Shale Boom Is Slowing Just When the World Needs Oil Most

U.S. production gains from onshore oil-drilling rigs are declining fast, federal data show; a pump jack outside Williston, N.D. Photo: Daniel Acker/Bloomberg News

https://www.wsj.com/articles/shale-boom-is-slowing-just-when-the-world-needs-oil-most-11569795047

U.S. oil production grew less than 1% in early 2019 as operational issues weighed on shale companies

By Christopher M. Matthews and Rebecca Elliott

The American shale boom is slowing as innovation plateaus—and just when shale’s importance in global markets has reached new highs following an attack on the heart of Saudi Arabia’s oil infrastructure.

U.S. oil production increased by less than 1% during the first six months of the year, according to the Energy Department, down from nearly 7% growth over the same period last year. 

Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.

The challenges raise the prospect that the technological and engineering advances that have allowed shale companies to unlock record amounts of oil and gas from rock formations have begun to level off. 

U.S. oil production is on track to hit an average of 12.2 million barrels a day this year, up from last year’s average of 11 million barrels a day, the Energy Department said earlier this month. But because output grew so quickly last year—from an average of 10 million barrels a day in January to 12 million barrels a day in December—that implies limited growth throughout 2019. Activity has slowed recently and employment has fallen in some of the hottest U.S. oil regions, according to a September report by the Dallas Federal Reserve.

“We’re getting closer to peak production and we are reaching the peak of the general physics of these wells,” said James West, a managing director at Investment bank Evercore ISI.

U.S. shale oil production now accounts for about 8 million barrels a day, or roughly 10% of oil world-wide, significantly boosting global supplies. It has helped protect the U.S. and the world from geopolitical supply shocks, such as this month’s attack on Saudi Arabian oil facilities, which crippled the world’s largest oil exporter. 

Some forecasters believe shale still has many years of growth ahead. Consultant Rystad Energy estimates shale production will peak at roughly 14.5 million barrels a day in around 2030. The growth trajectory could change due to factors such as higher prices and consolidation in the shale sector. 

One factor that could lead growth to continue is the increasing shale footprint of major oil companies such as Exxon Mobil Corp. and Chevron Corp. They are now among the fastest-growing producers in the Permian Basin of Texas and New Mexico, investing heavily in factory-style shale production.

But growth also could slow if financial support from Wall Street tightens further and oil prices continue to hover around $60 a barrel—factors that are leading many small and midsize shale producers to pull back and emphasize profitability. That is making it more challenging for the companies to drill new wells as rapidly as they did previously. 

While the attacks on Saudi facilities caused oil prices to spike this month, even a sustained price increase would have a limited impact on shale production because investors are demanding restraint, according to IHS Markit.

The consultant estimates U.S. shale production would grow by 480,000 barrels a day in 2020 at a price of $62 a barrel. A $10 price increase would lift production by only 200,000 barrels a day, much slower production growth than 2018.

The slower rate of new wells means companies will need to wring more out of each well just to sustain current production, let alone increase it. But a growing body of data indicates the production gains from technological advances that many drillers have touted are leveling off, and older shale fields may have less oil left than originally thought.

Gains in oil production from U.S. onshore drilling rigs are declining rapidly, federal data show. In December, drilling rigs helped extract 25% more oil than they had a year prior. In August, they were producing about 14% more than last year, according to the Energy Information Administration.

Meanwhile, production in the first 90 days of an average shale well, its most productive period, declined by 10% in the first half of the year compared to the 2018 average, according to research by Raymond James.

In North Dakota, newer shale wells drilled by Hess Corp. are producing less oil than their predecessors. The wells initially were prolific. Hess wells that began producing this year in North Dakota generated an average of about 19,600 barrels of oil each in their first month, a company record for the region, according to data from ShaleProfile, an industry analytics platform. 

But as the 2019 wells aged, their average output eventually fell below that of the company’s 2017 and 2018 wells. This year’s wells generated an average of about 82,000 barrels of oil in their first five months, 12% below wells that began producing in 2018 and 16% below 2017 wells. 

A Hess spokeswoman said the group of wells isn’t representative of the company’s North Dakota inventory and noted that the company expects this year’s production to come in at the upper end of guidance.

Across North Dakota’s Bakken Shale region, well productivity hasn’t improved since late 2017, according to ShaleProfile research. 

In other mature shale regions, such as the Eagle Ford in South Texas, many operators also have seen productivity per horizontal foot decline as they have supersized their wells, according to ShaleProfile. That means some are drilling bigger and often more expensive wells to recover a similar amount of oil. 

Among them is EOG Resources Inc. Its wells that began producing in the second quarter of 2017 have generated about 30 barrels of oil per horizontal foot on average, or roughly 198,000 barrels of oil each, after two years.

