea Electric Power Corporation, or KEPCO. The one-month shutdown of the aged power plants will have little impact on the country's overall power supplies because they could easily be replaced by more costly but less polluting LNG power plants largely run by private companies, the presidential office said. "Furthermore, the capacity of the coal-fired power plants is small and June is off-peak season, so we think there would be little impact on the country's power supplies," a presidential official said. The combined capacity of the eight coal-fired power plants is 2.75 GW, accounting for 8.4% of the country's total coal-fired power production capacity of 32.7 GW, and 2.5% of the country's total power generation capacity of 109.5 GW which includes nuclear reactors and natural gas-fired power plants, according to KEPCO. The eight coal-fired power plants will be closed again for four months during off-peak spring season from March to June each year from 2018, the presidential office said. South Korea currently runs 10 coal-fired power plants aged 30 years or older, but two of them -- Homan 1, 2 each with 250 MW -- have been excluded from the temporary shutdown this year due to a possible shortage of power supplies to an industrial zone in which they are located, the presidential office said. However, all of the 10 aged coal-fired power plants will be permanently shut by early May 2022 when Moon leaves office, the presidential office said.

NYMEX June gas continues slide, settling 3.8 cents lower - The NYMEX June natural gas futures contract settled 3.8 cents lower Wednesday at $3.192/MMBtu, notching its third straight decline as the market continued to pull back following a surge in prices last week. Prices jumped late last week after the US Energy Information Administration estimated a storage build that was smaller than expected, but the market has since pulled back from that increase. On Friday, the June contract settled at $3.424/MMBtu, having risen 13.2 cents over two trading sessions to end the week. This week has been a different story, with prices currently down 23 cents over the last three trading sessions. Storage injection numbers will be released Thursday and market sentiment is for larger builds, but Alan Levine, chairman and CEO of brokerage PowerHouse, said he did not expect large stock builds soon. "With prices the way they are, it is not very attractive for a driller to go directly after gas," Levine said, noting that given low prices, producers have little incentive to actively search for more gas.

China claims breakthrough in mining ‘flammable ice’ -- China has for the first time extracted gas from an ice-like substance under the South China Sea considered key to future global energy supply. Chinese authorities have described the success as a major breakthrough. Methane hydrates, also called "flammable ice", hold vast reserves of natural gas. Many countries including the US and Japan are working on how to tap those reserves, but mining and extracting are extremely difficult. What is 'flammable ice'? The catchy phrase describes a frozen mixture of water and gas. "It looks like ice crystals but if you zoom in to a molecular level, you see that the methane molecules are caged in by the water molecules," Associate Professor Praveen Linga from the Department of Chemical and Biomolecular Engineering at the National University of Singapore told the BBC. Officially known as methane clathrates or hydrates, they are formed at very low temperatures and under high pressure. They can be found in sediments under the ocean floor as well as underneath permafrost on land. Despite the low temperature, these hydrates are flammable. If you hold a lighter to them, the gas encapsulated in the ice will catch fire. Hence, they are also known as "fire ice" or "flammable ice". By lowering the pressure or raising the temperature, the hydrates break down into water and methane - a lot of methane. One cubic metre of the compound releases about 160 cubic metres of gas, making it a highly energy-intensive fuel.

China, Japan extract combustible ice from seafloor (AP) -- Commercial development of the globe's huge reserves of a frozen fossil fuel known as "combustible ice" has moved closer to reality after Japan and China successfully extracted the material from the seafloor off their coastlines. But experts said Friday that large-scale production remains many years away - and if not done properly could flood the atmosphere with climate-changing greenhouse gases. Combustible ice is a frozen mixture of water and concentrated natural gas. Technically known as methane hydrate, it can be lit on fire in its frozen state and is believed to comprise one of the world's most abundant fossil fuels. The official Chinese news agency Xinhua reported that the fuel was successfully mined by a drilling rig operating in the South China Sea on Thursday. Chinese Minister of Land and Resources Jiang Daming declared the event a breakthrough moment heralding a potential "global energy revolution." A drilling crew in Japan reported a similar successful operation two weeks earlier, on May 4 offshore the Shima Peninsula. For Japan, methane hydrate offers the chance to reduce its heavy reliance of imported fuels if it can tap into reserves off its coastline. In China, it could serve as a cleaner substitute for coal-burning power plants and steel factories that have polluted much of the country with lung-damaging smog. The South China Sea has become a focal point of regional political tensions as China has claimed huge swaths of disputed territory as its own. Previous sea oil exploration efforts by China met resistance, especially from Vietnam, but its methane hydrate operation was described as being outside the most hotly contested areas. Methane hydrate has been found beneath seafloors and buried inside Arctic permafrost and beneath Antarctic ice. The United States and India also have research programs pursuing technologies to capture the fuel.

Offshore Oil Well Leaked for Months, Public Kept in Dark for a Year - Australia's oil regulator is refusing to disclose the location and the company behind a 10,500 liter leak of petroleum into the ocean last year. An Australian offshore oil and gas well leaked continuously into surrounding waters for two months in 2016 but information about the discharge was only released this week in the National Offshore Petroleum Safety and Environmental Management Authority's (NOPSEMA) annual offshore performance report. According to The Guardian , the report provided scant details about the spill, which was only found after a routine inspection. After the publication asked about the spill, NOPSEMA divulged that the leak went on for two months at a rate of about 175 liters a day. A NOPSEMA spokesman explained that the leak was caused by seal degradation but refused to reveal the exact location of the spill, just that it happened in the North West Shelf—an extensive oil and gas region off the coast of Western Australia. Greenpeace Australia Pacific criticized the agency for keeping the public in the dark and noted that no fines or other form of punishment were given to whoever the operator might be. "Australians, and especially those who rely on the ocean for their livelihood, should be deeply concerned by reports that the national oil regulator has withheld information from the public about a 10,500 liter oil leak for over twelve months," senior Greenpeace campaigner Nathaniel Pelle said . "There's absolutely no justification for continuing to keep the company involved or the location of the oil spill a secret. NOPSEMA must immediately make the identity of the company involved and the location of the spill available to the public”

Woodside says it was behind oil spill that regulator kept secret --  Woodside Petroleum has confirmed it was behind an oil spill off the coast of Western Australia that was kept secret by the regulator for more than a year.The company said on Friday that it reported a leak from a well in the Cossack field on the North West Shelf to the National Offshore Petroleum Safety and Environmental Management Authority (Nopsema) in April 2016.The revelation of Woodside’s spill came two days after it won an “environment excellence award” from the peak oil and gas lobby for the second year running.The first public mention was a reference to a 10,500-litre spill in the regulator’s annual offshore performance report this week, Guardian Australia reported on Thursday. But the report did not say when the spill took place or who was responsible. The company has not referred to the spill in any of its Australian Stock Exchange announcements since its discovery.Woodside said that because the leak from the CK4 well was “80% water” and 80m below the sea surface, it had “no lasting impact to the environment”. The secrecy around Woodside’s spill contrasted with the federal regulator’s public alert around a smaller oil spill in February at an ExxonMobil platform in the Bass Strait.A Nopsema spokesman had said the regulator had “an implied duty of confidence” not to disclose companies that reported leaks. But an offshore oil safety expert and a Greenpeace campaigner had said the secrecy was concerning and not justified.

Europe's refiners must stay nimble to avoid margin squeeze | Reuters: Europe's oil refiners will have to carefully manage production, possibly even turning to diesel, to sustain margins as high oil product inventories and uncertain gasoline demand growth threaten a model that has been lucrative over the past three years. European energy companies, including Royal Dutch Shell, Repsol and Statoil, reported big rises in first-quarter margins as refinery outages worldwide counterbalanced high oil product stocks. The summer, and the U.S. drivers it typically woos to the road, are often a surefire bet for Europe's units, which churn out much of the gasoline that ends up in American auto engines. But U.S. gasoline demand in January and February fell year-on-year, suggesting the market may have trouble repeating last year's record volumes, according to Energy Information Administration data, while meteoric gasoline demand growth in India has begun to flatten. In Europe, April refinery runs are already 640,000 barrels per day (bpd) higher than last year. U.S. and Asian units are also increasing runs - and looking to export. Analysts JBC expect a potentially substantial downward correction in refining margins in the second half of the year, meaning refiners will have to be nimble to sustain profits.

How This Oil Giant Influences Curriculum at Top Dutch University - Shell has a contractual agreement with a major Dutch university , which allows the oil giant to influence its curriculum, according to documents seen by Energydesk . Shell also paid Erasmus University hundreds of thousands of euros for conducting research into the business climate for multinationals in the Netherlands, invoices paid in 2008 and 2009 show. The university, which ranked 69th in the 2017 world university rankings , said it "has nothing to hide." It said that Shell has played "no formal part" in the development of its curriculum and would create a publicly available register of its corporate ties, in response to the findings. The contract was signed in 2012 between Shell and the Rotterdam School of Management (RSM), an international business school which is based at Erasmus University in the Netherlands, where Shell is headquartered. It states that RSM will provide tailored business advice to Shell, in return for cash. The findings are published after Energydesk revealed Shell was strategically targeting young people, academics and business leaders, as part of a PR push designed to position itself as a low carbon leader—despite spending more than $7 billion on efforts to drill in the Arctic .  Universities across the world have pledged to move their own money out of oil, gas and coal, but many continue to take funding from fossil fuel giants. In 2015, top UK universities admitted to having taken millions , prompting concerns about conflicts of interest.

Fracking go-ahead in Karoo basin ‘possible within months -- The government may award its first shale gas exploration licences by the end of September, after environmental objections delayed the process, a senior government official said on Monday. The five licence applications under review are for exploration in the semi-arid Karoo basin. Environmentalists criticised plans to work in the sparsely populated region, known for its rugged scenery and home to rare species such as the mountain zebra and riverine rabbit. Royal Dutch Shell, Falcon Oil and Gas and Bundu Gas & Oil are among five firms whose applications were being reviewed by the regulator, acting Petroleum Agency SA (PASA) CE Lindiwe Mekwe said. PASA would make recommendations to Mineral Resources Minister Mosebenzi Zwane to decide on the licence awards. "We anticipate that the minister will be in a position to make a determination during the second or third quarter," Mekwe said. "If the decision is made this year the exploration rights will be valid for a period of three years, exploration activities should commence within three years," she said. SA is seeking to replace its dwindling offshore gas reserves and reduce reliance on coal to fuel power plants. Shell said last year its Karoo project could compete in its global shale gas and oil portfolio provided commercial terms were attractive. It had previously pulled back from the plans due to low energy prices and licence delays. SA’s recoverable gas reserves from onshore shale and offshore gas fields was estimated in 2015 at about 19.5-trillion cubic feet (TCF). Officials say it would take about a decade to significantly develop these gas resources. 

