Sunday, May 22, 2016

an update on oil prices & what's moving them, another big fudge in EIA oil data, rig count still edging down..

we haven't covered the ongoing increase in the price of oil while we've been focused on the Utica shale over the past couple weeks, so we'll try to catch up on that first...the major factors that have been influencing oil prices over the past three weeks have been disruptions in the output of several producing counties that have reduced the total supply of oil to US and global markets....the largest of those disruptions, and the one having the most impact on the US, has been the out of control wildfires that have been burning for 3 weeks in the tar sands area of Alberta province in Canada and have now consumed a million and a quarter acres...that tar sands fire story has received fairly extensive coverage as it caused the evacuation of Fort McMurray, Alberta's 3rd largest city, and knocked out an estimated 1 million barrels, or 40%, of Canada's daily oil production...over the same period, there was an acceleration of rebel attacks on oil facilities and pipelines in Nigeria over the past two weeks, which started with 3,153 incidences of pipeline puncturings over the 12 months ending March and culminated in full scale attacks which shut down Chevron and Shell export terminals the week before last, shutting in 250,000 barrels per day of oil exports from Shell and 160,000 barrels per day from the Chevron operation and up tp as many as 800,000 barrels per day as Eni production was later knocked out...those and other disruptions prompted Goldman Sachs, who had been forecasting $20 a barrel oil earlier this year, to turn bullish on oil prices, driving US crude oil prices up $1.51 a barrel to close at $47.72 on Monday of this week after hitting a six-month high earlier that day...they included a graphic timeline of the current and expected oil supply disruptions along with their revised forecast, a copy of which we're including below...

2016 oil outages Goldman via zero hedge

the above graphic, taken from an article at Zero Hedge about the disruptions impacting the price of oil, shows a timeline of those oil production shutdowns that have taken place or are expected to continue over the period from February to December of this year...countries which have had or will have their oil output impacted are color coded across the bottom of the graphic, and the period and size of the expected oil output disruption is thus shown by the width of the corresponding band in the graphic, with the size of the disruption indicated in thousands of barrels of oil per day on the scale on the left....for instance, the March Kirkuk-Ceyhan oil pipeline sabotage, shown in grey, shut down Iraq's largest crude oil export line and knocked out over 500,000 barrels per day for almost a month, and as deliveries to Turkey are not expected to resume, an ~ 200,000 barrel per day grey bar extends from that outage through December, indicating expected future the current period, we see a large spike of 1,000,000 barrels per day of oil lost as a result of the Canadian fires in a smokey blue-grey color, the Nigerian shutdown in the darkest blue on the graph, and the Libyan export shutdown in red, all starting at roughly the same time, leading to nearly two and a half million barrels of oil being lost to the oil markets as of the current period, or enough to actually create a shot term oil deficit...while we see that Goldman expects the Canadian situation to be resolved by June, they expect Libyan supplies to be curtailed till August, and expect less that half of the Nigerian output to be restored before the end of the show you how all of these oil supply disruptions have affected the price of oil, we'll include a graph of US oil prices below...

May 21 2016 closing price front month oil future

the above graph comes from a page at WTRG Economics which has the specifications for the WTI oil contract and it shows the daily closing price of the current oil contract over the past year...thus, unlike the graph we usually use, this graph shows the price of oil for June delivery from April 20th to May 20th, and before that shows the price of oil for May delivery from March 22nd to April 20th (trading for each contract expires on the third business day prior to the 25th calendar day of the month prior to the delivery month)...thus this graph captures the price of oil that's quoted daily by the media, and also shows when the price of oil for March delivery dropped as low as $26 a barrel in mid-February, a low never reached by other contracts....this week, the price of oil ran up to close as high as $48.35 a barrel on Wednesday, before falling back on the surprise report of an inventory buildup, to close the week at $47.75 a barrel as indicated, still up almost 4% for the it turns out, the June oil contract expired on Friday, and hence the contract for July delivery, now priced at $48.41 a barrel, is now being quoted as the current price of oil....

The Latest US Oil Stats and Fudge Factor from the EIA

we're going to start off our review of the Petroleum Status reports for the week ending May 13th from the Energy Information Administration with the adjustment on line 13 of the EIA balance sheet (pdf), because this week's adjustment is by far the most significant change in the accounting of where our oil came from and where it went this review, the footnote for line 13 identifies the adjustment as "Unaccounted-for Crude Oil, a balancing item"....the Glossary at the end of the EIA's weekly Petroleum Status Report (62 pp pdf) further explains that "Unaccounted-for Crude Oil represents the arithmetic difference between the calculated supply and the calculated disposition of crude oil. The calculated supply is the sum of crude oil production plus imports minus changes in crude oil stocks. The calculated disposition of crude oil is the sum of crude oil input to refineries, crude oil exports, crude oil burned as fuel, and crude oil losses." we pointed out last week, data for each of the oil statistics presented by the EIA weekly is collected and published separately, and often times they don't add up, due to variations in the samplings used for each statistic, so that adjustment line is essentially a fudge factor to account for the differences between the amount of oil coming into the system every day and the amount of oil going out, either as products used by consumers or as barrels stored...

the adjustment thus described this week was a positive 480,000 barrels per day...that means that the apparent amount of oil that ended up in refinery products or in storage or otherwise used at the end of the week was 480,000 barrels per day more than we should have had based on our oil production and imports over the same period....compounding that error in this week's data, last week's adjustment was minus 375,000 barrels of oil per day, meaning 375,000 barrels of oil that we appeared to have produced or imported last week did not show up in the final figures...does that mean that oil that disappeared last week showed up this week?  that could be part of what happened, but these statistical discrepancies don't always end up resolved at the end of any given period; for instance, over the last 4 weeks, the adjustment has averaged +107,000 barrels per day; year to date, the average is minus 60,000 barrels per day...the more important point is that our week to week comparisons become meaningless when there is a total swing in the adjustment of 855,000 barrels per day, or almost one-tenth the level of our production, from last week to this week, as the change in the fudge factor dwarfs the changes in all the important metrics..

with that in mind, then, this week's data showed production of crude oil from US wells fell by 11,000 barrels per day, from an average of 8,802,000 barrels per day during the week ending May 6th to an average of 8,791,000 barrels per day during the week ending May 13th ....that was 6.7% below the 9,419,000 barrels per day that we were producing during the second week of May last year, and 8.5% below the 9,610,000 barrel per day peak of our oil production that we saw during the week ending June 10th of last year...our oil production has now been down 16 out of the last 17 weeks and has now dropped by 444,000 barrels per day since the week ending January 15th...

meanwhile, the EIA reported that our imports of crude oil rose by 22,000 barrels per day, from an average of 7,655,000 barrels per day during the week ending May 6th to an average of 7,677,000 barrels per day during the week ending May 13th ...that was 6.6% more than the 6,881,000 barrels of oil per day we imported during the week ending May 15th a year ago, while the EIA's weekly Petroleum Status Report (62 pp pdf) reports that the 4 week moving average of our oil imports has slipped to the 7.6 million barrel per day level, which was still 8.8% more than our oil import rate of the same four-week period last year...   

with the apparent supply of oil thus little changed from last week, inputs of crude oil into US refineries increased by 192,000 barrels per day during the week ending May 13th from the prior week, averaging 16,371,000 barrels per day, now almost 1.0% higher than the 16,213,000 barrels per day US refineries were using during the same week last year....the US refinery utilization rate rose to 90.5% from 89.1% the prior week, but it's still well below the 92.4% utilization rate for US refineries that we saw during the week ending May 15th last with the US supply of crude from imports and oilfields fairly flat and US refineries using 192,000 barrels per day more than last week, you'd figure that refineries would have had to pull some oil out of storage to meet their needs, wouldn't you?  well, that's not what the EIA reported; they say that we had a surplus of crude, and hence our stockpiles of crude oil in storage increased by 1,310,000 barrels to 541,294,000 barrels as of May 13th...that's the second highest week end total we've ever seen, topped only by the 543,394,000 barrels we had stored on April's also 12.3% higher than the 482,165,000 barrels of oil we had stored as of May 15th, 2015, and 38.3% higher than the 391,297,000 barrels of oil we had stored on May 16th of 2014....

at any rate, even with more oil apparently being refined, our refinery production of gasoline fell by 54,000 barrels per day, averaging 9,997,000 barrels per day during the week ending May 13th, down from the average 10,051,000 barrels of gasoline per day produced during the week ending May 6th...that was 3.6% more than the 9,651,000 barrels of gasoline per day we were producing during the same week last year, however, as our year to date gasoline output is still running well ahead of last years the same time, our refinery output of distillate fuels (diesel fuel and heat oil) increased, rising by 160,000 barrels per day to 4,770,000 barrels per day during week ending May 13th, which was still 1.5% lower than our distillates production of 4,844,000 barrels per day during the same week of 2015...    

even with the elevated level of gasoline production, our gasoline inventories fell by 2,496,000 barrels to 238,068,000 barrels, from the 240,564,000 barrels of gasoline we had stored on May 6th...that was as our imports of gasoline fell by 88,000 barrels per day to 691,000 barrels per day during the week ending May 13th, and as the gasoline supplied to US markets rose by 97,000 barrels per day to a near record 9,755,000 barrels per day, just shy of the 9,762,000 barrel per day record gasoline consumption we saw during the week ending August 18th of 2007...but despite the big drawdown of gasoline supplies, this week's gasoline supplies were still 6.3% higher than the 223,936,000 barrels of gasoline that we had stored on May 15th last year, and thus our gasoline stores are still categorized as "well above the upper limit of the average range" for this time of year.. 

our distillate fuel inventories also fell, dropping by 3,170,000 barrels to end the week at 152,162,000 barrels....that's a fairly normal spring planting season drawdown on distillates supplies, and since distillate inventories were already elevated after the warmer than normal winter reduced heat oil consumption, distillate inventories are still 19.1% higher than the 127,724,000 barrels of distillates we had stored at the same time last year...thus, like gasoline, our stores of distillates are also still characterized as "well above the upper limit of the average range" for this time of year...  

This Week's Rig Count

this week saw the smallest net drop in the the number of active rigs drilling in the US thus far this year, but it was still a drop from the record low of last week, so once again we have another record low for drilling activity this week, as the US rig count has now dropped for 39 weeks in a row and set new all time lows for the past 11 consecutive weeks.....Baker Hughes reported that the total count of active rotary rigs running in the US was down by 2 rigs to 404 rigs as of May 20th, which was also down from the 885 rigs that were working as of the May 22nd report last year, and down from the recent high of 1929 rigs that were deployed on November 21st of 2014... the count of rigs drilling for oil was unchanged at 318, which was still down from the 659 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 working oil rigs that was reported on October 10, 2014, while the count of drilling rigs targeting natural gas formations fell by 2 to a record low 85, which was down from the 222 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 rigs that was set on August 29th, 2008...there was also one rig deployed that was classified as miscellaneous, unchanged from last week but down from the 4 miscellaneous that were operating a year ago....

there were, however, rigs added both offshore and on inland waters this week...a net of two more drilling platforms were deployed in the Gulf of Mexico this week than last; that came as the lone platform offshore of Texas was shut down and three started drilling offshore of Louisiana...those changes brought the Gulf of Mexico active rig count back up to 23, still down from 28 a year ago, and brought the total offshore count up to 24, down from 29 a year the same time, there were also 3 rigs set up to drill through inland lakes in southern Louisiana this week, which brought the inland waters rig count up to 5, up from the 3 rigs that were deployed drilling on inland waters at the end of the same week last year...

the count of working horizontal drilling rigs was down by 1 rig to 314 rigs this week, which was down from the 683 horizontal rigs that were in use on May 22nd  of last year, and down from the recent record of 1372 horizontal rigs that were deployed on November 21st of the same time, 5 vertical rigs were also stacked, leaving 48 vertical rigs still working, which was down from the 117 vertical rigs that were in use at the end of the same week a year earlier...however, the directional rig count rose by 4 rigs to 42, which was still down from the 85 directional rigs that were up and running in the US during the same week last year...    

for the details on which states and which shale basins saw changes in drilling activity this past week, we're again going to include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes...  the first table below shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas both tables, the first column shows the active rig count as of May 20th, second column shows the change in the number of working rigs from the prior week, the third column shows last weeks rig count, the fourth column shows the change in the number of rigs running from the same week a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was May 22nd of 2015:

May 20 2016 rig count summary

we can see from these tables that this week's net change of two rigs hides a lot of changes in activity that one wouldn't notice without checking these details...for instance, in the second table we see that the Permian basin of western Texas saw three rigs added, but even so, the entirety of the state of Texas was still down by 8 rigs to 173 rigs this week, and down from 373 rigs a year ago...since rig reductions in the Eagle Ford of south Texas and the Barnett Shale of the Dallas-Ft Worth area only account for part of that, it's be a fair guess that the most of the conventional vertical oil rigs that were pulled out this week probably came from that state...also note that the first table above only includes the major producing states, and hence the retirement of the single rig that had been operating in Alabama was missed by this overview...a year ago, there were 2 rigs deployed in Alabama...


Appellate court backs North Royalton's fight against mandatory pooling in driller's plan to frack for new well - --  A state appellate court on Tuesday sided with North Royalton in a three-year fight to thwart an oil and gas driller who wants to frack for a new gas well in the city.  The 10th District Ohio Court of Appeals agreed with a lower court and the Ohio Oil and Gas commission that the city's safety concerns were not properly considered before the chief of the Division of Oil and Gas Resources Management ordered the city's property be pooled with other land owners, clearing the way for the driller to proceed.  The case arose after Richard Simmers, the chief of the state's Division of Oil and Gas Resources Management, part of the Department of Natural Resources, approved a mandatory pooling order and drilling permit for Cutter Oil, a company with more than a dozen wells in North Royalton. The decision would allow Cutter to drill its first horizontal well in North Royalton.   State regulations require at least 20 acres around the drill site. If a driller cannot get land owners to go along voluntarily, the driller can ask the state to order a mandatory pooling arrangement.  In December 2013, Simmons ordered the mandatory pooling agreement. About 2 acres of city property was included in acreage. North Royalton, objecting to the mandatory pooling request, had sought to raise safety concerns with a state advisory council that collects information for the resources management division chief. The well would be Cutter's first to involve horizontal drilling and fracking.  The city wanted to present information about three incidents:

  • In 2008 a 700-foot long, one-half inch thick metal rod was ejected under pressure from a Cutter well near an elementary school and oil was sprayed from the well. 
  • In 2011 a production line at another well leaked oil into the city's storm sewer leading to Chippewa Creek. 
  • In 2012 a natural gas release at another well forced some residents to be evacuated.

The advisory council focused solely on whether the land owners, including the city, were adequately compensated under the agreement, effectively negating the safety concerns. 

'Is the water safe?' Some residents worry about fracking - Cleveland 19 News (WOIO) - Fracking for oil and gas in Ohio is on the rise.More fracking is bringing fears of water contamination for some residents who live nearby. Hydraulic fracking injects large amounts of water mixed with sand and chemicals underground to force open shale rock, releasing oil or gas.  It's what comes up next that worries some residents in Portage County. Fracking wastewater, also known as brine, contains toxic chemicals-- from barium to copper and arsenic. Cleveland 19 News is asking-- where does the waste go and is our drinking water safe? Fracking is big business in Portage County. Farms and small towns dot the landscape of Portage County. It's about 500 square miles, home to over 161,000 people. It's also one of the top 10 counties for fracking wastewater dumping in Ohio. Cleveland 19 News crunched the numbers and found oil and gas companies pumped nearly 28 million gallons into injection wells in Portage County last year. The U.S. EPA says underground injection wells are the safest method of wastewater disposal. The Ohio Department of Natural Resources regulates the industry. Officials say no cases of ground water contamination have been caused by injected fluids in Ohio. But that doesn't have residents like Fran Teresi convinced. Garrettsville resident weighs in on the issue.

Two sides of Wayne forest drilling issue are night & day - Supporters and opponents of leasing oil and gas drilling rights on the Marietta Unit of the Wayne National Forest both are making their voices heard during the ongoing comment period for a draft Environmental Assessment (EA) on the issue. Their positions couldn’t be more different, though even drilling supporters aren’t completely happy with the draft EA, which found no “significant impact” from leasing forest land to drilling companies. The comment period, during which parties can submit their opinions on the proposed drilling-lease program for 18,000 acres in the Wayne’s Marietta Unit, extends till May 29, unless the federal Bureau of Land Management grants opponents’ request to extend the comment period. Four groups who oppose drilling on the national forest held a press conference at the U.S. Forest Service’s Wayne National Forest Headquarters southeast of Nelsonville Wednesday morning, restating their opposition and requesting an extension of the comment period. Though the event occurred after The NEWS’ print deadline for Thursday’s issue, organizers issued an embargoed news release Tuesday afternoon with anticipated comments from group members. Meanwhile, two landowner groups who strongly support leasing Wayne National Forest land and mineral rights for oil and gas drilling issued news releases last week. The releases included the text of letters they hope leasing supporters will sign and submit to the BLM, which is overseeing the EA and its approval process. The preliminary “finding of no significant impact” does not become official until after the draft EA issued by the federal Bureau of Land Management becomes final. After the comment period is over, pertinent federal officials will have to review public input before finalizing the EA and the related finding of no significant impact.

Spills require careful cleanups of contaminated soil - When tanker trucks crash and oil rigs rupture, a cleanup system kicks in to protect the environment from petroleum, chemicals and drilling fluids. Those contaminants can’t stay on the roadside or in a field, tainting the soil and potentially reaching waterways, so specialized crews dig them up and cart them away. An example is a recent brine spill in Morrow County. A train slammed into a truck hauling wastewater from an oil and gas well near Mount Gilead, shearing the truck in half and spilling diesel fuel and 3,200 gallons of drilling wastewater across the rail bed and into a nearby farm. A team from Environmental Management Specialists Inc., which has offices across Ohio and in Indianapolis, was called in.  The Morrow County waste came from a conventional oil and gas well, not from a well that had been developed through hydraulic fracturing. The “fracking” process involves injecting toxic chemicals and sand into a well at high pressure to crack rock formations and release oil and gas. Lee said no hazardous materials were at the Morrow County crash site. Nick Adams, business-development manager at Environmental Management Specialists, said workers used an excavator to dig up contaminated soil and dump it into trucks. Soil affected by only brine water could end up in a landfill; soil contaminated with diesel fuel probably would go to a soil-recycling facility, Adams said. Had the spill involved hazardous waste, that would have had to go to a special landfill or incinerator. The EPA lists 20 facilities in Ohio that accept hazardous waste; none is in Franklin County. In the case of the Morrow County spill, though, a hazardous-waste facility was unnecessary. “ There weren’t a whole lot of safety concerns” from that spill, Adams said. Franklin County has a soil-recycling facility: Ohio Soil Recycling on Columbus’ South Side.  Ohio Soil then sprays the soil with concentrated microbes, which eat away at contaminants, essentially speeding up what nature eventually would do on its own. The process can take months. At Ohio Soil, which is built on an old Franklin County landfill and Superfund site, the soil stays there: It is used to level out the old spaces.

Oil and gas company founded by Aubrey McClendon to close: (AP) — American Energy Partners, the Oklahoma City-based oil and natural gas company founded by the late energy tycoon Aubrey McClendon, is shutting down. The company’s leadership team released a statement Wednesday saying it had decided to wind down operations but the five independent companies it had launched wouldn’t be affected. McClendon co-founded Chesapeake Energy and served as its CEO before stepping down in 2013 and founding American Energy Partners. He died in a fiery car crash in March, a day after being indicted on a bid-rigging charge. Police at the time declined to say whether they thought McClendon meant to crash. The statement says the decision to close was made in consultation with McClendon’s family.