That is less per foot than EOG wells in the Eagle Ford that began producing in the second quarter of 2016, when the company’s oil output per foot peaked, ShaleProfile data show. Those wells, which were shorter, have produced roughly 38 barrels of oil per horizontal foot on average after two years, or about 194,000 barrels apiece. 

EOG declined to comment.

Write to Christopher M. Matthews at christopher.matthews@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com

China - US sanctions COSCO and others

OFAC has placed sanctions on two of COSCO Shipping’s oil tanker operations. (Photo: Shutterstock)

http://www.tankeroperator.com/ViewNews.aspx?NewsID=11147

The US has imposed sanctions on six Chinese tanker companies, citing knowingly engaging in a significant transaction for the transport of oil from Iran, including knowledge of sanctionable conduct, contrary to US sanctions. 

 

This is one of the largest sanctions actions the US has taken against entities and individuals identified as transporting Iranian oil since sanctions were re-imposed in November, 2018, the US State Department said. 

 

The following Chinese firms were listed - China Concord Petroleum, Kunlun Shipping Co, Pegasus 88 and COSCO Shipping Tanker (Dalian) Seaman & Ship Management. 

 

Additional sanctions are being imposed on the following two Chinese companies, which own or control one or more of the four companies identified above, and were alleged to have known about their sanctionable conduct -Kunlun Holding Co and COSCO Shipping Tanker (Dalian). 

 

The State Department also said it was also imposing sanctions on five individuals, who are executive officers of one or more of the six companies identified above - Bin Xu, Yi Li, Yu Hua Mao, Luqian Shen, and Yazhou Xu. 

 

The transaction in question took place after the expiration of China’s Significant Reduction Exception (SRE) on 2nd May, 2019, and was not covered by that SRE. This action targets the specific entities named and does not target their parent companies or any other entities in their corporate groups, the department said.

 

Among other things, the imposition of these sanctions blocks all US property and interests in property of these Chinese entities or within the possession or control of a US person, and provides that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in. The US said it is also imposing restrictions or bans on visas into the country on the five individuals identified above. 

 

Further, the Department of the Treasury will add these entities and individuals to its List of Specially Designated Nationals and Blocked Persons. 

 

“Although this transaction involved the export of Iranian crude oil, we are similarly concerned with the export of refined oil products from Iran,” the State Department said.

 

Initial reaction suggested that charterers and trading houses were ceasing their dealings with tankers controlled or chartered to COSCO.

 

Unipec was believed to have replaced vessels fixed for four oil cargoes from the Middle East Gulf. According to newswires, Unipec, the trading arm of Sinopec, had switched to other tanker owners, including China Merchants owned AMCL.

 

In addition, several oil tankers owned by the COSCO Dalian unit were thought to have had their charters cancelled, while others saw provisional fixtures fall through, according to shipbrokers and charterers, speaking with Bloomberg.

 

According to Bloomberg, oil traders in Asia were cancelling orders with the Chinese tanker companies to avoid being unintentionally dragged into the sanctions. Traders and shippers were also uncertain whether the oil currently being shipped on board any of the sanctioned firms tankers would be allowed to unload or whether the cargo could be transferred to other tankers not affected by the sanctions.

 

In another move, Chinese state shipping giant Cosco Shipping Holdings stopped share trading in its oil transport unit as it tried to contain the fallout. Cosco Shipping Energy Transportation (CSET) said in a filing with the Hong Kong Stock Exchange on Thursday that its shares won’t trade pending an announcement.

Venezuela Has Bitcoin Stash and Doesn’t Know What to Do With It

Nicolas Maduro speaks in Caracas on March 22, 2018. Photographer: Carlos Becerra/Bloomberg

https://www.bloomberg.com/news/articles/2019-09-26/venezuela-has-bitcoin-stash-and-doesn-t-know-what-to-do-with-it

• Central bank to decide if crypto can count as foreign reserves
• Government hampered by sanctions that limit access to dollars

Venezuela’s central bank is running internal tests to determine whether it can hold cryptocurrencies in its coffers, according to four people with direct knowledge of the matter.

The efforts come at the behest of state-run Petroleos de Venezuela SA, which is seeking to send Bitcoin and Ethereum to the central bank and have the monetary authority pay the oil company’s suppliers with the tokens, according to the people, who asked not to be identified discussing internal deliberations. Staffers are also studying proposals that would allow cryptocurrencies to be counted toward international reserves, now near a three-decade low at $7.9 billion.

U.S. sanctions against Nicolas Maduro’s authoritarian regime have largely isolated Venezuela from the global financial system, exacerbating one of world’s most severe economic crises and forcing officials to use a patchwork of methods to move money around. While Maduro’s plans to start the world’s first sovereign crypto largely failed, the continued efforts to use digital currencies shows how desperate the government is to come up with a way to skirt the restrictions.

Press officials for the central bank and PDVSA didn’t reply to requests for comment.

