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$70 Oil by the end of the Year? It Could Happen.

What a difference three months makes. Three months ago today, Russia and Saudi Arabia had just embarked on a completely irrational effort to flood the global oil markets after Russia had basically blown up the OPEC+ supply limitation agreement when it balked at making an additional few hundred thousand barrels of oil per day (bopd) in cuts.

But on Saturday, those same two big producers cajoled the rest of the countries participating in OPEC+ to extend the deep, 9.7 million bopd May/June supply limits through the end of July. The cuts had been scheduled to scale back to a combined 7.7 million bopd on July 1. Reuters reports that Saudi Arabia has now reduced its daily production by 2.24 million bopd from its market-flooding level in April, while Russia – which could not stomach a reduction of about 200,000 bopd back on March 4, has cut its own daily production by more than 900,000 barrels.

It’s pretty amazing how single digit – and even momentary negative – crude prices will change an oil minister’s perspective on what constitutes an appropriate level of output.

The OPEC+ members also pledged to monitor and reassess appropriate supply levels on a monthly basis, beginning with their next meeting, which is scheduled for June 18.

Combined with dramatic reductions in crude output in the U.S. and Canada and a more-rapid-than-expected recovery in demand, the extension of the OPEC+ May/June quotas sets the stage for a more rapid re-balancing of the global markets. Bjornar Tonhaugen, Rystad Energy’s head of oil markets, said that “Today’s deal is a positive development and, unless a second Covid-19 wave hits the world, it will be the backbone of a quick recovery for the energy industry. That is due to the oil stocks decrease that we will see as a result of the production deficit. Stocks are now what keep prices at relatively low levels and the quicker they fall, the faster we will see prices rise.”

Read the Full Piece Here

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Texas Oil Regulator Poses The Fundamental Question: “How Do We Start?”

After taking more than 10 hours of verbal testimony from more than 50 witnesses at Tuesday’s hearing, the three members of the Texas Railroad Commission tabled any decision on whether to move to limit oil production from Texas wells through its power of prorationing. During the course of the hearing, Commissioner Christi Craddick hit on the fundamental impediment that will likely prevent the RRC from any quick implementation of limits: There is no institutional memory on how to do it.

“We don’t know how to do it at the agency anymore,” Craddick said to one witness who was around during the last time the RRC enforced prorationing back in 1972. “Do we start on Jan. 1? Where do we start? How do we start?”

Exactly. As much as many struggling independent producers would like to think the Commissioners possess some magic bullet power that would boost prices and help them survive the most severe oil industry downturn in modern times, reality tells a different story. No one working at the RRC today was there in 1972, and even if they were, the industry the Commission regulates has fundamentally reinvented itself at least half a dozen times since then. The Commissioners and their current staff can read all the history books on the market about the golden age of prorationing, but that wouldn’t be much help to them in implementing new production limits soon.

Commissioner Craddick’s mention of a possible January 1 date for trying to implement the change is very telling. If professional industry analytical firms like Rystad EnergyIHSMarkit and Wood MacKenzie are accurate, the immediate crisis in global oil over-supply will have been resolved well before then, and oil prices should be well on their way back up to higher levels. It is equally likely that dozens of Texas oil producers will have been forced into bankruptcy in the meantime.

Another potential logical date of implementation would be September 1, which is the start of Fiscal Year 2021 for the Texas government. Even if the RRC currently possessed the budget and staff to meet that quick goal (it possesses neither) it is quite likely that the Texas industry will have already lost upwards of 2 million barrels of daily oil production by that time due to dramatically-lowered drilling activity and voluntary shutting-in of production.

Then there is the other practical limiter that the commissioners must consider: The budget. The Texas government famously operates on a two year budget cycle, with the legislature meeting for 140 days in odd-numbered years to make biennial adjustments. The RRC is currently operating under a budget that does not expire until August 31, 2021. Any upward adjustments to that budget designed to enable the Commissioners to hire in additional staff and build new computer systems to implement and police prorationing would have to be authorized by a special session of the Texas Legislature, subject to a call by Governor Greg Abbott.

Think of how unlikely that is to take place at a time when Texas is currently functioning under an executive order to avoid gatherings of more than 10 people due to the COVID-19 pandemic. Also consider how unlikely Gov. Abbott and the legislature would be to agree to increase any agency’s budget during this time of massive economic destruction.

