after all of our warnings about the investor-state dispute settlement (ISDS) provisions of the TPP, we should have seen this coming: on Wednesday, TransCanada announced that it is filing a series of claims under those same provisions of NAFTA (the North American Free Trade Agreement) against the United States for our denial of their application to build the Keystone XL pipeline, arguing that the denial was arbitrary, politically motivated, and unjustified…the first part of Transcanada’s action is against Obama, arguing that his decision to kill the pipeline exceeded his power under the Constitution...then, under the NAFTA’s ISDS provisions, Transcanada will be seeking $15 billion in compensation for the trouble we’ve put them through over the past 7 years… they will not, however, be seeking damages for the profits they might have earned had the pipeline been built, something they could have done under ISDS provisions, and something they still might do after the TPP passes…whatever they get, it’ll come out of our tax dollars…
so it appears these trade treaty provisions that we have been pushing on the rest of the world are going to come around and bite us in the behind…you should recall that the ISDS provisions of these trade agreements grant any international corporation or investor the right to be compensated should a state, local or national law interfere with their potential profits…such a case would not be adjudicated by our own courts, but by a tribunal of corporate trade judges in a supra-national court set up under the World Trade Organization’s Investor Dispute Settlement Body….the judgment of this WTO body can’t be challenged in our own courts; the extra-legal provisions of such treaties were already endorsed by the US Supreme Court over a year ago…what’s ironic is that these ISDS provisions are specifically designed to protect the interests of US multinationals doing business with our trade partners…we’ve been using our position as the largest economy and largest consumer to force these provisions on the rest of the world…we’ve set it up so that if another country wants to do business with us, the top consumer in the world, then they have to sign these treaties to give our corporations control of their laws…such provisions of NAFTA have already been used against Canada: Lone Pine Resources Inc, an American fracker, has sued Quebec for lost profits due to Quebec’s moratorium on fracking under the St. Lawrence River…now these same provisions we designed are being used against us…understand, this action wont force the Keystone XL pipeline to be built; it will just force us to pay Transcanada for their expenses in the attempt, plus interest and penalties according to whatever provisions of ISDS they are citing..
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the week’s most interesting confluence of oilfield stories again comes out of Oklahoma, the most seismically active area on the entire planet…i’m sure you’ll recall that Oklahoma went from a seismically quiet state with an average of less than two magnitude 3 earthquakes per year before 2009, to 109 magnitude 3 earthquakes in 2013, to 585 quakes of that magnitude in 2014, and to over 2 per day throughout 2015, when they set a record with 881 magnitude 3 earthquakes for the year, which was more earthquakes of that size than the rest of the continental US combined had in 2015…the U.S. Geological Survey says most if not all of those earthquakes were man-made – induced by pressure built up underground from injecting oil field waste water down into deep wells, a fact that the Oklahoma department of Energy and the Environment finally accepted earlier this year…
so Monday of this past week, after experiencing a dozen earthquakes large enough to be felt in an area north of Oklahoma city in less than a week, including a pair of magnitude 4.2 quakes, the Oklahoma Corporation Commission, the state’s regulator of the industry, ordered that several injection well operations, including 5 that were operating within 10 miles of the epicenter of that recent earthquake activity near Edmond, an Oklahoma City suburb, reduce their wastewater disposal volumes by between 25% to 50%…now, you’d think slowing down the waste water injection that was causing the ground to shift under your feet would be a no-brainer, but one Oklahoma fracking company, SandRidge Energy, was openly defiant of the state’s edict, while Greenpeace reported that the other oil and gas companies were simply ignoring all Oklahoma regulations that had been put in place to relieve environmental damage from fracking and injection wells….thus, with the situation underground becoming more precarious by the hour, it did not take long for the earth to notice that it was being put under undue pressure from those frackers above, and starting with a 4.8 quake on Wednesday, the earth unleashed a series of 32 earthquakes over the next day, including 3 earthquakes greater than magnitude 4.0, with a pair of them, of magnitude 4.7 and 4.8, just 30 seconds apart, in a swarm of 30 quakes over 19 hours, the largest of which were felt from Illinois to Texas and Mississippi…as of the latest report on Friday, Oklahoma had felt 70 earthquakes in this current swarm, and geologists are predicting even stronger quakes for the state in the near future, possibly as large as a magnitude 6.0, and possibly threatening the word’s largest oil tank farm in Cushing, where 60 million barrels of US commercial crude are stored in tanks that weren’t built to withstand earthquakes…the problem now, however, is that if there are serious damages, there will be no one left to go after, no one left to collect from…the aforementioned SandRidge Energy is out of cash and was delisted from the New York Stock Exchange two days ago, just about the same time the swarm of earthquakes was peaking under their feet in Oklahoma…we wouldn’t be surprised if they soon joined the 40 frackers who have already declared bankruptcy over the past year..