It isn’t clear how PDVSA came to own Bitcoin and Ethereum, or the value of its holdings. But the oil producer has struggled to get paid by customers via conventional channels because major banks are hesitant to do business with a sanctioned entity. Last month, the company received most of a $700 million payment in Chinese yuan after the parties struggled to find financial institutions that would facilitate a transaction.

PDVSA may be hesitant to sell its cryptocurrencies on the open market because it would require the company to register with an exchange and subject itself to due diligence. Instead, it wants the central bank, which officials at the oil company believe is less exposed to potential blocks, to use the crypto to pay entities PDVSA owes money to.

Bitcoin and Ethereum use decentralized, online ledgers known as blockchain to verify and record transactions. In some cases that allows for relatively anonymous transfers without the need for a middleman. Few banks touch digital tokens because of the know-your-client and money laundering issues that arise and cause compliance problems.

Cryptocurrencies have staged a comeback this year following 2018’s rout, thanks to expectations of greater institutional adoption and Facebook Inc.’s plan to launch a coin, but remain quite volatile. While Bitcoin has plummeted almost 20% in the past four days, it’s still up more than 130% this year.

In order to shield itself from the effects of further sanctions, Venezuela’s government has also been considering the possibility of switching to a Russian-operated international payments messaging system as an alternative to the SWIFT system that most financial institutions use.

— With assistance by Ben Bartenstein, Fabiola Zerpa, and Olga Kharif

California’s Drivers May Soon Pay $4 a Gallon for Gasoline

https://finance.yahoo.com/news/california-drivers-may-soon-paying-224706702.html

California drivers may soon pay $4 a gallon at the pump after refinery upsets pushed up the wholesale market in San Francisco to the strongest level in almost seven years.

San Francisco spot gasoline traded at its highest premium to futures since 2012 and Los Angeles was the highest in almost four years on Tuesday. An alkylation unit at Valero Energy Corp.’s Benicia refinery, which makes high-octane gasoline, went down over the weekend, according to Genscape Inc. A failed unit restart at Chevron Corp.’s El Segundo refinery and a crude unit upset at PBF Energy Inc.’s Torrance facility, both near Los Angeles, also boosted prices.

California fuel prices are typically volatile, as the state has tighter emissions standards, which make its fuel more expensive to produce. Also, the West Coast isn’t connected by pipeline to the bulk of U.S. refineries along the Gulf Coast, so when local refineries aren’t able to churn out enough fuel, suppliers need to pay much higher prices to draw in cargoes from Europe or Asia.

GasBuddy senior petroleum analyst Patrick DeHaan said $4-a-gallon gasoline could be ahead for California drivers. The San Francisco average price Tuesday was $3.89 per gallon and rose to $3.94 a gallon on Wednesday, according to AAA.

California-blend gasoline in both cities jumped 20 cents a gallon Tuesday, according to data compiled by Bloomberg, bringing San Francisco to the highest level since the period following a fire in 2012 at Chevron’s Richmond refinery, the second-biggest in the state. It typically takes a few days for increases in the wholesale, or spot market, to filter down to retail stations.

The refinery problems come with supplies in the region running tight. West Coast stockpiles are down 4.2 million barrels since late July, according to U.S. Energy Information Administration data.

(Updates last paragraph with latest supply data from EIA.)

To contact the reporter on this story: Jeffrey Bair in Houston at jbair4@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Catherine Traywick, Mike Jeffers

For more articles like this, please visit us at bloomberg.com

President Donald Trump's full UN address

Iran says seized Stena Impero 'free' to leave

Stena Impero was seized by Iranian forces for alleged maritime violations [File: Tasnim News Agency/AP]

https://www.aljazeera.com/news/2019/09/iran-seized-steno-impero-free-leave-190923111443502.html

Iran has said Stena Impero, a Swedish-owned tanker sailing under the British flag, is "free" to leave, more than two months after its seizure in the Strait of Hormuz sharply escalated tensions in one of the world's most significant oil shipping lanes.

"The legal process has finished and based on that the conditions for letting the oil tanker go free have been fulfilled and the oil tanker can move," Aliu Rabiei, government spokesman, said at a news conference on Monday.

It was not immediately clear when the Stena Impero would set sail.

The vessel, with 23 crew members on board, was seized on July 19 by Iran's Revolutionary Guard Corps (IRGC) for allegedly violating international maritime rules. The United Kingdom and Stena Bulk, the company that owns the vessel, denied the allegations.

Herik Hannel, the chief executive of Stena Bulk, welcomed Monday's news with caution.

"We hope it [the tanker] will be able to leave in a few hours, but we don't want to take anything for granted. We want to make sure the ship sails out of Iranian territorial waters," Hannel told Swedish television station SVT on Monday

The tanker's capture came two weeks after British forces seized Iranian tanker Grace 1, now known as Adrian Darya 1, during an operation off Gibraltar over suspicions it was breaching European Union sanctions by transporting oil to Syria. Iran denied the allegations.