Read the Rest at Forbes.com

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OPEC+, G20 Produce A Very Dim Light At The End Of A Long, Dark Oil Price Tunnel

After the OPEC+ countries produced an oil supply reduction agreement on Thursday that amounted to a half-measure at best, industry observers had pinned some hope on a firm commitment to further cuts coming from G20 call that took place on Friday. Those hopes were not fulfilled, as the G20 communique included only vague language indicating those nations would work towards “market stability.”

The language in the comminique reads as follows: “We commit to ensure that the energy sector continues to make a full, effective contribution to overcoming COVID-19 and powering the subsequent global recovery. We commit to work together in the spirit of solidarity on immediate, concrete actions to address these issues in a time of unprecedented international emergency. We commit to take all the necessary and immediate measures to ensure energy market stability.”

In this political season in the U.S., that reads like issue-specific talking points from a candidate trying to say something to placate the public and media without really taking either side of the issue.

Leaving matters even more up in the air, Mexico refused to commit to its full share of the OPEC+ cuts, saying it could only reduce its own production by 100,000 barrels of oil per day (bopd). U.S. President Donald Trump intervened to commit to his country to supporting Mexico’s part of the deal by supplying 250,000 bopd in cuts of its own, but left the process of how he would achieve that level of firm supply reduction unclear. This is a key question since the national U.S. government has very limited power to force firm reductions in production by the private companies that operate all wells in the country.

Canada, which has not been a participant in any previous efforts to control supply, also remained non-committal in terms of committing to any firm reductions of its own.

Read the Rest at Forbes.com

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The OPEC++ Deal: Calling it a Half-Measure is an Exaggeration

Let’s be honest: The so-called OPEC++ agreement to cut 10 million barrels of oil per day from global crude oil supply is a half-measure. Really, with Rystad Energy reporting that demand for oil will drop by 27 million bopd from January 1 levels during April, calling it a half-measure is an exaggeration.

Even this half-measure has still not been finalized, as Mexico’s government still has not committed to holding up its end of the bargain as of this writing on Friday morning. So, anything could still happen. All of which explains why the oil markets reacted negatively to the OPEC++ announcement, with oil prices dropping by more than 15% in just a few hours.

But here at least are the parameters of the agreement that are being reported Friday morning:

– OPEC++ (the OPEC nations plus Russia, Mexico, Canada, Brazil and several others) agree to cut 10 million barrels per day of exports from April through July;

– The cuts drop to 8 million bopd from August 1 through December 31;

– The cuts further fall to 6 million bopd beginning January 1, to continue for the next 16 months;

– The cuts include no formal contribution from the U.S. oil and gas industry.

President Donald Trump will discuss his views of America’s contribution to a reduction in global supply in a call involving the Group of 20 – or G20 – on Friday.

 

Read the Rest at Shalemag.com

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Russia’s Skepticism Over U.S. Oil Production Cuts Is Well-Grounded

Bloomberg reported Wednesday that Russian oil representatives are expressing skepticism about the potential for the the U.S. oil industry to participate in global deal to cut crude production in a real, sustaining way. That skepticism is well-grounded in reality.

With the Trump Administration thus far offering only what it calls “automatic” cuts that will take place in the U.S. as drilling activity drops and oil wells are shut-in as the result of low demand, Russian government spokesman Dmitry Peskov told reporters, “You are comparing the overall demand drop with cuts aimed at stabilizing the global market. These are completely different things.”

He’s right.

The problem is, as I pointed out over the weekend, is that, absent quick and certain action by regulators in Texas and other states or an emergency declaration by the Trump Administration designed to shut down production in the Gulf of Mexico and on federal lands, any U.S. contribution to a global supply reduction deal must by law be market-based, and thus, temporary. Unlike Russia, Saudi Arabia and many of the OPEC nations, the U.S. oil industry consists of thousands of companies competing in a free market, and the national government cannot cause production to rise or fall on a whim. The situation is further complicated by the fact that any such move by the federal or state governments would be politically controversial and opposed by certain segments of the U.S. industry itself.

Today In: Energy

There is little doubt that, should current market dynamics persist into the third and fourth quarters of this year, overall U.S. crude production will drop dramatically, with Citigroup, Inc. projecting it to be down by over 1 million barrels per day by October. Frankly, that seems to be a conservative estimate. The trouble in the context of this envisioned global agreement is that, once demand is to a large extent restored, the U.S. industry would simply come roaring back to fill the void, absent some artificial governor on its activities.

Read the Rest at Forbes.com

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State Regulators Hold The Key To U.S. Participation In A Global Oil Supply Deal

The energy media was filled with speculation on Friday and Saturday about how much higher crude prices might spike on Monday as OPEC and Russia prepared to hold an emergency conference call meeting that day. That speculation has now evaporated as the call has been postponed, now scheduled to take place on Thursday.