Fracking in Lake Erie watershed too risky: Sen. Sean Wiley --- Earlier this month, I shared with Erie Times-News readers our need for a moratorium on unconventional natural gas drilling in the Lake Erie watershed. I made that determination after a local Senate Policy Committee hearing at which testimony was presented that outlined potential irreparable impact to our watershed area, a risk that is simply too great to take.  Pennsylvania plays an important role in the natural gas drilling industry and had seen a boom in job creation, community revitalization and economic impact tied directly to this industry, all facts that cannot be discounted. That being said, the Lake Erie watershed is unique and has to be treated as such in this realm. Unconventional drilling -- or "'fracking" -- is much more invasive than conventional gas and oil drilling and requires millions of gallons of water each time a well is fracked. There exists a potential for well leakage directly into our aquifers and the disposal of fracking wastewater into our water system. Seismic activity directly related to drilling has been reported, along with soil contamination, noise pollution, odor complaints and health concerns. There are also proven air-quality issues, and recently released health impact studies indicate a direct correlation between increased incidents of medical diagnosis and individuals with exposure to fracking sites. None of these potential implications can be ignored. This community relies on sources of drinking water from shallow dug wells, deeper drilled wells and surface water sources throughout the watershed.  Our residents and millions of visitors each year enjoy both Lake Erie and the bay for water activities.  There are not currently any active unconventional wells in this targeted area, and the drilling industry has seen a downturn in recent years. As this commodity is market-driven, there is likely to be a resurgence in the future. To be prepared for the potential that the watershed becomes part of that revival, it is imperative to work to enact the moratorium now. To be clear, this moratorium would apply only to unconventional well drilling in the Lake Erie watershed and would not affect existing conventional gas and oil wells.

Appalachian Basin becoming US natural gas stronghold - In 2010, the Marcellus Shale in Pennsylvania and West Virginia was dubbed the Beast in the East by analysts because of its impressive natural gas treasure. In 2013, Ohio’s neighboring Utica Shale was described as Son of the Beast in the East by analysts because of its growing natural gas potential. The growth of drilling in the Marcellus-Utica shales and the resulting natural gas boom are changing the American energy picture, even though shale drilling is slowing down across the United States due to low commodity prices. Since 2012, Ohio, Pennsylvania and West Virginia have accounted for 85 percent of U.S. shale gas growth, according to the U.S. Energy Information Administration. Shale gas today represents two thirds of U.S. natural gas production, the agency reported recently. The three-state region, also known as the Appalachian Basin, has switched from being among the biggest users of natural gas to its biggest producer. Natural gas from the Utica and Marcellus shales is heading to Virginia, the Carolinas, New England, the Gulf Coast, St. Louis, Chicago, Detroit and Ontario. Pipelines are being reversed to get it to market. Soon it will be heading to American and Canadian ports to be turned into liquified natural gas (LNG) and shipped in tankers to Europe and Asia Drilling began in the Marcellus Shale in 2003 in Pennsylvania. It followed in West Virginia. There has been little Marcellus drilling in Ohio. The rock in Ohio is too thin. But in 2010 drilling began in the deeper Utica in Ohio. That is just beginning in West Virginia and Pennsylvania. Such deeper drilling is more costly with a greater risk and problems. Ohio is about seven years behind Pennsylvania and West Virginia in drilling development, experts say. To date, 14,022 shale wells have been drilled in the Utica-Marcellus in an arc that runs from southern Western Virginia to the north into Ohio and Pennsylvania and then east into northern Pennsylvania.

Many natural gas-fired power plants under construction are near major shale plays -  (EIA) Natural gas-fired power generation increased 19% in 2015, because of low natural gas prices, increased gas-fired generation capacity, and coal power plant retirements. EIA's May 2016 Short-Term Energy Outlook forecasts that this year, natural gas-fired generation will exceed coal generation in the United States on an annual basis.  Growth in natural gas-fired generation capacity is expected to continue over the next several years, as 18.7 gigawatts (GW) of new capacity comes online between 2016 and 2018. Many of the new natural gas-fired capacity additions in development are near major shale gas plays. The Mid-Atlantic states and Texas have the most natural gas-fired capacity additions under construction with planned online dates within the next three years (2016–18). Many of the natural gas capacity additions are concentrated around the Marcellus and Utica shale regions, largely located in Pennsylvania, West Virginia, and Ohio. These states have been leading the growth in U.S. natural gas production over the past several years, driven by increasing production in the Marcellus and Utica shales. Natural gas infrastructure has been added in these regions to transport natural gas to population centers along the Atlantic Coast. Among the states near the Marcellus and Utica shales, Virginia accounts for the largest cumulative additions of gas-fired capacity over the 2016–18 period, with 2.3 GW of gas-fired capacity under construction, followed by Ohio with 1.9 GW, Pennsylvania with 1.8 GW, and Massachusetts with 0.7 GW, according to EIA's Electric Power Monthly. Expanding pipeline networks in the Northeast are increasing takeaway capacity from the Marcellus and Utica shales, which will support the growth in natural gas-fired generating capacity. In 2015, 6.0 billion cubic feet per day (Bcf/d) of new pipeline takeaway capacity in the Northeast was commissioned to transport natural gas to the east, south, and west of the Marcellus and Utica shales. In 2016, 2.2 Bcf/d of new pipeline capacity currently under construction is scheduled to come online in the Northeast, according to EIA data on natural gas pipeline infrastructure.

Stubborn natural gas supply imperils best U.S. rally in 14 years - Natural gas futures have soared since March on speculation that supplies are finally falling after a decade of gains. Production numbers tell a different story. Prices have gained about 30 percent from a 17-year low in March, the biggest advance for the period since 2002, as investors including Greenlight Capital’s David Einhorn bet the market would put a dent in supply. While money managers turned bullish on the fuel last month for the first time since 2014, government forecasts show output climbing for the next seven quarters. Explorers including Cabot Oil & Gas Corp. and EQT Corp. outpaced their own production outlooks. Drillers are beating estimates as the price collapse forced them to become leaner, producing more fuel with the fewest rigs since at least the 1980s. Gas output from the Marcellus shale in the U.S. East is pushing stockpiles toward an all-time high. A rebound in crude oil prices threatens to boost supplies of gas extracted as a byproduct. “The Marcellus is still going like gangbusters,” said Stephen Schork, president of energy consulting company Schork Group Inc. in Villanova, Pennsylvania. “We’re probably going to see some oil production rising as prices improve, which means associated gas production will also come back.” Next-month gas futures have climbed from an intraday low on March 4. Futures for 2017 have risen even more, surging 36 percent to trade above $3 per million British thermal units.

Renewables, LNG capacity growth to mute US gas price strength: economist - - The US electric generation fleet's natural gas demand is likely to grow to 15.9 Tcf by 2030, but surging renewables and global LNG liquefaction capacity may mute any gas price impact, a Texas economist said Thursday. In the most recent year for which complete data is available, power generation consumed 9.7 Tcf of natural gas, according to the US Energy Information Administration. Gurcan Gulen, senior economist at the University of Texas Bureau of Economic Geology's Center for Energy Economics, made a presentation entitled "Going through another cycle: implications for the power sector and Texas economy" at a Gulf Coast Power Association luncheon in Houston. In that presentation, Gulen noted that four non-governmental organizations and large companies such as Microsoft and Google parent company Alphabet announced on May 12 the formation of a Renewable Energy Buyers Alliance to deploy 60 GW of new corporate renewable energy capacity by 2025."If we think the natural gas prices are going to be low, so we build a lot of natural gas generation, and we have a lot of renewables on the market, so it doesn't need natural gas generation, what's going to happen to natural gas prices?" Gulen said. "They're going to tank further." Gas market participants are asking whether US LNG exporters "can play a balancing role" to keep US gas prices at a sustainable level, Gulen said, adding: "I don't think so."

Utilities seek to expand gas reserve - As U.S. electric utilities become increasingly dependent on natural gas-fired power, they’re looking for ways to mitigate the risk of future gas-price volatility. One hedging option that’s gained some attention lately is direct utility investment in natural gas production assets, the idea being that by acquiring gas-in-the-ground—especially now, when gas prices seem low and many financially strapped gas producers are eager to make deals—utilities can lock in the price of at least part of the future gas needs. Today, we consider the latest efforts by electric utilities to expand their gas hedging strategies—and hold the line on future gas prices—by including direct investments in gas production assets. [...] Thanks to tougher environmental rules, low natural gas prices and other factors, electric utilities aren’t just building more gas-fired generating capacity, they’re running their gas-fired units a lot more than they used to. Utilities also are retiring many of their older, smaller coal-fired units—the ones that, while not very efficient, could be relied on in the heat of summer and cold of winter. All that has left utilities more dependent than ever on gas-fired generation and, with that, more exposed than ever to the risk of natural gas price spikes. Many utilities have regularly engaged in short-term hedging, mostly with the aim of reducing gas-price volatility. More recently, though, electric utilities have been considering—and actually making—investments in gas reserves/production assets or making long-term commitments to buy gas, figuring that 1) natural gas prices are at or near their lowest prices in years; 2) many oil and gas producers, squeezed by low prices for their commodities, are looking for deals, and 3) gas-reserve investments by utilities might be eligible for regulator-approved rates of return (typically about 10%/year), just like the rates of return utilities are permitted to earn on their investments in power plants and transmission lines.

Goldman Sachs emerges as growing natural gas player - FT -- Goldman Sachs has quietly overtaken Chevron and ExxonMobil to become one of the biggest natural gas merchants in North America, expanding in physical commodities trading even as other banks pull back. The Wall Street institution last year bought and sold 1.2tn cubic feet of physical gas in the US — equal to a quarter of the country’s residential consumption and more than twice its volumes in 2013, a recent regulatory filing revealed. Goldman is now the seventh-largest gas marketer in North America, according to Natural Gas Intelligence. The gas utility serving households in Buffalo, New York last year purchased 11 per cent of its supply from Goldman, a securities filing showed. Power plants that produce electricity for copper mines in northern Mexico also buy gas from the bank, according to government reports and industry executives. Goldman’s commodities division, known as J Aron, is listed as a shipper on huge pipelines including the Texas Eastern, which last month ruptured into a fireball that critically injured a man. Goldman has grown the business even as banks await fresh rules on handling physical commodities such as oil, gas and aluminium. The Federal Reserve has said lethal gas explosions illustrate the risks banks face. Dealing in physical commodities is exempt from the Volcker rule ban on banks’ proprietary trading passed after the financial crisis. In a letter to the Fed in 2014, Goldman said the physical market, not financially settled derivatives, was the main way gas was traded at certain locations. While the bank has sold off infrastructure such as power plants and metals warehouses, its rise as a gas middleman highlights a commitment to commodities. Prominent Goldman leaders including Lloyd Blankfein, chief executive, are J Aron alumni. “The fact that J Aron’s business is growing in the face of low volatility in physical natural gas markets is noteworthy. Many players have downsized,”

Indiana University research: Fracking support grows when fees stay local - IU Bloomington -- As voters in several states consider controlling oil and gas development in their communities, new Indiana University research offers valuable insight for developers as well as local and state officials. The IU researchers determined that oil and gas development using fracking is greeted with more local support when the fees paid by developers go to municipal governments rather than into county or state general funds.“There are two reasons for this,” said researcher Naveed Paydar of IU’s School of Public and Environmental Affairs. “The public prefers to give more responsibility to local units of government because they are confident they’re the people who can best handle any problems resulting from development. And the public also has greater trust that the revenues will be spent by their municipal government in ways that benefit the local economy.” The conclusions are based on an in-depth public opinion survey of residents in Pennsylvania counties where there is oil and gas development. The research, the first to assess the association between public revenues and local support, is described in "Fee disbursements and the local acceptance of unconventional gas development: Insights From Pennsylvania," published by the journal Energy Research & Social Science.

Will New Chemical Law Hide the Fracking Industry's Toxic Secrets? -- The makeup of hydraulic fracturing fluid—the slurry of chemicals, sand and water injected deep underground to free petroleum deposits trapped by bedrock—is a closely guarded secret of the oil and gas industry. Fracking has contaminated drinking water and is linked to health problems in people living near drilling sites, and also to triggering earthquakes. But federal law doesn't require drillers to disclose what's in their fracking fluid. Although some states have disclosure laws—California's is the most comprehensive—most still allow some form of "trade secret" protection and don’t require the generation, submission or publication of health and safety data. What exactly is in that toxic stew of fracking chemicals? What chemicals are used at which drill sites? What potential health risks do nearby communities face?  The answers are hard to come by because of deficiencies in our federal toxics law, the Toxic Substances Control Act of 1976. Even basic information such as how the chemical is used can be claimed as confidential. Last month the Partnership for Policy Integrity released an exposé that captures the scope of the problem. Through a Freedom of Information Act request, the organization obtained Environmental Protection Agency data on 105 different chemicals reportedly used in fracking and drilling. The report found:

  • Health studies were only available for just two of the chemicals.
  • EPA expressed concerns about 88 chemicals related to health effects such as skin and eye irritation, respiratory effects, neurotoxicity, kidney toxicity and development toxicity. However, EPA requested health studies for only five of the chemicals.
  • Industry claimed trade secret protection on things like chemical name, product names, chemical uses, production volumes and likely exposures for 75 of the chemicals. 

Congress has the opportunity to finally remove the shroud of secrecy surrounding fracking chemicals. Key members are currently working to reconcile two bills passed by the House and the Senate last year that would update the law.

Climate activists protest oil shipments at Port of Albany: (AP) — Climate activists from around the Northeast gathered Saturday at a key crude oil shipment hub on the Hudson River in upstate New York to denounce fossil fuels and promote an accelerated transition to renewable energy sources. The action targeting crude-by-rail trains and oil barges at the Port of Albany is part of Break Free 2016, a two-week series of actions targeting key fossil fuel projects around the globe to protect local communities and fight climate change. About 40 activists from numerous groups attempted to line up across the river in kayaks Friday to practice blocking oil barges, but police and several U.S. Coast Guard boats herded them into a cluster that paddled past a riverfront park where a banner saying “Water not oil” was hung. Police blocked access to a railroad bridge over the river where activists had planned to unfurl banners. Another group on Saturday sat on tracks used by crude oil trains headed to the port. Police did not report any arrests as of midday Saturday. Albany was chosen as the focal point for activists in the Northeast from Pennsylvania to Maine because it’s a hub for crude-by-rail shipments from North Dakota’s Bakken Shale region to East Coast refineries. For three years, residents of a low-income housing project beside the oil train route have been fighting expanded crude oil shipments at the port by Global Partners, a fuel transport firm based in Waltham, Massachusetts. “We have to stop these explosive bomb trains from rolling through our communities across the continent,” Marla Marcum, a member of the Climate Disobedience Center in Arlington, Massachusetts, said on Friday. “We have to keep fossil fuels in the ground and bring the focus to renewables.”

Tens of Thousands Take Part in Global Actions Targeting World’s Most Dangerous Fossil Fuel Projects  -  Twelve days of unprecedented worldwide action against fossil fuels concluded Sunday showing that the climate movement will not rest until all coal, oil and gas is kept in the ground. The combined global efforts of activists on six continents now pose a serious threat to the future of the fossil fuel industry, already weakened by financial and political uncertainty. Tens of thousands of activists took to the streets, occupied mines, blocked rail lines, linked arms, paddled in kayaks and held community meetings in 13 countries, pushing the boundaries of conventional protest to find new ways to demand coal, oil and gas stay in the ground. Participants risked arrest—many for the first time—to say that it’s time to Break Free from the current energy paradigm that is locking the planet into a future of catastrophic climate change. Driving this unprecedented wave of demonstrations is the sudden and dramatic acceleration in the warming of the planet, with every single month of 2016 shattering heat records, combined with the growing gap between world governments’ stated climate ambitions, and their demonstrated actions in approving new fossil fuel projects. On the last day of mobilization, a key monitoring site on Tasmania recorded atmospheric carbon-dioxide exceeding 400 parts per million for the first time ever. These actions took place under the banner of Break Free, which refers to the need to shift away from our current dependency on fossil fuels to a global energy system powered by 100 percent renewable energy. In 2015, 90 percent of new energy capacity came from renewables, signaling that a rapid transition to 100 percent renewable energy is more feasible than ever.

Dozens Arrested After ‘Bomb Train’ Protests - Thousands of people around the country protested over the weekend to stop fossil fuels and demand a just transition to an economy that uses 100 percent renewable energy. More than 50 people were arrested in the Pacific Northwest and five others were arrested in upstate New York, where protestors stopped trains carrying crude oil.  Meanwhile, demonstrations in Washington, D.C., Albany, and Los Angeles drew thousands more to the Break Free movement, which brought a coalition of environmental groups together over 12 days of global action and civil disobedience.  On Saturday, five people were arrested in New York after two women suspended themselves from a train trestle where trains cross, carrying crude oil from the Alberta tar sands. Since the ropes were looped over the track, if the the so-called “bomb train” had crossed the bridge, it would have severed the climbers’ ropes. The train was stopped for over two hours, local news sources reported. Beyond the threat posed by burning the carbon contained in the oil these trains carry, activists are also concerned about what happens when oil trains derail and threaten communities. A train derailed and crashed in the Canadian town of Lac Megantic, destroying the town center and killing 47 people, effectively becoming a “bomb train.”  Across the United States, more than 732 thousand barrels of oil are transported by rail every day.  “The global climate system, on which every human depends, is no longer stable because our governments have utterly failed us,” Marissa Shea, one of the activists, said in a statement. “So now, for our survival, we will act on climate ourselves.”

Albany joins New York communities opposing Bakken oil pipeline  (AP) — Albany has joined 25 other communities officially opposing the Pilgrim Pipeline, which would carry crude oil from Albany to New Jersey refineries and return it as fuel products. The Common Council passed a resolution Monday night denouncing the proposed 178-mile pipeline as an environmental risk and public health danger. The measure isn’t legally binding. The line would be fed North Dakota crude oil carried by trains. Connecticut-based Pilgrim Holdings LLC says it’s a safer alternative to Hudson River barge transport south. But environmentalists say it would likely mean more oil trains crossing the state to Albany. The state Department of Environmental Conservation and Thruway Authority are gearing up for an environmental impact review of the project.

Constitution pipeline appeals regulator's water permit rejection | Reuters: Constitution Pipeline Company LLC on Monday launched a last-ditch legal challenge to gain approval in New York for its 124-mile (200-km) natural gas pipeline project stretching from the U.S. shale heartland to the northeastern United States as local opposition grows. Constitution said in a statement it has filed a lawsuit in the U.S. Court of Appeals fighting last month's ruling by the New York State Department of Environmental Conservation that denied the project a water permit in the state. The water permit is the final regulatory hurdle for the flagship project, which would bring fracked Pennsylvania gas to New York and New England and has cost its owners $300 million over the past four years. "We are ultimately seeking to have the court overturn this veiled attempt by the state to usurp the federal government's authority and essentially 'veto' a FERC-certificated energy infrastructure project," the pipeline owners said in the statement, referring to the Federal Energy Regulatory Commission (FERC). Constitution Pipeline is owned by subsidiaries of Williams Partners LP , Cabot Oil & Gas Corp, Piedmont Natural Gas Company Inc and WGL Holdings Inc . At stake is the future of the $875 million project, but the outcome of the case could also be a litmus test for other projects destined for New York, where fracking was banned in 2014. It will also be a test for other northeastern states where opposition to the controversial drilling practice is some of the fiercest in the nation.

