Sunday, December 31, 2017

oil ends 2017 above $60, first time in 30 months; US refining at wintertime high, distillates production at a record high

oil prices rose for the 2nd week in a row this week and ended at their highest level of the year, closing above $60 a barrel for the first time since June of 2015...after being little changed in light overseas trading through the Christmas weekend, US crude oil prices for February delivery surged $1.50 to close at a 2-1/2-year high of $59.97 a barrel on Tuesday, on news that an explosion on a major Libyan oil pipeline had disrupted the country's crude supply...prices then eased back 33 cents on Wednesday to close at $59.64 a barrel after the head of the Libyan state oil firm told Reuters the pipeline repair could take a week but would not have a major impact on exports, and on news that the cracked North Sea Forties pipeline was gradually resuming operations...oil prices then see-sawed on Thursday and ended 20 cents higher at $59.84 a barrel after the weekly EIA report showed a continuation of the ongoing decline in US oil supplies...US crude prices then rose 58 cents to close at $60.42 a barrel on Friday, 41% higher than its lowest point earlier this year, as oil traders interpreted a decline in US crude production and the weekly rig count to mean that producers were being cautious about ramping up their output...prices thus ended the week 12.5% higher than at the end of 2016, and up 132% from their low in February 2016...

since oil prices are at a two and a half year high and appear to have clearly broken out of the trading range they've been in for the past year and a half, we'll next include a graph of that price history so we can see how this price rally has developed..

December 30 2017 oil price history

the above graph is a screenshot of the live interactive oil price graph at Daily FX, an online platform that provides trading news, charts, indicators and analysis of the markets...each bar on the above graph represents oil prices for one week of oil trading between May 2011 and December 29th of this year, wherein green bars represent the weeks when the price of oil went up, and red bars represent the weeks when the price of oil went down...for green bars, the starting oil price at the beginning of the week is at the bottom of the bar and the price at the end of the week is at the top of the bar, while for red or down weeks, the starting price is at the top of the bar and the price at the end of the week is at the bottom of the bar...barely visible in this compressed view, there are also feint grey "wicks" above and below each bar to indicate trading prices during each week that were above or below the opening to closing price range for that week...

on this graph, we can see how oil prices stayed in a range roughly between $80 and $110 a barrel from mid-2011 till the fall of 2014, a period that saw widespread drilling and fracking helter-skelter across the breadth of the US...oil prices had already slipped to $78 a barrel the week before the Thanksgiving 2014 OPEC meeting that declared war on US fracking, after which oil prices quickly fell to $65 a barrel, and then continued lower, albeit with some intervening price rallies, until bottoming out at $26.02 a barrel on February 11, 2016, before spiking back up to $29 a barrel a day later (look closely at the graph, and you can see the 'wick' for that price dip at the bottom of the red candlestick for that week)...oil prices climbed to $50 a barrel pretty quickly after that, and generally stayed in a range between $44 a barrel and $54 a barrel from the Spring of 2016 through the Autumn of this year, a price range which kept the frackers confined to the most profitable sweet spots in the most productive oil fields...with prices now trending higher, we would expect to see a gradual expansion by exploration and exploitation enterprises into areas of the US that have seen little activity over the past few years...

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 December 22nd, showed that despite an increase in our oil imports and a decrease in our oil exports, we once again had to pull quite a bit of oil out of storage, mostly because US refineries were running at a record pace for this time of year...our imports of crude oil rose by an average of 159,000 barrels per day to an average of 7,993,000 barrels per day during the week, while our exports of crude oil fell by an average of 648,000 barrels per day to an average of 1,210,000 barrels per day, which meant that our effective trade in oil worked out to a net import average of 6,783,000 barrels of per day during the week, 807,000 barrels per day more than the net imports of the prior the same time, field production of crude oil from US wells fell by 35,000 barrels per day to 9,754,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,537,000 barrels per day during the reporting week...

during the same week, US oil refineries were using 17,398,000 barrels of crude per day, 335,000 barrels per day more than they used during the prior week, while at the same time 644,000 barrels of oil per day were being withdrawn from 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, from oilfield production, and from storage was still 217,000 fewer barrels per day than what refineries reported they used during the account for that disparity, the EIA needed to insert a (+217,000) 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, a fudge factor that is labeled 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 7,598,000 barrels per day, still 5.9% less than the 8,075,000 barrels per day average imported over the same four-week period last year....the 644,000 barrel per day decrease in our total crude inventories came about on a 658,000 barrel per day withdrawal from our commercial stocks of crude oil, which was slightly offset by a 14,000 barrel per day addition of oil to our Strategic Petroleum Reserve, likely a return of oil that was borrowed from the Reserve during the post Hurricane Harvey emergency... this week's 35,000 barrel per day decrease in our crude oil production was due to a 24,000 barrel per day decrease in output from wells in the lower 48 states, and an 11,000 barrels per day decrease in output from Alaska....the 9,754,000 barrels of crude per day that were produced by US wells during the week ending December 22nd was still 11.2% more than the 8,770,000 barrels per day we were producing at the end of 2016, and 15.7% above the recent low of 8,428,000 barrels per day that our oil production fell to during the last week of June, 2016...

US oil refineries were operating at 95.7% of their capacity in using those 17,398,000 barrels of crude per day, up from 94.1% of capacity the prior week, and the highest capacity utilization on record for any week in December since 1998....the 17,398,000 barrels of oil that were refined this week was only 1.8% less than the record 17,725,000 barrels per day that were being refined at the end of August of this year, and was 5.1% more than the 16,557,000 barrels of crude per day that were being processed during week ending December 23rd, 2016, when refineries were operating at 91.0% of capacity, and roughly 12.5% above the 10-year seasonal average for this time of the year... 

we'll include a graph of what that refinery throughput looks like, since it's so far above the norm, and almost a record at a out of season time of year..

December 20 2017 refinery throughput as of December 15

the above graph came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out last week...this graph shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown in the light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of oil refined for each week in 2016 traced weekly by a yellow line, with our year to date oil refining for 2017 represented by the red graph...since John was on vacation this week, i've taken the liberty of adding this week's refinery spike to his graph of the prior week, so you can see how far above last year's record level this week's refining has fact, you can also see that this year's oil refining has been beating what were the record or near record levels of last year by a large margin since the beginning of April, except for during the disruptions to refining resulting from this year's hurricanes, setting several record highs on the way...

with the big increase in the amount of oil being refined, gasoline output from our refineries was likewise higher, increasing by 181,000 barrels per day to 10,246,000 barrels per day during the week ending December 22nd, after slipping during the prior week despite increased refining....however, even with this week's increase, our gasoline production was still 2.8% lower than the record 10,537,000 barrels of gasoline that were being produced daily during the week ending December 23rd of last year....however, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 270,000 barrels per day at the same time to a record high of 5,476,000 barrels per day, which was also 10.5% more than the 4,957,000 barrels of distillates per day that were being produced during the the same week a year ago....  

with the increase in our gasoline production, our gasoline inventories at the end of the week rose by 591,000 barrels to 228,374,000 barrels by December 22nd, their seventh increase in a row...that was as our domestic consumption of gasoline increased by 59,000 barrels per day to 9,485,000 barrels per day, and as our exports of gasoline rose by 58,000 barrels per day to 862,000 barrels per day, while our imports of gasoline fell by 99,000 barrels per day to 388,000 barrels per day....however, with significant gasoline supply withdrawals throughout the summer months, our gasoline inventories are still down by 5.8% from their pre-summer high of 242,444,000 barrels, even as they are up fractionally from last December 23rd's level of 227,143,000 barrels, and roughly 4.4% above the 10 year average of gasoline supplies for this time of the year...     

meanwhile, with our distillates production at a record level, our supplies of distillate fuels rose by 1,090,000 barrels to 129,935,000 barrels over the week ending December 22nd, in just the sixth increase in distillates supply in seventeen weeks...that was even as the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 400,000 barrels per day to 4,326,000 barrels per day, and as our imports of distillates fell by 141,000 barrels per day 239,000 barrels per day, while our exports of distillates fell by 317,000 barrels per day to 4,326,000 barrels per day...even after this week’s inventory increase, however, our distillate supplies were still 14.3% lower at the end of the week than the 151,634,000 barrels that we had stored on December 23rd, 2016, and roughly 5.0% lower than the 10 year average of distillates stocks at this time of the year

finally, with US refineries using oil at a record pace, our commercial crude oil inventories fell for the 31st time in the past 38 weeks, decreasing by 4,609,000 barrels, from 436,491,000 barrels on December 15th to a 26 month low of 431,882,000 barrels on December 22nd ....while our oil inventories as of December 22nd were thus 11.1% below the 486,063,000 barrels of oil we had stored on December 23rd of 2016, and 5.1% lower than the 455,106,000 barrels of oil that we had in storage on December 25th of 2015, they were still 22.4% greater than the 352,979,000 barrels of oil we had in storage on December 26th of 2014, when the buildup to an oil glut in the US was just getting started... 

This Week's Rig Count

US drilling activity decreased for the second time in 8 weeks during the week ending December 29th, but all the changes over the past 4 weeks have really been insignificant....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 2 rig to 929 rigs in the week ending on Friday, which was still 271 more rigs than the 658 rigs that were deployed as of the December 30th report in 2016, while it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil was unchanged at 747 rigs this week, which was still 222 more oil rigs than were running a year ago, while the week's oil rig count remained far below the recent high of 1609 rigs that were drilling for oil on October 10, the same time, the number of drilling rigs targeting natural gas formations fell by 2 rigs to 182 rigs this week, which was still only 50 more gas rigs than the 132 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...

with the shutdown of a drilling platform offshore from Texas, drilling activity in the Gulf of Mexico was was down by 1 rig to 18 rigs this week, which was also down from the 22 rigs that were drilling from platforms in the Gulf of Mexico a year ago...the total national offshore count was also down 1 rig at 18 rigs this week, but a year ago there was also a rig drilling offshore from Alaska, for a national total of 23 offshore rigs that were working last December 30th...

this week's count of active horizontal drilling rigs was down by 5 rigs to 796 horizontal rigs this week, but it was still up by 264 rigs from the 532 horizontal rigs that were in use in the US at the end of last year, but of course was down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...meanwhile, the vertical rig count was up by 1 rig to 65 vertical rigs this week, but that was still down from the 70 vertical rigs that were working during the same week last addition, the directional rig count was up by 2 rigs to 68 rigs this week, which was also up from the 56 directional rigs that were deployed on December 30th 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 December 29th, the second column shows the change in the number of working rigs between last week's count (December 22nd) and this week's (December 29th) count, the third column shows last week's December 22nd 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 30th of December, 2016...               

December 29 rig count summary

you'll notice that despite the decrease of two rigs targeting natural gas nationally, there was still a rig added in Ohio's Utica shale; at the same time, gas rigs were pulled out of the Haynesville in Texas at the Louisiana border, and out of two 'other' gas fields not named in Baker Hughes summaries...otherwise, the few changes you see on the tables above seem to be the extent of this week's changes, as it seems even most decisions in the oil fields were put on hold during the holiday week...


Planned injection wells raise concerns among residents: Dana Basse, a resident of the Wyngate Manor community, is among concerned Brookfield residents who oppose the two injection wells permitted to be drilled nearby and the three injection wells that have pending permits at the same site. Highland Field Services, a subsidiary of Seneca Resources, applied for the injection-well permits from the Ohio Department of Natural Resources. Basse, who has lived in the community for more than 50 years, said she is concerned about potential earthquakes. “Our homes are built on concrete blocks,” Basse said. “My home will not survive an earthquake.” What adds to her concern is there are abandoned mine shafts below parts of Brookfield, and she believes an earthquake could trigger a collapse. A statement from Highland Services said its site is about 1.5 miles away from the nearest mine shaft, based on a map on the ODNR website, but well opponents worry tremors still could reach the mines. ODNR said the two permitted Class II wells and three pending applications for wells must meet 18 construction conditions to ensure safety, including required seismic monitoring. Class II injection wells are used to store wastewater from drilling and hydraulic fracturing. The wastewater is too toxic to be stored in landfills.

Group says fracking caused Youngstown earthquake 6 years ago -  (WKBN) – It’s been six years since an earthquake shook the city of Youngstown. Thursday, a group got together to remember the natural disaster and protest what they say caused it.Supporters of Frackfree America National Coalition attended a prayer service in Brookfield.It was lead by Reverend Monica Beasley-Martin, who says fracking waste injection wells caused the 2011 earthquake.The group protested the five additional proposed injection wells coming to Brookfield.“Why do we keep doing the same thing over and over and expect a different result?” Beasley-Martin said. “Now we’ve got five of them coming here. So I’m really concerned about that.”Beasley-Martin says the Ohio Department of Natural Resources is working for the oil and gas industry — not the people.

Fracker Sues DEC Over Non Existence Gas Reserves  – An East Rochester lawyer waging a years-long battle over New York’s hydraulic fracturing ban is taking a new approach, filing a lawsuit last week attempting to force the state to compensate him for the oil-and-gas rights on his land. David Morabito and his wife, Colette, are suing the state Department of Environmental Conservation in federal court, arguing that the state essentially took their property rights by preventing them from allowing high-volume fracking on their land. The Morabitos own land in Allegany County within the gas-rich Marcellus Shale formation, which was once targeted by natural-gas drillers looking to pay landowners for their mineral rights until Gov. Andrew Cuomo’s administration banned high-volume fracking in late 2014. Allegany County? It’s not “gas rich” according to Acton/Brock/Allstadt/Northrup.It’s less than 4,000’ft deep there and less than 150’ft thick. Too shallow, too thin. That’s a double whammy according to Jerry Acton’s model”: Morabito’s suit does not specify how much compensation he’s looking for, instead saying that would be worked out at trial. He reserved the right to open it up to a class action.The attorney, who is representing himself, first challenged the ban in state court in May 2015, arguing that it didn’t have legal merit in part because the DEC had regulated vertical fracking for more than two decades.His suit was ultimately dismissed when a state Supreme Court justice ruled he didn’t have standing to sue because he never formally applied for a drilling permit, a decision that was upheld by the Appellate Division earlier this year. At the time, Morabito said the decision would allow him to pursue his claim in federal court, which he is now doing.