Despite an attempt by the United States to extend the detention of the Grace 1, the tanker was released in mid-August after Tehran formally assured that the vessel would not discharge its 2.1 million barrels of oil in Syria.

The seizure of both vessels came amid rising tensions in the Gulf between Iran and the United States.

Relations between the two countries have deteriorated since US President Donald Trump withdrew last year from the 2015 nuclear deal brokered between Iran and world powers to prevent Tehran from building nuclear weapons in exchange for sanctions relief.

Since then, the US administration has adopted a "maximum pressure" campaign aimed at crippling Iran's oil exports, the country's main source of income.

Monday's announcement came on the same day UK Prime Minister Boris Johnson joined the US in accusing Iran of being "with a very high degree of probability" responsible for the attack on two major oil facilities in Saudi Arabia on September 14.

Speaking to reporters on Sunday on the plane to the United Nations General Assembly (UNGA) in New York, Johnson said the UK would consider taking part in a US-led military effort in Gulf.

"Clearly, if we are asked, either by the Saudis or by the Americans, to have a role then we will consider in what way we could be useful," Johnson said.

Pentagon says Trump to send troops to Saudi Arabia

Rogue Oil Trader Causes $320 Million Loss at Mitsubishi Corp. Unit

https://www.bloomberg.com/news/articles/2019-09-20/mitsubishi-unit-sees-320-million-loss-on-rogue-oil-trades

• Unauthorized trades disguised as transactions for customers
• Mitsubishi still assessing if trades will impact earnings

Mitsubishi Corp. said a rogue oil trader at its Singapore unit lost $320 million in unauthorized transactions disguised as legitimate hedges for customers.

The employee, a Chinese national working at Petro-Diamond Singapore Pte, has been fired and reported to police, Mitsubishi said in a statement, declining to name him. The trader, hired in November 2018 to handle oil business with China, “repeatedly” engaged in the unauthorized deals since January, disguising them to “look like hedge transactions,” the parent company said.

A person familiar with the matter identified the trader as Wang Xingchen, also known as Jack Wang. Calls to Wang’s mobile phone wouldn’t connect, while a person who answered the phone at Petro-Diamond’s Singapore office said he has left the company. No other current contact details were available.

Bad Bets
Company	Loss	What Happened	Year
Metallgesellschaft AG	$1.2 billion	Oil hedging strategy failed	1994
China Aviation Oil	$550 million	Wrong-way speculative oil trades	2004
Mitsui & Co.	$81 million	Hidden bad naphtha trades	2007
Unipec	$656 million	Wrong-way bets on crude oil	2018
Petro-Diamond	$320 million	Unauthorized oil derivatives trading	2019

A loss of $320 million would be less than one-tenth of Mitsubishi’s projected profit for the year. In August, the giant trading house, the biggest of Japan’s so-called sogo shosha, forecast full year net income of 600 billion yen ($5.6 billion).

The oil market has a long and colorful history of trading busts. Metallgesellschaft AG suffered a $1.2 billion loss in 1994 when a hedging strategy failed. In 2004, China Aviation Oil suffered its infamous $550 million blunder, when the company fell afoul of a surge in prices.

Another Japanese trading company, Mitsui & Co., was forced to close its Singapore oil-trading unit in 2007 after a trader lost $81 million in hidden naphtha trades. The dealer and his supervisor were imprisoned. And in December last year, two top officials at Chinese oil trading giant Unipec were suspended following losses of about $656 million.

Beyond oil, another Japanese trading house Sumitomo Corp. suffered the worst ever rogue trading event in commodities in 1996 when Yasuo Hamanaka lost $2.6 billion dealing copper on the London Metal Exchange.

For a photo gallery of rogue traders, click here

In the latest scandal to befall the industry, Mitsubishi said the employee manipulated data in Petro-Diamond’s risk management system so that the transactions appeared to be associated with actual trades with customers.

“Large losses from derivatives trading” were incurred since July as the price of oil dropped, and the unit began an investigation into the transactions in the middle of August when the employee was absent from work, Mitsubishi said. Brent oil, the international benchmark, dropped 16% from its July peak of $67.01 to as low as $56.23 in the first week of August.

Petro-Diamond quickly closed the derivatives positions once it realized they could result in losses for the company and also determined that they weren’t associated with any transactions with customers. Mitsubishi said investigations confirmed that its unit had “sufficient internal controls in place.”

The trader was fired Sept. 18 and reported to police the next day. The Singapore Police Force confirmed that a report has been lodged, while declining to give any other information.

Petro-Diamond Singapore had revenue of $6.7 billion in the year ending March 2018 and EBIT of $18 million, according to the financial profile filed with the city’s accounting regulator.