Constitution Pipeline sues to overturn DEC’s water-permit denial - PennEnergy: Constitution Pipeline LLC has sued in two federal courts to overturn the New York State Department of Environmental Conservation’s (DEC) denial of a water-quality certificate required for the proposed natural gas pipeline’s construction (OGJ Online, Apr. 25, 2016).  Constitution filed an appeal on May 16 with the US Appeals Court for the Second Circuit. It contends, among other things, that the refusal is arbitrary and capricious and constitutes an impermissible challenge to the US Federal Energy Regulatory Commission’s Certificate of Public Convenience and Necessity, which was issued to the company in December 2014. The company also filed an action with US District Court for Northern New York seeking a declaration that the State of New York’s authority to exercise permitting jurisdiction over certain other environmental matters is preempted by federal law. Constitution is owned by subsidiaries of Williams Partners LP, Cabot Oil & Gas Corp., Piedmont Natural Gas Co., and WGL Holdings Inc. “Upon its review of the evidence, we believe the court will agree that this permit denial was arbitrary and unjustified and improperly relies on the same failed arguments that the DEC made during the FERC certificate proceeding regarding the pipeline route and stream crossings,” they said in a joint statement. [Native Advertisement] DEC’s allegation that it did not receive the necessary information is inaccurate as demonstrated by extensive and comprehensive technical materials submitted by Constitution for the record, the statement said. “We believe this allegation was intended to distract stakeholders from the application of a fair technical and regulatory review of the merits of Constitution’s application for a water quality certification,” it said.

Justices won't touch $236M verdict in Exxon Mobil pollution: (AP) — The U.S. Supreme Court said Monday it will not hear Exxon Mobil’s appeal of a $236 million judgment for its use of a gasoline additive that contaminated groundwater in New Hampshire. The court’s order leaves in place a jury verdict involving contamination by the chemical MTBE. Exxon Mobil wanted the judgment thrown out because New Hampshire was not required to prove that individual water supplies were contaminated. The Irving, Texas-based company also said it is not responsible for contamination caused by gasoline spills at junk yards and independent gas stations. MTBE, or methyl tertiary butyl ether, is a petroleum-based gasoline additive that has been used since the 1970s to reduce smog-causing emissions. It was found in the 1990s to contaminate drinking water supplies when gasoline is spilled or leaks into surface or groundwater. New Hampshire sued Exxon Mobil and other oil companies in 2003 for damages to remediate MTBE contamination, saying they knew they were supplying a product that is more difficult to clean up than other contaminants. Other companies settled with the state, though some said that when used as intended, MTBE is safe and effective, and the problem was with leaking gasoline storage tanks.

USGS study shows fracking contamination in Wolf Creek watershed - A new study led by the U.S. Geological Survey indicates waste from oil and gas disposal was found in surface waters and sediments near a controversial underground injection well in Lochgelly, just outside Oak Hill. “Deep well injection is widely used by industry for the disposal of wastewaters produced during unconventional oil and gas extraction," said Dr. Denise Akob, lead author and geomicrobiologist with the U.S. Geological Survey's National Research Program. "Our results demonstrate that activities at disposal facilities can potentially impact the quality of adjacent surface waters.” This is one of the first published studies to demonstrate injection disposal sites impact surface water quality. The study, "Wastewater disposal from unconventional oil and gas development degrades stream quality at a West Virginia injection facility," was published in Environmental Science and Technology, an American Chemical Society journal. The scientists collected water and sediment samples upstream and downstream from the disposal site. All samples were taken within the Wolf Creek watershed near two controversial injection disposal wells operated by Danny Webb Construction. These samples were analyzed for a series of chemical markers that are known to be associated with unconventional oil and gas wastewater. A second Lochgelly-site study called "Endocrine disrupting activities of surface water associated with a West Virginia oil and gas industry wastewater disposal site" was published in April. This study conducted biological assessment tests to determine if contamination of the surface waters causes endocrine disruption. Endocrine disruptors are chemicals that interfere with normal functioning of organisms’ hormones. “We found endocrine disrupting activity in surface water at levels that previous studies have shown are high enough to block some hormone receptors and potentially lead to adverse health effects in aquatic organisms,”

Potential Of Hydraulic Fracturing Fluids Escaping To Aquifers Subject Of New Paper In Groundwater: A recently published scientific paper offers a numerical study of the potential for fluids related to hydraulic fracturing to escape into usable aquifers via nearby abandoned wells. The article was published in National Ground Water Association’s flagship technical journal, Groundwater®. Titled “Influence of Hydraulic Fracturing on Overlying Aquifers in the Presence of Leaky Abandoned Wells,” it states fluids related to hydraulic fracturing escaping to aquifers could lead to upward leakage of contaminants. Flows into abandoned wells, however, do not conclusively demonstrate contaminants from a fractured shale reservoir can migrate into the overlying aquifer because hydraulic characteristics of the well may limit migration. Moreover, production of the horizontal well after hydraulic fracturing can play a significant role in reducing or inhibiting potential upward leakage. The paper is authored by Joshua W. Brownlow, Ph.D., of the Department of Geosciences at Baylor University in Waco, Texas. “This research indicates certain historical oil and gas activities may affect hydraulic fracturing, and these historical data need to be studied more closely,” Brownlow said. “Hopefully, this study will help water managers and industry use our resources more effectively.”

Wildlife group sues US over Enbridge pipeline in Michigan — An environmental group is accusing the federal government of misjudging an emergency response plan for a major oil pipeline that runs through Michigan. The National Wildlife Federation filed a lawsuit Monday against a pipeline safety agency, saying the government in 2013 failed to account for impacts on wildlife, plants, and Great Lakes shore if Line 5 ruptures. The pipeline is operated by Enbridge, a Canadian company. It runs from Wisconsin to Ontario, Canada, including the Straits of Mackinac, which connect Lake Michigan and Lake Huron in Michigan. Emails seeking comment from Enbridge and the government weren’t immediately returned. Wildlife Federation spokesman Jordan Lubetkin says the group believes the aging pipeline carries too much risk for the Great Lakes.

Supreme Court rejects Florida Power & Light's attempt to make customers pay for fracking - Naked Politics: In a rebuke to Florida Power & Light, the Florida Supreme Court on Thursday ruled that state regulators exceeded their authority when they allowed the company to charge customers for its speculative investment into an Oklahoma-based fracking company. In June of last year, the Public Service Commission rejected its staff recommendation and unanimously approved guidelines that gave FPL the right to charge its customers up to $750 million a year for speculative natural gas fracking activities without oversight from regulators for the next five years. In a 6-1 opinion, written by Justice Ricky Polston, the court concluded that the PSC did not have statutory authority to authorize the charge and called its decision "overreach." "Treating these activities as a hedge requires FPL’s end-user consumers to guarantee the capital investment and operations of a speculative oil and gas venture without the Florida Legislature’s authority," Polston wrote. Justice Charles Canady dissented with an opinion, arguing that the PSC did have the authority to allow the costs of the investment to be recovered under the FPL fuel clause. Here's the ruling: Download SCOFLA Woodford case

Florida Proposes Tripling Amount Of Benzene That Can Be Polluted Into State Waters -  For the first time in over 25 years, the Florida Department of Environmental Protection (DEP) is proposing to revise its restrictions on what toxic chemicals can be discharged into surface water — but environmentalists worry that the proposed standards, which would triple the amount of a toxic chemical called benzene allowed to be discharged into surface waters like rivers and lakes, are meant more to entice fracking companies than keep Floridians safe. According to the Tallahassee Democrat, the Florida DEP is currently either updating, or creating for the first time, standards for 82 various toxic substances — many of which are known carcinogens. Of those 82 chemicals, the vast majority would, under the DEP’s revised standards, have lower standards than those recommended by the EPA. And of the 43 chemicals that are already regulated, the Tallahassee Democrat reports that “a couple dozen” will have limits higher than what is currently allowed. Under the Clean Water Act, states are supposed to revise and update the standards and limits for toxic chemicals, though Florida has not done this since 1990. “The DEP should be pushing for even more stringent criteria than what we have now rather than trying to weaken them,” Dr. Ron Saff, a Tallahassee allergist and immunologist, said during the workshop. “Your job is to protect Floridians, not to poison us.” One major point of contention for environmentalists is the fact that the revised standards would allow much higher levels of benzene than currently allowed. Benzene is a chemical used in fracking, and a well-known carcinogen. Under the revised standards, allowable amounts of benzene would increase three-fold. The DEP's proposal to raise allowable levels of benzene -- often found in fracking waste water -- has led some environmentalists to accuse the DEP of revising the standards to help make Florida a more attractive location for fracking companies.

Louisiana governor to oil industry: pay for coastal restoration: (AP) — Gov. John Bel Edwards is pushing to get the oil and natural gas industry to pay for restoring Louisiana’s fragile coast by encouraging them to settle lawsuits alleging they caused extensive damage to coastal lands. The governor met with industry leaders on May 13 and asked them to settle the numerous lawsuits, filed by local governments, and help pay for coastal restoration, according to letters obtained by The Associated Press on Friday. Industry leaders have rejected his request. But, the governor, in a letter sent to industry organizations on Thursday, said he wanted to meet with them again to discuss settlements. Three coastal parishes are seeking compensation for alleged state permit violations, coastal damage and pollution. Earlier this year the governor and Attorney General Jeff Landry intervened in those suits.

The East Texas Basin Continues To Surpass Expectations | The East Texas Basin, a rather large Jurassic-Aged basin containing a number of hydrocarbon-bearing formations stretched across the northern part of East Texas and West Louisiana, has been making fortunes for mineral-rights owners, drillers, landmen and entrepreneurs since oil was first struck by Columbus Marion (Dad) Joiner (and his rather creatively-financed syndicate) on September 5, 1930 in Rusk County, Texas. More recently (the last decade or so) our attention has been focused on the incredibly gas-rich Haynesville Shale formation – a deeper, larger and older Jurassic-period formation that stretches across even more of the ArkLaTex region. The Haynesville has been very productive for horizontal hydraulic fracturing operations, and is very near the packaging and transport hubs on the gulf coast. Last month at OGIS I saw a great presentation from Memorial which is a pure play operator focused on the over-pressured Cotton Valley formation in Northern Louisiana. Among other interesting tidbits they presented,

  • • Since 2012, 95 of ~20,800 horizontal gas wells in the U.S. have peak monthly production over 21 MMcfe/d
  • • 36 of those were drilled by Memorial
  • • Memorial has drilled 68 wells in the top 2 percent of the ~20,800 horizontal wells (51 wells in the top 1 percent)

Well that really popped out at me – they’re bringing on some real boomers there. Normally we see a lot of emphasis on the gigantic Marcellus wells, but there’s a reason that the Louisiana portion of the East Texas Basin is still alive.  Then last week, as I was researching something else, I happened to glance at the “active rigs by basin” metric and saw that there are as many rigs operating in the East Texas Basin as are operating in the Niobrara (14 that day in each). Then I zoomed in on activity in the area and noticed there were even more rigs operating just outside the basin proper to the east and west.

1,000 DUCs In Eagle Ford -- May 16, 2016 - Emergent Group is reporting: There are currently about 1,000 drilled uncompleted wells in the Eagle Ford.  Throughout 2015, operators completed additional wells reducing the uncompleted inventory.  Anadarko, EOG Resources, and Chesapeake are the operators with the most DUCs in the Eagle Ford. The three top operators hold 38% of the DUC inventory. Link here. The NDIC says that there are about 1,000 DUCs in the Bakken.  Emergent Group had an update on the Bakken DUCs in April, 2016.

Most Texas quakes likely caused by oil, gas activities: study | Reuters: Oil and gas activities may have caused nearly nine in 10 of the earthquakes Texas has experienced in the past 40 years, and the quakes have become more frequent as oilfield activity has picked up in the past decade, according to a forthcoming study. Of the 162 Texas earthquakes of magnitude 3 or greater between 1975 and 2015, a quarter were "almost certainly" induced by oil and gas activities, while 33 percent were "probably induced and 28 percent were "possibly induced," researchers led by University of Texas-Austin geoscientist Cliff Frohlich wrote. A sharp uptick in oil-linked earthquakes has caused popular uproar and regulatory scrutiny in northern neighbor Oklahoma. While the phenomenon is not nearly as widespread in Texas, the paper, set to be published in Seismological Research Letters on Wednesday, shows the United States' hottest shale plays are not immune to increased seismic risk. Reuters was provided with a copy of the report prior to publication. The researchers also criticized the Texas Railroad Commission, the agency responsible for regulating petroleum production in the state, for being "slow to acknowledge that induced earthquakes occur in Texas." Since shale oil and gas fields like the Haynesville and the Permian boomed in 2008 due to the widespread use of horizontal drilling and hydraulic fracturing technologies, the rate of earthquakes exceeding magnitude 3.0 has increased from 2 per year to 12 per year in Texas, the top U.S. oil state.

Oil and Gas Quakes Have Long Been Shaking Texas -  A new study suggests the oil and gas industry has triggered earthquakes across Texas since 1925. The research, which publishes Wednesday, attempts to set the record straight on what has become a hot-button issue across the state.

With citizens expressing concern about the state's growing number of quakes lately, scientists have published studies indicating that recent quakes are likely tied to the disposal of oil and gas wastewater, but state energy regulators say there's still not enough information to explain what's going on.  Last year, state regulators at the Texas Railroad Commission—the agency that oversees oil and gas exploration—cleared two energy companies of responsibility for causing more than two dozen earthquakes in North Texas with their waste disposal.  Researchers from the University of Texas at Austin and the Southern Methodist University in their latest study, to be published in the journal Seismological Research Letters, classified those North Texas events—and dozens more—as being "almost certainly induced" by the energy companies.  "There are many areas in Texas that have man-made earthquakes...and it's not a new phenomenon," said Cliff Frohlich, the study's lead author and the associate director of the Institute for Geophysics at the University of Texas. Frohlich and his five colleagues devised a five-question survey on earthquake timing, location, research on the events and other details. With that data, they assessed the likely origins of the 162 quakes magnitude 3.0 or greater to shake Texas since 1975. They found 42 of them, or 26 percent, were most likely man-made, or "almost certainly induced" by the oil and gas industry. An additional 53 of them, or 33 percent, were classified in the second-likely category of "probably induced."

The Fracking Process Is Now The Leading Cause Of Earthquakes In Texas - In the last 40 years, oil and gas activity has caused some 60 percent of Texas earthquakes higher than magnitude 3 in the Richter scale, a new study led by researchers from the University of Texas at Austin found. “Oil field practices have been causing earthquakes in Texas probably for about 90 years,” Cliff Frohlich, lead author and associate director of the Institute for Geophysics at the University of Texas at Austin, told ThinkProgress. But “it looks like that as oil field practices changed in the last century, the causes of man-made earthquakes changed.” The study, published Tuesday in Seismological Research Letters, reports that fracking waste injection wells are now the leading cause of earthquakes in Texas. Hydraulic fracturing, or fracking, involves thrusting chemicals and water against shale rock to break it up and release oil or gas. The process produces large amounts of waste fluid, or brine, that is either recycled or disposed of in injection wells. Scientists believe brine from injection wells may be able to flow into nearby faults and soften the friction holding the faults in place, making it easier for a fault to slip, release the stress that was already there, and cause an earthquake. “The stress might have been released by a natural earthquake at some point in the future,” Frohlich said, “but [that] might have been in 10 years, or a thousand years, or a million years.” Of the 162 Texas earthquakes with magnitudes of 3 or greater between 1975 and 2015, the study categorized 42, or 26 percent, as “almost certainly” human-caused, and 53, or 33 percent, as “probably” human-caused. Only 13 percent of earthquakes were natural. The study was based on a review of journals and the historical catalog of Texas earthquakes from 1847 to 2015.  The study also points out that past extraction activities caused earthquakes, too. For instance, pumping too much oil out of the ground too quickly caused earthquakes as early as 1925. But “the recent boom is related to unconventional oil and gas development — fracking,” said Frohlich, who noted there are tens of thousands of injection wells in the state and most don’t cause earthquakes.

Fracking: Oklahoma’s New F-Word - Fracking in Oklahoma, as well as elsewhere, has been on the decline, thanks to the oil price slump. Quakes, however, are continuing at alarming rates. A CBC report on the situation notes anecdotal evidence that capping wells could possibly reduce seismic activity, but anecdotal evidence is insufficient. There is a growing body of evidence that fracking, as well as traditional oil extraction to a lesser extent, can be directly linked to an increase in seismic activity. The studies that have accumulated this evidence became necessary as some of America’s biggest oil-producing regions started experiencing more than their fair – and historical – share of earthquakes. Oklahoma has been dubbed by media the new earthquake capital of the country. Prior to 2009, the state had fairly negligible seismic activity. Then the shale boom started gathering pace, and today, the state is being shaken by an average of two quakes a day. Before 2009, insurers in Oklahoma had no reason to make earthquake coverage part of their standard offering. Since that year, it has become a very sought-after insurance product. But supply is tightening, according to a Reuters research. Oklahoma insurers seem to be getting increasingly aware of the fact that upping the premiums for earthquake coverage (by 200% in some cases) is not sufficient to avoid substantial losses at this rate of seismic activity. They are removing this coverage from their service offering and rejecting claims for quake-caused damage, attributing it instead to houses settling or just being plain too old.This is the state where the country’s strategic crude oil reserves are kept, at Cushing. The industry is a vital contributor to state revenues, but this may have to change. How, exactly, is a difficult question to answer but people who have had their homes damaged in some of the stronger quakes that have hit Oklahoma since 2009 believe the money and the jobs that the industry provides are not worth the constant risk of having your home fall over your head.

Iowa declines to act quickly on Dakota Access construction (AP) — Iowa utilities regulators have declined to act quickly on a request to allow a Texas company to begin construction on an oil pipeline across Iowa. Dakota Access had asked the Iowa Utilities Board to start Tuesday on the 1,150-mile pipeline that will carry a half-million barrels of oil a day from northwest North Dakota across South Dakota, Iowa and into south-central Illinois. Construction begins this week in the other states and the Dallas-based company says it must start in Iowa now or risk running into winter and another farm planting season. The board decided Tuesday to take time to consider comments from opponents, which indicate they want no construction in Iowa until all required federal permits are approved. The U.S. Army Corps of Engineers hasn’t issued permits for river crossings.

Looks Like Iowa Will Keystone The Dakota Access Pipeline -- Iowa utilities regulators have declined to act quickly on a request to allow a Texas company to begin construction on an oil pipeline across Iowa. Reporting almost everywhere, but here is the FuelFix link: Iowa utilities regulators have declined to act quickly on a request to allow a Texas company to begin construction on an oil pipeline across Iowa.   Dakota Access had asked the Iowa Utilities Board to start Tuesday on the 1,150-mile pipeline that will carry a half-million barrels of oil a day from northwest North Dakota across South Dakota, Iowa and into south-central Illinois.  Construction begins this week in the other states and the Dallas-based company says it must start in Iowa now or risk running into winter and another farm planting season.  This essentially gives organizers a full year to gain momentum to keystone the pipeline.  Iowa farmland is worth an incredible amount/acre. Community organizers only have to alarm farmers that the value of their land could plummet if affected by an oil pipeline break. A half-million bopd? That represents about 50% of current North Dakota production and would be the final nail in the CBR coffin. It doesn't take a rocket scientist to figure out who is watching this development closely. Other than affecting a few thousand jobs and one company, it will have no material affect on the Bakken or CO2 emissions.

