Sunday, June 18, 2017

global oil glut grows again in May; US gasoline supplies hit a seasonal record; uncompleted wells rise again

oil prices were down another 2.4% this week, with US oil for July closing below $45 a barrel for the first time since November, (ie, prior to the first announcement of OPEC production cuts), and have now fallen 14% from the $52 a barrel interim high that was reached the morning of May 25th, the day OPEC announced their 9 month extension of those cuts...rather than try to explain how prices moved each day, we'll just start with a picture of the prices over the past two weeks, which will certainly be clearer than any words i can expend on explaining it...

June 16 2017 oil prices 2 hour intervals

the above graph is a Friday evening screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for two hours of oil trading between June 5th and June 16th, wherein green bars represent the 2 hour periods when the price of oil went up, and red bars represent the periods when the price of oil went down (note that we reset this graph at 2 hours to capture 2 weeks of data)...for green bars, the starting oil price at the beginning of the 2 hour period is at the bottom of the bar and the price at the end of the hour is at the top of the bar, while in red or down periods, the starting price is at the top of the bar and the price at the end of the hour is at the bottom of the we've mentioned before, this type of graph is called a candlestick because the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph...

now, what we can see from this graph is that except for two large red candlesticks, representing oil price crashes of over 4% and 3% respectively, oil prices pretty much stayed within narrow ranges over most of the two week what happened during those two 2 hour periods to cause oil prices to fall?  looking back at the interactive graph, we see that the two periods when oil prices crashed were the 2 hours ending 2 PM on Wednesday, June 7th, and the 2 hours ending 2 PM on Wednesday, June what happens on Wednesdays?  that's when the EIA releases the comprehensive oil data-sets for oil for the previous week....when that data was released last week (June 7th), the EIA reported significant increases in supplies of oil, gasoline, distillates and all other products, when traders were expecting modest withdrawals, and US oil prices subsequently fell 5.1% that afternoon...this Wednesday's EIA data showed a withdrawal of oil from storage, but not as large as expected, and an unexpected increase in gasoline supplies, which are now at an all time high for the driving season, and as you can see, prices crashed again, ultimately falling nearly from as high as $46.49 on Wednesday morning to as low as $44.56 Wednesday afternoon, before steadying and ending the day at $44.73, which as it turned out was only a penny less than the $44.74 closing price for the it should be clear from this graph that whatever else might move oil prices during the week, those movements are dwarfed by the market reactions to the weekly EIA data...'

OPEC's May oil report

even though OPEC's activity is not, at the present time, driving US oil prices, whether or not they adhere to their production cuts will ultimately be a major factor in global oil supplies, and hence oil we will again start by taking a look at OPEC's June Oil Market Report (covering May OPEC & global data), which was released on Monday of this week, to determine if they are yet meeting their intended outcome of reducing the global glut of oil that's been building up over the past three years.....the first table from the June report that we'll include here is from page 58 of that OPEC pdf, and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months as the column headings are labeled...for all their official production measurements, OPEC uses data from "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures... 

May 2017 OPEC cude output via secondary sources

from this table of official oil production data, we can see that OPEC oil output increased by 336,100 barrels per day in May, to 32,139,000 barrels per day, from a April oil production total of 31,803,000 barrels per day, a figure that was revised 53,000 barrels per day higher from the 31,750,000 barrels per day was reported last month...(for your reference, here is the table of the official April figures before these revisions) we can see in the far right column, the major reason for the 336,100 barrel per day increase in OPEC's output in May were the 178,200 barrel per day increase in production from Libya and the 174,200 barrel per day increase in oil production from Nigeria, the two OPEC countries that are exempt from the production cuts because their production had already been driven down by domestic strife...otherwise, except for Iraq, the other OPEC countries are all pretty close to their targets, as can be seen in the table below:

June 8 2017 OPEC production  targets via Platts

the above table is from the "OPEC guide" page at S&P Global Platts: the first column of numbers shows average daily production in millions of barrels of oil per day for each of the OPEC members over the first five months of this year (the targeted period) and the 2nd column shows the allocated daily production in millions of barrels of oil per day for each member, as they agreed to at their November meeting...finally, the last column shows the difference in the average production and what the target is for each member, also as a fraction of a million of barrels of oil per you can see, except for Algeria, Gabon, and Iraq, all the other OPEC members have cut production as promised, and only Iraq, with a 64,000 barrel per day surplus, is the lone OPEC member with a significant output overage, which they increased even further in May...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from June 2015 to May 2017, and it comes from page 59 of the June OPEC Monthly Oil Market Report....the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...

May 2017 OPEC report, global supply

the preliminary data graphed above indicates that global oil production rose to 95.74 million barrels per day in May, up by 0.13 million barrels per day from a April total of 95.61 million barrels per day, which was revised .20 million barrels per day lower from the 95.81 million barrels per day global oil output that was reported a month ago...that May figure was also 1.48 million barrels per day higher than what was being produced globally in May a year ago...OPEC's May production of 32,139,000 barrels per day thus represented 33.6% of what was produced globally,  an increase from the 33.3% OPEC share in April, which was originally reported as 33.1%, because global oil supply had been overestimated last month...OPEC's May 2016 production, excluding Indonesia, was at 31,621,000 barrels per day, so even after the production cuts, they are still producing 1.6% more oil than they were producing a year ago, when they were supposedly producing flat out...

however, even with the five recent months of production cuts we can clearly see on the above graph, there is still a surplus of oil supply being produced globally, as the next table that we'll include will show us..    

May 2017 global oil demand estimate via OPEC

the table above comes from page 36 of the June OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over 2017 over the rest of the table...on the "Total world" line of the third column, we've circled in blue the figure we're interested in, which is their estimate for global oil demand for the current second quarter of 2017... 

OPEC's estimate is that during the 2nd quarter of this year, all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, down from the 95.44 millions of barrels of oil per day the planet was using in the first quarter but up from the 95.12 millions of barrels of oil per day they were using in 2016...that's typical for spring, as few regions need either heating or cooling...but as OPEC showed us in the oil supply section of this report and the summary supply graph above, even with their production cuts, the world's oil producers were still producing 95.74 million barrels per day during May...that means that even after 5 months of OPEC and NOPEC production cuts have taken place, there continued to be a surplus of around 410,000 barrels per day in global oil production in May...note that global production for April was revised lower, to 95.61 million barrels per day, so that means the global oil surplus during April was therefore around 280,000 barrels per day, also based on the revised second quarter global demand figure of 95.33 million barrels per day shown above...prior to that, we saw that the global oil surplus during March was around 780,000 barrels per day, and nearly a million barrels per day in January and February, as we've shown when reviewing revisions to these reports in prior months... that means that despite the five months of OPEC production cuts, over a hundred million barrels of oil have been added to the global oil glut since the 1st of the year.. 

The Latest US Oil Data from the EIA

this week's release of US oil data from the US Energy Information Administration, covering details for the week ending June 9th, showed that US refineries continued to operate at above seasonally levels, while our crude oil imports fell and our crude oil exports rose, and hence it was necessary to withdraw oil from storage for the 9th time out of the last ten week...our imports of crude oil fell by an average of 316,000 barrels per day to an average of 8,025,000 barrels per day during the week, while at the same time our exports of crude oil rose by 165,000 barrels per day to an average of 722,000 barrels per day, which meant that our effective imports netted out to 7,303,000 barrels per day during the week, 481,000 barrels per day less than during the prior the same time, our field production of crude oil rose by 12,000 barrels per day to an average of 9,330,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,633,000 barrels per day during the cited week...

during the same period, refineries reportedly used 17,256,000 barrels of crude per day, 29,000 barrels per day more than they used during the prior week, while at the same time 295,000 barrels of oil per day were being taken from 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 and oilfield production and from storage was 328,000 less barrels per day than what refineries reported they account for that discrepancy, the EIA inserted a +328,000 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 fell to an average of 8,161,000 barrels per day, still 7.1% above the imports of the same four-week period last year...the 295,000 barrel per day decrease in our total crude inventories came about on a 237,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 20 months ago....this week's 12,000 barrel per day increase in our crude oil production resulted from a 25,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 13,000 barrels per day decrease in oil output from Alaska...the 9,339,000 barrels of crude per day that we produced during the week ending June 9th was up by 6.4% from the 8,770,000 barrels per day we were producing at the end of 2016, and up by 7.0% from the 8,716,000 barrel per day output during the during the same week a year ago, while it was still 2.9% below the June 5th 2015 record oil production of 9,610,000 barrels per day... 

US oil refineries were operating at 94.4% of their capacity in using those 17,256,000 barrels of crude per day, which was up from 94.1% of capacity the prior week, and the 2nd highest refinery capacity utilization rate this year...the amount of oil refined this week was well above seasonal norms, 5.8% more than the 16,317,000 barrels of crude per day.that were being processed during week ending June 10th, 2016, when refineries were operating at 90.2% of capacity, and roughly 12% above the 10 year average of 15.4 million barrels of crude per day for the first full week of June....

even with the elevated level of refining, gasoline production from our refineries decreased by 91,000 barrels per day to 9,843,000 barrels per day during the week ending June 9th...however, that gasoline output was still 1.4% higher than the 9,707,000 barrels of gasoline that were being produced daily during the comparable week a year the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) decreased by 113,000 barrels per day from last week's seasonal high to 5,154,000 barrels per day, which was still 3.4% more than the 4,984,000 barrels per day of distillates that were being produced during the week ending June 10th last  year.....  

even with the drop in gasoline production, our end of the week gasoline inventories again surprisingly increased by 2,096,000 barrels to 242,444,000 barrels by June 9th, after increasing by 2,858,000 barrels the prior week...the major factor in the gasoline surplus has been our domestic consumption of gasoline, which fell by 48,000 barrels per day to 9,269,000 barrels per day, after falling by 505,000 barrels per day the prior week... meanwhile, our gasoline exports fell by 30,000 barrels per day to 525,000 barrels per day and our imports of gasoline fell by 213,000 barrels per day to 574,000 barrels per day at the same time...with the week’s big increase in our gasoline supplies, our gasoline inventories thus are at a seasonal high for this time of year, 2.3% above the prior seasonal record 237,004,000 barrels that we had stored on June 10th a year ago, 11.3% higher than the 217,814,000 barrels of gasoline we had stored on June 12th of 2015, and 13.2% more than the 214,267,000 barrels of gasoline we had stored on June 13th of 2014…  

even with the decrease in distillates production, our supplies of distillate fuels rose by 328,000 barrels to 151,416,000 barrels during the week ending June 9th, after increasing by 4,355,000 barrels the prior week...factors in the change of the size of the increase in supplies were the amount of distillates supplied to US markets, which rose by 540,000 barrels per day to 4,045,000 barrels per day, and our imports of distillates, which fell by 91,000 barrels per day to 61,000 barrels per day, while our exports of distillates fell by 169,000 barrels per day to 1,123,000 barrels per day....even though our distillate supplies are still fractionally below the 152,163,000 barrels that we had stored on June 10th, 2016, when a glut of heat oil supplies persisted after last year's warm El Nino winter, they're now 13.3% higher than the distillate inventories of 133,591,000 barrels that we had stored on June 12th of 2015, following a more normal winter… 

finally, with the week's increase in US oil exports and the drop in our oil imports, our commercial supplies of crude oil fell for the ninth time in the past 10 weeks, as our oil inventories fell by 1,661,000 barrels to 511,546,000 barrels as of June 9th, a decrease which was nonetheless less than a result, we still finished the week with 6.8% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.1% more crude oil in storage than the 500,911,000 barrels of oil in storage on June 10th of 2016....compared to the same week in prior years, when the glut was not so bad, we ended the week with 17.4% more crude than the 435,771,000 barrels in of oil in storage on June 12th of 2015, and 44.2% more crude than the 354,642,000 barrels of oil we had in storage on June 13th of 2014...   

This Week's Rig Counts

US drilling activity increased for the 22nd week in a row and for the 32nd time in the past 33 weeks during the week ending June 16th, although it was the smallest increase since the week of March 3rd....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 6 rigs to 933 rigs in the week ending Friday, which was 509 more rigs than the 424 rigs that were deployed as of the June 17th report in 2016, and the most drilling rigs we've had running since April 17th, 2015, even though it was still less than half of 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 6 rigs to 747 rigs this week, which was up by 410 oil rigs over the past year, and the most oil rigs that were in use since April 10th 2015, while it was still far 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 increased by 1 rig to 186 rigs this week, which was a hundred more rigs than the 86 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...however, the only rig that was considered miscellaneous was shut down this week, which contrasts to a year ago, when there was also a miscellaneous rig operating...

there was no change in the Gulf of Mexico count this week, where drilling continues from 21 platforms, the same as a year ago...however, we still had drilling from one platform offshore from Alaska this week, which means the total US offshore count is at 22 rigs, up from 21 rigs a year ago, when there no drilling offshore from Alaska...rigs that were set up to drill horizontally increased by 2 rigs to 782 horizontal rigs this week, which was the smallest horizontal rig increase since the first week of 2017... horizontal rigs are still up by 456 from the the 326 horizontal rigs that were in use in the US on June 17th of last year, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of the same time, a net of 3 directional rigs were also added this week, increasing the directional rig count to 69 rigs, which was up from the 45 directional rigs that were deployed during the same week a year addition, the vertical rig count was up by 1 rig to 82 vertical rigs this week, which was also up from the 53 vertical 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 June 16th, the second column shows the change in the number of working rigs between last week's count (June 9th) and this week's (June 16th) count, the third column shows last week's June 9th 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 17th of June, 2016...        :

June 16 2017 rig count summary

as you can see, with the small increase in horizontal drilling, the Williston basin of North Dakota with an increase of 3 rigs turns out to be the only major shale basin with an increase in drilling this week, although we know there were increases of at least 3 horizontal rigs in other unnamed basins, because the Barnett of north central Texas, the Haynesville of Louisiana, and the Cana Woodford and the Mississippian of Oklahoma all saw horizontal rigs idled this week...those changes account for the larges state increase, North Dakota with 3 more rigs, and contribute to the largest rig decrease, Oklahoma with 4 less...for the other changes, we have little to go on without tediously scrolling thru the detailed logs, because none of Baker Hughes summary data gives any indication what oil or gas source might be targeted by the new directional and vertical rigs...

DUC well report for May

Monday of this past week also saw the release of the EIA's Drilling Productivity Report for June, which includes the EIA's May 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, almost entirely because 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 by this report, the total count of DUC wells rose from 5,770 wells in April to 5,946 wells in May, the seventh consecutive monthly increase in uncompleted we pointed out a month ago, as horizontal drilling has rapidly expanded over the past 10 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 are underspending their budgets by as much as $2.5 billion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work...over the 2 and a half year oil field slump and associated layoffs that began 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 as a result many of those who had had been working in the oil fields before the bust have since found work elsewhere, and have no interest in returning to boom/bust oil work...furthermore, fracking has also become 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 familiar with the latest techniques has become that much harder...

a total of 992 wells were drilled in the 7 basins covered by this report during May, but only 816 wells were completed, thus accounting for the 176 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 125, from 2,038 in April to 2,163 in May, as 465 new wells were drilled into the Permian but only 340 wells in the region were the same time, DUC wells in the Eagle Ford of south Texas rose by 47, from 1,316 in April to 1,363 wells in May, as 186 wells were drilled in the Eagle Ford in April but only 139 drilled wells were addition, DUC wells in the Haynesville of Louisiana increased by 9 wells to 201, as 47 wells were drilled but just 38 wells were fracked, and DUCs in the Bakken of North Dakota increased by 8 to 833, as 86 wells were drilled but just 78 Bakken wells were fracked....meanwhile, the Niobrara chalk of the Rockies front range was the only oil basin to see a DUC well decrease, as their uncompleted well inventory fell by 3 wells to 646, as 132 wells were drilled into the Niobrara, while 135 wells were fracked in the same addition, the Marcellus DUC count fell by 1 to 667 uncompleted wells, as 57 Marcellus wells were drilled while 58 were fracked...likewise, Ohio's Utica shale showed a decrease of 9 uncompleted wells and thus had only 73 DUCs remaining at the end of May, as 19 new wells were drilled into the Utica during the month while 28 Utica wells 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 177 to 5,005 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) decreased by 1 well to 941 wells, although as the report notes, once into production, more than half the wells drilled nationally will produce both oil and gas...


Senate slashes $1B from state budget, including cuts to prisons, Medicaid - COLUMBUS – Senate Republicans slashed $1 billion from the state's proposed two-year budget, cutting money from Medicaid and prisons as part of their plan to keep the state in the black. Cuts would include $200 million from Medicaid, $20 million from the state's prisons, at least three percent from many state agencies' budgets and dozens of earmarks.Republicans, who control the Ohio Senate, did add $6.4 million to tackle the state's drug epidemic, bringing the total to more than $176 million, Senate President Larry Obhof announced Monday.  "Let me be clear, this budget is not pain-free," said Obhof, R-Medina.  Under the Senate changes, school districts statewide would receive a little more money and fewer districts would face cuts than in Kasich's proposal. Still, 162 of Ohio's 610 school districts, including Sycamore Community schools and Princeton City schools in Hamilton County, would lose money over two years.  GOP lawmakers spoke little about tax cuts Monday. The budget crunch prevented GOP leaders from making the sweeping changes Gov. John Kasich proposed and Republican lawmakers promoted in previous years. The governor, in his final budget, proposed cutting income taxes and taxing more services under the sales tax. He wanted higher taxes on beer and wine, tobacco products and the oil and gas drilling practice called fracking. House Republicans rejected those ideas in April and Senate Republicans weren't interested in reviving them.   

How the Nuclear Power Meltdown Will Help U.S. Natural Gas Producers --The U.S. nuclear power sector is facing its biggest crisis in years, with an increasing number of nuclear units being retired for economic reasons and the four new units now under construction in the Southeast facing possible cancellation. Bad news for the nuclear sector is good news for owners and developers of natural gas-fired power plants — and, of course, for natural gas producers — because gas plants are a primary alternative to nuclear in providing reliable, around-the-clock power. Gas plants also are a go-to choice for supporting intermittently available renewable sources like wind and solar. Today we review the woes facing the nuclear sector, efforts by some states to prop it up with subsidies, and the strong economic/environmental case for ramping up gas-fired generation. Natural gas consumption for U.S. power generation has increased by nearly 150% over the past 20 years — from 11.1 Bcf/d, on average, in 1997 to 27.3 Bcf/d in 2016, according to the Energy Information Administration (EIA) — and despite President Trump’s June 1 (2017) announcement that the U.S. will be exiting the Paris climate accord, many U.S. utilities and independent power producers (IPPs) have indicated they won’t waver from their plans to shut down more coal units, build new gas-fired plants and ramp up their use of wind and solar power. The power sector’s strategy is based primarily on economics and regulatory expectations. The sheer abundance of U.S. natural gas supply suggests that gas prices will remain relatively low and competitive with coal, even as exports of liquefied natural gas (LNG) pick up. And while the Trump administration has promised to dismantle the Clean Power Plan (the Obama administration effort to reduce the power sector’s carbon dioxide (CO2) emissions 32% from 2005 levels by 2030, mostly by switching to gas and renewables) — see More, More, More (U.S. Gas Demand) — many states, utilities and IPPs are (as we said) pushing ahead with their plans to shift away from coal, which produces roughly twice the CO2 per megawatt-hour (MWh) that gas does.

Activists hold 'action camp' in Monroe County - Martins Ferry Times Leader — Two environmental advocacy groups joined forces this weekend in Monroe County to educate their members about hydraulic fracturing in the Wayne National Forest and train members on “direct action” techniques to resist the oil and gas industry. About 150 Appalachia Resist and Keep Wayne Wild members and their families were hosted by Michael and Ruth Partin, who own a family farm in the Wayne National Forest hills near Graysville. The groups arrived on Friday and camped out on the Partin farm until Monday. “We love the mountains and the remoteness of the place. We came out here for clean air, clean water and privacy after living in San Diego, where there (are) 3 million people in town, and the air is brown,” Partin said. Partin noted he appreciated the extra police presence provided by the Monroe County Sheriff’s Department, although he wasn’t expecting any conflicts at the event.“I didn’t expect any trouble. The folks came in for a weekend of camping from all over. There were people here from Vermont, Michigan, Carolina and all across Ohio. The police were very vigilant and I appreciated their presence,” Partin said.The event — the second-annual Appalachia Resist Action Camp — was held in the Wayne National Forest because of the recent leases that were auctioned by the Bureau of Land Management to companies expected to set up fracking operations there.“This year’s camp will again focus on working with activists in our region around the intersection of social and environmental justice. Emphasis will be on the proposed fracking of the Wayne and the history of resource extraction and social justice movements in our region,” Appalachia Resist states on its Facebook page.

Y'town should be wary of latest anti-fracking tactic - Youngstown Vindicator - No amount of window dressing can hide the fact that the self-absorbed proponents of an anti-fracking charter amendment are still trying to pull a fast one on the people of Youngstown.Despite being rejected six times by the city’s voters, the advocates of the unenforceable scheme are trying to make another bid at the polls this November.The premise of the anti-fracking proposal is just as foolhardy today as it was when it was first placed on the ballot. The effort to ban hydraulic fracturing in the city of Youngstown is legally unenforceable under current Ohio statutes. Even if the charter amendment is approved in November because of the sweetener that has been included, the courts would strike it down. That’s because the Ohio Constitution gives the Ohio Department of Natural Resources exclusive authority to oversee the hydraulic fracturing process used to extract oil and gas from beneath the earth’s surface.In addition, as organized opposition from the business and labor communities has repeatedly pointed out, other aspects of the anti-fracking measure could threaten jobs tied to the drilling industry in the city, including hundreds at Vallourec Star. And practically speaking, the measure has no viable application. As Mayor John McNally has noted time and time again, no company has any serious plans to drill for oil or gas within city limits.

