(Reuters) – Crude oil prices rose on Monday as investors shrugged off a U.S. refinery strike and focused on a falling U.S. rig count that signaled lower production down the line.
“There were a lot of people on the sidelines waiting for an opportunity to buy,” said Bjarne Schieldrop, chief commodity analyst at SEB.
“Brent has struggled sideways for a long time but it closed above the 20-day moving average on Friday for the first time since July, and the rig count is falling sharply. So now they think, maybe this is the time to buy.”
At 6:49 a.m. ET Brent crude futures were up $2.05 at $55.04 a barrel, after leaping as high as $55.62 and dipping as low as $51.41, as the bulls battled with the bears.
U.S. crude was up $1.50 at $49.74 a barrel, after touching an intraday high of $50.56 and slumping to $46.67.
Both contracts had rallied about 8 percent on Friday, fueled by month-end short-covering and a record weekly drop in the number of U.S. oil rigs employed, according to industry data from Baker Hughes. The count is now down 24 percent from its October peak.
“Most market observers have been surprised by the scale of the decrease, and expectations of U.S. oil output this year will no doubt be lowered accordingly,” analysts at Commerzbank said in a note. “The foundation for a steady price recovery in the second half of the year has thus been laid.”
However, in the short term the price increase has been exaggerated, as there is still considerable oversupply, they added.
Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said the bounce was mainly due to technical factors rather than any fundamental reason.
“I wouldn’t be surprised if this afternoon we sell into (the rally) because the global fundamentals in oil and the economy haven’t really changed much since last week,” he said.
On Sunday, workers at nine U.S. refineries and chemical plants went on strike in an effort to pressure oil companies to agree to a new national contract.
“So far only a handful of refineries have been affected, but the last time they went on strike like this, in 1980, it lasted for three months,” said Ole Hansen, senior commodity strategist at Saxo Bank.
Last week U.S. crude inventories hit a record high, and any dampening of refinery demand would likely push stocks higher as the slowdown in drilling has still not affected U.S. production, analysts said. [EIA/S]
“The market is likely too excited about falling rig counts,” analysts at Morgan Stanley said in a note on Monday. “The most productive rigs will likely remain as long as possible.”
ISIS seizes oil facility in northern Iraq, 15 workers missing
(Reuters) – Islamic State insurgents on Saturday seized a small crude oil station near the northern Iraqi city Kirkuk where 15 employees were working, and explosions in and around the capital Baghdad killed at least nine people.
Two officials from the state-run North Oil Co confirmed the militants seized a crude oil separation unit in Khabbaz and said 15 oil workers were missing after the company lost contact with them.
“We received a call from one of the workers saying dozens of Daesh fighters were surrounding the facility and asking workers to leave the premises. We lost contact and now the workers might be taken hostage,” an engineer from the North Oil Co told Reuters, using a derogatory acronym for Islamic State.
The radical jihadist movement seized at least four small oilfields when it overran large areas of northern Iraq last summer, and began selling crude oil and gasoline to finance their operations.
Islamic State insurgents attacked regional Kurdish forces southwest of Kirkuk on Friday, seizing some areas including parts of the Khabbaz oilfields.
Kurdish peshmerga forces sought to push back Islamic State in further fighting near Khabbaz on Saturday, Kurdish military sources said.
Khabbaz is a small oilfield 20 km (12 miles) southwest of Kirkuk with a maximum production capacity of 15,000 barrels per day. It was producing around 10,000 bpd before the attack.
Further south in Baghdad, two bombs in a central neighborhood and a farming district south of the capital killed at least seven civilians on Saturday, medics and police said.
Two soldiers were killed when a bomb exploded close to an army patrol near Taji, a predominantly Sunni Muslim rural district north of Baghdad.
At least 24 others were wounded in the explosions.
In Falluja in the western province of Anbar, hospital sources said five people, including two children, were killed during Iraqi army shelling of Islamic State positions. They said at least 44 others were wounded, including 19 civilians.
It is difficult to confirm reports from hospitals in the area, which is mostly controlled by Islamic State militants.
Islamic State has declared a medieval-style caliphate in parts of Iraq and Syria to rule over all Muslims, and it poses the biggest challenge to the stability of OPEC member Iraq since the fall of Saddam Hussein in 2003.
(Reporting by Mustafa Mahmoud in Kirkuk, Stephen Kalin in Baghdad; Writing by Ahmed Rasheed; Editing by Mark Heinrich)
President Obama announced Sunday that his administration plans to lock up the oil-rich 1.5 million acre Arctic National Wildlife Refuge coastal plain and offshore areas in Alaska from oil and gas exploration.