CNX Gas gets $433K in DEP penalties for Greene County wells - CNX Gas will pay $433,500 in civil penalties for what the Department of Environmental Protection called drilling violations at well sites in Greene County. CNX (NYSE: CNX) was cited for impacts to watersheds and surface waters including Jacobs Run and a tributary in 2015 and 2016 at four well sites. The citations included unauthorized discharge of industrial waste into water, failure to minimize erosion and sedimentation, and failure to maintain containment during drilling and hydraulic fracturing. "If incidents occur, it is incumbent on the operator to promptly address the cause, remediate the site, and prevent a reoccurrence," said DEP Secretary Patrick McDonnell in a statement. "DEP inspectors and investigators work diligently to ensure that safeguards are in place and operators are held accountable if they fail." The DEP said cleanup and remediation were completed at the sites. 

In Bad Trade Off, New England Forsakes Natural Gas For Petroleum - In New England, an overall concern for the environment and safety has actually led to further risks to the environment. New England has been at the forefront of converting its fossil fuel power plants to use cleaner burning natural gas. In fact, the region’s electricity generation is over 50% reliant on natural gas. In addition, many New Englanders have gas lines in their homes and use natural gas for heating and cooking. However, natural gas prices in New England are also the most expensive in the nation, because state and local governments have fought to keep out the pipelines needed to transport it into and around the region. Natural gas prices across the United States dropped with the advent of fracking, and it would be easy and cheap to supply New England with natural gas from the nearby Marcellus shale region. Several companies have tried to build pipelines to bring this gas to New England, but they were stymied by hostile local governments and ultimately by a 2016 ruling from the Supreme Judicial Court of Massachusetts that forbade utility companies from entering into long term natural gas deals with the intent of passing on charges to customers. After the legal case was decided in Massachusetts, Kinder Morgan withdrew plans for a new pipeline.  Now, a polar vortex has hit the northeast and frigid temperatures are causing demand for natural gas to skyrocket . Natural gas prices in New Englandtripled in just one day and are currently some of the highest in the nation. Now New England has turned to petroleum, a source of great pollution and even greater expense, for electricity generation. Over the course of one day, December 27, 2017,petroleum use grew from less than 500MW to nearly 4,000MW. Petroleum accounted for 22% of the electricity generation, just behind nuclear at 35% and natural gas at 24%.  Ironically, a region known for its protests against fossil fuels now has an electricity generation plan to be ashamed of .

FERC, Which Rejected 2 Gas Pipelines Out of 400 Since 1999, to Review Approval Policy - By Steve Horn --  The new chairman for the U.S. Federal Energy Regulatory Commission (FERC), Kevin McIntyre, says the agency plans to review its permitting process and procedures for natural gas pipelines .   FERC has come under fire for serving as a " rubber stamp " for these pipelines, which these days mostly carry gas obtained via the horizontal drilling and injection technique known as hydraulic fracturing or " fracking ." The agency has rejected only two out of the approximately 400 pipeline applications received since 1999, when it last updated its gas pipeline review process . That's according to a report published in November by Susan Tierney , currently employed by economic consulting firm Analysis Group and former member of the Obama-era Department of Energy's Natural Gas Subcommittee.  "1999 was quite a while ago, particularly in the natural gas pipeline area. So much has changed in our entire industry, of course, since then," McIntyre told reporters at a Dec. 21 FERC meeting, according to The Hill. Indeed, beginning in the 2000s and booming after the Energy Policy Act of 2005 , fracking has opened up massive industry demand for interstate pipelines.  And before those lines are built, they must receive a permit from FERC.  Tierney's report, commissioned by the Natural Resources Defense Council (NRDC), emphasizes the role fracking has played in the spike of FERC pipeline approvals.  "From 2007 through 2016 alone, FERC approved 234 gas pipeline projects, more than half the number approved since the Policy Statement was issued in 1999," reads the report. "These projects amounted to 121 [billion cubic feet per day] in total incremental capacity approvals, with 10,250 miles of pipe estimated to cost approximately $51.2 billion."  In particular, the report zeroes in on the role of Pennsylvania's Marcellus Shale basin, which saw a total of nine interstate pipelines approved in 2016 alone. According to U.S. Energy Information Administration (EIA) data from 2015, the Marcellus and its neighboring Utica Shalebasin in Ohio are responsible for 85 percent of U.S. shale gas production since 2012.

With Tribal Blessing, Louisiana Activist Buys Land in Path of Proposed Bayou Bridge Pipeline - On December 16 anti-pipeline activists calling themselves water protectors gathered in Rayne, Louisiana, on land located along the proposed route of the Bayou Bridge pipeline. The gathering occurred two days after the U.S. Army Corps of Engineers and the Louisiana Department of Environmental Quality granted Energy Transfer Partners (ETP) the last permit needed to build the pipeline. The proposed pipeline would transport crude oil obtained via hydraulic fracturing (fracking) from St. Charles to St. James, Louisiana, and cross the Atchafalaya Basin, a national heritage area that is America’s largest natural swamp. About 35 people took part in a ceremony on land that Cherri Foytlin, director of Bold Louisiana, recently bought for Louisiana Rise, an advocacy group she founded that focuses on renewable energy and a just transition. During the ceremony Foytlin requested and was granted a blessing and permission from the Atakapa-Ishak Nation to use the land that once belonged to the tribe. At the gathering the water protectors strengthened their resolve to stop the pipeline, which would be the final leg of ETP’s Dakota Access pipeline carrying oil fracked in North Dakota to Louisiana.Louisiana Governor John Bel Edwards and the U.S. Army Corps of Engineers rejected calls by a coalition of concerned citizens to conduct a full Environmental Impact Statement before granting the permit. The diverse coalition included the Louisiana Crawfish Producers Association – West and environment groups such as the Louisiana Bucket Brigade, Bold Louisiana, 350 New Orleans, Atchafalaya Basinkeeper, L’eau Est La Vie Camp, and Gulf Restoration Network. The coalition’s common goal is to protect from further damage the Atchafalaya Basin, which is already plagued with environmental issues stemming from hundreds of pipelines that already cross the basin and thousands of abandoned wells.

Trump To Rollback Deepwater Horizon Regulations - The Trump administration is hoping to slash regulations on offshore oil drilling that were implemented after the 2010 Deepwater Horizon disaster that killed nearly a dozen people and led to an oil leak that spewed for months.According to the Wall Street Journal, the Bureau of Safety and Environmental Enforcement (BSEE), which is the agency housed in the Interior Department that regulates offshore oil drilling, is proposing a rollback of a series of changes made after the 2010 disaster.BSEE says that the cuts will save the oil industry $900 million over ten years. The proposal has not been made public, but the WSJ reports that some of the changes include easing rules that require the streaming of real-time data of oil production operations to facilities onshore, which allows regulators to see what is going on. Another rule that would be removed requires third-party inspectors of equipment, such as the blowout preventer, to receive certification by BSEE.Another example includes alterations to the “well-control rule,” one of the signature regulations that was implemented by the Obama administration after years of review following BP’s oil spill. The well-control rule required the use of certain safety equipment and operations intended to reduce the risk of another disaster.  But the Trump administration, in a nod to the oil industry, has proposed deleting the word “safe” from a section of the rule, the WSJ reports, which would restrict BSEE’s ability to withhold permits. “Based on BSEE experience during the implementation of the original [well control rule], BSEE has concluded that the term ‘safe’ creates ambiguity in that it could be read to suggest that additional unspecified standards, beyond those expressly stated, may be imposed in the approval of proposed drilling margins,” BSEE wrote in a justification of the rule change, according to the WSJ.

In Bid to Save Big Oil $900M, Trump Moves to Scrap Offshore Drilling Safety Rules - The oil and gas industry is poised to save hundreds of millions of dollars over the next decade thanks to a rollback of offshore drilling safety regulations that have been proposed by the Trump administration —including the elimination of the word "safe" from one rule. The rules in question were put in place following the Deepwater Horizon explosion in 2010, which killed 11 people, injured 16 and caused the worst oil spill in U.S. history. Siding with the fossil fuel industry , which has complained safety regulations are overly broad, the Bureau of Safety and Environmental Enforcement(BSEE) has proposed scrapping or changing some major requirements, according to the Wall Street Journal . The rules to be changed include one that orders companies to take steps to prevent oil-well blowouts, part of what caused British Petroleum's (BP) Deepwater Horizon disaster. The BSEE argued that the word "safe" should be taken out of the rule, to stop regulators from "interpreting the term in a way to withhold certain drilling permits." The bureau also proposed eliminating a rule that requires a third party to inspect drilling equipment, like the blowout preventor which failed just before the BP explosion. The rollback "is literally going back to business as usual," a former federal official told the Journal , which obtained the BSEE's proposal.  The oil and gas industry is expected to save about $900 million over the next decade if the proposal is adopted. Fossil fuel companies rake in more than $100 billion in revenue per year, making the annual savings comparatively minor—but as critics and politicians pointed out on social media, the elimination of the Obama-era safety regulations could cost lives as the BP disaster did.

Higher oil prices needed to sharply boost US drilling: Dallas Fed - (Reuters) - Oil prices will need to rise further for energy companies to significantly expand drilling activities, according to a survey released on Thursday by the Federal Reserve Bank of Dallas. U.S. energy companies have added rigs and boosted production to near record levels, as oil prices have more than doubled from a low of about $26 per barrel touched in early 2016. But prices above $60 a barrel are needed to see a significant uptick in activity, according to the survey, which questioned 134 firms headquartered in Texas, southern New Mexico and northern Louisiana. West Texas Intermediate (WTI) crude was trading at about $59.50 on Thursday, down slightly from a 2-1/2-year high of $60.01 earlier this week. The jump in prices, coupled with technological improvements that make drilling cheaper, has pushed the U.S. rig count to 931, up about 43 percent from last year, according to data from General Electric Co’s oil services arm Baker Hughes. Slightly more than half the survey’s respondents expect the rig count to continue to climb six months from now but nearly all said oil prices need to be above $60 a barrel for a substantial increase. Of the firms surveyed, nearly 48 percent reported an increase in spending from the previous quarter and roughly 64 percent reported an increase from a year ago. About 8 percent reported a decrease over the previous quarter, and nearly 10 percent reported a decrease from a year ago. Services firm Keane Group in December said it had placed orders for three additional hydraulic fracturing fleets, a signal that it expects demand for production-related services to grow. U.S. oil and gas production has climbed for five consecutive quarters, the survey found, as a deal among major global producers to cut output has helped lift prices. Total domestic production is at 9.75 million barrels per day (bpd), according to the latest figures from the U.S. Energy Information Administration, and is expected to climb to more than 10 million bpd next year. Of the service firms surveyed, 52 percent said they are receiving higher prices for services from a year ago, while 40 percent reported no change. The survey’s respondents included 77 companies focused on exploration and production activities and 57 that operate in the oilfield service sector.

Permian Basin oil production crushes 1973 records - Houston Chronicle: Operators have pumped more barrels of oil out of West Texas’ prolific Permian Basin than ever before. Permian production hit 815 million barrels in 2017, blowing past the previous record of 790 million barrels set in 1973, business research firm IHS Markit said on Tuesday. “The magnitude of the rebound in Permian Basin liquids production is unprecedented,” analyst Reed Olmstead said in a report. “Not so long ago, many in the industry were saying the Permian was dead.”In 1973, operators pumped an average of 2.16 million barrels of oil and gas liquids per day. Permian volumes this year will average 2.75 million barrels per day, IHS said, a rise of more than 25 percent or almost 600,000 barrels per day. By the end of 2018, the Permian surge should push total U.S. liquids production to a new all-time high, 10.5 million barrels per day, Olmstead said. “The implications for U.S. energy security are significant,” Olmstead said, “since we have become, in a relatively short period of time, more self-sufficient in terms of energy supply and are less reliant on imports.” Operators began producing out of the Permian in the 1920s and have since pumped more than 39 billion barrels of oil there. Conventional oil production — vertical wells drilled into traditional reservoirs — declined steadily during the 1970s, ’80s, ’90s and early 2000s, before horizontal drilling and hydraulic fracturing remade the U.S. oil industry.

Permian Beats Own Oil Production Record - The Permian Basin pumped an estimated 815 million barrels of crude this year, beating its previous record of 790 million barrels, achieved back in 1973, IHS Markit reported. The figures once again reinforce the Permian’s status as the star of the U.S. shale patch and the main threat to OPEC’s efforts to reduce global oil production in a bid to prop up prices. With so many reports about the Permian’s recent glory it’s easy to forget that the play is actually a mature one and in the past it has been written off as depleted. Instead, it has become the main driver of the overall oil production increase in the United States that has turned it into the main challenger to OPEC’s global oil industry dominance. Over the past decade, IHS Markit figures show, the Permian has added almost 2 million barrels to daily production and by the end of this year it will be producing 2.75 million barrels daily, IHS market estimates suggest. This will boost total U.S. oil production to more than 10.5 million barrels by the end of next year, IHS’ director of energy research and analysis, Reed Olmstead, said. This would be an all-time high for the world’s top consumer of the commodity. The Houston Chronicle recalls that the Permian’s star first rose in the 1920s and since then, total production has reached more than 39 billion barrels of crude. Yet for decades, drillers only developed conventional oil fields in the area, and production from these started declining steadily in the 1970s as demand boomed. It was only thanks to fracking that the Permian went back on the map of promising oil-producing areas and, according to IHS, it still contains some 70 billion barrels of technically recoverable oil. This amount could actually increase as fracking technology advances further, enabling drillers to tap previously unrecoverable reserves of crude oil.

The Dark Bounty of Texas Oil - For more than a century, the economic fortunes of Texas have depended on oil. The image of mighty geysers spewing depreciable assets out of the ground is forever linked to the state. In the popular imagination, a rich Texan is invariably an oil baron. The Austin Chalk, the Barnett Shale, the Wolfcamp: these layers of subterranean Texas have yielded up so much black gold that their names are recognized by oilmen and everyday citizens alike. In large part because of high oil prices, a disproportionate share of America’s economic growth over the past decade has come from Texas. The gross domestic product of the state is $1.6 trillion; if it were an independent country, its economy would settle in around tenth place, eclipsing those of Canada and Australia. California, with forty per cent more residents, has a G.D.P. of $2.6 trillion, but since 2000 job growth in both Dallas and Houston has expanded by about thirty per cent—three times the rate of Los Angeles. Texas’s vigorous growth had a rope thrown around it when oil prices, which had climbed to a hundred and forty-five dollars a barrel in 2008, slumped in 2014, ultimately falling below thirty dollars. In 2016, for the first time in twelve years, the state’s job growth lagged behind that of the nation as a whole. Five thousand energy-industry companies make their home in Houston, the world’s oil-and-gas capital, and the crash in oil prices was evident in the emptying of office buildings and the slowdown in home sales. Even the traffic on the freeways got lighter. Between January, 2015, and December, 2016, more than a hundred U.S. oil and gas producers declared bankruptcy, nearly half of them in Texas. This figure doesn’t count the financial impact on the pipeline, storage, servicing, and shipping companies that depend on the energy business, or the seventy-four billion dollars’ worth of debt that these bankruptcies left behind.