Eclipse Resources' Outlaw C 11H Well sets record for lateral length at 19,500 feet -  Columbus Business First - A driller in Ohio has completed a well with 19,500 feet in lateral extension, likely one of the longest ever drilled.  State College, Pennsylvania-based Eclipse Resources Corp. announced Friday that its Outlaw C 11H Well into the Utica Shale in Guernsey County was completed with a depth of 27,750 feet and a lateral length of 19,500 feet. That lateral length surpasses a relatively new Eclipse well, the 19,300-foot Great Scott 3H, and i ts Purple Hayes well that had a lateral length of 18,544 feet that was discussed on Eclipse's first-quarter conference call. That's important because the longer the lateral length of the well, the more natural gas that can be taken out of a well over its life. It's a crucial efficiency for wells that run in the millions of dollars to drill, hydraulically fracture and complete.The Purple Hayes well was, at the time, what Eclipse believed was the longest horizontal onshore lateral in the country, according to and Oil & Gas 360. That's well above the average lateral length of an oil and gas well. The average lateral length in the Marcellus and Utica is between 8,000 feet and 9,000 feet, according to data from BTU Analytics. The average lateral length has been steadily increasing as drillers' technical skill increases; it was just under 6,000 feet about six years ago. The Energy Information Administration reported in 2016 that lateral length in the Marcellus Shale, for instance, is between 2,500 feet and 7,000 feet depending on the well.  Drilling longer "super-lateral" wells is a major initiative from Eclipse, which is based in Pennsylvania but has operations in Belmont, Monroe, Noble and Guernsey counties in Ohio, southwest of Pittsburgh. The ones that have been drilled are scheduled to be completed over the course of the next several months.

Leaving money on the table - Pittsburgh Post-Gazette -- One would be hard-pressed to find a better poster child for the hydraulic fracturing industry than Pennsylvania. Billboards promoting natural gas litter the state’s highways. A Matt Damon film dubbed the state the “Promised Land.” As natural gas production has soared, the Keystone State has become an increasingly prominent energy exporter.  But the poster child of fracking has a dirty secret. It lags behind other major oil and gas producing states in tax policy. While most producing states — as many as 38 — tax energy production, Pennsylvania does not. All others, from Alaska to North Carolina, levy severance taxes directly on extraction of their oil, gas or coal. Revenues from such taxes allow these states to either address current budget needs, keep other taxes low or invest in their futures once drilling declines. Even neighboring Ohio and West Virginia levy severance taxes and have done so for several decades. Ohio Republican Gov. John Kasich is no fan of tax increases but has long argued that the state’s severance tax rate is too low, as this reflects the permanent loss of a natural resource. No state with a severance tax has ever seriously considered eliminating it since the Ulysses S. Grant presidency. Pennsylvania’s failure to adopt this universally applied tax has meant significant foregone revenue. Some projections estimate that a Pennsylvanian severance tax would have generated around $350 million for the state in the current fiscal year, potentially altering the state’s troubled fiscal situation.

A Look Back At The 4 Years Since The PA Dems Voted For A Fracking Moratorium - Four years ago today, the Pennsylvania Democratic Party’s state committee members voted 115-81 in favor of a resolution calling for a statewide moratorium on fracking. Within a week, Ed Rendell, the former governor who opened the state to fracking, publicly criticized the vote, calling it “ill-advised.” Some gubernatorial candidates were quick to fall in line.  Tom Wolf, who went on to win the race in 2014, didn’t address the vote specifically, but said, “We must be vigilant about public health and safety in the process of tapping our natural resources. If done right, this is an opportunity for us to have good-paying energy jobs; a safe and secure environment; and the ability to make critical investments in education, health care, and infrastructure through a tax on oil and natural gas extraction.”Was Wolf right? Let’s review the short list of what has happened since his party’s vote. Since June 15, 2013, 8,906 permits for unconventional wells have been approved by the Pennsylvania DEP. Of those, 3,688 have been drilled. Drillers have racked up 2,037 permit violations, 1,631 of them on matters related to environment and health. The DEP has issued 91 positive letters of determination confirming that fracking activities have contaminated private water supplies. The Federal Energy Regulatory Commission has approved 33 natural gas pipelines that run through the state. Seven pipeline incidents have occurred in the state, including the explosion on the Texas Eastern pipeline in Westmoreland County on April 29, 2016 that nearly killed 26-year old James Baker. Meanwhile, an 80-year old pipeline operated by Sunoco Logistics, now Energy Transfer Partners, was modified to carry ethane and other natural gas liquids. The first shipments of ethane transported in the line have been shipped from Marcus Hook to Scotland. The company followed up with its Mariner East II proposal for two more pipelines to follow roughly the same route. The Pennsylvania Public Utilities Commission (PUC) allowed the company to take land by eminent domain even though it is a private corporation that is not providing a public benefit with its projects and even though the project had not yet been approved when the company used it to clear trees. The DEP spent years working with Sunoco Logistics on its application for water permits. Even after the long back and forth, the company’s resubmitted application was so flawed that the DEP issued 17 letters of deficiency, collectively containing hundreds of outstanding problems, last September.

Appalachian midstream gas play gains anchor shipper --A private midstream company, hoping to take advantage of the expected build-out of interstate pipeline capacity for moving Appalachian natural gas to markets, said Monday it has received a binding anchor shipper commitment for its gathering and transport system currently under construction. XcL Midstream received the commitment from THQ Appalachia I, an affiliate of Tug Hill Inc., for the XcL, which will include a 1-Bcf/d dry gas header system, a 200 MMcf/d wet gas system and a parallel fresh water pipeline, XcL said Monday. Both XcL, based in Canonsburg, Pennsylvania, and Fort Worth, Texas-based Tug Hill are backed by private equity company Quantum Energy Partners. "THQ Appalachia has dedicated its extensive upstream lease position in exchange for 600 MMcf/d of capacity on the Appalachia Connector Pipeline dry gas system and will also receive 200 MMcf/d of capacity on the wet gas pipeline," XcL said. The project developer hopes the XcL Appalachia Connector system will be online in time to access the more than 14 Bcf/d of new gas takeaway capacity expected to enter service in the southwestern Appalachian region -- comprising West Virginia, Ohio and southwestern Pennsylvania -- by the end of 2018, Tug Hill Chief Operating Officer Evan Radler said in an interview Monday. "The construction started on this project in May, so it's well under way," Radler said. "The in-service date is scheduled to be just ahead of these interstate pipelines. We'll be online in [the second quarter of] 2018, which is about a quarter ahead of when all these other big projects are coming online," the executive said. Several interstate pipeline projects, such as such as the Atlantic Coast Pipeline and the Mountain Valley pipeline, which are proposed to be built to source gas from the Marcellus and Utica shale plays of West Virginia, are anticipated to come online in the next 18 months.

In a Northeast Minute...Everything Can Change - Appalachia Gas Supply Outlook vs. Takeaway Capacity --After years of oversupply conditions and pipeline constraints, the U.S. Northeast natural gas market is on the verge of reaching a point where it is unconstrained by transportation capacity and enjoys increased optionality for reaching growing demand markets downstream. There are no fewer than 20 pipeline projects in the works to facilitate that. If all – or even most of them get built, the region would develop the opposite problem — not enough gas to fill all that new pipe. Ultimately, the state of the Northeast market will come down to the timing of the expansions projects compared with the pace of production growth. Today, we conclude this series with a look at how supply will line up with pipeline expansion in-service dates over the next five years. The transformation of the Northeast from primarily a gas taker to net gas supplier to the U.S. is reaching a critical turning point. In recent years, producers have been growing supply as fast as midstream companies can build the capacity for them to send it out. In Part 1 of this series, we looked at the Northeast’s supply-demand balance and the resulting surge of gas leaving the area, which has happened even as production growth slowed in the past 18 months or so. Now, with 20 more expansion projects due to come online by 2020, the questions arise: what will production do, and how will the two factors align in terms of timing?

Despite Ban, 600,000 Tons of Fracking Waste Entered NYS… – More than two years after Governor Andrew Cuomo banned high-volume hydraulic fracturing (fracking), new data reveals that landfills in New York have received more than 600,000 tons of fracking waste from Pennsylvania gas drillers. Though they were released for public comment more than a year ago, the Department of Environmental Conservation (DEC) has not finalized proposed changes to the state’s solid waste regulations, which would increase oversight – but not place an outright ban – on the disposal of fracking waste in landfills. Release of the DEC’s final regulations are expected any day. Today, state Senator Brad Hoylman and Assemblyman David Buchwald announced legislation S98A/A302A to ban all oil and gas waste from disposal at New York’s solid waste management facilities, wastewater treatment plants, and for use as a de-icing agent on roads. An analysis by Environmental Advocates of New York of Pennsylvania Department of Environmental Protection’s oil and gas waste data system found that between 2011 and March 2017, 608,646 tons of fracking waste has been dumped into New York State landfills – a 32% increase from the 460,000 tons first outlined in the organization’s 2015 report, License to Dump. Of that waste, over half has been disposed of in Chemung County Landfill, in Lowman, NY. “Even though New York banned high volume hydraulic fracturing nearly three years ago, our state continues to accept dangerous fracking waste from other states to dispose of in our landfills and to use as a chemical de-icing agent on our roads, posing significant environmental hazards. That’s why I’ve introduced S.98A, which would implement a comprehensive fracking waste ban in New York.  Liz Moran, water & natural resources associate at Environmental Advocates of New York said, “DOH Commissioner Dr. Zucker said fracking is a danger to public health. And so is fracking waste. Governor Cuomo boldly banned fracking, but when it comes to the drilling waste, the state has been slow to respond and too often relied on bureaucratic labels and processes to justify inaction. Banning fracking waste from our landfills, wastewater treatment plants, and roadways, is a common-sense approach to protecting New York’s water. Environmental Advocates thanks and applauds Senator Hoylman, Assemblyman Buchwald, and many other legislators who have worked tirelessly to keep fracking waste out of New York State.”

Push to ban imports of fracking waste intensifies in Albany - The Buffalo News: The state Department of Environmental Conservation is finalizing its revised rules governing New York State's solid waste facilities. Some state legislators and environmental advocates see it as a chance for the DEC to make sure oil and gas wastes from hydraulic fracturing in neighboring states like Pennsylvania stay out of New York State's wastewater plants and landfills. So they're also pressing for statutory laws during the legislative session to ban the practice. "We think this poses significant environmental concerns," state Senate bill sponsor Sen. Brad Hoylman told reporters during a conference call last week.There's a similar bill in the Assembly.Waste from fracking sites can include material with high levels of natural radioactivity like radium and carcinogenic chemicals like benzene or formaldehyde that can taint the wastewater plants that process them or potentially contaminate land and water if they're land-filled or spread as brine to de-ice roadways, according to Elizabeth Moran, the water and natural resources associate for Environmental Advocates of New York.In all, more than 600,000 gallons of fracking waste from other states has been hauled to landfills in upstate New York, the organization said. "They put our water quality at risk of harming our public health and the environment," Moran said.

NYMEX July gas jumps on smaller-than-expected storage build --NYMEX July natural gas futures spiked Thursday after weekly storage data came in lower than expected for the first time in five weeks. The July contract settled at $3.056/MMBtu, up 12.3 cents from Wednesday's close. The $3/MMBtu mark seems to be the current key pivot point for pricing, according to sources. Until Wednesday, the July contract had not strayed more than 5 cents either side of the mark since June 1. The US Energy Information Administration on Thursday reported a 78 Bcf storage build for the week that ended June 9, 12.36% lower than the 89 Bcf injection expected by a consensus of analysts surveyed by S&P Global Platts. Article continues below... Request a free trial of: Gas Daily Gas Daily Gas Daily Your source for actionable intelligence across the entire gas marketplace: Market commentary recaps prior day’s spot and futures trading activity Natural gas news, including FERC rulings and insights Price reporting at 94 geographic locations Platts Analytics market fundamentals supplement NYMEX Henry Hub 36-month forward contract prices REQUEST A FREE TRIAL MORE INFORMATION The injection is the first smaller-than-expected build in five weeks, with the previous four weeks seeing higher-than-expected climbs in storage. The bullish data comes after temperatures in the US Midcontinent and Northeast were warmer than normal last week. Gas stocks now sit at an estimated 2.709 Tcf, down 322 Bcf, or 10.6% from what was seen at this time last year, according to EIA data. Inventories are 9.2% above the five-year average of 2.481 Tcf, according to the EIA. The region with the largest build was the East, seeing a 34 Bcf week-on-week increase, according to the EIA data. 

Fake Grassroots Group Launched by Natural Gas Industry to Counter Pipeline Protests - The American Gas Association, a major trade group representing some of the nation's largest natural gas companies and utilities, has launched a new front-group called Your Energy America aimed at promoting natural gas and pipeline infrastructure, all while casting fossil fuel opponents as " anti-energy extremists ." "As the name implies, Your Energy paints itself as a grassroots organization, something akin to the Sierra Club or the American Civil Liberties Union, but for folks who support natural gas," Huffington Post reporter Alexander C. Kaufman writes. But Kaufman notes, "The only indication that Your Energy is a public relations campaign paid for by a major industry association appears on the privacy policy page ." The organization's about section states: "Your Energy was created to speak out against a misguided movement that assaults our way of life. This movement is based on the simplistic belief that keeping our natural resources in the ground is the only solution to climate change. This isn't just false—it's dangerous to our quality of life, economy and energy security." Notably, the group's Virginia chapter quietly debuted last month ahead of the state's governor's race , which is considered by local publications as a " pipeline referendum " over the highly contested Atlantic Coast and Mountain Valley pipelines.  Environmental groups worry about the proposed paths of the two fracked -gas pipelines, which would cross through pristine areas of Virginia, taking private property by use of eminent domain, removing mountaintops and threatening valuable drinking water resources. The Atlantic Coast Pipeline, in particular, is owned by utility Dominion Energy, the state's largest energy company and the largest corporate donor to state candidates.

Natural Gas Industry Brings A Fake Grassroots Group To Eastern Pipeline Fights | HuffPost: Amid intensifying fights over new natural gas pipelines in Virginia, New Jersey and New England, the gas industry is ramping up its defense with a new front group meant to appeal to East Coasters, who have mostly avoided the fights over oil and gas development that have rocked Western states.Your Energy launched quietly in Virginia last month, ahead of a November gubernatorial election that is shaping up to be a “referendum on pipelines,” as one local newspaper put it.The group, which is funded by the American Gas Association, debuted as a co-sponsor of a conference at the Virginia Chamber of Commerce on May 24. Jim Cheng, who served as secretary of commerce under then-Virginia Gov. Bob McDonnell (R) and is not on the group’s payroll, spoke on its behalf.“I am here today assisting a new organization, called Your Energy Virginia, that was created to raise the energy IQ of Virginians about the many benefits of natural gas,” said Cheng, according to audio obtained by HuffPost. “And to try to follow on these radical and uniformed elements within your communities that try to intimidate or shut down pro-energy supporters.”As the name implies, Your Energy paints itself as a grassroots organization, something akin to the Sierra Club or the American Civil Liberties Union, but for folks who support natural gas. Its Virginia chapter’s website features promotional materials about the economic and environmental benefits of natural gas and prompts visitors to join by submitting their names, email addresses and ZIP codes. The only indication that Your Energy is a public relations campaign paid for by a major industry association appears on the privacy policy page. 

EPA Will Delay Obama-Era Fracking Rules By Two Years --The Environmental Protection Agency (EPA) proposed Tuesday a two-year delay to Obama administration rules limiting methane emissions from hydraulic fracturing operations.EPA said the delay is necessary so officials can review methane emissions regulations enacted by the Obama administration. The agency will take comments on the proposed delay for the next 30 days before it issues a final decision.“The agency is proposing a two-year stay of the fugitive emissions, pneumatic pump and professional engineer certification requirements in the rule while the agency reconsiders issues associated with these requirements,” reads an EPA press release. “Under the proposal, sources would not need to comply with these requirements while the stay is in effect. Since issuing the final rule, EPA has received several petitions to reconsider certain aspects of the rule.”EPA’s decision follows a new peer-reviewed study by National Oceanic and Atmospheric Administration (NOAA) researchers, which found the agency agency relied on inflated methane emissions estimates to justify its regulations.The study’s authors noted EPA’s justification to relied on research that detected “daily peak emissions rather than daily averages that are generally employed in emissions inventories,” the study found. The methane rule is part of President Barack Obama’s global warming agenda to cut greenhouse gas emissions. Methane is a short-lived, but potent, greenhouse gas. Scientists blame human greenhouse gas emissions for warming the Earth’s climate. Had the rule gone into force, new oil and gas operations would have been subject to strict emissions limits.

FERC gives Sabal Trail go-ahead to start service on gas pipeline - The US Federal Energy Regulatory Commission has granted Sabal Trail Transmission permission to start service on part of the 515-mile, 1 Bcf/d natural gas pipeline, which would boost supplies to the Southeast. In an order Friday morning, FERC specifically authorized Sabal Trail to place into service about 482 miles of mainline between an interconnect in Tallapoosa County, Alabama, and the southern interconnect in Osceola County, Florida, as well as compressor stations in Alabama and Florida, and several meter and regulation stations. The project is meant to provide power-hungry Florida with more gas to feed generation. Its first phase is designed to provide an initial capacity of 830 MMcf/d, and the company's recent in-service request covered about half that volume. In approving the request to start service, FERC did not address requests from environmental groups that urged FERC to hold off on allowing the pipeline to enter service while they await a ruling from a federal appeals court on their challenge to FERC's certificate of convenience and necessity. Sabal Trail (CP15-17) is part of a trio of projects that include Transcontinental Gas Pipe Line's Hillabee Expansion and the Florida Southeast Connection, collectively known as the Southeast Market Pipelines Project and totaling 685.5 miles, designed to feed growing demand from gas-fired power generation in Florida. The Sabal line is being built by a joint venture of Enbridge, NextEra Energy and Duke Energy. It originates in Tallapoosa County, Alabama, and will transport gas to Georgia and Florida and terminate at the new hub south of Orlando. It is intended to supply gas to Florida Power & Light and to Duke Energy Florida.

Texas Oil And Gas Exports Are Booming -- As soon as the export ban on oil - in force since 1973 - was lifted in America, producers started making global expansion plans. Oil was depressingly cheap, production was abundant, and emerging markets demand was growing. Now prices have improved, which has led to production ramp-ups, so there’s even more oil—and gas—for export.  The Gulf Coast is the natural focal point of this expansion. It has two of the ten busiest ports in the world by cargo volume: The Port of South Louisiana and the Port of Houston. Until relatively recently, the Port of Houston was where all the oil action in Texas took place. Now, things are changing, with energy companies expanding along the state’s coast, shunning the busy—and more expensive—big port. In an extensive analysis of the situation, the Houston Chronicle’s David Hunn notes that companies such as Phillips 66, Occidental Petroleum, and Cheniere Energy, all based in Houston, have opted for export capacity outside the city and its port. Occidental Petroleum, for example, built a terminal near Corpus Christi where last month it tested a Very Large Crude Carrier, or VLCC – a vessel capable of transporting between 1.9 and 2.2 million barrels of crude. The test was successful , and according to a senior marketing official from Occidental, VLCCs will in the future dock at the company’s terminal, load at 60 percent of capacity, and then be joined into deeper waters by smaller tankers to fill up to 100 percent. Occidental has a pretty wide footprint in the Permian, where production prices are low and the crude is internationally competitive. Phillips 66 chose Freeport, another Texas port, for its LNG export terminal, which was completed last year and the first cargo set off in December. LNG exports from the U.S. are on the rise and their reach is expanding globally, which has prompted a race to build export terminals. Recently, authorities approved the first floating LNG terminal, off the Louisiana coast: Delfin LNG, with an annual export capacity of 13 million metric tons. And that’s not all. The port of Brownsville is also gaining a lot of attention from the energy industry: three LNG plants have already been planned for construction there and the port’s management has requested approval from Congress to increase the depth of its ship channel to 52 feet from the current 42.

Shale Production Will Hit An All Time High Next Month... And That's Just The Beginning - - While the June oil production data is still pending, it is safe to say that the June oil output from US shale producers - estimated today by the EIA at 5.348mb/d - will post the first double-digit production growth since July of 2015, when oil prices tumbled and a substantial portion of US production was briefly taken offline. Indicatively, while over the past year total U.S. production is up roughly 525kb/d, virtually all of it, or 98.5%, is the result of horizontal rig production in the Permian Basin, where output is up by 507kb/d.m The Permian basin has been leading the increase in horizontal oil rig count (+178%)  More important, however, is that according to the latest EIA Daily Productivity Report forecast released today, in July total shale basin output is expected to rise by 127kb/d in one month, hitting 5.475 mmb/d, and surpassing the previous record of 5.46 mmb/d reached in March 2015. Needless to say, this is bad news for OPEC, which continues to price itself out of the market by not only keeping prices high enough to make production profitable for US companies, but by allowing shale to capture an increasingly greater market share. Worse news is that shale is just getting started: both the Energy Information Administration, OPEC and the International Energy Agency have chronically underestimated the contribution of U.S. crude oil supplies in their forecasts. As Shale River notes, each has significantly increased their estimates for 2017 U.S. crude oil production during the year, with recent upward revisions larger than prior increases. In fact, the EIA recently conducted its 11th consecutive upward revision of its 2017 estimate.But the worst news - for OPEC yet again - is in the long-term, where if 5.5mmb/d is considered a record, just wait until shale hits more than double that amount, or over 12mmb/d, which Goldman expects will be achieved some time in the 2020s.