Obama is asking Congress to designate 12 million acres of ANWR as a “wilderness” to keep it off-limits to development, despite widespread Native Alaskan support for drilling in the area. ANWR’s coastal plain alone is estimated to hold 28 billion barrels of oil.
“Designating vast areas in the Arctic National Wildlife Refuge as Wilderness reflects the significance this landscape holds for America and its wildlife,” said Secretary of the Interior Sally Jewell.
The Obama administration argues that making ANWR off-limits to development will help protect the region’s wildlife and natural beauty. Obama is also considering ways to prevent new oil production at the National Petroleum Reserve-Alaska. Environmentalists have long campaigned to hinder oil production in Alaska.
“Just like Yosemite or the Grand Canyon, the Arctic National Wildlife Refuge is one of our nation’s crown jewels and we have an obligation to preserve this spectacular place for generations to come,” Jewell added.
But Alaska lawmakers were furious with the administration’s proposal — for decades Alaska Republicans and Democrats have been pushing for opening ANWR to drilling.
“What’s coming is a stunning attack on our sovereignty and our ability to develop a strong economy that allows us, our children and our grandchildren to thrive,” said Alaska Republican Sen. Lisa Murkowski. “It’s clear this administration does not care about us, and sees us as nothing but a territory.”
The Obama administration has already proposed designating 226 million acres of waters off Alaska’s coast as a critical habitat for the Arctic ringed seal. Alaska’s outer continental shelf is believed to be home to the world’s largest untapped oil and gas reserves. According to Alaska’s Resource Development Council, the outer shelf could hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas.
“The promises made to us at statehood, and since then, mean absolutely nothing to them,” Murkowski said. “I cannot understand why this administration is willing to negotiate with Iran, but not Alaska. But we will not be run over like this. We will fight back with every resource at our disposal.”
Alaska’s energy production has been hampered in recent years due largely to federal restrictions and adverse economics. In recent months, the state has seen its financial situation grow worse because of plummeting oil prices. At one point, the Trans-Alaska Pipeline used to transport some 2.1 million barrels per day. It now carries well under 1 million barrels per day. The pipeline has so far only carried oil from state lands, as federal lands have been off-limits. The pipeline will have to be shut down and dismantled if it drops below 300,000 barrels per day.
“This is the best news for the refuge since President Eisenhower established it in 1960 as the Arctic National Wildlife Range,” said Rhea Suh, a former Obama Interior Department official who is now president of the Natural Resources Defense Council. “It’s a national treasure worthy of the highest protection available for our public lands.”
Environmentalists have been keen on slowing down the flow of oil through the pipeline to make it uneconomical and impractical to get oil from Alaska. Eco-activists have labelled Alaska a ground-zero for global warming, saying shrinking sea ice levels are harming polar bears, wildlife and Native Alaskans — despite evidence to the contrary.
Oil Cleanup after “unfortunate incident” in Yellowstone
BILLINGS, Mont. — Montana officials said Sunday that an oil pipeline breach spilled up to 50,000 gallons of oil into the Yellowstone River near Glendive, Montana, but they said they are unaware of any threats to public safety or health.
The Bridger Pipeline Co. said the spill occurred about 10 a.m. Saturday. The initial estimate is that 300 to 1,200 barrels of oil spilled, the company said in a statement Sunday.
Some of the oil did get into the water, but the area where it spilled was frozen over and that could help reduce the impact, said Dave Parker, a spokesman for Gov. Steve Bullock.
“We think it was caught pretty quick, and it was shut down,” Parker said. “The governor is committed to making sure the river is cleaned up.”
Bridger Pipeline Co. said in the statement that it shut down the 12-inch-wide pipeline shortly before 11 a.m. Saturday. “Our primary concern is to minimize the environmental impact of the release and keep our responders safe as we clean up from this unfortunate incident,” said Tad True, vice president of Bridger.
The EPA and state Department of Environmental Quality have responded to the area about 9 miles upriver from Glendive, Parker said.
Montana officials are trying to determine if oil could have been trapped by sediment and debris and settled into the riverbed.
Exxon Mobil is facing state and federal fines of up to $3.4 million from the spill. The company has said it spent $135 million on the cleanup and other work.
