Sunday, October 29, 2017

US oil & oil products exports at a record high, wiping out a decade of US oil production gains (and then some)

in lieu of a detailed review of how oil prices moved this week, i'll just include a quick graph to show you how they you see below, US oil prices for December were up $2.33 a barrel, or about 4.3%, to a 6 month high of $53.90 a that the Saudis and the Russians want to extend their production cuts fueled the the same time, North Sea Brent futures for December rose $3.07 a barrel, more than 5%, to $60.44 a barrel, a two year high...thus the international premium for light sweet crude oil remains more than 12% over that of similar US crude, continuing to underpin the drive by those with holdings of US oil to export it overseas...

October 28th 2017 oil prices

i want to start today with a few graphs that i intended to write about last week, but couldn't because my internet service was down, and hence i was unable to access any of the supporting data...the point that i want to make with these graphs is very simple; the entire increase in oil output that has resulted since the advent of widespread fracking has gone overseas, whether directly or as a downstream product; all the gains, if there are any, have accrued to the exploitation companies, the refiners, and the shippers; not one drop of oil has been added to the supply of US consumers...

i'll start by showing you the graph of recent US crude & product exports that made that clear to me...

October 18 2017 oil & oil products exports

the above graph was copied from the October 18th post at "Today in Energy", the daily blog of the Energy Information Administration (EIA), which was titled "Crude oil and petroleum product exports reach record levels in the first half of 2017" shows our total crude and oil product exports in millions of barrels per day over the period from January 1st 2010 to June 30th of this year in a stacked graph, wherein monthly crude exports are shown in maroon, other liquids exports are shown in cerulean blue, propane exports are shown in navy, gasoline exports are shown in chocolate, distillate exports are shown in caramel and other refined products, which includes chemical feedstocks, are shown in sepia, with the top of the colored area for any given month thus showing the total of all oil and oil product exports for that month...the spreadsheet of the EIA"s monthly data shown on that chart is here, and the breakdown by type of product exported is here, which will be the sources of any amounts we'll refer to subsequently...

what we can see from that chart is that at the beginning of 2010, before the advent of widespread fracking, our total crude and oil product exports were under 2 million barrels per day, and they have gradually increased over the period until the first half of this year, when they were averaging over 6 million barrels per day, with the high mark on the chart representing our 6,443,000 barrel per day of exports in February...

next, we'll look at a graph which will illustrate the change in our crude oil output over the same period....

October 27 2017 US oil production as of Oct 20

the above graph is from the webpage of the EIA spreadsheet of our weekly crude oil production totals, and it shows the oil output from US wells, in thousands of barrels per day, from late 1999 until October 20th of this year...comparing our monthly crude production to the same periods we cited above for our gross exports, we find that our crude oil production was averaging around 5.4 million barrels per day at the beginning of 2010, and that it had grown to an average of over 9.4 million barrels per day by mid 2015, before falling back due to lower prices, only to recover to just below those levels in recent months (ignoring the weeks when production was shut in due to hurricanes, which we'll consider to be an aberration for this exercise...

so, what we find when we compare the data shown by these two graphs is that our total exports of crude and oil products increased by over 4 million barrels per day in the first seven and a half years of this decade, while the production of oil from US has increased by almost the same amount over that same span....that means that the entirety of the increase that has accrued to US oil production during this period of widespread fracking, has, on a barrels of oil or products basis, ending up on ships or pipelines heading out of this country...understand we're not saying that all fracked oil is exported, as some of our oil exports no doubt comes from conventional wells, while some of our refined products exports were refined from oil first imported from overseas, but that on a net basis, the increase in oil from fracking has matched, barrel for barrel, by an increase in our exports of oil and oil products...

furthermore, notice that the first chart we included above only included export data up until the end of recent months, however, the balance has shifted further towards exports, and we are now exporting much more crude oil and refined products than our increased production can account for, which we'll also show by way of a few graphs...we'll start with a graph of our weekly crude oil exports over the past year....

October 26 2017 crude oil exports for Oct 20

the above graph comes from a weekly emailed package of oil graphs distributed by John Kemp, senior energy analyst and columnist with shows weekly US crude oil exports in thousands of barrels per day over the past 13 months, and also gives us the exact amount of our crude exports in thousands of barrels per day over the past 8 weeks...what we can see from this graph is that our weekly crude oil exports were quite volatile over the first half of this year, generally over 500,000 barrels per day, but occasionally jumping to as high as 1,200,000 or 1,300,000 barrels per day...the average of our crude oil exports for the first six months of this year was 918,000 barrels per day....however, since US crude has been selling at a 10% to 12% discount to the international price of oil, our exports have jumped to an average of 1,693,000 barrels per day over the past 5 weeks, a pace we believe will continue for the foreseeable future, since contract prices for US oil several months out are similarly discounted...

next, we have a graph which shows those crude oil exports combined with oil products exports over the past year, which serves to update the picture shown in the initial EIA graph, which only covers the year to June...

October 26 2017 crude and products exports for Oct 20

the above graph, from a Zero Hedge post on this week's EIA report, shows weekly gasoline exports from the US in black, weekly distillates exports from the US in blue, and the weekly total of all crude oil and oil products exports in green over the past year, up until the week ending October should be immediately clear that as of the most recent week, our total oil & products exports hit a new record of 7,663,000 barrels per day, beating the previous record of 7,023,000 barrels set three weeks earlier by more than 9%...during the same week, our exports of distillates were at 1,576,000 barrels per day, just short of the distillates export record of 1,612,000 barrels per day set just two weeks earlier...and while our gasoline exports weren't a record, the 906,000 barrels of gasoline we exported per day was the most gasoline we've exported since the week ending January 13th...

returning to the comparison we made with the initial two graphs in this series, oil production from US wells during the week ending October 20th was at 9,507,000 barrels per day, or about 4.1 million barrels per day more than our January 2010 baseline...our record gross exports of 7,663,000 barrels per day, on the other hand, were about 5.7 million barrels per day higher than January 2010 gross although this is only one week's data, and likely an outlier, our gross exports of oil and products over time are now rising much faster than our field production of oil, the so-called fracking boom notwithstanding...that's a pace which is clearly unsustainable, but seems destined to continue until such time as US prices rise to those of the rest of the world, which may take a severe domestic shortage to achieve....

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending October 20th, showed large increases in both our oil imports and our domestic production of oil, enough so that a small amount of surplus oil could be returned to storage, despite a large increase in the amount of oil used by US refineries at the same time....our imports of crude oil rose by an average of 640,000 barrels per day to an average of 8,123,000 barrels per day during the week, while our exports of crude oil rose by 126,000 barrels per day to a near record 1,924,000 barrels per day, which meant that our effective imports netted out to an average of 6,199,000 barrels per day during the week, 514,000 barrels per day more than during the prior the same time, field production of crude oil from US wells rose by 1,101,000 barrels per day to an average of 9,507,000 barrels per day, which means that our daily supply of oil coming from net imports and from wells totaled an average of 15,706,000 barrels per day during the reported week... 

at the same time, US oil refineries were using 16,025,000 barrels of crude per day, 586,000 barrels per day more than they used during the prior week, while during the same period 77,000 barrels of oil per day were being added to oil storage facilities in the US....hence, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports and from oilfield production was 396,000 fewer barrels per day than what refineries reported they used plus what was added to storage during the account for that discrepancy, the EIA needed to insert a (+396,000) 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"...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,609,000 barrels per day, 3.2% above the imports of the same four-week period last year....the total 77,000 barrel per day addition to our total crude inventories came about on a 122,000 barrel per day addition to our commercial stocks of crude oil, which was partially offset by a 45,000 barrel per day emergency withdrawal of oil from our Strategic Petroleum Reserve, which apparently is still being tapped to address short term spot shortages caused by this year's hurricanes...this week's 1,101,000 barrel per day increase in our crude oil production was due to a 1,109,000 barrel per day surge in output from wells in the lower 48 states, as production came back after Hurricane Nate, while output from Alaska fell by 8,000 barrels per day at the same time...the 9,507,000 barrels of crude per day that were produced by US wells during the week ending October 20th was 8.4% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 11.8% more than the 8,504,000 barrels per day of oil we produced during the during the equivalent week a year ago, while it was still 1.1% below the record US oil production of 9,610,000 barrels per day set during the week ending June 5th 2015...  

US oil refineries were operating at 87.8% of their capacity in using those 16,025,000 barrels of crude per day, up from 84.5% of capacity the prior week, a fairly normal pace for a fall seasonal maintenance period...the 16,025,000 barrels of oil that were refined this week were 9.6% less than the 17,725,000 barrels per day that were being refined the week before Hurricane Harvey struck at the end of August, but were still 3.0% more than the 15,552,000 barrels of crude per day that were being processed during week ending October 21st, 2016, when refineries were operating at 85.5% of capacity...

despite the pickup in US oil refining, gasoline output from our refineries was lower, decreasing by 95,000 barrels per day to 9,936,000 barrels per day during the week ending October 20th, which was still 1.0% higher than the 9,837,000 barrels of gasoline that were being produced daily during the comparable week a year ago....on the other hand, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 11,000 barrels per day to 4,795,000 barrels per day, which was 5.7% more than the 4,536,000 barrels per day of distillates that were being produced during the week ending October 21st last year....   

with the decrease in our gasoline production, our end of the week gasoline inventories fell by 5,456,000 barrels to 216,869,000 barrels by October 20th, the first drop in gasoline inventories in 5 weeks...the size of the decrease was exacerbated by a 270,000 barrel per day increase to 906,000 barrels per day in our exports of gasoline, while our imports of gasoline fell by 457,000 barrels per day to 233,000 barrels per day, the least gasoline we've imported since November 5 1995...also contributing to the decrease in our supplies, our domestic consumption of gasoline rose by 178,000 barrels per day to 9,314,000 barrels per day at the same time...with significant gasoline supply withdrawals in 13 out of the last 19 weeks, our gasoline inventories are now down by 10.5% from June 9th's level of 242,444,000 barrels, and 4.0% below last October 14th's level of 226,011,000 barrels, even as they are still roughly 4.8% above the 10 year average of gasoline supplies for this time of the year...   

with our distillates production little changed, our supplies of distillate fuels fell by 5,246,000 barrels to 129,241,000 barrels over the week ending October 20th, the seventh decrease in eight weeks...that large drop in our supplies was because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 624,000 barrels per day to 4,101,000 barrels per day, and because our exports of distillates rose by 237,000 barrels per day to a near record 1,576,000 barrels per day, while our imports of distillates rose by 26,000 barrels per day to 133,000 barrels per day...after this week’s large increase, our distillate inventories ended the week 15.2% lower than the 152,378,000 barrels that we had stored on October 21st, 2016, and 7.2% lower than the 10 year average for distillates stocks for this time of the year…if the forecast La Nina materializes, we will see a shortage of heat oil this winter...

finally, with the big rebound in our oil production and the large increase in our oil imports, our commercial crude oil inventories rose for just the 5th time in the past 29 weeks, increasing by 856,000 barrels, from 456,485,000 barrels on October 13th to 457,341,000 barrels on October 20th...while our oil inventories as of October 20th were still 2.3% below the 468,158,000 barrels of oil we had stored on October 21st of 2016, they were 2.1% higher than the 447,994,000 barrels in of oil that were in storage on October 23rd of 2015, and 31.2% greater than the 348,475,000 barrels of oil we had in storage on October 24th of 2014...

This Week's Rig Count

US drilling activity decreased for the 4th week in a row and for 10th time in the past 13 weeks during the week ending October 27th, with this week's cutbacks entirely in rigs targeting natural gas...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 4 rigs to 909 rigs in the week ending on Friday, which was still 352 more rigs than the 557 rigs that were deployed as of the October 28th report in 2016, while it was 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 1 rig to 737 rigs this week, only their 2nd increase in 12 weeks, which meant active oil rigs were up by 296 over the past year, while their count remained 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 decreased by 5 rigs to 172 rigs this week, which was the smallest natural gas rig deployment since May 12th and just 58 more gas rigs than the 114 natural gas rigs that were drilling a year ago, and way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...

the count of rigs drilling offshore was unchanged at 20 rigs this week, as 20 platforms remained active in the Gulf of Mexico, down from the 21 in the Gulf and one offshore from Alaska a year ago...however, one of the working Gulf rigs was moved from offshore Louisiana to offshore of Texas, where there are now 2 rigs drilling, up from one rig offshore from Texas a year earlier.... 

the count of active horizontal drilling rigs was down by 2 rigs to 769 rigs this week, which was the smallest number of horizontal rigs active since May 26th...however, that was still up by 319 rigs from the 450 horizontal rigs that were in use in the US on October 28th of last year, while down from the record of 1372 horizontal rigs that were deployed on November 21st of the same time, the directional rig count was down by 6 rigs to 74 rigs this week, which was still up from the 54 directional rigs that were deployed during the same week last year.....on the other hand, the vertical rig count was up by 4 rigs to 66 vertical rigs this week, which was also up from the 53 vertical rigs that were working on October 28th of 2016......

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 October 20th, the second column shows the change in the number of working rigs between last week's count (October 13th) and this week's (October 20th) count, the third column shows last week's October 13th 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 for the 21st of October, 2016...        

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 October 27th, the second column shows the change in the number of working rigs between last week's count (October 20th) and this week's (October 27th) count, the third column shows last week's October 20th 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 for the 28th of October, 2016...        

October 27 2017 rig count summary

other than the changes inidcated for the major producing states shown in the first table above, a rig also started drilling in Nebraska this week, which was the first drilling seen in that state since early July of last year...


Fracking Chemicals May Impact Brain Development in Young Children --As the fracking industry expands in the U.S., Europe and the UK, so too does the list of concerns about the industry’s human health and environmental impacts. This month, a new raft of independent studies raises fresh concerns, including potential effects on infant health.  Researchers from the Center for Environmental Health examined how unconventional oil and gas  — UOG — techniques may contribute to health concerns across sites in the United States, publishing their findings in the journal “Reviews on Environmental Health.”  In fracking and other so-called UOG processes, a concoction of water, sand and a host of chemicals is channeled at high pressure directly into shale beds to prompt the release of petroleum. Environmental health advocates have long criticized U.S. regulations for being too lax, as endocrine disruptors and other toxic chemicals compose part of that cocktail. This review looked at the presence of five major pollutants that are routinely found at fracking sites: heavy metals, particulate matter, polycyclic aromatic hydrobcarbons, BTEX and endocrine disrupting compounds. Individually, all of these substances are classed as potentially hazardous to human health. This review aimed to highlight the potential hazards of these substances and to explore what long-term exposure might mean for infants. The researchers note in the paper’s introduction: There is ample evidence that environmental toxicants can cause neurodevelopmental problems. Developmental neurotoxicity has been called a “global silent pandemic” – “silent” because the “brain draining” impacts of early life exposure to neurotoxicants are often subtle and subclinical, which can make them hard to detect (71), (72), (73). Another aspect of this “silent pandemic” is the lack of safety standards set by regulatory authorities on virtually any of the 85,000+ chemicals that we are exposed to daily, as well as the limited attention clinicians and academic researchers have paid to the “brain drain” caused by neurotoxicity in early life (74).

Study: Fracking Chemicals Harm Kids' Brains - A new study from the Center for Environmental Health adds to the growing body of evidence that unconventional oil and gas (UOG), which includes fracking , is harmful to human health and especially hazardous to vulnerable populations, including newborns and children. During the fracking process, a mixture of water, sand and chemicals is directed at high pressures into shale beds to release petroleum resources. This slurry involves the use of nearly 700 chemicals , the U.S.Environmental Protection Agency found. The new research, published Wednesday in Reviews on Environmental Health, examined five particular air and water pollutants that are widely used in or byproducts of UOG development and operations—heavy metals, particulate matter, polycyclic aromatic hydrobcarbons, BTEX (benzene, toluene, ethylbenzene, xylenes), and endocrine disrupting compounds."Every stage of the UOG lifecycle, from well construction to extraction, operations, transportation and distribution can lead to air and water contamination," the paper notes. Dauntingly, the researchers found that early life exposure to these substances has been linked to potentially permanent learning and neuropsychological deficits, neurodevelopmental disorders and neurological birth defects. "Given the profound sensitivity of the developing brain and central nervous system, it is reasonable to conclude that young children who experience frequent exposure to these pollutants are at particularly high risk for chronic neurological diseases."   The authors warn that people living near such operations can suffer from increased exposure to elevated concentrations of air and water pollutants. About 17.6 million Americans live within one mile of an active oil or gas well, a separate study found.