EIA 914 - Massive Growth From Lower 48 - Let's start off by saying that the EIA 914 report blew everyone's expectations out of the water. Although on the surface it shows October U.S. oil production growing by 167k b/d to 9.637 million b/d from 9.470 million b/d, you have to factor in that the Gulf of Mexico saw production decline by ~200k b/d. That would put the ex-hurricane U.S. oil production at 9.837 million b/d - an increase of 367k b/d in one month. Two weeks ago, we published an article detailing our thoughts on U.S. oil production and what we expect. We said that we thought the U.S. would average 9.952 million b/d in 2018 or about 70k b/d lower than EIA's STEO. That's now looking way too low given the latest figures. Let's dig into the meat of this report. This is what production looks like with monthly vs. weekly now:  Where did the growth come from?

  • Alaska: +25k b/d m-o-m
  • New Mexico: +24k b/d m-o-m
  • North Dakota: +83k b/d m-o-m
  • Oklahoma: +24k b/d m-o-m
  • Texas: +206k b/d m-o-m

Declines came mostly in the Gulf of Mexico, which resulted from Hurricane Nate, which saw production decline by ~200k b/d. Here's what we see from the EIA's DUC report, which details how many wells were completed and how this all corresponds to the monthly report just released:Since June, we saw Permian and Eagle Ford well completions increase from 408 wells per month to 524 wells per month. That's an increase of about 28.4%. Here's another look at the pace of the well completions between the Permian and Eagle Ford:  As you can see in the chart above, the increase in well completions in the Texas region has come entirely from the Permian, so this leads us to believe that the recent increase in Texas is entirely from the ramp-up we saw in well completions from June 2017 to November 2017. But as you can also see from the chart, the pace of the increase in well completions has stalled and, as a result, U.S. oil production growth in November and December won't see the same level of production increases we saw in October.

Trump administration rescinding rules for oil, gas drilling - Akron Beacon Journal -— President Donald Trump's administration is rescinding proposed rules for hydraulic fracturing and other oil- and gas-drilling practices on government lands, government officials announced Thursday. The rules developed under President Barack Obama would have applied mainly in the West, where most federal lands are located. Companies would have had to disclose the chemicals used in fracking, which pumps pressurized water underground to break open hydrocarbon deposits. The rules to be rescinded Friday were supposed to take effect in 2015 but a federal judge in Wyoming blocked them at the last minute. In September, the 10th U.S. Circuit Court of Appeals in Denver declined to rule in that case because the Trump administration intended to rescind the rules. The long-awaited change drew praise from industry groups including the Washington, D.C.-based Independent Petroleum Association of America and Denver-based Western Energy Alliance, which sued to block the rules. They claimed the federal rules would have duplicated state rules, putting unnecessary and expensive burdens on petroleum developers.  In many areas, it would be rare nowadays for a gas or oil well to not be fracked. The process requires several million gallons of water each time. Environmentalists say the potential risks to groundwater require regulation. "Fracking is a toxic business, and that's why states and countries have banned it. Trump's reckless decision to repeal these common-sense protections will have serious consequences," Brett Hartl, government affairs director at the Center for Biological Diversity, said in an email.Ohio is the nation’s sixth-largest natural gas producer, according to the Energy Information Administration.  Most of the state’s gas comes from the Utica and Marcellus shale formations, where companies use horizontal drilling and fracking.

Trump Administration Repeals Obama Rule Designed to Make Fracking Safer - The Trump administration is rescinding Obama-era rules designed to increase the safety of fracking . “We believe it imposes administrative burdens and compliance costs that are not justified," the Interior Department 's Bureau of Land Management (BLM) wrote in a notice published Friday in the Federal Register. The 2015 rule required companies drilling for natural gas and oil on public lands to comply with federal safety standards in the construction of fracking wells, to disclose the chemicals used during the fracking process, and required companies to cover surface ponds that store fracking wastewater. The regulation, however, never took effect after a Wyoming federal judge struck it down last year. Fossil fuel groups, which sued to block the Obama regulation, unsurprisingly cheered the decision. "Western Energy Alliance appreciates that BLM under Interior Secretary Ryan Zinke understands this rule was duplicative and has rescinded it," Western Energy Alliance President Kathleen Sgamma said in a release. "States have an exemplary safety record regulating fracking, and that environmental protection will continue as before." But environmentalists and public health advocates have long warned that fracking—which involves pumping large volumes of water, sand and chemicals underground to extract oil and gas—causes groundwater contamination , puts human health at risk and releases the potent greenhouse gas methane. "The Trump administration is endangering public health and wildlife by allowing the fracking industry to run roughshod over public lands," Brett Hartl, government affairs director at the Center for Biological Diversity , said. "Fracking is a toxic business, and that's why states and countries have banned it. Trump's reckless decision to repeal these common-sense protections will have serious consequences."

Fracking and oil exploration on Nevada’s public lands endangers water, wildlife -- It is clear that your editorial board feels strongly about the Center for Biological Diversity’s campaign to protect the waters and wildlife of Nevada from oil drilling and fracking (Dec. 17 editorial). I appreciate your interest in this important topic for Nevada’s future, even if you’ve got the facts wrong.President Barack Obama oversaw the largest expansion of oil and gas leasing in Nevada’s history, putting 3.2 million acres of public lands up for auction for drilling and fracking from 2009-2016. While the Trump administration has dramatically accelerated this process, it’s clear that the fossil fuel industry has sunk its talons into both parties.As of 2016, more than 1.1 million acres of Nevada is under active lease to oil companies. If drilled out, development at this scale significantly threatens our waters and wildlife. If you need proof of these dangers, speak to folks in Sublette County, Wyo., where mule deer herds have fallen more than 40 percent due to widespread habitat loss from oil drilling. In North Dakota, frequent spills of fracking fluids have contaminated groundwater. Or head over to the Uintah Basin of Utah, a rural area where the air quality is now worse than Los Angeles due to toxic emissions from oil and gas production.

Oil and gas companies eyeing Boulder County open space for drilling operations - The Denver Channel - – Boulder County’s moratorium on drilling applications was lifted earlier this year. Crestone Peak and 8 North, LLC didn't waste any time and have targeted open space in the region for drilling operations.“We aren't going to support a single well in Boulder County, and we're going to act like our lives depend on it because they actually do,” Cliff Willmeng, with East Boulder County United, told Denver7.  He and other Boulder County voters have spent millions of dollars to protect open space from development. County laws stopped traditional commercial and residential development on open space, but none were planned to protect what lies beneath. “Unfortunately for us, we don't own the mineral rights of the property. So, we have no control or say about what goes under our house, what goes under the elementary school that's two blocks up, what goes underneath the Rec. Center where hundreds of people visit every single day,” Meredith McTigue said. The proposed drilling site sits about a mile from Escuela Bilingue Pioneer Elementary in Lafayette. “This drilling activity would literally go right underneath the school,” Cliff Willmeng said.If the state and county approve projects, the activity would reach that and more in just 18 months.“The idea that this industry would have total domination over communities is -- when you're used to dealing with the issue -- a fact of life,” Willmeng added. Already, roughly 16,000 acres of open space have been targeted for drilling. The county’s planning department said it’s currently reviewing the COGCC process.

No fracking on conservation and open space land – Denver Post Editorial - It would seem common sense that Colorado’s oil and gas operators should not be permitted to drill wells on land that’s been intentionally placed under conservation easement or purchased for open space. The whole point of setting aside open space, after all, is to protect it from new development. Yet, as The Daily Camera’s Jerd Smith recently reported, three oil and gas operators are targeting tracts of land in eastern Boulder County that are either under conservation easement or have been purchased by the county and set aside as open space.We shake our heads in dismay. If the public chose to set aside land to prohibit other types of development like housing subdivisions and strip malls, surely the expectation was and remains that such easements should also preclude heavy industrial use, regardless of who owns the mineral rights beneath the surface.But that is not the case.In Colorado’s split-estate laws, a mineral rights holder is guaranteed below-ground access to those resources, regardless of who owns the surface land or even if a conservation easement has been placed on that property. Because of the state’s so-called forced pooling law, which allows a company to extract oil and gas owned by others nearby, the problem is compounded.  In contrast to Boulder County’s approach, the Colorado Oil and Gas Commission won’t fund conservation projects where there is even a “minimal chance” of oil and gas development, according to Smith’s reporting. However, in this case, even if Boulder County had such a policy, adjacent land privately owned would still allow this problem to arise.

Enbridge Dealt New Setback After Judge Pushes Back Decision on Line 3 Pipeline -- Environmentalists are cheering after an administrative law judge delayed approval of Enbridge Energy 's controversial Line 3 replacement pipeline in northern Minnesota.  The decision from Judge Ann O'Reilly comes after state regulators deemed the environmental impact statement for the proposed multibillion-dollar project as “ inadequate " and directed revisions on the document.  Minnesota Public Radio reported that O'Reilly is weighing whether a new Line 3 is needed in the state, and if so, what the pipeline route should be.  Enbridge wants to replace its aging Line 3 pipeline with a new pipeline along a different route across northern Minnesota. The Canadian energy company said the new Line 3 will "provide much needed incremental capacity to support Canadian crude oil production growth, and U.S. and Canadian refinery demand." If approved, the $7.5 billion Line 3 would be the largest project in Enbridge's history, which would carry nearly 32 million gallons of oil every day.    Line 3 is facing a growing Dakota Access like opposition , with protests against the project on the rise. Line 3 critics, including environmentalists and several Native American tribes, worry that the major tar sands project could cause a devastating spill across important waterways, wetlands and sacred lands, and worsen climate change . Honor the Earth , a Native-led organization protesting the project, said : "The proposed new route endangers the Great Lakes, home to one fifth of the world's fresh water, and some of the most delicate soils, aquifers and pristine lakes in northern Minnesota, It also threatens critical resources on Ojibwe treaty lands, where tribal members retain the rights to hunt, fish, gather, hold ceremony, and travel."

Professional Protesters Threaten Energy Infrastructure - The irony has played out over and over again.  Protestors of the Noble Discoverer, Shell’s Arctic drilling vessel, bobbed up and down in plastic kayaks off the coast of Seattle in May 2015 holding bright plastic signs in opposition to the industry. In 2016, thousands of protestors traveled in cars and planes for long distances to fight construction of the Dakota Access Pipeline in North Dakota.   Not only were 95 percent of the environmentalists arrested in the protests not residents of North Dakota, they left behind nearly 5 million pounds of trash for the local community to clean up.  Yet just about everything protesters own — from blue jeans and cell phones to watercraft and picket signs — is made from petroleum products. And everywhere they travel, they rely on fossil fuels.  But, they vehemently oppose fossil fuels and want the world’s oil and gas lifeline to shut down.This desire held by extremists is so strong that protesting industry-related projects is becoming an industry in itself — with a bullseye now set on pipelines. Groups such as Greenpeace, the Sierra Club and Food & Water Watch are harnessing the power of fear tactics and social media to spread falsehoods and misinformation in order to rally large groups of citizens to join their forces and put money in their coffers.  And, they are becoming increasingly successful.

Bakken Wells Turned Off When Prices Drop; Turned Back On When Prices Rise -- December 27, 2017 -- It's too tedious and too time-consuming to do much more than listing file numbers and a few notes, but going through older wells (permits with 16XXX) I've noticed a fair number of wells that went to inactive (IA) status back in 2015 that are now coming back on line. Many of the MRO wells that went off-line during the Saudi Surge were re-fracked. Some have been off-line for almost two years. File numbers as examples (it is not a full listing of all such 16XXX wells):

ND oil leaders credit Dakota Access Pipeline for 2017 production rebound | Grand Forks Herald: — North Dakota oil production returned to near-record levels in 2017, which one industry leader credited in part to the Dakota Access Pipeline. "It has been a game-changer," said Ron Ness, president of the North Dakota Petroleum Council. The pipeline system connecting North Dakota with Gulf Coast markets has lowered transportation costs, making the price for Bakken crude more competitive. Justin Kringstad, director of the North Dakota Pipeline Authority, said before Dakota Access began service in June, the price for a Bakken barrel was about $7 to $8 lower than the West Texas Intermediate price. From June through October, the most recent data available, the average discount was $5 a barrel, Kringstad said."That means getting more and more revenue out of each barrel," said Ryan Rauschenberger, North Dakota tax commissioner. State tax revenues have increased about $43.5 million for the first five months that Dakota Access operated, according to Kringstad's analysis. That does not include the impact of increased revenue for oil producers and royalty owners. Dakota Access, developed by Energy Transfer Partners, can transport up to 470,000 barrels a day from the Bakken to Patoka, Ill., with the ability to expand to 570,000 barrels a day. From Patoka, oil is transported on the Energy Transfer Crude Oil Pipeline to Nederland, Texas.

In Victory for Standing Rock Sioux Tribe, Court Finds That Approval of Dakota Access Pipeline Violated the Law. - The Standing Rock Sioux Tribe won a significant victory today in its fight to protect the Tribe’s drinking water and ancestral lands from the Dakota Access pipeline. A federal judge ruled that the federal permits authorizing the pipeline to cross the Missouri River just upstream of the Standing Rock reservation, which were hastily issued by the Trump administration just days after the inauguration, violated the law in certain critical respects. In a 91-page decision, Judge James Boasberg wrote, “the Court agrees that [the Corps] did not adequately consider the impacts of an oil spill on fishing rights, hunting rights, or environmental justice, or the degree to which the pipeline’s effects are likely to be highly controversial.” The Court did not determine whether pipeline operations should be shut off and has requested additional briefing on the subject and a status conference next week. “This is a major victory for the Tribe and we commend the courts for upholding the law and doing the right thing,” said Standing Rock Sioux Chairman Dave Archambault II in a recent statement. “The previous administration painstakingly considered the impacts of this pipeline, and President Trump hastily dismissed these careful environmental considerations in favor of political and personal interests. We applaud the courts for protecting our laws and regulations from undue political influence and will ask the Court to shut down pipeline operations immediately.” “This decision marks an important turning point. Until now, the rights of the Standing Rock Sioux Tribe have been disregarded by the builders of the Dakota Access Pipeline and the Trump administration—prompting a well-deserved global outcry,” said Earthjustice attorney Jan Hasselman. “The federal courts have stepped in where our political systems have failed to protect the rights of Native communities.”