Construction underway in 3 states on $3.8B Dakota Access oil pipeline (AP) — Construction is underway in three of four states on a $3.8 billion pipeline that will carry oil from western North Dakota to Illinois. Work on the Dakota Access Pipeline has begun in North Dakota, South Dakota and Illinois, spokeswoman Lisa Dillinger told the American News. The 1,150-mile pipeline also will cross Iowa, but regulators there declined this week to act quickly on a request to allow Texas-based Energy Transfer Partners to begin construction in that state. The pipeline will carry nearly half a million barrels of crude from western North Dakota’s Bakken oil fields each day to a tank storage facility in southern Illinois. It’s been approved by regulators in all four states. The U.S. Army Corps of Engineers still must issue permits for the pipeline to cross the Missouri and Mississippi Rivers. Dakota Access LLC, a unit of Energy Transfer Partners, secured easements from landowners along the route to pass through their property. Landowner Perry Schmidt in northeastern South Dakota’s Spink County said crews in his area have been busy locating utility lines, preparing roadways for construction and planting stakes in construction areas to ensure farmers “aren’t wasting money planting seed.” Dakota Access LLC said last week that it had to start laying pipe this week in order to finish before winter and avoid disturbing farmland for a second growing season. “I’m glad it’s getting started so they can get done on time,” Schmidt said.

Train hauling fracking sand derails in northern Colorado (AP) — Firefighters say nine train cars that derailed near an elementary school in northern Colorado were carrying sand used in fracking but no hazardous materials. The Great Western cars, part of a 100-car train, came off the tracks and tipped Sunday morning in Timnath, east of Fort Collins. No one was hurt. Poudre (kash-luh-POO’-dur) Fire Authority spokeswoman Madeline Noblett says it was lucky none of the surrounding homes was damaged. The Coloradoan reports that trains that carry crude often move through the area and it took some time before authorities to confirm that they were no materials that posed a chemical or explosive threat.

Column: Let private-sector experts set fracking policy -- On May 2, the Colorado Supreme Court ruled that bans and moratoriums on hydraulic fracturing by local governments are invalid and conflicting with Colorado statutes.  While this prevents a fractured approach to oil and gas regulation, fracking policies in most states are influenced by media-elevated fears with little regard to economic impacts. Better regulation would rely on policy development by private-sector professional and educational associations to balance proven risks of fracking with the tangible benefits of oil and gas development.  Attitudes of citizens in many communities are formed by fear and frustration. Much of this has been heightened by the media and environmental activist groups.  The Colorado Oil and Gas Conservation Commission is a state agency that sets rules for energy development, including the use of fracking. In recent years, the COGCC has made increased efforts to include the concerns of communities during rulemaking. In Colorado, the goal has been to develop energy resources while protecting communities with tight regulations on fracking. New York, Maryland and North Carolina simply dismissed economic benefits and banned fracking altogether.   This approach to regulation diminishes the fact that over 40 percent of oil and gas production in the U.S. relies on fracking. Because of new resources made accessible by fracking, North American natural gas will likely compose 70 percent of the world market by 2035. Approximately 3-4 million jobs in our nation are projected as a result of this growth.   Given the economic stimulus and job creation potential of our natural gas resources, it is critical to analyze the true risks of fracking and adopt a regulatory approach that mitigates risk while reaping the benefits of the resource. Government regulatory agencies are not cognizant of market mechanisms that affect industries and consumers. Moreover, government bureaucracies lack entrepreneurial vision, which fosters susceptibility to political special interests.

Big Oil Group Plots to Exclude Public from Public Lands Bidding at IOGCC Meeting - Steve Horn - At the Interstate Oil and Gas Compact Commission (IOGCC)'s 2016 meeting in Denver, Colorado this week, a representative from a prominent oil and gas lobbying group advocated that auctions of federal lands should happen online “eBay”-style — a clear attempt to shut the public out of the bidding process for fossil fuel leases on public lands.    Speaking on public lands issues in front of IOGCC's public lands committee, Kathleen Sgamma — Western Energy Alliance's (WEA) vice president of governmental affairs — compared environmental groups' Keep It In The Ground campaign actions at U.S. Bureau of Land Management (BLM) bids to a “circus.” Sgamma said WEA was in contact with bothBLM and Congressional members to push the auctions out of the public sphere and onto the internet.  DeSmog, which attended the IOGCC meeting, recorded the presentation and has published it online.  Sgamma opened her statement on the Keep It In The Ground “circus” by pointing to the fact that BLM has already compared the activism, in testimony delivered to Congress (beginning at 54:30) on March 23, 2016, with the right-wing militia that occupied the Malheur National Wildlife Refuge's public lands plot in Oregon.   Sgamma also revealed that WEA has a counter campaign that it will launch soon to oppose Keep It In The Ground.   Here is a partial transcript of Sgamma's statement (beginning at about 19:55 in the audio)So Western Energy Alliance is planning some counter-efforts with Keep It In The Ground which we'll be announcing probably later this month. We've also been working with BLM and Congress to say 'Let's just get rid of this circus, let's just have online auctions. eBay is out there, it can be done.' So BLM has also expressed concern for its employees as well. In fact, BLM Director [Neil] Kornze, in a hearing a couple months ago, was asked about all of these protests and even equated these protests with the militia who shut down and occupied the Malheur Wildlife Reserve in Oregon.  

Temporary oilfield workers are major factor in increased water use in North Dakota Bakken region - Increased water use in the rapidly growing oil industry in North Dakota's Bakken oil shale region, or play, is surprisingly due not only to oil well development but also to people, according to a recent study by the U.S. Department of Energy's (DOE) Argonne National Laboratory. Increased oil development in that region in recent years has attracted thousands of oilfield employees. From 2010 to 2012, nearly 24,000 temporary oilfield workers joined the approximately 27,000 permanent residents in Williams Country, the seat of the region's commercial oil industry. "It is estimated that the average household in the North Dakota Bakken region uses about 80 to 160 gallons of water a day," said Corrie Clark, an environmental systems engineer in Argonne's Environmental Science Division and co-author of a new study published in Environmental Science & Technology. "If each new temporary worker used 80 gallons a day, their total would be more than half the water used for hydraulic fracturing alone. If they used 160 gallons a day, it would exceed the total amount of water used for hydraulic fracturing. Either way, water use by new temporary workers accounts for a big share of the region's increased water use." The Bakken is a shale oil deposit underlying parts of North Dakota and Montana in the United States, and Saskatchewan and Manitoba in Canada. Annual water use for hydraulic fracturing there has more than quintupled from 770 million gallons in 2008 to 4.27 billion gallons in 2012. During the same period, the number of new oil wells per year more than quadrupled from 401 to 1,801; however, the increase in the number of wells is not the sole reason for increased water use when it comes to oil development.

105K gallons of saltwater-oil mixture spills in North Dakota  (AP) — A tank overflow has caused a spill of about 16,800 gallons of oil and more than 100,000 gallons of a mixture of saltwater and oil in North Dakota. The North Dakota Department of Health says the spill happened Wednesday at a site operated by Texas-based Denbury Onshore LLC, near the town of Marmarth in the southwest corner of the state. The company didn’t immediately respond to a telephone message seeking comment. Initial estimates show about 105,000 gallons of what’s known as produced water, a mixture of saltwater and oil that can contain drilling chemicals, was released. An undetermined amount of the release left the well pad and has affected pastureland. Personnel with the state Health Department and Oil and Gas Division are at the site and monitoring the investigation.

Crews excavating North Dakota land after large spill: (AP) — Crews in North Dakota excavated pastureland after more than 120,000 gallons of oil and drilling wastewater overflowed from a tank, the state Health Department said Friday. The spill happened Wednesday morning near Marmarth in southwestern North Dakota at a site operated by Plano, Texas-based Denbury Onshore LLC, according to Bill Suess, an environmental scientist who heads spill investigations for the state Health Department. The company notified state regulators of the spill immediately, he said. About 17,000 gallons of oil and 105,000 gallons of what’s called produced water — a mixture of saltwater and oil that can contain drilling chemicals — spilled from a tank after a shut-off sensor failed, Suess said. Denbury spokesman John Mayer said crews may have the spill cleaned up by the end of Friday, though monitoring would continue. State Health Department and Oil and Gas Division employees are monitoring the cleanup. The company told investigators that a power outage caused the sensor to fail, though Suess said the cause of the outage has not been determined. An area about the size of a football field beyond the well site was affected, but no waterways or drinking water sources were threatened, Suess said. “It is a relatively significant volume but from an overall risk standpoint it’s not that high,” he said, noting that the company had a berm around the oil well site but it wasn’t adequate to contain the spill. Neither investigators nor the company could confirm how much oil and drilling wastewater left the site.

EIA: US Shale Output to Dip for Eighth Consecutive Month  (Reuters) - U.S. shale oil output is expected to fall in June for the eighth consecutive month, according to a U.S. government forecast on Monday, as the squeeze from a two-year rout in crude prices worsens. Total output is expected to fall by nearly 113,000 bpd to 4.85 million bpd, according to the U.S. Energy Information Administration's (EIA) drilling productivity report released on Monday. Bakken production from North Dakota is forecast to fall 27,000 bpd, while production from the Eagle Ford formation is expected to drop 58,000 bpd. Production from the Permian Basin in West Texas is expected to drop 10,000 bpd, according to the data, representing its second consecutive monthly decline. Oil prices are down nearly 60 percent from their mid-2014 highs, which has caused producers to slash capital spending and lay off thousands of workers. Brent crude prices have rallied this year and were hovering just under $50 a barrel on Monday. Analysts warn that production could pick up later this year as producers lock in hedges at better prices to safeguard future output. Total natural gas production is forecast to decline for a sixth consecutive month in June to 46.0 billion cubic feet per day (bcfd), the lowest level since July 2015, the EIA said. That would be down almost 0.5 bcfd from May, making it the biggest monthly decline since March 2013, it noted. The biggest regional decline was expected to be in Eagle Ford, down 0.2 bcfd from May to 6.3 bcfd in June, the lowest level of output in the basin since April 2014, the EIA said. In the Marcellus formation, the biggest U.S. shale gas field, June output was expected to ease by about 0.1 bcfd from May to 17.3 bcfd in June. That would be the fourth monthly decline in a row.

Rystad estimates 3,900 drilled but uncompleted US horizontal oil wells - Oil & Gas Journal - US shale operators have accumulated an estimated 3,900 drilled but uncompleted (DUC) horizontal oil wells with more than 90% in major liquids plays, said Rystad Energy’s latest analysis.  Rystad estimates the Permian basin has 1,200 wells awaiting completion services, Eagle Ford 1,000, the Bakken formation 850, the Niobrara 620, and another 270 DUCs are spread across other plays.  DUC numbers have grown during the current oil price slump. The DUC inventory includes wells with varying production expectations. Given differences among companies, the pace of DUC conversions will vary by operator, analysts have said.  Rystad Energy, an independent oil and gas consultant, maintains a shale well database called NASWellCube, which includes the DUC inventory.

Oil Driller Hedges Soar To Five Year Highs -- One recurring theme observed throughout the oil rally since the February 13 year lows, has been increasingly more aggressive hedging action by producers, who are willing to give up upside gains in order to protect from yet another swoon lower in prices. And, as Goldman cautions in its latest note on ongoing imbalances in the oil market, "the rally in long-dated prices has taken prices to levels ($50/bbl in 2017) where hedging activity is ramping up which suggests it will soon stall." This can be seen in the following chart of overall hedging activity by oil explorers which as of this moment is the highest since mid-2011. Overnight Bloomberg confirmed this trend when it reported that producers and merchants increased their short position in WTI by 3.8% for the week ended May 10 to the highest since September 2011. It adds that "oil producers are taking advantage of the rebound in crude markets to lock in protection against another slump. They increased their bets on falling prices to the highest level in 4 1/2 years as U.S. inventories of stored oil remained near an 87-year high, while a natural disaster in Canada and militant attacks in Africa curtailed output. Negative sentiment among the group expanded for a third consecutive week, the longest streak since February." Energy companies from EOG Resources Corp. to Chesapeake Energy Corp. used financial instruments such as futures, swaps and collars to guard against another fall in prices. West Texas Intermediate oil, the benchmark U.S. crude, has gained more than 75 percent since hitting a 12-year low in mid-February. As Again Capital's John Kilduff chimes in producers "have been getting more and more active in hedging ever since the first initial jump," adding that they "appear to be drawn to this market as everyone tries to stay alive through the downturn."

Drilling Productivity Report - U.S. Energy Information Administration (EIA): The Drilling Productivity Report uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil and natural gas wells to provide estimated changes in oil and natural gas production for seven key regions. EIA's approach does not distinguish between oil-directed rigs and gas-directed rigs because once a well is completed it may produce both oil and gas; more than half of the wells produce both. While shale resources and production are found in many U.S. regions, at this time EIA is focusing on the seven most prolific areas, which are located in the Lower 48 states. These seven regions accounted for 92% of domestic oil production growth and all domestic natural gas production growth during 2011-14. |  full report pdf

Dallas Fed’s Kaplan Sees ‘gradual Recovery’ Ahead For U.S. Oil Patch -- Dallas Federal Reserve Bank President Robert Kaplan said that while he expects more bankruptcies for oil and gas producers this year, he sees energy prices firming, along with prospects for jobs and investment. “I wouldn’t be surprised to see firming prices in the period ahead,” Kaplan told reporters after an open forum with bankers and oil men in the heart of the oil-producing Permian Basin in West Texas. “That doesn’t mean that 2016 is going to be an easy year … there are still going to be companies that are going to have to be restructured.” The biggest U.S. energy price crash in decades has forced more than 60 North American oil and gas producers to seek protection from creditors since early 2015, including two this week. Hundreds of drilling rigs have been idled in the Permian Basin since the price of crude dropped from its peak in mid-2014, pushing the basin’s rig count down to just 130 in April. But data from Baker Hughes and Drilling Info show several rigs have been added in the last two weeks alone. And though debt-laden companies will still need to fold or find buyers, demand and supply in the global oil market will have about evened out by next year, Kaplan said. “I think you’ll see a slow but gradual recovery,” Kaplan said.

Fracking Slashes US CO2 To Lowest Level Since 1993 -- A new report by the Energy Information Administration (EIA) found hydraulic fracturing, or fracking, has pushed carbon dioxide (CO2) emissions from electricity generation to the lowest levels since 1993. Fracking created immense amounts of natural gas, lowering the price and causing the amount of electricity generated from natural gas to pass the amount of electricity generated from coal for seven of the months in 2015, according to the new EIA report. The report specifies that natural gas power plants produce about 40 percent of the CO2 emitted from a coal plant creating the same amount of electricity. This caused U.S. CO2 from the electricity sector to fall by 21 percent since their high in 2005. “[T]he drop in natural gas prices, coupled with highly efficient natural gas-fired combined-cycle technology, made natural gas an attractive choice to serve baseload demand previously met by coal-fired generation,” read the report. “Coal-fired generation has decreased because of both the economics driven by cost per kilowatthour compared to that of natural gas and because of the effects of increased regulation on air emissions.” The EIA report estimates that roughly 68 percent of the falling CO2 emissions are due to the switch from coal to natural gas, and does not mention wind or solar power. Fracking, not government green policies, has caused CO2 emissions to drop sharply in 47 states and Washington, D.C., according to both Scientific American and other studies by the EIA.Solar power is responsible for a mere 1 percent of declining American CO2 emissions, while natural gas is responsible for nearly 20 percent, according to a study published last November by the Manhattan Institute. For every ton of carbon dioxide cut by solar power, fracking has cut 13 tons.

SandRidge Energy Files for Bankruptcy Protection - WSJ: SandRidge Energy Inc. became the latest victim of the prolonged downturn in energy sector, filing for bankruptcy protection Monday after reaching a deal with its creditors to swap $3.7 billion in debt for control of the oil and gas company. The Oklahoma City company filed for chapter 11 protection in U.S. Bankruptcy Court in Houston after reaching a deal with the majority of its lenders and bondholders on the terms of a “prearranged” debt restructuring pact.   SandRidge Chief Executive James Bennett said the proposed debt swap, which requires court approval, will allow the reorganized company to concentrate on oil and gas exploration and development in our active Oklahoma and Colorado project areas.  The company will stay open during the chapter 11 case and expects to exit bankruptcy “with minimal disruption to our business,” Mr. Bennett said. SandRidge says it has enough cash to fund its ongoing operations without a bankruptcy loan. Among its initial bankruptcy request is the authority to pay operating expenses associated with production activities, royalties and wages to its workers. The company also intends to pay all suppliers and vendors in full during the bankruptcy.

SandRidge Energy files for bankruptcy with $4.1B in debt: (AP) — SandRidge Energy filed for bankruptcy protection Monday, saying it hopes to convert $3.7 billion of long-term debt into equity while allowing the company to keep its operations going. The Oklahoma City-based company filed the Chapter 11 paperwork in the U.S. Bankruptcy Court for the Southern District of Texas. The petroleum and natural gas exploration company said it had the support of creditors who hold more than two-thirds of its $4.1 billion in total debt. The company said it asked the court for permission to continue day-to-day operations while. It said it wants to continue paying wages, royalties and interest without interruption, and that suppliers and vendors would be paid under their normal terms. “We are pleased that our creditors recognize the long-term value SandRidge and its employees can create with an improved balance sheet,” SandRidge President and CEO James Bennett said in a written statement. “The new capital structure will allow the Company to concentrate on oil and gas exploration and development in our active Oklahoma and Colorado project areas.” Under the bankruptcy plan, the company would restructure $3.7 billion of long-term debt into equity, including $300 million of debt that would later convert to equity in the reorganized company. The company would still owe about $425 million in reserve-based lending facility debt.

Two More US Energy Companies Go Bankrupt: Breitburn, Sandridge File Chapter 11 --Just days after the latest two shale casualties filed for bankruptcy protection when both Linn Energy and Penn Virginia announced prepackaged Chapter 11, moments ago Sandridge announced it too was entering bankruptcy court when it filed a voluntarily petition under Chapter 11 in U.S. Bankruptcy Court for Southern District of Texas to consummate a pre-arranged reorganization. This follows just hours after Breitburn Energy Partners announced it had filed Chapter 11 as it hopes to negotiate a restructuring of its balance sheet in court, continuing talks with creditors that began a month ago, CEO Hal Washburn said in a release. Combined the two filings would push the total YTD defaulted bond tally higher by another $7.4 billion, as a result of $4 billion in Sandridge debt and $3.4 billion for Breitburn. According to a Reuters tally, some 28 publicly traded North American oil and gas producers have sought bankruptcy protection since early 2015 As the WSJ writes, Breitburn's decision to file for bankruptcy was made when it became "abundantly clear that those negotiations could not be concluded and an appropriate restructuring consummated on an out-of-court basis" in time to avert a cascade of defaults that would have squeezed Breitburn’s liquidity, James Jackson, chief financial officer of a Breitburn subsidiary, wrote in a court filing. About $3 billion of Breitburn’s debts are bank and bond debt, topped by $1.25 billion in loans from lenders led by Wells Fargo Bank, NA. Breitburn is carrying $650 million of senior secured second-lien bonds and $1.1 billion in unsecured bonds. Breitburn said it has been in talks with bondholders about a balance-sheet restructuring. The company has lined up $75 million in bankruptcy financing, and is in talks with senior lenders about bankruptcy emergence financing.

Another Big U.S. Driller Goes Bankrupt -  Halcon Resources Corp announced yesterday that it is filing for Chapter 11 bankruptcy protection as part of a restructuring agreement with creditors—a move that could wipe out $1.8 billion, or 65 percent, of its debt and $222 million of preferred stock equity. The agreement would also reduce Halcon’s ongoing annual interest burden by more than $200 million. The shareholders affected by the restructuring include those holding 3rd Lien Notes due 2022, Senior Notes due 2020, Senior Notes due 2021, Senior Notes due 2022, Convertible Notes due 2020, and Perpetual Convertible Preferred Stock. The affected stakeholder would then receive shares of common stock, warrants, and/or cash. Halcon hopes that the restructuring agreement will be finalized soon, which will be executed as part of an “accelerated prepackaged Chapter 11 bankruptcy filing”. Halcon is expected to operate as usual during the restructuring process, and pay all suppliers and vendors in full for goods and services provided. The news of the bankruptcy comes after four other oil-related companies filed for protection in the past two weeks, including Midstates Petroleum Company, Ultra Petroleum, Linn Energy and Penn Virginia. These cases followed a string of roughly 70 other bankruptcies in this sector since the beginning of 2015. According to data from Haynes and Boone, total secured and unsecured defaults rising to $34 billion, double the $17 billion total for all of 2015.

