Sunday, April 15, 2018

oil prices jump to 41 month high on war news; global oil output at another record high despite deeper OPEC cuts

oil prices were higher each and every day this week, mostly on wars and rumors of wars, ending at their highest level since November 2014, even as US & global oil supply figures remained bearish...after falling 4.4% to $62.06 a barrel on fears of a trade war with China last week, prices for US crude to be delivered in May rose $1.36 to $63.42 a barrel on Monday, as those trade war fears subsided and oil traders turned their attention to rising tensions in the Middle East, where Israeli missiles hit a Syrian air base and an alleged chemical attack over the weekend allegedly killed dozens of civilians in a rebel-held town near Damascus...oil prices then jumped $2.09 to $65.51 a barrel on Tuesday, the highest close since 2014, after Trump threatened Syria and Russia with a missile strike in response to the alleged gas attack and UN Ambassador Nikki Haley said that the US would retaliate against the alleged attack in Syria regardless of what the UN Security Council finds, even as the US had no evidence of who was behind the alleged attack or if it actually happened at all...then on Wednesday, despite a surprisingly large increase in US crude supplies, oil prices still rose $1.31 to $66.82 a barrel, because the Saudis intercepted Houthi missile attacks on their capital Riyadh and on their oil facilities and Russia said they'd shoot down any and all of the missiles that Trump threatened to fire at Syria....while oil prices were down 49 cents on Thursday morning, they rebounded to eke out a 25 cent gain for the day, closing at $67.07 a barrel, after the Saudis intercepted another missile attack, this time over Jazan, and a report of a large drop in OPEC production dominated the news...oil prices then rose for a fifth straight session Friday, with the U.S. benchmark crude gaining 31 cents to close the week $67.38 a barrel, an increase of nearly 9% on the week in the largest weekly price jump in over 8 months...

natural gas prices, on the other hand, remained unaffected by the geopolitical news, although they also eked out a small gain for the week, as the contract price for May gas delivery ended the week 3.4 cents higher at $2.735 per mmBTU, even after falling 4.5 cents over Monday and Tuesday, as the weekly storage report on Thursday showed a larger than expected withdrawal of natural gas from storage, which boosted prices heading into the weekend...the week's natural gas storage report indicated that natural gas in storage in the US fell by 19 billion cubic feet to 1,335 billion cubic feet over the week ending April 6th, which left our gas supplies 725 billion cubic feet, or 35.2% lower than the 2,060 billion cubic feet that were in storage on April 7th of last year, and 375 billion cubic feet, or 21.9% below the five-year average of 1710 billion cubic feet typically in storage after the first week of April...the average first week of April over the past five years has shown a surplus of 9 billion cubic feet, so this week's shortfall & subsequent withdrawal came at a time of year when natural gas normally starts being injected into storage, although you might recall that last week was colder than normal...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending April 6th, showed that due to a big jump in our oil imports and a big drop in our oil exports, we were able to add to our crude oil supplies for the seventh time in the past eleven weeks...our imports of crude oil rose by an average of 752,000 barrels per day to an average of 8,650,000 barrels per day during the week, after falling by 250,000 barrels per day the prior week, while our exports of crude oil fell from last week's record by an average of 970,000 barrels per day to an average of 1,205,000 barrels per day, which meant that our effective trade in oil over the week worked out to a net import average of 7,445,000 barrels of per day during the week, 1,722,000 barrels per day more than our net imports during the prior week...at the same time, field production of crude oil from US wells rose by 65,000 barrels per day to a record high of 10,525,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,970,000 barrels per day during the reporting week..

during the same week, US oil refineries were using 17,019,000 barrels of crude per day, 83,000 barrels per day more than they used during the prior week, while at the same time 472,000 barrels of oil per day were being added to oil storage facilities in the US....consequently, this week's crude oil figures from the EIA seem to indicate that our total working supply of oil from net imports and from oilfield production was 479,000 barrels per day more than what refineries reported they used plus what was added to storage during the week...to account for that disparity, the EIA needed to insert a (-479,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (the details on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, are explained here)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 7,943,000 barrels per day, which was 1.5% less than the 8,065,000 barrel per day average we imported over the same four-week period last year....the 472,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as oil stocks in our Strategic Petroleum Reserve were unchanged...this week's 65,000 barrel per day increase in our crude oil production included a 85,000 barrel per day increase in output from wells in the lower 48 states, which was partially offset by a 20,000 barrel per day decrease in output from Alaska...the 10,525,000 barrels of crude per day that were produced by US wells during the week ending April 6th were the highest on record, 14.0% more than the 9,235,000 barrels per day that US wells were producing during the week ending April 7th of last year, and 24.9% above the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June, 2016...

US oil refineries were operating at 93.5% of their capacity in using those 17,019,000 barrels of crude per day, up from 93.0% of capacity the prior week, and the highest utilization rate since the first week of this year....the 17,019,000 barrels of oil that were refined this week was a seasonal record, the most oil that US refineries have ever processed this early in any April, beating the record during the week ending April 7th last year...and while this week's level of refining was still 3.3% less than the off-season record 17,608,000 barrels per day that were being refined during the last week of December 2017, it was 1.9% more than the 16,697,000 barrels of crude per day that were being processed during that week a year ago, when refineries were operating at 91.0% of capacity....

with the increase in the amount of oil being refined, gasoline output from our refineries was higher than the prior week, increasing by 35,000 barrels per day to 10,150,000 barrels per day during the week ending April 6th, after our gasoline output had decreased by 190,000 barrels per day during the week ending March 30th....with that increase, our gasoline production was 2.2% greater during the week than the 9,927,000 barrels of gasoline that were being produced daily during the week ending April 7th of last year....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) rose by 240,000 barrels per day to 5,256,000 barrels per day, after rising by 513,000 barrels per day during the prior two weeks....hence, that increase meant the week's distillates production was 3.9% higher than the 5,060,000 barrels of distillates per day than were being produced during the week ending April 7th, 2017....    

with the modest increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 458,000 barrels to 238,935,000 barrels by April 6th, the first increase in 6 weeks, but the 16th increase in 22 weeks....our gasoline supplies rose even as our domestic consumption of gasoline rose by 70,000 barrels per day to 9,273,000 barrels per day because our exports of gasoline fell by 177,000 barrels per day to 789,000 barrels per day, while our imports of gasoline fell by 106,000 barrels per day to 655,000 barrels per day...with this week's increase, our gasoline inventories are now 1.2% higher than last April 7th's level of 236,130,000 barrels, and roughly 13.3% above the 10 year average of gasoline supplies for this time of the year...         

even with the increase in distillate's production, our supplies of distillate fuels fell by 1,044,000 barrels to 128,447,000 barrels over the week ending  April 6th, the 4th decrease in five weeks...our distillate inventories fell because the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 283,000 barrels per day to 4,170,000 barrels per day, and because our exports of distillates rose by 209,000 barrels per day to 1,360,000 barrels per day, while our imports of distillates rose by 26,000 barrels per day to 125,000 barrels per day...after this week’s inventory decrease, our distillate supplies ended the week 14.5% lower than the 150,221,000 barrels that we had stored on April 7th, 2017, and roughly 5.9% lower than the 10 year average of distillates stocks at this time of the year…    

however, because of the drop in our oil exports and the jump in our oil imports, we were able to add oil to our commercial supplies of crude oil for the 8th time in 2018 and for the 16th time in the past year, as our commercial crude supplies increased by 3,306,000 barrels, from 425,332,000 barrels on March 30th to 428,638,000 barrels on April 6th....however, after falling most of the past year, our oil inventories as of April 6th were still 19.6% below the 533,377,000 barrels of oil we had stored on April 7th of 2017, 15.2% lower than the 505,232,000 barrels of oil that we had in storage on April 8th of 2016, and 4.9% below the 450,956,000 barrels of oil we had in storage on April 10th of 2015, at a time when the US glut of oil had already begun to surge from the stable levels of prior years... 

OPEC's Monthly Oil Market Report

Thursday of this past week saw the release of the OPEC's April Oil Market Report (covering March OPEC & global oil data), which is available as a free download, and hence it's the report we check for global oil supply data....the first table from this monthly report that we usually look at is from the page numbered 51 of that report (pdf page 59), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings indicate...for all their official production measurements, OPEC uses an average of estimates from six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...  

March 2018 OPEC crude output via secondary sources

as we can see on this table of official oil production data, OPEC's oil output fell by 201,400 barrels per day in March to 31,958,000 barrels per day, from an February production total of 32,159,000 barrels per day, but that was a figure that was originally reported as 32,186,000 barrels per day, so their production for March was actually 228,400 barrels per day lower than the previously reported figures (for your reference, here is the table of the official February OPEC output figures as reported a month ago, before this month's revisions)...as you can tell from the far right column above, oil production cutbacks by several of the OPEC members led to the March drop, with an 81,700 barrel per day decrease in Angolan oil output, a 55,300 barrel per day decrease in Venezuela's oil output, a 46,900 barrel per day decrease in Saudi output, and a 37,200 barrel per day decrease in Libya's output as the major factors...at 31,958,000 barrels per day, OPEC oil output is now 828,000 barrels per day below the 32,730,000 barrels per day revised quota they agreed to at their November 2017 meeting, with only Iraq's 4,426,000 barrel per day output above their 4,350,000 barrel per day allocation...

the next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, over the period from April 2016 to March 2018, and it comes from the page numbered 52 (pdf page 60) of the April OPEC Monthly Oil Market Report...on this graph, the cerulean blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale...   

March 2018 OPEC report global oil supply

OPEC's preliminary data indicates that total global oil production rose by 180,000 barrels per day to a record 98.15 million barrels per day in March, after February's global output total was revised down by .23 million barrels per day from the record 98.20 million barrels per day global oil output that was reported a month ago, as a 380,000 barrel per day increase in non-OPEC oil production more than made up for this month's OPEC output cuts....global oil output for March was also 2.33 million barrels per day higher than the 95.82 million barrels of oil per day that were being produced globally in March a year ago (see last April's OPEC report online (pdf) for the year ago data)... OPEC's March oil production of 31,958,000 barrels per day thus represented just 32.6% of what was produced globally, down from a revised 32.9% in February, as oil output increases by US, Norway, UK, Bahrain, Brazil, Russia and China were only partially offset by decreases in oil output from Colombia, Oman and Kazakhstan...OPEC's March 2017 production was at 31,928,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year, excluding their new member Equatorial Guinea, are now producing 165,000 more barrels per day of oil than they were producing a year ago, during the third month that their production quotas were in effect, with the increase from last year largely due to recoveries of oil production in Libya and Nigeria...  

the increase in global oil output that we can see in the above purple graph meant there was a surplus in the amount of oil being produced globally, as this next table from the OPEC report will show us..      

March 2018 OPEC report 2018 global oil demand

the table above comes from page 31 of the March OPEC Monthly Oil Market Report (pdf page 39), and it shows regional and total oil demand in millions of barrels per day for 2017 in the first column, and OPEC's estimate of oil demand by region and globally quarterly over 2018 over the rest of the table...on the "Total world" line of the second column, we've circled in blue the figure that's relevant for March, which is their revised estimate of global oil demand during the first quarter of 2018...   

so, OPEC's estimate is that during the 1st quarter of this year, all oil consuming areas of the globe have been using 97.40 million barrels of oil per day, which is an upward revision from their prior estimate of 97.27 million barrels of oil per day (which we've circled in green).....meanwhile, as OPEC showed us in the oil supply section of this report and the summary supply graph above, even after the OPEC and non-OPEC production cuts, the world's oil producers were producing 98.15 million barrels per day during March, which means that there was a surplus of around 750,000 barrels per day in global oil production vis-a vis demand during the month... 

meanwhile, the 0.23 million barrels per day upward revision to February's global output plus the 0.13 million barrel of oil per day upward revision to 1st quarter demand means that our previously computed surplus for February should be revised .36 million barrels per day lower, and thus now stands at 570,000 barrels per day...likewise, the 0.13 million barrel of oil per day upward revision to 1st quarter demand means that January's surplus was that much lower, now at 410,000 barrels per day...hence, for the first three months of the year, oil production has exceeded supply by roughly 51.9 million barrels...

on the other hand, cumulative global oil demand figures for 2017 were revised higher by 0.03 million barrels per day to 97.07 barrels per day (also circled in green) with this report, because of a 0.13  million barrels per day upward revision to 4th quarter demand figures...with 92 days in the 4th quarter, that means our previous estimate of a 201 million barrel oil shortfall for 2017 was about 12 million barrels too low, so we can now re-estimate that the global oil deficit over all of 2017 was approximately 213 million barrels... 

This Week's Rig Count

US drilling activity increased for the seventh time in the past eight weeks and for 16th time in the past 23 weeks during the week ending April 13th, a period of higher oil prices that has consequentially seen the rig increases far exceed the few decreases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 5 rigs to 1008 rigs in the week ending on Friday, which was the most rigs running in the US since April 2nd, 2015...that was also 161 more rigs than the 847 rigs that were in use as of the April 13th report of 2017, while it was still down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014... 

the number of rigs drilling for oil increased by 7 rigs to 815 rigs this week, which was also 132 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations fell by 2 rigs to 192 rigs this week, which was still 30 more gas rigs than the 162 natural gas rigs that were drilling a year ago, but way down from the recent high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there is also a rig drilling currently that was listed as "miscellaneous", unchanged from last week, but down from the 2 "miscellaneous" rigs that were operating a year ago.

new drilling began from 4 additional platforms in the Gulf of Mexico this week, increasing current drilling activity in the Gulf to 16 rigs, which was still 5 rigs less than were working in the Gulf, or anywhere offshore, a year ago...meanwhile, the count of active horizontal drilling rigs decreased by one rig to 883 horizontal rigs this week, which was still 177 more horizontal rigs than the 706 horizontal rigs that were in use in the US on April 13th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count was also down by 1 rig to 55 vertical rigs this week, which was also down from the 77 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count increased by 7 rigs to 70 directional rigs this week, which was up from the 64 directional rigs that were deployed on April 13th of 2017...

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 the weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of April 13th, the second column shows the change in the number of working rigs between last week's count (April 6th) and this week's (April 13th) count, the third column shows last week's April 6th active rig count, the 4th column shows the change between the number of rigs running on Friday and as of the equivalent weekend report of 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 on Thursday the 13th of April, 2017...     

April 13 2018 rig count summary

one thing that isn't shown on this week's tables is the 4 rigs that were added in the Gulf of Mexico; they were all offshore from Louisiana and are hence included in the Louisiana count, which was only up by 1 rig because three land based rigs - one in the northern part of the state, and two in the south, were shut down in Louisiana at the same time...meanwhile, the rig that was added in Ohio's Utica was targeting a natural gas bearing formation, and there was also a new natural gas added in the Arkoma Woodford of Oklahoma; however, natural gas rigs ended down two because of the shutdown of one rig in the Marcellus of West Virginia, one in the Eagle Ford of south Texas (where three oil rigs were added), and two in other basins not shown above...also note that there's a 6 rig increase in the major shale basins shown above; assuming those additions were all horizontal rigs, there then had to be at least 7 horizontal rigs shut down in those "other" basins that Baker Hughes does not track separately...

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Energy Secretary Rick Perry voices doubt on utility's plea to save coal and nuclear   - Energy Secretary Rick Perry voiced doubt Monday that he would approve a plea by a Ohio utility to save its coal and nuclear power plants. "My job is to find solutions to challenges that face us," Perry said after addressing the Bloomberg New Energy Finance conference in New York. "The 202(c) may not be the way we decide is most appropriate — the most efficient way to address this. It is not the only play." Ohio utility First Energy recently petitioned Perry to use his authority under section 202(c) of the Federal Power Act to order grid operators to keep its nuclear and coal plants online. The company said this month that it would close three of its nuclear power plants in Ohio and Pennsylvania in the next several years before announcing that its subsidiary First Energy Solutions filed for bankruptcy protection. The 202(c) petition came soon after the bankruptcy filing.President Trump mentioned the First Energy petition in making public remarks in West Virginia last week. Trump said the administration would "be looking at that as soon as we get back."

Perry says he may not declare an electric grid emergency | TheHill: Energy Secretary Rick Perry said Monday that he may not declare there is an emergency in the Northeast’s electric grid. FirstEnergy Solutions, a power generating company, asked for such a declaration last month, saying that it plans to close its coal and nuclear power plants, which would devastate the PJM Interconnection grid that runs from Ohio to New Jersey and many other nearby states.The relief FirstEnergy requested “may not be the way that we decide that is the most appropriate, the most efficient, way to address this. It is not the only way,” Perry said at a New York City event hosted by Bloomberg New Energy Finance. Nonetheless, the request for Perry to use his power under section 202(c) of the Federal Power Act and mandate higher electricity payments to coal and nuclear plants in the region is “an issue in front of [the Energy Department] that is being looked at as we speak,” he said. FirstEnergy’s request has been criticized by free-market advocates, environmentalists and advocates for numerous competing electricity sources like wind, solar and natural gas, who say it’s not the federal government’s job to bail out uneconomic companies. But Perry said coal and nuclear plant closings are a major problem. “My responsibility is to make sure that when the demand is there for this country, whether it’s an economic demand, whether it’s a personal demand or whether it’s a national security demand, that when that event occurs, we have the power,” he said. Perry said that while he sympathizes with the need to prevent coal and nuclear plants from closing, he might not endorse FirstEnergy’s plan.

Near Miss at Line 5. Great Lakes Crown Jewel at Risk -- Eclectablog: Last week, 550 gallons of coolant containing the carcinogenic solvent benzene were released into Lake Michigan from an electrical transmission cable running under the Straits of Mackinac. It happened because a ship went through the Straits dragging its anchor.  Enbridge Energy clearly had an “oh shit!” moment since the twin oil pipelines they own that run under the Straits were just a few hundred yards away. Sure enough, after an inspection, they found three dents in the two pipelines which carry nearly 1 million gallons of petroleum per hour. The pipelines, part of Enbridge’s Line 5, are 65 years old.As I wrote in 2015, it doesn’t take much imagination to understand the utter catastrophe that would result if this pipeline, like the Enbridge pipeline that dumped over a million gallons of tar sands crude into the Kalamazoo River in 2010, were to rupture. Imagine the scenario of this happening in February when the Straits of Mackinac are covered in eight feet of solid ice and when the only ship traffic is through a narrow channel created by a Great Lakes icebreaker. It’s no wonder that University of Michigan researchers called the Straits “the worst possible place for an oil spill in the Great Lakes.” It’s worth noting that the Line 6B spill cost well over $1,000,000,000 (yes, that’s a BILLION dollars) to clean up.  For their part, Enbridge says that Line 5 is one of the “most inspected pipelines” in America. However, there is literally no plan in place to deal with a pipeline rupture that will adequately protect the Great Lakes so essentially what they are telling us is that they will know they exact moment when they begin to destroy this precious and valuable ecosystem and fresh water supply. Nearly a million gallons of oil would erupt into Lake Michigan per hour until they could get it under control. Given that it took them 17 hours after the Kalamazoo pipeline ruptured before they notified anyone, we have no way of knowing when they would actually tell the world that they had created the most catastrophic man-made disaster in Michigan history.

Pennsylvania Superior Court Rules That Fracking Natural Gas From a Neighboring Property Is Trespassing - Last week the Pennsylvania Superior Court issued an opinion that could have major ramifications for the hydraulic fracturing industry in the state: It states a company trespassed on a family's land by extracting natural gas from beneath their property while operating a fracking well next door. The Briggs family owns about 11 acres of land in Harford Township in Susquehanna County. When Southwestern Energy began operating an unconventional natural gas well on the adjacent property in 2011, the Briggs declined to lease their mineral rights to the company for development. In 2015, they filed a complaint that Southwestern was trespassing by extracting gas from beneath their property without a lease. Southwestern didn't dispute they'd removed natural gas from beneath the Briggs' land, but argued they weren't trespassing due to the "rule of capture," which says the first person to "capture" a natural resource like groundwater, gas or oil owns it, regardless of property lines. A lower court agreed with Southwestern and issued a summary judgment in their favor, but last week's Superior Court opinion overturns that decision, stating that the rule of capture shouldn't apply to unconventional natural gas drilling because of key differences in the method of extraction. "Unlike oil and gas originating in a common reservoir, natural gas, when trapped in a shale formation, is non-migratory in nature," the opinion states. "Shale gas does not merely 'escape' to adjoining land absent the application of an external force. Instead, the shale must be fractured through the process of hydraulic fracturing; only then may the natural gas contained in the shale move freely through the 'artificially created channel[s].'" Ultimately, the Court said, "In light of the distinctions between hydraulic fracturing and conventional gas drilling, we conclude that the rule of capture does not preclude liability for trespass due to hydraulic fracturing."