Health Effects of Oil and Gas Emissions Investigated in Texas - Scientific American -- Once mainly fields and ranchland, Karnes County is now a top crude oil producer in Texas, due to its location on top of the Eagle Ford Shale play. But long-term residents like Jasso say they are concerned about whether the oil boom, which helped to fix up their highways and put money into their children's schools, was also responsible for their migraines, dizziness and shortness of breath. “A lot of them noticed there had been a lot of changes in the community. A lot of people, when they talk about their health issues, were saying, 'We weren't feeling this before all this,'” said Priscilla Villa, a community organizer with the environmental group Earthworks. Her outreach is part of the Washington-based nonprofit's newly expanding national effort to help people around the country living near oil and gas development hold polluters and governments accountable. Those efforts could take on added significance under the Trump administration, which has moved to halt implementation of methane regulations, a potent greenhouse gas that has 25 times the heat-trapping capability of carbon dioxide. Not only would these regulations have helped address climate change, they would also have helped stop emissions of other pollutants like volatile organic compounds (VOCs) that are linked to respiratory and cardiovascular problems. Examples of some known hazardous air pollutants include benzene, a carcinogen, which comes from burning oil. Chronic exposure to toluene, used to produce benzene, can lead to upper respiratory tract irritation, dizziness, sore throat and headaches. VOCs also have indirect health impacts when it forms chemical reactions with nitrogen oxides in sunlight and creates ground-level ozone, the main component of smog. Exposure to smog can lead to asthma, wheezing and cardiovascular effects, according to U.S. EPA data.

Top Texas scientists to release fracking impact study --A respected state research cooperative will release on Monday a report on the effects of hydraulic fracturing on communities in Texas.The Academy of Medicine, Engineering and Science of Texas, a conglomerate of Texas research scientists across disciplines, has spent two years reviewing the impacts of shale oil and gas development on earthquakes, wildlife, air quality, water, transportation and area residents.The academy, known as TAMEST, touts the report, Environmental and Community Impacts of Shale Development in Texas, as the first comprehensive analysis of its kind. “The goal of the TAMEST Shale Task Force report is to provide a clear, science-based assessment of these impacts and the gaps in our current knowledge of them,” said task force chair Christine Ehlig-Economides, a petroleum engineer and professor at the University of Houston. TAMEST calls itself “Texas’ premier scientific organization,” which includes all of the state’s Nobel Laureates, plus Texas-based members of the National Academies of Sciences, Engineering, and Medicine. The Shale Task Force report is an analysis of existing peer-reviewed scientific literature, following the same processes used by the National Academies, TAMEST said.

Shale Gas Giants Battle for Dominance as US Supplies Surge - (Bloomberg) -- The two biggest shale gas deposits in the U.S. are producing a record amount of the power-plant fuel, signaling that a fight for market share will intensify as supply outstrips demand. As natural gas prices rebound from last year’s historic lows, output from the Marcellus shale basin in the U.S. East and the Permian reservoir in Texas is driving a rebound in America’s production of the fuel. Low-cost supply from the Marcellus is surging as new pipelines are built to shuttle gas to markets across the U.S. and Canada. Meanwhile, Permian output is rising as a recovery in oil prices boosts the production of gas that’s extracted alongside crude. A deluge of new gas production from Texas and Pennsylvania threatens keep the U.S. awash in excess supply and lower prices nationwide, even as rising exports trim a glut of the fuel in storage. Though the reservoirs are thousands of miles apart, gas competition between the Marcellus and Permian is set to heat up as producers there go after the same customers in major markets like the Midwest. “Everyone can’t grow and everyone can’t win,” Justin Carlson, managing director of research at East Daley Capital Advisors Inc., an energy consulting company he co-founded in Centennial, Colorado. “Marcellus producers did not count on the Permian.” Marcellus gas output will rise 0.5 percent to 19.4 billion cubic feet a day in July from June, while Permian production will climb 1.9 percent to 8.5 billion, the U.S. Energy Information Administration’s monthly Drilling Productivity Report showed Monday. That’s an all-time high for both shale deposits. The Marcellus may end up ceding some ground to the Permian, Carlson said. Output from the Marcellus will probably climb by 11 billion cubic feet by the end of 2019 from last year, well below the guidance given by producers in the region showing a gain of 14.5 billion during the same period, he said. That means the new pipelines crisscrossing the region could take longer to fill.

How Will Permian E&Ps Dispose of All That Produced Water? -- Exploration and production companies (E&Ps) in shale basins have a water problem — in fact, they have three water problems. Two are upfront well-completion costs: sourcing water for the frac job and disposal of the flowback water from the frac job.  These are nontrivial issues, but they pale in comparison to a much bigger problem – produced water – the water that always comes along with the oil and natural gas out of a well. It is a lot of water; on average in the U.S., somewhere around five to six barrels of water are produced for every barrel of oil that comes out of the ground, more from some basins than others. The Permian, for example, produces six to eight barrels of water per barrel of crude. That’s over 1,000 Olympic-size swimming pools full of water out of the Permian alone each day. And because this water is chock-full of minerals, petroleum residue and especially salt (which makes it brine), producers must dispose of the water in a safe, environmentally responsible manner.  Today most produced water moves off the lease in trucks, although producers are now increasing their investment in produced water-gathering and transportation systems to move the barrels to centralized facilities and disposal wells. But here’s the bottom line: it costs just about as much to move a barrel of water as it costs to move a barrel of oil.  And there is a lot more water than oil coming from a given well. The implication is that the largest single cost of operating a well — sometimes more than half of total operating cost — is produced-water disposal. That is a number that can impact producer economics and thus capex investment plans, drilling activity and production growth.   But what happens if Permian production doubles — a distinct possibility. Today we continue our surfing-themed series on the effect of sand and water costs on producer economics with a focus on produced water in the U.S.’s hottest shale play.

Funds pull back from Permian as U.S. shale oil firms go into overdrive - Cash, people and equipment are pouring into the prolific Permian shale basin in Texas as business booms in the largest U.S. oilfield. But one group of investors is heading the other way - concerned that shale may become a victim of its own success. The speed of the recovery in the U.S. shale industry in the past year has surprised oil investors after a global supply glut led to a two-year crude price slump and bankrupted many shale firms. Eight prominent hedge funds have reduced the size of their positions in ten of the top shale firms by over $400 million, concerned producers are pumping oil so fast they will undo the nascent recovery in the industry after OPEC and some non-OPEC producers agreed to cut supply in November. The funds, with assets of $286 billion and substantial energy holdings, cut exposure to firms that are either pure-play Permian companies or that derive significant revenues from the region, according to an analysis of their investments based on Reuters data. The Permian, which stretches across West Texas and eastern New Mexico, produces about 2.5 million barrels of oil per day (bpd), accounting for more than a quarter of overall U.S. crude production. "We'll have to see if these U.S. producers have the discipline to not go crazy and keep prices where they keep making money," said Gary Bradshaw, portfolio manager at Dallas-based investment firm Hodges Capital Management. There is no sign that shale producers will restrain production. They redeployed rigs and personnel quickly since prices began strengthening in 2016 and made shale profitable again; rig counts have risen by 40 percent this year in the Permian, which accounts for about half of all U.S. onshore oil rigs. 

Dakota Access Pipeline reprimanded by Iowa regulators for lack of liability insurance - The Iowa Utilities Board has reprimanded the Dakota Access Pipeline for failing to comply with a state order to show that at least $25 million in general liability insurance is in place to protect the public from possible oil leaks and spills. A Dakota Access spokeswoman said over the weekend the company has the required insurance in hand. But a pipeline opponent complained Monday that intervention by Iowa regulators should not have been needed to fix the problem. "What if the pipeline had broken. Who would have been liable?" said Ed Fallon of Des Moines, a former Iowa legislator who heads Bold Iowa, a political activist group. "I am glad they got the insurance issue fixed quickly, but it never should have lapsed. If you are a driver and your car is without insurance, you don't get to drive anymore." In approving the project in March 2016, Iowa utility regulators directed the Texas-based Dakota Access to maintain a minimum of $25 million in liability insurance for the life of the pipeline. Oil began flowing through 30-inch pipeline, which extends from North Dakota's Bakken oil patch to Patoka, Ill., on June 1. It has the capacity to transport about 520,000 barrels of oil daily. On Friday, the Iowa Utilities Board said that Dakota Access had made a filing on May 15 which said it had extended the terms of its insurance policies until June 1. The filing said the company had secured new policies to replace the existing policies, which “will be filed with the Board as soon as they are available.” As of last week, no insurance filing had been made, the Iowa Utilities Board said. The pipeline crosses diagonally for about 343 miles through 18 Iowa counties, primarily through farmland. "It is important that the Board have accurate, up-to-date information regarding the insurance for this pipeline," the Iowa Utilities Board said. " Accordingly, the Board will direct Dakota Access to file, on or before June 13, 2017, either (a) the new insurance policies or (b) a detailed report describing the status of the policies and stating when they will be filed."

Trump Bows to Big Oil, Delays Methane Rule on Public Lands -  The U.S. Environmental Protection Agency (EPA) proposed a two-year delay on the implementation of Obama-era regulations requiring fossil fuel companies to curb methane emissions Tuesday evening.In its announcement of the stay, the EPA acknowledged that the move may have a "disproportionate impact" on children's health, but reasoned that the temporary nature of the stay would ensure "limited" harm to children.The Bureau of Land Management also announced in a separate notice published Thursday that oil and gas companies would not have to comply with its own rule restricting venting and flaring gas on public land while the rule is under judicial review. The BLM rule survived a Congressional Review Act attack in the Senate last month, as bipartisan backers pointed out that methane regulations save millions of taxpayer dollars and protect public health."The plans to delay these much-needed methane pollution standards demonstrates that the Environmental Protection Agency is no longer working for the people, it's working for polluters," said Lauren Pagel, Earthworks policy director. "Families living near oil and gas operations need EPA safeguards because they're breathing the industry's toxic air pollution right now. "A two year delay would allow more air pollution that will lead to higher levels of cancer, asthma attacks from ozone smog and worsen the climate crisis."The methane waste rule calls for leak detection and repair with affordable, off-the-shelf technologies, and restricts venting and flaring of methane by oil and gas companies on public lands. The original compliance date is January 18, 2018.  "Methane waste seriously and urgently threatens our climate, our pocketbook and public health," said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center. "If there was any doubt who Sec. Zinke serves in his position, it's now abundantly clear it's not the American public."

Pipeline to the classroom: how big oil promotes fossil fuels to America's children - Jennifer Merritt’s first graders at Jefferson elementary school in Pryor, Oklahoma, were in for a treat. Sitting cross-legged on the floor, the students gathered for story time with two special guests, Republican lawmakers Tom Gann and Marty Quinn. Dressed in suits, the two men read aloud from “Petro Pete’s Big Bad Dream,” a parable in which a Bob the Builder-lookalike awakens to find his toothbrush, hard hat and even the tires on his bike missing. Abandoned by the school bus, Pete walks to Petroville elementary in his pajamas. “It sounds like you’re missing all of your petroleum by-products today!” Pete’s teacher, Mrs Rigwell, exclaims, extolling oil’s benefits to Pete and fellow students like Sammy Shale. Before long, Pete decides that “having no petroleum is like a nightmare!” The tale is the latest in an illustrated series by the Oklahoma Energy Resources Board, a state agency funded by oil and gas producers. The board has spent upwards of $40m over the past two decades on providing education with a pro-industry bent, including hundreds of pages of curriculums, a speaker series and an after-school program – all at no cost to educators of children from kindergarten to high school.  A similar program in Ohio shows teachers how to “frack” Twinkies using straws to pump for cream to emulate shale drilling. A national program sponsored by companies including BP and Shell claims it’s too soon to tell if the earth is heating up, but “a little warming might be a good thing”. Decades of documents reviewed by the Center for Public Integrity reveal a tightly woven network of organizations that works in concert with the oil and gas industry to paint a rosy picture of fossil fuels in America’s classrooms. Led by advertising and public-relations strategists, the groups have long plied the tools of their trade on impressionable children and teachers desperate for resources.

IE Questions: Where Does Fracking Water Go? - Inside Energy - Each day, 2.4 billion gallons of wastewater pour out of U.S. oil and gas wells according to 2009 estimatesfrom Argonne National Lab. This includes water pumped down for fracking and water that flows up to the surface from deep aquifers. Both contain dissolved minerals and chemicals including many that are harmful, and both can have impacts on drinking water resources if not handled with care, according to a 2015 report from the EPA. The water coming up from deep underground, called “produced water,” contains salt and other dissolved minerals, hydrocarbons, and sometimes radioactive elements. It acquires these components naturally, from its time holed up within rocks. In Colorado, produced water is nearly as salty as the ocean, but that varies by geography. The produced water coming out of wells in Pennsylvania and Ohio, for instance, can be ten times as salty as ocean water. The water used for fracking – a mixture of water, sand, and chemicals – is pumped underground at high pressure and wedges rocks apart. The sand stays put in the cracks, creating pathways for oil and gas to travel towards the well, and about 40% of the water and chemicals flow back to the surface. Some of the chemicals in fracking fluid are not harmful. Others are toxic. Most are present in very small quantities, but even in tiny amounts chemicals like benzene are dangerous. (Check out to learn about chemicals used in fracking fluids. The database lists ingredients used on over 100,000 U.S. fracking jobs from states that require disclosure.) Joseph Ryan and Jessica Rogers, researchers at University of Colorado, recently identified that, of the hundreds of chemical compounds used in fracking fluid, fifteen often-used chemicals are of particular concern because they are both toxic and able to stick around in the environment for a long time. Fracking fluid and produced water gets mixed together. In the U.S., nearly all of this wastewater is injected into disposal wells. These deep wells are designed to prevent the water from escaping and contaminating drinking water aquifers, surface water, and ecosystems. In eastern Colorado, disposal wells are drilled to about 9000 feet deep. That’s 2000 feet below the rocks that contain oil and gas and it’s very unlikely that the wastewater will get into drinking water once pumped into the disposal well. However, in cases where disposal wells that are not well designed or drilled due to lax rules, that might not be the case. There is another concern about the safety of disposal wells. They are the cause of most of the earthquakes associated with oil and gas development. Also, quarantining water in disposal wells means that it is taken out of the water cycle. Less water is available to move from clouds to lakes, rivers, groundwater, and the ocean and then back to clouds. Using a resource in a way that can’t be replenished is not sustainable in the long term, so taking water out of circulation is not ideal.

New technology could recover more oil from early Bakken wells - Oil companies are applying new hydraulic fracturing techniques to early Bakken wells, a process industry leaders say has the potential to recover more oil without increasing the footprint on the land. Operators are targeting wells drilled between 2008 and 2010, the early years of Bakken development before fracking technology advanced to where it is today. Companies are refracturing the older wells using today’s technology and getting promising results, said Justin Kringstad, director of the North Dakota Pipeline Authority, who recently analyzed the wells.On average, they’re getting better performance from the wells,” Kringstad said. Fracking — or pumping a high-pressure mixture of water, sand and chemicals deep underground — and horizontal drilling techniques allowed operators to recover oil from the Bakken. But the industry believes it’s only recovering about 5 to 15 percent of the oil available, Kringstad said. More than 140 wells in the Bakken have been refractured, and most saw an increase in oil production from 200,000 to 250,000 barrels, according to Kringstad’s analysis. The newly fracked wells are injected with larger volumes of fluid and sand and the fracture treatments are applied to smaller segments of the well, he said. North Dakota legislators also are interested in the potential for refracturing existing oil wells and are planning a study during the interim focused on the fiscal impact to the state. Sen. Kelly Armstrong, R-Dickinson, said recovering more oil would mean more tax revenue and more jobs. “We are only getting a small, small amount of the total potential reserve down there,” Armstrong said. “Everybody would benefit if we could figure out a way to recover more.”

Pipelines can now handle all of the current Bakken crude production | Prairie Public Broadcasting: A milestone for North Dakota Pipeline Authority director Justin Kringstad. For the first time since he began that job – in 2008 – there is enough pipeline capacity to take the current production of Bakken crude to market. A substantial amount of crude has been shipped by rail – but that percentage has been reduced as more pipeline capacity comes on line. The Dakota Access Pipeline is now operational – and is to carry 520,000 barrels of oil a day. But Kringstad said oil will still move by rail. "I don't believe anyone has the expectation that crude oil movement by rail will go away completely," Kringstad said in an interview. "We'll likely see some of that oil go by rail to the coastal markets." Kringstad said the market itself will drive those decisions of where the barrels of Bakken crude will be marketed. "But over the long term, we will see higher percentages of oil by pipeline," Kringstad said. Kringstad said this will also spur some competition – meaning there will likely be less of a premium to ship oil by rail.

North Dakota oil output up 25,000 b/d in April, gas sets record -- North Dakota oil production averaged over 1.05 million b/d in April, up nearly 25,000 b/d from March, the state Department of Mineral Resources said Tuesday. Oil production in April was still nearly 177,000 b/d below the all-time monthly record set in December 2014, according to state data. April marked the third month in a row that production remained above the 1 million b/d threshold. Since crossing over the 1 million b/d mark in April 2014, statewide monthly oil production has fallen below 1 million b/d just four times. Statewide natural gas production averaged nearly 1.84 Bcf/d in April, up from 1.73 Bcf/d in March and an all-time record, according to preliminary data. The state reported 13,717 producing wells in April, up 24 from March and also an all-time high. Drilling permits fell from 93 in March to 58 in April but have since climbed to 100 in May, according to state data. "Operators are maintaining a permit inventory that will accommodate increased drilling price points within the next 12 months," Lynn Helms, the state's top oil and gas regulator, said in a statement. There were 830 wells waiting on completion at the end of April, up 141 wells from the previous month. North Dakota's rig count averaged 50 in April, up four from March, but well below the all-time high of 218 set in May 2012. The statewide rig count was 55 on Tuesday.

Federal judge orders more environmental analysis of Dakota pipeline - A federal judge ordered the U.S. Army Corps of Engineers to reconsider its environmental review of the Dakota Access Pipeline on Wednesday, opening up the possibility that the line could be shut at a later date. U.S. District Judge James Boasberg in Washington said the Army Corps did not adequately consider the effects of a possible oil spill on the fishing and hunting rights of the Standing Rock Sioux tribe. Operations of Energy Transfer Partners LP's (ETP.N) pipeline have not been suspended but that could be considered at a later date, the order said. The $3.8 billion line began interstate crude oil delivery in May. The parties are expected to meet Boasberg next Wednesday to discuss future steps. The Standing Rock Sioux are expected to argue that pipeline operations should be halted. The judge said in a 91-page decision that, while the Army Corps substantially complied with the National Environmental Policy Act, federal permits issued for the pipeline violated the law in some respects, saying in a court order the Corps did not "adequately consider the impacts of an oil spill on fishing rights, hunting rights.It was unclear whether the judge would agree that the line should be shut. Independent research firm Clearview Energy Partners of Washington D.C. noted in a comment late on Wednesday that Judge Boasberg's order pointed to "omissions" in the Corps' analysis, which the Corps may be able to address quickly, rather than larger errors that might require more study. "We think that the Corps may be able to persuade the court to allow Dakota Access to continue operating while the omissions are addressed and the court reviews them for adequacy," they wrote. 

Judge: Dakota Access Pipeline needs further environmental review | TheHill: A federal judge ruled Wednesday that the environmental review for the Dakota Access pipeline was, in part, inadequate and must be reconsidered, handing tribal opponents of the 1,170-mile pipeline project a key legal victory. But U.S. District Court Judge James Boasberg did not order pipeline operators to stop the oil that is already flowing through the project, saying he would need to consider that request in light of Wednesday's judgement. Boasberg ruled that the federal government “substantially complied” with the federal environmental permitting law that governs projects such as Dakota Access, a 1,170-mile $3.8 billion pipeline that can carry up to 570,000 barrels of oil per day. But, Boasberg wrote in a 91-page opinion, the Army Corps of Engineers “did not adequately consider the impacts of an oil spill on fishing rights, hunting rights, or environmental justice, or the degree to which the pipeline’s effects are likely to be highly controversial.” He ruled that the Army Corps, which permitted the project, would need to conduct a new review of Dakota Access that considers those factors. But Boasberg did not order Dakota Access to cease operations, which have been underway since June 1. He said that is a “separate question” that he will consider in the future. Two tribes, the Standing Rock Sioux and Cheyenne River Sioux, have tried for months to halt the Dakota Access project. They argue the pipeline, which crosses the Missouri River upstream from the Standing Rock Indian Reservation in North Dakota, threatens water quality there. Courts have rejected two previous arguments against the pipeline: that it violates the tribes’ religious liberty by flowing under sacred water in North Dakota and that its construction threatened cultural heritage sites on the Great Plains. The tribes have long argued the project needs to undergo a more thorough environmental review before it could transport crude from the Bakken oil fields to terminals in Illinois. The Army Corps said last summer that it would grant the permits necessary to build the project, but DAPL opponents said the pipeline needed to go through a more rigorous Environmental Impact Statement (EIS) review first. 