Wooster man dead in Stark County gas line incident  -  Canton Repository -  A pipeline worker died following an incident Monday morning that caused a massive natural gas leak and prompted authorities to evacuate a neighborhood. Wesley J. Johnson, 60, of Wooster, died at the scene, according to the Stark County Sheriff’s Office. Officials believe a cap on the end of a pipeline gave way, killing him. A second worker was evaluated at the scene but refused medical treatment, Erie Valley Fire & Rescue Assistant Chief Tom Bragg said. The worker was able to guide firefighters to turn off the valves to the pipeline. Reports of an explosion in the 8400 block of Beth Avenue SW came in around 10:15 a.m., and the odor of natural gas soon drifted over Navarre more than 4 miles away. The incident happened during maintenance work at a metering station on part of the Columbia Gas Transmission System, but the cause is unknown, according to the owner, TransCanada. “Tragically, we can confirm that one employee was fatally injured,” TransCanada spokesman David Dodson wrote in an email. “We are working with local responders to ensure family members are properly notified.” The Public Utilities Commission of Ohio will investigate the incident and forward findings to the U.S. Department of Transportation, which will decide what action to take. 

Is the US gas market headed for more oversupply, pipeline constraints?  - Midstreamers in recent years have been in overdrive to de-bottleneck the Marcellus/Utica natural gas supply region as well as other growing gas supply basins and connect producers to where the demand is increasing. Significant transportation capacity has been added in recent years and much more is on the way. Constraints are starting to ease and producers are finding relief. But with production growing again, there are signs of potential new bottlenecks on the horizon. The RBN Growth Scenario estimates that Lower-48 gas production could increase to 92 Bcf/d by 2022. Demand is expected to grow too — primarily from exports — but no more (and potentially less) than supply in the same timeframe, leaving the market in a precarious equilibrium over the next five years. Thus, it will be all the more critical that incremental supply can access what new demand there will be. At the same time, demand growth will be concentrated in one geographic region — in the Gulf Coast states. In today’s blog, we explore the potential risks of overproduction as producers crank up drilling activity. As we covered in Part 1, after slumping in 2016, both U.S. crude oil and Lower-48 natural gas production are climbing again. At the current price level near $50/bbl — our Cutback Scenario — the RBN Production Economics and Production Forecasting Models indicate that crude production would grow to 10 MMb/d by 2022. If prices climb to $57/bbl — RBN’s Growth Scenario — production would increase to 11.2 MMb/d by 2022. But if prices increase to $65/bbl — as in our Advance Scenario — crude production could rise to 12.5 MMb/d in five years’ time. Invariably, the incremental crude production will bring with it associated natural gas production.

Appalachian gas production cannot continue to ramp up rapidly: exec - Despite improved drilling and completion techniques such as the drilling of longer horizontal laterals, natural gas production from the Appalachian Basin cannot continue on its current rapid upward trajectory indefinitely, a speaker at the Platts Appalachian Oil and Gas Conference in Pittsburgh said Monday. Appalachian producers will eventually experience "sweet spot exhaustion," Alan Farquharson, senior vice president of Range Resources, said on the sidelines of the conference. "As you drill longer and longer laterals, it minimizes the number of wells it takes to develop that core position," Farquharson said. "As a result, the core of the acreage gets drilled up, you have to step out to tier one, tier two and tier three wells, which means you get lower productivity per well." Forecasts from Platts Analytics' Bentek Energy unit call for production from the US Northeast to grow from an average 24.9 Bcf/d in September to a winter-ending average of 27.3 Bcf/d in March 2018. In recent months, producers in Appalachia and other producing basins have been experimenting with the drilling of extended lateral wells, which have recorded higher per-well production. However, that per-well production growth comes at a cost when it is measure against an operator's production across the company's entire acreage, Farquharson said. "The best thing that people need to look at is not individual well productivity, but productivity on a normalized basis," The Appalachian Basin is similar to other producing basins, in that there are core areas where well productivity is the highest, as well as non-core area, where output tends to be less prolific. In the case of the Appalachian Basin, there are two distinct core regions, the dry gas Marcellus region in northeastern Pennsylvania and the wet gas region around southwestern Pennsylvania, West Virginia and Ohio, which is highly prospective for both the Marcellus and Utica shale plays. 

GOP Senators, Fueled by Industry Cash, Propose Bill to Expedite Small Scale LNG Exports --  Steve Horn  - U.S. Senator Marco Rubio (R-FL) and U.S. Senator Bill Cassidy (R-LA) have introduced a bill to fast-track the regulatory process for the export of small-scale liquefied natural gas (LNG). The bill, titled " Small Scale LNG Access Act ," was introduced on Oct. 18 and calls for amending the "Natural Gas Act to expedite approval of exports of small volumes of natural gas." The proposed legislation follows in the footsteps of the U.S. Department of Energy's (DOE) proposed rule which would assume that all U.S. small-scale exports of LNG, with the gas mostly obtained via hydraulic fracturing ("fracking") , is in the "public interest" as defined by the Natural Gas Act. The public commenting period for the DOE's proposed small-scale LNG rule ended on Oct. 16, with 81 comments posted on DOE, alongside the U.S. Federal Energy Regulatory Commission (FERC), oversees the regulatory process for LNG exports and the industry has long complained that the process is too onerous.  On Oct. 5, Cassidy, U.S. Sen. Lisa Murkowski (R-AK), and U.S. Sen. John Barrasso (R-WY) also wrote a letter to U.S. Energy Sec. Rick Perry in support of the proposed rule.  "We write in support of the Department of Energy's (DOE) proposed rule to expedite the approval of small-scale exports of natural gas," they wrote. "We appreciate this proposal and the series of steps the Department has taken to decrease burdensome regulations and increase the United States' energy security. The current permitting process for LNG export facilities is expensive, and small-scale projects often are not cost effective under current conditions." The Rubio-Cassidy bill also calls for small-scale LNG exports to be considered by default in the "public interest," as defined in Section 3(c) of the Natural Gas Act.   Small-scale LNG does not refer necessarily to the actual amount of LNG which will be exported from the site, but rather the size of the tankers carrying the natural gas.  "It's just making the refrigerator component itself a little bit more modular, repeatable and standardized. But we're still using the largest [General Electric] turbines, the largest storage tanks ever built."

Catholic priest, 5 others arrested at gas pipeline construction site - A half dozen people, including a Catholic priest, were arrested at today's protests against the Atlantic Sunrise natural gas pipeline in Lancaster County, say protestors.Ann Neumann, spokeswoman with Lancaster Against Pipelines, said the arrests occurred around 3 p.m. during a non-violent gathering of about 60 protestors on land owned by the Adorers of the Blood of Christ, a religious community, at the site of the Atlantic Sunrise Pipeline construction in West Hempfield Township.Brett Hambright, spokesman for the Lancaster district attorney's office, said the six protestors - four men and two women - were first warned to vacate an easement area. After a few minutes, the six remained and were arrested. They were placed in zip ties and taken to the state police barracks for processing. None were among the 23 people arrested at the site Oct. 16.They were released by about 6:30 pm., and will be mailed summons for their next court appearance, he said.The interaction with police was peaceful and the individuals were cooperative, Hambright said. Names will of those charged were not going to be released today, he said.The protestors arrested were blocking access by pipeline workers to the road to the Catholic sisters' field, which is the same site where 23 people were arrested Monday, Neumann said."Our objective was to stop construction to bring awareness that this pipeline is completely unnecessary and the sisters have a lawsuit against the Federal Energy Regulatory Commission that says this pipeline violates their religious freedom, their deeply held religious beliefs," Neumann said. After the arrests, construction workers began working, she said.

Natural gas pipeline groups call on US Army Corps to break permitting logjam - Faced with repeated rejections of interstate natural gas pipelines in New York, a key industry trade group is hoping the US Army Corps of Engineers may be able to assist, as well as exploring whether to pursue Clean Water Act changes. "Unfortunately, we now are seeing the natural gas equivalent of a single state erecting a roadblock on the interstate highway system," said Jeffrey Bruner, Iroquois Pipeline Operating Company president and the incoming chairman of the board of the Interstate Natural Gas Association of America. "We've seen a single state threaten to turn the process for approving interstate natural gas pipelines on its head by that state's manipulation of delegated authority," he said, in a briefing for reporters a day before the INGAA board was schedule to vote him in as chair. The comments come as Williams' Constitution Pipeline and National Fuel Gas Supply's and Empire Pipeline's Northern Access Project have been blocked through water permit denials by New York state regulators, as was a Millennium Pipeline project before recently getting relief from the US Federal Energy Regulatory Commission. Industry hopes of further relief in court were dimmed earlier this month when the 2nd US Circuit Court of Appeals declined to rehear a decision upholding New York's denial of Constitution. Northern Access' pending 2nd Circuit appeal is slated for oral arguments November 16. Adding to the industry's challenges, environmental groups objecting to projects are increasingly turning to state water reviews as an avenue for litigation. On Wednesday, Appalachian Mountain Advocates and others wrote to Virginia's State Water Control Board to say it cannot approve the Atlantic Coast Pipeline and Mountain Valley Pipeline projects at this time because it lacks adequate information from project sponsors and the Department of Environmental Quality about erosion and sediment controls and stormwater management.

Rover Pipeline 'willing to address any contamination' in groundwater - Rover Pipeline has responded to the Michigan Department of Environmental Quality regarding concerns about water containing gasoline spilling from the pipeline construction area into wetlands near Pinckney.The DEQ issued a violation notice to Rover Pipeline on Friday, Oct. 13, which noted the presence of gasoline in water that was spilling from the pipeline project's dewatering system into wetlands near the northern crossing of Dexter-Townhall Road by Pinckney. Energy Transfer is involved in building the 713-mile, natural gas Rover Pipeline that ends in Livingston County.Rover Pipeline had until Wednesday, Oct. 18, to respond to the violation notice. The DEQ suggested Rover Pipeline cease unauthorized water discharges, submit an application for a special permit related to treating the water contamination and register the water withdrawal system the DEQ thought was pumping more than 100,000 gallons of water a day through the dewatering system. "At the outset, we want to reiterate Rover is committed to protecting Michigan's environment and to working with the MDEQ to resolve this matter amicably," states a letter dated Oct. 18 from Jennifer Street, on behalf of Rover Pipeline, to the DEQ's Jackson District Office."To that end, Rover voluntarily ceased dewatering activities on October 13th upon receiving reports of MDEQ's conclusion that hydrocarbons were potentially flowing through the groundwater in the area," Rover's response continues. "Rover also has remained in frequent communication with the MDEQ on this issue since the anonymous complaint and initial inspection by MDEQ staff on October 11, 2017." Area residents initially noticed water spilling from Rover's dewatering system into the wetlands and the smell of gasoline coming from the water, and they reported it to the DEQ.

U.S. Midwest oil refiners boost output, cut region's dependence on Gulf Coast (Reuters) - U.S. refineries from Ohio to Minnesota are capitalizing on access to cheap crude from Western Canada and North Dakota oilfields, helping their region break a historic dependence on fuel from the Gulf Coast while redrawing oil trade maps.   Since the early 2000s, crude and fuel flows from the Gulf Coast into the U.S. heartland have been cut in half, as crude coming from Canada and North Dakota has pushed U.S. Midwest refining activity to record levels. In 2016, Midwest refining capacity rose to 3.9 million barrels per day (bpd) of crude, the highest annual volume on record. Midwest refiners such as Marathon Petroleum Corp, Phillips 66, BP PLC and Husky Energy have invested billions of dollars on new units capable of turning sludgy crude from Canada into gasoline and diesel. Investments in the Dakota Access Pipeline and other avenues have helped bring in shale oil from North Dakota. “Ten years ago, we were 1 million barrels per day short on products, with the Gulf Coast supplying the product. Today, the midcontinent is flush with products,” Marathon Petroleum Chief Executive Gary Heminger said in a recent Reuters interview at the company’s Findlay, Ohio, headquarters. Yet analysts warned that weakening U.S. gasoline demand will make it challenging for Midwest refiners to sell their growing output. The Midwest is land-locked, making it hard to get products to new markets, especially as rival refiners defend their turf. Philadelphia area refiners are currently fighting efforts to reverse a pipeline so Midwest companies can move fuel to western Pennsylvania. 

Gulf Coast refinery runs are approaching levels seen prior to Hurricane Harvey -- For the week ending October 20, 2017, gross inputs to petroleum refineries in the U.S. Gulf Coast averaged 8.8 million barrels per day (b/d), or about 324,000 b/d higher than the previous five-year range for mid-October, based on data in EIA’s Weekly Petroleum Status Report (WPSR). Gross inputs, also referred to as refinery runs, in the Gulf Coast had been higher than the five-year range for much of 2017 until Hurricane Harvey made landfall in the Houston, Texas, area on August 25. A little more than half of all U.S. refinery capacity is located in the U.S. Gulf Coast region (defined as Petroleum Administration for Defense District 3). Texas, where Harvey made landfall, represents 31% of all U.S. refinery capacity according to data from January 2017. Gulf Coast refineries supply petroleum products to domestic markets in the Gulf Coast, East Coast, and Midwest, as well as to international markets. Hurricane Harvey’s most significant effect on petroleum markets was the curtailment of some refinery operations in Texas. Refinery operations rely on a supply of crude oil and feedstocks, electricity, workforce availability and safe working conditions, and outlets for production. As a result of Hurricane Harvey, many refineries in the region either reduced runs or temporarily shut down. For the week ending September 1, 2017, the first WPSR data point after Harvey’s landfall, gross inputs to refineries in the Gulf Coast fell 3.2 million b/d, or 34%, from the previous week. For the week ending September 8, Gulf Coast gross inputs to refineries fell by another 263,000 b/d to 5.9 million b/d, the lowest weekly value since Hurricanes Gustav and Ike disrupted refinery operations in September 2008.  After several weeks of increasing refinery runs following Hurricane Harvey in late September and early October 2017, Gulf Coast refinery runs fell again during the week ending October 13 because of additional disruptions caused by Hurricane Nate. Overall, the magnitude and duration of Hurricane Harvey’s impact on Gulf Coast refinery runs has been similar to what happened following Hurricanes Katrina in 2005 and Gustav and Ike in 2008.

Trump to auction off a vast swath of the Gulf of Mexico to oil companies - The Trump administration made history Tuesday in proposing that nearly 77 million acres in the Gulf of Mexico be made available for companies wanting to purchase federal oil and gas leases — the largest offering ever in the United States.In announcing the sale, the Interior Department compared the targeted waters to “about the size of New Mexico” and said the first lease sales off Texas, Louisiana, Mississippi, Alabama and Florida are scheduled for March next year. The event will include “all available un-leased areas on the Gulf’s Outer Continental Shelf,” a statement said. Interior Secretary Ryan Zinke first broached such a sale shortly after he took office in March, proposing to offer 73 million acres for leases. This part of the Gulf was the scene of arguably the worst environmental disaster in U.S. history, the 2010 Deepwater Horizon explosion and subsequent spill of 215 million gallons of crude that fouled beaches from Louisiana to Florida. Today @SecretaryZinke announced @BOEM_DOI is proposing the largest oil & gas lease in US history — US Dept of Interior (@Interior) October 24, 2017Years later, the spill’s effects are still being felt, according to a report by the nonprofit group Oceana.Scientists have detected hydrocarbons from the well in 90 percent of pelican eggs more than 1,000 miles away in Minnesota, where the birds spend summer after wintering along the gulf. Dolphins living in Barataria, La., have experienced mortality rates 8 percent higher than dolphin populations elsewhere, and their reproduction success dropped 63 percent.  The Bureau of Ocean Energy Management, the Interior Department division that oversees offshore leases, offered assurances that the environment would be protected as additional leases are sold in the gulf. But the agency largely focused on the resources that could be recovered there as part of what President Trump calls America’s energy dominance.

Interior to offer largest oil and gas lease sale in US history -  The Interior Department said Tuesday it will propose the largest oil and gas lease sale ever held in the United States — nearly 77 million acres in the Gulf of Mexico off the coasts of Texas, Louisiana, Mississippi, Alabama and Florida. The sale, scheduled for next March, includes all available unleased areas on the Gulf’s Outer Continental Shelf, a reflection of the Trump administration’s strategy to maximize oil and gas drilling on federal lands and waters. Even so, only a small fraction of the tracts available are expected to receive bids. A similar lease sale in August drew bids on just 90 offshore tracts totaling about a half-million acres — less than 1 percent of the 76 million acres available. Interior Secretary Ryan Zinke touted the upcoming sale as part of the administration’s bid to achieve what President Donald Trump calls “energy dominance” in the global market. “In today’s low-price energy environment, providing the offshore industry access to the maximum amount of opportunities possible (will) spur local and regional economic dynamism and job creation,” Zinke said. Rep. Raul Grijalva of Arizona, the top Democrat on the House Natural Resources Committee, said Zinke and congressional Republicans were taking credit for an Obama-era policy to offer oil and gas leases from all available tracts in the Gulf, rather than separating the western and eastern Gulf areas from the more productive central Gulf region off Louisiana, Mississippi and Alabama. “Republicans spent eight years alleging the Obama administration was killing oil and gas when they knew it wasn’t true,” Grijalva said. “Now they’re taking credit for lease sales made under the Obama leasing plan. Tomorrow they may as well claim credit for capturing Osama Bin Laden.”