Indian liquid fuels consumption declined in the first quarter of 2017 but is beginning to recover India is a major contributor to the growth in global liquid fuels consumption. Total liquid fuels consumption in India grew 8% in 2016, the largest increase since 2009, to an estimated 4.35 million barrels per day (b/d). EIA estimates that in 2015 and 2016, Indian liquid fuels consumption growth constituted 19% and 20%, respectively, of the net global growth in liquid fuels consumption. However, according to preliminary estimates from India’s Ministry of Petroleum and Natural Gas, Indian liquid fuels consumption fell 3% in the first quarter of 2017 compared with the same quarter in 2016, the first year-over-year quarterly decline since 2013. The reported decline in consumption occurred in many petroleum products including diesel and gasoline (Figure 1), which accounted for, on average, 39% and 12%, respectively, of total Indian liquid fuels consumption since the beginning of 2016. The slowdown in liquid fuels consumption is likely related at least in part to India’s recent efforts to reduce the size of its informal economy, where transactions are done mainly in cash and may be either illegal or untaxed. The impacts of this effort on oil consumption may be gradually subsiding, as liquid fuels consumption rose at the start of the second quarter of 2017.

Floating oil storage off China's Shandong rises as tanks full - sources, data | Reuters: More than 20 tankers carrying crude and fuel oil are anchored off the ports of China's eastern Shandong province, as onshore storage tanks are full, according to trade sources and shipping data on Thomson Reuters Eikon. Frenzied buying by independent refiners, most of whom are located in Shandong, and trading companies seeking to re-sell crude to these refineries have filled up tanks, they said. "Oil inventories at storage tanks are very high," a China-based trader said. Most of the tankers that are carrying crude have been floating off Shandong for less than a week although tanker Seaways Portland, which has Russian ESPO crude onboard, has been in the area for two months, the data showed. The ESPO cargo has already been sold to a Chinese trader, a Singapore-based trader who tracks the oil flows said. Crude grades onboard ships include Australia's Pyrenees and Vincent, Russian Urals, Brazilian Saphinoa and West African crude, according to the data. Most of the crude are aimed at meeting demand from Chinese independent refiners as they are expected to receive a second batch of import quotas from Beijing in end-May or early June, traders said. At least three of the six fuel oil tankers are carrying bitumen mixture, the second trader said, as traders prepare to sell more of the residue oil into China before a proposed consumption tax kicks in.

Floating oil storage has dropped by one-third in 2017: OPEC source | Reuters: Global oil inventories in floating storage have declined by one-third since the start of the year, a source from the Organization of the Petroleum Exporting Countries told Reuters on Monday. The drop in stockpiles is the latest sign that output cuts by major producers have helped deplete a global glut.

Libya adds to Opec woes as output at highest since ’14 -- The North African country’s production has reached 796,000 bpd, Mustafa Sanalla, the chairman of state producer National Oil Corp, said on Monday in a statement. Libya was producing about 700,000 bpd at the end of April, Jadalla Alaokali, an NOC board member, said at the time. A revival in Libyan output adds to the challenge that the Organisation of Petroleum Exporting Countries and other major producers face after agreeing last year to pump less crude to stem a glut and shore up prices. In separate statements just hours apart on Monday, Saudi Arabia and Russia said publicly for the first time they would consider prolonging their output reductions for longer than the six-month extension Opec is widely expected to agree to when the group meets on May 25. Libya was exempted from Opec’s cuts because of its internal strife. Political divisions, clashes between armed groups and closures of fields have disrupted output in Libya as the country with Africa’s largest crude reserves struggles to revive its most vital industry. Libya’s feuding administrations agreed last week to unite state institutions and build a national army under civilian leadership after two days of talks in Abu Dhabi.

Cautious progress in Libya’s oil output --Rising Libyan oil production is primarily the result of the military success of General Khalifa Haftar, whose so-called Libyan National Army forces are wresting unitary control of the oil supply chain from a patchwork of local militias.These advances have forced the UN-backed Government of National Accord to the negotiating table, raising the prospect of a political settlement that would reinforce the gradual and fragile movement towards normalization in the country.Libyan oil production rose above 800,000 b/d in May for the first time in three years.The trend is gradually upward, but in fits and starts; April production averaged 550,000 b/d, 70,000 b/d lower than in March, according to an S&P Global Platts survey.While rising Libyan oil production is problematic for OPEC as it seeks to reduce output to rebalance the market, on a national level it raises hopes that Libya is slowly recovering from years of war and infighting.The National Oil Corporation (NOC) believes that production of 1.2 million b/d is possible by August, although this would still be some way short of the 1.6 million b/d recorded before the 2011 uprising against Muammar Qadhafi.Whether this can be achieved depends on continued improvement in the political situation. There are currently two main centers of power: the House of Representatives in Tobruk in the east, which Haftar is affiliated with, and the Tripoli-based GNA. Both lay claim to be the legitimate government, although only the GNA is recognized by the UN.More importantly, as far as the oil industry is concerned, dozens of localized militias control different parts of the country. Separate factions have controlled various parts of the same oil supply chain, with fields, pipelines and export terminals all held by different groups. It is this partition, even more so than damage to the physical infrastructure of the industry, that has held back production.

Libyan Oil Output Creeps Higher Ahead of OPEC Decision on Cuts   -- Libya is ratcheting up oil output with less than two weeks to go before the world’s biggest exporters decide whether to extend production cuts to clear a supply glut.  The OPEC member with Africa’s largest crude reserves is pumping more than 814,000 barrels a day, thanks partly to rising output from two fields that re-started last month, Jadalla Alaokali, a board member at the National Oil Corp., said Sunday by phone. Libya was producing about 700,000 barrels a day at the end of April, he said at that time. Output from the politically divided country is at its highest since October 2014 when it pumped 850,000 barrels a day, data compiled by Bloomberg show. The revival in Libyan production coincides with efforts by the Organization of Petroleum Exporting Countries and allied suppliers to curtail output. OPEC ministers plan to meet on May 25 to decide whether to extend cuts in their production beyond June. The recent increase in Libyan output, together with a surge in North American shale production and signs of recovery in Nigeria, may undercut OPEC’s strategy to re-balance the market and prop up prices.  Libya pumped as much as 1.6 million barrels a day before an uprising in 2011, and it was exempted from OPEC’s cuts due to internal strife. It’s targeting production of 1.32 million barrels a day by the end of this year, the NOC said last week in a statement.   Crude from Sharara, Libya’s biggest field, started flowing in late April to the Zawiya refinery following a three-week closure. El Feel, a field also known as Elephant, re-started last month as well, after having been halted since April 2015.

OPEC’s Staring Down a Double-Barrel Cut - OPEC is going to have to do much more than simply extend its current production deal when it meets next week if it's serious about addressing surplus inventory. In fact, its own figures show it needs to double the cut it made in January. That means finding another 1.2 million barrels a day to take out of production.In its latest forecast, published last week, the producer group trimmed its estimate of the need for OPEC crude this year by 300,000 barrels a day. At that level of production -- 31.92 million barrels a day -- inventories will remain static, assuming demand and non-OPEC supply forecasts are correct. OPEC produced 31.74 million barrels a day in April, according to secondary-source estimates published by the group. Simply rolling that level forward for another six months will exhaust the excess at an average rate of 722,000 barrels a day in the second half and will see about 120 million barrels removed from inventories in the nine months begun at the end of March. That may seem like a lot, but OPEC puts the excess at the end of the first quarter at 276 million barrels -- and that's just in the developed countries of the OECD. Merely extending the cuts won't bring oil inventories anywhere close to their five-year average level by the end of December. And let's set aside the fact that the five-year average has been inflated by two years of surplus, which means stockpiles will have to come down significantly below that to return to normal levels. Implementation of the agreement so far has been better than expected, but that does more to highlight the deal's weakness than anything else.Ensuring compliance in the second half will probably prove much harder. Several key producers have achieved their targets by simply bringing forward maintenance at oil fields and refineries. Extending the cuts will require real sacrifices, like shuttering production and reducing exports. There's a risk even that won't be sufficient.

OPEC and hedge funds are trapped in Groundhog Day: Kemp (Reuters) - Hedge funds had become increasingly bearish towards crude oil by the middle of last week, leaving them vulnerable to a short squeeze with OPEC's next meeting coming up on May 25.In fact, hedge fund positioning in crude is nearly identical to before the last OPEC meeting held on Nov. 29, which was followed by a fierce short-covering rally ( Even the level of oil prices is similar (  By May 9, hedge funds and other money managers held a net long position in the three main Brent and WTI futures and options contracts amounting to just 475 million barrels ( managers had cut their net long position by a cumulative 308 million barrels since April 18, according to an analysis of position data published by regulators and exchanges (  Bullish long positions had been trimmed by 135 million barrels over the three week period while bearish short ones had been increased by 173 million barrels.Fund managers had raised their short positions in Brent and WTI to 334 million barrels, the highest level of short sales since before OPEC announced its production cuts on Nov. 29. The ratio of hedge fund long to short positions fallen to just 2.4:1 from a recent high of 5.8 on April 18 ( Bearishness had spread well beyond crude to key refined products such as U.S. gasoline and distillate fuel oil as fund managers began to worry that the surplus of crude was being turned into a glut of products. By May 9, hedge funds were running a net short position of 21 million barrels in U.S. gasoline and 9 million barrels in heating oil. But the large build up in short positions across both crude and fuels left the oil market looking stretched on the downside and poised for a short-covering rally.