Ruling on Dakota Access pipeline surprises oil industry — A judge’s ruling that might open the door for at least a temporary shutdown of the disputed Dakota Access pipeline surprised the industry that hailed the project as a “game changer” for North Dakota oil. But shippers said Thursday that they aren’t concerned that there will be any long-term disruption to service on the $3.8 billion pipeline that on June 1 began moving crude from the Bakken oil patch to a distribution point in Illinois, from which it’s shipped to the Gulf Coast and potentially high-paying markets abroad. “It’s business as usual today,” said Ron Ness, president of the North Dakota Petroleum Council, which represents nearly 500 energy companies including Texas-based Energy Transfer Partners, which built Dakota Access. U.S. District Judge James Boasberg ruled Wednesday that the Army Corps of Engineers “largely complied” with environmental law when approving the pipeline but didn’t adequately consider some matters important to the Standing Rock Sioux. The tribe draws its water from Lake Oahe and is opposed to the pipeline crossing beneath the Missouri River reservoir in North Dakota. “Obviously, we don’t know how all that plays out,” Ness said. “But clearly the pipeline is running. It’s a critical element of the nation’s energy infrastructure.” The pipeline — whose completion was pushed through earlier this year by the Trump administration — has the capacity to move half of North Dakota’s daily oil production. Ness just a few weeks ago called it a “game-changer that opens up everything.” But the Standing Rock Sioux and other tribes are fighting the project in federal court in Washington, D.C., and they’ve hailed Boasberg’s ruling as a victory. Boasberg said the Corps didn’t adequately consider how an oil spill under Lake Oahe might affect tribal fishing and hunting rights, or whether it might disproportionately affect the tribal community. He will rule later on whether the pipeline should be shut down while the Corps reconsiders those matters, though he acknowledged such a move “would carry serious consequences that a court should not lightly impose.” 

TransCanada asks for pause on review of ND oil pipeline | North Dakota News | TransCanada Corp. has asked the U.S. State Department to pause its review of an oil pipeline that would originate in northwest North Dakota and carry oil to Canada. The same company behind the Keystone XL proposes to build the Upland Pipeline that would originate about 15 miles southwest of Williston and transport up to 300,000 barrels of oil per day. Because it crosses the U.S.-Canadian border, the project requires a presidential permit.TransCanada, which held open houses with North Dakota landowners more than a year ago to discuss the project, recently asked the State Department to put its application for a presidential permit on hold. The company wanted to pause the U.S. review of the project to better align the timing with TransCanada’s proposed Energy East Pipeline System, which is under review by regulators in Canada, said TransCanada spokesman Matthew John. The Upland Pipeline would transport Bakken crude to Canadian markets as well as refineries on the U.S. East Coast by connecting with the proposed Energy East. Because the two pipelines are related, TransCanada wants to align the timing of the regulatory reviews, John said. The proposed Upland route would travel about 126 miles in North Dakota, crossing the Canadian border near Flaxton. It also would require approval of the North Dakota Public Service Commission. 

Goldman Sachs-backed Firm Invests Big in Shipping Tar Sands by Train Along Keystone XL Route – Steve Horn - USD Partners, a rail terminal operator owned in part by Wall Street giant Goldman Sachs, has signed a nearly three year deal to facilitate moving tar sands by train from where it is extracted in Alberta, Canada, to an offloading terminal in Stoud, Oklahoma, in a route mirroring that of the Keystone XL pipeline. From Stroud, the heavy oil can be sent via pipeline to the nearby oil storage hub in Cushing, Oklahoma. USD's announcement, which said the company could transport up to 70,000 barrels per day of tar sands in rail cars, came in a June 2 filing with the Securities and Exchange Commission (SEC). The deal, centering around the purchase of the Stroud terminal, also included the acquisition of 300,000 barrels of storage space in Cushing, a town known by oil and gas industry observers as the “pipeline crossroads of the world.”  “Our Hardisty to Stroud rail solution delivers immediate takeaway capacity, preserves the integrity of our customer’s heavy barrels and enables substantial end market optionality at Cushing with available pipeline capacity to the Gulf Coast.” Dan Borgen, CEO of USD Partners, said of the deal in a press release.   Ironically, as reported by DeSmog's Justin Mikulka, Goldman Sachs penned a 2013 report titled, “Getting oil out of Canada,” which said tar sands–by-rail was not economically viable. However, in the years following that report, USD, with the backing of Goldman, has entrenched itself more deeply in the tar sands–by-rail market. In Hardisty, Alberta, where the tar sands–by-rail journey begins, USD Partners owns a major oil-by-rail shipping facility. The Hardisty facility currently has the ability to handle two tar sands–by-rail shipments per day, equivalent to 120,000–140,000 barrels per day of crude. This latest deal will represent a quarter of the site's business.

U.S. tops others in petroleum, natural gas production - Some people may find it hard to believe that the United States was the largest producer of petroleum and natural gas hydrocarbons last year. As a matter of fact, it was the fifth consecutive year that the U.S. beat Russia, Saudi Arabia, and all of the other OPEC producers. The U.S. beat everyone. For some 40 years, oil and natural gas production declined in the U.S., and there was little hope of reversing the downward trend. Along came marvelous technological developments in a little area just north of Fort Worth called the Barnett Shale. Wildcatters began drilling into shale vertically and then horizontally, and using multiple fractures in the formation. Originally, the process showed little promise in releasing natural gas from tight shale formations. But, they kept trying, and learning from each venture. By 2008, the U.S. was well on its way to being the top producer. “The United States has been the world's top producer of natural gas since 2009, when U.S. natural gas production surpassed that of Russia, and it has been the world's top producer of petroleum hydrocarbons since 2013, when its production exceeded Saudi Arabia’s,” according to the Energy Information Administration. For the United States and Russia, total petroleum and natural gas hydrocarbon production in energy content terms is almost evenly split between petroleum and natural gas, while Saudi Arabia's production heavily favors petroleum. EIA said total petroleum production is made up of several different types of liquid fuels, including crude oil and lease condensate, tight oil, extra-heavy oil, and bitumen. In addition, various processes produce natural gas plant liquids, biofuels, and refinery processing gain, among other liquid fuels. “In the United States, crude oil and lease condensate accounted for roughly 60 percent of total petroleum hydrocarbon production in 2016. In Saudi Arabia and Russia, this share is much greater, as those countries produce lesser amounts of natural gas plant liquids, and they also have much smaller volumes of refinery gain and biofuels production.”

Falling Interest Rates Have Postponed "Peak Oil"  -- Gail Tverberg  -- Falling interest rates have huge power. My background is as an actuary, so I am very much aware of the great power of interest rates. But a lot of people are not aware of this power, including, I suspect, some of the people making today’s decisions to raise interest rates. Similar people want to sell securities now being held by the Federal Reserve and by other central banks. This would further ramp up interest rates. With high interest rates, practically nothing that is bought using credit is affordable. This is frightening. Another group of people who don’t understand the power of interest rates is the group of people who put together the Peak Oil story. In my opinion, the story of finite resources, including oil, is true. But the way the problem manifests itself is quite different from what Peak Oilers have imagined because the economy is far more complex than the Hubbert Model assumes. One big piece that has been left out of the Hubbert Model is the impact of changing interest rates. When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse. The new crisis can be expected to be “Peak Economy” instead of Peak Oil. Peak Economy is likely to have a far different shape than Peak Oil–a much sharper downturn. It is likely to affect many aspects of the economy at once. The financial system will be especially affected. We will have gluts of all energy products, because no energy product will be affordable to consumers at a price that is profitable to producers. Grid electricity is likely to fail at essentially the same time as other parts of the system. Interest rates are very important in determining when we hit “Peak Economy.” As I will explain in this article, falling interest rates between 1981 and 2014 are one of the things that allowed Peak Oil to be postponed for many years.

U.S. shale firms more exposed to falling oil prices as hedges expire | Reuters: Cash-strapped U.S. shale firms scaled back their hedging programs in the first quarter, leaving them more vulnerable to tumbling spot market prices just after OPEC reached a landmark deal to curb global supply. The pullback in hedging was driven by rising service costs and expectations that prices would continue to rally after the Organization of the Petroleum Exporting Countries extended those cuts in May, analysts said. However, rising U.S. production has stymied OPEC's efforts to rebalance markets. Crude oil futures LCOc1 have lost 15 percent of their value since February, raising the risk that unhedged companies are more exposed to market weakness. The market peaked at $55 a barrel in January as cuts got under way, but has struggled since, and closed Monday at $48.29 a barrel [O/R], barely changed from the end of November, when OPEC agreed with nonmembers to cut 1.8 million barrels a day in supply. For oil traders, hedging data serves as a leading indicator of future supplies. With so little hedged, dealers say producers are now looking to hedge at the next chance possible, a move that will pressure prices in coming months. Producers hedge by buying a variety of financial options to secure a minimum price for crude and safeguard future production. According to a Reuters analysis of hedging disclosures by the 30 largest U.S. shale firms, most stayed on the sidelines in the first three months of 2017, a stark contrast from a year ago when firms rushed to lock in prices, even though oil was trading $15 a barrel lower.In total, 18 companies reduced outstanding oil options, swaps or other derivatives positions by a total of 49 million barrels from the fourth quarter to the first quarter, the data shows. Another 10 companies increased their hedging positions by 91 million barrels; two others did not hedge at all. Compared with a year ago, the group is more exposed to falling oil prices, with one-fifth fewer barrels hedged, or the equivalent of 28 million barrels, and three times more barrels rolling off, or the equivalent of 38 million barrels. 

Shale Drillers May Be Digging Own Hole as Oil Flirts With $40 -- U.S. shale is coming perilously close to puncturing its own rally. Just months after predicting double-digit production increases, largely based on crude prices sitting between $55 and $60 a barrel, drillers are suddenly contemplating the possibility of retrenchment as a stubborn global supply glut is keeping prices near $46. It’s a reversal that could accomplish what OPEC and other global producers have failed to do this year: slow down America’s booming shale industry. Analysts and company officials say a drop to $40 a barrel could halt rig growth for smaller drillers in less active U.S. shale basins, and undercut efforts by fracking service providers such as Halliburton Co., FTS International and Patterson-UTI Energy Inc. to raise their fees. “The growth outlooks proposed by many oily E&Ps appear tenuous at best and not resilient to prolonged weak oil prices," Drillers at an RBC Capital Markets energy conference in New York last week insisted they were sticking with their spending plans, noting they’d emerged from last year’s oil-market slump with leaner costs and lower debt levels. But they acknowledged the shakier ground their budgets stand on. Noble Energy Inc. has the flexibility to “toggle activity" if prices decline further, Chief Financial Officer Ken Fisher said at the meeting, while EOG Resources Inc. Executive Vice-President Billy Helms said the company will “moderate" production if needed. The market got yet another bearish bump Tuesday as West Texas Intermediate oil, the U.S. benchmark, dipped below $46 a barrel on an industry report showing an unexpected boost for U.S. crude stockpiles. Inventories rose by 2.75 million barrels last week, according to an American Petroleum Institute report Tuesday, people familiar with the data said. A $45 barrel “slows most U.S. shale plays," UBS AG analysts wrote in a June 9 note. At $40, companies will “hit the brakes" on growth even in the Permian, the prolific oil play in West Texas and New Mexico, the analysts predicted. 

Lower oil prices set to test U.S. shale drillers: Kemp Some U.S. shale producers claim they can produce oil profitably with prices well below $50 per barrel or even $45 per barrel; the oil market is likely to put those claims to the test. Shale firms have hired an extra 425 rigs to drill for oil since the end of May 2016, more than doubling the active rig count, oilfield services company Baker Hughes says. Producers have continued adding rigs even though benchmark oil prices have fallen almost $10 per barrel since the middle of February and are now almost $4 below year ago levels. Rigs have been added at rates comparable to the height of the shale boom between 2012 and 2014 ensuring output will continue growing significantly through the rest of 2017 and into 2018. The U.S. Energy Information Administration forecasts onshore production from the Lower 48 states will grow by 340,000 barrels per day (bpd) in 2017 and another 500,000 bpd in 2018. As a result, U.S. shale producers together with other non-OPEC suppliers are expected to capture all of the increase in global oil demand in 2018 and raise their share of the market significantly at the expense of OPEC. Shale producers and OPEC are now on a collision course, with OPEC curbing production to try to raise prices and shale drillers adding rigs to boost output. The contradiction will likely be resolved through a drop in oil prices to rein in shale growth. Oil prices have already declined significantly to curb the drilling boom and put output on a more sustainable trajectory. Past experience shows changes in the U.S. oil rig count typically lag 15-20 weeks behind changes in WTI oil prices ( decline in WTI prices since February should cause the rig count to level out or even start to fall sometime between the middle of June and the end of July ( the rig count starts to level off or fall in the next few weeks, it could offer some support to beleaguered oil prices. However, if the rig count continues rising relentlessly, fears about overproduction will grow, and prices are likely to come under even more pressure.

Caelus Energy delays key test on Alaskan North Slope crude discovery - Dallas-based independent Caelus Energy will delay a key test well on a promising North Slope discovery due to the crude price outlook and continued uncertainty about state tax policies, a spokesman said Monday. Caelus announced the discovery of a possible multi-billion-barrel field at Smith Bay, in the Alaskan Beaufort Sea offshore the National Petroleum Reserve-Alaska, in October 2016, but needs further tests to confirm its production potential. More drilling and production tests had been planned for next winter -- exploration is mainly done in winter in Alaska -- but that has now been postponed, spokesman Casey Sullivan said in an interview. The price outlook is only part of the problem, Sullivan said, although it affects income from Caelus' producing Oooguruk field that would have helped finance the Smith Bay project. Another problem is the state of Alaska's inability to pay money owed explorers like Cealus for tax credits earned under an oil and natural gas exploration incentive program. "We've earned about $100 million in tax credits," which is unpaid, Sullivan said. "While this is important, it's only part of the picture. There is heated debate in the Legislature as to how to get to closure," on the state production tax and the unpaid tax credits, which now totals an aggregate $700 million for all explorers. Alaska is struggling with multi-billion-dollar state budget deficits due to low oil prices, and has been drawing down reserves to fund the state budget.

Trump's FBI Nominee's Ties to Exxon -- Christopher Wray, President Trump's nominee for FBI director, advised corporate clients on how to avoid "being in the crosshairs" of law enforcement at a 2015 legal forum where investigations by state attorneys general into whether ExxonMobil misled investors and the public about climate change were a topline issue.   Wray's law firm later pitched clients on its ability to help corporations "vigorously contest" such investigations in response to the 2016 launch of a coalition of 17 state attorneys general aimed at pursuing similar legal efforts around climate change. The firm's clients have included ExxonMobil and other powerful fossil fuel interests.  First, some quick background on the issues at play, followed by some details on the involvement of Wray and his law firm.   Wray once led federal corporate fraud investigations, but then he switched sides.  . Wray's credentials include a 2003-2005 stint as assistant attorney general for the U.S. Department of Justice, where he oversaw corporate fraud investigations, helped to take down Enron and contributed to national security efforts after 9/11.  After Wray left the Department of Justice in 2005, he switched sides and joined the corporate law firm King & Spalding, which has consistently ranked as a "White Collar Group of the Year ." He's since defended big corporations against investigations by U.S. attorneys general offices around the country.  Wray's law firm has defended powerful fossil fuel interests in climate change litigation.  King & Spalding successfully defended Chevron in Native Village of Kalina v. ExxonMobil , a case where a community of Alaska Natives sought compensation for the cost of relocating their coastal village due to flooding and erosion caused by climate change. The community and others like it still remain stranded in the path of rising waters , without the financial resources necessary to relocate once again.  DesmogBlog has previously reported on some of the firm's broader other clients in the fossil fuel industry, which have included ConocoPhillips, Marathon Oil, Occidental Petroleum, Peabody Energy and Shell. Other clients have included ExxonMobil and the Russian oil companies Gazprom and Rosneft .

Cuba Scrambles As Venezuela's Oil Industry Collapses - As Venezuela’s oil industry goes down it flames, it’s looking like it may just take Cuba down with it.Venezuela, once the crude powerhouse of South and Central America, is no longer able to produce enough oil to sustain its own economy, much less those of other countries. Cuba is frantically drilling in search for new reserves and reaching out for new suppliers, but there is no guarantee they’ll be able to stabilize their oil income any time soon.Cuba became dependent on Venezuelan oil in the 1990s, when they were sold cut-price crude in exchange for the services of skilled laborers in order to bail them out of economic collapse in the wake of the fall of the Soviet Union. Currently, Cuba relies on foreign oil for more than two thirds of its daily consumption, with over 100,000 barrels of crude flowing from Venezuela every day for years. Now, quite suddenly, their dependence on Venezuelan oil has been forced to come to a bitter end.In the midst of political unrest and economic devastation, Venezuela’s oil exports have plummeted by 40 percent in the last 3 years. During an export drought that lasted the better part of last year, the Cuban government has been combatting the stemmed fuel flow with regular energy rationing. In an attempt to avoid blackouts, the government has ordered cuts in electricity and fuel consumption to most state-run companies and entities (a huge pool in a communist country) by 50 percent, resulting in workers hours slashed and access to vehicles severely restricted. This April, they also began restricting sales of premium gas to government officials and diplomats.After this eight-month moratorium on exports to Cuba, Venezuela once again began to export light oil to Cuba and  Curacao in March, but at a great cost to their own refineries. As of this month, the 187,000-barrel-per-day Puerto la Cruz refinery is running at just 16 percent of its capacity thanks to a deficit in light oil and a lack of maintenance in ill-funded refineries. With this unsustainable model and no sign of improvement in the country’s economy, Cuba is looking for new sources of crude, and quickly.

Statoil Aims To More Than Triple Brazil Output (Reuters) - Norwegian oil and gas company Statoil aims to more than triple its production in Brazil and wants to become the sole operator for the entire Carcara discovery, among the world's biggest in recent years, its local country manager said. Statoil has invested more than $10 billion in Brazil, making it the country's largest foreign offshore operator. The Peregrino heavy oilfield 85 km off the coast of Rio de Janeiro is the biggest it operates outside Norway. With Peregrino producing 80,000-90,000 barrels of oil equivalents per day, Statoil's 60 percent equity stake in the field currently leaves the company with 48,000-54,000 barrels in daily output from the South American country. "We expect (Statoil's) equity production to more than triple in Brazil going towards 2030," Anders Opedal, Statoil's head of Brazilian operations, told Reuters in an interview, referring to the company's share of production. Last year, Statoil bought a 66 percent stake and became the operator of the BM-S-8 licence in the Santos Basin, including parts of Carcara, from state-run Petroleo Brasileiro SA (Petrobras) for $2.5 billion. The Norwegian firm also took operating control of the BM-C-33 licence in the Campos basin from Repsol Sinopec, holding a 35 percent stake. Statoil has also approved the Peregrino phase 2 development, which is expected to add 250 million barrels of reserves at a break-even price of below $45 a barrel, down from an original estimate of $70 a barrel. 

Hydraulic Fracturing Market Expected to Exhibit a Significant Growth Rate of 11% during 2016 to 2020 - The demand for Hydraulic Fracturing Market is expected to be driven by the rapid increase in the rate of production and it provides access to strategy of shifting energy through natural gas and energy security by domestic supply. The increase in demand of energy and the increase in inclination towards production and exploration of non-conventional sources of energy such as shale gas and tight oil among others is expected to further drive the growth of the market. Favorable government rules and regulations and the increased government expenditure for promoting the extraction of natural resources is further expected to drive the growth of the market.  Among all technologies, plug and perforation is most commonly used for the extraction of crude oil and natural gas. It is used in cased hole wells and is flexible in nature. Plug and perforation technique majorly helps in achieving high production rate. It is mainly used for shale oil and shale gas completions. It has the ability to be reworked in case of any problem or when production process pauses. The ease of accessibility provided by such technology for fracking in horizontal wells, make it a favorable technology than alternatives such as sliding sleeve and others.  North America Region is expected to dominate the hydraulic fracturing market with the highest CAGR. The region is expected to grow with the increase in extraction of minerals from the earth's crust. In the Europe region, rising investigation for the development of available hydrocarbon reserve is expected to drive the growth of the market.

Big Oil's Pivot To Renewables Has Begun - The prospect of peak oil demand has emerged as an increasingly possible reality, acknowledged even by some oil industry executives themselves. If and when oil demand peaks – whether its 5, 10 or 20 years from now – the oil industry faces an existential crisis. Peak demand will mean falling prices, shrinking profits and terminal decline.That is, unless oil companies begin to diversify into cleaner sources of energy. A new report from Wood Mackenzie suggests that the largest oil companies should probably start getting into renewables if they want to pivot with the rapidly changing energy landscape. Renewables are becoming cheaper and cheaper, surpassing fossil fuels in many markets.“The momentum behind these [renewable] technologies is unstoppable now,” said Valentina Kretzschmar, director of research. “They [the oil companies] are recognising it is a megatrend; it’s not a fad, it’s not going away. There is definitely a risk to their core business.”Because they are late to the party, the oil majors will need to step up spending in order to gain a foothold. If the oil majors are to capture 12 percent of the global wind and solar industry – a similar market share to what they have now in terms of global oil supply – they would have to invest $350 billion between now and 2035. Because such a massive level of investment is probably not on the cards, the industry faces a great deal of financial risk in the coming decades.  Even though they are moving too slowly, the oil majors are starting to make initial forays into renewable energy. Norwegian oil company Statoil is still plying the Arctic for new sources of oil, but it is also slated to open up the world’s first floating offshore wind farm off the coast of Scotland in late 2017.

Nicola Sturgeon hails ‘great success’ of oil and gas industry -- The oil and gas industry is still a “great success”, First Minister Nicola Sturgeon insisted as she highlighted new figures showing spending by the sector on innovation almost trebled last year. Investment of £15.9 million by Scottish Enterprise – the Scottish Government’s enterprise agency – helped 82 firms working in the sector in 2016-17, allowing them to come up with 111 innovative projects aimed at making their business more competitive. The projects had a combined value of £43 million – up from £14.5 million the previous year. The funding also means the Scottish Government exceeded a commitment to provide £10 million to support greater levels of innovation in the North Sea. Ms Sturgeon highlighted the figures in a speech to the Oil and Gas UK Conference in Aberdeen, telling industry leaders: “This investment by Scottish Enterprise highlights that Scotland is continuing to lead the way in making oil and gas one of this country’s great success stories.”