— With assistance by Grace Huang, Serene Cheong, Stephen Stapczynski, Alfred Cang, Aaron Clark, and Andrea Tan

Trump vows to reduce Obama-era emissions regulations

Oil prices jump most on record after Saudi Arabia strike

 

 This image provided on Sunday, Sept. 15, 2019, by the U.S. government and DigitalGlobe and annotated by the source, shows damage to the infrastructure at Saudi Aramco's Khurais oil field in Buqyaq, Saudi Arabia. The drone attack Saturday on Saudi Arabia's Abqaiq plant and its Khurais oil field led to the interruption of an estimated 5.7

https://www.houstonchronicle.com/business/energy/article/Oil-Prices-Jump-19-After-Attack-Cuts-Saudi-14442653.php

Oil surged the most in more than a decade after a devastating attack on Saudi Arabia intensified concerns about growing instability in the world's most important crude-producing region.

In an extraordinary start to the week's trading, Brent futures in London leaped a record $12 a barrel in early trading Monday before settling just above $69 for the biggest one-day gain since 2008. Prices may remain elevated after Saudi officials downplayed prospects for a rapid recovery of production capacity.

Saudi Aramco faces weeks or months before most output from its giant Abqaiq crude-processing complex is restored, according to people familiar with matter. Saudi Arabia's Foreign Ministry said Iranian weapons were used in the attacks on Saudi Aramco, while the U.S. blamed Iran for the attacks.

For oil markets, it's the worst sudden supply disruption ever. The attacks that damaged a key processing complex and one of the Saudi's marquee fields highlight the vulnerability of the world's biggest exporter. The crisis also means a "new geopolitical premium" of about $5 a barrel, Mizuho Securities USA's Paul Sankey wrote in a note.

RELATED: Energy prices spike after Saudi oil attack, US blaming Iran

"We have never seen a supply disruption and price response like this in the oil market," said Saul Kavonic, an energy analyst at Credit Suisse Group AG. "Political-risk premiums are now back on the oil-market agenda."

Meanwhile, U.S. Energy Secretary Rick Perry told CNBC that a "coalition effort" will be needed to counter Iran, which the Trump administration said was behind the attacks.

Haven assets including gold and U.S. government debt surged as investors fled riskier instruments. Currencies of commodity-linked nations including the Norwegian krone and the Canadian dollar also advanced. U.S. gasoline futures jumped 13%.

State-run producer Saudi Aramco lost about 5.7 million barrels a day of output on Saturday after 10 unmanned aerial vehicles struck the Abqaiq facility and the kingdom's second-largest oil field in Khurais. A Saudi military official earlier said preliminary findings showed that Iranian weapons were used in the attacks but stopped short from directly blaming the Islamic Republic for the strikes.

The disruption surpasses the loss of Kuwaiti and Iraqi petroleum output in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil production in 1979 during the Islamic Revolution, according to the International Energy Agency.

"The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with," said Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd. "At present, it is not known how long crude will be offline for."

PREVIOUSLY: Oil posts biggest weekly drop since July amid supply concerns

Aramco officials are growing less optimistic that there will be a rapid recovery in production, a person with knowledge of the matter said. The kingdom -- or its customers -- may use stockpiles to keep supplies flowing in the short term. Aramco could consider declaring itself unable to fulfill contracts on some international shipments -- known as force majeure -- if the resumption of full capacity at Abqaiq takes weeks. Alternatively, the kingdom's own refineries may cut runs just to keep crude exports flowing, according to analysts with JBC and Energy Aspects.

Declaring force majeure would rattle oil markets further and cast a shadow on Aramco's preparations for what could be the world's biggest initial public offering. It's also set to escalate a showdown pitting Saudi Arabia and the U.S. against Iran, which backs proxy groups in Yemen, Syria and Lebanon. Iran-backed Houthi rebels in Yemen claimed credit for the attack, but U.S. President Donald Trump and Secretary of State Mike Pompeo have already blamed Iran.

Trump, who said the U.S. is "locked and loaded depending on verification" that Iran staged the attack, earlier authorized the release of oil from the nation's emergency reserves. The IEA, which helps coordinate industrialized countries' emergency fuel stockpiles, said it was monitoring the situation.

Brent for November settlement rose 15% to $69.02 on ICE Futures Europe. The global benchmark could rise above $75 a barrel if the outage at Abqaiq lasts more than six weeks, Goldman Sachs Group Inc. said.

On the New York Mercantile Exchange, West Texas Intermediate futures for October delivery settled up 15% at $62.90, the highest close since May 21. Brent's premium to WTI for the same month closed at $6.35 a barrel.

The drama wasn't limited to flat prices. The spread between Brent and WTI widened as much as 37%, showing that the oil spike will affect global prices more than those in the U.S., where shale output and ample supplies provide more of a buffer.

--With assistance from Nayla Razzouk, Javier Blas, Anthony DiPaola, Michael Roschnotti and Tina Davis.

©2019 Bloomberg L.P.