Is the global oil market chasing an 'almost-mythical' state? (podcast) Capitol Crude talks to some top players in the energy economics game to consider whether oil's perpetual quest for balance is possible and how it affects production and prices.  John Kemp, senior market analyst, commodities and energy at Thomson Reuters, and Ross McCracken, managing editor at Platts Energy Economist, talk to senior oil editor Brian Scheid in London. They ponder whether the global oil market will ever be in balance and how US production — from both shale, conventional and offshore sources — plays into that equation. How will production costs, crude prices and policy decisions impact future supply, and why don't we hear about outlandish price forecasts anymore?

Saudi Arabia, Russia push to extend oil output cut until March 2018 | Reuters: Saudi Arabia and Russia, the world's top two oil producers, agreed on Monday on the need to extend output cuts for a further nine months until March 2018 to rein in a global crude glut, pushing up prices. Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said in a statement they would "do whatever it takes" to reduce the inventory overhang, using a phrase coined by European Central Bank President Mario Draghi five years ago in his successful bid to defend the euro. The Organization of the Petroleum Exporting Countries meets in Vienna on May 25 to consider whether to extend output cuts agreed in December last year between OPEC and 11 non-member countries, including Russia. Benchmark Brent oil prices LCOc1 rose, trading up $1.39 at $52.23 per barrel by 1407 GMT as the market had previously expected the cuts to be extended by as little as six months. With a nine-month extension now the minimum expectation for the OPEC meeting, the group has a lot of work to do to persuade its members and some non-OPEC producers to back the move. OPEC member Iraq, whose production is growing fast, has said it would support renewing the deal only for six months. Non-OPEC member Kazakhstan said on Monday it would struggle to join any new deal on the old terms, as its own output was set to jump. Oman said it fully supported the idea of a nine-month extension.

Saudi Arabia, Russia agree that 9-month extension to output cut deal needed --Saudi Arabia and Russia jointly said Monday that they agreed that the oil output cut agreement needed to be extended by nine months until the end of March 2018 to achieve the desired balancing effect on oil markets, sending prices higher by almost 2% in less than an hour. In a joint statement, the energy ministers of Russia and Saudi Arabia, Alexander Novak and Khalid al-Falih, agreed to do "whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their five-year average level." Both ministers have hinted recently that they saw the need to extend the output cut into 2018, but this was the first time that they assigned a definitive time frame to the deal. The oil output deal reached last December had so far "stabilized the markets, reduced volatilities and facilitated the return of investment flows into the oil industry," Falih said at the press conference broadcast by Bloomberg TV."There has been a marked reduction in inventories, but we are not where we want to be in terms of reaching the five-year average," he added. The ministers noted the acceleration of OECD inventory draws in April and May, compared to seasonal norms, as well as a substantial year-to-date decline of oil in floating storage, the statement said.OPEC estimated last week however, that commercial inventories in OECD countries were still 276 million barrels above the benchmark.Russia and Saudi Arabia also agreed that the deal extension would have the same volume allocations that were included in the December agreement, Falih said. This would mean Libya and Nigeria would remain exempt from the cut deal. The two OPEC nations have been dealing with militant attacks that have hobbled their oil sectors, but output has been on the rise in the last month. Libyan crude production has climbed to more than 800,000 b/d, up from 550,000 b/d a month ago, while Nigeria, which produced 1.65 million b/d in April, is also set to resume loading its key Forcados crude.

Oil Surges After Saudis, Russians Agree To 9 Month OPEC Output Cut Extension; US Futures Flat -- In an otherwise quiet session in which European shares dropped, Asian equities rose and S&P500 futures were little changed, crude oil surged above $49 on high volume, after the Saudi and Russian energy ministers said in Beijing they favor extending the OPEC production cut for 9 months, though the end of Q1 2018. WTI rose more than 3%, rising above the 50DMA, climbing to the highest intraday price in almost two weeks after the comments, with subsequent comments by Putin pushing crude to session highs, and Brent above both its 200 and 50 DMA. While output curbs that started Jan. 1 are supposedly working according to the Saudi and Russian energy ministers - clearly debatable considering there has barely been any reduction in the record global inventory glut during the first 4 months of the OPEC production cut - global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said in Beijing alongside his Russian counterpart, Alexander Novak.“The agreement needs to be extended as we will not reach the desired inventory level by end of June,” Saudi Arabian minister Khalid Al-Falih said at event with Russian counterpart Alexander Novak. “Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018” The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, which however according to many analysts won't be enough to decidedly lower inventories considering the recent rebound in Libya and Nigeria production as well as a the near-record production out of the US. For now, however, it was enough to send oil surging wiping out more than 2 weeks of losses.

Oil Jumps Over Output Deal - Oil rallied after Saudi Arabia and Russia stoked expectations that production cuts might be extended for nine months. Futures closed at their highest in more than two weeks. While output curbs that started Jan. 1 are working, global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said Monday in Beijing alongside his Russian counterpart, Alexander Novak. The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, they said. "When Saudi Arabia and Russia come out together it sends a very strong signal to the market," Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. "With these two countries behind the extension of the accord, chances are very high that they will get all of OPEC behind it."  The largest of the 24 producers that agreed to cut supply for six months are reaffirming their commitment to the deal amid growing doubts about its effectiveness so far. An increase in Libyan output, together with a surge in U.S. production and signs of recovery in Nigeria, may undercut OPEC’s strategy to re-balance the market and boost prices. West Texas Intermediate for June delivery climbed $1.01, or 2.1 percent, to $48.85 a barrel on the New York Mercantile Exchange. It was the highest close since April 28. Total volume traded was about 38 percent of the 100-day average. Brent for July settlement rose 98 cents, or 1.9 percent, to $51.82 a barrel on the London-based ICE Futures Europe exchange. It was also the highest close since April 28. The global benchmark crude ended the session at a $2.66 premium to July WTI.

Goldman Lists Two Conditions For The OPEC Production Cut Extension To Work -- Goldman, which has been pushing for higher oil prices with seemingly daily bullish research reports for the past month, and which underwrote the last Saudi Arabian bond issue and is expected to also manage the Aramco IPO (explaining the bank's conflict of interest), released a note commeting on the latest development in the oil market, which sent the price of crude higher by 3% after Saudi and Russia oil minister agreed to extend the OPEC production cuts by another 9 months through the end of Q1 2018. Specifically, Goldman writes that "today’s announcement will likely further extend the oil price rebound started last week on decent stock draws and low positioning, although the rally so far today has remained modest compared to the move that occurred last year when the OPEC cuts were first announced." Even so, Goldman's oil analyst Damien Courvalin had some caveats. Specifically, he said that for the strategy to work, however, two things have to take place:

  1. compliance needs to remain high and
  2. long-term oil prices need to remain low to prevent shale producers from ramping up investment significantly more. In fact, an extension of the cuts should go hand in hand with guidance of future production increases by low cost producers, in our view, with an already notable emphasis by Saudi and others that oil prices will likely remain in a $45-55/bbl long-term range, in line with our forecasts. This leaves us reiterating our 3Q17 $57/bbl Brent price forecast and, with an increasingly likely extension of the cuts, raises our confidence that the oil market will shift into backwardation in 3Q17.

His full note below:

The Math Behind OPEC's Revised Production Cut Still Does Not Work --  "Whatever it takes."  That's what Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novaksaid in a statement overnight in Beijing they would to reduce the global oil inventory overhang, using the immortal phrase coined by ECB President Mario Draghi five years ago in his successful bid to defend the euro. For OPEC, however, "whatever it takes" may not be enough. First there is the problem of excess supply, and not just resurgent US shale production, which is set to surpass an all time high 10 million barrels per day in the near future.Over the weekend, Libya - the OPEC member with Africa’s largest crude reserves - announced it was pumping more than 814,000 barrels a day, thanks mostly to rising output from two fields that re-started last month, Jadalla Alaokali, a board member at the National Oil Corp., told Bloomberg on Sunday. At the end of April, Libya was producing about 700,000 barrels a day.While output from the politically divided country is at its highest since October 2014 when it pumped 850,000 barrels a day, in an ideal world its output could grow substantially from here. Prior to the Arab Spring uprising, Libya pumped as much as 1.6 million barrels a day; together with Iran and Nigeria, Libya was exempted from OPEC’s cuts due to internal strife. It’s targeting production of 1.32 million barrels a day by the end of this year, the NOC said last week in a statement.Then there is Nigeria, where the Forcados pipeline came back online last week and the Qua Iboe pipeline is being tested currently, with both together allowing output to reach its pre-disruption level of 1.8 mb/d. The oil ministry said that Nigerian oil output averaged 1.45mb/d suggesting an increase of 300kb/s in the near future is all too possible absent another set of production disruptions. Of course, in the interim, North American output is booming.The U.S. DOE recently published a new forecast that revised the country's oil output up yet again. And yes, it was revised higher. Crude-oil production is now expected to rise by 960,000 barrels a day between December 2016 and December 2017. That compares with a 210,00 barrel a day increase it foresaw just before OPEC's November gathering. Add in a 470,000 barrel a day ramp up in the production of natural gas liquids, and OPEC's entire cut is more than offset. Then there is OPEC's own forecast, according to which the cartel trimmed its estimate of the need for OPEC crude this year by 300,000 barrels a day. At that level of production - 31.92 million barrels a day - inventories will remain static, assuming demand and non-OPEC supply forecasts are correct.

Oil Prices Set To Rise On Back Of OPEC Deal Extension - The big news of the week is obviously the joint announcement between Saudi Arabia and Russia in support of extending the existing production cuts through the first quarter of 2018. Not only was such a definitive statement not expected before the official May 25 meeting, but neither was the nine-month extension (as opposed to just six months). The news caused oil prices to jump and significantly reduced the chances of another pricing downturn in the weeks and months ahead.. A series of investment banks see further price gains coming soon. BNP Paribas expects prices to rise back to levels seen earlier this year – mid- to upper-$50s for Brent. Goldman Sachs reiterated its call for Brent to rise to $57 per barrel in the third quarter. After hedge funds and other money managers liquidated their bullish positions over the past month, there is room for oil on the upside. Moreover, with OPEC nearly locked in for 9 more months of restrained output, the downside risk has been substantially reduced.   The IEA reiterated its assessment that the oil market is on its way towards balance. In its latest Oil Market Report, the agency said that global stocks were building at a surprisingly low rate of 0.1 million barrels per day even though stocks rose by much more in OECD countries. But stocks are already drawing down, reflecting a supply deficit. The IEA estimates that the world is seeing a deficit in the second quarter by about 0.7 mb/d. Still, that might not be enough to bring inventories back within the five-year average by the end of 2017, the IEA says, implying that more work will be needed.  The big question is how the OPEC extension affects the trajectory of U.S. shale production. Output was already surging, but another round of price gains could lead to a stronger response from shale drillers, particularly if prices rise sufficiently for drillers to lock in hedges for future production, clearing the way for more drilling. It is too early to say with any certainty how much additional U.S. production will result from the OPEC deal, but surely some executives are celebrating this week’s news.