Montana and federal officials notified Exxon that they intend to seek damages for injuries to birds, fish and other natural resources from the 2011 spill. The company also is being asked to pay for long-term environmental studies and for lost opportunities for fishing and recreation during and since the cleanup.
Schlumberger Limited. (NYSE:SLB) on January 15 announced to cut 9,000 jobs amid falling crude oil price. The largest oil service provider employs a global staff of 123,000 and the reduction in the workforce would represent a 7.3% cut.
Schlumberger released earnings report on Thursday and announced that it had undertaken charges of $1.77 billion in the fourth quarter last year. These charges included currency devaluation of Venezuela, job cuts, and impairment charges related to its seismic business.
Oil price since summer of 2014 have tumbled over 50%. The price that was hovering around $115 per barrel is now below $50. The US benchmark of crude oil, West Texas Intermediate (WTI), and Brent crude, the global benchmark for crude oil, was trading at $46.6 per barrel and $48.5 per barrel, respectively, during pre-market hours at 2:28AM EST.The company over the last ten years had doubled its workforce and clearly had not anticipated the crude oil price to be as low as they are today.
Due to falling oil processes, demand for Schlumberger’s services which include drilling and fracking services is expected to fall drastically. Major energy customers of Schlumberger in the US and Canada are expected to reduce their capital spending by 30-35%, according to Credit Suisse energy analyst James Wicklund.
Analyst at Cowen Group Inc Jim Crandall expects global capital spending to fall 17% year-over-year to $571 billion. According to Wells Fargo, the number of the rig counts is expected to fall to 750 in 2015. According to Baker Hughes Incorporated (NYSE:BHI), the number of rigs in operation was 1,744 at the start of this year. The fall in rig count will represent a decline of 43%.
The fall in oil price though beneficial to consumers is proving to be detrimental for the people who are being laid off. If this particular trend continues in the future, more layoffs can be expected.
Another oil service provider to announce job cuts last month was Halliburton Company (NYSE:HAL). It announced to slash around 1,000 employees amid the oil price. WTI during that time was below $59. The company had just finished merger talks with Baker Hughes at that time and had announced earlier that no layoffs would be made.
In addition to the falling oil price, unrest in Libya, along with the western sanctions imposed on Russia are some reasons for the company reducing its staff. The energy service companies on the Standard & Poor’s Index have fallen over 20% compared to the fall of 18% for the oil producers. Repercussions of lower crude oil price were also the first to impact these oil service companies.
BP plc (ADR) (NYSE:BP) has cut back on in its capital spending for this year and labor force amid the falling oil price. BP has divested assets worth $43 billion to help counter the scenario and has also announced major layoffs in its North Sea operations .
Edward Jones analyst Rob Desai has indicated that the year will be a rough one for Schlumberger. He has urged the company to tackle the current situation it faces aggressively. CEO Paal Kibsgaard has indicated that the company is trying its best to tackle the situation and deal with factors that are in the company’s control.
The situation indeed is tough for the company ahead. There is no stopping decline in oil price, which have fallen 50% since June. Although capital spending has declined, companies have reported rising production due to their focus on core and more efficient wells. Organization of Petroleum Exporting Countries has announced to maintain production at 30 million barrels per day.
However, oil production definitely needs to be reduced to prevent the price from further going down.Schlumberger stock dropped 2.25% to $76.63 when the market closed yesterday.
President Barack Obama may be closer than ever to deciding the fate of the Keystone XL pipeline.
That has more to do with the Nebraska Supreme Court than pressure from congressional Republicans, whose Friday passage in the House of a bill to push forward the long-delayed pipeline fell well short of a veto-proof majority.
The Nebraska court preempted the House vote by issuing its ruling early Friday that upheld the state’s law that fast-tracked a new route for the $8 billion oil project. The ruling effectively forces the the Obama administration to resume its years-long review that will ultimately determine whether Keystone is in the nation’s interest.
As expected, the House easily passed its bill that would circumvent that process, but only 28 Democrats joined Republicans, putting the ‘yes’ votes in the lower chamber at 266. That’s five more than the last time the House passed a Keystone measure, but dozens of votes short of the support needed from Democrats to guarantee the bill would overcome the veto that the White House has promised.
Undeterred, Republicans vowed to force Obama to uncap his veto pen for only the third time in six years.
“What we’re trying to do is get to the point where the president has to make a decision,” said Rep. Pete Sessions, the Texas Republican who chairs the Rules Committee. “If he says he’s going to [veto] it, let’s give him a chance.”