Pennsylvania court possibly stands fracking on its head - A Pennsylvania court last week handed down an opinion which has the potential to set horizontal drilling back decades, and possibly halt natural gas/natural gas liquids drilling in the “Keystone State.”  The state Superior Court slammed shut a producer’s ability to drill laterals into commodities in property it does not control. The so-called Rule of Capture – which traces its roots in the oil and gas industry back to the days of Col. Edwin Drake, effectively has been tossed out by the court, which could lead to numerous lawsuits, and stunt the future growth of oil and gas production, some experts tell Kallanish Energy. “This ruling absolutely can be a very big deal (to the oil and gas industry),”  Houston-based Southwestern Energy Production began drilling in 2011 on property adjacent to an 11-acre parcel Adam Briggs, his wife, Paula, and his siblings, Sarah and Joshua, own in Susquehanna County. The siblings brought suit in 2015 in county court against Southwestern, alleging the independent producer drilled two wells on the property it leased, but was drilling laterally into the Marcellus Shale in the Briggs’ property, never compensating them for the gas produced.  In effect, Southwestern allegedly was trespassing. The Susquehanna County court dismissed the lawsuit last August, after finding Southwestern was not required to pay the Briggs family based on the legal principle known as the “rule of capture.” Multiple appellate courts have found the rule of capture means one property owner can drill a well a short distance from a neighbor and use it to extract oil or gas from the neighbor’s property without paying them. But until this ruling, no court had clarified the rule of capture doesn’t apply to horizontal drilling, according to attorney Robert J. Burnett. “This is a very significant decision – it makes crystal clear that in Pennsylvania, the rule of capture no longer is available when it comes to horizontal drilling,” Burnett, chairman of the Oil and Gas Practice Group at Pittsburgh law firm Houston Harbaugh.

More Than 40,000 Comments Support A Complete Fracking Ban In The Delaware River Watershed -- National environmental organizations, anti-fracking groups, community organizations, and residents announced recently that their members had submitted at least 40,000 comments to the Delaware River Basin Commission (DRBC) in support of a full ban on fracking and all drillingrelated activities, including wastewater treatment and water withdrawals. The coalition also submitted a letter signed by 126 groups, representing millions of members, making the same demand.Even though more than 40,000 comments were filed during the comment period, a DRBC press release states it received less than 9,000. The discrepancy is due to the fact that the DRBC counted thousands of individual comments submitted by members of organizations as a single comment. This serves to severely diminish the widespread support across the region, and the country, for a full ban. (See below for examples.)“People trusted that their comments to DRBC would be fairly represented in the record, but DRBC is playing with the figures to bury the bold numbers that prove the fierce opposition of the public to fracking, and the dominant all-out demand for a complete ban on fracking, on frack wastewater dumping, and on water depletion that would stimulate fracking in other watersheds. The people have spoken and we’re going to be heard, no matter how anyone spins the truth - we want DRBC to ban fracking, to ban it all,” said Tracy Carluccio, Deputy Director, Delaware Riverkeeper Network. The comments came after months of educating on the need for a comprehensive ban on fracking activities in the Basin, which is a source of clean drinking water for over 17 million residents in the region.

Analysis: WB XPress work could affect West Virginia supply, prices - Columbia Gas Transmission is warning shippers about pipeline outages linked to construction work on its WB XPress expansion, which could have significant market impacts over the next month. At least some impacts are likely to begin Monday with an outage at Columbia Gas' Broad Run interconnect with Tennessee Gas Pipeline in West Virginia that's scheduled to continue through April 19. As Columbia Gas ties in the new Elk River compressor station with existing infrastructure, receipts and deliveries at Broad Run will be cut to zero with a high impact expected to firm shipping services, according to the company's planned service outage schedule. Over the past 30 days, Columbia Gas has delivered more than 400 MMcf/d, on average, to the Broad Run interconnect with Tennessee, with the gas sourced largely from West Virginia production receipts. On Monday, no initial production effects were observed in West Virginia, according to S&P Global Platts Analytics data, but they could become apparent during later intraday flow-nomination cycles. The potential for stranded production in West Virginia could also pressure upstream hub prices this week, though no immediate impacts were observed in early trading across Appalachia Monday. Another, potentially more consequential, maintenance linked to construction work on the WB XPress will cut deliveries from Columbia Gas to Cove Point Pipeline next month. From May 1 to 11, Columbia Gas will shutter its Loudoun interconnect with Cove Point, cutting deliveries from the upstream supply pipeline to zero. Over the past 14 days, feedgas consumption at Cove Point has averaged more than 600 MMcf/d.

Landowners continue to fight Mountain Valley Pipeline — As the tree-sitters continue to stake their claim up high, residents near the proposed path of the Mountain Valley Pipeline (MVP) are making their voices heard on the ground.The $3.5 billion project aims to place a 42-inch diameter pipeline to transport West Virginia natural gas more than 303 miles to southern Virginia. Since receiving approval from the Federal Regulatory Commission in mid-October, opposition has grown.  Monroe County resident Becky Crabtree lives in an over 100 year-old farmhouse near the foot of Peters Mountain. The pipeline’s path will go through her sheep field, over Wilson Mill Road twice, then across the mountain. It is also proposed to go underneath the Appalachian Trail. Crabtree said they purchased the land several years ago to ensure their children would have future homesites. “We picked out the land specifically for that reason. The pipeline goes right through our youngest daughter and her husband’s selection for a home. We’re further concerned because of the things we don’t know. We don’t know what lies under the surface. We’re obviously in a karst area, you can see the limestone outcroppings, we have sinkholes.” Maury Johnson also lives in Monroe County and will be directly affected by the pipeline. On Friday, he led a group of reporters and local politicians on a tour of various locations in the path of the project, including Crabtree’s land. He is also concerned about the sinkholes, which are visible from the road. “They want to go through the edge of it (sinkhole). You cannot put equipment on this terrain, heavy equipment will crush this. The roofs of these caves are not that deep. The DEP calls this Swiss cheese (because) from space it looks like Swiss cheese.” Johnson also worries about other geologic factors he’s noticed. According to the West Virginia Geological and Economic Survey, Monroe County is close to a seismic zone in neighboring Giles County, Va. A magnitude 3.2 earthquake was recorded on September 13, 2017 with the epicenter in Pearisburg, Va. That was less than 20 miles from the Monroe County line.

Construction kicks up on big WV pipeline projects - Two major natural gas pipelines originating in West Virginia are moving forward with construction activities after focusing on cutting trees through the winter months. Mountain Valley Pipeline will extend 42-inch diameter natural gas pipeline over 303 miles to transport West Virginia natural gas into southern Virginia. The pipeline developer says the $3.5 billion project is on pace for completion this year after felling trees in areas considered to be sensitive habitats for bats and migratory birds. Atlantic Coast Pipeline would run 600 miles from West Virginia through Virginia and into southeastern North Carolina, delivering up to 1.5 billion cubic feet of Marcellus shale gas. That $5.1 billion project is on track for completion in 2019, developers say. Each project is meant to move West Virginia natural gas to eastern markets, potentially generating higher prices. But there is also focus on how the enormous projects may affect the landscape and waterways as construction commences. Mountain Valley Pipeline says it remains on target for completion late this year. “Mountain Valley Pipeline is pleased to report 100 percent completion of all tree-felling activities requiring time-of-year restrictions related to endangered bats,” stated Natalie Cox, a spokeswoman for MVP. “The project team continues to conduct tree-felling and related activity in accordance with state and federal laws, and the project remains on target for a late 2018 in-service.” Mountain Valley Pipeline was the focus of protesters in treetop platforms this winter in Monroe County, where trees were being cleared for a path through the Jefferson National Forest. The protesters were aiming to make MVP miss a March 31 deadline to clear trees in the area.  

Mountain Valley Pipeline proposes expansion into N. Carolina (AP)(AP) — Developers of the Mountain Valley Pipeline announced plans Wednesday to extend the project currently proposed to carry natural gas through West Virginia and Virginia into North Carolina. A news release Wednesday laid out plans for an extension called MVP Southgate. The new segment would receive gas from the Mountain Valley Pipeline mainline in Pittsylvania County, Virginia, and extend approximately 70 miles (113 kilometers) south to new delivery points in Rockingham and Alamance counties in North Carolina. PSNC Energy, a natural gas service company, has already signed up for capacity on the Southgate project, and additional customers will also have the chance to subscribe, according to the news release. PSNC president and chief operating officer, Rusty Harris, said in a statement that its customers benefit from the company having supply diversity. This project will help ensure low costs for customers and enhance service reliability,” he said in a statement. The approximately 300-mile (483-kilometer) Mountain Valley Pipeline has drawn strong opposition from environmental groups, and the new addition is likely to do the same. “These fracked gas pipelines are dangerous and not necessary for meeting our state’s energy needs. They pollute our air and water, and serve no purpose other than lining the pockets of the polluting corporations that run these dirty projects through our most vulnerable communities,”   The Mountain Valley Pipeline is a joint venture of a number of energy companies: EQT Midstream Partners; NextEra US Gas Assets; Con Edison Transmission; WGL Midstream; and RGC Midstream.

ACP Pipeline Questioned on Environmental Justice — The Atlantic Coast Pipeline, LLC, (ACP) is a new underground natural gas transmission pipeline project that is proposed to run approximately 600 miles through West Virginia, Virginia, and North Carolina (Atlantic Coast Pipeline to build $5 billion natural gas system, 2015). In August 2016, the Federal Energy Regulatory Commission (FERC) established an environmental review timeline that included the delivery of draft and final environmental impact statements (EISs) required by the National Environmental Policy Act (NEPA).    The draft EIS claims that because “impacts would occur along the entire pipeline route and in areas with a variety of socioeconomic backgrounds,” there is consequently “no evidence that [the pipeline] would cause a disproportionate share of high and adverse environmental or socioeconomic impacts on any racial, ethnic, or socioeconomic group” (FERC, 2016, p. 4:413). FERC does not explain the factual basis for this conclusion; the criteria for establishing “disproportionate impact” on populations are not stated in the document. Our test results suggest that in Northampton County disproportionately large numbers of American Indian residents and African American residents live within 1 mile of the pipeline route, whereas in Robeson County, disproportionately large numbers of American Indian residents and Hispanic/Latino residents live within 1 mile of the pipeline route. Our county-level demographic analysis points to broader-scale spatial inequities. If pipeline risks are indeed uniform along the entire route, as FERC (2016) argues in its environmental justice analysis, then our analysis provides evidence of disproportionate exposure of certain groups to pipeline impacts. In Robeson County, the census tracts within 1 mile of the pipeline route also have a significantly higher mean SoVI score relative to census tracts outside of 1 mile of the pipeline route.

Estimating Dominion Cove Point Liquefaction Feedgas Volumes - Everyone in the North American gas industry knows that a big wave of U.S. LNG exports is coming. Although Cheniere Energy’s Sabine Pass terminal in southwestern Louisiana started shipping out LNG in 2016, exports really started having a major impact in 2017 — increasing demand for U.S.-produced gas, providing an outlet for Marcellus and Utica supplies, and affecting physical flows at the Henry Hub and in south Louisiana more generally. But with the first four liquefaction trains at Sabine Pass all but fully ramped up, attention in recent months has been turning to the next facility being commissioned: Dominion’s Cove Point terminal on Chesapeake Bay in Maryland, which exported its first cargo in early March. But tracking gas pipeline flows into the Cove Point plant has not been easy, and in today’s blog, we consider the various possibilities and discuss our view of how best to monitor the amount of LNG feedgas going into Cove Point. We covered the specifics of Cove Point in our Down by the Seaside blog last year. The terminal — located in Maryland’s Calvert County — has long played a role as an import facility serving demand in the U.S. Northeast. It was originally designed to regasify LNG and move it into the U.S. gas pipeline system, and included seven storage tanks totaling 14.6 Bcf, six electric generation units and a tunnel connecting the offshore pier (where the tankers docked for offloading). However, with the emergence of shale gas, particularly the growing Marcellus/Utica production nearby, imports have all but dried up, with the import terminal now almost exclusively used for sending out gas on peak winter days. And, last month, in early March, Cove Point became the second major LNG facility in the Lower 48 (after Cheniere Energy’s Sabine Pass LNG) — and the first on the East Coast — to export U.S.-produced gas.

US EIA sees natural gas production breaking records even as it trims back forecast - US dry natural gas production is on pace to break records in 2018 and 2019, the US Energy Information Administration said in its April short-term energy outlook, even as the agency trimmed its natural gas production estimates for the second quarter and full year 2018. EIA also sees US natural gas consumption rising over the next two years, with power generation use serving as the leading driver. "This year's [dry gas] production is poised to increase by 7.5 Bcf/d over 2017 levels to an average just above 81 Bcf/d day," EIA Administrator Linda Capuano said Tuesday. The April outlook lowered by 1.15 Bcf/d to 86.51 Bcf/d the natural gas marketed production estimate for the US in the second quarter, and lowered the Q3 production forecast by 0.33 Bcf/d to 88.22 Bcf/d. The full-year forecast for 2018 dropped by 0.80 Bcf/d to 87.03 Bcf/d. Nonetheless, total marketed production was seen rising to 87.03 Bcf/d in 2018 and 89.08 Bcf/d in 2019, from 78.93 Bcf/d in 2017, according to the April report.  Overall, EIA expects US natural gas consumption to rise by 4.2 Bcf/d (5.7%) in 2018 and by 0.7 Bcf/d (0.9%) in 2019. EIA lowered its natural gas consumption estimates by 0.10 Bcf/d to 69.77 Bcf/d for Q3. It raised the consumption estimate for the full year 2018 by 0.26 Bcf/d to 78.45 Bcf/d. Exports are seen rising to historic levels in 2018 and 2019. "US natural gas trade was almost balanced between exports and imports in 2017, but in this forecast, EIA expects that the United States will see net natural gas exports climb above 4 Bcf/d by 2019 as LNG terminals continue to come online,"

By some measures, U.S. natural gas production set a record in 2017 -  Two out of three of EIA’s measures of natural gas production in the United States set records in 2017. U.S. natural gas production measured as gross withdrawals reached 90.9 billion cubic feet per day (Bcf/d) in 2017, the highest volume on record according to EIA’s Monthly Crude Oil, Lease Condensate, and Natural Gas Production Report. U.S. natural gas production measured as marketed natural gas production also reached a new high, but dry natural gas production did not exceed 2015 levels. EIA’s Monthly Crude Oil, Lease Condensate, and Natural Gas Production Report collects monthly oil and natural gas production data from a sample of operators of oil and natural gas wells in 15 states, the Federal Offshore Gulf of Mexico, and collectively from the remaining states and the Federal Offshore Pacific.Starting in July 2017, U.S. natural gas gross withdrawals increased for five straight months, ultimately reaching a record monthly high of 96.7 Bcf/d in December 2017. Marketed natural gas production also reached an annual record high of 78.9 Bcf/d in 2017 and monthly record high of almost 84.0 Bcf/d in December 2017. Marketed production reflects gross withdrawals minus natural gas used for repressuring reservoirs, quantities vented or flared, and nonhydrocarbon gases removed in treating or processing operations. Dry natural gas production in 2017 remained lower than previous highs set in 2015 on an annual level at 73.6 Bcf/d. Dry natural gas is consumer-grade natural gas, or marketed production minus extraction losses. As natural gas production increased, the volume of natural gas exports—both through pipelines and as liquefied natural gas (LNG)—also increased. Total natural gas exports grew 36% in 2017, with LNG exports nearly quadrupling. The United States became a net natural gas exporter in 2017 for the first time in nearly 60 years.

Interior's Zinke sees 'little' demand for new U.S. offshore drilling (Reuters) - U.S. Interior Secretary Ryan Zinke said on Friday that he sees little demand from oil and gas companies for new offshore drilling leases, which could pose problems for his plan to ramp up output from federal waters. The comments come just three months after Zinke had proposed opening nearly all U.S. ocean coastlines to drilling, in a bid to raise domestic oil and gas production. The plan sparked immediate protests from coastal states, environmentalists and the tourism industry. Zinke said a record-sized U.S. auction of offshore oil leases in the Gulf of Mexico, held in March, showed “modest to little” interest from drillers, and he added the likelihood for strong demand elsewhere is small. “If you don’t have the infrastructure, it’s more expensive,” Zinke said at an offshore wind power conference in Princeton, New Jersey, responding to a question about the possibility of drilling off the East Coast. Zinke also noted the strong political opposition to drilling, and said governors have significant leverage in controlling their waters. California, which has not allowed drilling off its coast since the 1980s, has said it would block any oil from new leases in the Pacific from reaching its shores. Florida, meanwhile, convinced Zinke to remove its offshore waters from consideration shortly after the drilling proposal was announced over concerns about its tourism industry. Officials in many other states have also urged Zinke to drop them from the drilling plan. He has said he will meet with them as he finalizes the proposal over the coming months. Last month’s Gulf of Mexico sale, the largest U.S. offshore lease sale on record, brought in $124.8 million, as just 1 percent of the 77 million acres (31.2 million hectares) offered found bidders. 

U.S. Gulf of Mexico crude oil production to continue at record highs through 2019 - U.S. crude oil production in the Federal Gulf of Mexico (GOM) increased slightly in 2017, reaching 1.65 million b/d, the highest annual level on record. Although briefly hindered by platform outages and pipeline issues in December 2017, oil production in the GOM is expected to continue increasing in 2018 and 2019, based on forecasts in the EIA’s latest Short-Term Energy Outlook (STEO). EIA expects the GOM to account for 16% of total U.S. crude oil production in each year. Based on STEO’s expected production levels at new fields and existing fields, annual crude oil production in the GOM will increase to an average of 1.7 million b/d in 2018 and 1.8 million b/d in 2019. However, uncertainties in oil markets may still affect long-term planning and operations in the GOM, and the timelines of future projects may change accordingly. In 2016, producers brought seven new projects and expansions online and ramped up production in 2017, collectively contributing to an average of 126,000 b/d of production in 2017. Another two projects came online in 2017, contributing 10,000 b/d of new production last year. EIA expects these nine projects to ramp up over the next two years. Producers expect four new projects to come online in 2018 and six more in 2019.  Because of the amount of time needed to discover and develop large offshore projects, oil production in the GOM is less sensitive to short-term oil price movements than onshore production in the Lower 48 states. In 2015 and early 2016, decreasing profit margins and reduced expectations for a quick oil price recovery prompted many GOM operators to pull back on future deepwater exploration spending and to restructure or delay drilling rig contracts, causing average monthly rig counts to decline through 2017.

Chevron, Exxon seek 'small refinery' waivers from U.S. biofuels law (Reuters) - Global energy giants Chevron Corp and Exxon Mobil have asked U.S. regulators for exemptions to the nation’s biofuels policy that have historically been reserved for small companies in financial distress, according to sources familiar with the matter. The requests will add fuel to a raging dispute between Big Oil and Big Corn over how the Trump administration should manage the U.S. Renewable Fuel Standard - a 2005 law that requires oil refiners to mix biofuels such as corn-based ethanol into the nation’s fuel supply, or buy government-awarded credits from other energy firms who do the blending. The U.S. Environmental Protection Agency (EPA) has already issued an unusually high 25 hardship waivers to small refineries in recent months, according to an agency source, driving blending credit prices down and helping the oil industry reduce compliance costs. But the agency won’t name the firms receiving the exemptions, citing a concern over disclosing private company information. Both Chevron (CVX.N) and Exxon (XOM.N), among the world’s most profitable energy companies, have asked EPA for waivers for their smallest facilities - Chevron’s 54,500 barrel-per-day refinery in Utah and the Exxon’s 60,000 bpd refinery in Montana, two sources briefed on the matter told Reuters on condition of anonymity. The exemptions would free the plants from their obligation to hand in blending credits earned or purchased for 2017, which came due this year, the sources said. The disclosure of the Chevron and Exxon applications, which have not been previously reported, follow a Reuters report this month that the EPA has exempted three of ten refineries owned by Andeavor (ANDV.N), one of the biggest U.S. refining companies. The waivers could save Andeavor $50 million or more in regulatory costs for the company’s 2016 obligations under the biofuels law. 

Saudi Aramco studying chemical plant addition at Port Arthur refinery: sources (Reuters) - Saudi Aramco is studying a multi-billion dollar plan to build a petrochemical plant at the Port Arthur, Texas, refinery operated by its subsidiary Motiva Enterprises, sources familiar with the company's plans said on Saturday. Aramco is scheduled on Saturday to sign agreements in Houston with Honeywell UOP to study an aromatics unit and with Technip FMC for a unit to produce polymers from ethane, the sources said. The aromatics unit Honeywell UOP is studying would convert benzene and paraxylene, byproducts of gasoline production, into 2 million tons annually of feedstocks for chemicals and plastics, according to the sources. The unit Technip FMC is studying would convert ethane into 2 million tons a year of ethylene, which is used to make plastics, the sources said. The agreements with the two companies include technology licenses for proprietary systems they produce, the sources said.

Corpus Christi port starts study for VLCC-loading facility on USGC island: CEO The Port of Corpus Christi Authority is carrying out a feasibility study to fully load VLCCs without reverse lightering from an island near the Gulf of Mexico, port CEO Sean Strawbridge said Wednesday. This would provide a major boost for US crude competitiveness in global export markets, particularly in Asia and Europe. "Our plan is to develop the Harbor Island where we own 250 acres of land and have the right of way to build pipelines," Strawbridge told S&P Global Platts. "We have also begun initial works for the permitting process to dredge to a depth of 75 feet that will allow for full loading of VLCCs." Construction of an offshore buoy at the island to load VLCCs is also an option. But no final decision has been taken yet, as such an initiative would entail a detailed permitting process, he said. Building on an offshore floating platform with a pier is not currently being considered, Strawbridge said. The Harbor Island, located at the end of the Corpus Christi Ship Channel and at the junction of the Redfish Bay and the Gulf of Mexico, will also be developed as a site for the storage of 20 million barrels of crude and for blending of varying slates, he said. Harbor Island would be the second port in the US - after the Louisiana Offshore Oil Port - that will have the capability to fully load VLCCs.