Latest oil deal should boost price above $50, but not much more | TheHill: Nervous markets this week welcomed reports that OPEC and other major oil suppliers, including Russia, plan to hold back production for an additional nine months to stabilize prices. The alternative was to abandon the pact, pump more oil and see prices tank for all producers. This was the “lose-lose” option. However, let’s not get too excited and think prices could reach and sustain $60 a barrel anytime soon. It can never be exactly clear what combination of motives is driving forward this cut in production. We do know that many of the producing countries are excessively dependent on oil to balance their national budgets. They know that, as difficult as current conditions may be, the alternative is worse. Saudi Arabia has the added incentive of bringing a Saudi Aramco initial public offering to market in several months. A collapse in prices would make that very difficult. Meanwhile the drilling rig count and oil production in the Permian Basin in West Texas continues to grow, making the U.S. the world’s largest oil producer. Companies that have been able to avoid or reschedule excess levels of debt have survived the crash. They found more efficient ways to operate — focusing on so-called “sweet spots” and reducing the time it takes to drill a well. With the “shale play” increasingly a manufacturing operation, these operational improvements become embedded. Abundant private equity is also available for startups, led by industry veterans with a strong track record. The reason OPEC and “NOPEC” (the oil-exporting nations not in OPEC) have had to take these steps is because world demand was sluggish just as U.S. production surged. In “normal times,” global demand could be counted on to grow each year by about one million barrels per day. With slow recoveries in the U.S. and Europe and slower growth in China, that isn’t happening. On the supply side, companies invest to replace reserves they deplete each year. For several years this combination of supply constraint and market growth held the market in balance. 

Most OPEC/non-OPEC deal countries support 9-month extension: Algerian minister - Algerian energy minister Noureddine Boutarfa said Thursday he believes there is a consensus among countries participating in the OPEC/non-OPEC oil production cut deal regarding the necessity to extend the agreement by nine months through March 2018. "I think we have a consensus and the majority of countries support the proposal of Russia and Saudi Arabia," Boutarfa told reporters after talks with his Russian counterpart Alexander Novak in Moscow. On Monday, Novak and his counterpart from OPEC kingpin Saudi Arabia, Khalid al-Falih, said they agreed on the need for a nine-month extension of the agreement, which expires at the end of June. Boutarfa, who visited Russia after traveling to Iraq last week to discuss the issue with Iraqi oil minister Jabber al-Luaibi, also reiterated that he supports the proposal. The countries participating in the agreement, including OPEC member Algeria and non-OPEC Russia, are to meet in Vienna on May 24 and 25 to discuss the possible extension of the agreement between OPEC and non-OPEC oil producers to reduce oil production by some 1.8 million b/d from October 2016 levels. Several African countries have expressed their interest in joining the agreement of OPEC and non-OPEC countries, Boutarfa reportedly said, while speaking in Moscow.

Will A 9-Month Crude Production Cut Extension Be Enough? Oil prices surged on Monday after Russia and Saudi Arabia said they support an extension of the OPEC/non-OPEC production cuts. Oil prices have clawed back a lot of the losses exhibited over the past month, with Brent now safely in the low-$50s and WTI on its way toward those levels. The joint announcement from Saudi Arabia and Russia, the two most important negotiators, effectively extends the cuts, although the official move won’t come until the May 25 meeting. While it is possible that other OPEC or non-OPEC members might balk at the move, it remains highly unlikely given that most are anxious for higher oil prices. And in any event, Saudi Arabia has always been the one to take on the lion’s share of the burden.The extension was widely anticipated and the announcement merely squashed some of the uncertainty ahead of the Vienna meeting later this month.However, what really took the markets by surprise on Monday was the support for a nine-month extension rather than just an extension through the end of the year. “The agreement needs to be extended, as we will not reach the desired inventory level by end of June,” Saudi energy minister Khalid al-Falih said in a statement. “Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018.”And in an effort to bolster the production cuts, the OPEC/non-OPEC coalition is working on bringing new countries into the fold, including Egypt and Turkmenistan, although it is unclear if they will be successful. To be sure, some contributions from Egypt and Turkmenistan – with a combined total output of 700,000 bpd – would not significantly alter the pace of adjustment, but their participation would add a psychological jolt to the market.

IEA expects speedier oil market rebalancing in H2 but 'much work remains' -- The International Energy Agency expects the global oil market's rebalancing to accelerate in the short term, having "almost balanced" in the first quarter as OECD commercial stocks fell for a second consecutive month in March, it said Tuesday in its monthly Oil Market Report. But the agency also cautioned that "much work remains to be done" in the second half of 2017 to drain inventories further as the diversity and dynamism of the US shale sector continues to surprise. OPEC compliance with its output restraint agreement "loosened a touch" in April however, with production rising by 65,000 b/d in April to 31.78 million b/d as increased flows from Nigeria and Saudi Arabia offset lower production from Libya and Iran. The IEA said OPEC's year-to-date compliance with the production cuts remained robust at 96% but stressed the "need to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably." OPEC and non-OPEC participants will meet on May 25 to review its production agreements, and signs suggest the deal is likely to be extended. This report was published a day after Saudi Arabia and Russia agreed on the need for a rollover of their output cuts by nine months to March 2018, as the world's top two crude producers step up their commitments to pare back the global oil stock glut. Overall though, the IEA said that if OPEC's April crude oil production levels of 31.78 million b/d are maintained, and nothing changes elsewhere in the balance that would imply a stock draw of 700,000 b/d.

Oil inventories become more visible: Kemp | Reuters: Reported oil stocks have fallen much more slowly than OPEC anticipated at the beginning of the year, leading to scepticism about the effectiveness of the organization's production cuts. But the sluggish response may reflect the repositioning of formerly uncounted stocks to more visible locations rather than a failure to adjust the supply-demand balance. In general, crude oil and refined products move down the supply chain from areas of net production to areas of net consumption. Despite significant trading activity around particular cargoes, the movement of crude and products essentially occurs in only one direction. For commercial reasons, it makes no sense to move crude and products back up the supply chain, away from consumers and back toward refiners and producers. Crude and products stocks are positioned as close to refiners and final consumers as possible, subject to the availability and cost of storage. OPEC ministers and officials have stated that the objective of production cuts is to eliminate the overhang of excess oil stocks and reduce inventories to the five-year average level. Ministers and officials most often reference commercial crude and product stocks held in OECD member countries when talking about the overhang and market rebalancing. OECD stocks are the most accurately and frequently reported so in some ways it makes sense to use them as the benchmark for assessing whether the production cuts are working. The problem is that they are not necessarily representative of stockpiles held in producing and consuming countries outside the OECD. According to the International Energy Agency, total OECD commercial stocks rose during the first quarter of 2017, but this was largely offset by a reduction in floating storage and stocks held outside the OECD.

WTI/RBOB Extend Losses After Unexpected Crude Build - After last week's API (and subsequent DOE) inventory data sparked the latest hopeful pump higher in the energy complex, this week's API data disappointed. WTI and RBOB porices slipped lower after an unexpected crude build (+882k vs -2.67mm exp). API

  • Crude +882k (-2.67mm exp)
  • Cushing -539k
  • Gasoline -1.7mm (-1mm exp)
  • Distillates +1.787mm

After last week's across the board inventory draws, Crude's build is a big surprise (the biggest since March).  And after bouncing on last week's inventory data and the weekend's Saudi/Russia jawboning, WTI fell for the first time in 5 days today ahead of API data and kneejerked lower on the print...

Crude futures fall despite Kuwait voicing support for output-cut extension -- Crude futures dipped Tuesday as prices were unable to build upon the increases from a day earlier even though another major producer expressed support for an extension of the OPEC-led supply cut agreement into 2018. NYMEX June crude settled 19 cents lower at $48.66/b. ICE July Brent settled 17 cents lower at $51.65/b.  Kuwait's oil minister, Essam al-Marzouq, said Tuesday that his country would support a nine-month extension of the OPEC-led supply cut agreement as proposed a day earlier by Saudi Arabia and Russia. A growing consensus that oil ministers meeting May 25 in Vienna will extend the supply cut agreement, which includes major producers outside OPEC, has helped lift crude futures off five-month lows set earlier this month.But a major question facing the oil market is whether traders have already priced in an extension of the deal. Reaching a formal extension agreement would remove any doubts and could provide an immediate price response, but attention will quickly pivot to the terms of the deal and whether the supply cuts are deepened. Some traders may believe that deeper cuts are necessary to offset rising US crude production and achieve the goal of lowering global oil inventories close to the five-year average.

WTI/RBOB Pop After 6th Weekly Crude Inventory Draw In A Row, Production Slows -- After last night's surprise API-reported crude build, oil prices dipped and ripped on a tumbling dollar heading into this morning's DOE data and then jumped higher as DOE negated API's build by reporting a 1.75mm draw (less than the expected 2.67mm though). This is the 6th weekly crude draw in a row. Gasoline and Distillates also saw draws. After 14 weeks of production rises, US crude output dropped last week. DOE

  • Crude -1.75mm (-2.67mm exp)
  • Cushing +35k
  • Gasoline  -413k (-1mm exp)
  • Distillates -1.94mm (-1.45mm exp)

Unlike API, DOE repored a crude draw - the 6th weekly draw in a row...