Offshore Oil Drilling May Be Coming to a Coastline Near You - It's nearly impossible to convince certain people, most notably leaders of our federal administration, that bold action is needed on climate change , but recent events have certainly made a compelling case. Three major hurricanes have battered U.S. coasts in recent months, impacting the lives of millions of people and causing billions of dollars in damage. Although no single storm event can be blamed directly on climate change, scientific experts agree that the warming climate and ocean waters contribute to the frequency and scale of hurricanes—putting the residents, natural resources and economic security of coastal communities at elevated risk. This makes the Trump administration's proposal to expand offshore oil drilling off U.S. coasts all the more dubious. As Texas, Florida and Puerto Rico struggle to recover from hurricane damage, our federal government is seeking new ways to increase carbon emissions and put our nation at even greater risk. Following an executive order earlier this year, Interior Sec. Ryan Zinke announced plans to revise the nation's Five-Year Offshore Drilling Plan, threatening the Atlantic, Pacific, Gulf of Mexico and Arctic Ocean with the prospect of new offshore oil rigs. Congress leaders are also discussing the proposed Accessing Strategic Resources Offshore (ASTRO) Act , which would fast-track offshore drilling by removing critical safety and environmental protections.  The drilling, rigs and transportation tankers required for offshore drilling release a brew of toxic chemicals and leaked oil. High concentrations of metals have been found around drilling platforms in the Gulf of Mexico, and have been shown to accumulate in fish, mussels and other seafood. Offshore drilling also regularly leads to oil spills. Since 1969, at least 44 major oil spills (of more than 10,000 barrels or 420,000 gallons of oil per spill ), have been recorded in U.S. waters. This includes the Deepwater Horizon disaster of 2010, which poured about 200 million gallons of oil into the Gulf of Mexico over the course of 87 days. The spill devastated beaches and coastal wetlands from Louisiana to Florida. It killed birds, fish and marine mammals, and delivered a serious blow to the recreation and fishing-based economies of the Gulf States, which have yet to fully recover.

U.S. Deepwater Offshore Oil Industry Trainwreck Approaching -- The U.S. Deepwater Offshore Oil Industry is a trainwreck in the making.  The low oil price continues to sack an industry which was booming just a few short years ago.  The days of spending billions of dollars to find and produce some of the most technically challenging deep-water oil deposits may be coming to an end sooner then the market realizes.Drilling activity in the Gulf of Mexico hit a peak in 2013 when the price of oil was over $100 a barrel.  However, the current number of rigs drilling in the Gulf of Mexico has fallen to only 37% of what it was in 2013.  This is undoubtedly bad news for an industry that fetches upward of $600,000 a day for leasing these massive ultra-deepwater rigs.One of the largest offshore drilling rig companies in the world is Transocean, headquartered in Switzerland.  They lease ultra-deepwater rigs all over the globe.  When the industry was still strong in 2014, nearly half of Transocean's fleet of 27 ultra-deepwater rigs were leased in the Gulf of Mexico.  Even though Transocean was quite busy that year, its ultra-deepwater rig utilization was 89% during the first half of 2014, down from an impressive 95% in 1H 2013.The term utilization represents the total number of working rigs in the fleet.  So, in 2013, Transocean had 95% of its rigs busy drilling oil wells.  But if we look at the following chart, we can see the disaster that has taken place at Transocean since the oil price fell by more than 50%: Currently, Transocean's ultra-deepwater rig count has dropped to a low of 12 versus 27 in 2014.  And it's even worse than that.  Since 2014, Transocean added three more new rigs for a total number of 30.  Thus, Transocean's ultra-deepwater rig utilization is down to a stunning 37% compared to 95% just four years ago.  So, when a rig isn't working, it's not making revenue.

Crude imports fall amid wider Dubai, Brent premiums over WTI: In the LOOP - The Louisiana Offshore Oil Port has seen a month-on-month decline in crude imports, impacted by persistently wide Brent/WTI and Dubai/WTI spreads that have pushed up the price of foreign grades. For the first half of October, LOOP imported 4.585 million barrels of crude, according to Platts Analytics’ Bentek Energy and the US Customs Service. This represents a month-on-month decrease of 1.643 million barrels versus imported volumes in the first half of September. Of the crude imported in October, Iraqi Basrah Light accounts for about 2 million barrels. LOOP also brought in about 547,000 barrels of Mexican Maya, 960,000 barrels of Brazilian Jubarte, 540,000 barrels of Venezuelan Morichal, and 538,000 barrels of Venezuelan Zuata. A widening Brent/WTI spread has discouraged imports of pricier Brent-based barrels into the US Gulf Coast, according to Platts data. For the first half of October, Brent averaged a $5.84/b premium to WTI, up 24 cents/b from the first half September value of $5.60/b. In addition, a wider Dubai/Brent spread has discouraged imports of Dubai-based Middle Eastern barrels into the USGC. For the first half of October, Dubai averaged a $4.13/b premium to WTI, up 46 cents/b from the first half of September value of $3.67/b. Continued OPEC production cuts, coupled with lost domestic sour crude production due to Hurricanes Harvey and Nate have tightened supply of domestic sour grades leading to higher regional prices. For the first half of October, regional sour benchmark Mars had an average differential to WTI cash of plus $2.20/b. This represents an increase of 44 cents/b from the grade’s average assessed value in September. As Mars and similar domestic grades have increased in price, regional refiners have not only been importing fewer barrels of crude, they also have been switching their slates to run proportionately more domestic sweet grades, according to an industry source. Doing so allows refiners to capitalize on higher distillate yields of sweet grades even as the regional sweet/sour spread holds steady.

While Trump Opens National Parks to Fossil Fuel Drilling, Fee Hikes Would Lock Out Vacationing Families -  The national parks , heralded by one former director as containing "the highest potentialities of national pride, national contentment, and national health," may soon be off-limits to many working American families due to price hikes that were proposed on Wednesday by Interior Sec. Ryan Zinke .  Citing the need to address maintenance and infrastructure concerns, the National Park Service said it wants to raise rates for vehicle passes from $25-30 to $70 during the busiest months of the year at some of the country's most popular parks, including the Grand Canyon, Yosemite and Yellowstone.  The changes are likely to impact many vacationing families as they would be imposed between May and September. Seventeen of the nation's parks would be affected by the rate hikes.  Ben Schreiber, senior political strategist for Friends of the Earth , denounced the proposal, saying it exemplified the administration's antagonistic attitude towards working families and its commitment to serving corporate interests.  "The Trump administration is turning our National Parks into an exclusive playground for the rich," Schreiber said. "Secretary Zinke has given our public lands to oil companies, slashed budgets, and attacked the regulations that ensure taxpayers receive a fair price for their natural resource."  As Schreiber added, the news that the National Park Service's infrastructure projects apparently depend on increased fees for citizens comes as the Republican Party pushes a tax plan that would leave the federal budget with a $5 trillion hole over the next decade, largely via tax cuts for the wealthy.  "While Republican leadership looks to slash taxes for billionaires, price hikes at our National Parks will hurt working Americans," Schreiber said. "This is just the first of the inevitable new fees that will be pushed onto working Americans. We should help give breaks to families who want to go on vacation, not companies who want to drill."

Erie neighbors fed up with nearby fracking site -Vista Ridge neighbors have been vocal about the around-the-clock noises and smells coming from a nearby fracking site. On Saturday, dozens met at a small park at Crestview Lane and Primrose Lane for a picture -- the Pratt location in the distance.Families present at the event told Denver7 reporter Amanda del Castillo they were fed up.“My husband mentioned it last night. He said, 'What do you want to do? You want to just move?' I said no, I have a 14-year-old who just started high school,” Kate D’arcy said.She and her family have lived in the area for several years. D’arcy’s family is just one of hundreds living less than1,000 feet from Crestone Peak Resources’ Pratt and Waste Connections locations.“For me, it feels like it’s a constant attack on my overall senses,” she said.The problem has gone on for months now.“We’ve noticed both the smells, the vibrations, the constant noise,” D’arcy added.“The problem is that it’s perfectly legal,” Christiaan van Woudenberg said. He can see the Pratt location from his backyard.Legality hasn't stopped Vista Ridge neighbors.“There have been over 900 complaints filed for the COGCC,” van Woudenberg announced to Saturday’s crowd.

How Russians attempted to use Instagram to influence Native Americans -  The protests against the Dakota Access Pipeline in Cannon Ball, North Dakota, were sacred for the Standing Rock Sioux Tribe. But for Russian trolls, the protests were another opportunity to sow discord in America — one of a series of social movements, from Black Lives Matter activism to pro-Trump populism, on which trolls appear to have seized. An Instagram account called @Native_Americans_United_ shared images related to Native American social and political issues — including the construction of the Dakota Access Pipeline, the flashpoint for activists from all over the country, but especially Native Americans. RBC, a Russian outlet, identified that account as one of 180 connected to a Russian troll farm intent on exploiting existing divisions and social movements in the United States, based on a major investigation into the operations of Russia’s Internet Research Agency. So far, the accounts uncovered by RBC center around highly visible tension points in American politics: protests against police violence, protests against pipelines that have become a flashpoint between conservatives and progressives, and memes popular with the pro-Trump right. Those accounts are believed to include a fake Tennessee GOP Twitter account and payments to black activists to organize protests or hold self-defense classes. This, meanwhile, would be the first instance of Russians targeting Native Americans. RBC reported that at least 33,000 people followed the @Native_Americans_United_ account. A post from that account reads “IF AN OIL COMPANY DESTROYED THESE ‘SACRED’ BURIAL GROUNDS AMERICANS WOULD LOSE THEIR MINDS,” plastered over an image of a US military cemetery. “BUT WHEN AN OIL COMPANY DESTROYS NATIVE AMERICAN SACRED BURIAL GROUNDS NO ONE SAYS A WORD.” 

U.S. lawmakers ask DOJ if terrorism law covers pipeline activists (Reuters) - U.S. representatives from both parties asked the Department of Justice on Monday whether the domestic terrorism law would cover actions by protesters that shut oil pipelines last year, a move that could potentially increase political rhetoric against climate change activists. Ken Buck, a Republican representative from Colorado, said in a letter to Attorney General Jeff Sessions, that damaging pipeline infrastructure poses risks to humans and the environment. The letter, a copy of which was seen by Reuters, said “operation of pipeline facilities by unqualified personnel could result in a rupture - the consequences of which would be devastating.” It was signed by 84 representatives, including at least two Democrats, Gene Green and Henry Cuellar, both of Texas. The move by the lawmakers is a sign of increasing tensions between activists protesting projects including Energy Transfer Partners LP’s Dakota Access Pipeline and the administration of President Donald Trump, which is seeking to make the country “energy dominant” by boosting domestic oil, gas, and coal output. Last year activists in several states used bolt cutters to break fences and twisted shut valves on several cross border pipelines that sent about 2.8 million barrels per day of crude to the United States from Canada, equal to roughly 15 percent of daily U.S. consumption. The letter asks Sessions whether existing federal laws arm the Justice Department to prosecute criminal activity against energy infrastructure. It also asks whether attacks on energy infrastructure that pose a threat to human life fall within the department’s understanding of domestic terrorism law. 

Lawmakers Urge DOJ To Consider Prosecuting Pipeline Activists As Terrorists - Several members of Congress signed on to a letter recommending Attorney General Jeff Sessions look into whether the Justice Department has the laws it needs to prosecute environmental activists challenging pipelines as if they are terrorists.The letter asks Sessions if the USA PATRIOT Act and Pipeline Safety Act contain enough provisions to criminalize actions against “energy infrastructure at the federal level.” It also asks if the Justice Department plans to prosecute any of the individuals involved in the alleged “attempted sabotage of four major crude oil pipelines in multiple states” on October 11, 2016.“Do the attacks against the nation’s energy infrastructure, which pose a threat to human life, and appear to be intended to intimidate and coerce policy changes, fall within the DOJ’s understanding of [domestic terrorism]?” representatives add. It appears to be an effort to convince the Justice Department to take a far greater role in helping energy interests and affiliated trade groups in their efforts to stamp out dissent against oil and gas operations.Ken Buck, a representative from Colorado and one of the authors of the letter, has received over $400,000 from oil and gas industry interests in his political career. While most of the representatives who signed on to the letter were Republicans, two were Democrats—Gene Green and Henry Cuellar, who are both from Texas. Cuellar has received nearly $600,000 from oil and gas interests in his political career.

Oil pipeline opponent uses ‘necessity defense’ --what is it?   (AP) — An American Indian activist and former U.S. congressional candidate in North Dakota accused of inciting a riot during protests against the Dakota Access oil pipeline says he'll seek to present a "necessity defense" — justifying a crime by arguing it prevented a greater harm. Chase Iron Eyes has pleaded not guilty to inciting a riot and criminal trespassing. He could face more than five years in prison if convicted at trial in February. The pipeline has since begun carrying oil from North Dakota through South Dakota and Iowa to Illinois. Pipeline protesters who try the necessity defense typically argue that the greater harm is climate change. Iron Eyes, a member of the Standing Rock Sioux tribe, says he hopes to show that civil disobedience was his only option to resist a pipeline's incursion on his ancestral lands. The prosecutor in the case didn't respond to a request for comment. A judge will hear arguments Nov. 3.  People who use the necessity defense are trying to show the harm they caused is justified because a greater harm was avoided as a result. The U.S. Supreme Court has said it's an "open question" whether federal courts have the authority to recognize a necessity defense not provided by law, according to North Dakota District Court Judge Laurie Fontaine.Whether the defense is permitted by law in state courts varies, according to University of Mississippi law professor Michael Hoffheimer. The main argument against the defense is that it gives people who don't like a particular law the chance to break it and then argue it was excusable.

Could the worst gas leak in US history be causing health problems? --  Two years after the largest methane blowout in U.S. history, residents in the Porter Ranch neighborhood of Los Angeles are still in the dark about its long-term effects on their health. When well SS-25 at the Aliso Canyon gas storage facility sprung a leak on Oct. 23, 2015, it released almost 100,000 metric tons over the course of four months — the equivalence of 7.8 million metric tons of C02, or emissions from almost 2 million cars. Along with methane, many other toxins —including benzene — were released and have since been found in homes in Porter Ranch. State and local agencies say that the levels of toxins residents were exposed to “are not expected to cause a significant increase in overall risk of health effects from either short-term or long-term exposure.” But few agencies are willing to state conclusively that there are no long-term health risks. According to scientists like UCLA professor Michael Jarrett, this is because there is not enough scientific evidence to prove anything. He says it’s important to conduct a comprehensive study to determine if residents are still getting sick from the blowout. And while SoCalGas, the company responsible for the blowout, agreed to fund $1 million for a health study, the sum fell short of the $13 to 46 million that experts, politicians, and county health officials think a proper study would cost.

The ‘sweet spots’ fueling the US shale oil boom ‘will not last forever,’ Saudi Aramco CEO says -- Saudi Aramco's Amin Nasser, CEO of the world's largest oil company, says he does not spend much time worrying about booming production from U.S. shale fields. One reason, says Nasser, is that shale drillers will eventually deplete the low-cost, high-quality "sweet spots" they've focused on throughout much of the three-year oil price downturn. American energy companies have driven down the cost of producing a barrel of crude, staved off bankruptcy and prevented output declines by tapping their best oil fields first. "The concentration that we are seeing today is on the sweet spot of shale, and this will not last forever," Nasser said in an exclusive interview on CNBC's "Squawk Box." "You can concentrate for some time on the sweet spots and produce more oil. But ultimately you need to venture downward, and that's where you have less quality and you require more cost to produce these barrels," Nasser said Sunday from the command center at Saudi Aramco headquarters in Dhahran. A surge in U.S. shale production is one of several factors that has frustrated the Saudi-led effort to drain the world's stockpiles of excess crude. OPEC and several other exporting nations, including Russia, have agreed to keep 1.8 million barrels a day off the market in a bid to boost oil prices. 