The White House reiterated its veto threat on Friday after the Nebraska court ruling, saying Congress wouldn’t stand in the way of the review being conducted by the State Department. “We are going to let that process play out,” Obama spokesman Eric Schultz said.
But how long that process will take is not clear, and a 2004 executive order gives Obama no deadline to decide on a border-crossing permit for the $8 billion Alberta-to-Texas pipeline even after the State Department issues its recommendation.
Pipeline supporters’ chances of winning a veto showdown with Obama appeared slim on Friday, even after a court ruling that Keystone backers had hoped might sway new Democratic votes.
Of the 28 House Democrats who voted with all but one Republican on Friday to force Keystone approval, three are new in the yes camp: Reps. Brad Ashford (D-Neb.) and Gwen Graham (D-Fla.), both freshmen, and Rep. Kurt Schrader (D-Ore.), who has previously said he supports the pipeline in principle.
Two other Democrats, Reps. Jim Costa (D-Calif.) and Cheri Bustos (D-Ill.), who had voted against Keystone in November after offering support two years ago, moved back into the yes column on Friday.
Still, Republicans need roughly 290 to override an Obama veto, a mark the Democrats vowed they would never reach.
“We’ll definitely be able to uphold a veto,” said New Jersey Rep. Frank Pallone, the Energy and Commerce Committee’s top Democrat. “I’m confident.”
Arizona Rep. Raul Grijalva, the Natural Resources Committee’s top Democrat, predicted that a strong minority front to uphold a Keystone veto would set the tone for the entire 114th Congress.
“This is going to play out in a variety of other issues as we go along,” be it on education, highway trust fund or otherwise, Grijalva said in an interview. “While they have historic numbers, if the president moves to veto, we’re still in position to keep the worst from happening. … It’s not just XL now, it’s about party unity now as well.”
Five of the 31 House Democrats who voted to approve the pipeline in November have since left Congress. In the Senate, where the pro-Keystone bill is set to clear its first procedural hurdle Monday ahead of what likely to be a contentious open amendment debate, Republicans appear to be four votes short of the 67 needed to override a veto.
“I don’t think it’s going to happen,” Senate Minority Leader Harry Reid told Nevada radio station KNPR on Friday, adding he is “confident the president will veto it and, good, I hope he does.”
Republicans counter that all they need is time for the pro-Keystone arguments on economic and energy-security benefits to peel more Democrats away from Obama.
“Labor Dems are starting to turn the corner here,” one House GOP leadership aide said by email, “and I suspect the pressure to support this bipartisan jobs project back home will continue to grow.”
Unions that have long urged approval of Keystone seized on the Nebraska decision in urging Democrats to push the pipeline forward.
“The greenlight for the Nebraska route should certainly cause some Democrats to pause and realize the roadblocks they’ve been hiding behind are falling away,” Laborers International Union of North America General President Terry O’Sullivan said in a statement. “There’s really no excuse for a no vote.”
For Keystone sponsor TransCanada, whose pipeline proposal sparked the political tempest over climate change, jobs and the tradeoffs between economic growth and environmental protection, the Nebraska court case represented a major victory.
The company’s CEO, Russ Girling, told reporters Friday that the State Department’s process would resume about halfway through the 90-day window it has to render a “national interest” ruling on Keystone, meaning that final approval could come within “the next couple of months.”
But State spokeswoman Jen Psaki told reporters today that she could not offer specifics on when the Keystone review would wind down, saying only she did not expect the process to last beyond the end of Obama’s term in 2016.
As for Congress’ effort to push a veto showdown over Keystone with Obama, Girling was more circumspect.
“We’ve tried to not to get involved in the political process,” the TransCanada CEO said, “but what we’ve said as well is that we welcome all opportunities to put this to a positive conclusion.”
Krauthammer On Obama, Dems: ‘The Days Of Hiding Under Harry Reid’s Desk Are Over’ [VIDEO]
With Republicans set to take over both chambers of Congress on Tuesday, syndicated columnist Charles Krauthammer said on “The O’Reilly Factor” Monday he cannot wait for the GOP to take the reigns and show that “the grown-ups are now in control.” Krauthammer also laid the wood to the Democrats in the minority and President Obama, telling host Bill O’Reilly their “days of hiding under Harry Reid’s desk are over.”
The conservative commentator also responded to Sen. Chuck Schumer’s Sunday comments on the Keystone XL pipeline, in which he suggested adding language to any bill that all of the oil used in the pipeline should be used in America. Krauthammer blasted the New York Democrat, calling his plans “so idiotic, it’s almost unworthy of talking about.”