Halcon Reaches Pact with Creditors on Prepackaged Bankruptcy Plan - Rigzone  - Halcón Resources Corp, which produces oil in Texas and North Dakota, said on Wednesday it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices. Shares of the Houston-based company fell 55 percent to 44 cents in after-hours trading. The bankruptcy marks a setback to Halcón Chief Executive Floyd Wilson's long-running goal to build and then sell the company to the highest bidder, a plan that mimicked Wilson's 2011 sale of Petrohawk to BHP Billiton for more than $12 billion at a 65 percent premium to its shares. Yet almost from the beginning, Halcón was saddled by high costs and high debt, despite having some quality acreage. Indeed, the value of Halcón's holdings in North Dakota's Bakken shale formation have long eclipsed the market value of the company. Halcón's restructuring plan will eliminate about $222 million of preferred equity, and reduce the company's annual interest payments by more than $200 million. Debtholders will hold most of Halcón's shares after it emerges from bankruptcy protection, the company said in a statement, with existing common shareholders getting 4 percent of the new equity and existing preferred shareholders receiving $11.1 million. In a prepackaged bankruptcy, companies and their creditors agree on a reorganization plan prior to the bankruptcy filing.

America's Never-Ending Oil Consumption - The United States accounts for less than 5 percent of the world’s population, but it consumes about 20 percent of the global energy supply. The average American citizen uses nearly two times as much fossil fuel as a person living in Great Britain. Americans love cars and big homes and hate public transportation. Constant warnings about climate change and the catastrophic consequences of American energy habits apparently aren’t enough to stop the temptation to consume. Although cars are becoming more efficient, Americans are driving more frequently and across longer distances.  On the campaign trail, even as Democratic presidential candidates talk about clean energy, they don’t often discuss the need to use less. Bernie Sanders says climate change is a moral issue and Hillary Clinton promises to deploy half a billion solar panels by the end of her first term in office. But politicians seem wary of telling Americans they need to cut back.  The cost of delivering that message is high. It’s difficult for politicians to summon the political will to do so when voters are most concerned with economic growth and prosperity. Public-opinion data reveals that Americans want their fuel reliable, safe, and, above all, cheap. Even when people want to fix local problems that come with health risks, like high emissions, they have little willingness to pay more or use less to prevent global warming, according to a Harvard/MIT survey.  Few political dividends seem to come from taking on conservation, it seems. Just ask Jimmy Carter.

Alberta's oil sands after the wildfires -- It will take at least a few weeks, but it seems likely that production in the Alberta oil sands will return to near normal levels, setting the stage for continued incremental growth over the next few years as expansion projects committed to when oil prices were much higher come online. Although fires are still burning, the devastation in and around Fort McMurray, AB--the unofficial capital of the oil sands region—that forced tens of thousands of people from their homes, prompting oil sands staffing shortages, production scale-backs and a handful of temporary production shutdowns has moved beyond most oil sands operations. But the wildfires’ chain of effects didn’t end there; at one point, crude oil output declines were estimated at upwards of 1 MMb/d (about one-third of Alberta’s normal production of 3.1 MMb/d) caused world oil prices to inch up, some refineries in the U.S. Midwest that depend on Alberta-sourced oil have been forced to scramble for replacement crude, and natural gas prices fell to near zero for a brief period. Today, we begin a two-part look at post-wildfire prospects for the region, and—looking ahead--at the possible need for more pipeline takeaway capacity.

Canada wildfire: Oil workers urged to leave Fort McMurray camps - BBC News: Around 12,000 people have been urged to leave Canada's oil sands camps near the fire-hit town of Fort McMurray as a resurgent wildfire heads towards them. A regional official told the BBC that 8,000 people were given precautionary evacuation orders late on Monday, in addition to some 4,000 who had already been advised to leave. More than 80,000 people fled the fire that hit Fort McMurray two weeks ago. Air pollution in the Alberta city is still at dangerously high levels.A reading on Monday found the level to be 38 - far exceeding the provincial index's most dangerous level of 10. The vast fire had moved away from Fort McMurray but in recent days it has started to threaten the area again. A number of oil workers had begun in recent days to return to the oil facilities north and south of Fort McMurray to restart production. But on Monday, they were warned that the wildfire was travelling at 30-40 metres per minute north of Fort McMurray.  Over the course of the day, the Regional Municipality of Wood Buffalo extended its precautionary evacuation orders to all camps north of Fort McMurray and south of Fort McKay.  These include the large Suncor and Syncrude sites.

Alberta wildfire destroys oil sands work camp as 8,000 staff are evacuated - The wildfire raging through northern Alberta has swelled in size and surged north of Fort McMurray, consuming an evacuated oil sands camp on Tuesday and threatening several other facilities in the region. “It continues to burn out of control,” said Rachel Notley, the Alberta premier, one day after the shifting fire forced the evacuation of 8,000 non-essential staff from more than a dozen camps and sites in the oil sands region.  Tinder-dry conditions and temperatures in the mid-20s Celsius helped fuel the wildfire’s growth to 355,000 hectares on Tuesday – a significant jump from 285,000 hectares one day earlier. “Mother nature continues to be our foe in this regard and not our friend,” Notley said. Winds pushed the fire into an area dotted with oil sands work camps, completely destroying a 665-bed camp belonging to Horizon North Logistics just hours after the area was ordered evacuated. The company said every staff member was safe and accounted for.  Two nearby camps for oil sands workers – the 3,700-room Noralta Lodge and 360-room Birch Creek – were being carefully monitored as the flames approached. “We expect fire growth in the area of many of these camps today,” Notley said. Winds were expected to shift the fire east towards the Syncrude and Suncor Energy oil sands facilities. Officials described both facilities as resilient to the risk of fire, pointing to the wide firebreaks surrounding both sites and their private crews of highly trained firefighters. Suncor said on Tuesday that it had begun shuttering its base plant operations as a precautionary measure.Hot spots continued to flare in the city of Fort McMurray – the oil sands hub ordered evacuated two weeks ago as flames flickered in the trees on its outskirts. More than 88,000 people hurriedly fled, with many of them now scattered across Alberta and the rest of the country.

Fort McMurray fire sweeps east through northern oilsands sites - Edmonton - CBC News: The Fort McMurray wildfire has destroyed one of the oilsands camps north of the city and is roaring eastward toward others in its path. The fire destroyed all 665 units at Blacksand Executive Lodge, which provided temporary housing for workers in nearby oil facilities, on Tuesday morning. By Tuesday afternoon, flames were at the edges of the Noralta Lodge camp, just a few kilometres east of Blacksand. CBC News also obtained photos of flames at the edges of an AFD Petroleum facility, about five kilometres northwest of Noralta. Officials said the fire was expected to move east on Tuesday and would likely jump Highway 63 south of Noralta Lodge.   Businesses in the area have been alerted. "We have an evacuation plan and we're ready to use it," said Dave Harman, a director for the Northlands Sawmill.An official told him the flames were one kilometre west of the facility, which is located about halfway between the northern edge of Fort McMurray and the Noralta Lodge site. The mass of flames some have come to call "the beast" is not a single fire, but rather several fires surrounding and within the town of Fort McMurray. NASA's Suomi NPP satellite collected images of what its office called "the myriad of fires in the Fort McMurray complex" on May 16.

Fort McMurray Fire — Zero Percent Contained, 1.2 Million Acres in Size, and Crossing Border into Saskatchewan - The Fort McMurray Fire just keeps growing. A global warming fueled beast whose explosive expansion even the best efforts of more than 2,000 firefighters have been helpless to check. By mid-afternoon Thursday, reports were coming in that the Fort McMurray Fire had again grown larger. Jumping to 1.2 million acres in size, or about 2,000 square miles, the blaze leapt the border into Saskachewan even as it ran through forested lands surrounding crippled tar sand facilities. It’s a fire now approaching twice the size of Rhode Island. A single inferno that, by itself, has now consumed more land than every fire that burned throughout the whole of Alberta during 2015. (Continued explosive growth of the Fort McMurray Fire shown graphically in the animation about. Image source: Natural Resources Canada.) The fire has now encroached upon five towns and cities including Fort McMurray, Anzac, Lenarthur, Kinosis, and Cheeham. Tar Sands facilities encompassed by the blaze include Nexen’s Kinosis facility, CNOOC’s Long Lake, and Suncor’s Base Plant. Numerous other tar sands facilities now lie near the fire’s potential lines of further expansion. You can see the insane rate of growth for this fire in the animation above provided by the Natural Resources board of Canada. As the fire again expanded this week, reports coming out of Fort McMurray showed periods of horrendous air quality. Measures hit as high as 51 on Wednesday — which is five times a level that is considered ‘unsafe.’ Fires also ignited in a condo complex Thursday after a mysterious explosion claimed another Fort McMurray home on Tuesday.  Despite what is a massive firefighting effort, the enormous blaze remains zero percent contained. Firefighters have seen some success, however, in keeping fires from burning buildings in and around Fort McMurray through the constant application of water and through the building of enormous defensive fire breaks. With many trees near Fort McMurray and tar sands facilities already consumed by fire and with winds expected to shift toward the North and West, the blazes are expected to mostly move away from structures by Thursday evening.

Alberta reviews re-entry plan as flames spread north (AP) — Canadian officials said Tuesday they are taking a second look at their plan to allow people to return home to Fort McMurray after a raging wildfire spread north toward oil sands plants. Alberta Premier Rachel Notley told a news conference in Edmonton Tuesday that the fire overnight destroyed a 665-room work camp north of the city and two other camps are threatened. About 8,000 workers at oil camps north of Fort McMurray were ordered to evacuate late Monday. Notley hopes to announce within the week when evacuees from Fort McMurray can return. About 80,000 Fort McMurray residents were forced to evacuate nearly two weeks ago. “Safety will be and must be our first and principle priority,” Notley said. She said conditions in Fort McMurray remain hazardous, with poor air quality from all the smoke a major concern. Two explosions on Monday night in Fort McMurray damaged 10 homes, Notley said. Notley said the explosions are examples of what can happen when a city the size of Fort McMurray is being brought back online. Officials said the explosions are being investigated.

As Alberta wildfire rages, thousands who fled must wait weeks to go home -- The wildfire in northern Alberta continues to rage out of control, growing to more than 423,000 hectares as officials said it would be at least another two weeks before the tens of thousands of evacuated Fort McMurray residents would be allowed to return to the city. Relief – in the form of cooler weather and slight precipitation – may be on the way for fire crews, Rachel Notley, the Alberta premier, said on Wednesday. “So of course we’re all crossing our fingers that that happens.” While the fire had expanded by 68,000 hectares in the past day, making it more than six times the size of Toronto, much of the fire’s growth has been confined to remote forested areas. Earlier this week, shifting winds forced the evacuation of 8,000 non-essential staff from more than a dozen camps and sites north of Fort McMurray. Hours later, the fire consumed an oil sands camp belonging to Horizon North Logistics, and authorities warned the fire was fast approaching the Syncrude and Suncor Energy facilities in the area. On Wednesday the government said firefighters had been able to hold off the fire from the oil sands facilities. “We were very successful in some of the areas there to the north, so the fire hasn’t encroached as far as we had first feared,” said Chad Morrison, Alberta’s manager of wildfire prevention. “It was very unfortunate that we lost one lodge and that’s obviously due to the extreme fire behaviour.”

Pipeline News: Kinder Morgan Trans Mountain Expansion project advances -- Canada’s National Energy Board (NEB) has concluded that the Trans Mountain Expansion Project is in the public interest and recommended the Federal Governor in Council approve the proposed expansion. The NEB’s recommendation will allow the Project to proceed with 157 conditions if the Governor in Council approves the project. The Federal Government will make the final decision on the Project in December 2016.  “Trans Mountain is pleased with the NEB’s recommendation,” said Ian Anderson, president of Kinder Morgan Canada. “The decision is the culmination of a lengthy and thorough regulatory review process and considers the many thousands of hours of environmental and technical studies, scientific evidence and community engagement that has been part of this comprehensive assessment. After an initial review of the report, Trans Mountain believes the 157 Project-specific conditions, many in response to input from Intervenors, are rigorous and appear to be achievable.” Trans Mountain continues to analyze the NEB’s conditions for implications to community commitments, costs and Project timeline, but is still expecting the in-service date to be December 2019.“This report is a reflection of our evidence along with the valuable input from Intervenors and our conversations with communities, Aboriginals and individuals,” added Anderson. “Now, more than ever our Project makes sense for Canada. We have demonstrated the demand for much-needed access to global markets and how building this pipeline will bring both dollars and many thousands of jobs for communities in British Columbia and Alberta at a time when our economy needs it most.”

Ban looms on crude tankers off northern BC - Canadian Prime Minister Justin Trudeau appears ready to fulfill a campaign promise to ban crude oil tankers off northern British Columbia in a move that would throw the proposed Northern Gateway Pipeline into question. The $6.5 billion, 1,177-km twin pipeline proposed by Enbridge Corp. would carry blended bitumen from Alberta to a terminal at Kitimat, BC, and return diluent to Alberta. Trudeau, whose Liberal party won a pivotal election Oct. 19, has asked new Transport Minister Marc Garneau to make the crude-oil tanker ban a priority, according to press reports. As a potential link between the Canadian oil sands and global trade, the Northern Gateway proposal gained importance when US President Barack Obama on Nov. 6 rejected TransCanada Corp.’s application for the border crossing of the Keystone XL project, which would have increased pipeline capacity between Alberta and the US Gulf Coast (OGJ Online, Nov. 6, 2015). TransCanada also has proposed a project called Energy East, which would link the oil sands with eastern Canadian provinces and the Atlantic.

Fracking investors losing patience with planning delays, says industry boss - The backers of fracking in the UK do not have “limitless patience” for planning delays, according to a leading industry boss. Francis Egan, chief executive of Cuadrilla, warned that despite the government’s promise to fast track fracking, the planning process remains a slow lane. The comments come just ahead of a planning decision in Yorkshire on Third Energy’s application for shale gas exploration. Ministers said last August that they would intervene on planning applications if local authorities failed to meet the existing deadline of 16 weeks to approve or reject fracking applications. David Cameron said in 2014 the government was “going all out for shale”. At a conference on Thursday, Egan told energy minister Andrea Leadsom: “Speaking for Cuadrilla, we are quite a long way away from 16 weeks, we’re approaching two years. I think Third Energy is approaching one year. So the words are good, the intent is good but the delivery is not. Investors have patience but it’s not limitless.” Leadsom said: “We need to tackle the issue of extensive planning delays head-on if we are to reap the benefits that shale gas offers to our energy security, jobs and wider economy. The new measures we’ve introduced will help to make this happen. We are addressing a problem that causes unnecessary delays and benefits no one.” The industry is increasingly frustrated by delays. Cuadrilla has spent over £100m to date and fracked only a single well, which caused minor earthquakes in 2011, and was later closed.

Oil Markets Balancing Much Faster Than Thought -  Oil markets are only a few months away from a much closer balance as demand holds steady and supply drops off. Several reports from the three major energy entities more or less say the same thing – the supply overhang that the world has experienced over the past two years should narrow and start to close in the second half of 2016. The International Energy Agency estimates that the world is dealing with a supply surplus of 1.3 million barrels per day (mb/d) right now, which should last through the end of the second quarter. By the third and fourth quarters, however, the surplus shrinks to just 0.2 mb/d. The IEA reiterated its forecast that demand will hold at 1.2 mb/d, and expressed a growing sense of confidence that oil markets are only a few months away from moving into balance. For its part, OPEC largely agreed in its May Oil Market Report. But OPEC also chose to focus on the slightly longer-term, citing the massive cut in capital expenditures taken over the past two years. The industry has slashed $290 billion from 2015 and 2016 spending levels so far, with more cuts expected. The spending reductions contributed to the shockingly low level of new oil discoveries last year – the industry discovered less than 3 billion barrels of new oil reserves in 2015, the lowest level in six decades. With few new discoveries, and a rising number of projects deferred, there is a very low level of new projects in the pipeline, so to speak. In other words, oil supply and demand curves are converging towards a balance, and could even cross over at some point a few years down the line as supply fails to keep up with demand.  The U.S. EIA was slightly less bullish in its latest Short Term Energy Outlook, noting that oil supplies will exceed demand by 0.2 mb/d on average through 2017. And the EIA still expects oil prices to rise to only $50 per barrel next year. Still, the trend is largely the same between most of the energy forecasters.

Here Are The Oil Market Disruptions That Are Sending Oil Soaring  -- The reason why oil has resumed its ascendant ways today is due to yet another focus, this time from the sellside, on the various disruptions in the oil market, following notes from Goldman, Bank of America, and Morgan Stanley according to which the millions in barrels of oil taken offline as a result of the Canada wildfire and persistent Nigerian supply problems will push the market into equilibrium much faster than originally expected. To be sure, this is nothing new: the mainstream media has been pointing this out for weeks with Reuters highlighting the supply loss in a handy table just last Friday. Reuters calculates offline oil supply at 3.75MM  Still, now that the sellside is pushing for an even flatter oil strip - recall that Goldman's full note said that while the market may get into balance faster than expected, a surge in low-cost production by OPEC members will result in lower prices in 2017 - the market has no choice but to follow. So for those who missed it, here is the visual representation of the current oil supply disruptions courtesy of Goldman. Large supply disruptions have pushed production sharply lower since mid-March. Key planned and unplanned outages since mid-February (kb/d)  This is what Goldman said: The recent roll-over in production is the result of somewhat offsetting cross currents. (1) Production has rolled over faster than we had expected in China, India and non-OPEC Africa more than offset upside surprises in the US and the North Sea. (2) Transient but recurring disruptions have more than offset larger than expected Iran and Iraq production. And while some of the disruptions will stop such as maintenance, fires and strikes, some are likely systemic, for example in Nigeria, and we now expect production there will remain curtailed for the remainder of the year. Net, this leaves us expecting a sharp decline in 2Q output.

Forget the Saudis, Nigeria's the Big Oil Worry -  Drag your attention away from the Middle East for a moment. While policymakers have been focused on Saudi Arabia's oil market machinations, what really matters right now is happening 3,000 miles away in the Niger River delta.The country that was, until recently, Africa's biggest crude producer is slipping back into chaos. A wave of attacks and accidents have hit infrastructure, taking Nigeria's output down to 20-year lows. NIGERIA'S OUTPUT WOES Oil prices are responding, rising to their highest in more than six months. Part of this is explained by the International Energy Agency lifting demand estimates this week. But taking both things together, it's easy to doubt whether current oil surpluses are sustainable.With no solution in sight to the problems that beset the delta's creeks and mangrove swamps, production from onshore and shallow-water oil fields looks vulnerable. If the latest group of freedom fighters seeks to outdo its predecessors, then deepwater facilities may be at risk too.The Niger Delta Avengers have certainly been busy, forcing Shell's Forcados terminal to shut in about 250,000 barrels of daily exports; and breaching an offshore Chevron facility in the 160,000 barrels per day Escravos system. In April, ENI had to declare force majeure -- letting it stop shipments without breaching contracts -- on exports of its Brass River grade after a pipeline fire.