US shale outlook seen at risk from more intensive fracking - US shale oil production is unlikely to peak before the middle of next decade, but current fracking techniques may be risking the prospect of faster decline rates from tight oil than many are forecasting, a top oil industry event was told this week. As the US shale industry continues to chase lower breakevens and boost productivity in the wake of the 2014 price downturn, shale players have turned to pumping much larger volumes of sand and water into horizontal wells. In addition to "bigger fracks", drillers have also increased the density of their fracking stages in a bid to boost the volumes of tight oil drained from each well. Although the techniques have raised initial flows rates by up to 30% in some wells, the intensive fracking is depleting the source rocks faster risking a sharp rise in future decline rates, according to Bernand Duroc-Danner, the former CEO of Weatherford International. "If you're going to be fracking closer zones like crazy, lots of sand, lots of water, lots of pressure, you drain the hell out of those zones which is why production goes up," Duroc-Danner told the Oil & Money conference in London. "But then those zones don't get replenished...after two years, there'll be a build up in decline rates...I am not so sure if the battle won't be, in two years, to sustain the base as opposed to keep on growing," he added. With higher intensity fracking, US shale decline rates are already creeping up in some shale plays, but the impact is overwhelmed by increased drilling activity, Duroc-Danner said. Energy research group Wood Mackenzie recently flagged similar concerns over the production outlook for the Permian Basin, the world's top shale play. Citing risks related to tighter well spacing and well-on-well "interference", Wood Mac last month estimated that the Permian could see peak production by 2021, putting more than 1.5 million b/d of future production in doubt.

Halliburton CEO defends fracking business as margins disappoint - Fracking isn’t looking so great for the world’s biggest fracker, but the CEO of Halliburton Co. says he can pull some levers to improve profits.After lackluster margins for the company’s main business sent shares tumbling, casting a cloud over third-quarter earnings that otherwise beat estimates, Chief Executive Officer Jeff Miller said there are three things he plans to do to improve fracking profits: raise prices, maximize the use of machinery and cut costs.“Increasing pricing is important, but it’s just one component we can leverage to reach our goal,” Miller told analysts and investors Monday on a conference call. “Ultimately we will utilize a combination of all three levers to return to normalized margins.”In his first full quarter as CEO, Miller has sought to reassure investors that Halliburton is well-positioned to rebound from the worst oil-market collapse in a generation. A plunge in oil exploration exacted $5.76 billion in losses last year, the Houston-based company’s darkest year since at least 1987.Halliburton shares tumbled as much as 2.2 percent, and were 1 percent lower at $42.90 as of 11:37 a.m. in New York. The stock had climbed as high as $45 before the opening of regular U.S. trading. Investors are “curious” about the margins with demand seemingly on the rise, Kurt Hallead, an analyst at RBC Capital Markets, said in a note to clients.  Sales in North America, the world’s busiest drilling region, nearly doubled during the third quarter to $3.2 billion, bucking the pessimistic outlook of rival fracking companies who last week predicted slower growth from the U.S. and Canada. Excluding one-time items, Halliburton’s worldwide third-quarter profit of 42 cents a share exceeded every one of the 34 estimates from analysts in a Bloomberg survey. The company earned $365 million during the period, compared with $6 million a year earlier, according to the statement. Total revenue of $5.4 billion was $101 million higher than the average estimate from analysts.Halliburton is the largest provider of fracking, the well-completion technique that blasts water, sand and chemicals underground to release trapped hydrocarbons. When combined with other services such as drilling and cementing wells, the company is the world’s No. 3 oilfield contractor.

Big oil urges OPEC to extend output cuts beyond March 2018 - Major oil CEOs called on OPEC to extend output cuts beyond March next year on Friday, arguing “huge volatility” in the energy market meant it would be imperative for the cartel to try to put a floor under prices.  OPEC members are reportedly forming a consensus around extending their production cutting deal with other crude exporters by nine months. That would prolong the agreement among OPEC, Russia and other oil-producing nations to keep 1.8 million barrels a day off the market through the whole of next year. The exporters reached the deal last December and have already extended the agreement once through March of 2018. When asked whether it would be necessary for OPEC to prolong the agreement beyond March next year, Total Chief Executive Patrick Pouyanne told CNBC, “Of course they need it”. BP CEO Bob Dudley echoed the arguments put forward by his Total counterpart and said it looked “probable” OPEC would extend its agreement next year. OPEC members are reportedly forming a consensus around extending their production cutting deal with other crude exporters by nine months. That would prolong the agreement among OPEC, Russia and other oil-producing nations to keep 1.8 million barrels a day off the market through the whole of next year.

IEA eyes 40%-50% methane emissions cut from oil, gas sector at no net cost - About 40% to 50% of current methane emissions from the oil and gas sector worldwide could be avoided at no net cost, a new analysis by the International Energy Agency concludes. A commentary released Monday previews the group's World Energy Outlook 2017, to be released November 14, by offering a glimpse at cost curves IEA developed to examine potential methane emissions reductions and the costs and revenues associated with mitigation globally. "The role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems," said Tim Gould, head of the WEO energy supply outlook division, and Chistophe McGlade, WEO senior analyst, in the commentary released Monday. They find gas has a clear edge over other fossil fuels when it comes to air pollutants and CO2 emissions from combustion. On average, they find that "gas generates far fewer greenhouse gas emissions than coal when generating heat or electricity, regardless of the time frame considered."

US Shale Investors Tire Of 'Growth At Any Cost' Model -- Since the shale oil revolution began in the late 2000s, management teams have mostly focused on growth at any cost, and investors have mostly been prepared to back them.This year, however, investor sentiment has shifted. Shareholders are less dazzled by the excitement of the shale boom, and more interested in orthodox measures of success including returns on capital and cash generation.For Encana, which produces gas and oil in the US and Canada, the shift has prompted an effort to change the company’s culture.“The same conversation we have with our investors, about creating value by delivering quality corporate returns, is the conversation we’re constantly having within the company,” Mr Suttles said. The whole shale industry is being pushed in the same direction. If companies fail to improve shareholder return, says Stephen Trauber, global head of energy at Citi, “investors will start to question what management is doing”.

Many E&Ps Defy Soft Prices And Expect 2017 Capex To Exceed Cash Flow -- Despite some hints that U.S. exploration and production companies are slowing some of their drilling in high profile shale basins — including last week’s decline of 15 operating rigs in the Baker Hughes count, our analysis of 43 representative E&Ps suggests that more than half expect their upstream capital spending in 2017 to exceed cash flow — a definite sign of optimism — and one fifth of the E&Ps will outspend cash flow by more than 50%. Is this a case of rose-colored glasses? Blind faith? Or have E&Ps’ post-price-crash efforts to high-grade their portfolios and improve their operational efficiency given them well-deserved confidence that if they don’t “back down” on capex things will turn out well?  Today, we analyze the cash flow versus the capex of 43 U.S. E&Ps and discuss what it all means. After weathering the oil price decline in 2014-16, U.S. E&Ps have been repositioning themselves to survive and even thrive in a $50/bbl world by (among other things) focusing on the sweetest of production sweet spots and wringing more oil, gas and natural gas liquids out of each well by drilling longer laterals, using more frac sand and fine-tuning their completion techniques. In late 2016, the 43 E&Ps we’ve been tracking in our recent Piranha report and related blogs announced a 42% increase in 2017 capital spending, and despite oil prices dipping below $50/bbl in the second quarter of 2017, our universe of producers remained committed to their accelerated investment plans (see Rock Steady). But as noted above, there have been indications that E&Ps have started to pull back somewhat, with a 5% decline in the rig count since the end of July cited as evidence.

Arrest after protesters scale 60ft fracking rig in Kirby Misperton - BBC News: A man has been arrested after three protestors scaled a 60ft high fracking rig in North Yorkshire. Two men and a woman climbed to the top of the site at Kirby Misperton, between Malton and Pickering, at about 03:00 BST, police said. A 29-year old man is in custody on suspicion of aggravated trespass and criminal damage after he climbed down at about 15:45. The other two remain at the site and were issued with safety harnesses. Third Energy was given planning permission to operate on the site in May 2016. It has not received final consent to begin fracking but expects to start before the end of the year.

Scotland to toughen ban on fracking after Holyrood vote - Scotland’s ban on fracking has been significantly toughened, after MSPs at Holyrood pressured the SNP into making any relaxation of the policy subject to a parliamentary vote.The Scottish Parliament voted overwhelmingly in favour of an indefinite ban on the controversial gas extraction technique, announced by ministers earlier this month. The motion was carried by 91 votes to 28, with the SNP also accepting Labour and Green amendments which make it harder for the ban to be reversed in future.MSPs had expressed concerns that the ban could be overturned at “the whim of a minister”, but it will now be included in the Scottish Government’s next National Planning Framework.As any changes to this require a vote in Holyrood, it means that if ministers change their minds on fracking they will have to gain the approval of MSPs rather than acting unilaterally.Earlier this month Energy Minister Paul Wheelhouse said fracking “cannot and will not” go ahead due to concerns over its impact on the environment and local communities.The decision followed a public consultation on the issue which received more than 60,000 responses, of which 99 per cent were opposed to fracking in Scotland. Mr Wheelhouse said last night’s vote was a “clear endorsement” of the Scottish Government’s position, claiming the scientific research did not prove fracking would be safe.

Norway Unfazed By Peak Oil Concerns - When crude oil demand will peak is anyone’s guess. Forecasts vary widely. Wood Mackenzie says that peak demand is “very real,” and sees a decline of 4 million bpd between 2020 and 2035. Other majors including BP and Total SA see peak demand as coming between 2025 and 2040, as a result of clean energy government initiatives, slower economic growth, and wider use of electric vehicles.Not everyone is that concerned with peak oil demand, however. Recently, Norway’s Energy Minister said the biggest problem for Europe’s largest oil and gas producer is satisfying near-term demand, which is growing faster than Norwegian continental shelf operators are making discoveries.It might sound a bit weird that Europe’s greenest country is still so big on oil and gas, but in reality, there’s nothing weird: Oil and gas exports account for a substantial portion of Norway’s export revenues, with their value for 2016 standing at $43.84 billion (350 billion crowns), accounting for 47 percent of the country’s total export value. Norway’s biggest customer is the European Union. Together with Saudi Aramco, Norway’s state major Statoil accounted for a fifth of the EU oil market last year. Yet demand in the EU is supposed to be falling, with rigorous policies designed to encourage acceleration of the shift to renewable energy. Indeed, according to European Union statistics, demand is on a stable downward curve thanks to greater energy use efficiency, “structural changes in the economy”, and lower demand for fuels. Still, Eurostat notes, crude oil and its derivatives account for the biggest share of energy consumption in the 28-strong union.  That’s good news for Norway, and there’s more good news from Wood Mackenzie. The energy consultancy has forecast that although in places like Europe, Japan, the United States, and even China, crude oil consumption will plateau by 2035, the demand for petrochemicals will jump considerably. Wood Mac expects that petrochemicals will turn into the top driver for demand growth in crude oil in the long run as fuels lose their top spot. This will continue until about 2035, the consultancy estimates.

BHP finds 5 Tcf of gas off Trinidad: minister - UK-Australian BHP has discovered 4 trillion to 5 trillion cf of natural gas in the deepwater LeClerc well off the east coast of Trinidad, energy minister Franklyn Khan said today. The discovery is the first in the country's deepwater program. Khan did not elaborate on his statement or provide any details on the LeClerc find. BHP did not respond to a request for comment, but the firm said in January that LeClerc is a "large potential resource" that could start production in the early to mid-2020s. The new gas deposit could alleviate the Caribbean state's gas shortage that has suppressed output of LNG, ammonia and methanol. BHP operates nine deepwater blocks in Trinidad. The blocks hold an estimated 10 trillion-40 trillion cf of gas and 2bn-8bn bl of crude, the energy ministry has said. "This is an important development for the country and will ease the shortages of natural gas that have been having a damaging effect on the economy," an energy ministry official told Argus today. The ministry is awaiting more details about the discovery, including production volumes, the official said. BHP will drill two extension wells on LeClerc "sometime in 2018," the official added. Trinidad's gas production has been falling since 2013, when it averaged 4.1 Bcf/d. The country's gas production averaged 3.292 Bcf/d in January-August, down 1.8pc on the 2016 period. The country needs another 1bn cf/d to meet current demand, according to the ministry. BHP started the oil-focused deepwater exploration campaign in May 2016 at the LeClerc prospect on block 5, 217km off the eastern coast of Trinidad. LeClerc-1 was drilled to 5,771m and LeClerc ST1 to 6,973m. BHP has a 65pc stake in block 5. Shell holds 35pc. LeClerc is the second major gas discovery in Trinidad this year.

Oil Quality Issues Could Bankrupt Venezuela - The next few weeks for Venezuela will be crucial, as it could struggle to meet a huge stack of debt payments. Reports that the nation’s oil production is experiencing deteriorating quality raises a new cause for concern for the crumbling South American nation. Venezuela’s state-owned oil company PDVSA is reportedly shipping crude oil with growing quality issues. Reuters reported that its oil shipments are “soiled with high levels of water, salt or metals that can cause problems for refineries”. It’s a troubling situation for an oil company already suffering from a steep drop in output.The quality problem is very much related to the country’s economic crisis. Without cash, PDVSA is struggling to obtain the proper chemicals to treat its oil, or pay for equipment and upkeep to maintain quality. As a result, PDVSA has had to shut down operations, or throttle back on production. “We’re refitting chemical injection points, recouping pumps and storage tanks,” one PDVSA worker told Reuters. “But without chemicals, we can’t do anything.”The oil company has been shipping crude that is apparently causing problems for refiners around the world. According to Reuters, that has led to complaints and even cancellations of purchases. Phillips 66, a U.S. refiner, cancelled at least eight cargoes in the first half of the year due to inferior quality. It also demanded discounts for other shipments. Refiners in India and China have also lodged complaints. The sales cancellation poses a serious financial threat to a company and country already wallowing in a horrific economic crisis.

Argentina Plans $21.5-Billion Oil Investment - The state oil and gas company of Argentina, YPF, plans to spend US$21.5 billion on new oil and gas production over the next five years, eyeing a 26-percent increase in crude oil production, company executives told Reuters. The company will sell some assets to gather the funds necessary for the ambitious production-raising plan, and it will also enlist the help of other companies, which will contribute an estimated US$8.5 billion to its five-year investment program. No names were given, but the YPF executives hinted that there’s a new partnership to be announced for the company’s power-generation business.YPF’s executives also suggested that the company should buy some power-generation assets from Brazil’s Petrobras, which is conducting a large-scale asset-sale program to slim down its huge debt load.YPF is eager to stage a repeat of the U.S. shale oil and gas boom, the FT reported yesterday, aiming for a 150-percent increase in shale oil and gas production. Conventional oil and gas will not be neglected, however, with plans for a 5-percent annual rise in production by 2022, to 700,000 barrels of oil equivalent daily.Argentina is in the throes of a serious energy deficit thanks to insufficient exploration up until just recently. The country is home to the second-largest shale reserves in the world, concentrated in the Vaca Muerta shale formation, which has become a major hotspot for Big Oil. Exxon, BP, Total, and Chevron are among the companies that have already pledged substantial funds for oil and gas exploration and production in Vaca Muerta, which holds reserves estimated at 22.8 billion barrels of oil equivalent. Argentina also has 2.4 billion barrels of conventional oil reserves, and is also hoping to score major discoveries offshore, to which end it will schedule a bidding round next year. Hopes are that the pre-salt basin along the Brazilian coast could extend into the Argentine continental shelf.

Australian domestic natural gas prices increase as LNG exports rise - Australia became the world’s second-largest exporter of liquefied natural gas (LNG) in 2015 and is likely to overtake Qatar as the world’s largest LNG exporter by 2019. As Australia’s LNG exports have increased, primarily from LNG projects in eastern Australia, the country has had natural gas supply shortages in eastern and southeastern Australia and an increase in domestic natural gas prices.  The western and eastern parts of Australia have separate natural gas and electricity markets and are not interconnected. Five states in eastern Australia—South Australia, Queensland, New South Wales, Victoria, and Tasmania—account for 86% of Australia’s population, and in 2016, LNG exports from eastern Australia accounted for 43% of the country’s total LNG exports.  Three new projects in eastern Australia—Australia Pacific, Queensland Curtis, and Gladstone—all are located on Curtis Island in the state of Queensland and are associated with upstream production fields that provide natural gas produced from coalbed methane.  Since the start of LNG projects in Queensland, domestic natural gas prices at several hubs in eastern and southeastern Australia have more than doubled. Briefly in mid-2016 and again in early 2017, Australia’s domestic natural gas prices exceeded Australian LNG export prices to Japan, Australia’s largest destination for LNG exports, when domestic natural gas shortages caused price spikes in natural gas markets. LNG export prices, on the other hand, reflected lower prices in long-term contracts, which were linked to the price of crude oil. With the decline in crude oil prices, export contract prices for LNG also declined.  In 2016, natural gas consumption by LNG export projects in Queensland was almost twice as high as the total domestic consumption in eastern and southeastern states. Australia’s Energy Market Operator (AEMO) projected that LNG exports from these states will continue to grow through 2019 as these LNG projects ramp up to full capacity.

LNG: The gas market goes global – Platts video - From 1964 to the present day, LNG has transformed the energy industry and is now leading to the development of a truly global gas market.Supply and demand are set to rise significantly over the coming years, as LNG is traded under shorter and more flexible terms, with S&P Global Platts JKMbenchmark at the forefront. Download our special report: Dawn of a global commodity: LNG trading transformed.