Oil ends near 3-week high as EIA reports 6th straight weekly inventory drop -- Oil prices settled at their highest level in nearly three weeks Wednesday after the EIA reported a sixth straight weekly decline in U.S. crude inventories. Data from the U.S. Energy Information Administration Wednesday showed that domestic crude supplies fell by 1.8 million barrels for the week ended May 12. That was the sixth weekly drop in a row reported by the EIA. The American Petroleum Institute late Tuesday, however, reported an 882,000-barrel climb, while analysts polled by S&P Global Platts forecast a fall of 2.2 million barrels.  June West Texas Intermediate crude added 41 cents, or 0.8%, to settle at $49.07 a barrel on the New York Mercantile Exchange, for their highest finish since April 28, according to FactSet data. July Brent crude on London’s ICE Futures exchange rose 56 cents, or 1.1%, to a three-week settlement high of $52.21 a barrel. Troy Vincent, oil analyst at ClipperData, attributed the decline in crude stocks to the 400,000 barrel-a-day increase in exports and a more than 300,000 barrel-a-day rise in refinery runs of crude. “This report put crude-oil inputs at refiners just shy of their record high,” he said.  The EIA also reported that gasoline stockpiles declined by 400,000 barrels, while distillate stockpiles were down 1.9 million barrels last week. Analysts surveyed by S&P Global Platts expected a fall of 500,000 barrels for gasoline stocks and a drawdown of 1.3 million barrels for distillates, which include heating oil.

Has Global Oil Demand Really Surpassed Supply? - Oil inventories are falling around the world, a sign that the global oil market has already moved from supply glut into a deficit, according to the IEA’s latest Oil Market Report.The Paris-based energy agency estimates that global oil stocks only climbed by a meager 0.1 million barrels per day in the first quarter, a rather bullish figure given the massive increase in inventories in the U.S. But the problem is that the U.S. has the most “visible” inventory data, so even if stocks are falling elsewhere around the world, the gains in the U.S. tend to overshadow global trends. So, while the OECD (which includes the U.S.) saw stocks rise by 0.3 mb/d in the first quarter, the world as a whole only saw a modest 0.1 mb/d increase.Moreover, by March, even the OECD saw stocks start to drawdown. That means “that rebalancing is essentially here and, in the short term at least, is accelerating,” the IEA wrote in its latest report. Assuming the extension of the OPEC cuts, the IEA forecasts that the second quarter will see stock drawdowns widen to 0.7 mb/d. In other words, despite ongoing concerns about oversupply, the oil market is already in a supply deficit. As the gap between demand and supply grows, the stock drawdowns will grow even more in the third and fourth quarters. However, the IEA cautioned oil bulls not to get ahead of themselves. Even if these projections prove to be accurate, global inventories still might not fall back within the five-year average, “suggesting that much work remains to be done in the second half of 2017 to drain them further.” Then the IEA laid out a series of caveats that put a damper on the headline-grabbing conclusion that the market is already in a supply deficit. First, complicating the forecast is the pace of growth from U.S. shale. Using more accurate retrospective data, the IEA cites the fact that U.S. oil production rose to 9.03 mb/d in February, or 465,000 bpd higher than the low point reached in September. But more up-to-date but less rock-solid weekly data from the EIA suggests that production is already up to 9.31 mb/d, which is an increase of more than 700,000 bpd in eight months. Second, other OPEC countries could undermine the effectiveness of the production cut extension. “We need to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably,” the IEA cautioned. Indeed, Libya says its production is at roughly a three-year high at over 800,000 bpd.

OilPrice Intelligence Report: OPEC Extension Comments Drive Oil Prices Past $50: The rally stemming from the announcement of Saudi Arabia and Russia on a nine-month extension seemed to have run its course by mid-week, but oil moved higher again on Friday. WTI rose above $50 for the first time in nearly a month. Political crisis in the U.S. and Brazil took their toll on equity and commodity markets this week, as uncertainty spread throughout the financial system. As a result of the growing scandal in Washington, Wall Street has lost confidence in the prospect of large-scale tax cuts that the Trump administration promised, leading to a sharp drop in equities. Stocks posted their worst trading day of the year so far on Wednesday, which dragged down oil prices a bit. OPEC’s official meeting will take place in a week, and most analysts expect an extension of at least six months, and more likely nine months due to the support from Saudi Arabia and Russia. However, there is quite a bit of dispute over whether or not the extension will be sufficient. Some see the extension as enough to drain inventories back to average levels, while others expect rising U.S. shale output to swamp the deal. In any event, to a large degree the OPEC extension is already priced into the market, and any “pop” in prices will probably be modest. As the end of the initial phase of the OPEC cuts draws near, that data suggests that OPEC members achieved a high level of compliance but the non-OPEC members that promised to reduce their output lagged in their commitments.   Reutersreports that some less “visible” storage areas are starting to see an uptick in inventory levels, a worrying sign that suggests the oil market is still oversupplied. For example, the more expensive region of Amsterdam-Rotterdam-Antwerp (ARA) is seeing a rise in crude storage because refiners are “clogged” with oil, an industry source said. And because it is a more expensive region, it should be one of the last places to see rising levels of storage and the first to see drawdowns. South Africa and Singapore have also seen increases lately.

Baker Hughes Rig Count Climbs for 18th Straight Week - U.S. producers brought 16 more rigs online in the past week, Baker Hughes reported Friday, bringing the Houston-based oilfield services provider's overall count up to 901 units.Eight oil rigs were brought online over the course of the week, while eight natural gas rigs were added and miscellaneous rigs remained level, Baker Hughes said. Meanwhile, the company's U.S. offshore count climbed by two rigs for the third consecutive week. The offshore count, now at 23 overall, is down one rig year over year.In total, the U.S. land rig count is now up 497 rigs from a year ago when it stood at 404, Baker Hughes data indicates. Oil rigs are up 402 in the past year, while natural gas rigs have risen by 95 and miscellaneous rigs are level. The Permian Basin of West Texas and New Mexico was once again the largest beneficiary of new drilling activity over the week, adding four rigs alone. The Marcellus Shale, an Appalachian natural gas basin encompassing parts of Pennsylvania, West Virginia and Ohio, and south Texas' Eagle Ford Shale both saw modest, two-rig increases. Oil breaks even at $40 a barrel in the Permian, a factor that has led to a majority of drilling equipment being moved to the play following efforts made by strategic operators such as Exxon Mobil XOM, RSP Permian and Diamondback Energy to bolster their acreage positions there in recent months. Out of the 874 land rigs now active in the U.S., 361 are focused on the Permian, according to Baker Hughes' data. By comparison, the basin with the nearest level of activity to that of the Permian is the Eagle Ford with 85 rigs online.

Rise In Rig Count Threatens To Undermine Recent Oil Price Spike - The number of active oil and gas rigs in the United States rose for the eighteenth straight week, Baker Hughes reported on Friday—this time by 16.The number of oil rigs in operation increased by 8, and gas rigs increased by the same number. Combined, the total oil and gas rig count in the US now stands at 901 rigs, or 497 above the count a year ago. The last time oil and gas rigs in the US exceed 900 was May 1, 2015.At 12:27pm EST, WTI was trading up 2.21% for the day at $50.44—having crossed the ever-important $50-per-barrel mark. Brent Crude traded up 2.19% at that time, at $53.66. Both benchmarks had picked up almost $3.00 per barrel from last Friday after the Energy Information Administration (EIA) reported earlier in the week a decrease in both crude oil and gasoline inventories, and after reports that OPEC may consider not only extending production cuts into 2018, but that it may consider deepening them as well. With the extension into 2018 likely already priced into each oil barrel, a deepening of the production cut—or rumors of deepening the production cut—was the only tool OPEC had left in its arsenal to combat the effects of U.S. shale to lift prices, even if only temporary.The last four months or more have been particularly difficult for OPEC, as production cuts and talks of extensions and deeper cuts seem to be met at every turn by U.S. shale, backed by its most capable challenger—the Permian Basin. This week, the heavyweight known as the Permian, added 4 rigs, but the Mississippian also put 3 into play, followed by the Marcellus with 2 rigs. DJ-Niobrara, Granite Wash both lost rigs. Both benchmarks started to slip within minutes after data release—proving that OPEC’s clout isn’t what it used to be, with WTI trading at $50.37 and Brent at $53.62%.

Lower 48 Production Nears Cycle Highs As Rig Count Rises For 18th Straight Week -- While much was made of this week's drop in US crude production, it was driven by an Alaskan supply drop, not the Lower 48 whose production is at Aug 2015 highs. WTI back above $50 on the back of more OPEC jawboning appears to have everyone convinced this time is different, but for the 18th week in a row US oil rig counts rose (by 8 to 720). The 18th weekly oil rig count rise...Production from the Lower 48 continues to soar...And WTI dipped a little on the print...And while prices hover above $50,'s Brian Noble warns that as breakeven prices converge an oil price crash nears...No one should underestimate the impact of AI (artificial intelligence) on the future of the entire capital markets complex. The LinkedIn group, Algorithmic Traders Association, has recently been running a series of articles warning of the seismic shift that is and will continue to be felt in the global hedge fund industry as machines take over from people on trading desks.  But what intelligent human being would ever suddenly have turned bullish on the morning of Monday 15 May 2017 just because of renewed jawboning from Saudi Arabia and Russia, indulging in the same old two-step as they did at Doha in April 2016 and Vienna in November of last year. That is however precisely what the machines did. Hallelujah. Despite the occasional rally, it’s hard to see that the outlook for oil is encouraging on both fundamental and technical levels. The charts look to be screaming double top for WTI, while the fundamentals seem to be saying Economics 101: too much supply, too little demand. The parallel with 2014 is there if you want to see it. At the heart of the matter is the same old cast of characters that recur again and again. What’s different this time is the rise in cheap U.S. production, primarily shale.While it’s perfectly true that there isn’t enough U.S. shale to flood the world with oil, a lot of what there is is historically cheap to produce so as to give crude from the Middle East a real run for its money; and a solid proportion of that production has been sold forward at attractive levels in the futures market ensuring financial stability for U.S. producers.