As the Wall Street Journal reported on Sunday, “Saudi Arabia and Russia have said privately they are unlikely to cut oil output unless North American producers join in.” While Canada has signaled its willingness to be a part of a larger, global approach to cutting supply, it is unclear how exactly officials from Russia and Saudi Arabia envision the United States joining the party.

I’ve written about this several times in the past, but it deserves repeating here: America is simply not like these other countries. It is called the “United States” for a reason. The federal government of the United States has no existing authority to just cause oil wells to be turned off and on at the snapping of a president’s fingers.

Yes, as we saw in the wake of the tragic Macondo blowout and spill in April, 2010, a president can declare an environmental emergency and cause all production to be shut in in the Gulf of Mexico. But beyond 3 miles of the coastline (roughly 12 miles offshore Texas) the Gulf of Mexico is a federal province. The order issued on May 27, 2010 by President Barack Obama to shut-in Gulf of Mexico production applied only in waters of 500 feet or more in depth, limiting it to areas safely within the federal province. In this way, he avoided challenges from state governors that would have certainly resulted had he attempted to shut down the entire Gulf, including all state waters.

This is what the United States calls “federalism,” and it is a concept that leaders in many other countries appear to have a very difficult time grasping. Given that the great preponderance of U.S. oil production comes mainly from beneath state and private lands, solving the conundrum of any U.S. participation in any global agreement to limit oil supply will necessarily involve participation from key state regulators.

In states like Texas, North Dakota, Oklahoma, Wyoming and New Mexico, which together are producing the preponderance of U.S. crude oil, regulatory bodies possess various authorities to limit production within their state borders. Those states combined to produce about 68% of the oil produced in the U.S. in January, the latest month for which the U.S. Energy Information has data. Another 15% was produced in federally-owned waters in the Gulf of Mexico and off the Pacific coast.

Thus, at least in theory, roughly 83% of U.S. oil production could be artificially limited by the federal government and state regulators on a coordinated basis. It is important to note that this kind of coordination is the only real way for the U.S. to become a meaningful part of any such deal.

Read The Rest at Forbes.com

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Putin Is Ready To Cut Oil Supply, But Demand Destruction Still Grows

Russian President Vladimir Putin said on Friday that, after sending the oil markets into a massive crash a month ago by blowing up the OPEC+ exports limitation agreement, his country is now ready to work with OPEC and other countries to implement far deeper cuts to crude production than OPEC+ had ever envisioned.

Speaking in a televised video conference, Putin proposed an arrangement that would result in removing 10 million barrels of crude oil per day from global supply. As reported by the Khaleej Times, “Putin’s dramatic change of tack from his unyielding stance of non-cooperation with the Opec in further output cuts came in the wake of a truce brokered by US President Donald Trump ahead of the upcoming Opec plus meeting scheduled for April 6.” The price for West Texas Intermediate closed at $28.34 per barrel on Friday, up by 40% since Wednesday, when news of Trump’s engagement with Putin and Saudi leader Mohammed bin Salman became public.

Has President Trump, the famous deal-maker, worked a deal that will save the U.S. domestic oil and gas industry? Let’s don’t get ahead of ourselves. While a global deal that would remove 10 millions barrel from daily oil supply would certainly help firm up oil prices, we have to remember that the effort by Russia and Saudi Arabia to flood the market only impacted the supply side of a two-sided equation. Crude prices had already dropped by more than 30% into the low-$40 range in early March before OPEC+ blew up, thanks to massive global demand destruction caused by the COVID-19 pandemic.

With the U.S. intentionally shutting down its own economy during March in a strategy to slow the spread of the virus, that demand destruction has only intensified over the past 30 days, with some projecting as much as 25% of world-wide demand for crude oil having been lost, or about 25 million barrels per day. We should also realize that, with so much anticipation now focused on it, if the upcoming emergency meeting of the OPEC+ countries should somehow fail to bear fruit along the lines proposed by Putin, then the price will come crashing back down.

And even if a new deal does get done, it will only address one side of the equation. There will still be much work to be done to return the domestic oil and gas industry to some level of health.

Read the Rest at Forbes.com

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The Shale Daily Update – 4.3.2020

Here are 10 things you need to know about oil and gas for April 3, 2020:

Trump calls on Russia and Saudi Arabia to cut oil production – Excerpt:

The Trump administration is pressing OPEC to hold an emergency meeting as early as next week to try to end the standoff in the oil market that has threatened to cripple the U.S. oil industry, three industry and government officials familiar with the talks said.