Permian Natural Gas Is Increasingly Headed To Somewhere In Middle America - Permian Basin natural gas production is growing at a torrid pace. After starting 2017 just below 6 Bcf/d, production is set to breach the 8-Bcf/d mark soon on its way to 10 Bcf/d by the end of 2019. Pipelines flowing out of the basin are coming under increasing strain, and just about every single gas pipeline leaving the Waha hub in West Texas is now being utilized at levels not witnessed in years — if ever. Even routes north from the Permian to the Midcontinent and Midwest markets, traditionally only attractive on the coldest winter days, are starting to look viable year-round. Today, we look at recent gas-price and flow trends in the Permian natural gas market. Permian Basin natural gas has been the subject of many RBN blogs over the last 18 months. Back in January, we looked at gas pipeline takeaway capacity and planned expansions in Help on the Way. Last fall, we analyzed Permian natural gas flow patterns and prices in Witchy Waha. And last summer, we wrote a four-part series, It Was Good Living With You, (W)aha, in which we outlined our viewpoint that Permian gas production is set to grow to levels certain to create gas takeaway constraints in the basin. That view still holds, and over the course of these blogs, two factors have remained constant: (1) natural gas production in the Permian has grown faster than expected, and (2) regional gas basis prices continue to deteriorate. With production curtailments now likely a fait accompli before pipeline expansions bring new takeaway capacity to the basin, the Permian gas market is progressing deep into its lineup of pipeline takeaway options. This blog will look at the most recent development in the Permian gas takeaway end-game: surging volumes headed north on the pipelines that lead to the Midcontinent and Midwest end-use markets.

Permian bottleneck could impact global oil market - The Permian basin is driving U.S. shale growth, with expectations that the basin will add enormous volumes this year, keeping the oil market well-supplied. But the Permian’s pipeline network is already filling up, forcing steep discounts for oil, and threatening to derail the aggressive growth projections for the region.  The EIA predicts the Permian will hit 3.156 million barrels per day (mb/d) of output in April, an increase of 80,000 bpd from March, and up a shocking 850,000 bpd from a year ago. Shale E&Ps and the oil majors are pouring in billions of dollars into the region, and two out of every three rigs the industry is adding is going into the Permian.But the shale basin is getting crowded, which not only means skyrocketing prices for land and a search for opportunities along the periphery, but also rapidly shrinking availability on the Permian’s pipeline network. “As these fringe areas begin to get exploited, we are seeing more and more crude that needs to find a pipeline to Cushing or the Gulf Coast,” John Zanner, energy analyst for RBN Energy, told Reuters.Oil market analysts knew that new pipeline capacity would be necessary in order to move all of the oil out of the Permian. But few expected the region to run out of pipeline space so quickly. “At the end of 2017, there was just 160 kb/d of line space available out of Western Texas. This small surplus is likely to turn into a deficit in the second half of 2018,” the IEA wrote in its March Oil Market Report. “The pipeline gap could widen further until mid-2019, in turn reducing the price of WTI Midland relative to Cushing.” “Other bottlenecks, such as shortages of sand and labour, as well as mounting demands for investor returns, could also slow growth, but most likely beyond 2018. For now, US producers continue to ramp up activity,” the IEA wrote in its March Oil Market Report. The IEA was spot on, except that the bottleneck the agency predicted is already starting to materialize. Even late last month when the IEA warned about pipeline issues, the thinking was that bottlenecks would start to form in mid-2018. But according to Genscape, and reported on by Reuters, pipeline utilization in the Permian has jumped to 96 percent over the past month. Genscape says the Permian has 3.175 mb/d of pipeline, rail and local refining capacity combined. That’s a problem given that the EIA sees production jumping to 3.156 mb/d in April.

Texas producing more oil with fewer people, rigs -- Both Texas and the nation are producing more oil than nearly ever, but they're doing so with far fewer workers and drilling rigs. Texas is producing more oil now than at any point in 2014 when oil was last priced above $100 a barrel, and the industry is doing so with more than 25 percent fewer people and almost half the rigs, according to the Texas Petro Index calculated by economist Karr Ingham. Today's rigs are more automated and each of them are able to drill more wells from single locations, as well as produce more oil per well by drilling longer horizontal laterals and using hydraulic fracturing, called fracking, to unlock the petroleum from shale rocks. "The implications are striking: record crude oil and natural gas production at significantly lower prices, rig counts, and number of industry workers," Ingham said. "It means that fewer employees are needed to produce more crude oil in Texas and the U.S. than has ever been produced."

STACK/SCOOP Production Doubles - Well design continues to improve across the unconventional US. We have analyzed this across the Permian, Eagle Ford and Bakken confirming the presupposition as true. Enhanced completions work was implemented by EOG Resources (EOG) in the Eagle Ford. It moved sand heavy fracs to the Bakken's Parshall Field next. Both were unbelievably successful. The implementation meant operators would need to use massive volumes of sand. This was cost effective, and frac sand is cheaper than ceramics. Other operators have started using this design, and implemented to a large degree. This isn't the case for all operators, but all are using more than 50% of the time. This is why production per foot should improve in 2018. This is without further stimulation improvements. We don't know if operators can improve stimulation from here, but recent EOG completions in New Mexico are showing promise. We have also seen some excellent work by Concho (CXO) across the Delaware Basin. There is upside to implementing design this year, with the possibility of further stimulation improvements as a variable difficult to assess.Well design improvements have improved economics and decreased payback times. This should put a ceiling on oil prices, but not in a bearish fashion. The reasons for this is the decrease in world inventories.  Shorter term we see WTI hitting a high between $70/bbl to $75/bbl.  There is little production data available on the STACK/SCOOP. The play is interesting, as we have seen very good economics. Others believe it is only good in a very small core position. We pulled 12 month production data of all SCOOP/STACK locations in 2016. The average 2016 horizontal produced 24 MBO and 436 MMcf. As a comparison, we pulled the data on 420 2017 locations. There are relatively large differences in production based on BOE. The best locations produced over 600 MBOE in under one year of well life. The SCOOP/STACK does not produce a lot of oil. It does produce significant volumes of condensate (which is better in some respects), NGLs and natural gas. The best well produce over 120 MBO, but those locations are few and far between.

Increase In US Exports Rendering Once Crucial Cushing Data Irrelevant - Houston is quickly becoming the new benchmark for oil, while Cushing is losing its relevance to the industry.  Cushing wasn't just relevant to the industry for storage purposes, but also for sector wide data purposes. According to Reuters, it "got its distinction in the early 1920s when tanks sprung up to store oil en route from Oklahoma and Texas to major metropolitan areas and refineries in the Midwest. In 1983, it became the delivery point for the newly-launched WTI futures contract CLc1." For years, Cushing oil inventories were a staple for any business, trader or entity that dealt in the commodity, not to mention those who actively traded it on a daily basis. Cushing inventories were once the key indicator the the supply of crude oil held in the United States.  Decades ago, Cushing was seen as a fairly easy way to measure oil supply because the United States was not exporting any oil, but rather only importing it. This made it a novel and effective idea to have one major storage point to reference when trying to help gauge the amount of supply the United States had, which could quickly be used by traders and those in the industry to help with price discovery on oil futures contracts. Just as the trading market for oil futures has evolved, replacing open outcry with computers, so has the efficiency and method with which we collect oil inventory data. Cushing seems to be “slowly going the way of the buffalo“ while focus turns further south. Reuters reported about Cushing's storage this morning:  But those tanks could soon drain to levels near effectively empty, even as U.S. oil production soars past a new record of 10.4 million barrels per day.Oil supplies have fallen before in Cushing for a variety of seasonal or market-driven reasons. But this time, there is no shortage of crude in the market. In fact, U.S. production is straining pipeline and storage capacity.The declining volumes stored at Cushing reflects a more permanent shift, underscoring the hub’s waning influence as the primary measuring stick for the U.S. oil market and the leading barometer of future supply, demand and prices.

Four Earthquakes Rattle‬ Northern ‪Oklahoma in 24 Hours - A 4.3 magnitude earthquake that rattled Northern Oklahoma early Monday morning was the fourth temblor to strike the region in the past 24 hours.  In fact, a dozen-plus earthquakes have been recorded in the Sooner State since Friday.  The U.S. Geological Survey recorded the latest quake at 5:22 a.m. local time near the city of Perry, Oklahoma. It's one of the largest in the state so far this year and it woke people up as far away as Kansas City, according to the area's National Weather Service.  The 4.3 came less than an hour after a magnitude 3.3 (highlighted in blue below) struck in the same vicinity.  The threshold for damage starts around 4.0. A tremor at that magnitude feels like a heavy truck striking a building. Mike Honigsberg, the emergency management director for the city of Enid and Garfield County, said there are no immediate reports of injury and he is asking residents to submit damage reports to him. The alarming flurry of earthquakes shaking Oklahoma in recent years has been tied to the large volume of fracking wastewater dumped into the state's injection wells. State regulators have directed oil and gas producers in the state to close wells or reduce injection volumes. The regulations have worked to a certain degree . While Oklahoma has dropped from two earthquakes per day to fewer than one per day, some of the post-regulatory quakes have been large and damaging.  Two big ones happened in 2016: the 5.0 magnitude earthquake that struck Cushing, one of the largest oil hubs in the world, and a 5.8 that hit near Pawnee, the largest ever recorded in the state.

Trump wants to use oil and gas money to fix national parks. Some Democrats aren’t game. -  Repairing worn-out infrastructure across 417 national park sites can be costly, and the National Park Service is facing a whopping $11.6 billion maintenance backlog. That Grand Canyon pipeline alone has broken more than 80 times since 2010. So the Trump administration, with the help of Congress, is getting resourceful: It now wants to pay for the park upgrades with money the government collects from the development of oil, natural gas, wind and solar energy on public lands.“It’s a creative way of solving a problem, and it really solves the problem,” Rep. Rob Bishop (R-Utah), head of the House Natural Resources Committee and an administration ally, said in an interview with The Washington Post.The plan to push revenue from royalty payments and lease sales into park repairs is designed to appeal to most fiscal conservative Republicans and enough environmentally minded Democrats to get it across the finish line.The logic is straightforward, Interior Secretary Ryan Zinke said. “I think if you’re going to gain resource and wealth from public lands, then a fair proposition is, you should also contribute to the maintenance backlog and preservation of those lands,” he recently told the Senate Energy and Natural Resources Committee.But some Democrats worry about tying the viability of the park system to expanded drilling on- and offshore, one of President Trump’s highest energy priorities. Since most energy revenue comes from oil and gas, they note, the nation may come to depend on ever more fossil-fuel development to finance one of the most popular parts of the federal government.

Conservation Groups: Fracking, Drilling Would Ruin Public Lands Near Colorado's Great Sand Dunes National Park -- Conservation groups are calling on the Trump administration to cancel plans to lease thousands of acres of federal public lands for oil and gas development near western Colorado's Great Sand Dunes National Park and Blanca Peak without fully analyzing environmental or cultural harms. WildEarth Guardians , the Center for Biological Diversity , Friends of the Earth , Rocky Mountain Wild , San Luis Valley Ecosystem Council , Sierra Club , and Wild Connections , submitted extensive comments Friday on Interior Secretary Ryan Zinke 's proposal to auction off 21,000 acres of public lands in Colorado in September. Of the lands nominated for auction, 18,000 acres are located near Great Sand Dunes National Park and Blanca Peak. In the comments, the groups noted that the Bureau of Land Management conducted little to no analysis on the potential harm from drilling and fracking to Colorado's air, water, night skies, wildlifehabitat, cultural resources or the national park. "The area near Great Sand Dunes National Park is uniquely beautiful and very susceptible to the harms from drilling and fracking," said Becca Fischer, a climate guardian with WildEarth Guardians. "Once BLM leases these lands, it cannot close the door to noise pollution, light pollution, and threats to our clean air and water. Yet, the BLM failed to conduct a meaningful analysis of these impacts.""This fracking plan would ruin some of Colorado's most scenic, remote and valuable wildlife habitat," said Diana Dascalu-Joffe, a senior attorney with the Center for Biological Diversity. "Unfortunately nothing is more important to the Trump administration than fossil fuel industry profits."

Three Colorado Democrats debate fracking as they run for governor of Colorado -- During their first televised debate, former State Treasurer Cary Kennedy, ex-state Sen. Mike Johnston, and current Lt. Gov. Donna Lynne drilled down on whether and how to further regulate fracking in Colorado. And the answers weren’t entirely expected. During Wednesday evening’s debate, Lynne was less forceful than Johnston and Kennedy about creating laws distancing drilling from schools or houses, and she insisted, in a way the others did not, that public health and safety is already a priority in the state when it comes to energy development. Johnston was the only candidate who said he wanted state laws for so-called setbacks, and Kennedy said if she were governor she would have done more than the current governor to stop a pending appeal of a court ruling that says the state’s regulatory body must put public health and safety first. That body, the Colorado Oil and Gas Conservation Commission, is made up of a governor-appointed panel of nine commissioners that is funded largely by the oil-and-gas industry. Its stated mission suggests a balancing act between public health, the environment, and oil-and-gas development. “We are as committed to protecting public health and the environment as we are to fostering the responsible development of Colorado’s oil and gas resources,” reads the COGCC’s mission in part.  But a Colorado Court of Appeals decision says the agency’s mission should be to put health and safety first. That ruling was appealed in May of last year by Republican Attorney General Cynthia Coffman, a staunch defender of oil-and-gas companies. Coffman, who is also running for governor, has referenced her appeal during her campaign, saying that no other candidate has “stepped up and done more on behalf of the oil and gas industry than I have as attorney general.”

Facebook's Cambridge Analytica scandal extends to local issues — like fracking -- Cambridge Analytica (CA) is a political consulting firm that has been making a lot of headlines of late. The company stands accused of illegally obtaining the Facebook data of as many as 87 million of the social media platform's users. It's also the firm that Donald Trump's campaign used during the 2016 election, and if CA's own hype is to be believed, it's the main reason Trump now occupies the White House. Skeptics claim that CA's use of big data from Facebook is no different than that of the many other consulting companies that have turned to Zuckerberg's platform in their efforts to manipulate voters through microtargeted messaging.   But CA claims it is different. The company says it can use the vast amounts of information that each of us exposes daily online to psychographically target each of us. In other words, the company believes it can expose individuals of its choosing to specific information and images (propaganda) that, based on the targeted person's psychological profile, will make them like or dislike a particular candidate or vote a certain way on, say, a ballot measure — like an oil and gas setback initiative. While such claims may seem like some fictional dystopian nightmare, they are certainly far more serious than that, and the future is now. Thanks to Facebook, anyone who built an app on the platform in the early days or has enough money to buy the data can now know who your friends are, what you like, what you watch and what websites you visit. They can know your race, sexual orientation, how you vote, if you vote and, in some instances, who you voted for. They can know your fears and your secret desires. Thanks to GPS tracking, these companies even know where you go, where you shop, whose house you visit, what hotel room you stay in and for how long, and where and what you like to eat. And worse, thanks to recent disclosures by Facebook, we now know that for the 80 percent of Facebook users who use an Android phone, they also know every person and phone number you have called or texted in the past several years. But the truly scary part of this privacy fiasco is what these psychologists, turned ad men, turned political manipulators can do with all your information. With 30 “likes” they can know as much about you as a good friend. A few hundred of such clicks and they rival your significant other. 

Those living near oil and gas facilities may be at higher risk of disease - People living near oil and gas facilities along Colorado's Northern Front Range may be exposed to hazardous air pollutants, including carcinogens like benzene, that could pose health risks above levels deemed acceptable by the U.S. Environmental Protection Agency, according to researchers at the Colorado School of Public Health, Boulder County Public Health, CU Boulder, the National Aeronautics and Space Administration (NASA) and the University of California Irvine.The study, led by the Colorado School of Public Health at the University of Colorado Anschutz Medical Campus, used ambient air samples to estimate and compare risks for four residential scenarios. They found the lifetime cancer risk of those living within 500 feet of a well was eight times higher than the EPA's upper level risk threshold."We found that air pollutant concentrations increased with proximity to an oil and gas facility, as did health risks," the study said. "Acute hazard indices for neurological, hematological and developmental health effects indicate that populations living within 152 meters (500 feet) of an oil and gas facility could experience these health effects from inhalation exposures to benzene and alkanes."  The cancer risk estimate of 8.3 per 10,000 for populations living within 500 feet of an oil and gas facility exceeded the U.S. EPA's 1 in 10,000 upper threshold, according to study published recently in the journal Environmental Science & Technology. "Our results suggest that Colorado's current regulations that specify a 500 foot distance between a newly drilled oil and gas well and an existing home may not protect people from exposures to hazardous air pollutants that could impact their health," "Our previous work shows that thousands of people along the Front Range of Colorado live closer than 500 feet from a well and related infrastructure and that the population living close to these facilities continues to grow."

Colorado Residents Becoming Upset Over Dangerous Drilling & Fracking - Fracking on Boulder County open space could begin within the year. If you’re reading this article, you’re likely aware of this threat because the Camera has been covering it. But many Boulder County residents do not follow local news closely and thus do not know that after our county spent over $500 million to protect land from development, the oil and gas industry still has the legal right to frack it. Several oil and gas companies now want to frack Boulder County open space. And they will — unless enough of us act to stop them. Crestone Peak Resources, a way too pretty name for a company that contributes heavily to climate change while polluting our water and air, has submitted a comprehensive drilling plan to the Colorado Oil and Gas Conservation Commission (COGCC). In it, they lay out their plan to drill on Boulder County Open Space.  Another oil and gas company, 8 North, a subsidiary of Extraction Oil and Gas, also wants to drill our public lands. The COGCC will hold hearings at the end of April about 8 North’s plan. You can sign up to speak at these hearings or you can just watch the proceedings. The schedule hasn’t been set yet, so watch the COGCC’s website for more information on this.So how can Crestone and 8 North get away with drilling on protected land? While you and I were busy with our daily routines, paid oil and gas lobbyists were cozying up to Colorado state legislators — they’ve been doing this for decades. As a result, many pro-oil and gas laws were passed, among them preemptive state laws that favor the fossil fuel industry. What this means is that oil and gas laws at the state level can nix those at the local level.Those laws are why it doesn’t matter that cities in Boulder County have voted to ban fracking. Those laws are why the county commissioners could impose only a moratorium on fracking, not an outright ban. This is why the county commissioners cannot impose another moratorium on fracking without getting our county sued for millions of dollars. The oil and gas industry is rich and powerful and for them, profits always come first. They get what they want. They have for over a hundred years.

Preliminary research says fracking harms the psychosocial well-being of rural communities -- Ag Week -- A recent review of published research and policy literature concerning the mental health consequences to rural — and often agricultural — communities in which fracking has been undertaken to extract oil and natural gas indicates initial temporary benefits of this industry, usually followed by longer-term detriments to most communities. This analysis of available research studies was undertaken by the Committee on Rural Health of the American Psychological Association, beginning in 2015 and culminating some two years later in a recent publication by Jameson Hirsch and others in the International Journal of Mental Health and Addiction. The full report can be found online: DOI 10.1007/s11469-017-9792-5.  According to the article summary, "The process...known as hydraulic fracturing, or fracking, is a controversial energy acquisition technique often viewed with disdain by the public, due to its potential for environment harm. However, the mental health and psychological well-being of fracking communities, including potential benefits and detriments, are often overlooked.  "We reviewed the literature on the association between fracking and psychological functioning, finding that although people living in fracking communities may experience some minimal benefits such as land lease income or infrastructure development, they may also experience worry, anxiety and depression about lifestyle, health, safety and financial security, as well as exposure to neurotoxins and changes to the physical landscape. "Indeed, entire communities can experience collective trauma as a result of the 'boom/bust' cycle that often occurs when industries impinge on community life. Impacted communities are often already vulnerable, including poor, rural or indigenous people, who may continue to experience the deleterious effects of fracking for generations. "An influx of workers to fracking communities often stokes fears about outsiders and crime: yet it must be recognized that this population of mobile workers is also vulnerable, often ostracized and without social support.