Scientists Question Safety of Using Waste Water From Oil Fields on Food - NBC -  Produced water comes from the Kern River Oil Fields a few miles to the east. It’s a byproduct of extracting oil. To extract one barrel of crude out of the earth, oil companies use between 10 and 100 barrels of water. That water is then filtered through tanks that contain crushed walnut shells, which adhere to the oil. The water then travels into ponds where it is skimmed to remove oil from the surface. If necessary, the water returns once again to the filtering process before being blended with fresh water.  It then travels down canals where it is delivered to about 90 farms in the Bakersfield area. Farmers in the area are using more than 20 million gallons of this water each day. Oil companies and the Cawelo Water District have tested the water and assured the farmers that the water is safe. Those farmers sell their produce to the Bay Area and throughout the country, sometimes as organic products. While there are regulations that require companies involved in fracking to reveal the chemicals in their operations, no such rules exist for traditional oil extraction. Last year, the Central Valley Water Board ordered the oil companies to reveal the chemicals they are using. The companies responded with a list of 173 chemicals. Sixty-six of those chemicals are proprietary “trade secrets.”  “From a food safety perspective, the thing we’re most concerned about,” says Seth Shonkoff, “is whether these chemicals are going to migrate from the water into the plant, and particularly into the edible portion of the plant.” Shonkoff and a team of scientists from UC Berkeley, Lawrence Berkeley Labs and PSE, an Energy Science Institute – have recently completed a report that identifies the chemicals and their toxicities. While they couldn’t analyze the chemicals classified as trade secrets, with respect to the rest of them, Shonkoff says, “Forty percent of those rise to the ‘chemicals of concern’ category. A total of 10 chemicals from the list were classified as either carcinogenic or possibly carcinogenic in humans by IARC, the International Agency for Research on Cancer.

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive -- While the U.S. Shale Energy Industry continues to borrow money to produce uneconomical oil and gas, there is another important phenomenon that is not understood by the analyst community.  The critical factor overlooked by the media is the fact that the U.S. shale industry is swindling and stealing energy from other areas to stay alive.  Let me explain. First, let's take a look at some interesting graphs done by the Bloomberg Gadfly.  The first chart below shows how the U.S. shale industry continues to burn through investor cash regardless of $100 or $50 oil prices: The chart above shows the negative free cash flow for 33 shale-weighted E&P companies. Even at $100 oil prices in 2012 and 2013, these companies spent more money producing shale energy in the top four U.S. shale fields than they made from operations.  While costs to produce shale oil and gas came down in 2015 and 2016 (due to lower energy input prices), these companies still spent more money than they made.  As we can see, the Permian basin (in black) gets the first place award for losing the most money in the group. Now, burning through investor money to produce low-quality, subpar oil is only part of the story.  The shale energy companies utilized another tactic to bring in additional funds from the POOR SLOBS in the retail investment community... it's called equity issuance.  This next chart reveals the annual equity issuance by the U.S. E&P companies:  According to the information in the chart, the U.S. E&P companies will have raised over $100 billion between 2012 and 2017 by issuing new stock to investors.  If we add up the funds borrowed by the U.S. E&P companies (negative free cash flow), plus the stock issuance, we have the following chart: Thus, the U.S. E&P companies tapped into an additional $212 billion worth of funding over the last six years to produce uneconomical shale oil and gas.  Now, this chart is an approximation based on the negative free cash flow (RED color) from the four top U.S. shale fields and the shale equity issuance (OLIVE color).  So, how much money would these U.S. E&P companies need to make to pay back these funds? Good question.  If we assume that the U.S. shale oil companies will be able to produce another 10 billion barrels of oil, they would need to make $21 a barrel profit to pay back that $212 billion.  However, they haven't made any profits in at least the past six years, so why would they make any profits in the next six years?

Don’t panic! Oil price outlook improves as US shale fracking after headwinds in 2018 -  Arab News has been told that 2018 is unlikely to see a massive ramp-up in US shale production that could potentially wreck attempts by Russia, Saudi Arabia and other producers to stabilize oil prices and shrink surplus inventories. Speaking from Denver, Colorado, senior Wood Mackenzie energy analyst Ryan Duman said there were “headwinds” for the US shale industry which would hold back production next year, reducing the danger that the oil price would head south again.Duman said: “US shale operators who don’t have rigs or crews under contract are going to have to pay dearly because the oil services industry is overstretched right now.”That’s because it pared back considerably during the slump — building it up again is going to take time, he said.There were plenty of wells, but the big question was how quickly can they come on line.“One of the things we are looking for in 2018 is the rate of completions, whether they start to catch up to the rate of drilling. And then, how fast can the oil get to market.”He added: “What we need to see is a massive rehiring to make up for the labor that was let go during the bad times, and operators need more equipment, such as pressure pumping and other assets, in order to push forward with hydraulic fracturing — in other words, the completion stage — which comes after the rigs have dug the wells.” There were also infrastructure challenges in terms of transporting shale oil to refiners, some of which don’t process that type of crude. Asked if he thought the US could overtake Saudi Arabia to become the world’s second-largest producer after Russia, Duman thought this was years away, “although I am not saying it won’t happen.” The way he saw it, the obstacles for US shale currently were the following: Not having ample takeaway capacity — that is, pipelines and other equipment, essential to get crude to market; and a dearth of workers, both skilled and unskilled who were laid off three years ago.  “We have seen rigs added back quickly this year, but operators can’t get the crude to customers fast enough — which has implications for costs.”

As Oil Rises, Shale Drillers With Few or No Hedges Stand to Gain - As the price of oil rises, heavily-hedged shale drillers may find it harder to meet investor demands for payback, boosting the value of producers that haven’t locked in returns for future production.When West Texas Intermediate breached $60 a barrel, it was good news generally for U.S. shale producers. But the higher the price, the less gain will come to companies that hedged their production as crude held below $55 for 10 months of the year.At least 60 percent of next year’s crude output has been hedged, more than in previous years, according to RBC Capital Markets LLC. The result: Rising crude prices will boost the profile of companies with fewer hedges, according to a report by Cowen & Co. Among the winners:  EOG Resources Inc., Anadarko Petroleum Corp.,  and Continental Resources Inc., the note said. “If crude were to move higher, we would expect to see more E&Ps lag as collar ceilings are reached,” Cowen analysts led by Charles Robertson wrote.U.S. shale producers often choose to hedge a portion of their production due to their capital constraints and short life cycles of their wells. With WTI up 34 percent in the last six months, many have increased their hedging to protect their cash flows against a downturn. Hedged volumes more than doubled in the third quarter, according to a study by Bloomberg New Energy Finance. “It’s a directional bet on the future of the market," “Some of them believe, based on the fundamentals, that oil is still going to go higher." Representatives for EOG and Anadarko declined to comment. Kristin Thomas, a spokeswoman for Continental, did not immediately return phone and email messages seeking comment. But executives at the companies have taken a bullish tone in recent months. “We think U.S. production hasn’t been growing quite as prolifically as what others have originally estimated," Lance Terveen, a senior vice-president at Houston-based EOG, told analysts on an earnings call last month when asked about hedging. “We’ve been disciplined since 2015, and we’ve been waiting for this turn. So we’re going to continue to watch here going into 2018."

The Biggest Factors In Future Oil Production -  This assessment is based on the data in the 2017 BP Statistical Review of World Energy available here.

  • Figure 1: World Oil Production 1990 – 2017 (Click to enlarge) This analysis was prompted by a chart by Ovi showing that Non-OPEC production less Russia, Canada and the United States has been in decline since 2004. That decline rate is 0.25 million barrels/day/annum. It had previously risen strongly from 1990.
  • Figure 2: Production Rate Change 2007 – 2016 (Click to enlarge) The United States LTO patch is widely credited with having caused the oil price collapse of 2014. American production had risen by six million barrels per day since 2007. The United States was not alone with four other countries totaling six million barrels per day of production increase. Iraq and Saudi Arabia contributed two million barrels per day each with Russia and Canada contributing one million barrels per day each.
  • Figure 3: World Oil Consumption 1990 – 2016 (Click to enlarge) OECD consumption has been flat even as OECD countries have had an increase in GDP.
  • Figure 4: Where the Oil Went (Click to enlarge) The fall of non-OECD consumption from 1990 to 1996 was due to the dissolution of the Soviet Union. Since then consumption growth has been steady at about 835,000 barrels/day/annum. Chinese consumption growth was 240,000 barrels/day/annum up to 2002 and then steepened to 512,000 barrels/day/annum since. OECD consumption growth was strong up to 2007 and then demand contracted due to higher oil prices. From here it looks like OECD consumption has plateaued.
  • Figure 5: World Oil Production from 1990 with a Projection to 2025 (Click to enlarge) This projection is based on U.S. conventional production resuming long term decline and U.S. LTO production continuing to climb, driven by the Permian Basin. Russian production is in a long plateau. Canadian production continues its slow, capital-intensive climb. Other non-OPEC production continues its established decline of 0.25 million barrels/day/year. Iraqi production rises by 2.0 million barrels/day to 2025.

The projection shows a gap of about eight million barrels per day by 2025 relative to the established growth rate indicated by the dashed line. This could largely be filled if Permian Basin production ramps up faster than projected and Iraqi production growth ramps up faster than projected now that their civil war is over. In summary, the market is likely to remain in balance and sustained price excursions are unlikely.

Fracking to begin in earnest in 2018 after tough year for industry - British shale gas companies have said domestic fracking will finally begin in earnest in 2018, after another year passed without serious progress amid strong opposition. Industry figures said next year would be crucial for the sector, as companies start the process of hydraulic fracturing to extract gas trapped underground in shale rock. The past 12 months have not been kind to the embryonic industry.  Scotland has banned fracking, while public opposition in the UK hit record highs and protests made headlines. The companies at the vanguard of Britain’s fracking push said this will change in 2018. “We will see results next year. None of us can say with certainty what the results will be, of course,” said Francis Egan, the chief executive of Cuadrilla. According to the British Geological Survey, Britain is sitting on shale gas deposits that could supply the UK for 25 years. A report in 2013 suggested an area stretching from Lancashire to Yorkshire and Lincolnshire could hold at least 1,300tn cubic feet of gas.  Fracking map Cuadrilla in Lancashire and Third Energy in North Yorkshire are vying to be the first company since 2011 to frack in the UK. Early in the new year, both are expected to begin pumping water underground at high pressure to fracture rocks and test how much gas flows out.  By mid February, Third Energy, whose plans have been delayed due to a legal loophole, hopes to collect enough data to know whether the well is commercially viable. Commercial development and production is still up to three years away and would require more wells to be drilled and fracked, he said.

Oil discoveries at lowest point since the 1940s - RT - The oil industry discovered the least amount of oil in 2017 in almost eight decades, breaking the previous record low set in 2016.  The global oil industry has discovered less than seven billion barrels of oil equivalent so far this year—a drop-off from the eight billion boe discovered last year. Last year’s total was the lowest since the 1940s. The 2017 figure is down by more than half from the 15 billion boe discovered in 2014-2015, and down sharply from the 30 billion boe discovered in 2012. The plunge is the result of a third consecutive year of relatively low upstream exploration budgets. So many oil companies slashed their spending on exploration when the market downturn began in 2014, and they have yet to restore that spending to anything close to pre-2014 levels.“We haven’t seen anything like this since the 1940s,” Sonia Mladá Passos, Senior Analyst at Rystad Energy, said in a statement. “The discovered volumes averaged at ~550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio in the current year reached only 11 percent (for oil and gas combined)—compared to over 50 percent in 2012.”  The reserve-replacement ratio measures the volume of oil that is discovered relative to what is produced in a given year. The idea being, the industry needs to discover 100 percent of what it produces in order to avoid a decline in reserves. Rystad Energy says that 2006 was the last year in which the industry posted a reserve-replacement ratio above 100 percent. The implication is that the world is burning through oil at a faster rate than the industry is discovering new reserves.

A New Era For Oil And Gas Majors - Two and a half years ago, analysts asked when Italy’s Eni would be able to start producing gas from the giant Zohr field offshore Egypt. The overwhelming majority said this would happen no earlier than 2019, and most likely after 2021. But first gas from Zohr flowed earlier this month, in the latest sign that the future of the oil and gas industry will be very different from its past.Big Oil has traditionally taken its time with new projects, especially offshore ones. They require a lot of exploration, a lot of planning, and a lot of equipment once the final investment decision has been made. But no longer: the 2014 crisis really changed the setting, forcing the mammoths of the industry to at least try to become more nimble and flexible.The Italian major is not the only one speeding things up, but it is to date the most glowing example of what Bloomberg’s Chiara Albanese and Javier Blas called a seismic shift. To grasp the full significance of the Zohr feat, here’s a little history.Zohr was first auctioned back in 2012, but the discovery of the huge deposit of gas was only made in 2015: the Mediterranean is not the most productive place when it comes to oil and gas discoveries, so Zohr really shook things up with reserves that Eni has estimated at 850 billion cubic meters of natural gas, or about 30 trillion cubic feet. From the discovery onwards, Eni took advantage of cutting-edge tech to actually work in parallel on the further exploration of the field and its initial development. It did 3D modeling of the deposit at the same time as the design of the engineering tech needed to develop these reserves and procurement. The goal was to save time and money, of course, and many believed this was mission impossible.  The feat will go down in history as yet one more mission considered impossible and made possible by a number of factors, including technology, a new emphasis on cost savings, and the awareness that in a world turning increasingly to natural gas from oil every day is precious and should not be wasted if you want to position your company ahead of the competition.