The U.S. pressure is aimed at persuading Saudi Arabia — which has also called for a meeting — and Russia to declare a ceasefire and reverse the export increases that have drowned the global market in crude even as the coronavirus pandemic has decimated international demand.

The White House has not yet decided who, if anyone, it would send to a possible OPEC meeting next week, the industry and government officials said. Candidates included Secretary of State Mike Pompeo, Department of Energy Secretary Dan Brouillette and Trump’s son-in-law and adviser Jared Kushner, the people said.

Oil Extends Gains As OPEC Leaders Call Emergency Meeting To Discuss Trump Production Cuts – Well, guess the pressure from the President worked, as OPEC called a special meeting overnight. The cartel will hold its meeting next week via “emergency teleconference,” which one supposes must be more urgent than just your ordinary, everyday OPEC teleconference.

OPEC+ Debates Biggest Ever Cut as Virus Destroys Oil Demand – It’s worth noting that Russia’s oil minister denied the narrative told in this New York Times report, but Russia says all sorts of things that end up not being accurate. Let’s hope this is one of them.

 

Read the Rest at Shale Magazine

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WATCH/READ: William Barr’s Disturbing Statement on the NAS Pensacola Atrocity

Today’s Campaign Update, Part II
(Because The Campaign Never Ends)

What’s it been – six weeks since the killings took place? Hey, better late than never. – The U.S. Justice Department finally got around to formally announcing what any thinking person knew from the moment we heard about it: That the December 6 mass murder by a Saudi national at NAS Pensacola was an act of Islamic terrorism.

Attorney General William Barr held a press conference on Monday to announce the results of the crack FBI Dumpster Fire team’s intrepid investigation. Here is a clip from Mr. Barr’s disturbing statement followed by a transcript of his remarks:

 

For those of you who still like to read stuff, here is a full transcript of the Attorney General’s remarks [emphasis added]:

Good afternoon, and thank you for coming.

We are here to discuss the results of the investigation into the shooting that occurred on Dec. 6, 2019 at Pensacola Naval Air Station.

Joining me today are David Bowdich, Deputy Director of the FBI; John Demers, Assistant Attorney General for National Security; Michael Sherwin, Associate Deputy Attorney General for National Security; Rachel Rojas, FBI Special Agent in Charge of the FBI Field Office in Jacksonville, Florida; and Larry Keefe, U.S. Attorney for the Northern District of Florida.

I want to thank the FBI and the other federal, state, and local law enforcement agencies involved in responding to and investigating the incident for their rapid and excellent work.  Many people worked long hours through the holidays, and I am grateful for their diligence and commitment to seeing this through.  You will be hearing from Deputy Director Bowdich shortly about the details of the FBI investigative work, which was superb.

In considering this case, we have to remember that there are thousands of allied pilots and other military personnel receiving training on military bases throughout the United States.  These military partnerships are critically important to the United States.  The Royal Saudi Air Force, which flies American-made aircraft, is an important military partner, and has long had a training relationship with us.

On Dec. 6, 2nd Lt. Mohammed Saeed Alshamrani, a member of the Royal Saudi Air Force, entered a building on the grounds of Pensacola Naval Air Station and killed three U.S. sailors and severely wounded eight other Americans.  Alshamrani was killed during the attack.

This was an act of terrorism.

The evidence shows that the shooter was motivated by jihadist ideology.  During the course of the investigation, we learned that the shooter posted a message on social media on Sept. 11 of last year that said: “the countdown has begun.”  Over Thanksgiving weekend, he visited the 9/11 Memorial in New York City.  He also posted other anti-American, anti-Israeli, and jihadi messages on social media, and did so two hours before his attack at the naval base.

Early reports indicated that the shooter arrived at the site, accompanied by other Saudi cadets, who took video of the attack as it unfolded.  These reports turned out not to be accurate.  The shooter arrived by himself.  Other Saudi cadets happened to be in the area and, after the attack began, they took some videos of the resulting commotion.  They fully cooperated in the investigation, as did the other Saudi cadets who were interviewed by the FBI at Pensacola and at additional bases across the country.

After Alshamrani entered the building and cased the facility, he proceeded to walk around shooting down his unarmed victims in cold blood.

During and after this heinous attack, there were many specific acts of courage, and I want to draw special attention to two U.S. Marines: Gunnery Sgt. Ryan Maisel and Staff Sgt. Samuel Mullins.