Saudis Face Lengthy Oil Halt With Few Options to Fill Gap

https://www.bloomberg.com/news/articles/2019-09-17/saudis-face-lengthy-oil-halt-with-few-options-to-replace-losses

• Officials say ‘severe’ disruption will last weeks or months
• Aramco tells customers some October shipments to be delayed

The oil market is facing a prolonged disruption to Saudi Arabia’s oil production with few options for replacing such huge output losses.

The weekend attacks on the kingdom eliminated about 5% of global oil supply -- and raised the risk of more conflict in the region -- propelling Brent crude to a record surge on Monday. Officials at state oil company Saudi Aramco have become less optimistic on the pace of output recovery, telling a senior foreign diplomat they face a “severe” disruption measured in weeks and months and informing some customers that October shipments will be delayed.

The historic price gain underscores the unprecedented nature of the disruption caused by the drone attack on the Abqaiq crude processing plant. For decades, Saudi Arabia has been the oil market’s great stabilizer, maintaining a large cushion of spare production capacity that can be tapped in emergencies, such as the 2011 war in Libya.

The halt of 5.7 million barrels day of the kingdom’s production -- the worst sudden supply loss in history -- exposes the inadequacy of the rest of the world’s supply buffer.

“The market is in scramble mode to secure not only supplies of crude, but also products,” consultant JBC Energy GmbH said in a note. Prices are “reflecting a new geopolitical risk premium, namely that the safety of oil production in the heart of the Middle East cannot be guaranteed.”

Tehran and Riyadh are historic foes that have been backing opposite sides in Yemen’s long-running civil war. The volatile situation in the region finally boiled over earlier this year as U.S. President Donald Trump used sanctions to attempt to choke off all of Iran’s oil exports -- which are the lifeblood of its economy -- after he unilaterally withdrew from an international nuclear deal.

Understanding the Conflicts Leading to Saudi Attacks: QuickTake

Since then the Persian Gulf, source of about a third of the world’s seaborne oil exports, has been under siege -- targeted by air, sea and land. While Trump has shown some reluctance to go to war, there are also few prospects for easing tensions as Saudi Crown Prince Mohammed bin Salman decides how to respond to the assault.

Houthi rebels in Yemen, who are backed by Tehran, said on Monday that oil installations in Saudi Arabia will remain among their targets and their weapons can reach anywhere in the country. Iran’s supreme leader Ayatollah Ali Khamenei said on Tuesday that his country won’t negotiate with the U.S. on any level neither in New York or anywhere else.

Click here to read how the Saudi Central Bank may step in to support liquidity.

Saudi Aramco is firing up idle offshore oil fields to replace some of the lost production, said a person familiar with the matter. Customers are also being supplied using stockpiles, though some buyers are being asked to accept different grades of crude. The kingdom has enough domestic inventories to cover about 26 days of exports, according to consultant Rystad Energy A/S.

Trump also authorized the release of oil from the country’s Strategic Petroleum Reserve, while the International Energy Agency, which helps coordinate industrialized countries’ emergency fuel stockpiles, said it was monitoring the situation.

According to Bloomberg calculations based on publicly available data, the absolute maximum in spare capacity that could be brought into production in the coming weeks is about 3.9 million barrels a day.

The true volume of viable backup supply could be significantly lower, because it includes restarting production from the Neutral Zone shared by Saudi Arabia and Kuwait, as well as tapping the kingdom’s own spare capacity, much of which may also have to be processed at the Abqaiq or Khurais facilities and therefore be unusable.

OPEC Capacity

Other participants in the OPEC+ cuts, such as Russia, Kazakhstan and the United Arab Emirates, could restore a few hundred-thousand barrels a day of production, not enough to offset the Saudi losses.

The Organization of Petroleum Exporting Countries is in regular contact with the Saudi authorities, the group’s Secretary-General Mohammad Barkindo said in a Bloomberg TV interview. It’s premature to talk about reversing the oil-production cuts implemented by OPEC and its allies, he said.

U.S. output may be booming, but the country’s many shale drillers hold little to no output in reserve. Oil production has plateaued at an average level of 12.37 million barrels a day since recovering from the impact of Hurricane Barry at the end of July.

Output will continue to grow and more than 10 new export terminals have been proposed for U.S. crude, capable of handling about 8 million barrels a day, but the first of these is unlikely to be operational before 2022 at the earliest.

Crude prices pared gains on Tuesday, following an extraordinary trading day in which Brent crude leaped settled a record 15% higher at just above $69. Futures were 1.7% lower at $67.87 a barrel as of 12:09 p.m. in London as the market waited for any further update from Aramco.

Saudi Energy Minister Prince Abdulaziz bin Salman is scheduled to hold a press briefing on Tuesday evening in Jeddah.

Images released of the damage to Abqaiq’s stabilization towers, which separate gaseous compounds from crude oil, suggest lengthy repairs, according to Phillip Cornell, a former senior corporate planning adviser to Aramco.