Perry brings US diplomacy to Africa, promises to export 'energy arsenal' - The Africa Oil Week conference in Cape Town got a taste of Texas or even a little slice of Hollywood this month, as the presence of US Secretary of Energy Rick Perry as guest of honor, perplexed yet impressed the conference delegates. “Why is he here? It can’t be that straightforward?” “Why will he come to an African oil event? There must be some other reason he is here.” “He is such a busy man, why would he come here?” These were some of the reactions I got when I asked some delegates what they thought of Perry’s presence at an event that was focused primarily on the African upstream industry. His first speech on Monday was delivered during a social event at the Two Oceans Aquarium, and he made sure to use the “swimming with the [oil] sharks” quote. Incidentally, he was near an actual shark tank when he said this. The next day, in his speech America’s New Energy Bounty: Freedom and Security, Perry did answer why he was here, by proclaiming that the US’ “energy arsenal” was here to empower Africa through “energy transformation.” Perry was accompanied by a sizable contingent from the Department of Energy to, as he said, “advance mutually beneficial safe and sustainable energy development” with allies in South Africa and across the continent. President Donald Trump’s administration has not been actively involved with African affairs. Which is what makes this sudden focus by Perry somewhat surprising. But energy diplomacy is not new after all. The African continent, especially the oil and gas producers, can definitely learn and be inspired by the dramatic rise in the US energy sector, which has transformed itself and is now a significant producer and exporter of crude oil, gas, condensates, natural gas, refined petroleum products, LNG and petrochemicals. Perry said that Africa could learn from the US, which used to be dependent on other countries for its energy needs, but has now “become an energy-abundant country” and plans to export to “our friends”. The department of energy held a half-day workshop on LNG and natural gas, and published a blueprint for African countries to follow to become leading exporters of natural gas and LNG.

As US exports make inroads to Asia, Middle East suppliers adopt strategies to secure buyers -- With so much attention on rising US oil exports and their impact on crude flows within Asia, the region’s more traditional suppliers from the Middle East are examining their own strategic approaches to maintain customers and secure outlets for their barrels. US cargoes are showing up more regularly in Asia, where major importers are eager to diversify their supply sources—a hot topic during the recent S&P Global Platts Asia Pacific Petroleum Conference in Singapore. Due to stability of supply and competitiveness against other grades, Middle East crudes have been East Asia’s largest supply source and many refineries in the region have been specifically configured to process Middle East sour crudes. But the increase in spot US barrels into Asia are prompting refiners to seek lower term crude imports from the Middle East. Supplies from Latin America may also be boosted into the region, as many North Asian crude importers tend to co-load their US cargoes with central and South American grades. US crude exports to China, South Korea, Japan South Korea, for example, may trim its dependency on Middle East crude supplies to “70% or below” from 84.9% in the first half of 2017, supported by favorable global benchmark price trends, coupled with plentiful options for supply diversification, according to Chang Jihak, senior executive vice president at Hyundai Oilbank. Japan’s largest refiner JXTG Nippon Oil & Energy is also looking to boost flexibility in its crude oil procurements by reducing its term commitments, Executive Vice President Takashi Hirose told Platts. JXTG will continue to emphasize its flexibility until market conditions change, Hirose said, adding that the company’s current term crude procurement ratio stands “at around 60%” of its total imports, with the balance comprising spot and framework supplies.

Tide of diesel from the East imperils Europe's rally  (Reuters) - A recent rally in European diesel prices could be jeopardised by rising inventories in November as a raft of tankers sets sail from the East, reversing two months of stock declines following Hurricane Harvey. Up to 450,000 barrels per day (bpd) of diesel, or some 1.8 million tonnes, are set to reach Europe and the Mediterranean in November from Asia and the Middle East, according to Reuters shipping data and traders. That would mark a 50 percent increase from recent months. Those include the very large crude carrier Coshonour Lake, which was heading from Singapore to Europe on its maiden voyage with a cargo of 2 million barrels of diesel. The cargo, expected to reach Gibraltar on Nov. 26, was initially bought by China’s Unipec and later sold to Vitol, traders said. With around half of Europe’s cars fuelled by diesel and its refineries unable to meet domestic demand, the region regularly imports around 850,000 bpd of diesel primarily from the U.S. Gulf Coast and Russia but increasingly also from the East. “Everywhere you look, exports are going to grow,” a trader said. When Harvey struck the U.S. Gulf Coast in late August, traditional trading routes were retraced as more than a quarter of the United States’ refining capacity was crippled for weeks. Europe became a key supplier for Latin America and even the U.S. East Coast, draining stocks to below their five-year average for the first time in years and prompting a rally in benchmark diesel prices to a 27-month high in late September, supporting a rise in global crude prices. That, in turn, opened arbitrage opportunities from the East. With refineries in China, India, the Middle East as well as Russia and the United States ramping up exports after completing maintenance, things could change.Diesel imports into Europe are likely to surpass 1 million bpd in November versus an average of 800,000 bpd in the previous two months, which will lead to an increase in stocks, traders said. 

Analysis: Asian crude buyers alter trade strategies as backwardation persists - The sustained backwardation in Dubai crude price structure has prompted various Asian crude buyers to adjust their trading strategies, with Chinese trading firms actively trimming their long physical positions, while various regional refiners shifted their focus to short-haul Russian supplies, market participants said Wednesday. The spread between first and second-line Dubai crude swaps was assessed at 5 cents/b on August 10 in Singapore, marking the first time the paper market structure has flipped to backwardation since posting 4 cents/b on March 13, S&P Global Platts data showed. The Dubai swaps spread remained backwardated since then, averaging 18 cents/b in September and 24 cents/b so far this month. The physical Dubai crude market structure also strengthened to a multi-year high recently, with the spread between front-month cash Dubai and same-month Dubai swap at 71 cents/b on October 17 in Singapore, the highest since July 31, 2015, when it was assessed at 85 cents/b. Regional sweet and sour crude traders said the backwardation in the Dubai price structure could have encouraged Chinese trading firms to unwind some of the spot cargoes they are holding in recent months, potentially putting the brakes on their growing storage positions. China's crude oil stocks rose 20.16 million barrels in September from end of August, representing 11th consecutive month of gains, Platts calculations based on latest official data showed. However, regional traders and analysts said the country's inventory levels could slide in the fourth quarter, citing state-run Chinese trading companies' strong interest in selling cash Dubai crude partials, as well as full cargoes of various Middle Eastern and West African grades during the Platts Market on Close assessment process over the past few months. A backwardation in the crude market structure represents lower prices for forward month contracts than the current spot price. In essence, backwardation occurs when market participants are expecting future prices to be weaker than prompt prices, hence providing little incentive for trading firms and refiners to store oil for later use. "Storage incur costs over time but when future prices can't compensate this, it's best to offload and lock in stronger prices now," 

Southeast Asia's growing energy deficit to boost trade flows by 2040: IEA - Southeast Asia's growing deficit of fossil fuels including oil, natural gas and coal up to 2040 will dictate energy trends for the whole region, including trade flows, investments and policy making, according to the International Energy Agency's latest outlook. The deficit of primary energy sources will be triggered by a combination of declining production and reserves in the region, ballooning demand due to rising population and regulations that curb exploitation of natural resources. While each country faces different challenges, in total the region will be short of oil, gas and coal by 2040, the IEA said in its 2017 Southeast Asia Energy Outlook. "Flattening gas production and rising demand in recent years calls into question the position of Southeast Asia as a net gas exporter," the IEA's director of energy markets and security Keisuke Sadamori said. He said rising oil demand and declining production have already increased the region's dependency on oil imports to around 60%, and strong economic and demographic changes will ensure this dependency becomes further entrenched. Southeast Asia's energy demand has risen 60% since 2000, but per capita primary energy demand is still only half of the global average, Sadamori said, adding that about 65 million people in the region still lack access to electricity and 250 million people rely on biomass for cooking. This demand will have to be met by imports, often with hefty bills. The energy deficit already cost the region $20 billion in 2016, and dramatic changes in energy trade balances will see deficits balloon to $300 billion by 2040, equal to 4% of the region's GDP, with major implications for Southeast Asia's energy security.

Global Oil Supply Disruptions Lowest Since 2012 - Unplanned disruptions in global oil supply dropped to 1.6 million barrels per day (bpd) in September 2017, which was the lowest level of crude offline due to unforeseen events since January 2012, the Energy Information Administration (EIA) said on Monday.The main reasons for the lowest unplanned crude supply disruptions in more than five years were reduced outages in Libya, Nigeria, and Iraq, the EIA said.  To compare, in May last year, for example, unplanned global oil supply disruptions averaged more than 3.6 million bpd, the highest monthly level recorded since EIA started tracking global disruptions in January 2011. In May 2016, sudden outages in Canada, Nigeria, Iraq, and Libya more than offset reduced disruptions in Kuwait, Brazil, and Ghana. As of September 2017, civil strife in Libya and militant activity in Nigeria saw an abatement in recent months, and global unplanned oil supply disruptions have dropped by more than 1 million bpd over the past six months, according to the EIA. In North America, outages in Canada earlier this year from the fire at Syncrude’s Mildred Lake facility, combined with outages at Long Lake and Surmont facilities, resulted in a 425,000 bpd disruption in April, the EIA said. Canada’s production has now returned to normal and as of September, there were no unplanned outages in Canada. In the U.S., production was shut-in as a result of Hurricane Harvey, which led to a 186,000-bpd disruption in August, and an average of 53,000 bpd disruption in September. Outages in Nigeria dropped from an average of 370,000 bpd in April to 200,000 bpd in September, thanks to the Trans Forcados crude oil export pipeline resuming exports, the EIA said.  Disruptions in Iraq dropped to 50,000 bpd in September, but “the outlook for Iraq’s oil supply from the Kirkuk oil fields remains uncertain following an offensive by Iraqi security forces that started on October 15 in response to the autonomous Kurdistan Regional Government’s (KRG) independence referendum held in September.”

What Trump’s Iran action means for Japan's energy interests | Asia Times: No country went out on a limb more – in economic terms – in bringing Iran to agree to curb its nuclear weapons ambitions than Japan. Though technically not a party to the Joint Comprehensive Plan of Action (JCPA), Japan’s role as a major importer of Iranian crude helped bring Tehran to the negotiating table. Japan may have been key but it did not come easily. It required repeated pressure from Washington, which became a sore point in US-Japan relations. Tokyo eventually cut imports drastically and relinquished its interests in several up-stream projects, such as the huge Azadegan oil field. With the deal signed and sanctions lifted, Tokyo naturally wants to get back in the game. Cue Donald Trump throwing a wrench into plans by announcing that the US would not certify that Iran is complying with the terms of the agreement. While it does not immediately follow that Congress, or any other party, will re-impose sanctions – thereby blowing up the deal – at the very least, Trump’s move introduces what consultants call a “country risk” to any deals. The country imposing the risk is the United States. Much depends on what happens in the next few months, including whether Congress re-imposes sanctions or declares the agreement invalid. “What matters is how much the US government, the White House in particular, wants to force foreign firms out of Iran,” says Helima Croft of RBC Capital markets.Tokyo was always a reluctant participant in the sanctions scheme. Having no petroleum resources of its own, Japan is almost entirely dependent on imports from the Middle East, and it was not inclined to put its economy in jeopardy by curtailing imports from Iran.  '

Saudi Arabia's oil minister visits Iraq to shore up OPEC cooperation -- Saudi oil minister Khalid al-Falih visited Baghdad on Saturday, calling for increased cooperation between OPEC's two largest oil producers as the group prepares to debate on extending its production cut deal next month. "The best example of the importance of cooperation between our two countries is the improvement and stability trend seen in the oil market," Falih told delegates at the Baghdad International Exhibition, according to media reports. Falih's comment came despite Iraqi compliance with its quota -- under the production cut deal -- being among the weakest of the OPEC members, with production averaging 4.50 million b/d in September, an S&P Global Platts survey of OPEC and oil industry officials and analysts showed earlier this month. That is 149,000 b/d above its output quota. Compliance among OPEC and major non-OPEC producers reached 120% in September, its highest level since the output constraint deal was launched in January, the Joint Ministerial Monitoring Committee said Saturday. The JMMC, however, noted that while some of the participating producer countries have consistently performed beyond their voluntary cuts, others have yet to achieve 100% conformity. It did not provide any details identifying the underperformers. Falih was the first Saudi official to speak publicly in the country since Iraq's invasion of neighboring Kuwait in 1990, when diplomatic relations were severed and borders closed. Riyadh also viewed Baghdad with suspicion in the years that followed, both under the regime of Saddam Hussain, and the Shia-dominated post-war governments after 2003. It only reappointed an ambassador to Iraq in 2015, and even then relations have been frustrated.

Higher crude oil prices could work against Mideast producers: IEA - Major Middle Eastern crude producers may not keep their exports to Asia too tight in 2018 as any substantial uptick in international oil prices would reignite strong investment in global oil projects and prompt new competition to emerge, director for energy markets and security at the International Energy Agency Keisuke Sadamori said Monday. Any rise in global crude prices as a result of maintaining tight supplies to Asia could work against Middle Eastern producers as lower prices have been one of the main drivers of strong demand so far this year, while putting the brakes on a slew of new drilling projects around the world, Sadamori said during a group interview session on the first day of Singapore International Energy Week. "They [big OPEC and Middle Eastern producers] cannot be too ambitious [on their oil price targets]...there's not much [upside] room for them to hope for," Sadamori said. "Once the oil price goes to certain levels, this will stimulate new drilling and investments in North America," he added. Middle Eastern crude exports to Asia have fallen sharply over the past several months, with major Persian Gulf producers, including Abu Dhabi National Oil Co, recently slashing its allocations for November-loading crude oil by up to 15% to most of its customers. Before that, various Asian end-users had their crude oil term allocations from Saudi Arabia slashed for September, with at least two South Korean refining companies receiving around 10% cuts in monthly contract volumes for light and medium sour grades. More recently, Saudi Aramco fielded demand for 7.711 million b/d in November loadings but would only allocate 7.150 million b/d, the Saudi energy ministry said earlier this month, as the kingdom aims to keep the OPEC/non-OPEC production cut agreement on track in its efforts to rebalance the market. The cuts signal Saudi Arabia and the UAE's strong commitment to OPEC's November 30, 2016, deal to reduce production by 486,000 b/d and 139,000 b/d, respectively, from October levels last year.

Oil prices creep upward as traders test higher range: Kemp (Reuters) - Hedge fund managers continue to hold large bullish positions in crude and fuels, anticipating strong demand growth and output restraint will lift oil prices into a new, higher, trading range. Hedge funds and other money managers held a net long position equivalent to 883 million barrels in the five biggest futures and options contracts linked to petroleum on Oct. 17.The net position had been reduced by 6 million barrels compared with the previous week and 45 million barrels from the recent peak on Sept. 26 ( it was 578 million barrels higher than at the end of June and still near this year's peaks, according to records published by regulators and exchanges.Fund managers made comparatively minor adjustments to their positions in Brent, U.S. gasoline and U.S. heating oil in the week to Oct. 17, with few signs of profit-taking. Significant short-selling emerged, however, in U.S. crude, where portfolio managers added 23 million barrels of fresh short positions.Funds have embarked on a new cycle of short selling, the tenth since the start of 2015, with short positions up by 40 million barrels since Sept. 26.But the current cycle is unusual in that prices have risen over the last two weeks, even as funds added 35 million barrels of new short positions.The combination of rising prices with a new wave of short selling indicates U.S. crude prices may be moving into a new, higher trading range.From a pure positioning perspective, the concentration of long positions among hedge funds continues to pose a downside risk to oil prices if fund managers attempt to realise some of their profits before the year-end. But a move into a higher range would be consistent with the emerging fundamental picture, with U.S. oil drilling slowing, crude stocks falling, and consumption of refined fuels at home and in export markets increasing strongly.

Oil Nears $52 With Record OPEC Deal Compliance - WTI prices closed in on $52 a barrel on Monday as OPEC reported record compliance to its 10-month old output reduction agreement. A slowdown in North American drilling coincided with the industry cartel’s announcement, which propped up hopes of a shrinking oil supply glut.A Saturday statement by the Organization of Petroleum Exporting Countries (OPEC) showed that member countries, along with its NOPEC partners (Russia and the like) had been keeping up with their commitments from last November. The countries reached a 120 percent compliance rate in September, the bloc said.“The lower U.S. rig count number, the OPEC compliance number and the geopolitical headlines from northern Iraq and Iran on sanctions have helped futures higher,” Ole Hansen, head of commodity strategy at Saxo Bank told World Oil. “But there are signs the market could be weakening with the seasonal refinery demand slowdown.” Glencore Plc, Gunvore Group Ltd. and Trafigura Group Pte are all bullish on the future of oil prices, Bloomberg notes, estimating that prices will exceed $60 by late in 2018. Trafigura is particularly optimistic, noting that OPEC cuts and surging demand will allow market rebalancing in 2018, while a lack of new production due to cuts in capital expenditure will bring a shortage to the market by 2019, lifting prices further. But the Vitol Group remains bearish. CEO Ian Taylor sees Brent falling to $45 in 2018. Production in the U.S. has increased from 8.9 million bpd in January 2017 to 9.48 million in October, according to the Energy Information Administration, which expects it to rise still further in early 2018, possibly exceeding 10 million bpd.