They were outside the building when they heard gunfire and, although unarmed, they ran into the building to confront the shooter.  Their only weapon was a fire extinguisher that they had pulled off the wall as they ran toward the gunfire.  Who but the Marines?

Although they were unable to engage the shooter, they helped save many lives by performing CPR and other medical aid on the victims.

I would also like to mention the heroic acts of Navy Airman Ryan Blackwell.  The shooter shot Airman Blackwell five times, yet Ryan still managed to jump on top of a fellow sailor to keep her from being shot.  He further assisted other students and helped them escape, all while taking additional fire from the shooter.  Airman Blackwell’s heroic acts also saved countless lives that day.

We are grateful as well for the bravery of the base personnel and local law enforcement responders who initially arrived at the scene and engaged the shooter.

I would also like to address the cooperation of the Kingdom of Saudi Arabia.

The Kingdom of Saudi Arabia gave complete and total support for our counter-terrorism investigation, and ordered all Saudi trainees to fully cooperate.  This assistance was critical to helping the FBI determine whether anyone assisted the shooter in the attack.

While there was no evidence of assistance or pre-knowledge of the attack by other members of the Saudi military (or any other foreign nationals) who are training in the United States, we did learn of derogatory material possessed by 21 members of the Saudi military who are training here in the United States.

Seventeen had social media containing some jihadi or anti-American content.  However, there was no evidence of any affiliation or involvement with any terrorist activity or group.  Fifteen individuals (including some of the 17 just mentioned) had had some kind of contact with child pornography.  While one of these individuals had a significant number of such images, all the rest had one or two images, in most cases posted in a chat room by someone else or received over social media.

The relevant U.S. Attorneys offices independently reviewed each of the 21 cases involving derogatory information and determined that none of them would, in the normal course, result in federal prosecution.

However, the Kingdom of Saudi Arabia determined that this material demonstrated conduct unbecoming an officer in the Saudi Royal Air Force and Royal Navy and the 21 cadets have been dis-enrolled from their training curriculum in the U.S. military and will be returning to Saudi Arabia (later today).

The Kingdom has assured me that it will review each of these cases under their code of military justice and criminal code.  The Kingdom has also agreed that we will have full access to anyone we want to interview in Saudi Arabia and any documents relevant to our investigation.  Indeed, it has already been providing documents.  Further, the Kingdom has assured us that, if we later decide to charge any of those being sent back to Saudi Arabia in connection with this counterterrorism investigation, it will return them for trial.

We appreciate Saudi Arabia’s cooperation in this case.

Finally, I want to address an issue regarding the shooter’s phones.

The shooter possessed two Apple iPhones, seen on posters here.

Within one day of the shooting, the FBI sought and received court authorization based on probable cause to search both phones in an effort to run down all leads and figure out with whom the shooter was communicating. 

During the gunfight with first responders, the shooter disengaged long enough to place one of the phones on the floor and shoot a single round into the device.  It also appears the other phone was damaged.

Our experts at the FBI crime lab were able to fix both damaged phones so they are operational.

However, both phones are engineered to make it virtually impossible to unlock them without the password.  It is very important to know with whom and about what the shooter was communicating before he died.

We have asked Apple for their help in unlocking the shooter’s iPhones.  So far Apple has not given us any substantive assistance.  This situation perfectly illustrates why it is critical that investigators be able to get access to digital evidence once they have obtained a court order based on probable cause.  We call on Apple and other technology companies to help us find a solution so that we can better protect the lives of Americans and prevent future attacks.

With that, I will turn things over to Deputy Director Bowdich.

[End]

Several aspects of Barr’s remarks are highly disturbing:

  • How likely do you really think it is that several fellow Saudi training pilots with no affiliation with the shooter just happened to be right there, ready and able to film the killings while making zero effort to intervene, later posting their video on social media? Quite the coincidence there.
  • Of the 21 Saudi trainees being tossed out of the program, were these filmers among them?
  • So we had 15 Saudi trainees at NAS Pensacola alone trafficking in kiddie porn? That seems like a bit of an epidemic, doesn’t it?
  • Seventeen of these trainees were jihadis? At a single base? This screams out for major reforms to the pre-screening process.
  • The people who run Apple are scum, plain and simple. Refusing to assist this investigation despite the existence of a court order is indefensible.

At any rate, it’s wonderful that Mr. Barr and his plodding DOJ finally got around to telling us what we knew from the beginning: that this atrocity, like so many others, was motivated by Islam. But the rest of this statement raises more questions than it provides satisfactory answers.

Just another day at the D.O.J.

That is all.

 

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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