KRAUTHAMMER: ”It sounds like Schumer is saying that, for the first time in living memory, we’re going to have amendments introduced in the U.S. Senate, which is a remarkable constitutional achievement and it’s because Harry Reid is gone. The grown-ups are now in control of the Congress. This idea that we should be using American oil in America is so idiotic, it’s almost unworthy of talking about. So what we’re going to do is we’re going to use the Canadian oil and if we export it, which we will because we have a surplus, we’re going to substitute gallon by gallon American oil, it makes no sense at all.”
“Look, I think what’s really important here is that Republicans are going to have a chance to show how retroactively for the last six years everything has stopped in the Senate. Democrats stopped it, Harry Reid stopped it and they effectively acted as a shield to make Obama look as if he wasn’t the one stopping stuff. Well now he’s going to be exposed because he’s going to have to exercise the veto. Schumer and the others could prevent a few of the bills from landing on the president’s desk with these ridiculous amendments on Keystone, for example. But I think it will expose them. But the days of hiding under Harry Reid’s desk are over.”
The Senate narrowly defeated a bill to fast track construction of the pipeline after the House passed it in November. After the vote, Senate Minority Leader Mitch McConnell, R-Kentucky, pledged it would be the first bill he takes up when Republicans assume control of the Senate later this month.
Despite Schumer’s belief that President Obama would veto the bill, he said that when it comes to the floor, Democrats still plan to offer a series of amendments to make it “more of a jobs bill.”
“Our Republican colleagues say that this is a jobs bill but that really is not true at all. By most estimates it would create several thousand temporary construction jobs and only 35 permanent jobs,” Schumer said.
The amendments his party might offer include requirements that the steel used in the pipeline be made in America and that the oil that is transported through it be used in America. They would also likely introduce an amendment to create clean energy jobs.
“Why create very few jobs with the dirtiest of energy from tar sands when you can create tens of thousands more clean jobs using wind and solar?” Schumer said. “Our Republican colleagues are doing what they always do: they’re appeasing a few special interests — in this case oil companies and pipeline companies and not really doing what’s good for the average middle class family in terms of creating jobs.”
As for how the amendments could affect the president’s response to the bill, he said, “These amendments will make it better but certainly not good enough at this point in time.”
Layoffs Begin as States React to Major Drop in Oil Prices
Given the major drop in the price of crude oil, states that are dependent on the revenue from oil and gas, such as Texas, Alaska, and Louisiana, are now preparing for the effect the falling prices will have on their local economies.
The Advocate reported that oil prices, which dropped from $106 a barrel in June, to $55.73 a barrel in December, experienced a “47 percent price decline in less than six months.”
According to Reuters, this major drop in crude oil prices was met with “at least a dozen U.S. energy companies” being forced to cut spending plans for next year, which is “bad news for states that rely on jobs, wealth and tax income they provide.”
The Associated Press reported that the Governor of Alaska, Bill Walker, “halted new spending on six high-profile projects,” on Friday, citing the state’s “$3.5 billion budget deficit, which has increased as oil prices have dropped sharply.”
According to the New York Times, in Texas, after “2,300 oil and gas jobs” were cut in October and November, Hercules Offshore in Houston has announced that it will “lay off about 300 employees who work on the company’s rigs in the Gulf of Mexico” by the end of December.
Reuters reported that following the layoffs, realtors in Texas are “predicting a sharp decline, up to 12 percent, in home sales next year.”
According to RT, Louisiana’s 2015-16 budget will be “$1.4 billion short, with 162 state government positions already eliminated and more to be discontinued.”
Dale Doucet, an energy trader for Brock Investor Service in Lafayette, Louisiana, told The Advocate that the price of oil could fall further, but he predicts that the cut in production, along with the rising world demand, will raise prices in 2015.
“When you go into these pricing extremes, it really stresses the system and exposes vulnerabilities,” Doucet said.
Kristy Nichols, the chief budget advisor to Louisiana Governor Bobby Jindal, said that when creating future budgets, they are re-examining everything in the oil and gas industry.
“Our approach to the 2016 budget includes a full review of every activity in every agency’s budget and the cost associated with them,” said Nichols. “Nothing is off the table at this point.”
While the current decline in oil prices has had a major effect, the New York Times reported that the situation today “could have been far worse if oil-producing states had failed to diversify their economies,” following the last major drop in the 1980s.