Oil prices inch up, drop in southern Iraq exports supports | Reuters: Oil exports from southern Iraq have fallen by 110,000 barrels per day this month, according to shipping data and an industry source, adding to the drop in flows caused by a shortfall from the northern Kirkuk fields when Iraqi forces retook control from Kurdish fighters who had been there since 2014. The drop in northern Iraqi shipments has supported global oil prices in recent days. But southern exports, the outlet for most of the country’s crude, have been stable in recent months, making the decline unexpected. London Brent crude for December delivery LCOc1 was up 6 cents at $57.43 a barrel by 0055 GMT after settling down 38 cents on Monday. U.S. crude for December delivery CLc1 was up 3 cents at $51.93, having settled up 6 cents. Crude oil exports through the Iraqi Kurdistan controlled-pipeline to the Turkish port of Ceyhan rose 13 percent to 288,000 barrels per day (bpd) on Monday afternoon, less than half the normal levels, a shipping source told Reuters. U.S. crude inventories likely fell by 2.5 million barrels last week, while gasoline and distillate stockpiles also probably fell by at least 1.5 million barrels, a preliminary Reuters poll showed on Monday ahead of data by the Industry group the American Petroleum Institute later in the day.

Oil Prices Rise Ahead Of Inventory Data - Oil was flat Monday and up a bit in early trading on Tuesday. Reports of outages in northern Iraq were offset by assurances from the Iraqi government that production would ramp up in the south to compensate for the outages. Analysts are cautioning investors not to expect a huge price spike as a result. “The oil market still remains deaf in one ear and is responding primarily to price-supportive news,” Commerzbank wrote in a recent note. “The prices of both oil types, and especially of Brent, are overheated and [we] expect them to correct in the short term.”  A highly anticipated wave of earnings reports are approaching, and analysts expect the oil majors to report a significant increase in profits for the third quarter. According to FactSet, and reported on by the WSJ, the five largest western oil companies are expected to report nearly $13 billion in profits for the third quarter, a jump by about a third from the same quarter in 2016. The improved financials are a reflection of the ongoing cost improvements from the oil industry, even as WTI oil remains stuck at $50 per barrel. However, analysts will closely watch production figures to assess whether or not drilling is slowing down.  In its strongest indicator yet, OPEC suggested that Russian President Vladimir Putin’s comment about extending the production through the end of next year would be the basis for upcoming negotiations ahead of the highly-anticipated meeting in Vienna on November 30. An extension is not a done deal yet, but the comments from OPEC officials are the strongest yet.  Cheap oil from Canada and North Dakota have provided enough supply for Midwest refiners, allowing them to break their historical dependence on fuel from the Gulf Coast. According to Reuters, crude flows from the Gulf Coast to the Midwest has been cut in half since the early 2000s, largely due to a surge in supply from the Bakken and Alberta. This new arrangement has worked to the benefit of companies with refining assets in the Midwest, such as Marathon, Phillips 66, BP and Husky Energy. According to Reuters, oil prices have gained even as hedge funds and other money managers have stepped up short bets, a sign that the oil market has improved and can withstand a wave of shorts. That could be a harbinger of oil moving up into a higher trading range.

WTI/RBOB Extend Gains After Major Gasoline, Distillate Draws -- WTI advanced to the highest level since April today amid OPEC considering an extension of output caps, and extended gains after API data despite a surprise build in crude. RBOB gained on a much bigger than expected gasoline draw (-5.7mm vs +1.7mm exp). API:

  • Crude +519k (-3mm exp)
  • Cushing -55k
  • Gasoline  -5.753mm (+1.7mm exp)
  • Distillates -4.949mm

Last week's DOE data confirmed the trend of gasoline builds and crude draws, but if API is correct that normalization trend just ended...  WTI and RBOB both rallied notably today ahead of API and extended gains after...  “People are bullish because they think that U.S. inventories are starting to rebalance and that crude exports will help bring them down,” says Michael Lynch, president of Strategic Energy & Economic Research.

U.S. oil benchmark settles at a 6-month high - Oil climbed Tuesday, as Saudi Arabia reiterated a pledge to help balance the global crude market and geopolitical turmoil threatened global inventories, lifting U.S. prices to their highest finish since mid-April. December West Texas Intermediate crude rose 57 cents, or 1.1%, to settle at $52.47 a barrel on the New York Mercantile Exchange—the highest finish since April 17, according to FactSet data. Brent oil for December delivery, the global benchmark traded on ICE Futures Europe, rose 96 cents, or 1.7%, to $58.33 a barrel. That was the highest settlement since Sept. 26.At a conference Tuesday, Saudi oil minister Khalid al-Falih said Saudi Arabia is willing to “do whatever it takes” to bring global crude inventories back to their five-year average, according to Reuters. “This time the market, unlike the last time, believes them as OPEC and their compliance has earned some market cred,”   “Oil prices which were floundering lower overnight reversed course and surged higher” after al-Falih’s comments, he said. Al-Falih also suggested that more needs to be done, which is “signaling that it is very likely” that the Organization of the Petroleum Exporting Countries and other producers that are part of the agreement to curb crude output will agree to extend the current production cuts, said Flynn. The output-cut agreement is set to expire at the end of the first quarter of 2018. Al-Falih also noted the shale-oil slowdown pointing out that shale-oil production has risen only slightly, Flynn said. “This is a strong statement as many feared was that shale-oil production would offset OPEC and non-OPEC cuts. The reality of shale economics and falling production per well has proven that at least right now, the shale-oil producers were not up to the task, he said. Crude prices have risen over the past couple of weeks following an independence referendum in Iraq’s northern, semiautonomous Kurdish region. The move has led to clashes with Iraqi forces retaking the oil-rich Kirkuk area, throwing into question Kurdistan’s ability to export oil through Turkey and raising doubts about investments from big oil companies.

This Oil Rally May Be Short-Lived - It’s been another week of upbeat OPEC reports—from secretary general Mohammed Barkindo’s belief that global oil demand will jump to over 100 million bpd by 2020 to the proud announcement that compliance with the oil production cut deal had hit 120 percent in September—but is the most recent rally sustainable?These announcements do have an impact on prices, but their effects are often short-lived, especially when facts of life prove them wrong.For starters, any supply or demand announcement from an organization such as OPEC needs to be taken with not one but two grains of salt. The cartel knows very well that an upbeat message could—and often does—send prices higher. Barkindo, for instance, gave no foundation for his forecast of oil demand growth.Neither did OPEC’s monitoring committee go into detail about the 120 percent compliance rate. In truth, this record-high compliance rate covered all partners in the deal—OPEC and non-OPEC. However, it doesn’t really mean much if you look at OPEC’s own production numbers for September.These show that several members were pumping above their November 2016 quotas, notably the UAE, Iran, and Iraq. Saudi Arabia produced about 83,000 fewer barrels per day than what they agreed to, as did a few other OPEC members, though by a lot less. The biggest non-OPEC partner in the deal, Russia, has made no recent announcements about producing less than its 300,000-bpd cut quota. What’s more, a few days before OPEC patted itself on the back for the super-compliance, IEA’s Fatih Birol estimated the cartel’s member compliance at86 percent, saying it was a good rate, even though it’s significantly worse than earlier months. Yet traders continue to rush to buy crude whenever OPEC says, “We’re doing great!”  Now some experts are beginning to warn that the rally won’t last, regardless of upbeat messages from sources whose wellbeing depends on high oil prices. And it’s not just the start of refinery maintenance season in the U.S. that will push down prices.

The 5 Countries That Could Push Oil Prices Up - Oil prices appear to be stuck in the $50s per barrel, but that doesn’t mean there aren’t serious supply risks to the market. An unexpected disruption could occur at any moment, as has happened in the past, leading to a sudden and sharp jump in prices. Geopolitical tension has been largely irrelevant since the collapse of oil prices in 2014, but it’s making a return now that cracks have emerged in some key oil-producing nations. The threat of an outage will carry more weight as the oil market tightens.  "The 'Fragile Five' petrostates - Iran, Iraq, Libya, Nigeria and Venezuela - continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal," U.S. bank Citi said.  The most near-term supply risk comes from Iraq. The surprise seizure of Kirkuk’s oil fields by the Iraqi government has already disrupted some oil shipments. The Bai Hassan and Avana oil fields near Kirkuk remained shut as of October 19, keeping at least 275,000 bpd offline.  The danger to Iran is a return of U.S. sanctions, which are by no means a given. Even then, it’s unclear if the U.S. has the ability to curtail Iranian oil exports. Libya was exempted from the OPEC deal, and for much of the past year has represented a downside risk to oil prices, not an upside one. That is because it has nearly tripled its output from about 300,000 bpd in August 2016 up to about 850,000 bpd currently, down a bit from a recent peak at over 1 mb/d. But damage to some export terminals likely means that near-term production has a ceiling at about 1.25 mb/d, meaning Libya won’t be able to bring output back to pre-war levels of 1.6 mb/d. Nigeria was also exempted from the cuts because violence and instability previously knocked a sizable portion of output offline. But Libya’s restoration of output coincided with a similar reduction in violence in the Niger Delta. Meanwhile, peace in the Niger Delta remains fragile, and reports that militants have grown frustrated with the pace of talks with the government raises concerns about a return to violence. The rebound in Nigerian production is not assured.  The unfolding implosion of Venezuela almost ensures that more of the country’s oil production will erode, perhaps at a quickening pace. As of September, Venezuela only produced 1.89 mb/d, down from 3.2 mb/d in the late 1990s, but also down from nearly 2.4 mb/d as recently as 2015. Without cash, state-owned PDVSA can’t invest in new production and can’t even invest in maintenance to keep existing production from falling.

Backwardation beckons for WTI as crude stocks fall – Kemp (Reuters) - U.S. crude prices appear set to follow the international Brent benchmark from contango into backwardation in the next few months as oil inventories in the United States dwindle. U.S. commercial crude stocks have fallen by 23 million barrels since the start of the year, compared with an increase of 19 million barrels at the same point in 2016, and an average seasonal rise of 24 million barrels in the last decade.  U.S. light sweet crude (WTI) futures for the contract nearest to delivery closed at a discount of just 28 cents per barrel to the seventh-listed contract on Monday. The front-month discount was the smallest since November 2014, when the oil market was only just entering its two-year slump ( Discounts for near-to-maturity futures contracts, known as contango, are a symptom of an oversupplied market with high inventories. By contrast, premiums for nearby contracts, known as backwardation, are associated with an undersupplied market and low stocks. Both Brent and WTI have been moving away from contango towards backwardation for more than two years as part of the market rebalancing process. WTI fell to a steep discount against Brent and remained stuck in contango, which deepened when Hurricane Harvey stopped many U.S. refineries processing crude and left the country with a build up in crude stocks.However, U.S. crude exports have been running at record rates since the middle of September, according to data from the U.S. Energy Information Administration (EIA).With crude imports remaining sluggish, net crude imports have fallen to less than 6 million barrels per day from almost 8 million barrels per day in August.At the same time, U.S. refineries have been processing record seasonal volumes of crude to rebuild stocks of gasoline and especially diesel depleted by the hurricane and strong consumption at home and in export markets. As a result, crude stocks along the East, West and Gulf Coasts have all fallen since the summer, are well below last year’s levels and appear tight. In contrast to the coasts, however, the Midwest has reported a continued build up in crude stocks, especially around Cushing, Oklahoma, the delivery point for the WTI futures contract. Plentiful crude at Cushing has ensured WTI prices for maturing futures contracts have continued to trade at a discount.

WTI Jumps Despite Surprise Inventory Build, Production Rebound -- Following last night's (API-reported) big product draws (and crude build), WTI slid lower (RBOB higher) into this morning's DOE data, but both WTI/RBOB prices jumped after the report showed major product draws (and a Cushing destocking). WTI rallied despite a big surprise build (+856k vs -3mm exp) and a major rebound in production after Hurricane Nate. DOE:

  • Crude +856k (-3mm exp)
  • Cushing -237k
  • Gasoline  -5.47mm (+1.7mm exp)
  • Distillates -5.246mm

"Seasonally, you’d expect crude inventories to grow,” Michael Hiley, head of over-the-counter energy trading at LPS Partners, told Bloomberg, and it did  - well above expectations. However the big product draws were more notable. Gasoline exports soared, Distillates exports jumped, and total crude/product exports hit a new record high... Following last week's collapse in production due to Hurricane Nate, production surged back... WTI prices had slid after an initial bounce following API overnight (and RBOB held gains) into the DOE print, and both rallied initialy after the print... Prices have been “trading elevated because of the OPEC comments that they will do whatever it takes to bring the market into balance.”

Brent oil hits 27-month high on Saudi talk of extending supply cuts - (Reuters) - Brent crude closed at a 27-month high on Thursday as the market focused more on comments from Saudi Arabia about ending a global supply glut instead of an unexpected increase in U.S. crude inventories and high U.S. production and exports. Brent futures  gained 86 cents, or 1.5 percent, to settle at $59.30 a barrel, its highest close since July 3, 2015. U.S. West Texas Intermediate crude, meanwhile, rose 46 cents, or 0.9 percent, to settle at a six-month high of $52.64, its highest close since April 17. With Thursday’s gains, Brent futures were up for three days in a row following comments earlier in the week from Saudi Arabia that the Kingdom was determined to end a global supply glut that has weighed on prices for more than three years. “We are committed to work with all producers, OPEC and non-OPEC countries ... We will support anything to stabilise the oil demand and supply,” Saudi Arabia’s Crown Prince Mohammad bin Salman told Reuters on Thursday when asked whether the kingdom would support extending an agreement to cut supplies until the end of 2018. The Organization of the Petroleum Exporting Countries (OPEC), plus Russia and nine other producers, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018, but they are considering extending it. “When you couple what Mohammed Bin Salman said along with (Russian President Vladimir) Putin, you have to realize we have two of the largest oil producers basically putting a blessing on an extension of production cuts through the end of 2018,” .

Saudi Rhetoric Sends Oil Prices To Two-Year High -Comments made by Saudi Arabia’s Crown Prince Mohammed bin Salman (MBS), sent Brent crude to its highest in more than two years (highest since July 2015), above $60 a barrel, Reuters reports. West Texas Intermediate was more impervious to the comments, but it also gained a few cents, to the highest in six months.“The Saudis keep pressing for an extension of the output-cut deal through next year, so the market is feeding off that and we are seeing signs of tightening out there as a result of the program,” John Kilduff, a partner at Again Capital, told Bloomberg.At the same time “the Iraq-Kurd situation is also getting the attention of the market. The volumes are down out of Ceyhan” As's Irina Slav notes, the comments themselves are of the Saudi garden variety, and include:

  • a) a stale reassurance that the Aramco initial public offering is still on track for its scheduled takeoff in the second half of 2018;
  • b) a vague pledge to do whatever it takes to support oil prices;
  • and c) a vow to quit its oil dependency and move beyond fossil fuels at some point.

No matter that the assurances have all been made before - the comments add to the already growing optimism about OPEC’s production cut deal, which will almost certainly be extended until the end of next year, after Russia’s Vladimir Putin and now MBS have backed an extension.

OilPrice Intelligence Report: Oil Prices Finally Break $60 - Oil prices rose strongly on Thursday before breaking two-year-highs and the $60 mark on Friday. The price gains came after robust data from the EIA this week, plus rising confidence in an OPEC extension. But in recent times, oil prices have started to fall apart as they approach $60 per barrel, something that traders will be watching for again today. “It can’t really go above $60” a barrel, Giovanni Staunovo, a commodity analyst at UBS Wealth Management, told the WSJ. “If it goes too high, it’s an indication to U.S. shale producers to produce more oil.”  The WSJ reported that Saudi Arabia and Russia are leaning towards agreeing to extend their production limits through the end of 2018, a move that could be finalized at the upcoming meeting in Vienna on November 30. With those two countries on board, it would be likely that the rest would fall in line. Russian energy minister Alexander Novak warned earlier this week that Russia would boost output by 100,000 bpd next year if the agreement lapsed, while top Russian and Saudi officials also reassured the market about their intentions. “We don’t want to do anything that will shock the market…. and we won’t stop our efforts halfway,” Saudi energy minister Khalid al-Falih told reporters. Separately, al-Falih assured an orderly exit from the deal. “When we get closer to that (five-year average) we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don’t have a return to higher inventories,” he told reporters. An extension through the end of next year is rapidly becoming the baseline assumption for the November meeting. Refinery runs along the Gulf Coast averaged 8.8 million barrels per day for the week ending on October 20, or about 324,000 bpd higher than the five-year average, according to the EIA. Refinery runs had been down by 3.2 mb/d, or 34 percent, in the immediate aftermath of Hurricane Harvey. Two months on from the devastating storm, things are nearly back to normal.