Middle East fears prompt call for fracking - Lancashire Evening Post: A dispute in the Middle East which has seen two cargoes of Liquefied Natural Gas diverted from the UK in the last week could mean the area needs gas from fracking, an energy expert has claimed. But opponents of shale gas drilling say the claims are scaremongering to justify an environmentally damaging industry. Saudi Arabia, the United Arab Emirates and Egypt have all cut ties with the Gulf state of Qatar, a major supplier of LNG, over concerns that it is funding and supporting terrorism. The ongoing diplomatic row has forced wholesale gas up by 4.5 per cent. Nick Campbell, energy risk manager at Kirkham-based Inspired Energy, said it could get worse, especially if problems continue into the winter months. He said: “We saw the issue of reduced LNG last winter, when the Far East purchased global supplies as temperatures dropped. “If this was to continue into next winter, coupled with issues with Qatari deliveries into the UK, this would help to support winter gas prices at a time when demand is at its highest.” In 2015 Qatar supplied more than 20 per cent of Britain’s gas imports. The pro-fracking Lancashire For Shale group said ongoing price volatility could hit householders, businesses and hospitals. It said Blackpool Victoria hospital relied on gas for most of its energy requirements. A spokesman said: “According to one publicly available annual report, it used 80 GWh (gigawatt hours) of gas in 2012/2013 compared with under 20 GWh of electricity. “North West England is the UK’s biggest gas consuming region, using over 60,000 GWh in 2015.

Fracking could be off the agenda after surprise election result - The Conservatives are the only main British party to support fracking for shale gas in the UK. Its manifesto claimed Britain had the potential to ‘replicate the shale boom that has transformed the US energy landscape’. Planning processes for shale developments would be streamlined and a higher share of tax revenues paid into a national ‘shale wealth fund’, for local communities in a bid to overcome opposition. However, the election result leaves that pledge, as with all of the party’s Manifesto promises, in the balance. Whilst it potential alliance partners the Democratic Unionist Party (DUP) are likely to support it, dissent in their own Tory ranks may stymie any bold policy moves with such a slim working majority. Ken Cronin, chief executive of UKOOG, the representative body for the UK’s onshore oil and gas industry, says the ‘fundamentals of why we need shale gas are as strong today as they were last week.’ He said: “84% of our homes use gas for heating and a significant number of UK industries, such as textiles, chemicals and beverages, relying on gas for feedstocks and energy.” He went on to say UKOOG is ‘looking forward to working with the new government to help ensure that we realise our ambition to see a mix of energy sources produced here in the UK, which will reduce our dependency on imported energy, improve our balance of payments and create jobs’.

Australian Greens reject fracking pipeline: The Greens say the proposed Northern Territory North East Gas Pipeline stinks. The Australian Greens May National Conference was held during May in Alice Springs. Delegates attended the conference from all states and territories. Greens Parliamentarians presented on issues such as renewable energy and transitioning from fossil fuels, to housing affordability and the new economy. They all agreed that the proposed pipeline stinks. There was consensus between all Greens Member Bodies that the Australian Greens would throw their weight behind the NT Campaign to stop the pipeline development in the Northern Territory. The Pipeline is being built to transport fracked gas out of the NT to Mt Isa in Queensland or for export, in spite of NT Labor's current public policy of a moratorium on fracking. 'There is overwhelming evidence that processes surrounding unconventional gas extraction pose the risk of irreversible damage to water aquifers ,' said Marli Banks, the NT Greens spokesperson for fracking. 'Over 90% of the Northern Territory is reliant on our underground water sources. Why would the NT Government be risking our health and livelihoods?' There are over twenty six thousand proposed wells in the Northern Territory.

Global offshore oil struggles to find its footing: Fuel for Thought - Global offshore oil production has been the most sluggish and recovery resistant sector in the oil industry during the last three years of slumped oil prices, but the arena is showing signs of adaptation and resiliency thanks to new cost-paring measures that in some cases allows offshore projects to compete with shale. The need to reduce costs is not only critical for private companies and national oil companies. The world needs oil from those projects to meet future demand. “The offshore sector, which accounts for almost a third of crude oil production and is a crucial component of future global supplies, has been particularly hard hit by the industry’s slowdown,” the International Energy Agency said in a recent report. “In 2016, only 13% of all conventional resources sanctioned were offshore, compared with more than 40% on average between 2000 and 2015,” IEA said. As the industry adjusts to what could be a lower-for-longer oil price and what investment bank Barclays has called a “new oil paradigm,” the offshore sector is becoming more compact, nimble and phased, Barclays analyst David Anderson told S&P Global Platts. Breakeven prices for offshore projects generally are around $50-$60/b, analysts say, higher than world oil prices which have hung in the mid-$40s/b to low-$50s/b in the last year. As a result, operators are being forced to adjust their thinking in a changing industry where speed, flexibility and economy are crucial. As the industry moves into a third year of lower oil prices and Brent prices linger at or below $50/b, a mere handful of offshore projects have been sanctioned recently. Many producers have shelved exploration in favor of quicker-return US shale onshore. Those still with an offshore presence are straining to whittle down the cost of commercializing pricey discoveries made years ago at $100/b oil and find new fields to bring online at current prices.

Platts JKM LNG: Aug kicks off at $5.45/MMBtu; prompt demand supports July  -- The Platts JKM for LNG cargo delivery in August, the new front month, started at $5.45/MMBtu Friday. The July JKM ended its assessment period on Thursday at $5.525/MMBtu, up 10 cents/MMBtu from $5.425/MMBtu Friday of last week. Bids for July cargoes edged up toward the end of the week to $5.40-$5.45/MMBtu for H2 July, against offers mostly seen at around $5.60/MMBtu. On Friday, best bids for August cargoes were said to be $5.40/MMBtu and offers were heard $5.50-$5.60/MMBtu. Demand for prompt cargoes provided support, although a lower oil price and weak European gas prices limited upside potential. That resulted in the spread between JKM and UK NBP rising to more than $1/MMBtu on Thursday, the highest since January 26. Buying interest was shown from buyers in China and South Korea for July delivery. South Korea's Komipo concluded a transaction midweek at $5.60/MMBtu for a July 5-12 delivery cargo into Boryeong LNG terminal. Guanghui Energy in Cihna has a requirement for a late July or H1 August delivery of a 90,000-100,000 cu m cargo, while China Huadian may enter the market for an August-delivery cargo, sources said. In India, GSPC launched a tender for an H1 August cargo after failing to award its previous tender seeking ab H1 July cargo. The tender came as demand from India continued to remain subdued partly due to the Monsoon season during which India's Dabhol LNG receiving terminal is closed. Indian buyers were cautious about purchasing prompt-delivery spot shipments due to ongoing tank-top issues at Dahej LNG terminal.

Pakistan to continue Qatar LNG imports despite diplomatic crisis: minister -- Energy-starved Pakistan expects no changes in its long-term LNG supply agreement with Qatar or its plans to build a natural gas pipeline with Iran, despite geopolitical uncertainties. Pakistan, which relies on gas for around 50% of its energy needs, has seen domestic natural gas production stagnate at around 4 Bcf/d against a demand of more than 6 Bcf/d. Consumption is growing at an annual rate of 5%, driven by a growing economy, rising demand from the power and industry sectors, and expansion of the country's gas supply and distribution network. "Pakistan has a 15-year commercial contract with Qatar for LNG supply, and the severing of diplomatic ties between Qatar and Saudi Arabia would have no impact on this deal," Pakistan's Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi said at a media briefing in Islamabad earlier this week. Only if sanctions were imposed or a force majeure declared on Qatar's LNG exports would this agreement face a threat, Abbasi added. But severe trade flow disruption is unlikely as global energy security is at stake with several major economies heavily dependent on LNG exports from Qatar, the world's largest supplier of the fuel. Pakistan imported more than 2.5 million mt of LNG from Qatar in 2016, according to Platts Analytics. Qatar's three biggest customers -- Japan, India and South Korea -- imported more than 11 million mt each, accounting for almost half of Qatar's total exports of 78.8 million mt. 

Russia’s Gazprom Says Proposed US Sanctions Aim To Boost US LNG Exports -New sanctions on Russian energy projects proposed by the U.S. Senate are aimed at boosting LNG exports from the U.S. to Europe, an official from Russian gas giant Gazprom was quoted as saying on June 15.  U.S. senators approved new sanctions against Russia on June 14 over alleged meddling in the 2016 U.S. election, targeting certain Russian energy projects. “As far as the implementation of the sanctions is concerned, they don’t conceal that this is aimed at ensuring American LNG to Europe,” Interfax quoted Gazprom Deputy CEO Alexander Medvedev as saying. The U.S. is eyeing new markets for its LNG exports, including Europe. Gazprom so far has dismissed the potential impact from the U.S. proposal on its business in Europe, where it accounts for a third of gas supplies, saying that high transportation costs make U.S. LNG too expensive. The U.S. Senate said it was the policy of the United States to continue to oppose Gazprom’s Nord Stream 2 pipeline project, saying it would have a detrimental impact on the European Union’s energy security, gas market development in Central and Eastern Europe and energy reforms in Ukraine.

India is Opec's litmus test on oil demand growth - Rising US shale oil production has put short-term supply concerns centre stage as the oil market downturn enters its third year. But for Opec producers, worries about when demand for their crude will peak is only gathering pace and India is in focus.  The south Asian nation is tipped to be the world’s fastest-growing oil consumer over the next two decades. Its population of 1.3bn people holds the hopes of global oil producers as rising incomes and the rapid uptake of motorcycles and cars boost petrol and diesel, offsetting fading demand in the west. But India, which sources 86 per cent of its oil needs from Opec countries, wants to reduce its dependence on foreign crude. Already close to overtaking China as the country with the most deaths caused by air pollution, it also wants to prevent rapid motorisation from suffocating its cities.  “Oil will remain an important component of our energy usage but our capital expenditure is moving into alternatives — gas, renewables and technologies such as electric cars,”  “There is a paradigm shift happening in the Indian market.” India has become the litmus test for Opec nations and other producers. If India’s growing middle classes do not use as much oil as they hope, global demand for crude may peak and fall faster than expected.

OPEC and U.S. shale drillers are on collision course: Kemp (Reuters) - The oil market is on an unsustainable course with output from U.S. shale and other non-OPEC sources increasing rapidly, while OPEC and its allies trim production to reduce inventories and prop up prices.  The International Energy Agency (IEA) projects non-OPEC output will increase by 1.5 million barrels per day (bpd) in 2018 (“Oil Market Report”, IEA, June 2017).  If that proves correct, non-OPEC suppliers will capture all the increase in demand next year, because the IEA predicts consumption will increase by only 1.4 million bpd.  In effect, OPEC will be restricting its own output only to see rival producers step in to meet growing demand from refiners. OPEC will face the familiar dilemma of whether to defend oil prices by continuing to restrict output or defend market share by growing production again. OPEC and its non-OPEC allies are unlikely to remain impassive as U.S. shale producers and other non-OPEC countries not bound by the production agreement capture all the growth in market demand in 2018. If U.S. shale production continues to grow rapidly, OPEC will probably return to defending its market share in 2018, even if it means accepting lower oil prices. Between mid-2014 and mid-2016, OPEC’s strategy switched to protecting its market share and allowing oil prices to sink.  In the second half of 2016, OPEC switched tack again, and abandoned its market share strategy in favour of a return to price defence. Prices have risen but OPEC’s share of production is set to decline once more in both 2017 and 2018, which could force another change of strategy. OPEC now predicts U.S. oil production will increase by 800,000 bpd in 2017, compared with a projected decline of 150,000 bpd at the time of its December forecast (“Monthly Oil Market Report”, OPEC, June 2017). U.S. oil producers have added more than 400 extra rigs since the end of May 2016 in response to higher oil prices. But the increase in U.S. production is now threatening to overwhelm the market, in a re-run of the situation in 2014 that led to the price collapse.Most forecasters are bullish about the outlook for oil demand growth in 2018. Even so, output from U.S. shale and other non-OPEC sources will essentially capture the entire gain.

OPEC plays a song and dance for the oil market (podcast) In a meeting that unfolded -– at least to S&P Global Platts OPEC specialist Herman Wang's eyes -- just like the Eurovision pop song contest, OPEC and its non-OPEC partners decided on May 25 to extend their 1.8 million b/d in production cuts through the first quarter of 2018. Herman explains the Eurovision connection and also catches up with Yasser Elguindi, an analyst with Medley Global Advisors, to break down the meeting’s results and their impact on the global oil balances. The podcast also delves into the diplomatic row between Qatar and its fellow OPEC members Saudi Arabia and the UAE, along with Bahrain and Egypt, that is providing some disruption in the market and heartburn for physical traders. And in the podcast’s Get to Know an OPEC Member segment, this month's episode focuses on Iraq, with an interview with Ben Van Heuvelen, editor in chief of the Iraq Oil Report. Ben discusses with Herman Iraq’s discrepancies in oil production figures, negotiations with international oil companies over contract terms, the country’s fight against the Islamic State, the outlook for the Kurdistan region’s oil sector, and more.

Russia Has Become A De Facto Member Of OPEC -- Russia and Saudi Arabia are becoming ever closer allies in a graphic example of realpolitik. The two would probably be implacable enemies if their contrarian positions in Syria were any gauge — Russia is closely aligned with Iran in their support of Bashar al Assad, yet Iran is Saudi Arabia’s public enemy No. 1 and only major rival in the Middle East.  But economics trumps almost all, and the two's interests are certainly aligned in trying to reverse the damage done by Saudi Arabia's failed bid to squeeze U.S. shale drillers out of the market, as well as the corresponding glut of supply forcing prices to painfully low levels -- painful at least for oil producers. As the Financial Times observed in quoting RBC Capital Markets as saying, "Saudi Arabia and Russia are essentially now co-pilots of this operation (of restricting output to boost prices) and they've made it clear there will be no going back to chasing market share. ... It's a huge change from two years ago when Russia would not co-operate with OPEC and even questioned its relevance in the age of shale."The two agreed last week to not only extend but deepen production cuts for a further nine months into 2018. But not all agree with the International Energy Agency's prediction that the cuts will be enough to balance supply and demand later this year.

Saudi to limit July oil volumes to Asia, slash U.S. volumes –sources - Saudi Arabia, the world's top oil exporter, will limit volumes of crude to some Asian buyers in July and deepen cuts in allocations to the United States, industry sources with knowledge of the matter said on Monday. State-run oil firm Saudi Aramco would supply full contracted crude volumes to at least five Asian buyers mainly in North Asia and lower volumes for some customers in India, China and South Korea, the sources told Reuters on condition of anonymity. Cuts in crude allocations to Asia in July would total about 300,000 barrels per day (bpd), deeper than in June, the sources said. Aramco notified Asian refiners last month that it would reduce oil supplies to Asia by about 7 million barrels in June, its first cuts for that region since OPEC-led output reductions took effect in January. Elsewhere, crude allocations to the United States have been lowered significantly and Aramco continued to curtail supply to Europe, two sources said. One source said volumes to the United States would be cut by about 35 percent in July, while Europe supplies will be reduced by about 11 pct compared to June. One of Aramco's main buyers in China opted for lower nominations in July due to planned refinery maintenance and the more expensive Dubai benchmark, one of the sources said. Another North Asian customer said Aramco would supply full volumes of heavy crude for a third straight month.According to the July plans, Aramco would cut supplies to India by close to 200,000 bpd and China by about 110,000 bpd, while supplying full volumes to buyers in Japan and Taiwan, said one source with knowledge of the nominations. Supplies to one South Korean refiner were also reduced, two sources said. 

Asian refiners receive full Saudi crude oil allocations for July -- Saudi Aramco's major buyers in Asia are receiving full allocations for Saudi crude oil loading in July, with some Japanese refiners even getting higher volumes, according to market sources. Traders at several key Asian end-users said their July nominations were met and they were not aware of cuts to any refiners in the region. At least two traders with two Japanese refiners said they had received incremental volumes, with one even getting "slightly more Arab Extra Light." A Singapore-based crude trader with a North Asian refiner said that there were some adjustments to the allocation but "overall, the volume was the same." Earlier this month, Aramco raised the July official selling price of its Asian-bound crudes by 35-95 cents/b. The adjustments were higher than market expectations with some traders saying that the increases were too high. The increases could indicate that Aramco was expecting strong summer seasonal demand from Asia, especially for the medium, heavy crudes, traders said. July OSPs were high and this was probably why Saudi Aramco was ready to allocate Asian buyers their nominated volumes, an East Asian crude trader said. The full allocations to Asia buyers comes despite OPEC and 10 non-OPEC producers extending oil production cuts by nine months, a move that would keep nearly 1.8 million b/d of crude oil off the market through March 2018.

Hedge funds remain cautious on oil: Kemp  - (Reuters) - Hedge funds remain cautious on the outlook for oil prices despite confident statements from Saudi Arabia that global oil inventories will decline substantially in the next few months.Asset managers cut their combined net long position in the three main futures and options contracts linked to Brent and WTI by 39 million barrels in the week ending June 6 ( net position had been increased by a total of 114 million barrels over the previous three weeks, analysis of data published by regulators and exchanges showed ( From a positioning perspective, the balance of risks is now on the upside, with few long positions left to be liquidated and a relatively large number of short positions that need to be covered. Saudi Arabia has offered some rhetorical support by reiterating its determination to bring global oil stocks down to the five-year average, though policymakers have so far resisted pressure to cut output again. But the continued rise in the number of rigs drilling for oil in the United States has made it hard for fund managers to become bullish again.The number of rigs targeting oil-bearing formations has more than doubled over the past 12 months, even though WTI prices are down by about 6 percent. The rig count has continued to climb even after WTI prices peaked in February and started to decline ( production lags the rig count by six months, the recent increase in drilling will ensure that U.S. output continues rising for the remainder of 2017 and into 2018.The U.S. Energy Information Administration now forecasts output will increase by 460,000 barrels per day (bpd) in 2017, up from the 110,000 bpd rise forecast in January.The agency expects production to rise by a further 680,000 bpd in 2018, against the 300,000 bpd forecast in January.With so much extra production projected to come from the United States, with output also increasing from Brazil, Norway, Libya and Nigeria, sentiment among hedge fund managers remains tepid.

Hedge funds turn bearish on U.S. natural gas: Kemp (Reuters) - Hedge funds have turned much more bearish towards U.S. natural gas prices after stocks built much more than expected at the start of the summer cooling season.Hedge funds and other money managers cut their net long position in the two main futures and options contracts linked to Henry Hub prices by 765 billion cubic feet in the week to June 6.Fund managers cut their net long position by a total of 1,349 billion cubic feet over the two weeks since May 23, after boosting positions by 1,721 billion cubic feet over the previous 12 weeks ( May 23, hedge funds had accumulated a near-record net long position of 3,919 billion cubic feet, according to the U.S. Commodity Futures Trading Commission (  Fund managers gambled that strong exports coupled with a new wave of combined-cycle power plants would tighten gas stocks this summer.But instead stocks have risen in line with the normal seasonal pattern as power producers have switched back to burning coal.With ample stocks, the bullish bias among the hedge fund managers was no longer sustainable and a correction became inevitable. Spot prices and calendar spreads peaked in the middle of May, and started to soften gradually, before tumbling after May 22. Gentle liquidation of long positions by former hedge fund bulls has been accelerated by a new wave of short selling from hedge fund bears anticipating a price correction. Nearly all the decline in prices has been concentrated in near-dated futures contracts to encourage maximum power burn this summer. The price of gas for delivery at Henry Hub in July 2017 has fallen by more than 40 cents per million British thermal units, around 12 percent, since May 22 ( By contrast, there has been little change in forward prices, with the price of gas for delivered in July 2018 down by just 2 cents since May 22.  Gas prices are now much more competitive with coal, which should encourage power producers to run their combined-cycle units for more hours as baseload and limit further downside risks.

Gas prices join oil prices as YoY negative -- Well, this isn't something I expected to happen at the beginning of this year. For the last 16 months, gas and oil prices have risen off their bottom and the question had been, how much of a YoY increase there would be.  That has all changed in the last month.  A few weeks ago, oil prices went negative YoY. As of this past weekend, according to GasBuddy, so did gas prices: Further, since oil prices remain down YoY:   and gas prices at the pump tend to follow oil prices with a slight lag, it looks like consumers will benefit from cheaper gas for a little while longer.  This will tend to be reflected in subdued inflation readings, and so higher real wage gains. All of which makes it perfectly obvious that the Fed isn't raising rates to fight inflation.

OPEC production rises in May despite output cut deal renewal -- OPEC’s crude oil production increased by 270,000 bpd in May over April, to stand at 32.12mn bpd – the highest level since January this year, according to a survey by S&P Global Platts. The rise in crude production, despite the Organization of Petroleum Exporting Countries joining hands with a Russia-led group of 11 non-OPEC oil producers, to extend the production cut deal till March next year, is being attributed to a sharp recover of output in Libya and Nigeria – the two OPEC members that were exempted from complying with the pact, according to Platts. Despite the high compliance from the cartel’s biggest producer and de facto leader Saudi Arabia, as well as from Angola, output jumped from the two excepted OPEC members, and Iraq continued to under-comply significantly, increasing its production in May, the Platts survey showed.According to the survey, Nigerian output increased last month to 1.73mn bpd, up by 80,000 bpd from April, and the highest level since March 2016, due to the restart of Forcados crude exports. According to Platts shipping data, two Suezmax tankers fully laden with crude oil set sail from Nigeria’s Forcados terminal at the end of May. In Libya, crude output increased by 180,000 bpd to 730,000 bpd in May – the highest level since October 2014 – with the giant Sharara field resuming production, and exports from both key eastern and western ports rising steadily.