'Avengers' threaten new insurgency in Nigeria's oil-producing Delta | Reuters: They call themselves the Niger Delta Avengers. Little is known about the new radical group that has claimed a series of pipeline bombings in Nigeria's oil-producing region this year and evaded gunboats and soldiers trawling swamps and villages. Their attacks have driven Nigerian oil output to near a 22-year low and, if the violence escalates into another insurgency in the restive area, it could cripple production in a country facing a growing economic crisis. President Muhammadu Buhari has said he will crush the militants, but a wide-scale conflict could stretch security forces already battling a northern rebellion by hardline Sunni Muslim group Boko Haram. Militancy has been rife over the past decade in the Delta, a southern region which is one of the country's poorest areas despite generating 70 percent of state income. Violence has increased sharply this year - most of it claimed by the "Avengers" - after Buhari scaled back an amnesty deal with rebel groups, which had ended a 2004-2009 insurgency. Under the deal, more state cash was channeled to the region for job training and militant groups were handed contracts to protect the pipelines they once bombed. But Buhari cut the budget allocated to the plan by about 70 percent and canceled the contracts, citing corruption and mismanagement of funds. The "Avengers" have carried out a string of attacks since February that reduced Nigerian oil output by at least 300,000 barrels a day of output, and shut down two refineries and a major export terminal. On Thursday the group emailed journalists a statement saying they were fighting for an independent Delta and would step up their attacks unless oil firms left the region within two weeks.

Nigerian oil output, naira fall amid attacks, strike threats (AP) — Militant attacks on oil installations and the threat of a nationwide strike drove Nigeria’s petroleum production and its naira currency to new lows Tuesday. The naira fell to 350 to the dollar on the parallel market, against an official rate of 199, amid reports and denials that President Muhammadu Buhari’s government plans an imminent devaluation, bowing to demands of the International Monetary Fund in exchange for soft loans. Nigeria’s oil output dropped to 1.4 million barrels a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million barrels. The slump means Angola is now Africa’s biggest oil producer, with a steady production of nearly 1.8 million barrels daily, according to the Organization of Petroleum Exporting Countries. Nigeria’s National Labour Congress and the Trade Union Congress, which say they represent 6.5 million workers, and some civic organizations called for a strike Wednesday to protest a 70 percent increase in gasoline prices, prompted by the removal of a government subsidy on gas and shortages of foreign currency. Nigeria is dependent on imports with oil accounting for 70 percent of government revenue. The crisis is dividing labor leaders on religious and ethnic lines. Those from the mainly Muslim north, like Buhari, are against the strike while Christians who dominate the oil-producing south are urging citizens to “Occupy Nigeria!” Unions representing oil and electricity workers, as well as pilots, rejected the strike call even before the National Industrial Court issued a restraining order Tuesday pending a hearing on the justice minister’s request for the court to rule whether the strike is legal.

Nigerian Oil Output Falls 800,000 Barrels As Militants Step Up Attacks -- Attacks on energy infrastructure continue to bombard the oil majors operating in the Niger Delta. The latest victim was Italian oil giant Eni, who told UPI in an email that some of its equity oil production was knocked offline because of an attack on an oil pipeline.  The Niger Delta Avengers have fiercely stepped up assaults on the likes of Chevron, Shell and Eni in recent weeks. Oil prices have increased over the same time period as the disruptions – combined with the major outages in Canada – have erased the global glut for crude oil. Nigeria’s oil production has plunged by an eye-watering 40 percent, falling to just 1.4 million barrels per day, the lowest level in decades. "Because of the incessant attacks and disruption of production in the Niger Delta, as I talk to you now, we are now producing about 1.4 million barrels per day," Nigeria’s oil minister Emmanuel Ibe Kachikwu said, according to Reuters. "We were at 2.2 million bpd but we have lost 800,000 barrels.” The Nigerian government is hoping to engage with people in the area and stop the attacks, but there is little sign of progress for now.  During midday trading on Wednesday, both WTI and Brent are up around 1 percent to $48.80 and $49.67, respectively.

Nigeria beefs up security after oil installation attacks - President Muhammadu Buhari has ordered security to be stepped up in Nigeria's oil-producing south, after a spate of attacks blamed on local militants that he said threatened the economy. Buhari on Friday met senior executives of the Anglo-Dutch oil group Shell, whose Nigerian subsidiary has been targeted in recent months by a group calling itself the Niger Delta Avengers. The group wants a fairer share of oil revenue for local people and wants a government amnesty programme that brought similar unrest to an end in 2009 to be continued. A statement from Buhari's office said Nigeria's naval chief had been ordered "to reorganise and strengthen the military joint task force (JTF) in the Niger Delta to deal effectively with the resurgence of militancy and the sabotage of oil installations". JTF operations "were also being enhanced with increased support and cooperation from the United States and Europe in the areas of training, intelligence, equipment and logistics", it added. "We have to be very serious with the situation in the Niger Delta because it threatens the national economy," Buhari told Shell's upstream head Andrew Brown. "I assure you that everything possible will be done to protect personnel and oil assets in the region." Nigeria has recently lost its status as Africa's leading oil producer to Angola because of the cut in output from sabotage, attacks and leaks. The government, which relies on oil exports for 70% of revenue but has seen income slashed because of a global slump in the cost of crude, has budgeted for 2.2 million barrels per day this year. But Vice President Yemi Osinbajo has said output is now at just 1.4 million bpd.

Brazil’s Petrobras Raises $6.75 Billion From Bond Issue; Pays High Price - WSJ: —Brazilian state-run oil company Petróleo Brasileiro SA, or Petrobras, raised a total $6.75 billion from an overseas bond issue, but it was obligated to pay a high yield to investors, due to its elevated debt. The company issued its bonds via two tranches. The first, worth $5 billion, is due in May 2021 and will pay an annual yield of 8.625%. The second tranche, totaling $1.75 billion, will pay a yield of 9% and will mature in May 2026. In June 2015, by comparison, Petrobras raised $2.5 billion, via a 100-year bond issue, with an annual yield of 8.45%. In previous years, Petrobras has tapped U.S. and European debt markets for tens of billions of dollars, paying yield-starved investors interest rates that often fell below 5%. Petrobras, the world’s most indebted major oil company, has $13.2 billion in debt coming due this year and another $28.5 billion in maturities in the following two years. After years of political interference in everything from fuel pricing to investment decisions, the company has been forced to write off billions of dollars in assets and has seen its cash flows squeezed by lower oil prices. Petrobras said it plans to use the proceeds of the operation, to repurchase a total of $6 billion in outstanding bonds, up from a previously announced $3.58 billion. The company was planning to raise up to $5 billion with the issue, but increased the amount due to the strong demand. The issue attracted demand from investors of around $20 billion, according to a banker, who was involved in the transaction.

Oil-For-Drugs Swap: India's Answer To Venezuela's Unpaid Bills - Venezuela can’t pay its millions of dollars in debt to Indian pharmaceutical companies, say Indian officials, so officials are considering a proposal that would see the Latin American country swap oil for its drug debts. After an unlucky gamble on India’s part that Venezuela’s emerging economy would be a good place to hawk Indian pharmaceuticals, the debt is now mounting and poor crisis management coupled with the long-running oil price slump has left Venezuela too cash strapped to pay up. Already, according to Indian media, India’s Dr Reddy’s pharmaceutical company has written off US$65 million in debt in the first quarter of this year, while Glenmark Pharmaceuticals Inc is looking to collect some US$45 million in unpaid debt from Venezuela. "The situation in Venezuela is very precarious ... the government knows it needs to do something about the medicine shortage, that's why it is willing to discuss such a deal," Reuters quoted an Indian official as saying. Indian officials cited by local media have suggested that the oil-for-drugs proposal has come from the Trade Ministry, which envisions using the State Bank of India as a mediator in the swap. “The finance ministry has assured us that the government is fully committed to it, but it will take time," India’s Economic Times quoted P.V. Appaji, Director General of the Pharmaceutical Export Promotion Council of India, a body under the country's commerce ministry, as saying. It’s not an unprecedented idea. India has swapped rice and wheat for Iranian oil when Iran was under sanctions.

Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing - In yet another paradoxical move that will leave many scratching their heads, just days after throwing in the towel on its bullish dollar call (now that it expects far less rate hikes over the next year), Goldman moments ago announced that it is also cutting back on its longer-term oil price forecasts (which paradoxically are linked to a stronger dollar) for the coming year, as a result of a rebalancing that is taking far longer to take place than previously anticipated. This is how Goldman explains its bearish pivot on crude: The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl. However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q17. ... while the physical barrel rebalancing has started, the structural imbalance in the capital markets remains large, with $45 bn of equity and bond issuance taking place in the US this year. As a result, we believe that the industry still has further to adjust and our updated forecast maintains the same 2016-2017 price level that we previously believed was required to finally correct both the barrel and capital imbalances, and eventually take prices to $60/bbl.

This Is Goldman's Primer On The Most Critical Crude Oil Prices - While we are not sure if the market has finally had time to actually read Goldman's oil note from Sunday night (posted here at the same time) and understand that far from bullish Goldman actually warned that the market rebalancing is taking far longer and as a result is lowering its 2017 price targets, there was one additional curious highlight in the report: Goldman's breakdown of critical prices bands for oil which actually is a useful guide for how the broader market (if devoid of momentum-chasing algo traders) would respond with oil trading in any given price interval .

  • Below $30/bbl is the price range when inventories near storage capacity. This risk has passed in our view absent a sharp reversal in global growth.
  • Below $40/bbl, producers respond by aggressively slashing spending and future production. This threshold was made explicit by the US credit agencies when they downgraded 15% of US E&Ps to high yield earlier this year. We no longer need to be in this range unless the systemic disruptions reverse (Nigeria, Libya) or low-cost producers surprise to the upside once again in 2016 or 2017.
  • Between $40/bbl and $50/bbl is the muddle through. It’s the range (1) that most non-OPEC producers budgeted for 2016, and (2) where US producers on aggregate are not ramping up activity: some are focusing on drawing down their well backlog while the aggregate rig count continues to decline. This is where prices will remain through 2Q.
  • Above $50/bbl is where activity will start to ramp up although operational frictions and levered balance sheets will slow this activity initially. This threshold has been explicitly stated during US earnings releases and is also consistent with the notable increase in hedging with calendar 2017 prices near $50/bbl. The ongoing open access to capital creates the risk that activity can ramp up meaningfully more near $50/bbl than we expect, with a US E&P raising equity this past week to ramp up its drilling activity. We also see risks that brownfield capex spending increases near this threshold, as producers seek to maximize returns and cash flow.
  • Near $60/bbl is when new projects will be sanctioned and shale activity will accelerate, which we do not require until late in 2017 in our view.

OilPrice Intelligence Report: Goldman Sachs Turns Bullish on Oil - Oil prices rose this week due to the ongoing outages from Canada and Nigeria, events which Goldman Sachs says has tipped the markets from oil glut into deficit. The investment bank is typically one of the more bearish voices on oil, so its uncharacteristically bullish call on May 16 caught the markets by surprise. Canada still has more than 1 mb/d of supply offline because of the fires, although some companies are trying to restart operations. More importantly, attacks in the Niger Delta have not let up, which have forced ever more output from Nigeria offline. "The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," Goldman Sachs said on Monday. WTI and Brent traded up near $48 per barrel. Bearish signs still abound. There are some caveats to keep in mind. Genscape reported oil storage levels rising at Cushing, Oklahoma for the week. ExxonMobil said that it would restore some oil supply in Nigeria. Venezuela secured some help from China and a political breakthrough in Libya could mean the return of some supply from the war-torn North African nation (more on that below).  Suncor Energyand Syncrude Canada were forced to undertake fresh evacuations from oil sands facilities in Alberta because of encroaching wildfires, pulling out around 8,000 people. The fires have yet to be brought under control, and they could delay the restart of more than 1 million barrels per day of production, more than a third of Canada’s entire output. Suncor had said last week that it planned on restarting operations, but the spread of the wildfire has prevented that up until now. The company has shut in at least 300,000 barrels per day of supply.

Oil hits six-month highs on supply outages, Goldman forecast | Reuters: Oil prices hit six-month highs on Monday on worries about global supply outages and as long-time bear Goldman Sachs sounded more positive on the market, although a stockpile build at the U.S. storage hub for crude futures limited gains. Expectations of resumption in oil exports from a Libyan port, a ramp up in Nigerian crude production by Exxon Mobil Corp and an improved oil-for-loans deal reached by Venezuela with China furthered the tempered the bullish theme in oil. Brent crude futures settled up $1.14, or 2.4 percent, at $48.97 per barrel. It rallied to $49.47 earlier, its highest since early November, in a test towards $50. U.S. crude's West Texas Intermediate (WTI) futures rose by $1.51, or 3.3 percent, to end at $47.72 after touching a six-month high at $47.85. WTI saw a flurry of late buying, with more than 13,600 lots changing hands in the final minute, according to Reuters data, in an attempt to test $48. Crude futures have rallied for most of the past two weeks from a combination of Nigerian, Venezuelan and other outages, declining U.S. production and virtually frozen inflows of Canadian crude after wildfires in Alberta's oil sands region. The disruptions triggered a U-turn in the outlook for the oil market from Goldman Sachs, which had long warned of global storage hitting capacity and of another oil price crash to as low as $20 per barrel. "The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," said Goldman, which added that supply likely shifted into a deficit in May.

Crude Slides After Oil Inventories Drawdown Less Than Expected - Following last week's chaotic Genscape build (and warning), API build, but DOE draw, and subsequent face-ripping rally, tonight's API data signaled a lower than expected draw and sparked further chaos in prices as they jerked higher ("it's a draw") only to slide on missed expectations. Having reached 7-month highs during the day session, the 1.1mm barrel drawdown missed expectations of a 3.5mm draw dramatically and sparked selling pressure. However, a smaller than expected build at Cushing stalled the weakness along with notably large drawdowns in Gasoline and Distillates. API:

  • Crude -1.1m (-3.5mm exp, last week -3.4mm)
  • Cushing +508k (+1.1m exp)
  • Gasoline -1.9mm (-1m exp)
  • Distillates -2m (-1m exp)

Oil futures mark highest settlement in 7 months -  Oil futures rose Tuesday for a second straight session, with prices settling at their highest level since early October as traders bet that the recent output disruptions will drawdown the globe’s supply surplus. The market also looked ahead to data on U.S. crude inventories, which is expected to show a weekly decline. June West Texas Intermediate crude CLM6, +0.46% rose by 59 cents, or 1.2%, to settle at $48.31 a barrel on the New York Mercantile Exchange — the highest settlement for futures prices since Oct. 9. July Brent LCON6, +0.18% ended at $49.28 a barrel on London’s ICE Futures exchange, up 31 cents, or 0.6%.“Supply outages continue to be the key short-term driver for the crude complex, with Canadian and Nigerian production still facing difficulty,” said Robbie Fraser, commodity analyst at Schneider Electric. “The combination of those outages alongside stronger than expected demand growth, particularly from China, has at least temporarily removed excess supply from the market,” he said.The biggest support for oil prices has been supply disruption caused by continued productions outages in Nigeria and Canada. Analysts believe that continued sabotage to Nigeria’s oil infrastructure means that the West African nation is now producing about 1 million barrels a day, down 1.2 million barrels a day from its 2015 average.

Crude Dumps, Pumps, & Slumps As Unexpected Inventory Build Offsets Production Cut --Following API's smaller than expected draw overnight, DOE data showed an unexpedted 1.31m barrel build (3.5m draw expectations). This was offset by considerably bigger than expected draws in Gasoline and Distillates and Cushing oinventories rose less than expected. Crude production also fell once again, to its lowest since Sept 2014. The initial kneejerk was a mini-flash-crash in crude prices.. but that was rapidly bid back to unch...DOE

  • Crude +1.31m (-3.5mm exp, last week -3.4mm)
  • Cushing +460k (+1.1m exp)
  • Gasoline -2.5mm (-1m exp)
  • Distillates -3.17m (-1m exp)

Some other statistics:

  • Total production: 8.8mm
  • Crude imports: 7.8mm
  • Total crude supply: 16.1mm

Production dropped for the 17th week in a row to its lowest since Sept 2014... Total stocks rose 1.3MM to 541MM, up 59 million Y/Y. Some other interesting obserations: despite the Canadian wildfires, it appears that the DOE goalseeked total imports at 7.8mm barrels, virtually unchanged from last week, suggesting there has been no disruption. Also notable is that refinery throughput rose by 190,000 b/d to a new record high of 16.371, up 1% from a year ago this time.

Oil Holds Gains After Unexpected Storage Build - WSJ:  —Oil prices rose Wednesday as traders looked past a surprise increase in crude stockpiles to focus on robust demand for refined products like gasoline. Prices are on track to settle at a new 2016 high. Oil futures have surged in recent sessions as outages in Africa and Canada and production declines in the U.S. fueled expectations of a tighter supply. U.S. crude for June delivery recently rose 44 cents, or 0.9%, to $48.75 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 29 cents, or 0.6%, to $49.57 a barrel on ICE Futures Europe. U.S. crude-oil inventories rose by 1.3 million barrels to 541.3 million barrels in the week ended May 13, the Energy Information Administration said Wednesday. Analysts polled by The Wall Street Journal had expected a decline of 2.4 million barrels. Stockpiles of refined products including gasoline and distillates like diesel fuel fell by more than crude-oil inventories rose. Demand for refined products rose to more than 20 million barrels a day, the EIA estimated, the highest weekly level since January. “We did have a hefty drawdown in gasoline and distillates,” . “It’s going to support higher prices in the short term.…I think $50 is around the corner.” Gasoline futures recently rose 1.2% to $1.6530 a gallon. Diesel futures rose 2% to $1.4968 a gallon. Imports from Canada to the Midwest fell, reflecting lower Canadian oil-sands production following wildfires. But imports to the Gulf Coast rose by a larger amount, which “highlights the overall robust global supply picture,” . A stronger dollar ahead of the release of the latest minutes from the U.S. Federal Reserve also weighed on oil prices Wednesday. The Wall Street Journal Dollar Index, which tracks the dollar against a basket of other currencies, recently rose 0.3%.

Oil steadies; Canadian, Nigerian supply issues offset strong dollar | Reuters: Oil prices settled largely unchanged on Thursday as worries about Canadian and Nigerian supply outages offset the impact of a stronger dollar, which has rallied on growing expectations the Federal Reserve will raise interest rates next month. The prospect of a U.S. rate increase in June prompted investors earlier on Thursday to cash out of long positions in Brent and U.S. crude's West Texas Intermediate (WTI) futures. Those positions made money after oil rallied on Monday and Tuesday on worries about supply outages. But Brent and WTI closed sharply off the session lows due to crude export problems facing Canada's Suncor Energy (SU.TO) and reports of trouble at Nigeria's Qua Iboe crude oil terminal. Suncor extended a force majeure that will prevent any more shipping of oil this month from its Syncrude facility. The decision came amid a raging wildfire in Canada's oil sands region that has shut output capacity by more than 1 million barrels per day. In Nigeria, ExxonMobil (XOM.N) said operations at its Qua Iboe crude oil terminal were disrupted by "criminal" activity, although the plant was still producing. The terminal, Nigeria's largest and typically exporting more than 300,000 barrels per day, declared a force majeure last week after damage to a pipeline.