Oil up 2 percent, Brent hits $60 per barrel on support for extending curbs (Reuters) - Oil prices jumped about 2 percent on Friday, with global benchmark Brent crude rising above $60 per barrel, on support among the world’s top producers for extending a deal to rein in output and as the dollar retreated from three-month peaks. Saudi Arabia and Russia declared their support for extending an OPEC-led deal to cut supplies for another nine months, the Organization of the Petroleum Exporting Countries’ secretary general said ahead of the group’s next policy meeting on Nov. 30. The pact currently runs to March 2018. Brent futures LCOc1 rose $1.14, or 1.9 percent, to settle at $60.44 a barrel after hitting a session peak of $60.53, the highest since July 2015 and more than 35 percent above 2017 lows touched in June. U.S. West Texas Intermediate crude oil (WTI) CLc1 ended the session up $1.26, or 2.4 percent, at $53.90 after reaching a session peak of $53.98 a barrel, the highest since early March. For the week, Brent was 4.6 percent higher, notching its third straight weekly gain. U.S. crude rose 4.7 percent for the week. U.S. crude’s gains have lagged the global benchmark amid rising domestic output. Oil prices have been hovering near their highest levels for this year amid signs of a tightening market, renewed support this week of an extension of production cuts and tensions in Iraq. However, the announcement on Friday of a ceasefire between Iraqi forces and the Peshmerga from the country’s autonomous northern Kurdish region eased some concerns. 

NYMEX November gas dips to $2.89/MMBtu despite bullish storage build - The NYMEX November natural gas futures contract fell Thursday despite the US Energy Information Administration announcing a lower-than-expected storage injection. The November contract settled at $2.89/MMBtu, down 2.9 cents from Wednesday's close, the third straight day of losses. The EIA announced an estimated 64-Bcf storage build for the week ended October 20, lower than the 66 Bcf expected by a consensus of analysts surveyed by S&P Global Platts, and 11 Bcf below the 75-Bcf injection average over the past five years during that time. Total estimated stocks now sit at 3.71 Tcf, a 1.2% deficit to the five-year average. The below-average build continues a recent trend, with four of the past five storage injections coming in below the five-year average, according to EIA data. The bearish tone in the market could be due to the recent increase in dry gas production. Data from Platts Analytics' Bentek Energy projected that US dry production will average 75.1 Bcf/d over the next 14 days, above the 73.7 Bcf/d month-to-date average. Also countering the bullish build could be forecasts for a warm winter, with the National Weather Service's most recent three-month outlook calling for above-average temperatures for much of the US through January. Above-average temperatures would take some demand pressure off of the market, as other factors, such as Mexican exports and LNG feedgas, have increased year on year. According to Platts Analytics, LNG feedgas has averaged 2.8 Bcf/d month to date, well above the 100 MMcf/d seen at this time in October 2016. Mexican exports have averaged 4 Bcf/d year to date, up from 3.6 Bcf/d at this time last year, according to Platts Analytics data. Looking down the curve, the January and February natural gas contracts sit at $3.175/MMBtu and $3.178/MMBtu, respectively.

U.S. oil rig count rises this week but falls for a third month: Baker Hughes (Reuters) - The U.S. rig count fell for a third month in a row even as drillers added a rig this week for the first time in October, extending the drilling decline that started after crude prices fell below $50 a barrel this summer. Drillers added one oil rig in the week to Oct. 27, bringing the total count up to 737, General Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday. For the month, the rig count fell by 13, the biggest decline since May 2016. It was also the first time since May 2016 that the number of rigs dropped for a third month in a row. The rig count, an early indicator of future output, is still much higher than a year ago when only 441 rigs were active after energy companies boosted spending plans in the second half of 2016 as crude recovered from a two-year price crash. The recovery in drilling lasted 14 months before stalling in August, September and October after some producers started trimming spending plans when prices turned softer over the summer.   Despite plans to cut spending by some exploration and production (E&P) companies, U.S. financial services firm Cowen & Co’s capital expenditure tracking increased this week. The 64 E&Ps it tracks planned to increase drilling and completion spending by an average of 50 percent in 2017 from 2016. That was up from 49 percent in the prior report. That expected 2017 spending increase followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015, Cowen said.  U.S. crude futures have averaged almost $50 a barrel so far in 2017, easily topping last year’s $43.47 average. Looking ahead, futures were trading above $53 for the balance of the year and calendar 2018.

Saudi determined to end oil glut, sees smooth exit for OPEC pact (Reuters) - The world’s top oil exporter Saudi Arabia is determined to reduce inventories further through an OPEC-led deal to cut crude output and raised the prospect of prolonged restraint once the pact ends to prevent a build up in excess supplies.Saudi Energy Minister Khalid al-Falih, speaking during an investment conference in Riyadh, said on Tuesday the focus remained on reducing the level of oil stocks in OECD industrialized countries to their five-year average. The Organization of the Petroleum Exporting Countries, plus Russia and nine other producers, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018, but they are considering extending it. “We are very flexible, we are keeping our options open. We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” Falih told Reuters. The market has been concerned that, once the supply cut deal comes to an end, producers will ramp up supplies again, causing prices to fall. But Falih raised the prospect of continued output restraint to prevent this. “When we get closer to that (five-year average) we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don’t have a return to higher inventories.” The oil pricehas recovered from below $30 a barrel at the start of 2016 to trade above $57 on Tuesday, and rose after Falih’s comments. Oil remains, however, at half its price in mid-2014. 

OPEC must think about exit strategy: Kemp (Reuters) - Smoothly exiting from the current output pact, and perhaps replacing it with another agreement, has become the most important policy question for the Organization of the Petroleum Exporting Countries and its allies. Under the current “declaration of cooperation”, issued in December 2016, OPEC with Russia and some non-OPEC countries have pledged to limit their output. Production limits were originally intended to apply for six months between January and June 2017 but have since been extended for a further nine months until the end of March 2018. The original declaration was vague about its objectives but senior officials have since indicated the primary goal is to reduce oil inventories in OECD industrialised countries down to the five-year average. OPEC and its allies are now roughly half-way towards that goal, with stocks about 160 million-170 million barrels above the five-year average, compared with 280 million at the start of 2017 ("Monthly Oil Market Report", OPEC, March and Oct. 2017).OPEC officials have stressed their resolve to finish what they have started and reduce stocks even further next year.“We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the five-year average,” Saudi Energy Minister Khalid al-Falih said during a conference in Riyadh on Tuesday.“The intent is to keep our hands on the wheel between now and until we get to a balanced market and beyond,” he said (“Saudi determined to end oil glut, sees smooth exit for OPEC pact”, Reuters, Oct. 24). Since inventories are unlikely to be reduced to the target by the end of March, OPEC officials are discussing an extension of the production cuts for up to another nine months. But the more complicated and important task is deciding when and how to exit from the current agreement and whether to try to replace it with another production accord. Knowing when to declare that an objective has been achieved and making a course correction is often a major challenge for policymakers. If a policy has been successful, there is a tendency to continue pursuing it, even when the environment has changed and demands a different response. OPEC and its allies must decide when to switch the focus from limiting output and cutting stocks to growing production again to meet rising demand. If they wait too long, stocks will fall too far, prices will rise strongly, shale production will ramp up, and the oil market’s adjustment will overshoot.

OPEC's options for extending production pact: Kemp (Reuters) - Senior officials from the Organization of the Petroleum Exporting Countries and its allies are already discussing an extension of their production accord beyond its scheduled expiry at the end of March 2018.  Current production limits have already been extended once, from the end of June 2017 to give more time for the oil market to rebalance.Ministers and officials are now discussing lengthening the agreement again, possibly until the end of 2018 ("OPEC seeking consensus on oil supply cut extension before meeting", Reuters, Oct. 19). The simplest strategy would be to extend the agreement for three months until the end of June 2018, which would allow it to be reviewed again at the next regular ministerial conference. The upside of a three-month extension is that it would maximise OPEC's flexibility as the oil market gets close to balance, and align production limits with OPEC's regular meeting cycle. But it would risk disappointing traders and hedge funds who expect OPEC to do "whatever it takes" and are hoping for a bolder and longer commitment to production restraint. A second strategy is to extend the pact for a full nine months, until the end of December 2018, which would also align the accord with the regular meeting cycle. A nine-month extension would be bold, underscoring OPEC's commitment to cutting stocks, but it would limit the organisation's flexibility significantly. In effect, OPEC would be committing to hold production unchanged for 12 months (the three unexpired months of the existing agreement and then nine months of extension). With oil inventories declining steadily, the oil market moving from contango to backwardation, and spot prices on a rising trend, OPEC would risk losing control of the rebalancing process. Given the current rate of drawdown in crude oil stocks, a 12-month extension would pose a significant risk of inventories and prices overshooting. So OPEC could try an intermediate strategy: a firm extension for three months to June 2018 with an option to extend the production cuts for a further six months, conditional on market conditions in the middle of 2018. 

Saudi Wealth Fund Aims To Double AUM To $400 Billion By 2020 - Discovers Leverage Boosts Returns -- Saudi Arabia’s sovereign wealth fund, a key engine of the kingdom’s plan to diversify the economy, on Wednesday laid out new targets for growth, saying it aims to nearly double the value of assets it manages to around $400 billion by 2020. That sum includes the expected proceeds from the planned initial public offering of up to 5% of state-owned oil giant Saudi Aramco. The listing, slated for next year, could raise as much as $100 billion, Saudi officials have said. The Saudi fund, called the Public Investment Fund or PIF, held assets worth roughly $224 billion as of September, it said in a document released on Wednesday. It had previously struggled to calculate the value of its holdings, estimating them to be between $200 billion and $300 billion. The PIF has made a series of high-profile investments and announcements since Saudi Arabia unveiled its long-term plan for economic overhaul last year. It has invested $3.5 billion in Uber Technologies Inc., and committed $45 billion to a technology fund led by SoftBank Group Corp. The PIF’s announcement highlighted its aim of raising the fund’s annual returns. “The Program also encompasses efforts to maximize value in PIF’s existing assets, which make up the majority of the Fund’s holdings, and a new target to increase PIF’s Total Shareholder Returns (TSR) up from 3 percent to between 4 to 5 percent.” While our calculation suggests that they’ll need at least 5% to reach $400bn by 2020, Reuters reports that the PIF is even more optimistic about the “long-term”, aiming for 6.5-9.0% - all-time highs in equities and all-time lows in bond yields notwithstanding.

Saudi Aramco IPO scaremongering looks overdone - It has been a tough couple of weeks for Saudi Aramco. Recent anonymously sourced reports of the company’s planned initial public offering have painted a chaotic picture of delay and indecision behind the scenes. But a closer analysis of the facts show the plan to raise $100 billion from the sale of a 5% stake in the world’s largest oil company by the end of 2018 remains firmly on track for now. And why wouldn’t it be? With existing upstream capacity to produce over 12 million b/d of crude, Aramco is bigger than Exxon, BP and Shell combined. Downstream, it dominates fuel marketing and refining in the Gulf’s largest economy and owns a network of refineries from Asia to North America. It has the right to tap a claimed 260 billion barrels of proven reserves — just under a sixth of the world’s reachable oil. Its earnings potential is vast and few international resource fund managers can afford to ignore the chance to buy its shares. Beyond Aramco’s vast production of cheap crude there is political momentum behind the IPO. Crown Prince Muhammad bin Salman — also known as MBS — is the architect of the sale, which forms the cornerstone of his Vision 2030 plan to modernize the economy. From leapfrogging his elder cousin to become his father’s heir, to reining in the power of Saudi’s strict religious police and challenging Iran’s growing influence in the region, there is nothing in the thirty-something royal’s recent record that suggests he is likely to change his mind, or back down. That doesn’t mean significant challenges don’t exist. The crown prince’s initial insistence on Aramco commanding a valuation of around $2 trillion has become a focus for criticism. Meeting disclosure rules on international exchanges such as New York and London — which both covet such a large prestigious offering — are also problematic. But rules can be changed.  

Bombshell NSA Memo: Saudi Arabia Ordered Attack On Damascus International Airport With US Knowledge --  The Intercept has just released a new top-secret NSA document unearthed from leaked intelligence files provided by Edward Snowden which reveals in stunning clarity that the armed opposition in Syria was under the direct command of foreign governments from the early years of the war which has now claimed half a million lives. The US intelligence memo - marked "Top Secret" - is arguably the most damning piece of evidence to date which gives internal US government confirmation of the direct role that both the Saudi and US governments played in fueling an armed insurgency which launched massive and well-coordinated attacks on civilians, civilian infrastructure, as well as military targets in pursuit of regime change. The NSA report is sourced to the intelligence agency's controversial PRISM program - which gives the NSA the ability to sweep up all communications and data exchanged through major US internet service providers like Google. The memo focuses on events that unfolded outside Damascus in March of 2013. Damascus International Airport: a major civilian transport hub targeted by the Saudi government with knowledge of US intelligence. Image source: AFP/Getty One of the videos that Saudi-backed FSA fighters uploaded to YouTube identified by The Intercept as showing rockets launched on civilian areas of Damascus on March 18, 2013. US intelligence knew of the secret operation three days in advance yet did not stop it.   According to the document, the Free Syrian Army (FSA) was ordered to "light up Damascus" and "flatten" the Syrian capital's international airport by Prince Salman bin Sultan - a prominent member of the Saudi royal family tasked with overseeing operations in Syria as a top Saudi intelligence officer. The document further reveals that the "Saudis sent 120 tons of explosives/weapons to opposition forces" - presumably in the lead up to the operation. The report not only confirms that the assault happened, but that the Saudi government was "very pleased" with the outcome: "Attacks against airport, Presidential palace and other locations occurred on 18 March," the memo reads. Also significant is that the memo confirms US intelligence foreknowledge of the attack on a major civilian airport: "Reports gave U.S. three days warning about 18 March 2013 attacks (2 year anniversary of revolution)."

I will return Saudi Arabia to moderate Islam, says crown prince -- Saudi Arabia’s crown prince, Mohammed bin Salman, has vowed to return the country to “moderate Islam” and asked for global support to transform the hardline kingdom into an open society that empowers citizens and lures investors. nIn an interview with the Guardian, the powerful heir to the Saudi throne said the ultra-conservative state had been “not normal” for the past 30 years, blaming rigid doctrines that have governed society in a reaction to the Iranian revolution, which successive leaders “didn’t know how to deal with”.Expanding on comments he made at an investment conference at which he announced the launch of an ambitious $500bn (£381bn) independent economic zone straddling Saudi Arabia, Jordan and Egypt, Prince Mohammed said: “We are a G20 country. One of the biggest world economies. We’re in the middle of three continents. Changing Saudi Arabia for the better means helping the region and changing the world. So this is what we are trying to do here. And we hope we get support from everyone. “What happened in the last 30 years is not Saudi Arabia. What happened in the region in the last 30 years is not the Middle East. After the Iranian revolution in 1979, people wanted to copy this model in different countries, one of them is Saudi Arabia. We didn’t know how to deal with it. And the problem spread all over the world. Now is the time to get rid of it.” Earlier Prince Mohammed had said: “We are simply reverting to what we followed – a moderate Islam open to the world and all religions. 70% of the Saudis are younger than 30, honestly we won’t waste 30 years of our life combating extremist thoughts, we will destroy them now and immediately.” The crown prince’s comments are the most emphatic he has made during a six-month reform programme that has tabled cultural reforms and economic incentives unimaginable during recent decades, during which the kingdom has been accused of promoting a brand of Islam that underwrote extremism.