OPEC oil output jumps 336,000 barrels a day in May: OPEC's oil production jumped in May, despite the exporter group agreeing last month to extend its six-month deal to cap output into 2018. Production across OPEC rose by about 336,100 barrels per day to 32.1 million bpd, according to secondary sources, led by increases from Libya and Nigeria, which are exempt from the deal, and Iraq. Output from Libya surged by more than 178,000 bpd to 730,000 bpd as the country's rival factions moved toward reconciliation, and supplies disrupted throughout years of conflict remained on line. In Nigeria, production was up more than 174,000 bpd to 1.68 million bpd as supplies sidelined by militant attacks on energy infrastructure last year came back into operation. With the gain, Nigeria reclaimed the title of largest African producer in OPEC from Angola, where output fell by 54,000 bpd, the biggest drop among the 13 members in May. Iraq, OPEC's second-largest producer, contributed the third-biggest increase with a more than 44,000 bpd jump. Baghdad has yet to cut deeply enough to hit its quota of 4.35 million bpd under the output cut deal. In May, it produced 4.42 million bpd.Only four countries were producing at or below the levels they agreed to in November: Saudi Arabia, Angola, Kuwait, and Qatar. Last month, OPEC and other exporters extended an agreement to remove 1.8 million barrels a day from the market in order to shrink brimming global stockpiles of crude oil. In May, inventories in the OECD, a group of mostly wealthy countries, remained 251 million barrels above the five-year average. Despite this, OPEC struck a fairly upbeat note on the global economy. "The gradual recovery of the world economy continues and stronger-than-anticipated growth in 1Q17 has lifted the world GDP growth forecast for 2017 to 3.4%, up from the 3.1% growth seen in 2016," OPEC said. "This positive momentum is expected to continue into the second half of the year." OPEC also revised down its forecast for non-OPEC oil supply growth this year by 110,000 bpd to 58.14 million bpd. 

OPEC Oil Prodcution Rises Most In 6 Months, Hits Highest Since December --Well, so much for OPEC's production cut. In OPEC's latest Monthly Oil Market Report, the oil producing cartel reported that in May - the same month OPEC met to extend its production cuts - crude output climbed the most in six month, since November 2016, rising by 336.1kb/d to 31.139 mmb/d, the highest monthly production of 2017, as members exempt from the original Vienna deal restored lost supply. From the report:Preliminary data indicates that global oil supply increased by 0.13 mb/d in May to average 95.74 mb/d, m-o-m. It also showed an increase of 1.48 mb/d, y-o-y. A decrease in non-OPEC supply, including OPEC NGLs represents a contraction of 0.21 mb/d m-o-m but an increase of 0.34 mb/d in OPEC crude oil production, not only offset the decline of non-OPEC supply but also increased overall global oil output in May. The share of OPEC crude oil in total global production stood at 33.6% in May, an increase of 0.3% from the month before. Estimates are based on preliminary data for non-OPEC supply, direct  communication for OPEC NGLs and non-conventional liquids, and secondary sources for OPEC crude oil production Specifically, Libya pumped 730k b/d in May, up 178kb/d from 552kb/d in April; Nigeria output jumped to 1.68m b/d vs 1.506m b/d, a 174kb/d increase, while even the biggest producer Saudi Arabia, saw its output grow by 2.3kb/d to 9.94mb/d vs 9.938m b/d in April. Not surprisingly, in an attempt to preserve the "reduction" narrative, in its self-reported figures, Saudi Arabia told OPEC via direct communication that it produced 9.88mb/d in May, down 66.2kb/d from April's 9.946mb/d, although these figures are looking increasingly suspect. Perpetuating its existence of forced self-delusion, OPEC predicted that surplus oil inventories would continue to decline in 2H 2017 as their cuts (what cuts) take effect and demand picks up. “The re-balancing of the market is underway” OPEC wrote, conceding that it is taking place "at a slower pace" and adding that “the decline seen in the overhang” in developed-nation stockpiles “is expected to continue in the second half, supported by production adjustments by OPEC and participating non-OPEC producers." There was little discussion of the soaring US shale output, which as we wrote last night is expected to hit an all time high next month.

Oil Rises On Signs Of US Inventory Declines, Lower Saudi Exports (Reuters) - Oil edged up on Monday on signs of inventory declines in the United States and news that Saudi Arabia will limit volumes of crude to some Asian buyers in July and deepen cuts to the United States. Saudi Arabia, the world's top oil exporter, will cut crude allocations to Asia in July to a total of about 300,000 barrels per day (bpd), deeper than in June, sources told Reuters. One source said volumes to the United States would be cut by about 35 percent in July. Data from market intelligence firm Genscape estimating a draw of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures last week added to the bullish sentiment, said traders who saw the data. Brent crude futures ended the session up 14 cents, or 0.3 percent at $48.29 a barrel, having risen as much as 2 percent to a session high of $49.15. U.S. West Texas Intermediate (WTI) crude futures gained 25 cents, or 0.6 percent, to settle at $46.08, having peaked at $46.71. Prices plunged about 5 percent last week after data from the U.S. Department of Energy showed a surprise increase in stockpiles. "We think the market's negative reaction to a one-week counter-seasonal crude inventory build of 3.3 million barrels was excessive, at least relative to its lack of positive reaction to draws amounting to 10.9 million barrels in the previous two weeks of data," Standard Chartered analysts said in a note. "We do not expect a repeat of the inventory increase this week; rather we see a further large inventory draw." Some traders and analysts said the rise looked technical in nature, after WTI rallied and encouraged a similar move in the Brent market. But they said the move might prove fleeting. "When you start to approach $45 a barrel in WTI, you're in an area where you do find some price support and I think there has been some evidence last week of investment flows coming back into crude oil," Petromatrix strategist Olivier Jakob said.

Saudi Arabia Cuts U.S. Oil Exports to Work Down Global Supply Glut --  Saudi Arabia is slashing its U.S. oil exports to a near three-decade low for this time of the year, intensifying its efforts to reduce a global supply glut that has been pummeling crude prices. State-owned Saudi Arabian Oil Co. expects sales to the U.S. will drop below one million barrels a day in June, then slide to about 850,000 barrels a day in July, according to people familiar with the matter. The July figure would be its lowest export total to the U.S. for that month since 1988, based on figures from the U.S. Energy Information Administration. Saudi Aramco expects its August exports to the U.S. to decline by another 100,000 barrels a day, these people said, which would be the lowest export amount for that month since 2009. The shift comes as crude markets test some of their lowest prices of the year. Oil traders have been questioning whether Saudi Arabia and other members in the Organization of the Petroleum Exporting Companies can change that. The group cut output this year in an effort to ease a longstanding glut, but U.S. companies have rushed to fill any void left by OPEC. U.S. crude prices tumbled more than 9% over the past three weeks and are down about 13.5% this year, back near where they were before OPEC's deal was first announced in November. Some say Saudi Arabia's decline in exports to the U.S. is a direct effort to ensure OPEC's cuts have the intended effect: reducing bloated inventories of oil around the world, and particularly in the U.S., that have kept prices down. Declining exports to the U.S. show that Saudi Arabia is "getting serious" about addressing the supply glut, said Jan Stuart, global energy strategist at Credit Suisse Group AG. Yet skeptics say Aramco cutting shipments to the U.S. doesn't necessarily mean the global glut is shrinking. Traders are increasingly focused on U.S. inventories, in part because data there are easier to come by than in other places. When the EIA reported an unexpected increase in U.S. oil supplies last week, prices fell by more than 5%. 

OPEC sees oil market rebalancing at slower pace, says output rises -- OPEC said on Tuesday a long-awaited rebalancing of the oil market was under way at a "slower pace" and reported that its own output in May jumped due to gains in nations exempt from a pact to reduce supply. In a monthly report, the Organization of the Petroleum Exporting Countries said its output rose by 336,000 barrels per day (bpd) in May to 32.14 million bpd led by a rebound in Nigeria and Libya, which were exempted from supply cuts because unrest had curbed their output. The boost means OPEC is pumping more than its forecast of average global demand for its crude this year, hindering efforts to reduce a glut. But Libyan and Nigerian output remains volatile, meaning the gain may not last. OPEC said oil inventories in industrialized countries dropped in April and would fall further in the rest of the year, but a recovery in U.S. production was slowing efforts to get rid of excess supply. "The rebalancing of the market is under way, but at a slower pace, given the changes in fundamentals since December, especially the shift in U.S. supply from an expected contraction to positive growth," OPEC said in the report. Oil prices gave up gains on Tuesday after the release of the report to trade toward $48 a barrel, below the $60 level that top OPEC producer Saudi Arabia would like to see and less than half the level of mid-2014.In the report, OPEC pointed to continued high compliance by its members with the supply deal and said oil stocks in industrialized nations fell in April - although they are still 251 million barrels above the five-year average. 

Oil Flat As OPEC Sees Market Balancing At “Slower Pace” -Oil prices rose on Monday on news that Saudi Arabia might cut oil shipments to Asia and the U.S., but more generally on the technical resistance that oil prices face in the mid-$40s. In early trading on Tuesday oil prices were flat. Russia’s energy minister Alexander Novak said that the oil market will come back into balance by the end of the compliance period for the OPEC/non-OPEC cuts. Both he and his Saudi counterpart, Khalid al-Falih, said that global crude inventories will converge back to the five-year average by the end of this year, and that the oil market will be balanced by the end of the first quarter of 2018.. At the same time, OPEC conceded that the oil market is balancing at a “slower pace” than it had previously expected after reporting higher-than-expected production from within the cartel and from the U.S.  Royal Dutch Shell lifted its force majeure on its Forcados stream in Nigeria last week, an important move that could bring back more than 200,000 bpd of oil supply to the market. At the same time, Shell also declared force majeure on its Bonny Light oil, affecting 200,000 bpd. The declaration came after the discovery of a hole drilled in its Trans Niger Pipeline. Nigeria appeared to have gained the upper hand over militants in the Niger Delta over the past year, but the attack raises concerns that militant activity has not gone away. In fact, the Niger Delta Avengers, which burst onto the scene last year with a series of successful attacks, issued a statement in early June saying that they will “resume attacks on oil facilities.” Oil prices sank last week in part because of fears that Nigeria could flood the market with rebounding supply. If the Niger Delta Avengers are as effective as they were in 2016, Nigeria’s production may not rise at all and could in fact decline.

OPEC's simple problem. Despite Saudi cuts, it's shipping more oil: Russell | Reuters: OPEC has finally acknowledged what the oil market already knows, namely that rebalancing is taking longer than expected. Perhaps this is because OPEC is actually shipping more crude. The Organization of the Petroleum Exporting Countries prefers to talk about output when assessing the impact of the deal among members and 11 allied countries to reduce production by 1.8 million barrels per day (bpd). While output is no doubt important, for the immediate market impact it's probably better to focus on what the group is actually exporting. Vessel-tracking and port data in Thomson Reuters Eikon shows that for the first five months of 2017, OPEC exported 25.6 million bpd. This figure is only shipments by tanker and is filtered to show vessels that have already discharged, are discharging or are en route to their destination. The shipments for the first five months of this year are slightly higher than the 25.4 million bpd the producer group exported via tankers in the same period in 2016. In May, OPEC shipments were 25.6 million bpd, up from April's 25.02 million bpd, according to the vessel-tracking data. The increase in exports via tanker was also reflected in higher output by the group, which said in a report on Tuesday that it produced 32.14 million bpd in May, up 336,000 bpd from the prior month.

Oil tallies third session gain ahead of weekly data on U.S. supplies --Oil prices tallied a gain for a third-straight session Tuesday, ahead of a weekly U.S. government data that are expected to reveal a decline in crude supplies.Daily gains have been modest, however, as investors remain skeptical that production cuts led by Middle Eastern producers and Russia are helping to alleviate a yearslong market glut. On the New York Mercantile Exchange, July West Texas Intermediate crude rose 38 cents, or 0.8%, to settle at $46.46 a barrel after tapping a low of $45.56. August Brent crude on London’s ICE Futures exchange added 43 cents, or 0.9%, to $48.72 a barrel.Following the late May decision led by the Organization of the Petroleum Exporting Countries to extend the output-cut agreement into the first quarter of 2018, the “focus now shifts to how U.S. crude and shale producers respond to higher prices,” said Mihir Kapadia, chief executive offer and founder of Sun Global Investments, in emailed commentary. U.S. production “has been one of the biggest headaches for OPEC as they [have] been flexible in increasing output in response to higher prices,” he said. “Thus OPEC’s desire for higher prices over the medium term have been continually thwarted.”The Energy Information Administration said Monday that domestic shale-oil output is expected to rise by 127,000 barrels a day in July, from a month earlier. Petroleum supply updates are due out from the American Petroleum Institute late Tuesday and EIA early Wednesday. The EIA last week reported a surprise rise in weekly crude stockpiles, the first in nine weeks.

WTI/RBOB Slump After Another Shocking Crude & Gasoline Inventory Build --Following last week's surprising builds (which sent WTI/RBOB prices lower), API reported another big crude build (+2.75mm vs an expected draw of 2.45mm) and surprise gasoline build. Crude and Gasoline futures prices immediately gave up the day's gains.  API: 

  • Crude +2.75mm (-2.45mm exp)
  • Cushing -833k
  • Gasoline +1.794mm (-1.15mm exp)
  • Distillates -1.451mm

Last week's surprise builds in crude, gasoline, and distillates upset the OPEC narrative of movement towards rebalancing and tonight's API data further weakens that case...

Oil Prices Plunge After API Reports Surprise Build In Crude Inventories -- The American Petroleum Institute (API) reported a build of 2.75 million barrels in United States crude oil inventories, compared to analyst expectations that markets would see a draw of 2.7 million barrels for the week ending June 9—a 5.45-million-barrel discrepancy that is bound to unsettle already unsettled markets.It seems that oil inventories are particularly unpredictable as of late, with last week, the API and EIA reporting remarkably disparate figures in the amount of crude oil inventory movement—a 7.9-million-barrel discrepancy between the two that fanned the flames of an already shaky market.This week’s build, according to the API, ends three straight weeks of draws. The EIA reported a build last week, suggesting to some that the API and EIA are not necessarily in disagreement, only out of synch.Crude oil inventory concerns have lingered, despite OPEC’s curtailment on member and non-member production to the tune of 1.8 million barrels per day, and despite Saudi Arabia’s ratcheting down oil exports to the United States, and promise to ratchet down more, by 35 percent in July.While this would not affect global inventories, restricting the amount of oil coming into the US should theoretically bring down inventories in the much-watched market, if it weren’t for Iraq’s increased oil exports to the US. WTI was trading up 0.8% at $46.45 per barrel at 3:11pm EST—more than $1.50 per barrel lower than a week ago—with Brent trading at $48.74, compared to $50.05 per barrel last week.  The upward movement on gasoline inventories for another week was also a huge disappointment, climbing 1.794 million barrels this week, compared to an expected draw of 1.15 million barrels.

Oil supply seen outpacing consumption in 2018, demand to top 100 million barrels per day | Reuters: Growth in oil supply next year is expected to outpace an anticipated pick-up in demand that will push global consumption above 100 million barrels per day (bpd) for the first time, the International Energy Agency said on Wednesday. The Paris-based IEA said production outside the Organization of the Petroleum Exporting Countries would grow twice as quickly in 2018 as it will do this year, when OPEC and 11 partner nations have restrained output. "For total non-OPEC production, we expect production to grow by 700,000 bpd this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply," the IEA said. "In 2018, we expect non-OPEC production to grow by 1.5 million bpd which is slightly more than the expected increase in global demand." Brent crude futures extended losses after the report, falling 64 cents on the day to $48.08 a barrel by 0804 GMT, from around $48.26 prior to the release. Oil inventories across the world's most industrial nations rose in April by 18.6 million barrels to 3.045 billion barrels, thanks to higher refinery output and imports. The IEA said stocks were 292 million barrels above the five-year average. The agency continued to forecast an implied shortfall in supply relative to demand for the second quarter of this year.But it said slowing demand growth in China and Europe in particular, as well as increasing supply, meant the deficit should narrow to 500,000 bpd from a prior estimate of 700,000. 

WTI/RBOB Tumble After Unexpected Gasoline Inventory Build, Production Rise - After tumbling last night following API's surprise builds, WTI/RBOB levitated on a weak dollar into the DOE print but initialy kneejerked lower on the data which showed a smaller than expected crude draw and confirmed another significant gasoline build. After a small drop last week, crude production rose once again to cycle highs. DOE:

  • Crude -1.66mm (-2.45mm exp)
  • Cushing -1.156mm (-1.4mm exp)
  • Gasoline +2.096mm (-1.15mm exp)
  • Distillates +328k (+550k exp)

Last night's surprise build in crude was not confirmed (but the DOE data showed a smaller than expected draw). Cushing stockpiles fall to the lowest level of the year, dropping more than a million barrels for a second week. The total is now 62.2 million barrels, plenty of room in the tanks there. However, Gasoline inventories rose once again... After a modest drop in production in the Lower 48 last week, US crude production rose once again this week to its cycle highs...

US crude plunges to 5-week low, threatening technical breakdown: Oil prices threatened to fall through key technical levels on Wednesday after the government issued a bearish report on U.S. fuel stockpiles. U.S. West Texas Intermediate crude futures fell nearly 4 percent, plunging to a five-week low below $45 a barrel, following the report. WTI last traded at $44.76, just $1 above the recent low of $43.76 struck on May 5.Following a precipitous drop toward the May 5 low last week, analysts warned that WTI's next stop could be $42.20 a barrel, a level not seen since mid-November. The U.S. Energy Information Administration reported that gasoline stockpiles rose by 2.1 million barrels in the week through June 9, versus expectations for a 457,000 barrel drop.  The surprise increase was another sign of persistently weak gas demand even as the summer driving season revs up. The four-week average for gas consumption is 1.2 percent below the year-ago level.In addition, U.S. crude stockpiles fell by 1.7 million barrels, less than the expected decline of 2.7 million barrels.

US gasoline demand concerns spark selloff across oil complex - NYMEX July RBOB led the oil complex lower Wednesday, plunging 6.68 cents to $1.4327/gal, after US Energy Information Administration data showed a second straight build in gasoline stocks amid low demand for the time of year. With summer just around the corner, traders are focusing on the gasoline market, which made EIA's weekly inventory a market mover as demand failed to rebound from a sharp decline the previous week. Over the last two weeks, implied gasoline demand has averaged 9.293 million b/d, compared with 9.763 million b/d during the two weeks prior to that, and 9.665 million b/d in the same period a year ago. "The real problem in the market a couple of weeks into June is this gasoline demand story," said John Kilduff, partner at Again Capital. The RBOB crack fell further Wednesday, although that alone might not be enough to persuade refiners to slow down, said Kilduff. "Refiners are going to still crank out supply because they're hoping that when schools close people are going to hit the road. That's wishful thinking, but it's what they're going to play for," he said. "There have been strong employment numbers and a low pump price, which is favorable for refiners, so any business plan would conclude that this should be a good summer, but so far we're not seeing that," he added. The front-month NYMEX RBOB crack spread against WTI was down $1.08 at $15.44/b Wednesday afternoon, compared with more than $19/b on June 1. US gasoline stocks increased 2.096 million barrels in the week that ended June 9 to 242.444 million barrels, EIA data showed Wednesday. Analysts surveyed Monday by S&P Global Platts were looking for a draw of 600,000 barrels. Distillate stocks increased 328,000 barrels last week to 151.416 million barrels, but analysts were looking for a build of 200,000 barrels. That surprise build pulled NYMEX July ULSD down 3.75 cents to $1.4102/gal. Inventories fell in 14 of 15 weeks through the week that ended May 19, but have since risen by a total of 5.1 million barrels. US crude stocks decreased 1.661 million barrels to 511.546 million barrels in the week that ended June 9. Analysts expected a draw of 2 million barrels. ICE July Brent settled $1.72 lower at $47/b. NYMEX July crude settled $1.73 lower at $44.73/b, off an intraday low of $44.54/b, a low for the front-month contract going back to November 15.

Oil remains below $45 amid growing concern over U.S. supply glut - Oil prices edged lower in European trading on Thursday, as data showing U.S crude stockpiles shrank by less than anticipated, while gasoline inventories increased, underlined fears over a global supply glut. The U.S. West Texas Intermediate crude July contract was at $44.48 a barrel by 3:55AM ET (0755GMT), down 25 cents, or around 0.6%. The U.S. benchmark fell to its lowest since May 5 at $44.38 in overnight trade. Elsewhere, Brent oil for August delivery on the ICE Futures Exchange in London shed 25 cents to $46.75 a barrel after dropping to $46.70, a level not seen since May 5. Oil prices plunged nearly 4% on Wednesday after the U.S. Energy Information Administration said that crude oil inventories fell by 1.7 million barrels in the week ended June 9, disappointing expectations for a decline of around 2.8 million barrels. The report also showed that gasoline inventories increased by 2.1 million barrels, compared to forecasts for a drop of 457,000 barrels. For distillate inventories including diesel, the EIA reported a rise of 328,000 barrels. Oil prices have been under pressure in recent weeks as concern over rising U.S. shale output offset production cuts by OPEC and non-OPEC members.Elsewhere on Nymex, gasoline futures for July inched down 0.9 cents, or about 0.7%, to $1.426 a gallon, while July heating oil dipped 0.2 cents to $1.408 a gallon. Natural gas futures for July delivery tacked on 0.4 cents to $2.937 per million British thermal units, as traders looked ahead to weekly storage data due later in the global day. 