New 11 Year Lows for Oil Prices
oil prices nosedived again this past week, while natural gas prices continued to soar on forecasts of colder weather and the prospect of exports, and at $2.47 per mmBTU, they’re up nearly 35% from their mid-December lows….meanwhile, after closing at $37.04 a barrel on New Year’s Eve, US crude prices spurted to $38 a barrel early Monday after religious tensions flared up in the Middle East…however, after rising by $1.35 early, the price of U.S. crude fell back on reports of slower factory activity in China and elsewhere and ended the day down 28 cents at $36.76 a barrel…reports of record amounts of crude oil in storage at Cushing, OK, where US crude is priced at, continued to weigh on prices Tuesday, when oil closed at $35.97; then, after EIA weekly reports showed that our total crude and product stocks rose by 7.3 million barrels the prior week, and is now 164 million barrels above the year earlier level; WTI fell $2 a barrel to close at $33.97, the lowest price since 2004…that price weakness persisted the rest of the week as US oil prices fell to close at $33.27 a barrel on Thursday and then finished the week at $33.16 a barrel on Friday afternoon …
i’ve been trying unsuccessfully to find a dynamic graph that shows both the widely quoted NYMEX (New York mercantile exchange) front month contract price for delivery of WTI crude and the long term price history for that contract…however i did find an interactive graph from Forex Capital Markets that apparently shows their current offmarket trading price for WTI on a long term chart that goes back to 1990, and i’ve taken a picture of that to include below…here you can see that US oil prices are now below those of 2009, when they fell below $35 a barrel at the depth of the global financial crisis, when demand for oil collapsed because everyone thought the world was coming to an end….we’re now comparing today’s prices to those of 2004, when oil started out priced at $29.84 a barrel and rose to a high of $43.81 a barrel by November…for prices before that, you can go to the trading economics site, click on “all”, and mouse across the graph, which brings up the price at the beginning of each month…btw, this type of graph is called a candlestick, as it shows the opening and closing price for each month as a solid “candle”, with green for months when prices rose and red for when price fell….the faint thin grey line “wicks” extending from the top or bottom of each candle represent trading prices during the month that were outside of the range of the opening and closing price…
while the US crude price has been falling over the past couple weeks, the international benchmark of Brent oil has been falling slower, leading once again to a small premium price for Brent; for instance, Brent was a $37.22 a barrel at the close on Monday, vs US prices of $36.76 a barrel; by Wednesday’s close Brent had fallen to $34.23 a barrel, while US prices closed at $33.97, and Brent ended the week at $33.55 a barrel, still 39 cents higher than the official US closing price of $33.16…these benchmark prices typically represent the highest prices oil is selling for; for instance, on Monday the Saudis cut their prices to Europe to below $30, to undercut the Russian price and head of any European-Iranian trading…by Wednesday, the average daily basket price of crudes produced by the 13 members of OPEC fell to $29.71 a barrel, down from $31.21 the previous day; by the end of the week, OPEC had slashed its price by another $2 to $27.85 a barrel; at the same time, Canadian heavy crude oil had fallen below $20 a barrel, a record low…if you’re interested, you can now buy tar sands crude at less than 50 cents a gallon, it’s cheaper than water, even though it’s much harder to extract…
This Week’s Oil Stats from the EIA
this week’s reports from the US Energy Information Administration were for the week ending January 1st and showed another small increase output of oil from US wells, a sizable drop in the amount of oil we imported, a modest decrease in the oil used by US refineries, and a seasonally large drop in our oil in storage…however, there was an unexpectedly large increase in the amount of refined products that were neither consumed or exported and thus had to be added to our stored surplus, which led to the drop in oil prices we just discussed…
for the week ending January 1st, our imports of crude oil fell by 382,000 barrels per day to a 7,510,000 barrels per day pace, which was 2.1% lower than the 7,668,000 barrels per day we imported during the week ending January 2nd of 2015…however, since the number of oil tankers unloaded in any given week makes imports fairly volatile week to week, the EIA’s weekly Petroleum Status Report (62 pp pdf) reports a four-week moving average of oil imports, which have now averaged about 7.8 million barrels per day over the last 4 weeks, 5.9% above the same four-week period last year…meanwhile, our field production of crude oil rose by 17,000 barrels per day, from 9,202,000 barrels per day in the week ending December 25th to 9,219,000 barrels per day with this report; that’s the highest level of output from US wells since the 3rd week of August this year, and nearly 1.0% more than the 9,132,000 barrels per day than we produced in the week ending January 2nd of last year, a time when almost three times as many oil wells were being drilled as today…