UK North Sea Forties oil pipeline pumps at half capacity: source (Reuters) - Flows through Britain’s most important oil pipeline, Forties, have recovered to around half the normal rate, a trading source said on Wednesday, suggesting a steady return to normal operations after a rare unplanned shutdown. The closure since Dec. 11 of the pipeline, which normally pumps about 450,000 barrels per day, and supply disruptions in Libya have helped push oil prices above $67 a barrel, their highest since mid-2015. [O/R] Ineos, the pipeline’s operator, restarted the flow earlier in the week and has pledged to resume full volumes in early January. On Wednesday, Ineos could not immediately comment on current flow rates. “It’s a slow ramp up, but it’s about half the normal rate,” the trade source familiar with the operations said. Forties plays an important role in the global market as it is the biggest of the five North Sea crude streams underpinning Brent, a benchmark used for oil trading in Europe, the Middle East, Africa and Asia. The system, which also carries a third of Britain’s offshore natural gas output, was shut down after a crack was found. Oil companies that pump into the pipeline, including Royal Dutch Shell, were restarting oilfields that had to be shut during the repairs. Buzzard, Britain’s largest oilfield, was producing over half its normal level, a trade source said. Ineos was forced to declare force majeure on deliveries of Forties crude oil, natural gas and condensate, suspending its contractual obligations to customers by citing circumstances beyond its control. This is believed to be the first force majeure on a major North Sea production stream in decades. Ineos didn’t say when it expected to lift the force majeure. In a sign of normality returning, an export schedule of Forties crude oil cargoes in February was sent out to cargo owners on Wednesday, although the number of shipments is much lower than normal. Just six Forties cargoes of 600,000 barrels each are listed in February’s export schedule, down from 20 originally planned in January, trade sources said on Wednesday.

Venezuela Will Back Its Cryptocurrency With 5 Billion Barrels Of Oil, Gold Deposits - Four months ago, in a not entirely surprising move meant to circumvent US economic sanctions on Venezuela, president Nicolas Maduro announced that his nation would stop accepting dollars  as payment for oil imports, followed just days later by the announcement that in a dramatic shift away from the Petrodollar and toward Beijing, Venezuela would begin publishing its oil basket price in Chinese yuan. The strategic shift away from the USD did not work quite as expect, because a little over two months later, both Venezuela and its state-owned energy company, PDVSA were declared in default on their debt obligations by ISDA, which triggered the respective CDS contracts as the country's long-expected insolvency became fact. Then, in early December, clearly fascinated and captivated by the global crypto craze, Maduro shocked the world by announcing the creation of the "Petro", Venezuela's official cryptocurrency "to advance in the matter of monetary sovereignty, to make financial transactions and to overcome the financial blockade". "The objective is to advance in the Venezuelan economy and overcome the financial blockade, this allows us to continue in the economic and social development supported by Venezuelan riches," said the president, explaining that his government will make a cryptocurrency issue "backed by reserves of Venezuelan gold, oil, gas and diamond wealth." Still, as we said when he first commented  on Venezuela's bizarre foray into digital currencies, "it was not exactly clear how this PetroCoin would be backed by various natural resources when the whole point of cryptos is that they are not backed by anything, and as such it appears that what Maduro is trying to do is admit that the hyperinflating Bolivar has failed as a sovereign reserve, and the country is hoping to confuse its global trading partners enough into believing that it somehow had a new "bitcoin" on its hands, which like the real thing would then proceed to appreciate in value in the near future.

Russia Bets on Shale Oil to Defend Its Spot as Top Producer of Crude  -- This western Siberian oil field is called “Red Lenin,” but its reserves have a distinctly American ring: shale. The future of the Russian oil industry could lie in the vast Bazhenov shale formation, the largest in the world. Russia has become the biggest global producer of crude oil with almost no contribution from shale, a sometimes technically difficult and expensive resource to pump. Only Americans have really gotten shale right so far, but the Kremlin is taking the first steps to unlock Russia’s potential. Companies like PAO Gazprom Neft are leading Moscow’s drive to replicate the U.S. shale boom, experimenting with a uniquely Russian state-controlled approach to fracking that contrasts with the free-for-all among independent producers in Texas and North Dakota. “The Bazhenov is a huge prize,” says Alexei Vashkevich, Gazprom Neft’s exploration director.

Russian bans foreign shipments of oil, natural gas and coal along Northern Sea Route - The amendment in the federal shipping code comes after Putin in mid-November announced that all shipments of oil and natural gas along the Northern Sea Route would be nationalised. A law from the State Duma, the lower house in the country’s legislative assembly, came only four weeks later. On the 20th December, the legislators adopted the amendments, which ban foreign petroleum shipments along the Russian Arctic route, information from the Duma shows.In addition to oil products and liquified natural gas, the legislation also includes coal. The amended law comes into force on 1 February 2018. The bill reads that shipping of oil, natural gas (including LNG), gas condensate and coal, which is extracted on Russian territory, including on the Russian shelf, and loaded on board vessels along the Northern Sea Route, must proceed under Russian flag. However, there is a loophole in the new law, which enables several key stakeholders to continue their already ongoing shipping operations with foreign-registered vessels. The law states that the companies which before 1 February 2018 have entered into contract agreements over the use of foreign-flag vessels will be allowed to continue operations.

Putin says Russia should ditch petrol in favor of natural gas - Russia should follow the lead of Gazprom and have more cars running on natural gas instead of traditional gasoline, according to President Vladimir Putin. It is cheaper and more eco-friendly, he said.  “Gas fuel is, of course, more environmentally friendly. And we have great competitive advantages in this because we have enough of this fuel. More oil and petroleum products can be sold on the foreign market, as it is more profitable than gas sales,” Putin said on Thursday, speaking at a meeting dedicated to the development of Russia's regions. Putin also pointed at Gazprom as an example of how gas fuel saves money. When the company switched to gas fuel, many of its drivers retired because they no longer had an opportunity to steal gasoline.The president was referring to drivers working for state companies who commonly fill up using corporate credit cards, then siphoned and resold the petrol to other drivers.“And what about the army? What is happening in the Ministry of Defense and in other departments? I think comments are needless,” said the Russian president, apparently hinting at the same practice.“Natural gas fuel will have a huge positive economic effect and will create competitive advantages for the whole economy. Therefore, it is necessary to continue, of course, to support its development, both at the governmental level and at the regional,” Putin added. Gazprom sells two types of natural gas fuel: compressed natural gas (CNG) and liquefied natural gas (LNG). CNG is used for passenger and light cargo vans, motor cars, and municipal vehicles. LNG is for big trucks, railway and water transport, quarry machinery and agricultural equipment.

Kuwait Signs LNG Import Deal With Shell, Has Gas Need - Kuwait Petroleum Corp. signed a 15-year liquefied natural gas import deal with Royal Dutch Shell Plc to help the oil exporting nation meet growing domestic energy demand. The sales purchasing agreement with Shell International Trading Middle East Ltd. will start in 2020, the companies said Sunday in an emailed statement. Shell has supplied Kuwait with the super-cooled fuel since 2010 and declined to say how much gas is covered under the new contract. While KPC is working to boost local natural gas production, Kuwait has a “pressing requirement” to secure natural gas supplies in the meantime, they said. LNG could help meet Kuwait’s domestic demand for power to run air conditioners during hot summer months and cut the amount of crude oil burned instead of exported for profit. The contract will cover 2 million to 3 million metric tons of LNG a year, priced at 11 percent below a Brent benchmark, a person familiar said, asking not to be identified because terms of the deal are private. “The big issue for Kuwait is they burn a lot of oil, most of their power generated is from oil, and so importing LNG for them is cheaper and frees up oil for export,” Robin Mills, chief executive officer of Dubai-based Qamar Energy, said by phone. Kuwait wants cleaner burning energy sources such as natural gas to reduce emissions and improve air quality, according to the Shell and KPC statement.

Oil Holds Steady Through Holidays - Oil was steady, but elevated in light holiday trading this week. Brent and WTI hovered near multiyear highs.  OPEC’s resolve looks stronger than ever. In the run up to the late-November decision to extend the production cuts through the end of 2018, the group posted its best compliance rate with the agreed upon production cuts yet. OPEC reported a 122-percent compliance rate in November, a figure that bodes well as the group seeks to keep those curbs in place for another year.   In another bit of news that bolsters the OPEC deal, Russian energy minister Alexander Novak said that Russia supports a gradual exit from the production cuts, reducing the risk of a messy conclusion and return to full production.   Iraq’s oil minister Jabar al-Luaibi said that he was optimistic that the oil market would reach a balance in the first quarter of 2018, which will be accompanied by higher oil prices. His comments are some of the most bullish out there among OPEC members, most of which see such an event unfolding in the second half of the year.  While Iraq’s oil minister voiced optimism, a group of energy analysts told CNBC that there is more risk to oil on the downside as we head into the New Year because of rising U.S. production at a time when speculative moves in the futures market have become a little too bullish. "While we could easily see an escalation of tensions in the Middle East, in the absence of that, optimism is probably misplaced for up to six months,” Harry Colvin, director and senior economist at Longview Economics, told CNBC. “Everybody seems to be facing the same way over oil at the minute and it's when this happens that you need to be especially careful.”

Oil Prices Could Soon Drop 50% -- Oil has had a spectacular run the past two years. From $29.42 per barrel on January 15, 2016, oil has risen to $57.36 per barrel as of last Friday, a 95% gain in less than 23 months. Much of this gain reflects the determination of the world’s two largest oil exporters – Saudi Arabia and Russia – to limit output in order to firm up prices. The duopoly of Saudi Arabia and Russia has proved much more effective than OPEC at maintaining the discipline needed to control oil prices.OPEC members such as Iran and Iraq are notorious for cheating on OPEC quotas. The duopoly is more disciplined.  Yet, this kind of manipulation is a two-edged sword.  Saudi Arabia and Russia have as much interest in not letting prices get too high as they do in not letting them get too low. Right now oil prices are at the high end of the range the duopoly consider acceptable. Oil prices have nowhere to go but down once Saudi Arabia and Russia do some cheating of their own. Investors who move now stand to reap huge gains as the duopoly drive prices lower in order to protect their market share, and once again shut-in the capacity of their competitors in the fracking industry.  This infographic neatly illustrates the market dominance of two oil producers: Saudi Arabia and Russia. Together they produce 21 million barrels of oil per day, over 25% of global output. That’s more than the next six major oil exporters combined, and those others have nowhere near the degree of coordination as the duopoly. Equally important is that Saudi Arabia has the lowest production costs of any major producer, about $4.00 per barrel. It’s certainly the case that Saudi Arabia likes higher oil prices, but oil could sink to $10 per barrel, and Saudi Arabia would still make money while most other exporters would lose money or cease production.  On the other hand, high prices have two perils… The first is that high prices encourage competition in the form of marginal output that can take market share. The second is that high prices can produce a recession in developed economies that reduces oil consumption across the board. Obviously the duopoly would like higher prices, but this just encourages output from marginal producers especially those using hydraulic fracturing technology (“fracking”) in places like the Permian Basin in Texas.

Cyberattack Targets Safety System at Saudi Aramco - Malicious software attacked a safety system in August at Saudi Aramco, the world’s largest oil company, in what is the first-ever example of malware targeting the computer systems designed to prevent a disaster at an industrial facility.The attack was first described by the computer security firm FireEye in a blog post last week, which did not name the victim of the attack. But a confidential report obtained by Foreign Policy and authored by Area 1 Security, a computer security firm founded by veterans of the U.S. National Security Agency, identifies Aramco as the victim of the attack.In a statement, Aramco, Saudi Arabia’s national oil company and a pillar of its economy, denied the attack took place: “Saudi Aramco corporate and plants networks were not part of any cyber security attack or breach.”FireEye declined to comment on its clients or the details of an investigation.The revelation that Aramco was targeted by malicious hackers comes as the company prepares for what will likely be the largest initial public offering of all time. Saudi Crown Prince Mohammed bin Salman has staked the company’s IPO as the centerpiece of a sweeping reform plan, which seeks to diversify the economy and use the windfall from the sale to underwrite an ambitious modernization effort. Area 1’s assessment of the attack on Aramco identifies Iran as the likely perpetrator, but other computer security experts who have examined the incident caution against prematurely assigning responsibility. “This is probably one of the most difficult attribution cases that I’ve ever looked at,” said one former American intelligence official familiar with the incident.The Area 1 report, which paints a complex picture of the malware dubbed Triton, does not contain hard evidence to implicate Iran in the attack on Aramco. Though the first of its kind to directly attack the safety systems at a critical infrastructure facility, the Triton malware was ultimately a failure. According to FireEye, Triton attacked a safety system known as Triconex, which is manufactured by the German firm Schneider Electric. Triconex is used all over the world, and provides an emergency shutdown function. Though the attack on Aramco ultimately failed, it provides a portrait of conflicts to come. Targeting critical infrastructure with malware represents the bleeding edge of nation-state hacking activity, and taking out safety systems is one way to inflict damage on an opponent’s critical industry.

Brent Jumps After Explosion At Major Oil Pipeline In Libya --After a quiet overnight session, the price of Brent Crude spiked following news of an explosion at a Libyan crude oil pipeline that feeds the Es Sider sea terminal - home of the largest oil depot in Libya - a source from the Libyan National Army told The Libya Times Tuesday. The blast happened near 30km northwest of Marada, the source said.#Breaking: #LNA sources accuse islamist militants from ‘the #Benghazi Defense Brigades’ of blast targeting the main pipeline linking the Sidrah terminal and #oilfields belonging to al-Waha company. The attack took place about 30km northwest of Maradah. #Libya Libya Times (@thelibyatimes) December 26, 2017  At the same time, the source accused militants from the Benghazi Defense Brigades of the blast. While the reasons for the explosions haven't been determined yet, media reports are suggesting that it was possibly a terrorist attack.Another photo showing smoke billowing from the targeted pipeline (see previous tweet): #Libya, #oil— The Libya Times (@thelibyatimes) December 26, 2017Meanwhile, the Akhbar Libya news outlet reported that the gas pipeline belonged to the al-Waha oil company. The group's press service claimed that the explosion could have been caused by a terrorist attack, adding that the communication with an engineering crew working on the scene had been lost.The media outlet added that the group had sent its forces to the explosion site, located between Es Sider port and an oil field. While there is still no official update on what impact the explosion could have on Libyan oil output, Brent is higher about 40 cents on the news... ...with Bloomberg reporting that Libya's Waha output is said to drop 60-70kbpd after the explosion.