Natural gas rallies while crude oil continues its slide - U.S. natural gas jumped 4.4% to $3.06/MMBtu, the highest settlement of the month, after EIA inventory data showed a smaller than forecast build of 78B cf, following a build of 106B cf in the prior week.Stockpiles fell week over week to 10.6% below last year’s level, but they remain 9.2% above the five-year average. Wells Fargo analysts say the bullish data marks a reversal of a four week trend in which the storage injection was higher than expected by 6B cf on average each week, and provides further confirmation that natural gas markets are at least 2B cf/day undersupplied. Based on current weather forecasts, Wells forecasts a 102B cf cumulative injection over the next two weeks, which would bring the storage surplus vs. the five-year average down to just 182 Bcf.  Meanwhile, U.S. crude oil settled another 0.6% lower at $44.46/bbl after plunging 3.7% yesterday.

In latest sign of crude glut, aging supertankers used to store unsold oil | Reuters: Traders are increasingly storing oil in aging supertankers in Southeast Asia as they grapple with a supply overhang that has left the system clogged with unneeded fuel despite an OPEC-led drive to cut production to prop up prices. Around 10 very large crude carriers (VLCCs), all between 16 and 20 years old, have been chartered since the end of May to store crude for periods ranging from 30 days to around six months, brokers told Reuters. Each VLCC can carry 2 million barrels of oil. These vessels are in addition to around 30 supertankers used for long-term storage around Singapore and Linggi, off the West coast of peninsula Malaysia. One of the main drivers for storing oil in tankers is that crude prices for immediate delivery are cheaper than for future sale, a market condition known as contango. Brent crude futures, the international benchmark for oil prices, have fallen by 13 percent since late May, to around $47 per barrel. Brent for delivery at the end of 2017 is $1.5 per barrel more expensive <0#LCO:>. "Floating storage does seem ... viable assuming time charter rates of under $20,000 per day," said Rachel Yew, oil and tanker market analyst at Oceanfreightexchange. Current rates to charter a five-year-old 300,000 DWT for one year are $27,000 per day, according to shipping services firm Clarkson. Rates for VLCCs at least a decade-old are much cheaper. "It makes a lot of sense for a trader to pay $16,000-$19,000 per day to take an older VLCC for 30-90 days to store oil," said a Singapore-based supertanker broker, asking not to be identified. The festering supply glut comes even as the Organization of the Petroleum Exporting Countries (OPEC) pushes to withhold production until the end of the first quarter of 2018.

The Lonely Drifting Oil Tanker That Signals OPEC's Struggle  - If a single ship can capture the current state of the global oil market, it’s the supertanker Saiq, floating idly about 850 kilometers (530 miles) south of the Canary Islands. Until a few days ago, the 330-meter-long tanker, chartered by Royal Dutch Shell Plc, was steaming at 13 knots toward the Chinese port of Tianjin after loading a 2-million-barrel cargo of North Sea oil at the Hound Point terminal near Edinburgh. Then, it suddenly stopped in the middle of the Atlantic Ocean, according to ship-tracking data compiled by Bloomberg. Its problem: China isn’t buying much crude right now, leaving the tanker searching for a customer. While the vessel was floating near Africa last week, Shell offered to sell the cargo in a ship-to-ship transfer all the way back in Scotland. There weren’t any takers. Across the world, the plight of the Saiq, now idling off the coast of Mauritania, reflects a broader trend in the physical oil market. After six months of oil-production cuts from the Organization of Petroleum Exporting Countries and 11 non-OPEC nations led by Russia, crude supply is surprisingly still plentiful, according to traders. "It’s a buyer’s market," said Olivier Jakob, managing director of Swiss-based consultant Petromatrix GmbH, echoing a widely held view in the physical market. On paper, global supply and demand balances from the likes of the International Energy Agency say the market should be reducing stockpiles. Oil prices, however, suggest that any inventory reduction remains minimal. The headline price for Brent crude, the global benchmark, is below $50 a barrel, indicating buyers are on the sidelines. Time spreads, the price difference between contracts for different months, have widened considerably in June, with key measures at levels last seen in November, when OPEC announced its output cuts. Signs have emerged that traders are resorting to turning tankers into floating storage due to a lack of buyers. 

Global oil markets expected to tighten in third quarter 2017, then loosen through 2018 – EIA -- Forecast world production of crude oil and other liquids in 2017 and 2018 was revised slightly downward in the June edition of EIA’s Short-Term Energy Outlook (STEO), which was issued after the May 25 announcement by the Organization of the Petroleum Exporting Countries (OPEC) of an extension to production cuts that were originally set to end this month.  OPEC’s crude oil production target will remain at 32.5 million barrels per day (b/d) through the end of the first quarter of 2018. Given the extended production cuts, EIA now forecasts OPEC members’ crude oil production to average 32.3 million b/d in 2017 and 32.8 million b/d in 2018, down 0.2 million b/d and 0.4 million b/d, respectively, from the previous STEO. Total OPEC liquid fuels production is also expected to be lower than previously forecast. However, continuing production growth in many non-OPEC countries is expected to moderate the pace of global liquid fuels inventory draws in 2017. EIA expects a small inventory build in 2018. Inventory draws expected in the second and third quarters of 2017 suggest the possibility of some increases in crude oil prices over the coming months. However, because U.S. tight oil production is relatively responsive to changes in oil prices compared with offshore production, and even given an estimated six-month lag between a change in oil prices and realized production, higher crude oil prices in mid-2017 have the potential to raise U.S. supply in 2018.  The largest global inventory increase in the forecast occurs in the second quarter of 2018, when Brazilian and OPEC production are expected to increase by 570,000 b/d and 220,000 b/d, respectively. Supply growth in 2018 could contribute to downward pressure in oil prices as early as late 2017. EIA’s STEO forecast assumes OPEC cuts will be extended beyond March 2018 but that non-compliance will begin to grow late in 2017 and increase in the second half of 2018. Although this forecast reflects the assumption of increased non-compliance with a second production-cut extension in 2018, any extension provides some support for crude oil prices, even if only temporarily, which would partially offset downward price pressure from growing inventories.

OilPrice Intelligence Report: Can Oil Come Back From Its Longest Losing Streak In Years?: Oil prices dropped to new lows this week, completely erasing all the gains made since OPEC originally cut production back in November 2016. The fear is that persistent oversupply will continue to weigh on crude oil markets. Both the IEA and OPEC came out with forecasts this week that admitted that the adjustment process is happening much slower than they expected. That pulled down WTI and Brent, but when the U.S. EIA reported an uptick in gasoline inventories on Wednesday, oil prices really tanked. Oil prices are closing out the fourth consecutive week of losses – the longest string of weekly losses in two years.Both the IEA and OPEC said this week that the oil market was adjusting slower than they expected. The IEA also said that non-OPEC production growth next year will reach 1.5 million barrels per day (mb/d), a volume that will exceed total global demand growth. That means that OPEC will be backing out production only to see non-OPEC producers fill the void. Everyone expects strong production growth from U.S. shale this year; the only discrepancy in predictions is over the magnitude of growth. But the sudden drop in oil prices has raised a few questions about the durability of the rebound. With drilling campaigns already underway, output growth is probably locked in for the next few months, and likely, for the remainder of the year. But the outlook for 2018 is still up in the air. Right now the shale industry has locked in its 2018 production with hedges at a much lower rate than it did at this point last year. The lower rate of hedging will increasingly expose shale drillers to low prices going forward. And without a rebound in prices, they won’t be able to get those hedges at $50 per barrel like they did last year. Without that certainty, they will be forced to try to drill in a lower price environment. In all likelihood, if prices stay in the mid-$40s or drop further, the shale boom could be curbed. 

No Respite For Oil Prices As U.S. Rig Count Gains, Canada Adds 27 Rigs - The number of active oil and gas rigs in the United States rose again this week by 6—making 22 weeks of gains, continuing the longest growth streak in oil and gas rig increases since at least 1987, which is the earliest date that Baker Hughes Excel data is available.Last week, both the US and Canada saw significant increases in the number of active oil and gas rigs—11 in the US and 33 in Canada. This week, Canada saw another large growth spurt, adding 27 rigs.The number of oil rigs in operation increased by 6, while gas rigs increased by 1. Miscellaneous rigs decreased by 1 to 0. Combined, the total oil and gas rig count in the US now stands at 933 rigs, which is 509 rigs over a year ago today, when oil prices were significantly higher than they were today. Prices were up slightly on Friday morning after a rather horrific week, but prices still put major benchmarks squarely in the realm of the longest losing streak since 2015. WTI was trading up 0.85% at $44.84 at 9:11am EST, with Brent trading up 1.11% at $47.44—both benchmarks over a dollar lower than last week’s levels, and lower than prices were prior to the OPEC deal was solidified in November.   The hotspot Permian basin, which has seen more than a 30-percent increase in the number of active oil and gas rigs over the last 20-something weeks, saw no net increase in oil and gas rigs, while the Williston basin added 3 rigs. Still, the Permian basin boasts 222 rigs more than this time last year. The rush of drillers to the Permian basin is causing some concern beyond stealing some of OPEC’s clout—with eight hedge funds pulling more than $400 million in positions out of 10 oil and gas companies that are active in the Permian, likely concerned that the low-cost increased production from the Permian will lower low prices even further. At 8 minutes after the hour, WTI started was trading at $44.67, while Brent traded at $47.27.

Shale  Efficiency Has Peaked For Now As Rig Count Surges For 22nd Straight Week --For the 22nd week in a row, the number of US oil rigs rose (up 6 to 747) to the highest since April 2015. Given the historical relationship between lagged prices and rig counts, we suspect the resurgence in rigs may begin to stall... Oil is headed for the longest run of weekly losses since August 2015 as OPEC member Libya restored production and the surplus in the U.S. shows little sign of abating. "Inventory levels remain stubbornly high," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. "The reality is, the things that have caused this trading range remain in place. Nothing’s changed." US Crude Production from the Lower 48 rebounded this week (after a modest fall the week before) to new cycle highs... The growth in rigs has been almost entirely in The Permian... But, as Reuters reports, while cash, people and equipment are pouring into the prolific Permian shale basin in Texas as business booms in the largest U.S. oilfield, one group of investors is heading the other way - concerned that shale may become a victim of its own success. Eight prominent hedge funds have reduced the size of their positions in ten of the top shale firms by over $400 million, concerned producers are pumping oil so fast they will undo the nascent recovery in the industry after OPEC and some non-OPEC producers agreed to cut supply in November. The funds, with assets of $286 billion and substantial energy holdings, cut exposure to firms that are either pure-play Permian companies or that derive significant revenues from the region, according to an analysis of their investments based on Reuters data. "Margins will continue to be squeezed by a 15 to 20 percent increase in service costs in the Permian basin," said Michael Roomberg, portfolio manager of the Miller/Howard Drill Bit to Burner Tip Fund. Which, despite the forecasts for increasing production, fits with's's Peter Tertzakian that shale efficiency has peaked... for now. Learning takes time and effort. But a good education pays off. North America’s oil industry has been in school for the past three years, studying how to become more productive in a fragile $50-a-barrel world. Many companies in the class of 2017 have graduated and are now competing hard for a greater share of global barrels.

Did This Backroom Deal Just Bust OPEC's Control On Oil Prices? --Libya has been one of the biggest x-factors in the global crude markets the past year.With on-again, off-again production in this key nation alternately supporting and suppressing prices. But news this week suggests things are looking up for Libya’s crude output.And down for global oil markets.Reuters reported that Libya’s National Oil Company has struck a backroom deal with German energy developer Wintershall, which will see that firm restart a major chunk of oil production in the east of the country. The Wintershall assets covered by the deal have production potential of 160,000 b/d. But have been shut-in since earlier this year after a dispute broke out between the company and the Libyan government over an alleged $900 million in unpaid taxes. The two parties however, said Tuesday they have reached an “interim arrangement” to end the dispute. Opening the door for Wintershall’s significant swath of production to return to market. That would be a big happening for Libya’s overall oil output. The country is currently producing an estimated 830,000 b/d — meaning a return of the Wintershall fields would lift national production by nearly 20 percent overnight. Such a rise would continue an upward trend in Libya’s production the last few months. With production having been as low as 700,000 b/d as recently as March. Libyan officials said they are indeed targeting production of 1 million barrels per day by the end of July. Meaning the crude market might have a lot more supply coming over the next six weeks. All of which is critical for global crude prices. With Libya being exempted from OPEC production quotas — and thus one of the few nations on Earth free right now to ramp up output and exports. Stats this week in fact showed that Libya’s rise the last few months is having a notable effect on supply. With OPEC’s production for May coming in 336,000 barrels higher than the previous month — at 32.1 million barrels per day.

America is no longer a force for stability in the Gulf - The Economist - AMERICA’S president got on so well last month with King Salman of Saudi Arabia that he has embraced the monarch’s foreign-policy goals. Sunni Saudi Arabia detests Shia Iran, its chief regional rival. So does Donald Trump. He also appears to share the Saudi view that the most egregious bankroller of terrorism in the Middle East is the tiny sheikhdom of Qatar. He applauded when, on June 5th, Saudi Arabia, Bahrain and the United Arab Emirates severed diplomatic ties with Qatar, as well as land, sea and air links. The Gulf states gave Qatari citizens 14 days to leave. Ludicrously, the UAE declared that anyone publishing expressions of support for Qatar can be jailed for up to 15 years. Mr Trump tweeted: “Perhaps this will be the beginning of the end to the horror of terrorism!”Though tiny, Qatar matters. It is the world’s largest producer of liquefied natural gas and an airline hub. It is also host to Al Jazeera, the nearest the Middle East has to an uncensored broadcaster (so long as it does not criticise the Qatari monarchy). It has good ties with Iran, with which it exploits a vast gasfield. It is supportive, too, of the (Sunni) Muslim Brotherhood, the most popular face of political Islam. All this makes Saudi Arabia hate it. The Saudi regime has tried in the past to bend Qatar to its will, but failed. Qatar hosts a large American airbase, which until now has made it feel safe. But with Mr Trump in the White House, nobody is now so sure. The spat has split the Gulf Co-operation Council, hitherto a force for stability in an unstable region. It may drive Qatar, as well as Kuwait and Oman, the other two members of the GCC, who pointedly declined to support the Saudi move, further into the arms of Iran. Tempers may eventually cool, but some observers worry that the price of Saudi Arabia backing down will be the muzzling of those pesky Al Jazeera journalists.

US aims to dethrone Qatar with LNG war - The U.S. is expected to 'dethrone' Qatar, the biggest global LNG exporter, with its 30 planned LNG terminals and with six more under construction. According to official figures from the International Gas Union and the International Group of Liquefied Natural Gas Importers, Qatar exported 77 million tons of LNG in 2016. While sales to the Asian region accounted for more than 60 percent of Qatar's total LNG exports, the country's top export destinations were Japan, South Korea, India, the U.K. and China. Qatar exported 14.5 million tons of LNG to Japan, 12.3 million to South Korea, 8.8 million to India, 9.3 million to the U.K. and around 5 million tons to China. Qatar's total capacity of 77 million tons of LNG is distributed as follows: The Qatargas-1 terminal has a capacity of 9.5 million tons, Qatargas-2 has 15.6 million, Qatargas-3 has 7.8 million, Qatargas-4 totals 7.8 million tons, Rasgas-1 terminal's capacity amounts to 6.6 million tons, Rasgas-2 has 14.1 million tons and Rasgas-3 totals 15.6 million tons. The U.S. appears to be the strongest challenger to Qatar's LNG leadership in the near term, with annual LNG exports in 2015 totaling 330 thousand tons. The U.S. aims to take a more active role in Asia in the mid-term with plans to invest in LNG terminals, with anticipated completion dates between 2018 and 2024. The country currently has two active terminals set for LNG exports - the Kenai LNG terminal with a capacity of 1.5 million tons, which in 2016 did not export LNG. The second is the Sabine Pass LNG terminal, which is actively exporting LNG. Exports of around 2.9 million tons of LNG were made through the Sabine Pass in 2016. Further plans are afoot to have additional capacity of 13.5 million tons. Other LNG terminals under construction are Freeport (15.3 million tons), Cameron (12 million tons), Covepoint (5.25 million tons), Elba Island (2.5 million tons) and Corpus Christi (9 million tons). The total capacity of the U.S.' six under-construction projects is estimated at 57.55 million tons, and when all planned terminals are operational, the total LNG export capacity of the country is expected to exceed 300 million tons.

Qatar Says It Can Defend Currency and Economy in Gulf Feud -- Qatar is still waiting for specific demands from the Saudi-led bloc that has severed ties with the tiny Gulf state, and therefore sees no basis yet for a diplomatic solution, Foreign Minister Mohammed Al Thani said. Kuwait, the mediator of the dispute, remains in contact with Qatar and the U.S., Al-Jazeera TV cited Al Thani as saying on Monday. Qatar is working on humanitarian issues stemming from the “illegal siege,” he said.Al Thani’s comments come as Qatar tries to play down the impact of a crisis now entering its second week. Finance Minister Ali Shareef Al Emadi said earlier that the country has enough financial firepower to defend its currency and economy and that the plunge in Qatari assets was a “normal” reaction to moves by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut diplomatic and transport links. The Saudi-led alliance is demanding that Qatar distance itself from Iran and stop funding Islamist groups. Qatar denies sponsoring terrorism and accuses the Saudis of seeking to dominate smaller neighbors. The unprecedented measures have prompted investors and economists to ponder how long Qatar, the world’s biggest exporter of liquefied natural gas, can weather the pressure without having to devalue its currency or sell any of its global assets. Qatar’s sovereign wealth fund, one of the world’s largest, controls stakes in companies from Glencore Plc to Barclays Plc. Qatar’s most liquid bonds tumbled last week as its sovereign rating was cut and bets against its currency surged. “Our reserves and investment funds are more than 250 percent of gross domestic product,” Al Emadi, who sits on the board of the sovereign wealth fund, said. “I don’t think there is any reason that people need to be concerned about what’s happening or any speculation on the Qatari riyal.” The central bank broadcast a similar message of reassurance, saying it had sufficient reserves to meet all requirements and that banks were functioning normally without disruption, state-run Qatar News Agency reported.'

Plan to airlift 4000 cows to isolated Qatar to maintain milk supplies -- A Qatari businessman is planning to airlift 4,000 Holstein dairy cows into the country as part of efforts to maintain milk supplies during the blockade by Qatar’s Gulf Arab neighbours. The proposal – described as the biggest airlift of cattle ever attempted – comes as Qatar moves rapidly to open an air and sea bridge via Iran, Turkey and port facilities in Oman. The plan to fly in the cows was disclosed by Moutaz Al Khayyat, chairman of Power International Holding, to the Bloomberg news agency. Khayyat said it would take as many as 60 flights to deliver the cattle, which were bought in Australia and the US. He had originally planned to import the cows by ship for a newly completed dairy facility near Doha. Saudi Arabia, Bahrain and the United Arab Emirates cut diplomatic, economic and transport ties with Qatar on 5 June, accusing Doha of supporting extremist groups.  Until then, Qatar had imported most of its dairy products from neighbouring countries – including Saudi Arabia. Riyadh closed the Qatari peninsula’s only land border, threatening the import of both fresh food and raw materials needed to complete a $200bn infrastructure project for the 2022 football World Cup.Turkey has replaced products that disappeared from supermarket shelves, including yoghurt and laban, while Morocco and Iran have pledged to supply the emirate with foodstuffs. Qatar has negotiated new cargo handling arrangements in the Omani ports of Sohar and Salalah, avoiding the need for goods to stop in the UAE. Shipments of containers through the UAE port of Jebel Ali were frozen last week.

Qatar hires Bush attorney general John Ashcroft for 'crisis response' | TheHill: Qatar has hired John Ashcroft, the former attorney general under President George W. Bush who oversaw the War on Terror's legal proceedings. The decision to hire of Ashcroft, who also previously served as a Missouri senator, comes after the United Arab Emirates, Saudi Arabia and several other Mid-East states accused Qatar of supporting terrorist efforts in the region.  President Trump escalated the Qatari government’s diplomatic crisis by also accusing it of funding terrorist organizations that aimed to destabilize the region. Bloomberg first reported the big-name hire after Ashcroft's law firm filed a public form with the Justice Department. Lobbyists and attorneys in the United States are queried to disclose efforts conducted on behalf of foreign entities. “The Firm’s work will include crisis response and management, program and system analysis, media outreach, education and advocacy regarding the Client’s historical, current, and future efforts to combat global terror and its compliance goals and accomplishments,” according to file issued on Friday. Ashcroft will take the lead on the efforts, and the law firm will receive $2.5 million as a “flat fee” for the first 90 days of covering expenses, as well as to make the project a "top priority.”