Oil Supply Disruptions Quickly Fading As Canada, Libya, And Nigeria Return To Production - Earlier this week, Goldman unleashed the latest oil rally when it admitted that while the oil market will take far longer to rebalance due to rising low-cost oil production, it said that material supply disruptions are providing a boost to near-term prices. Goldman provided the following visualization of unplanned ongoing outages ...  where it highlighted the recent stoppages in Canada, Nigeria and Libya as the most prominent. In a surprising twist, it appears that virtually all three of the main disruptions choke points are being resolved far quicker than expected. First on Canada and its ongoing wildfire, the WSJ reported that the threat from forest fires in northern Alberta receded further on Thursday with the blazes moving away from oil-sands production facilities and a nearby evacuated town as cooler, wetter weather aided firefighting efforts, provincial officials said. The out-of-control wildfire spread to more than 1.25 million acres, up from just over one million acres on Wednesday, but the front line moved away from critical infrastructure to a remote area on the border of neighboring Saskatchewan province, the officials said. "The threat definitely has diminished around the communities and the oil-sands facilities," Mr. Morrison said at a news conference in Edmonton. “We held the fire yesterday in all critical areas.” This means that oilsands production is gradually coming back online and full capacity will likely be fully restored in the coming days: Just as important is that the long-running export crisis in Libya also appears to be on the verge of a solution. According to Bloomberg, oil exports are set to resume Thursday from the port of Hariga in eastern Libya, easing a bottleneck and allowing for crude production to increase after competing administrations of the state-run National Oil Corp. reached an agreement in the divided country. Finally, and perhaps most importantly, is Nigeria, whose offline high quality bonny light crude has been seen as a major catalyst for the recent spike in prices due to the actions of such groups as the Niger Delta Avengers, and where Bloomberg notes that an oil tanker was said to have finally loaded up Nigeria’s Qua Iboe crude today, when a shipment was made on the SCF Khibiny, a 1 million bbl carrying Suezmax. It adds that the ship signals today that its status is "under way" having previously been anchored. The reason: "people who had blocked bridge access to Qua Iboe terminal no longer there" according to Bloomberg.

US oil ends at $47.75, up about 4 percent for week: Oil prices were steady to softer on Friday as a stronger dollar spurred investors to cash in on a second week of gains, with the focus remaining on the rebalancing of the market as the global glut faced unplanned supply outages. The dollar was on course for a third straight weekly gain on Friday on hints the United States is getting closer to raising interest rates. A stronger dollar makes it more expensive for investors to hold greenback-denominated commodities like oil futures. Global benchmark Brent crude prices traded 11 cents lower at $48.70 a barrel, off a six-month high of $49.85 reached two days ago.  U.S. West Texas Intermediate crude futures settled at $47.75 a barrel, down 41 cents, also falling from a seven-month high of $48.09. That said, it gained about 4 percent for the week. Also on Friday, oilfield services firm Baker Hughes reported the number of oil rigs drilling in U.S. fields remained unchanged from the previous week at a total of 318. Oil was still headed for their second straight week of gains, boosted by growing supply disruptions in oil producing countries like Nigeria, Canada and Libya.  "The overall market sentiment remains biased to the upside as a growing contingency of market participants are of the view that the market is already in a rebalancing pattern and the current round of unscheduled production cuts are starting to accelerate the process,"

Oil futures settle lower, but gain more than 3% for the week - Oil futures on Friday finished the week with a more than 3% gain, with recent production outages feeding expectations for a decline in the global glut of crude supplies. Prices for the session, however, settled lower, pressured by news that exports from an eastern port in Libya have resumed and data showing that the weekly U.S. oil-rigs count was unchanged, after eight straight weeks of declines. The June contract for West Texas Intermediate crude fell 41 cents, or 0.9%, to settle at $47.75 a barrel on the New York Mercantile Exchange. The contract, which expired at the settlement, gained 3.3% for the week. The July contract which is now the most-active and front-month contract, finished the day at $48.41, down 26 cents, or 0.5%. July Brent crude, the global oil benchmark, shed 9 cents, or 0.2%, to $48.72 a barrel on London’s ICE Futures exchange, for a weekly gain of about 2%. News reports said that exports from the eastern port of Marsa al-Hariga in Libya have resumed. The Libyan outage began more than two weeks ago with a dispute between two groups fighting for control of the country.  Prices had seen gains early Friday but “lost momentum after it was reported that oil exports resumed from [Libya’s] blocked eastern port,” said Phil Flynn, senior market analyst at Price Futures Group. Adding further pressure to prices, data from Baker Hughes Friday showed that the number of active U.S. rigs drilling for crude was unchanged at 318 after falling over the last eight weeks in a row. The total U.S. rig count fell by 2 to 404. The figures are a rough proxy for activity in the industry.

Something Stunning Is Taking Place Off The Coast Of Singapore -- Back in November, when the world-record crude inventory glut was still in its early innings, we showed what we then thought was a disturbing image of dozens of oil tankers on anchor near the US oil hub of Galveston, TX, unwilling to unload their cargo at what the owners of the oil thought was too low prices. Little did we know that just a few months later this seemingly unprecedented sight of clustered VLCCs would be a daily occurrence as oil producers, concerned by Cushing hitting its operating capacity, would take advantage of oil curve contango to store their oil offshore.  However, while the "parking lot" off Galveston has since normalized, something shocking has emerged and continued to grow half way around the world, just off the coat of Singapore. This. The red dots show stationary oil tankers, which have made the Straits of Malacca, one of the world's most important shipping lanes which carries about a quarter of all seaborne oil primarily from the Persian Gulf headed to China, into a "bumper to bumper" parking lots of ships and tens of millions in combustible cargo. it is also the topic of the latest Reuters expose on the historic physical oil glut which continues to build behind the scenes, and which so far has proven totally immune to the sharp increase in oil prices over the past three months. Indeed, as Reuters reports, prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. And yet flying into Singapore, the oil trading hub for the world's biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70 percent between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market. "I've been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers," said a senior European oil trader a day after arriving in the city-state.

US rig count drops 2 this week to 404, another all-time low (AP) — The number of rigs exploring for oil and natural gas in the U.S. dropped by two this week to 404, another all-time low amid low energy prices. A year ago, 885 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 318 rigs sought oil and 85 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, Texas declined by eight rigs while Kansas and North Dakota were down one each.  Louisiana gained seven rigs and Colorado and Oklahoma were up one apiece. Alaska, Arkansas, California, New Mexico, Ohio, Pennsylvania, Utah, West Virginia and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. The previous low of 488 set in 1999 was eclipsed March 11, and has continued to slide.

The oil rig count did not fall for the first time in 9 weeks - The US oil rig count was unchanged this week, breaking an eight-week streak of declines. The gas rig count fell two to 85, and the oil rig tally totaled 318, taking the combined count down two to 404. That's a level not seen since the series began in 1947. The oil rig count fell last week by four, while the gas rig count increased by one. Meanwhile, US oil production keeps falling, and is now at the lowest level since September 2014 according to Bloomberg. Crude production fell to 8.79 million barrels per barrel last week, according to data from the Energy Information Administration. After the rig-count data release, West Texas Intermediate futures were down 0.2% to $48.46 per barrel in New York. Oil prices headed for a second straight weekly gain amid supply disruptions in Nigeria and wildfires near Canadian oil sands. Here's the most recent chart of oil rigs:

Oil Price Slips After Rig Count Decline Stalls - For 20 of the last 21 weeks, US oil rig count has declined as it tracked the lagged oil price lower. That changed today as oil rigs were unchanged week-over-week perfectly syncing with the lagged lows in oil. Total rigs dropped 2 (thanks to gas rigs) to a new record low but even that pace has slowed dramatically. Oil prices are fading modestly on the news... And oil prices are giving up earlier gains...

Moody's downgrades Saudi Arabia on lower oil prices: (AP) — Saudi Arabia's credit rating has been downgraded by Moody's because of the long and deep slump in oil prices. Moody's Investors Service said Saturday that it also downgraded Gulf oil producers Bahrain and Oman. It left ratings unchanged for other Gulf states including Kuwait and Qatar. Saudi Arabia is the world's largest oil exporter. Moody's cut the country's long-term issuer rating one notch to A1 from Aa3 after a review that began in March. Crude prices fell from more than $100 in mid-2014 to under $30 a barrel in February, although they have recovered into the mid-$40s. Benchmark international crude settled Friday at $47.83 a barrel. "A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks," Moody's said in a note. Moody's lowered Oman to Baa1 from A3 and Bahrain to Ba2 from Ba1. The ratings agency did not downgrade Kuwait, Qatar, the United Arab Emirates or Abu Dhabi, but it assigned a negative outlook to each. Oil prices slumped because of production that grew faster than demand. Surging production from shale operators in the United States contributed to the glut. So did the Organization of Petroleum Exporting Countries, which decided in November 2014, several months after prices began falling, to continue pumping rather than give up market share.

Saudi Arabia Credit Downgrade: Moody’s Cuts Rating, Assigns Stable Outlook Amid Slump In Oil Prices -- Moody's Investors Service downgraded Saudi Arabia's credit rating Saturday, to A1 from Aa3, citing lower oil prices that led to a “material deterioration in Saudi Arabia's credit profile.” Lower growth, higher levels of debt and reduced buffers both internally and externally — its foreign exchange reserves fell from $731 billion in August 2014 to $576 billion by March — had also weakened the oil-rich kingdom's ability to weather future economic shocks, the agency said. As defined by Moody's, an Aa3 rating signifies high quality and very low credit risk, while the slightly lower A1 rating signifies an upper-medium quality grade and low credit risk. Oil prices have fallen to less than $50 a barrel for crude, from a peak of more than $100 a barrel in 2014. The collapse has taken a heavy toll on Saudi Arabia, which counts on its oil and gas sector for 50 percent of its gross domestic product and about 85 percent of its export earnings.

Saudi Aramco IPO: The Numbers Don't Add Up And For Bloomberg: Business As Usual -- From various sources this is my 30-second, elevator speech regarding Saudi Arabia and its trillion-dollar mistake:

  • the country is said to have had about $850 billion in cash and marketable equities when this all started;
  • the country is said to have lost maybe $250 billion since October, 2014, due to the "trillion-dollar-mistake"; maybe more, maybe less; maybe a lot more;
  • currently the country is losing about $5 billion / month;
  • the NY Times recently reported that if the "9/11 report" was released, Saudi Arabia was ready to sell $750 billion in US Treasuries; and,
  • one would think about 2/3rds (maybe more of a country's assets) would be in cash, marketable equities, or in this case, 0.67 * 850 = $550 billion.
In a short Bloomberg story posted today, the writers note that the US Treasury Department ... has released a breakdown of Saudi Arabia's holding of US debt (i.e., Treasuries), after keeping the figures scret for more than four decades. And ... drum roll ... drum roll... The stockpile of the world's biggest oil exporter stood at $116.8 billion ... ... let's just call it less than $150 billion, giving Prince Salman a bit of slack. Now 5% of a trillion company ($50 billion) looks a lot more reasonable. I always wondered why such a low amount ("less than 5%" has been the usual boiler-plate number) was being offered in the IPO. Well, now we know. If one's stockpile is only $150 billion, then $50 billion actually looks pretty impressive.

The Mystery Of Saudi Treasury Holdings Solved: US Reveals Saudi Holdings For The First Time -- In the aftermath of Saudi Arabia's explicit threat to sell off US Treasurys (of which according to the NYT it had some $750 billion) should the US pursue legislation that could hold it liable for the September 11 bombings, Wall Street's analysts quickly tried to calculate whether Saudi Arabia had anywhere remotely close to that amount of US paper available for liquidation. As a reminder, despite starting to release data on foreign ownership of Treasuries in 1974, the Treasury’s policy has been to not disclose Saudi holdings, and it has instead grouped them with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates.  The group held $281 billion as of February, down from a record of $298.4 billion in July. For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed monthly breakdown of how much U.S. debt each owns. A few days after the NYT's disturbing article on Saudi Treasury liquidation, in hopes of bringing some clarity to this all too important topic, we penned an article titled "Does Saudi Arabia Have $750 Billion In Assets To Sell?" we cited Stone McCarthy which analyzed oil exporter reserve holdings and observed that "at the end of January, Asian oil exporters held $563.6 billion of U.S. securities, with Treasuries and U.S. equities accounting for 92.2% of the total. Treasury holdings totaled $268.2 billion."

In Unexpected Twist, Saudi Arabia Was Buying US Treasuries Over Past Year -- As reported earlier after decades of keeping Saudi Arabian holdings of treasury paper non-public and bundled with those of other "oil exporting nations", today at 4pm for the first time the US Treasury confirmed that its "leaked" look at Saudi holdings, exposed as a result of a Bloomberg FOIA, was accurate when it reported that the Saudis owned $116.8 billion in US paper as of March 31, which made the country the 13th largest holder of US Treasurys. What is far more surprising, as this data was already revealed earlier, is that in the past three months Saudi holdings barely declined, and according to the Treasury, dipped only from $124BN in January to $117BN in March, which represents far smaller selling than what many sellside analysts had expected as a result of Saudi reserve liquidation. In fact, at $116.8 billion, Saudi holdings are above the November total of $114.7BN which was the highest going back all the way to March. In other words, instead of selling US Treasuriess, Saudi Arabia appears to have been buying over the past year!

Saudi Arabia Considers Paying Contractors With IOUs - Saudi Arabia is considering using IOUs to pay outstanding bills with contractors and conserve cash, according to people briefed on the discussions. As payment from the state, contractors would receive bond-like instruments which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private. Companies have received some payments in cash and the rest could come in the "I-owe-you" notes, the people said, adding that no decisions have been made on the measures. Saudi Arabia has slowed payments to contractors and suppliers, tapped foreign reserves and borrowed from local and international banks in response to the decline in crude oil, which accounts for the bulk of its revenue. The country will probably post a budget deficit of about 13.5 percent of economic output this year, according to International Monetary Fund estimates, pushing the government to borrow an estimated 120 billion riyals ($32 billion). The Saudi government owes approximately $40 billion to the country’s contractors, estimated Jaap Meijer, managing director of research at Dubai-based Arqaam. Companies such as the Saudi Binladin Group are cutting thousands of jobs amid a slowdown in the construction industry, according to media reports. “This would make sense and would help contractors get back on track,” Meijer said of the possible move. “Banks, however, would be more interested if it were a floating rate.”

Saudi Arabia’s IOUs - Izabella Kaminska - Something of significant note just occurred in the global oil hierarchy. According to a Bloomberg report filed on Wednesday afternoon (UK time), Saudi Arabia may be considering paying some outstanding bills to contractors using government-issued bonds. Contractors, they added, would be able to hold bond-like instruments until maturity. This is quite something, not least because paying your contractors with short-term bonds is not entirely dissimilar to paying them with IOUs. The report also noted that the last time Saudi Arabia had paid contractors with bonds was in the 1990s. Details are still forthcoming and there’s been no official confirmation from Saudi Arabia’s finance ministry thus far. As a consequence, we’ve trawled through the FT archive to figure out what the implications were last time Saudi Arabia pulled the manoeuvre almost exactly two decades ago. Here’s the FT story from April 4, 1996 (click to enlarge): A few points to highlight (bearing in mind it’s now 20 years later and things have probably changed a lot):

  • The 1996 IOUs came on the back of more than five years worth of massive borrowings and followed delays on payments to other parts of the private sector.
  • The debts were borrowings from Saudi Arabia’s own state pensions fund and social security system.
  • The farmers who received the non-interest notes had not been paid for five years.
  • Banks were willing to buy (liquidise) the IOUs at an average discount of 1 per cent over the equivalent treasury bill rate.
  • The practice of delaying payments for two or more years was an unwritten part of government policy since the 1986 oil price fall.
  • The IOU payments followed a major drawdown on Saudi Arabia’s reserves (in part the result of Operation Desert Storm).
  • The cash drain was exacerbated by a reluctance to cut welfare spending and agricultural subsidies.

Saudi Arabia’s Bold Vision for Economic Diversification – Mohamed A. El-Erian - Saudi Arabia has captured the world’s attention with the announcement of an ambitious agenda, called Vision 2030, aimed at overhauling the structure of its economy. The plan would reduce historical high dependence on oil by transforming how the Kingdom generates income, as well as how it spends and manages its vast resources. It is supported by detailed action plans, the initial implementation of which has already involved headline-grabbing institutional changes in a country long known for caution and gradualism.  While the immediate catalyst for economic restructuring is the impact of the sharp fall in international oil prices, the rationale for these reforms has been evident for much longer. With oil sales generating the bulk of government revenues, and with the public sector being the predominant employer, Saudi officials have long worried that the Kingdom’s lack of economic diversity could place at risk its long-term financial security.  The more than halving of oil prices in the last 18 months has been accompanied by a major change in how the oil market functions. With growth in non-traditional sources of energy – particularly the “shale revolution,” which drove a near-doubling in US production, to almost ten million barrels per day, in just four years – the Saudi-led OPEC oil cartel has less influence on market prices. That’s why Vision 2030 is so important. Seeking to regain better control over its economic and financial destiny, the Kingdom has designed an ambitious economic restructuring plan, spearheaded by its energetic new deputy crown prince, Mohammed bin Salman Al Saud. In simplified terms, Vision 2030 focuses on three major areas, together with efforts to protect the most vulnerable segments of the population.

What Does The Next OPEC Meeting Have In Store? | The next OPEC meeting on the 2nd of June will act as little more than a forum for continued altercations between Saudi Arabia and Iran The 2 June 2016 OPEC meeting will be held amid a backdrop of oil prices near $50 per barrel, a sharp drop in Nigerian production due to sabotage, turmoil in Venezuela, Saudi Arabia operating with a new oil minister, and Iran aggressively pumping close to pre-sanction levels. OPEC interactions have become a direct altercation between Saudi Arabia and Iran, with the remaining members reduced to mere observers. The new Saudi oil minister, Khalid al-Falih, will be attending his first OPEC meeting, but experts doubt he will have the same clout and skills as the outgoing Saudi oil minister, Ali bin Ibrahim Al-Naimi.  “OPEC’s unity is now in the spotlight more than ever,” said an OPEC official. “Would we ever see a minister that carries the same weight as Naimi? I don’t think so, especially as it is clear now that decisions are in the hands of the deputy crown prince,” reports The Wall Street Journal. The Prince outlined his strategy in “Vision 2030”, and a major step in that direction is the listing of the state-owned oil company Aramco. In order to gain additional traction for the proposed listing, the Saudis will continue their aggressive stance in OPEC, and keep all the oil producers on the hook, a glimpse of which was given by the new Saudi Aramco Chief executive Amin Nasser.

Iran's Oil Sector Returns to Form -- For nearly five decades, the Anglo-Persian Oil Co., later renamed Anglo-Iranian Oil Co., the forebear of what would eventually become British Petroleum, enjoyed near total control over Iran's oil sector. When Iran nationalized the sector in 1951, the United States and United Kingdom responded by overthrowing its architect, Prime Minister Mohammad Mossadegh, just two years later. Those events heavily influenced the 1979 Iranian Revolution, a foundational element of which was resource nationalism. And now it appears that BP is returning to its roots. During the week of May 2, the head of Iran's national oil company announced that BP will soon open an office in Tehran. Meanwhile, the country is opening up its energy sector and considering admitting foreign oil companies to set up joint ventures and operate oil fields there for the first time since 1979. But Iran faces new challenges. To revive his country's economy after years of sanctions, President Hassan Rouhani is now driving an initiative to reinvigorate the oil sector. To do so, Rouhani will have to break what has become a steady cycle of backlash — aimed at foreign and domestic actors alike — over the distribution of oil revenue in Iran.Iran's socialist and isolationist left has all but disappeared from the political scene, leaving in its place reformists who support re-engagement abroad. In fact, a broad consensus has been reached in Iran in favor of reviving economic ties with the outside world. At the same time, of course, the country's various political factions will try to turn the opportunity, each to its own advantage. Nonetheless, the ongoing disputes between Iran's hard-line conservatives, pragmatic conservatives, traditional conservatives and reformists depend more on the distribution of wealth in the country and less on the ideological rifts that characterized the debate 30 years ago.