EU under mounting pressure to ban arms sales to Saudi Arabia --The European Union is under mounting pressure from MEPs to ban arms sales to Saudi Arabia in response to the Gulf state’s bombing campaign in Yemen.  The leaders of four political groups in the European parliament have urged the EU foreign policy chief, Federica Mogherini, to propose an EU arms embargo on Saudi Arabia, because of the devastating war in Yemen that has left nearly 20 million people in need of humanitarian aid. In a letter to Mogherini, seen by the Guardian, the MEP leaders accuse the EU of flouting its own rules, by selling weapons to Saudi Arabia in defiance of a 2008 common code on military exports. Mogherini has the right to propose an arms embargo, but would need to win the backing of EU member states, including the UK, one of the biggest arms exporters to the Gulf kingdom. The latest call for a ban would run into immediate opposition from the British defence secretary, Michael Fallon, who urged MPs on Wednesday not to criticise Saudi Arabia in the interests of a fighter jet deal. The EU code on arms exports lists eight grounds for turning down an arms export licence, including respect for the obligations of international organisations, such as the UN. In particular EU member states must show “special caution and vigilance” when issuing licences to countries where serious violations of human rights have been established by the UN or other bodies. The UN has described Yemen as the world’s largest humanitarian crisis: in September it agreed to send war crimes investigators to the devastated country to examine alleged human-rights violations committed by both sides during the two-and-a-half year civil war. After Saudi Arabia launched a bombing campaign against the Houthi rebels in March 2015, at least 10,000 people were killed in the first 22 months of the conflict, the UN humanitarian office said, almost double other estimates. At least 2,100 people have died from cholera, while thousands more are being infected with the disease every week following the collapse of water supplies and sanitation.

The Qatar Blockade Could Cause A Regional Recession -- Five months into the Gulf’s blockade against Qatar, and neither side looks ready to budge. But the repercussions of the ongoing spat—and Kuwait’s failure to end the dispute—could deliver a huge blow to the Gulf economy. Doha has stood its ground: It refuses to shut down its renowned news station Al Jazeera or abide by the sectarian politics orchestrated by Riyadh. Saudi Arabia and its allies (the United Arab Emirates, Bahrain, Egypt and others) maintain that Qatar’s relationship with Iran and other Shi’ite regimes contributes to disharmony in the Middle East. A series of ultimatums, diplomatic talks, and regional sanctions have yielded no results. Kuwait volunteered to mediate between the sparring parties a couple of months ago, but despite international encouragement for its leadership, the country has made no progress in resolving the impasse, which could lead to a regional economic recession if not remedied soon.  In 1982, the collapse of Kuwait’s Souk al-Manakh, the nation’s stock exchange established after the discovery and production of oil in the small emirate, demonstrated how the collapse of one Gulf state can quickly affect its neighbors. Kuwait is now preparing to launch its “grown-up” stock market sometime next year, just as Saudi Arabia prepares for its state-run oil company to undergo an initial public offering. The Gulf’s financial sector is undergoing major changes, and Crown Prince Mohammed bin Salman’s tough anti-Iran stance is adding fuel to a centuries-old, fiery clash of civilizations between Persia and Arabia. For Qatar and Iran, the relationship is one of necessity. The two nations share a stake in the South Pars gas field, which is the largest reservoir of its kind in the world. Doha’s resilience in producing and delivering liquefied natural gas to its customers via an Omani port demonstrates the country’s independence and resolve to keep its politics non-partisan. But the continued excision of Qataris and their wealth from the rest of the Gulf nations will begin affecting regional development in due course.

In A Dramatic Pivot, Shia Militia Leader Tells US: "Get Ready To Leave Iraq"  -- A prominent Iraqi militia leader with close ties to Iran has told the United States to go home while also accusing US forces of not actually being interested in fighting ISIS: Your forces should get ready to get out of our country once the excuse of Daesh’s presence is over," said Sheikh Qais al-Khazali, the commander of the Shiite PMU group Asaib (Popular Mobilization Unit), through the group's TV channel on Monday. The threatening statement was issued the same day Iraqi Prime Minister Haider al-Abadi publicly rejected Secretary of State Rex Tillerson's earlier suggestion that Iraqi paramilitary units who have for years fought Islamic State terrorists are actually "Iranian" and not Iraqi nationals.  On Sunday Tillerson controversially asserted that Iranian "militias" need to leave Iraq as the fight against Islamic State militants was coming to an end while in Riyadh where he engaged in rare high level talks with Abadi and Saudi Arabia’s King Salman. “Certainly Iranian militias that are in Iraq, now that the fighting against (the Islamic State group) is coming to a close, those militias need to go home,” Tillerson said during a press conference in Riyadh, just before boarding a plane for Baghdad. "All foreign fighters need to go home,” he added. But Iraqi PM Abadi pushed back against the Secretary of State in a face to face meeting in Baghdad on Monday. Abadi's words to Tillerson were publicized through a statement on the prime minister's official Facebook page posted late Monday, which has been translated by Zero Hedge (emphasis ours): Prime Minister Dr. Haider al-Abadi during his meeting with the American Secretary of State Rex Tillerson assured him that the fighters of al-Hash'd al Shaabi [PMU militias] are Iraqi fighters who fought terrorism and protected their country, they sacrificed in order to win against Daesh [ISIS], and that Hash'd al Shaabi is an official institution under the state. The Iraqi Constitution doesn’t allow for foreign armed groups under state institutions, and further said that we should encourage these fighters because they are the hope of our country and for the region.

The unlikely – and ironic – effects of Islamic State’s fall in Iraq -- Islamic State has been routed in Iraq. On October 5, the militant group lost the northern town of Hawija – its last urban stronghold after Iraqi forces recaptured Mosul and Tal Afar earlier this year. The brutal battles for these cities have been well documented. Less noticed, however, has been how the near-total defeat of IS is reshaping political and sectarian alliances in the region. The rise and fall of IS has had a sobering and unifying effect on relationships between Sunnis and Shi’ites. In Iraq, where thousands died in the vicious sectarian war that followed the fall of Saddam Hussein, residents of the mainly-Sunni cities of Mosul and Hawija nonetheless jubilantly welcomed the mostly-Shi’ite Iraqi forces who freed the cities from the Sunni extremists of IS. “They helped liberate us,” one Hawija Sunni leader told the New York Times of the fighters. Nor does a Shi’ite backlash against Sunnis seem imminent given Shi’ite recognition of Sunni suffering in the IS-occupied cities. The IS experience has affected Iranian politics too. Supreme Leader Ayatollah Ali Khamenei seemed to show a softer attitude toward Sunnis in a rare pronouncement – seen as carrying the weight of a fatwa – publicly prohibiting any discrimination against minorities. Sunnis have fewer rights than Shi’ites in Iran, and Khamenei’s August comment was made in response to an inquiry by Molavi Abdul Hamid, a prominent Sunni cleric from Iran's impoverished Sunni-dominated Sistan-Baluchistan province on the Pakistan border. In Syria too, IS's faster-than-expected battlefield defeats suggest that the group does not enjoy much local support among the Sunni tribes and populations it has been ruling for the past couple of years. The biggest changes can be seen in Iraq, where Shi’ite leaders’ attempts to develop a post-IS foreign policy are driven in part by fear of Iran’s growing influence and in part by the IS-inflicted suffering in Iraq. Many observers believe that the pursuit of sectarian policies at the expense of Iraqi Sunnis – as systematically practiced under the former Prime Minister Nuri al-Maliki – expedited the rise of IS. The result of the new dynamic is that Iraq’s main Shi’ite leaders are distancing themselves from Iran as they make once-unthinkable overtures to the region’s Sunni Arab bloc. In one of the latest signs of that shift, Iraqi Prime Minister Haidar Al-Abadi declined Tehran’s official invitation to take part in President Hassan Rouhani’s second-term inauguration ceremony on August 5. Such a refusal would have been unimaginable a few years ago. 

US Now Admits Syrian "Rebels" Have Used Chemical Weapons -- From the first moment chemical weapons were used on the Syrian battlefield, the American public was led to believe that only one side could possibly be responsible. The constant refrain in the echo chamber of US government officials and the mainstream media was that only the Assad government possessed chemical stockpiles and the technological capability of deploying such heinous weapons, therefore blame for each and every chemical attack from Ghouta to Khan Sheikhoun was laid at the feet of Assad and the Syrian military.And yet last Wednesday, for the first time, the US State Department casually dropped an important admission into its official Syria travel warning for American citizens: that the core rebel group currently operating in northwest Syria not only possesses but has used chemical weapons - to the point that the State Department considers it a major enough threat to publicly warn citizens about. The armed opposition group, Hayat Tahrir al-Sham (HTS), is referenced early in the document: "Terrorist and other violent extremist groups including ISIS and Al-Qaeda linked Hayat Tahrir Al-Sham [dominated by Al-Qaeda affiliate Jabhat Al-Nusra, a designated Foreign Terrorist Organization], operate in Syria.” HTS is the group now holding Idlib province, which it captured in 2015 as part of a coalition of armed groups given direct support from a US-led operations room in southern Turkey - this according to prominent pro-opposition analyst Charles Lister.

Syrian Kurds Cut Secret Gas Deal With Russian Forces - In a move that surprised many observers of the ongoing war for Deir Ezzor province, the U.S.-backed Syrian Democratic Forces (SDF) handed over one of Syria's largest gas fields to Russian forces on Thursday, possibly as the result of unprecedented direct talks between high ranking Russian officials and Kurdish leaders in Qamishli in northeastern Syria. Conoco gas plant (also locally called Al-Tabiya, which is the plant's main feeder field) lies on the eastern side of the Euphrates outside of Deir Ezzor city - which was recently liberated from ISIS as the Syrian Army and Russian forces approached from the west of the Euphrates. The Conoco field had been held by ISIS since 2014, and was taken by the SDF on September 23rd as the mainly Kurdish force advanced from the east. The now fast crumbling Islamic State relied on much of its financing through its prior consolidation over many oil and gas sites in the resource rich Deir Ezzor province.The gas field, which had the largest capacity of any in Syria prior to the conflict, is capable of producing 450 million cubic feet (13 million cubic meters) of natural gas per day. It is named for the American company which first discovered gas reserves and built a processing plant at the location, however, ConocoPhillips turned the facility over to the state-run Syrian Gas Company in 2005 and has no current association with it. Beirut-based al-Masdar News broke the story based on Syrian military sources: “The information, disseminated by Syrian military reports, claims that an agreement has been brokered between Russia and the U.S.-backed Syrian Democratic Forces whereby the Syrian government will be allowed to assume control over the gas field.” If true, then the scope of any backdoor agreements reached between Moscow and Washington regarding the transfer of energy assets held by Kurdish-led militias back to the rightful ownership of the Damascus government may yet encompass wider dimensions (i.e. future transfers) – although there is absolutely no evidence to suggest this is in fact the case. Nonetheless, the unexpected transfer of the Conoco Gas Field by the SDF to the Syrian government does now raise questions as to whether or not the hitherto competition between the Syrian Arab Army and Kurdish-led militias to seize control of the much larger Al-Omar Oil Field from ISIS further south is still on.

Kurds offer to suspend independence drive, seek talks with Baghdad (Reuters) - Kurdish authorities in Iraq offered on Wednesday to put an independence drive on hold, stepping up efforts to resolve a crisis in relations with Baghdad via dialogue. But an Iraqi military spokesman suggested an offensive - launched to wrest back territory after Kurds voted overwhelmingly for independence in a referendum in September - would continue regardless. The Iraqi government has transformed the balance of power in the north of the country since launching its campaign last week against the Kurds, who govern an autonomous region of three northern provinces and had held a swathe of other territory. “The fighting between the two sides will not produce a victory for any, it will take the country to total destruction,” the Kurdistan Regional Government (KRG) said in a statement. The KRG proposed an immediate ceasefire, a suspension of the referendum result and “starting an open dialogue with the federal government based on the Iraqi Constitution”. Baghdad has always considered the Kurdish secession referendum illegal. It responded last week by seizing back the city of Kirkuk, the oil-producing areas around it and other territory that the Kurds had captured from militant group Islamic State. In a brief social media comment hinting that the campaign would continue, an Iraqi military spokesman said: “Military operations are not connected to politics.” Prime Minister Haider al-Abadi has said the KRG should cancel the vote’s outcome as a pre-condition for talks. Several Shi‘ite members of parliament on Wednesday asked him to stick to his position and not to accept just a freeze of the referendum.

Kurdish Government Proposes End to Independence Push - With oil the source of regional disputes, the semiautonomous Kurdish government in northern Iraq said it was backing off its ambitions for independence. The Kurdistan Regional Government said in statements published Wednesday that greater Iraq and the self-governed Kurdish provinces were faced with “grave and dangerous” circumstances that followed a contentious referendum for Kurdish independence. The referendum coincided more or less with the liberation of Mosul and other key areas of northern Iraq from the terrorist group calling itself the Islamic State, known variably as ISIS, ISIL or Daesh. Liberation prompted a reconstruction effort by the Iraqi government. After tensions escalated in the wake of the referendum, Iraqi forces in early October wrestled control over oil fields in the disputed region of Kirkuk, taking over an economic lifeline for Kurdish independence. Kurdish military forces backed out of the northern city of Sinjar after a confrontation with paramilitary forces loyal to the federal government in Baghdad. The city is included in territories of dispute between the semiautonomous Kurdish government and the federal government in Baghdad. Disputed territories run north from a line stretching from Khanaqin along the eastern border with Iran to Sinjar, near the border with Syria.  The Kurdish government said Wednesday that, in order to prevent the conflict from spiraling out of control, it was proposing a bilateral cease-fire agreement, open dialogue with the federal government in Baghdad and a freeze to “the results of referendum conducted in the Iraqi Kurdistan.”

Iraq Resumes Kirkuk Crude Oil Exports Via Kurdish-Run Pipeline - Iraq resumed pumping oil from a field in the disputed Kirkuk province, the first sign that output is recovering from last week’s fighting between government troops and Kurdish forces that hobbled pipeline exports from OPEC’s second-biggest producer.Iraq’s central government, which rejected a Kurdish independence referendum last month, began exporting from the Avana field in Kirkuk through a pipeline operated by the Kurdistan Regional Government, according to an official at Iraq’s North Oil Co. and a port agent. Crude began flowing on Wednesday at a rate of about 90,000 barrels a day, they said.State-run North Oil, which operates at Avana, was working as well to begin pumping at the nearby Bai Hassan field, which also halted production and exports, the official said, asking not to be identified because the matter isn’t public. Increasing production from Iraq may put pressure on OPEC and other major producers seeking to rein in a global supply glut and firm up prices. The resumption in output at Avana also suggests the central government and the Kurdish authorities may have reached a deal to keep the oil flowing despite armed clashes sparked by the KRG’s Sept. 25 referendum for independence from Iraq that also included Kirkuk.

Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse? -- A massive amount of hype is spreading regarding China's alleged ambitions to dethrone the dollar. The story this time involves China's plan is to price oil in yuan using a gold-backed futures contract. Even if that were true, the impact would be zero. Nonetheless, CNBC is now in on the hype.CNBC reports China has grand ambitions to dethrone the dollar. It may make a powerful move this year.Yuan pricing and clearing of crude oil futures is the "beginning" of a broader strategic push "to support yuan pricing and clearing in commodities futures trading," Pan Gongsheng, director of the State Administration of Foreign Exchange, said last month. To support the new benchmark, China has opened more than 6,000 trading accounts for the crude futures contract, Reuters reported in July. Yawn.Jeff Brown, president at FGE, an international energy consultant has a more accurate assessment. "Most counterparties will not want anything to do with this contract as it adds in a layer of cost and risk. They also don't like contracts with only a few dominant buyers or sellers and a government role." Repeat after me: It's meaningless what currency oil is quoted in. Once you understand the inherent truth in that statement, you immediately laugh at headlines like that presented on CNBC.

Ports, Pipelines, and Geopolitics: China’s New Silk Road Is a Challenge for Washington -- Founded four years ago, Khorgos is poised to become the world’s busiest inland port, a vital link in China’s multi-billion dollar plan to re-create the Silk Road. Some $8 billion of trade passes through each year, say Chinese officials. There’s a free-trade zone that welcomes 30,000 traders daily, and an industrial complex of factories where manufacturers enjoy perks such as two years of free rent courtesy of the Chinese government. “Today, the ground of Khorgos is mud,” says Guo Jianbin, deputy director of the Khorgos Economic Development Zone administration committee, accenting his words with a booted stamp. “But soon it will be paved with gold.” Khorgos is a linchpin in Chinese President Xi Jinping’s signature Belt and Road Initiative. Formerly known as One Belt One Road, it’s a rekindling of the ancient Silk Road through a staggeringly ambitious plan to build a network of highways, railways and pipelines linking Asia via the Middle East to Europe and south through Africa. The economic land “belt” takes cargo, in large part via Khorgos, through Eurasia. A maritime “road” links coastal Chinese cities via a series of ports to Africa and the Mediterranean. A total of 900 separate projects have been earmarked at a cost of $900 billion, according to the China Development Bank. There’s the $480 million Lamu deep-sea port in Kenya, which will eventually be connected via road, railway and pipeline to landlocked South Sudan and Ethiopia and right across Africa to Cameroon’s port of Douala. A new $7.3 billion pipeline from Turkmenistan will bring China an extra 15 billion cubic meters of gas annually. Not since the hordes of Genghis Khan galloped west in the 13th century have such sweeping transnational ambitions emanated from China, though instead of ashes and sun-bleached bones, this time the invaders plan to leave harbors, pipelines and high-speed rail in its wake.