Qatar willing to listen to Gulf concerns, Kuwait says -- Qatar is ready to listen to the concerns of Gulf Arab states that have cut diplomatic and economic ties, Kuwait said on Sunday, as it tried to mediate a solution to the worst regional crisis in years. Saudi Arabia and allies Egypt, Bahrain and the United Arab Emirates (UAE) severed ties with Qatar last week, accusing it of supporting Islamist militants and arch-foe Iran - charges Doha denies. The rift has disrupted travel, separated families, severed commercial links and sown confusion among banks and businesses while deepening divisions between their respective allies fighting in wars and political struggles from Libya to Yemen. "(Kuwait) affirms the readiness of the brothers in Qatar to understand the reality of the qualms and concerns of their brothers and to heed the noble endeavors to enhance security and stability," Kuwait's state news agency KUNA quoted Foreign Minister Sheikh Sabah al-Khalid al-Sabah as saying. Kuwait, which has retained ties with Qatar and has often acted as a mediator in regional disputes, said it wanted to resolve the dispute "within the unified Gulf house". A previous mediation effort by Kuwait in which the Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah shuttled between Riyadh, Abu Dhabi and Doha, failed to achieve an immediate breakthrough. "Is this the beginning of wisdom and reasonable thinking? I hope so," UAE minister of state for foreign affairs Anwar Gargash wrote on Twitter in reaction to Kuwait saying Qatar was ready to listen to the grievances. Morocco, a close ally of the Gulf countries, said on Sunday it would remain neutral and offered to facilitate dialogue. 

Iran sends planes stuffed with food to Qatar -  Five Iranian planes filled with food have landed at Doha airport as the blockade against Qatarby Saudi Arabia and other Gulf countries starts to bite. Iran said the planes were filled with vegetables and that it plans to send 100 tons of fresh fruit and legumes every day to the import-dependent nation, according to the semi-official Tasnim news agency. "So far five planes carrying ... vegetables have been sent to Qatar, each carrying around 90 tonnes of cargo, while another plane will be sent today," Iran Air spokesman Shahrokh Noushabadi told the Agence France-Presse news agency Sunday. "We will continue deliveries as long as there is demand."Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut links with Qatar last Monday, accusing Doha of supporting and financing terrorism in the Middle East and elsewhere -- a charge Qatar denies.Separately, Iran is preparing to send a flotilla of warships first to Oman and then later to international waters north of the Indian Ocean and the Gulf of Aden, Tasnim reported.The agency said the fleet was dispatched as part of Iran's commitments to fight international piracy, and did not mention tensions with Arab countries involved in the spat with Qatar. As well as cutting air, sea and land links with Doha, three of the countries involved -- Saudi Arabia, Bahrain and the UAE -- ordered Qatari citizens to leave within 14 days.On Sunday, Qatar said that the 11,000 citizens of those countries that have cut ties will be allowed to stay in the country.

Qatar Is Running Out Of Dollars -- While the Saudi-led campaign to starve Qatar's citizens may end up short of the target, with both Turkey and Iran volunteering to provide needed staples to the isolated Gulf nation while local entrepreneurs have started a cow paradropping campaign to offset the decline in milk imports, a more pressing problem has emerged: Qatar's financial system is running out of dollars. As Bloomberg reports, several Qatari banks have boosted interest rates on dollar deposits to shore up liquidity as the Saudi-led campaign to isolate the gas-rich Arab state intensifies. To boost their hard currency reserves, Qatar banks are now offering a premium of as much as 100 basis points over LIBOR to attract dollars from regional banks, some 80 bps higher compared to the rate they offered prior to last week's crisis. A similar picture is visible on the 3-Month QIBOR, or Qatar Interbank Rate, which has surged to 2.3% as of Tuesday. According to the central bank, at the end of April, Qatar's banks held 21.4% of their customer deposits in foreign currency. Non-resident deposits made up 24% of the overall deposits of 781 billion riyals ($213 billion). A separate estimate from SICO Bahrain, Qatari banks have around 60 billion riyals ($16.5 billion) in funding in the form of customer and interbank deposits from other Gulf states. Most of this could eventually be withdrawn if the crisis continues. Adding to concerns of a monetary blockade, Bloomberg also reports that some banks in neighboring countries have been cutting their exposure to Qatar amid concerns of a widening of the blockade. The good news for Qatar - the world's wealthiest nation on a GDP/capita basis - is that it has enough financial firepower to withstand a prolonged financial siege, and defend its currency and economy, Finance Minister Ali Shareef Al Emadi told CNBC in an interview broadcast Monday. Al Emadi played down the impact of the crisis on the country, saying the plunge in Qatari assets last week was a “normal” reaction to the standoff.

Egypt to put squeeze on Qatari LNG volumes -- Egypt was one of four countries to cut diplomatic ties with Qatar in June because of its alleged support for terrorist groups. Cairo currently relies heavily on Qatari LNG imports to make up its shortfall in domestic gas production. Related analysis: LNG trade disruption worries ease as Qatari flows to Suez, Egypt resume In 2016, Egypt imported 7.32 million mt of LNG, of which 4.42 million mt or 60% was sourced from Qatar. However, Egypt believes that rising domestic production will allow it to return to gas self-sufficiency in 2018/19, ending the need for LNG imports altogether. Given the diplomatic crisis with Doha, it looks as if Qatari volumes will be squeezed first, as both Cairo’s gas import requirements and political strategy prove complementary. Earlier this year, the government announced that state gas company EGAS had contracted with Russia’s Rosneft, France’s Engie and Oman’s OTI for 45 cargoes of LNG, implying a significant fall in Qatar’s share of the Egyptian LNG import market this year. At the same time, EGAS has begun talks with suppliers over deferring 40 out of 70 contracted LNG shipments next year, before imports are completely halted.

Qatar imbroglio: a sea of troubles for energy and shipping markets (video & transcript) The diplomatic impasse between Qatar and its Arab neighbors made co-loading of cargoes at multiple ports in the Middle East difficult if not impossible. It also brought into focus, Fujairah's ability or lacunae thereof to rise above complicated geopolitics of energy and shipping markets and maintain its hallowed status as a global bunkering hub. For Qatar, it is going to be a tightrope diplomatic walk between Iran and its Arab neighbors before the spat ends and it is business as usual again.

Multipolar World Order: The Big Picture in the Qatar-Saudi Fracture --Officially, everything started with statements made by Qatari emir Tamim bin Hamad Al Thani that appeared on the Qatar News Agency (QNA) on May 23, 2017. A few hours before the conference between the 50 Arab countries and the US President, Al Thani was reported to have said the same words that appeared on QNA. The speech was very indulgent towards Iran and described the idea of an «Arab NATO» as unnecessary. The exact words are not known because the event in which Al Thani had made such incendiary remarks concerned military matters and was thus not accessible to the general public. Especially to be noted is that QNA denies having published words in question and attributed them to a cyber-attack.The public dissemination of the Emir's words on QNA promptly provoked an unprecedented diplomatic crisis in the Gulf. Immediately, Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Egypt and the Maldives took advantage of the confusion created by Al Thani’s alleged words by enacting a series of extreme measures while accusing Doha of supporting international terrorism (through Hamas, al Qaeda, Iran and Daesh). Qatar’s ambassadors in the countries mentioned were requested to return home within 48 hours, and Qatari citizens were given 14 days to leave Bahrain, Saudi Arabia and the UAE. At the same time, Riyadh proceeded to close its airspace as well as land and sea borders to Qatar, effectively isolating the peninsula from the rest of the world.Realistically, what interest would Qatar have had in promulgating the words of Al Thani in order to antagonize Riyadh and Abu Dhabi? Even if the Emir had made such remarks, Doha would certainly not have given them to QNA to publish on its website. If it was not a cyber-attack, it was certainly a miscalculation on Doha's part or, worse, possibly internal sabotage to damage the Al Thani family. To explain the dynamics that have officially created this unprecedented situation, it is necessary to sift through the facts in order to discern reality from fiction.

Qatar-Iran ties: Sharing the world’s largest gas field -- As Qatar and a host of Arab nations are locked in a diplomatic dispute, analysts warn that a disruption to Qatar's gas supplies to the world could send energy prices soaring. Qatar is the world's largest exporter of liquefied natural gas (LNG) and produces up to 77 million tonnes of gas each year. Gas has helped transform the tiny emirate into one of the richest countries in the world, propelling its rise into a major regional player and helping Qatar fund huge infrastructure projects and host major events such as the 2022 football World Cup. Qatar has several gas fields within its territorial waters. In April 2017, Qatar announced it was boosting output in the world's largest gas field - the 'North Dome' - off the Gulf state's northern coast, which it shares with Iran. 'South Pars' is the name for Iran's share of the gas field.  Qatar Petroleum has insisted that the recent diplomatic rift between Qatar and some of its neighbours will not affect output.

After Turkey’s decision to deploy troops in Qatar, Syrian Kurds express willingness to cooperate with Saudi Arabia -- The Syrian Kurds are ready to work with Saudi Arabia, a senior Kurdish official said in response to the tensions between Saudi Arabia and Qatar, which is backed by Turkey.“Saudi Arabia is an important power in the region and it must play its role in promoting stability in Syria. We are ready to cooperate with Saudi,” said top Kurdish politician Ilham Ahmed, who is currently on a visit to Washington to discuss the ongoing Raqqa operation.The statement comes after Turkey threw its support behind Qatar, as other Arab states imposed an embargo on Qatar. The Turkish parliament approved a motion to deploy troops in Qatar and provide food and water supplies that have been cut off from Qatar by Saudi Arabia.Saudi Arabia, Egypt, the United Arab Emirates, and several other Arab countries have cut diplomatic ties and blocked transport routes with Qatar, after accusing Qatar of having ties with extremist groups.The Syrian Kurds have long accused both Qatar and Turkey of supporting extremist groups in Syria, but until recently Saudi Arabia has continued backing Turkey. On Thursday, a group of Saudi social media users on Twitter launched a campaign #saudiwithkurdistan, in response to the Turkish support for Qatar. “Saudi supports the establishment of the state of Kurdistan, a legitimate right to the Kurdish nation to live in peace,” Saudi social media user Norah  tweeted from Riyadh.

Meet the Two Princes Reshaping the Middle East - The dramatic and sudden effort to isolate Qatar, like the fateful intervention before it in Yemen, sprang from the shared vision of two princes. Depending on your point of view, they may be the harbingers of a new and better Middle East—or reckless architects of disaster. Indeed, the region’s most important relationship may be the dynamic duo of Muhammad bin Salman, the 31-year-old deputy crown prince of Saudi Arabia, and Muhammad bin Zayed, the 56-year-old crown prince of Abu Dhabi, the lead sheikhdom of the United Arab Emirates. They share not only a desire to wage twin battles against Iran and Islamic radicalism, but also a deep appreciation for their conservative Gulf countries’ reliance on the United States. Together, they have shrewdly cultivated President Donald Trump, who is eager to show that he has a new strategy for defeating terrorism and confronting Tehran. Known to foreign diplomats and business executives as MBS and MBZ, they appear to have a mentee/mentor relationship, with the older MBZ viewing MBS as the future king of Saudi Arabia, who needs to be tutored by an older brother type figure. MBS, for whom the word hubris is a natural fit, seems to accept MBZ’s counselling but probably would be horrified of the perception that he may be the junior partner. Both men are arguably the powers behind their respective countries’ thrones. MBZ has been increasingly running Abu Dhabi, which has most of the UAE’s oil reserves, since his appointment as deputy crown prince in 2003 and his elevation to crown prince in 2004, when his father Sheikh Zayed, the founder of the UAE, died. Notionally, his elder half-brother Khalifa is the ruler of Abu Dhabi and president of the UAE as a whole, but his health has been ravaged by successive strokes and other ailments and he is no longer seen in public. MBS is tracking the same career path as his would-be mentor, having been appointed deputy crown prince three months after his father became king in early 2015. In two short years, he has amassed executive power equivalent to MBZ’s—so the two men can speak as equals in terms of deciding policy and enacting it. King Salman clearly dotes on MBS, and seems to validate almost any policy idea he puts forward. 

Analysis: LNG trade disruption worries ease as Qatari flows to Suez, Egypt resume -- Concerns over the impact of diplomatic blockade on Qatar on LNG trade flows eased this week, following deliveries of Qatari LNG into Egypt and the transiting of several Qatari vessels through the Suez Canal, a key transport route for Middle East LNG shipments to the European markets.  This came as a relief to LNG traders, who were caught off guard last week when two Qatari cargoes destined for the UK via the Suez Canal turned around off the coast of Yemen and diverted towards South Africa's Cape of Good Hope, raising fears Egypt might have restricted access to the waterway. Market experts, however, argued the diversion was likely a move by the Qatari government to avoid transiting the Suez Canal and paying US dollar-denominated canal fees to Egypt, among those to have cut diplomatic ties with Qatar."It was likely Qatar's decision to turn away the two cargoes rather than Egypt's," said an Atlantic-based LNG trader. An Asia-Pacific-based LNG shipping analyst said: "As an international waterway, it is very hard to prohibit the transit of vessels, and the Egyptian government would not oppose the transit of Qatari vessels as the canal is a big contributor to the national income.""Instead the Qatari government may choose not the transit to avoid paying any US dollars to the Egyptians," the analyst said. LNG trade disruption concerns emerged amid rising diplomatic tensions in the Middle East, following a decision by Saudi Arabia, Bahrain, Egypt and the UAE on June 5 to cut diplomatic ties with Qatar, the world's largest LNG supplier, over claims it funds terrorism and extremism.

Yemen War Threatens Crucial Oil Chokepoint -- The Bab al-Mandan strait, which facilitates the transfer of 4 million barrels of oil to Middle Eastern markets everyday, has become increasingly contentious over the past few weeks as an international navel coalition grows its presence in the area."Recent attacks against merchant shipping in the Gulf of Aden and Bab Al Mandeb have highlighted that there are still risks associated with transits through these waters,” the leadership of the Combined Maritime Forces, which boasts vessels from 31 nations, said on Monday. The U.S.-led group is based in Bahrain and guards the Gulf of Aden.In early June, unidentified forces attacked a Marshall Islands-flagged tanker from a vessel disguised as a fishing boat. Three grenades later, no member of the tanker’s crew suffered any injuries and it continued its voyage into the Red Sea.In January, Houthi rebels, backed by Iran, attacked a Saudi frigate in waters near Yemen. Two people died in what the KSA said was a suicide attack. Other waters near Yemen have seen attacks. Last night, Saudi Arabia’s state-run news agency reported that Houthis targeted an Emirati vessel as it departed from the Red Sea port of Mokha. The incident did not damage the ship, but one sailor suffered wounds. San’aa-based Al-Masdar news said the incident involved the Yemeni navy attacking a Saudi vessel carrying ammunition to its allied forces, but this claim appears erroneous. “Death to America, death to Israel!” can be heard in the background of a video of the attack posted by the same site, which editorially favors the Houthis. Vessels in the Gulf of Aden have also had a few close calls on pirate attacks, which were ultimately thwarted by CMF ships nearby. The total number of incidents is still far below figures from 2011, a period in which Somali pirates carried out 237 attacks and took hundreds of people hostage. The humanitarian crisis in Yemen worsens as the proxy war between Iran and Saudi Arabia rages on, and control over the Bab al-Mandab strait is the grand prize for the victor of the Yemeni civil war. The narrow waterway sees the passage of billions of dollars worth of crude supplies and other goods every year, including aid to Yemen, whose entire health system is on the “brink of collapse” in the wake of a cholera outbreak, according to the International Committee of the Red Cross.

Video Emerges Of US Allowing ISIS Fighters To Escape Safely In Syria -- With numerous distractions unfolding on the newly released reality TV show that is “Keeping Up with the Trump Administration,” it may surprise readers to learn that the U.S. is using the terror group ISIS as a pawn in its depraved foreign policy. Video footage obtained by Al-Masdar appears to show convoys of ISIS fighters fleeing the Syrian city of Raqqa untouched by the U.S. military, which is currently bombing that exact location. As Al-Masdar notes, despite having Kurdish and American drones hovering around the city of Raqqa, U.S. bombs are nowhere to be seen as hundreds of fighters pass safely. The release of this footage comes on the heels of accusations from both Russia and Iran that the U.S. is colluding with ISIS to allow the group’s safe passage into areas controlled by the Syrian government. Iran claims to have direct proof but thus far has not released it. Even if Russia and Iran don’t have any secret documents that directly expose this collusion, the fact remains that we don’t necessarily need them.  After all, this is exactly how ISIS grew exponentially in Syria in the first instance – as a direct result of U.S. foreign policy strategy. In 2012, a classified Defense Intelligence Agency report predicted the rise of ISIS, something actively encouraged by the U.S. establishment. The report    stated:“If the situation unravels, there is the possibility of establishing a declared or undeclared Salafist principality in eastern Syria… and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.”  Further, leaked audio of former Secretary of State John Kerry shows he knew ISIS was gaining momentum in Syria, and that in turn, the U.S. hoped this would bring Syrian President Bashar al-Assad to the negotiating table.In recent times, the safe passage of ISIS fighters to areas under the control of the Syrian government has been an unspoken but official strategy and has been the reality on the ground in Iraq and Syria. Late last year, Anti-Media reported on an anonymous military-diplomatic official’s claims that the United States was allowing safe passage to Syria for ISIS fighters exiting Mosul, Iraq – even though the U.S. was supposedly waging an offensive to defeat ISIS in the area.

The UN Just Accused The US Of Killing 300 Civilians Since Last Week In Raqqa -  According to a U.N. Commission of Inquiry tasked with investigating violations of international war crimes and crimes against humanity in Syria, the intensification of airstrikes by the U.S.-led coalition has led to a “staggering loss of civilian life,” the Guardian reports.   The U.N. war crimes investigators found that since the acceleration of airstrikes in the Syrian city of Raqqa commenced last week, 300 civilians have already died. This statistic arguably makes Bashar al-Assad pale in comparison; Assad’s regime reportedly kills approximately 20-50 people in any given week.“We note in particular that the intensification of air strikes, which have paved the ground for an SDF advance in Raqqa, has resulted not only in staggering loss of civilian life, but has also led to 160,000 civilians fleeing their homes and becoming internally displaced,” Paulo Pinheiro, the chairman of the U.N. Commission of Inquiry told the human rights council in Geneva.According to Karen Abuzayd, an American commissioner on the independent panel, the figure of 300 is based only on deaths caused by airstrikes. Therefore, the figure of civilian deaths caused by troops on the ground may ultimately higher. As the Guardian also notes, speculation that the coalition has been using white phosphorous has already drawn strong condemnation. Not surprisingly, this operation was conducted with full knowledge that there would be mass suffering for the civilian population. At the end of May of this year, Secretary of Defense James “Mad Dog” Mattis announced that the U.S. would be switching to so-called “annihilation tactics” against ISIS, stating: “Our intention is that the foreign fighters do not survive the fight to return home to North Africa, to Europe, to America, to Asia, to Africa, we are not going to allow them to do so

U.S.-Led Forces Said to Have Used White Phosphorus in Syria - NYT - Images and reports from witnesses in the northern Syrian city of Raqqa suggest that the United States-led coalition battling the Islamic State there has used munitions loaded with white phosphorus, the use of which in populated areas is prohibited under international law. Photographs and video clips posted online showed blinding spots of light spreading outward on Thursday night over what residents said was eastern Raqqa. By day, the images showed low white puffs trailing tentacles of white smoke. Both are typical visual signatures of white phosphorus, which can be loaded into artillery shells.Residents reached by text message reported similar bombardments on Friday.The images were distributed by the Aamaq news agency of the Islamic State, as well as a monitoring group called Raqqa Is Being Slaughtered Silently. The Islamic State has made claims of use of white phosphorous by United States-led forces before as part of its efforts to discredit its enemies. White phosphorus, along with other incendiaries, has been used by Syrian government forces battling insurgents in Aleppo and elsewhere. It is not illegal under international law for militaries to possess and use white phosphorus, and the United States’ and other Western militaries say they use it mainly to create smoke screens to hide troop movements. But it can also be used as an incendiary weapon, setting very hot fires. And like thermite and napalm, it is proscribed in civilian areas by international law. A United States official acknowledged that American forces who are fighting the Islamic State, also known as ISIS, in Iraq and Syria have access to white phosphorus munitions, but he said it was not being used against personnel. The official spoke on the condition of anonymity because he was not authorized to discuss the use of the munition. The spokesman for the American-led task force said that as a matter of policy he could not discuss the use of specific munitions. It has not been determined whether the shells that appeared to contain white phosphorus landed in populated areas, but tens of thousands of civilians are believed to still be in Raqqa, even as many Islamic State leaders have fled south to Mayadeen in Deir al-Zour Province. Unicef, the United Nations Children’s Fund, warned that 40,000 children are believed to be trapped in the city.

Russia's military says it may have killed IS leader; West, Iraq skeptical | Reuters: Moscow said on Friday its forces may have killed Islamic State leader Abu Bakr al-Baghdadi in an air strike in Syria last month, but Washington said it could not corroborate the death and Western and Iraqi officials were skeptical. The secretive Islamic State leader has frequently been reported killed or wounded since he declared a caliphate to rule over all Muslims from a mosque in Mosul in 2014, after leading his fighters on a sweep through northern Iraq. If the report does prove true, it would be one of the biggest blows yet to Islamic State, which is trying to defend its shrinking territory against an array of forces backed by regional and global powers in both Syria and Iraq. But in the absence of independent confirmation, some U.S. officials said U.S. agencies were skeptical of the report. Several Iraqi security officials said Iraq was doubtful as well. "His death has been reported so often that you have to be cautious till a formal Daesh statement comes," a European security official said, using an Arabic acronym for the group. U.S. Navy Captain Jeff Davis, a Pentagon spokesman, said: "We have no information to corroborate those reports." A senior Trump administration official noted “a number of infirmities” in the reports, which have given U.S. officials reason to question their accuracy. “Some of those infirmities suggested that this happened at the end of May and that there were upwards of 300 or more soldiers killed in that strike,” said the official, who asked not to be identified. “A strike of that size and that claim that would have happened that long ago without any knowledge is something that made me curious,” the official added.

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