World May Hit 2 Degrees of Warming in 10-15 Years Thanks to Fracking, Says Cornell Scientist - In 2011, a Cornell University research team first made the groundbreaking discovery that leaking methane from the shale gas fracking boom could make burning fracked gas worse for the climate than coal.  In a sobering lecture released this month, a member of that team, Dr. Anthony Ingraffea, Professor of Engineering Emeritus at Cornell University, outlined more precisely the role U.S. fracking is playing in changing the world’s climate. The most recent climate data suggests that the world is on track to cross the two degrees of warming threshold set in the Paris accord in just 10 to 15 years, says Ingraffea in a 13-minute lecture titled “Shale Gas: The Technological Gamble That Should Not Have Been Taken,” which was posted online on April 4.  That’s if American energy policy follows the track predicted by the U.S. Energy Information Administration, which expects 1 million natural gas wells will be producing gas in the U.S. in 2050, up from roughly 100,000 today.  An average global temperature increase of 2° Celsius (3.6° Fahrenheit) will bring catastrophic changes — even as compared against a change of 1.5° C (2.7° F). “Heat waves would last around a third longer, rain storms would be about a third more intense, the increase in sea level would be approximately that much higher and the percentage of tropical coral reefs at risk of severe degradation would be roughly that much greater,” with just that half-degree difference, NASA‘s Jet Propulsion Laboratory explained in a 2016 post about climate change. A draft report from the Intergovernmental Panel on Climate Change (IPCC), which was leaked this January, concludes that it’s “extremely unlikely” that the world will keep to a 1.5° change, estimating that the world will cross that threshold in roughly 20 years, somewhat slower than Ingraffea’s presentation concludes. “Whereas the worst-case scenario brought us to 1.5 degrees Centigrade in 2040,” he adds, “we’re almost there today.”

U.S. Bank Raises $2 Billion in Oil and Gas Pipeline Finance Despite Pledging to Stop -Since revising its environmental policy last year, U.S. Bank financed more than $2 billion to companies building oil and gas pipelines , including an estimated $480 million to Energy Transfer Partners, new analysis released Thursday by Oil Change International concludes .U.S. Bank CEO Andrew Cecere won praise from indigenous rights and climate advocates in April 2017 when he announced to shareholders that U.S. Bank would "not finance the construction of oil and gas pipelines." Days later, U.S. Bank issued a revised environmental policy significantly narrower in scope than what Cecere described, limited to only project financing which had never been a significant line of business for the bank.New research conducted by Oil Change International shows that since Cecere's promise, U.S. Bank financing activity with oil and gas pipeline builders has continued apace. The analysis comes days ahead of the U.S. Bank annual shareholder meeting in Albuquerque, New Mexico where pipeline opponents plan to question executives about Cecere's empty promise."U.S. Bank says trust and ethics are its core values, but its actions seem to show the opposite" said Brant Olson, U.S. program director for Oil Change International. "Adopting a meaningless policy to create the impression of care for the environment paints a troubling picture of U.S. Bank's priorities."The analysis released Thursday finds that since announcing its commitment in April 2017:

  • U.S. Bank has participated in dozens of deals with pipeline companies, worth more than $40 billion, with U.S. Bank's estimated financial commitment totaling more than $2 billion.
  • U.S. Bank has served as a bookrunner or manager, meaning it was a lead financial institution, on numerous pipeline deals totaling more than $17 billion, of which U.S. Bank raised more than $930 million.

Of particular interest is financing for pipelines being built by Energy Transfer Partners (ETP), a company notorious for its controversial role in building the controversial Dakota Access Pipeline . In addition to the Dakota Access Pipeline, Energy Transfer Partners is seeking to build numerous oil and gas pipelines throughout the U.S. which have been met with massive resistance as well as numerous construction mishaps, violations and mandated work stoppages.

Keystone Pipeline Spilled 407K Gallons in South Dakota, Double Previous EstimateTransCanada's Keystone crude oil pipeline leaked 9,700 barrels (407,400 gallons) on rural farmland near the city of Amherst last year—nearly twice the original estimate of 5,000 barrels (210,000 gallons), a company spokeswoman told the Aberdeen American News .  The Nov. 16 incident was already considered the largest spill in South Dakota, but its new estimate makes it the seventh largest inland spill in the whole U.S. since 2010, the South Dakota publication noted.  TransCanada shut down the 590,000 barrel-per-day pipeline, which runs from Alberta to refineries in Illinois and Texas, immediately after detecting a pressure drop in their operating system. Operations restarted about two weeks later. Federal investigators said construction damage when the pipeline was built in 2008 was likely to blame.  TransCanada  Repairs and cleanup efforts have since been made. The Calgary-based energy company said there was no impact to groundwater based on its own sampling.  The spill drew fierce outcry from environmentalists and pipeline opponents, especially as it happened just days before Nebraska's Public Service Commission would decide on whether its controversial sister project—the Keystone XL (KXL) Pipeline—will go forward. "We need to stop all expansion of extreme fossil fuels such as tar sands oil—and we need the finance community to stop funding these preventable climate disasters—disasters for the climate, the environment and Indigenous rights," Scott Parkin, Rainforest Action Network 's Organizing Director, said then.  The regulators ultimately approved the KXL's " mainline alternative route " later that November. President Trump overturned President Obama's rejection of the KXL by signing an executive order in March 2016 to help push the project forward.

Bakken Oil Production Improves 24% Year Over Year -- US operators continue to improve well economics. The move to enhanced completions increases oil production per location, and we are still seeing improved production per foot. Most operators are still moving to these designs. This should continue to support improved production from US operators in 2018. Higher oil prices are also bullish. Horizontals are producing more oil and operators receive more per barrel. Oil bears believe a rise in US production will push down oil prices. This may be the case, but if demand continues, not until after driving season.  Refineries are behind the curve, so to speak. It will have to play catch up, as world demand has increased at a healthier clip than expected. This could push WTI to $75/bbl by the 4th of July. We have covered oil production improvements in the Midland and Delaware Basins of the Permian. The Bakken is also improving. This is done with a large inventory of the best geology already completed. We pulled 620 horizontals completed in 2016. McKenzie County has seen the most activity with 310. It is followed by Mountrail and Williams. Operators are sticking on and close to the Nesson Anticline. This area has the best geology and well pressures. The table below provides the 2016 well count and total production.  There are a couple of areas to the north (Divide) and south (Stark) where operators are developing due to lower costs. These locations produce less oil, but payback times have been decent at today's oil price.

Bakken 2.5: Evolution Of Completion Strategies -- April 10, 2018 - I just posted this earlier, but it is important enough, for archival purposes, to get its own stand-alone post.
This data will not be updated. I track the Monroe wells elsewhere. This is huge, huge news. Look at these wells (commentary follows):

  • 22891, IA/947, CLR, Monroe 1-2H, 35 stages,  3.3 million lbs, t8/12; cum 296K 10/16;
  • 30253, 3,225, CLR, Monroe 6-2H, Banks, 4 sections, a huge well; first two full months, 50K+; 150K in first three months; from a November 4, 2016, sundry form -- "CLR .... requests a waiver to plug and reclaim an abandoned well ... the well will be completed once commodity prices improve ..." Spud August 15, 2015; reached KOP on August 18, 2015; KOP curve drilled in 36 hours; wellbore landed 18' into the middle Bakken; the rig was then skid over to the Monroe 7-2H; background gas averaged 600 units; a high formation gas of 1106 units was observed when traversing the upper Bakken shale; the 13,537' long lateral began drilling on October 17, 2015; reached TD on October 23, 2015; 78 stages; 11 million lbs; "... plug & perf completion; 15% 100-mesh & 85% (40/70) natural white sand; t10/17; cum 243K 2/18;
  • 30251, 2,313, CLR, Monroe 7-2H, Banks, 4 sections, 78 stages; 16.6 million lbs, unspecified mix of mesh and 40/70, a huge well; two of first three months, close to 50K+/month; about 130K first three months; t10/17; cum 200K 2/18;
  • 30254, 1,302, CLR, Monroe 8-2H, Banks, 4 sections, 53 stages; 10.7 million lbs, 28% mesh/72% 40/70; t1/18; cum 15K 2/18;
  • 30252, 1,823, CLR, Monroe 9-2H, Banks, 4 sections, 53 stages; 16.2 million lbs; 19% mesh & 81% 40/70; t1/18; cum 30K 2/18;
  • 33098, SI/NC, -->1,858, CLR, Monroe 10-2H1, Banks, 4 sections, Three Forks B1, 82 stages; 10.6 million lbs; "plug and perf completion; pump 25% 100-mesh & 75% (40/70) natural white sand, started off slow, but 45K in fifth month; t10/17; cum 101K 2/18;
  • 33097, 1,594, CLR, Monroe 11-2H1, Banks, 4 sections, Three Forks B1; 82 stages; 16.5 million lbs; "... 12 toe stages with ball & sleeve then 70 stages utilizing plug & perf with unspecified mix of mesh and 40/70 sand, t10/17; cum 72K 2/18;

2018 Oil & Gas Projects To Break Even At $44 Per Barrel - New oil and gas projects to be sanctioned this year will likely have a 15-percent lower breakeven level than last year’s, at US$44 per barrel of oil equivalent, Wood Mackenzie sees as many as 30 new projects coming on stream this year, but notes that most of these will be small-scale ones, signaling the lingering wariness among oil and gas players of major investments. This is a continuation of a trend started after the 2014 price crash, which saw last year’s average capex per major project—deposits with commercial reserves of 50 million boe or more—drop to US$2.7 billion from US$5.5 billion on average for the last 10 years. Wood Mac’s analysts note, the oil and gas industry has paid much more attention to brownfield developments and production expansion projects, with offshore operators increasingly turning to subsea tie-ins instead of tapping new fields. Again, this is a sign of the new cost discipline that oilfield operators have been forced to apply amid the price crisis from the last three years.

Will Shale Become The Next Victim Of The China-US Trade War? - One can hardly call it a trade war just yet—posturing for a trade war may be a more apt label—but the U.S. Shale industry, which has enjoyed a mighty good run in the last year, may soon find itself the next target as China and the United States face off in the fight to flesh out new trade terms.Not a day has gone by in the last couple of weeks without hearing the latest round of threats, promises—and analysis of said threats and promises—as the Trump administration clamors for better trading terms between the two nations. It’s a trade war. It’s not a trade war. China has too much to lose. The United States has more to lose than it thinks. U.S. oil exports are at an all-time high, and with this prestige comes a unique vulnerability—a vulnerability that was nonexistent in the days of domestic-use only. Back in 2013, the United States was exporting between 43,000 and 58,000 barrels per day—with Canada being the only recipient, thanks to an export ban implemented by the United States in 1975. In late 2015, however, the United States removed the ban, opening up its oil exports to other nations. For week ending March 30, 2018, US crude oil exports reached an average of 2.175 million bpd—a meteoric rise for a nation that for years kept its oil close to home.  This rise in U.S. oil exports has shifted the global oil industry. Where the United States was once, for the most part, a non-entity in global price setting in the industry, now it has achieved major price-setting prowess. In fact, US crude oil production, and its subsequent exports, is giving OPEC and Russia, et al, a run for their money as the production cut pact tries desperately to rebalance the market overhang. But this newfound power is also fraught with challenges, as the United States finds itself susceptible to geopolitical risks as it ships more crude abroad.One large importer of U.S. crude oil is none other than China—the third largest importer of U.S. crude behind Canada and Mexico, at 15.7 million barrels in January—the latest data available from the EIA. While China may be the third largest importer of U.S. crude oil, the volumes exported to China still represent less than 10 percent of the total volume exported.  Still, that volume represents a value of over $1 billion per month, and that doesn’t even touch on the hundreds of millions taken in from China for LNG shipments.

Diversified E&Ps nearly complete transitioning; growth around the corner, part 3. -- Defying predictions of widespread bankruptcies and credit defaults, the U.S. exploration and production companies (E&Ps) we track returned to profitability in 2017 through a strategic transformation that featured the “high-grading” of portfolios, impressive capital discipline and an intense focus on operational efficiencies.  However, the road to recovery has been longer and more challenging for some companies, particularly a few of the E&Ps in our Diversified Peer Group, whose output and reserves are more balanced between oil and gas. Their portfolio realignments have been the biggest among our three peer groups — collectively they have shed $36 billion in assets and 3.6 billion barrels of oil equivalent (boe) in proved reserves over the last three years. Today, we continue our review of how rebounding oil prices are affecting E&P cash flow, this time focusing on producers with a rough balance of oil and natural gas assets. The Diversified Peer Group’s 2017 results and 2018 guidance show that the 17 companies have moved along the same general path to recovery as the overall E&P sector, although the degree of the Diversified companies’ rebound to date has fallen short of that accomplished by the Oil-Weighted and Gas-Weighted peer groups. After bleeding a total of $80 billion in red ink in 2015 and 2016, the Diversified group reported $2.5 billion in pre-tax operating losses on substantial asset impairments from divestitures, compared with a combined $3.4 billion in profits for the remaining E&Ps. Based on 2018 guidance, the group’s annual production has nearly stabilized at just under 1,800 MMboe (red rectangle in Figure 2) after 4% and 5% contractions in 2016 and 2017, respectively. In comparison, the Oil-Weighted group is guiding to 11% output growth and the Gas-Weighted group is expecting 12% growth. Like the rest of the industry, the Diversified producers are maintaining impressive capital spending discipline despite higher oil prices, which will generate a $6.1 billion — or 49% — increase in free cash flow.

Short Term Energy Outlook -- EIA -- April 10, 2018 - Summer Fuels Outlook:

  • EIA is forecasting retail prices for regular-grade gasoline to average $2.74 during the summer of 2018, which tops last summer’s average by 32 cents. The forecast attributes this increase, in large part, to higher Brent crude oil prices, which are reaching average spot prices not approached since 2014.
  • Increased prices throughout 2018 will likely increase annual U.S. household spending on motor gasoline by about $190, approximately 9% higher when compared with 2017. 
  • Despite higher prices, EIA’s forecast expects gasoline consumption to increase in 2018. Americans are set to consume roughly 9.6 million barrels per day throughout the summer of 2018, which would be an increase of about 20,000 barrels per day from last summer’s record average.
  • Consumers could see higher electricity bills this summer because temperatures are forecast to be a bit hotter than last summer. The short-term outlook expects residential electricity bills to average $142 per month, which would be up from last summer’s average by 3.4%.
  • The short-term outlook continues to see natural gas gaining in its share of electric power generation. With a warmer summer expected in 2018, EIA expects electric generation from June through August to top last year’s levels by more than 2%. Of total electrical generation over the summer, natural gas will account for 36%, 2% higher than last year, while coal’s share will drop by 2% to 30%.
  • The short-term outlook continues to forecast that Brent crude oil spot prices will average $63 per barrel in both 2018 and 2019, while West Texas Intermediate will remain below $60 per barrel, averaging about $4 per barrel less than Brent in both years.
  • EIA continues to forecast record crude oil production in the United States for both 2018 and 2019, largely as a result of horizontal drilling and hydraulic fracturing in tight rock formations, especially in the Permian region. 
  • April’s short-term outlook expects U.S. production to average 10.7 million barrels per day in 2018, which would be a new record and represent an increase of nearly 15% from 2017 to 2018.
  • U.S. dry natural gas production also remains on pace for record levels in both 2018 and 2019, according to the forecast. This year’s production is poised to increase by 7.5 billion cubic feet per day over 2017 levels to an average just above 81 billion cubic feet per day.
  • The April short-term outlook maintains the forecast for U.S. natural gas net exports increasing to historic levels in both 2018 and 2019. 
  • U.S. natural gas trade was almost balanced between exports and imports in 2017, but, in this forecast, EIA expects that the United States will see net natural gas exports climb above 4 billion cubic feet per day by 2019 as LNG terminals continue to come online.

US EIA revises 2018 gasoline forecast, calls for higher prices (Platts)-- The US Energy Information Administration has revised its forecast for average 2018 gasoline prices up 1.6% to $2.64/gal, it said in its most recent Short Term Energy Outlook. The latest projection was met with mixed reactions from US market sources Wednesday. The EIA's previous Short Term Energy Outlook, released March 5, projected that the average cost of regular grade gasoline at the pump, including taxes, would be $2.60/gal for 2018. April's forecast, released Tuesday, raised that figure to $2.64/gal. In addition, the EIA expects the retail price of all US gasoline, including premium grades) to average $2.76/gal in 2018. Americans are consequently expected to pay about 9% more for gasoline this year compared with 2017, EIA said. The latest gasoline forecast calls for stronger transport fuel prices mainly due to expectations of higher crude oil values. April's Short Term Energy Outlook raised the expected average price for WTI crude oil and Brent crude oil by 2.1% and 2%, respectively. Meanwhile, the forecast for average US gasoline consumption did not change between April and March. One US market source, a trader active in the US Gulf Coast, said he was not surprised by the expectations of higher gasoline in April's Short Term Energy Outlook: "It looks accurate." A second US gasoline source said the revised forecast "makes sense" given that "crude is rallying." Platts data show that from March 5 through April 10 the May NYMEX WTI crude oil futures contract has rallied $3.12/b, settling at $65.51/b on Tuesday. A third source, who trades gasoline along the US West Coast, said he found the forecast "surprising." He said that it seems a bit counterintuitive because "oil production and refining are at almost record levels" and yet gasoline "prices keep going up."

US crude stocks build as exports fall, output rises - US crude stocks saw a larger-than-expected build last week as exports fell sharply, and domestic production topped 10.5 million b/d, Energy Information Administration data showed Wednesday. Crude stocks rose 3.306 million barrels to 428.638 million barrels the week ending April 6, EIA data showed Wednesday. Analysts surveyed Monday by S&P Global Platts were looking for a build a of 100,000 barrels. The five-year average for the same period showed an increase of 1.9 million barrels. This build marked a reversal from the week prior when record-high US crude exports and a drop in imports led to a draw of 4.62 million barrels. Last week saw imports rebound 752,000 b/d to 8.65 million b/d, while exports plunged 970,000 b/d last week to 1.205 million b/d. Exports have averaged 1.5 million b/d year to date, double the amount from 2017 during the same period. Imports have averaged 7.8 million b/d so far this year, versus 8.1 million b/d in 2017. With US crude production climbing further into record-high territory last week, flows have adjusted to encourage a drop in net imports. Output rose 65,000 b/d to 10.525 million b/d the week ending April 6, a year-on-year increase of 1.29 million b/d. Despite far greater supply, US inventories have fallen by nearly 105 million barrels since last year. One reason why has been the shift in crude differentials to encourage exports and discourage imports. The Brent/WTI spread was trading Wednesday afternoon at $5.33/b, compared with $2.44/b a year ago. That spread had been around parity to $3/b from late 2015 until August 2017 when it began to widen. A premium for Brent over WTI provides an incentive for US producers to export crude. In a similar vein, Gulf Coast crude prices have strengthened to draw barrels there for export, refining or storage purposes. 

How Much Longer Can Pemex Hang On? - During its heyday in the 1980s, Mexico’s state-owned oil empire, Petroleos de Mexico (Pemex), was the third largest oil producer in the world. That was before the rot of chronic mismanagement, unfettered corruption, and declining oil reserves began to set in. The company, now in its 80th year, excels in only two areas: accumulating massive losses — both in money and stolen oil — and clocking up new record levels of debt.For the fourth quarter of 2017 the company posted a zinging loss of 352.3 billion pesos ($18 billion), blaming a weaker peso exchange rate, new reporting rules and higher financing costs. The loss compares to a profit of 72.6 billion pesos in the year-ago period. While the group’s sales increased by some 30% over the duration of 2017, largely due to higher oil prices, costs ballooned by 115%.“Pemex has been roiled by external factors such as the oil crisis of 2015, but it has also been hit by the fact that there have been constant changes in the general management,” says energy analyst Arturo Carranza. The group has had three different management teams in just five years. According to the new boss, Carlos TreviƱo, installed at the end of 2017, the company’s financial condition is stabilising and the debt situation is now being handled much better.Whatever Pemex’s new top management might say, the group’s vital signs are still extremely weak. Between 2016 and 2017, its production of crude oil slid 9.5%, from 2.15 million barrels per day to 1.95 million, its lowest level since 1980. Its average daily level of natural gas extraction also fell 12.5% to 5.06 billion cubic feet per day. But it’s Pemex’s burgeoning debt load that is of greatest concern. In the last five years alone Pemex’s total debt has increased by $38 billion, from €64 billion in December 2012 to $102 billion in December 2017. That’s almost the equivalent of 10% of Mexico’s GDP. And it doesn’t include the company’s pension liabilities, which are estimated to be worth an additional 9% of GDP.

Kinder Morgan halts most work on disputed Canada pipeline expansion  (Reuters) - Kinder Morgan Canada on Sunday suspended most work on a C$7.4 billion ($5.8 billion) oil pipeline expansion that has become the focus of protests, a move underscoring uncertainty over major energy projects in Canada. Company Chairman Steve Kean said he would scrap plans to nearly triple the capacity of the Trans Mountain pipeline, which takes crude from Alberta’s oil sands to a facility in the Pacific province of British Columbia, unless the various legal challenges could be resolved by May 31. The announcement was a blow to the Liberal government of Prime Minister Justin Trudeau, which approved the project and says it is in the national interest. The project - considered crucial for an oil industry hit by transportation bottlenecks - is fiercely opposed by British Columbia’s left-leaning New Democratic government, many municipalities, some aboriginal groups, and environmental activists concerned about possible oil spills. “We will be judicious in our use of shareholder funds. In keeping with that commitment, we have determined that in the current environment, we will not put KML shareholders at risk on the remaining project spend,” Kean said in a statement. The firm is currently carrying out preliminary work and has not started construction. Many in the energy industry are concerned about whether any new pipelines can be built in Canada, which sits on the world’s third largest proven reserves of crude and is the single largest exporter of energy to the United States. Although the federal government has the power to approve major pipelines, the 10 provinces enjoy broad responsibility for resource development. That can result in deadlock when a province opposes a decision made by Ottawa. 