Oil at one-month high, supply-cut extension expected | Reuters: Oil prices rose on Friday, closing out a second week of gains on growing expectations that OPEC and other producing countries will agree next week to extend output cuts. Brent crude settled up $1.10, or 2.1 percent, at $53.61, the highest settlement for the international benchmark since April 18. U.S. benchmark crude oil rose 98 cents to $50.33, the highest close since April 19. U.S. crude gained 5.2 percent for the week, while Brent rose 5.4 percent. The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia are scheduled to meet on May 25. They are expected to extend output cuts of 1.8 million barrels a day until the end of March 2018. The OPEC-led group is trying to reduce a global crude glut that has been slow to balance out due to weak demand and rising production elsewhere, particularly the United States. An OPEC panel is considering even deeper supply cuts to try to boost prices. Many investors remain concerned about high global inventories, and supply data from around the world shows that drawdowns of global inventories have slowed or even reversed. U.S. crude production has climbed 10 percent since mid-2016 to 9.3 million barrels per day as shale producers have taken advantage of higher prices to boost activity. Energy services firm Baker Hughes said U.S. drillers added oil rigs for an 18th week in a row, the second-longest streak on record. U.S. drillers added eight oil rigs in the week to May 19, bringing the total count to 720, the most since April 2015.On Thursday, official data showed OPEC leader Saudi Arabia's crude exports rose 275,000 bpd in March from February and its stockpiles increased. 

OPEC nears decision time: rollover or deepen cuts? Kemp | Reuters: OPEC ministers head to Vienna next week where they are expected to ratify an extension of the current production cuts that has been agreed informally among the key participants. Saudi Arabia and Russia announced earlier this week that they have agreed on the need to extend OPEC and non-OPEC output cuts for a further nine months until March 2018. Riyadh and Moscow pledged the bulk of cuts under the current agreement between OPEC and non-OPEC exporters so their agreement on the need for an extension has made an extension very likely when OPEC meets formally next week. Other OPEC ministers have already signaled support. Crucially both Iraq and Iran have stated they are in favor, which removes any remaining obstacles. In theory, OPEC could try to surprise the market by announcing deeper cuts or an even longer extension beyond March 2018, though most analysts and traders have discounted the possibility. Saudi Arabia and Russia left the door open by promising "to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their 5-year average". Past experience suggests a decision to deepen the cuts would cause a sharp increase in prices in the days following the announcement but an extension would have little impact or cause prices to fall slightly.Researchers have studied the impact on oil prices of all OPEC decisions between 1983 and 2008 They found that OPEC decisions to cut production caused prices to rise significantly over the following month, but decisions to rollover an existing agreement caused prices to fall slightly. 

Here Are The Three Choices Facing OPEC Next Week - The last time OPEC (and Non-OPEC) member nations sat down to attempt a coordinated increase in oil prices by cutting production they succeeded... for about three months. Every since then, oil has been on a gradual declining path, boosted by a surge in US shale output and declining global demand, with WTI recently even sliding sliding below OPEC's implicit price floor of $50/barrel. Which is why on May 25, after the failure of the first 6 month production cut, the same nations will try the same exercise, this time looking to cut output for 9 months, and hoping for a different outcome. At least that is the general expectation. Overnight, BofA's Francisco Blanch has released a note previewing next week's OPEC meeting titled "OPEC: extend and pretend", and which boils down to the 3 choices faced by OPEC: maintain, curb, or hike output. For its part, BofA believes that OPEC will extend cuts and hope demand recovers. Additionally, Blanch also states that oOPEC’s goal for the oil market is to reach backwardation, not a specific price level and does not believe that OPEC will proceed with deeper cuts as this would likely mean ceding more market share to U.S. shale production.As Blanch explains in the summary, the global oil market deficit is smaller than the bank thought (see the dramatic, 500kb/d downward revision to global demand growth in chart 2 below) and as a result the cartel is struggling to bring down global stocks. This situation presents a major challenge for the cartel, as OPEC is targeting a shift in the term structure of global crude markets and not a specific oil price band according to Blanch: the idea is to penalize forward sellers and squeeze refiners. But soft demand in India and Mexico, a warm US winter, and an OPEC crude oil production overhang from 4Q16 have gotten in the way of a good plan. Which brings up a question that has been floated by some (including this site) in recent days: "Why not cut further?"Well, according to BofA, if OPEC cuts production even more, it will likely lose additional market share to US shale and prices may not move up much more. Conversely, if OPEC hikes output, oil prices could collapse to $35/bbl, setting the cartel on an even more difficult fiscal path. In our view, most OPEC members can not afford either scenario at this point. With many member countries already experiencing large government and current account deficits at current oil prices, neither lower prices nor a permanent loss in output are appealing options.As a result, BofA is confident OPEC will stay the course, keeping production on hold over 6 to 9 months and hoping that demand improves.

Full tanks and tankers: a stubborn oil glut despite OPEC cuts | Reuters: After the first OPEC oil production cut in eight years took effect in January, oil traders from Houston to Singapore started emptying millions of barrels of crude from storage tanks. Investors hailed the drawdowns as the beginning of the end of a two-year supply glut - raising hopes for steadily rising per-barrel prices. It hasn't worked out that way. Now, many of those same storage tanks are filling back up or draining more slowly than investors and oil firms had expected, according to global inventory estimates and more than a dozen oil traders and shipping sources who told Reuters about storage in facilities that do not make their oil volumes public. The stalled drawdowns shed light on the broader challenge facing OPEC - the Organization of the Petroleum Exporting Countries - as it struggles to steer the industry out of the downturn caused by oversupply. With U.S. shale oil production surging, inventories remain stubbornly high and prices appear stuck in the low-$50s per-barrel range. The market has not strengthened enough to drain many major storage facilities around the globe - which OPEC oil ministers had hoped would be a first step toward rebalancing what has been a buyer's market since late 2014. Estimated inventories in industrialized nations totaled 3.025 billion barrels at the end of March - about 300 million barrels above the five-year average, according to the International Energy Agency’s latest monthly report. Preliminary April data indicated stocks would rise further, the IEA said. Crude stocks stood at a record 1.235 billion barrels. OPEC and other non-OPEC nations - most notably Russia - are now widely expected to extend production cuts for another nine months, through March 2018.

Venezuela's Oil Production On The Brink Of Collapse -   Desperation is spreading in Venezuela as violent protests continue to paralyze the country, further damaging the country’s shattered economy. Venezuela’s already-decrepit oil industry is deteriorating by the day, and an outright implosion is no longer out of the question.  Food shortages have been common for quite some time, but are deepening and wearing down the population. Three out of four people surveyed by the WSJ reported involuntary weight loss last year. Hospitals have completely broken down.  This meltdown is taking a toll on Venezuela’s oil production, the last thing keeping the country from becoming a failed state. Venezuela’s oil production has been declining for more than a decade, mainly because oil revenues are used to finance the government, leaving little for state-owned PDVSA to reinvest in its operations. But things are getting worse. The cash shortage is accelerating the decline. As of April, oil production stood at 1.956 million barrels per day (mb/d), down 10 percent from last year, and down more than 17 percent from 2015 levels - and output continues to trend downward. James Williams, energy economist at WTRG Economics, told Marketwatch in March that heexpects Venezuela to lose another 200,000 to 300,000 bpd this year, another 10 to 15 percent decline from 1Q2017 levels. The problem is downstream as well, as the shortage of refined products worsens. Three out of Venezuela’s four oil refineries are operating significantly below capacity because of the inability to find spare parts for maintenance, according to Reuters. The Paraguana Refining Center, for example, is only producing 409,000 bpd compared to its nameplate capacity of 955,000 bpd. PDVSA’s third largest refinery, which has a capacity of 187,000 bpd, is operating “at minimum levels due to problems at two of its three distillation units,” Reuters says.

Saudis to boost US ties with $40bn investment: Report | Middle East Eye: Saudi Arabia is planning to cement ties with US President Donald Trump by investing $40bn in US infrastructure development, according to media reports. The kingdom’s sovereign wealth fund is set to announce the plans which may be unveiled next week to coincide with Trump’s visit to the kingdom, sources told Bloomberg on Thursday. Trump will be making his first foreign trip since taking office on 19 May, visiting Saudi Arabia and Jerusalem then heading to Europe. According to CNBC, Saudi Arabia has been expressing an interest in investing in the US for months. Saudi Energy Minister Khalid al-Falih told CNBC in March his government believed US infrastructure, in particular, was an attractive investment. "The infrastructure programme of President Trump and his administration is something that we're interested in because it broadens our portfolio and it opens a new channel for secure, low-risk yet healthy return investments that we seek," he said. Saudi Arabia is also eager to reset relations with the new US administration after bilateral relations deteriorated under former US president Barack Obama, who brokered a historic 2015 nuclear deal with the kingdom’s chief regional rival Iran.

Saudi oil wealth is again a magnet for western leaders: Kemp | Reuters: Saudi Arabia has again become the favorite destination for western political leaders seeking to promote arms sales and encourage other exports to boost their economies at home. UK Prime Minister Theresa May visited last month to promote trade as the country seeks to diversify its export markets after Brexit. U.S. President Donald Trump is scheduled to make his own pilgrimage to Riyadh later this week with reports suggesting the two countries have been negotiating arms deals worth more than $100 billion. Britain and the United States are both angling to secure part of the stock market listing following the planned sale of shares in Saudi Aramco. Both have major oil companies, oilfield service providers and technology firms that hope to secure contracts to develop the kingdom’s oil, gas, refining and petrochemical industries. And both are also major financial services centers that see lucrative opportunities helping the kingdom raise external capital and manage its enlarged sovereign wealth fund. But there is a contradiction between the kingdom’s need to reduce its foreign spending and plans to build up domestic industries on the one hand, and the hopes of U.S., UK and other leaders for an export bonanza. More generally, there is a tension between western countries’ tendency to see the kingdom as a fabulously rich customer and its current need to reduce foreign spending following the slump in oil prices. For the time being, it suits political leaders on both sides to talk up the potential for deals, but some may turn out to be long on symbolism and shorter on substance.