“They can take weeks or months to get specialized parts,” he said at an event hosted by the Atlantic Council in Washington on Monday. Five out of 18 stabilization towers appear to have been taken out and the pictures that have been released show “very specific, accurate targeting of those particular infrastructures,” he said.

In addition to the immediate loss of supply, the attack raised the specter of U.S. retaliation against Iran, which could further inflame oil prices. While Houthi rebels in Yemen claimed responsibility for the assault, President Trump said it looked like Iran was to blame.

“I don’t want to have war with anybody” but our military is prepared, Trump said at the White House on Monday.

— With assistance by Christopher Sell, Evan Sully, and Will Kennedy

Spending $200,000.00 in Venezuela.

Drone attack on Saudi oil: How safe are global supplies? | DW News

Oil prices fall 1.2% on U.S.-China trade doubts, OPEC+ talks

A Petrobras oil platform floats in the Atlantic Ocean near Guanabara Bay in Rio de Janeiro.

Getty Images

https://www.cnbc.com/2019/09/12/oil-markets-us-china-trade-war-in-focus.html

Oil prices fell about 1.5% on Thursday after a media report cast doubt on the possibility of an interim U.S.-China trade deal and as a meeting of the OPEC+ alliance yielded no decision on deepening crude supply cuts.

Oil was pressured further after the European Central Bank cut its deposit rate to a record low -0.5% from -0.4% and said it will restart bond purchases of 20 billion euros a month from November to prop up euro zone growth.

Brent crude futures were down 74 cents, or 1.2%, at $60.07 a barrel by 1:54 p.m. EDT (1754 GMT). U.S. West Texas Intermediate crude futures fell 92 cents, or 1.7%, to $54.83 a barrel. Both were heading for a third session of losses.

Both Brent and WTI fell below the $60 and $55 a barrel marks during the session, triggering auto-selling.

Oil futures extended their losses after a senior White House official denied a Bloomberg News report that the United States was considering a temporary trade agreement with China, according to CNBC.

The prospect that the world’s two largest economies made some concessions in a protracted trade war, according to a previous report, supported prices earlier in the session.

“All of a sudden we had a ray of hope,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

“Now that they’re downplaying that and, immediately, the stocks went back down, gold came back up and oil went back down.”

Also hitting oil prices were comments by Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman, who said deeper cuts would not be decided upon before a meeting of the Organization of the Petroleum Exporting Countries planned for December.

The meeting yielded a promise to keep countries within the production quotas they committed to in a global supply deal, which would limit oil coming to the market as Nigeria, Iraq and Russia have, at times, produced more than their allocations.

A statement from OPEC and its allies, a grouping known as OPEC+, said oil stocks in industrial countries remained above the five-year average. Oman’s energy minister said “the outlook is not very good for 2020.”

Prince Abdulaziz said Saudi Arabia would keep cutting by more than it pledged in the pact that has throttled supply from OPEC+ by 1.2 million barrels per day.

Also feeding the bearish sentiment, the International Energy Agency said surging U.S. output would make balancing the market “daunting” in 2020.

“Booming shale production has allowed the U.S. to close in on, and briefly overtake, Saudi Arabia as the world’s top oil exporter ... in June, after crude exports surged above 3 million bpd,” said the agency that advises industrial economies on energy policy in its monthly report.

God Bless America!

Trump Eyes Crackdown on Homelessness as Aides Visit California

Tents and tarps along the sidewalks of Los Angeles, where homelessness has soared in recent years.CreditCreditMike Blake/Reuters

By Maggie Haberman and Jose A. Del Real

https://www.nytimes.com/2019/09/10/us/politics/trump-homelessness-california.html

WASHINGTON — President Trump is pushing aides to find ways to curtail the growing number of homeless people living on the streets of Los Angeles, part of broader discussions his aides have held for weeks about urban problems in liberal locales, according to his personal lawyer and administration officials.

A team of administration officials is in California on what was described as a “fact-finding” mission as they weigh proposals to address the burgeoning crisis. But it is not clear what steps the administration could legally take on an issue that has traditionally been handled at the local level.

“Like many Americans, the president has taken notice of the homelessness crisis, particularly in cities and states where the liberal policies of overregulation, excessive taxation and poor public service delivery are combining to dramatically increase poverty and public health risks,” said Judd Deere, a White House spokesman. He said that the president signed an executive order to ease affordable housing development in June, and that he had “directed his team to go further and develop a range of policy options for consideration to deal with this tragedy.”

The visit of the administration officials to California was first reported by The Washington Post. The intensified discussions took place as the president, who has frequently criticized how urban areas in Democratic states are managed, prepares for a swing through California next week.

California has the largest homeless population in the country, according to a 2018 report compiled by the Department of Housing and Urban Development, at an estimated 130,000 people.