the amount of that crude used by our refineries fell by 65,000 barrels per day during the same week, from a December record average of 16,682,000 barrels per day during the week ending December 25th to an average of 16,617,000 barrels per day during the week ending January 1st…although down from last week as our refinery utilization rate slipped from 92.6% to 92.5%, that was still 1.2% more than our refineries took in during the same week last year, and also an all time high for any week including New Year’s day…our gasoline production, which surged to 9,921,000 barrels per day last week, fell back to 8,766,000 barrels per day in the week ending January 1st, while our output of distillate fuels (ie, diesel fuel and heat oil) rose by 50,000 barrels per day to 4,976,000 barrels per day…the large output of gasoline we saw last week, which we opined had seemed to have disappeared in last week’s stats, reappeared as inventories this week, as our end of the week gasoline in storage rose by 10,576,000 barrels to 231,996,000 barrels, which has to be some kind of record for a one week jump…although that was less than the 237,163,000 barrels of gasoline we had stored in the same week a year ago, it was well into the upper half of the average range of gasoline stored at this time of year…likewise, our distillate fuel inventories also increased, rising by 6,308,000 barrels to 159,418,000 barrels, up from 153,110,000 barrels on December 25th…that was 16.4% higher than last January 2nd’s 136,926,000 barrels, also putting distillate fuel supplies well into the upper half of their normal range for this time of year…
this week, which included year end inventory taxing time for Texas and Louisiana, it seems like some of that excess crude disappeared, however, as.our end of the week stocks of crude oil in storage, not counting what’s in the government’s Strategic Petroleum Reserve, fell by 5,085,000 barrels to 482,324,000 barrels on January 1st, down from 487,409,000 barrels on December 25th…that was still up by 27.5%, or nearly a 100 million from the 382,393,000 barrels we had stored at the beginning of 2015, and the most we had stored at the beginning of any year in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year…
Latest US Rig Counts
it appears that lower prices have finally caught up with the US frackers, because this week they retired the most rigs they’ve retired in one week since March 20th, and shut down the largest percentage of their active rigs since March 6th, when they shut down 75 of the 1276 that were active back then…the weekly rig count data from Baker Hughes indicated that the number of drilling rigs working in the US fell by 34 to 664 from December 31st to January 8th, with rigs drilling for oil down by 320 to 516 and rigs drilling for gas down by 14 to 148…that’s down from a total of 1,750 drilling rigs that were deployed on January 9th last year, when there were 1421 rigs drilling for oil and 329 rigs drilling for gas, and represented the lowest rig count since 1999…oil rigs hit their fracking era high at 1609 on October 10, 2014, while the recent high for gas drilling rigs was at 356 and occurred on November 11th of that same year…
two more drilling rigs were added in the Gulf of Mexico during the week, so the Gulf count is now up to 27, which is still down from 53 working in the Gulf and a total of 54 drilling offshore as of January 8th a year ago…there was also a rig set up on an inland lake in Southern Louisiana, where there are now 2 rigs drilling, down from the 12 that were set up on inland waters a year earlier… a net of 30 horizontal rigs were stacked this week, cutting the count of horizontal rigs down to 519, which was also down from the 1301 horizontal rigs that were in use the same week last year…in addition, 8 vertical rigs were also taken out of service, leaving 81, down from 288 last year at this time…however, 4 new directional rigs were set up, bringing the directional rig count up to 64, which was nonetheless still down from the 161 directional rigs that were in use on January 8th of last year…
all major shale basins except the Ardmore Woodford and the Arkoma Woodford, both of Oklahoma, saw rig reductions this week; the Ardmore Woodford added a rig and was up to 3, down from 6 a year ago, while the Arkoma Woodford was unchanged at 8, up from 6 rigs a year ago…the Barnett shale of the Dallas area was down 1 rig to 6, and down from 24 a year ago; Oklahoma’s Cana Woodford was down 2 rigs to 36, and down from 45 a year earlier; the DJ-Niobrara chalk of the Rockies front ranges was down 1 rig to 22, which was down from 56 rigs a year ago; the Eagle Ford of south Texas was down 5 rigs to 71 this week, which was down from 197 rigs last year at this time; the Fayetteville of Arkansas saw its last rig stacked; the entire basin, which had 10 rigs working it a year ago, is now quiet…the Granite Wash of the Oklahoma-Texas panhandle region was down 3 rigs to 12 this week,and down from 50 rigs a year ago; the Haynesville of Louisiana was down 2 rigs to 23, which was down from 43 rigs a year earlier; the Marcellus of the northern Appalachian area was down 4 rigs to 37, which was down from 77 rigs a year ago; the Mississippian of southwest Kansas and bordering states was down 1 rig to 11 and way down from 69 rigs a year ago; the large Permian basin of west Texas and eastern New Mexico was down 8 rigs to 209, which was down from 502 rigs working last year at this time; the Utica was down 1 rig to 14, which was down from last year’s 48, and lastly the Williston of North Dakota was down 4 rigs to 49, which was down from 171 rigs working there a year earlier..