Saudi Minister Expects Expansionary 2018 Budget Based on Savings --Saudi Arabia’s budget next year will be “expansionary but not significantly” and in line with plans to balance state finances by 2020, Finance Minister Mohammed Al-Jadaan said.“Where the expansion will come is from the efficiency,” Al-Jadaan said in an interview in Jeddah on Tuesday. “So we are working on that -- reducing a lot of the fat that is not necessary and then utilizing that in more productive investments.”The target for a balanced budget is central to the kingdom’s long-term plan to wean the economy off oil, which includes creating the world’s biggest sovereign wealth fund and privatizing some state assets. The Finance Ministry reported this month that the first-quarter deficit narrowed on higher oil revenue, boosting efforts to repair public finances.Deputy Crown Prince Mohammed bin Salman is trying to transform the Saudi economy as the plunge in oil prices squeezes state coffers. The government initially implemented an austerity drive that included reducing subsidies and temporarily trimming the wage bill. That led to rare public grumbling among some citizens and more privately from companies reliant on state spending.The government started preparing the 2018 budget in January, Al-Jadaan said. The first draft should be ready in two months, he said. The country is also shifting to quarterly reports on economy from annual to boost transparency as it implements the economic plan, dubbed Saudi Vision 2030. In December, the government said it planned to spend 890 billion riyals ($237 billion) in 2017, with revenue at 692 billion riyals and a full-year deficit of 198 billion riyals. Austerity measures, combined with the drop in oil prices that prompted them, have caused the kingdom’s worst economic slowdown since the global financial crisis. There are plans to impose an excise tax on soda and tobacco from the second quarter of 2017 and a 5 percent value-added tax in the first quarter of 2018 to boost government revenue.

US Nears Record $100 Billion Arms Deal For Saudi Arabia - Earlier this month, US officials said the US was seeking to reach “billions” of dollars in arms sales to Saudi Arabia as part of Trump’s visit to Riyadh. With a week left before the visit, officials now say the White House is very close to the deal, and that it will amount to over $100 billion in sales. Details are still emerging, but the plan is for this to set out a series of growing deals over the next decade that will involve more than $300 billion going to arms dealers, not just to arm the Saudis, but in extra aid to Israel to ensure their “qualitative military edge” over the Saudis.White House officials said the move would be good for the economy, and insisted that building Saudi Arabia’s already substantial military was “essential” because of regional problems. Saudi Arabia, of course, spends much of its military budget invading Yemen and trying to reinstall former President Hadi in power.Given Saudi Arabia’s Yemen-centric foreign policy, US sales are likely to be heavily on warplanes and bombs to drop on northern Yemen, as the conflict has lasted far longer than the Saudis anticipated, and there is little sign they are interested iin extricating themselves from the conflict anytime soon. How much this means Israel will get greatly depends on the sort of weapons the US is giving Saudi Arabia, and particularly if there is anything “new” in the shipments, or just more of the same old stuff. The US commitment to ensuring Israel has an advantage over the rest of the Middle East militarily, while at the same time selling large amounts of arms to the rest of the Middle East, has been icing on the cake for US arms makers, who end up supplying all sides of this arms race.

Yemen’s Disaster - The first thing any socialist, of whatever hue, needs to understand about the war in Yemen is that none of the leaders of any of the many factions involved has objectives worthy of support. Former president Ali Abdullah Saleh — the kleptocrat who ruled the country autocratically for thirty-three years — has allied with the Houthis, a familial, fundamental Zaydist movement that believes that only the prophet’s descendants have the right to rule. They are fighting Saleh’s former vice president, Abdrabbuh Mansur Hadi, the southerner elected to implement the transition to a “new Yemen” following the Gulf Cooperation Council (GCC) agreement of November 2011, which outlined a democratic transition process. The GCC states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates) as well as the international community endorsed and supported this agreement. The transitional regime collapsed in 2014, leading to civil war and the Saudi-led coalition intervention in March 2015. What led Yemen down this path to chaos? After all, the country includes the former People’s Democratic Republic of Yemen, the only socialist state in the Arab world. In the 1970s, the other Yemeni state, the Yemen Arab Republic, had a strong rural movement based on community and tribal solidarity, which organized, financed, and managed development initiatives. The Republic of Yemen, born in 1990, was the only democracy in the Arabian Peninsula. However flawed, it held real multiparty elections. In 2011, Yemen had the longest and deepest Arab Spring revolutionary movement, which extended to the remotest locations. Why did the transition fail? How did the country collapse into civil war? What brought about external military intervention?

Slavery Now: Migrant Labor in the Persian Gulf and Saudi Arabia - Slavery still exists today. And it exists in the Gulf states and in Saudi Arabia. I am Syrian, but I was born and raised in Dubai where my parents worked. When I was in grade school we often collected donations to give to the migrant laborers in a construction camp near our school. We went to visit the camp to deliver the donations, and I witnessed with my own eyes the miserable conditions of the laborers. I could not believe my eyes—it was a dump. A twelve by ten room shared by eight men. Forty-five workers shared one toilet and a shower. The toilet and the shower were filthy. In the eighteen years I spent living in the United Arab Emirates, I learned a lot about how people treat other people. Over nine million people live in the United Arab Emirates, ninety-two percent of them are expats and migrant workers. Most of the migrant laborers come from Pakistan, India, Philippines, Bangladesh, or Sri Lanka. They work long hours and earn very little money in construction, garbage collection, and other menial jobs. The gap between the rich and the poor is huge. People from those states furnish cheap labor, and they face racism and discrimination. There is a hierarchy. Arab expatriates may hold higher paying positions, but even within Arab expatriates there is another hierarchy. Expatriates from Saudi Arabia are usually treated better than expatriates from Egypt for example. They are also discriminated against. Nationality plays a major role in what position a person can hold in the United Arab Emirates. Even at McDonalds or KFC the managers were always Arabs while the other employees were Filipinos, Indians, and the other people at the bottom of the social hierarchy. You will never find a Filipino being a manager over an Arab worker. The division of labor is appalling – the same inequities that exist in the economic system of the United States have been reproduced in these countries as well.

Syrian De-Escalation Memorandum a Significant Step - On 5 May 2017 following a meeting in Astana, Kazakhstan, a memorandum was signed by three of the principal parties involved in the Syrian conflict: Russia, Turkey and the Islamic state of Iran. It represents a significant step in achieving a resolution of the Syrian conflict, which has cost more than 400,000 lives. The reaction to the memorandum, and the lack of reaction in key quarters by other parties to the conflict is also significant. The memorandum stipulates that it is “guided by the provisions of UNSC resolution 2254 (2015)”. This linkage to a key Security Council resolution is one of the principal reasons it was welcomed both by UN Secretary General Antonio Guterres and UN Special Envoy for Syria Steffan de Mistura. A second stipulation in the memorandum was the “strong commitment to the sovereignty, independence, unity and territorial integrity of the Syrian Arab Republic.” This provision will not be welcomed in Washington and Tel Aviv, where the break up of Syria into small parts has long been a strategic geopolitical goal.The memorandum creates a series of “de-escalation and security zones.” These are in Idlib province. Parts of neighbouring Latakia, Hama and Aleppo provinces, certain parts north of Homs province, and areas in the south of Syria in Deraa and Al-Quneitra provinces. Precise maps of the affected areas will be published by 4 June 2017.The significance of the designated areas is that they are all regions that are dominated by jihadi groups under the protection and support of foreign sponsors, notably Saudi Arabia, Israel, the United States and the two small Gulf States, Qatar and the UAE. The designated security zones and their links to foreign sponsors of the terrorist groups is one factor why both the United States and Saudi Arabia have failed to commit to abiding by the terms of the memorandum. The United States had refused the opportunity to be a party to the negotiations, sending only an observer.

Evacuation of rebel Damascus district begins - France 24: (AFP) - Civilians and rebels began evacuating a third opposition-held district of Damascus on Sunday, bringing the government closer to cementing its control over the Syrian capital. An AFP correspondent inside Qabun saw around 10 buses carrying out residents and fighters in the morning, after a deal for the neighbourhood was announced late Saturday following heavy fighting. The agreement mirrors those implemented earlier this week in the nearby rebel-held districts of Barzeh and Tishrin. State media announced the evacuation had started, and an activist inside the remaining opposition-held part of the district earlier confirmed preparations for the operation were underway. "The buses are being prepared, they are waiting in the areas controlled by the regime," Odai Awdeh told AFP. "The names of those who want to leave, whether civilians or fighters, are being registered," he added. The evacuation deal came on Saturday night after government forces advanced inside the neighbourhood.

CentCom Breaks “Safe Passage” Deal – Making Its Allies Bleed For It -- On Friday the U.S. "Inherent Resolve" command of its operations in Syria and Iraq released an statement that points to unnecessary intensified fighting about the city of Raqqa and elsewhere. SAC and SDF Liberate Tabqah The Syrian Arab Coalition and their Syrian Democratic Force partners completed the liberation of the Tabqah Dam, as well as the city of Tabqah and its nearby airfield May 10.  In Tabqah, the SDF's increased pressure on ISIS from each flank allowed it to accelerate the pace of the fight, clear the final neighborhoods of the city, and isolate Tabqah Dam. Approximately 70 ISIS fighters conceded to the SDF's terms, which included the dismantling of IEDs surrounding the dam, the surrender of all ISIS heavy weapons, and the forced withdrawal of all remaining fighters from Tabqah City.  The SDF accepted ISIS's surrender of the city to protect innocent civilians and to protect the Tabqah dam infrastructure which hundreds of thousands of Syrians rely on for water, agriculture, and electricity. (The "Syrian Arab Coalition" is U.S. propaganda parlance for its own forces in the area. That force is part of its Central Command. The "Syrian Democratic Force" are predominantly fighters of the Syrian-Kurdish YPG and a few U.S. special forces embedded with them.) The Kurdish forces obviously made a deal with the ISIS rearguard. They offered safe passage (safe conduct) to the ISIS fighters if those would dismantled their demolition charges on the Tabqa dam and leave their heavy weapons behind. The ISIS group accepted and fulfilled its part of the deal. The dam was saved. The ISIS forces withdrew. The Kurdish commander had made the right decision. Any fighting around, on or within the dam structure could have led to a catastrophic dam failure which would have killed ten-thousands (at least) further down the Euphrates. The next line in the U.S. press release is therefore ominous:The Coalition tracked fleeing fighters and targeted those that could be safely hit without harming civilians. The U.S. military broke the "safe passage" deal the Kurds had made with the ISIS fighters.