US crude hits $60 a barrel for the first time since June 2015 - Oil prices surged to more than 2½-year highs Tuesday on reports that a pipeline explosion in Libya has disrupted a big chunk of the country's crude supply. International benchmark Brent crude rose $1.81, or 2.8 percent, to $67.06, after hitting an intraday peak of $67.10, its highest level since May 2015. Meanwhile, U.S. West Texas Intermediate crude futures jumped $1.50, or 2.6 percent, to $59.97, having traded as high as $60, the best level since June 25, 2015. U.S. WTI crude intraday, source: FactSet The oil price spike occurred during thin trading between the Christmas and New Year's holidays. An explosion hit a pipeline that feeds Libya's Es Sider terminal, causing the country to lose 70,000 to 100,000 barrels a day of production, Reuters reported, citing Libya's National Oil Corporation and sources. Libya produced 973,000 barrels a day in November, according to OPEC's latest monthly report. Supply to Es Sider has been disrupted in the past due to an ongoing conflict between rival factions in Libya. A military source told Reuters that armed men had blown up the pipeline. Libya is one of two OPEC members, along with Nigeria, that were exempt from a deal to cap production this year. Both countries have suffered oil supply outages related to internal conflicts. The 14-member cartel, Russia and nine other exporting nations recently extended an agreement to keep 1.8 million barrels a day off the market to help shrink brimming stockpiles of crude around the world. That deal has helped to balance a glutted market, so supply disruptions are more likely to push up crude prices.

Oil Jumps to Highest Since Mid-2015 on Libya Blast, Saudi Budget - A pipeline blast in Libya and a bullish budget forecast in Saudi Arabia boosted crude prices to levels not seen since mid-2015. West Texas Intermediate crude neared $60 a barrel as futures in New York and London reached the highest in more than two years. A pipeline run by Waha Oil that carries crude to Libya’s biggest export terminal exploded Tuesday, dropping the country’s output by 70,000-100,000 barrels a day. Meanwhile, Saudi Arabia is said to expect oil revenue to rise 80 percent by 2023. The blast is “certainly something of a set-back because Libya had been very steadily staying online,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s just a reminder of the geopolitical risk premium that’s going to haunt this market all of next year.” Waha output fell by 60,000-70,000 barrels a day from 260,000 a day, according to a person familiar with the situation. The explosion “is a big thing” that could push prices higher still amid a tighter supply picture, said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. At the same time, Saudi Arabia is said to expect its first budget surplus in a decade, according to people with knowledge of the matter. Under a six-year program to balance the budget, officials predict rising prices and expanded output will push income from oil sales to 801.4 billion riyals ($214 billion) from 440 billion riyals this year, the people said.Oil is poised for a fourth straight monthly advance as the Organization of Petroleum Exporting Countries and its partners including Russia cut output and promise to continue doing so through the end of next year. In the U.S., a rising rig count has slowed. Oil rigs are holding at 747 with no rigs added last week, according to Baker Hughes data Friday. WTI for February delivery advanced $1.50 to settle at $59.97 a barrel on the New York Mercantile Exchange, the highest level since June 2015. Total volume traded was about 50 percent below the 100-day average. Brent for February settlement climbed $1.77 to end the session at $67.02 a barrel on the London-based ICE Futures Europe exchange, the highest level since May 2015. The global benchmark crude traded at a premium of $7.05 to WTI.

WTI/RBOB Shrug At Bigger Than Expected Crude Draw --WTI/RBOB faded back from yesterday's Libya pipeline headline-driven exuberance ahead of tonight's API inventory data. A bigger than expected crude draw held WTI prices steady but RBOB faded very modestly after API showed a notable gasoline (and distillates) build. API:

  • Crude -6mm (-3.75mm exp)
  • Cushing -1.3mm (-590k exp)
  • Gasoline +3.1mm
  • Distillates +2.8mm

Heading into tonight's data, DOE had showed 5 weeks in a row of crude draws and gasoline builds. WTI/RBOB prices barely reacted to the API data, with RBOB modestly lower... “The Forties pipeline is coming closer to being back online, so that’s capping some of the price optimism that you might have otherwise seen from the Libya supply outage,” Michael Bokoff, an investment analyst at Manulife Asset Management in Boston, said by telephone.The market is “probably reassured now,” Ashley Petersen, lead oil analyst at Stratas Advisors in New York, said. “I don’t think it’s going to take a very long time to fix” the Libya pipeline. At the same time, she said, “you have a few people wrapping up their books” at the end of the year.

Oil falls from 2015 highs as rally falters (Reuters) - Oil prices dipped on Wednesday, as a rally ran out of momentum a session after crude hit a near 2-1/2-year high on supply outages in Libya and the North Sea. Brent crude futures settled at $66.44 a barrel, down 0.9 percent, or 58 cents. U.S. West Texas Intermediate (WTI) crude futures settled at $59.64 a barrel, down 33 cents, or 0.6 percent. The previous day, Brent broke through $67 for the first time since June 2015 and WTI rose above $60 a barrel for the first time since May 2015. “The market continues to gravitate towards bullish news but today we are seeing a little bit of profit-taking,” Prices briefly pared losses in post-settlement trade after industry group American Petroleum Institute said U.S. crude stocks fell more than expected last week. [API/S] On Tuesday, Libya lost around 90,000 barrels per day (bpd) of crude oil supplies after a pipeline feeding Es Sider port was blown up. Repairs could take a week but will not have a major impact on exports, the head of Libyan state oil firm NOC told Reuters on Wednesday. Other supply disruptions of recent weeks included closure of Britain’s largest Forties pipeline. On Wednesday, Forties was pumping at half its normal capacity. Its operator was pledging to resume full flows in early January. The Forties and Libyan outages together amount to around 500,000 bpd, relatively small in a global market of about 100 million bpd.  Oil markets have tightened due to supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC Russia. Data from the U.S. Energy Information Administration (EIA) shows global oil markets gradually came into balance by 2016 and started to show a slight supply deficit this year. The data implied a shortfall of 180,000 bpd for the first quarter of 2018. Limiting OPEC and Russian efforts to prop up prices, U.S. oil production has soared more than 16 percent since mid-2016 and is approaching 10 million bpd. 

WTI Algos Confused As Crude Production Drops For First Time In 2 Months - WTI/RBOB had roundtripped off initial API gains into the DOE data this morning which confirmed the sixth weekly crude draw, gasoline build in a row. Production dropped for the first time in 2 months, but WTI limped lower after the data. Bloomberg Intelligence Energy Analyst Vince Piazza notes that attention turns to 2018 after a relatively quiet holiday season. Concerns for production growth with stout hedging likely places a ceiling on WTI in the $60 range. Domestic storage remains elevated heading into a benign 1Q, even with the tailwind of crude exports. It's difficult to appreciate how it gets much better for global crude with the OPEC/Russia accord in the rear view and North Sea and Canadian pipeline issues largely transitory curtailments. Regime intrigue in Saudi Arabia and broader geopolitical concerns in the region aid uncertainty and boost risk premiums, but the WTI benchmark is likely to be range bound next year on higher domestic upstream production. DOE:

  • Crude -4.61mm (-3.75mm exp)
  • Cushing -1.584mm (-590k exp)
  • Gasoline  +591k
  • Distillates +1.09mm

Smaller DOE crude draw than API and smaller gasoline build but the trend remains in tact... The distillates build was much more bearish than the market expected.

Re-Balancing Now Down To 28 Weeks. The Weekly Petroleum Report -- December 28, 2017 ---Data points:

  • US crude oil inventories decreased by 4.6 million bbls (elsewhere it was said that this was more than expected) -- now in the middle of the average range for this time of the year -- this is the first time this comment has been made in quite some time
  • refinery operating capacity: a nice jump -- nearing 96% (reported: 95.7%)
  • gasoline production increased, now at 10.2 million bopd
  • distillate fuel production also increased, now at 5.5 million bopd
  • gasoline inventories actually decreased, but distillate inventories increased
  • here's the "gasoline demand" graphic --

Oil prices stay near high on strong US refinery runs, China data - (Reuters) - Oil prices edged up on Thursday, remaining near 2-1/2-year highs after data showed strong demand for crude imports in China and on increased U.S. refining activity that drew more crude from inventories. Trading was typically thin at year end, with many traders on vacation. The U.S. Energy Department said crude stocks fell 4.6 million barrels in the latest week. Inventories excluding the nation’s strategic reserve have declined more than 11 percent in the last year. U.S. refining runs increased, pushing capacity use to 95.7 percent, the highest in December dating to 1998. Refiners have profited in recent months as the spread widened between U.S. crude and Brent futures prices. “In the week past, strong demand for refined products, especially distillates, continued to incent refiners to process crude oil at increasing rates,” U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 20 cents to $59.84 a barrel. Brent crude futures LCOc1 settled up 28 cents at $66.72 a barrel. This week, WTI broke above $60 a barrel for the first time since June 2015, while Brent breached $67 for the first time since May 2015. [O/POLL] Oil markets have tightened after a year of production cuts led by Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) and Russia. OPEC cuts kicked off last January and are scheduled to continue throughout 2018. Countering those cutbacks, U.S. oil production has soared more than 16 percent since mid-2016 and is approaching 10 million barrels per day, trailing only OPEC kingpin Saudi Arabia and Russia. In the most recent week, U.S. production dipped modestly to 9.75 million bpd from 9.79 mln bpd the previous week. Prices were supported in early trade by China’s release of strong import quotas for 2018. China’s crude inventories in November hit a seven-year low of 26.15 million tonnes, Xinhua data showed. Pipeline outages in Libya and the North Sea have also supported prices. Libyan oil supplies were disrupted by an attack on a pipeline this week and flows towards the port of Es Sider were cut by about 70,000 bpd on Thursday. In the North Sea, the 450,000 bpd capacity Forties pipeline system was shut this month after a crack was found. Both pipelines are expected to return to normal operations by early January.

US oil prices hit highest since mid-2015 on surprise output drop - (Reuters) - U.S. oil prices hit their highest since mid-2015 on the final trading day of the year as an unexpected fall in American output and a fall in commercial crude inventories stoked buying. In international markets, Brent crude oil futures also rose, supported by ongoing supply cuts by top producers OPEC and Russia as well as strong demand from China. U.S. West Texas Intermediate (WTI) crude futures were at $60.07 a barrel at 1150 GMT, up 23 cents or 0.4 percent from their last close, after hitting a June 2015 high of $60.32. Brent crude futures - the international benchmark - were also up, rising 23 cents to $66.39 a barrel. Brent broke through $67 earlier this week for the first time since May 2015. Since the start of the year, Brent and WTI have risen by 17 and 12 percent, respectively, although the price rises from mid-2017 are much stronger, at nearly 50 percent. Friday’s WTI price rises were driven by a surprise drop in U.S. oil production, which last week dipped to 9.754 million barrels per day (bpd), down from 9.789 million bpd the previous week, according to data from the Energy Information Administration (EIA) released late on Thursday. U.S. output is still up by almost 16 percent since mid-2016, but most analysts had expected production to break through 10 million bpd by the end of this year - a level only surpassed by top exporter Saudi Arabia and top producer Russia. WTI prices were further boosted by a fall in U.S. commercial crude storage levels, which dropped by 4.6 million barrels in the week to Dec. 22 to 431.9 million barrels, according to the EIA. Inventories are now down by almost 20 percent from their historic highs last March, and well below this time last year or in 2015.

U.S. Rig Count Falls Slightly As Canada's Rig Count Tanks - The number of active oil and gas rigs dipped this week, according to Baker Hughes data, decreasing by 2 rigs, bringing the total rigs to 929 rigs, which is an addition of 271 rigs for the 2017 calendar year.The number of oil rigs in the US stayed the same for the second week in a row, while the number of gas rigs decreased by 2. The number of oil rigs stands at 747 versus 525 a year ago. The number of gas rigs in the US now stands at 182, up from 132 a year ago. At 10:04pm EST, the price of a WTI barrel was down $0.20 (+0.33%) to $60.04—a 2.5-year high, while the Brent barrel was trading up $0.18 (+0.27%) to $66.34, largely on the back of weeks of falling US crude oil inventory, and a surprise decrease in US crude oil production.US crude oil production has been on a steady upward trajectory for nearly a quarter, which has previous limited price spikes that came on the back of the Forties shutdown and a pipeline bombing in Libya. But US crude oil production for the week ending December 22 came in at 9.754 million barrels per day—a hair off the previous week’s high, and breaking a nine-week production increase in the US. While the 9.754-million-barrel-per-day production level is still the second highest, the fact that production didn’t increase for a tenth week bolstered confidence.The most alarming news this week is Canada's rig count, which saw a decrease of 58 oil rigs and 16 gas rigs.The Permian basin rig count stayed flat this week, but stands at 134 rigs above this same week last year. Williston and Haynesville basins lost rigs this week, with DJ-Niobrara gained 3. At 1:09pm EST, WTI was trading at $60.36 (+$0.52) with Brent trading at $66.82 (+$0.66).

Oil up at year end, U.S. crude hits highest since mid-2015 | Fox Business: (Reuters) - U.S. oil prices rose above $60 a barrel on the final trading day of the year, touching their highest since mid-2015, as an unexpected fall in American output and a decline in commercial crude inventories stoked buying in generally thin trading. International benchmark Brent crude futures also rose, supported by ongoing supply cuts by top producers OPEC and Russia as well as strong demand from China. Oil prices are set to close 2017 with strong gains on signs the global glut that has dogged the market since 2014 is shrinking. Brent is up 17 percent since the beginning of the year and U.S. West Texas Intermediate is 12 percent higher. U.S. West Texas Intermediate (WTI) crude futures hit $60.32, the highest since June 2015. At 1641 GMT, they were up 32 cents at $60.16 a barrel. Brent crude futures rose 41 cents to $66.57 a barrel. Brent broke through $67 this week for the first time since May 2015. WTI prices were supported by data from the U.S. Energy Information Administration late on Thursday showing domestic oil production declined last week to 9.75 million barrels per day (bpd) from 9.79 million bpd the previous week. Earlier this year, oil prices slumped on concerns that rising crude production from Nigeria, Libya and elsewhere would undermine output cuts led by the Organization of the Petroleum Exporting Countries and Russia. Prices have rallied nearly 50 percent since the middle of the year on robust demand and strong compliance with the production limits.