Opposition Forces Kinder Morgan to Halt Trans Mountain Pipeline -- Environmental and indigenous groups are cheering after Kinder Morgan announced Sunday it was halting most work on its controversial Trans Mountain expansion pipeline project, citing continuing opposition.   "This is a sign that organizing works, and it could well be the beginning of the end for this dangerous pipeline," declared Clayton Thomas-Muller, a Stop-it-at-the-Source campaigner with 350.org.   "This is huge," added British Columbia-based advocacy group Dogwood. In the company's statement announcing the move, chairman and CEO Steve Kean said Kinder Morgan was suspending "all non-essential activities and related spending" as a result of the "current environment" that puts shareholders at risk. "A company cannot resolve differences between governments," he added, referencing resistance from BC lawmakers that is at odds with support for the project coming from Ottawa and neighboring Alberta. "While we have succeeded in all legal challenges to date, a company cannot litigate its way to an in-service pipeline amidst jurisdictional differences between governments," Kean said. Unless legal agreements are reached by May 31, Kean said that "it is difficult to conceive of any scenario in which we would proceed with the project." (There are still 18 pending court cases that could thwart the project, the Wilderness Committee noted.) BC Premier John Horgan, for his part, said in a statement Sunday, "The federal process failed to consider BC's interests and the risk to our province. We joined the federal challenge, started by others, to make that point."  "We believe we need to grow the economy, while protecting the environment. We want to work to address these challenges together. But we will always stand up for British Columbians, our environment, and the thousands of jobs that depend on our coast."

Kinder Morgan to suspend all non-essential spending on Trans Mountain project -  The Alberta government is prepared to buy a stake of the Trans Mountain pipeline expansion to ensure it gets built, Premier Rachel Notley said Sunday. In a rare show of being on the same page, United Conservative Party Leader Jason Kenney agrees. The $7.4-billion Kinder Morgan project may be scrapped entirely unless agreements can be reached by May 31 to resolve uncertainty created by British Columbian government opposition to the project, the company announced Sunday. In a news release, Kinder Morgan said without an agreement in place, “it is difficult to conceive of any scenario in which we would proceed with the project.” Notley came out swinging late Sunday afternoon, her comments aimed squarely at B.C. Premier John Horgan. It wasn’t wrath — she’s not even angry, she said, just calmly trying to get on with the job at hand — but it was a direct message. Horgan may think he can harass the project without economic consequences for his province, Notley said, “but he is wrong.” Her government will introduce legislation to turn off the taps to B.C. in the coming days, she said, giving Alberta the power to impose serious economic consequences on the province should it continue on its present course. And if Horgan thinks he can mess with the project via legal means, Notley says, he’s wrong again. “Let me be absolutely clear — they cannot mess with Alberta,” she said, adding her government is prepared to invest public money in the pipeline project. “If we take that step, we will be a significantly more determined investor than British Columbia has dealt with up to this point,” Notley warned. “Never count Alberta out. This pipeline will be built.” 

Disaster Hits Canada's Oil Sands - Kinder Morgan said it would halt nearly all work on a pipeline project that is crucial to the entire Canadian oil sands industry, representing a huge blow to Alberta’s efforts to move oil to market.  Kinder Morgan’s Trans Mountain Expansion is the largest, and one of the very few, pipeline projects that has a chance of reaching completion. Alberta’s oil sands producers have been desperate for new outlets to take their oil out of the country, and the decade-plus Keystone XL saga is the perfect illustration of the industry’s woes. Keystone XL is still facing an uncertain future, and with several other major oil pipeline projects already shelved, there has been extra emphasis on the successful outcome of the Trans Mountain Expansion. That is exactly why Canada’s federal government, including Prime Minister Justin Trudeau, has gone to bat for the project.   But, despite federal approval, Trans Mountain still faces a variety of obstacles that have bedeviled the project for some time. It appears that opposition from First Nations, environmental groups, local communities affected by the route, and the provincial government in British Columbia have forced Kinder Morgan to throw in the towel, at least for now.  Kinder Morgan said on Sunday that it suspended most work on the $5.8 billion Trans Mountain Expansion.  Environmental groups hailed the announcement. “The writing is on the wall, and even Kinder Morgan can read it. Investors should note that the opposition to this project is strong, deep and gets bigger by the day,” said Mike Hudema, climate campaigner with Greenpeace Canada, according to Reuters. Kinder Morgan’s CEO Steve Kean said the project would be scrapped unless the legal challenges could be resolved by May 31. The announcement sparked a sense of panic among various Canadian politicians. Alberta’s Premier Rachel Notley, not surprisingly, sounded more alarmed. She took to Twitter to not only lash out at British Columbia, but also vow that her province would push the pipeline, even if it meant taking a public stake in the project.

Canada explores options as Kinder Morgan halts pipeline work (Reuters) - The Canadian government on Monday said it was considering all its options on the Trans Mountain pipeline expansion, including a possible investment of public funds to ensure construction goes ahead, after Kinder Morgan Canada halted most work on the project and set a May 31 deadline to scrap the plan. Canada’s Natural Resources Minister Jim Carr, when asked whether the federal government would invest in the C$7.4 billion ($5.8 billion) project, told the Canadian Broadcasting Corporation: “We are looking at all options — that’s on the table. We’re not ruling anything out. We are doing an assessment of what might be necessary, working with the government of Alberta.” Carr’s comments follow Alberta Premier Rachel Notley’s pledge on Sunday that the oil-rich province was prepared to invest in the pipeline to ensure the project moves ahead. Kinder Morgan Canada said on Sunday that it would scrap plans to nearly triple the capacity of its existing Trans Mountain pipeline, which extends from Alberta to British Columbia’s coast, unless various legal and jurisdictional challenges could be resolved by May 31. The project was approved by the federal government in 2016, but that approval is being challenged in court by First Nation groups and local municipalities, and British Columbia is eyeing whether it has jurisdiction to block increased oil shipments through its territory. To go ahead, the company needs more certainty, said Kinder Morgan’s Chief Executive Steve Kean in a conference call on Monday, which could mean “some kind of preemptive action” to make clear Canada’s jurisdiction over the project. 

As Kinder wavers, oil-rich Alberta considers buying pipeline to port - Alberta Premier Rachel Notley says the province will buy the Trans Mountain pipeline project outright, if that's what it takes to get it built. On Tuesday morning, Notley said the federal government should be willing to put money into the project as well. Then, in a statement issued later in the day, the premier said buying the pipeline is one of many options being considered to get construction ramped up on the project, which would triple the amount of oil going from Alberta to the B.C. coast. Notley said over the weekend the province was looking at taking an equity stake in the line, but didn't talk about buying it completely. The pipeline builder, Kinder Morgan, announced it was scaling back on the federally approved $7.4-billion project because of opposition and delays from the B.C. government. Kinder Morgan has given the federal government until May 31 to offer concrete assurance the line will get built, and Notley has repeatedly called on Prime Minister Justin Trudeau to take action. "We are considering a number of financial options to ensure that the Trans Mountain expansion is built, up to and including purchasing the pipeline outright if were to come to that," Notley said Tuesday in the statement. "But it is not the only model we're considering." 

Alberta willing to buy Trans Mountain pipeline if necessary, premier says - Alberta, the landlocked Canadian province that’s home to the oil sands, would be willing to buy out Kinder Morgan Inc.’s Trans Mountain pipeline if that’s the only way to salvage the critical export route. “We are considering a number of financial options to ensure that the Trans Mountain expansion is built, up to and including purchasing the pipeline outright,” Alberta Premier Rachel Notley said in a statement. Kinder threatened to abandon the $5.7 billion project, which would triple the pipeline’s capacity, unless obstacles to the plan are resolved by May 31. The warning came amid strident opposition and legal challenges from British Columbia, the Pacific coast province it traverses. The expansion would allow the system to move an additional 590,000 barrels a day of crude from the oil sands to a terminal near Vancouver, where it could be sent to Asia and reduce Canada’s dependence on American buyers. The Houston-based company’s ultimatum has stirred concerns across the nation as government officials and business leaders decried the risks to a project that was already approved federally in 2016 and that the energy industry is counting on to carry more crude to refiners abroad. Meanwhile, B.C. Premier John Horgan accused Kinder Morgan Tuesday of “deliberately trying to dial up a crisis within our Canadian federation.” 

Canada's Trudeau to press British Columbia to accept pipeline: source (Reuters) - Canadian Prime Minister Justin Trudeau is set to pile pressure on British Columbia’s provincial government to drop its resistance to a pipeline project, but will try to avoid tougher measures that might alienate voters who helped his Liberals win power, a source close to the matter said on Wednesday. Trudeau is racing against time. Kinder Morgan Canada said it would scrap the C$7.4 billion ($5.9 billion) Trans Mountain pipeline expansion from Alberta to the west coast unless all legal and jurisdictional challenges facing the project are resolved by May 31. The pipeline, which Canada’s oil industry considers crucial, is opposed by British Columbia’s left-leaning New Democratic provincial government. Environmentalists and aboriginal activists are mounting frequent protests and British Columbia police have arrested about 200 people around Trans Mountain facilities since mid-March. Trudeau’s Liberals picked up seats in the province in the last election, but the federal NDP - which opposes the pipeline - remains a force there. This could make Trudeau’s federal government cautious as it is locked in a rare standoff with a provincial counterpart. British Columbia opposes the expansion, citing fears that the risk of a spill in the Pacific province is too great. Ottawa insists it has jurisdiction over the project and Trudeau is under huge pressure to crack down. For now, he will press the provincial government, pointing to polls showing most Canadians want the expansion to go ahead.   Morneau gave strong hints that Ottawa may intervene by providing financial assurances to Kinder Morgan, which has voiced concerns about committing additional resources to the project given the heated opposition.

Ottawa eyes financial backing to save troubled Trans Mountain pipeline — Finance Minister Bill Morneau says the federal government will act on the Trans Mountain pipeline project in “short order,” sending the strongest signal yet that it will move to financially backstop the project to reduce the risks for its American-based backer.Speaking after a late-day meeting with Alberta Premier Rachel Notley, Morneau said the federal Liberals have the “tools” to make the contested project a reality but said the government has not yet made a decision on what steps it will take.But he immediately ruled out one option — a referral of the legal dispute around Trans Mountain to the Supreme Court of Canada — a measure floated earlier in the day by NDP Leader Jagmeet Singh as a way to clear up questions of jurisdiction.“We don’t see a need to refer something to the Supreme Court of Canada when we already know it’s a federal jurisdiction. That, from our standpoint, is not a course of action that makes sense,” Morneau said. Prime Minister Trudeau Justin Trudeau has declared that the project will get built, despite the opposition of the minority NDP government in B.C.  But that vow has taken on added urgency in the wake of Kinder Morgan’s announcement on Sunday that it was suspending non-essential work on the pipeline, citing “extraordinary political risks” caused by B.C.’s opposition to the expansion. The company has set a May 31 deadline to get “clarity” around the project. Notley has already said her government is open to buying the Trans Mountain pipeline — meant to move Alberta oil to port near Vancouver for shipment overseas — to ensure the expansion goes ahead.

Canada's Trudeau to meet premiers on pipeline strife (Reuters) - Canadian Prime Minister Justin Trudeau will break off a foreign trip to hold an emergency meeting with the premiers of two provinces locked in a worsening dispute over an oil pipeline, officials said on Thursday. The unexpected development is a sign of the pressure building on Trudeau to solve a problem that could turn into a constitutional crisis. The federal Liberals are pitted against the Pacific province of British Columbia, which opposes plans by Kinder Morgan Canada to almost triple the capacity of its Trans Mountain pipeline from Alberta to the west coast. Ottawa, which approved the project in 2016, insists it has jurisdiction. The British Columbia government disagrees, citing the risk of a spill. Kinder Morgan Canada, fed up with the delays, is threatening to walk away unless the dispute is settled by May 31. Trudeau left on Thursday for a nine-day trip, starting with a summit in Peru on Friday and Saturday. He has invited Alberta Premier Rachel Notley - who backs the pipeline - and British Columbia Premier John Horgan to come to Ottawa on Sunday. Trudeau will resume his international trip after the meeting. Both premiers said they would attend the Ottawa session but made clear they were sticking to their positions. “This likely is not going to be the end of the story. It’s a first step,” a senior government official told Reuters, saying Trudeau would outline the various financial, regulatory and legal options for handling the crisis. 

Out of the LOOP: The Fatal Flaw of Alberta's Oil Export Expansion -- Two weeks ago, the first supertanker capable of holding two million barrels of oil departed for the first time from America’s newly upgraded—and only—terminal able to dock and load crude-carrying behemoths of this size. Bound for China, the inaugural run signals a major shift in global oil shipping patterns, economics, and the highly competitive oil refinery business.  The LOOP terminal is a speculator’s venture on steroids. Built with private capital, it is North America’s first oil port dedicated to the planet’s largest crude tankers, handling bi-directional oil flows. Any VLCC from any country can now unload or load at LOOP. They can bring oil from the Persian Gulf, Nigeria, Russia, or Brazil. They can carry it—two million barrels at a time—to China, India, Indonesia, or Europe, at a shipping price lower than smaller tankers. And because the LOOP bi-directional pipeline can pump oil at a mind-bending 100,000 barrels per hour, supertankers can arrive with one load for refining and take off with another, by barely dropping anchor.That will likely prove fatal to Alberta’s plans to expand unrefined bitumen exports either by the proposed Trans Mountain pipeline to the British Columbia coast, or the proposed Keystone XL pipeline because:

  • • Potential foreign refiners and customers will demand that future oil price, quality, shipping costs, and delivery speeds match those that LOOP can offer.
  • • For marine safety reasons, the maximum oil tanker cargo allowed through B.C.’s Burrard Inlet is an Aframax class ship at 80% capacity carrying 550,000 barrels, only about one-quarter the load of a VLCC. That means a refiner in Asia would need to book and pay for four tankers to ship the same amount as from the LOOP terminal, then wait longer for the full order to arrive.
  • • The diluted bitumen Alberta wants to export has chemical and combustion properties that make it far inferior to the higher-quality oil LOOP has access to from U.S. formations in the Dakotas and Texas, or OPEC countries, or North Sea producers. Tar sands/oil sands bitumen can be upgraded and refined, but that adds significant costs and requires dedicated facilities.
  • • The terminus of the Keystone XL will be refineries on the Texas Gulf Coast near Houston which are notconnected to the LOOP. Even if future Alberta bitumen were to be refined there, it would take three fully-loaded Aframax tankers leaving Texas for ship-to-ship transfers to each VLCC.

Why Don’t Governments Limit Oil Production to Meet Climate Targets? -- The climate change component of Canada’s oil pipeline debate largely revolves around two big questions: should our country restrict the production of fossil fuels? And, if it does, does that mean other jurisdictions will just produce more and fill the gap?This argument to restrict production is often called “supply side environmentalism” and it’s been pretty unpopular with economists and pundits who warn against restrictive supply-side policies as inefficient and overly moralistic.But climate policy experts Fergus Green (of the London School of Economics) and Richard Denniss (of the Australia Institute) are questioning that. In their new paper for the journal Climatic Change the pair contend that policies such as supply bans, production quotas, supply taxes and subsidy reductions for fossil fuels should most certainly be part of the policy picture. Here’s a breakdown of some of the key points in their piece, “Cutting with both arms of the scissors: the economic and political case for restrictive supply-side climate policies.”

New Zealand Bans New Offshore Oil and Gas Exploration - New Zealand will no longer offer new permits for offshore oil and gas exploration, Prime Minister Jacinda Ardern announced Thursday. "The whole world is going in this direction," Ardern said. "We all signed up to the Paris agreement that said we're moving towards carbon-neutrality, and now we need to act on it."The ban only affects future permits for offshore oil and gas exploration and will not affect the existing 22. This could allow exploration to feasibly continue in a 38,000-square-mile area until the existing permits expire, which could be "as far out as 2030," the government acknowledged. Permits for onshore oil and gas exploration will also continue.The energy industry and the opposition party were alarmed by the announcement. New Zealand Oil & Gas told Reuters they were not warned about the new policy."We note that the announcement is a sudden change of policy, which has not been consulted on and appears to conflict with the government's pre-election promises," the company said. The center-right National Party condemned the ban, calling it " economic vandalism " and claiming that it made no environmental sense.

US crude oil exports to Europe increasing on wider Brent/WTI spread - The recent widening of the spread between Brent and WTI crude benchmarks, combined with spring refinery maintenance in the US Gulf, has helped increased US crude exports to Europe in April, pressuring an already well-supplied sweet crude market, traders said.
Although Brent's premium to WTI has fallen 95 cents/b since the start of the year to $5.24/b, it has increased $2.21/b since the start of March, and follows a premium of around $3.00/b throughout much of February.As Brent's premium has risen, WTI-based domestic sweet grades have become more competitive with Brent-based North Sea, Mediterranean and West African grades in export markets.  Additionally, decreased demand from US Gulf Coast refineries amid spring turnaround season has left more volume available for the export market.Offers of US crude have been flooding the European market in recent weeks, with volumes expected to arrive from the third decade of April and into the first half of May, trading sources said.Both delivered and FOB offers have been seen, with US Gulf crudes offered into Northwest Europe and Mediterranean at Dated Brent plus $1.20-$1.40/b the week before last, sources said, before dropping to Dated Brent plus 40-60 cents/b last week. “There is pretty much everything offered -- WTI, Eagle Ford, Mars, also Canadian [heavy crudes]...there is a decent volume available," a crude trader said, adding he saw pressure starting to build on light sweet, Mediterranean crudes including Azerbaijan's Azeri Light, Kazakhstan's CPC Blend and Algeria's Saharan Blend.

German-US tensions grow over expansion of Nord Stream pipeline - With a potential trade war looming between the EU and the United States, the conflicts within the EU, and between Germany and the US over the planned expansion of the Russian-German gas pipeline Nord Stream is escalating. Potential US sanctions against the project could dramatically intensify the economic and political tensions between the United States and Germany, in particular.  Since 2011, the Nord Stream pipeline, which has a capacity of 55 billion cubic meters per year, has been delivering gas from Russia directly to Germany via the North Sea, circumventing traditional transit countries like Ukraine and Belarus. In the summer of 2015, the Russian gas company Gazprom announced the construction of additional pipelines, known as Nord Stream 2. Apart from Gazprom, the project involves Wintershall, a subsidiary of the leading German chemical company BASF, the German energy company Uniper, as well as the French firm Engie (formerly GDF Suez), Austria’s OMV, and the British-Dutch Shell. Construction of the $11.5 billion project is scheduled to begin in late 2018 and be completed by 2019. Gas deliveries are set to start in 2020. The project has, from the very beginning, sparked political tensions within the European Union as well as between Germany and the United States. Several Eastern European states, especially Poland and the Ukraine, as well as the United States, have opposed the project with growing hostility as a cornerstone for a German-Russian axis and a means to economically leverage Eastern European EU member states, which remain highly dependent on Russian gas deliveries and, as is the case with Ukraine, on revenues from Russian gas transit to the EU. Now, the conflict has resumed renewed force amid conditions of an escalating war drive against Russia and a looming trade war between the EU and the United States. In recent weeks, both the Finnish government and German authorities have given the green light to the construction of the pipeline. Permissions still need to be given by Finland (for underwater construction), Russia, Sweden and Denmark. According to Gazprom, the project is proceeding as planned. The Ukraine is set to lose significant amounts of money. According to an expert questioned by Russia Today, only 15 billion cubic meters of gas would pass through Ukraine annually if Nord Stream 2 were built, down from currently 90 billion cubic meters per year.

Russia Gas Link ‘Not Possible’ If Ukraine Is Harmed, Merkel Says - German Chancellor Angela Merkel said a new Russian natural-gas pipeline is impossible if it leaves Ukraine empty-handed, shifting her rhetoric on a project criticized by President Donald Trump.Merkel said political considerations must play a role on Nord Stream 2, which would double an existing pipeline’s capacity to almost 30 percent of European Union demand. In the past, she has portrayed Nord Stream primarily as a business venture driven by private investors.“I made it very clear that a project such as Nord Stream 2 is in our view not possible without clarity on how Ukrainian transit will proceed,” Merkel said Tuesday in Berlin alongside Ukrainian President Petro Poroshenko. “This isn’t only about an economic project. There are political factors to be considered.”Nord Stream 2, opposed by countries such as Poland and the Baltic states for increasing EU reliance on Russian gas, won German construction approval in March. Trump said last week that the pipeline means Germany will be paying “billions of dollars” to Russia and “that’s not right.”An industry group that promotes economic ties with Russia pushed back after Merkel’s comments, saying Nord Stream guarantees western European energy security and that 4 billion euros ($4.9 billion) already invested in the project would be at risk. “To change the legal foundation retroactively for political reasons would damage the trust in legal certainty,” Wolfgang Buechele, chairman of the German Committee on Eastern European Economic Relations, said in an emailed statement.