U.S. says Syrians built crematorium at prison to dispose of bodies | Reuters: The United States has evidence Syrian President Bashar al-Assad's government has built a crematorium at a large military prison outside the capital Damascus, a State Department official said on Monday. Stuart Jones, acting assistant secretary of state for Near Eastern Affairs, said U.S. officials believe the crematorium could be used to dispose of bodies at a prison where they believe Assad's government authorized the mass hangings of thousands of inmates during Syria's six-year-old civil war. "Credible sources have believed that many of the bodies have been disposed in mass graves," Jones told reporters. During the briefing, he showed aerial images of what he said was a crematorium. "We now believe that the Syrian regime has installed a crematorium in the Sednaya prison complex which could dispose of detainees' remains with little evidence." Amnesty International reported in February that an average of 20 to 50 people were hanged each week at the Sednaya military prison north of Damascus. Between 5,000 and 13,000 people were executed at Sednaya in the four years since a popular uprising descended into war, it said. Jones also said he was not optimistic about a Russia-brokered deal to set up "de-escalation zones" inside Syria. The deal was reached with support from Iran and Turkey during ceasefire talks in the Kazakh capital of Astana earlier this month. Jones attended the talks. "In light of the failures of the past ceasefire agreements, we have reason to be skeptical," Jones said. Jones said Assad's government had carried out air strikes, chemical attacks, extrajudicial killings, starvation, and other measures to target civilians and its opponents. He criticized Russia and Iran for maintaining their support for Assad despite those tactics.

US Coalition Jets Strike Assad Convoy In Southern Syria - With most expecting Trump to strike North Korea as part of his next foreign military adventure-cum-distraction from the chaos in D.C., the president once again surprised everyone by pulling a lighting bolt, striking twice in one month in the same place.According to Reuters coalition jets have struck an Assad convoy in Southern Syria. A US-led coalition spokesperson has confirmed that coalition strikes in southern Syria struck Syrian government militia "after it moved against US-backed forces in Syria."  US official confirms to @BuzzFeedNews that the US-led Coalition hit Assad regime forces with air strikes in southern Syria today— Mike Giglio (@mike_giglio) May 18, 2017According to a BuzzFeed News reporter, Syrian rebels based with the US Special Forces in the area said that militia supporting the Syrian army has been nearby as well. Media reports suggested that Syrian rebels have voiced concerns over the Syrian army getting "too close" to the US Special Forces' base at Tanf.rebels worried last week that regime forces would get too close to US SF base at Tanf. it seems that happened today, and Coalition struck— Mike Giglio (@mike_giglio) May 18, 2017 As previously reported Tanf is the area in Syria where US Special Forces train Syrian opposition groups for "counter ISIS" missions.

U.S. Bombs Syrian Regime Forces For First Time - American aircraft bombed a military convoy flying Syrian flags in the country’s southeast on Friday, marking the first time the U.S. military has targeted regime forces in Syria’s six-year civil war, according to U.S. Defense officials. The U.S. strikes came after the military convoy came too close to a U.S commando base and failed to respond to multiple warnings, according the officials. The strike showed American commanders are willing to use force to maintain de facto safe zones in the country’s east, where U.S. forces are training local militias to battle the Islamic State and provide security in liberated regions. U.S. forces spotted a convoy of vehicles, bulldozers and tanks moving toward the garrison at al-Tanf near the Jordanian and Iraqi borders early Friday, and watched as the group stopped within 20 miles of the outpost and began digging defensive positions. The Americans first alerted their Russian colleagues using a special hotline the two sides set up to ensure their aircraft don’t operate in the same airspace. The Russians were unsuccessful in reaching the regime or convincing the group to turn around, after which U.S. aircraft buzzed the encampment to warn the forces off, according to the officials. Warning shots were then fired, followed by airstrikes that destroyed the ground positions, along with one tank and several vehicles. Officials would not comment on any casualties. The strikes were taken on the order of American military commanders in the region under the authorities granted by the Trump administration allowing the military greater leeway to strike targets they deem necessary. 

U.S. air strike in Syria hit 'military point', caused deaths: Syrian military source on state media | Reuters: A military source on the Syrian government side said on Friday that a U.S. air strike against a Damascus-backed militia the day before hit "one of our military points", without elaborating, state media outlets reported. The air strike late on Thursday killed several people and caused material damage, the source said, adding that this hampered efforts by the Syrian army and its allies to fight Islamic State. The U.S. military carried out the strike on the militia as they headed towards the al-Tanf military base in southern Syria - near the Syria-Iraq-Jordan border - used by U.S. and U.S.-backed rebel forces. U.S. officials said the strike was purely a defensive measure. A member of the U.S.-backed Syrian rebel forces told Reuters the convoy comprised Syrian and Iranian-backed militias and was headed toward the Tanf base when they clashed with some rebel forces. Syria's ally Russia said on Friday that the strike had hit civilians and was unacceptable, Russian news agencies reported. Russian Deputy Foreign Minister Gennady Gatilov, who the agencies said was speaking in Geneva, said the U.S. strike had violated Syria's sovereignty and would not help efforts to find a political solution to the conflict.

U.S. Attacks Syrian Government Forces – It Now Has To Make Its Choice -- The Syrian army is on the way to liberate the ISIS besieged city of some 100,000 and garrison of Deir Ezzor in the east of the country. The U.S. has trained a few thousand "New Syrian Army" insurgents in Jordan and is reportedly prepared to march these and its own forces from Jordan through the east-Syrian desert all the way up to Raqqa and Deir Ezzor. About a year ago it occupied the al-Tanf (al-Tanaf) border station which consists of only a few buildings in the mid of the desert. The station between Syria and Iraq near the Jordan border triangle was previously held by a small ISIS group. A U.S. move from the south up towards the Euphrates would cut off the Syrian government from the whole south-east of the country and from its people in Deir Ezzor. While that area is sparsely populated it also has medium size oil and gas fields and is the land connection to the Syrian allies in Iraq.  Yesterday a small battalion size force (~2-300 men) of the regular Syrian army, Syrian National Defense Organization volunteers and Iraqi Popular Mobilization Forces (PMF/PMU of the Kata'ib al-Imam Ali) marched on the road from the west towards al-Tanf. They were about 23 kilometers away from the border station when they were attack by U.S. aircraft coming in low from Jordan. The U.S. jets directly fired at the convoy, allegedly after earlier giving some "warning shots". At least one Syrian tank and several other vehicles were destroyed. Six Syrian government forces were reported killed and more were wounded. The U.S. attack was clearly a willful, illegal attack on Syrian ground against legitimate forces of the sovereign Syrian government. (The Iraqi PMU contingent in Syria is a legitimate allied force under control of the Iraqi prime minister.) There is no clause in international law, no UNSC resolution or anything similar, that could justify such an attack. The U.S. military has no right at all to be at al-Tanf or anywhere else in Syria. There is nothing to "defend" for it. If it dislikes regular Syrian and Iraqi forces moving in their own countries  towards their own border station and retaking it from Jihadi "rebels", it can and should move out and go home. Moreover - the U.S. claims it is "fighting ISIS" in Syria. Why then is it attacking the Syrian government forces while these launch a large operation against the very same enemy?  The U.S. has a simple choice: Either go in with full force and bear the above consequences, or concede to the sovereign Syrian government and its allies and coordinate with them to retake the country from ISIS and al-Qaeda. This will have to be done as they, not the U.S., see it proper to do. To believe that the U.S. can take the east and convert into some peaceful vassal statelet is pure fantasy. Way too many regional forces and interests are strung against that. There is little grey between these black and white alternatives.

Syria Has Effectively Ceased to Exist - Six years into the Syrian war, the survival of President Bashar al-Assad’s regime is ensured — but it has become something of a facade and lacks a strategy for reuniting the country. The sometimes sharply differing interests of Russia and Iran from above, and the local concerns of a myriad array of pro-regime irregular militias from below, are the decisive factors — not the decisions of the country’s nominal rulers. This impacts the calculus of the “regime” side in the war, in determining its strategy in the conflict.Just take a look at how the war has developed since late last year, when things seemed to be going well for the regime. The rebellion had been driven out of its last fingerholds in eastern Aleppo city, seemingly paving the way for the eventual defeat of the insurgency. But five months later, while the general direction of the war has been against the rebels, they appear still far from collapse. Idlib province, areas of Latakia, Hama, northern Aleppo, and large swaths of the south remain in rebel hands.The rebels in the south received a boost this week when a coalition airstrike targeted forces loyal to Assad that were advancing on a base used by U.S. and British Special Forces. If the United States and its partners are willing to use force to defend allied groups in the area, it is hard to envision how the regime can hope to reestablish its rule there.Further east, the war against the Islamic State is being prosecuted by a powerful U.S.-backed, Kurdish-led force called the Syrian Democratic Forces (SDF). This force will shortly embark on the conquest of Raqqa, the last remaining city in Syria fully controlled by the retreating Islamic State. In other words, the rumors of the death of the rebellion have been greatly overstated. And some of its component parts apparently possess considerable vigor and strength. Does the Assad regime have a strategy for the reunification of the country, or has Syria’s fragmentation now become an unavoidable reality?

Hassan Rouhani wins Iran's presidential election - Al Jazeera: Iran's reformist President Hassan Rouhani has decisively won the country's presidential election, according to official results, fending off a challenge by principlist rival, Ebrahim Raisi. With all of votes in Friday's poll counted, Rouhani was re-elected with 57 percent, Interior Minister Abdolreza Rahmanifazli said on Saturday. "Of some 41.2 million total votes cast, Rouhani got 23.5 ... and won the election," Rahmanifazli said in remarks carried live by state TV. The election was seen by many as a verdict on Rouhani's policy of opening up Iran to the world and his efforts to rebuild its stagnant economy. Rouhani swept into office four years ago on a promise to reduce Iran's international isolation. Friday poll was the first since he negotiated a historic deal with world powers in 2015 to curb the country's nuclear programme in exchange for sanctions relief. In the campaign trail, Rouhani sought to frame the vote as a choice between greater civil liberties and "extremism", criticising the continued arrest of reformist leaders and activists. Raisi, for his part, accused Rouhani of mismanaging the economy and positioned himself as a defender of the poor and calling for a much tougher line with the West. 

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