OilPrice Intelligence Report: What Does 2018 Hold For Oil Markets? -- Oil prices look to be ending the year on a high with WTI breaking $60 on Friday morning and Brent climbing towards the $67 mark. Analysts are now looking towards the new year, with opinion divided on whether oil markets can maintain this upwards momentum. Oil prices are set to close out the year up more than 11 percent, hitting their highest level since 2015. However, the road to higher prices was rocky. In the first half of the year, the OPEC cuts appeared to have little effect, and oil prices gyrated. But the cuts started to take a large bite out of inventories in the third quarter and the price rally ensued. Other notable developments included the return of geopolitics as a market mover, with outages in Libya, Iraq, the North Sea and Canada all contributing to higher prices. U.S. shale also came roaring back in 2017, and those production gains are expected to continue into next year. Looking forward, there is disagreement among market analysts about where prices go from here. Some view oil as overpriced, with a price correction looming (see more below). Others see oil prices grinding higher as 2018 wears on due to falling inventories.  The EIA reported a drop in U.S. oil production, with last week’s output falling by 35,000 bpd. Also, crude inventories fell by a robust 4.6 million barrels for the week ending on December 22, although gasoline inventories ticked up again. The dip in oil production could very well be a one-off anomaly, but the report added some bullish momentum to oil on the final trading day of the year. WTI hovered at the $60-per-barrel mark with a few hours left in 2017.  Barclay’s analysts argue that oil prices are due for a correction, citing several reasons that point to a coming downturn. Investors are overstretched with bullish bets on oil futures, exposing the market to a snap back in the other direction. Also, China’s economy is expected to slow in 2018, raising the risk of weaker-than-expected demand. Plus, oil supply is rising in the U.S., Brazil and Canada, among other countries. Inventories could start to build again in 2018, slowing the rate of rebalancing. Barclays notes that there are plenty of reasons why their forecast could be wrong, but they predict lower prices in the near-term.

Saudi Royal Reportedly Tortured To Death After Refusing To Fork Over His Fortune -- Rumors that Saudi Crown Prince Mohammad bin Salman has hired mercenaries to torture recalcitrant royals sleeping in the ballroom of the Ritz Carlton in Riyadh have been circulating since shortly after last month’s “corruption crackdown” naked cash grab. Now, Middle East Eye reports that one of MbS’s guests has reportedly died under torture rather than fork over his money and assets to his domineering relative. He was reportedly beaten and tortured so bad his family members had difficulty recognizing his body.Major general Ali Alqahtani, who was detained in early November as part of an alleged anti-corruption drive, had been working in the royal guard forces.He was the manager of the private office of Prince Turki Bin Abdullah, the son of former king Abdullah Bin Abdulaziz, according to the newspaper.Alqahtani died on 12 December after being tortured with electric shocks, and his family struggled to recognise him after receiving his body, according to sources, the newspaper reported.  We know this might come as a shock to some – Tom Friedman and the New York Times said MbS was such a nice guy! But that doesn’t change the fact that he is effectively extorting members of his own family to help plug a gaping hole in the Saudi government’s budget, willfully employing violence when necessary in a fashion that would make Tony Soprano proud. Case in point: Yesterday, we noted that the Saudi government had reportedly made Prince Alwaleed bin Talal – one of the world’s richest men - an offer he cannot refuse: Eitherfork over $6 billion to the Treasury, or spend the rest of his life being strung upside down and tortured by foreign mercenaries.

Saudi Squeeze on Alwaleed Has More at Stake Than Money -- Almost two months into it, Saudi Arabia's crackdown on corruption is yielding at least some of the $100 billion the kingdom is targeting. Dozens of former officials and businessmen have exchanged part of their wealth for freedom. But in the increasingly drawn-out case of Prince Alwaleed bin Talal, the public face of the Saudi royal family to many foreign executives and investors, there's more at stake than taking over his global business empire and talks on a settlement have hit an impasse. The Saudi crown prince, Mohammed bin Salman, is about to enter a crucial few months that will show his true motives and the scope of his power. How the case unfolds will help investors and diplomats answer a question puzzling them since the nightly raids of Nov. 4: Whether the purge is an effort to root out graft before selling shares in the country's oil giant, or simply a shakedown to boost state coffers while he asserts himself at home and abroad. People with knowledge of the matter say Alwaleed is balking at demands that could see him relinquish control of Kingdom Holding Co. He also is resisting any suggestion of wrongdoing because of the impact it would have on his reputation, they said. The prince owns the vast majority of the $9 billion conglomerate, which has stakes in household names from Citigroup Inc. to Twitter. “The Alwaleed case will define the crackdown to western investors,” said Emily Hawthorne, Middle East and North Africa analyst at Texas-based advisory firm Stratfor. The longer Alwaleed remains behind closed doors, the more the government “appears the unreasonable actor,” she said.

Exclusive: Apple and Amazon in talks to set up in Saudi Arabia – sources (Reuters) - Apple and Amazon are in licensing discussions with Riyadh on investing in Saudi Arabia, two sources told Reuters, part of Crown Prince Mohammed bin Salman’s push to give the conservative kingdom a high-tech look. A third source confirmed that Apple was in talks with SAGIA, Saudi Arabia’s foreign investment authority. Both companies already sell products in Saudi Arabia via third parties but they and other global tech giants have yet to establish a direct presence. Amazon’s discussions are being led by cloud computing division Amazon Web Services (AWS), which would introduce stiff competition in a market currently dominated by smaller local providers like STC and Mobily. Riyadh has been easing regulatory impediments for the past two years, including limits on foreign ownership which had long kept investors away, since falling crude prices highlighted the need to diversify its oil-dependent economy. Luring Apple and Amazon would further Prince Mohammed’s reform plans and raise the companies’ profile in a young and relatively affluent market, which already boasts some of the highest internet and smartphone use in the world. About 70 percent of the Saudi population is under 30 and frequently glued to social media. A licensing agreement for Apple stores with SAGIA is expected by February, with an initial retail store targeted for 2019, said two sources familiar with the discussions. Amazon’s talks are in earlier stages and no specific date has been set for investment plans, they said. Apple already holds second place in the Saudi mobile phone market behind Samsung, according to market researcher Euromonitor. Amazon acquired Dubai-based online retailer earlier in 2017, opening access for Amazon retail goods to be sold in the kingdom.

Saudi Airstrikes Kill 48 Yemeni Civilians In 24 Hours -- At least 48 Yemeni civilians have been killed by the Saudi Coalition in the last 24 hours, the Saba News Agency reported. "A total of 48 civilians, including women and children, were killed and wounded in 51 airstrikes launched by US-backed Saudi-led aggression coalition using internationally banned weapons on several Yemeni provinces over the past few hours, military and security officials told Saba on Sunday," the news agency reported. The Saudi airstrikes were primarily concentrated on the northern part of the country, where the Houthis currently control several provinces. In addition to northern Yemen, the Saudi airstrikes were also targeted the western part of the country, including the Hodeidah Port that was finally reopened after being blockaded for several weeks. The death toll from airstrikes included the deaths four civilians reportedly attending a demonstration inside the Yemeni capital - the attack followed a large number of air raids conducted above Sana’a. According to Saba News Agency, the Saudi Coalition airstrikes not only killed four civilians, but also wounded dozens of others, including many women and children. The report added that the airstrikes were conducted during a solidarity vigil that was held in support of Palestine.

More Than a Thousand Days of War in Yemen - For more than 1,000 days now, Yemen has been torn by a ferocious war pitting rebels, known as Houthis (supported by Iran), and forces fighting for former President Ali Abdullah Saleh (who was killed in December) against fighters loyal to exiled President Abed Rabbo Mansour Hadi (supported by Saudi Arabia). Multiple Yemeni tribal militias have aligned with the Hadi government, or the Houthis, or have struck out on their own, seeking independence—and Al Qaeda and ISIS are both attempting to hold or seize territory. A thousand days of airstrikes, civil war, suicide attacks, cholera outbreaks, and near-famine conditions have taken enormous tolls on Yemenis. The nation’s already-fragile infrastructure is under intense pressure as the lack of security and supplies affects every individual and institution. While Saudi Arabia recently agreed to a temporary lifting of its blockade to allow humanitarian relief, on Sunday the Houthi-run Saba news agency reported that 71 civilians were killed in 51 airstrikes carried out by the Saudi-led coalition across the country in just 48 hours. (photo essay)

Special Report: In a hospital ward in Yemen, the collapse of a nation (Reuters) - Nahla Arishi, chief pediatrician at the al-Sadaqa hospital in this Yemeni port city, had not seen diphtheria in her 20-year career. Then, late last month, a three-year-old girl with high fever was rushed to Arishi’s ward. Her neck was swollen, and she gasped for air through a lump of tissue in her throat. Eight days later, she died. Soon after, a 10-month-old boy with similar symptoms died less than 24 hours after arriving at the hospital. Two five-year-old cousins were admitted; only one survived. A 45-day-old boy, his neck swollen and bruised, lasted a few hours. His last breath was through an oxygen mask. One morning in early December, 16-month-old Sameh arrived at the hospital carried by his aunt and delirious with fever. Arishi immediately recognized a new case of diphtheria. “Put on your mask,” she ordered the aunt. Sameh’s father, a fighter in Yemen’s three-year war, rushed in, grabbed his son, yanked off the baby’s shoes and threw them on the floor. “Sameh is the light of the house,” he wailed, feeling the boy’s feverish brow and body. This is the emergency ward to a nation. After three years of warfare, cholera and hunger, Yemen faces a new battle: In the past four months, doctors across the country have recorded at least 380 cases of diphtheria, a bacterial disease that last appeared here in 1992. Arishi, like her country around her, is struggling to cope. Every month, she and her team drip-feed dozens of Yemen’s half a million severely malnourished children. Her ward has also treated hundreds of the one million people infected by cholera. Now, they are converting part of their makeshift cholera treatment center into a diphtheria ward, cordoning off isolation units by barring hallway doors. But with rusty oxygen tanks and only two functional ventilators in a different part of the hospital – and with the expectation that the cholera epidemic will worsen in coming months — her triage upon triage is no longer working. “We’re getting more patients but we can’t deal with them. We don’t have supplies. We don’t have money,” said Arishi, “This war has got to end.” 

Russia Establishes Two Permanent Bases In Syria To Host Nuclear Warships And Warplanes --Russia's defense ministry has announced it is now in the process of establishing two permanent military bases in war-torn Syria after President Putin authorized prior deals with the Syrian government to move forward. Though Russia maintains merely up to ten military bases on foreign soil, the installations in Tartus and Khmeimim will be the most strategically located, allowing for a growing and permanent Russian presence on the Mediterranean, something which has already raised eyebrows in the West. Though Putin formally announced the planned withdrawal of Russian forces from active operations in Syria in early December, there were parallel plans going back to at least early summer to maintain a smaller permanent presence based on an agreement with the Damascus government to host Russian forces for at least 49 more years, which includes the option of being prolonged further. Personnel and military hardware will be stationed at permanent Russian bases in Tartus and Khmeimim - both of which are on or near the Mediterranean.

Russian Foreign Minister: US Military Must Leave All Of Syria -- Russian Foreign Minister Sergey Lavrov stated on Thursday that US forces must leave all of Syria. Speaking to Interfax news agency, Lavrov stated that the UN Security Council has not approved the work of the United States and its coalition in Syria, nor has been invited by the legitimate Syrian government. Concerning a prior statement by US Defense Secretary James Matisse voicing the intent for US troops to stay in Syria until achieving progress in a political settlement, Lavrov pointed out that such statement is “surprising” because it means that Washington reserves the right to determine such progress and wants to maintain control over parts of Syrian territory in order to achieve the result it wants. The Russian minister affirmed that according to the UNSC No.2254, which the United States supported, the decision on the future of Syria can only be taken by the Syrian people and this is what Moscow will begin with as a starting point in its contacts with the Americans later. He also expressed his satisfaction that cooperation with the US in Syria is possible if the Americans’ goal is to fight terrorism. Meanwhile concerning Russian military developments in Syria, a missile attack against Russia’s Hmeymim base by terrorists could be a staged provocation aimed at derailing the Syrian National Dialogue Congress to be held in Sochi, Foreign Ministry Spokeswoman Maria Zakharova told reporters at a press briefing. “On December 27, militants fired several missiles from the Bdama inhabited community at Latakia International Airport and the Russian Aerospace Forces’ deployment site in Hmeymim. Two of them were intercepted by Russia’s Pantsir air defense system, while the third one, deviating from the trajectory, landed in the outskirts of the city of Jebla,” she said. “We see yesterday’s attempt to attack the Russian military at the Hmeymim base as another link in the chain of ongoing and, perhaps, staged provocations involving terrorists and extremists from the Syrian opposition aimed at disrupting the positive trends in the development of the situation in Syria and, in particular, at creating obstacles to convening and holding the Syrian National Dialogue Congress in Sochi on January 29-30,” she said.

Iran votes to declare Jerusalem 'capital of Palestine' | TheHill: Iran declared Jerusalem the "capital of Palestine" on Wednesday following a parliamentary vote, according to the country's semi-official Fars news agency. Iran's announcement to recognize the holy city as the “Palestinian capital forever” comes in direct response to President TrumpDonald John TrumpHouse Democrat slams Donald Trump Jr. for ‘serious case of amnesia’ after testimony Skier Lindsey Vonn: I don’t want to represent Trump at Olympics Poll: 4 in 10 Republicans think senior Trump advisers had improper dealings with Russia MORE's decision to recognize Jerusalem as the capital of Israel. “It comes in response to the recent U.S. decision to recognize Jerusalem as Israel’s capital in hopes of dealing a blow to Muslims,” said Parliament Speaker Ali Larijani, according to Turkey's Anadolu news agency.The bill reportedly passed easily, with 207 "yes" votes from the 290-member Parliament. Iran has long been a fierce proponent of a future Palestinian state. Iran cut relations with Israel, which unified the city under its control after capturing east Jerusalem in the 1967 Six-Day War. Trump broke precedent on Dec. 6 when he announced that the U.S. would recognize Jerusalem as the capital of Israel and begin the process of moving its embassy there from Tel Aviv to Jerusalem. While the White House said that the move doesn't specify the boundaries of the Israeli capital, the decision appeared to take sides in a fight in which both Israelis and Palestinians lay claim to the eastern side of the city. The announcement, which largely pleased Israel’s leadership, ignited protests across the Muslim world, as well as widespread backlash among other countries, including close allies like the United Kingdom. Last week, an overwhelming majority of countries voted against the U.S. in passing a nonbinding resolution at the United Nations that declared Trump's Jerusalem decision “null and void.”