BP to develop the second phase of its giant fracking project in Oman - BP is set to begin the second phase of development at its sprawling Khazzan gas field in Oman to produce a total of 1.5bn cubic feet per day (cfpd) of gas.The Ghazeer project is set to come onstream in 2021 following the start-up of phase one of the Khazzan project in September 2017.The phase one development is made up of about 200 wells and recently reached its design capacity of 1bn cfpd of gas. Ghazeer will add a further 0.5bn cubic feet to daily gas volumes as BP drills another 100 wells.The Oman Oil Company Exploration & Production holds a 40 per cent interest in the $16bn (£11.3bn) project, which was BP's biggest unconventional gas project outside the US last year.BP used the fracking know-how it picked up extracting shale gas in the US to unlock the Khazzan field's tight gas reserves, which require both vertical and horizontal wells to be drilled.Yousuf Al Ojaili, the president of BP Oman, said: “Following the successful startup of Khazzan, we are pleased to announce the sanction of Ghazeer, BP’s first project FID [final investment decision] of 2018."Through the transfer of industry-leading skills and technology from BP’s global portfolio, we look forward to futher developing this gas field that is expected to support Oman’s energy needs for many decades to come," Al Ojaili said. Both phases of the project are expected to deliver total production of 10.5 trillion cubic feet of gas and around 350m barrels of condensate through to 2043, when the agreement with the government of the Sultanate of Oman ends.

India, Aramco to partner on $44 billion refinery-petchem project (Reuters) - Saudi Aramco on Wednesday signed an initial deal with a consortium of Indian refiners to build a $44 billion refinery and petrochemical project on India’s west coast, as the kingdom moves to secure buyers for its crude in a market awash with oil. Top executives of Aramco and India’s Ratnagiri Refinery & Petrochemicals - a joint venture of Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp - signed a memorandum of understanding to take equal stakes in the project in Maharashtra state. The project includes a 1.2-million-barrels-per-day (bpd) refinery integrated with petrochemical facilities with a total capacity of 18 million tonnes per year, the officials said on the sidelines of the International Energy Forum. Aramco, the world’s biggest oil producer, is expanding its footprint globally by signing new downstream deals and boosting the capacity of its existing plants ahead of an initial public offering that is expected later this or next year. Days earlier, state oil giant Aramco sealed refining and petrochemicals deals worth about $20 billion in France and the United States. The Indian plant will be one of the largest refining and petrochemical complexes in the world, built to meet fast-growing fuel and petrochemicals demand in India and elsewhere. “Large as this project may be, it does not by itself satisfy our desire to invest in India ... We see India as a priority for investments and for our crude supplies,” Saudi Energy Minister Khalid al-Falih said. “We’re very much interested in retail ... We want to be consumer-facing,” he said. Saudi Aramco will supply at least 50 percent of the crude to be processed at the planned refinery, he said. Aramco may introduce at a later stage a strategic partner to share its 50 percent stake, Falih said. “We have somebody in mind and we will announce in due course,” Aramco Chief Executive Amir Nasser said, without elaborating. 

'Fat and lazy' LNG buyers need producers help to boost demand: Russell (Reuters) - Buyers of liquefied natural gas (LNG) have grown “fat and lazy” on expectations of a surplus of the super-chilled fuel and they now risk a shortage in the early years of the next decade. There’s no surprise that this was the view of a LNG project developer, expressed at this week’s LNG Asia Pacific Congress, hosted in Singapore by IBC. The perspective of buyers was somewhat different, with some recognizing that prior forecasts of a large surplus were unlikely to materialize, given rising demand in several Asian countries that are new to the LNG market. But the common theme among those building import terminals and associated infrastructure was that LNG producers should participate in developing markets, otherwise the anticipated surge in demand may not occur. There are at least 14 LNG import terminals being planned or developed in South and Southeast Asia, the region that, along with China, provides the bulk of the optimism for LNG demand in the next decade. But the nature of these projects and the associated infrastructure may give some pause for thought to those who take the view that this is locked-in future demand that will eat up any LNG surplus. Pakistan has plans to build new import capacity of 9 million tonnes per annum, double its current capacity, but this will be developed largely by private operators. The market for new LNG in Pakistan is also dependent on associated infrastructure, such as building residential connections in new housing estates, and ensuring that power plants are built to replace inefficient and increasingly costly oil-fired generators. In India, additional LNG is mainly targeted at industrial and residential users, as well as the fertilizer industry, and again, installing the associated infrastructure to distribute the re-gasified LNG becomes the key. With governments across South and Southeast Asia finding it increasingly beyond their budgets to fund all the required infrastructure, it will fall to the private sector to stump up the money. Even China, which boosted LNG demand by 46 percent last year, will rely on smaller companies to boost demand in coming years, with most of the planned import capacity being developed by operators outside the state-owned majors.

Sinopec to cut Saudi crude imports for May in response to high OSPs: official (Reuters) - China’s Sinopec, Asia’s largest refiner, plans to cut Saudi crude oil imports loading in May by 40 percent after oil company Saudi Aramco set higher-than-expected prices, an official from trading arm Unipec said. “Our refineries think that these are unreasonable prices as they do not follow the pricing methodology,” the official, who declined to be named, said on Monday. India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) has also cut its annual oil import deal with Saudi Aramco by about 22 percent to 70,000 barrels per day, two company sources said, adding it would instead step up purchases from Iran like other state-run refiners. Asian oil traders have struggled to understand how Saudi Arabia derived its official selling prices (OSPs) for May after the world’s top oil exporter unexpectedly raised the price for its flagship Arab Light crude sold to Asian refiners. Separately, trading sources at two North Asian refineries said on Tuesday they each planned to reduce May orders from Saudi Arabia by 10 percent. The sources, who declined to be named, said they would implement operational tolerances built into long-term supply contracts that allow adjustments in monthly crude deliveries according to changes in available supply or demand. Saudi Aramco did not respond to a request seeking comment on Sinopec’s planned cuts. 

Saudi efforts to raise crude prices get Chinese slap: Russell (Reuters) - Saudi Aramco may have shot itself in the foot by unexpectedly increasing the price of its crude oil to Asia, with a major Chinese refiner responding by sharply cutting back on the volume of cargoes from the world’s top exporter. Sinopec, Asia’s largest refiner, aims to slash its crude oil imports from Saudi Arabia’s state producer by 40 percent in May, according to an official from the company’s trading arm Unipec. Such a large cut sends two very clear messages to Aramco, the first being that Sinopec didn’t agree with the price hike, and the second that the Chinese refiner feels it can make up any shortfall from other suppliers. It’s an almost unprecedented response by a significant buyer of Saudi crude, and it underlines the extent to which the market was caught by surprise by Aramco’s decision to increase the official selling prices (OSPs) for May-loading cargoes. And it’s not just Sinopec that is sending a message, with trading sources at two North Asian refiners saying they also plan to reduce volumes from Saudi Arabia by 10 percent in May. Aramco boosted the OSP for its benchmark Arab Light grade for Asian customers for May cargoes to a premium of $1.20 a barrel over the average of quotes for regional grades Oman and Dubai, up 10 cents from the prior month. The market had been expecting a cut of between 50 and 60 cents a barrel, based on movements in the price curve between front- and third-month cash Dubai prices. Unlike Brent and West Texas Intermediate, the two largest global crude benchmarks, the Dubai market is in contango, where prices for later-dated cargoes are higher than those for immediate delivery. This suggested to the market that Aramco would lower their OSP, as the company usually sets its OSPs in line with changes in the pricing structure for Dubai crude. Aramco doesn’t disclose reasons for changes in its pricing, leaving the market somewhat nonplussed at the action. The most plausible explanation for the deviation from previous practice is that Aramco is doing its best to keep oil prices high ahead of its planned initial public offering (IPO). The listing, which is slated for later this year but is probably more likely in 2019, needs a strong oil price to be successful, with a figure above $70 a barrel seen as a minimum. 

Russia Considers $50B Investment In Iranian Oil & Gas - Russian energy companies could spend as much as US$50 billion on oil and gas exploration in Iran, a presidential aide told media. Yuri Ushakov said companies including Rosneft, Gazprom, Gazprom Neft, Lukoil, Zarubezhneft, and Tatneft were “systemically working on development of fields in Iran.”  The official’s comments come after Zarubezhneft became the second company—after French Total—to sign the new petroleum contract devised by Tehran to lure international oil and gas companies back into its oil and gas.  During a visit of Russia’s President Vladimir Putin in Iran last November, the two countries signed six preliminary agreements on oil and gas projects that would see up to US$30 billion in Russian investments flow into Iran’s energy industry. Russia is a natural partner for Iran in energy, unlike Western oil supermajors that are wary of investing in the country over fears that Washington may reimpose economic sanctions that could force them to abandon any deals struck with the country.

After winter gas crunch, China pumps for underground storage (Reuters) - On one of the many mountains in southwest China’s sprawling region of Chongqing, a dozen wells in an exhausted gas field are this week starting to take in fresh fuel piped in from Central Asia’s Turkmenistan, thousands of miles away. For the next six months, state energy giant PetroChina, operator of the Xiangguosi storage facility, will also inject gas from Myanmar to fill the vast chambers 3,000 meters (9,900 ft) under the mountaintop. China is aiming to turn hundreds of tapped and some still producing wells into storage facilities after a severe winter supply crunch left it short of the clean-burning fuel. Beijing is trying to switch more of its energy use to gas from coal to help clear up the foul air in the country’s north. The drive to fill up the country’s 25 underground gas storage sites before winter arrives will also bolster imports of liquefied natural gas in the world’s No.3 gas user. Consultancy Wood Mackenzie expects imports to touch 48-49 million tonnes this year, up a quarter from last year’s record level. China’s underground gas storages (UGS) can barely cover 5 percent of its total consumption, lagging behind the international average of 10-12 percent and leaving it vulnerable to supply shocks or extreme weather conditions. While the state planning agency has stressed the urgency of adding underground facilities, China’s regulated gas pricing and near-monopoly in key distribution infrastructure remain hurdles to clear for the business to flourish. Led by PetroChina, China has embarked on a building boom over the next 5-8 years, spending over $10 billion to nearly double gas stores. 

Hedge funds rotate from WTI to Brent in search for roll yield (Reuters) - Hedge funds trimmed their bullish position in crude oil and fuels in the most recent week after increasing it significantly over the previous fortnight.But the overall reduction conceals a sharp shift away from U.S. light crude (WTI) and towards the international marker Brent, according to an analysis of position data published by regulators and exchanges.Hedge funds and other money managers cut their net long position in the six most important futures and options contracts linked to petroleum by 43 million barrels in the week to April 3.Portfolio managers cut their net long position in WTI (NYMEX and ICE) by 48 million barrels while trimming their net long in Brent by just 4 million barrels (https://tmsnrt.rs/2GPRVs8).  The fall in WTI net length was the largest one-week reduction since the end of August, when hurricanes disrupted the U.S. refining system, and continues a trend evident in recent weeks.Funds have been steadily cutting their exposure to WTI over the last two months while maintaining a strong bullish position in Brent.The net long position in WTI has fallen by 105 million barrels since it peaked on Jan. 23 even as the net position in Brent has risen by an extra 27 million barrels over the same period.The result is that the position in Brent now looks exceptionally stretched while positioning in WTI looks far less lopsided.Fund managers now hold almost 21 long positions in Brent for every short position, a record imbalance, up from a ratio of 11:1 on Jan. 23. By contrast, funds hold fewer than nine long positions in WTI for every short, down from a ratio of almost 12:1 in late January.

Oil prices rebound as U.S., China trade tensions ease for now - Oil prices settled higher Monday, to recover much of what they lost last week, as U.S.-China tensions appeared to ease, but concerns over U.S. production growth lingered in the wake of a hefty weekly rise in domestic rig activity. The gains, however, were “still smaller than Friday’s declines, so it remains to be seen if this is a trading bounce or the start of a more serious advance,” he said. “With trade in the spotlight all week, we could see significant volatility and swings in both directions.”On the New York Mercantile Exchange, May West Texas Intermediate crude rose $1.36, or 2.2%, to settle at $63.42 a barrel. The contract fell 2.4% on Friday to tally a loss of roughly 4.4% for last week. June Brent crude, the global benchmark, added $1.54, or 2.3%, at $68.65 a barrel on ICE Futures Europe, after losing 3.2% last week.Oil prices declined Friday, and suffered their worst weekly declines in two months. Prices had followed equity markets lower amid growing fears of a trade war between the world’s two largest economies.On Monday, crude oil tracked global stock prices higher on signs over the weekend that President Donald Trump’s administration may be softening its stance in the trade spat with China, though remarks from China’s foreign ministry and a tweet from Trump suggest the dispute could easily heat up again. “The market is currently concerned for the escalating China-U.S. trade war tensions—and with good reason since this [would] be bad for global growth and oil demand growth further down the line,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “However, oil market fundamentals are tightening, and oil prices look set to be squeezed higher as long as OPEC sticks to its cuts.”

Crude Jumps As Saudis Signal 'Ambition' For $80 Oil Price - WTI crude prices are up overnight, extending post-XI-sprech gains following headlines that Saudi Arabia wants to get oil prices near $80 a barrel to pay for the government’s crowded policy agenda (and costly war with Yemen) and support the valuation of state energy giant Aramco before an IPO. Bloomberg reports that in conversations with OPEC delegates and oil market participants, Saudi officials had been careful to avoid pinpointing an exact price target. Yet people who have spoken to them said the inescapable conclusion from the conversations was that Riyadh is aiming for $80. The private discussions, relayed by several people who met the Saudis over the last month and asked not to be named to protect their relationship with the kingdom, chimes with the hawkish tone in public from Saudi officials. Of course, none of this is new, and is all dependent on Russia playing along (less likely as they are affected by western sanctions) and Shale supply stalling (unlikely if prices rise)... This echoes MbS' recent comments in a Time Magazine interview last week... "We believe oil prices will get higher in this year and also get higher in 2019, so we are trying to pick the right time," he told the magazine in reference to the IPO. Riyadh, which initially targeted the second half of 2018 for the listing, is now aiming for next year.

Oil surges more than 3 percent as trade war fears recede (Reuters) - Oil prices surged more than 3 percent on Tuesday as investors grew more confident the United States and China would resolve their trade dispute without damaging the global economy, while Middle East tensions and a weak dollar also supported prices.  Brent crude futures jumped $2.39, or 3.5 percent, to settle at $71.04 a barrel. This was its largest single-day percentage gain since September.   In post-settlement trading, Brent hit $71.34, its highest since December 2014. West Texas Intermediate crude futures gained 3.3 percent, or $2.09, to settle at $65.51 a barrel.  President Xi Jinping on Tuesday promised to open China’s economy further and lower import tariffs, striking a conciliatory tone on the trade tensions between his country and the United States. Prices of both crude benchmarks have risen more than 5 percent in the past two trading days. Both have erased their losses from last week, when concerns over a possible trade war between the two largest economies contributed to declines of more than 4 percent.  Middle East tensions also supported prices, said Phillip Streible, analyst at RJO Futures in Chicago. “Oil markets are getting a bounce on increasing speculation about Trump and Syria,” Streible said.  U.S. President Donald Trump promised a swift response to a suspected chemical attack in Syria. Such a response is likely to increase the push for the United States to exit the Iran nuclear deal, Streible said, given Iran’s support of the Syrian government.  Departures from the accord would result in renewed sanctions against Iran, which would hurt its oil industry. Also supportive to crude prices was the weakness of the U.S. dollar. The dollar fell against a basket of major currencies, hitting its lowest in nearly two weeks. Because oil is dollar-priced, a stronger greenback makes purchases in other currencies more expensive. The U.S. Energy Information Administration said it expected domestic crude oil production to rise by 750,000 barrels per day (bpd) to 11.44 million bpd next year, more than previously expected.

WTI/RBOB Slide After Surprise Crude Build | Zero Hedge - The last two days have seen WTI/RBOB prices soar (as trade-war fears ebb and Saudi hopes for higher prices) but they gave a little back after API reported a surprise crude build and notable Gasoline build. API:

  • Crude +1.758mm  (-1.25mm exp)
  • Cushing +1.452mm (+2mm exp)
  • Gasoline +2.005mm
  • Distillates -3.849mm

Last week's surprise Crude draw (and expectation of a draw) was turned around as API reported a surprise 1.758mm barrel crude build... Notably the Brent-WTI spread widened above $5...As Bloomberg reports, Chinese President Xi Jinping said zero-sum mentalities were “out of place” and backed dialogue to resolve disputes, dissipating fears of a trade spat with the U.S. Meanwhile, Saudi Arabia is said to want to get prices near $80 to fund spending and support the valuation of its state oil giant’s initial public offering.Whether oil prices are up on fundamentals or not, "it’s a risk-on type day,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “The biggest correlation is to the equity markets." In two days, the oil market dispelled the pessimism of two weeks largely dominated by concerns over U.S.-China tensions and a buildup of stockpiles at America’s largest distribution hub in Oklahoma.

Why Is U.S. Oil So Cheap? - The price differential between the two most important crude oil benchmarks is widening again, a reflection of a divergence in the supply fundamentals between the U.S. and the rest of the world. At the beginning of 2017, WTI and Brent traded closely, with just a slim price differential. The spread blew out in late summer after Hurricane Harvey, which devastated the U.S. Gulf Coast and put refineries and ports out of business for several weeks.  However, earlier this year, the gap narrowed sharply.  And yet, over the past week, the Brent-WTI disparity has widened once again, opening up to over $5 per barrel, about twice as much as just a few weeks ago. The divergence is a reflection of rising supplies in the U.S. at a time when the oil market looks rather tight pretty much everywhere else. U.S. shale continues to expand at a torrid pace, up around 400,000 bpd since the end of 2017. The rig count has exploded, as most shale companies believe they can make money with WTI north of $60.  Meanwhile, inventories have already declined around the world, and crucially, OPEC continues to demonstrate impressive cohesion, keeping the oil cuts in place across the board. Catastrophic production losses in Venezuela has resulted in an OPEC compliance rate well in excess of 100 percent. Moreover, looking forward, the two benchmarks could diverge even more. The U.S. will likely try and ratchet up pressure on Iran. Trump’s staff reshuffling has resulted in a new hawkish team that will probably look to re-impose sanctions on Iran, which could knock some oil supply off of the market. At the same time, oil production in the Permian is rising so quickly that the region is starting to run up against pipeline limits. Soaring output has the Permian drowning in supply. The bottleneck has already forced a discount of oil in Midland relative to WTI, and with the pipeline system virtually maxed out, U.S. shale producers might be forced to slow down on the production gains. Too much supply in the U.S. and tightening supplies elsewhere is exactly why the WTI discount to Brent has spiked.

Trade spat poses risk to tightening US crude stocks - A potential trade war between the US and China could threaten global oil demand and even target US crude exports, curbing flows that are needed to absorb booming US shale production and limit inventory builds. That would mark a turnaround, as stocks have tightened relative to the five-year average since in mid-September, falling to a deficit the last three weeks, Energy Information Administration data shows. The amount of crude in storage equaled 425.33 million barrels the week that ended March 30, less than 1 million barrels above the level at the end of 2017. That is unusual because crude stocks typically build sharply the first three months of the calendar year. For the same period, stocks increased 56.5 million barrels in 2017 and by 50.1 million barrels on average from 2013-17. Analysts surveyed Monday by S&P Global Platts expect crude stocks built 100,000 barrels last week. The five-year average shows a build of 1.9 million barrels. Inventories sit at the lowest level for this time of year since 2014, even though US production has exploded. The latest EIA weekly estimates pegged output at 10.46 million b/d, a year-on-year increase of 1.2 million b/d.Elevated exports have allowed US production to skyrocket without the corresponding build in storage levels. US crude exports have averaged 1.52 million b/d year to date, about double the level for the same period a year ago. Exports were 2.175 million b/d the week ending March 30, beating the previous record high set the week late October at 2.133 million b/d. In this environment, an escalation between Washington and Beijing over trade casts a large shadow in both direct and indirect terms. 

U.S.-China trade spat could dent oil demand, says IEA - The world’s robust appetite for oil could be significantly dented by the escalating trade dispute between the U.S. and China, the International Energy Agency warned Friday.In its closely watched monthly oil market report, the IEA said it continued to expect global oil demand to grow by 1.5 million barrels a day in 2018, but cautioned that potential U.S. and Chinese trade tariffs posed a “downward risk” to the forecast.The Trump administration’s planned tariffs on Chinese imports and retaliatory measures announced by Beijing would weigh on the global economy, with “strong consequences for oil demand,” the agency said. The IEA estimated that a reduction of 1% in world gross domestic product growth would reduce oil demand growth by around 690,000 barrels a day.  “Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use,” the report noted.  An expanded version of this report appears on WSJ.com

Oil Prices Soar On Waning Trade War Fears -  Brent oil prices surged above $70 per barrel on Tuesday as concerns of a trade war once again receded. Brent has gained 4.5 percent over two trading days. China’s President helped allay fears by promising to open China’s economy and lower import tariffs. The see-sawing on trade has pushed oil benchmarks all over the place. “It’s not so much ‘risk on/risk off’, as it is ‘trade war on/trade war off’ and, at the moment, we’re ‘trade-war off’,” London Capital Group’s Jasper Lawler told Reuters. In a major blow to Canada’s oil sands industry, Kinder Morgan Canada announced that it would suspend all non-essential work on the Trans Mountain Expansion, and would ultimately scrap the project entirely if regulatory concerns could not be addressed by May 31. KML’s share price fell by as much as 19 percent on Monday. The expansion would add 590,000 bpd of takeaway capacity from Alberta’s oil sands and remains the most important midstream project for the entire industry right now. However, despite the backing from the federal government and the provincial government of Alberta, British Columbia has held up the project. Alberta’s Premier floated the idea of taking a direct stake in the project in order to push it forward. If the project fails, the midstream bottlenecks for Alberta’s oil industry will likely persist for years.    Hedge funds and other money managers have amassed bullish positions in oil futures since the end of 2017. However, while long bets have remained elevated, the shorts have liquidated more recently, pushing net-length even higher. The buildup is mostly occurring in Brent, as opposed to WTI. The bullishness is a sign of optimism regarding the trajectory of oil prices, but it also represents a significant risk, exposing the oil market to a price correction if sentiment sours.