of the major oil & gas producing states. only Louisiana saw an increase of 1 rig, bringing them up to 59, which was still down from 108 a year ago…alphabetically, Alaska saw two rigs idled, leaving 9, down from 11 a year ago; Arkansas saw it’s only remaining rig pulled; at zero, they’re down from 13 rigs last year at this time; Colorado got rid of 2 rigs, leaving 22, down from 65 a year ago; Kansas had 1 rig pulled out, leaving 11,which was down from 26 a year earlier; New Mexico was down 4 rigs to 34, down from 95 a year earlier; North Dakota was also down 4; at 49 rigs they’re down from 162 rigs last year at this time; Oklahoma was also down 4 rigs; at 83 they’re down from last year’s count of 206….in addition, Pennsylvania was down 2 rigs to 25, which was down from 51 a year ago, Texas was down 13 rigs to 308, which was down from 810 last year; West Virginia was down 3 rigs to 12, which was down from 28 last year at this time, and Wyoming saw 1 rig pulled, leaving 16, down from the 51 that were drilling in Wyoming on January 9th of 2015…however, California’s rig count was unchanged at 7, down from 22 a year ago, Ohio’s count remained unchanged at 14, down from 47 a year earlier, and the Utah count was unchanged at 3, down from 18 on January 9th of 2015….outside of the major oil producers, Nebraska added 2 rigs this week; they now have 3, which is up from the 2 rigs working that state at the beginning of 2015…
Global Rig Counts
this week also saw the monthly release of the global rig count for December, which unlike the weekly count, is an average of the number of rigs running in each country for the month, rather than the month end total…December saw an average of 1,969 rigs drilling for oil and natural gas around the globe, which was down from 2,047 rigs drilling in November and down from the 3,570 rigs that were in use in December of last year…the lions share of the rigs that were pulled during the month came from the US, which saw 46 fewer rigs in December, and saw their total rig count average drop from 1882 last December to 714 with this report…in addition, the Canadians saw a net reduction of 18 rigs from November, and with an average of 160 rigs deployed during the month, they were down from the 375 rigs in use in Canada in December of last year…
the Middle East saw an increase in drilling activity for the 5th month in a row, although their active rig count only rose by 3 this time, from 419 in November to 422 in December, with 55 of those active drilling offshore in the Gulf region, down from 59 offshore in November, but up from 45 offshore a year ago, as the total active rig count the Middle East is up from the 403 rigs being used in the region in December a year ago….most of the region’s changes in December were minor; the Saudis added 2 rigs to bring their total active drilling rig count up to 129, up from the 119 rigs that were drilling in the Kingdom last year in December…Pakistan also added two rigs; they now have 23 rigs working, up from 19 a year ago…meanwhile, Abu Dhabi in the United Arab Emirates pulled out three rigs; they’re now down to 49, which was still up from 36 a year earlier…
meanwhile, the Latin American countries saw a reduction 14 rigs, after idling 10 rigs in November and 27 rigs in October, as the region averaged 270 rigs in December, including 57 offshore, down from a total of 369 rigs, including 82 offshore rigs, in December of 2014….Argentina saw the largest pullback, as they were down 10 rigs to 91, which was down from 113 rigs that were in use in Argentina a year ago…Colombia idled 3 rigs; they’re now running just 12, down from 46 in December of last year…Mexico saw the largest increase in drilling among Latin American countries, as they added 4 rigs and now have 42 working, which is still down from the 72 rigs they had deployed a year ago at this time…
elsewhere, the Asia-Pacific region had 198 drilling rigs working in December, down from 208 in November and down from 255 last December…the largest change in the region was in India, where they reduced their 105 rigs to 100, which was down from 114 rigs a year ago, while China idled 3 offshore rigs, leaving 25, down from the 36 offshore rigs the Chinese were running a year earlier…the total count of rigs drilling in Africa was up by 1 to 91, which was down from the 138 rigs that were working on the continent in December a year earlier…Angola, up 2 rigs to 11, was the only African nation with a rig variance greater than 1, as Angolans were still down from 14 rigs a year ago…lastly, the rig count in Europe rose by 6 in December to 114, which was down from 148 rig working Europe a year ago, as Norway and Germany both added 3 rigs each…the Norwegians now have 17, up from 14 both last week and a year ago, while the Germans are running 6 rigs, up from 3 both last week and a year ago…note that Iran, Russia, and China are not included in Baker Hughes international data, although China’s offshore area, with an average of 25 rigs active in December, is…
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