US And Israel Reach "Secret Plan" To Counter Iran - Axios reports U.S. and Israeli officials said joint understandings were reached in "a secret meeting" between senior Israeli and U.S. delegations at the White House on December 12th. Speaking to Axios, a senior U.S. official said that after two days of talks the U.S. and Israel "reached at a joint document which included understandings on countering Iranian actions in the region." The U.S. official said the document goal's was to translate President Trump's Iran speech to joint U.S.-Israeli strategic goals regarding Iran and to set up a joint work plan. On the Israeli side, the team was headed by national security adviser Meir Ben-Shabbat and included senior representatives of the Israeli military, including the Ministry of Defense, Foreign Ministry and intelligence community. The U.S. side was headed by national security adviser H.R. McMaster and included senior representatives from the National Security Council, State Department, Department of Defense and the intelligence community. After the (not so) "secret" meetings, senior Israeli officials confirmed the U.S. and Israel have arrived at strategic understandings regarding Iran that would strengthen the cooperation in countering regional challenges. The Israeli official added that "[T]he U.S. and Israel see eye to eye the different developments in the region and especially those that are connected to Iran. We reached at understandings regarding the strategy and the policy needed to counter Iran. Our understandings deal with the overall strategy but also with concrete goals, way of action and the means which need to be used to get obtain those goals." Meanwhile, apparently unconcerned by the Saudi-Israeli-US axis that has formed to contain his nation, Iranian Supreme Leader Ayatollah Ali Khamenei said on Wednesday that US President Donald Trump would fail in his hardened stance towards Iran, saying Tehran is stronger than during the time of Ronald Reagan.

Iranian cities hit by anti-government protests - BBC News: Anti-government demonstrations that began in Iran on Thursday have now spread to several major cities. Large numbers reportedly turned out in Rasht, in the north, and Kermanshah, in the west, with smaller protests in Isfahan, Hamadan and elsewhere. The protests began against rising prices but have spiralled into a general outcry against clerical rule and government policies. A small number of people have been arrested in Tehran, the capital. They were among a group of 50 people who gathered in a city square, Tehran's deputy governor-general for security affairs told the Iranian Labour News Agency. The US State Department condemned the arrests and urged "all nations to publicly support the Iranian people and their demands for basic rights and an end to corruption".  The demonstrations began in the north-eastern city of Mashhad - the country's second most-populous - on Thursday.People there took to the streets to express anger at the government over high prices, and vented their fury against President Hassan Rouhani. Fifty-two people were arrested for chanting "harsh slogans".  The protests spread to other cities in the north-east, and and some developed into broader anti-government demonstrations, calling for the release of political prisoners and an end to police beatings. On Friday, despite warnings from authorities, the demonstrations spread further to some of the biggest cities in the country.

Why China Sold Qatar The SY-400 Ballistic Missile System -- On Qatar National Day, the Qatar Armed Forces showcased their newly acquired Chinese SY-400 short-range ballistic missile system with a range of 400 kilometers. China’s sale of the SY-400 missile system to Qatar underscores how the Doha-Beijing defense relationship has reached its strongest point since these two countries officially established diplomatic relations in 1988.  Despite China’s close security partnerships with the Anti-Terror Quartet (ATQ) members—Bahrain, Egypt, Saudi Arabia, and the United Arab Emirates (UAE)—Beijing is investing in good relations with all states in the Persian Gulf and balancing both sides of the Gulf Cooperation Council’s (GCC) diplomatic row to China’s geopolitical and strategic advantage. China’s sale of the SY-400 system—which is both offensive and defensive—to Qatar enables Doha to assert greater clout as its geographically larger neighbors continue their siege. Beijing’s decision to sell Doha the SY-400 system amid the Qatar crisis was driven by numerous factors. Since China participated in the 2014 Doha International Maritime Defense Exhibition, Beijing has sought to export its military technology to Qatar. Doha’s plans to purchase this ballistic missile system from China date back to 2014, the year of the GCC diplomatic spat in which the GCC’s ATQ members withdrew their ambassadors from Qatar for eight months. As the Arabian emirate is China’s second-largest provider of liquefied natural gas (LNG), such defense sales serve Beijing’s interests by further balancing bilateral trade. Odds are also good that Qatar came under a degree of pressure from Beijing to take steps toward deepening Sino-Qatari relations amid growing competition from America as a rival LNG exporter to China. China’s sale of the SY-400 system to Qatar must be interpreted within the context of Beijing’s grander objectives in the Middle East pertaining to the ambitious One Belt, One Road (OBOR) initiative. Both Qatar and countries within the Saudi/UAE-led bloc play important roles in China’s vision for a multicontinental trade corridor that positions Beijing at the center of the 21st century global economy. Beijing recognizes Qatar, which is a member of the Asian Infrastructure Investment Bank, as one of the countries that supported OBOR early on.

What really happened in Security Council: China REJECTED oil embargo on North Korea - It is now clear that ever since North Korea carried out its Hwasong 15 ICBM launch complex three party negotiations between the US, China and Russia have been underway in great secrecy in order to agree a further sanctions resolution in the UN Security Council against North Korea.  Almost certainly the two recent telephone conversations between US President Trump and Russian President Putin have touched on this. The unusual secrecy in which the negotiations were conducted meant that when the sanctions resolution was finally agreed and was voted for unanimously by the UN Security Council it came as something of a surprise. In the run up to the vote the US had however been making fully clear what sort of pressure it wanted the UN Security Council and China specifically to impose on North Korea: a total embargo on all supplies of oil to North Korea along with a naval blockade and an effective cessation of all trade between North Korea and the outside world. The important point to take away from the UN Security Council meeting is that China again rejected these demands.  Here it is important to make a number of points about China’s deliveries of crude oil to North Korea. Firstly, crude oil is about the only product North Korea needs to import in order to keep its economy going which it cannot produce itself.  I say this though it is known that North Korea has been stockpiling crude oil in anticipation of a possible future embargo of crude oil deliveries to itself and would probably be able to keep its economy going for some time albeit at a reduced rate if crude oil were indeed cut off. Secondly, all crude oil which North Korea imports comes from China. Thirdly, it appears that China does not actually require payment from North Korea for this crude oil, which is provided essentially as a gift. The text of the latest sanctions resolution voted for unanimously by the UN Security Council is provided at the end of this article.

U.S. sanctions North Korean missile experts, Russia offers to mediate (Reuters) - The United States announced sanctions on two of North Korea’s most prominent officials behind its ballistic missile program on Tuesday, while Russia reiterated an offer to mediate to ease tension between Washington and Pyongyang. The new U.S. steps were the latest in a campaign aimed at forcing North Korea - which has defied years of multilateral and bilateral sanctions - to abandon a weapons program aimed at developing nuclear-tipped missiles capable of hitting the United States. ”Treasury is targeting leaders of North Korea’s ballistic missile programs, as part of our maximum pressure campaign to isolate (North Korea) and achieve a fully denuclearized Korean Peninsula,” Treasury Secretary Steven Mnuchin said in a statement. The move followed new United Nations sanctions announced last Friday in response to North Korea’s Nov. 29 test of an ICBM that Pyongyang said put all of the U.S. mainland within range of its nuclear weapons. Those sanctions sought to further limit North Korea’s access to refined petroleum products and crude oil and its earnings from workers abroad. North Korea declared the U.N. steps to be an act of war and tantamount to a complete economic blockade. The standoff between the United States and North Korea has raised fears of a new conflict on the Korean peninsula, which has remained in a technical state of war since the 1950-53 Korean War ended in an armistice, not a peace treaty. The United States has said that all options, including military ones, are on the table in dealing with North Korea. It says it prefers a diplomatic solution, but that North Korea has given no indication it is willing to discuss denuclearization. The U.S. Treasury named the targeted officials as Kim Jong Sik and Ri Pyong Chol. It said Kim was reportedly a major figure in North Korea’s efforts to switch its missile program from liquid to solid fuel, while Ri was reported to be a key official in its intercontinental ballistic missile (ICBM) development. The largely symbolic steps block any property or interests the two might have within U.S. jurisdiction and prohibit any dealings by U.S. citizens with them. 

Russian tankers fueled North Korea via transfers at sea -- Russian tankers have supplied fuel to North Korea on at least three occasions in recent months by transferring cargoes at sea, according to two senior Western European security sources, providing an economic lifeline to the secretive Communist state. The sales of oil or oil products from Russia, the world's second biggest oil exporter and a veto-wielding member of the United Nations Security Council, breach U.N. sanctions, the security sources said. The transfers in October and November indicate that smuggling from Russia to North Korea has evolved to loading cargoes at sea since Reuters reported in September that North Korean ships were sailing directly from Russia to their homeland. "Russian vessels have made ship-to-ship transfers of petrochemicals to North Korean vessels on several occasions this year in breach of sanctions," the first security source, who spoke on condition of anonymity, told Reuters. A second source, who independently confirmed the existence of the Russian ship-to-ship fuel trade with North Korea, said there was no evidence of Russian state involvement in the latest transfers. "There is no evidence that this is backed by the Russian state, but these Russian vessels are giving a lifeline to the North Koreans," the second European security source said. The two security sources cited naval intelligence and satellite imagery of the vessels operating out of Russian Far Eastern ports on the Pacific but declined to disclose further details to Reuters, saying it was classified. Russia's Foreign Ministry and the Russian Customs Service both declined to comment when asked on Wednesday if Russian ships had supplied fuel to North Korean vessels. The owner of one ship accused of smuggling oil to North Korea denied any such activity.

Sanctions against North Korea take their toll on smugglers operating along Chinese border - South China Morning Post - The small-time smugglers who long helped secretly knit North Korea to the outside world have seen their work plunge since ruler Kim Jong-un came to power, as a handful of large, well-connected Chinese businesses have taken over the trade along the Chinese border.  As Kim has ramped up his country’s nuclear and missile programmes, the increasingly tight international sanctions have favoured more sophisticated players, throwing the world of small-time smugglers into turmoil. One former smuggler, a rail-thin man in his 50s who chain-smokes cheap North Korean cigarettes, worked the border’s secret trails and quiet river crossings until last year, when he left North Korea to move in with relatives in China.“I could bring in 10 televisions at once, the same thing for refrigerators,” he says. But no more.The underground community’s troubles reflect the immense role that the border plays in North Korea’s economy, and offer a window into a world that outsiders almost never see. In rare detailed interviews, nearly a dozen people tied to smuggling networks, most either former smugglers or black market traders, discussed how life has changed since Kim came to power in late 2011.In North Korea, a nation shaped by repression and isolation, smuggling is far more than a crime. Smugglers brought in food during a famine, and eventually carried everything from car parts to South Korean TV shows. They ferried in TVs and ferried out escaping families. Smuggling became a respected profession, offering a road to the emerging middle class.  The 1,400km border is the linchpin of North Korea’s economy, with China accounting for about 90 per cent of its trade. While North Korea has faced international trade sanctions for over a decade, Beijing only began significantly ratcheting up enforcement over the past year, amid Pyongyang’s surging weapons tests. Trade has declined, but analysts say a range of products still flow across the frontier, their path smoothed by bribes and politicians in both countries.As sanctions have tightened, the trade machine has simply grown more complex.

US Spy Satellites Catch Chinese Ships Illegally Selling Oil To North Korea - According to South Korea's Chosun Ilbo, U.S. recon satellites have photographed around 30 illegal transactions involving Chinese vessels selling oil to North Korea on the West Sea in October. The images allegedly showed large Chinese and North Korean ships transacting in oil in a part of the West Sea closer to China than South Korea. The satellite pictures even showed the names of the ships. A government source said, “We need to focus on the fact that the illicit trade started after a UN Security Council resolution in September drastically capped North Korea’s imports of refined petroleum products.”  Meanwhile, on paper, China’s trade with North has recently collapsed after U.S. President Donald Trump unleashed a barrage of sanctions in September targeting North Korea’s imports of refined petroleum products.Back in November, the US. Treasury Department sanctioned an additional six North Korean shipping and trading companies and 20 of their ships after the satellite pictures surfaced. In the above picture, the North Korean ship named Ryesonggang 1, was easily identified and connected to the illegal sale of oil from China.According to Chosun Media, "the department noted that the two ships appeared to be illegally trading in oil from ship to ship to bypass sanctions." Ship-to-ship trade with North Korea on the high seas is forbidden in UNSC Resolution 2375 adopted in September, but such violations are nearly impossible to detect unless China aggressively cracks down on smuggling. 

Hong Kong Ship Seized After Transferring Oil To North Korea - Just days after we showed satellite images  which indicated that Chinese ships were trading oil with North Korean ships in a blatant violation of UN Security Council sanctions, South Korea said Friday that it was holding a Hong Kong flagged ship suspected of doing just that. The Lighthouse Winmore is believed to have "secretly transferred" about 600 tons of refined petroleum products to the North Korean ship, the Sam Jong 2, in international waters in the East China Sea on Oct. 19, according to Bloomberg and the Associated Press. The Hong Kong vessel had previously visited Yeosu port on Oct. 11 to load up on Japanese oil products and departed the port while claiming its destination was Taiwan. Instead, it transferred the oil to the Sam Jong 2 and three other non-North Korean vessels in international watersThe vessel was chartered by Taiwanese company Billions Bunker Group, which is incorporated in the Marshall Islands. According to Bloomberg, Taiwanese investigators are looking into whether any Taiwanese nationals have ties to the ship that was seized on Friday, Taiwan’s Maritime and Port Bureau says in statement on its website.  Photos from US recon satellites released earlier this week showed at least 30 illegal transactions involving Chinese vessels selling oil to North Korea on the West Sea in October. The images allegedly showed large Chinese and North Korean ships transacting in oil in a part of the West Sea closer to China than South Korea. The satellite pictures were so clear, they even showed the names of the ships.

China Resists US Push To Blacklist Ships Caught Trading With North Korea -  After the US Treasury Department released satellite images purporting to show Chinese ships transferring oil to a North Korea-flagged vessel in blatant violation of UN Security Council sanctions, the US is pressing for 10 ships, several of them Chinese, to be added to the list of entities banned by the UN. But there’s one problem: China, which like the US holds a permanent veto over UN Security Council decisions, is pushing back. It says it will only accept sanctions on four ships, according to the Wall Street Journal. While there’s some skepticism about how well these rules are enforced, UN sanctions would require members to bar blacklisted ships from their ports. A Security Council resolution passed last week gives member states more authority to seize the ships that have breached international sanctions and ban them from their ports. And the satellite images mentioned above have shown just how easily North Korea has managed to circumvent sanctions managed to restrict energy flowing into the country while also choking off its exports of North Korean coal.  Earlier today, we reported that South Korean officials seized one of the ships shown in the US satellite photographs. The ship, the Hong Kong-flagged Lighthouse Winmore, was being held for inspection by South Korea. Its crewmembers will reportedly be allowed to return to their home countries once the inspection is finished.That ship was caught transferring oil to North Korea-flagged Sam Jong 2. Both the Winmore and Sam Jong are on the US’s list of 10 ships deserving of sanctions. But neither ships are included on China’s revised list of four.