Soaring US oil exports may derail the crude rally, Oil Price Information's Tom Kloza says -- The U.S. is exporting crude oil at a record pace with no signs of slowing down. That has the potential to unbalance a global oil market in recovery, says energy expert Tom Kloza. "The exports are what we need to focus on through the next 30 days," Kloza, co-founder of the Oil Price Information Service, told CNBC's "Futures Now" last week. High U.S. production could decide how oil prices trade in the second half of this year and through 2019, he added. Domestic exports have not dipped below 1 million barrels a day since late November, as U.S. oil producers fill the void left by reduced capacity from Mexico and Venezuela. Higher demand for petroleum and gasoline in South America has also boosted appetite for North American oil. U.S. crude oil exports rose to 2.175 million barrels per day, or more than 15 million a week, at the end of March. That marked its highest level on record. "We think that number is going to go up to probably 20 million or more [a week], get to maybe 2.5 million barrels a day," said Kloza. "The United States is in essence going to be exporting more than the United Arab Emirates, Kuwait, Nigeria, those individual countries." Rising U.S. production and exports comes at a time when other oil producers are ramping up their own activity, said Kloza. Russia recently had "the highest output in about 11 months and there's some hints that maybe they're not going to be in this long-term supply cutting agreement with the Saudis," said Kloza. On top of that, "we're going to see higher production from Kazakhstan, from Brazil, from the United States, and from Canada."

Saudi Arabia Signals Ambition for $80 Oil Price - Saudi Arabia wants to get oil prices near $80 a barrel to pay for the government’s crowded policy agenda and support the valuation of state energy giant Aramco before an initial public offering.In conversations with OPEC delegates and oil market participants, Saudi officials had been careful to avoid pinpointing an exact price target. Yet people who have spoken to them said the inescapable conclusion from the conversations was that Riyadh is aiming for $80.The private discussions, relayed by several people who met the Saudis over the last month and asked not to be named to protect their relationship with the kingdom, chimes with the hawkish tone in public from Saudi officials.Oil extended gains. London’s benchmark Brent crude futures rose as much as 2.3 percent to $70.21 a barrel. In an interview with Time magazine last week, Saudi Crown Prince Mohammed bin Salman made the first public statement linking his expectation of higher oil prices with the timing of the initial public offering of Saudi Aramco. "We believe oil prices will get higher in this year and also get higher in 2019, so we are trying to pick the right time," he told the magazine in reference to the IPO. Riyadh, which initially targeted the second half of 2018 for the listing, is now aiming for next year. Saudi Oil Minister Khalid Al-Falih has also sounded increasingly hawkish in public, suggesting that OPEC should keep tightening the oil market even through the cartel is close to meeting its goal of cutting crude inventories in industrialized countries back to their five-year average. In an interview in New York last month, he said today’s price near $70 a barrel hadn’t been sufficient to stimulate investment in the industry, which remains significantly below levels seen before 2014’s price crash.

Saudi Arabia happy with oil market, won't let another glut form (Reuters) - Saudi Arabia’s energy minister said on Wednesday that the world’s biggest exporter of oil will not sit by and let another supply glut surface, but also does not want oil prices to rise to “unreasonable levels”. Members of the Organization of the Petroleum Exporting Countries (OPEC) are seeking a close balance between supply and demand, Khalid al-Falih said, speaking on the sidelines of the International Energy Forum, a gathering of oil producers and consumers in New Delhi. Falih also told reporters he was happy with the current state of the oil market. OPEC, Russia and several other non-OPEC producers began to cut supply in January 2017 in an effort to erase a global glut of crude that had built up since 2014. They have extended the pact until the end of 2018. “I think a lot of the glut has been cleared,” said Falih. Asked if he was happy with the current market, he replied, “Yes, I am.” Brent crude was trading above $70 a barrel on Wednesday, though easing away from the 2014 highs it matched in the previous session, as escalating Middle East tensions were offset by increasing inventories and production in the United States. OPEC and its partners meet to decide oil policy in June and next week a ministerial panel gathers to review the market. The remarks from Falih suggest big changes in the supply cut agreement look unlikely for now. Asked if India, a major consumer, would be happy with oil at $80 a barrel, Falih said no specific price was aimed for, and he was concerned about declining output in some producing countries and a lack of investment in new supplies. “There is no such thing as a target price by Saudi Arabia,” he said. “We’re seeing many regions declining. The only way to offset this is for the financial markets to start financing and funding upstream projects.” “I don’t know what is the price that will provide that equilibrium. All we know is in 2018 we’re still not seeing that.” 

OPEC does not want to move oil prices 'to any unreasonable level': Falih - While "sympathetic" to the consumer impact of the recent oil price rise, Saudi Arabia remains concerned that upstream investments had yet to reach a "reasonable level," Saudi energy minister Khalid al-Falih said Wednesday, shrugging off any suggestion of an early end to OPEC's output cuts. "Since 2013-2014 we have seen a rapid drop off in investment which we believe will bite the consumers and the industry as a whole," Falih said at a media briefing at the International Energy Forum. "We are trying to signal to the market, to the investors, to the financial community, to international oil companies to put investments back into the upstream." But he also sought to reassure the market that OPEC, which along with 10 non-OPEC allies led by Russia is in the midst of a 1.8 million b/d production cut agreement, would not allow prices to spike or crater through its actions. The goal is to create market stability so that upstream investment can occur to meet the projected 1.5 million b/d of increased demand in the foreseeable future, Falih said. "What we are trying to do is not move the prices to any unreasonable level," he said. "What we are trying to do is make sure that supply and demand are closely matched so that markets are not worried about gluts and oversupply and continued investment will flow into the industry." To that end, Saudi Arabia and Russia are leading discussions on extending the OPEC/non-OPEC coalition's alliance "to monitor the market and take action where necessary to maintain stability, which is good news for producers and consumers," Falih said. He added: "We will not sit by and let another glut resurface in the coming years and bring the market through the roller coaster that we have seen before." 

Houthis fire ballistic missiles at Saudi capital and oil sites - Saudi Arabia's air defence forces intercepted a ballistic missile over Riyadh on Wednesday, state media said, after at least three blasts were heard and three clouds of smoke were seen in the sky above the capital. Yemen's Houthis targeted Saudi Arabia's defence ministry and other targets in Riyadh with Burkan-2 ballistic missiles on Wednesday, the group's Al Masirah TV said on Twitter.There were no immediate reports of damage. Saudi state media said air defences had intercepted a missile over the capital.Masirah TV also reported the Houthis had fired missiles at Saudi Aramco oil facilities in Najran and Jazan.The Saudi coalition fighting the Houthis in Yemen meanwhile said its air defences had shot down two unmanned Yemeni drones in the south of the country.The first targeted Abha international airport in Asir province, while the second was approaching a "civilian object" in Jizan province.The Houthis have said they targeted areas of southern Saudi Arabia with Qasef-1 drones.According to a 2017 report by Conflict Armament Research, the Qasef-1 is "consistent with descriptions and imagery" of an Iranian drone, the Ababil-T.Qasefs do not carry missiles but have previously be used as "suicide drones" to target Saudi air defences in Yemen, the research group said. But the latest use inside Saudi territory appears to have widened Houthi tactics, and comes only weeks after Houthi forces fired several ballistic missiles at Riyadh, killing one civilian.

Oil price increase: Market hits highest level since 2014 amid Middle East tensions: Oil prices jumped to their highest level since 2014 Wednesday, as worries about fighting in the Middle East spooked markets. The day began with President Donald Trump tweeting to threaten a missile attack on Syria in response to reports of a chemical attack by government forces there earlier this week. Later, Saudi Arabia's air defense reported that it intercepted missiles heading towards its capital Riyadh. Saudi Arabia has been defending itself against missiles launched by Iranian-backed Houthi rebels in Yemen in recent weeks. The price of oil futures rose more than 2% In midday trading, topping $67 a barrel for the first time since December 2014. Syria is not a major oil producer, especially after years of civil war there. But its allies Russia and Iran are both major global producers. Trump's tweet taunted Russia about its claims it would shoot down any US missile attack on Syria. Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and "smart!" You shouldn't be partners with a Gas Killing Animal who kills his people and enjoys it!— Donald J. Trump (@realDonaldTrump) April 11, 2018

Oil hits a 3-year high after Trump warns of missiles - Oil hit its highest level in more than three years Wednesday after Saudi Arabia said it intercepted missiles over Riyadh and international tensions about Syria grew. Both U.S. crude and global benchmark Brent traded at the highest levels since 2014 as concerns about airstrikes drove the market higher. Geopolitical concerns overshadowed global crude inventories as the markets' main driver. "A bearish inventory report was quickly negated on word of intercepted rockets over Riyadh, which just adds to the recent spike in geopolitical tensions," said Anthony Headrick, energy market analyst and commodities futures broker at CHS Hedging LLC. Prices began to rally as U.S. President Donald Trump threatened to fire missiles at Syria in response to a suspected chemical attack last week. Prices climbed further as Saudi Arabia's air defense forces intercepted a missile over the capital Riyadh on Wednesday, Saudi-owned broadcaster Al Arabiya said, after at least three blasts were heard in the city. Brent crude jumped to a high above $72 a barrel, its strongest since early December 2014, after Trump's comments, while U.S. crude rose above $67 a barrel. Gold rallied for a fourth day as investors ditched risk-linked assets such as equities. Brent rose $1.59 on the day to $72.63 a barrel, while U.S. crude futures rose $1.62 cents to $67.13 a barrel, a 2.5 percent gain. Some major airlines were re-routing flights on Wednesday after Europe's air traffic control agency warned aircraft flying in the eastern Mediterranean to exercise caution due to possible air strikes on Syria.

Potential for big oil price spike grows after provocative missile strikes --The missile attacks by Iran-aligned Houthis aimed at Saudi Arabia's civilian areas and oil facilities have proven unsuccessful, but they are a provocation at a time when the Middle East is already at risk of a widening conflict.With oil prices at a three-year high, it's possible prices could flare up even more if hostilities spread beyond Syria or Yemen, two hot spots that are seen as proxy wars pitting Iran against both Israel and Saudi Arabia.The U.S. is set to strike Syria in the very near future because of its chemical attack on civilians, and both Russia and Iran have said they stand with Syria. "We're at the pivot point. It's a binary outcome. If it's a pinprick in Syria, we've seen the price gains. We'll sell off afterwards. If Iranian assets, in particular in Syria, get hit, it's a game changer," said John Kilduff, energy analyst and founder of Again Capital.U.S. oil prices are up nearly 8 percent this week so far, as tensions rose surrounding Syria. West Texas Intermediate futures temporarily rose above $67 per barrel, and Brent crude futures were above $72 per barrel. "Now you're talking about $75 WTI being on the table, and $80 Brent," said Helima Croft, global head of commodity strategy at RBC. She said oil would rise much higher if the proxy war escalates to a real war between Iran and Saudi Arabia or Israel.Trump said the U.S. would respond in Syria, after its government allegedly again used chemical weapons against civilians Saturday, killing dozens and wounding hundreds more. Syria has denied it.  "The issue you get into is if there's a strike on Iranian assets in Syria, a direct hit on Saudi, or a scenario where the Saudis and Israelis team up to take it to Iran directly, that's where you get into triple-digit oil price land," said Kilduff.

US oil prices tilt higher by the finish to hold ground at 3-year highs - Oil prices settled on a mixed note Thursday, with the global crude benchmark ending slightly lower, but the U.S. benchmark shifting higher late in trading session to hold ground at a more than three-year high.Investors followed developments in the Middle East, including the possibility of a U.S. strike on Syria, which have the potential to disrupt the flow of crude in the region. U.S. West Texas Intermediate crude got a boost from reports Thursday afternoon that the Saudis intercepted another missile attack, this time over Jazan. That followed reports Wednesday that the Saudis shot down a missile over Riyadh.“Tensions surrounding Syria, and separately, Saudi Arabia, have invited a geopolitical fear bid into the market, helping push futures up to the new highs,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.Traders also weighed data from the monthly report from Organization of the Petroleum Exporting Countries, which said the group’s crude production fell in March, but total global supplies climbed on the heels of rising output from non-OPEC producers. May West Texas Intermediate crude rose 25 cents, or 0.4%, to settle at $67.07 a barrel on the New York Mercantile Exchange. It marked its highest settlement since Dec. 3, 2014, for the second session in a row.  June Brent crude, the global benchmark, declined by 4 cents, or less than 0.1%, to $72.02 a barrel on ICE Futures Europe. It pared much of its earlier losses, after ending at a more than three-year high of $72.06 Wednesday. President Donald Trump tweeted early Wednesday that the U.S. relationship with Russia “is worse now than it has ever been, and that includes the Cold War.” He appeared to suggest that a strike against Damascus might be imminent, in a separate tweet. Geopolitical risks overshadowed what was a “relatively bearish set of inventory data” Wednesday from the Energy Information Administration, “which reported a move higher for U.S. crude stocks alongside continued gains from the production side,”

Crude oil prices ease but set for highest weekly gain since July - Oil prices edged lower on Friday but are set for their biggest weekly gains since last July following a jump to a more than three-year high earlier in the week on tensions over Syria and shrinking global oil inventories. NYMEX crude for May delivery was down 23 cents, or 0.3 percent, at $66.84 a barrel at 0148 GMT, after settling up 25 cents on Thursday. London Brent crude was down 25 cents, or 0.3 percent, at $71.77 after settling down 4 cents. Both contracts are set to rise around 7 percent for the week, the biggest weekly gain since July. A global oil stocks surplus is close to evaporating, OPEC said on Thursday, citing healthy energy demand and its own supply cuts while revising up its forecast for production from rivals who have benefited from higher oil prices. OPEC and its oil producer allies are poised to extend their supply-cutting pact into 2019 even as a global glut of crude is set to evaporate by September, OPEC Secretary-General Mohammad Barkindo told Reuters in an interview. Oil prices jumped on Wednesday to their highest level since late 2014 after Saudi Arabia said it intercepted missiles over Riyadh and U.S. President Donald Trump warned of military action in Syria, both of which raised concerns about possible supply disruptions.

Has The World Started To Kick Its Oil Addiction? - Until a decade ago, most of the world was a captive customer of oil - consumers would pay any price for gasoline and oil demand was soaring regardless of the surging oil prices.  But recently, many countries around the world have started to show more sensitivity to oil prices - oil demand grows as their economies grow, but oil demand is also more susceptible to oil price swings, with the oil price-consumption correlation behaving more like an everyday product, according to data by Washington-based ClearView Energy Partners and research by Bloomberg Gadfly columnist Liam Denning. Although it’s at least a decade or more too early to call the end of the world’s oil addiction, the research and data suggest that in a growing number of large oil-consuming economies oil demand now correlates negatively with oil prices. In other words, consumption drops when prices rise and vice versa - a common economic concept applicable to almost every other product on the market. With oil, this has not always been the case. ClearView Energy and Denning analyzed data for three 10-year periods ending in 2006, 2011, and 2016, respectively. During the first 10-year period until 2006, countries comprising four-fifths of oil demand, including the United States, India, China, and Russia, showed a positive correlation between oil demand and their gross domestic product (GDP) and between demand and oil prices. In the decade before the financial crisis in 2007-2008, oil demand soared almost everywhere in the world, despite the fact that oil prices were also rallying.  The second 10-year period in the research coincides with the 2007-2008 financial crisis and the recession that followed. During the 10 years through 2011, U.S. oil demand decoupled from American economic growth and started to react to the resurgence of oil prices that began in 2009. In that period, the U.S. shifted away from being a ‘captive’ customer of oil to look more like Germany or Japan, where the link between GDP and oil consumption has weakened.  Then, in the third period—the ten years through 2016—even oil demand in China and India looked like more responsive to the prevailing oil prices. In those countries and other developing economies, oil demand growth is still closely connected with the GDP growth. But oil demand has started to show some negative correlation with oil prices, suggesting that consumption is more susceptible to the price of oil than it was in the previous decades.

Demand Growth for Oil Consumption Looks Bleak...But Price May Be Another Matter - Organic demand or population growth alone (absent surging debt) among the consumer base that consumes in excess of 90% of global oil, is collapsing.  I have detailed this previously; The Most Important Economic Charts...Aren't Economic Charts , Trade Wars Just Beginning...The War Is a Fight Over an Indefinitely Shrinking Pie , and Global Growth in Energy Consumption (& Economic Growth) is All About China...Nothing but China ).  This article focuses solely on the demand side of oil (but the situation is similar for most commodities or assets for that matter) and details the decelerating number of potential consumers versus forecasts of continued trend growth in consumption. However, I make no predictions regarding the oil price outlook as there are far too many other factors regarding; supply, currencies, geo-politics, cap-ex for exploration, depletion rates of existing fields, and far more.  My sole focus and point is that growth in demand is fast waning but that price is an amalgam of demand with many other factors that may result in a rising price despite declining and soon to be falling organic demand. Two regions of the world represent nearly all population growth but consume relatively small quantities of oil.  I have grouped Africa and S. Asia (India, Pakistan, Afghanistan, Nepal, Bhutan, Sri Lanka, Bangladesh) as a single unit versus the remainder of the world.  These two regions are collectively slightly more than 40% of the total world population but consume just under 10% of the world oil output. Neither Africa nor S. Asia have the relative income, savings, nor access to credit to consume anywhere near the levels seen in most of the rest of the world.  Given they are currently relatively minor consumers, even a relatively high rate of growth will not offset the decelerations and declines among the vast majority of oil consumers elsewhere. This means we can focus on the 60% of the world population that consume 90%+ of the global oil output.  The chart below shows the total under 65 year old population excluding Africa/S. Asia (blue line) and the annual change (red columns).  Growth among this cadre continues decelerating and by about 2026 will begin declining for an indefinite period.

Geopolitical Risk Sends Oil Soaring - Oil prices added to their gains on Friday, with Brent holding at multi-year highs. The possible trade war poses a threat to demand, but for now, the market is focused on geopolitical dangers in the Middle East. Oil prices are set to post their strongest weekly gain since July.The IEA said in a new report that the U.S.-China trade war could result in lower oil demand. The agency kept its forecast of oil demand growth at 1.5 million barrels per day (mb/d) but noted that the trade war represented a serious “downward risk” to that projection. The IEA said a 1 percent decline in global GDP growth would translate into lower oil demand growth by 690,000 bpd. Meanwhile, the IEA said that OPEC has largely accomplished its goal of draining global inventories back to the five-year average.   OPEC production fell by 200,000 bpd in March, on the back of declining output in Venezuela, Libya, Iraq, Angola and Saudi Arabia. The group’s production levels are now at a one-year low at 31.958 mb/d.  Saudi Arabia’s energy minister said that OPEC would not sit by and allow an oil supply glut to return, although the cartel would also not let oil prices jump to “unreasonable levels.” Khalid al-Falih said he was content with the current state of the oil market, according to Reuters. “I think a lot of the glut has been cleared,” said Falih. When asked if $80 per barrel was an appropriate price for oil, al-Falih said “There is no such thing as a target price by Saudi Arabia,” before adding that upstream investment is falling short of what might be needed in the future. “We’re seeing many regions declining. The only way to offset this is for the financial markets to start financing and funding upstream projects. I don’t know what is the price that will provide that equilibrium. All we know is in 2018 we’re still not seeing that.”

US Rig Count Climbs As Oil Rallies - Baker Hughes reported a 5-rig increase to the number of oil and gas rigs this week. The total number of oil and gas rigs now stands at 1008, which is an addition of 161 rigs year over year.The number of oil rigs in the United States increased by 7 this week, for a total of 815 active oil wells in the US—a figure that is 132 more rigs than this time last year. The number of gas rigs fell this week, still at 192; 30 rigs above this week last year. The oil and gas rig count in the United States has increased by 85 in 2018.While US drillers seem determined to add rigs, Canada—who is suffering from a rather tumultuous war in its country over pipeline infrastructure as well—continues to lose rigs (a common seasonal event), with a decrease of 9 oil and gas rigs this week, after losing 191 rigs in the previous five weeks. At just 102 total rigs, Canada now has 16 fewer rigs than it did a year ago.  Oil prices were trading up on Friday, as the Syria standoff shows no signs of abating, assisted in part by an apparent easing of tensions surrounding the China/US trade dispute. West Texas Intermediate trading up $0.48 (+0.72%) at $67.56 at 12:24pm EST. The Brent benchmark was trading up $0.73 (+1.01%) at $72.75. Despite the price upswing, pressures remain, in large part thanks to growing US production, which rose again in the week ending April 06, reaching 10.525 million bpd—the seventh build in as many weeks—less than a half million bpd off the 11.0 million bpd forecast that many predict for 2018.At 8 minutes after the hour, WTI had slipped slightly, trading up 0.48% at $67.39, with Brent trading up 0.82% at $62.61.