And the nature of homelessness in California is markedly different than in other parts of the country; the state also has the highest percentage of homeless who are unsheltered, with nearly 70 percent of the homeless — or about 90,000 people — living on the street. That report estimated that nearly half of all people without shelter in the United States were in California in 2018. New York State had the second largest homeless population, nearly 92,000, according to the report. But of those, fewer than 5 percent lacked shelter.

Rudolph W. Giuliani, the president’s personal lawyer and former mayor of New York, who was known for his aggressive crackdowns on street-bound homelessness, said he had been discussing the issue with administration officials.

“I think they feel that there’s got to be something that creates an incentive, carrot and stick, for cities to do something about it,” Mr. Giuliani said, adding that the discussions had been going on for two months

Word of the efforts by the administration, which has repeatedly sought to cut housing assistance in its budget requests, alarmed advocates for the homeless and angered city leaders across California.

“Simply cracking down on homelessness without providing the housing that people need is not a real solution and will likely only make the situation worse,” said Mayor London Breed of San Francisco, whose city has been an object of the president’s scorn.

An estimated 59,000 homeless people live in Los Angeles County, according to a count conducted this year by the county, about a 12 percent increase over 2018. Of those, an estimated 44,000, or 75 percent, were unsheltered. Within the city of Los Angeles, which is distinct from the county, there were 36,000 homeless, including 27,000 who were unsheltered, according to that same count.

Los Angeles’s mayor, Eric M. Garcetti, and other political leaders faced intense scrutiny this summer after the release of the results of the 2019 count, which also showed that the number of homeless had increased 16 percent in the city. The surge was especially shocking because the government spent hundreds of millions of dollars in 2018 to address the problem.

Voters approved two high-profile initiatives in recent years to fund homeless services in the region, including a 2016 city bond that earmarked $1.2 billion to build housing for the homeless and a 2017 county quarter-cent sales tax increase to raise about $355 million annually for 10 years. The mayor’s defenders and city officials have pointed out that the city housed nearly 22,000 people in 2018, a record number for the government and an increase of 23 percent from 2017. But even amid those efforts, the high cost of housing in Los Angeles, one of the priciest rental markets in the country, has continued to push more individuals and families out of their homes.

While Skid Row in downtown Los Angeles has often been a focal point for national conversations about homelessness, the high rate of unsheltered people has become a source of friction across the state, in cities including Eureka, Oakland and San Francisco. With nowhere else to go, the homeless often set up encampments on sidewalks and beneath highway overpasses. Increasingly, encampments are nestling against wild lands, raising concerns amid increasingly intense and volatile wildfire seasons.

But while the displeasure of middle-class urban residents often receives attention, the homeless themselves — many of whom have full-time jobs but cannot afford California’s high rents — have the most to be frustrated about. Safety is a huge concern: An analysis published earlier this year by Kaiser Health News found that a record 918 homeless people died last year in Los Angeles County.

The administration has discussed refurbishing homeless facilities or building new ones, The Post reported. An administration official said that while those ideas have been discussed, nothing has been settled.

Oil Rises After EIA Reports Crude Inventory Draw

https://oilprice.com/Energy/Crude-Oil/Oil-Rises-After-EIA-Reports-Crude-Inventory-Draw.html

A day after the American Petroleum Institute once again surprised traders by reporting an estimated build in U.S. crude oil inventories, the Energy Information Administration released its own estimate, saying inventories had shed 4.8 million barrels in the week to August 30.

This compares with a draw of as much as 10 million barrels for the previous week, which propped up prices, reversing yet another slide brought about by concerns about U.S.-China trade relations.

It was news on the same topic that yesterday lifted prices, despite API’s estimate of an inventory build. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin told media yesterday that talks with Chinese officials have been scheduled for “the coming weeks” in Washington. This rekindled hopes for a deal despite the recent exchange of yet more tariffs between the two.

Meanwhile, the EIA also reported a gasoline inventory draw of 2.4 for the last week of the summer driving season, with distillate fuels shedding 2.5 million barrels in the period. This compared with a 2.1-million decline in gasoline inventories in the week before, and the same-size draw in distillate fuel inventories.

Refineries processed 17.4 million bpd of crude last week, producing 10.3 million bpd of gasoline and 5.2 million bpd of distillates. This compared with a flat processing rate a week earlier, with gasoline production at 10.7 million bpd and distillate fuel production at 5.2 million bpd.

The trade war between the U.S. and China has become the number-one factor to watch when forecasting oil demand trends, overtaking even OPEC policies and the rising U.S. crude oil production. With the trade conflict already hurting economies around the world, all eyes are on the negotiating table with hopes this time the talks would yield a deal.

It’s anyone’s guess whether this will happen, however. Neither side seems all too willing to make any concessions even though both economies have suffered the consequences of the conflict.

By Irina Slav for Oilprice.com

ESCAPING FROM VENEZUELA TO COLOMBIA.

God Bless & Happy Labor Day!