IMF official: Iran can’t count on big jump in oil revenue (AP) — A senior International Monetary Fund official says Iran must deal with a shift to lower crude prices and cannot count on a big jump in oil revenue as it looks to boost production and better integrate with the global economy. First Deputy Managing Director David Lipton made the remarks Tuesday during a visit to Iran’s Central Bank. According to a transcript of his speech, Lipton said high global oil output and weak demand limit Iran’s prospects for a large increase in oil revenue. He says sustainable growth and job creation will increasingly depend on sectors other than oil in the future. He also stressed the importance of fighting money laundering and terrorism financing in plugging Iran’s banks into the global financial system, and said the IMF stands ready to help.

Iran Threatens to Sue US in the Hague for ‘Hostile Moves’ -- Iranian lawmakers are moving closer to approving a lawsuit against the United States to seek compensation for damage inflicted by Washington’s “hostile moves over the past 63 years”. On Wednesday, 181 of the 290 Iranian lawmakers voted in favor of a bill that would pave the way for the government to take legal action against the U.S. in an international court for actins dating back to the 1953 coup in Iran. The move comes just a few weeks after the U.S. Supreme Court ruled that nearly $2 billion of Iran’s frozen assets be given to American families of the victims of a 1983 bombing in Beirut and other attacks. It also comes after the release of documents declassified in April 2013 detailed the alleged CIA-orchestrated ouster of Prime Minister Mohammed Mossadegh 60 years ago. Analysts say the U.S. Supreme Court’s decision is set to affect Washington’s nascent ties with Iran at a time when the U.S. seeks to keep a balance between its strong alliance with Saudi Arabia, Iran’s regional rival, and the government in Tehran, which aims to recover economically after years of UN-backed sanctions due to its controversial nuclear program.

Algeria Signs Oil, Gas Deal as OPEC Member Seeks to Boost Sales  |  Rigzone- Algeria will supply oil and other energy products to Jordan for the first time under a memorandum of understanding signed on Monday, as the OPEC member seeks to diversify sales after years of stagnating crude production. Algeria’s state-run Sonatrach Group will start shipping liquefied natural gas and liquefied petroleum gas to Jordan in September, followed by crude oil, Algerian Energy Minister Salah Khebri said in an interview in Amman. Sonatrach and National Electric Power Co. of Jordan should reach a final agreement in the next few weeks, he said, without specifying shipment volumes. Sonatrach will also explore for oil and gas in Jordan. “This is the first time that we are going to get fuel and gas from Algeria,” Hasan Hiari, head of the natural gas department at Jordan’s Ministry of Energy & Mineral Resources, said in a separate interview in Amman. "We are keen on diversifying our energy sources." Algeria, Africa’s biggest natural gas producer, has invited international companies to help develop its oil and gas fields as Sonatrach has struggled to raise production after a corruption probe at the company and a deadly al-Qaeda terrorist attack in 2013 at the In Amenas gas field. The nation operated 55 oil rigs in April, an increase in each month since November, according to Baker Hughes Inc. Algeria pumped 1.1 million barrels a day of crude in April, its production little changed since 2013.

Fledging Libyan unity government not yet in a position to co-ordinate effective military response to Islamic State -- Key Points

  • Despite progress in securing government ministries in Tripoli, sustained international engagement will be required to unite Libya's factions behind the GNA.
  • A continuation of the divisions in governance that have affected Libya since mid-2014 is more likely, marked by enduring mistrust between and within the major factions.
  • A narrow focus on military aid for the GNA will erode its legitimacy in Libya, and hinder further its ability to address the insecurity and instability that allow groups such as the Islamic State to thrive.

Libya's Central Bank Has $184 Million In Gold In Its Vault... It Just Doesn't Know The Combination -  Imagine a world in which the chief of a central bank didn't have access to cash.   Now stop imagining and take a look at the situation in Libya, where the central bank chief sits in Eastern Libya, while the headquarters is further West in Tripoli, and despite Tripoli sending $23.5 million each month to Eastern Libya, it's only a fraction of what central bank governor Ali El Hibri says is needed to pay the bills ($257 million to be exact). The situation becomes even more strange when the fact that Eastern Libya actually does have a significant amount of gold and silver that it could use to sell and convert to cash, but it's in a vault that requires a five-number access code that nobody seems to have. Nobody that is, except for El Hibri's counterparts in Tripoli that is, and they won't give the code out. Such is life now in Libya since Muammar Gaddafi was captured and killed in 2011. Eastern and Western Libya is divided into two rival governments, and even the central bankers aren't working together to solve issues.It's alleged that the vault has roughly $184 million worth of gold and silver within its walls, and El Hibri isn't going to wait for his colleagues in Tripoli to have a change of heart before he can get to it. While El Hibri waits for a shipment of fresh currency from a foreign printing house to come in, totaling close to $3 billion, the central bank chief has tasked a pair of safe crackers, consisting of one engineer and one locksmith, to break into the vault and retrieve the coins. Although the coins apparently have Gaddafi's face on them, El Hibri has already worked a solution to that little issue by already agreeing to liquidate the treasure through gold and silver merchants provided they melt Gaddafi's likeness off.

Iraqi security forces use live fire to break up protests in Green Zone — Security forces used live ammunition and tear gas to push back protesters who broke into the fortified Green Zone on Friday, in a sharp escalation of unrest that has gripped the Iraqi capital.Iraq’s military imposed a curfew across Baghdad after the protesters breached the secured area, which is home to the parliament and other government buildings. After protesters broke through — reaching the office of Prime Minister Haider al-Abadi — security forces could be seen advancing across the bridges that lead out of the Green Zone and firing tear gas as gunshots rang out, though it was unclear if they were aiming live ammunition directly at the crowd.Hospital officials said at least 617 people were injured, largely from inhaling tear gas. They did not report any deaths or injuries from gunfire.The turmoil is destabilizing the capital amidst the country’s fight with Islamic State militants, with fears the group could try and capitalize on the unrest to launch attacks on Baghdad, where it has carried out a wave of attacks in recent days.The violence also further undermines the authority of Abadi, who is already politically weak and therefore struggling to enact the reforms demanded by protesters. An economic crisis due to a crash in oil prices also is adding to the pressure.

Iran-Saudi tensions simmer in Lebanon - BBC News: When thousands of mourners gathered in the southern suburbs of Beirut last week to bury top Hezbollah commander Mustafa Badreddine, who was killed in Syria, they repeatedly chanted "Death to al Saud". The Shia militant group backed by Iran and fighting alongside Bashar al-Assad's forces in Syria, said Badreddine's death "was the result of artillery bombardment carried out by takfiri groups in the area." Takfiri is a specific term to describe Muslims who believe society has reverted to a state of non-belief but in today's Middle East it has also become short hand for Sunni jihadist groups. The chants against the Saudi royal family appeared to strike a discordant note, coming from Hezbollah, a group that came into being in the 1980s to fight Israel's occupation of south Lebanon and remains officially dedicated to the goal of "liberating Palestine" - though it is now deeply embroiled in the war in Syria. But the mourners in Beirut were echoing a similar chant in front of the Saudi embassy in Tehran in January when angry protestors stormed the building after Riyadh carried out a death sentence against a Saudi Shia cleric, Nimr al-Nimr.  On the streets of Beirut, where Hezbollah members and supporters more commonly raise their fists to the slogan of "Death to Israel", the threats against the Saudi royal family were a stark reminder of the rapidly changing landscape in the region and the escalating proxy wars between Tehran and Saudi Arabia, from Syria to Yemen. In Lebanon, the rivalry has been simmering more quietly for years, in ways that are just as significant and came to a head in recent months. To counter Hezbollah's power and Iran's influence in Lebanon, Saudi Arabia has long backed a variety of politicians and institutions in Lebanon, the most prominent being the Hariris: former Prime Minister Saad Hariri and his father, Rafik, also a former prime minister who built his fortune in Saudi Arabia and was killed in a massive truck bomb in 2005.

Israel and Saudi Arabia: Strange Bedfellows in the New Middle East - FPIF: On the surface, it would seem that Saudi Arabia and Israel would be the worst of enemies — and indeed, they’ve never had diplomatic relations. After all, the Saudis have championed the cause of the Palestinians, who are oppressed by the Israelis. Israelis say they’re besieged by Muslim extremists, and many of these extremists are motivated by the intolerant, Wahhabi ideology born and bred in Saudi Arabia. But beneath the surface, these two old adversaries actually have a lot in common. In fact, in the contemporary Middle East, they’ve become the strangest of bedfellows. Rumors about the budding relationship have been circulating for the past few years. In 2015, former Saudi and Israeli officials confirmed that they’d held a series of high-level meetings to discuss shared concerns, such as the growing influence of Iran in Iraq, Syria, Yemen, and Lebanon, as well as Iran’s nuclear enrichment program. Shimon Shapira, an Israeli representative who participated in secret meetings with the Saudis, put it this way: “We discovered we have the same problems and same challenges and some of the same answers.” On May 5, former Saudi intelligence chief Prince Turki bin Faisal and retired Israeli Major General Yaakov Amidror spoke together at a Washington event hosted by The Washington Institute for Near East Policy — the policy wing of the pro-Israel lobby AIPAC. The event, broadcast live online, showed that Saudi Arabia and Israel have finally come out of the closet –– together.

Syrian Refugees Forced Into Child Labor  - video - Five million Syrians are on the run from their civil war, and the UN estimates more than one million are children. While undercover, CBS News' Holly Williams discovered refugee children pressed into labor for 50 cents an hour.

MSF to pull out of World Humanitarian Summit | Médecins Sans Frontières (MSF) International -- Last year, 75 hospitals managed or supported by Médecins Sans Frontières (MSF) were bombed. This was in violation of the most fundamental rules of war which gives protected status to medical facilities and its patients, regardless if the patients are civilians or wounded combatants. Beyond the hospitals, civilians are being wounded and killed by indiscriminate warfare in Syria, Yemen, South Sudan, Afghanistan and elsewhere.  At the same time, the treatment of refugees and migrants in Europe and beyond has shown a shocking lack of humanity. A humanitarian summit, at which states, UN agencies and non-governmental organisations come together to discuss these urgent issues, has never been more needed. So the World Humanitarian Summit (WHS) this month could have been a perfect opportunity. MSF has been significantly engaged in the WHS process over the past 18 months, including preparing briefing notes on various themes – a sign of our willingness to be involved. The WHS has done an admirable job in opening up the humanitarian sector to a much wider group of actors, and leading an inclusive process. However, with regret, we have come to the decision to pull out of the summit. We no longer have any hope that the WHS will address the weaknesses in humanitarian action and emergency response, particularly in conflict areas or epidemic situations. Instead, the WHS’s focus would seem to be an incorporation of humanitarian assistance into a broader development and resilience agenda. Further, the summit neglects to reinforce the obligations of states to uphold and implement the humanitarian and refugee laws which they have signed up to.

100 Years On: Sykes-Picot Agreement Still Haunts the Middle East - - 100 years ago, the terms of a secret deal dividing the Middle East between the UK and France were put forward. A century on, the Sykes-Picot agreement is still the subject of lively debate, with many citing it as a major factor behind today’s instability in the region. On May 9, 1916, the terms of the Sykes-Picot agreement were outlined in a letter between the British and French, with the actual deal signed one week later, on May 15, 1916. The agreement, negotiated by British diplomat, Sir Mark Sykes and Frenchman Francois Georges-Picot, aimed to divvy up large swathes of the Middle East that were at the time under the control of the Ottoman Empire, as the West believed Ottoman control of the area would not last beyond the end of World War One. The deal, which ultimately triggered a series of other similar agreements relating to control of the Middle East, loosely led to the creation of a border between modern-day Syria and Iraq, with many others arguing that it laid the platform for the creation of a Jewish state in Palestine. Under the deal the French were to control an area extending from Southeastern Turkey, Syria, Lebanon and parts of northern Iraq, while the British would take control of the area consisting of the majority of modern-day central and southern Iraq, as well as Jordan. A third area, loosely based around today’s Israel, was to become an Arab kingdom under a joint French-British mandate.

Analysis: Drought triggers unusual thirst for gasoil in Asia - Hit hard by an El Nino-induced drought, some Asian countries are witnessing an unusual spike in gasoil demand for power generation with water shortage severely curtailing hydro power generation, especially when the crop season is drawing near. Analysts said that while India, Pakistan and Vietnam are witnessing a spike in demand, Malaysia is also facing dry weather in many areas but has not yet boosted gasoil imports. The market, though, is keeping a close eye on any additional demand from Malaysia. "Across Asia, we have seen a significant switch to diesel in the power sector due to the drought. We have also seen air conditioning demand soar, supporting gasoil demand further," said Amrita Sen, Chief Oil Analyst at Energy Aspects.In India, state-run oil firms have been issuing rare gasoil import tenders to tide over the crisis. Some Vietnamese importers have also sharply raised their gasoil imports. And Pakistan State Oil, or PSO, recently stepped into the international market, in an unusual move, to import gasoil. "The El Nino conditions have meant that India has had two successive years of below-normal rainfall. If weak rainfall persists for a third year, agri-based diesel demand may continue to accelerate," Macquarie said in a recent research report on India's oil sector. The agriculture sector contributes to about 13% of India's overall diesel demand. It is heavily dependent on rainfall, and diesel pumps supplant irrigation supply. A fall in hydro-electricity generation has also meant more diesel is needed to run gen-sets in times of electricity shortage at homes and commercial establishments.

Nigeria production hiccups expected to raise Vietnam, Malaysia crude premiums - Production hiccups in West Africa coupled with an expected fall in Vietnam's July exports come as a boon for regional crude suppliers, as these could trigger a recovery in price differentials for Southeast Asian grades this month, market participants said Tuesday. Market sentiment improved significantly in Southeast Asia in recent trading days as many Asian end-users, including Indian refiners, were widely expected to shift their focus from Nigerian supplies to Malaysian and Vietnamese sweet crudes in the near term. Four regional sweet crude traders surveyed by Platts said they expect Malaysian Kimanis crude for loading in July to trade at premiums between $2.5/b and $3.0/b to Platts Dated Brent crude assessments this month. In comparison, most of the June-loading Kimanis crude cargoes changed hands at premiums of $1.9-$2.3/b in the previous trading cycle.Platts reported Friday, citing various sources, that exports of Nigerian sweet crude Qua Iboe were halted last week, and force majeure was declared on the grade. The announcement on Qua Iboe follows outages that have hit other grades in Nigeria. Operator Shell declared force majeure last week on similar grade Bonny Light. The month-long force majeure declared on distillate-rich Forcados crude has also reduced exports by 250,000 b/d. "A lot of these WAF grades regularly move East, but surely now Asian buyers would have to look elsewhere ... there are plenty of [light and medium sweet] Malaysian crudes to fill the gap,"

Japan Energy Spending Cuts Add Urgency to Securing Future Supply -- Energy companies in Japan, a country almost entirely reliant on fossil fuel imports, are slashing investments by more than one-third following the collapse in commodity prices, increasing pressure on Prime Minister Shinzo Abe’s government to supplement exploration budgets. Spending will plunge 37 percent to about 1.2 trillion yen ($11 billion) in the year to March, the country’s Ministry of Economy, Trade and Industry forecast in a report Tuesday. The drop, just one slice of cuts globally, adds urgency to the government’s plans to sustain investment by the country’s explorers and accelerate efforts to get 40 percent of its oil and gas from domestic firms. The world’s biggest consumer of liquefied natural gas and fourth-largest crude buyer relies on imports for 94 percent of its primary energy supply, according to the country’s Federation of Electric Power Companies. Japan may allocate 3 trillion yen over the next five years to help develop large-scale oil and gas developments with state-run Japan Oil, Gas and Metals National Corp. investing in projects, the Nikkei newspaper reported last month. “The government must provide seed money through institutions like Jogmec” and Japan Bank for International Cooperation, said Nobuo Tanaka, former executive director of the International Energy Agency. “The government should do it as part of investment for the future to ensure energy security and reduce volatility.”

Falling Chinese Demand Could Intensify The Oil War - The Chinese slowdown did more than drag down its own economy, it singlehandedly created financial tremors throughout the global financial markets. With consistent growth rates well over 6 percent, China's economic health is an integral part of global expansion. But just last year, investors saw the disintegration of billions of dollars’ worth of wealth on the Asian giant's stock market. The globalized economy experienced economic withdrawals with lagging Chinese demand, a substance to which both foreign and local industries have become addicted. It goes without saying that industrial and manufacturing demand in the Chinese economy acts as a relevant indicator of the world's financial condition, similar to the status of the United States. For that reason, investors have no choice but to realize the implications that can come from changes in demand for Chinese goods, services, and capital. A country's stock market is often a leading indicator of its economic performance. In China, two dramatic corrections occurred in the middle of 2015 which translated to the weakness that would infect the global economy. From its peak last year, the Shanghai CSI 300 Industrial Index has lost over 50 percent of its value in a downtrend that has depressed sentiment surrounding the industrial and manufacturing sectors in China. The downtrend has softened but continues to devalue large-cap industrial shares approaching values seen in mid-to-late 2014. As far as projections go, the stock market appears to be an indicator of a contraction in demand. Investors looking to pump capital back into these Chinese firms need to consider the bubble-like symptoms that caused four freefalls in the past year. The China Caixin Manufacturing PMI is one of the most watched industrial economic indicators for domestic and global demand trends. The index tracks the monthly growth of the manufacturing sector, one of the largest components of China's GDP. . Just after the major correction in August 2015, the September reading was recorded at its lowest point, 47.0. From there, the contractions have been slowly shrinking to just below 50 in March 2016.

China’s Oil Industry Is Faltering, Production Falls 5%  - Low oil prices and spending cuts are cutting into China’s oil production, a little known source of output declines that are helping to balance the market. New data shows that China’s oil production oil production fell 5.6 percent in April compared to the same month a year earlier, falling to just 4.04 million barrels per day. Between January and April, production also fell by 2.7 percent. The declines came because China’s large state-owned oil companies are struggling with low oil prices, and just like its international competitors, they have had to make painful spending cuts. Lower levels of spending are starting to translate into a drop off in production as the necessary maintenance to keep field output elevated is reduced. Much of China’s oil production comes from large oilfields that are mature and facing declining output. More investment helps to slow decline, but significant capex cuts are allowing production to slip. Investment in China’s oil sector fell from $54.4 billion in 2014 to just $39.4 billion last year, and likely will fall to $33.5 billion in 2016. More evidence that China’s oil industry is faltering comes from import data – Clipper Data says that Chinese crude oil imports may have hit a record high in April. OPEC, in its latest Oil Market Report, slashed its forecast for China’s oil production this year, lowering it by 90,000 barrels per day to an average of 4.23 mb/d for 2016. The downward revision came because China’s state-owned oil companies have gotten off to a poor start in the first quarter of this year – output was down 100,000 barrels per day in the first quarter compared to the same period in 2015.

China's April crude oil throughput up 2.4% on year at 10.93 mil b/d - - China's refinery throughput in April rose 2.4% year on year to 44.75 million mt, or an average 10.93 million b/d, preliminary data released Saturday by the National Bureau of Statistics showed. The total was down 3% from 44.91 million mt in March, when throughput posted the first year-on-year decline since March 2015. However on a daily basis, April throughput was up 2.9% from 10.62 million b/d in March. A Platts survey in April of 28 of China's largest state-owned refineries operated by Sinopec, PetroChina and China National Offshore Oil Corporation put average utilization at 77% of nameplate capacity, unchanged from March and edging down from 78% in April 2015. In contrast, the country's independent refineries have steadily ramped up crude throughput on good refining margins since being granted access to imported crudes in July 2015.  Feedstock consumption at independent refineries in eastern Shandong province -- 97% of it crude -- hit a record high 6.76 million mt in April, up 75% year on year and up 5% from March, according to data from Beijing-based energy information provider JYD. Confronted with fierce competition from independent refineries, China's state-owned refiners generally kept their run rates steady.

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