US Oil Rig Count Jumps To 815 - U.S. energy companies added oil rigs for a second week in a row, following through on plans to spend more on drilling this year with crude prices at three-year highs, Baker Hughes, a GE company (NYSE: BHGE) said April 13.Drillers added seven oil rigs in the week to April 13, bringing the total to 815, the highest since March 2015, BHGE said in its weekly report. More than half the total oil rigs are in the Permian Basin in West Texas and eastern New Mexico. Active units there increased by one this week to 445, the most since January 2015.The U.S. government expects oil output in the Permian to rise to a record high near 3.2 million barrels per day (MMbbl/d) in April, about 30% of total U.S. oil production.            The U.S. rig count, an early indicator of future output, is much higher than a year ago when 683 rigs were active. Energy companies have steadily hiked spending since mid-2016 as crude prices have recovered from a two-year slump.U.S. crude futures traded at about $67 per barrel this week, their highest since December 2014. Looking ahead, crude futures were trading around $66 for the balance of 2018 and $61 for calendar 2019.In anticipation of higher prices, U.S. financial services firm Cowen & Co. said 58 of the roughly 65 E&P companies it tracks have already indicated an 11% increase this year in planned capital spending. Cowen said E&Ps that have reported capital plans for 2018 expected to spend a total of $80.5 billion in 2018, up from an estimated $72.4 billion in 2017.

Oil logs strongest weekly performance in over 8 months -Crude-oil prices rose for a fifth straight session Friday, with U.S. benchmark crude tallying a gain of nearly 9% for the week, driven by fears of a U.S.-led military conflict in Syria. A report from the International Energy Agency on Friday also indicated that OPEC soon will have succeeded in reaching its target for reducing the global supply glut. May West Texas Intermediate crude tacked on 32 cents, or 0.5%, to settle at $67.39 a barrel on the New York Mercantile Exchange. For the week, the U.S. oil benchmark rallied by roughly 8.6%, which was the strongest weekly percentage performance since late July of last year. June Brent added 56 cents, or 0.8%, to $72.58 a barrel on ICE Futures Europe. For the week, in the international benchmark was up about 8.2%. On Friday, the IEA indicated that global oil stockpiles are dwindling and approaching the five-year average (http://www.marketwatch.com/story/us-china-trade-spat-could-dent-oil-demand-says-iea-2018-04-13) the Organization of the Petroleum Exporting Countries is targeting. "It is not for us to declare on behalf of the Vienna agreement countries that it is 'mission accomplished,' but if our outlook is accurate, it certainly looks very much like it," the IEA said in its report. The Vienna agreement refers to the group of OPEC and non-OPEC countries that in 2016 agreed to cut output in an effort to reduce a global supply glut that had dragged oil prices substantially lower. The IEA report echoes the monthly data from OPEC earlier this week (http://www.marketwatch.com/story/opec-oil-output-falls-in-march-as-us-shale-production-grows-2018-04-12), which showed the group's output declined by 201,000 in March and that the supply surplus is evaporating. The IEA also noted that the continuing U.S.-China trade spat could dent oil demand (http://www.marketwatch.com/story/us-china-trade-spat-could-dent-oil-demand-says-iea-2018-04-13). 

OPEC Oil Production Slides As Venezuela Output Tumbles - OPEC's April monthly report was released this morning and unveiled more of the same: expectations of rising global demand (which will soon be dented as global growth fizzles, impacting the need for commodities, especially in China and EMs), coupled with declining production by OPEC producers (really Venezuela whose oil output is collapsing as the insolvent, hyperinflating state grinds to a halt), even as shale producers continue to win market share from OPEC, but really mostly Saudi Arabia.We start at the top, where OPEC optimism once again dominated, as the cartel sees a tighter market with rising demand even as its own output drops largely thanks to one nation:

  • 2018 world oil demand estimate raised by 60k b/d, to 98.70m b/d, revised higher by 1.63mmbpd
  • 2018 world oil demand y/y growth little changed at 1.63m b/d, or 1.7%

At the same time, March non-OPEC supply was seen 380kbpd higher M/M, with total non-OPEC supply averaging 66.2mln bpd. Most of this was Shale.In total, world oil supply in March increased by 180k bpd to average 98.15mln bpd, an increase of 2.15mln bpd Y/Y. And yet, at the same time, the OPEC-14 group crude output fell 201k b/d in March to 31.958m bpd, the lowest in one year. While several nations saw their production decline in March, including Angola, Venezuela, Algeria and Saudi Arabia, it was and continues to be a Venezuela story.  Amusingly, OPEC Sec Gen Barkindo steamrolled through the nuances, and claimed that OPEC production cut compliance had soared to 150% in March, when all he meant was that Venezuela production continues to plunge. Barkindo also said that a longer-term alliance between OPEC/Non-OPEC to be discussed in June, and said he was Barkindo confident the supply cut deal will be extended beyond 2018, adding that he sees the oil market rebalancing in Q2/Q3 2018, whereas previously he saw it rebalancing by end-2018.

IEA says 'mission accomplished' for OPEC as oil stocks shrink (Reuters) - OPEC and its allies appear to have accomplished their mission of bringing global oil stocks to desired levels, the International Energy Agency said on Friday, signaling that the markets could become too tight if supply remains restrained. A flag with the Organization of the Petroleum Exporting Countries (OPEC) logo is seen during a meeting of OPEC and non-OPEC producing countries in Vienna, Austria September 22, 2017. REUTERS/Leonhard Foeger The IEA, which coordinates the energy policies of industrialized nations, said global stocks in developed countries could fall to their five-year average - a metric used by OPEC to measure the success of output cuts - as early as May. “It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” the IEA said in its monthly report. Vienna-based OPEC has reduced production in tandem with Russia and other allies since January 2017 to prop up global oil prices, which soared above $70 per barrel this month, giving a new boost to booming U.S. shale oil output. But as oil production collapsed in OPEC member Venezuela and still faces hiccups in countries such as Libya and Angola, the oil exporter group is producing below its targets, meaning the world needs to use stocks to meet rising demand. On Thursday, the Organization of the Petroleum Exporting Countries said in its monthly report that oil stocks in the developed world were only 43 million barrels above the latest five-year average. The Paris-based IEA put the figure at just 30 million barrels as of the end of February. The IEA said that even though non-OPEC output was set to soar by 1.8 million barrels per day this year on higher U.S. production, it was not enough to meet global demand, expected to rise by 1.5 million bpd or around 1.5 percent.

OPEC political crises threaten to double its million-barrel cut - The deal OPEC struck in 2016 to clear a global glut by halting a significant chunk of oil production took almost a year of bargaining and brinkmanship. By year-end, the group may have lost the same amount of crude unintentionally. OPEC is already cutting daily production by much more than its pledged 1.2 MMbbl. Venezuela’s economic crisis is battering its oil industry and pushing output to the lowest level in decades, with a further decline likely. If U.S. President Donald Trump also re-imposes sanctions on Iran, the cartel’s unplanned losses could swell to double the targeted cut. That would pose a dilemma for Saudi Arabia and Russia, the leaders of the cuts agreement. Should they let the oil market get even tighter, but run the risk that higher prices hurt demand or spur an even bigger wave of American shale-oil? Or should they fill the gap by increasing production, but in the process unravel their historic agreement prematurely?

OPEC switches operational target from inventories to investment: Kemp (Reuters) - OPEC appears to be reformulating its target in terms of upstream investment rather than oil inventories, according to an analysis of recent statements made by ministers from member countries.“There is no such thing as a target price by Saudi Arabia,” the kingdom’s energy minister, Khalid al-Falih, told reporters on Wednesday (“Saudi Arabia happy with oil market, won’t let another glut form”, Reuters, April 11).“We’re seeing (production in) many regions declining. The only way to offset this is for the financial markets to start financing and funding upstream projects,” Falih observed.“I don’t know what is the price that will provide that equilibrium. All we know is in 2018 we’re still not seeing that.” Falih’s comments suggest the kingdom is now targeting a sustainable level of exploration and production – and prices will have to rise further to incentivise it.The new weight attached to sustainable investment echoes comments made by other ministers from the Organization of the Petroleum Exporting Countries in recent weeks.“We will know we have a good price when the market is balanced and we have enough investments. We need to have more investments coming”, the UAE energy minister said on April 11 ("UAE says producers trying to define structure for long-term alliance", Reuters, April 11). “There has been a clear recovery in oil prices. But it has not been met with an increase in investments ... Investment has been very low,” Qatar’s energy minister said on April 5.“Investors are still cautious and over-conservative. We need to restore investments,” he added ("Qatar says too early to exit OPEC oil cuts as investment still low", Reuters, April 5). The emphasis on investment stands in marked contrast to the previous focus on reducing oil inventories in the OECD industrialised countries to the five-year average.“Almost the single metric that we look at is global inventories and of course the most transparent and trustworthy is the OECD inventories,” Falih said as recently as December. The recent shift from inventories to investment is consistent across multiple ministers, which suggests it is the result of private discussions within OPEC (https://tmsnrt.rs/2GU0ZQL). Focusing on investment is not new for the organisation. The need for prices high enough to support sustainable investment in production has been acknowledged since OPEC was created..

Saudi Prince Bets Big On Branson's Virgin Group To Transform Economy - Virgin Group Ltd., a British multinational venture capital conglomerate established by Sir Richard Branson, had a very productive first week in April - from Virgin Hyperloop One’s full-scale test of futuristic travel pods to Virgin Galactic’s rocket-powered test flight into the upper limits of the stratosphere. The purpose behind Branson’s scramble to conduct the grandest show in just a few days, with innovative and emerging technologies, is due to the Crown Prince of Saudi Arabia Mohammad Bin Salman Al Saud (MbS) inspection of the company’s research and test facilities in the Mojave Desert, early last week. Unbeknownst to many, Saudi Arabia’s sovereign wealth fund made financial arrangements in the fourth quarter of 2017 to invest more than $1 billion in Virgin Group’s space companies, which would allow the kingdom to diversify away from its oil-dependent economy. Nevertheless, the country’s Public Investment Fund is still waiting for the regulatory approval from the United States Government. On Tuesday, we reported how Branson and his Hyperloop One team showed MbS a full-scale test of the Hyperloop, a new revolutionary form of transportation to move passengers and/or freight in travel pods through vacuum-sealed tubes at extraordinarily high speeds. While the Saudi sovereign wealth fund is preparing to inject Virgin Group Ltd.’s space companies with a billion dollars, Virgin Hyperloop One executives pitched MbS on installing the Hyperloop throughout the kingdom to dramatically reduce travel time. Executives told MbS, the new rapid form of transportation would stimulate economic growth and lead to further diversification of Saudi industries. As MbS prepares for Vision 2030, which primarily ushers in a complete transformation of the country’s economy; Virgin Galactic could enable a space-centric entertainment industry to flourish in the Kingdom. This could be a gamechanger for the oil-dependent economy, as human spaceflight and the launching of commercial satellites would be the dominant industry.

Iran's rial hits new lows on Trump worries (Reuters) - Iran’s currency fell at least 5.5 percent on Sunday, extending a slide to a new record low on continued concerns over a return of crippling sanctions if U.S. President Donald Trump carries out his threat to exit a nuclear deal with Tehran. The U.S. dollar jumped 2,990 rials to 54,700 rials on the open market in the capital Tehran, the official news agency IRNA reported. Parliament on Sunday invited the economy minister and the central bank governor to attend a closed session on Tuesday to discuss the accelerating fall of the national currency, Iranian news agencies reported. The rial had fallen to 47,000 to a dollar in early February from about 36,000 in mid-September on concerns about Iran’s agreement with world powers to curb its nuclear programme in return for the lifting of most international sanctions. Trump said in January that “disastrous flaws” in the agreement had to be fixed or Iran would face a U.S. exit. Since last year, the central bank has allowed the rial to depreciate gradually to compensate for Iran’s high inflation and to help to make exports more competitive. But the drop has accelerated in the past few months, creating a problem for authorities who contained a wave of popular protests against economic hardship and corruption in December and January. 

Iran Threatens To Restart Nuclear Enrichment, Can Begin "Within Four Days" - Iran is threatening to restart its controversial nuclear enrichment program, as the head of the Islamic Republic's Atomic Energy Organization (AEOI)( revealed on Sunday that they have maintained the ability to quickly restart the full-scale enrichment of uranium "within 4 days," reports FARS news. "If senior Islamic Republic officials issue an order to resume the 20% enrichment, we can do it in Fordo within 4 days," said Ali Akbar Salehi, head of the AEOI - referring to the Fordo nuclear facility in northern Iran. Of note - 20% enrichment is considered above the required level for nuclear energy production, however it is still well below the 80-90% required for a nuclear weapon. Salehi said his statement should be seen as a warning not to discard the nuclear deal - and revealed that Iran had made "more extensive progress in other parts of its nuclear activities" which "go beyond the previous levels" according to FARS. Meanwhile, in a Monday speech at the "National Atomic Energy Day," Iranian President Hassan Rouhani declared that Iran's nuclear industry is moving along "faster than before."  "I want to clearly say to the Iranian nation that our nuclear industry is moving faster than before with more energy, accuracy and more exact calculation," the Iranian leader said, speaking from Tehran. Rouhani was quoted as saying Iran needs "both hard and soft power," while pursuing "constructive engagement" with the rest of the world.

Syrian military airport ‘struck by missiles’ after Trump vows Assad will pay ‘big price’ for alleged chemical weapons attack - Independent - A military airfield in Syria has come under missile attack, the country’s state media has reported – days after the government of Bashar al-Assad was accused of launching a chemical weapons strike that left 40 dead.At least 14 people were killed in the missile strikes on the Tiyas airport near Homs, known as T4, including some members of a Shia militia supporting the Assad regime, a monitoring group said. The Syrian state broadcaster said there had been casualties but provided no further details. The strike came after Donald Trump threatened Syria and its allies would pay a "big price" for an alleged chemical weapons attack that aid groups said killed dozens of people in the besieged Damascus suburb of Eastern Ghouta. But Pentagon officials and other Western allies of the US, including France, denied carrying out the attack on T4.  The Russian military said on Monday that two Israeli F-15 war planes carried out the strikes. Interfax cited the Russian Defence Ministry as saying the Israeli war planes had carried out the strikes from Lebanese air space, and that Syrian air defence systems had shot down five of eight missiles fired. Asked about the Russian statement, an Israeli military spokesman said he had no immediate comment.

Israel Told US Officials About Plans To Strike Syrian Airbase -- While the US didn't directly order the airstrike against Syria's T-4 airbase late Sunday night (Russia and the Syrian government had initially blamed the attack on the US), American officials reportedly confirmed to NBC News that the US had been informed of the impending strike by its ally, Israel.Israel carried out the strikes against Syrian base, two U.S. officials tell @NBCNews, and the US was informed of the forthcoming strikes in advance. https://t.co/FKrc4V1ZM1— NBC News (@NBCNews) April 9, 2018The pre-dawn attack was intended as retaliation for a poison gas attack on the last rebel stronghold near Damascus. That attack has been blamed (with no supporting evidence) on the Syrian regime.Since 2012, Israel has launched more than 100 airstrikes on Syrian territory. Israel had previously struck the T-4 base in February after an Iranian drone purportedly violated Israeli airspace.The T-4 base is near the Shayrat air base, which the US struck with nearly 60 tomahawk cruise missiles last year in response to another chemical attack that was blamed on the Syrian government (again, with no evidence). President Trump threatened both "animal Assad" and Putin following the attack, saying there would be a "big price to pay"  for masterminding the attack.

Turkish, Russian and Iranian presidents meet in Ankara -- On April 4, Recep Tayyip Erdogan, Vladimir Putin and Hassan Rouhani—the presidents of Turkey, Russia and Iran, respectively—came together in Ankara to discuss developments in Syria as well as the relations between the three countries. According to the joint statement issued after the summit, “The presidents rejected all attempts to create new realities on the ground under the pretext of combating terrorism and expressed their determination to stand against separatist agendas aimed at undermining the sovereignty and territorial integrity of Syria as well as the national security of neighbouring countries.”Erdogan, Putin and Rouhani also “reaffirmed their determination to continue their cooperation in order to ultimately eliminate Daesh/ISIL, the Nusra Front and all other individuals, groups, undertakings and entities associated with Al Qaeda or Daesh/ISIL.”The Ankara summit, the second between the three countries, was part of the so-called Syria peace talks in Astana, Kazakhstan, bringing together different factions fighting in Syria. The first summit was hosted by Russian President Vladimir Putin in November in the Black Sea city of Sochi.The tripartite summit came amidst the US-British-led aggression against Russia over the poisoning of the former Russian agent Sergei Skripal and ongoing disputes within the ruling elites of the imperialist countries over the Syrian war and their attitude towards Russia and Iran.With NATO and European Union states expelling Russian diplomats, Turkey, an important member of the alliance since 1952, refused to “express solidarity” with Britain and other NATO countries. On March 26, Turkish Deputy Prime Minister Bekir Bozdag stated that Ankara will not take any actions against Moscow. “Relations between Turkey and Russia are currently positive and good,” he said. “In this sense, Turkey is not planning on taking any decisions against Russia.”

US Deploys Truman Carrier Strike Group And 7 Warships With Cruise Missiles To Mediterranean - The Harry S. Truman Carrier Strike Group (HSTCSG) is being deployed to the Mediterranean Wednesday, where it will join the USS Donald Cook off Syrian territorial waters. The aircraft carrier will be accompanied by guided-missile destroyers USS Arleigh Burke (DDG 51), USS Bulkeley (DDG 84), USS Forrest Sherman (DDG 98) and USS Farragut (DDG 99), as well as the guided-missile cruiser USS Normandy (CG 60). The Destroyers USS The Sullivans (DDG 68) and USS Jason Dunham (DDG 109) will join the HSTCSG later, according to a statement by the US Navy.

Syrian Pro-Government Forces Evacuate Airports, Military Bases Ahead Of Airstrikes - In light of this morning's jawboning by Trump, who vowed that an attack with US missiles "nice and new and “smart!" is imminent, and following overnight unconfirmed reports that US warplanes are massing over the Syria-Iraq border, it will hardly come as a surprise that Syrian soldiers and pro-government forces are getting the hell out of dodge.According to Reuters, which cites the (highly conflicted) Syrian Observatory for Human Rights, Syrian pro-government forces are evacuating main airports and military air bases ahead of possible U.S. strikes.While the report has yet to be confirmed, amusingly Reuters clarified that "the Syrian army could not be immediately reached for comment." It's also not immediately clear what they would say: "yes, we are retreating, have a good day."Ironically, the Syrian army has one person to thank for the advance notice of an imminent attack: the same one who back in 2013 said: " I would not go into Syria, but if I did it would be by surprise and not blurted all over the media like fools."   No, dopey, I would not go into Syria, but if I did it would be by surprise and not blurted all over the media like fools. — Donald J. Trump (@realDonaldTrump) August 29, 2013  According to Pro-opposition sources, the Syrian regime has also evacuated the Jomrayah Research Center near Damascus, which is tied to Syria's ballistic program, and was targeted twice by Israel in 2015. Pro-opposition source claims the Syrian regime has evacuated the Jomrayah Research Center near #Damascus pic.twitter.com/xLG2aa4uW0 — Michael A. Horowitz (@michaelh992) April 11, 2018One lingering question is whether Russian armed forces are doing the same, and if not, what the odds are that a US strike could result in a lethal outcome involving US troops, unleashing an armed conflict between the two superpowers.For now, Russians appears to not be in a rush, and while there has been a downtick in airstrikes from the Syrian air force, Russian strikes are  still ongoing:

    UK Moves Submarines Next To Syria, Strikes May Begin As Soon As Thursday - Shortly after Theresa May declared that she could act in Syria without approval from Parliament, the Telegraph is reporting that the prime minister has ordered UK submarines to travel within striking range of Syria, and adds that strikes could begin as early as Thursday, which is when May will call an emergency cabinet meeting over Syria.  With the US's Truman carrier still a month away, the "coalition" will rely on UK and French ships. US air support will likely also be involved, suggesting that any attack on Syria may be based on a joint UK-French naval operation, with US air support.Meanwhile, as reported earlier, President Bashar al-Assad has already started moving aircraft and military vehicles away from air bases that could become targets for the coalition's bombs.  Mrs May hardened her stance towards Syria as she said the UK, US and France were “rapidly reaching” a clear picture of who was responsible for last Saturday’s chemical attack on Douma, Eastern Ghouta.  Mrs May said "all the indications are that the Syrian regime was responsible", adding: "The continued use of chemical weapons cannot go unchallenged."  Sources indicated to the Telegraph that Mrs May has now abandoned any intentions of seeking the backing of Parliament - which does not sit until Monday - for military action. There are reports that President Bashar al-Assad has already started moving aircraft and vehicles away from air bases that are likely to be targeted, and both Mr Trump and President Emmanuel Macron of France have stressed the need to act swiftly.

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